Visioneering Technologies, Inc. (VTI) Earnings Call Transcript & Summary

Welcome back. You're watching the NWR Virtual Health Conference on May 1, 2020. We've got Visioneering Technologies up next. And Visioneering Technologies is an innovative eye care company committed to redefining vision. Headquartered in the U.S., Visioneering designs, manufactures, sells and distributes contact lenses. Its flagship product is the NaturalVue Multifocal contact lens. And VTI has expanded its portfolio of technologies to address a range of eye care issues. On the line from Atlanta, when it's quite late over there, we have Dr. Stephen Snowdy, who's the CEO. Dr. Snowdy is a scientist, serial entrepreneur and medical venture capitalist with 17 years of experience in life science investing and executive management. He previously served as CEO at Abby Med, a start-up pharmaceutical company dedicated to development of a novel class of cancer drug. He was also Chairman/CEO of Calosyn Pharma, a Phase II osteoarthritis company, and was a partner for several years at a top-tier medical venture capital firm. Stephen I might throw to you. You can take it away with your presentation.

Thank you very much, Laura, and thank you for the organizers for the invitation, and thank you for all of you who are attending. Just a quick disclaimer. I won't make you read through that torturous thing but required to have that up. And certainly, as you get a chance to go back to the slide deck, which will be posted to ASX momentarily, you take a look at the management team. Just a really quick financial overview of the company. Probably the worth -- thing worth noting here is our market cap, which is about $7.4 million today, at least last time I looked Australia. And just keep that in context as we go through the rest of the presentation, I think, and that will be what we take away from this slide, other than the fact that we have a very strong register of institutional holders of names that you'll probably recognize, and certainly very appreciative of their support. Just a quick recap of recent announcements. One of the very common questions we get is, especially for a small company like us that is negative cash flowing, how are you going to survive the COVID-19 pandemic? And so just really quickly here. On April 2, we announced that we reduced our headcount by 22 employees that was from the 42 that we had previously, bringing us down to 20 full-time employees. And we've also done some other things to help save cash during the COVID-19 pandemic in the downturn. We reduced cash salaries company-wide. We've put a pause on new product development and -- new product and international launches. International launches are a very important part of what we're doing right now and an area of the company that we've put quite a bit of effort to in -- over the past couple of years, but we will have to slow those down a bit until the macroeconomic environment starts to improve. We have, though, retained a core sales team, retained all the personnel and systems that are required to maintain our worldwide regulatory compliance. At this point, we have not seen and do not predict any interruption in the supply of product or anywhere else in our supply chain, and we remain ready to accelerate as the global conditions permit. We're expecting a bit of a downturn -- quite a bit of a downturn in second quarter of 2020. Just as a note, our fiscal year is coincident with calendar year. And we are expecting the beginnings of a recovery in the third quarter of 2020. Worth noting like most companies, though, that the magnitude of decline in the second quarter and the timing and degree of recovery that we start to see after this is very difficult to predict, pretty much impossible. But at this point, these are our best guesses. On 20 April, We reported our Appendix 4C for the first quarter of fiscal year '20. We saw record shipments from VTI -- record shipments of our product, about AUD 2.5 million worth. We saw a record number of accounts ordering within the quarter. We saw a record level of repeat customers, which was close to 99% during the quarter, and gross margins continuing to improve. And this is all despite our having grounded our sales force under stay-at-home orders around mid-March due to the COVID-19 pandemic. 21 April, we announced that we are the recipient of about $1.6 million in nondilutive loan funding. This is a disaster relief funding from the U.S. government. This is debt, actually. The debt is very friendly, though. It's at least partially forgivable, comes at a 1% APR. Payments are deferred for 6 months, and any remaining principal and interest gets paid over the following 24 months. And certainly, a relief to have that. However, on 29 April, we also announced that we've received commitments for AUD 5 million and new capital. That's in a placement to instos and sophisticated investors. And also coincident with that, the launch of a $1 million SPP, both of these instruments at $0.014 per share. And each 2 shares purchased and the SPP and the placement receive an option to purchase an additional share at a price of AUD 0.028. Funding for these 2 instruments are expected on or approximately June 3, 2020. Of course, subject to shareholder approval, which we aim to get at the AGM on the 29th of May 2020. With all of this completed between the cash savings, the loan from the U.S. government and the placement and the SPP. Though scaled down as a company, we are very healthy and stable with sufficient cash to get into 2021. So we very aggressively and very early on addressed the COVID-19 downturn. Did it early to make sure that we could survive the pandemic in a healthy way and took further actions and bringing in additional capital to make sure that we could keep shipping our products to our patients, make sure that the practitioners using our products are well supported and that we remain poised and ready to go when things start to improve. Just to give you a sense of the financial history of the company. We went public on ASX in 2017 -- early 2017. 