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

Ladies and gentlemen, welcome to the -- Cosmo's Full Year 2022 Results and 2023 Outlook Conference Call and Webcast. I'm Ira, the Conference Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Mauro Ajani, Founder and Chairman. Please go ahead, sir.

First of all, thank you, and good morning, everyone. Let me say that I am very happy and extremely excited today to be here. It was important for me to share with all of you my perspective on the great things that are happening here at Cosmo, and we have many great things that's happening. But today, I would like to focus on GI Genius. I am sure that you read the different press release from us from Medtronic and also from NVIDIA. And I am sure you already realized how big and how important and strategic this news is. Let me say that we are at a pivotal moment with our technology. But before I speak more about the future, let me share with you the outstanding results that we have been seeing with GI Genius. Medtronic has installed about 1,250 GI Genius units worldwide. We already have major academic institution have adopted the technology already, and they are pleased with the clinical support that they are getting from our GI Genius in detecting precancerous lesion. We constantly received positive feedback for gastroenterologists, this is very important, and they share their excitement in having a solid, reliable and cutting-edge AI technology to help them in this very challenging procedure called colonoscopy. This is important. This is the foundation and where everything started less than 5 years ago. The colonoscopy market opportunity remains very, very, very big and Medtronic is doing a great job in expanding the customer base. We are seeing strong increase in demand every month, which means we are passing the [ Cosmo ] of the early adopters and moving into the vast majority of endoscopies. Remember that the total addressable market in the U.S. only is about 30,000 colonoscopy towers. Now you might ask me the question usually I am sure that is in your mind. Will AI replace gastroenterologists. So let me say that I think this is the wrong question. The right answer is gastroenterologists who adopted and use AI will replace those who don't. And this is not for us to be the case. With this great foundation, we plan our next strategic move. And here, I am sharing the excitement of the announcement we released yesterday. Artificial intelligence has the potential to revolutionize patient care and transform the approach to the health care. Everyone talks about data, and the world has already gone through the big data revolution. But now we must and I say must delivery big insights from this data and transform them into actions. The time of the blah, blah, blah is finished. That benefit the physician and the patient. This is where Cosmo IMD plays a key role, and it's not the coincidence, let me say, that we named our AI franchise Intelligence Medical Device. We aspire to bring more meaningful impactful technology to the market with the only objective to empower physician across the globe with the use of AI. Another question could be why NVIDIA? Very simple. NVIDIA is one of the largest tech company in the world with an extreme focus on developing tools that can help developers build AI algorithm. I am very proud to say that GI Genius is the first and the only device in medtech that will use their latest technology called IGX and Holoscan. NVIDIA saw the potential of GI Genius and is willing to support Cosmo and our technology with their hardware. So just in a nutshells, let me say that it's a strategic partnership. This partnership will also have Cosmo reaching 1,000 of data scientists around the globe who eventually will develop AI application that we will be able to upload into GI Genius. Just to give you some data, the video that announced GI Genius using IGX and Holoscan yesterday has been watched by 9.5 million people worldwide. Yes. You got this right, 9.5 million. This integration has the potential to significantly accelerate AI innovation in health care. It also enables GI Genius to host additional advanced AI application. It is the only device in the market with this capability. We believe this will increase the scale and speed of medical AI innovation. Let me now talk about Medtronic. As I said early, we are seeking great progress in the adoption of GI Genius, and we know that this will continue over the next month. Medtronic has been a great partner who believe GI Genius has a huge potential that why I want to share that excitement to about this plan to expand assess with AI. I am sure you read some of the comments that were made by Giovanni Di Napoli, that is the President of the Gastrointestinal business at Medtronic. They are committed, engaged and willing to accelerate market adoption. Just to give you an example today, right now, as I speak, they are hosting the first GI Genius summit in their headquarter in Minneapolis, where more than 100 key opinion leaders are present to listen and learn more about GI Genius and what this technology can do for their hospital and practice. Let me close by saying that Cosmo is leading the way in artificial intelligence in GI. Real-time AI like GI Genius will transform the medtech market. I believe that every real-time imaging technology could benefit of our expertise and innovation. Cosmo has shown with real data and success that a unique experience in developing AI software, proving them clinically and in parallel work with the FDA. Building an algorithm -- this is one of the major difficulty that the people cannot understand. But believe me, building an algorithm is not enough. That's where our clinical regulatory experience come into play as we have shown over the last 20 years successfully with our Pharma business. And once again, let me say that I am not sure how many other companies have this skill set. And that's why Medtronic sees us as a very unique partner that can help expanding their access into AI market in medtech. Thank you. I would like to say just an add. Yesterday, I proofed this presentation with some friends, and the friends asked me, that is your technology. You develop this technology? Yes. You have to take into consideration that GI Genius is a technology owned by Cosmo. Thank you very much.

