Imricor Medical Systems, Inc. (IMR) Earnings Call Transcript & Summary

Good morning, everyone. Good morning and good evening. Welcome to Imricor's quarterly results conference call for the period ended 30 June, 2020. My name is Carrie Barrack, and I'll be moderating your call. Today, I'm pleased to be joined by Steve Wedan, Imricor's CEO; and Lori Milbrandt, Imricor's CFO. Steve and Lori will provide you with a brief business update today, followed by a question-and-answer session. I'll give instructions on how to ask questions after the presentation is complete. With that, I'd like to hand over to Steve.

Thank you, Carrie, and thank you everyone for joining us today. This morning Imricor released its Appendix 4C for the second quarter of 2020, and later discuss these results as well as provide a general business update given the recent recommencement of our rollout plans, which were interrupted by the COVID-19 pandemic. Lori will begin by presenting the quarterly cash flow results. Lori?

Thank you, Steve, and hello, everyone. As a reminder, all numbers are unaudited and in U.S. dollars. The net cash outflow from operating activities was $2.7 million for the quarter, which was slightly down from the prior quarter. Receipts from customers of $173,000 in the quarter comprised fully from the sale of consumable products. Our revenue and cash receipts were impacted by the COVID-19 pandemic, which, due to restricted hospital access, stalled our lab rollout plans and also saw low procedure volumes at the Dresden Heart Center, which became operational in late January. Overall, cash in relation to operating costs was lower than the prior quarter. We had ramped up inventory purchases in both the March and December quarters. Therefore, comparatively, inventory purchases were lower in the recent period. With COVID-19 restrictions in place, we also incurred lower travel costs during the quarter, recruitment fees were down and there were also some differences in the timing of payment of forward fees and annual licenses as compared to the prior period. Net cash outflow from investing was $299,000, largely relating to the purchase of property, plant and equipment. We had a net cash inflow from financing activities of $226,000, which included $330,000 (sic) [ $339,000 ] in proceeds from the exercise of warrants and options. At June 30, we had a cash balance of $11.4 million. With that, I'll hand it back over to Steve to provide you with the business update.

Thanks, Lori. So we were pleased -- very pleased to recommence the rollout of our clinical sites in June after our program stalled due to the COVID-19 pandemic and the associated restrictions that are associated with hospital access. Now we're currently having sites operational now in Dresden Heart Center, Haga Hospital and the Amsterdam University Medical Center. We're working with Philips now and the Leipzig Heart Center to schedule first cases there. You might recall that the Leipzig Heart Center along with Dresden has been established as one of our training centers of excellence. A further 3 sites are expected to have signed sales contracts and/or commence procedures in August or shortly thereafter as summer vacation season ends in Europe. Beyond this, we have 14 more sites that are well progressed and in the third stage of our 5-stage sales process, meaning we're planning for an acceleration in lab rollouts during the fourth quarter. Feedback from medical professionals using our products continues to be excellent, both surrounding the ease of adoption as they transition from traditional environments to the iCMR lab as well as the benefits of enhanced visualization in undertaking needs and future procedures in MRI. And the associated positive patient outcomes, of course. In terms of procedure volume at the operational sites, we're not yet seeing the number of atrial flutter ablation procedures. We haven't seen that return to pre-COVID levels despite the backlog that the lockdown months have created. We expect it may take some time for these volumes to return to normal as health care professionals prioritize patients with more urgent and immediate needs. However, our current pipeline is the strongest it's been since our inception as interest in our products continues to grow across the medical community, supported by the promise of iCMR ablations, strong outcomes at the sites we have launched and our ongoing programs to grow awareness of and education around Imricor's products. Given the restrictions on travel and gatherings, we've continued to engage with the medical community through online seminars, supported in particular by doctors Thomas Gaspar and Stefan Ulbrich of the Dresden Heart Center. As previously foreshadowed, these seminars have been extended to member sites within the Sana Group Purchasing Organization network, where our agreement with Sana facilitates access to approximately 80 sites that currently perform traditional cardiac ablation procedures. Consistent with our original intention, we'll continue with the controlled release of our products during 2020 to best support the positive outcomes for patients and their health care professionals. As I mentioned, we are, however, expecting to see an acceleration in the establishment of new sites following the European summer vacation, which is, for those of you who don't know, essentially August. Particularly within the last quarter of this year, we expect to see this uptick, assuming no material COVID-related disruptions. Our research and development pipeline remains a clear priority, particularly regarding products that will enable the treatment of expanded indications, such as atrial fibrillation and ventricular tachycardia, which require access to the left side of the heart via intra-atrial septum. We remain on track to begin clinical trials for our steerable sheath and transseptal needle, both required to perform these procedures, during 2021. We're also progressing well with our diagnostic catheter, which will deliver material improvements in our gross margin, and expect to have this product ready for commercial release in mid-2021, so next summer, pending CE mark approval. Our strategy on approval in the United States is also progressing well, having recently restarted meetings with the FDA. And at this stage, we are targeting a clinical trial during the 2021-2022 time frame to support FDA approval. In Australia, we're expecting to appoint a local agent to facilitate both TGA approval and the eventual distribution of our products in the Australian market. This process was slowed by COVID-19, but we are now in the qualification stage, and we will provide further information once the process is completed in the coming months. Supporting our growth strategy, we've continued to expand our workforce currently employing a team of 48. In May, we appointed a Director of Clinical Affairs who has over 9 years of global clinical trial experience with Medtronic. And on August 1, our Regional Sales Manager for Eastern Germany will start bringing with him 6 years of cardiology experience -- sales experience with Bioventrix and Medtronic. We are pleased to fully retain our manufacturing team since the COVID outbreak, building inventory to support our growth during the second half of 2020. We also recently appointed a production supervisor who will provide focus on manufacturing productivity and support margins improvement over time. In the coming weeks, we will also welcome an additional manufacturing engineer to support the continued growth of our manufacturing efficiency, product line expansion and volume. Overall, I would say that while COVID-19 has been disappointing -- a disappointing disruption to our early commercialization plans, we have not been standing still through this period, and we are well positioned as we move into the second half of the year and beyond. The focus of our sales and marketing team in building our pipeline has delivered the strongest list of potential sites since our inception, and we've continued a strong focus during this period on research and development, supporting future growth product -- through product expansion and manufacturing efficiency. Across the medical profession, interest in our products and the ability now and in the future to treat cardiac arrhythmias under MRI continues to grow stronger. We're excited about the opportunities ahead of us during the second half of 2020, and we look forward to keeping you updated on our progress. With that, I'd like to move on to questions.

