Observe Medical ASA

OSE:OBSRV

Earnings Call Transcript 2019-Q4

[Bjorn Larsson, Chief Executive Officer]

Good morning to all of you here in the room at Aker Brygge in Oslo, Norway, and to you participating via webcast. And warmly welcome to the quarter 4, 2019 presentation from Observe Medical. And my name is Bjorn Larsson, I am the CEO of Observe Medical. And with me this morning, I have Per Arne Nygard, our CFO. And in today's presentation, we will cover the following. We will give a short highlight of Q4. We will introduce you a little bit further to Observe Medical. We will then cover the commercial update of Sippi, our first key product. I will then hand over to Per Arne, who will give us a financial update. And then we come back for a wrap-up and we open up for questions both from the room and from the web. So at that time, please just raise your hand, and I think on the web, there are some instructions. Okay. And I will hold this -- we will hold this presentation in English, but we will be happy to take questions in the Q&A in whatever language you prefer. Okay. With that, let's start. Observe Medical, the highlights of Q4. We successfully de-merged and listed the company. We demerged on 31st of October 2019 and was listed on the Access Stock Exchange on 4th of November. And during the period, we have a new leadership on board, and we have been able to effectively establish the company as a standalone company. We have a truly commercial-focused organization and team, not only the organization but the spirit as well. During the third quarter, we have executed the strategy, those of you who listen in, in November, remember, and we've a clear focus on sales of Sippi. And that has been great. It has been a great response, especially on the second generation, which was new launch -- newly launch of Sippi.We are in launch phase, what I usually say, peri-launch phase. And during that time, of course, there is somewhat limited revenues but we have seen no sign at all of any lack of interest. On the contrast, it's just that the implementation sometimes take longer, sometimes take shorter time. So for -- on behalf of the team in Observe Medical and Per Arne and myself, we are very proud to be on this journey, and now we're going to take you into some of the more specific. Observe Medical is a global medtech company built for growth. And what do we mean with growth? We mean growth, commercial growth, and that can happen in an organic way. For example, we have our first product, Sippi. Right now, we're out with customers, but it can also happen with, for example, mergers and acquisition growth. And that is a clear goal with Observe Medical. Firstly, commercialize Sippi as our first product. Meanwhile, be opportunistic looking for good M&A opportunity to build a portfolio for growth. Sippi, our first product, developed by Observe team way before I came aboard. And it's a urine measurement system, totally unique. We go into that. And this has got a great trademark and patent coverage. And it's on the market -- in the market and it's got a good supply and manufacturing organization around it. It's a robust setup in launch. And the second generation of Sippi was launched in the second half, very importantly, responding to the needs of a customer, responding to the need of further connecting the product to the so-called patient data management system that is more and more frequent in the hospitals. Okay. That is Observe Medical. We're talking about the leadership. Okay. Here today is Per Arne and myself. A few words about Per Arne. Per Arne, you are an experienced finance guy, a CFO and a controller from various business. And the last 12 years, Per Arne has spent in listed environment in several companies, for example, multi-consulting. And Per Arne is a very seasoned financial CFO and with a very good handle on the operation, which is great to have on board. Myself, I am from Sweden. No, but I have about 30 years experience of life science, medtech, biotech, pharma in position from sales, marketing product and general management. I also serve as the Chairman of the Board in a listed company in Sweden. And I think, surely, I am confident in the life science and to bring products to the market, but at the same time, humble because each challenge these products brings its own dynamics. But most importantly, we have a fantastic cross-functional team. And Observe Medical, we are headquartered here in Oslo. And the operations is mainly in Gothenburg, where we have a cross-functional team. Great place to be with a good medtech cluster around us, which is great for an entrepreneurial company in growth. Yes, bringing products to market in medtech, a few words, business is business, but life science and medtech brings its own opportunities and challenges. And first of all, in our business, you need to understand the customers, and that's why we have such a sales focus right now to understand the customers. Then you need a product which is performing versus that and in medtech, especially, you need to document that very well. And the next step is to get what we call regulatory approval. And that is the ticket -- license to be on the market. This is called Medical Device Directory, for example, in Europe. But that's not enough. That just puts your product on the market. What you need is a value proposition that makes the customer really want to buy your products and solve a problem and there you need so-called health economics and value evidence. So that is very important. And then you need partners. In some markets, you sell yourself and in some markets, you use distributors and other partners. And that is depending on the geography and the practices in those different regions where you operate. So you need a clear vision and then you need to be agile and operate depending on the customer segment and the environment where you are, locally. So safe to say, we are confident and I'm confident in the team, and I feel confident and humble in this very exciting journey, which is also very meaningful. And I'll tell you a little bit about that. In ICUs, what is an ICUs? Now we're going to talk about commercialization of Sippi. ICUs is an intensive care unit. And you hear a lot about problems in the health care system. But