Welcome to the Q2 presentation. It will be myself, Jethro Holter, the CEO, and Børge Sørvoll, the CFO, who will walk you through the presentation today. For those of you calling in virtually, you can forward your questions via the chat function. Unfortunately, we cannot cater for verbal questions for you calling in virtually. We do have people in the room today, and it's busier than last time, so thank you for coming to Oslo. Of course, you guys can answer questions verbally at the end of the presentation. The agenda today will follow the usual fashion. We'll start with the highlights for the quarter. Then we dig deeper into different areas of the business and give you an update there.
Børge will go through the financials, and then I will end with the outlook and for the year and beyond. When it comes to the highlights, what we see and expected is the growth trend continues. We achieved growth for the quarter, where we achieved NOK 30.4 million. That's equivalent of 43% growth for the quarter, and that's compared to the same quarter last year. Remember, this was on the back of a strong first quarter, and we did expect and did communicate last quarter that Q2 would come in lower than it did following a strong Q1. Year to date, we're very much on track on what we planned. When it comes to EBITDA performance here, we continue to perform well, and that's in a
At the same time, you need to take into consideration we're investing in the business and in the strategic growth initiatives. This is a biomanufacturing and a molecular tools business. What we've started to do now is to initiate the establishment of a drug master file. In short, we call that a DMF, and that is related to the SAN HQ product. Also, we're delighted to appoint a new VP of Business Development and Marketing, namely Dirk Hahneiser. He joined us on the 1st July, and I'll tell you a little bit more about him in a bit. When it comes to the business update, as I mentioned for the quarter, we grew the business by 43% compared to the same quarter last year.
In the biomanufacturing part of the business, remember biomanufacturing relates mainly to the SAN products today, and those enzymes are used in viral vector manufacturing, such as vaccines and gene therapies. For the quarter, we achieved NOK 14.8 million in sales. That's equivalent to 78% growth for the quarter compared to same quarter last year. Overall, biomanufacturing sales contributed 49% towards Q2 sales. What we've seen, we continue to see the upturn in sales in this area following the pandemic. We see that those sales are leveraged across all the geographical regions. What we noticeably see is that the Americas has the highest contribution. Over 60% biomanufacturing sales we have had in Q2 came from the Americas. Certainly, we've seen that trend earlier.
With that's why, for instance, implementing a DMF is important here. The drug master file for the SAN products will be submitted to the U.S. FDA. That is not a small task. It's a major task. We have a lot of people working on that within the company. We also had to hire regulatory specialists to help us get us to the goal line there. We do expect to have that in place by the end of the year or early next year. Why is it important? Well, for many of our customers, they have requested that, and certainly new customers have requested that, particularly those who are gonna commercialize in the United States. They say it's an essential requirement. That's something we need to have as we grow and develop the business with those customers.
With respect to molecular tools, this is where we serve both companies who manufacture research technologies and products, and also companies who develop and manufacture diagnostic products. That's the molecular tools business, and basically all our products are relevant here, including the SAN products. They're used, for instance, in next-generation sequencing as well. This business performed for the quarter with NOK 15.5 million in sales. This is a growth of 18% compared to same quarter last year. Overall, molecular tools had a 51% contribution towards total Q2 sales. If you split that up, 33% of these came from research, 18% from diagnostics.
In research, it is the recombinant Shrimp Alkaline Phosphatase enzyme that was the main driver for sales in the quarter, accounting for 60% of the sales, research sales. Shrimp Alkaline Phosphatase, what we've seen is over last year, we have seen sales pick up for that enzyme, and we're seeing more frequent orders from the key accounts that purchase that enzyme. We are seeing a different behavior in the market with respect to purchasing of that enzyme.
The rest of the enzymes drive the remaining 40% of research sales for the quarter. When it comes to diagnostics, we did see a steep drop in Cod UNG sales, and this is very much linked to the change in supply chain needs following the Omicron pandemic, which is natural, you know, particularly when what we saw in Q1. What we're seeing now is readjustment of the market with respect to supply chain needs when it comes to coronavirus. Overall, this is within alignment with our expectations for the year. We've always said, and it's in our guidance, that coronavirus sales will be lower in 2022 compared to last year. Overall, we do expect for the year that the diagnostic business that will grow during 2022.
