Good morning. Welcome to the Q1 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 would kindly ask you to mute your microphones during the presentation, and then we can unmute them at the end for the Q&A session. For those calling in by phone, you can unmute and mute your microphone using star six. We'll also kindly ask that you also switch off your videos if that's possible. That ensures we have the best bandwidth we can for the presentation today. For the agenda, here we go in the usual fashion, where we go through the highlights for the quarter, then we will move on to giving you a business update. Børge will orientate you through the financials, and then we'll finish off very quickly.
For the highlights for the quarter, what we see is for ArcticZymes, it was actually our first quarter as a enzymes company, and for us it's been an outstanding quarter. We've actually achieved our best quarterly performance ever, achieving NOK 40.4 million in sales for the quarter. Profitability remained strong. We've achieved NOK 25.8 million in EBITDA. When it comes to the three market segments we serve, each of those has grown. What we've also seen there, in particular, the molecular research sales, we're seeing now it's started to reestablish to pre-pandemic levels. On top of that, we've successfully upscaled the manufacturing process of our SAN HQ enzyme by over a 100-fold factor, that's very important in driving future sales. We're going to dig a little bit deeper into each of these as we move through the presentation.
For the business updates, we'll start in usual fashion by going through the commercial segment sales. As mentioned earlier, we have achieved our best ever quarterly sales performance. For the quarter, collectively, the enzymes business grew 119% compared to Q1 last year. When we go into the segments, the Therapeutics segments, this is where we serve other companies who are developing gene therapies and vaccines based on virus technology. For the quarter, we grew the business by 36% compared to Q1 last year. Therapeutics made a 25% contribution to total Q1 sales. We talked about ReiThera in the past. ReiThera is an Italian company who is developing a COVID-19 vaccine, and they are using our SAN in that manufacturing process. There's been a lot of information recently about them in the media.
They have now initiated phase II, phase III clinical trials, and there is an expectation out there that they will market the vaccine before the end of this year. That's an update on ReiThera. We also had two large SAN customers audit us during the quarter. They conducted a GMP audit of the Tromsø operation up here. This is very much a mandatory process for them because they need to qualify us as a long-term critical supplier. It's also a prerequisite before seeking regulatory approval. We really welcome audits. I think getting their customers here auditing us is an important thing for us. At the end of the day, we learn a lot with each audit.
It allows us to strengthen what we do because we implement some of the learning from that, and it just makes us much stronger and more relevant as a commercial supplier. When we look at the research and diagnostic segments here, we grew it 176% for the quarter compared to Q1 last year. Overall, this segment contributed 75% to total sales. If you look at the split, 2/3 of the sales for this segment came from molecular diagnostics. This was really the main driver for sales this quarter. The main product there was Cod UNG. However, some of our other products, such as the proteinases, the polymerases, the DNases, also there in driving existing and new business opportunities. We also signed a new supply agreement with a relatively new customer of ours who's a molecular diagnostics customer in the U.S.
They're developing a multiplex diagnostic platform. Basically multiplex is just a word for doing simultaneous detection of several things at once. What they're doing is developing a platform to detect COVID-19 and other respiratory viruses. We've already seen a small contribution of sales from them during Q1. Molecular research accounted for 1/3 of the segment sales. This is good news because this is the first indication that the molecular research sales have started to reestablish to what we've seen pre-pandemic. We do anticipate large fluctuations to remain in the molecular research business, despite it being reestablished. This is no different than before. The business was choppy before the pandemic, and this is part of doing normal business at the end of the day. What contributed to this?
Well, we've seen several large orders come in from all geographical regions, that was mainly related to the recombinant Shrimp Alkaline Phosphatase enzyme we have. Again, that product has traditionally fluctuated from quarter-to-quarter because we have some large potential orders that will come in typically one quarter and not other quarters here. I'd like to give you an update on COVID-19 related sales. What we're seeing now is the majority of sales we have today is a result of reoccurring business. These orders are coming in from the same customers on more on a regular basis, rather than those one-off orders that we've seen last year. Now we're starting to establish a base of numerous customers which will have long-term business in this area. These customers are the ones that have developed robust COVID-19 relevant products onto the market.
Effectively what we're looking at, we actually have fewer customers than we had last year when it comes to COVID related sales. We are supplying those companies that will drive long-term value here. Just to put some perspective on it, ArcticZymes is also serving one of the largest providers of COVID-19 tests as well. When you look at the contribution, COVID virus related sales contributed 41% towards total Q1 sales. Of that, the majority of those sales were towards the molecular diagnostic testing segment, towards molecular diagnostic testing. We estimate that to be around about 90% of it. The reason why it's an estimate is we don't have 100% visibility into where the products are going, particularly with those customers who have historically purchased our enzymes and channel it into different products.
