Ambu A/S

CSE:AMBU B

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to the Ambu Q1 2019-'20 Conference. [Operator Instructions] I will now hand the floor to Nicolai Thomsen. Please begin.

[Nicolai Thomsen, IR Manager]

Thank you. Good morning, everyone, and welcome to our Q1 2019-'20 conference call. My name is Nicolai, and I am from the Investor Relations team. With me today here at the Ambu head office in Copenhagen, I have our CEO, Juan-Jose Gonzalez; and our CFO, Michael Hojgaard. The duration of this call will be approximately 1 hour and you can via our website follow the investor presentation we will go through live. Juan-Jose Gonzalez will provide strategic and revenue highlights of our Q1 2019 and '20 and Michael Hojgaard will review the financials for the quarter, and then we will take your questions. Please limit your questions to only 3 at a time and get back into the queue if you have additional questions. Now I would like to pass the word to our CEO, Juan-Jose Gonzalez for business update.

[Juan-José Gonzalez]

Thank you very much, Nicolai. And hello, everyone. It's a pleasure to be with all of you today. Now last year, we made a series of important strategic decisions and investments to make sure that Ambu was well positioned when this new and fast-growing and large single-use market was being created. And our first quarter results is a very good reflection of all of this investment. Last year, we decided to terminate our U.S. distributor and going a 100% direct. We decided to rapidly expand our global commercial infrastructure. We decided to double down in terms of R&D and scaling up our innovation engine. And I have to say that as we look at our first quarter results and the position we have as we move into the next quarters, we can see the benefit of all of that. So let's focus on the key messages regarding Q1. Number one, is the start of the year with 14% organic growth. The transition of the U.S. distributor has been completed. We have retained most of the business ahead of the scale. And of course, now we are in a better position to penetrate these accounts, not just with our pulmonology business, but also with all of our new innovation. And finally, we have a strong double-digit Visualization performance across all the geographies. This is not just the U.S. This is the U.S., this is Europe, and this is the rest of the world. Now in terms of our commercial expansion, we are on track. We have strengthened our direct commercial organization and we should finish the expansion that we announced last year by March. Now in addition to that, we are also starting to build our dedicated GI organization that will be responsible to launch our duodenoscopy in the U.S. and the following year, launch our Colon and Gastro business. And as we are investing in our commercial infrastructure, I have to say, it's encouraging to see not only the progress in our largest market in the U.S. but also how well this is playing out in countries in Europe, like the United Kingdom, Italy and also some of our new bids in very large and important markets, especially Japan and China. And then in terms of our innovation engine, we have 15 new products to be launched over the next 3 years. It's one of our largest single-use pipelines in the market. And number one, we are in track in terms of all the timelines. It really shows the benefit of our rapid modular innovation approach. And this is a pipeline that is going to start showing positive results as of this year. We have next quarter, the launch of our cystoscope. And with that, we will enter the largest market within Urology with 6 million procedures. The following quarter, in quarter 3, we are going to be launching our aView Advance monitor, that will give us superior image resolution and allow us to further penetrate accounts in pulmonology, and also, we will see the benefit in ENT and Urology. Highlighting one of the benefits of Ambu that we have a components and products that will be shared across multiple scopes. And we will finish the year with the launch of our duodenoscope in early Q4. We believe duodenoscopy is going to be one of the most important single-use segments and we are very excited with the progress that we have. So those are the key messages. And now let me just give you a little bit more details. Like we have done before, I think it's very important always to talk about the development of a single-use market. We estimate that the single-use market is going to be around $2.5 billion by 2024. That will make the single-use market one of the most exciting markets in medical devices. There are very few occasions where you see a market of this scale developing so rapidly. And all the drivers behind the development continue to accelerate the awareness and focus around contamination and infection control. The benefits of convenience and the ability to do more endoscopy procedures in other sites of care, in other parts of the hospital, or trying to facilitate some of the constraints around capacity and utilization. And finally, as there is more awareness regarding the true cause of reducible scopes, between the investment behind the towers and reducible scopes and the service and repairs and the cleaning and sterilization, is very clear that single-use growth at the right price, provides a compelling economic offering. So you have all of these trends. And of course, in some specific segments, on top of that, you have the regulators taking very assertive actions to make sure that hospitals move to innovative technologies with better sterilization profiles. So overall, we are very excited in terms of how this market is developing and confident that this market is going to become one of the most important new segment within medical devices. Now if we look at our performance, as this market is developing, we have had a strong start of the first quarter with 14% organic growth. On the left-hand side, you have the evolution of our units sold. We are targeting this year 900,000 scopes, and we finished the first quarter, growing 21%. Now we have grown 21% while transitioning our U.S. distributor. And now we are in a position to penetrate the distributor accounts at a more faster pace than what has been done before. On top of that, as we move to a 100% direct organization in the U.S., we see a benefit in terms of the average selling price for our aScope 4 in North America, which will increase by 15%. Now we are very excited with our Visualization business. And it's important to also highlight that we have had a strong start of our core business. If you look at our performance in '17/18, we grew 5% in the first 3 quarters of last year, we grew 4% and now you are seeing in this first quarter that we are growing at 9%. Now part of this growth is the benefit of the adjustment of the pricing policy that we executed in the last quarter. So I will say it's a very strong start of the year, but we should target for us to deliver on our guidance of 4% to 5% growth for our core business. But overall, whether you are looking at the U.S., Europe, Asia Pacific, while you are looking at Visualization