Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2022-Q2

[Operator]

Good day and welcome to the Sedana Medical Second Quarter 2022 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Johannes Doll, CEO. Please go ahead.

[Johannes Doll, executive]

Thank you. Good afternoon, everyone, and good early morning to those of you dialing in from the U.S. Welcome to Sedana Medical's Q2 and Half Year Report 2022.

I will start by giving an update on the business, then Peter will talk about the progress in the United States and some of the medical activities going on in Europe. Then Johan, our CFO, will take you through the financial updates before I will close and we open it up for questions as usual.

On Page 2, as always, we will be talking about the future in this presentation and I therefore recommend that you give a quick read to our disclaimer.

Let's turn to Page 3 please. These days there's so much going on both in the world in general, Ukraine, inflation, energy crisis, recession [indiscernible] as well as in our markets specifically a significant drop of ventilated patients in the ICU, staff shortage in hospital, a mild flu season, uncertainty around COVID that it's sometimes easy to lose sight of the essentials. So before getting into the quarter performance, I would like to take a step back and remind ourselves what Sedana Medical is about.

What has always been true and is of course still true is that we have products with nice gross margins this quarter at 70% which can translate into a very profitable business if we reach scale. And we already have proof of concept for that within our company in Germany even in spite of the recent sales decline. We are already today generating very attractive EBITDA margin, which by the way, on a local level, even above the number that we have guided for in the long term.

So the key question here is will we reach sufficient scale? Do we believe in inhaled sedation as a concept and do we believe we can convince enough -- hospitals enough to use inhaled sedation as a new standard of care. And here, I believe we have a very strong foundation. We have shown near-clinical benefits over intravenous sedation that opioid use, more spontaneous breathing after wakeup.

We have shown that our patients leave the ICU 4 days earlier than a propofol patient. And we've also shown health economic benefits which were even confirmed by NICE in the U.K. So we have everything that it takes to play an important role in the world of ICU sedation.

Yes, sales are down and they're down quite significantly in the quarter, but if you look one level deeper, you can see some very positive indicators. And that's not just that we have sold 70% more than pre-COVID. We have also run an analysis in our main market in Germany and found that we have declined less in sales than the patients have declined, suggesting that the penetration is still pointing in the right direction. Plus we continue to open new accounts, approximately 3 new accounts on average every week and at the same time are successful in keeping our existing customers and I'll get back to that.

All of that is showing that the underlying performance is solid and once we return to a normal state in the ICUs this will also show in the numbers. Lastly, but very importantly, we have enough money on the banks to execute our plan. So we have our destiny in our own hands and don't need to ask the market for new money, which in these days is, of course, super important.

Let's move to Page 4, please, which shows a summary of the quarter net sales were SEK 27 million in a market that has significantly declined. We've been able to increase our gross margin year-over-year from 66% to 70%. That's a result of product mix, some price adjustments we have implemented in Q2 and also our efforts to reduce freight costs.

On the operational side, we have launched our drug now in Sweden, Norway and the Netherlands on top of Germany where we already launched back in February. And they're making progress with the local pricing and reimbursement processes. The goal has been stated before has failed to launch in all major direct markets, and actually also a few distributor markets in the next 6 months if the authority does [indiscernible] the time line.

We can also expect Sedaconda to be approved in more countries in the second half year. Our U.S. trial, which we'll talk about, is up and running. We are opening new sites and recruiting patients according to our plan and continue to believe that we can submit to FDA in 2024 given the importance of the U.S. markets for us as a company, this will be, of course, be very, very exciting to follow. What we have also initiated is a cost saving program. We are clearly a growth company and cannot save ourselves to success. We have to grow. But we have identified some potential to streamline overheads in admin function and improve overall spend effectiveness. But at the same time, of course, we will, of course, not compromise our investments into making inhaled sedation the new standard of care.

On the next slide, Page 5. A quick recap of the market dynamics we are facing in intensive care units right now. In short, we still have an unprecedented drop of ventilated patients versus the previous year. In fact, the patient gap has actually widened further versus what we have seen in Q1. But the good news is that the reasons behind this decline are temporary.

