Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to the Sedana Medical reports Q4 2019. [Operator Instructions]I now hand the call to our first speaker, Christer Ahlberg. Please begin.

[Christer Ahlberg, President & CEO]

Okay. Thank you very much. Welcome to this presentation regarding the quarter 4 report. And I would like to start with Slide #3. Where we are -- I mean, we will today present the results and look the activities we have done during the fourth quarter in 2019. Before going into the highlights, we kind of give you some summary of what we are doing. I mean our vision in the company is obviously that we are working forward to get inhaled sedation with AnaConDa and IsoConDa: AnaConDa, our medical device; and IsoConDa, our drug candidate, to become a global standard of care therapy for mechanically ventilated ICU patients.And if you go then to Slide 4, our strategic priorities and financial targets. We have designed before and I will -- I mean, of course, we are aiming to follow them as good as possible. And actually, I think we are succeeding quite good when it comes to that, to be compliant with our priorities. And the first one is the development and the commercialization in Europe where we are coming closer to registration of the IsoConDa drug in 2021. And in parallel to that, we are also developing sales and marketing organization to be ready to launch directly after approval.We have also initiated and are working hard to -- for the development process in U.S., both for the medical device, AnaConDa, as well as for the IsoConDa, the drug. And we will come back to this where we are with the status of this, an update on that. And also, the third priority is, of course, to develop and commercialize inhaled sedation in rest of the world and prioritize the markets such as Japan and China. And so we will give you more report on this as well soon.And the financial targets is -- I mean, until we have the registration in Europe, we have the target to achieve approximately 20% growth. And in parallel to that, we are developing the sales and marketing and medical departments and organization, especially then in Europe. After registration, post registration, 3 years from after registration, we believe that it's possible to reach approximately 8% to 10% of the market potentially in Europe, and that would be then approximately SEK 500 million in revenues and with good gross margin. We will also -- when volume go up, of course, we will also have a very good EBITDA margin as well. We are targeting on 40%.Going to the next slide, Slide 5. We have also defined market and the market potential of EUR 2 billion to EUR 3 billion, which has been communicated many times. And we have a growth rate of that market potential of approximately 5% annually where the biggest market growth is in Asia and rest of the world. And in Europe and U.S., we are approximately reaching 2%, 3% growth rate of the market currently.So then we go into the next slide, Slide 6, where we are going to report -- give you some highlights for the fourth quarter. I mean [ starting with the ] successful completed our private placement. And the purpose of that placement and the cash received of SEK 375 million and the purpose of that was to get funds and capital to finalize the registration process for -- to U.S. So we are fully -- with this success, we have now estimated that we are fully funded for the U.S. registration of AnaConDa and IsoConDa.And we have a huge -- we had a huge interest for this placement among international institutions, such as AXA in France, Handelsbanken fonder, Berenberg in Germany, Robur -- Swedbank Robur, and also Third AP fund and Öhman funds in Sweden.We have also -- during this quarter, we have initiated or we are sponsoring 2 major investigator-initiated studies, which Peter will come back to. But they are really important for the future of this therapy with focus on both lung protection advantages such as gas improvement and improvement of oxygenation for ARDS patients. That is one focus. And the other study is focusing on the safety to see whether inhaled sedation leads to less delirium side effects for the patients. So that will be -- that -- these collaborations and this partnership has been initiated, and the studies will be initiated during this year.We have also updated our targets, which I have just now informed you about. I mean -- and the update was that we -- this SEK 500 million is now a target for -- only for Europe. We are not including any other markets in this SEK 500 million 3 years after the registration. So that is an improvement in target, I would say. And then we also have taken away the short-term EBITDA target and only guiding on long-term EBITDA target of around 40% 3 years after the registration in Europe.And then after the period, we have informed you about that we have included the last patient in our pivotal registration study in Europe. So we are working on that. Peter will come back to that. We have also received an approval in Mexico for AnaConDa, and we have initiated direct sales organization in Benelux in Europe. And we have also -- just last week, we have given information that we're now donating AnaConDa plus accessories into China, into 2 hospitals in China in Wuhan and in Zhejiang for anti-epidemic use and evaluation of effects for inhaled sedation in severely ill coronavirus-affected patients.Okay. Next slide. Go to Slide 8 where we have the financial highlights for the quarter and for the full year. For -- the last quarter gave us sales of SEK 20.1 million, which is all-time high in quarter. We had a growth of 32% versus the last quarter, last -- in 2018. And in -- and for the full year, the growth was 24%. And that, of course, we are very satisfied with this sales, and it's definitely in line with our targets as well.Gross margin is also in the same area where we always have been 70%, 75%, 73% in the quarter. And that's perfectly in line with the full year as well of 73%.EBITDA. EBITDA in the fourth quarter, we are right on -- minus SEK 4 million, which is approximately 20% minus. And that's, of course, less -- that is less -- that's more negative compared to last year, but that's due to that we are now increasing the organization and preparing ourselves for the launch in Europe, direct sales launch, both with sales, marketing and medical people. And that's also the response on that. When it comes to the cash flow, of course, we had this private placement, but the burn rate, you can say in fourth quarter is approximately a little bit more than SEK 20 million compare -- but of course, we have a positive cash flow, thanks to the private placement. So that is the highlights for the quarter and for the full year.And I would say that financially, we are following our objectives and our targets, and I'm very satisfied what we are delivering now for the full year of 2019. And also, if you look at the sales, going to the next slide, which we already mentioned, we have 24% increase in rolling 12 months, 2019 versus 2018. But in the quarter, we had an all-time high with more than SEK 30 million from sales and 32% growth compared to the last quarter.Okay. Then let's go into the next slide, in Slide 11 where we are now, as I already mentioned, we are now preparing ourselves for a full launch in the second half year of 2021. And the first step in preparing for that is to go direct in the most important markets in Europe, in the Western Europe, I would say, and the sign of that is, of course, Benelux introduction. I can already now say that we have direct sales in Benelux. So the interest is there. We have sales folks in Holland and in Belgium. But we'll come back to that.And we are also looking to run approximately 15 countries in Europe where we'll be -- where we will register the product. And of course, the intention is to have direct sales channels in these markets as well when we can there.Okay. But still -- and of course, I think it's worth mentioning here is still Germany do have the -- I mean, the majority of the sales and also direct sales channels. Even though we are now developing also the distributor channels in different markets, direct sales, and especially Germany is more than 90% of the sales totally, where Germany stands for a very, very big majority.Okay. That's about the development of the organization. I will now hand over to Peter to go into the clinical development and where we are in Europe and U.S. So please, Peter? Okay. On the next slide.