Thanks. I guess now is my turn to start with the overview and the rest of the presentation. So let me just go very quickly through the first slides. First of all, I want to recall that Cosmo is actually the only company its size who can claim 6 approved drugs in its portfolio and 2 approved medical device in 3 areas. We're active in gastroenterology. We're active in dermatology. We're active in healthtech. And again, not other companies with our current market cap can claim such an array of products. We have made very significant progress in 2022, basically on all fronts. We will speak more in detail about GI Genius in a few minutes. But just to recap what has happened. First of all, we have shown the results of the first U.S. study that has shown a 50% reduction in missed colorectal lesions. There's nothing else in the world that can claim to be such advantageous to the procedure for the benefit of both the physician and the patients. We have expanded our agreement with Medtronic. Medtronic has won the largest-ever purchase order for their gastrointestinal division with the Veteran Affairs in the U.S. decided to install 115 GI Genius in one shot throughout all of their endoscopy suites in the United States. And last but not least, GI Genius has been named into the Fortune 2022 Change the World list, and I'm not sure how many in the audience know that this is the most important award in the world for innovation. And the motivation for that was because of the ability of GI Genius to be very significant tool in the fight against colorectal cancer. We have also significantly expanded our business with Winlevi. First of all, we have expanded the agreement with Sun Pharma to Japan, Australia, New Zealand, Brazil, Mexico and Russia. And let me here focus on one thing that's very important. Sun Pharma is known to be a giant generic manufacturer. They decided to use Winlevi as a pivot to shift their generic manufacturing business in the U.S. to specialty pharma. Now the fact that they are taking over the responsibility also for Japan means that, as a generic company, they will conduct the clinical trials in Japan that are needed for registration. And I think that this speaks volumes about the trust that they have into the project. 3SBio, one of the largest dermatology player in China, wanted the license for Mainland China, Taiwan, Hong Kong and Macao, and we successfully closed the deal. We have started to bring Winlevi into Europe with the first deal with a European player InfectoPharm for Germany, Italy and Austria. And we've also entered into a deal with the company Hyphens, listed on the Singapore Stock Exchange for the whole of Southeast Asia. Cortiment, our budesonide product against more severe ulcerative colitis, we have seen in this year the submission of the Cortiment's NDA in Japan by Ferring, and we are expecting this to go through, and if the drug is approved, then launch will occur in August this year. We expanded our agreement with Medtronic for Winlevi, and now the agreement covers the whole world except Canada, where the product is licensed to Pharmascience. And also with Lumeblue, we have seen a success of a very, very large Phase III trial in China needed for registration with 1,800 patients meeting all relevant endpoints. Our partner in China has already filed for the NDA, and approval, if granted, is expected by year-end or first quarter 2024. Now why is Cosmo interesting and we believe an appealing investment? We have a legacy business that continues to grow. This is the business that pays the bill. Our legacy business has totaled EUR 65.5 million in 2022, which is an increase of 13.2% versus 2021. Lialda has recorded a 6.5% growth in revenues. Cortiment has recorded a similar increase in terms of volumes compared to Lialda, which was 14% year-over-year, and a very sharp increase, and you can see from the slides, in the revenues because there was a EUR 9 million milestone that was paid upon reaching both EUR 100 million cumulative net sales and EUR 20 million yearly sales. Other than that, we also have a very exciting development pipeline. We have one product which is entering clinical stage III now with high potential in the very large hair loss market. We're clearly talking here about Breezula. The Phase III trial is about to start in the coming weeks. Our latest forecast is that we will have the first patients treated by May. And we also have 2 early-stage products, which can generate substantial returns with low investments. One is our first and only incursion in oncology. The Phase I has started, and we have already treated 6 patients and more to follow. This is the drug that is -- has shown very interesting activity in animal models against advanced refractory solid tumors that would actually be reactive to Antiandrogens. Second product is our drug against bile acid diarrhea caused by bile acid malabsorption. We have completed formulation and IP protection, and now we're moving into planning the clinical development. So the company has a legacy business that pays the bill and continues to grow. The company has an exciting development pipeline, but the company has 2 key growth drivers, which are the assets that we have to look at to understand what's going to happen in the very near future. The first one is Winlevi and the second one is GI Genius. These are 2 revolutionary products because they are really one of a kind. They're performing in very large markets, and they're entrusted with very strong partners. So you don't have to wonder whether we would be able to commercialize them or not. Winlevi is entrusted with Sun and GI Genius is entrusted with Medtronic. Let's start quickly with an update on Winlevi. Winlevi is the #1 prescribed branded topical acne product in the U.S. Sun has launched the product in November '21. The launch has been one of the most successful acne drug launch in years. And I want to remember, this is the first new mechanism of action in 40 years in acne. We have already accumulated more than 530,000 prescriptions to-date and probably, even more important than this, Sun has reached out already to 13,200 prescribers, which represent 82% of total health-care providers in dermatology. This really also speaks volumes about their capacity to reaching out the audience that can effectively prescribe Winlevi. As I mentioned a couple of slides ago, it was the very strong U.S. launch that resulted in very strong demand from potential ex-U.S. commercial partners and hence the deals that I was talking to you about. And if we just look at the United States, we have provisions in our license agreement providing for $190 million in commercial milestones, high double-digit royalties and exclusive manufacturing. I want to spend couple of seconds to explain you what this slide means in terms of potential because anybody can wonder, okay, what's going to be eventually potential peak sales for Winlevi. And a very interesting answer come from this document. This document is an excerpt from a research that Citi, the bank, has done on Sun Pharma. So we have nothing to do with this. The reason why Citi conducted this research is because Citi was puzzled by the fact that Sun Pharma was spending so much. Remember, Sun paid us a EUR 45 million upfront for Winlevi and why Sun was paying so much for an acne drug, and they found the answer in this survey. They interviewed 112 U.S. dermatologists asking them whether they were keen or not to prescribe Winlevi. And the answer is here at the bottom of the page. They said that they were assuming that, with a 5% to 7% market share, the peak sales of Winlevi would have been $300 million to $400 million. Now let me tell you, if this would happen, we would -- when the peak sales are reached, we would be paid 80 million in royalties, and all of our commercial milestones would result to be paid. But what the survey is actually saying, saying more is saying that the survey shows that Winlevi can capture 12% to 13% of the market share. And the reason for that is because basically all dermatologists in the survey, and you can read it yourself, again, this is not a document that's coming from us. All dermatologists are saying that they are -- they will be very keen to prescribe it. And why is that? Because it's the only available topical Antiandrogen that can act at the very root of the cause of acne, meaning inhibiting the production of testosterone, therefore, blocking the production of sebum, and therefore, relieving the patient. Just to clarify how important this drug Winlevi is for our partner, Sun Pharma, we thought that the best way to