Imricor Medical Systems Inc

ASX:IMR

Earnings Call Transcript 2022-Q3

[Simon Hinsley]

Good morning, and welcome to Imricor's Third Quarter Investor Webinar, following the release of the results to the ASX this morning. From the company today, we have Chairman and CEO, Steve Wedan; and the company's CFO, Jonathon Gut.

Before I hand over to Steve to go through the presentation released on the ASX this morning, I'll just remind you that you can ask questions that will be conducted through the Q&A panel at the bottom of the screen, and we will get those posted during your presentation.

Steve I now hand it over to you to get started. Thanks very much.

[Steve Wedan, executive]

Thanks, Simon, and thanks, everyone for joining us today. As Simon mentioned, this morning, Imricor released its appendix 4C for the third quarter of 2022, and we'd like to discuss these results, as well as provide a general business update. So Jon will begin by presenting the quarterly cash flow results.

[Jonathon Gut, executive]

Thank you, Steve, and hello, everyone. As a reminder, all numbers are unaudited and in U.S. dollars. The net cash outflows from operating activities were $4.7 million for the quarter, which was up approximately $500,000 from the prior quarter. Receipts from customers of $246,000 during the quarter were primarily comprised of sales of consumable products and equipment. Overall, cash outflows in relation to operating costs were higher than the prior quarter. This increase was primarily driven by the payment of annual insurance premiums during the quarter, a portion of which were financed through a short-term arrangement, that will be repaid in 10 monthly installments. Adjusted for this financing item, payments made in relation to operating costs were $4.2 million, which represents a decrease of 7% compared to the prior quarter.

Net cash outflows for investing were $121,000, largely relating to the purchase of property and equipment. Net cash inflows from financing activities were $2.7 million, primarily reflecting the funds raised from the oversubscribed placement we completed in September. This figure also includes the $839,000 received as part of the insurance premium financing arrangement mentioned earlier. At September 30, we had a cash balance of $6.9 million.

With the hospitals who use our technology being in Europe, our consumable products are priced in euros, while our financial results are reported in U.S. dollars. The strong U.S. dollar negatively impacted our reported revenue during the quarter, with consumable product revenues totaling $115,000. Without adjusting for the change in exchange rates between periods, these revenues were down 15% compared to Q2 of 2022 and down 2% compared to Q3 2021. If we remove the impact of the exchange rates, consumable product revenues were down 14% compared to Q2 and up 12% compared to Q3 2021.

I'll hand back to Steve now for the rest of the presentation.

[Steve Wedan, executive]

Okay. Thanks, Jon. So for those of you who may be new to the report, I'd like to provide a brief overview of what we're doing and why it's significant. Very briefly, we are transitioning cardiac ablation procedures from the conventional electrophysiology, or EP, Lab, which utilizes X-ray fluoroscopy imaging as backbone, to a new kind of EP lab, where a magnetic resonance imaging or MRI is the imaging backbone.

We call this new kind of lab an iCMR lab, or interventional cardiac magnetic resonance lab. In order to make the transition, we've developed a platform technology that allows us to develop the same kinds of tools that doctors use today for cardiac ablations like ablation catheters for instance, with the additional characteristics of our devices being uniquely safe for use in the MRI environment. This in turn allows physicians to perform cardiac ablations, while imaging the patient with real-time MRI throughout the procedure. Meaning that for the first time, they can actually see the patient's heart, and they can see the physiological changes that occur, as they deliver ablated therapy.

The overall goal of what we call real-time iCMR ablations, is to provide faster, safer and more effective treatments of the revenues, compared to conventional needs, and to do so in an environment that is 100% radiation-free for both the patient and the physician.

So here are some investment highlights, which for this presentation, I'll just pass over for now. Looking at our company time line, you'll see that we've been at this for a long time. And after 14 years of R&D activities, we launched our products commercially in Europe in 2020. That launch order was thwarted by the pandemic, which effectively shut down our hospital customers, and these types of procedures for over 2 years. However, we didn't stand still during those 2 years. We continued to develop the new products and third-party relationships that would open the door for new indications, beyond our initial indication of the atrial flutter.

