Vivos Therapeutics, Inc. (VVOS) Earnings Call Transcript & Summary

Hello, and welcome to our fireside chat with Vivos Therapeutics. I'm your host, Do Kim, Senior Healthcare Analyst at Water Tower Research. And today, I'm joined by Co-Founder and CEO, Kirk Huntsman; and CFO, Brad Amman. Vivos is a commercial stage med tech company. They're focused on the treatment of sleep-related breathing disorders. and that includes conditions like obstructive sleep apnea and soaring. The stock trades on the NASDAQ under the ticker of VOS. And before we get started with today's fireside chat, I'd like to turn it over to Brad, who will be providing Vivos' disclosures regarding forward-looking statements. Brad?

Good morning, everyone. Before we begin today's fireside chat, we would like to remind everyone that today's call will be containing certain forward-looking statements from our management made in accordance with the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, concerning future events such as actual impact of our current strategic and business plans on our future results of operations. As is customary, the content of today's fireside chat will be governed by this language. In addition, during today's fireside chat, we may discuss certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of periods referenced. Please refer to the risk factors and other disclosures in our Form 10-K for the year ended December 31, 2023, our Form 10-Q for the quarter ended September 30, 2024, and our other filings with the SEC, all of which are accessible on the Investor Relations section of Vivos' website as well as the SEC website. Now I'll turn it back over to Do. Now I'll turn it back over to Do.

Thanks for that, Brad. And as always, you can find our research on the company, on water towers website at watertowerresearch.com, and that includes our recent initiation of coverage on Vivos. Now I'd like to welcome Kirk to the fireside chat. Thank you for joining us today.

Glad to be here, Do. Thanks for having me.

Of course. So this is our first fireside chat with you and videos, but I wanted to remind our audience that -- we've had Kirk on our small cap Spotlight podcast in September, and we discussed their recent FDA clearance and monitor severe pediatric OSA. That episode is available on our website, if you are interested in listening to that. Kirk, I think it's a good place to start for anyone new to the Vivos story. If you could provide some introductory comments and a brief company overview.

I'd be glad to. Thank you. So as you know, Do, we are engaged in a battle with a disease that is really nothing short of an epidemic globally. We're talking about obstructive sleep apnea, breathing and sleep-related disorders. And these things afflicted over 1 billion people on planet earth. So if you think about just the scope and the size of this, it's really difficult to imagine very many other conditions that plague as many people on this planet as breathing and sleep disorders. And so we're talking about 1 out of 8 people walking around having difficulty with her breathing or their sleep or both. And the interesting aspect of it is that after many, many years of addressing this issue, trying to address this issue. The medical community has really not come up with a great solution. And so Vivos steps into this situation and says, "Hey, wait a minute, we have a really novel approach to this. It's an approach that gets to the root cause. And we'll talk about this throughout the course of things tonight. But just as an orientation, what Vivos is bringing to a very, very large marketplace is an opportunity to actually fix the root cause of many of these disorders and give people a way to heal and give them the way to do that in an affordable, accessible and lasting way. So it's really an exciting mission for us to be on. We do view what we do as not just a great business but also a great opportunity to serve mankind. So that's pretty much the Vivos story in a nutshell right there.

That's great to hear. And you -- I was just talking about your products, your oral appliances. And to start off, let's talk about the more recent events where you are shifting your marketing model from one that was different on an operational focus. Could you talk about how this change affects first, maybe the number of patients you can now access that have OSA and what type of deals that you're making to convert to this new model?

