Welcome to the Devyser Diagnostics Q3 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, and again, welcome to the Devyser Q3 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 I have also asked our CFO, Sabina Berlin, to join me during the Q&A session. But before we go into the Q3 figures and talk about the nice development we are seeing at the moment, and actually, the third quarter was the best quarter ever. But first, before talking about that, I want to repeat for our new and potential shareholders what Devyser is. We are well known among laboratories, especially in Europe, but 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.
Still, 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 rates increase dramatically for many diseases when symptoms are detected early. With our fast diagnosis, we help to save lives. More than 100,000 people were tested with our products during the third quarter, and that's something I and my colleagues are very proud of. Devyser is on a journey.
As you may know, we have had a very nice development over the last years, including average revenue growth of 36% in average, gross margins well above 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, I'm confident that we are just beginning 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 pioneering leader in diagnostic solutions and provide fast, accurate, and easy-to-use solutions to labs worldwide. Our vision is a world where personalized medicine is universally available, thanks to simplified and reliable genetic tests. So 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 and all manufacturing are taking place in-house in our facility in Stockholm. We sell products, library prep kits, and software to clinical diagnostic labs, either via our own sales organization or via distributors. We also provide test services to labs and pharmaceutical companies. We have developed and launched more than 30 IVD and IVDR re-registered products. We're based in Stockholm, but we have subsidiaries, sales offices in 8 countries. We are today around 120 employees. We have been so successful. Strong growth with good margins since the company was founded, more or less, because we put the customer in focus. We've developed and provide solutions that are easy to implement, maintain, and use.
We offer very streamlined and simplified test protocols that reduces time for the lab, which leads to substantial cost savings for the lab. We currently sell in more than 50 countries. We are today selling direct in 14 countries, the orange countries on the map. In the blue countries, we are selling via distributors. In 2023, 78% of our revenue came from direct sales and 22% from distributor sales. Europe is still our dominating market, with almost 90% of total sales. Americas, North and South Americas, however, is growing fast, at 8% of total sales in 2023, compared with 2%, same last year, 2022. APAC is still rather small, with only 3% of sales.
The growth is very high, in average, 36% since 2015, and that despite a big hiccup in 2020 due to COVID, and we reached SEK 158 million for the last twelve months. But let's move over to the third quarter. I said, it's the best quarter ever. Sales developed well, and reached SEK 47 million, which is a new record for a single quarter. Sales growth, only organic growth, is also a new record. We reached actually 50% in growth for the quarter. Sales growth is good in most geographic markets. Our direct sales markets in Europe continued to develop well during the quarter. Strong growth was also recorded in North and South America, even from rather low levels. Sales growth in North and South America is driven both by direct sales and distributor sales.
Sales in Asia was slightly lower during the quarter due to temporarily irregular purchasing behaviors. As you may recall, we sell via distributors in Asia. All our products, product areas are growing strongly, particularly transplant products, which are continuing to develop well. EBIT continued to improve during the quarter, and we reached - SEK 7.8 million, and that should be compared with the last quarter, second quarter 2023, when we had a - SEK 13.5 million and - SEK 19.1 million for the first quarter this year. And last year, fourth quarter 2022, we had - SEK 25.9 million. So we see another quarter with improved EBIT. During the quarter, we continued to see high gross margins, 85% for the quarter.
Not the highest ever, but, but still very high. We have a very strong financial position, SEK 288 million in liquidity at the end of the quarter, and no interest-bearing debts. With innovative products, high market growth, and a very professional commercial organization, and some of the best commercial partners, we are confident that we will see a very nice future sales development. At the moment, we do not see anything that can change this. Of course, we may have single quarters that will not perform that well, but the trend is crystal clear. Sales are increasing much, and most quarters will be a new record quarters. We also believe that high volumes will give higher gross margins. The yellow tables show quarterly sales, and the orange line on the slide shows the quarterly gross margin.
