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

Good afternoon, everyone, and thank you for joining today's Nova Eye Medical webinar. We're pleased to be hosting this update following the release of our March 2025 quarterly activities report, and we know that there's been strong interest in the company's progress, both operationally and strategically, and we definitely continue to appreciate your continued engagement. Nova Eye is delivering what we set out to do, and we've just posted another record quarter of sales and U.S. momentum continues to build. There's also an exciting strategic angle emerging with the potential drug delivery opportunity using our iTrack platform, and we'll touch on that a little later. We've had a record number of questions today. So I apologize for the length. Tom and I will be looking to get through a majority of those questions at the end of the webinar. Tom will present shortly. We'll then go through those questions, but please feel free to use the Q&A within Zoom, if you like to ask a question on today's webinar, and we'll do our best. So here to take you through the results in more detail, I'll now hand over to our Managing Director, Tom Spurling. Thanks, Tom.

Thanks, Mark. It's exciting. We are selling -- and I'd just say this, we're selling highly effective products that eye surgeons actually want into a market that's largely growing and now we're delivering on the promises we made earlier this year. So I'm really pleased to be talking you through it today. We have a bit of an update in here on our April sales as well. Very quickly, I -- we have a lot of people who have probably heard the story before, but glaucoma is a second leading cause of blindness in the world, has no cure, but it is basically a failure of the eye's plumbing systems. The liquid-rich protein that keeps the eye healthy flows around the eye if -- and it's constantly being replaced. In the event that there is blockages. There is a buildup of pressure and that pressure can cause optic nerve damage, which leads to blindness. The world's most conducted eye surgery -- most conducted surgery, not eyes, surgery is cataract, and 15 -- and that's the replacement of the natural lens in your eye with artificial lens. So most people who live past 70, 75 are going to end up having a cataract operation. And really importantly, 15% to 20% of patients that need cataract surgery have concurrent glaucoma. That means you can imagine being a patient who goes in, they have an opportunity to fix their cataract or fix their vision and get cataract -- get glaucoma surgery at the same time. Patients do not -- primarily the big market is selling drops to patients who are first diagnosed. They say our drops will be easy, but patient adherence to drops is terrible. It hurts their eyes and there's some stats there, about 50% of patients are noncompliant and 50% just discontinue within 6 months. So we'll -- having a surgical option is a viable alternative to medications. And that gives a high return, and this puts the patient as well as making the patient as well as making the suppliers' money and the physicians some money. We are -- it's a large market. There's some numbers there. And we're kind of -- where we are a key player in the global mix market, minimally invasive glaucoma surgery, interventional glaucoma that is intervening in the patient disease before it gets too bad. Next one. This describes our device, our flagship product, the iTrack Advance. It really is, we call it, angioplasty of the ocular system. You can see in the top left-hand corner, our catheter with a cannula or needle-like device is pressed against the inside of the eye. So that makes its way across the front of the eye and up against the trabecular meshwork. We then use the slider on the iTrack Advance to push that lighted catheter around 360 degrees clearing blockages as we do so. As we withdraw it, we flush in viscoelastic, which is essentially biocompatible hydraulic fluid, hyaluronic acid actually. So it's probably good for your eye as well. And that flushes the system. So you can see we've drained and flush the irrigation system. And in doing so, we leave nothing behind. The patient can be treated again if need be and the patient is the success of the treatment as measured by a reduction into ocular pressure. But most importantly, a reduction in the number or elimination of the drops that person may need to take every day. That's what we sell. And we -- this is our device up close, 155,000 units surgeries roughly so far with this device. It is a, as I said, the terminology's Canaloplasty, Angioplasty of the eye. It's stent free tissue preserving and it is effective. We don't need to leave something behind. We can let the eyes and all systems rejuvenate. Next one. So the highlights, our quarterly Q3 FY '25 for 3 months ended 31 March 25, we had sales of $4.7 million, up 27% year-on-year and 16% quarter-on-quarter, excluding