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

Hello, and welcome to the virtual NWA (sic) [ NWR ] Virtual Investor Conference. I'm Andrew Geoghegan from ausbiz. It's great to have your company. Today, we're going to be talking to Visioneering Technologies, set to be called VTI. It's an innovative eye care company which designs, manufactures and sells and distributes contact lenses with its flagship product being the NaturalVue Multifocal lenses. And it's expanding its technology portfolio to address a range of eye care issues. It is headquartered in the United States with recently also completed a transportive $22 million capital raising, which was oversubscribed, and the company is on track to post net revenue of USD 7 million for this financial year. Now just a reminder that if you're in the audience, you'd like to submit a question on the Q&A session at the end of the presentation, please type it in using the Q&A panel on your screen there. Well, now my great pleasure to introduce the Chief Executive of Visioneering Technologies, Dr. Stephen Snowdy. Stephen, welcome.

Hey, I appreciate the introduction. This is Stephen Snowdy from Visioneering Technologies, and thank you. Good evening from Atlanta, Georgia, where the sun has just set. And I'm the CEO of the company. I've been here since about 2013 as CEO, prior to that as Chairman of the Board of Visioneering Technologies. I am a scientist by training. My PhD and -- is in neuroscience, MBA finance, I've worked in health care finance and executive management in health care for about the past 18 years. Also on the management team is Tony Sommer, one of our very key people. Before joining VTI. Tony Sommer led one of the largest sales forces in the contact lens industry, that of United States company, Bausch + Lomb. Tony led contact sales for Bausch + Lomb in the United States, around 200 salespeople and about $250 million of revenue on his responsibility. So a very domain and experienced management at the helm of Visioneering Technologies. We also have a very experienced Board about 150 years or so of experience on our Board of Directors, mostly in health care finance, health care management, science and capital markets. What do we do? Well, Visioneering Technologies is in the contact lens space. Our flagship product, as was mentioned, is the NaturalVue Multifocal, which we use for 2 patient populations. Now our contact lenses, if you look at it, it looks just like a normal, floppy, daily disposable contact lenses, but the optics in it are very special. And these 2 patient populations are very special for us, very large populations that are underaddressed by current products. The first of those patient populations are children who are nearsighted. The medical term for nearsightedness is myopia. You'll hear me mention myopia over and over again. All it means is that a person who's myopic can see things that are up close. They cannot see things that are far away. So a child with myopia or pediatric myopia has trouble seeing the board at school. They have trouble playing sports without wearing glasses or contact lenses. That's about 1/4 of children in the United States, and that's a pretty big number. That's about a $2 billion addressable market, the U.S. But over in Asia, 80% to 90% of children are nearsighted. And of course, this is a really big place like China with its very dense patient populations, 90% of the children nearsighted. That's about a $10 billion addressable market over in China for a company that can solve this problem. The really big risk for children who are nearsighted, it's not the vision itself, which, of course, creates some problems for the child and not being able to see well, having to get new glasses as the disease gets worse every year. It's that as the disease gets worse every year, their nearsightedness gets worse. Their lifetime risk of blindness and other serious ocular diseases gets higher and higher. And it's that lifetime risk of the other ocular diseases such as blindness, cataracts, glaucoma, blood vessels growing in the eyes that shouldn't be there, those are the real problems that have to be addressed in nearsighted people. And because those risks get higher as the child gets more and more nearsighted, the earlier we can intervene in the worsening of their vision, the better off they're going to be. It's a large underaddressed market for nearsightedness in children. The other patient population that uses the exact same contact lenses that we use in children are adults over the age of 45 to 50 who are losing the ability to see up close. These people are easy to identify in restaurants because they hold the menu as far away from their face as they can. They got their iPhone in their other hand and they're lighting up the menu. Nothing says I'm over 50 like lighting up your menu in a restaurant. This condition is called presbyopia. And what it is, is an age-related loss of the ability to see things up close. So our typical patient population in this group is somebody who's over the age of 45 to 50. They've been wearing contacts for their entire life to see distance vision. They probably started off as a myopic child. They get over the age of 45 to 50, and not only can they not see distance anymore, but they can't see up close either. This is a large patient population in the United States, about $3 billion of addressable market in the United States and another few billion globally. Now back to myopia just for a second. Pediatric myopia, this loss of or inability to see things that are distanced in children, and again, the really important goal in these kids is not to correct their vision. It's super important to correct their vision so that they can go to school, they can see the board, they can play sports and see a ball. But what's really important medically is to keep them from getting worse over time. Some things have been tried for that, some things that have met limited success. One of those is a drug called Atropine. This is an eye drop. It's not made for the eye, but sometimes you can get an optom to make it -- mix it up in their office for the eye. These eye drops, if used regularly, can slow down the progression of myopia or the worsening of myopia over time by 40% to 50% in some kids. The side effects aren't great, and again, it's not approved for the eye but it does kind of work. So in some places, like the United States, Atropine is a product that's used