Perimeter Medical Imaging AI Inc

XTSX:PINK

Earnings Call Transcript 2022-Q4

[Operator]

Greetings and welcome to Perimeter Medical Fourth Quarter and Year-End 2022 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jodi Regts. Thank you. You may begin.

[Jodi Regts, Investor Relations]

Thank you. Good afternoon. Thank you for joining us on this call and webcast to provide the fourth quarter and year-end 2022 results for Perimeter Medical Imaging AI or Perimeter. Joining me on today’s call is Jeremy Sobotta, Perimeter’s Chief Executive Officer, who will provide an overview of Perimeter’s progress and we will then 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 benefit of our products, including Perimeter S-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 timing 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 statements. For additional information about the risks and uncertainties facing our business, management encourages you to review the company’s public filings and press releases, which are posted on SEDAR at www.sedar.com.

The news release summarizing this business update that was released today, April 11, 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, Chief Executive Officer]

Thank you, Jodi. Good afternoon, and thank you everyone for joining us today. As we touch on the highlights and milestones from 2022, I will provide comments on both the commercialization activities underway with our S-Series flagship technology, one of the clinical development of our next gen investigational B-Series technology, augment with artificial intelligence software, which is currently being evaluated in a clinical trial under our Atlas AI project.

I'll then provide a brief overview of our year-end financial results before opening up the call for your questions.

As a brief reminder of our go to market strategy on the commercial front, we are targeting early adopters of Perimeter's transformative technology. These surgeons are building the base of our future key opinion leaders and our team is focused on training and supporting these industry leaders become long-term reference sites when future iterations of our technology democratize it from our widespread adoption.

As noted on our last call, the ramp up and pace of installations for the majority of the year did not meet our expectations due to a variety of factors, but in the fourth quarter we made considerable progress. Fourth quarter revenue was up over 70%, compared to that of the third quarter and we completed three commercial placements of our Perimeter S-Series OCT, which doubled the total installed base of that technology.

Furthermore, we saw continued progress expanding within our existing customer base as two of our fourth quarter placements were at new sites within a large national healthcare system. We believe these follow-on placements provide further validation that different stakeholders within our customers, including other surgeons and those in administrative leadership see the benefits of implementing Perimeter's technology in the operating room.

We are further encouraged by the feedback from our existing evaluations and the building of momentum in our commercial pipeline. While I am pleased that we ended the year in a strong position with additional deals nearing completion, we do get questions about the headwinds still facing our sales team and the broader med tech industry.

The labor market continues to be a key topic of discussion with both our customers and our clinical investigators And as we've heard from some of those customers who have publicly reported their results, Q4 was another quarter of progress towards normalization, particularly in the nursing staff.

However, research staff and other specialties continue to be a concern in our conversations. And although these 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 of building future reference sites and key opinion leaders with the flagship S-Series OCT.

Additionally, it is important to emphasize the positive results that continue to be experienced by these early customers. As the overall sample size of S-Series enabled procedures continues to grow, we know that the national average of re-operation rates is somewhere in the 20% to 25% range, and our customer users are reporting early single-digit results when utilizing our technology to visualize their margins intraoperatively.

Turning to our ATLAS AI project, the high level of engagement from our existing customers continues to reinforce the belief that the next gen B-Series OCT with ImgAssist AI has the potential to be a transformative technology that could democratize a new standard of care, which would easily be adopted at a mass market scale.

As a reminder, the aim of the study is to assess unaddressed positive margin rates of surgeries utilizing Perimeter’s technology compared to those of the standard of care. Our goal is to gather data from approximately 330 patients and complete the study by the end of 2023. We believe that this further enhancement of using artificial intelligence alongside our OCT imaging technology is going to empower surgeons with a tool set to improve healthcare outcomes.

During 2022, we activated the initial eight planned sites in the pivotal trial of the investigational B-Series with AI, and during the fourth quarter, we received FDA approval to expand the number of institutions involved in our trial. And we continue to engage in dialogue with the FDA to ensure we get the best version of our breakthrough designated device to market. We expect to announce additional sites in the near-term along with a more broad trial update as well.

And further, just as we had seen with our S-Series customer base, the existing investigators in the trial are highly engaged and have provided positive feedback that suggests our B-Series OCT with ImgAssist AI has the potential to be a transformative technology. In terms of future growth initiatives per Perimeter, we had opportunities to present at a number of leading industry conferences and scientific symposiums, including research recently presented at the Annual Meeting of the College of American Pathologists 2022 that validates the potential use of our Perimeter S-Series OCT to intraoperatively image specimens across a variety of tissue types with a process that does not interfere with surgical procedures or final pathology.