China, which we'll come to. U.S. sales were a record. Year-on-year revenue is now up to about trailing 12-month revenues is about $17.8 million, AUD 28.5 million just about -- well, 99.9% of our revenue is in euros or well, it's more correctly stated, almost none of our revenue is in Australian dollars. Excitingly, we've improved our bottom line. The first half, we reported a loss of $1.79 million in our Glaucoma segment this year, which is -- this quarter is just $30,000. Group operating cash flow was about the same as last quarter, but it includes a substantial investment in working capital. And for those skeptics, that's not just inventory. Anyone can build inventory, although that is hard, by the way, I shouldn't underestimate that, that is mostly accounts receivable. So that is doctors owing us money, and we have good collections. We don't have bad debts. We'll get all that money in. It's very exciting. We're reaffirming our guidance for FY '25. Our sales in April continue the growth, and we're providing a little more data on that today. We're expecting to be profitable in the second half of FY '25 for the Glaucoma division. I'll give you a bit more color on what that means. Our revenue guidance is reaffirmed at between $9 million and $10 million, and we exclude China because back in February, there was chaos or potential chaos with tariffs. That chaos, if you like, has sort of commenced, and we're still not sure how that would play out. That puts our full year revenue at -- well, as we've said, our trailing is AUD 28.5 million. So we're kind of saying we're just guiding to where we are today. We also have highlighted the emerging potential we have in ocular drug delivery using the iTrack technology, which is a little project that's been going for a while that reached a couple of milestones during the quarter. Next one. This data we had in our 4C or in our quarterly report, it provides the territory by territory breakdown quarter and the trailing 12 months highlights being the 32% in America and really exciting is 19% in Germany. And the growth, our trailing 12 months continues to grow. Next one. This slide, internally, we measure momentum and energy of the sales teams, sales growth by 3 months rolling average. So average monthly sales based on the previous 3 months. And you can see that each of those statistics since our capital raise have grown. And they are -- if we go by industry at all-time highs. I'll go a little bit further into May 1. It's a bit of a -- it's actually a bit of a celebration in my mind. Let's just look at the same slide in America. Mark, the next one. Mark, results in April. We added -- I decided -- April finished on a Wednesday. And for the purpose of this graph, we had fantastic sales on Thursday as well. And it really just highlights the idea of momentum and just having -- hitting the end of our calendar month is just 1 thing. We got to keep going. And because it was just a Wednesday to a Thursday, I know it's not technically right, people can criticize you for that. It actually doesn't make that much difference to the picture. But it's exciting to know when you come to these presentations people say, and how are sales going in May. Well, I'm telling you, sales are going really well in May as well. Next one. This is our operating results for the Glaucoma segment. This includes all of the business with the exception of AlphaRET and the exception of some corporate costs, which are specifically related to our position as a listed company. We'll provide more data in our Q&A about what that means. But this is the P&L, if you like, that we're guiding everybody on. We're saying that we think we can be profitable during the second half, and you can see that, that is on its way to doing it. There is some doubt with that because of the Chinese orders, but the final resolution of the Chinese orders will impact our operating result, but we still are confident. Next one. As I mentioned about cash flow, cash flow for the quarter is about the same, but if we added working capital into that, you would see that we've spent nearly all of our cash outflow on accounts receivable growth and a little bit on inventory, which is exciting. We also had some once-off costs -- once-off final costs in the quarter for IP acquisition and some AlphaRET restructuring. We continue to restructure AlphaRET down to bareback costs. So our cash of $6.3 million is at the bank following our capital raise, and we are anticipating that this data will progress towards breakeven over time. Obviously, after our break -- after we've broken even in Glaucoma segment, 1 step at a time. Next slide. On tariffs, we make stuff in the U.S.A. We make our products in the U.S.A. and 77% of our sales are to U.S. customers. So we are unaffected by U.S. tariff policy in the American market. In the EU, there has been no reciprocal tariffs. We sell, as we've said, got there about 3 million, 70% no