Myomo, Inc. (MYO) Earnings Call Transcript & Summary

Well, good morning. This is Paul Gudonis, CEO of Myomo. And with me today is David Henry, our Chief Financial Officer. The company, Myomo, is a leader in upper extremity medical robotics to conquer paralysis. We're traded on the New York Stock Exchange American under the symbol MYO. We'll be making some forward-looking statements today, so please read our safe harbor statement here. Now on to the company. As I said, we are positioned as a leader in providing the MyoPro product line. MyoPro is a myoelectric orthotic, a powered arm brace, that enables people with -- individuals with paralysis to move their arms and hands once again to perform activities of daily living, dress themselves, feed themselves, go to work in some cases. It's a lightweight, portable device approved and registered here with the FDA in the United States, CE marked in Europe. And we are the only commercially available device like this that restores this type of arm function. We shipped about 1,000 devices since inception with a growing number each year, as you'll see. In terms of the investment highlights, this is a significant market opportunity. When you look at the market by diagnosis, it adds up to about a $10 billion opportunity if everyone in the United States, who is eligible for this device, obtain one and about 3x worldwide. We have an experienced management team with both technology, scaling experience as well as health care and deep professional expertise in this field. We have an accelerating pipeline growth, as you'll see in both U.S. and international markets. We've also shifted our business model over the last 18 months to be a direct-to-patient B2C company with also direct billing and provisioning of our devices, which has resulted in a higher average selling price, revenue per unit and margin. So we've got strong commercial momentum. And after our recent offering earlier this year, we've got over $10 million of cash and a strong balance sheet here. In terms of the market need, there are many cases and causes of upper extremity paralysis, stroke being the largest one. About 3 million individuals just in the United States with upper extremity impairments, primarily stroke, brachial plexus, which is a shoulder nerve injury, might happen from a motorcycle accident, car accident. There's spinal cord injuries, MS, traumatic brain injuries. We've helped veterans use their arms again after, for example, an injury in combat, also ALS, cerebral palsy, some of these conditions. Overall, about 3 million is the prevalence in the United States. And with 800,000 new strokes every year just in the United States, there are several hundred thousand new cases of upper extremity paralysis every year. So this is a market, not only about 10 billion in terms of the chronic population, but it grows about 1.2 billion every year due to new incidences. As I mentioned earlier, it's about a 3x market size. When you look at it worldwide, probably 5 million paralyzed arms in Europe, 14 million in China and growing every year due to incidences of stroke and these other conditions. So big, untapped market here. And what happens today, when someone has a stroke or other neuro injury, they typically go into a rehab hospital for treatment, usually occupational therapy. They might use some other older technologies like spring-operated devices or stationary robotics. And what certainly happens, and the World Health Organization has counted up the numbers here, it's about 15 million strokes a year, about 1/3 of these individuals die as a result of this blood clot or hemorrhage. About 1/3 recover through this type of therapy services. The other 1/3, 5 million a year basically told, after 6 to 12 months of therapy, if you haven't recovered, that's it, you've plateaued. You're never going to use that arm or hand again for the rest of your life. And we're showing that, that doesn't have to be the case anymore with our devices. So what's needed is a lightweight device that can be used at home or at work or at school that enables you to restore activities of daily living. So our technology is developed at MIT. We are a company spun out over a dozen years ago from MIT. Also, staff at Harvard Medical School helped to build this technology. The MyoPro powered arm brace works by reading the trace neuro signals that the body emits whenever it tries to move a muscle. So you can see in the diagram here, when you're thinking about moving an arm, for example, you're sending a signal from the brain through the central nervous system into the muscle. And if you're able-bodied and visual, your muscle responds. You can open and close your hand, move your arm. In doing so, it emits a trace micro voltage called the EMG, or electromyogram signal. Myo is the Greek work for muscle. And we have sensors that non-invasively just sit on the surface of the skin. So when you think about moving an arm, and many of these individuals have an attenuated signal, it might be less than 1% of what an able-bodied individual has, so they struggle. They can't use that limb sometimes for years. However, as long as there's a trace signal there, and most individuals that we evaluate do have that trace signal, you can amplify it with this software that we have on the device and then small electric motors as we move that arm so that you can feed yourself, get dressed, carry objects and so on. We've got a strong patent portfolio, recently announced that we have -- a new patent was issued just yesterday. This is both in the U.S. and the EU and extends the life of our longest patent out to 2039. In terms of the competitive position here, this is the field of orthotics