Senzime AB (publ) (SEZI.ST) Earnings Call Transcript & Summary

Hi. Welcome to Redeye and this interview with the CEO of Senzime, Philip Siberg. Welcome.

Thank you.

So first, Philip will give us an introduction to the company. And then afterwards, we will have an Q&A session. So Philip, the stage is yours.

Thank you very much. Pleasure to be here. We are a medical device company. We're based in Uppsala, Sweden. We're in the field of precision-based monitoring of patients as they undergo surgery and are under anesthesia. We've developed a technology, which is world-leading, enabling that every patient that is under anesthesia gets the right amount of dose of these paralytic drugs and are woken up and extubated at the right time to secure a safe recovery after surgery. Our technology is the TetraGraph system. It's based on over 40 years of development. It's sprung out of Mayo Clinic in the U.S. and research of Professor Sorin Brull, which is a world-renowned anesthesiologist. We brought the technology to market in the U.S. starting in 2020. And since then, we've brought and installed over 4,000 TetraGraph systems in hospitals in the U.S., Europe, Japan, South Korea and other countries. It's a typical razor-razorblade business model where we provide the monitor and then you connect a single-use sensor on the arm, which stimulates and records the neuromuscular function of the patient. And this is used in real time in the operating room to assess the level of blockade. And what that means is understanding how these paralytic drugs are affecting your body, how much dose you need specifically need and when these toxic substances are out of the body and it's safe to wake you up and take you into recovery. We are a hypergrowth company in a commercial phase. So we're past the regulatory hurdles. We have FDA, CE and many other countries in regulatory approvals. We are -- have about half of our commercial team based in the U.S. We have a small subsidiary in Germany, and then we have distribution and license partners covering about 40 countries in the world. And by now, we've monitored over 750,000 patients. So very well-established presence in the global market. If we just look at the product again, the TetraGraph, you'll see that the system that we developed is used bedside in the operating room. It's used by the anesthesiologist. It will monitor, as I said, in real time using these disposable sensors, each sensor, one for every single patient. The beauty here is the accuracy and the ease of use. So by using our digital technology, which is powered by smart algorithms, the patient is stimulated with a small electrical current that travels through the nerve system and the muscle. And by this, you can measure the response rate in the muscle and by that, give a very, very accurate number on the level of block that the patient is in. And this is, as I said, used throughout the surgery, you pull off the sensor and then you know that it's safe to wake up the patient. That's where we are. We are developing -- continuing to develop more products in our field to be -- continue to be the niche leader. We have very high-set targets. We are to become the market leader in our field, and we're well away on our path to profitability as we go on.

Thank you very much for the presentation.

Thank you.

So I wonder, first, if we could talk a bit more about the market for the TetraGraph system. What does it look like in terms of competition, current standard of care and so on?

Well, if we look at the market in general, there's about 160 million to 200 million major surgeries conducted in the world. About half of these patients receive paralytic drugs. It's part of the anesthesia package where you want to keep the patient asleep. You want to make them paralyzed, so they're lying still, which is important, for example, in robotics and laparoscopic surgery. And then you want to make sure they're not into pain. So we are addressing about half of these patients, which is about 100 million patients a year. The competition here is divided into several buckets. I would say the largest competition is not monitoring at all. So despite these drugs being on the market for over 40, 50, 60 years, there has been a tradition of more subjectively assessing, okay, this patient needs this dose. I think this patient is fine. I can wake them up, et cetera. In the last 20, 30 years, new technology emerged that started to measure analog, measuring the responses by looking at muscle movement. And that technology is pretty well established, has about 50% penetration in operating rooms, I would say, in the world. And what worse spearheading is making this digital, making it algorithm-based and making it personalized and moving from an accuracy, which has been down to plus/minus 50%, taking this to 99.3% accuracy. So making sure that every patient gets the perfect monitoring experience.

I also glad that you mentioned about the subjective versus objective monitoring. Maybe you could elaborate a bit more on what health economical benefits objective monitoring has.

