Motus GI Holdings, Inc. (MOTS) on Q1 2022 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Motus GI First Quarter 2022 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Garth Russell of LifeSci Advisors. Please go ahead.
Garth Russell: Thank you, operator, and thank you, everyone, for joining us for the Motus GI first quarter 2022 update call. Representing the company are Tim Moran, Chief Executive Officer; Andrew Taylor, Chief Financial Officer; and Mark Pomeranz, President and Chief Operating Officer of Motus GI. Before turning the call over to management for their opening remarks, I would like to take a minute to remind you that this conference call and webcast will contain certain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will not undertake any obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K and our periodic filings on Form 10-Q and 8-K filed with the SEC. I would now like to turn the call over to Tim Moran, CEO of Motus GI. Tim, the floor is yours.
Tim Moran: Thanks, Garth, and good afternoon, everyone. Thank you for joining our call today. I am pleased to share an update on our business through the first quarter of 2022 as well as provide early insights of what we're seeing in the second quarter. Following my update, Andrew will provide an overview of our financial performance for the first quarter, and then we will open the call to take your questions. So let's get started. At the end of March, I shared with you on our last conference call, my thoughts in terms of Motus GI truly being at an inflection point in our pivot towards growth. While we discussed during the call, the very real impact that the pandemic has had on our business for much of the last two years, I also outlined the important milestones we've achieved during that time, including the significant progress we've made in advancing our technology with the FDA clearance of Pure-Vu EVS, establishing a clear plan for pursuing outpatient reimbursement with the development of a large multi-center clinical trial and the expansion of our customer-facing team through increased investment in commercial resources. Our revenue for the first quarter is not reflective of our potential or any of the key advancements I just outlined. As we discussed at the end of March, we were impacted in January and February by the Omicron surge and staffing shortages at hospitals. And March was a transition month as we began to sunset Pure-Vu Gen 2 activities and execute initial shipments of our all-new Pure-Vu EVS to the first sites. So let's look forward. Approximately six weeks ago, I forecasted that we would have the Pure-Vu EVS placed in approximately 12 sites in the near-term. As we sit here at the midpoint of the second quarter, we're well on track with that expectation, having already placed EVS in 11 hospitals. And based on a review of our activity and backlog, I fully expect we will over-achieve this initial forecast. Moreover, we continue to receive very positive feedback from all accounts, both from the physicians and their staff. As a reminder, our EVS system provides a much simpler user experience, spanning the staff who sets up and breaks down the product to the physician, who navigates through the colon to conduct a high-quality exam. A prominent physician who leads the GI department at a major academic medical center recently commented that Pure-Vu EVS is "night and day easier than the last generation system". He said, setup is simple and intuitive and the slimmer sleeve design allows me to do everything I need to do during the procedure. When you have a great product, you also need a rightsized, talented sales team to gain the critical mass required to close opportunities in the pipeline. As such, we accelerated our commercial expansion in Q1 and now have eight field sales leaders strategically positioned across the US. We have every major region covered and each of the new salespeople come with proven track records of selling GI products at many of the world's largest medical device companies. While several of our salespeople just recently were brought on board, we believe they will make noticeable positive impact as we penetrate our backlog of qualified accounts. In addition, now that we've expanded to new geographies, we are already conducting evaluations at hospitals that have not had any previous interactions with our team. When you couple this activity, alongside our existing Gen 2 customers and those who have been waiting to evaluate EVS, it gives us the confidence that driving quarter-over-quarter revenue growth is well within our sites. Let's discuss some of the early indicators and metrics that we believe are key to tracking our progress moving forward. Of course, the overall number of sites is the starting point, but that's only part of the equation. The trajectory of our long-term growth will be determined by how many procedures are performed at an individual site on a weekly, monthly and quarterly basis utilizing our system. This is why we believe it is equally or perhaps even more important that we are also seeing positive initial indicators around utilization, including: one, more procedures being performed per month by our customers and evaluation sites than with our previous generation. As a result, we saw very strong procedure volumes in April at both closed and accounts that are under evaluation. Two, the number of procedures being done, independently by a physician without a Motus sales rep on site, which is growing now that the required training has been dramatically reduced. Three, the system being used as an on-demand tool, meaning after a physician starts a case and sees that the patient was not prepped well, they intuitively ask for Pure-Vu to salvage the procedure; and four, continued positive user experience from the entire GI suite on the simplicity of the solution to deploy during their normal procedural workflow. To that point, nothing speaks more about the potential of a product than real-world customer feedback. Let me take just a minute to highlight feedback