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

Thank you for standing by, and welcome to the Imricor Medical HY '21 Results Briefing Conference Call. [Operator Instructions] I would now like to hand over the conference to Mr. Steve Wedan, Chair and CEO. Thank you. Please go ahead.

Hello, everyone, and thank you for joining us today for Imricor's first half results. I'm Steve Wedan, Imricor's Chair and CEO. And I'm joined today by our CFO, Lori Milbrandt. Today, we'll provide you with a business update on the progress we have made during the first half of 2021, including a review of key milestones that we've achieved since our IPO, and the progress we've made on our overall strategy. Lori will then discuss the financial results for the first half before I review our market opportunity and the outlook for the remainder of the year. We'll then move to a Q&A session. So since our IPO in late 2019, Imricor has delivered strong outcomes on a significant number of key initiatives that support our strategic plan for the business. These achievements include receiving CE mark approval for our devices in Europe; signing 10 sites across Germany, the Netherlands and France in the midst of the pandemic; staying on track to expand our geographies through regulatory approvals in the U.S., Australia, New Zealand, including a recent Australian TGA approval of our Advantage-MR System; staying on track to expand our product indications with ventricular tachycardia, or VT, clinical trials to commence in 2022, supporting approval in late 2023. U.S. VT trials then for approval will follow or potentially align with this European schedule; and delivering new devices such as the diagnostic catheter pending CE mark approval, which is expected by early 2022, along with the steerable sheath and transseptal needle that will be used in the VT clinical trial and released to the market thereafter. As described on Slide 6 here, since our IPO and through the challenges of the pandemic, we have maintained a very clear focus on our strategic plan for the business, which is to increase the number of iCMR sites through growing our installed base and expanding our geographies, increase the number of procedures that each site can perform by expanding our product indications and driving higher average selling prices and margin improvements by developing new products. While the pandemic has required us to adapt and adjust over the past 18 months, we have made excellent progress on a wide range of key initiatives that set the foundation for making this plan a reality as seen on the next slide. To support the strategic plan, 3 key drivers I just mentioned, we're executing across the 4 pillars that I also just mentioned: growing our installed base, expanding our geographies, expanding our approved indications and expanding our product range with new product development. And while COVID-19 has disrupted our plans for site rollout, we have grown our installed base by signing 10 hospitals in the midst of the pandemic. And as you can see on this slide, Imricor is on track or has completed all other key initiatives that we laid out at the time of the IPO. With respect to growing our installed base, in addition to the achievements I mentioned a moment ago, some of the other key achievements include that we have completed 7 strategic partnerships -- or partnership agreements to date to promote iCMR lab adoption. We've expanded our manufacturing footprint by 3.5x. We've grown our sales and marketing capabilities with 6 new sales and 6 new marketing staff since the IPO. We are driving awareness and thought leadership through various activities, including engagement with key opinion leaders, attending important industry events such as the Heart Rhythm Society's 2021 Congress and publishing articles such as the recent article in the Journal of Cardiovascular Electrophysiology. And despite the pandemic, we are in active discussions with 48 potential hospital sites. Next, our geographic expansion plans are proceeding at pace, and Imricor aims to commence sales in Australia and New Zealand in the near term, while the overall plan to the U.S. FDA approval is on track for the year end of 2023. And we're on track to expand our indications, the next pillar, with a clinical trial and a variety of system developments and advances, including successful integration with other systems to enable a seamless transition into VT ablation procedures. And finally, our product pipeline is moving forward and will drive margin improvement as well as help expand our indications and the addressable market and diversity of our revenue streams. These green boxes are all the things we said we'd do at the time of the IPO. And overall, while we would like to be further progressed in the delivery of new sites, we did not sacrifice our vision and strategic plan to COVID. On the contrary, we are on track to deliver our vision as planned despite the pandemic, and we now look forward to jump-starting our site expansion program as hospital conditions recover. I'd like now to move to a business update, focusing on the outward-facing highlights of '21 so far. Despite the prolonged pandemic conditions, we were pleased to announce that Helios Berlin-Buch in Germany has signed a purchase agreement with Imricor during the period, making it the tenth site to establish an iCMR lab to perform ablations with Imricor's products. We appointed the Regional Health Care Group as our local agent in Australia to help facilitate TGA approval in Australia and Medsafe approval in New Zealand. This is an important step forward in our expansion plans for this region. We also entered into a distribution agreement with Regional Health Care Group under the terms of which they will be the exclusive distributors of Imricor's consumables and nonexclusive distributors of Imricor's capital equipment, both in Australia and New Zealand. Soon after conclusion of this agreement, we received Medsafe approval for all of Imricor's products in New Zealand, and all of our products are now registered in the WAND database for medical devices. We've also received TGA approval for Imricor's Advantage-MR System. And currently, the TGA's review of Imricor's Vision MR Ablation Catheter is underway. Achieving these approvals represent important milestones in our geographic expansion plans. Now we're working closely with Regional Health Care Group to plan the in-depth training, certification of their staff on our products, procedures, technology, installation, clinical training and clinical support. And again, due to COVID travel restrictions, that makes this more difficult, but we are executing to plan anyway. It's particularly exciting that the potential now exists for a few select Australian and/or New Zealand sites to participate in our ventricular tachycardia ablation clinical trial that's slated for 2022. Our U.S. expansion plans are also progressing well with the completion of our presubmission meetings with FDA. We are on track to submit an investigational device exemption request to commence a clinical trial for atrial flutter. And U.S. sites are currently being selected for participation in that trial. As originally planned, we continue to target the end of 2023 for FDA approval of atrial flutter ablations. Following the end of the period, Imricor secured a significant presence at this year's Heart Rhythm 2021 conference. Held in Boston the final week of July, it was an exciting opportunity for Imricor to build awareness of our solution for iCMR-guided cardiac ablations. Heart Rhythm 2021 conference is organized by the Heart Rhythm Society, or HRS, and it's a leading authority on cardiac pacing and electrophysiology. Participation in the conference enabled Imricor to further grow awareness by engaging with key opinion leaders throughout the conference schedule. This was the first in-person electrophysiology congress Imricor has been able to participate in since the start of the pandemic and also the first since the company launched its products in February of 2020. Imricor had a large presence at the conference and hosted a Rhythm Theater session, which was led by Professor Gerhard Hindricks and Dr. Marisevi Chaldoupi, who shared their experiences and views of the future of iCMR labs and our products in the electrophysiology field. The Rhythm Theater presentation is now available to view on our website, if you'd like. Moving to Slide 11. Over the past 18 months since Imricor's IPO, the business has completed 7 strategic partnership agreements to promote iCMR site adoption. These include agreements that are in place with Philips, Sana, Optoacoustics, OSYPKA, Siemens, MiRTLE Medical and Regional Health Care Group. Of note, earlier this year, MiRTLE Medical, a medical device company with which Imricor entered into a development agreement in 2017, they received CE mark certification for their MRI-compatible 12-lead ECG system. MiRTLE'S 12-lead ECG system, which interfaces with Imricor's Advantage-MR EP Recorder/Stimulator is an important component for VT ablation procedures and by extension, important in Imricor's upcoming VT ablation clinical trials and indication strategy expansion. Also importantly, Imricor and Philips have partnered to deliver Active Catheter Imaging or ACI on the Philips platform, something previously only available on the Siemens platform. ACI is a guidance technique that allows Imricor catheters to be actively visualized in real time like in MRI video during the procedure. ACI has eliminated the need for mapping systems for atrial flutter ablations, which opens the door to increasing the rate of site adoption. ACI gives the Philips sales force all the tools they need now to provide customers with an iCMR solution to date. With that, I'd like to hand it over to Lori to take you through our financial performance for the first half of 2021.

