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

Hi, and welcome to Sedana Medical's Third Quarter Report. With us to present, we have CEO, Johannes Doll; CFO, Mikael Haag; and CMO, Peter Sackey. [Operator Instructions] And with that said, I give the word over to you, Johannes.

Thank you for the introduction. Warm welcome to our Q3 report 2026. I'm sitting here with our CFO, Mikael Haag, who will take you through our financials in a few minutes; and our CMO, Peter Sackey, who will give you an update on our progress in the U.S. Two things stand out for me this quarter. First, of course, the FDA has accepted our New Drug Application for review and has set a PDUFA date on April 16, 2027. So, our biggest growth opportunity in the U.S. has moved another important step closer. And second, we are back to growth after a flat first half of the year. Group sales grew 7% at constant exchange rates in the third quarter, with Germany improving considerably and all of our other businesses continuing to grow. And at the same time, our cash burn came down quite significantly, now that the intensive submission phase is behind us. So, let's jump right in on Page 3, structured -- here, you see the highlights structured around our 3 priorities: growing sales in our ex-U.S. business, reaching profitability on a company level and our U.S. journey. So, Q3 net sales were SEK 44 million, up 7% from last year at constant exchange rate. That actually makes it the best third quarter we've ever had. But keep in mind that Q3 is seasonally typically our weakest quarter, with fewer respiratory patients in the ICUs and also summer vacation affecting the results. The biggest swing came from Germany. After a decline of 18% in the first half of the year, we are now at minus 2% in Q3. So, very close to last year's levels. I'll go into what's behind all of that in a moment. And all of our other businesses continue to grow. Other direct markets were up 11%. Our distributor business is up 27%, and contract manufacturing was up 47%. The latter -- the contract manufacturing was helped by a shipment that was delayed from June to July, which I mentioned last quarter. So, that is a timing effect and simply the flip side of the softer contract manufacturing number we showed you in Q2. On profitability, year-to-date, group EBITDA improved to minus SEK 7 million from minus SEK 10 million last year, and our ex-U.S. EBITDA remains positive year-to-date with around SEK 3 million. In the quarter itself, group EBITDA was minus SEK 7 million compared to minus SEK 6 million last year, but that comparison is influenced by some one-time effects, the biggest one being a one-time adjustment that lowered our selling expense in Q3 last year. And if we adjust for those, our underlying EBITDA in the quarter was actually improved. Cash burn, as I said, came down significantly. Cash flow was around SEK 14 million in Q3 compared to around SEK 30 million in Q2. And the second quarter was, as you know, the final intensive period towards our NDA submission and responding to the FDA's questions during review. What we're doing now has so far required considerably less cash. We ended the quarter with SEK 40 million in cash on the bank. And on top of that, we have the SEK 50 million credit facility with a local bank that we put in place in July, which we have not drawn on. And then, of course, on the U.S., the big one in August, the FDA accepted our NDA for review that confirms that our application is sufficiently complete for a substantive review, and the FDA has set the PDUFA date. So, that is the target date by which the agency will complete its review and take a decision on April 16 next year. So, now review is underway. Every FDA review involves some uncertainties and approval is not a given. But so far, we've had a constructive dialogue with the agency, and we are responding to their questions as the review progresses. And in parallel, our FDA authorized Early Access Program is underway, with a few U.S. hospitals already treating patients today. If we then move to the next page, Slide 4, please. You see the same picture we've shown you before of our multi-year turnaround efforts now updated with the first 9 months of 2026. Just to recap, coming out of COVID, we made it a big priority to reach profitability outside the U.S. before launching there. We ran a disciplined turnaround program, cutting significantly into everything that is non-customer-facing. So, our Swedish headquarter today runs with less than half of the people used to, while we then reinvested part of that freed-up cash into the front line. We've become a much more customer-centric and commercially execution-driven company and are much more disciplined and differentiated in how we invest across our markets, doubling down where we see profitable growth momentum and also pulling back where we don't. We also acquired our main supplier in Malaysia, which has reduced the cost of goods of our main device quite a bit. You can see the results of all of this on this slide. Sales have grown from SEK 123 million in 2022 to above SEK 200 million last year, and now we stand at SEK 147 million after 9 months. And at the same time, group EBITDA has improved from minus 68% in 2022 to minus 5% and ex U.S. from minus 65% to positive territory. And keep in mind that the year-to-date number, so the 26% number includes our