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

Hello, and welcome to today's FINWIRE presentation with Sedana Medical. [Operator Instructions] With that said, I'll hand the floor to you. Please go ahead.

Thank you for the introduction. A warm welcome to our Q2 reports 2026. I am here with our new CFO, Mikael Haag, who will introduce himself and speak about our financials in just a few minutes; Peter Sackey, our Chief Medical Officer, who's usually with us, is not here today as he is traveling in the U.S. onboarding the next large hospital into our early access program. So let's talk about the second quarter. What stands out, of course, is the NDA submission in June, a huge milestone after years of work on our U.S. clinical and regulatory program, so our biggest growth opportunity, the United States, has moved another step closer. At the same time, we managed to further improve profitability, even though sales on the group level were flat versus a very strong Q2 last year. So let's jump right into the highlights on Page 3, thank you, structured around our 3 priorities. So growing sales in our core markets, reaching profitability and our exciting U.S. journey. Q2 net sales were SEK 49 million, which is flat compared to last year at constant exchange rates. If we look only at the core business, so excluding the contract manufacturing sales from our factory in Malaysia, sales were slightly up by 1%. We had a delayed shipment to our contract manufacturing customer that shifted from June into July. So it's actually the contract manufacturing business that pulls us down just slightly on the group level, but that's a pure timing effect. Still, this flattish development looks a bit underwhelming probably at first glance, but we need to remember that we are comparing against a very strong Q2 last year when we had organic growth of 21%. Having said that, it is very clear where we have to improve. Germany had another very soft quarter. But the good news is that every other market outside Germany showed really good growth and also accelerated growth compared to the first quarter. I'll go through each region in a bit more detail in a moment. Another very positive outcome of this quarter is that we -- despite the flat sales again improved our profitability, both our ex U.S. and group EBITDA are up. Ex U.S. EBITDA reached 2% in the quarter from 0 a year ago and 6% year-to-date, up from 3%. And at the group level, EBITDA improved to minus 4% in the quarter, up from minus 8%. As always, we have a bit of seasonality here. And we now stand at breakeven year-to-date, up from minus 4 last year. Also, the gross margins improved nicely to 73% in the quarter, up from 70% last year, helped a little bit by the lower share of contract manufacturing revenue in the quarter, but more importantly, significantly lower cost of goods of our main device following the Innovatif Cekal acquisition. We ended the quarter with SEK 52 million in cash. Cash burn was a bit higher in the quarter due to the final spurt towards the submission and also affected by some temporary working capital effects, but now the work with the submission is done, so we expect the U.S. CapEx to decrease further. So we continue to believe that we are financed to execute on our plan and actually as an extra safety buffer given the cost uncertainty that sometimes comes with an FDA review. We have also put in place a new loan facility with a local bank, giving us access to SEK 50 million in additional funds should it be needed. So we are not drawing down the amount at this point, but it is there in case we will need it. That in itself, I think, is good news as our profitable core business is now allowing us to be creditworthy with local banks and then get access to this kind of facility. And then, of course, the big 1 in June, we submitted our new drug application to the FDA, slightly ahead of our public guidance. And together with the Fast Track designation, the positive pre-NDA meeting, the early access program that is now treating patients at several hospitals, we are step-by-step moving closer to our big goal of US approval. The review clock has now formally started, and we expect to hear from the FDA in August or September with a decision on whether they will accept the file. If they accept the file, they will set a PDUFA date, so the date by which the FDA commits to completing the review and deciding on approval and also give us a decision on our request for priority review. If we then move to the next page, Page 4, please, you see the same picture that we've shown you before of our multiyear turnaround now extended by 1 more data point for the first half of 2026. Just to recap the story coming out of COVID, we made it a priority to reach profitability outside the U.S. before launching there, and we ran a really disciplined turnaround program, cutting significantly into everything noncustomer facing. So our Swedish headquarters today runs with less than half of the people it used to have while reinvesting part of that freed-up cash into the frontline. We've also