Acarix AB

STO:ACARIX

Earnings Call Transcript

[Filip Einarsson, analyst]

Good day, and welcome to Redeye. Today, we have with us the CEO of Acarix, Helen Ljungdahl Round; and the CFO, Christian Lindholm, which is going to make a Live Q following the company's Q1 report. So I'll leave the stage to you. Welcome.

[Helen Round, executive]

Thank you, Filip, and welcome to this Q1 -- Acarix Q1 earnings call and Live Q. We'll be doing this presentation in English for the benefit of our international viewers. My name is, as Filip said, Helen Ljungdahl Round. I am the President and CEO. And I also have with me today Christian Lindholm, our CFO. And Christian will go through the financials. I will be presenting more around the highlights and some major achievements that we've had here in Q1.

At Acarix, we focus on combining acoustics and AI-based technologies in the space of cardiac diagnostics. And we have a unique opportunity to radically transform first-line cardiac diagnostics, which is really exciting. We're in the process now of launching the CADScor System in the U.S. market. And we're making some good progress there, although I think it's worth mentioning that entering the U.S. market does take time. We have put in place some really important building blocks for our commercial success in the U.S. already, and that includes regulatory approval with the FDA clearance, also reimbursement with a CPT III code. And then in Q1, which we'll talk about a little bit more during the time today, we had a breakthrough order coming in through the VA, the Veterans Administration in the United States. And then finally, last week, we also announced that -- or earlier this week, we announced that we've completed some very important work together with the American College of Cardiology.

But today, really, the purpose is to give you an update on our Q1 but also to give you a little bit more information on the numbers that were released this morning -- earlier this morning. So as we're a publicly traded company, we -- I do want to show this disclaimer, but let's dive into the highlights of Q1.

So I mentioned some major building blocks. I would say that one of the most important achievements in Q1 was our order from the U.S. Veterans Health Administration. And this was an order that had a value of up to SEK 1 million in itself, and that was 11 systems and 11 boxes of patches. But I'm going to go into this in more detail and why this is so important to us.

In Q1, we also significantly increased our footprint. During 2022, we spent a lot of time building up the organization, defining our strategy and how we're going to commercialize in the U.S. But it was now in Q1 that we signed this really important agreement covering now 43 states in the United States.

Reimbursement remains, I would call it, a challenge for us, but it's a challenge for everyone. It's a very complicated system to navigate, but it is really about physicians receiving payments from patients, insurance companies as they do CADScor Systems. And we continue to make good progress on this. We'll talk about this some more.

In terms of sales, we reached SEK 2 million in sales. That was a growth of 48% versus Q1 last year. And our gross margin as we're coming into the U.S., it continues to improve, and it's now reached 86%.

So that are some of the important highlights. I think we should also talk about today our financing, and we have strengthened our financing in Q1 with an additional SEK 9.5 million in a direct issue, and that supplemented the rights issue that we executed on in December.

But with that, I'd like to hand over to Christian, and Christian will talk through the numbers in more detail. Thank you.

[Christian Lindholm, executive]

Thank you, Helen. I will start to take you through our profit and loss for the quarter. But I would like to start to discuss a little bit around the patch utilization, which is our -- today, the most important key metrics that we are following almost daily. That means that we are following the patch utilization per customer and system.

And today, we have 35 systems out there. And as Helen mentioned before, 11 of those are from the Veterans, and they are not dependent on the reimbursement because they have their own budget. But the remaining part of the customers, they are dependent on the reimbursement process, and they are right now discussing with our -- or their insurance companies in order to reach an acceptable level of reimbursement. And after that, we are expecting a ramp-up of the patch sales.

We are measuring the rolling 12 months revenues. And up to quarter 1, if you compare quarter 1 2022 with quarter 1 2023, we have a growth of 48%. And that's, of course, mainly due to the sales of patches and the systems.

Looking into the accumulated patch sales. We have, as of today, totally 26,700 patches sold. And we can see a 48% increase from first quarter of 2022.

Moving into the quarter, the first quarter. We have a revenue of SEK 2 million, which is an increase of 48% compared to the same quarter last year. 60% of the revenues are related to the U.S. sales. And of course, the sales, the order from VA, the Veteran Affairs, is covering up approximately SEK 1 million of those.