Thank you, Steve. We'll now open up for questions. [Operator Instructions] So I'll just give everyone a moment. Okay. I have a question. It's come from the mobile number, so I can't say who it is, but I will unmute you and you can proceed with your question. Go ahead.

Steve, Lori, it's Sarah Mann from Moelis here. Just wanted to ask a question, I guess, on the run rate. So you're doing procedures in 3 hospitals now. Leipzig's about to come on soon. You did mention that, I guess, the run rate was slightly lower as physicians kind of prioritize more serious procedures. Just wondering if you could give us a rough feel for where you're tracking at per week on average across the 3 sites that you've launched in?

Sure, Sarah. Yes, that's great. That's a good question. Clearly, we're running around 1 to 2 per week, which is a little bit less than we had expected. And the 2 to 3 per week is where we thought we would be -- well, where we were actually pre-COVID. We're also seeing a little bit of pressure when it comes to the sites that are using a diagnostic MRI system for their early adoption while there are dedicated iCMR labs are being built, and the Amsterdam group is one of these. We're seeing a lot of backlog for diagnostic imaging that needs to happen in those facilities. So they are not as available as they would normally be. You might imagine if you've been waiting since March to get the MRI of your brain to find out if you have some sort of brain cancer, it's a relatively big deal. And so it makes sense that these resources are being used in these more urgent ways in these early days. But we do expect things will get back to normal pretty soon, in the next quarter or 2, assuming that we don't have another big shutdown, which we're not hopefully anticipating now.

Great. And then just another question. So you've had 3 sites, various physicians performing the procedures. Just wondering has there been kind of any learnings that have emerged, maybe some points that physicians really like that you think could help you in your marketing pitch for bringing new labs online.

Well, actually, I missed the first part, you broke up just a little bit for me. And I'm sure it's on my end. So can you ask that one more time for me, Sarah?

Sure. No worries. So the question was just around you've had 3 different sites with different physicians doing the procedures, just wondering if there's been kind of key learnings or any points that the EP physicians really like that could kind of assist you in your marketing pitch going forward?

I see. I actually think the biggest output from the doctors' feedback that we're getting in these early cases is that it's very easy to adopt. There aren't any surprises. It's something that they're able to step right into and do very quickly. And that's really what we want. That's why you start with atrial flutter, right? It's because that's a case that they know well. It's relatively simple in the context of all the complex ablations you can do. And it allows them to change their lab over to this new environment and do something that they're very, very comfortable doing. And so what we're hearing is not any particular -- I believe that we'll start to hear the things that you're talking about when we move to more complex ablation procedures. For instance, this type of visualization or that type of mapping or this view or that view of catheters here or there, signal this or that. Those are the types of things that we expect that we'll hear as we move on to more complicated arrhythmias. But for now, it's just a very straightforward procedure. The Active Catheter Imaging, which we launched in Dresden right from the beginning, was the biggest breakthrough that had previously not been released to anybody. And so that -- and people are using that. We expect that people will use that now in conjunction with the mapping systems. And we may start to hear certain parts of the procedure that are better with using Active Catheter Imaging and other parts where they like to use the mapping and tracking system. But at this early stage, we haven't gotten a lot of feedback on those things.

That makes sense. And then just the last question from me in terms of the MR vendors. I mean just interested in how useful or helpful they've been in terms of assisting you in targeting and bringing on new sites in terms of broadening your pipeline in the period? Or has that mainly been kind of all work that you've kind of done internally and with Dresden?

So at this point, it has been all work that we've done internally. And Dresden has facilitated these seminars that we've been doing. We did one public seminar for anyone to join. It was -- it's sort of midway in the COVID sort of lockdown time. And so we weren't sure what kind of response we'd get as people were busy dealing with the pandemic. But we actually got a pretty good attendance at that, and it went very well. After that, we started doing more targeted small group online presentation sessions, in particular, with hospitals we identified through the Sana network, and that's resulted in several new sites that are in our sales pipeline now. As we move forward, though, we continue to work on co-sales and co-marketing agreements with Siemens and Philips to start to take advantage of their entire sales force to help us establish labs and really sort of take that whole thing off of our plate so we can focus on selling the consumables and driving forward with new applications. Of course, it will always be a partnership, but we are looking forward to a time when the capital equipment piece is something they handle for us, and then we join the conversation when we talk about the capabilities of the consumables.

[Operator Instructions]