Perimeter Medical Imaging AI Inc

XTSX:PINK

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Perimeter Medical Q2 2024 Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 13, 2024.

I would now like to turn the conference over to Stephen Kilmer, Investor Relations. Please go ahead.

[Stephen Kilmer, executive]

Thank you. Good afternoon, everyone.

Let me start out by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws. These may include statements regarding the future financial position, business strategy and strategic goals; commercial activities and timing; competitive conditions; research and development activities; projected costs and capital expenditures; research and clinical testing outcomes; the potential benefits of our products, including Perimeter S-Series OCT, Perimeter B-Series OCT and Perimeter ImgAssist; Perimeter's ability to broaden its user base and the expected approval of its proprietary AI; expectations regarding new products and the timing thereof; and expectations regarding opportunities from our market expansion. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our public filings and press releases, which are posted on sedarplus.ca. Our results may differ materially from those projected on today's call. No forward-looking statement can be guaranteed. Perimeter undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, other than as required by law.

For the benefit of those who are new to the Perimeter story, I would also like to take a moment to summarize our business. We are a medical technology company working to transform cancer surgery with ultra-high resolution, real-time advanced imaging tools to address areas of high unmet medical need. Our FDA-cleared Perimeter S-Series OCT system provides real-time cross-sectional visualization of excised tissues at the cellular level. Our breakthrough-device-designated investigational Perimeter B-Series OCT with ImgAssist AI represents our next-generation artificial intelligence technology. B-Series OCT with ImgAssist AI is currently being evaluated in an ongoing pivotal clinical trial in breast-conserving cancer surgeries.

On the call representing the company are Adrian Mendes, Perimeter's Chief Executive Officer; Andrew Berkeley, Perimeter's Chief Innovation Officer; and Sara Brien, the Company's Chief Financial Officer.

With that said, I'll now turn the call over to Sara.

[Sara Brien, executive]

Thank you, Steve. Good afternoon, everyone, and welcome to our second quarter 2024 conference call. On behalf of the management team and everyone at Perimeter, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support.

I will turn the call over to Adrian in a moment for an update on our strategic plans and commercial activities. However, before I do, I'd like to provide a brief update on our Q2 2024 financial results. To streamline things, all of our numbers we refer to today have been rounded, so they are approximate. We also report in U.S. dollars.

For the 3-month period ending June 30, 2024, the company recorded revenue of $246,000. That consisted of the sale of consumables and system leases. For the first time, we entered into an equipment service plan warranty program with 2 customers, which includes annual preventive maintenance for the OCT equipment. The total contract value was approximately $139,000 and will be recognized over the 3-year term of the contract as services are rendered starting next quarter.

Operating expenses for the second quarter were approximately $5.5 million compared to approximately $3.4 million for the same period in 2023.

Second quarter 2024 net loss improved 35% to approximately $3.2 million or $0.05 per common share compared to $4.9 million or $0.08 per common share in the 3 months ended June 30, 2023.

Cash used in operating activities in the 3 months ended June 30, 2024, was approximately $7.5 million, relatively flat compared to approximately $7.2 million in Q2 2023.

As of June 30, 2024, cash and cash equivalents were approximately $6.5 million. This amount does not include a CPRIT grant receivable of approximately $1.8 million as of the end of the quarter 2024.

With that, I'll now turn over the call to Adrian. Adrian?

[Adrian Mendes, executive]

Thanks, Sara, and thanks again, everyone, for your time and attention today. As Steve mentioned at the start of the call, we are committed to making a real difference in the lives of patients by creating and commercializing innovative intraoperative imaging technologies.

The fact is, surgeons have worked for years to innovate every step of the diagnosis and treatment plan for their cancer patients with the ultimate goal of improving survivability and quality of life. Yes, intraoperative margin assessment remains one of their most pressing problems. We're working hard to change that.

Perimeter's S-Series OCT technology gives surgeons the most advanced intraoperative margin visualization available as they strive to reduce re-excisions, clarity on margin status in the OR versus waiting days for pathology results to confirm, and actionable real-time insights to tailor clinical decisions to each patient.

In a way, our product promise is greater peace of mind both to the surgeon who, no matter how skilled, currently faces nearly 1 in 5 odds of needing to perform repeat surgery due to positive margins and also to their patients who, under the current treatment pathway, typically need to wait and worry for 2 to 7 days for their surgeon to receive a post-op pathology report which will determine whether they will have to go through the emotional and physical trauma of a second surgery due to cancer left behind.

