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

Thank you for standing by, and welcome to the Nova Eye Medical Limited FY '21 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Tom Spurling, Director. Please go ahead.

Good morning, everybody. Thank you for taking the time to listen. With me this morning to present our results is our Chairman, Mr. Victor Previn; and our Head of Marketing, Kate Hunt. We have a deck that we put together. You'll note through the deck, there are some important links to websites. We haven't done that before, but it provides a lot more detail on particular clinical and technical matters related to our products, which you may find interesting as we go through. We just go to Page 3. There's our disclaimer. They're the things we wish to cover. Our ticker, EYE. We, Nova Eye Medical, which is glaucoma and AlphaRET, 2RT. We'll go through financials, highlights for the year, and there's an outlook at the end. Tom? So during -- to summarize FY '21, which has been impacted, F '20 and F '21 were both impacted by COVID-19. But we undertook a concerted effort to reset our sales and marketing and clinical and IP infrastructure within our glaucoma business and to grow -- to ready for growth. We achieved some nice growth, and we see that growth accelerating going forward. We also invested in the regulatory pathway, 2RT, our world-leading device that has potential to tackle a market hitherto no one else has been able to tackle. You'll see EYE has 2 very separate business units: glaucoma, branded Nova Eye Medical; and our 2RT project within AlphaRET for age-related macular degeneration. What's important is that they are the leading causes of blindness in the world, in the developed world. So your company has products that are tackling very, very large global unmet needs. This tries to -- this deck tries to show you the different stages of the 2 businesses. The strategy for our glaucoma business is develop the market, sell comprehensive portfolio of glaucoma surgical devices. But we -- for AlphaRET, it's about progressing the business to a -- progressing product to a market-ready status. We are scaling for growth and ready for growth during F '22 for glaucoma. And for AMD, we are working hard to conduct an important multicenter trial to secure FDA clearance. As I mentioned, the markets, we have a fast-growing and competitive market in glaucoma surgical devices. And in AMD, or intermediate AMD, the market is not addressed, and we have a leading position. We have competitive technology advantages in both markets. That's important. Our sales infrastructure in the glaucoma market is headquartered really in the United States and Germany and with a suite of distributors. Sales for our AMD 2RT are not really on our agenda. We didn't really sell any or we didn't sell any during this last year. Our manufacturing for glaucoma is in California in the San Francisco Bay area. And recently, during the year, we acquired the business in Dunedin, the Molteno business. Our manufacturing for 2RT is here in Adelaide. IP. In both cases, we have strong IP coverage. We're talking about proprietary products that -- as well as our -- the fundamental market advantage. We're protecting that with good patents. For glaucoma, our regulatory is pretty much cleared in all global markets for our iTrack and Molteno devices, whereas getting regulatory clearance in the United States is the primary goal for AlphaRET. Reimbursement. We have favorable reimbursement codes in the United States for our products. For AlphaRET, for 2RT, reimbursement is pending. So that would be the last time I talk about those 2 businesses in parallel. And really, we set to highlight the 2 quite different stages here. The basic corporate metrics of the business. 