Perimeter Medical Imaging AI Inc

XTSX:PINK

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Perimeter Medical Q3 2024 Conference Call. [Operator Instructions]. This call is being recorded on Thursday, November 14, 2024. And 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 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 for 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 SEDAR+.

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 statement, 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 OTC 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 represents our next-generation artificial intelligence technology. As we will discuss in more detail today, B-Series OCT with ImgAssist is currently being evaluated in a pivotal clinical trial in breast conservative cancer surgeries.

On the call representing the company are Adrian Mendes, Perimeter's Chief Executive Officer; Sara Brien, the company's Chief Financial Officer; and Dr. Sarah Butler, our Vice President of Clinical and Medical Affairs.

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

[Sara Brien, executive]

Thanks, Steve. Good afternoon, everyone, and welcome to our third quarter 2024 conference call. On behalf of the management team and everyone at Perimeter, I'd 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. However, before I do, I'd like to provide a brief update on our Q3 2024 financial results. To streamline things, all of the numbers we will refer to have been rounded, so they are approximate. Also, unless specified otherwise, all the amounts are expressed in U.S. dollars.

For the 3-month period ending September 30, 2024, the company recorded revenue of $208,000, which consisted of the sale of consumables, system leases as well as from the sale of ESP warranty programs. Operating expenses for the third quarter were approximately $4.5 million, essentially unchanged from the same period in 2023.

We -- Third quarter 2024 net loss was approximately $4.6 million or $0.07 per common share compared to a net loss of approximately $345,000 or $0.01 per common share in the 3 months ending September 30, 2023.

The net -- the increase in net loss was primarily the result of a change in 2 noncash expenses. Net finance expense resulting from the revaluation of the warrant liability and net foreign exchange loss. Cash used in operating activities in the 9 months ending September 30, 2024, was approximately $11.6 million compared to approximately $10.6 million in Q3 2023.

As of September 30, 2024, cash and cash equivalents were approximately $9.5 million. This amount does not include any of the approximately $1.5 million or CAD 2 million in gross proceeds from the second and final closing of the recent non-broker private placement nor a Cancer Prevention and Research Institute of Texas, CPRIT, grant receivable of approximately $1.9 million. which is related to the reimbursement of pivotal clinical trial project cost as of the end of the third quarter of 2024.

With that, I'll now turn over the call to 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 interoperative imaging technology. In fact, not just technology, but solutions to address long-standing unmet needs in cancer care. Surgeons have been worked -- have worked for years to innovate every step in the diagnosis and treatment plan for their cancer patients with the ultimate goal of improving survivability and quality of life, yet interoperative margin assessment remains one of their most pressing problems. We are working hard to change that.

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 OR. It is cleared under a general indication and has not been evaluated by the FDA specifically for use in breast tissue, breast cancer other types of cancers, margin evaluation nor reducing recision rates.

Our goal has been to seed the market with S-Series OCT in order to create a strong network of early adopters and technology champions in preparation for a potential FDA authorization of our next-generation system, the B-Series OCT with ImgAssist AI. On October 1, we announced the completion of patient enrollment in a pivotal study evaluating the use of the B-Series system in breast and serving surgeries.

This prospective multicenter randomized double-arm clinical trial enrolled approximately 530 women aged 18 years and older, undergoing breast conserving surgeries for the treatment of stage 0 to 3 invasive ductal carcinoma and/or ductal carcinoma in situ. Participants were recruited from 10 clinical sites across the United States and randomized in a 2:1 ratio to the device and control arms.

Moving forward from here, since we have already received FDA breakthrough device designation for our B-Series, we anticipate the readout from this study will be a significant catalyst for our business. If successful, the trial is expected to support our submission in 2025 to the FDA and -- for authorization to market the B-Series OCT with ImgAssist AI in the United States.

Then if FDA authorized is obtained, we will allow -- that will allow for the full commercial launch of a B-series OCT and AI 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. We anticipate being in a position to produce -- to announce the top line data shortly.

As Steve foreshadowed, we're going to break a little from tradition and focus the bulk of today's call and discussing the B-Series OCT pivotal trial design and how the results may serve as an inflection point for our business.

