Q1 2027 EQL Pharma AB Earnings Call Transcript
Key Points
- EQL Pharma AB (FRA:7JK) maintains its full-year sales growth outlook of around 15%, driven by a significantly improved inventory situation with stockouts reduced from 5-7 to 1-2 products entering Q2.
- The company expects a strong Q2 and a good Q3, with the order book for key products Memprex and Melusan looking robust for the autumn.
- Business development progress includes Memprex launch in Germany, new territory Spain added, and final launch preparations in France, Israel, and Turkey, with approvals expected in the next fiscal year.
- The pipeline remains healthy with 44 products, including three new additions in the quarter, all with potential in Nordics, Germany, and Netherlands, and the company aims to launch seven more products this year.
- Management is implementing structural improvements, including AI integration, upgraded demand and supply planning, and continuous provisions for scrapping, to resolve root causes and emerge stronger.
- The new API source for Memprex is on track, with validation batches on stability and submission expected in September/October, which will significantly improve gross margins and debottleneck supply.
- The company has access to unused credit facilities of 26-27 million SEK and levers like inventory and CapEx reduction to manage liquidity, with no intention of an equity issue.
- Melusan received approval in Kazakhstan, and the partner in Germany/UK is growing sales nicely, especially in Germany.
- The company is taking a forward-looking approach to balance sheet review, making provisions for potential scrapping risks over the next 24 months to avoid negative surprises.
- Management is confident in resolving operational issues, with the CFO bringing experience in optimizing scale-up companies to address structural challenges.
- EQL Pharma AB (FRA:7JK) reported weak Q1 sales with no growth, and a gross margin of only 17% after a significant scrapping item of 20 million SEK, down from 43% last year.
- The company faced continued stockouts in Q1, with many issues not resolved as hoped, leading to a weak underlying business and an EBITDA margin of only 12% excluding one-offs.
- The scrapping item, mainly related to hospital products, resulted from Finnish tender regions calling off far less volumes than indicated, leading to excess inventory and write-downs.
- Launch challenges persist due to technically complex products from the Cadila partnership, causing delays and unreliable timelines, with several launches backloaded to Q4.
- The company is in a tougher period with higher OpEx (31.5% of sales), and the leverage ratio is mathematically high, though management asserts it can honor bond obligations.
- There is a risk of further inventory write-downs, though management notes the risk is smaller and more mitigatable over the next 24 months.
- The company has not yet declared 'danger over' and needs to see several solid quarters for the right reasons to confirm structural improvements.
- The Middle East situation continues to impact freight costs, with rates improving slightly but still higher than historical levels.
- An ongoing investigation by the Swedish Economic Crime Authority into insider trading involving current and former employees adds uncertainty.
- The company may need to slow down some pipeline projects to manage liquidity, which could impact long-term growth if the period of CapEx caution extends.
To the quarterly IR call for EQL Pharma.
We'll get right into it since we have a lot of things to cover today.
So here is just a brief summary of what I intend to cover. So we'll do a quarterly overview like always. Then I will do a bit of a deep dive on the scrapping items that we had in this quarter. Then we will try to dissect the quarter, excluding the scrapping and seeing what worked well and what did not work well.
Then we will do a little bit of a deeper outlook than normally. So I think it's obvious to everyone here and to us of course that EQL is going through a tougher period. So I will offer a little bit more details on our outlook here.
Then I will try to cover some of the key focus areas for us as management team and how we plan to get out of this tough period and not only get out of it but actually get out of it in a much stronger position than we went into it.
Then of course pipeline and portfolio update and a brief summary and then we'll open up for questions in the end.
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