CapsoVision, Inc. (CV) Earnings Call Transcript & Summary

Good afternoon, and welcome to CapsoVision's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Leigh Salvo, Investor Relations for CapsoVision. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for CapsoVision's Third Quarter 2025 Earnings Call. Joining me today are Johnny Wang, President and Chief Executive Officer; and Senior Vice President of Finance, David Garcia; as well as Doug Atkinson, Senior Vice President of Sales. Before we begin, please remember that today's remarks include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-Q filed by us with the SEC. These forward-looking statements speak only as of the date of this call, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Our call today will cover the following agenda. Johnny will begin with an update on CapsoVision's business, target markets and recent highlights from our pipeline development. Then Dave will walk through a commercial update and recent financial results. After our prepared remarks, we'll open the call up for Johnny, David and Doug to take your questions. With that, I'd like to turn the call over to Johnny Wang, CEO. Johnny?

Thank you, Leigh, and good afternoon, everyone. CapsoVision's mission has always been clear to make early, accurate and accessible GI disease detection available to patients everywhere. Our long-term vision remains to deliver an ingestible capsule that can screen for multiple cancers, esophageal, gastric, pancreatic, liver and colorectal in a single noninvasive procedure powered by advanced imaging and AI. We delivered a strong third quarter, highlighted by 19% year-over-year revenue growth, a 31% increase in new account generation and a milestone of more than 151,000 patients having used our CapsoCam Plus system to date. These results reflect the growing market adoption and strong physician engagement as more clinics embrace the advantages of our wire-free, panoramic capsule technology. CapsoCam Plus provides a complete 360-degree view of the small bowel with a 97% completion rate, giving physicians the clarity and the efficiency they need for accurate diagnosis. Combined with our secure cloud-based workflow, providers can review cases anytime and anywhere without the burden of servers or hardware. [ CapsoCloud ] infrastructure continues to build a vastly identified image database that fuels our proprietary AI development. On the pipeline development front, we have continued to make exciting progress that I'd like to share. First, we continue to invest in AI to improve our existing products and made significant progress with the clinical study to demonstrate the benefits of incorporation of our AI technology into CapsoCam Plus. We currently plan to submit the related 510(k) application to the FDA by year-end 2025. This updated timing represents a slight delay from our previously anticipated timing due to resource constraints on our third-party biostatisticians. To mitigate further delays, we have contracted with an additional biostatistical consulting group. We expect that it will take approximately 6 months for the FDA to review our application and the pending clearance commercialization is planned to begin shortly thereafter. CapsoVision is, to our knowledge, the only capsule endoscopy company with a true in-house AI core competency. The scale and the quality of our growing image data flows, inherent in our cloud-based architecture, create a powerful foundation for training AI models and uncovering new clinical insights that will continue to set our platforms apart. And because our system is fully cloud-based, it eliminates the need for on-site servers, reduces cost and downtime and removes the IT burden for clinicians. The result is an AI-enabled diagnostic platform designed to deliver efficiency, accuracy and accessibility to GI practices across all settings. We also made an important progress expanding our pipeline with the recent submission of an application for Breakthrough Device Designation to pursue use of our noninvasive capsule endoscopy system to enable earlier detection of pancreatic duct adenocarcinoma, a major milestone in our mission to bring screening to one of the deadliest cancers worldwide and represents an important step in CapsoVision's mission to expand our capsule-based diagnostics platform beyond the small bowel and address some of the most challenging diseases in gastroenterology. Pancreatic ductal adenocarcinoma, the most common form of pancreatic cancer has a 5-year survival rate of only 8%, largely because it is diagnosed at advanced stages that cannot be treated. Currently, no early screening tools are recommended to identify the disease at a treatable stage. CapsoVision is pursuing the potential use of CapsoCam UGI endoscopy to identify pancreatic disease at an early stage. The device's unique panoramic imaging capability enables clear visualization of the duodenal papilla, a small bowel landmark that controls release of digestive fluids from pancreas. Changes in the papilla's appearance can be associated with pancreatic abnormalities and may serve as an early indicator of disease. Unlike traditional endoscopic or imaging procedures, CapsoCam UGI is completely noninvasive. Patients simply swallow a pill-sized camera, eliminating the need for sedation, intubation or recovery time, while enabling physicians to review detailed images through a secure cloud-based system. The FDA's Breakthrough Devices Program is designed to expedite the development and review of technologies that may offer more effective diagnosis or treatment for life-threatening conditions where no adequate alternatives exist. If granted, the designation would allow CapsoVision to work closely with the FDA to accelerate development and shape upcoming clinical studies for the regulatory review process. We are also advancing our CapsoCam Colon product. Our Gen 1 510(k) submission is currently under FDA review, and we have begun enrolling patients in our pivotal study for the Gen 2 capsule. This version incorporates enhanced optics and AI for improved accuracy and is on track for submission in the second quarter of 2026 with potential clearance in the fourth quarter of 2026. We are also very pleased to be partnering with Canon Inc. on next-generation imaging technology. Earlier in the third quarter, we entered into a development agreement focused on creating advanced CMOS image sensors with high resolution and a dynamic range. These sensors are designed to further enhance image quality and performance in future versions of our capsule endoscopes, supporting our goal to deliver the most precise and reliable visualization in the industry. Finally, we continue to build our organization for growth. Following our successful IPO earlier this year, we were pleased to welcome Mr. David Garcia as Senior Vice President of Finance. His deep financial leadership and capsule markets experience will be instrumental as we move into the next stage of execution and growth. Overall, Q3 is a strong quarter across the board, commercially, operationally and strategically. Our progress in AI, our advancing pipeline for early detection of major cancers and the continued expansion of CapsoCam Plus adoption reaffirm our confidence in leading the next generation of noninvasive AI-enabled GI screening and diagnostics. I will now turn the call over to Dave to cover recent commercial and operational highlights as well as our financial results for the third quarter. Dave?