reciprocal tariffs imposed by the EU yet. And I guess that probably won't happen, but we can all have an opinion. And our sales in China, which were 1.1 in the last 12 months, there have been reciprocal tariffs imposed. And at the moment, just before this meeting, we were speaking with our partners in China, that is definitely a work in progress. So we -- I have people asked about our supply chain. There are some minor components that are purchased from China that go into our iTrack, but that is not a material impact to us. Next one. People always ask about reimbursement following the well, I guess, the turbulence back in November 2024. I'll just walk through this really quickly. Canaloplasty has a well-established what they call CPT 1 code, Common Procedure Terminology 1 code, which is authorized by the Center for Medicare and Medicaid Services, CMS. We -- a doctor will select Nova Eye product. The eye surgeon operates in either -- in a facility, and that facility purchasing department will issue an order to Nova Eye for the product. We will deliver the product and it's roughly $1,000 a unit in the United States. It's a bit more. And eye surgeons then conduct the surgery and describe in their operating notes to code that they are charging the surgery too, most usually a code called 66174, which is the viscodilation of the canal of Schlemm. The operating notes then submitted to the Medicare administrative contractors and the Medicare administrative contractors, and there's 7 of the United States with different geographies, will pay the claim based on their assessment of the operating notes. So you can imagine that the MAC, as we call them, are saying, well, I agree with the doctor that he or she made a decision to do this procedure, and it was the right thing to do. Therefore, we will pay the facility $2,094 and we'll pay the surge $600. We build the eye surgery and as I said, about $1,000. So we get about half of that $2,094 and the surgeon gets $600. There is -- it is an economic business model where all the parties have a reasonable piece of the value chain, I guess, it's called. There has been no -- there has been some tweaks since November 2024 in how the MACs will look at a claim. And in particular, they will not look at a claim if you have done a canaloplasty and another procedure at the same time. Now people say, has that affected your sales? Well, the answer is our sales since then have continued to go up. So that's the answer I gave. Next slide. We just -- in the last -- in the quarter, we have a very active marketing program. There's boosts that we have. We had 1 at the American Glaucoma Society in Washington, D.C. and 1 at the American Society of Cataract and Refractive Surgeons in Los Angeles just a week ago or a couple of -- 10 days ago. We had 21 scientific contributions, including posters, podium and films that were tabled by doctors and supported by our clinical and commercial team. We have new data from our iTrack registry. There's a bit of an update in the registry in our deck. And that, which describes -- which helps us produce manuscripts that describe the safety and efficacy of our device. So -- and we have a set of hands on an educational key opinion leader involvement that took place during those. During those, particularly at the ASCRS and there was great support of doctors coming along, wanting to listen to their peers talk about iTrack Advance. Next slide. So we sell highly effective products that eye surgeon want into a market that's largely growing. We've strengthened our balance sheet. Glaucoma division is scheduled to be profitable. Revenue is expected to be between $9 million and $10 million, which we're reaffirming. There is uncertainty over China. So that has summarized our numbers there. The next one. During the quarter, we reached a couple of milestones on the idea that our catheter, which is the smallest catheter in the world, can access other parts of the eye, not just the canal of Schlemm. Our FDA clearance is for fluid infusion and aspiration among many things, and that's largely untapped for anything but glaucoma. We have received inbound interest from pharma companies on the use of our device for something -- for placing drugs instead of viscoelastic into different parts of the eye. The idea of improving the delivery systems currently retinal disease is treated with general injections straight into the vitreous. What the idea of a more targeted drug delivery into the part of the eye affected by disease could improve the efficacy of the drugs. So that offers -- that precision and [ accuracy ] offers advantages with efficacy. Our partners are looking at it, and we are really just cooperating and helping them with some things. And it remains an exciting potential revenue opportunity in the future. Next one. So going through, we will spend a bit of time going through our questions from the webinar, questions given prior to the webinar. So Mark.