off-label. Orthokeratology is another way of slowing down the progression of myopia in a child. These are hard lenses that are placed on the child's eyes at night. While the child sleeps, they actually reshape the surface of the eye. The next day, the child can take those lenses off, they'll see pretty clearly through most of the day without wearing contacts or glasses. One of the [ neat ] effects of correcting vision this way is that when you correct vision this way, it can slow down the progression of nearsightedness in the child 40% to 50%, which is also better than nothing. The challenges with Ortho-K, these lenses are expensive, thousands of dollars apiece. Kids tend to lose them, break them, feed them to animals and other costly things that children tend to do, but they do work okay. So Orthokeratology is probably the most popularly used method of slowing down myopia in children in China and is gaining popularity worldwide. Soft contact lenses, due to the drawbacks of Orthokeratology and Atropine, are a very attractive way of addressing myopia progression in children. Up until Visioneering and one other company, soft contact lenses had not, though, been successfully used for this purpose of not only correcting vision in a child but slowing down that progression. And this is what Visioneering has accomplished with our contact lenses. Our contact lenses are daily disposable, which means they don't have to be sanitized every day like an Orthokeratology lens. Child puts these lenses in their eyes in the morning. It clears up their vision. They wear them all day, but one of the side effects of clearing up their vision with the optics that are in Visioneering Technologies' lenses is that it slows down the progression of that nearsightedness, keeps that myopia from getting worse. How well does that work? It works extremely well actually. So we now have 5-year data that we just presented at a conference recently in 305 eyes, which was 153 children. You think, well, the numbers don't quite make sense there. Well, somebody wasn't wearing a lens in both of their eyes, which is fine. But what we see is a slowing or stopping of the progression of nearsightedness in children wearing our lenses and, coincidentally, really good vision. So our lenses do this double effect in these kids of giving them great vision while slowing down the worsening of their nearsightedness. Around 90-plus percent of slowing of myopia progression with 70% decrease in about 65% of their kids -- in the kids, which is a very significant slowing of the myopia. And what we and the medical community, everybody hopes is that, that's sufficient flowing to keep those kids out of the higher risk groups that get into cataracts, glaucoma, retinal detachments and blindness and other serious ocular diseases. And don't forget the same contact lenses that we put on the kids can also go on to over 45 to 50 adults. I won't go through this data specifically. But what we achieve with these lenses and presbyopic adults over the age of 45 to 50 is really good simultaneous distance vision and the ability to see up close. Now if you remember these patients, they're probably already wearing contacts to be able to see distance vision. Over the age 45 to 50, they lose the ability to see up close, and we correct both of those issues with our contact lenses and do it quite well. So what are our future plans as we move forward? Well, we're going to generate more clinical data. The clinical data that we'll start generating this year will be a type of clinical data that will convince more practitioners to use the product. It will deepen our strategic relationships. We'll start those clinical projects around the second quarter this year. First read of the data will be third quarter next year. So some very significant value creation milestones potentially in the next 12 months. And we'll also run a clinical trial to get us into the largest market in the world, which is China, which is a market that we're not in right now. It's about a $10 billion addressable market for pediatric myopia. And the other data will help drive the markets that we've already entered into around the world, which I'll describe in just a moment. If you haven't heard of pediatric myopia, you probably will very soon. This is a rapidly expanding area in eye care. It's probably the fastest growing and most exciting area of optometry and eye care. For the past couple of years or past few years that we've been selling product in this area, we've been fairly alone in talking to practitioners and parents about nearsightedness in children and why it has to be treated as a progressive disease that we should be intervening with very, very early in a child's lifetime versus viewing it as something that you just put some glasses on or just put some contacts on and clear up their vision. So Menicon, which is Japan's largest contact lens company, a $700 million contact lens company around the world, so a multinational, teamed up with us recently, late 2019, to do private label of our lenses in Europe. So they'll be a sales and distribution partner. But the fact that a company that large is getting into this space should tell you that this space is rapidly expanding. The Global Myopia Awareness Coalition is an organization in which VTI is a founding member. We sit at the table with the largest contact lens companies in the world, Alcon, Bausch + Lomb, CooperVision, J&J. And the entire purpose of this organization that just started up not too long ago is to educate practitioners, educate optometrist and parent of the importance of treating myopia as a progressive disease that we have to stop before it gets these kids into too high risk a category for blindness and other serious ocular diseases. J&J Vision Care, which is the world's largest contact lens company, just announced that they are getting into the myopia space. CooperVision, which is 1 of the top 4 contact lens companies in the world, just announced that -- or just launched into the United States a product for myopia control in children. Bausch Health, which was formerly Bausch & Lomb, is acquiring assets in the myopia space. So this is a rapidly expanding area. We're right at the forefront of it and one of the best-known companies out there in myopia control. In fact, if you're in the United States or if you're in Europe and you search myopia progression control in children, Visioneering Technologies is probably