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spk05: Good day and welcome to the Motus GI first quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Garth Russell of LifeSci Advisors. Please go ahead.
spk01: Thank you, Operator, and thank you, everyone, for joining us for the MODIS GI first quarter 2022 update call. Representing the company are Tim Moran, Chief Executive Officer, 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 risks and uncertainties and 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 and our most recent filings on Form 10-K and other periodic filings on Form 10-Q and 8-K filed with the SEC. I would now like to turn the call over to Tim Rand, CEO of Modus GI. Tim, the floor is yours.
spk03: Thanks, Garth, and good afternoon, everyone. Thank you for joining our call today. I am pleased to share an update on our business through the first quarter of 2022, as well as provide early insights of what we're seeing in the second quarter. Following my updates, Andrew will provide an overview of our financial performance for the first quarter, and then we will open the call to take your questions. Let's get started. At the end of March, I shared with you on our last conference call my thoughts in terms of Modus GI truly being at an inflection point in our pivot towards growth. While we discussed during the call the very real impact that the pandemic has had on our business for much of the last two years, I also outlined the important milestones we've achieved during that time, including the significant progress we've made in advancing our technology with the FDA clearance of PureView EVS, establishing a clear plan for pursuing outpatient reimbursement with the development of a large multicenter clinical trial, and the expansion of our customer-facing team through increased investment in commercial resources. Our revenue for the first quarter is not reflective of our potential or any of the key advancements I just outlined. As we discussed at the end of March, we were impacted in January and February by the Omicron surge and staffing shortages at hospitals. And March was a transition month as we began to sunset PureView Gen 2 activities and execute initial shipments of our all-new PureView EVS to the first sites. So let's look forward. Approximately six weeks ago, I forecasted that we would have the Peerview EVS placed in approximately 12 sites in the near term. As we sit here at the midpoint of the second quarter, we're well on track with that expectation, having already placed EVS in 11 hospitals. And based on a review of our activity and backlog, I fully expect we will overachieve this initial forecast. Moreover, we continue to receive very positive feedback from all accounts, both from the physicians and their staff. As a reminder, our EVS system provides a much simpler user experience, spanning the staff who sets up and breaks down the product to the physician who navigates through the colon to conduct a high-quality exam. A prominent physician who leads the GI department at a major academic medical center recently commented that PureView EVS is, quote, night and day easier than the last generation system. He said, setup is simple and intuitive, and the slimmer sleeve design allows me to do everything I need to do during the procedure. When you have a great product, you also need a right-sized, talented sales team to gain the critical mass required to close opportunities in the pipeline. As such, we accelerated our commercial expansion in Q1, and now have eight field sales leaders strategically positioned across the US. We have every major region covered and each of the new sales people come with proven track records of selling GI products at many of the world's largest medical device companies. While several of our sales people just recently were brought on board, we believe they will make noticeable positive impact as we penetrate our backlog of qualified accounts. In addition, Now that we've expanded to new geographies, we are already conducting evaluations at hospitals that have not had any previous interactions with our team. When you couple this activity alongside our existing Gen 2 customers and those who have been waiting to evaluate EVS, it gives us the confidence that driving quarter-over-quarter revenue growth is well within our sights. Let's discuss some of the early indicators and metrics that we believe are key to tracking our progress moving forward. Of course, the overall number of sites is the starting point, but that's only part of the equation. The trajectory of our long-term growth will be determined by how many procedures are performed at an individual site on a weekly, monthly, and quarterly basis utilizing our system. This is why we believe it is equally or perhaps even more important that we are also seeing positive initial indicators around utilization, including one, more procedures being performed per month by our customers and evaluation sites than with our previous generation. As a result, we saw very strong procedure volumes in April at both closed and accounts that are under evaluation. Two, the number of procedures being done independently by a physician without a MODIS sales rep on site, which is growing now that the required training has been dramatically reduced. Three, the system being used as an on-demand tool, meaning after a physician starts a case and sees that the patient was not prepped well, they intuitively ask for PureView to salvage the procedure. And four, Continued positive user experience from the entire GI suite on the simplicity of the solution to deploy during their normal procedural workflow. To that point, nothing speaks more about the potential of a product than real-world customer feedback. Let me take just a minute to highlight feedback from a new account who is currently evaluating PureView EVS. Dr. Brian Hansen, Acting Section