Sedana Medical AB (publ)

STO:SEDANA

Earnings Call Analysis

Sedana Medical Achieves Robust Sales Growth

Sedana Medical reported a strong year with SEK 154 million in sales, hitting the upper end of its guidance and marking a 25% growth or 16% excluding currency tailwinds. Notably, Q4 saw the company's highest quarterly sales with SEK 44.5 million. The firm showed disciplined cost control, cutting operating expenses by 11% for the full year even amidst high inflation. As a result, the EBITDA loss decreased to less than half of the previous year's, nearing break-even with plans for future profitability. Sedana is focused on growth in tandem with cost reduction, anticipating all countries to yield positive EBITDA contributions soon. In preparation for a U.S. launch, following an NDA submission planned for Q1 2025, the company maintains solid finances with SEK 382 million in cash reserves. Sales have grown in each quarter of 2023, surpassing levels during the COVID-19 peak with strong market penetration in Germany and explosive growth in other direct markets, notably Spain.

Navigating Post-COVID and Eyeing U.S. Opportunity

Sedana Medical's Q4 and Full Year Report for 2023 reveal their journey towards recovery in the post-COVID era with a stern eye on U.S. expansion. Despite the pandemic's impact, the company has remained dedicated to three unchanged priorities: sustained growth in existing markets, achieving breakeven in non-U.S. operations, and preparing for a U.S. launch, which is viewed as a significant growth opportunity.

A Turnaround Tale: Sales Growth and Cost Management

Sedana reported sales of SEK 154 million, hitting the upper end of its financial guidance and showing a robust 25% growth, while at the same time cutting operating expenses by 12%. Q4 witnessed the strongest performance with sales of SEK 44.5 million. This disciplined approach to growth and austerity has reduced EBITDA losses and bolsters their substantial cash reserves essential for U.S. market entry plans.

Strategic Shifts and Recovery in Global Markets

After the dip in ICU patient numbers in 2022, Sedana is witnessing a resurgence in demand. Germany, now capturing 12% market penetration, and high growth in direct markets like Spain, France, and the U.K. bodes well for 2024. Positive developments also unfold in France with important hospitals onboarding, and the U.K., benefiting from the MHRA approval. Even distributor sales, previously on a negative trajectory, have shown an 18% increase in Q4, pointing to a revival in Sedana's global reach.

Looking Towards Profitability and Market Potential

Eyeing at least one quarter of EBITDA breakeven in 2024, Sedana faces increased supply prices amid inflation but intends to preserve a gross margin above 70%. They predict burgeoning market potential, targeting a SEK 3-4 billion addressable market in Europe and a colossal SEK 10-12 billion in the U.S. The latter represents a threefold increase over their current direct markets, enticing Sedana to build an in-house commercial platform there.

U.S. Clinical Trials Inspire Confidence

Sedana continues to advance crucial U.S. Phase III studies INSPiRE-ICU 1 and 2, pivotal for FDA approval which can transform the company's footprint in the lucrative U.S. market. Prominent research sites and key opinion leader support underpin these efforts, alongside medical community engagements enhancing Sedana's profile. The progress in U.S. trials is paramount to matching their operational momentum and strategic aspirations.

Solidifying the Financial Ground

Financially, Q4 shows sturdy metrics with net sales up 24% at SEK 45 million. Despite increases in material cost, Sedana managed to maintain a healthy 70% gross margin. They've successfully tightened operating costs, facing a 12% reduction year-on-year and an EBITDA loss decrease by 50%. This, coupled with a cash reserve of SEK 382 million, solidifies Sedana's capital position as they continue funding their ambitious U.S. clinical program.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to today's webcast with Sedana Medical, with CEO, Johannes Doll; CFO, Johan Spetz; and CMO, Peter Sackey, who will present the year-end report for 2023. [Operator Instructions]And with that said, I leave the floor to you, Johannes.

[Johannes Doll, executive]

