Nova Eye Medical Limited (EYE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nova Eye Medical first half results presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Tom Spurling, Director. Please go ahead.

Good morning, everyone. Thanks for taking the time to listen to the story of our first half results. I have with me today Victor Previn in the room here in Kent Town in Adelaide in our office [indiscernible] as well. So we have the deck. If we could just -- we have the disclaimer, and then we fall through to our first slide on Page 3, discussion of our business. As all of you are aware, following the sale of business -- the Laser and Ultrasound business, our Nova Eye -- renamed Nova Eye business comprises 2 segments rather than 3, a glaucoma surgical devices business and a business in laser therapy for chronic age-related retinal conditions. First on the glaucoma surgical devices segment. Glaucoma is the leading cause of blindness in the developed world. At the end of this deck, there is a little bit of background on glaucoma, if you wish to read it. Treating glaucoma with surgical devices is a very fast-growing segment, and minimally invasive glaucoma device is showing -- coming to -- showing to be better treatment than pharmaceuticals. So -- and overall, we aim to grow market penetration of our 2 proprietary glaucoma technologies, the iTrack device and the Molteno3. The Molteno3 is the acquisition we made on 31st of July this year, and we're in the process of building a portfolio of complementary consumable glaucoma devices that can leverage our sales and marketing infrastructure. Our iTrack device, we can say, is -- has the highest safety profile of any MIGS device in the world. Molteno3, which is what is known as a glaucoma drainage device for later-stage disease, has -- was the original such device and has the longest history of proven clinical efficacy in the world. Now many of you will see -- well, one particular thing we're proud of is that despite the impact of the global COVID-19 pandemic, EBITDA-level results of the glaucoma surgical device was just a few hundred thousand dollars less than breakeven. That is a very big change compared to the prior comparative period and other years, and I'll talk about that a little further. On laser therapy, turning over to laser therapy, to our team for chronic age-related retinal disease. It is -- the treatment of early stage macular degeneration represents a significant unmet clinical need in ophthalmology. We are currently in the process of funding a commercialization pathway. Our spend during the 6 months relates almost exclusively to the work we've been doing with the FDA on that topic, including the formation of a new subsidiary, AlphaRET, which houses all of the assets we collectively referred to historically as 2RT. We had them neatly packaged in one subsidiary. We have, as some of you know, a small revenue stream where we proved out our revenue based -- revenue business model based on revenue per procedure fee with the capital equipment sale upfront. Currently, we're approved for sale in Europe and Australia. And as I've said, we're on a pathway to try and secure FDA approval to treat patients in the early stages of AMD. There is -- it is a unique and proprietary mechanism of action, which may -- which gives us the flexibility to expand to future indications for use beyond AMD [indiscernible]. On Page 5, there's a summary of our current technologies. So the business -- our shareholders own these 3 things: the iTrack for glaucoma, the lighted catheter; the Molteno, which is a little implant, permanent implant in the eye for people with late-stage disease; that picture, that -- just broadly speaking, the device is about as big as a thumbnail, and it's inserted in an operation in patients that have heavily compromised irrigation systems that really do need a permanent assistance. iTrack, on the other hand, is for those in the early stages of the disease, where we use that lighted catheter to ream and flush the ocular irrigation systems. AlphaRET 2RT is an ophthalmic laser. We sold all of our laser business, except the rights to 2RT, which we retain and which our sales efforts related to 2RT are primarily about building clinical -- additional clinical data, which we'll talk to. Our business now has 55 people. Our offices are shown on the -- around the world, we have -- starting on the left, headquartered in Fremont in Northern California, we have Nova Eye, Inc., which looks -- most of our business is in the U.S. In Germany, we have -- in Berlin, we have established Nova Eye Medical GmbH, which is the headquarter for European sales. In New Zealand, we have, following acquisition in August, the -- in Dunedin, a manufacturing, quality and regulatory system in Dunedin. And then here in Australia at Kent Town in Adelaide, we have the advanced R&D, our marketing, our global regulatory. We handle APAC sales management from here. Over to the page. These are the key numbers. Market cap, $49 million. Enterprise value after we remove net cash, at $16.5 million. And we have a lot of invested directors and management at 14%. Our EBITDA for the period under review, the half year, is $0.8 million, and our glaucoma segment was $0.3 million loss. Over to the page, our highlights for the 2 segments was the acquisition of Molteno, the advancement of the next generation of iTrack that we are working on at the moment across really headquartered here in Kent Town for that work, using our team in Fremont as well, close to the market. We do have a growth in surgical device unit sales despite the pandemic. So across the period, and I'll talk about it in a sec, it's an 8% increase in the number of units we sold. And there was an establishment of the direct sales business in Germany in November, which is actually going very well, despite the difficulties of getting around there. With AlphaRET, the IDE submission, it's not yet done. We're in a Q&A process with the FDA at the moment. It would have been great to report that, that's done. We didn't plan to have it done by today, but it's still a month or 2 away. And we, of course, established our special purpose company to commercialize this therapy. On Page 9, the headline there of 8% growth in units sold. This is a bit busy slide, but it -- I'm trying to highlight the segments of the business and the performance of those -- of each of those businesses. Our revenues were down just 1% in constant currency terms in the glaucoma surgical devices segment and 3% in reported terms. The Australian dollar was -- went against us during the period. The unit sales, where we're now combining unit sales of both Molteno and iTrack, went from 5,580 units to 6,058 units, so that's the 8% appreciation. There is -- Molteno is sold at a lower selling price. It's a lower end user price than iTrack. It's about this -- at a glance, iTrack, the end user price is about 2x the price of Molteno. So you can see there isn't necessarily a relationship. And then when we put in issues like distributor markets and direct markets, currency and a few things, it would be hard just to -- you end up with a small difference between the fact that units went up and our sales went down slightly. Our investment -- AlphaRET, as I said, we've made a few -- well, to be honest, we sold one system during the quarter. It's not -- during the half. And we continue to have some procedure fees coming in. But our efforts have been very much focused on the clinical preparation of the work with the FDA, and most of the expenditure in that division relates to that. So other -- the interest and other income of [indiscernible] million dollars is the result of some of the settlement of the bond transaction costs and associated with Lumibird transaction. So we have an EBITDA for the group, a loss of $800,000 or $814,000 compared with $2.9 million in the pcp. So we're pleased that, that sort of -- and on reduced sales, reduced sales, of course, you can see, primarily we sold people 2RTs in the pcp. The glaucoma business has been pretty stable. So in the cost reduction there, about 24% reduction in the operating cost of the business. Travel and marketing costs have been materially changed as well as the -- we slimmed down our people associated with better sales management in the U.S. Our group balance sheet. Of course, the dominant event was getting $61 million out to our shareholders in July. Our total cash as of today is $29 million. We will be paying about $8.2 million in the next few weeks to the tax office as the proceeds for the Lumibird transaction. Of course, that has all been passed through to shareholders as franking credits. Our receivables include another $2 million in escrow associated with the laser business, and our tax return will trigger some of that, the release of the Lumibird -- that escrow account. On the 22nd of February, we lodged an application for a second round of the U.S. government stimulus called the Paycheck Protection Program. Last year, we -- in April -- in May last year, we received $1 million that -- and we expect -- I believe it's going to be of similar amount this year. That's an imminent type of mix. Okay. The next slide gives you a picture of the size of Molteno. But I just wanted to show here, we have 2 devices for different stages: iTrack for mild-to-moderate glaucoma and Molteno for late stage. Glaucoma, just to recap again, is an incurable disease. You just manage it, and people will progress. As they progress, and depending on when they're diagnosed, they need different interventions. So we have a nice coverage of glaucoma, and there's other spaces we'd like to fill in the glaucoma treatment paradigm, I guess, I'd call it. I'm happy with slide -- the 12th slide here, which shows the progression over the last few years in the first half. In the bottom right-hand corner, we talk about a $3.7 million improvement over 2 years. Now I know sales progression on the top line has obviously been materially impacted by COVID during our current period. But it is -- in that context, it is still good that we've been able to reduce our -- well, improve our bottom line result by reducing expenditures and as well as making our investment in the direct sales in Germany and integrating Molteno into the sales channel. So it's certainly not our plan to have flat sales and breakeven profit results. I mean, we would like -- we will aim to improve our EBITDA, but its sales growth that we will be looking to achieve over the -- as the pandemic in the U.S. subsides. An important slide, important bit of work we've done during the half has been some work with our collaborators in the U.S. in Chicago -- led out of Chicago, where there's some -- a 12-month prospective data examining the stability of endothelial cell density, which is a measure of the damage caused by our device to the corneal endothelium. Basically, any intervention, any operation on your eye causes some damage. It's about minimizing that damage. Our highlight is showing that blue box where iTrack has a 4.8% reduction in, well, endothelial cell density associated, importantly, and in conjunction with cataract surgery. Cataract surgery itself can generate about a 5% reduction in endothelial cell loss. So we're pleased that probably, iTrack itself, well, there's no damage. That is a highlight of our device and a big selling point compared to the big names of iStent from Glaukos and Hydrus from Ivantis. That's -- and to signal the importance of that, many of you who I know have been on our register for while, in 2018, Alcon withdrew a device they called CyPass because of endothelial cell loss. So we're currently advancing that study. These results have been really good, and we expect to present more at major scientific meetings. But the industry feeling is that reducing IOP without endothelial cell loss, without damage to the eye, is a very, very substantial advantage. So that's a big theme in our marketing and sales effort. Talking about AlphaRET 2RT, and we'll go to Slide 15. As I've said, we've made continued progress on the investigational device exemption application, IDE, with the FDA to commence a pivotal study for 2RT. [ Before ] we had results, there was a long study we called LEAD, L-E-A-D. It showed some wonderful results in a very large subset. However, because of the impact of certain patients who were not suited to the therapy, the primary end point of that study was not met. And as a result, we have -- we intend to conduct another study. We still have a very -- the results of that study were -- after we take out the impact of those patients that were not suitable for the treatment, was wonderful. And when -- and we're not talking about a small subset. 75% of the patients who received the therapy did really well, and 25% did not so well. We now will conduct a study that will take out the 25% who did not do so well and will do it again. And that process involves a lot of work with the FDA to not only the final protocol but to make sure that the device itself is safe. And a good example of that is the standards for cybersecurity, for instance, now in the United States are very high. We are spending a lot of time working out or making sure that our device will hit those cybersecurity standards, and that has actually swallowed up our application. And there's no real roadblock to getting this in that is not within our own control, that is just engineering work. Now there's no FDA-cleared drug or device-based treatments for the treatment of AMD in its early stage. A number of shareholders have been on our register, I've heard that many times, that has not changed. We still have a leading -- as we monitor what's going on, 2RT is still a leading candidate for a major globally unmet need. We -- subject to the final design acceptance and costings for the study, we plan to partner. Our AlphaRET stand-alone subsidiary, if required, will facilitate that. 2RT can meet, as I said, a major unmet need. And in February, as an example that the people on this call could probably relate to, the Australian government announced that the spend on pharmaceutical treatments for AMD in its late stage, that's what we call wet AMD, is now the highest spend on the Pharmaceutical Benefits Scheme at nearly $400 million. It just overtook the hepatitis C drug, which was never going to stay there for long because hepatitis -- there's actually a cure for hepatitis C. So it's falling away now. The -- but the $400 million is just going to keep growing. Now that is mirrored in the rankings of expenditure in all major developed countries. It is a very large health care probe that we think we can access. And of course, it's not about just curing a health care expense problem. We have a business model that will ensure that doctors are able to make some money out of that. That's important. Our outlook. We are -- business has slowed down. We have nearly a breakeven position within the glaucoma device business. We're making some small investments for 2RT, which I think is really worth it. We'll continue to do that. And we see measured growth as COVID-19 impacted sales. I mean, the ability of our reps to get into surgery centers; the ability of patients or the desire of patients to go into the surgery center; and thirdly, the surgery centers' willingness to take patients has all been very problematic in the U.S. through the pandemic. The last 2 slides are just general information about AMD and glaucoma. We don't need -- that's just to make the -- our readers aware. Victor, do you have any closing comments before we open it up?

