EQL Pharma AB (publ) (EQL) Earnings Call Transcript & Summary

So it's 10 sharp. Good morning, everybody, and welcome 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. So if we go into the quarterly overview, as expected and as previously communicated, the sales was weak. There was no sales growth in the quarter. We'll come in more to the underlying reasons in a couple of slides. The gross margin, of course, very weak given this big scrapping item of SEK 20 million. So gross margin of only 17% after that scrapping. We had 43% last year. So it's, of course, a significant decrease. The gross margin was 35%, excluding this scrapping. OpEx was $31.5 million. So it's also an increase towards last year as expected. So of course, a terrible EBITDA margin due to the scrapping items and, of course, the weaker underlying business in the quarter. So 12% EBITDA, excluding the one-offs. CapEx around SEK 60 million, so significantly less than in the same quarter last year. We keep our growth outlook for the year to around 15%, which then, of course, insinuates that we have a more optimistic view about the rest of the year, and I will come into that later. I want to also stress the leverage number. I mean, of course, the leverage number mathematically becomes very high when we have these one-offs and an underlying weaker EBITDA. That does not insinuate that we will not be in a position to honor our bond obligations or anything like this. That is more related to the underlying cash flow. But of course, we want to get this number down, and we're going to do that with a focus, of course, on curing our EBITDA going forward. If we look a bit on business development, a couple of developments during the quarter. If we start with Mellozzan, we got the approval for one of the strengths in Kazakhstan, which is very exciting, of course. We are in the really final launch preparation stages in Turkey, and we are in launch preparation in Italy, 2 very interesting markets, of course. We see that our partner, Medice for Germany and the other DACH countries and U.K., they are growing their sales still very nicely, especially in Germany. And we still have the procedures ongoing in GCC, the Gulf countries. For Memprex, there was also some development during the quarter. So we added Spain as a new territory. We're very happy about that because it's obviously one of the Europe big 5 markets, where we also have a quicker regulatory route to approval. So we can have actually approval already in the next fiscal year, which would be very nice. We launched Memprex in Germany in the quarter together with our partner, Dr. Pfleger, which was one of the milestones for the year. So we're happy about that. We are in final launch preparation stages in both France and Israel. The Benelux procedure had some progress. So we have received what is called end of procedure in Benelux, and then we're only waiting for the final national approvals. And we also have the procedure ongoing in Ireland. Regarding pipeline, we added 3 new products in the quarter, and we removed 1. And we also launched 2 products in the quarter to like typically EQL niche generics, which takes the portfolio to 49 products and the pipeline to 44. These 3 new products that were added, all of them have potential both in Nordics and in Germany and in some cases, actually also Netherlands. So this is a mindset shift we're trying to adapt when finding new products now that we are working also with Germany and Netherlands. Operations-wise, of course, our main focus is to address and resolve the root causes that have put us in this tough period that we are currently in. I will come back to that later. And then, of course, we are, as I have alluded to before, we are really now trying to roll out AI in the company, and we see quite nice potential with that. So we'll focus a lot on AI during the autumn here. If we start diving a little bit into the scrapping items, so I will try to dissect and explain what that comes from. It's, of course, a very disappointing event. So the scrapping item in the quarter was SEK 20 million scrapping, and that is mainly connected to hospital products. The root cause for the scrapping is that we, as EQL, we have planned our supply for hospital tenders in accordance with forecasts that we get from the tender regions. And I mean, we have -- the hospital segment is relatively new to us. So the reason why we're doing this is that we really want to gain a reputation as a reliable and stable supplier in the hospital segment. Then in some cases -- and this mainly happened for Finnish tender regions. In effect, they called off far less volumes than they indicated in the tender contract. So leading to that we had purchased too much stock and hence, having to scrap. So I mean, it is a relatively new business unit, as I said. We still fundamentally believe that it is a healthy business, but that we need to make several adjustments and improvements to the way we manage it, especially in regards to sales and operations planning. So working differently with demand plans, differently with supply plans and differently with the sales and operations planning, which is the forum where you really tie the demand and supply plan together. And