Implantica AG (IMPASDB) Earnings Call Transcript & Summary

Welcome to the Implantica Q4 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Peter Forsell; and CFO, Andreas Öhrnberg. Please go ahead.

Thank you. This is Peter Forsell here, and we should talk about Q4 2024 investor presentation for Implantica. And I always have a slide about my background that I have actually done a successful journey with Implantica before and invested lots of money in this company. And Implantica has something really fantastic in its pipeline, and that is that we have developed an eHealth platform. And this platform then will allow to treat patients on distance. And you can control what happens inside the body because the focus of this system is from inside the body and you can wireless recharge implants and connect the stimulation systems and so on. And to be able to treat people on distance means they don't need to go to hospital as much and it will be much more convenient for the patients. And we also have a huge patent portfolio because we have gone through the whole body to see how could we now improve health care if we have this platform technology, both the wireless energizing platform and the eHealth platform. And we actually have spent 3 years going through all these patents and evaluate them and selected not less than 40 products from 300 inventions. And this would be able to revolutionize health care basically. You will be able to treat better and treat more efficiently, you will save cost for society. And I have a few examples only quickly here. One is people who has, for some reason, take away the large intestine, for example, and they have a plastic bag to collect the fecal matter. They don't need that anymore because we can now make storage and open/close, emptying function, everything inside the body, and they just need a remote control instead. And this is around 1 million people nearly every year who is operated with this. We also have people who can't urinate for some reason, maybe they are traffic accident or spinal cord injury or multiple sclerosis disease or something. And in this case, they put in a catheter in themselves every time they should urinate. Five times per day, at least, they need to put in a catheter in their own bladder, and that's quite a burdensome life. And instead, with our system, we can empty the bladder with a remote control without using catheters, just as examples. And Implantica actually have so many products and so big IP portfolio that we believe that we should become the world leader in smart medical implants. So we are not shy in our vision. And the main product that we, of course, are focusing on right now is RefluxStop, especially since we are coming closer and closer to U.S. launch. And before I start with the business update, just a quick recap how RefluxStop works. So existing surgical treatment today has all been focused on that you need to compress your food passage, where you need to try to close by applying pressure. And that, of course, logically means you get swallowing difficulties, you can't belch and vomit, you get so-called gas bloating, you get distended, swollen in your abdomen because you can press the gas down with your saliva and food, but it doesn't come up anymore. So it's not so well-liked surgeries. And Implantica is then completely new treatment principle. So you don't affect the food passage way at all. The only thing that was needed was to reposition and restructure the normal anatomy in this region. And suddenly, the body itself treats acid reflux. So by ensuring that the sphincter, the lower esophageal sphincter between the stomach and esophagus that, that is clearly, on distance, far away from the opening in the diaphragm muscle, which divides the chest from abdomen, people get treated by themselves. And the reason is that when you breathe, you get pressure variation. You can imagine in the chest, breathing, the pressure comes and goes, comes and goes. And this is leaking out through this opening here in the diaphragm called the hiatus, and that is what affecting the muscle and created the reflux. So very simple, very genius solution and it also works exactly as intended. So here, you see a little device to introduce it through keyhole surgery. You see the device in the end and the little deployment tool that is associated with it. And why is now acid reflux so important? Yes, the reason is 1 billion people have acid reflux, that's 1 billion is enormous treatment field. It's larger than obesity. And it's dangerous to have this acid coming up in your lower esophagus over and over again because that's how you get cancer. To cauterize your tissue over and over again, the acid is burning, causing small mini ulcers, red irritated. And that's how you get cancer. And it's -- 48,000 people die from this type of cancer in the world every year today. It's enormous amount of lost lives and most of them are due to this disease. So let's come to the business update. So we have really good news for today actually. So we have filed for FDA approval to sell in the United States in 3 modules. And we have now got the information that Module 1 that's closed from FDA side. So that's good. And also, we have received feedback from Module 2. So Module 1 is sort of closed, although they should come and do a formal inspection of the production sites. And Module 2, we got feedback who was very, very favorable. The people we have here who has experience of this kind of responses from FDA, they say this is absolutely unique, very, very light and pleasant response from FDA. So we believe FDA really wants this product on the market. So this is really, really good because this Module 2 is the key module. It's 10x more important