Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Sedana Medical Q2 Report Presentation for 2023. [Operator Instructions]Now I will hand the conference over to the speakers; CEO, Johannes Doll; CFO, Johan Spetz; and CMO, Peter Sackey.

[Johannes Doll, executive]

Hello, everybody. Welcome to Sedana Medical's Q2 report. I know that many of you are taking this time out of your well-deserved summer vacation, so thank you very much for joining us today. With me, as always, I have Peter Sackey, our Chief Medical Officer; and Johan Spetz, our CFO.I will kick us off by presenting the performance during the quarter and the progress we have made against our 3 strategic priorities. And during that, I will also talk about the new financial targets that we have set for ourselves. Then Peter will talk about the progress in the United States. Johan will go a little deeper into the financials. And then we will wrap it up and take time to discuss your questions.So if we go to Page 3, please. As many of you know, we have 3 strategic priorities. First, to bring Sedana Medical back on a growth path in our existing business after a very turbulent period following the COVID-19 pandemic. Second, to reach breakeven in our ex-U.S. business as the first important step for our longer term profitability aspirations. And third, to make headway towards our U.S. approvals and prepare for the launch in our future largest potential market.I'm very happy to report that we are continuing to deliver against these priorities, at least the elements that we have under our control. We are looking back on a strong quarter from a sales performance perspective. The company has grown 39% in SEK and 27% if you take out the currency effects. We had an excellent quarter in our main market, Germany, where we grew 36% or 49% in SEK and driven mostly by an increasing penetration of inhaled sedation in our existing customers, which I'm very happy about as it shows that the field force productivity measures that we have implemented to show effect.Our other direct markets have continued on their strong growth trajectory as well and we saw again a growth rate of more than 50%, 65% in SEK, less positive as expected. We had another significant sales decline in our distributor markets, which is again explained by the fact that our main distributor in South America is continuing to work through high inventory levels, especially in Mexico. The good news is that Q2 last year was the last quarter where we received an order from that distributor. So we do not expect a similar decline in our distributor business in the coming quarters. The other distributors, excluding the one from South America, did show growth during the quarter.From a P&L perspective, we continue to make good progress. Our gross margin was 71%, up 1 percentage point versus the year before. And as already anticipated in our last report, slightly lower than in Q1 as cost increases in the supply chain have now caught up with the positive effects from our own price increases. And we've been able to show a year-over-year reduction of operating expenses despite the inflation and exchange rates working against us from a cost perspective, which results in an EBITDA loss that we have been able to cut to less than half of Q2 last year. And importantly, we continue to be financed to execute on our plan, including our trials and the launch in the U.S.Speaking of the U.S., things are on track from an enrollment perspective. We continued to add sites and recruit patients according to plan, but we also had to make an adjustment to our submission plan and timeline, as you may have seen in our press release. We've had some interactions with FDA who have made clear that the long-term follow-up data that we are generating in the trial need to be included in the clinical study report. And only when that is complete, we can submit our NDA.So for context, our patients get a phone follow-up 3 and 6 months after the ICU stay to make cognitive psychological quality of life assessments. And when Sedana Medical planned the timeline for the trial several years back, the assumption was made that the NDA could be submitted when the main part of the study is done and the long-term follow-up data could then be handed in later. This was assumed because the follow-up endpoints are mostly exploratory in nature and hence not on the same level as the main part of the study, supporting the primary and secondary endpoints.Now this was not an absurd assumption at the time, there is precedence of FDA accepting submissions like this in the past, but clearly also an assumption that has turned out to be wrong, which will shift our expected submission date to Q1 2025. I find it important to stress that this is only affecting the sequence and timing in which we can submit the data, there is no new data required and there's also no additional cost expected and the risk of the trial is not affected either.If we then move to Page 4, you have probably seen in our report that we have changed the way we communicate about our market potential and provide our financial targets. There's 3 main reasons for that. Firstly, we operate in a very specific market segment, mechanically ventilated patients in intensive care units where you cannot just find reliable public data