Sometimes the customer will purchase our enzyme, it's used in COVID and non-COVID-19 applications, and we don't have visibility of that split, so it's always an estimate that we put here. It's important to bear that in mind. Like all our business, since we do B2B business and deal with large orders, this means that here we still expect to see quarterly fluctuations continue in the COVID-19 area. However, we expect these to be to a lesser extent because we've now started to get a good foundation of reoccurring business. I'd like to say something about innovation and operations. The last few quarters we've been telling you about we've been scaling up the Salt Active Nuclease manufacturing process. In particular, it's around the SAN HQ enzyme. We successfully upscaled the manufacturing process of that enzyme now.
We've achieved over 100-fold increase in fermentation yield. Product will be commercially available to our therapeutic customers during Q2. This is significant, because at the end of the day, it really serves customer requirements who require larger quantities of enzyme from a single batch. This is important to those customers who are approaching commercialization and also those that are running multiple projects. What we're seeing is, in this space, we're seeing an increasing base of commercial manufacturing organizations who are running multiple projects for their clients, and they will certainly need material from larger batches moving forward. The bottom right picture shows two of our proud colleagues, and these two colleagues were very important because they co-managed the project from the planning of the scale-up process all the way through integration into production.
Of course, we had many more colleagues were involved, and it was a job really well done, very well planned, very well executed. What you can see, what they have there is a bottle, and in that bottle, that's a fraction of the material that has been downstream processed and represents the first validation batch. In terms of the innovation pipeline, that's progressing. We have several products that are anticipated for launch, be ready for launch during 2021. We're working on an M-SAN HQ ELISA Kit that will help support and grow our sales of the M-SAN HQ enzyme, which we launched earlier. We're also working on Taq DNA polymerases, reverse transcriptases. Those enzymes will be optimized to work with virus-based test applications. We're working on new SAN products and other enzymes.
You'll see these gradually come out as we report in future quarters. When it comes to strategic growth initiatives, our focus has very much been towards the infrastructure and expansion of R&D and operations. I want to show a picture of this to the top left here. This shows a part of the facilities we've taken over on the ground floor below where ArcticZymes Technologies is located today in the SIVA Innovation Centre. This will eventually become part of our new production facility. As you see in this photo today, everything's been moved out that was there, and now it's really about renovation work is underway to modify the infrastructure here, install new facilities. What we're going to be doing is we're taking down some walls. We'll be installing new water, putting the right cold rooms in place.
There may be some changes to the ventilation, new firewalls, new doors, all those types of things that you do when you want to tailor a facility for your use. What you see here will change. Once this is done, and the renovations are done and signed off, we will then start moving in production and laboratory equipment. What we will need to do is then validate and qualify that equipment before we're able to start manufacturing in this new facility. There's still some way to go, but we're progressing according to plan. We continue to make incremental investments in hiring new personnel and talent in Tromsø. This is really important because this is about supporting our growth initiatives. We're recruiting in different areas.
We're recruiting in R&D, operations, quality assurance, and QC, and that's really important because we are getting more customer audits. Our customer base is growing. With that, the regulations are tightening up, both in diagnostics and in a therapeutic area. We will need more support there moving forward. Also, in terms of our customers, we need more support when it comes to order handling and sales and that. We are going to be putting more support to handle the growing customer base. These are all good signs. All this is about investing in order to leverage the greater potential from the business. With that, I'm going to hand over to Børge. He will orientate you through the f inancials.
Thank you, Jethro. As Jethro talked about in the beginning here now, Q1 2021 is the best quarter we've had in our history in terms of sales and profitability. What makes this quarter even better is that it's on the back of a historic strong 2020, where we achieved new milestones on a regular basis. Also, in the first quarter, we have continued to support our customers with on-demand deliveries and of the highest quality of deliveries. Going into the sales side of the business, we experienced a growth of almost 120% for the quarter, generating sales in excess of NOK 40 million compared to NOK 18.5 million in the same quarter last year. This is also substantially up from the fourth quarter 2020 figures where we had sales of NOK 22.1 million, or it's almost 100% increase compared to that quarter as well.
Of course, with current sales, we are well on track to beat the NOK 93 million we had in sales for last year. Looking at the segments. For Therapeutics segment, sales grew by 35% or close to NOK 3 million, giving us NOK 10.2 million in sales for the quarter. It is worth mentioning that the sales are on the same level as we have experienced in the last three quarters. We do have expectations to grow this number moving forward, even though we know that the quarters will be a little bit choppy. For the Research and Molecular and Diagnostics segment, we experienced a substantial increase of 176% in revenues here, or up from NOK 11 million in Q1 2020 to NOK 30.3 million in this quarter, or an increase just shy of NOK 20 million compared to the same quarter last year.
