Milestone Scientific Inc (MLSS) 2019 Q2 法說會逐字稿

Good day, and welcome to the Milestone Scientific hosted Second Quarter 2019 Investor Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Natalya Rudman. Please go ahead.

Good morning, and thank you for joining Milestone Scientific's Second Quarter 2019 Financial Results Conference Call. On the call with us today are Leonard Osser, Interim Chief Executive Officer; and Joseph D'Agostino, Chief Financial Officer.

The company issued a press release yesterday, Thursday, August 15, containing second quarter 2019 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the second quarter ended June 30, 2019.

Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding the timing and financial impact of Milestone's ability to implement its business plan, expected revenues and future success. These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Milestone's control. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions, failure to achieve expected revenue growth, changes in our operating expenses, adverse patent rulings, FDA or legal developments, competitive pressures, changes in customer market requirements and standards and the risk factors detailed from time to time in Milestone's periodic filings with the Securities and Exchange Commission, including without limitation Milestone's report Form 10-K for the year ended December 31, 2018, and Milestone's report on Form 10-Q for the second quarter ended June 30, 2019. The forward-looking statements made during this call are based on -- upon management's reasonable belief as of today's date, August 16, 2019. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that out of the way, we will now turn the call over to Len Osser. Please go ahead, Len.

Thank you, Natalya. Good morning to everyone, and thank you for joining the call. Our company has made substantial progress in advancing our commercial efforts around the CompuFlo Epidural system. A key element of our commercialization strategy includes entering the medical education market with the CompuFlo Epidural trainer. We believe that entering the medical education market is an important step to position CompuFlo as a new standard of care for the next generation of anesthesiologists and certified registered nurse anesthetists.

The CompuFlo trainer reduces uncertainty with objective measurements that help reduce the number of epidural attempts, builds confidence and speeds training competency. Generally, 80 epidurals are required for training before a resident is considered proficient enough to do epidurals. Our study done a number of years ago, which was part of our decision-making in moving into epidurals first from our broad platform of technology was the efficiency of our product and reducing those attempts in a study that was done in the United States, which showed that after 1 to 2 days of training as opposed to 2 years of training, these first-year residents was successful on first attempt.

We previously announced that we signed an agreement to distribute our CompuFlo trainer with American 3B Scientific, a leading supplier of didactic material for medical education covering North, Central and select countries in South America.

For the first time, instructors who previously depended on student feedback and their tactile feel during a procedure are now in power to empirically monitor needle placement and movement.

This is the first time that this has been able to occur for epidural training. The CompuFlo trainer features a visual display of pressure as well as a corresponding audible tone for more precise feedback and student guidance.

Procedure documentation is also generated to enhance educational discussion and monitor skill development. This is not available in any other way or any other product for epidural training.

In May, we unveiled a new CompuFlo Epidural trainer and educational suite to thousands of anesthesia professionals at the EuroAsia 2019 Congress. Europe's largest annual event, showcasing the latest knowledge in the field of anesthesia.

We now have a full suite learning tools to improve epidural placement by trainees. By providing a complete training solution, medical residency programs and simulation labs are now able to accelerate the procedures' learning curve by reducing stress on the part of both the student and the trainer, uncertainty and a number of attempts to locate the epidural space.

We also announced that the CompuFlo Epidural system was featured in 2 research abstracts at EuroAsia 2019 Congress. Researches from the Hospital Universitario La Paz in Madrid, Spain shared a case report using CompuFlo for blood patch repairs after an accidental dural puncture in obstetric patients. An accidental dural puncture is a known risk of epidural anesthesia and occurs when the needle accidentally punctures the dura, resulting in the leakage of cerebrospinal fluid. This can lead to severe migraine headaches, pain and additional morbidity leading to additional procedures for the patient, additional cost for the hospital, which can be costly to repair both the puncture of the epidural.

In the United States, when a new procedure is done to repair an epidural that has gone awry, another anesthesiologist must do [then], pull blood and attempt to do the repair. It is a costly and very involved procedure.

