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

Good morning, and welcome to the 2021 Annual General Meeting of Nova Eye Medical. It is now 11:30 a.m. Adelaide Time. My name is Victor Previn, Executive Chairman of Nova Eye Medical, and Chairman of today's meeting. I'm pleased to report on the results achieved for our company in the 2021 financial year. Despite the uncertainty imposed upon our business by COVID-19, Nova Eye achieved results in 2021 that were a material improvement on the previous year. As you know, our business has 2 segments. Firstly, the glaucoma surgical devices segment and secondly, the AlphaRET retina rejuvenation 2RT segment. I will discuss each business separately. The glaucoma surgical devices segment reported a 24% increase in sales during the 2021 year measured in constant currency. The growth was achieved through improved sales and marketing management in the U.S., the major market for the company's products, and the establishment of a sales team in Germany to sell direct to eye surgeons from November 2020, replacing the previous distribution channel, and to a lesser extent sales of Molteno3 glaucoma drainage device following the acquisition of that business, based in New Zealand, at the beginning of August 2020. Pleasingly, the Glaucoma surgical device segment reported a small EBITDA level profit of AUD 101,000. This was a material improvement on the EBITDA level loss of AUD $4.1 million in the previous year. Along with significant improved sales, reduction in sales and marketing expenditure through COVID-19 exposures, generated the improved bottom line result. The glaucoma surgical device market continues to be the fastest-growing dynamic market in ophthalmology with many opportunities. As a result, we're now seeing new entrants and competition is increasing. The proprietary features of our current iTrack device are valued by our existing customers and the additional features planned and designed into our new generation iTrack are aimed at improving the competitive position in order to capture new customers. In August 2021, the company announced the acquisition of a portfolio of patents related to glaucoma treatments. This transaction expands and strengthens our IP portfolio and will facilitate the future introduction of new products to leverage the investment we have in our sales and marketing infrastructure. The company's AlphaRET retinal treatment segment is responsible for the commercialization of our 2RT ophthalmic laser platform. The major activity during the year to 30 June 2021 was the preparation of the lodgment of an IDE, investigational device exemption, with the USA's Food and Drug Administration. The IDE was launched in early July 2021, and it seeks approval from the FDA to conduct a major clinical study to address the efficacy of 2RT in treating selected patients with intermediate AMD, which we call iAMD, to reduce progression to late-stage AMD. Since the lodgment of the IDE, there have been some encouraging discussions and questions from FDA, but we do not as yet have approval. We are of the view that this may be the first time that FDA has considered such a device for treating iAMD. The commencement of a major study is tabled with FDA that confirms the efficacy of the post-hoc analysis shown in previous studies remains the priority of AlphaRET. A successful outcome to such a study to treat patients with intermediate AMD would be a major ophthalmic industry breakthrough. We believe the opportunity has a corollary with the introduction in the early 2000s of laser vision correction technologies by innovative start-up companies. Our assessment of the potential revenue opportunity arising from a successful study outcome and commercialization of 2RT is approximately USD 600 million per year. Investment will be required to realize this opportunity and partnering discussions are progressing alongside the clinical development work. I will now talk to the mechanics of today's AGM in more detail. As you are aware, we have determined that the 2021 Annual General Meeting will be held virtually as a result of the restrictions put into place due to COVID-19 pandemic. In addition, to the guidelines and restrictions issued by Australian state and federal governments, the company considers that it is appropriate to hold the AGM in a virtual format that is consistent with the temporary modifications to the Corps Act introduced by the Commonwealth Treasurer. Joining me today in the corporate office is Mr. Thomas Spurling, Managing Director of Nova Eye Medical; Mr. Rahmon Coupe, Non-Executive Director of Nova Eye Medical; a U.S.