Stereotaxis Inc

AMEX:STXS

Earnings Call Transcript 2023-Q2

[Operator]

Good morning. Thank you for joining us for Stereotaxis' Second Quarter 2023 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events, expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions and comments following the presentation. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

[David Fischel, executive]

Thank you, operator, and good morning, everyone. We are pleased to return to robust double-digit growth in the second quarter with a 28% year-over-year increase in revenue. System revenue for the quarter reflects partial revenue recognition on 2 Genesis systems, both of which are being installed this summer at hospitals in the U.S. and Europe. During the second quarter, we received orders for 2 Genesis systems, one, from a new greenfield hospital in Europe and the second as an upgrade of an AOB system to Genesis in the U.S. The net effect of the orders we received and the revenue recognized led to a slight increase in system backlog, which as of quarter end stands at $16 million. We expect similar or increased levels of system revenue in the upcoming quarters as our backlog is converted into revenue. We also continue to see a healthy pipeline of replacement cycle and greenfield hospitals interested in our robotic technology, which is expected to continue to contribute to backlog and provide confidence in sustained year-over-year revenue growth. Genesis Systems sales remain the primary driver of our growth as we work towards advancing a robust innovation strategy towards commercialization. Our recurring revenue in the quarter was impacted by the loss of royalty payments that we no longer receive from Johnson & Johnson as well as J&J catheter production shortages, which pressured procedure volumes. Each individually presented a high single-digit headwind to recurring revenue. The J&J catheter production shortages, which pressured procedure volumes throughout the first half of this year seem to have been resolved in July, and we expect procedures to rebound to more normal levels in the third quarter. On our last call, we hinted at a special announcement we have planned for the Heart Rhythm Society Conference. A highlight of the last quarter was the announcement at that conference of a global strategic collaboration with Abbott to integrate Abbott's latest insight X mapping system with Stereotaxis' robots. The integration of our technologies makes the use of Abbott's leading mapping system an attractive option for the community of robotic electrophysiologists who have long desired increased choice in mapping. It enhances the overall physician experience, streamlines procedural workflow and supports the improved treatment of patients who have come flexarydias. From a strategic perspective, this was a major leap forward in our effort to build an open ecosystem where the benefits of robotics can be paired with a broad range of diagnostic and therapeutic technologies. It will also significantly support the launch and more rapid adoption of our proprietary next-generation ablation catheter MAGIC. There was significant excitement at HRS around our integration announcement. We had an opportunity to educate the broader Abbott commercial leadership team on our technology and Abbott dedicated space in their booth to showcase our collaboration. Abbot's software is currently released in Europe, and last month, we celebrated the first integrated EnSight robotic procedures at Erasmus Medical Center in the Netherlands and Marine House St. Elizabeth Hospital in Germany. These sites continue to do integrated procedures and other sites are moving through the adoption process. We expect the integration to be available in the U.S. late this year as Abbott, software and connectivity cable are approved in the U.S. The main drive for significant joint adoption of our technologies will take place concurrent with the MAGIC launch, so we anticipate a continued shift and diversification towards Abbot's Insight system until then. We had expected to receive CE Mark and launched the MAGIC Catheter in Europe this summer. While our regulatory submission was in line with multiple historical precedents and direct verbal feedback we had received from the European notified body, the notified body's interpretation of the new MDR regulations led them to request first-in-human data prior to approval. We were surprised by the decision but have responded rapidly in designing a clinical protocol and putting together all the clinical trial documentation needed for submission to hospital ethics committees and relevant national authorities. Acute data on a couple of dozen patients from one single center should be sufficient. To reduce dependency or risk of delays at any individual site, we have engaged and begun