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

Thank you for standing by and welcome to the Imricor Medical Systems Inc. FY 2020 results investor briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Steve Wedan, Chair and CEO. Please go ahead.

Thanks. Hello, everyone. Thank you for joining us today to discuss the full year results for Imricor. I'm Steve Wedan, Imricor's Chair and CEO, and I'm joined today by our CFO, Lori Milbrandt. Today, I'll take you through Imricor's key achievements during 2020 and discuss the current COVID situation in Europe and our expectations around our lab rollout plan. We will also provide you with an update on progress we've made across other growth strategies that are positioning us for an exciting year in 2021. Lori will then discuss the financial results for the year before I take you through our outlook. We'll then move to a Q&A session. As shown on Slide 5, we started 2020 in an exciting position, achieving an long-awaiting CE mark approval, which enabled us to begin to sell our products in the European Union. We swiftly moved to commercial launch with the first procedures performed at the Dresden Heart Centre in late January, marking a tremendous milestone for Imricor, as these were the first iCMR guided ablations to be performed anywhere in the world with market-approved devices. Despite the impact of COVID in our lab rollout plan, today we have 9 clinical sites with signed purchase agreements in place, and a strong and growing pipeline of sites supporting an acceleration in our commercialization plan as COVID restrictions ease. We entered into a number of agreements during the year to further promote future iCMR lab adoption and grow our product pipeline. This included a signing of a non-exclusive sales distribution agreement with leading MRI vendor Philips, enabling Philips to sell our catheter equipment as part of an overall iCMR package. This is an important agreement that we expect to significantly grow our pipeline and installed based moving forward. Moving now to Slide 7 and the COVID situation across our key target geographies, there we go. I think it's coming. As you can see on the chart that will be up in a moment -- one more slide. With the first COVID wave behind us, we made solid progress in signing agreements with new clinical sites following the European summer vacation season. In fact, we signed 5 new agreements in a 6-week period during the September and October time frame. I'm waiting just one moment for the slide. There we go. However, the second wave of COVID in Europe was worse than expected and was followed by a third unanticipated wave late in 2020. Across our key target geographies of The Netherlands and Germany in particular, containment measures have been both strict and prolonged. These countries implemented hard lockdowns in mid-December that were recently extended to early or mid-March. The hospital access is heavily restricted and elective procedures banned. This has caused delays in our lab rollout plan. COVID vaccinations are now underway in both countries with approximately 5% to 6% of the population have received -- having received a vaccination dose so far. As you can see on the chart, daily COVID case numbers have fallen significantly, and we expect to see relief in restrictions in the coming weeks, which will enable us to proceed with installation and training at our contracted sites. We also expect procedures to begin to recommence across our installed base. Moving to Slide 8, as mentioned, with strict containment measures still in place across our key target geographies, the delays we saw in the last quarter of 2020 have continued into 2021. However, we're working closely with contracted sites to schedule installation and training in preparation to commence cases as COVID restrictions ease. We carried out the first cases in one of our newest sites, the Maastricht University Medical Centre in the Netherlands yesterday and are starting to see signs of other hospitals reopening. We have training and installation teams established in Europe that are supported by teams based in the United States, providing us with the capacity to accelerate lab adoption as COVID restrictions ease. Our consumable sales in the last year were impacted by slower-than-expected rates of lab adoption as well as by reduced procedure volumes due to the hospital closures. With adequate inventory in place, we've redeployed portions of our manufacturing workforce to product development with a focus on building products for future clinical trials that will support our expanded indications. As you would expect, we are yet to see industry events resume in face-to-face capacity and have continued to deliver events and educational seminars online to support growing market awareness of our products. Moving to Slide 9, as mentioned earlier, we currently have signed purchase agreements in place across 9 sites in Germany, the Netherlands and France. The Leipzig Heart Centre, a Philips site; and the Dresden Heart Centre, which is a Siemens site have been established as training centers of excellence for sites that follow, supporting our future rollout plans. Training installation was previously completed at 4 of our contracted sites, and they are ready to commence or recommence procedures as restrictions ease. More recently, we completed training and installation at the Maastricht University Medical Centre in The Netherlands, like I just mentioned, with first cases undertaken yesterday, which is an exciting step forward after months of heavy restrictions. We're working closely with our remaining sites to schedule the training and installation and a commencement of procedures in anticipation of COVID restriction easing soon. Our pipeline remains very strong. Our agreement with Philips and collaborative relationship with Siemens has better enabled us to develop a long-term pipeline that is aligned with capital cycles at clinical sites. In the short term, we have a number of agreements in place that are well advanced, many of which are pending the execution once COVID restrictions ease. As such, we expect to gain traction on our lab rollout plans in the second quarter and see a strong acceleration in the second half of 2021. With training and installation teams in Europe supported by U.S.-based teams, we have the capacity and the capability to drive forward an installed base by the end of 2021 that is aligned with our pre-COVID expectations. Moving to Slide 11, despite the disruption from COVID in 2020, we maintained a very clear focus on progressing our initiatives to support future growth. I'll cover these points in the following slides. I would like to just reinforce that we have certainly not been standing still during this time. Although COVID has temporarily stalled our launch of new labs, we have been working hard to ensure that the foundations are laid for future success and that Imricor is well positioned as restrictions ease. Our sales and marketing team have adapted quickly to ensure that our pipeline of potential sites continues to grow. We are continuing to deliver online training and educational seminars in lieu of programs that we would have typically delivered at medical conferences. In May, we signed a master purchase agreement with Sana, the largest group purchasing organization in Germany, which not only streamlines an establishment of new sites but facilitates access to approximately 80 sites in Germany and Switzerland that currently perform cardiac catheter ablations. This agreement has contributed to a number of new sites in our pipeline. During the year, we entered into an agreement with an audio communications supplier, Optoacoustics; an ablation generator provider Osypka; providing a sales channel to further supply those products to our customers for use in iCMR ablation procedures. And in fact, both of those products were used yesterday in Maastricht. We continue to progress the development of our pipeline products required to support improvement in gross margins and expanding indications, and also progress our regulatory approval strategies to expand the indications and further our geographic reach. Throughout the year, we continued to expand the Imricor team to ensure that we can deliver on the growth strategies moving forward. Moving to Slide 12 then, as mentioned earlier, in July, we established our sales agreement with Philips to further fuel our pipeline, and this agreement enables our capital product, the Advantage-MR EP recorder and stimulator system, to be sold as part of the Philips comprehensive iCMR lab installation package. In effect, this enables the extensive Philips sales force to drive lab adoption, allowing us to focus on supporting product utilization, growing our portfolio of consumable devices and expanding our indications for use. It will still be a close collaboration between our sales team and the Philips sales team. In November, we commenced training the Philips European sales force on Imricor's technology and products. The sales force will become active in the field as COVID restrictions allow, and we expect this to drive a material increase in our installed base in 2021. We continue to work very closely with Siemens, and we're currently working towards the establishment of a similar agreement with them. Imricor is and will remain the exclusive provider of our consumable devices. And currently, we continue to supply capital equipment to Siemens sites. Included on this slide are other strategic agreements we entered into during 2020, which I just mentioned a moment ago. As you can see on Slide 13, feedback from medical professionals using our products has been excellent focusing on the ease of adoption as they transition from traditional environment to the iCMR lab as well as the benefits of enhanced visualization and undertaking these procedures in their lab. While at this stage, we are gathering post clinical data, anecdotal outcomes support reduced procedure times as well as excellent success rates. We're seeing growing excitement across the medical profession, supporting pipeline growth that has the potential to establish a new standard of care in the treatment of heart arrhythmia becomes a reality. Moving to Slide 14, while not required for atrial flutter, active tracking and mapping systems remain an important aspect of more complex cardiac ablation procedures. These systems are provided by Siemens and Philips