2cureX AB (publ) (2CUREX) Earnings Call Transcript & Summary

Welcome, everyone, to this presentation with 2cureX. We are now live with Fernando and Ole. So I will hand over the mic now for you 2, Fernando and Ole. Here you go.

Yes. Thank you. Thank you very much. Welcome, everyone, to this -- this new format of Q&A that we are starting today. We hope it proves useful to keep you all up to date. We will explain some more details about the new setup, how we are going to have this communication going forward, together with the quarterly reports, et cetera. This will be something that Ole will present afterwards. As you can see, I have Ole here with me, very close, really. And we have also Kenneth, who is in remote location, but he will also be available for the Q&A session afterwards. Before we jump into the Q&A, we are going to move to some slides to summarize what are the main events that have happened in the first quarter. I hope you are seeing already my screen -- my slides. The agenda, we are going to make a reminder of what were the yearly goals of 2023 and then what had been the results in Q1 compared to these goals. And then we will discuss some other achievements that we saw in Q1. We went through an ISO audit. We have a new specimen collection set, IGNITE sites, grants and then these new communication activities with our shareholders. And then we will move to the Q&A session. So starting with the goals, we had defined -- or we have -- yes, we have published 5 goals in -- for 2023. One was related to revenue. And our target is for the whole year to get SEK 6 million, SEK 3 million of them coming from sales, SEK 3 million of them coming from other revenue. We are targeting having 25 countries with IndiTreat commercial activities. We have 20 at the beginning of the year. We are shooting at 25. I will provide some details in the next slides. Having 500 patient samples tested during the year. And then in terms of portfolio development, we have IndiTreat Neo which is the new test. Ole will speak about this later, IndiTreat Neo. We want to have the performance assessment finished, which is an important step in the development phase according to ISO 13485. And then we also want to start first steps -- take the first steps of decentralizing the test to hospitals, meaning that we want to have an instrument prototype that is ready to be tested at hospital, and we want to have the first IndiTreat test run successfully at the hospital. These goals were communicated on November 14, 2023 -- 2022, actually, yes, that's a typo. And since then, we have included them in multiple public presentations, so they should not come as a surprise for anyone. And there is no change in the communicated goals as we keep them for the 2023 targets. So if we go to revenue, what -- first thing we have done is we need to have a quarterly breakdown because when we communicated the goals, we did it for the total year. But obviously, it's not linear spread because as all of you know, we are at the very early stages of our commercial rollout. Therefore, we expect the momentum to be gained throughout the year. So what you can see here is the goal that we have for every quarter. And in the first quarter, we had a goal of SEK 800,000 and we achieved SEK 760,000. So it's 5% below, but we think it's still within range. And this comes not from sales. We expect the sales to start showing up in the second quarter. These are coming mainly from the 3 grants that we have. We have 3 grants now independent from the ones that we have announced in the last days, but we have 3 grants going on, one called IO-Resp; another one, DECIDER; another one, ADAPT. So these grants are providing revenue every quarter, and this is the revenue from these grants. Some of you might be wondering why we had no sales revenue in Q1 when we did have sales revenue in Q4 last year. The reason -- main reason for this is our sales as of now are mainly sales that we do to the distributors, okay? And we have been selling to distributors our sample collection sets, but -- which is the kit that contains all the elements for the hospital to collect the sample and ship the sample. As you have probably seen in our communication, we have a new sample collection set that we launched recently. Therefore, what has happened in Q1 is that distributors have been mainly using up the sample collection set they had from last year, and we expect new sample collection set sales in Q2, for sure. And also, we also expect some test sales in Q2 as the first IGNITE contracts, the first that we signed several quarters ago start to transition to regular consumption. All in all, we maintain our goal of SEK 6 million revenue in 2023. We think we are confident that we will achieve that. Moving on to the goal of samples, similar rollout here. So our plan was 25 samples in Q1, 125 in Q2, 300 in Q3 and 500 in Q4. This is, again, related to the fact that we have a commercial pipeline, which is actually very, very strong. We have more than 170 hospitals across Europe where we are having, let's say, discussions about IndiTreat in different degrees of maturity. Some of them is still in early stages of presentations. Some of them are already at the very end of signing an IGNITE contract or starting sending samples. So what we have done is we are projecting the transition and the maturity of this commercial pipeline throughout the year in this sample flow. Unfortunately, we had forecasted more or less 25 samples. We got 18. There is -- when planning, it's always an exercise of a little bit of educated guessing, if you want to call it like this, projecting. We don't have enough history to be able to project with plus/minus 1% accuracy. So anyway, what's important here is we have seen samples coming in, in Q1. We have -- we are seeing samples coming in, in Q2 already. So we -- again, here, we are maintaining our goal of having 500 samples in 2020 -- at the end of 2023, 500 samples test. We have -- just to mention that we have now 27 hospitals that are enrolled in the IGNITE program. We had 24 at the beginning of the year. We have 27 now. Plus 3 might not seem a lot, but this is also related to -- remember from previous conversations or presentations that we have made that when the hospital signs an IGNITE contract, it's not the end of the process. There is actually then an internal process that requires alignment between the different stakeholders, then getting into their internal processes, the requesting the test, et cetera, et cetera. So all these things take time, and our focus in Q1 has been more -- our focus together with our distributors in Q1 has been more on activating the existing IGNITE sites rather than adding a lot more. So anyway, I said the pipeline is healthy. We are sure that, during the year, we will see the maturation of this pipeline, and this will turn into samples and sales. In terms of countries, here, we have -- we are present nowadays in 20 countries through distributors or direct operations. Our goal for the year was 25. The goal is not adding as many countries as possible but actually selected countries. So we have relevant countries in Europe. We have France. We have Italy. We have the Netherlands or Belgium where we are not present. We want to focus the effort in these relevant markets where we are -- that are still missing in our month. Therefore, in Q1, we had not projected any new countries. We expect to have one more country in Q2, 2 more countries in Q3 and then 2 more countries in Q4 to end the year with 25 countries. Now I'm going to hand over to Ole, who will explain other achievements that we have had in Q1.