spin documentation to multiple sites, several of which have first-in-human trial experience. We expect to start patient enrollment in the trial in the fourth quarter and complete the acute patecollection on a couple of dozen patients rapidly, allowing a restart of the MAGIC CE Mark review early next year. The availability of this clinical data will ultimately support a more robust launch for MAGIC in Europe as we plan to use the trial to gain experience, data and materials to support the launch. In the U.S., we are progressing with the submission of our IDE application. In parallel, we are exploring with the FDA the possibility of an alternative regulatory route, which would accelerate our path to bring MAGIC to U.S. physicians and patients. Beyond MAGIC, we continue to meaningfully advance our multipronged robust innovation strategy. These innovation efforts include a smaller self-shielding robot that frees us from the extensive planning and construction currently necessary to adopt robotics, a family of interventional guidewires and guide catheters that expand the benefits of our robots into new endovascular indications, a digital surgery, hardware and software offering, enabling broad operating room connectivity and a full electrophysiology product ecosystem being built in collaboration with MicroPort for the Chinese market. Development and refinement of the smaller self-shielding robot has gone well and is near completion. Commercial launch of the robot is predicated, however, on either the MAGIC catheter or our magnetic Guidewire achieving regulatory clearance. We therefore want to balance pursuing regulatory approval for the robot early enough such that we derisk regulatory approval and insured is available when those interventional devices come to market, but not too early, such that we lose the ability to create an exciting launch for the robot. We plan to now submit the robot for 510(k) clearance and CE Mark at year-end at a similar time to when we expect to submit for the robotic magnetic guidewires. That should allow for approval and launch of our new robot with a Guidewire for vascular indications in 2024. Availability of the new robot paired with MAGIC will occur as soon as MAGIC gains its first regulatory approval, which we believe should be possible in mid-2024.In China, MicroPort is making significant progress in bringing together our joint product ecosystem and preparing for commercial launch. MicroPort continues to expect Genesis NMPA approval in early 2024, mapping integration with our Columbus mapping system is complete and waiting for availability of a magnetic ablation catheter, which will be submitted for regulatory approval before year-end. MicroPort expects availability of this comprehensive product ecosystem in mid-2024 and starting to build awareness and excitement for what we will be launching together. The Asia Pacific Heart Rhythm Society Conference is taking place this year in early September in Hong Kong. Stereotaxis technology will be prominently showcased at the conference. The Society for Cardiac Robotic Navigation received an extensive session at the conference during which our robotic technology will be showcased in 3 live streamed cases, including long-distance telerobotic procedures performed from the podium to hospitals hundreds and thousands of miles away. During the conference, MicroPort will also showcase for the first time its new magnetic ablation catheter being navigated by Genesis integrated with its mapping system. This activity and the growing excitement we see in the market bodes well for a strong launch next year. I recognize our path hasn't been easy and that progress on our strategic innovation efforts has been slower than originally anticipated. There have been various external factors serving as headwinds, including changing regulatory goal posts, supply chain difficulties and personnel challenges across the industry that impact contract manufacturing partners. Internally, we have also been doing things that are new to us as an organization, such as focusing on disposable interventional devices. We are advancing multiple very significant and innovative projects with lean teams. I take responsibility for providing optimistic expectations. That said, my excitement for what we are building has not waned. I see ourselves as being on the cusp of a strategic transformation as we advance a new foundational product ecosystem that makes robotics broadly accessible and impactful across endovascular surgery. We have clear line of sight to a near-term future with strategic independence, an attractive revenue model, broad robot accessibility and multi-indication opportunity. Kim will now provide commentary on our financial results, and then I'll make a few financial comments as well before opening the call to Q&A.