and are at this stage yet to receive CE mark approval, although both are [indiscernible]. Currently, the Philips IC iSuite system is available as a research version, able to be purchased and used in clinical cases with ethics committee approval. This is what we did at Maastricht. The Siemens Monte Carlo system is also available as a research version, which has been placed at some key sites and is also available for use with ethics committee approval. We were pleased in early 2020 to successfully implement active catheter imaging on the Siemens platform and more recently have established this functionality on the Philips platform. Active Catheter Imaging combines passive tracking with active MR tracking to provide improved catheter visualization without the need of those third-party active tracking and mapping system software. This enables sites on both platforms to commence atrial flutter procedures immediately following installation of our equipment, removing the reliance on third-party systems as they get started. Moving to Slide 15, despite disruptions associated with the COVID pandemic, we continue to grow our workforce across all functional areas and have been fortunate to welcome a number of talented individuals from high-caliber organizations within the medical technology sector to further build our organizational strength. As announced in December, we have promoted our Vice President of Operations, Gregg Stenzel, to Chief Operating Officer. Gregg has over 20 years of medical device experience and has been a key member of the Imricor team since 2007. Gregg is leading the execution of our strategic plan across most functional areas of the business, providing me with greater capacity to drive an acceleration in our lab rollout plans across Europe throughout 2021. We had 27 new hires across the company in 2020 and a further 3 so far in 2021, expanding capacity and capability to support our commercialization and growth strategy. Today, we employ a workforce of over 60, approximately doubling our size since our IPO in August of 2019. We are fortunate to have a team of very talented people who importantly have really leaned into the challenges that COVID has thrown at us, remaining focused on our future success and on delivering great outcomes for patients and health care professionals. We're fortunate to have a team of very talented people -- sorry, one moment. I think this is okay. I got something that popped up on my webcast. Moving to Slide 16 then, before moving on to our growth drivers, I wanted to briefly touch on the addressable market. This market data was presented at the half year. So I'll just touch on it briefly. As shown on Slide 17, we operate a large addressable market with growth supported by a number of key drivers, including increased incidents of cardiac disease, a shift towards minimally invasive procedures and the cost effectiveness of catheter ablation treatment options. Market data published in mid-2020 for the U.S. and Europe, Europe being represented by 5 countries: Germany, France, Spain, Italy and U.K., so it's just a subset; shows a forecast of catheter sales of about $3.8 billion in 2021. It is expected that the catheter sales for these markets will grow to over $6.1 billion by 2029, representing a compound growth rate of 8.3% over 10 years. These numbers don't include the sale of systems and other support devices that we also sell. As you can see on Slide 18, atrial flutter procedures, our current approved indication in Europe accounts for about 23% of the ablation market. This provides us with significant opportunity to grow through expanding our approved indications such as atrial fibrillation, which represents 39% of the market and further in the treatment of arrhythmias, such as ventricular tachycardia. While ventricular tachycardia, or VT, as shown on the graph is only representing 8% of ablation procedures today, there are great opportunities to grow this market given the challenges associated with ablation as a treatment option today that can be solved through MRI guided ablation using our products in the future. The size and forecast growth of the ablation market as well as the ability of our technology to deliver solutions that will expand this market, underpins our future growth strategy. This is overlaid by the fact that we are the only company globally to offer cardiac catheter ablation devices for use in the MRI environment. Moving to Slide 19, our strategy is focused on 2 drivers that are key to revenue growth, the number of iCMR labs and the number of procedures performing in the course -- procedures using Imricor's consumable devices in each of those labs. We are executing our strategy across 4 key pillars to deliver future revenue growth: our go-to-market strategy, our geographic expansion, expanding those approved indications and expanding our product range beyond cardiac ablation. On Slide 20, we show that our sales and marketing strategy is designed to address the key drivers of our revenue growth, those number of labs in place and the number of procedures performed in each of the labs using Imricor's consumable product. As I mentioned before, our sales agreement with Philips enables Philips to leverage their strong European sales force to drive iCMR lab adoption, leaving us to focus on supporting product utilization, growing our portfolio of consumable devices and expanding our indications for use. We continue to work closely with Siemens to target and drive our lab adoption at certain sites and are working toward an agreement that would enable Siemens to include our capital equipment part their overall lab construction package. With both MRI vendors, we work closely together to provide training, installation and early support to new sites to ensure success. Working collaboratively with Siemens and Philips, we've been able to commence procedures at some sites utilizing diagnostic MRI suites while their iCMR labs are yet being built. This allows our customers to take advantage of the opportunity to commence the MRI guided ablation procedure almost immediately. The procedures performed at the Maastricht University Medical Centre this week are a great example of this, with cardiology and radiology partnered to use radiology's existing MRI suite, while future plans are being made for the construction of dedicated iCMR facilities. To support the success of new sites, we provide comprehensive training and ongoing support to our customers. We have site-specific support plans in place to drive increased utilization at each site as COVID restrictions are lifted, and are growing our European clinical support team to provide increased coverage as our installed base continues to grow in the year ahead. Despite COVID challenges, our sales and marketing team have remained very focused on continuing to build awareness in Imricor's products and on providing educational programs. In 2020, we launched a corporate procedural workflow video, which you can view on our website. And throughout the year, we engaged with the medical community through online seminars. Links to some of these are included in the presentation on Slide 40 for your reference. We're producing a comprehensive pre-recorded and live broadcast procedure plan for education and for use in medical congresses during 2021, and we're planning for a number of virtual and live educational activities in 2021 that will further drive market awareness to put in an acceleration of our lab rollout plans in the year ahead. Moving to Slide 21, I mentioned the geographic expansion is a key driver of our future growth. Our strategy on approval in the United States continues to progress very well. We have now held 2 pre-sub meetings with the FDA and expect to align on clinical trial design and subsequent meetings. We continue to target 2021 and 2022 to execute the pivotal trial to support FDA approval. In Australia, we are very close to appointing a local agent to facilitate TGA approval and the eventual distribution of our products. We do not expect clinical trials to be required for TGA approval. On the next slide, another key growth driver is expanding the approved indications of our products to procedures on the left side of the heart, including ventricular tachycardia and atrial fibrillation. Here, the ablation market has tremendous growth potential, and we believe in the benefits that MR guidance will help fuel this growth. It's the opportunity to perform VT and AF ablations in the iCMR lab that is significantly adding to the clinical interest of our products today. Our strategy around expanded indications is supported by our research and development pipeline, in particular, the transseptal puncture kit required to undertake these procedures. Well, we have started with atrial flutters. We cannot and are not standing still there. We are driving to deliver on the full promise of iCMR guided ablations for complex indications and as we aim them to become the new standard of care. On Slide 23, we point out that our research and development pipeline remains a clear priority to drive future growth and to grow our gross margin improvement. We are progressing well with our diagnostic catheter, which will deliver material improvements in gross margin. This diagnostic catheter will be a simplified version of our next-generation ablation catheter, which is also currently in development. We expect to have them ready for commercial release late this year or early 2022 pending CE mark approval. We remain on track to be in our clinical trials for expanded indications using our steerable sheath and transseptal needle, et cetera, during 2021. Moving to Slide 24, in September 2020, we were awarded a contract by the National Institutes of Health in the United States to develop a prototype system of devices that can biopsy the inner walls of the heart by using MR to guide the procedure. This development is progressing very well, and it's an exciting opportunity with the potential to mark Imricor's first product line expansion beyond cardiac ablation. We believe the addressable market for an MRI compatible biopsy system is significant and likely similar to that for our cardiac ablation catheter. We're doing the market research to determine that market opportunity now, and I look forward to sharing further results with you in the second quarter. With that, I'd like to hand it over to Lori to take you through the financial performance for 2020.

