Motus GI Holdings, Inc. (MOTS) on Q3 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Motus GI Holdings, Inc. Third Quarter 2021 Financial and Operational Update. At this time, all participants are in a listen-only mode. There will be a presentation by the Motus management team, followed by a question-and-answer session. I must advise you that the conference today is being recorded. I'd like to turn the call over to Garth Russell of LifeSci Advisors. Please go ahead, sir.
Garth Russell: Thank you, operator, and thank you everyone for joining us for the Motus GI third quarter 2021 update call today. Representing the company are Tim Moran, Chief Executive Officer; and 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 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 other periodic reports on Form 10-Q and 8-K filed with the SEC. I’d 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 morning, everyone. Thank you for joining our call today. I'm excited to share an update on our progress through the third quarter of 2021, which highlights our continued momentum, even in these difficult market conditions. On today's call, I will also focus on the key upcoming catalysts that we believe will significantly accelerate our business in 2022. Following my updates, Andrew will provide an overview of our financial performance for the quarter, and then we will open the call to take your questions. With that as an outline, let's get started. I want to start by saying that I'm pleased with our commercial teams continued ability to drive new placements of our Pure-Vu System in U.S. hospitals, allowing us to convert more targeted hospitals into active customers. As a result of their efforts, we delivered revenue growth of approximately 40% in the third quarter, compared with the second quarter of 2021 and up more than fourfold on a year-over-year basis. Notably, this represents our fifth consecutive quarter of incremental revenue and procedure growth despite headwinds from the COVID-19 ongoing pandemic. In Q3, we closed a key new customer agreement with Memorial Herman Hospital in Houston, which included the outright purchase of our Pure-Vu workstation. This is an important strategic win as we now have earned the license to hunt for potential expansion of Pure-Vu within the systems’ 17 affiliated hospitals. Through the end of Q3, we now have approximately 10 key customers that have either purchased capital equipment or have signed a committed volume agreement. In Q3, all customers met their compliance expectations, which are valued between $60,000 to $120,000 of recurring disposable revenues annually. As we've discussed previously, these agreements require committed quarterly purchases of Pure-Vu sleeves in return for use of our capital equipment. In addition, these volume commitment agreements offer several key long-term benefits to Motus GI, including more predictable recurring revenue, stronger gross margins, additional hospital reference sites, and the ability to grow procedure volumes to higher levels by training additional physicians on the use of Pure-Vu. As we bring on more users of the Pure-Vu System, either through volume agreements or outright capital purchases, we are beginning to lay the foundation for a waterfall of cumulative recurring revenues that will contribute to the company's future growth. While we are building momentum, I think it's important to remind everyone that we've accomplished this through a very small commercial footprint comprised of just four salespeople, and during tumultuous conditions in the market associated with the pandemic, including intermittent sales rep access and unpredictable colonoscopy procedure volumes in certain markets. Given these challenges, we are excited about where we can take this business as the hurdles associated with COVID-19 lesson. We believe we have a very compelling opportunity ahead of us in our position to initiate a significant new period of growth in our company's future. As such in 2022, we are preparing to lean into this opportunity in an important way with the goal to drive more rapid uptake of our proprietary technology in the U.S. market. Let me define what I mean when I say lean into the opportunity. To optimize the commercial introduction of our greatly enhanced Pure-Vu EVS, we intend to thoughtfully invest in the expansion of our commercial footprint to extend our reach and gain local sales coverage in key U.S. markets. By strategically expanding our customer-facing team, we'll be able to engage more hospitals faster and have the bandwidth needed to spend more time at these accounts, growing procedure volumes and long-term revenues. Now let's discuss progress on our additional value creation drivers. First, let me provide a bit more detail about our exciting new product development. As I mentioned earlier, we are preparing for the pending launch of the Pure-Vu EVS, which is our third generation of the Pure-Vu System. We anticipate filing a 510(k) submission for EVS to the FDA by the end of this calendar year. The Pure-Vu EVS System provides significant enhancements compared to our current version of the device that we believe will improve both ease-of-use and speed of deployment. First, related to ease-of-use, Pure-Vu EVS is designed for rapid setup, which we expect will take less than 90 seconds and can be done easily in the procedure room. This is something our customers have been asking for since our launch of Gen 2. As part of the enhancements, we've eliminated our reusable loading fixture from Gen 2 and incorporated a simple disposable loading design. This allows a physician to load the Pure-Vu sleeve onto a dirty scope, meaning they can make the decision during a procedure to use Pure-Vu to