seasonally weaker quarters, Q2 and Q3, but not yet the fourth quarter, which is typically our strongest or one of our 2 strongest ones. So, a consistent multi-year improvement in the bottom line that has also outpaced the sales growth, so meaning we keep doing more with less. If we then turn to Page 5. Let's talk about Germany, where we have seen a significant improvement in the performance, even though we are not fully there yet where we want to be. After a decline of 18% in local currency in the first half of the year, Q3 came in at minus 2%, so very close to last year's levels. Year-to-date, we are still down 14% in local currencies, which is, of course, not where we want to be, but the trend is clearly moving in the right direction now. There are two things behind that improvement, and I think it's important to be clear about both. So first, the market headwinds have eased a bit. Robert Koch Institute data show that ICU admissions with severe acute respiratory infections were significantly lower than last year in the first half. In the third quarter, they were still lower than last year, but at least came closer to last year's levels. So, a little less headwinds there. And second, and this is what we can control, the acceleration program we put in place under our new sales leadership earlier this year, the majority of German ICU hospitals are already our customers, representing more than 2/3 of the addressable market. So, our biggest opportunity is really to deepen penetration within existing high-potential accounts. And there, we've done a lot of work. Every key account manager now has clarity on the high-priority accounts in their territory. Activities have shifted markedly, with the majority of customer interactions now directed at prioritized top accounts. And looking at our priority accounts in isolation, sales to these high-potential accounts have actually already shown robust growth in Q3. So, they have already performed better than the national average. And I take that as an evidence that the approach is working, and we will successfully return to growth. Still early days, and we have more work ahead of us to bring Germany back to growth, but the direction is definitely right. If you then go to Page 6, this puts it into a slightly longer-term perspective. What you see here is our order intake in Germany, that's the blue line and the ICU admissions with severe acute respiratory infections from the Robert Koch Institute in purple. Both are indexed to January 2024, so we can have a good comparison also shown as a trailing 12 months. So, we take out some of the noise in the data that comes with the high volatility during the year. So, every data point here in this graph represents the last 12 months. And now you can have 3 observations here. First, our sales in Germany have directionally followed the ICU caseloads and that's not surprising. Respiratory patients represent a big share of your typical ICU population. And when there are fewer patients in the ICUs, then customers reorder later and in smaller volumes, and that's what we've seen for as long as we've had lower patient volumes. Second observation is that the sales lag a little bit behind the ICU caseload a bit. So, that also makes sense. As you can see, the peak in our sales comes a bit later mid last year than the ICU patient numbers have peaked. And thirdly, since the peak in mid-2025, the ICU caseload has declined more than our order intake or our revenue have declined. So, we've held up a bit better than the market, and that is exactly where our acceleration program is aiming, so to decouple even more from the market trend by increasing penetration in our high-potential accounts so that our growth is driven by our own execution rather than by the respiratory season. Next page, please, Page 7. This is our other direct markets, so mostly Spain, France and the U.K. These markets grew 11% at constant exchange rates in the quarter, 19% year-to-date. In Spain, we continue to grow at a little bit of a softer level than the prior quarters. This is seasonally our weakest quarter. During summer, many ICUs in Spain reduced their capacity. So, they operated at reduced capacity with fewer patients, and you also have a bit of a hierarchy in who gets to take the summer off. So in the summer months, you see a lot of more senior staff on vacation and ICUs are sometimes run by more junior doctors and nurses that are sometimes a bit less familiar with our therapy. We've seen a little bit of that effect during the quarter. But year-to-date, Spain is still going strong. Strategically, our focus in Spain remains the same. So, we're trying to establish inhaled sedation with isoflurane as a standard in as many hospitals as possible and driving penetration specifically in neurological units following the positive Neuro-Conda study. France was the fastest-growing market in the quarter, driven again by the continued uptake in the AP-HP network. So, those are 38 university hospitals in and around Paris, where our Sedaconda isoflurane had been blocked until earlier this year. And we've made some good progress also in other high-potential accounts, for example, in the Lyon area. We also had the listing of our drug renewed in the tender with UniHA. That is the largest -- actually the largest French public hospital purchasing group. So, a series of good news here and also