of our core business, it's a very encouraging stuff. Now in terms of our Visualization business, let me just say that pulmonology, that still accounts for a large part of our Visualization business, continues to grow very rapidly. And we don't really see impact from competition. We haven't seen impact from competition before, we don't see it today, and we don't expect to see much impact from competition this year. But on top of that, it's very encouraging to see the positive evolution of our ENT business. And in the case of ENT, what we have here is the performance in the U.S. and after 31 weeks, we continue to grow 4x faster than when we penetrated -- than when we launch our aScope 3 in the U.S. So overall, it's a very positive performance and an example regarding the appeal of single-use products beyond pulmonology. Now let me just give you a sense in terms of the traction. We secured 80 new customers in quarter four last year. In quarter one, we have secured 150 new customers. And in quarter two, we expect to secure 300 new customers. And that's just showing that as we are expanding our commercial infrastructure, we are able to bring our ENT product across more health care systems and the overall reception is very encouraging. We actually have already penetrated 30 of the top 100 largest health care systems in the U.S., and we have done in less than 8 months. So overall, we are very confident regarding ENT being an important growth engine for Ambu. Now if we talk about our commercial execution, we announced that to support our new launches, we were going to triple our U.S. sales force, double it in Europe and double it in Asia Pacific. And overall, we are in plan to deliver against our time line that all of those reps will be hired, trained and deployed by the end of March. In addition, as we said, in the U.S., will be terminated a U.S. distributor, we are building a dedicated GI commercial organization to support our duodenoscopy launch. In Europe, we have seen very important investments in our key core markets. We have also start investing behind a large emerging markets like Russia, and in Asia Pacific, our biggest bets were behind Japan, China and Australia, and I have to say with Asia Pacific growing, 38% is a very encouraging, a very encouraging performance. Now it's not only about number of reps. We are building new capabilities, health care economics, global marketing, digital, account management, clinical competencies. We are also -- we are basically scaling up the company. And at the same time, making it more sophisticated, to make sure that we are able to bring our business to the largest health care systems around the world. Now with that, in terms of commercial infrastructure, let's talk about our R&D and manufacturing capabilities. And this is very important because this is what allows us to drive our innovation pipeline. On the R&D organization, we have the largest R&D infrastructure in single-use with over 300 engineers between internal and external, with R&D centers around the world. And more importantly, with a modular engineering approach that allows for faster and more productive development, the fact that we develop core components that then can be used across multiple scopes. And we combine that with our high scale, low-cost production. We have 10 years of experience in producing single-use scopes. We have a modular manufacturing approach that gives us the ability to rapidly scale up new products and of course, we benefit from high scale with 900 (sic) [ 900,000 ] scopes planned to be produced this year. So let's see what does it mean, these R&D with these high-scale, low-cost production combined. And it means a pipeline that I would say is unmatchable today in the single-use market. We have 15 new products coming up over the next 3 years. We are not going -- we are not only going to enter all the major endoscopy segment, but also in the segments that we are, we are going to also rapidly innovate and move towards more advanced generations. Pulmonology is a very good example. We had our aScope 1, 2, 3, 4. Then we're going to launch our aScope 5. Our aScope 5 is going to also have capabilities for smaller patients, in terms of different sizes, higher resolution. We will do the same thing in terms of ENT. We are launching our cystoscope, and we will launch our cystoscope high-definition. We will go into ureteroscope. And of course, we'll go against all the major segments in GI. So overall, this pipeline remains on track, and we are very excited in terms of our ability to move forward with this. Now specifically, this year, we are going to see 3 best product launches. These launches are going to be key in terms of our ability, not just to enter markets but also to sustain our rapid growth over the next few years. Number one, we have our aView 2 Advance Monitor. This aView Advance Monitor works against all of our pulmonology scopes, ENT and urology. First of all, it enhance our image quality and makes full HD possible. Number two, it allows connection to EMF system and features like LAN, WiFi and Bluetooth. And finally, it will enable then the rollout of our vascular enhancement software, which is an alternative to narrowband imaging. So basically, this is a very good example regarding our commitment towards bringing advanced technology that will allow single-use products to be used against more complicated and sophisticated procedures. Now next quarter, we are also very excited with the launch of our cystoscope. We are going to enter the urology market with a direct commercialization of our cystoscope. This is the largest segment in urology with 6 million procedures globally. And let me just say that we expect the same performance that we are seeing with ENT, the same rapid penetration and scale up globally. And of course, we will not stop with our cystoscope. Two years later, we will launch our ureteroscope that will further strengthen our urology portfolio. And then we will finish the year with the launch of our duodenoscope. Duodenoscopy is expected to be one of the largest markets within single-use. On the back of the concerns around contamination and the recommendation from the FDA in the U.S., we expect this market to convert very rapidly towards single-use. Our development is on track. We expect this product to be launched early Q4. And we are aggressively building our dedicated GI commercialization to ensure that we make the most behind this launch. And by the way, in terms of GI, it's not just this year with the launch of duodenoscopy, the following year we are entering Gastro and Colon. So it's a very important bet behind our ability to enter GI, which as you know, is the largest market within endoscopy. So this is in terms of our progress. It's an encouraging first start, first quarter of the year. We see a positive evolution on the key decision we made last year. And more importantly, we see that our competitive advantages in terms of innovation and manufacturing is playing out in our pipeline and our key launches this year. And with this, I pass it to Michael to talk about our financial results.