[Kimberly Peery, executive]

Thank you, David, and good morning, everyone. Revenue for the second quarter of 2023 totaled $7.9 million, growth of 28% from $6.2 million in the prior year second quarter. This growth was primarily due to higher revenue recognition on Genesis robotic system sales partially offset by discontinued royalties from Johnson & Johnson. System revenue of $3.3 million reflects revenue recognition on the delivery of 2 Genesis Systems. Recurring revenue for the quarter of $4.6 million was predominantly impacted by both the absence of the J&J royalty and J&J catheter production shortages, which pressured procedure volume. The J&J catheter shortage has been largely resolved, and we expect procedures to rebound to normal levels in the third quarter. Gross margin for the second quarter of 2023 was 53% of revenue with recurring revenue gross margin of 79% and system gross margin of 18%. Recurring revenue gross margin remains consistent with recent quarters and system gross margin continues to reflect significant allocation of overhead expenses over low manufacturing volumes. Operating expenses in the quarter of $9.5 million include $2.6 million in noncash stock compensation expense. Excluding noncash stock compensation expense, adjusted operating expenses were $6.9 million compared to the prior year's adjusted operating expenses of $7.2 million. We continue to spend significant amounts on our research and development efforts and are working in a focused fashion to reduce operating expenses, where doing so won't compete our progress. Operating loss and net loss in the second quarter were $5.3 million and $5 million compared to approximately $5.2 million for both in the previous year. Adjusted operating loss and net loss for the second quarter, excluding noncash stock compensation expense, were $2.7 million and $2.4 million. Negative free cash flow for the second quarter was $2.9 million. At the end of the second quarter, we had cash and cash equivalents of $23.9 million and no debt. We expect a significant reduction in cash used in the second half of this year, particularly as we slow investment in inventory. We expect to end the year with between $22 million and $24 million in cash with no debt. I will now hand the call back to David.

[David Fischel, executive]

Thank you, Kim. We are aware of the importance of maintaining financial strength and ensuring our existing balance sheet is capable of advancing our innovations to market and funding their commercialization. We've invested significantly over the last several quarters in our new headquarters and on inventory for both Genesis and the next-generation robot. Those investments are largely behind us. We're balancing an overall cost of financial discipline with continued investment in the key drivers of technological progress and revenue growth. Our backlog and continued capital sales activity give us confidence in sustained momentum and in ending the year with double-digit annual revenue growth and a strong cash position. As our innovation pipeline comes to market, we expect that growth to accelerate from those launches. We look forward to now taking your questions. Operator, can you please open the line to Q&A?

[Operator]

[Operator instructions] Our first question comes from Frank Takkinen from Lake Street Capital Markets.

[Frank Takkinen, analyst]

I wanted to start with one on second half placement expectations. I think, David, you mentioned you expect a similar level of system revenues for Q2 and Q3 going forward. I was hoping you could speak a little bit more around that. What kind of visibility do you have into that? Is this planned? Is there any construction that could hold it up? I'm just trying to understand where we should be setting the models for system revenues in the second half.

[David Fischel, executive]

So we've kind of got into a pace where I think we feel very comfortable with systems being recorded as revenue as a type of lower bound of what we would expect in any given quarter. And it is very hard still to estimate in any quarter exactly how many will go through. There is a lot outside of our control on that. And obviously, the volatility between 2 or 3 or 4 makes a big difference in the numbers, even though it's kind of individual units that are kind of driving all of that. And so we think that kind of modeling to as a lower bound is the same thing, and we will have quarters where we're obviously above that, but that's kind of how we're looking at things right now.

[Frank Takkinen, analyst]

And then for my follow-up, I was just hoping to get a little more color on the Abbott partnership. Any immediate impact you're seeing in the field? And if there's anything you can help with quantification on how impactful this could be, maybe how much share Abbott has in the market? How frequently Abbott integration was brought up throughout the adoption process for new users? And any other color you can provide to really exemplify the Abbott partnership?

[David Fischel, executive]