The gross margin is remaining on a high level. We have increased during the quarter. The gross margin was 6% units up to 86%. And looking at the U.S. isolated, they have a total gross margin of 84% compared to 72% first quarter of previous year.

The EBIT. The EBIT amounted to minus 16.4%, and that's an increase of about 11% compared to previous quarter -- compared to the first quarter previous year. And the EBIT is, of course, very much driven by the OpEx. And we are monitoring the OpEx very closely, and we are making sure that everything we spend will and must be a benefit of our operation. So most of the investment that we are spending during this quarter and the previous quarter are, of course, aimed on the U.S. market and scaling up operations in order to meet increased demand and make sure that we have an efficient sales organization in the U.S. We can also see some cost reductions due to the focus -- defocus on the European market to the advantage of the U.S. market.

The cash flow and also the cash -- the financing of the company is very high prioritized, both from the Board of Directors and also part from the -- of the management. During December 2022, we carried out a rights issue totaling SEK 32.7 million, and the net proceeds was 25.8% (sic) [ SEK 25.8 million ] after the cost related to the mission. We closed the first quarter with approximately SEK 16 million in the cash. And in connection with the closing of quarter 1, we carried out a direct issue and collected approximately SEK 9.5 million from that one.

Currently, we have a warrant program running. It's dated from the 2nd of May up to the 16th of May. And 2 warrants will correspond to 1 share in Acarix and the subscription price is SEK 0.37. Still possible to trade with the warrants. It's possible up to the May 12. And we expect -- depending on the subscription rate of the warrants, we expect between SEK 15 million up to SEK 21 million in cash. A lot of information in the press release, you can read about that and also on our web page.

In parallel, we are working with the long-term financing, mainly the Board and part of the management. And we are right now negotiating with some interesting partners to finance the company further.

Okay. That was what I was going to present. So back to you, Helen, on the commercial highlights, quarter 1.

[Helen Round, executive]

Thank you so much, Christian. So thanks for presenting those numbers. What I'm going to do now is try to put a little bit of context to these numbers as well.

I'd like to start with this slide, just to remind everybody of the area that we focus on. And it's, of course, chest pain. And as many of you have heard me say, this is a very common problem. It affects about 40% of adults. But the challenge here really is to identify in which patients this is related to the heart and where it's not.

And there is really, I would say, increasing need to be able to identify those patients where it's not related to the heart and give those patients a peace of mind early, allow the physicians to focus on those patients that really need it. And for health care systems, it could also lead to significant cost savings. But because of this need to be able to identify low-risk patients, that's where really the CADScor System comes in. And this is our flagship product. It's designed for early and rapid cardiac assessment.

And as you can see on this photograph here, it's a noninvasive test. It takes about 10 minutes in total. The active listening part is about 3 minutes. And the unique part here is the actual microphone. It's the round part here that sits on top of the heart. And if you think about it for a moment, that microphone is able to listen to the blood flow in the coronary arteries.

So if it's a healthy artery, there's a smooth sound. If there starts to be plaque buildup, it's almost like rocks in a river. And there's a turbulence and a murmur that occurs, and this microphone can pick that up. It then transfer that sound data into the body where the physician here is pointing to the screen, and that's where it's run through an algorithm. And after that, which takes about 3 minutes in total, there's a score.

And it's almost a black and white. If it's 20 or below, the patient is deemed to have low risk for coronary artery disease and can essentially be ruled out. If it's above, then our recommendation is that as we couldn't rule them out, they should continue to be evaluated.

But we've spent a significant amount of time studying this technology in large clinical studies with 6,000 patients. The studies have been published, and we have 45 patents. We then went on to have regulatory approvals in Europe and now also in the U.S. And so we're really ready now to start to commercialize this. And we have -- as I've said, we have regulatory clearance for the U.S. but also reimbursement.

And so far, the system has been used on about 24,000 patients. What's interesting though is as we've had discussions, especially in the U.S., there's a recognition that the CADScor System should be used really early as a first-line diagnostic aid, and I'm going to come back to that in a minute.

If we look at commercialization, we -- of course, we started early in Europe, and we had sales primarily in the private market, but we really are shifting now to the U.S. market. And it's a large market with many opportunities for us.

I do want to mention and just make sure that it's very clear how our business model works. We do sell the devices. And in the U.S., they sell for $7,500 and then we sell the patches, and the patches are attached to the device for each patient assessment, and that's our consumable part. And they sell for $75 a patch in the U.S. market. So these 2 combined gives us a really high-margin business model.

