Implantica AG (IMPASDB) Earnings Call Transcript & Summary

Good day, and welcome to the Implantica Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Peter Forsell, CEO. Please go ahead.

Good afternoon, everybody. So this is the quarterly report 4 from Implantica. And as you know, Implantica is all about bringing advanced technology into the body. And I will do a little bit introduction. So for eventual new listeners, my name is Peter Forsell, I'm the Founder and CEO of Implantica and I have also invested more than SEK 1 billion in Implantica. And we also had a successful previous business with gastric band. That is the foundation for the funds that we have been using here for Implantica. So Implantica has 2, you can say, platform technologies and to be able to really do smart, attractive implants and replace bodily function inside the body, you need, first of all, to have more energies. You need to have wireless energy supply, you can't have people open every month to change a battery. And then you need an eHealth platform. So what we have developed is a system where you basically could collect data from the implant, the doctor could sit remotely, look how the treatment is going and also change the treatment on distance. And eHealth will revolutionize health care. It has been so much developed outside the body that not yet has reached inside the body. So whatever implant is doing, you will see a revolution of health care in the coming decades. And the advantage is now, as I said, you can treat people on distance and you can treat people with more unmet needs and society would also save costs. And a real milestone in this development is actually be able to just treat all this as it actually is not really available today. So the doctors should be able to be in the hospital, the patient in its home or whatever, and you should be able to change treatment and that's the key to success here, and that's what we have been able to develop in Implantica. So we have then gone through the whole body and said, how could we now improve health care with all these nice technology we have developed. And we have then done so many patent cases -- nearly 2,000 patent cases, 300 inventions or more. And we have sitting 3 years going through everything and selected not more than 40, what we believe, viable implant products. So that's sort of the background, that's the pipeline you get in Implantica. And that's also why we have this very shy vision that we should become the world leader in smart medical implants. And we believe that we cannot only treat millions of people here -- patients, but we can also save a lot of cost for society. And it is actually more than us, we believe that Implantica has really advanced technology. So we have got an award here from Healthcare and Pharma Awards 2022 when they say we are the most innovative med tech company in Central Europe. So on top of all this, we have RefluxStop who is really a very promising product. Basically, in our hands here, we have a multibillion dollar opportunity, and I will explain why. First of all, acid reflux, which means that acid is then coming up from your stomach, into your lower esophagus and it's burning and causing pain and [indiscernible] and so on. This also cause cancers. And I think you have heard this before, that it's 48,000 people actually die from this type of cancer, it's called esophageal adenocarcinoma. But what is new here is that we actually have really carefully looked into the literature how you really get cancer from acid reflux. And then you find out when you look at the number of sufferers, it's already statistically proven how many get precancerous changes, it's around 15% of the daily sufferers get precancerous changes and around 0.6% of those get the pulmonary cancer every year. So you longer, you have your disease, the higher the risk. And you get to the same number of patients when you calculate backwards, and this is not proof, but it's a strong indication that most of these cancers is caused by acid reflux. And this is a totally unacceptable situation. You can't -- every other cancer, you do anything to find. You have mammography for breast cancer, for example, and you do anything to find these cancers, and here, we have 48,000 people who just die every year. That's not acceptable, it has to change. And the problem we have is that the drug who's the main treatment for this kind of disease, it doesn't help for this cancer risk. There is no proof in the lecture that these drugs actually reduce any cancer risk. And it's maybe even the opposite. So that is a really big problem here. And when you then look at the treatment, if you now go to Slide 13, you see that the market is enormous. It's 1 billion people who have acid reflux, 1 billion people take PPI drugs, at least once a year. And number of surgeries is less than 1%, less than 1% of these people actually are treated that have any chance of reducing their cancer risk. That's really serious, and that's why RefluxStop has an enormous potential to become a really new standard of care in this treatment field. So before I go into a little bit the other updates, I just wanted to explain how it really works here. So in the past, everybody believes that the closing matter, you see on Slide 14, that flows between the stomach and esophagus that's weak, it not strong enough, and therefore, there have been different surgeries to try to support and close. So Dr. Nissen developed his first method already in 1956, when he wrapped around the top part of the stomach to compress the lower esophagus. Johnson & Johnson has a more modern system called LINX, it's a magnetic band that also compress. The problem now is that this is people's food passage way. And this gives, of course, swallowing problems if someone is trying to close your food passage way. You have -- you can't belch, you can't vomit, you get to cause gas bloating because you swallow gas with your food and saliva and nothing come up any longer. So next Slide 15, you seal with [indiscernible] instead of RefluxStop, but you actually don't affect the full passage at all. Because we realize the cause of acid reflux, the other 3 -- the symptoms but we actually treat the cause. And the reason why you get acid reflux is the following. So you have a chest where you breathe, the lungs come and go, fills with air and then you get pressure variations in the chest. And these pressure variations, they are coming out through the opening where esophagus is passing through the diaphragm, and they are leaking the air and they affect this closing muscle, this lower esophagus sphincter. It has not power enough to close anymore because this comes too close to the diaphragm or even up in the chest what they call hernia. So if you are going to restore this large distance between this closing muscle and the diaphragm and place our device to keep it in that position. So we place our device on the outside of the stomach, on the top part of the stomach to reinforce it so it interacts with the diaphragm. So you always will have this large healthy distance and since people get treated for their acid reflux and that without the side effects with the previous technologies. And what is really exciting news for us is that the American Foregut Society -- Foregut Society is an association, mainly of doctors, medical doctors surgeons could treat acid reflux. That's the main group of the Foregut Society. And they have now come out with new guidelines. They have published a white paper in September 2022, where they basically described how you get acid reflux and obviously, then how we should treat it. And when you look at this, you realize this is an exact description of the reflux stop methodology here. So we have a clear acceptance that our theory, our principle, that's the one who really counts here. And that's, of course, a fantastic -- fantastic saying that the big organization here is really believing in what we are doing. I will give you a little bit more updates from the quarter here, and maybe a little bit even before the quarter. So let's start with human resources because we have previously talked quite a lot of human resources and how we try to really find absolutely best talent in Implantica. We need people who really work in the same direction and really super competent people. And we have actually employed 31 new members of the team here during the last year. And that's quite a lot, and you will see coming forward here that we have some really fantastic people in this new peer. So together, we are really targeting to build a success story that everybody expects from Implantica. And I will give you a little bit update on RefluxStop, and here, for example, you have Yves Hospital, that's the largest university hospital in Switzerland and Professor Borbély, he was presenting at the EFS, that's the Foregut Society in Europe, the big conference, the results and outcomes from the operation with reflux. He has been operating reflux of since 2018. And his conclusion from his presentation here was that they have proven now that in a really normal hospital setting, you can see the same fantastic results that we had in our study. And you can see a little bit these results here. This is a questionary you used to find out if people has acid reflux, it's called GERD-HRQL, health-related quality of life questions. And you can see that people get fantastic, much better and treated by the reflux of operation. And here, you can see some of the symptoms, it's heartburn, regurgitation, dysphagia, pain everything gets much, much better or mostly disappear -- in nearly all patients disappear. So if we then go to Slide 26, you see that we have another center