Yes. So there's thousands of studies in the field we are in. And all these studies have ultimately led to a number of clinical guidelines. So a lot of countries, U.S., Europe, Japan and many other countries have adopted guidelines because they've seen that there is clinical benefit and there's cost justification of our type of technology. There are also very large independent studies showing that if you are not -- if you're leaving the operating room and you're still partly paralyzed with these drugs, you are prone to get what's called residual paralysis, which is that you're still partly paralyzed, you get breathing problems, and that leads to extended stay in the postoperative care. It leads to increased expenses. So that's one part of it. The other part is when you're in the operating room itself, you want to personalize the dose of these anesthetic drugs because they're very expensive. And by -- if I monitor you, I can find your specific dose. And it's found in many studies now that by using this type of technology we have, you can significantly reduce the cost of these drugs because you're getting the right dose and you're getting the antidote at the right time. A recent study showed that I think it was 87% of all patients are overdosed with these anesthetic drugs. And at the same time, 13% are underdosed, meaning that specifically, 100% of the patients are getting the wrong dose. And that's what we want to try to change here.

But if we look at clinical guidelines, for example, they're promoting, they're supporting methods like the TetraGraph, for example. But what is the main reason why subjective methods are still very common, especially in the U.S. like the PNS method, for example?

I think it's just a lag of -- it takes time to introduce new technology in health care. There's this number that everybody has seen that it takes 17 years plus to get something changed. I think it's been driven by lack of guidelines. It took a long time to get the guidelines in place. And then I would say it's been a lack of simple-to-use technology. The technology that we're spearheading called electromyography, or EMG, which is basically EKG that you do with the heart, but we do it inside the muscle itself. There was a lack of these technologies. The predecessor that we worked was large like a dishwasher. So you rolled it into the room. And we said, okay, we want to be first in the world to make this portable, simple and addressable for this mass market. So that's why we came out with the TetraGraph, which is an EMG-based device, very cost efficient, very easy to use. It takes like 5 seconds to get the sensor on. No calibration, very easy versus existing technologies are more calibration prone, takes time and other limitations that we've solved with this.

And you also mentioned in your presentation about your business model, razor-razorblade approach, which make increasing the utilization rates very important for the future growth. Could you elaborate a bit more on what actions are you doing to increase this utilization rate?

Yes, good question. I mean, yes, the trick is here to really get the usage up. Every -- once we place a monitor, which we can either sell or we place it, it should generate usage pretty much every day. So what we've done is we built up a clinical team of -- there are most of them are nurses who have been working in the operating room or intensive care. They're out there. They're helping. They're driving utilization. We're helping hospitals to implement standard of care protocols. We are driving education in the field. I mean we are the key opinion leader company in this field. So that's why we're seeing the more we really help these clinics, the more you can see the traction of usage rates. And I think we've come to a phase now where hospitals are learning from others and now it's kind of a self-sustaining ecosystem. So we don't have to be everywhere because the standards are being set by clinicians themselves.

But if I look at the different markets, for example, the main focus for you is in the U.S., but the system is also available in Europe, for example, but that market is a bit different.

I mean U.S. is -- it's like 40% of the world market. So either you make it there or you don't make it at all, and that's my mission here in medical devices. And U.S. has a little bit of a different technology shift. They went from using small little buzzers that was very subjective and prone to errors. So when the guidelines came, there was a technology leap that they instantly everybody went towards our technology. So I've been -- we've been winning contract after contract in a large university hospital systems in the peak, and they're kind of trickling down now to the -- there's about 5,000 hospitals in the U.S. But penetration of our technology so far is single-digit percentages. While in Europe, they were early on. They've been monitoring very rigorously for the last 20, 30 years, but they've been using this analog where you measure the muscle movement, which is prone to -- there's a lot of studies out there showing it's not adequate. And because it's hard to use, it's not often always used, but it's there. So Europe is just a little bit of a laggard in terms of moving to this new shift, but it's happening, and it's specifically happening in robotic surgery. So I would say that 80%, 90% of our patients in Europe are da Vinci robot patients because, again, when you're doing robotic surgery, you need to be very deeply paralyzed. You need to be perfectly still unless -- because you're not having -- the surgeons movement is in the robot and not by the patient. So I can see that we're kind of head-to-head. And as that market grows, which is very rapidly growing, we're perfectly positioned to capitalize on that.

Yes. And we have also seen that your development, the past couple of years have been really, really strong. I think it was around 90% sales growth if you compare the first half this year.

Yes, we've had a nice growth trajectory.

