Earnings Call: Q2 2021

Jul 16, 2021

Quarterly report

Hi, and welcome to today's webcast with Episurf. Today we've got Paul Riefoch, the CEO of the company, with us. My name is Martin Westellund, and I'm from Finwire TAVR. If you have any questions to Paul, you can ask them in a form that is located to the right. And with that said, I'll hand over to you, Paul. Thank you very much, Martin, Good morning, everyone. I read somewhere that 50 companies are reporting their quarterly reports today. So Anyone with a little bit of interest in the stock market obviously has any busy morning, but I'm grateful for any attention that we get, Of course, and I will get to it. We have, as always, a short agenda, but a couple of important things To discuss. So we are starting again with the COVID slide. I would love for us to remove this slide entirely, but we cannot do that yet. We are definitely seeing signs of an improvement in our operating environment and with respect to Pandemic related restrictions. But we need to keep the slide here as a reminder that we are not yet back to a Normal scenario. And we've added a last bullet point here. So for example, individuals and potential patients across Europe I've not been able to travel. We're on vacation for quite some time now. So what we really heard from our reps This year is that several patients would train from scheduling surgery around summertime this year because now they can finally go traveling again. This is just one example of effects from the pandemic, which I think we should keep in mind. It's on that particular factor, it's impossible to quantify the effect of that. But again, just keep this as a reminder that This is still a reality for us, but we are definitely seeing signs of improvement and strong improvement, I would also say. So going to the results for the Q2 this year. So we had a nice increase in our net sales to SEK 2,000,000, An increase of 2 30%. Obviously, the percentage increase is obviously driven by the very low activity we had during the Last year, when we really saw the outbreak of the pandemic and no one really knew what happened, several surgeries were Disposed and invoicing could not really take place at that point in time. So that drives the strong increase. But nevertheless, we are also seeing an increase in our business. So that's evident by the increase in number of surgeries booked and the number of surgeons who are using our products. And our regulatory strategy is also paying off as we increase the number of countries in which we did business And by 38% during the quarter. I would like to talk a little bit about the number of surgeons who are using the Sealyer Implant. And as I say in the CEO statement today, up to 2019, early 2020, We did not really have any growth in the number of surgeons. It was evident that we were dealing with surgeons who are referred to as the early innovators. And they use the product on a test basis really on a small scale. And in lack of clinical evidence, they try the technology, they test it on patients and they follow-up on their patients. And new surgeons coming in are doing the same, trying at a small scale. So the number of surgeons, we haven't really had any growth. But Since late 2020, we've had the first major publications on the FTSE LR technology. Despite the pandemic, we have definitely seen an improvement in our operating environment as we now can commercialize this with the support of data, Which is absolutely crucial, necessary and there's no way around that. And in the Q1, we grew this number the number of surgeons by 55% and now 37%. And the other thing that's happening is that as more surgeons are coming in, you have the data and the healthcare system Accepts this treatment alternative to a greater extent with an awful data, the frequency With which the surgeons are using the Episeater implants are also increasing. So we will have a triple effect, meaning that new surgeons are coming on board, more and more surgeons are coming on board. They are using the product more frequently. And based on the data, we can also charge better for our technology and our implants. So that's a triple effect That would drive revenues in years to come and that's why this figure number certain figure is so important. Another important thing that happened in the last weeks is that we announced that a European study with 5 year follow-up 50 Epiceler patients was underway and the group that is running the study. They have communicated that the preliminary results are Later this year with full publication hopefully out early 2020. 