Ambu A/S

Thank you. Good morning, everyone, and welcome to our Q3 2019-2020 conference call.

My name is Nicolai, and I am from the Investor Relations team. With me today here at the Ambu head office in Copenhagen, I have our CEO, Juan Jose Gonzales; and our CFO, Michael Højgaard.

During this conference call, Juan Jose Gonzales will talk about the highlights for the quarter and Michael Højgaard will review the financials, and then we will take your questions. Please limit your questions to only three at a time and get back into the queue if you have additional questions.

The duration of this call would be approximately one hour, and you can, via our website, follow the investor presentation that we will go through live. Now, I would like to give the word to our CEO, Juan Jose Gonzales.

Thank you, Nicolai. Quarter three is an important quarter for all of us.

We have an aspiration to become the world's most innovative, single-use endoscopy company. And in quarter three, if we look at our results, if we look at our product within our innovation pipeline, if we look at the development of our market, we are well underway to fulfill this aspiration.

Now, let's talk about what makes Ambu uniquely positioned to succeed, and there are two aspects. Number one, this is a unique market opportunity.

The market is, today, DKK 700 million to DKK 800 million, the single-use endoscopy market with a penetration of 1% to 2% of the total endoscopy market. And we expect that this market is going to become $2.5 billion by 2024.

This is unprecedented growth since the use of endoscopy is concerned, one of the most attractive, if not, the most attractive medical device market. And if you look at Ambu, we have incredible competitive advantages to emerge as one of the leaders within single-use endoscopy.

Number one, we are today the number one in volume and we expect by the time we finish the year, that we will also be the number one in value with over a decade of experience in single-use endoscopy. We have clear competitive advantage both in terms of model and innovation and highest care low-cost manufacturing.

That's why we are able to have the richest pipeline in the industry. We have 15 neutrals launching over the next three years.

We will enter all the major endoscopy segments and we can do with the healthcare economics offering that ensures that hospitals can move from reusable to single-use without incurring any additional costs. And finally, we have the global largest single-use commercial organization dedicated to make sure that we can create a market and penetrate a major healthcare system with our single-use vizualization business.

That's why when you put all of this together, we are able to advance our agenda in a way that other companies will not be able to. For example, this week, we secured our sole source agreement as part of premiere the program, it’s a program hospitals and it is one of the major programs for Premier in the US and we are able to do it because of the fact that we have already today the most comprehensive portfolio.

We take this type of agreements to actually strengthen going forward to see more of these agreements around the world. And as we bring all of our innovation further strengthening our position.

Now, let's talk about our business update and what are the key messages in terms of our quarter three. And there are basically three key messages.

Number one, the COVID-19 pandemic is accelerating the development of a single-use endoscopy market. There is a much higher awareness in terms of infection control, healthcare systems are measuring better contamination.

And on the back of that, they are looking at single-use endoscopy as an attractive solution. And we think all of that, of course, our aScope Broncho is being used in the treatment of COVID-19 patients and on the back of that, we are expanding our customer base and increasing the penetration of our existing customers.

Now, all of these, it is translated into a remarkable performance. We are growing 21% in quarter three on the back of our Visualization business growing 81%.

This is the fastest growth in Visualization of our last 16 quarter. We are actually tripling our business versus three years ago.

In Europe and Asia Pacific, we are actually doubling versus last year. Now, the impact of COVID-19 has been positive in visualization and like in other hospital medical device companies as if contracted electric procedures, it shall have a negative impact in our core business.

Now, we are seeing a gradual improvement and in July, we are back on positive growth across all regions and all business areas but we are certainly seeing a decline especially in the first part of our quarter three. And it is this decline in our core business what we are reflecting in our full year guidance.

Now, we expect to grow 26% with our EBIT hitting around 12%. Now, because this adjustment is really leaning to our core business, our guidance for our visualization volume remain unchanged and we are expecting to hit more than 1 million endoscopy units this year.

Now, all of this means that we are actually emerging from the pandemic as a stronger company. With a 26% growth outlook for this year, Ambu is today one of the fastest growing medical device companies globally.

We are doing it while strengthening our organization both in innovation and commercial infrastructure. We are on top of that entering into the largest market in endoscopy with the launch of our aScope 4 Cysto immunology and our aScope Duodeno in GI.

These new markets are going to be important growth pillar for the company. Now let's talk with a bit more detail regarding the impact of COVID-19 and why the single-use endoscopy market continues to strengthen.

And we have seen two things Number one, there is an increase focus on infection control. There was a recent peer review meta-analysis that was done that show a 15% contamination trade endoscopy.

And actually if you look at the last DDW conference, the largest conference in GI endoscopy, there were 17 papers that were presented on a contamination endoscopy. So, overall, there is a much higher level of awareness regarding contamination issues in reducible endoscopy and the need to look for alternative solutions.

