Cosmo N.V. (COPN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the release of half year results 2021 conference call and live webcast. I'm Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Alessandro Della Cha, Executive Director and CEO. Please go ahead, sir.

Thank you very much. Welcome, everyone, to our half year report 2021 conference call. I hope the presentation is visible for you all. Let's start with a quick introduction and a recap on where we stand. Currently, our half year is ending with EUR 28.4 million revenues, EUR 15.2 million of which is related to manufacturing of our own products and related services and EUR 5.8 million to the manufacturing of generic products and other related services. We have cash EUR 2.4 million of royalties and received EUR 4 million in license fees. The operating profit is EUR 8,000. Currently, the loss after tax is EUR 5.7 million. The cash inflow from operating activities is EUR 12.7 million, which I want to point out is significantly higher than H1 2020 as we are hopefully moving to a situation in which we are -- we have a stable operating profit. EUR 203 million in cash bond and fund investments. You will see when we will break down the detail, that the difference in respect of what we have at the end of 2020 is essentially due to a payment that we have done to complete the acquisition of our company dealing with the artificial intelligence and having GI Genius within these assets and the purchase of own shares, which we have continued to execute throughout the whole first half of this year in accordance with the Stock Exchange rule that do not allow ourselves to purchase more than 20% of daily volumes. Equity stakes in other companies currently is around EUR 300 million, which is EUR 30 million less than at the end of 2020 because of market valuations, treasury shares and loans. Loans haven't moved because our loan of Acacia -- to Acacia of EUR 25 million has remained stable. So the difference from EUR 72.5 million, which you can see, is the increase that I was mentioning in the purchase of our own shares. In equity, EUR 371 million versus EUR 400 million at the end of 2020, which is all due to the difference in the valuation of the equity stakes in our companies. The situation in respect of our product has significantly changed because, as yes, you all know, on the 12th of April 2021, GI Genius has been approved by the FDA. So now we have 2 marketed medtech products: 1 approved therapeutic Methylene Blue MMX for Europe and 3 marketed therapeutics and we believe reached development pipeline. Let's quickly go through the key events and update for 2021. As I was mentioning, the most important news alone was the approval of GI Genius by the FDA. GI Genius was approved in the 12th of April, and Medtronic has launched the product more or less 1 month after the approval. So you have to consider that all we're saying now about GI Genius basically covers only 1.5 months, so mainly from the half of May to the end of June. The reception of the product has been very, very good. There's been a lot of attention. Everybody is super excited about that, and I'll walk you through some data in a moment. But in the meantime, a lot of other things have happened in this first half, which I think deserve a mention. First of all, we've had the successful outcome of our Phase II proof-of-concept for Rifamycin 600 milligram in IBS-D. We have licensed the European rights plus Switzerland, U.K., EEA countries, Russia and Mexico for Lumeblue at Alfasigma S.p.A. You will remember that we have licensed Lumeblue for China, the China Medical Systems only and the beginning of December of 2020. Now it was the turn for Europe with Alfasigma. Very important event also just a couple of days ago, our associate, Cassiopea S.p.A. has announced the signing of license and supply agreement with Sun Pharmaceutical Industries for Winlevi in U.S. and Canada. And further, on the manufacturing side, we've entered into an agreement with RedHill Biopharma to manufacture 3 very important products for them: Movantik, which is the one that's currently selling more; RHB-204, which is their new drug against pulmonary infection; and Opaganib, which is a very, very promising antiviral drug that is now being tested for COVID-19, and we are waiting for the results of the Phase II/III trial at the beginning of August. Just keep in mind that the intention of RedHill, if Opaganib is successful in the Phase II/III. They will immediately ask for an emergency authorization -- sorry, an Emergency Use Authorization. And they're very hopeful that this is going to be a substantial driver in their increase of value. If we go into a little bit more of the detail. GI Genius, in