going to be at the top of your search list or very close to it. Now we've been working since 2017, which was the year we went public, not only in expanding sales in the United States where we were already approved when we went public in 2017, but getting international clearances around the world to sell NaturalVue Multifocal. So we are approved in the United States where we have a direct sales force. So we have a sales force right now of a total of 9 people. Outside the United States, that's a very expensive thing to do to build sales channels. So we've teamed up with partners in other places. We've gotten the product approved and launched sales in Australia, New Zealand. We've launched product in Europe. We recently got approval in Canada. And we got approval in some of the largest Asian markets, Hong Kong and Singapore as well. All of those outside of the United States markets, we've partnered up with sales and distribution partners. Again, Menicon is our really big partner over in Europe. They'll take care of sales and marketing for us with a private labeled product. And over in Singapore and Hong Kong, we've partnered with a company called Oculus, that will take care of sales and distribution over there. And again, part of the proceeds of our recent financing will be to get clearance in China and, again, a $10 billion addressable margin in China that we'll go after. Initially, through the clinical phase, we'll do that on our own and eventually partner up in China for sales and marketing as that's a very complex market for western companies to enter. Just a little bit more on our strategic partnerships that we signed with Menicon, our first strategic partner. Again, this is a large multinational company, $700 million in sales globally of contact lenses. They started up an entire myopia control product line. Right now, there are 2 products in that product line. We are 1 of those 2 products. So we're half of Menicon's pediatric myopia portfolio, which we're very proud of. We do think that across the industry, all the companies will develop a portfolio approach to myopia progression in children. So it may be a combination where we expect myopia treatment to be a combination of lenses like ours, perhaps Atropine, perhaps Orthokeratology globally. And the large companies are going to have to develop portfolios in that area. CooperVision has recently done that through a couple of acquisitions. They've already had a soft contact lens like Visioneering's, different design, but they were pushing that out around the world, and then they bought an Orthokeratology company. They recently teamed up for a spectacle company. And what we expect is the large companies, and Menicon is already doing this through their partnership with us, to develop portfolio approaches to treating myopia progression in children. The business implications of that, of course, are consolidation across the industry that we expect to start seeing as myopia becomes much more forefront and gains more head space among practitioners and parents and a lot more marketing dollars being spent by the large companies in educating practitioners and parents in the importance of treating myopia as a progressive disease. And of course, as a small company, all of that investment by the large companies and all of the business development activities that come out of the need for additional technologies help small companies like Visioneering. This deal with Menicon is nonexclusive. We can sell the product through other companies as well. It is cancelable, and it's assignable. What all of that means is that, even though it's our first strategic deal, we maintained a tremendous amount of strategic flexibility. So if we want to go to other partners or sell our product through other partners, we are permitted to do that. If somebody else wanted to buy VTI, we would be able to do that as well. So it's a great partnership with Menicon. We're proud of that partnership and -- but it also allows us flexibility to talk to other companies as well. So the financial history of the company, again, we went public and really launched the company in 2017. 2017 was USD 1 million a year; '18 was USD 3.3 million. These are U.S. dollars. 2019 was a little over USD 5 million. 2020, of course, was the year of the virus. During the year of the virus, we worked really hard to get cash under control, make sure we didn't use up too much cash, given the uncertainty ahead of us with COVID-19. We reduced our head count by half. We reduced our sales force by 75%, and that put us in a really good position for cash. And even with all those reductions to head count, we still were able to maintain revenue at about AUD 7 million for 2020. And our fiscal year is coincident with the calendar year. In 2020, because of all the reductions we made to our cash use, we also reduced cash use by about half to $6.4 million and, with all that, managed to grow the number of accounts that were using our product, which we are pretty proud of. Gross margin has been on a steady march upwards as well, finished up the final quarter of 2020 at about 46%, up from 34% 2019. We're forecasting $7 million in revenue for 2021. That's AUD 9.3 million. We've got a really good strong start on that already. Midway through the first quarter of 2021, we had just over $800,000 in net revenue recorded. Annualizing that to just over USD 6 million in revenue to USD 7 million in revenue doesn't seem like a huge stretch for us. Lots of milestones in front of us. Clinical trials that I mentioned that will be starting this year start seeing the data out of that next year. We'll launch a couple of new products later on this year as well to help revenue growth in 2022. Get across into 2022, we're looking at starting to see some of the data come out of the clinical trials that we started in 2021. We expect that data to further drive adoption by practitioners who aren't already doing myopia progression control and act as a catalyst for further business development discussions. We're always talking to strategic partners, and there's lots of opportunities for us to grow VTI through lots of different mechanisms, cross-selling other people's products, distribution agreements of other people's products that will sell licensing our products to other companies. And of course, mergers, acquisitions are always things that we're always talking about. With that, I think we could open it up for questions.