[Michael Højgaard]

Thank you, Juan-Jose. With the results in Q1, we have got a really good start on the year, as you alluded to, and we are on track for -- to meet our full year guidance. Altogether, we achieved a 14% organic growth this quarter. Our Visualization business grew 24% while core grew 9%, and the EBIT margin ended at 12.2%. The number of scopes sold finished at 180,000 units equal to 21% growth. We have double-digit Visualization performance across all geographies. Our transition of Tri-anim has been completed with retention of most of the business and our ENT scopes continue to have strong uptake in the U.S. Let's go to the next slide and look deeper into the sales highlights for the quarter. On this slide, we show the geographical distribution of the quarter's revenue and growth. North America accounted for 49% of revenue in the quarter with 16% organic growth. And we start to see the results from the decisions made in Q4 last year and from the expansion of the commercial infrastructure. Visualization saw organic growth of 23% in America, while Anaesthesia grew 8% and PMD 24%. The change at the distribution channel in Visualization has led to an increase of the average selling price of aScope 4 by approximately 15% in the U.S., which is all in line with our expectations. Europe accounted for 40% of revenue in the quarter based on organic growth of 11%. Visualization showed 22% organic growth while Anaesthesia grew 9% and PMD 5%. In the rest of the world, which accounted for 11% of revenue, the organic growth came in at 12% with Visualization at 38% and Anaesthesia as well as PMD at 3%. So now let's move on to a more detailed financial update. Revenue for the quarter ended at DKK 760 million, up DKK 100 million from Q1 last year corresponding to the reported growth of 16%. The gross margin came in at 60.1%, which is an increase by 0.2 percentage points. The gross profit was positively impacted by the growth in revenue and a more favorable sales mix with higher-margin products, including effects from changes to the distribution setup and pricing in Q4 last year. Total capacity cost for the quarter were up DKK 364 million or 30% over Q1 last year. The increase is primarily related to the expansion of our commercial infrastructure in the territories. Our EBIT came in at DKK 93 million and the margin was 12.2%. Moving on to the highlights of our cash flow and our balance. Free cash flow before acquisition is down by DKK 235 million from last year, now ending at negative DKK 190 million. The negative free cash flow comes as expected and is caused by the normalization of working capital due to the strategic decisions made in Q4 last year as well as the payment of the compensation to the former distributor. At the end of the first quarter, net capital was DKK 593 million or 20% of 12-month revenue being reduced by 2 percentage points due to timing effects from the transitioning of the distributor. The effect will be phased out during Q2 as inventories normalize. At the end of December 2019, equity totaled DKK 2.1 billion correspond to an equity ratio of 45%. And total net interest-bearing debt was DKK 1.4 billion, equal to 2.3x EBITDA before special items. And now let me move on to the guidance for the year. On the back of a good Q1, we maintained the outlook for the financial year '19/20. We expect organic growth in the range of 16% to 22%. And the growth will be driven by Visualization, where we continue to expect high growth rates in the range 40% to 55%. We expect a solid contribution from the ENT segment, especially in the U.S. and for anesthesia and PMD, we continue to expect stable growth at the level of 4% to 5%. With respect to the EBIT margin, we see this in the range of 12% to 14%. Endoscope unit sales are expected to be approximately 900,000 and will be driven primarily by the pulmonary and ENT. With this update, I would like to give the word back to Juan-Jose.

