Pulmonx Corporation (LUNG) Earnings Call Transcript & Summary

Right. And how are you kind of pushing that same-store sales growth, I mean, and [ accelerating ] salesforce? Or just -- what are you doing to kind of push that same-store sales growth, if you will?

These fundamentals, making sure that the accounts are able to take a patient from the front door to the procedure room efficiently, making sure that they're leveraging the available opportunity to treat the patients that are within their hospital. Each of these hospitals typically has a pulmonary function lab. There's a great number of patients that are lost unless the physicians and the respiratory therapists go looking for them and then making sure that we are doing what we can to introduce the technology to the physicians that are kind of out in the community that are managing probably about 90% of the opportunity.

I guess the awareness for the referring positions is still pretty low at this point and then trying to think about the referral channel.

Yes. I think so. It depends on how you define awareness. So if you were -- about 50% of the patients are being managed by community pulmonologists. I would say, virtually, all of them are aware of the technology. If you had asked them what are endobronchial valves, if you heard of the Zephyr Valves. I think where the education is, is on the magnitude of the benefit and certainly in relation to what they can get from drugs that they're giving to these patients. And this paradigm shift behind my job is to make these people comfortable to try to reduce their breathlessness through the addition of drugs and the escalation of the doses of drugs effectively kind of leading to ultimately putting them on oxygen and saying goodbye to thinking about turning back the clock and getting these patients to a point where they can engage in their life the way that they were able to several years back. And when those patients are made aware of that opportunity and that conversation happens with the referring physician, we see a very high probability through the data that we've seen that those patients ultimately get moved on to the treating centers.

That makes sense. And I guess, maybe do you -- actually, I guess one question would be, do you need AeriSeal to actually get this market to actually expand? Like is that going to be an inflection point? Just kind of curious how important that is in terms of like really making this market influx, if you will.

We're about 5% penetrated into the incident opportunity that exists in this market right now. So we got plenty of opportunity with valves. Beyond valves, I mean, in the patients that are CV-positive, essentially AeriSeal right now is being studied. And if you look at the patients that we identify through StratX, quantitative CT analysis software that we schedule for a procedure, that we anesthetized and we bronchoscope, about 20% of those patients, 1 out of 5 is not going to get valves because we determine on Chartis right before we place the valves that they're CV-positive. So 1 out of 5 patients wakes up, goes back to their referring doctor, all kinds of disappointed because they went through a bunch of hoops to get to that point because they didn't get treated. And what we reported was some data back in November of last year, which clearly indicated early returns from our study of AeriSeal, that we have about an 80% chance of being able to take those patients than we would normally rotate back and make them CV negative using AeriSeal, which is spectacular. But it also -- what it does is not only it increases the -- essentially the addressable market by about 20%, but what I think -- what I get really excited about is eliminating effectively that 20% feedback loop that's going back into the referring network and saying, hey, I'm really disappointed. We think that, that's going to be a good tailwind for us. But we've got plenty of opportunity before AeriSeal's available.

That makes sense. In Japan, I think reimbursement is coming there at this point. Maybe frame the opportunity there and how quickly that could go?

Yes. Well -- so we got approval at the end of last year as expected and as we've talked about in each call. We expect that by the end of this year, we're going to have reimbursement in place. That will allow us to commence a post-approval study. 100% of the patients that we treat in Japan right out of the blocks will be revenue generating, but they'll be going into our post-approval study, which will happen at somewhere between 10 and 15 different accounts. We expect to populate that study, get that out of the way next year and then, ultimately, open up that market in an unconstrained way. In 2025, we see it as 100,000 patients. And that's a big opportunity, about a $1 billion market opportunity.

All right. Anything else to kind of highlight internationally that you think probably is not getting enough airtime?

I mean, we are killing it in a lot of our major markets, particularly in Europe. I think it's pointing out our top -- if you look at our top markets, 3 out of the top 4 are screaming right now, growing at 40%, 50%.

All right. I know there's been some conversation on the Dupi drug. Can you kind of clarify that or anything else? Are you seeing anything on the drug side that's changing, that could be a competitive threat in the future?

We're making a lot of progress on the drug side. And to the extent that you can attack certain challenges from the drug side, I think it's wonderful news for patients with COPD. I think it's important to note that COPD is really composed of 2 different diseases. There tends to be some amount of overlap. But emphysema, which is almost always caused by cigarette smoking is really a disease of tissue destruction. So it's not the airways or the tubes. It's the tissue that surrounds those things where there's a destruction in air trapping. And we're really solving for air trapping and the predecessor approach was lung volume reduction surgery and we're just able to accomplish essentially the same thing without encumbering the patient with a lot of morbidity and mortality. So, that's the side that we're focused on. The drugs are really looking to try to manage things that are in the airways themselves, so either airway wall inflammation, which can narrow the airway, excess mucus production, which is really the chronic bronchitis side of the equation, and that's where the drugs are working on. And Dupixent as an example is really focused on that chronic bronchitis side. So, mechanism of action fundamentally different. The thing that they're attacking is fundamentally different. We're happy for patients with COPD, but it's not something that we anticipate is going to negatively impact our business.

And then, Derrick, bringing you on margins. Maybe progression from Q1 to the rest of the year, confidence in getting to profitability breakeven with current cash on hand?

Yes. So in terms of gross margin, we expect to be in that kind of 73% range in the first half in Q2 of this year. And then move closer to 74% in the back half of this year. I think I feel very comfortable in the mid-70s in terms of gross margin over the next year or 2. And we still think we can move up to kind of the higher -- the high-70s at scale. From a cash perspective, really comfortable with our balance sheet. We've got $155 million on the balance sheet today. If we weren't to reduce our cash burn at all, that's roughly 4 years of forward cash burn, but we expect to show both cash burn leverage and operating leverage moving forward. This year, I think we'll burn less than the $44 million of cash that we burned last year and that will keep going down. This quarter is also notable, and that it was one of the first quarters that we demonstrated cash operating loss leverage. We're now reporting on an adjusted EBITDA loss metric that just takes out stock-based compensation in this quarter on a year-over-year basis. We had a favorable adjusted EBITDA loss relative to same quarter last year. So, we feel good about that trend going forward.

All right, great. Any questions in the audience? Okay. I think we're out of time. Thank you.

Thanks.

Thanks.