-based Non-Executive Director, Mr. Michael Southard, who is also joining us via the virtual platform from the U.S. Before we start with the formal business of the meeting, I have a couple of housekeeping items. Firstly, voting will be conducted via the Lumi platform available at web address, https://web.lumiagm.com/, using meeting ID 318-084-065. I repeat, 318-084-065. Information on how to vote is outlined in the Lumi online virtual meeting guide, which is referenced in the ASX release dated 21st October 2021, and is available on the company's website. The user name is your HIN number with an I or X prefix. The password is the post code of your holding for Australian shareholders with 3-digit ISO country code for non-Australian shareholders. I repeat, the user name is your HIN number or SRN number with an I or X prefix, and the password is the post code of your holding for Australian holders. Shareholders will be able to vote on all resolutions on the device throughout the duration of the meeting. You will also be given several minutes at the end of the meeting to complete your votes. Today's AGM is being broadcast via Zoom. Shareholders, proxy holders, corporate representatives and holders of powers of attorney who wish to attend the meeting via webcast were required to e-mail the company secretary at [email protected] by 8:30 a.m. Adelaide Time today to register and were provided with log in details. As a shareholder of Nova Eye Medical, you can also submit questions during the meeting by using the Q&A panel with Zoom. However, both audio and video functions will be disabled, except for the presenters. Select Q&A at the bottom of the Zoom pane if you wish to ask a question. Type your question in the dialogue box and then select the send icon. Questions can be asked anonymously if required. If you wish to ask a question verbally, please select the raise your hand icon and the company will unmute your line so that the question can be asked and heard. Investors will be permitted to ask questions on each of the resolutions presented at the meeting, along with the FY '21 financial statements and annual report. To ensure the questions raised during the course of today's meeting are addressed, I ask that the shareholders submit questions as soon as possible. Additionally, please reference the associated resolution which pertains to the question or the matter of business to be discussed. I will also undertake to answer questions submitted prior to the meeting. If you require any technical assistance during the annual general meeting in regard to accessing the Lumi online platform or voting, please call Computershare on +61-3-9415-4024. I repeat +61-3-9415-4024. If you're calling from Australia, that will be (03) 9415-4024. Given this meeting is being held remotely in a virtual format, we will conduct votes on each resolution by way of a poll. When I open polling, you'll be able to cast a vote by clicking on the voting icon in the Lumi navigation bar. Please note that in order to simultaneously watch the Annual General Meeting via Zoom and to take part on the online voting via Lumi platform, you will be required to open 2 tabs on your electronic device. The Zoom and Lumi platforms run completely independent to one another and you will need to open both. Once we have tallied the votes, they will be posted on the ASX Announcements platform after the conclusion of the AGM. Before we move to the formal part of today's meeting, I would like to invite the company's MD, Mr. Tom Spurling, to provide an overview of our past year's financial performance and an update on the company's activities as well as an outlook for 2022. Over to you, Mr. Spurling.