depict it was just to take 2 quotes from Mr. Abhay Gandhi, who's the CEO of the North America business of Sun Pharmaceutical released in their last earnings call. And again, these very simple words speak volumes about how Sun is looking at Winlevi. First one, you see here, "The main driver of growth was the specialty business driven by Ilumya and Winlevi." And the second one, "Ilumya and Winlevi were the key growth drivers for the quarter." So Winlevi is one of Sun Pharma 2 key growth drivers. And I think that this, again, is very relevant in terms of making projection about what Winlevi can effectively do. Let's talk about the second product, GI Genius, and Mauro has already briefed you extensively on how things are going and how we are expecting them to move forward. But let me just be -- let me just add a few things to make sure that we are actually transmitting the right message. People that talk about artificial intelligence, they think that it's just about an algorithm, and then you can develop an algorithm, and then you have what you need. Well, at least in health care, this is definitely not the case because, in order to have a device as GI Genius, you need to be able to combine in a unique fashion 6 very different components. You need the science. You need the data. You need the certification. You need the regulatory. You need the hardware. You need the AI software. If you have just one piece of this, you cannot do anything. You're not going to go anywhere. And even if you're so good that you have the science and the data, you might not be so good to develop the AI software. And if you have the AI software, you need to know how to gather the data, and you need to have the science to do that, and you need to have the regulatory expertise. And it's only if you combine the 6 hexagon together that you have a product like GI Genius, so this is why we want to state it is absolutely unique. And it is because of this uniqueness that we have been able, first of all, to strike the initial agreement with Medtronic because they saw what had to be seen here in terms of potential but also to expand it in the way that Mauro has already anticipated. And now we will describe with a little bit more detail. First of all, let's see where we are. As of today, we have 1,250 units installed since launch. As you can imagine, here, the progression of the placements of the installments is not like the progression that you can see in drug sales. That's very, very different. Agreements are negotiated not with the single hospitals. Agreements are negotiated with very large institutions that own several hospitals each, and you have just a little list here on the side. You can see the logos of the people that Medtronic has been meeting with the institutions -- sorry, that the people has been dealing with in order to place these devices. And these are behemoths of the health-care industry in the United States. You can see MNGI. You can see, as I mentioned, U.S. Veterans. You can see United Digestive, which is a very big conglomerate. You can see U.S. Digestive Health. You can see Covenant, MNGI. These are companies that own tens and tens of hospitals at the same time. In order to better clarify, we have provided here just the list. You see some names. This is just the list of some of the most reputed U.S. hospital institutions that have already installed GI Genius. And you should be very pleased by seeing names here, starting from the end, you can see Mayo Clinic, and then you can see Northwestern Memorial, and you can see the Cancer Center in Arizona. But you can see MNGI, Indiana, Northwestern, HOAG, Veterans, Beth Israel in Harvard, Stanford, Cornell, New York, RUSH. The big guns are entering into this, and they're entering into this altogether. And again, just to be precise and to tell you how things are effectively tracking, this is an excerpt from Medtronic's last earnings call that everything that concern GI Genius is grouped under the division that they call respiratory, gastrointestinal and renal, so you see the excerpt and the relevant expert about the gastrointestinal business unit as the following: "Mid-teens growth in chronic and colorectal driven by strong U.S. GI Genius performance." And I don't need to add more in this respect. Again, when we try to explain to you where we are, we are already present in 1,250 endoscopy towers, but bear in mind that the U.S. market only is 30,000 endoscopy towers. So we have really just -- literally, we have just begun. And there is nothing else particularly that we have to do now at Cosmo when it comes to detection of lesions and colonoscopy. The product is ready, and Medtronic is selling it. And the space that we are occupying right now is very big because we're reducing the miss rate by 50%, and therefore, we're changing the paradigm of the second-largest procedure in the U.S. Bear in mind, colonoscopy in terms of figure is second only to the blood test in the United States. And most important, Medtronic is using a business model which is absolutely revolutionary that it takes some time to understand. This is the subscription model. One of the company that has adopted this business model and initially with a lot of skepticism and which has instead turned into one of the greatest success ever is Adobe. You can look at that. Adobe is the software company. They have at a certain point, I believe it was 2013, switched to the subscription model. And you can see what the performance has become then. So what has to be understood is that, in this AI business, what we're doing is completely different from what we're doing in the pharmaceutical business. How does the subscription model work? The subscription model works that the hospital undertakes to lease GI Genius for a certain amount of time, which is no less than 30 months. So the first thing that you should think is that whatever revenue is coming, this is recurring at least for 30 months, which is something that changes dramatically any balance sheet if you can count on recurring revenue. And this is exactly what Medtronic is looking for. And this is also very important because, once in -- hospital is locked in, in a subscription model, it becomes also an issue of [ fetalization ] of the client, a client then becomes highly fetalized. And therefore, once you propose the client that there's an additional feature that it might be interested into, you really don't have to do any further great marketing effort because the subscription agreement is there already, and it's just sufficient for the hospital to say, yes, I would like to have this additional service. This additional service could be anything. But once it's added, it literally takes seconds to download the application that the hospital is interested into. And then it takes also second to start billing for that. And you don't have to spend a lot of resources and time and money to do that because the whole infrastructure -- the whole contractual infrastructure is there within the subscription model. If you have 2,000 hospitals and then you offer 2,000 hospitals, 1 service -- additional service that's going to cost $1,000 -- as an example, $1,000 a month, then the first month, you already have $2 million. And at the end of the day, you have $24 million. This is the way the model works, and this is why Medtronic has decided to use it. Now if you understand the importance of the subscription model, if you understand the mechanics of this kind of business, then you are in the position to appreciate how relevant is now the shift that is occurring. So we told you where we are. Now we're telling you where we are going. We are pioneering human AI collaboration because GI Genius, since its conception, it's a platform with a modular architecture. This is something that we have tried to explain in a lot of conversation with investors. Its purpose is to overlay artificial intelligence content to any kind of real-time video flow. And therefore, it is suitable for any diagnostic or clinical procedure performed by the physician who's looking at the screen to perform the procedure. Now you have to couple this with the unique marketing power of Medtronic, which is the #1 medtech company in the world. And then you can start to figure out where we are exactly going. Now let me do one thing for you. I don't know whether you have read it, but I would like -- and I'm asking the operator to do this for us now to please open the first link, which is the Medtronic press release that was just released yesterday. Let's have a look at this together. Operator, can you please open the link.