Chief, of Gastroenterology and Hepatology at the Minneapolis VA Medical Center stated, and I quote, PureView has allowed us to achieve a complete quality colonoscopy in patients that would have otherwise been canceled or aborted. This is an important service to our patients who have complicated medical comorbidities and often travel great distance for procedures. With a growing number of VA hospitals evaluating the PureView EVS, We believe the overall VA system in the U.S., which consists of approximately 170 medical centers across the country, represents a high-yield opportunity for adoption of the PureView EVS system. Now let's discuss our progress on key upcoming catalysts. Let me first review our clinical study activity and outpatient reimbursement strategy. Our European Outpatient Clinical Study is fully enrolled, and we just recently announced that the top line results from this study are expected to be presented during Digestive Disease Week 2022, which will take place in person and virtually May 21st through the 24th. DDW is the world's premier meeting for physicians, researchers, and industry in the fields of gastroenterology, hepatology, endoscopy, and gastrointestinal surgery. As a reminder, this study is evaluating the clinical outcomes in patients with a history of poor bowel preparation using a low volume prep with limited diet restrictions and the PureView system. The investigator-initiated study is being conducted at two health centers in the European Union and has enrolled all 44 patients. 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. As previously discussed, we have developed a multi-pronged strategy to physician peer review for outpatient reimbursement. There are approximately 18 million outpatient procedures conducted in the U.S. each year, and currently, approximately 4.7 million of these patients struggle to get a high-quality prep prior to their procedure. This can lead to delayed, aborted, and repeat procedures, which puts a burden on the healthcare system and the patient, both from a clinical and economic perspective. A critical step in this process is generating key clinical and economic outcomes via a large multi-center clinical trial. Based on data from the aforementioned EU study and through input from a group of world-class opinion leaders, We've been working diligently in the design and detailed protocol for this study, including recently meeting with CMS to solicit their feedback for incorporation into the design. We expect to initiate this study before the end of 2022 and we'll keep you apprised of our progress. One additional commercial point as it relates to selling Peerview into the outpatient setting. We are making progress in hospital-based outpatient units as well as the previously mentioned Veteran Affairs Medical Centers without having specific reimbursement in place. In terms of ongoing product innovation, as I have discussed on previous calls, we've initiated a project to add upper GI capabilities to the new PureView EVS platform. Some of the key enhancements in the EVS system, such as a much larger suction channel, more efficient irrigation jets, a smaller profile, and improved flexibility will be further optimized to allow the system to provide broad utility in an EGD procedure. As we've discussed previously, this utility is especially important in the 400,000 upper GI bleeding cases where not only stomach content but blood and blood clots can impair the field of view. Finally, turning to potential strategic partnerships and collaborations. As we build momentum and adoption in US hospitals in 2022 and our revenue begins to ramp, we believe that the relationships we've built with potential strategic partners could become actionable. We continue to keep these partners abreast of our progress with the aim of exploring opportunities for potential commercial and or product partnerships that advance our strategy and accelerate value for our shareholders. With that, I will now turn the call over to Andrew to provide detail on our Q1 2022 financials. Andrew?
spk06: Thank you, Tim, and thank you everyone for joining us today. We reported revenue for the first quarter 2022 of $20,000 compared to $51,000 for the same period last year. As Tim discussed earlier, the impact of both the Omicron variant early in the quarter as well as our controlled phase-out of Gen 2 and launch of EVS later in the quarter, significantly affected our first quarter results. We believe that these specific factors will be less impactful, though, in the second quarter of 2022 and beyond. For the three months ended March 31, 2022, we reported a net loss attributable to common shareholders of approximately 4.8 million dollars. or 9 cents per basic and diluted share, compared to a net loss attributable to common shareholders of $10.8 million, or 25 cents per basic and diluted share, for the same period last year, which included the impact of a non-cash deemed dividend from warrant issuance of $6.1 million. During the first quarter, 2022, Net cash used in operating activities and for the purchase of fixed assets was $5.2 million, compared to $4.7 million for the same period of 2021. As is the case each year, first quarter cash expenditures include certain one-time annual outflows associated with compliance and corporate matters, this year totaling approximately $1.8 million, which is not expected to recur in future quarters this year. On March 31, 2022, we reported $20.3 million in cash and cash equivalents, which includes our fully funded $12 million credit facility with Creos Capital. There are no financial or liquidity covenants associated with this facility. Our current cash and cash equivalents allow us to continue executing on our near-term catalysts and are expected to meet our overall anticipated cash needs into the first quarter of 2023. And with that, I'll now turn the call back over to Tim.
