Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Hello. Welcome to today's presentation with Sedana Medical. With us presenting today, we have the CEO, Johannes Doll; and CFO, Johan Spetz. [Operator Instructions] And with that said, please go ahead with your presentation.

[Johannes Doll, executive]

Thank you. A warm welcome to Sedana Medical's Half Year Report 2024. I know that some of you are dialing in during your invitation. So I'm glad that you're taking the time with us today. Thank you very much for that. With me today, I have our CFO, Johan Spetz, who will take us through our financial update later on.

Let's start with Page 3, please, with the highlights of the second quarter. Focus is very important for us. So of course, the 3 strategic priorities that we are steering the company towards have stayed the same: first, to bring Sedana back on a steady growth path in our ex U.S. business; second, to reach breakeven in our ex U.S. business as a first important step towards our longer-term profitability aspirations. And these 2 together in a healthy growing business and the profits from it will form a stable platform for our third priority to make headway towards our U.S. approval, which would put Sedana on a different growth trajectory.

Two significant milestones stand out for me this time as they are both very important achievements in executing our strategy, and we have completed enrollment of both our clinical trials in the U.S. which is a big step forward in bringing inhaled sedation to our largest potential market. And just yesterday, we have announced that we will acquire our main supplier, which will improve our bottom line by approximately 2 percentage points over time. And this is an important strategic move in building a long-term profitable company. We will come back to both of these achievements in more detail, of course.

You know that profitable sales growth is a big focus area for us. During last year's restructuring of the company, we have turned Sedana Medical into a much more commercially oriented company by shifting resources from the corporate headquarters to the front line and implementing a very disciplined investment approach, focusing on countries with strong momentum and profitability. And this strategy has worked. We have returned to a solid growth path after the post-COVID-19 period, and we now operate almost all of our country organizations in a profitable way.

When it comes to 2024, overall, I'm quite pleased where we stand after 6 months. In both Q1 and Q2, we have delivered the highest sales ever in the respective quarter. And after 6 months, we are 20% above last year or 19% if you exclude the exhange rate effects, which is above our sales growth guidance for the full year of 14% to 18%, but we also have to clearly state that a growth of 10% in the second quarter is not where we want to be. Part of the explanation here is that we are comparing to an unusually strong second quarter last year, but we also had a weak quarter in Germany, more specifically a weak June due to a very low number of mechanically ventilated patients on the ICUs.

On the other hand, our performance in our other direct markets and our distributor business was again strong during the quarter. On the profitability side, we have a negative EBITDA of SEK 14 million with an ex U.S. EBITDA of negative SEK 11 million. On the surface, that ex U.S. EBITDA looks very similar to the year before, but it is important to note that we had a SEK 2 million negative exchange rate effect this time, whereas last year, we had a positive exchange rate effect of EUR 3 million. So there's a EUR 5 million FX swing here in the delta.

The decline of the EBITDA versus the first quarter where we showed breakeven ex U.S. is due to the seasonally lower sales level and also a bit higher admin costs, for example, [ legal ] costs related to the acquisition. On the U.S. side, as I said, enrollment is completed, which is not just a great milestone to reach, but also very important from a cash perspective. The main driver of our cash out over the last quarters was payments to the hospitals participating in the trial for recruiting each patient, that's done now. There will be a little bit of a lag effect over a few months where the invoices are coming in, but we can then expect our burn rate to come down considerably.

Apart from that achievement, we continued to be on track and then keep our time line intact.

Then let's move to the next page, Page 4, please, and take a moment to talk through the acquisition that we have announced yesterday night, what will we do? Why is this a very good deal for us and what will be the financial impact? So we will acquire our main supplier, Innovatif Cekal based in a place called Klang just outside Kuala Lumpur in Malaysia, the main supplier in that case means that they are not our only supplier, but they manufacture our main device, Sedaconda ACD, and also certain accessories such as adapters.

Therefore, they represent a very sizable part of cost of goods and the purchase price of SEK 34 million. 75% of that will be paid upon closing, which we expect in the second half and 25% deferred by 2 years. This means that the transaction has an EBITDA multiple of 4.3% and the PE multiple of 5.7% which is, of course, a very good deal.

There are 2 important reasons why this is a good deal from a strategic perspective. Firstly, we gain control of the supply chain of our main products. So we are less subject to price variations and are in control of future scale out of the capacity to meet our growth plans.

And over time, we can also implement measures to further enhance the productivity. Secondly, and that's the obvious one, and we are expecting to add 2 percentage points to our EBITDA once the existing stock is depleted. So I see this as a very logical next step in building a long-term profitable company. We will pay for the transaction out of existing cash. The deal will pay back quite quickly. We expect a positive impact on our operating cash flow already from 2025, and we should have a net positive [ cash ] impact from 2028. Importantly, we continue to be financed to execute on our plan, including bringing our products to the U.S. market.