we have, of course, tried as well as we could to offset this by selling in other channels. But apparently, we were not able to mitigate the scrapping in full. If we look at the quarter, excluding the scrapping, so just trying to understand the quarter, I mean, it was a weak quarter. Many of the stock-outs that we hoped were going to get resolved during our Q4 were not resolved during our Q4. So we went into Q1 with a weaker inventory situation than we had hoped, and that is what is reflected basically in the quarter. The excluding scrapping gross margin of 35%, I think, I mean, it is representative for the quarter. It's very weak, and it mainly stems from continued stock-outs in the quarter. Same thing for the EBITDA margin. So I mean, given far less gross margin than where we should be performing and an OpEx that is higher than previous year, EBITDA becomes weaker also. If we switch now a little bit to looking at the rest of the year here, I would like to offer a little bit more detail and granularity than we normally do here because we are in a challenging period. So we are keeping the sales outlook for the year around 15%. And the reason why we are doing that despite a weak first quarter is that the inventory situation now going into Q2 and Q3 looks significantly better than when we went into Q4 and Q1. So as things stand right now, we actually expect a fairly good Q2 here. And if the improvement work continues well, also a good Q3. And I realize that, that might sound a little bit counterintuitive after just having presented such a weak Q1, but that is what we are seeing here in the inventory levels. So let's say, since this tough period started, we have averaged, let's say, 5 to 7 products stock out. And now when we're going into Q2, we are seeing more 1, 2-ish stock-outs. So it is not a situation that is fully resolved yet, but it is still a significant improvement. On top of that, we have the Memprex and Mellozzan are becoming increasingly important to us. The order book here for the autumn and the rest of the year looks fairly strong. Actually, on Memprex even stronger than what we can fully deliver. So we are working very hard to try to get the API volume for the manufacturing and to try to debottleneck that. Then also, of course, we have gradually here new launches in new countries for these products. So we're optimistic about this segment. When it comes to launches, this is an area where we are still struggling. And I want to deep dive into that a little bit because historically, we have been, I would say, I'm satisfied with how we have handled launches historically with, let's say, 7, 8 up to 12, 13 launches per year. So the reason we're struggling in the launches right now is that the products that are currently in the launch phase, most of them are the last of the developmental products that we signed with Cadila already in 2015, '16. These are technically more difficult products, and that is also the reason why they have taken longer to develop, and it's also the reason why they are more difficult to launch, and it's more difficult to have a reliable launch time line because we're running into challenges with these products. We are going to launch them, of course. If we look at the pipeline a little bit more holistically, we see that our current assessment is that these launch challenges are temporary. So we see in the pipeline for future launches a lot more -- far, far less technically complex products. So this is a phase that we have to work through. Even though we see the launch challenges as temporary and mainly depending on the technical difficulty of the product, it has shed light on a lot of improvements that we want to make. So we are focusing a lot on our launch process and significantly upgrading that. Also, so we had the one-off items here in Q4 regarding Abiraterone, especially that we had scrapping in Q1. So I mean, these things, nobody likes these items, of course. So we will -- I mean, we, of course, always review our balance sheet, but we will make that a little bit more thoroughly even than usual to try to take a really forward-looking perspective here and see if we shall make provisions during the autumn for risks, let's say, in the coming even 24 months period so that we avoid all these negative surprises. We will also start making continuous provisions, accruals for potential scrapping that could come in the future so that if we look -- it will be, let's say, much more even going forward. Of course, we had a significantly weaker start to this 5-year period than what we are used to. And EQL's process is that once yearly, we do a strategy work, we call it, and then we go through what the figures look like 5 years, 10 years into the future, given the pipeline and the portfolio and so on. And we will do that as we always do in the autumn. And if we see that this tough period that we are going through now has -- will have some implications structurally on our ability to deliver on the targets that we have set for this 5-year period, we will, of course, communicate that. So that is a work that will be ongoing. And it will, of course, mainly depend on the health of the pipeline. If the health of the pipeline is good or intact, our abilities