than any other module because this is the clinical trial. And this is the basis for everything that you have a successful clinical trial that FDA accepts. So we nearly opened a champagne here actually. So it's absolutely -- this is a fantastic milestone actually. This is something really incredible because that increased the likelihood that we now will get the FDA approval substantially. So we are now preparing the response. And because these remarks and questions from FDA are so light, we talk about a few weeks to prepare this answer. We are also completing the Module 3, which is the last module to file, and that will also take a few weeks to a few months, that's sort of the absolutely maximum this could take to now file. And it hopefully will be in the very near term now we can file the last module. And that's really, really great news. And why is now FDA so happy with our clinical module? Yes, the answer is that we had fantastic results. You have already heard this before, but I like to talk about this because this is so fantastic. At 5 years, so 5 years after treatment, one single patient still took medication. This is an absolutely incredible result. It's unheard of such results. And this is giving a little bit indication why likely FDA wants this product to the market as soon as possible because this means something for the patients. And you can see here a comparison at 5 years. So it has -- recently we published a huge literature review of our main competitor, so to say, Nissen fundoplication, who is regarded as the standard of care in all the guidelines. And there, it has been huge compiling of all the different articles and all the randomized articles has been used. And when you compare to that platform of results for Nissen, you can see here the green lower staples here, they are sort of RefluxStop, and it's basically night and day. It's absolutely outstanding results. So the likelihood that RefluxStop will conquer the world and become the new standard of care is quite high, and that's very, very promising, of course. So we are already starting the U.S. market entry preparation, of course, and it's many, many things to think about here with the business development. And we need to do the right marketing, and we need to build up some kind of customer service organization. There's many, many, many things that need to be done to prepare for a U.S. launch, and that's what we are doing right now. And as we have done already a usability trial in U.S., maybe you are aware of that we had 20 surgeons who was trained on cadavers and operating 2 RefluxStop cases each. And yes, it's -- we are a good way here. So we have already these centers that we trained in the cadaver, they all want to start to do this procedure. And then we have 10 to 20 more who has told us afterwards during the congresses and meetings and so on that they want to start. So we have a fantastic start here in U.S. to make a really good launch. And you can see a little bit how it went for our main device competitor. That's -- as you know, the treatment is not so optimal because it compressed the food passage way, but they still managed to get 400 hospitals in U.S. and more than 50,000 implants. And now it has sort of declined because now they see new better treatments. But still, it tells you a little bit the potential of the U.S. market. And what we are focusing on right now is 3 main topics. First of all, we need now to show the cost-benefit analysis. Those who have followed us, you know that we have made very advanced cost-benefit analysis in many countries today. We've gone all over the world, so to say, to try to analyze the cost benefit of RefluxStop. And now we are building a new model for the U.S. market, and this is very important for the payers. So this is in construction, an article about this. Also, of course, we need to find out what is the payers, also those insurance companies and so on to pay for the procedure, what is their requirement. So this is ongoing. We have started with the 20 key payers and also selection of hospitals, which hospital should we now select in the initial start here. And this cost-benefit analysis, we have the leading surgeon in U.S. basically, Professor John Lipham, he is involved in this, and he will be the master for this article. So it will be very, very important article and that's very far away in this process as well. Also, the payers, it's actually -- in U.S., you have more than 1,000 payers, but there is maybe 20 who is the key, maybe 10 who is the key payers who pay for the surgeries and so on. And normally in U.S., you can get them to accept that instead of doing the links to RefluxStop, that's okay, and you get the same pay. That's why the U.S. market is much easier to target than the European market. In Europe, it's like black and white. Do you get paid or not? Could you do surgeries or not? Here, it's more a floating process, which I will show you. So we are already starting to talk to the hospitals. We, of course, are not allowed to make any agreement with the hospitals until we have the approval, but we can prepare all the ground because this is an admin process that normally could take quite some time. It could take half a year to get the hospital fully onboarded and trained and everything. So by starting this process already now, we hope we should get a quicker launch when we actually get there. And here is just an example who shows this is a company called Axonics. There is actually many, many examples on the U.S. market, what happens when you get a good, well-working medical device on the market. Here, you can see they get FDA approval in 2018 and here, can you see how the revenue expands. And it's 2023, I think they had a value of $3.6 