Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Sedana Medical Q2 Report 2021. [Operator Instructions] Today, I'm pleased to present acting CEO, Jens Lindberg. Please begin your meeting.

[Jens Lindberg]

Thank you. And hi, and welcome, everyone. So for today's report, I will be joined by our CFO, Susanne Andersson; and our Chief Medical Officer, Peter Sackey.So with that, let's get on with it, and we can move to the next slide, please, which is our disclaimer slide, which I guess we can move through relatively quickly. It's impossible to -- move the slides, please. There we go. And then the disclaimer slide, we can move to the next one as well, and I'll start with the quarterly highlights.So this year, so if we look at Q2 and we look back, a couple of things. Clearly, first and foremost, quite happy about the approval of Sedaconda. We received the DCP approval in sort of July and then subsequently, the first national approval in France. And we anticipate the other sort of 14 countries to follow through in the coming month-ish. We'll talk a bit more in terms of what this means for time line later.Sales continues to be strong sort of compared to an artificially high Q2 last year in Europe. Sort of it's a difficult comparison, but we're quite happy with where we are from a sales perspective. And most importantly, we see a lot of new customers come on board and the broadening of the use to -- beyond the COVID patient population, and we'll show a bit more details on this as well.The U.S. clinical work is -- continues on track for IND towards the end of the year or in Q4 and start-up of the U.S. study program in end Q1, beginning Q2 next year. And as we are moving towards launch, we'll continue to build the organization to launch Sedaconda in Europe and also to be able to execute on the U.S. programs. And we'll give you a bit more detail on that as well. So overall, nice progress in Q2, and we feel quite good about where we are looking ahead to launch and the U.S. program.So with that, if we move to the next slide, please. So now that we have the first approval, basically, it's a very, very good step towards kind of realizing our vision, which is to make inhaled sedation a global standard therapy for critical care patients.If we move to Slide 3, and we can move one more slide. As those of you who have followed us probably can see from the presentation today, next slide, please. you can see that we have a slightly new initial outlook. Now I'm just waiting for the -- can you -- next slide, please?

[Susanne Andersson, Chief Financial Officer]

Yes, this part analysis, why there's [ billing ].

[Jens Lindberg]

So what you can see is that sort of there's a slightly different visual outlook here, and that is we've -- from a logo perspective, a slight update. But more importantly, we've now been able, through the approval of Sedaconda in Europe, we are now one step further towards reaching or sort of being able to realize our vision, i.e., the tagline has changed with regards to bringing inhaled sedation to intensive care. So there's an update to that visual identity.And two, we've added the symbol as well to our logo, and that symbol symbolizes the combination of drug and device, AnaConDa Sedaconda ACD. So that's another change that we'll start to see today.And then we can move to the next slide. And for the sake of time, I will actually skip that one. So let's move 2 slides ahead, on the sales development slide on Page 7. And from a sales development perspective, sales, we reached sort of SEK 40 million in Q2. We have an organic growth of 3% year-on-year in reported numbers...

[Susanne Andersson, Chief Financial Officer]

Like which page you are in?

[Jens Lindberg]

