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

Good morning, and welcome to Imricor's first half and financial year 2022 investor presentation following the release of results to the ASX this morning. From the company today, we have Founder and CEO, Steve Wedan; and the company's CFO, Jonathon Gut. Before I hand it over to Steve and Jonathon to go through the presentation up on the screen, I'll just remind you that you can ask questions through the Q&A panel at the bottom of the screen, and we'll get to those post the presentation. Steve, I'll now hand it over to you to get started. Thanks very much.

Thanks, Simon, and thanks, everyone, for joining us today for Imricor's first half results. Well, now it's -- there we go. Okay. So for those of you who are familiar with Imricor or who dialed in for our second quarter briefing, this first part would be a bit redundant. But we have more people on the line today, so please indulge me as I provide a brief overview of what we're doing and why we think it's significant. For a patient whose heart is not beating correctly due to electrical abnormalities, cardiac ablation is a minimally invasive therapy procedure designed to restore normal heart rhythm. In a cardiac ablation procedure, a catheter is guided into the heart and a doctor can use the catheter to sense electrical activity, pace the heart for diagnostic purposes and deliver destructive ablative energy, such as heat or freezing, to destroy or isolate problem areas. Since the earliest days of cardiac ablation, physicians have utilized X-ray fluoroscopy imaging to locate their catheters within the patient. And you can see this in the upper left picture on this slide. One of the major deficiencies of X-ray fluoroscopy is that the heart itself is nearly invisible to X-rays. And so while the doctor can see their devices within the heart, they can't see the heart itself. At Imricor, we've developed a platform technology that allows us to make the same kinds of tools that doctors use today for cardiac ablations, like the catheters I just mentioned, with the additional characteristic of our devices being uniquely safe for use in magnetic resonance imaging or an MRI environment. This, in turn, allows physicians to perform cardiac ablations while imaging the patient with real-time MRI throughout the procedure, meaning that, for the first time, they can actually see the patient's heart and they can see the physiological changes that occur as they deliver the ablative therapy. The overall goal of what we call real-time iCMR ablations, where iCMR stands for Interventional Cardiac Magnetic Resonance, is to provide safer, faster, more effective treatments of arrhythmias compared to conventional means. You can see one of our procedures in the iCMR lab in the upper right picture on this slide. And since this is a new field and since MRI machines are not found in conventional ablation procedure rooms, we're focused on increasing the number of iCMR labs in which our procedures can be performed and then growing the number of procedures performed in each lab. It's important to note that, once an iCMR lab is established, only Imricor's consumable devices can be used in that lab since all of the devices in an iCMR lab need to be MRI-compatible and only Imricor delivers the MRI-compatible devices. This makes each new iCMR lab very valuable to us, growing our value as we grow this new field of interventional medicine. And finally, I'd like to point out that there are several different types of arrhythmias that are treated with ablation. As is normally done for new catheters, our catheter's first approved indication is to treat atrial flutter. Our next target indication is ventricular tachycardia or VT. And now I'll ask Jon, with that overview, to provide a financial overview of the first half of 2022.

Thank you, Steve. Hello, everyone. As a reminder, all numbers are unaudited and in U.S. dollars. On Slide 6, we have listed a few key financial highlights from the half year, which will also be covered in the following slides. As set out on Slide 7, we generated total revenues of $538,000 in the half year, which were up 47% compared to the prior corresponding period. This included $229,000 from consumable sales, which was up 159% compared to the prior corresponding period. Costs and non-R&D expenses increased by $339,000 in the first half compared to the prior corresponding period. This was driven primarily by a slight increase in staff costs and increased travel costs as our team was able to visit more customer sites following the easing of hospital level restrictions on outside personnel. R&D spend decreased by $218,000 in the first half compared to the prior corresponding period as an increase in consulting costs for the development of our upcoming 3D mapping system partially offset decreases in prototype and testing costs and regulatory spending. The net loss for the period was $9.8 million. Our balance sheet is provided on Slide 8. Generally, most balance sheet items are consistent with what we reported as at the 31st of December 2021. The exception to this is our cash balance, which has reduced due to our continued investments in European commercialization and new product development, coupled with revenues which are not yet at a level to fully fund existing operations. In terms of other key balance sheet movements, during the first half of 2022, our operating lease right-of-use assets and total lease liabilities increased due to the lease extension for our gateway facility that commenced during the period. Moving to cash flow on Slide 9. Our operating cash flow for the half year was $8.5 million, down $441,000 on the prior comparative period primarily due to an adjustment recorded on our insurance premium financing activity in the current period. The other side of this adjustment increased our cash outflows for other financing activities and is the primary driver of the increase shown there. Investing cash outflows for the half decreased versus the prior comparative period as part of the capital management strategy we implemented during the year, with noncritical investments being delayed to conserve working capital. It has been a busy start to the year, and we will continue our focus on investing in our commercialization efforts to increase sales in Europe and executing on our upcoming VT clinical trial. I will now hand back to Steve to take you through the rest of the presentation.