Yes. That's a big question with a lot of different things. So let me just sort of break this down. For those who may be new to the Vivos story. We came to the market with a novel technology that's an oral appliance device, in fact, a whole line of oral appliance devices. These devices have been given some unique clearances. There are over 200 different oral appliances on the market today. They're all basically the same thing. They all do exactly the same thing. The only differentiated technology is the technology that Vivos has. And that technology involves a biomechanical remodeling of the human airway. And so what we're doing here is we are actually repositioning the tissues. We worked through an oral appliance device -- and when we're repositioning the tissues of the oral cavity and redeveloping them in such a way that it actually ends up targeting the size, the shape, the functionality of the airway, which sits right behind it. So as we reposition, which Dennis has been doing for a long time, right? But the unique aspect of what we do is that we leverage the oral facial tissues of not just the oral cavity, but the entire Maxillofacial complex, this lower 1/3 of our face. And we repositioned those tissues in such a way that the airway just pops open. And it's a fascinating technology. It's all done non-surgically. It's all mediated through an oral appliance. So it was natural for us to come to this marketplace focused on dentists. And we really believe that dentists had the patients. They had the interest level, they had the ability to just really lead the charge in addressing this issue because they were seeing the same patients that are showing up in the sleep specialty clinics and getting tested for OSA. Those patients still have teeth and those patients are showing up twice a year in the dental office. It was a natural -- it seemed to us at least a natural thing for the dentists to be delivering this. It turns out that the dentists are really intimidated of this. They really have not carried the water the way we expected them to, and they are more focused on dental things as they should be than really addressing a medical condition such as a serious medical condition such as obstructive sleep apnea. And therefore, what happened here was is that we began to explore what other channels of distribution, what other opportunities there were. And in November of 2023, we garnered through the FDA an unprecedented clearance to treat severe sleep apnea. All the other oral appliances in the world have only been given clearances to treat mild or moderate. So the very easiest kind of sleep apnea to sort of address was given to them. But because of the different mechanism of action, which our technology employs, we were given a -- and also because of a lot of data that we set the -- we published in medical journals and dental journals, all these different things that our devices are doing something radically different. And so what happens here is that we get this clearance in November of 2023 that says Vivos appliances, our -- what we call our care devices are now cleared to treat all levels of sleep apnea. And that's shock waves through the entire industry because the only other noninvasive treatment option for sleep apnea had historically been a CPAP, some type of a CPAP machine, CPAP being the continuous positive airway pressure devices that are ubiquitous, right? Everybody knows somebody who's wearing a CPAP or whatever. And this is -- and so what happened was is that all of a sudden, the medical community sat up and took note and said, "Hey, wait a minute, there's a new kid on the block here who has something that's not just another oral appliance device. And the medical community has embraced us like no other. So we -- this is a really important aspect of things because at that same time, we were making a strategic decision to pivot our model towards going directly to the medical community. After all, it's in the sleep testing centers, it's in the sleep clinics, it's in the medical community, the cardiologists, all these people that are dealing with sleep apnea patients, it's in that community where all these patients actually reside and where the doctors have to deal with it. It's not like dentistry where this is a side show, sidebar type thing. In the medical community, they've got the millions and tens of millions of patients in their practices that are dealing with this and the patients need a solution. And so as we've gone to the medical community, it's been really, really great to see the way that they've embraced us, the way that they've really adopted this as part of their regimen. And as we give patients the choice of how they want to be treated, they pick Vivos. And we'll talk about that as we go. But I want to just -- the drivers for Vivos were primarily a sole reliance on dentistry was not working, not working to allow us to scale our business model. And so this pivot where we're not only going to the medical community, but we're actually involved in the actual delivery of the treatment. So we're actually hiring the dentists, hiring the physicians, the sleep specialists. They will work for Vivos in a vertically integrated model that where we'll be swimming in the deep end of the economic pool, so to speak. So before with a case, there was a limited amount we would deliver an appliance to the doctor who would mark it up several times over and deliver that to the patient. We were -- our role and our margins, our opportunity to profit off of each and every case that we delivered was limited. And now all of a sudden, we now have a dramatic multiple, 4 to 5x of what we had before is available to us in this new model. And so we can talk more detail about that. But that -- the reasons for the pivot, access to more patients, access to better economics and the ability to deliver what amounts to a life-saving treatment plan in many cases or life-saving treatment to many, many more people around the world. That's what's driving us.

Yes, that's very helpful and great details, at least to a lot of questions. I think when we look at the competitive landscape, you talked about CPAP being the dominant player because they're in front of physicians and the medical community. How do you compete against this entrenched and you call it the gold standard for OSA treatment. How do you compete against that when you're in front of a physician?

