Implantica AG (IMPASDB) Earnings Call Transcript & Summary

Welcome to the Implantica Q1 2024 Report Presentation. [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.

Thank you. Good afternoon, everybody. My name is Peter Forsell. And Implantica, as you know, is all about bringing advanced technology into the body. For new listeners, I have invested lots of money in Implantica and this is the second round of successful implant business. The first was the adjustable gastric band. Implantica has developed an eHealth platform, wireless energizing platform, which we are complementing with a stimulation system. And this is a very advanced system. And that will be able to be used to most of our pipeline products to create very advanced smart eHealth products. And the key to success is that you should be able to monitor what happens inside the body from inside the body. And you report to your health care provider, and they can then take action and change treatment on distance. And this requires lots of effort to do this in a safe, secure way. And -- if you can do that, you will be able to save lots of costs for society, because suddenly you don't need to have people running to the hospital all the time. And eHealth will for sure revolutionize health care. It has happened so many advancements outside the body that has not yet reached inside the body. And independent of Implantica's work, this will happen, and we are in the forefront of this development. And together with that, then need a wireless energy supply, because if you have these advanced implants, suddenly you consume much more energy; a pacemaker, for example, could lose the battery for 10 years without any wireless energy supply. But that's because to stimulate the heart muscle you need very, very little current. However, these advanced implants, it's not possible to cut people open every month and change the battery, and therefore you need a wireless supply of power. And Implantica has, based on these platform technologies in our eyes, we have a lot patent application. We actually have more than 1,000 patent cases. And we've been sitting 70 people for 3 years, doing market analysis, product analysis, prototyping, and selected 40 what we believe viable implant products among around more than 300 [ reinventions ]. So we have a fantastic pipeline. However, our focus now, of course, is on RefluxStop. And based on that, we have a very bold vision and mission. We believe we should become the world leader in smart medical implants. And that's based on all the patents, all the platform technologies and actually our first product, RefluxStop, who has an exceptional potential. And our mission is to provide needed medical implant solutions to millions of patients and at the same time, [ save ] cost for society. Let's start with RefluxStop. I will -- before I start with the business update, as usual, give a little recap. And here you see the little device, the deployment tool where we insert RefluxStop, and you see the device there, it's like 2.5cm in size. And existing treatments today have clear weaknesses. So the surgical treatment, they have been focusing on and believe that the muscle, this sphincter that closes between the stomach and esophagus, that this is weak. However, that's not the case. And therefore, existing methods is then focusing on trying to support the closing, with the side effects that you get: swallowing problems, you [ can't belch and vomit ], you get gas bloating, because you mainly can get gas down with your saliva and food, but nothing comes up anymore. And these methods, they have been declining over the years, and it's actually only a fraction, small fraction, of all the patients that need surgery actually get surgery, because the medical doctor thinks the side effects is too high price to pay. And RefluxStop on the other hand, we treat the cause of acid reflux. We realize that it's absolutely nothing wrong with this sphincter. We don't need to fool around to affect the food passageway at all. The only thing we need to do is to restore the original anatomic position of the sphincter, and it needs to be way below the diaphragm. And this we do by placing a little device, the RefluxStop stop device, on top of the stomach. It's called fundus. And this is then securing the position. It's restoring the -- it's called Angle of His, this angle between the stomach and the esophagus and this sphincter position here. Everything is restored and is already in shape. And then people treat themselves. They get completely treated. And this has been confirmed in a white paper from the American [ forward ] Society where they [ basically ] describe how reflex should be treated, and it is basically a description of the RefluxStop procedure. Here you see how it looks on an x-ray, sitting below the diaphragm, and you see the stomach further down and it's a bit more -- so the lines are a bit cloudy, so to say. And you also see on the right here, here you have gone with the gastroscope and endoscope down in your stomach and you turn it upside down, and you see how the RefluxStop device sits there nicely. And why is now RefluxStop such a special product? Yes, first of all, the market is completely enormous. It's 1 billion people who suffer from acid reflex, and 1 billion people take PPIs every year, 1 billion people, and PPI is then a medical treatment to reduce the acidity in the stomach. However, this drug -- I will come to that -- is dangerous to take for the rest of your life because it has too many side effects. 40% of all the people who take drugs, which is then around 400 million people, they are not well treated by the medical treatment. So it's only 60% that actually get treated by the drugs. And even if you consider and accept the drug therapy, it's still enormous amount of people who need the RefluxStop device. And why is now this so important? Yes, it is important because people get cancer. So you know that there is -- society do anything to find cancer patients. They have big programs for breast cancer, and they try to find every cancer, save lives. In our treatment field, 48,000 people is allowed to die in esophageal adenocarcinoma only in Europe and United States together. 