Welcome to the Devyser Diagnostics Q2 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speaker, CEO, Fredrik Alpsten, and CFO, Sabina Berlin. Please go ahead.
Thank you. Welcome to the Devyser Q2 2023 earnings call. It's a great pleasure to have you all here. Today, you will listen to me, Fredrik Alpsten, the Devyser CEO, and to Sabina Berlin, our CFO. Before we go into the Q2 figures and talk about the nice development we are seeing, I want to repeat for our new and potential shareholders what Devyser is. We are well-known among laboratories, especially in Europe. We are less known among investors and the public. We are a very value-driven company. Of course, we want to build a successful company with high growth and good profitability. The foundation for everything we do is to ensure every patient has a correct diagnosis in the shortest possible time. Many patients have to wait a long time before receiving a diagnosis.
It can take months before important blood tests are taken, and even longer before they get the results. However, early detection saves lives. Survival... dramatically for many diseases and symptoms are detected early. With our fast diagnosis, we help to save lives. More than 100,000 people were actually tested with our products during the second quarter. That is something that I and my colleagues are very proud of. We, at Devyser, are on a journey. As you may know, we have had a very nice development over the last years, including average revenue growth of 36% per year, gross margin, well, about 80%, launches of many very innovative products and commercial expansion, both by setting up direct sales organization and entering into collaboration with some of the most successful global companies.
However, we are, we are confident that we are just beginning of a fantastic journey. Over the last 9- 12 months, we have taken some very important steps to build a global, fast-growing, highly profitable diagnostic company. Our mission is to be the pioneer leader of diagnostic solutions, to provide fast, accurate, and easy-to-use solutions to labs worldwide. Our vision is a world where personalized medicine is universally available, that thanks to simplified and reliable genetic tests. What do we do? We develop and market genetic test solutions to guide targeted cancer therapies, fast diagnosis of hereditary diseases, and post-transplant follow-up. All development on all manufacturing are taking place in-house, in our facility in Stockholm. We sell our products, library prep kits, and software to clinical diagnostic labs via our own sales reps or via distributors.
We also provide test services to labs and pharmaceutical companies. Since the company was founded, we have developed and launched more than 30 IVD and IVDR-registered products. We're based in Stockholm, we have subsidiaries, sales offices in eight countries. We are today around 110 employees. The reason why we have been so successful, strong growth with good margins since the company was founded, is because we put the customer, the routine diagnostic lab, improves. We develop and provide solutions that are easy to implement, maintain, and use. This results in time savings for the lab, by time savings, they get cost savings. Most important of all, it provides faster treatment for the patients. Let's talk about the second quarter now.
The second quarter was another fantastic quarter, with many amazing things that have laid the foundation for our continued growth and way to becoming a highly profitable diagnostic company. Even though the revenue for April was unusually weak, which recovered substantially during May and June. Maybe most importantly, we are showing a better operating result, EBIT result for the quarter compared with Q1 2023 and with Q4 2022. Although there will certainly be occasional quarters when the EBIT is weaker than the previous quarter, we are confident that we will now see a strengthened operating result, EBIT result over time. In the quarter, we signed an exclusive collaboration agreement with Thermo Fisher Scientific, and the agreement gives Thermo exclusive rights to commercialize and under combined brands, Devyser's post-transplant portfolio of NGS products in North America and Europe.
Devyser's current transplantation portfolio includes Devyser Chimerism for screening on post-stem cell transplantation, and De- Devyser Accept cfDNA, a novel test for detecting donor-derived cell-free DNA in blood samples from kidney transplant patients. Additional products for post-transplant monitoring are currently under development at Devyser. Thermo is a very well-established and, and very well-positioned in both US and Europe in, in the European market. With their infrastructure and resources, they can cover up both US and Europe very, very well. Sorry, I am a bit too fast here, but going back to Thermo here. I would like, also like to say that quite much work has been ongoing during the quarter, both during the quarter and after the quarter to prepare the launch of the products, not least, prepare- preparation for the IVDR approvals, these two products.