So the Abbott partnership is -- was a highly strategic one for us, and we're delighted that we were able to announce it. It has been many years in the making. Generally, if you look at the electrophysiology field from a mapping system perspective, it is a duopoly between Johnson & Johnson and Abbott. There are other mapping systems, obviously out there. We obviously have the integration, collaboration with Acute, bottom Scientific as a mapping system, Medtronic is working on a mapping system, other companies internationally like MicroPort have mapping systems. But in the U.S. and Europe, still Johnson & Johnson and they have more or less a duopoly on the majority of the market share. And historically, Stereotaxis has only been integrated with Johnson & Johnson's mapping system and the lack of integration with Abbott was viewed as limited for many of the physicians who would have preferred to use Abbott's mapping system. And this has obviously clinical implications because when you provide more choice to physicians, you allow them to use the robot with less of a -- less of a kind of a choice where they have to give up other things that they've been looking for. We're also integrated with the latest version of Abbott software. So that allows, obviously, the latest versions of mapping functionality with the robotic system, which is a positive. And from a strategic perspective, this will be highly beneficial for the launch of the MAGIC catheter because it does allow the magic catheter to enter the market tied with the latest making innovation. And so that will kind of support MAGIC's adoption in a significant fashion. And from a purely quantitative financial perspective right now, I'd say that it will -- there is a psychological benefit to the announcement that we had that I think supports hospitals that are thinking about adopting robotics. And there are also some physicians that as integration art is available, we'll prefer to shift into that mapping environment, and we'll start to do more procedures in that environment. I would not think that there is a dramatic shift where that changes adoption dramatically in a way that you see it in the numbers overall in the short term, I think that you'll see most of the impact there in the adoption of the MAGIC catheter, which will be accelerated significantly by this integration.

[Operator]

Our next question comes from Adam Maeder from Piper Sandler.

[Adam Maeder, analyst]

I wanted to start on the MAGIC catheter and I guess, trying to better understand time lines in Europe. So it sounds like you're going to start the enrollment in the human study in Q4 review process from the regulatory body kind of restarts early next year. Is midyear or Q3 '24, just reasonable. A reasonable assumption for approval and launch. So that's question one. And question two would be just maybe you can flesh out the alternative regulatory route that you referenced for MAGIC when we're talking about the U.S. pathway? And then I had one follow-up.

[David Fischel, executive]

So in Europe, as we described in the prepared remarks, we scrambled there was a lot of work to be done after we learned after we received that feedback from the notified body in Europe, there was a lot of work to be done to organize clinical trial protocol, to make sure that clinical trial protocol was both very fitting with what the notified body would want to see in terms of data and very reasonable in terms of what physicians could enroll and could be done kind of in an efficient fashion in a hospital setting. And there were many documentations that are needed to gain ethics committee and national approvals that you need just to support those processes. And so kind of the entire team here worked in a very nice fashion to kind of organize ourselves and be able to submit documentation to hospitals in Europe. We started engaging while we are confident that data from a single site would be sufficient for the notified body, and we didn't want to be dependent on one side. Obviously, this is new to us to run a preapproval trial. And so kind of we didn't want to be dependent on any individual site. And so we engaged with many of our users. We've got very enthusiastic feedback from many of our users in Europe who were excited to do a trial like this. And fortunately, several of them have experience doing first-in-human studies in cardiac ablation and so we have started submitting documentation at sites in Europe from what we've heard, and it's fairly consistent at several of these centers, a review process is oftentimes a couple of months, 3 months kind of in that type of ballpark and enrollment in this trial should be very, very rapid. It's all comer arrhythmias, and we're talking about acute data. So that is something that should enroll in this time span of definitely less than a month to do full enrollment and get data. And so we think that kind of having that data in the fourth quarter, receiving approval from the competent authorities in individual countries in Europe from the ethics committees of hospitals is very reasonable in the fourth quarter, enrolling patients and having the acute data from them is also reasonable in that same quarter. And then we would obviously very quickly submit that data to the notified body so that we can restart the review of our CE Mark. Given how extensive the CE Mark review was with all the rounds of questions until they got to the point of telling us that they believe clinical data is necessary I believe that, that review process should be relatively shorter and streamlined. We went through rounds of questions before. But obviously, that time line of the regulatory review is outside of our control. So I think that a summertime next year sounds very reasonable. It's obviously tough outside of our control, so we can't say for certain. And hopefully, we can even have earlier than that. Does that kind of answer the European path for MAGIC well?

[Adam Maeder, analyst]

It does, David. That's great color. And would love additional thoughts on the path forward for MAGIC in the U.S. You, I think, referred to an alternative regulatory pathway. So would love to hear a little bit more about that. And then I have one follow-up.

