Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2021-Q1

[Operator]

Hello and welcome to the Sedana Medical Q1 report 2021.[Operator Instructions] Today, I am pleased to present Christer Ahlberg, CEO.Please go ahead with your meeting.

[Christer Ahlberg, President & CEO]

Okay, thank you very much. And welcome all to the Q1 report for Sedana Medical.And with me here today, I have our CMO, Peter Sackey; our CFO, Susanne Andersson; and our Commercial Director, Jens Lindberg. And we are the ones that will present the first quarter report day. And -- but I will start and I will give you some guidance about Sedana Medical. I mean most of you have heard some of this before. And then we'll go into the commercial, what we have done during the quarter. And so Jens will go and do that. Clinical development will be done by Peter. And then we will end the presentation with a financial highlights presentation by Susanne, and then I will wrap it up in the end.And -- but anyway, first quarter. We can go to Slide 3 directly. And I mean this quarter as well as 2020 was very much strongly influenced by COVID-19. And also during this quarter, we have prepared ourselves for the launch of the treatment inhaled sedation and Sedaconda around the corner here in Europe, and we have prepared ourselves for the clinical development in the U.S. Together with that, we have also seen an -- sales increase by 40% during the quarter compared to the first quarter last year, but let's go into the company a little bit more in detail.We have -- on to next slide, showing -- I mean our ambition and our vision with this company is that we are -- I mean we are working within intensive care. And we definitely believe that we have a treatment, a unique treatment, inhaled sedation, that could change the paradigm in health today for patients in the intensive care units around the world. And we are definitely confident that we can do that very much dependent on the features of the treatment, which we have seen before, but just the summary of it: I mean we have with our drug -- this delivery device a possibility to reduce the ICU stay for patients, thanks to the on-off effects and the reliable wake-up time compared to IV treatment that takes a very long time. And the longer you are sedated, the longer time it takes to wake up the patient -- so it could take a very long time and very unpredictable. We also, thanks to the [ mode of effects ] in -- of the drug, a reliable effect and also a nice safety profile of the product. So we can also see that we have a better cognitive recovery versus IV and less side effects like -- cognitive side effects like delirium and hallucinations. Interesting and we have also seen that we can reduce the usage of opiates during the treatment as well, and that's of course of interest in many countries around the world.Lastly, it's more of a therapeutic effect that we might -- actually we have seen it also in human, in studies on humans lately, not only on the -- in animals. We have seen that we have a potential in organ protective properties, especially in the lungs, where we can see improved gas exchanges and include oxygenation. And that, of course, will have a potential of catching 2 birds with one stone with a good sedation drug as well as organ protective possibility as well.So going then to the potential of the market. You have seen it before, but this is a normal year without COVID with the potential of EUR 2 billion to EUR 3 billion annually, divided in the 3 different regions of approximately 1/3 in each region. And of course, what we see now, there will be more [ ventilator debt ] around the world after COVID. So the annual growth this year -- or last year was most likely quite dramatic, higher compared to what we're seeing here of 5.5%. Also positive, I mean, we have sign in U.S. It's that the reimbursement situation is promising for us, where they are paid per patient instead of the length of the stay in the ICU. And since we are having potential of reducing the ICU stay, that is, of course, interesting from a reimbursement perspective and the potential of a premium price. So -- but we will come back to that in the future when we are coming close to registration in U.S.Future-wise, when it comes to strategic priorities, there are no changes. I mean we are fully occupied to prepare ourselves for the launch of Sedaconda and inhaled sedation in Europe during the second half year in 2021, this year; and as well as preparing the clinical studies then -- and in the U.S. And then also the registration process overall in U.S. is ongoing, [ however ]. Still we are looking to have registration in U.S. by 2024. And Peter will come back more in detail to that shortly.Regarding the guidance of -- well, also, of course, we have the rest of the world, not to forget, where we have -- of interest, of course. Asia [indiscernible] China is on ongoing registration of AnaConDa there. Hopefully, we have a registration this year. And also something that is coming up now lately is that -- Latin America, also interesting market to follow, but the near future looks into the sales and -- after the launch of Sedaconda in Europe. We have guided actually to reach closer to 10% of the market potential in Europe, which will give us [indiscernible] in, say, 3 years. That will be, hopefully, then 2024.With -- I mean -- and also you can see in this report we have seen a little bit reduced gross margin, unfortunately, but that's reason of COVID. I will say it's COVID related with a high cost of freight, increased cost of freight, but with the 70% that is this target, we'll have a nice EBITDA margin as well. At 70% gross margin, we will also get a very nice EBITDA margin when the volumes goes up later on. So that's this target and the guidance we have given the market.And the strategic development of -- the development [ of the company ]. I mean, as I mentioned, we'll become the new standard to help sedated patients in ICUs. And we will reach that through these levels: firstly, of course, to establish AnaConDa everywhere in the world and to be a delivery system for volatile anesthetics. At the same time, we want to register the full -- we will have the therapy fully labeled and registered in relevant markets around the world. Europe is the first region where we will reach that level. That's [indiscernible] to the market, I will say, but next step is, of course, to show superiority versus IV treatment. And that is done through solid clinical studies. Evidence-based is -- medicine is important for us. And we will support investigator-initiated trials, which we are already doing, but also Phase IV and other Phase III studies [ that run them ]. So that, when we have reached this outcome and the end points that we are looking for with superiority versus IV, then that's the plan then to, of course -- that will roll out then, getting to the guidelines as a first-line treatment. So that's the aim and the strategy how to reach the new standard of care.So what have we delivered during the quarter and just before that? So going to Slide 9 -- sorry. I should have told you when you should -- but Slide 9 now. And what have we delivered? We have approved AnaConDa in many markets, as we see. And we are working on the U.S. market as well, [ as we come back to that ], but interesting during the first quarter is that we have seen an uptake, dramatic uptake, in Latin America, Mexico, as well Colombia; and a huge interest in the rest of South America. We also have started up ICUs, many ICUs, thanks to the registration, in Middle East as well. So these 2 markets have been interesting to follow during the first quarter. Of course, Europe has also been successful.And now Jens will take over and let us know a little bit more about the commercial situation.