become much more disciplined and differentiated in how we invest across countries, doubling down where we see profitable growth and pulling back where we don't see that. We also acquired our main supplier in Malaysia, as you know, and as a consequence, managed to reduce cost of goods of our main device, Sedaconda ACD quite significantly. And you can see the results on this slide, a consistent multiyear improvement in the bottom line. That has actually outpaced the sales growth, meaning we've always found ways to do more with less. Page 5, next page, shows where this puts us against our financial targets for the year. We guided for a mid- to high single-digit EBITDA margin outside the U.S. And year-to-date, we stand at 6%, up from 3% in the first half of last year. And we guided that we would approach group level EBITDA breakeven. And year-to-date, we are actually exactly there at 0%, up from minus 4% last year. As always, there will be some seasonality quarter-to-quarter, as we've also seen it between Q1 and Q2 here, but we're confident in delivering on our full year financial guidance. Before I go region by region, I want to spend a moment on the next page on Page 6 to give you some context on how we are comparing ourselves against last year, which maybe helps calibrating the performance in the first half of 2026. Last year, we closed at an all-time high of SEK 200 million in sales, but the shape of the year was quite unusual. So we sold SEK 107 million in the first half and SEK 93 million in the second, so the first half was 15% higher than the second half of the year. And in Germany, specifically, that pattern was even more pronounced with the first half, 22% higher than the second half, and that compares with a typical post-COVID split of roughly 49% in the first half and 51% in the second. So quite even. So this traces back to the shape of last year's flu season, where we had a very long and severe wave of ICU admissions early in the year, but then that faded out from around May onwards, and since then, has quite consistently been below the levels of the previous year. And the practical consequence of that, when we look at the performance this year is simply that we've been running into -- or running against a quite unusually high comparator in the first half of this year, simply because the first half of last year was stronger than usual. If we then move to the next page, on Page 7, let's turn to Germany, which faced another difficult quarter. Sales declined 22% at constant exchange rates against Q2 last year when we had grown 19%. Year-to-date, we stand at 18% decline at constant exchange rates. And as I'll show you on the next page, the majority of this effect is explained by quite a lot fewer patients in German intensive care units than we had a year ago. That said, we are, of course, not just waiting for the market to turn back in our favor, but we are fully focused on what we can control on the execution side, more than half of German intensive care units are already customers today representing over 2/3 of the addressable market. So our biggest growth opportunity is deepening penetration within existing accounts rather than opening new ones and to capture that. We have now installed new sales leadership during the quarter. We are restructuring territories, so we can sharpen the focus on high potential accounts, even more, we're increasing visit frequency in high potential accounts. We are becoming even better at using data and analytics to steer our activities towards the highest potential opportunities, and we are rolling out sales training even more consistently to dip the effectiveness of our key account managers. On Page 8, that shows you the data behind the market headwind I've talked about. This is data on weekly hospital admissions with severe acute respiratory infections, so a quite relevant group for us. You can see that this year's flu season, which is what you see in the dark blue is running consistently below the prior season in light blue. Year-to-date, hospitalizations were down 11%. And that's also very much in line with what the German National Intensive Care Registry, so DIVI reports. The share of free ICU beds is up 12% without the total number of beds changing. The capacity for invasive ventilation is up and also the number of ICUs who report that they cannot -- but they don't have enough staff to deal with the patient volumes, has dropped by 20% compared to last year. So all of this is evidence for lower patient volumes in German ICUs this year. So what does all of that mean? As a consequence, if there's less patients that require our products, customers will reorder a bit later, and they will also order smaller volumes, and that's what we've seen now for as long as we had lower patient volumes. But again, that should not distract us from our focus on execution. Even in this somewhat contracted market situation, which is hopefully temporary, there are still enough patients for us to go after, and that's what we need to be focused on. We then move to the next page, Page 9, on to