Pulmonx Corporation

Good afternoon and welcome to Pomonic's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. To ask a question, please push star 1-1 on your telephone to raise your hand and you'll hear an automated message saying your hand is raised. Due to time, we will only be able to do one question and one follow-up for today's call. As a reminder, this call is being recorded and will be be playing for purposes. I would like to now turn the call over to Lane Morgan from Gilmartin Group for the introduction comments.

Good afternoon, and thank you all for participating in today's call. Joining me from Pomonix are Glenn French, President and Chief Executive Officer, and Derek Sun, Chief Financial Officer. Earlier today, Pomonix released financial results for the quarter ended September 30th, 2022. A copy of the press release is available on the company's website. Before I begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meeting 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, gross margin, and operating expenses, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a listed description of the risks and uncertainties associated with our business, please refer to the risk factor section of our public filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on August 8, 2022. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 3rd, 2022. 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. And with that, I will turn the call over to Glenn.

Thank you, Lane. Good afternoon, everyone, and welcome to our third quarter 2022 earnings call. Here with me is Derek Sung, our Chief Financial Officer. We remain excited about the $12 billion opportunity to establish our clinically proven Zephyr Valve Therapy as standard of care for the over 1 million patients around the world who suffer from severe emphysema and are profoundly short of breath despite high-dose medications. Over the past two and a half years, our business has been severely impacted by COVID surges, killing ICU beds and negatively impacting our procedure volumes. Thus, we are pleased to see that looking forward, despite the continued prevalence of COVID, healthcare systems in most places are adapting to the new normal and we're moving into a more predictable macro environment for our business. Reflecting on the third quarter, we generated worldwide sales of $13.5 million, representing growth of 2% year over year and 7% on a constant currency basis, with $8.4 million coming from the United States, representing growth of 22% compared to the same period last year. While we feel we are moving into a more favorable, steady state, our business in the third quarter was negatively impacted by continued foreign exchange headwinds, in addition to two key dynamics, which we've mentioned on our last call, hospital staffing constraints and seasonality. Hospital labor constraints, while not getting any worse, continue to limit procedure capacity and reduce patient screening across the geographies we work in, and we expect this dynamic to persist into next year. Meanwhile, summer seasonality was more pronounced than we have seen in the past, particularly in Europe. Looking ahead, we remain focused on creating the market for our Zeprovalve therapy, which addresses an unmet need for over a million severe emphysema patients globally who have very few alternatives available to them and is backed by unparalleled clinical evidence. Specifically, we will focus on the three-pronged commercial approach, which we have previously discussed, to drive growth and penetration of our solution. First, training and launching new accounts, that we believe have the potential to be strong Zephyr valve centers. Second, increasing the efficiency and scalability of our base, particularly among our newest accounts, by working hand in hand with our physician and administrative champions to expand procedural capacity. And finally, increasing center utilization by building local awareness of the benefits of Zephyr valves with patients and physicians thereby developing a strong referral network. In terms of account openings, we added 13 new accounts in the US in Q3, bringing the total number of US treatment centers that are performing Zephyr Valve procedures to 261. Even with the seasonal impact from the third quarter, we anticipate ending the year with about 275 total US treatment centers. Meanwhile, we've gained greater visibility into the state of our treating centers as pandemic-related pressure has subsided and staffing-related constraints have become clearer. It has become evident that we need to continue to focus driving efficiency and scalability across our account base and that it will take longer to bring accounts up to maturity. Over the past two quarters, we've seen a strong recovery in procedure volumes at our well-established sites but utilization across our less developed accounts was more intermittent than we had expected. With many respiratory care programs thinly staffed and overstretched, we see opportunity to improve program efficiency and scalability by taking all of our accounts through a series of training and site readiness processes that we have found to be effective at our more developed accounts. In support of these efforts, we have allocated additional field marketing sales and patient access resources