[Jens Lindberg, Vice President of Commercial Operations]

Thank you, Christer.So we can move ahead one slide to Slide 10, please, to sort of start the journey. So we look back at what we believe to be a, I will say, good quarter 1 this year.Germany continues to be our sort of engine and with regards to -- so from a sales perspective. And we're seeing more and more ICUs that have come onboard in Germany as well. And we can also see the penetration rate for the share of patients sedated in the ICU, a larger share sort of getting inhaled sedations today than sort of 6 months back. And we're seeing a sort of 1.5 percentage points or more growth in this period.And the other element to highlight here is that we are -- we've seen, looking back at Q1, we are opening up one new ICU per day across our direct sales market in Western Europe. And the context on that is that sort of we already saw from the beginning of COVID last year many new hospitals come onboard, but last year, there was quite a bit of sort of fear of [ shortfall or ] shortage that drove new hospital to us. That sort of fear has gone away, so what we see now is more of a long-term commitment to inhaled sedation in the number of ICUs and hospitals coming onboard. And then also being able to [ start out ] one new ICU per day under the sort of very strict rules of lockdowns is -- has been quite sort of strong performance by the team.So if we move forward one slide to Slide 11. One other element or one other enabler of driving inhaled sedation is the availability of gas monitors sort of in the market. And what you see on the left-hand side is the number of ICU beds that now have a gas monitor sort of attached to it in our direct sales markets. You can see the growth in the period from before COVID and up until April, quite strong growth. And today, that means that sort of 1 out of 10 beds is now equipped with a gas monitor and patients [ then ] sort of use inhaled sedation. What we are also doing sort of in order to further accelerate this is that we've just in March launched our own gas monitor. And the early feedback and the early [ signs ] is quite positive, but they will also sort of help us further accelerate this increase going forward.And one slide forward, please. So then looking at the sales development. As mentioned, sort of we feel we're coming off a very good quarter 1 with a 40% sales growth year-on-year in local currencies. That's being fueled by a couple of different things. You can see on the sales mix here, as Christer mentioned, we've seen quite sort of strong sales in the distributor markets, particularly Latin America. And COVID continues to sort of drive sales, of course; and then as I mentioned, the number of new customers that we're seeing across sort of the -- all the regions [ where we are setting ].The one comment to make here and as I sort of had received a question sort of earlier in the day sort of regarding sort of Germany and COVID. I think one thing to mention here is that the Germany sales in Q1 is quite strong, and it's particularly strong looking at the dynamics of ICU patients. What we saw in Q4 was a very rapid increase of COVID patients in Germany, and that number peaked on December 31 basically. And that's -- that will drive purchasers to stock up or sort of make bigger purchases to make sure that sort of in an escalating period they have stock on hand. And then you also have the end-year effect in terms of purchasing. So last year ended quite strongly. And then what happens in the beginning of Q1 is that sort of COVID numbers actually decelerated all throughout half of March, dropped about 50%. So what we're seeing is that sort of again more and more patients that are sedated in Germany and also across the other markets are getting inhaled sedation. So the penetration rates go up.And then finally, let's go to the next slide. Just go to Slide 13, please, yes. And just to make a note that sort of what we are also sort of quite occupied with at the moment is preparing for the launch of Sedaconda, finally going from off label to on label. We are preparing in terms of training the organization but also growing the organization across our markets. So that work is well underway, spending quite a bit of time preparing for price and reimbursement discussions and submissions and negotiations in the market. And then in addition to that, we've also mentioned that sort of we've submitted in Switzerland and U.K. as well and expecting approval and launch in first half of next year. And as mentioned, we anticipate to launch in the 15 first EU countries already this year.So with that, I'll hand over to Peter on the clinical side.