Well, -- so I hate to say this, but look, the sleep appeared in the medical literature just 60 years ago. If you think about in the history of man kind's warfare against disease and sickness and all these sort of things. That battle goes back centuries. But sleep apnea had been identified as a discrete disease and condition for 60 years. And it's only been 40 years that since CPAP came along in the late -- or mid-1980s is when CPAP, basically the first CPAP units came to market. And yet, here we are today, 40 years later, and the so-called gold standard has not changed. It's as if we have a horse and buggy solution to travel, and it's all we've had, even though there's automobiles along the way, it's like, well, because we've always done a horse and buggy to get to the store in back, that's what we're going to do. And we come along and say, "Hey, wait, you know what, you don't have to accept that if you have obstructive sleep apnea, you now have life [indiscernible] to ride in that horizon buggy every night for the rest of your life. You have a third rail option to actually with Vivos, in less than 12 months we can reverse and sometimes even completely fix and resolve the sleep apnea. And then the [indiscernible] don't ever have another intervention. We have treated over 60,000 patients, and we have I can't even count on one hand the number of patients that we've retreated. So this is a really important thing. When you think about how do we compete against this massive monolithic thing called CPAP. Well, everybody hates it. Nobody wants to ride around in the horse and buggy. They'd rather have that nice Ferrari that gets them there to the store and back in style, and that's really what the contrast could not be more appropriate there because nobody drives a 40-year-old car. Nobody rides in a horse and buggy and yet in medicine because of tradition and because it's been designated as the gold standard. What a lot of people really don't even know is that in 2021, the FDA came out and had a massive series of recalls beginning in 2021. And ever since they've recalled millions and millions, I've heard numbers up to 10 million CPAP units have been recalled because people were reporting serious adverse health events pneumonia and cancer and all kinds of things and 561 deaths were reported directly attributable to CPAP. And the FDA final said, "You know what, we can't have this." -- and they pulled all these CPAPs off the market and patients went, okay, now what do we do? And here, we are at Vivos, raising our hand going, okay, here we are a third rail option. Finally, the FDA gives us this clearance and another one last year for kids. And we've got a unique set of circumstances here where we have the ability to leverage a unique market opportunity by going direct to those patients when they first get diagnosed with sleep apnea and have a voice at the table there.

So to me, it sounds like you need more awareness. And that is essential to your new marketing strategy because you have a product that -- I know you can't say it, but it potentially could be a cure because you stop using it and the benefit stake, and it appears to be permanent. Could we talk about your first strategic alliance and how that's going. You mentioned before that you have made a partnership with a Colorado-based sleep center.

Yes. No, we're very excited. The name of that group is Rebis Health, and we're excited about our strategic alliance with Rebis. We're excited about what it portends. We have sort of been slow walking this through the first several months of this alliance to make sure that we have all of our ducks in a row and that everything is -- there's a whole new series of systems and software and equipment and things that have to be sort of reconfigured in order to facilitate our model, which we have put in place now. We've trained dentists. We've been starting to see this. And the good news is that when patients are presented with all their treatment options at a rate of 2:1, they're preferring Vivos right now. And we have had experience in the past, which gives us reason to think that, that can go as high as 4: 1. And when that happens, though, we're talking about just in Colorado, the opportunity to grow our revenue streams by multiples over what they've historically been here at Vivos. And that's just in one market with one sleep group. And there's 2,500 of those kinds of companies around the country that operate off of a very low margin and high-volume dependent model for their profits and their revenue. So they're anxious to hear from us. This first one is going extremely well, to your point. And it's right now just about to kick into gear here in Q1, where we're starting to see the real ramp-up start to take place. So a lot of preparation, a lot of groundwork being laid in the latter half of 2024. Now we're -- as we turn the corner to 2025, we should start to see some of the revenue accretions taking place and start to see that really build and the profit will follow.

I hope that I could ask you for a little bit more detail on the patient's journey. I know that you can't talk about anything you haven't disclosed before on the strategic alliance. But if you could tell us from when the patient gets diagnosed at the medical center to them reaching you for you to put their options in front of them? And then what's that financial impact. Maybe if you could expand on that a little bit more.