I'm on Page 7. Thank you. Minus 2% in reported numbers due to sort of currency fluctuations. We see quite substantial growth in Latin America and with Mexico being the second largest market in Q2 and continued strong sales in Germany despite sort of COVID numbers or COVID patient numbers dropping quite drastically. And I'll show a bit more detail on that as well in a little bit.But if we go to the next slide, please, Slide 8. As we've talked about in the past, we continue to see kind of rapid increasing adoption despite the off-label status. In Germany, our biggest market, we now have over 900 sort of ICUs that are using it regularly and an increase from previous. And we talked about Mexico being our second largest market.And on the right-hand side, you see the map as well of the world or the number of blue countries where we are, in present, are increasing. And we also have additional countries coming on board that are in registration process. And then there are additional countries where we are also working with distributors to sort of further expand. And what we see -- have seen over the past couple of quarters is distributors around the world are now approaching us with the opportunity of working with us and selling AnaConDa and our disposables. And so that interest has increased dramatically over the past couple of quarters.If we move to the next slide, please, which is Slide 9. If you move to Slide 9, sort of as I said, we see a continued influx of customers during Q2. So if you look at our European direct sales markets, our pace of adding one ICU per day has persisted in Q2. We also see more and more -- we're able to equip more and more hospital beds with gas monitors, which is an enabler for the use of inhaled sedation. So we have covered 10% of the beds in Q1. That's up to 11% in Q2. So we continue to get that up -- to have that up and running.If we move to Slide 10, please, I'll show a bit more detail on the German sales, and we'll look at the other market as well to bit -- to show -- talk to a bit of the dynamic that we've seen. On the left-hand side, you see the number of COVID-19 patients from outbreak in Germany. And what you can see here is that sort of we had a peak in early Q2 on April 26, and then we've seen quite a dramatic drop-off from April 26.And the -- so when we look -- trying to understand is how much of our usage is coming from COVID-19 and how much is coming from non-COVID patients. And the interesting piece is when you look on the right-hand side here, we see the monthly sales in '19, '20 and '21, and a couple of things to highlight. Last year, we had quite a fluctuation. In the first wave, we had quite a few number of hospitals that were in somewhat of a kind of a panic sense of urgency mode where we're buying large quantities, so a bit of an artificially high number. Whereas this year, we see a high and stable level. So we're at a sort of a much of a higher and stable level using it on demand.And more importantly, it's not being affected by the COVID sort of waves up and down. And most importantly, even with the drastic drop from April 26, we still have quite a high and stable sales level, a bit of seasonal fluctuation in June. So that tells that, that sort of customers are broadening their use. They're using it much more outside of not only in COVID-19 patients, which gives us confidence for the future. And two, the other piece to highlight is that compared to '19, we are at a much higher level. So we've taken another step in terms of where we are in usage.This pattern is even clearer when you go to the next slide when we look at the non-German markets. So the left-hand side, similar graph, these are the ventilated patients in U.K. And here, you can see a similar peak, but a peak a bit earlier in January and then a drop-off. And again, we're looking to understand how does that sort of affect our sales. If we then look on the right-hand side, we can see a couple of different things. And this is the first half year sales in our other direct sales markets, and we can see a couple of different things. One, we did have a similar artificially high sales figure in the first half of last year. And if you look on the 2020 graph, we actually have more than 50% of our sales in April. Again, a lot of stock-up artificial. And we're actually seeing some of that use is coming now. There's still some hospitals still have stock.But the other part is that sort of despite the COVID patient numbers going down in first half this year, our sales figures are still at quite a high level. And if you compare it to 2019, we're talking 3, 4x higher. So again, we take -- we've made quite a big jump with more hospitals coming on board, using inhaled sedation in both COVID patients, but most importantly, in non-COVID patients. So we feel quite good about where we are from a sales perspective even though it might look like it's not super positive compared to Q2 last year.The other part that makes us sort of excited for the future from a European perspective, if you go to the next slide, regulatory approvals faster than anticipated. The first national approval came faster than we anticipated in 20 days. And also equally importantly, which Peter will touch on a little bit, sort of the product label is quite a strong product label in terms of helping us from a promotional perspective.If we go to the -- we can actually skip this one and go to the next slide, please, and we'll go through a little bit of detail, and that's Slide 14. So what will happen now is that we do have the national approvals now in August, August/September. And you can -- yes, thank you. So what will happen is there will be a number of markets where we could theoretically start to sell from day 1. But there's also a process of getting the product on shelf with patient information, leaflets, et cetera, and of the translations, and that will take about 3 months. So Nordics, Germany, Netherlands will have product on shelf in about 3 months, and then we can start to sell.And then there are a couple of markets that where we have price and reimbursement processes that take longer, and that is France, Spain and Belgium, and they take about 6 months. So there will be sort of a slightly longer delay for those markets. But that's roughly how this is going to play out, depending on how quickly the national regulatory authorities are.And then finally, from a commercial perspective, next slide, we continue to build up our sales organization. We continue to prepare for launch. And a couple of things to mention here is that, one, our sales team is growing in Q3 to prepare for the launch. And two, we have also, which we talked about in the press release, we do have sales costs that are -- have gone up quite a bit this year. And a good chunk of that is driven by price and reimbursement processes in the different countries, which are processes you need to do in order to launch, but you do it once and then you've done it. So a number of those costs is not going to come back next year, but they are super important in order to be able to go to market.So with that, I will stop there from a commercial perspective, and I'll hand over to Peter to talk about the medical highlights.

