Sedana Medical AB (publ) (SEDANA) Earnings Call Transcript & Summary

Okay. Thank you very much for that introduction. Welcome to Sedana Medical Fourth Quarter and Year End Report. And together with me, I also have our CMO, Peter Sackey; and our CFO, Susanne Andersson; and also our Commercial Director, Jens Lindberg. So we are loaded -- we are ready to have longer questions later today. So -- but anyway, I will start the session and the ambition for today's meeting. We will go through the commercial and the regulatory development of the company, and we will go into the more of the clinical development space as well, which will be presented by Peter, and then we will end with a financial summary and highlights of the quarter, but also of the year. But I suppose I should start with another topic, and that's the topic you all have heard about. And I as the CEO, will leave the company this summer, later this summer. And I just wanted to comment on that shortly. And if you have further questions later on, you also free to ask me questions in the end of this meeting. But I just wanted to first mention that the Sedana Medical is really a fantastic company, and I really believe in it. And I also want to say that there are no conflicts or anything else like that, that is behind my decision of leaving. So -- and the reason why -- behind my decision is that I'm coming now closer to 5 years of day and night work 24/7, responsibility of this company. And of course, it's never right timing of taking this kind of decision. But in my mind, we have seen now that we have established inhaled sedation with AnaConDa in many markets all around the world. We have increased the sales dramatically, and we have a launch of the full therapy just around the corner, which will be handled fantastic by the team. We also have a U.S. clinical development initiated and it is promising indeed. And I think it is, as I said, never a perfect time, but it's a good timing anyway for a new CEO of taking new responsibility, so he can take the company into a new level. I mean everything has an end. And I will now start all over again in a smaller company and starting from the beginning and to build up the company again. And that's what I am good at and I like the small company than essentially large ship. And I feel now it's the time to starting then that new challenge or possibility for me. So with that words, I will leave that topic and going then to Slide 3. And this is the summary of this year, 2020, as we all are aware of, we are strongly influenced by COVID-19. And especially, we, as a company, I would say, though, from a positive way, if you can say so. But nevertheless, it has opened a lot of new users for our treatment all over the world. Going to the Slide 4. You know our purpose in the company. We are here to improve live during and beyond sedation. That's what we are working for. And that's the reason why we are in the epicenter of COVID treatment. The vision is actually to make inhaled sedation global standard therapy for critical care patients, treated in the ICUs mainly. And going to the Slide 5, you know that there are benefits and actually, thanks to these advantages, this treatment has been used widely, both during COVID-19 treatment, but also continue with other products -- with other indications of patient. But I mean, we have a reliable effect, on-off effect. We have short wake-up times. And we have seen that we can reduce the ICU stay. We can also see that we have reduced the opiates usage in the ICU, and there's possibility to reduce different kind of cognitive side effects like hallucination and delirium. Potentially, we also have seen in interesting studies organ protective properties with improved gas exchange for inhaled sedation generally. And going to the next slide, Slide 6. You have seen it before. The market potential is still there, even though during 2020, I would say that the number of patients have been dramatically higher in the ICUs, but the long-term potential would stay the same when we have post-COVID situation. EUR 2 billion to EUR 3 billion is the potential of the market divided industry really, as you can see on the slide. We have estimated an average price globally of EUR 100, and that's the background of the potential. Going then to Slide 7, I just want also to remind you of our financial targets and objectives for long-term and also our strategic priorities. I mean we are in a situation where we are now commercializing our therapy in Europe this year. We have a full launch later in the second half year expected, if we get the Sedaconda registration approved by the European authorities in the different countries. We are also planning for the development and the clinical development in U.S. headed by our Medical Director. And it's also -- we are preparing. But of course, we have seen -- I mean, there are some strategies due to COVID due -- mainly due to FDA are fully crowded with other responsibilities as well during this time. But now we have the data, and it looks promising that we could have -- we're working and feeling towards the same ambition of having an approval in the U.S. by 2024. And then, of course, the rest of the world is not -- I mean it's very interesting market as well. So we are looking to fulfill -- to register this on the European dossier, but also stand-alone dossier in international market. The ambition of our target is getting 3 years after the registration in Europe, that we should reach SEK 500 million of revenue that should be in 2024 then with a very healthy EBITDA margin, thanks to the great gross margin. And also, I mean, we have reached a certain level now this year, where we think that should be enough with approximately 100 people in Europe to sell this product in Europe. So we will have -- the margin we're looking into is 40% for now obviously. The initial target for growth before registration was 20% annually, which you know that we have overperformed significantly during the last year. Next slide is the strategic ambition is actually, as I said, we would like to make this treatment to become a new standard, inhaled sedation should be standard in the critical care patients' treatment in the ICUs. And we're doing that through different levels where we are initiating AnaConDa and establishing AnaConDa treatment in as many countries as possible. And together with parallel registration of the drugs, we have the full label -- going from off-label to label in treatment. And then I mean, the core here is actually, it also shows superiority. I mean from a marketing point of view, we need to show the endpoint that is showing superiority versus intravenous drugs. And that we are doing through Phase IV studies and investigating the 2 suppliers and had a support -- actually, so we have this evidence that they will be very important dose supplying, as well as for expansion from a commercial point of view. And the next phase is, of course, when you have the right data and you have the right to use it, you have the possibility to get into the guideline. So you actually have fully recommended and -- as a standard treatment within the ICU. So that is the last step to reach the new ambition here. And how do we succeed? Slide 9. We are now in the phase of actually painting the map blue. We are having more and more countries that use AnaConDa and actually, I would say, more and more all of the main markets. I would say, still, we are lacking the U.S. market, which is, of course, essential for us to succeed in the future. But we are working on that, and I'll come back on that in the presentation. So in next slide, Slide 10. What are we doing there? I mean, despite off-label situation, you know that we are selling in many countries AnaConDa as an off-label treatment. And during 2020, we increased the sales by almost 100%. And it's not only in Germany anymore. You can see that we are also increasing sales but of course, Germany is still the eminent giant in our sales. And they are growing also significantly during this quarter and the year. So the other markets actually have a hard time to follow. But still, you can see that they are growing a little bit more than the other markets and Germany. But also, you can see that also distributor market with -- led by the South American market mainly and the growth is also starting to become significant in the sales. And there, you know that there'll be also in units in volumes, it should be a little bit higher because the selling price to distribution is nowhere compared to the direct sales market. Okay. Going to the next slide. We are -- yes, this showing, again, we have 129% increase in Q4 and 98% in over 12 months, full year. And actually, it's even higher in local currencies, as you see. 12, Slide 12, what's regarding approvals and regulatory registration process? I mean we submitted application in November last -- the 13th of November last year which went to 15 countries in Europe, including Norway. We are expecting a low -- approval and launch during the second half year in this year. And after the end of quarter, we also have submitted application based on the European dossier also in Switzerland and the U.K. U.K. also requiring a national process this day after Brexit. And we expect an approval in the first half year of next year. And then, of course, we are looking into the second wave -- when we have first approval in Europe, we can initiate the next wave of registration countries in Europe. That's -- we are expecting to take approximately 6 to 8 months to have it approved and launched in that time frame. And then, of course, we are now ongoing to investigating the possibility to use the European dossier also in other markets in the world. So we will come back on that why that will be, but of course, that's from a commercial and business point of view evaluation as well as the regulatory evaluation where it's possible. So that's ongoing on the -- going from off-label to label. When you look at Slide 13, I talked about the guidelines, which should be the forward level in our strategic ambition. But of course, we already now are in guidelines. In Germany, we have been there for many years, but only as an internally IV drug. And this is the latest recommendation review by NICE in U.K., saying that AnaConDa should -- it's a good alternative intraveneous drug for sedation in the ICUs. So this is an example of where we are focusing quite a lot these days. And we are not -- I mean, we are not satisfied with only being an alternative. We would like to be on a higher level and -- but that will never be achieved before we have a full registration. And when we have the evidence, which is so much needed. And going to the 14th Slide, next slide, there you see definitely where we are putting our efforts and where we are actually -- lot of resources are spent in supporting both our own studies, but also sponsoring investigator-initiated trials too, to reach both registrations, but as well to reach the evidence that's needed to get -- reach the full potential out of this treatment. And I think I stay there and hand over to you, Peter, to report the clinical development progress. And we can go to the Slide 15.

