Ambu A S Ord

Hello, and welcome to EMBU Q3 2019-20 webcast. For the first part of this call, all participants will be in listening-only mode, and afterward, there will be a Q&A session. Today, I'm pleased to present EMBU's CEO, Juan Jose González. Please begin your meeting.

Thank you. Good morning, everyone, and welcome to our Q3 2019-20 conference call. My name is Nikolai, and I am from the Investor Relations team. With me today here at the AMBU head office in Copenhagen, I have our CEO, Juan Jose Gonzalez, and our CFO, Michael Heigard. During this conference call, Juan Jose Gonzalez will talk about the highlights for the quarter, and Michael Heigard will review the financials, and then we will check your questions. Please limit your questions to only three at a time, and get back into the queue if you have additional questions. The duration of this call will be approximately one hour, and you can, via our website, follow the investor presentation. We will go through live. Now I would like to give the word to our CEO, Juan José González.

Thank you, Nicolai. Quarter three is an important quarter for all of us. We have an aspiration to become the world's most innovative single-use endoscopy company. And in quarter three, if we look at our results, if we look at the product with our innovation pipeline, If we look at the development of the market, we are well underway to fulfill this aspiration. Now, let's talk about what makes Ambu uniquely positioned to succeed. And there are two aspects. Number one, this is a unique market opportunity. The market is today 700 to 100 million, the single-use endoscopy market. with a penetration of 1% to 2% of the total endoscopy market. And we expect that this market is going to become $2.5 billion by 2024. This is unprecedented growth. Single-use endoscopy is considered one of the most attractive, if not the most attractive medical device market. And if you look at AMBU, We have incredible competitive advantage to emerge as one of the leaders within single-use endoscopy. Number one, we are today the number one in volume, and we expect by the time we finish the year that we will also be the number one in volume with over a decade of experience in single-use endoscopy. We have clear competitive advantage, both in terms of modular innovation and high-scale low-cost manufacturing. That's why we are able to have the richest pipeline in the industry. We have 15 new products launching over the next three years. We will enter all the major endoscopy segments. And we can do it with a healthcare economics offering that ensures that hospitals can move from reusable to single-use without incurring an additional cost. And finally, we have the global largest single-use commercial organization dedicated to make sure that we can create a market and penetrate a major healthcare system with our single-use visualization business. That's why when you put all of this together, we are able to advance our agenda in a way that other companies will not be able to. For example, this week we secured a sole source agreement as part of Premier Ascent program. Premier Ascent Program, it's a thousand hospitals and it is one of the major programs for Premier in the US. And we are able to do it because of the fact that we have already today the most comprehensive portfolio. We expect this type of agreement to actually strengthen going forward to see more of these agreements around the world and as we bring all of our innovation further strengthen our position. Now, let's talk about our business update and what are the key messages in terms of our quarter three. And there are basically three key messages. Number one, the COVID-19 pandemic is accelerating the development of the single-use endoscopy market. There is a much higher awareness in terms of infection control. Healthcare systems are measuring better contamination. And on the back of that, they are looking at single-use endoscopy as an attractive solution. And within all of that, of course, our ASCOV-Bronco is being used in the treatment of COVID-19 patients. And on the back of that, we are expanding our customer base and increasing the penetration of our existing customers. Now, all of this, it is translated into a remarkable performance. We are growing 21% in quarter three, on the back of our visualization business growing 81%. This is the fastest growth in visualization of our last 16 quarters. We are actually tripling our business versus three years ago. In Europe and Asia Pacific, we are actually doubling versus last year. Now, the impact of COVID-19 has been positive in visualization, and like in other hospital medical device companies, as it contracted elective procedures, it has had a negative impact in our core business. Now we are seeing a gradual improvement, and in July we are back on positive growth across all regions and all business areas. But we have certainly seen a decline, especially in the first part of our quarter three. And it is this decline in our core business what we are reflecting in our full year guidance. Now we expect to grow 26% with our EBIT growth hitting around 12%. Now, because this adjustment is really linked to our core business, our guidance for our visualization volume remains unchanged, and we are expecting to hit more than 1 million endoscopic units this year. Now, all of this means that we are actually emerging from the pandemic as a stronger company. With a 26% growth outlook for this year, AMBU is today one of the fastest-growing medical device companies globally. We are doing it while strengthening our organization, both in innovation and commercial infrastructure. We are, on top of that, entering into the largest market in endoscopy, with the launch of our ASCOP system in urology and our ASCOP Duo in GI. These new markets are going to be important growth pillars for the company. Now, let's talk with a bit more detail regarding the impact of COVID-19 and why the single-use endoscopy market continues to strengthen. And we have seen two things. Number one, there is an increased focus on infection control. There was a recent peer review meta-analysis that was done that showed a 15% contamination rate in duonoscopy. And actually, if you look at the last DDW conference, the largest conference in GI endoscopy, there were 17 papers that were presented on contamination in duonoscopy. So overall, there is a much higher level of awareness regarding contamination issues in reusable endoscopy and the need to look for alternative solutions. And that is combined with the guidelines from the FDA and national associations. For example, recently the FDA issued its second safety recommendation asking US hospitals to move from traditional reusable scopes to more innovative technologies, highlighting Ascope Duo as part of a solution. On top of that, all the national bronchoscopy associations, both in the US, in Europe, and Australia, are indicating that in the midst of the COVID-19 pandemic, if you need to do a bronchoscopy, that you should consider doing a single-use bronchoscopy. And all of that is creating a more positive environment for the development of our single-use endoscopy market and within that for the development of AMBU. Now, now that we talk about the market, let's talk specifically about the COVID-19 impact on visualization. So first of all, if you look at the impact of ASICOP for Bronco in Europe and the rest of the world, it has been transformational. In our quarter three, our Eurovisualization business grew three times, and we doubled our business in the rest of the world. Actually, we are seeing double-digit growth in all of our European territories. with the United Kingdom as the main growth driver as they prepare for the second wave. Now, in the case of the U.S., as you have seen, a different level of performance. And the reason why it is different in the U.S. is because in Europe, when a COVID-19 patient arrives, the