12% is owned by management and Board. We've got 143.6 million shares on issue. Our revenues of $13 million. We quote in U.S. dollars now because our business -- 95% of our business is in U.S. dollars. Net tangible assets, market cap, We have a strong, healthy cash balance, and the enterprise value is the product of those 2 numbers. Moving now to glaucoma. As I mentioned at the start, Glaucoma is a leading cause of irreversible blindness and the second leading cause of blindness worldwide. The leading cause is cataracts, but that takes into account undeveloped countries. The aging population means that we have, particularly in developed countries, is driving an overall growth in the number of people with glaucoma. It's a big number, 132 million people with glaucoma, with advancement in diagnostics making the demand for earlier intervention. People with chronic diseases, all chronic diseases, people want to be -- know about them earlier so that can prevent progression. It's the same with glaucoma. Medications are standard of care, but they're associated with significant drawbacks. And what's arisen over the last 4, 5 years has been the concept of surgical interventions, minimally invasive surgical interventions earlier in the disease state with devices that will provide an alternative to taking drops or a more drastic surgery. That subset of the glaucoma market is the space in which we play with Molteno and iTrack. There's a strong growth in that market, and it's a nice size at the moment, $600 million and growing. The overall glaucoma market is very large. I mean a lot of people have glaucoma. There's a lot of drugs out there. The difference between $5.9 billion and $600 million for that, our segment, is mostly pharmaceutical treatments. Moving to the next one. We -- COVID lockdowns did impact, where there was no travel from Australia. Our team traveled around the U.S., but we focused our efforts internally resetting global sales infrastructure to an operating room-based model. So we have now got a team of reps in place who are experts, and it is growing at talking to doctors and selling things to them in the operating room. We've focused on strengthening our IP portfolio, and we have made significant investments to reinforce our clinical and marketing resources to make sure that -- mainly on our iTrack, flagship iTrack portfolio. So we have a 100% glaucoma-focused OR-based sales team now, particularly following the divestiture of the laser business last year. And we've been recruiting and replacing those reps -- replacing, recruiting, growing those reps over the last 12 months and are continuing to do so. We're particularly proud of our work on IP, where we have -- we're working on expanding our portfolio and investing in the management of it. That is a -- as a small company, we have to leverage our most important asset, which is our intellectual property. And we now see that our unique approach to minimally invasive glaucoma surgery, non -- and we'll talk about that in a moment, nondamaging natural outflow-promoting device has been garnering increased attention from industry and physicians over the last 12 months. And we are -- we feel that, that concept, which I want Kate to speak to in a moment, has -- is disrupting the market. The highlights. We have, I think, a highlight that we wanted to spend a little time on. And a couple of slides on the new data, we have reinforced the safety profile of iTrack. Having a device -- having any surgery is theoretically dangerous or -- but having -- doctors are wary of safety for their patients first, and we have some new data this year which makes iTrack the safest minimally invasive glaucoma surgical device. We initiated a major multicenter study. We're calling it MAGIC. That's an acronym. That's to compare iTrack with the OMNI device, the Sight Sciences device used in a particular fashion. We acquired the Molteno and integrated into our U.S. channel, and we're very pleased to report 25% sales growth. Just important analyst-type concept. I've studied that sales growth considerably. Both periods were affected for about 3 or 4 months by COVID. So that, in my mind, that growth of 25% is not off a low COVID base. COVID affected both periods equally. So I'm particularly proud of that 25% growth and also the positive EBITDA. Some of our long-term shareholders will see that that's a big turnaround on previous years. The development of the USA sales team and the marketing team has been really good. And we have established a direct sales business in Germany, which is doing very well. I'd like now to talk about the product and some of our clinical work to hand over to our Head of Marketing, Kate Hunt.