Okay. That's a really, really good question. And I think once people begin to understand sort of the nature of this, they'll begin to see the merit of our strategic pivot and our new model. So what happens is, let's just say that you're a guy, you're having some sleep issues. You're not breathing maybe sleepy, maybe your wife's elbow and you saying, stop that snoring or go to the next room or whatever. All of those things lead a patient, male or female of all agents, right? To go to their primary care physician to go to their cardiologists to go to their internists to go to the pediatrician and say something is not right. And I don't know what it is. I don't have any energy. I feel fatigued, I have brain fog, I have chronic hypertension. I have chronic diabetes. I have all these things that are now known to be coexistent. We use the term comorbid, but coexistent with obstructive sleep apnea. And your physician is going to give you a script that says, "I'm going to give you a script to get a test. Now it used to be that to get tested for sleep apnea. You had to slip yourself over to a sleep lab, and you had to get wired up with 100 different wires and you had to sleep in front of strangers and you can imagine doing that with a 5-year-old, right? But it's -- it was a very difficult, very costly process because it costs so much to get sleep tested, the payers, the insurance companies put up all these barriers to having that happen. Nowadays, technology in the diagnostic side of things has allowed the cost to drop by over 90%. If you think about what that means, that means that a lot more patients have access to being tested. One of the things I mentioned earlier was that there's 1 billion people running around in -- on the world with obstructive sleep apnea, but I didn't say that 90% of the -- up to 90% are undiagnosed and therefore untreated. And a lot of it had to do with the difficulty of diagnosis. Well, technology has now solved that. In just the last 3 or 4, 5 years, technologies have come to the market that have driven that cost down so dramatically. And so what happens is that a patient now gets tested. So let's just say you've got your test, what's going to happen is after your test is done, you'll do that in your own home now. These -- you no longer have to go to a sleep lab. There are sleep labs still available. Testing centers exist in every market, but you can do your test at home in the comfort of your own home, and then you will get a consult with a board-certified sleep specialist who will read the test results and render a diagnosis. And you will then know, do I have sleep apnea and how severe it is or if there's other kinds of conditions that show up in your test. At that point, you go back to your original doctor or you get a prescription from that sleep doctor that says, you need treatment, and I'm going to give you a recommendation for CPAP, oral appliance therapy or possibly a rehabilitative therapy like Vivos. And those prescriptions are then given back -- you go back to your doctor and you consult with your doctor and say, what do you think, like which way should I go? And then you have a choice to make. And if Vivos has a seat at the table at that juncture, we have the opportunity to say, you don't have to wear a CPAP every night for the rest of your life. You do not have to do that. You do not have to wear a mandibular advancement device every night for the rest of your life. Within 9 to 12 months, we can actually rehabilitate, restore your airway and give you an opportunity to have dramatically reduced symptoms to have much better free breathing and a noncollapsible airway or an airway that sleep is less prone to collapse. And all of those things leave those patients feeling better, feeling more energetic, feeling like they have truly gotten a rejuvenating sleep every night, and that's what patients want. And so when we present that kind of a treatment path to patients, like I said, today, 2: 1 in our actual empirical data. And historically, we've seen in some of our experiments, some of our testing pilots that we've done up to 4:1, and we think we can get that to 4:1 where the hundreds of thousands of patients in this country that get tested for sleep apnea they have -- they will have the opportunity to have a 4: 1 likelihood that they're going to pick Vivos over every other option that's on the table because it's now being presented to them. And so that's really the patient journey. That's how they get it. Now what I haven't mentioned is that we have this group of people that we call treatment navigators that we actually deploy to help patients answer their questions, give them all their options, let them pick, let them choose, help them navigate the insurance, what their payer is going to pay. And so we're kind of helping to facilitate this. But honestly, we see this as giving us access to hundreds of thousands of patients and really literally -- I mean, the numbers go pretty -- as you know, though, you've done the math here. They go north pretty quickly on what we're able to do. So...

Right. It sounds like it's all in front of you. And it's a matter of bringing this out to physicians and patients. So you have your first strategic alliance. And I know you have plans to expand. Are you waiting until how this Colorado-based alliance works out before signing on new deals are you navigating through agreements right now? Can you talk about the progress of extending your reach?