April 2021, as I said, the FDA approved this revolutionary device for lesion detection during colonoscopy using artificial intelligence. And this is really a breakthrough. I'm not sure that the market has understood at all the potential of GI Genius and what this really means. It's just sufficient to say that this is the first device of its kind to obtain the FDA approval through the De Novo application. The De Novo application is deserved only to devices that introduce substantial innovation to the landscape. The assessment of the effectiveness of GI Genius was done through a multicenter prospective study that was executed in Italy, which actually was not controlled by us at all because it was an investigator-initiated studies performed by 3 completely independent physicians over 700 subjects between 40 and 80 years old. And this study show that the adenoma detection rate with GI Genius was 55.1% compared to 42.0% in standard colonoscopy, so a net increase of over 13% in absolute terms, which was deemed extraordinarily significant. Now in this 1.5 months since the moment that the product was officially launched, in the U.S., we have delivered 261 devices to Medtronic. We're planning to clearly deliver much more. We are manufacturing consistently. We're receiving significant orders, and we plan to be in a position to inform the market more thoroughly about what is happening from the financial side later on in this year. This is also due to the fact that because of the agreement that we have signed, we cannot really make upfront communications on the financials which are not pre-agreed with Medtronic. So we need to communicate only data which have been pre-agreed with them. But I think that if you consider 261 devices in 1.5 months, this is quite a significant number, which allows us to be very optimistic about what is going on. Besides, we're receiving feedback from physicians and centers, and there's a lot of excitement around this. Just keep in mind that in Europe, Australia, Israel, United Arab Emirates have already approved the product as well. So we have sales starting there as well. But keep in mind that the sales activity in Europe, which began at the end of 2019 after the official presentation of the device at the UEGW in Barcelona, was then practically stopped because of the pandemic. Just one important thing to mention, in the first line of the slide, you see sales are expected to commence in the second half. And this is because the vast majority of the cases when Medtronic deploys the device to a client, it gives it together with a 60 days evaluation period. So basically, starting from mid-May, with the first devices being delivered to clients, the evaluation period stops around mid-July. This is why you will technically see sales commencing in the second half. But it's important that you remember that this device is being sold through a subscription service and there will be a subscription fee for a year, which won't be lower than an average $40,000 per year. But every single device is contracted for a minimum of 3 years, which means, therefore, that once you see a sale, the subscription fees that will be generated for that sale will cover not just 1 year but 3 years. And this clearly gives a completely different level of security in respect of the revenue flows. I'll be happy to answer, after the Q&A session, to any further questions that you may have. But I would like you to understand that we have seen the deployment of a tremendous marketing effort from the side of Medtronic. Medtronic has a completely dedicated structure that's taking care of these sales. Medtronic is producing a very significant reason, marketing material, marketing videos, symposia, meeting with KOL. So there's tremendous marketing activities going on, which is precisely what the marketing activity that you should expect from a player the caliber of Medtronic. And I wanted to show you, and this is also one of the reasons why we're having this video call, I wanted to show to you 2 videos. And I think that these videos are very telling not just because of what you will hear and see within the videos, but because of the quality of the video and the thoughtfulness with which the videos have been crafted. I think that's very insightful on the marketing effort of Medtronic. So it is my pleasure to show it to you because I don't think that they could have done any better so far. The first video is a general video of introduction on the colon cancer issue. The second video is specifically dedicated to the product. So I would kindly ask to Moira, please, to let the first video start, and I'll make a brief comment at the end of the first video. Thank you, Moira. [Presentation]

