Pulmonx Corporation

Good afternoon and welcome to Pulmonic's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in the listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Brian Johnston from the Hale-Martin Group for a few introductory comments. Go ahead.

Thanks, operator. Good afternoon and thank you all for participating in today's call. Joining me from Pulmonix are Glenn French, President and Chief Executive Officer, and Derek Sung, Chief Financial Officer. Earlier today, Pulmonix released financial results for the quarter and year ended December 31st, 2020. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, Those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue and growth margin and operating expenses, commercial expansion, and the product pipeline development are based on our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on November 13, 2020. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 2, 2021. Pomonix Corporation disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I'll turn the call over to Glenn.

Thanks, Brian. Good afternoon, everybody. Welcome to our fourth quarter and full year 2020 earnings call. Here with me today is Derek Sung, our Chief Financial Officer. Today, I would like to share a few highlights and contextualize our fourth quarter results before turning to our outlook and strategic priorities for 2021. 2020 was a major milestone year for Pulmonix, and I'm very proud of the progress that our entire team has made in building commercial momentum and beginning our journey as a public company. Despite the turmoil caused by the COVID pandemic, we were able to scale our organization, grow our commercial footprint, and execute on a public financing that has put us in a strong position to drive our growth initiatives forward once the pandemic subsides. We achieved full year worldwide revenue of $32.7 million and grew our business in the U.S. by over 50% despite ongoing pressures from the pandemic. The fourth quarter demonstrated that while COVID continues to be a constantly evolving challenge, our business remains resilient. In Q4, we recorded worldwide sales of 9.8 million. The quarter started strong as we recorded our highest month of sales in the company's history in October. But the global resurgence of COVID in the back half of the quarter reversed our momentum as lockdown measures and increased hospitalizations inhibited our ability to schedule procedures. Despite the transient pressure of COVID, all signals continue to indicate that the underlying clinical need and demand for our Zephyr Valve solution remains strong, and we believe that the COVID-related slowdown in our business will reverse once the pandemic subsides. We are seeing hospitals work with patients who have had their procedures delayed due to COVID by either rescheduling them to a later date or placing them on a wait list to be scheduled as soon as the hospital allows. Despite the limitations on procedures, interest in Zephyr valve treatment remains strong as we continue to advance patient screenings through Stratix, and the volume of calls to treatment centers and visitors to our website are well above pre-COVID levels. We also continue to see new hospitals starting to use Zephyr valves. illustrated by the addition of 13 new treatment centers in the U.S. in Q4. Through the full year 2020, we expanded total U.S. treatment centers well over 50% and ended the year with 148 centers. On the reimbursement front, we continue to make inroads with Blue Cross Blue Shield Association, securing positive coverage policies from Highmark, the fourth largest Blue Cross Blue Shield plan, which covers approximately 5 million lives, and the Blue Cross Blue Shield of North Carolina. Our Zephyr valve procedure was also moved out of the investigational category by Medical Mutual of Ohio, a plan that covers over 1.5 million lives. As a reminder, approximately 75% of our U.S. patient population is covered under Medicare, which typically pays for our out-of our medically necessary solution, leaving about 25% of our patients covered by commercial plans. Within this latter category, even commercial payers without positive coverage policies have been approving preauthorization requests for Zephyr valves in around 95% of cases. Thus, while we don't expect that reimbursement will be a significant barrier to adoption of our treatment, we do celebrate our commercial policy wins because they reduce the waiting period to treatment for our patients and validate the clinical acceptance of our therapy. Although the COVID-driven pressure and impact on procedure volumes extended through the first two months of this year, we believe the overall outlook for 2021 remains positive given strong and consistent indicators of demand for our Zephyr valve treatment and the promise of a full vaccine rollout by the second half of this year. As such, we expect full year 2021 revenue to be in the range of 46 to $50 million, representing a 41 to 53% growth over 2020. Our business remains uniquely sensitive to the impact of COVID, given that our procedure requires a three-night inpatient stay, our pulmonologist customer Customers remain at the forefront of the COVID response, and our patients remain at high risk with their severe respiratory conditions. Accordingly, we expect continued negative impact from COVID through the first half of the year, but we are optimistic that the rollout of the vaccine will alleviate COVID-related pressures in the back half of the year. Looking beyond the near term, we're forging ahead with several initiatives that we believe will fuel our future growth, chiefly we intend to focus on furthering the strategic expansion of our U.S. commercial infrastructure to enable us to target more of the approximately 500 high volume hospitals performing interventional pulmonary procedures. Since our last call, we've added three U.S. territory managers, bringing our U.S. territory manager total to 45. Looking forward to the rest of this year, We plan to continue building out our U.S. sales organization by increasing the number of regional directors from six to nine and by expanding the total number of territories to 55 by the end of this year. With this expanded sales force, we are targeting to open over 50 new treating centers in the U.S. in 2021, bringing our total number of centers to at least 200 by the end of the year. We also expect that the activity levels of our existing centers will meaningfully increase as the pandemic subsides in the back half of the year. We also continue to build our international sales capabilities and intend to add at least five sales reps and two managers outside the United States, bringing the total number of quota carrying reps outside the U.S. to 33 by the end of 2021. These investments in our commercial organization should allow us to better access geographies and increase market development activities as conditions normalize. While we see an incredible opportunity to develop and capture the existing market for severe emphysema patients who are candidates for our Zephyr Valve, we also remain focused on driving future growth by investing in new technologies to broaden the patient population that can be treated with our products. In particular, we are furthering the clinical development of Aracil, a polymeric foam that is designed to be delivered via a bronchoscope to a targeted region of the lung to treat selected emphysema patients with positive collateral ventilation who are currently not eligible for Zephyr valves. This group of patients represents approximately 50% of all severe emphysema sufferers who are otherwise eligible for for an intervention and thus could significantly increase our addressable market. I am pleased to share that in December we received designation of Aracel as a breakthrough device by the U.S. Food and Drug Administration. While we are still a few years away from potential commercialization of Aracel, the breakthrough designation will provide prioritized and potentially accelerated review by FDA and provides eligibility for Medicare coverage of innovation technology or MCIT. MCIT, a new Medicare coverage pathway, enables receipt of Medicare coverage as early as the same day as FDA market authorization for breakthrough devices and provides coverage for four years. This is particularly relevant as the large majority of our patients are covered by Medicare. In the meantime, we remain intently focused on moving Aracel down the clinical pathway and securing the evidence we need to support coverage in the long term. In summary, despite headwinds, through 2020, we grew our U.S. sales force by over 40%, the number of U.S. treatment sites by over 50%, and our U.S. revenues by over 50%. Looking ahead, we believe we are well-positioned operationally and financially to deliver high growth through 2021 and beyond, and to take the next step in establishing ourselves as the global leader and trusted partner in the assessment and treatment of severe lung disease. With that said, I will now turn the call over to Derek Sung to provide a review of fourth quarter and full year financial results. Derek?