[Peter Sackey, Chief Medical Officer]

Slide 12. So while there are many earlier studies demonstrating benefits of inhaled anesthetic sedation, our -- and other large studies would contribute to registration and like change the way IV sedation is managed globally. The last patient was -- entered the European registration study, the IsoConDa study in January. We're now preparing the Iso-COMFORT study that will start in the autumn of 2020. In parallel, a patient has started in U.S. for the U.S. study, where some of the strongest academic centers have committed to lead the 2 trials that will start in mid-2021. Besides these trials, we're supporting 2 large investigator-initiated studies in Europe, both in France. First, the SESAR study is a 700-patient study in ventilating pulmonary protective effects and long-term outcomes in patients who receive inhaled sedation versus intravenous sedation. Secondly, the INASED study, a 300-patient study comparing delirium and long-term cognitive outcomes in patients treated with isoflurane versus propofol. And finally then, we continue supporting other smaller studies, investigator-initiated studies, by a research grant, which currently has a call for proposals until the beginning of July 2020.Can you go to Slide 13? As mentioned, Sedana Medical recently completed the IsoConDa study for the marketing authorization application of isoflurane for sedation of mechanically ventilated ICU patients. Studies are randomized controlled non-inferiority study comparing the sedation with ET tube isoflurane by AnaConDa with that of intravenous propofol in a total of 300 evaluated patients. The primary end point, sedation efficacy is a set proportion of time within the target interval on the RASS sedation scale. Second end point, among others, wake-up time after sedation, proportion of time with spontaneous breathing, ventilator-free days and safety [ benefit such as holding ] side effect profiles. And the current data are being gleaned, and the analysis of the data will be performed during the spring. We anticipate to maintain the high-level results from the study in Q2. And we anticipate to submit the marketing authorization application in December of 2020.Can you go to Slide 14? In parallel with these preparations to marketing authorization application, we are initiating the pediatric study of IsoConDa, the Iso-COMFORT study. The study would be initiated in Q3 2020 and is performed for 2 reasons. One, the clear need for a better alternative to intravenous sedatives in children; and secondly, the pediatric study will give Sedana 10-year data exclusivity for the therapy. And we have involved key opinion leaders in pediatric intensive care sedation from Germany, from Spain and Sweden who act as national coordinators of the study. And we anticipate approximately 20 study sites to recruit patients over an 18-month period. The study will include 160 children between ages 3 and 17. We'll compare isoflurane via AnaConDa versus intravenous midazolam given for up to 48 hours. And the primary end point is similar to that of the adult study, the time with adequate sedation -- proportion of time with adequate sedation on a Comfort-B scale.And we can move over to the next slide and just the heading, Slide 15, sorry, yes, Slide 16, perfect. Thank you. So Slide 16. So the U.S. approval of AnaConDa and IsoConDa, the following activities taking place in agreement with the FDA. And firstly, nonclinical data being collected. Nonclinical studies are currently underway and -- to evaluate potential toxicity. And the other activity before clinical trials are the human factors engineering program, which has been initiated in collaboration with Harvard Medical School and with [ HF ] consulting company.Then we have the 2 clinical studies, 2 randomized controlled [ fixed new ] study. We filed and we prepared schedule with some of the most prominent academic centers and key opinion leaders in the U.S., and there's great interest to take part in this study that may lead to [ patentship ] in intensive care sedation. And finally, the development of a 500-patient study safety database is being -- is underway.And so we can move over to the time line side. And so if we look at 2020, we are -- completed the IsoConDa study. We will be submitting the MAA in December 2020, starting the Iso-COMFORT study in Q3 2020. We will be completing human factor testing and submit IND in Q4 to the FDA. We anticipate the approval of IsoConDa in Europe in the second half year 2021. And in parallel to this, clinical trial in the U.S. will be starting with a plan to have the study finalized and an NDA application being submitted in 2023 and an approval anticipated in 2024.