[Peter Sackey, Chief Medical Officer]

So if we move to the next slide, Slide #17, the Sedaconda study. So the study that was fund base for our regulatory approval has been presented as a poster and will soon be published.The poster -- the main financial poster, I'll share with you now into Slide 18. This was a poster that won an award at the Austrian and German Annual General Meeting this year. And the first slide that you're looking at now is showing the primary endpoint that was met in the trial, so non-inferiority for isoflurane with regard to safety and efficacy compared to the #1 IV sedative, propofol, well away from the non-inferiority margin.Go to the next slide, please. And looking into other efficacy measures, opioid requirements were found to be lower for the isoflurane group, 29% lower opioid use for isoflurane patients compared to propofol. And this translates into a number of benefits for ICU patients, including reduced risk of constipation and also reduced risk of inhibited intense breathing. This has also found an increased breathing for the isoflurane compared to the propofol group. This is considered to be clinically inexpensive and beneficial for patients.Moving over to the next slide, looking at wake-up times. A feature of inhaled sedation, the slide earlier, was confirmed with this largest inhaled sedation study to date where we could see that wake-up times will shorten and more predictable for isoflurane, significantly different day 2. Day 1, there is a significant difference, although absolute numbers were in favor of isoflurane. And this is something that is needed to be true for longer-period sedation. You actually see the shorter time to wake up. And a clinical significance in that patients can be mobilized earlier. It's going to be very important and also potentially [indiscernible]. Next slide, please. Adverse events in the study, no serious adverse events that would be treatment related. Looking at to the most common [ early ] adverse events, the one adverse event that was different, which is hypertension was more common after end of treatment with isoflurane. It's been deemed to be due to the rapid washout of the drug.Move to the next slide, please. So the summary of findings, that's Slide #22, is that the time spent in the target RASS sedation range without rescue sedation is similar in the groups. Opioid requirements were lower with isoflurane, they are breathing more frequent, wake-up times shorter and more predictable with isoflurane and that the drug device combination was well tolerated.Now this, move to the next slide, Slide #23, translates into a strong SmPC, which is based on our marketing and communication. And among others, so these are highlights from SmPC that we'd like to mention. One is that we did not -- they were not made to limit the allowed duration in the indication, so no 48-hour limitation. The study that we ran had a 48-hour exposure, plus/minus 6 hours. But a number of patients were treated longer than that after the end of study drug. And that's one of the reasons [indiscernible] literature that supports the safe use of this therapy more than 48 hours. So that means a lot, of course.And also, the Sedaconda ACD is the only approved device to deliver Sedaconda. That's also a strength for us, obviously. And also, this statement, there's no effect of exposure of isoflurane in patients with impaired hepatic or renal function, is something that is very important considering the critical care of patients that often has impaired organ functions.And also, rapid and predictable onset of recovery from sedation is something that is clinically important benefit that we'll be able to discuss now that we have the market authorization. And finally, the return of wakefulness and cognitive recovery, which is also very important for the mobilization of patients and the discharge in terms of the ICU. So all these things are in the SmPC, and we'll be able to speak fully about them in the near future.Now moving over from this to the early stages in the U.S. clinical development and our program there. I would like to move to Slide 25. As we communicated before, we will have a combination registration of Sedaconda ACD in the U.S. And before we can talk about clinical trials, we have got some non-clinical data to provide to the FDA. And we also have to have safety as well in NDA submission. And the commercialization plan will be decided at some [ point ] next year.Next