Good day, welcome to Gubra Q1 2023 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. For operator assistance throughout the call, please press star 0. Finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Mr. Henrik Blou, Chief Executive Officer, to begin the conference. Henrik, over to you.
Thank you very much, operator. Also from me, welcome to this Q1 trading statement from Gubra. The first trading statement following our listing on Nasdaq Main Market in Copenhagen on March 30 this year. Presenting today will be myself, I'm Henrik Blou, the CEO. And I also have with me, Kristian Borbos, our CFO, and Niels Vrang, CSO, and co-founder. Please go to slide 3. Q1 highlights. The year has been off to a good start. In Q1, we were listed on Nasdaq Copenhagen in an IPO that includes a good number of high-quality investors. The proceeds from the IPO provides the foundation for the accelerated growth lying ahead of us. In the CRO business, we saw strong revenue growth of 19% compared to CRO revenue in Q1 last year. Also, the earnings remained solid with an EBIT margin of 29%.
Strong profitable growth in the CRO business in Q1. In the D&P business segment, that's our discovery and partnerships, Q1 also showed nice development. We successfully expanded our streaMLine platform to include cyclic peptides, and we also successfully has been progressing our Amylin peptide obesity project towards start of clinical phase 1 later in the year, all this according to plans. Please go to the next slide. Here we have a small recap for new investors. Gubra is based on a hybrid business model, and that is that we have a contract research segment, the CRO, that provides a steady income from providing pre-clinical contract research services to pharma and biotech customers. We are a so-called specialty CRO, highly skilled in the niches covering metabolic and fibrotic diseases.
Our focus in the CRO is on pharmaceutical pre-clinical research, which covers the earlier phases of drug discovery and development before drug candidates are tested in humans. Our Discovery & Partnerships segment covers internal research programs, which means programs where we come up with the ideas and the inventions ourselves, and we mature these programs to the right level and then enter partnerships with strong industry players, typically big pharma or biotech companies. In this segment, income is more lumpy in nature as it's based on upfront and milestone payments, as well as a more steady research payment income. If we go to the next slide, this depicts some of the points that I just mentioned. It takes a long time to develop a drug to the market. At Gubra, we specialize in the earlier phases in discovery and pre-clinical development.
Within our niche, our specialty area, we are known in the entire world for the quality and speed and scientific insights that we bring to the table. Both segments that we work in of the business here are centered around these earlier phases. However, if we zoom in on Discovery & Partnerships, there's an arrow up here we call latest partnering point. That's because we do take selected internal research programs into early clinics and do initial testing there before partnering. Currently, we have our Amylin program as the most advanced program. As just mentioned, it's planned for initiation of phase I testing by the end of this year.
On the next slide, we in the IPO on March 30, proceeds amounted to approximately DKK 500 million. This funding will be used for accelerated growth in years to come. Approximately 30% we will allocate to the continued development of our internal pipeline. That includes the Amylin program. Approximately 10% allocate to the further development of our technology platforms. These are instrumental for both the CRO segment as well as the D&P segment. Approximately 10% will allocate for geographic expansion. The first focus is on establishing a presence on the U.S. East Coast for facilitating CRO sales and also partnership dialogues. It's what we envision a small dedicated team to grow this already very important market.
Finally, approximately 50% allocated to acquisitions so that the key focus that can enable further growth of the CRO business, but also with the potential to strengthen our pipeline and partnerships. Now we're diving into a little more scientific aspects. Niels, please take over from here.
Yeah. Turning to our CRO business, which has seen a strong revenue, as Henrik mentioned, in Q1. On this slide, to the upper right, you see the different disease areas and technology areas where Gubra provides services to its clients. We started out at Gubra as a pure obesity and diabetes-focused company, but we have gradually expanded into neighboring metabolic areas, and this includes the liver disease NASH, non-alcoholic steatohepatitis, and a variety of different kidney diseases. In obesity, diabetes, and NASH, we are delivering the most translatable research models that are out there. Actually in the liver field, NASH, we are delivering the best model in the world, as ranked by a recent American scientific consortium.
Besides delivering these animal models of these different disease areas, we're also leveraging our computational biology and our digital platform by providing very high-end 3D and 2D imaging and RNA sequencing data to our clients. This actually enables us also to grow that part of the segment that's not necessarily coupled directly to animals. We are an end-to-end service provider, so that means that we do everything at Gubra. We have the animals performed at Gubra, and we do all the analysis of tissues, et cetera, at Gubra. We are servicing 15 out of the 20 biggest pharma companies in the world, speaks to our, you can say, how we are regarded out there. We also are regarded and also regard ourselves as more than a CRO.
We actually very often help our clients, design the best experiments in order to get the best results, at the lowest cost.