In the La Paz case report, a dural puncture occurred using a traditional loss of resistance syringe during epidural space identification, which had been difficult with multiple attempts.

CompuFlo identified the epidural space for the blood patch repair on the first attempt, avoiding the false loss of resistance associated with repeated punctures and failed repairs. The abstract also concluded, and I quote, "It is a safe technique that reduces the volume of saline or air administered, avoiding dilution of the blood inserted and the accumulation of saline. We think it is a reliable method to be used for blood patches."

The other abstract highlighted how CompuFlo accelerates clinical competency for trainees. The European School in obstetric anesthesia in Rome, Italy reported a study of 60 trainees, who had never performed an epidural block. Results showed CompuFlo-assisted training reduced the number of attempts and made the procedure easier for the inexperienced trainees.

CompuFlo increased threefold, the chance to identify the ligamentum flavum at the first attempt during the simulator-assisted training module.

Now turning to our Dental segment. Our one dental subsidiary remains cash flow positive on a stand-alone basis, with continued growth opportunities. Although revenues within our one dental subsidiary declined slightly from the same period last year. This was due to a onetime large order in 2008 from an overseas distributor. Moreover, we reported an 18% sequential increase in revenue versus the first quarter of 2019.

At this point, I'd like to turn the call over to our Chief Financial Officer, Joseph D'Agostino, who will go over the financials in detail, but I will be back at the conclusion of Joseph's discussion. Please go ahead, Joseph.

Thank you, Leonard. Revenue for the 3 months ended June 30, 2019, was $2.3 million versus $2.4 million for the second quarter of 2018. The decrease of approximately $171,000 is primarily due to a nonrecurring order of hand pieces and devices in 2018 from a distributor in Mexico of approximately $400,000.

Medical revenue for the 3 months ended June 30, 2019, decreased slightly. We are in the process of attending medical device trade shows and attending introductory meetings with medical device distributors within the United States and European markets, which we believe will set the stage for our broader commercial rollout.

Gross profit for the second quarter ended June 30, 2019, was approximately $1.5 million or 67% of revenue versus approximately $1.4 million or 58% of revenue for the second quarter ended June 30, 2018. Gross profit for the 3 months ended June 30, 2018, included an inventory reserve expense of $290,000.

Operating loss for the 3 months ended June 30, 2019, was approximately $1.1 million versus approximately $1.4 million for the quarter ended June 30, 2018. The decrease in operating loss is due to an increase in gross profit and a reduction in general and administrative expenses of approximately $300,000, partially offset by an increase of approximately $100,000 in research and development expense. Net loss for the 3 months ended June 30, 2019, was approximately $1 million or $0.02 per share versus a net loss of $1.3 million or $0.04 per share for the prior period.

Now I'd like to turn our attention to liquidity and capital resources. At June 30, 2019, the company had cash and cash equivalents of $2.3 million compared to cash and cash equivalents of approximately $700,000 as of December 2018. As a result, June 2019 current assets were approximately $6.3 million.

Revenue for the 6 months ended June 2019 and '18 was approximately $4.2 million, respectively. Dental revenue for the 6 months ended June 30, 2018, includes a nonrecurring order for hand pieces and devices in 2018 from a distributor in Mexico of approximately $400,000.

The gross profit for the 6 months of 2019 was $2.8 million or 67% of revenue versus $2.6 million or 63% of revenue for the first 6 months of 2018. Operating loss for the 6 months 2019 was approximately $1.9 million versus $3.4 million for the 6 months ended 2018.

The decrease in operating loss is due to an increase in the gross profit, reduction in general and administrative expenses of approximately $1.2 million and a reduction in research and development expenses of approximately $135,000. Net loss for the 6 months of 2019 was $1.8 million or $0.04 per share versus a net loss of $3.2 million or $0.09 per share for the comparable period in 2018.

