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

Hello, everyone. Welcome, and thank you for joining this presentation of Q-linea's Q3 report. You have Stuart Gander here, President and CEO, and I'm joined by my CFO, Christer Samuelsson. So we'll do this a little bit following our traditional process here. Just a quick disclaimer that we'll take as read and understood. And moving ahead to the topics for today. So I will start, as usual, with a commercial update. I will share some of the feedback that we're getting from customers in our various interactions and some of that word of mouth is starting to spread very nicely between customers. I will talk about our priorities here for Q4 to close out the year strong before hand it over to Christer who will walk through our financials for the quarter. And as ever at the end, we'll reserve time for your questions. All right. And for those who just have a few minutes to join us, a few key messages that I would like to emphasize and for everyone to walk away with today. So the first one, the quarter was a strong one vis-a-vis consumables demand on the instruments. A couple of things driving that. Firstly, we had a large number of instruments that were sold during Q1 -- Q2 and one during Q1 that were activated during the quarter, and those obviously started to pull through volumes. And then we continue to see some increases in, let's say, same instrument pull-through as customers are getting their protocols worked through and are starting to test on a larger set of their patients. Overall, the commercial pipeline continues to grow very nicely. The U.S. team has expanded their number of customers that they're speaking to and particularly in the, let's say, the front end of the pipeline where we expect the contracts to come through is starting to build up. So we've got over a dozen that are either in evaluation or setting up an evaluation currently or already in contracting. And those obviously have a fairly near-term outlook with strong visibility. On the EMEA side of things, Franco and team have also been busy. Italy continues to build up nicely. We proceed with more than 10 or so opportunities in Italy. I'll talk a little bit more later on the ASTar deal and how we see the country dynamics evolving there. But more broadly and perhaps even more exciting, the rest of Europe is continuing to build up. We do expect some contracts outside Italy during the quarter. And we have our first evaluations being planned now in Asia and Latin America. So as of now, we are in commercial discussions in over 15 countries, which we're very excited to see. We do expect a strong close to the year. We're pushing hard to close those contracts, especially in North America. It's fairly traditional that institutions do their capital purchase contracting in Q4. It tends to be back-end weighted. So we hope for a strong quarter to close out. Another dynamic that's driving this is one of the competitors in the field, Accelerate Diagnostics has informed their customers that they will not be able to support the installed Pheno base of instruments, and that has triggered a number of conversations. I mean, many of those customers were already looking at ASTar, but it set a time line somewhat more urgently for many of the customers. So we're working actively with those players to pick those up. The other news on the more internal side of things, we're very pleased with the work that Henrik Jacobsen and the operations team have done, pulling in all of the activities needed for our in-house production. So that's now completed and signed off. So going forward, all of our disks will now be fully produced in-house, which has a significant decrease on the cost of goods per disk on a go-forward basis. And it's good timing because now, as I said, we see the consumables volumes starting to pick up. And then finally, we have and continue to work on the operational cost. This is following the stated plan and strategy that we shift our resources towards the market-centric activities, getting in front of customers, getting the word of rapid AST and ASTar out into the market and continue to refine and focus our development activities now that we're through some of the big heavy lifting to get ASTar ready. We're working on some strategic build-outs for the ASTar platform, but are able at the same time to continue to reduce the resources on the back end, so to speak. So we brought down spending during Q3 and have a plan going forward to take out an additional roughly 10% of the cost base. So with that, maybe just some orientation for those new to Q-linea and the AST market. So Q-linea manufactures a flagship diagnostic medical instrument called the ASTar. It is the leader we contend in our field for rapid antimicrobial susceptibility testing. It stands out from the others, notably in the fact that it's a fully automated random access and continuous access platform, which is very well designed for automated lab workflows for the modern lab, has very high clinical reliability, test reproducibility, as we say, and a high throughput for labs. It also very low hands-on time, which is critical for the busy lab tech in this day and age. Good. So with that, I mean, what the journey we're on here, I've presented this before, so I'll just touch on it real quick. But again, for those orienting, this is not, per se, a new set of testing. Antimicrobial susceptibility testing has been around for a long time. There's an established market. The challenge for the patients and hospitals is that the current standard of care technologies can take several days, 48 to 72 hours to produce an actionable result for the physician. And essentially, the ASTar produces that result within 6 hours. So what we anticipate and are starting to see with the increased demand on our tests is that for critical patients, that testing will move towards the rapid AST systems such as ASTar, obviously, starting with blood infections that drive sepsis being one of the most acute critical patient categories, but there are other critical non-blood infections as well that will move over time, we believe, to rapid AST testing. So this -- if you run the rough numbers, we see 5 million to 7 million tests in our space. We see