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

2cureX, a company that aims to help oncologists in finding the right medicine for individual cancer patients, have published their report for the second quarter in 2023. And to discuss the report and activities, I have in the digital studio, CEO, Fernando Andreu. Please welcome, Fernando.

Hi. Thank you. Thanks for having me.

It's great to have you. Let's start off with numbers. Net sales increased to SEK 67,000 compared to SEK 8,000 in Q2 2022. What are your comments?

Well, I mean, it's obvious that these are still marginal sales. Remember that IndiTreat is not yet reimbursed in any country. And this means that there is no automatism to the sales as there will be one day. So this means each sale is an individual operation, so to say. But we are in the very early stages of the commercial development. And actually, what we should look is at the total income, including grants, because grants are a very, important source of cash for us. And here, we had SEK 1.5 million in the first half of the year compared to SEK 0.9 million last year. So we have been developing very well. If one would want to track or to assess the traction of IndiTreat, then it's better -- when looking at the -- for the time being, looking at the number of samples that we test, this is a better metric, probably. And here, in the first quarter, we tested 18 samples. In the second quarter, we have tested 46 samples. So I think, this is a significant number, despite we had delayed some clinical studies that were to contribute to the number of samples, but still 46 to 18, we think is a good development in the number of samples.

Yes, it's a great improvement. What do you expect going forward? Is it the same kind of growth?

Yes, actually, we expect to accelerate because -- so last year, we had announced that we would start 2 clinical studies. And these are clinical studies that are not related to new drug, or sorry, not related to new test approvals. But clinical studies for the products that we have already in the market. So this is the kind of clinical studies that are done in order to spread the use in routine conditions. It's kind of a complement to the IGNITE program. Now we decided -- because of cost containment measures, we decided that we will delay the start of these 2 studies to the second half of the year. So the contribution that we had in the original plan for the first half of the year from these studies in terms of number of samples has not happened. We expect to see, at least partially that, in the second half. So we should see a higher increase in the second half.

Okay. If we move on to your result and profit before tax was minus SEK 8.7 million compared to minus SEK 6.4 million last year. What is driving these numbers?

Well, I mean, we have higher personnel costs than we had in the first half of last year. And this has been driven mainly because of the requirements of our commercial rollout and because of the requirements of IVD-R, this transition in the regulatory environment in the IVD space. It puts a heavy, heavy burden on companies on how we develop our products and how we document everything, on how we prepare the technical files for submissions, et cetera, et cetera. So obviously, last year, we had to increase our head count. And then we are seeing the effect in the P&L. On the other side, if we look at the expenses without staff cost. Actually, we are spending significantly less in the first half of the year than we did last year. So we are keeping -- we are very cost conscious. We are keeping very tight control of our operating expenses. But of course, the circumstances of where we are in terms of the development of the company and the requirements of the industry lead us to this increase in head count that we had.

Yes, nothing to think too much about that. But you also will probably increase your cost starting after the clinical test.

Yes. Well, that's built in. And that's built in our plans. And yes, we will increase these costs. But on the other side, we are going to offset with other reductions. So we expect a similar level of expense going forward. We will still keep everything under tight control.

Okay. And so let's move on to the more really interesting part, your commercial rollout and your commercial pipeline. It's happening a lot here. Can you please go through what you have done in the quarter and how the pipeline has improved?

Yes. So here, just for everybody to understand. When we talk about the pipeline, we talk about all hospitals where we directly, or together with our distributors, are in discussions for the use of IndiTreat, okay? And these discussions are long. These discussions involve multiple stakeholders in the hospital. So from the moment we -- we present IndiTreat for the first time, and we discuss how patients can benefit from this in a hospital to the moment when they will be using this in routine, this is a long process. And this is a process that, as I say, involves clinical stakeholders, not only oncologists, but typically pathologies, radiologists, et cetera. But then at one point, it also involves economic decision-makers. So there is a process. And what we do is we track this process and how many hospitals do we have in this pipeline, in this commercial pipeline or commercial funnel, some people call it. And what is very important is to see the progress quarter-by-quarter and how the different hospitals are circulating through the process, so to say. So from the -- since the beginning of the year, we have added 53 hospitals to the pipeline. So we are now in dialogue with 201 hospitals across Europe. Different degrees of maturity. Some of them, we are still in early stages of the discussion. Some of them, we are in the late stages of discussions. Some of them have already signed for the IGNITE program, 30 of them actually. Some of them have already started sending samples, repeatedly sending samples. So we are spread all over the pipeline. But I think 53 more hospitals compared to the beginning of the year is a huge achievement. It shows the importance of our distributor network. And also, I think that -- I think, no, I know. I'm sure. There is no other company in our space that is in active dialogue and mature dialogue with more than 200 hospitals at the moment, probably not. And just to mention, these 200 hospitals do not include the new leads that we generated at ESMO GI at the beginning of July. This will be added to the pipeline that we will disclose at the end of Q3.

