SANUWAVE Health, Inc. (SNWV) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to your SANUWAVE Health Project SONIC Announcement Conference Call. At this time, it is my pleasure to turn the floor over to your host, Kevin Richardson. Sir, the floor is yours.

Thank you, Carol. Good morning, and welcome to our SANUWAVE Strategic Initiative Conference call. We are announcing today a transformative exclusive letter of intent to acquire the UltraMIST assets from Celularity and enter into an exclusive licensing agreement for their wound care specific biologics. The deal will be subject to closing conditions, and we expect it to close in mid-July. The presentation will be available over a webcast and will also be available later on our website. And if not, you can contact us and we'll send you a copy of the presentation we're using to discuss this transaction. We will also not be taking Q&A given the transaction. And then before I get started, let me read the disclosure requirements. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such statements regarding the expected benefits to the company of the proposed acquisition, statements regarding the timing of the closing of the proposed transaction and funding for the transaction, statements regarding the expected benefits of the transaction of the company, statements relating to the financial results and plans for future business development activities, and similar statements. Forward statements include all statements that are not statements of historical fact regarding intent, belief or current expectations of the company, its directors or its officers. Our investors are cautioned that any such forward-looking statements are no guarantee of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Actual results may differ materially from those projected in the forward-looking statements, among the key risks, assumptions and factors that may cause actual results to differ materially from those projected in the forward-looking statements. As at that the proposed transaction may not be consummated in the period contemplated at all of the proposed transaction, if consummated, may have the benefit expected by the company. Risks associated with the regulatory approval and marketing the company's product, candidates and products, unproven preclinical, clinical development activities, regulatory oversight and the company's ability to manage its capital resource issues, competition and other factors discussed in detail in the company's periodic filings with the SEC. The company undertakes no obligation to update any forward-looking statement. All right. With that out of the way, I really want to get into the details of the transaction. It's extremely transformative and positive for the company. We will not be sharing as much information as desired, especially on a forward-looking basis given the transaction has yet to close and is only an exclusive LOI at this point in time. But once the transaction is completed, we will hold another conference call, and we will go into specific details regarding the following: the size of the transaction, including revenue and cash flows, the synergies on both the revenue side and the expense side, the strategic integration plan of the 2 companies. Let me begin with how excited I am, the team here is, our Board and the people at UltraMIST are. This truly is a transformative acquisition, which changes the direction of SANUWAVE in extremely positive way. It is also bringing together 2 companies that will be able to help the wound care community, the patients who have wounds and need help, the patients with diabetes that were on a path of losing a limb to amputation. The combination of these companies and the exclusive licensing of the biologic products from Celularity for wound care will create a broad wound care platform with dominance in the energy transfer portion of the wound care sector. These companies have known each other for many years. There are many aspects which are extremely and eerily similar between the companies. But it is clear they are very complementary in wound care and will help propel the combined company going forward. The combination will provide the following: first, a broad wound care platform with noncontact ultrasound and human tissue biologic products to complement dermaPACE; two, we will offer an end-to-end advanced wound care offering that no other company can offer. We can treat all wounds from early-stage to late stage. Three, the acquisition also brings significant revenue and cash flow to derma -- to SANUWAVE. Four, importantly, will add significantly to our sales team with the UltraMIST sales team, access to their independent reps, and importantly, the over 900 locations where UltraMIST is now operating. The rationale for the transaction was straightforward. Combining these great products will complement what we can offer wound care clinics in the U.S. The platform will offer end-to-end solutions, which we'll touch on in a moment. The products are complementary with the UltraMIST and dermaPACE mechanism of action, creating a common call point which will then be levered into a combination of the 2 products in treatment. But even more importantly, combining them with the biologics product as well to create an end-to-end solution. This truly is a transformative and initial conversations with leading key opinion leaders, every single conversation, the lightbulb goes off for them, and they get it. They understand what we're trying to accomplish, and we'll be the only company that can offer a way to jump-start a wound with the energy transfer products and then bring it to an even better closure with the biologic products. The company is much larger than us from a revenue standpoint, and we are also gaining access to their sales force and there are over 900 accounts. Their sales team is just under 20, and they also leverage independent contractors to assist. These teams, along with our own sales team and the Ametus independent rep team that we work with will carry all 4 