Perimeter Medical Imaging AI Inc

XTSX:PINK

Earnings Call Transcript 2022-Q3

[Operator]

Greetings, and welcome to the Perimeter Medical Third Quarter 2022 Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]I would now like to turn the conference over to your host, Jodi Regts with Investor Relations. Please begin.

[Jodi Regts, executive]

Good afternoon. Thank you for joining us on this call and webcast today to provide the third quarter 2022 update for Perimeter Medical Imaging AI. We will open the call with a business update from Jeremy Sobotta, Perimeter's Chief Executive Officer; and then Chris Scott, Perimeter's Chief Financial Officer, will provide a financial summary. Following Chris' prepared remarks, we will open the call for your questions.Please be advised that during this call, we will make a number of statements that are forward-looking, including 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 F-Series OCT, Perimeter B-Series OCT and Perimeter ImgAssist, the efficacy of our clinical trial designs, the timing and anticipated enrollment in our clinical trials and the time of potential publication or presentation of future clinical data.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 SEDAR filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statement. For additional information about the risks and uncertainties facing our business, management encourage you to review the company's public filings and press releases, which are posted on SEDAR at www.sedar.com.The press release summarizing this business update was released today, November 15, 2022, and will be made available under the Investors' section of our website at www.perimetermed.com, and filed with SEDAR.Now I would like to turn the call over to Perimeter's CEO, Jeremy Sobotta.

[Jeremy Sobotta, executive]

Thank you, Jodi. Good afternoon, and thank you, everyone for joining us today. I'm proud of the progress we made over the third quarter, despite continued headwinds impacting both our customers and our clinical partners' operations. I will begin today's call by commenting on both our commercialization activities, and as well as the clinical development of our next-gen technology, currently being evaluated in a clinical trial under our ATLAS AI project. I will then turn the call over to Chris for a review of the third quarter financial results.On the commercial front, we made another large step forward in the execution of our go-to-market strategy with our flagship S-Series OCT technology. We remain focused on closing the subset of the market who can be strategic, early adopters, able to develop expertise with the technology, without the assistance of AI and to form our long-term base of reference sites, as future iterations of the technology democratize it for more mass market utility. Our pursuit of these types of users stems from our strategy to connect with leading healthcare institutions, and to train and support innovative physicians who see the true benefits of using our technology in their surgical practices. These leaders will become our bellwether sites to help shape and support more broad-based adoption of the technology, supported by ImgAssist AI.Although the pace of installations is not what we expected, we are confident in our rollout, made good progress in the quarter and have continued to build strong momentum in our commercial pipeline. As noted during our last call, in Q3, we successfully completed the first commercial placement in the state of California at Pavilion Surgery Center, an affiliate of St. Joseph Hospital in Orange, California. We believe this segment of the market to be of strategic importance to our commercial plans. This installation was also important, as it's in the ambulatory setting. A site of care, we believe could continue to form a greater proportion of procedures going forward.Then more recently, we announced the commercial placement of our Perimeter S-Series OCT system at a hospital that is part of one of the largest healthcare networks in North Texas, and is particularly significant for us, because it's part of a large national health care system across the U.S. Also mentioned in our Q2 call, while many of our current proposals may start with interest from a single user on a single system, we know there is potential for a rollout of multiple units and reaching new champions of our technology.This morning's announcement demonstrated that is the case here, with our second installation within this customer network. We believe our technology provides a solution, which resonates across many different stakeholders and healthcare providers, including administration leadership within integrated delivery networks like these, and we look forward to expanding on these relationships and placing additional units with those customers.While deals like this often take a bit longer to close, as it does introduce additional procurement steps for our customers, the potential upside in the mid-to-longer term with increased ability to expand our customer base is significant.Looking at the commercial macro environment, I should note that our sales team continues to work on a challenging environment. We, like many others in the healthcare sector are feeling the effects of staffing shortages incurring in hospitals across the country. This is broad across our med-tech industry, and we are seeing and hearing from healthcare providers, therapeutic companies and medical device and technology companies who are all struggling with the resulting surgery cancellation and procedure backlogs. This is impacting decisions from site of care for procedures to capital budgets and long-term procurement contracting, and in light of these continued issues facing healthcare providers, which are, in turn, introducing additional elements of volatility in our sales cycle, we have elected to withdraw our installation guidance of 10 to 20 units in the calendar year.However, we are encouraged by the growing number of facilities, requesting evaluations and the building momentum in our commercial pipeline. We now have active or pending in-service evaluations at more than 10 sites across the country. We share this leading indicator with you today, to give you this onetime insight into the health of our pipeline, as we make this transition. And going forward, we will continue to provide updates on our commercialization progress, and we'll comment on our placement outlook, once sales cycle return to a more normalized rate.And while staffing and other macro pressures persist for our customers, we believe the caliber of users and institutions adopting the technology are incredibly strong indicators of the validity of our stated early commercialization strategy, that is building future reference sites and key opinion leaders with our flagship S-Series OCT.I also do not want to overlook the performance our early customers are experiencing. Our sample size of procedures continues to grow across placements and evaluations over an increasing number of surgeon users, and we continue to see results that outperform our expectations. Whether users are starting from national average type reoperation rates of 20% to 25% or as low as 10%, they are achieving early single-digit reoperation rates utilizing our technology, to visualize our margins intraoperatively.Next, turning to our ALS AI project, which includes the clinical pivotal trial of the B Series with ImgAssist AI, we have activated the initial 8 planned clinical trial sites. And further, we have received FDA approval to expand the number of institutions involved in our trial, to support the goal of accelerating patient enrollment. In parallel to our request to the FDA for expansion sites, we have been executing diligence on potential expansion sites and believe we have qualified options available to us that we can quickly work to get enrolled.While the staffing shortage headwinds I've already described, has an impact on clinical trials across our industry as well, I'm pleased to report that we are executing on our site expansion plans and other mitigation strategies to increase patient enrollment.Further, we believe the high level of engagement from our existing investigators and the significant interest we have received for expansion sites, reflect the belief within our end user community, that our B Series OCT with ImgAssist AI has the potential to be transformative technology. As a reminder, the aim of the study is to assess unaddressed positive margin rates of surgeries, utilizing Perimeter's technology compared to the standard of care. Our goal is to gather data from approximately 330 patients and complete that patient enrollment in the first half of 2023. We believe that this further enhancement of using AI, along with our OCT Imaging Technology, is going to power surgeons with a tool set to improve health care outcomes.Lastly, in terms of future growth initiatives for perimeter and to give a glimpse into future indications, we were pleased to announce the 2 poster presentations at the Annual Meeting of the College of American Pathologists 2022, which took place from October 8 to 11 in New Orleans, Louisiana. The research presented validates the potential use of Perimeter's S-Series OCT to intraoperatively image specimens across a variety of tissue types, such as breast, thyroid, kidney, liver, lung, colon, heart, pancreas, spleen and adrenal [indiscernible]. This research helps to demonstrate that Perimeter S-Series has the potential to be used in a variety of additional settings, and to also bridge the gap between surgeons' need for immediate real-time info in the operating room, with images that correlate to histological results, with a process that does not interfere with surgical procedures, or final pathology.And with that, I would like to turn the call over to Chris Scott to give a financial overview. Chris?

