Good afternoon, and welcome to the Ondine Biomedical Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated on the right-hand corner of your screen. Just simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to start the following poll. I'd now like to hand you over to Nicolas G. Loebel. Good afternoon, sir.
Good afternoon. Thank you, Alessandro. Welcome to investors. This is Ondine Biomedical's mid-2023 update. We'll just spend 10 or 15 minutes going through our half year. Just to refresh for folks who have been part of the Ondine story prior, healthcare-associated infections represent the single most deadly and costly adverse event in hospitals, representing up to 26% of public hospital budgets. In the United States alone, that's a $35 billion excess cost in hospitals. These are the infections that occur when you present to an institution for care, but unfortunately receive a disease that was communicated either from your own microflora or from other patients, or the healthcare workers, or the environment itself. In the U.K., that amounts to a $2 billion cost alone.
We have developed a potent non-antibiotic solution that is a solution that does not induce resistance. It's extremely rapid. In five minutes, we eradicate the pathogens that can contribute to these hospital-acquired infections. These include bacteria, viruses, and fungi, and by doing so, we save the hospital money, we reduce the infection rates and the comorbidities, and in fact, the death rates related to these HAIs. Hospital capacities are increased, patients can be discharged earlier and more healthy, and the entire system improves. Well, over the past year, between 2022 and 2023, we accelerated our hospital footprint. We had indicated that we would come out of the COVID era after we had extensive use during COVID, by increasing our sales and marketing footprint extensively in Canada. And what we did was we did that and more.
Coming into 2022, we had five hospitals in British Columbia and our first in Ontario using Steriwave, the system as it's called in Canada, and we had 1 dedicated field salesperson for Canada and no one for anywhere else. The Ottawa Hospital presented earlier this year, showing exceptional results, and that was a very important element for us because it enabled us to see that, the system works in multiple tertiary care systems, very, very well. And in Q3, we brought on an experienced international business development sales head, Matt Ross, and in Q4, he then brought on specific healthcare distributors in the U.K. and Spain, and we received regulatory approval in Mexico, which represents a large opportunity for us. There are 4 million patients presenting in Mexico, just via medical tourism from the United States, for procedures which could benefit by nasal decolonization.
Last year and early this year, we laid the foundation for extended sales growth, including refining our sales process and how we speak to customers and patients. And remarkably, at the end of the year, we received a bonus as a tailwind from SHEA, which is the organization that establishes epidemiological principles in the U.S. SHEA has now made nasal decolonization essential for orthopedic and cardiothoracic surgeries. Not merely a good idea associated with reduction in infection, but causal and essential for orthopedic and cardiothoracic surgeries. These updated guidelines have really thrown the doors open into Canadian hospitals that previously were not using nasal decolonization, and we think will be a major catalyst for going forward elsewhere. Well, we're on track to achieve our 2023 deployments goal. Remember, we had just one new hospital deployment in 2022. This year, we have seven.
These are new hospital deployments. The three largest of BC's five health authorities are now using Steriwave in one or more of their hospitals. Expanded presence in Ontario, with the expansion to the Ottawa Hospital's Riverside Hospital facility, and Steriwave is now in hospitals in two new provinces. Those are the provinces of Alberta and Quebec. There are leading and world-class facilities using the system, such as the Mazankowski Alberta Heart Institute and the Montreal Heart Institute. We're very proud to announce that we have our first NHS hospital in the U.K., that is Pontefract, at the Mid Yorkshire Teaching NHS Trust. We're on track to be coast to coast in Canada before year-end. We're also in talks with multiple hospitals in both Spain and Mexico, with the first of these preparing to start within the next month. Excuse me.
Just recently, last week, in fact, we conducted a successful Type C meeting with the FDA. That is the preparatory meeting for the phase III program in the U.S., and we were very pleased to receive confirmation that our preclinical pharmacology and our toxicology work was judged sufficient by FDA to proceed. The clinical data, which is composed of 10 years of post Health Canada approval, that is the extensive, in excess of 100,000 patient use profile of this product in Canada, was accepted as sufficient evidence of safety, in addition to all of our preclinical work and our in vitro work, to continue to proceed to phase III. We are now in detailed discussions with the FDA on our final phase III protocol, discussing elements of the control strategy to ensure that we can provide the FDA with a robust study.
