Q-linea AB (publ) (QLINEA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q-linea Q2 reports 2020. Today, I'm pleased to present Jonas Jarvius; and CFO, Anders Lundin. [Operator Instructions] Please begin your meeting.

Thank you very much for that announcement. I welcome you all for this report for the second quarter of 2020. So before I go into any details around the call, I suggest we look at Slide #2, which is our disclaimer slide, in the case me or Anders will make any forward-looking statements. So having had a look at that, we move to Slide #3. I would just like to start by saying that Q-linea as a company, our mission is really to develop disruptive solutions for faster infectious disease diagnostics. Our first application with targeting sepsis but that, of course, we also look at many other possible applications in the future. On this Slide #3, you can also see various highlights of the quarter. I think we have had an extremely strong quarter, the second quarter of this year. The team has been working truly dedicated towards our goal for the upcoming launch of ASTar. It's also been a particularly active quarter together with Thermo Fisher Scientific, where we expand and broaden the partnership and really do our best within the 2 organizations to plan for the upcoming commercial launch of the system. What we've also seen during the quarter is, of course, an increase in ramp-up of instruments and consumables. And I'm also happy to say that our production plan for consumables in Uppsala is now fully operational and scaling up. The workforce has also increased during the quarter. So we are now 122 employees and consultants at the end of the quarter. And this is, of course, then to plan ahead to all the activities that we need to do for verification and the future validation of the system. One big event of course, was that we presented ASTar in a webinar, 5th of June. I'll come back to a little bit more about that, but it was very well webinar. We had a lot of visitors listening into it. And I think that was really the first time that we presented ASTar to a broader public at this date in June. But apart from the partnership and product's overall progress, we also had a very strong financial quarter. And we successfully completed the directed share issue of SEK 217 million in June. And of course, a priority for those funds is really to further expand the commercial launch of ASTar, including production ramp-up of instruments and consumables for future estimated sales volumes. But we also would like to use the funds to further strengthen the potential manual expansion coming to ASTar, but not only work with ASTar, but also other very interesting products that we think could be a very strong sort of added portfolio to Q-linea in the future. But I will come back to that in the future quarterly report. Then of course, we all know we are in a difficult situation today with the coronavirus and COVID-19 pandemic, so we also wanted to strengthen the working capital position because we may not see the long-term effects of the COVID yet. So if we then move to Slide #4, I just want to give highlights of ASTar and really the first system that we are developing here. We have been working closely with customers for many, many years. It's really 3 things that I would like to highlight from the system. Of course, it is an antibiotic suseptibility test system. It needs to be rapid. Our first syndication sepsis is all about time. So true actionable results is important to have in a timely manner. So ASTar is fully automated in 3 to 6 hours from a positive blood culture, but its technology is not limited by that. So for other type of indications, we can be actually a lot quicker than this time point. But the other key -- and I think it's very important to get adoption to the labs if to be integrated in the lab workflow. It needs to be simple to use. Everyone should be able to run an ASTar at any given time point during the day. So by that means it takes less than a minute to load the system. As I said before, it's fully automated. You can analyze up to 12 patient samples in parallel or up to 50 patient samples in 24 hours. But of course, being rapid and being simple to use is important but it also needs to give an actionable result. It needs to be a comprehensive results. We designed our consumables, so they can work with positive blood cultures, but also other clinical samples such as urine or isolates. So we think that's important for the long-term, [ a many ] offering on the system. But it's also designed to cover a lot of antibiotics in a broad dilution range. So our AST disks can hold 336 wells that can be independently addressed. And that tests 3.5x the coverage of a 96-well plate. So that gives us the possibility to cover many antibiotics or antimicrobials in [ both ] concentrations. But if we then move to Slide #5, I would like to highlight in a little bit greater detail, the key things I see happened during the quarter. And I would say the biggest thing was really the market presentation of ASTar on June 5, where we not only showed the overview of the system, but actually, for the first time, also allowed potential customers to look under the hood of ASTar to see that underneath technology that we think has been designed to be very [ future-proof such as compatible ], but also give a robust result. And it really was a way to familiarize with the system. We also performed the demonstration on how easy it is to start an analysis