Yes, of course, that's COVID-19 patients, but that was expected. That's not a surprise. What is happening at the same time though is that non-COVID-19 patients in ICUs have dropped a lot as well. This is because ICUs are still suffering from staff shortages, leading to less elective surgeries and lower overall capacity and at the same time, we have seen much less community acquired infections and for example, a much milder flu season as you have probably heard from other companies operating in the same space.

So then the big question is how long will this continue and when will we get back to a more normal state? And of course, we don't have a crystal ball either, but our expectation, which seems to match pretty well the consensus among both our customers and then most of the other relevant companies like the ventilator manufacturers, appears to be that we will gradually recover in the second half year. And we'll look at a more normal situation in 2023. But again, even if this is not true, and we're looking at an even longer period with less patients, our cash balance would be sufficient to get us through that as well.

If we then move to the next page, Page 6, please, if we break down the sales performance by region, we see that the majority of the sales gap is explained by Germany and to a lesser extent also the distributor market, while we had a 31% growth in our other direct markets. According to our analysis, and I will get back to that, this 36% sales decline in Germany compared to a contraction of the addressable markets meaning ventilated ICU patients by 40% to 50%, which means that the underlying momentum of gaining market share is still intact.

We have some of the same market headwinds in our other direct markets as well. But the growth especially in Spain, France, and the United Kingdom was strong enough to still show 31% sales growth. Of course, that is from a much slower pace than in Germany, but I'm quite pleased, of course, with that development.

The decline in distributor markets is still influenced by an extraordinary year 2021, as we have discussed before, and you might remember that we got a lot of artificial sales in Latin America, for example, due to the propofol shortage in that region at the time. Having said that, Latin America continues to be one of our absolutely prioritized distributor markets with great potential, especially with our partner Goba who we are working with in Mexico, Ecuador, Colombia and now also in Brazil. We've now actually hired a Sedana Medical key account manager in Sao Paulo, specifically working with our partners in Latin America and giving even more support in that region.

If we then turn to the next page, Page 7, please. With all the turmoil around the COVID-19 years, it sometimes helps to take a true cycle perspective. And what you see on this slide is that we have sold 70% -- 72% more in the first half of the year than pre-COVID. So that's good. But of course, we are aiming at further accelerating that growth when the market comes back to normal and we can fully play out the advantage of having the only approved therapy for inhaled sedation of ventilated ICU patients in Europe and having both the device and the drug on the market.

If you then move to the next slide, please, Page 8. I would like to show you some of the indicators that are a little hidden by the fewer sales numbers. One issue we've always had is that publicly available data are not available for the number of ventilated patients in ICUs. We can get the numbers of ICU beds. We can get the numbers of ICU patients, ventilated COVID patients even on a daily basis, but we did not know how many of the total number of patients were intubated. So that's why we struggled a bit to show penetration numbers, for example.

So what we have done in the second quarter is our own little research in the second quarter. For 1 week in May, our key account managers in Germany recorded the numbers for all ICUs that they visited that week. So how many ventilators do they have? How many patients do they have? And importantly, how many of those were intubated, and also how many COVID-19 patients they still have left.

Not a perfect research. But that's where we could cover more than 1,000 ventilator beds in 1 week. And those findings, we could triangulate with publicly available numbers and we found that we had 40% to 50% less patients than last year. It's only a snapshot, of course, so we'll have to do this more often. But what it shows is that we can now be quite certain that the market has declined more than our sales have declined. And that's a very important finding, as it implies that the penetration of inhaled sedation is still pointing in the right direction.

You can also look at new customers during the first half of this year. We have opened approximately 3 new accounts every week. Now you could, of course, suspect that we have also lost a lot of customers and that explains the sales decline. But no, we have sold actually to more customers overall in the first half of 2022 than a year before. And for Germany we've made an additional analysis. We've looked at our top 100 customers from last year.

And it's quite nice to see that we have not lost a single one. All of them also bought from us this year as well. So all of this is at least good evidence, I would say, that we are heading in the right direction and the sales decline is explained by all of these ICUs simply seeing much less patients, but the overall dynamic is still there.

This gives us confidence, but I also want to make very, very clear that this is not a reason for us to get complacent and just wait for the patients come back and everything will be fine. It is still very, very important and probably now even more important to go through all the growth initiatives we have started the work on our [ fee-for-effectiveness ] of a selling model, et cetera. The goal here is standard of care and that will, of course, not just happen. It's a lot of hard work.

