SenzaGen AB

Welcome to RedEye and this live queue with me here on stage. I have Sensagen's CEO, Peter Næhlstedt. Welcome, Peter.

Thank you, Gustav.

You will first present the report and then we'll have a Q&A session. And don't forget that you can also send in your questions in the website. Thank you very much.

Great to be here and welcome to the Q4 report presentation by Sensagen. My name is Peter Nelstedt. I'm the CEO of Sensagen. I'm on my fourth year as a CEO and we're about building the future of non-animal testing. So agenda of today's presentation is a short introduction to Sensagen and our group. Then I will talk about our financial performance in 2024 and in Q4 and do a little bit of a deep dive into our main growth engine, the groundbreaking and unique technology platform Guard. Then after that, comment on our acquisition vitro screen and how they are doing and what we are doing to strengthen them for future growth. And I'm summing up with our focus areas for 2025. So we are leading a global shift where companies are transitioning into ethical and non-animal based testing methods. We have two main areas where we have a focus and solutions. Toxicity or safety testing and efficacy testing where you can check if products are doing what they're supposed to do. So we provide high-tech non-animal test solutions and that supports ethical practices and sustainability but they are also bringing more efficacious tests to market because the in vitro tests and the high-tech non-animal tests we have have a higher predictability than animal tests. We are a group of three companies. Our main company and head office is in Lund, Sweden. We have 20 employees where we are focusing on non-animal toxicology. We have a testing lab and an R&D lab and that's where we have developed the GARD platform and continue to develop the GARD platform. Our other subsidiary is in Milan called Vitroscreen and Vitroscreen has a slightly different focus more on the efficacy side. There is also a testing site and an ownership of a platform called Aura. There are 10 staff in Vitroscreen at the moment. And finally, we have TalkSub, a regulatory advisory group made up with free staff and consultants, which can advise our clients on which tests to perform and also provide help with documentation our clients need. We operate in a high growth market. The market size is big. The in vitro toxicology market is estimated at almost $9 billion and it has been growing with 7%. The addressable part, if we look at the platform that Sensagen and Vitroscreen has, is in theory $3 billion as an addressable market, so a huge market. And we expect the market to continue to grow because there are more animal testing bans. There is an increased ESG engagement and there is a need from industry to have more human relevant tests. The key market that we focus on is Europe and the second market is North America. And we have a pretty wide industry footprint with our solutions. So we address the cosmetics industry when they need to test new cosmetics from a safety point of view. We also address the medical device sector which also need to perform safety testing of new devices. The chemical sector obviously for consumer products and pharmaceuticals and nutrition and food additives are all industries that we have a representation within. And I will now go into the other part of the presentation, which is about the financials of 2024. 2024 is a year where we have a fantastic growth of our Guard platform. It continues to show strength, building up a customer portfolio, and our VitraScreen platform is now entering into a new growth phase. So in numbers, we achieved sales of almost 58 million, increasing the sales with 8 million over the year, or 16% growth. That's driven by our guard platform, which almost reached 40 million. It's 38.8, and that's a growth rate of 53%. We worked very hard to scale up our operations in Lund at that speed, and we are very happy to be able to deliver that. The gross margin for the year lands at 67%, small decline driven by a temporary reduction that we saw in Q4. And we have been delivering this growth at a stable operating cost level. You can see the operating cost land at 47 million, an increase of only 700,000, meaning that our EBITDA loss was cut in half. and looking at the graph where you see 2022, 23, 24 you see the revenue increase and you see the EBITDA losing and you can see that we are adding efficiency to our operation. Also very happy to report that our cross-selling this is where we are selling each other's solutions increased it with a hundred percent it doubled to four million Still, 4 million out of 58 may not be so much, but the growth of two is almost a third of our group's growth. So it's an important initiative for us to keep on cross-selling. Going into the Q4, we set the new record sales for Guard, 10.9 million, first time over 10, almost 11, 41% year-on-year growth in Q4. So we are very pleased with the continued strong Guard development. However, group sales went down 5% year on year. This is because we had a weak sales development at Vitroscreen and also a very strong comparative quarter for them. So Q4 2023 is Vitroscreen's best quarter ever. And we were not able to deliver that. And I will come into the reasons and what we're doing about it in a little while. We also saw a temporary decline in the gross margin, so we had a 56% gross margin in Q4 isolated. This is due to the mix at vitro screen, but also a raw