Imricor Medical Systems Inc

ASX:IMR

Earnings Call Transcript 2019-Q4

[Steve Wedan, CEO, President & Chairman of Board]

[Audio Gap]

[Lori Milbrandt, CFO & VP of Finance]

Thanks, Steve. As a reminder, all numbers are unaudited and in U.S. dollars. Net cash outflows from operating activities was $2.242 million for the fourth quarter, which was significantly higher than the third quarter as the company continued to build inventory in preparation for CE mark approval. Cash outflows from investing were $28,000. Financing cash outflows were $608,000, consisting primarily of the payment of remaining IPO transaction costs. Our cash balance of $5.049 million was less than the prospective amount of $7.954 million due to the reductions in revenue due to the delay in CE mark, the cancellation of the NIH contract and the delay in IP license revenue. These reductions were partially offset by lower than forecast accounts receivable, inventory purchases and operational spending. I'll hand it back over to Steve now to provide you with an operational update.

[Steve Wedan, CEO, President & Chairman of Board]

Awesome. Thanks, Lori. So as you've seen in our announcement, we were thrilled to receive CE mark for the Vision-MR Ablation Catheter last week. We now have the green light to deliver these products to the European market with an exciting opportunity to make a meaningful impact from the lives of patients and health care professionals and of course, grow value for our investors. And as we set out in our business update on the 23rd of December, we are now in a position to commence a controlled release of our products with the aim of having an initial 15 iCMR lab sites purchasing consumables than the first half of 2020. As promised, we're moving swiftly from CE mark to clinical uptake, and we have established inventory in our European warehouse, ensuring that there are no delays in distribution of the product now that CE mark approval has been received. Over the past 6 months, we have increased our assembly and manufacturing workforce to support the growth in production and the rollout of our product following CE mark approval. I'm in Dresden right now in a hotel room this evening. And we are -- I'm here with the team as we undertake training and work with the team at the Dresden Heart Center in preparation for their first procedures. We'll repeat this process with other iCMR labs that are currently ready to commence procedures now that CE mark has been received, ensuring that we maintain a controlled launch to ensure good clinical outcomes. It's very important as we get started. Beyond the 15 labs that we are intending to have purchasing products during the first half of this year, we have a solid pipeline of clinical sites that are targeted for the establishment of iCMR labs and the sale of our products. Now that CE mark has been received, we expect this pipeline to grow even more. This pipeline, of course, continues to be supported by our collaborative relationships with Siemens and with Philips.As previously announced, we strengthened our sales team over the last quarter of 2019, with hires from high-caliber organizations within the medical technology sector. These appointments include a director of marketing, a clinical account manager and regional sales manager for the Benelux/West Germany area. We expect to appoint a regional sales manager for Eastern Germany in the coming months. I'd like to reinforce that our strategy for the year ahead is well advanced and that we have been -- not been sitting still as we've waited out the certification process. We have the target sites identified and greater clarity around the potential lab adoption rates and time lines. The support we are seeing across the health care sector is strong, and it continues to grow. The team and I are very excited about the next phase of the business and the year ahead.

[Unknown Executive]

Thank you, Steve. We'll now open up the call for questions. [Operator Instructions] Just while we're waiting for people to come through with their questions, so we've received a couple of questions via email, which I thought might be worth your answering on this call. The first one is just in relation to trading in the stock on the 24th of January. The question is about the level of trading in this stock and where it came from and was it a potential company that may acquire Imricor?

[Steve Wedan, CEO, President & Chairman of Board]

Okay. That's a good question. So what we can say, what we know is that during the roadshow for the IPO, several Australian-based institutional fund managers noted that they like the Imricor story and would like to invest once the CE mark had been attained. And so we're not privy at this stage to who is buying our shares but I'd assume, given the large volume that one or more of these institutions are the buyer. I can confirm that we have not been approached in relation to a potential acquisition of the company or anything like that.

[Unknown Executive]

Thank you, Steve. Another question. How does your current inventory of product compare to your anticipated orders for your product? Do you think orders for product will exceed inventory or vice versa?

[Steve Wedan, CEO, President & Chairman of Board]

Well, it's really hard to predict at this very early stage, but we have a plan and we expect the demand will be higher than our controlled release of product would dictate. So we are -- we've ramped up our manufacturing on a particular path of product build. We think that -- well, we will stay within those guidelines. We don't want to let this just explode and get out of control. We want, very important, to have this controlled launch. We're moving from site to site, making sure that they're up and running, well trained, getting good clinical outcomes, then we move to the next site and continue this process. That also then builds an installed base of sites where new places can come, get trained, learn the procedure, and then this process gets easier and easier and more and more streamlined. So right now, what I can say is I think we're well -- the amount of inventory we're building and the amount of demand and product we expect to sell are well matched.

