Neola Medical AB (publ)

Hello and welcome to today's webcast with Neola Medical, where CEO Hanna Sjöström and CFO Christian Gyllenberg will present the report for the second quarter of 2024. After the presentation, there will be a Q&A, so if you have any questions for the company, you can send them in via the form to the right. And with that said, I hand over the word to you Hanna.

Well, thank you so much and a very warm welcome everyone. Today, we will present Neola Medical's Q2 report of 2024 and we're excited to summarize an intense and productive first half year where we reach milestones according to our business strategy. So presenting here today is myself, Hanna Schuster, and I'm the CEO since 2019 and CFO Christian Gyllenberg. First, I will present the company, our market, and the significant events during the quarter. And thereafter, Christian will walk you through the numbers and our financial summary. So Neola Medical is a deep tech company and we have developed the world's first medical device for non-invasive continuous monitoring of the lungs of preterm born babies. It's called Neola Neonatal Lung Analyzer. And with this medical device, we're addressing a growing clinical need since we have an increase in babies born too soon. And they are in need of continuous monitoring of the lungs to survive their severe lung complications. We have already, before a CE mark, sold a research version of Neola to an EU university hospital, generating real-world evidence for us. And we're currently in the FDA process, a de novo process, to achieve an FDA grant to take our medical device to the US. We're a listed company on Nasdaq First North Growth Market in Stockholm, and you find us under the ticker Neola. And today, doctors need to wait up to two hours to receive a chest x-ray result showing if their preterm born baby is dying from lung complications, such as a lung collapse that is so common for these babies. And time to action is critical to save the patient. So with our medical device, Neola, as seen here on the screen, doctor will know with these parameters if the baby is dying within seconds. And this is a major improvement versus current standard of care. Preterm born babies are very vulnerable. Their lungs are not yet developed and current competing monitoring methods are clearly insufficient, old and invasive. The methods used by neonatal healthcare professionals today include manual observation with the help from chest x-ray, blood gas samples, and pulse oximetry. In some cases, you also can see some lung ultrasound or electrical impedance tomography in the clinic. However, these methods only give a snapshot of the lung status, and they're also very slow to show results. All the handling of the infant is disturbing for the child, and some of these methods are also invasive and harmful for the baby. So with our new medical device, we offer continuous monitoring of the lungs with a very fast to show results below seconds. It's safe for the infant's vulnerable skin and it's non-invasive, which is exactly what the neonatologists are looking for. And Neola is also needed because never before have we had so many babies born too soon. It's as many as one out of 10 babies that are born too soon and may depend on neonatal intensive care for their survival. But what that means for us as a company is especially focused on the last point here. Respiratory failure is the leading cause of death for preterm born babies. And that's why it's so extremely important to monitor the lungs and find complications much faster than they are today in order to let more babies live, but also live a healthy life without severe disabilities. With our medical device, we're entering a growing and non-cyclical market underpinned by several favorable trends and distinct market drivers. So the global market for neonatal respiratory device was valued at 1.7 billion U.S. dollars in 2022 and is expected to reach 3 billion by 2032. So there's also a clear need for a new medical device in the neonatal care, and it's driven by a number of factors. First, we have the growing number of patients as there is an increase in preterm birth worldwide, leading to more children developing respiratory distress syndrome and other severe lung complications. And this is driven by the fact that we have more mothers being over 40. They tend to have more healthy disease, but also the enormous success of fertility treatment leading to more twins and triplets, which also is a driver of preterm birth. More than that, we have the opportunity for strong margins in the market, especially in the U.S., that's seen as very, very favorable. There is also a rising awareness of the importance of newborn disease prevention, leading to an increase in demand for neonatal intensive care respiratory products and