Thank you, Johnny. I'm thrilled to have joined CapsoVision and be part of a team that's redefining what's possible in GI diagnostics. I've already been impressed by the talent and energy across the organization, and I look forward to getting to know everyone and to engaging with our investors and the broader Wall Street community in the months ahead. Turning to commercial highlights. As of September 30, 2025, CapsoCam Plus for small bowel screening has been used by more than 151,000 patients across the U.S. and internationally. In the third quarter of 2025, approximately 8,336 patients used our system compared to approximately 6,961 in the third quarter of 2024, representing year-over-year growth of 20%. Today, our technology is protected by 82 U.S. patents, reinforcing our strong foundation in IP and clinical innovation. In addition, the device is reimbursed under CPT code 91110, supporting adoption across both private practices and hospital systems. A key strategic advantage of our approach to the GI market is the ability to leverage our existing sales infrastructure as we expand into additional indications. Importantly, we expect that the same call point for CapsoCam Plus will serve as the entry for CapsoCam Colon once it has been approved for commercialization, creating a built-in cross-sell opportunity without requiring significant increases in headcount. While we expect to scale over time, as of September 30, 2025, our U.S. direct sales team included 26 representatives supported by 7 regional sales managers and trainers. Internationally, we're gaining traction with 4 representatives in Germany, and we continue to efficiently expand into high potential global markets through distributor partnerships. New account generation grew 31% in the third quarter of 2025 over the comparable quarter in 2024, demonstrating continued physician adoption of our capsule for use in small bowel screening as well as the impact of approvals in pediatric patients over 2 years old and remote ingestion of the capsule, furthering the benefits of telemedicine. We were also encouraged to see a 24% increase in GI clinics and mega GI groups, which we define as those with more than 150 providers with multiple locations and in multiple states in the third quarter of 2025 over the same quarter last year. Although our historical focus has been on private gastroenterology practices, we are now achieving momentum in hospitals and GPOs as incumbent contracts come up for renewal. In the third quarter of 2025, hospital systems customers increased 26% over the prior year. Turning to our financial performance. For the third quarter of 2025, total revenue was $3.5 million, reflecting 19% growth compared to the third quarter of 2024. This was driven by an increase in the number of CapsoCam Plus capsules sold. Our gross margin was 54% for the quarter, consistent with our expectations as we scale. Operating expenses were $9.9 million, a $2.5 million increase from the quarter of 2024, driven primarily by an increase in expenses associated with the development of the new CMOS under the development agreement with Canon Inc. and the increase of general and administrative expenses due to higher payroll and benefits expenses and stock-based compensation expenses associated with the executive officer departure and higher professional service expenses, including audit, legal and consulting fees as we are operating as a public company. Net loss was $7.9 million for the third quarter of 2025 compared to a net loss of $5.8 million in the third quarter of 2024. We ended the quarter with $17.8 million in cash and equivalents, an increase from $1.1 million at June 30, 2025. At the beginning of the quarter, on July 3, 2025, we completed our initial public offering and received total net proceeds of $23.4 million. We also announced a development agreement with Canon to design and evaluate next-generation CMOS image sensors for future versions of our capsule endoscopes. While not intended for CapsoCam Plus or CapsoCam Colon, this collaboration marks a key step in advancing our innovation pipeline and imaging capabilities. In July 2025, we made a prepayment of $1 million. R&D expenses for this agreement recognized in the third quarter of 2025 were $1.6 million. Accrued liability balance as of September 30, 2025, was $0.6 million. Now I'd like to turn the call back to Johnny for some closing remarks.