pricing holding up in that target range of $120 to $180 per test fairly consistently now. So that generates a market just for the blood testing of $600 million to $900 million that we're opening up here and starting to see grow. And on that note, sales development during the quarter. I will admit here that the quarter did not close as many contracts as we'd hoped. We now have ended with 17 instruments in active routine use. I did mention that we turned on 6 of the instruments that were sold earlier. So that's nice to see that, that time to installation and go-live is continuing to shorten as we anticipated. The contracts we did get were both in the U.S. and Italy. And we do see that there is a strong buildup, like I said earlier, especially in the U.S. here as contracts are entering their final stage. So I do expect the quarter to close out strong. We continue to push hard towards our 30% target for the year. Obviously, before we -- when we talked about this last quarter, we had in the front of us an ASTar tender in Italy worth 9 instruments. So we're openly disappointed, of course, that our previously successful appeal of the ASTar tender decision was overturned by a court in Rome. So whilst there has been no final award of that tender and there may be things to come on that side, we now give lower visibility for sure on those 9 instruments. So with that, we -- the upper end of our range last time, 30 to 40, we think is quite unlikely. However, that said, we do have plenty of instruments in the pipeline here that we're working through. So the 30 is within shot on a strong Q4 close here. That's supported by these 15 countries that are now active. Obviously, our direct team in the U.S. and Italy are working hard on their own pipeline of customers. We work through a network of distributors and agents in other countries around the world. And Franco has been leading many of those and Jim is active on the Latin American side of things. And what we see here now is conversations we've had earlier starting to warm up and distributors are coming to Q-linea with customer -- specific customer cases and evaluations that they want to run. So our posture on geographic expansion has been a measured one to conserve resources and be very, very thoughtful on where we put time and energy. So we're directing both towards where antimicrobial resistance is particularly high, i.e., there's strong clinical need, but also that there's a clear willingness to pay and a flagship customer willing to adopt in the market. In my experience, once the top institutions in any given country adopt, you start to get a rethinking of the standard of care. And from there, let's say, the proverbial snowball starts to roll. So our approach now is to work with distributors to identify those flagships and invest in a very targeted way with our partners into those relationships to then grow in the market. So I would hope to see that during Q4 that instruments will go to more markets here, setting up for evaluations that will convert early part of next year. On that note, we did ship already for Saudi Arabia. So it's the third evaluation ongoing in the Middle East with our partner, AMICO, which has built a very robust pipeline in that region. We expect to see that 2026 is a strong year. We now are represented in United Arab Emirates, Kuwait and Saudi Arabia. So obviously, 3 of the cornerstone markets for that region that tend to set standards. So I think that bodes well for the outlook. I already spoke about the U.S. pipeline. I would say one dynamic there. Obviously, Accelerate had a fairly robust installed base of customers that are now used to using rapid AST and seeing the clinical benefits of that. And now those customers can no longer be served with consumables, they've turned to Q-linea for an alternative. So we're working with several of them now on an accelerated contracting process. As I've talked about several times, that can be sometimes a bit of a convoluted one in the U.S. with large institutions. But given the clinical urgency to maintain patient care, we're optimistic that some of these will move through more quickly, which is good. Yes. So those are the highlights for the quarter and obviously, the substance, let's say, for how we maintain that target of 30% to close out the year. The team also keeps working at the opening end of the funnel, engaging with customers directly. One of our best avenues to do so remains the face-to-face interaction at conferences where dozens or even hundreds of customers are accessible, and we can have rich conversations and demonstrate the instrument. So several of these happened over the summer season in the U.S., the largest of which being ADLM in Chicago, where I was present and the team also represented us in the regional shows in Texas and in New England. And then I was present also with the team in Birmingham, U.K. for the biannual IBMS conference, which -- where we joined our distributor Pro-Lab to catch up with customers there. The general theme of these is very consistent. We continue to put publications out into the space. That's what these conferences are about and why customers go. They want to see the latest science, and we want to make sure that Q-linea has seen at the forefront of that. And the data continues to just reinforce the evidence that we've demonstrated before on the clinical impact of ASTar in practice, and that body of evidence continues to build. In parallel, our clinical affairs team has been engaging closely with and with some results now with the pharmaceutical manufacturing friends in our industry, obviously, the ones who produce the antibiotics that are on our panel and for which the patients will -- with which the patients will be treated. And for us, this represents one of the trickier parts of the development process. There's obviously some costs there, but just getting those formulations ready and stable. It takes time and some specific expertise. So very pleased that we've now signed development partnerships with 3 of them. They will help us with some of the -- obviously, the raw materials for that, but also notably support on getting those formulations. So reducing time and cost for us to bring new drugs to market on what we internally call