[David Fischel, executive]

So the traditional path in the U.S. is a filing for an IDE trial running a pivotal U.S. study and obviously, the mission of a PMA application to FDA. And we have done most of the work to be ready for that and to do that submission. And we -- given what we are doing in Europe and given some of the discussions we've had, we believe there might be a reasonable likelihood that we gain an alternative path, which would be attractive. It is obviously very important for us and for the physician community that relies on robotics and for the patients they treat that MAGIC is available for U.S. physicians and patients as early as possible. And so we are cognizant of that importance. We're grateful that we've had the opportunity to have meaningful discussions with FDA. And at this point, there's not much more that I should say, but I believe that at the next quarterly earnings call, I'll definitely -- I should be able to provide much clearer guidance on our path forward in the U.S.

[Adam Maeder, analyst]

And then for the follow-up, I wanted to pivot over to the mobile robotics system. And I guess the genesis of the question is just trying to better understand the strategy and timing here. I think I heard you say the plan now is to submit for 510(k) and CE Mark at year-end. So a little bit of a push out there. I guess my question is, why not submit earlier for approval, get across the regulatory goal line, but just not launch it until you have approval for the MAGIC catheter in hand. So hopefully, that makes sense. And would love any color there.

[David Fischel, executive]

No pun intended on the Genesis of the question, comment there, right? So we feel good with how we've been developing in the testing process for the next-generation system. There is a balancing act where as we pursue approval first system, oftentimes, even post approval, you continue to do some improvement, some modifications in a robotic system. It's different than something like an interventional device. And we've continued to improve the Genesis system over time. And so there's a balancing act between when do you want to pull the lever on pursuing regulatory approval versus continuing to do that refinement and then pulling the regulatory level. Our team has been laser-focused on the MAGIC regulatory process these last several weeks. And there isn't value in gaining approval for the robot prior to either MAGIC or Guidewire being on the market. And so I think we're taking a very -- just a balanced approach where we definitely want to gain like you say, approval for the robot prior to the interventional devices being on the market in order to derisk that dependency and to make sure it is available. On the other hand, we feel very confident with the regulatory path that exists for the robot given that we did Genesis very recently and given that we've had discussions with the regulators in both the regions recently on that regulatory path again. And so we feel confident in the regulatory path there and we want to balance also not getting approval for a robot 6, 9 months before we actually can do anything with it and then continuing to make iterative improvements in that meantime. And so that's really kind of the calculus going on. I think that kind of this is a reasonable balance and we'll be flexible if we sense that we have acceleration anywhere else in the program, then we'll go the trigger quicker.

[Operator]

Our next question comes from Alex Nowak from Craig-Hallum Capital.

[Alexander Nowak, analyst]

I want to push a little bit more around the alternative path, and I know you don't want to reveal too much until the game plan stuff, but if I'm just hearing you correctly, it sounds like it could potentially use the European data in the PMA submission and maybe you could bypass some of the workflow that is needed for a PMA if you just were solely doing in the U.S.

[David Fischel, executive]

It is obviously an important topic and an important question. I don't want to go into great detail of that now. I don't think it's appropriate to do so. I think that it is, obviously, the MAGIC catheter is highly important product in terms of ensuring that physicians that use our technology and the patients that they treat have access to robotics and the latest generation of robotics in kind of the best fashion possible. I'm grateful that kind of -- the regulators understand that importance. And we are being creative in how we're thinking about collecting data to ensure that MAGIC is clearly kind of an efficacious and safe device. And so we've been fortunate to have the opportunity to explore various ideas in a collaborative fashion and I will know more in the coming weeks. And so I believe by the next call, we'll be in a position to be able to share much more, again, kind of our baseline path, which we are advancing and committed to is submitting an IDE application in the near term, but there may be opportunities for an improved time line there that would provide magic to U.S. physicians and patients in an accelerated path.

[Alexander Nowak, analyst]

Well, look forward to that update there next quarter sounds very interesting. Maybe on utilization, if you back out some of the onetime items here with regards to, I guess, maybe not onetime, but the royalty, the catheter shortages, how is underlying usage and utilization with Niobe and Genesis going this quarter?