and prosthetics, a multibillion-dollar segment of medical devices. Prosthetics are for amputees, whether it's upper or lower limb. The mature marketplace, the much larger opportunity is in orthotics because more people have their limbs than have lost them. And so, orthotics, which is the clinical term for braces, there are lots of alternatives. If you have lower limb mobility issues, whether you have foot drop, you might have a binder, a walk aid, functional electrical stimulation, there are stance control braces, exoskeletons for those with certain conditions like spinal cord injuries, and also wheelchairs, which are the standard of care. However, there's been nothing for the upper extremity, the arm and the hand. So that's why we focus to become the leader in this particular space. The way we go to market is there's a 3-step process here. One is building the patient pipeline through lead generations and then evaluations of candidates. And we have a team, under our Chief Medical Officer, that works with the patient and their physician to get reimbursement approval by the insurance company. And after it's custom fabricated, we deliver the device to the patient and then get payment from the insurance company. So let's look at building the pipeline. So what we do is we go direct to the patient with online marketing, visual marketing, primarily Facebook, Google search engines. And on the next slide here, you can see how these ads pop up. Often a 30-second video shows up. And so we get a significant number of new leads, and it's growing now every month coming into the company, where our call center then contacts these individuals, obtains insurance information, ask them if they are a candidate for a telehealth evaluation. And this is something we started a little over a year ago, where instead of doing an in-person evaluation of the candidate, we were able to move with telehealth, which helped very much during this whole COVID situation that started this spring. And so now we're doing a significant number of evaluations of candidates every month by telehealth, where within 1 hour, 1.5 hours, we can assess whether that candidate would be a good prospect for the MyoPro based on their medical condition, their insurance status, and then they move forward into the reimbursement process. And here, we obtained a pre-authorization for the device. Just like if you needed a knee or hip replacement, insurance companies require the demonstration of medical necessity. And then in the commercial payer space, we're getting these approved on a case-by-case basis. And we've also shifted, again, from strictly dealing with the orthotics and prosthetics clinical channel. Over the last 18 months, we've shifted to now where 90% of our new cases are being direct billed by Myomo in addition to what comes in through the channel. We also were approved several years ago by the VA. So we've fit many veterans, and over 40 VA medical centers have ordered MyoPros for veterans in their care. And then with Medicare, we applied for HCPCS codes, which are the unique codes for the device, hard to get, but we were awarded codes. It got established in January of 2019. And as a result, Medicare Advantage claims are now being paid for patients. So about 35% of seniors are covered under Medicare Advantage plans. So we're regularly getting authorizations for those patients. And we're still awaiting Part B Medicare approval. We have the codes. We have several claims that are pending, and these would be considered DME rental claims paid over 13 months as a rent-to-own for the patients. We are in discussions about whether that's the right categorization. In the meantime, we're focusing on the Medicare Advantage patient population, in military, veterans population as well as patients with commercial payers as a significant portion of the 3 million paralyzed individuals in the United States. You can see how our revenue mix has changed over the last 18 months, where blue represents the portion of our revenues that are direct billing. That is up to about 50% of our revenue in the most recent quarter. The other parts of our channel are the orthotics and prosthetics clinics with the VA. Also, in gold, you can see our growing international footprint as well generating revenue for us. So this shift to direct billing has resulted, as I mentioned, in higher average selling price and higher margin. This gives us more control over the whole process from the lead generation through reimbursement, through the delivery of the device to the patient. In terms of our international expansion, we established our own subsidiary in Europe based in Germany, which is the largest market with about 90 million population, significant number of those with upper extremity paralysis. So we have developed a network of orthotics and prosthetics partners, not only in Europe, but several other -- in Germany, but several other countries. And we announced back in February a significant milestone and that statutory health insurance in Germany has ordered that the MyoPro be covered on a case-by-case basis by the insurance industry. BARMER was one of the first to do so. That's 9 million covered lives. And we were -- recently on German TV, a physician brought his brachial plexus shoulder nerve injury patients to show him how he is using his device now to restore motion in that affected arm after -- years after an injury. We also just recently announced, so we got our first authorization in Australia from a payer there. And we have a growing pipeline in Australia, which we expect will turn into future authorizations as well. Now I'll turn it over to Dave, our CFO, to discuss some of the financial metrics.