If we then move on to Page 5, please. You can see what I already touched upon, the restructuring of the company and especially the shift of investments towards the frontline teams and the [ front-line ] effectiveness measures we have implemented have led us back on a growth path after the quite negative year of 2022 as above it. After 6 months in 2024, we are 20% above last year. Again, 19% excluding FX, so we are on track to live up to our promise to deliver an all-time high in sales this year and meet or even exceed a little bit our growth guidance.

If we then move on to the next page, Page 6. You can again see the impact of our work on the bottom line. You see some seasonality in the sales on the top part of the slide, but the trend is quite clear after the biggest EBITDA loss in the company's history in 2022. Q2 of this year specifically looks a little bit less nice than Q1, where ex-U.S. EBITDA was positive, and the group EBITDA was almost a balance.

Again, the explanation is the lower sales level, but also the fact that we had a SEK 2 million negative FX effect this time, whereas we had a SEK 2 million positive FX effect in the first quarter. Of course, we continue to be fully focused on turning our ex US business profitable, so we can build a stable financial platform for our US launch.

On Page 7, I have already mentioned the discrepancy we see between the first 2 quarters when it comes to the growth rate. Q1 was excellent. And compared to that, Q2 looked a little disappointing. So let's have a closer look at that. Our business is seasonal, that patients require mechanical ventilation in the summer months, simply because there are less respiratory infections when it's warm, people spend a lot of time outside, so what you can usually expect is that Q2 and also Q3 are at a lower sales level than Q1 and Q4.

If you look back in history, that sales decline between the first and the second quarter was on average 10%. Last year, it was not normal as the quarters did not follow the typical seasonality, but Q1 and Q2 were almost on the same sales level. So we are comparing our 2024 Q2 numbers. Again, the highest Q2 sales we've had so far to a relatively strong Q2 last year.

But it is also fair to say that the decline this year was more pronounced than average. We had 13% lower sales than Q1 if we correct for the South American order in Q1, which will not come back every quarter, and the explanation for that, we will see on the next page, Slide 8, please.

We had a very weak quarter in our main market, Germany, where we even saw a slight sales decline year-over-year. If you were to double-click on that, you would see that this is because of a very weak June where sales declined by more than 20% year-over-year. April and May were positive and also the first weeks of July are positive again, but June was not. To dig a little bit deeper in June, we made a survey with 40 of our top accounts and asked our key account managers to [indiscernible] how many mechanically ventilated patients these customers had relative to the number of ventilated beds.

And we found that only 20% of beds were occupied by a ventilated patient at that point in time, which was very much in line with also the feedback we heard from our key account managers at the time who were telling us about [ MTI's ] use. A normal range would be around 40%. So we had a temporary absence of patients possibly because of the early onset of summer weather. So there's an explanation. But of course, I also have to say clearly that negative growth in our main market is not where we want to be. And of course, the team is fully focused on continuing to grow the German business.

If we then go to Page 9, please. Our other direct markets, again, delivered a strong quarter. Even though we had some similar effects as in Germany when it comes to the number of patients in some countries, in the end, we had a growth rate in the mid-40s. Spain continues to perform very strongly. So the combination of strong execution, updated treatment guidelines and pricing and reimbursement approval continues to show an impact. And I'm very pleased also that UK sales have significantly accelerated after the MHRA approval at the end of last year.

In percentage terms, the U.K. is actually our fastest-growing market at this point. And again, things were a bit slower in France due to 2 vacancies we had on the team, our sales [indiscernible] level in the field and the time we spent with our customers. So of course, we are addressing these vacancies nicely, good opportunities to accelerate that growth again here as well.

On Page 10. And let's have a look at the distributor business, and we had a long period where it was less fun to look at the performance of our distributor business. We had declining sales for almost 2 years as a consequence of excessive stock building during COVID-19. We never let a good crisis go to waste, so we have used the time to restructure the team and to implement a new approach, which focuses very much our support on key partners with high sales potential and the positive momentum.

And this strategy, as you can see, is working between the third quarter in a row with solid year-over-year growth.

On the next page, Page 11, just to sum it up, where does all of this put us with regards to our full year guidance, we have promised both into 18% growth. We're now tracking at 19%. So I see ourselves fully on track. And we have guided for positive ex-US EBITDA during the year. We have already achieved that in Q1, which proves that we are within spiking range.

So while we will continue to have some seasonal swings in the summer quarters, we, of course, continue to be focused on ex-US profitability of the main priority in what to see it again in Q4.

And if we then move to Page 12 and switch gears to the United States. As you know, the U.S. is our largest growth opportunity. And one of the reasons why we are so focused on turning the ex- US business profitable as we want to be able to launch in the US based on a stable platform in Europe and the cash-generating business, of course. We have estimated the U.S. market potential for our products to SEK 10 billion to SEK 12 billion, which is 3x as much as in our current direct markets combined. This is because of a high number of ventilated beds, a slightly different medical practice that favors incubation compared to Europe and also an overall higher price level.

