Earnings Call: Q1 2021

Apr 29, 2021

Quarterly report

Hi, and welcome to Episurf Medical's webcast. Paul Riefoch, the CEO, will be presenting today. My name is Martin Westerlund, and I'm from Finwire TAVA. 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. VFN. With that said, I'll give Paul the stage. Thank you very much, and good morning. I would start by mentioning that I'm suffering from a terrible flu. It's not COVID. I've been tested and I've actually had that quite recently. And I will be coughing quite a lot during this presentation, so my apologies in advance. But apart from that, I'm very happy to present our results And business progress for the Q1 of 2021. And I have a short presentation, and I will follow the following agenda. I will speak about COVID-nineteen, The Q1 results, I will provide a business update and we will wrap up by looking at key milestones for the coming years and Q and A. So let's go. This slide, the COVID-nineteen remarks, this slide is unchanged from the last time we met in middle of February. And you might recall that I was very skeptical about the progress given increased restrictions in our markets that we Experiences were much tougher than what we experienced in the spring of 2020. Despite that, The quarter actually turned out quite well or even very well, but we cannot say that this is over. And if we have learned something, it's that the restrictions change quickly. And from one week to another, A region in Germany, for example, can be more or less completely closed. So our customers are operating on Far from full capacity. And please remember that. And today this is over for us, make no mistake, I will be the first one to tell you. Looking at the Q1 results, this is our best quarter ever. Our gross order intake amounted to SEK 2,100,000, which represents an increase of 30% year on year. And no less than 90 serial implants were ordered during the quarter, also that an increase of 30% year on year. 34 surgeons ordered implants. That's an increase of 55% year on year, and that figure is a figure I am particularly happy about today. And related to that, we actually did business in 11 countries, which represents an increase of 120% year on year, also very important for us. We'll explain more later. Clinical data with 5 years follow-up was presented at the World Heart of Plastic Congress Just at the start of the Q2. That's a huge achievement, and the results were very strong. And they point to the fact that the Epiceler works for up to 5 years, and we hope to see more details on this study later on. This is now the 2nd time we see promising early data on 5 year follow ups and this is extremely encouraging. The loss for the period, slightly better than last year, SEK 16,700,000 negative. And at the end of the quarter, we had SEK 137 Medellijn at Finnebank. And my final comment here relates to strategy execution. And when you're early in the commercial phase, It's very important that you identify the key drivers and key indicators, and they all point to the right direction for us in this quarter And especially this relates to surgeon activity. And if we look at how the years 2019, 2020 2021 have started, You can easily track that on this slide. Last year, it started pretty well, but then leveled off quite significantly at the end of Q1. But this year, despite even tougher restrictions, the growth has continued. And this creates a stable and strong base to continue to grow from. And I mentioned the key ratios, the gross order intake and the number of Epicelers approved increased by 30% year on year. Net sales, however, increased only by 9%, and I would also like to address the difference between those two figures. But before that, Just again looking at the historical development of the implant portfolio and as a nice round figure, it doesn't mean much In reality, but it's always nice to communicate, we had our 1,000 implantation booked during the quarter. But back to the topic of Gross order intake order book and net sales. So in our business, when a surgeon orders an implant, We account for that as gross order intake. And we send the invoice at the time of surgery, meaning that not until then it is reflected in the P and L. So surgeries And definitely be spread out over a longer time period these days. They try to find a surgery Later on in the spring maybe. And that's why the net sales doesn't increase as much as the gross order intake. But the order book that That has been built up now amounts to SEK 1,800,000 and this SEK 1,800,000 represent Epicelers that will be invoiced in the coming months. And that is also an increase of 71% year on year. So that is a pretty substantial increase of the order book. Previously, we have referred to this as order backlog as well. Going back to our financial and operational targets, I think this slide is very important, and I think I will always bring it to these occasions, and it relates to clinical data, global establishment, reimbursement and technology. And up to In FDA approval, we have committed to deliver substantial revenue growth. And although we will never be satisfied until The absolute figures are where they should be significantly higher than