And now as we relaunch our products for treating atrial flutter, we find ourselves prepared to take our next big step towards treating ventricular tachycardia or VT. Specifically, in Q3, we submitted for approval to initiate a clinical trial intended to prove the safe and effective use of our Vision-MR Ablation Catheter for treating VT. The trial's called Visible VT, which stands for Vision-MR Ablation in VT.

Looking at our path forward, you'll see that visible VT is the next key step in our strategic plan, as we grow our indications. And as we continue to progress, we'll expand our geographies and continue to grow our indications, until addressing the entire cardiac ablation market.

Another very significant development for Imricor this quarter, is the completion of our initial prototype 3D mapping system, which we plan to deploy for physician feedback and validation in the coming weeks at customer research sites, operating with the Siemens MRI scanners. We call this 3D mapping system NorthStar MR, because it helps physicians navigate through an iCMR procedure and with a nod to our home state of Minnesota being called the North Star State.

NorthStar MR is extremely significant to our business, as it removes our reliance on others to develop 3D mapping systems needed for complex ablation procedures, and it puts control of our time lines back in our hands. For those of you who have followed the Imricor story for a few years would appreciate, multiple 3D mapping systems from various MRI partners were supposed to be commercially available by now, yet none are. With NorthStar MR, we are changing our partnership relationships, and we're taking that control. Everyone, including the MR manufacturers is excited about this change.

Developing NorthStar MR ourselves also ensures that we design the system to have the functionality that our physician customers need and that we can continue to improve and expand its capabilities rapidly, as we evolve this new standard of care of real-time iCMR ablations and other interventions. The first targeted MRI systems for NorthStar MR are the Siemens platform systems, but we're also progressing towards making NorthStar MR work with MRI systems from GE Healthcare and Philips. In the end, we plan to provide physicians with the same tools and the same 3D mapping environment, no matter what MRI system they employ.

Next, I'd like to share a brief update on the business and the outlook for Imricor. Our key focus areas are largely the same as we've discussed previously, with one new additional focus in the area of commercialization. That is, our sales team has a unique focus now on establishing new sites with iCMR labs that are owned and controlled by cardiology. One thing we found this quarter, was that sharing a radiology owned lab with cardiology, presents logistical and scheduling difficulties, despite everyone's best intentions. With this new focus, we're emphasizing that we are bringing MRI to the EP lab, rather than bringing EP into the MRI lab.

This is an important distinction. iCMR labs should be just like conventional EP labs, same owner, same location, but only different because there's an MRI in the room, better than X-ray fluoroscopy system. This has always been our long-term strategy and plan, and now that we have gotten a [ base set ] of sites operational in a very short period of time, it's important that we grow this new field properly and predictably.

I've touched on some of the highlights from the quarter already, such as visible VT and NorthStar MR, but we also commenced procedures across 3 additional sites, and we continue to pursue various financing opportunities across many different areas. In the quarter, we raised AUD 2.92 million from U.S. investors, being oversubscribed to private placement, and we advanced the process of pursuing various economic development incentive programs that exist for companies like ours in our space. Once we continue to pursue additional financing options outside of the standard ASX placement, and I look forward to announcing these, as we progress through the fourth quarter.

So as we stand now, with 9 active sites, more sites ready to activate in Q4, visible VT on the immediate horizon, NorthStar MR ready for clinical use and validation, and a renewed and updated sales strategy that focuses on delivering controlled, predictable and sustainable growth, we're well positioned to fulfill our mission to make a huge impact on patients' lives, and do nothing less than change the standard of care, for interventional medicine, by putting 21st century imaging into the interventional lab.

With that, I'd like to hand it back to Simon and open it up for questions.