the restructuring that we've been going through is nearing completion with a new Country Manager that will start now in just 2 weeks in November. In the U.K., sales are up, but only modestly in the quarter. Penetration is still lower than in other countries, and we still see a lot of growth potential. We are changing our geographical footprint a bit to bring our key account managers location better in line with the growth opportunities. And going forward, we'll have a stronger presence in London and the Southeast where many of the high-potential hospitals are concentrated. Page 8 shows our distributor markets, which continued their solid growth trajectory, growing 27% at constant exchange rate this quarter, 23% year-to-date. And once again, growth was driven by positive development in both South America and the Kingdom of Saudi Arabia. This builds on the groundwork we laid last year, providing very targeted support to prioritize partners and at the same time, also terminating several distributors that weren't contributing as meaningfully. Then let's switch gears on Page 9 and look at the U.S. As you know, this is our largest growth opportunity. Comparing it with our current direct markets makes that very clear. In the U.S., more than 2 million adult ICU patients are mechanically ventilated each year, and we estimate the U.S. market potential for our products to at least $1 billion or SEK 10 billion to SEK 12 billion, as you see it here, roughly 3x the potential in our current direct markets. So the day we receive U.S. approval, our addressable markets would essentially quadruple, which is very, very exciting. That higher potential comes from a larger number of ventilator beds, a medical practice that favors intubation and mechanical ventilation more than we have it here in Europe and also a generally higher price level, although we haven't built in any price premium into that estimate yet. So, there could be additional upsides there. And just to illustrate, if we were to reach a penetration level close to where we are in Germany today, we would be looking at sales of around SEK 1.5 billion in the U.S., which would change the trajectory of the company completely. Page 10, just a brief reminder of our launch strategy. We continue to believe we will create the most value by launching in the U.S. ourselves through our own commercial subsidiary. That way, we keep control of our asset and capture more of the upside. And by achieving proof of concept in the U.S., we increase the value of the company further. And at the same time, we keep the option open to add complementary partnerships at a later stage if we were to create even more value that way. That approach, we believe, works despite the market size in the U.S. because the U.S. is fairly concentrated, less than 5,000 hospitals with ICU care and roughly 2,800 with more than 10 beds, which for U.S. standards is still very, very small unit. So, we can pursue a very targeted launch build around the network of key opinion leaders and the roughly 30 clinical trial sites we've already established, which are very supportive of the therapy. During the review period, we are also working on launch preparations already. We've just completed our pricing research and further fine-tuning our go-to-market model. But of course, all of that depends on approval. So, let's look at where we stand in the FDA review on the next page, Page 11. That shows where we stand right now. The foundation, as you know, is our 2 successful pivotal Phase III trials. INSPiRE-ICU 1 and 2, both met their primary endpoint of non-inferiority to propofol, with no new safety findings, and we expect meaningful differentiation from the secondary endpoints and PK data, which Peter will go through just in a moment. On the regulatory side, we have Fast Track Designation and Early Access Program is underway, and we continue to see good interest there. And then we submitted the NDA in June, which in August got accepted for review by the FDA, and we now have a PDUFA date that we're working against, which is in April 2027. So, now we are in what's called the substantive review phase responding to the FDA's questions, and we are also preparing for the inspections that are part of any review and building on the mock audits we've already done with former FDA inspectors. And as I said earlier, every FDA review has some uncertainties. But so far, I have to say the dialogue has been really good and constructive. On the right side, you see why we believe our therapy would fit very well into the U.S. market if we get approved first, the reimbursement mechanism under the DRG system, hospitals receive a fixed payment per hospital stay. So, they benefit financially if patients come off the ventilator earlier and the ICU faster. An ICU day in the U.S. can cost up to $11,000. Second, there's much higher awareness of the opioid risk in the U.S. because of the opioid epidemic, so opioid-sparing therapies. Therapies reducing the need for opioids are seen as a clear positive. And third, it fits really well with the existing treatment recommendations already such as the CDC's Wake Up and Breathe collaborative, which aims to get patients again off the ventilator sooner and speed up recovery. And with that, let me hand over to Peter, who will take you through our clinical data and the medical activities we have underway in the U.S.

