Nyxoah SA Q2 FY2024 Earnings Call

Good day, everyone, and thank you for standing by. Welcome to Nyxoah Second Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I will pass the call over to your first speaker today, Mikaela Kirkwood.

Thank you, and good afternoon and good evening, everyone, and welcome to our earnings call for the second quarter and first half of 2024. I am Mikaela Kirkwood, Investor Relations and Communications Manager at Nyxoah. Participating from the company today will be Olivier Taelman, Chief Executive Officer; and Loic Moreau, Chief Financial Officer. During the call, we will discuss our operating activities and review our second quarter financial results released after U.S. market closed today, after which we will host a question-and-answer session. The press release can be found on the Investor Relations section of our website. This call is being recorded and will be archived in the Events section of the Investor Relations tab of our website. Before we begin, I would like to remind you that any statements that relate to expectations or predictions of future events, market trends, results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. For a listed description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our Form 20-F filed with the Securities and Exchange Commission on March 20, 2024. With that, I will now turn the call over to Olivier.

Thank you, Mikaela. Good afternoon, and good evening, everyone, and thank you for joining us for our second quarter and first half of 2024 earnings call. 2024 is a pivotal year for Nyxoah with an increased focus on preparing for U.S. market entry. In March this year, we announced that the DREAM U.S. pivotal study achieved its primary endpoints and demonstrated the Genio has the potential for best-in-class outcomes for OSA patients. Subsequently, our regulatory team filed the fourth and final module in our PMA submission, which has set the stage for FDA approval as early as the end of 2024. We recently strengthened our balance sheet with over EUR 85 million in new capital raised, which extends our cash runway into mid-2026, and we are actively building our U.S. commercialization organization led by our recently hired Chief Commercial Officer, Scott Holstine. Commercially, we reported first half 2024 European sales of EUR 2 million, representing an increase of 29% from the first half of 2023, and ended the second quarter with 55 active implanting accounts in Germany. To recap the DREAM study, there are 2 primary endpoints of AHI response rate criteria at 12 months and ODI response rate at 12 months. At baseline, subjects had a mean AHI of 28 and an ODI of 27, with a body mass index of 28.5. On an intent-to-treat basis, the DREAM study shows an AHI response rate of 63.5% with a p-value of 0.002 and an ODI response rate of 71.3% with a p-value less than 0.001. With these strong results, the DREAM study met its primary endpoints. Additionally, subjects demonstrated a median 12-month AHI reduction of 70.8% with similar AHI improvements in supine and non-supine sleeping positions. The safety results were favorable with 11 serious adverse events in 10 subjects, resulting in an SAE rate of 8.7%. Of the 11 SAEs, 3 were device-related and 3 explants were recorded. We will present the full DREAM data at a lunch symposium at the ISSS conference in Miami on September 27. The DREAM results further distinguish Genio as it was the first hypoglossal nerve stimulation study to require patients to sleep at least 60 minutes in the supine position and demonstrate efficacy in both supine and non-supine positions, similar to a normal night of sleep. This is important since published data show increased OSA severity when a patient sleeps on their back, with AHI doubling in supine versus other positions. On average, people sleep 35% to 40% on their back during the night, which aligns with our PSG findings in DREAM. This means that regardless of a patient's sleeping position, Genio maintains its efficacy, which is unique. Based on physician feedback, this will significantly impact therapy selection. We have applied for the inclusion of the supine efficacy results into our label. With the positive DREAM results, we have completed our PMA submission. We have addressed all FDA questions on the first 3 modules and submitted the fourth and final module. Based on the PMA review cycle times, we anticipate FDA approval in late 2024; however, since we do not control FDA timelines, it could extend into early 2025. In anticipation of the FDA approval, we are actively building our U.S. commercial organization. In July, Scott Holstine joined Nyxoah as Chief Commercial Officer after 26 years in the medical device industry. In addition to Scott, we have key leadership in sales, marketing, and market access already in place, and we are actively recruiting top sales and marketing talent. Upon launch, we will target the Tier 1 non-stimulation implant sites in the U.S., which account for 85% of all procedures done in the U.S. The organization will comprise territory sales managers supported by field engineers and field specialists, each with their own responsibilities. The territory sales managers will own territory revenue and interact with surgeons and field doctors, while field engineers and specialists will focus on high-quality implants and patient outcomes. This structure is focused and scalable, allowing territory managers to drive increased therapy penetration without the distraction of covering implants and performing titrations. Consequently, we can enhance direct-to-consumer efforts to help territory managers increase Genio implant referrals locally. Independent market research and feedback from nerve stimulation implant surgeons in the U.S., who participated in our recent usability study, reinforce Genio's differentiation versus current AG&S technology regarding invasiveness, patient-centricity, safety, and simplicity to treat OSA patients, regardless of their sleep position. Genio offers patients a full-body 1.5 and 3 Tesla MRI-compatible, non-implanted battery solution, along with a controlled biowearable component. This implant-for-life concept, powered and controlled by the wearable component, allows patients to access the most advanced technology without requiring another surgery. Given these characteristics, we expect Genio to expand the market in the U.S. as a significant number of hypoglossal nerve stimulation candidates have been declining due to concerns about invasiveness and having an implantable battery. Independent surveys show that over 20% of U.S. hypoglossal nerve stimulation candidates are turning down existing technology, indicating strong interest in Genio's unique form factor. Returning to Europe, first half 2024 sales reached EUR 2 million, marking a 29% increase compared to the first half of 2023, and we ended June with 55 active implanting accounts. As a reminder, Germany serves as our commercial proof of concept. Although the German market has different characteristics than the U.S. market, key learnings from it will aid in developing a successful U.S. commercialization strategy. Like the U.S., the German market is highly concentrated, and Genio has been embraced by doctors and patients in Tier 1 accounts, resulting in accelerated growth in the hypoglossal nerve stimulation market. Of the top 10 accounts, 9 are currently implanting Genio, and we claim at least 30% market share in 5 of those after 24 months. This strong performance sets a solid foundation for the U.S. launch, where we will initially focus on top Tier 1 implanting accounts. To continue driving growth in these accounts, establishing referral pathways with leading sleep specialists focusing on patients transitioning from CPAP, and converting them in a timely manner will be crucial for sustained success. The upcoming ResMed-Nyxoah collaboration should reinforce this strategy in the coming quarters. In summary, with strong DREAM data, a differentiated AG&S system, and a cash runway extending to mid-2026, I could not be more excited about the future of Nyxoah. With that, I'm pleased to turn the call over to our CFO, Loic Moreau, who will provide a financial update.

