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

And thank you, everyone, for calling in to our Q4 report today. I think we're going to have an interesting discussion and report what we accomplished over the last quarter. With that said, I would like to move to Page #2 to show our disclaimer slide in case me or Anders would make any forward-looking statements. But I would suggest we jump immediately to Page #3, where we have sort of highlighted the key events of the fourth quarter, and we will go into detail about this. But as you know, at Q-linea, we are working with developing disruptive solutions for faster infectious diagnostics. The first product is coupled towards positive blood cultures, where sepsis is a key indication. We have grown a little bit since Q3 last year. We are now 140 employees and consultants at year-end. And of course, the biggest news was that we were able to start the first clinical studies for ASTar during the last quarter. This was in line with early market communication, and we were truly excited to be able to finally start the clinical study. Of course, in parallel, we are preparing for launch ASTar in the system. So we have started to build launch inventory during the quarter as well. Also, the work and collaboration with Thermo Fisher Scientific has increased over that quarter. And of course, the key focus is towards supply chain, marketing material and really getting synchronized for the upcoming launch. So premarket activities are ongoing, both from the official side and, of course, internally at Q-linea as well. Another thing that I'm truly excited about was that we could announce development of our next-generation technology for blood culturing, and I'll come back to that. I think it really shows the strength of us as a company. But although we have just started the clinical study of Astar, we are now thinking for the future and see how we could further expand and improve, in fact, to see diagnostics. But if we move to Page #4. We just like to highlight the first indication or application, sepsis. It's a global health problem. And if we look at it in the context of antimicrobial resistance, it has been deemed to be the biggest threat to mankind. But if we focus on sepsis alone, we have 50 million people affected every year. And every third second, a person will die from sepsis. It's the most expensive condition to treat in the U.S. health care system. And it's a leading cause of death in the hospitals in U.S. and Europe. But I think the key for us as a company, working with improving infectious disease diagnostic is that early health economic studies has shown a dramatic increase in survival rate with the us supplying the correct diagnostics and thereby providing the correct treatment earlier. We do know sepsis is a rapidly escalating syndrome, where every hour, you are on the wrong treatment, if you have anaphylactic shock, means that mortality will increase with close to 8% every hour. So really time to correct treatment is a lot most important. So if you look at Page #5. Here, we have put ASTar's workflow in comparison with the traditional workflow that we see in the hospitals throughout Europe and U.S. On the top part of the image, you can see the multi-step process, extending over several days for traditional AST diagnostics. And of course, the biggest issue we have here is you start empiric therapy day 1 as a physician. But it's -- usually have to wait 2 to 3 days additionally to get the correct treatment recommendation. This means that more or less 50% of all patients are on the wrong treatment. But more dramatically, around 20%, will have died before you receive the answer. So of course, it's important to provide the right answer faster. So if you look at the lower panel, you can see that the workflow for ASTar is dramatically reduction in time. Time is really what matters here. But another thing that you can see on this image is that on the top part, you see that every circle means that you have to have a lab technician that intervenes that work with the sample. And you see that there are many, many circles in the traditional workflow, whereas in ASTar you come in contact with a sample onetime takes less than a minute, hands-on time to start to run. And we have seen that during our preclinical studies that this is a very highly valued feature and particularly in this pandemic we're in, where the micro body labs are super busy with running COVID tests and analyzing that. We do know that positive blood transfer is the highest priority sample, so if you can run that smoothly without sort of interfering, we have received a very strong feedback there. So I think it's important to remember that actionable time to result means not only having a rapid AST but also meaning that it could be integrated easy in the workflow at the laboratory. So if you move to Page #6. These are sort of the 4 pillars of how we have designed ASTar. And as we said before, we work very close with customers, Europe and U.S., throughout the development of the system. As I pointed out, it needs to be easy to use, thereby, it's fully automated, very little hands-on time, and it's a random axis workflow. You can have up to 12 patient samples, simultaneously in the system, but as soon as you have free capacity, you can load the samples. You do not have to wait for certain time points to load samples. We get results in about 6 hours because of blood cultures for other indications, we are much, much faster. So it's all coupled to a particular sample and the drive that you want to analyze. But we've also designed ASTar to be a comprehensive system, having a large antibiotic panel and long concentration ranges. We have demonstrated data on both fastidious and nonfastidious bacteria. And of course, fastidious bacteria accounts around 10% in sepsis. So it's a priority but they are more difficult to perform AST on. We have also designed the consumables, as you can see in the middle of the screen, to support future applications, isolates, for instance, urine samples and so on. So we have prepared the system to go beyond blood analysis in sepsis. But we also defined the system to provide the most accurate result we can have for a acceptability test. We provide the MIC value, and the MIC value is the concentration that kill or inhibit bacteria. And in the world of rising antimicrobial resistance, we have seen that having the true MIC value is important in some cases where you want to guide treatment or treatment regime in some cases, and of course, it helps a physician and the microbiologist to see really if you see an escalation resistance or not. We've also seen a very excellent reproducibility of the system throughout all our tests. So if we move to Page #7. This is data from the preclinical study we perform together with academic hospital in Uppsala last year. And this really indicates that ASTar could help save lives. So in this particular case, it was a man, 73-years-old, recovering from neuro surgery, at the intermediate ward. He was diagnosed with aspiration pneumonia. Of course, that escalated, he was put on Cefotaxime day 1, escalated into sepsis, and you could see really no positive outcome in the treatment. For example, as soon as it hit positive at the microbiology lab was put into ASTar for analysis, and we could provide the result the same day, and that result indicate resistant towards Cefotaxime. This was, of course, confirmed day 3 with a traditional method performed at the hospital. This is one case where you can really show that faster diagnostic results