Thanks, Tom. So as Tom mentioned, iTrack has been a key growth driver for the business over the last 12 months, and iTrack plays in the minimally invasive glaucoma surgery space. And I think it's worth noting that when MIGS was born as a market, it was very much driven by stent-based procedures, and physicians didn't necessarily have a lot of choice as to what MIGS proceeded to perform. And over the last 5 years, we've seen an influx of new MIGS procedures, and that has basically caused physicians to stop and actually evaluate how the various MIGS procedures work because once upon a time, all they had to rely on the stent-based MIGS. So this is really giving us an opportunity to shine because iTrack is very unique with respect to its mechanism of action. So if we start with the procedure itself, the 360-degree treatment. This is a really important consideration because glaucoma can impact on any number of points of the outflow pathway. Think of the outflow pathway as a lovely 360-degree system. Stent-based MIGS are impacting on only 1 or 2 paths or points of that outflow system, whereas iTrack act to address and treat all aspects of the outflow system. And this is particularly important because with glaucoma, there's no diagnostic tool that enables a physician to pinpoint where the point of blockage are. So the fact that we're impacting on the entire circumference of the output pathway lends itself to fantastic results with respect to IP reduction. The fact that iTrack is a stent-free treatment, so I just touched on this, but this is increasingly important with respect to endothelial cell lock, which I'll touch on in the next slide. But essentially, stent-based procedures are looking to bypass the natural outflow pathway and direct aqueous flow via the stent as opposed to through the outflow pathway. So this is a unique distinction of iTrack, and it's starting to really resonate with the market as they consider the impact of natural aqueous flow versus artificial flow. Lastly, tissue-sparing treatment. The challenge with glaucoma is that it is multifactorial. Patients are living longer, so they're having to live longer with the disease. And invariably, the disease will progress. So physicians, when they're choosing a procedure, they need to consider whether or not it's going to impinge on future treatment options. So they'll treat a patient today knowing very well that, that patient will likely come back in 2 years, 3 years, 4 years requiring additional treatment. So it makes sense that when you're intervening earlier in the disease process, you're doing so with a treatment that does not impinge on future treatment options. And that's where the tissue sparing nature of iTrack really shines because we're not going to preclude any future treatment options. Quickly moving on to the device itself and what makes it unique. So we were the first canaloplasty device cleared back in 2008. We're the only canaloplasty device that enables the surgeon to customize the amount of visco acid, which is delivered during the procedure. And when I touch on the MAGIC study shortly, I'll outline why we believe this directly correlates to the improved or the superior clinical effectiveness of iTrack as compared to our leading competitor. We're the only device with an illuminated fiber optic kit, and this is really important when the surgeon is navigating his or her way through Schlemm's canal, through the output pathway. It enables them to see where they are at all times, and that's an important safety element as well as efficacy element to the procedure. Those are the only canaloplasty device that can be performed by both an ab-interno and ab-externo approach. Now this ab-externo approach is particularly important in the context of the German market, where the ab-externo canal cavity is highly revered as a surgical option. And then the fact that iTrack is cleared or reimbursed, both with and without cataract surgery in the U.S. So there are several MIGS devices such as the iStent and Hydrus, which are only cleared for use in combination with cataract surgery. So this offers considerable versatility for physicians. Okay. So moving on to the coveted safety data that Tom was alluding to earlier. You may or may not be aware of the fact that in 2018, one of the big stent players, the CyPass from Alcon was withdrawn due to data which showed that there was excessive endothelial cell loss associated with placement of that stent. Now one of the hallmarks of MIGS is the fact that it offers a vastly improved safety profile as compared to traditional surgical procedures, and that's why it warrants surgical intervention earlier in the disease process. So basically, what transpires with CyPass, it caused a bit of a ripple through the industry. MIGS has