spk03: Thanks, Andrew, and thank you everyone for joining our call today. We believe we are at a key turning point in our business with the headwinds of COVID diminishing and the investment in our commercial footprint launching the all-new PureView EVS. We believe we are well-positioned to positively impact the inefficiencies inherent in the current standard of care for colonoscopy procedures and in doing so are expected to create shareholder value by driving adoption and generating sustainable revenue growth in the future. I'll now ask the operator to open the call for your questions.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Stephen Leitchman with Oppenheimer. Please go ahead.
spk04: Thank you. Hi, guys.
spk03: Hey, Steve.
spk04: So, Tim, congratulations on the first tranche of hospitals here. I was wondering if you could update us on what the backlog looks like, your target hospital numbers, how that's building beyond these first 11.
spk03: Sure, Steve. Yes. Thanks for the question. So we're really pleased with how fast the team has gotten out of the gates with the new device. So let me kind of recap that for you. So I said we've got 11 sites that are approved for use um if you break that 11 down five of them are closed meaning they're they're under a capital agreement um and they're purchasing uh the new evs leaves um six of the of the uh of the 11 so the remaining six are nearing the end of their evaluation and we expect will close before the end of the second quarter and right now if you look at our backlog we have roughly around 90 hospitals in our kind of qualified backlog that the team has generated. So I think we'll initiate, I would say, another eight to 10 evaluations in May and June. So we'll have a lot happening over the course of this quarter. And the team's done a great job to date. Really eyeing getting to about 12 closed accounts by the end of Q2, Steve. So basically taking the 11, we've got five closed already, six are nearing the end of their evaluation, get them through the process. And we'll have, of course, a lot more happening in terms of evals. As I just mentioned, we'll start in May and June, and we'll carry into Q3. So if we can put 12 closed accounts on the board by the end of Q2, I think we fully expect to be able to do more than that in terms of closes in Q3 and more than that in Q4. So it kind of gives you a bit of a sense of what it looks like for full-year total accounts.
spk04: Got it. Shifting to outpatient, I think, Tim, you said that you're having some success. I believe you mentioned the VA even pre-reimbursement here. Can you expand on that a little bit?
spk03: Sure. Yeah, so what we're seeing, and we saw some of this with Gen 2, where if you kind of evaluated the use cases with peer review at our hospital installations, some procedures were outpatient. But what we're finding now with EVS, is having the product on site. These physicians are targeting on an outpatient basis at the hospital, the kind of frequent flyer patients that have had a history of poor prep, right? So in one case, they'll say, I know that this patient typically has an issue with prepping. Maybe it's due to a medical condition. They'll proactively use PureView for their screening procedure to ensure they get a high quality exam. So that's one example. But what also has been enabled through EDS, as we talked about on the last call, because they're able to load the device onto a dirty scope, they're going in to start a procedure on an outpatient basis, finding that the patient isn't prepped well, and saying, give me peer review, put it on in less than 60 seconds, and completing that case, where in the past they would have either had a struggle through it and try to get the case done or cancel that procedure and bring the patient back. Both of those are really kind of the use cases that we're seeing from an outpatient perspective. And I think because it's on site, Steve, that, you know, the kind of reimbursement for the fact that it's technically an outpatient case isn't really coming into play. They're basically just using it because it's available to them.
spk02: Just to add to that, Steve, this is Mark. You know, especially in places like the VA, which are closed systems, obviously for them, you know, if they've got to do a repeat and bring a patient back That's still on their dime, so the reimbursement is really not the critical nature on there because they're a closed system.
spk04: Got it. Thanks, Mark. Maybe lastly, and then I'll jump back in queue, just given the movement you're seeing now internationally with the data coming up here, Tim, can you remind us of where you guys are relative to potential distribution partnerships, your overall thoughts on on partnering, you know, obviously particularly outside the U.S., but also in the U.S. potentially as well?