first thing they do is they use single-use bronchoscopy to check the health of their lungs. While in the case of the US, single-use bronchoscopy is only used in the cases where patients have more severe conditions. And of course, our single-use bronchoscopy is part intensive care and part elective, and the elective part is being affected as elective procedures are being canceled or postponed. Now, we have seen a positive evolution after our quarter three, and in July, we have our U.S. socialization back on a strong growth. Now, to meet the increase in our global demand, we have completed the expansion of our manufacturing capacity for Horesco Bronco, and now we are in a better position to fulfill any future demands related to our second wave. And it is on the back of that that we are selling 337,000 units in our quarter three, and that we are maintaining our guidance of over one million scopes for the full year. Now, while the COVID-19 impact has been positive in visualization in the case of our core business, it has been negative, especially in P&D. And again, this is similar to what we have seen with other hospital medical device companies that participate in elective procedures. There has been a postponement of these elective procedures and that has had a negative impact, especially in patient monitoring that declined 32% in quarter three. The reason why our anesthesia business has not declined to the same level is because of our resuscitators. And our resuscitators, similar to a single-use bronchoscopy, play a very important role in the treatment of COVID-19 patients. And that is offsetting the decline that we are experiencing in the rest of our anesthesia portfolio. Now, we have seen, after a sharp contraction in April and May, a recovery of our corvices as well. And in July, all regions and all business areas are back in positive growth. Now that we talk about the impact of COVID-19 in our performance and how that is driving our outlook for a 26% growth, let's look at another very important element of our agenda. We say that we want to become the most innovative single-use player in endoscopy. And we have the richest pipeline in the market to deliver against that. We are launching 15 new products over the next three years. And if you look at our key milestones in quarter three, we introduced our ABU2 Advanced. And with this product, now we have superior image resolution in pulmonology. It's a monitor that combines with our advanced sensor with our advanced image enhancement software provides an image resolution which is unmatched in the market today. We also got approval for our ACE-CoV system. We will talk about what are some of the early learnings of this launch, but that gives us access to what is considered the largest endoscopic market within urology, a market which is bigger than our current pulmonology market. And, of course, we got a granted breakthrough designation for our S-COP dual, and we got clearance from the FDA. And with that, we are entering into GI, and I will also give you some details in terms of where we are. Now, all these are very important achievements in the face of a COVID-19 pandemic, and it reflects the ability of the R&D, regulatory, and commercial organizations to execute in what has been a very difficult environment. Now, COVID-19 has had an impact in terms of the next generation of products, and this is on the back of travel restrictions and ability to be able to work with some of our third-party suppliers. That actually is resulting in a delay in our launches from our second quarter next year to the second half next year for our ASCOP column and gastro. All the rest of the launches remain as planned. Now, let me just give you some highlights in terms of our ASCOP system. Again, this is a six million procedure market for us. We are going to expect a rapid uptake similar to what we have seen in ENT and faster than what we actually saw in pulmonology. We say this because we have done around 500 trial demonstrations. We have 213 ongoing trials. Actually, if you look at the top 100 largest urology centers in the U.S., In 21 of these top 100, we have either converted or we are in the middle of trial. This level of activity, this level of receptiveness is much higher than what we saw when we launched pulmonology and when we have entered into EMD. And the main driver of this is the perception on EMAS resolution. And basically, our S-COP system has our most advanced sensor. It has the most advanced image enhancement software. And it has our latest monitor technology with EFU to advance. And when you put all of that together and you compare that image resolution with a reusable SISTO scope, which after going through several reprocessing, lose its image capability. Basically, the feedback from the healthcare system and the urology physician is that they perceive a better image resolution, which combined with the convenience and flexibility, the ability to do more cystoscopy procedures with existing infrastructure, the strong healthcare economics, will make this market convert very rapidly. Now, that is in terms of system. Let's talk about now our entrance into GI with the launch of our ASCOPE Duo. GI represents the number one strategic priority for the company. GI accounts for 70% of the total endoscopy procedures globally. And we expect that by 2024, single use to endoscopy is going to be one of the largest segments in the market. And that's why this launch is so important. We can today disclose that actually we have granted breakthrough designation with the FDA. That basically means that throughout the development process, we work closely with the FDA on securing the approval. And we are expecting a rapid market, rapid conversion. It's very rare for the FDA to issue two safety recommendations to U.S. hospitals. That combined with a CMS reimbursement in the outpatient channel is going to ensure that all hospitals in the U.S. move to innovative technologies and single-use colonoscopy being the one that will guarantee no risk in terms of contamination. We know it's going to be one of the preferred solutions. Now, we have started our control market release. We have conducted today over 400 trial demonstrations. We have some positive feedback from physicians on the back of this product demonstration. We get positive feedback in terms of the image resolution. We get positive feedback in terms of the feel of the product. We get positive feedback in terms of the weight. And overall, we are excited in terms of moving forward. To be able to support this launch, one of our key priorities is to build a significant commercial infrastructure, especially in the US. We are on track to build our 170 reps in the US, and they are working well with Cook Medical as part of our marketing agreement. And through that, we are getting access to all the major to endoscopy centers in the U.S. We expect all this infrastructure to be in place by the end of Q1 next year. And then in terms of our clinical study, and I would say this is similar to what other pharmaceutical and medical device companies are experiencing, COVID-19 is disrupting the ability to start clinical trials in the time that we were planning. Our plan was to start 1st of September and what we are seeing is that the administration in our key selected site is having some problems to finish their contract and have everything in place to make sure that we can execute this clinical trial without any problems. And therefore we are delaying the start, but the clinical trials is an important part of our launch agenda. We are committed to share the as soon as we complete the study. Now, that is in terms of the highlights, in terms of the performance of the company, the progress of our innovation, and where we are with our launches to urology and GI. Now, let me pass it to Michael, who is going to provide more details in terms of our financial performance.

