Senzime AB (publ)

Good morning and welcome to Erik Panzer Bank and this morning's live presentation of the nine-month interim report of Senseim and here to present the nine-month report is CEO Philip Seiberg. Welcome. Thank you.

Thank you very much. I'm here to kind of get the highlights of the Q3 report that we just published this morning here in Sweden. So Senzyme, just a brief recap. We are a Swedish headquartered medical device company. We're in the midst of a technology and clinical shift where we are providing monitoring solutions. eliminate complications as a result of anesthesia and also as a result of opioids and other medications as you are in the perioperative mode of the hospital value chain. We have a commercial infrastructure in over 30 countries with the main focus on the US and Germany, but also distribution and licensed partners. We are a NASDAQ main market company listed with long-term investors backing us up. So a little bit about Q3. I think we had a nice Q3 with a strong continued growth rate and most important also we secured long-term funding in the company. So just the highlights, we reached sales of 9.2 million Swedish kronor. A growth rate of 146% at a quarter and year to date above 160%. The growth was driven mainly by strong US business, but also growth in all markets. We had a number of key wins, I'll come back to those. Product gross margin continues to improve over time in the company. We reached just under 70% year to date. We also announced that we ramped up our operational capacity and our production capacity, which we're now delivering on. And we did two directed share issues during the quarter that I will comment on that raised 173 million Swedish kronor. So to give a feel for where we are, we've had a nice really hockey stick inflection point happening this winter. As a result, I think the new clinical guidelines has been a good catalyzer to this. So we are trailing at about 30 million Swedish kronor in run rate. But by the end of the quarter, we have an even stronger run rate, so up towards 50 million Swedish kronor. So consumables are of course the most important. You can see a small little tiny dip here in the last quarter. I think it's mostly a result of orders coming in the day after the quarter. So nothing really there to comment in any way on. The installed base of TetraGraph systems continue to grow. We are closing up towards the 2000 mark. We are well in line with delivering on these production goals that we announced in early July. And the number of sensors which is the important really business driver and margin driver here continues to grow very well over the year. So we announced three key deals during the quarter, and then we had another major deal on the East Coast in the US that we announced just after the quarter. But to give a comment, the first one was a leading US university hospital system in the southern part of California. It was 70 tetragraphs that we... announced that we will install over time. That deal has actually gone quicker than we thought and they're already deploying and installing and starting to use the systems. We won another major competitive evaluation order from another top 10 US rated hospital systems, also in California. That was 110 TetraGraph monitoring systems. Quite a good initial order value for us there. And probably in and around 5 million Swedish kronor in run rate revenue on consumables over time as it's fully deployed. And that's also now up and running right now as we speak. And then we also announced a contract with one of the leading US IDNs, Integrated Delivery Networks, which is a longer term contract, but we've started to deliver already. This has a huge opportunity and it's covering the most of the western US region. So just, you know, it just summarizes like why are we winning these types of deals? Yes, I mean, I would summarize it into three categories. Senzyme is perceived out there as really the trusted vendor. We are the only company in our niche that is publicly traded. We have a legacy of over 40 years of research and development. Most of our technology and ideas are sprung out of the leading Mayo Clinic and this is developed over a lengthy period of time, as I said, with strong base in Uppsala. Second one is we are really perceived as the leading solution provider. We have the sharpest algorithm. We have now the fifth generation electromyography or EMG algorithm that really provides a very accurate response. It's a very simple solution now to use with auto calibration. We can connect to most of electronic health records and external patient monitors. And now we have a very broad portfolio of electrodes that are used for both adults, for kids and also for patients with sensitive skin. And then the third really bullet why we're winning the deals is the commercial excellence. We have a brilliant clinical team that helps to support, to do the introduction, to deploy, to train. So we have that both in US and Germany, but also in support with our distribution partners around the world. So really the inflection point for us as a company has been these new type of guidelines. I mean, this is a picture here showing the number of guidelines in our space that has developed over the last 10 plus years. The big driver was when the UK came in 2021, but then as the European and the US came this winter, that was really when the inflection point, that's when you start to get the pull from hospitals, and the guidelines are in summary saying that all patients that receive paralytic drugs as part of their anesthesia, which is in and around 100 million patients a year, they should all be monitored with a quantitative, objective neuromuscular monitor, and that's exactly what we're offering to the market. So for us, it's important from a business perspective to monitor the utilization rate. How much are these used once they get out there? And we had a small little dip here, if you can see in the Q3, it's a very small, I'm not concerned about it. It's mostly that we had quite a large volume of deliveries of monitors that are not yet fully in full use so if you look at kind of our what we define as key deployed accounts the ones that we really really are focusing on they are up towards the 4.0 level which