Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2020-Q1

[Christer Ahlberg, President & CEO]

Thank you very much. I'm going to present the first quarter results and the business outcome for the first quarter in this year 2020.We can go to -- and before I go in to the more aspects and the impacts of COVID-19 in our business, I will just briefly repeat, I mean, the company and the company's visions and ambitions, the strategic priorities. So you can go directly to Slide 3.In Slide 3, I mean, what we are -- I mean, Sedana Medical, as you might know, nowadays be aware of, our vision is that inhaled sedation with AnaConDa -- with our product, AnaConDa, the medical device, and our future pharmaceutical IsoConDa will be a global standard of care therapy for mechanically ventilated intensive care unit patients. So that is the overall vision.Going to the Slide 4, you can see that, the blockbuster potential these 2 products do have in the market, and there is definitely a medical need and the potential, which we have defined is EUR 2 billion to EUR 3 billion annually, and that's based on that we have 30 million patients treated in an ICU annually, and whereof 8 million of these are sedated and ventilated within a growth of 5%. I can say that this year, the growth will be significantly higher in number of patients. We don't know yet how many -- how much, though.Looking into the number of days -- sedation days treated in an ICU. Currently, we have said 2 to 5 days, that's the average. Just for information, the COVID-19 patients do, on sedated, much longer than this average, as an example. With the price that we have, average price in globally for our treatment, we have EUR 100. And that gives you the market potential of EUR 2 billion to EUR 3 billion. And this potentially divided approximately 1/3 in each region, where prices will be higher in U.S. and slightly higher-than-average price also in Europe or -- and a little bit less in Asia Pacific.So going then into the Slide 5. We also have defined the strategic priorities for the future, for the short-term and then long-term future. We have -- in Europe, the main priority is in Europe to register the IsoConDa, the drug, to become the first registered volatile anesthetic for [ intubation ] indication. And together with AnaConDa, that will be the only regulated therapy and inhaled sedation treatment for the intensive care unit patient.And before we get approval in the end -- by the second half year of 2021, we should ensure the growth of AnaConDa to prepare for the launch of IsoConDa in 2021. The other strategy is -- priority is, of course, to develop and register this therapy also in U.S. And that aim is to have that approved by 2024 and the decision about how to commercialize it 2 years before registration. And of course, there are very interesting markets as well and begin marketing in the rest of the world such as Japan and China and also other markets where we are looking into and preparing ourselves to register the therapy also in these markets.So these are the priorities. Going down to the -- more into the first quarter, to Slide 6. Before going into the impact of COVID-19, I can just give you some highlights, what has happened during the first quarter. And in January, we -- the last patient was included in the pivotal registration study, IsoConDa study, meaning that we have now collected all the 300 patients that's needed for fulfilling the registration and the requirements from the authorities in Europe. So now we are waiting for the top line results to be presented later this year.We have also obtained a market approval for AnaConDa in Mexico, which we also already have communicated. We have also started up to establish our own direct sales organization in Benelux, which is according to the plan of preparing ourselves for direct sales and preparing the launch for IsoConDa in 2021. And we have also now initiated a donation to China for AnaConDa to treat and support the COVID -- fight the COVID-19 virus in 2 hospitals in China, one in Wuhan and the other one in Zhejiang.After the period, we have also presented a -- significantly increased by almost [ 90% ] due to COVID-19 pandemic, and also that we, due also to this COVID-19, might have a slight delay in the presentation of the top line result. Initially, we have presented that we should do it in second quarter this year. It might be that it will be spilled over in July for the presentation and most likely in July.And also, that means that we will have a submission by the end of September or in the first part of the quarter -- fourth quarter of this year. But that doesn't mean that we will have a delay in the registration. Still, we are aiming for having the registration of IsoConDa by the second half year of 2021.So going to the next slide, Slide 7, where we have -- while I describe a little bit more about the situation, the quarter, I mean, very much strongly influenced by COVID-19, I would say. We have seen many patients treated with -- many COVID-19 patients treated with AnaConDa for sedation. And here, we have just some examples from -- those from Germany, Spain, France and also some education, educational room for how to use AnaConDa in Germany.On the left side, it's interesting to see. This is a prone position of a patient that treated for COVID. This is the position that you normally use when you're treating a very severely ill patient for COVID-19.So going then to Slide 8. What are the impacts on the business for -- due to the COVID-19? I mean, if we start with the sales, you have already seen, we have a much higher demand within the current customers. They are using more, obviously. But we also have new ICUs starting up, and we have many new deliveries to new markets as well as customers. And overall, we can see a significantly increase of -- in interest of inhaled sedation as an alternative to the intravenous sedation in the ICU due to the COVID-19.When it comes to the supply and manufacturing, what we can see is that we have had, especially initially, challenges with transportation and freight, and the costs for that have increased significantly during the period. And that will continue during the next quarter as well, I would say. We have had no significant negative impact from interruption in supply flow though. We have had some bottlenecks when it comes to component supply.But thanks to very good supporting functions within the company, we are -- we have actually supported them to ramp up the production. And so far, no major issues. And that -- this comes also with the production. And we have had some -- a few interruptions due to restrictions in Malaysia due to the COVID-19, but we have had a very good risk mitigation plan and extra activities. And we have succeeded to, I would say, ramp up the production capacity of more than 100% during this tough period.When it comes to the clinical development, as I already mentioned, there might be a slight delay in the top line results in July instead of June. And also, it might be an application that will come in October instead of September. That is -- but still, we have no expected delay of the registration of IsoConDa through the second half year of 2021, although we have seen an increased interest to do investigating -- phased trials have started on inhaled sedation treatments in the ICUs. So that's, of course, very interesting to follow in the next -- during the year.Regarding financial, as you already have seen them, we have now, after the first quarter, positive EBITDA and also, we have positive cash flow from operations before working capital. But still, we have increase in working capital, though. And we have also an increased OpEx due to both that we are preparing ourselves for IsoConDa launch, but also due to -- I mean the special situation where we are actually introducing a lot of these many new ICUs, and that there are different -- and we have also introduced a new e-learning system, et cetera. So of course, that comes with more consultants as well as higher costs overall.Okay. Let's go into Slide 9. Why is there so much of increased demand of AnaConDa during this period? So I think the best person to answer that is our CMO, Peter Sackey. So I hand over to Peter.