our V3 menu. We're also very pleased to present together with BlastID the results from our work together this year on showing an ultra-rapid workflow. The direct from blood, if you recall the slide I showed a couple earlier, is the holy grail for our industry, direct from blood testing, cutting out the need to incubate the blood culture, so another 10 or 12 hours. And the results there were very strong. Obviously, plenty of work to be done for a commercial product, but we're pleased with the work with the team and the results continue to show that ASTar delivers nicely as part of the workflow. So on that note of demonstrating the science and listening to the customer, I just put one example here. There were several, obviously, also presented in U.S. conferences from our U.S. customers. But as I mentioned, I was over in Birmingham at the IBMS and one of our customers, Jennifer Monkhouse, I think, presented very nicely data from her lab there. It's one that we've seen an increase in the usage as this data has come forward, demonstrating, of course, that the NHS has perhaps an appropriately conservative approach to taking on new technologies. They want to see that the clinical evidence is there. So the lab started using ASTar, has now been able to demonstrate the impact as shown here and now gotten sort of the nod from their local trust to go ahead and make that available for patients across the system. And there isn't anything, let's say, especially surprising about the numbers here because we keep showing something very similar, but nonetheless, a huge tribute to Jennifer for the great work pulling this together. It reinforces the reduction of time to patient therapy, in this case, by around 1.7 days and every hour counts in sepsis as we know. And then also the team has made an estimate here on what they determined to be the savings for the trust of EUR 2 million -- GBP 2 million, sorry. And I think that's a very important one to highlight since the main constraint, let's say, for many of the clinicians and labs eager to adopt rapid AST is that the health care budget holders are trying to find ways to fund new technologies and therefore, scrutinizing and showing that health economic case is important. We -- this is another data point for us in what we call our business impact model that we discuss with customers every day. It's a tool that we show that helps a hospital to see what the clinical and the economic impact is in their facility. But it's one thing taking it from us. It's another when a customer shows it to their own stakeholders and to their peers in the field, which carries even more weight. So great to see these coming out. More of these continue to come basically every quarter. So our attention now really pushing here to close strong on 2025, highlighting 3 areas, obviously, starting with that commercial side, the conversion of the pipeline that I mentioned, the drive to 30 ASTars in field, partly but not entirely supported by the additional Pheno users that are reaching out to us, and we can get those through on a slightly fast-tracked approach. I mentioned the first evaluations in Asia and Latin America. These are somewhat more distant markets geographically, some -- perhaps with some language and training challenges we'll need to work through. So it's a test for our team that's ready and been preparing for this. So we'll get some of those going and then really continue to drive that consumables pull-through growth on the platform. Obviously, the new installations will do that of their own, let's say, but we work closely with customers to discuss with them why they -- if and why they stratify customers. Unfortunately, budgets don't allow all customers to use the test for all patients, which is a difficult choice to make in a clinical environment for critical patients. So we work with the customers and try to get them more data so that they can work on that with their stakeholders. So we will continue to do that, which ties into the clinical priorities where the team is, of course, focused with those frontline customers. But at the same time, completing some of the strategic efforts that I mentioned earlier. We're very happy that our internal work is completed now for the version 2 menu. So we're ready to submit, waiting for the U.S. government to reopen here, and we'll hit send more or less right away. And then the work is being presented at IDWeek in Atlanta. I'm actually in Atlanta as I speak here, where we will present the results from using ASTar as a MALDI-prep workflow tool, which has benefits from both cost and also operator time and potentially even sort of reliability of preparing things for the end-to-end test. So very excited about that. That provides another avenue for value for our customers. We're also working to prepare the first publication of results for non-blood AST testing with our research partners. So there's more to come. We keep alluding to that side of the patient population since they're potentially even more numerous than blood patients. So we expect to see that having an impact on our business in the fairly near future. And then on the financial side, I'll turn it over here to Christer to talk through the details, but our commitment is to continue to refine down the cost base as we get both more efficient on our operations. We achieved some scale here now as we're able to get efficiencies. We will work on a couple of key initiatives such as, for example, moving the entire team to our Palmbladsgatan factory location in Uppsala. We currently have 2 offices in the Uppsala region. So that will generate some savings also, I think, reduce some of the geographic frictions in local team there, making us even more efficient. And then some of the external costs as well will continue to come down both through efficiencies, but also as projects wind down and we complete those. So we're targeting a 10% reduction through 2026, which still gives us the resources we need to drive the commercial agenda and deliver on those strategic projects. And then finally, I think Christer will touch on this, obviously, completing the rights issue that we've announced for Q4. So with that, Christer, I will turn it over for you before coming back for questions.

