Gentian Diagnostics ASA (GENT) Earnings Call Transcript & Summary

Welcome to the '26 results presentation. My name is Matti Heinonen, I'm the CEO of the company. And today, I will go through the results and updates with our CFO, Njaal Kind; our Chief Scientific Officer and Interim R&D Lead, Aleksandra Havelka and our Chief Growth Officer and Head of Business Development, Markus Jaquemar. We have good news today. We have also a lot of content. So let's get into the presentation. Here, you see the important required disclaimers. And I'll start again by talking through the quarter 3 and year-to-date highlights. Before giving this time quite short company update or presentation because we have, like I said, a lot to share with you later. So quarter 3 performance is best described by record sales and significantly more new development projects initiated Quarter 3 sales were highest ever quarterly sales at NOK 51.1 million, which is 22% growth or 30% revenue for currency-neutral organic growth. Our sales to the U.S., the strategic focus area were NOK 13.3 million, up from NOK 10.8 million last year same quarter. But not only did we have a very good top line performance, we also had a very good profitability with EBITDA at NOK 13.6 million, up from NOK 8.4 million in quarter 3 last year and gross margin at 61%. Some additional highlights and we were really pleased to see that both Europe and the U.S. delivered significant growth 24% and 23%, respectively. And the BÜHLMANN collaboration fCAL and fPELA also grew really well and fCAL Turbo sales were up 23% in quarter 3. Also, Cystatin C had a strong quarter with growth of 19%. Today we will spend also more time to talk about our R&D strategy and the pipeline updates. And I'm really pleased to inform you that we have really demonstratable progress in executing the new R&D strategy with assay and on technology development projects active. Year-to-date, again, we have very good performance, and we are on track to deliver another very successful year for Gentian Diagnostics. Sales are after 9 months, almost NOK 145 million, which is 11% up from last year or 17% currency-neutral organic growth. Sales to the U.S. are at NOK 32.3 million and that is -- represents a really great growth of 49% year-over-year. EBITDA is at NOK 26.7 million and gross margin at 56%. Njaal will go more into the financials after my starting part. Then if we talk about the products, again, fCAL and fPELA, also the BÜHLMANN franchise is the key growth factor or growth driver for Europe, Europe is up 15% year-to-date. And also, although despite the flat year-over-year growth for cysteine, the other most important product for us, we have a strong order book for quarter 4, and we expect the product be back on track and reaching the expected year-on-year growth. So with these highlights, and like I said, we come back to all these in more details soon. Just a couple of words about Gentian Diagnostics. Many of you know as well, but there may be some people in the audience who are not that familiar with Gentian. So we are a listed medtech company targeting a sizable segment of the diagnostic market. which has a 5% to 10% annual growth. We offer appealing value proposition to our customers. We operate through a lean business model, and we have focused growth strategy. We have strong focus on in-house capabilities, especially in R&D and operations. And like you can see from the graphs on the left and right-hand side, we are and have been delivering already for years a very nice profitable growth. And again, as always, very important, our success is rooted on high-quality standards IVDR and ISO-certified and focus on ESG. The long-term growth drivers for Gentian and value creation is based on these. We have five established products, and all of them have a lot of growth potential and untapped sales potential. And the first thing is to maximize the sales of existing products. Secondly, we are still working through both the clinical relevance of our inflammatory diagnostic test for calprotectin called GCAL. And then in addition, we want to bring on average, one new diagnostic marker or test or book per year a premium steady stream of new tests to the market and sign on average one contract per year with our global partners or new partners. We are aiming to stabilize the gross margin in the 55% to 60% range. Now we are at 56% year-to-date, as you just saw. And the aspiration for long-term EBITDA margin is 40%. And how we will reach this is to live through our new vision, which is that we will be the innovation partner for global IVD companies. With this one, I conclude my opening and highlights, and I hand over now to Njaal, our CFO, who will talk about the regional performance and key financials, and I'll come back later for the R&D part. Njaal.