Thank you, Niels. We now turn to slide 8. We summarize the performance in Q1 for the CRO business, I think we conclude that we had a good quarter with growth across many disease categories. Revenue in total was up by 19% compared to the same quarter last year, adjusted EBIT was up by roughly the same level. In terms of EBIT margin, we are at 29% for the CRO business, which can be compared to the outlook we have for the full year 2023 of around 25%. Looking at the CRO business in a little more detail, we can see that the NASH field is coming back strong.
In the fall of 2022, we saw positive industry data from late-stage clinical trials, that has sparked the interest to develop new treatments to cure the NASH disease and thereby the demand from the industry to test the compounds in our highly ranked preclinical NASH models. In the quarter, it was also encouraging to see that the investments we have made to develop the kidney space have paid off. We now offer a large and mature kidney model catalog, which is clearly making its way to customers with strong revenue growth year-over-year. It's also worth mentioning our IPF category, the lung, you know, which is our newest disease category. Very encouraging to see that the investments we have made here is also making its way to customers' interest and orders.
With that, we now turn to slide 9, and I will give the word over to Niels again.
Yeah. At Gubra, we are peptide experts. This is the modality that we work with at Gubra. We discover and develop peptide drug candidates. We have developed a streaMLine platform, which couples high-throughput synthesis data generation at the bench in the laboratories with computational tools such as machine learning and AI in order to accelerate the discovery, reduce the resources and the cost per project, and also to increase the patent value of the projects that we deliver to our clients. Really it's about parallelizing the work we do. We can do several projects at the same time.
We can go around in these cycles with a shorter cycle time and really deliver projects and move projects forward much faster than conventional peptide drug discovery, really cutting it down to around a year from 2-3 years in the early discovery phases. If we take the next slide. This is really Gubra's pipeline that we see here. The top 5 that is our partnered projects. One of these projects with Boehringer Ingelheim is phase I . Another one is on its way to phase I. We have the next 3 projects that are somewhat earlier projects, but all the partnered projects are progressing according to plans.
If we look at our own pipeline, so that's the green assets, we have the Amylin asset that I will come back to. We have some earlier, peptide drug discovery assets and, some, target discovery assets. We will see additions to our pipeline, in the years to come. If we take the next slide. This really speaks in, to our, streaMLine platform because we have been able to expand our streaMLine capabilities to not only work with linear peptides, but also to work with more complex peptide structures that really seems to be the future of, peptide drug discovery, such as cyclic peptide, bicyclic, and, even more, complicated peptides like, macrocyclic peptides.
That also means that of course we are using resources in our drug discovery part of Gubra, but we are in line with expectations. As you can see on the graph to the left, we have spent approximately one-fourth of our anticipated expenses in this part of our business. Turning to Amylin, which is our most advanced discovery project, that project is progressing according to plan. The life phase of the preclinical tox studies have been concluded, and we are expecting the final reports here in Q2 2023. We are planning and working on CTA submission in Q3, and still on track for the first patient to be dosed end of this year.
Great.
Now we turn to the third segment in our reporting, which is the 10% commitment where funds in the fully owned subsidiary of Gubra Green is invested in green assets. When we did the IPO, this green pool contained approximately DKK 20 million. Investments are made to ensure that Gubra is nature positive and carbon negative. What that means is that we are ensuring that we emit as little greenhouse gas as possible, and that the CO2 emissions that we actually do emit is more than counterbalanced by the carbon fixation ensured by these investments. For example, by planting trees or setting up solar power panels. All this should be done in a way that enhance biodiversity at the same time. Kristian, let's have a look at the financial outlook and guidance.
Thank you, Henrik. We maintain our outlook for the full year 2023 and also the midterm guidance. For the CRO, just to reiterate, we expect 10% organic growth this year compared to last year, and this is also the level we expect in the midterm perspective. On the EBIT margin for the CRO business, extreme special items, we expect to be at a 25% level this year and 35%-40% in the midterm. For the Discovery & Partnerships segment, we expect to enter into 1-2 new partnerships per year, both this year and the same in the midterm perspective. For the cost-wise on this segment, we expect our total cost excluding special items of DKK 105 million-DKK 110 million.
If we take out the Amylin development cost level, it's expected to be around DKK 85 million-DKK 95 million. Again, fully unchanged outlook. With that, I leave the word over to Henrik for some concluding remarks.
Thank you, Kristian and . In conclusion, we are happy to present this strong first quarter. We did see profitable growth in the CRO segment, as well as good progress in the Discovery and Partnerships segment. Our current strategic priorities include for the CRO that we continue to push for profitable top-line growth by 1, developing and characterizing translatable animal models within disease areas with strong customer demand and where there's a high gain by automating and digitizing key steps in the process. We are strengthening our presence in the U.S., our most important market already, but with significant additional potential. We also see potential for growing the CRO through selected acquisitions. Current strategic priorities for the Discovery and Partnerships segment includes developing the streaMLine platform to handle even more complex peptides than linear and cyclic. For example, the macrocyclic peptides that Nils mentioned previously.
