Nexstim Plc (NXTMH) Earnings Call Transcript & Summary

Welcome to Nexstim webinar for investors, analysts and media. Today in this webinar, Nexstim's CEO, Mikko Karvinen; and CFO, Joonas Juokslahti, will present the financial and operational results followed by a Q&A session. The webinar will take about 45 to 60 minutes. The attendees are, of course, free to leave the webinar anytime, and you are also able to come back during the webinar by using the same link you have received. The webinar is recorded, and we will inform you later where you can find the recording. [Operator Instructions] And now I will hand over to Nexstim's CEO, Mikko Karvinen. Go ahead, Mikko.

Thank you, Anna, and welcome to this webinar on behalf of myself. So I'm Mikko Karvinen, the CEO of Nexstim, and I'm happy to present some of the key results during the first half of 2020. I will be splitting out this presentation into 3 parts. So first of all, I'll go through some of the key highlights of the first half to tell how our business has evolved and what kind of results we have achieved. Then our CFO, Joonas Juokslahti, will be going through some of the financials in more detail to show what kind of progress we achieved during the first half. And then in the end of the presentation, I will go through some of the key strategic objectives that we have published pretty recently, so yesterday. And I'll shed some light into these objectives and how we are aiming to achieve these. So I think there's going to be a lot of interesting information today. I would welcome some questions at the end of this presentation. So after the strategy part, there will be a possibility to post questions in the Q&A chat. So let's begin with the presentation. All right. So there was a little bit of a lag as some time there is in these web environments. Okay. So Nexstim personalized depression treatment. That is our slogan and continues to be as depression treatment is one of our main focuses in this company. As I will be presenting during this presentation, we, of course, have other indications, both in the diagnostic and the therapeutic side of the business, and we'll be going through that also as part of this presentation. There's some important information. So Nexstim is a listed company in the First North Growth Markets, both in Helsinki, Finland, and Stockholm, Sweden. So there's some information, especially regarding our forward-looking statements that you can take a look at later on if you want to. So into the first half 2020 highlights. This first half, of course, was in the middle of the COVID-19 pandemic and this definitely affected how we did business in Nexstim during the first half. We tried to minimize the effect that this had, first of all, of course, to the next in personnel. So we managed to have ways of working that -- to my knowledge, none of the members of the Nexstim personnel have had a COVID infection to date. So we're very happy about that. And we can continue doing business in that sense in a normal manner and without any health effects -- personal health effects for anyone yet. But at the same time, we also try to minimize, especially, the effect to our customers to see that the existing businesses, service and maintenance to both NBS and NBT could be maintained as best as possible. We didn't lose any of our service or maintenance customers, none in the NBS business or in the NBT. So I think we were very successful. We had to do some cost-savings measures. These cost-saving measures affected especially some related to our personnel. We had some termination of employment in our subsidiaries, both in the U.S. and in Germany. And then we had to lay off actually all of the personnel in Finland to somewhat -- to some extent, during the first half. These temporary layoffs have now ended and they ended at the end of June, so we are coming back to the more normal business environment right now within Nexstim. Considering this difficult business environment, I'm very happy with the results, especially in our NBS business where we sold 4 new systems during the first half out of 3, which were sold in the U.S.; and 1 in the EU in Italy. And then on top of that, we had a total of 5 new NBT systems installed to clinics in the U.S. and Europe for the treatment of major depressive disorder, so MDD. So at the moment, we have a total active installed base of NBT of 28 systems globally, out of which 14 are in the U.S. and then 14 in the rest of the world. If we look at it purely financially, and Joonas will, of course, shed more light into the details later on this presentation. But I'm very happy that this was historically the best first half for Nexstim. So we have never started the year with such revenue or the operating results or the results for the period. So all of these -- within all of these financial measures, we progressed to be new record level. Of course, there's still a lot of work to do, especially on the profitability measures, but I'm happy that in comparison to 2019, the sales revenue grew to EUR 1.6 million in the first half in comparison to EUR 1.2 million in 2019 first half. And then the operating result, the losses -- operating losses decreased to minus EUR 1.8 million in comparison to minus EUR 3.4 million in first half of 2019. And then the result for the period was minus EUR 1.2 million in comparison to minus EUR 3.7 million during the first half of 2019. So there was progress, good progress, in all of these measures. And we will, of course, continue to pursue this path also during the second half of this year. If we look at some of the sales measures. The NBS sales -- net sales grew by 47% to EUR 0.9 million in comparison to EUR 0.6 million in 2019 first half. And then in the NBT therapy side of the business, the sales also grew slightly -- with slightly lower figures, about 18% in first half, amounting to EUR 0.7 million in comparison to EUR 0.6 million in first half of 2019. And as a special remark, 100% of this NBT net sales was recurring revenue. So we didn't have any NBT new system sales that we recognized as revenue during the first half. So I'm happy that during this quite volatile period due to the COVID environment, we had a stable element in our NBT business, which was achieving growth through the more stable recurring revenue stream that is part of this NBT business. So we can continue with informing that we had a successful rights issue during the spring, and this oversubscribed issue raised a total of EUR 2.2 million of new equity. And this equity was, of course, very necessary for the company to pursue its growth path. The current cash runway -- according to our estimates, the current cash runway would end at the end of Q1 2021. So this is -- this raise, we did for EUR 2.2 million was very helpful in extending our cash runway to the end of first quarter '21. Business Finland decided to cancel partially some debts that they had granted Nexstim earlier on, and these were R&D loans. So Business Finland is a government-based fund that funds loans, especially in Finland for Finish companies that do R&D. And our loan base was decreased by EUR 0.9 million of loan capital that will not be collected. And this is, of course, good news for Nexstim, and it decreases our liabilities, long-term liabilities in this -- at this point and it's very welcome as we can then focus more of our funds into growing our business. And then finally, a note in change of management. So our former CEO and member of the Board, Mr. Martin Jamieson, decided to leave his positions in February of this year. And myself, I was appointed as the new Interim CEO at that point and Joonas Juokslahti as the new Interim CFO of the company in February. And then later on, in mid-June, we were appointed permanently to these positions. And now we've had the privilege to serve this company during the -- from the summer times, also permanent in these positions. So I think that's a bit of a highlight into some of the key things that I would want to highlight from the first half when we look backwards into what has happened in this year. And before I go into some of the strategic objectives and looking forward into the end of 2020 and what we want to achieve strategically, I would like to give the opportunity for Joonas Juokslahti, our CFO, to go through some of the key financials of the first half. So with that, please go ahead, Joonas.