on the market size and our market share. And to fill that gap in a better way and add clarity how we are thinking about this ourselves, we have been through a thorough exercise to determine the market potential and penetration and we are sharing that with you today.Secondly, we've been through a quite volatile sales development, to say the least, during and after COVID-19 and we want to create better transparency about our expectations in the shorter term. So we are introducing short-term targets on sales and EBITDA, which we will update as needed every year.Thirdly, as you know and how we run the company, we are putting a lot of focus on profitable growth. We have a prudent investment strategy which guides us to invest only where we see profitable growth opportunities and also cut back where we are not yet profitable and don't see the momentum yet. And to reflect that focus, we have set a target, which we are now also communicating publicly to breakeven in our ex-U.S. business during 2024, so next year already.So let's take a look at this. We have 2 main focus areas from a geographical perspective. Our direct markets in Europe, Germany, Spain, France, U.K., Nordics and the Benelux countries. And on the other hand, the United States. We've been through an exercise country-by-country where we've looked at all publicly available data, ICU beds, ventilator beds, capacity utilization, ICUs, patient statistics regarding invasive ventilation, et cetera, et cetera. And we have complemented that data with our own research and market insights. And based on that, we know now that in our current direct markets in Europe, a bit less than 1 million patients are mechanically ventilated and sedated every year. That translates into a market potential for our products, and I should say, current products between SEK 3 billion and SEK 4 billion.In the U.S., we've been through a similar exercise, but also with the help of an external consulting company to get an objective view, we have found that more than 2 million adult patients were mechanically ventilated in ICUs, which translates into a market potential between SEK 10 billion and SEK 12 billion. So a little less than 1 million patients in Europe, more than 2 million in the U.S., so a factor of more than 2 in between. That's more than you would expect from a pure population perspective. And the interesting element here is that mechanical ventilation per capita actually differs quite a lot between countries. If you take the 2 extremes, there was a recent study comparing the U.S. and the U.K., which found that patients in the U.S. are up to 4x more likely to be invasively ventilated than in the U.K. with especially big differences in older patients. And that explains the high potential in the United States.A couple of important assumptions, of course, going into the U.S. figures. First of all, this is of course assuming that we will get approved and also approved with a label comparable to the one that we received in Europe. That's a reasonable assumption as the trial is very similar to the one we've successfully run in Europe, but it's of course an assumption. And secondly, we've talked quite a lot about Propofol being 2, 3, sometimes 4x more expensive in the U.S. compared to Europe, which lets us hope to get a good price in the U.S. to be prudent. However, we have only assumed a quite modest price premium versus Europe in the area of 10%. So clearly, if we manage to get a price in line with the Propofol differential there, that would represent an upside.So that is the potential we see. And to help you guide a little bit, we've listed the penetration rates we had in 2022, not the best year, as you know, but it's an orientation. In Germany, we had around about 10%. Meaning that on 10% of the days that ICU patients were sedated, inhaled sedation was used. The best sales territories in Germany have been above the 20% mark and are still showing growth. And in our direct -- other direct markets, we were still below 1% last year.All of these numbers have grown and are still growing this year and we will regularly provide updated numbers. However, it does not make too much sense to do that on a quarterly basis, even though it would look quite nice for this quarter of course, because there's a time gap between our sales and the use in the hospital as most customers keep some level of normal stock or have a certain buying and order rhythm. And with the cyclicality we have in the market, that results in some distortions if you look at 2 shorter periods. And that's why we will look at the progress over the years as opposed to month-by-month.On the short-term financial targets, we believe we will continue on our growth path also in the second half of 2023, an estimate between -- to land between SEK 145 million and SEK 155 million. Typically, as many of you know, Q3 tends to be a bit lower, less ICU patients during the summer months and some vacation effects in different countries and then Q4 tends to be stronger again with ICUs seasonally filling up again.The other big target, I've already mentioned, we aim at reaching EBITDA breakeven for the ex-U.S. business during next year. Ex-U.S. means that we would not consider operating expenses spent in the U.S. That is currently at a very low level though