Hello, and welcome to the Sedana Medical Q3 report for 2021. Throughout the call, our participants will be in listening only mode, and afterwards, there will be a question- and- answer session. Today, I am pleased to present CEO Johannes Doll, CFO Susanne Andersson, CMO Peter Sackey, and Commercial Director Jens Lindberg. Please begin your meeting.
Thank you. Good afternoon, everybody, and good morning if you're dialing in from the U.S. My name is Johannes Doll. I'm the Company CEO, and since this is my first report for Sedana Medical, I will start with a very brief introduction about myself. Before joining Sedana Medical on October 1st, 2021 I was the Chief Commercial Officer at Orexo, a Swedish-based pharmaceuticals company, where, among other things, I was responsible for building up the commercial operations in the United States, and was also leading our corporate development efforts and led our internal development pipeline.
Before joining Orexo, I worked eight years at McKinsey, where I helped clients both in the medical devices industry as well as in the pharma industry on a broad range of topics, but with a focus on a lot of product launches and selling, notably, hospital selling. If we move to the page two, as always, I recommend you read through our disclaimer, as we will be making forward-looking statements throughout this presentation. With that, let's go to page three. In my view, Sedana Medical has a fantastic purpose, which is to improve life during and beyond sedation.
In order to do that, we will do our very, very best, and that is our vision to make inhaled sedation with our Sedaconda product a global standard therapy for critical care patients or for mechanically ventilated patients in the ICU. During my first month, I have made it a priority to be out there and meet as many customers as possible. I have visited around 20 intensive care units in three of our most important markets. I had the opportunity to speak to a lot of physicians, a lot of nurses, pharmacists, and hospital administrators.
With those impressions, I can now say that I stand behind this vision 100%, because having heard our customers speak about how our Sedaconda products do make a difference for their patients every day, and those are by definition relatively critically ill patients. That gives me a lot of encouragement and conviction that we are doing the right thing and that we will be successful. If we move to page four, the quarter highlights. We are looking back on a very eventful and also successful quarter. We've had net sales of SEK 28 million. That means we have been able to grow the business by 34% in local currencies. Year- to- date, that number was 23%.
What I'm very pleased with is that all our regions have contributed to that growth. What's also very encouraging to see is that despite the COVID-19 levels being relatively low throughout Europe in the third quarter, we saw continued use of Sedaconda ACD in non-COVID patients, and our customer kept using our products. On the operational side, we have two big priorities in the company right now. One is to execute an excellent launch in Europe, and the second one is to already now prepare for what will be our largest potential market, the United States. On the European side, we are moving from offering a device to offering a full therapy, including a device and the drug, a volatile anesthetic, isoflurane, for inhaled sedation.
After having gotten the green light on a European level, we have now received 11 out of 15 national approvals for Sedaconda isoflurane. That means that we continue to expect product on the shelf in the first markets towards end of the year, and we will see a pickup in sales in the first quarter. Also, during the quarter, we saw our clinical trial results published in The Lancet. As I'm sure you know, The Lancet is probably the most reputable journal in the field, which adds a lot of credibility. Also our country teams are now staffed up and trained and ready for launch. On the U.S. side, we have a big milestone coming up with the IND that we expect to get before year-end.
If that goes well, then we expect to start our clinical program in the U.S. next year and anticipate the first patient in around the turn of quarter one and quarter two. Sedana Medical also has a U.S. company now, and we've hired the first couple of employees into that company during the quarter. If we move on to page five. As said, good robust growth both in the quarter as well as year- to- date. This is important, because the more clinics we get equipped and trained and comfortable to use our Sedaconda product ahead of launch, the better is our platform for the launch coming up.
The third quarter was also a nice continuation of the longer-term sales growth trend over time, which I find also interesting from a perspective because the third quarter tends to be the one that is least affected by COVID-19, so it shows a little bit the underlying growth. If we move to page six. As I said, I'm pleased to see that all of our regions have contributed to this growth. Germany, up 9%, continues to be our largest market. This is where we have most of our customers. With these customers, we are especially pleased to see that despite COVID-19 levels being relatively low, those customers use our product in broad patient groups, and we are not dependent on COVID-19.
