Spectral Medical Inc. (EDT) Earnings Call Transcript & Summary

Hello and welcome to the Annual General Meeting of Shareholders of Spectral Medical, Inc. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the company that you first obtained all required consents for the disclosure, recording, transfer and use of such personal information from all the appropriate persons before your disclosure. Following the completion of the meeting, we'll have a question-and-answer session. [Operator Instructions]. It is now my pleasure to turn today's meeting over to Paul Walker. Dr. Walker, the floor is yours.

Thank you very much. Ladies and gentlemen, welcome to the Annual Meeting of the Shareholders of Spectral Medical Inc. My name is Paul Walker, and as the Chairman of the corporation, I will act as Chair of today's meeting. I extend to all of you a warm welcome. On behalf of the Board, I wish to express thanks to those shareholders who have submitted their proxies in advance of today's meeting. At this meeting -- as this meeting is being held both in person and via live audio webcast, we think it's necessary to set out a few rules for the orderly conduct of the meeting. If you have joined the meeting by way of live audio webcast, questions in respect of a motion can be submitted by a registered shareholder or duly appointed proxy holders by following the audio QA instructions on your screen to dial and access to QA phone line. Once you're on the QA phone line to access -- or to ask a question during the session you will need to press Star 1 on your telephone. Please mute your computer audio while waiting to ask a question. For those of us here in person, please raise your hand to ask a question. When asking a question, please indicate your name and which entity you represent, and if any, and confirm that you are a registered shareholder or duly appointed proxy. Questions will only be addressed during the question period at the end of the meeting, provided the questions regarding procedural matters or directly related to motions before the meeting may be addressed during the meeting. For those attending via live audio webcast, voting was open at the online at the beginning of the meeting and will remain open throughout the meeting. This will allow you to choose to vote on each resolution now or wait until the conclusion of the discussion of each resolution prior to casting your vote. Only registered shareholders and duly appointed proxy holders of the corporation are permitted to participate in the online voting shortly after the final resolution is proposed and voted on, we will close the online voting. For those attending in person, voting will be conducted by ballot. If you did not sign your ballot at registration with the scrutineer, please raise your hand at the conclusion of the meeting and your ballot will be collected by the scrutineer. For those attending -- we will now follow -- proceed with the formal portion of today's meeting. To expedite the formal portion, I will move all motions, following the formal meeting, Mr. Seto, the CEO of the corporation, will give a small presentation. I now call to order the Annual Meeting of the corporation's shareholders. With the consent of the meeting, I will appoint Chris Seto, the corporations Chief Executive Officer, to act as Secretary. For the purposes of this meeting, I appoint Computershare Trust Company of Canada through its representatives as scrutineers to compute the votes of any ballots taken at this meeting and to report there upon to the Chairman of the meeting. The scrutineers have advised that the requisite quorum of shareholders are present. A copy of the final report on attendance will be filed with the records of the meeting. Purposes of today's meeting are set out in the Management Information Circular of the company, dated April 19, 2024. Notice of this meeting, the circular and form of proxy were mailed to shareholders on or around May 17, 2024. The annual audited financial statements of the company for the fiscal year ended December 31, 2023, and related MD&A were previously mailed to shareholders of the company who requested it and are additionally available on the company's profile on SEDAR+ and on the company's website. Our transfer agent -- appointee has attested to the proper mailing of notice of this meeting, proof of service of mailing provided by the company's transfer agent has been provided to me. I direct that a copy of this notice of the meeting as well as the affidavit of mailing of the notice of this meeting and accompanying documents to be annexed to the minutes of this meeting. Unless there is an objection, I will dispense with the reading of the notice of the meeting, copies of the circular and other meeting materials are available under the company's profile on SEDAR+ website. For the purposes of the meeting today, if attending live audio webcast, voting on all matters will be conducted online through the virtual interface. If attending in person, voting on all matters will be conducted by ballot that was provided to you when you arrived today. For those of you attending via live audio webcast, you may choose to register your votes online now or you may wait until the conclusion of the discussion of each resolution prior to casting your votes online. As noted earlier, shortly after the resolution is proposed and voted on, we will close the online voting. For those of you attending in person, vote by marking X on the appropriate box of the appropriate ballot. Please print your name clearly on the ballot and sign it before returning it to the scrutineer. At the conclusion of the meeting, please raise your hand and your ballot will be collected by the scrutineer. Scrutineer will then compile the votes in respect of each business item, and the corporation will release the final results via press release later today. As noted earlier, to further expedite the formal part of the meeting, I will move all motions in accordance with the bylaws of the corporation, no such motion needs to be seconded. I now declare that this meeting is regularly called and properly constituted for the transaction of business. We now move to the formal part of today's agenda. First item of business is the presentation of the corporates consolidated financial statements for the financial year ended December 31, 2023, and the auditor's report thereon. Copies of such documents have been mailed to the shareholders who requested such statements, unless there is objection, I will dispense with the reading of the auditor's report. I will entertain questions with respect to the financial statements of the corporation in the general question period. We now move to the next point on today's agenda. Next matter to be acted upon is the election of 7 individuals to the Board of Directors. As per the management information circular, Jan D'Alvise, Jun Hayakawa, David Feigal, Chris Seto, William Stevens, Paul Walker and Cristiano Franzi have been nominated as directors for the ensuing year or until their successors are elected or appointed. Each of the persons nominated has confirmed that he or she is prepared to serve as a Director. Each of them qualifies as a director under the provisions of the Business Corporations Act of Ontario. The motion to elect 7 nominees is now on the floor. The act requires of the Board of Directors be elected. Proxies have been solicited for each of the 7 proposed qualified persons listed in the management circular. The form of proxy for voting on the election of directors sets out that each proposed nominee separately and allows shareholders to vote for each director individually. Is there any discussion or questions on this motion?