to deliver on the targets will remain intact. if the health of that pipeline has somehow shifted as a result of what we are going through, we might have to alter those targets. But we will come back with that during the autumn and what our assessment is. I want to come back to this one. So I have presented it previously here, showing the key commercial milestones to happen here for us to actually be able to deliver this around 15% growth in this year and also to be in a really good shape for next year. So we have, of course, the recovery in the pharmacy segment. And that is, I mean, mainly driven by getting the inventory back in control so that we suffer less stock out and also, of course, in the longer run to perform the new launches. The inventory looks far better now, but it's too early to sort of weigh the danger over flag here. I want to monitor that very, very closely and of course, see it materializing a couple of quarters before we can sort of declare that the recovery has happened. Secondly, branded. And there, we have a couple of key things in this year. Memprex launch in France, Germany and Israel. Germany is already now carried out. So I have marked it green here. Mellozzan growth in Germany and U.K. It was very good in the first quarter, but remains to be seen here over the coming couple of quarters if the growth continues. We have the debottlenecking and the COGS improvement regarding both Memprex and Mellozzan, which are ongoing. The effect will come in the next year, but it's very, very important work streams for us. Then we want to be launch ready here in Italy, GCC, Benelux, Turkey, Ireland and Kazakhstan. And in Turkey, we are actually already launch ready. So that one is green marked here. And I will come back to this slide so that you can also, as shareholders, follow the progress of the comeback work here. Then, of course, growth and recovery in hospital and launching our first special generics products. And that is still our intention to do that in this fiscal year. Looking at sort of the same the same topic, but from a little bit of a different perspective, I want to share with you a little bit how we are thinking in the management team and what we are focusing on and how we are trying to change our approach to really sort of address the structural issues here. So I mean, what I think from a more operational standpoint here, what is really, really key when you are going through a tough period like this, especially we're coming from a long period of good growth and ability to solve things and then we're moving into a period which is much tougher. I think it's very, very important to try to stay objective, non-defensive, to stay curious and to really try to identify and resolve root causes of issues. And this is what we are doing. So during the spring here, we have performed a diagnosis, and we have identified root causes, things we want to fix in our company to be able to one, resolve the problems we have; two, prepare for the next growth phase. So these root causes that we have identified, I have talked about them before around demand planning, supply planning, these kind of things, which we want to upgrade are structured into separate work streams for a solution. And we will really, really try to stay focused on the structural problem solving here. So getting rid of a problem once and for all so that the growth journey can continue. Of course, it's important that we always follow up and that we test our solutions. So I mean one way to test the solution is to come up with an upgrade of a process and then pressure test that upgrade by taking an old problem we have had and run it through that as a pilot test and see will this new solution have captured that problem. This is the mindset we will try to have. And of course, also try to embed continuous improvement into the work that we are doing so that it's -- so that it's not something that is done on occasion, but it's done continuously. And the target of all this, of course, is for it to be an enabler for the next growth phase of the company. This picture coming back to here. So you're seeing the blue line, externally communicated target up until '24, '25. Here, we have been good at reaching what we have promised externally, then we are in a tougher period now. Things looking a little better for Q2 and Q3. But for me to really be able to declare danger over, I want to see a couple of good solid quarters that are good for the right reason. And I want to really see that these root causes we have identified are structurally resolved so that we have a couple of good quarters behind us, and we can, with confidence, guide for a much more ambitious growth in the period to come. Those things are the sort of the triggers for me to be able to declare danger over here, and we are not there yet. The portfolio, as we said, grew to 49 products and the pipeline 44 products. As you know, we have cleaned up here a little bit in the pipeline and added a bit of new products. We still aim to launch 7 more products, I think it is in this year. And then you can see the updated launch outlook in the picture below. Before we open up then for questions, I would like to make a sort of a summary from my perspective and