And that is combined with the guidance from the FDA and National Associations. For example, recently the FDA issue its second safety recommendation asking US hospitals to move from traditional reducible scopes to more innovative technologies, highlighting aScope Duo as part of a solution.

On top of that, all the national bronchoscopy associations both in the US, in Europe and Australia are indicating that in the midst of the COVID-19 pandemic, if you need to do a bronchoscopy that you should consider doing a single-use bronchoscopy. And all of that is creating a more positive environment for the development of our single-use endoscopy market and within that for the development of Ambu.

Now, now that we talk about the market, let's talk specifically about the COVID-19 impact on Visualization. So, first of all, if you look at the impact of aScope for a bronco in Europe and the rest of the world, it has been transformational.

In our quarter three, our Europe business, our Europe Visualization business grew three times, and we doubled our business in rest of the world. Actually, we are seeing double digit growth at all of our European territories with the United Kingdom as our main growth driver as they prepared for the second wave.

Now, in the case of US, as you have seen, as you heard a level of performance. And the reason why it is different in the US is because in Europe, when a COVID-19 patient arise, the first thing they do is to use single-use bronchoscopy to check the health of their lung.

While in the case of the US, single-use bronchoscopy is only used in the cases where patients have more severe conditions. And of course, with that, our single-use bronchoscopy is part intensive care and part elective.

And the elective part is being affected as selective procedures are being cancelled or postponed. Now, we have seen a positive evolution after our quarter three, and in July, we have our US Visualization back on a strong growth.

Now, to me transition our global demand, we have completed the expansion of our manufacturing capacity for our aScope Broncho. And now, we’re in a better position to fulfill any future demands related to our second wave.

And it is on the back of that that we have 337,000 units in our quarter three, we are selling 337,000 units in our quarter three, and that we are maintaining our guidance of over 1 billion -- of over 1 million aScopes for the full year. Now, while the COVID-19 impact has been positive on visualization in the case of our core business, it has been negative especially in PMD.

And, again, this is similar to what we have seen with other hospital and medical device companies that participate in elective procedures. There has been a postponement of these elective procedures and that has had a negative impact especially in patient monitoring that declined 32% in quarter three.

The reason why our anesthesia business have not declined to the same level is because of our resuscitators, and our resuscitators similar to our single-use bronchoscopy, may have played a very important role in the treatment of COVID-19 patients, and that is offsetting the decline that we are experiencing in the rest of our anesthesia portfolio. Now, we have seen after a sharp contraction in April and May, a recovery of our core business as well; and in July, all the regions and all business schedule are back in positive route.

Now, that we talk about the impacts of COVID-19 in our performance and how that is driving our outlook for a 26% growth, let’s look another very important element of our agenda. We say that we want to become the most innovative single-use player in endoscopy, and we have the richest pipeline in the market to deliver against that.

We are launching 15 new we are launching 15 new products over the next three years. And if you look at our key milestones in quarter three, we introduced our aView 2 Advance and with this product, now we have superior image resolution in pulmonology is a monitor that combined with our advanced sensor with our advanced image enhancement software, provide an image resolution which is unmatched in the market today.

We also caught approval for our aScope system. We will talk about what are some of the early lines of this launch, but that give a factors to what is considered the largest endoscopy market with urology, a market which is bigger than our current pulmonology market.

And of course we got – granted breakthrough designation for our aScope Duodeno, and we’ve got clearance from the FDA. And with that, we are entering into GI and I will also give you some details in terms of where we are.

Now, all these are very important achievements in the midst of the COVID-19 pandemic and it reflects the ability of the R&D, regulatory and commercial organizations to execute in what has been a very difficult environment. Now, COVID-19 has had an impact in terms of the next-generation of products and this is on the back of travel restrictions and ability to be able to work with some of our third-party supplier that actually is resulting on a delay in our launches from our second quarter next year to the second half next year for our aScope Colon and Gastro.

All the rest of the launches remain as planned. Now, let me just give you some highlights in terms of our aScope Cysto, again this is a DKK 6 million procedure market for us.

We are going to expect a rapid uptake, similar to what I think what we have seen in ENT and faster than what we actually saw in pulmonology. We say this because we have done around 500 product demonstrations, we have 213 ongoing trials.

Actually if you look at 200 largest urology centers in the US, in 21 of this top 100 we have either converted or we are in the middle of trial. This level of activity, this level of assertiveness is much higher than what we saw we launched pulmonology and when we have entered into ENT.

And the main driver of this is the perception of image solution. And basically, our aScope Cysto have our most advanced sensor.

It has the most advanced image enhancement software, and it has our latest monitor technology with aView 2 Advance. And when you put all of that together, and you compare that image resolution with our reducible cystoscope, which after going through several reprocessing lose its image capability.

Basically [indiscernible] from the healthcare system and the urology physician is that they perceive a better image solution, which combined with the convenience and flexibility, the ability to do more cystoscopy procedure with existing infrastructure. By strong healthcare economics, we’ll make this market under very rapidly.