But as compelling a clinical value proposition that our S-Series OCT represents, it will be our execution of a well-thought-out and carefully planned market entry strategy that will drive Perimeter's ultimate commercial success.

To that end, ever since the company completed a leadership transition in mid-2023, we've been laying down a number of foundational things, and I'm pleased to report that each of the pillars of our strategy are starting to bear fruit.

Before elaborating on some of the tangible results we have already seen from the foundational things that have been laid down since Perimeter completed a leadership transition, I would like to take a moment to set the stage of our commercial rollout.

As many of you know, we are currently commercializing our first FDA-cleared intraoperative imaging technology, the S-Series OCT, which provides surgeons with image resolutions capable of visualizing tissue structures at the cellular level down to the critical 2-millimeter depth when assessing margins real time in the operating room. It is cleared under a general indication, and it's not been evaluated by the FDA specifically for use in breast tissue, breast cancer or other types of cancer margin evaluation and reduced re-excision rates.

Our goal has been to seed the market with S-Series OCT in order to create a strong network of early adopters in preparation for a potential FDA clearance of our next-generation system, B-Series OCT with ImgAssist AI.

Led by principal investigator, Dr. Alastair Thompson at Baylor College of Medicine, Perimeter is conducting a multicenter, randomized, 2-arm clinical trial to measure the effectiveness of this AI-enabled OCT technology in reducing the number of unaddressed positive margins in breast lumpectomy procedures when used in addition to standard intraoperative margin assessment.

Our focus on improving the level and pace of execution across all aspects of Perimeter's business has contributed to, among other things, the acceleration of patient enrollment in the pivotal trial, resulting in it tracking well ahead of schedule. We announced today that we now anticipate patient enrollment to be completed in Q3, a quarter ahead of previous expectations.

Moving forward from there, since we have already received FDA Breakthrough Device Designation for our B-Series system, we anticipate the readout from this study will be a significant catalyst for our business. If positive, these data will support the full commercial launch of Series-B OCT technology, representing the next major step in our go-to-market strategy and an opportunity to significantly broaden our user base across the U.S.

In the meantime, as you can see from today's press release the growth pillars we've been laying down are starting to produce tangible results. For example, restructuring our sales organization while also implementing some key process improvements have helped drive increased commercial adoption of Perimeter S-Series OCT both in terms of installed base growth and existing system utilization.

To put that in perspective, we've already closed 6 S-Series OCT placement so far this year compared to 3 in all of 2023. Also, Q2 revenues, which are recurring since they're derived from sales of consumables and system leases, grew 83% year-over-year and 150% sequentially from the first quarter 2024.

Finally, just after the end of the quarter, the 1,000th paid Perimeter S-Series OCT patient scan was performed, marking an important clinical and commercial milestone for us.

In addition, our strengthened commitment to methodical data collection helped facilitate Dr. Amelia Gunter authoring an exciting white paper in June. It reported reoperation rates among 72 patients on a practice who underwent OCT imaging during breast-conserving surgery. The research demonstrated that OCT helped achieve a reoperation rate of 5.6% as compared to the national average of 19.9%.

Also, while the national reoperation rate in patients with a certain type of breast cancer called ductal carcinoma in situ, DCIS, was 30.8% versus 13.3% in patients where OCT was used. And in patients with invasive ductal carcinoma, IDC, the national rate for reoperation was shown to be 18%, while our S-Series OCT operation rate was 0%. Dr. Gunter's white paper is available on our website, and I encourage you to review it there if you haven't already had a chance to do that.

Finally, our additional focus on gathering user feedback in order to apply an agile approach to continuously improve our product offering resulted in the first-of-its-kind installation of our new ImgClear AI image enhancement algorithm with a commercial Perimeter S-Series OCT system. ImgClear enables users to achieve better quality images, up to 441% signal-to-noise ratio increase, and importantly, reduce scan times by 28%. We are now working to upgrade all installed S-Series systems with ImgClear before the end of the year.

And so to summarize, we're seeing positive commercial traction with S-Series OCT as demonstrated by our installed base and revenue growth in Q2 and the achievement of our 1,000th patient scanned milestone in July. The ongoing pivotal trial evaluating use of our next-gen B-Series OCT with ImgAssist AI during breast-conserving surgeries is progressing well and is now expected to complete patient enrollment in the third quarter.