billion, something like that. And there is other example with even higher valuations and faster than and someone slower. But it's just to give you a feeling that the U.S. market is clearly superior when it comes to developing growth. So if we talk about our 3-pillar strategy, once again, with the superior cost effectiveness, superior clinical data and market expansion, I can show you a bit what we have done here during 2024 because we are now at the fourth quarter, it could be nice to summarize. And you can see here that we have made 36 conference abstracts to leading conferences. We have 28 presentations, either oral or poster presentation in leading conferences. We have 22 submitted manuscripts of articles where 17 has been published. We have 11 additional manuscripts already because it's more and more data, more and more surgeons do RefluxStop and more and more data pops up. So already this year, we have 13 abstracts and so on, several presentations. So it's a really hard work to build the platform from where you can make a very fast expansion of this business. So here is one, it was Professor Lipham. I talked about before, he held a nice speech about RefluxStop at this big, huge conference they had in Ohio here. So we also have our clinical trials to really -- be able to really do this in a quicker way, we have realized we need to have randomized trials. So we have 2 randomized trials, and they are more or less ready to start now. We have 7 ethics approval in the different countries, protocols, okay and so on. So it's -- sorry, 7 submissions and 4 approvals, yes. And we have 12 sites we are working with. So we will -- hopefully, we can even start end of this quarter and maybe more realistic in the beginning of next quarter with these trials. And that, of course, will also be a milestone for us. We have also lots of real-world data popping up. And actually, the real-world data is more or less as fantastic as our clinical trial. It's not that our clinical trials stand out and the real-world data is poor. No, it's fantastic. So here, you see one study from Germany. It's a totally independent regional hospital, not even a university. They operated 79 patients in Germany, and their result is even better than us. So they had also here, PPI use, it was 94.9% took PPI before surgery and 2.5% after surgery. So that's approximately in line with our data. And then they had the questionnaire, you ask people how they are treated, 10-15 questions. Then you find that the median improvement was 100% and mean improvement 92%, that's absolutely astonishing. Imagine you have 15 questions and you have score 0 to 5, which means you can get 75 points. And to have 100% improvement, on all 15 questions, the patients need to answer 0. And to have a median value of 100%, more than half of the patients need to answer 15 questions 0 if they have any symptoms or any problems. That's an absolutely astonishing results. It's just a dream result basically. And if we then continue on the economic aspect. We have done some further economic analysis. So we even have done now in Sweden to show that we have better cost effectiveness in Sweden with RefluxStop than in another treatment. And we also have made it in Italy, also successfully published. And the Italian paper even was selected as the top tier 5% in this [indiscernible] the main congress for these topics for payers and the health care providers. So we are working effortlessly. And finally, then market expansion, of course, the biggest effort with market expansion is the U.S. part. If you can see that we have done more than 1,000 surgeries, quite a bit more, and we have quite a bit more than 40 hospitals in Europe by now. And we had 15 new hospitals this year. And as you know, we can have many more hospitals. We can have much more revenue, but we are not taking all hospitals. We are ensuring quality. When you should go to FDA and U.S., they look at all the data worldwide. We need to control that we only have top-class hospital, centers of excellence that do perfect surgery. That's why we select the key ones, we train them carefully. So our revenue figures, you don't need to care about. Just be concerned that we now get the U.S. approval, and you will see how it will develop going forward. So here, we have some hospital in Spain. I think this is 3 centers in Spain. La Paz University is one of the largest hospitals in Spain and also worldwide, very famous hospital actually. And we have some more hospitals here in Germany, Italy and U.K. So we are -- this is just for the last quarter, some hospitals. We're also making lots of media and social media attacks, and we have lots of ongoing things everywhere, different activities. I can give you one example here is about the patient here, Philip Perkins, who got a RefluxStop and he was interviewed in Radio [indiscernible], for example, and I don't know if it has like 800,000 listeners or something like that. And Chelsea and Westminster, it one of these NHS hospitals. So that's one of the public hospitals in U.K. And they even made their own press release and fantastic press release made by them. We are not involved, so to say. And they, in their own press release say, RefluxStop come in as a revolution says Dr. Gomez. So it's not only we who believe in this. It's many, many others. And we basically see that we have reached the status now that RefluxStop is unstoppable. This is like a little snowball in warm snow in the mountain, and we are rolling down. So we are very, very optimistic for the moment in the Implantica team, and we are very much looking forward for the U.S. launch if we now can finalize the rest of the topics. Yes, then we come to capital market and finances. I give the word to Andreas.