Thank you, Juan José. As we have talked about, COVID-19 has in Q3 significantly increased the demand for our single-use endoscopes and resuscitators in Europe and also in Asia Pacific. For the quarter, we have delivered an organic growth of 21%, driven by an 81% increase in visualization, but a negative growth for our core products by minus 15%. For visualization, the geographical composition of growth varies significantly with growth in Europe and the rest of the world, whereas the growth in North America is slightly negative. The significant difference in geographical growth pattern is driven by the fact that doctors in Europe use bronchoscopes as an integral part of the standard treatment for COVID-19, whereas physicians in the U.S. pursue alternative treatments to avoid the aerosol from potential COVID patients. and therefore often limits the use of bronchoscopes for situations where the condition of the patient worsens. Our core business has contributed a negative growth of minus 15%, as mentioned, as these products, to a large extent, are used in elective procedures that have been subject to cancellations, et cetera. As a result of the above, our full year guidance is therefore reduced, and the organic growth for the financial year is now expected at approximately 26% compared to previously 26 to 30%. The guidance is thus reduced to the lower end of the interval due to a more negative outlook for our core business, whereas our visualization business is on plan and we maintain our guidance to sell more than 1 million endoscopes for the full year. Our core business is now for the full year expected to grow slightly negative due to COVID-19 impact, leading to elective procedures being canceled to a higher extent than what we estimated back in April this year. Because of the lower top-line growth for the year, our expectations for EBIT margin for the year is reduced from 12% to 14% to now approximately 12%. As mentioned, our full year expectations for visualizations are intact, and as we speak, we are close to reach the 1 million mark for endoscopes being sold year-to-date. On slide 14, you can see the geographical distribution of this quarter's revenue and growth rates. North America accounted for 37% of revenue with a negative growth of minus 10%. COVID has impacted our US business negatively as elective procedures in general were being canceled or postponed as the spread of the virus continued. Visualization in North America declined by minus 2%, driven by COVID, on the elective part of the pulmonary and ENT business, as well as due to the guidelines regarding risks of aerosols. However, after a sharp contraction in Q3, we have seen our visual adversation business begin to recover as we move into Q4. In anesthesia, we saw a positive impact on the demand for resuscitators, while the elective drill and product growth were negatively impacted, leading to a negative growth of minus 6% in the U.S. A significant share of products in the PMD are used for electives, which is the reason why PMD is significantly impacted with a negative growth of minus 43%. Europe accounted for 50% of revenue in Q3, with an organic growth of 59%. Visualization sales increased nearly three times versus last year, reaching 195% organic growth. Anesthesia grew 7%, while PMD declined by 32%. The core businesses are impacted by the same COVID dynamics as we see in North America, including a strong demand for resuscitators and cancellation of procedures within P&D. The rest of the world, which accounted for 13% of revenue and an organic growth of 31%. Within visualization, the business doubled with an organic growth of 105%. The growth was highly driven by the sales in China, Australia, and Japan. Anesthesia grew 10% from improved ability to deliver anesthesia products on the back of the high demand that arose in Q3. PMD saw negatives of minus 9%. The fundamental dynamics impacting anesthesia and PMD are identical to what we have seen in North America and in Europe. Now let me go through the key numbers on our P&L. Revenue for Q3 was 947 million DKK, up 174 million DKK from the same period last year. This corresponds to reported growth of 23% and an organic growth of 21%. The gross margin was 64.7, which is a significant increase by 8.3 percentage points from last year. Our gross margin last year was negatively impacted by inventory write-downs following the SC210 discontinuation in June. And adjusted for this effect, the margin expanded organically by more than 5% year over year, which is caused by the higher ratio of revenue coming from the visualization protocol. Total capacity cost for the quarter were 457 million, which is a 63% increase. The growth is mostly driven by the increase selling and distribution cost as a result of the commercial expansion announced in June. Pre-cash flow before acquisitions totaled 187 million, corresponding to 20% of revenue. For the first nine months of this year, pre-cash flow is negative by 92 million DKK. This is as expected and is driven by the investments into rebuilding working capital, as well as the $20 million settlement paid to the former distributor of Ascope in North America, as communicated in Q3 last year. The milestone payment of 40 million euros related to the FTA clearance of the duodenal scope is due to be paid in the first quarter next year. At the end of the quarter, net working capital was 569 million, corresponding to 17% of 12 months' revenues. Lastly, total net interest bearing debt was 1.253 billion DKK, and that corresponds to a ratio of 2.2 times EBITDA. Finally, let me sum up on the revised guidance for this year. The reduced outlook is driven by a higher than expected negative impact on our core business from the COVID pandemic. Our full year expectations for visualization are intact, and we continue to expect to sell more than 1 million endoscopes this year. And as we speak, we are very close to reach the 1 million scopes sold mark. As a result, the outlook for the full year is reduced to approximately 26% organic growth, down from the 26% to 30%, and with an EBIT margin reduced to approximately 12%, down from 12% to 14%. With this update, I would like to give the work back to you, Hongsheng.