[Operator Instructions]

Can the operator, please confirm whether there is any discussion or questions?

We have not received any discussion or questions.

As mentioned at the beginning of this meeting, voting today is being conducted both online and in person by ballot. If you have not already done so, please have a vote on this resolution using the virtual interface or by marking X on the appropriate box of the appropriate ballot. I would now move to the next item of business. Next item of business is the reappointment of PricewaterhouseCoopers LLP, chartered professional accountants as the auditors of the corporation to hold office until the earlier of the next annual meeting or their successors are appointed to authorize the directors of the corporation to fix the remuneration of the auditors. I move and second that PricewaterhouseCoopers LLP be appointed auditors of the corporation to hold office until the earlier of the next annual meeting of the shareholders or their successors are appointed and that the Board of Directors be authorized to fix their remuneration. This motion is now on the floor. Is there any discussion or questions on the motion? Can the operator, please confirm whether there are any discussion or questions on the motion?

We have not received any discussion or questions.

If you've not already done so, please vote on this resolution using the virtual interface by marking X on the appropriate box of the appropriate ballot. I will now move to the next item of business. As previously mentioned, voting today will be conducted both online and via the virtual interface and in person by ballot now that we have proposed and discussed all the resolutions to be put to shareholders, we will now be closing the online voting momentarily, and the scrutineer will be collecting the ballots. Is there any further discussion or questions related to the matter? Can the operator, please confirm if there's any further discussion or questions?

We have not received any discussion or questions.

Okay. We will reconvene in a few minutes once the voting has been closed. [Voting]

Okay. Good. Voting is now closed. Thank you for waiting. The scrutineer will prepare the scrutineer's report following the completion of the meeting, and we will announce the results of the meeting in a press release in accordance with policies of TSX and file a press release on SEDAR+. Is there any other formal business to be properly brought before this meeting? Can the operator please confirm whether there are any questions?

We have not received any questions.

Thank you. If there's no further business to be brought before this meeting, I move and second the formal portion of today's meeting be concluded. As the formal business of the meeting of shareholders of the corporation now is completed, just before I turn this over to Chris Seto to proceed with his presentation. I want to take this opportunity to thank Mr. Tony Bihl, who has retired after 16 long hard years working for Spectral, 14 of which he was Chairman. Tony has led us through very -- some good times, a lot of hard times. He showed great leadership, great integrity, and he's made this company a better entity than it was. And we appreciate very much his contributions, we did recognize that last night. I also welcome Cristiano Franzi as our new Board member, Cristiano brings a great deal of expertise in the area that Spectral is moving into, and we look forward to his contributions. Thank you. Thank you, [ Cris. ]

Thanks, Paul. Thank you, and good morning, everyone. Today, we have a short presentation in which we'll discuss a few key topics. This includes our immediate focus, The Tigris Trial and driving through to full enrollment. However, we are also going to discuss what the next phase looks like, including the regulatory path to FDA approval and PMX commercialization in North America. Once again, I cannot underscore enough how well our business is positioned. On the regulatory front, on the commercial front, as well as the ability to fund these initiatives. That being said, we entered 2023 with a challenge. That challenge was the slow pace of enrollment, and it was about 15 months ago that we communicated key initiatives, which we had implemented or were in the process of implementing to boost enrollment. So here in the audience or many in the audience may have just seen words on a PowerPoint slide at that point in time. Well, the proof of the pudding is the eating. As we sit here today, I can say those initiatives quite simply worked. Those initiatives are why we are in a position where we're staring down the end of the enrollment phase of Tigris. It's why we hit our 90-patient enrollment milestone this past February. It's why Baxter continues to allocate resources to the PMX partnership. And it's why we've been able to fund this business on very company-friendly terms. And while there is a final push to full enrollment, there is also significant planning and preparation for the regulatory submission phase and ultimately commercialization of PMX. So let's begin. Turning to Slide 4, which speaks to the challenges that we've faced entering 2023, and also speaks to the enrollment initiatives that we took to remove or mitigate the challenges. As you all know, the key challenge was a slower-than-anticipated enrollment rate. Some of the underlying issues around the enrollment rate were clinical site staffing and workflow issues in clinical research. The real clinical research enterprise is facing long recovery as a result of the pandemic. Tigris is a complex trial to execute at clinical sites and less difficult trials would recover first. A number of the key challenges was public trust and awareness of investigational devices and therapies. This has been an impediment on the informed consent side. To be clear, the above underlying issues still exist, although not to the same extent as we faced during the pandemic and exiting the pandemic. As you recall, we communicated a number of specific steps that we are taking to enhance Tigris enrollment. The first was getting more shots on net. And that was to increase the number of trial sites. The remainder of our initiatives were focused on site productivity. We were in the process of transitioning to a new CRO, Beaufort. Beaufort brings a highly regarded and experienced team assigned to Tigris. We increased our trial resources internally, which were fully dedicated to Tigris throughout 2023 on the back of spinning off Dialco. We hosted a very successful Investigator Meeting in mid-May. With incredible attendance from all our sites and stakeholders. This was the first in-person Investigator Meeting since late 2019, and there was tremendous energy and enthusiasm to be part of Tigris and motivation to get Tigris done. And lastly, we embarked on a meaningful public investigator education campaign through Project [ Mesa ] and the production of a human interest in medical info video through the balancing act. While these initiatives in aggregate were a success, we continue to focus on site productivity initiatives to drive to full enrollment as expeditiously as possible. Turning to Slide 5, this is a snapshot of where we are today. As of today, we are at 108 patients randomized, which is 72% of the way through Tigris versus 61 patients or 41% enrolled exactly 1 year ago today. In terms of number of sites open for enrollment, we have 23 sites versus 16 sites a year ago. While we are approved for up to 25 sites, and that was our target that we communicated last year, we believe that the complement of 23 sites is likely to be the peak number of sites. We're happy with the lineup that we have, and we have a number of recently on-boarded sites that are in start-up phase, and we will -- and we believe will contribute meaningfully to future enrollments. Turning to Slide 6. So we mentioned that we have seen significant positive impact from these initiatives. Over the last 12 months, we've experienced a surge in enrollment. To put some of these enrollment metrics into perspective, we enrolled 47 patients since our AGM last year. And we've enrolled 55 patients since our April 6 communication of our enrollment initiatives. So far in 2024, year-to-date, we've enrolled 27 patients with record enrollment months to start the year in January, February and then another record month in April. And once again, we expect the 2024 on-boarded sites to have a further positive impact. Turning to Slide 7. So what have been the drivers of this or the cause and effect? Well, it's a recipe of drivers, it's a combination of new sites, increased resources, increased site presence, continuous training and critical views. These all lead to more shots on goal, increased motivation, going the extra mile to find patients and increased site productivity, which all leads to enrollment. I'm going to turn it over to John Kellum to go a bit deeper in some of these causes. It is hard to appreciate just words on the page versus some compelling examples. John?

