Good morning. Welcome to the Q3 presentation. Both Børge Sørvoll, our CFO, and I, Jethro Holter, the CEO, will walk you through the presentation today. As this is a virtual meeting, we will kindly ask you to switch off your microphones during the presentation. Microphones can be unmuted at the end for the Q and A session. We also ask that you switch off your videos as well. This gives us maximum bandwidth for the call today. We know some of you may be calling in by phone. You can toggle mute on and off by using star six. Let's kick off then. The agenda today, we go in the usual fashion where we start with the highlights for the quarter.
We'll then go through the business update, where we'll go through each of the different parts of the business in a bit more detail. Børge will walk you through the financials, and then I will go through the outlook for 2020, and that's more about the financial guidance for the year. For the highlights, what we're seeing is a return of business back to normal, and similar to how it was pre-pandemic. In particular, our sales team is back out on the road, visiting customers, attending trade shows, conventions, and conferences. The picture in the background really shows this, one of our business developers with a nice big smile on his face. He's happy to be out, and he's there attending the 6th Bioproduction Congress in Lyon.
You can see him there manning the booth. I think, you know, there is no good substitute for face-to-face interaction. For ArcticZymes we really welcome this and so do our customers. You can sort of see that, with business returning to normal, this is reflected in our sales numbers here. When you look at the quarterly performance, we see that 89% of the sales are related to non-coronavirus related sales. On top of that, we've had our second-best quarterly performance with respect to non-coronavirus related sales of NOK 22.7 million. When it comes to therapeutics, we've actually had our best quarterly performance with therapeutics achieving NOK 12.6 million.
What we're seeing now as we talk more to customers we are experiencing that there is much more or less focus on coronavirus and re-engagement back to earlier activities that they were doing prior to the pandemic. In vitro diagnostics, we really view this positively because it supports our main strategic focus, which has always been and will always be towards the non-coronavirus related part of the business. Sometimes we've called this the underlying business earlier, and I know Børge will likely refer to it as underlying business when he goes through the financials. Please, can I ask for the microphones to be muted, please. Innovations are progressing. One thing we're doing now is releasing advanced prototypes to our customers to give our customers early access to our enzymes before we launch them.
There's four enzymes that we're providing to customers, and we will come back to that a little bit later. Also, with the pandemic largely behind us now, we are certainly fully engaged now on executing the strategic growth initiatives. In particular, we have now intensified activities around mergers and acquisitions, and we'll come back to that a little bit later. In terms of business updates, let's start with the segment sales. As mentioned, it was the non-coronavirus related sales that were behind Q3's performance. In therapeutics here, which we also put in brackets, biomanufacturing, and I'll come back to why we call it biomanufacturing a little bit later.
When you look at this, we see that we've, as mentioned, had the highest quarterly sales performance of NOK 12.6 million. The therapeutic sales contributed 49% towards Q3 sales. Most of these sales did come from non-corona related sales activities, where customers are utilizing, for instance, enzyme gene therapy, vaccine development, and are now looking towards using the enzymes for general biomanufacturing processes. We do see activities are returning to normal across the geographies. Also in Asia, we see that new business now is starting to contribute to our sales, particularly in Japan and China. It's early days, but some of this business will eventually represent future key accounts. In Europe, many of our customers are also back to normal.
However, we do see some slow progressing sales that remain with a few customers, who are engaged in the contract manufacturing of coronavirus vaccines. This is something we've communicated in earlier quarters, and this still remains slow, but it's just a few customers. I think a common question that comes up again and again from our investors is when you look at the therapeutics area, what type of customers does this revenue come from? It's a very good question. I think it's important to revisit it in the presentation today. You know, it is a mixed bag of customers. It's a combination of academic, specialized biotech companies. It's Contract Development Manufacturing Organizations, i.e., CDMOs for short. Now we're seeing more presence of pharmaceutical companies as customers.
The vast majority of sales does come from the CDMOs, and with that, it does provide us limited visibility with respect to which therapeutic indication SAN's being used in and where they are in the development pipeline of those therapeutics. That's just the nature when you work with CDMOs. When it comes to pharmaceutical companies, it's we are gradually getting much more presence there, and that is either direct or indirect. Indirect comes in different shapes and forms. For example, this happens following acquisition of our customers by pharmaceutical companies. Actually one of our biggest performing customers was actually acquired by a large pharma company recently. Secondly, several of our well-established partners are also channeling SAN into big pharma companies.
The reason why we work with these partners is they have large portfolios of products for biomanufacturing. For them to put SAN into their portfolio and position that to big pharma is a very good way for us to get SAN into the pharma companies. At the same time, we also have direct relationships too. We use all different relationships in terms of driving and growing potential future business there. You cannot forget also this, even the CDMOs we work with, they are likely serving pharmaceutical companies as well, and we may not have visibility to that. Taking direct and indirect routes together, we can see today we have visibility that ArcticZymes is serving at least seven pharmaceutical companies, big pharma companies today.