I'm also happy to see that in our other direct markets, so these are the other markets where we have our own Sedana Medical teams out in the field commercializing our products in the U.K., Spain, France, the Nordics, and Benelux. We have returned to year-over-year growth after the first half of the year had been impacted by very large orders in the year before during the first COVID waves, and customers in the first half of this year had to work through the inventories they had built up. Now we are back on a growth path, with especially nice performance in Spain, France, and the U.K. We continue to see very strong demand also in the distributor markets, especially in Latin America. The second-largest market actually for us was Colombia in the quarter.
Year-to-date, it has been Mexico. We're seeing some very strong demand from that part of the world, but it is probably fair to say that the demand is partly impacted by still relatively high COVID-19 levels in that part of the world. If you go to page seven. One question that I've gotten a lot over the last month is to what extent is Sedana Medical's performance dependent on COVID-19? The very short answer to that question is, Sedana Medical was never intended to be a COVID company. We're not a COVID company now, and we don't see our long-term potential to be affected by COVID.
The slightly longer answer you see depicted on this slide, if you think about what the actual market potential is for us, we are talking about patients who are in the intensive care unit who are mechanically ventilated and sedated. Since these data are not always easily accessible in all countries, it is sometimes tempting to instead analyze where we do have perfect data that you can read in the newspaper every day, which is the number of COVID patients in the ICU. If I take Germany as an example, it's actually not a perfect proxy because even during the highest peaks of COVID in Germany, we never had more than 30% of COVID patients in the ICU. Not all COVID patients are actually ventilated. Currently that number is down to 52%.
Not all of the ventilated patients are sedated. What makes comparison over time extremely tricky is that we're today dealing with a completely different patient demographic in the ICU. It used to be mostly old people. Today it's basically a pandemic of the unvaccinated. We're just seeing much younger and previously healthy people in the ICU. What we can say about our view on COVID-19, though, is, yes, we may see fluctuations in sales in some regions up and down, depending on what COVID will do, but we will not be dependent in our long-term forecast on COVID-19. The other thing I will say about COVID-19 is probably one of the key success factors in every launch is your ability to change behavior.
In our case, we will have to convince clinics to no longer use IV sedation or propofol for their patients, but change their behavior and start using inhaled sedation and our Sedaconda product. As a consequence of COVID, we have brought more customers over that hurdle already, so we're starting from a slightly better launch platform. If you go to the next page, just to illustrate what I just said, of course you know that the number of COVID patients in the ICUs have dropped significantly, both in Germany as well as in all our other direct markets as well. If we were a COVID company, and if we had followed that same trend, then we should have seen Q3 sales that were much lower than they actually were.
They were quite a bit higher, which again proves that our products are not just used in COVID patients, but very broadly in customers. We have some good resilience versus COVID-19. If you move on to page nine, on the operational side, we have two big priorities for the company, which at the same time represent the two growth horizons for the company as well. In the short term, we're very focused on executing the launch in Europe. We do that through our direct presence in Germany, U.K., France, Spain, Benelux, and the Nordics. As has been stated previously, we are aiming at exceeding SEK 500 million sales in the third year after approval, so that is 2024.
On the U.S. side, approval is a little bit out, so we anticipate approval before the year end, 2024. We're already very active in preparing for that market. There's no doubt that the U.S., if you look at the number of ICU beds and also the price levels in the market, is the single most attractive market for us from a market potential perspective. We have accelerated the review and intensified the review of which go-to-market strategy is best suited for us to capture that potential, and we will communicate that decision latest in 2022. If you move to page 10, we will now go through these two priorities.
On the European side, as I said, we have received national approvals in 11 countries. We're still waiting for reply in Spain, Ireland, Poland, and Slovenia. Switzerland and the U.K., due to Brexit, now have their own registration processes, and we are anticipating approval in 2022. The only slightly bigger market that is still missing on the list is Italy, where we are planning to submit in the beginning of 2022. If you move to page 11. As we have communicated, we received national approval in Germany in the end of September, which then meant that the label text and everything else was finished and allowed us to place the first order for the launch stock, which of course we have done. As previously communicated, there's roughly a three-month lead time.