Thank you, Steve, and hello, everyone. As a reminder, all numbers are in U.S. dollars. As set out on Slide 26, we generated revenue of $702,000 in 2020, which included $468,000 from product revenue. Our sales were significantly impacted by the COVID pandemic, as Steve has mentioned previously, which stalled our lab rollout plans and also resulted in the suspension of procedures during both the first and subsequent waves. As advised at the half year, the consulting revenue of $100,000 we earned during 2020 related to the termination of a joint research agreement, which resulted in the recognition of a previously recorded liability. This had no impact on cash receipts during the year. Operational expenses, excluding R&D, increased $3.3 million to $6.8 million in the period. This was largely driven by staff costs as we increased headcount across a number of functional areas, higher D&O insurance and other incremental costs associated with being a public company. R&D spending increased by around $1.9 million, reflecting our investment in pipeline products to drive future growth. During the year, we incurred a foreign currency exchange loss of $198,000, the majority of which relates to unfavorable changes in the exchange rate prior to the conversion of dollars from our February institutional placement from Australian dollars into U.S. dollars. The net loss for the period was $12.4 million. As shown on Slide 27, our operating cash outflow for the year was $12.2 million, up $5.6 million on the prior comparative period due to our increased headcount, insurance and public company costs, as previously mentioned, as well as the build in inventory we undertook during the period to support our commercialization plans. Investing cash outflows for the year consisted of the purchase of manufacturing and R&D equipment as well as leasehold improvements and furniture relating to the build-out of our additional R&D facilities. During the year, we completed 2 institutional placements and a share purchase plan. This raised gross proceeds of over AUD 50 million with net proceeds of USD 33.4 million. At December 31, we had a cash balance of $25.1 million, providing us with significant cash to support the progress of our commercialization plans and future growth. Our balance sheet is provided on Slide 28. In terms of key balance sheet movements, during 2020, our inventory balance increased by around $1.8 million as we built inventory in preparation for commercialization, combined with the COVID impact on our sales during this period. Accrued expenses increased due primarily to a higher bonus accrual, which is related to our significant increase in headcount, accruals for professional services and inventory purchases where invoices had not yet been received. Also, our expanded research and development space has resulted in an increase in our current and noncurrent right-of-use assets and lease liabilities. As Steve mentioned earlier, we certainly did not stand still during 2020 and have continued to advance a number of initiatives to both support and drive future growth and financial performance. In particular, we have undertaken a number of activities to deliver future margin growth through development and manufacturing improvements and initiatives. These are set out on Slide 29 and include reducing our catheter sterilization cost by 75%, an additional coil winder to reduce catheter and cable build times, catheter design and process improvements to reduce material costs, build time and scrap rates and a new clean room, which will support sales growth as well as new products. At the back end, we've implemented a robust inventory management system, enhanced our human resource efforts to efficiently manage growth in headcount and ensure we deliver on our compliance requirements and have bolstered our finance team to support increased demand both internally and externally. In light of our expanding workforce, we underwent an analysis of employee benefits, which has enabled us to enhance offerings to our employees at no additional cost per person. We revamped our general liability, product liability and workers' comp insurance, reducing our costs while maintaining the quality of our coverage. It's been a really busy year. And as we grow, we will continue our focus on enhancing shareholder value. I will now hand it back to Steve to take you through our outlook.

