Earnings Call: Q1 2021

May 6, 2021

Okay. Thank you very much and welcome all to the Q1 report for Sreedhar Medical. And with me here today, I have our CMO, Peter Bakkin our CFO, Susan Anderson and our Commercial Director, Jan Friedberg. And we are the ones that will present the Q1 report today. And but I will start and I will give you some guidance about Sirona Medical. I mean, most of you have heard some of this before. And then we'll go into the commercial, what we have done during the quarter and so yes, we'll go through that. Clinical development will be done by the future. And then we will end the presentation with a financial highlights presentation by Sussan. And then I will wrap it up in the end. And but anyway, the Q1, we can go to Slide 3 directly. And I mean, this quarter as well as 2020 was very much strongly influenced by COVID-nineteen. And also during this call, we have prepared ourselves for the launch of the treatment inhaled sedation and saraconda around the corner here in Europe. And we have prepared ourselves for the clinical development in the U. S. Together with that, we have also seen an interest rate with sales increase by 40% during the quarter compared to the Q1 last year. But let's go into the company a little bit more in detail. We have on to the next slide, showing I mean, our ambition, our vision with this company is that we are I mean, we are working within in intensive care. And we definitely believe that we have a treat, a unique treatment in case sedation that could change the paradigm in how to sedate the patient been the intensive care unit around the world. And we are definitely confident that we can do that very much dependent on the features of the treatment, which we have seen before. But just a summary of it, I mean, we have with our drug and delivered a device, a possibility to reduce the ICU stays for patients, thanks to the on off effects and the reliable wake up time compared to IV treatment that takes very long time. The longer you are sedated, the longer time it takes to wake up the patient. Those could take very long time and are unpredictable. We also, thanks to the mode of FX in of the drug a reliable effect and also a nice safety profile of the product. We can also seen that we have a better cognitive recovery versus IV and less side effects like cognitive side effects like ilirium and hallucination. Interesting, and we have also seen that we can reduce the usage of Opiates during the treatment as well. And that's, of course, of interest in many countries around the world. Lastly, it's more of a therapeutic effect that we might actually, we have seen it also in human inside it on human lately, not only on the animal. We we have seen that we have a potential in ore and protective properties, especially in the line where we can see improved gas exchanges and include oxygenation. And that, of course, will have a potential of catching 2 birds with 1 stone with a good sedation drag as well as organ protective possibility as well. So going down to the potential of the market, you have seen it before, but this is a normal year without COVID with a potential of €2,000,000,000 to €3,000,000,000 annually, divided in the 3 different regions of approximately onethree in each region. And of course, what we see now, there will be more ventilated deaths around the world after COVID, the annual growth this year or last year was most likely quite dramatic, higher compared to what we're seeing here of 5.5%. Also positive, we have signed in U. S. Is that reimbursement situation, which is promising for us, where they are paid per patient instead of the length of the stay in the ICU. And since we are having potential of reducing the IQ stay, that so, of course, interesting from a reimbursement perspective and the potential of a premium price. So but we will come back to that in the future when we are coming close to the registration in the U. S. Future wise, when it comes strategic priorities. There are no changes. I mean, we are fully occupied to prepare ourselves for the launch of Saraconda in Hated Basin in Europe during the second half year in twenty twenty one this year. And as well as preparing the clinical studies in U. S. And also the regulation process overall in U. S. Is ongoing and hard work. Still we are looking to have a registration in U. S. By 2024. And Peter will come back more in detail to that shortly. Regarding the guidance of well, also, of course, we have the rest of the world, not to forget, where we have of interest, of course, Asia's interest in China is ongoing registration of Alaconda there. Hopefully, we have a registration this year. And also something that is coming out now lately is Latin America, also interesting market to follow. But the near future looks into the date and after the launch of Ceraconda in Europe, and we have guided actually to reach closer to 10% of the market potential in Europe, which will give us the EUR 50,000,000 in the 3 year that will be hopefully than 2024. With I mean, and also you can see in this report, we have seen little bit reduced gross margin, unfortunately, but that's a reason of COVID. I would say it's COVID related with high cost of freight, increased cost of freight. But with 70% that is the target, we will have a nice EBITDA margin as well. The 70% gross margin, we will also get a very nice EBITDA margin when the