Milestone Scientific Inc. (MLSS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to your Milestone Scientific webcast. At this time, it is my pleasure to turn the floor over to Leonard Osser, Interim Chief Executive Officer. Sir, the floor is yours.

Good morning. Thank you for joining us this morning. I would like to give a very brief overview of the company and then turn the meeting over to our President and who is also the CEO of our Dental division, Arjan Haverhals. Milestone Scientific is basically a research and development company that has developed and patented worldwide, a very broad platform of technology. We have, from this technology, developed a dental instrument which is in the market, and we have developed an epidural instrument and a CathCheck instrument, which Arjan will go over later. The company has the ability to develop instruments to replace the hypodermic syringe, which was invented in the 1860s. We're able to do that in any area where there is a reason to replace it. If there is a reason to significantly limit or reduce pain, we are capable of doing that. If there is a reason to inject the drug in the exact location, we have the ability to do that. We also have the ability to keep a record because we do this by computer. So it's important to realize that we can go into many, many different areas of medicine and that we've chosen epidurals first because of the very high problems associated with epidurals, especially as related to labor and delivery. The only pain management in labor and delivery is an epidural. Unfortunately, the learning curve is approximately 2 years and 90 injections in vivo, which leads to approximately 30% morbidity on the part of residents. Generally, the morbidity for that injection is 4.5% to 5%. So it is a major problem, but the only choice, and that's why in the United States out of 4 million women who give birth every year, only 2.4 million women have the epidural. The others see that -- hear a horror story or they read the risk factors. That is why we chose the epidural first, but we are not an epidural company. The company can go into any area of medicine. So I'd like to turn this over to the President of Milestone Scientific. Arjan?