Thanks, Jon. So we have 4 focus areas for the first half of 2022. On the sales side of things, we wanted to get our contracted sites up and running as the effects of the pandemic significantly waned in April. And then we wanted to ramp up the procedure volumes at each of those sites that we're active. And finally, we wanted to breathe new life into advancing the prospect of new sites through our sales pipeline. And regarding the VT initiatives which also, of course, build on sales, we were focused on progressing towards our planned VT clinical trial in Europe. And the next slide outlines some of our specific accomplishments in these focus areas. Regarding sales, we commenced procedures across 3 sites that were either inactive during the pandemic or had never yet performed a procedure. This totaled 6 operational sites at the end of the half, with 3 additional sites where installation was completed but procedures have not yet commenced. Following the period, one of the additional 3 sites commenced procedures and the other 2 have scheduled procedures in early September now following the European summer holiday break season. As an indication of increasing procedure volumes, we increased our consumable device revenue as noted previously by 159% over last year's first half. And keep in mind that the first quarter of this year was still suffering from pandemic-related effects. We also signed 1 new site in Rome, our first site in Italy, but just as importantly, we progressed multiple sites along our sales pipeline, which will bear fruit in the second half of this year. One indication that it's a very good sign is that 2 sites have begun constructing new iCMR labs this year, projects that were on hold during the pandemic. Other sites in the pipeline plan to commence procedures using existing MRI facilities that they have at their institutions. But in the long run, we expect to see more iCMR construction projects and fewer sites using existing equipment that cardiologists share with other groups in their hospitals. Looking specifically at how we progressed VT, the agreements we signed with Siemens were very significant. As we described in our previous announcements, these allow us to release our 3D mapping system, which we're calling North Star, on all newer Siemens scanners. Meanwhile, NorthStar is nearing the end of its technical development and is on schedule. We have done in 8 months what it took others years to accomplish and what some could not accomplish at all. And needless to say, NorthStar is a major development initiative that we've undertaken this year. And we did so because having our own 3D mapping system and deploying it on our time line rather than on anyone else's eases our sales efforts and derisks our VT clinical trial execution. Meanwhile, the VT clinical trial planning is in full force. We completed the preclinical work required for our submission to perform the trial and our Director of Clinical Affairs, Dr. Katherine Lindborg, returned recently from a nearly 2-week European trip where she met with clinical sites all over the continent and aligned and planned everything from timing to medical protocols. I'm also happy to say that, last week, her luggage made it back as well. We've previously planned to submit for approval to start the trial by the end of this July. However, unfortunately, our partner, MIPM, who has developed the MRI-compatible defibrillator, ran into a delay which has pushed out the submission about a month. We expect no further delays, and we have a clear path forward over the next couple of weeks. Then once the trial begins, we will work hard to speed enrollment in order to keep the end timing on track. And the development of NorthStar, which opens the door for Siemens sites to participate in the trial, is one important way we're planning to speed enrollment. On a related topic, as part of a complex strategy executed across several groups, including product development, operations, regulatory quality and clinical, we submitted for CE Mark certification for our second-generation Vision-MR ablation catheter as planned and on time in the second quarter. The second-generation catheter is optimized not only for atrial flutter ablations but also ventricular tachycardia ablations, with improved physical characteristics and cost savings designed in. This was a tremendous accomplishment that was several years in the making. And the team here did a fantastic job over a long time to push it to completion while overcoming the inevitable hurdles which, in this case, included a pandemic and subsequent supply chain disruptions. It was a really big deal, and I want to publicly thank all the dedicated and passionate Imricor team members who got this done successfully and on time. Looking ahead, at the remainder of this year, we're focused on 3 key areas: commercialization, growth, and then the products that support these 2 initiatives. Our primary goal is to increase our revenue in Europe and to continue building on the momentum we gained in the first half. This means signing more sites, getting sites up and running and then driving procedure volumes at each site. And to support these goals, our sales and marketing team have collaborated on a renewed messaging campaign centered around the benefits of iCMR specifically for atrial flutter ablations. And this messaging is supported now by clinical evidence that we've gathered from cases performed during the pandemic, and we will continue to grow this data set as we move forward. So we're really getting to a point now where we have evidence-based medicine, and this is the tools that our sales team will be armed with. Essentially, we have refreshed the launch plan, and we're executing in September as doctors return from their European summer holiday breaks. In addition, and always with an eye toward bolstering revenue, we will continue driving our growth initiatives in the second half. These include, of course, our VT clinical trial program as well as the regulatory approval processes in U.S. and in Australia. And finally, we'll continue progressing the new devices through their CE Mark processes as we go through the year. Bottom line, we turned a corner in the first half of this year, and we finally put the major effects of the pandemic behind us. And we are excited now to continue on this trajectory through the rest of 2022 and beyond. With that, I'd like to open it up for questions.

