Ambu A/S

CSE:AMBU B

Earnings Call Transcript 2020-Q3

[Operator]

Hello and welcome to Ambu Q3 2019/'20 webcast. [Operator Instructions] Today, I'm pleased to present Ambu's CEO, Juan-Jose Gonzalez. Please begin your meeting.

[Nicolai Thomsen, IR Manager]

Thank you. Good morning, everyone, and welcome to our Q3 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. During this conference call, Juan-Jose Gonzalez will talk about the highlights for the quarter and Michael Hojgaard will review the financials, and then we will take your questions. [Operator Instructions] The duration of this call will be approximately 1 hour, and you can, via our webcast, follow the investor presentation that we will go through live.Now I would like to give the word to our CEO, Juan-Jose Gonzalez.

[Juan-Jose Gonzalez]

Thank you, Nicolai. Quarter 3 is an important quarter for all of us. We have an aspiration to become the world's most innovative single-use endoscopy company. And in quarter 3, if we look at our results, if we look at the progress with our innovation pipeline, if we look at the development of the market, we are well underway to fulfill this aspiration. Now let's talk about what makes Ambu uniquely positioned to succeed. And there are 2 aspects. Number one, this is a unique market opportunity. The market is today, $700 million to $800 million, the single-use endoscopy market, with a penetration of 1% to 2% of the total endoscopy market. And we expect that this market is going to become $2.5 billion by 2024. And this is unpresented growth. Single-use endoscopy is considered one of the most attractive, if not the most attractive medical device market. And if you look at Ambu, we have incredible competitive advantage to emerge as one of the leaders within single-use endoscopy. Number one, we are today the #1 in volume, and we expect by the time we finish the year, that we will also be the #1 in value with over a decade of experience in single-use endoscopy. We have clear competitive advantage, both in terms of modular innovation and high scale low cost manufacturing. That's why we are able to have the richest pipeline in the industry. We have 15 new products launching over the next 3 years. We will enter all the major endoscopy segments. And we can do it with the health care economics offering that ensure that hospital can move from reusable to single-use without incurring an additional cost. And finally, we have a global largest single-use commercial organization, dedicated to make sure that we can create a market and penetrate a major health care system with our single-use visualization business. That's why when you put all of this together, we are able to advance our agenda in a way that other companies will not be able to. For example, this week, we secured a sole source agreement as part of Premier Ascend program. Premier Ascend program, it's covered 1,000 hospitals, and it is one of the major programs for Premier in the U.S. And we are able to do it because of the fact that we have already, today, the most comprehensive portfolio. We expect this type of agreements to actually strengthen going forward to see more of these agreements around the world. And as we bring all of our innovation, further strengthen our position. Now let's talk about our business update and what are the key messages in terms of our quarter 3. And there are basically 3 key messages. Number one, the COVID-19 pandemic is accelerating the development of a single-use endoscopy market. There is a much higher awareness in terms of infection control, health care assistants are measuring better contamination. And on the back of that, they are looking at single-use endoscopy as an attractive solution. And we think all of that, of course, with aScope Broncho, is being used in the treatment of COVID-19 patients, and on the back of that, we are expanding our customer base and increasing the penetration of our existing customers. Now all of this, it is translated into a remarkable performance. We are growing 21% in quarter 3 on the back of our visualization business, growing 81%. And this is the fastest growth in visualization of our last 16 quarters. We are actually tripling our business versus 3 years ago. In Europe and Asia Pacific, we are actually doubling versus last year. Now the impact of COVID-19 has been positive in visualization and like in other hospital medical device companies as in contracted elective procedures, it has had a negative impact in our core business. Now we are seeing a gradual improvement. And in July, we are back on positive growth across all regions and all business areas. But we have certainly seen a decline, especially in the first part of our quarter 3. And it is this decline in our core business, what we are reflecting in our full year guidance. Now we expect to grow 26% with our EBIT hitting around 12%. Now because this adjustment is really linked to our core business. Our guidance for our visualization volume remain unchanged, and we are expecting to hit more than 1 million in endoscopy units this year. Now all of this means that we are actually emerging from the pandemic as a stronger company. With a 26% growth outlook for this year, Ambu is today one of the fastest-growing medical device companies globally. We are doing it while strengthening our organization, both in innovation and commercial infrastructure. We are on top of that entering into the largest markets in endoscopy with the launch of our aScope Cysto, urology and our aScope Duo in GI. These new markets are going to be important growth pillars for the company. Now let's talk with a bit more detail regarding the impact of COVID-19 and why the single-use endoscopy market continues to strengthen. And we have seen 2 things: number one, there is an increased focus on infection control. There was a recent peer review meta analysis that was done that show a 15% contamination rate in Duodenoscopy. And actually, if you look at the last DDW conference, the largest conference in GI endoscopy, there were 17 papers that were presented on contamination in duodenoscopy. So overall, there is a much higher level of awareness regarding contamination issues in a reusable endoscopy and the need to look for alternative solutions. And that is combined with the guidelines from the FDA and national associations. For example, recently, the FDA issued its second safety recommendation asking U.S. hospitals to move from traditional reusable scopes to more innovative technologies, highlighting aScope Duo as part of a solution. On top of that, all the national bronchoscopy associations, both in the U.S., in Europe and Australia are indicating that in the midst of the COVID-19 pandemic, if you need to do a bronchoscopy, that you should consider doing a single-use bronchoscopy. And all of that is creating a more positive environment for the development of our single-use endoscopy market and within that for the development of Ambu. Now that we talked about the market. Let's talk specifically about a COVID-19 impact on visualization. So first of all, if you look at the impact of aScope 4 broncho in Europe and Rest of the World, it has been transformational. In our quarter 3, our Europe business -- our Europe Visualization business grew 3x, and we doubled our business in rest of the world. Actually, we are seeing double-digit growth at all of our European territories with the United Kingdom as a main growth driver as they prepared for the second wave. Now in the case of the U.S. as you have seen a different level of performance and the reason why it is different in the U.S. is because in Europe, when a COVID-19 patient arrives, the first thing they do is they use single-use bronchoscopy to check the health of their lung. While in the case of the U.S. single-use from bronchoscopy