It's open, sir.

Thank you. So let me tell you that the following. Medtronic is talking about GI Genius and is saying the following: Medtronic announced the Cosmo Pharmaceutical and NVIDIA -- remember, Mauro told you a few minutes ago, this is our product. This is not anybody else's product. This is Cosmos' product. And Medtronic is announcing that Cosmo and NVIDIA are planning to integrate the NVIDIA technology into the GI Genius intelligent endoscopy module. And then Medtronic says the following: Developed and manufactured by Cosmo Pharmaceuticals, GI Genius was designed with the ability to host multiple AI algorithm. Now with the addition of NVIDIA technology, Cosmo is introducing an innovation center website, enabling third-party developers with a cloud-based platform to efficiently train and validate their own AI models. Let's look at the quote from Giovanni Di Napoli, who's the Head of the GI business at Medtronic. "The possibility for GI Genius to host multiple real-time application is a game changer for physicians performing gastrointestinal procedures." Can we go back to the presentation, please? Okay. Thank you. So this was Medtronic press release. The press release of Medtronic comes after we have been doing the tremendous work to prepare all that was needed to open up the infrastructure. And we have dedicated a significant portion of our resources to do that. Our subsidiary that deals with artificial intelligence, whose name is Cosmo Intelligent Medical Devices, is currently employing 43 people full time and hiring other people because this business is literally exploding. We have specifically created a separated website for Cosmo Intelligent Medical Devices. And I would like to show you now what this is and show you that this is already live, and this is something that you can go and take a look yourself so that you get a sense of the great work that's been done so far. Operator, can you please open the link to Cosmo IMD.

It's now shared, sir.

Thank you. And I don't think that there could be a better statement from the one that you can see in the initial page. We believe our artificial intelligence begins with human creativity, and innovative ideas emerge from inspiring environments. There, you have a sense of what our people are there and what they are doing, and we really have a fantastic team there that's doing a great job. If you please click on Innovation Center. Is that on the screen now?

yes, sir.

Here, you can see what this is. This is an open invitation to everyone to come up with us and cooperate into the creation of new applications for our platform. And I can read it, and I think this is the best example of what's happening. You can be part of the innovation center. The innovation center is a platform that provides developers and inventors of software companies or start-ups with the opportunity to build and test their real-time AI software for medical procedures. With access to a virtual sandbox and the GI Genius AI access developer kit, user can reduce time to market and bring their ideas to life. Can we go back to the presentation, please?

We're now back to the presentation.