Now, that is in terms of system. Let's talk about now our entrance into GI with the launch of our aScope Duo.

GI represents the number one strategic priority of our company. GI accounts for 70% of the total endoscopy procedures globally and we expect that by 2024, single-use duodenoscopy is going to be one of the largest segments in the market.

And that's why this launch is so important. Now, we come to this close that actually, we have granted breakthrough designation with the FDA.

That basically means that throughout the development process, we worked closely with the FDA on security approval. And we are expecting a rapid market, a rapid conversion.

It’s very rare for the FDA to issue two safety recommendations to US hospitals. That, combined with the CMS endorsement in the outpatient channel is going to ensure that all hospitals in the US move to innovative technologies and single-use duodenoscopy being the one that will guarantee no risk in terms of contamination.

We know it's going to be one of the pressure solution. Now, because we started our control market release, we have conducted today over 400 product demonstration.

We have some positive feedback from physician on the back of this product demonstration. We get positive feedback in terms of the image resolution.

We get positive feedback in terms of the feel of the product, we get positive feedback in terms of our weight and overall, we are excited in terms of moving forward. Now, to be able to support this launch, one of our key priorities is to build a significant commercial infrastructure especially in the US.

We are on track to build our 170 reps in the US and they are working well with Cook Medical as part of our marketing agreement. And through that, we are getting access to all the major international colonoscopy centers in the US.

We expect all this infrastructure to be in place by the end of Q1 next year. And then in terms of our clinical study and I would say this is similar to our other pharmaceutical and medical devices companies are experiencing a COVID-19 is disrupting and the ability to start clinical trials in the time that we were planning.

Our plan was to start 1st of September and what we are seeing is that the administration in our key selected site is having some problems to finish our contract and have everything in place to make sure that we can execute these clinical trials without any problems. And therefore we are delaying the start but the clinical trial is an important part of our launch agenda and we are committed to share the result as soon as we to share the result that so much we complete the study.

Now, that is in terms of our -- is in terms of the highlight, in terms of the performance of the company, that product is our innovation and where we are with our launches to urology and GI. Now, let me pass this to Michael Højgaard to provide more details in terms of our financial performance.

Thank you, Juan Jose. As we have talked about COVID-19 as in Q3 significantly increased the demand for our single-use endoscopes and resuscitate in Europe and also in Asia Pacific.

For the quarter, we have delivered an organic growth of 21% driven by an 81% increase in Visualization, but a negative growth for our core products by minus 15%. For visualization, the geographical composition of growth varies significantly with triple digit growth in Europe and in rest of the world whereas the growth in North America is slightly negative.

The significant difference in geographical growth pattern is driven by the fact that doctors in Europe use bronchoscope as an integral part of the standard treatment for COVID-19 whereas physicians in the US pursue alternative treatments to avoid the aerosols from potential COVID patients and therefore often limits the use of bronchoscope for situations where the condition of the patient worsens. Our core business has contributed a negative growth of minus 15% as mentioned as these products to a last extent are used in elective procedures that have been subject to cancellations, etcetera.

As a result of the above, our full year guidance is therefore reduced and the organic growth for the financial year is now expected at approximately 26% compared to previously 26% to 30%. The guidance is thus reduced to the lower end of the interval due to a more negative outlook for our core business whereas our Visualization business is on trend and we maintain our guidance to sell more than 1 million endoscopes for the full year.

Our core business is now for the full year expected to grow slightly negative due to COVID-19 impact leading to elective procedures being cancelled to a higher extent than what we estimated back in April this year. Because of the lower top line growth for this year, our expectations for EBIT margin full-year is reduced from 12% to 14% to now approximately 12%.

As mentioned, our full year expectations for Visualization are intact and as we speak, we are close to reach the 1 million mark for endoscopes being sold year-to-date. On slide 14 you can see the geographical distribution of this quarter's revenue and growth rates.

North America accounted for 37% of revenue with a negative growth of minus 10%. COVID has impacted our US business negatively as elective procedures, in general, were being canceled or postponed as the spread of the virus continued.

Visualization in North America declined by 92% driven by COVID on the elective part of the pulmonary and ENT businesses as well as due to the guidelines regarding risk of that. However, after a sharp contraction into Q3, we have seen our Visualization business begin to recover as we move into Q4.

In Anesthesia, we saw positive impact on the demand for resuscitators while the electric driven product groups were negatively impacted leading to a negative growth of minus 6% in the US, a significant share of products in the PMD are used for electives which is the reason why PMD is significantly impacted with a negative growth of minus 43%. Europe accounted for 50% of revenue in Q3 with an organic growth of 59%.

Visualization sales increased nearly three times versus last year, reaching 195% organic growth. Anesthesia grew 7% while PMD declined by 32%.

The core businesses are impacted by the same COVID dynamics as we see in North America including a strong demand for resuscitators and cancellation of procedures within PMD. The rest of world which accounted for 13% of revenue and an organic growth of 31%.