always been heralded as a very safe option. Now all of a sudden, there was a device which was considered potentially unsafe. So we've been working with some doctors in America to collect data on the impact of iTrack performed in conjunction with cataract surgery on endothelial cell loss, and the data is very stellar. So it was presented at the ASCRS this year, and the data basically shows that endothelial cell loss associated with iTrack is only at 3.2%. Now as you can see from that lovely graph on the slide, it's markedly reduced as compared to the big MIGS players, being iStent and Hydrus. In discussions with physicians, we believe this is largely attributed to the mechanism of action of iTrack, whereby we are not placing a stent and we are not carrying or removing tissue. So the idea with a stent-based MIGS is that because we are redirecting aqueous currents to 1 or 2 points of exit as compared to that lovely natural 360-degree flow, we're causing excessive endothelial cell loss. And in the case of MIGS procedures which remove tissue or tear tissue, there's an inflammatory response that can basically disrupt the health of the corneal endothelium and thereby lead to endothelial cell loss. Okay. So in terms of peer-review data that was presented during the period. There were several data sets, both prospective and retrospective out of plants in the U.S., Switzerland, Poland and U.K. And the reason we love data is because it is so powerful in driving the decision-making of physicians. We continually hear from surgeons that they base their decisions on whether or not to trial a new procedure based on the clinical experience of their peers, and this comes from dataset. And the reason why peer-review data is so coveted is because it has to go through very rigorous and laborious process of peer review, where basically the data is dissected, pulled apart, put back together again. So the fact that we've had 4 papers published during the past last 12 months, all of which demonstrate a consistent reduction in IOP down to the mid-teens -- or sorry, I should say low teens, sort of ranging from 13.5 milligrams of mercury up to about 14.5 milligrams of mercury, both with and without cataract surgery across several grades of glaucoma severity to mild to moderate through to severe. But the reproducibility of these results across different sites, different physicians add so much -- basically reassure physicians that in their hands, they're going to get fantastic results. Okay. So we also secured a lot of iTrack podium presence. So this is basically when physicians submit their unpublished data to their national ophthalmic society for presentation at various meetings throughout the year. So as with the peer-review data, this is another fantastic way to encourage physicians to consider a procedure. When they see that he's up on the podium, espousing the benefits or the clinical experience for a particular procedure, it really drives physician behavior. So there were some fantastic data presented throughout the year. Probably one of the highlights was 36-month data presented by Dr. Mark Gallardo out of the U.S. Now Dr. Mark Gallardo, in the MIGS circle, MIGS network, is very highly regarded. He's been involved in studies for pretty much every MIGS device, is very experienced on how they work. He got up on the podium and shared 36 months data in support of iTrack, which is fantastic because I think in the minds of most physicians, if they can get 1 or 2 years efficacy out of a procedure, they're very happy. So Dr. Mark Gallardo to show 36-month data in support of iTrack is very powerful. Lastly, I'll move on to the MAGIC multicenter study. So as Tom mentioned, we're really gearing up with respect to our clinical evidence in support of iTrack. We think that the time is now to impress upon the market the benefits of iTrack. And again, data really is key when it comes to this sort of thing and having head-to-head data is very powerful. And to date, there has been no head-to-head comparison between the iTrack canaloplasty device and our key competitor, which is the OMNI device from Sight Sciences. Now I touched on a number of the technical attributes of the iTrack, which we believe directly correlate to superior clinical effectiveness. Now because of these technical features and various surgical parameters that we believe the MAGIC study will show very strongly the fantastic outcomes that can be achieved with iTrack as compared to OMNI. We've got 9 sites involved in the U.S. in this study, enrolling up to 156 patients. Patient recruitment has commenced. We're looking at around 9 months of treatment period. So we'll probably finish that in early 2022. Then there's a 12-month follow-up period, after which we look forward to sharing the results.

