Neola Medical AB (publ) (NEOLA) Earnings Call Transcript & Summary

Welcome to today's webcast with Neola Medical where CEO, Hanna Sjostrom; and CFO, Hanna Sjostrom; will present the year-end report for 2024. After the presentation, there will be a Q&A session. So if you have any questions for the company, you can submit them using the form on the right. And with that said, I hand over the word to you, Hanna.

Thank you so much. And hello, everyone, following this presentation today. We are really excited to summarize 2024 key strategic process for Neola Medical and of course today is also an opportunity to dig into some of the details of our planned clinical study on preterm born infants. My name is Hanna Sjostrom and I'm the CEO of Neola Medical since 2019 and with me here today also I have our CFO, David Folkesson. And today, I will start by just introducing the company quickly and also give a flavor of the change that we have seen from 2024 and the key updates and then I'll also dwell into the details of the Q4 key achievements, but also discuss a bit forward-looking in terms of what we have in front of us for 2025 and of course David will also cover our financials for 2024. As I will be looking a bit ahead today, I just wanted to make sure that you're also aware that we're now in a phase of greater complexity especially regarding the regulatory landscape, but we also do see more risk adding to the company as we have moved from the technical phase to the clinical phase of the company where we typically have more unforeseen events. But most importantly, we have taken an important step towards going to the market with our medical device Neola Neonatal Lung Analyzer in 2024. Our medical device is a Class II device that for the very first time can monitor the lungs of preterm born infants with an instant detection of lung complications in order to detect those deadly and severe complications with preterm born infants much faster than today and this is our key product that we are commercializing. The company was founded in 2016 based on very advanced research coming out of the Department of Atomic Physics together with neonatology and with that very advanced research, we have developed then the very first continuous monitoring device for lung monitoring of specifically preterm born infants. This is a Class II device and we're currently in de novo process for the FDA. A de novo process is confirmed by the FDA as we have technology that is brand new so no predicated device or technology exists and that's typically a very, very exciting way because we also then get to set the standards for this type of device moving forward. The company currently has 10 full-time employees. Most of the team is established in our headquarters in Lund in Sweden. We do also have a small hub in Palo Alto close to Stanford since we are also now really having a much larger footprint in the U.S. as U.S. is our primary market. And I would say what's really important and what's different for this company versus other companies is that we have already now before a launch in the U.S., a quite strong presence with key opinion leaders within neonatology in the U.S. And one of the proof points of that is that we have been elected a Stanford Impact1 company, meaning that Stanford as one of the most prominent academic institutions in the world has selected us and our medical device for lung monitoring as one of the most promising innovations in pediatric and in neonatal intensive care that has the potential to really upgrade the way we're monitoring these babies and upgrade care from day 1 that we reach market. This is a quite special program that we're in. It's partly funded by the FDA as a way for the FDA to have more innovation coming faster to the U.S. children in care than today. And the background of that is that the FDA has made their own evaluation that pediatric device in terms of innovation is lagging more than 10 years behind similar for adults. So that's why we are part of this project. With that, we get access to the best neonatologists in the U.S. So we're collaborating very closely with the Associate Professor in Neonatology, Dr. Janene Fuerch, here on the picture and we're also getting direct discussions with the FDA. So this gives us really a strong foothold with key opinion leaders in the U.S. I would say there are also some tactical elements to it. That is important for us. So for example Professor Janene Fuerch has participated in one of our calls with the FDA discussing the clinical need of our product. And meetings like that is quite rare to have with the key opinion leaders in the U.S. for Swedish companies. So that's also a signal that we're really in the right U.S. forums. We have also during 2024 won a competition in terms of pediatrics where we was awarded with USD 25,000. So it also gives us that element of getting federal grants from the U.S. And working really closely with key opinion leaders, I would say, is one of our main strategic pillars. And we are working now very closely with the Stanford pediatricians and professors in neonatology in a very practical sense. That means that we get input on our clinical protocol for our upcoming study in the U.S. But also some of the key opinion leaders in Europe are also very, very key for us. So one of those is also Professor Dempsey. He was the very first to buy our Neola medical device in a research version a couple of years ago in order to start the first 100 baby -- completely independent study on 100 newborn infants healthy. And those types of independent studies and publications also gives us credibility within the neonatologist community. And also someone like Professor Speer, you will see here on the screen as well, is the key opinion leader in Europe within respiratory distress syndrome. That's one of the key challenges for the babies in neonatal intensive care. And he also expressed that if we can prove what we're now aiming to prove in our clinical study, Neola could be at every clinic within 5 to 10 years. So there is quite an ambition from the company that is also recognized by key opinion leaders in both Europe and in the U.S. And the background to the interest in our medical device from these key opinion leaders is that current standard of care is really lacking behind in terms of innovation. So for a neonatologist today, the time is really of essence when there is a child with lung complications and most children also in neonatal intensive care have severe lung complications. What they have today is really chest x-ray. So when they believe that there is for example a lung collapse of the baby, which is a very severe condition, they have to take the decision to take measures without objective decision support today or to wait for chest x-ray results and waiting for those results today takes a very long time. So at Lucile Packard's in the U.S., which is the #1 children's hospital in the U.S., a chest X-ray still takes 40 minutes which is causing a quite delay in order to discover these complications. And that's the same for Europe, in Europe it takes even longer time. So at some of the most prominent hospitals in France for example, it takes up to 2 hours. And then also having that documented evidence that a repeated number of chest x-ray can lead to development of bone cancer later in life for these babies, this is something that the doctors definitely want to decrease the number of x-ray