On one final note, our cap structure has been further simplifies with the recent conversion of Series A preferred stock into common stock by BP 4 SPA, an entity affiliated with Gian Domenico Trombetta, a Director of Milestone Scientific and Chief Executive Officer and Director of Wand Dental, Inc. BP4 converted its preferred shares into approximately 6 million shares of restricted common stock and effective conversion rate of $1.17 per share based on an initial investment amount of $7 million. We appreciate the continued support and involvement of Mr. Trombetta.

At this point, I'd like to turn the call back to Leonard. Leonard?

Thank you, Joseph. As discussed, our one dental subsidiary remains cash flow positive on a stand-alone basis, with continued growth opportunities. We are also carefully managing our expenses, as evidenced by our reduced SG&A. We are continuing to advance the rollout of the CompuFlo Epidural system. Most recently, we signed a distribution agreement for the CompuFlo with Paragon Care Limited, a leading provider of medical equipment devices and consumables in Australia.

Australia is a large market in our sector, as epidural anesthesia was used in 1/3 of the approximately 300,000 births in Australia each year. Reduction in complications, anesthesia failures and the associated costs are essential to increasing the popularity of epidurals in childbirth.

We believe Paragon Care is the perfect partner as they have a strong -- they have strong relationships and a deep reach into Australian hospitals and medical schools. Our goal is to collaborate with distributors worldwide to build a new standard of care with the epidural -- with our epidural instruments.

I'd like to thank you for joining the call today. At this point, we would like to open the call to questions.

(Operator Instructions) We'll take our first question from Anthony Vendetti with Maxim Group.

I wanted to just focus on the distribution agreement with Paragon. That looks like a great opportunity in Australia.

I was wondering, Len, if you could just give an update on discussions with other distributors, whether that's internationally or in the U.S.? And give a little more color on the ramp possibility in Australia with Paragon?

Sure. Paragon has extraordinarily good reach in Australia, as I mentioned, into both medical schools and to hospitals. We have just signed the agreement very recently, and we are now beginning to supply them demos -- demo units to train their people -- their salespeople to go into the hospitals to train the anesthesiologists.

We also look to the future, and we try to deal with companies such as Paragon because they deal with the medical schools, which is the next generation that will help us to enter the market.

As far as other distributors are concerned, we believe in Italy, we have the best distributor in Mobi for that country, and we're looking forward to moving -- we've moved into 1 hospital in Italy. We're looking forward to moving into a number of others in different areas of Italy by the end of the year.

We are also working in the Mid-East, but our main focus, as you know, because we're a U.S. company, has to be the United States. And we're in quite a number of hospitals now along the process, which unfortunately is a long one. For testing our product, we have set up a number of distributors in the United States. Our goal is to double or triple that amount within the next 18 months. And we're looking forward by the end of the year to finalize arrangements with hospitals so that they start using our instrument.

We believe that the arrangement that we made with 3B will significantly enhance our entry into the market because the ease of which the teacher works with the student, what you have to really look at is you have an attending sitting next to a resident who's trying to give an epidural to a woman in labor, who, by definition, is morbidly obese, which is the most difficult patient to give an epidural to.

The attending has really no idea where the tip of the needle is. So the opportunity for morbidity by invading the dura with the point of the needle is significantly enhanced.

With our instrument, both the student and the attending know exactly where the tip of the needle is. This is the first time that this has occurred for this procedure.

So in the first instance, it's far safer than what's presently known as the standard of care, which is the hypodermic syringe, which we know was invented in 1860.

So what we do is, we remove significantly the stress on the part of the student giving the injection, on the part of the attending, not knowing where the tip of the needle is, though they're sitting right next to the student. So in the first instance, it's far safer, but in the second, it will significantly expedite the learning curve of that student.

As I spoke to earlier, the clinical study done in the United States showed that after 1 to 2 days of training with our instrument on a robot, the students were 100% successful in locating the epidural space. That's compared to approximately 2 years.