Thank you, Steve, and good morning, everyone. As a reminder, all the figures quoted here today are in U.S. dollars. As set out on Slide 13, we generated revenue of $366,000 in the half year, which included $146,000 from product sales. Our sales were significantly impacted by the COVID pandemic, which continued to temporarily stall our lab rollout and procedure plans. Operational expenses increased by $2.1 million in the first half compared to the prior corresponding period. This was driven primarily by an increase in staff costs as we increased head count across a number of functional areas, higher D&O insurance and inventory reserves. R&D spend increased by around $2.2 million, reflecting our investment in pipeline products to drive future growth. The net loss for the period was $9.9 million. Our balance sheet is provided on Slide 14. Generally, most balance sheet items are consistent with what we reported as at 31 December 2020. The acceptance of this, of course, is our cash balance, which has reduced due to increased spending as previously mentioned, coupled with low European commercialization levels due to COVID-19. In terms of other key balance sheet movements, during 2021, our total lease liabilities have decreased by $315,000 due to payments made during the period. Current lease liabilities have increased to account for obligations due during the next 12 months. Conversely, noncurrent lease liabilities have decreased as additional obligations were reclassed as current lease liabilities. Moving to cash flow on Slide 15. Our operating cash outflow for the half was $9 million, up $3.2 million on the prior comparable period, in line with the increased head count and R&D spending to support our commercialization plans. Investing cash outflows for the half consisted of the purchase of manufacturing and R&D equipment. It's been a very busy year. And as we grow, we will continue our focus on enhancing value for our shareholders. I will now hand back to Steve to take you through the rest of the presentation.