from management's perspective of sort of where we are standing right now in relation to the sort of broader context. So I mean, the period 2017 to Q1 '25 was a period that I'm pretty happy with, pretty proud of. We managed to deliver really solid growth and a growing profitability. So that was good. Now in 2025 and '26, we are going through a much tougher period than we have done historically. This has related to supply issues that we have been unable to mitigate. It has come from technically more complex launches, leading to launch delays, which we are -- which we have not had that much in the past. And of course, the OpEx base is higher now. So these challenges will have impact also further down in the P&L. So I really want to say here that every tough period has a beginning, it also has an end, and this one will as well. We will resolve these operational matters, and we will emerge on the other side much, much stronger. That is our target. I also -- a reflection from my side, I mean, we are taking this very, very seriously, of course, focusing extremely much on resolving the things that we can impact as EQL. On the other hand, I think that it is natural for a high-growth company to go into a sort of plateau phase and to get some kind of a growth pain. We have been growing -- during my years with the company, we've been growing from like SEK 25 million in revenue to well above SEK 400 million. And of course, now there is a complexity in the business that we didn't have a couple of years ago. And we have a couple of things we need to really work out to be able to handle that complexity in a better way. And the complexity will, of course, continue here as we grow. So we need to get better at that. With all the information that we have right now, it's too early to say danger over, absolutely. But as it looks right now, this Q1 that we just presented, will have been the low watermark of the tough period. It looks a bit stronger here ahead. But again, we need to see that, that is actually structural, not just something here for 2 quarters to come, but that's something that's really embedded and structural. And we'll, of course, come back more to that. That was everything I wanted to share with you. I will stop sharing, and I'm sure there are questions. Let me see here. I need to open the chat.

Okay. So we start with the questions here in the chat. So a couple of questions here from [ Austin ] . "Any risk of further inventory write-downs", Austin asks. So as I said previously, what we want to do now is to really make not only a short-term outlook, but really a longer-term outlook on if we're seeing any more scrapping risks. And we have completed the sort of 24-month outlook. There is a little bit of scrapping risk in the coming 24 months, but it's far -- the figures are far, far smaller than the ones we saw now and a lot of it might still be mitigatable. So yes, we have a little risk of further inventory write-downs, but much more marginal to the ones that we have seen here. Second question from Austin. "What will you do if you see that you are getting close to cash covenant on the bond?" Yes. So let me be very, very clear on that one. We have no intention of breaking the bond covenant. And based on everything we are seeing right now, we will not do that. I have seen a couple of external outlooks on our liquidity and so on. And I can understand that it's different if you do it externally than if you do it internally. But with what we are seeing with our mitigation measures and the cash flow we're seeing here, we do not intend to hit that covenant. Then we have a couple of questions here. They are not from [ Allan ] actually. They are from Rasmus, who posted them before. You wanted us to bring them up in the call, so we will do so. "At Q1's cash burn rate, you have roughly 2 to 3 quarters of runway. At what cash level would you consider an equity issue due to bond covenants or otherwise?" Yes. So that is, I mean, partly connected to Austin's question here. So we do not plan to hit the covenant and thus do not see the new issue scenario with the information we have available at this point. Our ambition and our plan is to handle our -- and take responsibility of our liquidity. Longer term, since you're now only signing products with back-end loaded rights payments to preserve cash, how does that affect the '28, '29 and the '29, '30 launch cohorts compared with what was assumed when the current 5-year plan was launched? Yes. I think that is a good question, and we are thinking about that also. So the new signing CapEx that we are spending in the year of 2026, most of it will not have any impact in the current 5-year period due to the business cycles. Of course, 1 or 2 fast licensing products might. Also, we aim to have this period of a little bit more CapEx caution. We aim, of course, to have that period as short as possible. And there are still opportunities for us. Remember, we did sign 3 products in this quarter, and they are good products. where we're really looking to have them passed to the market with limited CapEx impact. But of course, as Rasmus states here, if a period where we cannot sign new product is extended for a longer period of time, of course, that would