Earnings Call: Q4 2020

Feb 19, 2021

Hi, and welcome to Episurf Medical's webcast. Paul Ri Foch, the CEO, will be presenting today. My name is Martin Vasslund, and I'm from Finwire TAV. If you have any questions to Paul, you can ask them in the form on our website that is located to the right. And if you're watching this on YouTube, you can find that form in the description. With that said, I'll give Paul the stage. Thank you very much, Martin, and good morning, everyone. My name is Paul Ryfors, and I'm the CEO of Episerv Medical. We have a relatively short agenda today, but some important information. I would like to speak about COVID, And we should, of course, talk about the full year results for 2020. I would like to provide you with an update about the international And very exciting news this morning, the Epiceler patellofemoral system is something that we will address a little bit later. I will round this off by highlighting Some of the key milestones that we foresee in the next year years. And with that, I move on. So first of all, the boring slide. Why I bring this up today is because we had a tremendous Positive trend during the Q3 of 2020. And in many ways, that trend was stopped During the middle of Q4 2020 due to new restrictions that often were tougher than the restrictions We saw during the spring of 2020. So unfortunately, this impacted our business. It's in no way a full stop. Our current customers, many of They are still ordering Epise sealers, but the consultations hours are obviously Decreased. And in the hospitals and clinics where we constitute a new treatment alternative, It's tougher to continue grow during this pandemic, but we expect high growth rates once we are out of this. So the year ended with a gross order intake of SEK 5,600,000 that was up 11% and that growth rate we We, of course, saw a great volatility in that during the year and let me focus on that for a second. So we want to deliver high double digit growth rates and the The year started very well. And in Q1, we were even above 100% growth. Obviously, at the end of Q1, when the outbreak of COVID-nineteen started growth level off quite significantly. But during, as I mentioned, the Q3, We were seeing signs of the society getting back to normal and with that also elective surgery volumes. But As I mentioned, in the middle of Q4, that was in many ways stopped. So this was a bit of a roller coaster last year, But I am happy that we could offset some of the shortfall created by COVID-nineteen with licensing income of SEK1.5 million in the last quarter of 2020. So So total income actually ended up 30% during the year. If we look at the number of Epiceler orders And implants ordered, we ended the year up 29% and that is higher than the gross order intake. And the difference Therein is explained by the fact that many or some cases are still done within studies where we can't charge The full price. We also talked about the growth in the number of double implants in one knee, and That's something that's very, very interesting. It simply means that the surgeon is using 2 Epicelers We are not really able to charge full price for that. So the price has been a little bit Lower for those situations, but that is something that we are addressing. And I would like to remind everyone about the fact that reimbursement work for us It's something that you really can focus on and drive when you have clinical data, something that we have now. The loss for the year amounted to SEK 63,900,000 and at the end of the year, we had SEK 155 1,000,000 in cash. Rounding This section of with focusing on the Q4, we can see that the total income grew by 118% In Q4 versus Q4 2019, obviously, driven by the licensing income. And if you look at the graphs to your right, you see the gross order intake. And compared to 2019, We were growing in Q4, not as much as we would like to, but compared to Q3, we had a negative growth in many ways and explained by COVID-nineteen restrictions. A little bit of a historical perspective On this slide, the darker blue area illustrates the implementations that have been This is COVID-nineteen restrictions leading to surgeries being postponed. So these surgeries will take place and they will be Once they take place, but right now, the activity is lower. But the very important information Here is, first of all, that we are quickly approaching 1,000 implementations. That is very encouraging. And at the bottom here, you We had 11 patients in published studies. Today, we have well over 120 Patients in studies with comprehensive clinical scores and close to 700 patients We're included in an implant survival follow-up that was published at the end of last year. So we are In a totally different situation today than where we were when we entered 2020. We had business in 13 countries last That was essentially 100% up from the year before. And we now have 4 products where we're adding the Episelet Hallus product during 20 So all in all, we are a much stronger company today than about 12 months ago. Obviously, we are investing in our U. S. Clinical trial, which is the PMA pathway to a U. S. FDA approval. And If you look at the cash flow in our business and you exclude what we invest