[Peter Sackey, Chief Medical Officer]

Thank you. So as Christer said, there's been a big increase in the use of AnaConDa, and we believe this relates to a number of factors. First, the patients with COVID-19 ARDS have high sedative requirements in order to control respiration. Also, the potential pulmonary anti-inflammatory effects in inhalers have been highlighted through research and review. And many patients developed multiple organ failure, which is a known risk factor for oversedations and prolonged sedation when intervened with drugs, especially benzyl baths being used, making physicians turn to options that are not affected by multiple impairments, such as inhaled sedation.Finally, recent learnings in the patients wake-up after the intravenous sedation, lethargic and with delirium. And this is not surprising given what's known about long-term intravenous sedation, but it points to the risk of this intravenous sedation and stimulates through other options.For the non COVID-19 patients, the medical rationale remains the same as the full COVID-19 that inhaled anesthetics opts for effect in the [ robust sedation ]. And added to this, the medical rationale is also a shortage situation in many countries for propofol and benzodiazepines.

[Christer Ahlberg, President & CEO]

Okay. Let's go into Slide 10, I mean, where we are showing the result of the sales development. And we have already reported this morning. We have a sales increase of 90% in the quarter versus the first quarter in 2019. In rolling 12 months, we have a sales increase by 46%. And what we have also have stated here is that during April, we have seen a similar development as in March. But we are -- now that -- I mean it's impossible for us to actually make an adjustment of the sales trend for the full year of 2020. We don't -- we have no -- we don't know how the COVID-19 pandemic will develop, and therefore, that is impossible for us to say how to do any other sales trend more than this.So then, let's go into Slide 11, where we are -- I just wanted to inform you a little bit about the market -- different markets and the development there. As we have said, I mean, our ambition is to develop a direct sales organization in the main markets, be ready to launch IsoConDa by 2021, and the last addition to that was that we introduced Benelux during this first quarter. And of course, we -- our ambition is to have approximately 15 direct sales markets in Europe before the launch of 2021.Still, we can see that the direct launch -- direct sales markets do have sales more than 90%. You can see that we have different increases in different markets. Germany is definitely our locomotive, and they are still a major contribution to our sales, and they're growing significantly by more than 70% in the first quarter. On the other hand, the newer direct sales base -- direct sales markets are growing even more, more than 200%, and the distributor markets more than 50%. And that's how it looks during the first quarter.And going into the distributor markets, in the rest of the world, we can go to Slide 12, where I just can comment on that. I mean, Japan, still, we are -- they are growing as well. They are using it in more and more ICUs, even despite of label situation. We are depending on the outcome of the European dossier and the registration -- pivotal registration study here. We will have our official meeting with Japanese authorities planned for the end of this year. But now we don't know, of course, due to the travel ban, et cetera. So anyway, that's what we have planned for to continuously look into that possibility in Japan to register IsoConDa as a combination with AnaConDa.In China, we have already submitted AnaConDa application, and that's ongoing. There have been some struggling within the authorities in China to continuously work with applications because of the COVID-19. And -- but still, we are expecting no delays for the approval of AnaConDa in China.And it's the same in India, where I would like to say that we have indicated many new ICUs in India, and that's of interest also there. And it will be interesting to make an analysis after this COVID-19 of what -- how this situation looks like.Okay. Let's go then into slide to dig more into the clinical development and appreciate that, go to Slide 14, and then I will hand over to Peter again.