Thanks. These next slides really depicts also in a graphic fashion the intertwinings between the company and what we're doing. You see Medtronic. You see Cosmo IMD, and you see in NVIDIA in the corner, this is what is happening. As I said, GI Genius was designed to host multiple AI algorithm. We have created the innovation center platform, which will enable third-party developers to train and validate new AI application. Medtronic will create an AI access platform also to support developers and accelerate the creation of real-time AI applications. And this additional AI application will be distributed through the GI Genius module, offering clinicians expanded access to AI tools with the potential to improve patient outcomes. And all this is going to happen, not because Medtronic will have to go knocking on the door of everyone, but because there's a subscription model that will make bringing these additional features into the market way faster, way leaner and way quicker than anything else. And I think that, if you need to look for a comparison here, you can imagine a software company that makes gaming, you can imagine yourself downloading a game to be played on your iPhone, on your mobile app. It takes normally one day for million of apps to be downloaded. It take only weeks for tens of millions of apps to be downloaded. Now given the fact that here we're talking about health care, but we're not talking about gaming, just giving you a sense of the kind of evolution that we are expecting. Because of this opening of our platform, we will be able to gather contribution for basically every corner of health care, and we will be able to expand the use of the GI Genius platform basically on all procedure that require real-time application. If you just take a look at what's happening just in the U.S., here, you might have a sense of the potential of the market. You remember, we've said many times that there are 19 million colonoscopies only in the United States. But you also have 6 million upper endoscopies, and you have 500,000 ERCP, which is a different kind of endoscopy procedure, and you have 15 million laparoscopy. And here, we're just within GI. And if you move into the non-GI, you can see that there's a 1.6 million procedures in rhinoscopy, 1.5 million in cystoscopy, another 0.5 million in laryngoscopy and 4 million in arthroscopies. And all these procedures are just designed to have an overlay of AI content when the physician is performing the [indiscernible]. So basically, what you will have is that you're going to have a platform, and you're going to have a platform that's going to be uploaded with very different SaMDs. This is a word that you will hear a lot in the very near future. SaMD, as usual, unfortunately, in the U.S. jargon, it's an acronym, which stands for software-as-medical-device. It is very -- it is much easier to develop a software-as-a-medical-device if you don't have to worry about the hardware, about the operating system, about the software that's running the hardware. You can develop your software-as-a-medical-device if there's anybody else that's willing to host it. And can you imagine the potential of this, if you also have a partner like Medtronic that's going to do the marketing of this. So this is going to help us create the leading medical AI platform is going to help us accelerate bringing AI innovation. It will not just be us developing applications. It will be also everybody else that's interested. And I can tell you, not already in contact with several companies that have a piece of what is needed, that they just want to do the full service. And this will improve the patient outcomes. You see, we told you that we have 1,250 units placed as of today. And just imagine that every single app is going to be priced at $1,000 per month. Here, you can see what's going to happen if you just have 1 app, or what's going to happen if you have 5 apps or if you have 10 apps. If you have 10 application, only the client base -- thanks to the subscription model, only the client base that's already been reached would generate revenues for $450 million. And let's now move quickly to the financial review. The financial review is very lean. Our revenues have increased 57% versus 21% at EUR 102 million. Our EBITDA that's very significant has improved 126% to EUR 42 million, our operating profit 153% to EUR 28 million and our profit after tax to EUR 24.5 million. Even more relevant from a certain standpoint, out of EUR 102 million revenues, we have been able to generate EUR 33.2 million cash, which is the reason why you're seeing our cash and short-term investment position increased significantly since '21 to EUR 241 million. In the meantime, we continue and also given the inexplicable last period performance of the share price, happily continue to be buyer in the market of our treasury shares. So far, treasury shares that we own are worth EUR 73.6 million at 31st of December, and we currently hold a total of 1,183,000 shares. Probably, the share -- sorry, the slide that can depict better what we're doing is this one because this one is following that our business model is delivering. This is exactly what you should expect our business model to deliver because, remember, we don't have a commercial infrastructure, so we don't have a cost base that increases together with the turnover. Our cost base remains relatively flat over time. And this is why you can see this shift. Look at the EBITDA, which is probably the best indicator. You have EUR 13 million in 2020. You have EUR 18.5 million in '21, but you have EUR 42 million in '22. Now just imagine how this has gone -- what's going to happen if GI Genius is going to deliver exactly as we are telling you and how impactful this is going to be on our EBITDA, given the fact that we already borne practically all the cost there. So now we have to reap the rewards because the investment have been made, and there's no further money for us to invest, except, of course, have our people continue to work and continue to deliver. But here, we're talking about headcounts. We're not talking about large investments. So again, what's the situation here? We are on track to capture our opportunities, and this is why an increased dividend distribution is now being proposed. Quickly on the key priorities and the guidance. Our key priorities for '23 are very simple. We're going to expand the GI Genius business with Medtronic. We're going to expand the Winlevi franchise in the rest of the world, and we're going to advance our clinical and development pipeline. Our guidance, which is reiterated total revenue between EUR 110 million and EUR 120 million, operating profit between EUR 25 million and EUR 35 million. Our key growth drivers will be GI Genius and Winlevi. And you also understand, because of the nature of the business with GI Genius that we tried to explain, that we have some issues in modeling this precisely. And therefore, this is the reason why we have this conservative guidance. So thank you very much, and happy to answer to any question you might have.

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

First of all, congratulations with the record result and also the new agreement with Medtronic and NVIDIA. And coming to that with the AI apps for GI Genius or maybe even other hardware products that you will operate in cardiovascular, so could you explain a little bit the business model? Who bears the cost? Who splits the revenues? Let's say I'm an app developer, and I want to develop an app. How does that go?