Thank you, Chris. Maybe I'll let people digest this slide, and then we can turn to Slide 7. We have been having a little difficulty following with the slides lagging, when you see Slide 7, it will have a variety of drivers. And I think it's really difficult to put into words just how significant these drivers are because they interact with each other. I'm still waiting for Slide 7. But we really -- I just can't emphasize enough that it's more than just -- there we go. It's more than just having additional sites, which are additional opportunities to enroll those additional sites that have come on have spurned the existing sites to perform better and to increase enrollment across the entire set of sites that we have. New training that goes on at these new sites helps reinforce existing site training and education and the turnover at site over the course of the trial, all of that learning is very effective and continues to make the trial participants, the clinical researchers more confident. But it's more than just competence alone. It's also enthusiasm. And I think by now, most of our sites have actually experienced first hand that the therapy works and they're eager to provide that therapy to their patients. And this enthusiasm will also be a major driver of adoption. If we can turn to the next slide -- sometime today. We can see that the way to get this done is to first -- this reminds me of the days of paper slides when you couldn't get the carousel to advance and sometimes you had to do a little song and dance up on the podium. But what you will see eventually is a slide that shows our revised timeline. And that timeline is sort of based on two scenarios, what I consider to be sort of a worst-case scenario where we essentially take our 2023 enrollment, which wasn't bad, it was about 0.19 patients per site per month. And then our current enrollment, which is actually 0.29 per patient per month as a best-case scenario. And we project both of those enrollment rates, worst-case, best-case on our current site profile, which is 23 sites. And we effectively show that we could be finished with this trial as early as November or as late as February. It's a safe bet we'll be somewhere in between, which again is where we're sort of projecting the trial to finish sometime in January or December. December of this year or January of next year. So Tigris should be in complete enrollment somewhere around the end of this calendar year. The next slide speaks to the post enrollment timeline. So if -- if you imagine that T-0 is the last patient enrolled. We have 28 days before that last patient reaches the 28-day mark. And that's the point at which the CRO begins to lock the database in preparation for analysis. That whole process takes us to about day 75. The analysis will take us another 45 days or so. So we're out at about 120 days post last patient enrolled. And then the FDA submission will occur promptly thereafter usually about 60 days after analysis is complete. In addition to preparing the FDA submission -- in addition to preparing the FDA submission, we will also be submitting a manuscript. And so preparation and submission of that manuscript will occur in that period of time with the expectation based on usual timing that paper will be published around 240 days after the last patient is enrolled. The FDA regulatory review will take a little bit longer and will push us out to final FDA approval estimated to be around 450 days, for 15 months after the last patient is enrolled with commercial launch immediately on the heels of FDA approval. Is that rapid? Is that an aggressive timeline? A little bit, but it reflects the fact that we believe the trial was well positioned. We believe that our relationship with the FDA is well positioned, including our breakthrough device designation, and therefore, this timeline is realistic. And with that, we're caught up on the slides, I'll turn it over to you.