is only used in the cases where patients have more severe conditions. And of course, so that, our single-use bronchoscopy is part intensive care and part elective, and the elective part being affected as elective procedures are being canceled or postponed. Now we have seen a positive evolution after our quarter 3, and in July, we have our U.S. visualization back on a strong growth. Now to meet the increase in our global demand, we have completed the expansion of our manufacturing capacity for our aScope Broncho and now we are in a better position to fulfill any future demand related to the second wave. And it is on the back of that, that we are selling 337,000 units in our quarter 3 and that we are maintaining our guidance of over 1 million scopes for the full year.Now while the COVID-19 impact has been positive in visualization, in the case of our core business, it has been negative, especially in P&D. And again, this is similar to what we have seen with other hospital medical device companies that participate in elective procedures. There has been a postponement of these elective procedures, and that has had a negative impact, especially in patient monitoring that declined 32% in quarter 3. The reason why our anesthesia business has not declined to the same level is because of our resuscitators. And our resuscitators similar to single-use bronchoscopy play a very important role in the treatment of COVID-19 patients, and that is offsetting the decline that we are experiencing in the rest of our anesthesia portfolio. Now we have seen after a sharp contraction in April and May, a recovery of our core business as well. And in July, all regions and all business areas are back in positive growth. Now that we talked about the impact of COVID-19 in our performance and how that is driving our outlook for a 26% growth, let's look another very important element of our agenda. We say that we want to become the most innovative single-use player in endoscopy. And we have the richest pipeline in the market to deliver against that. We are launching 15 new products over the next 3 years. And if you look at our key milestones in quarter 3, we introduced our aView 2 Advance. And with this product, now we have superior imaging solution in pulmonology is a monitor that combined with our advanced sensor with our advanced image enhancement software, provide an imaging solutions, which is unmatched in the market today. We also got approval for our aScope Cysto. We will talk about what are some of the early learnings of this launch, but that gives us access to what is considered the largest endoscopy market with pulmonology. A market which is bigger than our current pulmonology market. And of course, we got granted breakthrough designation for our aScope Duo, and we got clearance from the FDA. And with that, we are entering into GI, and I will also give you some details in terms of where we are. Now all these are very important achievements in times of the COVID-19 pandemic, and it reflects the ability of the R&D, regulatory, and commercial organization to execute in what has been a very difficult environment. And now COVID-19 has had an impact in terms of the next-generation of products. And this is on the back of travel restrictions and ability to be able to work with some of our third party supplier. That actually is resulting in a delay in our launches from our second quarter next year to the second half next year for our aScope Colon and Gastro. All the rest of our launches remain as planned. Now let me just give you some highlights in terms of our aScope Cysto. Again, this is a $6 million procedure market for us. We are going to expect a rapid uptake similar to what has seen -- what we have seen in ENT and faster than what we actually saw in pulmonology. We say this because we have done around 500 pro demonstrations. We have 213 ongoing trials. Actually, if you look at a top 100 largest urology centers in the U.S. in 21 of this top 100, we have either converted or we are in the middle of trial. This level of activity, this level of effectiveness is much higher than what we saw when we launched pulmonology. And when we have entered into ENT, and the main driver of this is the perception of imaging resolution. And basically, our aScope Cysto have our most advanced sensor. It has the most advanced image enhancement software, and it has our latest monitor technology with aView 2 Advance. And when you put all of that together, and you compare that imaging solution with a reusable cystoscope, which after going through several reprocessing lose its image capability, basically the feedback from the health care system and the urology physician is that they perceive a better imaging solution. Which combined with the convenience and flexibility the ability to do more cystoscopy procedures with the existing infrastructure, the strong health care economics, will make this market convert very rapidly. Now that is in terms of system, let's talk about now our entrance into GI with the launch of our aScope Duo. GI represents the #1 strategic priority for the company. GI accounts for 70% of the total endoscopy procedures globally, and we expect that by 2024, single-use duodenoscopy is going to be one of the largest segments in the market. And that's why this launch is so important. We can today disclose that actually we have granted breakthrough designation with the FDA. That basically means that throughout the development process, we work closely with the FDA on securing the approval. And we are expecting a rapid market traffic conversion is very rare for the FDA to issue 2 safety recommendations to U.S. hospitals. That, combined with the CMS reimbursement in the outpatient channel, is going to ensure that all hospitals in the U.S. move to innovative technologies and single-use duodenoscopy being the one that will guarantee no risk in terms of contamination. We know it's going to be one of the preferred solution. Now we have started our controlled market release we have conducted today over 400 pro demonstrations. We have some positive feedback from physicians on the back of this pro demonstration we get positive feedback in terms of the imaging solution. We get positive feedback in terms of the feel of the product. We get positive impact in terms of the weight. And overall, we are excited in terms of moving forward. Now to be able to support this launch, one of our key priorities is to build a significant commercial infrastructure, especially in the U.S. We are in track -- we are on track to build our 170 reps in the U.S., and they are working well with Cook Medical as part of our marketing agreement and through that, we are gaining access to all the major duodenoscopy centers in the U.S. We expect all this infrastructure to be in place by the end of Q1 next year. And then in terms of our clinical study, and I would say this is similar to what other pharmaceutical and medical devices companies are experiencing, COVID-19 is disrupting the ability to start clinical trials in the time that we were planning. Our plan was to start 1st of September. And what we are seeing is that the administration in our key selected site is having some problems to finish our contract and have everything in place to make sure that we can execute this clinical trial without any problems. And therefore, we are delaying the start. But the clinical trial is an important part of our launch agenda, and we are committed to share the results as soon as we complete the study. Now that is in terms of our -- is in terms of the high nets in terms of the performance of the company, the progress of our innovation and where we are with our launches to urology and GI. Now let me pass it to Michael, who is going to provide more details in terms of our financial performance.