spk03: Yeah. So, you know, we've talked about this a bit before. We've absolutely invested a lot of time and effort into building, I think, very productive and kind of high-quality relationships with both large potential strategic partners, medical device companies, as well as some other partners. non-US licensing opportunities. We continue to cultivate both of those. I think, Steve, the reality is now that we've got our EVS product and we've put some more salespeople on the street, as we start to put the revenue up here in Q2 and then continue to grow that revenue, I think those opportunities become a lot more actionable. for us. Now, some of the other things that we're working, like a licensing in an OUS geography that may not be on our radar anytime soon, those things we're continuing to try to accelerate forward. And what we like about that is it could get us commercial acceleration, but also potentially some non-dilutive funding into the company. So both of those things are actively being worked. And I think as we have now gotten the product onto the market, A lot of these folks are looking and watching to see our progress here. And we'll keep you posted, you know, as things develop.
spk04: Great. Thanks, Tim.
spk05: Thanks, Steve. The next question will come from Yi Chen with A.T. Wainwright. Please go ahead.
spk00: This is Bubalan dialing in for Yi Chen. Can you hear me okay?
spk03: Yes. Hi, Bubalan.
spk00: Hi. So a few questions from our end. So firstly, with respect to your upcoming outpatient study, can you kind of provide some sense of the enthusiasm level of the CMS? Obviously, you guys met with CMS recently. So how are they, you know, what's the pulse and how enthusiastic are they in terms of your upcoming outpatient study?
spk03: Sure. So let me start with just a little bit of kind of color, and then I'll ask Mark to comment a little bit more on the study itself. First of all, to answer your question directly, I think it's a bit atypical for CMS to necessarily show enthusiasm up front, but what they are and what they're proving to do is be very helpful to us in terms of giving us access to go through our thinking around study design and what we're trying to achieve and making sure that collaboratively we're heading down the right path to ensure that if we're going to make this investment, It's going to ultimately hopefully yield the right information that they're looking for. But, Bubulon, I'll just remind you and other folks listening, you know, why this is so important for the company in terms of kind of an upcoming catalyst is, you know, this is strategically important to allow us to unlock, obviously, reimbursement and hopefully gain access to the very large outpatient market, as we talked about before, over 18 million procedures a year. But it's also very important, kind of piggybacking on Steve's last question, I think it's strategically important to potential partnerships having access to the outpatient market. So this is an important investment. We're excited about it. I think the team's made great progress in moving the ball forward. So I'll kick it over to Mark and see if there's any additional color that he'd like to add.
spk02: Thanks, Tim. Yeah, I'll just add a couple of things, you know, as we know in discussing with CMS that we feel pretty good about having in the trial design. So, you know, some of the things that CMS is looking for is first is making sure that the study results and the population use are generalizable. So we're really looking at that, making sure, too, that we're thinking about how this works in underserved populations, which is a big interest for CMS, you know, for the Medicaid population. And actually one of the nice things for us is the issue of inadequate prep and poor visualization, you know, is significantly worse in underserved populations. So it actually lines up very nicely for a target for the technology. Then, you know, we want to make sure that we are showing the right things around substantial clinical improvement, which we've discussed those performance factors with CMS. So we think we're in a good position from that perspective. And last is making sure that we're helping to help quantify the size of the problem as well. So they realize the importance of this. So I think all those aspects, I think we hit pretty strongly in the study design. And, you know, so we think we're fairly aligned with what CMS is looking for.
spk00: Great. That's really helpful. And secondly, obviously the current U.S. market environment is pretty tough for any industry. So I would like to hear your thoughts or maybe if you can comment on how the current market environment changed your thinking of your near-term and long-term commercialization plans for PureView EVF.
