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

Good day, and welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is Milestone Scientific. [Operator Instructions] I'd now like to turn the floor over to today's host, Arjan Haverhals, CEO of Milestone Scientific. Sir, the floor is yours.

Thank you, and good morning, everybody, and thank you very much for listening into this call and this presentation about Milestone Scientific. Before I move on, I would like to draw your attention to the safe harbor statement, and I'll give you a few moments to read this. Okay. Let's start with the presentation. I will give you an overview of the current business of the company. In summary, what is Milestone Scientific and what are we doing. As you can see, we are a leading developer in the field of computer-controlled injection technology. The technology has successfully been used for many years, more than 2 decades within the Dental segment. So we have a dental business that we cover, and we have a medical business. The dental business, more than 20,000 units installed worldwide. We have done more than 90 million procedures worldwide and the distribution channel is our main communication and sales channel from a business perspective. After being successful in the Dental business, we are currently aggressively entering the medical business. We are strongly believing, and our aim is to become the standard of care in epidural analgesia, which also has from a financial point of view, the potential of generating net profit of $80 million on the -- for the company on consumables on an annual basis on the consumables loan. So in other words, what we are using is a high-margin business model. The business model contains capital equipment and consumables to be used for each individual patient procedure. So that's what we call and what you are familiar with as well is the razor/razor blade where we enjoy profit margins in the high 60%. The company is financially very solid. We have sufficient cash and cash equivalents at hand in the order, as you see here, $14.5 million. That was the 9 months ending September 2021, which allows us then also to wisely invest these funds into growing the business in both the dental and the medical segment as well as investing in research and development opportunities that I will allude on -- further on in this presentation. Very shortly on the dental business, you see here, this is a single tooth anesthesia system. What it does is that we allow the dentist to apply and to inject local anesthetics. And with our technology where we control the flow of the injection by measuring the pressure output, we are able to inject the drug below the patient pain threshold, which makes these injections virtually painless, very precise, comfortable and safe. More importantly, from a financial point of view, the dental business, the Wand Dental, Inc., the subsidiary of Milestone Scientific is cash flow positive on a stand-alone basis. So like I said, after being successful in the dental business, we decided to enter the epidural market. And why do we enter the epidural market? It's not so much about the size of the addressable market being $5 billion, but moreover, the strong belief that we can solve the problems that are associated with these procedures. And the associated risk factors are actually severe migraine terrible headaches that also causes a distortion for the mother and the child. It impacts the possibility for the mother to breastfeed the child. The recent studies that have reported at post dural headache is a severe side effect of these epidural procedures as well as paralysis as well as mortality. So what we have been able to show in clinical studies is that we can eliminate these associated risk factors for epidural injections during epidural analgesia in labor and delivery to 0%, which also encompasses a serious cost savings potential for our technology when our technology is used. As you see, 2.4 million epidural procedures out of 4 million births, we aim to become the standard of care. The standard of care is that the equivalent of 2 million procedures performed on an annual basis in combination with the high profit margins on our consumables in the high 60%, that would then result in a net profit of $80 million on the consumables alone for the company on an annual basis, of which I believe is a very compelling value proposition. You might ask what is the current standard of care? And the current standard of care is nothing more or less than the hypodermic syringe that was invented in the 1860s. That was later than also positioned in the medical field at the loss of resistance technique. Now the challenge is that the lot of resistance technique is a very subjective way of placing the needle in the epidural space. And for the professor, it's very difficult to feel the same sensitivity as the resident on his journey to become an anesthesiology -- anesthesiologists when he actually senses by his hand manually, the pressure against is some when he advances the plunger in the syringe forward into the patient, it's very difficult to teach that. So in a study that was performed at the University in Miami, Florida by [ Gebhard ] it was concluded that normally, if you use the loss of resistance technique, it takes about 2 years or 100 procedures and when our technology is used, you reduce those number of procedures to 2 and to 2 days. So it's more than 99% affected on the first attempt, which then also embeds a sincere cost reduction and cost saving potential when our technology is used also from a teaching point of view. More importantly, I would say, the cost of litigation, if you look into the medical literature, and if you, for example, look into publications in anesthesiology, where injury and liability associated with procedures for chronic pain have been reported. The liability costs can be everywhere from $400,000 to almost $3 million. So by using our technology, one would avoid, let's say, these high cost of liability that are associated with these procedures. So 3 main reasons from a cost reduction point of view, the morbidity rates are reduced to 0% as well as the training cycle is significantly reduced and thirdly, the avoidance of the cost of litigation. So when I look at, for example, how does the procedure works and what needs to be done? Well, first of all, I already mentioned that the epidural procedure