Okay. So you know I have to be really careful about this. So let me be a little bit -- I'll be a little bit vague in my answer, but let me just say this. We don't wait around for anything around here. We are aggressively pursuing all opportunities that come before us. And we are deeply engaged in negotiations with additional groups that we believe will be extremely accretive to the things that we're trying to do around here. So you'll see in the next weeks and months, you'll see announcements, you'll see as these things materialize and given that they do materialize, you'll see us bringing forward announcements, and it's not a few, right? We're talking about -- one of the things I want to emphasize is that the sleep testing business has been a it's been assaulted by lower reimbursement rates. Every year, these guys turn around and the payers have cut their reimbursements. They've had technology that is just sort of leapfrogged a lot of them, they used to have a footprint with a big investment in real estate because they had to have all these beds and they had to have all this leased facility space to do all their polysomnogram testing, which requires in-lab overnight sleep testing. Now you can do this by literally mailing a ring to a patient at home and then having that patient do a couple of nights and turn that ring back around. I mean, it's literally that easy to do nowadays. And so -- it's -- there's a lot of evolution. There's a lot of things going on. But the opportunity to explore new revenue sources and new opportunities to treat their patients better. A lot of these sleep doctors have come to us and said, "Thank goodness you guys are here. We have been waiting for some new technology to come along that gives our patients a viable alternative to CPAP. They hate CPAP. They don't want CPAP. We're tired of pushing them into CPAP, but the horse and buggy is the only mode of transportation that we've had. And so all our patients get CPAP today, but we can easily see converting all this to Vivos -- if the kind of things that you're talking about, the kinds of things that you're saying about your products really materialize, and they are, then it's a no-brainer for them to pivot.

And I think there's another important point you made earlier is that there's about 1 billion patients with OSA globally. And I think an estimate about 90 million adults and children in the U.S., but only 10% to 20% are diagnosed. The majority are not -- does not have a diagnosis for OSA. And when you look at the market opportunity and the competitors, it's not -- it doesn't have to be a zero-sum game. You don't have to compete head-to-head with CPAP, you could actually grow the market to correct that assumption by diagnosing more patients. I want to get your opinion on that, but also with the introduction of GLP-1 and the obesity drugs, Zepbound just got approved for sleep apnea and in patients with obesity. How does that change the landscape you think, not just for you, for CPAP, but broadly.