Thank you. Yes, a lot has happened in Q1. And it has actually been a very, very active quarter. And just to sort of walk through, we have sort of bundled them in these 4 different categories. First, we have subset what are the regulatory achievements. One very important one is that we had an ISO 13485 audit, and that went very well. I would say the auditors were pretty impressed that a young company like us got so well through that audit. So that was great. Further, as Fernando just alluded to, we have updated our specimen collection set with improved preservation of the tissue during shipment. The -- today, with the present set, we say that the customers will have to send the tissue so that we have it in Copenhagen within 24 hours. And that is actually an issue in some of the more remote places in Europe. So we have changed that, and we are now into several more hours. We hope 48, and we are doing -- we are definitely seeing an improved viability in our tissue samples. Furthermore, we have -- the set is now ready to go into the new IVDR regulation, and then to help the hospitals, we have made it in a smaller footprint. So when they stack close to these, they do not feel as much in the fridge. Also, as Fernando mentioned, IGNITE sites is actually not a part of our standard goals, but we did, anyway, moved from 24 to 27 in Q1. And then we had 2 press releases within the last week that we are very happy with achieving 2 very interesting grants. One of them from the German Federal Ministry of Education and Research, that is a grant that will support our automation project. And the other one is from the Danish Innovation Fund that will boost the development of the IndiTreat Neo application that Fernando alluded to. And so you will see that we're actually in our official goals. We actually had one that related to the automation and one that related to the Neo. Now we actually can show that we have received funds to push these. And not only is it money, it is also a great recognition by some very heavy weights within the granting agencies. Last but not least, we have changed and strengthened our communication activities. And this event is actually one of them. So I will show you sort of how these come or some of the time line, but we also launched a new website, and we will send out monthly newsletters and a CEO blog, and that will come one here in April. And just with regard to the -- this changed communication, previously, we had a Q&A session when we released the Q1 report. And actually, that's almost 2 months after the quarter is finished. So we decided to do it this way. So shortly after the quarter ended or ends, we will have this Q&A session that you are seeing today. And then when we release the full final Q1 report being May 25, then we will have a video commentary run by Infront Direkt. And the next in this session will be then after Q2, meaning beginning of July, we will have a new on these Q&A sessions. So with that, I think we can, [ John ], attend to the Q&A.

Yes. Let me just stop sharing, so that we can see. There we go. Then let's jump directly into the Q&A. So the first question is, I am new to 2cureX and understand the focus on innovators and early adopters. But can you explain how you track this usage per hospital or per oncologist? And can you provide some insight into how the adoption is growing in the hospitals you've been in for the longest periods?

