Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2020-Q2

[Operator]

Hello, and welcome to the Sedana Medical report for Q2 2020. [Operator Instructions] Today, I'm pleased to present Christer Ahlberg, CEO. Please go ahead with your meeting.

[Christer Ahlberg, President & CEO]

Okay. Thank you very much for that introduction. We also will have our CMO, Peter Sackey to present; and we also have our CFO, Maria Engström here if there are any additional financial questions as well.So here we are today to present Sedana Medical interim report for the second quarter, and I would start to give you a short summary of the company and what we are doing to update you on that. I will, after that, go into the consequences of COVID-19, and how that has impacted the -- our business in the quarter. Thereafter, Peter, our CMO, will go into -- will guide you through the clinical development and the clinical program. And we will end this session with some financial updates as well for the quarter -- second quarter.So let's start then. Same slide, which is Slide 3, to give you just a short update here. Sedana Medical, as you all know now, most of you know at least, is very focused on inhaled sedation in intensive care patients. And our vision is to make inhaled sedation with our product AnaConDa and IsoConDa to become a new global standard care therapy for mechanically-ventilated intensive care patients. And we believe that we have a unique and leading therapy and the possibilities are great actually to achieve this vision.And going to the next slide. The market potential for this segment is obviously also a blockbuster potential with EUR 2 billion to EUR 3 billion annually, and with a growth rate in a normal year by 5%. COVID year, the growth rate is much, much higher, as we understand. The focus areas are Europe, which is 1/3 populace out of this potential. And then also later on, focus is very much in U.S., with a high price level as well as -- and very interesting potential here.Going to the next slide, regarding our strategic priorities and financial targets. And we will come into that much more in detail. In Europe, we are prioritizing to get ready for the full registration of inhaled sedation with AnaConDa and our drug candidate, IsoConDa. And we estimate that, that will be approved in the second half year 2021. And we -- in parallel to that, we are now preparing ourselves for the big launch at the same time in Europe, at least in 15 countries in Europe. And then in parallel to the European commercialization and registration, we have prioritized U.S. registration process. And we estimate that we will have an approval in the U.S. a couple of years after Europe, in 2024, and that we will have a decision whether we should commercialize this ourself or together with some partners. We will do that decision 2 years before launch. And rest of the world, we are looking to a lot of markets, but we focus on the big ones, such as Japan and China.The long-term target will be in Europe, especially. We have seen that we will have up to 3 years after launch and registration in Europe, the aim is to achieve approximately EUR 50 million in revenues, which is approximately 8% of the market potential. And we've had a very nice EBITDA margin of 40%, especially possible when the volumes goes up.Going to the next slide. Going into the quarter, this is just the highlights of the quarter. I will not go so much into the details here. We will cover them too. What we have seen though is that the major step forward, the major milestone is the announcement of the top line results of our pivotal Phase III study early July, which was positive. It could give us a really good platform for the registration in Europe.We have also, during the quarter, indicated and sponsored many new investigating business products on inhaled sedation, both on COVID-19 patients, but also for -- generally for inhaled sedation. And also during this quarter, we have succeeded to finalize agreement with important partners outside Europe, in Middle East, where we also have an approval of AnaConDa now and also in Australia and New Zealand. And we have also now a good footprint in the Eastern Europe, where we also signed a contract. So that has happened during the Q2.Going to the next slide and looking more into the consequences of how we have been influenced by COVID-19 during the first half year. Going to the next slide, Slide 8. First, as you have seen already, we have a fantastic growth rate in the second quarter by 133% versus the sales in second quarter last year. And we have a rolling 12-month growth of 76%. And what you could see here is that we have also first time ever reached a milestone of past SEK 100 million in rolling revenue of a 12-month period, which of course internally has been a really important milestone for us. The increase comes from both established customers in terms of intensive care units, approximately by 60% of the growth. And as much as 40% comes from new intensive care unit, that, I mean, where we have actually initiated and trained new ICUs, not only in Germany, I would say, mainly in many new other centers in Europe, such as France, U.K., Benelux, Nordics, Spain, Italy, et cetera. And that is, of course, important for us for the future.And going to the next slide, what we could see here on Slide 9 is the