Maybe most importantly, we are showing a better operating result for the quarter, compared with the, as I said earlier, the previous quarters. 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 EBIT over time. The collaboration with Thermo Fisher Scientific has progressed well during the quarter, better than we expected, actually. During the third quarter, we worked intensively to support their preparations for launching of the transplant products, which were launched in North America and Europe in July. And Thermo Fisher Scientific has now also started to buy products from us.
Thermo Fisher is very well established, the position in the U.S. and European markets, and with their commercial infrastructure and resources, they can both cover U.S. and Europe very, very well. Given that the collaboration developed well during the quarter, we decided to grant Thermo Fisher exclusive distribution rights for Brazil. Brazil is the country with the second highest number of kidney transplants in the world, and we expect the sales starting during the first half of 2024. At the end of June, we had the opening of the Devyser Genomic Laboratories, our CLIA-certified laboratory in Atlanta. At the same time, the laboratory launched the first test for RHD typing of pregnant women.
We continued to work on the validation of several products during the quarter, and we will remain very optimistic about the prospects for the laboratory using it for hereditary disease testing, oncology, and post-transplant follow-up, and for tests intended for use by pharmaceutical companies in the drug development. Our efforts to reach out to pharmaceutical companies are continuing, and we stepped up during the quarter. However, the cycles are rather long for this type of activities. Through the expanded partnership with Thermo Fisher, we are always working with them to market our lab services towards pharmaceutical companies. The total growth, as said, amounted to 50% for the quarter and to 34% for the period, January to September.
Growth in Europe was 36% for the quarter and 25% for the period. As said, sales in Asia were lower during the quarter due to temporary irregular behaviors, and we are still very optimistic about Asia going forward. Our increased focus and investments in Americas start to pay off. The growth was actually 760% for the quarter and more than 400% for the period. For the quarter, Americas represented 30% of our total sales, compared with 2%, same quarter last year. For the period, Americas represented 8% this year, compared with 3% last year.
We are continued very optimistic about Americas with our products. Going forward, Q3 2023 was another quarter when we continued to deliver on the strategic plan we presented in connection with the IPO, end of 2021. We have managed to deliver better than the plan we actually promised. And we believe that the end of 2023 and 2024 be good periods for Devyser. We will continue our focus on direct markets in Europe. We see very good sales development from countries where we have converted from distributed sales to direct sales. The U.S. is very important, it's a very important market. We are targeting U.S. in three ways: via our CLIA lab, together with Thermo Fisher, with our transplantation products, and via kit sales for our other products outside the transplantation.
We strongly believe that the nice development we have seen will continue and maybe even improve. And, last, going forward, we are also continuing our work to become a highly profitable diagnostic company. With that, I open up for questions.
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 good morning.
Morning.
Great, great to see sales accelerating here in the third quarter. And I note Americas taking, although as you stated, it's from low levels, but it takes a major jump in Q3. And it would be helpful, if you can help us provide some split between, distributor sales and direct sales for that region. Because I note that you mentioned in the report that it's both due to the distributors and the CLIA lab, to get some sense on the quantities of each of these.
Yeah. It's a good question, but we don't disclose the split in specific regions, and that's mainly for competitive reasons, and also because we have a collaboration with Thermo Fisher here, so we don't want to say too much about that. But, as I said in my presentation, and I've also said it in the interim report, it's a combination. It's increased both in the direct sales in the Americas and in distributor sales.