[Peter Sackey, Chief Medical Officer]

Yes. So Slide 14. For the European marketing authorization application, Sedana has 2 randomized control trials as agreed with the regulatory bodies. The first is the IsoConDa study, which started in 2017 and last patient was included early this year. The study is a confirmatory noninferiority study compared to isoflurane via AnaConDa with intravenous propofol. The primary end point is the proportion of time in a target level of sedation on the VAS scale. Due to COVID-19, we anticipate to have data [ clean ] and high-level results in the beginning of Q3, that's in July, and to submit the marketing authorization application at [ the end of ] Q3, Q4 this year, rendering an approval in the second half year of 2021.The second study, Iso-COMFORT, does not impact the time lines for marketing authorization. Iso-COMFORT is the pediatric study that we anticipate will generate data for pediatric indication by [ transtubation ]. Similar to the IsoConDa study, Iso-COMFORT investigates the efficacy and safety of isoflurane and efficacy measure that the proportion of time within the target level of sedation, in this case, a defined range on the Comfort-B scale. The study is in preparation and will start in 4 countries later this year. And we've also received feedback from the FDA on the pediatric protocol, and we're adapting it in order to align with U.S. expectations for the pediatric study plan.If we move over to Slide 15. Based on feedback in March of 2019, Sedana Medical initiated steps towards the clinical development for IsoConDa and AnaConDa in the U.S. One other case is the human factors program. This has been initiated in collaboration with Harvard Medical School, Beth Israel Deaconess Medical Center and with the human factors consultants. Another activity is to conduct nonclinical study without contract research formalization. These studies are ongoing according to plan.Finally, the clinical studies are in preparation in collaboration with several academic centers in the U.S. They participated in scientific advisory boards in the U.S. that we held in early February. And in all, we expect to start these studies after filing IND application late 2020, initiating studies in 2021. It's part of the goal to have IsoConDa and AnaConDa approvals by 2022.And then we move over to Slide 16. Here, the overall time lines and significant events depends for Europe and the U.S. So this year, we submit the marketing authorization application, and we start the pediatric study in Europe and we anticipate approval for the adult indication next year and approval for the pediatric indication in mid-2022. And we expect to submit the IND application during the year and start the trials next year in the U.S. and complete these studies in 2023, which will render an approval for IsoConDa and AnaConDa in 2024. And in 2022, we will decide whether to launch alone, commercially or with or without the U.S.

[Christer Ahlberg, President & CEO]

Okay. Let's go to Slide '18 and look into some financial highlights and where we can start then. I mean, in the first quarter, SEK 34 million in sales. That's a growth by 90%. We keep the gross margin of 70%, which -- despite the increased cost of freight and transportation. And we have a positive EBITDA of SEK 1.2 million, which is the first time for a very long time.We have, though, an increased OpEx due to the preparation for IsoConDa launch and also due to COVID-19, I would say. I mean we have some increased costs here to actually to commit to the demand that we have seen in the ICUs. We also increased the number of employees as -- in line with plan. And as I said before, we have a positive cash flow on -- from operations, but of course, a total negative cash flow due to all the investments we are doing now in Europe and in U.S. for the registration program.And going to the next slide, 19, you have an overall financial result showing both the results and then the P&L and the balance sheet and the cash flow. As you can see then on the OpEx, we are increasing both external expenses as well as the personnel expenses significantly compared to 2019. We have, though, a very good cash position. By the end of the quarter, we have SEK 442 million in cash. And then we have a negative cash flow, including then the -- in the period of minus SEK 22 million.And that is what we wanted to present about the financials. I can also just comment on the next Slide 20 on the shareholders list updated from March 2020, and where you can see the different institution as well as the funds that are on the main top 15 list here.That was the last slide I wanted -- we wanted to present, and we open up now for potential questions. So please go ahead.

