Gentian Diagnostics ASA (GENT) Earnings Call Transcript & Summary

So very good October morning from us. My name is Matti Heinonen and I'm the CEO for Gentian Diagnostics. I have pleasure today with my colleagues, Njaal Kind and Markus Jaquemar, to present Gentian's third quarter 2025 results. Again this quarter, our employees and all of us, we have strived to bring more efficient diagnostics to have better treatment decisions for patients. This is our mission statement. As most of you are well aware, Gentian Diagnostics is a medtech company that is targeting a $2.2 billion segment of diagnostic market with quite high 5% to 10% annual growth. I will quickly walk through our value proposition, business model and strategy and also why we are competitive and appealing partner for our customers. As you can see from the left-hand side, we are a company at commercial phase and again today, you will hear more about the quarter 3 and year-to-date results. And obviously as this industry is really critical, our success is rooted on high quality standards and ESG. What we do at Gentian is that we are looking for upcoming or large high volume biomarkers that are still used on manual or semi-automated platforms. Our expertise lie in converting these tests to high throughput analyzers. As you can see on the left-hand side picture down of the slide where you can see a clinical chemistry automation line. We do this by leveraging so-called open channel instrumentation. So we don't need and we don't have any instruments or software our own, but we use existing IVD companies' platforms. The end result and that appealing value proposition is faster results, which can lead to better treatment decisions and up to 10x improved efficiency and cost savings. We operate through lean business model and we rely on a selection of go-to-market channels. We use one or a selection of these based on a product, its life cycle, market competition and so forth. Longer term and for global reach, we always typically aim to have a partnership with one of the global IVD players. So how do we execute our existing strategy and how do we find new ideas for product development. We are and aim to be even stronger strategic partner for our customers. We are continuously looking and scanning the market, both scientifically and with the customers and end users, to spot new and upcoming diagnostic biomarkers. In addition, when we have dialog with our customers, we find out gaps in their portfolios and we can develop tests to fill those gaps. Also, sometimes and again quite recently, we can get a call saying that a customer may have issues with their current third-party suppliers regarding quality, supply reliability or for example ability to live up to the regulatory compliance and they can ask us to make a new assay for them. And of course overall, there's continued price pressure as an unmet need, which we can address with our value proposition. How we differentiate from competition is that we don't only produce these products although we have world-class in-house R&D and flexible scalable kit or bulk production, but we also provide technical and clinical data generation and regulatory and product support to our customers. At the moment, we operate in these disease areas: inflammation and infection, kidney disease and heart failure. Cystatin C is our biggest product at the moment and it is used for diagnostic of kidney disease and it was launched already in 2006 and we are one of the leading companies providing this test in the world. Then we have 2 tests for fecal testing. fCAL is an inflammation test for bowel conditions and it is accompanied by a pancreas deficiency test, fPELA. Then we have one product for vet diagnostics, CRP for dogs. And then we have a product called retinal binding protein, which is used for kidney disease and malnutrition diagnostics. In market development, we have another CAL protecting assay called GCAL and unlike the fPELA -- fCAL is for fecal testing, GCAL is for serum and plasma samples and it's used to diagnose inflammation and infection in multiple conditions. And today a little bit later I will talk more about our late stage development assay, NT-proBNP, which is a heart failure biomarker. And here you can see some key drivers for our long-term growth and also some longer-term financial aspirational targets. With this, let's go and look at the highlights of Q3 2025. This quarter can be described as both strong top line and bottom line performance and that was especially driven by high growth in the U.S. And from last quarter, the gross margin is back on normal levels and back on track. Our sales in third quarter were NOK 41.8 million, which is up 28% compared to last year and our sales to the U.S. were NOK 1.8 million compared to NOK 2.4 million last year. EBITDA we recorded at NOK 4.8 million (sic) [NOK 8.4 million], again up from NOK 5 million last year the same period and gross margin up from 52% to 56%. Some additional highlights and again we will deep dive into these later in the presentation. Year-to-date our sales are almost NOK 130 million, which is up 19% versus last year first 3 quarters. EBITDA at NOK 24.1 million for the first 9 months versus NOK 16.5 million last year. Sales of Cystatin C, it has been performing really well the whole year and Q3 was not an exception. We grew 73% compared to last year's same quarter driven by great performance in the U.S., but also recovery in China compared to last year. Overall, when we look at the U.S. sales, year-to-date we have sold there NOK 21.7 million compared to NOK 8.1 million last year. But it's worth noting that one of our customers made earlier this year a warehouse shift from Europe to U.S. and year-to-date this impact is NOK 8.3 million. But even taking that into account, the adjusted growth rate for the U.S. business is 165%. And what is also really pleasing to see is that already 10% of this year's sales are coming from accounts acquired this year only. So we start to see really the result of new accounts added as we have communicated previously and this is obviously something we will keep doing and striving for. Then if we look at some other highlights. Our heart failure assay NT-proBNP is moving closer to the final stages of verification and getting ready for having the RUO research-use-only product launch by end of this year and we are targeting commercial launch in fourth quarter next year. We have a development project undisclosed at the moment for a major IVD company and that also entered successfully to next development phase moving from proof of concept to optimization. So that was an important milestone in our R&D. And then when we look at our clinical data generation, a study called JIA COMPASS, which is investigating the children for rheumatoid arthritis. It has activated several sites and already 70 patients approximately are enrolled in this study and the study is evaluating the diagnostic and prognostic use of GCAL in this patient population. So with this opening, I hand over to our CFO, Njaal Kind, and he will walk through some of the financial highlights.

