Photocure ASA

OSE:PHO

Earnings Call Transcript 2021-Q4

[Daniel Schneider, President & CEO]

All right. Good day, everyone, and welcome to Photocure's Results for Fourth Quarter 2021. Joining me today is Erik Dahl. I am Dan Scheider, CEO of Photocure.Next slide, a reminder for today's presentation, disclaimers are in place.Next slide. The fourth quarter highlights. Exciting, I think. We had 10% organic growth adjusted for onetime sales benefit last year from the reversal of Medicare 340b accrual and for the negative foreign currency. We actually delivered this 10% revenue growth year-over-year. But most importantly, unit growth in the U.S. was 10% and Europe 11% and 12% segments respectively year-over-year. So 11% U.S., 12% unit growth in Europe. EBITDA was negative NOK 5.5 million. We continued commercial investment in preparation of post-COVID growth and the launch of the upgraded Blue Light system from Karl Storz in the U.S.On the publications and studies front, we had 3 significant publications put out in the fourth quarter. The first one, the Cochrane review showed the beneficial effect of using Blue Light Cystoscopy on disease recurrence and progression. This is quite an involved publication. It's well respected. And I think it further underscores the importance of Blue Light Cystoscopy using Hexvix and Cysview.We also had 2 registry publications from our U.S. registry, which now registers over 2,500 patients. We have one on the utility of Blue Light Cystoscopy post-BCG bladder installation, looking at the recurrence detection in the Journal of Urology. And the role of Blue Light Cystoscopy in detecting invasive bladder tumors, and that one was published in the British Journal of Urology.And finally on the expansion and partnership activity, in Q4, both Canada and China. We went live on Canada. First orders were received, shipped and payments received and collected shortly after January 1, and we're excited about this growing opportunity in the North American segment. And in China, Asieris initiated the Hexvix early access program in the Hainan region in December, performing Blue Light Cystoscopy on 2 patients so far and both successful. So we're excited about the developments in China. And as everyone knows, who have been following Photocure, they also have their CTA approved in the first quarter of this year for the small clinical trial they will have to perform to receive the Chinese -- the China indication for Hexvix in China.Next slide, please. So COVID-19 update, access restrictions continued. We had the Delta variant mid-year and Omicron in the later half of the year into December, which did slow down the pace of sales. There is COVID-related staffing shortage throughout the world, and this does have an impact on all treatments done in hospitals and in physicians' offices. We continue to anticipate though normalized access in procedure volumes as we climb out of Q1 into Q2 in the second half of the year.The same restrictions returned in Q4 due to Omicron, upwards of 50% of the clinics and hospitals were limited to our access in the fourth quarter. In fact, by the time we got to December, it had actually plummeted quite low. But we see them all opening up again as we're climbing out of COVID here in February and into March. Staffing shortage is also affecting the European market, and the majority of hospitals we expect will get to normalization by Q2, Q3 of this year.Next slide, please. So let's talk about the segments. First, let's talk about the U.S., Q4 momentum in the U.S. We continued growth despite the COVID-19 restrictions. Volume was up 11% in Q4 and up 16% for fiscal year 2021 year-over-year. The Cysview uptake in the clinic was focused primarily in flexible cystoscopy, which continues to be a growing importance in the treatment of bladder cancer patients. We have leveraged the contracting. It continues to be a key growth driver for us with the Flex system driving the economic benefits as well as the clinical benefits of Blue Light Cystoscopy.The OR access and staffing shortages remain. However, as I mentioned, we expect these to begin lifting in the second quarter into the third quarter this year. And the strong demand continues from both rigid and flexible BLC. And as everyone is quite aware, Karl Storz announced that they received the approval for the new Blue Light system, which I'll show shortly. And this has built a very nice and healthy pipeline of interested hospitals throughout the U.S. who want to adopt the new technology.Next slide. So this is an important slide I think for everyone to kind of understand what's happened in the U.S. market and how Cysview has weathered the storm. If you look at this -- the curves, you basically are, what you're looking at is a reduction in the number of TURBTs, approximately 11% from 2019 pre-pandemic rates to current 2021. In fact, at different points, it dipped as much as 30% from off from its pre-pandemic levels.Meanwhile, Cysview has continued its growth, indicating that we have continued to grow in importance in this space and have gained penetration in the U.S. And I think when you speak with physicians, you'll