meaning four tetrasense electrodes used per monitor and week um but if you really nail down to the markets so this is the uh to the left here is the the us market we're seeing a nice positive trend where we are above above the 4.0 level already and if you look at the german market we are also having a nice trend so it's a little bit just depending on the the regional mix here I'd like to point out one, so we have one interesting customer in Germany. So we're seeing in Europe an increasing trend of using our solutions as part of da Vinci and types of robotic surgery. So these patients require a very deep neuromuscular blockade. They need to be absolutely paralyzed to stay perfectly still. And in these instances, it's very important to have an objective, very sharp monitor to do this. And this is just a major clinic in Munich showing that once we get in there, and this was a deployment that took about about a year, and then it took six months to really ramp up. So they are doing more than two surgeries a day. So this is a utilization rate way above 10 patients a week. So this is a very nice niche market for us as it develops. So I've shown this slide before to those of you who follow the company. It's understanding how do we actually create value over these soon to be 2,000 deployed patients. tetragraph monitors but we're still working very diligently to to increase utilization because the more they're used the more value these tetragraphs are driving and just to give a feel again that when they are in what i define as a decently full use which is four patients a week or more They typically provide up towards 50,000 Swedish kronor a year in run rate. And as you see, if you get up to these top tiers, like we had in Germany, we have run rate revenues over 100,000 Swedish kronor a year. So our installed base of customers is something we also very track. We continue to grow our hospital base. Now end of Q3 was just a little above 161 hospitals. These are the hospitals that we can follow and monitor. So it excludes what we're doing in Japan. It excludes what we're doing in South Korea and also smaller distribution markets. So it's more to follow the progression of our business. So a comment on the Experon system that we acquired last year from Respiratory Motion, the company we acquired in Boston. We continue to really focus on value creation there as well. We are continuing to integrate it into our sales networks. We have defined a very clear leadership for the business unit itself. We are signing up new distribution partners. It's just a little bit of a longer sales cycle right now than the TetraGraph. So this is more where the TetraGraph was probably 18 to 24 months ago. But it's moving on and there are studies more and more confirming the clinical value of following minute ventilation, following the breathing. That is a very early process. and good predictor of length of stay and helping to find if you can predict early that you're having breathing problems then you can understand how to treat the patient and get them quicker out of the post-operative care. um operation efficiencies so we continue we moved home production to upsala a few years ago that continues to help to boost our product and gross margin but it's of course a mix of portfolio it's a mix of regional sales but also control production but we are now trailing 68.7 percent year over over a rolling 12 months and also had a nice gross margin in absolute terms in the quarter And of course, operational efficiencies and operational control is very important too. We continue to kind of to, you know, every single little Swedish Krona matters here as well as dollars. So I'm seeing a trend here that our operating expenses are actually starting to get lower. We've had a number of one-time effects in the past, but if you look at Q3 versus Q2, et cetera, we're seeing a nice kind of slowing trend, but also as I pointed out, I want to flatten this out now as we grow the business. Okay, so to strengthen our long-term financials during the quarter, we conducted two direct shares issues. We did this in two tranches to really make it fair for the shareholders. So we did one for 56 million in August. And then we did another one as the market captured that, which was 117 million for a slightly higher price of 650. And that is still pending final decision. It's with the Swedish Bolagsverket to get the shares out, but everything is clear and these are now registered. So we raised 173 million and we raised it more or less at market price. So no huge discounts. And I think this is a sign of institutional owners believing in what we do. The Crawford family and the foundation remains our largest shareholder, but the ones that came in were predominantly the new Segla Medical Acceleration, a dedicated medtech fund. We also had Carnegie funds come in and also support by the fourth AP fund, Handelsbanken, Swedbank, Roberg, etc. We announced also that we are cross-listing our share in the U.S. We have quite an investor base in the U.S. So this is pending to go live by the end of October, meaning that you can very easily then also trade our Sanzheim share in the U.S. market during U.S. opening hours and in U.S. dollars. And I think we're doing this as a result of interest for the company, interest from U.S. shareholders and to help drive interest in our most important commercial market. Okay, so to wrap up, this is the golden equation that I use to visualize where are we heading. And I've shown this similarly before, but if we can capture 300 hospitals here and we can have them to run approximately 30 tetragraphs in average per hospital with a utilization rate of four tetrasensors per week, Then this correlates to roughly 300 million Swedish kronor in just consumable sales. So this kind of visualizes where we're heading and this is in line with our financial targets that we've announced. So we are really in such an exciting phase. I was just back from the large american anesthesia meeting which is once a year and it was i must say one of the best medical device shows ever we are really in the midst of a technology and clinical shift we have a brilliant portfolio products and a very strong team so very excited about the future to come thank you very much