Great. Thanks, John. Turning to the next slide when it does turn. We discuss our partnership with Baxter or Vantive and their commitment to the commercialization of PMX. In February, we had a major milestone when we hit our 90 patient enrollment. Mark, as per our distribution agreement, Baxter had the option to retain its exclusive distribution rights by paying spectral milestone payment within 60 days of notification. If Baxter declined its option, it would be appointed a nonexclusive distributor of PMX, -- so what's the importance here? First, the signal to the market is very positive. Our takeaway is, and this is our interpretation that Baxter has competence of the outcome of Tigris. They believe in the PMX product, and they continue to make significant commitments to our partnership. In exercising its option the potential for future milestone payments on FDA approval is maintained, along with distribution economics such as minimum quantities and pricing thresholds. On a nonexclusive basis, these commitments would have fallen away. On the quantum of the milestone payment, at first glance, the $2 million milestone payment may not look like a significant investment by Baxter. However, there are a couple of things to point out. First, the $2 million represented the remainder of a milestone payment. When we are looking for funding back in 2022, Baxter pulled forward a portion of the milestone payment to participate and act as a lead investor in our funding round. On company-friendly terms. Second, it's important not to lose sight of the relationship in totality since we entered into this partnership. From a financial support side, Baxter has committed roughly $15 million to Spectral, comprised of $9 million in nondilutive payments and $6 million in convertible notes. From a commercialization perspective, Baxter continues to allocate significant resources to our partnership. By our estimates, Baxter has allocated well over 20 individuals from various disciplines, from clinical, regulatory, sales and marketing, reimbursement procurement, et cetera. And this number seems to continue to grow every quarter. Additionally, Baxter has put financial and clinical resources behind our collaboration on the PrisMAX substudy. To get FDA clearance for their PrisMAX device for HP mode, which allows for a smoother commercialization uptake in the end. And finally, on the Baxter front, we amended the initial term to 10 years post-FDA approval. When we executed the original agreement back in February of 2020, the initial term was 10 years, ending December 2029. We also thought that the Tigris trial would be fully enrolled in 15 months, so around -- mid-2022. As you well know, the actual timeline to fully enroll Tigris has significantly differed from our initial assumptions. As such, both Spectral and Baxter mutually agreed to extend the initial term to 10 years post-FDA approval, which brings the initial term of the agreement back in line with the initial intent. So once again, how does this benefit Spectral? Well, once again, I'll reiterate that Baxter is probably the best partner for Spectral, at the end of the day, Baxter has approximately 50% market share of the installed critical care devices that run in PMX -- that run PMX in ICUs across the U.S. Additionally, they already have the sales infrastructure in place. They have proven to be both a collaborative and supportive partner. As mentioned previously, they have provided financial support as well as bringing to bear their commercialization machinery. The amendment to the term means that Spectral has secured a long-term partner and sets the company up to benefit from a long-term agreement, an agreement that also motivates Baxter to continue to invest and allocate resources to the PMX partnership. Simply put, from a financial perspective, 10 years of cash flow are worth significantly more than 5 years of cash flow. So turning to the next slide. We already got there. We've shown this many times before, but once again, this points to the robust financial returns and shareholder value potential for our platform. We are operating in an untapped $2 billion-plus annual market with no competitors. We're well positioned to unlock significant shareholder value. And once again, Baxter is the best commercial partner for Spectral. We said at day 1, and we continue to say it today. They've shown themselves to be committed and collaborative and continue to allocate and invest commercialization resources once again, for marketing, regulatory, clinical and reimbursement. And once again, their 50% market share of installed critical care devices. From a Spectral net economic benefit perspective, our platform has incredible shareholder value potential. In the table, we continue to show market penetration rates and what this could mean to Spectral from an EBITDA perspective. And you can see it's robust. And we're from tens of millions to hundreds of millions U.S. If I look at how this might translate into share price potential, I'll just lay down some illustrative mass. Comparable medical device companies traded EBITDA multiples of, call it, 10x to 15x -- for the purposes of our math, I'll use 10x to be conservative. I'll multiply that across the various net EBITDA scenarios and then divide by, call it, 350 million shares outstanding by the time we're all set and done and taking into account note conversion and potential future financings. That results in some pretty attractive share prices. So for shareholders that invest today or invested yesterday or invested longer than that. The potential shareholder returns could be spectacular. Let's turn to the next slide. This -- well, we'll just continue. The next slide, this is just a couple of comparable commercialization case studies. The first is what's called ECMO therapy. It's an expensive and complicated to implement. And John, if you want to chime in here at any point, the therapy has been around for over 50 years. And as you can see or will see when the slides are eventually up. Clinical adoption of this expensive therapy continues to grow in the U.S. On the right-hand side, once again, we've discussed this before, Eli Lilly's Xigris drug, which is no longer on the market. This therapy addressing a severe sepsis launched hot with approximately $100 million in sales in year 1 of its FDA approval. So the point being is that there is precedent for strong market penetration of similar ICU therapies at the end of the day. Turning to slide -- or the next slide, once again, when it gets there. The next slide. We'll talk about our liquidity profile and just a snapshot of that. We just closed an $8.5 million bought deal convertible note financing. On once again, what I consider very favorable terms to the company. It was 9% cash coupon, no warrant coverage, 20% conversion premium with a 4-year maturity. Deals in the equity markets for development stage companies are getting done at significant discounts and at minimum full warrant coverage. So we continue to search for the lowest cost of capital and with patient capital. Additionally, we've seen some recent warrant and stock option exercises for approximately $900,000 in net proceeds. So combined with our recent raise, we are in a funded position to see this trial through to last patient enrollment, and then some. Turning to the next slide. This is -- once again when we get there. This is simply a chart showing Spectral's relative share price performance over the last 12 months. And as you will see, Spectral has traded well above its peers who are down anywhere from 30% to 85% and once again continue to well outperform the broader indices. And for good measure, although not shown on this chart, i can throw an outset medical, which is down 85% during the same period. So certainly, we have benefited from a strong cadence of enrollment, but this is also attributable to constant marketing and exposure of our story to new pockets of capital. On Slide 15, we've laid out Spectral's upcoming catalysts. Once again, Tigris enrollment and driving to full enrollment. Post-enrollment, the release of top line results and then on to FDA submission, FDA approval and the commencement of PMX commercialization. So before we get to the Q&A session, I would just like to wrap up the presentation portion with some concluding remarks. The initiatives in 2023 and frankly, prior to 2023, have positioned Spectral for the final push enrollment of Tigris. We've built a strong foundation for success. We have derisked the regulatory side with the design of the Tigris trial, and we have derisked commercialization with our Baxter partnership. We're planning and preparing for the next phase: regulatory submission and commercialization launch. And most importantly, we are positioned to unlock significant shareholder value. PMX economics are robust with an estimated $2 billion-plus market, and targeting the most malignant form of septic shock with no other therapeutic solution. At this point in time, we can open up the call for your questions.

