Welcome to the Q1 presentation. Before we kick off and go through things. As usual, since we're all in home office and can't meet together, we're doing this by video teleconference. What I would kindly ask is that you ensure that you have your microphones muted. This will help to reduce background noise. If you are sharing your video, please turn that off because that helps us have the best bandwidth to prevent dropouts during the presentation.
Today, it's myself, Jethro Holter, now the permanent CEO of Biotec Pharmacon, and we have Børge Sørvoll, our CFO, who will join us in leading the presentation. For those of you who are not watching the stream live, I will tell you which slide number I'm on w e're going on to slide number two, the agenda.
In terms of the agenda today, what I'm going to do is, we're going to walk you through the Q1 highlights. We're going to look at each of the businesses in turn, looking at ArcticZymes first, then Biotec BetaGlucans. We will then give you a quick update on our response to the Corona virus situation. Børge will take over after that, and will walk you through the Q1 financials, and I'll come back and tell you a little bit about the activities around the corporate strategy.
We now move on to the next slide, which will be slide number four, and that is the highlights for Q1. We had a very good quarter last quarter. That was one of the best quarters we had. Now for Q1, we had an even better quarter. For Biotec Pharmacon, we've had our best quarterly performance ever w e're delighted and proud to share that with you.
One of the things that we said going into 2020 is that our goal for 2020 is to drive the company into profitability. We already got off to a good start. For Q1, we've achieved a positive EBITDA of NOK 13.8 million, and that's compared to -NOK 3.9 million for the same quarter last year. What was driving sales here? firstly, ArcticZymes, again, has its best quarter ever, bringing in NOK 18.5 million. That's growing 135% compared to the same quarter last year.
The growth drivers for the quarter in ArcticZymes were strong sales in the therapeutics segment t his is supported by the salt-active nuclease product portfolio, and I'll come back to that in a bit. It was also driven by upsides related to our enzymes being used in Corona diagnostic tests.
The beta-glucan business also had a very good quarter as well. It drove sales of NOK 15.8 million, growing by almost 130% compared to the same quarter last year. What's really important to stress and highlight here is that if we put Corona virus aside, business is progressing as planned. We're moving on to the next slide, and that is where we're going to go into the ArcticZymes business i 'm going to walk you through that, and we're going to move to slide six and talk about the commercial achievement.
In ArcticZymes, as you saw, as I mentioned before, we had our best quarterly financial performance as yet and achieving NOK 18.5 million in product sales. We also had a very good EBITDA o ur EBITDA was almost NOK 15.5 million. Very good performance for us.
There's two main factors that really contributed to that growth. First was the salt-active nuclease product portfolio. This is a portfolio that is used in the therapeutics segment, where the enzymes are used in the manufacturing processes of viruses used in gene therapy and vaccine production. If you just go back a few years ago to 2016, we had zero sales there. We grew that business very rapidly. In 2019, it accounted for 25% of our overall sales in ArcticZymes and n ow in Q1, the growth continues in that segment.
The growth is through new customers, it's through existing customers putting in repeat orders. It's also the size of the orders w e're getting increasingly larger orders coming in, and I think Q1 is very interesting for us because we're now starting to see the really large individual orders coming in where we sent orders out in a magnitude of greater than NOK 1 million.
Moving forward, we do expect this trend to continue and with orders increasing in size as customers mature and also, as we expand the customer base in the therapeutics segment. The second part that drove Q1 sales for ArcticZymes was very much about upsides, with Cod UNG and DNases being integrated into COVID-19 diagnostic tests by several of our customers. I think this is good for ArcticZymes because at the end of the day, we can contribute towards the fight against Corona, and this is our way of doing it by enabling other customers.
However, we do need to put this in perspective, because we consider these upsides, we consider this transient. I think here, when you look at this. The Corona situation is peaking and of course, there's a lot of demand for testing, but o ver time, the need for testing will subside. The need for tests will subside and also the need for our enzymes. I think that's why we consider this a transient short-term thing, but we expect this to continue while the peak is in place.