I'd like to talk a little bit about geographical sales. We haven't done that much before, and I think it's important to do that. If you think ArcticZymes, you know, based in Tromsø, have a strong presence there. It's a remote location, but despite that, we are a global company, and that's reflected in our sales. You sort of see here, when you look at 2021 and Q1 this year, you can see that the EMEA is our largest territory geographically. One thing to add, even though we sell products to customers in EMEA, some of those are also in U.S. dollars. It's not always euros here, so that needs to be taken into account when you look at currency.
It's the Americas, of course, is the second contributor, not far behind EMEA. We have approximately 13% in the Asia-Pacific region. What's interesting here between Americas and EMEA, sometimes that line moves left and right here. You could say approximately 10% from quarter to quarter. The reason is we do have some large international customers who have multiple sites around the world, and sometimes they say, "Well, this quarter we need to ship more products to Europe." Another time they say, "More products to Americas." But it does move backwards and forwards. The Asia-Pacific area is quite constant quarter to quarter, apart from Q2. The reason why, you know, it shrunk for Q2, the kind of proportions here, is very much linked to China.
What we saw during the quarter was, and I think, you know, it was very much in the media as well, there's a major coronavirus lockdowns in China. At the same time, a lot of the borders were closed to ship product into China. Even though we had customers who wanted product, we just couldn't simply get product into China during Q2. Now, of course, those restrictions are lifted now, and it's easier to get products there. Also, what we're doing is strengthening our global reach within our commercial team. I'm delighted to appoint Dirk Hahneiser as our VP of Business Development and Marketing. You can see him in the picture here. He's a very smiley and happy chap.
You know, he has an impressive track record in growing commercial organizations. He has experience from Johnson & Johnson, Ecolab, and Thermo Fisher Scientific, and Thermo Fisher Scientific was his. That's where he came from to come here, and in that company, he was leading an OEM business, and that's a very similar business to ArcticZymes. Again, he understands how this market and our customers and how things work. He replaces Dino DiCamillo. Dino DiCamillo has done an excellent job over the years, an outstanding job in growing the commercial business. I would like to take this opportunity to publicly thank Dino for his dedication and contribution over the years.
We've also doubled our commercial presence in the U.S. , or I should say North America, where we've hired a second business developer now, and his name's Scott Freya. What we're doing now is we're splitting the U.S. into two, east and west, and each of the business developers will manage one half of the U.S. each. That's important because we are a growing organization where the number of customers are increasing in the U.S., and so we need more support. Of course, we're launching more products, so our portfolio becomes much more relevant and door openers to new key accounts. Hence, it's time to have more commercial presence there.
When it comes to innovations, we announced earlier in the year that we were setting up an application lab in Oslo at ShareLab, and we refer to this in the future as our Oslo site. We hired Darren Ellis, Dr. Darren Ellis, to lead those activities there. We have been successful in now hiring two application scientists to support him. They're now on board. They actually joined on the first of August, and you can sort of see them in the picture here. This is kind of what the ShareLab looks like and some interesting instruments there. Robots, and those robots there will run workflows at the end of the day. The focus of this lab is about demonstrating the utility of ArcticZymes enzymes in complete workflows.
What this means, for instance, it's sort of demonstrating the use of several of our enzymes that fit together like jigsaw pieces, for instance, into a viral diagnostic, virus diagnostic workflow, such as a PCR test. There, you know, you need to isolate the sample from the blood, then you need to do several steps, and then you need to amplify, and do you have, for instance, COVID or do you have HIV? There's multiple steps, multiple enzymes are used, and what we want to do is make sure we can offer every single enzyme. We've got to demonstrate that in the real world, hence why we have a robot that runs those workflows.
We can put our enzymes in, demonstrate that, and that's the kind of application data we need to show our customers simulated in their environment, and that's what ShareLab is about. It's not about innovating new enzymes, it's about demonstrating the utility of the enzymes. We've done that to some degree in Tromsø. But of course at ShareLab, that's where we get the people seasoned from industry who've done this day in, day out, and then we can demonstrate that. That strengthens our value proposition much more towards our customers. It's a natural part of the product life cycle, because, you know, when you launch an enzyme, that's the birth of an enzyme.
It can be on the market for 20+ years, and you always need to build application data and continue building it during the lifetime of that product. It's not just a one-time thing, it's continuous application development with all products, and also as they fit together as package offerings. In Tromsø, we continue to move forward with our product launches. The next half of the year you'll start to see these being launched as also we're working on scaling up some enzymes too. We are making progress with the RNA therapeutic enzymes. These are a bit more long-term, and we do expect those to launch the first enzymes next year. In operations, the new production facility is running smoothly, and we continue to increase capacity, and we do this through incremental recruitment, where we're hiring more production people and quality control people.