Thank you, Mikko. So as stated already in the report, I'm really happy to say that this was indeed the best first half in history of this company in terms of net sales, operating results as well as the results for the period. The total net sales increased by 33% to EUR 1.6 million. Now that consists of NBS and NBT sales, which both grew in comparison to 2019, and that will be by 47% and 18%, respectively. Now I would like to point that 100% of the NBT revenue was recurring. And this just highlights the importance of our recurring business model in therapy business. The personnel expenses in H1 decreased by 23% to EUR 1.6 million. Now this was mainly due to the COVID-related cost-saving measures taken in Q2. But the organizational restructuring in the foreign subsidiaries will have a cost-cutting effect also in H2 and the future. The other operating expenses at the same time decreased by 31%. And this was also partly due to the cost-saving measures but also the funding round-related expenses this year were lower comparing to the previous year. The operating result for the first half was minus EUR 1.8 million. And that shows that the operating loss decreased by 45% in comparison to 2019. Now the loss for the period decreased by 68% when comparing to last year. Now this takes into account also the partial debt cancellation of the R&D loan granted by Business Finland, and that was valued at EUR 0.9 million. The cash flow from operating activities was minus EUR 1.6 million. And that means that the negative cash flow from operating activities decreased by 58% in comparison to last year. The cash balance at the end of June was EUR 4.8 million. And combined with our business forecast, it's estimated that, that gives us a sufficient runway until the end of Q1 next year. The number of shares in the end of the period reflects the new shares issued as part of the rights issue 2020 earlier in the spring. And at this point, the future outlook remains the same. And that means that the company estimates that the operating loss will decrease in comparison to year 2019. And that being said, I would like to give the floor back to Mikko and our strategic objectives.