Very welcome to Sedana Medical's Q4 and Full Year Report 2023. With me, I have the usual crew consisting of our Chief Medical Officer, Peter Sackey, who will later on talk about our clinical activities; and our CFO, Johan Spetz, who will give you a detailed summary of the financials.So if we start on Page 3, please. Let's start us with where we are as a company. We have 3 priorities, and these 3 priorities have not changed since 2 years ago when we found ourselves in the post-COVID hangover period, and they will stay the same for the time to come. First, to bring Sedana back to a steady growth path in our existing business; second, to reach breakeven in our ex-U.S. business, as the first important step towards our longer-term profitability aspirations; and these 2 together will form a stable platform for our third priority to make headwind towards our U.S. approval, and prepare for the launch in what is our largest potential market, which could put Sedana Medical on a different growth trajectory.Now looking at the progress we've made during 2023 on all of these 3 priorities. I'm very happy that Sedana stands as a stronger and healthier and better performing company today compared to where we were only a year ago. We have sold for SEK 154 million last year, which is at the upper end of our financial guidance range, which was between SEK 145 million and SEK 155 million and the growth of 25%, and still 16% excluding the currency tailwinds. Q4 was our strongest quarter in the year with SEK 44.5 million and a slightly higher growth of 18%, excluding the currency effects or 24% in SEK.At the same time, we have taken some very decisive steps towards reaching profitability. The gross margin was a little lower than the year before for the quarter, but a bit higher for the full year. I will get back to that. But importantly, we have been able to cut our operating expense by 12%, excluding FX and 11% for the full year. And that in a year with high inflation and a year where we have grown, 16%. The result is that we still have an EBITDA loss, but one that is less than half compared to a year ago, and the remaining ex-U.S. EBITDA loss was around SEK 8 million, of which SEK 2 million were actually severance payments. So we are getting very, very close to our target.Importantly, we had SEK 382 million on the bank account at the end of the year. So our assessment, of course, continues to be that we have financed to execute on our plan, including approval and launch in the U.S. Speaking of the U.S., our time plan is still the same. We are planning to submit the NDA to the FDA in Q1 2025, which following FDA standard review times would put us into '26 for a launch. Again, the time line does not include any potential benefits from the Fast Track designation that we have received. Whenever you deal with the FDA, it's very advisable to be very humble. So it's fantastic to have Fast Track,and it could save some time. But since there are no guarantees, and we are not promising a faster review time.Our 2 clinical trials are entering the final spurt now. INSPiRE-ICU 1 has surpassed the 200 patient mark out of 235. So we are coming very, very close and also ICU 2 is following closely behind. If you have followed us for a while, you know that we are pursuing a strategy to do 2 things in parallel, which you will see on the next page on Page 4. And these 2 things oftentimes don't occur together, which is to grow sales and to cut costs at the same time. And we have been quite successful with that. You see here that if I take out the currency effects, we have grown 18% in Q4 and at the same time, cut OpEx by 12%, which is a continuation and actually a further improvement of the trend we've already seen for the full year with 16% growth and 11% OpEx reduction.Why are we doing this? 2 main reasons.On the one hand, I want to be able to launch in the U.S. based on a stable platform in Europe and a cash-generating business. And on the other hand, we want to fully have our destiny in our own hands and not be forced to raise new money in an environment that still makes that quite difficult or at least expensive.So what have we done? How do you grow and save time, save money at the same time?Here's our recipe. We have invested a lot in improving our feed force effectiveness to maximize, for example, the time we spent with customers, improve our targeting on high potential accounts, improving our call effectiveness, set the right incentives, et cetera, et cetera. and we are applying a very rigorous and disciplined logic of where we invest money and where we don't. I love to invest money in countries that are growing and profitable, but I don't like trying to fix the lack of profitability or the lack of growth with more resources. So with that logic, we have invested in expanding the teams in, for example, Germany and Spain, but we have also cut back in other geographies to allow countries to go first to profitability and then scale up. That strategy has a very good impact on our P&L as is seen on the bottom line. And this year, I'm expecting all countries to make a positive EBITDA contribution to the company.At the same time, we have streamlined our organization in the headquarter functions, mostly admin and support functions. So we get even more focused on what drives the business. And naturally, if you decide whether you spend money or not based on whether it will drive the business or not, you automatically improve your overall spend effectiveness. So overall, very good progress on that front.If we then move to the next page, Page 5, please. Let's look at the sales side, looking over the longer time horizon. Of course, COVID-19 was a step change in terms of sales because all of a sudden, there were so many more ventilated patients in the ICU. In 2022, we saw a massive decline in the number of patients. And that, of course, reflected on our sales as well. And now, we have delivered growth again in every quarter of 2023 and of course, intend to continue to do that. Maybe also noteworthy, we are at higher sales levels now than in the COVID year 2020, and not so far away from 2021 either. So of course, we are working towards delivering the highest sales in Sedana's history this year in '24.On Page 6, our main country continues to be Germany with more than 2/3 of our sales. What's quite interesting to see, especially in Q4 is that we had a further decline in the number of ICU patients. That's what you see in the gray bars here. The publicly available data has changed a bit with COVID being over. There's no longer such a big focus on intensive care patients. And so, all we have now is all ICU patients instead of those that were in high care, which is typically where you find the ventilators. Also, the reporting discipline has gone down a bit with 10% or so less ICUs reporting. So the best proxy of our market development is the number of ICU patients per ICU, and we use that as a proxy for our market development. So you see for Q4 that, that number has decreased 9%.The reasons are that we did see a relatively, so to say, healthy October. So ICUs started filling up a bit later than in the previous year, and we continue to see personnel shortages leading to less beds that can be operated. Against that trend, we did see a good sales growth of 9% in the quarter and 14% for the full year. And what's great to see is that we have managed to grow our existing customers, and at the same time, also open or, in some cases, reactivate roughly 120 customers. Remember, we already have the majority of ICUs as our customers in Germany. So overall, a successful year and one where we were able to increase our market penetration from 10% to 12%, which is a great step in the right direction as well.If we then go to Page 7, we see even higher growth, albeit from a smaller base in our so-called other direct markets. So this is Spain, France, U.K., Nordics and the Benelux markets. In local currencies, we grew 54% in the quarter and 56% for the full year. That is a great performance and also important from a company perspective as these countries are starting to have a real weight on our overall performance with now almost 1/4 of our sales coming from those markets, up from 18% the year before.The main growth motor during the year was Spain, which really had the perfect combination of great sales execution by the team, new treatment recommendations in favor of inhale sedation from both major doctor associations, and later in the year, also, we received the pricing and reimbursement approval and launched our pharmaceutical.Exciting times also in France, where we were able to start with several important university hospitals that were not customers before. And as you know, France is, to a large extent, a tender-driven market, and there are several promising tenders underway as well right now.In the U.K., we finally got MHRA approval in Q4 after waiting for more than 2.5 years, I think. So now we have the same conditions as in the EU countries and can finally promote inhale sedation as a registered treatment. So things are looking good for growth in '24 as well. Also here, for those markets, we had around 80 customers that started in the year, or in some cases, we started after having been passive for a while. That's also a good mix of where the growth is coming from.If we then move to Page 8. Let's have a look at our distributor business, which is, by its nature, a bit less predictable than our own markets. We have grown by 18% in local currencies, thus maybe not sound very spectacular, but if you are familiar with Sedana, you may know that we have had a long string of quarters with declining distributor sales. Actually, you have to go back all the way to Q3, 2021. So in the middle of COVID to find the last growth quarter for distributor markets.The reason for that was that we had much more severe and longer-lasting post-COVID effects. A lot of our distributors have built up a lot of stock during COVID and unlike our direct markets where hospitals maybe buy every couple of weeks, some distributors only order once a year. And if you get that order wrong, magnitude wise, you might not see another order for a