because most of the U.S. cost is related to the clinical study and hence capitalized to the balance sheet.Then if we move to Page 5, please. You see the longer term sales development that you have seen before with a sharp increase during COVID-19 and the following drop. And now in 2023, we are back on a growth path and see for the first half that we are at more than double the sales of what it was before COVID and also 24% higher than last year and still 15% higher if you take out the effect from the Swedish krona.On Page 6 then, you see the sales bridge for the second quarter. Germany has contributed the lion's share to the growth in Q2. And if you look at where the growth comes from, we had some positive effects from new customers. So we still add new customers. Remember, we already have the majority of German ICUs as our customers, but mainly, we see an increase of the penetration in our existing customers. And that's a very positive sign as we see an effect from the field force productivity measures and the changes to our selling model that we have implemented.So more customers are convinced by our compelling clinical data and use inhaled sedation in more of their patients, which is a very positive development. Even faster growth in percentage terms in our other direct markets, but of course, from a lower base here, we have also seen more use by our existing customers, but the majority of the year-over-year growth comes from adding new customers, which shows that the awareness for inhaled sedation is growing. Our presence at the conferences and events, and of course, our everyday presence in hospitals is bearing fruit.On the other hand, we still have the same picture for distributor markets, as I already mentioned, a big minus, driven by the fact that the stock levels with our main South American distributors are still too high to place new orders with us. That will also stay like this for a while, at least in Mexico. Might look a little different for Brazil, but at least, we won't have the same comparator in the coming quarters as the last order was placed in Q2 last year. Again, if you take that effect out, which admittedly is a very significant effect, the other distributors showed growth during the quarter.Then let's move to the next page, to Page 7, please. A brief look at the market dynamics in Germany, a little bit unexpected, I have to say. We did see less patients in German ICUs during Q2 than last year. At the end of Q1, it looked like the 2 lines would converge, but we still do see a difference in the number of ICU patients. So that includes both ventilated and non-ventilated patients was down 9%. And you also see that COVID-19 almost plays no role anymore in ICUs. At the end of Q2, we had exactly 28 COVID patients that were still mechanically ventilated in all of Germany.On the next page, on Page 8, you see that more German ICUs report that they can operate under regular conditions, meaning the pressure from the staff shortages have eased a bit, but that is of course a seasonal effect. If you have less patients in the ICU during the spring and summer months, it is just easier to cope even if you're short in staff, but you don't need a crystal ball to predict that this will again look worse in the winter. But from a pure access perspective, we currently have really good conditions. We get to see our customers, we get to perform training. So that's really looking good right now.Then we move to Page 9, please. You see our progress on the regulatory and pricing and reimbursement [ slide ]. 17 countries have granted regulatory approvals. #18, the MHRA and U.K. is still missing. We have answered a round of questions in the spring and are now in waiting mode again. We've waited for 2.5 years now. So hope the approval gets closer, but we still cannot give a reliable timeline on that.An update also on Spain. The Ministry of Health, if you maybe remember, I had previously communicated that we had received pricing and reimbursement approval. That was back in April. Then there was an administrative process following that. And it has unfortunately become apparent that we will need to make further adjustments to our offer before we can get the official approval. This means that we currently do not have the pricing and reimbursement approval yet. And consequently also we have not launched the drug yet. Device sales are of course not affected and are growing very strongly. In fact, Spain is actually our fastest-growing market even without the drug. At least, we believe we know now what to do and expect the final decision after the pricing commission is back from summer break and had their next meeting in the fall.And then if we move to Page 10, please. You have already heard that we have a big target to breakeven ex-U.S. next year. So here is the progress towards that goal. Sales and gross margin are up, as I mentioned already. Operating expenses are down despite the inflation and it would have been even more down if we exclude the exchange rate effects. So we are continuing to run a tight ship from a cost perspective. And all of that translates still in an EBITDA loss, but one that is 55% smaller than last year.Then let us move to Page 11, please. And I'm handing over the word to Peter, who will talk about the United States.