I'd like to cover our 2023 mid-year financial results. Here are the highlights. There was a 63% year-over-year growth in revenue. Most of that growth, 83%, came from new customers, 17% came from existing customers. We also, as you see, increased our gross margin efficiency, resulting in a 74% growth in gross margin. That was a result of improved manufacturing methods and investment in automation. In terms of OpEx and G&A, there was an overall decrease due to reduced headcount costs, including some offsets by increased use of consultants for legal, strategy, and FDA work as we proceed into that phase III program. In R&D, we saw an overall decrease due to reduced expenditures in other clinical studies, including our phase II, which successfully concluded earlier in the year.
We increased expenditures in our MRSA disinfection research project, which was very successfully concluded, and results of which will be published shortly. Of course, we spent quite a bit of time on our phase III readiness, implying that we did not require further expenditure in R&D. Sales and marketing, you'll note an overall increase due to more investments made to the sales and marketing team, as we discussed earlier, and this was primarily to increase customers and sales, especially as we proceed into countries such as Mexico and Spain. Well, our priorities for the remainder of the year are focused in three areas. One, we intend to launch 3-5 additional hospitals. This is to deliver on the goal of the 10-12 new hospitals this year, and we are further optimizing our sales processes and distributor onboarding to do that.
We have finalized our U.S. phase III program, with discussions now occurring on those critical elements of the phase III protocol. We're in extensive discussion with our clinical partner, HCA Healthcare, based in Nashville. As you know, this is the largest healthcare organization, hospital-owned organization in the world, and HCA Healthcare will be hosting these studies in between 10 and 15 of their hospitals across the U.S. As previously committed, with this extra clarity and risk reduction regarding the phase III trial and the FDA next steps, we're focusing on raising capital, as well as continuing to build on with operational excellence across the organization, and that goes true for operations, quality management, our engineering teams, our clinical teams, and our regulatory teams.
Thank you to our investors and stakeholders for their continued support, and our employees for their hard work and commitment to helping us realize our goal, which is nothing less than seeing photodisinfection in every hospital worldwide. We've had a great six months, and we're looking forward to updating you next year on the full year results. Thank you, and back to you, Alessandro.
Perfect. Nicolas, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated on the top right-hand corner of your screen. Just while the company take a few moments to view those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Nicolas, we've received a number of questions from investors, and I want to start off the Q&A session with this one here, which reads as follows: Are the new hospitals that are using Steriwave paying for the treatments?
Indeed, yes. The majority of these new hospital deployments are revenue generating, and typically hospitals will look to implement a small pilot study for a number of months before committing to a long-term contract for more coverage of their major surgeries. And during this time, we help them with training and installation procedures, but otherwise, it's a revenue generating opportunity for us.
Perfect. Thank you very much. The next question here is about gross margins. Your gross margins improved a bit year- over- year. Do you expect continued improvement?
Yes, we do. We have worked to reduce the cost of goods substantially, and we will see these benefits reflected in further margin improvements as we scale. These are conversions from hand-operated assembly systems to automation, as well as with significant use of injection molding in components and large scale deployments of fill and finish procedures that we use for our photosensitizer bottles.
Perfect. Thank you very much. What's your plan for raising the money for phase III and increasing your cash reserves?
We are planning to address this matter in the near term. We've been taking the necessary steps, and now that we're on the other side of the key Type C meeting with FDA, we understand that we will have extensive discussions with investors, both past and new, and we feel very comfortable that those investors will be available to us. We are in discussion with both U.S. and the U.K. investors, and that is something that will occur in the near term.
Perfect. Thank you very much. Would you be able to share any detail around what you've discussed with the FDA around phase III trial design? I believe there's been some back and forth around control groups structure. Can you share your current thinking on this?