complete a case. This along with rapid setup of the system should facilitate the use of Pure-Vu in a broader number of cases as our technology can be used on demand with no pre-planning necessary. Second, despite already possessing excellent irrigation and suction capabilities, we've enhanced our sleeve design to now consist of an even larger suction channel and added an additional water jet. In doing so, we've also removed four of the five existing tubes and have moved to a multi-channel single tube, which removes bulk from the over sleeve and provides for even greater control and ergonomics that enhance the physician's ability to navigate through difficult anatomy. Third, we've reduced the size of our workstation by approximately 40%, which allows for easier transportation as well as a more streamlined fit into smaller GI procedure rooms. And finally, the new EVS design substantially lowers our overall cost of goods, which provides for enhanced margins and greater flexibility for more price sensitive segments, such as Outpatient and O-U.S. markets. I’d like to now provide an update on our pilot cases for the Pure-Vu upper GI sleeve that we began in Q2. The purpose of this controlled series of procedures is to demonstrate clinical utility while also gaining real-world procedural learnings. To-date, we’ve had positive feedback that Pure-Vu provides on demand visualization without disrupting the working channel of the physician’s gastroscope. This is important as a significant challenge when treating an upper GI bleed can be the lack of visibility due to blood, blood clots and stomach contents. Our Pulsed Vortex Irrigation and Smart Sense Suction provide the needed utility to improve visualization during diagnosis and treatment. While we plan to continue pilot cases through the remainder of Q4, the initial feedback is validating and we expect the enhancements we’re making in the new Pure-Vu EVS design will be beneficial in the upper GI application of our technology. We will provide additional updates next quarter, as it relates to timing on the anticipated launch of Pure-Vu upper GI in 2022. Next, let me discuss our strategy for outpatient reimbursement and the generation of new clinical data. As discussed previously, we have developed a multi-pronged strategy to secure reimbursement of the Pure-Vu system by both private and public payers. Over time, if we can secure reimbursement, it would help to further accelerate our commercial expansion into the large colorectal cancer screening market for outpatients. As such, we are currently working on the design of a large multicenter randomized controlled trial. Generating robust data in the outpatient market with clearly identified endpoints will be necessary to optimize our eventual plan submission of an application to CMS for a level one CPT add-on code. In November 2021, we convened an advisory board of key opinion leaders to help support the appropriate study design and to assist in our planning efforts. Moving now to active clinical studies. I am pleased to announce that the European outpatient clinical study is enrolling patients and remains on track. This study is evaluating the clinical outcomes in patients with a history of poor bowel prep using a low volume preparation with limited diet restrictions and the Pure-Vu system. The independent study is being conducted at two health centers in the European Union and we’ll enroll approximately 44 patients. The primary endpoint for this study is improvement of the bowel preparation from baseline to post-procedure as assessed by the Boston Bowel Preparation Scale. If successful this study could help change the management of patients who struggled to get an adequately prepared colon due to their age or medical condition. In the U.S., the investigator initiated study evaluating the clinical and economic benefits of using the Pure-Vu system in patients with emergent lower GI bleeding continues at the Cleveland clinic. In this study patients will not receive standard bowel preparation as the physician will utilize just two tap water enemas in conjunction with Pure-Vu, allowing for faster time to diagnosis compared to the current 24 to 36 hours, typically required to complete a traditional bowel prep. The outcomes we receive from this study could begin to challenge the current standard of care for critical lower GI bleed patients. And finally, we recently announced the results of an independent study of Pure-Vu performed at the University of Texas Medical Center in Galveston, Texas. Of the 40 procedures that were completed, the Pure-Vu system was used as an adjunct to traditional prep to allow for completion of the patient’s colonoscopy in 37 patients. Moreover, three procedures were actually completed without any bowel prep in patients who presented with lower GI bleeds. So 100% of the patients in this study were able to have a completed procedure. Also of note in this study, Pure-Vu was used on 14 inpatients and 26 outpatient procedures. The findings were presented at the American College of Gastroenterology’s Annual Meeting in late October. Now turning to potential strategic partnerships. We continue to engage with several potential strategic partners. The focus of this exploration is to evaluate potential pathways that could accelerate and expand our commercial efforts in the U.S. and targeted regions outside the U.S. We also continue to screen opportunities for product line expansion, which may also allow us to leverage call points synergies in GI. Moving ahead, we will continue to evaluate strategic options that fit our criteria and are actionable and provide updates as appropriate. With that, I’ll now turn the call to Andrew to provide detail on our Q3 financials. Andrew?