[Christopher Scott, executive]

Thank you, Jeremy, and good afternoon, everyone. As Jodi mentioned, we issued a press release summarizing our third quarter 2022 financial results earlier today. Unless otherwise noted, I will state financial figures in Canadian dollars.Operating expenses for the 3 months ended September 30, 2022, were approximately $5.9 million compared to $3.7 million during the same period in 2021. Net loss for the 3 months ended September 30, 2022, was approximately $819,000 compared to approximately $3.9 million for the same period last year. From a cash flow perspective, for the 9 months ended September 30, 2022, cash used in operating activities was approximately $13.1 million. And finally, as of September 30, 2022, our cash and cash equivalents totaled approximately $43.2 million.With our strong cash position and prudent financial management, we are confident that we will be able to support our clinical development activities and fund the continued commercial rollout of our products.

[Jeremy Sobotta, executive]

Thank you, Chris. Even in a challenging macro environment, I'm encouraged by the growing momentum we are seeing in our sales pipeline and the acceleration of enrollment in our clinical trial. And as we look to the future, we are optimistic about the near-term catalyst. All of us here at Perimeter are purely focused and committed to transforming cancer surgery with advanced imaging, AI and machine learning tools to improve patient outcomes and lower costs within the healthcare system. We truly believe we have the opportunity to provide something transformative.As always, I'd like to thank our team of employees and other stakeholders for everything they do. I'm proud of what we're building here, and I look forward to updating you on our progress on future calls.I'd now like to turn the call over to the operator and open the line for questions for either myself or Chris. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Rahul Sarugaser with Raymond James.

[Rahul Sarugaser, analyst]

So my first question is, of course, we are certainly seeing broad hospital limitations in terms of rolling out early-stage technology. Given that Perimeter's really focused on [ S-Series ], which is commercializing the tech, but also really advancing the AI-enabled clinical trial. Could you maybe talk about the balance of resource deployment in terms of your commercial activity, which is sort of facing headwinds, versus potentially accelerating your clinical program for the asset that's really going to hopefully drive long-term revenue?