Within Visualization, the business doubled with an organic growth of 105%. The growth was highly driven by the sales in China, Australia and Japan.

Anesthesia grew 10% from improved ability to deliver anesthesia products on the back of the higher demand that rose in Q3. PMD saw a negative minus 9%.

The fundamental dynamics impacting Anesthesia and PMD are identical to what we have seen in North America and in Europe. Now, let me go through the key numbers on our P&L.

Revenue for Q3 was DKK 947 million, up DKK 174 million from the same period last year. This corresponds to reported growth of 23% and organic growth of 21%.

The gross margin was 64.7%, which is a significant increase by 8.3 percentage point from last year. Our gross margin last year was negatively impacted by inventory write-downs following the SC210 discontinuation in June.

And adjusted for this effect, the margin expanded organically by more than 5% year-over-year. Caused by the higher – which is caused by the higher ratio of revenue coming the Visualization product group.

Total capacity cost for the quarter were DKK 457 million, which is a 63% increase. The growth is mostly driven by the increased selling and distribution costs as a result of the commercial expansion announced in June and August last year, and now in May 2020.

EBIT before special items was DKK 156 million and the EBIT margin ended at 16.5%. Moving on to the highlights of our cash flow and the balance sheet.

Free cash flow before acquisitions totaled DKK 187 million, of course amounting to 20% of revenue. For the first nine months of this year, free cash flow is negative by DKK 92 million.

This is as expected and is driven by the investments into rebuilding working capital, as well as the $20 million settlement paid through the former distributor of aScope in North America as communicated in Q3 of last year. The milestone payment of €40 million related to the FDA clearance of the duodenoscope, is due to be paid in the first quarter next year.

At the end of the quarter, new working capital was DKK 569 million, corresponding to 17% of 12 months’ revenue. Lastly, total net interest-bearing debt was DKK 1.253 billion, and that corresponds to a ratio of 2.2 times EBITDA.

Finally, let me start off on the revised guidance for this year. The reduced outlook is driven by a higher than expected negative impact on our core business from the COVID pandemic.

Our full-year expectations for Visualization are on track and we continue to expect to sell more than 1 million endoscopes this year. And as we speak, we are very close to reach the 1 million scopes sold mark.

As a result, the outlook for the full year is reduced to approximately 26% organic growth, down from the 26% to 30% and with an EBIT margin reduced to approximately 12% down to 12% to 14%. With this update, I would like to give the word back to you, Juan Jose.

Thank you very much, Michael. And please open to Q&A.

Yes. Sorry.

Hi, Jose, and hi, Michael. Three questions from my side.

Thank you. First, to the bronchoscope.

You’d – as I understand from your report, you say that you had – you are expanding supply capacity going into the fourth quarter, fourth quarter. Can you talk about whether you were actually kind of constrained in terms of bronchoscope sales in Q3?

And then related to that also regarding the bronchoscopy, how have you seen your aScope sales being impacted here in Q4 as we’ve seen the European case counts begin to rise again? And then just for clarification on your guidance commentary on the core business where you say you expect negative organic sales for the year.

Does that also include a negative organic sales in the Anaesthesia business in isolation? Thank you.

Hi, Christian. This is Michael.

So, the first question I understood the way whether we, in Q3, had been suffering from capacity constraints that has led that we were unable to fulfill customer demand, is that correct?

Yes, that's correct.

I would say, no, that has not been the case. We have – when the pandemic started, we were in the situation where we had quite significant inventories.

So, we took benefit from that. And I would say that, from the late part of March or maybe even the early part of April, we have been airfreighting more of these old scopes into the key markets and you could also see that there's a quite significant extra cost attributable to that.

So, as we have increased our capacity, we will be able to refill those inventories as we move into Q4 and then we're slowly going to see that our supply chain cost will normalize. It's going to take a while.

Your commentary on Q4, could you just repeat that?

Yes. So, in Europe, we have recently seen increased COVID-19 case counts.

And my question was to how you're seeing that impact demand fall for the aScope here in July and August?

Yeah. Well, I would say that, in the report and also in our commentaries here, we are disclosing that we continue to see a very strong rebound in general.

And I would say that we continue to see a very strong performance also specifically on the visualization. And I think that is – there's probably last month’s information we can share on that, but we continue to see a very, very strong demand in Europe for our aScope while we, at the same time, also seeing a very strong tendency to the rebound in the markets that has been suffering.

And as for the guidelines, we are guiding, as you say, slightly negative growth for coal in the fourth quarter and specifically on the anesthesia which is very positively impacted by the resuscitators sale and we must guide specifically on that but as you can see from the numbers, it is PMD growth that is in Q3 right behind the overall growth for that, I think you can more or less make your own.

Okay. Thank you very much.

Thank you. Hi, Juan, Michael and Nicolai.