Thank you. So in terms of the top line results from SED001 IsoConDa study, which was the study that was performed in order for us to register Sedaconda therapy in Europe. It's a 300-person, about 300 patients randomized controlled trial. And it was completed in February this year, and included a marketing authorization application. If we go to the next slide, please, Slide 16. The primary endpoint was demonstrated non-inferiority versus propofol, and this was demonstrated clearly in this study. So the meantime, mean proportion of time at target sedation level was similar in both groups and for isoflurane, it was very far away from the set non-inferiority margin of 15%. Next slide, please. Slide 17. Looking at the safety of isoflurane sedation, there were few adverse events in both groups despite a typically ill population. And we have no safety tolerability concerns in the data, no adverse events that were new for this drug. And generally, adverse events reported are not related to sedation or to the device. Next slide, please. Besides the primary endpoint, in Slide 18. Besides the primary endpoint, we have a number of other interesting endpoints that were aimed at demonstrating superiority for isoflurane versus propofol. And we found that opioid requirements were lower during sedation with isoflurane, which is in line with previous smaller academic studies. We also found that patients had more spontaneous breathing during isoflurane sedation. Also, this has been demonstrated in other smaller trials. This is obviously beneficial for the mechanically ventilated ICU patients. And finally, we found that wake-up time as the study continued to day 2, we found that patients woken up from isoflurane had a short time to wake up, reaching at level in awake state compared to propofol, which also was something demonstrated in previous studies. But this is the largest randomized controlled trial of inhaled sedations to date. So we're very happy about these results and they are part of the regulatory report. If we go to next slide, clinical development in the U.S., and we can take next slide after that, that's Slide #20. In the U.S., we are turning through combined registration of Sedaconda and AnaConDa, and after meeting with the FDA in 2019, a number of steps were determined that needs to be taken towards best goal. One of them was nonclinical studies in sedations exposure must be clinical setting. And these studies have been performed. We're now moving into planning of 2 clinical trials that the FDA required. These will be assessor-blinded studies and will include approximately 500 patients in total, and we have great interest in the U.S. among clinical researches to this study. So we're in full preparation with this. And as Christer said before, we anticipate to -- if all goes as planned, we will have an approval in 2024. So we move on to the next slide, please, 21. Here's a time line looking at the activities in Europe and in the U.S. So last year, we had Sedaconda study. We had high-level data presented and also the secondary endpoint data presented at Congress in late 2020. We opened the first ICUs for our paediatric study, the IsoConDa study. And we submitted the marketing authorization application as well. And in this year, we are expecting an approval in the second half year of 2021. And we have also started to have our first patients included in IsoConDa study. So in 2022, we expect the paediatric study to be completed, and we hope that this study will be useful also for our U.S. registration to have a full registration in 2024. And that should lead to an approval of paediatric indication in Europe by 2023. So for the U.S., we have completed paediatric study and then the preclinical studies. And in this year, we have an end of Phase II meeting late spring, and we hope to have an NDA approval in the middle of the year and to be able to start the clinical trial before the end of 2021. And as Christer said, we will decide how to commercialize this in 2022, completed clinical studies in 2023 and submit our NDA application with an approval in 2024. Next slide, please. 22?

