Perimeter Medical Imaging AI, Inc.

Greetings and welcome to Perimeter Medical's second quarter 2023 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jody Rakes. Thank you. You may begin.

Thank you. Good afternoon. Thank you for joining us on this call and webcast to provide the second quarter 2023 results for Perimeter Medical Imaging AI, or Perimeter. Joining me on today's call is Adrian Mendez, Perimeter's Chief Executive Officer, who will provide an overview of Perimeter's progress across the business, along with Andrew Berkley, Perimeter's co-founder, who will speak to product innovations underway to support Perimeter's future growth. We will then open the call up for your questions. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements regarding the future financial position, business strategy and strategic goals, commercial activities and timing, competitive conditions, research and development activities, projected costs and capital expenditures, research and clinical testing outcomes, the potential benefits of our products, including Perimeter S Series OCT, perimeter B series OCT, and perimeter image assist, the efficacy of our clinical trial designs, the timing and anticipated enrollment in our clinical trials, and the timing of potential publication or presentation of future clinical data. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our CDAR filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statement. For additional information about the risks and uncertainties facing our business, management encourages you to review the company's public filings and press releases, which are posted on cdarplus.ca. The news release summering this business update was released today and available under the investor section of our website at PerimeterMed.com and filed with CDAR. Now, I would like to turn the call over to Adrian.