Thanks, Dave. As we look ahead, we are entering one of the most exciting periods in CapsoVision's history. We have clear momentum across every part of the business on the continued commercial growth of CapsoCam Plus to the expansion of our pipeline into new indications like colon and pancreas to the advancement of our AI-assisted diagnostics. Our application for Breakthrough Device Designation for pancreatic screening reflects both the urgency of that unmet need and the promise of our technology to detect disease earlier and treatment can still make a difference. In addition, continued development of our AI model for CapsoCam Plus has the potential to make capsule endoscopy faster and more accurate than ever before. As with our CapsoCam Colon product progressing and the additional development efforts underway with partners such as Canon, we are steadily building a comprehensive platform that can transform how gastrointestinal diseases are detected and managed. Following our successful IPO, we are expanding our leadership team and executing a clear growth plan. I'm confident that the combination of our advanced imaging, proprietary AI, fully cloud-based architecture gives us a strong foundation for long-term success. I want to thank our employees for their dedication and creativity, our clinical partners for their collaboration and our investors for their continued support. Together, we are redefining what's possible in GI screening, making early, accurate and patient-friendly diagnosis a reality. We look forward to updating you on our continued progress next quarter. At this time, Dave, Doug and I would be happy to take your questions. Operator, can you please open the line?

[Operator Instructions] And we will take our first question from Bruce Jackson from The Benchmark Company.

First, I want to ask a pipeline question. So with the AI feature, if you're going to be submitting that in the fourth quarter, what does that do to the other milestones in that program? So does the approval also move forward a quarter? I think we're looking at maybe first quarter next year originally, would that go to the second quarter?

Bruce, thanks for the question. It normally takes 3 to 6 months. So it should be available in the second half. As soon as you get it cleared, we will launch it in the market.

Okay. And then a question on the operating expenses. So you mentioned that there was a $1.6 million charge or fee for the Canon agreement. That would bring kind of like the core R&D rate in and around maybe $4.5 million. Is that kind of the level we should assume going forward?

Yes. Thanks. This is Dave. So the $1.6 million expense for R&D for Canon, that was -- think of that as a onetime in nature for Q3. So going forward, you can take that out.

Our next question comes from the line of Kyle Bauser from ROTH Capital Partners.

First one for me, congrats on applying for Breakthrough Designation for pancreatic cancer. With that application, is there any sort of clinical data that you're able to use in application? And maybe any key highlights there that you can provide for us?