Coming back to the U.S. Why do we think that the timing is so good? First of all, there's a lot of patients that have chest pain, this 18 million. In an attempt to try to understand how can we better assess these patients in a more quick way, the American Heart Association together with the American College of Cardiology came out with -- at the end of 2021, with new chest pain guidelines. And in these guidelines, it's clearly stated that patients that are at low risk, that has a pretest probability of less than 15%, that's the measure that's used, they should be ruled out. And now if we introduce the CADScor System to this, there is, like I said earlier, an early and rapid way to assess these patients and identify those at low risk and actually send them home.

So when we look at the U.S. market, what are some of the key drivers? What are the things that we've been working on in the U.S. during 2022? And we sort of put them into 4 buckets. One is our footprint. Then it's our reimbursement and making sure that clinics are paid by the patient's insurance companies when they do a CADScor test. Of course, it's our key customers and then strategic collaborations. So in the next section, I would like to walk through each of these and demonstrate what we -- a little bit what we were doing in 2022 but also what we achieved in Q1.

So if we look at our footprint, 1 year ago, we did not have any coverage. But we recruited a few representatives, and we signed a few commercial agreements with commission-based sales agents. So they work on commission alone. And we started building out our coverage of the U.S. So initially, we really focused on those states where there is a very high prevalence of chest pain.

And at the end of the year, we had a coverage of 13 states. But now we've signed another contract with a large -- a much larger network of commission-based sales agents, and we've accelerated that geographic footprint up to 43 states, and we now have 45 sales representatives. And they're currently undergoing training and onboarding, but they're already seeing customers. So that's a significant step-up for us. And we are looking forward now to working very closely with them and creating a much grander awareness of the CADScor System.

We work across 4 sales channels. And I'd like to think of them as clinics. And then we have hospitals, freestanding hospitals. Then we also have large integrated networks, health care networks, and then finally, the U.S. Veterans Administration. And all of these are important to us. And I'll come back to our guidance in a minute, but we work very systematically across these.

In the clinics and hospitals, the decision time could be easier -- or easier and shorter. But at the clinics and hospitals, they're really looking for -- to see how much the insurance company is going to pay me when I do these assessments. So we have about -- I would say, about 100, 120 ongoing discussions right now in this channel. And this will, of course, accelerate now with the new team coming on board. Then we have these large networks, IDNs. And there, we have about 15, 16 discussions ongoing at the moment.

And when we talk about the U.S. Veterans Health Administration, there's about 20 discussions that are ongoing, and they are all at different stages. Some are very early and some are more late stage. But that gives you a little picture of where we are today. And now as I mentioned earlier, with the new team coming on board, we should be accelerating this.

But I'd like to spend a few moments, since we have the time today, to talk about reimbursement and what that means. And if you're not familiar with the U.S. health care system, this could sometimes seem very complicated. But there's actually sort of 2 steps. The first one is the patient evaluation. So any patient in the United States, whatever they're going to see the doctor for, they go to the clinic. They show their insurance card. And in this case, let's say they do a CADScor test. That's the first bit. That's the clinical bit.

Now the clinic really needs to make sure that they get paid by the insurance company. Then you go into the billing process. And at this stage, we have no control. We support the clinics. We give them documentation, studies, et cetera, so that they can submit the claim to the insurance company. The insurance company will look at this. We have a CPT III code, which is still indicating it's a new technology. And then they make a decision.

So our CPT III code and all CPT III codes, they're not associated with an amount of reimbursement. So this can take anywhere from 30 to 75 to 90 days before the clinic gets a message back. But we do support the clinics in this process, but it's something that's slowing us down because most clinics want to make sure it's a great technology. We want to adopt it, but we also want to make sure that we get paid.

So where are we today? Across the U.S., we've seen payments from major insurance companies. Blue Cross Blue Shield is a major, UnitedHealthcare, Humana, Aetna, et cetera. And it's going from -- I think some of the lower levels have been around $80, $90. But in those cases, the clinics tend to appeal to have a higher reimbursement level. But we also see some going up to $350 and $400, and we end up with an average around $155. And we've been there for quite some time now.

And it's going to be interesting as we continue to work through this to see where we end up. But our goal is to, of course, secure the highest level of reimbursement. But if you imagine that the physician and the clinics, they pay $75 a patch, many are saying that $155 is a reasonable amount for them to take on board the CADScor System.