[Michael Hojgaard]

Thank you, Juan-Jose. As we have talked about, COVID-19 has, in Q3, significantly increased the demand for our single-use endoscopes and resuscitators in Europe and also in Asia Pacific. For the quarter, we have delivered an organic growth of 21%, driven by an 81% increase in visualization, but a negative growth for our core products by minus 15%. For visualization, the geographical composition of growth varies significantly with triple-digit growth in Europe and in rest of world, whereas the growth in North America is slightly negative. The significant difference in geographical growth pattern is driven by the fact that doctors in Europe use bronchoscope as an integrate part of the standard treatment for COVID-19. Whereas physicians in the U.S. pursue alternative treatments to avoid the aerosol from potential COVID patients and therefore, often limits the use of bronchoscopes for situations where the condition of the patient worsens. Our core business has contributed a negative growth of minus 15%, as mentioned, as these products to a large extent, are used in elective procedures that have been subject to cancellations, et cetera. As a result of the above, our full year guidance is, therefore, reduced, and the organic growth for the financial year is now expected at approximately 26% compared to previously 26% to 30%. The guidance is thus reduced to the lower end of the interval due to a more negative outlook for our core business, whereas our visualization business is on plan, and we maintain our guidance to sell more than 1 million endoscopes for the full year. Our core business is now for the full year, expected to grow slightly negative due to COVID-19 impact, leading to elective procedures being canceled to a higher extent than what we estimated back in April this year. Because of the lower top line growth for the year, our expectations for EBIT margin for the year is reduced from 12% to 14% to now approximately 12%. As mentioned, our full year expectations for visualizations are intact. And as we speak, we are close to reach the 1 million mark for endoscopes being sold year-to-date. On Slide 14, you can see the geographical distribution of this quarter's revenue and growth rates. North America accounted for 7 -- 37% of revenue, with a negative growth of minus 10%. COVID has impacted our U.S. business negatively as elective procedures, in general, were being canceled or postponed as the spread of the virus continued. Visualization in North America declined by minus 2%, driven by COVID on the elective part of the pulmonary and ENT business as well as due to the guidelines regarding risks of aerosols. However, after a sharp contraction in Q3, we have seen our visualization business begin to recover as we move into Q4. In anesthesia, we saw a positive impact on the demand for resuscitators, while the elective driven product groups were negatively impacted, leading to a negative growth of minus 6% in the U.S. A significant share of products in the PMD are used for elective, which is the reason why PMD is significantly impacted with a negative growth of minus 43%. Europe accounted for 50% of revenue in Q3 with an organic growth of 59%. Visualization sales increased nearly 3x versus last year, reaching 195% organic growth. Anesthesia grew 7%, while PMD declined by 32%. The core businesses are impacted by the same COVID dynamics as we see in North America, including a strong demand for resuscitators and cancellation of procedures within PMD. The rest of world, which accounted for 13% of revenue and an organic growth of 31%. Within visualization, the business doubled with an organic growth of 105%. The growth was highly driven by the sales in China, Australia and Japan. Anesthesia grew 10% from improved ability to deliver anesthesia product on the back of the high demand that arose in Q3. PMD saw a negative growth of minus 9%. The fundamental dynamics impacting anesthesia and PMD are identical to what we have seen in North America and in Europe. Now let me go through the key numbers on our P&L. Revenue for Q3 was DKK 947 million, up DKK 174 million from the same period last year. This corresponds to reported growth of 23% and an organic growth of 21%. The gross margin was 64.7%, which is a significant increase by 8.3 percentage points from last year. Our gross margin last year was negatively impacted by inventory write-downs following the SC210 discontinuation in June. And adjusted for this effect, the margin expanded organically by more than 5% year-over-year, caused by the higher -- which is caused by the higher ratio of revenue coming from the visualization product group. Total capacity costs for the quarter were DKK 457 million, which is a 63% increase. The growth is mostly driven by the increased selling and distribution cost as a result of the commercial expansion announced in June [Technical Difficulty] balance sheet. Free cash flow before acquisitions totaled DKK 187 million, corresponding to 20% of revenue. For the first 9 months of this year, free cash flow is negative by DKK 92 million. This is as expected and is driven by the investments into rebuilding working capital as well as the DKK 20 million settlement paid to the former distributor of aScope in North America, as communicated in Q3 last year. The milestone payment of EUR 40 million related to the FDA clearance of the duodenoscope is due to be paid in the first quarter next year. At the end of the quarter, net working capital was DKK 569 million, corresponding to 17% of 12 months revenue. Lastly, total net interest-bearing debt was DKK 1.253 billion, and that corresponds to a ratio of 2.2x EBITDA. Finally, let me sum up on the revised guidance for this year. The reduced outlook is driven by a higher-than-expected negative impact on our core business from the COVID pandemic. Our full year expectations for visualization are intact, and we continue to expect to sell more than 1 million endoscopes this year. And as we speak, we are very close to reach the 1 million scope sold mark. As a result, the outlook for the full year is reduced to approximately 26% organic growth, down from the 26% to 30%. And with an EBIT margin reduced to approximately 12%, down from 12% to 14%. With this update, I would like to give the word back to you, Juan-Jose.

