Sedana Medical AB (publ)

Hello and welcome to today's presentation with Sedona Medical. With us presenting today, we have the CEO Johannes Dahl and CFO Johan Spets. We'll do a Q&A after the presentation. You can either type in your question using the form that is located to the right, or if you're calling in and would like to ask a question, please press star 9 to raise your hand and then star 6 to unmute. We will then announce if it's your turn by saying the last four digits of your phone number. And with that said, please go ahead with your presentation.

Thank you. A warm welcome to Sedana Medical's Hathier Report 2024. I know that some of you are dialing in during your vacation, so I'm glad that you're taking the time with us today. Thank you very much for that. With me today, I have our CFO, Johan Spitz, who will take us through our financial update later on. Let's start with page three, please, with the highlights of the second quarter. Focus is very important for us. Of course, the three strategic priorities that we are steering the company towards have stayed the same. First, to bring Sedana back on a steady growth path in our ex-US business. Second, to reach breakeven in our ex-US business as a first important step towards our longer-term profitability aspirations. And these two together, a healthy growing business and the profits from it will form a stable platform for our third priority to make headway towards our U.S. approval, which could put Sedana on a different growth trajectory. Two significant milestones stand out for me this time, as they are both very important achievements in executing our strategy. We have completed enrollment of both our clinical trials in the U.S., which is a big step forward in bringing inhaled sedation to our largest potential market. And just yesterday, we have announced that we will acquire our main supplier, which will improve our bottom line by approximately two percentage points over time. And this is an important strategic move in building a long-term profitable company. We will come back to both of these achievements in more detail, of course. You know that profitable sales growth is a big focus area for us. During last year's restructuring of the company, we have turned Sedana Medical into a much more commercially oriented company by shifting resources from the corporate headquarters to the front line and implementing a very disciplined investment approach, focusing on countries with strong momentum and profitability. And this strategy has worked. We have returned to a solid growth path after the post-COVID-19 period, and we now operate almost all of our country organizations in a profitable way. When it comes to 2024, overall, I'm quite pleased where we stand after six months. In both Q1 and Q2, we have delivered the highest sales ever in the respective quarter. And after six months, we are 20% above last year, or 19% if you exclude the trend rate effects, which is above our sales growth guidance for the full year of 14% to 18%. But we also have to clearly state that a growth of 10% in the second quarter is not where we want to be. Part of the explanation here is that we are comparing to an unusually strong second quarter last year, but we also had a weak quarter in Germany, or specifically a weak June due to a very low number of mechanically ventilated patients in the ICUs. On the other hand, our performance in our other direct markets and our distributor business was again strong during the quarter. On the profitability side, we have a negative EBITDA of 14 million SEC and an ex-US EBITDA of negative 11 million SEC. On the surface, that ex-US EBITDA looks very similar to the year before, but it is important to note that we had a 2 million SEC negative exchange rate effect this time, whereas last year we had a positive exchange rate effect of 3 million SEC. So there's a 5 million FX swing here in the delta. The decline of the EBITDA versus the first quarter, where we showed break-even ex-US, is due to the seasonally lower sales level and also a bit higher admin costs, for example, legal costs related to the acquisition. On the US side, as I said, enrollment is completed, which is not just a great milestone to reach, but also very important from a cash perspective. The main driver of our cash out over the last quarters was payments to the hospitals participating in the trial for recruiting each patient. That's done now. There will be a little bit of a lag effect over a few months while the invoices are coming in, but we can then expect our burn rate to come down considerably. Apart from that achievement, we continue to be on track and keep our timeline intact. Then let's move to the next page, page four, please, and take a moment to talk through the acquisition that we have announced yesterday night. What will we do? Why is this a very good deal for us? And what will be the financial impact So we will acquire our main supplier, Innovative Sikal, based in a place called Klang, just outside Kuala Lumpur in Malaysia. Main supplier in that case means that they are not our only supplier, but they manufacture our main device, and also certain accessories, such as adapters. Therefore, they represent a very sizable part of the goods, and the purchase price of 34 million SEK 75% of that will be paid upon closing, which we expect in the second half, and 25% are deferred by two years. This means that the transaction has an EBITDA multiple of 4.3 and a PE multiple of 5.7, which is of course a very good deal. There are two important reasons why this is a good deal from a strategic perspective. Firstly, we gain control of the supply chain of our main products. We are less subject to price variations and are in control of future scale up of the capacity to meet our growth plans. And over time, we can also implement measures to further enhance the productivity. Secondly, and that's the obvious one, we are expecting to add two percentage points to our EBITDA once the existing stock is depleted. So I see this as a very logical next step in building a long-term profitable company. We will pay for the transaction out of existing cash. The deal will pay back quite quickly. We expect a positive impact on our