Thank you, Matti. Good morning. I will take you through the P&L and some other financial information. So this morning we announced sales of NOK 41.8 million, year-to-date sales of NOK 129.9 million. If we look at the geographic breakdown of the sales: the U.S. sticks out in a positive sense where we have NOK 10.8 million of sales compared to NOK 2.4 million in the corresponding quarter last year. There is an adjustment factor here. We had one customer shifting its stock from Europe to the U.S. So if we adjust for that, sales would be NOK 5.4 million in the U.S. in the third quarter and that corresponds to a growth of 125%. Year-to-date, also making that adjustment, we are about 165% up in the U.S. So very positive development in that region. In Europe, sales looks flat, but then there we also need to make this adjustment for that stock move. So we have 18% growth in Europe on the quarter and 9% growth year-to-date. Asia, NOK 4.2 million versus NOK 3 million last year. It's still below where we want it. We can come back to that in the discussion later on. Looking at the product. On product level, we see very strong performance for Cystatin C this quarter and also year-to-date. The growth in the quarter is 72% and we are up 36% on sales compared to where we were year-to-date compared to last year. fCAL turbo, it had a bit of a soft start of the year, but in the third quarter sales came in at NOK 15.9 million, which is up by 11% compared to the same quarter last year and we are now on par with the sales year-to-date compared to last year. Third-party products had a soft quarter. Here we do see a lot of quarterly variations. Year-to-date, sales are up about 10%. In the other category, we have grouped the products that are not big at the moment so here we have fPELA, GCAL, CCRP. These products are also growing nicely, 28% up on the quarter and 19% up year-to-date. Shifting to the cost. Quite stable cost development when we see over time. If we look at the year-to-date cost development, we are about NOK 5 million higher in OpEx compared to where we were at the same period or the first 9 months last year. Remember that we are a growth company so we have added about NOK 20 million of revenue and in order to sustain that, we needed to add about NOK 5 million of cost. And I think it's a fair assumption and I have to say that we will continue to grow the OpEx as long as we also grow the revenue, but our ambition is obviously to grow revenue faster than we grow the OpEx. So overall, this is a well-managed OpEx evolution and needs to be seen in light of the revenue growth that we are experiencing. Gross margin we say back on track. We believe that on the current revenue level, our gross margin should be in the 55% to 60% area. This quarter we are at 56% and this is up from 44% in the second quarter this year where we experienced some production issues. Now our operations team was quite quick in troubleshooting and fixing those issues really and we are back on normal levels. So that's good to see. And of course there is a strong correlation between the gross margin and the EBITDA margin. EBITDA margin is 20%, year-to-date it's about 18%. Looking at the EBITDA, we reported an EBITDA of NOK 24.1 million year-to-date. That is approximately the same level as we had for 2024 as a whole. We see the development a bit over time, we see that the company has gone from EBITDA losses to now a nice evolution on EBITDA positive growth. On the cash... [Audio Gap]