can change outcome of patient and can provide by the treatment guidelines. Apart from that, we performed the analysis of 10 more antimicrobials compared to the standard method in the hospital. And this, of course, give you a broader repertoire on what to treat with and how to work with it. So this looks really promising for the future. If we then move to Page #8, we can see the outcome from 3 independent health economic studies that has really looked into what faster diagnostic could provide for benefits. For the patient, for sepsis patients, we have seen a dramatic increase in survival rate, of course, very, very important. But also, if you can change treatment and go from the broad-spectrum treatment that you start with, to a narrow spectrum treatment, we can also reduce pressure for superinfections and resistant development. And that's absolutely essential for the hospital, but also for the society. And I think also, these type of patients will end up in intensive care bed as do COVID patients, for instance, very expensive beds. We have a team around the patient to make them survive or combat the disease. And those earlier studies have indicated that you could save on average 2 days on the intensive care unit. And that, of course, makes a dramatic cost savings for the hospital, but also provides a higher capacity because you have more free beds. So I think when we look at this for the future, there are very many positive things for the patients, for the society and for the hospital as such. So we look forward to an upcoming launch of the product. That was a little bit of background around our technology and around ASTar. So I'll now comment a little bit more about the findings and activities during the last quarter. So if you move to Page #9. Of course, we wanted to start with a clinical study update. As you know, this was a key driver to have that started during the second half year last year. And we could start the clinical study in starting in December. But of course, apart from starting the study in Europe, we're also pressing on with the preparation for the U.S. clinical study as well. So we have selected the reference testing sites, and we are now, of course, after the quarter moving into the contract discussions. We have also selected the preferred clinical sites. As I mentioned before, we had a huge interest to participate in ASTar study. And we really wanted to select the clinical -- hospitals that we think would be best for the performance of the study, but also, of course, very important sites for the future. We've also selected the trial coordinator in the U.S. that will keep everything up to sync with us in Sweden and, of course, with the U.S. sites. So very, very interesting news to see that come out. If we then move to Page 10, we can see some of the more preparation we do to be launch-ready basically. As I mentioned, we started to build up stock for the commercial instruments. And that's really to make sure that we can deliver to the instruments to the customers via Thermo Fisher, of course. We're also ramping up the consumer production pace, both commercial products, but also to support the U.S. clinical study and health economic studies we're planning for next year -- for this year, sorry. Of course, to be ready to launch, you need to be aligned with market message and material, and we've been working extremely close with Thermo Fisher Scientific and we have an excellent collaboration and great spirit in that work. And that's really to prepare materials to support the launch, of course. But we're also, I would say, escalated or initiated training in some cases, for sales and service personnel. So very, very good progress for the launch readiness work that we did last quarter. If we then move into Page 11, another key aspect is, of course, that you want to have a long shelf life of consumables, both for the supply chain, but also for the end customers. So we passed the 6-month gate, which is good, both the sample preparation cartridge and the ASTs performed well and as expected, and the goal is to reach 12-month stability during second quarter this year. I think this is important. And as you know, our consumables are room temperature storage, apart from a very small insert that you have in minus 20. So the logistics and supply chain is fairly easy for ASTar as a product. Of course, it's not just to have stability when consumers are standing on the shelf. It's also important to see that they can pass transportation studies. So we have concluded the first phase of transportation studies with absolutely excellent results. So we're really trying to challenge the consumables, but they have performed equally well. If you then move into Page #12, I would like to talk a little bit about the new product in development. And we talk about really disruptive technology for blood cultures. It truly has the potential to provide equal and better care for all patients, no matter if you are coming example, from a small hospital or a larger hospital, perhaps during night time or during the weekend. It could save more than 10 hours in the entire workflow for blood cultures. It could enable more streamlined workflow in the lab. And this is a unique time to use the time instead of waste the time. We have indicated that we want to start external evaluation during this year, and that still holds true. But I also want to share some of the data we have so far in our technology. So this is just one example of incubation of streptococcus pneumoniae. We do, of course, want to compare our technology with the best-in-class blood culture cabinet. I will not give the company name, but that's the blue line company A. And you can see 3 transportable culture cabinets from us, giving the results actually more or less an hour faster than the standard practice. But then, of course, if you feel free in that every single minute during transportation, it happens. You don't have to wait for the lab. We are really excited to take this product as well as ASTar into development and, of course, out to patients. So I will just give you a few notifications or highlights after the period end. And really, the clinical study is progressing well as of today. We are about 2/3 into the study, and we haven't really seen any surprises yet regarding performance. So we are progressing according to plan. And as we have earlier indicated, the time scope for the study would be in the 3 to 4 months, assuming that everything goes well. This could be Corona or something that's unforeseen. But as of today, we have a great progress, and we are still keeping to the time line of the study. But talking about Corona or COVID, if we move to the next slide, Slide #14, I would say that it has not caused a delay on the Q-linea operations. We are still primarily doing the most amount of job internally regarding the clinical study and the commercial preparations. But of course, we have seen a slight increase in sick absence direct as well as indirect on our employees. And of course, we have to adopt so that people who can work from home will, of course, work from home. But I think we have managed throughout the whole last year and so far, early on in 2021, have not seen any major time line changes. We, of course, we follow this carefully. The situation is still absolutely severe. And yes, that's me as well as you are, of course, waiting for the -- see the end of this problem. With that, I would like to hand over to my colleague, Anders Lundin, to talk you through the financial situation of the last quarter. Thank you very much.