We got the IVDR approval on July 17th, and Thermo Fisher launched the products in North America and, and, and Europe on July 21st. At the end of June, we, we opened our CLIA-certified laboratory in Atlanta, Georgia. At the end of June, we also processed its first commercial test in the lab. The laboratory will now offer clinical test services for hereditary diseases, oncology, and post-transplant monitoring. The laboratory will scale as demand, demand grows, it, it, it will initially focus on providing clinical testing services for healthcare providers and patients in the U.S. We are currently working on reimbursement for, for, for these tests, and we expect to have the, the first reimbursements cleared beginning of 2024.
However, we are very hopeful that we can also use the lab towards pharmaceutical companies and clinical research organizations, and they are not dependent on, on reimbursement. During the summer, we have signed a first such an agreement for a pilot test with one of the biggest global pharmaceutical companies. If successful, we will have a good revenue contribution, contribution in 2024. The US IVD market is the biggest market in the world and also the market with the highest prices. That is, it's very important for us to work towards this market, both with our commercial transplantation partner, Thermo Fisher, but also we are our U.S. subsidiary. As previously announced, we have strengthened Devyser's development organization quite much during the year. It has meant increased costs, but it now starts to pay off.
It means that during the second quarter, we have launched no less than seven new products, including Devyser Accept cfDNA, Devyser LynchFAP, a product for diagnosing hereditary bowel cancer, and Devyser BRCA PALB2, a test that diagnoses more than, more gene mutation than our current BRCA test for breast cancer. In addition to these assay launches, we have launched four new software products. This is by far a new record for Devyser, seven new products during the quarter. During the quarter, we also got regulatory approval for our Devyser RHD in Canada, and maybe most important of everything, IVDR approvals of our transplantation products. By that, I leave over to Sabina to talk a bit more about the numbers for the second quarter.
Thank you, Fredrik. I can start by highlighting our net sales in Q2, which was SEK 37.7 million, compared to the SEK 13.9 million in the same period in 2022. This gives a sales growth quarter-to-quarter of 22%. Adjusted for currency effect, the growth was 13%. Sales were weaker than average in April due to mainly purchasing patterns. May and June have presented very strong sales. Gross margin was 83% for the month of April to June. Both Q1 and Q2 have presented very high gross margins. Even if we do expect to stay above our target of 80%, these levels are not long-term standards. EBIT was minus SEK 13.5 million.
Highlights included the previously mentioned agreement with Thermo Fisher, Devyser receiving Swecare Export Award, the opening of our U.S. lab facility, regulatory approval in Canada of RHD, and the launch of our new products. January to June, net sales was 77.2 million SEK, 26% above 2022 sales. Gross margin showed a total of 84%. EBIT came in at -32.6 million SEK. During the first quarter of 2023, we were proud to present that we launched Compact as our first IVD-approved product. Looking at the last 12 months, that is July 2022 to June 2023, Devyser could present a sales growth of 29%, a gross margin of 83%, and an EBIT of -66 million SEK. The trend of over the historical quarters for both net revenue and gross margin continued nicely upwards.
We see this trend continuing over the coming periods with, of course, possible deviations for occasional quarters. Direct sales in Q2, 2023 amounted to SEK 29.2 million, an increase of 25% compared with the same quarter in 2022. Last year saw the initial growth of new direct sales markets. Direct sales growth will be more in line with our overall sales growth going forward. Direct sales now make up close to 80% of total sales. The distributor sales were SEK 8.5 million, an increase compared to last year, showing continued growth outside the markets we converted to direct sales. The growth within the direct sales geographies is the combination of very high growth in newly converted markets, with U.S. contributing to a steadily growing part of our total sales.
Going forward, our sales to Thermo Fisher will be included in distributor sales. The second quarter of 2023 saw a slight reduction in growth in the EMEA region due to the weaker April sales than planned. Our new markets, together with the DACH region and Italy region, are still doing well and have delivered according to plan over the months since. The APAC region is continuing to recover, but still from small numbers. We do see several interesting opportunities in both Central and Eastern Asia and in Australia going forward, and those will continue to strengthen this region. We do also continue to see traction in our North American sales, with revenue now also from the CLIA lab in Q2 and over 200% growth from the same quarter in 2022. Well, year-to-date, 2022.
