Implantica AG (IMPASDB) Earnings Call Transcript & Summary

Welcome to the Implantica Q3 2023 Earnings Call. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Peter Forsell, CFO; Andreas Öhrnberg and IR Nicole Pehrsson. Please go ahead.

Good afternoon, everybody. This is Peter Forsell. And as you know, Implantica is all about bringing advanced technology into the body. And I will start with a short repetition of the basics about Implantica for any new listeners and then we will go over to the business update. So myself, I am a surgeon educated at Karolinska Institute and I have invested enormous amount of money in Implantica. So if anyone doubts that I believe in Implantica, there is no question. And this is the second journey the first business we created was a gastric banding business, which was extremely successful and also generated substantial profit for our investors. So to summarize, Implantica has 2 platform technologies. We have an eHealth platform that could monitor what happens inside the body, that could read from inside the body, and we have a wireless energizing platform because when you should do all these advanced sophisticated implants, suddenly you realize that you need lots of energy. You can't cut people open every month and change the battery, so you need a wireless energizing supply. Also, we have integrated lately, a stimulation system into the same platform technology. And what is then special with this platform. Of course, you can create many fantastic implants, but the key to success here is that you can change the treatment on distance. This is the new development has taken lots of efforts. And you know today, you have all the GDPR rules, you can be hacked and so on, and you need to have a totally safe system if you should really be able to change treatment on distance. And this will save lots of cost for society. Because suddenly, the patient doesn't need to stay long periods at the hospital or come from many visits. Because treatment could be much more efficient, much more advanced, and we will then save substantial cost with this platform. And the wireless energy will then power the implant at the patient's home, maybe 5 minutes per day, they need to spend to recharge the [battery], like you recharge your mobile phone basically. And as you are aware of, Implantica has actually gone through the whole body to see how could we improve health care with our platform technologies. We have spent 3 years going through all the different inventions making market analysis, product analysis, production analysis, prototyping to select more than 40 implant inventions out of more than 300 from the beginning. So we have a fantastic platform and enormous potential if we can now get RefluxStop going, which then could found all this development. So that's why we have a very high vision in this company. We should become the world leader in smart medical implants. Let's move over to RefluxStop, which is our main product, product on the market since years back and has proven more or less that it will become the new standard of care in the treatment of Acid Reflux. The risk that this should not occur has dramatically been reduced the last year. And I will try to give a little bit picture of that during this presentation here. Here you see the insertion tool, which we have sell together with the device. You see it's a very small little device of 2.5 centimeter, 1 inch. And what is now special with RefluxStop? It has a market that is absolutely enormous. It's 1 billion sufferers from people who suffer from Acid Reflux. This is astonishing and 40% of sufferers they are not helped by drug therapy. We have 400 million people who don't have any good treatment today. And on top of that, number of sufferers are growing by 5%. So existing treatment in terms of surgery today, they have all been focusing on that you need to support the closing between the stomach and esophagus. The reason why stomach fluid is coming up in esophagus and cause a burning with the acid and causing pain here in esophagus, they believe that because you have a weak sphincter, the ring muscle that should close here is weak, that's wrong that we have proven today. So these methods here, they are obsolete. They are trying to support the closing of this sphincter which means people get swallowing problems. They can't get anything up anymore, can't belch, can't vomit, they get the called gas bloating because you swallow with the saliva and food lots of add all the time and this can't get up anymore. And people are generally unhappy with this surgery. I worked 10 years with these patients, I know what I talk about. Implantica, on the other hand, we find out why you get Acid Reflux. So we treat the cause of Acid Reflux and that's, of course, a totally different. We don't need to affect the food passage way at all, and there is absolutely nothing wrong with this sphincter is called lower esophagus sphincter LES. And the only thing you need to do is to restore the normal anatomy of the patient, which means that you move this ring muscle down away from the diaphragm. And the reason is the following. In the chest, you have the lungs. When you are breathing pressure comes and goes in and out, in and out. And this pressure variation is leaking out here through the opening in the diaphragm and they cause problems for this sphincter. So when this sphincter here comes closer to the opening, it has a really hard time to stay closed because it should battle pressure come and go and come and go and come and go in is very burdened some for the sphincter and you get the Acid Reflux. And then this sphincter comes all the way up here, then you call it a hernia. So by just restoring a healthy large distance to diaphragm and placing our device on outside of the stomach hole, don't open anything of the food passage way. People get fully normal, and they treat themselves. We are just creating a normal anatomy to treat people. Here you see a little bit how the device looks from inside the stomach when it has been operated. This insight here is the little device to the right. And here you see an X-ray how the device is sitting along into esophagus. And what is even more talking for this product is that it is a very serious problem with cancer with