And if I were to rephrase my question then, are you happy with the inflow and sales development of your own CLIA lab in the U.S.? And you have mentioned previously taking on CRO capabilities in your CLIA lab. Is that present here in Q3 or something that we perhaps should see more of in 2024? And building upon the distributor and Thermo Fisher agreement, are you expecting to see a gradual ramp up from that side of the deal in general, both for Europe and the U.S.? What's your current expectation, and what's your current feedback, given that this is the first commercial quarter from that collaboration? A few questions I hope you-
I hope I got them all, but if not, you can repeat them. But if we start with the CLIA lab, we opened up the CLIA lab end of June. And of course, as I said also, I think earlier, it's quite long cycles to getting pharmaceutical companies on board. And when we also in parallel working with getting the reimbursement in place. So for Q3, we did not have any sales from the CLIA lab at all. We expect that to start come up during 2024. When it comes to the collaboration with Thermo, I think that was your second question. They launched mid of the quarter, end of July.
And as always, with med tech company or diagnostic companies, it's gradually increasing. It's not like launching a FDA-approved drug, when you have to get out very high numbers already first quarter. But it goes better than expected, and they're doing well. We hear a lot of good feedback from customers. So we're more than pleased with that, and that was actually the reason why we expanded it to include also Brazil in the collaboration.
Great, uh-
Also both to U.S., sorry, to North America and Europe.
Yeah, yeah, yeah. And if we continue to focus on the region, Americas, and you mentioned you're working on getting reimbursements for a test. How long do you expect that process to take, roughly? And in addition, I note that your RHD product is approved in Canada, and you have been awarded the tender in Québec. When are you expected, and in the communication with Héma-Québec, when are you expected to deliver on that tender?
Yeah, two questions. The reimbursement, and yeah, so people understand, we're talking about reimbursement for the CLIA lab. That's what I'm answering. So we expect that during 2024. It's too early to say exactly when, but we will not have it this year. When it comes to RHD in Canada, we know that they are preparing to start, but we have not started to sell to them yet because they are preparing a couple of things. But that will come during 2024. And as also early communicated, there may be some other big tenders coming up in Canada just for RHD, so.
Yeah, that would be my follow-up question. And if you have any additional updates on the larger tenders up for grabs in Canada, and if the competitive situation have changed in any way versus what you saw in your tender for Héma-Québec?
No, we have a very strong product here, I must say, and we have seen that for some other thing, for some other business in Europe. So RC is doing great, but I do not have any more information to share about the other tenders because it, it's not yet public, so we don't know either. But we know that they are coming, but we don't know the time schedule for them.
Okay, great. And perhaps if you continue on North America and the CLIA lab, you have taken a lot of investment on building up the CLIA lab throughout 2023. Are we to consider these investments done for now, and perhaps just some additional OpEx on that side, or where are we at in the investment cycle of the CLIA lab?
A good question. Yes, we have taken all the, all the investments, and they were already done end of Q2, actually. Of course, we have some running expenses for the lab, for personnel, yeah, rent, et cetera. But that's, we are not talking about huge expenses.
So once you get reimbursement in the U.S., we should expect that to be margin accretive and positive on EBIT. So potentially-
Yeah, absolutely. But just so you understand, for agreements with pharmaceutical companies, when they use our lab in their development work, we do not need any reimbursement. So we think that-
Yeah
Some time, actually, before we give, we get reimbursement.
Absolutely. Absolutely. Last question on my end, given that you have launched a wide array of new products here lately in the last 12, 24 months, transplantation products looks to be the main growth driver. But can you help provide us with, for starters, how much of this accelerated growth is on direct sales now, due to your expanding direct sales presence versus your expanded product portfolio? And follow-up question on that being, how much of your revenue right now is generated by new products launched in the last 12 to 24 months?
Lots of numbers here, but I think I can say like this, we launched a couple of new products during the second quarter. I think we have just got some sales from them. It takes some time with this kind of products. If you go back, as you said, 18-24 months, then we launched the transplantation products, and then, of course, they have started to generate some good sales. So it depends on when, but it always takes some time to generate sales because, yeah, you need to get it out and get some approvals, et cetera. So it takes some time to get revenue from new products. That's, I think-
Yeah, yeah. So what I'm aiming at here is that your old products, but your old product portfolio is growing still at a high pace, and you're adding new products that are growing faster, but from a lower revenue base. Is that a fair assumption?