We are still expecting product on the shelf towards the end of the year in some markets, including our main market, Germany. In other markets, as you know, there's a local pricing and reimbursement process we have to go through first. Depending on how fast that goes, we will have these launches a little later. We will see pickup of drug sales in the first quarter. If you move to page 12. What it takes to have a successful launch, you need to prepare the product. You need to prepare the market. You need to prepare the company. On the product side, we are in a very nice position that we will be the first and only on-label option for inhaled sedation of mechanically ventilated adult patients in the ICU.
Moving from selling a device and being dependent on off-label sales of the drug to being able to offer the full therapy. We have great products supported by strong clinical trial results, which really mean a difference for the patients. Not least, we have The Lancet publication, which is being very well received by our customers and adds a lot of credibility to our company and to our product. On the market side, we are in a pretty unique situation as well, that we actually do have existing use of the device for inhaled sedation, the Sedaconda ACD, mostly in Germany, but also in a lot of other markets, which of course provides a good platform for also launching the drug.
We are trying to increase that awareness and that conviction around inhaled sedation by being very present at the big congresses, by holding symposia and of course, through our field staff that is out there with the customers every day. On the company side, we have extended the field teams. We have invested quite a lot in training. We have upskilled our key account managers. They have gotten a license to also work as pharmaceutical sales representatives in the countries where that is a requirement, and everybody's ready and excited for launch. On the U.S. side, there's no doubt in my mind that this is the biggest potential market for Sedana Medical going forward.
We are very busy preparing for the clinical program that will start next year, which Peter will talk about in just a second. We're also stepping up our efforts on the commercial side. What you see here is just to give you a little bit of a view on the market potential. We're comparing the United States with our today largest market, Germany, where we have sold round about EUR 10 million in the last 12 months, which represents roughly an 8%-10% penetration of the market potential. If you look at the number of ICU beds, you almost have a factor of 5 in the United States, 107,000 beds.
What we also have put here is a comparison of the list price of propofol, which is the current standard of care, for an average patient simply based on the average propofol dose that we have found in our own clinical trial, SED001. If you run these numbers, you see that the range for Germany for a day is roughly between EUR 47-EUR 57 . In the United States, those numbers are much higher, in the area of EUR 360-EUR 438 . Now, if you've worked with the U.S. before, you of course know this, I will still mention in the United States, a list price is not the same thing as a net price.
For a product like propofol, which is a relatively old product, you will easily see discounts in the area of 40%-50%, which we also got confirmed in some payer research we did a year ago. So you have to take that off the numbers that you see here. But you can still see that both from a volume perspective as well as from a pricing perspective, there's a good opportunity for us in the U.S. Of course, propofol list price is only one element or one input factor that goes into our pricing strategy. There are others, but the potential I think is quite clear. On the next page 14, from a market preparation perspective, as I said, big milestone ahead with the IND, that we will hopefully get approved before year-end.
If that goes well, we can start our clinical trial. We are expecting the first patient in at the turn of Q1 and then Q2. From a market perspective, Peter will speak to the quality of centers that we were able to recruit for the trial, which is really an impressive list. It's basically the who's who of the American hospital landscape, which speaks a little bit to the interest that we're getting and the innovation we're bringing and the excitement to be a part of that. As I said, we've also now Sedana Medical has a subsidiary in the U.S. now. We have hired the first four clinical education specialists who will be working with the clinical trial sites, getting them trained and set up, and helping them throughout the clinical trial.
With that, I will hand over to our Chief Medical Officer, Peter Sackey, and I will be back in the end of the presentation for a very brief summary, and then I'll take any questions that you may have.
Okay. As Johannes has mentioned, the data from our pivotal European trial was published in August this year in The Lancet Respiratory Medicine. In this publication, we described that isoflurane with non-infused opioid on the primary endpoint, time to the target RASS range without rescue sedation. Besides that, we found several benefits with isoflurane, including reduction of opioid use, increased spontaneous breathing, shorter time to wake up, and also good tolerance to isoflurane. Generally, multiple benefits that translate into improved patient outcomes. Go to the next slide. This also rendered a very strong SmPC where we do not have a 48-hour limit for the use of Sedaconda. Sedaconda is the only device with which you can deliver Sedaconda.
