Earnings call transcript: Biotage Q1 2025 reveals revenue challenges

Biotage AB’s Q1 2025 earnings call highlighted a softer revenue performance compared to the previous year, with the company grappling with manufacturing constraints and a slowdown in analytical testing activities. Despite these challenges, Biotage maintained a stable gross margin and saw growth in its drug discovery segments. According to InvestingPro data, the stock is currently trading at $10.13, with a significant 3.04% return over the last week. The company’s high earnings multiple suggests investors are pricing in future growth potential, though two analysts have recently revised their earnings expectations downward.

Key Takeaways

• Revenue for Q1 2025 was weaker than the previous year.
• Gross margin remained stable at 63%.
• Strong demand for peptide systems, though manufacturing constraints limited revenue.
• Growth in drug discovery and Chinese markets.
• Stock price rose by 0.21% post-earnings.

Company Performance

Biotage faced a challenging Q1 2025, with revenue falling short of the previous year’s figures. The company cited manufacturing capacity constraints as a key factor limiting its ability to capitalize on strong demand for peptide systems. Despite these hurdles, Biotage expanded its customer base in early-stage drug discovery, adding 37 new customers in the quarter.

Financial Highlights

• Revenue: Softer than Q1 2024
• Gross margin: 63% (stable year-over-year)
• Adjusted EBITDA: 50 million SEK
• Gross cash: 434 million SEK
• Net cash: 182 million SEK
• Total operating costs: 254 million SEK (up from 236 million in Q1 2024)

Market Reaction

Following the earnings announcement, Biotage’s stock price experienced a slight increase of 0.21%, closing at 141 SEK. This movement reflects a cautious optimism among investors, who may be encouraged by the company’s stable gross margin and growth in specific market segments despite overall revenue challenges.

Outlook & Guidance

Biotage anticipates significant short-term revenue volatility but remains confident in its mid to long-term outlook. The company is focusing on building a foundation for future growth and exploring alternative paths to accelerate its market reach. Cost reduction benefits from streamlining operations are expected to materialize in Q2.

Executive Commentary

CFO Andrew Kellett acknowledged the disappointing results, emphasizing the company’s focus on long-term growth: "We recognize these quarter’s results are disappointing... We are very focused on putting in the building blocks for future growth." CEO Fredrik Van der Hagen highlighted the strategic approach: "This is a numbers game requiring a medium-term outlook."

Risks and Challenges

• Manufacturing capacity constraints impacting revenue realization.
• Slowdown in analytical testing activities and purchasing delays in the US market.
• Potential supply chain disruptions affecting production.
• Competitive pressures in the peptide purification market.
• Macroeconomic factors influencing customer spending patterns.

Biotage’s Q1 2025 earnings call underscores the challenges the company faces in balancing immediate revenue fluctuations with long-term strategic growth initiatives. Despite these hurdles, Biotage’s commitment to expanding its customer base and streamlining operations positions it for future success.

Full transcript - Biotage AB (BIOT) Q1 2025:

Conference Operator: Welcome to Biotage Q1 twenty twenty five Report Presentation. For the first part of the conference call, the participants will be in listen only mode. Now I will hand the conference over to CEO and President, Fredrik Van der Hagen and CFO, Andrew Kellett. Please go ahead.

Fredrik Van der Hagen, CEO and President, Biotage: Thank you. Good morning, everyone. Welcome to our Q1 report. Thank you for your flexibility today and to accommodate our time changes very recently. Today’s call is about our q one release.

We will not comment on the recent announcements made by KKR. We would encourage anyone who has a question to reach out to Torben Jorgensen, who is our chairman of a subcommittee that will answer your questions onwards. Let me talk about our q one results. As expected, our q one revenue was softer than the prior year, primarily due to the volatility within our bioprocessing, which we had previously commented upon. Our relatively large exposure to the plasma business has impacted our overall performance.

However, we did see growth in our non plasma revenue and our bioprocessing gross margin continued to expand sequentially to reach 73.5%. We continue to build a strong foundation for future bioprocessing successes, expanding our customer base. In this quarter, we added 37 new customers in the early phase of drug discovery. And over the past two years, we added more than 220 new new customers. Our sales pipeline is strengthening, and we focus on partnering with our customers as they progress their modalities into late large stage development, which is gonna be key as a leading indicators for future growth.

In the quarter, we took decisive actions to right size our bioprocessing cost base and drive strong integration with the benefit of this starting to flow from quarter two onwards. In our core business, revenue contracted very slightly year over year. This has been driven by a slowdown in our analytical testing activities, primarily due to a rationalization in one of our customers’ operation and also some delay in purchasing decision for systems coming mostly from The US as a consequences of the microeconomics factors and recent announcements made by the Doge. We were though encouraged by a rebound in demand within the drug discovery segments, partly against in the North America area. We also saw growth in the Asia Pacific regions with China reporting quarter over quarter growth now.