50 patients, that's a big study and 5 year data, you Cannot overstate the importance of that. The last quarter period amounted to SEK 17,700,000. That's up from last year. It's Definitely higher activity this year than last year quarter on quarter. However, over time, The loss have been around €15,000,000 per quarter, and we haven't seen any increase from that if you look with a little bit of perspective. So it's Around where it has been over the last years. And the cash position at the end of the quarter just short of SEK 121,000,000. And looking at the historical overview, you clearly see the blue line, which is the number of surgeries booked, the number of surgeries booked. We're definitely growing faster than last year's. And based on what I just said and also based on improvement in the operating environment with respect to pandemic Related to restrictions, we definitely expect them to grow much faster going forward. Short term, it's difficult to say, might be A little bit of volatility, but we are definitely on the right track. And that is illustrated by the growth we had in the Important key ratios, I mentioned the net sales growth of 230%, the gross order intake 45% implant sold 32% Number of surgeons, 37% and country, 38%. So these five ratios, keep them in mind, All of them, they are important and they are showing exactly what we want to see at this point in time of our development journey. We've also announced that we now have well over 1,000 implantations booked and that happened a few weeks ago. So in the report today, I'm also saying that the interest in the Epicel Atlas is actually exceeding our What do I mean with that? So it's evident to us that this is a truly revolutionary product targeting significant unmet medical need. And I don't want to put this product side by side to the knee implant, but when it comes to accessing prestigious clinics, We have had great success with the F. P. C. They're tallers very fast, faster maybe than with the knee. So it's definitely a door opening product to new surgeons and key clinics globally. There's a definite interest in what we are doing with this product. And That is also, I have to say, much thanks to the great qPinealator network that we have because surgeons are listening to each other, They are attending surgery with each other, learning, assisting each other, etcetera, etcetera. So this is really where we have to start with product and we have done that in a nice way. So what's happening now is that we are performing where the surgeons are performing the first Cases. We have had about plusminus35 cases either planned or performed with the FCL the tallest, and we are collecting User feedback. Our engineering team is working very closely together with the surgeons. Orthopedic surgeons, they are to some extent carpenters. They're using a set of tools and It needs to work perfectly. It's not like prescribing a drug. This is something that's being developed over time, The initial feedback is very important to see whether we need to make any fine tuning or adjustments to the technology, to the tools, etcetera. We are doing just that. And we are going into the lab, seeing if we can improve anything or maybe even develop new add on products based on this. So that is what's happening right now and the discussion with the customers is really key. The initial Patient outcomes are highly promising that's being reported from our customers. And late last night, really late to be honest, We got word that the case report, which summarizes the case about the first Paul Diffosch, patient treated back in 2016 during the product development phase. That case report is now peer reviewed. So it's available online. You can read it yourself. And it's a wonderful story about a 33 year old guy who suffered from severe ankle pain and he has now more or less a perfect ankle joint. You might have I've seen him playing soccer in one of my previous presentations. That is now peer reviewed. It's a 5 year follow-up. It's A case study obviously has a lighter academic weight, so to say. However, this is definitely important for us. But there are also several study initiatives ongoing, and we look forward to communicate more when this is Clarified and this is in large driven by our customers and users, which is great for us. The first surgery in Asia, I would just like to highlight A little bit from one of the cases. You see the picture on the right. We have the team at Queen Elizabeth Hospital in Hong Kong. Doctor. Wilson Lee led the surgery and assisted by Professor Nick Van Dyck. You might actually see on the picture on the screen where he advised And you can read the quote yourself, but the surgeon was very, very happy with the And this is exactly the type of development we want to see and we look forward to do more surgeries in this particular market and that's like in all of our markets. And on the international strategy, illustrating this with a simple slide today. So a couple of years ago, we did surgeries in our home markets, So to say our European core markets. But in the last 2 years, we've added several markets. You have seen the press releases. We've added distributors in In more or less all of those markets in the United States, we're running a clinical trial, as you know. And this is a regulatory work that was initiated a few years ago, and Now really starting to pay off. And why we are doing this is because the success of Episerv over time will be dependent on the clinical acceptance With this type of treatment within the surgeon community, do surgeons want to treat the patients with a mini metal implant or not? That's We are confident that we will. We are seeing all the signs we need to back that statement up. But it do take some time. It's dependent upon data, good patient outcomes. But when this clinical Except that really happens, we