Acarix AB (publ) (ACARIX) Earnings Call Transcript & Summary

Good evening and a very welcome to today's live Q. My name is Filip Einarsson, and I work as an equity analyst here at Redeye with a specialized focus on life science. And today, we're going to dig a little bit deeper into Acarix's Q4 figures as well as the year-end report released earlier this morning. And with us today, we have the CEO, Aamir Mahmood, as well as the CFO, Christian Lindholm. So welcome to you, and go ahead, Aamir.

Thank you, Filip. I appreciate the entry, and welcome to everybody on the call. Thank you for joining. I'm Aamir. I'm the new CEO. Today is my 10th day on the job for Acarix, and very honored and humbled to be here. I think we have a lot of great things going on in this organization and why I chose to join this organization is just basically surrounding the opportunity, the fantastic technology, and, quite frankly, the people and opportunity. So, with that, I want to get into this call. We'll have room for Q&A at the end. So, Push. Full disclaimer surrounding our public listing, here we are. So, who is Acarix? Acarix is a point-of-care device. And really what we're trying to do is to transform early diagnostics in the office setting. So, point of care, something that is not a current opportunity. This is a first-in-class device that truly can set a significant precedent surrounding cardiac diagnostics, surrounding cardiac -- any type of cardiac core area event. So, this is something that's first-in-class, as I mentioned. We've got FDA de novo clearance. And quite frankly, we're very excited to be able to bring this to the U.S. market, which is an untapped market for us. Push. So, as many of you guys know, there's many, many opportunities for patients to get examined. They're -- you've got the CT scans. You've got the stress test. You've got all these kind of challenges that are a little bit burdensome to the cost basis of cardiac coverage, as well as the procedures that involve -- the timeliness to get into the procedures, as well as the physician's time to make sure they understand it and review and do the diagnostics to be able to present to the patient. So, what they need is improved stratification in their risk assessment and an ability to understand what exactly the stable chest pain means. And it's a very common presentation in patients. 9 out of 10 patients will see it at some point in their lifetime. Next. So, where we're at from a device standpoint, this is the cardiac CADScor system. And essentially, what it's going to be able to do is provide that point-of-care offering to diagnose and to really limit out, at 96.2% efficacy, the risk of cardiac coronary disease. So, this is something that is not currently available. This is something that could really provide an opportunity to not only the patient to understand whether -- what's going on with their own health in regard to any sort of chest pain immediately, to define the anxiety level or to progress an additional risk stratification. So, as you can see here, it's fairly simple. If the score is less than 20 after the acoustics in computational progression of learning, within the device predicts whether it's 20 or below, the patient has very low significance of CAD. If it's higher, at 20 points or greater, they need to continue to go down the referral pathway for additional risk stratification. So, it's a very simple to use system, but a very effective system in determining what patients need to progress forward and what patients really do not have that fit, because as you can probably see, in the scope of 20% to 40% of patients that are set forward for additional risk stratification, be it CT scan or a stress test, really don't need it after being -- after having gone through the entire test procedure of a CT scan or stress test -- it was not needed. So, that's where this really becomes an opportunity in regard to the payers, which is a very significant thing. Health basis and cost surrounding health care are extraordinarily expensive worldwide, particularly expensive in the United States. So, this is something that, as I mentioned, has a 3-faceted value proposition, the payer, the patient as well as the physician. Push. Really exciting news as of recent, we got on the federal supply schedule for the VA, which is very near and dear to the United States and the people. These are the vets that serve the country in public service. And really what this does is it opens up a very, very significant population for CATScor to be adopted. And in many of these institutions, the delay of care is not something that is well reflected. And CATScor will really provide that opportunity to risk assess patients immediately in a rapid fashion, anywhere ranging from 7 to 10 minutes, and define who needs to move forward in a much more streamlined and effective way and mitigating the risk of bring -- sending patients that really don't need to go in and bundle up the system with delays or timeliness of being able to be diagnosed and treated. So this -- what this opportunity is, is it really stratifies the actual purchasing process. So, there -- very ease of entry into the market nationally at this point. And so we're going to see some significant traction in adoption, which we've already seen over the past 8 days that it's been announced. So, we're really moving, and this is going to be one of the single largest opportunities for us in the near term in regard to commercialization efforts. And we have a significant focus and incentive based around making sure that this gets traction and continually focuses on really driving our top line revenue and our engagement with usage. So, what we're doing on top of that? So, reimbursement, which is also a slide ahead, the 2 things in this space that are vitally important to success are reimbursement as well as real-world analysis, right? So, real-world data, clinical evidence that this device is actually working, because, as you remember, as I mentioned, this is first-in-class, right? So, this is something that's going to be provided to patients that -- and physicians that really are just continuing with the standard of care. So, to break that habit of just assessing patients via CT scan