Motus GI Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the MODIS GI Holdings, Inc., third 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 that the conference today is being recorded. I'd like to turn the call over to Garth Russell of LifeSci Advisors. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining us for the MODIS GI third 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 four forward-looking statements about the company. These statements are subject to 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 filings on Form 10-K and our other periodic reports on form 10-Q and 8-K filed with the SEC. I'd now like to turn the call over to Tim Moran, CEO of Modus GI. Tim, the floor is yours.

Thanks, Garth, and good morning, everyone. Thank you for joining our call today. I'm excited to share an update on our progress through the third quarter of 2021, which highlights our continued momentum even in these difficult market conditions. On today's call, I will also focus on the key upcoming catalysts that we believe will significantly accelerate our business in 2022. Following my updates, Andrew will provide an overview of our financial performance for the quarter, and then we will open the call to take your questions. With that as an outline, let's get started. I want to start by saying that I'm pleased with our commercial team's continued ability to drive new placements of our peer view system in US hospitals allowing us to convert more targeted hospitals into active customers. As a result of their efforts, we delivered revenue growth of approximately 40% in the third quarter compared with the second quarter of 2021, and up more than fourfold on a year-over-year basis. Notably, this represents our fifth consecutive quarter of incremental revenue and procedure growth despite headwinds from the COVID-19 ongoing pandemic. In Q3, we closed a key new customer agreement with Memorial Hermann Hospital in Houston, which included the outright purchase of our Peerview workstation. This is an important strategic win as we now have earned the license to hunt for potential expansion of Peerview within the system's 17 affiliated hospitals. Through the end of Q3, we now have approximately 10 key customers that have either purchased capital equipment or have signed a committed volume agreement. In Q3, all customers met their compliance expectations, which are valued between $60,000 to $120,000 of recurring disposable revenues annually. As we've discussed previously, these agreements require committed quarterly purchases of PureView sleeves in return for use of our capital equipment. In addition, these volume commitment agreements offer several key long-term benefits to MODIS GI, including more predictable recurring revenue, stronger gross margins, additional hospital reference sites, and the ability to grow procedure volumes to higher levels by training additional physicians on the use of Peerview. As we bring on more users of the Peerview system, either through volume agreements or outright capital purchases, we are beginning to lay the foundation for a waterfall of cumulative recurring revenues that will contribute to the company's future growth. While we are building momentum, I think it's important to remind everyone that we've accomplished this through a very small commercial footprint comprised of just four salespeople and during tumultuous conditions in the market associated with the pandemic, including intermittent sales rep access and unpredictable colonoscopy procedure volumes in certain markets. Given these challenges, we are excited about where we can take this business as the hurdles associated with COVID-19 lessen. We believe we have a very compelling opportunity ahead of us and are positioned to initiate a significant new period of growth in our company's future. As such, in 2022, we are preparing to lean into this opportunity in an important way with the goal to drive more rapid uptake of our proprietary technology in the U.S. market. Let me define what I mean when I say lean into the opportunity. To optimize the commercial introduction of our greatly enhanced PureView EVS, we intend to thoughtfully invest in the expansion of our commercial footprint to extend our reach and gain local sales coverage in key U.S. markets. By strategically expanding our customer-facing team, we will be able to engage more hospitals faster and have the bandwidth needed to spend more time at these accounts, growing procedure volumes and long-term revenues. Now let's discuss progress on our additional value creation drivers. First, let me provide a bit more detail about our exciting new product development. As I mentioned earlier, we are preparing for the pending launch of the Peerview EVS, which is our third generation of the Peerview system. We anticipate filing a 510 submission for EVS to the FDA by the end of this calendar year. The PureView EVS system provides significant enhancements compared to our current version of the device that we believe will improve both ease of use and speed of deployment. First, related to ease of use, PureView EVS is designed for rapid setup, which we expect will take less than 90 seconds and can be done easily in the procedure room. This is something our customers have been asking for since our launch of Gen2. As part of the enhancements, we've eliminated our reusable loading fixture from Gen 2 and incorporated a simple, disposable loading design. This allows a physician to load the PureView sleeve onto a dirty scope, meaning they can make the decision during a procedure to use