find that most feel very, very confident in using Blue Light Cystoscopy, particularly during the uncertainties of access and patient flow. So it's become a very important part of their growing practices. In fact, just recently, this week, the Journal of Urology published using their AQUA data that upwards of 20% to 30% reduction in TURBTs. Slightly different data set, but still I think overall this is really encouraging news for us to say that we continue to grow in what has been a challenging market over the last 2 years of COVID.Next slide, and we'll get into segments. So growth trend continues in the U.S. This continued -- the top aqua line shows continued growth in 2021. I think we've weathered the COVID storm quite well, maintained our cash balance for the most part and had many quarters of positive EBITDA. But however, as we turn the quarter into 2022, we are investing in the business so that we can get the accelerated growth rates we expect and that we enjoyed prior to the pandemic.Next slide. I think the 9 tower installations in Q4 was quite good. I think customers now are waiting to launch of the upgraded Karl Storz equipment. Many of the recent tower installations have been under the obsolete protection plan, which allows those institutions to then upgrade to the new systems quite easily. I think that's quite good. We've also had growing interest in Flex. And as I mentioned, that becomes an important part of our overall package of both the flexible cystoscopy along with economic strategy around contracting volumes to increase the uptake of Blue Light Cystoscopy in the U.S. But we continue to grow, and I think that's a positive sign despite the COVID impacts.Next slide, please. And this has really got us excited. I think the new Blue Light system from Karl Storz will solve all the issues of the old system. The old system had an older version of the visualization, a standard definition system. This one actually brings high depth with precision blue light, razor sharp quality in all visualization modes. The reliability, the light hours, how long the bulbs lasted was always a problem. And over time, it would degrade and become dimmer and dimmer. The new LED source allows 30,000 hours of lifetime, providing a consistent light which won't degrade over time. And I think if you think about physicians doing these procedures, if they're in the midst of beginning a procedure and the blue light starts dimming and they're in the midst of the day, they will move the blue light system to the side and open up and use white life. Having a much more reliable system will allow a greater patient capture we believe.The new fiber light cable giving -- it's now a convenient autoplay sterilization options versus the old version, which oftentimes was destroyed during cleaning process. So this is a very nice upgrade to the system. They also offer the CHROMA Red Contrast Enhancement, which I think is Karl Storz answered to Olympus' NBI. It shows the more visualization, the vascularity of the tumor bed. And finally, ergonomically, it just had some better features around using the blue light intensity control with easy toggle between blue and white in various visualization modes.So overall, it is elevating the standard of care. We're really, really excited as this is replacing a system that has been out on the market for probably 15-plus years. Quite frankly, it goes back to the clinical studies that were done. This is atypical in the device world. Typically, there's iterations every year or 2. This one has -- because of its Class 3 status was a much longer, more arduous process, but we're excited that the new system will be out. We anticipate them to go in a confidence phase, testing here in March. This allows them to put the system into about a dozen different institutions, work out any bugs, if there are any, and then begin a simultaneous rollout of the system in the U.S. So we expect a full-blown launch into Q2 and well into Q3.Now just to point out one other element of this. This is a new system. Most institutions will require a full evaluation of the system from a value analysis committee through capital equipment expenditures. However, we believe because the system is much more known and everyone's used it in the past, they understand what it can do and will do. We expect this process to go quite smoothly. So exciting news we believe in the blue light world.Next slide, please. So key initiatives to drive growth in U.S. I'll just touch on 2. I mentioned the contracting. I think the contracting piece is a very, very important one. We found it to be much more productive with accounts when you have an economic incentive as well as the clinical benefits surrounding the use of Blue Light Cystoscopy and we'll continue to roll that out. Also, the Veterans Affairs environment where there's more complex cases, comorbidities where Blue Light Cystoscopy can make a more -- even a more dramatic impact in patient care. And in the Veterans Affair ecosystem, we're finding many of them will do both the rigids and the flex simultaneously because they want that continuity of care. So we believe that that's also