risk to impact the [ long ] growth perspectives of the company, but we do not intend for that scenario. "Considering liquidity, how much CapEx is needed to still deliver 7 launches this year?" So for the 7 remaining launches this year, the CapEx has already been taken. So there is basically no CapEx left for that to happen. It's more related to technical matters in the final stages of the launch. However, I mean, we do have a remaining CapEx spend this year, which is more related to the broader portfolio, which we are, of course, looking at. The best for us would be if we can keep all projects ongoing according to plan. But if we have to slow 1 or 2 projects down in order to manage our liquidity in the short run, we will do that. And then we will do that, of course, with a commercial focus. But ambition is to full speed ahead here in the pipeline. "How large is the remaining inventory carrying value exposed to the same call of risk?" Yes. So it's basically the same question like from [ Oyvind ]. So we have done an analysis in the coming 24 months, and we see some risk in the coming 24 months, which is normal. There is always scrapping in a business like this. Our target is to have scrapping more at, let's say, 1%, 1.5% of sales, which we, of course, have not reached this year. And I believe that shall also be possible to do. The scrapping risk that we are seeing in the coming 24 months is far, far, far less than what has materialized here in the quarter. "15% for the full year requires roughly plus 20% across Q2, Q4 from a flat Q1. What has to be true for that?" And what point do you revise rather than reiterate? So yes, I realize that it is a bit of a power statement from us here to keep the forecast as it is. So basically, what needs to be true for that to materialize is that the comeback that we are seeing in the inventory levels and the stock-outs continues. Of course, new launches will help, but already getting our base portfolio back on track will get us very far. So that's a big focus. Those were the questions from Rasmus. We move on to questions from Jonathan here. "Looking at the inventory today, do you feel comfortable with the book values as of today? Or is there more scrapping risk going forward?" Yes. So I think that connects also to -- and I can understand why these questions come up. They connect to Oyvind and Rasmus's question as well. So forward-looking scrapping risk is far less here in the orders of magnitude. And we will assess it here in the autumn and might also make provisions for it in order to, let's say, have more stable quarters going forward and to have the fair value of the balance sheet truly reflected. "And given the new way of accruing some inventory scrapping, how much do you believe that you affect your gross margins going forward?" So I mean, when we're looking at similar businesses like EQL, a typical, let's say, run rate scrapping figure is between 1% and 2%, certain years worse, certain years better, of course. So -- and I still fundamentally believe that if we do this comeback work in a really good way now and really dare to see our root causes and have the persistence to really solve them that, that is something what could be representative for EQL in the long run also. So something around 1.5% of sales, I would say. "You have previously talked about Memprex and Mellozzan API being very important in its gross margins. Can you give us any kind of update on how that is going? And if you believe there could be any kind of risks in the pipeline here?" Yes. So let's start with Memprex, and that is the product where our current API is too expensive in our opinion and the production capacity of it is too low to meet our demand. So we are doing a project there to change the API source. And if we are successful with that, we will have a debottlenecking, meaning that we can fulfill all the customer demand. More importantly, we will have a quantum leap in the gross margin of that product. The status of that project right now is that the validation batches with the new API are on stability, and we need 3 months of stability data before we can do the submission. I hope we will have the 3 months of stability data late August or early September. After you take the sample, it takes roughly 1 month to do the analysis. So there is a little bit of a lag. If that time plan holds, we will be able to do the submission in September, October and have the new API approved early next year. If we have it approved early next year, it means that with a purchase order lead time of about 6 months, somewhere mid next year, we would be able to switch deliveries to customers to the new API, and that will be a significant success for us. On Mellozzan, it is another matter. In Mellozzan, we have a factory right now, a supplier right now that we don't think is optimal for this product, where the COGS is too high and the supply campaigns are not optimal to us. So there, we are looking into -- or we are in the process of switching factory, and that will happen here during the year. And that will also bring down COGS in a very nice way on Mellozzan. Next question. "I get that the Q2 will be good given the comparables we see. But what is needed for you to believe that