some more good news. All of our other direct markets, in which Spain, France, U.K. are the most important ones, accelerated broadly in the quarter, all of them were growing in the quarter, in total 41% at constant exchange rates. And as I said, every single 1 of them improved versus the first quarter. So that's really good to see. Year-to-date, these markets are now up 22% at constant exchange rates. In Spain, the nationwide doctor strikes that had started in January are still ongoing. So there's still no agreement between the unions and the Ministry of Health. There's still 5-day strikes roughly once a month, so 1 week a month. But despite that, our growth has reaccelerated quite sharply in the quarter. Our team has simply gotten better at working around the strike, so they're better at reaching the stakeholders even during the strike weeks, and we are also opening new doors in patient populations where we haven't traditionally been very strong, such as neurocritical care, where there's been an investigator-led study, pilot study published quotes in Neuro-Conda, which is now helping start conversations with neurocritical ICUs. That was a study that looked at mechanically ventilated neurocritical patients and specifically those without intracranial hypertension, so those that didn't have too high pressure in the brain. And what that showed was that early sedation with isoflurane is feasible and achieved reliable deep sedation without causing problems to the brain by affecting its blood supply or pressure. So a really good study for us, and that has helped in Spain and will help beyond Spain with neurocritical patients. Also, France delivered solid growth this quarter, the APHP network of 38 university hospitals in and around Paris that we've been talking about where our pharmaceutical had been blocked until this year is now live, and we've already opened 8 new hospitals account there. We're still in the process of restructuring the French organization, and we expect a new country manager to be in place in the fall. In the U.K., performance also improved versus Q1, even though it's a little bit from a low base. One issue we had to fix in the U.K. is that historically, there was maybe a little too much focus on accounts that are easy to convert. Those are oftentimes smaller hospitals, but that don't have enough long-term growth opportunities, and we've prioritized our or reprioritized our account focus towards higher potential accounts now, and we are seeing early encouraging signs that, that is working, even though it usually takes a bit of time to fully play out. So if I take all of these markets together, our other direct markets now represent more than 40% of our core business, which I find a quite remarkable shift from just a few years ago when we essentially had just Germany and nothing else. Page 10. The next page shows our distributor markets, which continued their solid trajectory, growing 26% at constant exchange rates in the quarter and 22% year-to-date. That is mostly driven by strong orders from Saudi and from South America, so -- and this progress really builds nicely on the groundwork that has been laid last year, which was about sharpening the focus on select few prioritized partners and at the same time also terminating distributors that weren't contributing meaningfully enough. And as always, this business is a bit more volatile quarter-by-quarter than maybe our direct markets, but the underlying trend is very, very encouraging. So let's switch gears then and come to the U.S. on Page 11. As you know, this is our largest growth opportunity comparing the addressable market. And our direct markets today with the U.S. makes it very clear. We estimate the U.S. market potential for our products at roughly $1 billion or SEK 10 billion to SEK 12 billion, roughly 3x the potential in our current direct markets. So that the day we hopefully receive U.S. approval, our addressable market would essentially quadruple overnight. And that higher potential in the U.S. comes from a larger number of ventilator bids. It comes from a medical practice that favors intubation and mechanical ventilation more in Europe. And there's actually also a generally higher price level, even though we haven't factored that into this addressable market number yet. So there could be additional upside if we manage to get a higher price than in Europe. And that's quite easy to see, I guess, how the U.S. market entry could change the shape of this company completely if we were to achieve market penetration levels that are at the level of where Germany is today, for instance, in the U.S., then we'd be looking at sales of SEK 1.5 billion, again, without any pricing upside. On the next page, Page 12, that walks you through where we stand on the path to U.S. approval. So the big event of the quarter, as I mentioned, was submitting our new drug application in June, just a little bit before our public guidance. This follows 2 successful drug Phase III trials, which have both met their primary endpoint with no new safety findings, a productive