Andrew Taylor: Thank you, Tim. And thank you everyone for joining us today. We reported revenue for third quarter 2021 of approximately $141,000 as compared to $33,000 for the same period last year, a more than 4x increase. As Tim mentioned, this quarter also represented an approximately 40% increase of our reported revenues compared to the second quarter 2021. For the three months ended September 30, 2021, we reported a net loss of approximately $4.8 million or $0.10 per basic and diluted share compared to a net loss of $3.9 million or $0.13 per basic and diluted share for the same period last year. During the third quarter, net cash used in operating activities and for the purchase of fixed assets was $3.1 million as compared to $2.7 million for the same period of 2020. At September 30, 2021, we reported $23.7 million in cash and cash equivalents. This balance includes $9 million and up to $12 million credit facility with Kreos Capital, which was put in place during the third quarter. There are no financial or liquidity covenants associated with this credit facility. Our current cash balance allows us to continue executing on our value creation drivers and is expected to meet our overall anticipated cash needs through 2022. And with that, I’ll now turn the call back over to Tim.
Tim Moran: Thanks, Andrew. In summary, Q3 marked another important quarter of market development and commercial growth for the company. And we are excited as we look forward to the key upcoming catalyst that can propel our business in 2022 and beyond. We believe our disciplined and focused approach during the pandemic has allowed us to emerge in a strong position to build the business and capitalize on our value creation drivers moving ahead. I will now ask the operator to open the call for your questions.
Operator: Thank you. Our first question comes from the line of Matthew O’Brien with Piper Sandler. Please proceed with your question.
Matthew O’Brien: Good morning. Thanks for taking the questions. Tim, the commentary about leaning into 2022 on the sales and marketing side of things, can you just provide a little bit more color as far as what that may mean in terms of head count or I guess, said another way, it seems like now you’re really prepped and intended to really drive growth in the business here in 2022. So how do we think about what that translates into in terms of the top line outlook for the business?
Tim Moran: Thanks, Matt. Thanks for the question. Yes, you can hear my comments. We’re very excited about where we’re at on several fronts and it’s kind of culminating this ability to lean in as we get into 2022. So first and foremost, the development of the EVS system, as I outlined a little bit more detailed today, we think that brings down several of the barriers that we’ve faced in the market and can really start to deploy the device at a much faster speed. So with that and also considering COVID, we think it’s time to now start to build out the sales and commercial organization to a broader scale. As you know, we’ve gone with primarily three salespeople throughout most of last year and added a fourth last quarter. But just to give you a little bit of color there. We’re adding a couple additional salespeople as we speak. So I’d anticipate, having – getting to kind of the mid single digits before the end of the year, and then have a plan to continue to add on a quarterly basis as we see some of the kind of forward-looking metrics that we’re expecting upon the launch of the EVS system. So maybe the way to think about it and we’ll give updates as we go, but getting back to kind of pre-pandemic levels when we had a sales team that was roughly around 10 folks. So that’s the way we’re thinking about it now. We certainly can go a lot faster than that, Matt, if we see the acceleration that we’re expecting. And if COVID lingers, then we’ll be just cautious with the deployment. But right now we’re ready to – really ready to lean into the opportunity for 2022.
Matthew O’Brien: Okay, excellent. And then going back to Memorial Herman, can you talk about your ability to access accounts right now, just given the environment. And then I know it’s a hunting license for Memorial Herman, but any sense for other technologies that have started there? And then how they’ve been adopted? And how we can think about what you could do in that system from a placement versus a sale perspective? Thank you.
Tim Moran: Sure. Yes. So for – on the first part of your question, I think you’ve probably heard some of this feedback from others in the industry. We were really expecting for just a continued lessening of COVID through the end of the year. And we’re a bit surprised by some of the impact of the surge in certain parts of the country. So we saw some pressure put on Texas, where we do have obviously, you just mentioned Memorial Herman, but we have other installations in Texas and some delays that occurred in the Midwest and in Arizona, specifically with COVID. So that did impact access and to some extent procedural volume and some of those accounts for the quarter. But with that said, we were able to continue to at least get the process finalized at the main hospital within Memorial Herman. As we mentioned, they purchased our capital, which is a nice commitment to the technology. And the way we’re looking at it and from day one, we have said kind of the second phase of our strategy is, we get that primary location and then we grow it within that system. And it’s typically easier to grow because we have more champions, they have data that they’ve seen within their own institution, and they have a VAC approval that you can work with in terms of the license to hunt. One of the things specifically, Matt that we’ve already now done with Memorial Herman in cultivating a couple of, I would say very powerful KOL relationships that have seen the technology, used it and seen the benefit of it. They’re now conducting kind of cross facility meetings to share their experience with the device on our behalf, which is great. So getting the GI community together within that system, talking about the benefits of Pure-Vu, giving the visibility, but from the customer’s mouth, right? So we will then with our sales organization go and follow up on those opportunities and try to get the next couple Memorial facilities ready for an evaluation. So that’s absolutely our intent to grow within the system. And I think you’ll see that we’ll be able to do that as we get into 2022.