Thank you, Lori. So let's move to Slide 31. While the COVID pandemic has been a disappointing disruption to our early commercialization plans, and I feel very pleased with our positioning as we move into 2021. Our focus remains on lab rollouts across Europe, and we expect to gain momentum in the second quarter as colder restrictions ease and deliver an acceleration in adoption during this last half of 2021, driving us towards an installed base by the end of the year that is aligned with our pre-COVID expectations. We'll continue to pursue opportunities to grow our pipeline of potential sites, working collaboratively with Philips and Siemens to drive lab adoption and grow market awareness and education through direct sales and marketing activities. With the Philips sales force to become active in the field as COVID restrictions ease and further expansion of our team to occur in 2021, we expect this relationship to significantly enhance our pipeline and further accelerate our lab adoption plans as we move forward. As mentioned earlier, we'll continue our R&D focus on products to expand our indications and deliver margin improvement, while also pursuing regulatory approvals in Australia and the United States, supported by our development strategy around clinical trials. It's important to reiterate that while we have experienced delays due to COVID, 2021 and beyond are exciting years for Imricor, particularly as we pursue opportunities to expand our future indications and geographic reach and to drive accelerated growth. We are ready, and we are excited to see some of the light appearing at the end of the COVID tunnel. We have great opportunities ahead of us, and we look forward to keeping you updated on our progress throughout the year. So with that, I'd like to hand it back to the operator to commence any questions.