What we're seeing now is that on-site customer audits are becoming much more routine, and during the quarter, we hosted two customer GMP audits. What they did was to audit the new manufacturing facilities associated with SAN manufacturing. One of those was a top 10 international pharmaceutical company. It was the same company that audited us earlier, and it's a routine follow-up audit, and that's normal. You know, customers don't just audit you once, they will keep auditing you on a regular basis. Another one was a leading international viral vector commercial development manufacturing organization. I can say both of these customers are purchasing SAN enzymes today.
Both audits were successful, and this is important because, you know, at the end of the day, the audits are all about qualifying ArcticZymes as a critical component supplier. Basically we retain our status as a supplier there following these audits. Of course it's important for them for regulatory approvals that they audit their critical component suppliers as well. When it comes to strategic growth initiatives, we continue to execute on these. The first is really about organic growth, and it is about people. People, our employees are our biggest asset. At the end of the day, we want to strengthen our organization in the right areas, and that is certainly cross-functionally.
There are certain areas we need to build up, and we need to have greater competencies, for instance, in quality assurance. Regulatory, particularly now, you know, we're working on Drug Master Files. Today, we have to use external support, but Drug Master Files will become much more routine in our business moving forward. Since we are heavily going into biomanufacturing, we're developing RNA therapeutic enzyme. Again, DMFs will be important now, and regulatory documentation, hence why we're building up that organization. Project management as well. You know, now we're getting larger, more complicated. We need much more professional project management in the organization. Also, GMP, product development and commercialization competence. As ArcticZymes has had 20 years of serving molecular tools, you know, we know that business very well.
When it comes to biomanufacturing, we've been doing it since 2016. Of course, you know, we need to really build our competencies much more in that direction. When it comes to investments, particularly our investments are heavily leaning towards the biomanufacturing area. Inorganic growth, that's about mergers and acquisitions, and we continue to intensify activities. Most of my time is spent there and, which is good. We have got to a stage where we've got a priority list of mutually interested targets, which comprise of some earlier targets, as well as some newly identified targets. We have those initial discussions ongoing between ArcticZymes and many of those targets right now. With that, I'll hand over to Børge, and he will walk you through the financials.
Thank you, Jethro, for that introduction into the Q2 , and for the first six months of 2022.
Looking at the financial side of the business, we are, as Jethro talked about some, we are delivering growth on an annual basis here, even though we don't have the same sales figures as we had in the previous two quarters here, but we are still performing well here. Our sales revenues for the second quarter increased by 43% compared to the Q2 last year, generating in excess of NOK 30 million in sales revenues compared to the NOK 21.3 million that we saw in the same quarter last year.
For the first six months of the year, total sales revenues are at NOK 79.5 million, compared to NOK 62.2 million in the same period last year or an increase of 28% for the first six months. As we said last year, you can see last year, we saw that both of the main currencies that we are using is USD, U.S. dollars and euros. They had a negative impact on the underlying growth of the business by almost NOK 11 million when you are comparing year-on-year with constant currency rate. In the Q2 this year, we had a positive impact of NOK 2.5 million, primarily explained by the U.S. dollar that has strengthened towards the NOK.
For the first six months of the year, we have seen now close to NOK 3.5 million in currency effects on the sales side. Of course, with the exchange rates that we are seeing now, we are also optimistic for the future with regards to the financial statements in 2022 now. Looking at the commercial segments here, both areas showed growth in the quarter. Of course the biomanufacturing side delivered an increase of 78% or NOK 6.4 million from NOK 8.4 million last year to NOK 14.8 million this year. Also, as Kjetil talked about in his part of the presentation, we continue to see an upturn in sales following the pandemic.
Also for the first six months of the year, we see that sales have grown from NOK 18.5 million to NOK 33.6 million, or a growth in excess of 80% comparing the same two periods here. For the molecular tools side, sales are up by 18%, generating sales of NOK 15.5 million compared to NOK 13.1 million in the same quarter last year. For the first six months of the year, sales are up by 6% from NOK 43.4 million to NOK 45.9 million. Of course, we have seen in this quarter that the Cod UNG had a significant lower contribution in this quarter due to the lower demand following the pandemic year.