Certainly. We have discussed with the FDA the extensive buildup to the phase III program. Obviously, this is a product which, as FDA indicated to us, has the potential to be used in millions of patients. We're talking about 36 million procedures that are carried out, surgical procedures that are carried out in the United States each year. So, when a product has that degree of impact on the medical system and on the medical armamentarium, we have to ensure that the studies are robust, that the control strategy is obviously optimized to avoid any potential bias, and we feel very comfortable that we will be able to achieve a strategy that will make both us and the FDA happy with the outcomes. This is looking like a randomized study, as we suggested to investors earlier.
The control group aspect is one that we're in discussion with on the FDA, whether we do this concurrently in a pre-post design or whether we do it in a randomized crossover type design. These are statistical details which we do not anticipate being of any significant concern to us. In general, the study looks precisely as we said it would before. That is, something on the order of 4,000 patients and something like a five month study, six month study, which will result in an outcome that we assume will match our decade of use of the product in Canada, in Canadian hospitals, very similar hospitals to the one that we'll be using with our partner, HCA Healthcare. So, it's those kinds of details that we're discussing with the FDA.
We're very happy to have had the FDA concur with us, that that decade of use was in fact of material use in creating a good safety database, that our clinical pharmacology program is complete, and certainly the preclinical work, animal toxicology and so forth, is all complete. So we're looking squarely at initiating this phase III, again, once we come to a agreed upon conclusion on the specifics of the protocol with the FDA.
Perfect. Thank you very much. Just turning to the next question. You mentioned a revamped sales approach to ex-U.K., U.S. sales. Can you talk a bit more about this? Relatedly, the changes to the SHEA guidance sound very positive for adoption of Steriwave in Canada. How well-positioned do you see yourselves to capitalize on this change?
Very well capitalized. Thank you for the question. The new guidelines imply a real shift in the understanding by the regulatory authorities and by groups that are chartered with understanding epidemiology and understanding the impact in healthcare of interventions like this. Consider that when you have a new hip procedure, for example, or a new spinal procedure, these are interventional surgeries which the patient receives, you know, extensive intervention. The skin is parted. The access to interior structures is lengthy, in some cases, many, many hours in spine. There's a lot of tissue abruption, and there's a great deal of opportunity for microbes to communicate to those interior, interior body surfaces. Obviously, the skin is the single most important integumentary covering to avoid exposure and exclude microorganisms, and that's now been broken.
So where are these microbes coming from that can infect patient wounds? Well, they come, in most cases, from the patient's own microflora, and because the patient undergoes significant pre-surgical debridement of the skin, of the hair, oral cavity, certainly can be excluded for a period of time from contact with other people, from animals such as pets, the majority of these microbes are hiding out in the nose. That's the area which is most difficult to debride. The use of the old antibiotic, called mupirocin, is now beginning to wane because mupirocin has produced so much resistance over the many, many years it's been used. Indeed, it is not particularly effective against off-target microorganisms other than Staphylococcus aureus. It's a narrow-spectrum antistaphylococcal. It takes twice a day for five days to work, which means that the patient has to be prepped prior to surgery.
So you can imagine this leaves big holes in infection control procedures. By contrast, consider the fact that we work in a total of 5 minutes, where you have a patient who is prepped by a nursing professional, a clinical professional within the hospital. There's no pain involved, there's no heat, there's no adverse events that are significant, and that's over the lifetime of this product to date. And all microbes, not just Staphylococcus, but virus and fungus as well, are reduced significantly in the nose. And so it's that significant technical and clinical benefit that matches so well with the new HCA guidelines.
As those guidelines come into sharp focus, there are very few alternatives like ours that work on the basis of high speed, breadth of spectrum, lack of adverse events, and high compliance because it's done in such a short period of time right before surgery.
Perfect. Thank you very much. Just turning to the next question. You mentioned in your release that you've made progress in setting up your U.S. apparatus in preparation for launch. Can you give any details here? Can you give an update on how you're progressing on the manufacturing scale up to the trial? And then what would be left to do to expand again for commercialization following approval?