[Juan-Jose Gonzalez]

Thank you very much, Michael. And let's open to Q&A.

[Operator]

[Operator Instructions] And our first question is from Christian Ryom, Nordea.

[Christian Sørup Ryom, Senior Analyst]

Three questions from my side. First, to the bronchoscope. You -- as I understand from your report, you say that you're expanding supply capacity going into the four quarter -- fourth quarter. Can you talk about whether you were actually constrained in terms of your bronchoscope sales in Q3? And then related to that also regarding the bronchoscope. How have you seen your aScope sales being impacted here in Q4 as we've seen the European case counts begin to rise again? And then just for clarification, on your guidance commentary on the core business, where you say you expect negative organic sales for the year. Does that also include negative organic sales in the anesthesia business in isolation?

[Michael Hojgaard]

Christian, this is Michael. So the first question, I understood the way whether we in Q3 have been suffering from capacity constraints that has led that we were unable to fulfill customer demand. Is that correct?

[Christian Sørup Ryom, Senior Analyst]

Yes, that's correct.

[Michael Hojgaard]

I would say, no, that has not been the case. We have -- we -- when the pandemic started, we were in the situation where we had quite significant inventory. So we took benefit from that. And I would say that from the late part of March or maybe even the early part of April, we have been air freighting more or less all scopes into the key markets. And you can also see that there's a quite significant extra cost attributable to that. So as we have increased our capacity, we will be able to rebuild those inventories as we move into Q4. And then we're slowly going to see that our supply chain cost will normalize. It's going to take a while. Your commentary on Q4, could you just repeat that?

[Christian Sørup Ryom, Senior Analyst]

Yes. So in Europe, we have recently seen increased COVID-19 case counts. And my question was to how you're seeing that impact demand for the aScope here in July and August?

[Michael Hojgaard]

Yes. But I would say that in the report and also in our commentaries here, we are disclosing that we continue to see a very strong rebound in general. And I would say that we continue to see a very strong performance also, specifically on the visualization. And I think that is -- there's probably that much information we can share on that. But we continue to see a very, very strong demand in Europe for our aScope. While we are at the same time, also seeing a strong tendency to the rebound in the markets that has been suffering. As for the guidelines, we are guiding, as you say, slightly negative growth for core in the fourth quarter. And specifically on anesthesia, which is very positively impacted by the resuscitators sale I will not guide specifically on that. But as you can see from the numbers, it is the PMD growth that is in Q3, dragging by the overall growth. So I think you can more or less make your own math here.

[Operator]

Our next question is from Benjamin Silverstone, ABG.

[Benjamin Silverstone, Research Analyst]

I have 2 questions, if that's okay. So the first is in regards to your clinical study for denoscope, which unfortunately has been postponed until further notice. I am thinking about the duodenoscope 2.0, which is supposed to come next year. And it's my understanding that a 2.0 is going to build on basically all the feedback that you're going to gather from the first version, once it's on the market. So if we're going to see, sort of, a slow uptick due to the potential postpone -- sorry, a potential slow uptake due to the postponed study? Would it be fair to assume then that the 2.0 version might be postponed as well so in correlation to the study? And my second question is in regards to the visualization segment. So as you mentioned, due to a different recommendation in Europe and the U.S., we are seeing Europe doing extremely well. While for the sales in North America, we are seeing that they're down 2% organically. And Michael, you did speak to this a little bit, but I was just wondering if you could elaborate on how the underlying markets performed. So if you're actually gaining market share or losing market share in, specifically North America? And the last question is in regards to also the duodenoscope uptick. So you mentioned you've been out and actually showing the product about 400x. Are you able to quantify the number of these showings that actually led to sales?