All right. Thanks, Steve, and thanks, Jonathon. First question, is Imricor scheduled to present at any cardiology conferences in the second half to help with market awareness?

We are. In fact, I just -- I happen to have this open on my computer here. We are scheduled in September 30 to be at the PLACE Congress in Rome. The same weekend, September 29 through October 1 at the German Heart Center days with -- or the German Heart Society Days in Bonn Germany. October 14 and 15, we'll be at a symposium called the MRI symposium in Leipzig, Germany. October 20 through 21, we'll be at the Belgian Heart Days in Brussels. On November 2, we'll be at the Netherlands Heart Rhythm Association, which is in Arnhem this year. And on November 5 and 6, we are having our second special Imricor summit that will be in Munich this year. That's the summit that we sponsor ourselves which we did at the Amsterdam Schiphol Airport Hilton last -- or earlier this year, which was very successful.

All right. Thanks, Steve. Next question is from Sarah Mann at Moelis Australia. Sarah, I'll just ask you to unmute.

Did that work? Can you guys hear me?

Yes, that's perfect.

Yes.

Great. Okay. First question for me is just around funding. So I mean you've got $9 million of cash on the balance sheet. Just wondering if you could give us any detail around -- I guess, the strategy around getting alternative sources of funding or potential cost cuts or how you kind of think about that?

Yes. So there's much the same message there as it was after the -- at our second quarter results which are that the first thing we did earlier this year is cut about $10 million of planned spending in the years 2022 and 2023 combined. We have eliminated our research department. We have eliminated some headcount. As other headcount has -- as we've engaged or experienced the normal attrition that one might expect, we haven't been replacing headcount as quickly as we may otherwise. And in some cases, we won't be replacing them at all for a while, all with an eye toward really cutting costs and asking the folks that are here to do more with less. And everybody is on board. We recognize the situation as it is in financial markets today, and we are committed to continuing on the path that we're on without having to slow down our sales efforts and our VT efforts. And those are the 2 primary things that we're trying to do. On the other side of the equation then, not just cost cutting but bringing in additional capital, we are engaged in all kinds of different options for bringing in some capital. Some of those include expanding our manufacturing capabilities, not just here in Minneapolis area where we were planning to do it, but in the nearby state of North Dakota and taking advantage then of the statewide economic incentive packages that exist there. Those include grant funding in the millions of dollars and loan programs that was 0% financed for a couple of years and 3% interest after that, and those are also in the millions of dollars. And there's other programs that exist as well, and we are pursuing all of those, really, again, just to do what we already had planned to do in Minneapolis but do that just 4 hours away in the state of North Dakota. We're also looking at licensing opportunities for some of our miscellaneous devices for X-ray use, and we're looking at additional other sources of capital. We -- so all of those things are in the work. What we essentially did is said, here's how much money in a different world right now with an economy that was behaving differently. We may have done a raise to fund our clinical trials as we progress into 2023 or end of 2022 and into 2023. Now we're just breaking that up into smaller chunks and trying to be creative and clever and bring that -- those needed finances and in a way that's less dilutive for our existing shareholders.