Hi. Good morning, everyone. So these are 2 key metrics to focus on when you're looking at the growth prospects of the company, our backlog and our pipeline. I'll start on the right, which is our pipeline. Our pipeline represents those patients that have successfully completed an evaluation primarily done through telehealth, as Paul had mentioned, but they had not -- they have not received an insurance authorization. So you can see that we've been pretty dramatically growing our pipeline over the last several quarters and even managed to still add 192 patients to our pipeline in the second quarter when we were in the midst of public health shutdowns and things around COVID-19. So I think that was still a very good result, and we still have a tremendous pipeline of patients that we're trying to work toward. A patient exits the pipeline when they receive an insurance authorization, and then they enter the backlog. And you can see that not only is our pipeline growing, but our backlog is growing as well, now standing at 120 patients at the end of the second quarter. You can see the trend -- the table on the bottom, the trend in authorizations. We were about -- getting around 40 authorizations a quarter. That jumped to a record 75 in the second quarter during COVID. So we were still doing all the things we need to do to grow the business despite the fact that we couldn't actually see patients. There are 2 patient interactions required for us to be able to generate revenue. The first happens after an authorization, when we go and meet with a patient to cast their arm. This is a custom fabricated device that we market. And then, second, after that device is then fabricated and assembled, we deliver it to the patient, and we work with them to make sure it fits properly and get them all set up with it. You can see that the gap between authorizations and revenue units in the second quarter. The revenue units were a bit lower because of the fact that we weren't able to deliver for about mostly half of the quarter, and we've been running like crazy ever since. We have guided to a record number of deliveries here in the third quarter. We have delivered over 40 patients in July. And up to the point we announced earnings in August, we had another 20 scheduled, so with more to come. So that pretends -- revenue growth in the future. The revenue growth of that backlog is roughly -- or the revenue potential of that backlog is roughly $4 million. You can see the trends of our revenues, both on a quarterly basis and annual basis. Second quarter revenue, despite the virus, was only down a few percent compared to the second quarter a year ago. As I mentioned, we've guided to a record level of deliveries in the third quarter. And assuming that we're able to turn those into revenue, revenue is dependent upon payment from the insurance company because of where we are with our direct billing and the fact that we don't have contracts with insurance companies. It's on a case-by-case basis, and that's how we recognize revenue. But with record deliveries, and assuming patient or insurance payments don't fall off dramatically, that the opportunity exists for us to generate record revenue here in the third quarter. And annually, we've been growing our revenue 50% to 60% per year. Just some key metrics on the P&L. You could see that revenue was $858,000 in the second quarter. Gross margins were at just over 50%. Gross margin was down quarter-on-quarter due primarily to the fact that because we recognize revenue upon payment, there's a bit of a disconnect between that and when we recognize cost of goods sold, which is at shipment and when the inventory leaves our books. And because of the fact that we were delivering like crazy to direct billing patients at the end of the second quarter, but weren't recognizing revenue, there's COGS, cost of goods sold, in our P&L in the second quarter where there's no associated revenue. Operating expenses were down in the second quarter compared to the first quarter year ago -- or the first quarter of this year, down about $800,000. We cut costs as a -- in response to the virus, primarily in our sales and marketing side, where we lowered advertising and we -- in order to match some of the headcount that we had that we also lowered in response to the virus. But that headcount is picking back up, and we do expect operating expenses to increase in the third quarter. In terms of the balance sheet, we had $10.7 million of cash exiting the second quarter. The cash burn was $3.7 million in the second quarter, a bit higher than our normal run rate of $800,000 to $1 million a month. That's due to the fact that because of the virus, the inflows slowed down, but we did not have -- but we did have to pay down liabilities, and we did not have matching inflows to offset. So cash burn was a bit higher than normal. But in the third quarter, we have guided to the fact that we expect cash burn to be at the low end of our range, our typical range, which is about $800,000 to $1 million a month or $2.4 million to $3 million per quarter. Now turning to our maintenance plan for COVID-19. We've talked about the fact that we're doing telehealth video conferencing. We're also continuing to monitor whether states are -- some states are impacted by the virus more than others, and we continuously monitor any restrictions that might be put in place by various states right now. We're not seeing any at the present time where we're being prohibited from doing any deliveries in any states. We do our work right now prioritizing the safety of our employees and our patients. We provide them with PPE, and that same PPE is available to our patients as well. We are also asking our employees to travel safely. We maintain social distancing in our office spaces. A lot of people are continuing to work from home, and we're finding that, that actually works out fairly well. So looking ahead to catalysts that might impact the stock going forward. As Paul mentioned, we have filed initial Medicare claims. We're still waiting to hear back on those as to whether they will be paid. We're hoping that sometime during the second half of this year that will happen, and I think payment of Medicare claims because that signals the potential that we might be able to access a portion of the market that we're not able to access today. And Paul mentioned earlier a $10 billion market opportunity. That opportunity could double if we are also able to serve Medicare patients. We're also trying to obtain coverage on a case-by-case basis through additional insurance companies. We are hoping to add more capability here in the second half of the year to do that. We want to get our adds to the pipeline consistently above 100 per month. We were at that level in the first quarter of this year. The virus kind of impacted that in the second quarter, and we're looking to get back to that rate in the second half of the year. We look to become a certified Medicare provider in the second half of this year. The key benefit from that is not only being able to directly bill Medicare ourselves, but it also is a prerequisite to enter into contracts for commercial insurance. Our pediatric device, the MyoPal, we have delayed the launch of that because of COVID-19 and the reticence of parents to have their children interacting with us. And so we're hoping to launch that device in 2021. That will be, I think, incredibly important from a PR and IR standpoint, just the fact that we could help kids move their arms potentially for the first time in their lives. And our primary target from a financial standpoint is to achieve cash flow breakeven in Q4 2021. So now I'll turn it back to Paul, and he can review the organization.