During the quarter, we have taken a big leap forward by completing enrollment of both our clinical Phase III trials, which takes out a big part at least of the execution risk related to the study and is also, as I said before, very, very good from a cash perspective because it will significantly reduce our cash burn. And it also brings us one step closer to hopefully approval and a successful launch. As a reminder, the study endpoints are almost the same as the ones we have had in Europe, and we all know that, that was a very successful study.

For example, we know from our European trials that our inhaled sedation patients needed less opioids, 30% less in SED001 and even 50% less than our kids trial in our pediatric trial without the patients experiencing more pain. Now that's a great clinical argument in our everyday life here in Europe as well. But if there's one country in the world that is most sensitive to avoiding opioids because of the opioid addiction epidemic and more than 100,000 drug overdose deaths every year. It's, of course, the U.S. And also the FDA is very, very much concerned about that.

So bringing a therapy that will reduce the use of opioids in a vulnerable patient population would be a major plus on the U.S. market.

Page 13. I is still a slide that I like a lot because it shows the caliber of clinical trial sites that we have been working with, you will find the most prominent institutions in America on that list, including Harvard, Colombia, Mayo Clinic, Cleveland Clinic, Massachusetts General, just to name a few. And that's not just great from an academic point of view, but seeing how some of the top key opinion leaders in that space gather around this novel way of sedating patients in the ICU is very, very encouraging and provides a great platform for future commercial success as well. So if we manage one day to turn that trial site list into our customer list, then, of course, we've made a big step forward.

On the next page, Page 14. So enrollment is completed. But of course, the work towards submission is in both wings. I'm very pleased that all the parts that we have under our control are moving along nicely and on time, such as the 3- and 6-month follow-up of the study of patients is fully on track and also the work on the different parts of the dossier is progressing.

As with every submission, we have now left a phase where most things were under our control, at least to the extent that we can control recruiting into an intensive care trial. And now we are entering a phase where we also depend on external factors to keep our time lines.

The obvious one is that we will need positive data, which we are expecting in the second half. There is, of course, never a study without risk, but there are reasons to be very optimistic that the European trial worked out so well, and we're looking at the same endpoints again.

The other obvious dependency is the FDA itself. We are, to some extent, in their hands and, of course, depend on them accepting our, for example, analysis and submission plans, et cetera. We are in frequent exchange with the agency as we would like to confirm as much as possible and take out as much of the risk as possible before the submission, so we can avoid surprises afterwards.

Both of the feedback has been very positive for us, and we'll of course stay with that strategy of speaking as much confirmation for what we are proposing as possible. And I have to say the Fast Track Designation really helps with that because that allows us quite frequent access to the agency.

If we then look at Page 15, please. The next month will be extremely exciting. We have several milestones upcoming, which each of them will bring us a step closer to the goal and also reduce the risk. One big milestone is already cleared. As I said, recruitment is done, meaning that the study execution risk is considerably reduced, which you typically find to be one of the bigger risks in trying to get a product to market.

As a next step, we will get positive top line data and that would again be an increase in the terms of hitting all products on the U.S. market. And then again, the more we can get upfront acceptance from the FDA about our plans, the more we can avoid surprises later on and have a better view of the [ plan ].

And as we have said before, yes, the Fast Track Designation could help. Right now, it helps in getting frequent access to the agency, as I said, but the decision around accelerated review times and others, which I know a lot of people are very interested and will only be taken by the FDA once we put the data in front of them so after the submission.

From a commercial perspective, the attractive opportunity coincides with the fact that we are dealing with a very concentrated customer base, less than 5,000 hospitals have intensive care units in the U.S., less than 3,000 have units with more than 10 beds, and those tend to be in the larger cities, so you don't need a lot of frontline personnel to cover the key customers.

And based on that high commercial opportunity and comparably manageable investment, we have taken the decision to build our own commercial company in the U.S. to launch inhaled sedation onto the U.S. market. If we deliver the proof of concept on a stand-alone basis, that would definitely increase the value of the U.S. opportunity overall, and we are quite confident about the strong support network we've already built in our clinical trial sites.

So we have a good starting base. Having said that, as I said before, we, of course, also keep the flexibility to complement our own presence with a potential partnership if we think that a potential partner could help us get faster sales uptake, broaden our reach leveraging existing customer related [indiscernible], et cetera, and we can create more value overall.

With that, let's turn to the next page, and I'll hand it over to Johan for some more detail on the financials.

[Johan Spetz, executive]

Thank you, Johannes. Yes. So on the next slide, Slide 16, as Johannes said, you have our financial results for the second quarter of 2024. And we report net sales for the quarter of SEK 41 million, that's up 10% year-over-year in reported currency and also 10% up excluding currency effects. So up from SEK 37 million in the same period of last year.

And as Johannes has outlined well already, we are seeing very strong growth continuing from our direct markets and in particular, that's driven by Spain and U.K. So that segment combined saw growth of 47% year-over-year in reported currency, 46% year-over-year excluding FX.