To help facilitate that, we've asked Scott McAuley, an equity research analyst who covers Perimeter for Paradigm Capital to lead a special Q&A session now with Dr. Butler and me. After that, I'll come back with some closing remarks. Operator, please open up Scott's line now for the B-Series pivotal trial Q&A.

[Scott McAuley, analyst]

Adrian, Sara and the team, great to see another quarter in the book. Maybe just to start off on some of the news from just an hour or so ago, I think you highlighted that I think there are 8 new placements for the F-Series year-to-date, certainly exciting and accelerating that pace. I guess could you just confirm how many S-Series are kind of out there in commercial use in the U.S. today?

[Adrian Mendes, executive]

Yes. We're up to 15 devices out there in commercial use now.

[Scott McAuley, analyst]

That's great. And as -- as there's 15 sites out there right now, it's out there. It's being used in commercial procedures today. So you kind of touched on it in the prepared remarks, but at a high level, this B-Series product, this trial, why is it important to patients, to surgeons and to Perimeter itself?

[Adrian Mendes, executive]

Okay. Yes, great question. So what this trial will do is it's the first step in allowing us to get our AI into the marketplace. What AI brings to the device that we don't have available with the S-Series today is, I don't know, call it a co-pilot for the surgeons, which makes it easier to identify suspicious areas when looking at the images that our device captures. And then from a business standpoint, what that allows is us to grow the customer base much beyond where we are right now. And so there's about 8,000 surgeons, breast surgeons or surgeons that do breast surgery in the U.S. right now.

And so our goal, of course, is to be able to get our device into as many of those hands as possible. Having AI and market allows us to reduce the learning curve and makes them much more approachable for many, many of those surgeons to get them used for their patients.

[Scott McAuley, analyst]

Yes. No, that's great. Maybe we'll kind of dig into a little bit into the trial itself. So could you go through the workflow of the trial? I know there's some kind of special within subject analysis that's pretty unique and interesting. So maybe could you dive into some of that?

[Adrian Mendes, executive]

Yes. I'll hand it over to Sarah to go into that.

[Sarah Butler, executive]

Happy to. With the trial, the trial was split into 2 parts. So the one I kind of want to focus on at the moment is what we did in the second part, which was really the addition of ImgAssist 2.0. This is also what we will be using for the effectiveness of the trial.

So for that, when patients come in, they do their standard of care treatments for all arms of the trial. In the device arm, these individuals then were able to have the OCT technology used as well. So these patients are able to be their own control. which is a very unique ability. It also helps to cut down on a lot of that variability you see between patients. So we employed this for the trial and our effectiveness will be looking at those patients that were in the device arm having both standard of care and the OCT technology.

[Scott McAuley, analyst]

Yes. I guess maybe a bit about the ImgAssist 2.0, kind of what that change was and kind of why you thought it was worth doing mid-study?

[Sarah Butler, executive]

So we started the trial with ImgAssist 1.0. That was a good algorithm -- as you know, with AI, things turn very, very quickly. So by the time you get something out, you need to iterate on it already. So we started with the 1.0. We've got about -- not quite halfway and then reached out and engaged the FDA to discuss adding in this enhanced algorithm, which is the ImgAssist 2.0. And it's much better is something that we thought would be better for patients, but also to be out on market.

So we negotiated with the FDA on the next steps, and we restarted the trial then using ImgAssist 2.0. So there -- you will see a little bit of difference in those numbers. All of the patients that were enrolled throughout the trial will be included in the safety analysis, but only the ones in ImgAssist 2.0, which will be somewhere around 206 in the deli farm will be used for the effectiveness of analysis.

[Scott McAuley, analyst]

Yes. That definitely makes sense. And maybe kind of put a little bit of a sharper point on it in terms of the primary outcome, the readouts, like kind of what is the primary endpoint. And when you're releasing it, do you have an idea of kind of what that's going to look like in terms of presenting that to the market?