However, what's important here is not just to focus on the short term, it's really about the long term here. What we really want to do is really support our customers, partners in developing what we call the next generation of COVID-19 tests. Because at the end of the day, what we're going to have to learn to coexist with Corona virus i t's not going to go away. It's going to be there, and we're always going to need tests w hat we want to do is to support those customers, develop those tests that will be needed in the future.
What I must stress again, as I stressed a bit earlier, when you look at Corona virus, it's great. It's given us nice upsides i f we put it to a side and we look at our business, we have growth, the sales are growing according to plan. When you take Corona to one side here so w ith that, I want to move on to the next slide, number seven.
This is about innovations with ArcticZymes, w e're continuing to innovate. We've launched a new formulation of DNase and of our dsDNase, w hen it comes to DNase, the customers need these in different formulations. By formulating them differently, it means that we capture all customers out there that maybe need the enzyme at different concentrations or would like different chemicals in, and that's what we do w e change the formulation so that we can provide different formats to our customers.
We also filed a new patent application relating to one of our novel ligases in the pipeline. This ligase is interesting because it has desirable features that have been specifically requested by our customers. These features you cannot get in other commercially available ligases today. To put this into perspective, you sort of understand what a ligase is. A ligase is really like a DNA glue. It sticks DNA together, genetic material together.
It's a bit like in the home, you get something, you get your nice precious vase, and you drop it on the floor, and you need to stick it together. You know if you have the wrong glue, you can't stick your vase back together. It's the same thing in the DNA world. Ligases can stick certain parts of DNA together but not all, s ometimes you need a specialty glue or a specialty ligase in this case.
Hopefully that makes you understand what a ligase is. We plan to launch this enzyme later in the year w hat we need to do is get it up to manufacture at commercial scale quantities first before we launch that product, o nce we get it up to that level, we will launch this enzyme. I'd like to give you an update on the ArcticZymes M&A status.
During the quarter, we initiated acquisition discussions, negotiations actually, with a European-based enzyme company. Despite our best efforts, we were unable to reach a fair price to make the transaction worthwhile without excessively overpaying. I think with that, both parties realized that it was best that we terminated the negotiations in good faith. What next? well, we have obviously other targets we've been talking to, and we are advancing those negotiations further.
However, what we will see is the progress on M&A activities will be limited at this time due to the international COVID-19 lockdowns we're seeing u ntil they're lifted, it's going to make it difficult for us to progress those discussions. Originally, our target was to do an M&A deal in the first half. With the Corona situation, that's going to delay that. I do not see us managing a deal in the first half of the year.
Anyway, if you put the M&A to the side, you see our organic business is growing very nicely. I think that's fine w e can live with delaying the M&A until after the COVID-19 situation has moved on. I'd like to switch gears and talk about beta-glucans and give you an update there. Overall, beta-glucans had a very good quarter. We achieved just under 130% growth in sales compared to the same quarter last year.
For Q1, beta-glucans operated as a profitable business, and that links to what we said w e want to make sure that Biotec Pharmacon and its subsidiaries operate profitable, and that's what we've achieved for Q1. If we go through each of the businesses in turn, for animal health, we achieved growth in sales for the quarter compared to the same period last year. This was mainly due to a large order that came in actually earlier than expected from the main customer.
With that, we do need to expect fluctuations in sales in the remaining quarters. Our expectations for the year are unchanged for animal health. We know that for the year, it will not be a growth business, i t will be a steady state business, but that is to expectation.
When it comes to consumer health, we achieved growth in sales of the M-Gard product compared to the same period last year. Growth, a lot of growth here continues to be through bringing in new customers. Similar to our designs, we suspect there's upsides related to bulk B2B sales to manufacturers who are targeting immune defense against Corona virus. If you put Corona virus aside, we do see growth in the business as well.
On the adjuvant, SBG, we have secured 2020 purchasing commitments to support the continuation of the clinical trials in neuroblastoma. With that, we expedited the first SBG order in the Q1, and we expect to expedite further orders later in the year. The discussions that we've had are very much advancing regarding the long-term licensing agreement h ad several discussions backwards and forwards now, that process is advancing and looking promising.