Thank you, Tom. So despite the pandemic, we have had a very, very fruitful year. The team has worked pretty hard amongst the challenges and stresses of the last year, but I'm certainly very pleased with the way we've come through. The team has stuck together and kept their nose to the grindstone. I think we've made some excellent progress. So I'm very pleased with how we finished the year.

Thanks. So if I could hand it to the call operator, if there are any questions left.

[Operator Instructions] The first question comes from Dennis Hulme from Taylor Collison.

Tom, you mentioned on the call the second -- the next-generation iTrack device. Can you just talk a little about what enhancements that new device or modified device will include? And just about the progress and when do you anticipate actually being able to launch the new device?

I'll start. I know Victor is heavily involved with that. But the concept of the upgrade is to make the surgery even easier to do. It's a reasonably simple surgery, but we would like to improve the utility and efficiency of the surgery by having a -- making the insertion of the catheter into the irrigation system more efficient. Victor?

Sure. Look, I would love to tell you lots of information about the new products. However, because this is such a heavily contested area, a disclosure would really be, shall we say, a big advantage to our competition. It's too sensitive for me to give you much more information other than to say that it is essentially a better, faster means of inserting the catheter, so think of it as a catheter inserter. But in terms of its performance, its features and its -- and the time frame of release, very commercially sensitive matters, which I really would prefer not to disclose at this point in time.

Okay. Well, just in relation to the time frame then, if you can't give the time frame, can you talk us through the steps that you'd need to complete before you're able to release the device?

Yes. Sure. Okay. In general terms, so basically, we are very happy with the design. We have had quite a number of skilled surgeons test the device. We've had some less skilled surgeons test the device, and we're getting very, very good performance. We are significantly reducing session times. Having said that, we have -- we do not yet have the required approval in place to use this on [ patients ], but that is very close. So we are going through the production -- final production engineering phase, and we are finalizing our regulatory approvals. And we are planning the gearing up of production.

Okay. And just in relation to the market and the competition, we know that Sight Sciences have launched their OMNI device a couple of years ago. Are you able to talk about the dynamics in the market, particularly in the U.S. with the devices, and how -- the feedback you're getting about your device versus the OMNI device?

Sure. So the OMNI device is indeed a well-distributed device. OMNI have done a great job. Sight Sciences have done a great job in terms of getting a sales team together and launching a device. The device, for all intents and purposes, look similar from a distance to what our device is and does. In reality, they're very different. So our device remains the only device that performs through angioplasty of the canal of Schlemm. Whereas the OMNI device is a rather crude device, which is inserted into the canal, and it basically rips a furrow in the canal. So whereas our device is -- our system, our device, iTrack, is a very gentle, tissue-sparing procedure which restores function. This basically ups and destroys the original anatomy. Now that does result in temporary pressure relief, just as if you would cut a blood vessel and -- rather unblock it, you cut it sideways? Sure. It's -- the pressure will go down because now the blood can go elsewhere. However, fundamentally, it's still an invasive, shall we say, procedure which changes the anatomy of the eye, which we believe has some long-term consequences.

And just to add on to that, our -- cutting the trabecular meshwork leads to -- well, endothelial cell damage is going to -- any cutting you do is going to increase that. So you need IOP reduction as well as atraumatic procedure.

So any cutting has associated with it trauma and, therefore, potential scar formation and, therefore, a long-term loss of viability of sustained pressure relief. So ours is still the only proven device that has a very, very, very high safety profile because it is very gentle on the anatomy.

So yesterday, we had a meeting with one of our leading users in Chicago and in Racine, Wisconsin, and he was telling me that he selected the iTrack in the case of a surgery on a 38-year-old woman. So a 38-year-old woman does not need to have things cut up and a whole lot of trauma in her eye. So he selected in that case iTrack to do the work.

Okay. And so my final question, are you able to make any comment on the trading conditions you've seen in the first 2 months of the calendar year?