Okay. Thank you. Well, we wanted to show this video first. You see this is a very passionate story about a colorectal cancer patient, but it's important for you to notice that the testimonial that you have seen in this video is also an eminent component of the Colorectal Cancer Alliance, which is the most influential body in the U.S. to support colorectal cancer patients and to promote the adoption of technologies that can improve the quality of colonoscopy and help saving lives. So I think it is extraordinarily important that Medtronic has secured this joint venture with the Colorectal Cancer Alliance in such a way that they will be supportive of the wide adoption of GI Genius as the golden standard for colonoscopy and the way to deliver highest quality to the patient. Now let's have a look at the second video, which is way more informative on the feature of Medtronic that's used by Medtronic to promote the product. But before I start, I wanted to mention one thing. You have seen her at a certain point, she was wearing a mask and she was using certain tools. Well, that is a specific virtual reality tool, which has been created by Medtronic to help understanding how GI Genius works and to help the training in the use of GI Genius. You can basically see the column and maneuver, the scope as if you would be doing a real colonoscopy, which is not clearly the case because you would just experience a virtual reality session. But it's important because this allows any physician and anyone who's interested to immediately capture the benefit of GI Genius without having to test it on appropriate procedure. So let's start with the second video, please. [Presentation]

Okay. So thank you. I think that this video was also very telling. Again, I would like you to appreciate this in terms of effort. I think the message was very clear, was resounding very well, and this is why it's being so much appreciated. I want to reiterate something that I said in the aftermath of the approval, immediately after Medtronic received 152 million contacts on their social medias of people interested in understanding more about GI Genius and 9,000 e-mails of people asking information on the product and how to purchase it. So far, things are playing out the way we were hoping for. And we remain confident that Medtronic will deliver exactly what we are expecting. I would like to move to the next slide now. Okay. This is an update on Cassiopea. In July, just a couple of days ago, well, it was Monday, I think, our associates has announced that it had signed a license and supply agreement with Sun Pharmaceutical Industries for Winlevi in U.S. and in Canada. Let's spend a couple of words, first of all, on Sun Pharma. Sun Pharma is not just one of the largest generic player in the world, if I'm not mistaken, is the Indian largest one, but it's also and I suppose that many of you don't know it, it's also the second subscriber in the U.S. for derma product. So it's a first-in-class in derm sales. And as most of the generic manufacturers, because the drugs that can be genericized are sharply declining and quickly declining in numbers, they have to find replacements. And the replacement that they're looking for is drugs that will allow them to turn into specialty pharma company. So a generic manufacturer normally try to save the dime in the development of their own generic. They try to save as much as possible. They don't want to do clinical trials. They don't want to do testing. They don't want to do development. It is in this context that you have to see the $45 million upfront payment, which is very large by itself. But it is particularly large if you think that it comes from a generic manufacturer. And it's also particularly large because I really need everyone to remember that we're talking about an acne drug and we're talking about the acne market. So we're not talking fortunately or unfortunately, about an oncologic drug or about a cardiovascular drug that have completely different sales potential and completely different earnings profile. This is an acne drug, and $45 million upfront for an acne drug is a very high payment. I think it is, in itself, the proof of the commitment of Sun to make it big. The royalties are standard royalties, but we have commercial milestones, which will go up to $190 million on sales target that we all believe can be easily achieved. And most important of all, although we were not allowed by Sun clearly for competition reason to disclose the details, but Sun has committed substantial promotional and marketing expenses according to an agreed commercialization plan, which is part of the license agreement. So not only we've seen the commitment in the payment of the upfront, but we're seeing the commitment in terms of sales force and marketing spend and marketing promotion. And I'm aware of the fact that Cassiopea has evaluated many potential transactions in this period, and this was, by far and large, the most convenient being simultaneously the less risky. If Cassiopea would have tried to set up its own commercial organization, our estimate is that it would have needed no less than [ 80 million ] to set it up, which would have needed to be raised on the market with subsequent very significant dilution of all existing shareholders and with risk, an executional risk profile extraordinarily high. Not to mention that Cassiopea would have been, for quite a while, with only 1 product to be sold, which is known to make a sales force inefficient because in order to have a sales force efficient, you need to have at least 2, if not, 3 products. So not only we believe that the return on this will be very good, we also think that we have done it with the right partner that will be able to deliver. The license agreement will be effective once the parties have received the antitrust clearance, which we don't except to be problematic given the size of the deal and the size of the relative operations of the 2 companies. It is estimated that this will occur by mid-September. Because we own 46.6% of Cassiopea, Cassiopea will book a significant profit by year-end. And a portion, 46.6% of this significant profit will also directly impact our 2021 results, which is the reason, and I'm anticipating what you will see at the end in the guidance. I'm anticipating that because of this, Cosmo will finally go back to full profit in 2021. I'm saying full profit, which is not a technical expression, just to differentiate this from the operating profit with which we closed our 2020. So not any more operating profit, but finally back to full profit. Quick update on Aemcolo. In January 2021, we have announced the successful outcome of the Phase II proof of concept. We're moving with our licensees right now. We are having joint steering committees and we are advancing, as quick as possible, the deployment of the development plan so that we will be able to engage the regulatory agencies as soon as possible. In the meantime, we have progressed 2 investigator-initiated studies for Minimal Hepatic Encephalopathy and Small Intestine Bacterial Overgrowth. Unfortunately, the trial on Uncomplicated Acute Diverticulitis because of all the COVID-related complication has not been able to start yet. And unfortunately, as you can imagine, because of all the travel restrictions and bans, the Aemcolo sales continue to be adversely affect in 2021 for the traveler's diarrhea indication. In respect of the Methylene Blue MMX update, good news. As I mentioned before is that in December, we licensed to CMS. And in February, we licensed to Alfasigma. We're expecting the European launch by Alfasigma in Q1 2022. In the meantime, CMS in China has filed for approval with the regulatory activities. It is estimated that it might take 1 year to get Chinese approval for this, and we're all looking with interest and hope to the opening of this new market for Lumeblue as well. We have also progressed and keep progressing the discussion with the FDA to prepare the second Phase III trial for the U.S. approval and subject to reaching a final agreement on the protocol or still hoping to be able to commence the trial by the end of 2021, pandemic permitting. I would like now to pass the word to our CFO, Niall Donnelly, that will walk you through the H1 2021 financial review. Thanks. Niall?

