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

Good afternoon, everyone, and thank you for joining today's Nova Eye Medical Investor Webinar. My name is Mark Flynn from the Investor Relations department, and I am pleased to welcome you on behalf of Nova Eye Medical. We appreciate you taking the time to be here today as we discuss the company's half year financial results and also provide a bit of an update on our growth strategy. We are joined by Tom Spurling, who most of you know, our Managing Director of Nova Eye Medical, and he will walk us through the key highlights from our latest financial performance. We'll talk about the continued momentum in our glaucoma business and our outlook for the second half of FY '25. The agenda today will outline our financial performance for the recent half year, the strong sales growth we've achieved, especially in the glaucoma division, which remains on track for profitability and the company's strategic initiatives to expand the market share and drive further growth. As mentioned, we will have a short Q&A session at the end. I encourage you to submit your questions via the Q&A app in the Zoom function. It's down the bottom at any time during the presentation, and I'll look to address as many of those questions as possible through the session. If I don't get to those questions, I will follow up as best we can to answer those questions in the coming days. So once again, thanks for your time and interest in Nova Eye Medical. With that, I'll now hand over to Tom Spurling to begin today's presentation.

Thanks very much, Mark, and thanks, everyone, for taking the time to listen to our story. This first slide, I really -- I mean, I know it's just an opening slide, but we've got words there, selling highly effective products that eye surgeons want into a market that is large and growing. There's a couple of messages there. Firstly, we're selling useful product. We're not -- product -- we're not selling snake oil, we're not selling to solve a disease that doesn't exist or an unmet need that we're not sure about. And we're not trying to establish a market. We all know that's hard work. We've done a lot of that work in the past. So we have an existing market that's large and growing. We have a good footprint in it, and our products are good ones. Mark? There's our disclaimer, but glaucoma is a failure, essentially a failure of plumbing. I won't -- I'll probably talk to a number of people on this call and talked about plumbing. Blockages in the main drain system cause the protein-rich liquid that circulates through the ocular structures to build up. That eventually crushes the optic nerve and leads to blindness progressively painlessly from the outward, the peripheral vision out. The fourth dot point here I want to emphasize. The world's most conducted surgery, that's not eye surgery, the most conducted surgery is a cataract surgery. That is that -- for those of you who don't know, that is very simply the removal of the natural lens in your eye that comes with sun and age and time and the replacement of it with a new artificial lens. That's -- most people who get past 70 years old, 75 years old are going to have that. Now, biologically, clinically, scientifically, 15% to 20% of all patients that need a cataract operation have glaucoma. And if you just picture yourself, your parents or grandparents, 75, 80 years old, they've been told they need a cataract surgery so they can keep driving at night, and they also are putting drops in their eyes. And the doctor -- they go to the doctor and the doctor says, I can get you to see and drive at night again. You'll be able to play golf better. And those bloody drops you're putting in your eye, I reckon we can get them down. We can get you off drops. Patients can't feel pressure, but they do know when they're putting on -- when they have to get up every morning or every night before they go to bed, put drops in their eyes. That's the pitch that doctors want to make. And the glaucoma part of that surgery is what iTrack is about, not only at the same time as cataract, but with -- in conjunction with cataract. And as I mentioned, patient adherence to medications is poor. 50% of patients are noncompliant with their medications and 50% purposely discontinue because they just can't be bothered. It hurts their eyes. They know their doctor. They know their doctor says you got to take those drops every day. So when they're presented with the opportunity to have a surgical intervention that might reduce the number of drops they take, and remember what I said, IOP, intraocular pressure, people can't feel. They're not going blind. They will if they leave it untreated, but it's the drop. So reducing drop burden is a big part. We are, as little as we are, a key player in the global MIGS market with our canaloplasty device, the iTrack Advance. Mark? And this is the device here. It is -- once again, many of you have seen it. That catheter is 200, 250 microns, a couple of human hairs in diameter. It has 3 components. It has a light that you can see in the picture. It has a wire by a material called nitinol, and which is -- gives the stiffness; and obviously, the catheter, the plastic, if you like, tube. It's a pipe. Pipe, wire, light. What that gives is -- the doctor the ability to use this to intubate into the main irrigation canal of the eye. 150,000 procedures globally. Everything is about safety. Our Chief Commercial Officer, Kate Hunt, came back from a meeting at AGS, American Glaucoma Society. And she said to me, Tom, I'm not sure doctors really care about efficacy. Efficacy is important, but they want to know it's safe. They don't want to do any damage. Next slide, Mark. So we have an ability with that device to access a very large market. And to do that, we've recently completed a capital raise to strengthen our financial position and to capitalize on that growth. We have robust performance that's continuing. Sales on a 12-month rolling basis through December rose 39%, including nearly 50% in the U.S.A. And while we were annoyed by some production problems in the first quarter of FY '25, we see those are behind us. And sales in January, we're reporting, is 25% higher, which is great. We have such confidence that for the first time in -- and if some of you may know me from Ellex, we are putting out our guidance. Our glaucoma division is expected to be profitable in the second half of FY '25. In the first half, it wasn't. And revenue in the second half is expected to be USD 9 million and USD 10 million. We -- I'll provide a table at the end of how turning that into Australian dollars, but all our revenues are in U.S. dollars, and so I tend to think only of that. China is a problematic thing. We are actually selling product from the United States to China. And our position is -- the great uncertainty associated with tariffs and behaviors of the new administration in the U.S. caused us to put a caveat on whether or not Chinese sales will go forward. We think they will, but I -- we're choosing to just put a caveat around that at the moment. Next slide. That graph shows our '22 -- calendar '22, calendar '23, calendar '24 growth. We're very happy. Strong surgeon appetite for iTrack Advance globally, mainly in the United States and progressively more globally. Mark? Here's some raw numbers. There's the half year to December and the trailing 12 months building it up by territory. You can see our sales are dominated in the United States, but that growth in Germany is pleasing. And the growth in China is also pleasing. That's because we've been working hard with our distributor. In the rest of the world markets, more or less stable. There's room for growth there. Next one. That's 5 consecutive periods of growth -- half year periods of growth in the United States. There's -- can an Australian company crack it in the United States? Have we cracked? I don't know the answer to that. But we certainly are headed in the right direction. 