Of course, as presented earlier, we experienced for the research segment, if this is a catching up effect of underlying growth remains to be seen. We expect this to be partly driven by a catching up effect. We have also experienced larger orders from customers that normally only buy products maybe once a quarter or not that many times each year. As Jethro also said here in the beginning, we do expect large fluctuation in this area moving forward. It is, however, worth mentioning that currency effects has been negative in the quarter by almost NOK 0.5 million, as we see that the NOK has been strengthened toward our main sales currency, USD and EUR. Moving into COVID-19 related sales. As with some of the previous quarters, COVID continues to impact our figures, and the first quarter is no exception to this.
An estimated 41% of quarterly sales or NOK 16.5 million of quarterly sales are considered to be COVID-19 related. As Jethro also said, the majority of these numbers are associated with molecular diagnostics, but a small part of this can also be associated with vaccine producers. For this quarter, we have also introduced a new graph showing how the business has grown using a 12-month rolling average calculation. This is to take out some of the choppiness of the business here, so we can actually see a little bit how we are growing. From the graph above, you can see that growth has been steady over the last three years with a boost in 2020. We have continuously grown sales from an average of NOK 7.5 million in 2018 to a calculated average of NOK 28 million in Q1 2021.
We have also tried to show how the business has grown without the COVID-19 effect. Based on the graph above, sales have grown to an almost NOK 20 million in the first quarter of 2021. It is important to highlight that we have not done any calculation on the negative effects of COVID-19, as it is challenging to say how things could have been without the COVID-19. One of the things that is challenging to measure is the consolidated effect of researchers leaving the benches in 2020, for example. Of course, if we are able to continue with the trend we are experiencing now remains to be seen, but as Jethro said earlier, we are investing in organic growth initiatives to sustain this growth moving forward now. Looking at the profitability side of the business. Q1 was stronger than anticipated, both in sales and on profitability levels.
As presented in previous slides, sales grew by 119%, while EBITDA grew by 194% to almost NOK 26 million for the quarter versus only NOK 9 million in the same quarter last year. We also managed an EBITDA margin of 64% for the quarter, which is in the high end of expectations. Due to the fact that we are investing in the business now, our expenses will continue to grow, and for the first quarter, operating expenses grew by NOK 4 million from NOK 11 million in Q1 last year to NOK 15 million in this quarter. Of course, this increase is explained by growth in personnel expenses, increase in property plant and equipment expense, and expenses related to external support needed to drive our growth initiatives that we are working on.
Our cash balance continues to be strengthened on a quarterly level with a change in cash of NOK 23 million for the quarter. Of course, this one is driven by the final settlement we received from the divestment process of NOK 16 million at the end of this quarter. You can also see from the table above that our changes in cash is bumpy, and especially you can see that from the fourth quarter last year. As most of you remember, we divested Biotec BetaGlucans for NOK 70 million in December 2020, giving us a solid cash contribution in that quarter. With the changes we've experienced in the first quarter, we generated a cash balance in excess of NOK 160 million at the end of the quarter, with the expectations to strengthen this even further in the coming quarter, especially Q1 sales are being settled now.
With this note, I will hand it over to Jethro to give you some further input on what we can expect for the remainder of the year.
Thank you, Børge, for orienting us around the financials. For the outlook, as mentioned earlier, we are now in 2021, we are a pure enzymes company. Now our brains have changed. Our brains are all set with our undivided attention on enzymes. The outlook I presented last time is the same as before. It's unchanged. There's four key areas we're really focusing on. One is about performance. This is about the top-line sales growth, I think you see that in the numbers already in Q1. When you look at what's really fueling this growth, it is our customers. That's the most important thing to us, our customers. When you look at our customers, we are serving three market segments, each with different dynamics, they're growing, they're innovative. We're serving therapeutics, molecular diagnostics, and molecular research.
We also have a growing customer base supported by over 300 customers, and that just continues to grow. As we launch more products, that'll even open up more opportunities to reach customers we can't reach today. Lastly, we are expanding our product range and, of course, ramping up our innovation efforts to get more enzymes into our portfolio. All these things are which fuel the top-line growth. Secondly, it's about profitability. Our enzymes are high-value enzymes, high-margin products. That allows us to be profitable. Their focus remains on increasing that profitability, and that goes hand in hand with top-line growth. Of course, we want to leverage the greater potential out of the business, so investment is really important.