I can tell you, an ICU works. It's a mission-critical environment where we take care of people who have severe problems. And in an ICU, the patient is monitored day and night, and it's all automated. Oxygen levels, the heart, you name it, except for one thing, and that is urine. Urine is very important to measure the renal function, which is a vital sign for the patient. But it's measured manually for reasons that it's difficult to automate. And that can cause different challenges. Some of these challenges are the following: data accuracy. Right now, in the ICU, the staff is measuring manually and it's up to subjectivity, not only the volume that is measured, but only when you measure it. It should be measured every hour. So that can cause human errors and wrong decisions. Two, time. Manually, it takes time to do this. And it's a lot of time. And time and resources is, of course, patient care, but it's also budget impact. Big challenge for the clinic and also for the hospital management. Thirdly, infections. Hospital-acquired urinary infections are the number one infection cause in hospitals. And the reason it is crucial here is that the patient is catheterized. And there is a big risk of that actually bacteria goes up the wrong way from the collection system to the patient. And that causes infections and also the need for use of antibiotic. This, of course, is both a liability and a cost and a clinical problem. So clearly meaningful challenges to address.And what is Sippi? This is Sippi. Sippi does what urine collection measurement system does in every ICU. It collects the urine but it's so different. What it does? It contains a bag, a disposable unit and the base unit. And the base unit will automatically calculate the urine volume, very exact and every hour. So you get the data accuracy. It's totally automated and is even connected to the patient data management system. So you get accurate data and you get time savings. And on top of that they have 2 features to avoid infections. One is called SippSense. It's actually a feature that senses when biofilm, which are precursors of bacteria, is coming up too high in the system and that is alert, change bag.The second thing is SippCoat, which is a fantastic innovation. It's a silicon oil that is mixed with a urine as it's come down with the patients through to the bag, and it actually actively hinders the migration of bacteria and thus avoid infections. So clearly, a very robust product that addressing very meaningful needs. So addressing needs, fantastic product, the market opportunity. Right now, we are launching SippiSystem. And as you remember from November, it's a huge market. And right now, the new leadership, we are investigating and articulating that market opportunity further. But we, for time, remain with an estimate we had in November, about 500,000 base units globally per year and a total market of about NOK 4 billion. And right now, we are launching it in Europe. Next year, and we already started that, we're planning for a U.S. launch. And coming after that, we take -- we are approaching Asia and rest of the world. Second part of a big opportunity is actually to use the SippBag standalone, but with an important SippCoat anti-infection feature. And we are evaluating the rollout sequence and plan for that bag based on the learnings of ongoing launch. So we also articulate those plans as we speak during the first part of 2020. And that is a huge opportunity, massive amount of disposable bags and a market of about NOK 20 billion estimated. Exciting, but you need to take it bit by bit and do a good work in each sequence. So a commercial update of Sippi and then of Observe Medical. So Sippi BLE, great response, addressing needs that are really relevant to the customer and great response. The learning is about implementation. We have a huge opportunity and the stressed ICU team need a very robust implementation and approach from us. And we have learned over the last couple of months about that. And now increase the activity level, increase our training to the distributor, and we all see that is the right way to go. And talking about value proposition, to get that, we have a lot of evidence supporting of a value of Sippi. But that's an ongoing work, and I'm coming back to that. I'm excited to tell you that recently, we got a very important bacterial study conducted at Karolinska Hospital published by abstract and the full article is in review. And I can tell you a little bit more very soon. And engaging us in the community, we are not bringing a product, we are bringing a solution addressing problems and we need to raise the bar, how we talk about Sippi and how we address these issues. So we are highly engaged in especially the Nordic life science community to make sure we are understood and appreciated. For example, with Norway HealthTech and Swedish Medtech organizations. To build further on clinical and health economics evidence and engagement by opinion leaders, I want to talk about Jan van der Linden. He's a professor in Stockholm in Thoracic Clinic. He has been engaged with the Sippi development and curious about it because he thinks it might be an important next step for the clinical practice. So he has also been testing the Sippi system and also conducted a number of tests. And one of these tests have been the bacterial study that we're talking about. And we can here now tell some important facts about that study. It confirmed that of all infections experienced by patients in the ICU catheterized come from the system itself. It's called a retrograde urinary infectant. That's important. That is the burden of a problem. He can also see that actually the SippCoat only actually hindered and inhibited the biofilm and bacteria formation even with antibiotic-resistant bacteria there. And then he suggests that these might be an important step towards a better clinical practice for these patients. We are proud and we are humble for these results from this study, which is a totally independent study, by the way. So we are confident, we are humble for the challenge. And we think it's a very meaningful journey we are embarking on with Observe Medical and Sippi. And with that, I would like to invite Per Arne Nygard to tell us about the financials.