If you then turn to Page 9. Quick updates on Europe. Sedaconda/isoflurane is now available in Germany, Sweden, Norway and the Netherlands. We will have more launches in the second half in France for instance. We are now listed in the Journal officiel, meaning Sedaconda can be reimbursed. There are still a few hoops to jump through as to fulfill all the French regulations when it comes to quality systems, personnel qualification and such that at the next report, we will certainly talk about the actual launch plans as well. Spain is a longer pricing and reimbursement process as you probably know, but that's also ongoing and if there's no delays from the authority side, the target remains to have the product on the Spanish market in the next 2 quarters as well.

Then we have a couple of approvals coming up that we are expecting in the second half. Poland, you might remember the last outstanding one from the initial 15 countries included in the decentralized procedure. The excuse for the delay is that the authorities are overworked and have personnel shortages. It's been almost a year after the European approval, but we'll hopefully get that Polish approval soon as well.

In Italy, we have very good news. During the quarter, they reached end of procedure, which is typically the biggest, biggest hurdle to get through and they've now entered the national phase back in April. That phase typically take 3 months. With the summer, it might take a month or 2 more, so hopefully not too far away either that approval.

In the U.K., we -- unfortunately we still don't have news from MHRA. They continue to be overburdened after Brexit and COVID. Usually, the process requires them to give companies a time line. In our case they told us that they cannot give us a time line so we continue to wait and of course follow up regularly. I find that a bit annoying to be honest because we have a fantastic NICE guidance in the U.K. back in January recommending inhaled sedation and also showing health economic benefits. But we can't really fire from all cylinders in the U.K. yet as the therapy is not yet approved. So all we can say for now is that of course we continue to expect approval this year, hopefully sooner rather than later. Switzerland, as you might expect, they are a bit more reliable. Swissmedic is expected to approve the product in the third quarter.

And now with that I'd like to hand it over to Peter to take us through the progress first and some medical activities in Europe. Page 10, please.

[Peter Sackey, executive]

Thank you Johannes. So if we are now on Slide 10, please. In the U.S. we are on track with recruitment starting in both clinical trials throughout the end of the summer and the full list of study sites will be activated. And as previously communicated, 2 trials were randomized, a total of 470 patients [indiscernible] at the site. 300 to 500 patients will be enrolled and treated with isoflurane in an open label design before the randomization phase.

And the primary endpoint is the proportion of time in target station range and absence of rescue sedation. And key secondary endpoints in the trials are changes in opioid requirements, time to wake up at the end of this treatment, cognitive recovery 1 hour after end of study station and spontaneous breathing efforts. And the primary endpoint and the clinical key secondary endpoints will be evaluated by blinded assessors.

We move over to Slide 11, please. This time line shows the adult clinical studies that we'll be running until the second half year 2023. And the submission in the first half year of 2024 and ultimately U.S. launch in early 2025.

And let's move over to the next slide, Slide #12. As part of the initiations of trials, we have a well visited INSPIRE ICU investigator meeting in San Francisco in May, and almost all sed institutions were represented in person and the remainder joined remotely. We had good interactions with the PIs, study coordinators and with the contract research organization. We also had 2 European longtime users invited and were present to present their positive experiences of and the scientific rationale for inhaled sedation.

Meeting also include hands-on demonstration and sharing of first impressions, which were very positive from the first of the sites. And overall, there's a lot of interest and willingness to do clinical research and the key opinion leaders in the U.S. to get inhaled sedation approved and available for U.S. patients.

And with that we move over to Slide 13. The COVID situation that's become -- has improved, has allowed for real meetings and congresses, which has allowed us to increase our presence and activities to convey our messages. And we've had several face-to-face presentations and meetings in our direct markets with more attending physicians and other healthcare professionals than we saw pre-COVID, which shows an increasing awareness and interest in inhaled sedation.

Additionally, there's a growing interest in Latin America, which was illustrated by the attendance of over 600 unique individuals at an inhaled sedation webinar that Sedana Medical organized together with the Pan American and Iberian Federation of Critical care in May. And our autumn calendar is also very busy with planned live events in 4 continents.