And we also saw strong growth from our distributor market segment, growth of 30% year-over-year or 29% excluding FX. And among the distributors, we see, in particular, strong growth from our prioritized European distributors, but as Johannes has also said, the strong growth from these 2 segments is offset by a weaker quarter in Germany.

And as Johannes already presented, it's driven by a decrease in ventilated patients in June, in particular. The rest of the quarter was more robust in Germany. And as we -- as we've highlighted also in the report, we've seen a good start to July in Germany as well. So that's on the sales side.

If we turn to gross profit, we report SEK 29 million for the quarter. That's up from SEK 27 million in the same quarter of last year and that results in a gross margin of 71%, which is relatively in line with the same period last year.

This is rounded, of course, to 71%. So what that guides to some extent is a slight decrease in the gross margin this year compared to the same period last year. That's mainly related to the fact that we're now selling more of our pharmaceuticals silicon isoprene, which we do at a slightly lower gross margin than some of our other main products, in particular, the ACD, the main device.

EBITDA for the period at a group level was negative SEK 14 million that is compared to negative SEK 11 million in the same period of last year. And if we just look at the EBITDA ex-US that was negative SEK 11 million in the second quarter this year compared to negative SEK 10 million in the same quarter of last year.

And if we look at what goes into that EBITDA number, Johannes has already mentioned that we have an FX component in there. But if we start on the OpEx side, we see that that's relatively stable in the quarter compared to the same period last year, so SEK 46 million in OpEx. That is up slightly from Q1 of this year. So we can see that that's driven by an increase in administrative costs mainly related to legal fees driven by the acquisition that was just announced and also our new long-term incentive program that was approved by the AGM in May and also some personnel costs.

But if we look at those admin costs in total, we can see that around half of that overspend, if you will, or cost increase. So half of those SEK 2 million, so SEK 1 million is nonrecurring in nature.

And then just looking back to the EBITDA, where we see at the group level, again, a slightly higher EBITDA loss this period compared to last year. As Johannes has mentioned earlier, we are seeing an FX effect included there. So EBITDA in the second quarter this year includes a net negative FX effect of SEK 2 million whereas in the same period last year and also in the first quarter of 2024, that effect was positive to a similar magnitude.

So the swing effect there is something to be aware of when looking at EBITDA and comparing to those other periods. In terms of the organization, we now have 89 people, including consultants at the end of the period that's compared to 93 people at the end of the same period last year.

So next slide, please. On Slide 17, you can see our cash flow and available funds. So -- and cash at the end of the period stood at SEK 304 million. That's compared to SEK 361 million at the beginning of the quarter, and this decrease is basically entirely driven by the investments that we are making in capitalized development expenditures currently, which, as you know, is mainly our U.S. clinical study.

So if we look at the breakdown of the cash flow, we have cash flow from operations during the period of actually slightly positive, SEK 2 million, but that includes a working capital effect of SEK 14 million and that is due to timing of payments, both payments from customers and also payments we make to our -- well, related to the U.S. clinical study, so payments to hospitals and the CRO involved in the clinical study.

Cash flow from investments, as you can see there from the number, that's the big driver of our cash flow at the moment. So negative SEK 56 million for the period and again, driven almost entirely by our U.S. projects, so both the U.S. clinical study, of course, and also, now that's shifting, of course, relatively speaking, to more U.S. registration work as the recruitment phase is concluded.

So in summary, on the cash flow side, the total cash flow for the second quarter of a negative SEK 54 million and there to -- just to explain how to think about that in relation to the change in the actual cash position, there is also an FX effect on the cash balance of minus SEK 2 million during the period.

Just as an additional point to make when we look at the cash flow of the company, it's, of course, important to highlight that with the patient recruitment now being completed in our U.S. clinical study. CapEx will gradually come down during the second half of this year and in particular, as we go into 2025, we will see a substantially lower CapEx level. So that's, of course, important to keep in mind when thinking about our cash flow outlook going forward -- or sorry, cash balance outlook going forward, I should say.

And as a reminder, in terms of our liquidity management, we have now around 80% of our cash already in U.S. dollars. And also as a reminder, we continue to expect to be fully financed to reach breakeven, which, of course, we are close to already and also to execute on our strategic plan, including reaching market approval in the U.S. And we have no long-term debts in the company.

And then if we turn briefly to the next slide, you can see our current largest shareholders or the largest shareholders as of the end of June, I should say. And of course, we continue to be very thankful for your support.

And with that, I will hand the call back over to Johannes.

[Johannes Doll, executive]

Yes. Let's turn to the last page, Page 19, to wrap it up, as we do it usually, let's take a step back and recap the investment case for Sedana. Our business model lends itself to attractive profitability over time. And that's for 2 reasons: a, we continue to see good gross margins of 70% and up. We've just made another step in that direction with the acquisition of our main supplier. So by definition, we can become quite profitable as the business reaches scale.