products upon close and begin to cross-sell into various accounts. Currently, we only overlap on less than 15% of the installed base. So the cross-sell potential and speed at which they can accelerate the dermaPACE rollout is substantial. Access to their wound care sales team and the 900 locations is a big part of why this acquisition makes sense. We will also realize some cost savings from duplicity. We have identified with an outside consulting partner who is working with us on the integration over $2 million in annualized cost savings from things that are simple like 1 booth at a conference, combining certain marketing initiatives, but also moving to a consolidated fulfillment and manufacturing footprint. Besides the domestic cross-sell potential and the sales force opportunities, we have a large opportunity internationally. As many of you know, we have strong partnerships in Europe, South Korea, Brazil, the Middle East and soon, some other parts of South America, Asia and Europe. Our partners have been informed of this deal and are already getting ready to begin ordering UltraMIST products in their region. This will offer significant near-term growth as UltraMIST international revenue prior was nonexistent. As a review, we are the only FDA-cleared focused shockwave technology to treat diabetic foot ulcers. We launched in 2019, our commercial launch, and we continue to see great results from our product and increasing demand from doctors, especially as the reimbursement world is opening up to the benefits of paying for dermaPACE procedures. We have 23 employees and 5 independent consultants working with us in partnerships, both domestically and internationally on sales. Many of you are familiar with how dermaPACE works. It is a noninvasive procedure, which helps to generate skin and vascular structures. It was developed to treat chronic wounds. We have over 80 patents in a strong IP portfolio. The therapy lasts 5 to 7 minutes and can be used in the home setting if a clinic so desires. We have extensive clinical work supporting our product with more coming later. It is being accepted on a very wide basis. The UltraMIST is elite product for -- of what we're acquiring and generates over 50% of the acquired revenue. The combined products have healthy margins. They are in 900 locations. We will bring close -- bring on close to 30 employees that are in sales, support, manufacturing and reimbursement. The biologics product of Biovance and Interfyl created its cellularity. They own and operate their own life bank, which allows them to control the process from biosourcing through advanced cell manufacturing and the productization of biological products. The combined entities will be focused solely on the wound care markets. This is an important aspect of the transaction and that the focus for the entire team will be on treating wound care. Let me describe UltraMIST. It's a near ultrasound device, which promotes wound healing. The product is approved to treat all types of wounds, which allows us to have more touch points in a wound center, whereas dermaPACE is just for DFUs currently, and we'll be expanding into other wound treatments. The UltraMIST is a single-use system, which means high recurring revenue from applicator sales. This is the consumable piece of the business with extremely attractive margins. As a side note, even during the pandemic months of April and May, the UltraMIST performed better than either of us expected. It's a very strong product. We're -- where the clinicians who use it love using it. UltraMIST also has extensive clinical research, including a recently published report on the pharmaeconomic benefits of UltraMIST which we will be leveraging on both sales force as we combine the entities. UltraMIST can be used up to 3 times a week and takes an average of 5 to 6 minutes per wound. So it's a great benefit for sites using it. Again, similar to dermaPACE in the 5- to 6-minute per treatment category. The results are strong using UltraMIST, and again, we'll share that pharmaeconomic benefit report when the transaction closes. Currently, there are 900 locations. I know I've mentioned this before, but the cross-sell opportunity for dermaPACE into those 900 is a large part of why we're doing this acquisition. It's important to note that UltraMIST also increased their penetration by 25% in 2019. So the UltraMIST product is growing, and we're buying a growing product line. The growth in this product line, in a large part, is due to the fantastic reimbursement tailwind they have encountered over the past 3 years. The reimbursement team at UltraMIST over the last 3 years has seen their reimbursement per treatment up over 100%, which makes the product extremely profitable for a wound clinic or a physician's office to use. They really have not penetrated the podiatrist setting yet as those reimbursement increases only come recently, but that will be a big push for us post close. To put it in perspective, there are over 11,000 podiatrist office in the U.S., not all of them can use UltraMIST, but it's a very big footprint to go after from where we are today. The next page, we discuss Biovance and Interfyl as the 2 biological products we'll be exclusively licensing. They are superior to many of the products on the market today. This is mainly due to the Celularity team who produces them out of their own life bank. Clinicians rave about the ease of use and the effectiveness. The reimbursement picture for this product is extremely strong, and the company has a pipeline of other advanced products which will roll out in the coming quarters, which will add to the products of the combined sales teams that we can bring to market. By having these additional products in our sales teams portfolio, we'll have more call points, not just dermaPACE, not just UltraMIST, but biologics as well. We plan to immediately start clinical work and have identified KOLs who will perform this for us, on the combination approach with these products and the energy transfer devices, something which