You've already seen, we talked about that today, 2021 is a year of investment, we're investing, as you've seen, in expanding facilities, as well as talented personnel. I think as you saw, Børge has already demonstrated and shown that we've already increased our expenditure there in more personnel and external services. New innovations are very important because today we do have a limited small portfolio that's driving our sales. There are parts of the market we cannot reach today. New innovations are important to really allow us to take more of the value chain moving forward. With that, we are ramping up organic growth through putting more people in to allow us to ramp up our innovations. That is to allow us to eventually achieve a complete portfolio offering of molecular biology enzymes in the next two to three years.
On top of that, and down the line, M&A will also be important to realize this goal as well. With that, I would like to say thank you for your support. Also, I'd like to quickly say thank you to the team for a job well done. I'd like to also remind you that we have the annual general meeting on the 20th of May. Please look out for those announcements. With that, I'd like to now open for questions and answers. Anybody calling in, you can unmute your microphone using star six.
Yes, good morning. Can you hear me?
Yes, we can.
Yeah. It's Peter Östling from Pareto Securities in Stockholm. Firstly, congrats for extremely strong quarter. I think that Q1 sales probably exceeded even the most positive expectations. Very well performance there. Just a couple of quick ones, I jump back to the queue. You always state that sales will fluctuate between the quarters. In this quarter, in this presentation, you say that the fluctuations will be slightly less, many of the one-off orders that you saw in 2020 is now becoming more recurring ones. I'm just wondering what your visibility is when it comes to sales in 2021, if we could expect that this level of sales between, let's say NOK 30 million and NOK 40 million, is the new normal going forward. Thank you.
Yep. Thank you, Peter, and there's several things to answer there. I'll start top level first. I think, as you rightly pointed out, this exceeded our expectations and we never expected this. That's sometimes how it is. I think there was a strong contribution, of course, from COVID-19 sales there, that attributed to that overshooting as we saw it. When it comes to fluctuations, in general, that's the nature of doing B2B business. We're not there to serve EUR 50 orders. We're there serving large bulk orders to our customers who many of those orders are in excess of NOK 1 million. That's across all the segments. That's in the therapeutics, that's in molecular diagnostics, and in molecular research.
Particularly for some of the largest customers, some of those will purchase maybe one time a year, others maybe purchase twice a year, other customers purchase every month. That's why you have this volatility in sales, and it's across all three segments. On top of that, you have different market dynamics as well between those three segments. I think you have the COVID effect as well which did put some turmoil in the markets in 2020 and some unpredictability. I think here when I talk about less fluctuations, that was purely for the COVID-19. Those fluctuations will continue because we do have customers purchasing large amounts, and that might not come every quarter. We know they're regular, and we have visibility to that.
The good thing there is why it's going to be less choppy is because we won't have those one-off orders. Some of those customers who launched COVID tests or had ambitions around COVID weren't successful in 2020. That business has gone away. It's always what I said, going back to this time last year, we said with COVID-19, what we want to do is work with those customers who will be there for the long term. That's what I talk about when I say reoccurring business. That's what we've achieved today. We're now working with those customers that are going to have robust COVID-19 technologies on the market now. That's what's reflected in our numbers now, as opposed to these one-off orders. Despite that, those fluctuations will still be there in all of the three segments that we serve.
There were several questions there, but hopefully I've answered all of them for you, Peter.
Regarding the visibility on sales, when you lay down your own forecasts, are they always wrong? Is the visibility for a couple of quarters ahead pretty good?
Yes. We plan our annual budgets on a quarterly basis, and that's along with our customers. With many of our customers, we have contracts. In those contracts are forecasting mechanisms we have with our customers. Of course our budgeting is very much planned around what our customers' expectations are. Of course, customer expectations can change, and of course they can sometimes change those forecasts and things like that. Of course, then you have those things out of the blue as well. There's a lot of science and a lot of thought in preparing that. Yes, we do have good visibility, but of course, things happen in the market, which sometimes impact our customers. You have good foresight, but not full foresight.
The sales level that you achieved this quarter, do you think that is extreme at this point of time, or is it a new level that you have established going forward and it will oscillate around that level?
I think going back to what we said earlier, this is unexpected, this level. Of course, we do expect growth in quarterly sales to previous levels. I think you need to look in between those. Of course, there's always those kind of things where you have the unexpected as well. I think I would say look at the historical quarters we've had and look at what we achieved now, and that's the kind of expectation you should see. We said we're going to grow this business. This is what we're doing. Of course, sometimes we will have what we saw in Q2 last year. We'll see this fluctuate. Of course, down the line, we do want this business to grow with sales bigger than this quarter. That's on the cards for that. I think that's the best answer we can give.