We always have discussions ongoing for potential new partnerships, and we focus these towards delivering the 1 to 2 new partnerships this year that is included in the guidance. The Amylin project is getting into the final phases before going into phase I testing, this is planned to be initiated late this year. As already mentioned, potential acquisitions can also play a role in strengthening the Discovery and Partnerships segment. With this, we conclude this update, I give back the word to the operator, we remain ready for questions.
Thank you, speakers. At this time, I would like to remind everyone in order to ask a question, please press star then the 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Martin Parkhøi of SEB Group. Martin, please go ahead.
Thank you very much.
Questions. Firstly, I would be keen to hear anything kind of new you can put on the phase I compound you have in partnership with Boehringer. Because, you know, I'm a little bit, you know, concerned but worried. It entered phase I in August 2021. We haven't heard anything about it. When I looked at Boehringer's pipeline, most recent update, there has been some trimming in the phase I pipeline. What is actually happening in that? Because it's very long time. It has been phase I now. My second question is related to also the D&P pipeline.
Of course, you are committed to make additions to the pipeline. If you look over the last six months, there has not been any kind of movement in the D&P pipeline, you know, in stages or new additions. Will we see some kind of catch-up effect with a lot of compounds coming in, or targets coming in, towards the end of the year? Thirdly, just on the CRO, sales up DKK 6 million year-on-year. Could you provide some kind of bridge for what disease areas which have been driving this growth?
How much is driven by NASH, and have we seen that continue into the second quarter? Thank you.
Thank you, Martin. Starting out from the top, you're asking into the first collaboration that we made with BI back in 2017. It's public knowledge that it went into phase I testing August 2021. Rest assured that we do update you as soon as we are allowed to. This is a partnership, so there are some limitations to what we can tell about it. This happens in accordance with the agreement with Boehringer Ingelheim. As soon as we are allowed to give an update, we will do that. For the second part, the pipeline movements, I'll pass over that question to you, Niels.
Yeah. I mean, I think you're of course right that there hasn't been any major pipeline movements in the past six months. But rest assured that we are working on quite a few programs. We don't want to put our entire very early discovery assets up on the pipeline because they are, we have some early stuff coming in that are being validated, and then some of these assets are of course moving out again. It's a relatively fluctuating, you can say, a series of assets that we have in the very early pipeline. We will be adding things to the pipeline as they move further on, and we regard them as real assets that can be moved forward.
I think also with the additions to the streaMLine platform, and the enablement of handling more complex peptide structures such as we have already mentioned, the cyclic peptides and the macrocyclic peptides, of course, this has opened up new targets for us as well. We will not just be a linear hormone peptide company in the years to come.
Thank you, Niels. With regards to the third question, Kristian, please.
Yes. Regarding the bridge for the revenue for the CRO business, what disease carriers are driving the growth? As I mentioned, the NASH field, you know, we saw good activities starting up in the 4th of last year, and this has continued throughout 2023. This industry data, I mean, that's quite important for the industry to test new compounds. In addition to that, the kidney area is also growing quite strongly where we, where we, you know, have developed much more, you know, services in this area. Those are the two, you know, disease carriers that we saw strongest growth during Q1.
We have good activity and we keep the guidance for this year with an organic growth of 10% year-over-year.
Yes, thank you.
Once again, if anyone would like to ask a question, please press star then the number one on your telephone keypad. Again, we have on the line, Mr. Martin Parkhøi from SEB Group. Please go ahead.
That was quick that I could make a follow-up. Just two questions and then we save the rest one for the later. Just on the special items you have in the first quarter, could you split them in what they are? Of course, I know there's a lot of IPO related costs, but it would be nice to have a split. Secondly, can you provide some kind of guidance for what we should expect the special items to land at for the full year?
Yep. The two components of the special items is the IPO preparation cost and also the non-cash cost recognition of share incentive programs. You know, the legacy programs that Gubra had for a number of years that you recognize cost even though it doesn't have a cash flow out component. They were roughly evenly spread.
Mm-hmm.
Those two, the IPO prep cost and the cost effects from the share program. The second question, what should we expect for the remainder of the year? I mean, the IPO preparation costs will of course go down. The IPO was more or less concluded in Q1. There was a little tail, of course, also in April also, but they will go down. Right. That's I think that's how much I can say.
Just that's maybe not a question, but more of a request. Would it be possible to get the to get the quarterly figures from Q2, Q3, and Q4 of 2022 before we get the Q2 results? Because it's easier to make a view on the quarterly development if we actually have the historic figures.
Yeah. Good comment, Martin. We will look into that.
Okay.
Revert.
Okay. Great.
Tomorrow.
Okay. Thank you very much, and see you later.
Yep.
Again, if anyone would like to ask a question, please press star then the 1 on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to our presenters.
Thank you very much. Thank you for questions and thank you for listening in. We are looking forward to giving you another update when we have the Q2 numbers ready. Thank you for today.
This concludes today's conference call. You may now disconnect.