48,000 deaths. That's absolutely unacceptable. It's nothing that could go on. And the problem is that the cancer risk has come in the background for all the side effects with surgery. And there has been no other good treatment available. And you can see to the right here, all the side effects with these drugs to start with. You get cancer, you get kidney disease and so on. And in the large study from United States with 157,000 U.S. veterans taking PPI for 10 years, 4.5% died, extra death, due to PPI use. So it's not a light drug to take. You can take it for some time, for 5 years or -- but through the rest of your life, it's really dangerous to take these drugs. So that's why RefluxStop has a rather extremely potential to become a really, really blockbuster product. And I wanted then to start with some business update. So first of all, RefluxStop has the potential to become standard of care in the treatment of acid reflux. And that's because our [indiscernible] has been so fantastic and we have been very successful in convincing the surgical society that RefluxStop is really the way to go. So the likelihood for this to happen has dramatically decreased the last 1.5 years because we have been extremely successful in convincing the society or surgical community that this RefluxStop is really something to go for. And I will tell you a little bit what has happened here in our different areas, and as you know, we separate a little bit our market access into market expansion [Audio Gap] insurance companies, to pay for the device. And it's when you finally get paid for the device, that's when the business finally take off. So first of all, United States is, of course, a very large and very powerful market and it's also a bit easier to get going with that market than in Europe. It takes longer time in Europe to achieve reimbursement. And it's so many countries, different rules in every country. So we filed now for our FDA approval in March. And this is the first of 3 modules. And we have agreed with FDA that we can divide the application up in 3 modules and they will be filed with 3 months in between each. So we have filed the first. We are -- before the summer here, going to file the second one. And we will then get feedback from FDA as it's ongoing. So we will -- we did not too far time to get feedback from the first module and so on. So when we come to the third module, it will only be feedback on the third module left. And this is, of course, a fantastic achievement. And this is really a heavy work. So it's really significant. It's hard to understand how much work it is behind such an application. It's a wall of papers, even if they nowadays are digital. So we completed during the first quarter a request from FDA, its human factors validation study of RefluxStop. That basically means that we had 16 surgeons who was basically operating by their own. First, they were trained. We actually trained even 20 surgeons on the RefluxStop, 60 surgeons then before the actual test where they operate themselves, alone, so to say, with the RefluxStop procedure after getting the successful training. So we had more than 45 cadavers and we worked at Northwestern University simulation lab in Chicago, and it was incredibly successful event. And this also then is a fantastic prelaunch event in the United States, because suddenly we have 20 surgeons who is very well trained. And we had 4 European proctors over there to train them. And they were trained in all aspects of the procedure before they made the actual test. And all these centers, all these surgeons want to start with RefluxStop, of course. So it is really, really a powerful start in U.S. And it's, of course, fantastic to have trained them. Of course, we need to retrain them on real patients when we finally start, but it's a really good start for the commercialization when we finally get our approval. In Europe, we have so far more than 750 patients operated. We have more than 25 RefluxStop hospitals -- it's actually more than that, but it's going quite well. However, we are only selecting center of excellence. We are not giving priority to sell and get turnover at this stage. We are only focusing on quality, quality centers, good results, fantastic surgeons. And the interest for RefluxStop stop is enormous. We can easily double this quickly if we would like. We are not selling in the Middle East, would give lots of more turnover. We are just now focusing on quality, getting our FDA approval, because the U.S. market, that's something completely different. And I will give you a little bit overview of what happened during this quarter. We had our first ever public tender win for RefluxStop in Italy. So their public health care system has approved to pay full price for RefluxStop for this hospital here in Italy in Turin, which is a fantastic achievement. Not only that, second win, second hospital -- all these hospitals, of course, now filing to be paid for RefluxStop in a similar way, but it's all a public tender system. And also here, they got approved. In this case, they got funding for 36 RefluxStop devices to full price. All this is the beginning a new era, when we finally can get paid for our products. So all these hospitals we have today, they operate without getting paid. They find resources in some way, they get some money for doing studies, but they really can't go with full blow and do this procedure, because they are not paid. Same in Spain, the first in-country public tender win for RefluxStop. They get paid full price for the device in a public tender. All this will achieve the reimbursement outcomes in more countries. This will strengthen our position when we're working towards getting finally reimbursed in many European countries. Here, you see a little bit the countries we are focusing on. And I guess you already could look at the map here and see. I have some centers who has then been added I will tell you, show you about. So we had -- I will give you an example here of 6 centers that have been added. So in Italy, we have one in Palermo Hospital, who has been added to make new RefluxStop surgeries. We