[Sarah Butler, executive]

Yes. So the primary endpoint really is looking at the occurrence of unaddressed margins. So what does that mean? So the primary endpoint, you can summarize it by looking at the proportion of subjects with at least 1 unaddressed positive margin after the treatment. So still has cancer after standard of care has completed.

And what we're looking for then is after standard of care is complete, then you would randomize the patient to the device and then you're looking at detected any additional margins for that patient. So was there any cancer missed, which could then potentially lead to a recision.

And in that, then we're able to then calculate what that effectiveness is, how many patients then were we able to detect and with the surgeon actually looking at this and using the OCT technology. So that within the subject will be very important because like I mentioned, it helps to control some of that biasness and that variability between patients, where these can be measured exactly the same way the same patient.

[Scott McAuley, analyst]

Yes. No, it's super, super interesting. I guess any -- that's clear on the primary endpoint, any secondary endpoints that are interesting or you think surgeons and patients will be particularly focused on down the road once those are released?

[Sarah Butler, executive]

All of it absolutely. Yes, we've got a primary endpoint that is critical to the study and to the patients. But there's a lot of information and the secondary endpoints, which we're looking at margin levels as well and additional outcomes. So there's a lot of information, a wealth of information that we'll be getting from this. And we're really excited to get through all of the information.

As you know, there's like 100 data points per patient. So there's a lot of info that will take some time to get through. but we're very excited to at least get through and get the primary endpoint analyzed and get that out to the public as well.

[Scott McAuley, analyst]

Yes. That's great. And then I guess in talking to surgeons, either the early adopters of the S-Series or people who are interested in the B-Series as well administrators in hospitals or surgical centers. Like is there something in particular that they're looking for? A statistical significant result is great, if that's the FDA, what they're looking at for the bar for approval.

But is there a particular level or readout that would get them really excited? Or is it anything that's going to impact, positive margins and re-excisions like that alone as a baseline gets them interested. Like what feedback are you getting from them?

[Sarah Butler, executive]

Yes, it's interesting, right? So FDA really looks for statistically significant. And in our case, with a -- within subject, we're really looking at a one-sided t-test right? So you're looking for a p-value of less than 0.05 because we're looking for a decrease in the number of patients. right? So you're having patients from standard of care, OCT is looking to decrease that number that gets through with cancer.

So it's a one-sided test. So that's what we will be looking for. And when we release the primary endpoint, that's what you'll see as a proportion and then you'll see a p-value. And once we get the results, that should be less than 0.025 million.

Why this is important, I think, from a broader perspective, the FDA is kind of looking at very specific on statistics. And then we're looking more across the board. Any technology that you can use in breast conserving surgery, 20% of patients that go through this are coming back for recisions. That's really high.

So I think anything that we can use to be able to help to start reduce this number and help to address these patients, I think that's really invaluable a patient perspective but also for the surgeons to really aid them in detecting breast cancer before they release from surgery, catch it during surgery before it gets passed and then patients have to come back. Nobody wants to make that phone call. So I think this is a really great tool and we're really excited to get the results.

[Adrian Mendes, executive]

Scott, if I can follow up on that a little bit. On the commercial side of the house, when we're out talking to potential future customers. They are already hearing from their peers, the effectiveness of our S-Series, which uses very similar OCT imaging technology, but without AI. And they're seeing the effect of that already.

So what they're looking at -- and we've got the feedback. What they're looking at from this trial isn't so much the effectiveness of the imaging technology, but the ability to use the AI. So really what's key for them is, when can you guys get the AI on the market.

And so really, what they're looking for is really same as what the FDA is looking for. Is this going to show the statistical significance to allow the FDI to give you authorization. And so that's what we're going to be working through as the data starts to get released and over the next year.

[Scott McAuley, analyst]

Definitely. And the AI, again, I think you kind of highlighted it before, but the benefit of AI being fast -- potentially faster turnaround because you're getting this co-pilot view of not having to review all the images, you can just focus -- surgeons can just focus on images of potential interest, and they can decide whether or not potential cancer or not as well as sort of time and then just ease of use is what they're focused on.

[Adrian Mendes, executive]

Correct. Yes.