Now in terms of customers, so I mentioned the sales channels, but we primarily talk to cardiologists. And I think that's really important to get cardiologists on board with this new technology. They may not all use it if they -- especially if they're in a large institution, but they're important to us. Emergency department, urgent care are other clinics -- clinic types that we visit but also primary care and internal medicine.

Now how are they using it? What's the value? So the clinical value, I think, speaks almost for itself. But then the financial value, we were looking at a recent internal medicine clinic. They're tracking right now about 100 patches per month, meaning that they're doing 100 patients per month. So for them, this could mean an annual gross profit of about SEK 1 million. It's about the same for us. It's really a win-win. And then we sometimes calculate the lifetime value, which we have estimated here to be around SEK 3 million of one CADScor system.

But what we do see in the U.S. is that the daily patch utilization is higher than what we have seen in the past in Europe. And we're tracking this, as Christian said, very closely. And this will help us also to forecast much better the future success in the U.S.

The Veterans Health Administration, I mentioned that as an important potential customer. We started discussions with a few of the facilities early last summer, end of spring, early summer. And it became clear to us quite early that the CADScor System really responds to a medical need there. Some of the veterans -- first of all, they have a lot of chest pain patients. But some of the veterans are not able to physically do a stress test, maybe because they're in a wheelchair or they've lost a limb, et cetera.

So there was a very clear articulation of we have a product that actually meets the need. But then for us to be able to sell in to the VA, which is really the U.S. government, we had to go through quite a rigorous process and due diligence. But as soon as we cleared that due diligence, we had our first order come in. And for us, this is also a breakthrough, one order worth SEK 1 million.

We don't know yet what the total value of this order is going to be, of course, because we're just starting. We've trained now about 100 different staff members on how to use the CADScor System, but we do expect this repeat patch orders to be quite significant. So we'll have to track that, and we'll have to communicate that when we know more about that.

The value of this order is not just this one order. It's also a step for us to move to more of a national contract, FFS. So to get -- to be eligible to negotiate for that, we need 2, 3, 4 maybe additional locations. So that's what we're working on right now. And then our goal is to try to negotiate at the national level. And at that point, we would actually reach all the 18 regions, which consist of 171 hospitals and over 1,000 outpatient clinics.

And then I would say the other part of an order like this, it gives us a lot of credibility. We're a med tech company coming out of Scandinavia, great technology, but to clear that due diligence process and to be able to sell to the Veterans Administration gives us a lot of credibility and recognition as a med tech company but also the use of the CADScor System.

So speaking of the use of the CADScor System, I mentioned earlier that the intention is really for the CADScor System to be used early. And on this slide, you see a blue flow. And as patients with stable chest pain comes into doctors, there is an established pattern of how these patients are evaluated. EKG, stress test, nuclear stress test, angiograms, CTs, et cetera. But what's so surprising is, and as I mentioned earlier, the chest pain is not always associated with the heart. So 9 out of 10 cases, many go through this, and it can take 3 months. It can take 10 months in some cases to do this. And then at the end, they say, no, we don't think it has anything to do with the heart.

So when we talk about transforming early assessment with -- really our positioning was that the CADScor System should be used very early. And as we started having conversations in the U.S., the words of first-line diagnostic aid started to come up. And there was more and more consensus that that's where this technology should be used.

So we have some early discussions last year with the American College of Cardiology. There's an innovation group there who actually looks at new technologies and works together with the companies to say how should it be used, what's the ideal use. And we signed the agreement in September in 2022, and the working group really started working here in December. And we've worked very fast and faster than expected actually. But there was a lot of alignment. There were a lot of deep discussions, many considerations, but there was an alignment.

And just earlier this week, we announced that the first edition of the clinical workflow, which really outlines how this group views that the CADScor System should be used, that was released. So all of our sales teams were trained on this yesterday, and they are now out seeing customers.

But the idea is that patients with stable chest pain but no diagnosis of coronary artery disease, when they come to medical attention, they should be -- the history should be taken, physical examination and then a 12-lead EKG. If there's a suspicion of coronary artery disease at this point in time, then the patient should have a CADScor assessment. If the score is below -- or 20 or below, they can be ruled out. If they're above 20, then they should continue for further investigation.