Acid Reflux. So when you have this asset coming up from your stomach and is doing this over and over and over again, it's Tenderizing your tissue, that's how you get cancer, 48,000 people die from Adenocarcinoma in the esophagus, every year in Europe and United States alone, 48,000 people, that's absolutely enormous. They do any kind of mammography to find any kind of breast cancer, but here, we get that 48,000 people die because they are not treated. That's not okay. So this is why RefluxStop could not only be a large product, it could be enormous product. Here, we have a little bit now the business update. So first of all, I need to tell you that we have our second annual RefluxStop user meeting and it was a total success. We had more than 50 participants, and it was mostly surgeons using the device, but also new potential users and some gastrointestinal doctors. We even have visitors from Canada, U.S. and so on. And of course, U.K., who is maybe not part of EU anymore. So this was an incredible meeting. Here you can see it was in Milan. Here you see the velodrome by night. And if you have really good eyes, you will see that 1 of the flags here is the RefluxStop flag and the other 1 is the EFS who organized the meeting in connection with our meeting because we had so much attention. So it was lots of presentation of [indiscernible] here, of course, and we are introducing a new training program. We are developing called OSATS where we in detail will train the surgeons, they will get point for the training and so on. And we went through the whole procedure for all these very carefully. And it was lots of discussions and different surgeons presented their results and open environment. And this surgeon-to-surgeon discussions, that's the most credible marketing you can do. You can do 100 advertisement, it doesn't help in relation to if you have 5 surgeons standing up and saying, "Yes, I've used this in a long time. It's fantastic. That is the best, best marketing you ever could get. So what are we now working on the Implantica. Yes, it's all about getting the product to be paid for. So when you get approval to sell in European Union, for example, in U.K., it's nice. You are allowed to sell, but you have no 1 pays for the product, because all these systems, they are different in every country, you have different organizations could be insurance companies or governmental body someone needs to pay. So whether this hospital operates, they need to get paid for a device. That's what we are doing right now. And in that part, it's 3 components we are hardly focusing on now. First of all, we need to show that we have superior cost effectiveness, that -- it's more economical to operate with our device. We also need to show that we have fantastic results, superior clinical data and we, of course, need to grow the market, both in territory and in a number of hospitals, but we are only focusing today on centers of excellence. They really top-class surgeons, the 1 who really is interested and specialists in this area. So if we go over to the health economic analysis, we have been extremely successful. And I would really say we have succeeded in this area. So we had a fantastic research done by University of York's Health Economic Consortium that went through and compare all the different treatments in terms of Acid Reflux. And they find out that RefluxStop was the most cost effective when you compare to any fund application links, PPI drug treatment. Although drugs really cost anything today, we were still cheaper for society to operate with RefluxStop. What we have done now is that we have created this in country after country, after country, because we need to show in each specific country that we are more cost effective. This is what we have done in another 4 countries, 4 new abstracts has been published and not only that at ISPOR who is the largest health economic congress in the world that means where you have thousands of people coming, all the payers are coming. There they selected our abstract for cost-effectiveness analysis in Sweden in the top 5 poster category. That means we have a really high-quality research before here. This data will be fantastic when we now are entering the reimbursement in more and more areas, which we hope should happen now going forward. That's done, I would say. Then, of course, we should grow the market. We should have more hospitals, so we get more patients done more. And here, we have already started with the prelaunch of RefluxStop in the U.S. So we have so high interest because of all the European surgeons going to congresses and telling how fantastic RefluxStop is, the US surgeons is super enthusiastic and really wants to get going and try this new fantastic device. So we have agreed to move 18 surgeons will fly over from U.S. to Europe to see 2 different centers of surgery and get trained and prepared for the launch in the United States. That is a very well investment. And -- we presented at the American Foregut Society. It was lots of different surgeons actually who hold speeches of the fantastic results. And then it was also a panel discussion on RefluxStop with 4 prominent and European KOLs. So it was Bonavina, who is the Chief of the European Foregut Society, for example, and several big users of our device. And this was moderated by the former President of American Foregut Society, Professor Lipham. And it was more than 100 participants at that meeting, and it's just incredible meeting, absolutely fantastic. We have an enormous interest for our product in United States. And this meeting here will be combined that they also will be trained on cadavers in United States. So FDA in the latest meeting we had, they asked us to also because we are not doing any clinical trial in U.S., we only present the European data. They say, why don't you at least let them come a few days and do a cadaver study, so they operate on cadavers. And that we are doing, it will happen towards the end of February where we will bring all the surgeons, we have all organized. They have all said, yes, basically to this approach here. We also have another great achievement, and that is that we have operated with the first hospital in NHS in U.K. So NHS, that's the government controlled health care