Matthew O’Brien: Great. Thank you.
Tim Moran: Thank you, Matt.
Operator: Our next question comes from the line of Steven Lichtman with Oppenheimer and Company. Please proceed with your question.
Steven Lichtman: Tim some of these larger institutions. Are there any plans for single center studies that you’re aware of that at conferences or other that we could see getting presented as these larger institutions are able to share their experience with other potential customers?
Tim Moran: Sure. Yes, Steve, thanks for the question. So, on the heels of the ACG Conference, which just took place in October, as you’ve probably seen and hopefully others saw, we put out a release on this. We did have a single center study that was done at University of Texas Medical branch in Galveston. And that was the study that I talked about earlier. Really nice, because it’s independent, they’re an active user of the technology and you saw the results were fantastic. They completed all 40 patients in the study. So absolutely we’re encouraging and supporting those efforts. I think peer-to-peer education that is independent can be very, very helpful for us. So we have a few other things that are actively in the works right now that we’re probably not ready to outline. But in a couple of these larger centers that are active close customers of Pure-Vu and Motus GI. Mark, I’ll kick it over to you if there’s anything else you want to add just in the broader kind of clinical strategy to Steve’s question.
Mark Pomeranz: Yes. I think Tim, you hit it pretty well, but we do have several centers that we’re talking to that are looking at investigator initiated studies, both in outpatient and inpatient opportunities and even ultimately in the upper indication as well. So I think you’ll see a lot of activity for us. I think part of the lean in to the commercial side too, is us being more active in our clinical group to work with physicians, especially with the new EVS device coming out to really enhance our clinical footprint as well.
Steven Lichtman: Great. Thanks guys. And then on the outpatient study, I know it’s not set yet, but any broad parameters that you can provide in terms of potentially number of patients and how long follow-up might need to be. Is there anything you can provide initially in terms of what that may look like?
Tim Moran: Yes. Steve, I’ll let Mark also provide some detail that we can provide today. But what I’ll tell you just kind of at a strategic approach, this is obviously an important investment and important study for the company. So convening and putting together this physician advisory board, which we just kicked off and as I said, had our first meeting actually at ACG with the group. It’s all around making sure that we get this right. We think about protocol. We think about how we power it and what the endpoints that will be necessary to ultimately optimize our potential to get reimbursement. So this is something that we’re being very careful and thoughtful about to ensure that we get it right. But Mark, maybe you want to provide just a little bit more detail about how we’re thinking about the RCT.
Mark Pomeranz: Yes, absolutely. And I think as Tim outlined, one of the key aspects of that is around reimbursement and we’re pretty happy with the interactions we’ve had with CMS because we really have some clear guidance from them on what they will need to see from us to really ultimately hopefully drive that level one code. So really going after a study that is randomized trial against standard of care, which is basically just cleansing to a colonoscope and focusing on a population, which can be a significant portion of the colonoscopy of those are higher need to tend to have a predisposed for inadequate prep, like diabetics, like folks that have chronic constipation issues and opioid users and a litany of other comorbidities, really can then facilitate us to really make not only an impact to get reimbursement, but really on those patients that need it the most as well. And it’s also kind of the key targets where the physicians are most motivated to want to use the technology and as well. So we do see it being a significant trial. We haven’t fully finished the design to tell you exactly what the end will be. But it will be a fairly large trial, especially for the GI community. As with us, which I think is nice as we do not need any long-term type follow-up, we don’t believe, showing us more safety endpoints within a few weeks to a month post-procedure should probably suffice for what we’re looking at. But again, we haven’t completed design. But that’s what we’re thinking at this point.
Steven Lichtman: That’s helpful. Thank you, guys.
Tim Moran: Thanks, Steve.
