Gentian Diagnostics ASA (GENT) Earnings Call Transcript & Summary

So very good morning, and welcome to Gentian's Q4 2024 Results and Earnings Presentation. My name is Matti Heinonen, and I'm the CEO of Gentian. And here's the important notice text. So before we go to our quarter 4 and full year results, I want to talk a little bit about and refresh what Gentian is and what do we do every day to make this mission statement true to our customers and their end users. So at a glance, we are a medtech company that is targeting a fairly large $1.8 million (sic) [ $1.8 billion ] serviceable market, in diagnostic market and especially those segments that are growing higher than the market itself, 5% to 10% pace. We have very focused strategy. We have a lean business model and appealing value proposition and I will talk a little bit more about those shortly. Our past growth and future growth leans on industry leading capabilities. And we have especially strong focus in in-house R&D and operations. We are, as you can see from the picture on the left-hand side, the company that is at commercial phase and also making profit. And obviously, we come back to that soon. Our business and success relies on trust between us and our partners and thus that's why we have extremely high focus on quality standards and also on ESG. So what is it what Gentian does and why does it matter to our customers? At the moment and still very many clinically relevant tests are actually available only on slow and inefficient, sometimes even manual platforms. We leverage existing open-channel instruments and what we do is that we convert these slow and inefficient tests to these high throughput analyzers with our expertise. And it's really important to understand the existing instrumentation and open-channel, which means that also other tests than those of original instruments manufacturers can be used in this test and this is the feature that we use. As a result, our customers get faster results and eventually that can and should lead to better treatment decisions by healthcare providers to patients. The labs, they get up to 10x improved efficiency and obviously then cost savings. We operate with a lean and cost-efficient business model. Our primary channel and commercialization channel is to partner with the global IVD manufacturers and companies. We build strong and long-term partnerships with them. Secondly, we can use and do use distributors in those markets where we don't have other presence, but we are not totally detached, obviously, from the market. We have also our own salesforce and business development presence in Europe, in the U.S. and in China. So we use our focused strategy to target this large existing market and we do it through our world-leading knowledge on a technology called PETIA, which is one immunoassay technology that is especially suitable for these high throughput analyzers. And we are -- so the strategy is that we are highly focused on the PETIA technology. We address the customer needs, not only through in-house R&D and operations or production, which is already very important and not always the case. But we also create and produce clinical data to support our assays and we can help or do the registration of the products also. So we offer much more holistic package to our customers than many of the competitors. We are leveraging the key trends in the healthcare which are growing volumes, cost pressure and market consolidation. And of course, we want to have long-term sustained growth and we do that by having a diverse new product portfolio. We are investigating all the time technological improvements to our current technology, PETIA, but then obviously we are looking and testing also other adjacent technologies in addition to PETIA. We operate mainly at the moment in 4 key clinical or disease areas. Inflammation and infection are closely related, then kidney diseases and heart failure. Just to mention a couple of products. So Cystatin C is our oldest product and really the cornerstone of the company, launched already in 2006 and it is used to diagnose kidney disease. fCAL is the fecal calprotectin that is an inflammation marker. And that is together of fPELA commercialized by BUHLMANN, our Swiss partner. And fCAL is used to diagnose the inflammatory or inflammation in the bowel. We also are investigating calprotectin in serum and plasma and that's the GCAL product that we have already launched and that is in market development. We are focusing there both on infectious diseases and prevention of sepsis as well as autoinflammatory diseases like rheumatoid arthritis. And then last but not least, we have in late development pipeline NT-proBNP, which is a cardiac marker to detect heart failure. And our long-term success is mainly driven by these key drivers. So we aim to grow our established products, which are already 5 by growing them 20-plus percent annually. We are proving the clinical value of GCAL asset and working really hard to bring NT-proBNP to market next year. Beyond this, obviously, we want to have a steady stream of new high-impact products and that's why we have a proof of concept going on in the company to come up with next tests to launch. Then commercially, we have a goal to secure on average 1 new contract with a global player per year. And then a couple of profitability drivers or KPIs, we want to grow our gross margin to 60% or plus level and also have long-term EBITDA margins of 40%. So with this one, I'm happy to move to the highlights of quarter 4 and 2024. So fourth quarter, we had record sales, so highest quarterly sales ever for Gentian and also profitability improvements. We recorded sales of NOK 42.6 million, which was 14% over the same quarter previous year. EBITDA was NOK 8 million. Gross margin went up to 56% from 43%. And especially, we want to highlight in quarter 4 the U.S. sales that doubled compared to the quarter 4 in 2023. Additional highlights, fCAL turbo sales increased 34% already from a very high base. And NT-proBNP test is progressing as planned and well, but I will come back to that later with some more details. Full year, we recorded again sales of NOK 152.1 million and 13% growth over the previous year. EBITDA went up almost NOK 25 million from NOK 3.3 million the year before, so significant improvement. Our gross margin also on average was 54%, up from 47% the previous year. And for the first time ever, Gentian's Board of Directors is proposing a dividend payment from the company. Some additional highlights I want to flag here are the -- what happened last year is the new kidney guidelines, so-called KDIGO guidelines that were updated a year ago and are now recommending the use of Cystatin C in kidney disease. And that's a trend we are absolutely now leveraging and using. Then our BUHLMANN, our partner for fPELA and fCAL. As we communicated, they signed a global agreement with Beckman Coulter for both of these products in late Q3, early Q4. Last year was also a year of changes in the company's top management. So first of all, our previous CEO, Hilja Ibert, moved to be and take the role of the Chairperson of the Board. I came to company early October and acting -- taking the role as CEO. But in addition, we also have a new Chief Commercial -- sorry, Chief Technological Officer joining us and a new HR lead. So overall, we strengthened our leadership team last year. With this one, I hand over to Njaal Kind, our CFO, and then I come back to discuss more about the product level performance and then touching also the NT-proBNP achievements. And by the way, throughout the presentation, feel free and please type your questions to the Q&A box. So not chat box but use the Q&A box and we will take the question-and-answer session in the end of the presentation. Njaal, over to you.