Thank you, Olivier. Good day to everyone, and thank you for joining us today. Revenue for the second quarter ended June 30, 2024, was EUR 780,000. Total operating loss for the second quarter was EUR 13.3 million, compared to EUR 11.9 million in the second quarter of 2023, driven by an acceleration in commercial investments in the U.S. as well as in Europe. During the current quarter, we raised over EUR 85 million in gross capital through a EUR 48.5 million equity offering and a loan facility agreement with the European Investment Bank for EUR 37.5 million. This extends our cash runway to mid-2026. As of June 30, 2024, cash and financial assets totaled EUR 78 million. This figure excludes the first EUR 10 million tranche of the EMV launch, which was drawn down in July. Finally, our monthly cash burn was EUR 4 million for the quarter. This concludes the formal part of our presentation. Operator, I will turn the call over to you to begin our Q&A session.

And it comes from the line of Suraj Kalia with Oppenheimer.

Hi. Loic, Olivier. Can you hear me all right? Pardon the background noise; it's raining pretty heavily here. So Olivier, congrats on all the progress in the modular PMA submission. Let me turn the direction to Germany, Olivier, if I could. It's been more than 4 quarters you all have been in Germany. What are the lessons learned from Germany? Is that translatable to the U.S.? Is it or has it been a market that has met your expectations? And maybe if you could talk about other discussions about supine versus non-supine in Germany?

Okay. Thank you for the question, Suraj. First of all, when we consider the journey of our launch, our goals were twofold: to demonstrate proof of concept by breaking the current monopoly in hypoglossal nerve stimulation and to expand the hypoglossal nerve stimulation market. We have accomplished both objectives. Importantly, our experience in Europe has shown our ability to take market share. Just as a reminder, we had a 27% German market share by the second year of our launch, which exceeded our expectations. The German accounts have been implanting Genio, and we estimate market share exceeding 30%, with some top accounts showing leadership after 24 months. Those insights instill confidence in our U.S. launch. Additionally, our independent survey data indicates that over 20% of hypoglossal nerve stimulation candidates in Germany are declining offerings due to invasiveness concerns. This further positions Genio as a viable market expansion option. However, let's also remain transparent: Germany is still a small revenue market with potential quarter-to-quarter variability due to the limited number of accounts and implant volume. Yet, looking at the first half of the year, we are nearly up 30% compared to the same period last year, so we are pleased overall with our progress in Germany and the lessons we are taking forward for the U.S. launch. The positive feedback in Germany since obtaining the DREAM data is also aiding our future growth.

And Olivier, for my follow-up question. Maybe I missed it in your prepared remarks on the status of the ACCESS trial. And for the U.S., as you plan out for your commercial launch, the 31 sites that you referenced, how would you characterize the volume that these 31 sites do, and the rest you would need?