5 consecutive half year periods of growth. It was interrupted in that H1 FY '25 with our inability to meet demand. But it shows that we have a group of surgeons in the United States are growing that think our device is the one to use. Our marketing investment, surgeon engagement, getting our podium presence augmented by our own sales team. Remember, that's not a distributor. It's a sales team of our own. Our main man called me just before this meeting. I didn't answer because I came into this meeting, but we speak every day. Next slide. People that have followed our stock have seen the ups and downs of reimbursement in the United States. Let's just talk about this and why we don't think it's a risk. Canaloplasty surgery is well established CPT1 code. Google CPT1 code, you can see it's a top-tier code. It's been -- it's got a long history. So it's been authorized by the centers for Medicaid and Medicare. And this little [indiscernible] story sheet says we sell to a surgeon. Eye surgeon selects a Nova Eye product. The eye surgeon operates in the facility. We deliver the unit about $1,000. It depends a bit, but it's just say $1,000 because the numbers are easy. And we then -- the eye surgeon conducts the surgery and fills in his or her operating note saying, I did canaloplasty code 66174. Those operating notes are sent to the Medicare administrative contractor, who then says, do those operating notes justify the use of code, in our case here, 66174. And assuming the doctor has done the right thing and done the right patient selection, the Medicare administrative contractor will pay the claim in 2 parts. $2,094 will go to the facility. That's the day surgery; and an additional payment to the eye surgeon for his or her labor of about $600. We bill the facility $1,000. So you can see the 3 parties to the transaction: Us as a supplier of the device; the facility as the housing of the surgery; and the surgeon for conducting the surgery all receive compensation. I often get asked how long does it take? This -- we -- it's not measured in hours, that's for sure. It's measured in minutes depending on the quality of the surgeon, but it's probably less than 15 minutes or we use mostly less than 15 minutes. And so, everybody is getting a good piece of the pie. Next slide. This -- we put this up to inform our shareholders for no other reason. I hope it's informative because it enables you to do multiplication to work out what revenue might be, not what we're forecasting, what it might be. This is also being used by our competitors. I get comments back that the competitors want to hire our reps because that revenue per rep exceeds everybody else's in the market. We have fantastic return on our salespeople, but it provides -- it only comes after the marketing investment, which costs the key opinion leader engagement and podium presence and maybe some clinical data. And then finding after all that, the right sales rep. That may take 2 to 3 months to get going. And so the rate at which we recruit sales is about managing cash revenue growth and bottom line improvement. Most days I'm on Excel working out that little matrix because you can have revenue growth and bottom line improvement if you do this carefully. The reps are our biggest cost. They all earn a lot more than me. They earn a lot more than most -- than all the people in our company because they are, as they say, the tip of the spear. They drive our revenue. In Germany, we've got some nice stuff going, and we're planning our expansion there as well. This gives you the metrics and regrettably also our competitors, metrics as to what we can do with this products we have. And I hope it's informative. Next one. This provides the -- well, intimate detail of our half 1 '24, half 1, half 2 FY '24 and half 1 F '25. And this is the slide against which we're giving our guidance of an EBITDA level profit in the second half. So I intend -- we intend that in H1 F '25, you will see numbers lining up there that will have -- not have brackets down the bottom. That is the guidance we're giving, and we're sticking with it today. Where you can see this bit of information, we -- this financial statements we've provided a bit more dissection of what our OpEx is to help people understand the variable costs, which is sales and marketing and R&D and the fixed cost of existing, which are really quality regulatory site operating costs. We're often asked, how do you balance R&D? Well, with growth, you need growth, you need R&D, you need sales and marketing. That all requires investment, but shareholders want profits, too. And that is what we're trying to balance. And we can balance it. You will see -- sorry, it's Mark, just back. Gross margin is an important slide there. The deterioration in gross margin caused by our production problems is after adjusting for the impact of that, we think we see it returning to historical levels. So pretty much, we provided everybody with a recipe for filling in our P&L account for H2 FY '25 right there. Send it to me if you do it. Okay. Next one, our operating cash flow. We're not providing any guidance as to when the group cash flow. So the accounting standards require us to set up a segment reporting. We have 3 segments: the glaucoma division; our corporate division, which is just what you have to have to be on the ASX and not much more and not anymore; and we also have our AlphaRET division, which is a small investment every year. We're not projecting when that group cash flow will be breakeven. But as our glaucoma division dominates, you can make your own projections. There has been steady improvement. Next slide. So let's recap. Nova Eye, we are selling the highly effective products into a market that exists. We're not trying to wear out shoe leather doing something no one else has done. We are a pioneer in canaloplasty and on that, we are trusted. We've strengthened our balance sheet. We're going to be profitable in the FY -- second half of FY '25. And I've done a bit of math there to make it easy for you to work out what our upper or lower sales will be in Australian dollars. So it's AUD 26.1 to AUD 27.7 using exchange rate of $0.63 plus whatever happens in China. So I think, Mark, that is the end of the presentation. And yes, do we have any questions, Mark?