[Juan-Jose Gonzalez]

Sure. Benjamin, this is Juan-Jose. So let me start with whether the delay on the clinical side will have an impact in terms of the time line of our Duo version 2. And the answer is, no. We are still committed to introduce our duo version 2 rapidly. And the key improvements on our duo version 2 come from dose areas. Everyone, in terms of technology, it comes from more advanced sensors, more advanced image enhancement software, and more importantly, making sure that our duo version 2 works with aBox, together with our new Colon and Gastro we believe that, that is going to be a very important differentiator. As for some of the other players, they will need to buy a Box for Duo and another box for Colon and another one for Gastro. So hospital will have to pay more and incur on significant complexity. And the other source of feedback is, of course, all the work -- all the input that we already have today after the approved demonstrations and that we will gather with our controlled market release. So we feel we will have enough input to make sure that we bring our duo version 2. And by the way, this is a very good example in terms of the type of company that we are. Similar with pulmonology, when we went from aScope 1, 2, 3, 4, and we are going to launch our aScope 5. You will see us committed across every segment where we compete. In terms of bringing very rapidly the most advanced generations and making sure that we are at the forefront in terms of performance. Now in terms of visualization, we have seen a difference in performance between Europe and the U.S. We saw it in the second quarter, and we see it in the -- in quarter 3 as well. And this is driven by the difference in terms of surgeon technique and by the time and duration of the COVID-19 pandemic. What is important to know is that if we look at the U.S. there will be a lot of volatility quarter-to-quarter. So for example, last quarter, we grew 43%. This quarter, we are negative 2%. Year-to-date, we are plus 21%. And that's just driven in terms of the start of COVID-19, hospital asking for enough stock ahead of time to be able to go through the pandemic. Now when you look at our share performance, our analysis indicates that we have actually gained market share during the pandemic. And specifically, we have gained 300 new accounts, and of existing accounts, we have win 300 new departments. So our customer base in the U.S. has expanded we believe that year-to-date, we -- our -- the penetration of single-use bronchoscopy as a percentage of the overall bronchoscopy market has increased by 5 to 7 points. And as you can imagine, we have over 95% of market share of bronchoscopy. So we believe that as COVID-19 is behind that, this expanded customer base is going to translate into a superior performance going forward. Now in terms of the duo uptake, I mean, it's very early to comment anything in terms of uptake. I would say, we are positively surprised by the interest of U.S. hospitals to move from reusable to single-use duodenoscopy. We believe that between the DAP recommendation between the CMF imbursement and between the performance of our product, that this segment is going to be created. Now we expect duo to be an important growth engine for Ambu next year. But that's as far as I can comment.

[Operator]

Our next question is from Catherine Tennyson, BofA.

[Catherine Tennyson, Analyst]

I have 3, if I may. So my first one, in Q2, you gave a very helpful idea that 14% of the growth contribution was due to COVID. Could you roughly help give us an idea for Q3 the contribution and in addition of those 337,000 scopes, how much of those were bronchoscope related to the COVID demand in Europe and APAC? I'll just do my first one there, and then I'll hop back from my second and third to make things easier.

[Michael Hojgaard]

Catherine, we just had a small technical issue here and your question was a little complicated. Could you please just repeat it?

[Catherine Tennyson, Analyst]

Of course, just of the 337,000 scopes in the quarter, how many of those were related to bronchoscopy linked to COVID?

[Michael Hojgaard]

Well, I think what we have in general said is that out of our total number of units being sold around somewhere between 85% to 90% relates to our aScope. But if you ask into the reasoning for the customer acquiring rates or whether it's related to COVID or to something else. I cannot share that information with you.

[Catherine Tennyson, Analyst]

No problem at all. And then in the U.S. for your core business, PMD and anesthesia, with your discussions in U.S. hospitals, what level of elective procedure volumes do you estimate have returned in July and August of this year? Is it say 80% relative to last year, 90%? Just to give us an idea of base elective return to volume in the U.S.?

[Juan-Jose Gonzalez]

Sure. So I would say there are 2 things. Number one, after the sharp contraction in April and May, we have seen a steady recovery. And as I said before, in July, if you look at our core business, all regions and all business areas are back in positive growth. And specifically, in terms of the U.S., we estimate the elective market to be at around a 90% plus in terms of recovery. There is a significant variance depending on the department, with orthopedics being ahead in terms of the recovery. But overall, we are estimating that we are back at around 90%.

[Catherine Tennyson, Analyst]

That's super helpful. And just one -- sorry, quick final one. I'm interested, we've had the delay of the colonoscope for the second time. I appreciate part of that is to do with COVID, but can you just give a little more color as to why that delay and perhaps why other products in the portfolio like urology or in pulmonary will not experience the delay and it was just the GI portfolio that was called out?