[David Fischel, executive]

So obviously, from a recurring revenue perspective, you see the hit because of the loss of the royalty that has nothing to do with utilization. That's purely a kind of a dollar hit per procedure. And on the utilization side, we were hamstrung by the shortages of J&J catheters, which did impact volumes in the second quarter. They also did impact in the first quarter before that. And overall, that high single-digit impact to recurring revenue, the shortage of catheters and the impact on utilization. I'd say we expect, given what we've seen in supply and given the commentary we've received, it seems like the shortages on catheter are largely over. So we'd expect to bounce back to more normal volumes in the third quarter. And overall, we still see utilization at Genesis accounts being higher than a Niobe accounts. And so we see kind of the benefit of new technology and what new technology brings to the marketplace. And so that has been kind of good to see.

[Alexander Nowak, analyst]

And then maybe just lastly, just how is the overall hospital environment in recent months? It might seem like based on the commentary, things are starting to break free a little bit. New placements and new orders are starting to flow in, maybe a little bit easier than it has been during the pandemic.

[David Fischel, executive]

So I'd say it's mix. Where again, I think I've made the comment sometimes in the past that we are still a relatively smaller player in the field. And so it's hard to take macro trends from our experience. Generally, what you described is true. We do send multiple hospitals that are engaging with us. There are definitely hospitals that are moving forward on projects that are kind of -- that are able to move forward. And we see kind of tenders in Europe that take place. And so it kind of -- that overall feels good. There are definitely the counter examples where there are hospitals that are very financially pressured and that are being very tight on any spendings or any projects. And so we see the spectrum of experiences across our hospital customers. But I think at least for us, there is a maturization of our commercial team and their ability to engage with sites and many things snowball gradually in kind of in this world. And so I think some of the efforts that we've done over the last couple of years to improve and to engage with sites starts to have more of an impact and we start to see more repeatability in the commercial team's capabilities. And so it's kind of -- it's still not a completely open and easy environment. I still think the macro world is a world more of headwinds and tailwinds but I think kind of we are able to overall make progress despite those headwinds.

[Operator]

Our next question comes from Josh Jennings from TB Cowen.

[Joshua Jennings, analyst]

I wanted to just get a refresher on the status of the U.S. and Europe capital sales teams. And any plans to build them out and a stability is the near-term plan? And what would you need to see to change that strategy would it just be expansion of the sales funnel and just increasing levels of demand or any other triggers? Then I have one follow-up on China.

[David Fischel, executive]

So I think we've talked a little bit about the European sales team and our strategy there in the past. And overall, with our commercial teams in the U.S., Europe and Asia as kind of the right size. We think we have kind of a good team with smart people and capable people. We have gradually incrementally strengthened team in Europe in anticipation of the MAGIC launch but that's been overall very gradual. And I would say that we are waiting for -- we are confident that the MAGIC catheter can be launched very successfully at our existing sites in Europe with our team and that, that can be a successful launch. We also think that we have the bandwidth, obviously, to launch the new robot and that, to some extent, just makes the work that our existing team has been doing on the capital side much easier. And so I think that our technologies as we bring them to market can be launched very successfully with the existing teams that we have.Now the opportunity to grow a team when you have an improved revenue model and a significantly higher disposable revenue per procedure is attractive and significant. And so we do plan to channel much of that incremental gross profit that we will receive from the MAGIC catheter from the growth in revenue from these new technologies, back into our team back into the company. And I'd expect that as we're doing the MAGIC launch, we will move much more towards a model like other companies in the field have where you have one dedicated salesperson per hospital customer. We currently have one person for each 3 or 4 hospitals and that is a commercial disadvantage versus competition. And one, we have the MAGIC catheter available, we can there in a very financially prudent and sustainable fashion shift towards kind of a more similar model to our competition. And so that's kind of something that we would be doing as we do the MAGIC launch. I think we can do that in a financially sustainable fashion being self-funded by the launch of that new technology. And so that's something we'll do gradually kind of probably over the first year or first 18 months or so of the launch.