spk03: Yes, it's a great question. Obviously, the environment has certainly had an impact on our planning and decision-making over the last really two years, as you know. really running with a very, very lean commercial team. What I think we have kind of line of sight to right now is the impact of COVID has really diminished significantly. So we're not hearing about the delays in that committee process or as many of the, you know, kind of comments about not being able to prioritize new technologies because of being short staffed. So It's starting to feel like that is getting behind us. The early part, as you could hear in our enthusiasm of Q2, has been very, very positive. We've been able to go and execute on the things that we plan to execute on without a lot of kind of obstacles in our way. And we are, as you know, and we said, we've accelerated really our investment in commercial expansion. We're now up to eight salespeople. We fully intend to continue to invest over the next few quarters. And I would say probably somewhere in the low double digit number. I think that's the critical mass that's needed to kind of deliver on the revenue expectations for the company. But from a overall pandemic perspective, I think that the thinking has changed. And I think we're trying to capitalize on our messaging where one, the most obvious is pure view is, you know, one of the devices, the new innovative devices that are now available are, to ensure that you don't have a patient tying up a hospital bed any longer than they need to be, right? And we've discussed that many times. So if a patient's in a bed prepping for their colonoscopy for two days, you need to have PureView on site so you can get that done in 24 hours and be able to get them moved along and ultimately out of the system. That's very, very important, particularly when these hospitals start to get overrun with patients during a pandemic. The other area, Boubalon, that we think kind of plays in our favor or is definitely a tailwind now is there's a significant backlog of colonoscopies that have not been done due to the pandemic. And those have to get done. So we hear this from our physicians all the time, that they're scheduling three or four months out on these screening colonoscopies. So if you think about that patient that has waited four months and then come in and not prepped well, and they, God forbid, have to have their procedure aborted and come back again, that's a real issue. So we think PureView fits right into that. you know, the value prop necessary to help our customers but also really help the patients at the end of the day. So that's the way we're kind of thinking about things now from a U.S. perspective.
spk00: Thank you. One final question. This is for Andrew. So how do you expect SG&A and R&D to potentially change for the remainder of the year? Thanks.
spk06: You cut out a little bit. How do you expect R&D and I didn't hear the rest.
spk00: Yeah. So how do you expect, yes, DNA and R and D costs to potentially change for the rest of the year?
spk06: Yeah, got it. Thank you. Um, so we've been pretty consistent since the end of last year. Um, and into this, uh, into this year that we look, if you're comparing, um, you know, the last couple quarters of 2021 and now into 2022, We're anticipating an increase over the course of the year overall to be in about the 30% range from an OpEx perspective. I would say that on the R&D front, that'll be closer to flat and maybe a little bit of an increase with some of the activities that we're doing, future product innovation, some of the work on the upper GI area. And the bulk of that growth will be in the marketing and sales element. So the S part of the SG&A, G&A, probably pretty consistent as well. But in terms of the sales and marketing elements, I think we're looking at probably closer to a 50% increase if you look at it year over year when you're incorporating both the personnel costs and the non-labor costs, obviously, With COVID hopefully mostly behind us, some of the activities on the non-labor side, attendance at trade shows and communications and travel and things like that have a bit of an uptick as well. Obviously, all of that commensurate with our increase in revenue growth that is expected for the remainder of the year.
spk00: That's it from me. Thanks for taking my questions.
spk05: Thanks, Bublan. This concludes our question and answer session. I would like to turn the conference back over to Tim Moran for any closing remarks. Please go ahead, sir.
spk03: Thanks, operator. And let me start by thanking everyone for joining our call today. And I'll just reiterate, maybe summarize what I said earlier. We are excited with the early progress we're now seeing in the market. And that's the combination of having an excellent technology and peer-reviewed VS available to our team, but also a larger team. And a couple of the things, you know, from a kind of early indicator standpoint that we wanted to see and we've seen over the first eight or so weeks is more procedures being done after we train and leave and move on to the next site that are done independently without a Motus GI rep there. So we want to continue to see that number grow, but the early indications are very positive. And why that's important is it allows us to really, over time, scale this business, obviously with less people if you don't need to be hand-holding procedures. The other is, as we look at our first cases across these 11 sites, a large majority of these procedures have been done by a general GI physician, meaning the physicians that are conducting the most colonoscopies on a routine basis day in and day out at the hospital. In contrast to our prior experience with Gen 2, where the majority of our users were advanced endoscopists, who were a little bit more comfortable with a more complex device. So that's telling us that I think the team has done a great job in putting together a product, listening to our customers, that's really brought down the barrier to navigation and to usage. So we'll continue to track these metrics, but the early indications are strong, and Right now, this group, this organization is in execution mode, and we're looking forward to an update with everyone during our next call, and we'll be happy to report our progress during Q2. So thanks for joining today, and we'll talk to you next quarter. The conference is now concluded.
spk05: Thank you for attending today's presentation. You may now disconnect.
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