And lastly, Perimeter had a strong presence at the International Conference on Surgical Cancer Care hosted by the Society of Surgical Oncology or SSO in March. It was an absolute pleasure to engage with so many physicians across different surgical oncology specialties, and with the number of users growing across both our commercial and clinical initiatives, it was great to see the level of physician to physician discussions, sharing excitement about the technology, as well as implementation best practices.

This included our spotlight session presented by doctors Shawndeep Tung from MemorialCare Cancer Institute in Orange, California; and Nina Tamirisa from MD Anderson Cancer Center in Houston, Texas.

I will now turn my attention to a brief financial overview of the year, and as Jody mentioned, we issued a press release summarizing our 2022 financial results earlier today. Before diving in, please note that during the year, the company changed its presentation currency from Canadian dollars to United States dollars.

The change in presentation currency was made to improve investors' abilities to compare the company's financial results with other publicly traded businesses in the industry. In making the change to a U.S. dollar presentation currency, the company followed the guidance in IAS 21 and has applied the change retrospectively to all prior periods as if the new presentation currency had always been the company's presentation currency.

Operating expenses for the year ended December 31, 2022 [was] [ph] approximately 16.6 million compared to 12.9 million for the previous year. For the year ended December 31, 2022, the net loss was approximately $9.9 million, compared to $13.3 million in the prior year, and from a cash flow perspective for the year ended December 31, 2022 cash used in operating activities was approximately $11.9 million.

As at December 31, 2022, cash and cash equivalents were $28.4 million and with our strong cash position in prudent fiscal management, we are confident that we will be able to support our clinical development activities and fund the continued commercial roll-out of our products.

Before concluding the call, I would also like to reiterate our January 17, 2023 announcement of Suzanne Foster, President of Beckman Coulter Life Sciences in her newly appointed role as Board Chair. Suzanne has a longstanding relationship with Perimeter as a Director and I look forward to continuing to work with her in this new capacity as we strive to transform cancer surgery. With this appointment, following the mid-year edition of globally recognized artificial intelligence expert Anantha Kancherla from Meta, we continue to strengthen the talent and strategic leadership of Perimeter.

Across the Perimeter team of employees, I'm proud of our unwavering commitment to improving patient outcomes and lowering healthcare costs through our innovative medical imaging and AI platforms as we firmly believe in the opportunity to deliver a transformative technology. I would like to extend my gratitude to each and every one of our team members and look forward to providing progress updates on future calls.

I'll now turn the call over to the operator to open the line for questions. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

[Frank Takkinen, Lake Street Capital Markets]

I just wanted to start with one on the two follow-on placements with the existing customer. Given part of a major national healthcare system, I was hoping you could speak to that process a little bit more and most importantly talk to the potential opportunity that still remains within that major healthcare institution.

[Jeremy Sobotta, Chief Executive Officer]

Certainly. So, the process is, we're two follow-on’s after another couple of installations within that network. We were really excited about what the surgeons using the technology we're seeing and that were, kind of spread through their colleagues and peers. And we were able to fast track installation in one of those instances even without the valuation given that clinical data in the existing customer was so strong. And then in the other instance, it followed the routine process.

However, a big part of our sales cycle is in the procurement stage and contracting stage of the sales cycle. We were able to get through that because of, kind of the playbook at the [indiscernible]. So, early indications of a really strong momentum in a large division of that hospital network. And the opportunity really is there for the taking across the rest of [their national network] [ph].

So, we're seeing good momentum as that word spreads into other divisions. And expect to announce additional follow-on placements in the very near future within that network as well.

[Frank Takkinen, Lake Street Capital Markets]

Got it. That's helpful. And you kind of referenced I think one of the points I wanted to get at, [indiscernible] was just the clinical data within the existing customers and more specifically the reduction in re-operation rates. I know you guys tracked that closely, so I was hoping you could comment on how the reoperation rate has trended in the installed base? Now, you've got six systems out there.

[Jeremy Sobotta, Chief Executive Officer]

Yes. That has continued to exceed expectations, I would say. So, we've got a variety of users starting from more of the national average rates and some starting closer to what I would call best-in-class and maybe the early double-digit re-excision rates. And across the board, we've seen reductions down to the early to mid-single digits. Again, really vast exceeding what I would have expected prior to launching the technology. So, that's really encouraging.