in ASTar, using a scintigraphic user interface that guides you throughout the loading process. And as I said, we had a lot of people attending the webinar. And I think that was really a good starting point for the upcoming commercial launch of the system. But of course, we have seen quite some intensified activity with our partners, Thermo Fisher Scientific. And I must say that despite we are in trouble some time with corona pandemic, we have had very good progress with web-based meetings and a lot of interactions. And we now really increase and expand those activity, major activities, of course, for the upcoming launch, but everything that goes alongside with that, service and support, ordering and such things. So I think that we see a strong commitment from both companies for coming into the third quarter, and I'm really happy about that. If you take a look at Slide #6. Another thing that I'm particularly proud of that we could present very strong data on a preclinical study on septic patients. That was done together with Uppsala University Hospital. We had a relatively small patient sample, 17 patient samples. We analyzed 29 antimicrobials -- antibiotics in both fastidious and non-fastidious bacteria. And the result was, I think, excellent. We had an essential agreement of 94.5% and a categorical agreement of 97.3%. That's well above the guidelines for Europe and U.S. And of course, that's makes us feel stronger for the upcoming study that's planned during the second half of this year. I can also announce that we have signed a contract to be a study partner together with Uppsala University Hospital, and that's really the first hospital that's been contracted, and we have late discussions with a couple of additional sites. We are, of course, also evaluating our U.S. clinical study strategy. We are intensifying those discussions as well. Of course, as we can all follow, the U.S. has a very difficult situation with COVID-19, as we see today. But I think here, we know that we can perform part of the study internally as per FDA approval, also have a strong partner in the U.S. with Thermo Fisher Scientific. So we are still looking quite promising on that study as such. But it will have to follow the overall pandemic events and studies that's coming [indiscernible]. If I then move to Slide #7, which is more of the, I would say, the COVID part of the quarter. As I said, the consumer design is now finalized. We have locked design for everything, including the packaging material. We have produced the first batches for verification and, of course, stability studies, and we have now these into verification of that. It has all been produced in our new sites, Palmbladsgatan and Uppsala. And I think that's also been the great effort of the team to really move production and set it in place and do that in a timely manner. We've also completed a MIC reference testing for the EU study, so that is now done. We might be able to add a couple of isolates during the study if we would like to go into a specific resistant mechanism. So -- but the overall work has been completed. The same goes for the ASTar instrument design. The design we have for the clinical studies ready, and that's also the same design we see for our commercial instruments. So we have a number of what we call the Alpha 3 generation now operational in our microbiology lab and the instrument base in our lab is increasing. So I think that when we look at all these things put together, I think from a commercial standpoint, partnership standpoint and financial standpoint, I am very proud of the quarter. And I think even to do these deliveries under the big pressure we have with COVID and corona, I think, is truly an effort from the whole team here at Q-linea and our partners. So if we look at Slide 8, which is really the effect of the corona on Q-linea. And I must say that so far, we have not seen any major delays in our operations because of the corona pandemic. As I said also in our last report, most activities are so far internal. We have managed to have a healthy team here. And we also, of course, have adopted new work regimes to be able to continue that. We also see a very strong interest from our clinical partners to really work with us in performing the clinical studies as we also demonstrated in the preclinical study with academic hospitals. So I think that also is promising from the study to come here during autumn. And as I mentioned, the U.S. study, we are still looking positive on that. But of course, we'll have to follow travel restrictions and availability of those sites. And I do hope to have more updates on that on the next quarterly call. But overall, I would say that we have come through the first half of this year strong even though we have a pandemic. We might, of course, see effects in the future that are just difficult to predict today. We do rely on a number of components from third-party companies. Of course, if we see any problems there or if you have a larger spread of COVID-19 within the company, that, of course, may cause problems. But so far, at least, I'm happy, and I really would like to say thank you for the team, and I hope a little bit of summer vacation before we start up the company working hard towards launch late this year. And that really concludes my summary of the project and company-related activities. And I will now hand over to Anders Lundin, who will take you through the financial outcome of the second quarter. So go ahead, Anders.