Yes. All right. Thank you, Matti. Good morning. I'll work through the numbers with you. So today, we announced revenues of NOK 51.1 million for the third quarter, which is a new record. And we we have on the geographical side, we see that sales to Europe reached NOK 33 million, which is up 24% in the third quarter, and year-to-date growth of 15%. And looking at these product categories, we see that Cystatin C had a good quarter with 19% growth in the quarter. Year-to-date, it is flat. That is largely due to Asia, where we see that in China, we had some lower sales than we had last year. while in the U.S., we see good growth. And there you can see also in the U.S., growth goes from NOK 10.8 million to NOK 13.3 million in the third quarter. And year-to-date, we are up almost 50% on the sales in the U.S. So U.S. overall, good performance. As we mentioned, the scale, which we sell in partnership with BÜHLMANN, has had a strong performance, both in the quarter and year-to-date. Almost 22% or 23% in the third quarter and 22% growth year-to-date. So that is good. When it comes back to Cystatin C and shifting a little bit back and forth here, I see, we expect growth in the fourth quarter so that overall, for the year as a whole, we expect growth for Cystatin C. Markus will give you even more details on the product level when the comes after me here. Running through on the cost side, quite stable cost. As you can see, no major shifts on the fixed cost, which is SG&A. On R&D, we see a pick and that is due to higher activity. However, if we look at the year-to-date OpEx and we are just for the fact that last year, we capitalized [ NOK 55 million ] in R&D expenses on the balance sheet. If we adjust for that, in fact, the underlying OpEx or the expenses are up by only 4.5% year-to-date, which is acceptable, taking into account the growth in revenues. Going forward, we will see a higher equity level for R&D, which we will talk about later today. And that will, of course, have an effect on the cost. Gross margin, very strong gross margin this quarter, 61% and year-to-date gross margin of 56%. When it comes to the quarter isolated, we have had very good production in the quarter, and that flows directly to the gross margin, obviously. And of course, with a favorable geographical sales mix also helped. China is a lower margin market than the U.S. As we have stated before, our ambition is to be in the 55% to 60% range when it comes to gross margin. And we see that year-to-date, we are there. We don't control the currencies, as you know. We are not hedged. So a strengthening NOK is not to our advantage, and that is something which gives us a little bit of a headwind has done that so far this year and seems to continue. EBITDA, NOK 13.6 million, obviously, with low cost increase and a good gross margin comps. I would here highlight that last year, we had capitalization of development expenses of NOK 5.5 million, which we are not having this year. So if we were to adjust for that, this would, in fact, be a record quarter on the EBITDA as well. The margin quite strong, 26.6% in the third quarter and 18.4% year-to-date. So we are quite satisfied with the development on the EBITDA. A few words on the balance sheet. We have accrued or accumulated NOK 12.7 million in free cash flow in the quarter. There has not been any major working capital movements, so the cash is at NOK 91.4 million, that is an increase from NOK 86.6 million in the same quarter last year. Also to mention here is that we paid the dividend in the second quarter of NOK 9.3 million. So that was returned back to the shareholders. When it comes to the CapEx, NOK 2.2 million, that is in this quarter equipment CapEx as we are not capitalizing any amount on development projects. So this is equipment that will help us grow and increase productivity going forward. I will be back with the Q&A. So please use the question box if you have any questions. And I will now leave the floor to Markus will provide us with a more detailed product update. Markus?

Thank you so much, Njaal, and good morning from my side as well. Happy to provide some additional flavor to our product performance, over the last 9 months or the last quarter. And let's start with our Gentian branded signature product, Cystatin C. And as mentioned before, we had a very, very strong Q3. What you see here on this slide is actually our quarterly performance over the last few years. And this year, we had a weak Q1, but we have actually delivered two record quarters for Cystatin C in a row in Q2 and Q3. And as already mentioned, we have a strong order book, which means we believe the [indiscernible] also will deliver strong results. Now what's the reason and what's behind the growth that we have? First of all, our investment in the U.S. is paying off, and we have seen the strong results in the U.S., as Njaal has mentioned before. we see very strong increase of demand by our largest partner in the U.S. as well. The third reason is a continued increase of awareness for using Cystatin C testing chronic kidney disease patients. And the fourth reason is that time ago, a year ago, there was a new global guideline implement KDIGO and that also favors the adoption of Cystatin C testing. And we strongly believe that this is actually going to continue and we should see strong performance by our Cystatin C product going forward. Our second product performing really well actually at fCAL Turbo with our commercial partner, BÜHLMANN. You've seen tremendous growth -- outstanding growth not only in Q3, but also over the last 9 months at very high levels quarterly, as you can see on the slide here. The growth itself is driven certainly by two reasons. First of all, acquisition of new accounts. But at the same time, existing accounts actually increased the number of tests that are performing, and that's obviously a strong addition and contributing to the strong performance that we have through the commercial efforts of BÜHLMANN. And this is actually happening in all the regions across the globe. So very strong performance and positive for our numbers in Q3. The third category, the other products, which includes pancreatic [indiscernible], which is actually also a product commercialized by our partner, BÜHLMANN. Our veterinary product, Canine CRP and our GCAL product, serumplasma calprotectin. When we look at Q3, we've seen not a strong growth. But within the group, we've actually seen very good growth from pancreatic [indiscernible], but also from CGRP, while GCAL had somewhat lower sales in Q3. What is notable and important to mention is that fPELA is a little bit kind of the little sister product of calprotectin and what BÜHLMANN is seeing is that existing Calprotectin customers are actually increasing the usage of pancreatic elastase, which actually can be tested out of the same tube. In fact, one of the benefits of our and BÜHLMANN's solution for stool testing is the fact that it is a very high level of automation, which is very appreciated by the customers within the market. Finally, our third-party products. Those are the products which are commercialized in the Nordics outside of the Gentian portfolio. And in fact, the third quarter with NOK 5.8 million was the highest summer performance, if you want ever for those products. Typically, the summer months are a little bit weaker, due to timing and obviously testing requirements during that period, but Q3 2026 was actually very strong with NOK 5.8 million. And so we continue to see solid demand for all the products that are part of the portfolio and execute the [indiscernible] by our Nordics team. With that, I'll turn it over to -- back to Matti for the next topic.