And secondly, our customers are Intensive Care Units, so a relatively small target group that can be covered with reasonable operating expense levels on a local level. And we already have a proof of concept for that in our main market, Germany, where the majority of ICUs is already using our products today. The team is generating attractive EBITDA margins on a local level. While we are not at the same scale, yet other countries like Spain, now also the U.K. are operating with similar EBITDA margins on a local level already as well as most of our countries contribute positively [indiscernible].

So we have the proof of concept, and now it's all about reaching scale, convincing enough hospitals. We use inhaled sedation more broadly in achieving profitable growth. And here, we have convincing clinical data on our side telling that patients really benefit from our therapy. And equally importantly, we can also show that hospitals save money with inhaled sedation versus the previous standard of care. And we have lots of places to grow, to create new Germanies, as we're starting to see our other direct markets now represent 30% of our sales [Technical Difficulty] '23 last year at the same point in time.

Regulatory approval in 18 countries in Europe and the largest commercial opportunity. U.S. is still untapped with FDA giving us Fast Track Designation. And FDA permitting, as I said, the launch coming up in 2026. And let's not forget, very important is there's still a strong balance sheet and the commitment to get to profitability outside the U.S. during this year.

That concludes our presentation. Thank you again for listening, and we'll be very happy to take your questions be it on the phone or via the chat.

[Operator]

[Operator Instructions] We got a person calling in with the phone number ending in 6771.

[Filip Wiberg, analyst]

Okay. Can you hear me now?

[Johannes Doll, executive]

Yes, perfect.

[Filip Wiberg, analyst]

It's Filip here from Pareto. So my first question is just on the seasonality of sales and then what happened in Germany. And so you measured the capacity at these 4 key customers in Germany. So I was just wondering how representable you would say these are of your entire customer base in Germany.

[Johannes Doll, executive]

Yes, sorry. Of course, it's not going to give you a result that is exactly by the percentage point. But of course, we have selected the customer such that we get a good picture of what's going on. And I think the directional message that we found out that the level of capacity utilization was very low in June. And very much in line with also the subjective feedback we were getting [Technical Difficulty] the ICUs were very empty. So I think it's relatively good indicators of what was going on.

[Filip Wiberg, analyst]

All right, right. And you also mentioned that July already shows improvement. So how confident would you say that you are that the outcome in June was just temporary?

[Johannes Doll, executive]

Yes. So I mean the nature of our business is that we will have to live a little bit with the seasonal fluctuations. Broadly speaking, we always have stronger winter months than we have summer months because there's less respiratory infections in the summer when people are moving around outside.

They don't spend as much time inside. We have a little bit more heart attacks and stuff in the summer. But directionally, the intensive care units are more empty. But apart from that broad seasonality, you will see [ litigations ] from that year-over-year depending on when the flu season starts, what viruses and so forth. Also the weather is playing quite an important role.

So sometimes I think it's advisable to look at our progress over a slightly longer period of time. So you see the trends [Technical Difficulty] compare quarters over quarters or even months over months, which sometimes can be a little bit leading. But generally, I mean, now July has looked much more normal in that sense. [Technical Difficulty] and I'm quite confident that we will stay on track, but probably the June was temporary.

[Filip Wiberg, analyst]

All right. Sounds all right. And if we look forward to Q3, which also tends to be one of the weaker quarters and often even weaker than Q2, would you expect sales to come down a bit further? Or do you think that Q2 now was the bottom of this year?

[Johannes Doll, executive]

Yes. So what we can see directionally if you look at the historical years and of course, every year, it would be -- there's a little bit difference. Yes, Q2 and Q3 are the quarters that are a bit weaker, Q1 and Q4 are the ones that are stronger. You sometimes saw Q3 being a bit weaker than Q2, but I will not make a prediction of whether we will come out weaker or stronger than Q2. Historically, it's often been the case that Q3 was a bit weaker than Q2, yes.

[Filip Wiberg, analyst]

Okay. Okay. And next question is just on the cost side. You talked a bit about it, but OpEx has remained fairly stable with the exception of admin costs, which you mentioned due to the legal fees for the acquisition and also the incentive program. But do you expect the admin costs to stay a bit higher now until the transaction is closed? And then secondly, if you could give any sort of guidance on extra costs during the integration of this company?

[Johannes Doll, executive]

Yes, do you want to take that, Johan?

[Johan Spetz, executive]

Yes. So there -- I mean thinking in general, the admin costs should remain relatively stable from current levels going forward. And then we -- I mean, they would -- we do not expect any material additional integration costs. What we will see is a bit of a pacing situation where, of course, as we pointed out in the press release, we will benefit from a better gross margin by integrating the supplier.

But of course, we need to work down the existing inventory of those products that we will be having at the time of closing. So in that sense, we will see a bit of a cost impact from integrating that new company basically before we see the benefits, which will become more pronounced as we go into 2025 based on the current time line.

But those costs would not. I mean, those costs will be more related to our cost of goods as opposed to admin costs.