[Peter Sackey, executive]

Thank you, Johannes. So as many of you know, we have 2 clinical trials running in the U.S. These 2 are identical and are similar in design to the study that we ran and got the European approval for, confirming efficacy and safety of inhaled isoflurane via the Sedaconda ACD. And there are 235 patients in each of these trials and the primary endpoint is similar to the European study. So it's timed within the target range on the RASS in absence of rescue station.And if we move over to the next slide, as Johannes shared with you, we have a long-term follow-up in the trials. And this follow-up is a centralized home-based follow-up of cognitive psychological physical function and quality of life. And this is a centralized follow-up from Vanderbilt. We had the assumption that this follow-up would be separated as a own study report and would submit the 30-day study data for the 2 trials. The feedback we received from FDA at the Type D meeting was that we need to submit also the long-term data together with the NDA submission. And this means that we've had to adjust our timeline. So we will be able to submit -- we expect to be able to submit our NDA in Q1 2025.And if we assume that we have a standard review time that would render an approval at the turn of the year of 2025, 2026, that's a timeline that is, let's say, with standard review times and does not consider the potential benefits of our Fast Track designation that we received earlier this year. So it's actually a question of sequencing where we simply have to have everything with the NDA, but we have not been asked to include any new data and we do not anticipate any substantial change in the cost for the study due to this.If we move over to the next slide, please, Slide 13. As you may know, we received this Fast Track designation from the FDA in January and the purpose is that we should be able to get this across to U.S. patients earlier. And that's a very positive thing because it confirms the FDA's view that we have an offer, a therapy that may meet an unmet medical need and it has potential clinical benefits. And the potential upside of having a Fast Track designation includes more frequent communication with the FDA, but they are more ready to respond quickly to any questions we have. Other things are accelerated approval, priority review and rolling review. And we will know more about which of these potential benefits we can utilize when we have our pre-NDA meeting, which we expect to be some time during 2024.If we move to the next slide, Slide 14, an update on the investigator-initiated trials that we are supporting and are involved in more or less. INASED study, the French study looking at delirium incidence, is a study that has been going on for some time. We have now more than 60% of the patients enrolled in this trial. And then we have the Sevoflurane in ARDS study, the SESAR study, also in France where enrollment is coming close to finalization with 668 patients out of 700. And this is expected to be completed at the turn of the year.And then we can move over to Slide 15, this is a selection of Congress' symposia and meetings where Sedana has been present with Booth or with presentations in Europe and in Latin America and there are a few more as well. And this -- as it has been in the most recent years, there's lots of interest in this therapy.So we can move over to Slide 16 there and I hand over to Johan Spetz I think.

[Johan Spetz, executive]