[Audio Gap] The regional sales. The U.S. overall, the impact was quite significant, as Njaal mentioned, NOK 8.3 million for the year. But even without that warehouse shift, we see very, very strong momentum in the U.S. as already mentioned a few times with the adjusted growth rate of 165%. Asia, comment on here. We have talked about China a few times and the recently implemented initiatives like the value-based procurement system was also impacting the sales especially last year in Q3. There's an additional new initiative by the Chinese administration, which is unbundling, in order to manage cost in the diagnostic testing segment and that is called unbundling by which rather than using a full menu to test patients, you more selectively use assays in patient testing and that may have an impact. And so we are cautious about the outlook from the Chinese business going forward. The pure numbers that show that Europe declined 2%. But again as mentioned, if we adjust for the NOK 5 million, actually Europe also grew nicely in the third quarter. And so overall, we see growth in all regions that Gentian is serving. With that, I'd like to turn it over back to Matti.

Thank you, Markus. I put on now R&D hat and give you an update about Q3 R&D. Last time in July, we opened a little bit the curtain for a new early exploratory work we are doing, which is to test a new technology with the potential to significantly expand the sensitivity limits of current PETIA assays. And last quarter, we have continued that work and the focus has been especially on the technical evaluation, but also assessing the implementation feasibility of this technology if once ready for that. And also we have started some early market and commercial evaluations for the potential. But this is really early and something very long-term project. We will keep you updated. I already discussed about the undisclosed project that moved from proof of concept to optimization and what was done with that is that now it's being tested on multiple clinical analyzers and we are also improving the reagent formulations for that assay. On the right-hand side, you can see the R&D spend. Overall, we are pretty much stable from last year year-to-date and this is at least what we aim to do. So we have no plans to cut down our spending, if something rather up to develop faster and more assays. And also you can see the breakdown of these costs. So in R&D costs, we have also the technical and clinical support for existing products included as well as capitalized development expenses. And then a little bit more about NT-proBNP as promised. So a quick refresh what NT-proBNP is. So it is a cornerstone test in heart failure diagnostics. As said, it's a large market. It's estimated to be USD 1 billion this year and growing approximately 7% over the next years. What is known is that this target molecule NT-proBNP, up to 80% of that molecule can have sugar structures attached to it and that is called glycosylation. And the unmet need and potential issue we are targeting to solve is that all current assays, they tend to underestimate NT-proBNP levels due to their assays’ antibodies binding on those glycosylated areas. What we are doing at Gentian is that we are developing what we call glycosylation independent NT-proBNP assay aiming to improve both accuracy and consistency of heart failure diagnostics. What happened in third quarter was that we made again significant efforts advancing the project, moving it closer to the final phases of verification and getting ready to move to the last phase which is called validation before we are ready for the technical documentation and IVDR filing. Especially, we were working on the calibration model and we refined our model resulting in enhanced precision at lower measuring range. And why this is important is that it is needed to establish those cutoffs for our test to be used in patients. However, we are working with chemistry and biology and not everything always goes as planned and we encountered some unforeseen challenges related to the calibrator stability. So now we talk about liquid with certain small amounts of NT-proBNP molecule there that is used to calibrate the instruments. And we saw some instability issues with this current or previous matrixes used for the calibrators and our team worked really hard and they have made already significant progress identifying improved matrix formulations, which are currently being tested for stability. In parallel, we have run again a new set of clinical samples from patient cohorts that come from our clinical partners and clinics especially here in Norway and that patient data is now being evaluated against our measured values. All that data is important for the final development of the product, but also we are generating data for the IVDR filing with that already. And to summarize and end, we are working to introduce the assay as research-use-only product by the end of this year and also aiming for full commercial launch in Q4 2026 so next year. And again, I'm sure we will keep you updated and come back next time with NT-proBNP again. So this concludes our quarter 3 2025 presentation and now we open this meeting for questions.

Remember to use the Q&A functionality in the webcast. And I ask Njaal and Markus to join me here and to answer any questions out there.

So let's start off with China. There's been some developments, as you explained, and we have experienced the value-based pricing. Now we are about to experience something called unbundling. I think the question is what is our expectation in general for China going forward and also how should we think about this unbundling, how it will unfold, et cetera?