First of all, I ask all attendees who'd like to ask a question of management to dial in or raise your hand to do so. We'll answer as many questions as time permits. When asking your question, please state your name, the entity you represent, if any, and confirm you are a registered shareholder or a duly appointed proxy holder. Please limit your questions to topics relating to today's subject matter and keep your questions short and to the point. We'll now give attendees a moment to dial in their questions.

[Operator Instructions]

Scott McDuougall, shareholder, private investor. My first question is with regards to speed of adoption post-FDA approval and centers around the idea that -- is there -- is that a legal matter for doctors and insurance companies? So what are the impediments to adoption? Other than the fact that, assuming certain hospitals may not be aware of the -- or properly trained and that sort of thing. But if this becomes a standard of care treatment, are doctors compelled from -- even from a legal perspective to adopt the new, say, PMX therapy. Should it -- again, should it become FDA approved? And so that relates to the speed of adoption, which I'm trying to -- as a shareholder, try to get a handle on.

Well, I'll just start, and I've got 2 doctors up here on the panel with me who have worked in the ICU. So they can talk about how would they look at adoption? Especially for something with a mortality signal that we're looking at, frankly, confirming at the end of the day. John?

No. I think that's right. This is a unique situation because we're talking about a therapy that will not get FDA approved unless there's a significant benefit to mortality. And we haven't been very clear, I think, with market about the long-term benefits. But if you go back to the prior trial, patients who survived this therapy don't just die at day 29. So there's going to be some compelling rationale for physicians to provide this. In terms of a legal matter, I mean, it's really tort, right? It's -- okay is doctors feeling like -- not only do they want to use this for the patients because they want the patients to survive, hospitals and doctors will feel like they could get sued if they fail to provide. And that's real. In terms of hospital adoption, I think, generally, we look at other life-saving therapies that have come around. ECMO we saw on the slide that you didn't probably get a chance to really study. But ECMO had very low rates of utilization for 1 year -- is usually just lung transplants. And then there were studies done toward the end of 2008, 2009 that began to demonstrate that it could be utilized to save the lives of patients who have acute respiratory failure. This was pre-pandemic and led to why the use in the pandemic was so robust. And there's a steep increase not only in sites that have the capacity to provide ECMO, we're providing it. But new centers were starting to offer the therapy. And I think we'll probably see that kind of adoption with this technology. Not every center has the capacity to even provide acute dialysis. If you don't provide acute dialysis, you probably aren't going to be able to provide this therapy but you'll have to figure out a way to transfer the patient to a place that provides it. But there's really not -- I mean you really don't have a scenario where hospitals would say, "Oh, we don't want to spend the money on this because there's an existing alternative that's less expensive." That's really where the major driver is going to come from is that there's no alternative.

Okay. Next question is from me. My name is Kevin Vester, an individual investor. You mentioned about how the PrisMax systems installed in about 50% of the hospitals. So my question is for those hospitals without the system, what system would they use? And would this be an impediment to the adoption of PMX?

Yes, I can take that one. So traditionally, these -- if you go back many years, the first sort of blood purification that's sort of non-dialysis was for drug overdoses right? So before we had drugs to treat digitalis toxicity, we would dialyze those patients. And we would use charcoal and we use various other things to remove those toxins from the bloodstream. Those cartridges, although never FDA approved for this indication, were utilized on existing dialysis equipment. And about half of our sites are using PMX on existing dialysis equipment, when the product is approved, it will not be approved as a companion device, which means that it's not approved to run on a specific platform. And although a little bit more complicated to run it on a dialysis machine as opposed to a Baxter PrisMAX machine, that is a very reasonable, very easy way to apply this therapy. And my guess is, although adoption may be slightly faster with sites that already have the PrisMAX device, if you've got just a Fresenius dialysis machine, you can do this. We have protocols that we're utilizing in the trial, you could use this therapy. It should not be a significant impediment.

Okay. Next question I had was around this golden hour of sepsis, there's tons of papers that are written on this. I'm just wondering how is your personal kind of understanding or opinion about this goal [indiscernible] or evolved maybe over the last few years?

Okay. Well, that's complicated. I could give you an entire lecture on that. The reality is that sepsis occurs because there's an infection. And the tipping point between when infection become -- and we saw the same thing with COVID, right? Many of you in this room, maybe everyone in this room has had COVID -- you survived. Most of you didn't get all that [ said, ] but you know full well, there were some people who developed essentially viral sepsis from COVID, when you have an infection, there is a point at which this becomes not just a contained infection in the lung, but it develops a systemic effect. At that point, that's when people start to talk about golden hours and they start talking about, well, you've got to move quickly. But most of the interventions are by getting you on antibiotics. Most of the interventions are about getting you into an ICU where we can provide supportive care. In this particular intervention really involves removing a toxin, which is otherwise not treated by antibiotics, or supportive care. We don't have a lot more time to get this underway, which is good that our diagnostic test is very rapid. This test can be used while the patient is still in the emergency department, while the doctors are prescribing the antibiotics while the transfer orders to the ICU for supportive care are occurring. So I think it's not really a question of like you're going to wait until the patient has everything else done and then start this therapy. I think this therapy can be built into protocols for managing sepsis. This particular kind of sepsis requires a specific treatment, which can be overlay on top of the existing treatment that patients with sepsis are getting today.

Okay. So basically, you're not seeing -- like getting it done faster is not really an impediment in terms of we need to reduce the amount of time between when they, let's say, getting antibiotics and getting the PMX? Are we really missing out if we're delaying it by next year?