couple of years, and that's why it's taking so much longer to get COVID out of the system for these distributor markets. For example, in South America, where our largest distributor alone had a negative effect of SEK 4.5 million in '23 versus '22.In response to that, over a long period negative development, we have revamped our distributor model. There's now a new team in place and much, much more focused on our highest potential distributors where we can really grow and see the upside. So very nice to see the growth come back again in Q4, even though, of course, the full year still shows a negative trajectory.If we then move to the next page, please, Page 9. Switching gears again from top to bottom line. Again, we want to reach EBITDA breakeven in at least a quarter this year, and we are getting close. We have talked about the sales development. Gross margin is still robust. What's happened this year is that we have adjusted prices to our customers, but also had to incur higher supply prices given the inflationary environment. The thing is from an accounting perspective that our price adjustments hit the P&L right away, but the COGS take a bit longer to hit the P&L because you have a few months of inventory. So what you have seen during the year now is that we have started the year with a bump up to 73%, and then we trickle down to 70% in Q4.The average over the full year was still 1% up versus the year before, but that downward momentum is explained by that effect that our own price increases have a faster effect on the P&L than the supply price increases. The gross margin obviously is a big focus area for us. There are important projects ongoing to make sure we keep a healthy gross margin; and ideally, of course, further improve it. On OpEx, we've already mentioned that we have been able to cut costs quite considerably. And all of this together results in an EBITDA loss that is half of the year before. So an important step towards ex-U.S. profitability.If we then move to Page 10, where does that put us against what we have promised for 2023 sales? We landed at the top end of our guidance range with SEK 154 million. And for the other important target of reaching breakeven ex-U.S. during the year at '24, again, we have cut the loss in half, and the remaining gap is small. So we see ourselves very much on track to reach that important goal during this year. By the way, not the primary focus, maybe, but you may have picked up that we had a positive operating cash flow in Q4. And also when you take out the interest income that goes in there, the operating cash flow was in balance. So overall, good progress towards profitability.Our view on the market potential, if you go to the next page, on Page 11, is unchanged, an addressable market of SEK 3 billion to SEK 4 billion in our current direct markets in Europe, and SEK 10 billion to SEK 12 billion in the U.S., I'll get back to the U.S. much more, of course, the EBITDA target is also unchanged. And for the net sales in 2024, we want to continue on the trajectory that we run, maybe accelerate a bit, given a range of 14% to 18%, excluding exchange rate, which compares to the 16% that we have seen in 2023.If we then go to the next page, let's go to the next part, which we are getting increasingly excited about because we're getting closer and closer. And let's talk about the U.S. You've already seen that we estimate an addressable market size for our products of roughly SEK 10 billion to SEK 12 billion, which is 3x the potential of what we have in our current direct markets in Europe. That's a function of a higher number of ventilator beds, of course, but also a medical practice, which is more in favor of intubation and mechanically ventilating patients.In the U.S., you are much more likely to be mechanically ventilated than in the U.K., for example. There's quite interesting studies on that, and also the price level for comparable sedation therapies such as propofol are quite a bit higher in the U.S. than in Europe. And that attractive commercial opportunity coincides with the fact that we are dealing with a very concentrated customer base, less than 5,000 hospitals have intensive care units, less than 3,000 have units with more than 10 beds. And those, of course, tend to be in the metropolitan area. So you don't need hundreds of key account managers to cover our customers.And based on that high commercial opportunity and comparably manageable investment, it has led us to the decision to build our own commercial company in the U.S. to launch inhaled sedation onto the U.S. market ourselves. Having said that, that we've spoken about before, we also keep the flexibility, of course, to complement our own presence with a potential partnership, if we assess that a potential partner could help us get faster sales uptake, broaden our reach, leverage existing relationships, cover geographies maybe that we cannot cover, and we can create more value overall then we would, of course, be very open to that.We are still keeping the same time line for the U.S. We want to submit our NDA in Q1 of 2025, so only a year left. But as you know, both clinical studies are still running. We're getting quite close now INSPiRE-ICU 1 has recruited more than 200 out of the 235 patients. ICU is also following closely behind. So it's getting a very exciting phase now.At this point, let me maybe preempt the question that I sometimes get, if the studies are still running, how come that the overall time line is still intact? The reason for that is, the fact that after the enrollment of patients, we have a 3- and a 6-month follow-up where patients are receiving a call to assess their quality of life, their cognitive abilities, their psychological state, et cetera. And we are planning to use that time to write big parts of the [ dossier ] already while the follow-up is still running. So we will do a database lock on the main part of the study. So we have most of the data locked already, so a lot can be done in parallel while that follow-up is still active. And adding the actual long term data will then be relatively quick in the end, so we can save time overall, which still makes us very optimistic that we can keep our promise after submitting in the first quarter '25.If we submit in Q1 next year, which is very much the plan, the standard would be a 10-month review time, minus potential benefits from the Fast Track designation. There are, of course, cases where Fast Track-ed products were approved in 6 months instead of 10. But again, as I said in the beginning, the FDA calls the shots here, we can only bring the best possible argumentation, but at the end of the day, it's the FDA that decides. So no promises on any kind of shortcuts for the review.If we then move to the next page, Page 13. We know, of course, that our inhaled sedation products have fantastic clinical benefits for patients. We have seen that for several hundred thousand patients, in more than 1,000 hospitals, in more than 40 countries. So we know that. But the truth is clinical benefits are no guarantee for a product to be successful on the U.S. market, and there's a long list of successful products from Europe that have then failed in the U.S. because the commercial success also depends, and largely depends on how well the product fits with the health care system. And so, we have done a deep dive into that with a focus on reimbursement, payment structures, et cetera, together with an expert consulting company. And of course, we have been bullish about the U.S. before, but that work has made us even more optimistic.For example, there are different payment mechanisms for hospitals in the U.S., but the predominant one for mechanically ventilated patients in the ICUs are DRGs, so Diagnosis-related codes (sic) [ Diagnosis-related Groups ], that means that the hospital gets paid a preset rate for a given patient, depending on what diagnosis and partly also what procedures that patients will have. This means that from a hospital P&L perspective, the revenue side is fixed and the cost is dependent on how long a patient is in the ICU. So, a therapy that could potentially help the patients who wake up faster, to spend less time on the ventilator, to recover faster, leave the ICU earlier, all of that will have a very positive effect on the hospital's financials.Now of course, I cannot say that Sedana will be able to provide those benefits in the U.S. because we have to await the study results, but we all know that we showed these things in our European trial. So we are reasonably optimistic about that. What we also know from our European trial is that inhaled sedation patients needed less opioids, 30% less opioids in SED-001, and even 50% less in our pediatric trial without these patients experiencing more pain.Now that is a great clinical argument in our everyday life in Europe already today. But if there is one country in the world that is most sensitive to avoiding opioids because of a devastating opioid-addiction epidemic and more than 100,000 drug overdose deaths every year, it's the U.S. And if there's one regulatory authority that is most sensitive about opioids due to their own history, it's the FDA. So bringing a therapy that will reduce the use of opioids in a very vulnerable patient population is a major plus on the U.S. market as well.And lastly, we know from Europe that treatment guidelines, treatment recommendations and the like can play a crucial role in facilitating the uptake of our products. If you read, for instance, what the CDC has to say about mechanical ventilation and their "Wake up and Breathe" collaborative, it reads very much like the benefits that inhaled sedation has shown in the past. This is about getting patients off the ventilator sooner. It's about improving recovery time, it's about shortening ICU stays, et cetera. So if we managed to confirm these results in our U.S. studies that we saw in Europe, we'd be fitting right in and we could be well positioned to get inhaled sedation reflected in treatment guidelines. So several very good reasons to be excited about the U.S.So we will stay on the topic on the next page and I will hand over to Peter.