development. Our aim is, of course, to be in -- with our own direct sales [ team ] in the big markets in Europe, when we have the registration in place. And what you can see here on the growth rates, [indiscernible], Germany stands for 70% -- or has 70% growth. But that is, of course, a little bit less than the average of 133%. But we can also see that they have a massive increase in other direct sales markets in Europe with more than 500%. Of course, some low level annual figures. But that will give you an indication that we have succeeded to start new -- many new ICUs in the new market. And also it gives you an indication comparing to the distribution markets where we have an increase of 250% with approximately the same platform where we started on the same level. And we see here that we are very effective to sell through our own direct sales channels, and that is still our main strategy in Europe to actually -- to do that. And still the distribution market has not reached more than 10%, little bit less than 10% of the total sales. The 90% -- more than 90% comes from our direct sales channels.Okay. Let's go to the next slide, Slide 10, the impacts of COVID-19. As you already know, what we can comment here as well that the increase initially in the quarter was very aggressive, I would say, compared to the last part of the quarter, but the increased rate is a little bit normalized, but still higher than pre-COVID, the time before COVID-19. It looks still very, very exciting. And what we can say is that we have a lot of new orders coming in all the sides -- from both new customers and the existing customers and old customers. So that's a good sign. But also a new launch, as seen in the report, is that the cost of goods. Our gross margin has decreased somewhat compared to normal quarter. We have now 67% in gross margin, and the main reason for that is that we have increased freight costs. Quite dramatic increase because we also will need to have air freight instead of our sea freight and it was more like during the worst period in the COVID, you can say that the phase was more of a clogged market where the increase in costs were really, really tough for us. And we have not -- we didn't want to compensate that cost increase to -- in price increases, so these are the consequences of that. But we also have seen an increased demand of monitors, where we have a few more -- beginning the service to ITs, to install and supply monitors on -- more on -- as a service instead of earning a lot of money on that. So that also has an impact on the gross margin.From clinical development point of view, of course, we have seen some delay of the results -- top line results that we know now. And also, we will have a registration submission in Q4 instead of Q3. But we still believe that we will have full registration on time in the second half year of 2021. And we have no reason to expect a delay in U.S. registration process. It looks good. And then financially, you can say that, of course, increased sales has a positive impact on the EBITDA, and also a positive impact on the cash flow.So going to the next slide, Slide 11. And the reasons for when we have such an increased amount of the AnaConDa during this period is that mainly that the COVID-19 patients do require much longer sedation and deeper sedation. And you have a problem to use an intravenous drug for both these -- for -- over the long period. It gives you challenges when it comes to side effects as well as mobilization after the ICU stay. But also, we can see some potential pulmonary protective effects as well that could also have an impact on the demand of AnaConDa. So there are both medical reasons, while they're having sedated treatment. I would say that, that is the most important. But, of course, we have to push a reason where we have in Europe seen, during some weeks, a shortage of the intravenous sedation as well. That also had an impact of the increased demand.So going to the next slide, Slide 12. Before I let Peter talk to the clinical development program here, I can just mention about Japan, where we now have -- we have activated for the clinical results from the SED-001 study, so we can go forward with preparation for Japan application, and the meeting with the Japanese authorities. But Japanese authorities are not allowing anything else on physical meetings. So it will most likely be postponed until after the -- in the beginning of the first half year of 2021. And generally, you can see that the Asian countries have been a little bit more challenging to communicate with during this crisis. And you can also see the same pattern in China, where everything looks good, but we have had a little bit challenges for which we have discussion with authorities there, over the period. But still, the estimate is that we will have this approval on a [indiscernible] time before next summer.And in India, we have seen that they can use the treatment based on [indiscernible] and registration in Europe, still, but we have an ongoing process of the registration for AnaConDa as well. We have seen an increase in Mexico and demand for new ICUs, as well as in Canada. That is what's interesting to see and follow.So now I will lead over to you, Peters, to go through the clinical development on Slide 13, and I expect that you want to go to Slide 14 directly.