Okay. Thank you, Peter. And then some final slide about financials. We can go to Slide 23. And as you have seen in the report, we have really -- I mean, a high sales, SEK 46 million, an increase of 129%. And the full year sales of SEK 142 million. And the gross profit, we are a little bit disappointed of that, and that's mainly due to increased freight costs during this last year. And the costs are increasing from Asia overall. It's not only it being up, I would say, I assume you guys hear that from many companies these days. And we are working on that, and we are working, looking into other opportunities to improve the gross margin in the future. But -- so our aim is still the same as we have mentioned before. The EBITDA margin, we are -- we have a negative EBITDA, as you see, minus SEK 14 million over the year. And what you can say is that, that is very much due to -- that we are building up and repaired organization for the full launch in Europe, but also to be the contributable company with everything that require both from regulatory quality and medical presentation. So I mean, I think that's something that we are looking into now. And then main cost increases among these costs, including the consultants that you see now, we are more than 80 people by the end of December. And as I said initially, I mean, we are looking into that number of people. And I have said before that roughly around 100 people is needed to do this fully, including the headquarter in Europe to launch it and prepare for the clinical registration also in other markets. Okay. Let's go to the next slide, 24. Some cash and balances. And as you see, even though we have a negative EBITDA, we have positive cash flow from operations, which is fine, and that's nice. That shows that we are going in the right direction at least. And -- but of course, we have still high investment in -- and they are increasing, as you see. We have SEK 31 million in investments during the last quarter and in total SEK 85 million of the year. And that's, of course, in the clinical development and clinical studies is very expensive, registration is expensive, pharmaceutical registration is expensive. So that's what it takes, as you're aware of, and overall, the burn rate is, as we said, approximately SEK 30 million during the last quarter, we burned a little bit less than SEK 90 million during the full year. And we have still say SEK 376 million in cash. So it looks good, and we are well prepared for inhaled sedation clinical studies in U.S. And also I would like to mention, I don't think we have mentioned it before, but we have seen it, obviously, but we have no -- we are debt-free company. We have no long-term financial debt, which is also important to mention. Next slide, 25. We also normally give you an uptick of which you can find also in the whole page, the shareholder list, where we still have the major Swedish institutions combined with founders and also some international institutions as well as we see on the top 15 list here. And now, there are dramatic changes. Okay, I think that is the last slide. So 26 is the question slide. So please, if there are any questions we are happy to try to answer them.