a very key part of our overall initiatives to drive growth amongst the 6 that you read there.Next slide, please. So moving on to Europe. Fourth quarter volume was up 12%. There's been positive developments in Germany. And quite frankly, excited about the growth that we're seeing in France, U.K. and Italy, which were our targeted countries for high growth rates and already seeing the fruits of our efforts there despite the COVID-19 volatility. The full year volume was up 3% versus 2020. The commercial execution in the first full year I think is in good place despite the pressure of the COVID-19, despite the restrictions of staffing shortages, et cetera, we are well positioned with a fully intact European sales force that is ready to go as things are lifting in Europe and exciting.And I think to give you context, getting out into the market and having limited access allowed us to only get some levels of insights and yet still making the impact in this market. So I'm excited about 2022 and beyond because as our sales reps walk into accounts that used to have Blue Light Cystoscopy and we're bringing it back, I think that's an exciting opportunity for us.I think the bladder cancer tour bus, as we've talked about in the past, where we did this in conjunction with Wolf. 63% of those hospitals we visited have requested the testing of new equipment, and Wolf's equipment is state of the art. And as we mentioned, Karl Storz and Olympus both intend to upgrade as well in the European market. I think this is an exciting development. It's showing this -- we re-energized the market. There's growing interest by the capital equipment manufacturers who are investing in Blue Light Cystoscopy and upgrading all their systems to compete in the European market, but having 63% of the hospitals that we visit now asking to test the new equipment by Wolf is really astounding. And that bladder cancer tour bus was intended to go to EAU. Although EAU is now postponed to July, it still we'll do a tour through the rest of Europe, including the Nordics and France, Italy and the U.K.And finally, the European KOL faculty, they cooperated on the first UROwebinar, the Bladder Cancer TURBT, highlighting the use of Blue Light Cystoscopy. There's been over 1,000 views to date is the engagement with the KOL community in general in Europe has been extremely well received. It's re-energized the entire market that had all but been ignored for the better part of 6 or 7 years. So this is a really exciting opportunity. They're excited to be part of it, and Photocure's here to stand by them.Next slide. So we think Europe is positioned for growth after a first full year of being commercialized. I think we stabilized some of the years of degrading sales and particularly in France, Italy and U.K., Germany is starting to decline as well. I think we've got a solid base. And as I mentioned, we've had limited access throughout COVID, but as these final restrictions lift and we get full access, I think you're going to see some really nice impact in the European markets.Next slide, please. And what -- why am I so excited? As I mentioned, France, Italy and the U.K., here are the -- from the growth rates of minus 12% in 2020 to a positive 11% in 2021 for France. Italy was minus 25% in 2020, growing to 13% in 2021. And minus 37% in the U.K. now at 44% growth in 2021, and these trajectories are all continuing forward. It's really an exciting development for us in all of Europe. And as I mentioned, Germany is now also starting to see the signs of our impact. And I think this engagement with the overall European community is really having a positive impact. We're creating value throughout the region.Next slide, please. So just a couple of key initiatives that are going to drive growth in Europe. I think it's establishing the advocacy. The bus tour is an example of how we've engaged both the physicians and the patients in gaining interest around Blue Light Cystoscopy. I think the blue light equipment suppliers, 2 very engaged partners in Wolf and Karl Storz and Olympus coming on as well with their new version, new upgraded version coming or expected in the second half of this year, I think it's exciting developments and their continued interest.And if you think about those capital equipment manufacturers being re-energized, re-engaged, we are leveraging their sales forces as well. So it's not just the Photocure sales force that's selling Blue Light Cystoscopy, but now we have 3 engaged active blue light capital equipment manufacturers who are also going to be pushing blue light. And I think that gives me great excitement and confidence in the coming year and beyond.And I think also the key opinion leader faculty is another example of what we've been able to do in this market and getting all these world-renowned leaders back engaged with Blue Light Cystoscopy, looking at how Blue Light Cystoscopy can make an impact in patient care and then also developing the centers of excellence throughout Europe beginning last year and going into this year and beyond. So watch the space.We'll go to the next slide, and I think I'll turn it over to Erik. Erik?