Operator: Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Jeffrey Cohen: Hi, Tim, Mark and Andrew. How are you?
Tim Moran: Hi, Jeff. Good morning.
Jeffrey Cohen: Just a couple questions for our end. So if you could talk about the workstation for the next-gen or EVS workstation, would that be the same for upper GI as well?
Tim Moran: Yes. Jeff, we’re really excited about this as you could hear in our commentary, but specific to the workstation. So it’s a completely redesigned workstation. The footprint’s much smaller, as we said, approximately 40%. We’ve removed some of the complexity from the first device. So a number of pumps and things of that nature, which then, the downstream benefit of that is there’s less connection points, so faster set up. But yes, this workstation will support both lower GI colonoscopy as well as upper GI in one piece of capital equipment.
Jeffrey Cohen: Okay. And do you expect that when introduced, will that be out there replacing current platforms?
Tim Moran: Yes, that’s our intention. We’re putting together a plan – a rollout plan as you’d expect. So all existing customers, we will upgrade them to the new device and then obviously, be going much broader and wider to new customers that are in our pipeline. But yes, we don’t anticipate having both devices on the market for all that long.
Jeffrey Cohen: Great. Okay. And then can you talk about the pipeline, if you will. Is your focus now and will your focus be with both of your commercial organization to go deeper into current accounts or wider into more accounts?
Tim Moran: Sure. Yes. So it’s going to be both. That’s the reality. So today, with the small team there’s been a focus on trying to go deeper, right, training positions at sites where we already have the product that’s been purchased, but also covering strategic opportunities in other parts of the country, which requires travel, oftentimes flying to other places. And it was the right approach during COVID because of the kind of stops and starts that we saw with access. But now adding more people to the team, covering more of the strategic GI markets across the U.S. it’s going to allow us to go deeper because these folks are going to be able to remain in kind of an assigned territory. But also wider for sure because we’re going to put people on the street in places that we’ve had limited visibility. We’ve done a lot from a market development perspective over the last year, year and a half. But if you look at the broader opportunity and the number of hospitals and colonoscopies that are occurring on a daily basis, the upside here is huge. We’ve got – we’ve already got well over 100 accounts in our pipeline that we’ve had contact with relative to getting them lined up for evaluation and on a schedule in 2022 for EVS. So I would say it’s a combination of both, Jeff.
Jeffrey Cohen: Okay. And then lastly, for us on the pipeline that you referenced is some percentage of that outpatient or currently it’s all focused on inpatient hospital networks.
Tim Moran: So I would characterize it this way. The focus is absolutely hospitals and hospital networks. But with that being said, if we look back over our current customer base that we’ve established here, in almost every instance we’re getting some hospital outpatient procedures with Pure-Vu. So far and away, the primary focus has been on that inpatient that can prep and have delayed procedures, or visualization is so difficult and the doc needs our technology to be able to complete the case. But once they’ve gotten comfortable using the device and it’s become just a tool kind of in their GI arsenal, if you will, they immediately start to think about that frequent flyer outpatient that has a history of poor prep or due to medical condition or co-morbidity can’t prep well, and they wheel the device over to the hospital-based outpatient, they’ll get that procedure done. So I think you’ll see a combination of both. And hopefully with some of the things that we’ve deployed here into the EVS system, potentially start to see even more workstations being deployed at the hospital. So you’re not having to move it between two sites of care within the institution. But I think we’ll see both of that happening. But I just wanted to draw the line there. So the focus is hospital, as opposed to today going into the ASCs, if you will.
Mark Pomeranz: Yes. Add a little bit to that, Jeff. About close to a third of our outpatient procedures are in hospital outpatient departments. So, there’s still a large portion of the market there. And they also tend to have the more difficult patients, because a lot of the folks in the ASC, if somebody got comorbidities and all that, they’d rather refer them to the hospital because they don’t want to have any issues with taking longer procedure times. So we think the amount of utility from a percentage of cases in the hospital, outpatient department will also be greater for us than the ASCs.
Jeffrey Cohen: Super, very helpful. Thanks for taking our questions.
Tim Moran: Thanks, Jeff.
Operator: Our next question comes from the line of Kyle Bauser with Colliers Securities. Please proceed with your question.
Kyle Bauser: Great. Thanks for the updates here and nice to see the progress. Maybe on the EVS application, is that a special 510(k) that you expect to submit by year end? Or was it just a traditional? And I guess, more broadly on this next-gen device, was it largely a function of physician and administrative feedback that you got that helped kind of inform the new design?