Yes. So I also want to mention your financial targets or guidelines. You guide SEK 110 million to SEK 140 million in sales this year. Also, you have a sales target of reaching SEK 250 million to SEK 350 million in sales next year, also in the long term, SEK 1 billion in sales and also an EBITDA margin of over 40%. How confident are you in these objectives?

I mean we did this guidance to kind of better explain the type of business we're in and the momentum we are in. I think after 6 months, we were at just under SEK 50 million. So we're about almost halfway into the yearly target. As we've grown and matured and installed this base is growing, we can -- it's easier for us to forecast the business. So we are pretty confident. There are definitely headwinds with U.S. currency rates and other things, but our market underlying is not affected by this. What that hits perhaps is a little bit of the gross margin. Our business should be normalized 70% plus. The gross -- the tariffs and the currency has had some effects this year that I explained in the Q2 report. But we're also then very keen on keeping the OpEx. So we want to grow this company exponentially while keeping a good gross margin and then a fixed OpEx level. And that's what ultimately gets us to a very profitable company as we get the volumes up. But overall, given the pole position we are in this market, we are quite confident in our numbers.

Yes. And also, if you look at the current burn rate, it's still relatively high. But as you mentioned, also, you expect sales to increase very good in the coming years. But what about the cash position? It is very strong at the moment, but...

It is, yes. I mean we've had a history of doing -- we have a long-term investor base. So we've funded this company over the years through a number of directed shares issues predominantly. And we've attracted institutions. We did one just before summer in June, where we raised SEK 110 million at market price. We attracted a number of new institutions, including Unionen, which is probably the largest Swedish trade union, some international investors and then the top 5 investors participated as well. So that's why we've had a very -- I've always been confident in our financing. But we've decided to finance this in steps. Building a global leader in medical technology is expensive, and it takes time. And rather than diluting everybody from start and raising the $100 million that these types of companies need, we've taken it in steps. But the message in this latest round was that we believe that we have now the preconditions to take the company to positive cash flow on this funding round. So we're getting near the finish line, which is fantastic. And yes, I mean, the operating expense level of roughly SEK 150 million a year is -- it's a lot of money, but really building and capitalizing on such a unique market change. It's really a clinical and a technology market shift. This is where you should really go in and make a change. And that happens. You win that market by direct sales and strong partners. That's what I believe in. So that's why we have an expensive base because we have half of the team base in the U.S. Evidently, U.S. commercialization is expensive, but it pays off.

Hopefully, now the viewers have a great overview of the company. But if we look forward in the short term, what key events should investors keep an eye on?

Yes, there's a lot of things that are going to happen in the next 12 months. I can't say too much yet, but we're continuing to win a lot of hospital accounts, and we try to press release some of them that we feel are relevant information to the market. We have a lot of interesting partnership discussions are going that I think we will tell more about the market. There are more guidelines in various countries and applications coming. So I will keep you posted. But there is -- this is an interesting market. And there's also a continuing amount of big clinical studies ongoing. I wouldn't say that they are anyway a prerequisite for our growth, but they are continued to just build the momentum in our business we're in.

And you also announced last week, you announced that you have a new hospital agreement. Could you elaborate a bit more on that?

Yes. I thought that was interesting because we're continuing to win these large university hospital systems. And as I said, that trickles down to everybody else. And California being, what is it now, the fourth, fifth biggest country stand-alone in the world, it's an important market because they are early adopters over there. They're very, very [indiscernible] -- they really are rigorous to standard of care and following guidelines. And now we've won a number of university hospitals in California plus leading hospital systems. So we're doing the right thing. We're capturing the market. And these are all extensive evaluations where they require integration into electronic health records. And we -- so we just check the box for what these hospitals need. And what we see is that a couple of years ago, the buyers were enthusiastic professors. Now it's management teams of hospitals who want to implement standard of care, and they want to see cost reduction and they want to see patient benefits. So the drivers are very different, and that helps to shrink the purchasing processes as well because they need to get this now. And they want to be guideline compliant.

That's very interesting. Do you have any final words before we end this Q&A session? Anything else that you would like to highlight?

I think we've summarized it pretty well. I mean we are a company, as I said, a very exciting commercial phase. We have the base. We have the technology. We produce the core products in Uppsala. We have the capacity. And this is a commercial race, and we're winning.

Looking forward to following your company. Thank you very much, Philip.

Thank you.