they do. But most important is to get those complications really discovered fast and that's why we're getting support for our continuous monitoring. So we're monitoring all the time with the direct detection of complications. We also aim to see if the complication is on the right side of the lung or the left side, also very valuable information that the neonatologists do not have today. So a great clinical need of our product. And why are we talking so much of these respiratory complications? Well, it is because it's the primary cause of death for preterm born infants today. So this is really a great clinical need that we aim to solve together with the neonatologists to really try to monitor them much more closely than we do today. And it is a large clinical need. As many as 1 out of 10 babies are born too soon and respiratory challenges is really the 1 thing that neonatologists are focusing on. And that's because for the very and extremely preterm born babies, it's up to 50% of all these babies that get what we define as severe disabilities when they reach the age of 11 and this has a great impact in terms of health economics. It is a major cost for the hospitals and for the societies today, but also then of course impacting the children themselves and the babies. So we're getting into a market that is growing. It's growing because we have a growing number of patients with severe lung complications such as respiratory distress syndrome and other lung complications. It's also growing because we have that quite high number of preterm born babies that's being born and that is something that we anticipate will keep at this level because it's impacted by more mothers being over 40, the success of fertility treatments especially in the U.S. that's leading to more twins and triplets, which is a high risk factor of preterm birth. So this is a quite stable number and growing number of preterm born infants that will also then need the very best care and that's why we also see the number of beds in neonatal intensive care units growing, especially in the U.S. This is also an area where we have the opportunity for strong margins. So at U.S. hospitals, typically neonatal intensive care is the key revenue driver for the children's hospital. So this is a place where we have the opportunity to also add really solid margins, especially then in the U.S. In terms of the U.S. market, we have seen and we have gotten benefits from the fact that pediatric device is really promoted by the FDA. We can also foresee that this is something that we need to keep monitoring quite closely because we have the new Trump administration in the U.S. and they're looking quite closely in terms of what will happen to the FDA. There are a couple of things that we have noticed and that is that the Trump administration will focus a lot more on predictability in terms of the regulatory process and to increase the speed to market for our medical device. So that is something that, I would say, the industry in general are very positive to. There is definitely a need of transparent processes and faster ways to approval. However, we can also see that the FDA have quite large retirements now in key leadership, so there will be a lot of new leadership coming into the FDA and we're yet to see what will happen with the administration's focus in terms of cost cutting on authorities. So I would say definitely some complexity in terms of the regulatory landscape in the FDA that could benefit us, but could also then give some unforeseen events. In terms of the market, the U.S. market is really our clearest market opportunity. This is where we see a particularly high number of preterm birth, but we also see a growth in terms of neonatal intensive care beds and a focus on pediatrics overall. So what would that mean for a hospital? Well, I would take just a very specific example of Lucile Packard Children's Hospital in Palo Alto where Professor in Neonatology, Dr. Janene Fuerch, is working. And she has said that her evaluation is that approximately 70% of her 40 beds in neonatal intensive care could potentially have a Neola for lung monitoring. And that really correlates quite well with the assumption in terms of the market research we have done with neonatologists and hospital directors in the U.S. that there is a great need to have Neola as a potential monitoring of the lungs in quite 70-ish of all the beds available. And for each bed then we have -- Neola Medical has a device then standing next to the bed with the baby monitoring the lungs continuously. Our revenue model is also built that we have a daily change of the disposables that are the probes that are placed on the baby's chest to do the monitoring. That needs to change daily. And then we also are adding service agreement revenue to that revenue model. So going a bit more in detail. We have 10 leading children's hospitals that are really our key market in the U.S. In total, you will see here on the screen the number of beds for each of these hospitals. In total, we're talking about approximately 800 beds where you could make the assumption that approximately 70% of those beds could have a Neola next to it and then you can start making that business case what that would look like. What we're adding for the hospitals in terms of value is really avoided costs and reduce the length of stay. So what we aim to show is that faster detection of severe lung complications could lead to reduced length of stay in the NICU and this is a key factor for the American hospitals as they get higher reimbursement for the baby's 2 first days in neonatal intensive care. So there is an incentive to really speed up the number of babies that goes through the department, making them healthier to be able for them to go back to their families, but also for the hospital to have new patients in at a higher reimbursement level. But then also the fact of being able to potentially reduce the number of blood gas sample and chest x-ray is something that is important both from a financial perspective, but also from a health perspective. And today, the neonatal intensive care is a highly manual care in terms of observation. So for the sickest babies, you have 1 nurse per baby just visually observing the baby today trying to find those complications, indications of those lung complications soon. And for the not so sick babies, you still have 1 nurse per 2 babies. So this is a care where we also aim to reduce that observation time for the nurses so that they can focus on other tasks, which is also important because there is a lack of nurses in the American health care today. Then going into 2024, our key focus was really in terms of clinical validation, the FDA process and preparing for market launch. And I will say that in 2024, we have also reached a couple of those really big strategic milestones in order to prepare us for 2025 when we're now in the clinical phase. And I'll go into a bit more detail in that shortly, but that means that we have in 2024 reached the milestone that is really driving value creation for the company and that is now letting us move to the clinical phase. So overall, the key milestone that we achieved in 2024 is that we did a successful Human Factors Validation study with nurses in the U.S. We also got technical verification in terms of the CB certificate, technical certification that we needed to have in order to move over to clinical study