Thank you, Jonas. So I'm moving into Slide 15, and that is some of the numbers that came out in our year-end report published this morning. So we didn't report any net sales. It's still too early to do that. So the operating result, which is the expenses for the quarter decreased with SEK 5 million compared to the same quarter last year. It's mainly raw material and external cost that decreases. And the offset is personnel costs which have increased instead. So we reported a loss after tax of minus SEK 56.6 million, which is -- which also lower than last -- the same quarter last year. And the earnings per share is minus SEK 2.1 compared to minus SEK 2.71 in 2019, fourth quarter. So if I change to Slide 16, we have a balance sheet. And we have realized -- the cash and cash equivalent is about SEK 10 million. We have most of our surplus liquidity invested in fixed income funds of SEK 165.7 million, and we have the remaining part in bonds, which are either current or noncurrent. So the current part is SEK 131 million and the noncurrent part is SEK 24.4 million. And as Jonas mentioned in an earlier slide, we have built up an inventory. And in the books, we have SEK 12.4 million. That's the value of the inventory we had. On the cash flow statement, we had -- yes, Page 17. We have cash flow from operating activities, minus SEK 76.7 million, and that indicates that is mainly the expenses operating loss and the buildup of the inventory we have done. And we have also seen a slight decrease in accounts payable. The cash flow from investing was mainly the divestment or the sales of the short-term interest fund to finance the day-to-day operations. And there have been no major financing activities during the quarter. So on the bank and the short-term investment on the bonds, the total amount of debt is SEK 331.2 million at the end of the year compared to SEK 327.5 million by the end of 2019. And by that, we have completed our presentation. I will hand over to Jonas.

Thank you very much, Anders. So that really concludes our report for the last quarter of last year, and we are now moving back to the operator.

[Operator Instructions] We have a question from the line of Victor Forssell from ABG.