and the epidural needle placement is not simple, it's a rather difficult procedure with the current loss of resistance technique. So what you're actually doing, you advance the needle -- the patient is on the side, you advance the needle in the -- at the back of the patient and by advancing the needle and pressing the plunger in the needle, you might feel a loss of resistance that believes the clinician is in the epidural space. However, there's low-density tissue available, and that is then resulting in 17% of failure rates when these procedures are performed. So in other words, if the drug is injected, the drug is not injected in the right place, and there's no pain relief for the patient. Actually is getting worse. If the needle is going to be advanced even further there might be a puncture of the dural, a dural puncture and the dural puncture is then resulting in leakage of cerebrospinal liquids in the epidural space, which is then causing these terrible side effects, severe terrible headache, pain infection and other morbidities, like I mentioned, like paralysis and mortality. These morbidity rates occur in 5% of all the procedures performed. And there's actually literature available, which shows that the morbidity rates are even higher when you go into the thoracic or into the cervical spine indications where these morbidity rates are up in the 20% or close to the 30%. So this is severe issue. Now our technology, what does it do? It measures in real-time any pressure changes at the tip of the needle. And what does that mean is that the human body tissue has its own characteristic precious signature. So in other words, when the needle enters into the skin and prepare for the penetration into the epidural space, you see a rise in pressure. But if the pressure drops, it's a real drop in pressure that stays there for 5 seconds and then the clinician knows that he's really in the epidural space. He sees that and he monitors, and he also hears it -- by sound that hears in the epidural space. And why is that important? We have done a lot of clinical work and clinical documentation and in an independent study for the cost effectiveness analysis of 2 labor epidural techniques. One is the loss of resistance technique. One is then our technology. It was concluded in an independent study that was performed in 4,483 patients that by using our technology, cost savings of $504 could be obtained. Now this study was performed independently, as I said, at the University of Texas Medical branch in Galveston, where they do 12,000 epidural procedures per year. So the cost savings for the hospital is in the magnitude of $6 million on an annual basis. Even more so, this is the CompuFlo product that I have presented to you. You see here the instrument where you see nicely the buildup of the pressure and then the pressure drop, which is then a verification that the needle is placed in the epidural space. So no risk for any dural punctures, but also what is important for this technology as well as that we have been able to add 2 new products. One is called the CompuWave, which is a display, which you see where you see a nice pulsatile waveform, I will explain that later to you and also CathCheck. And CathCheck and CompuWave are both 2 products, CathCheck is a verification system that also allows you to detect whether the catheter is positioned correctly in the epidural space. Now normally, what happens after labor and delivery, the catheter stage in the patient the woman is put on the journey and then transferred back to a room with the risk that the catheter can be displaced or the tubing to the catheter can be displaced because the catheter is connected with the tubing through the pump that continuously inject the drug. Now meaning that 40% of the women after labor and delivery -- during the aftermath, the hours thereafter, they are still in severe pain. It can be for 2 reasons. One is that there's [ not a drop ] -- a sufficient [ drop ] available and secondly, that the catheter is lost. Now if you would imagine that you connect a new set of tubings for the CathCheck through the catheter and you would connect that through our instruments, you would see immediately an pulsatile waveform. The presence of the pulsatile waveform is the confirmation that the catheter is in the epidural space and remains in place. The choices that the clinicians have today is giving a bolus injection waiting for 40 minutes or longer to see if there's pain relief and 40 minutes or longer compared to the -- within a minute or 2 to see a pulsatile waveform on the display is, again, a tremendous cost saving potential for the clinician. In general, 30% of all catheters placed need one or other form of catheter management or catheter intervention. So that means it is a real problem as is the dural puncture and we are able to address that with the CathCheck, and that is also immediately embraced by hospitals and clinicians that understand the phenomenon of this technology. So currently, we are, like I said, that early, not in the early commercialization stage, attempts have been made. The product was launched about 1.5, 2 years ago. COVID hit. We all know what that meant. And then in the beginning of last year, we had some setback because of some organizational issues within our organization in a sales team. We had a very small sales team, and then we decided to invest aggressively into the expansion of the sales team that gave us then in August a sales team of 11 well-trained professionals, both clinically and also sales-wise. And that, of course, then helps us also in Q3 and Q4 to increase the quality of our pipeline, increased the number of demos, increase the number of trials, increase the number of meetings with value assessment committees, and that also has resulted that we were able to release additional hospitals at the end of Q4. Unfortunately, we do see, again, in the first quarter, primarily in the month of January, some limitations by -- forced by the pandemic. As you all know, the pandemic is not only affecting us personally or our company, but it affects even harder, I would say the hospitals and the frontline health care providers because hospitals do not necessarily invite representatives from vendors into their hospitals and into their clinic. However, we have a very robust and a solid pipeline. We are ready. We have, yes, like I said, a number of hospitals