Thank you, Jonas. So I start on Page 9. And overall, the financial statements are no big surprises this quarter. It looks very familiar to the first quarter we had in terms of costs. We have -- we see an increase in costs since the same quarter last year. It's basically because we are producing and using more ASTar instruments. We are producing more consumables. We are expanding in number of employees and also in consultants. And we have 2 more -- we have 2 more facilities to host our employees and consultants, as Jonas described. So the net sales are SEK 0.1 million, and we have an operating result of minus SEK 58.6 million. The net loss after tax was SEK 57.4 million, and we have an earnings per share of minus SEK 2.37 for the quarter. We then move to Page 10. Our balance sheet, by the end of the quarter, by end of June, we had cash and cash equivalents in the bank of SEK 38 million. We have invested our -- we have invested in short-term interest fund. So SEK 235.4 million. And we have also listed bonds where the short and noncurrent portion is SEK 95 million. And the non-current bonds is SEK 90.4 million. So that is our balance sheet highlights. And then if I move into the cash flow statement for the second quarter. We have operating activities, cash flow from operating activities of minus SEK 54.8 million, and the increase in the cash outflow is mainly due to the larger operating loss. We have invested our surplus from the direct issue. We have a net investment of SEK 190 million. And they -- as I said, they are invested in short-term interest funds and listed bonds. And as Jonas already mentioned, we have a cash flow from financing activities. We -- the company results direct issue of 4 million shares and the subscription price was SEK 67.5 per share. That was approximately 2.5% discount, and that will raise the gross proceeds of SEK 270 million and a net proceed of SEK 255 million. So by the end of the quarter, we have cash, cash equivalents, short-term investment and bonds to a value of SEK 458.8 million. So I would say it's a strong financial position. So by that slide, I would like to hand over to our moderator for Q&A session.

[Operator Instructions] Our first question comes from Ulrik Trattner, Carnegie.

This is Ulrik Trattner from Carnegie. First question is regarding -- you did a capital raise quite recently. And obviously, you already had a strong financial position. Just to what extent has this accelerated the development of expanding your test portfolio? And then I'm mainly thinking about oral urinary tract infection and respiratory infections?

Well, so thank you for that question, Ulrik. Yes. I think we haven't -- I can't give you a number of the acceleration on further assets per se, but it definitely brings us in a much better position to more aggressively, of course, drive those developments. But I would also like to say that it's not only focused on new manuals on ASTar. We're also looking into other areas where we have we think very good technology that can really combine and completes the ASTar offering. So I would say that we, of course, look at manual expansion, as I said, urine isolates, for sure, but also really looking into other areas that we think could be very interesting for the company, for patients and for our shareholders. I can't give any more details on that really right now, but of course, that's something that we look forward to in the future to communicate a bit more in detail around.

Okay. And it's hard to go into this topic if you can't answer this question. But you do have more capital equipment that you have already developed and then sort of mainly focusing and thinking of the ASTrID system and perhaps even a system for sort of easier tasks. Which one would you prioritize, if you can answer it?

I can't -- well, I won't answer it directly, but I would say that for the ASTrID system, I still think that it's a bit more long-term effort for that. And I think that's not just from a technical point of view but really from a regulatory environment as we are today. So I would say that maybe the ASTrID is a bit more long-term priority for the company. And we see that we have other areas where we can be more aggressive and really grab a bigger bite earlier. So having that said, of course, everything is now focused on the first commercial launch of ASTar. But of course, as that's coming closer, with a strong cash position, we, of course, want to start acceleration of products to come in the future as well so that we can really try to hold the pace according to our internal sort of codes in the company.