Look at the trend side of the business where we have taken out all the quarterly fluctuations that are inherent in our business. As you can see here from this graph here, we continue to deliver growth on a quarterly basis, even though sales in the second quarter are lower than the previous two quarters. From a low end of NOK seven and a half million in Q1 2019, we are now driving. You can see average quarterly sales of NOK 35 million per quarter. You can also see for the last two quarters, we have not estimated now the COVID effect of the business like we did in 2021.
This is also in alignment with what we have been talking about over the last few quarters, and also because we believe that the COVID part is now part of the underlying business now, essentially here. Looking at the profitability side of the business, it's another solid performance. Cannot match the last two quarters, but we are still very pleased with the figures that we are presenting now. We already touched upon the sales, where we have seen the growth on that, in that area. But our EBITDA came in on NOK 9.5 million compared to NOK 6 million in the same period last year, and this represents an improvement of close to 60%.
For the first six months of the year, our EBITDA ended up on NOK 37.4 million, up from NOK 31.8 million in the same period last year. This represents an improvement of close to 20%. We have talked about earlier in the presentation and in past presentations that we are investing heavily into the organization through new people and equipment, which can be seen through increased personnel expenses and increased in other operating expenses. It's also fair to say that our activity levels are much higher now in 2022 than we had in 2021. Because we have a lot of projects ongoing that requires additional external support. For instance, the DMF project that Jethro Holter talked about. It requires external expertise on those projects.
On the sales side, we talked about that currency had an effect on the underlying growth, but it had also a positive effect on our, you can say, operating expenses, where you can see that on the receivables and liability side, we have managed to reduce our operating expenses by NOK 2 million for the quarter and NOK 1.3 million for the year based on just how the currency has moved over the quarters. That's between when we send an invoice until we receive the money. Of course, that is explained by the extreme, you see, volatility in the USD-NOK exchange rates. Our EBITDA margin for the quarter landed around 31%, which is slightly better than the same period last year.
For the first six months of 2022, our EBITDA margin is 47%, and this is slightly lower than the 51% that we had last year. Still, it's a solid performance for so far. Of course, cash flow for the company follows the same trends that we have seen over the last few years with a continuous positive improvement in our cash position. Of course, the second quarter was no exception to this, where we had a positive cash contribution of NOK 16.4 million. For the first six months of the year, our cash position has increased by in excess of NOK 30 million now. This gave us a cash balance of NOK 231 million for end of June.
With this, I will hand it over to Jethro who will talk a little bit about what to expect for the last six months of the year.
Thank you. Okay, thank you, Børge. This is a very familiar slide by now, but I think that's the important thing with the outlook and beyond that it remains unchanged. When it comes to 2022, the annual sales target of NOK 155 million we stick by that. If you look to the right at the top, you can see where are we at the halfway point now. We've achieved 51%, so very much on track. If you look to the graph at the bottom, this shows the last 12 months revenues on a quarterly rolling basis. When you look at that and look after Q2, we're at NOK 146 million. We're creeping closer to that NOK 155 million target.
Of course, with such a business, we are a B2B business, that cannot be forgotten. We're not a run rate business, so our quarters will fluctuate, and that will be inherent always in this business. Certainly that's what we mentioned, you know. Last quarter, you know, do expect Q2 to be lower than Q1, but and hence why we put out the guidance, the annual and the longer-term guidance here. Also, as mentioned, is the contribution from COVID. This year will be lower compared to last year, but it's not gonna go away longer term. It's always gonna be there. At the end of the day, you know, COVID testing is still gonna be needed. It's gonna be part of our underlying business.
There will be potentially a few other outbreaks down the road, which will put a few little spikes and demand in the supply chain there, but not to the extent it was during the pandemic. We can tick the next one off. This is about the Oslo site and expanding our innovations into the Oslo area. We've done that now. We're there. We're operational. We have the people in place, the labs there. That facility will be very important in making our products even more relevant than they are today, in demonstrating the utility of our products in current applications where we're serving today and also applications we're not serving in the future. What we're noticing is the Oslo site is certainly something we can expand in the future.
I'm actually spending quite a lot of my time there. It's actually convenient for us, since we are an international team. Rather than have meetings in Tromsø, we bring people down to Oslo and bring our international guests into Oslo. I think, you know, beyond that, we are looking at potentially putting other functions there in the future, and particularly those that you cannot hire in Tromsø. Not all skills sets and experiences that you desire, you cannot find necessarily in Tromsø. You've got to go and find them elsewhere. In Oslo, you can certainly is a location where you can certainly find certain people, particularly, for instance, in the biomanufacturing, biopharmaceutical world. You have a richer source of people in Oslo. We need to bear that in mind.