And with that, I'd like to hand over to our CFO I think, Johan Spetz. Slide 14.

[Johan Spetz, executive]

Yes. Thank you, Peter. Yes. So turning to Slide 14 to take a look at our financial results for the second quarter of 2022. We have net sales, as Johannes has described of SEK 27 million for the quarter down from SEK 40 million in the same quarter of last year and Johannes has described the drivers behind that sales decline. So if you turn to the gross profit. We report gross profit of SEK 19 million for the quarter, down from SEK 26 million in same quarter of last year.

And if we look at the gross margin that comes in at 70%, that's up from 66% in the same period of last year, and the improved margin, as Johannes also mentioned earlier, it's mainly driven by a positive product mix and price adjustments and also some initiatives to reduce freight costs that have been undertaken. We report EBITDA for the quarter of negative SEK 24 million. That's compared to negative SEK 14 million in same period of 2021. And if we look at OpEx, so that's selling, admin and R&D costs, that amounts to SEK 46 million for the quarter.

That's slightly higher than the first quarter this year and also the second quarter of last year. And that slight increase is generally driven by higher activity level in Q2 relative to earlier in the year. We are now or as of the end of the second quarter, 98 colleagues at Sedana Medical, but down from 107 at the start of the year.

So next slide, please. Moving to Slide 15 for a look at our cash flow and cash balance. So cash flow from operations during the second quarter was negative SEK 39 million. Of this SEK 14 million is related to working capital, and that's primarily driven by increased inventory levels during the period. Cash flow from investments during the second quarter also negative SEK 39 million. And if you followed us, you know that that's investments related to our clinical studies and registration work in the U.S. and also the pediatric study in Europe.

So combined, we report cash flow for the period second quarter 2022 of negative SEK 75 million. Again, we have a strong cash balance of SEK 722 million at the end of Q2, and that's compared to SEK 779 million going into the quarter. And again, we expect to be fully financed until breakeven and through the U.S. launch phase based on the cash balance that we have today. Of course, the sales development so far this year has led us to look at our cost levels, and we have initiated a cost savings program, as Johannes also mentioned earlier.

We are reviewing and reducing spending levels across mainly overhead and admin functions. Of course, we want to continue to invest in profitable growth initiatives. But we are looking at resetting the cost base going into 2023. And as a reminder, we have no long-term debts in the company. And just a quick update also on our project to move the share from First North to the Nasdaq main list. This project is progressing according to plan, and we are working towards having the uplifting completed before the end of the year.

And then turning to the next slide, Slide 16, for a quick look at our largest shareholders. So this table shows the top 15 shareholders as of the end of Q2. And it's nice to see that many of our top 15 shareholders have increased their holdings during the second quarter. So thank you for your continued support and for sharing the vision for Sedana Medical going forward.

So with that, I will turn the call back over to Johannes.

[Johannes Doll, executive]

Yes. Thank you, Johan. And that brings us to the end of our presentation already. The one thing I would like to leave you with, if we turn to Page 17, the next slide is a slide that I use quite a lot. I said in the very beginning that Sedana Medical is a very, very exciting case once we reach scale. In practice, what that means is that we will have to become standard of care in as many intensive care units as possible. So if you turn things around and imagine for a second that inhaled sedation was already the standard of care, so every hospital has used it for decades, all physicians and nurses are super comfortable with it.

And then the new entrant comes to the market called propofol. And what they can say is that propofol is not a better sedative. If you use it, your patient will need more opioids. You will see that they don't breathe continuously as much. They take longer to wake up and the wakeup is that predictable. And by the way, they will stay in intensive care units for 4 days longer. Then how concerned would we be about propofol becoming the standard of care? And that's our mission here. We are convinced inhaled sedation is a better option for ICU patients and therefore also deserves to become standard of care.

With that, I would like to thank you for spending the time with us on a very nice summer day at least here in Stockholm, and we'll open it up for questions.

[Operator]

[Operator Instructions] The first question comes from Peter Östling with Pareto Securities.

