Implantica AG (IMPASDB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Implantica Audiocast with Teleconference Third Quarter 2022. [Operator Instructions] Today, I'm pleased to present CEO, Peter Forsell; CFO, Andreas Öhrnberg; and VP IR and Operations, Nicole Pehrsson. Dear speakers, please begin.

Yes, good afternoon. My name is Peter Forsell, and I will start to give a little short overview of Implantica before we go into the updates. So Implantica is all about bringing advanced technology into the body. And myself, I -- you can see on Slide 3, a beautiful picture. I'm a surgeon and I have invested more than SEK 1 billion in Implantica. And this is not the first journey once developed adjustable gastric band and had a very successful business with that when we managed to -- the whole gastric banding business peaked at 42% of the worldwide market share is to surgery, which is quite astonishing. And Implantica developed 2 platform technologies. So we have one eHealth platform where we will be able to control treatment on distance and monitor what happens inside the body and change treatment. And we also have one wireless energy anodizing platform, where we can anodize implant through impact scheme, which makes it possible to use a new implant for a long time not limited by the battery size. And eHealth will revolutionize healthcare. This I can more or less guarantee you. So it will be possible to treat the cases that was not maybe possible before or treatment in a better way, and we will be able to save the cost and treatment will be closer to the patient. Patients will be more involved in what is going on. And our eHealth platform treats from distance, and that's a fundamental breakthrough in the health market. So the physician can monitor what happens inside the patient's body, how it's going with the disease, how it's going with the treatment. And he can check and change treatment on distance. And then this platform technology will be released, it will be a total breakthrough. And this will open up so many doors for more advanced treatment and better treatment. So we will be able to collect lots of data, of course, relating to that. And as you all know, data builds value. It could be used for medical analysis, market analysis and many, many other things, and this is quite important in today's climate. And Implantica has then based on their platform technologies going through the whole body to look for suitable applications. So we have been able to make nearly 2,000 patent cases, more than 300 inventions. And we have been sitting 3 years to go through all these inventions and selected what we believe will be really strong implant candidates. And that's the background. That's the platform for the future potential for Implantica. And that's why we have a vision, which is quite high, we should become the world leader in smart medical implants. And we have the mission to provide implant solutions to millions of patients and save cost for society at the same time. And before I go on with the background, I thought it was quite suitable to mention that Implantica has been selected as the most innovative Medtech Company in Central Europe, based on the Health Care and Pharmas Award of 2022. And that's quite astonishing and indoors that we really are doing something special in this company. So our first product on the market is, of course, RefluxStop, for acid reflux. And this product has all the attributes to come the new standard of care in the treatment area with 1 billion sufferers. And that means that Implantica has a multibillion-dollar opportunity in our hand. Here, it's all about execution and doing the right sales. And previous existing surgery for acid reflux basically all have been treating the symptoms. Focus has been to try to close the ring muscle between the stomach and esophagus to hinder fluid coming up. However, the problem is that this is people's food passageway. That means you get swallowing problems. You can't belch, you can't vomit. You often get gas floating because you are able to maybe get something down but nothing comes up, so you get the standard and swollen because of all the [indiscernible], for example. So instead, RefluxStop treats the cause of acid reflux. So what we find out is that it's not the muscle that close, the ring muscle or sphincter that close above the stomach to hinder acid coming up. This is not weak. This is just about the position it need to be have the right original position. So you need to restore the original physiological anatomy and thereby you treat the disease by itself. The body treats the disease. So the only thing we need to do is to restore the position and maintain it. And that we do with our little device sitting on top of the stomach invaginate and then we pause to reduce complication, and that's a real breakthrough in this treatment area. And so now we are all the way to Slide 14. And here, you can then see the results of this treatment compared to the main device competitor for Johnson & Johnson. So in this case, we have the LINX FDA trial compared to the RefluxStop trial. And you can see that the results here, they are not small difference, this is like night and day. So if you take the first column here, where you see that you measure PH in over the esophagus, and you do that over 24 hours, then you see that 42% of the LINX do fail that test. This is 10x more failures than in our study. And at the same time, you can see that 68% had something called dysphagia, which is swallowing problems. And that's -- really tells you that it's impossible to compress the food passageway so much to avoid acid influx because you can't swallow anymore. It's just not combinable. So acid reflux is even more serious disease than people normally think you can, of course, understand that you get acid coming up and it gives you big pain, but it could also cause cancer. If you have repeated acid reflux, it's to clearly increase the risk of cancer. And 48,000 people only in Europe and United States die from esophageal adenocarcinoma. And most of these cancers is believed to be caused by acid reflux. And it's -- the drugs that you take to reduce this acid, they do not protect you from the cancer risk. When you look in the literature, it's very conflicting messages, and it's absolutely no proof that drugs at all effective cancer risk and all these steps. So let's then go to the business update here regarding RefluxStop. So here, I show a little bit how you step-by-step are launching product. So you need, of course, to find the key opinion leaders, to train them and have them to start the message. It's like you find 100 very important KOLs, and they go up like 100 [indiscernible] for this treatment. And of course, you need to make patients aware of this. And patient satisfaction is, of course, key for the whole process. And we need to then, of course, have the doctors, the medical doctors, general practitioners, they need to be informed so they can send the patients, because current surgery has declined a lot dramatically because the results are so poor. And now they need to know that so that it is something that is much better and they need to start some patients for surgery again. And finally, we need to get sufficient reimbursement. We need to get all the health care systems and insurance companies in different countries, they need to pay for our device. And that's sort of the key for every great business expansion. And you see here to the right, the little rocket here that shows you what happens when in the key markets will have the reimbursement. And there is still place in this little rocket here to join this journey. So we can say that it's 3 pillars that define the strategy to now establish RefluxStop as the new standard of care for acid reflux treatment. And the first thing is, of course, we need to have superior health economics. Our device needs to be more cost effective to give better value for money than existing treatments. And in this respect, we have then get very, very hard because we started very early with University of York Health Economics Consortium has made a very advanced model for health care, health economic analysis of RefluxStop. So they have actually compared RefluxStop with the standard of care quantification, be it magnetic augmentation and with drug therapy, medical PPI treatment. And they found when they analyze something called incremental cost-effective test ratios, ECR is the definition here, this is the standard, how you value new treatment. And they find basically that we are superior to all these other treatment options. So we are a better treatment option compared to the other therapies based on quality of life outcomes. And that's, of course, fantastic results, and that will mean a lot, because this will be considered