Thank you, Stuart. I'll provide you with a financial update and start with the top line revenues. It is glad to see that the recurring income has grown, and we have had a record month in September, although from fairly low numbers, but we can see a 370% increase if you compare the 9 months in '25 with the 9 months in '24, which is obviously good, but from low numbers, but we are on that growth curve now, and we can see that, which makes us happy. Switching to the OpEx side, as Stuart said, the focus is on efficiency. Focus is on to bring the OpEx down, and we are confident that we will do that, and we are targeting a 10% reduction from the current rate we have now, which is about SEK 13 million per month. So that is what we can see in 2026 and going forward. On the financing side, as Stuart said, we will get to the rights issue. But before that, there are a few things that have happened during the third quarter. We had a reverse share split of 1,000:1. That means that the number of shares has decreased by -- divided the actual numbers we had before with 1,000. So the current number is 6.4 million shares. We have also conducted a reduction of share capital that was concluded also in July. We now have a share capital of 643,000 and the quota value is SEK 0.1. And we also have handed in 2 new grant application to EU. I will touch upon that a bit later. Continue with the OpEx development. As I said, the OpEx has come down. There is lower, and we can see that also during the third quarter. Obviously, if you look at the number of employees development from the Q1 2024 and onwards, we have gone from 126 down to 83. And if you look even further back into 2023, we were up at 150 employees. So we have come down a fair bit, which obviously affects the OpEx, the personnel expenses. But as Stuart said, there are also some major R&D projects that come to an end, which affect the other external costs, which will help us to bring down the OpEx even further and get to the at least 10% reduction in 2026. We have some events to come linked to the rights issue. There is a fairly hectic period now. Tomorrow, we will have an extra general meeting held in Uppsala. So -- and I think we have some participants maybe even on this call that will come in real life. Otherwise, there will not -- normally, there are not so many that come to this, but it has Lindahl's office in Uppsala, our legal partner. Also tomorrow, there's the last day of trading in the company shares with the right to receive subscription rights. And on Wednesday, there will be a prospectus published from us. And also on Wednesday, there is the first day of trading in the shares without the subscription rights. Then we have -- you can trade in the subscription rights between October 27 to November 5. And also the subscription period for this rights issue starts October 27 and ends at November 10, and we aim to present the outcome around the 11th of November of this rights issue. The rights issue, if I start on that one, is gross SEK 322 million if 100% is subscribed. We have now 85.6% guaranteed or covered by subscription rights. And if you start with the cash at hand end of September, the SEK 42.6 million, and then you go with the guaranteed amount, SEK 220 million, you will get to SEK 262 million. That is, you can call it secured. If we get to 100%, which we obviously aim for, you will get SEK 266 million with 100%. And together with the existing cash, you will be north of SEK 300 million secured financing. And then as I said, you can -- we have the spending going forward with the SEK 11.3 billion to SEK 11.8 billion. There's a span here, if you go down a little bit further on the slide. Obviously, this is the spend we have if we don't sell anything, and we will sell, obviously, and we will get some gross profit from this sale. So -- but you can do your own math on these things. Additional sources of financing, we are applying for grants where we see fit. We have done a couple of good applications in the third quarter, and we are waiting eagerly to see the outcome of these. One of them has a hybrid financing part of it, but that is more technical. So there's a grant part in that one or -- and then there's an investment part in it. Then we are looking for working capital financing as well, and we are in discussion with banks, Swedish banks helped by other entities to offset the risk, and that will be really good. When we grow and with our business model, reagent rental model where we actually put the instrument with the client and get paid when they sort of buy the consumables, that will increase the assets on our balance sheet and will require some financing. And we think we have some good chances of acquiring that kind of financing. And the gross profit, as I indicated before, will increase quarter-by-quarter. We have this reagent rental model. And when we put new instruments out, that will generate some recurring income and that will grow quarter-by-quarter. Just to reiterate a little bit on the OpEx, the SEK 30 million we see now or a little bit below, that will be for this year. Next year, we will be between SEK 11.3 million to SEK 11.8 million per month. The working capital has not gone up this year, but it will go up next year, and that will play along with the placing of instrument. That's how it works. The investment in fixed assets has been low this year. It will increase next year when we see the volume come and we have to invest in automated production units. And finally, a statement from the Board, which is obviously clear now when we have the rights secured at 85% and more that we have going concern, which means that we have necessary liquidity to cover the operation for the next 12 months. Stuart, I hand over to you.