the Q3 will be great? Is it the pipeline logistics or what is needed? Okay. So let me just comment the Q2. We believe that Q2 will be a good quarter, not only in comparison with the disastrous Q2 we had last year, but that it will actually be a good quarter. So let me be very clear with that. Next, regarding Q3, I don't remember that I have said that Q3 will be great anywhere. Jonathan says here, but that would be fantastic if it will be great. I see that Q3 can become good or strong. And basically for that to happen, what we need is that this comeback that what we have seen now on inventory going from 5, 6 stockouts to 1, 2 stockouts that, that continues and is actually structural and not only something temporary. That is the first thing that needs to happen. And secondly, what needs to happen is that the production and the supply of especially Memprex is good. We have a very good order book for Memprex and Mellozzan in the autumn. So it's up to us to actually deliver on that. "You write in the report that you have faced headwinds in securing approvals. Given that the launches are backloaded this year, do you feel comfortable that they will end up in this year? Or could this be moved further going forward?" It is a difficult question because of the technically more difficult nature of the launches we're having this year. How it looks right now, our aim is to launch 7 more products this year, several of them right now in Q4. I hope that, that will be possible. But having seen delays before, there can, of course, be more delays, but our target is 100% to get them out this year. And we have a new question from Austin here. "With what you now know, how do you assess the risk of an equity issue? Do you have the levels you need to avoid this?" Yes. So we have no intention at all of doing an equity issue due to a liquidity situation. We have -- when we are looking on our liquidity, I'd say there are 4 or 5 main inputs to liquidity. First of all, it is the underlying cash flow from the operations. Then we have the OpEx, then we have the CapEx and we have the inventory purchase. And if we're looking at this, CapEx and inventory are 2 main, main, main drivers where you can achieve a little bit of effect with working with those levers. So that will be sort of our starting point. Of course, if the, let's say, comeback we're seeing a little bit here in Q2, if that is structural, I don't know if it's structural yet, but if it is structural, it also means we will have a stronger cash contribution from the running business here. One more question from Austin. "With the supply chain disruptions that you are currently experiencing, are there any risk of a permanent loss of revenue, i.e., that customer doesn't want to deal with EQL anymore because of your recent track record with delivery issues?" So in our pharma -- if we take the different channels, so in our pharmacy channels, it's more of a tendering system. So in a way, there is no end customer in the traditional sense. So it's more so that if we cannot sell, it means some of our competitor sells more volume. In the hospital channel, of course, we have a customer. There, our problem has rather been, I would say, over delivery than under delivery. So I don't see a risk there. Then if we have Mellozzan and Memprex, there we really have a customer at the end of the day. We are working very closely with our customers to ensure that they don't stock out as a result of the bottleneck, especially on Memprex. And so far, that is going well. We have not seen any significant stockouts, and we have a very good collaboration with our customers, and we are very transparent to them as well. We also do very active allocation of volume to make sure that no single customer stocks up too much while somebody else is out of stock. So right now, I have no indication that we are going to lose customers or have any permanent impact on sales. A couple of questions from Christoffer. "How is the switch to the new Memprex API progressing? Does it feel like everything is going according to plan?" I feel I've already answered that question. So, so far, everything is going according to plan, and I hope it will go according to plan. "Once the new Memprex API is approved further down the line, are there any further major critical steps before you will know that supplying Memprex at a lower cost is achievable? Or are the steps you are on now and the approval itself, the most critical ones?" Yes, the steps we are on right now, we're getting the stability data and actually getting the approval. They are the most critical ones. Then, of course, before we can finally shout hurrah, we need to see it actually happening, but that has a far less probability of being delayed. "Memprex is showing a fantastic growth in the U.K., in line with the overall market. Do you feel the U.K. market could already be even larger today if delivery capacity, both yours and your competitors were higher? Or is it primarily demand that is setting the ceiling?" It's primarily demand in the U.K. So we have back orders to our customer in U.K., meaning we have not been able to deliver everything they want, but they still have inventory levels. So we're in very tight dialogue with them. So