Yes. So I will take this one. So the whole -- how do we track this is because the whole process from the test requisition when a hospital and oncologist orders a test, all the way to us to then shipping the sample, to us receiving the sample, all the work in the lab, all the way to the being sent back to the hospital, all this is controlled by a software, a lab information system, which is called IndiBase. So through IndiBase, we can easily see how many tests has each hospital requested, an individual oncologist requested, et cetera, et cetera. So we can easily keep track of that. If the question refers to how we decide once they have started using IndiTreat to expand there? A reminder for people who are not familiar with it, we have this IGNITE program, which is aimed to giving the oncologists the chance to test, to try IndiTreat in real life in their environment. And that's the first step. So the first step for a hospital to be using routinely IndiTreat, the first step is that the oncologist needs to ask for it. And then there is another step, which is the negotiation with the economic decision makers in the hospital. So right now, we are in the IGNITE phase where hospitals have a certain amount of samples that they can send us for free, and we are testing those, and then they are receiving the results. And this has to generate -- and this is generating the evidence, if you want, for the oncologist to support the request to the economic decision makers in the hospital then the negotiation comes in place. And once this negotiation is done and there is an agreement between the hospital and us or our distributor about prices, conditions, et cetera, et cetera, then they can start ordering regularly. So that's a transition that we are in.

Perfect. And I also think that you answered the second part of that question, so let's move on to the next question. The next question is, I would expect that doctors and oncologists would choose the best testing kit when wanting to treat their patients in the best possible way. Correct me if I'm wrong, but there is probably substituting test kits on the market or in research using other technologies or other approaches. So when looking at research and clinical tests, how competitive is the IndiTreat technology compared to direct competitors and substituting solutions?

Yes. So I will take also this one. As of now, there are 2 competitive products that are CE marked and available in Europe to guide therapy decision-making in colorectal cancer, okay? Now how is IndiTreat better than these 2? First, there are a couple of very important technical differences, okay? So the first one is that our tumoroids replicate better the original tumor because of the process that we are following. Our tumoroids are built, let's say, are cultured out of cell clusters that are happening in the original tumor. And then this is important because this preserves the cell-to-cell interaction. This preserves the architecture of the cells, et cetera, et cetera. While competitor products, including these 2 that I mentioned before, are mainly working out of single cell suspensions. Therefore, the cells are not clusters. They are single cells that then are artificially grouped into tumoroids or spheroids. So that's one important difference. The other important difference is how do we assess the impact of the drugs. We do image analysis powered by artificial intelligence. And our competitors mostly use a biochemical signal. We are convinced that with the image analysis and the AI, we are able to see a lot more features in the sample and to have much better interpretation of how the drug is impacting the growth of the tumoroid. So these are the 2, I would say, main technical advantages or differences Then, of course, we also have the support of a clinical trial, prospective interventional clinical trial, which was TICC1. Nobody else has a prospective interventional clinical trial to prove the value for the patient outcome. And then finally, I want to emphasize that our presence in 20 countries, our network of distributors that allows us to have this commercial pipeline that I was alluding to before, nobody else has that as of now. Therefore, I think all of these are the key elements that make 2cureX and IndiTreat be at the forefront of these race.

Perfect. The next question is, what is the expected success rate per biopsy to use IndiTreat with the new improved updated specimen collection set? Has there been too many patient samples that have been useless when shipped with the old [ flask-based ] base specimen collection set?

So I'll take that one. It's actually not because of problems with the old set. I mean, the reason why we changed it was, as I mentioned before, today, we will need to see the patient sample in Copenhagen within 24 hours. That has turned out to be a problem in some places in Europe. And obviously, even worse if we go outside Europe. So we have really tried to see can we find a system where we can preserve the viability for longer. I should say this is an issue with [indiscernible] is well known when shipping samples, when shipping organs. So there is a lot of knowledge out there and we have tapped into that. The other issue is that, as some of our shareholders know, the regulatory environment has changed. So new products in the diagnostic space will have to obey the IVDR rules. And there, this new set is prepared for that. And the last is that we have a new logo for the IndiTreat that we wanted to introduce. And as I mentioned before, actually the footprint, the box that we send out is a little bit smaller, is significantly smaller. And that turned out to be an issue for storage of diagnostic kits take up space in hospitals. So that's the reasons we have done it.

Perfect. Next question, with the numbers from today's pre-Q1, are things looking as expected in terms of patients tested and revenue? Are you in line with the expectations for the year?