Thank you, Johannes. So as Johannes mentioned, we met the primary endpoint in our studies in the U.S., non-inferiority compared to propofol. We also had a greater opioid reduction in both trials, similar to our European Sedaconda study is of significance when it comes to the clinical practice and appeal of this therapy. Opioids caused a lot of short-term and long-term issues in ICU patients, including constipation, which almost all patients receive treatment for respiratory depression, which can delay breathing tests, extubation and opioids are also associated with withdrawal and delirium, which is dose related. And also indications that opioid doses during mechanical ventilation are associated with a higher risk of persistent opioid use in the year after ICU discharge. So this is, of course, very favorable to have a therapy that's opioid-sparing. Fast return to wakefulness was found in our studies similar to all the studies that have looked at this endpoint when it comes to isoflurane, and this is related to the pharmacokinetics of isoflurane. Elimination is completely independent of renal hepatic function and means that all patients will eliminate the drug within minutes to an hour, similar to the operating room. And this means, in turn, that the patients can be assessed neurologically with greater certainty and reduce the number of CT scans. Wake-up time is short when you want to extubate a patient, which also is a clinical benefit, and we believe that this can be leveraged once this is approved in the U.S. Also in trials, we found numerically low mortality with isoflurane compared to propofol, which, of course, is maybe one of the most important safety points in the clinical trial of critically ill ICU patients. Moreover, we did find one more ICU-free day across our trials, which could translate into a substantial cost savings. And as mentioned, the elimination of isoflurane is almost exclusively by the lungs, but there's minimum metabolism. This means that patients with organ dysfunctions, which are very common in ICU patients, eliminate this drug in a reliable manner. So, this all goes -- fits very well together. If we move to the next slide, please. As many of you may know, the trials, the INSPiRE-ICU 1 and 2 took place in 31 academic sites across the U.S., matching fairly well the population density in the U.S. Many of these sites are very interested to see this approved and to start treatment with this on a daily basis. We can move over to the next slide. And some of these sites have also engaged in the Early Access Program. And the Early Access Program is an FDA pathway to make investigational medical products available for vulnerable patient groups before full market approval. And in our case, this relates to the difficult-to-sedate patient population that cannot be managed well with IV sedatives or who are experiencing side effects from those drugs. The EAP is open for all hospitals who wish to initiate it, but of course, this is also with the start-up phase, with contracting investigational IRB approval and so on. The benefits of the EAP is, of course, primarily for the patients and for caregivers. But for us as a company, it's also valuable because this means that we are able to continue gaining experience of inhaled sedation in the U.S. Some of our study sites also are able to keep up their practice with this therapy and become more proficient, and we can also develop everything from supply chain to training and implementation. We have 10 hospitals that have expressed interest and are still interested. We have 3 up and running and 3 additional sites initiating in Q4, and then we have a few early 2027. Moving to the next slide, please. When it comes to our medical affairs activities in the U.S. preparing for launch, we have a few different activities. We had an Advisory Board in August 2026 with a mix of health care professionals, experts in the field of mechanical ventilation, sedation and also pharmacy. We discussed, among others, different patient categories and outside INSPiRE-ICU patient population, which is a broad mix of general ICU patients. There was also significant interest in ECMO patients and neurocritical care patients. And these are patient groups that often require deep sedation, often require wake-ups, very difficult to transport a CT scan, for example. So a reliable, safe drug that is rapidly eliminated and allows for neuro examinations is a perfect fit for these patient groups. And a number of clinical trials in Europe on these patients, and they're also mentioned