Thank you. The internal research and development teams are led by an extremely experienced individual, Bill Kanz. And Bill has produced a really superb manufacturing effort for the preclinical and clinical work, so that clinical production needed for the clinical study. These involve new injection molded components. They involve high-speed automated assembly with extremely high reliability, and of course, all of the additional aspects needed for a major clinical study like this, those packaging, labeling, bar coding, and so forth, aspects that are important. So all of that work is now being integrated into a very large project plan. This is a multi-site opportunity to really make an impact in U.S. healthcare. There will be, as I said, 10-15 hospitals involved. Each one has a principal investigator. There are site administrators.
We have researched and are appointing clinical research organizations to assist us with this. We've recently appointed an extremely experienced pharma executive, Simon Sinclair, to be our Chief Medical Officer, to coordinate this large undertaking. But in the end, it all comes down to execution at the hospitals themselves, because HCA Healthcare is such a preeminent operator of hospitals with high surgical throughput. So actually, this study is much shorter than you might expect for a multi-thousand patient study. In just a few months, we expect to be recruited, and remember, no patient is being sought with a rare disease. All patients that are presenting for surgery are candidates for this therapy.
We have the big advantage of having had a decade of use in Canada, and so the likelihood of the outcome, which is a very significant reduction in surgical site infections among other hospital-acquired infections, and we include bloodstream infections, other nosocomial infections like catheter-related, bloodstream infections and so forth. These are things that we expect to be suppressed. It is that kind of preclinical work and ensuring that we have the largest, the most widest label claim after the study is over, so that we can be used in as many procedures as possible. That sets us up for a post-phase III expansion as the sales and marketing teams go to work, and we start to put this system into U.S. healthcare and see big increases in revenue. These are expected.
We will then start to work on the next indication, which is primarily to expand the use of the product into the intensive care unit, where patients are often highly immunosuppressed, they're often on ventilators, and in the intensive care unit, infections run at a much higher rate than the presurgical access, patient population. So that will be our next target, and it probably will still be within HCA Healthcare, making sure that we leverage all of the substantial base of hospitals that we will have deployed in, for our presurgical indication.
Perfect. Thank you very much, sir. The next question reads as follows: What caused your drop in share price on the 31st of August, 2023?
Thank you. Yes, that was an unsystematic point that was not related to us specifically. We are aware that a major fund manager within the U.K. ran into some problems with the fund. There were some legal issues and, the fund was shut down, and as such, that fund was no longer able to be the cornerstone that had previously been committed to us. And so, we decided to defer the financing, and as a result, some further funds that were then sold on by others also decided to liquidate their positions. So completely unrelated to any systematic issue with Ondine or internal developments. Those were external financial moves on the AIM market.
Perfect. Thank you for the clarity there. Another question here: The results out of Canada look great. How is this translating to revenue opportunities, and are you seeing inbound interest from partners?
Thank you. Yes. It's critically important that investors realize, and thank you very much for this question. It's very illuminating, pardon the pun. We have a technology here, which is not new. It's been in Canada for a decade, and so we can draw on an immense database of outcomes. We know exactly what happens in tertiary care systems, in the smaller clinics. We understand and can preempt questions and concerns from caregivers, clinical staff, as well as from patients. And so it's quite. It's really quite comforting and useful to be able to bring to hospitals a pre-prepared package, which allows us to address the whole product and not merely the benefit of nasal decolonization. When clinicians, administrators, and biomedical engineers in hospitals ask us for support, we have seen it before. We understand exactly what to say.
Our warranty systems are in place, our support systems through our quality management procedures are in place. And so, that work in Canada that is producing these results, then becomes the stepping stone foundation for selling the next hospital. And indeed, several of these hospitals come to us without our direct outreach. They come because they have heard of the system being used at sister hospitals, in conferences and shows over Canada. And we expect that kind of a sales and marketing approach to leverage our efforts as we go forward, both in and outside Canada.
Perfect. Thank you very much. I've got another question here from Sean: How do you plan to fund phase III studies?
We are anticipating, now that the FDA has provided us with Type C outcomes, returning to the market and accessing existing investing interest, new investing interest, and interest that has been vouchsafed both in Canada and in the U.S. It's a little too early to say exactly what the plan will be there, but we know from inbound calls and interest that there's a great deal of interest as we get this close to the seminal, the key critical, value-generating event for the company. So that will be a mixture of multi-jurisdictional equity.