[Unknown Executive]

And one last question on the email question, Steve. The -- this investor would like to ask if there's any need for a secondary equity offering. And if so, will the early U.S. investors be able to sell unrestricted shares into the offering if it takes place?

[Steve Wedan, CEO, President & Chairman of Board]

Also a good question. A little early for that too for me. So now that we've received the CE mark and we're executing this -- our commercialization initiatives, we're reviewing our cash flow position, and I'll be better placed to provide further guidance on this, and that specific question really, in the March time frame when I plan to visit Australia.

[Unknown Executive]

Thank you. Now I'm just going to open up to a caller. Unfortunately, and I can't say your name, but it's a Melbourne number and the caller's number ends in 382. I'm just going to allow you to speak, if you'd like to proceed with your question.

[David Blake, Founder]

Yes. It's David Blake calling from Bioshares in Melbourne. I just had a simple question about your marketing materials and messages that your marketing and sales staff will be using in the coming months. Can you run us through, perhaps, in general terms, what the story is that those staff members will be taking to prospective clients?

[Steve Wedan, CEO, President & Chairman of Board]

Sure. That's a good question, too. It's -- the story is entirely unchanged from what the story has always been, that this is a new modality for doing ablation procedures in and that we believe the advantages that the visualization of the soft tissue, the ability to precisely target specific areas and the ability to visualize the lesions and the therapy delivery, all of those things, all in an environment that is radiation-free. This is -- these value propositions, this is all the same stuff that has always been and that it fits into reimbursement structures. And that it -- it's not an entirely new procedure. All these things are part of that. Now as we get started over the next couple of months; our main marketing message is CE mark is received. So we've just printed some materials for an upcoming symposium, and that's the message. The message now is everyone has been waiting for this, CE mark has been achieved. Now is a time when we can really engage and they should really engage with us to get started. As we move forward, to people who know us less well, then we'll start to target some of these other messages. And so what's important for us in the beginning as we do our controlled launch and there's an associated -- a post-market clinical follow-up study that we'll be doing, it's all part of the documentation that we will continue to provide to our notified body as this goes through its entire life cycle. Our marketing people are focused on getting the kinds of metrics that they can then incorporate into the promotional materials, time for procedures, effectiveness of procedures, et cetera. So it's in the beginning. We don't really need to make a lot of brochures and marketing material because people are just banging down the door, trying to get started as quickly as possible. And we'll use that enthusiasm in those early sites to build with concrete data what the story will be as we move beyond them.

[Unknown Executive]

Thanks, Steve. I've got some other questions just coming through as well. The first one, are there any other European approvals that are desired or pending at this stage?

[Steve Wedan, CEO, President & Chairman of Board]

There aren't any other approvals that are pending at this stage. We -- once we have this approval -- now that we have this approval, we can get started at some of our early clinical sites. For instance, like the Dresden Heart Center and the Leipzig Heart Center where we did our clinical trial in the first place for this approval. And that's when we'll have this opportunity then to expand the indications through developing what the protocols will be, submitting for competent authority. This is different than a notified body. Competent authority is the government regulator. And so we'll put the protocol and the study together, submit that, and then we'll have a great opportunity to execute those clinical trials for new indications. And that's really -- the next thing that we want to do is sort of expand those indications. On the other hand, I will say that we have additional pipeline products that are coming which don't require clinical trials. And just as we stated in our prospectus, we have diagnostic catheter and then continued improvements of our ablation catheter and some other devices as well. So those things, yes, we're planning for the approval process in those. None of those are in the approval phase just yet.

[Unknown Executive]

And Steve, just on that topic, has an application been made domestically to FDA? And what is the possible timing on that?

[Steve Wedan, CEO, President & Chairman of Board]

It has not. We're at the same spot that we were, really, at the time of the IPO. We are -- to move forward on FDA approval, it's a multiyear process of an early feasibility study followed by a pilot study, followed by a clinical trial and then a review cycle. We're at that early stage where we've done the preclinical study. We're now scheduling a time. We have been, but it was the holidays and so forth, with Siemens, who is our partner in this effort, to go to the FDA and put a package together that satisfies them to get that early feasibility study started here. So we haven't made much movement on that, but it's a very long process, and we don't think it's necessarily been delayed. We're just going to get started now.

[Unknown Executive]

Just moving to another question, Steve. What are your growth plans in terms of revenue and profit? And what is the length of your sales cycle?