or stress test, this is where we're going to have to really provide the real-world evaluation studies that can show the differences of patients being able to have the CATScor opportunity and then subsequent CT scan and risk assessment of stress tests as they need, if they're needed. So, that's really exciting to us. So, what we're doing is we're launching immediately 5 or 6 evaluation sites in which we're going to be able to trial 100 to 200 patients in a relatively rapid fashion. The hope is we can do this in a couple of months to be able to bring the data and then show real-world data as to how effective the CATScor system is in ensuring the streamlining of processes as well as sanely discharging the low-risk patients, right? So, those are the 2 things that are vitally important in health care. We want the speed of therapy to be quickly to patients who are needing it and really get the patients that are not needing any CAD risk stratification out of the system. Not only, one, does that make them happy, but it also alleviates the stress within the system. Moving forward. Again, this is something that was just announced this morning. So, we are really, really excited, and I'm very, very excited to announce this new commercial and clinical strategy team. So, Professor Gotte is one of the leading cardiologists in Germany, but more pertinently, he is the single largest user of CATScor. So, he has a great deal of experience that he continually shares with us. Dr. Baron at Mass General is a scientific collaborator with us. She actually has an ACC poster that has been adopted and it's really showing the clinical cost efficacy within CADScor System in the system. So that will be presented this year at ACC in April. And then Ken Nelson, he's a med-tech innovator. This gentleman has 2 decades within the space specifically focusing on the United States, has been part of many, many big digital health companies, truly is a digital health expert at this point in his career. He was part of the BioTelemetry, which is a Holter-based company that was acquired by Philips. He was also one of the key people and initial people at iRhythm Technologies, which is -- has the Zio patch, which is something that kind of progressed the business into patch-based Holter monitoring. And that company went with a very, very successful IPO. And he also was Chief Commercial Officer of Bardy Diagnostics, which, as everybody here probably knows, was another digital health company in the cardiovascular space that was acquired by Hillrom. So, currently, Ken Nelson is on the med-tech -- is a partner in the Medtech fund Advantage Fund. He is also on many, many boards, including CardiaCare, HeartBeam and actually, I think he's Chairman of CardiaCare. So really, really excited to have him on board because just his experience level and relations will help us to continually progress Acarix on the right trajectory here moving forward. Dave Brown is a business executive in the United States with a global presence. He actually has been a strategic adviser to me before, but also has been a strategic adviser to a number of companies. And his specialty surrounds deep-diving and strategic opportunities, finances, investor relations and banking relations. So very excited to have him on with his experience. And then wrapping up this Board of 5 with Dr. Saumil Oza. He is a cardiac electrophysiologist at Ascension Health. He is a very, very astute developer of products. He's on a number of startup company and biotech company advisory boards to assist in commercializing and strategizing the scientific approach to devices. He's very excited about Acarix for his practice as well as what we can do to help the entire population to be risk-stratified, and subsequently also sits on the Board, Advisory Board, of Boston Scientific, and Novo Nordisk, Johnson & Johnson, and a number of private equity and VC firms. So really excited to have these guys on. They bring a deep, deep understanding of the business as well as the scientific nature of the business and technology nature of the business. So, they're really going to help us to propel this organization in a rapid fashion forward. We are very focused on making sure shareholder value is one of our priorities, right behind patient care. So that's one of the key reasons we're really focused on all 3 of these aspects, but most pertinently, making sure we're helping to develop the opportunity as well as the therapy for the commercial adoption in the United States to manage these patients. Moving on, so we'll continue. So part of the process here is reimbursement, right? So that's really important for physicians and health care organizations, to make sure that there is some compensation and return for these diagnostics that are being done. Of course, we have FDA de novo clearance, so that means we're first-in-class. And we've got to really set the precedence, which is not easy. It's something that does take time. Two of the key measures that we're working towards is continue tracking the payments to substantiate widespread usage. Usage is critical, right? So, we have to have the adoption, and these payers have to see the submissions to really adopt it and create its own code and to create the involvement surrounding access and pushing this thing where it's a little bit more adopted reimbursement from a reimbursement perspective naturally. And then secondly, as I mentioned, capturing real U.S. data, we have to have the real-world data to show these organizations that this does bring value not only to the patient but to the system as a whole. And then lastly, working with ACC and other agencies to get the endorsements to really progress this thing forward. So we're continuing to develop all the reimbursement traction that we can. And I anticipate that this will ramp up quite rapidly over the course of the next 3 to 6 months with wider adoption, the VA opportunity as well as the clinical evidence that we're going to progress towards -- we are actually progressing towards at this immediate time. And hopefully, we'll have some resolution to that before the end of this quarter. So, with that, we will have Q&A later. But at this time, I'll hand it over to our CFO, Christian.