When it comes to Woulgan, there's a small increase in sales compared to the same quarter last year. You got to put it in perspective that we are only supporting our existing customers. Sales are very much in alignment with our expectation. In terms of our divestment process, that is going very well and as planned. We're now in that stage where we've been reaching out to potential targets. We've approached, and we're already getting positive responses back from some of those targets. Now it's really following up on those targets, and that's where we are today.
I'd just like to say a little bit about the Corona pandemic and company responses, e very company has a response in how they're handling that. Some businesses, it has a negative impact, other business, it has a positive impact. For ArcticZymes, we have a positive impact. We're on slide 12 now. That's good because we are able to offer something to help the fight against Corona through our customers.
What's important here is that we need to ensure that we protect our core business to ensure we can manufacture and deliver product to our customers, and that's what we've done. Our first priority has been to protect our employees, the supply chain, and our customers. These are just some of the measures that we've implemented f irstly, we've implemented strict hygiene measures in everything we do.
The important thing is we also ensure that we are able to continue our daily operations w e have also backup resources, and we keep those separated from the main resources w hen people are manufacturing, if somebody gets sick, which we hope not, we have backup resources that can go in to ensure that we continue manufacturing. For some of the products, we've increased the manufacturing capacity to help in order to take advantage of upsides as we did in Q1.
In terms of personnel, we have non-operational staff are working from home office. We want to keep only the essential personnel for production, shipping, packaging in the office e verybody else is working from home office. The last component is we're stocking the warehouses more frequently.
More importantly, we are working very closely with logistic partners and freight companies to ensure that we get prioritized with our products so they get to ship out to our customers a t the end of the day, I think despite the Corona situation, we're very much working in terms of doing business w e are doing business as normal by implementing these measures and t his is across the business t his is for ArcticZymes, this is for Biotec BetaGlucans as well. With that, I'm going to stop and hand over to Børge, who's going to walk you through the Q1 financials.
Yeah. Thank you, Jethro. I have to say, you can take one back. Even though the world around us changes, I would say that our financials remains the same. It's been good to be here in Tromsø to talk about our performance for the Q1. Of course, the growth and performance we achieved in the Q4 has now continued into the Q1 as well. We have been delivering historic good figures. Even though we have reduced our resource base and our expense base, we have managed to drive sales and productions in the Q1.
That brings us straight into the cash flow for the Q1, and a s you can see, we are now delivering a positive cash flow for the Q3 in a row. We had Q1 changes in cash of NOK 4.44 million. You can see that we are having a significant increase in our receivables. They have gone up now to NOK 24.7 million. They're actually up from NOK 13.2 million at the end of the Q1 last year. They're also up by almost NOK 10 million from end of the year 2019.
Of course, this is a result of solid sales during the quarter, and especially you can say in the second half of the Q1. Of course, as some of our payables, especially within the beta-glucan side, it's driven by sales. It is natural that we see an increase in the payables. The payables have gone up from NOK 10.4 million-NOK 17.3 million this year. Looking at the change from end of last year, we actually have a reduction in our payables, w e actually have a pretty good position now going into the Q2.
We are also experiencing a significant increase in our cash flow from operations. We can see an improvement of close to NOK 9 million when looking at Q1 this year compared to Q1 last year w e had NOK 5.9 million in cash flow from operations this year and -NOK 2.6 million in Q1 last year.
Of course, with all of these figures, this gives us a cash balance of NOK 35.7 million at the end of Q1, a position that we are actually quite comfortable with right now. I think it's also important to say that we are still seeing some cash effect of the restructuring that we did in December last year t his is a cash effect that will continue well into 2020. Of course, in the second half of 2020, all of the restructuring cash effects are out of the balance sheet as well.
Okay, moving over to our sales, and o f course, we had growth in all the areas of the business this quarter. Both companies have been driving sales in the Q1, and as Jethro talked about, ArcticZymes sales now they have gone up by more than 135%. They are now at NOK 18.5 million compared to NOK 7.9 million in Q1 last year.