in the United States, you can clearly see a trend of I think this is very important, and we will continue to work with great discipline also going forward. However, we will, of course, invest in the U. S. Trial, And on that topic, let's have a quick look on an international update, starting with Europe. So Germany is our key market. And in Germany, there are about 2,000 knee surgeons that we Target and we are only working with a small number of that today. But the activity levels with those surgeons is, I would like to Very, very encouraging. So now it's all about getting out to a broader group of surgeons, something you can do With clinical evidence, something we have today. So in Germany, we are continuing the expansion. In the U. K, today, I can happily confirm that the NICE process has started and the NICE process is Our key goal for the U. K. Market. Being included in the NICE guidelines is somewhat of a national approval in the U. K, meaning that we can penetrate the NHS system as well as the private market in a much, much better way than what we've been able to do so far. I would like to mention France, Where we are starting with the Epsilon Thales and the first surgery we announced that last year and it's been postponed two times And it's actually taking place today and I believe it is as we speak. So very interesting. Italy and Poland, 2 very interesting countries for We've had a promising start, and you should look forward to more updates about those countries. Portugal is also on our Radar, the launch of Portugal is somewhat delayed and for the final time today, I hope. I would like to blame COVID-nineteen for that, but we're moving on there. In the Asia Pacific region and if you exclude India for a second, we are focusing on Hong Kong, Singapore, Malaysia, Australia, New Zealand. And We have distributors signed in all of those countries and we expect regulatory clearances in all of those countries during this year Next year. We are also focusing on reimbursement in those markets and we have done surgeries in Hong Kong. So again, more news also from India, personally, this is something I think is extremely interesting. We We have a key opinion leader signed up who has an extensive network in India and we're starting with the QOL strategy in India. Later on, the sales strategy will probably be built up by network of distributors and also some direct Sales managers in the country. But we need to start with a few specialist centers and grow from there together then with our key opinion leader. We have completed the regulatory filings in India and we also have an EBSERF company in India. So There has been a fair amount of work in the background. This is a very attractive or to peak market. And as I mentioned, I think this is highly had the first patient, but it was turned down by the insurance company because we didn't have any clinical evidence or enough clinical evidence to show at that point in time, but there is We have some activity in Israel, again focusing on Fc Littales in the first instance. And in those markets, we are targeting reimbursement in the private health insurance sector. United States, Focus 1, 2 and 3 is patient recruitment in the IV clinical trial. It's ongoing. We're scanning a lot of We have recruited more patients than last time and we spoke, but you will also see more updates going forward. We're taking the time to focus on a few amendments in the clinical protocol, which should ease up the patient recruitment, but that process, the patient recruitment process has been tough during 2020. We would have to admit that. But the changes we're making, The network we have of sites already signed for the trial, etcetera, provides a good basis for really speeding this Up during 2021 and that's a priority for Episerv, of course. This morning, we also announced that we intend to File a 510 application later this year already for something called the Epiceler patellofemoral system, focusing then on Financial and operational targets. And you know we're focusing on clinical data, global establishment, reimbursement and making sure we have the best technology out there, something evidenced today by the today by the epithelial patellofemoral system, I think. Pre FDA approval, we are focusing Potential growth, significant expansion of the portfolio of clinical evidence, full market access in all our markets, that is the situation where our sales rep can sit down With the surgeon and discuss nothing but the patient and we have achieved that. And again, focusing on having the best technology for these And post FDA approval, we want to achieve a 30% market share in all of our target markets. And the market is big. And as we communicated at our Capital Markets Day in September 2020, this market is worth about $1,000,000,000 So it's a significant market and that is the market we are targeting. So talking about the Epiceler patellofemoral system. So The patella in Swedish, that's the Kneeskolen, you can all feel it, if you feel on your knee. And these lesions On the patella, they're common and they are severe. And what you often have is a lesion in the trochlear area, so The opposing area in the knee. MRI is a very good tool to use for