I hope you hear me well. I'll start with a question. First of all, thanks for providing the details regarding the clinical study. Just a follow-up on that. You mentioned that 2/3 of the planned samples are analyzed so far. And the time line still holds with 3 to 4 months that you indicate here. So just to get a grasp on the hurdles that are left in terms of both time and the lost amount of samples. So -- or how should we read into the fact that you would have, let's say, 1, 1.5 months left and 1/3 left of samples to be analyzed. Is that what's really left for you in order to receive the CE mark?

So first of all, thank you, Victor, for that question. No. So when we started the study, of course, we started with a few instruments running the study. We have now a total of 5 instruments performing. So the pace in analyzing sample has dramatically increased over the last month or so. So I would say that samples to analyze is not the big thing but the time plan. It's more really to perform and conclude all the technical files and registrations that's needed for that. So I would say it's a balance between running more samples, of course, and doing a lot of paperwork that's needed for the technical file. But as we announced, we see that we are progressing well. And if nothing unforeseen happens, we definitely think we're on the right track.

Okay. That sounds good. And furthermore, on the U.S. side of things, the preparation for the U.S. clinical part. You mentioned today this reference testing site that you have done this selection. Just I mean, a short -- remind us of the implication of that site and also comparing that to I mean leveraging 1/3 of the total study from your own site, please?

Right. So the reference site U.S. is, of course, a very important site, and we won't have a good selection because they will basically provide the answers so all sites will send their isolates to the reference site and they will perform then the reference analysis, basically giving us the blueprint for the results that we then, of course, need to match in ASTar. So that's a very huge step and important step also coupled to having the clinics we want to work with sort of planned for. I think that's equally important. But I see this as the European site, and the 1/3 that we move on here. There, we have full control internally. We already have performed all reference measurements so that's really 2 parallel tracks, if I understand your question correctly, Victor. So they are, of course, to some degree, competing activities, but they are also independent activities.

Sure. That sounds good. And just a final one before heading back to queue. On -- let's say, I mean, on the order book side, is it feasible? Or is it even possible that you could take on orders already ahead of the CE mark, i.e., prior to you receiving it? And then is it feasible to assume that you would publish any sort of order intake at the time that you publish the results or the news that you will achieve the CE mark?

Right. So I can probably answer your last question first. As soon as we have orders coming in, that will be published separately, independent of time line for the CE mark. So that will be press released for sure. I think also what we are doing now is premarket activities, and that's really preparing and visiting and talking to hospitals to sort of sense the interest and present us are also -- if people are unfamiliar with the system. So but then, of course, a sale, at least in Sweden, will happen after the CE mark. The premarket activities are ongoing. And if we see orders coming in, that will be, for sure, published and press released to all of you.

And just to get that clear, it is possible that you could take on orders ahead of the CE mark?

Well, I mean, maybe won't likely...

In a good scenario.

It is possible for sure. It is possible but it's perhaps a bit unconventional.

Next question comes from the line of Ulrik Trattner from Carnegie.

Jonas and Anders, I have a few ones. I'll try to run through them quite quickly. Just on the U.S. study, obviously, you've been making progress. That's intriguing. Could you help us understand what's left to be completed before entering these clinical trials beyond contracting the sites. In addition to that, could you also please shed some more light on -- I know we previously discussed to include isolates as part of the approval process in the U.S.? What's your thought on that? That would be my first question.

Okay. Thank you very much, Ulrik. So when we look at the U.S. study, I would say that the next big step before we can run it is to have our study coordinating, finalizing the protocols, of course, and finalizing the database really to start putting data into that. As soon as that has happened, we can start activities with, for instance, doing reproducibility studies and so on, which we were allowed to do in Sweden by the FDA. And then, of course, we have some contracts that need to be signed with the particular hospitals that go in there. But again, as we were allowed by the FDA to perform a big part of the study internally, we also need to have the study protocol set for that and the database set. So again, I think it's a stepwise approach to come closer to start for the U.S. study. And I think that's going to be important. If we come back to the isolates question, in a sense, we are actually already running isolates in ASTar, all the quality controls that we do on a daily basis or isolates that we run. But if we decide to claim that as a separate product now or if we want to do it later, that's still a possibility, let's say. But we are actually running isolates in ASTar during the clinical study as we speak. That's not saying that it's perhaps the best way to claim both at the same time, maybe you want to extend that or you want to do some tweaking with that as such. So I can't comment on that, but what I can say for sure is that it works perfectly fine to run isolates in ASTar because that's what we're doing right now as well.