by governmental, both this and insurance companies going forward, then we should achieve this reimbursement process. We presented these fantastic results here at the biggest congress for payers, so health care payer organizations. They're in different countries. Some countries it's insurance companies, and other companies, it's more government controlled health care. But all these payers, they basically go to this big congress e-store. And it's several thousands of attendance on such a congress. And we have then presented 2 abstracts, one of the cost effectiveness and one of the health care elevated budget impact, who is minimal with our device. So it's -- what is happening now going forward and is already ongoing, is that this model that University of York now has developed, we will apply that model to many countries. So now this was for U.K. and we are now updating with current values for different countries. This is, of course, mainly the same. It's just some -- what does the therapy cost in different countries, which vary a little bit, for example, and so on. But we are repeating that -- so there will be cost-effective analysis, for example, for Sweden, and budget analysis, they like very much in Italy and Spain and so on. So this is an ongoing work. We have employed a new employee who is super competent in these exercises, and we will present for country by country how our device is a way to increase cost benefit in the treatment. The next of the pillars here is the clinical evidence evaluation. We need to show clinical data that we are better than the competition. Sorry, I've been a little bit -- little late through. So here you see a picture how RefluxStop was presented at the European Foregut Society. So the question is, what is this foregut, foregut is basically the organs comprising the figure in testing the stomach and esophagus, that's what it's all about. So mainly you can say that this is -- that surgeons who do reflux surgery, that's the dominating area of this foregut society. And [indiscernible], the largest university hospital in Switzerland they gave a presentation on RefluxStop and their overall conclusion, comparing their data with our fantastic CMO study was that the outcomes were similar, and they said will be, believe we can show you that also in the real-world hospital setting, these really excellent results could be repeated. So this is the most maybe important meeting for these type of surgeons. So here, I show you a little bit of the other presentations we have made during Q3 and Q4, just for you to understand that there's lots of activities ongoing. So here is lots of congresses and this is different surgeons and professors who is presenting their results, and all of them have really, really good results with RefluxStop. Here, you can see a little bit what type of congresses we have intended, this is between July and today. And you can see we have been in 15 different congresses, a couple of them in U.K., 1 in U.S., 3 in Germany, 2 in Sweden and so on and so on. So we are really increasing our activity level to spread the news, now it exceeds something that really works for this poor patient category here. And solid evidence generation that will support the market access as in this second pillar we talk about here. And there's many surgeons right now who is writing articles about their results, and it will pop up in a number of articles already this year and the beginning of next year. And we are also launching, as maybe you're aware, of our EDC study. So we have 6 centers of excellence from 3 countries that is the minimum target and starting point for this study. And on margins, we are quite far in discussions with Esta Hospital to join this study as one important center. We are also developing this multinational randomized control center, where we will be basically you select, which patients should have reflux, or which should have a standard of care by lottery basically. And we are working closely with tipper payer authorities to get feedback on study design and outcomes to really meet what they need to approve the product, to be geared to really pay for the product in the real life practice. So it's a multitude of publications ongoing here. It's already one published in U.S , RefluxStop therapy [indiscernible] surgery, one European article from [indiscernible] has already been submitted. And there is a multiple of other papers ongoing. As you're aware, we had a meeting with the 10 key opinion leaders here in Europe. And we have made the consensus paper regarding the standardization of RefluxStop surgical technique, and this is now for the final review phase to later and soon to be published. So if we then go to the third pillar in our strategy is, of course, the market expansion. And market expansion could, of course, be that you expand in markets with existing regulatory approval. I'm not so good at telling you the slide number, but now I'm on Slide 13 here. And so -- for example, in U.K., we have got Spire Manchester Hospital to begin operating with RefluxStop. And the good thing here is that Spire Healthcare Group is the second largest provider of private health care in the U.K., and they have a network of 39 hospitals and 8 clinics across the U.K. So that will, going forward, be very powerful partner for us. We're also expanding in Spain, where we have the first hospital in Spain, now wanting to start and buy. And therefore, we need to go through the so-called bidding process because in Spain, it's all about bidding even if you are the only one who can supply the treatment, you need to have the bidding process. So that's ongoing. And we have a rather large interest also in Italy. It's actually a large number of hospitals in Italy just start with the RefluxStop. And we have the most maybe important center in Europe, the -- the former boss of the European Foregut society is working with us, and we have started to negotiate the terms with the hospitals, so we can start with RefluxStop. Of course, another step here is now to increase not only the market within the approved territories that also get regulatory approval in additional markets. And of course, in United States is, of course, the key place. We are working right now with Canada who probably will be the first market where we can enter, and the process has started in Japan. But of course, our PMA application in United States where maybe are aware of that you approve that to use our European data, which is, of course, fantastic news. And we are preparing now final little key submission to receive additional input from FDA on the last open issues before we file the final PMA application. So United States will, of course, be extremely important market for us that will -- could not be underestimated the U.S. market basically. So we are very much looking forward to that. And we also attended in the U.S. market, Slide 32, here. The American Foregut Society Conference. And we had doctor from Hirslanden, Professor [indiscernible], who presented his excellent results. And as you know, we are cooperating with Professor Lipham from University of Southern California, who is maybe the main anti-reflux surgery person in the U.S. And he has supported us to help us with this FDA results and he is part of that. And he says that he has never seen such important marketing effect as we have achieved in RefluxStop. So he says he has patient coming to him and want to have reflux surgery, although it's far away from U.S. yet. So it's really going very well and the news is spreading both to social media, on the congresses. Also we have articles published in U.S. And we will continue to work on payer and marketing, and we will have maybe another 4 congresses next year. In the other markets, this is just a summary of what we are targeting right now. So we, of course, are working our key markets here like the whole dark region and U.K., Sweden and Norway, we have Norwegian center who is now going to start, as well as hope for the Swedish centers. And then yes, it's improving step by step now. And the -- really big weak situation we have after COVID but it was a big waiting time and no one could really do anything else than just trying to do cancer -- has been waiting and so on, that's starting to be a little bit lighter. So it looks promising going forward. And then we are expanding, of course, to France as well. We will do the RCT, important centers will be working with us in France. And so far, we have 5 centers who want to join the RCT in France. So as we see it, RefluxStop is unstoppable. This is just a question of how long time it will take, but we have all the attributes to become an really important player here. Then we have the capital market and finance section, and I wanted to give the word to our CFO, Andreas Öhrnberg.