The business model hasn't changed. I think we have explained that what we have with Medtronic is a revenue-sharing agreement. So whatever revenue is generated by Medtronic in whatever form, we have a share of that. And we're not allowed by Medtronic to say how large the share of revenue is, but we have -- what we have anticipated in the past is that, for every 100 million -- sorry, for every $100 sales made by Medtronic, we're going to have a profit between 22 and 24. And this is going to be -- going through, this is going to be the reference agreement. And I hope this is a sufficient answer to that. When it comes to external party developers, we will clearly need to have an idea of what's going to be the commercial value of the application that's proposed. And clearly here, the judgment call from a commercial standpoint and marketing standpoint will have to be made by Medtronic. It's going to be Medtronic who will decide whether a given application is effectively worth and what is the price that can be charged for that in terms of fee to be added within the subscription model. And therefore, there will be split between a developer and the -- split between developers, us and Medtronic, but us and Medtronic will continue to split revenues in the proportion that I mentioned.

Okay, okay. Yes, because I'm just thinking if you look at, for instance, the Apple -- with the Apple Store, there you have developers coming in there. Apple provides the developers. This will be probably a Medtronic and NVIDIA with all kinds of modules for the programming, for the regulatory and so, and then they are able to put it on the app store, which would be then GI Genius or the platform that they have. And then Apple gets 1/3 of the revenue streams there. So again, I'm not sure [indiscernible] that's probably what's happening.

Sorry, Bob, it's quite different because you are, in my opinion [indiscernible] because there is a marketplace that the marketplace could be thereafter. And it is something that is straightforward to the hospital and to the -- related to the GI Genius application. So it's quite different. Not to -- there is a confusion, in my opinion, if you consider it the same. It's not the same. The company came revenue...

No, no, no.

But the problem that is too different and separate business. At the end of the day, there is no difference because of weak cash money but in different way. One is true Medtronic and the agreement and the contract that they have with the hospital. The other with the true developers and the Medtronic diffusion of the app.

Okay. Okay. And then just shifting to...

Sorry. Bob, can you hear me?

Yes, I can hear.

No -- yes, just to clarify further because you mentioned NVIDIA before. Now NVIDIA doesn't really have ever play in this. NVIDIA is providing the hardware components and some of the software that's used to run this component, but it's not really into the game of building the apps and doing things.

It's built by us.

And unless some decide in the business of developing apps in health care, which I don't think is what they're doing right now, so they're really not into this loop. This is a trilateral thing between the developer, between us and between Medtronic. But you should also bear in mind the following when it comes to splitting the economics that not necessarily the same -- not necessarily one provider is always providing the same thing because you're going to have a provider that's -- or let's call it the third-party developer that has a fully fledged already running software-as-a-medical-device, or you're going to have entities that have just pieces of what's needed to assemble a software-as-a-medical-device that we might play a larger or smaller role that depend -- in developing the application depending on what kind of contribution and pieces put on the table.

The real problem is assessed to the market because, the people that know the material, they know that it's not enough to develop an algorithm, or you have a software. The problem is how you can assess market. And we believe that it tanks a platform, it tanks Medtronics, we can help the developers that could be a professor or hospital or entity, and we can help them to join to reach the market. This is, at the end of the day, the truth of this platform.

Yes, great. I think it's well explained with the 6 key elements that you need altogether combined to actually [indiscernible] have access to market.

Without the 6 hexagons, you cannot play. So I remember, it's 3 years that in every time that I presented the GI Genius, the people ask, where is Fuji? Where is Olympus, and I answer it always. That is a different game. They are developing AI just to improve their colonoscope. We are developing a platform. Now I hope that the people can understand how much difference there is between us and the other.

Yes, your objective is selling the platform and growing that platform, whereas the others are actually selling the scope. It's just an ask where they competitively then can say we also have AI included, but for them, it's really selling the hardware...

Finally, we get the point. One point for us. Okay, go ahead.

I had him already, but...

Now it's through here that I answer always the same question. The same question. They might throw out the same question. We are just a little bit tired, just a little bit.

Now let's switch to Winlevi then. Just Winlevi given the strong uptake, do you expect Sun to reduce maybe the copayment or rebate for patients because there's such a large demand from it, and physicians are also backing it as well.

Yes, I think it is within standards plan for a pharmaceutical company to reduced copay in order to increase their gross-to-net over time. So this is exactly what they're doing, and they're doing this in parallel with reimbursement starting to kick in, in order to be as efficient as possible. This is one of the reason why we are forecasting to receive significantly increased revenues in terms of royalties this year.

And these profits that are made by Cassiopea, they upstream to Cosmo? How is this done?

What do you mean by that?

The profits that are made, they're made by Cassiopea and then upstream to Cosmo?

Profits are made by Cassiopea, which belongs, I think, 98% something to Cosmo. Not 100%, I think 98%.

98%, yes, you're still, I think, with the squeeze-out of the remaining 2%.

Well, that's because there has not [indiscernible] Bob, just because we have [indiscernible] no, I said bottom [indiscernible] There's not been a squeeze-out. So that's why Cosmo remain, I think, around 2% shareholders in Cassiopea.

Okay. And then just on [Technical Difficulty].

Sorry. We cannot hear.

On Breezula, could you provide more details on the Phase III trial regarding cost, timing? And are you seeking approval for both the U.S. and EU?