So the training and the arrangement we made with 3B is very, very important to enter the market. Our success in giving injections in various parts of the world continues at the same or higher level than our very, very large multicenter study, which we use for FDA approval.

So we are now putting most of our energy, to answer your question, in the United States. That is where our resources are going to at the moment. And we believe that once that occurs, once -- as our CFO calls it, getting the first olive out of the bottle, we believe that, that will significantly expedite our sales, both here and overseas.

So that's really where our money is being placed at the moment.

Len, could you tell us how many feet on the street this 3B has? So you could -- so we could try to gauge how quickly this can ramp?

Sure. They have over 1,200 people on the street.

Okay. Great. And then just switching...

They were -- sorry, go ahead.

No, no, go ahead.

They are one arm of a very large European company. They cover all of North America and various countries in Latin America. So they are one of the strongest in the world in this area of education.

They have trainings...

Yes, they have training centers throughout the territory.

Okay. And then just switching gears a little bit. I know intra-articular has been on hold. Do you have a road map? Or when do you foresee potentially revisiting intra-articular? Is that imminent? Or is it more a couple of years down the road, and the focus is really on epidural right now?

Yes, the latter. The focus, given our resources, as you see on our last report, we have $2.3 million in the bank, our burn is approximately $250,000 or less per quarter. We're husbanding the cash very, very carefully. So the Board has made a decision that we should use all of our resources for the success of the epidural.

So unfortunately, as we see our stock price so low, though it has moved up in the last couple of weeks a little bit, we would like to use the capital, which we have, avoid dilution whenever we can and show the success to the marketplace of the epidural product and not -- and avoid raising any capital unless we really have to.

So for that reason, we have the IA on hold, and we're putting all of our efforts into the epidural.

Okay. Makes sense. Last question, and then I'll hop back in the queue. Dental was up year-over-year and sequentially. Is that -- do you think that's on that kind of trend where we should see more consistent results or based on orders from certain customers, that will continue to be somewhat volatile or up and down a little bit?

I don't think it will be volatile year-on-year. I think under Gian Domenico Trombetta, what he's done is, he's formed a much stronger base of -- he's bettered the distribution network considerably. He's brought in quite a number of, not just key opinion leaders, but top key opinion leaders that lecture constantly throughout the world. So he's set a good foundation.

So I think that we can continue seeing some growth from it. But we are financially -- and we have been for the last 3 years, treating it kind of with benign neglect and not putting any real money into it, taking the money out to support us in the -- for the epidural because we believe the future of the company is in the medical sector. And from the platform which we have, we can produce so many different instruments with the related disposables.

So we've decided to not put -- to put hardly any money into the growth of dental. Though, the effort is certainly being made to increase year-on-year, but we're not supporting it as we would if we had more capital.

We'll take our next question from [Anthony Marchese], he is a private investor.

Len, two questions for you. Could you just take us through sort of not just how long it takes, but the procedures that hospitals have to go through, at least in the United States to get the epidural product through to -- from the time that a doctor, I assume likes it to the point where the hospital says to the staff, we can use it here?

Sure. The process normally, I would say, for a product to move in takes about 18 months. It's a long procedure. First, one sets up the distribution when the salesperson goes with our salesperson to the hospital and demos the product, generally, there's significant interest in the product.

Now we're at a stage because of our significant clinical work over the last few years that no one is suggesting that the product doesn't do what we all know it does.

So the process then is to have the hospital okay it for a trial. Depending on the hospital, that could take 3 months. It could take 6 months for the Chairman to then get it for a trial. So it goes into trial.

The trial because it's different than surgery, in other words, when you're doing surgery, you have an appointment set up, the salesperson goes there. They work with the doctors, they try what we have. And there's a way to do this with some expediency.

With us, we're working primarily with labor and delivery. With labor and delivery, you don't know when the patient is really -- is coming in. So it takes longer because of the scheduling for that.