[Juan-Jose Gonzalez]

Sure. And I have to say that there are no message behind this delay. Basically, we have 3 R&D centers. We have an R&D center in Malaysia, an R&D center in Kissing in Germany and an R&D center here in Denmark. And different products are produced in different areas. And then we have technology partners, mainly in Asia, that, of course, play a very important role in the development of the new sensors and our new software and so forth. And basically, with COVID-19, what we have seen is travel restrictions, and making it more difficult for us to be able to work with some of our third-party suppliers and internally in the company to be able to travel back and forth and advance some of these products. So depending on where these products are developed, some are more impacted than others. And in the case of our colon and Gastro, they are the ones that in that phase of the project were in more need to be able to -- for the teams to meet together with the suppliers, and we haven't been able to do that.

[Operator]

Next question is from Thomas Bowers from Danske Bank.

[Thomas Schultz Bowers, Analyst]

A couple of questions here for me. Just going back to the duodenoscope and the human trial the delay here. So could you maybe add any color on when you expect to start the trial and when we should expect to have the 60-patient interim data? And also, are you maybe considering to doing a small trial in Europe instead while you wait the start of the 500 patient study? And then second question, just on these new accounts that at all of the aScope Broncho during the lockdown and you could say, peak hospitalizations. Do you see some sort of retention of these accounts now that that the number is going down here in Europe. So just curious to see whether there is, sort of, a less one-off element compared to what you communicated here back at the Q2 numbers. And then just lastly, can you disclose anything on the duodenoscope price now that you have the FDA approval and are basically in launch mode? So are you still just saying DKK 1,400 to DKK 1,600 or can you maybe give us a little bit more color on what you think they also compare to your closest competitor, which is, I guess, pricing it at a somewhat higher level?

[Juan-Jose Gonzalez]

Sure. So in terms of our clinical, first of all, we expect the COVID-19 situation in the U.S. to start to normalize that we have seen over the last recent weeks. And we still think that the best thing to do is to just focus on executing our clinical trial in the U.S. rather than trying to start new trials in Europe. And then in terms of timing, I mean, this clinical trial is an important part of our launch plan and we plan to do it as soon as we have the conditions to execute with the plan, and we will share the results -- and we'll share the interim 60 patient results as soon as they are available. So that's as far as I can tell you right now. In terms of Broncho, of course, as COVID-19 started shares in Asia and in Europe than in the U.S., we have experienced in terms of the expansion of the customer base and repeat purchase and we have actually got those learnings into the U.S. in terms of this expansion of customer base and what is the profile in terms of repurchase. So the only thing that we can tell you is that we consider that the expansion or the gain in market share in the U.S. is sustainable, and we will carry it going forward. And that basically means that we expect these new customers and new departments to use single-use bronchoscopy as part of their normal day-to-day operations and that will be translated in terms of repeat purchase. Now in terms of pricing, our pricing is grounded on health care economics. We know today that for a hospital system in the U.S. The course of using a reusable duodenoscope is around on DKK 1,400 to DKK 1,600. And that's basically our pricing. This is critical. And by the way, we saw it in pulmonology. We have seen in ENT, we are seeing it in cysto, and we believe we will see it in duo. This is critical to make sure that a market is created, that all hospitals when they decide to move to single use, they don't need to incur into more cost. By the way, it's critical also in our negotiations with GPOs and large health care systems, the fact that we are building a reputation where our products have the most advanced technology with a very attractive health care economic offering. And that's really one of the drivers, for example, behind a sole source agreement with Premier which, as you know, is one of the largest GPOs in the U.S. So we are maintaining our price as it is.

[Operator]

Next question is from Niels Leth, Carnegie.

[Niels Granholm-Leth]

I'll take one question at a time. So my first question would be on the ASP effect on your North American visualization business in the previous 2 quarters, you have helped us to understand the ASP effect. Could you provide a number for this quarter?

[Michael Hojgaard]

Yes, Niels, this is Michael. You're right that we provided that information for Q1 and Q2. And I would say that the overall pricing going into Q3 is impacted by exactly the same dynamics. And that means that we have -- it's just out of my head, somewhere around 12% to 15% increase in the ASP driven by that we went direct and that we now have the margin upside on our own P&L. There's nothing changed, and you will not find any price discounts or anything.

[Niels Granholm-Leth]

Okay. And this ASP effect, that will go to neutral in quarter 4 as far as I remember because you sold all your U.S. scopes internally in quarter 4 of last year?

[Michael Hojgaard]

No, we actually need to go all the way to Q1 before it's completely neutralized. We had, I would say, 6, 7 weeks of distribution sale in Q4.

[Niels Granholm-Leth]

Okay. Good. And then when it comes to the clinical trial of your duodenoscope, why is this trial not recorded in clinicaltrials.gov. Is it a trial that will result in a scientific paper?

[Juan-Jose Gonzalez]

Sure. I mean my understanding is that it is recorded in that website when the clinical trial starts. So as our have not started yet, it doesn't appear yet. But we expect that as soon as we start, you will be able to find it there. And this is going to be part of our scientific program.

[Niels Granholm-Leth]

So there will be a scientific paper published both for these first 60 patients and for the entire 500 patients?

[Juan-Jose Gonzalez]

There will be a scientific paper being published, yes.

[Niels Granholm-Leth]

Yes. Okay. And then a final question on your monitor. Many of the doctors we speak with, they have, kind of, favor the split screen feature and the possibility to measure or show the oxygen saturation with the Verathon screens. Is that something that you would consider to update your monitor with in the future?