from a new account who is currently evaluating Pure-Vu EVS. Dr. Brian Hanson, acting Section Chief of Gastroenterology and Hepatology at the Minneapolis VA Medical Center stated and I quote, Pure-Vu has allowed us to achieve a complete quality colonoscopy in patients that would have otherwise been canceled or aborted. This is an important service to our patients who have complicated medical comorbidities and often travel great distance for procedures. With the growing number of VA hospitals evaluating the Pure-Vu EVS, we believe the overall VA system in the US, which consists of approximately 170 medical centers across the country, represents a high-yield opportunity for adoption of the Pure-Vu EVS system. Now, let's discuss our progress on key upcoming catalysts. Let me first review our clinical study activity and outpatient reimbursement strategy. Our European outpatient clinical study is fully enrolled, and we just recently announced that the top line results from this study are expected to be presented during Digestive Disease Week 2022, which will take place in person and virtually May 21 through the 24th. DDW is the world's premier meeting for physicians, researchers and industry in the field of gastroenterology, hepatology, endoscopy and gastrointestinal surgery. As a reminder, this study is evaluating the clinical outcomes in patients with a history of poor bowel preparation using a low-volume prep with limited diet restrictions and the Pure-Vu system. The investigator-initiated study is being conducted at two health centers in the European Union and has enrolled all 44 patients. The primary endpoint for the study is improvement of the bowel preparation from baseline to post procedure, as assessed by The Boston Bowel Preparation Scale. As previously discussed, we have developed a multipronged strategy to position Pure-Vu for outpatient reimbursement. There are approximately 18 million outpatient procedures conducted in the US each year, and currently, approximately 4.7 million of these patients struggle to get a high-quality prep prior to their procedure. This can lead to delayed, aborted and repeat procedures, which puts a burden on the health care system and the patient, both from a clinical and economic perspective. A critical step in this process is generating key clinical and economic outcomes via a large multicenter clinical trial. Based on data from the aforementioned EU study and through input from a group of world-class opinion leaders, we've been working diligently in the design and detailed protocol for this study, including recently meeting with CMS to solicit their feedback for incorporation into the design. We expect to initiate this study before the end of 2022, and we'll keep you apprised of our progress. One additional commercial point as it relates to selling Pure-Vu into the outpatient setting. We are making progress in hospital-based outpatient units, as well as the previously mentioned veteran affairs medical centers without having specific reimbursement in place. In terms of ongoing product innovation, as I have discussed on previous calls, we've initiated a project to add upper GI capabilities to the new Pure-Vu EVS platform. Some of the key enhancements in the EVS system, such as a much larger suction channel, more efficient irrigation jets, a smaller profile and improved flexibility will be further optimized to allow the system to provide broad utility in an EGD procedure. As we've discussed previously, this utility is especially important in the 400,000 upper GI bleeding cases were not only stomach content, but blood and blood clots can impair the field of view. Finally, turning to potential strategic partnerships and collaborations. As we build momentum and adoption in US hospitals in 2022 and our revenue begins to ramp, we believe that the relationships we've built with potential strategic partners could become actionable. We continue to keep these partners abreast of our progress with the aim of exploring opportunities for potential commercial and/or product partnerships that advance our strategy and accelerate value for our shareholders. With that, I will now turn the call over to Andrew to provide detail on our Q1 2022 financials. Andrew?
Andrew Taylor: Thank you, Tim, and thank you, everyone for joining us today. We reported revenue for the first quarter 2022 of $20,000 compared to $51,000 for the same period last year. As Tim discussed earlier, the impact of both the Omicron variant early in the quarter as well as our controlled phase-out of Gen 2 and launch of EVS later in the quarter, significantly affected our first quarter results. We believe that these specific factors will be less impactful, though in the second quarter of 2022 and beyond. For the three months ended March 31, 2022, we reported a net loss attributable to common shareholders of approximately $4.8 million or $0.09 per basic and diluted share compared to a net loss attributable to common shareholders of $10.8 million or $0.25 per basic and diluted share for the same period last year, which included the impact of a non-cash deemed dividend from warrant issuance of $6.1 million. During the first quarter 2022, net cash used in operating activities and for the purchase of fixed assets was $5.2 million compared to $4.7 million for the same period of 2021. As is the case each year, first quarter cash expenditures include certain one-time annual outflows associated with compliance and corporate matters, this year totaling approximately $1.8 million, which is not expected to recur in future quarters this year. In March 31, 2022, we reported $20.3 million in cash and cash equivalents, which includes our fully funded $12 million credit facility with Kreos Capital. There are no financial or liquidity covenants associated with this facility. Our current cash and cash equivalents allow us to continue executing on our near-term catalysts and are expected to meet our overall anticipated cash needs into the first quarter of 2023. And with that, I'll now turn the call back over to Tim.
