Motus GI Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the MODIS GI Holdings Incorporated second quarter 2021 financial and operational update. At this time, all participants are in a listen-only mode. There will be a presentation by the MODIS management team, followed by a question and answer session. I must advise you all that the conference today is being recorded. I'd like to turn over the call to Garth Russell of LifeSci Advisors. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining us for the MODIS GI second quarter 2021 update call today. Representing the company are Tim Moran, Chief Executive Officer, and Andrew Taylor, Chief Financial Officer, and Mark Pomerantz, President and Chief Operating Officer of MODIS GI. Before turning the call over to management for their opening remarks, I would like to take a minute to remind you that this conference call and webcast will contain certain forward-looking statements about the company. These statements are subject to certain risks and uncertainties, that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will not undertake any obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed or implied by such forward-looking statements are discussed in greater detail in our most recent filing on Form 10-K, and other periodic reports on Form 10Q and 8K filed with the SEC. I'll now like to turn the call to Tim Moran. Tim, the floor is yours.

Thanks, Garth, and good afternoon, everyone. Thank you for joining our call today. I'm excited to share an update on our business through the second quarter of 2021. I'll start by providing an overview of our commercial progress, which continues to build each quarter. I will then discuss each of our four value creation drivers, which include new product innovation, reimbursement, clinical data generation, and strategic partnerships. I'll then ask Andrew to provide an overview of our financial performance for the quarter. And at the end of our prepared remarks, we will open the call to take your questions. I'm pleased to share that our commercial team continues to build positive momentum in the U.S. market. as we convert more of our targeted hospitals into active PureView customers. In the second quarter, we delivered revenue growth of 95% compared to the first quarter of 2021. Notably, this represents our fourth consecutive quarter of incremental revenue and procedure growth. As a reminder, this momentum is being accomplished through a very lean commercial team that has remained laser focused on securing the support, and commitment from prominent key opinion leaders at targeted U.S. hospitals. Our growth reflects an ongoing recovery from the impact that COVID-19 had on our initial commercial launch for most of the last year. As I've mentioned previously, since the beginning of 2021, we have seen an increasingly stable environment among U.S. hospitals, including procedure volumes and access to GI units. A big driver behind this quarter's success is our team's unyielding determination and perseverance as we create this exciting market. In addition to initiating several important evaluations during the second quarter, we also closed a new customer agreement with Sinai Hospital, which is part of the LifeBridge Health System. As the largest community hospital in Maryland, we are pleased to see them fully adopt the PureView system, including the outright purchase of our capital equipment. Cyanide is another example of our ability to showcase the value of the PureView system as we offer a comprehensive solution that addresses poor visualization during colonoscopy and upper GI procedures. Enhanced visualization can provide improved patient outcomes, faster time to diagnosis, and reduced length of stay. Each of these critical benefits resonate well with the priorities of hospital physicians and administrators. We now have five major hospitals signed to 12-month committed volume agreements, which require minimum quarterly purchases of PureView sleeves in return for the use of our capital equipment. We are actively negotiating additional such agreements, which we anticipate will close over the next two quarters. The value of these initial volume commitments typically ranges between $60,000 to $120,000 of recurring disposable revenues annually. As it relates to outright capital purchases, we are also currently negotiating additional deals that we expect can close in the second half of 2021. While we are encouraged to see some positive movement on capital spending, we believe our volume commitment agreements offer customers the flexibility needed to obtain the Pureview system immediately with the option to purchase their workstation once capital funding is released. In addition, these volume commitment agreements offer several key long-term benefits to MODIS GI. First, they provide us with reasonably predictable recurring sleeve revenues each quarter. Next, they typically provide for higher gross margins on our disposable sleeves. Third, from a marketing perspective, we believe these engagements help us further cultivate awareness, market acceptance, customer relationships, and utilization of our proprietary peer-review system among some of the leading hospitals and renowned GIs in the US. And finally, these agreements have mutually agreed upon minimums that we expect to be achieved and potentially exceeded as we continue to train additional physicians and establish utilization protocols at these sites. To date, all committed customers have met or exceeded their quarterly requirements. The sequential improvement we have reported each quarter gives us confidence that our focused commercial strategy is taking hold and we are setting the company up for significant long-term success. To support and maintain continued growth, we anticipate adding additional sales resources in the back half of 2021. We began this effort in Q2 with the hire of a seasoned sales director who is now responsible for growing PureView revenues in the New York City tri-state area. While we will remain diligent about spending, we expect additional sales resources will have positive near-term return on investment. Now, I'd like to shift gears to our four value creation drivers. First, let's discuss where we are with new product innovation. In mid-June, we commenced our controlled market launch of the PureView Upper GI solution. Our initial focus is on performing targeted evaluations that allow us to demonstrate clinical utility while also gaining real-world procedural experience. This is an exciting new market opportunity that further enhances the overall utility of the PureView system in the GI lab. As a reminder, the upper GI sleeve works off the same PureView capital equipment as our existing colonoscopy product, and the procedures are performed by the same target physicians at the same target hospitals. This new product is a natural extension of our existing commercial strategy. We're in the initial stages of gaining valuable procedural learnings and feedback from key physicians, which we believe will allow us to best position Peerview for use in this new indication. The early feedback has indicated that a key benefit that Peerview provides during upper GI procedures is our ability to enable constant visualization without disrupting the working channel of the gastroscope. Today, without PureView, the working channel is the only method for a physician