Thank you very much, Michael. And let's open to Q&A.

Thank you. If you would like to ask a question, please zero one on your telephone keypad. If you would like to re-zero your question, you also can do by pressing zero two on your telephone keypad. We'll have a brief pause before the first question is registered. And our first question is from Christian Ryan Nodia. The floor is yours.

Okay. Okay.

Christian, you're on the line.

Yes, sorry. Hi, Jose, and hi, Michael. Three questions from my side. Thank you. First, to the bronchoscope, as I understand from your report, you say that you're expanding supply capacity going into the forequarter. fourth quarter, can you talk about whether you were actually constrained in terms of your bronchoscope sales in Q3? And then related to that also regarding the bronchoscope, how have you seen your ASCOPE sales being impacted here in Q4 as we've seen the European case counts begin to rise again? And then just for clarification on your guidance commentary on the core business where you say you expect negative organic sales for the year, does that also include negative organic sales in the anesthesia business in isolation? Thank you.

Hi, Christian. This is Michael. So the first question, I understood the way whether we in 2.3 have been suffering from capacity constraints that has led that we were unable to fulfill customer demand. Is that correct? Yes, that's correct. I would say no, that has not been the case. We have, you know, when the pandemic started, we were in the situation where we had quite significant inventory. So we took benefit from that. And I would say that from the Late part of March or maybe even the early part of April, we have been air freighting more or less all scopes into the key markets. And you can also see that there's a quite significant extra cost attributable to that. So as we have increased our capacity, we will be able to rebuild those inventories as we move into Q4. And then we're slowly going to see that our supply chain costs will normalize. It's going to take a while. Your commentary on Q4, could you just repeat that?

Yes. So in Europe, we have recently seen increased COVID-19 case counts. And my question was to how you're seeing that impact demand for the ASCOPE here in July and August.

Yes. Well, I would say that in the report and also in our commentaries here, we are disclosing that we continue to see a very strong rebound in general, and I would say that we continue to see a very strong performance also specifically on the visualization. And I think that is probably as much information we can share on that, but we continue to see a very, very strong demand in Europe for our ASCOPE, while we at the same time are also seeing a a strong tendency to the rebound in the markets that has been suffering. As for the guidelines, we are guiding, as you say, slightly negative growth for core in the fourth quarter, and specifically on the anesthesia, which is very positively impacted by the resuscitator sale. I will not guide specifically on that, but as you can see from the numbers, it is the PMT growth that is in Q3 dragging behind the overall growth. So I think you can more or less make your own math here.

Okay.

Thank you very much.

Our next question is from Benjamin Silverstone, ABG. The floor is yours.