Thanks, Lori. Now before moving to our outlook, I'd like to briefly review Imricor's market opportunity and strategy. Imricor is targeting a large addressable market estimated to be over USD 6 billion worldwide, with growth supported by several key drivers, including an increased incidence of cardiac disease, shift towards minimally invasive procedures and the cost effectiveness of catheter ablation treatments. Market data for mid-2020 for the U.S., Europe and Australia shows forecast of catheter sales alone of about $5.1 billion in 2021 and estimates a compound growth of 8.2% over the next 10 years. As you can see on Slide 17, atrial flutter procedures -- our current approved indications in Europe accounts for about 23% of the ablation market. This provides us with significant opportunities to grow through expanding our approved indications such as atrial fibrillation, which currently represents 39% of the market, and furthering the treatment of arrhythmias such as ventricular tachycardia. And while VT shown on the graph is only representing 8% of ablation procedures, there are great opportunities to grow this market given the challenges associated with the treatment options available 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. And this is all overlaid by the fact that we are the only company globally to offer cardiac ablation devices for use in the MRI environment. Now moving on to Slide 18. It sets out the current status of our site adoption plans. As I mentioned earlier, we have 10 sites signed in our European markets, 4 of these -- Helios Leipzig Heart Center, the Dresden Heart Center, Maastricht University Medical Center and South Paris Cardiovascular Institute -- have now commenced or recommenced procedures. Other sites listed here are scheduling the commencement of procedures currently. Beyond this, we are in active discussions with, as I mentioned, 48 additional hospitals, and we are well progressed in the sales process with 9 of these sites. So let's move to Slide 20 and the outlook for the remainder of '21. We are now very focused on managing a recovery from the effects of the pandemic. We are excited to, in a sense, relaunch our site expansion plans as COVID-19 effects diminish and achieve a steady growth ramp in the second half of 2021. Our team is well positioned, and we will continue to work collaboratively with Philips and Siemens to drive site adoption as well as grow market awareness and education through our own direct sales and marketing activities. And as you've seen, we are making excellent progress, and we are on track with all of our larger strategic goals of geographic expansion, indication expansion and product expansion. We're excited by the opportunities ahead of us in these areas, and we expect to finish 2021 in a position relative to these goals that is consistent with where we would have been, absent COVID altogether. With that, I'd like to hand it back to the operator to commence questions.

[Operator Instructions] Your first question is from Elyse Shapiro from Bell Potter.

Just a bit more color on those 9 sites that you're in the advanced stages of discussions with. Is this like an FY '21 thing? Or do you think it will slip into '22?

Elyse, it's very hard to say. Certainly, some of them will be in FY '21. I hope all of them will be in FY '21, but it is very difficult to predict how hospitals are reacting now. Even as COVID restrictions are lifted, they're still reeling from the trauma of the last 18 months, both in terms of their personnel, in terms of the backlog of patients that they're dealing with that did not get the care that they needed during the pandemic and in terms of their finances. So all of those make for people who are excited to move to iCMR ablations. The doctors are all on board. The administration is all on board. It's just a matter of timing and whether -- they're so busy right now just trying to dig out that this is the type of thing. The next cool thing they're going to do, the thing that's going to be what we hope is the next standard of care, these are things that if it waits 1 or 2 months for them doesn't change the world. For us, it means a lot. We really want to get this sort of rolling again because we know that this builds momentum. As sites start to sign and everyone starts to hear about it, it brings more and more people to accelerate their programs. So it is -- it's why I use the term jump start or relaunch. We really feel like this is a fresh beginning where we're starting right now. But we have some of these at the very, very end of the process. So we know that they will sign and we hope that starts to build some momentum as we go through this year. What I was previously hoping, of course, was that we would be now -- the world would look the way it does now about 3 or 4 months ago and that last quarter would have been this rollout. But as you see, even in Australia, COVID has a way, when you think it's behind you, of sort of rearing up again. But what we're seeing now, despite the cases increasing and the Delta variants are running rampant throughout the world, I spoke with a physician this morning from Germany, and he confirmed that hospitalizations are not increasing. And so they feel cautiously optimistic that they're going to continue to practice medicine the way they normally would and that they're not going to be overrun again. So as they start to catch their breath, as their administration starts to pick up all the pieces, they will get to the things that right now they're just putting off a little bit. And that is signing with us and getting their iCMR labs going. In the meantime, it's -- in the broader scheme of things, we know that the plans for installing and constructing iCMR labs, the bidding process, all of these things that have been planned continue to be planned. Nothing has been scrapped. So we know that our long-term or even medium-term futures have not really changed at all. And we will get started soon in many of these sites.