Thank you, Njaal, and Markus. So those were the numbers and results. So as you see, very strong product and regional performance. And now we move to the R&D and product development pipeline updates. Before I hand over to Aleksandra, I talk about -- it's more about our new R&D strategy, which is there to accelerate new product launches and to support our long-term value creation. Our R&D strategy now today builds on three pillars. It is accelerated or they are accelerated product launches, expansion in point-of-care assay market and investment in something we call high-sensitivity technology. To be successful to compensate the pipeline and also we can be honest that we are not very happy with the recent number of launches, which are not many and to really deliver the sustained growth and also the expectation for the market, we need much more product launches. And to do that, we need a broader product pipeline. And the broader pipeline will be and is, as you can see, a combination of in-house innovation and partner-driven development projects. In addition, in our new strategy, we are also officially or formally focusing on veterinary diagnostics as a new growth driver. Another new adjacent growth driver is the point-of-care assay market. So there are companies and platforms that use the same turbidimetric [indiscernible] technology and we do traditionally for high-throughput core labs, but it seems that our tests can be used almost directly or with very little adaptation also in this point-of-care instruments. So this is something in our strategy that we see as an additional growth driver, but I want to emphasize that we are not pivoting our strategic focus away from the core lab where we are strongest. And then the third and longer-term growth driver is our investment in high-sensitivity technology. The key limitation of traditional PETIA assays is the sensitivity, and that means that there's a little number of new product ideas available. Through our initial exploratory work. We have been already seeing up to 100x improvement in assay sensitivity, which can potentially bring approximately 100 new biomarkers within the reach. And this would be really a game changer for Gentian and for the tubulometric market. Then a couple of words about the more dynamic approach to pipeline. That comes with a couple of, if not downsides, but at least things I want to mention. First of all, this is something I told and spoke in the [indiscernible] report, and I will probably mention this also in the future that we are not expecting and one should not expect all development projects that we present to progress to commercial launches. And this is the consequence of us running multiple, many more projects in parallel than we used to. And we use so-called drop type-driven model where we are checking early the technical feasibility, commercial potential and partner commitments for each product idea. And without those all boxes ticked, we will not move that project all the way to registration. What will be the success rate, that we don't know. We are early in this model and time will tell how many we can take all the way to the end. But as you saw, we have eight projects active running at the moment. So even if some of those are successful within a couple of years, that will be a clear step change to product launches by Gentian compared to past. Second thing is something that I know new investors to market are really hungry, is details and concrete examples of the new pipeline. And believe me, we would love to tell you all the details we know, but there are a couple of things we need to consider, and I hope you have patience, wait for that. One is that early disclosure, maybe East restricted and because it may be competitive and sensitive information that we and our partners do not want to share too early. Second is that, as you know, we have typically, at least one, sometimes three partners in these discussions and developments. So the confidentiality obligations under the partner agreements may further limit our external communication. So I promise we will always share with you what is available and that we can share. But I am really asking also for your patience that we can't always share the the names of the companies or the biomarkers that we are working with, and that happens for good reasons. With this one, I hand over to Aleksandra that will take you through the pipeline update.