Thanks, Jody. Good afternoon, everyone. I'm excited to host this first quarterly call since taking on the role of Perimeter CEO in early June. Today, I'll walk through an update on the immense amount of work that we have done within this initial 90-day period since our leadership transition where we're at with both our commercial and clinical development plans and an overview of our business strategy going forward and the key milestones ahead. I'll also ask Andrew to provide some detail around our next gen technology and product developments and highlight some key areas of product innovation at Perimeter. I'll then wrap up with some concluding remarks before we open the call for your questions. Before diving in, I think it's important to discuss what drew me to Perimeter and some of my initial observations. When I was approached with this leadership opportunity, I did my due diligence and was impressed by the sophisticated innovation work being done, of course, on the artificial intelligence front, but also across the board. As many of you know, I come from a tech background and can see the extremely compelling rationale for combining advanced AI with Perimeter's novel OCT medical imaging platform. The promise of next-gen AI was a key element that attracted me to Perimeter, but a big factor was also the fact that the team included globally recognized leaders on our board, such as Anantha Kancherla, who's the former head of AI platform at Meta. I was drawn to the opportunity to address the significant unmet need in cancer surgery and focus my efforts on improving the lives of patients by assisting surgeons with the introduction of new technologies while also reducing healthcare costs. It's important to note that AI is only one pillar of Perimeter's technology platform, and I believe there is strong product market fit for our commercially available S-series OCT, which has the potential to be game-changing technology for margin visualization. Cancer surgeons have long recognized the challenge of achieving negative margins while preserving healthy tissue during surgery. Traditional interoperative imaging modalities do not deliver the resolution to visualize microstopic features associated with cellular-level disease. And since it's several days or weeks before pathology reports on margin status are available, if they show positive margins, patients must typically return to the operating room for another procedure due to cancer left behind. One of the goals at Perimeter is to change the standard of care in breast-conserving surgery by delivering innovative technology solutions. What was exciting for me to learn about Perimeter is that today we offer the only intraoperative OCT imaging technology with the resolution to visualize tissue structures at the cellular level down to the critical 2-millimeter depth, and especially with 10x higher image resolution than x-ray and ultrasound and 100x greater image resolution than MRI. In addition, I believe the importance of our single-use consumable, a key element of our razor slash razor blade model, is often overlooked. The engineering of our proprietary tissue immobilizer solution creates distributed pressure without distortion of the margins, allowing surgeons to make informed decisions in their ORs while preserving the sample for pathology. And finally, the Atlas image library, which we use to train our AI models, It currently has over 2 million images and represents a broad-based tissue library for training and for reference. So based on all that, I saw and I continue to see the amazing growth potential for our platform and believe I can apply both my past experience scaling cutting-edge technology companies and my operational knowledge leading hardware, software, AI, product, and commercial teams to address this meaningful problem of ineffective margin assessment in the OR. Expanding the user base of our commercial stage revenue generating S-Series, it is foundational to our business strategy, and I'll also walk through some recent accomplishments on that front shortly. Okay, with that backdrop, let's dive into my observations and the team's accomplishments from the last 90 days. We've conducted a thorough review of the business and made some important decisions I'll run through today. These broadly group into three areas. First is our leadership group and employee base as a whole. Second is our clinical development work. And third is our go-to-market and commercial efforts. Beginning first with the leadership team itself, concurrent with my appointments, Dr. Josh Vose joined our board of directors and has provided invaluable insights into our clinical development program. In addition, I'm pleased to report that Sarah Bryan will become Perimeter's Chief Financial Officer, effective September 1st. We're grateful for Russ Wagner's service as our interim CFO, and he and Sarah will work together to ensure a smooth transition. I'm also pleased to confirm that we have named Andrew Berkley, one of Perimeter's co-founders, as Chief Innovation Officer. This new role reflects not only Andrew's valued contributions as a member of our senior executive team, but also his proven track record as a trailblazer that continues to develop game-changing technologies to ensure we have a robust product development pipeline for years to come. Today, I'll ask Andrew to speak to the promise of some of these earlier stage developments. We believe that these changes at the leadership level will help support our goals to improve morale, increase employee retention, and remove any silos preventing effective collaboration across the org as a whole. Across the business, we are striving to apply resources and refocus where needed and encourage a re-energized collaborative approach to our work. I'll speak about this in the context of both our clinical and commercial groups now. Okay, so turning now to our AI technology and the clinical development of perimeters B series OCT with image assist AI. I'm pleased to report that we have received approval from the FDA to introduce an enhanced AI algorithm into the ongoing clinical trial under the existing protocol. Importantly, all clinical trial sites Including the newest trial sites we've added last quarter, which are the Mayo Clinic and Baptist MD Anderson in Florida, are now cleared as of this month to begin using the updated AI. This version 2.0 of our AI takes advantage of a large amount of additional training data and big improvements to the model architecture. It demonstrates improved sensitivity, specificity, precision, and recall. And it's expected that this updated version of the AI will contribute to more accurate classifications, as well as, most importantly, fewer false positives and fewer false negatives. I'll ask Andrew to expand upon the significant benefits of the updated AI later in the call. We're currently engaged in ongoing discussions with the FDA to reach alignment on subject enrollment and secondary reporting. And this is expected over the next couple of weeks. Updated guidance on study completion will be provided following receipt of the FDA feedback. While this decision to introduce the improved AI will certainly extend the anticipated study completion date, we firmly believe that this is the right decision and the best course of action to ultimately deliver better technology to our surgeons and their patients. And most importantly, this approach ensures that we don't have to run a separate later trial to bring version 2.0 to the market. To date, with our breakthrough device designation, our regulatory interactions have been very productive, and we're confident we can reach alignment on key elements of the trial and drive the development of the B series forward in the clinic. Once we receive feedback from the FDA, we intend to update and refine our guidance in the next couple of weeks. We are committed to assigning resources as needed. while tapping into the expertise we have on our board from Dr. Vose to drive as quickly as possible towards a successful completion of the clinical trial in anticipation of a data package that will support the commercialization of our next Gen B series product in the future. Turning to the commercial organization, we are staying true to our strategy to identify high-profile reference sites and engage with key opinion leaders to help build a strong foundation for our initial early adopter customer base. We have a strong sales team with extensive medical device experience that's currently based in key regions in the US. We continue to receive positive feedback from existing customers about the service and support they did receive from the perimeter team. Of note, we also continue to generate new sales leads and demos and have successfully expanded into the states of Utah and Georgia just in the last quarter. The overall sample size of S-Series enabled procedures continues to grow. We're seeing positive results from this early adopter user base with a backdrop of a national average re-operation rate ranging anywhere from 15% to 25%. Initial anecdotal reports from our customers show single-digit results when using our technology to visualize their margins interoperatively. We continue to gather these data and consolidate some of these reports with the goal of publishing white papers and articles that provide further clinical evidence of the benefits of perimeter OCT. With these commercial strengths identified, we've also identified some gaps. We see the need to focus some amount of resources on helping with user workflow to help the experience in the OR. In addition, we continue to improve our customer selection criteria and as always, are working to recruit additional physicians at existing commercial sites as another way to grow our business through increased utilization of our devices. We must ensure our business is scalable, especially in the way we support our surgeons and the use of tech in their ORs. This is where I believe our ability to drive innovation and product development will support not just the clinical development team, but our commercial efforts as well. We will apply an agile approach to our commercial business, and we will continue to learn in the field with the goal of constantly iterating and improving upon the current state. With that, I'd like to now turn over to Andrew, who's going to discuss some of the innovations that can be applied in the near term and future developments that we can use to further broaden the market opportunity for Perimeter. Andrew?

