Net Sales came in at cSEK0.5m (0.2), 52% below our estimate of cSEK1.0m. Segment-wise, it is stated that most sales come from the Animal Care segment, although the exact split is not reported.

Total OPEX came in at SEK-5.5m (-5.4), 46% higher than our estimated SEK-3.7m. As a result of the lower sales and higher OPEX, our profitability estimates were naturally off by a corresponding amount. EBIT was SEK-5.3m, against our anticipated cSEK-3.4m.

The cash position was cSEK900k at the end of Q4 2023, against an EBITDA of SEK-4.8m for the same period (which should theoretically be a reasonable proxy for cash flow as long as the company does not invest in capex). We foresee that the proceeds from another capital raise would need to reach the company’s accounts by mid-to-late Q2 2024e.

In terms of sales per segment, the company does not report how much of sales is derived from Animal Care and Human Care respectively. It was stated that “sales is mostly derived from the Animal Care segment”, and this is in line with the communicated order flow for the quarter. As evident from the chart below, the company has not reported any sales in its Human Care segment between Q4 2022 and Q3 2023.

As we have commented on previously, Scandinavian ChemoTech raised cSEK9.8m in net proceeds during Q4 2023. The money was used in part to refresh an already existing credit line of SEK6m, and partly to fund continuous expansion in the Human Care and Animal Care segment. Financing cash flow in the quarter was cSEK3.2m, which indicates that cSEK6.6m of the net proceeds from the rights issue was used to repay the credit line (unless other items were included). We have previously discussed the outcome of the rights issue (see our comment from November 10), and the financing situation for the firm more generally (see our previous quarterly update). As a result, we will not cover this capital raise in more depth in this update and instead refer readers to our previous research for more information.

The cash position was cSEK900k at the end of Q4 2023. A credit line of SEK7m is stated to be available. All in all, this means that the company has cSEK8m in available liquidity, which theoretically should last until mid-to-late Q2 2024e. We currently forecast another capital raise to be carried out during the second quarter, and we increase the net amount raised on the back of lower sales and higher costs. We cannot exclude the possibility of an additional capital raise during 2025e unless a sales ramp-up occurs during 2024e. Dilution from the rights issue is estimated at c50%. We reiterate our previously made comments regarding capital raises: if the company can find other ways to raise capital than through a preferred rights issue with a discount over the market, there is a clear upside to our estimates.

The flow of orders seems to continue from the company’s Animal Care division, which is encouraging. In the press release related to the USD34k order, the company stated that the order intake had exceeded its expectations for the period. The order book was cSEK1m at the beginning of Q4, with inflows of cSEK600k and net sales of cSEK500k during the period. It ended the quarter at cSEK600k.

On the 26th of January, Scandinavian ChemoTech announced that the ethics committee at the University Hospital in Jodhpur had approved the suggested change to the protocol in the company’s ongoing clinical study. We commented on the news on the day of the announcement, concluding that we were cautiously optimistic about the news and that we refrained from making any valuation adjustments as we viewed the fulfilment of the Indian sales target as a more important value driver in the near term (more on this later in the update).

A few days later, on January 29, the company held a call regarding the approved protocol amendment, where more information was provided regarding its implications for the company’s commercial strategy and clinical activities. We acknowledge that if the company receives positive results from its study and manages to sell TSE in curative lines of treatment, this is a game changer for the company and the cancer market more broadly.

On February 12, Scandinavian ChemoTech published a press release regarding a follow-up order from one of its largest US-based customers (MedVet). Although the order in itself, amounting to USD30,000, does not alter our investment case, we are positive about the fact that this is the fifth TSE system purchased by the same customer in less than a year. As customers increase the number of devices under operation, it indicates that the customer uses the device frequently, resulting in more income from treatment kits. These kits are highly profitable and an important part in helping the company minimise its burn rate. It also emphasises the attractiveness of the company’s business model, where revenues are derived both from device sales, but also from high-margin follow-up revenues. This is a typical pattern of many successful listed companies, including Gillette, which is where the model received its name.

In the Human Care division, the company had previously communicated its intention of 15 commercial installations in India before year-end 2023. On the 11th of December 2023, it was announced that it postponed nine of these contracts until Q1 2024e due to a cyclone in the Chennai area. Three orders had already been installed in September 2023, and three others were expected to be delivered during Q4 2023 regardless. No orders were announced during the remainder of 2023, which led us to believe that 12 contracts were to be announced in the first quarter of this year.

In the latest quarterly report, it was stated that the three communicated installations in the Indian Human Care market had not been realised during the quarter. We are unsure about whether "realisation" refers to not collecting payment for the devices or if the deliveries themselves were unrealised. Furthermore, as no sales had been reported in the Human Care segment up until Q3 2023 and no numbers were provided for the split in Q4 2023, we can’t judge the sales potential of the three installations that were announced in September.

A few weeks after the quarterly report, on March 20, the sales goal was retracted altogether, and the company stated the following:

"After not achieving its latest adjusted short-term targets of installed units in India, the company is shifting its strategy to favor long-term clinical and commercial targets."

We see no inherent clash between satisfying short-term sales targets and achieving long-term commercial success but acknowledge that the company is striving to optimise returns.

Given the communicated selling price of cUSD80k per IQwave in the Human Care application, revenue for Q1 2024e would be in the range of cSEK10m if all contracts were closed. We had not included these devices in our Base Case estimates, and thus, the retraction of the sales target does not impact our valuation to a significant degree. However, in our Bull Case, we had assumed that parts of the company’s sales target would materialise, which is the reason behind reducing it from SEK9.7 to SEK5.4 per share.

To conclude our view on the commercial progress in India, this is how we understand the current situation: Three devices were installed in September 2023, and no others have been sold since then. The company did announce a new agreement on March 20, 2024, but as we understand it, this is not yet a done deal. The hospital has agreed to test the product for one month, after which it will make a decision regarding a yearly minimum volume of EUR70,000. If this agreement is signed after the trial period, this would be the fourth installation in India.

We make some changes related to our estimates and valuation based on the report. We decrease sales for 2024e and 2025e by 29% and 16%, respectively. For 2024e, we believe that the relation between sales and OPEX will remain relatively constant, leading to a corresponding effect on the EBITDA level. However, for 2025e, we assume that the company manages to improve its cost control, leading to a smaller relative reduction in EBITDA compared to sales for that period. In 2026e, we believe that the company will build on the momentum and continue to grow sales.

In terms of valuation, we pencil in a capital raise of SEK25m in net proceeds, compared to the SEK15m we had forecasted previously. With a slower ramp-up in sales, more capital is required until the company can reach breakeven. Our new fair value range is SEK0.0 (0) to SEK5.4 (9.7), with a Base Case of SEK2.6 (3.3) per share.