The right sales organization, including the CLIA lab, has continued to grow, and the sales activities and regulatory work to reach new markets and customers, including work towards reimbursement in the US, is carrying a large part of company expenses at this time. These investments are driving a steady sales growth, and they will pay off within a short time frame. Administrative cost is keeping quite steady while adapting to the needs of a growing company and expanding markets. The reduction in R&D expenses compared to last quarter is mainly related to how much was capitalized in each period, 2023 compared with 2022. We closed the quarter with a cash position of just about SEK 300 million.
It is worth noting that our new facility has been signed and the new seven-year rental agreement for SEK 62 million is recognized in right-of-use assets and the related lease liability, and this has an impact on net debt. Investments made during the quarter mainly concerned the finalization of our US lab and the new Stockholm office. On average, we had 98 full-time employees during the quarter, and several of our teams are now fully staffed for some time to come. I would now like to hand back to Fredrik.
Thank you. I would like to say, say a couple of words about what's happening going forward. We will continue focusing on our direct sales markets in, in markets in Europe. Many of our new direct sales markets, they have actually increases of more than 100% a year, even though if they are coming from some of the for small, small numbers. We will continue working towards U.S., both via our newly established CLIA lab, but also via our new commercial partner, Thermo Fisher. Most important of, of everything, we will continue our way to profitability. We have now seen the second quarter that we are increasing the, the EBIT.
We hope that we soon can be profitable, and we are more than reach our financial target to have an EBIT margin about 20% in 2024 to 2026. With that, I leave over to the operator and open up for questions.
Welcome to the Devyser Diagnostics Q2 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speakers, CEO, Fredrik Alpsten, and CFO, Sabina Berlin. Please go ahead. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Ulrik Trattner from Carnegie. Please go ahead.
Great. Thank you very much, and hopefully, you can hear me all right.
Yes.
A few questions on my, my end. Starting off with the organic growth here in Q2. It's a step down from what you presented previous quarters. If you can just give us some, some highlight here on, on what's the reasons behind this, and should we view this as, as just temporary effect, or, or how should we view this?
Yeah, a good question, of course. We had a very bad month in April, and that's the reason why we got a bad growth in Q2 compared with the same quarter last year. We have seen very good sales in both May and June, so we are not worried at all about this bad month. Even though I fully understand it, it looks a bit strange that we suddenly had a lower growth than we have had for maybe eight, 10 months before. We are optimistic going forward that we will go back to the previous growth rates.
Thank you, Fredrik. Could you give us some more color on, on what happened in April? If there are any things particular that happened that caused sort of April to be a bad month, or is it just the-?
Mm-hmm
... the, the sort of the purchasing pattern of, of your customers that have changed or anything?
It, it's actually they placed orders in, in, in, in March, and they placed orders in, in, in, in May. Nothing special, actually. Nothing special.
Okay. Great. It's, it's great to see that the CLIA lab is now commercial and operational, and look forward to, to you, your guys both getting reimbursements in 2024, as well as the CRO project looks like an interesting option on your end. A question more related to when the CLIA lab will cover its own cost: Where are we at currently in terms of your internal budget for the CLIA lab?
Yeah. Good, good question, of course. It, it, it's still quite a small lab, three to four employees, plus, of course, the, the rent and all of it. We don't have that high, high expenses for the lab. We will now, we will now get revenue with non-reimbursed products. In addition to that, we will also hopefully see a revenue coming in now from from collaboration with with pharmaceutical companies, as we mentioned in the CEO report. We have a such a first collaboration, and we're doing a pilot with with that company. So we, we, we think that we will rather soon be, be on breakeven for the lab. But we-
Great.
Yeah. Yeah, it, it's a great thing here with this, this lab, for sure.
Perfect. Next question would be regarding IVDR for the transplantation portfolio. Well, I'm sorry if I missed this during the call, but when do you expect this to happen? I'm guessing here that that will trigger orders from your, your commercial agreement with Thermo Fisher or One Lambda.