Looking at Q2 last year, do you expect year-over-year to show growth, even if it's flat?
Yes, year-over-year. Yes, that's what we've said. Last quarter, we mentioned that going into this year is really about exceeding NOK 100 million in sales. Of course, we had NOK 94 million last year, if I recall correctly. Of course, it's always been a goal to go beyond the NOK 100 million. Originally, we had that on the cards for 2023. That was our guidance a few years ago. Of course, now we can move that forward and confidently say this year will be the year where we go beyond the NOK 100 million.
Just taking that a little bit further, in December 2019, when you more or less started the journey that you are on now and presented the new business plan, you also established this six-year plan where you said that you would have around or above NOK 180 million in sales in 2026. Do you think that if things are proceeding like in Q1, that this number needs to be updated?
Yes. I think I've alluded to that in previous quarters. There were two targets there. One was NOK 100 million in 2023, then it's in 2026 was NOK 180 million. Those, I think that's our guidance, and that is no longer relevant. We will achieve those target numbers earlier than that. Again, NOK 100 million, we will exceed that this year. That's our goal. Then of course, NOK 180 million, it will certainly be before 2026.
Yeah. Okay, I jump back into the queue and let somebody else ask questions. Thank you, Jethro.
Thank you, Peter. Thank you. Any other questions?
Yes. Hello, it's Tellef, Jethro.
Hi, Telef.
Difficult to find the words today. Congratulate with a fantastic quarter. No offense, looks like we are entering the Super League.
I will be selling that story.
Well, I don't have so many questions today, but just enjoy the day and congratulations to all of you in the company. It's fantastic.
Thank you, Tellef, and thank you to all our investors for your support.
Mattias Häggblom, Handelsbanken Markets. Can you hear me, Jethro?
Yes, I can. Hello.
Good. A couple of questions, please. With less than 10% of COVID-19 related sales coming from vaccine producers, help me understand the potential upside if and when ReiThera's vaccine becomes commercial. That's the first question.
Yeah. I'm not going to answer ReiThera specifically because we do have confidentiality with them, and I don't want to get into trouble there. I'll talk more general, if that's okay.
Sure.
What we've seen, and if you just look at what we've achieved so far, when you go back, the largest order we actually expedited to one of these therapeutic customers as being NOK 3 million in a single order. Actually, last year, we had several customers who purchased over NOK 5 million of SAN products. What we're seeing as well, we're seeing many customers who are regularly purchasing NOK 1 million of products, and some of those purchase not every quarter. That sort of shows why the numbers are up and down. None of these customers have commercialized yet. That's what's important to understand.
When they commercialize, none of our customers have commercialized yet, when they do, whether it's in a vaccine space or in gene therapy, we have an estimate that annual sales with those customers will be between NOK 5 million and NOK 10 million. That is a window because each customer is different. Some customers are just focusing on developing one gene therapy or one vaccine. Others are actually commercial manufacturing organizations, actually, that is growing in the market. What we're seeing in this arena is that there is not enough capacity in the market to make these vaccines, hence why you're seeing commercial manufacturing organizations springing up. Actually, we serve many of those. Of course, there, those ones will be the ones that will be serving many clients who are developing virus technologies.
Those are the ones that will probably be topping at the NOK 10 million kind of sales. The ones that are just developing single indications will be around probably the NOK 5 million kind of sales, but it really depends on what disease they are targeting, things like that. That is just a rough kind of ballpark where we consider business to be when those customers win. One last thing you've got to put in perspective is not all these customers will commercialize. In therapeutics, it's very binary. Either you will get approval of your clinical trials or you won't, and that's different to the rest of our business. Some of those customers will drop away, but I think we have a large enough funnel and a sales funnel that you won't necessarily see a big drop in sales.
The growth trajectory will change as we mature that business and we get the winners, and we see who the winners and losers are. That's just the nature of therapeutics. Hopefully that answers the question for you.
Sure. Secondly, has the COVID-19 revenues from diagnostics opened up doors in terms of product development into new non-COVID-19 diagnostic tests with customers who may not have pursued that otherwise? Has that led to opportunistic new situations for you and anecdotal evidence of that?
Yeah, most definitely. I think here, this is within our existing customer base and new customers. As I alluded to earlier, we signed supply agreements with a U.S. customer, and they're developing COVID-19 tests, but also they're looking at including other respiratory viruses, too. I think all in all, what COVID has done, it has put a lot more focus on infectious disease and in particular, viruses. I think in general, for infectious disease viral diagnostics, it's become much more relevant because I don't think COVID will be the last virus to be troublesome for the world. We're seeing others before it, and again, it's not only viruses, there's bacteria as well, and of course, we have enzymes that fit very nicely with bacterial diagnostics as well.