Thanks, Peter. Good afternoon or good morning. Activity levels continued to increase over the fourth quarter. Compared to the same period last year, we saw the number of surgeries increasing, but revenues decreased by 30% to EUR 442,000, explained by an increase in free devices for studies. Full year net sales increased by 38% to EUR 1.9 million. We expect the business to continue to grow. There will be quarter-on-quarter volatility due to order patterns, free devices for studies as well as seasonality. However, to unlock the substantial revenue opportunity, we will require U.S. market approval or broad European reimbursement. The business continues to deliver exceptional gross margins. Adjusted Q4 gross margins amounted to 90%, a decrease from 92% in the same period last year. The lower gross margin is explained by expiring inventory. Full year gross margin decreased to 92%, down from 94%. Gross margin fluctuations are expected due to the subscale nature of the operations. At scale, the exceptional gross margins will provide operating leverage, enabling high possibility and free cash flow generation. The Q4 operating loss amounted to EUR 7.2 million, which is 3% higher compared to the same period last year. Full year operating loss increased to EUR 25.5 million, a 17% increase, explained by a fourth quarter impairment of intangible assets, which is a noncash expense driven by a realignment of the product pipeline strategy and R&D expenses expanding year-on-year, driven by minimal capitalization of R&D compared to earlier periods as R&D activities in 2024 was driven by strengthening the RefluxStop offering, which is not capitalized, including FDA submission preparations, usability study and other data collection. Non-RefluxStop R&D has been further scaled down over the year. General and admin expenses have also been managed down over the period. Now let's turn to the next slide. We had a solid financial position. End of 2024, we held EUR 64.6 million in cash and cash equivalents. Over 2024, we had a net cash outflow of EUR 22.7 million. We don't carry any interest-bearing debt on our books. Let us turn to the investor slide. In addition to management colleagues, including our founder and main shareholder, Dr. Peter Forsell, our investor base is dominated by Swedish and Swiss high-quality institutions. We are very grateful for the trust and support our investors provide to address a huge unmet patient need. Let me hand it back to you, Peter.