All right. Great. And just in terms of when you're able to start the clinical trial in Europe. Is there anything that limits your way to starting this study in the early fall, which then would enable commercialization in -- during Q4? Especially then thinking about the COVID-19 situation? And basically, the same question goes for the U.S. Do you still see limitation in the U.S.? You mentioned it. But if you could please shed some more light on that in terms of when you actually think you're able to start the U.S. studies?

Right. Yes. So I'll take that in 2 sections. I'll talk about Europe first. Within Europe, we -- I mean, we are on track. We have announced the second half of this year. And of course, we haven't announced a precise date that will, of course, be communicated when we start the study. But so far, we haven't seen any hindrance for the European study to start on time, according to our internal plans. And I think also, it's quite importantly, the test run with the kind of the cost that it was, of course, an important sort of stack towards that. So I think for Europe, I would say the biggest risk I see for my company would be we have a number of people at Q-linea getting COVID-19. And so far, we have managed to change worker teams and handle that quite well, but that is probably then could be higher risk than we see from the study side. So with that regard, I think it looks very promising and good, and we are on track with our internal plans. If we then come back to the U.S., as we announced earlier, we are allowed to do some part of the U.S. trials. And there, we don't see any reasons for delay. That will, of course, start at the same time as we basically start the European study. So we'll continue to do whatever we can, of course, as a Swedish site but for the U.S. study. And we are now also looking into much more detail about the actual sites in the U.S. And really, what we need to follow most carefully, I would say today is how travel restrictions, access for our service engineers to be able to install systems. And of course, that will most likely change on a weekly basis now when we come into August and September. So we'll follow that quite closely. Of course, we'll also discuss them with Thermo Fisher since they already have a big team in place in the U.S. and see if we can help each other somehow to get that access from U.S.-based personnel already. So -- but the U.S. is a little bit more difficult in a sense that as we all see, it's a very dramatic increase in COVID-19 cases in the U.S. right now. So we try to do and mitigate the best we can. But we'll, of course, work with everything we can do internally, and we'll definitely not waste a single day with the European study because of this. All the work we have done and completed is going to be positive as soon as the sites are open for that. But of course, we'll also announce that in greater detail as soon as we know exactly what's going to happen there in the U.S.

Okay. Great. And the last question before I go back into the queue, you tend to talk relatively little about the opportunities in the emerging markets. Could you just -- do you have a plan for -- to launch the ASTar system in emerging markets as well? And could you guys give us the headlines on how you plan to establish ASTar in the emerging markets in terms of clinical studies necessary and so forth?

Right. Yes. So I mean, of course, the greatest details are today, of course, focused on Europe and U.S. but we are, together with Thermo Fisher, of course, deeply looking into the emerging markets, China, of course, being a very interesting market. So we do have a lot of discussions and planning between Thermo Fisher and us. We have decided so far not to go out with any time plans for them. But of course, as we said also before the partnership, I think one key strength here is to have a partner which already have worldwide presence. It's definitely going to allow to accelerate new territories coming up. China, of course, requires their own clinical studies, quite different from Europe and U.S. So that is also what needs to be in the planning. But I think we take it quite step-wise. We're really focused on Europe-U.S. first. And then, of course, look at how that develops and how the product is adopted and accepted and appreciated, I think, in both markets. So I would say that we will most likely not come out with any more details on emerging markets until, I would say, roughly next year before we communicate those. But they are, of course, an internal high priority for both us and Thermo Fisher.

And do you believe there will be any opportunities to use data from either the European and U.S. study in the filing? If you look into China or especially mainly Japan, which tends to be more adoptive in terms of using data from -- which has been approved from other authorities? Or do you expect this to be completely new studies that needs to be initiated?