Thank you, Peter. So yeah, Slide 16 next up for a bit more detail on our financial performance in the second quarter of this year. And Johannes has mentioned some of these numbers already, but I think it's worth reiterating some of them.So net sales we report SEK 37 million for the quarter. That's up 39% year-over-year or 27% if we exclude the currency effect. And Germany performed really well in the quarter, up 49% or 36% without the FX boost, driven mainly, as Johannes mentioned, by increased penetration in existing accounts, although we did add new customers as well. Other direct markets, even stronger growth in percentage terms, 65% in reporting currencies and 52% at fixed exchange rates. And there, the situation was the reverse. So we are selling more to existing customers, but the main driver of the growth is the new accounts.And the situation in our distributor markets, Johannes described that as well, so another quarter with a year-over-year decline, driven by our South American distributor, where you know, they have been and are still working through high inventory levels since the pandemic. Outside of South America, we see that distributors are doing well and showed positive growth during the period. So now that we do not have any significant orders from South America anymore in the comparator numbers, we expect to see a different picture for the distributor segment going forward.Gross profit for the quarter of SEK 27 million. That's up from SEK 19 million a year ago. And the gross margin, as Johannes also mentioned, was 71% for the quarter, up from 70% last year. So we are seeing a positive effect there from the higher prices and a mix effect and also lower allocated central costs. As you probably remember, in Q1 of this year, we had an even stronger gross margin. And as we said at the time, we anticipated that to come down a bit in the second quarter as we have our own price adjustments coming through to the P&L quicker than the price adjustments that we get from our suppliers. So slight reduction sequentially in Q2, but we expect to remain over the 70% mark also going forward in line with what we've communicated previously.If we look at the EBITDA, still a negative number, minus SEK 11 million for the quarter. That's a clear improvement from Q2 last year. And if we look at the operating costs, we report SEK 46 million in operating costs for Q2 of this year, that's a decrease relative to a year ago. And at fixed exchange rates, the reduction is slightly bigger. So a reduction by 4% at fixed exchange rates. So despite the inflationary environment that we're seeing generally, we are able to continue to reduce our operating costs.And we've talked about this on previous occasions as well, we are working on and have been working -- continue to work on a number of things here with streamlined administrative functions, mainly here in the headquarters. So HR, Investor Relations, Accounting and Controlling. We try to become more efficient in how we do things. We've also reduced external spending on consultants, other vendors and also conference sponsorships, for example. So we've done quite a bit here, as you can see in our numbers, and we continue to work on a number of things to try to become even more efficient in how we spend our money. If we look at the organization, we are slightly fewer now compared to the beginning of the year. So 93 people now, including consultants at the end of Q2.So if we turn to the next slide, Slide 17, and take a look at our cash flow and cash balance and short-term deposits. So cash flow from operations for the period, minus SEK 36 million. And SEK 17 million of these were from changes in working capital, mainly related to inventory changes and also related to the timing of payments for our clinical studies, in particular, in the U.S. of course, which is the main clinical program that we have.Cash flow from investments for the quarter, minus SEK 46 million. That's of course also related to our clinical studies and registration work in the U.S. in particular. So that means a total cash flow for the quarter of minus SEK 83 million and a cash balance at the end of the quarter of SEK 504 million. That's compared to -- and that, I should say, is including also the short-term deposits that we have. And that SEK 504 million can be compared to SEK 560 million at the beginning of the quarter.So on the topic of our cash balance and liquidity management, as we've communicated previously, we have roughly half of our cash already converted to U.S. dollars in anticipation of course of building up the commercial infrastructure in the U.S. after completing the clinical trial and submission. During Q1 of this year, we also placed approximately half of our cash in short-term deposits for better interest rates, so both SEK and USD deposits.And with this liquidity situation, we expect to be fully financed until breakeven and to be able to execute on the strategic plan that we have set for ourselves. And as previously mentioned on the call, we recently communicated the shift in the U.S. timeline. But importantly, and as both Johannes and Peter have mentioned already, this relates really only to the phasing of the submission. So we don't really expect a meaningful impact on the total project cost as a result of this change, which of course, is important when thinking about our cash balance going forward. And as a reminder, we have no long-term debt in the company.If we turn briefly to Slide 18, please. Here, you can see our largest shareholders at the end of Q2. And of course, we continue to be thankful for the support shown in -- from this group of investors in Sedana Medical.And with that, I will hand the call back to Johannes.

[Johannes Doll, executive]

So if we go to our last page, Page 19, to wrap it up. Let's take a step back and recap the investment case for Sedana Medical. Our business model, as you know, lends itself to attractive profitability over time and that is for 2 reasons. We continued to see good gross margins of 70% and up. So by definition, we can become quite profitable as a business when we reach scale. And our customers are intensive care units, not primary care doctors. So a relatively small target group that can be covered with reasonable operating expense levels locally. And we already have proof of concept for that in our main market Germany where the majority of ICUs are already our customers. The team is generating attractive EBITDA margins on a local level. And while we're not at the same scale yet, other countries like Spain are operating with nice profits on a local level already as well.So we do have the proof of concept. It can be done. So the real question is, will we reach enough scale and convince enough hospitals to use inhaled sedation more broadly? And here we have convincing clinical data on our side showing that patients really, really benefit from inhaled sedation. And equally important, we can also show that hospitals save money when inhaled sedation versus the previous standard of care is used. And we have lots of places to grow and to create new Germany. Again, regulatory approval in 17 countries in Europe. Hopefully, soon '18 when the U.K. comes around. And the largest commercial opportunity in the U.S. is still untapped with the FDA giving us Fast Track designation, as you know. And let's not forget, very importantly, there is a strong balance sheet and the commitment to get to profitability outside the U.S. very soon.So that concludes our presentation. Thank you very much again for listening. And we'll be happy to take your questions.

[Operator]

[Operator Instructions] The next question comes from Peter Ostling from Pareto Securities.

[Peter Östling, analyst]

Congrats on yet another strong performance. I have a couple of quick questions. First, I would start off with the standard one. Was there any inventory build-up in the second quarter that you could see?