Yes. I maybe could add that, of course, we -- this year has had lots of extraordinary costs. For example, the FDA process is very expensive. So you can calculate maybe [ 4 million ] of extraordinary costs just for your understanding. Yes. So then I think we have reached the questions and answers section.

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

Congrats with the progress. Just a few quick questions. So regarding the U.S. commercial preparation activities, do you have an estimate of how much -- how many sales force do you need in order to achieve a strong sales uptake?

So for the start up in U.S., we don't need people to sell anything because we have these up to 40 hospitals already lined up. So what we need is training, going there to be there to check the first surgeries and so on. And that we develop in regions, so we are planning [indiscernible] region basically. And we have an European surgeon who is working in Frankfurt today, who is targeted to [indiscernible] get a nice package for him. So he can then train surgeons and they can go to this hospital and be teached and so on. So we are preparing different matters, so this should be efficient. And I don't think it will be a large expensive organization for the moment. It will be reasonable. But of course, we need to do some activities here to get a fast expansion in the U.S. That's clear.

Okay. And regarding the European reimbursement, could you provide a little bit more flavor on maybe which country is so far the most advanced because I understand you are trying from multiple channels, putting the effort, but it's not so straightforward process. But if you can provide some details on the progress that would be great.

Yes. So the problem we have is that every country is different. And if I take, for example, Spain and Italy, where we today have 22 hospitals just in Spain and Italy. There, it's like a budget system. The hospital apply, could I please operate surgery RefluxStop and then they get, okay, you get paid for surgery RefluxStop. The next year, they can ask, could I get paid for 50 RefluxStop and so on. And more or less all these hospitals are now applying because we have several hospitals, as you know, who has got bid for their device in Italy and Spain. So now it's -- all these hospitals are applying to get paid and more and more get paid, and this will expand over the coming years. So I'd say maybe it takes 3 years to have a full coverage here with lots of hospitals getting paid. But it's a process. It gets more and more and more, so to say, in these countries. If you take a country like Germany, there, it's the total opposite. There you have something called DRG, that to say, you have a certain surgery has a certain number. This number gives you a certain amount of money. You get nothing else. If you are not part of that system, you are lost, so to say. There is no extra money. Nothing to say, no, no, I want this or this in the budget system. No. You need to be in that DRG with a certain amount of money. We have then in Germany managed to get our own DRG. We have our number. We have everything registered, which is fantastic, but we just don't get paid enough. So it's too small amount we get paid. So in this process, we are done working -- it's something in Germany called [ IQWiG ] Hospitals. That means it's hospitals who do economic calculation. They send all the cost for everything, for the procedure, everything to [ IQWiG ] so they can do their calculation what you actually should be paid. And currently, we are -- the problem with this is that the [ IQWiG ] hospital is not so many and very few of them actually are doing reflux surgery in a good way. We also need centers to do this kind of surgery. So for the moment, we are starting up in a few weeks our fourth center of the [ IQWiG ] type. They need to operate a certain amount, so you then can file into [ IQWiG ] and say, look at the figures, we need more pay for our number. But we have the number. We are in the list system and everything. So it's just a matter of time. In U.K., for example, NICE is currently doing an evaluation of our device to decide how we should be paid. And basically, it's not a reimbursement decision. It's a medical recommendation decision, but that will follow with the payment, so to say. And there, we have -- NICE is just evaluating if they are willing to postpone. We have applied that they should postpone their decision a bit because we have [Technical Difficulty] 5 hospitals supplying safety data, 574 patients, and that's [Technical Difficulty] and that's why we have asked them to please put our process on hold. It's a tough work, but most of the work is done. We are coming closer and closer to finally get paid. But when you look at our revenue, as I said before, you can't judge this company over revenue. We decide how much revenue we want. We have prioritized quality, not revenue. So convincing the surgical society that we have the best treatment, that's already down. We don't need that. We just need someone who pays for the device. Then it will be some...