Thank you, Amir. Thank you. So, we start with the patch utilization, and we have discussed it earlier. It is the customer's usage and our sales of patches that will drive the company's long-term growth and profitability. So, during this quarter, we have an increase of accumulated sales of patches by 39% over the past 4 quarters. The growth is below our expectations and partly affected by delays in the U.S. federal budget, which, I mean, in turn, affects the sales to key customers in the U.S. market. And so, we are following our customers' patch consumption closely. And currently, we have an average daily consumption of patches between 0.5 and 4 among our -- 4 patches per day among our active customers. So, we see a higher utilization rate per system in the U.S. market compared to the European market. So, during the quarter, we recognized revenue of SEK 1.2 million is generated from sales of 5 systems and 2,100 patches. It represents a 29% reduction in revenue compared to the same quarter of previous year when we sold 13 systems and 2,100 patches. So the higher average sales price in the U.S. market resulted in a relatively lower reduction in revenue. Looking into the gross margin, we had an increase to 88% during the quarter, representing an increase of 8 percentage points compared to the same period previous year. The reason for this is the increased sales in the U.S. market and an increased portion of patches sold compared to system. And the systems had a little bit lower gross margin. Looking into the EBIT for the period, it was minus SEK 22 million, which is slightly better than the fourth quarter of 2022 and is attributable to expansion in the U.S. market. So, looking at the current OpEx level, we see approximately a saving of SEK 8 million annually in 2024 compared to 2023. Alongside the focus we have on the market, we really -- we continue to monitor our OpEx very closely. Yeah, there we go. So, as clearly explained by Aamir's presentation and our communication to the market, our strategic focus on the markets continues. So, looking at the rolling 12 months revenue, we see an increase of 7% from SEK 5.8 million to SEK 6.2 million in 2023. The growth is also, of course, below our expectation and is partly explained by the delays in the U.S. federal budget, which in turn affect the sales to our key customers. Furthermore, I mean, the plan and the executed focus we have and the resource allocation to the U.S. market have a negative impact on European sales, as planned. And last but not least, I mean, obtaining an acceptable reimbursement level from insurance companies is in the early-stage time. It's very time consuming for the -- for our U.S. customers. And we are -- of course, we are supporting the customers in that process. So, that's the 3 key explanations. On the positive side, sales in the U.S. have doubled for the fourth quarter compared to the fourth quarter of previous year. And the U.S. share of revenue accounts for 58% of the total sales. So, by that, back to you, Aamir, for ending the presentation.