analyzing is just an implant in the trochlear area. So when we are analyzing potential patients, if they have a patella lesion, Depending on the severity of that particular lesion, it can constitute what we call a contraindication for using an And today in the market, there are no individualized patella buttons as they And when you perform a total knee arthroplasty, maybe not in Sweden, You always use a patella button or in most cases. So these lesions are common, as I mentioned. And For example, in one study of over 900 knees, 51% of those had knee pain and 40% of the 900 had lesions in patella. And sometimes we have to reject patients due to the fact that the patella lesion is too severe. So During 2020, we started to look at this and we analyzed our technology and we looked at what can we do to expand the indications for the Epiceler and also what other benefits are there. And we realized that we can expand to a significantly larger Graphic area, because the U. S. Market, we foresee a 510 ks process and we could also then quite significantly expand the And we can also then shorten the time to the U. S. Market significantly. So we are aiming at Filing a 510 already this year with the aim of having that approved and ready for marketing on the U. S. Market to the current epithelial implant in the chocolaty area and a patella implant in the patella made out Polymer. Both of these will be based on the Episelet technology as is today. They will be individualized. The fixation will be cement, so that's a difference from what we're doing today. But similar to today, we will use a toolkit and surgical guides, So rounding this off, this project is ongoing and we Have now taken a decision to aim at the 510 ks submission later 2021. Final comments. The Q4 in Q4, we executed a directed issue of SEK66 1,000,000 and we had a very strong institutional participation in that issue. And as you can see, we communicated that we are funded until the middle of 2023 And that a lot of the focus right now is on marketing, regulatory work and reimbursement, which are the Key steps in the early commercialization. And if you look at the shareholder list as of December 2020, I would like to say a couple of things. First Well, this is based on the Euroclear shareholder list. We make some adjustments we think are appropriate, For example, aggregated pension accounts, etcetera, where there are hundreds of thousands of shareholders. So we remove those and We make certain other adjustments where we know that someone is behind custody account or something and they have said okay to use the name. So if you ask us today, this is the best view of the shareholders in Episerv. Why Why we are focusing on this for a second is that historically, we think this has been a problem. The institutional shareholding in Episerv was Not at a sufficient level, but we think it is today. And we have also gotten very firm feedback from our shareholders to fix that problem. And I think during 2020, we fixed it. We also have close to 10,000 shareholders now, and we are very grateful for So my last slide for today. First of all, in the very Near future, there are 3 clinical papers in the very final stages before publication in medical journals. We had hoped to Have these published last year. You never know exactly when things happen, but I can confident to say that they are in the final steps. We are also this year looking forward to additional studies on mid- to long term. And as you saw a few days ago, It was announced that 5 year data was to be presented at the World Arthroplasty Congress in April. That is something that we expect to see more of and I've elaborated a bit on that in my CEO statement in the report. The EPIC knee study will continue and you will hear more about the patient updates, Patient recruitment updates during the year. The global expansion continues. We are focusing on the regions I just mentioned, so expect news from those. And on the strategic milestones, I would like to highlight the fact that the NICE process now formally has started for us, So we're moving on at full speed. And thank you very much for And now it's time for some Q and A. Thank you, Paul. And like you said, now it's time for the Q and A. And if you have any questions to Paul, you can ask It's in the form on our website and then I'll ask them if time allows. And if you're watching this afterwards or we don't have time to answer your questions, I'll make sure to send them over to Paul and his team. So the first question is visiting hospitals is difficult now as a result of COVID-nineteen. Once the restrictions are lifted, what can we Expect to be the first order of business for Episerv. So thank you. The answer to that It's more of the same and continue to expand with new clinics, not only in our home markets in Europe, but So in the other countries I mentioned where we have regulatory clearance. Yes. So we need to do more of that and continue where we left off in Q3. Thank you for that answer. And The second question is, you're mentioning that your long term target is 30% market share in all target markets. What would you say is the most significant obstacle for Episurf in order to achieve that? Yes. So that question