Nyxoah SA

Thank you for standing by and welcome to the NICSOA First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Jeremy Pfeffer. Thank you. Please go ahead, sir.

Thank you, Justin. Good afternoon, everyone, and welcome to our earnings call for the first quarter of 2022. Participating from the company will be Olivier Tellman, Chief Executive Officer, and Loic Moreau, Chief Financial Officer. During the call, we will discuss our operating activities and review our first quarter financial results released after U.S. markets closed on May 9, 2022, after which we will host a question and answer session. The press release can be found on the investor relations section of our website. And this call is being recorded and will be archived in the events section of our investor relations website. Before we begin, I would like to remind you that any statements that relate to expectations or predictions of future events, market trends, results, or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our Form 20-F, followed with the Securities and Exchange Commission on March 24, 2022. With that, I will now turn the call over to Olivier.

Thank you, Jeremy. Good morning and good afternoon, everyone, and thank you for joining us for our first ever quarterly earning call. We are excited to move to a quarterly earning call schedule and give more frequent updates. And I'm especially happy to share our first quarterly results as we made very strong progress towards achieving the key strategic objectives for 2022 that we laid out in our prior call. Allow me to quickly remind you of these key objectives. Completing the dream trial implant in the second quarter of 2022, accelerating commercial execution in Germany, and commencing a US IDE study for complete concentric lab patients in the fourth quarter of 2022. I first would like to acknowledge our dedicated team for their strong execution, resulting in an acceleration during Q1 on all our strategic priorities. Our Q1 call was mainly focused on dream enrollment acceleration and the rapid growth we saw in our European sales. Starting with our commercial performance in Germany, I'm proud to report that sales growth accelerated significantly during the quarter. We generated €660,000 in the first quarter of 2022. which represents year-over-year growth of more than three and a half times and more than double what we achieved during Q4, the previous quarter, in 2021. Knowing the Omicron variant was still impacting procedures across Europe during January through roughly mid-February, our overall strong Q1 performance underscores the execution focus by our commercial team. Even more powerful in our view is the impact we are having in the German market. As a reminder, our commercial proof of concept will be to become market leader in Germany by the end of 2022. Our first quarter performance also exemplifies what we mean by our going deep commercial strategy of targeting and developing center of excellence. Exiting Q1, we had 15 active implant sites in Germany. a 25% growth over Q4 2021. And we expect to add an extra 10 accounts by the end of Q3, bringing the total to 25 active German implanting accounts. Looking at our Q1 revenue, we estimate based on our knowledge of the German market, we achieved approximately 25% market share in Germany in the quarter. which is more than double our market share compared to the previous quarter. For the quarter to come, we expect to further accelerate the revenue ramp by increasing therapy penetration in the existing sites, opening more centers of excellence, and further strengthening our relations with implanting EMT surgeons and referring sleep physicians. Additionally, we expect to see the first result from our direct-to-patients effort and we will continue putting the patients first, highlighted by having the only hypo-glossal nerve stimulation therapy with a full-body 3.0 MRI compatibility. We have also experienced strong tailwinds as a result of the positive better sleep data on complete concentric collapse and non-CCC patients that we presented in March during the World Sleep Congress in Rome. This event gave us an invaluable opportunity to interact with 55 international KOLs during an exclusive event we hosted in parallel to the Congress. Among the most important takeaways from WorldSleep was how many physicians expressed excitement that they now had an option to treat their complete concentric collapse patient, whom they previously had to turn away. to have implanted our first complete concentric collapse, or CCC, patients during the quarter after receiving an expansion of our CE mark indication. Based on the positive response we have received from physicians, both during and after well sleep, we expect increasing numbers of CCC patients implanted in the coming quarter. Taking all of these data points together, we remain confident that we can achieve market leadership status in Germany by the end of 2022. Next to Germany, we also made meaningful progress in other key European markets. Based on our existing DRG code in Switzerland, we secured additional Swiss accounts ready for their first commercial implant to be expected during Q2, and are progressing with reimbursement discussions in the Netherlands, Belgium and Finland. We have initiated discussions in the UK and we continue to assess opportunities in France and the Nordic countries. While we are not providing revenue guidance of 2022, we are extremely pleased with our first quarter performance and expect to see revenue totals ramping up further each quarter this year. Let me now talk a little bit more about the DREAM Pivotal Study in the US. For those who are new, the DREAM trial is our pivotal IDE study in the US. Let me first walk you through our process on patient enrollment and the funnel that leads from initial enrollment all the way to implantation. As of today, we have enrolled 503 patients, of whom 66 made it through the funnel to implantation. Another 20 have passed their baseline PSG and are awaiting implantation. There are an additional 86 patients in active screening, and we accept that 60 to 70% of these will make it to implantation. As a result, we believe we have enough patients enrolled to complete the study. Our priority now is to move these patients through the last steps of the process in a timely manner. We therefore expect to further accelerate our pace of implants. For reference, In the weeks since our last earning call, we have averaged approximately four implants per week. But we have seen that the rate accelerated over the last two weeks to six implants per week. Based on OR backlogs having been largely cleared, recently opened centers increasing their rate of implants and adding private sleep labs, which have excess capacity, we remain confident that the implant pays will remain at this level and might even accelerate further, and that we will achieve our target of implant completion by the end of this quarter. For those of you who saw this in our earning call press release, I am pleased to announce that based on new and favorable data from the Better Sleep Study, the FDA has approved our request to reduce the Dream Study sample size. We are therefore now required to implant 115 patients versus the original 134. Aside from the updated sample size, all other study parameters, including performance goals, statistical power, and significance level, remain identical to the original approved study. The implication for us is that 19 fewer patients need to be implanted, which further strengthens our confidence in closing implants by the end of June. As for CCC, we continue our dialogue with FDA regarding our IDE submission for the ACCESS trial, and we still expect to implant the first patient before the end of the year. As part of the breakthrough device designation process, we had our initial sprint discussion with FDA, and we are now incorporating their feedback in our IDE submission preparation. We will provide more details about sample size, design, endpoint, and timeline once we secure IDE approval, which we anticipate occurring this summer. I'm also extremely pleased to announce that we have nominated two outstanding individuals for appointment to our Board of Directors Spending Approval at our annual shareholder meeting on June 8. They are Raymond Cohen, Chief Executive Officer of Exomics, who has extensive expertise in developing and executing commercial strategies in medical device, and Ms. Virginia Kirby, executive in residence at the Discovery Launchpad at the University of Minnesota's Office of Technology Commercialization, who brings a wealth of clinical and regulatory experience in sleep disorders. I'm pleased to turn the call over to our CFO, Louis Moreau, who will provide a financial update.