[Juan-José Gonzalez]

Thank you very much, Michael. So let me just finish saying this. First of all, Ambu is very well positioned within the single-use market. We have a first-mover advantage. We have been in this market for over 10 years, and we know what it takes to create the market as we move into new segments. Number two, we have a competitive advantage in both R&D and manufacturing. Our rapid modular development approach, combined with our high scale and low-cost manufacturing give us very strong assets for us to be able to globalize and scale up the company. And finally, we are making very aggressive investments behind our commercial infrastructure and making sure that we are in the ideal position to make the most of our first-mover advantage. So overall, we feel confident regarding our ability to fulfill our aspiration, to make Ambu the broadest and most innovative company in the single-use market, a company with an industry-leading growth profile and with the ability to create significant value. So with that, let's go into the Q&A. And let's start with the first question.

[Operator]

[Operator Instructions] Our first question comes from the line of Anette Lykke of Handelsbanken.

[Anette Lykke;Handelsbanken;Analyst]

Congrats on a very solid start to the year. Can you elaborate a little bit on the status of your expanded sales force? Everyone trained and in place? And when should we potentially see a push from this larger number of sales reps that I assume is fairly close to the 300 reps or so according to the indications you've given before. And secondly, once you have finalized also with the GI sales force during the year, will you continue to do investment next year as well, and to enhance your sales force? I'm just in comparison with the Boston Scientific having around a global sales force of 100 reps within the GI, is that something you're aiming for? And then last, my first question would be with this slightly faster transition into own distributions and with the strong start to the year, are we now closer to the high end of your organic sales growth guidance of the 22%?

[Juan-José Gonzalez]

Thank you very much for the question. So let me start with the expansion of our sales force. So we had a target around tripling sales force in the U.S. and doubling it in Europe and Asia Pacific, and do all of that by the end of March, and we are going to meet that target. Everybody is going to be hired, trained and deployed by then. Now in terms of when we are going to see the contribution, in terms of sales growth from this commercial expansion. We should start seeing it in the second half. Of course, there is some time that it takes in terms of getting the sales force to know the accounts and know their territory and start the sales process and converting it. But we should start to see it in the second half of the year. And then we should start seeing it in next year as well. Now in terms of the GI sales force. So first of all, let me say that GI is the largest segment within endoscopy. And our plans in terms of commercial infrastructure expansion reflects how large is this opportunity. We are starting building at this stage a sales force in the U.S., we will replicate that globally, and that is something that is going to take us a couple of years to complete. Boston has about 1,000 reps globally. We don't -- it's fair to build an organization of that size. Of course, they have a very large tools business, and they are also commercializing that. But in our case, we are fully dedicated to single-use but you can expect us to do a very significant investment to make sure that we make the most of this opportunity. Now in terms of the guidance, we want to be thoughtful in terms of the guidance we provide to all of you. And we want you to take the guidance we have given you as the -- as the one to base your models. Now it's true that this is strong start of the year that transition of the U.S. distributor went better than scale and the deployment of our commercial infrastructure and the priority in terms of our pipeline is all going according to plan, but we want to see a few more months of growth and looking at our underlying drivers before taking any decisions regarding our guidance.