Maybe I understood your, your question, wrong. We got IVDR approval for our both transplantation products on July 17, and that meant that Thermo launched in Europe on July 21st. There are... The launch is, is now, both in Europe and-
Okay, great.
America. Yeah. You will see, orders, and we have started to get orders from, from, from Thermo, but you don't see that, that much in, in the Q2, numbers.
Great. And on... I, I also note that, that you received approval in Canada for your RHD products. Does that mean that you can start delivering on the tender? If you can provide us with some clarification on timing of delivery of that tender, that would be helpful.
Yeah. Yeah, and, and here, it's not up to us to decide when they start implementing this. We have all the tender, as you know, and now we have all the documentation in place. It's, I, I, I don't want to say too much about when they start to buy, but as, as all of you know, it's quite a big tender that we won one and a half years ago, and, and one of the conditions was, was that we can get the regulatory approval, and we have now got it, and now they are preparing to start running this.
I don't want to give a definite timeline, but of course, it will be, they, they have an interest to start as, as, as soon as possible, and we are- can deliver when, when they are ready. As we have said on one of the previous calls, we- there are a couple of more tenders coming up in Canada regarding RHD, that we are very optimistic about.
That would be my, my follow-up question. What is happening with... Are we to continue to expect these tenders to happen any time soon, the ones that are larger tenders in Canada?
Yeah, we, we can expect that. I'm, I'm a bit hesitant to give it because I'm not quite sure about that timing, but it's, it, it, it is end of this year, beginning of next year, something like that. That's my, my, my, what, what I think it is, is right now, actually.
Great. That was all questions on, on my end. I'll get back in the queue. Thanks for taking my questions.
Okay, thank you.
The next question comes from Klas Palin from Erik Penser Bank. Please go ahead.
Yes, hello, thanks for taking my question. I would like to stick to the Thermo Fisher deal and I have a question. I mean, they have launched now your product and so on. Is it possible to share a little bit more about what this means, if you are satisfied with their commitment so far?
Definitely. If we start with the Thermo, it's a very professional organization, and we have spent quite much work helping them, providing information about the product, both during Q2 and beginning of Q3. So we are all of them. We have also seen a very high interest from customers, more than expected, actually. So we are up to now very pleased with the collaboration. For competitive reasons, we cannot share any future forecast, et cetera. We, but we are optimistic about this collaboration, for sure.
Great. Then my question about your direct sales in Europe. You mentioned in the report that this has developed very strong outside of Italy. Is it, I mean, what, is it possible to say anything what that means in sales numbers or at least an indication?
Yeah, it, and, and we, we are selling in, in some seven, eight countries direct in, in, in Europe. Of course, they are all being differently here. Some very right good, some not that good, but still okay. All countries, what, what we see is a growth of more than 100% per year compared with the previous year, very good, good try countries like in, in Benelux, Germany, and a couple of more countries. We, we see a very good growth in, in some of these countries. As you may remember, what, what we are doing is also, we did this very successful in Italy.
We took a decision 1.5-2 years ago, to do the same thing in some other countries in Europe, and we see that it was a good decision.
Mm-hmm. Perfect. Last with about this pharma collaboration that has been initiated, the pilot. What could be the timeline when we could perhaps hear more from this and if this actually goes a step further to commercialization?
Yeah. When we took the decision to start a CLIA lab, this was one of the reasons. We thought, we thought that we can use it for tests, for pharmaceutical companies and for clinical research organizations. This is actually the first company that we are discussing with, and we will start the pilot, and hopefully the pilot will be ready by the end of this year. We will know if this works well, and then we start to generate revenue during 2020, of course.
Of course, we will, we will pay for the, for the pilot as well, but the big revenue is now coming from, if we fill the pilot and, and they are pleased with it.
Okay. Perfect. Thank you so much.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you all for participating in this earnings call. I hope that you have got some information about us and about the company. I'm looking forward to meet you all in a quarter from now. Thank you.