phase. And those really key milestone has led that we can now have got approval for our very first clinical study on our specific target population, preterm born babies. In terms of the key milestones. We during 2024 got the CB certificate as a technical validation that's valid in more than 50 countries around the world and with that we made partial of the regulatory requirements that we need for our up-and-coming FDA approval. We also then concluded a Human Factors Validation study with neonatal nurses in the U.S. in Boston in a simulation environment where we got good results meaning that we didn't need to do any major changes for that. It works because Neola works really well in the nurses' current workflow and it was intuitive for the nurses how to use Neola. And this was an important one for us since the FDA are looking at this type of validation results very closely because they don't want to add any risk related to device or related to working conditions in the neonatal intensive care. So an important check box from 2024. We also announced that we will do our pivotal clinical study on preterm born babies in the U.S. and that we have gone into planning phase for that very first pivotal study. We also then received a silver medal in the Stanford Pediatric Device Consortium that gave us USD 25,000 in federal grants. And I would say most importantly, it got us a good reputation within the neonatal community in the U.S. and a footprint in the U.S. We are working very closely making sure that we have the right key opinion leaders on board. One of those you see here on the picture is Professor in Neonatology, Dr. Vineet Bhandari. Professor Bhandari is chief for one of the big neonatal units in the Cooper chain in the U.S. and he has also been our reviewer in some of our publications in pediatric review. He is a member of the Board of Directors for the Neonatal Society in the U.S. and we're very fortunate to have his support and collaboration. We also got the opportunity to be invited to one of the most prominent neonatal conferences in Europe where he was our guest speaker and he had a lecture in terms of the potential with our GASMAS technology in monitoring preterm born infants. That type of support within the largest neonatology forums in both Europe and the U.S. is very valuable for us moving forward also thinking about clinical adoption for Neola as we reach market. In terms of patents, patent is a very important strategic pillar for Neola Medical. We received 2 patents last year. The patent in the U.S. was with regards to an innovation that potentially can let us do monitoring of larger patients such as larger children and adults in the future. That was a very important patent for us that we already also have patented in China and it's a patent application ongoing in Europe. We also received a European patent during 2024 that is focusing on really making sure that the Neola device is working very efficiently in the neonatal intensive care setting. So it's a very specific product patent that potentially has the opportunity to be very important for us. So overall, this is really reinforcing the protection of the company's innovation pipeline and we keep on being quite active with our patent portfolio and new applications. We also got the Neola logo trademarked in the U.S. in 2024 and this is of course an important step as we're now also looking ahead of creating a strong brand within neonatology in the U.S. As you might remember, we did a large name transition from GPX Medical to Neola Medical in 2022 and this has really been part of our brand journey in order to have a very strong Neola brand as we're entering the U.S. market. But then I would say I will come to one of the most important milestones in 2024 was that we received approval for our very first clinical study on our targeted patient population, preterm born babies. This approval was received from the Swedish authority, Lakemedelsverket. In order to have an approved application from the Swedish authority to start a study, a lot of documentation is needed and I would say that we got that approval is a testament to that the company is really mature in the way that we are handling these very broad and complex regulatory environment and that we can give all the supporting documents to start a study on this fragile patient group. When you have that approval, it goes to the National Ethical Review Board in Sweden for also a grant from the ethical perspective of it. So that we got an approval also from the Ethical Review Board in Sweden to start a study on preterm born infants is also a testament to that we're now ready to really enter the clinical phase and do our very first study on our target patient population. So with those important approval for us, that means that we can now officially start a clinical pilot study on preterm born babies in Sweden. This is the very first clinical study on preterm born babies that we're conducting. We have previously done a clinical study on healthy newborns. But as the preterm differ quite significantly from a healthy newborn, this was the very critical step for us now to get approval to start this study. And to talk a bit more about the study. Specifically, this is a study that will evaluate the safety and performance of our Neola device in preterm born babies. So in terms of safety, that's mainly focused on these babies have very sensitive skin, the probes that we're placing on the baby's chest in order to do the monitoring that they are safe for this vulnerable skin, but then also in terms of performance that we're measuring the way we should do. The study that is conducting 10 preterm born infants will be conducted at a neonatal intensive care unit at the Swedish Hospital, the hospital of Boras with principal investigator Gustaf Lernfelt, who is a neonatologist at Boras Hospital. The babies will be from week 28 in gestational age and upwards and weigh between 1,000 to 3,000 grams. So a baby ranging from 28 weeks and upward have in general pretty solid skin. So that's also why we're starting with this group that is slightly more stable than the ones that we will do later on in our planned U.S. study. This is really a study where we want to make sure that we receive information of any potential optimization that could be needed in terms of Neola or Neola probes as we're heading to the U.S. So this will really be an important study also from that perspective evaluating how the clinical study protocol is working, how the probes are being placed on the baby's chest in the right way, all those type of operational details so that we have the opportunity to really optimize before we go to our next planned study. So in general, I would say that this is a very exciting phase for the company. It's also a phase that's associated with more complexity and risk and we're going to do our utmost in order to receive as much data as possible preparing for our next study. I also got the question in terms of the length of the study in some of the comments before this presentation. And we are estimating that the study will run for 4 months and we are currently doing the contract with Boras and site initiation will follow and then we will do a press release as we're doing the first patient included in the study. So it will be a very exciting spring and summer for the company here now moving forward. And with that, I leave over to the financial summary by David.