[Peter Östling, analyst]

Yes. And I must say congrats to a very solid quarter, especially I'm once again very positively surprised about the strong gross margin and agree with you, Johannes, completely about what will happen when you get scale in the business. First, just a humble request. It would be good if you could post the presentation ahead of the conference call because it's always significant lag from financial hearings when it comes to flipping the slide.

So it would be very preferable and good if you could post the presentation ahead of the actual call. Just then looking at -- you said -- I have a couple of questions. I'll take them one by one. Spain, France and U.K. performed well in the quarter, I guess, since you are still in negotiations regarding the drug that this was mainly the device that was sold in those markets. Can you just elaborate a little bit on what kind of feedback you get if they are extremely excited about this and just wait until the drug is approved to use the whole package, so to speak? That's my first question.

[Johannes Doll, executive]

Yes, sure. So thank you, first of all, for the hint with the presentation. We can, of course, do that going forward as you don't have a lag in the presentation. So thanks a lot. Thanks for letting us know. So on Spain, France, U.K., the dynamics. First of all, you're exactly right. It's not just mostly the device. It's only the device that has been solved so far. And we are seeing a very good momentum in actually all of these markets.

It's almost a little bit of a buzz now that the inhaled sedation got approved in Europe and it's talked about at conferences much more. And that, of course, for us is very, very good to see. What we're seeing in Spain specifically, which is one of the markets that is performing best these days is indeed that we're making very good progress opening new accounts. We're working with accounts to increase the penetration.

We have a very good team in place in Spain driving that. And what gives me even more hope is that we hear from quite a few customers that they are waiting a little bit to -- until the pricing and reimbursement process is done to initiate inhaled sedation in the hospital. So we have quite a little bit of a queue of potential customers that are convinced of the concept, but for different reasons like hospital internal policies and formularies, want to wait for the final pricing reimbursement approval before going ahead.

But even without those accounts, we've already seen a very, very nice growth versus last year, which is same was already which is a good year last year. So I'm hoping with then getting the pricing and reimbursement approved in Spain, in the -- towards probably the end of the year and the launch maybe in the -- at the beginning of '23. And we should see a further acceleration. So that's a market I'm very, very happy about. The same goes for France, which is compared to Spain is one where we've been around a little bit longer. We have a very good experienced team, a very active team also that continues to open a lot of new accounts.

And what's going to be very interesting in France is 2 things. One is this is where a lot of our investigator trial activities are ongoing. So the French customers are little bit closer to the action from that perspective. And indeed inhaled sedation is a good topic. The other interesting dynamic is now that we are almost ready to launch the drug Sedaconda/isoflurane. France has historically been a sevoflurane market. So most of our customers have used sevoflurane with the device, which will be very interesting to see how that develops.

It's a little bit of an advantage for us almost because sevoflurane has higher cost than isoflurane, quite significantly higher cost. So customers are a little less price sensitive when it comes to -- when it comes to the gas, which should, of course, help us move more customers from sevo to iso. And then the U.K., we are also seeing a very good growth. We could see even more growth I'm convinced if we finally got the MHRA approval. We just got this set up.

Of course, that's after Brexit, the U.K. has decided to not be part of EMA anymore, follow their own process and -- but that has been resulted in unfortunately, is that these processes take much, much longer. And now we are almost -- I think after a year, we're still without approval and that especially in the context, as we said, having this fantastic NICE guidance and actually being ready to really fire from all cylinders, as you would say, in the U.K. That, of course, is a big milestone for us if we got the approval, then of course, that NICE guidance will help us even more. So good momentum in all of these 3 markets that you mentioned and potential to further accelerate.

[Peter Östling, analyst]

Great. And then just 2 more questions before I get back into the queue. Can you say -- talk a little bit more about what kind of price adjustments that you have made, the magnitude of them? And also when you say product mix, is it more the Sedaconda ACD and less accessories and more -- what is that entailing?

[Johannes Doll, executive]

Yes. So the price adjustments, of course, I cannot give you kind of specific prices by country because, of course, they are also different by country, and they're different by accounts. But what we have tried to do is to adjust prices upwards in the first half. That is, of course, one, to compensate for raw material prices, but at least as a general trend going out so far, we've been able to fend that off a little bit.