This includes one of the top 10 pharmaceutical companies that ordered from ArcticZymes last year. We know to date that they are evaluating SAN for two potential therapeutic projects. For the quarter, we're seeing that this company has purchased around NOK 0.6 million of SAN products for the quarter. Business is starting to emerge from that company now. In the future, we are gonna rename the therapeutics segment to biomanufacturing. Therapeutics is essentially part of that. The reason for this is that following the recent launch of SAN HQ enzyme, this is certainly gaining interest beyond therapeutics and more into biomanufacturing. It also fits ArcticZymes' strategy to expand its nucleases and other enzymes that we have into the broader biomanufacturing markets.
When it comes to research and diagnostics, you can see research made a 23% contribution to Q3 sales. Diagnostics made a 27% contribution to sales. When you look at research, what we've seen is for three consecutive quarters now, we've seen sales are reestablished back to what we consider normal levels. It is anticipated that this trend will continue as well. In diagnostics, we've got to take a little step back because since the beginning of 2020, molecular diagnostic sales have been dominated by coronavirus-related sales. For Q3, sales have certainly been impacted here because there has been lower demand for Cod- UNG for coronavirus testing. However, on the flip side of that, 58% of the molecular diagnostic sales were non-coronavirus related sales.
Both the research and diagnostics, when you look at that, we're seeing that, again, customer engagement is certainly shifting away from coronavirus and back to earlier business activities. We certainly see this as a good sign. Of course, you know, there's certainly customer interest in our products across the portfolio are attracting attention for new business, as well as ongoing opportunities we have in the pipeline where customers are looking to integrate or are integrating our enzymes into their product portfolio pipelines. Some noticeable examples of areas where we have customers developing technologies are in, for instance, next-generation sequencing, LAMP-based testing, multiplex testing using different technologies. Multiplex testing is where, for instance, you're looking for more than one thing.
For instance, like rather than just looking in a virus test, rather than just looking for corona alone, you're looking at many different viruses in the test. We're also serving synthetic biology. It's not in the presentation here, but we actually also signed a strategic distribution agreement with LT Biotech, and they're based in Lithuania, which is very convenient for us. This company also has relevant experience to channel our products into the Baltic States and Russian territories. This will really aid ArcticZymes in driving opportunities for COVID and non-COVID vaccine development in the Russian territories. I think many of you are aware that, you know, Russia has a good competence in developing vaccines in general, you know, COVID and non-COVID vaccines.
I think this is a good partner for us to really try and tap into the Russian territory. We certainly need partners to do that. When it comes to COVID coronavirus related sales, we sold for NOK 2.9 million approximately. This accounts for approximately 11% contribution to Q3 sales. The decline in corona related sales is directly linked to the fall in demand for corona testing. We expect recurring business will continue with our well-established customers. We recognize that this business will progressively become a little bit smaller with smaller orders over time. We expect fluctuations still to continue there.
However, we do still see new business opportunities coming in, and what we're seeing is much more interest rather than doing standalone corona tests, where we're seeing customers are interested in looking to integrate corona testing into multiplex testing. I think this is a really exciting opportunity for ArcticZymes because this means that ArcticZymes can get its enzymes into a broader range of test indications, such as respiratory test panels is a good example, with existing and new customers. Vaccine-related sales are expected to increase, but it will be slow. It will take time before they have a noticeable impact on sales. We do have several customers who are using SAN in their, or considering to use SAN in their coronavirus development programs.
When it comes to corona related sales, although they're decreasing, we've got to remember that ArcticZymes Technologies has always emphasized that its main focus has always been towards its bedrock and underlying business, namely the non-coronavirus related business. At the same time, what we have been able to do, and done in a good way, is to capture value and make a positive contribution to the coronavirus pandemic. I think we've always considered coronavirus as a transient business. I think we communicated that at the beginning of 2020. Where a proportion of this will translate into long-term underlying business. I think that's what we're certainly gonna see moving forward. Let's move on to innovations.
Innovations are very important for us because it is one of the key drivers to accelerate our growth. The team has been very busy working on bringing new innovations closer to the markets. We actually have a picture here of one of our scientists purifying one of our enzymes. You sort of see the column to the far right here, and there's one of our enzymes in there, and it's being purified. Well, where are we? Well, I mentioned we had four advanced prototype enzymes. These are being made available to customers now, and that's prior to launch. We like to do that with a lot of our enzymes. Before they're commercially available, we do provide them to give them early access to our technologies.
These four prototypes are destined to be launched in Q4 this year or early, or during Q1 next year. The first of these enzymes is a Dual Splint Ligase, and this is a ligase with novel specificity. Ligases can be seen as glues. They glue DNA and RNA together. This is a novel glue. Essentially what this glue does, it can glue DNA to two ends of a RNA molecule. That opens up possibilities for new applications here with our customers. Not only that, we're also working on a series of other novel ligases which are in the pipeline as well, which have activities that aren't available today.