[Scott McAuley, analyst]

That's great. And then I guess on the -- the other potential effect is on the label because I think you highlighted before that the current S-Series label is tissue agnostic, which is great. But then it doesn't have the breast cancer and margin reduction specific claims on that label. So is there a label that you're kind of particularly targeting that you'd be excited about?

And then what would that enable you to do from a sales and marketing perspective or other kind of business development perspectives that you can't necessarily do with the current kind of tissue agnostic label.

[Adrian Mendes, executive]

Go ahead, Sarah.

[Sarah Butler, executive]

Sure. So with the information that we'll be getting, ImgAssist is a utility tool that really increases that efficiency and really helps to aid the surgeon during surgery, right? So the technology is great. It's able to really visualize the tissue and to help patient care. And I think with the ImgAssist, you'll also see that added benefit of reducing that time and really getting a benefit to that -- to the surgeons. I think that gives you a lot larger in the market as well to be able to show those effects.

[Scott McAuley, analyst]

Yes. So can specifically go out and market around its use in breast cancer, which from a sales perspective, which maybe you can't necessarily jump up and down from a market -- sales and marketing perspective around -- specifically around breast cancer with the current label.

[Sarah Butler, executive]

Yes. This is really nice because it is in breast cancer. It's in breast cancer patients, right? It's in the workflow of breast cancer and how surgeons are treating these patients. So it's a little different with the ImgAssist and the B-Series compared to the S-Series. It's giving and showing really that technology and how it works and then how well the ImgAssist aids that physician to be able to determine -- make those determinations in surgery.

Again, huge impact for the patient level but it's also going to be a big improvement for the surgeons as well, not just technology, but the AI that helps detect it.

[Scott McAuley, analyst]

Yes, definitely. And I guess on timing, I know, Adrian, I think you'd mentioned that looking to put the results out soon. So I don't know if you can put a finer point on that or not. And then in terms of looking forward for a potential submission to the FDA and approval? Kind of what are you putting out there in terms of those potential timings?

[Adrian Mendes, executive]

Yes. So I think we're going to be able to talk about at least the primary endpoint very shortly here. So we're just -- the trial is -- obviously, patients finish enrolling, we're closing out the sites. So very, very soon. And then in terms of being able to submit to the FDA, that will be early next year is when we'll be able to get that application in flight.

[Scott McAuley, analyst]

That's great. And then I guess on the commercial side a little bit. Again, great to have those 15 S-Series users. What are you hearing from people in terms of anyone kind of waiting in the wings for the B-Series approval before jumping in and then people who currently have the S-Series and looking to upgrade or convert to the B Series once that's approved.

[Adrian Mendes, executive]

Yes. Good question. So just to correct the record, it's actually 14. I misspoke when I said 15 earlier, so 14 devices out there. We do have -- yes, we do have customers that are waiting for the AI, like I was saying before, getting that on to the market really reduces the barrier to adoption. So as our sales teams out there talking to potential customers to the S-series, the ones that are interested in what we have right now with the imaging -- the imaging but without AI, we're able to bring them on board,; which is what we do.

And then that is sort of laying the groundwork, seeding the market for eventually where we'll get to the B-Series. But there's a lot of interest for this product out there. We've got a very deep pipeline. As time gets closer, it will -- I know there's excitement within the community to be able to get their hands on it.

So I'm really -- I mean, we're all here really, really looking forward to being able to bring that to the customers into the patients. So it will be -- it's going to be an exciting year next year, really exciting as we get this thing pushed through the approval process.

[Scott McAuley, analyst]

Definitely. And from a sales and marketing infrastructure perspective and making those preparations so that once you do get the approval, you can hit the ground running, kind of what are you doing internally or from the operations side to get ready so that you can make those sales and convert that interest into installations.

[Adrian Mendes, executive]

Yes. So there's a lot of planning that's going on right now internally in terms of our entire go-to-market plan, right? The business model, the marketing strategies over the next 12 months, the resourcing strategies. The trick we've got from -- really from a business standpoint, well, the variable that we have to work with is when do we actually get that authorization from the FDA right?