volumes go down later on. So that is target and the guidance we have given the market. The strategic development of the development of the I mean, as I mentioned, we will become the new standard of the data patient in IQs. And we will reach that through these levels. Firstly, of course, to establish an account everywhere in the world to be a delivery system for all of Telenaset. Same time we want to register the full we will have the therapy through the label and registered in relevant markets around the world. Europe is the 1st region where we will reach that level. That entrance ticket to the market, I would say. The next step is, of course, to show superiority versus IV treatment. And that is done through solid clinical studies. Evidence based medicine is important for us, and we will support investigatory invasive drives, which we are already doing, but also Phase 4 and other Phase 3 studies as well. So that when we have reached this outcome and the endpoint that we are looking for with superiority versus IV, then that plan then to, of course, that will roll out getting to the guidelines at the first line treatment. So that's the our aim and the strategy how to reach the new standard of care. So what have we delivered during the quarter and just before that? So going to Slide 9. Sorry, I should have told you and you should, but Slide 9 now. What have we delivered? We have approved anaconda in many markets as you see, and we are working on the U. S. Market as well, to come back to that. But interesting during the Q1 is that we have seen an update, dramatic update in Latin America, Mexico, Ecuador, Colombia and a huge interest in the rest of South America. We also have started up ICUs, went ICUs, thanks to the registration in Middle East as well. These two markets have been interested to follow during the Q3. Of course, Europe has also been successful. And now Jens will take over and let us know a little bit more about the commercial. Thank you, Christer. So we can move ahead one slide to Slide Ken, please, to sort of start the journey. So we look back at what we believe to be a good quarter 1 this year. Germany continues to be our sort of engine and with regards to the telecom sales perspective. And we're seeing more and more ICUs that have come on board in Germany as well. And we can also see that the penetration rate for the share of patients in the ICU, a larger share sort of getting inhaled sedation today than just sort of 6 months back, and we're seeing a 1.5 percentage points or more growth in this period. The other element to highlight here is that we are we'll see looking back at Q1, we are opening up 1 new ICU per day across our direct sales markets in Western Europe. And the context on that is that sort of we already saw from the beginning of COVID last year, many new hospitals come on board. But last year, there was quite a bit of sort of fear or protocol shortage that drove new hospitals to us that sort of fear has gone away. So what we see now is more of a long term commitment to inhaled sedation and the number of ICUs Oskaroscope coming on board. And then also being able to start up 1 new ICU per day underneath sort of very strict the rules of lockdown. It's been quite a strong performance by the team. So if we move forward one slide to Slide 11, one other element or one other enabler of driving in here today is the availability of gas monitors that are in the market. And what you see on the left hand side is that number of ICU beds that now have a gas monitor sort of attached to it in our direct sales markets. You can see the growth in the period from before COVID and up until April, quite strong growth. And today, That means that sort of 1 out of 10 beds is now equipped with a gas monitor and then they just sort of used in hail sedation. What we are also doing sort of in order to further accelerate it is that we've just in March launched our own gas monitor. And the early feedback and the early signs are quite positive, but that will also sort of help us further accelerate this increase going forward. One slide forward, please. So then looking at the sales development, as mentioned, sort of we feel we're coming off a very good quarter 1 with a 40% sales growth year on year in local currencies. That's being fueled by a couple of different things. You can see on the sales mix here, as Christo mentioned. We've seen quite sort of strong sales in the distributor market, particularly Latin America, COVID continues to sort of drive sales, of course. And then as I mentioned, the number of new customers that we're seeing across sort of the older regions where we are testing. The one comment to make here. And as I sort of have received the questions sort of earlier in the day, regarding sort of Germany and COVID. I think one thing to mention here is that the Germany sales in Q1 is quite strong and it's particularly strong looking at the dynamics of ICU patients. What we saw in Q4 was a very a rapid increase of COVID patients in Germany, and that number peaked on December 31, basically. And that's that will drive purchases to stock up make bigger purchases to make That's sort of in an escalating period, they have stock on hand. And then you also have the end year effect in terms of purchasing. So last year ended quite strongly. And then what happens in the beginning of Q1 is that sort of COVID numbers