Thank you very much, Peter. Good afternoon or good morning also from my side. I have the pleasure of sharing a brief financial update. Let us turn to Slide 36. Figures on this slide are expressed in euro thousands. I will comment on the upper graphs exhibiting our Q3 performance. We reported net sales of EUR 195,000 for Q3 2022, an increase of 135% compared to Q3 2021. As a reminder, we are currently solely marketing our lead product RefluxStop and still only selectively engaging with key opinion leaders and their clinics as part of our market access strategy. Our business development colleagues are very happy that after a long and challenging COVID period now fully being back on the road engaging surgeons at conferences and other clinics. As Peter mentioned, the level of interest that we see from the KOLs is very significant, and we expect these KOLs to be the base for building the commercial success. Moving to gross margin. The gross margin levels that our lead product RefluxStop has delivered quarter-after-quarter are highly attractive. Adjusted gross margin for the quarter amounted to 94%, 3 percentage points lower than Q3 2021. Period-on-period volatility is expected considering the current subscale volumes. The combination of exceptional gross margins and no limitation to scaling RefluxStop production underpins the opportunity to generate long-term future profitable growth and free cash flows. EBIT. Our quarterly operating loss expanded to EUR 4.6 million, up from EUR 3.9 million Q3 2021. The year-on-year OpEx increase reflects the transformation that have gone through over the last 12 months, but the company has been focusing on capability building in the areas of commercial development as well as quality and regulatory. We see these capabilities as key for successfully scaling the business. Investing in R&D, both our pipeline products and the eHealth platform as reflected in OpEx and CapEx spend remain a key priority. Let us turn to Slide 37. We are fortunate to have a very solid balance sheet. End of December, we held EUR 118.4 million of cash and short-term investments. Short-term investments relates to term deposits with a Tier 1 Swiss bank, hence, we are not exposed to financial market risk, and we do not carry any interest bearing debt on our books. Let us turn to Slide 38. In addition to our founder and main shareholder, Dr. Peter Forsell, our investor base is dominated by Swedish and Swiss high-quality institutions. We are grateful for the trust and support we received from our investors to scale the business, to address the huge unmet patient need. With that, I would like to hand it back to you, Peter.