Thanks, Tom. So what I've done is I've grouped these into -- we've received so many. So I grouped them into a few themes. So the themes are operating leverage, profitability, growth momentum, the iTrack drug delivery opportunity and our market positioning and of course, the ongoing disconnect between operational performance and the share price. So I'd like to go through these headline topics and I'd ask you to provide some color on here on these and where the business is headed. The first 1 to comment on is sort of the financial foundations of Nova Eye.

Yes. Okay. So we're often asked about fixed and variable costs in our glaucoma segment. Now fixed and variable has a time domain. Everything in the end is variable and everything from 1 day to the next is fixed. So rather than viewing costs strictly fixed or variable, we prefer to focus on the operating leverage as a function of growth. In H1 FY '23, prelaunch expenses meant that OpEx of our iTrack Advance meant that our OpEx was 106% of revenue. By H1 FY '25, it then improved to 66% and sure in that short quarter, we just reported on it was 74%, but that reflects a bit of timing mostly. This trend shows that we have -- we are generating operating leverage. And the data has shown you can show that growth in sales versus growth in OpEx. In absolute terms, therefore, there will be OpEx growth, but what we're trying to do is to continue to have growth of revenue, which is higher. Gross margin was 74% in Q1 and 73% in F2 -- in H2 FY '24. It was poor in the first half of FY '25. We had supply chain issues that we have overcome and that has led directly to a marvelous improvement in gross margin. People say, what was your expectation? I don't say expectation. We just talk about what we've achieved. There's a 73% market. There's a 74% market. That gives our shareholders an indication of where it might be in the future. Thanks. Mark?

The second one, lots of questions in regards to the path of profitability between the Glaucoma business, obviously, nearing cash flow breakeven and then the group as a whole for that cash flow positive.

Okay. So the Glaucoma segment neared breakeven on a profit and loss basis, but used cash because sales growth has increased our accounts receivable and working capital needs by $1.2 million quarter-on-quarter. Our near breakeven performance in Q1, along with a great start to April and May shows that our business is fundamentally good. We are constantly balancing every new investment against near-term payback in cash and the pathway to profitability. We have not guided on when the group will be profitable just 1 step at a time. But we can provide some color on the costs excluded from our Glaucoma segment. We call them either corporate costs or AlphaRET costs. In the half year, to 31 December 2024, we reported corporate costs of $180,000 per month. This covers auditors and tax, group insurance, ASX listing fees, investor relations, company secretarial, rent for our humble office in Adelaide, 3 nonexecutive directors, my wage, Victor's wage as Executive Chair, 2 accounting staff, a general support person and an IT person. Staff costs, those staff make up 45% of the total cost, and you can do your maths, that isn't very much per person. On AlphaRET, we've been very clear that the 2RT technology is valuable, but to exploit it requires capital that we do not have. So we would like to partner. We haven't achieved it yet. In the interest of progressing the business to cash flow positive, costs associated with 2RT have been and will continue to be pared back. Corporate and BD matters will continue using basically me on the weekends for the time being. In the half year, the monthly cost of maintaining AlphaRET was $32,000. It's lower. It's getting lower because we've spent some money to do so. These provide road signs that our shareholders can decide the group profitability. Mark?

Growth drivers. Key near-term growth drivers in the Glaucoma segment.

Yes. We have a great product. The U.S.A. is underpenetrated from our point of view and so is Europe. We need to get our device into the hands of surgeon and that takes salespeople. We sell direct to surgeons and train them in both the U.S.A. and Germany. Our most recent sales performance is showing that by making investments in salespeople, we can grow sales further. We estimate that between 20,000 and 30,000 mix procedures that Stent goniotomy and Canaloplasty are being performed per month in the U.S.A. We have previously reported that we have a market share of about 3%. Our rolling 3-month average sales per month can be materially impacted by just a small change in market share. Those are small piece of a big pie. In Q1, we reported 32% growth on the PCP and 19% in Germany. We should put this into context. I note that in its public disclosures last week, that our cost is guiding that there will be a decline in the mid-single digits in its Stent business. Our device is not a stent but it does compete with stents. Site Sciences is due to report on May. We note -- we're a bit excited. We note that in its annual 10-K released in March, that our product was for the first time listed as a risk to its revenue going forward. With respect to trade shows, we measure success by improving our presence, our record at ASCRS higher than our competitors. And of course, sales lead generation like doctor, do you want to come and have a demonstration with our product. Can I come and see you about buying a product. Yes, here's my detail. There were plenty of lead in the ASCRS in the week. And I'm not sure, but that could well have contributed to our sales since ASCRS. Mark?