I think what COVID's done is really opened up the door and opened minds where actually we need to take infectious diseases more seriously. You will see more opportunistic stuff coming in beyond COVID there.
Got you. Just lastly, I probably should know and understand this, but I don't, so I ask anyway. There's a lot of discussion around improving influenza diagnostic tests beyond this pandemic because the currently available ones, it's not very predictable. Your technology base, would that enable, assuming influenza testing would be more prominent, let's say? Would your technology enable that?
Most definitely. At the end of the day, we've been in viral diagnostics since I've been in the company. I came in the company in 2015, and we already had a nice base of customers using our enzymes in virus diagnostics, from anything from HIV to hepatitis C testing, influenza, other respiratory viruses, and that lot. Of course, it's only really become on the map now because of COVID. Across the board of viruses, our enzymes can be used.
Perfect. Thank you so much.
Thank you.
Hi, Jethro. It's Peter Östling from Pareto Securities again. I have a couple of more questions. The other day, one of the large diagnostic players, Abbott, posted close to 120% growth in their diagnostics business, mostly related to COVID-19 tests and their point-of-care platforms. I was just wondering, they said that testing is now shifting from more advanced platforms to more rapid testing.
Yeah.
How will that affect you? I noticed that some of their rapid testing platforms are isothermal platforms. Are the demand going from more Cod UNG to more IsoPol, or could you describe how this shift will affect your business in the diagnostic area?
Excellent question, Peter, and a very relevant one. Putting even COVID aside, we saw this actually back in 2015. At the end of the day, we've seen that isothermal amplification is an alternative to PCR. PCR uses more sophisticated equipment. It's not that portable compared to isothermal amplification. There it's much simpler because you can use simple machinery. It can be used much more remotely. That's why you hear things like in the U.K. where they've considered using LAMP, isothermal amplification technology at airports and things like that because it is much quicker. It's easier to use. We saw this, and that's why we developed the ISOPOL family. We started innovating those in 2015 and developed our ISOPOL enzymes to fit into those isothermal amplification technologies such as LAMP.
Also what happened is last year and this year now, all the patents relating to the use of LAMP technology have expired, which means it's opened the door for a lot of companies to jump on the bandwagon to develop isothermal tests. I think here, our ISOPOL enzymes, we foresaw this not for COVID, but for the market in general. We've developed those. We were there at the right time. We have those enzymes. We're further innovating the ISOPOL family, we'll have new enzymes coming out the door in the future. Also with that, Cod UNG is still relevant for those technologies too, and some of our other enzymes too, because what you got to understand with these technologies, the amplification, whether it's PCR, isothermal amplification, is just one part of the workflow. Other enzymes are needed too, we have some of those other enzymes.
We are there to be able to really support this isothermal world points of care remote testing moving forward.
Can you say anything in this quarter, the split roughly between more advanced PCR and isothermal rapid testing platforms?
Where we are, we're still in the kind of early stages there. I want to be cautious of what I say because this is competitor information as well. Of course, a lot of stuff we're doing, a lot of this technology is still early days. We have communicated earlier that we do have some supply agreements with customers developing these technologies as well with our enzymes.
Okay. Just quick housekeeping questions to end this. How many employees did you have at the end of Q1, and how many do you expect to have at the end of 2021? You talked about adding people in different positions.
Yeah. Yep. Børge, can you remember the exact number of your-
With all the people that we are using both internationally and in Norway, we are in excess of 30. I think we're around 36 people now. We are hiring new people moving forward now.
Will you be around 45?
I think it will be somewhere between 40 and 45 at the end of the year. I think that's a good estimate.
Okay. The operating cost in this quarter was roughly NOK 15 million. Is that multiplying by four, adding maybe a little bit? Is that a good estimate for the annual OpEx?
I think we're going to be a little bit cautious about saying that this is the new base. As we have said, we are investing in the business, and we are hiring new personnel. Yeah, you can definitely say that. I think 15 is definitely going to be in the low end here moving forward. It's not that we expect this to have a major shift in expenses, but we will see a slight increase as we increase the staff and the organic growth initiatives moving forward as well.
Okay, great. Thanks.
It is incremental, and that's what's in. It's a gradual thing, and we earmark what we need, and of course, sometimes you see, actually, you need to boost up some areas other than others because, of course, we're growing, and of course, things come in from customers which make you think differently, and you want to realign your organization. Your personnel have to be dynamic, and you have to have a dynamic organization as the market changes and grows. That's the exciting thing about this business. When you serve those three different segments, you have to look at that and look at your personnel constantly and be dynamic with it. We are a dynamic business.