have a second one in Italy. This is -- where is this? I don't remember. Anyhow, another second center in Italy. We have Akershus in Oslo, University Hospital, Norway. They made 5 surgeries, and it's 2 surgeons who will be involved in doing surgeries here in Norway. We have Spain -- this is on the Canary Islands. They also started to do more surgeries. We have another hospital in Spain in the Madrid region, also in university hospital, starting with RefluxStop. We have another center in NHS who is starting to do RefluxStop. We have to be in agreement with the hospital how and what we say about this, so we cannot disclose the center right now. But most importantly, NHS has started to review RefluxStop for reimbursement. So we have had the initial meeting with something called IPAC. It's the Interventional Procedure Advisory Committee of NICE. NICE is sort of the National Institute for Health and Care Excellence in U.K. That's the one who pays for all the health care in U.K., except they have a private section as well. But the public section is NHS. So they are now -- this is a procedure that will take a year, maybe. And then we'll go through everything about the RefluxStop. And then they will decide in different categories, how we could be reimbursed and maybe it [ will ] some entry-level reimbursement. It's hard to predict exactly what the decision will be here. But this is of course good news. If we then move over from the market expansion to clinical evidence, that's of course what we are working very hard on, because that's the platform as you see here, together with the other 2. We need superior clinical evidence. And that's why we are starting not less than 2 randomized trials, which I probably have told you before, that it's the Nissen [indiscernible] standard of care, and we also compare to the drug PPI in another study where Oxford University is the leading hospital here, it's in Vienna. Professor Schoppmann, who in AKH, they call it, the largest hospital, actually, in Europe, who is doing this -- being the leader of this study. So we are doing more studies and its lots of results because it's now more and more hospitals who get longer and longer data, more and more patients, and they present their data. We are supporting to help them if they have any lack of resources and so on. And it was 6 presentations in the world's largest congress, SAGES. 6 presentations about RefluxStop, real-world data from more than 200 patients in different centers, clinical outcome of our 4 year results. We have fantastic 4-year results with our [ CE ] study. The results just continue to be good year after year. And in terms of clinical evidence, we are really, really good. We are just continuing the hard work to collect more and more data, we get longer and longer data, and that is then a key component for achieving reimbursement that they pay for the device. We've also published articles, of course. Here is 2 articles that has been published. One is ineffective esophageal motility. So many patients have weakness to move, contract the esophagus, so they get swallowing problems, food is not moving as it should. And that's an important group of patients where no good existing treatment exists today. So the existing treatment, as you remember, they encirculate and put pressure on the food passageway. And that, of course, works very poorly if you don't have the power in your muscles to transport food down, then you can't bypass this pressure you put on esophagus. So these patients suddenly have a treatment that they didn't really have before. We also have large hernia patients. That's also a very difficult group of patients where the stomach is going up into the chest and it could be 10 centimeter, 8 centimeter of stomach into your chest. And when you then put it down, you have like 50% recurrence rate, and it's very difficult to operate these patients. Also with RefluxStop, it will be a high rate of recurrence, but everything tells us that we will have better results than existing treatment. Here is a study about large hernia also published. Here, you can see a little bit the achievements we are doing here, you see 2023. If you just look at abstracts, we had 45 abstracts during 2023, and already now during 2024 we have 24 abstracts. This is sort of a summary of studies that you present on a conference orally. And you see here manuscripts, 6 was published last year, and we have [ 15 ] now in the pipeline to be published. And we are doing 2 registry studies, 2 RCTs and ITT studies. We are really putting all effort we can to show we are superior. If we then go over to the cost effectiveness. Here, I don't have so much new to tell you, but I just wanted to repeat for the completeness that University of York, there's Health Economics Consortium, which is one of the most respected centers for health economics and medical health economics in the world. They made a study for treatment of reflux. They compared Nissen fundoplication, LINX, the magnetic band, they compared PPI medical treatment and RefluxStop. And the conclusion was RefluxStop is the most cost-effective acid reflux [ treatment ]. This study is gold for us. That means when we come to the payers, to the health care societies or where we come to the insurance company and say, "Hey, you gain money, you don't lose any money by operating RefluxStop." That's, of course, fantastic. Also, we have published -- we have published many articles here. So first of all, we have the cost-effectiveness article, as this is published in the Journal of Medical Economics, which is one of the most respected magazine in this field. Also we have another article about budget impact of RefluxStop in U.K. And this is also very important to show that we have very limited budget impact when you operate RefluxStop because you save so much money on complications and side effects and that you get better treatment results. So from our perspective, it has been really, really good quarter. We feel really well here at Implantica, and we feel that the RefluxStop is unstoppable. If we then go over to a little bit the market and finance, I wanted to give the world to our CFO, Andreas Öhrnberg.