Our demand continued to outskip manufacturing capacity when it comes to our peptides. We had been had we had we been able to supply the current peptide backlog, we would have been able to report mid single digit growth in revenue for the core business. Our gross margin in the core business grew sequentially quarter over quarter and is reaching now at 61.7%. Although we do recognize that the q one result side is appalling and we also are not satisfied with them, we were pleased that March saw the improvement momentum with mid single digit growth in consumable orders, which is very promising for onwards revenue. We remain confident in our future’s mid to long term outlook while managing the short term headwinds with the right sized cost base.

Let me now turn it over to Andrew, who’s going to walk you through more details on our financials.

Matthias Hegblom, Analyst, Handelsbanken: Thank you.

Andrew Kellett, CFO, Biotage: Thank you, Fred. Good morning, everybody. So the q one report along with the presentation that’s on the screen now is on the Biotage website under the investor section and then financial reports. So in q one, as Fed has just commented, our revenues were softer than q one twenty twenty four, primarily due to the volatility within a bioprocessing or large molecules as was previously flagged. Australia has only a small number of customers who have products in the commercial stage, I.

Released in the market. Fluctuations in demand from these customers can and does have a material impact on its revenue on a quarterly basis. Therefore, as we’ve we’ve repeatedly said, you cannot judge by processing performance on a strict quarterly basis. As our business grows, matures, and we see more of our early stage customers’ modalities move into late stage development and into production and commercialization, our revenue concentration will ease, and with it, our overall volatility. However, this is not measured in quarters, though, rather than in years.

While we cannot say when and how fast these modalities will move through the pipeline, we are confident that the actions we are taking now will deliver the best chances of future success. Now our large molecules by processing revenues were significantly down in q one as you’ve seen due to lower plasma revenue. In q one twenty twenty five, we did not have any plasma revenue compared to approximately 90,000,000 in q one twenty twenty four. However, our non plasma revenue grew by 3% versus q one twenty four. We did see growth of 3% in our small molecules revenue.

Additionally, we saw growth in China of 16% in the quarter after a few years of consistent heavy declines. As we’ve noted in the q one report, we continue to see robust demand for our peptide systems with demand outpacing manufacturing capacity, which has improved itself year on year. We saw headwinds in our analytical testing where revenues declined 8% year on year. This was driven by both specific micro factors, rationalization one of our customers’ operations, and more macro factors of delays in purchasing decisions for systems. Particularly later in the quarter, we did see an increased nervousness and reluctance of some of our customers to place orders.

And by processing, we continue to acquire new customers. We acquired 37 new customers in q one in early stage research. We’re adopting a much more rigorous approach to pipeline management, classifying our customers by clinical stage to give us better visibility of future revenue streams. Although we cannot predict when and if a customer will progress through the pipeline, the more customers we acquire and the more we partner with them in solving the problems, we increase our chances of future success. This, as Fred has always commented, is a numbers game requiring a medium term outlook.

While we are on this journey, we can still expect some significant short term revenue volatility. As Fred has commented, our gross margins in the quarter were actually very strong. On a group level, they were just under 63%, broadly on par with a very strong comparable q one twenty twenty four and up 1.1% sequentially on q on q four twenty four. In bioprocessing, our Australia business, quarter one margins were 73.5%, up seven point eight point seven points compared to q one twenty twenty four and two point three points sequentially. In the core, quarter one margins were 61.7%, up 5.1 points sequentially and just a small decline from a very strong comparable q one twenty twenty four.

Total operating costs in q one were 254,000,000 compared to 236,000,000 in q one twenty twenty four. However, when you adjust for one off nonrecurring costs, which were 22,000,000 in q one versus 28,000,000 in q one twenty four, and the impact of effect translation costs, which took we took an 8,000,000 charge in q one versus a 5,000,000 credit in q one twenty twenty four. They were much higher in q one twenty five due to significant swings in the FX rates in March, mainly centered around the US dollar. Then our adjusted OpEx at 224,000,000 was actually lower than q one twenty twenty four of 222 hundred and 27,000,000. So in q one, we delivered an adjusted EBITDA of 50,000,000.

This was weighed down with the softness in the bioprocessing revenue. To mitigate this, we have taken decisive action to streamline our bioprocessing cost base and drive further integration. The benefits of this will start to flow from q two this year. In the quarter, we delivered adjusted cash flow from operations of 76,000,000, again, down on the comparable quarter due to revenue softness. However, we continue to deliver adjusted cash flow from operations ahead of adjusted EBITDA.