We are also experiencing good growth in the beta-glucan side of the business, where we have seen sales excluding Woulgan that go up from NOK 5.7 million- NOK 14.6 million. That's close to 150% increase in sales. Of course, animal health is the one that has been driving this one, where we have close to NOK 10 million in sales.
We also have seen an increase, as Jethro talked about, we also see an increase in consumer health, and we also seen an introduction of revenues for the adjuvant side of the business. Even though, as Jethro also talked about, even though we have decided to divest Woulgan, we secured NOK 1.2 million in revenues for this part of the business as well i t was just a marginal increase, but it is sort of the same as we had last year in Q1.
We will of course, continue to serve our customers now until we see a closing of the divestment process. Giving these figures, we have group revenues of NOK 34.3 million up from NOK 14.8 million or close to 130% now this year. It's a number that we are really proud of now for this year.
Okay. Going into the profitability. Our figures are now starting to look like kind of the standard financial models that we all like to see, where you see an improvement on a regular basis. In Q1, of course, the group delivered NOK 13.7 million on an EBITDA level, and this is by far the best quarter we've ever had. It's actually an improvement of NOK 17 million compared to the same quarter last year.
Of course, the majority of this can be explained by increased sales, but we have also managed to reduce our operating expenses w e have reduced them from NOK 17 million in Q1 last year to NOK 13.6 million this year. Two of these millions can, of course, be explained by reduction in personnel expenses. We had the restructuring that we did last year, but we also have seen some natural exits last year as well that influenced these numbers. These savings are we expecting to continue going further on in 2020.
External services that have been a bigger part of our expenses, it's just a small part of our expenses now if you look at the pie chart, the yellow side. Now it represents only around, I would say, 10% of our expenses. We expect this one to increase as the world opens up again, and we see that the activities are picking up. Of course, we want to secure our good EBITDA going forward as well now.
Going into the ArcticZymes side of the business. ArcticZymes continues its good trends that we've seen in the last few quarters. They had revenues of NOK 18.5 million, and a s we said, they were up by 135% compared to the same quarter last year.
Operating expenses are marginally up by NOK 0.3 million. This is due to the restructuring we did last year where we transferred personnel, and also ArcticZymes is taking a larger portion of the group allocation expenses now that the majority of our focus is towards this part of the business.
This is of course something we expect that will continue going into the second half or the Q3 and Q4 of 2020 as well. ArcticZymes EBITDA ended up on NOK 10.5 million for the quarter. And of course an increase of close to NOK 11 million for the year comparing quarters- to- quarters. This is also NOK 1.5 million better than the historic good Q4 2019 result that we presented a few months ago.
Also we see that, as Jethro said, it's important to stress that we also see sales and growth of products that is outside of the Corona virus. Going into the beta-glucan side of the business. We have seen improvements in all areas of the business. As I said a little bit earlier, sales in animal health, they account for almost NOK 10 million in the Q1, which was of course a significant increase compared to the Q1 last year.
We also see that with strong sales, we also experience that our expenses go up as well, that can be seen by our gross profit, e ven though our revenues have increased by NOK 9 million, our gross profit has only increased by NOK 3.5 million and t his is because we experience the majority of growth in our low-margin business now, at least for the Q1.
Due to that, and also because of the divestment process we initiated last year, we have scaled down our activities within the glucan part of the business. As a result of that, we have reduced our operating expenses by close to 50% now. We have gone down from NOK 6.5 million last year to NOK 3.5 million this year.
T his for the first time ever, we have managed to drive a profitable quarter for the beta-glucan side of the business. Our Q1 performance was NOK 4.3 million on an EBITDA level compared to -NOK 2 million last year. This is, of course, in alignment with what Jethro said, that we wanted to drive this business into profitability going forward now. This is the first steps in the right direction now. I think with that, I will leave it to Jethro to take us through now the corporate strategy and some of the outlook for 2020.
Thank you, Børge a very nice overview there. We're going on to slide 20 now, and this is the corporate strategy. In December, if you recall, the December Investors Update Meeting, we talked about implementing a new strategic direction, which we're doing. Part of that was that ArcticZymes will be representing the core business moving forward.