Thank you, Olivier. Good day to everyone and thank you for joining us today. Revenue for the first quarter ended March 31st, 2022 was $660,000 compared to $185,000 for the first quarter of 2021. The increase in revenue was attributable to the company's commercialization of the Genio system in Germany. Total cost of goods sold for the first quarter 2022 was $289,000, with gross profit of $371,000, representing a gross margin of 56.2%. Our gross margin declined from 64% last year as a result of a one-off incident in our manufacturing site in Tel Aviv in February, which has since been remediated. We expect gross margin to rebound in Q2 and to expand over time in line with other neurostimulation companies as we achieve greater commercial scale. Overall, Q1 spend accelerated in line with our plan, driven by research and development and clinical expenses. R&D increased to 3.6 million in the first quarter 2022 from 3.1 million euro in Q1 2021 to support our R&D activities, mostly the development of the next generation of our Genio system, as well as the advancement of our dream clinical study in the US. Selling general and administrative expenses rose to €4.2 million for the first quarter of 2022, from €2.4 million in the year-ago quarter, due primarily to increased commercial efforts in Germany and other European markets. We have also scaled up our corporate infrastructure and expect to continue adding headcounts to further strengthen our organization. Total operating loss for the first quarter of 2022 was €7.3 million versus €5.3 million in the first quarter of 2021, driven by the acceleration of our R&D spending as well as commercial and clinical activities. We realized a net loss of €6.7 million for the quarter ended March 31st, 2022. At the end of the first quarter 22, cash and financial assets totaled 127.8 million euros compared to 135.5 million euros at the end of December 2021. This represents a monthly cash burn of around 2.6 million for this first quarter. We expect this burn to increase slightly as the year progresses with the advancements of clinical trials, notably DREAM, and access. We continue to have ample liquidity to get to U.S. commercialization in 2024. With that, I will turn the call back to Olivier.