I hope you’re all well. I have few questions, is that okay.

So the first is in regards to your clinical study for duodenoscope which unfortunately has been postponed until further notice. I'm thinking about the duodenoscope 2.0 which is supposed to come next year and it's my understanding that the 2.0 is going to be built on basically all the feedback that you're going to gather from the first version once it's on the market.

So, if we're going to see sort of a slow uptake due to the potential, sorry, a potential slow uptake into the postponement study, would it be fair to assume then that the 2.0 version might be postponed as well so in correlation to this study? And my second question is in regard to the Visualization segment.

So, as you mentioned due to a different recommendation in Europe and the US, we are seeing Europe doing extremely well while for the sales in North America, we are seeing that they're down 2% currently and Michael, you did speak to this a little bit, but I was just wondering if you could elaborate on how the underlying market performed, so if you're actually gaining market share or losing market share in, specifically, North America? And the last question is in regards to also the duodenoscope uptake.

So, you mentioned you've been out and actually showing the product about 400 times, are you able to quantify the number of these showings that actually lead to sales? Thank you very much.

Sure. Benjamin, this is Juan Jose.

So, let me start with whether a delay of a clinical study will have an impact in terms of the timeline of our Duo version 2. And that’s the reason we are still committed to introduce our Duo version 2 rapidly.

And the key improvements on our Duo version 2 come from [indiscernible]. Number one, in terms of technology, it comes from more advanced sensors, more advanced seamless implant software, and more importantly, making sure that our Duo version 2 works with together with our new colon and gastro.

We believe that that is going to be a very important differentiator. For some of the players, they will need to buy a box for duo and another box for colon and another one for gastro.

So, hospital will have to pay more and incur on significant complexity. And the source of feedback is of course all the work or all the input that we already have today after the approved demonstrations that we will gather with our control market is so we feel we will have enough input to make sure that we bring our Duo version 2.

And by the way, this is a very good example in terms of the type of company that we are similar with pulmonology where we went from aScope 1, 2, 3, 4 and we’re going to launch our aScope 5. You will see us committed across every segment where we compete in terms of bringing very rapidly the most advanced generations and making sure that we are at the forefront in terms of performance.

Now, in terms of Visualization, you know, we are seeing a difference in performance between Europe and the US. We saw it in the second quarter and we see it in the – in quarter three as well.

And this is driven by the difference in terms of surgeon technique and by the time and duration of the COVID-19 pandemic. What is important to know is that if we look at US there will be a lot of volatility quarter-to-quarter.

So, for example, last quarter grew 43%. This quarter, we are negative 2%.

Year-to-date, we are plus 21%. And that just driven in terms of the start of COVID-19, hospitals asking for stock ahead of time to be able to go through the pandemic.

Now, when you look at our share performance, our analysis indicates that we have actually gained market share during the pandemic, and specifically we have gained 300 new accounts and of existing accounts we have win 300 new departments. So, our customer base in the US has expanded.

We believe that year-to-date we – our – the penetration of single-use bronchoscope as sort of centers of the overall bronchoscopy market has increased by five to seven points and as you can imagine we have over 95% of market share of bronchoscopy. So, we believe that as COVID-19 is behind that.

This expanded the customer base is going to translate into a superior performance going forward. Now, in terms Duo uptake, I mean it’s very early to – it’s very early to comment anything in terms of uptake.

I would say we are positively surprised by the interest of US hospitals to move from reusable to single-use duodenoscopy. We believe that between the FDA recommendation, between the CMS reimbursement and between the performance of our product that this segment is going to be created.

Now, we expect Duo to be an important growth engine for Ambu next year, but that’s as far as I can comment.

Hi. Thank you so much for taking my questions.

I have three if I may. So, my first one, in Q2, you gave us very helpful idea, but 14% of that growth contribution was due to COVID.

Could you roughly help give us an idea for Q4 the contribution and in addition of those 337,000 scopes, how much of those were bronchoscopes related to the COVID’s demand in Europe and APAC? I'll just do my first one there and then I'll hope back from a second and third to make things easier.

Catherine, we just had a small technical issue here and your question was a little complicated, could you please just repeat it?

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

Well, I think what we have in general sense is that out of our total number of units being sold, around somewhere between 85% to 90% relates to our aScope, but if you’re asking to the reasoning for the customer acquiring the aScope, whether it's related to COVID or to something else, I cannot share that information with you.

No problem at all. And then, in the US, for your core business, PMD and Anaesthesia, with your discussion in US hospitals, what level of elective procedure volumes do you estimate have returned in July and August of this year?

Is it to say 80% relative to last year, 90%, just to give us an idea of days elective return to volume in the US?

Sure. So I would say that there are two things.

Number one, after the sharp contraction in April and May, we have seen a steady recovery. And as I said before, in July, if you look at our core business all regions and all business areas are back in positive growth.