Yes. I think, Ole, I can take this one because I think I covered this more or less in the presentation. As you have seen, in general, yes, we think that we are in line with the expectations. Samples have arrived in Q1 a little slower or at a slower rate than we wanted. But anyway, looking at the pipeline and looking at where we are with number of IGNITE hospitals, et cetera, et cetera, we are still very confident that we will be able to fulfill the goals for 2023.

Perfect. And the next question, what is the estimated time line for completing the ADAP-2 (sic) [ ADAPT-2 ] development project under the EUR 1 million grant?

The grant is for 2 years. So that means that it is until beginning of 2025. However, this does not mean that we need to wait for the final ADAPT automated equipment. I mean, first of all, we could not foresee or expect that we would get this grant. I mean -- so what this has allowed us to do is to add new features to the system. So we want to have a system out as we already have said in our goals, we are keeping that. But as soon as this system comes out, we will get feedbacks from the hospitals. So what doesn't work that -- where would they like to have this optimized? This, we now allow to -- allow -- this grant have allowed us to do. So it's not pushing. It is actually allowing us to add more features to the system.

And the next question, can you explain the difference for you to evaluate patient samples with early- and late-stage colorectal cancer and the difference between colorectal cancer and other solid cancer types?

Okay. The most obvious difference between the late-stage and the new early-stage product is that the tissue samples are different. In late-stage metastatic colorectal cancer, we will need to have liver biopsies or it could be biopsies from lung, so distant organs have where the tumor spread to. Whereas with the early stage, we will get tissue samples from the primary tumor in the patient's colon or in the rectum. That is a major difference. And I should say, the liver biopsies are by far the most difficult. That is a small amount of tissue and also a lot of these have a lot of necrotic areas in the [indiscernible] necrotic cells. So you can say we took the most difficult one to start with. And that was simply because we prioritize. We want to have a clinical trial that is an interventional trial, so the trial where the patient is treated according to the test. And there, we could not be allowed to go into earlier stages. So we're happy that the TICC really went so well. That will allow us now to move into earlier stages with such a trial. So that's the biggest difference. And there was also a question about other types of cancers. In essence, we are in solid tumors. And we have already announced to the market that beyond colorectal cancer, we are also in pancreas and in ovarian cancer. So we can actually technologically easily go into other areas. But all of these have to go through clinical trials, regulatory approval according to the IVDR. So it is a major task to move to other cancer entities.

Perfect. And the next question, are the SEK 0.8 million in revenue from sales or from grants or both?

That's an easy one because I already explained. It is -- what we had in the first quarter are coming from our 3 grants that we have now, and we expect the sales revenue to come in Q2 because of, as I explained, the orders coming from distributors for our sample collection sets and also for some testing that we expect to transition from free of charge to paying customers.

And next question, is there a need to bring in new capital in 2023? When is it the plan to show black numbers in 2cureX?

Kenneth, that's going to be for you.

Take this one. Well, I think with our current runway, that would allow us to operate at least until the mid of 2024. And that is not taking into consideration the 2 aforementioned grants that we just received. So -- and I would say with very tight control of our expenses, I think we could even expand that runway further. But it is our goal, I think, which we have expressed before to build a very solid position in this emerging market and markets that we think have a potential for EUR 1 billion. So I mean, there are many competitors in this race, and we need to be able to accelerate with some investments and projects basically to be a part of that race in this EUR 1 billion market basically. And with this thing that we are exploring, obviously, multiple funding options how to -- and basically to help us to be part of this acceleration. But at this stage, we cannot and we are not allowed to reveal more details about this. So I hope that answers the question in it.

Yes. Perfect. What is the price purchased for the hospitals? And how much of this can be reimbursed in the different countries you operate in?

Okay. So I will take this one. Reimbursement -- I mean, I have said it many times, but reimbursement is a very complicated thing in Europe because every country has a different system, okay? So there are a few countries actually that has 2 reimbursement system, meaning that the doctor can order a test and then through a code send an invoice to the insurance company and get it reimbursed or the patient can get it reimbursed. That's not how most countries in Europe operate. How most countries in Europe operate is that the hospitals are in charge of paying for the diagnostic tests that their physicians order. And what this means is that, actually, in most countries for us, it's a hospital-by-hospital negotiation to get the price set and to get the conditions under which they are going to buy from us or from our distributors. This being said, the price per test is in the range of EUR 3,000 to EUR 3,500. And that's the price to end user, meaning, in this case, to the hospital or in the reimbursement countries to the insurance company that will pay for the test. But to the specific question -- if the specific question is about reimbursement countries, then -- and reimbursement countries are basically France, Germany and -- these are the 2 main reimbursement countries. We still don't have a reimbursement code there. So the test is not reimbursed. In these cases, if a hospital or if a patient wants to use our test or oncologist wants to use our test, either the money has to come from the hospital budget or it has to be paid out of pocket from the patient as of now.