Thank you Loïc. In closing, I remain very excited about the progress we have made and how well positioned we are for the rest of 2022. To reiterate our three key focus areas for Nixoa this year, they are first completing the dream implant, Second, accelerating commercial execution in Germany. And third, commencing our CCC IDE trial in the US before the end of 2022. As we have discussed on this call, we are executing on all of these key objectives and expect continued progress. This concludes the formal part of our presentation. Operator, I will turn the call over to you and begin our Q&A.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Again, it's star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Block from Stifel. Your line is open. Please ask your question.

Thanks, guys. Good afternoon, and nice quarter, nice update. Olivia, I'll start in Germany. You mentioned the 15 sites. Expect another 10 by the end of the third quarter. And, you know, maybe, Olivia, if you could sort of compare and contrast the early centers that you signed up versus the more recent ones, essentially, you know, the share of those early centers and then the onboarding time of the newer centers. Are you seeing that accelerators are quicker due to the, you know, call it the expanded label around CCC?

Hello, Jonathan, and thank you for the question. So coming back, it's clear that we see with the early sites that they went to their surgical learning curve, that they also are performing more implants compared to new sites we just started. However, I do have to agree with you that since WorldSleep in Rome and the communication of our BetterSleep data, that we are seeing also an acceleration in the early sites by having the opportunity to also implant CCC patients. Because just as a reminder, they don't need to do a DICE procedure anymore to exclude CCC to be implanted. And yes, we do see that this is really working in our favor.

Got it. Fair enough. And I'll maybe ask one or two more. I'll flop over to the financials. The gross margins that you laid out, I know you mentioned there was a 1Q22 sort of incident around February. Just to be clear, I think you said down in 2Q. So is it down sequentially or down year over year? And then maybe the timing of the ramp back up. In other words, is it a situation where it's a pretty quick situation to rectify and exiting 22? You know, we could already be above what we saw in that, you know, late 21 level of low 60s. And then I'll just ask my final question after that.

Yeah, thank you. So as I said, we experienced a one-off incident in our Tel Aviv manufacturing site. This caused a slight disruption during the quarter, and this is a reason for the gross margin. This has been fixed and remediated, so we expect a rebound already in Q2, and we expect to end the year above the level of 2021. I can also confirm... Yeah, I can also confirm that we have sufficient inventory to meet our demand, at least for the second and the third quarters of 2022, as we have now two manufacturing sites, the one in Tel Aviv and another one in Belgium, to ensure continuity of supply. So we have the continuity of supply, and you will see a rebound already in Q2, and we expect to end the year at a level which is higher than 2021. mainly driven by a higher volume than 2021.

Okay, got it. Thanks for that clarity. And then the last one, Olivia, is just sort of a big picture on DREAM. You know, it's been a heavy lift. You've made a lot of progress. You mentioned the 66 patients actually implanted, another 20 passing the baseline, and then 86 in additional active screening, 60 to 70% of those make it to implantation. My point is you're sort of knocking on the door if you do that math of 134 And that's a pretty quick process in terms of getting those in active screening through. Why change it right now? And I get it, you know, the statistical significance supposedly is an alter, but you're so close. I'm guessing it was 134 for a reason and not 115. It seems like if you're going to get to that 134 number based on the funnel you laid out, why not just sort of leave it alone considering, you know, the importance, obviously, and the scale of the trial? and make little tweaks here when it seems like, with all due respect, you're sort of in the eighth inning of getting across the goal line. Thanks for your time, guys.