Thank you, Matti. Good morning. I will give some more details on the financial figures, giving you a rundown of the fourth quarter and also some of the year-to-date numbers. So today, we report revenues of NOK 42.6 million, which is a new record level for sales. And the main driver behind that is fCAL turbo, which increased 34% in the fourth quarter and has shown 42% growth in 2024 versus '23. That's a very, very strong development for that product. On a geographical level, we see that our efforts in the U.S. is starting to pay off. We doubled the sales in the U.S., although still at a low level, it doubled from NOK 2 million to NOK 4 million quarter-over-quarter, fourth quarter '23, fourth quarter '24. And it is up 40% year-on-year compared to 2023. Europe, also decent growth, 22% up on the quarter and 25% up on the year. While Asia, we have seen some weakness where we have, in fact, about 30% lower revenues than the corresponding period last year. When it comes to Asia, this is solely related to China and Cystatin C. So if we look at all other regions and all other products, we, in fact, we have good growth. We will touch upon it later, but we do now see early signs of recovery in China. So there is some optimism around that currently. If we then look at the products, we see that Cystatin C is essentially flat compared to last year on a quarterly basis and it's down about 10% compared to last year. Again, this is only related to the situation in China. fCAL turbo, as we mentioned, is up and it is now our largest product, NOK 61 million for the year compared to NOK 43 million last year. I would also like just to highlight the other category. We will give a few more details on that later. We have a bucket of smaller products. All of them are growing nicely. Both cCRP and fPELA have shown good and strong growth in 2024. Jumping right to the cost. The OpEx level, as you can see, we have very stable OpEx despite having quite good growth. If we adjust for capitalization and also the impairment that we recognized in the fourth quarter of last year or '23, sorry, we see that the underlying spend is essentially flat. It is about NOK 80 million for both 2023 and 2024. So we are satisfied with the cost development and the cost discipline in the company. Looking at margins, good improvement in gross margin. Just as a reminder, our long-term target for gross margin is 60% plus. So we are not very far away from the target area there. Looking at what has impacted the gross margin favorably this year, it is, of course, the product mix. Less sales into China is, in fact, resulting in increasing margins for our part. We have spoken about earlier cost improvement initiatives. They have been now fully implemented and they are giving good effects. And also the productivity gains, meaning scale-up initiatives that we have completed during the year. Looking at EBITDA, we also see a strong improvement. Our target -- long-term EBITDA target is 40%. So we are halfway there when we look at the fourth quarter performance. Obviously, a higher revenue base is supporting that, together with an improved gross margin and a stable OpEx gives us a decent EBITDA margin for the quarter, but also for the year. So if we take a long-term view on EBITDA, we've had some years of -- we call it heavy investment in the future. So in '21 and '22, we saw EBITDA negative with NOK 15 million and NOK 13 million. Then we were at the break-even point in '23 and now in 2024, we are proud to announce an EBITDA of NOK 24.7 million and that's a strong improvement compared to '23. And the main reason behind this is that we see that scale effects are starting to materialize. And as long as we grow on the current products in portfolio, we don't see that we have to add a lot of cost. Obviously, we are very happy about this EBITDA evolution. If we look at the balance sheet, we have NOK 84.7 million on the books as of year-end, that is down about NOK 3 million from the same period last year. The main reason for that is movements in working capital where we had a higher amount of receivables outstanding this year than we had last year. CapEx remains low. Equity ratio is, in fact, up. This is due to the recognition -- also due to the recognition of the tax loss carried forward, which is taken into the P&L for the fourth quarter. We are very happy and proud to announce the initial dividend of NOK 0.40 per share and at least that's a start. Just as a reminder again, we have no interest-bearing debt in the company. And we see that working capital still will fluctuate and it was quite high at the end of last year. And hopefully, we will show a reduction going forward at different reporting points. Okay. That was it from me. I will hand back to Matti. I will give more details on the products. Thank you.