[Operator]

Our next question comes from the line of Thomas Bowers at Danske Bank.

[Thomas Schultz Bowers, Analyst]

So 3 questions from me. So first of all, just going to China and then also with the [ Xiamin ] region being closed down right now. So first of all, any comments on your anesthesia production? And then also, in terms of -- you had some very strong sales of VivaSights in China. So we're also starting to see some negative impact here. And then second question, just on the Tri-anim transfer. Last quarter, you had secured around 90% and now close to 100%. So anything also in regards to the full-year guidance, of course. But you said you had a negative impact of 100,000 units in connection with the warning in Q3. So is there any underlying in Visualization that is maybe performing a bit below expected compared to that 100,000 units downgrade? And then my last question, just looking at here briefly on your North America visualization growth. So you had 23% year-over-year and quarter and then you had a 15% impact from ASP. And of course, ENT seems to be growing quite nicely. So I'm just wondering, did you have any underlying, so like-for-like, pre Tri-anim termination growth in the units of the aScope during the Q1?

[Juan-José Gonzalez]

Okay. Thank you. So let me start with China. And I would say the most important thing and what we are focusing on is, of course, on the safety of the Chinese population and our employees. And that's really where all of our energies are. Now in terms of the impact of this situation on our business, and like all medical devices companies have large presence in China and whose global growth really depends on the performance in China. In the case of Ambu, our growth is really mainly driven by the U.S. and Western Europe. China represents one of our biggest long-term opportunities, but is very small in sales today. The second thing is we are following all the guidance from the government. We have -- we operate with a very healthy safety inventory level. So we don't expect any material impact in terms of our business performance. But we are looking at how this situation unfolds. In the long term, although this is a very unfortunate situation, it creates more awareness within the Chinese health care systems regarding the importance of infection control and more focused around contamination. So we know that in the long term, that would be beneficial in terms of the development of the single-use market and a focus on 100% stable products. Now in terms of Tri-anim, and anything underlying in terms of Visualization. I have to say, we are very chorus in terms of our performance. If you look at it geographically, this is not about the U.S., this is also Europe and Asia Pacific, growing very rapidly. That for me, is very encouraging to show that this is not just a U.S. phenomenon, but it's something that is going to be relevant across all the key markets globally. Pulmonology. I think I mentioned during the call that we don't see any impact from competition. And of course, I share the performance of ENT and how rapidly it's growing in the United States. So overall, we are very pleased with the performance of our Visualization business. Now let me pass it to Michael to answer your question regarding North America Visualization.

[Michael Højgaard]

Thomas, it's a very good question, and I understand everything you're saying. I think the underlying fundamentals that you need to understand is that now we're in a direct model. And based on all the growth feedback we see, we really have a strong performance in the U.S. on the aScope as well as on ENT and the other Visualization products we are selling over there. And you're also right about the 15% increase in ASP. When you do the comparison back to last year, it's not really apples-to-apples. So it becomes a little complex. But when we look into the feedbacks that we get from the market, we can see that we are -- continue to be on a very strong underlying growth, including on aScope. I think that's the best answer I can give you.

[Operator]

Our next question comes from the line of Christian Ryom of Nordea Markets.

[Christian Sørup Ryom, Senior Analyst]

This is Christian from Nordea. I have 3 please. So my first question is to your endoscope volume and whether you can help us with them, sort of the increment over last year. So last year, you did around 150,000 units. This year, you do around 180,000. Can you help us with understanding sort of roughly how much of the 30,000 unit increment comes from the aScope in pulmonology? How much comes from incremental sales in VivaSight? And how much is derived from the new ENT offering? And then my second question is to the ENT launch more broadly. You noted that in the U.S the ENT launch has outperformed the aScope 3 launch by around 4x since launch. What's the comparison like in Europe versus the aScope 3 launch? And then my final question is to the status of the duodenoscope? And then -- and whether you'll announce publicly when you've filed the product with the FDA?