[Per Arne Nygård, Chief Financial Officer]

Thank you, Bjorn. Thank you for the introduction. I will present the 2019 financials, both Q4 and full year. This statement is based on the same principle as the carve-out 2018 financial statement. And we start with some key figures from the profit and loss. And as Bjorn told you, the company is in launch phase. And so even if the revenue is increased from 2018, it's still at a low level. The operating expenses has increased both in the quarter and the full year of 2019. Cost and expenses from the listing and the merger process is about NOK 1.7 million. And of course, in the Q4, we also have expenses related to establish Observe Medical as a standalone public listed company. The net finance is related or affected by the change in the contingent consideration. This liability is described in Note 11 to the carve-out statements for 2018. And in 2018, there was a major decrease of this liability that has a positive effect on the finance in both the full year and Q4. In 2019, we had these effects in Q4, but in the full year, we had a slightly increased liability. This result in -- result of minus NOK 4.5 million for the quarter and NOK 16.9 million for the full year. Some comments to the balance sheet. Intangible assets, it consists of Sippi. It's a patent and the capitalized development costs. The company also implemented IFRS 16 lease from first of January, and that's a part of the tangible asset. And we will also see that IFRS 16 is a part of the current and noncurrent liability. As some of you probably remember from the merger and listing, a part of that was the conversion of the NOK 60 million debt to Navamedic and that impact equity. So in the end of the year, we have equity of NOK 14.5 million and a net interest-bearing debt or -- interest-bearing debt of NOK 25.4 million. The interest-bearing debt also occurred -- consist of the [ accrued ] interest as of December. Some words about the cash flow statement. The net cash from operating activities on minus NOK 14 million consists of the negative EBITDA of NOK 11.5 million and we also had decrease of trade payable in the year. The company invests in our products. And in 2019, the investment in Sippi was NOK 2.1 million. And as mentioned in the balance sheet, we have this debt conversion of NOK 16 million and increased debt of NOK 200,000 that give the positive effect from the financing of NOK 16.2 million. So in the end of the year, we had a cash balance of NOK 0.5 million. That was the financial update. Then I give the word back to Bjorn for the summary and outlook.

[Bjorn Larsson, Chief Executive Officer]

Thank you, Per Arne. Thank you. And summary and outlook. And I just wanted to repeat. We are standing here in the beginning of 2020. Look back to 2 intense or 3 intense months during the last part of the year, where Per Arne and I came on board mid-December, actually. And really good start. We got successful listing -- demerger and listing and we more or less instantly increased activities and started commercially shape our organization and team and establish ourselves. And Sippi is our key focus. And -- oh, sorry. And onwards, I would change execution, execution, of course, careful execution and planning, but execution. And we're going to keep on executing the Sippi sales. In the Nordic, the next step is that Jan van der Linden in his clinic, we will actually implement the Sippi in all beds starting from March. And in the Nordic and in Europe, we have increased the activity levels with our distributor in the important markets of Germany and Italy as a focus. And during this period, we have got 3 tenders in Europe, two in the largest region in Sweden and one actually in Italy. So a lot of good things happening, a lot of traction. And it's not only revenue, it's about learning the customers because there is not just one customer. There are geographies and there are customer segments. And prepare for the U.S. launch as we discussed in November. That is -- will be a partnering strategy. We are not setting up our business there on our own, and that needs careful consideration in terms of a regulatory pathway and how the commercial pathway to get a good standing and a good launch. And as always, building evidence for value-based pricing, and we're looking forward to build further on the bacterial study and studies like that. And we've also been able to engage Jan van der Linden and others in an important scientific and commercial advisory board, which will support our commercial pathway onwards. And to wrap up the execution, we are always on the look for good fit market mergers and acquisition cases. You remember, we are a platform for growth through Sippi commercialization and through building a carefully crafted portfolio in Medtech. And on behalf of Observe team, Per Arne and myself, thank you for your attention, and we'll now open up for questions and answers in the room and from the webcast. Is there any questions from the room? And do we have any questions from the web?

[Unknown Executive]

No questions.

[Bjorn Larsson, Chief Executive Officer]

Okay. Okay. With that, then we conclude. We thank you sincerely for your interest, those of you came here today and those who are participating. And I want to close with a word of how important we think you are. You are trusting us on our journey, and we need your input. We need your tough questions, and we need to be challenged and supported in this journey, and we are committed to be open, transparent and communicative with you onwards in a very fair way. So with that, thank you and see you soon again.