services. And also since the development of medical device for children is on average five to ten years behind the innovation for adults in the field, the US Food and Drug Administration, so the FDA, has introduced special incentive and guidance to encourage device development within the field. And that's something that we can definitely benefit from and we can see, for example, in the response time and the interest that we have from the FDA in our process. Our revenue model extends beyond the primary sales of the Neola main unit, but also includes probes that are changed daily on the babies and service agreements. And we have a huge potential addressable market worldwide since there is this growth in preterm birth and an increasing number of neonatal care clinics around the world. There is also a very large medical need for better care, which translates into a very high demand for technology innovation. Especially the US is a very attractive market opportunity due to their particularly high rate of preterm birth with more than 22,000 beds in neonatal intensive care clinics in the US only, which our market research showed that 70% of those beds should be relevant for our medical device Neola. And so just in the US, we see a great market opportunity. And what's also really important is that it is the sales of our disposables that we expect to be the key driver of our revenue and margins. We have also identified 10 leading children's hospitals that are our priority target customers for a market launch. And these are hospitals where we're also spending a lot of time on relationship building. For these customers, NOLA will bring financial value in the form of reduced length of stay in the NICU, which is extremely expensive per day, reduced number of blood gas samples and chest x-ray, which is also expensive, but also very invasive and harmful for the babies. reduce manual observation time for the nurses, and then to get potential reimbursement through the MS-DRG payments. We are commercializing within three distinct phases. And we're currently in the pre-launch phase, where we focus on gathering scientific support for our FDA approval. And we're expecting the launch phase to start after 2025. So with that short introduction, I will go into the key highlights of our Q2 report. Our focus for 2024, as I communicated at the beginning of the year, is within three areas. The first one, enter the clinical validation phase. So going from the technical verification to the clinical validation phase. Second is our FDA process, and the third one is preparing for market launch. And that's also exactly what we have done this first half year. So during the second quarter, Neola obtained a so-called CB certificate, signifying that the product has undergone rigorous and comprehensive testing and evaluation process at an accredited independent testing house for its technology. And this certification means that the product means specific quality requirements and international standards for a medical device in healthcare, with particularly high demands on safety, on essential performance, and on electromagnetic compatibility. In practical terms, so this means that Neola has been tested and verified to be safe for use according to the way that we will use it in neonatal intensive care units. So this is really a crucial piece that the company has secured in preparation for market approval of Neola in the USA. We are achieving here a highly significant milestone in line with our plan for the upcoming launch of Neola in the US. And the CB certificate demonstrates the company's ability to meet these very extensive international medical device standards and means that we have a crucial component in place for our upcoming FDA application. In the second quarter, continuously, we successfully completed a human factors validation study for NEOLA in Boston in the US. And this study confirmed its safety and usability for neonatal intensive care professionals. So this study was also a critical step in validating NEOLA yielded positive results that will strengthen our FDA market approval application ahead of our US launch. So this study was required by the FDA, and we had several conversations with the FDA about it before we started the study. And it aimed to ensure that health care professionals can safely and effectively use NEOLA in neonatal intensive care clinics. We conducted it with 15 neonatal nurses of varying experience from several different neonatal intensive care units in the USA. And the study's findings that were finalized during the quarter really affirm NEOLA's design as both usable and safe. So these results will also be a key component of our forthcoming FDA submission. Our on-site involvement in Boston also allowed us to observe the study's execution, but also directly participate