Yes. Thank you very much, Leonard. As Leonard already mentioned, we entered the epidural space associated with the high-risk factors for the epidural injections. And actually, our main competitor is the hypodermic syringe, which was invented by -- in 1860 and with some later developments in the 1920s, it's called the loss of resistance technique. The main challenge is during training and education, the professor does not have any idea what the clinician or the physician feels once he is penetrating the epidural needle in the epidural space. So with our technology, as we are measuring constant any pressure changes at the tip of the needle, we are able to reduce the training cycle. As Leonard mentioned earlier in his introduction, normally, it takes about 2 years and up to 90 procedures when or if the resident feels profound and confident of placing the needle correctly in the epidural space. And we have been able, showing that in clinical studies where the residents were actually inserting the needle into the robot model to reduce their time to 2 procedures or 2 days. So looking at what we said, our technology is primarily based on we are able to measure the pressure changes, and we are also able to know exactly where the tip of the needle is. And also what we have been doing in our clinical studies and in cost benefit studies, we have documented that in a study where we have included patients, more than 4,483 patients to actually reduce the cost per patient procedure. And we have documented in that study, which was performed to university in Galveston that these cost savings are up to $504 per patient. Now at this hospital, about 12,000 epidural procedures are performed. So using the math here, that would mean for that hospital an annual potential saving of $6 million. What also is important to understand is what actually is the procedure today. As we have said, the normal technology today is what we call the loss of pressure or the loss of resistance technique. And it's nothing more or less than that [ sailing ] is injected into the patient and actually, by the clinician, he can only feel the pressure on the driver or the plunger of the syringe. When the pressure drops, he might believe that he is in the epidural space. But because there's fatty tissue and also there's low-density tissues, you also will feel that loss of pressure. But in this case, we call it then a false positive because of that tissue, you do not actually know whether you really have entered the epidural space. And that also means then that the drug is not delivered in the right space. So what we are doing with our technology is we have constant feedback on the pressure changes and the pressure drop whilst entering the epidural space. And more importantly, if the needle is advanced too far, then it will hit or breach the membrane. The needle will enter the spinal canal, and then we will have leakage of cerebrospinal fluid, which then actually causes the morbidity rates and the side effects, as Leonard already has mentioned. Our clinical documentation actually consists of 9 peer-reviewed published studies that validate the instrument effectiveness in identifying the epidural space. I will quickly go over the several clinical studies that we have mentioned. What actually the conclusion here is and what the main effort is with these 9 clinical peer-review clinical studies. We have proof of concept, clinical proof-of-concept, where we also have showed that there are efficacy and efficiency range of more than 99%, once this procedure and once our technology is used for the first time. This study is mentioning the cost savings. I will not go further into details. But as you will see, the cost savings are $504 per procedure, which is then a tremendous cost savings. So in conclusion here, what we are saying why the epidural space because of the associated morbidity rates that we can significantly reduce to the lower than the 4.5% to 5% as previously mentioned. Secondly, we are able to reduce the cost of the training, so the education cost. Thirdly, unfortunately these procedures, the side effects as we mentioned, migraine, transient paralysis, permanent paralysis or even mortality in cases there are litigation cases, and the cost of litigation is estimated to be about -- around $300,000. So those 3 factors with our technologies, these could be potentially avoided that we also have been proven in our clinical documentation. As we move on, the sales strategy. And I think also from a financial point of view, why is it attractive for investors, and why should people invest potentially in our company and how do we create shareholder value, that's all related to the business model that we apply. In the dental industry, what we have successfully been introducing in many years, we use it -- we call it the razor and razor blade model. The razor being the instrument, the razor blade being the consumables. And that same business model applies also for the epidural concept. So we have the CompuFlo instrument, which is then the razor in this respect and then we have the consumables for the CompuFlo Epidural as well as for the CathCheck that I will explain a little bit in more detail within a minute. Given the fact that we believe that we can become the standard of care and reminding you of the 2.4 million women get imbursed and using an epidural anesthesia, doing labor and delivery when we believe that we can become the standard of care, and we use 2 million procedures in which our technology could be used, given then also the profit margins on our disposables of more than 60%, that would result in $80 million in net profit for the company on an annual basis on the disposables only. The current sales build of what we're having, we're having a direct sales team in the United States, and we will go with the distribution channels in other markets worldwide. Moving on, what we already said, I'd quickly go over the different marketing collaterals that we are having. As we speak, we are rebuilding our marketing collaterals and marketing strategies. We are improving our web rebuild, website rebuild and as we move on, this will also help us to increase the awareness of our company and the products and the services that we are providing. So beyond the epidurals, the medical opportunity, as Leonard already has alluded on, we are not only an epidural company. We gained our success in dental, but there are numerous other indications potentially possible for us where the needle is used, where our technology could be used as well. To mention, for example, in thoracic procedures. The thoracic indication is approved in Europe, not approved by the FDA in the United States. We have ongoing studies in peripheral nerve block. And also in the cosmetic industry for both botulinum toxin A, administration through injection procedures. So those are potentially future areas where we are going to enter into. I would like to move over to the second product that we are having, which is actually the CathCheck. And the CathCheck is, in a way, similar to epidural with 1 major difference. So when we introduce and we insert the needle in the epidural space, with the CompuFlo Epidural, we get the right positioning and verification of the needle in the epidural space. What CathCheck does is also measuring the pressure, but more importantly, what is known in literature is that if there is fluid and liquid in the epidural space, and the catheter is positioned in the right position in the epidural space, you will be able to detect a pulsatile waveform, which you see on this slide, indicated by the arrow. This pulsatile waveform is actually done a confirmation that the catheter is placed in the right position in the epidural space. And why is that important? Because after the woman get in birth to her child, she stays -- let's say, the catheter stays in place. The woman is moved back to her room, and there's risk of dislodgement of the catheter. If the woman is still in pain, then there can be 2 reasons. One is there's not sufficient drug injected or in place in the woman's system for having pain relief, or the catheter is not placed in the right way. And normally, what's done is that the clinician gets a bolus injection, has to wait for 20 to 40 -- 30 to 40 minutes, and then actually -- will the only measure that he or -- that the clinician is having is whether the patient has relief of patient -- of pain or not. Now in our case, when we would connect our consumable directly to the catheter, as mentioned, the catheter stays in place. And we would monitor the pulsatile waveform at our system with CathCheck on the monitor, then we actually have -- within 2 minutes, we have the confirmation that the catheter is in place and that a drug can be administered, thereby giving pain relief to the patient at a much more higher speed of time than the 40 minutes earlier mentioned. That feature is of extreme importance. We know from literature that about 40% of all labor and delivery procedures after epidural analgesia that woman -- the woman stays in pain. And we also know that those dislodgements that I actually mentioned, so that the catheter is not in place or it's out of position that, that could happen up to 20% to 30% of all cases. So what is of extreme importance -- what the importance of this feature is, is that there is continuous verification of right catheter placement and also pressure measurement and as well as then the pulsatile waveform. What is important in this extent as well is both before the CathCheck on the monitor, we, of course, want the clinician always to be completely focused on the patients and not having any distractions. So actually, the signals, the clinician can actually hear it and see it once he is performing the procedures with the patient. So overall, what we have presented here for you is the reasons why we entered the epidural space based on the high morbidity rates, the reducing of the training education cycle, increasing the efficiency, increasing the safety, improve health care outcome by providing a lower cost based on the clinical efficacy and clinical efficiency and cost benefit studies that we have performed as well as also indicating and highlighting for you what this means from a financial and business point of view once we become, and we believe we will become, the standard of care. Again, I will repeat it based on the 2 million procedures that we would then perform becoming the standard of care in combination with a high profit margin of more than 60%, that will result then in a net profit of $80 million on an annual basis on the consumables alone. So I think we are right on time given the time for this presentation. And I thank you for your attention, and we would open it up for any questions that you might have.