[Christer Ahlberg, President & CEO]

Thank you, Peter. Let's go to Slide 19. Therapeutical benefits for using inhaled anesthetics. And then this one, the reason why I want to show this -- and before I show you -- before I give you the reasons, I mean, and the benefit with inhaled sedation versus intravenous sedation in an ICU is mainly that you get this on-off effect, so you get reliable wake-up time with an inhaled sedation, and you get reliable effect and you get reliable safety with this treatment, especially for the distressed patients. And -- but you also have -- what we have seen recently in clinical studies in France mainly where we have seen that you also get pulmonary therapeutic effects as well and -- for patient with impaired gas exchange. And so for patients with -- ARDS patients, acute respiratory distress syndrome patient, this patient can benefit from inhaled sedation. Thanks to that you get improved oxygenation and improved gas exchange.If you go to slide -- next slide, Slide 20, where you can see then that Sedana Medical donates AnaConDa to hospitals in China in the regions where are affected and severe from coronavirus. And the reason why we believe in this that this could have a benefit for these patients is that the patients are most severely ill patients, and the reason why patients actually are dying from coronavirus is due to that they are suffering from severe ARDS diseases in the end of the coronavirus infection. And if now we can improve the oxygenation, as we have seen in studies with ARDS patients, then of course, that might also have a benefit for this corona-infected patients as well. So that is the background. And we believe that this can definitely be interesting to evaluate and test for these much severely ill patient. That is the first and the most important reason.The other reason is, of course, when you have the situation in -- chaotic situation in these countries, ICUs are fully crowded. And of course, then you really need to increase the turnover, and actually, patient need to get away. When they are healthy enough, then they really need to leave the ICU to open up the new beds for more severely ill patients. And if you really cannot (sic) [ can ] show them that you have a fast wake-up time and that you can reduce the ICU stay, then of course, that's also beneficial for them -- for the health care in these chaotic countries -- in this chaotic situation. So these 2 arguments are the reason why we believe that this inhaled sedation with AnaConDa can help us support these affected areas. But the product is on its way to China, and we will initiate education and training with these hospitals shortly. And it's interesting because these are the hospital in Wuhan, especially, is the one that actually is built during this short time period in Central Wuhan region. So it's very much in the corona area. So that's about that.Going to the next slide, what are we doing in the other parts of the rest of the world? Japan, we are -- as we have already communicated, we have an approval of AnaConDa, and we're working on the registration of IsoConDa. And as soon as we have the registration of [ dossier ] in Europe and when we have the results from European pivotal registration study, we will have official meeting with the Japanese PMA -- Japanese authorities to set up the plan for -- or define the plan for registration of IsoConDa also in Japan. We estimate that we will have this in the second half year -- this meeting in the second half year of 2020, of this year.In China, it's -- we have already informed you. Of course, this coronavirus came up as a surprise, and we are now working on that, as we have already informed you. But in parallel to that, we're also working with the registration process for AnaConDa as well as we have already communicated.In India, we have had the first patient treated, and we have been there in India, together with our distributor, and the interest is big. And actually, I would not say it's huge, but it's really interesting from the India's position and also interesting of initiating investigator-initiated studies as well. So we will see what will happen in India in future here. So -- and also on top of this, we are now initiating the planning for the launching of AnaConDa in Mexico, together with our distributor.Okay. Going to the Slide 23, financial results. I think -- I mean, I have already communicated the highlights here. And what I could actually add to that is on the balance sheet, the cash situation after the replacement and after the funding, the capital raise for the U.S. registration, we are -- we have in the end of December SEK 464 million in cash, and we had, as I mentioned, also a burn rate of approximately SEK 20 million, SEK 21 million in the last quarter. And during the full year in 2019, this was SEK 67 million in burn rate for investments and negative cash flow then.So that's how it looks. And I will go down to the next slide, 24, where we are presenting the shareholder list, the top 15 from January -- end of January 2020. And in line then with the placement with a new, we have a little bit changes compared to the -- to earlier, where we can see that Swedbank is #2 and together with Handelsbanken close. And then we also have the new one, Third AP fund, and this one and the other where you also can see Berenberg and Öhman funds has also increased the holdings, yes.Okay. That's the last slide. Going to the next one, then we'll open up for potential questions.