Another strong part of the SmPC includes rapid and physical wake-up and the return of wake-up as well as cognitive recovery within 10 and 60 minutes respectively, which is very short after ICU sedation. We go to next slide. We are currently running our pediatric trial, the isoflurane study in four European countries. This is based on the approved pediatric investigation plan by the PDCO and European Medicines Agency. This is the mandatory step after the adult study in order to get the 10-year data exclusivity. You know, this study started with the first patient enrolled in the first quarter of this year. This is the study that we have submitted the protocol to the FDA and received lots of feedback and adapted accordingly.
We still need to wait for the final approval after IND, which we hope to receive them shortly after our IND. Next slide please. When it comes to the adult clinical trial in the U.S., as earlier communicated based on feedback from 2019 and this year, we will be doing two clinical trials that will include approximately 500 patients in total. Prior to these trials, we need to do some non-clinical toxicity study and also a human factors program. We've been able to run the two projects successfully and are now moving towards our IND submission. Regarding the two clinical trials, besides the patients that will be randomized, we will also be excluding three to five roll-in patients per ICU, since they have not had training in the Sedaconda ACD.
The patient treatments in these two trials together with our U.K. trial will constitute the safety database the FDA required for an NDA. Go to next slide please. Looking at the overall timeline when it comes to the studies that contribute to our regulatory approval. The Sedaconda study was completed last year and published this year and is the basis for our EMA approvals. The PIP study is ongoing and started in 2021. The two U.S. studies are anticipated to start at the turn of Q1, Q2 next year. We also have the [SESAR] trial is currently ongoing in France. With this we anticipate to be able to have an NDA approval before the end of 2024. Next slide please.
Looking at the U.S. And the current status when it comes to preparations, we feel we're well prepared now to start these clinical trials as we've mentioned. Among others based on the significant interest we've met when we interacted with investigators. Our main trial investigators helped us reach out to other high enrollers clinical trial observation. Most renowned institutions will be taking part in the U.S. study. We're currently working on contract negotiations and have the application and as said we employed our first U.S. staff, a clinical education specialist board member who will be covering the U.S. and training the ICUs in the use of Sedaconda. All in all this will lead up to initiation of the clinical trial at the turn of Q1, Q2 next year.
Okay. Over to financials. Yes. Our net sales like Johannes talked about earlier, increased year-on-year by 34%, which is very good. The most positive was that all regions were contributing to the sales is all positive. We had gross profit in the quarter of SEK 19 million, equivalent to a gross margin of 68%. We still see a positive impact to gross margin due to that we have delivered most by sea freight instead of air freight in the quarter. We target that we will continue this way but also, we do foresee some shipments by air freight and also we think that prices for freight is estimated to stay at a high rate.
We also had one-time positive impact in the quarter of roughly 1 percentage point, and this was from a reclassification to general admin. There was some cost of goods sold moved to general and admin OpEx. On the other side, we had the market mix where we had increased sales in our distributor markets with somewhat lower margin that actually went down a bit. It's still very positive to see that we had a good development in the gross margin, and year- to- date it's about 66% compared to 65% last year. Coming down to the EBITDA, we had negative EBITDA of 14 and a margin of negative 50%. Again, we are continuously investing for future.
We're in the midst of the Sedaconda launch, we're spending money there and that including the MDR approval. We've tried to break out some of these, kind of like a one-time cost in relationship to Sedaconda launch which is SEK 9 million year- to- date. We've been talking about building up the organization and we are now roughly at 100 people, including consultants, so in-house consultants. At the time of Sedaconda launch just like what has been communicated earlier. The growth will not be the same in the coming years but there will be some minor additions in some selected areas and mainly within sales.
The growth rate we've seen within staffing will not continue at the same pace but be a little bit lower and selective. If we move on to the balance sheet and the cash, we have cash flow from operations of -SEK 15 million. Cash flow from investing was -SEK 33 million in the quarter. This is really due to mainly the U.S. clinical studies that are starting to take off and then also the final bits within the EU registration. That's if we look on the balance sheet, roughly half of the number, roughly SEK 240 million on the balance sheet, roughly half of that is related to the EU registration.
Given the market approval in Germany, we will start to depreciate this project over a time period of 10 years. That will give roughly SEK 1 million a month depreciation. Total cash flow for the period was -SEK 48 million, and the cash balance at the end of September was SEK 262 million, and we're still a debt-free company with a strong balance sheet and no long-term financial loans. Our largest shareholders by end of September is very similar as they were back in June. It's just the Third AP Fund that has increased their holdings a little bit. I like to hand over back to you, Johannes, for some summing up.