operating cash flow already from 2025, and we should have a net positive cash flow from 2028. Importantly, we continue to be financed to execute on our plan, including bringing our products to the U.S. market. If we then move on to page five, please. You can see what I already touched upon, the restructuring of the company and especially the shift of investments towards the frontline teams and the future effectiveness measures we have implemented have led us back on a growth path after the quite negative year of 2022 after COVID. After six months in 2024, we are 20% above last year, again, 19% excluding FX. So we are on track to live up to our promise to deliver an all-time high in sales this year and meet or even exceed a little bit our growth guidance. If we then move on to the next page, page six, you can again see the impact of our work on the bottom line. You see some seasonality in the sales on the top part of the slide. But the trend is quite clear after the biggest EBITDA loss in the company's history in 2022. Q2 of this year specifically looks a little bit less nice than Q1, where XUS EBITDA was positive and the group EBITDA was almost in balance. Again, the explanation is the lower sales level, but also the fact that we had a 2 million SEC negative FX effect this time, whereas we had a 2 million positive FX effect in the first quarter. Of course, we continue to be fully focused on turning our business profitable so we can build a stable financial platform for our US launch. On page seven, I have already mentioned the discrepancy we see between the first two quarters when it comes to the growth rates. Q1 was excellent and compared to that, Q2 looked a little disappointing. So let's have a closer look at that. Our business is seasonal. Let patients require mechanical ventilation in the summer months simply because there are less respiratory infections when it's warm. People spend a lot of time outside. So what you can usually expect is that Q2 and also Q3 are at a lower sales level than Q1 and Q4. If you look back in history, that sales decline between the first and the second quarter was on average 10%. Last year was not normal as the quarters did not follow that typical seasonality, but Q1 and Q2 were almost on the same sales level. So we are comparing our 2024 Q2 numbers, again, the highest Q2 sales we've had so far, to a relatively strong Q2 last year. But it is also fair to say that the decline this year was more pronounced than average. We had 13% lower sales than Q1, if we correct for the South American order in Q1, which will not come back every quarter. And the explanation for that we will see on the next page, slide eight, please. We had a very weak quarter in our main market, Germany, where we even saw a slight sales decline year over year. If you were to double click on that, you would see that this is because of a very weak June, where sales declined by more than 20% year over year. April and May were positive, and also the first weeks of July are positive again, but June was not. Now to dig a little bit deeper in June, we made a survey with 40 of our top accounts and asked our key account managers to map how many mechanically ventilated patients these customers had relative to their number of ventilator beds. And we found that only 20% of beds were occupied by a ventilated patient at that point in time, which was very much in line with also the feedback we heard from our key account managers at the time who were telling us about empty ICUs. A normal range would be around 40%. So we had a temporary absence of patients, possibly because of the early onset of summer weather. So there's an explanation. But of course, I also have to state clearly that negative growth in our main market is not where we want to be. And of course, the team is fully focused on continuing to grow the German business. If we then go to page nine, please. Our other direct markets, again, delivered a strong quarter, even though we had some similar effects as in Germany when it comes to the number of patients in some countries. In the end, we had a growth rate in the mid 40s. Spain continues to perform very strongly. So the combination of strong execution, updated treatment guidelines and pricing and reimbursement approval continues to show an impact. And I'm very pleased also that UK sales have significantly accelerated after the NHRA approval end of last year. In percentage terms, the UK is actually our fastest growing market at this point. And again, things were a bit slower in France due to two vacancies we had on the team. Our sales are very sensitive to our activity level in the field and the time we spend with our customers. So, of course, we are addressing these vacancies. And I see good opportunities to accelerate that growth again here as well. On page 10. Let's have a look at the distributor business. We had a long period where it was less fun to look at the performance of our distributor business. We had declining sales for almost two years as a consequence of excessive stock building during COVID-19. We never let a good crisis go to waste, so we have used the time to restructure the team and implement a new approach, which focuses very much our support on key partners with high sales potential and a positive momentum. And this strategy, as you can see, is working. We now have the third quarter in a row with solid year-over-year growth. On the next page, page 11, just to sum it up, where does all of this put us with regards to our all-year guidance? We have promised 14% to 18% growth. We're now tracking at 19%, so I see ourselves fully on track. And we have guided for positive XUS EBITDA during the year. We have already achieved that in Q1, which proves that we are within striking range. So while we will continue to have some seasonal swings in the summer quarters, we of course continue to be focused on XUS probability of the main priority. You'll want to see it again in Q4. And if we then move to page 12 and switch gears to the United States, as you know, the US is our largest growth opportunity and one of the reasons why we are so focused on turning the ex-US business profitable as we want to be able to launch in the US based on a stable