in U.K. And I don't know if you are aware of, but we started very promising because we have already part reimbursement here in U.K., not full, but atleast a good possibility for reimbursement and then suddenly with the COVID pandemic and as said, we are bankrupt more or less, we can't take any new treatment, no new things, nothing completely closed down. And this started in July this year to step back from that. It's a period between July and end of year where they step by step is again accepting new therapy, new treatments and so on. So here, we have been able to get all the approvals to do this in Imperial hospital here, which is a really big step forward. And it's around 10 more hospitals that are also interested NHS Hospital to start with this procedure. And NHS, they have merged a first investigation and sort of first suggest to continue here with their investigation about RefluxStop and this is a process now when we will supply all the data and health economics and so on to NICE to maybe get not only partial reimbursement, but maybe full reimbursement in the longer run here. So this is the countries we are selling to. You see we are focusing on Spain, Italy, Switzerland, Austria, Germany, of course, U.K., Norway, Sweden. We have good surgeons in Norway who is starting up. And on top of that, we need then, of course, to show that we have superior results for our product. We are much better than anything else. And that has been extremely easy because our results is like night and day compared to the existing treatments. Here, you see the European forward society. And what you see in front here is all surgeons discussing RefluxStop. There is a symposium of RefluxStop, and you see it's completely full with the whole auditorium are here listening. It's also this event fantastic. As it has gone so well with the marketing of RefluxStop delays the last half year, so it's incredible. So this was another total success here in Europe but these surgeons stand up and basically confirm that this is better than anything it's fantastic. And it's focused, you can say, on this anti-reflux barriers. So the American Foregut society have published a white paper where they confirm that reflex comprises 3 components. And these 3 components they defined as the anti-reflux barrier. And RefluxStop treats all 3 of these components. So this is what Professor Schoppmann here is trying to explain in this specific presentation here, that RefluxStop is the only product to treat all 3 components of the anti-reflux barrier. What I also can say is that Professor Bonavina, who is the President of the European Foregut Society, he will do a live surgery of RefluxStop. And it will be -- it's expected to be more than 150 attendants seeing him performing the surgery is done now November 23. So tomorrow, he will do -- I've especially been there to see that he has understood all the technique and everything and train him personally and he will do. This is also a fantastic event for us. We also are publishing data in a big amount. And we have also been publishing data with patients who are bit special. In this case, it's large hernia. So when I talked about that the sphincter could move up into the chest, it could go a long way up into the chest. So part of your stomach is suddenly in your chest, then you call it a large Hiatal Hernia. And here, we have Professor Zehetner, who has been doing 30 patients with these patients and we present fantastic results. So this is sort of the score what you see here, how they have improved. And 6 months after surgery, this is a questionnaire of 10 question, you get a point for every question. You see it's close to 0 everywhere here. And you have an improvement of this quality of life of 92%, regurgitation improved with 94.5% and heartburn with 93%. This is a group of patients that it's difficult to operate today. They have lots of failure up to 30%, 50% failures. So this is really good results. And you can see here that all were satisfied, except 1 patient who was neutral is a 3-grade scale here. So fantastic results for these large Hernia patients. And you can see here that we have submitted this year, 37 abstracts, we have 29 oral poster presentations in leading conferences. 15 manuscripts are published or under submission. We are preparing for 2 randomized trials. We are doing 2 registry trials for more than 900 patients and nearly all of our surgeons are putting together so called IIT studies, when the surgeon are in charge to present their own data. This is what you need to very quickly convince the payers, yes, this seems to be the same. We need to approve to pay for this. And that you have to do. We have a team of 7 people and 4 medical doctors who do nothing else then ensure that we get data written published result. It's a fantastic effort, very focused approach to short down the long time to get this reimbursement to happen to get someone to pay for the device. So the registry study is already ongoing many in centers. We have Ethics approval in Switzerland, Germany, Italy, Sweden and Norway. And you can see some of the centers here. Some of these doctors will also travel to the cadaver lab, and they will train surgeons Thorsten Lehmann, Moustafa, -- for example, Schoppmann they are all part of the training team for the U.S. surgeons, and they will also go there for the cadaver lab. So it's a little bit like a snowball effect here. So far, we have done approximately 600 cases. We actually a little bit more than 600 cases, I would say. So this is part of a slide we presented at our user meeting. And regarding the other products, this goes a little bit slower than planned because we need to use with extra money because of the pandemic to be safe. We take it a little bit more calmly with other products. We go step by step is mitotically becoming more and more down, but a little bit slower pace than we had estimated when we actually made the IPO. One product I wanted to mention is RefluxStop2, where we are relatively close to really get going and start with all the necessary tests and producing production tool and so on. So this product will not take forever to get on the market. Then we have the capital market and finances, and I would then leave over the world to our CFO, Andreas Öhrnberg.