Tim Moran: Yes. Kyle, so let me take the second part and then Mark can talk a little bit of how we’re thinking about the actual regulatory submission. But yes, we’ve always had a product kind of development roadmap, right? We knew that even the second gen that there would be iterations and things that we felt the market would want and would be helpful for the procedure. But also during this period of time, we were able to take feedback. And how I would kind of quantify things is, we’re changing the way the colonoscopy procedure can be done for the better. However, change is always difficult. And I would say the biggest hurdle has been just change management and getting folks being willing to do something different in a procedure that they do every single day and they’ve done for years and years. So I would think about this device as something that we’ve iterated the ease-of-use in a very, very significant way. So just a couple of things that, we talked about it a little bit earlier, but from a tech and nursing perspective, one of the pieces of feedback that we we've always heard with Gen 2 has been, yes, it's simpler than the first generation, right, which we didn't commercialize. However, it's still taking me several minutes to get this ready to go as well as I have to load the scope in a different room, because it's a reusable loading fixture. So they've got to get that loaded in a different room to then bring into the procedure room where they're actually doing the procedure. So that was one hurdle that we said, okay, we have to make this as simple as possible and as fast as possible to deploy, which is clearly built into this next-generation. And then the other was our irrigation, our suction capabilities have worked extremely well from day one, right. So being able to clean or call-in in a very efficient and safe manner which is really the primary purpose of the device, that has been shining star through and through, however, giving the physician the ability to navigate through the colon and have less bulk on the outer sleeve of the scope. We felt was an area that we could improve, which would allow us to get to even a broader number of physicians and have them more comfortable with navigating the scope. So as I mentioned in the prepared remarks, we removed four of the five inner tubes that are between the scope and our sleeve today going to one multichannel lumen, which is just really an incredible removal of bulk, early feedback we've gotten from physicians in our animal labs has been, this feels very much a bear scope. I can navigate much more easily, I have much more control. So it's all built around ease-of-use so very excited about that, but absolutely it's feedback from customers. We look at this as the way to really lower the barriers to adoption and to speed of deployment. So hopefully, that's helpful color on the device. Mark, let me kick it over to you in terms of how we're thinking about the 510(k).
Mark Pomeranz: Sure. And just to add a little bit to what Tim mentioned, I think one of our big learnings over the last 18 plus months with Gen 2 is, we started a lot as you do with new technology and you start with more of the advanced or therapeutic guys that are usually entry point into the hospital and as we learn with Gen 2, get more and more in your kind of day-to-day colonoscopies that is less used to new technology. We realized the importance of all the improvements we're making with EVS because we've got to kind of get those guys that just kind of do colonoscopies all day and aren't used to new technologies to adopt something. So I think that was a big learning for us that we think we've incorporated really kind of the general colonoscopies feedback into what we've done with EVS, which we think will make a huge difference in the market as Tim described. And then just going back to the regulatory strategy, we are looking at this as a special 510(k), the basic mechanism of actions of cleansing and how the system works has not changed, which is kind of the key criteria, as long as you use the basic mechanism of action and your indications are the same as the predicate device. You can usually drive a special 510(k).
Kyle Bauser: Perfect. Appreciate that. And then I guess just to follow up on Tim, your answer – is the distal tip of the new sleeve, does it have a smaller diameter. And then maybe moving over to the clinical evidence side of things, I mean, given all the data out there on Pure-Vu, it seems pretty clear that the efficacy is highly compelling for completing a poorly prep colonoscopy. I guess, just wondering, are you still getting pushback from physicians and hospital administrators about clinical data? I guess my sense was always that any bottleneck to adoption would have been more a function of administrative hurdles, workflow changes, reimbursement, et cetera. Thank you.
Tim Moran: Sure. Yes. Great question regarding the distal tip. Absolutely, we've reduced the overall diameter. So the tip is about 20% smaller than the current device. We've also changed the material. So it's a softer, a more malleable material, which will be helpful in certain applications. So that's an important change as well, Kyle. And obviously we're putting a lot more information out here today and there'll be other forums that will provide even more detail and kind of visual detail of these changes to the market. But that's an important change as well as it relates to navigation of the scope. In terms of the clinical data question, it's an intuitive comment that you made. So yes, I would tell you that the speed of adoption deployment over the last year to 18 months has been primarily a factor of obviously COVID right, which has played a real role in procedural and access volume, the scaling of our organization and keeping it kind of at a lean place to kind of get through this period of time. And then lastly, from a customer standpoint, like you said, it's change management, workflow, behavior influencing that change. There's not been a lot of pushback to say, hey, like, this is an important to provide better visualization or the device doesn't do what you're telling me it can do. So I would think about, listen, additional clinical data, independent studies are always very, very helpful to influence physicians and get them on board with this is something I just have to do. The clinical data is so compelling, but I would look at our investments upcoming in clinical as much around how do we ensure that we can optimize reimbursement to eventually break into the very, very large outpatient market. So I would look at it more of a market expansion investment as opposed to people need more data to say that this is either working or helpful.