[Erik Dahl, Chief Financial Officer]

Thank you, Dan. In the financial section of this presentation, I will comment on the financials for our 2 main segments, U.S. and Europe as well as the headlines from the consolidated income statement, the cash flow and the balance sheet. As only 2% of our sales revenue is in krone, the movements in foreign exchange rates may have significant impact on our results. And in short, the FX impacts in Q4 was for revenue negative approximately NOK 5 million and the full year impact was negative approximately NOK 23 million. When we go through the financials, please keep in mind that unless other currencies specified, all amounts mentioned in this presentation are in Norwegian krone.So we'll start with the segment performance and focus on U.S. first. And looking at the U.S. numbers before we try to understand the development from last year, I need to comment on the one-off accounting entry in Q4 2020. As you may remember, we made an accrual in Q2 2020 of $1.2 million for a possible discount, the so-called 340b discount. We were able to release about $900,000 of the accrual in Q4 2020, and this release obviously added to the revenue in Q4 2020.So to compare with Q4 2021, we need to adjust for this release as well as for FX impact. And based on these 2 adjustments, we get to a year-over-year revenue growth of 11% in U.S. This is reflected in the volume growth as well, year-over-year 11%. The sequential revenue growth from Q3 to Q4 was 9% measured in dollars. This is good given the pandemic and related staffing shortages, but it's significantly below what we had before the pandemic and what we expect after the pandemic.Full year volume increased 16% and revenue increased 11% to NOK 125 million. Measured in dollars, the full year revenue growth was 20%. Direct costs in Q4 increased 6% to NOK 34 million. Measured in dollars, the increase was 9% to 10% and direct costs include local costs within sales, marketing, medical and G&A. And full year, the direct costs decreased 2% and in dollars increased approximately 6%. Due to the pandemic, the cost containment has been and still is important. However, as the pandemic loses its grip, we should expect increased activity level and expenses to drive further revenue growth.We saw the first signs of this in the second half of 2021. The contribution was negative NOK 0.5 million in Q4 and full year negative NOK 7.3 million. However, given the increase in revenue and decrease in cost for the full year compared to 2020, we have had a significant improvement in contribution from 2020 to '21, an improvement of NOK 15.7 million or 13% of 2021 revenue.The European business is growing. Unit sales was up 12% in the quarter and 3% for the full year. Major drivers was for the full year, Germany, France, U.K. and Austria. No country transferred back from Ipsen had a decline in unit sales from 2020 to '21 as opposed to what we saw before we took over the European operations.Revenue was up 5% in Q4. Adjusted for FX, the revenue was up 12%. The revenue increase in Q4 was to some extent driven by lower sales in Q4 2020 as many customers had built safety stocks in Q3 2020. That was prior to the transfer of the business from Ipsen to Photocure. Full year revenue was up 59%, but this is obviously driven by the inclusion of the European revenues from Ipsen from the fourth quarter of 2020.Direct costs increased year-over-year with NOK 8.8 million in Q4 and sequentially with NOK 4.2 million from the third quarter. The cost increase is driven by the investments in the local European commercial organization. And during the pandemic, cost containment has been important and we have deferred hiring and kept spending low without disrupting the business. And we ended the quarter with a contribution of NOK 26.2 million. Full year, we had a contribution of NOK 118 million, an improvement of NOK 20 million from last year.Let's look at the consolidated income statement. Total revenue, NOK 94.5 million in Q4. A decrease of 4% from last year in constant currencies and adjusted for the reversal of the 340b accrual in Q4 2020, we had an increase of 11% driven by volume growth. Full year revenue was NOK 360 million and was impacted by the inclusion of the European business from Ipsen as well as overall growth of the business. In addition, we received an upfront payment from Asieris of $750,000 or NOK 6.4 million in the first quarter. This payment was for the partnership agreement with Asieris for Hexvix in China and Taiwan.Operating expenses before restructuring and excluding depreciation and amortization was NOK 92.5 million in the fourth quarter, an increase of NOK 16.7 million or 22% compared to Q4 last year. Sequential growth in operating expenses from Q3 to Q4 was NOK 10.2 million or 12%. The expense growth is mainly driven by the inclusion of the European business from Ipsen in terms of establishing the local commercial operations.EBITDA in Q4, negative