in different sedation guidelines, including the Spanish guidelines. So, these are patient groups that we believe we will be able to target outside our study population. We also discussed workflow integration in the U.S. ICU setting, which is slightly different from the European one. A few topics that we discussed were gas monitoring, humidification and how to streamline and make our therapy as easy as possible to integrate. And then we have had discussions also on having a hub-and-spoke principal center of excellence that would support implementation broader across other ICUs with less experience. We have a Clinical Pharmacist Ad Board upcoming now in November. The pharmacists are key persons in the ICU when it comes to implementing new therapies, including sedation. They are a small group of people who stay in the ICU, which is slightly different from many of the doctors that come for shorter rotation. So, their endorsement and their education is very important when implementing a therapy like ours. At Ad Board, we'll be discussing everything from P&T Committee support, how to manage sedatives and sedation stewardship in the ICU and how pharmacists play a role there, how we can support ICU pharmacists when we launch and also other considerations related to institutional implementation. And besides these Ad Boards, we are also having scientific exchange with our trial sites and EAP network meetings with those that are up and running and the other sites that are very soon going to be starting. We will start a series of disease awareness webinars targeting health care providers in the U.S. and discussing pain, agitation and delirium management more broadly. And we have a number of top key opinion leaders that will be helping us drive these webinars. And finally, we are working on the publication of the INSPiRE-ICU trials, and we hope to see a publication by the end of this year. We're also doing additional analysis of the study data post-hoc analyses that we believe will provide interesting and valuable data at the time of launch. Next slide, please. So finally, just to discuss a little bit about a recent study that was published in JAMA, the SAVE-ICU trial, and it's related to last year's sevoflurane study, the SESAR study. So, that study was on ARDS. SAVE-ICU study is an investigator-initiated study without Sedana's involvement, driven by investigators from Toronto and almost all sites were in Canada, one was in the U.S. This is the largest study to date on isoflurane-based sedation versus IV station. And the target population in this trial were patients with acute hypoxic respiratory failure, which is the gas exchange equivalent of ARDS without a radiological validation of ARDS. These patients were sedated for an average of 6 days, and the primary endpoint in the trial was mortality -- in-hospital mortality. And the results showed 42.5% hospital mortality for isoflurane versus 43.8% for IV. So, just 1% less lower mortality. with isoflurane. And at 3 months, the difference was 3.4% in favor of isoflurane. So, none of these results were statistically significant. But I'll say that this is an important counterweight to the SESAR study and contrasts in the patients in this study survived more in the ISO group than in the IV group, and that was different in the SESAR study. There was no sign of any renal injury from isoflurane either, and this is consistent with what we've seen in our trials and what's been published previously. So, there is a clear difference between sevoflurane and isoflurane, and I think this study very well demonstrates that. And in waiting for our main publication, we are also doing -- to publish the INSPiRE trial, we've been looking at pool data from the INSPiRE studies. And in that cohort of patients in those 2 studies, 27% of all patients with acute hypoxic respiratory failure -- sorry, 27% of all patients in the studies had AHRF. So, 75 patients receiving isoflurane and 50 receiving propofol. And looking at the 30-day mortality in those 2 groups, it was 21.8% for isoflurane and 28% for propofol. So, a little bit more than 6% difference in mortality. This difference is not statistically significant, but it's still very reassuring. If we think back of the study last year on sevoflurane, this is both our own data that's on file and the SAVE-ICU study indicates clearly that isoflurane is not something that one needs to worry about when it comes to acute hypoxic respiratory failure. And then we move over to the next slide, and I think it's time for me to hand over to you, Mikael.