So thank you, Matti. Good morning, everyone. My name is Aleksandra Havelka. I'm Chief Scientific Officer in Gentian Since June this year, I'm serving as Interim Head of R&D. So today, I have a pleasure to report on updates related to our product pipeline and tell you about the progress we made in the third quarter. As Matti mentioned, partner-driven development is a very important part of our strategy. We have previously reported about IVD partner, and collaboration in development of an assay that will fill a gap in this partner's portfolio. This project is progressing from an early development phase to more advanced development and it remains on track for a planned launch in Q4 2027. We have also previously reported a collaboration with [indiscernible] antigens. The aim with this collaboration into transfer several assays to do metric platforms to beta technology and make these sales available on high-throughput clinical chemistry analyzers. These projects are also progressing very well, and we will -- I will come back to this a little bit later. In the field of Veterinary Diagnostics, we have been approached by a key player in that field with the proposal for development of two assays in veterinary diagnostics. We have submitted a proposal for the development. And in third quarter, we have received quite positive feedback. So now we are waiting for financial and contractual arrangements to be finalized. In addition, we are also, as Matti mentioned, working on a completely new technology. We call it high sensitivity technology. And we have a collaboration with a partner in the field of point of care who is interested to develop this technology together with us and apply it to existing instrument platform. Our partner has started to work on the development of early instrument prototype and we are together exploring this opportunity and are very, very excited because this is a step towards a development of new technology but also to a field of point-of-care diagnostics that we have not been active before. In addition to partner-driven development initiatives, we are also working on several projects. that have been identified and initialized internally at Gentian. These projects are focusing on both improvement to our existing assays, but also on development of new PETIA opportunities. So product optimization, we have existing assay there we will improve the robustness of the assay. And at the same time, decreased manufacturing costs with aim to improve margins for this assay. Talking about new opportunities, we have. We are working on the development of two new biomarkers. One of them will address [indiscernible] and this will be first in the market, PETIA assay, to assess liver disease, and this assay will address growing clinical need, which is driven by increased prevalence of this disease or in general of liver diseases. The other project focused on the biomarker also with the growing market demand, and this project will be a good fit and good expansion and complement of our existing product portfolio. In the next slide, you see that you have an overview over the assays and projects that we have been discussing, you also see the phase of the development, exploration as proof of onset our early phases in the development of a product and optimization, valuation and validation are more advanced status of the project development or assay development. As you can see, our most advanced development is the assay mentioned in collaboration with IVD partners. Here, we are entering a verifation phase the progress is moving with a very good. The project is moving with good results, and we are committed to commercialization and launch within 12 to 18 months. We have two projects that are in optimization phase, also quite late phase of the asset development, SR collaboration, where we aims to develop several assays and one existing product optimization, which I mentioned before. And in a very early phase in the exported phase, we have 4 assays, 2 assays for human diagnostics and 2 veterinary assays. And, of course, a new technology, high sensitivity technology and the step towards a new point-of-care diagnostic platform development. I would also like to mention that the time lines that I presented here are based on our current estimations. They might be changed due to priorities, partner moment, technical feasibilities, regulatory impact. And yes, as I said, other priorities that may come in between these projects. So talking about spending, we have a slightly higher spending in third quarter compared to third quarter last year. NOK 8.4 million in 2026 compared to NOK 7.4 million in third quarter '25. This is, of course, explained by higher activities and work on several projects in parallel. We are going further, of course, committed to to discipline in prioritization, discipline in spending, in resource allocation, in efficient execution and also, we believe, on the return of more than 20% of capital employed for new projects. Thank you. This was all from me.

Thank you, Aleksandra. So, just before we go to the Q&A, I want to summarize what we presented and you heard. So we have had a very good quarter 3 this year, record high sales with good EBITDA and gross margin development and also year-to-date numbers are absolutely on track based on our expectations to deliver another very successful year. financially for Gentian diagnostics. And in addition, as you saw, we had this more dynamic and broader pipeline approach, which is a combination of in-house innovation and partner led or driven or partner collaboration projects. And as you saw from that illustration that Aleksandra presented -- and with the disclaimer, like she said, again, these are current estimations and things can happen. But in any case, you can see that five or maybe 60 because the veterinary development is two projects in it, can potentially be ready for regulatory approval within two years from now. Again, things may happen, like I said, but even if we get some of those through, that would be a significant change to the historical launch success of Gentian Diagnostics, and that is an absolute requirement for our future growth and a key goal for me and the whole organization. So with these good news, we are ready to end the year and quarter 4 strongly. And we expect to have a good year. But again, let's see when we again talk next year. And of course, we are organizing ourselves resourcing and being flexible with the R&D projects and moving them on our own and with our partners as fast as we can. And then, of course, we are also getting ready with our Board of Directors through 2027. With this, I conclude the quarter 3 2026 presentation. Thank you, Njaal, Markus and Aleksandra for your presentations and preparation work and everybody else also here. And now it's time for questions and answers. And I see that we have a big number of questions there. So Njaal will come here to moderate the shell and then we'll step in to answer.