We also have a Heat-Tolerant Duplex-Specific Nuclease. This is essentially a new DNase. I think many of you know that our enzymes, many of our enzymes are heat-labile, which means when you heat them up, you destroy them. This is the opposite, where you have an enzyme that is tolerant to heat, where you want it to resist heat. HT is heat tolerant. That's important for particular applications relating to RNA. What we see here is that this new enzyme, it really complements our DNase portfolio and broadens the application of our DNases. The third one here is High-Quality Reverse Transcriptase, and this is our first reverse transcriptase enzyme.
It is not a novel enzyme, but it is an enzyme that has been in high demand by commercial developers, particularly in infectious disease diagnostic testing. For instance, with RNA viruses, if you wanna analyze by PCR, you need a reverse transcriptase up front. Since it is not a novel enzyme, it actually conveniently fits into customers' existing diagnostic workflows with minimal product activities. People know how to use reverse transcriptase. It's very much plug and play enzyme, and that's different to many of our other enzymes. Furthermore, we are working on novel reverse transcriptase technologies too, and we do expect to launch the company's first novel reverse transcriptase technology during 2022. The last one here in terms of the prototypes we're putting out the door is the high concentration BST+ DNA polymerase.
This is products where we already have the enzyme on the market, but what we needed to do is formulate a highly concentrated version of this enzyme, and this is really targeted towards point-of-care diagnostics. We see for several customer opportunities and for other applications too, that it was necessary to formulate this for these customers at a higher concentration to fit their applications. We've also been making progress on the M-SAN ELISA kits. We've done a pilot production that was successful. We're now working towards the first commercial manufacturing batch. Assuming all goes to plan, we will launch this during Q4. An ELISA kit is very much a support product to drive the sales of our M-SAN enzyme.
You know, they go together as a solution offering, so we need both. At the same time, we've been working on the SAN HQ2 enzyme, which we recently launched. We're also developing an ELISA for that, and that ELISA kit is in the early development stages. At this stage, we are developing the antibody pairs, and we're making progress there. So, it does take time to develop ELISA, so the targeted launch date we have for that is the second half of next year. We have talked earlier about AZtaq DNA Polymerase and novel reverse transcriptases. These are taking a bit longer to optimize their manufacturing processes than we originally anticipated. We were hoping to launch these this year, but that will not happen. We expect to launch these during the first half of 2020.
I think it's important that, you know, we don't, you know, we launch products when we have the quality and the robustness. We would never want to launch them too early. Sometimes it will take us a little bit longer to launch products. Another important thing, what we do is it's not just about new innovations, it's also often scaling up our enzymes and the manufacturing size of the enzymes. Two enzymes in particular we're working on right now is the M-SAN enzyme, upscaling that, and that coincides with the launch of the ELISA kit. All preparation work has been completed ready for the first pilot production batch in Q4. For this, we're actually gonna use all the similar upscaling and downstream process that we followed and are following for the upscaled SAN HQ enzymes.
We're confident we have everything in place for that to be successful. The other enzyme we have is proteinase. This enzyme, we're currently optimizing the conditions that we need to do prior to scaling it up. For ArcticZymes, we really want to prioritize this upscaling because we're seeing there's a growing interest amongst our customers for utility in molecular diagnostics. That's what it was originally intended for. We've now seen a broader utility towards cell therapy, particularly in the isolation of cells that are gonna be used in gene therapy. Actually, it's very new and hot off the table is interest now in using our proteinase in mRNA therapeutics.
I think here there is and hence why we really want to, you know, get this scaled up as quick as we can. Let's go to operations then. It's been a busy time for operations, and they've had to manage running the daily business, getting everything out, stocking products up at our warehouses. In addition, they've been busy finishing off the new production facilities at SIVA Innovation Centre, where we're located here today. The new facilities are progressing according to plan. All the infrastructure changes have been done.
Actually we're being very smart because all the equipment we actually purchased very early on, and that was very good planning because in many parts of the industry, there have been supply chain shortages when it comes to equipment. We're very smart to get all that equipment very early on, had it all in boxes and so we got everything we need. Now what we're doing is unboxing all that equipment, and you can sort of see this in the photos there to the top right. You have one of the fermenters being unpacked and put into place. The bottom picture here is two of the pure chromatography systems being installed. There's a lot of hands on deck now putting all the equipment in place.
The next thing we're working on and we'll be working on now until we open the facilities is around about qualification and verification of all the equipment and processes that we have in accordance with ISO 13485 requirements and GMP guidelines. We do expect the relocation to the new facilities to be accomplished and to be fully operational by the end of 2021. At the same time, what this means as well, when this happens, it means that ArcticZymes Technologies will all be located on one site at SIVA, and the remainder of the Biotec BetaGlucans people here will have moved over to the Nordøya site. Then BBG will be on an independent site too, by the end of the year.