Tim Moran: Thanks, Andrew, and thank you, everyone, for joining our call today. We believe, we are at a key turning point in our business with the headwinds of COVID diminishing and the investment in our commercial footprint, launching the all-new Pure-Vu EVS. We believe we are well-positioned to positively impact the inefficiencies inherent in the current standard of care for colonoscopy procedures and in doing so, are expected to create shareholder value by driving adoption and generating sustainable revenue growth in the future. I'll now ask the operator to open the call for your questions.
Operator: Thank you. We will now begin the question-and-answer session. And the first question will come from Steven Lichtman with Oppenheimer. Please go ahead.
Steven Lichtman: Thank you. Hi, guys.
Tim Moran: Hi, Steve.
Steven Lichtman: Tim, congratulations on the first tranche of hospitals here. I was wondering, if you could update us on, what the backlog looks like your target hospital numbers, how that's building -- personally beyond this first?
Tim Moran: Sure, Steve. Yes. Thanks for the question. So we're really pleased with how fast the team has gotten out of the gates with the new device. So let me kind of recap that for you. So I said, we've got 11 sites that are approved for use. If you break that 11 down, five of them are closed, meaning they're under a capital agreement and they're purchasing the new EVS sleeves. 6 of the 11, so the remaining six are nearing the end of their evaluation, and we expect will close before the end of the second quarter. And right now, if you look at our backlog, we have roughly around 90 hospitals in our kind of qualified backlog that the team has generated. So I think we'll initiate, I would say, another 8 to 10 evaluations in May and June. So we'll have a lot happening over the course of this quarter, and the team has done a great job to date. Really eyeing, getting to about 12 closed accounts by the end of Q2, Steve. So basically, taking the 11, we've got five closed already, six are nearing the end of their evaluation, get them through the process. And we'll have, of course, a lot more happening in terms of e-walls as I just mentioned, will start in May and June and will carry into Q3. So if we can put 12 closed accounts on the Board by the end of Q2, I think we fully expect to be able to do more than that in terms of closes in Q3 and more than that in Q4. So it kind of gives you a bit of a sense of what it looks like for full year total accounts.
Steven Lichtman: Got it. Shifting to outpatient, I think, Tim, you said that, you're having some success. I believe you mentioned VA even Pure-Vu sort of reimbursement here. Can you expand on that a little bit?
Tim Moran: Sure. Yes. So what we're seeing -- and we saw some of this with Gen 2, where if you kind of evaluated the use cases with Pure-Vu at our hospital installations, some procedures were outpatient. But what we're finding now with EVS is having the product on site. These physicians are targeting on an outpatient basis at the hospital, the kind of frequent fire patients that have had a history of port prep, right? So in one case, they'll say, I know that, this patient typically has an issue with prepping maybe its due to medical condition, they'll proactively use Pure-Vu for their screening procedure to ensure they get a high-quality exam. So that's one example. But what also has been enabled through EVS, as we talked about on the last call because they're able to load the device onto a dirty scope, they're going into startup procedure on an outpatient basis, finding that the patient is at prepped well and saying, give me Pure-Vu, put it on in less than 60 seconds and completing that a case where in the past, they would have either had to struggle through it and try to get the case done or cancel that procedure and bring the patient back. So, both of those are really kind of the use cases that we're seeing from an outpatient perspective. And I think, because it's on site, Steve, that the kind of reimbursement for the fact that, it's technically an outpatient case, isn't really coming into play, they're basically just using it, because it's available to them.
Mark Pomeranz: Just to add to that -- Steve, this is Mark, especially in places like the VA, which are closed systems, obviously, for them, if they've got to bring to a repeat and bring a patient back that's still on their dime. So the reimbursement is really not a critical nature on there because they're close to them.