Next one is -- and lots of questions on this, the iTrack drug delivery opportunity that we had in the quarterly.

Yes. So the original FDA clearance of iTrack included the use of the device for fluid infusion or aspiration during surgery. And as only -- this has only been exploited so far for glaucoma by administrating viscoelastic into the canal of Schlemm. The existence of the indication -- and we have other indications on top, which is for treating people with primary open-angle glaucoma. But just that basic indication provides the opportunity for it to be used in other parts of the eye. Pharma companies have seen our device and approached us on potential use for targeted drug delivery into different ocular structures, drugs for treating retinal disease are the highest spend in the U.S.A. and the Australian government funded lists and in most other western developed countries. There are several drugs in use in studies for potential use in the future, improving efficacy by targeted drug delivery can give pharma companies at a competitive advantage. At this stage, we've only determined that it's a potential revenue opportunity. The potential is realized -- if it's realized, then we would be -- our revenue stream would be based around delivering devices to a part or partners. It is good that these approaches have been made. We think that shareholders should know the uniqueness of our technology and then it has some external validation, not just us telling you how good it is. We have only guided this as an additional revenue opportunity not when it might happen. Suffice to say that despite the size of the opportunity, investment will be required from partners and such partners have been identified. Our current mandate is to be -- is for profitable sales, both in our existing Glaucoma franchise and to reduce our cash usage. So that's what we're doing. Mark?

Lots questions on supply chain and the tariffs. Obviously, iTrack Advance supply chain exposed to Chinese tariffs and obviously the legal risk and U.S.-based components with the support of Buy America strategy.

So currently, we are exposed to the reciprocal tariffs exposed by -- imposed by China. iTrack Advance is not yet approved in China. So therefore, it's not yet subject to tariffs. We've made a submission to the Chinese regulatory authority to have iTrack Advance approved and have several rounds of questions that we're going through. We look forward to providing our shareholders with news on this approval. As we've said before, 20% of patients that require a cataract operation also have glaucoma. This statistic has driven U.S. -- the USA Interventional Glaucoma Surgery, interventional glaucoma industry. We see this happening in China in the long term. Cataract surgery per capita are currently with 4 million cases per year, is currently 25% of the U.S.A. rate. China cataract market is projected to grow 4x in the next decade to catch up with USA rates, that's 16 million. Glaucoma market in China should grow at a similar rate of 4x, 20% of 16 million means that there's 800,000 a year potential interventional glaucoma procedures. This is larger than the U.S.A. market. We haven't continued to market our product as made in the U.S.A., we have good base in the U.S.A.

Tom, can you comment on our product positioning and our competitive edge against some of the implant-based mix and clinical outcomes, of course?

We have at the back of the deck. We've got today a product-by-product clinical comparison. We have 2 studies underway and important data in our registry. Recruiting patients for studies is always [ stringy ]. As we've stated, the recent ASCRS conference, we showcased 21 scientific contributions, podiums, posters and films far more than our competitors. These presentations were made by doctors who use our products supported by our commercial and clinical team. Mark?

Reimbursement, always 1 of your favorites and regulatories in U.S.A.

It is our front of our efforts. Surgeries with iTrack Advance are routinely reimbursed and have been the entire time we've been in business. There's been threats, but those threats have never materialized. FDA provides clearance to market products in the U.S.A. It doesn't guarantee reimbursement, and we have such clearance. So FDA clearance means that we can leverage the FDA clearance means that we can just keep going, getting more and more U.S.A. doctors and supported by a reimbursement structure that means all 3 parties to the transaction, the hospital, the doctor and us make money. The next question, Mark, Is about?

This is about our wonderful share price. So share price in multiyear lows and despite our operational progress. So trying to explain this market disconnect and obviously difficult.