Thank you. Hi, Juan, Michael, and Nicolas. I hope you're all well. I have two questions, if that's okay. So the first is in regards to your clinical study for the Dinoscope, which unfortunately has been postponed until further notice. I'm thinking about the Dinoscope 2.0, which is supposed to come next year. And it's my understanding that a 2.0 is going to build on basically all the feedback that you're going to gather from the first version once it's on the market. So if we're going to see sort of a slow uptake due to the potential postponed study, would it be fair to assume then that the 2.0 version might be postponed as well, so in correlation to this study? And my second question is in regards to the visualization segment. So as you mentioned, due to a different recommendation in Europe and the U.S., we are seeing Europe doing extremely well, while for the sales in North America, we are seeing that they're down 2% organically. And Michael, you did speak to this a little bit, but I was just wondering if you could elaborate on how the underlying market has performed. So if you're actually gaining market share or losing market share in specifically North America. And the last question is in regards to also the Dynascope uptake. So you mentioned you've been out and actually showing the product about 400 times. Are you able to quantify the number of these showings that actually led to sales? Thank you very much.

Sure. Benjamin, this is Juan Jose. So let me start with whether the delay of the clinical study will have an impact in terms of the timeline of our Duo version 2. And the answer is no. We are still committed to introduce our Duo version 2 rapidly. And the key improvements on our Duo version 2 come from those areas. Number one, In terms of technology, it comes from more advanced sensors, more advanced image enhancement software, and more importantly, making sure that our Duo version 2 works with A-Box together with our new Column and Gastro. We believe that that is going to be a very important differentiator. For some of the other players, they will need to buy a box for Duo and another box for Column and another one for Gastro. So hospital will have to pay more and incur on significant complexity. And the other source of feedback is, of course, all the work, all the input that we already have today after the pro-demonstrations and that we will gather with our control market release. So we feel we will have enough input to make sure that we bring our Duo version 2 And by the way, this is a very good example in terms of the type of company that we are. Similar with Pulmonology, where we went from S-COP 1, 2, 3, 4, and we're going to launch over S-COP 5. You will see us committed across every segment where we compete in terms of bringing very rapidly the most advanced generations and making sure that we are at the forefront in terms of performance. Now, in terms of visualization, we have seen a difference in performance between Europe and the U.S. We saw it in the second quarter, and we see it in quarter three as well. And this is driven by the difference in terms of surgeon technique and by the time and duration of the COVID-19 pandemic. What is important to know is that if we look at the U.S., there will be a lot of volatility quarter to quarter. So, for example, last quarter we grew 43%. This quarter we are negative 2%. Year to day we are plus 21%. And that's just driven in terms of the start of COVID-19, hospitals asking for enough stock ahead of time to be able to go through the pandemic. Now, when you look at our share performance, our analysis indicates that we have actually gained market share during the pandemic. And specifically, we have gained 300 new accounts. And of existing accounts, we have win 300 new departments. So our customer base in the U.S. has expanded. We believe that year-to-date, the penetration of single-use bronchoscopy as a percentage of the overall bronchoscopy market has increased by five to seven points. And as you can imagine, we have over 95% of market share of bronchoscopy. So we believe that as COVID-19 is behind us, this expanded customer base is going to translate into a superior performance going forward now in terms of the new optic i mean it's very early to uh it's very early to to comment anything in terms of uh in terms of uptake i would say we are a positively surprised by the interest of U.S. hospitals to move from reusable to single-use duonoscopy. We believe that between the APR recommendation, between the CMF reimbursement, and between the performance of our product, that this segment is going to be created. Now, we expect Duo to be an important growth engine for AMBU next year. But that's as far as I... I'll find a second comment.

Thank you very much, Juan.

Thank you.

Our next question is from Catherine Tennyson, BOA. The floor is yours.

Hi, thank you so much for taking my questions. I have three, if I may. So my first one, in Q2, you gave a very helpful idea that 14% of the country's contribution was due to COVID-19. Could you roughly help give us an idea for Q3, the contribution and an addition of those 337,000 scopes? How much of those were bronchoscopes related to the COVID demand in Europe and APAC? I'll just do my first one there and then I'll hop back for my second and third to make things easier.

We just had a small technical issue here and your question was a little complicated. Could you please just repeat it?

Of course, just of the 337,000 scopes in the quarter, how many of those were related to bronchoscopy linked to COVID?

Well, I think what we have in general said is that out of our total number of units being sold, around somewhere between 85% to 90% relates to our A-scope. But if you ask into... The reasoning for the customer acquiring the ASCO, whether it's related to COVID or to something else, I cannot share that information with you.

No problem at all. And then in the U.S., for your core business, P&D and anesthesia, with your discussions in U.S. hospitals, what level of elective procedure volumes do you estimate have returned in July and August of this year? Is it, say... 80% relative to last year, 90% just to give us an idea of base elective return to volume in the U.S.?

Sure. So I would say there are two things. Number one, after the sharp contraction in April and May, we have seen a steady recovery. And as I said before, in July, if you look at our core business, all regions, and all business areas are back in positive growth. And specifically in terms of the U.S., we estimate the elective market to be at around 90% plus in terms of recovery. There is a significant variance depending on the department, with orthopedics being ahead in terms of the recovery. But overall, we are estimating that we are back at around 90%.

That's super helpful. And just one very quick final one. I'm interested, we've had the delay of the colonoscope for the second time. I appreciate part of that is to do with COVID, but can you just give a little more color as to why that delay and perhaps why other products in the portfolio like urology or pulmonary will not experience the delay and it was just the GI portfolio that was called out?