Thank you very much, Peter. Good afternoon or good morning. Let us walk through the financial summary for the third quarter, starting with the P&L. We reported net sales of EUR 244,000 for the third quarter 2023, an increase of 25%, compared to the same period last year. As a reminder, we're currently only partnering with key opinion leaders to build a strong reimbursement platform. The business continues to deliver exceptional gross margins. Which, as discussed in earlier calls is being explained by the combination of a simple product, which delivers best-in-class patient outcomes and is protected by a large moat thanks to IP. Adjusted gross margins for the third quarter 2023 amounted to 94%, flat year-on-year. Our third quarter operating loss amounted to EUR 5.8 million, which is 26% higher than Q3 2022. The operating loss reflects investment into market access and the regulatory Peter outlined in earlier slides, many key activities that drive spend of the market access work engaging the most reputable KOLs globally and ongoing health economics work. At the same time, we are engaging best-in-class talent, internal and external for completing the FDA submission. Next slide, please. We have a solid financial position end of September 2023, we held approximately EUR 94 million of cash. We do not carry any interest-bearing debt on our books. Next slide, please. Here, we can see the shareholder list. And in addition to our CEO, founder and main shareholder, Dr. Peter Forsell, our investor base is dominated by Swedish and Swiss high-quality institutions, and we are grateful for the trust and support we are receiving to address a huge unmet patient need. Back to you, Peter.