There's a growing body of clinical evidence, including Dr. Gunter's recent white paper, which points to the potential of our OCT-based technologies to advance the standard of care, improve patient outcomes and reduce health care costs. And finally, we continue to leverage our extensive AI and med tech expertise to find ways to deploy AI models, like ImgClear, throughout our technology stack to improve the customer experience and surgical outcomes.

We look forward to keeping you updated on our progress through 2024 and are excited by the important milestones that lay ahead.

And with that, I now open up the call for your questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Scott McAuley of Paradigm Capital.

[Scott McAuley, analyst]

Great to hear on all the activity and kind of 6 installations year to date. Could you dig into that a little more? Kind of what's the total number of systems that are currently installed and maybe how many kind of net new in Q2?

[Adrian Mendes, executive]

Scott, thanks for joining, good question. So we're up to 12 systems now that are currently installed and earning revenue for us. And 4 of them, 4 of the total, have been in the second quarter. So we've been accelerating quarter after quarter, 4 of those 6 in Q2.

[Scott McAuley, analyst]

That's great. And then maybe a bit on the type of facilities that those kind of recent installations have been in, are they hospitals, surgical centers? And are these new sites? Are these sites that are acquiring their second system or part of national chains or things like that?

[Adrian Mendes, executive]

Yes, they're all hospitals, hospital systems, they actually follow very similar, the same profile, that we have been winning to date. So it's just sort of expansion into the place we've had success already.

[Scott McAuley, analyst]

Got it. That's great. And then I guess on the balance of the year, kind of how you're seeing the pipeline growing and moving through the sales cycle?

[Adrian Mendes, executive]

Yes. Strong pipeline, we expect to see the sort of growth rates continue through the third quarter and fourth quarter, expanding into new facilities, expanding to new states. So I think we're sort of just kind of push -- sort of refer back to something I said earlier is one of the things that we've all been working really hard here, just to make sure we're establishing sort of the foundational structure in the company, that will help us grow sustainably over time. So it's not just like wanting really hard, closing a bunch of deals and then going into a drought.

And so we've seen that. When we look at our pipeline, we see things kind of stage nicely through the entire pipeline, through phases and with increasing quantities as time goes on. So we're encouraged that this is a story that's sustainable that we can keep going.

[Scott McAuley, analyst]

That's great. I guess on the trial, fantastic to hear that the recruitment is going faster than expected and should be finished soon, so I guess if the recruitment finish in Q3, could you talk through a bit on when we could expect to see the top line data and then potential FDA submission and approval?

[Adrian Mendes, executive]

Yes. So the hope is that we'll be able to talk about top line data in the fourth quarter, before year-end, and then with the goal of submitting to the FDA early next year, like early Q1. And then we're planning -- right now, we're anticipating approval sometime towards the end of 2025 or early 2026. We have Breakthrough Device Designation. So that, we hope, will help speed things through.

Internally, we're sort of preparing everything. I mean we have been preparing everything, continue to prepare everything, just to make sure there is no wait time between our request from the FDA and when we can submit something or the trial ending and when we can submit something. So one of the biggest, highest priorities we've got in the company is just to get through, to get that Series-B on the market as quickly as possible.

[Scott McAuley, analyst]

Absolutely. And sorry, you broke up a little bit, you're saying kind of data before the end of the year and then submission in Q1.

[Adrian Mendes, executive]

That's right.

[Scott McAuley, analyst]

Got it. And on the white paper, great to see those data in that form. Any other kind of white papers or studies, kind of real-world evidence that you guys are working on to put up there.

[Adrian Mendes, executive]

Yes, absolutely. So like we mentioned, we've got 1,000 patients through right now, and so we've got that data. We've got a few papers going through a peer-reviewed process. The first paper was a white paper. The next ones will be peer-reviewed. We've also set up a registry now, a formal registry. So we're gathering data in a more sort of structured manner, I suppose. So you'll start to see that flow of clinical evidence start to pick up starting later this year and into the future.

[Scott McAuley, analyst]

That's great. Yes, good to get more of that data, especially if it's peer-reviewed. Obviously, it's great to reach that 1,000th scan benchmark. Can you kind of speak to either how many procedures were done in the quarter or what you're seeing from a monthly run rate or a bit about that kind of the utilization and what you're hoping to see going forward?