[Peter Sackey, executive]

Thank you, Michael (sic) [ Johannes ]. Yes. So as many of you may have heard before, our 2 U.S. trials are in design relatively similar to our European trial. They are 2 identical Phase III studies INSPiRE-ICU 1 and INSPiRE-ICU 2 with the same primary endpoint as in the European study. So to come from the o confirm the efficacy and safety of inhaled sedation via Sedaconda ACD compared to IV propofol with the primary endpoint to look at the proportion of time that target sedation level assessed with the RASS scale. Key second endpoints include opioid dosing during sedation, time to wake-up after sedation, and cognitive recovery 1 hour after end of sedation and proportion of time with spontaneous breathing.Move to the next slide, please. So we have the 2 studies in INSPiRE-ICU 1 and INSPiRE-ICU 2 that are ongoing, as Johannes has mentioned, we are in the last months of enrollment in these 2 trials. And as you can see, we have a spread across the whole U.S. with many of the most prestigious institutions taking part in the study, for example, Mayo Clinic, Cleveland Clinic, 3 Harvard institutions, UCLA, et cetera. And in these institutions, we also are supported by some of the most prominent researchers and clinicians within sedation and mechanical ventilation. And they're very enthusiastic about the trial, and are doing very well with enrollment. And many of them are very keen on continuing working with Sedana on introducing this new therapy. So we're in a very good position, once the trials are completed, and we have an approval to get significant support from these key opinion leaders in the launch work. So we're very happy about these collaborations.If we move over to the next slide. So during 2023, we've further increased our interactions with key opinion leaders and with the medical community in our current markets and distributor markets with very many activities almost 1 a week when it comes to symposia, workshops, round tables, et cetera. And these events have been very well [ related ] throughout the year.And with that, I hand over to the next slide to -- no, I have one more, sorry. So we have the 2 investigator-initiated trials that we've been supporting. The SESAR study, which you heard about before, has been completed and they are analyzing the data, and we are not involved in that analysis, but we expect to get their results from this study sometime during 2024. Then we have the INASED study that is looking at isoflurane and delirium, where enrollment currently is at 180 out of 250 planned patients there.I think that was my last slide and I hand over to Johan. CFO, Johan?