2016, we had about USD 200,000 in revenue. 2017 was USD 1 million. These are U.S. dollars. 2018, we had USD 3.3 million. So very nice growth there. And then in 2019, we turned in just shy of USD 6 million. In the fourth quarter of 2019, you see quite a substantial bump in revenue there. That is due to our first strategic partnership, USD 0.5 million of revenue, just in initial lens purchases, which we'll talk plenty about in a slide in just a few moments. A couple of things to note from this. Again, first quarter was a record for us with regard to shipments of our products in the United States, increased 19% over the fourth quarter of 2019. And 2019 shipments overall were up 77% over 2018. You see us use this term shipments a lot. And the reason we do that is for transparency. The way that the money flows in our company is we buy product from a manufacturer that is an OEM. We then sell that product, which are contact lenses that we're going to talk plenty about, to practitioners, eye care professionals or ECPs for short. And then those practitioners -- well, we sell the lenses to a distributor. Then the distributor sells the lenses to a practitioner. Practitioner sells the lenses to the patients. So between us and the eye care professional, there is a distributor. And inventories within that distributor can go up and down pretty dramatically quarter-to-quarter. And so we like to report something called shipments, which is product that is being shipped from the distributor to the practitioner. And because the practitioner doesn't hold inventory, shipments are a much more real-time transparent way of viewing the flow of product from us to our end users without the inventory going up and down at the distributor level. So shipments to ECPs is actually a gross revenue equivalent, just so you get a sense of what that is. And it's also important to note for us, people have been following us for a while know this. But the fourth quarter of each year, and you can see it here, is the weakest quarter of the year, weakest in terms of quarter-over-quarter growth. So it's just important to have that in context as you look at our performance. So that's an overall snapshot of what we look like over time. This is just what an individual account looks like over time. If you're just kind of curious, as we build, it is our goal right now. It's been our goal for the past couple of years to do a couple of things. One is to increase the number of accounts that we have and also to increase the sales within each of our accounts. So we consider this to be high-quality revenue versus just churning accounts and starting up new accounts all the time. And what this represents is an average of accounts that were over USD 2,000 per quarter in the most recent quarter and then looking back over time to see how those types of accounts grow. And really, the takeaway from this slide is our accounts are very sticky. They are loyal to us. They use our products more and more over time once they start using our contact lenses, and this is what we like to see and what we want to do more of. So what exactly do we do? Let's get into the meat of it. We are an eye care company, and we sell contact lenses. We sell a very specialized contact lens. These are daily disposable lenses, which is not the special part, but it's an important factor. Put these lenses in at night -- or I'm sorry, put these lenses in, in the morning. Wear them all day long to correct your vision and take them out at night and then just throw them away. These lenses don't have to be taken care of. But what's special about our lenses are the optics that are in the lenses. The optics are aimed at 2 patient populations. The first of those is a patient population called pediatric myopia sufferers. Pediatric myopia means nearsightedness in children. These are children who can see things upclose. They cannot see things far away. Things like a blackboard in a school, when they're out playing sports, those are the types of things that they cannot see clearly. And nearsightedness affects somewhere around 1/3 of children in the United States, which is pretty bad, but it affects 80% to 90% of children in Asia. So a much larger portion of the Asian population affected by this. And it's not necessarily the nearsightedness that is the problem. It's that nearsightedness, once it starts in a child or an adolescent, it is a progressive disease. It gets worse and worse year after year for that child. And the difficulty with this is not that their vision is getting worse. It's that the worst the nearsightedness gets throughout childhood and adolescence, the higher at risk that person is for their entire life of developing serious ocular diseases. So a major, major problem. The goal is to stop it from worsening over time and keep these kids in the lowest risk possible is what we assume. The other group of patients that use our lenses are called presbyopia. These are people over the age of 45 who have lost the ability to see upclose, also, obviously, a very large population given that everybody pretty much over the age of 45 loses the ability to see upclose. There's a couple of products available or options available for the nearsighted child. There's a drug called Atropine, which has pretty bad side effects. People don't know much about this drug, how it works, why it works. And actually, over in Australia, your association for pharmacists have put this on a should not be supplied mandate because it's injured a