With that, one of the things we need to do is look at the corporate brand, and we're looking at doing corporate rebranding now. We think it's certainly timely to refresh Biotec Pharmacon's brand position and its external facing image. The proposal here is to rebrand Biotec Pharmacon under the new name of ArcticZymes Technologies. Now, we think this resonates very well with the company's core business a s we said, that is going to be ArcticZymes moving forward.
Secondly, it fits with the future corporate strategy because with ArcticZymes, we want to build it out, we want to grow it, we want to evolve it beyond enzymes with other technologies h ence why the word "technologies" sits very well, is a name that future-proofs the business. You cannot forget ArcticZymes has a positive and strong brand position out there, particularly with its customers out there you know, ArcticZymes is very well known. It's trusted t here's a lot of motivation around ArcticZymes.
Of course, and I think as well as many our shareholders yourselves have a lot of trust in ArcticZymes so, i t's only natural and fitting that ArcticZymes becomes part of the parent company name moving forward. It's a process we've kicked off, and you will hear more about it in the coming months. As said, we kicked off a new strategic direction, which we implemented in December and n ow we're executing on it. This has got off to a really good start, and we're certainly progressing according to plan.
We're already seeing the benefits of the structural reorganization in terms of reprioritizing the activities we do, and we're also starting to see the evidence with respect to performance. I think Q1 is a testament to that. You see the Q1 performance really contribute to the number one goal we have for this year in driving biotech into profitability. With that's where I'm going to stop. I just want to say thank you for your attendance and listening. I just want to remind you that we do have the AGM on the 14 May, and that's in Tromsø.
One thing we ask is since we do have the COVID-19 situation, we have to respect social distancing to protect all of ourselves, that you do not physically turn up in Tromsø. I hope you understand we have to follow these really strict rules to protect ourselves, the employees, and yourselves. We do ask that you kindly send in your proxies. With that, we are very much open for questions, and if you have questions, then please just unmute your microphones and after that put back on mute so that we keep the noise level down. Thank you.
Hopefully you will be able to unmute your microphones and everyone that is dialing in, I think you need to push star six to open up your microphone. Also if you are struggling-
Gunnar Widny speaking. Thanks for the presentation c an you hear me?
Yes.
Just a question on the sort of how do you see the sales development continuing through the year? Obviously, the animal health side is a bit of a batch sale with large orders coming in every now and then, and not sort of a regular basis. On ArcticZymes and the growth you've seen now, which is fantastic, how do you see sort of the rest of the year continuing?
On the ArcticZymes side, firstly, ArcticZymes, we see two things i f we take Corona aside, the sales outside of Corona virus, we expect to continue as planned. You can see the numbers before, the historical numbers, and you can see the kind of the growth expectations and the guidance we gave for the next six years and i think, that we're very confident in, that that trend will continue.
Of course, also we're getting a little bit extra headwinds right now, which is short-term. That's with the Corona virus. We can't say how long that trend will last. I think here we will see it continue a little bit longer, but I can't say how long that will continue for. We do expect continued growth in the ArcticZymes business.
With Biotec beta-glucan, as you quite rightly mentioned, animal health, that will be a flat business. That's what we've always communicated, that's to expectation. We have seen growth in the consumer health business. That, again, setting aside Corona virus, we have seen that growth in that business. Adjuvant isn't something where we have typically had sales before so n ow this is new business. I can't say anything about those numbers due to confidentiality with our customers. We do have expectations for more revenues in the year related to that.
Then Woulgan, I think at the end of the day, we are supporting existing customers. We're not actually out growing business with new customers due to the divestment so i think that is the best kind of guidance we can give at this time. Of course, we're able to continue as a business and produce and get products out. That's important as well. It is about being able to operate as well during the Corona situation so i think here, I think it's that too.
Any other questions?
Hello, Mats Mikaelsson calling in. For the medium term, post the COVID, which initiative do you see driving the sales growth for ArcticZymes the most? would that be better marketing and in-house? or marketing and customer education with existing products? or would it be more like new products or M&A?
