Devyser Diagnostics AB (publ)

Good day and welcome to the Devicer Q4 2024 earnings call. I'm Fredrik Dahl and the acting CEO of Devicer and would like to thank you everyone for joining our call today. On the call today we have in addition to myself also our CFO Sabina Berlín and our Chief Commercial Officer Tais Kipling. Since this is my first earnings call for Devicer, I will start with a short introduction on who I am and my background. I will then review our updated strategy before handing over to Sabina for a review of our financial results in Q4 2024. And then to Tais for an update on our commercial activities. I have been a board member of Devicer since 2021 and is the acting CEO since January 16th. I have a PhD in molecular medicine from Uppsala University and carried out the postdoc at Stanford in DNA technology development. After my studies at Stanford, I worked in startup scene in Silicon Valley in next gen sequencing and have co-founded both Halo genomics and Vanadis diagnostics that we sold to Agilent and Perkin Elmer. I have a background from both startup companies as well from large international corporations in both the research tools and diagnostic space. And I will remain as a member of Devicer board of directors. During my first few weeks, my team and I have focused on updating our strategy and it was reconfirmed to me that Devicer has a great potential with a lot of commercial and scientific talent. An overall goal for us in the coming year is to make Devicer a more efficient organization and that goal starts with a clear and more focused strategy. With this updated strategy, we propose to focusing on two customer segments. The first is our customer group in clinical genetics labs. In these labs, both research and diagnostics of patients within the field of inherited diseases is carried out. Many of our current products belong to this research discipline, such as our inherited cancer products, cystic fibrosis and diagnostics of cardiovascular disease causing genetic variants. We have a well established commercial footprint in these labs with long and good relationships with the leading researchers, as well as recognized commercial brand. We strongly believe there are significant more unmet diagnostic need that we can address in a systematic approach, together with our customers and scientific collaborators. Our ambition here is to become the number one partner and the one stop shop for these laboratories. The second customer group we would like to focus on is the transplantation lab and their patients. The fast growing diagnostic field has been subjected for a paradigm shift with the introduction of cell free DNA as a sensitive diagnostic marker to measure transplant reaction. By detecting transplant reaction early, more organs and human lives can be saved. Devicer has developed a highly competitive product in CF DNA measurement for post transplant analysis with superior sensitivity compared to competition. We currently have a partnership with Thermo Fisher to allow for faster market entry and our longer strategy is to continue to expand our portfolio in this field to become the pioneering partner for decentralizing transplantation diagnostics. So what does decentralization mean in this field? Well, today, the great majority of all samples are being shipped to large central service labs. These samples are prepared and analyzed by the central lab and data finally sent back to the local transplant laboratory. This procedure is subjected to high cost and long turnaround times. With Devices' Radiant Kit, we have an opportunity to bring the test closer to the patient at the local hospitals, increase turnaround time without compromising on performance. With that, I would like to shift focus to the fourth quarter results for 2024. I'm very pleased to announce that we had our first profitable quarter as a public company. And the theme for 2025 is to leverage our recent investments and continue to focus on profitability. With that, I would like to hand over to Sabina to share more details on our financial results for Q4 2024.

Thank you, Fredrik. Let me here give you a summary of the financials for the quarter. Revenue for the period October to December came in at 64.2 million SEC compared to 45.5 million SEC in the same quarter last year and 48.7 million SEC in Q3. A growth at .5% in the quarter brings us back to full year growth just below our target of 30% annual growth. All of our markets have performed well in the quarter and TICE will soon share more specific highlights from the commercial side. The trend over our historical quarters remains stable. Q4 showed the best quarterly revenue so far with a first time above 60 million SEC in a single quarter, catching up from the slightly softer Q3. We can expect some of the inventory buildup that we saw from Thermo Fisher in Q4 to impact their purchasing pattern in the early months of 2025 before partner sales pick back up again. Our EMEA region remains our biggest market and grow by 33% compared to last year during the quarter and just below 30% over the full year with our new and direct markets carrying the strongest growth. APAC has seen a small decline in growth but North and South America grew at about the same pace as Europe landing at a full year sales of 19 million SEC. During 2024, direct sales made up 65% of total revenue which is lower compared to the 77% of the sales last year as sales to Thermo Fisher has picked up. Distributors sales have almost doubled compared to 2023 for the same reason. The fact that direct sales being lower than the same quarter in 2023 is mainly due to the transfer of the last transplantation customers to Thermo Fisher in 2024. Outside of the agreement with Thermo Fisher, also our other distributors show a healthy growth during the year. Gross margins during the quarter is back close to 85% in October to December but remained just below 80% for the full year after the impact from our move to the new office and expanded production facility during Q2 and Q3. We were very proud of the first EBIT positive quarter since the company was listed. Even if EBIT was only 0.7 million SEC, it would have been a positive 6.9 million SEC without the provision for Italian payback that was made in the quarter. This payback fee was initiated several years ago when the Italian parliament imposed a law enforcing companies selling medical devices in Italy to make payments to the Italian state if medical device expenditures exceeded the regional maximum ceiling. During 2024, a decision in the Constitutional Court in Italy confirmed the law and the advisor decided to make a provision for the period of 2015 to 2024 and annual reservations for payback fee will be made going forward also. The positive EBIT result marks an important step in the path towards profitability which is under control and progressing on plan. As part of the journey, there will be quarters in H2 of this 2025 year that are less strong than H2. During the Q4, we also saw gains from the savings initiated in Q3 which impacted that quarter negatively. We close the year with 145 million SEC in cash and our liquid and I feel comfortable that our cash flow will turn over the foreseeable period as our focus on profitability continues. And with that, I hand over to Thijs.