No, no. I do think that -- and that's why I think that the fact that we're guided by a diagnostic and not guided by some hard to train clinical judgment. Imagine if we didn't have a diagnostic? And then you'd be saying, "Oh, okay, well, I've got the antibiotics on board. I've sent the patient to the ICU, and it looks like the patient is still deteriorating." And then the question is, well, -- are they getting bad? Do we suspect there might be endotoxin floating around their blood? That could take hours to days before there's enough sort of clinical judgment that this is a patient who should be treated with this therapy. The fact that we have a rapid diagnostic to say immediately, the patient does or doesn't have the target in their bloodstream I think, will address that issue because I do agree with you, Kevin. I think that waiting 3 or 4 days for someone to get this therapy is not going to do them any good, and we will have patients that simply won't respond at that point or be dead already. So rapid is important. We have a diagnostic. This dovetails very nicely, I think, with a lot of sepsis protocols. That sites we're already using. Our speaker -- our investigator meeting in San Diego, the last one that we had. We had a speaker who actually talked about integrating the diagnostic and the protocol for delivering the therapy with the existing sepsis protocols at her hospital. So I think all of that will happen. It will happen better at some hospitals than it does in others. But I think you're right, rapid is important, and I think we're poised to do that.

And just one more question for me. Is there a lot of crosstalk now between the different sites? I know that you had a couple of investigator meetings, and I would imagine there's a lot of knowledge rather than just getting it from you directly is that as they experience the use of PMX with their patients, are they talking to each other? I'm just curious.

Yes. In addition to the public events that we have that you're referring to, we have regular investigator calls where we do have coaching that goes on existing sites that have been in this for a while and help drive enrollment at new sites. And there's also a bit of competitiveness right? So everybody wants to be "top gun" in terms of enrolling patients and a lot of that is interaction between the PI. So no, there's a fair amount of interaction

Scott McAuley from Paradigm Capital. I have two quick ones for me. One on the number of trial sites. So you're at 23, you've proved up to 25. Is there a goal to reach that 25? Or do you feel like the sites you have right now are effective in doing what you need to do to hit the recruitment that you want? And then secondly, if you could talk a bit about trends on screening rates and/or that conversion rate of screening to enrollment because I know that, that's been something of a challenge with how challenging the trial is. So with the training and all the other things you've been doing, how that conversion has been improving over time?

So I'll start on the trial sites. 23 is where we think we max out. By the time we bring on and source other new sites, we're so deep into this trial at this point that, one, the interest to join the trial on the tail end may not be there. But two, the effectiveness or whether their unknown sites could bring risk ultimately to the trial. So we're happy with the setup. Certainly, there are sites that are outperforming others. But where we've gotten to today has frankly been on the back of our existing sites, and with these new sites that we brought on, and we brought on a considerable number of sites in the new year. We have -- I wouldn't say yet to see them contribute, but they're still firing up. And there's a little bit of a lead-in before. Now there are anomalies like a couple of them were after opening up, there was an enrollment day 4, right? There was one -- another site that was -- their first enrollment was day 35. But for the most part, it's a 4-month or so leading. And so once again, we like the setup. And we like the contribution of the sites that we have today.

I can address the screening issue. It largely relates to the fact that in this precision medicine paradigm, we are very much focused on the right patients, right? The patients who not only have sepsis, they also have to have a significant risk. And this is for the trial, like application and people miss this point a lot, including some of our colleagues out there. You design a clinical trial because you have an endpoint that the FDA will accept. And the endpoint that the FDA accepts is 28-day mortality. There is no point in enrolling patients in this trial who are either very unlikely to die or so likely to die that you just can't see an effect. So you have to be -- so we are -- I mean we designed this trial based on the fact that we know that patients with a significant amount of organ failure and an EAA between 0.6 and 0.9 is the right population. So that's selecting a very specific population for the trial. Now that's not to say that a patient with a little bit less organ failure couldn't still benefit, and we have data from EUPHRATES suggesting that -- demonstrating that you have less shock, you have less use of dialysis, you have shorter time on mechanical ventilation. We have data from Europe and from Japan that support that. That's clinical application in the real world. But for the trial, we have to be very, very precise. And it's difficult, right? I mean you've got to not only identify patients with sepsis. You've got to identify the patients with sepsis and organ failure. And then you have to run an EAA for which you have to get consent for. So you got to find the family, get consent. You got -- the EAA has to come back within range. And now it's got to be like Monday through Friday before 5:00 p.m., or you're not going to get this patient on the treatment at most sites. We've had some sites that are actually able to do this 24/7, but it's unusual because it's a research application. These guys don't work 24/7. So -- all of that, Scott, is I think why the source population of septic shock is much, much larger than the group that we enroll in the clinical trial. But we -- our estimates continue to be that we're looking at about 120,000 to 140,000 people per year in the United States alone who meet these criteria. And it doesn't look like that market size has really changed at all based on what we've seen.

And maybe just a quick follow-up on that. As you said the challenges of consent and finding patients within the range. And I know one of the issues was the dilators of I think it's 24 hours. And these trials specific things that, as you mentioned, don't necessarily impact on the market. As you've seen enrollment rate go up and the fantastic effects of the past 12 months, has there been specific things like -- of those specific issues of the challenges of getting from screening to enrollment that have really improved that has helped drive the better enrollment that you've seen in January, February, March, April to hit those numbers? What has been the delta that's really changed relative to 12 months ago, 16 months ago?