has not been done to date. We expect those results to propel the combination therapy and multi-modality approach, which we will bring to market. Speaking of the wound setting, the next slide details what happens with a wound, call it the life cycle of the wound. In the early stages, weeks 1 through 4, that's considered an acute wound. This is typically handled with standard of care. Think of band aids, think of dressings, think of hydrogels. In the advanced stages, where it's called a chronic wound, those are weeks 3 through 12 plus. That is where the touch points that our products exist. dermaPACE, UltraMIST and WoundShield as the energy transfer products. WoundShield, as you recall, was a recently licensed product that came from NanoVibronix. This will work well in conjunction with dermaPACE and UltraMIST. The biologics products, Biovance and Interfyl will work and compete against other skin substitutes and extracellular matrix offerings that are in the market today. Our results are superior to those. And as we begin to penetrate our existing accounts with that value proposition and the combination of these products, we expect to gain tremendous share within these markets. To put it in perspective, the market opportunity is $4 billion that we're pursuing. We will be competing against hyperbaric. We'll be competing against negative pressure and other skin substitutes but we will have the only energy transfer devices that can work in conjunction with those type of products. The last piece that I'd like to get into is a little bit of a busy slide, and -- but at the heart of it, what we want to do is remind people that our multi-modality model that we bring to market does 3 things. We help the patient heal faster and better. The clinics will make more money using our products in our product portfolio, and insurance will save money because we're healing them more effectively. So on this final slide, Slide 10. I wanted to go through the opportunities as we see them and what the acquisition brings. The acquisition brings cross-selling opportunities domestically and internationally and we can leverage the combined sales force and their 900 locations. Second, UltraMIST will go into international, and we already have orders coming in that will hit out of the gate when the acquisition closes. Three, it increases our addressable market side for our products, not just DFUs with dermaPACE, but expands to all wound modalities and has an end-to-end solution for this $4 billion opportunity. Four, the pipeline of advanced wound care is strong with more products coming from Celularity relationship and the combination of their studies and our growth and the combination studies that we're putting together with dermaPACE and the biologics, UltraMIST and the biologics and other opportunities that exist. And finally, as you know, there are many other applications which SANUWAVE can pursue, both in the medical and nonmedical field. UltraMIST brings a portfolio with over 40 patents, many of which have not been exploited, we will examine expanding those markets as well. While you finish looking at Slide 10, let me conclude with some final remarks. Funding for the deal, as we mentioned in the press release, will be a combination of debt and equity. We have retained William Blair to secure a senior term loan in our advanced stages, we expect this to close in mid-July. We are also fortunate in that insiders and existing shareholders have committed over $6 million of equity at a $0.25 per share to ensure that the capital is needed to close this transformative acquisition. They see the combined companies will be substantially larger. The cross-sell opportunities will be tremendous. The cost savings are existent. The international footprint will propel the UltraMIST product quickly, the combination therapies and the end-to-end solution that we bring to market really put us in a separate category within the wound care perspective. That's not all with regard to this transformative acquisition, we are also filed a preliminary proxy for our Annual General Meeting, which will occur July 23. In that annual meeting, we will take the necessary actions so that we can uplist to NASDAQ post this conclusion of this transformative acquisition and the Annual General Meeting. We will also be moving our incorporation from Nevada to Delaware. We were using this as an opportunity to really transform SANUWAVE as a company and become a major player within the wound care category. To summarize, we're announcing today an exclusive LOI to acquire the UltraMIST assets from Celularity. We are announcing the exclusive license to certain wound care products in the biologics segment of Celularity. The deal has certain requirements, but hopefully will close in mid-July. We have retained William Blair to assist on the debt raise. We have commitments of over $6 million in equity at $0.25 a share. The deal is significant and transformative for the following reasons: significant increase in revenue. Cash flow positive as a company immediately post acquisition; expands footprint to 900-plus locations for expansion of both the biologics and dermaPACE into those locations. Expanse of sales force dramatically, which will now be selling a full portfolio of products, dermaPACE, UltraMIST, Biovance and Interfyl and then eventually WoundShield into those customers. The cross-sell opportunities and the combination therapies will be transformative for the wound care industry. It's an end-to-end market within the wound clinic, not just diabetic foot ulcers, but all types of wounds and that can be treated from early stage to late stage. International growth opportunities are significant. There are cost savings, and there is a platform to drive sustained growth in the future. Thank you. I look forward to speaking with each and every one of you in the future. If you have any questions, please feel free to call. Thank you very much, and have a great day.

Thank you, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this Time, and have a great day.