[Joshua Jennings, analyst]

And then I just wanted to just better understand the dynamics in China in front of MicroPorts kind of finalizing the build-out of the EP ecosystem and incorporating robotic navigation technology. I mean, is there a holding period here in China just for new customers, I think you've described a kind of sales from or pipeline of potential customers in a dozen plus range in China. But do we need to see Genesis approval before those -- that pipeline converts to contract? And just maybe just to help us think through the next 12 months in front of that full build-out. And then just a follow-up to that. Is there any other countries in Asia Pac, you have this HRS, I think Asia Pac meeting coming up in September in Hong Kong. Any other opportunities you see Japan or other Asia Pac countries that are intriguing for Stereotaxis?

[David Fischel, executive]

So yes, the PHS, Asia-Pacific HRS conference that's coming up in the beginning of September, I was very pleasantly surprised by how good of a program was arranged by the Society for Cardiac Robotic Navigation in collaboration with AP2-HRS, they are showcasing some amazing procedures and some amazing capabilities of our technology. So I think that is reflective of the type of pre-commercialization work in some ways that is taking place there to build up interest and to grow kind of the visibility of our technology there. Overall kind of -- there's some opportunity potentially to commercialize new robots prior to that ecosystem coming into play next year. But I'd say that, that is not the biggest focus. The real focus is how to make sure that as you have this full ecosystem available, you can have a very successful launch, and you can together in partnership with MicroPort take multiple percentage points of market share in a country like China, which is a significant existing market. And so that is really kind of the primary focus, the strategic focus and kind of the big way that's out there. I think kind of as we said before, right, we expect Genesis approval in the earlier parts of next year given the submission that had taken place already at the end of last year and then some of the additional requests for information that took place in the first half of this year, and MicroPort will be submitting it's kind of the next-generation ablation catheter that works combined with their Columbus mapping system and our robot later this year. And so kind of overall, we're looking at a kind of a nice launch probably around this time next year. And kind of I think that we do have other accounts in the Asia Pacific region outside of China that still do procedures that are great users of robotics at APA for us, we will be engaging with those accounts, and we'll be engaging with potential accounts in other countries in the Asia Pacific region. But I'd say that kind of from a focus perspective, we see very clear line of sight to building a substantial business with MicroPort in China. And so that really is kind of the biggest strategic focus kind of -- and that's where I'd expect to see the biggest kind of change to our overall corporate trajectory from there.

[Operator]

[Operator Instructions] Our next question comes from Neil Chatterji from B. Riley.

[Neil Chatterji, analyst]

A lot of my questions have been answered, but maybe just on the -- I think last call, you kind of talked about some of the preclinical studies with PFA generators. Just curious if you have any update there and/or on any maybe development for MAGIC PA?

[David Fischel, executive]

So I think we've also discussed this somewhat in the past, as you say, we have performed an animal study using the MAGIC catheter variance of it with PFA generators and got kind of nice results from that. And mechanistically, there's a lot of rationale to using the benefits of robotic magnetic navigation with post field energy, post-field energy can be very efficacious, but it does require being in contact during that short burst of therapy with the tissue and manual catheters are less stable on the beating heart. And so kind of there's a rationale to why we provide an improved lesion when being combined with overall kind of we've been taking approach. There are multiple now, many, many companies with PFA generators and PFA technology. We have been engaging and doing some technology work with various of them. And I think kind of we're going to see how best to create from those collaborations and some of the technology work that we've been doing, how to create an actual regulatory path where we could do -- we could shift from preclinical work to actual clinical first in human work and with an actual viable regulatory path to bring a PSA product to market. I think kind of developing of the MAGIC catheter has given us a foundation from which we can build on because finally, for the first time, we own our own ablation catheter. And so that kind of has been very helpful both in being able to use a variant of that with PFA and then also facilitating other companies to be able to create variants of their own catheters that can be steered in the robotic environment in collaboration with us. And so again, we're kind of in the process of working with different parties on how that could kind of come to market.