Thank you, Njaal. So a little bit closer look to products and I'm here presenting on behalf of our CCO, Markus Jaquemar, who is preparing for and traveling to an important customer meeting today. Cystatin C, we have already covered the key growth numbers, but you can see the quarterly sales performance over the past quarters on the right-hand -- left-hand side, sorry. And really, the key points are leveraging the new guidelines that were published in Q1 last year. We have -- and of course, now we come to the Europe, USA., China situation. And last year was quite binary to us. So in Europe, we saw good growth and really nice accelerated growth in the U.S. But then on the other hand, Asia and specifically China had a strong dip, especially in Q3 and also some softness still in Q4. So Q4, quite good results were driven still more by Europe and USA. But what is positive is that now we do see signs of recovery when we look at the order book for Q1, Q2 this year. So we can carefully hope and estimate that we have seen the bottom and the sales to China of Cystatin C are coming back. fCAL turbo has been already covered quite a lot. It is our key product and actually recorded highest sales for the company last year and the growth is really impressive. Maybe some comments about the whys behind this growth. First of all, fecal testing is something that is growing. It depends and varies a little bit from country or region to region. So there's a lot of room to grow overall fecal testing. And it's not only driven by tests like ours, it's only driven by the automation of the sample handling and our partner, BUHLMANN is really expert there and they have their own proprietary technology there and tubes to improve that one. So it's a combination of the sample handling and the test. The growth comes actually both from market growth. So customers are moving from ELISA to highly automated tests like ours. And sorry, that was a market share gain from ELISA. But like I said, the whole market is also growing quite a lot and we see a lot of potential there. And especially in the U.S., fecal testing is still quite small. Other products, Njaal already covered pretty well. But overall, nice quarterly growth over 20% and almost 20% or 17% year-over-year, which is a good performance overall. And like I said, cCRP, the canine or dog CRP is the gold standard in this market and we do expect that to perform well. fPELA is growing with fCAL nicely at the same time and then GCAL is the product where we are now working hard and focusing on 2 areas, but especially putting more focus behind this autoinflammatory diseases where we do hear the market need and demand growing and we are also fully aligned with our commercial partners targeting that segment. And then last but not least, our third-party products or the Gentian AB business. We saw annual growth of 8%. Obviously, we would like to see that to be a bit higher to hit our growth target. On the other hand, we do see a good stabilization between the quarters and we look forward to keep growing this year and years after. And then visualization of the regional growth. So you see here still the dominance of Europe, but luckily, it's growing, like I said, strongly, 25% year-over-year, which is a really impressive growth. USA, really doubled quarter-over-quarter and almost 40% year-over-year growth. And we do see that and hope that keeping and growing and it is really mainly driven by Cystatin C and both through our partner efforts and our own direct sales force efforts. And as you may remember, we doubled our presence there last year. So now we have 2 people covering the sites -- different sites of the continent. And obviously, especially the Q3 Asia, China part of the column is small. But like I said, it's coming up and we are looking optimistically to 2025. So then I change my hat to R&D and I quickly update you about NT-proBNP development. About NT-proBNP as it is one of the most important or the most important long-term growth driver for us. NT-proBNP is a cardiac marker that is used and measured to help with the diagnostics -- or diagnosis of heart failure. When launched, our test will be the first immunoturbidimetric test or the first test on highly automated platforms for NT-proBNP. So that alone will be a huge improvement and reason to develop and launch this product. In addition, we may have some additional benefits measuring the total NT-proBNP, but the clinical value of that is still under evaluation and to be confirmed later. And in quarter 4, we continued developing the assay and we did some additional patient sample testing that indicated comparable performance to existing market-leading assays. So in short, the test is working as it should. We cemented also further our collaborations with clinical partners. So researchers and hospitals who collaborate with us with these clinical patient sample cohorts. And now we have secured additional cohorts to do this clinical evaluation. Also, we recheck the IP area and freedom to operate, confirmed that there are no obstacles to continue developing and bringing this product to market. As we report or state in the report, nothing goes always or typically not straight to the goal. So we experienced some hiccups in Q4 with the stability of one of the reagents. We put all our resources behind that and the team worked really hard and put on many contingency plans. And now we are happy and quite confident to report that we are back on track and we are committed to the timelines mentioned below. So our aim is to launch the research-use-only product in the end of this year, Q4. And then depending on the regulatory time lines, commercial launch CE-marked product next year. So all good there and we are really moving as planned and working hard to bring this very important test to market and patient. This was all we are and plan to proactively cover today. Please check the report. There's more information about other things, if you wish. And now we go to the questions. Njaal can moderate that one.

