Observe Medical ASA (OBSRV) Earnings Call Transcript & Summary

Good morning. [Foreign Language] Jørgen Mann, CEO.

[Foreign Language] I'll do this in English. I hope that's okay. Just to make sure everyone is on the same page here. Yes, my name is Jørgen Mann. I'm Danish, so that's the language side of it. Yes, but I'd like to tell you a story about the journey that Observe Medical is coming into, being an extremely commercial journey we are entering into. I mean Observe Medical is a Nordic company but with a global reach. Our ambition goes far beyond the Nordics. What you see here is actually the 4 pillars of how our commercial journey will be built on. So what we're looking at is the urine measurement part, which is a combination of products we have acquired from Convatec and also our own Sippi product that was acquired some years back. We also have the Biim product, the pocketable ultrasound device, that we are working with primarily Fresenius to launch. And we also have an element of, let's say, an opportunistic approach to our mergers and acquisitions. If there are opportunities out there, we would definitely go for them, that fits the way we are doing our business. The last icon you see there is a new one compared to what you've seen earlier. We are in a situation now where we have a distribution network that covers most of the world. Primarily 80%, let's say, Europe, but we also have distribution partners in Asia and other areas. 25 countries that we are at right now, we would like to try and explore that platform to take in innovative products that other companies have brought -- are looking to bring to market, where we can use our distribution platform. This is a little bit the highlights of 2023. We are -- we have seen a buildup on the commercial journey. We've seen the start of the year, we started supplying the market with the Abdo-Pressure products, which is part of the Convatec portfolio. Very interesting product, very unique product, and it has also helped quite a bit in getting access to a distribution network that we're now working with. We also managed to get the CE certification under our own legal manufacturing umbrella on the Convatec product, the UnoMeter 500. That was a huge achievement. It was not only the CE mark, it also included establishing a partnership with a Chinese, in this case, manufacturer, a critical supplier which was part of that process, which has brought us to a position now where we are able to supply a very competitive product into the market. The Convatec transition also was completed at the second half of the year. As you will know, we made an exclusive agreement to acquire it. Now that deal has now been completed in the sense that our transaction has happened, and now we have access to these products and these brands also from a commercial perspective. The first shipments of UnoMeter 500 was happening in the late of the year, I mean, September, October, we started shipping our products. A big, big step for us because that will be the direct revenue generator for us. Biim, we took another step on the Biim journey, having Fresenius buy another 20 pieces. It's not a huge amount. We'll come back to some of the details of the Fresenius situation. But it is seen from our side a commitment, and also there was a prolongation of a contract on that part. So we did see a, let's say, a commitment from Fresenius to continue the journey in, let's say, validating the relevance of Biim, both from a clinical but also from a business perspective, seen from Fresinius' perspective. The expanding distribution network happened over the second half of the year last year. We are now dealing with -- we are now dealing through a distribution network that covers 55% of the Convatec business, meaning that Convatec had a revenue of NOK 200 million. Now we have distribution in the geographies that covers 55% of the NOK 200 million. The rights issue, yes, at the end of the year, we did go through a process where we raised additional NOK 35.7 million, whereof NOK 21 million was cash. A little bit back to the commercial journey on the UnoMeter side. What you see here is that the potential of the business, it's NOK 200 million. That is the revenue that Convatec had on the UnoMeter brand. As I mentioned before, we actually now have access or we had access at the end of the year of 55%. Since then, we have made additional agreements. Nordic, Germany, Switzerland and Ireland are now also part of the distribution portfolio. So therefore, now we are actually at 75%. Covering 75% of the geography that Convatec had. We did deliver the first major shipments of the UnoMeter in November and December. Going to a number of countries. The first one was Poland. Second one, Spain, Italy. And now we are actually in a situation where we have delivered all customers the first orders. So that was a major achievement for us. What we've also seen now is that the focus now is twofold. It was -- first of all, we want to make sure that the distribution network we have set up are actually able to promote our products successfully. So that's very much a part of our focus right now. But we do also focus on expanding the geography further. So on the map, so to speak, on the priority list, there is France, Australia, New Zealand, Belgium and Argentina are the ones we see within our short-term reach. At least that's our priorities. This is the pipeline we are looking at in the next 2 years. What we've seen on the left-hand side is the UnoMeter 500 and the Abdo-Pressure. Those products have been launched, and we are continuously growing our market share on those products. We do have, for this year, additional ambitions to launch the Safeti Plus project, and also the combination -- the Preconnected version of a Safeti Plus with the Abdo-Pressure. The Safeti Plus was, without comparison, the most interesting product Convatec had. That was around 70% to 75% of their total revenue coming from that product. So for us, UnoMeter 500 gave us access to the market. The UnoMeter Safeti Plus will give us the volume of the market. Abdo-Pressure is important and Preconnected one is important. It gives us access to many customers. It's a very unique product. So that's important, not from a volume revenue perspective, but access, it is unique and therefore, something that the distributors are looking for. Looking into next year, we have quite ambitious plans in terms of launching the UnoMeter Safeti Max, it's an improvement to the Safeti Plus. Safeti Plus, obviously, within the infection technology, already now we have access to this technology. It's a patented technology that is developed in relation to Sippi. We want to exploit that into the manual UnoMeters. And what you could say is that 2024 ambitions will bring us back to where Convatec was 1.5 years ago. Next year, we will take the next steps in exceeding and going into products that are unique to the market, which is, of course, our ambitions both for the Sippi and the UnoMeter Safeti Max. Maybe a few comments, Rune, on the product development side on that side.