Okay. Thanks very much, Stephen. Much appreciated. Well, actually, I might just remind our audience that if you do want to ask a question, please go to the Q&A panel there, and you can type that in, and I'll put that to Stephen. Stephen, let me ask first. I've got one question here off the top. Now can you give us more color on that recent capital raising in the sort of investors that have come onboard? Was that mainly existing shareholders?

So like you mentioned before, really proud of this financing. It just puts us in such a different place. So AUD 22 million in the placement, that is sufficient capital to get us all the way to cash flow breakeven even with all of the activities that I mentioned here with regard to growth, new products, clinical trials. And so we're quite proud of that, and it sure takes the capital raising and risk off the table for us, which makes us feel pretty good. The largest investors in that round were Regal, Regal's Fund Management and Thorney Investment Group, who are already large shareholders. We also got a couple of new investors that came into that round as well, including Perennial and some other, what I would call, marquee names in the small-cap space and as well as pretty good participation from some of the smaller individuals and the Board of Directors of Visioneering. So nice mix, but led by our largest existing investors, Regal Fund Management and Thorney with Ellerston and Perennial coming in as well.

Okay. In a similar vein, Stephen, you've indicated there will be a share consolidation soon. Can you tell us when that will happen? And what's the expected ratio of consolidation?

Yes. So what we put out in the documents, notice meeting and the prospectus that just went out for the SPP, is that around time of the AGM, which for us will be in May, we are looking at doing a reverse split of consolidation, aiming for somewhere around $1 a share, which at today's pricing would be right around a 50:1. We're not going to nail us down to that exact number but somewhere plus or minus.

Okay. All right. Can you tell us how crowded this space is from a competition perspective? In other words, how many competitors are there in the field? And also is the -- as far as up and coming technology is concerned, how rapidly is that developing?