where we are in well advanced and further than well advanced discussions with. It is now also a matter of time to see when [indiscernible] pandemic are well in the way and our people allows us to come back into the hospital. But all in all, we remain positive as 2022 is going to be a very important year for the company where we would like to see a sincere growth and an increase in the adoption and penetration of our medical business. In addition, of course, to further grow our Dental business because that will further substantiate and stabilize our balance sheet as well. I mentioned earlier to you, the company is in a financial healthy situation. We have yes, enough cash and cash equivalents at hand. I will come back to you also related to the results that we have obtained during the first 9 months and also the guidance that we gave in the beginning of the year. But prior to doing that, I would also like to draw your attention to the fact that wherever the hypodermic syringe is used, our technology could apply. And you see that in this slide. So it is not only for epidural placement during labor and delivery. And I'm personally very pleased that we also have been able to enter the chronic pain market segment. Why is that important? Well, for 2 reasons. The sales cycle in the hospital is about 5 to 6 months. So that is going from demos, trials to value assessment committees through purchasing departments before the products are approved and a purchase order is placed. On the contrary, the learning also that we had in the discussions and when we were able to receive the orders from Dr. Govil and Dr. De la Garza. The sales cycle is then 5 to 6 weeks. And in particular, with Dr. Govil and Dr. De la Garza, it opens up for us a unique opportunity to laser focus, I would say, on the sales and commercial efforts that we are going to undertake and are undertaking, for example, in the state of Florida, not only are we very strong in a number of hospitals there, but also Dr. De la Garza, who is President of the physician organization in pain management, more than [ 4,000 ] physicians as well as his connection with surgical partners that has a presence in the United States of more than 180 clinics in 31 states, 4,000 physicians, it gives us the opportunity to target our new account laser-focused, I would say. In addition to that, of course, we continue by using the endorsement that we obtained in the agreement with Premier so that we can continue to really targeting in the right way, clinicians and physicians as well as the [ RNAs ] in both the hospital settings and the ambulatory surgical centers as well as in the private clinic. Other areas where our technology could be used. So this is a thoracic indication. It's approved already in Europe. We will address that as well in the United States this year. We have done research in peripheral nerve block, just to give you an impression, peripheral nerve block is already a larger market than labor and delivery. It's 41 million procedures performed in peripheral nerve block intra-articular [indiscernible] that are other areas of potential interest, where we are evaluating to invest further, not only we invest, of course, in the sales team expansion, but also invest further in research and development opportunities for the company. As you have seen, in the beginning of this year, we have given guidance. Normally, we do not give guidance during the year, but I saw it was more than appropriate to share with you the expectation we have for the full year 2021 in which we stated that our revenues would be more than $10 million, of course, primarily I think from the dental business, which is the equivalent of 85% growth compared to the previous year. And it is important because the dental business moving forward will continue to grow, and it is also our ambition to grow that business further for the reasons I already have explained to you. The -- here, you see an overview and summary of the key statistics, our ticker symbol. Of course, unfortunately, the market that we are acting in is under a lot of pressure, small-cap microcap companies. Yes, they are under pressure. There are examples of companies that have lost about 70% or 80% of the market cap valuation. We have been able to trail until a couple of weeks ago at that level of $2.10 recently under pressure in the market, the economy situation, the pandemic, tax savings, you name it. Of course, for us, what is important to control and to try to reverse this picture on the stock price is really to come with a consistent releases of new hospitals and pain clinics that are going to embrace our technology. In other words, enabling us that we can increase the adoption and the penetration of our technology within the medical and as well the dental marketplace. So in summary, my message is Milestone Scientific, its proven technology, clinically proven. The company is very healthy. We are in a unique opportunity. The reason also why we are pleased with the [ cash at handling ], you would say, okay, now plan to further spend that. Definitely, we are going to do that, but we also maintain cautious on our cash management and cash position. So absolutely, it is a fact that we are looking at our costs. But at the same time, we are very pleased that we can -- that we have the funds available that gives us a runway of an additional 2 years. That was also the intention of the Board when in the year 2020 in the first half, capital was raised of [ $40 million ]. And as you see now [ guide ] going through the year of the pandemic and the year thereafter, we have still been able to manage our cash situation pretty well, giving us the opportunity to invest further, like I said, in sales and marketing activities as well as in R&D activities as well as in further expansion of the sales force to further push the adoption and penetration of our technology. I personally also believe that once and when we become the standard of care, I already mentioned to you the $80 million in net profit on the consumables alone for the company, which is a very compelling proposition. We remain very positive. We have to get through this quarter where we are faced with the pandemic, but we maintain positive of increasing the business in the medical segment for Milestone Science. So I thank you for your attention. And if there are any further questions, I will be very pleased to answer those.