Thanks, Victor. I have up on the screen our disclaimer, followed by our business in a snapshot. As Victor highlighted, we consider our business 2 quite separate segments. Nova Eye Medical is the brand we use in the glaucoma market; AlphaRET or 2RT retinal rejuvenation for age-related macular degeneration. In the glaucoma market, we're in the process of developing marketing and selling a comprehensive range of glaucoma markets. The market is fast growing and competitive. We have an established sales team. We have established manufacturing in California, in the San Francisco Bay area; and as acquired last year in Dunedin in the South Island of New Zealand. Our competitive advantage has the proprietary iTrack microcatheter features as well as those of Molteno3, and we have about 95 patents around the world in different markets. It's cleared for use in global markets and we have good reimbursement in our major market in the United States. AlphaRET, the mission is to progress 2RT to market-ready status. Our objective in the current year is to design ideally a multicenter study to improve that clinical data, and ideally to secure FDA clearance to conduct that study in the United States. The market is currently not addressed and provides us with, along with our proprietary technology, a material first mover advantage. Our manufacturing is based in Adelaide. We have a range of patents. And we have regulatory clearance to sell the device, very limited regulatory clearance in terms of a limited indication for use in Europe, Australia and New Zealand, and we also have a clearance to sell it for diabetic eye disease, not for macular degeneration in the United States. Talking to the glaucoma market, firstly, there are 134 million worldwide. With advancements in diagnostic and imaging technologies permitting earlier diagnosis, which is in turn driving demand for interventions earlier in the treatment. Medications are considered standard of care, but have significant drawbacks in terms of compliance, side effects and money. The glaucoma surgical devices market, which including devices like iTrack and Molteno are increasingly recognized as a highly viable alternative in this segment, and we currently assess the segment at $610 million a year, growing at 17%. They're the most recent data from Market Scope, the commentator on the market size. Looking at the operating result of the glaucoma segment last year. As Victor mentioned, 25% increase in sales when measured in constant currency, 24.9%. And a material reduction in our operating expenditure saw the business turn a profit. Establishment of our direct sales business in Germany contributed to that, the integration of Molteno3, and there is some information on that slide concerning our composition, but you can see the United States is about 2/3 of our business. Germany, we will talk about a little later, is increasing in importance. Going down to the next slide. Recent glaucoma market developments. As Victor highlighted, we have a growing market and there's increased competition, and there have been favorable changes to reimbursement. Our iTrack catheter with its patent features is the original canaloplasty device. It is a stent free tissue sparing intervention and is reimbursed in the United States, as I said, a major market with or without concurrent cataract surgery. Stent-based MIGS must be performed with cataract surgery. So this makes us what they call a stand-alone -- ability to have a surgery done stand-alone. That is, a patient who has already had cataract surgery can still get reimbursement for an operation using iTrack. Competition has increased, but so is the size of the opportunity. New well-funded market entrants are looking to this theme for growth, and new devices have emerged, surge in interest has also grown. Between 2018 and 2021, Market Scope estimates the market for canal-based surgery has grown by 219%. During the same period, Market Scope estimates that the market for stent-based MIGS has grown 17% across those 3 years. I provide that data to try and show that the canaloplasty space, the stent-free space is becoming more sought after and thereby improving our opportunity as well as those of our competitors. This has been compounded by the announcement in August 2021, where the U.S. government proposed reductions in 2020 insurance reimbursement for stent-based MIGS from around about $300 to $134, whereas for canaloplasty, the reduction is $950 to $740. So with our canaloplasty competitors, we're competing on an even playing field, and we can expect some movement from stent-based MIGS surgery to canaloplasty stent-free based MIGS surgery due to the favorable reimbursement cost in the United States. Outlook for our glaucoma sales. Sales for the 4 months to October are AUD 4.1 million. This happens to be exactly the same as the same time last year, in Australian dollars. After accounting for the currency movement, this is a 4% growth compared with the prior comparative period allowing for that currency movement. Sales outside the United States have grown by 75% due to the investment in the German market and our direct sales channel there. And sales in the United States have fallen 14% unfortunately due to that increased competition. The next-generation iTrack will aim to improve sales in the USA and support further accelerated growth in Germany. Design for improved ease of use is important to our market growth efforts in the United States, the new generation iTrack. The launch of that product has been delayed due to COVID-19 supply chain issues impacting our ability to get tooling and conducting testing and setting up manufacturing. But in the first quarter of 2022, we expect to launch in Germany. And we've launched in the USA in mid-2022. Now moving to AlphaRET. As we said, 2RT is a proprietary, world-first nanosecond laser therapy. While there have been major advances in the treatment of iAMD in its late stages, there has been little progress in the treatment of iAMD in its early stages. This describes the activity we set currently with our efforts to commence a pivotal study in the United States. We submitted an investigational device exemption in July '21. The response received from the FDA requested further information. So far, those discussions have been very encouraging, but we have not yet received approval. The FDA is particularly interested in understanding the procedures for exclusion of patients with reticular pseudodrusen, which, during the course of the LEAD study, we showed did not do so well when treated with the laser. We have completed those procedures and we're in the process of talking to the FDA through those procedures. We're also of the view, as Victor mentioned, that this is our belief that this is the first time that the FDA has considered the device for treating intermediate AMD, and therefore, process is slower than we would have hoped. As Victor mentioned, partnering discussions for the pivotal study and commercialization work are ongoing. This slide describes our current assessment of the market. We see it as very large. We have made our assessment using Market Scope data, 144 million. We removed some patients with early-stage disease and those that are with reticular pseudodrusen, who don't meet the treatment criteria, and we assessed it at 55 million people. We've considered this subject to the completion of that pivotal study. And to confirm the results of the LEAD study, which, I'll remind everybody, was a 70% reduction in the rate of progression to late-stage disease in selected patients with intermediate AMD. The opportunity is very large. Our business model, we anticipate has a capital equipment sale and procedure fee has a corollary with the laser vision correction in the early 2000s. We currently estimate that market at $600 million. That is our estimate, which we have determined based on the number of people worldwide, LEAD protocol, our procedure fee-based model, and a conservative take up. We consider this as a very realistic assessment of what a successful commercialization of AlphaRET will entail. That brings me to the end of -- how did that happen. Just -- sorry, I'll just go through that again. Q&A. Now I have now received some questions before from one of our shareholders.