Yes. Thank you. So, turning to our financial results. Net sales in the third quarter reached SEK 44.2 million, representing a growth of 7% year-on-year. And Johannes has been through this, but reiterating, we're back to growth with stronger performance in Germany, although not growing yet. Other direct markets grew 12% reported. Distributor markets grew 26% year-on-year and contract manufacturing was up 48%. Gross profit, SEK 30.8 million, up from SEK 29.5 million. Gross margin, 70%, 72% last year. There's some dilutive effect from higher share of contract manufacturing, and there's also a one-time reclassification effect in last year, improving the gross margin. So essentially, the gross margin remained stable at slightly above 70%. EBITDA, minus SEK 7 million versus SEK 5.6 million last year. Ex-U.S. EBITDA minus SEK 3.2 million versus last year's minus SEK 1.7 million. If you look at the OpEx numbers for this quarter, we were at SEK 45 million versus SEK 40 million last year. We can -- but essentially, it's quite flat. So, SEK 1 million of that is FX related. SEK 2 million is related to increase of depreciation that is reported under OpEx externally. And there were some non-recurring items, both in Q3 this year and last year affecting comparison. If we net those out, it's fairly flat development on OpEx. While we're doing this, we're investing resources in the sales organization, shifting resource to the front line. Talk about resources, staff, including consultants were 129, including everyone. If you look at excluding Innovatif Cekal, meaning our daughter company in Malaysia, we were at 81 staff, including consultants at the end of Q3 this year compared to 83 end of Q3 last year. So, moving to cash flow and liquidity. We ended the third quarter with a cash position of SEK 40 million compared to SEK 52 million at the beginning of the quarter. Cash flow from operations were negative SEK 3 million. Negative EBITDA contributed with SEK 7 million. We had a positive contribution from working capital of SEK 4.1 million, and there was a few other items. So essentially, that was it. And cash flow from investing activities were negative SEK 9 million. That's down from the same quarter last year. It's also down from same quarter -- previous quarter or Q2. So, we're at the lowest level that we show. On the right-hand side, you see the light blue bar is the investing activities. So it's declining. And that's an effect of that we've submitted our NDA, and we're now in a different period. We're in the review period, which consumes less cash. Total cash flow was minus SEK 14 million compared to minus SEK 17 million Q3 last year. And on to that, you need to add a currency effect of SEK 1.6 million. So, that brings the cash change from SEK [ 22 ] million to SEK 40 million for this quarter. In addition, we have a credit facility that we talked about last quarter of SEK 50 million. So the available funds stand at SEK 92 million. So, we're funded -- well-funded to take us through the review period and then approval in the U.S. Thank you. And that was the final slide in this -- or are we handing back to you?

Yes. There's one last slide, Page 20, just to sum everything up. So, this is showing our value creation plan built on our 3 pillars. Number one, further profitable growth in Europe. As you've seen, our ex-U.S. business is EBITDA positive year-to-date even after our seasonally weaker quarters, Q2 and Q3, and we are back to growth in this quarter. And there's significant remaining potential in our core markets. In Germany, our best territories already have considerably higher penetration levels than the national average and also in our other direct markets, penetration still offers a lot of upside. So, there's a lot more to go for. Number two, a successful launch in the U.S., our largest potential market, 3x the size of our current direct markets with the NDA under review and PDUFA date in April, we are closer than ever. And we will -- if we get approval, we can build on a strong product market fit and the KOL network we already have in place. And number three, continued cost discipline. I think we've proven that over the years here. Our business has inherently favorable economics with high gross margins and limited local operating cost requirements. So as we grow, we can leverage that while continuing to secure further gross margin improvement and keeping a tight grip on our operating expenses. And needless to say that the foundation of it all is, of course, a therapy that makes a real difference for critically ill patients. Every ICU patients has a life that is worth getting back to and no one should be in the ICU longer than absolutely necessary, and that's what we're really working for every day, helping them wake up faster, recover faster and leave the ICU a bit sooner. Thank you very much. This concludes the presentation, and we will now open it up for Q&A.

Now, over to the Q&A. [Operator Instructions] We've got 2 large questions sent in. So, I'll start with the first one here. Other direct markets slowing in the growth versus second quarter is standing out and seems to be driven by Spain. The sequential drop in revenue of SEK 5 million is unusual. Could you elaborate on that and say if the momentum will continue to be weak in the fourth quarter based on what you know today?