Yeah. And I can also say that if you look at our older products, older technology, technologies, and compare that with the NGS products, the NGS growth is much, much higher. So for the new products, growth is much higher, both for the one that were launched 12, 18 months ago, but also for the new launched products.
Great. That was all questions on my end. Thank you very much.
Okay, thank you.
The next question comes from Oscar Bergman, from Redeye. Please go ahead.
Good morning, guys, and congratulations on a very strong report. I have a few questions that, well, the first one relates to the Thermo Fisher deal, and I know that, I mean, you said that sales are expected to go up gradually, but do you expect to see more significant increase in sales during the second half of 2024 or the first half of 2024? Just some more flavor to when we can expect more sales in absolute terms from that deal.
Unfortunately, I cannot share. Of course, we have some numbers about what we can expect because we need to have for our production, et cetera. But it will increase gradually, I would say, like, with all IVD products.
Yeah. Then in other terms of the deal, are you happy so far? Have there been any obstacles or positive surprises from the deal?
Well, we have been more positively surprised, actually, I would say. So, it goes better than expected. You know, it-
Okay.
We have been a rather small company going together with a big global company, and they have such huge resources that they can put-
Mm.
Launching this product.
It was quite, it went quite fast from the signing of the deal to the broadening of the collaboration towards Brazil. Are there any other potential broadening areas that could come during next year?
Nothing that I can comment on, right now.
Okay. And then in the U.S., how have things progressed so far with the direct sales and the distributors? Are you happy with the progress, or has it
Yeah
... gone according to your expectations?
Yeah, it's progressing according to plan, I would say. If you know, we're talking about outside transplantation, so yeah.
Okay, and that's just a question also on the OpEx, specifically the admin expenses. So there have been roughly SEK 10 million- SEK 12 million in the quarter since Q4 up until Q2. And now that I suspect that you will slow down on the new hiring of new personnel. So is this 18 SEK, is that sort of a baseline going forward, or do you expect to increase that more?
No, we don't see any big increases. Of course, we have always some increases in expenses because salaries go up or whatever, but no huge increases.
Okay. Then this is my last question. Can you just give some color to how Q4 has developed so far, if there were any special tailwinds in Q3 that we should not expect in Q4 or so on?
We are very hesitant to give guidance for the quarter that's coming. But we, as I said here, I think in my speech earlier today, we are optimistic about those remaining of 2023 and 2024.
Okay. All right. Thank you. I'll go back into the queue.
Okay, thanks.
The next question comes from Klas Palin, from Erik Penser Bank. Please go ahead.
Thank you so much for taking my question. Another question referring to the Thermo Fisher deal, where maybe you are getting tired of these questions, I mean, as you mentioned, you are very satisfied with the collaboration so far. Is that—do you refer to their commitment on marketing, or is it what you see in customer intake?
Both, I would say. It means both.
Okay. Okay, perfect. And the customers, is there anyone that has implemented your products in their procedures, or are they in evaluation mode?
I cannot comment on that because that's more a Thermo Fisher question.
Right.
But as always, this kind of product, it takes some time for first customer contact-
Mm-hmm
... buying customer.
Yeah, sure.
As we said, I mean, we used to say it takes 12-18 months for a first contact, a buying customer. That's for Devyser. It may be faster with a big company like Thermo Fisher, but for us, it's, we usually use that as well.
Okay, perfect. My last question is then related to the European business, if you see opportunities to increase prices next year?
Absolutely, we do. And I will not share that here, but we are increasing prices for next year. Yes.
Sure. Perfect. Thank you so much.
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, so I hand the conference back to the speakers for any closing comments.
Yes, thank you for participating in this earnings call. I hope that you will continue joining us for the Devyser journey. I think we have just started it, as I said earlier. So please stay in touch, and do not hesitate to reach out if you have any additional questions. Thank you.