And thank you for this last question, John, because, in fact, it is a question where we also internally discussed around. To your point, if you look at our funnel and the number of patients enrolled, we should be able to make the 134 implants by the end of June. So that is clearly correct. Now, when we initially designed DREAM, it was clear based on our interaction with FDA that the expectation was to closely mimic INSPIRE's STOR trial that led us to the sample size of 134. Now, based on the strong better sleep learnings and also understanding a little bit more on our co-primary endpoint of ODI, we went back to FDA and they approved that we could increase the ODI respond rate assumption really slightly without changing statistical powering or efficacy endpoints as compared to the original study design. To say it's really crystal clear, originally we had to show an AHI respond rate of 65%, And now, also after going back and slightly increasing ODI also to 65%, that is what was impacting the sample size reduction of 19 subjects that we have to implant less. And finally, John, why not take the 115, even increasing our confidence, also giving us the opportunity to leverage on our current resources to do a very high-quality study follow-up, and then not taking this opportunity I think and I hope you will convey that if that could be possible without changing anything, that everyone would make the same choice.

Yeah, understood. Thanks for the call, guys.

Your next question comes from the line of Suraj Khalia from Oppenheimer. Your line is open. Please ask your question.

Good morning, everyone. Olivier, can you hear me all right? Yes, I can, Suraj.

Hey, Olivia, just wanted to piggyback on Jonathan's last question, okay? So the sample size in DREAM has been reduced, right? It is an unblinded trial. So what is the clinical significance of the 65% bogey in ODI that has been changed? I'm just trying to get my arms around how you had a certain event rate assumption in your null hypothesis and the odi component has been changed so maybe just kind of walk us through the clinical significance you know and what specifically are you seeing given that it's unblinded that you all went to the fda and requested the small delta first i should i thank you for the question and first i would like to point out that

When we went back to FDA, this was based on better sleep data. So there are no data that we are making available or that we are using in order to communicate with FDA. I think this is really important to make this point, first of all. Next, when we look at the dream, we had co-primary endpoints of AHI with a responder showing 50% reduction with an AHI below 20, the so-called SHARE criteria. And for ODI, we had a responder showing 25% reduction. Now, by slightly increasing the ODI responder rate assumption to 65, the total sample size was reduced from 134 to 150. Now, what made us confident in doing this, if you look at BLAST-OSA published data, you see an ODI responder rate of 70 plus percent. If you look at the STAAR trial for INSPIRE, you see an ODI responder rate of 70 plus percent, and in better sleep, we are seeing comparable numbers. So that is, in fact, what really triggered us to say, okay, let's go back, let's take and increase slightly this responder rate with 1% and gain from the positive impact in having to do less patients, which, of course, further de-risked the DREAM trial in closing the enrollment in a timely manner.

Fair enough. Olivier, in terms of follow-up on DREAM enrollment, you talked about picking up from four to six in the US. Are there any concentration, site-specific concentration of enrollment? Or would you say it is relatively broad-based, at least in DREAM at this stage?

No, so what we are seeing is And I think you can see this in several other studies. You have sites who are enrolling faster and who are enrolling more patients than initially we would have predicted. So the distribution curve of enrollment to say it like this, it's not equally spread. There is a difference. And I'm just looking, Suraj, just to point out some of the strong sites. I can already take, for example, Cornell. I have to point out Vanderbilt University. I have to, I can point out the University of Iowa, and I also can point out the last one, and let me quickly have a look on this one, Dr. Melissa Hancock in Boca Raton in Florida. Just to name a few who are really sticking out. The other ones, they are going as planned.

Got it. And final one, Olivia, and I'll hop back in. In Germany, I know you all talked about the site, Maybe if I could just drill down a layer deeper, what is the average time procedure that is being recorded with Genio? How is the competitive matrix decision being made or the choice being made for uni versus bilateral? Is it just CCC? Is it lack of dice? Are there other criteria that, and just kind of walk us through, Suraj comes into, I don't know, Tubingdon Hospital, right? How does the doc eventually choose either Inspire or Nexoa? That would be greatly appreciated. Gentlemen, thank you, and congrats again.