Great. And how receptive are the 9 sites and I guess in total, even the 48 that you mentioned, are they to some of your more innovative pricing models? Is that something that's kind of come up in all your discussions? Or is it more reserved for a select few?

Yes. We do bring that up. I mean it's -- some sites reject that altogether and say, "No, no, we have a process, and we're just going to follow that process." And others are able to take advantage of some of the special deals that we can put together. Many of our strategic partnerships, for instance, that I mentioned earlier are with third-party pieces of equipment that also need to get into that lab. And so this allows us to sell those and discount them if needed in order to, like I said, jump-start this site expansion program. So it varies from site to site, but we believe we've got the traction now or that we'll begin to get the traction now that we need in -- just in the coming weeks.

Great. And just one last one for me. Of the leads that you're getting, are they mostly coming from your core internal sales force? Or are you seeing it coming more from the Philips and the Siemens partnerships?

It's a mixed bag, actually. So it's -- the 48 actually became 49 this morning. And that was just a relationship that we've had with the site for many years. And they ran into financial trouble a couple of years ago and had to postpone some of their plans, but now they're back. So it's -- yes, it's a mixture. What I expect and I'm very excited for is now that we can do ACI, Active Catheter Imaging, on the Philips platform, we really give that sales team something they can talk to their customers about. They've been able to sell our products in the past, and they've been trained on it. But there wasn't really a Philips besides the MRI system itself. There wasn't a Philips product they could sell because without Active Catheter Imaging, you need their mapping system. And their mapping system is just still working its way through their development and regulatory process. So what do they do as a salesperson? They don't really have anything to offer their customers. But now they do. And so we'll be training them on the ACI in September, and then we expect to see an uptick in participation from the Philips sales team.

Your next question is from Sarah Mann from Moelis Australia.

Just a question on volumes. Obviously, Leipzig, Dresden, Maastricht and Paris are all up kind of doing procedures. Can you give us any color around what kind of weekly procedure volumes are looking like? Obviously, kind of cognizant that August is a quiet time over in Europe, but any color around that would be great.

Sure. That's a good question and something I didn't really address tonight, but we did talk about it at the 4C. There is a big backlog of patients that need care and more critically ill patients than folks who have atrial flutter. And at sites where they're sharing the MR resource with radiology, there's even a backlog of folks who just needed to get their MRI scans for the past 18 months and haven't been able to come in to the hospital to do that. So we're finding that this backlog, which doctors expect will last anywhere from -- well, 6 months, let's say, they say 4 to 6 months, so I'm just going to go right to the 6 months. That is a real thing, and it is a resource constraint. In some hospitals, it's about the hospital personnel, anesthesiology in particular, and their ability to manage all the cases that they're getting drawn to. In other hospitals, it's about the MR resource. The -- ICPS, this is the South Paris Cardiovascular Institute, they did in their first week, I want to say, 3 or 4 cases. They were just smashingly successful. It was just a great thing. And then they immediately said, "This was wonderful, but we don't get our MR back for a few months." So it's going to be -- I don't remember when exactly, so I don't want to say. But a couple of months from then to until they'll get to do cases again, and it's just a matter of this backlog. So we're not really in a steady state. It's still a funny time. But on the other hand, we found out yesterday that Leipzig did a case and reordered catheters. And they didn't feel the need nor should they to even inform us. So that's good news because they're getting into a rhythm of just regular clinical use. But we'll get -- what we have now -- everyone -- I shouldn't say everyone. It's the holiday season in Europe. And as folks return to work now in the beginning of September, we expect -- while we have scheduled plans to get many, many sites up and running and doing cases, we do expect their volumes to be lower probably through the rest of this year. But in the broad term -- broad scope of things, I don't think that that's the biggest deal. What we really need is traction of sites expanding and getting these folks in there and into this routine clinical procedure pace.

Got it. And then just in terms of the other 6 hospitals that you've got signed up, like do you expect all of them to kind of commence procedures for the end of this calendar year? Or can you just talk a little bit about the time line there?