Thanks, Kate. So Kate's provided feedback and information on that work. So when I mentioned investment in clinical and marketing development, that's the work now. For those of you that have been shareholders for a while, it's -- this is more success on the podium and more success in peer-reviewed paper and certainly the first time we've established a study to get out there and push. So that investment is real and tangible and hence provide evidence of what we have done. That will translate into sales as we go forward. On Page 17, we provide our -- the operating segment glaucoma P&L account. The comparison, you can see. Last year, revenue of AUD 11.6 million has grown by 13%. But the important part is just about all of that is in the United States. It's 25% as we show -- as we report in U.S. dollars. Our gross margins have remained fairly stable, and operating expenditure plummeted as we focus on better reps and better marketing investment and return per dollar. And as a result, that segment made a profit -- breakeven made profit. So the improved sales and marketing management in the U.S.A. was the main impact. The establishment of the direct sales business in Germany, which we wore the cost off, so there was an investment within that operating profit which we've been able to recover. The integration of Molteno, there's a bit of guidance there as to how much of the revenue is Molteno. That's about 11 months worth of revenue. It actually does impact the percentages because we're talking fairly low numbers, but it's not a big number. And I've provided some sales proposition there. So you can see where our revenue is coming from. Our 3 big markets, U.S.A., Germany are direct; and China, while they take a lot is -- take a lot of units is that distributor market and the prices are lower. In all other markets, the market at various distributors. So it is really the focus on U.S.A. and Germany for us. Turning now to intermediate AMD, AlphaRET. So we established AlphaRET back in about October as a special purpose company to focus on the 2RT opportunity and to continue to foster the growth of our glaucoma technologies under the Nova Eye Medical brand. It's -- 2RT is our nanosecond laser therapy to treat AMD in its early stage. It works by stimulating -- the laser light stimulates -- stimulating the rejuvenation of retinal cells to initiate a healing response. Now there's been -- there is a bit -- a large market for treating wet AMD, that's macular degeneration in its late stage. And I've talked to you many times about the -- which is done with injections, periodic injections between 4, 6, 8 weeks. Elderly people go off to the ophthalmologist and receive an injection in their eye to treat wet AMD. Those patients with wet AMD represent a small portion of the total people in the market with AMD. There's an alternative sort of AMD called dry or dry AMD or geographic atrophy, which actually is the destruction of cells. It's not -- wet AMD is a proliferation of bleed vessels which inhibit site, which anti-VEGF drugs temporarily suppress the growth of those blood vessels. Dry AMD is, I'll use the word rotting of retinal cells where you get big holes in your vision. 2RT, the market for people with dry AMD is larger, much larger than the people with wet AMD. We have a device which has been shown in our lead clinical study that can delay the progression of what we call generally dry AMD. Over the page, we take the population of both with early, intermediate, dry AMD. We -- based on all the work we've done over the years, we know that 2RT cannot treat a certain percentage of those, and so we've extracted from that the number of people who would not be treatable by our device. And we get the population of those who could be addressed by 2RT. So this is not just a number from a website. This is actually a fairly robust subsegment that we've identified, 55 million people a year. And just you can do some math. We -- the therapy that we believe is appropriate for these customers or these patients, each would receive 2 treatments a year of our device. We have in mind a per procedure fee model, where we will place the device in doctors' clinics for some installation costs and then we would charge the patients -- charge the doctor based on the number of times they use it. So we think it is an important -- a lot of you are aware, we divested our regular, if you like, ophthalmic laser market, replacement laser business. The 2RT has quite a different method of action. It's addressing a very large global unmet need. It's -- for one, it needs more clinical work. So we believe it's in the best interest of our shareholders to do that work. That work is described on the next slide, and we have a bit of a run down there on the side as to the things that have been done over several years. We are -- during this year, we successfully completed -- or just earlier in July 2021, we launched our applications to conduct the study in the United States. So the United States government, the FDA says, "We will let you -- if you want to do the study on our people in order for us to approve the use of your device in America, please tell us all about your device and please tell us -- and tell me why it's safe and then tell me what you're going to do because we want to make sure that you're not going to hurt any of our people." And that is a very large project. It requires a lot of technical information about the laser and a lot of clinical data, mostly collected by Robyn Guymer in Australia in the LEAD study explaining why this therapy is promising and why this U.S. government, you should let us test it on your people. That is a continuing process. We are currently in dialogue with the FDA backwards and forwards in finalizing that document and finalizing. Our next step will be approval of that submission, the conduct of the clinical study, and then we'd like to see FDA clearance. There's no clear, as we've said, drug or device based treatment for intermediate, dry and wet. Over the page, just a quick note on our expenditure on that process, $1.1 million. The last 3 slides here, Tom, we'll just weave through. We show the group operating result which gives a bit of color as to segment corporate costs, group operating result. Group corporate costs, we're providing more visibility there. They included in F '21 some nonrecurring stuff, where we had to establish our Nova Eye Medical brand. There was some establishment of the German subsidiary as well as some residual transaction costs associated with the Lumibird transaction and the payment of the dividend. On Page 25, we have a -- what I like to think an easier to read cash flow than what is embedded in the audited financial statements. We are burning cash. This is provided to shareholders to enable them to assess the relationship between our cash and the rate at which we use it. Our balance sheet on Page 26 is there's nothing too exciting there. You can see our cash balance of $17.8 million. And the outlook that we're describing on the last page is we see growth accelerating in -- 25% growth that we achieved in 2021, we see that accelerating in the U.S.A. and Germany. We will continue to invest in our glaucoma technology pipeline as the management of our IP, and we are progressing that pivotal study. We are declaring that we will most likely partner with a third party to enable that study to be funded. We think that will be the best use of shareholders' funds, but that's still a work in progress. That's -- Victor, do you wish to -- is there anything in summary that you'd like to say?