[Juan-José Gonzalez]

So let's start with the first one in terms of endoscopy volume. So overall, we are growing in terms of volume, 21%. Now we don't provide a split between how much is from pulmonology, how much is from ENT and how much is from VivaSight. You can assume that pulmonology which is still the bulk of our sales in Visualization, are showing a very strong performance. And we are very [indiscernible] for that because that basically means that we start the year with the ability to keep growing our base Visualization business, while we're entering into all this new segment. In terms of the ENT launch, I would say we are seeing the same thing as pulmonology. The pace of penetration is [ growing ] significantly market by market, I would say the U.S. is showing a very strong performance. We are also seeing very strong performances in some European markets like the U.K. and if you look at Asia Pacific, we see countries like Australia, which are developing very rapidly. But overall, I will say that U.S., very rapid penetration as it is the largest market, is very good for us to see it doing very well. And then you have a mix of some markets accelerate -- having an accelerated penetration and other ones are much slower ones outside of the U.S. And in terms of duodenoscopy, at this point, we are giving us a guidance that we are going to get the FDA approval and launch early Q4, and I will like all of you to work with us.

[Christian Sørup Ryom, Senior Analyst]

Just one quick question as a follow-up on your first -- on your answer to the first question. So when you say that the pulmonology is still showing very strong performances. Is that to be understood as, say, the core aScope Broncho still driving the majority of the growth in the year-on-year comparison?

[Juan-José Gonzalez]

Yes.

[Operator]

Our next question comes from the line of Jannick Denholt of ABG.

[Jannick Lindegaard Denholt, Research Analyst]

I just have one actually on the other side of the business. So the core business. So obviously, we had expected the positive impact in Q1 from the wholesale pricing adjustments last year. Can you just help trying to sort of quantify a little bit on those numbers versus what you've reported this quarter? That would be helpful.

[Michael Højgaard]

Yes, this is Michael. Sure. As we say, we had a very good result in core. And you can clearly also see that on the growth performance, which is somewhat above what we expect for the full year. I think we put in the report also that we see a close to or at least a very, very satisfactory recovery of the impact from the changes in the pricing policies that we made. So to the statement that we gave back in Q4 that we expect to see most of the value to come back is actually also what we have seen, and that is what have drive the core growth up to the levels that we see. So expect that there's going to be some normalization as we move into especially H2 but also Q2 towards the overall 4% to 5%.

[Operator]

[Operator Instructions] Our next question comes from the line of Yiwei Zhou, SEB.

[Yiwei Zhou, Analyst]

I have one follow-up question to Thomas. So the -- correct me if I'm wrong. So visualization grew 23% in the U.S. and 15% positive from ASP. Could you confirm the unit sales growth was only 7% in the quarter? And how much is that from the ENT scope launch. And also, is this the -- this growth rates you already expected?

[Michael Højgaard]

Yes, I think this question is a little bit along the line from what we answered just a minute ago, also to Thomas Bower's questions. All the numbers you refer are correct. We see very strong performance in the underlying market, when we talk about ENT. And also when we talk about the aScope. But of course, when you compare this year over last year, where we have changed the structures, it gives some complexity, but what is important for you to understand Wie Zhou is the underlying market growth is high and very stable.

[Yiwei Zhou, Analyst]

Okay. And then my second question is regarding the R&D capitalization. And we understand you have increased it significantly this year on the cash R&D cost. And when should we expect the amortization start kicking or increase accordingly?

[Michael Højgaard]

Yiwei, I think when we talk about this issue, it's a very natural result of the pipeline that we show on our Slide 9. So what you see is that we are investing very significantly into our pipeline. So we're going to see a lot of product launches over the next many quarters. What we said is that our development circle is somewhere between 2 to 3 years. So every time we are able to launch the product, you would see the amortization of that product kicking in. But that's why in a phase where we are expanding our innovation very significantly, you're going to see this impact for the next quite a few quarters, I suppose, because we will be increasing investments into R&D as we move along. But of course, eventually, when you get to a steady state, you will get into a situation where the amortization will be approximately at the level of the investments. And then you will see this effect phasedown.

[Operator]

And we have a follow-up question from the line of Anette Lykke at Handelsbanken.