Thank you. Thank you, Joonas. And if there are any questions related to the financials, of course, Joonas is more than happy to take them after this the strategy part of the presentation. So I'd like to remind also, as I mentioned earlier, that we did publish our updated strategy yesterday, Thursday, August 13 and it was also the same content was published now in this first half report, the summary part of it so under the strategy part of the report, where we go through our mission, our vision, our values and the strategic statement in more detail. But of course, due to the nature of this webinar, I will not go through the full strategy in this presentation, but I will focus more into the key strategic objectives for this year. And by doing so, I will try to also elaborate a bit more what we mean by each of these objectives. And then, of course, if you have any questions, then we can have a little bit of further discussion later on in this session. So the first objective we have for this remaining part of 2020 is to continue decreasing the operating loss. And we feel that this is, of course, essential for the company so that we not only have less cash burn but, of course, then in the long run, are able to achieve more and more profitable revenue growth, and we will try to do this now during the second half and continuing the efforts of making sure that every single deal that we do, whether it be NBS deals in presurgical mapping side of the business or NBT therapy sales in the form of new systems or recurring revenue, we do this by ensuring that we have margins that are sufficient for achieving profitable revenue growth in the long run. And also, strict management of operating expenses is something that we started in the first half, and you can see the results already in the numbers. And I think there's been a very large decrease in operating loss. But I think that we will continue this same path also during the second half and making sure that the operating expenses we have, of course, are well invested into the growth and development of the company, but in manners and measures that are necessary for this time being. And as a separate note, of course, COVID-19 will remain to be a worry for everyone probably during the second half, and we monitor this also in relationship to managing our operating expenses as would be expected, of course, in this situation. We want to develop our business. And as we mentioned in the strategic statement, we've selected the accelerated therapy treatment protocols as a key element of our strategic development pack. So some of the early results that have been presented in the area of accelerated treatment protocols show that and especially when severely depressed patients are treated, even suicidal patients are treated with these accelerated therapy treatment protocols, there are some amazing efficacy results. These results have been presented by other institutions. But we intend very soon to start 2 new pilot studies that would be investigator-initiated in university hospitals in Europe. And these studies will tell us Nexstim and then, of course, the public later on that how well do we achieve treatment results when treating severely depressed patients and/or chronic pain patients with the new accelerated therapy treatment protocols. And we intend to do this with the device we -- the NBT device we currently have and to see that what is technically also possible at the moment. We're very hopeful. We're very hopeful that technically, we are more than capable of achieving accelerated therapy protocols that are at the level of treatment that could maybe then produce these efficacy levels, but we need to make -- be sure about that, and we want to do that by testing with these products. So this is a very exciting area to follow for the second half of 2020. We also want to develop and execute a deeper profitable partnership business model in the key therapy markets together with valued partners. And this means that when we did our strategic assessment during the spring and summer together with the Board and the management team, we really wanted to try to understand the therapy markets and key therapy markets in relationship to profitability. And when we look at all of the public TMS companies, there are a few other ones than Nexstim, we can see that no one has achieved profitability yet. So from the device manufacturer's point of view, the therapy market isn't yet profitable. But of course, as a company that seeks profitability, we need to also continuously be thinking about our business models. And in this sense, we want to focus on more deeper profitable partnerships in order to get to a better future also both for Nexstim and for our partners. And at this point, I would like to leave it at that point. But also from this objective, we will have, of course, news flow coming up later on in 2020 if we're successful and when we're successful with developing these partnerships. Then an important part that we've already been public about earlier on, so the patient registry. The data that we collect from the treatment of depression patients, we published a 55-patient registry result already in April of this year, but we now aim to complete over 100 patients by the end of this year. And the results from the 55 patients were very promising. So we see 40% remission rates and 71% -- excuse me, there's a -- clinical response rates in these amounts of patients. But that was after 55 patients. We want to follow a larger amount of patients, and we've now established ourselves an objective that a patient registry of over 100 patients by the end of this year would be a sufficient amount that we can probably gather during this COVID-19, giving a bit of pressure also to the, clinics gathering this data. And then as a separate note at this point, we are happy that we continue to have clinics that, even in this COVID-19 environment, are treating patients, are able to also add patients to this registry and by that way, also giving us very valuable information for the future. Then for the NBS presurgical mapping business, we continue to develop the reimbursement process for the United States. And this is a very important point for this presurgical mapping business because with the current sales that we're doing, we're doing it mostly without any support from the reimbursement coding in the U.S. at the moment. And by developing this process and then in the future having coding or support for reimbursement also in the U.S. for presurgical mapping, we see that this would, even more, give the commercial side a good push and a good possibility for sales development in this area. So that is a project that we also are taking forward, but we will be publishing, of course, an update once we know more concrete information in this area. We continue to search for a strategic partner for the diagnostic business, and we see that the current sales volumes that are progressing nicely is good business and when done directly by Nexstim, but we would value such a strategic partner also in the future for the diagnostic business, which could increase the volume of NBS systems out there and making this available for more and more patients for presurgical mapping purposes. And in the strategy we've mentioned now that we view that the tumor patients so preprocedural planning for difficult brain tumor and epilepsy patients is one of the main focuses for our presurgical mapping strategically. But also as a secondary objective, we are scoping -- we plan -- we do planning for patients undergoing radiotherapy for brain tumor. And we see that in all of these areas, I think there are interesting abilities for partnership in the future. And then as a final point, we have engaged with international Life Science Investment Bank to help us, as a company, to, first of all, obtain funding to achieve the company's strategic vision so help us with these objectives for 2020, but also for further funding the path from 2020 to '24. And we will likely then, of course, need more funding before Q1 2021, where our cash runway at the moment ends. So there is concrete things that we're working on together with the Investment Bank to get the best possible funding solution for us. And then at the same time, we are, by the help of the -- also these bankers, we are looking for strategic partnerships, both in the diagnostic business, as mentioned earlier on, but also may be in the therapy side of the business. So I think that these measures mentioned here and during this report, I feel that we're confident with the selected measures in accordance with our new refined strategy and I feel confident that we will increase shareholder value over the long term in the form of stronger competitive advantages, faster growth and better financial results. So we do feel very optimistic about the future. But of course, in this COVID-19 environment, the pandemic being here, we will still closely monitor the development of the pandemic as we continue to execute these selected strategies and strategic objectives during the second half of 2020. So with that, I welcome any possible questions in relationship to what was presented or published today. Thank you.