Thank you, Christer. It is back to questions then.

[Operator Instructions]

Unless we have some phone questions, I can step into the activity feed and take the questions from the written questions. So Stuart, this is one for you. The 30 to 40 machines that we have said before, will that happen? What happens? That's a question from a listener.

Yes. It's a great question. We obviously targeted a number to close out the year. We -- the 30 to 40 range was fairly broad, acknowledging the ASTar tender in Italy had 9 instruments, and we expected to get that, let's be honest, but I couldn't count on it. So the upper end of that range was an ASTar with ASTar and the lower end hedging the ASTar placement. So we're still pushing forward. Obviously, Q3, we'd hope to close some of the contracts that we can see and are actively working on to put us sort of over the 20, but we're confident many of those will come here in the short term. And the pipeline remains very robust. So I know there's questions, let's say, on are these customers converting? Are they selling? Where is the results, but we are seeing it in the field, and it's taking some time to get the contracts written. But we'll come back to that, of course, at the end of the quarter here. But the 30 is the number to chase for and drive for the entire -- the Q-linea team.

Great. There's a question on the EU financing EU tender on 400 machines. And the question is, have -- is Q-linea participating? And have we managed the step 1? And if it's the one, I think it is, yes, we have managed step 1, and we are -- we participate in that EU tender process, yes.

Yes. I assume it's referring to the HaDEA call.

Correct.

As you mentioned the 400 instruments, so yes, we have been accepted past the first stage.

And there is a question on the accelerated diagnosis systems. Stuart, do you see that one? Can you take that one?

Yes, I see those now. Yes, good question. So the question is how many Accelerated Diagnostics Pheno systems are in the market today? Are all of these active and addressable? So it's a good question. Obviously, we don't have the perfect insight on our competitors' installed base. I mean there have been various reports and I think general industry assessment that they may have distributed up to 300 instruments. That wouldn't be the same number of hospitals, just the design of the Pheno is such that it's one test, one instrument. So there could be several Phenos per hospital. We know that to be the case in instances where we see it. So yes, I think a safe figure might be something between 80 and 100 customers active in some way. And obviously, given that platform, not all of those would be at a high level of activity. So when you talk about addressable for Q-linea, it's a great question. We would say that's at least several dozen, right? We have visibility on a good chunk of those already on both sides of the Atlantic in the U.S. and Europe and obviously need to work through with the customers to convert. I can say that we've seen already situations where we consolidate several Pheno instruments to 1 ASTar just given the automation capability of an ASTar instrument. So it won't be a one-to-one, but we work at the level of the hospital and the lab. So there's definitely dozens at this stage that we're chasing.