[Operator Instructions] We have received a few questions already. Starting with the first one, if we can elaborate on the growth in terms of how much is volume and how much is price in 2024 and also when yearly price hikes typically takes place. Do you want to answer that, Matti or?

Well, I can start. You know that saying that mainly our growth last year was volume, which is good because we -- it is true growth. We did and do raise our prices when available. But due to the nature of our business that we have long-term contracts and commitments, the price hikes happen when these agreements allow. But whenever possible, we always look at that possibility as well.

Yes. To add to that, the majority of the growth comes from volume. Price hikes typically in contracts where they are allowed, they are linked to inflation or some index. So they are normally about 3% to 5% for last year. For new contracts, obviously, pricing is also then new. So yes, the majority of the growth is driven by volume. Yes. Question here related to China, is the drop in sales in China due to the Chinese making their own products? Also, do we have any IP issues in China? Matti?

To our knowledge, this is not the case. So as communicated, the new value-based pricing tender system caused hiccups to the market. You can check many of our customers, the major IVD players last year reports and many of them actually experienced or basically all of them the same thing. And what we heard from our partner, Beckman Coulter, is that it was more due to them streamlining also the -- their supply chain towards the customers and going more directly to customers. And there was probably some stock usage in between happening. What is important and we already reported last time that they did not lose in tenders, the business that we serve. And also, what we see now, the forecasts and purchase orders coming in, it looks like that we are recovering. And we are not aware of IPR issues.

Next question relates again back to fCAL turbo. Yes, driving the growth in recent quarter, we have previously estimated the market for fecal calprotectin testing to be around NOK 150 million. And using that, we have about 40% market penetration. And then the question is, can you elaborate a bit on your view on the long-term growth for this assay? I think there was also a question in addition here. It's not on the screen yet. So the long-term growth and the NOK 150 million market size still hold?

Yes. I don't have at the moment the latest or updated number, but what we do hear and know is and what I already mentioned that this market itself is growing. So partly the growth really comes from the fecal testing and calprotectin testing growing itself. So I can assume, but this is only assumption based on that, that the market number is probably also going up. And in addition, there's an accelerated switch from ELISA testing to immunoturbidimetric testing.

Yes. I can only add to that, that the NOK 150 million market size is probably a little bit outdated. This market grows strongly. And we are also see that geographical expansion is taking place. So very, very solid job done by our partner, BUHLMANN here. And let's see if we can get back to a new market size number a little bit down the road. Yes.

So that, yes -- no, not on that one. But I can take the next one. There's a question like what assays are behind the strong growth in the U.S. And when we talk about now our own growth there, it is Cystatin C that is really driving it. We have a great collaboration with our partner and we have also both sales forces are working in good collaboration, bringing the customers in. And we have gained a good number of new customers last year and this is really driving the growth there. The second part of the question, when is Beckman Coulter estimated to start contributing substantially to fCAL volumes is a little bit separate because that happens through BUHLMANN. You can continue from there, but I can comment that still the growth that we see and saw last year is mainly without Beckman Coulter, which I find a positive thing. So the BUHLMANN activities and their own presence is driving -- and the distributors is driving that growth. And the Beckman Coulter additions should come on top of that.

Having said that, we have seen -- we know that Beckman has started its direct distribution of the asset. So it's ongoing and there is some upside there. Next question here, will U.S. tariffs, if imposed, affect the sales in the U.S.? I think that will totally depend on what would be the level, what -- who will be affected, et cetera. I think it's too early to say at this point. Obviously, tariffs is not something that we would like to see, but to estimate the effect without knowing what or if tariffs will be imposed is not possible at this point. Next one is to you, Matti. How do you look at the growth in the U.S. market in '25?