Thank you, Hanna, for that perfect presentation. As we closed 2024, as Hanna mentioned, we kept significant steps towards certification, checking several key boxes along the way of course and this has been all with continuing firm cost awareness from the earlier periods. We keep the same burn rate as earlier although with those planned studies that Hanna just told you about, the burn rate will increase. We understand that. But we've negotiated with partners and our production department, we believe that we have kept the cost for the planned study at a very good level. If we look at the year-to-date, the operating expenses has increased by SEK 1.8 million compared to last year-ending up at SEK 19.6 million. With that amount: we have conducted the Human Factor study that was very successful, we built additional Neolas and we have strengthened the team with several employees. The development cost for the year has amounted to SEK 11.1 million. This is a small decrease from SEK 1.1 million compared to last year and this amount will most likely increase during the year of 2025 while we continue to prepare and progress with the clinical studies that Hanna told you about earlier. Moving on to the next slide, Hanna. As you all can see, our big shareholders keep faith in the company. There hasn't been any major changes or almost no changes at all. We're very happy with that. And with that, I'll leave it to you, Hanna.

Well, thank you, David. So to sum up 2024, as you've seen, it has gone according to plan, and we have achieved major milestones. As we're now focusing for 2025, clinical study is our key focus area of the company along with the regulatory process. We have an FDA first approach in terms of the regulatory process, but we're also making sure that we are fulfilling the key parts of a future CE Mark application. And then we continue our market preparations in the U.S. focusing a lot on our relationships with key opinion leaders because that's really how you get sales in the next step as well. So with that, just summing up. Our next quarterly report will be released 9th of April and you can keep following our presentations with Redeye and also on the company's web page and in social media. So thank you so much for listening today and I'm really happy to address questions.