That will also complete the transition that we have of Biotec BetaGlucans as well. I'd like to talk about the strategic growth initiatives. We do continue to focus on these, and we are committed to executing on the strategic growth initiatives here. With respect to organic growth, I mentioned R&D earlier, and new innovations is very critical to this. We're not just resting on our laurels here. We are looking to expand innovations beyond Tromsø and now into Oslo. We are gonna establish a laboratory in Oslo focusing on application development. Application development is very important for both our existing and new enzymes.
It is a critical part of the sales process to have application data behind new enzymes, pre-launch and post-launch, and actually for all existing products. From the birth to the death of a product, you need to constantly update your application data to make it relevant to customers. In addition, as we launch more enzymes, there's new ways of using and combining our enzymes into workflows. What you need to do is also, you know, support that by applications and showing our enzymes working together in potential customer workflows. We'll certainly continue building out our capabilities and team when it comes to applications as we move forward. Also there, the rationale for Oslo. Why go to Oslo?
Well, at the end of the day, it gives us access to a talent pool of commercially experienced application scientists who have worked in some of the big companies, who could be, in many ways could be, represent like a potential customer of ours. So they have that kind of experience in commercial experience in developing those molecular technologies which our customers are developing. Hence, we need to internalize those people into ArcticZymes. With this, we do expect to be operational within Q2 2020, as if it all goes to plan. We have a location identified and negotiations are undergoing in order to secure our foothold in those facilities.
We're soon gonna start a hiring process, as well to get the people in place who will be doing the work there. In organic growth, here we have intensified our activities towards acquisitions. With this, we have actually reestablished discussions with several of the early acquisition targets, and there is certainly interest there. In addition, we have also expanded our search activities to identify new acquisition targets we haven't considered earlier. That these are targets in all of the three market areas that we serve, as well as expanding it to new geographies. Originally, we were just looking in Europe, but also expanded that to look for potential companies in North America. There's no reason why ArcticZymes could not acquire a company in North America.
We are, you know, really looking much more than we did before. Of course, this is intensive work. It takes time. We have engaged the services of a specialized consultancy to help us with those activities. With that, I will hand over to Børge, and he will take you through the financials.
Thank you, Jethro. As Jethro has talked about, it looks like our business is transitioning back to how it was before the pandemic started. The COVID-19 related sales have played a smaller role now in our turnover for the last two quarters, and we have also experienced good growth in the therapeutic/biomanufacturing segment in the third quarter. Even though our sales have grown significantly the last year, you could say our profitability has not grown to the same increment due to investment in both organic growth through the hiring of new personnel, and we've had some extraordinary items during this year. We do, however, manage to drive a profitable business with a solid gross and EBITDA margins. Going into the sales side of the business here.
In the third quarter, our sales increased by 31% compared to the same period last year, or we went from NOK 19.5 million up to NOK 25.6 million. For the first nine months of the year, our revenues are up by 22% from NOK 71 million to NOK 87.5 million. We have also received a couple of questions regarding currency in the company. Of course, currency plays a vital role in our sales here. Also, the majority of the revenues are nominated in US dollars and in Euro. Of course, that means we will have a currency effect when especially when you compare quarter to quarter and when looking at the first nine months of the year.
You can also say, if you look at the first nine months of the year, you can say, you can see that the Norwegian kroner strengthened 10% towards the US dollar and 4% towards the Euro. If we look at this one and see that, and consider that the exchange rates were the same in third quarter and the first nine months of 2021 as they were in 2020, our revenues would have been NOK 0.5 million higher in the third quarter and NOK 8.4 million higher for the first nine months than what we've actually delivered here. Based on this, you can say that the underlying growth is actually much higher than what we have presented in the financial figures here.
Looking at the therapeutic segment, in the third quarter, sales increased by NOK 2.4 million from NOK 10.2-NOK 12.6 million, which is, as Jethro mentioned earlier, the best quarter in history for this segment. This is also around a 20% increase compared to what we've seen in the previous quarters over the last two years. For the first nine months in 2021, sales are at NOK 31.2 million, which is also NOK 2 million higher than the same period last year. Hopefully, we'll see a steady growth in this segment moving forward as the world continues to normalize. In the research and diagnostic segment, sales have increased by 41% from NOK 9.4-NOK 13.2 million this quarter.
As Jethro talked about, we are really happy about it, that we see that the sales are driven by demand in the underlying business and not only COVID-19 related sales. Also looking at the first nine months for this quarter, you see that sales in this segment is up by NOK 14 million from NOK 42 million to NOK 57 million. Of course, this is explained by the really strong first quarter we had this year, and all the first quarter and especially in the research segment, and of course, the COVID-related sales we saw in the beginning of the year. Going into the COVID-related sales here, third quarter gave us an estimated NOK 2.9 million in sales, and this is primarily within the diagnostics area.
This is actually the lowest figure we've seen since the pandemic started here. As we stated in the second quarter this year, and also as Jethro talked about earlier in this presentation, we do expect corona-related sales in the diagnostics area to level off over the next 12 months or the next year as more and more people become vaccinated. We also expect the magnitude of orders to decrease and fluctuate as we have experienced in the last year. We expect this to continue moving forward as well. Of course, on the other hand, we do believe that the sales within the therapeutic/biomanufacturing segment to grow moving forward.