NOK 5.5 million. The comparison to the prior year was impacted by the reversal of the 340b accrual and foreign exchange impact as well as the investments in the European commercial operation. Full year EBITDA, NOK 18.3 million, an improvement of NOK 22 million from last year or from 2020. This is a significant improvement and it's driven by increased EBITDA from the inclusion of the European business as well as revenue growth in U.S. Depreciation and amortization, NOK 6 million in Q4, NOK 24 million in full year, main cost item is the amortization of the intangible assets related to the return of the European business from Ipsen. We had restructuring costs in 2020, NOK 12.9 million, nothing in 2021.Coming to net financial items, we need some additional comments here. Net financial items in Q4 were negative NOK 21.5 million and full year negative NOK 25.8 million. Net financial items were significantly impacted by increased accrued earn-out liability related to the future earn-out due to Ipsen. The earn-out liability is a dynamic balance sheet item in the sense that the value will change according to future forecasted earn-out payments, which again will change according to future forecasted revenue in the former Ipsen markets. So higher revenue forecast drive higher earn-out payments, which again results in higher earn-out liability and increasing the revenue forecast was what we did in Q4.Now given sales performance in 2021 and future growth opportunities, we expect revenues to exceed the forecast we prepared in connection with the Ipsen transaction in 2020. Obviously, as a consequence, the revenue-based earn-out will increase as well and the discounted value of the expected increase in the earn-out payments is NOK 17 million. This amount is accounted for Q4 under financial expenses. And you will find -- if you need more details, you will find them in Note 6 to the accounts.Other items impacting net financials are interest on long-term loan as well as accrued interest costs included for the deferred earn-out liability. And these items were partly offset by net currency gain and interest income from financial assets. After net financial items and tax, we have full year a net loss of NOK 30.9 million compared to a net loss in 2020 of NOK 22 million. You will find from the cash flow table that the report -- that in the report that -- in the cash flow table report that approximately NOK 39 million of full year net loss is non-cash items, which explains the positive operational cash flow both in the quarter as well as full year. And that leads us to the cash flow.Net cash flow from operations was positive NOK 6.3 million in Q4 and full year positive NOK 24 million. The improvement from prior year was mainly driven by EBITDA improvement as well as working capital development. Cash flow from investments was full year negative NOK 1.9 million, while cash flow from financing was full year negative NOK 34 million driven mainly by repayment of the bank loan and by the earn-out payments to Ipsen. So that gives us a net cash flow in Q4 negative NOK 7.2 million and full year negative NOK 12 million. Now the net cash flow includes repayment of loan of NOK 12.5 million for the year, meaning that we have been cash flow breakeven, excluding servicing the loan. And with this cash flow, we ended 2021 with a cash balance of NOK 323 million.Looking at the balance sheet, we ended the year with total assets of NOK 790 million. Non-current assets was NOK 376 million at year end, and this included the customer relationship of NOK 146 million. Customer relationship is the intangible assets identified in the purchase price allocation for the Ipsen transaction. Non-current assets also include goodwill from the Ipsen transaction of NOK 144 million and a tax asset of NOK 53 million in addition to fixed assets totaling NOK 33 million, including leases.Inventory and receivables, NOK 90.3 million at year end, an increase from year end 2020 with NOK 12.9 million. And this increase is mainly driven by the inclusion of the European business from Ipsen as well as a couple of prepayments, one of them being the annual fee for 2022 to FDA. Long-term liabilities, totaling NOK 185 million include the earn-out liability of NOK 139 million and a long-term interest-bearing debt, of which NOK 12.5 million is due after one year. Now total interest-bearing debt including the short-term part was NOK 37 million and is a loan secured under the state guarantee scheme for loans related to COVID-19.The earn-out liability totaling NOK 139.4 million represents the capitalized value of estimated future earn-out payments to the Ipsen, as we reviewed a few minutes ago. And the liability is subject to a 10-year annuity. And again, please see Note 6 to the accounts for details. And finally, equity at the end of the quarter, NOK 502 million or 64% of total assets. This concludes the financial section. Thank you. And Dan, it's back to you.