The error bars around the expected time line are rather long, right, 6 months, plus or minus, a year from now, 6 months plus or minus. So the trick we have for managing the business is make sure we're not investing too far ahead of the curve, but making sure so to speak, the day we get authorization, we're ready to hit the ground running.

And so that's our management challenge at this point, making sure we're growing our commercial focus and resourcing at the right pace, so we're building that interest in the market to allow us to sort of unleash as soon as we get authorization but not doing it too far in advance in a cash and efficient way.

[Scott McAuley, analyst]

Definitely. And you kind of referred to it a little bit there in that last answer. But in terms of the economic or business model for the B-Series versus the S-Series, are there any kind of differences? Obviously, there's the software, which has added value versus just the hardware and consumables. So any kind of early thoughts on how you're thinking of positioning the B-Series versus the S-Series?

[Adrian Mendes, executive]

Yes. From a business model and -- okay. So from a fundamental standpoint, the S-Series will continue to exist because we do and can and do use it for other tissue types beside breast. So the S-Series will be kind of that device used for nonbreast procedures.

For breast data all move over to the B-Series. We will have the AA on top of it. We'll be introducing new business models that are more subscription-based versus consumable based. And so those are the types of malls that we're looking to roll out as we bring B-Series out on to market.

[Scott McAuley, analyst]

Definitely. And I guess on kind of higher level, I think there's been a fair amount of innovation in the breast cancer space across imaging, diagnostics, and a number of different areas. And we have seen some kind of strategic acquisitions in even just in the past 6 months in the breast cancer space.

So how do you see the B-Series, this tumor margin assessment kind of fitting in with the whole innovation that's happening across the breast cancer care pathway? And potential interest down the road from some of the bigger strategic players who are in the space.

[Adrian Mendes, executive]

Yes. Okay. So this margin assessment challenge with breast cancer, really all cancers is a very big unsolved problem. And it's one that hits patients directly, and it also hits the economics of health care directly. So it is of great interest to some of the potential strategic acquirers out there in the industry as a whole. So we're playing right in a very -- in a great space in that respect.

Additionally, this will be the first breast cancer surgical device with AI that will be in market, so -- which, of course, is another huge focus for not just health care, but for overall industry, looking at how to integrate AI into products to make them better and more useful for our customers.

So I think we hit fairly well on both of those fronts. And then not only that are between the image library that we've built over 2 million images of breast tissue, both cancers and healthy, between that library and the algorithms and the OCT, just the raw imaging technology, there are applications, not only with other tissue types but also even further outside of the operating room for breast cancer care.

And so that's -- there's huge value creators that we've got within our company. And so that doesn't go unnoticed in the industry. And so we'll see. We'll see as the -- as our product develops, as the market develops, what happens. But yes, there's definitely we're in a good space, and there's good interest in our technology and what we've been able to do with it.

[Scott McAuley, analyst]

Definitely. And yes, we got the S-Series potential upcoming B-Series and as you say, different tissue types, different parts of the care pathway. So potentially a whole alphabet of different series to potentially follow in the years to come.

[Adrian Mendes, executive]

Yes, hopefully, with better branding, but yes, the whole alphabet.

[Scott McAuley, analyst]

Fair enough. That's great. I think that kind of covers most of my questions. So thanks a lot for taking the time and for taking the questions, and I'll kind of pass it back to you for any other remarks.

[Adrian Mendes, executive]

Okay. Great. And thanks, Scott and thanks Sarah. So just to wrap up, as you can hopefully see from what Dr. Butler, Scott and I just reviewed, we are quickly approaching what could potentially be a major value inflection point for Perimeter. And to summarize a few key points. we're seeing continued positive commercial traction with the S-Series OCT as demonstrated by our installed base and our revenue growth in Q3. And -- and on top of that, patient enrollment in the pivotal trial evaluating use of the B-series with image AI -- ImgAssist AI was completed a few weeks ago. and we're eagerly anticipating the release of the top line trial results in the coming days.

So we look forward to keeping you updated on our progress throughout the remainder of 2024 and are excited by many of the many important milestones that lie ahead. Thank you.

[Operator]

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