Thanks, Adrian, for the opportunity to speak about Perimeter's ongoing innovation work, which can be broadly categorized as AI improvements that will be applied directly to the ongoing clinical trial, and innovations and improvements that we intend to apply to generally improve our customer experience. Specific to the AI used in the trials, we have implemented enhancements that encompass both technical and usability aspects. On the technical front, the new model now utilizes Martin's 30x higher resolution images in order to fully capitalize on the exceptional resolution provided by OCT imaging. Additionally, we have expanded the size of the training data to collection and curation of more data, which consequently has enabled us to amplify the model's complexity by approximately fivefold through a deeper and broader network. As Adrian noted, based on independent test data correlated with blinded pathology, the new AI model demonstrates enhanced performances across all crucial metrics, including sensitivity, specificity, precision, and recall. These improvements indicate a more precise classification, reduced instances of false positives and fewer false negatives. Outside of the AI currently used in the clinical trial, we remain focused on maintaining a broad pipeline of product innovations that touch on areas such as improving speeds at which the device is used, the ability to identify features using other models, exploring how AI can be leveraged to provide an enhanced training tool for our technology. Looking ahead, we continue to identify viable growth opportunities through the expansion of indications or other tissue types, as well as exploring new points in the cancer surgery workflow. An example of this is using perimeter technology to assist the pathologist as well as the surgeon. And with that, I'll turn you back over to Adrian.

Thanks, Andrew. With Perimeter's deep commitment to ongoing innovation, I'm also excited to see continued investment and new funding support for innovative cancer solutions. For example, the very recent exciting announcement from the White House regarding ARPA-H's new precision surgical interventions, otherwise known as PSI program, as part of the President's Cancer Moonshot Initiative. Last year's federal budget allocated approximately $1.5 billion to ARPA-H. Grant programs like this new PSI initiative not only have the potential to provide additional funding, but also raise awareness about an issue that's central to our mission. We absolutely need to provide better solutions and technologies for surgeons to eradicate the need for repeat cancer surgeries and relieve the associated burden of more difficult patient recovery, more frequent cancer occurrence, delays in adjunct treatments, and higher healthcare costs. Andrew will spearhead our involvement in this grant program starting with his attendance at a limited invitation Proposers Day for interested research teams, which is scheduled for next week in Chicago. We look forward to keeping you updated on our level of participation within this program. I would like to now turn my attention briefly to our financial position. For more details, please refer to our quarterly report and press release file today. As of June 30th, 23, Cash and cash equivalents were approximately 20.9 million U.S. dollars. With this strong cash position, our prudent fiscal management, and additional CPIRT grant money still available to us, we're confident we'll be able to support our planned clinical development activities and fund the continued commercial rollout of our products. So, to summarize, business highlights from this quarter included completion of a leadership transition with my appointment as CEO, and the addition of Dr. Josh Bose to Perimeter's Board of Directors, along with naming Sarah Bryan as our new CFO and transitioning Andrew Berkley's role to Chief Innovation Officer. Implementation of a substantially enhanced AI algorithm into the ongoing pivotal clinical trial under the existing study protocol. Expansion of our commercial customer base with initial installations of Perimeter's flagship S-Series OCT in the states of Utah and Georgia. and the initiation of additional clinical trial sites at Baptist MD Anderson Cancer Center and Mayo Clinic in Florida. In conclusion, I'm very excited about the future ahead for Perimeter. We intend to add and redeploy resources as needed and looking forward execute on our game plan to continue to expand our base of key opinion leaders who will champion the use of perimeter S series, support ongoing enrollment in our pivotal trial using the improved AI algorithm with the goal of providing another regulatory update within the coming weeks, explore additional tissue indications and other workflow expansion opportunities, and continue to attract high caliber talent as we grow the team that will support the achievement of these goals. With that, I will now open up the call for your questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment while we poll for questions. Once again, ladies and gentlemen, it is star one to ask a question. Our first question comes from the line of Scott Magoli with

Paradigm Capital. Please proceed with your question.

Hi, Adrian.