The exceptions here are patients that are over 70 years old, multiple risk factors, other medical conditions, et cetera. The chance of us being able to find low-risk patients and rule them out is actually quite low. So those patients should just go on right away.

But I had a question yesterday. Does it actually say the CADScor System? And it does. So the recommendation is that after the history, the physical examination and the 12-lead EKG, that's when we should do the CADScor System.

So right now, we are starting to start communicating with physicians about this, and then we want to put it into practice. But when we look at the VA, our first location, they are working with this workflow, which also gives this additional credibility.

So I wanted to talk a little bit about because we've spoken about the product and the progress we're making in the U.S., but if we just take a step back, what's happening in the U.S. market today. There is a trend towards technology integration. There's a lot of digital transformation going on. There's economic turbulence, and there's some productivity challenges with workforce, et cetera. Plus, there is an interest now to try to drive some economics and health economics into the health care system.

Another area is health equity, and this really is focusing on making sure -- well, at least the aspiration is that everybody should have access to equal health care. And for us here in Sweden, this is almost a given. But in the United States, not everybody does have access to equal health care. The CADScor System does offer easy access to this technology. It's not like you shouldn't have to drive for long hours to have more comprehensive testing. It can be available also out in rural areas. So that's something that we think that we want to learn more about and maybe think about how the CADScor System can help achieve some of those goals.

And then if we look at the patients, tomorrow's patients, as we call it, they're really looking for improved care, convenience and personalization. So maybe we don't take the personalization part but certainly improved and the convenience part, having access to the CADScor System.

So our focus is on the U.S. And when we look at this and we look at the trajection that we're on right now, we're keeping our guidance of 3,000 systems by the end of 2024. And customers like the VA will be important to us but also IDNs and clinics, et cetera. So that remains also at this point in time.

We also had our annual meeting this morning, and I'd like to just announce that we have a new Board member joining our Board. That's Mikael Thorén. He's based here in Stockholm, Sweden, has a lot of commercial experience in the past. He's worked for Ericsson, Allgon, et cetera. And he'll be now -- he voted in this morning. He's now officially part of the Board. So we're very excited about that.

On the management team, 4 of us are based in the United States, myself, along with sales, medical -- sales and operations, medical affairs and marketing and communications. Christian, our CFO, is based in our headquarters at Malmö. And then we also have Thomas managing operations and IT and Claus Christensen managing R&D. Those are both based in Denmark.

So to conclude this presentation before we go to questions, just to wrap up, we really do have a groundbreaking technology using acoustics and AI. And it's meeting a clearly articulated medical need. We are seeing accelerated momentum in the U.S. The order from the VA has opened those doors. The clinical workflow from the ACC is opening additional doors. And we're now -- with our additional sales team now having up to 45 reps, we're really pushing to move the sales forward. We have seen positive developments with the U.S. payers, as I mentioned, with payments up to $350. But we continue to work on this. And as we move forward here, then more and more clinics will be buying the CADScor System. And I think that's it.

So on the financing side, we, as Christian outlined very clearly, if anybody wants to have additional information on the warrants program that's going on right now, feel free to contact Christian or contact me or anyone here at Redeye as well.

But on that, a good start to the year, and we're really still moving forward on this mission to radically transform first-line cardiac diagnostics. So with that, thank you very much.

[Filip Einarsson, analyst]

Okay. So thanks a lot for a very good walk-through of the company. And also, I think it's really good that you gave a walk-through about how this -- the reimbursement system works in practice because, I mean, it's a term that you hear thrown a lot -- thrown around a lot in the med tech industry. But it's good also for investors to understand what it actually means. So very good.

So just to kick things off here. I want to start with a few points from the quarterly report, of course. So what do you guys consider to be the highlight of Q1?

[Helen Round, executive]

We might have a different opinion here. I don't know. For me personally, I think the -- what I keep coming back to, the VA order, that took -- that was all company effort to get that one. And that opens big doors for us. And then having this clinical workflow to really with -- it's been developed together with ACC to be able to show clinics that this is how the CADScor System should be used. So they didn't -- they're not delivering sales right today, but it's a huge step forward for us.

[Filip Einarsson, analyst]

Yes. So sort of laying the foundation for...

[Helen Round, executive]

Exactly. Yes.

[Filip Einarsson, analyst]

Do you have anything you want to add?