Okay. Great. And just a follow-up question on that and sort of leading into the engagement you have with Thermo Fisher. On the isolates side, how much of this sort of decision to go with the expand of approval with isolates. It's up to you? Or is it up to Thermo Fisher being that they're the licensee of this instrument in this test? And you also mentioned that you have increased activities with Thermo Fisher, pre-commercial activity. But could you be a bit more specific on what specific tasks has been on progress that has been made since the last few months?

Right. Yes, for sure. I could probably comment a little bit on the activities with Thermo Fisher. Of course, as we are progressing in the study, we are also, I mean, coming closer to the launch. So when you come up to the launch, there are many details that needs to be tested. We need to make test orders, for instance, in the system to see that our system and there are perfectly line. So we'll not have a hiccup, very technical, but of course, quite important. But I would say that most of the work is coupled to marketing material and sort of getting that sense there. But of course, also training on personnel. So training, service engineer and training application specialists and sales personnels. So that is, of course, a very, very important part to do as we speak with Thermo Fisher. We're also doing, performing test shipments to see that, that works as well. So it's very, very many work streams that have been escalating, and it's still escalating as we speak right now to really get ready with that. And to come back to the first part of the question is what type of activities can we see with sites on what we have done in the U.S. or specifically, with Thermo Fisher. And of course, we are focusing truly on the first product, to get the first product out. And we are in-charge of adding new product releases, that's completely Q-linea sort of sole discretionary, chose to see what we want to present to the market and on what markets to address. But of course, I mean, the knowledge of Thermo Fisher and the partnership we have that, of course, means that we have close discussions and try to really filter in all feedback on what's the next product line to launch. But I think that's more of a, let's say, a high-level discussion at present because all of the work streams are truly pushing on for the first commercial launch. But we are in-charge. But of course, we want to talk to and discuss it with a partner. We have very good discussions on that topic.

[Operator Instructions] We have a question from the line of Alex Cogut from Kempen.

A lot of them already addressed. I just have a couple of quick ones. What kind of cash runway can you guide for, also looking at all the activities that are ramping up? And the second question is, to be more direct, what kind of sales should we expect in 2020? Also, keeping in mind that Thermo Fisher is involved here as well.

Right. Thank you. I think I can take that question. So I think from a cash run rate, what we have said really is, first of all, we have cash or cash equivalent to support us for at least 12 months. Really taking us through the launch phase for sure. We do expect, of course, to see an increase in production, for sure, if everything goes well. And we're also ramping up studies outside of Europe, which is a little bit more expensive. But apart from that, we don't have any direct guidance on expenditures over the next period. But we might see a slight increase in the key areas, really coupled to the commercial part. That are also, of course, as we announced a portable culture technology, and we've seen some absolutely great results with that. We also want to have a very high pace in that product to support testing that product outside of Q-linea during this year. So I think that you might see a slight increase in those areas, but they might actually be canceled out by the decrease in others. So -- but that's on a high level. Coming back to the sales expectations, we have so far decided not to give any true guidance on that. I think it's a little bit too early. And I think we have the best partner to do it. I think also as Thermo Fisher realize and have the same sense that if you want to be a long-term, truly successful company, you want to have a third stage launch, that could be the 6-month period or something, where you really test the product or sell the product to really the right customers to have an opportunity to fix if something needs to be fixed and also to feedback that feedback and really feel absolutely comfortable and then sort of press on the gas pedal, to take the next stage. So I would like to see a controlled phase launch initially and then sort of a bigger ramp up. And there, as we speak, I mean, having Thermo Fisher as a partner, can't really see that being any better. I mean, they have presence in all geographies. They had working collaborations with almost all customers that we can think about for other products, so I would say it's a little bit too early to give some strict guidance on that, but we are actually looking forward to the launch and the response we have received at least initially from customers has been -- in the pre-market has been very, very good. And also on the ones that have tested the product to see the workflow, we have not received anything but very positive response. So I hope we'll come back to that later in the year when we see that. First of all, we finished the study start launch and then progress at various sites. So I know it's a little bit vague answer, but I think it's the best guidance I would like to give at this time.

There are no further questions at this time. Please go ahead, speakers.

All right. So if you have no further questions, I would like to thank, first of all, for the questions we had. And we are, at least in the company truly looking forward for this quarter, and hopefully, have a very, very interesting report after the first quarter when that happens. So thank you very much, and stay safe and keep social distancing, so we can fight this pandemic together. With that, we would like to say thank you from me and Anders and end this presentation.