[Simon Hinsley]

[Operator Instructions] We will just pause to see if any questions come through.

First question, Steve, can you just talk through the timeline, whether we can expect with regard to VT approvals and procedures and what that sort of looks like in terms of importance?

[Steve Wedan, executive]

So I'm not sure what you mean by in terms of importance. I can talk to the timeline. It is, of course, a regulatory time line, meaning that we are not in control of every aspect of it. If the process goes like this, we submit to the ethics committee at our primary investigator site, and after the ethics committee at that site approves the package, then it gets submitted to the competent authority, in this case in Germany. And when they approve it, then we have authority to begin the trial. We're currently -- we've gotten first feedback from the Ethics Committee. We are talking with them next week after actually traveling this week. The next week we will talk with them, clarify all the points and submit our responses to that. And we hope that this will be a pretty streamlined procedure and we move on to the BfArM, that's the German competent authority, submission and approval pretty quickly.

It's impossible for me to say how long the process will take. But we are preparing to start procedures, as soon as we get the authority to do so. Meaning that we are talking with our primary investigators. We are planning the preclinical practicing, and all of the protocols are worked out, and both flows are discussed and practiced. It's all ready to go, as soon as we have the authority to do so.

[Simon Hinsley]

Great, thanks Steve. I have just got a question from Sarah Mann at Moelis Australia.

[Sarah Mann, analyst]

Great. Before I [indiscernible], can you give us the indication of what kind of the run rate was in September and you kind of how are you tracking in October, just to get a feel for the fourth quarter?

[Steve Wedan, executive]

Sure. So what we found is that, we did have a long -- a bit of an elongated European summer holiday, I think, after folks were locked down for so long. But that notwithstanding, we did as many -- we sold as many kits as we did in the previous quarter. It's just to different sites, and because of the strong dollar, the revenue looks a bit different. But I will say, this is not the quarter we expected to have. We scheduled many more procedures than we actually performed. And it's where we learned those lessons that we are immediately putting in place now. One of those primary lessons is, that we have to be very realistic with our early sites to know how many procedures they can do on, for instance, day 1. And we have to make sure that they schedule enough time at their MR scanner, over multiple days to get these procedures done; because the first one takes a couple of hours. It takes a while before you get into the workflow of doing these procedures in a normal time.

So what we found is, this availability of scanner time, was resulting in our procedures being canceled and having to be shifted to the conventional lab. That's a big takeaway of what happens when cardiology is renting or borrowing time from radiology. It's why it's so important, that as we move forward, we have more sites that are -- where the iCMR lab is simply another EP lab that the cardiologists have at their disposal. So as some cases go wrong, which in any intervention will happen sometimes, but you just shift just the same way you would do in a conventional lab.

There was a week, for instance, where we had 12 procedures scheduled, in the end only 4 procedures will perform. And it's because of the scheduling difficulties, and that is something that we are -- we already made large changes to combat that in the future. We won't see that as we move forward.

So I expect that this next quarter we will be better focused, because we'll have hopefully 3 solid months, although Christmas holiday tends to disrupt the end of December. But not only that, but because we'll have better planning and setting better expectations with our customers, and making sure that we are stressing with them regular procedure. It's not 3 procedures 1 week, and then 3 procedures a couple of weeks later. But procedures every week, getting them into the good workflow, getting the efficiencies built into the procedure and the familiarity that comes with -- that muscle memory with repeating the same procedure over and over.

[Sarah Mann, analyst]

Got it. So just in terms of numbers like, I don't know, did you do [ 3 ] procedures in September? And then how has that changed with those learnings that you've kind of taken, [ kindly talk about? ]

[Steve Wedan, executive]

Sarah, that's a good question. I don't have the procedure number in front of me here.

[Sarah Mann, analyst]

It's better to assume that given the [indiscernible] and what happened in September, I think the October run rate has improved in September?