[Johan Spetz, executive]

Thank you, Peter. So if we turn our attention now to our financial results. In Q4, we are that on Slide 18. And we report net sales for the quarter of SEK 45 million, and that's up 24% in reported numbers or 18%, excluding the FX tailwinds that we had during the year. And what is very nice to see is that we are reporting sales growth from all 3 main categories that we communicate externally. So Germany, our other direct markets, and our distributor markets, all 3 of them report increased sales in Q4, 2023. And as Johannes pointed out already for both Germany and also our other direct markets, we see that this is driven by a very healthy mix of growth coming from both existing customers and also new or reactivated customers during the period.In our distributor markets, we see that the increase is driven mainly by our European distributors. So good sales growth during Q4. Gross profit for the quarter of SEK 31 million, that's equal to a gross margin of 70%, and we have experienced cost increases for materials and components during the period. And so, if we compare to the same period a year ago, it's -- the gross margin is slightly down from 72% in Q4, 2022. But sequentially, we see that is essentially in line with Q3 of this year. So as Johannes described, we typically see during the year, a bit of a bump up in the gross margin in the early part of the year as we increase our prices, but then our supplier prices catch up a bit during the year for the -- with the inventory lag essentially. But as we've said previously, we expect also going forward to remain around or above 70% in terms of our gross margin, also going forward.So if we look at EBITDA, we report an EBITDA loss for the fourth quarter of minus SEK 9 million. And what's very nice to be able to highlight there is that, that is a reduction in 50% in terms of the EBITDA loss relative to the same period last year. So as we said, we are increasing our sales, but at the same time, we are able to report a reduction in OpEx. So for the fourth quarter, we reported operating expenses of SEK 44 million, which is a decrease of SEK 5 million or 10% in reported numbers relative to the same period last year. If we adjust for currency effects, the reduction is actually 12%.So what could also be highlighted there is, in Q4, we had almost SEK 2 million of costs, which were related to severance payments during the period. So we are on track in terms of resetting our cost base as we have planned. We've done quite a lot in terms of cost reductions, as you can see, and this work will continue also going forward. So we continue to streamline our headquarter functions. We try to reduce spending on consultants, external vendors and conferences also going forward. In terms of the organization, we have a headcount, including consultants now at the end of the year of 86, which is down from 95 going into 2023.So then, if we turn to the next slide, please, and take a look at our cash flow and cash position. At the end of the year 2023, we had SEK 382 million in the bank. If we look at both our cash and our short-term deposits, and that's down from SEK 453 million going into the quarter. And as you know, and as both Johannes and Peter have talked about, of course, we are investing a lot in the U.S. clinical program at the moment. So that's what's being reflected primarily in this change in the cash position, of course. But if you go through the various drivers of cash flow from operations during the quarter was actually positive SEK 9 million, but it should be pointed out that, that is mainly driven by received interest of SEK 9 million, but still it would have been more or less in [ imbalance ] cash flow from operations if we adjust for that interest received.Cash flow from investments during Q4 of minus SEK 42 million. That's up from minus SEK 27 million in the same period last year, and that's really a reflection of the investments that we are doing in the U.S. clinical program at the moment, which is, of course, at -- running at full swing now as we are really in the home stretch when it comes to the clinical trial recruitment part of that clinical program. So total cash flow for Q4, 2023 of minus SEK 34 million. And just to remind you all, in terms of liquidity management, we have approximately 75% of our cash and short-term deposits in U.S. dollars, which of course, is a reflection of the fact that CapEx going forward and expenses going forward will be increasingly geared towards the U.S. markets.And with the cash and short-term deposits that we have at the moment, we continue to expect to be fully financed until reaching breakeven ex-U.S. during 2024, and to execute on our strategic plan when it comes to finalizing the clinical program in the U.S., and launching in the U.S. And also as a reminder, we have no long-term debts in the company. And then just very briefly on Slide 20, you can see our largest shareholder as of December 31, 2023. And of course, we remain thankful for your continued support.And with that, I will hand back over to Johannes.