Thank you, Alex. So in the first half of 2021, our revenues were EUR 28.4 million. This compares to EUR 25.9 million last year. And we'll come to some more detail on that on the next slide. Our net expenses increased by EUR 5.2 million to EUR 28.4 million. That is an important note here. And that is in H1 2020, we had a gain of EUR 5.3 million, which is both through other income, which netted against our net expenses. And this gain related to the out-licensing of BYFAVO to Acacia. And we also had a fee paid to us by Acacia for a debt equity swap. So excluding that one-off gain last year, our net expenses are in line with last year. Our operating profit for the period was EUR 8,000 versus an operating profit of EUR 2.7 million for last year. We generated cash flow from operating activities of EUR 12.7 million, and this compares to EUR 1.8 million for the same period last year. Our net financial expenses of EUR 1.9 million, and this includes imputed bond interest of EUR 4.3 million which was offset by interest receivable on the -- our loan to Acacia, plus some FX gains. We had a loss after tax for the period of EUR 5.7 million, and this includes our share of Cassiopea's loss of EUR 2.8 million, which as Alex has mentioned, we expect that to go reverse now with the booking of that $45 million upfront from the Sun deal in the second half. So some more detail on our revenue. Our Lialda revenue increased slightly up to EUR 11.8 million. Our Uceris income reduced to EUR 1.8 million from EUR 2.5 million, and net sales by Bausch reduced to EUR 13.6 million compared to EUR 16.3 million as we see the ongoing impact of the generic in the market. Cortiment income was EUR 1 million in the period compared to EUR 2.3 million last year. And I want to highlight that we've moved to a per tablet payment for Cortiment to Ferring now and putting corporate's supply price and royalty. So we had one shipment of product in the first half, and we expect 3 shipments to occur in the second half. So we will see a drawback of this [ deficit here ] that we saw in the first half. We booked GI Genius revenues of EUR 2.1 million in the first half, and this is on the sale of the machines to Medtronic. So when we supply the machines to Medtronic, we bill them for that. And on top of that, we will see subscription income once they deploy that out into the hospitals and ASCs. So we saw, as I said, EUR 2.1 million from that GI revenue source. Our upfront fees and milestones represent a EUR 4 million payment by Alfasigma for the out-licensing of Lumeblue. Just a recap of the income statement on Slide #18. In terms of our balance sheet, we had cash and investment in funds of EUR 203.1 million at the end of June. We had other current and noncurrent assets of EUR 360 million. And this includes our stakes in Acacia, PAION and RedHill which totaled EUR 91.7 million at the end of the period. So we did see some reduction over the 6 months period related to the reduction in the share prices of Acacia and RedHill. Our investment in Acacia is included here and is carried at EUR 133.4 million. We have intangible assets on our balance sheet of EUR 26.9 million and property plant and equipment of EUR 29.1 million. On the liability side of our balance sheet, the main component here is the liability element of our convertible bond, which is EUR 164.3 million at the end of June. So moving to some more detail on our cash flow for the period. We generated, as we mentioned, cash flow from operating activities of EUR 12.7 million in the first half. Overall, there was a reduction in our cash balance of EUR 9.7 million. So during the period, we sold one of our investments. We had a stake in Volition, which we offloaded over the course of the first 6 months, and we realized EUR 3.1 million of cash from that. We paid a deferred consideration to the former Linkverse shareholders and this -- of EUR 2.6 million, and this was triggered on the FDA approval of the device. We purchased EUR 8 million of treasury shares in the period. We paid out EUR 2.2 million of convertible bond interest, and we had capital expenditure of EUR 1.9 million. We invest a further EUR 6 million to Cassiopea -- for -- to support Cassiopea, which we will now recover once they receive the upfront from Sun. And we capitalized EUR 1.6 million of development costs. We made lease repayments of EUR 2.2 million and paid taxes EUR 3 million. So overall, from the total net cash flow, you can see here that the underlying business is generating cash and the main outflow is the purchase of treasury shares and the loan out to Cassiopea. So we closed our position at EUR 203.1 million. So I'll hand back to Alex now for the key priorities and outlook.

Thank you, Niall. Key priorities for 2021. Well, first and foremost, ensure that GI Genius performs in the U.S. market by providing Medtronic with all the necessary supply and support. We're actively and frantically manufacturing devices. But as you can imagine, there's also a wide net of support that we need to give to Medtronic in respect to technical assistance, solving eventual problems on the devices, which again, are computers, as you might recall grant ourselves total control over our own supply lines. And in the past months, we've had a few hiccups, as you can imagine, with the global crisis on chips and semiconductors. Now everything has gone back to normal, and we're not expecting any particular issue from our supplier, the most sophisticated component. One of our priorities also, as I had mentioned in a couple of occasions, is to replenish our pipeline. And we are now programming an event, hopefully in Zurich, between September and October, where we would like to present our new pipeline and our new development opportunities. We clinically also want to progress the development of Aemcolo in IBS-D and be in a position to have our partners start the Phase III as quick as possible. I'm specifically mentioning our partners because according to the agreements that we have signed, that the development of the Phase III will be in the hands of RedHill and Dr. Falk. So we are not supposed to bear any financial consequence of their -- any costs because of debt. And then hopefully, maybe also commence the Methylene Blue confirmatory phase trial which is required for U.S. approval. We are maintaining our guidance following the approval for GI Genius. We're also assuming an increase in the cost associated with the deployment of GI Genius machines to Medtronic and into the market. So we are expecting revenues still in the range of EUR 60 million to EUR 64 million and an operating profit in the range of EUR 3 million to EUR 5 million. Now as I mentioned at the onset, because of the agreement that Cassiopea has closed with Sun, there will also be a very significant impact on our P&L, ultimately, because we will benefit a portion of the result of Cassiopea. We're therefore expecting Cosmo to deliver profit before tax in 2021 in the range of EUR 4 million to EUR 6 million. Again, this is very important for us and a much sought for outcome because we know that we've had a few bad years. We've had some bad years in 2017 as a consequence of the investment that we made into areas. And we've had 2 bad years in '18 and '19 as a consequence of dismantling areas in the aftermath of the delay of the U.S. Methylene Blue development. In 2020, we were finally back to operating profit. But now, thank God, also back to full profit. So this is something that is very welcome. And we thank all our investors and shareholders for their patience. Now we just have to wait a little bit more and hopefully collect the fruit that will come from the massive investments that we've done in the past 2 years. So thank you very much. And happy to answer to any question you might have. Thanks.