We also continue, as mentioned earlier, to bring new products to market, and we're certainly on track to launch products this year and upscale enzymes and of course have a rich portfolio of enzymes more longer term. What's really important to growth is personnel, and we continue to incrementally invest in personnel and talent acquisition to support both short and long-term growth initiatives. Merger and acquisition activities. As mentioned, I'm spending a lot of time there, and of course, my time's demanded in many places, so actually I'm cutting back in a lot of other areas and just prioritizing very much on this. It kind of gives you an indication how much effort I'm putting into this. With this, we do have a goal to announce a deal this year.
So far I think, you know, as a project and the external support that's helping me with that, we certainly think that's doable. Longer term, we have a target to realize annual sales of NOK 350 million by 2025. That's through organic growth. That's about growing both sides of the business, the biomanufacturing and molecular tools. Going beyond 2025, what I can say is that the biomanufacturing certainly has a greater potential, and that's why you're starting to see, as an organization, a lot of our investments currently are towards biomanufacturing, and future investments will be leaning in that direction as well. Part of that you're already seeing, as we've mentioned, we are now developing enzymes for RNA therapeutics.
then of course, we will look at other areas as well in that space as we move forward. With that, I think that's a convenient place to stop, and I'd really like to thank you for your attendance today, particularly in the room, for making your way here to see us and also for those calling in. We're happy to answer any questions.
Do we have any questions in the room? Because I have a long list from the viewers online here. We could start here in the room if there is something. Oh, if not, then I can start. You're now halfway through the quarter in the Q3.
Mm-hmm.
Can you say something about how Q3 has progressed and a little bit about how the visibility for sales in the second half of the year will be?
Well, I think, you know, as I mentioned, we will have quarterly fluctuations. You know, we're not looking at, and we will see that in the second half too. Then one thing what I can say is we've seen, during this summer, you know, people have actually taken vacations this year and you certainly see that in the customer base. So what you see is, you know, not the kind of interactions you would normally have, with customers. They haven't been around as they normally are for the summer. That's all I can say. That's kind of normal when you think after the COVID situation and you think, people weren't traveling, and now we're seeing that the people are out, but now we're seeing they're coming back.
Of course, there's always each quarter has three months, and that's how it is. July is very much a holiday month in Scandinavia. August is very much as you go to the south of Europe. The U.S. typically don't take holidays. I think here, you know, you see different dynamics across the different regions at the end of the day. I can say, you know, it's holiday time for a lot of people right now. That's why I think, you know, when you look at the quarters, I think, you know, they will fluctuate, but it's the annual guidance we stick by at the end of the day.
Okay. Thank you. Many of the larger Dx companies have posted good growth ex-COVID now. Yet you posted relatively weak molecular Dx sales in the second quarter. Can you better give us a little bit more color on this?
Well, I think remember we're not a diagnostic supplier. We're not, we don't sell diagnostic products. We sell components. We're at the front end of the supply chain. You can't necessarily take that comparison. At the end of the day, if you think about it, our customers need to buy first components, they need to make the products, then get them out on the market. There is a kind of how the supply chain works, like a spring going like this. We're at one end, the customers at the other end. It's not necessarily, you can't compare apples to apples.
What we did see in Q1, and now, in retrospect, and then was that, you know, in diagnostics, those customers who had purchased for COVID, many of those also purchasing enzymes for their other products too. The important thing is when customers purchase enzymes, they want to purchase in bulk. The reason for that is in diagnostics every time you purchase an enzyme, you bring it in-house, so you have to do a qualification. That takes time and money. That's why people want bulk. They don't want to keep buying small quantities, 'cause every time you buy it in, you have to qualify that. That's what we're seeing. I think what we saw in Q1 was people were buying enzymes, not just for COVID, but their other diagnostic tests as well.
Of course then we had, and that's why you have a drop in Q2, 'cause they purchased what they need also for Q2 to some degree. It's partly this quarterly fluctuation. Of course, with COVID, it sort of puts an extra bump and trough in the sales there. Hopefully that sort of explains the dynamics that are working in the market there.
Okay. Thank you. Can you give a little bit of color on your participations in the new multiplex products being launched by other DX companies?