[Steve Wedan, CEO, President & Chairman of Board]

Well, we'll have a lot more information on that, especially the length of the sales cycle, as we move forward. Now it's been a different kind of sales cycle up until now where we -- I mean, it's remarkable that we had 4 sites that purchased systems prior to the catheters being CE mark. But now every site can say that they can move forward from initial idea to installation of the lab and commencement of procedures without any delay associated with our approval. And so I would say in a year from now, we'll have a much better feel for what that is really going to be. Right now, all we can do is guess, and it's been highly variable. And so I will also say that we're working toward making it easier for hospitals to adopt earlier and to not have to do a construction cycle between their decision to try to move in this direction and our ability to allow them to do that. So we're trying to make it easy for folks to adopt quickly. So we'll really have a better feel for that as time moves on.

[Unknown Executive]

And another one, Steve, it's just come through. How soon do you expect accelerated cash inflows to begin?

[Steve Wedan, CEO, President & Chairman of Board]

So I'm not certain what the question is asking. When do we expect to start to see revenue come in or when there will be a big jump in that?

[Unknown Executive]

Yes. I think [indiscernible] a follow-up question as well, just on what your revenue projections are for the next 2 quarters given your current inventory levels which may help with that one?

[Steve Wedan, CEO, President & Chairman of Board]

Yes. I'd say it's -- again, it's a little difficult to predict precisely what the revenue projections will be for the next couple of months. And this is part of what we're looking at right now that since we've got the CE mark behind us. So I'm not prepared to say what we think that, that might be. What we're really focused on is the establishment of the labs, this target of 15 labs in the first half of the year and to continue that ramp-up. And we believe with the enthusiasm and excitement and knowing that once you establish a lab, you did that for a purposeful reason, and to spend that kind of money to get a lab ready to go, it's natural that you're going to do procedures. So right now, we know that, that revenue will follow for the consumables in a sort of organic way. We'll be titrating that, again, with a very controlled release as we move through this year. So it's not necessarily indicative of what the steady-state long-term revenue would be from each particular site. So it's a difficult thing for me to answer. We're just getting a look at that right now.

[Unknown Executive]

And Steve, just another question that's come through. What is the stickiness of your product? And what sort of switching costs are there to change over from current technologies?

[Steve Wedan, CEO, President & Chairman of Board]

Well, I'll go on reverse order on this. Virtually no cost to switching over, except the cost of the lab itself and some associated capital equipment that goes into that, well -- while all of the associated capital, including our capital equipment monitors. But it's the same cost that would take to establish a new X-ray lab as well, except that the MR scanner is differently priced. But all the same devices go in that MR lab that went in the X-ray lab. Once you have that established, there's no cost of moving over. There's no -- there's virtually no time to moving over. We do the training that we're doing this week, and it's the same procedure, just done in a different lab. And sorry, can you remind me again what the first question was because I went in reverse order?

[Unknown Executive]

The first part of the question, what's the stickiness to your product?

[Steve Wedan, CEO, President & Chairman of Board]

Yes. That's -- it's easy. One part is that you've got a lab and you want to do procedures, and so you're going to do procedures in that lab. And -- but the second thing is that once doctors do -- it's universally, when doctors do procedures in an MR lab, they get used to it very quickly and they start to miss the information that they can have in the MR lab. They miss that when they go back to the x-ray lab. We've had physicians talk about this on the podium at various congresses. So it in itself is -- it's like a new capability that you didn't know you had or you didn't know you didn't have before, and it really does draw people back to the MR lab.

[Unknown Executive]

Thanks, Steve. That concludes our questions. So I'll now hand back to you. Sorry, I've just had one more come through. You've mentioned training. How long and intensive is the training process?

[Steve Wedan, CEO, President & Chairman of Board]

It's actually pretty straightforward. Each site, if it's a site like here in Dresden where they have their MR scanner for some time, then they're already trained on MR safety. They know what things they can and cannot take into the magnet room. At newer sites, that's part of the training protocol, is for us to go through those workflows. Other part of the training is emergency training, just like in any lab. If something goes wrong, we want to make sure everybody know -- has a job and knows exactly how to handle those particular situations. And then it's a standard training of here's how you work the user interface for our EP recording system and so forth. But we do that in -- usually in a day, maybe 2 days for newer sites. But for the first few sites, it's very straightforward.

[Unknown Executive]

Okay. That concludes our questions. So I'll now hand back to you, Steve, to close the call.

[Steve Wedan, CEO, President & Chairman of Board]

All right. Thanks. I just want to thank everybody for their participation today. We'll, of course, continue to keep you updated as things progress. And I'm also looking forward to catching up with many of you in person when I do come to Australia following the release of our 2019 results. So with that then, I'll say good day, and good night from here in Dresden. And I look forward to talking to you again soon.