At the moment, it's the product mix we have today. At the end of the day, there's three market areas we focus on in ArcticZymes o ne is the therapeutic area, which is relatively new to us. That's through the SAN portfolio, and we're building out the product range there w e launched the M-SAN HQ product back in Q4. We're working on other developments there as well. It's really about supporting that business. There's a lot of focus there.
Obviously, molecular diagnostics, very much viral diagnostics, which have been in a long time. Our enzymes are used in, for instance, HIV testing, hepatitis C testing, and that's just a couple of viruses. More recently, of course, now Corona, our enzymes are used in that, because it's a virus, of course. As well as that, our enzymes are used in cancer testing, all different types of diagnostic tests.
Another element is also the bench scientists, where we focus on selling our products into the molecular kit manufacturers who are making the kits that the bench scientists use. We're pushing in all those directions through the whole product mix. Of course, today we have a very small portfolio, and hence why we initiated the M&A process, so that we don't have to invent everything ourselves w e can bring in our enzymes so-
-I think, yes, we're working on driving sales as much organically with the portfolio we have. We have a lot of R&D initiatives in place to bring new enzymes out. I think this is everything we're pushing on i n terms of sales activities, essentially our customer focus is B2B, and we focus on targeting other companies who are developing products or manufacturing. I think that's where we have our core strength, and that's our core focus w e are not in the business of doing end-user sales. That is the wrong approach and the wrong strategy for us.
We don't have the product range, a large enough range or the product mix to go out and sell to academics at the bench w e are very much B2B-focused, and that's why we're very geared in terms of how we're set up to ensure that our customers get the security of supply, and they get the highest quality products they can rely on and trust. This is a little bit about our marketing positioning and sales. I hope that helps to answer your question.
Thank you.
My name is Tron Johansen. I'm wondering about if we can expect some updates on the study regarding Memorx, FLOVENT, Kettinger, and Neuroblastoma, and when we can expect that?
What I can say is the clinical trials are still ongoing. Of course, what we're doing is we're supporting them through now providing the SBG under commercial terms. That at the end of the day, they're getting product, and we're making money on that, and that's what's important w e have to operate as a business there.
The main transition there is not really the clinical trials at MSK i t's more about the long-term securing the licensing deal so t hat's something we're working on right now. In terms of timelines, due to the confidentiality we have there, I cannot tell you the timelines, but the point is it is timely now to work on that licensing deal. That's all kind of linked together.
Really what we're focusing on is really now the commercial potential there is there, and that's the most important thing, because clinical trials can go on and on and on. But of course, what we want to do as a company is to get the commercial potential there. That's where we are at this stage.
Thank you.
Yeah.
Hi. My name is Knut Ellefsen. I would like to step back a quarter. You said the manufacturing was increased by at least 10 times. How is that progressing? and do you see any restrictions on that at the moment? Thank you.
Yes. I think you're referring to in terms of ArcticZymes w hat we've done is we're increasing the yield in production of some of our enzymes, and that's for meeting future needs. An example is in the gene therapy area. When customers start out to develop their manufacturing processes, they start small scale, then they start building into very large kind of reactors. They need a lot more product, and of course, we have to scale our business as well so that we can supply those materials.
There's different ways of doing that. One way we do it is you can buy bigger equipment. You don't necessarily have to do that w hat you can do is improve the yield through molecular biology and cloning, and that's what we're able to do w e're able to get higher concentration of enzymes in the same reactor space.
That's one of the ways we're able to do that, and we can do that without investing in new equipment. And of course, as well as that, we are looking at scaling up with larger equipment as well. For that, we do that also internally, but also using outside help as well. I think here, in terms of how that's going, that's going very well. Today, we're very well positioned to be able to continue serving our customers' needs with the quantities of products they need. Those projects are progressing as planned.
Any more questions? Unless there are any more questions, I think we will just wrap up this presentation and the Q&A session. I would like to thank you all for listening in and wish everyone a nice day going forward now.
Likewise. Thank you.
Thanks. Goodbye.
Goodbye.
Goodbye.