[Johannes Doll, executive]

Yes. So one last slide before we wrap it up. Let's take a step back and recap the investment case for Sedana Medical. Our business model lends itself to attractive profitability over time, and that is for 2 reasons:One is that we continue to see good gross margins of 70% up. So by definition, we can become quite profitable as the business reaches scale. And our customers are intensive care units, not primary care doctors. So a relatively small target group that we can cover with a reasonable OpEx level on a local level. And we already have good proof of concept for that, and our main market, Germany, where the majority of ICUs is already our customer today. We have a good penetration of the market. The team is generating attractive EBITDA margins on a local level. And while we are not at the same scale yet, other countries like Spain are also making important contributions already on the company EBITDA. So we have the proof. It can be done. So the question is how will we reach 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 benefit from inhaled sedation, which of course is crucial. And equally importantly, as we talked about, we can also show that hospitals save real money with inhaled sedation versus the previous standard of care. And we have lots of places to grow and to create more Germanys, again, regulatory approval in 18 countries in Europe, and the largest commercial opportunity. U.S. is still untapped, but very close now with the potential launch in '26, and the Fast Track designation from FDA. So that's looking very good.And let's not forget, very important these days still, as Johan said, a strong balance sheet and the commitment to get to profitability outside the U.S. in the very near future. So we're heading into a really exciting year, '24. We're heading towards delivering the highest sales of any year in Sedana's history. We are heading towards reaching breakeven in the ex-U.S. business during the year, and we'll hopefully make a huge step forward towards the U.S. opportunity. So looking forward to '24 as another very important year for Sedana Medical.Thanks a lot. That concludes our presentation. Thank you for listening, and we'll be very happy to take your questions.

[Operator]

[Operator Instructions] And I think we'll start here with a question that has been sent to us. How big a market does Sedana have in the Nordics?

[Johannes Doll, executive]

Yes. So we don't break down the market potential that we're communicating by country. You've seen the SEK 3 billion to SEK 4 billion addressable market for the direct markets in Europe. But what is fair to say is that the Nordics is a small part of that. So compared to Germany and compared to France and compared to Spain, the Nordics is a smaller potential market, but also one where we're getting some good tractions in some hospitals, both in Sweden and also in Norway, also starting up in Finland, and we've had some customers in Denmark for a while. So, it's an important market that is now also after some resizing of the team operating on a profitability, so making a contribution. But of course, in the grand scheme of things, compared to Germany or Spain or France or U.K., a rather limited contribution to the overall sales.

[Operator]

How are sales in the U.K. going?

[Johannes Doll, executive]

Yes. So the U.K. has had a disadvantage for a very long time, because we didn't have the regulatory approval yet. So the device was on the market, but we couldn't actively promote it because it was not -- the inhaled sedation as a therapy was not fully approved yet. That happened for the other European countries or the EU countries back in '21. For the U.K., it took 2 years longer. We only got that approval in the end of the year now. And it's, of course, early days. We're starting from a much, much smaller base, but we are seeing a good acceleration of the sales as expected, because now it's a registered treatment. Now we can capitalize on the nice guidance that we got before, which recommends our therapy for inhaled sedation and it also confirms that hospitals are saving money when using our therapy. And we had this awkward situation where we had this very positive nice guidance, but no approved therapy. So we had a little bit one hand tied behind the back, but now we're seeing a good acceleration.

[Operator]

I will now hand over the word to the caller that has the number start with -- ends with 54.

[Johannes Doll, executive]

Looks like a U.K. number, if that helps.