Thank you very much, Peter. Good afternoon or good morning, and we should now be on Slide 47. Implantica had a strong start leading into the year with sustained momentum for RefluxStop, where the team continue to activate new centers and deliver excellent patient outcomes. We reported net sales of EUR 596,000 for the quarter, an increase of 94% compared to the same period last year. This is driven by a combination of new centers and higher activity levels at existing centers. As mentioned by Peter, we are only selectively engaging with key opinion leaders to build a strong reimbursement platform, this to create the foundation for a broad-scale commercialization of RefluxStop. Moving on to gross margin. We continue to deliver industry-leading gross margins despite the subscale nature of the business. The adjusted gross margin for the quarter amounted to 92% compared to 95% in the same period last year. The combination of superior gross margins and no limitations to scaling RefluxStop production underpins the operating leverage we can expect as the business scales and matures. Let us look at EBIT. Our operating loss expanded to EUR 7.1 million, up from EUR 4.9 million in the same period last year. The general and admin costs remained flat year-on-year. At the same time, we experienced a sharp increase in R&D spending, both quarter-on-quarter as well as year-on-year. Let us unpack the drivers of the R&D cost expansion. Four types of costs make up the R&D line item: firstly, cost for filing new patents and managing the existing patent portfolio; secondly, data collection as the studies that Peter just mentioned; thirdly, development work relating to the EL platform and pipeline products; and fourthly, activities relating to regulatory approvals. Over Q1 2024, the key R&D cost driver was the regulatory approval process in the U.S. Estimate the FDA-related cost in Q1 to be in the range of EUR 2.5 million. R&D costs relating to the EL platform and pipeline products have been materially reduced. As communicated over the fall, we will continue to reduce investments in eHealth and pipeline products as we redeploy resources to the commercialization of RefluxStop, including the launch of the RCTs that Peter has mentioned. And those studies will show up as R&D on the financial statements. Let us turn to Slide 48 on our balance sheet. We are fortunate to have a solid financial position. End of March, we held EUR 80 million cash. We do not carry any interest-bearing bet on our books. Over the quarter, the total net cash outflow amounted to EUR 6.9 million. For the rolling 12 months, total net cash outflow amounted to EUR 22 million, also supported by FX tailwinds. Let's turn to Slide 49. In addition to our CEO and main shareholder, Dr. Peter Forsell, as well as other senior leaders in the organization, 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 build a commercial organization to address a huge unmet patient need. Back to you, Peter.

Thank you. So, I think it's time for questions.

[Operator Instructions] The next question comes from Chien-Hsun Lee from Pareto Securities.

So a few questions here. Could you elaborate on the time line for module submission. Do you think it will be longer than the traditional submission, or is it the opposite because now you can receive ongoing feedback from the FDA?

Yes. So because you get ongoing feedback and have then time to -- if it's anything FDA wants to have done or want to be corrected, you can do that during the meantime the process is ongoing. So it's the same total time line because you save time to have their feedback, not all at the end, so to say. You get feedback module after module.