The full-year sales came in at SEK12.2m (SEK9.4m) compared to our sales estimate of SEK13.8m; however, we note that the value of the backlog is SEK9.1m. Moreover, the gross margin for the full year came in at 79%, which was in line with our estimate of 81%.

Operating expenses amounted to SEK-21.7m (SEK-21.8m), and EBIT came in at SEK-12.0m (SEK-16.6m). This can be compared to our full-year OPEX estimate of SEK-22.8m and EBIT estimate of SEK-12.4m. The operating expenses mainly consisted of selling expenses (37%) and R&D expenses (41%). We note that the R&D expenses include depreciation of SEK1.2m.

Cash flow from operating activities was SEK-12.0m (SEK-18.7m), and by the end of the period, the cash and cash equivalents amounted to SEK1.8m. In our view, ISAB has a capital need, and we believe in an equity issue of SEK15m during 2023 (with a 30% discount on current share price levels). Overall, the report did not include any major surprises; however, we note that ISAB has used SEK1.8m of the credit facility (SEK4m in total) and that FDA will co-finance the planned study regarding dissolvIt with USD408,329. The time of the project is set to two years, and we look forward to hearing more about it as we advance.

In October, Inhalation Sciences (ISAB) announced it had signed a new IRS order with a large generic pharma company. The order was worth SEK1.2m, and the project’s objective is to establish differences in the dissolution profiles between a generic inhaled therapy and its reference drug. The order includes the use of ISAB’s in vitro dissolution and absorption module DissolvIt, which can generate data close to IVIVC. We are positive about the continued high demand for the module and ISAB’s IRS offering.

In December, ISAB announced that it had signed two new IRS orders. The first order worth SEK1.9m is with a mid-sized US pharma company, where the project will use ISAB’s in vitro dissolution and absorption module DissolvIt. We learned that the project will test the dissolution profiles of a new drug with several formulations and if the drug’s dissolution properties are maintained when scaling up production.

The second order worth SEK0.26m is with returning major generic pharma company. We learn that the work will be carried out using ISAB’s PreciseInhale system that enables precision dosing of a range of in vitro and in vivo exposure modules.

We are positive about the orders and highlight the first order’s size and the importance of a returning customer in the second order. Earlier in 2022, ISAB changed its strategy by focusing more on Inhalation Research Services (IRS). We believe this was a great change since IRS orders have dominated the year’s total sales.

In late January, ISAB secured a contract worth over 914,000 SEK from a US-based pharmaceutical firm that specializes in developing antiviral therapies. The project will utilize ISAB's DissolvIt module, known for its accuracy, to conduct dissolution testing for the antiviral drug development process. This marks the first project for the new customer and highlights the potential of the DissolvIt module to reduce risks and improve efficiency in drug development.

In February, A returning US client of Inhalation Sciences AB (ISAB) booked lab time and facilities in April 2023 for an Inhalation Research Services’ (IRS) R&D project by paying a EUR50,000 deposit. The total project value is yet to be confirmed. The client has chosen ISAB's high-precision, specially tailored Isolated Perfused Lung (IPL) method for the project, which is specially designed for aerosols generated by the company's PreciseInhale system.

We are positive about the news, especially the second, as it shows the demand for ISAB’s offering and that the returning customer appreciates working with ISAB.

We expect rising sales during 2023, estimating sales of SEK26.5m and an EBIT of SEK-4.1m. We have made some decreases in our sales and OPEX estimates for 2023-2025e as we expect a bit lower sales, but at the same time, the costs to be lower than previously estimated. Moreover, we do not believe ISAB’s current cash position and credit facility to be sufficient for the year as we believe there is a need for capital for future business activities and that the loan’s maturity date is at the end of 2023. We, therefore, ad a capital raising of SEK15m during 2023 into our model. As the stock market has been unstable for a while, we believe a smaller, non-profitable company such as ISAB will need a large discount in such an equity issue. We have assumed a subscription price with a 30% discount to current share price levels.

Moreover, there could be a situation where the company will partly finance the business with additional loans; however, we argue there is a higher likelihood of an equity issue. As mentioned, we have included an equity issue of SEK15 for 2023. We have not included any further capital raisings; however, there could be a scenario of additional capital raisings if the future sales do not meet expectations and/or the expenses increase more than expected.

We have adjusted our model with an updated cash position, made some changes in our sales and OPEX estimates for 2023-2025e, and added an equity issue of SEK15m (with a 30% discount to current share price levels) during 2023. The changes result in a new fair value range, including a base case of SEK17 (20), followed by a bull and bear case of SEK27 (32) and SEK4 (5), respectively.