So I'd be absolutely lying if I said I didn't look at my phone every day and look at what share price is more than once a day, unfortunately. As managers and owners of the business, we're acutely aware of it. We are delivering on our promises, and we're telling that story as often as we can. Today, we have a record number of people listening to this webinar, which is exciting. We recognize that a high-growth business, which we would collect -- categorizes up, revenue is around AUD 29 million and a run rate basis and approaching cash breakeven would typically attract a valuation higher than the $31 million as we speak. And I guess we are confident that if we keep doing our job the market, will close that gap. Just going to the next point, it goes then Mark, to the investor engagement and visibility. We -- what efforts are underway. We have coverage by 3 analysts and regular investor engaging, and we think we do pretty well for our market cap and we're continuing to build institutional awareness. We are probably briefing interesting people at a rate of at least once a week.

Couple before we get to the CATALYST just from live questions coming through. One of those analysts, Michael Youlden, MST Access, said is the recent investment in additional sales reps, a key driver for that continued growth in the monthly sales in the U.S.?

Well, yes, it is. We -- as we've said, there's a direct correlation between geographic footprint and the number of people we have on the streets with revenue. The trick, of course, is to make sure that we meet our shareholders' expectations to not go too fast. So we torch the bottom line. So there is a direct correlation, and it does take a little while to get new reps on board. I mean, we get them on board for them to ramp up. But yes, there is a direct correlation between reps in America and in Europe, where our investment there in just a small number of people has been so excitingly successful.

And another 1 for Michael Youlden is, do we expect more surgeons to prioritize Canaloplasty over stent-related procedures given the changes to the reimbursement?

The reimbursement has -- the reimbursement as it is, it's been around since November 2024. We're constantly -- our story and on the screen, Mark has the green ticks of about why our device is better than a stent. The main reason is who wants a bit of metal in their eye, and we're attacking all the outflow system. There is a -- it's a close call, but we are not factoring in any big special movement away from stents into our plans.

An interesting 1 here on the sales and I'm going back on so-called foot soldiers or our sales reps, could we partner with an established U.S. or even an EU distributor, a European distributor or model to grow the sales?

I'll be very [ honest ] now and say they do not give you love. They just don't care about you. No matter how much I would have a great dinner with some Managing Director or Kate, our Chief Commercial Officer, will engage with somebody and say -- and they'll promise a lot over that expensive dinner, and then they will not deliver. Nothing works like people who your own employees are expensive, but you get the growth. We have tried it in other markets. There is -- within America because it's so big, there are various small teams that we can give particular states to that work on a commission-only basis. We've been experimenting with some of those. But broad-based, if you can't make it in America, you've got to be able to make it in America or in Germany, which we are.

And a long-standing question is, does the company have sales now in the future in Australia or New Zealand?

Australia, to put it simply, we do not have reimbursement in Australia. The data that has convinced the MACs to reimburse us in the United States and the authorities in Germany to reimburse us in Germany. The Australian government wants different data. It makes me a bit upset. The truth is the market is small. And while we would love to be selling in Australia, it is a torturous process to run a study just to satisfy the Australian authorities, when there's more market in the U.S., we are making assessment as to the economics of such work.

And just probably a final question is our forward-looking CATALYSTS just to leave everyone with something look forward to? What are the specific milestones or news flow investors can look forward to?

So we've promised sales growth and improving the bottom line. And this is our mission over at least the next 1 to 2 quarters, delivering on those promises we talked to. We felt that the time is right to inform our shareholders on the potential for drug delivery, but we're not giving any timetable on that yet. It's just something that we will carefully manage in the background. Because our mission is to not -- is to improve the top line and the bottom line at the same time.

Thanks, Tom. And I think that will wrap this up. Thanks again to everyone for joining us today, especially those who submitted the thoughtful questions and obviously continue to support Nova Eye's journey at the moment. As you can see, Tom is particularly proud of the momentum the business is building and remaining focused on delivering that sustainable growth and especially strong clinical outcomes for the patient. So there's a lot to look forward to in the months ahead, and we'll keep you informed as key milestones are reached. So on behalf of Tom and the team, thanks for your time, your interest and obviously, your ongoing support. So have a great afternoon.

Thanks very much for attending, everyone.

Thanks, Tom.