On May 31, 2023 Selvita S.A. [WSE: SLV], one of the largest contract research organization companies in Europe, reported its financial report for Q1 2023 (Press release, Selvita, MAY 31, 2023, View Source [SID1234632289]). The Group is growing despite the demanding market, taking on numerous actions to strengthen sales and optimize the business.

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

In Q1 2023, Selvita Group (excl. Ardigen) generated EUR 19.5 million in revenues, up by 9% y/y. The EBITDA profit in this period reached EUR 4.1 million, which translates into a margin of 20.8%. Thus, the Group has generated better results than the estimates published in March (revenues in the range of 4-7%, EBITDA margin in the range of 19-21%).
As previously announced, the Company is undertaking numerous business development activities, focusing on markets and clients with the largest potential and research budgets. Since the beginning of 2023, Selvita has been gradually strengthening its sales forces in the United States and Europe.
The Company opened its new Selvita Research Centre in Kraków. The new location will provide a workplace for approximately 250 scientists, thus significantly increasing Selvita’ capabilities to provide the highest quality services in the area of drug discovery. The investment is a significant milestone in the Company’s development and creates a foundation for further organic growth of the Company.
Selvita’s backlog for 2023 amounts to EUR 51.7 million (as of May 28, 2023) and is 2% higher than the value reported a year earlier (as of May 24, 2022). The Company observes increased caution among its clients, resulting in the orders being concluded for shorter periods, which has a significant impact on the presented backlog in the first half of the year.
The company continues to implement numerous optimizations and enforce its savings policy, which should have a positive impact on margins both in 2023 and in the longer term.
We are very glad that the first quarter turned out to be better than expected. We continue focusing on activities aimed at increasing the revenue base, while paying great attention to our expenses. Our priority remains to return to the revenue dynamics and margins levels to which our investors have become accustomed. We have a strong scientific team on board and infrastructure to support further development, – comments Bogusław Sieczkowski, co-founder and Chief Executive Officer at Selvita.
The market we operate in remains demanding, however, as already announced, we expect an increase in contracting dynamics in the second half of the year. Industry reports indicate that both pharma and biotech companies have high cash reserves and, statistically, increasing amount of research work is outsourced to subcontractors. However, there are many indications that due to the slowdown in financing the sector, they are more careful with their budgets, – comments Dr. Milosz Gruca, Executive Vice President, and Chief Commercial Officer at Selvita.
While in the pandemic years – 2020-2021 – financing of the global biopharmaceutical sector more than doubled, in 2022 it returned to the levels from 2019. Most of the capital dedicated to the drug discovery and development (over 70%) went to companies on the U.S. market. In Europe, the British market stands out positively. Selvita is very active on both of these markets, taking advantage of the local sales offices in the largest biotechnology hubs.

We have intensified sales activities and strengthened the BD team, acquiring several experienced specialists operating in the most promising markets – in particular in the United States. We strongly focus on Big Pharma companies. At the same time, in the coming quarters, we expect the extension of numerous orders which some customers contracted exceptionally for a shorter than usual period, – adds Dr. Gruca.
FINANCIAL RESULTS AND MARKET ENVIRONMENT

In 2023 the cost base will be higher than in 2022, mainly due to the increase in employment in 2022 and the costs related to the launch of the new building. Despite the pressure on margins, we maintain a very good financial position and low debt ratios. We focus on increasing revenues and optimizations that will have a positive impact on Selvita’s finances in both the short and long term, – adds Dariusz Kurdas, Chief Financial Officer at Selvita.
In Q1 2023, Selvita generated EUR 18.9 million in revenues from commercial services, up by 9% y/y and more than the preliminary estimates of 4-7% as published in March.

Drug discovery services provided by Selvita generated EUR 15.5 million (an increase of 5% y/y) and accounted for 82% of revenues from commercial services provided by the Company. Services provided in the area of regulatory research accounted for the remaining part of commercial revenues and amounted to EUR 3.4 million (up 29% y/y).

The EBITDA profit in Q1 2023 amounted to EUR 4.1 million compared to EUR 5.4 million a year earlier. The EBITDA margin reached 20.8%, i.e. in the upper range of the 19-21% estimations made by the Company in March.

There are many indications that in 2023 the dynamics of contracting between quarters will be different than usual. Selvita’s backlog for 2023 amounts to EUR 51.7 million (as of May 28, 2023) and is 2% higher than the value reported a year earlier (as of May 24, 2022), despite the demanding market and high base. The company expects contracting to accelerate in the second half of the year.

*The results do not include non-cash costs of the non-dilutive incentive program for employees. Backlog as of May 28, 2023.