actually decelerated all throughout half of March, dropped about 50%. So what we're seeing is that sort of again more and more patients that are sedated in Germany and also across the other markets already inhaled sedation, so the penetration rates go up. And then finally, let's go to the next slide. Just Slide 13, please. Yes. Just to make a note, Natura, what we are also sort of quite occupied with at the moment is preparing for the launch of SETA CANDA, finally going from off label to on label. We are preparing in terms of training the organization. We're also growing the organization across our markets. So that work is well underway, spending quite a bit of time preparing for price and reimbursement discussions and submissions a negotiation in the market. And then in addition to that, we've also mentioned that we submitted in Switzerland and UK as well, expecting approval and launch in first half of next year. And as mentioned, we anticipate a launch in the 15 1st EU countries already this year. So with that, I'll hand over to Peter on the clinical side. Thank you. So we'll move to the next slide, Slide 14. In parallel with preparing for the launch of Selaquin DAL and Adelimab medication, we are working on our clinical trials and the support of the investigator initiated trial to support this therapy. And we have started recruiting patients in the pediatric European pediatric a trial that's running in 4 countries in Europe in about 20 EBITDAIX views. And we can move over to the next slide. So looking at the top line results, we said there was a conduct study, formerly known as ISO conduct study, the registration study that was performed in Janney, Lithuania. Move to the next slide, please, Slide 16. As some of you may know, the study was successful in demonstrating non inferiority when it was the oxidation efficacy of pentaconda versus propofol. Both drugs were efficacious in sedating patients to the RAS target range that was set for the study. An ice strain compared to the gold standard for full with a proportion of time in the target range of 90.7 our ICE VADER 91.1 proper fall with tight confidence interval well above the non inferiority margin that's 15 relative percent below the portfolio. Moving to the next slide, Slide 17. We also had a number of superiority endpoints that we we're looking at the ones that I would like to mention here today that were demonstrated to be superior for isotrain well, as Christa mentioned, reduced opioid requirements during extra oxidation, about a 30% decrease in the need of the dose of opioid during the presentation, we also found a high proportion of time with spontaneous breathing With Isoprene, which is beneficial to the lung and the diaphragm. And finally, after 48 hours of sedation, patients seen IsoTrain had a shorter time to wake up than proper patients, which is very useful from a clinical care perspective. Next slide, please. Now we are on Slide 18. Looking at the safety aspects, we're looking at organ functions and found no differences in the groups. We also looking at adverse events, and there were relatively few serious adverse events in the two groups And none of the serious events that were found were related to the use of ice the relative to the critical illness at Pfau. Adverse events that were noted were generally not related to sedation of the device Andrew's very new data concerns raised for the use of life study. So I'll say a successful study from a registration perspective and also from a clinical use perspective. Moving now to the U. S, the clinical development of U. S. In 2019 received feedback from the FDA and we've been following that feedback and that included the conduct of a human factors program and non clinical studies prior to the clinical trial and thereafter 2 clinical trials to confirm the efficacy an isolate for ICU installation and the establishment of a safety database. And we are then moving from that to the submission and commercialization. If you move to the next slide, look at the time line. Slide 1. Sorry, thanks, 21, Slide 21. So what we see in Europe, I've told you that we the Seraconda study was finalized last year, and we have presented a high level data at a press meeting and also as an abstract, we opened up the pediatric study site and submitted our marketing authorization application and expect to have an approval in the second half year of twenty twenty one. And we've started recruitment in the ISOCOMPT study. And by next year, second half year, we should next year, we should have completed the study in order to get approval the pediatric indication in 2023. And for the U. S, the human factors formative study will be completed this year and preclinical study needed for starting clinical trials will also be completed this year, and that will enable us to receive our IND by sometime after the summer in the early autumn, start recruiting patients early next year. And we are currently recruiting ICUs and we're very successful so far. The ICUs that are generally not to be successful, including patients and that have patient interest as well. In 2022, as I said, we started clinical trials and decide how to launch in the U. S. In 2024. And in 2023, we expect to end the clinical trials and submit our NDA and have an approval by 2024. And now I hand over to Simon. So Slide 23. Thank you. So financial results Kristians has already