in Vienna, Professor Schoppmann has been presented his results. And this was at Gastro Congress in Helsinki and the good thing here is that Professor Schoppmann, he is the President of the European Foregut Society. So the association of anti-reflux medical doctors and surgeons, he is the President of the Association and he even said he has excellent results on the first 25 patients. And you even have a really nice picture he has taken from inside the stomach, how you see how reflux is sitting here like a little round ball. We have, all in all, the last quarter, 6 top class presentations from surgical experts holding presentation for us. One of them is Professor [indiscernible], and I will show you also his results, and he also has excellent results. So you can see here -- these columns here, the first one is this questionnaire I talked about -- it's the total score, how much people then get much better. You see the symptom heartburn nearly disappears, regurgitation, dysphagia, all things you get fully treated basically. And if you really ask if people are satisfied, you can see here on the ring on Page 29 here besides -- the woman here with stomach, you see that all patients -- no patient were dissatisfied. One were neutral, it's a scale of 3 -- satisfied, dissatisfied, neutral and the rest are satisfied. This is absolutely incredible results in relation to what you see in standard of care. We have been in not less than 18 congresses during the last 4 months -- 18 congresses. It's -- we're really increased our activity to spread RefluxStop over the world. And I will give you a little bit more meat on the bone on the market access process. And I think I have showed you this slide before, so it's all about building superior health economics. We need to prove that our product is more cost efficient than the others. We need to create clinical evidence to show our results that we have fantastic results, and we need to expand our market. We need to get into a new market like the United States, for example. And if we look at the health economics side, as you may be aware of, we have the University of York who is the most prominent university in the world for health economic analysis, and they have helped us to make an analysis and compare RefluxStop with all the other treatment, both drugs, fundoplication, LINX, and they came to that RefluxStop is superior to all other therapies in quality of life outcome in cost effectiveness. And that's, of course, fantastic when we should try to get this product further on the market. And what we are doing now is that we actually are repeating this. We are doing this for all the other countries now. We're doing it for Sweden, Norway, Italy, Spain. All these cost effectiveness and budget impact analysis will be repeated in country after country to convince each society that they actually should pay for the device because that's what really matters is that society or insurance company, they say, yes, RefluxStop -- that's a fantastic treatment. We, of course, need to pay for that. That's when the business really takes off. If we talk about clinical evidence generation, we are trying to both do registered studies, randomized trials and we have several surgeons now starting to write more and more articles. And it will be a large number of articles that we've published during 2023. And we are really building the evidence together with our surgeons to create a platform that is unquestionable for the clinical evidence of this treatment. And I can mention something special here about the registered study because that's now ongoing, and we have quite many sites and especially interesting because we have 2 sites in Sweden, Biesta and Sundsvall who has now committed to join this trial, and we have several sites in Austria, Germany, Switzerland, we have yet to get approval for a couple of hospitals and so on. So it will be more and more patients collected to show how fantastic RefluxStop really treats acid reflux. So the last part is then, of course market expansion, and we are then, of course, focusing on FDA, and it's clear that the U.S. market is a very important market. And currently, we're just in the process now of filing last supplement to our presubmission. Because it's some issues, it's very delicate to do this absolutely right. So we get an approval right away when we actually file. And we are then asking FDA a few more questions about a few more outstanding things. We have also been discussing in France, they support randomized trials. So we have been discussing and should go to [indiscernible] association for health care in France, and they actually then support trials like this funding-wise, so to say. And we had a meeting with one expert surgeon related to [indiscernible] who has looked at our protocol and we have got feedback and so on. So this is an ongoing process. We are also putting together the file for Canada. We are quite far with that. You try to get approval in Canada. We are also discussing the best pathway in Japan. And we got the Government of Japan to approve that it's a company called JETRO, who is a government-owned company, supports special technologies, extra special things that we support, and we have been selected for such support in Japan to get regulatory approval. Here, you can see a little bit the markets then we are expanding in Europe, of course. We, of course, not only are trying to reach new markets, but of course, we are expanding the business in the existing ones. And you see here some of the countries you see also on the map. And -- we are expanding the market step by step. We have made our first 2 surgeries in Spain. We have got a hospital in U.K. who is called Spire Manchester who is actually part of a group of not less than 39 hospitals and 8 clinics across the U.K. It's a private group and we, of course, hope that, that will lead us to more of the hospitals in that group going forward. Also in Italy now, we are starting out here with new centers, and it's overall looking quite good for the expansion of the business. And what you need to keep in mind is that before someone pays for the product, the most important is to find absolutely key surgeons, the important surgeons, the quality centers, get them to start and collect more and more high-quality centers. It's not useful to sell to sell 2, 3 in hasty. That's not the target for the moment because it's all about selecting the evidence that creates the governmental bodies or insurers companies to say, yes, we pay for your device. And then the business will be enormously much higher when you finally get someone to pay for the product. So all we are doing now is collecting evidence. So we actually will be -- the hospitals will be financed for doing our procedure. And you see a little rocket here. This is after reimbursement and it still pays in the rocket for your information. So if we go to Slide 46, there's a little bit about the pipeline update. And I will just give you a few things. I think I mentioned before that we are working on something we call RefluxStop 2, which actually is a RefluxStop treatment for acid reflux that also will treat obesity. And we are basically creating a little sources of our RefluxStop devices here. And we are shooting over it. So you basically take out most of the stomach volume. You have a little stomach volume left only. And thereby you can treat both obesity and acid reflux in the same product. And you can see a little bit on this drawings. This maybe not the most fabulous drawings, but you see the principle. And you see that it will stabilize -- it will treat reflux and obesity. We also have 4 people that have been operated on already with obesity surgery. There is one method called gastric sleeve, it's many tens of millions of people have been operated with gastric sleeve for obesity. And the problem is that they take create long -- prolongation, you can say of esophagus. So the stomach and intestine everything is like a long tube, and that's, of course, makes it much easier to line up. And because you now know that if something lined up, you get acid reflux, 30% of these patients get this surgically induced acid reflux and we have a solution for that. We just place an arm for our RefluxStop device, and that we call RefluxStop 3. We, of course are working also on our key products. You know we have a treatment for obesity called appetite control. And actually, we are quite proud to say that we have solved the food sensor issue, which is being the most tricky part of this product because this is all about creating satiety by sort of expanding your stomach all the same way that the normal body makes. When you eat and you are full, you start to stretch the stomach wall because you expand it. And this we have solved but we also then need to know how much people are eating and when they are eating, and that we have done with these food sensor that have been tested on 20 students and it works really well. And this is, of course, a milestone achievement for this product. Also, we are working on urinary disorder. As you know, with many people who can't urinate. They may be having a spinal injury or urethral stenosis disease. And they put any catheter into their own bladder, every time they should urinate, and that's quite burdensome life. And we have the solution here so we can empty the bladder. We actually have [indiscernible] showing now that we can fully empty the bladder, and we only have like 10 mL residual urine left, which is a really good achievement. So this product has also taken fundamental steps in its development. Yes, then I would like to give the word over to our CFO, Andreas Öhrnberg to talk a bit about the capital market.