Yes. [Foreign Language]

Thanks, Rune. Regarding Biim. This is a project that's been going on for some time. You will know that, most of you. The focus has been and continues to be to develop a partnership with Fresenius. Fresenius is, without comparison, the biggest player within the dialysis field. And we've, some time ago, concluded that the most obvious opportunity for Biim, based on its functionality, is the dialysis segment. And the dialysis segment is a huge opportunity for us. Just that one on a global basis is a huge opportunity. And when you zoom into Fresenius, you would see that even Fresenius on its own has a huge opportunity -- or is a huge opportunity. The challenge will always be with a company that has 130,000 employees is that it's a big -- a super tanker to get them on board. They did buy, back in 2023, '22, 285 probes. For them and for us, it has been a kind of a pilot project. They wanted to take it in, making sure that this product actually offered both the sort of the clinical outcome that they were looking for, but also the -- giving them a business case that meant that if they invested, they would also get more effective dialysis treatments. What Fresenius is doing in the U.S. is running almost 3,000 clinics that, therefore, they are treating new patients every second almost, meaning that it's just an improvement of the effectiveness of the treatment will mean a lot to them. What has been seen very recently is that -- I mean, Fresenius has been working on a journey that would prove that there is a business case behind investing in Biim. And actually, just very recently, they came out with the first results, and they did show that a number of clinical processes, if you like, will be more effective doing -- working with the Biim product. And this is the first time they have come to that conclusion. That would be fundamental for their decision on how to move forward with Biim. So a major step as we see it. We also have now formed an internal project group to explore some parallel tracks, whether we can actually explore some alternative strategies for Biim. As I mentioned, the downside of running with a huge company is the speed. We are going to explore other opportunities that will give us, hopefully, a more -- a faster track to a market entry and a commercial exploitation of the Biim product. That was it from the commercial side. Johan, please?

[Foreign Language]

2024 deliverables. What are the main deliverables we're looking for. Many of them has already been mentioned. The first -- the top of priorities will be the launch of the products, UnoMeter Safeti Plus and the Abdo-Pressure Preconnected version. They are the products that will bring us into a position where we will take major market share because that is the major product, the foundation that Convatec also has. So that will be the product that would lead us to the next step commercially. We also, as I mentioned, have now more than 25 countries selling our products. And we need to make sure that now they have, most of them, gotten their first delivery, we need to make sure that they are able to win the tenders, win the business that would pave the way to launch the Safeti Plus. So that's a big focus right now. We need to basically support them in terms of logistical performance, but also a number of other marketing-related issues. We need to continue to deliver the distribution network. This is crucial. You could say is what -- we have not enough, it's not, because the ambition is quite a lot higher than what we can cover with the current 55%, as we saw in the beginning. So this is definitely a priority for us, to continue the geographical expansion on the distribution side. And as I mentioned in the beginning, we also have the opportunities to explore or, let's say, use -- utilize our distribution network for other companies' products. That's other -- also one of the projects that Rune will be working with, how can we find and attract those products that -- where the companies will have products, but not a sales distribution network. Behind all this, there is some fundamental challenges that we need to deal with. On the financial side, we want to move this very speedily. And of course, that would challenge us on our capital situation. The liquidity is under some pressure in terms of how fast we can implement these projects. This is something we're obviously working on. At the same time, we're working on, let's say, dismantling some of the complexity that we have in the company. You saw some of the effects of how we manage costs and we want to continue that journey of dismantling that complexity. So that's, from a sort of a background perspective, are some of the priorities that we are looking at right now and making, so we can make sure we can execute on the ambitions we have. All right. I think that was the presentation. Thank you for listening. So we move into the Q&A session.

[Foreign Language]

[Foreign Language]

Yes. I can put some words to that. We are right now selling the UnoMeter 500 with a margin in the early 30s. So a little bit better what Convatec did. We have a little bit more effective platform and market has also -- due to the fact that Convatec retracted, the market price has increased. So that has helped us. The major opportunity we see will be the Safeti Plus. That offers some differentiating elements that would strengthen our position in the different markets that would drive an increased margin. Over time, the margin on UnoMeter 500 be challenged. We already have defined a small project that would, let's say, improve the cost picture of the UnoMeter 500. Because UnoMeter 500 will come under pressure as the market becomes more normal, so we have to become more effective there. That was a long answer. Did I capture it?

[Foreign Language]

Well, there is a -- let's say, there are 2 parts of the development project. That is the regulatory part, getting the CE mark under that product as well under our own umbrella; and also getting the product, let's say, the manufacturing equipment established. Right now, we're looking at end of Q3 or Q4.

[Foreign Language]

Yes. I think I did mention that one fundamental conclusion that Fresenius has been waiting for is the one I was referring to before, the fact that actually -- will Biim actually not only improve the quality of the treatments, but also improve the financials of the clinics that Fresinius is running. We are now closer to the conclusion that it actually do improve the profitability. It's a positive business case to invest in Biim. This is going to be escalated into a higher level into Fresenius. Exactly when they will make that decision, it's a little bit out of our hands. So it's going to be very difficult to predict that. But -- so it's just too unsecured to make a specific judgment on the timing of this right now. All right. That's it. Thanks a lot.