But at the same time, also, we've taken -- the company taken a conscious decision to not raise prices during COVID because our products were in such high demand during that time that we felt like it was not ethical to try and benefit off of that. So we didn't even have regular price increases in these years. We just kept the price completely flat, and we compensated for that and others. We're hopefully soon getting into more normal waters and took a slightly larger price increase in most countries in the second quarter.

When it comes to the product mix, you're exactly right. So we have the main device, the Sedaconda ACD, but there's also a bunch of different accessories. There're syringes, you need there's different adapters, there is a FlurAbsorb kit for the scavenging systems. And of course, these products have different gross margins and we have subscription that we sold more ACD, to some extent, correct because some of these accessories that we are selling are less innovative than our main product. So syringes you can also buy from other manufacturers. So there's a bit more price pressure and therefore, lower gross margin. So whenever you see a positive impact on the gross margin from a product mix, then it's typically a sign that we have sold more ACDs proportionately.

[Peter Östling, analyst]

Just a quick follow-up before I get back into the queue. There's a very good gross margin in the quarter. Is that something that we could -- all things equal that we could expect for the rest of the year?

[Johannes Doll, executive]

Well, all, I don't hope that all things will be equal because the sales should, of course, grow and growing sales would then mean that the fixed cost allocations we have in the cost of goods would proportionately play less overall. But yes, we have a long-term target definitely to see gross margins around 70% and maybe a quarter here and there where we are below, there might be a quarter where we are a little bit above, but this quarter should not be an exception.

[Operator]

[Operator Instructions] The next question comes from Mattias Vadsten with SEB.

[Mattias Vadsten, analyst]

First thing, I wonder if the reimbursement process proceeding according to plan, so to speak? Or has it been even slower than what you believed when you revised the financial target in Europe or sort of earlier this year? And what kind of insight can you have in, sort of, the progress in each country? And then to that also, what we see here in Spain, i.e., that customers are waiting for reimbursement coming in place and that there is sort of a pent-up demand. Would that also be true for France and the U.K. and other bigger countries as well?

[Johannes Doll, executive]

Yes. So thanks, Mattias, for those questions. So from the right -- in the pricing reimbursement perspective, you're right. That was one of the reasons why we changed the guidance in the last report because some of these processes take quite a while and now moving from a medical device company to a pharma company, it's important also for the company, of course, to realize that the approval date is not the same date that we can start selling, but there's actually a process in between.

Now the -- how can we see progress and how does that compare to our expectations? So a), yes, things are progressing according to plan, at least the milestones that should have happened so far, like, for example, in France, the listing in the Journal officiel, like, for example, the AMNOG process in Germany and proceeding with the [indiscernible] assessment and G-BA resolution. All of these things that we thought would happen have happened, and they also happened on time.

At the same time, of course, we already -- when we changed the guidance, we already anticipated these processes would take some time and sometimes there's a difference between what's stated in the textbook in terms of what you can expect in terms of months versus then what we experienced and the reality, of course, there's always some level of uncertainty if you're dealing with state authorities and the time lines so far, things are moving according to plan and all the milestones that we did expect by now actually also materialized.

And then your second question, are we expecting an acceleration of sales once we have all the approvals in place. The very short answer is yes, but that we would, of course, also expect because it just makes life much easier both for us being able to more aggressively promote our products because we've left the off-label world behind and can now promote what is the only inhaled sedation therapy for ICU patients, ventilated ICU patients. And that, of course, allowed us to be a bit more upfront about promoting the benefits of the product.

At the same time, it also makes it easier for customers because they don't have to deal with the off-label consequences either. And that you put together with the customer feedback that we get, like, as I said, for example, in France, where some hospitals have account in the starting months to get started once the approval is there. So yes, we -- of course, there's always some uncertainties related to looking into the future, but of course, the whole point of getting the approval in place and getting the pricing and reimbursement in place was to accelerate sales. So that's very much what we're expecting.

[Mattias Vadsten, analyst]

I appreciate the flavor there. And also, can you describe a little on how the market environment have changed between, I mean, let's say, beginning Q2 and Q1 compared to the recent weeks here in terms of the number of ventilated patients and the overall issue with staffing shortages? And maybe also comment a little bit on the access to, sort of, hospital customers, how that just developed during the quarter. And I'm guessing that's still tough in some parts of Germany or am I getting this wrong?