Thank you. So it's a really exciting time here. We're going to continue our focus on U.S. expansion, the world's largest market, with some of the greatest average selling prices worldwide. We've got the European validation, the commercial strategy and businesses with sales in Germany, Australia, Switzerland, Nordics and the U.K., but really the U.S. is where we're really focused on. It's ideal timing, so we've just recently announced that we've got the de novo clearance. We've got the CPT III code. Just under 14 million patients present on a yearly basis. So, we anticipate that market as a whole is around $1 billion in market opportunity. And given our high margin on both aspects of our business, the capital piece as well as the disposable, we're really excited. So, as this thing kind of progresses, what we need is the continued focus surrounding our expansion in the U.S., our commercial opportunities in the U.S. And given the fact that this is my 10th day and what I want to reassure all shareholders and investors as well as physicians and patients is that we're going to take a comprehensive look at everything that's going on in this organization, expand on all the opportunities we can, expose the weaknesses that we have, and fix those weaknesses as rapidly as possible. So, just give a little bit of time. We'll get through this, and we'll get this thing on the right track. I'm confident in our abilities. I'm confident in what we're doing, and I'm confident this technology is widely needed in the U.S. And again, remember, the value proposition is fully encompassed to the patient, the physician as well as the payers. So that in itself makes it a wonderful opportunity, and we will see this thing progress where we need it to. So, with that, Filip, I will send it back to you.

Okay. Thanks a lot, Aamir and Christian, for the walk-through of the company as well as recent developments. And I thought I, on my end, could start with [ Aamir ], of course. I mean, as you mentioned in your presentation, 10 days on [indiscernible] inside Acarix. And I'd be interested to hear, from your point of view, as the first quarterly report as the CEO, what would you say are the sort of key takeaways for the coming, let's say, 3 to 6 months? What should one look out for?

We've -- we're not extraordinarily happy with the results from Q4. I think that's needless to say. However, what we do see is an opportunity. I think that a lot of the things that have been done here have been done well. I think there are some things we can tweak to really accelerate our top line. In regard to adoption, I think that there's a number of opportunities we can look at from a clinical and strategic standpoint for partnerships in developing and progressing forward in the clinical evidence that's needed for the U.S. And I think that we're going to be able to develop a lot more conversations surrounding payers and really getting that reimbursement that needs to be -- that really needs to be put in place in a more effective way than a long-term way because that's really where we're going to see the adoption. And how is that going to progress is just as I mentioned. We're going to need the clinical evaluation done for the U.S., which really assists in the clinical evidence and the benefit of the device, which will get garner the usage, which will then get the attraction of the payers. And that's where we'll truly have the adoption of the payers to continue moving forward in the reimbursement theme.

Right. And just revisiting, you, in the presentation, also mentioned your Advisory Board, which actually, today, you, I think, announced a press release with a few additions to it, right? And it will be interesting to hear a little bit more about what will be the initial focus on this Advisory Board.

So, this Advisory Board will specifically focus on the clinical data, how we present the clinical data the most effective way, additional clinical data, and what the protocols will be in those workflow opportunities that we're rolling out now, and then commercial opportunities to really -- to stratify our P&L, mitigate the expenses we don't need, progress forward in expenses we do need and investments we do need, and then revitalizing the focus on the commercial efforts and making sure that we have the right people in place, the right partnerships in place, and the best avenue for us to be able to get the trajectory on the right track in growing our top line.

Right. So, we have received actually several questions from a group of investors here that I thought we should bring up to the table and sort of discuss. And we can just start off. The first question is related to the directed share issue that Acarix announced a little while ago. And it's about that in [indiscernible] shares issued, the new owners will have about 20% of the company. Yet, no one knows who they are. And could you explain why that is?

Yes. First, I don't think I could really disclose who they are just without their permission. But more pertinently, these are all U.S.-based investors. So, they're all vetted investors that are part of VEC firms, part of PE firms, as well as cardiologists that are in this space. So, I think that there's a broad group of people. And I think that, once it all has been closed out, I think that that's where we maybe can announce the names. But at this time, I just couldn't do that.

Right, right. And then is it possible you could say anything on how you got in contact with these investors, maybe?

Yes. So, a lot of them are people that I've worked with in the past. We've -- I've been part of companies that have gone through fundraising processes. So, these were opportunities that were presented. I think that there's a lot that has been done in the marketplace without my involvement just based on the fact that I am here. I think that people value the background I have, what I've done in previous organizations, and I think that's where a lot of the growth in our share from the U.S. and shareholders in the U.S. is truly coming from.