And I think some of the more subtle features, if you listen to our webinar that we hosted in December is, our surgeons are just feeling so much more confident in their decision making, so much more informed and actually, I think a quote from Dr. Carpenter in the December webinar was, she actually believes she’s seen more disease at the point of care because pathology is a sampling technique, so they are not able to do quite a growth assessment.

So, the current users are really bullish on the technology definitely seeing the benefit to the reoperation rates and what that means to patients and I'd maybe add like another confirmation to what you're seeing there as what we're finding now emerging as patients are self-selecting.

So, if a surgeon operates at multiple locations where one technology is using Perimeter or one location is using Perimeter’s technology, the other location is not, they're actively telling that surgeon, I want to go where you have the Perimeter technology, which I think is a big validation of its benefit.

[Frank Takkinen, Lake Street Capital Markets]

Thanks. That's great color. And then just last one for me on the ATLAS AI trial. Saw the updated commentary around completing enrollment by the end of this year, could you provide an update on where that enrollment stands today?

[Jeremy Sobotta, Chief Executive Officer]

Yes. Yes, we're about halfway through enrollment today. Actually, we still anticipate being able to have top line data earlier than that, maybe tail-end of Q3, earlier Q4. And just the remaining process around that would be wrapping up the rest of the study.

So, still effectively holding the overall timeline. But as I mentioned in the prepared remarks, we're in ongoing conversations with the FDA and expect to have some updates there and working with them to make sure we get the best version of our technology to market as quickly as possible.

[Frank Takkinen, Lake Street Capital Markets]

Okay, great. I'll stop there. Thanks for taking the questions.

[Jeremy Sobotta, Chief Executive Officer]

Thanks, Frank.

[Operator]

Our next question comes from the line of Rahul Sarugaser with Raymond James. Please proceed with your question.

[Rahul Sarugaser, Raymond James]

Good afternoon, Jeremy. Thanks so much for taking our questions. I was actually going to follow-on of the last question recognizing that, now that you're [indiscernible] recruitment, they understand that the company is also looking at potentially expanding the number of clinical sites beyond the original AI [Technical Difficulty] could you speak [indiscernible] to that potential expansion and how that item meets the current timeline guidance or what potentially accelerated?

[Jeremy Sobotta, Chief Executive Officer]

Yes, certainly. So that really was done as a mitigation strategy around some of the resourcing constraints that we were hearing from our clinical sites. We've been through significant site diligence at the additional sites are feeling really good about one of those sites, which is a high volume multi-surgeon site. And in the latter stages of diligence on another couple of sites to get through qualification and initiation.

So that will definitely bend the curve or accelerate the trend of enrollment. And we're really pleased again at the level, the quality of both institutions and surgeons that want to be investigators on this study. So, looking forward to getting them up and running and that is a mitigating strategy to help us hold those timelines that we just talk through.

[Rahul Sarugaser, Raymond James]

Perfect. Thanks for that clarity, Jeremy. So, the follow-on question is, congrats on getting out an installed base of six devices, could you perhaps speak to how those are being nurtured as reference sites for once you have the B-Series, you know, hopefully cleared as well?

[Jeremy Sobotta, Chief Executive Officer]

Certainly, yes, that continues to be front and center in our strategy, and I think, just by the nature of what we're trying to do, we're getting users that are very patient centric. They want to spearhead this new technology. They understand the value and they're willing to, kind of sift through the procurement process and lobby for this new technology. So, we've stated all along that these early users will continue to get white-glove service from us, both from an after sales support, as well as a field based clinical support for them.

And you can see the Net Promoter Score from presentations like Dr. Carpenter that I just mentioned in our December webinar. We had Dr. Shawndeep Tung and Nina Tamirisa presenting at the Society of Surgical Oncology. And again, we've got Dr. Beth Anglin from the North Texas Medical City Network also presenting at the American Society of Breast Surgeons coming up.

So, that is one thing that I was extremely encouraged by when we were at the Society of Surgical Oncology Conference is just the level of excitement from people that were either investigators or in the middle of an evaluation of the technology just the willingness to push this forward and shout from the rooftops to their peers and how excited they were about the technology. I think that part of the strategy is definitely playing out.

[Rahul Sarugaser, Raymond James]

Great. That's really helpful. Thanks, Jeremy. Just one last quick question for me then. Given the timeline to the B-Series, let's assume the data is good, approval would be sort of [mid-2024-ish] [ph], and of course, you don't give guidance in terms of the number of devices that you're looking to put out, but is six a sufficient critical mass, what would be an optimal critical mass of reference sites in order to really give that B-Series the launching pad you would like to have? That would be great. Thanks.