I think when you start a clinical trial and Paul may have other ideas as well. But I think when you start a clinical trial, particularly in sepsis where, let's face it, most things have failed. There are sites that sign on because they want to do the research. But they may not be convinced, right? And they may not say it's Friday afternoon, I got dinner plans tonight. You got this patient, let's pass on this one, right? Early in the trial. I think a lot of our sites have now sort of passed that, right? They believe in this therapy. And when you believe in the therapy, then you're much more likely to say, "Yes, I'm really busy today, but I hear there might be a patient for this trial in one of the ICUs. I'm going to go see that patient. I got dinner plans tonight and I'm going to call my wife or my husband and say, "I'm not coming home, I'm going to take care of this patient. That doesn't happen because we pay them. That doesn't happen from my charisma. Okay. That happens because the sites believe in the therapy. And I think what you're seeing at this point more than anything else is that we have sites that are now committed because the trial is now 70% through and almost the majority of the sites have experienced that it works. I think that's the single -- and of course, if I could infuse that magic sauce into the trial early on, that would be great. But that's something that the sites have to learn. And I think that's just where we are. We've added good sites, and I think some of our enrollment is coming from new sites, but I think that's the biggest factor.

Toby Beam, private investigator -- or private investor, sorry. Just over a year ago, the company announced that there was positive results from [ EUPHRATES II ] clinical trial that included about 50 critically ill endotoxic septic shock patients, and it spoke to an estimated 50% estimated relative mortality reduction with the use of PMX. I'm just wondering if you can add -- maybe tell us a little bit more about that and the significance. It did go on to talk that this aligns with the patient population in Tigris. So anyway, that seems rather impressive to me, and I'd just like to know if you can tell us a little more?

So I think what you're referring to is a presentation we gave about a year ago or something like that and which one of the things we showed was some data from Eastern Europe, I think, is a study from Poland. And what those investigators did was an interventional study was simply measuring EAA and identifying patients with the clinical syndrome septic shock with and without a positive EAA. And if you have endotoxic septic shock, mean you have septic shock with positive endotoxin, your mortality is about twice that, of patients who have Endotoxic negative septic shock, meaning that EAA is less than 0.6. And I think we described at the time that sort of the upper bound of what you could anticipate as an effect size. Right? If you could take away, if you could convert someone from Endotoxic positive septic shock, to Endotoxic negative septic shock, you could potentially capture that survival benefit. No one in this room would design a clinical trial to try to achieve a 50%. I mean there hasn't been anything as a 50% improvement in survival -- antibiotics don't have a 50% improvement in survival. So we're much more realistic about aiming for 25% to 30% relative risk reduction. And that's what the population, that's what we call the prior distribution and the data from EUPHRATES, that group of patients with a MOD score greater than 9 and an EAA between 0.6 and 0.9, they achieved a 10% relative risk reduction, which translates to about a 25%, 30% relative risk reduction. And that's huge and virtually unprecedented. And so we feel that, that's already a pretty big target to aim at. But we've announced to the market multiple times that our results are really quite in keeping with that expectation, and we say that today as well.

And as far as COVID patients apply on an FDA approval, I mean, I understand for the trial, we have to keep things very narrow and very focused, and that's clearly the right thing to do. But after FDA approval, I assume COVID would be included in a much broader audience?

It will. I mean, one of my former fellows who went back to Thailand to run a department in Bangkok did a study during the first wave of COVID that basically showed that the patients who really get sick and die, many of those patients have Endotoxin leaking out of their gut. We don't see that many of those patients anymore. Better therapy for COVID newer variants, which are less aggressive, quite frankly. We don't see as many patients who have that kind of aggressive viral sepsis we did during the first wave. Most of the people that I take care of who die of COVID these days die because they have significant underlying disease, not because they're getting massive amounts of Endotoxin. But those patients do exist. And my guess is what would happen in those scenarios is you basically have a patient who has a clinical gestalt of septic shock. You don't know if it's from the -- from a bacteria that was super infection on top of the COVID or it's the COVID itself. You measure an endotoxin -- if it's sky high, you would say, "I'm going to put that patient on therapy."

Rogers St-Germain and we're personal investor through one of my company 121 Canada Inc, and my foundation, Rogers St-Germain. I just want to ask in the [ communicate, ] sometimes you put -- at the end, the PMX is approved for therapeutic use in Japan and Europe and has been used safely and effectively on more than 340,000 patients. That number is all the time the same for a while. So I just wonder if it has been an increase or is it stable around the world?

Yes. So I can't quote today the number, but it has continued to climb. And perhaps we need to refresh that number to reflect the current utilization. We only know that information, frankly, because regulatory agencies around the world require certain information to be reported. We don't know, for example -- I mean, India is a good example. There's a lot of PMX that's used in India that is pretty much under the radar. Like it's not reported to any regulatory agencies that I'm aware of. And so no one can -- no one even knows how many therapies are provided there. And you might say the same thing for some Eastern European countries. In Italy, in Japan, in Spain, and Korea, where there's a lot of utilization many of those numbers are known. And we know, although I don't know to the extent Chris may be able to comment, we know from the manufacturer, some -- we have some sense of how much of the devices are utilized.

Okay. Another question for you, Chris. I just want to know if you have completed the last financing for the next 12 months? Are you looking for 1 or 2 more [ financing? ]

Well, we'll see. I mean we have a number of avenues to get there. Certainly, there are a number of warrants that are outstanding. I think we have about 12 million warrants outstanding. They expire July 2024, their $0.50 franked. So certainly, we have a push on to get those exercised. Certainly, the share price has to be in a certain zone for people to want to exercise. But that could add $6 million to the treasury net right? There is also another $6 million or so warrants that expire November 2025. And those certainly are in the money as well. They're a $0.48 frank. So once again, there are some avenues. Now we do have the representative in the audience today as well, a large family office that has led our financings and subscribe to 3 of the convertible note offerings. They've been supportive. Certainly, I would think that they would be interested to continue to lead those investments. I mean, there's no guarantees, but -- this business has been performing the way we said it would over the last 12 or 18 months or so. And so frankly, there's no reason to doubt why I wouldn't see participation in the future.