Thank you. Yes, a couple of questions coming through. So please use the question-and-answer box in Zoom. First one from a shareholder is in regards to something looking for information on the MAGIC study. What is the progress of the study comparing iTrack Advance to OMNI procedure?

Recruitment for clinical studies is notoriously difficult. We'll say we've underestimated how hard it has been to be to do. Recruitment is ongoing in Europe. We have some -- a group of highly credentialed surgeons seeing patients and screening patients. And we have not -- we're not -- we can't give any results so far because the results are masked. And we haven't given any time line to finish that recruitment. We would like to soon.

You mentioned China a couple of times. iTrack Advance approval, what is the status there? And also, you mentioned the revenue, but just unpacking the revenue opportunity in China as well?

Yes. In China, Chinese doctors have not yet got on to the idea that glaucoma -- that people who have a cataract surgery also have glaucoma. There is still a separation of glaucoma surgery and cataract surgery. We think the opportunity in -- for those 2 things to come with that convergence to be very good. We noticed that our big brother, Glaukos, has recently got into the market, and they'll be working on that same topic. We have our iTrack Advance progressing through the regulatory framework within China. We don't have -- we do know a time line, but we don't necessarily -- just like we can't be sure of what happens in China. We're just playing our parts close to our chest at the moment. We'll let people know when we've succeeded with that registration. But I think the opportunity in China is having an approved device in China like we currently have is good. The idea of surgeons eventually like in America, realizing that every cataract surgery or every 1 in 5 cataract surgery should have a glaucoma surgery provides a very nice outlook, I suppose, for us.

Just on -- and continuing a little bit with China, is that closed angle glaucoma that we've spoken about before, are we looking to seek approval for that -- for this indication in China?