The first question is, how do you propose competing with Sight Sciences given their enormous valuation and seemingly unlimited funding? Yes, Sight Sciences is a new entrant. Its revenues currently are not that -- they are bigger than ours, but not that much bigger at the moment. They do have large cash following a very successful IPO. They have a lot of sales reps, and we have seen the impact of all those sales reps taking some of our customers, as we've described, which is 4% to 8%, at least so far. We believe that the proprietary features of the iTrack, which is the ability to treat 360 degrees of Schlemm's canal, as well as the lighter tip provide us with a fundamental better product, but we must acknowledge that the launch of the next-generation iTrack, which improves the ease of use will help us compete with those with Sight Sciences. The second question, is your sales team of sufficient size and scale to compete effectively? Well, I guess competition is a relative term. It is much smaller at the moment. We consider we are growing that sales team as we plan. We've commenced the growth training of sales reps. There are currently about 7, just to answer that question, about 7 people in the field on commercial activities in United States, and we will continue to grow that team as we bring our device to market, as I said, our new generation device during mid-2022. Third question is, when should we expect the next-generation iTrack to be released? We provided that guidance in our deck. In the first quarter of 2022 for Germany, and in mid-2022 for the United States. Fourth question is, what is the rationale for acquiring other products given iTrack is still not profitable? Would it not make more sense directing that investment into iTrack first and seeking to broaden range once iTrack is profitable? We have an opportunity to acquire those patents, which we think are very valuable. They provide us with a product development pipeline. We think reps having more product in their kit adds to the profitability to the rep. And that, that will, in fact, feed the return to profitability of the business, keeping in mind we were profitable last year. We are making further investments this year, which we'll see that drift off a bit. The last question from this shareholder is, when do we expect the 2RT to come through and the next clinical trial to start? It seems to be taking longer than anticipated. I think we provided the answer in our deck that we are breaking new ground with the FDA. And the opportunity when we get there will be very large. That's the -- Megan, we have some...