Yes. Regarding the 31 sites, these are all high-volume implanters or facilities that we classify as Tier 1 AG&S implanters in the U.S. As for the ACCESS trial, we continue to progress the study. While we are not disclosing the number of patients implanted, we plan to conclude implant procedures by the end of 2024. I want to reiterate that in Europe, we have seen an integrated level of response from physicians, with confirmations similar to results for CCC and non-CCC patients, indicating that bilateral stimulation is a key differentiator in effective treatment for CCC patients.

It comes from the line of Ed White with H.C. Wainwright.

Good afternoon. Thanks for taking my question. Olivier, maybe you could just tell us about your U.S. reimbursement strategy?

Yes. First of all, I’m excited to receive these questions because they indicate we are getting extremely close to launching in the U.S. In previous earnings calls, I mentioned that we are collaborating with the American Association of Otolaryngology (AAO), which will formally recommend the establishment of a bridge category 1 CPT code for use at launch. This is crucial as we aim to have CPT codes in place at the time of launch. While this is not the final code, it will serve as a bridging code. In parallel, we are pursuing a geo-specific CPT code concurrently; however, based on past experiences, we anticipate that might take a couple of years. That said, at launch, healthcare providers will submit Medicare claims using the bridge category 1 CPT code, which is currently covered by all Medicare administrative contractors. Reimbursements will align with existing AG&S payment rates. This is the most significant update today. Additionally, we acknowledge the efforts of our competitors, who have successfully educated commercial payers on the benefits of hypoglossal nerve stimulation, leading to AG&S coverage policies. We've enrolled in the FDA's payer feedback program and are conducting payer advisory interviews, and we've begun informal discussions with payers to leverage these policies at launch.

It comes from the line of Jon Block with Stifel.

Hey, everyone. This is Joe Federico on for Jon Block. Thanks for taking the question. I guess just to start maybe on the revenue results for the quarter. That was a bit below what we were modeling, and that follows stronger revenue results in the fourth quarter of last year and from last quarter. During that time, your competitor was also having some regulatory dynamic issues. I wanted to ask for some additional clarity. Now that they've sorted that out this quarter, do you think that played a role in the revenue dynamics for this quarter?

Yes. Let me start by saying that competition is beneficial for the market. It’s advantageous for physicians and patients to have multiple options, and it keeps everyone on their toes to deliver the best technology to patients. Germany continues to be a small revenue market in the context of the total AG&S market, which is a factor. Therefore, it’s true that variability in sales can occur due to the limited number of accounts and implant volume. Regarding your inquiry into whether issues faced by competitors in Q4 might have bolstered our results, I believe that isn't entirely accurate. I suspect there was sufficient inventory among top German accounts to meet ongoing demand despite competition. The AG&S market continues to show strong growth. While I cannot provide new guidance, it’s clear we anticipate revenue in the second half of 2024 to exceed that of the second half of 2023. The transition period in Q3, especially with collaboration with ResMed identifying new patients, might have taken longer than expected, but we expect positive revenue impacts in the second half of 2024.

Okay, great. That's helpful color. And then just a quick follow-up. You mentioned that FDA approval for Genio could come as early as year-end 2024. Is that your expectation for approval, or could it flip into early 2025? And could you remind us just the number of sales reps you're targeting upon the eventual U.S. launch and maybe training centers in the first 12 months?

Yes, absolutely. As mentioned previously, after submitting the fourth and final module, we initiated the 180-day review timeline for the PMA. I can share that our interactions with the FDA have been very positive. Simply put, by doing the math, we should be on track for FDA approval by the end of 2024. However, I want to be prudent since I do not control the FDA's timelines. Therefore, I also mention early 2025 as a possibility. Regarding our launch strategy, I already discussed the importance of working with territory managers fully focused on revenue and patient referrals. Initially, we will start with 15 territory managers, each reporting to one sales vice president who is already onboard. Additionally, there will be another 15 field engineers and specialists dedicated to patients to support the sales effort. This scalable approach targets key accounts effectively and lays the groundwork for a successful launch.

And it comes from the line of Ross Osborn with Cantor Fitzgerald.

Hi, thanks for taking my question. Starting off, I would be curious to hear how your manufacturing ramp efforts are progressing ahead of the U.S. launch. Do you believe you'll have sufficient scale to meet demand in 2025?