[Filip Wiberg, analyst]

All right. And I just have one last question now around investments into the U.S. trials. So you've talked about it a lot before, and it climbed quite high this quarter to SEK 55 million, the investments in intangibles. And then we have some lag before it starts going down, but is it possible to give any clarification on sort of how fast you expect the cost to come down? And how large the reduction could be like just roughly, what are we talking about here?

[Johannes Doll, executive]

Johan, do you want to take this one as well?

[Johan Spetz, executive]

Yes. So it will -- so from -- so what you see being reflected in the relatively high number for this quarter is, of course, that we had for part of the quarter, the trials still going on in full swing. And then there is this lag effect of payments to the sites coming oftentimes a couple of months after the patient has been in that particular hospital.

So that's why it's been a high number all through the second quarter. It will likely remain relatively high also for another couple of months, but then it should start to come down.

And when it starts to come down, it will come down quite significantly. So going into 2025, the CapEx spend will be significantly lower. So basically, during the course of next year, of course, we will have still this work related to the registration in the U.S., but not at all the same type of expenses related to clinical study, of course.

[Filip Wiberg, analyst]

Okay. But is that like 20% of what it costs to this to -- for the recruitment? Or is that roughly correct? Or...

[Johan Spetz, executive]

Yes, we have not provided guidance on that, but it will come down substantially. That's clear.

[Operator]

Okay. We'll move on with the written questions here. Starting with the first one. what strategies are in place to achieve the all-time high sales target for 2024?

[Johannes Doll, executive]

Yes. Good question. It's the same strategies that we have applied since we have refocused the company to become much more commercially oriented. And also a big part of that is resource allocation. And so we are pursuing an approach where if the country is profitable and growing, that's where we would like to invest. So we are adding more people as we've done in Germany, as we've done in Spain, as we will do in U.K. now that the performance is really good.

But at the same time, we also are not shy to cut back on [Technical Difficulty] not yet profitable or maybe not certainly growing [Technical Difficulty] so we would like to give company -- countries a chance to become profitable before we [Technical Difficulty] so that's the resource allocation part, but then there's a lot of effectiveness measures that we have put in place that have to do with how do we make sure that our key account managers spend as much time with customers as possible and we know that our therapy is very sensitive to how much time we spend in the fields and how often we visit our customers and it's also a big value driver in seeing the right customers to have become much more sophisticated in figuring out which ones are the -- whether we have a full potential to grow, and then we double down on those. And of course, there's a big element also when we spend time and when we spend the time with the right customers and how are we as convincing as we can be.

And here, it is about taking all the clinical argument [Technical Difficulty] of the economic arguments that hospital saving money by using our therapy and packaging them up in a way that they are as convincing as possible for customers, also tailored to the accounts because we're dealing with very different ICUs.

ICUs, again, have very different types, depending on the patients that they see, so we need to have stories in place that play into individual patients diagnosis and of course to -- stay at the general level. So that combination of resource allocation and commercial excellence has worked well for us, and we'll continue to make that a key focus.

[Operator]

And a few words on the U.K. would be good to understand what is driving the strong growth there and also your expectancy of growth going forward for that market. Could the momentum improve further also?

[Johannes Doll, executive]

Yes. So the U.K. is kind of [indiscernible] almost for the strategy that I've been describing. So before we got the MHRA approval in the U.K., this was a market that was relatively flat from a sales development so we have actually decreased the team to allow them to become profitable, then put a very focused targeting in place and a very clear strategy focusing on a few key accounts with this team, and that is very [indiscernible] we've turned a relatively unprofitable country into a very profitable country and also one that is growing outside base.

So then the next phase of the strategy kicks in where then we can consider extending the team because at some point, you get to a point where the [indiscernible] what the team can handle and where we're getting quite close to that. Over the next quarters, we will probably extend the team in the U.K. [indiscernible] also is that we have the nice guidance in place in the U.K., which [indiscernible] customers that by using our therapy.

They're not doing something good for the patients, but they're also saving real money [ GBP ] 3,800 per patient. So we have got all the ingredients that we will continue to see a strong momentum, whether we can further accelerate the percentages that I see right now. The sales are very, very good. I'm hoping that we can keep that, but of course, we're not yet at a scale that Spain already is or Germany already is, but I'm very, very pleased with the development in the U.K.

[Operator]

And could you give -- try to give any helping words on how much you expect the CapEx to come down in the second half of the year? And also, to what extent would you add the U.S. OpEx for the coming quarters? What functions needs to be added?

[Johannes Doll, executive]

Yes. So on the CapEx part, I feel like Johan already has answered. So the biggest driver of CapEx was the recruitment of patients [indiscernible] and we are paying each hospital for every patient on [indiscernible] of several months until that [indiscernible] comes which is why CapEx was quite high in Q2 because in the end of the study, we were recruiting the most patients, and we will still see some of that in the coming half.