slide, please. So looking at the nonclinical data we need to supply for IND and NDA that -- so there are 2 different portions. One is the pre-IND part, which is 2 species that need to be exposed to the intended duration of the trial, that's 48 hours. And we have reached [ par ] with these studies. We almost completed them. And so far, there's no new findings of concern, and this project is on track for an IND in Q4 this year.Besides these studies, we also are committed to perform that [ cold ] program, so each of pre- and post-natal development study, and that's just started. And also a repeat exposure study for rodents models, 28 hours -- sorry, 28 days. And these studies, they need to be finalized before we submit our NDA in [ 2022 ]. So that's all on track.Next slide, please. The other nonclinical data that we need to supply besides the animal study is the human factors program, and there's also 2 portions, one for the IND and one for the NDA. The first portion covers the formative phases of the impact, which is about testing the device, the design, the training and safety measures on volunteers -- I mean our users. And we have developed, from a first formative study, we have developed a split of roles based on the U.S. ICU staffing, and we are going to test this in the second phase in September this year. And that will inform the training program or clinical trial and also for our validation study, which does not need to be completed for our IND, but it needs to be ready for the NDA. And there's actually a benefit of not doing the validation phase before our kind of trial, but they will also give us information that will be valuable for that validation. So that's all also on track.And we move over from that to the next slide, please. Time line there where you can see the top 2 boxes there and the other boxes show our 2 European trials, the Sedaconda study that was completed last year and will be published very soon; and then we have the IsoCOMFORT study, the ongoing pediatric study.And then we go down and we see the SED003 and SED004, the U.S. adult studies where we anticipate the first patient in the turn of quarter 1, quarter 2 next year. And besides the sponsored -- fully sponsored studies, we have some investigator-initiated trials that support the general use of inhaled sedation and AnaConDa with 2 of them. The SESAR study and the INASED study are running currently in France. And then we have the ISCA trial, which is a multinational observation study of COVID patients.And then you go to the next slide, Slide 29, looking at the time line for Europe and U.S. In 2021, in Europe, we have the marketing approval around the corner on the France then, as Jens mentioned. And the IsoCOMFORT is ongoing. We expect that to end next year and also then to submit more [indiscernible] application in some other countries that we start in the first round. And by 2023, we should have a European marketing approval for pediatric indications [indiscernible]. In the U.S., we had our End of Phase 2 meeting earlier this year, and that was successful in that we were able to get through a few -- into a more favorable non-inferiority margin than we had in the European study, 15%, absolute percent non-inferiority margin from the comparator. We also await the safety data from patients to see with a large AnaConDa that will now be marketed in the U.S. and also to include training patients before we start our clinical trials.And then, as I mentioned, we have the preclinical studies that -- the pre-IND studies will soon be completed, which in fact, [ this one is pending ] as well. We have been very successful in finding sites in the U.S. But once we run trials, we'll establish a subsidiary in the U.S. and going to add first clinical educators throughout the medical people in the U.S., and we will submit the IND in Q4. And next year, we might be able to start studies and do the final human factors validation and start planning our U.S. launch. And by 2023, [indiscernible] clinical studies and NDA application for approval late in 2024.Last slide, just to show a map of the U.S. and the institutions that currently are interested to join the trial. These institutions are not yet committed, but we will have contracts in place, which will [ perk up ] the IND. But it gives a feeling of the geography of the clinical trial, which is basically similar to the demand of the U.S.With that, I end my part. Thank you. I'll pass over to Susanne.