Sure. And I have to say that there are no myths behind this delay. Basically, we have three R&D centers. We have an R&D center in Malaysia, an R&D center in Kissing in Germany, and an R&D center here in Denmark. And different products are produced in different areas. And then we have... technology partners, mainly in Asia, that of course play a very important role in the development of the new sensors and our new software and so forth. And basically with COVID-19, what we have seen is travel restrictions and making it more difficult for us to be able to work with some of our third-party suppliers and internally in the company to be able to travel back and forth and advance some of these products. So depending on where these pros are developed, some are more impacted than others. And in the case of our colon and gastro, they are the ones that in that phase of the project, we're in more need to be able for the teams to meet together with the suppliers, and we haven't been able to do that.

That's great. Thanks so much.

Our next question is from Thomas Hans, Danske Bank, the floor is yours.

Yes, thank you very much. A couple of questions here for me. Just going back to the duodenoscope and the human trial delay here. So could you maybe add any color on when you expect to start the trial and when we should expect to have the 60 patient interim data? And also, are you maybe considering to doing a small trial in Europe instead while you wait the start of the 500 patient study? And then the Second question, just on these new accounts that all of the ASCO, Bronco, during the lockdown and you could say peak hospitalizations, do you see some sort of retention of these accounts now that the number is going down here in Europe? So just curious to see whether there is sort of a less one-off element compared to what you communicated back at the Q2 numbers. And then just lastly, can you disclose anything on the Dudenoscope price now that you have the FDA approval and are basically in launch mode? So are you still just saying $1,400 to $1,600, or can you maybe give us a little bit more color on what you think also compared to your closest competitor, which is, I guess, pricing it at a somewhat higher level? Thank you.

Sure. So in terms of our clinical, first of all, we expect the COVID-19 situation in the U.S. to start to normalize, as we have seen over the last recent weeks. And we still think that the best thing to do is to just focus on executing our clinical trial in the U.S. rather than trying to start new trials in Europe. And then in terms of timing, I mean, this clinical trial is an important part of our launch plan, and we plan to do it as soon as we have the conditions to execute with the plan, and we will share the results, and we'll share the interim 60-pence results as soon as they are available. So that's as far as I can tell you right now. In terms of Bronco, of course, as COVID-19 started first in Asia and in Europe and in the U.S., we have experience in terms of the expansion of the customer base and the repeat purchase. And we have actually got those learnings into the U.S. in terms of this expansion of customer base and what is the profile in terms of the purchase. So the only thing that we can tell you is that we consider that the expansion or the gain in market share in the U.S. is sustainable and we will carry it going forward. And that basically means that we expect these new customers and new departments to use single-use bronchoscopy as part of their normal day-to-day operations and that that will be translated in terms of repeat purchase. Now, in terms of pricing, our pricing is grounded on healthcare economics. We know today that for a hospital system in the U.S., the cost of using a reusable duenoscope is around $1,400 to $1,600. And that's basically our pricing. This is critical. And by the way, we saw it in pulmonology. We have seen ENT, we are seeing it in Sisto, and we believe we will see it in Duo. This is critical to make sure that the market is created, that all hospitals, when they decide to move to single use, they don't need to incur into more costs. By the way, it's critical also in our negotiations with GPOs and large healthcare systems. The fact that we are building a reputation where our pros have the most advanced technology with a very attractive healthcare health and economic offering. And that's really one of the drivers, for example, behind the sole source agreement with Premier, which, as you know, is one of the largest GPOs in the U.S. So we are maintaining our price as it is.

Great. Thank you very much.

Our next question is from .

Yes, good morning. I'll take one question at a time. So my first question would be on the ASP effect on your North American visualization business. In the previous two quarters, you have helped us to understand the ASP effect. Could you provide a number for this quarter?

Yes, hi, Niels. This is Michael. You're right that we provided that information for Q1 and Q2, and I would say that the overall pricing going into Q3 is impacted by exactly the same dynamics, and that means that we have just out of my head somewhere around 12% to 15% increase in the ASP, driven by that we went direct and that we now have the margin upside on our own P&L. There's nothing changed, and you will not find any price discounts or anything.

Okay. And this ASP effect, that will go to neutral in quarter four, as far as I remember, because you sold all your US scopes internally in quarter four of last year.

No, we actually need to go all the way to Q1 before it should completely neutralize. We had, I would say, six, seven weeks of distribution sale in Q4.

Okay, good. And then when it comes to the clinical trial of your duodenoscope, why is this trial not recorded in clinicaltrials.gov? Is it a trial that will result in a scientific paper?

Sure. I mean, my understanding is that it is recorded in that website when the clinical trial starts. So I Our has not started yet. It doesn't appear yet. But we expect that as soon as we start, you will be able to find it there. And this is going to be part of our scientific program.

So there will be a scientific paper published both for these first 60 patients and for the entire 500 patients?

There will be a scientific paper being published, yes.

Okay. And then a final question on your monitor. Many of the doctors we speak with, they kind of favor the split-screen feature and the possibility to measure or show oxygen saturation with Verifone's screens. Is that something that you would consider to update your monitor with in the future?