So I can start with that one. I visited China a month ago and met our partner,  Beckman China, people there over a couple of days and they gave us very good and thorough view of the situation. Overall, there's various performances. Beckman has been doing well and, as you can see from our sales so far, the value-based procurement has been there already for a couple of years and we expected that weak quarter 3 last year growing or stable sales. This unbundling initiative is a second initiative. I'm not sure if it's going to be the last one. But honestly, kind of the system in China is moving from what they used to have, I would say, more to a model that we have in Western countries that you can't automatically include a bunch of tests in a panel, but you have to do more value-based argumentation why a test should be used and taken for a patient. That is obviously meant to control the volumes. But through the discussions and what we mean by cautious is that we're not necessarily putting a lot of growth expectations for our China business next year, but we don't expect a major crash of the business either. And we have a good model with them and communication channel open to help them to do the selling and value argumentation to keep Cystatin C growing longer term.

Yes. Maybe to add to that Cystatin C testing in China is already well established in the year and it is the standard marker for chronic kidney disease already. So that means it's well established and even with the unbundling, it is just a standard test and that gives us obviously some positive outlook in that respect. Also to say that the impact of those value-based procurement initiative was very much on high-value products, a lot in terms of pricing, whereas the number of testing hasn't gone down as such. So overall, something to watch carefully. But yes, I think the future will show up.

There's also a question speaking in Asia and that is how much of the Asian revenue which is derived from China and how much is from other countries in Asia. And the split is about 60-40 so 60% of revenues in Asia is from China and the remaining 40% are from other Asian countries especially South Korea.

And again, also visited South Korea on the same trip and our partner, Hanmi, is doing a really good job and they are investing more and expanding their network in South Korea geographically. So we expect that business to keep growing.

Switching to the U.S. I mean we have reported now over a few quarters good growth. It looks also to be accelerating a little bit. And the question here is do we expect this momentum to continue? And maybe we can -- or you can say little bit about what we are doing in the U.S., what is our model with partners, directs, et cetera?

So first of all, the answer to the question do we expect future growth is yes. Less than 10% of U.S. hospitals have adopted actually Cystatin C testing so far, which means there's a lot of opportunity and potential for further growth here. So that is I think a very positive sign. Regarding our business model, we have a direct operation in the U.S. where we serve customers directly. We work with 2 corporate partners, one of them being  Beckman Coulter, which is well known. So the organization actually supports our partners also directly to support their customers. So in combination with our direct efforts and supporting our business partners, we really, I would say, fuel the growth, including working closely with patient organizations, so that we make the benefits of Cystatin C testing more visible and therefore, supporting the adoption of Cystatin C testing in the U.S.

And there's a great momentum. We have already talked couple of times about the updated guidelines that happened last year and based on that and the whole awareness of Cystatin C, this summer in the major Congress ADLM, we heard updated numbers and the idea is that market could be up to USD 400 million Cystatin C market alone in 5 to 10 years. There are certain requirements that have to happen to make that number come true like with the reimbursement. But still the potential is there and we are obviously -- we are also, like Markus said, we have already improved and intensified our collaboration model with the partners and also directly. We added 1 headcount last year and we are going through again a bottom-up analysis about future investment and headcount needs. So obviously with the China situation being what it is and this great momentum being in the U.S. and hopefully landing also to Europe, that's going to be the future growth area at least for a couple of next years for Cystatin C.

Can we say something about how our partners are looking at Cystatin C? What is their sort of take on the product? And maybe do they have some short-term expectations as to '26, '27, short to medium-term expectations there?

I mean from a partner perspective, we have to understand that Cystatin C is part of their overall menu. And as such, our partners are looking to strengthen the, I would say, kidney testing portfolio, which is very important with other assays like the mentioned creatinine that's the standard in combination with Cystatin C and other parameters. So that provides them with a high quality product as it is actually proven by external quality control testing measures. They just have a high-value, high-quality product that they enjoy together with the rest of their own portfolio. And therefore, they are looking for a high class partner that delivers sustainably the quality that their customers are expecting.

Thank you. I think that's what we had on the Q&A list from the audience today. I think if there is nothing coming in the last second, we will wrap up.

So thank you for joining. Thank you, Njaal, Markus and the team for again preparing the update. And we look forward to closing the year strongly, planning already of course for next year and then reporting the full year results early next year. So thank you so much and have a good day.

Thank you.