Steven Lichtman: All right. Got it. Thanks, Mark. Maybe lastly, and then I'll jump back in queue. Just given the movement you're seeing now internationally with the data coming up here, can you remind us of sort of where you guys are relative to potential distribution partnerships, your overall thoughts on partnering, obviously, particularly outside the US, but also in the US potentially as well.
Tim Moran: Yes. So we've talked about this a bit before. We've absolutely invested a lot of time and after it into building, I think, very productive and kind of high-quality relationships with both large potential strategic partners, medical device companies, as well as some other non-US licensing opportunities. We continue to cultivate both of those. I think, Steve, the reality is, now that we've got our EBS product, and we put some more salespeople on the street, as we start to put the revenue up here in Q2 and then continue to grow that revenue, I think those opportunities become a lot more actionable for us. Now, some of the other things that we're working like a licensing in an OUS geography that may not be on our radar anytime soon, those things, we're continuing to try to accelerate forward. And what we like about that is it could get us commercial acceleration, but also potentially some non-dilutive funding into the company. So both of those things are actively being worked. And I think as we have now gotten the product on to the market, a lot of these folks are looking and watching to see our progress here. And we'll keep you posted as things develop.
Steven Lichtman: Great. Thanks, Tim.
Tim Moran: Thanks, Steve.
Operator: The next question will come from Yi Chen with H.C. Wainwright. Please go ahead.
Boobalan Pachaiyappan: This is Boobalan dialing in for Yi Chen. Can you hear me okay?
Tim Moran: Yes. Hi Boobalan.
Boobalan Pachaiyappan: Hi. So a few questions from our end. So firstly, with respect to your upcoming outpatient study, can you kind of provide some sense of the enthusiasm level of the CMS? Obviously, you met the CMS recently. So how are they -- what's the pace and how enthusiastic are they in terms of your upcoming outpatient study?
Tim Moran: Sure. So let me start with just a little bit of kind of color, and then I'll ask Mark to comment a little bit more on the study itself. First of all, to answer your question directly, I think it's a bit atypical for CMS to nearly so enthusiasm upfront. But what they are and what they're proving to do is be very helpful to us in terms of giving us access to go through our thinking around study design and what we're trying to achieve and making sure that collaboratively, we're heading down the right path to ensure that if we're going to make this investment, it's going to ultimately hopefully yield the right information that they're looking for. But Boobalan, I'll just remind you and other folks listening, why this is so important for the company in terms of kind of an upcoming catalyst is, this is strategically important to allow us to unlock obviously, reimbursement and hopefully gain access to the very large outpatient market, as we talked about before, over 18 million procedures a year. But it's also very important kind of taking back on Steve's last question; I think it's strategically important to potential partnerships, having access to the outpatient market. So, this is an important investment. We're excited about it. I think the team has made great progress in moving the ball forward. So, I'll kick it over to Mark and see if there's any additional color that you'd like to add.
Mark Pomeranz: Thanks, Tim. Yes, I'll just add a couple of things as we know, in discussing with CMS that we feel pretty good about having in a trial design. So, some of the things that CMS is looking for is first is making sure that the study results and the populations are generalizable. So, we're really looking at that, making sure too that we're thinking about how this works at underserved population, which is a big interest for CMS, for the Medicaid population. And actually, one of the nice things for us is the issue of an adequate prepare visualization is significantly worse in underserved population. So it actually lines up very nicely for a target for the technology. Then we want to make sure that we are showing the right things around substantial clinical improvement, which we've discussed those performance factors with CMS. So we think we're in a good position at that -- from that perspective. And last is making sure that we're helping to quantify the size of the problem as well, so we're realizing the importance of this. So, I think all those aspects, I think we hit pretty strongly in the study design. And so we think we're fairly aligned with what CMS is looking for.
Boobalan Pachaiyappan: Great. That's really helpful. And secondly, obviously, the current US market environment is pretty tough for any industry. So, I would like to hear your thoughts or maybe if you can comment on how the current market environment change your thinking of your near-term and long-term commercialization plans for Pure-Vu EVS?