Yes. I will get back to the ESMO GI. But first off, you mentioned in the broadcast from this summer, that I watched, that you have your 3 biggest markets right now that are Poland, Germany and Spain. But there are 3 other countries that are growing faster. Could you elaborate a bit on this?

Yes, yes. I mean, this is -- in absolute numbers, it is no surprise. I mean, Poland, Spain are the largest markets where we are. So in absolute numbers, that's not a surprise. But then, we had some other smaller countries like Switzerland, like Austria, like Portugal, for example. These are smaller countries, but in proportion to their potential, they are moving very, very fast. So we are tracking this, obviously country by country, distributor by distributor. We are seeing how the pipeline evolves. And this is the basis of our interaction with them, of our -- this is how we manage the commercial operations through the distributors.

You also mentioned the process while talking to hospitals, and you have divided into, I think, it was in 4 or 5 steps?

Actually, it's I think 7 stations.

7 stations, yes. How do you prioritize between these phases?

I mean, in reality, it's not so much how we prioritize because each conversation with each hospital has its own dynamics. So it -- some of them will just move from Stage 1 to Stage 3 or Stage 4 or Station 4 in 1 month, and some others will take 6 months to take this journey. So it's not that much how we choose to do it. But what we do monitor certainly is, on the one side, of course, how many new fits we have to the pipeline. So we need to continue adding hospitals to the pipeline. That's one thing. And the second thing we measure is, how quickly operations are moving through the pipeline. So in a way, we look at it from a dynamic point of view in our discussion with each distributor every quarter. Where were we the quarter before, how have we progressed in there.

Okay. And if we go back to the conference, ESMO GI. You had a booth there, I think you've been there before. How was your participation received this year?

It was very, very, very successful. I mean, it's always very energizing when you have the chance to go out in the field and speak to real customers to real oncologists, see their reaction when you speak to them, et cetera. I think, a couple of highlights this year. One is that we had a similar number of leads generated traffic in the booth, around 150, if I remember correctly, which is a lot for such a conference. Remember that typically, oncologists are spending their time in the scientific sessions. And they only walk through the commercial exhibition if they find something interesting. So having more than 150 people stopping by and talking to us, that's a huge achievement. That's one thing. The second thing is the degree of maturity of the conversations we had was much higher. So last year, we -- most of our conversations had to start by explaining what Functional Drug Sensitivity was, who 2cureX is. And also, in getting the hospital or the oncologists in this case, to actually acknowledge, in loud the limitations of the genomics approaches that they are using today and the need for new tools. I mean, this last year, that was a process. This year, the difference is, first, the acknowledgment of, yes, we need new tools and Functional Drug Sensitivity Testing is one of these tools. That is already there. And the awareness of how 2cureX was already there. So I would say that the type of conversations that we have had have been much more mature than they were last year.

Okay. Sounds great. Move on. In the summer webcast, you also discussed how you are fulfilling your goals that you have been set up. Could you fill us in here?

Yes, sure. So basically, we are keeping the growth that we had for the -- that we set at the beginning of the year. So we said, we will have SEK 6 million in total operating income. We still -- we still keep that. The main contribution to this operating income was -- is as we have seen, the grants, but we still think that we will reach the SEK 6 million. We had set a goal of 500 samples tested. I spoke already about the delay we have. But still, we are going to start now the clinical studies that we have postponed, as I said. We see a good traction in the number of samples outside of the clinical studies as well. So we also keep that. And then the third one was related to a number of countries where we are present. As of now, our IndiTreat is offered in 20 countries through our direct operations or through our distributors. We had a goal for the year of 25 countries. We said from the beginning, this was not the top priority this year. Top priority is to get samples and commercial traction. But of course, there are significant countries like, for example, Italy, France or Benelux, where we are not in Europe. So we want to address that. We think we will do that in the second half of the year.