[Operator Instructions] We have a question from the line of Peter Ostling from Pareto Securities.

Can you hear me?

Yes.

Great. I have a couple of ones. I'd take 2 or 3 and then jump back to the queue to let others ask also. Could you just talk a little bit about within the distributor markets and the other direct sales market, if you could highlight any specific countries that performed really well within those categories in the quarter?

Distributor market, I would say, the biggest surprise was Central and South America, which went from almost 0 to the biggest market outside our direct market.

Did -- I noticed that Colombia issued specific guidelines for inhaled sedation during Q4. Did that help or it obviously helped a lot?

Yes. Yes. Absolutely, it helps. And -- but maybe Peter can, yes, comment on that.

Well, so I mean, there is general interest in South America from many key opinion leaders who have returned to us. And we still have more registrations to come. And also before the Columbian guidelines, and American guidelines already included mention of inhaled sedation. So I think it's a combination of guidelines and COVID situation, which led to this interest. And every year that goes, we have more multiplications. So an upside.

I mean it's amazing actually what the interest is there. But anyway, we can -- also when it comes to the direct sales market, I think I would actually request you Christer to answer that.

Yes. I think that the first and fair statement is that we're seeing sort of quite strong interest and good performance across all markets outside of sort of direct sales market, outside of Germany. So sort of new hospitals coming on board throughout the year. So it's a general statement. But I think we've seen -- if you want to highlight a few, we've seen France grow quite nicely in the year with double the number of hospitals that have come on board. Spain has had a very strong year, specifically in the second wave and so as the Benelux market. So I think that we're seeing quite a strong uptick with hospitals coming on board.

Okay. In the Q2 report, you mentioned that about 40% of the growth came from new customers. What's your best guesstimate, if you look at H2 or Q4 or during the second wave, those customers that came on board during the first wave, I guess they remained customers? And what did you see during the second wave when it comes to new customers?

We -- if I divide that answer up in a couple of chunks. Have we -- we continue to see new customers coming on board. So that trend is -- and it's the same across markets. Encouraging to see that a majority of the customers are also now repeat regular customers. We did see a few customers in the first wave that came on board, maybe a base sort of urgent due to propofol shortage that have not done repeat, but the majority are now repeating regular customers and that's been quite a big focus for us. In terms of what percentage of the growth comes from new customers in second half. We haven't done that analysis into the same debt, but it's fair to say that, that number is likely to be a bit lower than the first half of the year, partly driven because of that we've seen the COVID volumes have been much greater in the second half of the year, meaning that the existing customers have taken a larger chunk of the growth. But it's still a significant part of the growth is coming from new customers in the second half.

Also to mention, Peter, is that it's -- I mean, during the first wave, there were quite a lot of carrot-stick orders due to the IV shortage. In the second wave of COVID, we have not seen the same shortages of IV in Europe. So I would say that is a good interesting trend. And despite that, we are having -- I mean, such an increase.

Okay. And those -- have you made any general analysis of the new customers. You mentioned shortage of existing drugs? And are there any other reasons that they use or start to use inhaled sedation?

I mean I think the main reason is that for the COVID patient, is -- I mean, that they believe that this is a better treatment.

And that patient doesn't have -- doesn't need to have ARDS.

I mean, most of the patients within the ICUs suffering from COVID, do suffer from ARDS. I'm looking at Peter, but is that correct?

Was your question whether they use it in other patients?

Yes.