I would say it depends a little bit on region and country by country. For some, we definitely will have to run a dedicated study. For some, we can use data. We're also now looking into, for instance, Canada, where they have a much more wide adoptance to a CE Mark, meaning that Canada could be another country to go into to the region of the Americas. So we are looking into that and seeing where we can use bits and pieces. But also, I might say that some part of this regulatory networks actually change over time. And I think also the drive for new infections is diagnostics, is becoming more and more apparent when we see the COVID-19 situation. So it might actually spur some new changes or adoptions to regulatory networks in the next year or so. But that's something that we follow closely. But I would say it's probably a mix between something that we can reuse, but we also definitely had the plan for dedicated studies for some regions.

[Operator Instructions] Our next question comes from Victor Forssell, ABG.

I think there are some follow ups on the earlier ones, but I'll just start the question regarding the progress you've made this quarter with Thermo Fisher. If you could provide any color on the discussions with them and also their own sort of view and the feedback that they have given you guys in terms of the commercialization?

Yes. I can give some overview, of course. I mean what we've really seen during the second quarter is really a more broadening and deepened discussions. I mean, when we do go outside, let's say, the contracting team, where we now broadened it within both organizations to -- everything from service and support, logistics, of course, marketing, messaging. So I would say that we have seen quite intensification and broadening during this quarter. So I think that's good, and it's all according to plan. And I'm really happy to see the commitment from Thermo Fisher regarding ASTar. And I think also that we both truly share the vision of what's really needed to come and how it can change both the workflow situation at these labs and, of course, helping better patient outcomes. So I can't provide any specifics around that. But of course, we are finalizing the marketing messaging and working a lot with that. We need to do that well in advance, of course. We do plan of course, all training for marketing personnel, service engineers, application specialists, so we can have that in a timely manner before we go out and launch a product. So I don't know if that answered the question, but that's really the high-level activities that's currently ongoing. And that's, of course, quite intense on a weekly basis. So a lot of moving parts, but all moving in the right direction and forward.

That's great. And just in terms of -- obviously, you don't give the financial terms of the agreement yet, but what should we expect in terms of understanding that here in there -- well, upon the commercialization phase?

So -- but I think -- no, we haven't announced that. We don't have the liberty to answer the true financier's terms. But I think that some of those will, of course, become a little bit more evident as soon as we are coming into the commercial plan. Of course, we will report all income to Q-linea. So I think that could be a good modulator and calculator to drive a little bit how we have set up the agreement at start. And then, of course, when we think about future volumes, we have not announced and said what we think there. But I can say from my point of view, we have a very similar view on the type of adoption that we think is possible for ASTar. And I think that's also the reason that we did this fundraise to really strengthen the company to support that going forward. So of course, long-term volumes, that will come a bit after the commercial launch. But I think some part of the financial structure will be more apparent as soon as we report income from the commercial activities to the company.

Sure. Yes. That's great. And just coming back to the U.S. What is the feedback you're getting from either the U.S. labs or indirectly from Thermo Fisher at the moment about the -- I mean, opening up again and sort of just a follow up on that as well? Your own feeling, if you have become less certain now than, for example, in 3 months ago, where you were really able to conduct the study there in the U.S. or at the U.S. site?

Well, I think, first of all, the situation has worsened in U.S. overall, if you just look at it on a high level. But we have also been doing a much more detailed analysis looking at sort of various sites. And I think it's also quite apparent that, first of all, a lot of clinical sites need these types of studies to support their funding position. So it's important for them to have those studies. And we're also going to see, I mean, U.S. is a big country. Not all parts are as affected by the COVID situation. I mean, we have a number of states that are severely affected but also other states that are less affected. And of course, if that would stay the same, that we have to see. So what we're doing now -- so together with our clinical study partner in the U.S., is really looking into much more detailed planning on seeing which hospital that has been affected more than others and to include those in the study. So I think from a study size, we still feel quite positive. And also, we don't really need more than 2 sites in the U.S. So we don't need to run a sort of a multi-study of 13, 14 sites. So that, of course, eases the pressure off a little bit. But as I also mentioned during my talk is that, of course, we need to have the possibility to travel and work in the U.S. to install systems, and that is still quite uncertain. So from a hospital perspective, again, not all states are as affected as COVID-19 as others are. And we can still be quite agile and change our planning a little bit. I think I would have actually been worse if we have started the study already and that particular hospital would have seen a big hit of COVID-19 patients. So I think we are in a little bit positive situation to be able to adapt at least. And then, of course, no one can really look into the future and see what's going to happen with that particular site or that particular state. But at least we can filter that into the planning. Overall, I think otherwise, it's a tough situation for the U.S. Many hospitals are really struggling now with the late outbreak. But again, it's not as severe everywhere. And I think that, for us, at least is positive. And of course, also for those states and people living there is positive.