[Operator Instructions] The first question is from Bob Pooler from ValuationLAB.

A few questions, if I may. First with GI Genius. You mentioned there's a 60-day trial evaluation period, and then there's a $40,000 fee, subscription fee per year and it's contract for 3 years. So when does Medtronic book these sales? And actually, when do you book the sales? So there's a little bit of lag there. So basically, the question is, when do you expect significant sales to kick in?

Thanks, Bob. Well, precisely, as you said, Medtronic will start booking the sales once they signed the agreement with the center. So the signing of the agreement is not the beginning of the evaluation period but is the end of the evaluation period when the institution, be it the hospital or the ambulatory surgical center actually signs the agreement, which is not even necessarily, as you can imagine, the sheer end of the evaluation period because then there's back and forth with contracts and agreement. We're seeing the first contracts actually being signed only as of now, and most evaluation periods are of the machine that we know have been delivered to centers are still ongoing. So effectively, there's a lag, which was totally expected. But Medtronic has to...

Yes. And then -- so you firstly get a -- excuse me?

Please.

Yes. So first you actually -- you ship the machines that book the sales there, and then with a lag, then you get to actually then the subscription fee. And that will probably be on a patient by patient where these are booked and then you get the royalties based on that? So that's a lump sum of $40,000 each year?

No, no, no. I assure you, this is not on a patient-by-patient basis, it's on a subscription-by-subscription basis.

Yes.

So this means that just to make myself more clear because I understand it might not be easy to understand. So first of all, there is the sale of the device to Medtronic. We sell the device to Medtronic. We make a small gain there, which is not actually the interesting part of all of the agreement. And then they formally become owners. Then they give the machine to each single center and an evaluation period starts. When the evaluation period pitches, the center will, and there's not a given time line for that, will sign the agreement. Once they will, the center will sign the agreement, they will book it as a sale. And therefore, they will inform us that an agreement has been signed. And from that moment on, they will start receiving on a monthly base the subscription fee, which is going to be around $3,500 per month, totaling $40,000 per year. And then each time that they receive what they're supposed to receive by their final client, they will give us back our share of the revenues.

Okay. That's clear. How are you...

It's basically as being paid a royalty on the sales. And as with royalty payments, you don't really mature that immediately, you have to wait for agreements to be signed and then reporting to be made. So there will be even maybe a substantial lag between all the sequence of events. But I think that the most important thing that one has to keep in mind is that each contract is worth 3 years. So the moment you sign it, you know that we receive our share of revenues, not just for that year, but also for the 2 subsequent years.

It's a very interesting business model there. Just a question on how far ahead are you of the competition? Because this is, of course, a platform technology and competition will come in. But I haven't seen actually -- I've only seen experimental machines in this colonoscopy market at the moment.

And you're right, we're definitely way ahead of the competition. But there's also one very important feature that you have to keep in mind, which is precisely the reason why Medtronic eventually opted for us. The difference between what we're doing and what everybody else will be doing in the future is the following. The competition will be the scope majors, but they have to sell scopes, we don't. This is a key element. You follow me on this. We're just deployed, at a very small cost, a device that it is compatible with all endoscopes. Therefore, we are providing the necessary update and upgrade to all systems simultaneously without any need for the hospital to invest in new very expensive scopes. And I think that this is a very important difference. We're going to have -- when we do -- when Medtronic does the sale of GI Genius, it doesn't have any second thought. It's not looking for anything else rather than providing this fantastic upgrade for each colonoscope, whereas the others need to consistently sell new scopes which are way, way more expensive than our system actually.