lot of people. Orthokeratology is a hard contact lens that's placed on eye at night. The kid wakes up in the morning, and they can see clearly through at least part of the day. One of the advantages of orthokeratology lenses is that there's a side effect and that it can sometimes keep the nearsightedness from getting worse over time, which again is the goal here. It's not just the correction of the vision. It's stopping it from getting worse. Soft contact lenses is something people have been asking for, for a long time, though, and that these would be considered much easier for a child to use. The powers would be more flexible and just more available and certainly a much less expensive than orthokeratology lenses, which are quite expensive, thousands of dollars for orthokeratology lenses. So when we first started a long time ago, we were really a presbyopia company, and people who understood nearsightedness in children looked at the lenses that we developed for people over the age of 45 and said those may be effective in treating nearsightedness in children and stopping that nearsightedness from getting worse. And it has to do with the optics and the lenses. So people who understood nearsightedness in children and understood the optics in our lenses started using our lenses on children in the United States. And what they showed is a 90% decrease in the rate of worsening year-over-year of nearsightedness in children. And that was quite a big deal. We started off, though, as a pretty lonely company in this myopia space. Several years ago, just not many companies were talking about it. But since then, and especially since we've gone public, there's been a groundswell of interest in nearsightedness in myopia due to the realization that the worst the nearsightedness gets in a child, the more likely they are to develop serious ocular diseases as adults and due to the high prevalence of incidents of nearsightedness in children in Asia, which, again, is 80% to 90% of children in Asia are nearsighted and getting worse every year. So what you see here is a map out of the large companies, which are almost all now talking about myopia as a very important area of growth for them. Essilor, the world's largest eye company, has formed a task force. Alcon mentioned it as one of their pillars of growth for the future. J&J Vision Care has invested $25 million in Singapore to address research in myopia in children. CooperVision has launched a product in the United States. And the Global Myopia Awareness Coalition is formed, which is all these companies getting together, with VTI, one of the smallest companies within this group, being a founding member of the Global Myopia Awareness Coalition. So finally, everybody is starting to talk about this disease that we've been talking about for a while. Menicon is one that's worth mention. Menicon is a company in Japan, Japan's largest contact lens company, $700 million in revenue worldwide. And we formed a partnership with Menicon to launch our product in Europe. And so that's pretty exciting for us. Menicon has been committed to myopia for a very long time. And here's some other -- when you get a chance to look through the slide decks, some other companies that are also looking into myopia due to its market potential. Again, the contact lenses that we sell also worked very well in adults over the age of 45 where the purpose is to simultaneously correct their distance vision and their near vision. So these are patients who have been wearing contacts for most of their life to correct their distance vision. They get over the age of 45 and they need something to correct their near vision because they can't see upclose, and our lenses work very well there as well. There's about a $2 billion market opportunity for myopia in the United States in children, about $10 billion just in China, and of course, lots of other opportunities around Asia and about a $3 billion opportunity in the United States for people over the age of 45. Some obvious media coverage that we get with an opportunity that's this exciting. A lot of that in Australia where, of course, again, we are public. So you see a lot of that. And a little bit about Menicon again, our new partner for Europe and why they chose us as a partner to launch their myopia brand. And just with regard to the rest of the world. So we have clearance for our products, of course, in Europe where Menicon is launching, just recently gained clearance in Singapore, Hong Kong, just recently in early March, added Canada to the countries that we're going to be launching in. Inside the United States, we have our own sales force, marketing directly to practitioners. Outside the United States, the plan is to use companies like Menicon as sales and distribution partners, and those are partnerships we're starting to set up now. This slide just gives you a sense of the massive market opportunities that are available for myopia controlled products around the world. And again, just what we plan on doing right now given the impact of COVID on our business operations and on the operations of our customers, we're going to keep selling product. And we're very lucky in the sense that we have a base of users who are wearing our contact lenses, who can get our contact lens refills at home, and we'll keep selling to them. We'll keep developing our partnerships for Hong Kong and Singapore and maybe some other territories. We'll continue to make albeit scaled down and slowed progress towards some other products that we're going to be launching. And we will be ready when the macro environment starts to pick up to expand these activities and potentially add some other products and activities as well. And with that, I can, Laura, maybe answer some questions, if anybody has any.