As we have talked about in the last two quarters, we have introduced a graph showing the 12 months rolling average sales to eliminate some of the quarterly fluctuation we've seen and to tell you a little bit more about how the company is trending and how we are actually growing. As you can see from the graph here, we've had a continuous positive trend over the last three years, where sales have grown basically in every quarter here. From a low end in 2018, 2019, where we had NOK 7.5-8 million in sales, we are now averaging in excess of NOK 25 million per quarter here. Third quarter is no exception to the positive trend we've experienced over the last few years.
We see that especially sales development ex COVID-19 has had a positive growth now after a slightly more challenging second quarter this year. We have managed to increase the trend, as we talked about and predicted in August when we presented the Q2 figures. Looking at the profitability side of the business. Third quarter is better than both second quarter this year and in the same quarter last year. Our EBITDA for the quarter landed on NOK 9 million compared to NOK 7.1 million last year and NOK 6 million in the second quarter this year. Year- to- date, our EBITDA is at NOK 41 million compared to NOK 38 million at the same time last year. As you can see, even though our revenues and EBIT have increased, our expenses have also increased this year.
Last year, we were all in lockdown, meaning that we did not take on a lot of variable expenses such as travels and conferences and exhibitions. Now, as the world has been opening more, we have been able to travel and participate at conferences to a much larger extent than in the past. We have also hired a lot of new people in order to grow, to drive our growth initiatives through new product innovations here. We have also taken on an accrual of NOK 4.8 million relating to national insurance contribution and options, whereas NOK 0.5 million of this resides in the third quarter.
Looking at the margin picture, we had an EBITDA margin of 35% for the quarter and 47% for the first nine months, which is really good, really high. Of course, but this is slightly lower than we had at the same time last year. It is explained by the same things that I talked about earlier here, by investments in organic growth and some extraordinary items that we have this year. On the cash side, as with previous quarter, our cash flow remains positive, with a change in cash of NOK 9.9 million for the quarter and NOK 46.7 million for the first nine months of the year, giving us a cash balance of NOK 187 million for the end of September.
Also from the graph here, you can see that we had a major spike in our cash in our changes in cash during the fourth quarter last year. For those who don't remember, this is associated with the divestment of Biotec BetaGlucans, where we received NOK 70 million at the end of 2020, plus an additional NOK 16 million at the end of first quarter this year. As we have talked about in earlier presentations, we are, and as Jethro touched upon here, we are also investing in new premises for the production department or operations here. After the first nine months, we have spent NOK 9 million on this project, which includes both new equipment and the rebuild of existing premises. The majority of expenses relating to these premises has now been taken, and we expect only minor changes during the fourth quarter.
With this, I think I will hand it over to Jethro now to tell us a little bit about what to expect for the remainder of the year.
Thank you, Børge. For the outlook, it is about financial guidance, and we did provide some guidance last quarter. That was we have an annual sales revenue target of NOK 120 million for this year, 2021. We continue to hold this guidance. I would say that this guidance is what I would say is our midline guidance and not what we'd say our conservative guidance. You know, What I can say is we are making progress to this. We have the eyes on the prize there. Of course, there's some more work to do here, and that's what the team's here to do. We're working towards that to bring in that number there.
In terms of longer-term growth, we're certainly committed to that. I think that is evident. You see that in some of the things we're doing in terms of expanding what we do in terms of new premises, doing more things in R&D. Of course, this is also expected as well because we do have underlying momentum in the business, particularly in the non-coronavirus related business. That's something. Momentum is generated year on year on year, and that just continues at the end of the day because that's already inherent in the business. Basically, this is also supported by a growing product portfolio and expanding customer base. We do expect, you know, year-on-year growth long term.
We do appreciate and understand that the expectation and need for future guidance, and we will certainly provide future guidance with respect to expectations for, you know, what is our target for 2022. We will come with that. We will also provide longer-term guidance as well. We will do that during the beginning of next year. That's where we'd like to end today. But before we open up for questions, what we'd like to do for future quarterly reports is we do plan to mix this up in terms of we will have virtual meeting, virtual calls, but also we want to reestablish getting out there and doing these presentations in person.
Traditionally, we've only done this in Oslo, but what we're looking and considering to do now is to do these in different locations. For instance, Stockholm and potentially other locations where our investors are. This means that we will be able to have more face time with our investors if we go to the locations where our investors are. With that, I'm gonna stop and Børge Sørvoll and I are happy to answer any questions that you have. Thank you. If anybody is calling in by phone, you can unmute using star six. Hello, Peter Östling. I see you've raised your hand.
Yes. Thank you. Can you hear me?
Yes.
I have a couple of quick ones. Some of them is probably more towards Børge. This upscaling project that you described related to M-SAN and proteinase, what kind of cost is related to that? I guess it's a smaller one than the upscaling projects that you have done during 2021.