Thank you. Then I leave the world for Q&A.

[Operator Instructions] The next question comes from Christian Lee from Pareto Securities.

Yes. I have a couple of ones. My first couple of questions is regarding the PMA application. You have previously been optimistic about submitting the PMA application before year. But now it seems like you will not be able to file before year end as you are planning to conduct a cadaver training and usability study in February next year. Are they new requirements from the FDA because it seems strains that they have not mentioned these requirements before.

So this was defined during our last meeting here. What they wanted to have. It's -- when you say a study like this, you need also to supply lots of documentation. So it sounds easy to just to work at cadaver lab but it actually complete risk analysis, protocol, lots of different documentation for each step of the procedure, lots of surgeons should ask, questionnaires and things like this. And this has to be supplied to FDA to approve. Because if you don't supply it to FDA in advance, you have a risk that they say, "Sorry, we don't like your protocol, so please redo this test. And this was happened in August. And since then, we have then planned this procedure. And of course, to do this in U.S., you need then also to be doing your marketing attack to United States. So you really get the surgeons interested because we need to train them. We need to go to Europe. We need to have lots of webinar with them, and it's an effort. And we need to do then the whole marketing procedure. It's a bit unclear if we need to wait to have these results to file or not. So it's still not fully defined the filing date. But I would say it's probably correct to hope that we can file Q1.

All right. But what new data do you expect to extract from the usability study that could support your PMA application?

The FDA required at the last meeting, something called [indiscernible] scale , which means that we need to ask the surgeons lots of questions about this treatment. But do you think about this treatment from different aspects? How do you place these treatment in relation to existing treatment? And how do you see any risk with this treatment. There's lots of different questions that the surgeons will answer. And those questions will then be part of the judgment here from FDA Okay.

So to summarize the PMA application process. Will these be the last steps before you can submit the application?

All these steps we need to do is not fully in our hands. There is part which we are depending on when other people can fulfill their tasks. And that's why we cannot give 100% exact date. If it would only be in-house work then it will be easy. But it's lots of different tests and other things that FDA has required. So therefore, I can't actually say an exact timing, an exact date, but we hope it should be very, very short left now before we can file.

Okay. If we move to the sales growth in Q3 slowed down considerably compared with the first 6 months, could you please elaborate a little bit on the reason for the slowness of the sales growth? And do you expect significant contribution from the NHS [indiscernible] hospitals in 2024?

Q3, that's the summer months. So it's July, August, September. And because we have so many hospitals now in Italy and Spain. I guess you are aware of that we have been extremely successful in both Italy and Spain and there's many, many hospitals both started and lined up to start. And they have holidays a little bit later. So the they often have holidays in September, August, September, like the northern countries as July, August. So it's just people are not wanted to be operated at the summer months. That's the problem basically. So you will see when you see next quarter that it's going very well. So it's next quarter will be really good. And I think we have like -- I think it's 50% improvement over the 9 months, something like that.

And my final question is regarding your R&D expenses that increased in the third quarter. How should we think about the R&D expenses. Do you plan to maintain the expenses at these levels? Or should we expect them to increase going forward?

We see now the light in the tunnel here. And we -- you can say that the risk that RefluxStop will not be a tremendous success, that has been limited dramatically the last period now. I mean we see now the responses from the surgeons all over the world. We see more and more surgeons presenting their results, it's basically going extremely well to really be convinced that this will be a fantastic to sell this product. So today, the whole Implantica company, everybody is very optimistic and really believe in what we are doing right now because it's going so well for us. But of course, our focus is not really revenue. Our focus is to find a center of excellence that do perfect surgeries, so we can show perfect results for FDA, because the FDA, they want to see every results all over the world, every complications, everything, we are obliged to report every obligate. We have a system just for complications and reports, all the we need to document. That's why if we should be successful, we need to have high class centers. We cannot focus if people believe we should have more or less revenue right now, that's not the topic for the moment. The topic is to get the really good quality people and then when we finally get our approval and we can start to sell the rest of the hospital, they will just follow the lead of the top class one. That's how it works. So -- it's -- we are focusing on quality rather than quantity. We could sell probably a lot in Middle East, for example. I mean, we have -- but we are focusing now on markets where it's a little bit easier to go to, easier to control, and we understand of European hospitals.

And Christian, I can also add to this question, and in terms of R&D spend, I mean on a quarter-to-quarter basis, R&D spend has been expanding. I will not read in too much into that. I mean when we think about R&D spend internally, we think about cash. And as you know, I mean, the R ends up in our P&L and the D being capitalized. And if you compare it kind of year-on-year, I think we're down 30% in total R&D cash going out. And over time, also as Peter has alluded to, as we're expanding the convergence side, I mean we will continue to develop our platform and the pipeline products, but we do not expect cost to go up there rather going the other direction. As we have seen in recent periods.