Yes, that's a bigger decision for the hospitals to make there. Then just on the colonoscopy market, of course, that was impacted by COVID-19. We're now in July, almost August. Do you see improvements there? And when do you expect that to resume to the sort of pre-pandemic levels?

Medtronic is saying in 2023. You have seen the data on the decrease of procedures. Of course, now they're finally picking up again. But Medtronic is saying that back to normal will be in 2023.

Okay. And then just now on Lumeblue?

Yes.

Apologies if it's such a lag. On Lumeblue?

What? Yes.

On Lumeblue, what are your expectations for the EU launch? And how much effort will Alfasigma push behind the launch? And then, of course, when do you expect the sales for Lumeblue and the recorded Lumeblue sales in the EU?

Well, Alfasigma is foreseeing a launch at the beginning of 2022. And actually, we're expecting them to provide us with the forecast for -- that's needed for the production within October, September/October, which is consistent with the launch that they are programming. And our expectation, especially if I think back, on what was the expected pricing in the U.S., you should expect Lumeblue to be placed in the market somewhere around 10% of the U.S. price. So I think probably could be between EUR 20 and EUR 25. This is what Alfa is thinking of. And you might recall that Lumeblue was projected to be sold in the United States between $250 and $275 million per pax. So roughly 1/10. This is more or less what we have in mind. And market-wise, I'll just remember that the EU market is probably around 10 million to 11 million procedure per year, whereas the U.S. market is 15 million to 16 million. So slightly smaller market and definitely different price. But I just would like to remember the audience that the price of Cortiment, which is the European Uceris is 1/20 of the U.S. price. So Lumeblue is better than Uceris, it's only 1/10.

And then just a final before going back to the queue. What are the final bottlenecks for the second U.S. trial to start? So what is the FDA still focusing on before you can start that trial?

The main point of this discussion with them is what kind of prep should be used for the preparation? You might recall that when we did our trial, the first trial, very successful trial, we have agreed with the best key opinion leader in the world that the ideal prep would have been the 4 liters before -- the day before the procedure. Now what the FDA would like us to do is to basically test it with any kind of prep and basically leaving the site, the discretion on which prep to use. But this is not acceptable for us because it introduces a level of randomness that makes the proper deployment of the statistical plan practically impossible. So I need to know what's going to be a schedule of administration because I have to measure my sample size on that. And as you can imagine, this is a clear requirement that because we don't want to do a trial which would be a jumping in on, we need to do a trial on solid -- on a solid statistical plan. Besides the difference in the regime of each column prep is particularly impactful in respect of the quantity of liquid that you need to assume. Now we know that meant to improve work, takes certain amount of liquids, but we also know that it might not work if you don't take liquids at all within the column to push the tablet forward, to dilute the dye and to help the stain. So if you tell me, look, there's a prep that provides for no liquid to be intaken, then I would need to say, but then we cannot use Methylene Blue with that. There was a precise reason why we have opted for the 4-liter track the day before because according to our information, way more than 50% of the U.S. market continues to use it. So this misplaced effort by the FDA to try to cover every possible rep. It's not only just not manageable from the statistical standpoint, it also doesn't make much sense from the commercial standpoint because in the U.S., they continue to use the 4 liter. And actually, we would have been content with a label covering only at onset the 4-liter prep because there's some very, very sizable market there anyway. So until we define this with the FDA, we will not be able to have a viable development plan. But I'm confident that we're going to find an agreement there. I hope I've been clear enough, Bob. Maybe this was very technical. I tried to make it as simple as possible.

No, very clear, very clear there.

The next question is from Paul Verbraeken from Research Partners.

I have a question also regarding GI Genius. So did you deliver any units into the EU in the first half? That's the first part. And then the second is, I mean, GI Genius is, of course, artificial intelligence, but you also need a device for it. And what's your production capacity for these devices now? And how fast can you ramp them up?

Well, put it that way, just to answer the last one first. We don't have a problem there. We've entered into an agreement with a third-party manufacturer who's a very large Italian company that deals with aerospace equipment, and it's one of the main supplier of the Italian Ministry of Defence and NATO with -- for military equipment. We don't have an issue there. Actually, the only thing that was really worrying us was the shortage of the main components, and this is why I was mentioning the microchip shortage crisis. This was the only thing that was really worrisome for us, especially because we have one main supplier of motherboard, who's Taiwanese, that was experiencing some issues. Now thank God, it looks like these are all gone. And we have just very recently been supplied with everything that we had asked, so we do not foresee any issue there. So we wouldn't have a problem in terms of capacity, and we are manufacturing the machines, the devices as orders flow in and they're flowing in consistently. In respect of the European market, well, you have to keep in mind one thing which is very important, the market dynamic in Europe are completely different. Basically, all hospitals are public and the process to the, let's say, the bureaucratic process to deal with public institutions throughout the whole of Europe is very long. We are consistently delivering devices for Europe as well, but the scale of the European operation cannot really be compared with the U.S. one. First of all, the device will be sold at different prices. Actually, in Europe, it will be cheaper. Sorry, I said sold, but I still mean subscription, still needs subscription fees. They will be basically cheaper, probably half of what is done in the U.S. more or less. But it's also that European hospitals where the promotion marketing activities in the European hospital was basically put on hold before the pandemic, and this hasn't gone back to normal yet. So we see it lagging there, whereas we're seeing this picking up very quickly in the U.S.