We have some questions from the audience. Our first question is do you see or sense any pent-up demand on the dental side of the business from the decline in COVID-19 cases? Or any opportunities loosening up on the medical side on the potential future phenomenon. Some in the medical industry have suggested years of COVID tailwinds from people putting off procedures during the pandemic.

Yes. I think definitely in dental as well as in medical like I already alluded, we are faced now that hospitals do not allow our people to get in, although we have been very successful in the fourth quarter in increasing the number of hospitals in our pipeline. And that's the reason why I said we need to get through this first quarter and then see how the hospitals are able to focus on, let's say, the other procedures and elective surgeries, et cetera, et cetera, where also then our technology will come back and will come and focus. That's definitely going to take place, and I'm strongly believing in that. In the dental business, I think we already have seen an update in that business already during the year 2020 at the end of 2020 as well as in 2021. And that's also the reason why I remain positive on the further development and the growth potential of the dental business in the year 2022 as well.

Can you speak to how you plan to get more traction with CompuFlo and talk about the traction with GPOs?

Absolutely, more traction with CompuFlo. There are several things. One is not only having the CompuFlo for labor and delivery in the hospital environment, but also continue to enter the private pain clinic, right? As I already explained during my presentation because it's a faster decision-making process, definitely. Secondly, of course, we are working as well and what we want to do looking into reimbursement costs because that is important for private pain clinics as well. We do not have a reimbursement [ code ]. So that is important if and when we could obtain that, that will definitely move the needle. Thirdly, we are not only focusing on anesthesiologists, the decision maker on the contrary. We are also actively reaching out to the CRNA, which are the certified registered nurse anesthetist that have a very strong affiliation of new technologies like ours. We also are involved with education for CRNAs, and we see a very nice collaboration between the CRNAs and the anesthesiologists in the hospital. I think historically, like I said, using the opportunities that are offered in our network through the early adopters like Dr. de la Garza and Dr. Govil to enter and to expand and increase our penetration in the private pain clinic, in particular, in the Florida market, which is an important market for us. And then, of course, GPOs and larger hospital chains and institutions that we are in discussion with apart from Premier other institutions as well so that we can not only get access to the teaching side of those institutions, but as well as the, let's say, the daily clinical routine basis for the hospitals of using our procedures on a daily basis.

Thank you so much, Arjan. We don't have time for any other questions at this time. So I'll hand it back to you for any closing remarks.

Yes. So thank you very much for your attention. I already gave you the summary. Really, if you would like to become more acquainted with our company then please visit us at our website milestonescientific.com. Please also do not hesitate to reach out to me directly. For email, we will -- we can and will provide or you might already have my contact details. I'm easy approachable and always very interested in having a direct dialogue with the investment community. And other than that, thank you so much for your attention today, and I wish you all the best and stay safe. Thank you. Have a good day.

Ladies and gentlemen, that does conclude the Milestone Scientific presentation. This concludes today's event. Remember, one-on-one meeting requests are still open, so be sure to log in to the conference platform and request more meetings. You may now disconnect.