I mean, we... You know, as you have seen with our ASCOBE and you are seeing with our monitor, we are going to bring new generations of monitors all the time, and they will have different levels of functionality. Now, if you were to, now that we are talking about that specific monitor, if you compare our ABO Advanced with that monitor, we have far better image resolution. And that is actually the number one driver of decision-making in prognoscopy. And that combined with the superior functionality, I mean, I have to say we are very confident that today in pulmonology we have the best software in the market.

Great. I'll step back in the queue. Thank you. Thank you, Neil.

Our next question is Joe from SCB. The floor is yours.

Hi. Thank you for taking my question. I have three, and let's take it at a time. Firstly, both the scientific they have now talked about to bundle their sales. Could you give us an update on the co-medical collaboration at the moment? Now you have a launch product.

Yeah. Don't you mind? Sorry. I just want to make sure I heard you correctly. You said that Boston Scientific talked about bundling themselves, and then you wanted to know the collaboration with Cook Medical? Yes, exactly. Yeah. Yeah, I mean, by the way, I mean, that's exactly what we were expecting from Boston Scientific. That is their commercial strategy. In terms of our commercial infrastructure in the U.S., and this is very important because it reflects our investment and level of commitment behind winning in duonoscopy and GI overall. So number one, we are building 170 cell phones in the U.S. which are going to exclusively focus on the commercialization of our single-use duonoscopy. And number two, with the collaboration of Cook Medical, we basically have access to all major duonoscopy centers in the U.S., We are doing pro-demonstrations together. We are doing training together. We are leveraging the relationship with surgeons. And that basically is what allow us to do over 400 pro-demonstrations in what is a very short period of time. And of course, give us access to key opinion leaders for our control market release and for the execution of our clinical trials. Overall, I have to say the partnership is very valuable for AMBU as we are introducing our duo. And we consider that today we are building a commercial infrastructure that will allow us to compete head-to-head with any other company entering into single-use tonoscopy. Thank you.

Okay, thank you. And then my second question is regarding cystoscope. You mentioned it was unaffected by COVID-19, but then looking at the clinical trial database, it still shows that you haven't initiated the patient recruitment. And you also said you expect the uptake will be fast. Is it fair to assume that you can see you are confident to sell the product without clinical data. Could you elaborate a bit here?

Yeah. I mean, first of all, I mean, you are correct that the study for the cystoscope, which is in Europe, is slightly delayed. Depending on the endoscopy procedure, the values are clinical. the value of the clinicals vary. So in the case of the cystoscope, as it is in the case of ENT, as it is in the case of pulmonology, the most important thing is the probe demonstration and the evaluation that each healthcare system do in terms of the performance of the probe relative to the reusable scope. And in the case of the cystoscope, we know that the feedback is positive and it is going to be a major cross-engine for the company going forward. The clinical trial, as soon as we get a C mark, it will be conducted and it will be part of the commercialization, but it's not really necessary for us to build the to start milling it now.

Okay, thank you. And my last question, could you give us an indication when you actually expect to get the CE mark for the dinoscope? Yeah.

Yeah, I mean, Europe is today our largest region in visualization and is a very important part of our growth engines. We are building our commercial infrastructure for the commercialization of our duo in Europe already, and the only thing I can say is that because of its importance, Europe is going to follow the U.S., and as soon as we get approval, we will be communicated with everybody. Fair enough.

Thanks. I'll jump back to the queue. Thank you.

Next question is from Ed Ridley Day, Red Dune. The floor is yours.

Thank you. Yes, Ed Ridley Day, Red Dune. Can we just discuss your margin guidance for the full year? It would have seemed to imply a fairly... material sort of sequential decline in the gross margin, I know you'll have a strong gross margin in the third quarter, into the fourth quarter, because even if we assume sustained higher SGA and R&D spending, can you just give us more colour around the dynamics there on the gross margin in the fourth quarter, or indeed if I'm missing something on the other cost lines to get us down to that 12% margin for the full year?

Yeah, well, maybe I cannot talk too much about the Q4, but Don't expect that there would be anything extraordinary in Q4. The fundamental behind the change of the market guidance from the range to now 12% is the lower scale that we are getting from the lower revenue. What is also impacting the margin is, of course, the investments and the air freight, but all that has more or less already built in. So that's really not that which is driving the margin. It is the lower scale.

Okay, thank you. And a related question on R&D investment. Yeah. I noticed that year-to-date capitalization is running quite high relative to prior years. How should we model that both in terms of operational spend but in terms of the overall investment? How should we do that going forward? And could you give us any more precise color on what that capitalization relates to?

Yeah, that's a very, very good question. And you're completely right that we are seeing a steep increase in the cash flow impact from innovation. And it's up 100 million DKK this quarter over last quarter. So it's up 40% or something like that. So it's very significant. So going forward, you should continue to expect that it is increasing because As we're building our target innovation organization, we are going to add to the account of our innovation expenses. So relative to revenue, I think you're not going to see us expand the overall expense, but the overall impact to the EBIT when you do the net cash flow analysis is going to increase. I cannot guide you a lot further here, but I think if you assume that the ratio investments to revenue is constant and then you model our revenue growth going forward, then you should be able to make your own assumptions.