[Juan-Jose Gonzalez]

I mean we -- as you have seen with our aScope and you are seeing with our monitor, we are going to bring new generations of monitors all the time, and they will have different levels of functionality. Now if you were to -- not that we are talking about that specific monitor, so if you compare our aView advance with that monitor, we have far better in imaging solution. And that is actually the #1 driver of decision-making in bronchoscopy. And that, combined with the superior functionality, I mean, I have to say, we are very confident that today, in pulmonology, we have the best offering in the market.

[Operator]

Our next question is from Wei Zhou from SEB.

[Yiwei Zhou, Analyst]

I have 3, and let's take at a time. And firstly, in the Boston Scientific they have now talked about to bundle their sales. Could you give an update on the Cook Medical collaboration at the moment, now that you have announced the product?

[Juan-Jose Gonzalez]

Yes. Just remind -- so just want to make sure I heard you correctly. You said that Boston Scientific talk about bundling their sale and then you wanted to know the collaboration with Cook Medical?

[Yiwei Zhou, Analyst]

Yes, exactly.

[Juan-Jose Gonzalez]

Yes. Yes. I mean by the way, I mean, that's exactly what we were expecting from Boston Scientific. That is our commercial strategy. In terms of our commercial infrastructure in the U.S., and this is very important because it reflects our investment and level of commitment behind winning in duodenoscopy and GI overall. So number one, we are building 170 sales force in the U.S., which are going to exclusively focus on the commercialization of our single-use duodenoscopy. And number two, with the collaboration of Cook Medical, we basically have access to all major duodenoscopy centers in the U.S. We are doing product demonstrations together. We are doing training together. We are leveraging the relationship with surgeons. And that basically is what allow us to do over 400 product demonstrations in what is a very short period of time. And of course, give us access to key opinion leaders for our controlled market release and for the execution of our clinical trial. So overall, I have to say the partnership is very valuable for Ambu as we are introducing our duo. And we consider that today, we are building a commercial structure that will allow us to compete head-to-head with any other company entering into single-use duodenoscopy.

[Yiwei Zhou, Analyst]

Okay. And then my second question is regarding cystoscope. You mentioned it was unaffected by COVID-19. But then looking at the clinical trial database, it still shows that you haven't initiated the patient recruitment. And you also said you expect the uptake would be fast. Is it fair to assume that you can -- you are confident to sell the product without a clinical data? And could you elaborate a bit here?

[Juan-Jose Gonzalez]

Yes. I mean first of all, I mean, you are correct that the study for cystoscope, which is in Europe. It's a slightly delayed. Depending on the endoscopy procedure, the value of the clinicals vary. So in the case of cystoscope, as it is in the case of ENT, as it is in the case of pulmonology the most important thing is the product demonstration and the evaluation that each health care system do in terms of the performance of the product relative to the reusable scope. And in the case of the cystoscope, we know that feedback is positive, and it is going to be a major growth engine for the company going forward. The clinical trial, as soon as we get the CE mark, it will be conducted, and it will be part of the commercialization, but is not really necessary for us to build -- to start billing it now.

[Yiwei Zhou, Analyst]

Okay. And my last question, could you give us an indication of when you, actually, expect to get the CE mark for duodenoscope? Yes.

[Juan-Jose Gonzalez]

I mean Europe is today our largest region in visualization and is a very important part of our growth engine. We are building our commercial infrastructure for the commercialization of our DUO in Europe already. And the only thing I can say is that because of its importance, Europe is going to follow the U.S. And as soon as we get approval, we will communicate it with everybody.

[Operator]

Our next question is from Edward Ridley-Day, Redburn.

[Edward Nicholas Ridley-Day]

Yes, Edward Ridley-Day, Redburn. Can we just discuss your margin guidance for the full year? So it would have seem to fly a fairly material sort of sequential decline in the gross margin. I know you'll had strong gross margin in the third quarter into the fourth quarter because even if we assume sustained higher SG&A and R&D spending, could you just give us more color around the dynamics there on the gross margin in the fourth quarter? Or indeed, if I'm missing something on the other cost lines to get us down to that 12% margin for the full year?

[Michael Hojgaard]

Yes. Well, maybe I cannot talk too much about the Q4, but don't expect that there will be anything extraordinary in Q4. The fundamental behind the change of the market guidance from the range to now 12% is the lower scale that we are getting from the lower revenue what is also impacting the margin is, of course, the investments and the air freight, but all that has more or less already built in. So that's really not that, which is driving the margin. It is the lower scale.

[Edward Nicholas Ridley-Day]

Okay. And a related question on R&D investment. I noticed that year-to-date your capitalization is running quite high relative to prior years. How should we model that, both in terms of operational spend, but in terms of the overall investment, how should we see that going forward? And could you give us any more precise color on what that capitalization relates to?

[Michael Hojgaard]

Yes. That's a very, very good question. And you're completely right that we are seeing a steep increase in the cash flow impact from innovation. And it's, yes, it's up DKK 100 million in this quarter over last quarter. So it's up 40% or something like that. So it's very significant. So going forward, you should continue to expect that is increasing because as we're building our target innovation organization, we are going to add to the account of our innovation expenses. So relative to revenue, I think you're not going to see us expand to the overall expense. But the overall impact to the EBIT when you do the net cash flow, the analysis is going to increase. I cannot guide you a lot further here. But I think if you assume that the ratio investments through revenue is constant. And when you model our revenue growth going forward, then you should be able to make your own assumptions.