Sure. We see a lot of interest there now because of course that's what people. Typically, you know, once you have a virus that is becoming important, it tends to be a single test to start with, and then later on, you integrate it into panels, i.e. like for COVID, it's respiratory panels, and sure, we see that. That's, there's certainly interest and that's where our customers are going as well. Beyond that, what we're seeing is, it's also looking for new variants, things like that, and that's where sequencing technology is important. That's where what we think what's happening with the rSAP, for instance. That enzyme is actually going very much into looking for new variants. That's that PCR doesn't do that.
PCR will look at a known target. With sequencing, you can look for targets that are not there. We're just seeing, you know, two directions. I think, one, we're seeing the use of enzymes for COVID for looking for new COVID variants, and the other is in multiplex testing. We're seeing that within our customer base.
Okay.
It will take time for them to get those onto the market, of course, 'cause they need to get the approvals as well.
Can you say anything about how the DMF for the SAN HQ product will influence future sales of the company? Do you plan to have a DMF for instance for RNA-
Now the thing with it.
Project as well?
Exactly. DMF is important one for many of our existing customers. Of course, it's that trust and motivation you have with customers. Even though we don't have it today, we promise to have it for them. 'Cause at the important time, we have to have it when they commercialize. Because, you know, when they go to file with the FDA, our DMF needs to be there at the same time. For many of our customers, they're happy that we're working on it, and the timelines fit with their timelines. Of course, for some new customers, particularly, you know, some customers are very traditional. You know, some large pharma can be very traditional, and they wanna see that up front. Of course, that's why we're working on that.
That's gonna be really important for existing and new business, for those who want to be in the U.S. market. For new enzymes, yes, that's very important. That's why we're ramping up and investing in the team now as well. We will need to put heavy package of documentation, regulatory documentation together for our new products, particularly in RNA therapeutics. Yes, we will likely need DMFs. We will need DMFs for them as well, down the road. That's part of, you know, our the company maturing it from being serving the IVD industry to now serving biomanufacturing. You know, we have to really invest and massage the organization in a different direction now, and that's kind of what we've been doing since 2016.
We're maturing as a biomanufacturing supplier.
Okay. Thank you. Can you say something about the proportion of smaller R&D biotech companies among your customers? Can you say something about the kind of challenging funding situation they are facing and how or if you have seen a decline in our order patterns now?
I think, you know, I think our main focus is. It's difficult to talk about the small accounts. I think at the end of the day, it's about, you know, how we do business is really we wanna support those customers that have the potential, you know, to really grow and be those key accounts. I think it's kind of a two-way street. It's really about the companies that really have the potential and want to work together. If they don't, then we don't work with them. I think generally we're quite selective there.
I think the ones we're working with do have that potential to grow and so I think it's kind of a tricky one because there's a lot of companies out there, and there's lots that have potential, but they just don't have what it takes to get there. We're kind of a bit smart in terms of how we work with customers 'cause it is a two-way thing, so it's kind of a tricky one to answer.
Okay.
again, most of those are, remember, a lot of the business are with the larger players at the end of the day.
In the EMEA, did you experience any kind of ordering hesitance with regards to the Ukrainian war, the war that we see in Ukraine?
I think we had not so much, no. Of course, we have concerns more about, you know, how does it impact you? Do you have any supply chain issues? That, but that's actually more from the U.S. actually than Europe, where, you know, "Are you able to get all your raw materials? Are you able to ship to us?" Remember some, you know, I think some people are not necessarily understanding of geography and, you know, we're pretty. This business, yeah, we've been, we haven't had much impact from that. The only impact we have seen a little bit is sometimes when we want to get certain raw materials, particularly chromatography resins.
We're smart, we're able to get hold of those and foresee and make sure we buy large quantities to get us through and know the lead times out there and that's what's important. We foresaw that, and that goes beyond what's happening in Ukraine. That's been kind of a supply chain issues have been there for the last couple of years, and of course, we've adjusted to increase our inventory of raw materials.
Okay. A little bit on the M&A side. You have talked about M&A since 2019. So far, no deal is closed. Why have you been unable to close a deal so far?
Well, I think, you know, if you have a look at the market, we're not the only. It's quite an active market at the moment. It's not just us looking to purchase enzyme companies. I think anybody can see, if you have a look, there's been some significant transactions over the last year or so. I think, you know, we've had some competition out there in terms of trying to get companies, and it's also some of those have had processes as well, and that's quite. You need to try and compete at the speed and things to get into those processes. It's kind of a, you know, tough. You can't win them all.