pre-NDA meeting we had with the FDA in the fall last year, where we got good alignment on the content and format and expectations for the submission. So now, the file is in the FDA's hands. We are in the so-called validation period. And when that validation period is over, we expect to hear from the agency, which is likely going to be in August or September, both on whether they will accept our file. If they accept the file, we will also get the PDUFA date, so the date by which the FDA commits to give us a decision. And at the same time, we will also hear back on our request for priority review. And if that were to happen, that would shorten the review time to 6 months, otherwise, the standard that we are working against this 10 months. We've, of course, done a lot of preparatory work already to prepare for the FDA review. For instance, we've performed several mock audits where we have brought in from FDA inspectors inspecting our manufacturing site, our quality systems, our clinical trial oversight and documentation, select suppliers. So the areas that we know tend to draw the most FDA scrutiny. On Page 13, a brief reminder of our launch strategy. So we continue to believe we will create the most value by launching in the U.S. ourselves, keeping control of our assets, capturing more of the upside while also keeping the option open to over time, bring in a partner later if that were to create even more value. And this works because -- despite its size, the U.S. market is fairly concentrated. So there's less than 5,000 hospitals with ICUs overall and even less with meaningful sizes so we can pursue a very targeted launch built around the network of key opinion leaders and trial sites that we've already established. On the next page, Page 14, that -- there's a lot of detail on the slides that I'll go through it quickly. So it shows some of the secondary endpoint results from our trials, which we believe offer meaningful differentiation, subject, of course, to FDA review and labor decisions. We firstly saw that's very important, a substantially greater reduction in opioid use compared with propofol, roughly 31% and 37%, which matters because opioids drive real clinical problems in the ICU from constipation to respiratory depression to delirium, and of course, also because opioid exposure during ventilation is linked to opioid use after discharge and the related addiction risks. We also saw a fast return to wakefulness, typically within an hour of stopping treatment, which supports more predictable extubation and avoids the complications that come with long unpredictable wake-up times on IV sedatives. On mortality, we saw a numerical advantage for isoflurane of 4% to 5% centage points, 30 days in both studies, not statistically significant, but reassuring nonetheless, and we also saw more ICU-free days 5, 6 patients, which is consistent with the findings we had in the European studies as well. And that's very meaningful for hospitals because every ICU day that you save saves the hospital up to $1,000. And finally, another true differentiator, Isoflurane is eliminated almost entirely through excalation, so there's minimal metabolism, which is a real difference actually was IV sedation where you need functioning liver and kidneys to deal with the metabolization now in an ICU, half of the patients present with some kind of an organ failure. So there's lots of patients in the ICU with liver or kidney problems. So that is an attractive target segment for sedation as well. Then, on Page 15 shows the network of clinical trial sites behind our 2 pivotal studies leading academic medical centers across the U.S., many of them, very well-known names. So you will see Cleveland Clinic, Mayo Clinic, Vanderbilt and a lot of others that you recognize. And these centers are already forming the foundation of our emerging KOL network in the U.S., and this will, of course, be very, very valuable to count on their support after approval and during launch. Page 16, just a brief update on our early access program, which allows difficult to sedate patients, those who cannot achieve target sedation on IV sedative to access our therapy ahead of full approval already, and the program started, as we communicated with Vanderbilt earlier this year. We've now expanded to 3 hospitals step-by-step that are actively treating patients. We have another 4 lined up in the final stages of being onboarded. And as we move closer to launch, step by step, we will onboard more hospitals Beyond the direct patient benefit, which I guess is obvious. So patients that have an alternative to something that doesn't work today. This is also valuable for us commercially. So it means that hospitals and key opinion leaders are building real hands-on proficiency with our therapy, well ahead of launch, and we're learning a great deal about implementation processes, training, supply chain and so forth, which we think can apply once we launch for real in the U.S. Then, if we move on to the financial section, I'll hand it over to Mikael to take you through the details here.