[Daniel Schneider, President & CEO]

Thank you, Erik. You want to go to Slide 21 with the bubbles penetration. I think we'll wrap this up with the last few slides. Just -- I think this is always a good slide for everyone to come back to and reflect on what the opportunity is ahead of us. This is a $1.9 billion TAM, total addressable market. The key success factors were put in place and pre-COVID and during COVID, pre-COVID in the U.S. during COVID in Europe. We've got our approvals in the surgical and surveillance markets. We have acceptance on major and local guidelines and continue to strengthen those. We have access with permanent and favorable reimbursement in most -- in all markets, and we continue to work on even improving that. That's a never-ending job in the world of market access and reimbursement.We have activated awareness. I've given examples in the past where physicians and patients have sought facilities that offer blue light, causing those facilities to look to get Blue Light Cystoscopy installed into their account because they're losing patients to other facilities. So that patient demand via efficacies and now we've engaged it on a world level with all the advocacy groups around the world, it's quite robust. And then the acceleration, I said, as I mentioned, we put the commercial investment in 2019 into the U.S. and then hit the wins of COVID in 2020 and 2021. And we built the European operation at the end of 2020 and into 2021 last year. And everything is standing by ready to capitalize on the lift of COVID.Now it doesn't go without saying that COVID isn't going to have some challenges left behind the revenue and staffing shortages in the near-term, but over time, it will resolve. But the best news is that with the U.S. and the rest of the EU, with large markets, tremendous opportunities and low penetration, although growing, as we mentioned in the prior slide, the U.S. market has grown in the face of a decline over the last 2 years or a blunting of TURBTs continues to grow, demonstrating the importance of Blue Light Cystoscopy in the market. And our intention is to move those penetration rates up to the dock, German and Nordic penetration rates of the 30%, 40% plus range to become the standard of care.Next slide, please. So anticipated milestones, corporate priorities, regaining the sales momentum, keeping that commercial organization intact throughout COVID, being very thoughtful about where we spend our money, looking for the greatest returns and keeping everyone engaged from the KOLs to the physicians, to the centers of excellence, I think is going to prove out to be very, very smart on our part. The launch of the blue light system in the U.S. in the second quarter of this year, I think have a positive impact on the overall market. And Karl Storz and Olympus will be launching their new upgraded versions in Europe as well to meet the standards that Wolf has set out there. So that exciting development as these new equipment roll out, these are physicians that like to use new systems, and they're going to see the benefits of doing so.We're going to continue to execute on contracting with GPOs and large hospital systems in the U.S. As I mentioned, the economic and the clinical benefits aligned. Geographic expansions, penetrating the untapped European markets as well as recently launching in the Canadian market where we're seeing already early signs of returns for the work we're putting in there. We're going to continue to present and publish additional clinical data. There's a lot of data that's going to come out of the registries, the U.S. registry, the Nordic registry and even the Danish registries. So look for much more evidence of Blue Light Cystoscopy and its importance in becoming a standard of care.We're going to progress with partner companies in a license agreements. I didn't mention Cevira specifically today, but they continue -- Asieris continues on the path of developing that product. It's in clinical development. It continues, it's on track. More to report as they hit more milestones, but everything seems to be moving along fine. And then finally, evaluating strategic product or business opportunities into the future.And let's go ahead to Slide 24 for a summary on the quarter. Strong Hexvix/Cysview volume growth, as I mentioned, increased penetration in the U.S. and a return to growth in Europe, approaching the pre-pandemic growth levels or unit levels. We have a strong new account pipeline. People are queuing up, systems and hospitals are queuing up for the new Karl Storz's equipment. So that's an exciting development. We think that will unlock business in the second half of this year.There were 9 new towers placed in the U.S. during Q4 and the demand for flexible Blue Light Cystoscopy continues to increase. The Karl's system will launch. It's approved in February. We expect a national launch in the first half of this year, as I mentioned, probably into the -- more towards in the Q2 timeframe after we get through the confidence-based testing. We'll continue to drive key initiatives in the commercial regions. And I believe that we are well positioned for strong growth post-pandemic to return to those post-pandemic growth rates in the U.S. and the returned growth in Europe.So with that, we will go to Q&A. David?