[Susanne Andersson, Chief Financial Officer]

Yes. Thank you, Peter.So next slide, we have the financial highlights. And if you change slides to #32 with financial results, I can pick up a little bit from where Jens left it. And we had good sales in the quarter and growing 3% in local currencies with a tough comparison with last year. And Germany is still a stable country with like being the [ locality ] for the sales.We have had a very good sales growth in rest of the world, Latin America, which also is a great contribution to our gross profit. However, it being a distributor market, it comes with somewhat lower margins. But despite this, we actually improved our gross margin by 2 percentage points, and this is mainly due to that we had a large proportion of freight by sea in the quarter.What we see though in the market is that costs are still high. And given the Suez Canal or channel issues during the quarter and also the general supply sourcing issues in -- around the world, we do foresee some more air freight in the second half. I mean that -- we will, however, of course, strive for as much as possible by sea, and we work daily on trying to find the best solutions for this.Our EBITDA came in at negative SEK 14 million. It's again -- coming back to what Jens previously said, we are building the organization. And also in order to help you when analyzing our numbers, we have tried to break out costs in terms of -- or related to the Sedaconda launch and concluding the MDR approval, just for you to get a better understanding for our underlying running cost.We are building the company both in terms of organizations. There are market approvals, registrations, et cetera, to address. And as a result, by end of June this year, we had 91 people on our payroll and consultants. This is including consultants. The FTE, full-time equivalents, were roughly 70, 68 compared to 48 last year. So we are building the organization for our future growth.Next slide, please. Cash. What we can say here is, again, given that we are taking -- or building the organization, the cash flow from operations came in at negative SEK 12 million for the quarter. The investment is also larger than last year. We had negative SEK 23 million in the quarter. The vast majority is then related to our product development here. Right now, we have roughly SEK 200 million on our balance sheet, and about half of that is related to our EU registration and the EU approvals. And if we get all these approvals in -- during the second half, we will start our depreciation.And we do have a very strong balance sheet. Our cash balance is SEK 308 million by end of June. And I also like to remember all of you that we are a debt-free company, but there is a very strong balance sheet that we are very proud of.And next slide, please. Our largest shareholders as of June 30, it's not so many changes since last quarter. We have listed them all here. What I just wanted to comment here is that we did perform a split that was ended by end of May. And so now there are 4x more shares within the company.And with that, that's actually what I have to put as financial highlights. So with that, I hand over to Jens again on the next slide to just have a quick repeat on our highlights.

[Jens Lindberg]

Before going to questions, I have just a couple of things to mention. One, it is not a highlight, but I apologize for a little bit of the wobble in the beginning with slight transitions and kind of sort of a bit of slowness from our end. But rounding up, 3 things to mention here. One, I mean we feel we are in a quite a good position, and we're quite happy with Q2 and where we are, one, on the back of the regulatory approvals for Sedaconda. They came through faster than anticipated with a very sort of strong product label that will sort of allow us to commercialize the drug and the combination with the device and making inhaled sedation standard therapy. Two, we are very happy with sort of sales performance. First half of the year, we have a 20% growth in local currencies, and that's even with a artificially high comparison from last year. So even with that, we're growing 20% on the back of many new customers coming on board and customers using it sort of well beyond the COVID-19 patient population.And then three, looking ahead, U.S. plans progressing very nicely with regards to sort of towards IND and then study inclusion next year. We have recruited our first employees to help us drive the studies. And as Peter mentioned earlier, we are getting very strong interest from the right hospitals and key opinion leaders in the U.S. with regards to participating in our study. That will be super important going forward. So all in all, we feel we're in a quite good place.With that, I'll stop. And then if there are any questions, please ask.

[Operator]

[Operator Instructions] We have a question from the line of Peter Östling from Pareto Securities.

[Peter Östling, Life Science Analyst of Equity Research]

A couple of questions. You say that of the SEK 200 million in capitalized development costs, about 50% relates to the European venture so far. So what does the rest relates to since you have just started your U.S. journey?

[Susanne Andersson, Chief Financial Officer]

It's all various projects. And I mean we have started out the U.S. project as well. So I don't want to break them up, but they are all other projects we are working on.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. But the part that will be amortized now when the approvals are getting in, that's roughly around SEK 100 million then?

[Jens Lindberg]

Peter, can you just repeat the last one again? Sort of we were sorry.

[Peter Östling, Life Science Analyst of Equity Research]

Yes. The basis that you are going to amortize will be around SEK 100 million then?

[Susanne Andersson, Chief Financial Officer]

Yes, correct. Sorry. Yes, [ we don't have ], but we have these approvals now during the second half. So these will start now.

[Peter Östling, Life Science Analyst of Equity Research]

Yes. Okay. Could you talk a little bit about what's happening, what's going on in China?

[Jens Lindberg]

In China, the short version is that we are working with the local distributor in China with regard to sort of preparing the registration and the filing. And we are just sort of at the end of it. It's taking -- it has taken a slightly longer time to do it than initially anticipated, most primarily driven by the sort of COVID situation with regards to not being able to travel to China and sort of being face-to-face with the distributors and do some of the testing, et cetera. So it's provided a bit of pressure from a timing perspective. But sort of it's all progressing nicely in terms of sort of preparing the file and the registration. So it's progressing slightly slower than initially sort of anticipated driven by some of these sort of time line delays. But no other reason for it, to put it that way.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. But do you still expect approval this year? I think you have said that in the past that you...