to support account development and have adopted a new tracking system to measure our success in implementing best practices with our customers. We expect the impact of these programs to be increasingly evident over the next few quarters, and we have confidence that these efforts, combined with a more normalized operating environment for our customers, will allow us to further enhance procedure rates across all our accounts. Meanwhile, within our more developed accounts, we are also seeing early returns from our efforts to educate referring physicians who manage large populations of COPD patients. We know who these folks are, and we are working to both provide information on our treatment and introduction to the treating physicians in area hospitals. Remarkably, when we meet with a referring physician and educate them on our therapy more than half the time, that physician refers a patient to a treating physician within six months. We believe we have a strong playbook that will drive penetration across accounts while expanding our base of more developed accounts. However, given the increased time needed to fully develop our accounts, coupled with the ongoing hospital staffing dynamics and foreign exchange pressure, We are moderating our full year 2022 revenue expectation to now be in the range of 51.5 to 52.5 million, and we expect global revenue to grow approximately 20% in 2023. In the third quarter, we continued to make significant progress in expanding our addressable market as we grow our commercial footprint and introduce our treatment to new patient populations around the world. We are celebrating a major milestone in our strategic initiative to expand our global footprint. The Japanese Ministry of Health, Labor, and Welfare, MHLW, agreed to approve Zephyr valves to treat severe COPD emphysema patients in Japan following a special panel meeting on October 3rd, 2022. We look forward to bringing our treatment to patients in Japan following the establishment of reimbursement, which we expect in late 2023. As a reminder, we estimate Japan to be a billion-dollar market opportunity with approximately 100,000 patients who stand to potentially benefit from our treatment. Also in the third quarter, we saw two very encouraging data readouts associated with our AeroSeal clinical development program. As a reminder, we are developing AeroSeal to expand the addressable market of our Zephyr Valve solution to severe emphysema patients not currently eligible due to the presence of a gap in the fissure separating lobes of the lungs, which results in collateral ventilation or airflow between these lobes. This collateral ventilation prevents the target lobe from deflating when Zephyr valves are inserted. Approximately one out of every five patients who undergoes our chartist assessment is deemed ineligible to receive Zephyr valves due to the presence of collateral ventilation. AeroSeal is a polymeric foam that is delivered via a bronchoscope to seal the airways leading to the fissure gaps between lobes of the lung, potentially enabling treatment of patients who were previously ineligible for valves due to collateral ventilation. At the European Respiratory Society International Congress in Barcelona, Spain, interim findings from our CONVERT multicenter trial showed that treatment with Aracil in the first 40 patients of the study successfully converted 78% of patients to having little to no collateral ventilation. And these patients were subsequently treated with Zephyr valves with successful volume reduction in the target lobe of the lung. The CONVERT trial is ongoing, and we expect it to be complete to complete enrollment next year with final data presented in 2024. Learnings from the CONVERT trial continue to inform the design of our US IDE protocol, which we are discussing with FDA and expect to initiate sometime next year. Also in the third quarter, the full data set from a single center feasibility study in Australia was published in the Journal of Respirology. Results demonstrated that aerosol not only successfully closed collateral air channels to allow patients with collateral ventilation to be treated with Zephyr valves, but that these treated patients showed clinical outcomes comparable to patients without collateral ventilation who were treated with Zephyr valves. Both the preliminary convert trial data presented at ERS and the published Australian study data bolster our belief that Aracil could offer a compelling solution to expand our Zephyr valve therapy to patients who are today not candidates. In summary, we have taken steps forward on multiple market development initiatives, expansion of our global footprint, and our clinical development pipeline. We anticipate growing our market presence by driving site efficiencies across our account base and increasing utilization in our more developed accounts by geographic expansion and through broadening the array of patients who we are able to treat with our technologies. Our progress across these initiatives, along with substantial increasing patient interest in Zephyr valves, Limited competition in the field and our financial strength provides us with continued optimism for our long-term growth potential. With that, I'll now turn the call over to Derek to provide a more detailed review of our third quarter results.