Thank you, Matti. So for the Q&A, as you know, we are still live. So if you have any questions, please use the question box. We do already have a few questions in. And so let's go with them. I've taken some notes here. Yes, first, I think there are questions for me here on the raw material cost. It's been pointed out that the raw material cost has been flat, although all the revenues have increased significantly. And the question is, if we can quantify how much of that, let's say, yield, which is specific to the good production that we have had this quarter. And I think what we can attribute to production yields is about NOK 2 million for the quarter, meaning that if we had, had what we would consider as a normal quarter, we would have had approximately NOK 2 million higher raw material costs. Then on top of that comes, of course, the geographic mix effect, which will explain the rest. Another financial question here relates to the trade receivables. So yes, they are up compared to a year ago. We have about NOK 32 million of receivables on the book, was NOK 18 million a year ago. And the question is, do we expect this to come down as we said in July, Yes, we do expect in absolute numbers to come down. But I think what is important to emphasize here is that our receivables are driven by a few quite large accounts. And because a little bit technical, it depends a lot on when these large accounts order within the quarter. So if they order late in the quarter, we are not able to collect on that receivable, let's say, within the same quarter. So then the receivables tend to have -- be high in the balance by the end of the quarter. Now the factor is that, our sales are up by NOK 10 million compared to last quarter -- the same quarter last year. So we do expect sort of that's the reason and the lying increase in the trade receivables, but the absolute level of NOK 32 million is on the high side. What we have said, just to bring in all the elements there is that we expect the working capital to be at around 30% of annualized sales. And if we look at that now, we are at, let's say, in the high 30s. So hopefully, we will be able to manage the net working capital down to 30% over the next quarter over the next 6 months. So that's on the raw material costs and receivables. Let's move to some of the sales questions and commercial questions. And you will just have to drag in the other people as you -- so there is a question here which highlights the fact that almost 75% of our sales comes from Cystatin C and fCAL. And the question is, when do we see a product coming into the portfolio or one of the other products in the portfolio that can contribute with more than 10% of the sales?

So obviously, the concentrated sales is something we want to change. And that's, of course, also the reason for the broad pipeline, bringing more products in -- I think one thing is that fortunately, it's not only the other products that are growing. It's fCAL and Cystatin C are driving very strong growth. So it's difficult to catch up then. So the other products, cCRP fPELA, especially, they are the second-tier products sales-wise, which are both growing very well above sometimes fPELA is having this year, very strong growth, cCRP had excellent year last year. So they are catching up, but also because of the two biggest products are growing really fast, percentage number is not changing so quickly. But absolutely, we want to grow each and every of our product. GCAL is still, like we say, in-market development, we are generating new data, but the commercial performance is not yet there as we would like to -- and then we do expect the new launches to start delivering from hopefully 2028 onwards.

Okay. Next question relates to the high sensitivity initiatives that we have going. And -- and the question is sort of broadly what is the status of, let's say, the commercial terms, the commercial agreement with a potential partner here? And more specifically, do we expect sort of a milestone payment on that initiative in 2026.

So, the latter part I can take that we don't expect this year milestone payments from that. We do have milestone payments already from that the most advanced development project, and then we hope also to start getting payments from the two veterinary development projects next year. Then I have to start by reminding that when overall these development projects and negotiations take [indiscernible] because typically, we we don't only negotiate something short term. It is important for the partner or customer and us to have clarity longer term. So we are sometimes discussing the next 10, 20 years commercial terms, price volumes, exclusivities, supply, IP-related stuff, all that. So those are very large, comprehensive documents and discussions. And sometimes, rank is so tough ones. So it takes time. And then in addition, when we talk about new technology and and instrument development that is even slower than assay development. So at the moment, this partner company is -- has started and are putting resources this year and budgeted next year to start doing the hardware work with their existing analyzer, so implementing our technology in it. And when they have their first results that they can repeat those improvements that we see in our prototype, I believe then we are in a phase that we can move on to commercial terms. Another thing I want to say here, although we are obviously talking about milestone payments. The ultimate business model with high sensitivity technology is, again, the assay development. So longer term, we want to be the high sensitivity assay developer and manufacturer for our partners, and that's the business model long term.

All right? Thank you. Let's jump to these veterinary development projects. It was described as projects which we would land in the near future in July. And the question is what remains before we have something definitive here. And of course, are we still at a point in time where we can risk losing this opportunity? So that's part one of the question. And then there is another question we can add on here, when do we expect revenues and even margins from these veterinary products?