We already have questions here.

So there is a question about the objectives. And about developing and executing a deeper profitable partnership model. And the question is that, what do you mean by this and what opportunities are there? I'll take that first. This is -- there's multiple questions actually in here. Well, as I mentioned, this part is something that I unfortunately can't shed too much light into yet because we have some discussions that are going under NDAs. But I can tell that it is mainly focusing on the issue that strategically, when we look at the environment, CMS device manufacturers are not profitable at the moment. And we are discussing with partners to see that how we could add more value into Nexstim's treatments and position in the value chain in order to increase our chances of more profitability in the future. So I think that once we come out with some of the first progress in this area, it's easier to discuss in more concrete manners. But at this point, I unfortunately would have to leave it here. But this is definitely an essential part, we think, about the future therapy in the key markets. And then there's a question about, could you provide an update on your progress with planning the severe depression and pain pilot studies? When might the first study initiate? And what is the cost of these? These are good questions, and I can shed a bit of light. I mean both of these studies will be investigator-initiated. So that's why I don't want to give too much detail before, of course, they've made their own internal decisions and arrangements related to these pilot studies. But I can tell you that we are very far in the preparations, together with the selected university hospitals. And there are, of course, certain regulatory and procedural things that the university hospitals need to get in place IRB's approvals and so on. And we're kind of in the middle of that -- at the end of that process right now. So I would be expecting that we can hopefully announce quite soon some starts in these. And at the moment, we're looking to have a likely one-pilot study in the area of severe depression and then one-pilot study in the area of chronic neuropathic pain. So both of these areas are now likely to be studied. And then if I look at the second part of the question that when -- what is the cost of these, as these are investigator-initiated, I would say that, of course, there will be some expenses to Nexstim. But if we think about it, they're mainly going to be related to providing systems and services, to these studies. And then, of course, taking care of some of the mainly personnel expenses that are related. But I would say that in comparison to the earlier studies we've done, these pilot studies are rather cost-efficient. So this method of having these pilot studies is probably going to be contained as an expense to a few hundred thousand euros in total.