[Jeremy Sobotta, executive]

Certainly, Rahul. Yes, I think as we embarked on -- really the commercial launch of the S-Series we had the stated strategy, where we're not really going after the whole market. We're focused on these early adopters that can help proliferate the technology when, to your point, the B Series and the AI is on the market. So we came out of the gate, I'd say, pretty reserved from that perspective, always wanting to maintain optionality to deploy more resources towards that commercialization effort, if the market gave us that feedback.To your point, we're experiencing a lot of macro headwinds and just -- our customers, frankly, are experiencing macro headwinds and staffing shortages and labor input costs that are impacting their operations. So we haven't really, what I would say, is kind of exercise that option based on where we're at today. And I think if you listen to the prepared remarks there, we've got a lot going on to accelerate the patient enrollment in the clinical studies.So super excited to have the FDA approval to expand the number of sites. Obviously, there's a little bit of a balancing act there on picking a site that is somewhere between high volume and quick to start up for us. We've been actively engaged in conversations. But even that, to your point, a lot of sites responded and self-selected out saying, we don't have additional research staff or we can't take on any more research activity. So it's a little bit of threading the needle there.And then as far as deploying resources, we've done a number of additional kind of site-specific activities around some things like direct-to-patient marketing in those communities, assisting some of our investigator partners with some new spots during breast cancer awareness month, and things like that. And I'd say, it's still pretty early days yet, but exiting Q3, we definitely started to see a pickup in the pace of enrollment, as we got new sites up and running and as folks came back from their summer holidays, et cetera. So I'd say if that -- what you described as a constant balancing act, we're working through, but want to continue to have some efforts focused on the commercialization, so we can make sure we're priming the pump, when the B-Series does come to market.

[Rahul Sarugaser, analyst]

That's great, Jeremy. And just one follow-up question. So given the accelerating timeline on the clinical trial, can you maybe just remind us of your -- hitting the milestones, do you expect to [ complete this ] trial on time? And do you -- and that will be all for me today.

[Jeremy Sobotta, executive]

Yes. Certainly, yes. So I think we've got some puts and takes there, as far as the macro headwinds we talked about, but the mitigating strategies we're deploying and executing on. So feel pretty good about holding our timeline to completing patient enrollment first half of next year. Obviously, that's a little broad, as we just land on who this additional site is and see what the impact of enrollment is going to look like. But holding firm on that and then once patient enrollment is complete, consistent with what we've said historically, there's a couple of months of follow-up data analysis, and then the marketing application to the FDA.We're still bullish on that being a de novo application and expect to kind of the FDA to meet their typical recent de novo timelines for getting that to market.

[Operator]

[Operator Instructions] Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

[Frank Takkinen, analyst]

Maybe just to start on the multisystem orders. I think last quarter, you called out there was a couple of multisystem orders under evaluation. I was just hoping you could provide an update around those systems under evaluation, and if there is any thought process around when some of those could convert into placements?

[Jeremy Sobotta, executive]

Yes, we continue to have great feedback there. We've had successful evaluations at a couple of those. I think today's news is a good indicator of one of those. Consistent with what procurement looks like and particularly the for-profit side of those multi-unit installations, we think we're gathering kind of good support at the corporate level, like today is a pretty fast follow-on from the initial installation in the integrated delivery network. But then there is the individual hospital process that we still need to go through, to check their boxes and make sure that our users' [ interest ] is there, are excited about the technology and ready to go.So we're continuing to work through that, bullish on some of the evaluations I alluded to in the prepared remarks being multiunit installations, and just working through contracting phase and the valuation phase to get to the other side of that.

[Frank Takkinen, analyst]

Got it. That's helpful. And then maybe on the utilization front, I realize it's very early given a lot of these placements just went into effect in the last 90 or so days. But maybe any early anecdotal feedback from how utilization could ramp over the next, call it, 3, 6 and 12 months at these commercial sites that were recently brought on board?

[Jeremy Sobotta, executive]

Yes. I would maybe echo your qualifier there, that it is early days and I think we're still a bit in the discovery phase, as we have really users across the spectrum from big academic institutions to ambulatory surgery centers. But that being said, I think the ramp-up looks extremely positive. The early users are definitely expressing great excitement around the technology. I think the early ones that have been added a little longer, are utilizing the technology much more. And there's been a lot of effort to expand into additional users in the installations we already have.So I think the trend should continue in the right direction and I think what we're seeing is, it's a pretty quick ramp up to getting to kind of 100% utilization on the cases that are eligible for our technology. So lot of good momentum being built there.

[Frank Takkinen, analyst]

Got it. And then just last one for me. I heard the comment, I think you said early reoperates into the single digits. If I remember correctly, I think it was your first user and reoperates all the way down to 0%, understanding that's probably not the best proxy for the entire installed base going forward. But maybe if you could just touch on that user and if their reoperates continue to be as robust as they were in the early days? And then how do you kind of think about reoperates over a longer period of time, based on your early learnings?

[Jeremy Sobotta, executive]

Yes. I continue to be pleasantly surprised at how effective the results that our users are getting with the technology. So that is a great sign and I think it speaks to the experience they're having and why they're so excited about using it. I think I would be pleasantly surprised, if this kind of aggregate early single-digit number continues going forward, as the number of users and their independence grows. But there's a lot of room for getting back to, kind of what we had initially expected around the F-Series as being kind of 50% reduction number. So the early user continues to have very robust results, and that seems to be replicated across the additional add-on users we've had since.

[Operator]

Thank you. This concludes the question-and-answer session, and this will also conclude today's conference. Thank you for your participation. You may now disconnect your lines.