Thank you very much, Peter. Good afternoon or good morning. I'll walk through a brief financial update, and let us turn to Slide 53. Figures on this slide are expressed in euro thousands. I will comment on the upper graph showing our financial performance for Q4 2022. Let's start with sales. We reported net sales of EUR 242,000 for the quarter, an increase of 126% compared to Q4 2021. As a reminder, we are currently solely marketing our lead product, RefluxStop, and still selectively engaging with key opinion leaders and their clinics as part of our market access strategy, as outlined by Peter. Moving to gross margin. The gross margin levels we see the business delivering are highly attractive. The high gross margin can be explained by the RefluxStop product characteristics. We produce a very simple product while we sell superior patient outcomes. Adjusted gross margin for the quarter amounted to 96%, 5 percentage points higher than Q4 2021. The combination of an exceptional gross margin, no limitation of the scaling RefluxStop production underpins the opportunity to generate long-term future profitable growth and free cash flows. Coming to EBIT. Our quarterly operating loss expanded to EUR 5.1 million, up from EUR 4 million Q4 2021. The year-on-year OpEx increase reflects the continued investment into commercial capabilities with a focus on market access. We are committed to invest in the commercial platform that will allow us to address the reflux treatment gap at scale. Let us turn to Slide 54. We are fortunate to have a very solid financial position. End of December, we held EUR 109 million cash. We do not carry any interest-bearing debt on our balance sheet. And finally, let's turn to Slide 55. 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 the support we received from our investors to scale the business to address a huge unmet patient needs. Back to you, Peter.