[Anette Lykke;Handelsbanken;Analyst]

And then just on CE mark, will that come before or after the U.S. on the duodenoscopes? And then I don't know if you're willing to provide some sort of comments or if you have heard any feedback on the launch of the EXALT D? And now you've seen the clinical profile of the scope, does that create any sort of concern or excitement for your own clinical profile of the aScope 2?

[Juan-José Gonzalez]

Thank you for your question. We lost a bit of your voice when you were stating your first question. Do you mind repeating it again? I heard the...

[Anette Lykke;Handelsbanken;Analyst]

I'm just wondering -- I was just asking about the CE marks filing in Europe, would that be before or after the U.S. file can take? And my second question were on the EXALT D launch. If you have heard any or do you have any feedback from the launch of Boston Scientific. And now you have seen the profile of the product, does that create any sort of concern or excitements compared to own clinical profile of the aScope 2?

[Juan-José Gonzalez]

Yes, okay, perfect. So in terms of the CE mark, I would say the key guidance is that we are going to launch in the U.S., early Q4, and then we will be launching in Europe. That's basically the key method. But we intend to commercialize our duodenoscopy globally. Now in terms of the Boston EXALT D. I would say we have a preliminary view regarding the technical performance of the product. Of course, we know the performance of our growth. And I would say that we are confident we have a competitive offering in the market.

[Operator]

Next question comes from the line of Ed Ridley-Day at Redburn.

[Edward Nicholas Ridley-Day]

I also have a question on the Boston launch. Do you have a view on the extent to which the breakthrough designation will be a positive for the market overall? Or will be an issue for you given that obviously advanced in terms of reimbursement that they will have? That's my first question. And just in terms of the U.S. approval of the Duo, I appreciate your commentary around the time line. But can you give us some stepping stones on that. When might we hear of your U.S. trial for the Duo?

[Juan-José Gonzalez]

Yes, so first of all, I have to say Boston launching in January, having as they referred to as a soft launch, where they are engaging with few KOLs in selected accounts, is positive for us. They are helping us to validate the notion of a single-use product in duodenoscopy and helping us to create a market. We are basically following a few months later with the national launch and with a supply rate to cover all the major accounts in the U.S. I understand they have indicated that they are talking with the authorities regarding reimbursement, we are discussing with the authorities as well. And this is something that will be beneficial for the category. Basically, the reimbursement will be granted for all single-use players. And that, of course, will significantly accelerate the penetration of single-use in duodenoscopy. Now in terms of stepping stones, because we are in a competitive environment, we are going to be less -- we're going to provide less visibility regarding all by stepping stones in terms of our development. However, you can assume that we are launching early Q4, and we are so close to the launch that you can also assume that we have a high level of confidence regarding being able to meet that time line.

[Operator]

Our next question comes from the line of Thomas Bowers at Danskebank.

[Thomas Schultz Bowers, Analyst]

Just a few follow-ups here. Just on the pipeline in your prepared remarks, you seem upbeat on the impact from the aView 2 launch in Q3. So first of all, to expect any material impact in pulmonary. So any impact in the Broncho suite? Or is that more likely to happen once you launch the aScope HD 5 next year? And then just on the cystoscope here in Q2. First of all, you're talking about soft launch, but I guess, that relates to the fact that you will not be launching the aView until Q3. So can you remind me the cystoscope, is that's going to be equipped with an HD camera? Or is it just because that you get the better quality still with the new screen? And also, can you maybe indicate the price range that you're looking at for the cystoscope?

[Juan-José Gonzalez]

Sure. So let me start with the aView 2 advance. And first of all, image resolution is a key decision driver for health care systems when they look at adoption to -- of single-use products. There will be economic offering, the pricing, there is some mechanical performance and there is the image resolution. So improving our image resolution will allow us to increase our level of penetration within pulmonology and in some cases, it will allow us to start entering into the Broncho suite. However, it is when we launch our aScope 5 that wear with aView 2 Advance, we will be able to significantly penetrate that segment. By the way, the aView 2 Advance will also help to accelerate the penetration of our ENT because our ENT will also see an improvement in terms of the image resolution. And it will support the launch of our cystoscope. Now in terms of the cystoscope, we talk about soft launch, mainly because of the commercial infrastructure that we will have built to support that launch. We are expanding our commercial infrastructure. There will be some dedicated resources to support this launch. But you will see more of an impact next year.