Tim Moran: Yes. So, it's a great question. Obviously, the environment has certainly had an impact on our planning and decision-making over the last really two years, as you know, really running with a very, very lean commercial team. What I think we have kind of line of sight to right now is the impact of COVID has really diminished significantly. So, we're not hearing about the delays in that committee process or as many of the kind of comments about not being able to prioritize new technologies because of being short staffed. So, it's starting to feel like that is getting behind us. The early part, as you could hear in our enthusiasm of Q2 has been very, very positive. We've been able to go and execute on the things that we plan to execute on without a lot of kind of obstacles in our way. And we are, as you know, and we said we've accelerated really our investment in commercial expansion. We're now up to eight salespeople. We fully intend to continue to invest over the next few quarters. And I would say probably somewhere in the low double-digit number. I think that's the critical path that's needed to kind of deliver on the revenue expectations for the company. But from overall pandemic perspective, I think that the thinking has changed, and I think we're trying to capitalize on our messaging where, one, the most obvious is Pure-Vu is one of the devices, the new innovative devices that are now available to ensure that you don't have a patient tying up a hospital bed any longer than they need to be, right? And we've discussed that many times. So the patients in the bed prepping for their colonoscopy for two days, you need to have Pure-Vu on site. So you can get that done in 24 hours and be able to build to get them moved along and ultimately out of the system. That's very, very important, particularly when these hospitals start to get overrun with patients during a pandemic. The other area, Boobalan, that we think kind of plays in our favor is definitely a tailwind now is there's a significant backlog of colonoscopies that have not been done due to the pandemic. And those have to get done. So we hear this from our physicians all the time that they're scheduling three or four months out on the screening colonoscopies. So if you think about that patient that is waited for months and then come in and not prepped well, and they got forbid, you have to have their procedure reported and come back again, that's a real issue. So we think Pure-Vu View fits right into the value prop necessary to help our customers, but also really help the patients at the end of the day. So that's the way we're kind of thinking about things now from a U.S. perspective.
Boobalan Pachaiyappan: Thank you. One final question. This is for Andrew. So how do you expect SG&A and R&D to potentially change for the remainder of the year? Thanks.
Andrew Taylor: You cut out a little bit. How do you expect R&D? And I didn't hear the rest.
Boobalan Pachaiyappan: Yes. So how do you expect SG&A and R&D cost to potentially change for the rest of the year?
Andrew Taylor: Yes. Got it. Thank you. So we've been pretty consistent since the end of last year and into this year that we look if you're comparing the last couple of quarters of 2021 and now into 2022. We're anticipating an increase over the course of the year overall to be in about the 30% range from an OpEx perspective. I would say that on the R&D front, that will be closer to flat. And maybe a little bit of an increase with some of the activities that we're doing future product innovation, some of the work on the upper GI platform. And the bulk of that growth will be in the marketing and sales element. So the S part of the SG&A, G&A probably pretty consistent as well. But in terms of the sales and marketing elements, I think we're looking at probably closer to a 50% increase, if you look at it year-over-year when you're incorporating both the personnel costs and the non-labor costs, obviously, with COVID, hopefully, mostly behind us, some of the activities on the non-labor side, attendance at trade shows and communications and travel and things like that are -- have a bit of an uptick as well. Obviously, all of that commensurate with our increase in revenue growth that is expected for the remainder of the year.
Boobalan Pachaiyappan: That's it for me. Thanks for taking my question.
Tim Moran: Thanks, Boobalan
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tim Moran for any closing remarks. Please go ahead, sir.
Tim Moran: Thanks, operator. And let me start by thanking everyone for joining our call today. And I'll just reiterate, maybe summarize what I said earlier. We are excited with the early progress we're now seeing in the market. And that's the combination of having an excellent technology and Pure-Vu EVS available to our team, but also a larger team. And a couple of the things from a kind of early indicator standpoint that we wanted to see and we've seen over the first eight or so weeks is more procedures being done after we train and leave and move on to the next site that are done independently with our Motus GI rep there. So we want to continue to see that number grow, but the early indications are very positive. And why that's important is it allows us to really, over time, scale this business, obviously, with less people if you don't need to be handholding procedures. The other is, as we look at our first cases across these 11 sites, a large majority of these procedures have been done by a general GI physician, meaning the physicians that are conducting the most colonoscopy, on a routine basis day in and day out of the hospital. In contrast to our prior experience with Gen 2, where the majority of our users were advanced endoscopists, who were a little bit more comfortable with the more complex device. So that's telling us that I think the team has done a great job in putting together a product listening to our customers that's really brought down the barrier to navigation and to use it. So we'll continue to track these metrics, but the early indications are strong. And right now, this group, this organization is in execution mode, and we're looking forward to an update with everyone during our next call, and we'll be happy to report our progress during Q2. So thanks for joining today, and we'll talk to you next quarter.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