[Steve Wedan, executive]

Yes. We expect our total run rate to be -- well actually, we're in October, yes, we expect the November run rates to be improved. That's true.

[Sarah Mann, analyst]

Okay. Cool. And then you also talked, in kind of the outlook commentary that, the plan in the fourth quarter is to be able to [indiscernible]. How confident are you to -- [indiscernible] I guess, it's still a question mark around that?

[Jonathon Gut, executive]

Yes, we're actually very confident. So one of the sites that we thought we would announce last quarter, is a site where the whole system and our multiyear contract for guaranteed volume. We went out to tender. The tender was approved. It's all in the process that should have been wrapped up already, but a new attorney started at the hospital and wanted to review, again, to make sure that everything was following all the rules. That review is happening now, but it should be complete any moment now.

So that's not a new site. We've been talking about that site for a while, since the tender was issued and since we won that tender. But now these things continue to -- it just takes time. These are large commitments that hospitals are making when they start doing their procedures. They're dedicating not just the time of the physicians, but also space in the hospital and they're buying capital equipment to [ setup ] at these spaces. So we have also learned it takes a bit of time. And one of the things the sales team is also refocusing on is, having realistic expectations for establishing that and giving the hospitals the time to properly budget and properly plan for installing an iCMR lab, that's cardiology owned.

They also still have the 2 sites that were under construction. They're still under construction. They finished that construction it seems on time, and we expect that -- they will be signing it this year also. And there's a third one who is into the late process now of budgeting for a new construction project that will happen early next year. So that's what we hope to see as we move forward, is that our people will be talking about new construction projects, new labs that are cardiology-owned, it's going to make a big difference, because instead of limping along at some of these sites, where they can't get the MRI time, will all be in control of the physicians that are doing these procedures, and that will be a very positive step going forward.

I'll also say this, though, I think [Technical difficulty] how many sites are active rather than how many sites we sign, because as we look to the longer-term strategy of establishing cardiology owned iCMR labs. As I said before, we're the furniture that goes in the room. So the last thing that they'll do, is even after 18 months of planning, budgeting and building the lab, at the very end of that process that they've been doing the whole time, so that they can do our procedures. It's only at the very end that they'll have a contract signed with us.

So I think a better metric for growth, is the number of active sites that we have. And you see that grow as sites come online, as they sign with us and as they become -- as they start doing procedures, have also gotten some pushback regarding whether it's a price-sensitive announcement. So I think it's probably an appropriate time for us to save the announcement for new lab signings, and new activation of labs for these types of quarterly results. So I wouldn't expect that we'll send an announcement out at the moment, the site that won the tender for instance, [indiscernible]. But I hope that at the next quarterly result briefing, that I'll be talking about having started procedures at that site.

[Sarah Mann, analyst]

Okay. And so just now with regards to the VT trial process, I know I already asked a question -- review in a way. But I noted in your [indiscernible] it said, tracking along to time. Can you, like give us any indication as to when you expect to commence the first patient? Are you still kind of holding to -- before the end of this calendar year?

[Steve Wedan, executive]

It can still happen this calendar year, and that's still what we're planning for, and all hoping for, but with the caveat that we cannot control that time line. And if it doesn't start this year, it will start shortly in the following year. And then we have a plan to speed enrollment, to open sites up more quickly and get on track for the 6 months or so enrolment that we're planning.

[Sarah Mann, analyst]

Okay. Right. And unlike the issues that came out of the trial question, was it all kind of as expected and you believe, addressable?

[Steve Wedan, executive]

I think so. I mean I'll give you an example of the feedback we got. One of the comments was, gosh, there's a lot of investigational devices. And it's true, because what we're doing, as I said many times, everything we use in the VT ablation case, in an iCMR lab, has to be MR-compatible, Imricor product. Plus we have third-party partners like MiRTLE Medical for 12-lead ECG and an IPM for their MR-compatible defibrillator. So yes, there's -- when you do something this significant, there are going to be a lot of -- necessarily a lot of new devices in the mix.