The trial is designed for the drug to be simultaneously registered in U.S. and EU, is going to be a standard 2 concomitant Phase III trials, and we're going to have 2 coprimary endpoints. One is going to be the so-called TAHC, which stands for a targeted area head count. You will have a small area of the skull [ protrude ] and this will be photographed with microscopic precision to assess the change in the number of hair. And this is one -- this is the so-called objective clinical endpoint. Then there's the second coprimary is what is called the subjective endpoint the -- and it's called PRO, which stands for patients' reported outcome. The patient has report basically how we felt using the drug and his -- let's put it into bracket, his experience with the drug and whether we liked it or not, and this is the concomitant endpoint. Cost is going to be probably around $30,000 -- sorry, $30 million in the space of more -- a little more than 2 years. Bear in mind that we do capitalize the Phase III cost. So you're not going to see that -- them impacting the P&L. They will only impact the cash position. And also bear in mind, and I think that this is something that everybody should bear in mind that whatever possibility in terms of outcome you give to Breezula, just bear in mind, this is the same active that we use in Winlevi in a higher strength. So that's very important in terms of safety, in terms of side effects and in terms of everything else. And again, bear in mind that the mechanism of action and the cause of androgenetic alopecia and acne are exactly the same. So it's an excess production of testosterone. So I think that in a certain way, the success of Winlevi, both from a regulatory standpoint and also a commercial standpoint, I think it's a good indicator about what's going to happen with Breezula if the trial succeeds.

The next question comes from Laura Hindley from Berenberg.

First of all, congratulations on the update with Medtronic, super exciting. I'm wondering if you can give us a feel for how many applications are in the later phase of development? And when could these theoretically be launched? What's the earliest date? And then on the pricing scenario you laid out, in the theoretical $1,000, can you give us a feel of how much of that would go to Cosmo? And then subsequently, what would be the business model for distributing these applications? Is it going to be an upfront, an increase in the subscription fee? And can the end user select which applications it will or won't use.

Yes. Well, in terms of number of applications, there are several under developments, but as I believe I told you already also when we met in London, we have already started a cooperation with a handful of companies that are very advanced in their own development and looking for a platform. So I can think that this can be fairly rapid process, and I'm sure that you'll be able to see something by the end of the year, so something coming up by the end of the year. This would be my forecast. Now when it comes to the split between developers, us and Medtronic, as I said before, I think you should see us and Medtronic as a whole, and then you would need to ask what's going to be the split for the developer. And my answer to that would be it very much depends on the kind of the -- of kind of software that's been developed for which kind of application and how is the market is going to be looking at that. Clearly, there has to be a split. And I cannot tell you exactly because it depends on how appealing the op is. But what I would urge you to consider is that, whatever you take out of the fee for the developer, then the remain you allocate according to our revenue share between us and Medtronic.

Just to -- I try to make more clearer in focus. So you have to -- in my opinion, there is a separation between the story of the apps and what we can do right now. So we have, let me say, several -- 3 application that are ready to be launched within this year. These application are already -- we already done. We already finished the development path, and we are in a test now. It's just a test, and it will be Medtronic decision to launch when they are going to launch the 3 new application and should be within the year, for sure. Maybe is June, maybe it can be in November, but within this year. This is the story that belongs directly to what we already done because you have to take in consideration that, when we talk about GI Genius, the people believe that we sell a product that is detection. No, no, no. Will since scratch a platform, and the detection was the first application, but we already developed several applications, and 3 of them are ready to be launched. It's clear [indiscernible] or not?

There are no more questions from the phone. We can now go to the question from the webcasts. Mr. Della Cha, over to you.

Okay. Thank you. I have a first question that asks if we are providing details regarding sales of GI Genius, total sales, sales hardware, rental income projection for 2023. Answer is no. It's not our intention to provide breakdown at the stage.

We can provide a target. We believe that we will reach 2,000 devices installed in the hospital.

By year-end. Then we have a second question, which is regarding the profit guidance. In terms of what are the assumptions for the lower end of the range given the increase of the share of high-margin recurring revenue. Well, you have to consider the following because there has been someone saying or thinking that this maybe was a low ball in terms of guidance. But the fact is the following. You have to consider that, out of EUR 102 million that we have had in 2022, EUR 24 million were upfronts in milestones. So a very significant portion of those revenues were one-off. Now if you take them out from our revenue, you go back to, say, EUR 80 million for simplicity. Now if I move the needle from EUR 80 million, even to the lower part of the guidance, to EUR 110 million, now you're going to have a EUR 30 million increase over the EUR 80 million that's not going to be represented by a one-off because we are transforming our one-off revenues into recurring revenues. So our guidance should be read from that standpoint. It also should be read from the standpoint because, as I believe I've said, we're kind of conservative guys. Certain things are, frankly, very difficult to be modeled, especially if you have to give guidance. So that's quite tricky, and we don't want to do mistakes if possible.

Yes, there is one point that is the people ask that this one shot is why just this year. But there is a story. It's 25 years of story is the dynamics of our business. You can take Lialda as a model. And you can say, first, you cash the down payments, second, the [ masters ], third, the royalties. So you cannot consider that is one case. It's a one case that is repeated in the last 25 years. Sorry, not one case.