[Thomas Schultz Bowers, Analyst]

And, then just on the camera and price for the cystoscope?

[Juan-José Gonzalez]

Oh Yes, So in terms of pricing, we will -- again, because we are in a competitive environment, we will not provide visibility in terms of pricing until we launch the product. In terms of the camera, if you look at the needs of surgeons, when they do a cystoscopy, our product together with aView 2 Advance will more than meet those requirements.

[Thomas Schultz Bowers, Analyst]

So HD or SD?

[Juan-José Gonzalez]

Yes. No, it's not HD. Maybe just to expand on the image resolution. There are 3 things, 3 drivers of image resolution. One is the quality of a sensor, and there are different technical levels and all the way to HD, then you have the software, the image resolution software enhancement that also plays a role. And then you have the monitor. And the monitor can be HD, and can have some additional features. So when you are looking at image resolution and what improves an image resolution, it's not just on whether the sensor is HD or not is whether you have all of those 3 things moving forward. So when I look at the cystoscope, because we have our aView 2 Advance, because we have a very advanced sensor, because we are going to have more advanced image resolution software, we know that the experience of a surgeon is going to be very positive relative to what they need to do when they do a cystoscopy. But of course, when we launch cystoscope HD, it will be even better. And by the way, by then, I'm sure we'll be having even more development in terms of software and will have even better monitors in the process to -- in process to launch now.

[Operator]

Our next question comes from the line of Craig Mcdowell at JP Morgan.

[Craig Mcdowell, Analyst]

Just one please, on the gross margin. I'm -- pretty limited expansion this quarter despite the improvements in mix and also the ASP uplift in both Visualization and the legacy business. Is there anything we should be aware of in this quarter? And can you give any comments on how that should progress for the rest of the year?

[Michael Højgaard]

As you know, we don't give a specific guidance on the gross margin. But overall, I can say that we have prepared Ambu for very significant growth and capacity. And that is one of the effects that you see in the first quarter that we have more capacity in our manufacturing and operational functions than what we were able to utilize. So we kind of pay for that in the first quarter from opening the new factory and having all the floors fully equipped as we move into the coming quarters.

[Operator]

And our next question comes from the line of Niels Granholm-Leth.

[Niels Granholm-Leth]

So my first question would be about your marketing collaboration with Cook Medical. Can you just briefly talk about what will be the contribution from Cook Medical in your launch of the duodenoscope this summer? My second question would be if you have finalized your animal tests with your duodenoscope, and if you have initiated any human tests with this product? And my third question would be, you have previously mentioned that you would kind of replicate the large study that Boston Scientific is doing with the EXALT D, when would you initiate a large study with your duodenoscope?

[Juan-José Gonzalez]

Yes, So let me start with our partnership with Cook Medical. I have to say we are very in [ course ] with the progress in our partnership with Cook Medical. We have a dedicated team working with them. They also have dedicated resources. And the basis of the collaboration is for Cook medical, the ideal scenario is that if there is any hospital that is a key account for them, it wants to move to single use, that they do it with Ambu rather than Boston scientific. And they are operating on that basis. We are collaborating in terms of opportunities to present our single-use product to some of their key customers and some of the key surgeons, I think DDW is going to be a good example for you to see our collaboration in action. In terms of our animal study and our medical study, again, as we're in a competitive environment, we will not provide any details regarding the development but this I can tell you it's very important for Ambu to establish very strong clinical credential. And on the back of that, whether it is our colonoscopy or whether it is our entrance into urology or pulmonology, you will see us doing clinical studies and making sure that we show the positive performance of our products, and that's going to be a key part of our growth agenda moving forward.

[Operator]

And as there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Juan-José Gonzalez]

Well, I mean, thank you very much for all the questions. And let me just finish by saying it's very rare that a company finds itself in front of us, a significant opportunity. The creation of a single-use market is going to benefit patients, is going to benefit surgeons, is going to benefit health care system. And more importantly, is going to create an entire new segments within endoscopy. And in front of this opportunity, I hope all of you realize that we are making all the key investments and all the key decisions to make sure that we emerge as a pure player with a broadest and most innovative portfolio within single-use. A company that is global, that is known for rapid innovation, that have unmatchable manufacturing infrastructure and a company that can deliver its promise. Thank you very much.