and talk with participating nurses. And their feedback to us really highlighted Neola's ease of use, but also its clinical utility. So they confirmed its potential to integrate seamlessly in neonatal care, but also, importantly, the clinical benefit that they really, the most common answer back to us was, when can we have it? So that really demonstrates there is an urge from neonatal intensive care professionals to have new innovation focus on the lungs of the pre-temporary babies. So this milestone really aligns with our strategic goals and reinforces our commitment to achieving market approval. And also with these results, we're now transitioning from that technical verification to the clinical phase, preparing for the next step, which is our pivotal study on preterm infants in the US. So that's also a significant step towards bringing Nenola to market. Now, following our progress in the clinical and FDA processes, we're also excited to report significant developments within our third focus area, the market launch preparation. And as part of the commercialization strategy for Neola in the American market, we have established a U.S. subsidiary, Neola Medical, Inc., The creation of Neola Medical Inn marks that critical step in our U.S. launch strategy. Establishing a company in the U.S. really enhance our positioning and growth opportunities within the U.S. market. And it also facilitates a collaboration with the American hospitals and key opinion leaders that we're now going into a very intensive phase with. And it streamlines the setup on the on-site operations and really enables us to manage business activities more efficiently from our office in Palo Alto in Silicon Valley, also very close to just walking distance to Stanford, where we have many of our collaboration partners. So to also emphasize the importance for us in the U.S. expertise, as we progress now to market launch, Monica Alfar-Welling has been appointed the first American member of the board of directors in Neola Medical. And her expertise will truly be invaluable as we navigate this very critical phase. Additionally, we're pleased to announce that David Folkesson will join Neola Medical as CFO, affecting August 26. So with his strong business acumen and very result-oriented approach, David will play a pivotal role in our growth and commercialization efforts, strengthening Neola Medical's financial operations moving forward. Of course, with the focus of driving the company towards profitability. Our efforts in the U.S. are rapidly gaining momentum. So Neola has been recognized by Stanford as one of the top medical technology innovation with the potential to really transform pediatric care. And as a testament to our innovation, Neola was selected as a Stanford Impact One company. So we're now called the Stanford Impact One company in the U.S., which is very important internationally, but especially in the U.S., given the importance of the Stanford brand. And It also highlights our promise to really revolutionize neonatal intensive care from that day one in clinic. And that's why Stanford Impact One is called Impact One to really for technology innovation that has a real potential to make a huge impact from day one that is introduced in care. This is, of course, a testament to our innovation, but it's also a prestigious program that's partially funded by the FDA. And with this, we get a lot of resources from the FDA and from clinical experts connected to Stanford that is really advancing our regulatory process forward towards market approval. We are also honored to receive the silver medal in a prestigious international competition hosted by Stanford aimed at promoting innovation in pediatric medical technology. And this recognition actually came with a 24,000 US dollar award, but also mentorships from Stanford leading experts, reinforcing the commitment to swiftly bring Neola to this very vulnerable patient group. We're also glad to start 2024 with a strengthened cash position by a successfully executed directed share issue that we did with a premium of 11.5% to the share price. The directed share issue was subscribed by a group of existing shareholders as well as a new strategic investor. And this is a sign of a strength that we can really enforce the company's ownership base and secure financing in a very cost-efficient manner for our clinical study in the U.S. So during the first half of 2024, we continued also to attract new strategic investors and received further support from existing shareholders that strengthened their own ownership position this year in a very large transaction outside of the stock exchange. So now we look forward to preparing for market launch of Neola and continue to create long-term shareholder value. And with that, I hand over to CFO Christian Gyllenberg.