[David Moskowitz, Head of Investor Relations]

Hello, everyone. I'll be running the Q&A. Thanks, Dan. So please feel free to send your questions in, and we'll take them. Limited number of questions in the queue. And right now focusing on kind of a noncore item, which is Cevira. The question, Dan, is when can we expect an update on trials and progress in China? I know you just covered that. So what are the next big milestones and when are they expected?

[Daniel Schneider, President & CEO]

This is a clinical trial. This isn't news on a daily basis. It's usually on quarterly basis or half yearly basis because it takes a couple of years to get to these clinical trials. We are approaching another milestone just based on the time of them executing the agreement. Provided everything is going well, we should expect some sort of milestone payment coming up in the first half of this year. Beyond that, everything has gone fine. The enrollments have been fine. It hasn't been without its challenges through COVID, but they feel like they will be on track.Reminding everyone that this is their product. So it's their news flow. They're also a public company now as well. So we can't disclose anything that they don't disclose. But at this point, all I can do is assure you that everything, at least to this point, appears on track and with marching towards the timelines, which was to complete the trial by the end of this year and file in 2023, but we'll see how that goes.

[David Moskowitz, Head of Investor Relations]

The next question is on the Karl Storz's launch. Can you tell us a little bit more about the pipeline that you have for new installations? And is the Karl Storz system, the new system in the U.S., is that also going to launch in Europe?

[Daniel Schneider, President & CEO]

So the first part is Europe has an upgraded system already, but some of the enhancements from the U.S. system will be carried over into the European system. And that will launch, we're hoping towards second quarter, third quarter this year, but hold tight. When it does, we'll let everyone know. The interest in it is extremely high. I had the privilege to not believe it. So he was walking up and he said, yes, the next thing you do is you toggle it to blue light and he looked at the screen and he just went, oh my God, I can't believe this. So this is really exciting.I think what traditionally has been the way to perform to TURBTs is they would toggle to blue light, see the margins, the tumor, then toggle back to white light and reset. Now some of the more sophisticated KOLs like this particular one do resections under blue light. I think this new blue light system will allow them greater visualization and more confidence to do blue light.The other thing about this with surgeons in general is they love the new tools and toys. So this is going to have excitement just by the virtue of having all these new features that they've been wanting for years and excitement of seeing how much more they can see and how much better it will be for patients and reduction in false positives and getting better margins and better outcomes overall. And then just the overall reliability of the system, not having to deal with destruction of light chords in the cleaning or sterilization process or the dimming of a light that won't happen anymore. 30,000 hours of LED light is a lifetime of light for TURBTs given the average procedure is 20, 30 minutes.So I'm just really excited about this. And the interest of the community is very, very high. We've got a robust pipeline awaiting the new machine. We had people -- accounts that had postponed purchasing because they want to purchase a new machine. We have accounts who had bought the obsolete protection plan, which allows them an immediate upgrade. And all those accounts will come due in the second quarter and third quarter and beyond this year. So it is exciting.

