CS MEDICA A/S presents the CEO Letter of December 2023

Yet another year is coming to an end; it has undoubtedly been hectic and challenging, but we are proud of our progress as a smaller MedTech in these uncertain times.

This year, we have leveraged our limited resources, ensuring every decision and action aligns with our long-term growth strategy. This approach is not just about navigating the present; it's applying a resilient foundation for our future success as a MedTech company.

Our R&D, CBD technology, and Intellectual Rights (IR) are a testament to our commitment to innovation and help set us apart in the healthcare sector. Investments and progress in the various development stages provide a competitive edge, enabling us to offer innovative treatments for pain, autoimmune, and stress-related disorders. 

However, longer lead times to market and delayed production cycles affected our revenue ambitions and cash flow during the year, requiring us to reorient and reframe our plans. 

Different growth track
Unlike last year, where we expanded our treatments into ten new European markets with stocked products and backed EU registration, our fiscal year 2022/2023 growth track was different. 

This year, we consolidated on building resilience and delivering on five areas for long-term, sustainable growth: 

• New markets
• New segments
• MDR & Compliance
• Operational Excellence
• Funding

We executed four of five successfully. Regarding Funding as a priority, we closed a promising long-term funding solution with a Chinese partner. We also engaged with a financial advisor to provide long-term and short-term financial solutions. Both could have helped us navigate optimally, but delays and macroeconomic challenges have unfortunately not yet delivered the expected upside, impacting our overall growth journey.

New Markets
This year, we welcomed 12 new customers and 14 new markets covered by new and recurring customers, delivering an order intake pipeline of 14.5 mDKK in 2022/2023. This pipeline is expected to be invoiced in the fiscal year 2024, as we currently hold an average lead time of 10 months from order to delivery, pending local market registration and production time. 

Despite the growth of new markets and customers choosing our treatments globally, challenges to our revenue and liquidity goals motivate us to strive to adapt and shorten the lead time from order to revenue while correspondingly identifying profit pools with faster revenue streams. A more robust financial capacity could have helped us solve some of the supply disruptions by stocking packaging and raw materials for speedier production and go-to-market lead time. 

This year, we established CANNORDIC India Pvt. Ltd, as India is the 3rd largest producer of medicine in the world with high-quality, cost-effective productions, and continues to show strong growth as a market for our treatments. We have four CMOs in Europe and are evaluating a site in India to support our future supply chain competitiveness and robustness, besides having a joint venture in China with facility plans in 2026.

New Segments
We have nine launched products and 13 products in the pipeline, covering categories for pain relief, skincare, haircare, nightcare for breathing and sleep, and protection for allergy and vira.

Utilizing already spent R&D costs to expand our portfolio into new categories and segments is one way to locate additional profit pools at a low investment level. The Anti-Hair Loss portfolio is registered as cosmetic products with a shorter go-to-market lead time than our substance-based medical devices. The VET portfolio for horses and dogs also has a shorter registration lead time.

The VET portfolio and the extension of the Anti-Hair Loss portfolio, a Shampoo and Mask, are presented to the industry and available as a Make-to-Order manufacturing strategy. 

Prioritizing IR and Compliance as a competitive advantage
When we became a listed company, we aimed to conquer global markets commercially with our unique treatments and brand. In the last few years, we have learned, reflected, adapted, and, most significantly, returned to our core DNA as a MedTech, securing our properties and competitive advantages when expanding to potential markets. 

Being first movers, we expected to take a higher market share faster than commercially proven possible. We based our expectations on market and patient prevalence and patients' search for alternative treatments, fewer side effects, and CBD. However, we underestimated the need to educate and support our BtB partners with clinical trials, proof of concept, local registrations, and patient insights. Being compliant is a higher priority for us today; it's the most apparent competitive advantage as CBD/ cannabinoids as an ingredient and technology often are perceived as a grey market legislation area. So, when we experience challenges registering our substance-based medical devices locally, we work more closely with legal representatives, support with evidence, and resubmit with different insights or products until we find the right angle and achieve local approval to sell. This process can take a couple of weeks to 6+ months, depending on the country.

MDR transition on track
We're proud to say we were among the first to sign Rule 21, with a leading Notified Body, BSI, ensuring our Medical Device Regulation transition. We obtained two MDR-compliant substance-based medical devices; the rest of the portfolio is in progress according to plan.