Thank you. My name is Mikael Haag. I'm the new CFO here. I've been here 1 month. In the last 8 years, I've been CFO of similar companies, listed and nonlisted tech focus and growth focus in Europe. And Europe and U.S.A. So the financial results, Bedorica, net sales amounted to SEK 49.1 million compared to SEK 49.8 million in second quarter last year. It is a decline of 1% year-over-year but flat excluding currency effects. Germany declined 23% or 22% excluding currency effects. But as you heard, it was driven by lower ICU occupancy rate compared to the same period last year impacting the demand in our largest markets. In contrast, rather direct market delivered strong growth with over -- with 41% year-over-year, particularly strong performances in Spain and France, but also in the U.K. Sales in our distributor markets increased by 23% year-over-year, corresponding to 26% excluding current specs, demonstrating continued momentum across several international markets. Finally, contract manufacturing amounted to SEK 1.9 million, down a bit from SEK 2.7 million, partly explained by timing effects where some of the shipments were late. And will then come in July. Gross profit and gross margin. Gross profit was SEK 35.8 million compared to SEK 34.9 million in the second quarter. Gross margin improved to 73%, up from 70%. The margin improvement was mainly driven by lower cost goods for our main products, Sedaconda ACD following our supplier acquisition or a supplier in Malaysia. In addition, the lower proportion of contract manufacturing sales also contributed positively to the gross margin development. Moving on to profitability. EBITDA improved to negative SEK 1.9 million compared to negative SEK 4.1 million in the second quarter. The EBITDA margin improved to negative 4% compared to 8% 1 year ago excluding U.S. operations, EBITDA was positive, almost SEK 1 million compared to negative SEK 0.2 million last year, corresponding to EBITDA margin of 2% compared to 0% in the same period last year. Operating expenses were approximately SEK 46 million compared to SEK 45 million in the second quarter of 2025. And despite continued market headwinds during the quarter, we're pleased to see that EBITDA continued to improve, reflecting our focus on operational efficiency and profitability. Staff at the end of the quarter of 2026, we had 132 employees and consultants compared to 131 last year. Excluding Innovatif Cekal with the acquisition, the number of employees and consultants were 80 compared to 86 the prior year period, reflecting a continued focus on maintaining lean and efficient organization. So, to summarize, with overall sales flat, excluding currency effects, Germany remained affected by lower ICU occupancy rates. There was strong growth in other direct markets and distributor markets, and at the same time, improved gross margins and continued cost discipline, resulting in an improved year-over-year EBITDA. So cash and our financial position. At the end of the second quarter 2026, cash and cash equivalents amounted to SEK 52 million compared to SEK 81 million at the beginning of the quarter. The quarter's change in cash was negative SEK 29.5 million, primarily driven by intangible assets investments of SEK 20 million, mainly related to the U.S. program as well as a negative change in working capital of SEK 5 million. On that, cash flow from operating activities amounted to negative SEK 8 million compared to negative SEK 12 million last year. Looking at working capital movements, Operating liabilities had a negative impact of SEK 13 million on a quarter while operating receivables contributed positively by SEK 8 million. Inventory changes had a positive impact of SEK 1 million. So there are quite big swings on both sides of working capital. Going forward, we expect a bit less negative impact from working capital. And as you saw, we had -- did have an uptick in investments to the FDA submission as well. So expected going forward, slightly less, as Johannes mentioned before. Consequently, the total cash flow for the quarter was SEK 29.5 million. That was SEK 31.1 million 1 year ago. In addition to our cash position, we have secured a credit line with a local bank just recently for SEK 50 million, providing additional financial flexibility. This will provide an extra buffer for the review period. So based on our current plans and available financing, we expect to be fully funded to achieve the U.S. approval, which remains the most important value-creating milestone for the company.