Thank you so much for your presentation. I would like to start with the classical sports journalist question. How satisfied are you with the quarter?

I'm very satisfied. The team has done a fantastic job. It's so satisfying to see that after all these years of hard work and development, it's starting to pay off. We have a long journey ahead of us, but we're taking very important steps on the way here.

What have been the most challenging during the quarter, would you say?

Of course, it's always been a hard work with securing long-term funding. So it just takes time. There's a lot of work to it. But I'm very happy now that we have that finalized and set. And now we have the funds we need to really secure our long-term growth plan.

And I guess the financing has taken much of your attention.

It does. It takes a lot of attention. But it's been a very smooth process by doing direct shares issues.

it's a very you know as compared to rights issues which are good too it's very quick and very efficient and very cheap you have had a very strong quarter looking at the inflow of new deals yeah and quite large deals as well are you satisfied with the current organization to be able to deliver on these both when it comes to installation and production

Absolutely. I mean, production by far, we've already expanded our capacity. So we're delivering to this very quickly. The US team where we've had these specific orders are absolutely fantastic. So they are a team of ICU and operating room nurses who are out there supporting and helping. Right now we have six of our team at one large hospital system in the US and they're very methodically getting helping to create the standards, the protocols to get this up and running. So it's really helping the hospitals to reach their goals and targets and patient safety kind of recommendations.

Great. And you mentioned during your presentation that you're in the leading position, I guess. Could you make a ballpark guess how large market position you have today?

yeah difficult question i mean we our market segment we we have a number of competitors and friends i would say who are like us advancing the digital new shift into the electromyography space and my peers and friends there are more private companies who I, you know, we don't really know their numbers. But then we have the other competitive, which is the large companies doing the old analog acceleromyography, where you measure the thumb acceleration. And there you have Philips Healthcare, GE Healthcare, the large companies. So we, I would, you know, I would say we are the leader in the new digital segment here. That's how I define it.

Perfect, perfect. You have won a lot of deals but I guess you also have lost some deals. What would be the reason why you are not winning a deal?

Because probably we can't be everywhere. you know it's i'm i'm proud to say that i'm seeing that we're winning the deals we are working with but if we look at us again it's a large market we we cannot cover every single deal out there and you know i think it's good that there's a number of companies we need to drive this together so you know we're almost like an alliance to help make this clinical shift so so there's enough space for everybody out there But there are different, we all have a little bit different specifications. Some have different types of business models. So it's whatever the hospitals prefer. So I wouldn't say again, I don't see us losing any deals that we are directly working with.

And maybe if you could comment on your order backlog, so to speak, going to the fourth quarter, maybe not the

so this is a new era for us where we have order backlogs I don't really have I can't really comment on the number right here but I mean we're seeing a backlog in terms of we're now working to install a lot of monitors who are you know successfully growing into a more full deployed phase so so that will generate revenues over time

I also believe you're learning during this journey a lot of things that makes you a stronger, perhaps, player how to install and drive up the utilization rates. I mean, do you still see, I mean, you have shown previously about sort of an idea of how fast we should expect this utilization rate to go up. Is this still valid?