Firstly, I can talk about the SAN. It has similar cost to the scale-up we had. The M-SAN HQ will have similar cost to what we had with the SAN HQ enzyme. At the end of the day, we're following very similar processes, you know. Because the enzymes are similar, so we can follow the similar processes and how we did things there. But of course, since we are doing a large scale fermentation that there are some costs associated with that. Of course, if that ends up being product, then it goes into our inventory as well. I don't know, Børge, if you wanna comment on that.
Yeah, no, you are right. You will see it as an inventory moving forward now with when and if the product passes all of our standards and requirements. Then you'll also see it down the road. There will be cost of goods as part of the cost of goods now when they sell the products.
Okay. An investment of around NOK 4 or 5 million then?
No, that's way too high. It's not. We're not.
Oh, okay.
Uh-uh.
Okay. The establishment of the lab in Oslo, how many people do you plan to employ there?
Yeah. It's a good que-
Probably a cost associated to that as well.
Yeah, it's one of those things where we start out gradually here. I think you know, at the end of it, what we'll do, it'll be 2-3 people initially we're looking at. Then they will start expanding out as the business demands. So that's what we're doing. Yeah, you all wanna be careful since we haven't signed the contract yet. But we know where we're gonna go and what we want to do there. But of course, it's still early days.
The question that I always ask at the presentation is the visibility for your sales. Can you talk a little bit about that? I mean, it's good that you kept the NOK 120 full year guidance. Can you talk a little bit about the visibility that you see?
Sure.
See for early 2022?
I'd say it's a very good question. I think, you know, on the underlying business, that's always been the kind of thing where we've always had good visibility. I think one thing is you certainly appreciate, COVID is one of the difficult ones to have visibility on. You know, because that is of course it's unprecedented, and I think all companies have the same thing, you know, where is this gonna go? We've had those things that have been quite volatile. When you look at our numbers, it has been the COVID that's really made our numbers quite volatile there. That's why we sort of, you know, I think it's natural in there.
We do see there's a decline there in at least the testing because of course now you know people are you know you sort of see there's a lot more focus on lateral flow tests and things like that as opposed to PCR tests and our enzymes don't fit into lateral flow. There you know again that's why we say it could still be lumpy. That is we don't have full visibility to the COVID stuff. That we could have some nice surprises but it could also go against us. That's just how it is when it comes to the COVID side of things.
That's sort of why we had the lumps and bumps in Q1 and Q2, you know, because you know, partly because we had some expected upsides, I would say, in Q1 and not in Q2 when it came to the COVID stuff. That's really where it is. The underlying business, we have good visibility. COVID is a bit more unpredictable, which is understandable.
Yeah. You said that you normally, from your largest customer, you get, they tend to place a large order more or less once a year. As I understand it, previously, those orders has mostly come in Q4, but this year it came in Q1. Could it be so that they return to the normal pattern and place an order in Q4 as well in order to get into the normal cycle of things or?
Yeah. You know, I wanna be very careful on commenting on that because, of course, you know, we are talking about, you know, something that, we don't wanna talk about these things, publicly when it comes to our main customer like this. It's, t here's, of course, we have a relationship there, and we have to, be careful what we talk about there, so.
Yeah. I expected that kind of answer.
Yeah.
Just finally, before I go to somebody else. There has been a lot of discussions, and you know that the FDA held a two-day advisory meeting during the autumn when it comes to potential side effects when using viral vectors as delivery vehicles for gene therapy. There is a lot of work going on in order to, I don't know, the place, but to find alternative ways of working with gene therapy without viral vectors. What's your business if viral vectors would go away and we would use more like direct gene editing and CRISPR and that sort of things.
Yeah.
Is it still that you use your SAN HQ in those novel kind of gene therapy delivery or things?
Very good question. There's a lot of things there actually because, you know, we sort of communicated something last quarter that we do have ambitions now to expand what we're doing in innovations and certainly you're correct, you know, there are other technologies out there. Do I think viral vectors are gonna go away? Certainly not. Are other technologies gonna be used in what I would term genetic medicine? Yes. You know, there's CRISPR, there's RNA technologies. There's of course other potential gene editing technologies out there as well, and of course, we have the viral vector.
All these tools are gonna be needed and the beauty of this is for ArcticZymes, we're certainly looking in all these areas and we are gonna expand our innovations into each of these areas. Today I did mention for instance the RNA therapeutics and already, you know, we're seeing that our proteinase has potential applications there. We are gonna develop enzymes in RNA therapeutics. We are looking into gene editing. Actually we actually already have customers who are using our DNases in together with CRISPR technologies for instance. This is really early stuff. Our existing enzymes are already starting to find their way into these other areas as well.
Of course what we want to do is also to manufacture enzymes, but also novel enzymes that fit into the broader cell and gene therapy area, as well as beyond that into biomanufacturing. You know, remember gene therapy is a small part of the biomanufacturing market in general, and I think ArcticZymes can certainly play more in these areas than it has done. We are building out the innovation pipeline, and some of that we would do organically, some of that will be inorganic.