today. We are delivering high growth rates. And I would like I dare to say that without COVID, the growth rate would have been significantly higher. The portfolio of clinical evidence continued to expand, And 5 year data is something that's very important to deliver and that's nothing you should take for granted in a business like this. Full market access in all our markets, you would see an international update on the coming slides. But as you will see, we're making good progress. And the industry's best implant technology for COPALISION, I think that's best evidenced in the quarter by the progress with the Epiceler TALUS, the ankle implant. So that's what I would like to focus on today. The market is big. There are well over 2,000,000 knee replacements in our target markets every year. And about 350,000 of those, We estimate could be a potential Epicelier patient. And in our target markets, there are always there are also more than 20,000 orthopedic surgeons. So this is a big market. Knee surgery is prestigious. It's big. It's the biggest segment within orthopedics together with spine. The burden of proof for establishing yourself in the industry and in the treatment algorithm is very, very high. We are, I dare to say, absolutely on the right way. Patients need this product, Surgeons need this product, and the product seems to work now over a very long time. Moving on with international update, I mentioned that global establishment is a key strategic cornerstone for us. And these are all countries We are working towards in one way or another United States, of course, being potentially the last biggest piece Very positive. And in Q1 last year, we did business in 5 countries. We had presence in more countries, TAVIA. That was what the activity looked like. And the relative size of the flags here indicates The relative weight in the gross order intake. If you look at the progress in Q1 2020 2021, no less than 11 countries, this is great progress. And looking at how the surgeons behave, we could see that the 22 surgeons that ordered Epicel implants A year ago, they had an annualized run rate of 12 implants. That means that They did, on average, 3 implants in the quarter, and simply annualizing that figure turns out to 12. And this is a very important metric that we are following daily and hourly and by minute, I dare tell you. And we need to see growth in this figure. And now we're adding several surgeons, 34 surgeons with a slightly lower annualized run rate, easily explained by COVID. Consultation hours are far from full capacity, as I mentioned. But we also know that when an orthopedic surgeon gets confidence in the data, in The procedure, this leads to an increase in usage. So we are seeing that our top surgeons, So like the guys that have used the FCD for quite some time who are really comfortable, they are beyond the point of where they need more data and etcetera. They're comfortable with this. They use this every quarter. They have a steady patient flow, and we need to deliver more and more Surgeons and customers globally into that group, and we think we will be very successful in those efforts. Again, rounding off with this very important slide, which illustrate that we have gone into something that's hard And it takes time, but today I can really say that we are on our way. Moving on to the shareholder list. If you look at our shareholder list on our website, for example, you can often see custody accounts and Difficult to identify names on the shareholder list. So where we have Where we can and when we are allowed to clarify that list and be transparent about the names behind various accounts, we try to do that. So this is what the list looked like at the end of Q1 to the best of our knowledge. And I'm very happy to conclude that at the end of Q1, we actually had well over 10,000 shareholders. And thank you very much for your support. Looking ahead, just as we prioritized last year, the milestones that are closest To materialize relates to clinical milestones. We have several papers that we expect to be published very soon. I've said that before, I know that. But nevertheless, these processes are difficult to estimate in terms of timing, but we know that they are in the very final stages. We have added a tick mark to the slide in this quarter with the Early data from the European CPL study with the 5 year follow-up, and we hope to see much more of that later this year or potentially early next year. The patella project, the epicellular patellofemoral system that we announced At the time of the Q4 report, it's going on well, and we are committed to our goal of submitting a 510 application later this year for a full approval potentially mid next year. On the global expansion, as you've seen today, we are taking steps there. We're doing Great progress and we are working through the regulatory timetables in a great number of countries and we think that's the Right thing to do because when this takes on and this becomes a well known and in many ways standardized alternative in the treatment algorithm, We want to grow in as many countries as possible. That was actually it for today, and I will invite a Q and A session. Thank