Thank you. So, Suraj, in all openness, what we see is that there is a surgical learning curve. So, and in the first, let's say, three to four implants, we see that the average implant time skin-to-skin is a little bit above one hour, so more in the range of one hour 20. And once the surgeon is going to his fourth, fifth, sixth implant, we see this being reduced to 60 minutes. We even have one patient that was implanted in 51 minutes. So that is to answer the question on skin-to-skin surgical time. I think we can summarize it as around 60 minutes on average once the surgeons have passed their surgical learning curve. That's what we are seeing in several accounts coming from several surgeons in Germany. So when it comes to choosing Nixoa over Inspire based on surgical learning curve, I think that is one component. Another very important component is the fact that we are the only technology with a single incision procedure. And this is what we are hearing back a lot from patients and from surgeons. that this is really driving and explaining why they would choose for Nixoa. And then last, also the fact that we have a scalable technology platform where we can push through software upgrades, where patients do not need to come back when the battery is depleted and is also clearly helping in making the choice of having a Nixoa implant compared to an Inspire implant. But finally, and I'm always saying this and I would like to repeat it as well, the market is so large that I think by just having a second company, and that's what we hear from a lot of surgeons, that having this option to choose will only accelerate penetration overall for hippoglossal nerve stimulation. I hope this is answering your question.

Yep, thank you.

Your next question comes from the line of Ross Osborne from Canterfish. Gerald, your line is open. Please ask your question.

Hi, thanks for taking our questions and congrats on the quarter and all the progress. Maybe starting off with a couple on your operating expenses. Would you be able to just provide some additional color on your commercialization efforts that are driving up the step up in SG&A expenses? And then as a follow up, are there any quantitative results you can share at this point from your digital marketing work in Germany?

Yes, I will take the evolution of SG&A expenses and commercial. The increase you see in Q1 2022 is mainly related to our team in Germany. We have now a team in place in Germany, sales, marketing, and digital marketing as well, which we did not have in Q1 last year. So you see a ramp up in terms of costs associated with the team that is now fully in place. As you pointed out rightly, we are starting a number of digital marketing campaigns, and Olivier will make a couple of comments on what we can already share in terms of output of this campaign.

Thank you, Loic. So coming back to our direct-to-patient campaign, it's clear that we have increased our presence on Instagram, Facebook, and on these different accounts. What we saw so far is already a three-time increase of the number of visits. We are further building it up during Q2, and we expect to be able to report also very concrete hits and measurements in our next earning call. But it's clear that we launched it in Q1. We see a triple increase of visits already, and we see it growing, in fact, day by day. Okay, great. I'm glad to hear that.

And then maybe just one more for me, a bigger picture question. Is there anything you could share from the Vanderbilt collaboration at this point?

Besides the fact that we are working hard together with Vanderbilt in getting to the first prototypes, putting them in place, and also further debating and discussing on how we could add the technology of antacervical stimulation and make this increase the respond rate or the overall respond rate for patients suffering from obstructive sleep apnea. That is where we are currently working on. To be very concrete, what you can expect this year is a prototype, first studies with animals, and further discussions on the positioning of the product next to hyperglossal nerve stimulation.

Okay, sounds great. Thank you.

Your next question comes from the line of Adam Mader from Piper Sandler. Your line is open. Please ask your question.

Hi, good morning. Thanks for taking the questions and congrats on the Q1 result and a nice start to the year. Maybe just to start on CCC, it sounds like you've done some commercial implants there. Would just love to get a little bit better of a sense for the number of implants that you've done in the CCC patient cohort commercially. you know, how have those cases gone, what's the feedback, and then how quickly should we expect this part of the marketplace to ramp? And then I had one follow-up. Thanks.