Thank you Sabina. Q4 was indeed a great quarter in many ways as you just heard. We are continuing to make lots of great improvements across markets and especially within the US, including our partnerships with Thermo Fisher as well as CITED. During Q4, we received the expected order from Thermo Fisher, the largest in the history of our company. We are pleased to see the partnership continue to advance in the right direction. We recently had a joint leadership meeting with Thermo Fisher, including also our acting CEO, Frederick Dahl, who once again underlined the commitment on both sides to make this partnership a success. Both companies are ambitious and eager to build as large a market position as possible. Let me start with an update from our Clearlab in the US, where we during the past months have been working diligently to prepare for obtaining reimbursement for our CFDNA transplantation assay. We had a first pre-submission meeting with Multi-X and are on track to getting reimbursement during the second half of this year. Furthermore, we recently signed and extended the agreement with a UK-based oncology company, CITED, to continue through 2027 and with certain revenue commitments associated to the agreement. Just on this agreement alone, we will be doubling our revenues in 2025 versus 2024 within North America. Turning towards our momentum we have with RHD, we continue to be optimistic around the potential for this product within North America. Starting in Canada, I am pleased to see that Canadian Blood Services are expecting to reach clinical routine within a few months from now. Additionally, I am equally pleased to see that Hemo Quebec recently ordered their first set of RHD products to commence their validation. Within the US, we continue to be working with some large potential customers around RHD. If we win just one of these large opportunities, then we will be poking a sizable hole into the US market, which you will hear more about as we progress the year of 2025. Moving on to Europe, but staying with RHD, I am happy to mention also the recent Class D IVDR approval that we obtained late last year. Class D within the IVDR represents the highest risk classification within the framework and hence is also associated with the toughest data requirements. This is definitely a milestone for the company, as well as it's a clear differentiation within the market that I expect will help us with the continued expansion of RHD across Europe. Beyond this, I am equally reassured that managing the highest risk classification puts us in a solid spot for working with the FDA in the US to have products approved within the US market. We are committed to making the most of this momentum in Europe, and one of the next markets to adopt the testing first before giving the prophylactic treatment is our largest market, Italy. I expect to be able to share more good news within the next quarters around a first public hospital in Italy to take on our RHD assay as part of regional screening. The team in Italy continues to make impact, as you recently saw from our press release with the new tender for cystic fibrosis that we won for five years. And they are continuing to ride the wave that they have created for themselves, as well as the remaining Bivric markets are doing equally so. All in all, as you can see, the momentum is building, and I look forward to keeping you updated throughout the year. And with that, I pass the word over to you, Fredrik.

Thank you, Tais and Sabina. With the updated strategy, I'm confident we can build a solid foundation for Devicr going forward with improved productivity, customer focus and optimized investment spend. With a more focused and efficient organization, we are positioning Devicr to better serve our customers and patients, as well as our employees and shareholders. With that, I open up for questions.

The next question comes from Ludvig Lundgren from Nordia. Please go ahead.

Yes, hi, Fredrik, Sabina and Tais. A few questions for me. Starting off in the direct sales channel here, I think Sabina said that this was negatively affected by the pandemic. And I think that this is more affected by you transitioning customers to Thermo Fisher than in the transplant tests. Is it possible to quantify the cannibalization of direct sales and maybe the growth rate when excluding transplant in direct sales?