you very much. Thank you, Paul. Like you said, it's now time for the Q and A. And if you have any questions to Paul, you can ask them in the form on our website, and I'll ask TAVR, if time allows. And if you're watching this afterwards or that 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 TAV. Can you elaborate on the new patents that's been approved in Hong Kong and in the U. S? Yes, I can. But that's actually potentially the question within Epshark that is very far away from my knowledge. We have worked with our IP portfolio and patents for consistently since the beginning actually, so about 10 years. And we have had a strategy of filing a broad patent portfolio globally and it also must cover several parts Our technology, meaning not only the implant, but very much so the instruments and the software. So I actually can't comment on these patents specifically. I simply don't have that in front of me. But it all relates to a greater strategy that's about that follows the commercial strategy, which focuses on global establishment. And the IP is something that we have worked with, I would like to say, very well from the start in episode. Thank you, Paul. And moving on to the next question. You have reached a significant milestone of 1,000 implants. What does that mean for EpiServe? It doesn't change anything. It's a nice round figure to use in marketing. The important thing is that many of those patients are included in clinical trials and many of them have Now, I've had the implant for quite some time. And although we cannot, with 100 and certainly, say that we know exactly the status of each and every Regardless if a patient is in a clinical study or not, a surgeon sees A great outcome for his or her patient 2, 3, 4, 5 years up, that creates that confidence I just spoke about for that particular surgeon. And so then the 1,000 figure actually says that we have a lot of happy customers out there and a lot of happy Patients out there. So I think that's the most important thing. Thank you for that answer. And the next question, can you elaborate on the distribution agreement you have with Australia and New Zealand. Yes. So the distribution agreement, I won't provide any details, VIA. What is very important is a company like us, we as you've seen, we haven't expanded our cost base in many years and the number of employees, I think, is Flat now since many years. So we are trying to find efficient ways of working internationally. And the distributors, in our case, they play a very important role when it comes to regulatory filings in various countries. So when we find a reliable, credible, trustworthy distributor, that is a partner Many, many months of the years before any commercial activity takes place. So I would say that, that is the point that is very important for us. Then we would never choose a distributor that we don't believe in. So We have full confidence in all of our distributors, and I believe that we could potentially launch in New Zealand Before Australia, but the latest this filing should be concluded completed next year. Thank you, Paul. And the next question, what's your hope and vision for the remainder of 2021? So as I mentioned in the Q1 statement that was released about 4 or 5 minutes ago, We need to expand our marketing activities as much as we can. So it is difficult to be out there physically, But we're doing what we can and we will take every opportunity we can. But now please remember that single data in any Size reform, we didn't have that until late last year. Before that, we had an excellent study, but it was smaller And we needed more volume. And now we have we are in a totally different position. So we must be out there in market And be visible to surgeons and I mentioned our cooperation with Eska in the report, which is a very important organization. We will work together with them and we will do everything we can when it comes to pure sales activities, webinars, congresses, whether they are digital or not, And market our results because they are good. We have nothing to excuse ourselves for anymore in my sense. Thank you, Paul. And the next question, your cash reserve looks to be quite significant as of now. Are you planning on allocating your money on something other than patents? So in terms of cash spending, I think I don't expect any significant reallocation of what we are What we have seen in the last quarters, the U. S. Clinical trial, the EPIC needs study is a big project for us, obviously. It is also costly, of course, very important. And the marketing activities I mentioned in Europe, we will expand. But that's our The most important factor there is our sales reps and that's the sales force we have had now for a couple of years. So in terms of financial Capital allocation, I wouldn't expect that to increase significantly during the year. So a bit of a boring answer, a little bit more of the same. But I think that's okay to say when things are actually going in the right direction. Okay. Thank you, Paul, for your presentation and your good answers for this Q and A. And thank you to all you who have followed today's webcast. I hope that We see each other soon again. Bye bye. Thank you.