PureView to complete a case. This, along with rapid setup of the system, should facilitate the use of PureView in a broader number of cases as our technology can be used on demand with no pre-planning necessary. Second, despite already possessing excellent irrigation and suction capabilities, we've enhanced our sleeve design to now consist of an even larger suction channel and added an additional water jet. In doing so, we've also removed four of the five existing tubes and have moved to a multi-channel single tube which removes bulk from the oversleeve and provides for even greater control and ergonomics that enhance the physician's ability to navigate through difficult anatomy. Third, we've reduced the size of our workstation by approximately 40%, which allows for easier transportation as well as a more streamlined fit into smaller GI procedure rooms. And finally, the new EVS design substantially lowers our overall cost of goods, which provides for enhanced margins and greater flexibility for more price-sensitive segments, such as outpatient and OUS markets. I'd like to now provide an update on our pilot cases for the PureView upper GI sleeve that we began in Q2. The purpose of this controlled series of procedures is to demonstrate clinical utility while also gaining real-world procedural learnings. To date, we've had positive feedback that PureView provides on-demand visualization without disrupting the working channel of the physician's gastroscope. This is important as a significant challenge when treating an upper GI bleed can be the lack of visibility due to blood, blood clots, and stomach contents. Our Pulse Vortex Irrigation and SmartSense suction provide the needed utility to improve visualization during diagnosis and treatment. While we plan to continue pilot cases through the remainder of Q4, the initial feedback is validating, and we expect the enhancements we're making in the new PureView EVS design will be beneficial in the upper GI application of our technology. We will provide additional updates next quarter as it relates to timing on the anticipated launch of PureView upper GI in 2022. Next, let me discuss our strategy for outpatient reimbursement and the generation of new clinical data. As discussed previously, we have developed a multi-pronged strategy to secure reimbursement of the Peerview system by both private and public payers. Over time, if we can secure reimbursement, it would help to further accelerate our commercial expansion into the large colorectal cancer screening market for outpatients. As such, we are currently working on the design of a large multi-center randomized controlled trial. Generating robust data in the outpatient market with clearly identified endpoints will be necessary to optimize our eventual plan submission of an application to CMS for a level one CPT add-on code. In November 2021, we convened an advisory board of key opinion leaders to help support the appropriate study design and assist in our planning efforts. Moving now to active clinical studies, I am pleased to announce that the European Outpatient Clinical Study is enrolling patients and remains on track. This study is evaluating the clinical outcomes in patients with a history of poor bowel prep using a low-volume preparation with limited diet restrictions and the PureView system. The independent study is being conducted at two health centers in the European Union and will enroll approximately 44 patients. The primary endpoint for this study is improvement of the bowel preparation from baseline to post-procedure as assessed by the Boston Bowel Preparation Scale. If successful, this study could help change the management of patients who struggle to get an adequately prepared colon due to their age or medical condition. In the U.S., the investigator-initiated study evaluating the clinical and economic benefits of using the PureView system in patients with emergent lower GI bleeding continues at the Cleveland Clinic. In this study, patients will not receive 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 a traditional bowel prep. The outcomes we receive from this study could begin to challenge the current standard of care for critical lower GI bleed patients. And finally, we recently announced the results of an independent study of PureView performed at the University of Texas Medical Center in Galveston, Texas. Of the 40 procedures that were completed, the PureView system was used as an adjunct to traditional prep to allow for completion of the patient's colonoscopy in 37 patients. Moreover, three procedures were actually completed without any bowel prep in patients who presented with lower GI bleeds. So 100% of the patients in this study were able to have a completed procedure. Also of note, in this study, PureView was used on 14 inpatients and 26 outpatient procedures. The findings were presented at the American College of Gastroenterology's annual meeting in late October. Now turning to potential strategic partnerships. We continue to engage with several potential strategic partners. The focus of this exploration is to evaluate potential pathways that could accelerate and expand our commercial efforts in the U.S. and targeted regions outside the U.S. We also continue to screen opportunities for product line expansion, which may also allow us to leverage call point synergies in GI. Moving ahead, we will continue to evaluate strategic options that fit our criteria and are actionable and provide updates as appropriate. With that, I'll now turn the call to Andrew to provide detail on our Q3 financials.