Thank you so much for the presentation here and, as you mentioned, we will now carry on with some questions. Maybe you mentioned this in the presentation, but which hospitals in Sweden is the clinical pilot study planned to be conducted at? Is it confirmed and something you can communicate?

Yes, we can confirm that we're going to perform the clinical study at Boras Hospital in Sweden. This is the only site where we're conducting the clinical study. It's going to be then on 10 patients and principal investigator is neonatologist, Gustaf Lernfelt.

Will you inform shareholders via press release when it starts or only when it's complete?

We will do a press release when we have the first patients included in the study and then we will communicate when we have the final results from the clinical study.

Do you hope to be able to start study in Sweden during H1 or what is the approximate timetable here?

Our ambition is to start the clinical study during the first half of 2025.

Do you see any risk that the results from the Swedish study could delay the U.S. study?

There is always risk regarding clinical studies. It is complex. You can get unforeseen events. With the current plan, we are according to schedule doing the clinical pilot study in Sweden during the first half of 2025 and we will initiate the U.S. study once we see that we have solid results from that study. There could be things that we need to optimize based on the results from the clinical pilot study in Boras and then we will -- so we will communicate if that is the case once we have the final data.

What is the time line for initiating the pivotal clinical study in the U.S. and what factors could impact the schedule?

So the pivotal clinical study, as communicated, is aimed to start after the pilot study in Sweden. We have been in close collaboration with 2 American clinical sites for over a year. We have clinical protocol that has been aligned with the FDA in a meeting in 2024. And we have quite some progress in terms of those relationships.

Do you expect to increase the number of employees in 2025?

Yes. We aim to strengthen especially our technical team during the year preparing for this clinical phase where we will also receive a lot of data. So in line with our growth plans, we will strengthen the team during this year.

Maybe you already answered this, but how soon after the clinical study in Sweden, do you believe that you could initiate a U.S. clinical study assuming everything goes according to plan?

So in terms of when you can start a clinical study, you need an approval from the hospital's IRB boards. That is something that we're in preparation and discussion of. You also need to have signed contracts with the U.S. hospitals. We are also in discussion of that. There are no contracts signed yet. So there are a couple of different things that are moving elements. I would, however, say that approximately 3 to 6 months after good results from a pilot study in Sweden, we could potentially start a U.S. study.

Looking a little bit to the financials here. The operating result deteriorated slightly in 2024. How do you view your capital needs going forward or are there any plans to raise additional funding?

So as a pre-revenue development company, financials is always on the agenda and we will communicate that according to the regulations of the market. I would, however, say that we feel strong support from current shareholders and we're delighted about that.

Moving on to the last question here. Maybe early stages, but how do you view the pricing of Neola in future commercialization and have you received any indication of willingness to pay from hospital insurance companies in the U.S.?

Yes, we have done market research with payers of medical device at large children hospitals in the U.S. and we have an indication of that. We have not put down our foot yet in terms of the exact pricing. So that will come as we're closer to market. We do, however, see that we will be able to have healthy margins in line with industry.

Thank you so much. That was all the questions we had. So thank you, Hanna and David, for presenting here today and thank you all for tuning in. I wish you a pleasant weekend.