want to grow in as many countries as possible. So we want to plant the story all over the world really And performed the regulatory work in all our markets well in time to be able to really capitalize on the trend when the clinical acceptance increases. And in addition to what you see on this slide, you will see us expand more in Europe. There are several countries where we have not yet Started to do business, Austria being one of them, for example. You will see this happen in the Middle East, India and Asia Pacific, for example, including Australia. India is a personal favorite of mine, so to say. COVID has definitely delayed our plans for India, but We have performed the regulatory work we can sell in India. We have contracted key advisers for the Indian market, and we are ready to go as soon as the Where it allows us to travel there, so to say. And another way of just illustrating the way To be successful in a market, obviously, it starts with regulatory clearance. We know we're working on that. The surgeon Paul, it might be a smaller group of surgeons in each country initially is obviously key. And from there on to increase the number of customers, the frequency, etcetera, It is dependent on the clinical results. And you might ask where reimbursement is in all of this and the reality is that It can look very differently from one market to another. That's why the U. S. Market is so interesting for us because it's one homogeneous market With one regulatory framework as opposed to Europe where it can look very differently. And in the reimbursement work, Two things are extremely important. The clinical results being 1, the surgeon support being the 2nd. And in some of our markets, If you look at the reimbursement work that is performed, it is in large driven by our customers. So the customers are the ultimate point of contact For the authorities or the payer or the insurance company, they run the discussion with them Because they are advocating the stand for this technology. So we just need to have a great deal of split vision and we need to work According to the standards in each particular market, and I would like to say that we are definitely doing that. We have learned a lot during the last years. Another important project ongoing is the epithelial patellofemoral system, which we announced in conjunction to Issuance of the Q4 report earlier in February this year. So this is a 2 component system where we have identified a 510 routes to the U. S. Market And the key message today is that, that project is ongoing and we are on track with our timetable, meaning that the next Key milestone is to submit a 510 application for this product in to the FDA already this year. We are then hoping for a start up for commercialization sometime 2022 in the U. S. Market, and we are preparing for such commercialization as we speak. And looking at the key milestones that we have ahead of us today, I would really like to highlight what we have ahead of us during the second half of this year, Which includes 3 key publications that have been submitted for publication. We were hoping to have them published already at the start of 2021. That has not yet happened, but we are nevertheless optimistic About them being published later this year and the top line results from the larger European study on 50 patients with a 5 year follow-up. That is also expected during the second half of this year. In addition to that, I would like to highlight then the 510 project we have for the U. S. Market where we today, as I said, confirm our target of submitting and filing the 510 ks application later this year. Our strategy is clear. Our goals Remain and up to until a point in time when we have full approval for our product portfolio in the U. S. Market, We are aiming at growing at high growth rates in Europe and other and the rest of the world, and we are doing that. And the commercial opportunity we have is significant, and we're taking all the right steps, we believe, to really penetrate this market and be successful over time. And final slide, just an update on the shareholder list. We are trying to clarify the list as always. Difficult to see exactly The situation, if you look at Euroclear or something like that, that this is the to the best of our knowledge, our top 10 shareholders as of the end of June 2021. Thank you very much. Thank you very much, Paul, for that presentation. And now it's time for Q and A. And we'll start off with the first question. It was an intense morning for you with 4 press releases. Can you give us the highlights of those 4? Yes, definitely. So the first one was really to reiterate the goal With respect to the 510 product in the U. S. Market, it's a key message to confirm the timetable and that we are on track To deliver on that. Secondly, we're expanding the European sales organization. That's based on the strong momentum that we are experiencing and the confidence we have In our commercialization of this technology, so we've added a distributor or actually technically an agent in In the Midlands, in the U. K, the U. K. Market, as I've said many times, is essentially non existing for us today, doing very few cases. And the regulatory and reimbursement work is