[Christian Lindholm, executive]

No, I agree. Totally agree. Those are the 2 major things that happened in quarter 1. And we expect the VA order came through quite fast. There are long lead times to get into the VAs, but we managed to do that in a shorter time. So that was very good milestone.

[Filip Einarsson, analyst]

Okay. So I just came up with a question from your answer here then. How long was the process with the first order with the VA? Is there any sort of conclusion you can draw from that and potential future, let's say, coop?

[Helen Round, executive]

Yes. I would say it started sort of late spring, early summer that there was a recognition. And then we spoke to some clinicians who said we need to move this fast. So that collaboration was really important. But normally, I would say it takes 12, maybe 18 months. So we move fast.

[Filip Einarsson, analyst]

That's good. And how does that look in? I mean now you're on the inside, so to speak, how does that figure?

[Helen Round, executive]

Well, when we talk to other clinicians and they say, "So who's using this?" And we said, well, "We're starting now at the VA. We have our first order." That takes us to a different level of credibility, oh, you're qualified because as I mentioned, there is a process that we have to go through to be approved.

[Filip Einarsson, analyst]

Yes. And I couldn't help but noticing in the report that you mentioned that you are ahead of schedule with the ACC. Can you elaborate what does that mean?

[Helen Round, executive]

So when we had our initial discussions, we said this will probably take a year because there are a lot of opinions and a lot of experts that need to weigh in, et cetera. So to manage expectations, the time line was set at 1 year. And then we asked ourselves, can we go faster? And then the discussions were very robust, a lot of different viewpoints, et cetera. But the team, that working group actually arrived quite quickly to say this is where the CADScor System should be used, which is encouraging because that means that there's alignment in that working group.

[Filip Einarsson, analyst]

Okay. And also, you've touched upon this topic as well in your presentation, that figure. Let's go for it anyway. I mean in the report, you mentioned that some of the customers utilize up to 5 patches daily and others less. Would you say this is related to the size of the customer? Or what are the contributing factors to this variance?

[Helen Round, executive]

I think you can give your perspective to this, but I think it has to do with the patient volume and the demographics. So these clinics, and one in particular that I showed you the numbers of, they have -- their waiting rooms are full of patients. So some clinics have really large areas that they cover. And I think then chest pain is going to happen in almost every single clinic. So it's the volume of patients.

[Filip Einarsson, analyst]

Okay. So would you say that, let's say, a very busy clinic that is serving a lot of citizens is likely to see more of, let's say, a value proposition in terms of what it does to shorten down -- okay.

[Helen Round, executive]

Exactly. And if I could -- what I sometimes think about as key success factors here is that they have the patient volume but that they also very clearly see the workflow and how you take that workflow, incorporate it into your practice. Because you have to remember, they already know what they're doing with chest pain patients. They come all the time. So there is a workflow. And then they have to say, okay, so we're going to do things a little bit differently. Let's change it like that. So if they have the patients and they see that clearly, then that's almost like a recipe for success.

[Christian Lindholm, executive]

There is the third thing, and that's how successful they have been with the insurance company and on the reimbursement, except for the VA because the VA, it does not go through the reimbursement process. They have their own budget.

[Filip Einarsson, analyst]

Yes. Got it. So I mean we've heard about the highlights of the quarter. And now also I'm curious, what are the most significant near-term challenges here for Acarix?

[Helen Round, executive]

Right now, I feel that it has to do with awareness. So in the interactions that we have, we have a very positive response, but we had a very small team working. Now with this new team, and we're starting to have really span across states, doctors from Georgia are calling, doctors from Michigan are talking, too. So we need that mass now. And that's why we need to continue to raise funding. Because if we could hire more our own reps, et cetera, which we're a bit cautious about right now, then we're going to be able to accelerate. So I think how quickly we will be able to show results will depend a lot about how many people do we have on the ground.

[Filip Einarsson, analyst]

Yes. Got it. Would you also say that word of mouth is a big factor in this case?

[Helen Round, executive]

Yes. And then we have to have people in different parts of the country. Yes.

[Filip Einarsson, analyst]

Yes, of course. So let's touch upon the VA again, of course, which is an interesting factor in this case, of course. And in a scenario where the VA would become, let's say, a faithful customer, a returning customer to Acarix, how much do you think that would facilitate your sales process to other parties?