been through some other phase. So we had continued strong solid quarter, 1st quarter with a new growth 40% in local currencies, given that we, of course, are suffering on higher gross profit. However, the gross margin somewhat was hurt by the continued high costs for freight. Excluding this, the gross margin would actually have been higher year on year. We're still working on that. For Q4 and Q1, we had seen a lot transported by air. Going into Q2, we will have the vast majority transported by sea. Even though the cost for Seaford actually increased in Q1, but it was still a lot less compared to the airfreight. So we are working on that. Then of course, we also been on to the sales mix, given that we had a very good development in our distributors' markets, but that somewhat lower margins. So this mix in together came up with a gross margin of 64%, but we're still targeting like Just beginning of the book 70% in the future. And that's really our target moving forward. In terms of the EBITDA, the margin came to minus 18%. We do have increased OpEx and it's the main reason for that is really the buildup of the organization. Like Jensozantje, we are increasing sales And also or preparing for the Terraconda launch and then of course also the supporting unit. We did have in the first quarter some overlap in stock costs. We were 3 new persons in the management team, so there were certain overlap there. And also given that we are targeting to actually have employees and only have consultants So there has also been a transition from consultants to employees and in fact an overlapping that. Plus there's also been some timings in between the quarters plus slightly lower capitalization within R and D. So this all together has made OpEx to increase. And also in the quarter, we did have a one time impact from moving of a logistics center in the quarter. But we are monitoring this carefully and To have a competition organization. By end of March, we were 85 people together, 72 employees and 13 consultants. We believe that this is somewhere the level going forward. We've been talking previously about being roughly around 100 persons when we actually do the I'm getting the EU market approval and going forward. So we are on that the target. We are tracking the target. Next slide please, Slide 24. Moving on over to the cash And financial balances. We still have a strong cash balance of SEK 344,000,000. It's a debt free company, which is also strong. We did burn SEK 33,000,000 in the quarter. And you can see the split where the money is spent. It's certainly trends on investing and also from the operations. But we are again monitoring this carefully, and we still believe we have a very strong balance sheet in terms of cash. Next slide please, Slide 25. Our largest shareholders as of last March is pretty much the same as the previous season. I'm really surprised to say we do have a good mix of institutional owners and a few retail shareholders. And that was the best that I had to say. So I'm handing over back to you, Christophe. Yes, we can go to Slide 26 then, and that is the last slide, open up for questions. So please, if there are any questions, I don't know how to handle that. Please help me. There are no questions from lines at the moment. So I'll hand back over to our speakers. I have some questions from Develd here. I can elaborate them. And then when do we expect the results from the TOK study? I think maybe that's a question for you. Dieter. We have some top studies that need to be done before the clinical trials and others that need to be done before our NDA, but not on the clinical timeline, clinical trial. 2 out of the 3 studies that are being done before the clinical trials have been completed and the results are very good. And the test study is underway and will not be delaying our program. The delay due to the long FDA timeline for meetings really. So the total the full a full tox study program will not be ready until about 2 years' time. But for clinical trials, we are on track to expect to have that biopsy study completed thereafter. So Perfect. Thank you. And then there is another question to you, Jens. Q2 revenue on target? I think we have problem to answer that because I mean, we are not expected to guide you. So we don't answer that for the time being. No. And if nothing else, it's even the to do considering the situation with COVID and how long will This wave sort of continued at FFO. It's a very difficult time to take on it. And then I have another question, visibility on enticement of a new CEO. And then maybe I should answer that. Well, it looks good, but so hopefully, we will announce anything. In the yes, I don't know, I mean, it will come and waste. So it looks promising. Okay. That's about that. Another question? I have another one here actually. An update on China. Yes, I can. There is I mean, we are working on it and it's Chinese authorities are very complex and complicated, I have to say. It's the most complicated authority when it comes to regulation. But anyway, it looks good. And we expect to have I mean, an approval this year as we have communicated earlier. Okay. That's it. Then I don't think there are any other questions. There are no more questions from the audio. Okay. Thank you very much. And then we stop this webcast and wish you all a good day, and thank you for listening in to this. Bye bye.