We have received a question from William Lawson.

I believe this question would be for Dr. Kellum. Post 150 enrollment, please reiterate the timeline you stated earlier, leading up the FDA approval? Are we really looking into 2026 before potential approval?

Yes. So the usual time course -- so thank you for that question. So the usual time course from completion of enrollment to approval under a PMA is around 18 months to 2 years. We think it will be faster because of the breakthrough device designation and also because we have what's called a modular PMA which allows you to submit some of the modules ahead of time before the clinical module comes in, some of those modules were actually approved previously. Now they've expired, so we have to resubmit them. They have to be refreshed in terms of new guidelines and new standards but it's a much, much easier process than starting over again. There's inspection of the manufacturing site in Japan, that happened already. It's unlikely that the FDA will do that again. So there's a lot of things that I think will move the process faster and that's why we've essentially estimated a 15-month rather than an 18- to 24-month timeline. And this is also pretty much on track with what Baxter soon to be Vantive will do in terms of their commercialization rollout. So that's basically what we're looking at in terms of the timeline.

One more quick question. After approval is given, how exactly do we monetize the award?

Sorry, Bill, could you repeat that, monetize -- sorry, what?

After approval is given, how exactly do we monetize the award? How do we make money? How do we generate a revenue stream, which ultimately could lead us to a higher level of exchange?

Well, first and foremost, that -- that's our partnership with Baxter. That's how we make money. We have a distribution partnership with them, and frankly, is a revenue-sharing agreement at the end of the day. And so it really is about commercialization execution at that point in time. And that starts basically day 1 on the heels of FDA approval.

Scott McDuougall, again. More for Chris, I think. The -- you indicated Baxter is the right partner moving forward. And of course, Baxter has indicated a desire to spin off in the form of Vantive. But they've also publicly announced that there's a possibility that the division would be sold off to private equity. Should that come to pass the second option. What does that do to the distribution agreement that exists currently with Baxter? Could there be a negative impact as a result of that? Will the private equity -- is the anticipation with the private equity group -- would have an agreement with Baxter whereby Baxter would distribute PMX. So can you walk us through some of the possibilities and options there?

Yes. No, thanks, Scott. The full intention is that regardless of whether it's private equity or it's a public spin-off into a publicly traded company. Spectral's agreement is going with Vantive, one way or the other. And that's with whether Vantive gets bought out by private equity. So this will not be retained at the, let's call it, the Baxter legacy company at the end of the day. Yes. This is going -- if private equity buys Vantive, Spectral is going with that private equity firm. Our agreement -- Vantive. One way or the other, we are going with the spin-off entity, Vantive.

Probably you have a great [indiscernible] Vantive [indiscernible].

Well, if private equity buys Vantive. They buy lock stock and barrel everything. They take possession of our distribution agreement. They take...

[ Sign in to another entity. ]

Yes, yes. So -- Yes, there's not going to be some separate carve-out for PMX and our agreement, et cetera. This is going with that entity. One way or the other. Yes. Sorry, just Scott. So our maybe a little more color. We've always dealt with acute therapies business. The Vantive spin-off is 3 business lines. It's 2 dialysis business. So the PD, HD, and then Acute Therapies business. And so we will be retained by the Acute Therapies business, which is in the Vantive business.

This might not apply directly, but I'm just curious if you've considered the use of machine learning or AI with the data to maybe try to better indicate where the PMX may work better? I know many other healthcare companies are using these advanced tools. May not be relevant, but just curious if you consider that.

My view on that is that the place where it really sort of comes in is really helping hospitals to identify patients with sepsis. And so definitely as a potential output of this, not only with the artificial intelligence to be able to help doctors identify sepsis more rapidly, but it may also identify patients with a higher risk of having Endotoxic septic shock, which would allow a more rapid change in -- more rapid testing and allocation to the therapy. I do want to emphasize, though, that there's a lot of buzz around artificial intelligence. I think to -- sometimes to the extent of downgrading the application of native intelligence. And I think we basically have a diagnostic and a therapeutic. And I think where AI is really going to come in is probably on the front end of that, so better application. But also potentially a whole lot of other areas that have been touched on in meetings like this where people ask questions about, what about other patients? There are other reasons for endotoxin to leak out of your gut and maybe some of the AI applications, for example, could expand the market further from where we have today.

Are there any hospitals -- in your pool that are actually using it to -- are there any hospitals in your pool that are actually using machine learning?

AI and medicine is a bit more like sex in the third grade. Everybody is talking about it, but nobody is really doing it.

Thanks for that final comment, John. So I think we've had a fruitful discussion. And really, on behalf of management, and I do want to thank both Chris and John for their very detailed presentations today, and I think this has provided a very good information for our shareholders. And really, on behalf of the management and the Board of Directors and employees, I really want to thank those who have supported this company for a long time and particularly for attending the meeting today. Today, the only other point I would say is that one of our board members has been online. Jan D'Alvise, but we have in person. I just want to make sure everybody recognizes Dr. David Feigal, is here, and we have Jun Hayakawa who is our representative from Toray and like Baxter, Toray has been an incredible support to Spectral and a wonderful partner for many years than we want to think. Thank you. And our new member, Cristiano Franzi, who, as you all know, from the [indiscernible] has a long history with Baxter and Vantive and brings that kind of information to the Board. And finally, Will Stevens, who has the long-suffering chair of our FAC, but bottom line is that we have a very engaged Board. We have a Board that brings a great deal of information and knowledge, experience to the benefit of the company. So I'd like to thank all our shareholders for their commitment to continue to support, and we look forward to seeing you again next year. Thank you.

This concludes the meeting. If you are joining via live audio webcast. You may now disconnect.