[Peter Sackey, Chief Medical Officer]

Yes, please. So beginning with Slide 14. Some of label treatment to approve therapy and new standard of care in the ICU and as many may be aware, we have completed the first large clinical trial, the IsoConDa study, in Europe in adults, and the high-level results have been communicated. I'm going to mention them further on. It's the first of our clinical trial. The next one will be starting out in the pediatric Iso-COMFORT study in the 4 European countries. And we anticipate to start 2 randomized control trials in the U.S. in 2021. And the first place after the European approval and the 2 U.S. studies is the U.S. approval, which is anticipated in 2021 and 2024. Besides our own clinical trials, we're also supporting large investigation initiated trial that are aiming at identifying potential benefits of inhaled sedation. One of them is the SESAR trial, a French multicenter study of patients with acute respiratory distress syndrome and comparing inhaled sedation with intravenous sedation. And other study is a COVID-19-specific protective [ upgradation ] trial called ISCA trial, which is taking place in several European countries. And finally, we have the INASED study, which is a study also in France, which is aiming at identifying potential benefits on the development and duration of delirium in ICU patients.And now if we move on to the first results from IsoConDa study, which were communicated in July. Just to recap, they were positive. The number has come to the specific data on that, from the quotes -- from the release at that time, myself stating that we're proud to conduct the world's largest study on inhaled sedation in intensive care. And I would say that this is the most significant milestone in this therapy area since the development of AnaConDa.The principle investigation commenting on [indiscernible] stated that these results are in line with longstanding clinical experience of many doctors all over the world and that it shows that Isoflurane is a safe and efficacious sedative for invasively ventilated critically ill patients. And we hope that more patients will benefit from this therapy in the future. And the quotes from our CEO, Christer Ahlberg, I'll let you...

[Christer Ahlberg, President & CEO]

No. I think it's important that we mention that this is really a milestone, and I think it's -- this definitely will give us the [indiscernible] market, and especially the European market. And that is what we should expect with this study. And it will be some [indiscernible] our vision now.

[Peter Sackey, Chief Medical Officer]

So Slide 17 now. And this is the slide depicting the primary endpoints of the IsoConDa study. It demonstrates that IsoConDa sedation is -- in patients has performed non-inferior. What we see here is that mean proportion of time in target RASS, which was RASS minus 1 to minus 4. RASS is Richmond Agitation-Sedation Scale. And it was approximately 91% for propofol, and almost 90% for IsoConDa as well. And what we see there is the bars are representing the 95% confidence interval of time in target RASS. And non-inferiority margin was about 77%, which means that the study was able to demonstrate that Isoflurane -- IsoConDa for sedation in the patient is clearly [indiscernible] to propofol, so very strong result.We move over to Slide #18. Safety, serious adverse events and adverse events have been listed. And the serious adverse events in -- a few serious adverse events in both groups despite a very sick population, and adverse events that have been found in those groups is generally not related to sedation and not to the AnaConDa device.So we move over to Slide #19, the secondary and exploratory endpoints. These are currently under analysis and after summer break for the submission and as they are compiled, they would [indiscernible] together with the primary endpoints of adverse events reporting. And the data will be communicated prior peer review publication in the medical Journal, which will be sometime next year.And so a recap of what the study was about, the IsoConDa study. Phase III non-inferiority study of IsoConDa, a randomized controlled open-label trial that was run in Germany and in Slovenia. 3 inpatients were treated for up to 48 hours with IsoConDa or propofol, and the study was completed in January. And we expect to submit marketing authorization application that includes the study at the entities in Q4 of this year. And that will give us a marketing authorization in Europe in 2021.And the primary point was, as I mentioned, the proportion of time with adequate sedation for isoflurane versus propofol. Secondary endpoints include wake-up times, proportionate of time with spontaneous breathing, opiate requirement, ventilator-free days.And we move over to number -- Slide #21, clinical developments in U.S. And we can directly move over to Slide #22. Last year, we met with the FDA and discussed our development plans. And we -- the FDA requested from Sedana to perform some nonclinical studies, 2 clinical trials and also build a safety database. And this work is underway. And what's needed before a clinical trial comes down to nonclinical studies in rodents and nonrodents and gene factor testing, which are ongoing. After that, we will be performing 2 large randomized controlled trial, that's blinded trial in the U.S. And the data from the German clinical study, new studies will be included in the safety database. And as Christer mentioned earlier, the commercialization camp will be set in 2022.The ongoing activities for the U.S. are to finalize the nonclinical study protocol -- sorry, the nonclinical studies needed for IND and clinical trials, and these are ongoing and well underway. We will be finalizing our U.S. adapted AnaConDa training program and perform human factors testing in December. We have a preliminary selection in Contract Research Organization for the U.S. studies and we are currently finalizing the clinical study protocol together with the CRO and key investigators. And we are also selecting study type, and we currently have significant interest from over 30 academic centers from West to East. And the plan to start the clinical trial in the early half part of the second half year of 2021.So the time line for the clinical development registration activities in Europe are as follows. Now we're on the Slide 24. So as I mentioned, in January, we had the last patient in IsoConDa studies. In July, we got positive high level data for IsoConDa study. And in Q4, we will be submitting a dossier to 15 countries in Europe in the first round. And in the same quarter, we'll be starting the pediatric study. In 2021, we anticipated marketing authorization. And 2022, completion of pediatric study and an approval for pediatric indication that IsoConDa can sedate you. And for the U.S., we are completing the human factors formative study, completing nonclinical studies this year; and next year, IND and clinical study can start and further nonclinical studies, not requested for clinical trials, but for the final NDA. And in 2022, a decision how to launch. And in 2023, finalization of the clinical trials and the application that would render an approval in 2024.And now we go to Slide 25. Last clinical slide. This is a short recap of the Iso-COMFORT studies that will be for the European pediatric indication and hopefully also used for the U.S. pediatric study plan. And this has been approved by the European Medicines Agency, that's PDCO, and it implies that we will randomize 160 children between ages 3 and 17 to isoflurane by Anaconda or intravenous midazolam for up to 48 hours. And the primary endpoint [indiscernible] adult, proportion of time with adequate sedation without rescue sedation, assessed with the Comfort-B scale. And the preliminary duration of the trial is 18 months. And we have actually finalized the site feasibility assessment that we have with site impairments, and we plan to recruit patient in Q4 this year.The sites are 18 sites in Spain, Germany, France and Sweden. And what should be mentioned is that the outcome of study is not a requirement for the marketing authorization for adults. And also once the study is completed, that will be a guarantee for our 10-year market exclusivity in Europe for IsoConDa via AnaConDa. And I should mention finally that the FDA has given input on the feedback on the study protocol, so that the study would be possible to use for the U.S. program.And let me move over to Slide 26. Back to Christer Ahlberg for financial highlights.