Okay. And then one on Eleview. You didn't mention Eleview at all. Did you generate any sales there? Or are they also hindered by the drop in colonoscopies generally?

They're significantly hindered by the drop of colonoscopy because we have here multiple factors coming at once. When we terminated the agreement with Olympus, Olympus was left, as a consequence of the termination, with a significant portion of inventory. And so we have experienced, from one side, the dramatic drop in the procedure. And on the other side, Olympus having a significant inventory that would have continued to deploy through its ordinary channels. So we're expecting this, hopefully, to go back to interesting levels. And we're discussing with Medtronic on ways to relaunch it and try to sell it together with GI Genius, meaning sort of not really a kit, but using also Eleview to support the GI Genius sales. So hopefully, in 2022, we will see Eleview producing significant revenues as well.

[Operator Instructions] The next question is from Barbora Blaha from Credit Suisse.

I have a follow-up question on this Methylene Blue Phase III trial. So do you already have clarity of how many subjects should be recruited? And how long you think it will take you to do the whole study?

Thank you, Barbora. And this is precisely why we haven't yet solved the issue. Because depending on the outcome -- the final outcome of the discussion on the prep that we need to use that has a direct impact with in terms of patient's size and population. So if we would have been allowed, let's go back to the original trial, the FDA agreed with us that it was not necessary anymore to use a confounding arm. You might remember that in the Methylene Blue trial, originally, we had 1 arm, 500 patients with the full Methylene Blue dose, 500 patients without Methylene Blue and 250 patients using a half dose of Methylene Blue just for confounding reason. The FDA, thank God, they have agreed that it doesn't make any sense anymore to use a confounding arm. Actually it didn't even make sense at onset, but also this means that if we agreed on one prep only, then around 1,000 patients is more than sufficient. But then depending on how many other kind of prep we need to use, then we have to adapt the sample size. And this is precisely why we haven't been able to start the trial yet because if we don't reach an agreement first on what kind of preps we need to use, it is not possible for us to craft the statistical plan and therefore, to determine what is the necessary sample size.

Okay. And how many colonoscopies are done with this 4-liter prep? Is this about this 50%? Or...

This is our understanding of the market, yes. By the way, I will tell you something. I'm just repeating something that has been said already but people might have forgotten. The reason why we had the 4 liter in the first trial was because we were not able to find on the market another agreed standard on how to administer a split dose. So what we know is that Methylene Blue would split dose as well. But of course, it depends on which kind of split dose. You cannot say split dose, you have to say which kind of split dose. Is it a split dose of 2 liters the day before, 2 liters in the morning? Is it 3 liter the day before, 1 liter in the morning? Is it 1.5 liter and then 1.5 liter, what is that? Is it -- and then what kind of liquid? Are you going to use a [ PEG ] liquid? Are you going to use Gatorade? Are you going to use tea? All this as you can imagine have a significant impact. So we cannot go into a trial blind without knowing how patients will take their prep because we have a precise schedule of administration that we have to adapt to a different prep. So we need to know at onset what the prep will be.

But the others, they don't have like this standard doses and time lines?

Well, it depends on not just on the brand, but we have actually submitted to the FDA the survey, and that explains that actually in each single center, the nurses, they have instructions that they provided to patients in which they suggest an administration regimen of the prep, which in many times, is even completely different from what the labeling of the prep says. So this is why we need to -- when we said to the FDA, "Look, but you should stick with the 4 liters and let us do the trial with the 4 liters." And why would you worry? Make it a labeling issue rather than a review issue. Because first, we will show again that it works perfectly with the 4 liter. And then we can move to other preps. So this is kind of a discussion that we're having. You have to take into account everything was also exceptionally delayed by the pandemic because of the fact that this is not something which is seen as a priority by the FDA. So they continue to have a lot of their employees working from home. And because this is not priority, just it takes ages to answer your question. This is not affecting only us, this is affecting everybody else that is not doing a trial that's been urgent for any reason.

Yes. Okay. And then you also said that you plan to pay dividend again once you become profitable? This is still true? And when could we expect then the first dividend payment?