We finished the quarter with gross cash of 434,000,000 and net cash of a hundred and 82,000,000 on par with December 2024. To conclude, like Fred has said, we recognize these quarter’s results are disappointing, none more so than to us. However, we are very focused on putting in the building box for future growth. Doubtedly, we’re facing challenging headwinds, which will make 2025 quite a volatile year, but we remain confident that the actions we’re executing now will put in as a will put us in a good position for future success, recognizing the executional as well as the market risks that lay ahead of us. We’re now open to take any questions.

Conference Operator: The next question comes from Matthias Hegblom from Handelsbanken.

Matthias Hegblom, Analyst, Handelsbanken: I have first a clarification. So you stated in the report that if you had been able to deliver at demand for peptide systems, it would have translated into mid single digit growth. It’s not clear to me if that was for Biotash Group or only for Biotash. If it references the group, it’s a delta yes, please.

Andrew Kellett, CFO, Biotage: No, Simite, it’s the core for the core business.

Matthias Hegblom, Analyst, Handelsbanken: Okay. And I’m not sure I saw that in the report, but could you remind me what the organic growth for core was so we can back out and understand the magnitude? Or if you can help me then in absolute terms, how large the backlog then would be, which I guess is what we’re trying to get to here?

Andrew Kellett, CFO, Biotage: Well, if you can think, we kind of think of the backlog is in just under approximately SEK 20,000,000 for peptide systems.

Matthias Hegblom, Analyst, Handelsbanken: Yep. That’s helpful. And remind me what alternatives do customers have when you can’t deliver? And secondly, tied to that, when do you expect to be able to produce to meet demand?

Fredrik Van der Hagen, CEO and President, Biotage: Yes. So Matthias, we are working with the third party providers. So I think there are two impacts. First, we can’t recognize revenue, obviously. The second one is our lead time is substantial relative to the demand.

So if if we look into the second part, we are we are clearly recognizing we’re missing opportunities in the market since customers are looking to to expand their their peptide purification. So, our mitigation plan has been to work with our third party providers to unleash the potential from, access to to the the parts. That is the first step. And and we are working with them to resume back to the output that we had last year in quarter three and quarter four, but that’s the maximum we can get to. So I think, we have to look for alternative paths to, accelerate our market reach there, which we’re exploring right now.

Matthias Hegblom, Analyst, Handelsbanken: That’s helpful. Two more questions, please. So on Slide seven, with customer numbers for Austria, it’s a nice contribution to help the outside world understand the nature of your business. Unfortunately, maybe the only time we’ll get to see it as well. But I wanted to understand the math here better.

The new customers, is that a net number of won and lost during the year? Or has Austria actually not lost a single customer since 2022?

Andrew Kellett, CFO, Biotage: It it it is it is a net number, but effectively, we’ve no. We’re not losing customers. You know, the the amount of lost customers, I can’t think of any really off the top of my head. So effectively, is that is the new new customers we’re winning. The level of losses is negligible.

Matthias Hegblom, Analyst, Handelsbanken: That’s clear. And my final, still on Slide seven, great with the breakdown of customers per stage. But with only resins in commercial stage and more or less all of columns and fiber in preclinical to other stage, can you help me understand the revenue split between resins columns and fiber? Vast majority of revenues from resins then? Or how should we think about that breakdown?

Andrew Kellett, CFO, Biotage: Yes. So in in this in the in that, Matthijs, the majority of it you can broadly think about fiber, obviously, is is a new technology. The the revenue from that is is very small, almost negligible from a from a from an Australia perspective. And you can think of the resin column split, but, broadly, about 85 to 90% in resins, 10 to 15% in columns.

Matthias Hegblom, Analyst, Handelsbanken: That’s very helpful. Thanks so much. Thank you.

Conference Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Fredrik Van der Hagen, CEO and President, Biotage: So thank you, operator. So thank you for those of you who have joined this call. So we, we, again, we we wanna reiterate that we are not commenting on on to the announcements and we wanna encourage any of you who have question about that topic to reach out to, Tom and Jorgensen, who is acting as a revenue chair of the board, or to reach Gary to KKR. So, as we said, we we recognize that that q one was a a challenging quarters for us, mostly driven by the the situation that that we had in our bioprocessing spaces. We entered the years with a very weak backlog, but we are committed in working on expanding our customer base and addressing the opportunities, bridging the short term revenue gap with our packing column strategies out of our Canton side that is now commissioned and operational, and that would help us to accelerate our our momentum onwards.

And and in the meantime, we continue driving our drug discovery process as well as our applied market. As an organization, we build the the new strategy vectors for us to proceed forward, and we we’d be happy to share that with you as we’re progressing onwards on the journey. Thank you all for joining us today, and looking forward speaking to you next quarter.

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