Qlife launched the CRP capsule on February 15 without medical claims. The initial focus has been to target validation customers that will test and recommend the product to their customer base for free. There has been an interest from health practitioners in Ireland, the UK, Singapore, Sweden and Denmark, with most interest from the UK. After demonstrating there is a demand for the produkt, the next step is to find partners. As marketing and sales scale up is capital intensive, Qlife is will need one or a few strategical partners who can sell the product. It previously co-operated with Aidian, but the co-operation has not been fruitful and the companies are now in litigation.

Regarding the other programs, the PHE/phenylalanine test (for PKU patients) is being developed at a reduced pace due to the limited funding available. The two-in-one assay for the detection of influenza and SARS-CoV-2 viruses, financed by FIND, is already far in its development but was put on hold due to the lack of certain components which meant that the last payment from FIND could not be made. If this can be renegotiated, Qlife is now ready to start clinical trials.

Revenue amounted to only SEK 0.1m, compared with SEK1.1m in Q4 (graph below, in SEKm). This is because few countries now require COVID testing and the demand for such tests is disappearing quickly. Meanwhile, the CRP test has been distributed to validation customers for free.

In addition to gaining a new foothold in the market and attracting commercial partners, an equally important objective is to reduce costs, as ramping up sales will likely be slower compared to the COVID franchise. One year ago, Qlife had 64 employees. It ended Q1 with 32 employees, with personnel costs of SEK-12m. At the end of Q2, there will only be 20 employees, so costs will continue decreasing. This is an essential step in prolonging the run rate of the cash position. The trend of operating costs is in the right direction, as can be seen in the graph below (in SEKm). We have summarised all operating costs below (including depreciation), which declined to SEK-26m in Q1 from SEK-33m in Q4.

The cash flow in Q1 was SEK-12.1m. Adjusting for a bridge-loan of SEK7.7m, the loan-adjusted cash flow was SEK-20m. Cash flow before changes in working capital was SEK-13.4m while investments in development was SEK-5.3m and leasing cash flow was SEK-1.2m, or together around SEK-19m. This means the burn rate was still high in Q1. The cash flow before changes in working capital will decrease as the headcount decreases to 20; investments have also decreased in Q1, to SEK-5.3m (SEK.-7.5m in Q4), but they still amount to SEK-21m at an annual rate; we would not mind seeing this decreasing further, if possible. We illustrate the cash flow adjusted for loans and share issues below in SEKm (i.e. we remove these posts) together with adjusted EBITDA (defined as EBITDA minus capitalised development costs). The cash flow does not correlate that well with the EBITDA which would be expected; part of this is due to income from taxes (being a research company) and part due to positive effects in working capital.

The company had built up a negative working capital in Q1 of SEK-34m (working capital is the difference between current assets and current liabilities). We estimate Qlife received around net SEK49m from the rights issue. This will turn the working capital positive to around SEK 15m. However, costs incurred in the rest of 2023 will lead to a negative working capital again. The negative working capital is a problem. Short-term liabilities will eventually have to be met (by payment or service rendered), which means additional funding will be needed. Therefore, it is important for Qlife to receive additional capital from TO2 and TO3.

From an investor’s perspective, it is useful to analyse the dispute with Aidian in this context. The EUR0.8m claimed by Aidan is recorded among the current liabilities. Aidian has initiated proceedings against Qlife while Qlife entered a counterclaim of AUR2.2m based on Aidian’s failure to purchase the agreed minimum quantitifes. The issue will be decided in a joint arbitration case. We are not in a position to judge who is in the right. However, if Qlife wins, the working capital will improve by EU0.8m. If Qlife loses, the current liabilities will stay the same but additional legal expenses, including those of Aidian, woud likely be incurred. This issue is somewhat important for the liquidity of the company.

The number of shares in Qlife increases from 23m to 645m after the rights issue and directed issue of units to underwriters as part of their fee (45m new shares). One warrant, TO3, is included in each unit with a strike price of SEK0.11 with exercise taking place in September 2023. There are 628m TO3, which we included in our fully diluted Base Case. They could raise around SEK66m. However, considering the low subscription rate in the rights issue (31%), it remains to be seen what subscription is attainable for TO3. Qlife will likely have to deliver some strong results before September. We have not included any dilution from TO2 in our valuation considering the low subscription rate in the rights issue and the short intervening time.

We have reduced our sales forecast as sales will likely have a slow start. Our forecast for 2023 is now SEK3.7m (SEK8m). Due to changes in the Redeye’s rating model, we increase the weighted average cost of capital to 13.5% (12.5%). All of this results in a new fully diluted Base Case of SEK0.19. Our Bear Case is 0 while our Bull Case is SEK0.5.