[Johannes Doll, executive]

Yes. So in terms of market dynamics, it's, of course, always difficult to see trends based on a few weeks. What we have seen in the first half overall, as I said, a very, very significant decline of patients for different reasons that we have discussed. Very, very lately, so in the last couple of weeks that has recovered a bit. You might have read in the news also with your question around the staff shortages in hospitals that, at least in Germany, hit the news quite a bit. That continues to be a problem. So the capacity is still relatively low.

So that trend we continue to see. And on the access question, it has gotten better. So compared to the waves that we've seen before, access is possible also in Germany. It is not what it used to be before COVID, now you have to show a negative COVID test to get into ICU, of course, from the same day, but that has been the case throughout the whole pandemic. And you're less -- a little less likely to get in by just ringing the bell. But at the same time, I feel like I know that several companies are still referring to access issues for explaining the performance.

We are, I think, approaching a point where it's not really an excuse anymore. So we do get to the customers that we need to get to, maybe not at the same level as before COVID, but we have to deal with it, and it's very possible to work under the current circumstances.

[Mattias Vadsten, analyst]

Perfect. And that's leading a little bit into my next question. I mean, looking at towards Q3, not expecting any precise prediction of course. But I mean, the market should not get worse at least and you've come even further in the launch in key markets in Europe sequentially by then. Can you give some flavor around the potential to grow, sort of, organically in Q3 year-on-year? Or are there any particular sort of sequential seasonal effects that we should think of in your view, that would be good to have some flavor?

[Johannes Doll, executive]

Yes. That's, as you say yourself, it's of course, a question that's a little bit impossible to give a definitive answer, but I guess what everybody is tossing around that question, how will the world develop? And when are we getting back to the new normal in ICUs? I'm a fan of being very, very focused on the things that we can control. And these are a little bit the things also that we presented today, some of these underlying indicators of how many new accounts are we able to open, are we able to grow penetration? So are we seeing a lesser decline versus last year than the patients have declined to we managed to keep our important customers onboard, do we grow penetration in these accounts. These are things that I can control and those, of course, I'm very much expecting for us to make progress in the third quarter.

Whether or not we will see an organic growth versus this quarter or versus last year even, that very much depends on what you believe or how the market will develop. As I said, there's a little bit of a positive momentum now in early July from a just patient numbers perspective, will that last? Who knows? I mean the one thing about COVID is that it always surprised us. So we are -- if you're asking -- ask for our best bets, we're I think, quite in line with most -- what most companies have been saying that we see a recovery in the second half and then a more normal state in next year. That's also what most customers will tell you. But of course, that's something I cannot count influence. So we're really focused on what we can control.

[Mattias Vadsten, analyst]

Perfect. And of course, I appreciate those underlying metrics that you showed with the penetration and so forth. But yes, the flavor was very appreciated.

[Operator]

And we have a follow-up from Peter Östling from Pareto Securities.

[Peter Östling, analyst]

Yes. A couple of financial ones. Looking at cost, the selling expenses for the first half with all these conferences, I guess with an anticipated busy second half, selling expenses will be approximately on the same level. And if you could talk a little bit about that. And then also your cost-cutting program, I guess, that admin expenses will probably trend down going forward.

[Johan Spetz, executive]

Yes. Thank you, Peter. I can take that one. Yes, on selling expenses, first off, yes, we saw, obviously, in Q1 of this year, there was still quite a lot of pandemic restrictions around in Europe. So activity in terms of conferences and marketing events was slower than expected. And of course, that has changed recently and of course, provided that we don't see another significant wave here after the summer for the pandemic, we expect, sort of, the Q1 level to be lower than the remainder of the year. So in that sense, the activity level in Q2 is probably a better indication for the rest of the year than Q1 was. And then if we perhaps add a bit more flavor on what we're doing in terms of cost reduction.

So so far, we have already spent less than budgeted this year. So some measures we have already taken, and you mentioned admin cost as one area and we were looking at other overhead costs as well. And so now for the rest of the year, we are implementing further measures to reset the OpEx cost base to a new level going into 2023. So there are some obvious examples here that we're looking at. We're looking at consultants and external vendors and things like that. Those are some of the things that are top of list. But then we are looking at the admin costs more comprehensively as well at the headquarter level in particular.