[Adrian Mendes, executive]

I don't have the precise numbers at the monthly level. It's safe to say that it is increasing. Every new device that we put in the field is also adding. If you recall, one thing that we did since the time I've been here is we really staffed up the clinical team that helps with customers and helps train them and get them onboarded. So a big part of their focus is just making sure that we're getting more and more customers through and our volumes up. So that has been increasing over time on a monthly basis, and we anticipate it to continue to increase.

[Scott McAuley, analyst]

That's great. And I guess lastly, ImgClear, certainly kind of new for me, hadn't heard about that, so good to hear that those product improvements are continuing. So that algorithm kind of didn't need FDA approval and there are just kind of no necessarily costs or anything like that to people you're planning on just rolling that out. And that, I would assume, would be included in the B-Series and that then doesn't impact any kind of the regulatory pathway or any of that process.

[Adrian Mendes, executive]

Yes, that's all correct. It didn't need to go through any sort of regulatory approval. And the most important thing about that, and one thing that I'm really happy with what the team has been able to do, is really start to get this process of collecting feedback from customers and then having engineers work on some of those challenges and solve them and deploy that in the field. And the big one with ImgClear, frankly, is the fact that it does cut down the scan time in the operating room. Every minute counts in the operating room, so that's really great. The team has ideas on how to make that even faster, so that's good. I think we've got a nice product development trajectory on that as well.

[Scott McAuley, analyst]

I guess what would be, with that ImgClear, the kind of average scan time that a surgeon would take?

[Adrian Mendes, executive]

Yes. So from a scan time on the average lump size, it goes from about 12 minutes down to about 9 minutes.

[Operator]

Your next question comes from Rahul Sarugaser of Raymond James.

[Rahul Sarugaser, analyst]

Scott covered off most of it with really several questions, so really kind of one for me then today. Could you talk about the balance sheet given sort of the current cash on hand, cash burn and then how you guys are looking at managing the balance sheet?

[Adrian Mendes, executive]

Yes, absolutely. So right now, we've got cash into early next year. We've been managing pretty tightly to make sure that, that runway stays consistent and that's sort of consistent with what we've been planning all year. We will need to fundraise before then. And so that's consistent with what we've talked about before, so that's still part of our plans. So that's a big focus of our management team, and the Board is focused on it right now.

[Rahul Sarugaser, analyst]

Perfect. That's helpful. And just maybe one more then, and then I'll get back in the queue. It's good to see the visibility on the top line data in Q4, calendar Q4, and then hopefully followed by FDA submission and approval. Perhaps you could maybe lean forward a year or so and talk about how you plan on leveraging the data into marketing the device.

[Adrian Mendes, executive]

Yes, absolutely. So once we get approval, and we'll build toward this over time, there's really two things that we're preparing for, fundamentally two major things we're preparing for to sort of accelerate growth. One is the fact that having AI makes it a lot easier for surgeons to adopt it. It makes it easier to use. It's like a copilot. And so what we're doing right now and what we will do leading up to that is making sure that we're starting to lay down those railroad tracks, whatever, with surgeons and building out that pipeline. So surgeon adoption will go up, and that's a big thing that will happen once we get B-Series on markets.

The other thing that it will do is it will give us labels, like data labels, on breast and breast cancer which then allows us to market much more strongly than we're able to market right now to surgeons and patients about the fact that we do reduce re-excisions, we will be able to reduce re-excisions with B-Series. We will be able to do it in the breast cancer market. We don't have that evidence right now. The S-Series is not cleared for that, but the B-Series will be. So that's another inflection point that will really help our marketing message, in our commercial sort of messaging and strategy towards the end of next year.

Does that answer your question, Rahul?

[Rahul Sarugaser, analyst]

Yes, that's perfect.

[Adrian Mendes, executive]

Great. Thanks, Rahul.

[Operator]

That concludes our question-and-answer session. I'd like to turn the conference back to Adrian Mendes for closing remarks.

[Adrian Mendes, executive]

Okay. Thank you. Thanks, everyone, for the time and for following us and the support. The team here is extremely excited about what we have coming on. I guess we're sitting here at the start of -- you've seen some good news today. There's more to come. So keep following us, and we look forward to talking to you next quarter. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.