And we have another question about the partnership model, but I think that was replied?

Yes. I think that's very similar to the question I already answered. Then there seems to be a question in -- okay. So there's a question about, you seem to have performed well in terms of revenue growth over a difficult period. I don't have full details, but you appear to be doing better than your competitors. Am I wrong in thinking this, is the question. Well, I mean, we've had quite a busy time here, so I haven't been looking too much into detail to our -- to some of our competitor reports. But the ones being public, I've taken some time to look at them. And if we just look at -- if we look at the growth pace and percentage-wise, I think we have done excellent progress in comparison to the competition. So we can see that doing relative growth in this very difficult period has indeed -- I mean, it's not been easy. And if we look at a comparison to competition, we seem to be extremely successful. Then on the volume, of course, of pure euros and in relationship to operating loss, I can say that there's also a bit of a similar type of an effect. So I do think that, yes, that in comparison to the competition, we've been very successful in this first half of 2020, and I'm very happy about that. And we will, of course, take a very short moment also internally in Nexstim during the hours after the releases and the day to celebrate also that a bit because it's been quite an achievement. But then, of course, starting to focus already into the second half and thinking about how can we ensure that this type of revenue growth pace and operating loss decrease can be maintained also and aimed for the year of 2020. So officially, as you've probably seen from the future outlook, we don't comment on the revenue growth or decrease at the moment. So the full year revenue, we don't give a guidance because it is still a turbulent, turbulent environment. But based on the first half and our estimates, cost estimates and sales estimates for the second half of 2020, we can already see that there's a high likelihood that the operating loss will decrease in comparison to 2019.

And then we have one more question from Trinity Delta.

Okay. Thank you. Yes. So these -- first of all, these -- thank you for the previous questions, they were anonymous, so I couldn't thank anyone specifically, but this is from Lala Gregorek from Trinity Delta, Research Analyst there. And I -- thanks for the question. And there's a -- okay. So this was actually related also to the severe depression and pain pilot studies. And as a kind of -- I mean, I don't want to go through the same thing again, maybe this was posted at the same time as the anonymous question. But I think that -- I wish I could tell a bit more about the timing, but I think that we will be reporting the beginning of these pilot trials as soon as it is possible. And there's a very high likelihood, of course, that these trials will happen. But because they are university hospital-initiated trials and run by them, I don't want to start controlling their -- or estimating their approval processes and kind of the logistics into starting this. So -- but we are aiming internally to, of course, also get a bit of a sense of the results also by -- some results also by the end of year 2020. So in order to achieve that, we would, of course, like to see the pilot studies start pretty soon. And we follow that very, very frequently in the management team. So I feel very confident about that.

At the moment, we don't have any more questions.

Okay. So it seems like there are no more questions at this point. I mean I can -- you can see if there's any final ones, more than happy to take them. But of course, as always, I mean, my contact information is in the releases we published. So I'm happy to take any questions also later on by phone or by e-mail if you choose to send them to me. And to the end, I just want to highlight that we will be, of course, awaiting news flow about progress with our strategic objectives. So that's probably the next time you will hear from Nexstim [indiscernible] news flow. And then more in a regulatory scheduling type of format, of course, we will be then publishing our full year 2020 results close to the end of February, planned now, February 26. So then we will have likely this format of webinar where we can go through the full year results. So thank you all for the participants. I hope you've now received more information both about how we did during the first half and our objectives for 2020. And stay safe, safe and healthy in this COVID environment. And hope to talk to a lot of you during the second half of the year. So thank you and bye-bye.