Right. And the next question is also related to this topic. And it's about -- I mean, you recently did a directed share issue, and you also have a warrant exercise. Just in the next few days, it starts, the period. And how does this look? I mean, how is the cash position in relation for, let's say, the coming 6 to 12 months in relation to this?

Yes. So, Christian, I'll let you take that one.

Yes, thanks. Yes, so that question is related to our burn rate. And actually, the warrant program, that is running now in March and in September. And the simple answer on that is that we are counting on those burn programs. And we -- I mean, if we are in the money in both of them, we are clearly above 12 months [ growing ] concern. The first one program is going off now in March. And of course, we need some -- we need some traction on the share price in order to get into the money for this warrant program. But we are quite sure that positive things will happen now during the next coming quarters and the next warrant program will, for sure, be in the money.

Right. And the follow-up to that question from the investors is pretty much then, I guess, is it possible to remove the floor? Because you have a floor on the warrants which you said SEK 0.75 - SEK 0.25, sorry. Is it possible to foresee that or change that is the question basically?

We have discussed that internally and also together with our legal advisers, and it's not possible to do anything about the floor or the timing of the warrant program. So that remains.

Right. That's clear. And I mean, we've talked today, you presented the report and you presented interesting news related at least to the Advisory Board, and there's lot going on in the U.S. But if we take a step back and look in a few years ago, Acarix announced a financial vision, and that was to a tune of approximately SEK 200 million in 2024. And it will be interesting to sort of hear your take on, I mean, current actions. With the government budgets, et cetera, how is this looking from where you're standing right now?

So, we are not, as an organization, changing any guidance at this time. But remember, it's my 10th day in. I am reviewing everything, and I think we will have a full assessment, top-down, bottom-up, to really get a better understanding of the fundamentals surrounding where we're at financially, where we're going from a revenue standpoint, as well as we have seen some traction at the VA. The budgets in the U.S. have started to get reassessed and put back together. As you know, a couple of things happened. There was deployment of funds from the U.S. to a budget overseas, and I think that's going to be [ precepitous ] of moving things forward. So, we're hopeful to see some of the traction that we have and some of the initial reactions we have of the new FDA contract coming to play as well as those POs coming in and actual sales being conducted. So, at this time, what I would say is that give me a little bit of time to review everything. Let me get on the right page, and then we'll assess how we move forward from there.

Right. And then sort of on this topic, the next question relates to the VA actually, as we talked about. And it is, how quickly do you think you can receive a VA order after the budget is set?

Yes. I would hope for yesterday, but we are on track. We have many, many things going on. I mean, I'm in conversation on a daily basis with the commercial team as to what we're doing, where we're at, what's going on. We have, as I mentioned, significant traction. And honestly, I think some of the first sales should come in, in the coming days.

Right. So next question then, it relates to -- with only 5 units sold in Q4, which is lower than the previous quarters, you have clearly shifted focus from smaller deals to slightly larger ones in the form of VA and IDNs. Could you tell us more about this? How are these deals progressing? And how many units are we talking about per deal? [indiscernible] it's many questions in one [indiscernible].

I understand. As an investor, I'd ask the same question. So, I don't - I know the -- that the question is of importance. However, I can't -- I don't have any metrics to actually give you the amount or the volume that could be predicated by any of these deals. But as we mentioned on the actual interview I had with you, the way the U.S. market works - and it comprehensively shifted about 12 years ago to where the economic customers such as the IDNs, the GPOs, administration within hospitals, really took over the ability to make decisions, where it used to be the actual physician, when the physician could drive decisions, the physician could drive purchasing decisions, like, almost immediately without even giving -- consulting with the administration. They could just move forward. But as the paradigm shifted to the economic customer, IDNs and GPOs, as -- they just become paramount in doing any business in the United States. I mean, they facilitate the majority of the U.S. business, which is very, very significant in regard to medical devices or any sort of purchase that is regarding health care. So, getting on these IDNs and GPOs opens up a massive opportunity, right? So, when you look at the purchasing power of these guys, I mean, you're looking at one of them, one of the top ones, it's $100 billion a year. That's just 1 out of, like, 12, right? So, the larger GPOs. So, the opportunity itself presents in a way from shifting, and we're not disregarding smaller opportunities. Let me be very clear about that. We will take every sale possible, and we will focus on every sale possible. However, to take this company to the level I expect it to be, the IDNs, GPOs are critical to our success, including the VA, which is its own IDN and GPO. Those are the things that will transition the stock to where it needs to be. This is where it will take the company where it needs to be from a revenue generation standpoint as well as a bottom-line standpoint. So, we can't be as successful and wildly successful in any market without having the ability to drive these national larger tenders and contracts.