Yeah. Well, thank you, Adam, for this question. So when it comes to CCC implants, so we did our first implant in Germany, and I have to admit it was still modest. The reason why the number was modest, and now we are talking about three patients that we have implanted, was driven by the fact that it took some time before everything was ready in our IFU. And also, we see that there were physicians that were waiting, very simple, to hear back from the better sleep data that we only communicated during the world sleep in Rome. So that's why it took maybe a little bit longer than initially expected. But the first three cases, what I can report on is that the cases and the procedures went very successful. Just for your reference, Those are exactly identical procedures than to non-CCC patients, just to avoid any confusion. So they went very successful, and the surgeons were enthusiastic about having now a surgical solution to also offer to their CCC patients. Now, as you also know, it will take approximately two months post-surgery before we switch on the device, and we are slowly getting to that point of switching on. So in the next learning call, I can also give you further update on the response of those first two, three patients in their AHI reduction. But so far, so good. Procedure went well. Surgeon happy, patient happy, no complications. So that is what I can update you on. Going forward, and to answer the question is, as you know, in literature, we are talking about roughly 30% of the entire moderate to severe OSA patient population that would suffer from complete concentric collapse. So in our expectations, and that is also where we are working on in going forward, we expect to see a comparable number increase coming from CCC in going forward.

Great. Thanks, Olivier. That's very helpful. And just quickly on the follow-up, you know, I'll ask one on just the top line. I know you don't have financial guidance, but it certainly sounds like you expect quarterly sequential improvement throughout each quarter this year. I also think I heard you make a comment that volumes accelerated significantly throughout Q1. So I'm wondering if you can put a finer point, you know, just on kind of intra-quarter trends or the exit rate in Q1 or just, you know, whatever puts and takes you can give us here as we think about our models for the remainder of the year would be helpful. Thanks so much.

Helen, you are asking the challenging questions, and you know that we are not providing guidance, so you will not hear it from me, but maybe you have more chance with Loic. Loic, how do you want to comment on this?

On the sales, we are obviously very encouraged by the positive feedback and the momentum we are seeing in Q1. We do expect to see revenue increase every quarter this year and to continue this momentum. That's clear. Even if we don't give formal guidance, what we can say is we are generally comfortable with current analysis consensus for 2022. Okay, that's great.

Really appreciate the color and congrats again. Thank you.

Your next question comes from the line of Michael Pollard from Wolf Research. Your line is open. Please ask your question.

Hey, good morning, good afternoon. On the rest of 2022, is it fair to say it's still a Germany story from a revenue perspective, or do you expect some of these other European countries to contribute more meaningfully?

It will stay a German story in the sense that we want to do our commercial proof of concept in the largest market outside of the U.S. where competition is present. But next to this, you can also expect a strong acceleration from the countries like Switzerland where we already have a DRG. Then there is Spain, of course. We expect also to start generating our first revenue in the Nordic countries. And we are hoping that we can also get a positive reply on our reimbursement files in the Netherlands and in Belgium.

If I can ask one follow-up on the access study in the U.S., Can you remind us, I believe it's expected to be smaller than DREAM. Do you have a better sense of what the sample or target sample will be at this stage? And general expectations for timing, if you implant your first patient by the end of this calendar year, is that a project that could fully implant in 12 months, or would you potentially need a little longer than that? Thanks so much for taking the questions.

Thank you, Mike, for asking this. So when we look at CCC without jumping to any conclusions, but in our discussions with FDA, we think that it's realistic to aim for a sample size of 90 to maximum 100 patients. That's where we expect to end up with, but once again, it needs to be approved. Now, answering the second part of your question, saying how fast can you implant? So there, of course, we have a great advantage coming out of the DREAM study that we now have identified in the U.S. and not only identified but also trained surgeons who can do implants. We already are actively informing the surgeons that once the CCC study or the access study will be approved that they can participate. So the patients that today they cannot offer hyperlossal nerve stimulation solution because they have triple C, they are lined up in these sites So I think it is realistic to expect that once we do the first patient, that in 12 months or maybe even less than 12 months, we will finish also the complete excess patient enrollment.

There are no further questions at this time. I would like to turn the call over to the CAO, Mr. Olivier Tailman.

I would like to thank everyone for joining and attending this call. I hope you share the same excitement as we do at NICSOA with our strong Q1 results, and we will be working extremely hard to continue this ramping up, continue showing the results, and you will hear back from us during our Q2 morning call. Thank you for attending, and have a very nice day. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.