can trigger Rather long answer, but we are always internally discussing and reviewing what phase we are in. And it's important that we understand who we are Where we are and how far we have come and so on. And if you look at our technology, we are confident that it works. That confidence proceeds sort of the scientific evidence, which will come. And we know that This works. And mini metal implants for this kind of knee lesions, that's not an established treatment alternative today. So So what we are betting on, the big bet here for us, it's not the clinical performance, because we think this works now. We are betting on do surgeons want to do this or not? And we are confident they will, but it will take some time And drive that kind of clinical acceptance is probably the hardest task we have. But the good thing is that it's getting easier Day by day, as more surgeons talk to their peers speaking about this technology and clinical congresses Now supported by proper clinical evidence and later this year or early next year, maybe So the obstacle, I would say, is an accept The treatment algorithm and we are changing that algorithm and in that you have our greatest challenge, but I would also like to say our the big opportunity. Thank you for that answer. And the next question is, can you quantify how far behind You are in terms of patient recruitment in EPIC knee versus plan. Yes. So We still have an opportunity to perform all the surgeries during 2021. Obviously, that's a very optimistic target. So I would say we had a little bit of, would you say, air in the planning already from the beginning, but are definitely a few months behind, but I wouldn't try any bigger conclusion than that today. Okay. Thank you. And how do you expect the sales will develop when you get access to the U. S. Market? We think that this will be a brilliant product for the U. S. Market. So if you look at the Epsilon patellofemoral system, That's in the first instance as a very strategic product because we get access to U. S. Surgeons. They use the damage markings, the visualization tools We have we can start building network and prepare for a proper launch once we have the PMA approval for the full knee portfolio. But I mean there are 10000, 15000 knee surgeons in the U. S. The Epiceler Surgeries are Ofsted performed as day surgery in Europe today. That's an extremely attractive feature of our technology Because the ambulatory surgical centers in the United States are growing in importance And this is a quick procedure. It brings people back to living life, which is our vision. And that's just a few of the reasons We think they will appreciate this in the United States. Thank you for that answer. And the next question is, could you elaborate on the news that you released this morning regarding the Epiceler. Yes. I think that's exactly a little bit what I just mentioned that It's a great product in the sense that it's widening the indications for the Epiceler. So if you look at our target markets, You take very big numbers and you make adjustments and you work your way down to a potential patient group for us through literature reviews, Etcetera, etcetera. And that group is growing with this product. We will always be a niche indication if you compare to a total knee Replacement. But every surgeon, they see these patients. Some see 5, some see 25, some see 50, some see 1, but they see them. And now they can treat more. So that's very important for us. Secondly, the strategic value of getting to the United States and being able to start penetrate that market, That's very important for us and of great value for many obvious reasons. Thank you for And the next question is, could you talk more about the software leg of Episerv? Yes. And I think so first of all, we have a tremendous visualization tool, which are being Using the implant business today and surgeons like that. Historically, there's been quite a lot of buzz around this software tool. And if you look at the orthopedic industry as such, computer assisted surgery, surgery planning tools, etcetera, that's an extremely hot But we have taken down the expectations on a separate commercialization of that because what we To do is visualize something that you otherwise would see in a knee arthroscopy, which is an invasive procedure. And that could be a great market, but We are not 100% sure how we should commercialize that. So we have not taken that off the table, but we are discussing it with Key opinion leaders, every surgeon we're working with are using the software, so they're getting used to it. And we are showing Not only the bone structure of the knee, we're also showing the cartilage, which is Maybe a bit unique given that we're using MRIs, but we have to come back to how we can capitalize on that separately. We had an opportunity to outlicense a part of our software last year And we took that opportunity, and I'm sure that there will be more opportunities in the future. But I would like us for us to focus on That was a long answer. Sorry for that. Thank you very much. And thank you, Paul, for today and thank you to all of you who have followed today's webcast. I hope We'll see each other soon again. Bye bye. Thank you.