So what I'm very encouraged to see is the rapid development of interest in our industry partners, the large companies, like I said, we started off kind of out there by ourselves. And we, as entrepreneurs, are super excited about what we're doing, this myopia progression in children. And what turned out is the large companies weren't talking about it when we were out there launching because they didn't have products to launch. And eventually, the public pressure of addressing this issue forced them to bring the issue up in conversation. But they still, for the most part, do not have products. So we're getting the best of all worlds here. Where we were swimming way out in front of this wave, it was really hard swimming. And all of a sudden, the wave started -- has started pushing us from behind it. It's one of the reasons we saw -- we think we saw so much strength in 2020 despite a pandemic, despite a 50% reduction in our head count, still holding our base revenue relatively steady is that we're finally getting this push from the large companies joining us in educating practitioners and parents about the importance of addressing myopia in children. CooperVision is the first large company to really come in. They've gotten a product approved for myopia progression control in the United States, the first large company to do so. The others are talking about it but are still very early in their research and development programs and still have quite a bit of ways to go to actually be in the market as competitors. CooperVision come into the market in the United States has been great because they spent about $25 million in education of practitioners and parents. And it's that education of parents and practitioners that is the hump to overcome in myopia progression control. It's money that, as a small company, we never could have spent. So right now, the entrance of new companies coming into this space, the large companies coming into this space, has been very beneficial to us in that it gets that discussion going that a small company like us just couldn't have done. Like I said, these large companies are starting to develop their products. They are taking a portfolio approach to myopia control, which we also think is the right way to do it. And we're also looking at opportunities that are outside of soft contact lenses to add to our portfolio potentially. And so the competition right now, I would call, more in developmental stages but certainly making a very large amount of clutter out there, and we're a really big beneficiary of that because we have one of the very few products available in this space. There are new products coming down the pipe. There's no doubt about it. This is an addressable market that's in the teens of billions of dollars worldwide that is almost completely unaddressed at this point, and that is naturally going to attract a lot of investment. But with that comes a lot of marketing, a lot of education and a lot of partnering opportunities, and we benefit from all of that.

Okay. Thanks, Stephen. Just a question in relation to your capital raising. Why is it so large?

Well, we've been taking incremental approaches to capital raising for a long time. And what's been very, very difficult is despite the fact that our revenue has been growing, we've gotten clearances around the world, we're making really good progress, our market cap has always been limited by the immediacy of another cap raise coming up. And we just didn't want to have to deal with that again for a very long time, and we wanted to be able to make decisions that are in the long-term interest of the shareholders, not with a view of, well, we got to do a cap raise next quarter, which drives a different kind of decision-making. So we just wanted to be done. Our large shareholders wanted us to be done with the cap raise and take the cap raise risk off of the table and allow this, the stock price, to reflect the value of what we're accomplishing not reflect the risk that there's a capital raise coming up next quarter.

Okay. Stephen, a question in relation to your growth strategy in the States, where you are, of course. What is your strategy for scaling your U.S. sales and revenues passed the breakeven point in capturing a large share of the American addressable market?

So the first step is new products. Right now, we only have 2 products. We have NaturalVue Multifocal and NaturalVue Sphere, which is a very simple product for just addressing simple correction of distance vision. We need more products for our salespeople to sell. We have 2 new products that we expect to launch this year. Another way to get new products is through business development and partnering. And so we are out talking, of course, to other industry partners, other small companies, some large companies and finding other ways to adding external new products to the portfolio that our salespeople sell. Salespeople are a fixed cost. And so the more product we can shove through the existing fixed cost sales structure, the better off we are. There's also still organic growth to be had out of the salespeople we have and the accounts that they have. So another element of growth aside from new internal products, new external products is, again, getting the depth within the existing accounts that we have. So that's the United States plan for sales growth. We also have Menicon that, in the first and second half of 2021, will be going Europe-wide with our private label product for them. That was supposed to happen in 2020 but, obviously, a bad year launch in new products in the medical space with COVID-19 and the pandemic. And then outside of Europe and the United States, we have Canada coming online. And we have Singapore, Hong Kong, that should also be accelerating in 2021 as well.

Okay, Stephen, we have run out of time. Thanks so much for your time. And thanks for joining us, from Visioneering Technologies, Dr. Stephen Snowdy.

Okay. Thank you so much.