[David Moskowitz, Head of Investor Relations]

Another question has come in about the flexible market. How do you see that developing? And how do you see it developing with the new HD instruments?

[Daniel Schneider, President & CEO]

So a couple of things. The Flex market, in my opinion and what we're observing is that, it's become a more important market, not just in the U.S., but also in Europe, particularly the U.K. As everyone felt the effects of COVID, access to hospitals, OR systems, et cetera, they have seen the growing importance of getting surveillance and getting it right the first time, getting a complete understanding of where -- if there is tumors, where they are, and in some cases, doing some low-level procedures.So we see it as a growing segment for us. And when you couple it with the economics of a contracting strategy, it really has an accelerating effect. And so we're going to continue pushing. Now the listener had a question and picked up on right away, this is not the high-def system. It's a standard definition system. So it still doesn't have the state of the art visualization that the new system is going to have or that Wolf has currently or that Olympus will have when they launch in Europe. However, Karl Storz is committing to this segment, and they want to enhance the flexible system and bring the technology up to the state of the art, at least standard today.So we'll see how that goes, progressing. I think just getting the rigid scopes for the operating procedures upgraded to state of the art has been a big leap for them. How they go about Flex on the timelines they have, it is of interest. We'll give -- we'll report on that as they feed us that information as well. But the flexible market does appear to be a growing opportunity for us as a remnant of COVID, to be honest with you. COVID underscored the importance of doing proper surveillance and proper TURBTs. And you can only do a perfect TURBT or surveillance if you have Blue Light Cystoscopy where you can see all the tumors.

[David Moskowitz, Head of Investor Relations]

One more just came in. Give me a second. So now that the FDA has approved the Karl Storz's instrument, what do you think of the healthy competition potentially entering the U.S. market?

[Daniel Schneider, President & CEO]

Healthy competition. There is a question around capital equipment. It's not without noticed by all the capital equipment manufacturers out there, the known parties and the unknown parties that they see Blue Light Cystoscopy's growth. They see the growing interest. Physicians are asking for it. As other technologies launch or other light devices are out there, the physicians and the hospitals are saying, what do you have in blue light? And of course, at this point, this is a PMA Class 3 device for Karl Storz.We expect this to change. I don't know if it will change this year, but maybe in 2023 where other capital equipment manufacturers who want to come into this market, we know they want to come into this market, in the U.S. market will come into this market, and that will have an accelerating effect on the business as it did in Europe. When you have 3 sales forces or 4 sales forces or 6 sales forces of Blue Light Cystoscopy out in the marketplace, touting the benefits of Blue Light Cystoscopy, it has an additive effect. So all I can say is I'm optimistic and we stay tuned for that development.

[David Moskowitz, Head of Investor Relations]

And that's all the questions we have. So we definitely appreciate your participation. Dan, I'll turn it back to you for any closing remarks.

[Daniel Schneider, President & CEO]

Thank you, David. Thank you, Erik, and thank you all for listening in today. Again, if you haven't picked up, I am very excited about where we are today. I think we've weathered the storms of COVID quite well. We're well positioned for growth as we come out of the COVID. There is still remnants of staffing shortages that will affect the business and linger probably throughout 2022 in some form or fashion, but I think all things that we can overcome as an organization. And I think when you look at the overall market decline, TURBTs during COVID of minus 11%, there's other publications staying upwards of 20%. And despite all of that, we continue to grow I think underscores the importance of Blue Light Cystoscopy and the efforts and results that we believe we can get now and into the distant future. So thank you all. Have a great week, and I'll talk to you at the next quarterly. Thank you. Bye-bye.