[Operator]

Our next question is from Michael, Joh. Berenberg.

[Michael Healy, Analyst]

This is Michael Healy from Berenberg. And just kind of a lot of questions already or asked and answer some follow-ups just on the duodenoscope in Europe and the rest of the world. Is it a case that this hasn't been submitted yet for CE marking? And perhaps if not, is there a reason why that hasn't been submitted? Like I guess that should be bit more of a straightforward regulatory approval there. And also just on your expectations for pricing, you've got an idea for the U.S. Do you expect that pricing to be matched in other territories as well? And just again, following up on Catherine's question, the colonoscope and gastroscope. It's understandable, these can be delayed. But just on the regulatory approach here, will this follow the same as the duodenoscope, i.e. get the FDA approval and then roll out a clinical study and then launch the product. Just what's your confidence in that all being done within H2? And do you factor this getting some sort of excavated process as well?

[Juan-Jose Gonzalez]

Okay. Thank you for your questions. So let me start with launch of our duodenoscopy in Europe and Asia. I have to say that we are proceeding as planned, and those are very important parts of our growth agenda. And that's why we are already building our GI commercial infrastructure there. Maybe unlikely -- maybe just to add, I mean, we consider the duodenoscopy concept not to be yet a U.S. phenomenon, but the contamination issues and the value of single-use duodenoscopy, we expect to see that in the United Kingdom, and in Germany and in Japan and Australia. And on the back of that is, this is going to be a global opportunity. Now in terms of pricing, the only thing I can say is that our pricing is rounded on health economics. So wherever you are around the world, that cost that you are incurring to have to do today, usable duodenoscopy, will be the #1 guide to set our pricing for our single-use duo. And then in terms of Colon and Gastro, I mean, we expect to have a regulator -- to go through a regulatory process that is relatively straightforward. And there is not much to comment in terms of whether it will be a break through designation or not. The only thing to say is that now that there is more awareness regarding the contamination levels on duo, we are starting to see an increased level of activity to look at the level of contamination in Gulf area, and we expect to find also similar opportunities for single-use to be an alternative offering that ensures a better infection control.

[Operator]

Our next question is from Niels Leth, Carnegie.

[Niels Granholm-Leth]

Yes, just a quick question, follow-up question on your duodenoscope. So I mean, it's only 4 working days before the duodenoscope was supposed to commence for this clinical trial. But when you announced the approval of this go back on the 17th of July, I mean, were you already, by then, aware that the clinical trial would have -- would be delayed?

[Michael Hojgaard]

Niels, this is Michael. No, of course, we were not. When we provided the announcement of the dual bag, I think it was on the 17th of July, we still believe that the trial would commence on the agreed day. But I would say that with the transparency and the currently back of our ability to close the final contract with the clinics in the U.S. We were forced to take this decision here. So we really don't believe this is very dramatic. This is a result of the environment that we're working in right now, unfortunately. And we expect to be back as soon as we can.

[Niels Granholm-Leth]

And do you still expect the clinical trial costs to amount to approximately DKK 5 million?

[Michael Hojgaard]

Yes, there's nothing changed to the financial estimates, whatever we have said before. And it's exactly the same. It's unchanged.

[Operator]

Our next question is from [ Mattias Turan, Langston Partner ].

[Unknown Analyst]

I just have 2 questions. First, on urology. You mentioned that 21 out of the top 100 hospitals have either converted or are in a trial phase. Would you be able to specify the mix as it clearly means 2 different things? And then the second question, just out of curiosity, the FDA summer document in regards to the duodenoscope approval mentioned that the Ambu or the Invendo previously approved FDA colonoscope was used as a reference device. Just curious to learn on what basis this colonoscope was used as a reference device. If you could elaborate on that would be great.

[Juan-Jose Gonzalez]

Yes. Thank you. Let me start with the last question. No, it has not been used as a reference device, so that is not the case. In terms of the urology, we're are in a competitive environment, and I hope everybody understands now with the attractiveness of a single-use endoscopy there are more companies looking at our commercial performance by segment. The only thing I can tell you today when you look at the number of product demonstrations, how many trials that we have ongoing and the level of interest early on of the largest urology center, is that we expect our aScope system to be an important growth engine for the company going forward. And that's as far as I can go.

[Operator]

[Operator Instructions] And we do not have any questions at the moment. I hand the floor back to you.

[Juan-Jose Gonzalez]

Thank you. Thank you very much. And let me just break up on where we are as we finish our quarter 3. We are a company growing 21% with an outlook of growing 26%, one of the fastest-growing medical device companies globally. At the same time, we are moving forward with our innovation pipeline, entering the largest markets in endoscopy. Urology and GI representing important growth opportunity for the future of the company. At the same time, we continue to invest in our capabilities, especially in innovation, and that put us in a very strong position to become the world's most innovative single-use endoscopy company, and one of the largest European-based medical device company. Thank you very much.

[Operator]

This now concludes our call today. You may now disconnect your line.