[Christer Ahlberg, President & CEO]

Yes. And I think we have -- most of it, we have already covered. On Slide 27, net sales surpassed SEK 40 million. We have a gross margin of 67% (sic) [ 68% ]. And we just slightly didn't reach the positive EBITDA result. We have an OpEx increase due to the expansion of the organization, so it's marketing, medical, regulatory, quality, everything, to be ready actually to launch this treatment in Europe next year. We have a number of FTEs in -- full FTEs in end of quarter by 52, but the head -- number of heads are more. And I would say that the fully launched organization is closer to 100 people to launch this in Europe.Cash flow positive. We have a positive cash flow in operation, which is of course positive. Total cash flow, though, minus SEK 8 million, which is much better than the previous quarter.And going to the slide -- next slide, Slide 28, you see that we have a very good cash position, SEK 433 million. And with the burn rate then obviously minus 8% this quarter. But of course, that will be not that good the future quarter, when we start to spend a lot of capital in U.S. and for the clinical studies and also the development of the organization.So -- and also going to Slide 29, we can see that the shareholder list is approximately the same as before. We got mix there between institutions and funders and then insiders here. So it's a good mixture.And that one will be the last slide. So we go to Slide 30. And that is the last slide, open up for questions. And question is possible to raise from -- if you are connected via web, it should be possible to read questions there. And then please explain, also for us, how you'll ask question if you are connected via phone.

[Operator]

[Operator Instructions] Okay. There appears to be no questions via audio at the moment. So I'll hand back to the speakers for any other remarks.

[Christer Ahlberg, President & CEO]

So I mean are there any questions? No one via phone?

[Operator]

No.

[Christer Ahlberg, President & CEO]

Okay. I think this was a long meeting. And I think we have been quite a lot of information, and hopefully, that was enough. And if there are any questions that you find out afterwards, then you are always free to send us an e-mail of these questions, so we will try to answer them and respond to you as fast as possible. So thank you for now, and have a nice day.

[Operator]

This now concludes our conference call. Thank you for participating. You may now disconnect your lines.