[Operator Instructions] Your first question comes from Sarah Mann from Moelis Australia.

Just first question around Europe, so clearly encouraging that Maastricht could commit to procedures yesterday. Just wondering what you're hearing more broadly in terms of from your physicians around I guess timing, when they expect to recommence procedures post restrictions easing. Like is it weeks after or is within a month? Any color would be great on that.

Yes. That's a great question, Sarah. Well, in Maastricht, for instance, we have scheduled -- the cases that we did yesterday we had scheduled 2 times prior to this. And each time immediately when allowed, and then restrictions would get pushed out, and we'd have to push out these cases. What they did in Maastricht which is unique, and I think we're going to start to see this more and more, is even though restrictions in The Netherlands are still maintained, they get special board approval 1 week in advance to do cases the following week. So these 3 patients came in. They get tested for COVID. They have their procedure. And then they go home. So they're doing special planning to get those cases started, not just for our cases, but throughout the hospital, the Maastricht Medical Centre. And I think you'll see that more and more. So the answer to your question is, in the all the sites that we're playing, we have dates in place that are literally the day after the restrictions are lifted. If the restrictions get pushed out, then we have to push out our procedures as well. But when I say that we're engaged closely with our partners, I'll tell you that's real. We are. We are talking with them each week, making sure that we can get started as quickly as possible.

Great, okay. And then just on Siemens, can you give us any update in terms of your expectation around timing for when you might sign a similar distribution agreement to Philips, given that you've had Philips now I guess for 6 months in place.

Yes, that's a good question. Siemens is a big company. The have multiple legal teams and multiple quality teams and right now they are having internal discussions about what is required for them under their quality system to put this agreement in place. So I can't answer the question, because we just get a weekly update from them on how it's going. But it's a top priority and then moving forward I believe that it should happen relatively soon.