But then [indiscernible] really come down to a fraction of what it used to be. On the OpEx side, we'll [indiscernible] a little bit more OpEx over time. The focus is more on medical activities right now. We don't have an approval yet. So we can't, of course, go out of them because there's no labeling yet, but medical activities and especially nurturing that network that we have dealt during the [ fame ], which I'm really happy about is very valuable because they still indeed give us very good advice, and they also help us meet the grounds for [indiscernible] in the U.S. And so you will see a little bit more of that.

But also, of course, we have to be prudent in the sense that as long as we don't have data and which tell us that we are likely to have the product on the market, we will not go overboard in terms of investing from an OpEx perspective. So the trigger or next [indiscernible] a little more in the U.S. from an OpEx perspective will be once we know that the top line data are positive and we're likely to have a product on the market.

But then again, we will not immediately see a huge organization in place, but the focus is very much on medical roles and the actual field force will come on board quite a bit later, so you do not explain them to map out their territories and to both.

But for a company like us, it makes no sense to [indiscernible] because they -- there's not much value-adding activity that they can do.

[Operator]

And how will the acquisition of Innovatif Cekal impact your long-term profitability and also your supply chain stability?

[Johannes Doll, executive]

Yes, those are the exact 2 reasons why we did the acquisition. So we are taking them over and taking control of the manufacturing of our main products ourselves that will help us on the cost of goods. The impact of that initially to be 2 percentage points on the EBITDA line once we have depleted the swap that is still there.

From a cash perspective, we will have a benefit right away once we close the deal for the P&L, it will take a little bit of longer time. And then from a stability perspective, yes, of course, it's good to be in control of the supply chain. It makes us a little less subject to cost fluctuations. It makes us a little bit less subject to risks related to supply disruptions [indiscernible] plus we are in control of the operations so we can put efficiency measures in place, scale up the capacity as will be required if we meet our growth ambitions and also from [indiscernible], I think it's a very, very good deal for us and also, if you look at the financials, it will add much more variant to Sedana than we will be paying for it.

[Operator]

Can you provide any more details on the current progress and your expected time lines for the U.S. mortgage launch?

[Johannes Doll, executive]

Yes, [Technical Difficulty] during the presentation. So the enrollment of both trials is done, it's pretty good. And what's I'm going right now is the long-term follow-up. So there's a 3- and a 6-month follow-up. And that's fully on track. The 3 months follow-up for the first trial actually have already done. The rest is also progressing as planned. Now there's a lot of work ongoing putting together the dossier.

So the time line, we have not changed. We're still hoping to get top line data during the second half and are aiming for a submission in the first half -- sorry, both the first quarter of 2025. So that time line is unchanged. And as I said, we are trying to keep very, very close with the FDA because a lot of things they need to accept from how we structure the analysis, how we structure the submission.

There's thoughts about how to improve the data between the 2 studies and so forth. So we're trying to derisk by having as many of these discussion -- submissions, so we don't have to [indiscernible] so far so good. The feedback has been positive so far. We are fully in the FDA's hands. We're trying to stay close [indiscernible] have an even better view of the time line.

And the question that always comes in the context is who will be benefit from the Fast Track Designation?

We are benefiting today in so far that we have quite frequent access to the agency, which allows us to stay quite closer to [indiscernible] very important whether or not we will, in the end, have an impact and will be subject to an FDA's decision. So that's a little bit out of our hands, but we will [indiscernible] benefits that we think we are eligible to, but that will very much depend on the data. So once the FDA sees the data, and hopefully, they look at, and we have a good chance of maybe cut down the review time that we have under our control. That's something that the FDA would [indiscernible]

[Operator]

How significant is the role of the German market in your overall sales performance? And what strategies are being implemented to booster sales in this region?

[Johannes Doll, executive]

Yes. So of course, the German market is still our main market, more than 60% of our sales which is also quite visible in this quarter. If we have a weaker quarter in Germany, then that [indiscernible] the overall growth rate of the company. But one of our strategies is, of course, that we're trying to create more Germanies. So we are very much focused on growing sales in Spain and U.K. and France. So we become less dependent in Germany, we have a more balanced portfolio of countries, growth for the distributor margins, of course, as well.

Naturally, if you have a market where the penetration is already at 12%, interest EUR 10 million, then you will see lower growth rates [indiscernible] country that's maybe at EUR 1 million or EUR 2 million sale. So that we will see for [indiscernible]. And so I'm expecting the share of other direct markets increase further. But at the same time, we have not reached the limits in Germany at all yet. If I look at the regional variations that we have in Germany, our overall penetration of the market is around 12%, but we have the inventories and [indiscernible] where we are above 20%.

Those are usually the ones where we have the longest customer relationship. We have a very good salesperson. We have continuity in the key account manager role with more changes. And I think these kind of things can contribute to a strong growth performance [indiscernible] good headways to grow further in Germany.

[Operator]

And why have you not raised any capital to finance the acquisition and why is the rollout in Europe, especially in Germany, so slow?