[Helen Round, executive]

It's a credibility stamp more than anything at this point because, again, we're a Scandinavian company coming into the U.S. But over time, I think they will continue to be an important customer to us. But it is a credibility stamp because not everybody is approved to sell to the VA.

[Christian Lindholm, executive]

It's credibility customer and it's also a huge customer. They have...

[Helen Round, executive]

Volume.

[Christian Lindholm, executive]

Yes, volume, 171 hospitals.

[Helen Round, executive]

Hospitals.

[Christian Lindholm, executive]

Yes.

[Filip Einarsson, analyst]

Because I mean, in practice, if you're in dialogue with a new customer that just have seen your web page or something like that, they surely do some sort of evaluation of the product. So is this a tool, so to speak, for them to sort of speed up the process or set the stamp of approval that this might be something that could be of value?

[Helen Round, executive]

Yes. When you frame it like that, one thing they do ask for first is our studies. So a lot of credit to our R&D team. We have a really good clinical program, and the data is very good. And that was also why the FDA gave us a clearance quite quickly. So they usually start with the science. Then they look at some of the economics in the clinic. And then they say, "Okay, so who's using it? Can I benchmark who now has decided to purchase?"

[Filip Einarsson, analyst]

Yes. Okay. So my next question is a little bit directed to you, Christian. And I mean we have seen you have quite a few quarterly reports with sales and also reported gross margins, which is exceeding 80%. But I mean can we discuss a little bit, how much can these gross margins scale when you go up in higher volumes?

[Christian Lindholm, executive]

Yes. I mean the level of gross margin is dependent on, I mean, the proportion of systems and patches. And I would say that I think 80% is reasonable up to 2024, according to our internal calculations, that's reasonable. When we are scaling up further, given that we could keep the price levels and given that U.S. market is still the largest market with higher price levels, we could probably go up to 85%, maybe 90% when the patch utilization is running well. So it depends on a lot of things, but I think 80% up to 2024 is the level that we will reach.

[Filip Einarsson, analyst]

Okay. Interesting. I mean of course, as you said, depends on several factors. I mean you've been touching upon both reimbursement and pricing strategy and all of these sort of things. So I mean we have been talking about your financial targets. We've been talking about the prospects of you going forward with a sales ramp-up here. But could you also discuss a little bit of the production capabilities thereof? Of course, I mean, the volumes we're talking about here is a lot larger than what you're producing today. So how does that look?

[Helen Round, executive]

So we knew that this was going to be a challenge. And then when I took the job as the President and the CEO, I reached out to my network and contacted a few people that are very well experienced in manufacturing transformation. So both from company side but also as consultants. And Thomas, when I was speaking to Thomas, he said, "I think I want to do this job." So he came on board, and he's laid out how we're going to work to hit our targets in 2024. Beyond that, that's a piece of work that we're doing right now for the long-term production.

[Filip Einarsson, analyst]

But I mean how much demand can you meet given the current situation?

[Helen Round, executive]

We can meet until 2024.

[Christian Lindholm, executive]

We can meet the 3,000.

[Helen Round, executive]

Yes. And then after that, we know we're going to have to expand.

[Filip Einarsson, analyst]

Okay. And I mean this has been, of course, a topic for some time now. And I know that we've been talking about this earlier, but not so much recently. And that is, of course, the component shortages that has previously been. I mean how is that outlook for you right now?

[Helen Round, executive]

We are solid. We're solid.

[Filip Einarsson, analyst]

Solid.

[Helen Round, executive]

Yes. We have what we need to get -- again, we do have regular meetings where we look at sales and we look at production to look at our supply schedule, et cetera. But we're good. We have the plan that we need to get to '24.

[Filip Einarsson, analyst]

Perfect. So at least that concludes what I was curious about, but maybe there has been any interaction from the investors. Other than that, I think -- if you want to have some finishing words or highlight something more?

[Helen Round, executive]

I think what I personally would like to say is I would thank our shareholders for their commitment to the company, and we're starting to see some very engaged shareholders who are taking a really strong interest in the company. So for me, it's really a thank you. And then also thank you to the team for all the terrific work they're doing last year and then this first quarter and to Christian as well.

[Christian Lindholm, executive]

Thanks.

[Filip Einarsson, analyst]

Okay. Great. So thanks a lot, Helen and Christian.

[Helen Round, executive]

Thank you.

[Christian Lindholm, executive]

Thank you.