There's one question from Mr. Hulme. Mr. Hulme, I'll unmute you and you'll be able to accept that and answer your question.

Can you hear me, Tom?

Yes. We hear you.

That's great. First thing, can you give us an update on the MAGIC clinical trial where you're comparing iTrack to the Sight Sciences' device? How is recruitment going? What's your anticipated timing of results there.

So the MAGIC study recruitment has gone. It has not gone as fast as we wanted because we had an exclusion criteria of not having had previous interventions with iStent -- with the Glaukos iStent or the Ivantis whatever that other product is called -- Microstent. And we met with the IRB and we have relieved ourselves of that particular requirement. The IRB and the doctors participating felt that it wouldn't compromise the results. If we did, it would make recruitment easier, and that increased the speed of recruitment. The recruitment of patients has been impacted by operating room access. So we are not forecasting when we'll make that available or when it will be finished because we don't know when recruitment will be finished. I guess that's our update. Any other questions? Okay. There's one more. No, we don't. I don't think we have any more questions, Victor.

Thank you, Tom. I'll now progress to the formal part of today's AGM. However, before I do so, I would just like to remind shareholders that the Zoom and Lumi platforms need to both be opened. As they run independently, you will need to open and run both of those in order to participate as well as to vote. If you have any problems, please find Computershare on (03) 9415-4024. I repeat, (03) 9415-4024. Okay. So now let's move to the formal part of the meeting. And firstly, I'd like to advise that in accordance with the company's constitution, a quorum is present. And I declare that the Annual General Meeting is properly constituted and open. Notice of Meeting. The notice of meeting was made available to all shareholders on the 21st of October '21 in accordance with the Corporations Act. If there is no objection, I propose that the meeting be taken as read. Minutes. Minutes of the previous AGM held on 27 November '20 have been approved by the Board and are available for anyone interested for viewing by contacting the Company Secretary, Mr. Simon Gray. Voting. I will now move to the formal business of the meeting. Given this meeting is being held remotely, we will be conducting votes on each resolution by way of poll. When I open polling, you'll be able to cast your vote by clicking on the voting icon in the navigation bar on the Lumi online platform. Selecting this icon will bring up a list of resolutions and present you with the voting options. To cast your vote, simply select one of the options. There is no need to press submit or enter, as the vote is automatically recorded. You do have the ability to change your vote up until the time I declare voting closed. Please note that only shareholders, proxy holders or authorized shareholder representatives may vote. Any directed proxies given to you by the shareholder will automatically be cast as directed when the poll is closed. Once we have tallied the voting to be conducted by the poll, the voting details will be posted on the ASX Announcements platform following the conclusion of this meeting. Financial statements and annual report. I'll now turn to the business agenda for this AGM. The first item is to receive consider, discuss the company's annual financial statements and report of the Directors and auditor for the year ended 30 June 2021. You are not required to formally adopt these documents by way of resolution by shareholders. However, we'd be pleased to take any comments or questions from shareholders on this item. Note that the company's auditors, Marcus Lojszczyk and Kanthan Rajadurai of PwC are both present here with me today and are available to answer questions where appropriate. If a shareholder wishes to ask a question, please select the raise-hand icon and we will unmute you so you can ask your questions. Alternatively, to make a comment, please use the Q&A function on your Zoom window. Let's move to the questions. Are there any questions?

We have not received any questions, Victor. Are there any receipt in writing? I don't know.

Are there any other questions that anyone would wish to raise? All silent? Thank you. Okay. So the notice of meeting invited shareholders to submit written questions to the auditor if questions are relevant. Proceed?

No. We have not received any questions.

Okay. So I'll now move to the ordinary business of the meeting. Proxies. The proxy votes that have been submitted for each resolution will be set out on the slides that will be shown for each resolution. To give you some context of these proxy numbers. The number of valid proxy votes lodged represents approximately 24.6% of the issued capital in the company. I have been appointed proxy in respect to approximately 35.8 million shares for voting on the resolutions to be put forward to the meeting today. As indicated on the proxy form, I intend to vote all the discretionary proxies, where I'm appointed proxy, in favor of the resolutions. I will now open the poll on the resolutions. Your device will now display 4 resolutions and your vote options. In some devices, to vote, you may need to minimize the webcast to access these voting options by selecting the arrow in the broadcast bar. Simply select either for, against, or abstain on each of these resolutions. There is no need to press a submit button. You can also change your selection as many times as you please until the close of polling. When voting has closed, your final voting selection will be recorded.

Just before we commence, we have a question that says, why is the resolution to reappoint Mr. Sundich being withdrawn? I guess we could just highlight that.

Mr. Sundich has resigned as a Director after many years of service to the company. Mr. Sundich reevaluated his position. And in line with current thinking, Board members who serve for more than 10 years are considered to be -- it is appropriate for Board members to have a life of no more than 10 years, and Mr. Sundich has resigned in accordance with current thinking.

Excellent. Resolution 1.

Okay. So Resolution 1. Adoption of Rem Report. To consider and, if thought fit, to pass with or without amendment, the following resolution as a nonbinding ordinary resolution in accordance with section 250R (2) of the Corporations Act 2001. That the Remuneration Report forming part of the company’s 30 June 2021 Annual Report be adopted. I'll now display the proxy votes received for this resolution. You can see on the screens tally for, against, open, and excluded. Thank you.

So we don't have any questions on this.

Are there any questions in relation to this resolution?