[Operator]

[Operator Instructions] And our first question comes from the line of Christian Lee from Pareto Securities.

[Christian Lee, Analyst]

Congratulations on -- to a very strong quarter, indeed. My first question is regarding your outlook for the beginning of the second quarter, which seems to be very, very positive. You're saying that April, you are seeing similar growth as you saw in March. So my question is in terms of the share of the total sales in the second quarter, how important is April?

[Christer Ahlberg, President & CEO]

Well, as I said, it's very, very tough to estimate. I mean what we could see is that -- and that is what we can say. I mean I don't -- we don't know how this will -- I mean, of course, we have tried -- we have had a lot of orders during this period. And we have -- and some of the orders are maybe much bigger than they are using more of our secure stock levels in the hospitals, but we have tried to portion this out as solidarity as possible.So we are not -- to make sure that we are not running out of stock due to some -- that some hospitals will have [indiscernible] stock. That means that most [ hospitals ], we believe, don't have major stocks in place, but that's difficult to say at the time being. We -- I mean we do expect that, of course, it could -- I mean and that is what we could see is that -- I mean I don't want to go -- I mean, of course, we can have a lot of estimations, but it's very difficult to say at this moment. But more than that, April has had approximately the same demand as in March. That is what we could say. And we don't know how it will look like in the rest of the quarter. It's very, very too demanding to say.

[Christian Lee, Analyst]

Yes, sure. But see, as the number of patients that are in need of sedation is increasing day by day. Would you agree that the demand would be equally strong in May or June as well as you saw in April?

[Christer Ahlberg, President & CEO]

No. Well, I don't know if that is the case, as you're just describing now in the markets where we are where, I mean, where we have been strong. I mean we have an increased sales in Germany, Italy, Spain, France, and the U.K. and Nordic. I mean we have seen -- of course, there's still a lot of number -- a lot of patients in the intensive care, but I don't see that -- it's not growing at the time being. I would say it's reducing in number of patients.So the most -- but then we don't know if it will come, a second wave or not, we don't know that. And also, it's very much dependent on the situation of IV drugs. They are lacking -- if they are out of stock or intravenous drugs that could, of course, be a game changer in the demand, of course. So I don't see that -- as it is now, it's not growing. I mean the number of patients are not growing in the ICUs treated for COVID-19 for the time being, I would say the opposite. But still, it's on a very, very high level compared to a normal decrease.

[Christian Lee, Analyst]

Okay. And my final question is regarding the clinical use of AnaConDa, if you have had any feedback from clinics in terms of reduced hospital stays or any other medical outcomes.

[Christer Ahlberg, President & CEO]

Looking at you, Peter, outcome, I mean, we haven't had any clinical -- yes, of course, I mean, what we explained, I mean, the clinical outcome is like that, but of course, a COVID-19 patient is more critically ill than many other patients and a little bit -- I mean what is -- I mean, of course, there are benefits to this. They have seen that. And so of course, there are challenges as well.

[Peter Sackey, Chief Medical Officer]

Yes. And I'd say that those who use on the [ high cap ] will use AnaConDa [indiscernible] patient received clear benefits. But for us to be able to state that, we would need to see a study. So I'd be cautious in saying that at this stage. Users are very happy to use inhaled sedation since COVID-19, and they're not very happy about intravenous sedatives.

[Christer Ahlberg, President & CEO]

Yes, because they have -- I mean, these patients, I mean, are not exactly the same as an ordinary ICU patient, and they are very challenging by itself. And then, of course, IV cocktails will actually increase that kind of difficulties, but -- and that's the reason why they are preferring this. And -- but of course, we will see. It's a little bit too early to say the clinical outcome of this. We will come back when we know more, when we have done the analysis in the future.

[Operator]

And as there are no further questions registered, I will hand the word back to our speakers for any final comments. Please go ahead.

[Christer Ahlberg, President & CEO]

Yes. Okay. Yes. Thank you very much for your interest in Sedana Medical and in inhaled sedation. I think this is a very interesting time that we are experiencing now, and much more information and news will be coming in the future because this is just the beginning of this treatment. And looking forward to keep you updated.