We additionally initiated several new local market registrations supporting the order pipeline and achieved final product registrations in Israel and India this year. The process of Israeli registration is similar to what we currently experience with the Chinese FDA registration. We've submitted selected products to one department and received questions and requests to resubmit under another division. Meanwhile, the Indian approval of our products only requested a product name change, and we had two products approved by the Indian FDA within a few weeks. Therefore, we sometimes change the direction of which department, the level of insights, and the products we aim to launch first, as the agility and collaboration of local legal representatives impact the speed-to-market.

Patents and trademarks attained
We attained two of 11 pending patents - the Nasal Protect Gel and Nasal Night Spray. 

We received new trademark registrations for our CANNASEN®, reinforcing our global position strategy. 

Building operational resilience in uncertain times
Within recent years, we've experienced a global pandemic, climate changes, war, a different geopolitical balance, and high inflation levels, creating a VUCA (volatility, uncertainty, complexity, and ambiguity) world.

Despite obstacles, our commitment to delivering innovation and our purpose remains persistent. It's in these challenging moments that our resilience intensifies, and our ability to adjust becomes an essential asset.

Strengthening our DNA of R&D with additional knowledge on markets, patients, and how-to insights will ensure we can increasingly predict and stay agile, hence navigating based on science and data-driven decisions to secure faster launches and additional long-term, sustainable growth. 

Financial capacity
It has undoubtedly been a challenging year securing the financial capacity for growth. As we entered the new year, we encountered challenges collaborating with our Chinese partners, impacting our share and growth strategies. We resumed negotiations and negotiated an investment agreement of mDKK 60 with a share premium of 454%, leading to a joint venture regarding the distribution and future production of CANNASEN® CBD products to the Asian market.

The first tranche of the investment is based upon the approval of 3-5 products by the Chinese FDA, and with delays in this process, we have looked at solutions to speed up the transfer of the financial funds. We have initiated registration in Malaysia with RongShi, and we are to simultaneously test e-commerce platforms in Southeast Asia to build faster cross-border entry to the Asian markets. 

In Q4, we also entered into an extraordinary agreement of IP transfer for the Chinese and Southeast Asian markets to our joint venture with RongShi to enforce the overall Joint Venture cooperation. Payment for the IP transfer is set at mDKK 4.9 and will be reflected as extraordinary income in CS MEDICA financial accounts. The payment is structured with tDKK 700 pr. patent transferred. The first patents have been assigned, and the payment of the first mDKK 2.8 is placed in the Chinese bank system, awaiting final approval from the government for cash transfer out of China. If no further delays appear, the expected approval and transfer are planned for January 2024.

To address the short-term cash flow challenges, we've arranged factoring with SVEA, achieved financial support through loans from our main shareholders (owners and family), and an extraordinary credit line with Danske Bank that has been extended to 16. January 2024.

Our top priority is to secure the financial capacity to enable the growth opportunities we pursue in the short and long term. It will strengthen our pipeline, supply chain, market expansion, and marketed product portfolio to benefit all stakeholders. 

Lastly, on the financial side, we moved to IRFS last year and are now transitioning our financial year from October 1 to September 30 to a calendar year format. As a result, October to December 2023 will serve as an interim period, marking the intersection between the previous financial year and the forthcoming calendar year now adopted as the financial year. Our Annual Report 2022/2023 will be available in February 2024.

So, in conclusion - thanks
Although the road ahead may have challenges, we are confident in our ability to emerge stronger. With our strategic approach, unique treatments, resilient spirit, and dedicated team, CS MEDICA is well-positioned to thrive in the healthcare sector and deliver value to patients, our employees, partners, and shareholders.

Yes, we underdeliver what we promised two years ago. Still, we have gained insights and adapted to the market situation, strengthening our DNA and competitiveness for the long-term perspective despite the need for more financial capacity. We have a clearer vision, secured IRs, and a go-to-market model with the agility to determine the correct pitches for commercial success.

We are a small team delivering the same tasks as larger Bio & MedTech companies, so I thank our employees and partners for their commitment, patience, and flexibility. Our team strives for excellence, focusing on their core areas of efficiency with the concept of divide-and-conquer to optimize resources and devotion to reach as many patients as possible with pain, autoimmune, and stress-related symptoms. 

I wish you all a Merry Christmas & Happy New Year.

Lone Henriksen
CEO & Co-Founder, CS MEDICA A/S