[Johannes Doll, executive]

So short question, short answer. The answer is no. So there's nothing unusual in our direct markets. Most customers buy regularly. So they keep of course inventories because we sell disposables mostly, but nothing extraordinary. And then in distributor markets, you typically see less frequent buying, which is normal in that kind of a business, but we didn't see anything extraordinary in the quarter.

[Peter Östling, analyst]

And then on your now officially communicated target of breaking even in Europe or ex-U.S., I would say, in 2024. Can you elaborate a little bit more on what kind of sales level you will need in order to reach that? And if we look at the current trend in top-line and with a stable OpEx level, my guesstimate would be that you could reach a breakeven level already in the first half of 2024. Can you comment a little bit on this?

[Johannes Doll, executive]

Yes. So Peter, as always, you're of course an excellent analyst. So I don't have much to add to your analysis here. We're not guiding on a specific sales level for next year now, but we will do that now that we have introduced the short-term guidance when we get to the Q4 report. What we mean by breakeven ex-U.S. is that we would look at the EBITDA and take out the operating expense we spent in the U.S. But as I said, that level is very, very low right now because most of the cost in the U.S. is related to the study and gets capitalized. So it's not visible in the P&L. We are continuing to try and find opportunities to streamline our cost base even further, both on the cost of goods as well as on the operating expense level. And together with a hopefully continued healthy growth on the top-line, then we are hopefully going to see the breakeven comes through next year. And if that happens in the first half, then I will be happy about it.

[Peter Östling, analyst]

And just finally a question for me. The long and winding road that you're treading towards U.K. approval, what kind of questions do the U.K. authorities ask really when you already had this very positive decision from NICE about 1.5 years ago? So what are they still -- what question marks do they still have?

[Johannes Doll, executive]

So I mean, we are going through a standard review process by MHRA. So nothing unusual is happening. It's just taking unusually much time. And you're right that of course the NICE guidance was very positive. It's a little bit the wrong order because usually you get MHRA approval and then NICE looks at the case, but it's also important to realize that it's 2 separate institutions. So there is not -- MHRA is not as much influenced by NICE.When it comes to the questions, specifically, the last round of questions referred to relatively detailed questions kind of regarding supply, quality and the like, which we take as a very good sign, because of course, where you start when reviewing a dossier is on the efficacy and the safety. And since we didn't get any questions on the efficacy and the safety anymore, it's quite likely that we don't or will not face any problems regarding efficacy and safety, which is very important.Would also, to be honest, have been a surprise because 17 countries came to the conclusion that the efficacy and safety warrants an approval. But of course, that's always the biggest hurdle. So from that perspective, it's good that we seem to have arrived at hopefully the last round of questions. But as I've given up on making predictions regarding the timeline given that we've had that long road for 2.5 years, as you say.

[Peter Östling, analyst]

And once again, congrats on a great quarter, guys.

[Operator]

The next question comes from Mattias Vadsten from SEB.

[Mattias Vadsten, analyst]

I've seen this one every time, but strong development in sort of other direct markets. Could you give some more detail around the different markets? Spain has been strong, as we know and as you mentioned. Are you having growth in all markets? And if I manage also, you say a majority of the growth is coming from new customers. Are you in any way disappointed by the penetration rate in existing customers? Is it more to expect here or how do you look at it? That's the first one.

[Johannes Doll, executive]

So yes, so the markets, we've called out Spain because that was the fastest growing market in the quarter and also year-to-date. But all of our direct markets are above last year's level year-to-date. So that's a very good development and also shows that the kind of the hard work that we've done from a field force productivity perspective, making sure we have as much time with customers as possible, making sure we target the right customers, improving our selling model, et cetera. There's a lot of work that has gone into that, and that is showing effect. So I'm very happy about that. Outside Spain, we did have good development in all the other direct markets, not of course, all at the same level, but from an absolute size perspective. Of course, outside Spain, France and U.K. are the larger ones when compared to Nordics and Benelux. But all of them have contributed positively, which is really good.Now I'm not sure I have -- on the second question, I'm not sure I have reason to be disappointed at a growth rate of 50% and up. What I wanted to call out by where the growth is coming from is the difference between Germany and the other direct markets where for both we see a mix of new customers and increased penetration. But in Germany, the main driver is increased penetration, as it should be, because we have most of the or not most of the, but at least the majority of intensive care units as our customers already and we're very happy about that.And in the other direct markets, we are coming from a much lower base. So much less customers, much more to catch-up in terms of awareness for the therapy, cultivating key opinion leaders and so forth. And just if you -- in comparing the numbers, I'm happy about the increase in existing customers. It's just we can't grow as fast as we do unless we add new customers. So there's a lot of focus on making sure we add new customers to the mix. And we've been quite successful with that over the last year across all of the other direct markets, and that's what's driving the majority of the growth. And that will probably also continue to be like that for a while. So no, not disappointed at all. On the contrary, it's good to see that we are broadening our customer base.