Thank you. I then just wanted to say with this nice picture here that RefluxStop is unstoppable. We are fighting against bureaucracy and administration processes, but our results shows that we -- this is a product that you really need and it will take over this market. It just will take some time. Questions.[Operator Instructions] The first question today comes from Christian Lee with Pareto Securities.

The commercialization of RefluxStop has so far been focusing on sales in key markets and building a network of top KOLs. Do you plan to continue this strategy into 2023 or are you considering going out more broadly based on the [indiscernible] validate clinical data that has been gathered so far, the published health economics analysis?

We are trying to stay with the strategy we have for the moment. We are not selling everywhere. We have, for example, not selling in the Middle East, although we can get a good business there right now. We are focusing on quality, the absolutely important key centers that will build a fundament for a future expansion when we get the reimbursement. To collect all the data we need to convince insurance companies and governmental bodies or health care bodies that they actually -- here we have a treatment, they have to pay for, and when we achieve that, then we can go out broader.

Got it. My second question is regarding the D&A application. If you could please provide us an update both in terms of the additional settlement you are preparing and also the time line when you expect to submit final applications?

Yes. So an application, say, a PMA application you can say that, that's more like a full wall of documents. It's a really heavy process. It's big work, and we are very far in that work. But it's also a complicated process with many aspects to think about and to really not make any mistakes, we are asking FDA some last questions. We have 4 different question areas. We are asking them some final questions. And this is a process that will take approximately 3 months to get an answer. So before that, we can't file the final application. Then of course, depending on the results of these questions, this needed then to be integrated into the big PMA application or maybe we need to do some updates or maybe some new tests we have not thought about, we don't know. But in the near future, so to say, we, of course, hope to file this. So Yes. If we say at least, we should be very disappointed if we don't file this application during this year, but exactly in what months we can't predict because we need the answer from FDA first to know.

Okay. And my final question is perhaps for Andreas. OpEx in Q4 increased by 33% year-on-year. Should we expect this current level of OpEx on a quarterly basis in 2023? Or could you perhaps guide us on the level you're looking for getting all the commercial and regulatory activities you're planning?

Christian, thank you for the question. And how we allocate resources and the discipline is very important for us. And the OpEx that we run currently as you can imagine, is primarily not to support current activities and current sales. It's all about investing in the platform to scale sales in the future. And I mean, since IPO, we have been seeing in OpEx -- growing OpEx quarter-on-quarter fairly rapidly. At the same time, over the last 12 months, we have seen that rate coming down, except of Q4, where we saw that rate going up. But I would not read in too much into that, given that we had some one-off expenses that we took in the noncash expenses in Q4. So we will continue to see OpEx going up based on selective hires but all the fundamental capabilities and departments have been built. So we will not see an expansion in a similar way. Just, we have to focus on getting those additional talent on board. I hope that gives you some background. I will not give any specific guidance in terms of numbers. But hopefully, that helps you to think about how the dynamics will play out over the year.

[Operator Instructions] As there are no more questions, I would like to turn the conference back over to Peter Forsell for any closing remarks.

Yes, then I would just say thank you very much to everybody for listening, and I hope to see you soon. And we are targeting to maybe make a Capital Market Day for Implantica, where we carefully go through all our strategy and what we are doing during half a day maybe. And we will come back with that. So you can get a bit even more meat on the bone than you can get on a short meeting like this. Thank you very much for listening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.