So basically, we are taking money from all the other R&D development and placing in more commercial efforts that I think we can summarize. So the R&D is going down now when we see that we hopefully soon could fly with this product.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Yes. So I can -- I have some questions here. I maybe can answer here. How long will it take to receive the data from the Cadaver training and usability study? And when do you expect to send in the PMA application. So the Cadaver study is 4 days. Because we can't have all the surgeons the same day. And they are -- all the paperwork are filled in simultaneously with the study. So when the study is done after 4 days, we have all the data we need. They should then be summarized in a report, and that report could, I don't know, a week or 2 weeks, maybe to finalize that report. You see what more questions we have here. How close are you to get reimbursement in U.K., for example. That's a very good question. So in U.K., there is an existing code that fits for RefluxStop. So on top of the code that you use, for example, for another implant called LINX, the magnetic band, we get an additional amount. So to some extent, if now we get okay to operate in these additional hospitals reasonable, we should also get that extra money. So we have a part reimbursement already now. Then there is a process going on for a full reimbursement in U.K. And that process, I would approximate is 1 year until we get the final decision from NICE. On top of that, we are then performing our randomized trials. So we, for example, have on randomized trials who will involve U.K. hospitals where we compare PPI treatment as a drug treatment with the RefluxStop procedure in patients who has something called Dysmotility disorder. That means that the patient's esophagus is not functioning as it should. The muscles are not functioning normally, so they have difficulty to transport the food down. They have swallowing difficulties. And these patients are not okay to operate in U.K. according to the guidelines from NICE these patients should not be operated, because if you take the existing treatment to encircle the full passage way and you put them around esophagus, the swallowing problems will be even worse. So what we are trying to do here is to take this group of patients compared drugs with RefluxStop to show that this patient category is perfect for RefluxStop. And actually, we already know that. We have hundreds of patients operated with this group. So we know that they are perfect for our method. And that means that this study will take half a year. So it may take some time to get people operated. And then we need to follow them for half a year. So let's say, it's -- maybe we can operate them in half a year, and it will need to be followed in half year. After that, we have data that could support full reimbursement for the patients with this Dysmotility disorder. That group is approximately 40% -- 30% to 40% of all patients that have Acid Reflux. So it's a really big group of patients. That's our strategy in U.K. for the moment. I don't know how much time we have. I can see if we have any other nice question here have you placed your cash in any interest-bearing account? The answer is yes. We have placed them because otherwise, you get low interest. So we actually have a safe way of placing them, but so we get a higher interest rate. So someone is asking, are you being paid for the RefluxStop implant in the different studies or does Implantica sponsor those implants. So then the difference here is if you talk about a ready to study, where the hospital pays for everything, the implant, full price. But we, of course, give them a little bit of kickback then to do all the paperwork for the study, which is different from how we sell it to say. In a randomized trial, like I talked about in U.K., for example, 75 patients with RefluxStop, there the implant is for free. And what else -- do we have more questions here. I mean we have several questions, of course, about the PMA here and when will the PMA be filed. And it's it's closed to file. But because we don't see it on every piece in the parcel. We are dependent on other tests that other people are doing that has been required by FDA. I can't give an exact date, but I would be very disappointed if we can't file our Q1 this year. So it's not a long delay if it will be a delay. Yes, I think that's more or less some new questions here. I think we maybe need to stop here It's many similar questions. Yes. I think we cannot continue to answer more questions next quarter, which we try to find more time. And I thank everybody for listening, and I hope you at least got the impression that it's going extremely well for Implantica. It's really -- we feel the wind in the back here, and it has been a fantastic autumn, absolutely incredible. And -- that's what I wanted to show you with all these different photos and so on that. It's exciting for the moment to be part of the Implantica team. Okay. Thank you very much for listening, and I wish you a really good day.