Well, listen, I think that the task of management is, in general terms, to make shareholders happy. And I can hardly imagine anything that can make shareholders happier than a dividend or a buyback. And so I -- if things go as we hope that they will, 2021, we'll close, as we have said. But in 2022, we should see the results of all the efforts, and specifically coming from GI Genius and coming from Winlevi. So let's hope that this plays out as we think it will.

Okay. And then maybe last question. Could you also imagine to sell GI Genius completely to Medtronic?

This is a very good question. The whole venture of GI Genius has been crafted from a corporate standpoint in such a way that if we want to detach it from the group, we can do it easily and tax-free. I believe that if Medtronic or anybody else would be interested and they would be offering a very nice price, this is certainly not our core business, so we will consider that, of course. I think that everything should be for sale at the right price.

We have a follow-up question from Bob Pooler from ValuationLAB.

Alex, just on selling on GI Genius. What are your plans with your investment in Cassiopea?

Look, Bob, as I mentioned before, I think that this is the deal that Cassiopea did. It's actually a very good deal. So we can -- it is true. I don't want to deny that. It is true that we had in mind, in our plans to divest from Cassiopea. And this was clearly in the context of a takeover or the context of the combination with other companies. And given the fact that there just were not there, the conditions for such a takeover or for such a combination, I think that Cassiopea for -- in the foreseeable future, will be a very nice royalty company that should receive the proper satisfaction from the deal. Just bear in mind that Cassiopea will be receiving standard royalties. Now Cassiopea has not been allowed by Sun to disclose royalties. So the market will be able to see the royalties in the financials of Cassiopea when Cassiopea will start reporting sales. But what I want to point out is that if Winlevi is not the innovation that we think it is, and that the innovation that all dermatologists believe it is, and it is just going to be instead just a me-too that's going to sell like another me-too drug, then you can foresee big sales around EUR 300 million, right? And if Cassiopea receives, let's say, a standard royalty of 20%, out of EUR 300 million net sales, Cassiopea will then make a profit of EUR 60 million, which I think is a very nice profit actually. Isn't it?

Definitely.

I think it is. And if I have 46% of Cassiopea, then I will be making 46% of the EUR 60 million profit. And this is a totally passive position. So I think it would be a very nice complement to whatever we do.

Sure. And then they have also for alopecia. That's also close to market.

The only -- you're 100% right. And this is the only very important thing on which the market should concentrate, that Cassiopea has not given up 1 inch of Breezula. Breezula is still there, and therefore, Cassiopea is still a very good candidate for a corporate transaction, having retained 100% of those rights. The deal pertains to Winlevi only, and I might add, U.S. only actually. So whether there will be potential or not in the rest of the world, how Cassiopea will explore. But I urge everyone, as I was saying before, to remember that we're talking about acne. So we're talking about an area that's not the fanciest in health care, right? Not the fanciest in terms of returns, in terms of pricing, in terms of peak sales. We're not talking about just to be on the news. We're not talking about a COVID-19 vaccine, right? We're just talking about a cream for acne. So everything has to be put in the right perspective.

I agree. Just then one final question on Aemcolo. Again, you said that RedHill and Dr. Falk, they will decide on the Phase III when that will start. Do have any idea where they are? Have they finalized the trial designs? And are there any measures that you could...

This is currently a work in progress. It's not that we don't have a say in index. So it's not that we're in the hands of somebody else. This is just [indiscernible] because this is a complex -- it's a complex exercise that requires coordination between 3 different parties. A portion of the trial in Europe has to be done by Dr. Falk, and then a portion of U.S. trial will have to be done by -- but probably also it's not something that it takes 3 minutes to arrange.

But it could be they're making progress, and it could be that next year, they might start.

We have a full team that's working on this, and this is also a priority project for ours. So we would like to see this moving into Phase III as quick as possible, but we also would like to see Cassiopea moving this one into Phase III as quick as possible.

We now have a recent question from the webcast. Manuel Bottinelli from PMG [indiscernible] AG. He's asking, "Next to the positive financial result impact, could you please provide some information about potential production and license agreements with Cassiopea from Winlevi? What contribution do you expect from that?"

The kind of contribution will depend on the volumes. I think that Cosmo has the ultimate manufacturer, Winlevi has a very good agreement with Cassiopea. Clearly, this agreement was 100% vetted by Sun in the due diligence process. So Cosmo will be manufacturing Winlevi with the full agreement of Sun. Actually to be completely fair, we have already started the manufacturing of the product, and we are currently in the process of manufacturing the samples. Sun wants to move very, very quickly, and it might be good for the audience to know that Sun Pharma has an impressive track record with launches of new drugs. So it will give us a very significant contribution to our third-party manufacturing activities provided that Winlevi will sell according to the plans.

There are no more questions at this time.

And if there are no more questions, I just wish everyone a good afternoon and thanks for your time. And hopefully, talk with you soon after the holiday break. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating. You may now disconnect your lines. Goodbye.