[Jens Lindberg]

That's our hope and aim. Clearly, sort of if there is a bit of a delay here, could it sort of possibly -- but that's our -- we're still aiming for that, yes.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. Great. Could you talk a little bit about the timing of the second wave of submissions both in the EU and then, of course, for other countries where the EU dossier can be accepted, except Canada, for instance?

[Jens Lindberg]

Yes. If we start with EU, then sort of now that we sort of -- we have the sort of the DCP dossier sort of -- when we have the DCP approval, that takes us into the next step of filing in the other EU countries because of -- I mean so there will -- there's always a lot of changes in the DCP process. So that means that sort of the initial dossier that we submitted, which is the same dossier that we submit to other countries, that needs to be reworked and revised. It does take a little bit of time. And that's why we've said that we will submit in the second wave of European markets over the next sort of -- or before end of year.And what we have said in the past that we will sort of clearly go to Italy because Italy was part of the first wave. And they -- but they couldn't commit to the same time lines as the other markets. So then we left Italy out. Italy will be part of the second wave, and we are now working through sort of which other countries will be part. But Italy is the one that we've communicated it will. The other markets, we're still revising a bit over the next few months.We are in dialogue with the Canadian authorities and also sort of looking at other markets like Australia where sort of similarly, a European dossier can be used to see sort of if the Europe -- now that it's been approved, then we need to reassess the density. Is this good enough? And will this fulfill the requirement for regulatory filing? And when we had those discussions and then we've had a clear feedback, then we will communicate sort of when and if we are able to go already now at some of those markets.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. And lastly, one of my standard questions, could you give -- provide an update of -- on the studies that you are sponsoring, especially the SESAR study? The last time we heard from them was in, I think, it was in the middle of April when they had recruited around 260 patients. Can you say anything about that?

[Peter Sackey, Chief Medical Officer]

Yes. So this is not our study, and the investigators are getting some support from us. So our questions are usually quite cautious. But we've been able to understand that they have exceeded 300 patients, and they anticipate to be doing an interim analysis towards the end of the year.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. Do you know why the recruitment has slowed down over the last couple of months?

[Peter Sackey, Chief Medical Officer]

Yes. Yes, it starts with the Z and ends with the Xs in terms of -- so that's the COVID rate, severe COVID patients have reduced. So they had really high recruitment rates, I mean, higher than anticipated. And that's unprecedented, I would say, the recruitment rate in SESAR study that they have last year. But that's the explanation why they -- I mean they're slightly above 300, but they need to have, I think, 360 or 370 before they do the interim analysis. So they anticipate this happened before. And this is what they anticipate. But I promise, just to make it clear, that they hope to have the interim analysis by the end of sort of the year.

[Peter Östling, Life Science Analyst of Equity Research]

Hadn't they expanded the study to recruit also non-COVID patients?

[Peter Sackey, Chief Medical Officer]

Oh, absolutely...

[Peter Östling, Life Science Analyst of Equity Research]

With [ origins ]...

[Peter Sackey, Chief Medical Officer]

Yes. So the SESAR study was never intended. It started before COVID was invented to being. So actually, the study has had a recruitment of a patient group that wasn't actually initially planned. And that, of course, may impact the outcome because these patients are somewhat different than the average ARDS patient. But that remains to be seen, what the outcome will be. I don't know if they're going to do a third analysis on COVID or non-COVID here yet. But obviously, I mean some advantages in perspective, that will be interesting.

[Operator]

[Operator Instructions] And as there are no further questions, I'll hand it back to the speakers.

[Jens Lindberg]

Okay. Thank you, everyone. And with that, I would just sort of -- well, thanks, everyone, for dialing in. And then no other questions coming through. We will close the call here, and we close the call on the same note that I sort of -- previously, from a highlights perspective, overall, considering both current performance and looking ahead to sort of short-term launch in Europe and longer-term filings and program in the U.S., we feel like we are in a very good position and with a sort of very positive outlook on the future.With that, we close the call today. And thank you, everyone, for dialing in.

[Operator]

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