[Jeremy Sobotta, Chief Executive Officer]

Yes. Thanks for the questions, Raul. So, I think that's a little bit of, you know I would look at that both quantitatively and qualitatively. Certainly, 6 is not where we want to be. We will continue to drive that installed base. And I think we're pushing for, as we've said before, both a geographic mix, but also some in the ambulatory surgery setting and some in the large major academic setting.

So, I think in support of B-Series launch qualitatively, I'd like to see that spread of both customer type and customer geography. And from a quantitative perspective, we should be up into the double-digits, maybe 15 range to really support that launch with a number of reference sites that we can send people to, kind of in their backyard.

[Rahul Sarugaser, Raymond James]

Great. Thanks. That's very helpful, and that's all from us today.

[Jeremy Sobotta, Chief Executive Officer]

Thanks, Rahul.

[Operator]

[Operator Instructions] Our next question comes from the line of Scott McAuley with Paradigm Capital. Please proceed with your question.

[Scott McAuley, Paradigm Capital]

Thanks, Jeremy. Just a few from me. Just to start off. Can you speak to the utilization rates that you're seeing at, kind of the 6 early sites or the surgeons and using the S-Series for all of their cases? Are they using it from a [sum] [ph], and kind of are they hitting the number of procedures that, kind of you would expect them to be at this point?

[Jeremy Sobotta, Chief Executive Officer]

Yes. Thanks for the questions, Scott. It’s been a little bit of a mixed bag. I'd say the majority have come out of the gate and wanted to use it for all of their cases and are hitting the utilization numbers we'd expect. Others have been a little bit slower to ramp. And I think there's a subset of surgeons where they're hyper focused on their re-operation rate within ductal carcinoma in situ cases or DCIS, which tends to be the lion's share of what causes reoperations.

So, they're looking at using it on that subset of cases with pre-op diagnosis of DCIS. Now that said, the scary thing for these surgeons is when it's not diagnosed preoperatively. And you end up having that be the reason for your callback. So, we have seen those early users that were self-selecting on some cases continue to expand their caseload. And we've also seen some early work on segmental mastectomy cases or even nipple-sparing mastectomy cases. So, I think these early users that are seeing the utility are interested in maximizing the number of cases where they're using it.

[Scott McAuley, Paradigm Capital]

That's great. Thank you. Just on the number of placements, I don't know if you can speak to the sales funnel you have now in terms of demos or anything like that. And I know you've mentioned in the past that there are some sites that are kind of waiting for the B-Series approval, and is that a significant number of sites? Or is it that once that approval comes through that you'll be hitting the pavement hard on those sites?

[Jeremy Sobotta, Chief Executive Officer]

Yes. So from a funnel perspective, we continue to be very pleased with: a, the quality of candidates in the funnel or potential customers in the funnel; and b, the experience that those surgeons are reflecting back to us about their excitement out of the evaluations. So, the actual end-user surgeon support we're very bullish on and continue to build that momentum as we get through these evaluations. And we're still in the double-digit evaluation phase, actively ongoing at the moment.

So, happy there. As for the subset of customers that want to wait for the artificial intelligence, that definitely exists. I don't know that I would say, it's a significant portion of prospects, but it is there. We try to figure that out pretty early on in the sales cycle and definitely as you mentioned want to keep them excited about the technology, keep them engaged through our webinars and educational events, so that when they're ready or when the technology is ready, they can adopt it quickly.

[Scott McAuley, Paradigm Capital]

That's great. And just lastly for me on, kind of the expenses side, are you looking at expanding the sales team, the clinical support staff as you're looking to expand the number of sites and potentially get ready for that B-Series approval next year? Or kind of is the current headcount enough to support the operations at least for the next few quarters?

[Jeremy Sobotta, Chief Executive Officer]

Yes. I think we're in a good spot there with the current headcount supporting those customers. Obviously, we'll continue to evaluate that as the top line dictates. As I mentioned earlier, we want to make sure these customers are 5 out of 5 on the Net Promoter Score and we want to make sure they have great service. So, we will continue to focus on that, but based on our projections today, we feel pretty good about where we're at from an [account] [ph] perspective.

[Scott McAuley, Paradigm Capital]

That's great. Thanks again. Congrats and looking forward to the rest of the year.

[Jeremy Sobotta, Chief Executive Officer]

All right. Thanks, Scott.

[Operator]

That is all the time we have for questions. This does conclude our question-and-answer session. This does conclude our call. Thank you for your part participation. You may disconnect your lines at this time, and have a wonderful day.