Understood. And then in terms of, I guess, your strategy around driving procedure volumes with, I guess, hospital customers that have already signed up but maybe haven't commenced or have signed up but are kind of doing slower procedure volumes than you'd kind of anticipated. Can you talk a little bit about what you're doing there to kind of drive adoption within the people that have already signed?

Yes, there's -- it's -- well, we've dusted off this thing that we came up with during the middle of the pandemic hoping that the pandemic would end sooner than it did. And that is essentially a specialized site-by-site strategy for increasing procedure volumes. And it runs the gamut from just training more physicians who can do the procedure, so that if one person is out on a holiday break, it doesn't bring the operation to a halt, to physician-sponsored studies that some of our other sites want to do and on and on. There are various reasons that at every site, that can hold them back from doing more procedures and that we can work with them to overcome and grow that procedure volume. It's actually we're finding the most challenging at some of our oldest sites because they're in a rhythm. And that rhythm includes the pandemic, which is not the rhythm we want to be in. So those are the sites we have to give the most attention to. And -- but for our newer sites, the sites that are just coming up and running, we're really setting a new expectation for the procedure volume that's required for them to become competent and really efficient at doing these procedures. Because in the end, when a site does procedures, not just once every week or once every other week, but a couple of times each week and gets into a rhythm, then the evidence is really clear that it becomes the best way to do your atrial flutter ablations is to do them in an iCMR. The data is becoming more and more clear as we gather more clinical evidence. So that's part of the messaging that the sales team will use as they're going on and talking to various sites.

Got it. And then in terms of, I guess, the pipeline of bringing new hospital customers in, are you getting increased interest with the VT trial kind of starting relatively soon? Or how does that impact, I guess, hospitals wanting to sign up?

Yes. So right now, we're deemphasizing the VT trial actually a little bit because there's a different dynamic that was not true in 2020 when we first launched. In 2020, what we thought was, okay, doctors will want to start doing atrial flutter ablations. They'll get into a workflow of doing these atrial flutter ablations in the MRI that will have benefit to their practices. And then VT will come down the line, and these are sites that can participate in the clinical trial. Well, now we have the clinical trial sites pretty much identified. And because of the pandemic and not getting the traction that we would want with sales through the last couple of years as customers were shut down and certainly weren't adding new capital equipment capabilities to their facilities outside of ventilators. Well, now we're at a spot where it's easy for someone to say, "Well, you know what, I don't know if I need to get started right now. Maybe I can just wait 6 months and see when VT comes online, how that trial is going, before I make that decision." So we're refocusing our message about the benefits that this has for atrial flutter. And it can be a little bit of a challenging message because atrial flutter is seen as a successful and relatively straightforward procedure. But it's more straightforward than MRI. It's more successful than MRI and it's faster than MRI. And there's no radiation for the patient and no radiation for the physician. And these are easy things to overlook, and those are the arguments now that we're starting to make. And we're starting to have the clinical evidence that allows us to support it. And so this is -- it's -- we're not emphasizing VT at this point, but I do believe that when we announced -- of course, the first VT study that ever happens, the VT case that ever happens, we expect this will be a really big deal. And that we think will spark renewed interest. But right now, the site signings, we have this robust pipeline. It was just a matter of cranking it up again, especially in April when we really saw that the effects of COVID were starting to get behind us and moving that machine forward a little bit. But it's a big machine. It takes a little while to get it started. We will start seeing new sites being contracted throughout the rest of this half of the year now.

Great. And then the last question for me is just around your 3D mapping software. So how far in the development are you, like when will that be ready to be kind of rolled out? And what's the interest or reception been from your existing Siemens hospital customers?