So what you would generally look at is by the time you have the buy-in from the Chairman and the other doctors, it could take approximately a year. At that point, it goes to cost analysis for the hospital. At that point, that could take 2 or 3 months depending on their administrative ability. At that point, they then look at the budget, where they are in the budget, and they basically tell the Chairman, well, you've wanted this for the last year, would you rather have this or that?

So if they choose our product over something else that was in the budget, then they can buy it right away. If not, they can say, yes, we'll buy it, but we're going to put it in next year's budget. So it is a long and arduous process.

However, the good news is that we're a year into it. We're in quite a number of hospitals, at, we believe, the end of it. We believe that we're very close to a very important independent study showing the cost benefits of using our technology, which we believe are overwhelming.

In addition to everything that we mentioned earlier in the call, the amount of savings for the insurance company, for the hospital, I believe will be compelling for any institution.

So when that study is completed, and I'm hoping that's within the next 60 to 90 days, I think that the evidence will be overwhelming in the area of cost savings.

And that's why we went into the epidural first among all the different instruments we could have created, the safety, the cost savings, the benefits of the patient. Tony, did that answer your question?

Yes. More than adequately.

And we'll take our next question from [John Quarm], who's also a private investor.

My questions have largely been answered by the previous 2 calls, but I really wanted to know like you probably want to know, what is going to be the springboard or the catalyst to get that first olive out of the bottle? And this has certainly been a much longer and arduous process than I envisioned since you got approval. I'm wondering, at this stage, are you more optimistic than ever? Or are you more cautious now because of the realization of how long this takes and the pushback you get from doctors and hospitals? Or where are you guys feeling that we are right now as a company with Milestone Scientific?

Okay. I am very optimistic because the product is performing, as I said, is at least as well as our original multi-center study. So many of the things that we spent a great deal of money on early in the process that are out of the way, which are the clinical studies and the abstracts are -- those are areas that most companies would be doing now after having produced the [product]. That's all behind us. We've spent that money and the proof of the efficacy of the product and the value of the product is irrefutable.

I mean it's -- compared to the standard of care today, there is literally no comparison as far as safety and cost savings.

So I am very optimistic. Unfortunately, the medical industry in the first world is very slow to take on new technology, mainly for budgetary reasons. But our product sells for a relatively small amount. The disposable is compared to many others is a relatively small amount. They're very significant to Milestone Scientific.

So we believe, particularly with the publication of the cost analysis study that we anticipate in a few months that will make the difference. We've already proved the efficacy. It's irrefutable. We have studies done throughout the world, multi-site studies at major universities.

We continue to give the injections. I believe we're somewhere over 2,000 now. You have tremendous pressure on the hospitals from insurance companies regarding malpractice, and I think -- and I believe that it's blatantly obvious that the cost will be significantly diminished by using our instrument, which is not that expensive.

So there to purchase our instrument and move it into a hospital, even a regular hospital, not a teaching hospital, will save that hospital considerable money, one has to report one's mistakes, so the mistakes will come down dramatically.

In a teaching hospital, as you're probably aware, the morbidity rate of the epidural injection pretty much throughout the world is 4.5%, which is enormous. I mean if I was going for a procedure, you or I were, we might be looking for 1 out a million, 1 out of 100,000, it's 4.5%.

But in the teaching hospitals, it's significantly greater than that. This is a major, major problem, but there's no alternative. But that's why 2.4 million women out of 4.4 million have the epidural. The other ones read the risk factor.

So I am very optimistic that this will become the standard of care. Unfortunately, we don't know timing, but thus far, the product is acting exactly as advertised. It's doing exactly what it's supposed to do.

And when we go into hospitals, that's not being questioned. So do I remain very optimistic? Yes. Do I believe that we will get our first olive out of the bottle this year? Yes.

We're already in a small hospital that's using it exclusively in Italy, but it's a small hospital, but they're using it exclusively. We speak with Chairmen, and a woman a few weeks ago from a hospital told us she really wants this product because she's tired of getting calls at 2 in the morning that they had a wet tap, that they cause morbidity and she has to run and do a repair.