Okay. If we take a look at your cash position, you have approximately SEK 26 million, and that will take at least 1 year ahead. What are your activities in the financing?

Yes. So it's always a delicate balance here about what can be set. What we have repeatedly said is that, yes, we have a runway that extends into Q2 2024. So we are not under an urgent pressure as of now. But we are constantly working on multiple fronts to improve this cash position. And this is not only to extend our runway, but most importantly, to accelerate our development plans. The company has been operating or driving this field of Functional Drug Sensitivity Testing for years. Now, it is maturing. Now the competitive pressure is increasing. Now companies are popping up all over, offering services, offering tests, et cetera. So the time to leverage the advantage that we have and the time to start harvesting on the investment of all these years, until the position in this emerging field is not, therefore, that requires funds. We are in a very difficult situation in terms of market conditions. I mean, I don't need to say that. Everybody is aware that standard funding options are nowadays very hard for companies in terms of the conditions that are set. So we are taking our time to look at all options, creative options, nonconventional pathways as well, including everything, dilutive, non-dilutive, hybrids, et cetera, because we think it is in the best interest of our shareholders that we find a good solution, not only for the company, but also to preserve their interest. Therefore, we are taking our time. And as I said, we are not under such pressure yet in terms of timing. We know that people are waiting to hear what are our plans. As soon as we have a specific proposal to make to our shareholders, we will immediately communicate it. But in the meantime, what we do is we keep looking at all these options. We keep tight control of our expenses, and we are using the resources that we have as efficient as we can.

Okay. You have hired a new commercial director. What will he contribute with?

Yes. So the model that we have with being present in countries through distributors is a very good one for a company like 2cureX because it allows us to access markets without upfront costs. So that's very good. On the other side, of course, the challenge is, these distributors, they have a portfolio of products. So in daily life, in daily practice, we are competing for the time and the focus of the sales teams with the other products in the portfolio. It is very important that we are on top of that. It is very important that we are always present there. Now, Lennart, who has joined 1st of June, has extensive experience managing distributors. He has been very successful in his previous companies in precisely this job. And we are sure that we will benefit greatly from his contribution. And I referred to the pipeline that we were talking about. This pipeline needs to be pushed constantly, on a daily basis. So that's basically -- if I would have to summarize in one line, that's Lennart's job.

Okay. You touched upon the outlook. But could you please, what should the investors look out for in the rest of 2023?

Yes. So as said, and maybe summarizing, an increase in the number of samples, an increase in the revenue, that we complete our geographic rollout according to the plan, an increase in the commercial pipeline development, as we have seen in the first half of the year so that we keep increasing this number of conversations or discussions that we are in. And a couple more things. The start of the clinical studies. These clinical studies are almost ready to be started. So we should look at that as well. And also significant achievements in the IVD-R journey. So in the background of everything that we are always explaining, there is this IVD-R adjustment. And this IVD-R adjustment is not only about redoing all the -- or redefining and reworking all the technical files of our currently approved products so that they are recertified under IVD-R before May 2025. That's one part of it. But the other part of it is, there are a lot of things in the company. Quality management system, the organization, the internal processes, the internal documentation, et cetera. That needs to be totally changed to be compliant with IVD-R. IVD-R brings -- IVD companies, almost -- or not almost, maybe probably to a level where pharma companies are in terms of all these internal processes, controls, et cetera, et cetera. So all of this is going on in the background, and this is taking a lot of time, resources, et cetera. But this is not a choice. This is a must. I mean, either we are compliant in time or we are out. So we will also continue to communicate the achievements in this IVD-R compliance journey during the second half of the year.

Okay. Thank you. Keep up the hard work then. And that was all my questions for today. Thank you so much, Fernando, for participating.

My pleasure, Mattias, always. And see you soon. Thank you.

Good luck.