Yes. So we don't actually have -- we don't have data on individuals, let's say, ICUs and patients. But we certainly do believe that they do. COVID -- I mean, COVID does cause the ARDS among the other patients, develop ARDS. I think what's made this very attractive in the COVID pandemic is that these patients use very much sedation and they get multiple drugs. And when you have inhaled sedation you just can manage with that alone. And so it will be, of course, interesting to see how people behave when COVID is no longer here. But we do believe that this will be something that brings their attention to a new therapy that has benefits. And certainly, I think our approval will strengthen that belief.

That was my follow-up at launch that I -- so I've seen some estimates that about -- around 40% of patients on mechanical ventilation, are in some stage of ARDS. And if it could be a risk that when you get the full approval, it will be kept for those patients and not as broadly used as you may.

Peter, about 40% of all ICU patients are quite good.

Okay. I agree. I agree. But you still have to penetrate all those 40%?

Yes, I mean, I can speak to this. Beside, there are many other reasons than the ARDS. I would say that the ARDS is not -- there are many other medical conditions in patients that we have good reason. I think clinicians as well to see that this treatment probably is better choice compared to the current ICU treatment. And this is hard for us to convey as we -- I mean we don't have marketing authorization. So as an off-label therapy, we are not -- we are much more silent than we will be after approval.

Because those...

Just kind of leading back to sort of, okay, why did they come on board, et cetera, sort of an interesting analysis that we have, or analysis kind of what we've seen is that kind of we take -- we sort of -- I was speaking with the U.K. team, for example, and we've seen similar patterns in the other countries is that of the customers that came on board that started up in first half and second half, pretty much 100% of those customers were customers that we had interacted with before that has shown interest before, so we've had our AnaConDa locally and engaging with customers. So basically, all of them that are coming on board have already shown interest from before. We're feeling quite comfortable that sort of they didn't come just because they were afraid of propofol shortage. They came on board because they saw the benefits, and they are here to stay for reasons beyond COVID.

Yes. Sorry, but finally on this, a little bit of the same topic, the 2 largest ongoing investigator study, SESAR and the Canadian study are focusing mainly on ARDS patients. Will you be able to use those data as a crossover or read through to other indications as maybe Peter alluded to?

Well, I think when the clinician at that side is not really looking at a oxygenation when they are starting the sedation. They're looking at the patient's needs, and I'd say that certainly, these studies will be generalized to patients who need sedation regardless if they have good or poor oxidation. The oxygenation side, I mean the SESAR study is focusing actually the primary endpoint is not sedation essentially for 3 days. That's driven not only by oxygenation, but also how rapidly can you reverse sedation, how rapidly can you get the patient out the best. Those can grow in the time in that endpoint. So I think certainly that those studies will be useful not only more alluding us to discuss inhaled sedation and yes, also for other patients. The pharmacology of inhaled anesthetics and isoflurane specifically, speak very clearly to their benefit, patients with dysfunction. So I think we'll have a lot to talk about besides ARDS. Okay. Are there another questions?

There are no further questions. So Peter, if you want to ask again?

Okay. Can you give a brief update on where you are at establishing manufacturing outside Malaysia?

That's ongoing. We foresee to secure that during this year in Europe. And -- but I also would like to mention that we have ramped up the manufacturing capacity by almost 30% in the existing side actually longer during the last quarter. So I'm not that worried about. But of course, from the risk mitigation, it's good to have a second source here in Europe as well. And as I also mentioned, I think it's good for the freight cost, and we can reduce that kind of cost significantly. But on the other end, the staff cost is significantly higher here, but we prepare for a very lean setup, effective manufacturing of our products. So during this year, we will have it, the sooner the better. We have it under control.

Okay. On the U.S. side, the human factor study and the tox studies that you need to do in order to file an IND. In the report, you say that they are ongoing, but in the presentation, you said -- you have previously said that they were finalized during Q4. Can you talk about a little bit about the interactions that you have had with the FDA on those matters?

Yes, certainly. So we had the meeting in 2019 when it was -- when the preparatory clinical studies were discussed. And we have performed the studies that we believe are necessary to move on to general trials. These have been submitted to the FDA for a so-called Type C meeting, and they will determine whether they -- whether the model we've done and the study design answers the question that they feel needs to be answered before we do it with in the trial. So I'd say the ongoing need to deem that we haven't -- not yet had the green light to go ahead with the trial, and we hope to come back to that. Yes. So as soon as we really have a news on that, we'll come back.

Okay. The U.S. studies, will they also be non-inferiority studies?

Sorry which studies?

The U.S. studies, the SED002, SED001...