Thank you, Arjan. Yes, the first question is, what is the current cash flow and burn rate?

And to answer it because I'd like to give you a trend as well. This is Leonard. The catastrophe of the recession from the pandemic caused a very large downturn in dental worldwide, and our sales went down to $167,000 or so in the second quarter. It rebounded to about [ $1.40 million ] in the third quarter, which gave us a burn of approximately $350,000. This quarter, we're giving guidance that, without China, we will do a minimum of $1.7 million. The margins have stayed very much the same, so we anticipate the burn rate with the increased revenues will go down from the $350,000. So that's -- the burn rate is $350,000 a quarter and it's sustained by the dental sales. There are no sales in that of the -- there are negligible sales in that from the medical unit, which we're beginning to commercialize now. So it's anticipated that if we remain at that rate and move off through the coming year, that, that burn of $350,000 a quarter will begin to go down. And why we feel that way is that if it remains the same, which we have no idea given the pandemic in the first and second quarter, we have 2 major changes in the company. The one, we have someone heading up the company whose background is in dental, medical, marketing and sales. So he is now CEO of the company. The other is that for the last 4 years, we were not -- we took all the money out of dental in order to finalize the 2 medical products that Arjan mentioned. So the person running the company did not have the wherewithal to properly market, to sell the product. Given the raise that we did a number of months ago, we now can leave that money in the Dental division and expand that division. So we believe that Dental will move up considerably in the coming year. And the burn will remain approximately that amount of $350,000 a quarter, but it will go down considerably as dental moves up and we start selling the epidural product and the CathCheck product.

Next question, do you intend to raise more capital?

No. There's no need to. We had a raise of capital a number of months ago at $2.15. The raise was somewhat in excess of about $15 million. I believe we sit now in the bank with $14.4 million. And given that the burn, we anticipate remaining at most $350,000 a quarter, not giving effect to producing other products. So we feel that we have a runway considerably more than 2 years. So there's no need for us to raise capital. That, in fact, is behind us.

Great. Next question. Do you need more clinical studies for the CompuFlo Epidural System to be considered the standard of care?