Yes. Thank you. I hope you got a sense of the performance and the progress we've made in the third quarter. We're quite happy with that third quarter, but now our focus is of course very much on the future and on the two big priorities that we have ahead of us. Which is to prepare for the launch in Europe, which we feel like we are very much on track to do that. And also even though it's still a few years out, we already have at least one eye on the U.S. market and intensify those preparations because it will become the largest potential market. With that, I thank you for listening and open it up for questions, please, moderator.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. There will be a brief pause while questions are being registered. Our first question comes from Peter Östling with Pareto Securities. Please go ahead.
Yes. Thank you for taking my questions. Two quick ones. I noticed that on the slide describing the U.S. clinical trial, there has been some additions where you say that besides randomized patient, three to five run-in patients will be recruited per ICU. Can you elaborate a little bit what that is and how that will affect the study?
Yes. The run-in patients are due to the fact that the Sedaconda ACD is not approved yet in the U.S., meaning that before the randomized control trial starts, there will not be any prior experience like it was in Europe obviously that's in SED001. In order to gain proficiency in titration of the sedative in this assessor-blinded study, we will be doing training with the center educators, of course, but it's also important that the central staff in these ICUs feel comfortable, can know how to dose the drug correctly, know how to troubleshoot and so on.
After the training that will be done with presentation and the dry run training, our staff will be present for the first patient in every ICU that are treated with Sedaconda ACD, and they'll be able to support the local educators. From a study improvement perspective, we believe this will be an important activity also because we will be testing for a relatively short time to include a few patients and gain experience, and we hope to keep up that momentum as we go-live training with these run-in patients.
These three to five patients will not be part of the actual study population?
Correct. They won't be part of the randomized controlled trial population.
Okay.
They will contribute to the same database, however.
Okay, great. Just another question on the U.S. You've added the first staff over there just recently. How many do you think that you will have a year from now?
Mm.
Five, 10 people or?
This question of course depends a lot on what we decide to do with the U.S. As you know, we have guided that we are currently very intensively looking at that assessment, which go-to-market strategy is the best. We will communicate that. The options on the table, I can say so much, is on the one hand, Sedana Medical could decide to build up our own commercial operations and launch Sedaconda products through our own commercial operations. That's one scenario. The other scenario would be that we would go with a local partner and not build up the organization.
Of course, there's options in between and some hybrid models that we're looking at. Depending on what that decision will be, of course, that also drives very much what the organization will be at launch, and it also will drive what the organization will be over time. Giving you a specific number at this point, I'm sorry, I can't do that yet.
Okay. Fair enough. Just finally, before I go back into the queue. On the slide where you compare Germany with United States on ICU beds, propofol, list price, current penetration and so forth. The current price per day for propofol, is that the price that you will aim for for Sedaconda, or will you aim higher?
It is one of the input factors that we will take into consideration when setting the price. Of course, the price will depend on multiple different factors. In Germany, of course, you know that we are charging a premium versus propofol because we are bringing more value. There's clear benefits that have come out of the clinical trial of inhaled sedation versus the standard therapy with propofol, so we're charging a premium.
What exactly we will do in the U.S. will depend on a number of different factors, but it is quite comforting to know that the starting level of the reference treatment is quite a bit higher than that is the case in Germany. Of course, in general, if there's a benefit that you're bringing, that should be reflected on the price also.
The initial guidance given by Sedana of around EUR 20 per day seems a little bit low then for Germany and rest of Europe.
I think you mean EUR 200, right? EUR 20 would indeed be very low.
Yeah.
I'm not sure if we have exactly guided to EUR 200 in the United States. We will see a higher price than we currently have in Germany, where I think a good number, as I previously stated, is around EUR 100 per treatment day for inhaled sedation. You can expect that number to be higher in the United States.
Yes. Of that EUR 100, around EUR 20 was for the drug and EUR 80 for the device. That has changed obviously then.
Yes. I don't well, I will not go. Of course it would. Let's put it this way. We're just ahead of launch. We have invested quite a lot of money into a clinical trial. We're moving from off-label to on-label. We were moving from offering a device to a device and a drug. All of that will be reflected in the pricing strategy for the European market as we launch now. Fast-forwarding a couple of years to the United States, we're expecting a higher price than you will see in Europe.