[Peter Sackey, Chief Medical Officer]

Thank you.So we'll move to the next slide, Slide 14. In parallel with preparing for the launch of Sedaconda, [ of added ] application, we are working on our clinical trials and the support of the investigator-initiated trials to support this therapy. And we have started recruiting patients in the pediatric -- European pediatric trial that's running in 4 countries in Europe, in about 20 [ pediatric ICUs ].And then we can move over to the next slide. So looking at the top line results of SED001 Sedaconda study, formerly known as IsoConDa study, the registration study that was performed in Germany and Slovenia. On to the next slide, please, and -- Slide 16. As some of you may know, the study was successful in demonstrating non-inferiority when it comes to sedation efficacy of AnaConDa versus propofol. Both drugs were efficacious in sedating patients to RASS target range that was set for the study. And isoflurane was compared to gold-standard propofol with the proportion of time in the target range of 90.7 for isoflurane and 91.1 for propofol, with [ type ] confidence intervals well above the non-inferiority margin at 15 relative percent below propofol mean.And to the next slide, Slide 17. We also had a number of superiority end points that we were looking at. And the ones that I would like to mention here today that were demonstrated to be superior for isoflurane were, as Christer mentioned, reduced opioid requirement during ICU sedation, about a 30% decrease in the need of -- in the dose of opioid during ICU sedation. We also found a higher proportion of time with spontaneous breathing with isoflurane, which is beneficial to the lungs and the diaphragm. And finally, after 48 hours of sedation, patients receiving isoflurane had a shorter time to wake up than propofol patients, which is very useful from a clinical care perspective.Next slide, please. Now we're on Slide 18, looking at the safety aspects. We were looking at organ functions and found no differences in the groups. We also were looking at adverse events, and there [ were related serious events ] in the 2 groups. And none of the serious events -- adverse events that were found were related to the use of isoflurane but rather to the critical [ illnesses found ]. Adverse events that were noted were generally not related to sedation or the device. And there were no new safety concerns raised for the use of isoflurane in the study, [ so clearly a ] successful study from a safety perspective and also from a clinical use perspective.Moving now to U.S. and clinical development for U.S. In 2019, we received feedback from the FDA, and we've been following that feedback. And that included that -- conduct a human factors program and nonclinical studies prior to the clinical trials and, thereafter, 2 clinical trials to confirm the efficacy of isoflurane for ICU sedation and the establishment of a safety database. And we are then moving from that to NDA submission and commercialization. And we can move to the next slide to look at the time line.

[Christer Ahlberg, President & CEO]

21...

[Peter Sackey, Chief Medical Officer]

Sorry. Thanks. 21, Slide '21.So what we see in Europe. I have told you that we -- the Sedaconda study was finalized last year. And we have presented the high-level data at press meetings and also at an abstract. We had opened up the pediatric study sites and submitted our marketing authorization application and expect to have an approval in the second half year of 2021. And we'll start recruitment in the IsoCOMFORT study. And by next year -- second half year, we should -- next year, we should have completed the study in order to get approval for the pediatric indication in 2023.And for the U.S., the human factors formative study will be completed this year. And the preclinical studies needed for starting clinical trials will also be completed this year, and that will enable us to receive IND by -- sometime after the summer, in the early autumn; and start recruiting patients early next year. And we are currently recruiting ICUs and have been very successful, so far, to get ICUs that are generally [ enough ] to be successful in recruiting patients and that have the patient interest as well. In 2022, as I said, we'll start the clinical trials and decide how to launch in the U.S. in 2024. And in 2023, we expect to end the clinical trials and submit our NDA and have an approval by 2024.And then I hand over to Susanne.

[Christer Ahlberg, President & CEO]

So Slide 23.