Okay, great. Thank you. I will back you to the queue.
Thanks, Peter.
Any other questions? Feel free to also to question us. Maybe you're first again, Peter, if you had some more questions.
Yeah, I just raised my hand again. Just two quick ones. Could you just remind me. We all know where you use the SAN and the SAN HQ and the SAN HQ 2.0. Just remind me where you use the M-SAN HQ. Is it in both therapeutics and diagnostics or?
No. The M-SAN is more similar to Benzonase at the end of it.
Okay.
You know, that fits more into. Also, it fits into kind of more the lentivirus world. That's why we developed it mainly lentivirus and those types of viruses. Then of course the one then our SAN HQ 2.0, that is one which is we think will have the broadest utility as well for more general use as well. And what we did also with that enzyme is to make it much more plug and play so it integrates much more with the downstream processing. Because when you put the enzyme into the process it does one job, i.e.
To remove the contaminating nucleic acid you don't want in the biomanufacturing, but then you need to remove the SAN enzyme afterwards. That's what the magic we did. We did some kind of, you know, with our know-how we made some changes and some engineering and that with our enzymes so that it's much easier to remove in downstream, in all the different downstream processing across all these different biomanufacturing processes it could potentially be used in. You know you need to look at all aspects when people use these enzymes and that's it. That's what we built into the SAN HQ two enzyme. Of course we're also looking at, you know, other SAN enzymes as well.
There are things where we see the needs or potential opportunity I would say for other flavors of these SAN enzymes, or nucleases in general here. It's sometimes subtle differences that you need to do to make these fit into different workflows as well. You'll certainly see more of these types of enzymes coming from us at some point.
I thought that the SAN, the SAN HQ will also be used where Benzonase is used.
Yes it is. Yes it is.
Yeah, okay.
In all cases, Benzonase is used across the board in everything. It's very general purpose, but it's not optimal for everything so.
Okay. You have tailor-made them.
Yes.
More specific than. SAN HQ is more for
Yeah.
Adenoviral vector and the
Yeah.
The M-SAN is more for lentivirus. Okay.
Exactly. Remember you're using nucleases also. Yeah, when you do, for instance, CRISPR technologies and things like that, you're also using nucleases there and other applications here. You know, at the end of the day, you want general purpose, and you want specific tailor-made nucleases. I think, you know, nucleases, when you look at it in general, you know, you remember the DNases are nucleases as well. We do have quite a broad range of nucleases already. I think it's in many ways they're one of the most exciting class of enzyme there is and why we certainly have a strong focus on it because they have such broad utility across everything.
Okay. Okay, great. Thank you. I move back to the queue.
Thank you.
Hello, Jethro.
Hello.
More of the same. First of all, thank you for a very detailed and rich report. I enjoyed reading it.
Thank you.
More on SAN and the 2.0 variety. You spoke on that last time.
mm-hmm.
How is it received? I assume it's sent out to customers at the moment.
Yes. We launched that product, and it's been commercially available during Q3. It's certainly attracting attention, of course. The other thing we're working on as well. What's important with these enzymes is also the ELISA kit as well because they. That's why I emphasized that in the presentation today, with the M-SAN, for instance, we have an ELISA kit that we're gonna launch soon. The SAN HQ 2.0, but the difference with SAN HQ 2.0, since it is targeted to a broader audience than just for our manufacturing, some of those customers will not need the ELISA kits. Others will.
I think here we do expect the SAN HQ 2.0 enzyme to pick up quicker with some customers because some of them won't require ELISA, others will require the ELISA. That's kind of, you know, the positioning of that enzyme and we do see certainly that there is interest and customers purchasing the SAN HQ 2.0 enzyme. But of course, you know, it will take time, of course, to see them having a major impact on sales just yet. You know, we only just launched it last quarter, so.
You have managed to make wonders earlier on, so I have full confidence in you.
Thank you.
What's more, you have changed very much in the distribution chain over the past year. Can you say something about that and how it has influenced how the regions are coming to play? Something on that.
Yeah, no, that's a very good question. I think how we do business, most of our business is done by our own business development people. We have business developers in Europe, in North America, and Japan. Those make sense. Of course, you know, there's other regions where we could have our own people, but it's too early days for that. That's why we you know use distributors or I wouldn't say they're traditional distributors. We would have specialized distributors who understand how to do B2B and work with other companies. It's not the kind of traditional distributors you'd want to work with who are used to selling end user products. You need that.
For instance, in China, we're building a network of partners there to help us sell into China. You know, we're making some nice progress there. Again, with Russia, it's difficult to try and work directly with Russia. It's much better to go to a company who understands how to work and get products and deal with all the complications of doing business, for instance, in Russia. That's why we work with a company such as LT Biotech. We do certainly early on when we're going into new geographies, you know, we do look to work with partners initially.