Okay, Sabina, do you want to take that one?

We're not fully allowed to quantify, but I think Tais can give a little bit more color on the direct sales and transition to distributor sales.

Yeah, I can do that. And as mentioned, obviously, we have in a couple of iterations now expanded the agreement with Thermo Fisher. And what happened in July 2024 was that we reached an agreement with Thermo to hand over the exclusive. We had an exclusive number of customers for Chimerism that we had kept out of the contract, but to enable Thermo Fisher to gain access to those accounts and broaden the reach within those. We agreed to carve those out. And that meant carving it out of our direct sales business and then reporting it in Q4 as part of Thermo Fisher, meaning that it's part of distributor sales, as that's how we are classifying Thermo Fisher. Overall growth, we have not commented on either for the respective businesses. So there I would have to defer back to the comments that we provided at the Capital Markets Day a few months ago.

OK, understood. Just a quick follow up. What like can you elaborate anything on like what these assets will be used for from Thermo Fisher? Is it for like clinical diagnostics or is this some validation batch that you deliver here?

Can you clarify? I'm not sure. Are we referring to the drop in direct sales and the other questions you just had?

Thinking about this large order then for transplant or assays basically. Like will this be used? I suppose in Europe most of it will be used in the clinic, so to say. But is there a boost from some initial validation batch and so on in this quarter?

It's all of the above and not only restricted to Europe, but obviously there's expected to be quite a number of this utilized for demoing and onboarding new customers, as well as providing existing customers who are already in clinical routine.

OK, thank you. And then jumping to side, because here you said that you have extended your agreement. Reading your own old press release when you initiated this partnership, I think you estimated a six million sales from this agreement in twenty four. Like, is it a doubling from this amount that you're referring to here when you say that you will double the business in twenty five or is it the full sixteen million America sales that you reported here for twenty four?

It's a combination. So it's the direct sales that we have within North America and not the number. Because the number you see for North America, I believe, are covering the whole of North America sales, including Thermo Fisher. So this relates to what is in our own remit and is a sizable incremental increase. We're not providing more specific guidance on exact numbers.

Understood. But could you say anything about so you estimated this to be about six million on a twenty five million contract? Could you say anything about how much of this is delivered, so to say?

In twenty four or twenty five, or can you specify? Twenty four. We've been following the agreement pretty pretty to the to the letter. And now we have expanded.

OK, very clear. Great. I'll jump back into the queue.

Thanks. The next question comes from Ulrich Trattner from Carnegie. Please go ahead.

Thank you very much. And a ton of questions on my end, because to be honest, it looks pretty messy. And if we can just start off to get some some clarification, additional clarification on the direct sales development and how worried we should be. I heard what you said, that you card out the shimmer is now reported under distribution. But taken from your slides of the capital markets, they adding that back like by a quarter, it still looks like a really poor performance in direct sales. So is there any sort of fundamentals that we should be worried about or trends shift that sort of direct us in in twenty five to direction where you're not growing and you're declining in sales as well as I guess we should extrapolate the direct sales in Q4 into the absolute numbers for twenty five, given that it's been transferred and it's hitting numbers now and will be hitting numbers going into twenty five.

Should I start? Yes,

please continue.

Yeah, so I can only appreciate that. It's difficult to see through, obviously, all the details here. We the guidance I can give is that we had a fairly attractive number of customers with associated revenue that we we saw would be beneficial to pass over to Thermo Fisher that had a double digit million revenue in Swedish donor associated. And you can't you can't you cannot dissect that and take out a quarter and then add it back because it has some seasonality. But all in all, that's nothing that that makes a lot of sense for us and for Thermo to hand that over to Thermo Fisher. That will only increase and accelerate the overall momentum. Also utilizing our solid organ tests. That was part of the rationale. To your question on direct sales from from my side, you know, we are right on plan with with all our direct markets. There are no markets going back. We have we're right on plan. Right. And that is a sizable growth number. We have we have not disclosed exactly what what that looks like. But it's it's promising. It is exactly as we had been planning. And I'm only highly optimistic when I look into the funnel of the direct markets. I hope that can initially clarify some of the questions.