we have not lost any sales in the U.K. due to stock outs. Final question from Christoffer. "Could you talk a little about the Memprex launches in Germany and France? Has anything deviated positively or negatively since the last report? For instance, the price in Germany looks to be fairly high. Is that right?" Okay. So if we start with the German case, we have launched now and the sales has only been ongoing for a very, very short time. So I will be careful with -- I need to see more data before we can see how it's going. But the initial reports from Dr. Pfleger are good. Pricing also seems to be on a good level, like you state here. Memprex launch in France, yes, is ongoing. I had actually hoped to have launched it already by now, but we're really, really in the final stages of launching there. That will also eventually be a price matter. Of course, that always depends on what authorities judge as a fair comparator. And most authorities want to compare us to antibiotics, whereas we do not want to be compared to antibiotics because we think that we create a higher health economic value by not being an antibiotic. So let me come back to that, Christoffer, and everyone after we have seen a little bit more months of sales here and getting first feedback in the market. Then we have a question from Tristan Neilson. I will translate that to English if we have -- I think we have some non-Swedish speaker. "How does EQL view the Middle East situation and the effects on the freight cost? Has the situation improved since Q4?" Yes. So this is -- we have tried to quantify here historically, but it's very difficult. To me, the situation is better than when it was at its worst, but it's worse than what it was before this Middle Eastern situation started, if that makes sense. So what we are seeing now is that it's a little easier to get the containers, seeing the container freight rates and also air freight rates going down a bit, but of course, not fully in our hands. So a slight improvement sequentially, but still more challenging than historically is the short answer. Then a question from another Tristan, I suppose. "Without the scrapping GM would have been 35%. Why so low?" And that is because in the quarter, we still had, let's say, 5, 6 stockouts that we suffered from of important products. So that is the reason why it's so low. We don't see these stockouts going into Q2. So definitely, our assessment that GM will be on a more representative level in Q2, but that's the reason. "When do you realistically think you will be back to the 40% or 40-plus percent GM." Yes, this is a very difficult question for me to answer. We might very well have a fairly good Q2 and Q3 here. But for me, what is most important is that the quarters are good for the right reasons. And in this case, that they are good because we have structurally solved our issues. And I need to see that happening before I can really answer that. My estimate would be that we're going to be busy doing this structural problem solving for the next 6 to 8 months, definitely. That doesn't mean that all quarters will be weak until that is solved. We can very well see good quarters here. But I want to see the quarters being good for the right reasons. More questions from Norway here. Oystein. "Do you still have untapped [ check ] credits and factoring that you can use to boost the cash position if you're getting close to the cash covenant on the bond?" Yes, we have. I wrote it in my CEO word, I think the unused credit facility is SEK 26 million or SEK 27 million right now. So we definitely have access to that if we would need it. Next question from Oystein. "Do you have potential to free up cash by reducing your inventory?" Yes. Yes, we have. This is why -- this is what I mentioned before that inventory and CapEx are our major levers when it comes to the liquidity. Next question. It seems like Allan will get to make his debut here. Allan, it would be interesting to hear your thoughts being at EQL for about 6 months now. "What kind of work have you focused on starting at EQL? And what kind of work do you think is needed to be done going forward?" So I hand over to you, Allan.

Thank you. Let me cover that. So it's actually 4 months as we speak. And let me take this opportunity just to shortly introduce my background. So we have that also. So I have 14 years with stock-listed companies, mainly larger ones, Danish food ingredients, Chr. Hansen and the French luxury goods provider, LVMH. But the past 5 years have spent with private equity, focusing on optimizing scale-up companies. And what we see here in EQL is much same as I've seen in my last 5 years is that you see companies with a very large growth trajectory and excellent performance that Axel and the team has done, but then you reach a certain plateau where you need to fundamentally optimize your structures, your organization, your processes, your systems. Fixing each problem at a time can take it to a certain level, but you reach a point where you need to structurally and fundamentally resolve the issues when they appear. And that I think is the stage where we are at right now, and that is exactly what we are focusing on, and we will resolve over the coming period of time.