platform in Europe and a cash generating business, of course. We have estimated the US market potential for our products to 10 to 12 billion SEC, which is three times as much as in our current direct markets combined. This is because of a high number of ventilator beds, a A slightly different medical practice that favors intubation compared to Europe and also an overall higher price level. During the quarter, we have taken a big leap forward by completing enrollment of both our clinical phase three trials, which takes out a big part, at least of the execution risk related to the study. And it's also, as I said before, very, very good from a cash perspective because it will significantly reduce our cash burn. And it also brings us one step closer to hopefully approval and a successful launch. As a reminder, the study endpoints are almost the same as the ones we have had in Europe. And we all know that this was a very successful study. For example, we know from our European trials that our inhaled sedation patients needed less opioids, 30% less in Z001 and even 50% less in our kids trial, in our pediatric trial. without the patients experiencing more pain. Now that's a great clinical argument in our everyday life here in Europe as well. But if there's one country in the world that is most sensitive to avoiding opioids because of the opioid addiction epidemic and more than 100,000 drug overdose deaths every year, it's of course the U.S. And also the FDA is very, very much concerned about that. So bringing a therapy that will reduce the use of opioids in a vulnerable patient population would be a major plus on the U.S. market. Page 13 is still a slide that I like a lot because it shows the caliber of clinical trial sites that we have been working with. You will find the most prominent institutions in America on that list, including Harvard, Columbia, Mayo Clinic, Cleveland Clinic, Mass General, just to name a few. And that's not just great from an academic point of view, but seeing how some of the top key opinion leaders in that space gather around this novel way of sedating patients in the ICU is very, very encouraging and provides a great platform for future commercial success as well. So if we manage one day to turn that trial site list into our customer list, then of course we've made a big step forward. On the next page, page 14. So enrollment is completed, but of course the work towards submission is in full swing. I'm very pleased that all the parts that we have under our control are moving along nicely and on time. such as the three and six months follow-up of the study patients with the fully on track and also the work on the different parts of the dossier is progressing. As with every submission, we have now left a phase where most things were under our control, at least to the extent that you can control recruiting into an intensive care trial. And now we are entering a phase where we also depend on external factors to keep our timelines. The obvious one is that we will need positive data, which we are expecting in the second half. There's, of course, never a study without risk, but there are reasons to be very optimistic that the European trial worked out so well, and we're looking at the same inputs again. The other obvious dependency is the FDA itself. We are, to some extent, in their hands, and, of course, depend on them accepting our, for example, analysis and submission plans, etc. We are in frequent exchange with the agency, as we would like to confirm as much as possible and take out as much of the risk as possible before the submission so we can avoid surprises afterwards. Well, the feedback has been very positive for us, and we will, of course, stay with that strategy of seeking as much confirmation for what we are proposing as possible. And I have to say the pass-back designation really helps with that because that allows us quite frequent access to the agency. If we then look at page 15, please. The next month will be extremely exciting. We have several milestones upcoming, which each of them will bring us a step closer to the goal and also reduce the risk. One big milestone is already cleared. As I said, recruitment is done, meaning that the study execution risk is considerably reduced, which you typically find to be one of the bigger risks in trying to get a product to market. If as a next step, we will get positive top line data, that would again be an increase in the terms of all products on the US market. And then again, the more we can get upfront acceptance from the FDA about our plans, the more we can avoid surprises later on and have a better view of the timelines. And as we have said before, yes, the fast track designation could help. Right now, it helps in getting frequent access to the agency, as I said, but the decision around accelerated review times and others, which I know a lot of people are very interested in, will only be taken by the FDA once we put the data in front of them, so after the submission. From a commercial perspective, the attractive opportunity coincides with the fact that we are dealing with a very concentrated customer base. Less than 5,000 hospitals have intensive care units in the US. Less than 3,000 have units with more than 10 beds. Those tend to be in the larger cities, so you don't need a lot of frontline personnel to cover the key customers. And based on that high commercial opportunity and comparably low manageable investment we have taken the decision to build our own commercial company in the us to launch inhaled sedation onto the us market if we deliver the proof of concept on a standalone basis that would definitely increase the value of the us opportunity overall and we're quite confident about the strong support network we've already built in our clinical trial sites so we have a good starting base as i said before we of course also keep the flexibility to complement our own that a potential partner could help us get faster sales uptake, broaden our reach, leveraging existing customer relationships, et cetera, and we can create more value overall. With that, let's turn to the next page and I'll hand it over to Johan for some more detail on the financials. Thank you, Johannes.