Well, we don't give exact estimates, but we have communicated and it's clear that U.S. is geographically our target. And that's an area where we want to grow substantially. That's why we have and will invest in that market. And the good growth and gaining new customers indicates that when we have new accounts added all the time, they should, of course, start generating and accumulating sales going forward. So we don't see any reasons why we should not keep growing there.

GCAL. When can we hope more meaningful revenues from GCAL?

We are actually very optimistic about not dropping the sepsis prevention part, but also adding focus and resources behind that autoinflammatory field. We have discussed with our partners. And like I said, we are fully aligned. I was, last week in the U.S., meeting a couple of companies. And when I asked this question, where would they or where are they focusing with serum and plasma calprotectin, we were fully aligned that the RA area is one of the most promising. So on the other hand, the fact is that we are not yet there. So it's still a developing market, but we do see that probably picking up, even faster than the sepsis prevention. But it will take some time, but that is clearly our commercial focus this year and we are also sharpening our focus and messages and data generation even in that area.

And have you seen any progress on the geographical expansion for GCAL?

We do see actually, our partners really activating themselves, both in the U.S. and Europe. And there's a strong request for support, key opinion leaders and so on. And in the Europe, also, it has been now and last year, a focus area in congresses. So especially these 2 areas, we see a good potential going forward. But it takes time. This is the nature of the market. So it takes time to get in. But once you are in you are there pretty solidly.

A few questions regarding NT-proBNP. We have one asking about what is the sales target for NT-proBNP and whether that has been higher or lower than what we have assumed before?

Well, we don't have the exact sales target. We know, of course, the market size and we have -- and from the presentation, but from the report, you can find that target markets graph where we have estimations of the achievable revenue take. It is a substantial market and existing market. And we do believe that this high automation alone is a competitive advantage and whatever we can bring on top of that is a plus. But at the moment, we don't give any targets for that.

And maybe a little bit longer-term question. How will the NT-proBNP product, how will it be marketed in, I would say, secondary type markets like China and India?

First, we do focus on Europe and U.S. Chinese market, we need to investigate. The immunoturbidimetric market over there is highly competitive and that has to be always checked. India, we can't say yet. But obviously, following the principle of bringing tests from higher cost and slower technologies to clinical chemistry could and should allow access to countries where those other tests are not used. So that is part of the clean chem space. But again, we are not focusing on China and India in the first steps.

A few questions on cost development. So I think there is a question both related to development cost and administration cost. Will those 2 cost areas be stable going forward? I think I can at least start to answer that. We are a growing company and we will have step-wise increases also in our cost. It is unrealistic to assume that we can keep the OpEx level completely stable while growing strongly. When it comes to administration cost, it is highly scalable, but we do see a significant increase in, let's say, administrative burden in connection with regulatory changes. The next one coming is CSRD, which will, in fact, cost us a significant amount of money, both to implement, but also to have it audited and reported, et cetera. So although we would like to say that our administrative cost is fully scalable, we do see an increase in the burden, especially on the reporting side. On the development side, we do have a solid and strong R&D team. And we foresee that, let's say, the current level and therefore, the current cost will be maintained. And then any increases will be more related to, let's say, price increases, for instance, salary increases or external services or reagents.

I can ask the next question from you. So there's a question, can you comment on the impact of exchange rates on revenues and which currency we use in our contracts?

Yes. So we are highly sensitive to foreign exchange fluctuations. The majority of our cost is in Norwegian kroner and the majority of our revenues are in euros, U.S. dollars or Chinese yuan. So we benefit from a weaker NOK. But if you look at the 2024 figures comparing to '23, we have seen approximately the same currency level in totality. So when we say that we have had 13% organic growth, it means that it has been adjusted for currency effects. Yes, I think that's there. Another question about India today. Do we have a presence in the India market? As far as I know, no.

Yes. And that's a market really to follow. We know it's a low-cost market. But again, selectively and because of the benefits of PETIA, we should not rule that out. But again, at the same time, we know we have so much to gain on our main markets and we are not that big company. So it is important that we put our focus and resources behind continue to work in Europe, but then expanding and growing in the U.S. So they are clearly the -- our focus areas.

All right. I think then we are, let's say, out of questions. That was it. A lot of questions today. Good questions also.

We would have had some answers still remaining, but maybe next time. So thank you, everybody, for joining. We had a very good participant number and active Q&A. We thank for that. And we will see you in a bit when we report Q1 results. So thank you all, and have a good day.

Thank you.