Kyle Bauser: That's great. Thanks for all the updates. I'll jump back in queue here.
Tim Moran: Thank you, Kyle.
Operator: Our next question comes from the line of Ben Haynor with Alliance Global. Please proceed with your question.
Ben Haynor: Good morning, guys. Thanks for taking the question. It's just kind of a couple of big picture kind of follow-up type questions. So when you say the certain outpatient colonoscopies with regard to reimbursement, it sounds like that's the diabetics, the chronic constipation, the opioid users that Mark mentioned. And it does sure sound like that fraction would be certainly sufficient to attract or to make the product attractive to the hospital market but what about the ACS and the other facilities that are performing these things on an outpatient basis?
Tim Moran: Yes, sure. Thank you, Ben, for the question. So the way we're thinking about this for ambulatory surgery centers, right. The data and then ultimately reimbursement's going to be very important. If you think about the patient profile and just kind of how they run their business, if you will, they're doing eight, 10 procedures per day per room. They're not traditionally looking to spend a lot more money on a procedure when they don't have to, right. So reimbursement becomes an important part of getting through the initial barrier to have an ambulatory surgery center, deploy new technology. But very much, as Mark was saying earlier about a third of the outpatient population in the U.S. runs through a hospital based outpatient, but the rest is running through these ambulatory surgery centers and they have the same issues that they're dealing with, right. So the co-morbidities that you highlighted patients that just it's not about not wanting to drink the prep or complaining about the prep, it's about true issues associated with not being able to, right. So they either can't keep it down or they've got motility or mobility issues. And we kind of characterize that market, as we've said before is about 20 or so percent of the overall outpatient market. So you're talking about a 4 million to 5 million patient market where there's clearly an identified need for these patients to be assisted with their preps so they can get a high quality exam. So there's not misses in adenomas and they can stay on a normal interval of their current colonoscopy scheduling. So we think that the value sits in both hospital-based as well as ASCs over time. And it becomes more just about the reimbursement in terms of when we can enter that market and put the resources behind it.
Ben Haynor: Okay. That's very helpful. And then secondly, for me, this is kind of a follow-up on Matt's question, I think but just do you have kind of internal models on how you might be able to penetrate additional hospitals and kind of a Memorial Herman type situation, once you do have that beachhead or is that something that's kind of every hospital system is a little bit different and there's not really a way to say, well, we think we can get to full penetration by year three or whatever an internal model might say. Any additional color there would be helpful.
Tim Moran: Sure. I think you're right, every hospital system, the dynamics and requirements are different, right. But one of the examples that I think we're trying to employ is how do you get as efficient as possible about this, right. And I'm really talking more of a forward-looking. So as we get into 2022, and we've got I think the appropriate sized commercial team so we're not kind of flying all over the country, trying to just manage opportunities with just a few folks, right. But when you've got the appropriate people in the right territories, and then also considering hopefully the COVID impact, which I think as we get into 2022, hopefully we'll be a lot better. How do we accelerate the awareness of the device? So you're not doing one account at a time within a system, right. So this kind of town hall approach that I just mentioned earlier, that we're working on with Memorial Herman, where you can get your physician champions to conduct a discussion with their colleagues across the system, a special meeting to say, hey, this is a technology update we want to share with others, kind of best practices, things that we've deployed, that can really allow us to move things much more quickly, right. Because then it just becomes, okay, where within the system do we want to go next based on their interest level and ability to evaluate. And so we'll take approaches like that. Just all very tactical things, Ben, but I think to-date, it's been less about the strategic know-how and the way to do that and more about just not having the resources or the environment with COVID to be able to really accelerate that, if that makes sense.
Ben Haynor: That makes perfect sense. Very helpful, that's really all I had guys and congrats on the progress. And thanks for taking the questions.
Tim Moran: Thanks, Ben.
Operator: Our next question comes from the line of Yi Chen with H.C. Wainwright. Please proceed with your question.