[Neil Chatterji, analyst]

Maybe just a follow-up just on OpEx. I guess with the kind of the ongoing work you have and kind of the plan work, how should we think about kind of R&D expense kind of in the back half and into '24. And then maybe additionally, just on the pipeline, any update on your kind of work and development in connectivity.

[David Fischel, executive]

In terms of R&D expense, I'd expect that to be more or less flat. There are kind of gives and takes there. So kind of some of the projects have definitely gone through the majority of their spending and now it's kind of more cleanup internal work with very little external spending, very little purchasing that needs to take place for them to come to completion. Others like running clinical studies kind of obviously ramp up the expenses. And so I think kind of when I look at the gives and takes of the different projects, we should expect overall spending to be more or less flat, kind of an IDE study would be more expensive. And so depending on how things go there, next year, we could see an increase in R&D expense. But I'd say in the back half of this year, I'd expect it more or less equal to the first half of this year. And kind of, I think, generally, from an OpEx perspective, we are at a relatively good level. We are making some focused reductions in expenses where that doesn't impact the progress of our technology or our commercial capability. We also from just an OpEx and kind of GAAP earnings is not the same as cash flow. And we have still seen over the last several quarters that our cash flow has lagged behind what you would expect it to be, given the investment in inventory, both for Genesis and for the next-generation robot, we have bought the vast majority of the components and supply there for for over a handful of Genesis systems and a handful of the next-generation robots. And so a lot of that spending has been a drain on cash resources and kind of was done to reduce the risk of delays and reduce the risk of the supply chain and kind of we will continue to spend money on both of those products, but I think it'll be at kind of a much lower level and given the types of revenue and the cash inflows that we're getting from the Genesis system, they should be below that. Below the cash inflow. So I'd say that kind of obviously our guidance of $22 million to $24 million of cash at the end of this year, that is kind of representative of the fact that cash flow is going to be much better as we don't have to continue to invest as much in that type of inventory. What was your second question? Sorry, I forgot it, Neil.

[Neil Chatterji, analyst]

Just on the pipeline, is there any update on kind of the -- or connectivity, I guess, with like [indiscernible].

[David Fischel, executive]

So the [ think ] software for connectivity, we are just at the stages where we're going to be doing an internal limited market release as a full -- kind of a full product in a production environment downloaded from the app stores, both IOF and Android. We'll be doing it with our internal team and then with a few of our existing customers to start making sure that it is working well, that there are no bugs that kind of -- that all the features are kind of as desired by our customers that can conserve well both for the peer-to-peer connection between physicians and also for our team as we do remote support of procedures and remote both technical and clinical support. And so we're going to be running that out probably starting already in a month from now or so. And then as kind of as we -- as kind of we go through that LMR process, then we'll decide on when to do an actual kind of public formal launch. Hopefully, that limited market release phase can take will be a few months. We've already started working with hospitals that said there are approval process. We have a lot of experience with cybersecurity and working with hospitals, IT groups through the due diligence required for connected technologies in the hospital environment, probably about 80% of our hospitals have connectivity with us through VPNs currently. That's what allows us to do remote support and allows it to gain real-time data from the robots. This solution is a much more elegant way and scalable way of doing connectivity with individual sites, and we have a lot of experience with cybersecurity and so we designed a sink in a way that is, I think, very good and well suited for the hospital environment, but you still need to go through a new review process and kind of all that, that entails. We've actually started that process with initial hospitals. Those will probably take a few months. So we're kind of -- I think kind of what we've started some of that limited market release work. And as we go through, are able to put sink in a few hospitals are able to get the limited market release feedback, then we will kind of play in the full launch.

[Operator]

We have no further questions in queue. I would like to turn the call back over to David Fischel for closing remarks.

[David Fischel, executive]

Thank you very much for all your questions. We appreciate your continued support. We look forward to working hard on your behalf in the coming months, and we'll speak again next quarter. Thank you very much.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.