That's helpful. Thank you.

Okay. Thank you.

Our next question is from Michael. The floor is yours.

Hi there, guys. This is Michael Healy from Barenburg. I hope you're doing well. And just kind of a lot of questions are already asked and answers some follow-ups just on the geodinascope in Europe and the rest of the world. Is it a case that this hasn't been submitted yet for CE marking? And perhaps if not, is there a reason why that hasn't been submitted? I guess that should be a bit more of a straightforward regulatory approval there. And also just on your expectations for pricing, we've got an idea for the U.S. to expect that pricing to be matched in other territories as well. And just, again, following up on Catherine's question on the colonoscope and gastroscopy, it's understandable these can be delayed. But just on the regulatory approach here, will this follow the same as the duodenoscope, i.e., get the FDA approval and then roll out a clinical study and then launch the product? And just what's your confidence in that all being done within H2? And do you factor this getting some sort of expedited process as well?

Okay, thank you for your question. So let me start with the launch of our duonoscopy in Europe and Asia. I have to say that we are proceeding as planned and those are very important parts of our growth agenda. And that's why we are already building our GI commercial infrastructure there. Maybe unlikely, maybe just to add I mean, we consider the onoscopy concept not to be just a US phenomenon, but the contamination issues and the value of single-use onoscopy. We expect to see that in the United Kingdom and in Germany and in Japan and Australia. And on the back of that, this is going to be a global opportunity. In terms of pricing, the only thing I can say is that our pricing is grounded on healthcare economics. So whenever you are around the world, the cost that you are incurring to have to do today a reusable duodenoscopy will be the number one guide to set our pricing for our single-use duodenoscopy. And then in terms of colon and gastro, I mean, we expect to go through a regulatory process that is relatively straightforward. And there is not much to comment in terms of whether it would be a breakthrough designation or not. The only thing to say is that now that there is more awareness regarding the contamination levels on Duo, we are starting to see an increased level of activity to look at the level of contamination in those areas. And we expect to find also similar opportunities for single use to be an alternative offering that ensure a better infection control.

Okay. Thank you. Thank you.

Our next question is from Neil at Carnegie. The floor is yours.

Yeah, just a quick question, follow-up question on your duodenoscope. So, I mean, it's only four working days before the duodenoscope was supposed to commence for this clinical trial. But when you announced the approval of the scope back on the 17th of July, I mean, were you already by then aware that the clinical trial would be delayed?

Hey, Nilsen, this is Michael. No, of course we were not. When we provided the announcement of the due back, I think it was on the 17th of July, we still believed that the trial would commence on the agreed date. But I would say that with the transparency and the apparently lack of our ability to close the final contract with the clinics in the U.S., we were forced to take this decision here. So we really don't believe this is very dramatic. This is a result of the environment that we're working in right now, unfortunately, and we expect to be back as soon as we can.

And do you still expect the clinical trial cost to amount to approximately 5 million Danish kroner?

There's nothing changed to the financial estimates, whatever we have set before. It's exactly the same. It's unchanged. Okay. Thank you.

Our next question is from Matthias Thoren, Lansdowne partner. The floor is yours.

Hi. Thank you very much. I just have two questions. First, On urology, you mentioned that 21 out of the top 100 hospitals have either converted or are in a trial phase. Would you be able to specify the mix as it clearly means two different things? And then the second question, just out of curiosity, the FDA summary document in regards to the Demoscope approval mentioned that the AMBO or the Mbendo previously approved FDA colonoscope was used as a reference device. Just curious to learn on what basis this colonoscope was used as a reference device. If you could elaborate on that, it would be great. Thanks. Yeah, thank you.

Let me start with the last question. No, it has not been used as a reference device. So that is not the case. In terms of the urology, we are in a competitive environment, and I hope everybody understands now with the attractiveness of the single-use endoscopy, there are more companies looking at our commercial performance by segment. The only thing I can tell you today, when you look at the number of pro demonstrations, how many trials that we have ongoing, and the level of interest early on of the largest serology center is that we expect our ASCOB system to be an important growth engine for the company going forward. And that's as far as I can go.

Okay. Thank you.

If you wish to do ask a question, press zero on your new telephone keypad. and we do not have any questions at the moment. I'll hand the floor back to you.

Thank you. Thank you very much. Let me just recap on where we are as we finish our quarter three. We are a company growing 21% with an outlook of growing 26%. One of the fastest growing medical device companies globally. At the same time, we are moving forward with our innovation pipelines, entering the largest markets in endoscopy, urology and GI representing important growth opportunities for the future of the company. At the same time, we continue to invest in our capabilities, especially in innovation, and that puts us in a very strong position to become the world's most innovative single-use endoscopy company and one of the largest European-based medical device companies. Thank you very much.

This now concludes our call today. You may now disconnect your line.