There's another question to say that there was no increase in third-party revenue in 2022. No, that's not correct. I think I think we have had a EUR 2 million increase, which was roughly equivalent to 13% in the third-party revenues if this reference is made to our contract manufacturing activity. So actually, there has been a 13% increase. And I believe we moved it from 11.9 to over -- to over 13 million, if I'm not mistaken. And then I have a question on why we pay out dividends. Question is that we pay out dividends because we think that...

Because we're working for all the shareholders. Sorry.

We think that shareholders are entitled to receive as much money as possible. So whenever there's a...

Sorry, if we don't work just to create debt. So I know that this sounds strange in this world. But we have no debt, and we have dividend. Sorry for this.

We think that every single time we have the opportunity to do so, we will do so. What is our strategy regarding our financial equity investments? Wait and see. Apparently -- I don't know if they can go lower than what they currently are. So we will wait and see. That was -- there was a chapter of our life that's long forgotten. I wish them well. I wish they will recover. If they will recover, we will sell. We're not very much interested into whatever's happening there anymore. Again, I have another question about the level of recurring revenues from GI Genius prescription. Again, also on behalf and following a special request from Medtronic, we have decided that we're not providing breakdowns. I have another question here. You're asking me what are the characteristics of our bond. Our bond is convertible. One, it was issued at 95. We'll pay back 100. The yield was 2.5%, and there's a feature that allows the reimbursement of the bond in shares up to the issuance of a certain amount of shares. We -- I think you have seen that the outstanding capital due is EUR 175 million. We have EUR 244 million cash at hand. We're going to keep all the optionality that we...

Because we have shares already announced. We have money. We'll decide at our confidence at the end of the year in November.

Now you're asking a second -- the other question. The following is if we're expecting GI Genius to be a larger growth driver compared to Winlevi?

We expect that GI Genius will be the revolutionary in the health-care system, not in the -- versus Winlevi. It's something that is even unbelievable to understand that to trust us maybe, but let me know that we are just at the beginning of a very, very enthusiastic journey. We work through the start.

So the answer is absolutely yes. Then you're asking us, what is your expectation from Winlevi royalty income in 2023. And again, we're not giving a breakdown there because the forecast that we have provided with -- by Sun Pharma are highly confidential. They don't disclose that, and therefore, we cannot disclose ours. Otherwise, it will be very easy for anyone to figure out also what some forecast is. So we're not doing that. And then I have a question on how has royalty ramped it up through the course of 2022. Well, very nicely because it has followed exactly the progression in the sales. So I believe that we have seen exactly what we were supposed to see. And one thing that I want to mention is that, not only we have a fantastic collaboration with Medtronic, we also have a fantastic collaboration with Sun. And we have never seen a partner be so much willing to share with us forecasts and insights. So we're really getting a very good visibility on how things are going. I had a question here about the upfront payments in total for 2022. Yes, they were EUR 24 million. That is correct. And EUR 15 million were under Winlevi and EUR 9 million milestones were due for Cortiment. We're not giving any breakdown about upfront and milestones projected for 2023. This also relate to whether certain sales thresholds are attained or not. But I'm expecting that our revenue line in 2023 will also be composed of upfronts and milestones. And I think I have another question here, and it's about how we are investing the required amount with which banks and currency. And I can understand why a Swiss national is asking in which banks and...

We left the Credit Suisse to it 2 months ago.

No, more than 2 months.

3 months ago.

No more than that. We left -- just for the sake of everyone, we had left...

Just for a case, was a case.

Credit Suisse in the fall. So we have split our assets between more than 10 different banks. The big bulk is currently represented -- actually allocated within bank J. Safra Sarasin. The second-largest bank that we have there is Barclays, but we're not -- we don't have deposits there. So our assets -- sorry, our cash is all invested into assets owned by the company and mainly high grade and bond. And so we feel that we have chosen security clearly over risk, and the purpose is simply with the increased interest rate environment was to have our cash at least yield what was necessary to pay the coupon on the bond. I think that we have finished with the questions. So if there are no other questions, please, Operator, let us know.

We have a question from the phone. It's a follow-up from Laura Hindley from Berenberg.

One more question from me. I was wondering was there considerably higher tax rate in the second half of this year. I'm wondering if you see that continuing, or if that was a one-off?

Tax rate. Actually, it depends on the jurisdiction. I think that the overall amount was pretty reasonable compared to the income, wasn't it?

It was an increase in the percentage rate.

No. But look, actually, I mean, we're subject to some ups and downs. And sometimes if you have a lot of revenues coming from manufacturing, then these are taxed at a higher rate because it's Italy. If we have higher revenues coming inside Cassiopea, they're taxed at a higher rate because that is in Italy. If we have higher royalty flows and stuff that pertains to our intellectual property, those are taxed at a lower rate in Ireland. So it very much depends. The swing is a consequence of the country where the revenue are allocated. And sometimes you see big growth in manufacturing revenues so there's an increase in the overall tax rate because we have more revenues coming from manufacturing and vice versa. And I hope this helps and this gives an explanation.

Yes, that helps. So thinking about a level moving forwards then, if it was a pickup in the second half of this year, that's maybe just a one-off, and it will swing around.

One-off. We don't see that the situation is a lot like doomed to get any worse. It's just swinging because it depends on country allocation of the revenue generation.

There are no more questions at this time.

And then I think that we can thank you all very much for your time. We wish you a good afternoon, and we'll speak soon again. Thank you.

Thank you very much.

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