Boobalan Pachaiyappan: Hi, this is Boobalan dialing in for Yi Chen. Can you hear me okay?
Tim Moran: Yes, Boobalan, good to speak with you.
Boobalan Pachaiyappan: Hi. Great. Congrats on your progress. So just a couple from our end. So you recently engaged a reimbursing consulting partner to help drive strategy and execution. So can you provide any updates on that front?
Tim Moran: Sure. I mean, that's obviously an important part of, everything we're talking about today, right, the appropriate clinical investment, understanding the reimbursement kind of pathways and ensuring that we're getting plugged into the right stakeholders to influence the right folks in the right order. So Mark, why don't I kick it to you to provide a little bit of detail of how we're thinking about the reimbursement strategy and outside resources to support us.
Mark Pomeranz: Sure. Hi, Boobalan, so great question. There's a bunch of things that we've already been doing and a lot for that we'll be doing going forward. So as I mentioned earlier, with the support of our consultant group, we've been getting a good interaction through some formal applications and some informal discussions with CMS to really help us inform us of what we need to do to really create the right data and trial for moving forward to try to achieve a level one CPT add-on code and even go into it an add-on code strategy. It's the things that we've locked into. We've also had interactions with some of the key IGI societies as well, so that we in garner their support which our consultants are helping with too. That's really informed that strategy again to push for an add-on code as opposed to a straight CPT code. So that's been very helpful for that, also with their support, I think as you're aware, we did get an ICD-10 code issued. So we'll be pushing out information to the accounts to be able to use that for coding, which will again help CMS and other CD, the utilization of the device, which is kind of a first step to then inform potential opportunities for payment in the future as well. And then we'll be looking at really supporting folks with private payer side of things with helping them to be able to put in claims on the utilization of the device. And we realized how that works early on, as you're typically putting in claims. In many cases, you'll have to go through an appeal process and after you built some momentum with some of the private commercial payers, and then you begin to push for coverage decisions, et cetera. So we're putting in the infrastructure has aligned with EVS to help support all that as well.
Boobalan Pachaiyappan: Thanks for the clarity. So one more from us, so you're actively running clinical trials in the European Union. So in addition to that, what's this might be required to increase Pure-Vu visibility in the Europe?
Tim Moran: Yes. So yes, we are running the trials. We're actually very pleased with the physicians and the institutions that were running the European study at. But the way we think about it, Boobalan, from a commercialization perspective and the entrance into Europe, it really comes down to focus and resources, right. So today, obviously with the U.S. being such a big opportunity and now kind of the culmination of a new product that we think can be deployed quickly, adding commercial resources. Our number one focus is driving revenue and adoption in the U.S. market. How we're thinking about Europe is the potential to accelerate the entrance into Europe on a broader scale, through a partnership. So as I alluded to, we continue to have discussions evaluate partnerships. Some that could be a global relationship, others that can be geographic lease specific i.e. Europe, right, where there's already a commercial infrastructure an engine, in Europe that would allow us to get our product into the market without having to build our own direct sales force, which obviously is expensive. And also can take time, not to say that at some point in the future, we wouldn't do that. But I think in the near-term, the next 12 to 18 months, I wouldn't envision us putting our time and resources into that. So we'll continue to evaluate actionable partnerships that make sense strategically for us and for the partner that we think we can win. And when that opportunity comes, we'll certainly provide more detail, but that's kind of the way we're thinking about it. So the work that we're doing in Europe now in terms of getting, having gotten our CE Mark and doing these clinical trials, it's all around just seeding the market. So we have champions and there's an awareness in the market, but I think really the commercial infrastructure and resources comes most likely at some point through a partnership.
Boobalan Pachaiyappan: Thanks for taking my questions.
Tim Moran: Great. Thank you.
Operator: There are no further questions in the queue. I'd like to hand the call back over to Tim Moran for closing remarks.
Tim Moran: Yes. Thank you, Doug. Listen, I just want to thank everyone for joining our call today. Obviously, we're pleased with the continued progress. We've stayed disciplined and focused on what we're trying to accomplish, really moving through this period of difficult market dynamics, but developing the market for Pure-Vu. We've got an incredible opportunity with first mover advantage. There's no one else in the market with a device like ours. We know what we've got ahead of us, and hopefully you saw today and heard our excitement about what we can build here, as we move into 2022 and beyond. So we'll look forward to talking to everyone on next quarterly call and hope everybody stays healthy and safe.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