Sure. Thank you, Dave. And you could read all these bios on our website. I joined the company 9 years ago. Our background is engineering, MBA from Harvard, scale technology businesses, from cellphone services to growing a major Internet services company from $5 million to $1.2 billion. Joined this company when it was a spin-out of MIT, 4 people in the company. Now we've got 65 people and are the global leader in medical robotics for upper extremity paralysis, traded on the New York Stock Exchange American. Built a team here. It includes Jonathan Naft, 30 years in the orthotics and prosthetics business, biomedical engineering background. Micah Mitchell joined us 2 years ago as we started our commercial scale-up. He's grown wheelchair companies during his career. He's our Chief Commercial Officer, 20 years of that experience. Gene Tacy has been with us a dozen years, probably the best engineering leader in myoelectric control. Cliff Conneighton's our Head of Marketing. Dr. Brandon Green's our Chief Medical Officer. And we have a team of reimbursement experts under Courtney Maulen. We have Stefanie Dunaway, who heads up our clinical training. And Barry Camrell, our Vice President of Quality and Regulatory, is a former Boston Scientific executive. And just closing, Dave Henry. Dave joined us about 1.5 years ago as our Chief Financial Officer, significant background in manufacturing and tech companies, probably raised over $900 million now for companies. So very strong with our contacts, with investors, as well as internal controls. We have a Board -- a Scientific Advisory Board, headed up by Dr. Ross Zafonte of Harvard Medical School. And our Board consists of myself and 3 outside directors: Tom Kirk, the former CEO of Hanger Clinics, he built that to a $1 billion national leader in O&P care; Amy Knapp, a senior executive in the reimbursement industry and insurance companies; and Tom Crowley, a medical device CEO. And then Steve Sanghi is a Board adviser. He's invested through his family office. He's the CEO of Microchip Technologies (sic) [ Microchip Technology ]. So just to summarize, we've got this large, unmet medical need. This is the only available device that enable these individuals to use their arms and hands again. We've got a strong management team. We have -- the device is already in the marketplace. As I said, we've shipped about 1,000 devices since inception. We've got a growing pipeline. As you saw, we're emphasizing our direct billing for higher revenue margin per unit, and we've got just growing momentum, as reflected in the backlog and the pipeline and a strong balance sheet. So thank you for listening today. And if we have a few minutes, operator, we could take a question or 2.

Good morning. Thank you very much for a wonderful presentation. Yes, we do have time for one question. Has your business in Germany been affected as much as it has in the U.S. with COVID?

Well, Germany actually has done pretty well during the COVID situation. We saw some slowdown earlier in the year, but we've been regularly getting orders out of Germany. And as I pointed out, we're recently on German TV, so that still is our strongest market in Europe. Italy, U.K., Denmark have been a little bit slower in coming back, but Germany has been doing relatively well.

Excellent. Well, thank you very much. Again, we do appreciate the presentation, but, unfortunately, we are out of time.

Great. Thank you all.

Thank you very much. This does conclude today's event.