[Peter Östling, analyst]

Okay. And just finally, I noticed that you had quite significant positive translation difference in your cash flow statement. Do you have all your cash in U.S. dollars? Or what is that coming from?

[Johan Spetz, executive]

Yes. So we are buying dollars on a regular basis. So every second week, we are buying USD 1 million. So that the USD-denominated part of our total cash balance is increasing, and it's currently around USD 20 million. So the translation effect on that part, of course, of the cash position becomes more significant when translated into SEK as we report the cash balance, of course.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Johannes Doll for any closing remarks.

[Johannes Doll, executive]

Yes. Thank you very much. We received a few questions through the webcast, which I will go through before closing. So this is from [ M.D. DeSilva from Eco Investment Group ] in Paris. 3 questions. What was the level of sale related to COVID in 2021?

That's a very relevant question, which I'll have to disappoint you and can't and won't answer that because, of course, we don't know exactly which patients received our therapy in the end. So of course, what we did see in last year is that the share of COVID patients and the share of ventilated COVID patients was much, much higher than is the case this year. But the sales decline that we're seeing this year is driven by so many different factors. So COVID is one of them, but at the same time, as we discussed at the decline in capacity in hospitals due to the short -- staff shortage, you have the surgery. You have less flu plus pneumonia because in many markets, people also wearing face masks and working from home and so forth.

So there's -- we are seeing so much more than just a COVID effect in this first half year, that is difficult to justify -- or to quantify exactly how much that COVID is what we do see, which I will stress again is that from all the evidence that we have, the underlying penetration of inhaled sedation seems to point in the right direction.

Second question, could you comment pricing in the different countries Sedaconda has been approved. So I assume that refers to the drug pricing. As before we don't communicate exact prices. Just to give a little bit of a guidance, of course, we have run a clinical trial. We have shown clinical benefits over standard of care. We are the only isoflurane that is approved in ICUs. And that, of course, also reflects in our pricing, so while isoflurane is, of course, available for the operating theater as an off-label option from different manufacturers, you will see that our prices have a decent premium over those products.

And third and last question, now that you are approved in several countries in Europe, what is the next step? What will drive growth? What do you need, more salespeople, more events? Could you elaborate and share with us your expectations? So yes, as we have said before, of course, the approval is a very big milestone and is opening a little bit -- has a little bit of a hunting license for us because now we as I said, we are leaving off-label territory. We can promote the drug and the device and the therapy as a whole more aggressively. So yes, I'm expecting that of course to lead to more growth.

What are the best ways of driving growth? Of course, our key posts out there, our key account managers will always be a very, very important channel because these are probably the most -- highest number of customer touch-points that we have and that has turned out to be the most effective way for us to reach scale and to drive penetration in individual accounts because this is a therapy that requires quite a bit of service, quite a bit of training initially and a lot of presence and being helpful, and this is really where our future stands out to provide that best possible service, and that's a lot of the success behind Sedana Medical.

So I'm expecting not to stay away, we are sufficiently staffed for now. I'm a big believer to invest in countries where you see momentum towards profitable growth. Then I'm very happy to expect. I'm not a fan of trying to fix lack of growth with more people, so the mantra in our company is a little bit nail it before you scale it. So we are very happy to invest in profitable growth once we see it, at least the trend towards it.

And then of course, we could also consider expanding few teams in one country or the other and be a bit more careful on passing countries where we don't see that yet. But at the same time, we are, of course, having a range of marketing activities, conferences, webinars and peer-to-peer events and so forth. And we're getting a bit more professional in terms of following those up and understanding a bit the return on investment.

So what's the return on investment we get from, let's say, being at a conference and having a big boost versus, let's say, having a peer-to-peer event where we have a speaker talk to some doctor colleagues and in a more intimate setting. And that's something that we are -- we are still in the learning phase, but it helps us inform to make smart decisions when it comes to marketing expense because, of course, we're not a big pharma company, not a medical device company, we have to be very smart about the investments.

Good. I hope that answers those questions as well. Thank you very much again, spending the time with us today and looking forward to keeping you updated on the progress. Have a nice summer, everybody.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.