ongoing in the U. K. Market. But we are, by this, doubling our size in the U. K. Market. We have 2 reps from before. And we're adding JAMA Orthopaedics in the Midlands, which would be key driver for future Sure. U. K. Market. And the other one the other news on that topic was that we are also hiring have hired a senior sales rep in the Benelux market, That was an important market for us in the early days, but since 2019 has been deprioritized due to the absence So clinical data, at that point in time, we couldn't really do much more than what we were doing. But now we are reactivating our focus It's Benelux by hiring of a senior sales rep that we know from a long time before. So that's great news for us. Then obviously, the Q2 report came out as the 3rd press release that and what we have just talked about. And A few minutes later, we issued a press release about the peer reviewed publication that the case report that came in late, late last night, We prepared that we could go out with this with that this morning. And in that particular case report, as I mentioned, where The surgeons are following a patient for actually 5 years, and that patient was treated really on an experimental basis during the product development phase. And Anyone interested in EpiSirth, I really encourage you to go in and click on the links and read through that. It's a short case report, but it's Extremely interesting, and it really shows the capabilities we have. And it also, most importantly, indicates what we can do on a much Larger scale going forward. That was it, but it wasn't a test morning as you said. Thank you. Thank you for that answer, Paul. And that sounds indeed very promising. We're moving on to the next question. You're talking about an interesting other half of twenty twenty one. Can you elaborate on that? Yes. So I think the second half of twenty twenty one is extremely interesting, and there are primarily two drivers for that. So The first is everything I just showed you on the milestone side. There are key publications coming out, Key project with respect to the U. S. Market ongoing. So there is, if you select, a nice hopefully a nice sense from news flow ahead of us If you look at it from a stock market perspective because there are there's a lot of things going on and they are important things. So we just need those pieces In place to really take the next step, we have seen now during the tough times during the pandemic The clinical data we have makes a tremendous difference for us. So we're just adding on to that, and that is Extremely interesting. And the second reason is the optimism I'm feeling internally. So if you look at the discussions I've had with our sales reps And our team and our advisers. There's a great deal of optimism within Epicerv. We truly believe that we're doing the right thing and we're taking the right steps. There are no shortcuts in this industry. We are as I said many times and I would like to remind everyone, we are leaving our device in the human body For preferably and hopefully the rest of the life, that's a big decision for the patient, for the surgeon, and it puts A hell of a requirement on the product, to be perfectly honest. So this takes some time, but we're doing the right thing. And There are an endless amount of companies who have tried to crack the code here and tried to fix those lesions, both in the knee and in the ankle. We believe we have. So we are optimistic about the future. And if you look at what our reps are saying, Adding a new customer, seeing the frequency with that particular customer grow, that's a great satisfaction for them. So we are, I would say, optimistic today. Thank you for that answer, Paul. And we're moving on to the final question. If you were to summarize, what has been Key takeaways from the first half of twenty twenty one? Obviously, Definitely improvements from the pandemic. So it's been tough. During the Q1, I was It was very volatile, I think. We started the quarter being very pessimistic about the new restrictions that came out early in the year, but then the Q1 Ended up quite well. So that has been a bit of a roller coaster for us. But during the first half, if you summarize it, then Overall, definitely an improvement and a strong such an improvement. And Dan, I would like to highlight 2 other things. And one is, of course, the inflow of new customers. And What you see in our numbers, it's the customers that actually have performed surgery or an ordered implant. If you look at the prospect list we have, there are many, many times that, of course. And when we can really start to visit Phoenix and new customers again globally, And that number will grow. So that's one thing. And the other and final thing I would like to highlight is potentially the initiation of the 5 year follow-up with patients that we are That's a major milestone for us that just came out first half of this year. So I would like to A combination of commercial factors and scientific factors. Okay, Paul. Many thanks for the presentation and the answers to our question. And thanks to all of you who have been following us today. I hope that we see each other soon again. Thank you and goodbye. Thank you very much. Goodbye.