That's what I can say. We've had a little pause as well and had a rethink because the kind of targets we were looking at initially, you know, since 2019, we've evolved as an organization. The criteria that we used to search for targets in 2019 are now different and very much leaning in kind of a different direction to what it was before, and that's why we now opened up a whole new suite of targets as well. What we want to do is we don't want to. Yes, we want to do an acquisition, but we want to make sure we do the right acquisition.
You know, we don't wanna, you know, just, "Oh, let's do an acquisition for the sake of it." We will spend the time needed to make sure we make that right acquisition. Again, I think we are in a much better position than we were before, and also it's about being realistic and getting the support that you need to try and do this internally is, you know, and using the time of the team and myself is, if it were just us, that's a difficult task. That's why we really engaged external support to get the right people to do the heavy lifting and help us with this task. I think there's multiple things there.
I think, you know, I'm confident now and that we will be able to announce a deal this year.
Yeah. On that one, how do you separate between kind of the strategic needs and the financial targets on the M&A side? Not hundred percent sure what they are.
I think, you know, there's qualitative and quantitative aspects. Often, it is about numbers. It's about, you know, what can you achieve, the revenue synergies. I think that's what we're getting to, and certainly we are looking at revenue synergies, but there's all those other things as well that are extremely important. That's really about, for instance, where we, you know, things that we kind of are trying to build ourselves, but other companies have been building that for, you know, a couple of decades. For instance, like GMP, biomanufacturing. You know, we've been in that since 2016. There's other companies that have been in there for 20-odd years, and but then they want and those companies might want to get into the molecular tools side.
You see what I mean? It gives you a kind of hint maybe, on it. We're looking for both things that add top-line growth, but also add those competencies and things that can really help us accelerate what we do in terms of innovations, bringing new innovations to markets in terms of giving us greater operational freedom and scalability beyond what we have. Because of course, what we've built in Tromsø now will support us for the next five years. Beyond that, we'll also need to have even higher capacity. You see what I mean? We're looking at many things there. It's not just about the top line at the end of the day when it comes to these. There is that qualitative and quantitative aspect there.
Do you have any comments with regards to how you're gonna fund an M&A deal?
Maybe I'll let you answer that one.
I think it will also be dependent on the deal that we are looking at or if it will be a cash plus some shares. It depends on the deal as such and the size of the deal as well, how we set it up financially here. I think that's the answer on that one. A little bit on the innovation. How's the pipeline products progressing, the innovation?
Yeah. They're certainly progressing. Like I said, we have several products for launch this year in the works. One thing we will have is our first reverse transcriptase. You know, we don't have those at the moment. We'll launch that, and that's really important because reverse transcriptases are used particularly in viral diagnostics and many other applications. That'll be a very important thing for the Oslo Applications Lab will do because there you can marry that together. For instance, we're with the Cod UNG. Also, we're launching and the polymerases we have. We're also launching a AZtaq polymerase. AZtaq polymerase, they're hot polymerases. They're used in PCR. Again, that fits into what we want to do in building the workflow. Many of those enzymes that we're missing, i.e.
Class of enzymes we're gonna have this year, and those are really important to get to that complete workflow status where we can have each enzyme for the workflow. I think by the end of the year, we'll have all the enzymes that would be needed to build a molecular diagnostic workflow, but then we need to demonstrate that, and that takes a bit of time to be able to demonstrate those enzymes working together. 'Cause it's like jigsaw pieces, you know. You need to show that this enzyme works together with this enzyme. It's like two jigsaw pieces fitting together. That's what applications is all about. It's showing that they fit together as jigsaw pieces and demonstrating that in a customer setting. I think here, you know, you'll start seeing those enzymes launched.
We're also launching a new ELISA kit to support the SAN HQ 2.0 enzyme. Today, we don't have that, and that's important for therapeutic customers. Using the SAN HQ 2.0 enzyme, they will need that ELISA kit.
Okay. I have one more question regarding the DMF side, and that is also regarding how does the competitors in the biomanufacturing side have a DMF for their products?