[Susanne Andersson, Chief Financial Officer]

Okay. So financial results. [ And Christer and Jens have already been through some of the stats ].So we had a continued strong, solid quarter, first quarter, with a yearly growth of 40% in local currencies given that we -- or resulted in a higher gross profit. However, the gross margin somewhat was hurt by the continued high costs for freight. And excluding this, the gross margin would actually have been higher year-on-year.We're still working on that. For Q4 and Q1, we had -- spent a lot, transported by air. Going into Q2, we will have the vast majority transported by sea even though the costs for sea freight actually increased in Q1, but it was really -- it's still a lot less compared to the air freights. So we are working on that. Then of course, we've also been known through the sales mix given that we had a very good development in our distributors market, but that has -- with somewhat lower margins. So this mix in -- together came up with a gross margin of 64%, but we're still targeting [indiscernible] and 70% in future. And that's really our targets moving forward.In terms of EBITDA, the margin came into minus 18%. We do have increased OpEx, and it's -- the main reason the -- for that is really the buildup of the organization, like Jens was going through. We are increasing sales and also -- or preparing for the Sedaconda launch and then also the supporting units.We did have in the first quarter some overlaps in staff costs. We were 3 new persons in the management team, so there were certain overlaps there, and also given that we are targeting to actually have employees and only have consultants where we really [ need them in certain process ]. So there has also been a transition from consultants to employees and certain overlaps in that. Plus there's also been some [ timings ] in between the quarters, plus slightly lower capitalizations within R&D, so this all together has made OpEx to increase. And also in the quarter, we did have a onetime impact from moving of logistics center in the quarter, but we are monitoring this carefully and targeting to have a cost-efficient organization. By end of March, we were 85 people together, 72 employees and 13 consultants. We believe that this is somewhere the level going forward. We've been talking previously about being roughly around 100 persons when we actually do the -- on getting the EU market approvals and going forwards. So we are on that target. We are track on the target.Next slide, please, Slide 24, moving on -- over to the cash and financial balances. We still have a strong cash balance of SEK 344 million. It's a debt-free company which is also strong. We did burn SEK 33 million in the quarter, and you can see the split where the money is spent. It's [ financing terms and ] investing and also from the operations, but we are, again, monitoring this carefully. And we still believe we have a very strong balance sheet in terms of cash.Next slide please, Slide 25. Our largest shareholders as of last of March is pretty much the same as previously, [ so no real updates to say ]. We do have a good mix of institutional owners and a few retail shareholders.And that was about what I have to say, so I'm handing over back to you, Christer.

[Christer Ahlberg, President & CEO]

Yes. We can go to Slide 26 then, and that is the last slide; open up for questions. So please, if there are any questions -- I don't know how to handle that. Please help me.

[Operator]

[Operator Instructions] There are no questions [ from the audio lines ] at the moment, so I'll hand back over to our speakers.

[Christer Ahlberg, President & CEO]

I have some questions from the web here. I can [ appraise ] them and then -- when do we expect the results from the tox studies? I'll -- I think maybe it's a question for you, Peter.

[Peter Sackey, Chief Medical Officer]

So we have some tox study that needs to be done before the clinical trials and others that need to be done before our NDA but not [ some visible time lines for the trials ]. 2 out of the 3 studies that are being done before the clinical trials have been completed, and I'll say the results are very good. And the third study is underway and will not be delaying our program. And the delay is due to the long actually time lines for new things really. So the total -- the full tox study program will not be ready until about 2 years time, but for the [ pivotal ] trials, we are on track to have that [ filed. Third ] study completes that up, so...

[Christer Ahlberg, President & CEO]

Perfect. Thank you. And then there is another question to you, Jens: "Q2 revenue, on target?" I think we have problems to answer that because, I mean, we are not expected to guide you. So we don't answer that in the time being.

[Jens Lindberg, Vice President of Commercial Operations]

No. And if nothing else, [ it's even the ] [indiscernible] situation with COVID and how long will the -- kind of this wave sort of continue, et cetera. So it's a very difficult time given -- based on that.

[Christer Ahlberg, President & CEO]

Yes. And then I have another question and -- visibility on appointment of a new CEO. And then maybe I should answer that. Well, it looks good, but -- so hopefully, we will announce anything. In the -- yes. I don't know. I mean it will come. And wait. So it looks promising. Okay, that's about that. Another question?I have another one here actually, update on China. Yes, I can. There is -- I mean we are working on it. And it's Chinese authorities are very complex and complicated, I have to say. It's the most complicated authorities when it comes to registration, but anyway, it looks good. And we expect to have, I mean, an approval this year, as we have communicated earlier. Okay, that's it. Then I don't think there are other questions.

[Operator]

There are no more questions from the audio.

[Christer Ahlberg, President & CEO]

Okay, thank you very much. And then we'll stop this webcast. And I wish you all a good day. And then thank you for listening in to this. Bye-bye.