[Operator]

[Operator Instructions] So far, we have one question in the queue. That's from the line of Christian Lee at Pareto Securities.

[Christian Lee, Analyst]

I have a couple of questions. And the first one is regarding your sales growth of 24%. If you could mention what the growth was currency adjusted.

[Maria Engström, Chief Financial Officer]

Yes. As you know, our main part of the sales is in euro, and calculating that back to euro, we had a 28% in sales for the fourth quarter.

[Christer Ahlberg, President & CEO]

And in full year, it was 21%. In full year, it's 21%.

[Christian Lee, Analyst]

Okay. Okay. Great. And my second question is regarding the coronavirus. You have donated 300 units there. And how will you follow-up that donation? Will you conduct some kind of controlled study? And how will the patients be selected? I mean there are probably many thousands of patients there in very critical situation. So how will these 300 patients be selected?

[Peter Sackey, Chief Medical Officer]

Yes. So this is Peter Sackey speaking. This donation, so we're not conducting a sponsor study in China, but obviously, we want to follow up. We need to know how this donation -- what the outcome was. And so we have the 2 hospitals that initially will be receiving AnaConDas are currently being trained to get by us and by the distributor, and we have agreed with them that they will manage the donations -- distributor. We are asking for what kind of feedback, clinical outcome feedback that they are possible to provide us. We're giving them a short list of -- as it's a anonymized information as we need to know that this works, that it's not harmful, obviously. We encourage them, if they like to perform a study -- a formal study, but this has to be within their responsibility and according to GCT and ethics and so on. So it's not going to be a study that we can report in actually new journal, so -- but we will be getting feedback both on the clinical use of the device, if there's any device issues and also if they find it helps with patients. This will, however, take a few months before we have any clinical feedback, and that will probably direct us with regard to potential for the donations.

[Christian Lee, Analyst]

Right. Okay. And 1 question on the U.S. study. You have begun the work on human factors validation there. And could you please say when you're expecting results from this validation?

[Peter Sackey, Chief Medical Officer]

Yes. So in order to start clinical trials in the U.S., the FDA wants to know that this is a device therapy that would work safely in the ICUs in the U.S., and there are several stages in human factors validation. What's required to start clinical trials is to have done human factor testing and to submit human factors validation of the cohort. That will be assessed by the FDA, by the human factors team, and they will review it and give comments. And it's basically about improving -- potentially improving design, reducing risk by improving design and by giving comprehensive training. This can be training in various forms. We anticipate to have [ had to and go through ] potential design changes and test those in the formative phase in the autumn of 2020 and to submit the protocol to the FDA before the end of this year. And that would give us time to get feedback to do potential modifications, to do the formal validation sometime in early 2021. However, the fact that the formal validation is a requirement for starting clinical trial, nearly -- or something needs to be in place before the FDA application. So that's actually the time [ line we see in ] factors.

[Christian Lee, Analyst]

Okay. Great. And final question is regarding your OpEx. Other external expenses increased due to increased [ demand in ] market. And what kind of levels should we expect going forward? Will you increase from these levels? Or is this the level that you will keep going forward?

[Christer Ahlberg, President & CEO]

No. I mean of course, I mean, intention is to continue to grow the sales as well as continuously we will also grow the personnel cost as well. That will be the case over this year as well. So I mean, as I said, I mean, we open up new markets, and they are not comfortable with us yet. So -- and also develop -- I mean, also develop a medical department [ meet with the competence ] that's needed to launch a drug, that also will affect the cost base for -- also for this year. So it will be increased.

[Christian Lee, Analyst]

Yes. Sure. Understandable. But could you please give some kind of color on how much we should expect the OpEx to grow during 2020?

[Christer Ahlberg, President & CEO]

No. We have not given that kind of guidance. I mean -- no, no. I can -- I cannot say that now, but it will grow. And that was -- this is one of the reasons why we are also taking away the EBITDA short-term target because we don't want to guide that because it will increase, and it will -- but I mean, of course, we will try to balance this, of course, in line with sales growth as well. But yes -- but I will -- we would assume that we will increase the cost -- the cost increase will most likely be increased compared to the sales increase.

[Operator]

And as there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Christer Ahlberg, President & CEO]

Okay. If we have no further questions, then I think we will stop there, and we thank you for your interest in Sedana Medical, and wish you a fantastic day. Thank you. Bye-bye.