Income statement

The sales for Q1 came in at SEK9.4m (SEK13.0m), 43% under our sales estimate of SEK16.6m. The declining sales compared to Q1 2023 are attributed to low partner orders. Enzymatica has had problems with partner sales since last year. The plan is to find a new partner in existing markets or in new markets. We argue this will be highly important in terms of future sales growth. However, sales in the company’s own markets grew during the quarter, for example, 21% in Sweden compared to last year’s Q1. As the sales mainly came from Enzymatica’s own markets, the gross margin was solid at 69% (61%) compared to our estimate of 61%.

Moreover, operating expenses amounted to SEK-24.9m (SEK-22.3m) compared to our estimate of SEK-22.5m. The operating expenses were mainly selling expenses and administrative expenses. The selling expenses were a bit higher than anticipated (SEK2.7m); other than that, the individual line items aligned with our expectations. Lastly, EBIT came in at SEK-18.4m compared to our estimate of SEK-12.4m, where the main difference is because of the lower sales.

Cash position

The cash flow from operating activities was SEK-7.3m (SEK-12.1m), and by the end of the quarter, the cash and cash equivalents amounted to SEK26.9m (plus SEK0.1m in unutilized credit facilities). In February, Enzymatica carried out a fully secured rights issue of SEK27.4m (before issue-related costs of SEK1.9m) with a subscription period between February 28, 2024, and March 13, 2024. We had already included a rights issue in our model (SEK30m). Therefore, we were not surprised by the announcement, and the dilution effect was already included in our valuation of Enzymatica.

We argue there is a scenario where the current cash position will not be sufficient to cover the company’s business activities throughout 2024. Therefore, we highlight the importance of increasing partner sales during the rest of the year. However, we do not currently include a further capital injection into our model, as we would like to get a better picture of future partnerships.

Our overall thought of the report and CEO message

Overall, the report did not live up to our expectations, as we had expected some partner sales during Q1. The CEO message gave mixed feelings as the CEO is not satisfied with the disclosed sales; however, he is positive towards the future and believes Enzymatica will take important steps during the year. The MDR certification is an essential milestone for the company and will be important in talks with potential partners and new marketing activities.

Rights issue

In February, Enzymatica announced it had decided to carry out a rights issue of SEK27.4m, with preferential rights for existing shareholders. The rights issue aimed to secure the working capital needed for the operations and expansion in existing and new markets. Under the rights issue terms, one existing share in Enzymatica carried one subscription right, while 18 subscription rights entitled the holder to subscribe to one new share at the price of SEK3.0 per share. We also learned that the rights issue has been fully secured by the company’s three largest shareholders, the chairman, two members of the board, and Enzymatica’s CEO.

The subscription period ran between February 28, 2024, and March 13, 2024. The share capital increased by SEK365,015 and the number of shares by 9,125,380, from 164,256,840 to 173,382,220, representing a dilution of approximately 5.6%.

In March, we learned that the rights issue was subscribed by 72.7% with subscription rights and 7.9% without subscription rights. However, as mentioned, the remaining part of the rights issue was subscribed for through guarantee commitments by the company’s three largest owners through fully or partly owned companies, as well as the chairman of the board and the CEO.

MDR certification

Enzymatica announced that it has received an MDR certification for its mouth spray, ColdZyme, which treats and relieves cold and flu-like symptoms. MDR replaces the previous EU regulation MDD and demands stricter clinical evidence, safety design, and market surveillance requirements.

ColdZyme is now one of the first flu- and cold products to be certified under the new regulation. In our view, the certification did not come as a surprise; however, it is an important and essential milestone for Enzymatica. The new certification validates ColdZyme, which is positive from a commercial perspective, as ColdZyme’s benefits and efficacy can be more clearly communicated to customers. It is also positive in conversations with partners in current and future markets.

The Enzymatica share is down c15% during 2024 and up c35% during the last 12 months. The share has been relatively volatile during the last year, with ups and downs, fluctuating between SEK2-4. We believe that the sales during 2023 did not live up to the market’s expectations, and as the partnership with STADA has had a negative development, the uncertainties of future European sales have increased. However, on the other side, sales in Sweden grew steadily during 2023 and Q1 2024. Moreover, the market reacted positively to the MDR certification and clinical study results that were published during the autumn of 2023, study results that we believe will be important for marketing and partnerships for the company.

Moreover, we argue that 2024 is a year where Enzymatica needs to prove sales growth. The past years have not lived up to the market’s expectations, and we believe rising sales could be the major trigger for the share during the year.

As the sales during the quarter did not live up to our expectations and there are still issues with partner sales, we have chosen to decrease our sales estimates for 2024e-2026e. Firstly, Q1 2024 sales came in SEK7.1m lower than anticipated, and we decrease our estimates between Q2-Q4 by SEK9.8m, now expecting FY 2024e sales of SEK65.9m. We still expect partner sales to rise during the year's second half, which will be crucial for the current cash position to be sufficient throughout the year. However, note that a potential new partnership could lead to an upfront payment. In that scenario, the company’s financial situation would be strengthened, decreasing the risk of capital raising. Furthermore, we decrease our 2025e-2026e sales estimates by around 20% due to uncertain partner sales.

Historically, the second quarter has been Enzymatica’s weakest quarter in terms of sales. However, this is no surprise as the company’s sales of ColdZyme are highly affected by the flu season. We do not believe this year’s Q2 will differ and estimate sales of SEK8.6m. Moreover, we expect OPEX to be fairly aligned with Q1 (OPEX estimate in Q2 of SEK-17.3m) except for selling expenses, which are related to sales activities. Furthermore, we anticipate an EBIT for Q2 2024e of SEK-11.7m.

As mentioned, we decrease our sales estimates between 2024e-2026e. As a result, our fair value range based on our DCF model (2024e-2036e) is updated. We now have a base case of SEK5.5 (6.0), a bull case of 12.5(13.0), and an untouched bear case of SEK1.5. In our base case, we expect the company to become profitable in 2026e, reaching an EBIT margin of 17% where the sales growth is based on traction in major markets such as USA and China. Moreover, we apply a terminal growth rate of 2% and a terminal EBIT margin of 25%. The Enzymatica share is currently traded between our bear and base case. We argue that the main trigger throughout 2024 will be rising partner sales, where upcoming quarterly reports could decrease the valuation gap to our base case.

In addition to our DCF valuation, we offer a peer group analysis that compares Enzymatica with other medtech companies in the Nordic region with similar enterprise values. We consider EV/Sales the best measurement, as Enzymatica is not currently profitable.

When comparing Enzymatica to other medtech companies, we can observe that the Enzymatica share currently trades at 11.1x times its 2023 sales and 8.5x its 2024e sales. As can be observed, Enzymatica is currently valued a bit higher than its selected peers, especially the EV/Sales multiple for 2024e. We highlight two things from the peer valuation. Firstly, one should notice the difference between Enzymatica and the selected peers. Secondly, life sciences companies’ valuations have generally decreased significantly during the last year; however, Enzymatica’s valuation has been relatively stable. This indicates that the market currently has high expectations of the company.