Perfect. Thank you very much. Another question from Sean: What do you think of Destiny's nasal decolonization product, XF-73 Nasal? How does it compare to Steriwave?
Thank you for that question. Destiny Pharma's decolonization product is in the right space because it is a nasal decolonizing target. And as one might imagine, we think that all products designed to address this unmet need are doing the right thing. So having said that, we just would contrast Destiny's product as a new chemical entity, which is undergoing the normal development procedures for an unknown entity, as compared to our system, which is already in widespread sales and use in the rest of the world. So, just a point to be made there, as the SHEA guidelines are updated and as the U.S. market understands how important nasal decolonization will become, especially given the fact that we are seeing major increases in resistance, both in bacteria, but also as we see from our most recent COVID developments.
As we see these resistance increases and alterations in mutations and strains of viral strains. So we realize that a broad spectrum antimicrobial, like photodisinfection, is absolutely critical to health and safety as we go forward. One cannot work by knocking out narrow spectra, for example, Staphylococcus. Or, for example, a particular microbe that might be picked up by armed service personnel in the sands of a desert, and that's in particular, a bug called Acinetobacter, which is quite dangerous. We're seeing, for example, hospitals being shut down in Seattle, Washington. I'm about 20 minutes away from one of those hospitals myself as I speak.
Those hospitals are being shut down by a very dangerous yeast fungus called Candida auris, and that bug is extremely dangerous because it has picked up the genes that resist standard antifungal agents, amphotericin B, and fluconazole. So, combating that microbe in the noses of patients who bring it into the hospital is really, we believe, uniquely on Ondine's purview. And drugs like XF-73 will have their space, will have their time, will have their utility, and we wish them well. We really appreciate the benefits of our broad spectrum, our speed of use, and certainly of the fact that we do not produce resistance, as by contrast.
Perfect. Thank you very much. We've got a final question here: Are you measuring all microbiome infections in your Phase III study or just S. aureus infections?
That is still under discussion with the U.S. regulator. We are certainly understanding what our impact is on Staphylococcus aureus, because as you may recall, that is the microbe that we focused on in our phase II study in Savannah Memorial Hospital in Savannah, Georgia. We did that because our company is the recipient of 2 of the accelerator programs by the FDA. One is the Qualified Infectious Disease Product, QIDP. The other is Fast Track, which allows us to access the FDA more frequently and more at an increased speed, at an increased rate. Now, both of those were focused on Staphylococcus aureus. But because we have this broad spectrum efficacy, FDA has requested extensive in vitro information from us, about the nature of the microbes that we can kill.
We are providing a report to FDA in the near term, that will cover the multiplicity of strains of Staphylococcus aureus, the multiplicity of other Gram-positive microbes that cause infections. But also, those dangerous Gram-negative microbes, that drugs like mupirocin cannot target, and those Gram-negatives are just as dangerous to the human. They might not be as frequent, but they're as equal or more dangerous in these infections, and we do kill those. We're also providing FDA with information about our antiviral and our antifungal capability, which is extremely high, and FDA's requested that information, and I think that will come into play as we design our label claim post-approval.
Perfect, Nicholas. Thank you very much for that. I think you've addressed those questions you can from investors, and of course, the company will review all the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to yourself, Nicholas, could I just ask you for a few closing comments?
Yes. Thank you, Alessandro, for the opportunity to speak. To all of our investors, challenging markets out there, and we absolutely appreciate your continued support of us as we go forward. I think we're at an amazing point in Ondine's history as we look squarely at the eyes of one of the most important development clinical programs that we've ever launched. That is our U.S. phase III study. We have the benefit of bringing to market an antimicrobial, which is not an antibiotic, which is something that both the FDA and the Centers for Disease Control have identified as something that is critically needed in human health. We want to thank those investors and all of our stakeholders and our employees for their continued support and this extremely hard work, and lengthy hours in commitment that it takes to help us realizing our goal.
Thank you to everyone, and looking forward to our update next year.
Nicolas, thank you once again for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Ondine Biomedical, we'd like to thank you for attending today's presentation, and good afternoon to you all.