So the short answer is yes; we believe we can meet significant demand. We currently use the Genio 2.1 version in Europe, which enables incremental adjustment of stimulation for patients sensitive to it, allowing daily feedback through an app and autonomy to adjust stimulation. This is our current product in use, and we are also deploying it in our studies. We are preparing a Genio 3.1 version with ceramic encapsulation of the internal component, making it an implant for life along with an ergonomic activation chip that will contain the coil, enhancing gross margins with eco-friendliness and a patient hub for improved connectivity and advanced feedback. Both versions will be produced in our manufacturing lines set up in the U.S. and Europe as we scale our manufacturing and increase capacity.

Okay, great. And then one modeling question. Looking at operating expenses and anticipating an inflection ahead of the U.S. launch, should we think of that as more of a Q3 or a Q4 activity?

Yes, if you look at the cash flow shape, we expect the inflection to begin in Q3, as Olivier previously noted. We have started to recruit management for the U.S. organization, and that will begin reflecting in our cash burn, which will increase through Q4, indicating a steady increase in expenses in the second half of the year before sales commence in Q1 of next year.

Okay, great. And then lastly, and I realize it's early on, but following the hiring of Scott, how do you shape your commercialization plan for the U.S. launch?

Alongside Scott, we have also hired a sales leader, a marketing leader, reimbursement specialists, and market access leaders. We are finalizing the search for a U.S. or global HR leader as well as a non-operational director. Moreover, we have also commenced active recruitment for our salesforce. I'm encouraged by the high volume of spontaneous applications we are receiving. Many individuals are eager to join the Nyxoah team as we prepare for our U.S. launch.

Our next question comes from the line of David Rescott with Baird.

Great. Thanks for taking the questions. I want to clarify a couple of pieces. I heard some numbers being thrown around, and I've been up around calls as well. I thought in the last call you had mentioned 75 to 100 higher-volume centers, but this quarter, I heard the number 31. I also heard you're looking to go after where about 85% of the volumes in the U.S. are occurring. Can you just help clarify what the near, intermediate, and longer-term go-to-market account opening strategy is in the U.S.?

Apologies if there was any confusion. The Tier 1 accounts mentioned refer to the surgeons who participated in our usability study and provided input. They received training on the product from both an anatomical and procedural perspective and successfully performed implant procedures in cadavers shortly after training. Their feedback has been overwhelmingly positive, with many eager for the technology to become available to them. That's the source of the 31 accounts. We will also target 150 from the total of 200 to 250 Tier 1 accounts identified as representing 85% of hypoglossal nerve stimulation revenue in the U.S. Initially, we will focus on 50 to 75 accounts, expanding as we increase the number of sales representatives, field engineers, and sleep specialists over time. I hope this clarifies your question.

Yes, that's great. Maybe just on the P&L, cash balance where you're at today, and how the ramp may look over the next couple of years, considering the mid-'26 cash runway. What do you envision as the longer-term breakeven point for profits? I realize it's still far away, but how should we think about the rest of the P&L over the next three to four years?

Thank you for your question. As discussed during the call, our U.S. launch strategy will be scalable. We initially target top AG&S accounts and selectively invest in DTC strategies to drive patient referrals. With our commercial structure, territory managers will be supported by field engineers and sleep specialists, making our organization highly productive. We anticipate achieving profitability at around $250 million in sales in the U.S. That is our long-term target.

Additionally, it was vital for us to maintain a healthy balance sheet to support our U.S. launch. Thanks to the equity raised combined with our loan facility, we now have over EUR 85 million in our balance sheet. This provides us with the financial foundation necessary to fully execute our launch.

And it is from the line of Adam Maeder with Piper Sandler.

This is James on for Adam. Just one. I wanted to give you guys the opportunity to comment on the SURMOUNT OSA study that was recently released at ADA. We were just curious to get your reaction to that data and if there has been any change to how you guys are thinking about GLP-1s and the impact on your business? Thanks.

We welcome GLP-1s overall because they will likely help increase the total OSA market and the number of patients treated. To delve deeper, the recent data from the SURMOUNT OSA study showed a placebo-adjusted 50% reduction in AHI and an 80% reduction in BMI. Importantly, the magnitude of OSA reduction outcomes was not as robust as those achieved through hypoglossal nerve stimulation. It’s significant to note that published data and commentary from leading KOLs suggest that achieving the highest therapeutic effect from hypoglossal nerve stimulation necessitates lowering BMI below 35 rather than treating patients with higher BMIs directly. From this perspective, the SURMOUNT data support our view that GLP-1s will enhance the hypoglossal nerve stimulation patient funnel as the GLP-1 treatment led to an AHI decline from 50 to 22, with a BMI decrease from 39 to 32, which gives us great confidence in the value of GLP-1s in our market.

Thank you. As I see no further questions in the queue, I will conclude the session and conference for today. Thank you all who participated, and you may now disconnect. Thank you, everyone.