And specifically in terms of the US, we estimate the elective market to be at about a 90% plus in terms of recovery. There is a significant value depending on the department with orthopedics being ahead in terms of recovery; but overall, we are estimating that we are back at around 90%.

One very quick final one. Interestingly, you have a delay of the Colon aScope for the second time.

I appreciate part of that has to do with COVID, but can you just give a little more color as to why that’s delayed and perhaps why other products in the portfolio like urology and pulmonary will not experience the delay and it was just the GI portfolio that was called out?

Sure. And I have to say that there are no message behind this delay.

Basically, we have three R&D centers. We have an R&D center in Malaysia, an R&D center in Kissing in Germany, and an R&D center here in Denmark.

And different products are produced in different areas. And then we have technology partners mainly in Asia that, of course, play a very important role in the development of the new sensors and our new so forth and so forth.

And basically with COVID-19, what we are seeing is travel constrictions and making it more difficult for us to be able to work with some of our third-party supplier, and internally in the company to be able to travel back and forth and advance some of these products. So, depending on where this products are developed, some are more impacted than others.

And in the case of our colon and gastro, they are the ones that in that phase of the project, we are in more need to be able to -- for the teams to meet together with the suppliers and we haven’t been able to do that.

That’s great. Thank you so much.

Yes. Thank you very much.

A couple of questions here for me. Just going back to the duodenoscope and the human trial delay here, so could you maybe add any color on when do you expect to start the trial and when we should expect to have the 60-patient interim data?

And also, are you maybe considering doing a small trial in Europe instead while you wait to start up the 500-patient study? And then, second question just on these new accounts and order of the aScope Broncho during the lockdown and you could say peak hospitalizations.

Did you see some sort of retention of these accounts now that the number is going down here in Europe? So, just curious to see whether there is sort of a less one-off elements compared to what you communicated here back in the Q2 numbers.

And then just lastly, can you disclose anything on the duodenoscope price now that you have the FDA approval and are basically in launch mode? So, are you still just saying $1,400 to $1,600 or can you maybe give us a little bit more color on what you think also compared to your close competitor which is, I guess, pricing it at a somewhat higher level?

Thank you.

Sure. So, in terms of our clinical, first of all, we expect that the COVID-19 situation in the US to start to normalize than we have seen over the last recent weeks and we still think that the best thing to do is to just focus on executing our clinical trial in the US rather than trying to start new trials in Europe.

And then in terms of timing, I mean, this clinical trial is an important part of our launch plan and we plan to do it as soon as we had the conditions to execute with the plan and we will share the results – and we'll share the interim results as soon as they are available. So, that’s as far as I can tell you the plan.

In terms of Broncho, of course, as COVID-19 started first in Asia and in Europe then in the US, we have experienced in terms of the expansion of the customer days and our purchase and we have actually go those learnings into the US in terms of these expansion of customer base and what is the profile in terms of the process. So, the only thing that that we can tell you is that we consider that the expansion of the gain in market share in the US is sustainable and we will carry it going forward and that basically means that we expect these new customers and the new department to use single-use bronchoscopy as part of their normal day-to-day operations and that that will be translated in terms of repeat purchase.

Now, in terms of pricing, our pricing is grounded on health care economics. We know today that for our hospital system in the US, the cost of using a reusable duodenoscope is around DKK 1,400 to DKK 1,600 and that’s basically our pricing.

And this is critical and by the way, we saw it in pulmonology. We have seen in ENT, we have seen in ENT, we have seen it in Cysto and we believe we will see it in Duo.

This is to make sure that the market is accretive that all hospital when they decide to move to single-use they don't need to incur into more costs. The way is critical also in our negotiations with GPOs and large healthcare systems, the fact that we are building a reputation with our program, the most advanced technology with a very attractive healthcare economic offering and that's really one of the drivers, for example, behind the sole source agreement with Premier, which as you know is one of the largest GPOs in the US.

So, we are maintaining our price as it is.

Okay.

Yes. Good morning.

I'll take one question at a time. So, my first question would be on the ASP effect on your North American Visualization business.

In the previous two quarters you helped us to understand the ASP effect. Could you provide a number for this quarter?

Thank you.

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

And this is ASP effect, you say that will go to neutral in quarter four, as far as I remember because you sold all your US scopes internally in…

No.

…quarter four of last year.

No. That we actually need to go all the way to Q1 before it's completely neutralize.

We had, I would say…

Okay.

…six, seven of distribution stayed in Q4.

Okay. Good.

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

Sure. I mean, my understanding is that it is recorded in that website when the clinical trial starts.

So as – ours have not started yet, it doesn't appeared yet. But we expect that as soon as we start, we will be able to find it there.

And this is going to be part of a – our scientific program.

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

There will be a scientific paper being published. Yes.

Okay. And then, a final question on your monitor.

You know, many of the doctors we speak with, they kind of favor the split screen feature and the possibility to measure or show the oxygen saturation with their [indiscernible] screens. Is that something that you would consider to update your monitor with in the future?