[Mattias Vadsten, analyst]

I think that's a good run through. And I guess, I lost you a little bit during the presentation when you talked about the pricing reimbursement negotiations in Spain. Could you just sort of walk me through this again, what happened? And when do you expect the approval?

[Johannes Doll, executive]

Yes. So it shows once again the uncertainties that come with getting a product -- a price of our product and getting it reimbursed in Europe. So what's happened is, if you remember back in April, there was a public communication put out by the Ministry of Health that Sedaconda had received pricing reimbursement approval in Spain, which at the time we were all very happy about. So what happens afterwards is kind of a little bit of an administrative process that you have to go through that should result in then a final price.In that process, a few additional questions have come up and it's become clear that we'll have to make a slight adjustment to the submission that we have put in last time. So there's information you put in around your product, around the price that you will charge about the presentation in which the bottles come and also kind of the volume commitments and so forth and there's a few adjustments needed. So we need another round of decision by the pricing commission. So it's not the Ministry of Health themselves that decide, but it's a commission of regional representatives in Spain that do take the final decision, and they are now on summer break.So we do have a new proposal. And we also, after consulting with the Ministry of Health, we are quite hopeful that this time it will go through. Now they are in summer breaks, so they're not meeting in August. And then hopefully, after that summer break, the commission will decide and we will then finally end this long process and be able to launch the drug also in Spain. But again, it's the drug launch that is delayed, that does not impact our ability to sell devices. Again, Spain, our fastest-growing market, so really going well. But of course, these processes, as I'm sure you know, sometimes take longer than expected and also take some turns sometimes that you don't see coming.

[Mattias Vadsten, analyst]

The next one, you previously had a target for a turnover in excess of SEK 500 million in Europe by 2025. Does this target stay firm or how do you think of it? And if not, do you see -- do you still see that as a reasonable sort of something to look at or have you lowered that target, so to speak, for 2025 as you are not having it as an efficient target anymore or how should we think of it just to make that clear?

[Johannes Doll, executive]

So just to be clear, we've defined new targets and those targets also replace the targets that we've had before. So there's no target for 2025 anymore that we communicate publicly. And the reason for that is that the way we are running the company focuses a lot, and as of course you know, on profitable growth. So the target of getting to profitability ex-U.S. next year is a very important one for me because then we will, first of all, provide a proof of concept that we can operate profitably with this very good therapy. And it also provides us with a more stable platform once we take the step towards the U.S. because it would not be prudent in my world to still have a leaking bucket in Europe and then start investing in a launch in the U.S. and that's also difficult of course from a -- just from a cash perspective. So from that perspective, it's extremely important to have that target and that's also why we've made that the official short-term target. Now of course, we'll continue to see growth, and that's also what we aim for, but we no longer have a concrete number in 2025.

[Mattias Vadsten, analyst]

And maybe if I could follow-up. I mean, I guess, we've seen a sort of -- that the cost [ costume ] has come down quite a lot. I mean, you speak quite clearly about it. But does that to you sort of mean slightly lower sales in 2025 than was previously expected given this sort of strategic direction that you're doing right now to achieve profits so much faster than what was the case before? Just some thoughts around that question as well, maybe.