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

Okay. So here, I have many questions. So has FDA visit to production facilities been scheduled yet? Or do you have an indication when it might be? We don't have an indication. Our specialists, who is expert on how FDA works, believe it could be maybe in June. It's -- we can't say. But it seems like FDA is favorable to us and our device. Then it's a question when is FDA approval coming for Implantica? And the straight answer is, it's not in our hands. It totally depends on how quickly FDA acts. If they quickly come and do their inspections. And yes, we do know. The only thing we can say is that the first 2 modules, I guess, there will be nothing really to discuss because those will be sold. So the only module we have left is the testing module when we do all these biocompatibility [indiscernible]. Yes, it's -- I can't also in relation to FDA, I can't really say any timing here, but we hope it will not be so long. It likely will be in shorter time period. What is the time line to get -- that's the same question. [indiscernible] Swedish Health Care System is that [indiscernible] has taken the Swedish [indiscernible] and they have cut down the resources for the health care over and over and over again. So in Sweden, you can't get the best health care anymore. It is administrative people who decides what health care you should get. It's not -- it's a disaster basically. It's -- there's no resources for anything. You should be saved -- save money, save money is what only thing that counts that you have a new better treatment that costs something even if it's more economic in the long run [indiscernible] cost, but they only look at the cost now and it's admin people who decides. So Sweden is a bit problematic country for the moment in terms of health [indiscernible]. Would an FDA approval, which seems to be very likely now, which I agree, affect European market in the acceptance of RefluxStop? I mean, of course, every step you can take, I think, affects a bit. So if we get U.S. approval or we get NICE to say yes, for example, and so on, everything will affect a little bit. So it goes a little bit faster. But we are quite far. So it's not that it will take forever now, I hope, to get this. Then someone asked if we should do a broader program for privately founded operations? I think that's a very good idea. Absolutely, we can probably do quite a lot of surgeries with private pay also. So I think that's a good idea. Yes, then it's the question of NICE and this I have basically answered. Then it's another question of FDA's visit. Would you prefer partnership in U.S. when launching RefluxStop? We actually don't think we need that because we already have made good sales already, so to say. Would you consider selling -- someone is asking if you would consider selling RefluxStop and instead focus on all the other excellent products? I mean, we have many fantastic products and incredible many products actually. But I think RefluxStop will generate so much funds because it has such a high gross margin. It will be quite a lot of profit when we finally get going. So I think that could be a really good cash cow to have when you should make all these other different products. Very good slides in today's presentation. Where we download the slides? That's a good question. I can't answer that one. Will you be able to keep gross margin this high? What is the long-term rate? I mean it's all depending how you -- let's say, you start a new hospital, and they need to train first and so on. Maybe you give them 3 devices for free. That, of course, then affects the total gross margin a bit. But because our product is so inexpensive, it doesn't matter so much for the company. But we have not done that because it affects the reimbursement process and it's not so good, but it's always a possibility that you make it a little bit smoother. But it's -- we will have a very high gross margin anyhow. Time line for Module 3, are you expecting it to finish in 3 months? Yes, I think there is something called 100-day meeting. So I think FDA will make this 3 months review of Module 3. And then -- so totally after 100 days, we will have a meeting with the FDA. In that meeting, they will basically, I guess, tell us that we will be approved, yes. So it's -- we are coming forward more and more, of course, now. NICE. I think I've answered. What you expect to charge for device in the U.S.? Yes. I mean in U.S., the price will be higher. That's part of the investigation we are doing right now. We are discussing with the surgeons, the payers and so on. And I will come back to that. But it's normally, the price is higher in U.S. What is the longer the device has been in place in the patient? Yes. Since December 2016. So that's 8 years. That's a very long time, and it still works. I want to do surgery in Sweden or Norway, who can I contact? In Norway, we have a couple of hospitals. I don't have the details on my hand, but the person who asked this question could maybe send an e-mail to Nicole and we can answer where you can operate in Norway. In Sweden, it's difficult. They have done 3 surgeries in Sophia, that's Sophiahemmet. No, no, no, not Sophiahemmet. You're right. Karolinska [indiscernible]. They have done 3 surgeries. But then due to economical reasons, although the surgeon wanted nothing more than to do this, they have stopped. So I don't know the situation there right now. Long question here. Someone is asking about potential capital raise. And that's, of course, this is nothing we have decided anything about. But of course, we have looked into how other companies have made the U.S. launch, and we see that those who has invested a little bit more, of course, have been a little bit more successful. So it's a balance, what is the best outcome here. And it could be that you raise some money for a faster U.S. launch. That could not be excluded. Yes. I think I have now answered all the questions, and sorry for taking some time, but I need to read in between here. And I thank you very much for listening. And I hope I've given you a positive feeling of the future for RefluxStop because at least I have a very positive feeling right now. Thank you, and have a good day.

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