Thank you very much. Yes, then I think it's time to hear if anyone has any questions.

[Operator Instructions] We have a question from Christian Lee from Pareto Securities.

Thank you, I have a couple of ones. The first question, could you please give us an update on the status of the PMA application? If you have encountered new situations making the application more complex and when you expect to submit it?

So United States and FDA, they have a little bit different approach than they have in Europe. So if you have a device, medical implant in Europe and you, for example, tell the surgeons that you can use a suture here to put it together or you can use a little bit gel to make it easier to introduce it into the body, that's not part of the approval. The gel has its own approval process. The suture has its own approval process. But in United States, they say our product is a system. Our product should include the gel, it should be including the suturing and so on, and which means that all the test and bio-comparability tests and all these things you have done in the past for Europe, they now have to be repeated a little bit of gel on the device, the suture on the device and so on. And that is what we have been doing to prepare for this PMA application. And we have been advised by our lead advisers, [ Hogan Novel ] that it is a little bit safer if we do another small pre-submission to clear any outstanding issues, to clear that we are doing exactly the right thing, what the FDA expects from us. And especially since we got some favorable treatment from FDA, it's better to get things off the table that could cause any delay going forward. So that's what we are doing right now. We are in the process now finding that, and that will take an additional 3 months before we get our answer on that request. So we will not be able to file this year for any PMA, but our target is to file during the first half next year, our PMA applications for approval. And then the normal waiting time for FDA handling time is 10 to 12 months. However, that's then depending on how everything goes is as planned, and that nothing pops up. Nothing in this area is 100%. It's just about likely, but it looks quite promising that we then be able to get our approval, let's say, first half 2024, if everything goes smoothly and with no new obstacles occurring.

Yes, thank you for clarifying the time schedule. My second question is regarding your expansion strategy. Your current business strategy is to focus on markets where you have existing regulatory approvals. And given that you're close to submit the PMA application, how will you approach the U.S. market? Are you planning to be more proactive in the U.S. by building a sales organization there, or will you wait for the approval first?

So we have ordered, of course, as I said, started with the whole marketing machine in U.S. So we will do our best to get patients and surgeons. They should all be prepared and longing for RefluxStop to enter the U.S. market. That's our key. And that we are working very hard for, and we have been extremely successful as well. Then, of course, in terms of sales, we need to have a match, so we can get a nice sales organization where we finally get ready to sell. And there's 2 options for that. One is called the organic growth. And the good thing with U.S. employees is that they normally have very short termination time. They normally have like 2 weeks. And you can then agree with salespeople and people you want to employ that they are sort of on a standby and then you press the button when you see -- when you finally get that. It's also a possibility to acquire a company with a sales organization that maybe then doesn't make any loss, and then you can be even earlier and you can prepare in advance for such early, such a purchase basically. And we are working on both these aspects to see what we can possible, I should say.

Okay. My last question. You recently presented a health economic study for RefluxStop showing superior cost effectiveness compared with existing treatments. And I was wondering if it would be possible to refer to the study when discussing reimbursement levels in the U.S.?

Absolutely. I mean this is sort of key, as I said. This is one -- this is #1 on the 3 pillars I outlined to really get a successful reimbursement here. And this will be repeated in the University of York Healthcare Consortium here, they have put together this very, very advanced, very complicated model for doing this work. And this is based on sort of standard of health economic analysis that they have used. We can then use the same platform and we can just adapt and introduce the cost for different countries. Different countries have a bit different cost levels and so on. So what we are targeting now is to do the same model for many different countries. And it's 2 different models in sort of one for the cost benefit, and one is for budget impact. And this will play a very important role for getting the approval for the payers to pay. So this is one of the most important factors we have. So that we have the fantastic results, that's incredible basically.

[Operator Instructions] There are no further questions. Dear speakers, back to you.

Thank you very much. Now then we would like very much to say thank you to all who have listened to us and who follow us, and we really appreciate your support. Have a really good day. Thank you.