In your presentation, you didn't talk anything about the inorganic endeavors that you have alluded to in the past. Can you mention anything about this?
Yeah
What you're doing in that field?
I think in the outlook I mentioned at the end, I think there we do. This is important. This will go into building that complete portfolio. I think for the time being we're still a small team. At the moment, we are focusing on those expansion projects and getting that done. At the same time, we still remain opportunistic at the time being to do a merger and acquisition. I think towards later on this year, we will then step up our efforts as we've done earlier. I think here we got to remind ourselves when we started the M&A process, we are a different company today to what we were then, and we can think differently. I think the most important thing when we do an M&A, we don't do an M&A for the sake of it.
We do it because it's a right fit. It has the right synergies to leverage those revenue synergies from that business we buy. For us, it's really about the products they have, and that synergize or are complementary to what we have. I think here, like I said, we'll be opportunistic for the time being. If something lands on the table or one of the partners we've been talking to says, "Hey, we would like to consider moving forward or something faster now," of course we would potentially entertain those discussions. It's opportunistic for now.
Okay. Thank you, Jethro and Børge.
Jethro, this is David Zetterlund. Can I just chip in with a final question? Congratulations again.
Thank you.
Awestruck by the numbers. Really happy for you guys and for all the shareholders and everyone involved, obviously. I was just thinking about what Mattias asked about earlier. Potential for sort of a golden age in diagnostics on the back of the increased awareness following the pandemic, obviously, and the opportunities for you there. Could you talk about sort of the long-term impact on a company such as ArcticZymes from this pandemic? Not necessarily the COVID testing and vaccines itself, but rather on more as a general, what do you say, medvind, tailwind. Thank you.
Yeah. Thank you, David. For us, we've always had a strong strategy in molecular diagnostics, way before COVID came along. For us, it is really about bringing those relevant enzymes to this space. At the end of the day, when you do a diagnostic test, it's a sequence of events which use several enzymes. As well as that, we hear a lot about PCR, but that's not the only technology in there. PCR is just an amplification technology. There's a lot of other technologies that are used. Anything from sequencing, there's even things like mass spectrometry, things like that are used. There's genotyping. There's a lot of different types of technologies that are used. What's important to us, and it's always been on our map, even before COVID, is to become much more relevant.
We bring the complete portfolio of enzymes to serve each of the steps of a diagnostic test, as well as the different technologies that are used there. That's why it's going to be a continuous long-term project. Even when we have a complete portfolio with all the major classes of enzymes, we still want to build each of those classes out, because our customers will require new innovations all the time. We'll always be innovating these enzymes as we build it out. The number one goal right now is to make sure we have a complete portfolio of all the classes of enzymes so we can tap into all the technologies and all parts of the workflow in diagnostics. Today, we can't do that because we have a limited portfolio. I think here, I hope that answers your question.
If not, please ask something else.
Well, that's good. Thanks.
With regards to the LAMP technology specifically.
Can you allude to what applications or diseases you can apply that to? Is it a general testing technology or is it more specific to airways detections?
It can be used in anything you want to use from detection, LAMP technology can be used in. I think if you think more broadly, here the virus diagnostics is what people are talking about. Generally, LAMP is where something you can have batteries in one of these machines. You can take it anywhere. It can fit even into environmental testing, remote testing waters. For instance, that's just one example. It can be used even for researchers out in the field doing ecology studies. There's so much ways this can be used. The point is, you can test and detect a piece of DNA from remotely. That's the point of the technology. It's limitless how LAMP technology can be used. It's very difficult to put a PCR machine remotely, and set that up.
You would need to have a lab environment, where LAMP, you can potentially do that remotely in a dirty environment. I think here, this is the beauty of it. There's a lot of applications, more than I could talk about today. Of course, what we want to focus on is really the applications which will have the highest value here at the end of the day. There's a lot of market areas we could serve, but we don't because we would not be very successful there. I think it's very important that we are very focused about these things. LAMP, yeah, sure, it opens up a lot of potential for how to detect a piece of DNA in future from different environments. Also one area as well is bioterrorism, actually. I think here, bioterrorism as well.
When you get a swab in the airport and they put it in a machine, there's a potential later on. There are companies that have been working on molecular diagnostics based on LAMP technology for bioterrorism as well. Of course, then you want something very rapid. If it takes maybe 15 minutes as opposed to two hours to get a result, you don't want somebody hanging around an airport for two hours or something. Hopefully that gives you a broader perspective on how these technologies can be used and applied.
Great. Thanks. Can I just ask one more quick on geographical progress in Asia specifically? You announced a partnership with a distributor in China in Q3, I think.
Yeah.
Has that resulted in any material sales yet?