Okay. Great question. There's a lot there. So if I -- in my answer, I don't respond to every aspect of that. Just remind me, okay, because you covered a lot of ground. Let's talk a little bit about the phenomenon of obstructive sleep apnea and it's its origins and what they call in medicine, the pathogenesis, right? Sleep apnea actually begins with a genotype. You have Asian blood, Asian ancestry. Asians and Asian phenotype is genetically predisposed to greater incidence of obstructive sleep apnea. Why? Because the cranial structures of your face, of your brain, of your cranium are different than Caucasians and Asians and others. And so each phenotype of genetic phenotype has a particular predisposition towards this. But it begins actually prenatally in a lot of cases. irrespective of genetic phenotype, the condition of obstructive sleep apnea begins where there's something that goes wrong nutritionally or something that goes wrong with a traumatic birth even. You can have a patient who comes out with -- after a traumatic birth, maybe there's 4 steps involved, maybe there's whatever. But if that child's Cranium never really reshaped to the way it was supposed to be, it compromises that child's ability to breathe properly. And that child will be handicapped throughout their life not really knowing that because it's like a fish in water. They don't know anything different, but they'll never really realize that their airway has been compromised. And so if -- so we see in modern man, we see nutritional compromises in our food supply. We see a lack of breast feeding of our children. We see other environmental factors that weigh in on creating this phenomenon of breathing and sleep disorder. Remember, breathing is the core pathology here, and it's really the breathing that compromises our sleep and causes our sleep to be disrupted, which in turn, sort of cascades down into all the other comorbid coexisting conditions where we see rises in incidence of cancer and fibromyalgia and chronic fatigue and erectile dysfunction. And I mean you can go down in early onset Alzheimer's, all of those conditions happen because of that. obesity plays a role, but sometimes the obesity arises because of the sleep apnea not vice versa. So sometimes it's a developmental cranial structural condition of which obesity is one element. So a lot of times, there's a misnomer out there that the people that suffer with sleep apnea are all really high BMI, overweight, mail, some males in their 40s and 50s and 60s, and that's just not the case. There are a lot of very, very thin, very fit very dynamically active humans that also have obstructive sleep apnea, and they don't fit the stereo type. And that's one of the things that research has learned. So when you ask me about the GLP-1s and all of that sort of thing is happening I really don't see that as addressing any more than one sliver of the overall population. Now it -- the -- because what you might have in many cases is a person that does not a person that does not sleep properly, a person with a breathing and sleep disorder such as obstructive sleep apnea, at night, when their body is trying to restore and rejuvenate and they're trying to get that deep sleep, the body actually secretes cortisol, which leads to more -- it leads to higher BMIs, it leads to the accumulation of adipose tissue in the body. And what happens is, is that they don't get the good release of human growth hormone. So sometimes it's a sleep apnea causing the obesity, not the obesity causing the sleep apnea. There's a really dynamic interplay that's a 2-way street there that we're just now coming to understand. And so what I would say about that is we don't yet know all of the risks associated with these GLP-1 drugs over an extended period of time. I read the other day something about some really strong concerns about acute renal failure, right? So kidney disease and other things, there's -- there's just a lot of things we don't know. So to the extent that those drugs help with patients who sleep apnea arises because they're overweight, that's great. And that helps them, and that's wonderful. But the vast majority of patients will not get a complete resolution even though they do lose weight. And so it's -- I don't really see it for the long haul for us. There are still no amount of weight loss is going to affect a person's lack of development in their cranium, their craniofacial structures, even now being associated with the proper functioning of all things, our hips and our pelvis. So this breathing apparatus that goes up and down throughout our torso and whatnot is actually impacted by so many different aspects of it, the BMI is just one element of it.

No. I agree. I think I saw the data out there that as of 2, 3 years ago, 50% of people with OSA were normal weight. So there's a huge amount of ECD driver in this condition. I think we've gone a little bit over the time that we allowed in. So I wanted to ask you this final question. Probably, we will get a detailed answer from you, but would definitely love to have you back and have more discussion on your company, but you have an early calls coming up. What can you say on what we could expect for you guys to talk about on the earnings call?

Well, that's a great question. I would -- where I see things as the CEO of this company is I see Vivos at a true inflection point. And so we have -- as you know, we've talked about the pivot, the strategic pivot, the fact that we've been sort of laying the groundwork here for a lot of things. There's a lot of things in our pipeline that are coming, some great announcements that we hope to be able to make and all that. But I would see this as an inflection point. We'll talk about that. I think we'll start to see here as we move into 2025, the realization financially and in our numbers, you'll start to see the success of some of the things that we're talking about begin to flow through our financials. And then I think it will become real. So I think we'll try to provide as much color as we can. without getting into too many things that are sort of prospective, but we're very, very excited. This is the coming out party for Vivos. This is the time in our history, in our company's evolution when it's go time. And for us, it's now -- we've proven that this pivot is viable. We've been proving it up here in Colorado. We've been proving it with our first sort of strategic alliance. And now it's time to execute that on a larger scale, and we're up for it. We're ready to go. So we're -- I think you'll hear more details around things like that, and we may even have a more -- by that time, we should have some more concrete announcements that we could make for you.

Fantastic. We're looking forward to it. And Kurt, thank you so much for this great conversation. Thanks for joining us today. For our viewers, thank you as well. To learn more about Vivos, please visit their website, and you could access their research and the previous podcast with Kurt on Water Tower website. Lastly, I want to remind all listeners, the views expressed in this fireside chat may not necessarily reflect the views of WTR and are provided for informational purposes only. Fireside chat may not be distributed or reproduced without the written consent of WTR and should not be considered research nor recommendation. WTR is an investor engagement firm, not a licensed broker, broker-dealer, market maker, investment bank, underwriter or investment adviser. Additional disclaimers can be found at Water Tower Research. And if you have any questions, please feel free to e-mail me at [email protected] or research.com. Thanks again, everyone.