Sure. Let's pull up on this. So giving that fact that you have transferred customers to Thermo Fisher, I guess this only refers to the transplantation, the chimerism and accept customers or products. But then you talk about ordering sort of stocking from the Thermo Fisher side and expecting or sort of guiding for for sort of turning out this inventory for Q1. But I guess that the customers you have transferred is not part of the order stocking. Right.

Yes. And no, you can argue obviously those customers are from our side ordered and billed at a different revenue basis. And so they may they can supply those customers with the kids. But then there's this, you know, in the agreement, certain considerations that we are fully acknowledged at end user pricing for those specific customers. And that's going to be with a deferred revenue logic. So we are in that sense, delaying that part of the revenue by a quarter or so. But that's fully as per this design and fully on plan and meant to support the acceleration of that business.

And what's the risk of sort of churning out the inventory will linger into Q2 and Q3 that Thermo Fisher is now sufficiently covered for an entire year?

They will be low. I mean, they will do as guided. This will have an impact on Q1 for sure. It may go into parts of Q2, but there's nothing here indicating that there will be any softness for the year and beyond either.

OK. And then on the extended agreement with PsiTED, these are obviously not your own diagnostic tests. And you talk about positive on gaining reimbursement on your own tests in the US mid-year this year. But how should we interpretate you using the volume in your labs to a non-proprietary product? Is this a priority or do you have that type of excess volume in your CLIA lab in the US that where you feel that you can cover the volume that you will make up your own with the expanded PsiTED agreement?

Thijs, you can continue here.

Yeah, it's a very clever way of doing business, I'd say. It's a highly attractive, profitable business model doing services for other companies like the partnership we have with PsiTED here. So that will go on. When you look into the capacity, there are no risks in our capacity for capitalizing and doubling down on the products that we are soon bringing out with reimbursement. And to your point, we are on track with what we call the transplant trace of the CFDNA solid organ test that we are launching through our CLIA lab here later in the year as we get reimbursement. And we expect that to also gain quite attractive revenues. And here again, I defer back to the commentary we provided at the Capital Markets Day on how we are approaching the market in two ways. Now with the kit, and as I also had a comment on the slide, we may even go together with Thermo Fisher for them to lead the channel for selling the services. And then we have the FDA project ongoing. And those two we expect will be able to carve out a fairly sizable market share in the US.

Yes, and you mentioned curving out if you are awarded a few of the tenders that you are participating in. And you also mentioned that Blood Canada is now starting to run clinical samples from Q2. But we have yet to see any sort of announcement of you being awarded the large tender that we've been talking about for the last few years. What does that information that you provide today, what does that entail in terms of timelines and then sort of size of such a tender, etc.?

If we look into the Canada market, Canadian market, you need to kind of let's break it up into two sole providers that we're working with. Hema Quebec that we announced a couple of years back even covering the region of Quebec. They just ordered their first initial batch of products for validation. And that means that now they have concluded they made a restructuring and a remodeling of their premises that was sizable and took a lot of time. Buying in new equipment, designing the whole workflow in accordance to the device or RHD workflow. Now that is designed and in place and they are starting validation. I don't expect them to reach clinical routine anytime before late this year, but they will continue to order for validation. Moving into Canadian Blood Services, which could or could not cover the rest of Canada. And I think that the other region you're referring to still being a question mark was the region of Ontario, which is a very sizable region of Canada, holding 16 million citizens out of the about 40 million in the nation. So very sizable. Canadian Blood Services are have already initiated validation. They are about to complete it. And as I mentioned, they are soon to initiate clinical routine. So that's great. And that we have been we're still working with them on signing off a few final pieces before we will issue this more formally in the press release with more information. We have also positively heard indications of them being a part partly or fully awarded. We don't know yet, but the Ontario tender. But since there are still uncertainties, I can't give you more specific information that what I'm sharing today. But it is looking from my part of the table, very attractive and very positive and as we had planned.

Great. And last question on my end, and that would be addressed to Sabina. And it's great to see progress on EBIT. And I know that the I can just think for the Italy levy. It looks better, but it also looks a bit boosted by higher capitalized R&D and an FX tailwind. So if you can give us some rough guidance on what to expect in terms of net capitalized R&D, because it has close to doubled year over year 24 versus 23 and just what it entails for the probability near term as well.

Yes, I can confirm that we definitely had some tailwinds when closing the year and the increase in R&D mostly comes from gain deficiencies in ways of working, including the new office that we have been able to strongly focus on getting our processes and we're working in the R&D structure up and running. And we will have a continued strong focus on profitability and on stable cash flow during 2025. I think that if we want to guide even further on the quarters, that would be for Frederick to decide.