I think so. If I look at our other large hospital systems and the rapid rate of utilization, it's everything from three to nine, three to 12 months. But I would say the average takes three to six months to get full deployed. It's all about just convincing and getting the protocols in place and then getting every single operating room and every single team to understand this is the new standard. The paradigm shift is here and this needs to be done.

Is it your feeling that also the anesthesiologists more are in a way accepting this shift to this technology as well?

It is, definitely. So back from this big American Society of Anesthesiology meeting, there was large discussions, large focus groups. Again, they're pushing that you need to do this now. These are the new practice recommendations. This is a very strong driver in medical device business because somehow suddenly you get the pull from the business. You're not trying to just push out this new fantastic technology. Rather, it's just that you need to do it. And then the time frame for people to really adopt that just it varies from other priorities, but it's really happening here and now.

Maybe you would like to elaborate a little bit about what you were doing during this conference. Did you have presentations?

Yeah, we had lots of presentations. We had demonstrations for clinicians. My colleagues probably did over hundreds of... It's a very nice product to demo because you give the small little electrical current which creates a twitch and then you in real time see how the response of your nervous system and the monitor. So very... It's nice to demo, but I feel sorry sometimes for my clinical personnel because they get these electrical currents all the day. So it's powerful. We just had the fortune. We had our inventor and our original founder, Soren Brohl, the professor from Mayo Clinic there. And he pulls a big crowd of people. Everybody wants to be in and around him.

How important is he for your success so far?

He is very important. Very important. He is the brain. He is the eminence of this industry. And he's been doing this for such a long time. And now that he is a professor emeritus, so he has more time to really dedicate for us. So he's out of the... He's out of the operating room now and really helping us to drive this.

Sounds very good. I would like to jump to the European market. You see a nice uptick in sales, but not in the same way as in the US. If you could describe a little bit.

So the shift is happening in the European market too. But the European market has had more of a history of having these acceleromyography. It's already established. So there we are moving more towards... an analog to digital shift and typically i mean we've had a lot of new accounts but it's a little bit slower uptick they buy one two and then they buy a three four or five it just grows over time but i'm see i'm very proud of germany who has been working methodically and now starting to see good traction we're also seeing traction in in the distribution markets and uh So Europe has the same market opportunity as the U.S. It's just probably U.S. is a little bit quicker right now in adopting to the guidelines.

And do you see large tenders going on in Europe?

We're seeing that too, and we're seeing more and more tenders that are constructed where they're requiring the EMG-based technology that we're having. For example, when it's robotic surgery, if we buy the robots, we need the Sensi type of technology to it.

And is it possible to take advantage of the success you have so far in the U.S.?

I think so. This is a market where it's very transparent now and they see what's going on. when i came back from the the american meeting attracts a lot of europeans and when there's a european society meeting there's also americans so it's all intermingled and they see what's what's best practice perfect you touched upon the run rate if you could perhaps tell us a little bit more what you see ahead of you sorry um no i think that the run rate is developing well um We have a beautiful business model with selling monitors that are running and creating recurring revenues over time and the lifetime value as I described is lengthy and I think a monitor once installed has a lifetime of at least five to seven years and hopefully we could just replace with a new system. So I foresee the run rate continue and I remain confident and happy about our financial guidance that we can long-term create reach these revenue targets we can create a long-term an ebda margin of in excess of 40 percent so and now we have the financial backing to make those kind of targets happen

Very good. And lastly, let's touch on the Xpiron system. If you could give us a sort of an idea when you believe we could see some material revenues.

Yeah, so we did this first license deal in Q2 where we licensed out the technology to a Chinese player and we're having a number of interesting industrial and commercial discussions with different players. We're trying to find smart ways to the market. It's an operational challenge for me because we're seeing such a drive for the TetraGraph and our small sales force. Where should we focus time and effort right now? So I'm trying to duplicate that, but we, We're working methodically and we're working to find the value that we, you know, we acquired this because we saw a strategic fit. There is a very nice strategic fit. But right now, the speed is so much quicker for the tetragraph. So I'm just trying to deliberate with it, but it will come. Yeah.

Perfect. Thank you so much, Philip. And congratulations for a very nice quarter.

Thank you very much.

Thank you for listening in.