[Operator]

Yes. Just waiting for him to get in here. So the U.K. number calling in, you have the word. [Operator Instructions]

[Christian Glennie, analyst]

It's Christian Glennie calling from Stifel. A couple of questions then. I guess, to understand one on Germany and the market progression there, for market share, obviously. Share increasing reasonably during the year, but is there any -- are there any reasons to look for or triggers potentially for an inflection point in terms of that market share gains and an inflection in the sales for Germany?

[Johannes Doll, executive]

Yes. So thanks for that question, Christian. So overall, as I said, I'm very pleased with the development in Germany, good robust growth against the headwinds of a slightly lower number of patients in the ICU, that we will always have to live with. I think, that the number of patients is a bit volatile depending on flu seasons and others. So, overall good performance. Our focus is very much on sales execution. So, both growing with existing customers and adding -- still adding new customers where that makes sense.We do see quite a bit of variability in penetration, regionally, so the 12% penetration that I talked about on a national level. If you look at the best sales territories, we're actually above 20%. So we are, of course, working hard, and those are also still growing. So we're not at the ceiling yet. So we're working hard to get the other regions up to these levels and of course, continue to grow.In terms of big inflection points that would really change the curve, those would be things like changing treatment guidelines, for example, which is not unreasonable to expect in Germany. Now in general, I always have to be -- caution everybody that there's a limit to what extent you can influence those guidelines. But the treatment guidelines we have in Germany, right now, is -- the good news is that we are included. So, inhaled sedation has been in the treatment guidelines for a while, but they're still listed as an off-label treatment. That is because the last version of those treatment guidelines came out just around the time when we got approved and the committee didn't have enough time to consider us appropriately.So when that next version comes out, then we are, of course, hopeful that we move from an off-label treatment, which we are, of course not, to a registered treatment, and hopefully one that also gets the credit of all the clinical benefits we have shown in the clinical trial, like less opioid use, faster wake up time, the more spontaneous breathing, shorter ICU stays and so forth. And we know that that guideline committee has started working again. It's usually a longer process. I'm not expecting anything this year, but if we were to see a change in guidelines, that is an example of something that could facilitate the uptake even more. Apart from that, it's kind of account by account work to get the usage up.

[Christian Glennie, analyst]

That's very helpful. And then turning to U.S. and the trials there. What's your best estimate at this point for the timing of data from the trials? And obviously, the 2 trials, broadly on similar time lines, but are we going to get both of them presented and summarized together or might we get one off the other?

[Johannes Doll, executive]

Yes. So the plan is, so we are -- as we spoke about, we're quite close now, right, to finish the trial. The way the trial is set up is, there's the main part of the study, so 48 hours in the ICU, but then there's also a 3 and 6 months follow-up. What we will do is to do a database lock based on the main part of the study, so we get results earlier on the main part, which is the, of course, most interesting part. There's a bit of kind of data cleaning, quality checking and so forth that needs to be done before. And then, of course, you have to run all the statistical analysis. So it's typically a couple of months between the end of enrollment and when you're ready to see the first results.And our plan is that we communicate the results as they come in. So we would not wait for both studies to be read out and withhold that data. But the plan is to -- when we get the results for, in that case, INSPiRE-ICU 1 will in all likelihood be the first one. When we get them, we will communicate and then the other trial will follow. But, I'm expecting both top line results to come in the second half of this year.

[Peter Sackey, executive]

Yes. Sorry, just to add to what Johannes said, it's -- I would say, it's rather several months rather than a couple from the end of enrollment, just not to raise expectations too high. But that's [indiscernible] results in 2023, anyway. 2024, I mean, sorry.

[Christian Glennie, analyst]

Yes. Okay. And then, just last one. In terms of those -- the endpoints, obviously, [ non-inferiority ] on the primary, but some of the secondaries around opioid use and time to wake and things like that. Are they potentially powered to show a significant difference? Or how should we -- what should we expect from that -- those secondary endpoints?

[Johannes Doll, executive]

Yes, that's the hope. Please, Peter, you go ahead.

[Christian Glennie, analyst]

That's now -- yes, no, I can say, yes, they're powered for that. And particularly the opioid dosing is something that we will have available for all patients.There is a sequential testing procedure for key secondary endpoints, as per agreement with the FDA. So depending on first set key secondary endpoint opioids, if that's significant, which we expect it to be, the difference, I would say we can then continue and claim the second key secondary endpoint, third key secondary endpoint, and so on and in the same order as presented in today's presentation. So opioids is the #1 key secondary endpoint [ efficacy. ]

[Operator]

I'll now hand over the word to the caller that had the cell phone number that ends with 71.

[Filip Wiberg, analyst]

Yes. It's Filip Wiberg from Pareto. Firstly, just a question on the cash flow. I don't know if I missed something, but the total cash flow for the quarter was negative SEK 34 million, but total cash and short investments decreased by about SEK 70 million. So is everything explained by FX effects? Or how should I think about this?