Yes. That makes sense. Just the last one for me. You commented about the late discussions with other sites in Europe. Just to get a sense of also here a bit more about the feedback or perhaps any hesitation in finding a contract with you for the European study?

No, I can't really say that. I mean, the study sites that we have been working with for a long period of time, I mean, they are really eager to get going. They are -- I mean, all hospitals are affected with COVID patients. But where we are today, we still see the same level of commitment, and I don't see that changing the overall signing or working with those studies. But also, an additional reason just to be on the safe side as much as we can, we are now looking at enrolling actually an additional site, and we have very positive discussion with that site already. So that's really to try to take some sort of added high to risk level if some of our selected sites were to become very, very troubled with COVID patients. But we don't actually see a lot of hesitation for the sites. And I think also relatively -- luckily, they haven't been so hardly affected by COVID. And I think also when we did the test trial with academic hospital, the overall workflow with us is, again, very simple. So it takes extremely little additional time, basically a minute for the operator to also start testing the ASTar compared to the overall workflow. And of course, that makes it also easier to adopt and do something like a clinical study when the system is so well integrated in the current workflow. So I think that, that job has been of paramount importance for the study, but it's really, of course, going to be crucial for adoption of ASTar in the future to run it by anyone at any given time point. So I would say for Europe, I'm still very positive. But I also must say it can change. This situation is changing fast. But the last 2 quarters, we have had the same message, and it looks like -- and I hope we can have that for the next quarter as well.

There appears to be no further questions, so I'll hand back to the speakers -- oh, sorry. Ulrik Trattner from Carnegie has a question.

And just my last question. In regards to hospital budgets, it seems quite obvious that they will be worse off going into next year. Do you see any limitation in budgets since you're selling quite expensive capital equipment? Or do you think this should be mitigated by a regent rental business model that should enable you to place your systems out in the market?

Yes. No, I think it would be naive to say that we can't see any effects. And I would say, particularly in the U.S., I think it can be quite difficult for labs. So I think the effects we see it's still a high priority or even perhaps a higher priority. But of course, you need to have the funds to do it. So that is, of course, yes, a risk. But also as you pointed out, I think now with Thermo Fisher, we really have the best partner to offer other types of not just cash-based sales, you can have reagent rental, you can even have leasing agreement. So at least, I think we, together with Thermo Fisher, could handle that situation, the best possible. And -- but I think there might be hospitals that will have to avoid purchasing, expensing in the next year. I don't think all will be in that position. But of course, that is a risk. I agree with that. I would say that, in my mind, it's probably more towards the U.S. and European market with the intent we have today. But I think together, we can at least offer the best solution for those hospitals. So I think we'll have to follow that also carefully and see really how it develops. But some struggling and some actually managed quite well.

There appears to be no further questions, so I will hand back to the speakers for other -- any other remarks.

Right. Thank you. And also, thanks for all the good questions. I think it was an interesting discussion. And really, we would just like to say to everyone, I hope you will have some time to enjoy some probably well-earned vacation. Enjoy the weather. And of course, stay safe, use social distancing. We are in for the long run. So with that, me and Anders would just like to say have a nice summer, and we'd be happy to come back with further announcements in the future and, of course, the Q3 report coming up later on. So thank you very much from Q-linea. Bye-bye.

Bye-bye.

Thank you. This now concludes our conference call. You may now all disconnect your lines.