Another question on the HaDEA. And yes, we have applied. And yes, we have managed the step 1, and we are into the step 2. So yes, I think we have answered that one already. And then another question on -- let me see here if Q-linea has got answers or not from the new V2 panel. And if we have customers that are ready if the FDA gives an okay for version 2 or panel?

Great question. Quick answer to that is yes, absolutely. We, in the U.S. are actively grouping our customers into essentially 3 groups, one that are ready to go directly with ASTar today, some of whom will just use the menu as is. Others will validate on their own the remaining tests under LDT. So that's category 1. Obviously, they're pushing to close. A large body of customers have tried the ASTar or looked at it and have told us that they want to take it up when our version 2 menu is there. The reason for that basically boils down to there are a couple of drugs in the U.S. standard of care that they want to see results for that we have on our EU panel. So they know those drugs work. They can see the data from our EU studies. And they're sort of happy to wait, let's say, so they don't have to do the LDT. So we put those into a bucket to follow up on during Q1 of next year as we anticipate the FDA process should take -- we estimate around 6 months. It can be anything from 90 days to 180 days after submission. So that will definitely have an effect. And then the third category close it off for those who say they're still thinking about rapid AST, but don't have a budget now or don't -- so we keep them on the list to follow up later, and that's a big group of hospitals that are continuing to work on their budgeting and getting the resources to put rapid AST in place. There's more than enough customers in the first 2 buckets to meet our targets for both this year and next year.

Right. And we have another question on the 30 contracts. I think you have addressed that one, Stuart.

Yes. It just -- it's a question of timing, right? When do we get these over the line? Absolutely.

And then there is a question on time line for enabling ASTar for isolates and or look likes...

Yes. So great question. I referenced that in terms of our publication. So we're working on data with users in the field to put that together. So we expect publications during next year that will obviously help. The ASTar platform is approved for use with blood testing. So this is something that for research purposes for customers. That said, there's high demand for that. So we do expect that, that will have an impact on our business during next year. A bit hard to quantify just given that. I mean, if it was fully adoptable by all customers and routine use off the bat as our blood test is, then it will be easier to predict the volumes. So I can't say exactly what it would be, but I don't think it will be insignificant even during next year.

Great. So we have so far a final question on the risks for a delay on the FDA process. That's step one. Maybe you can address that one if -- on the risks, if there is a delay?

Yes. So I mean, good question, very material. The U.S. government, unless something happened very recently remains closed. So we cannot submit to the FDA nor can anyone despite that the industry pays our own fees, our own way for these things. It's a bit frustrating, but they cannot take new applications. We will be ready to hit send as soon as that opens to receive applications. Beyond that, the risk of delay, I mean, they do time limit the decision, like I said. So there's a limit to how long it can be. But we would expect that the review will be somewhat shorter this time. First of all, it doesn't contain the instrument itself. It's only a menu update. So that reduces the amount of work and uncertainties, which is great. Number two, they've obviously seen the ASTar and the data already. So we've -- we're basically, call it, improving or presenting more data for combinations that they've already seen. So we think it's quite robust. And we have obviously in our pre-submission dialogue with the FDA, gotten input on what to show them to make them confident we can go through. We've now collected that data. I can't say too much for obvious reasons, but we remain very confident in the version 2 menu, not to prejudice an FDA full review, but from what we see, we don't see a major concern at that level. So it's just down to process and the FDA and if there's any more delays in the U.S. government, I would say, at this stage.

I think so far, we have a last question, which links to the FDA and the version 2 menu that is what share of pipeline awaiting V2 clearance? Can we say anything about that?

Yes, it's probably not far off to say that there's sort of at least half of the customers that we're engaged with are saying we're going to wait with a quarter being in the first bucket like we're kind of ready to go and so on, the big chunk saying we want to wait for V2 and then there's a chunk that are in that third bucket. So it's a significant number. I mean, mainly because they don't have to do the LDT evaluation. So yes, it's the majority.

Great. No more questions in the activity feed. So I think that's it, Stuart.

Great. Well, thanks, everyone, for joining. Thank you for the questions, great ones. And we'll look forward to coming back in Q4 on that pipeline and our commitment to getting to 30 here.

Thank you.

Thank you.