material adjustment that we had to do, which has to do about the second half accruals. The operating cost in Q4 decreased with 20% due to changes that we have implemented at our subsidiary. So this is bringing the overall picture to a sort of EBITDA neutral situation quarter over quarter and a good situation overall with our team and a record for guard as I said. I just want to give a short note. I'm not going to go through the whole balance sheet of Sensagen, but I want to point to our very, very strong cash situation. So we have almost 40 million kronor of cash. It's a substantial increase from one year ago because of a directed issue we performed during the year. So we have a very stable and very high equity ratio. If you look at the equity as a percentage of our total equity liabilities, you can see that we have a very solid company. I want to comment a little bit about Guard and what is driving the growth. So we saw in this year a sustainable high level of growth for Guard and it's driven by expanding the customer base, but actually also expansion of volume per customer. So in 2024, we added 47 new clients to the client base. It was 32 in 2023, so we are accelerating the customer acquisition. We have 72% of revenue from returning customers. That's about the same level we had in 2023. And this new customer acquisition meant that we have more than 100 purchasing customers in the year. That is contributing to the 53% growth but also that we have a 15% average increase of a volume per customer for the year. So we know that the customers increase in volume and I have an example on the right hand side. This is a top 20 cosmetics company in the world. We started to sell to them in 2023 with evaluation phase orders, and they have now standardized on guard skin. And we have orders during the year of 2024 of more than one million. And it's not one order. They are coming in through the year. So we're entering a new phase where we sort of are less dependent on large individual orders because we do have a pattern of a repeat business from a client base. Why do we have a repeat business? We have great technology, which answers their need, but we also have a very strong net promoter score. We measured this from almost 30 customers. We have a net promoter score of 86. It's an increase. I must say, I couldn't believe that we could increase from 81. I've never seen such high customer loyalty and net promoter score in a business. And the customers on average rate us at 9.2 and 9.3 on a 10 grade scale. So I'm very confident and happy with this portfolio and the development that we will continue to see. You can see here some examples of world leaders that test with Guard. And these companies we can mention because we're also doing publications with them. This is a very important part of our marketing mix where we are working with clients and partners. We publish results together, thereby influencing others. Okay, so going into a little bit the situation at our subsidiary Vitroscreen, we have a very weak second half of 2024 due to our leadership transition. The acquisition of Vitrus Green, which I regard as very successful because they've added to both the profitability and our growth for three years, happened in 2021 in November. We signed a three-year contract with the owner with the goal of continuing the operation as a standalone company, but with a great collaboration between the companies. And as we entered 2024, the contract was expiring and we have replaced the management in the second half. So we have a great new general manager with international experience and strong motivation to complement a lab manager that we recruited from industry. Both of these have been in place now since November. And we have also made two recruitments of business developers. And these are two new hires who both come from industry with a track record. They joined now first week of February. So it's very new, but highly motivated team and engaged and ready to go. And actually this whole replacement of the management and the business developer addition is resulting in a lower cost base of the company. So I'm certain that the activities we've done will return the vitro screen to growth. And also it will be easier to attain the profitability now with this lower cost base. All in all, vitro screen, week, second half, leadership transition, but a good position going into 2025. That brings us to 2025. What are we going to do? So we are going to continue to drive sales through science and innovations. We work a lot with publishing together with our clients, publishing and getting peer reviewed articles. We also decided to expand the commercial organization at Sensagen. Now we have the opportunity to do so as we have a growing customer base and interest from many different countries. Turn around and launch a commercially focused organization at Vitroscreen, which is ongoing. We've already put the people in and now we're going to launch them into the market. And then expanding our test portfolio with getting GARD approved for medical device, getting our dose response platform as a standard asset to OECD. These are goals that we are driving and they will contribute significantly to our growth. And whilst we do this, we keep our long-term strategic M&A agenda. So I look forward to leading this company as we head into 2025. I think the company and the group is stronger than ever, and we're really well equipped to continue our growth journey. Thanks a lot.