Yes. Wonderful. Thank you so much for that, Stephen. That was really informative. We do have a couple of questions that have come through. The first one to start with is, what is the approximate cost of your lenses? And what would be the cost for a consumer per annum for the lenses?

It really depends on the country. So in the United States, a patient, whether it's an adult patient using these lenses to simultaneously provide distance and near vision because they can't read menus anymore or it's a child wearing the lenses, a cost is about $1.05 per lens. So that means just over $2 a day for the patient. Outside the United States, the pricing tends to be a little bit more but close enough to call it the same.

Then how can you compete, Stephen, with the larger contact lens companies who are moving into this market? How do you effectively compete with them as a small player at this stage?

Sure. And it's worth mentioning that right now, none of the larger players outside of CooperVision, which is definitely a larger player with a competitive product, none of the rest, as far as we know, have products that are anywhere near market for children around the world. And in the presbyopia space, the lenses as they're applied to over 45-year-olds, that's obviously a much more competitive space where we compete with very strong clinical results and a differentiated product. And it's also worth noting that our lenses are protected in all the major markets with patents. So it's not like somebody can come in and just use our same design and market the same product.

How is the product differentiated from CooperVision, which you mentioned just as the key competitor in the space?

So CooperVision also has a contact lens -- a daily disposable contact lens outside the United States, more recently approved inside the United States for treating the worsening of nearsightedness in children. That product has been available outside the United States for quite a while, I think a little over 10 years. It is a product with a lot of history. We have a very different design from what CooperVision uses that we think results in better slowing of nearsightedness and better vision. We think that will be borne out eventually in further clinical results. And also, the CooperVision product is limited in power. So it's only available in a set of optical powers that runs from almost perfect vision in the child, so what we call them as point 0 to somewhere around minus 5, minus 6 and power, whereas our lenses go all the way out to minus 12. So there's a differentiation in who the lenses can be used on and a differentiation, we think, that will be borne out in clinical results.

Stephen, I did note that you achieved record in most metrics in Q1, including record shipments, which is a big deal for you. Shipments is basically equivalent to your revenue metric for you. Then COVID obviously hit, hit everyone pretty hard. How quickly can you ramp up again? You mentioned the beginnings of recovery in Q3. Is it kind of like a holding pattern between now and then? Anyway, that's a multifaceted question.

Yes. So like I said, we're different from most medical device companies, and we're actually lucky because people can continue to use our products at home and get access to more lenses if they need them. So we will continue to sell product. A lot of medical device companies rely on operating rooms or doctors' offices that have been completely closed in the pandemic. So we are fortunate in the sense that we will continue selling products. We are still selling product today. And we are scaled down. And like I said, we've maintained all of the infrastructure and core skills that we need to be able to ramp up as soon as the economy starts to pick up and as soon as optometrist offices start to open again. So we won't have much of a spin-up time. But we are completely dependent on the macro environment. And if the macro environment takes longer, things are going to get slower for us. So that is just a fact that I think everybody is dealing with right now. Things pick up very quickly. We can be ready to pick up very quickly.

Yes. So there's a lot of unknown, isn't there? And there's the known unknowns and then the unknown knowns afterwards.

And the unknowable unknowns.

Yes.

And like I said, though, we are in a healthy spot right now. We are financially secure at the size that we're at. We can last a while like this. And again, we're maintaining all of the infrastructure that it takes to keep selling product not only in the United States but outside the United States as well. And so as soon as things start to improve, we'll be ready to spend things back up.

Good to hear it. Thank you so much, Stephen, for joining us from Atlanta. We'll let you get some sleep now. I know it's quite late there.

Okay. Thanks, Laura, and thanks for NWR for the invite.

Of course. Thanks.