No questions. I will now ask for the moderator to read out the questions we have received. Are there any questions? No? Okay. So I'll now put this resolution to a vote by conducting a poll. Appoint [indiscernible] of Computershare Investor Services as the returning officer. If you haven't done so already, please now cast your vote on this resolution by selecting the voting icon. [Voting]

Thank you. Resolution 3, reelection of Director, Mike Southard. We now turn to this resolution to consider, and if thought fit, to pass the following ordinary resolution. That, for the purpose of clause 117 of the Constitution, ASX Listing Rule 14.4 and other purposes, Mike Southard, Director, retires by rotation, and being eligible, is re-elected as a Director. Detail of Mr. Southard's experience and qualifications are included in the explanatory notes accompanying the Notice of Meeting. I'll now display the proxy votes received for this resolution. You should now see those on your screen. I'll now ask our moderator to read out any questions that might be received from shareholders in relation to this resolution. Are there any questions? No questions. Thank you. I'll now put this resolution to a vote. If you haven't already done so, please cast your vote on this resolution. [Voting]

Thank you. Next resolution, Resolution 5. Resolution 5 is the approval of the issue of options to Managing Director, Tom spurling. To consider and, if thought fit, pass the following ordinary resolution. That, for the purposes of the Corporations Act 2001 and, Listing Rule 10.14 and for all other purposes, approval is given for the company to issue to Tom Spurling or his nominees up to 700,000 Options on terms set out in the explanatory statement accompanying this notice is hereby approved. Details of Mr. Spurling's options are included in the explanatory notes accompanying the notice of the meeting. I'll now display proxy votes received for this resolution. You should now see those on your screen. Thank you. Are there any questions relating to this resolution? Questions? No questions. Thank you. I'll now put this resolution to a vote. If you haven't already done so, please now cast your vote on this resolution. [Voting]

Okay. Final resolution. Amendments to the constitution. To consider, and if thought fit, pass the following special resolution that is for purposes of Section 136(2) of the Corporations Act and for all other purposes, the constitution of the company will be amended in the manner set out in company explanatory memorandum with effect from the close of the meeting. This resolution seeks approval for amendments to clause 81 of the constitution, which provides that subject to the Corporations Act, the company may hold a wholly virtual general meeting. The company's intent is to meet again in person at our general meetings when it is safe and it is compliant with government recommendations to do so. In the meantime, these amendments will ensure the company has the flexibility to continue to conduct virtual meetings if necessary. We'll now display proxy votes received for this resolution. You should see those on your screen. Are there any questions in relation to this resolution? Questions? No questions. Thank you. I will now put this resolution to the vote. If you haven't already done so, please cast your vote now on this resolution. [Voting]

Thank you. Okay. So we're now reaching the end of our meeting. Are there any other questions that any shareholder would like to raise? This pertains to the business or any of the previous resolutions that you haven't had a chance to raise during the course of the meeting. Final call for questions. Are there any other questions. No further questions. Thank you.

Mr. Hulme, I'll unmute you to ask your question. Are you there, Mr. Hulme? Can you unmute Mr. Hulme?

Hello. Can you hear me now?

Yes, please go ahead. We can hear you.

I was just wanting to ask about the glaucoma patents that you acquired. Can you give us some detail about the opportunities that that's going to create for you?

As shareholders have heard, we are now in a very competitive environment in relation to the glaucoma market. And these patents are part of our picket fencing portfolio or picket fencing strategy to surround our existing patents with additional patents that will protect us from competitors copying our technology. So they are in part based on our IP, but extend the platform to allow us to introduce some new products, which we hope to develop in the next 12 to 24 months. However, until we launch that product, we're not at liberty to disclose the exact nature of those products. However, they are closely related to product line extensions of our existing iTrack platform.

Well, I could add there, Dennis, that glaucoma is a degenerative disease. Surgeons need options to intervene with different devices at different stages of the disease. So this would give us a better coverage across the disease progression. The introduction of products related to these patents will give us better coverage of the progression of the disease, we have more solutions to doctors.

Are there any other questions, please? No other questions. Thank you, shareholders. I declare the meeting closed.