Yeah, we're on. Okay, thank you very much for the presentation. We have received a few questions from investors and I also have my own questions. Maybe we can just first start with the quarter sales of 15.5 million. Or maybe what is your view of those sales numbers?

I think you have to break it up into two pieces because it's both salt and sweet. The sweet part is the guard, almost 11 million. It is definitely on the track where we want the business growing. 53% is a fantastic number and the 40% plus in the quarter I think is a great achievement and something where we have our ambitions at. Then, of course, we were not able to fully recover the drop at VitraScreen, which is taking us to a 15 and a half. So, of course, with VitraScreen performing at the level they did a year ago, we would have had a totally different quarterly sales number. But that's how it is. At this particular quarter, we could not get both businesses to deliver.

And if we talk about sales for the full year of 2024, 57.7 million. This can be compared to 49.9 million last year. Is this the type of growth that you expect also in the future?

I think this 16% growth is not bad because again the 53% growth of guard is a great achievement. But totally the group should grow larger, grow quicker than that and I think we've been able to do that in the past. And the explanation for it is of course the weak second half with our Italian subsidiary. I can't stand here and say that I'm unhappy about the total development because the guard is really a strong and well positioned into the market and I'm very happy with the team delivering such result. But of course, we would have wanted a more stable development at Vitrescreen in the second half.

And you talked a lot about feature screening in your presentation and also in this Q&A already. But maybe we can turn focus to Talksub, how they performed junior.

Talksub is returning. They actually had a good quarter four. So the business is not so large as you know, and may not have a big impact on our numbers. But they recovered well in the fourth quarter. And after having a struggle with the MDR delay that you and I discussed a while. But now the MDR delay is no longer a delay because the deadline is approaching. So we see the market coming back actually for the advisory services.

That's good. Also one thing that I noted in the presentation and also in the report was about the virtual screens performance. You said that one of the reasons for virtual screens performance was the changes in the management and I don't really understand that. How does that affect order flow and so on?

No, I think we've had an uncertainty in the organization and it's a small organization and a relatively small team. So with that uncertainty, we haven't had a clear enough direction and a clear enough sales focus, in particular in the sort of Q3. And then as our lead time typically is two to three months, it also impacted Q4. So that's what I mean with a transition. And when do you expect that vitreous green could reach normal sales levels? We want to get them back into where they were sort of on a growth pattern as quickly as possible. As I said sales cycle three months, three to six months. The sales people were just employed so there you probably have an idea of the time frame.

We also received a question here from an investor about if the market is price sensitive and also would a lower gross margin boost sales? So if you lower your prices would that boost the sales?

Yes. I don't think so, because if we lower the sales, we also need to sell a lot more tests. And we have priced Guard, I think we did it right. We have a 20% premium versus other simpler models. It's a premium that makes us make 70% plus gross margin, which is good because it's good for the cash flow and for the investments into the company. But not a high enough premium to scare away customers because of price. So I think we have a good level where we typically don't lose on price.

Also another question here. When do you expect to become EBITDA positive for a full year?

Yeah, we don't give a forecast about our financials at the moment. But I mean, we said that we wanted to get into EBITDA positiveness last year. We did it for Q1. Couldn't do it, unfortunately, for the fourth quarter because of the developments discussed. But with a company where we have both Sensagen and Vitroscreen delivering this relatively low cost base, I think it's not far away.

And also if we look at the customer base during the fourth quarter it increased by 16 customers and also for the full year it increased by 47 new customers. How many of these are top 100 customers because that are the most important ones?

Yes, you're right. We have a very clear focus and strategic focus on acquiring in particular customers, which you named the top 100. I think we also named it. What we mean with that is they are one of the 100 largest in their respective industry. So we know that that type of clients are both recurring and they have enough R&D projects to be sort of a recurring revenue stream. So we are focusing on those. and yes we got 47 new out of those 14 are sort of top 100 clients we had 30 out of we had 30 top 100s a year ago so meaning that we now have 44 in our customer base but doesn't mean that we have 44 out of 100 and we're almost saturated because the top 100 is in three different industries so

But is the returning customer rate, is that the same for the top 100 customers? Is it also around 70%?