[Johannes Doll, executive]

These are 2 slightly unrelated questions. But -- so why have we not financed the acquisition through external money because we don't have to, we will [Technical Difficulty] existing the price will be SEK 34 million, roughly SEK 25 million of those will be due in the fall when we close the deal and then the rest is deferred by 2 years.

If you were to look at our long-term cash [indiscernible], we will have a positive cash effect -- or cash flow effects quite fast because we will be able to produce the products cheaper than we are buying them today. So some of that admission price, we will earn back before we reached the trough of our [indiscernible] outlook.

So from that perspective, the need for additional financing was not required. So we are still fully financed to what we are planning to do. And then the second question, why is the rollout in Europe so slow? I'm not [indiscernible] its low. I think we've grown 20% year-over-year in the first 6 months.

The model in medtech is, I believe, that you have to change behavior account by account. So you typically -- unless you have a cure for a very incurable disease, the uptake is usually more granular than explosive, I would say. So I'm quite happy with where we are. We've guided for a sales growth of 14% to 18% and now we are at 19% at the half of the year.

So above that guidance corridor. Really, really good growth in some of the markets in Spain and U.K., good upside also to come back on the growth also in Germany and countries like France, and the distributors are back on track. Overall, I think there's really good growth prospects also going forward.

[Operator]

Okay. And looking at the FDA Fast Track and the possible benefits of this designation, will they be announced in connection to the filing? Or could they come at any time during the process?

[Johannes Doll, executive]

After the filing, yes. So the FDA will typically decide about that whilst the data, which is, of course, also understandable because if the data is not good, then the FDA will have less interest in fast tracking your product, but let's assume that it in a positive. We will, of course, apply for a priority review. I think then we are in the FDA's hands once that will come after submission is not possible for us to say.

[Operator]

Okay. And how confident are you that you will be able to pull off the U.S. commercialization with your own team rather than together with a partner?

[Johannes Doll, executive]

Yes. So we are looking at both scenarios, of course, as I've said, we are preparing for the launches if it's only us because I think you're preparing for having a partner on board, you get a little sloppy in the launch preparation and you increase the value of the whole opportunity if you're ready to launch yourself.

We're quite confident with the -- we have such prominent hospitals on board in the study. We have so much excitement from the different doctors that can [indiscernible]. I think we have a very, very good starting base. So if we go for a targeted launch initially, where we focus on our clinical trials with lighthouse accounts and then build territories around them and get the hospitals and the facility to follow the example of these very prominent hospitals.

I think we can very quickly show a very good proof of concept, which then again, increase the value of the whole U.S. operation. At the same time, as I said before, we are, of course, quite visible in the space. It's a small pond in the medtech community. We are interacting with a lot of those companies naturally because our therapy is to work and interact with other ventilator companies, [indiscernible] manufacturers, IP, ICU equipment manufacturers and so forth, we know a lot of these companies now with the enrollment completion and definitely also once we have positive data, the interest is high.

So we will look at those options to work together with partners but at the end of the day, we will decide whatever creates more value for [Technical Difficulty] strategic flexibility to do both. So we're preparing for our own launch [indiscernible] better and great.

[Operator]

And with the 2 trials now fully recruited, how will things impact your investments going forward?

[Johannes Doll, executive]

Yes. I think we've answered that question. So CapEx will come down, as we said, there will be a residual as they will still be [indiscernible] happening, but at a much lower level. So basically, if you take the company apart into 3 pieces. One is the U.S. CapEx investments that will come down quite a bit, and that used to be, as you know, the biggest source of cash burn, the European or ex US [Technical Difficulty] breakeven. Operating cash flows have been positive in some quarters already.

So there will be very little cash burn and hopefully only cash generation. And then the U.S. part, we will, of course, have a launch, which initially we'll take some investments, but we're not at the same level as the money we've spent on the trial.

[Operator]

Okay. And can you remind us about the reimbursement status on the U.K. market? Is it still not in place?

[Johannes Doll, executive]

So in the U.K., we now have the regulatory approval by MHRA for the drugs. The device was approved even before the way it works in the NHS is a DRG system, but basically a direct negotiation with the hospital. So you don't have -- our product at least doesn't have to go through one of these centralized banking reimbursement processes. It's a direct negotiation price -- negotiation with the [indiscernible].

[Operator]

And we'll take one final question here. Looking at Innovatif Cekal and its other customers, will you suspend operations with that company?

[Johannes Doll, executive]

No. So there's -- it's true that the Innovatif Cekal has 2 customers, one is us, which was representing the larger share of sales, but there's another Nordic company. So we'll keep producing for them. It provides us with a -- not a huge, but a profitable cash flow from that company. So we will keep that as it is for now.

[Operator]

Okay. Thank you very much, Johannes and Johan, for presenting today and answering all of our questions and also thank everyone who either called in or types in your questions and followed this presentation with Sedana Medical and wish you a great rest of the summer and until next time. Thank you very much, and goodbye, everyone.

[Johannes Doll, executive]

Have a nice summer. Thanks for all the questions.