Hi and thank you, Hanna. In the first six months of 2024, as Hanna mentioned, we have made significant progress towards certification, checking several key boxes along the way. All of this has been achieved while maintaining strong cost awareness. We understand that our completed and planned studies will impact the burn rate, but through rigorous negotiations with partners and close cooperation between product development and finance, we have managed to keep the burn rate at a satisfactory level, despite the significant price increases we see worldwide. Looking at the half year, operating expenses have increased by 1.9 million SEK, With that amount, we have conducted a human factor study in Boston. We have built additional neolas and we have expanded our team here in Lund. In total, 7.4 million SEK has been spent on development costs for the first half year. That's an increase of 1.4 million SEK compared to last year. This amount will increase as we continue to progress and prepare for the upcoming studies. Let's now look at the share. Hopefully you have all noticed the positive impact our activities this year have had on the stock price. Today, our company's value exceeds 200 million SEK, which is double the value since the end of 2023. I see it's an absolute fantastic development of the company. And of course, a statement that all of our activities is accepted by the market. With that, I would like to thank you all for me and give it back to you, Hanna.

Well, thank you so much, Christian, for that report. And as I'm now concluding the presentation, I wanted to share a highlight of how we're reaching those milestones that is also driving value creation. So we have gone through the technical verification phase, We have seen some positive independent research results from the Neola that we sold to University College Cork in a pilot version, a large clinical study that they did on 100 newborn infants. We have been selected a Stanford Impact One company, and we have started those introduction to the US by being a lot more on the ground in the US also. and founding a subsidiary in the US. And that has really set up us really nicely for this very important phase that we have in 2024, the clinical validation phase. And that was one of my biggest promise for this year, that we would enter the clinical validation phase. And that's also where we are now. So with that comes the two major milestones we achieved in Q2 2024, which is then the successful human factor study that will be part of our FDA application, but then also the CB certificate, which is absolutely a need now to be able to start our clinical studies. So looking a bit ahead, we have a very, very exciting year ahead of us because now we're entering that clinical validation phase. We're preparing for our pivotal clinical study that we will do on preterm-born infants in the U.S., So now it's a lot of preparation being done. We're also in very intense discussions with the FDA through pre-submissions, and we get positive indications on our clinical protocol. So there will be Hopefully, and I definitely expect a couple of really nice news and milestones coming here as well in the next few weeks and months. So for that, really stay tuned. And I hope that you're following the company and are interested in also supporting us by buying the shares. So our next report will be released November 6th. And we are also then releasing our full report in April 9th for our annual report. You can always find all of our previous financial reports at neolamedical.com. I'm very happy also to email both myself and CFO Christian Gyllenberg with any questions. So with that, just summing up, I hope I was able to share today that Neola Medical is heading towards a very large and growing addressable market with a great clinical need and demand for our technology. We have an attractive razor blade business model, a proven technology, and a highly experienced team now also supported by American Board of Director member. So with that, I say thank you and I open up for questions.

Thank you so much for the presentation here. And as you mentioned, I think we're right ahead to the questions here. Given the ongoing operation losses, what are your messages to taking to ensure sufficient funding until Neola reaches the market? Are there any plans for a further capital raising in any case?

So we have a good cash position and with the rights issue that was finalized in the very beginning of this year, we have sufficient capital for our ongoing business, but also importantly for our large clinical study on preterms in the US.

Thank you. With the market launch in the USA on the horizon, what do you expect Neola to start generating revenue and what are your projections for the first few years?

So what's happening now for us and looking at 2025 and beyond is that we're going to finalize our clinical study on preterm-born infants in the US. And as soon as that's finalized during next year, we will send in our application to get a market approval to launch in the US. So we expect that to be somewhere around late 2025, maybe beginning of 2026. And then we will already be ready on the ground in the US to start our market launch. So already now we're preparing with our We know our key customers, we're collaborating with these customers quite closely. This is also a sale that is very much focused on the large university hospitals where key opinion leaders who are very interested in new technology already want to try out the next new thing. So we have for many years collaborated with these key opinion leaders and we're ready to hit the ground as soon as we have that market approval. Thank you.

Could you elaborate on the strategic importance of appointing an American board member? How will their experience and connections influence the company and so on?

I would say that this is a very important strategic decision from the nominating committee for the board of directors. And it comes in the very right time where we're now, the US is our key market. We're now so close to market launch that we need to also have that experience and that network coming from then an American board member. And Monica Alfari Welling specifically has a vast experience from launching advanced new technology innovation to the US market. Internationally as well, but specifically focused in the US. She's also based in the US and has an extremely good network with hospital director, key opinion leaders, but also knows a lot about all the ways in terms of reimbursement, route to market that we also needed to support our board of directors with. So I'm extremely grateful that we have got that new addition to the board of directors. Thank you.

Could you provide a more detailed timeline for when you expect to submit to the FDA application and potentially receive market approval for Neola in the United States?

Yes, so we are now in the development of the detailed plan for our clinical studies in the US. We have already discussed our clinical protocol with the FDA in a pre-submission meeting here during July. We have selected our key hospitals where the study will be performed. And we are in the contract phase at the moment. So when I'm able to, I will also communicate those details. And we're aiming for that study to start during the first half of 2025. And as soon as it's finished, we will send in our application to the FDA. And then usually the FDA will have six to nine months to review and approve. So that's a bit more details about the timeline. Now, always when it comes to medical device, and we're in class two, so it's advanced, things can happen. There can be delays in the study for things that we cannot control. But in a sense, this is not a very complex study that we're doing. It's mainly focused on the safety and performance. So with this patient population, there's also a lot of patients that can be included in the study. So we expect also a high inclusion rate of babies in the study. But more news to come as we're now entering this phase.

Thank you. Moving ahead, looking ahead here, going to the last question here as well. What do you expect will be the next milestone that you will tick off?

So next milestone for us will definitely be to get the ethical approval to start our clinical study in the US.

Thank you so much. And thank you for the presentation and answering our questions here today. And thank you all the watchers at home for tuning in. I wish you a pleasant week and see you again.