So it's -- our technology is very obvious. It's very, very simple learning curve, and it's relatively inexpensive when you look at the cost analysis. And that's why I am very optimistic.

Great. That's what I wanted to hear, Leonard. I continue to be a shareholder of Milestone Scientific. And I am like you, hopeful that someday that there will be that springboard to get this in use, and that might be the springboard for other uses of this product. I'm sure you think about that, too, but the chicken has to come before the egg or the egg before the chicken. So continue the good work. I appreciate your efforts.

Thank you very much.

We'll take our next question from Tony Kamin with Eastwood Partners.

Len, you've sort of answered my question in part in a bunch of different ways, but I think it's still worth asking. I was curious now that you're in, obviously, a number of hospitals, and you're pretty far along with some of them.

Can you talk maybe a little subjectively as you just mentioned with the Chairwoman, I think, of a hospital of what are you hearing from doctors? And is there a chance that there could be sort of a pull demand versus you pushing the product to them that now as they're trying it, they're like, hey, we really need to get this?

So do you have any sense of that sort of pull from the doctors yet?

Yes. I think that the main issue now at this point is the doctors see it, those attendees that do training definitely see it. It's blatantly obvious to them. It all comes down to cost analysis. There are limited budgets, and the Chairman has to decide what it is that they want.

So for us, at this stage, having proven the efficacy, having done major studies, certainly not solely for a small company like us, but for any company, enormously successful studies.

It all comes down to the cost analysis at this point. And we've been working on that for quite a while. We believe that the cost is -- will be compelling when this study comes out.

When -- I could be more -- a little bit more precise, if you have a wet tap, and we're aware of that in the hospital setting, the patient, a woman in labor at this point, that patient will now stay in the hospital on average of 2 extra days. Being that, that patient is staying 2 extra days in the hospital, the newborn is staying 2 extra days.

So we're talking about on average in the United States, a $12,000 expense. They now have to have another anesthesiologist pull blood, attempt to rescue on the wet tap, which is basically drawing the blood to cover the hole after doing yet another epidural. So the cost at a minimum would be $12,000.

Our indications are that it's significantly greater than that. Now that doesn't count the average settlement when this happens in litigation, which is somewhere between $350,000 and $400,000.

So we believe that we will not only have the push-pull of the doctors and the trainers, but we believe that once we have enough evidence of injections out there, which we are very quickly approaching, we can then go to the insurance companies.

And our aim is to have the insurance companies tell the doctor that if you use the 1860 technology, you're not covered with the malpractice. That's our aim in this. And we believe that we have the scientific evidence and the clinical evidence to back that up.

So it's a matter of time. I don't believe we're looking at a year, but I don't believe we're looking at a month either.

Great. It will be very exciting to start seeing those first sales. I think that's such an important inflection point for the company, and obviously, its valuation.

On that line, my last question is, the strategic review that you guys or committee that you put together several months ago, are you happy with whatever progress or whatever activities you're working on there?

And is there a time frame in which you think shareholders might expect an update on that?

I would love to give a time frame. We are aggressively working on that. I will say that it is our strategic plan at Milestone, not to develop every single market for 100 products, wherever we end up with, but to have either a situation where we have a joint venture, where we license it or sell outright the technology for a particular area of drug delivery.

So I can't give a specific time frame, but we are aggressively working in that area. And we always announce as we do when we are awarded, we don't announce when we file for a patent, we announced when it's awarded, and it's the same thing in this situation.

So I can't give a specific update regarding where we are in the process, but I can say that we're being very aggressive in that area.

(Operator Instructions) And at this time, there are no further phone questions.

Okay. I'd like to thank everyone for joining the call. Any questions, I would suggest calling IR, David Waldman and Natalya Rudman. Thank you once again. And as things develop, we will put out our announcements as always. Thanks again for joining the call. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.