Yeah. Of course. Yeah. Okay. Thank you.
Our next question comes from Karl Melbye with SEB. Please go ahead.
Yes. Good afternoon, and thank you for taking my questions. I have a couple, if I may. If we're starting off, you mentioned that, yeah, of course, you're targeting at including 30 centers across the U.S. in the two upcoming clinical studies. How many do you have so far? And then in terms of regions outside Europe and U.S., specifically China, any update on when we can expect the approval for the ACD there? And then lastly, in terms of OpEx, is it possible to provide some form of guidance here in terms of total OpEx levels for next year? You mentioned the SEK 9 million sort of one-off costs related to the Sedaconda launch year- to- date, which of course won't come back.
You'll likely have some additional beefing up of the organization coming in and the start of new studies and preparations related to that. Any form of guidance on how, like, OpEx levels you develop in relation to 2021 would be very helpful. Thank you.
Thank you. This is Peter talking. The first question was about the U.S. and how far we've come with. Could you please repeat the question? I wasn't quite following.
Okay. It was related to the how many centers have you recruited so far for the studies in the U.S.?
Currently we have 24 centers that are interested that have given us, like, feasibility data. Currently none of those sites have been disqualified by us. They're all sites that are used to doing large clinical trials.
I will comment on the question outside Europe. I think Susanne can take the OpEx question. One general comment I will make, and I think I've made it clear in the presentation, that the focus area, the priorities are in Europe, and then even with the higher potential down the line in the U.S.
Of course, we will exploit opportunities in other parts of the world where we think we can do that. As you can, for example, see now as we get very strong traction in Latin America. The way we are thinking about this, we are now pursuing a very fact-based approach country by country, where we are looking very closely at the market potential, so number of ICU beds, number of ventilator patients, price level, things like that. Beyond that theoretical market potential, we are also very closely looking at how likely we are going to be successful in this market. Is this a health system that is able and willing to pay for an innovation like the one we are bringing?
Can we actually access all the ICU beds that you find in the official statistics? Do we have a distributor that we think can pull it off both on the device side and potentially also on the drug side? All of that we put in relation to how much investment is required to be successful in that market. Some markets, as you know, will require local studies. Others, you can rely on dossiers you have submitted in other places. Very fact-based approach.
Since my task is to look after other people's money at this point in time, we will not shy away from deprioritizing markets that sound big, but the numbers do not work out. That's just my general thoughts on the business outside of Europe and the U.S. When it comes to China, specifically, we have signed an agreement with a Chinese distributor back in 2019. There was a number guidance given in the press release at the time of an amount that we will earn over the time of this agreement. The submission and getting approval is in the responsibility of the Chinese partner.
Of course, we are supporting that for the product-specific parts. We would have wished, of course, in the normal world, we would be over there with our teams and working hand in hand, be a bit closer. From our side, from what is under our control, we have finished all these elements of the dossier. We have handed over all the data that are required in our view. Now it's up to the partner to decide when to put in that submission. To answer the question also, the submission has not yet gone in. As I said, from our perspective, it should go in relatively fast, but it's outside of my control.
I will not comment on approval timelines because that goes for all countries. Specifically in China and speculating about how fast the Chinese authorities will move on this product is a bit difficult to say, but the submission should go in relatively soon.
Should I answer to the OpEx question ? I want to refrain from giving any guidance. In order to help some, I can say that throughout 2021, we've been building up progressively our organization throughout the year. It's by end of September that we are roughly 100 people within the company. Again, we don't see that we will grow in staff at the same pace as we have done. Like you pointed out, we also had some sort of one-time costs related to the preparation work for the Sedaconda launch. Also we hope that we will be able to do some marketing once we have done the launch and everything.
I and also I think even if we are now like 100 people at the end of September, Q3 is never a good quarter to have as a base either given the vacation period, etc. I hope that will help you a little bit about thinking on your model without really giving an exact guidance.
Okay. Fair enough. Thank you for me. Yeah. Bye.
As a reminder, if you have any question, please press zero one on your telephone keypad. We have no further questions. I hand back to our speakers.
Yes. Thank you very much for the attention. Thanks for dialing in, and I wish you a nice day.