I mean, we – you know, as you have seen with our aScope and you are seeing with our monitor, we are going to bring new generations of monitors all the time, and they will have a different levels of functionality. Now, if you were to now that we are talking about that specific monitor.

If you compare our aView Advance with that monitor, we have far better image resolution. And that is actually the number one driver of decision making in bronchoscopy.

And that’s combined with the superior functionality. I mean I have to say we are very confident that today in pulmonology we have the best offering in the market.

Great. I’ll step back in the queue.

Thank you.

Thank you, Niels.

Hi. Thank you for taking my question.

I have three and let’s take at a time. Firstly, in Boston Scientific, they have now talked about to bundle their sales.

Could you give us an update on the Cook Medical collaboration at the moment and now you have announced the product?

Yeah. Just to make a – so, just want to make sure I heard you correctly, you said that Boston Scientific talked about bundling their sales and then they wanted to know their collaboration with Cook Medical.

Yes, exactly.

Yeah. I mean by the way, I mean that's exactly what we were expecting from Boston Scientific, that is their commercial strategy.

In terms of our commercial structure in the US and this is very important because you reflect our investments and level of commitment behind winning into endoscopy and GI overall. So, number one, we are building 170 sales force in the US, which are going to exclusively focus on the commercialization of our single-use exclusively focused on the commercialization of our single-use duodenoscopy.

And number two, with the collaboration of Cook Medical, we basically have access to all major duodenoscopy centers in the US. We are doing pro demonstrations together.

We are doing training together. We are leveraging the relationship with surgeons.

And that basically is what allows us to do over 400 pro demonstrations in what is a very short period of time and of course, give us access to key opinion leaders for our control market release and for the execution of our clinical trial. So, overall, I have to say the partnership is very valuable for Ambu as we are introducing our Duo and we can say that today ,we are building a commercial infrastructure that will allow us to compete head to head with any other company entering into single-use duodenoscopy.

Okay. Thank you.

And then, my second question is regarding cystoscope. You mentioned it was unaffected by COVID-19, but then looking at the clinical trial database, it still shows that you haven't initiated the patient recruitment and you also said you expect the uptake would be fast.

Is it fair to assume that you are confident to sell the product without clinical data and could you elaborate a bit here?

Yeah. First of all, I mean, you are correct that the study for the cystoscope, which is in Europe, is slightly delayed.

Depending on the endoscopy procedure, the value of the clinical vary – the value of the clinicals vary. So, in the case of cystoscope, as it is in the cast of ENT, as it is in the cast of pulmonology, the most important thing is the pro-demonstration and the evaluation that each healthcare system do in terms of the performance of the product relative to the reducible scope.

And in the case of the cystoscope, we know that feedback is positive and it is going to be a major growth engine for the company going forward. The clinical trial, as soon as we get the C Mark it will be conducted and it will be part of the commercialization, but is not really necessary for us to build a – to start building it now.

Okay. Thank you.

And my last question, could you give us indication on when you actually expect to get the CE Mark for duodenoscope? Yeah.

Yeah. I mean, Europe is today our largest region in Visualization and is a very important part of our growth engine.

We are building our commercial infrastructure for the commercialization of our duo in Europe already. And the only thing I can say is that because of its importance Europe is going to follow the US and as soon as we get approval we will be communicated with everybody.

Fair enough. Thanks.

I jump into the queue.

Thank you. Yes.

Ridley-Day, Redburn. Can we just discuss your margin guidance for the full year?

They would have seen to try a fairly material, sort of, sequential decline in the gross margin. I know you have a strong gross margin in the third quarter into the fourth quarter, because even if you assume sustained higher SGA and R&D spending, could you just give us more color around the dynamics there on the gross margin in the fourth quarter or indeed if I'm missing something on the other cost lines to get us down to that 12% margin for the full year?

Yeah. Well, maybe I cannot talk too much about the Q4, but don't expect that there would be anything extraordinary in Q4.

The fundamental behind the change of the market guidance from the range to now 12% is the lower scale that we are getting from the lower revenue. What is also impacting the margin is of course the investments and the air freight, but all that has more or less already built in.

So that's really not that which is driving the margin. It is the lower scale.

Okay. Thank you.

And then, related question on R&D investment.

Yeah.

I noticed that year-to-date in capitalization is running quite high relative to…

Yes.

…prior years. How should we model that both in terms of operational spend and in terms of the overall investment as we do then go forward?

And could you give us any more precise color on what that capitalization relates to?

Yeah. That's a very, very good question and you're completely right that we a steep increase in the capital impact from innovation and it's, yeah, it's up DKK 100 million this quarter over last quarter, so it's up 40% or something like that.

So, it's very significant. So, going forward, you should continue to expect that it is increasing because as we are building our target innovation organization, we are going to add to the account of our innovation expenses.