Right, good clarification. So, next one, in conjunction with the directed share issue, it was stated that a portion of the proceed would be used to ensure delivery in innovation projects. Are there any ongoing projects within the company that shareholders are currently not aware of?

No, not at this time. We're developing the next generation of CATScor, the seismic cardiographic. We're having -- that's continually in development. We're just working through the processes as we speak. We hope to have some prototypes coming soon, but those are our 2 significant focuses, right? So coronary artery disease and heart failure are 2 of the largest challenges this world faces, in the U.S. specifically, both near and dear to my heart. I think that this is something, no pun intended, but we do expect good things to procure with our development pipeline.

Right. And you mentioned heart failures. So, I guess that takes us into the next one then related to the [ sales floor ]. So where is the [ sales floor ] standing today? Or is the project completely on hold, or are there developments happening in the background? If so, please elaborate.

Nothing's on hold. We're still focused on how we're going to generate this internally with R&D. They're still focused on both of these opportunities. So no changes to that opportunity at all.

Right. So, the last one, I guess, relates to sort of a forward-looking statement then. It's a long one, so I'll just summarize it. But what can you tell the shareholders in this company to sort of -- what would be the sort of breaking point or what should they focus and look forward to after these few years where things have been moving at a slower pace than initially anticipated? What will turn the table, so to say?

I think that there's a lot of things that could turn on the table, right? So, I'm a new CEO. I'm a high-energy guy. I think that I have a significant broad base of people in the U.S. that can help us to assist in moving this thing forward from every aspect in the business, as represented with Dr. Oza, Ken and Dave being brought on board. I'm also not a guy who thinks I can do everything myself. I'm very open to feedback. I'm very open to help. So, I think what has procured in the past needs to be the past, right? We're going to take this in a new direction. We're going to take this from day 1, which was February 1 for me, for new shareholders. What I can say is that I have a vested, significant interest in making sure this is going to be a wild success. I think it's going to be a very important thing for all of us to stay in line and positive regarding where we're going. And the commercial side is going to be critical. So , we're looking at every single avenue and every single sales model that could procure the best for the patient as well as shareholders from a bottom-line standpoint and a top-line standpoint. So, I think what we'll do is we'll continually focus, and what I can say is just be optimistic for what's in store.

Right. So, I think that was all on my end, and there's no more questions coming in right now. So, I guess I will give you an opportunity, if there are any concluding remarks you want to leave us with here today, Christian and Aamir.

Yes. So, Christian, if you have anything, feel free to jump in. But, listen, I know what the past has been, but the past will not predict the future. I think that we have a tremendous opportunity. This device is relatively an unknown in the United States. Quite frankly, I've been in the business greater than 20 years. And when I was approached by the folks on the Board for this opportunity, I didn't even know what Acarix was. I do know what Acarix is. I've been in the business long enough to know it's a home run. I think that this opportunity is going to present itself, as I mentioned, in a multifaceted value proposition that is very difficult to achieve. So, I think we're going to have the ability to drive significant traction, adoption, get the reimbursement in place, and then it's just something that could be a very fun ride. So, with that, all I can ask for is the continued support. Let's stay focused together, and together, we'll go places.

All right, perfectly. So, I would like to thank both of you, Aamir and Christian, a lot for today's participation, and we hope to hear more from you in the not-so-distant future and good luck with the future commercialization on the U.S. market.

Indeed. Thank you, Filip.

Thanks.