Yeah, great. But in terms of capitalized R&D, where should we should we expect an extrapolate to trend that we're seeing? I capitalized R&D doubling sort of again in 25. I don't think

it will double year over year in a way that we've done between 24 and compared to 23. But there will definitely be sort of continuing on the path that we saw in Q4. It just us having our new way of working in place. So we will have a strong R&D and we will continue to capitalize the work we do when your products.

Great, perfect. I'll get back into your queue. Thank you for taking my questions.

Thank you.

The next question comes from Oscar Bergman from Redeye. Please go ahead.

Hi guys, I got a few questions. I could start off with, I guess, direct sales. I just wanted to get an update on the conversion of the supermarkets and maybe some comments on how you think Q1 could develop in comparison to Q4.

Thijs, you can take this one.

Yeah, I mean, we have converted the markets we believe are relevant to be converted to direct sales for the time being. And then there will be a phase of which we are building indirect markets to the maturity needed before we turn them into direct. So there are no real changes in that moving element. Direct sales from my side is looking, as I said initially also, it looks promising. You know, there's nothing that would make me see this and the outlook more negatively on the contrary. So we have already announced the press releases in the first month of the year. I can be sure we are working on a lot of additional deals. It's across a number of markets and across a number of products within, especially the European direct markets, leaving out this updates I've already given related to both the US and Canada. So, but I can't give you more concrete guidance than that.

It's a number of concrete guidance. I guess it's unnecessary if I ask you if Q1 sales are likely to be more in line with Q1, Q2 2024 than they are to be aligned with Q4 sales.

Well, I think in other words, what I can comment on is the great thing without business is it's a very stable run rate business. So that means it's pretty, it should be fairly easy to do. The baseline is stable. And then we are highly competitive and relative companies. We continue to be winning over new customers and new tenders. And that will be the challenge on your side, obviously, to projectify. But as mentioned, I'm very bullish on the potential. I don't believe we have, we're not even beneath the surface yet. We're still scratching. There's a lot of growth for us to be taken out of these markets, but it will take time. But the trend is continuing. There will be bumps along the way, but it's going to be a very clear and onward, upwards going slope.

OK, and then the February sales. Mr. Mörning, if you operate with any volume commitments from Thermo Fisher, or will they order when they feel like ordering?

We have not disclosed the terms of the contract, but obviously we have certain guardrails in the contract to steer performance and also transparency and forecasting ability, right, which is relevant on both sides. So we remain having a very close collaboration and conversation with Thermo Fisher.

OK, and this inventory buildup, I mean, it seems to be mostly focused for the European market. If you look at the sales from the different geographical markets. And I'm just wondering if Thermo Fisher is having a strategy in this early launch phase to target the European market, or could we expect also an inventory buildup order from Thermo Fisher focused on the US market?

It's easier to go, obviously, continue the momentum in the European market as we've already built, right? You need to take into consideration that the US market is different. And then going back to Fredrik's initial slide on decentralizing. Here we're bringing in a paradigm shift. So we are up against very established services market. And, you know, to break into that and changing patterns and routines takes longer time. So it has longer pathway in the US, and that's why we are also investing into the FDA program. So, but the inventory will cover both of those markets.

OK, but I suspect that we should expect most of Thermo Fisher sales for 2025 to be directed to the European market.

I can't help you any further, unfortunately.

OK, that's up to me then, I guess. And then a final question on investments in Q4. We're quite high, 20 million. I'm just wondering if you can elaborate on that figure and is it a result of increased activities regarding studies and so on for the FDA approvals?

Sabina, do you want to take that one?

Of course, it's a combination of several aspects. It is R&D buildup as in normal work done, ours created in-house. It is studies and preparatory work for the FDA program. And it's also investments into software as we have transitioned to both a new ERP and new CRM during the year.

OK, and this figure stands out if you compare it to the other quarters. Is this something that we should expect for Q1 and Q2 or should it come back down?

Similar to what I said before. I mean, all the work done for in-house in terms of related activities related to the new office, activities related to software, they are 2024 only. But we will see costs continue for the FDA program as well as for our roadmap to increase our portfolio. So we should stay for R&D at a similar level as in Q4.

All right. OK, thanks. I'm happy with those answers.

Thank you. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

OK, so with no more questions, I would like to thank everyone for joining today. And with that, I think we're going to close the session.