Yeah. We've got sales are coming in China and in Asia in general as well. I think one thing actually I didn't say in the presentation, and it's in the report, was in Japan. We had a very good quarter, actually. There we have actually one of our main customers there has been purchasing our enzymes for a long time. Now they've now moved into COVID as well, and we've certainly seen a nice effect of that. The important thing about that Japanese customer is also they are very much a well-known and renowned company in Asia. They sell really strong into all the Asian countries. When you look at China, actually, I think we've had sales going into China for many years. We don't necessarily have visibility to that.
I think here we are pushing what's new is we're pushing direct now with new distributors, new partners, and down the road, at some point, we will then have our own people in China at some point because it is a very relevant market. That person in China would manage a lot of other partners there because you can't grow China with one man. You need somebody there to manage a network to grow the sales there. It is really early days for us. Yes, we are seeing sales in China. Our direct sales are starting out. Like I said, I think there has been indirect sales in China through our existing customer base as well.
I think we take two more questions here. Richard and Arne has a question. I don't know if they want to take that one, and then I think we'll try and end this Q&A session.
Thank you very much, Rick. Dan here from ABG Sundal Collier in Stockholm. Hopefully you can hear me okay. First of all, congrats to a very strong quarter. I want to touch upon the M&A agenda a bit more. Given the fact that you do have best-in-class product portfolio today, are you confident in your ability to find products and technologies and sort of new targets that are at the same level or doesn't dilute the product quality, if you will, in your offering?
Very good question. Our goal is to find complementary products. We don't want something that's going to cannibalize our business. There are some interesting companies out there that lean in different areas. Some of the things we're developing and have ambitions to develop, they already have those competencies. They know those enzyme technologies very well. Those enzymes will be complementary to what we have. I think that's the first thing. The second thing, you're right. What we need to do is any acquisition we make, we really need to look into the quality and the robustness of those products because, of course, we do not compromise our brand. We would have to ensure that those products meet that quality and level. If not, we will elevate it to that quality level at the end of the day.
I think that's why customers work with us because not only do we have interesting enzymes, we have the highest quality, we have good robustness, we have good security supply. We'd also have to look into their manufacturing capabilities and if we buy somebody, it could mean that we also have to invest in them for them to potentially ramp up their manufacturing capacity and things like that. These are all the things we would look at and are looking at when it comes to M&A targets here.
Great. Just a final one from my side. Looking at the therapeutics and vaccines, obviously it seems like, to my understanding, that it's a big exposure or use cases in the viral space, in the viral vectors, et cetera. There has been some recent backlash for these technologies, looking, for example, at AstraZeneca and Johnson & Johnson vaccines, as well as BioMarin in the viral vector Complete Response Letter, et cetera. Do you see any worries in the field of virals in the longer term? Obviously, the pipeline is quite massive at the moment, but do you see any worries on the longer term horizon? I guess that your product expansion will sort of mitigate that potential risk, I guess. How should we think about that?
Not exactly. It's a very good question and suspected that question would come up on this. It's very relevant. At the end of the day, when you look at how our SAN enzymes are used, they're used in AAV, they're used in adenovirus, they're used for lentivirus and other viruses here. Of course, what you're seeing is the things that we're seeing today is very much related to adenovirus. Actually, when you look at who we serve, we're mainly serving AAV customers, people who are doing AAV and not adenovirus. I think here it's kind of going in different directions, our sales here. When it comes to adenovirus, you do need to put it in perspective here. This is all new technology and there will be always, it doesn't matter even in traditional drug developments, even when you develop a new surgery, there's always risks.
There's always adverse risks. You need to put these things in perspective. Long term, no, I don't see an issue here. Of course, there's always risks in everything when it comes to medicine. That I think there has to be some perspective there when it comes to that. Even general surgery has its risks. Being put under anesthetic has its risks. I think here it's a pragmatic viewpoint you need to take on this. Longer term, I don't see any issues. When you look at what we're doing and what we're serving, adenoviruses for vaccines is just a part of what we're doing here in supporting those customers.
Great. Appreciate it. Thank you for taking my questions. Have a good day.
Thank you.
Arne, one last question.
Congratulations, Jethro. Very good results. I have one question about the SAN in gene therapy. Is it possible to give an estimate of the market share for the project's development in gene therapy? What percentage are using SAN enzymes?
Yes, it's a good question and a very good question. I'd love to give you an answer, but because of the competitive landscape there, I do not want to say that publicly. I'm sorry about that, but that's just how it is.
Okay.
Okay. I think we are done, Jethro.
Thank you for all the good questions and again for all the support.
Okay. Have a good day, everyone.
Have a good day.