[Johannes Doll, executive]

So what we're doing on the cost side is of course intended to make it possible for us to break even. And you're probably right in saying that, it maybe happens a bit faster than some have assumed. But we want a cost base that allows us to break even at sales levels that are quite a bit lower than the SEK 500 million. So I'm not commenting on what's the appropriate number in 2025, but it's important that we have a cost structure in place that allows us to operate in a profitable way. So the mantra is that we're using it a little bit to nail it before we scale it.So what I want to see in all countries on a local level, for example, is that we show good growth and that we operate with profitability locally before we invest more. And on the reverse, if we have a country where we are not growing as much or we are not profitable yet, then we also don't shy away from cutting back. And the same of course goes for the headquarter as well where we've done a lot of streamlining and making sure we have an headquarter that supports sales in the country. So overall, we are transforming into a much more commercially-oriented company. And that of course also results in a cost base that allows us to become profitable earlier than maybe at least some have thought.

[Mattias Vadsten, analyst]

Now the last one coming here. You said during the presentation, you capitalized the study costs for the U.S. very clear. But on those study costs and given the recent sort of news around the U.S. study timeline, to make stuff clear, how do you see these costs in 2024 perhaps compared to 2023? And into 2025, I guess, we should expect those costs to taper off quite a lot. But any color or sort of helpful guidance you could give here would be good.

[Johannes Doll, executive]

So again, what's important here is that the study as such doesn't change. So we are not doing anything different in terms of how the patients get treated, in terms of what data gets generated and so forth. So from that perspective, there is no change. So what you should expect is as long as we are still enrolling patients, those -- the cost will be relatively high because there's a fee that we pay for every patient that gets recruited. So that you will probably see for another 2 quarters or 3 because sometimes the cash lags a bit behind the actual enrollment when we pay the bills basically.Afterwards, we get into this phase where the long-term follow-up is being done. There, the costs should go down quite a bit because rather than having 20, 25 sites open, we only have 1 and that is making phone interviews as opposed to treating patients in the clinic. So that will of course reduce the cost a lot. And what stays over is basically cost that is related to putting together the dossier. So writing up the reports, analyzing the data, a lot of medical writing and so forth, which typically you have quite a few consultants involved in that. But the way to think about it with the new timeline is basically that the cost directly related to the study is more or less unchanged and that the cost for writing the dossier is stretched out a little bit, but not materially higher overall.So from a pure cash perspective, this is not -- don't get me wrong, it's still a disappointment that we will submit later. But from a pure cash perspective, it actually helps a little bit because our plan is to have broken even in Europe before that point in time. And now we can delay some U.S. investment when it comes to the commercial build-up.

[Operator]

The next question comes from Peter Ostling from Pareto Securities.

[Peter Östling, analyst]

One for Peter. These follow-up -- the long-term follow-up questions that you apparently is doing over the phone, could you describe how those are conducted? I mean, if the patients are actually suffered from some kind of a cognitive effect, how will that patient participate in those telephone contacts?

[Peter Sackey, executive]

We have the world's most experienced team when it comes to long-term follow-up of ICU survivors. The typical illness and brain survivorship team at Vanderbilt, they have people who sit, they collect all the details -- provide details to the patient and to the relatives at the time of enrollment, so a time of consent. Then these patients are contacted by people who just do this, this is all they do for a living, is call them up. And they have ways of getting this information from the patients or from the nearest to the kin.Of course, you can have a situation where a patient is not able to answer the questions well, and that's something that will be accounted for in the analysis. So failure to answer questions, we'll be managing sensitivity analysis. But they basically go through about 1 hour battery of questions where the most important ones, the most critical ones come early. And it's a conversation about the stay in the ICU and then later on the questions come. And it's typically very appreciated by the patients that someone is taking interest in how they're doing. So they typically have a response rate of somewhere between 80% and 90% among survivors.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

[Johannes Doll, executive]

There's one question that we have received through the chat, which is, in Germany, how much of the sales increase comes from isoflurane since first bottles were shipped a year ago?It has contributed to the growth somewhat, but the vast majority comes from simply higher penetration in the sense that more patients have received inhaled sedation proportionately. And as we've talked about before, the isoflurane is an important add-on for us and a good enabler because now we have the approval and can proactively promote. But the main source of revenue and profit is on the device side with the ACD, our main device, and a couple of accessories that we sell on top of that. So if you were to compare the numbers in terms of growth between the devices and the gas, more growth comes from the device than from the gas as such.I don't see any other questions from the chat. So thanks again for joining us today. I wish you all a very nice summer. Thank you very much.