to access the bleed source, and moving between suction, irrigation, and mechanical tools can be time-consuming and burdensome. We plan to continue to execute our controlled market launch during Q3, and we'll update you on our broader launch plans later this year. I would also like to take this opportunity to announce a pending launch of our third generation of the PureView system, which is called PureView EVS. This system has been under development for the last 12 months, and we anticipate applying for 510 approval to the FDA by the end of this calendar year. The PureView EVS system will provide enhancement to overall ease of use, particularly related to rapid system setup which we expect will take less than 90 seconds. We've enhanced the sleeve design to offer even greater control and navigation for the physician, and the system will support both upper and lower GI capabilities. Another key strategic benefit of the next generation system is we expect our overall cost of goods to be substantially lower. This gives us even greater flexibility as we plan for our entrance into more price sensitive markets and segments such as outpatient and international expansion. With that said, we plan to provide additional details about the EVS system during future calls and events. I am pleased with our team's continued commitment to enhancing our offering and driving innovation as we leverage our first mover advantage. Now let's move to an update on reimbursement. As discussed previously, we have a multi-pronged strategy to secure reimbursement of the Peerview System procedure by both private and public payers. Over time, if we can secure reimbursement, it would help to further accelerate our commercial expansion. As you will recall, in March 2021, we submitted a request for an ICD-10 code at a Centers for Medicare and Medicaid Services meeting. On August 2, 2021, CMS granted the Peerview system a permanent ICD-10 code, which will commence on October 1, 2021. Unfortunately, the Peerview system was not selected as part of the new technology add-on payment for inpatient procedures. You'll remember this was a fast-tracked opportunity, which would have been nice to have, but as we previously stated, gaining add-on payment for Peerview for hospital inpatient procedures was not a necessity as we believe we do not face reimbursement headwinds in the inpatient environment. We will continue to execute our holistic reimbursement strategy and will keep you updated on our progress each quarter. Moving to our third value creation driver, the generation of new clinical data. In June, we announced the publication of an article presenting data from the REDUCE study in the peer-reviewed journal BMC Gastroenterology. Among the important findings presented in the article, in which we have continued to emphasize since data from the REDUCE study was first announced, is the PureView system's 97% clinical success rate. We believe this overwhelming outcome clearly supports our claim that the PureView system improves bowel preparation quality in hospitalized patients undergoing colonoscopy. As we continue to drive commercial sales in hospitals, It is publications like this that help us educate the market on the potential for the peer review system to enhance patient care while also lowering costs for hospitals and payers. If you are interested in reading this peer reviewed article, it can be found on our website, modusgi.com. Also during the second quarter, we announced the peer reviewed publication of new data from a company sponsored cost effectiveness and resource allocation analysis of the peer review system. on the outcomes of cost, quality of life, and avoidance of colorectal cancers as compared to the current standard of care for outpatient colonoscopy. This data was published in a journal titled Cost Effectiveness and Resource Allocation. We believe there are important and compelling findings outlined in this article that show the use of the PureView system has the potential to generate lifetime savings compared to the current standard of care for outpatient colorectal cancer screening. As a side note, we believe this new data can potentially be helpful in our efforts to gain outpatient reimbursement for the PureView system. In terms of active clinical studies, our investigator-initiated study at the Cleveland Clinic continues to enroll patients. This study is evaluating the clinical and economic benefit of using the PureView system in patients with emergent lower GI bleeding. This study is designed to enroll at least 20 patients. patients will not undergo standard bowel preparation as the physician will utilize just two tap water enemas in conjunction with PureView, allowing for faster time to diagnosis compared to the current 24 to 36 hours typically required to complete traditional bowel prep. The outcomes we received from this study could begin to challenge the current standard of care for critical lower GI bleed patients. In June, we also announced that we have begun enrolling in outpatient study in Europe. This study is evaluating the clinical outcomes in outpatients who have had a history of poor bowel prep. The study protocol uses PureView in combination with a low volume bowel prep and limited diet restrictions. If successful, this study could lead the way for our PureView system to change the management of patients who struggle to get an adequately prepped colon due to their age or medical condition. The study will enroll approximately 44 patients across two sites in both the Netherlands and Germany. The primary endpoint for the study is improvement of the bowel preparation from baseline to post procedure as assessed by the Boston Bowel Preparation Scale. The study will also look at key clinical endpoints related to the quality of the exam, including the detection of critical pathology in the colon. Let me now turn to potential strategic partnerships. We continue to advance our dialogue with several potential strategic partners. Our focus is finding pathways to accelerate and expand our commercial efforts in the U.S. and in targeted regions outside the U.S. We are also discussing opportunities for enhancing our technology development with the aim of being able to unlock value for our shareholders. As we continue to drive greater utilization of Peerview in the US market, we believe strategic options that fit our criteria and are actionable may become available for consideration. Additionally, we are seeing new interest by strategics following our announcement of the launch of Peerview for upper GI procedures. In summary, we believe we're making important commercial progress and have deployed a highly disciplined and focused approach to build the market and capitalize on the four value creation drivers, each of which have the potential to greatly enhance the momentum and trajectory of our business in 2021 and beyond. Finally, before turning the call over to Andrew, I want to briefly mention on today's call how excited we are to have Sonia Nelson join our Board of Directors and as our Chair of the Audit Committee. Sonia is currently the Chief Financial Officer of Ambrex, and brings more than 25 years of financial and operational leadership expertise to our board. We're fortunate to have her join us and pleased to have an additional accomplished executive join the board of MODIS GI. Andrew, I will now turn the call over to you.