Thank you very much, Allan. Very wise words. And I mean, from my perspective, I'm extremely grateful that Allan has decided to join our team. We are already doing -- it's only been a few months. We're already doing really good work together. You're also going to see and hear more of Allan in Investor Relations context here going forward as soon as he is fully onboarded and into all the details in the company. But as you probably noticed, just hearing him reflecting for a few minutes, he's a very high-caliber guy here and a very, very nice addition to our team. Next question from Andreas. "Any update on the EBM investigation?" So EBM means [Foreign Language], so the Swedish authority for financial crime. Yes. So let me comment on that one as well. As most of you probably know, one of our existing colleagues and one former colleague of ours and potentially close family member to that former colleague are under suspicion for insider trading in the EQL share. And the existing colleague -- and one -- our existing colleague was also actually arrested for a couple of days on that. So I mean, it's, of course, a very serious thing ongoing. I think reflecting on it a bit more openly, I mean, what happened prior to our profit warning in September was a bit strange. A lot of people noticed it, and I welcome that authorities are looking into it. We cooperate with the authorities. And we hope and think that there's going to be a resolution here. If crimes have been committed, I have confidence that they will -- that they will discover that, definitely. There is no update, however, it's ongoing investigation. And yes, I'm not able to comment more than I've done now. So we will come back when we have more information. Then a question from Victor. "You've noted that the final Cadila partner products are facing technical hurdles in the launch phase. Beyond the stated analytical method transfers, are you also encountering formulation stability or scale-up issues as you transition from clinical to commercial batches? Given the complexity, how should we view gross margin profiles on these specific products and financial potential?" Yes. So analytical transfer method since [ Victor ] here is a person with the knowledge about the pharma development. So analytical method transfer, that is the method you use to analyze that the product is okay like it should be. That method needs to be transferred between labs and the more technically difficult the product is, the more difficult that is simply. And that is one of the things we are facing. We are also struggling with formulation stability. Like, for example, one technical complexity of a product could be that the API in the product is inherently an instable API. And also if you have that one in really, really small amounts like you do with D vitamins, for example. It's a more tricky job to get that product stable. So these are like the technical things we're trying to work out. Also, of course, like you mentioned, scaling it up from clinical or to, let's say, exhibit as we call it, exhibit batches to commercial batches. It's more challenging, the more difficult the product is. I wouldn't say that, that has any sort of automatic implication on gross margins and financial potential. It's more a matter of trying to avoid further delays. Johan here asks, "What financial covenants apply to the company debt?" So we have the covenant of that we need to have at least SEK 20 million in cash available, and that includes unutilized credit facility such as factoring. And then we also have a limit on the permitted debt. So I think we have a total permitted debt of SEK 125 million, something like that, which means that we can utilize the majority of that credit line. But we don't have any covenant like that is connected to the leverage number that you have on some bonds. So it's the cash position only. A question from Matthias. "OpEx increased by approximately 23% year-on-year to SEK 31.5 million in Q1. Previous communication indicated that the cost base is not expected to grow at double-digit rate during full year '26, '27. Do you still expect full year OpEx growth to remain in the single-digit growth?" Yes. So let's say, our ambition and what we committed to regarding OpEx growth really here going forward is that we -- year-on-year going forward in this 5-year plan shall not have OpEx increases larger than 10%. And I still believe that, that is possible in the current year that we are we are taking several measures here to manage our OpEx in a good way. But we will have to see. We will have to see how the year develops. Now I realize there is very little time left for verbal questions. A lot of questions this quarter. Is there anybody else who has questions they want to ask either verbally or through the chat? No, it doesn't seem like. If there are more questions, of course, me and Allan are available also after the call. So thank you very much for listening. I think we went through -- there were a lot of good questions. We went through a lot of the challenges we have right now and how we are seeing the situation at least improving in the short to mid-run here, but that we still have a lot of fundamental work before we can wave the Danger Over flag. So thank you very much for your attention. Bye-bye.