And so we just have to talk through that. One of the things that we don't want to do is, just write a response and then send it over. So we'd like to wait out this week and when they're all back at the Ethics Committee in Leipzig have a formed conversation, a call like this, making sure we understand what they're asking and that they understand our responses to that. So it's moving forward well.

[Sarah Mann, analyst]

Right. And then is there any more, I guess, color around kind of your various funding opportunities that you're pursuing? You mentioned kind of beyond raising capital and like, for example, I don't know, the regional [indiscernible]. Can you give us an update around how you're [indiscernible]?

[Steve Wedan, executive]

Yes. That front is -- in terms of the economic incentive programs that exist in our region, and in nearby cities. We are still pursuing that just the same way we had talked about before. It's a process, and they are stronger over a given amount of time. But the process is happening, the way we had hoped it would. It's 1 month delayed more than I was hoping, but they didn't have a meeting 1 month. So we're on the agenda, for instance [Technical difficulty] program in November, and that's where they decide whether we can come and present the business and the opportunity in December.

And so it's all moving the way we think it should be. We're talking to the right people. We are engaged with the right leaders, and they know, that when we talk about helping grow med-tech space in an area that wants to incentivize that, we mean it. And we're really going to do that growth and support the initiatives that trend forward.

[Sarah Mann, analyst]

If you are presenting in November, and you get the cash in December. Are there other initiatives or any other things you can be able to kind of reduce costs further? Because just looking at the quarterly runway kind of -- cash runway per share?

[Jonathon Gut, executive]

Yes. We do have other things, right, that I'm not prepared to talk about. But I'm not concerned. And I hope that gives some comfort. And I hope we'll be talking about them and we will announce them relatively soon.

[Simon Hinsley]

Thanks. Final question, Steve. Since Imricor does not have direct competition in this market, what is the largest struggle to convince a hospital to purchase? Are there many clients interested, but waiting for the necessary budget to build out a lab?

[Steve Wedan, executive]

So one of the -- it's a really good question. And one of the things that the sales team has been asking for that, now we are actively providing and working with them, in an outside consultant and our MRI vendor partners, on providing is, essentially a business plan that doctors who want to do these procedures can present to the administration of their hospital, because they just said, look, we need some help to make them [indiscernible]. I'm not in the kind of position. It's not my wheelhouse. So can you give us the metrics that I can present to my administration? And we think that will have a good positive impact on budget.

The other thing is that, give them the time to budget and properly plan. In the past, we wanted to get a bunch of sites up and running, even if they have to borrow time from their radiology partners, because we need sites to do clinical trials, and we wanted to get some publications going, and all those types of things that build momentum. So that a lot of times needed us being a bit pushy, maybe placing systems rather than selling systems, because we can't ask people to create money out of a budget midyear. And now we can take the time to do it properly, and in the end, we'll make more money and we'll spend less resources on working at sites where it's just not -- they're not fully set up yet to do these procedures, because of that MRI availability.

So in the end, there's a couple of tools that we need to provide our team, to provide physicians to help them make that case in their hospital. Otherwise, this is pretty straightforward, and it's going to be a big deal when we do ventricular tachycardia ablations. Not finish the trial, but when we do our first ventricular tachycardia ablation, we show the world that it's not a dead end technology, it's just atrial flutter, but we are doing what we said we were going to do, which is delivering advanced imaging capabilities to complex arrhythmias that need that imaging -- post imaging capabilities, in order to improve their effectiveness.

These are all the things that we expect to catalyze the market, in the way we've talked about for years now.

[Simon Hinsley]

Steve, that concludes the Q&A segment. I'll just hand it back to you for closing remarks.

[Steve Wedan, executive]

Well, thanks, and thank you, everyone, for joining us today. We will, of course, continue to keep you updated as things progress, and I hope you all have a wonderful day. Goodbye.