When business gets to a certain critical mass and predictable, then we'll put our own people in place. I think that's a smart way of doing it, as well. Of course, as we build out the product portfolio as well, it will also. We've become much more relevant to other customers, so that's when we'll also certainly build out our team as well or, if necessary, bring in specialized partners to help us. I think that's very interesting, for instance, in the pharma space.
You know, we are knocking on the doors of a lot of the pharma companies, but as well, it's good to use channel partners who also have a nice mixed bag of products in biomanufacturing because for that actually makes it much more tantalizing sometimes for some pharmaceutical companies 'cause then they can get SAN along with the other bits they need together. But of course, you know, as we build out the portfolio as well in the biomanufacturing space, we'll have more content, so we've become much more relevant, and we'll manage that with our own people as well. It's a combination of things we see right now in terms of using our own business developers and using channel partners and distributors at the end of the day. When I say distributors, it's specialized distributors.
Thank you. You make so much sense, I really admire what you do.
I like that. Thank you.
Yeah, I mean it. Thanks. That was all for me. Please someone else.
I see another hand raised.
Yes. It's Peter Östling again from Pareto Securities for.
Please fire away.
Yeah. Yeah. First, a quick one. Noticed that the cost of goods was relatively high in this quarter. Was there any specific behind that?
No, I don't think there is anything specific around it. I think that you will probably kind of see those fluctuations as we move forward. We are still having good margins, so even though we had a slightly higher number this year than we've had in the past. It also has something to do with how our inventory transitions from finished goods also over to work in progress, from work in progress to finished goods as well, and when we take it out to the customers.
Okay. Could it be an order that has not been delivered yet that has boosted the inventory this quarter or in Q3 that you will?
Not sure when you talk about the inventory, but also I think it's that you will see an increase in our inventory, especially now that we have this upscaling project that means that we are getting a lot more raw materials in stock now. Instead of, as we talked about in the past, when we did this upscaling, instead of doing 50 batches of one product, now we do one big batch essentially here. That gives us a little bit more raw material or inventory in our stock.
Okay. Finally, we established discussions with several earlier acquisition targets.
Mm-hmm.
Could you elaborate a little bit about that? Are you getting closer to reaching some kind of deal with them?
Yeah. Well, we've had discussions with a few of these now, and there's certainly interest to move forward. Of course, these are quite recent discussions, so but the interest is certainly there. Actually in many cases, it's sort of good that time's passed because the rationale to it, the story to come together is much better as well because I think, you know, you sort of see the progression that each company has made, so actually, when you look at some of these targets. But of course, beyond that, it's also looking deeper as well in other areas, and that's why we also expanded the search as well now, not just what we had before. You know, we wanna look for more as well.
Remember, we are looking at a bolt-on build approach here, so it's not just about looking at doing one acquisition, it's looking at a kind of a bigger map of sequential acquisitions in the forthcoming years in each of the three market areas as well.
Yeah. It means last quarter you added the possibility to do in licensing deals as well.
Yeah.
Could you talk a little bit about how those discussions progress?
Yeah. You know, the main focus is certainly mergers and acquisitions. So what we're doing is we have a couple of enzymes that we are testing from a couple of companies at the moment. Of course, we need to balance that up with what we're doing organically too, because of course, you know, R&D need to look at this, and if we license it, then we have to do a full product development as well. We're balancing those things out. So we have a few things trickling in, but of course it was also balancing it with the organic stuff too.
What's very interesting, we are sitting on a lot of innovation potential within this, within ArcticZymes, and hence why we are building out the team to bring more of that to market as well. I think it's a balance of this. I think yes, we have some stuff that we're looking at. If we think it is something that could be nice, really work for our customers and the enzymes that we're looking at have the features that are claimed, then we would bring them in-house and get them to market. It's still early days.
Okay.
We just started doing that.
Yeah.
You know, it takes time to bring it. Yeah, we still have to go through a full product development when we license something.
Yeah. Okay. Great. Thanks.
Last question from anyone before we round off. We have a-
One question.
Hello. Elias.
Yeah. Hello. Thank you for letting me ask this question. I just want to ask you about what's your biggest competitor in Europe right now. Yeah, that's my question.
I think when you look at it, you know, it's certainly the larger companies out there with the large portfolios, you know, such as I'd say, you know, companies like Thermo Fisher Scientific, those types of companies and the Roches of the world. Those are the biggest competitors out there. Naturally they have large portfolios. But at the same time, you know, there are certain customers they can't reach since they don't have the novel enzymes. You know, they have a lot of generic enzymes. There's a lot of companies competing around generic enzymes. So I think that those are what I would say are the biggest competitors out there.
Thank you.
Okay. Do you have one more, Elias, or that was probably it. I think we just leave it at that.
No, it's okay. That's fine.
Yeah.
Thank you.
I think we just leave it at that, and I think we all wish you, everyone, a nice day and moving forward now, and yeah, I think we just say bye.
Thank you.
Have a good day then, everyone.
Thank you very much.
Thank you.
Thanks.
Have a nice day.
Bye.
Bye-bye.
Bye-bye.