Thank you. Good. Then, if we then move to Page 20 to wrap it up before we open it up for questions. I see 3 big reasons to believe in Sedana Medical's success. Number one, and the foundation of it all, is a therapy that makes a real difference for critically ill patients every day. We're helping them wake up faster, recover faster, leave the ICU sooner and with meaningful cost benefits for hospitals, too. Number two, we have a profitable core business in Europe. We reached breakeven group EBITDA year-to-date, so we now have a solid financial platform to fund our U.S. launch. And number 3, we are closer than ever to our biggest opportunity, the United States with 2 successful pivot trials, the FDA Fast Track designation, the positive pre-NDA meeting, the early access program that's underway and now our NDA submitted to the FDA. We have a lot of positive momentum, and we look forward to bringing in hesitation with isoflurane to U.S. patients in the very, very near future. So thank you very much for now for listening, and we will now open it up for your questions.

[Operator Instructions] But now we can start with some written questions.

Yes. So we got written questions through the chat here. From Matthias, so your question, are you willing to give some color as to why the CapEx increases quarter-over-quarter what magnitude of CapEx is likely to remain coming quarters. . Yes. And then there's another question. I'll take them 1 by one. So on the cash, as Mikael has just laid out, we did have a bit higher cash out this quarter, mostly driven by higher expenses into U.S. CapEx. That reflects the final spurt we had with everything needed to come together for the U.S. submission. And then we also had some negative working capital effects. Those are temporary. So they will not look like this every quarter and probably will have some positive effects from working capital going forward also. If you zoom out a little bit from that, so we used to have the clinical trial as the biggest source of cash burn. So back then, we had SEK 50 million, SEK 60 million cash burn by quarter. When that was done, the CapEx decreased quite significantly for putting together the dossier, so paying statisticians, medical writers and so forth. So you saw CapEx of maybe SEK 10 million to SEK 20 million per quarter and now with a little bit of a mini peak in Q2 at the end of the submission period. So all else equal, the CapEx going forward should decrease further, and it should decrease quite significantly. So the cash burn should decrease. The unknown here is what will happen in the review period. So once the file is accepted and the FDA will start asking questions. Some of that might drive extra work. They might ask for an additional statistical analysis. They might have questions that cost a little bit of money to address. That's a bit of an unknown. So it's difficult for us to quantify. We've done an analysis of what we can foresee. And I think I'm quite confidently say that the cash burn will come down compared to what you've seen now in the quarter. Then, the next question is the post COVID profile of the year with almost 50-50 revenue split in the first half versus the second, would you say based on the market factors that it would apply to 2026. And then there's a second part of the question, were there only particular orders that drive the improvement in other direct markets? So is it simply just better execution and penetration that is expected to be sustainable at? So on the shape of the revenue distribution at 2026, of course, I don't have a crystal ball. -- what makes the comparator period to 2025 a little bit unusual, as we said, that a lot of the sales were in the first half and much less in the second half, and that was a function of the flu seasons being very unequally distributed. So you always have a bit of seasonality last year that was a bit more pronounced because the flu season was really strong. First half of the year, and then this year, we had a much weaker one. So I would expect a more normal year this year. But of course, it's always a bit difficult to predict. And also, we need to make ourselves a little bit independent from these seasonal swings. What we need to be focused on is the execution and that we are very much focused on, and we see good early signs of acceleration in our markets outside Germany. Also, Germany, we have a plan in place to end the softness and return to better numbers again. And even in this -- as I said, even in this market where we have less patients, there's still enough patients for us to grow. So even in Germany today, we have 1 in 7 patients that receive our therapy. So that means there's still a lot of patients that we can go after. And then the last question, what's driving the improvement in other direct markets? I would almost say for Spain, it's a little bit of the return to normal. So Q1 was weaker because we got quite affected by the strikes. Now we have found ways to work around those things are more normal again, and we're also seeing better growth. And then U.K. and France have for a long time been lagging behind Spain a little bit. We've put measures in place to accelerate, and those are showing effect. So there's no like individual big orders that are affecting the results. But hopefully, we can sustain those growth numbers and accelerate them further when it comes to France and U.K. going forward.

Two more questions on the chat.

Could you share more details on the international expansion plans for Sedaconda in the second half of 2026? So I'm a big believer in focus. So we are very strict in where we invest and where we don't invest. We have defined our focus geography as Germany, Spain, France, U.K., where we primarily invest and want to grow, and there's still lots of growth opportunities. And then there's the U.S. as the 1 that could change the shape of the company. There is a few candidates of countries where over time, we could establish direct sales, but since the question is specifically for the second half of 2026, our geographic focus will not change because we still have a lot to do and we still have a lot to grow in our existing geography.

And there was 1 more. Yes. I think that's...

And then there's 1 more. Could you provide more details on the expected time line for regulatory approval in the coming quarters? So I'm assuming that, that refers to the U.S. So again, we've submitted the file in mid-June. We are now in what's called the validation period. Typically, you'll hear back after 2 or 2.5 months from the FDA. So that's the next milestone, which is probably August, September. We will hear whether the file is accepted, we will hear what the PDUFA date is, and we will hear the outcome on the priority review request that we have put in. And depending on that decision, we're looking at an overall review time of 10 months as a standard and 6 months if we get priority review. So in a best case scenario, we could be looking at approval around the turn of the year. The base case assumption is that it would be after 10 months, so somewhere in the first half of next year. But again, FDA review always has uncertainties, and it's not in our hands, it's in the FDA hands. We've done everything we could to prepare. But that's the textbook time lines.

Yes. If you don't have any other written questions, we can finish with questions that we have here at the phone with the number finishing with 771. Please unmute yourself.

This is [indiscernible]. Can you hear me?

Yes.

So I've got a few questions there. I'll take the first on Germany here. So it seems like the impact of lower hospitalization in was larger in Q1 that it was now in Q2. But now we had a bigger sales decline in this quarter. So I'm just wondering if there was anything else that also affected the growth rate now in Q2 other than the market situation with the lower hospitalization.