Well, I think, yeah, at the end of the day, but in terms of Benzonase, which is not, it's, there's a different enzyme to SAN. That's a generic enzyme. We know that there are DMFs out there from the competitors. And again, you know, with SAN, it is not the same enzyme. It's a different enzyme and of course we see the timing is right now to put the DMF in place. A DMF for Benzonase is kind of irrelevant when it comes to SAN. You know, it's not one of those things somebody could use a DMF could for Benzonase to sell for SAN. It's tied to that particular enzyme, like ours would be tied to our enzyme.
Okay. Are you experiencing an acceleration in CGMP audits from new customers, or has it been sort of slowing down now recently?
No, no, it's a mix, and I think that's what you sort of see that now. We are getting those audits regularly. I think it's 2-3 we're seeing right now per quarter when it comes to that.
we have to bear in mind that in the molecular diagnostic space, we will see that too, particularly as IVDR comes in, the regulations, then even those customers will be forced to audit us, and that's part of what we're doing in Tromsø now is making sure we have the resources in place to host all these audits because, you know, it's something we have to do, and we even have slots planned for the year ready for when somebody says, "Can we audit you?" We can accommodate them and, we're just gonna see more and more of those as the business grows.
Okay, thank you. Here's probably a question to me, I would think. Financial income of NOK 2.5 million is significantly higher versus earlier quarters. What does this include? Is this a revaluation of balance sheet items? I think the answer is no. This is directly related to currency. We had a lot of USD and euros in our bank accounts going into the second quarter, and of course, when the USD moved significantly towards the NOK in the second quarter, and we did some favorable transactions in this quarter generating, you could say, a positive financial income on that area, and that summed up to NOK 2.9 million for the quarter.
I think we are getting closer to an end now. I think we have still a few more questions, but I think some of the questions we have here has been covered in other areas. Let me just see if there's something we that I missed here. Just regarding COVID here. COVID-related sales in the second quarter for 2021 was NOK four and a half million. Can you say if you said it was lower in this one, but was it significantly lower than NOK four and a half million or?
Yeah, I can say it was significantly lower. What I can say, I won't say about COVID-related sales in general, but in general, you know, one of the main products that would go into that area is Cod UNG. And what we saw was, normally, you know, Cod UNG sales would be around 20% more, 20% plus of our sales, and it was below 5% this quarter. That's what gives you some kind of indication. But of course, with COVID-related sales, it's become extremely complicated to calculate that. Since, you know, many of our customers are purchasing enzymes for multiple products, but they're developing multiple diagnostics and even when you try and ask them, what is the split? They don't know.
You know, they're just where, you know, procurement are receiving the orders. Internally, they get their work order, and of course, that when we send the enzymes, it's a big bulk of enzymes and they in the warehouse had to split that enzyme and then send it to different parts of the organization. It's becoming extremely complicated. We cannot give you a definitive answer, on that. That's why even though we say, "Okay, you know, it's dropped," you know, there it's just an estimation on, you know, what's happening there.
Okay. I think we take one last question now from the online, and then we can see if there are some questions here in the room. Could you please comment on how the new OEM partnership is progressing? When are you expecting this partnership to start contributing in sales in, you could say, in a material way?
Yeah, sure. It's a good question. I think, you know, now it's that where they're now starting to bring the enzymes in and evaluate those and launch them as their own products, and that's kind of what OEM is. So of course, they need to then put all the documentation and do a launch of those products and then start getting the market traction, so it's moving in the right direction. Of course, they will need to then build up a presence over time.
All right. I received one more question here that could be interesting to, what can we expect from China and the APAC once lockdowns are clearing? Is there a backlog or how has the push into the market been?
No, I say it's a very good question. I think, you know, we are now back in communication and now we're just and again it's realigning, you know, our teams and our partners are realigning on how the next half of the year will line up there, and we do expect that now to start picking back up. Of course, when you look at what's happening in China, a lot of things around COVID testing is stuff done domestically. Of course, even if we wanted to do something there in Q2, it wasn't possible to even get products in the country. Of course there, naturally it means that they've developed and COVID has been supported by internal stuff there.
Again, we're not there to be chasing after the COVID business. That's not what we're interested about. We're interested around, you know, getting ourselves into the other technology there, particularly biomanufacturing, 'cause, you know, China has a significant biomanufacturing capabilities and of course, they're strong in other areas such as next-generation sequencing and other areas too. That's what we're working with through the partners we have. I think, you know, that will pick back up over the next two quarters.
Any question in the room? No?
No.
If not, then I think we thank you all for coming today and listening to this second quarter presentation, and I think we wish you all a great day. Okay. Thank you.
Thank you.