No, no, it's much higher. It's much higher. It's 90% plus for the top 100. Because of course we value the relationship we have with smaller biotech clients and the innovative companies that come to us for testing. And we definitely do our best with those clients as well. but they might be a one product company. So when they have tested, they won't return until it's time to develop a new product and that might take years. So that's the reason why we want sort of a focus on the larger clients.

And if we move on, you also disclosed a cash position of 39.6 million. You talked about that in your presentation. Do you think that that will cover the business both in a defensive and an offensive way?

It covers our needs to grow the company organically. So we have enough cash to expand the sales force and complete the R&D projects and satisfy our working capital needs. So we have enough cash. So that's why what I mean what we are sort of strongly equipped as we go in because we have enough to deliver growth. Meaning that other initiatives might require financing, but that's a separate sector, not really a short-term focus of us.

And I'm also thinking about the licensing deal in the US. You announced that in Q3. Maybe you can share an update on that one.

Yeah, sure. We trained them relatively immediately into Q3 and Q4. And then we worked with transferring the cell line into their lab in the fourth quarter. I think we're getting that set up. And they have started to do their internal testing. So no commercial customers with them yet, but they should deliver part of our growth this year.

Yeah, great. I can also see that we have received one more question here from an investor. Let's see here. Can you explain what is meant with raw material adjustments that affects the gross margin in Q4? Also, how big part of the poor gross margin would you say is related to vitro screens versus raw materials?

So the raw material effect, it's late incoming costs that were not accounted for in the right quarter. So it's a sort of a mix between Q3 and Q4 question and the reason is partly also attributed to the management change because we also changed the CFO in November when we were still not having a complete Q3 result. So it has to do with the balance between on the second half of the raw material allocation at vitro screen so it's not an effect from Sensagen and it also a little bit of product mix so the margin varies depending on where you have sold into and which industry and which test so it can vary and it was a low quarter already but of course not at this level without the effect. So the effect is on the vitro screen. I think it's important to realize it's a temporary effect. And since again, the guard business had a margin of 68 in the quarter. That's a couple of percentage points down from the 70, which we sort of have as a sort of a baseline gross margin. But I think there are no reasons to worry about that. We had two projects with large top 100 clients, which are more development-like and as such were discounted. So that's the reason.

Just another question that I thought about. When you say that you receive new customers in a quarter, for example, this quarter, 60 new customers. Yes. When will orders from this be disclosed? Is that already disclosed in this quarterly report or what does it look like?

Yeah, we recognize the revenue based on the completion status of a project. So as we got the project, we also started to work. So partly it's recognized in the quarter, but not fully.

Also another question I'm thinking about the market, the market trend towards non-animal testing alternatives. Could you share an update on different market trends that you currently see?

Yeah, I think the sector which are now moving into a more non-animal base is medical device and European market is in particular, I think, advancing rather fast to adoption of non-animal test methods. I think the cosmetic and chemical sector are already there with bands across industries. So those continue to develop and technology and biotech innovation around pharma. I think funding for biotech is coming back. I think there is a need for better and more advanced organoid, spheroid, lab-on-a-ship type of models for pharma to also transition some into non-animal testing. And I think it's moving in the right direction. I should say that we are also looking at assessment of the market and the market numbers I presented went until 2023 so we will soon present a new outlook. But from what I can say is that the growth will continue at the level we saw in the previous period or slightly quicker.

Let's see here. I can't see any other questions from investors. So maybe you can just summarize the presentation and the report. What expectations should investors have of Sensei and during this new year?

I mean, we go into 2025 and we, as I said, we're more strongly strong than ever. We have great balance sheet, great people on board, great technology. And this customer base that we've built up with loyalty means that we have stability in our revenues. So investors can expect us to keep on growing and getting share from an organic point of view. If we can move some of these R&D projects closer to completion, the ISO and so on, we can expect to see an even stronger growth. But without it, we also have enough to keep on growing and we have a very sound business from a cost gross margin point of view. So all in all, I want to summarize like that. We've had a good 2024 from a guard perspective. So from that point of view, since that's our main technology, it's also a great year for the company. A little bit of a downturn isolated to our subsidiary, but we have both the plan and activities that will restore the growth.

okay yeah that was the last question thank you very much thank you