And the next question, will we small investors see more insiders, CEOs, CFOs, buying equities in 2cureX?

Shall I take that? Let me first say that most members of management, including the ones mentioned in the question and the Board, have bought shares in 2cureX. And actually, these 2 bodies have, I think, about 29% of the shareholding. Now it's pretty obvious that I cannot from both privacy and insider reasons so what transaction will happen in the future. But we actually have a lot of shares collected in the management and Board at the moment.

Perfect. So we have two questions left. So I think we will just take those 2 to make sure that we answer everything. So the next question. Congratulations to your latest grants, well done. Can you tell us a little more about the international randomized trial FOXTROT? Which countries are included and et cetera?

Yes, it is a huge trial -- huge randomized trial. And it's called FOXTROT because the treatment, it has nothing to do with dance. The treatment being used is FOLFOX. It's a standard chemotherapy regimen of 3 drugs. And the trial is conducted in 4 countries with 85 centers, and that is the U.K., Denmark and Sweden. And they have collected samples from, I think, 2008 to 2016. The purpose of the trial was to take these earlier-stage patient that our new project are targeting. All of these are being offered surgery. In the FOXTROT trial, they treated the patients before surgery with this FOLFOX to see if the patient would come out better. And that turned out to be the case. There was both a reduction in tumor size, and there was a clear prolongation of what we call the disease-free survival period. These patients are actually followed now all the way to what we call overall survival. So that success of that huge trial have actually led to 3 or maybe already 4, there are 4 that are applied for new trials of neoadjuvant trials. They are still called FOXTROT, but now it's not only FOLFOX. Now it's different drugs that are being -- the patients are being treated with. That fits perfect with IndiTreat because we are offering exactly those treatments in our 3 -- the Start, Extend and Explore. So FOXTROT just dropped down from heaven to us because all these patients will -- we're pretty convinced this will be standard of care will go into guidelines, so all of them that will be offered surgery will first get a neoadjuvant treatment and obviously IndiTreat test.

Perfect. And the last question. Today, you performed the testing in Copenhagen, which probably means higher logistics and transportation costs. What is the [ current ] gross margin per cell test? And at what level do you expect gross margin can hit when scaling up testing and afterwards, do testing directly at hospitals?

Yes. So first, I think for obvious reasons, we cannot disclose gross margin per test. I mean, to start with, this would put us in a very bad position to negotiate with hospitals and payers. So I'm going to skip that part. But certainly, yes, of course, as of today, there are logistics costs associated with the transport. And this cost will be be gone when the testing is done in the hospitals. But this being said, that's not the main purpose of the decentralization. The main purpose of the decentralization is to access geographic markets that we cannot access today. So today, we cannot access the U.S. market. We cannot access the Middle East market. We cannot access the Asian market. With -- when we are able to test in the hospitals, then the whole world is actually available for us. That's the first and most important thing. And the second one is that we think that it's going to accelerate the penetration of the test because it's -- yes, I mean, some people are reluctant to sending samples outside by principle, not by cost, by principle. They are reluctant to sending samples outside of the hospital. They will prefer to run all the tests inside the hospital. Then these are the 2 main reasons why we do the decentralization. Yes, there will be a cost reduction due to the less transport cost, but I think this is more a side effect that the main purpose of the decentralization.

Perfect. And that ends the Q&A. We have now answered all the questions. So I will hand over the mic to you for final remarks before we end this Q&A.

Yes. Well, just thanking everybody for staying up late to be in this session. We hope that it was informative. We -- the main purpose of this is to increase the transparency, to increase the exchange of information with our shareholders. We will continue to do that going forward, as Ole explained. Any feedback that you want to provide us, please do, if you like this format, if you don't like this format, if there is anything that we can improve. And with that, I will just say good evening, and see you soon. Thank you.

Thank you.