Johan Widmark | 2022-09-01 08:00
Business side moving forward with growth and new deals…
In Q1’22/23 (May-July) net sales grew 67% to SEK 2.7m (up 47% adjusted for FX), primarily driven by the bioinformatics software Qlucore Omics Explorer. Costs continue to be dominated by investments in cancer diagnostics tools Qlucore Insights and Qlucore Diagnostics, the two software platforms offering AI-based machine learning for multi-omics companion and precision diagnostics with tailored classification models to help create individually adapted treatment for different types of cancer. Despite a prolonged customer focus on Covid, Qlucore signed two new license deals in Q1 with hospital laboratories in Denmark and Italy for Qlucore Insights. In Q1, Qlucore also signed an agreement with Lund University for the development of a diagnostics solutions for leukemia AML, in addition to the existing ALL project.
…while development and regulatory process is lagging
The preparation of Qlucore Diagnostics’ CE application in accordance with IVDR has turned out to be more thorough than expected, which combined with poor availability of a Notified Body, now make Qlucore expect to file the application in 2023, rather than in 2022, in turn pushing the company’s financial targets one year into the future to 2027. For us this means pushing forward our expectation for the CE approval for the Qlucore Diagnostics platform and ALL to 2024, and the subsequent increase in the number of labs to 70-100 labs by 2027/28 instead of 2026/27. All in all, we estimate number of tests per lab to 2,500-4,000 per year, which along with an estimated price per test of 1,000 SEK support the company’s sales target of SEK 300m in 2027/28 and a 40% EBIT margin.
Exaggerated mistrust leaves plenty of upside on the table
With three years of estimated losses (2022/23-2024/25) at a total SEK 77m before turning to profit in 2025/26, our model supports the management’s claim that the SEK 86m net cash position will be enough to reach profitability. Furthermore, Net cash exceeds the Market Cap at SEK 81, implying an exaggerated distrust in the company’s ability to monetize its technology. In our initiation report on Qlucore, we presented a calculation that showed that a one year delay in the CE approval would reduce fair value by 18% in a DCF approach. Since then, market sentiment has shifted to reward near term profits and punish companies with profits far ahead in the future, lowering peer multiples. Based on a combined DCF and multiple valuation we now find support for a fair value of 34-46 (53-75) SEK in 12-24 months, still leaving plenty of upside from today’s level. Main triggers to reverse the negative sentiment towards the share would be a) progress and visibility on the CE application process, b) new Qlucore Insights and eventually Qlucore Diagnostics deals and c) continued growth for Qlucore Omics Explorer which would alleviate cash burn.
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