So, relative to revenue, I think you're not going to see us expand the overall expense. But the overall impact to the EBIT when you do the net cash flow, the analysis, it’s going to increase.

I cannot guide you a lot further here, but I think if you assume that the ratio investments to revenue is constant and then, you model our revenue growth going forward, then you should be able to make your own assumptions.

That's helpful. Thank you.

Hi there, guys. This is Michael Healey from Berenberg, and hope you're doing well.

Just kind of a lot of questions are already asked and answered, some follow-ups just on the duodenoscope in Europe and the Rest of the World, is it a case that this hasn't been submitted yet to CE marking and perhaps, if not, is there a reason why that it hasn't been submitted, I guess that should be a bit more of a straightforward approval there. And also just on your expectations for pricing, have you got an idea for the US, do you expect that pricing to be matched in other territories as well?

And just, again, following up Catherine’s question, the colonoscope and gastroscope, it’s understandable this can be delayed, but just on the regulatory approach here, will this follow the same as the Duodenoscope i.e., get the FDA approval and then roll out a clinical study and then launch the product? So, just what's your confidence in that all being done within H2?

And do you factor this and getting some sort of expedited process as well?

Okay. Thank you for your question.

So let me start with the launch of our Duodenoscopy in Europe and Asia. I have to say that we are proceeding as planned and those are very important parts of our growth agenda and that’s what where operating our GI commercial infrastructure there and maybe unlikely.

Maybe just to add, I mean we consider Duodenoscopy, the Duodenoscopy concept to be just address contamination issues and the value of single use Duodenoscopy. We expect to see that in the United Kingdom and in Germany and in Japan and Australia.

And on the back of that, we believe this is going to be a global opportunity. Now, in terms of pricing, the only thing I can say is that our pricing is grounded on health care economics.

So wherever you are around the world, the cost you are incurring to have and to do today reusable Duodenoscopy will be the number guide to set our pricing for our single-use Duo. And then in terms of colon and gastro, I mean we expect to have a regulatory – to go to a regulatory process that is relatively straightforward and there is not much to comment in terms of whether there would be a breakthrough designation or not.

The only thing to say that – now that there is more awareness regarding the contamination levels on duo, we are starting to see an increased level of activity to look at the level of contamination in those area and we expect to find also similar opportunities for single-use to be an alternative offering that ensure a better infection control.

Okay. Thank you.

Thank you.

Yes. Just a quick question, a follow-up question on your duodenoscope.

So, I mean, it's only four working days before the duodenoscope was supposed to commence for this clinical trial. And – but when you announced the approval of the scope back on the 17th of July, I mean, were you already by then aware that the clinical trial would have – would be delayed?

Hey, Niels. This is Michael.

No, of course we were not. When we provided the announcement of the duo bag, I think it was on the 17th of July.

We still believe that the trial would commence on the agreed date. But I would say that with the transparency and the – apparently our ability to close the final contract with the clinics in the US, we were forced to take this decision here.

So, we really don't believe this is very dramatic. This is a result of the environment that we're working in right now, unfortunately, and we expect to be back as soon as we can.

And do you still expect the clinical trial costs to amount to approximately DKK 5 million?

There’s nothing changed to the financial estimates whether on what we have said before. And it’s exactly the same.

It's unchanged.

Okay. Thank you.

Yeah.

Hi. Thank you very much.

I just have two questions. First, on urology, you mentioned that 21 out of the top 100 hospitals have either converted or in a trial phase.

Would you be able to specify the mix as it clearly means two different things? And then the second question, just out of curiosity.

The FDA summary document in regards to the endoscope approval measures that the Ambu or in terms of previously approved FDA colonoscope was used as a reference device. Just curious to learn on what basis this colonoscope was used as a reference device.

If you could elaborate on that would be great. Thanks.

Yeah. Thank you.

Let me start with your last question. No.

It has not been used as a reference device. So, that is not the case.

In terms of the urology, we’re adding a competitive environment and I hope everybody understands now with the attractiveness of the single-use endoscopy. There are more companies looking at our commercial performance by segment.

The only thing I can tell you today is when you look at the number of pro demonstrations, how many trials that we have ongoing and the level of interest early on with the largest urology center is that we expect our aScope system to be an important growth engine for the company, going forward. And that’s as far as I can go.

Okay. Thank you.

If you wish to ask a question, press zero on your telephone keypad. And we do not have any question at the moment.

I hand the call back to you.

Thank you. Thank you very much.

And let me just breakup on where we are as we finish our quarter three. We’re a company growing 21% with an outlook of growing 26%, but one of the fastest growing medical device companies globally.

At the same time, we are moving forward with our innovation pipeline entering the largest market in endoscopy, urology and GI representing important growth opportunities for the future of the company. At the same time, we continue to invest in our capabilities especially in innovation and that puts us in a very strong position to become the world's most innovative single-use endoscopy company and one of the largest European-based medical device companies.

Thank you very much.

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