[Johan Spetz, executive]

Yes, the main -- yes, it's FX that make up the difference. So if you go back to that slide that we used in the presentation, 19, you have a chart on the right-hand side there, where you can see the breakdown of the cash flow. So really the one difference is, of course, the change in cash position and that includes the fact that, as we said, we have 75% of that amount in U.S. dollars. So when that exchange rate moves, of course, that balance at the balance date, of course, depends on the FX and then the other cash flow numbers are the actual cash flow, so to speak.

[Filip Wiberg, analyst]

All right. Okay. And just another one on the investments that's primarily related to the U.S. trial. So I think you have said earlier that the primary investment is going to be during recruitment of the -- in the drive. But afterwards, when you finish and during the follow up, it should decrease. So what kind of reduction could we expect in 2024?

[Johan Spetz, executive]

Yes. So you are absolutely right in the fact that CapEx will peak now, when sort of the pace of recruitment is at its highest, and we have all the sites actively recruiting, and then it will gradually come down over the course of the rest of 2024. So there will be a clear trend down. But overall, of course, there is still quite a lot of CapEx left related to the U.S. clinical program in 2024 relative to 2023. So the total numbers will come down a bit, but it will not -- not like this. If we wrap up the recruitment phase when we expect now, in the early part of the year, there will still be relatively high CapEx numbers related to the U.S. for the remainder of the year as well, although it will be coming down sequentially for sure.

[Filip Wiberg, analyst]

Okay. And just a last one on -- related to the EBITDA [ breakages ]. So in terms of OpEx now, do you think that the Europe part will be fairly stable, perhaps a slight increase if you have to ramp up Spain and U.K. And then the remaining part of the increase is primarily going to be starting up U.S. sales activities?

[Johannes Doll, executive]

Yes, [ even Filip. ] Yes, I think that you're thinking about it in the right way. So the U.S. will start to ramp up, not to significant levels yet because we're still 2 years ahead of launch. The bigger ramp-up of spend you would see in '25. And you can expect that we will continue to have a very close eye on the OpEx in the European part. Now you have seen the positive trajectory during the year. So, we will have a full year effect of the measures we've taken during '23. We've also said that part of the EBITDA loss in Q4 was related to severance payments. So from that, you can, of course, conclude that those were related to cost savings that we will see in this year. And we will continue to save money where we can. For example, we are moving into a smaller office, and things like that, but not a step change as we've seen before.

[Operator]

We move ahead with another question that has been e-mailed to us. Are there other products that will be developed that have to do with sedation?

[Johannes Doll, executive]

Yes. So I interpret that question in the sense of are there any competitor products in the horizon, not so much what we have in the R&D pipeline, which will be a different question. So we are obviously a bit paranoid and keeping a very close eye on market developments, because we very much depend on inhaled sedation. Right now, there is nothing that we can see that would change the competitive landscape. We -- what it -- so, we have a couple of layers of protection. There's of course, patents around our device. We have market protection and data exclusivity until 2031 for Sedaconda for the use in the ICU. So that means nobody else can promote a therapy for inhaled sedation in intensive care units, today.What they would have to do is to run a clinical trial as we have done that would usually be public, so we would be aware, there's nothing -- no such thing going on right now. And it's also probably not very likely to occur. We shouldn't be complacent, of course. But for the big players that can afford these kind of trials, the market is probably still too small. And for a small company, it's a very sizable investment to be second to market. So right now, there's no competitive developments that we are aware of. But of course, we have to have a very close eye and at the same time, also looking at our own R&D to make sure that we further develop our product offering. So we stay ahead of the curve.

[Operator]

The launch in the U.S., how big is the investment to get Sedana approved with all the research and analysis?

[Johannes Doll, executive]

Yes. So we've not guided on a specific dollar amount, this is what it will cost us to get to U.S. approval. But of course, by now, you have a pretty good sense of the quarterly burn rate what we're building up in CapEx. The main driver is fees that we pay for each patient that is being enrolled, on top of that, there's some [ CRO ] fees, some fixed fees and so forth. But that's the bulk.So as Johannes said, the big part of the investment will be behind us when the study is done. There's a little bit of a lag because it takes some time until you get the invoices and so forth. But after that trial is done, the cost will decrease quite dramatically. You still have some cost for regulatory support agencies, medical writing and so forth, and there's a filing fee as well. But the main part sits in the clinical trial. But again, we've not guided for a specific number, but what we have said and that's of course too true is that the cash balance that we have is enough to take us there and also beyond to launch the product.

[Operator]

Thank you so much. That was all the questions I had. I'll give a last call here. [Operator Instructions] And yes, I will just give it a couple of seconds to you if you have any more questions.Thank you. I think that was all the questions we had today. So thank you so much for the presentation and answering our questions, and good luck going forward.

[Johannes Doll, executive]

Thank you very much for your time.