Yes, so on the next slide, slide 16, as Johannes said, you have our financial results for the second quarter of 2024. report net sales for the quarter of 41 million SEC that's up 10% year-over-year in reported currency and also 10% up excluding currency effects so up from 37 million in the same period of last year and as Johannes has outlined well already we are seeing very strong growth continuing from our direct markets and in particular that's driven by Spain and UK so that segment combined saw growth of 47% year-over-year in reported currency 46% year-over-year excluding FX and we also saw strong growth from our distributor market segment growth of 30% year-over-year or 29% excluding FX and among the distributors we see In particular, strong growth from our prioritized European distributors. But as Johannes also said, the strong growth from these two segments is offset by a weaker quarter in Germany. And as Johannes already presented, it's driven by a decrease in demand. Ventilated patients in June in particular, the rest of the quarter was more robust in Germany. And as we've highlighted also in the report, we've seen a good start to July in Germany as well. So that's on the sales side. If we turn to gross profit, we report 29 million SEK for the quarter. That's up from 27 million in the same quarter of last year. And that results in a gross margin of 71%, which is relatively in line with the same period last year. This is rounded, of course, to 71%. So what that hides, to some extent, is a slight decrease in the gross margin this year compared to the same period last year. That's mainly related to the fact that we're now selling more of our pharmaceuticals, that are called isoflurane, which we do at a slightly lower gross margin than some of our other main products, in particular the ACD, the main device. EBITDA for the period at a group level was negative 14 million SEC that is compared to negative 11 million SEC in the same period of last year and if we just look at EBITDA ex-US that was negative 11 million in the second quarter this year compared to negative 10 million in the same quarter of last year and If we look at what goes into that EBITDA number, Johannes has already mentioned that we have an FX component in there. But if we start on the OPEX side, we see that that's relatively stable in the quarter compared to the same period last year. So 46 million SEC in OPEX. That is up slightly from Q1 of this year. So... We can see that that's driven by an increase in administrative costs mainly related to legal fees driven by the acquisition that was just announced and also our new long-term incentive program that was approved by the AGM in May and also some personnel costs. But if we look at those admin costs in total, we can see that around half of that overspend, if you will, or cost increase. So half of those 2 million, so 1 million is non-recurring in nature. And then just linking back to the EBITDA, where we see at the group level again, a slightly higher EBITDA loss this period compared to last year. As Johannes mentioned earlier, we are seeing an FX effect included there. So EBITDA in the second quarter this year includes a net negative FX effect of 2 million SEC. Whereas in the same period last year and also in the first quarter of 2024, that effect was positive to a similar magnitude. So the swing effect there is something to be aware of when looking at EBITDA and comparing to those other periods. In terms of the organization, we now have 89 people, including consultants at the end of the period. That's compared to 93 people at the end of the same period last year so next slide please on slide 17 you can see our cash flow and available funds so cash at the end of the period stood at 304 million sec that's compared to 361 million at the beginning of the quarter and this decrease is basically entirely driven by the investments that we are making in capitalized development expenditures currently which as you know, is mainly our US clinical study. So if we look at the breakdown of the cash flow, we have cash flow from operations during the period of actually slightly positive 2 million SEC, but that includes a working capital effect of 14 million SEC. And that is due to timing of payments, both payments from customers and also payments we make to our clients related to the US clinical study. So payments to hospitals and the CRO involved in the clinical study. Cash flow from investments, as you can see there from the number, that's the big driver of our cash flow at the moment. So negative 56 million for the period. And again, driven almost entirely by our US projects, both the US clinical study, of course, and also Now that's shifting, of course, relatively speaking to more US registration work as the recruitment phase is concluded. So in summary, on the cash flow side, so total cash flow for the second quarter of negative 54 million SEC and their just to explain how to think about that in relation to the change in the actual cash position. There is also an FX effect on the cash balance of minus 2 million SEK during the period. Just as an additional point to make when we look at the cash flow of the company, it's of course important to to highlight that with the patient recruitment now being completed in our US clinical study, CAPEX will gradually come down during the second half of this year. And in particular, as we go into 2025, we will see a substantially lower CAPEX level. So that's, of course, important to keep in mind when thinking about our cash flow outlook going forward, or sorry, cash balance outlook going forward, I should say. And as a reminder, in terms of our liquidity management, we have now around 80% of our cash already in US dollars. And also as a reminder, we continue to expect to be fully financed to reach breakeven, which of course we are close to already, and also to execute on our strategic plan, including reaching market approval in the US. And we have no long-term debts in the company. And then if we turn briefly to the next slide, you see our current largest shareholders or the largest shareholders as of the end of June, I should say. And of course, we continue to be very thankful for your support. And with that, I will hand the call back over to Johannes.