I'd just like to remind shareholders that we have, over the last period, completely transformed the business from being a capital equipment business to a business with a recurring revenue model. And we have materially transformed our business in the U.S., especially in terms of a sales force that is positioned and ready to tackle the operating room market, which is a completely different market to that which we have previously engaged in. So we believe that this positions the company for strong future growth. And we are certainly, as managers and executives in the company, very excited about the future.

Thanks, Victor.

There's an opportunity to ask questions now. We have had one question in advance, which I will address. Question is, the OMNI surgical system has been gaining great traction recently, producing an impressive second quarter results of around $12 million, and they are forecasting USD 46 million to USD 48 million for the year. To my understanding, this procedure is similar to iTrack. Why is the uptake for OMNI significantly more than iTrack? To answer that question, we'll say OMNI is marketed in the U.S.A. as a canaloplasty device, and it is our direct competitor. As we've described today and we've provided in some length, there are several technical differences between iTrack and OMNI, which we think provide us with clinical advantages. There has been a lack of head-to-head data, and the MAGIC study will provide that data. We're confident as to the outcome. The iTrack device in its current form does have a bigger learning curve than OMNI, but the planned introduction of the next-generation iTrack will address this. And as a final and most important, you'll note, our shareholders should note, that year-to-date, the sales of OMNI, that is the 6 months to 30 June, that was USD 21 million of sale, USD 21.4 million. The selling, general and admin costs associated with that is $32.3 million. So the $46 million of revenue being forecast is going to come at a cost of $64 million. That's a very different way of doing business to the profit that we talked about and the 25% growth that we reported. So that's more, I guess, kind of an American business model. The second question, will the proposed -- I should add, spending that much money on selling expenses gives you a lot of share of voice from doctors. They will -- that's effectively what has happened. The second question, will the proposed 2022 CMS Physician Fee Schedule materially affect the reimbursement of iTrack? And will it have a material impact on revenue? This is a very technical question from shareholder, obviously knows exactly what's going on. So good question. The CPT codes, that's common procedure terminology code, which drives the reimbursement, is the same for both iTrack and OMNI. Under the proposed changes and what CMS is -- the U.S. government organization, is proposing that a set of rate reimbursement rates in 2022, calendar 2022. The code that we generally have been using -- sorry, the code we use or the physician uses when he uses our device is about the doctor would earn $950 doing the work. And the -- just on top of that, the surgery center gets another $1,750 from using our products. So there's kind of a reimbursement of total of nearly $2,700. That $950 for the physician will drop to about $750 under the proposed physician changes in -- fee changes in 2022. Now while on the face of it, that's a large reduction, it must be considered in the context of all the other codes. First of all, our competitor device will suffer the same fall. And second, those MIGS implant devices that Kate pointed out to you in particular, I'll name them, the iStent and the Hydrus, that caused the endothelial cell loss, doctors have hitherto been receiving about $500 for sticking one of those in a patient's eye. They will after, if CMS had it go through because it's just a proposal, receive $35. So the change, while we are reducing, there's a relative improvement in the iTrack benefit compared with the other MIGS -- compared with our competitors. And then we're working on answering that question in detail. We get a chance to make a proposition to CMS. So we're doing all that work. Kate would be doing that work now. She wasn't here. Anyway, that's the 2 questions. Go back to the operator for more questions, if there are any.

[Operator Instructions] Your first question comes from Weimin Xie of MX Capital.

You talk about the schedule change a little bit. Just it is quite complicated. At the end of the day, what's the actual differential now compared to -- for the surgeon doing an iTrack versus, let's say, Glaukos and all the other ones? And if everybody is making less money, what would be the potential reaction from the industry in terms of do they try to promote OMNI in full or do they try to charge other procedure? Just trying how understand you all evolve over time.

Okay. So I think what you're saying is -- I mean doctors are business people, and they will respond. $950 was considered good reimbursement for the work. I mean -- and anecdotally, doctors would say it's good money, that's good money. For our time, the time we spend, it's good money. So the reduction to $750 is considered okay, yes, fair enough, that's probably okay. They -- we at the moment, completely off the top of our head, believe that it will not drive any change in behavior away from our product, particularly because if -- and we will not -- we don't advocate that OMNI versus iTrack is the same, but particularly that both devices get the same reimbursement. It will be just a clinical choice that goes on. Doing the maths like you would do or I would do, you'd say, well, if the doctor is now only going to get $35 or maybe they're successful in raising it up to $100 or putting in an iStent or a Ivantis Hydrus, he's going to say, "Well, that's not so much fun. I might just look at going to using -- well, unfortunately, he might go to OMNI as well, but he might go to iTrack or she. Does that answer your question?

So you say, Glaukos, the U.S. company, they might likely lose market share is the consequence? Or they're going to use the bundle or the cataract? Just want to understand what happens with them because they seem to be the bigger one in the industry.

So Glaukos, there are lots of analysts following Glaukos, and there are lots of people that -- lots of those analysts have predicted that Glaukos have a problem in maintaining their revenues because of this change. But I don't -- I only read it just like you could.