Congrats on the first few weeks in the role. Just a few questions for me. One, I guess, on the utilization in terms of the current customers. Can you speak to either how many procedures have been performed year-to-date and how you're seeing trends in the current utilization?

Sure. Yeah, thanks for the question, Scott. Yeah, utilization is one of these things that's really important for us. The more operations we can get, the more procedures we can get on a single device, of course, with the razor blade model is helpful. We've seen that going up really in two dimensions. One is as our surgeons get more comfortable with the device, they're starting to use it across more and more of their procedures at the point right now where many of them who have had it for a while are using it on what seems to be pretty much all of their, at least their DCIS surgeries and even beyond that. We are also seeing expansion at a device level, uses of a device level across multiple surgeons in similar facilities in some places, which is extremely exciting for us because it just means that that word of mouth is getting out from, you know, our early adopters to the next, you know, their peers, et cetera. So I don't have specific information. you know, procedures per device information in front of me. But anecdotally, we are experiencing that and we're sort of seeing that come through in the conversation we're having with our surgeons.

Yeah, that's great. And I guess one thing that we kind of highlighted in the past few quarters was some of the current, either kind of current sites looking to add new systems or the kind of customer pipeline, you know, instead of sites just looking to add or to bring on a single system that they're interested in two or three systems. Is that something that you're still seeing out there in the field? And how is that kind of impacting your pipeline going forward?

Yeah, yeah, absolutely. It's a great question. So part of the strategy, you know, in terms of I mentioned a little bit of looking at our customer selection. And for us, that's a that's a big deal, right? It gets through the value add committee at a larger network, and then be able to, you know, land and expand basically within that network. We are seeing that. That's a big focus that I will continue to have with the commercial team to make sure that continues to happen. We are, you know, currently we're not a large organization. So being able to get as much of that as possible is going to be critical for us to be able to scale our user base without having to grow the, you know, grow the Salesforce at the same rate. So we are seeing that happening and we continue to press on that. And I'm encouraged from what I've seen so far.

That's great. And on the trial, obviously, I guess, more details to come. But in terms of any potential for an interim readout, I don't know if that was something that had been discussed and kind of the ability to show some of the data in the existing algorithms. and how that, you know, with the breakthrough device designation, whether or not there's an opportunity to submit under there with an interim readout or not.

Yeah, I think, so this, you know, this is part of what we're working through at the FDA right now, and our hope was that we'd be able to have feedback from them before this call. And unfortunately, it'll be after the call. So we'll have to give an update. We're looking at all trajectories to try to move to, you know, so I, you know, I'm obviously new into this role. One of the things I'm very focused on is how do we get through this trial as quickly as possible? And sort of all options are on the table, including increasing the number of sites, which we have, you know, we just announced two of them today, the Mayo Clinic and Baptist MD Anderson, potential opportunities working with the FDA on what we can do with enrollment numbers. So it's my intention, it's all of our intention to move it quickly. I think we've got multiple trajectories that we can help on that front. We need to wait for feedback from the FDA and my hope is that in the next few weeks we'll be able to come back to you with some good news on that front.

Got it. Uh, looking forward to that. Uh, and I guess finally, you know, obviously a lot of focus on the product development side of things, I guess, is part of that being driven by the current feedback from users? Um, and kind of what would you say is the, either the main, either kind of pushback or issue that you're finding that current users are having and how the product development is addressing those?

Yeah, absolutely. Great question. So, um, you know, a little bit my heritage, I guess, is I come from a technology background. So it's not that I see the world through the eyes of an engineer, but maybe I kind of do a little bit. When I joined the company, you know, some of the first conversation we had is what is the customer feedback and what can we do from a product development standpoint to help address that? So some of the... Some of the things that Andrew talked about is definitely feeding into that. I'm not a huge fan of doing product development in a vacuum from the customers. So what you'll see as we start to announce new products over the coming quarters is it will be fed by customer feedback. That's just the way you have to run a business like this. The areas that we're really focused on right now is the workflow inside the OR, how to decrease the amount of time that the surgeon has to actually spend with the device, and how to make it fit more seamlessly into their workflow. So I think as we start to announce some of those, it will become clear what those products are and how they fit into that paradigm. But maybe that gives you a little bit of indication of how I'm looking at the product development pipeline and roadmap is really about based off of customer feedback and how do we ease the use of the device and the technology for the users.

That's great. Thanks, Adrian, and looking forward to quarters to come. Cheers. Thank you. There are no further questions in the queue.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.