Yes. Closed angle glaucoma is not the only glaucoma they have in China, but we have doctors who have done work on closed angle glaucoma, which is very promising. And we just put that into the basket of R&D, if you like, pipeline opportunities that we are pursuing, trading off, as I said, our desire to grow sales with our desire to improve the bottom line. Wholehearted exploitation of our product pipeline would destroy the bottom line, and our shareholders have spoken loud and clear that they want to see a margin, and so do we at the bottom. So that's how we're balancing that.

Just coming on to something that a lot of questions coming through on 2RT, current status of 2RT and time line for progress?

Yes. 2RT is a highly prospective asset. We've said that we'd like a partner to fund it. We have no change in that position. We -- our cash has been raised for the purpose of glaucoma growth. And it's a highly prospective thing, but our business is not structured yet to do that. We wish to farm it out, if you like. And we haven't put any time lines on the success or otherwise of that plan.

Question from Michael Youlden, the research analyst at MST Access, who is providing reports for us. He said, we obviously achieved strong growth in January that we reported. Obviously, is there a good indication for the growth rate for each of the month for the rest of the year?

I'd love to report in monthly sales. We had a monthly P&L, and that will be fun. That will be a lot of fun. But all we've said is that, we're very happy with January sales, and that's according to our plan. We have commitments -- reporting commitments between now and the end of the year, and we'll let shareholders know that as soon as we know what's going on as soon as we think it's material.

A double question here. Provide some commentary on the competitive environment in glaucoma, but also probably add additional comment around M&A activity in the eye sector globally as well. So comps, I know we don't want to talk too much about competitors or products, but who is winning?

Yes. So it is a highly -- well, it is a competitive market. We have a good position in that market. In one of my slides that you may have seen, one of our slides, we talk about having about a 3% market share, which is my estimate of using publicly available data. I haven't got any queries from our friends in the other companies. So I'm assuming that it's close to right. 2% to 3% is a big increase when you're only a company with revenue of $17 million. So we think that we have demonstrated that we are capturing market share with our sales team, with our revenue per rep, which exceeds those of all of our competition. So I think we're doing very well in the competitive market. As to M&A, I don't know. My experience is -- well, people say, why doesn't someone buy you? Well, the answer is they could buy us. I'll give you the answer no one wants to hear. They can buy our shares on the stock market any day of the week. So there's my answer.

I'm just putting another question together via Michael and also Jordan about the U.S. glaucoma segment and the new sales reps in the U.S. Can you comment if these new sales reps are targeting new markets or states? And obviously, is there any underserved or markets that we haven't approached yet for further growth?

Yes. So we only have how many reps, 11 full-time equivalent reps. Technically, we draw a map and they cover every state. However, an ability of a person to get to 11 people across 52 states or 50 states is limited. And so, that must mean that there are pockets that are not covered. And that is the case. So we are on a drive that when we talk about recruiting new reps, we would like to put them in those pockets of the United States, and that is basically around some big cities, the big cities of Washington, Pacific Northwest, Houston, San Diego, Boston are just examples where I think our coverage could be better. So -- but it's about finding the right people. We don't want to spend their whole time flying planes -- flying in planes.

A couple of questions in regards to the recent capital raise. So part of the funds, [ Kush ] just mentioned that part of the funds was used to get the iTrack Advance to have more indications, the next-gen trabeculotomy product. Questions on how that is tracking post that?

So new indications require submissions to the FDA. And we're in a constant state of making new submissions to the FDA and waiting for their feedback and answering their questions. And so that's where that one sits. New indications are a lot like new products, well, they are new products in that expanding your indication has the same effect as a new product because you're able to market a new story. So it's all part of the same decision investment -- decision-making investments we have to make on -- decision-making we have to make on investments in R&D.

That's it for the live questions that have come through and ones that have been e-mailed through to me. So I think we'll -- unless there's any final questions in the next 10 seconds. Thank you very much for everyone for joining. Hopefully, Tom has provided a nice insight post our half year results and also the growth. Tom and I are always available. Our details are on the screen. Feel free to give us a call and also drop us an e-mail if you've got any questions, and we can talk to you at any time.

Yes. Thanks very much for your time, everybody. I appreciate you listening, and I hope you found it useful. We're very excited about our prospects in this current half. We think we're on track. And thanks.

Awesome. Thank you, everyone, and a recording of this will be put on the website shortly.