Milestone Scientific Inc (MLSS) 2020 Q2 法說會逐字稿

Greetings. Welcome to Milestone Scientific Second Quarter 2020 Conference Call.

(Operator Instructions)

Please note, this conference is being recorded. At this time, I'll now turn the conference over to David Waldman with Investor Relations. David, you may now begin.

Good morning, everyone, and thank you for joining Milestone Scientific's Second Quarter 2020 Financial Results Conference Call. On the call with us today are Len Osser, Interim Chief Executive Officer; Arjan Haverhals, Chief Executive Officer of Wand Dental, Inc.; and Joseph D'Agostino, Chief Financial Officer.

The company issued a press release today, Monday, August 17, containing second quarter 2020 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, 2020.

Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding 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 economic, competitive and market conditions and future business decisions, all of which are difficult 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 on Form 10-K for the year ended December 31, 2019, and Milestone's report on Form 10-Q for the second quarter ended June 30, 2020.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, August 17, 2020. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that, we'll now turn the call over to Len Osser, interim CEO. Please go ahead, Len.

Good morning. Good morning, David. Thank you, and thank everyone for joining us on the call today. We continue to advance our commercial efforts around the CompuFlo Epidural System. Although we experienced temporary setbacks due to the COVID-19, with hospitals on complete lockdown, I am pleased to report our sales and business development pipeline is expanding. Importantly, we are in late-stage discussions with a number of premier hospitals in the United States.

Moreover, the CathCheck technology has resonated well with hospitals, given its ability to significantly minimize anesthesiologists' time by providing very quick information regarding pain management. CathCheck's added capability makes CompuFlo the first and only commercially available instrument that can identify the presence of a pressure waveform signal that can be used to confirm the proper placement of a catheter, and this can be accomplished in an objective way in minutes as opposed to using the conventional subjective method taking up to 20 to 40 minutes. Using CathCheck, physicians and nurses can not only determine what is the objective pressure at the tip of the needle, but can now monitor the presence or absence of a pulsatile waveform to determine the placement of a catheter. Importantly, this capability saves time and money and provides better patient care.

Looking ahead, we are more encouraged by the outlook for the business than at any point during the company's history. We have successfully trialed our CompuFlo Epidural System in multiple hospitals. And we are now working with doctors and VAT Committees in the respective hospitals. Most importantly, the product is now proven in terms of safety, efficacy, and very importantly, economics. For these reasons, we are confident as ever that our technology will become the new standard of care. And believe that our company is well positioned for a broad commercial rollout of our CompuFlo Epidural System.

Turning to our Dental division, the global pandemic has had a negative impact on revenue for the second quarter due to industry-wide reduced hours and closings of dental offices throughout the country and the rest of the world. The quarter was a disaster for us and the industry. Nevertheless, we are encouraged by the steady reopening of dental practices in the U.S. to some degree, but a large degree in Europe. And the order flow this month has shown a turnaround for us.

In the meantime, we have utilized this period to significantly enhance our marketing activities, to better educate dentists on how The Wand can help dentists rebuild their practice by providing a safer and more pleasant environment for the patients and staff.

With the recent appointment of Arjan Haverhals as Chief Executive Officer of Wand Dental, Inc. We are enhancing the sales and marketing activities around our dental instrument and are exploring new collaborations and distribution opportunities.

At this point, I'd like to turn the call over to Arjan to describe the sales and marketing activities around The Wand instrument in more detail. Please go ahead, Arjan.

Thank you, Len. First, let me state how excited I am to join Milestone at this exciting time. Despite the temporary impact of the current pandemic, I'm confident that the Epidural Instrument will become standard of care, and there are similar potential for this technology across a wide range of indications.

As Len previously commented, a lot of my initial focus has been on revamping sales and marketing activities around our dental instruments. We are adding more resources, including a more focused international effort and educational activities to build awareness in the marketplace. As an example, we are reaching out to members of the Academy of General Dentistry to highlight the clinical benefits of The Wand Anesthesia System, which can improve the safety of dental procedures for the patients and staff during the COVID-19 pandemic.

Patients are concerned about exposure potential to viruses and infection control more than ever. The advantage of The Wand anesthesia system is that the anesthesia is delivered through a sterile disposable for single-use, which adds peace of mind to the patient with the potential of decreased exposure risk.

The key element of this strategy is to educate the dentists in terms of safety, efficacy and economics. We are educating dentists on how The Wand anesthesia system can not only help in their daily activities but also play a role in getting their business back to normal levels by fostering a safe environment for patients. We also changed the value proposition of our dental product from purely clinical to more business driven in order to prove that our dental products can help keep patients coming back.

As an example, it's estimated that over 40 million Americans are dental phobic and avoid going to dentists because of the anxiety or fear that they experience. Let's assume a dental practice has 1,000 patients. It is widely reported that approximately 25% of second appointments are canceled out of fear. Therefore, it would be reasonable to assume that with our Wand Instrument, a dental practice could be able to capture up to $200,000 per year, bringing those patients back into the practice by using our product, thereby, reducing or eliminating their fear.

So as we sit today, we are gradually seeing improved uptake in the United States, and markets are slowly opening across Europe, although not yet at the level they used to be. Most important, we are not sitting around and being reactive. Our team is working aggressively to exploit every opportunity possible and believe we will be very well positioned as the pandemic eventually subsides.

Turning to our medical instrument for just a moment. As Len mentioned, we are trialing our CompuFlo Epidural System in multiple hospitals and medical schools, placing the system with key opinion leaders and working with some of the top anesthesiologists in the United States and Europe. In Europe, we are targeting hospitals in Italy, Germany, France, Denmark, Switzerland and Sweden and other countries, and we are pleased with the feedback we've received. In the United States, we are in late-stage discussions with a number of leading hospitals and will provide further updates as soon as we are at liberty to do so.

At this point, I'd like to turn the call over to our CFO, Joseph D'Agostino to go over the financials in detail. Please go ahead, Joseph.

Thank you, Arjan. Revenue for the 3 months ended June 30, 2020, was $167,000 versus $2.2 million for the second quarter of 2019. Dental revenues decreased by approximately $2.1 million due to the impact of the COVID-19 pandemic on the company's customers, suppliers, vendors and other business partners. Medical revenues for the 3 months ended June 30, 2020, and June 30, 2019, were nominal, reflecting our strategy to place the issuance with KOLs at no cost to drive awareness and then adoption of the instrument.

Gross profit for the second quarter ended June 30, 2020, was approximately $112,000 or 67% of revenues versus approximately $1.5 million or 68% of revenue for the second quarter ended June 30, 2019. Operating loss for the 3 months ended June 30, 2020, was approximately $1.3 million versus approximately $1.1 million for the quarter ended June 30, 2019. The increase in loss is the result of decreased revenue from the Dental business.

Net loss for the 3 months ended June 30, 2020, was approximately $3.1 million or $0.06 per share versus a net loss of $1 million or $0.02 per share in the prior period.

Now I'd like to turn our attention to liquidity and capital resources. As of June 30, 2020, the company had cash and cash equivalents of $16.6 million to compare to cash and cash equivalents of $2.3 million as of December 30, 2019. As of June 30, 2020, total assets were approximately $19.9 million and working capital was $16.5 million.

Revenue for the 6 months ended June 30, 2020, was $1.9 million versus $4.1 million for the 6 months ended June 30, 2019. Dental revenues decreased by approximately $2.1 million, which is related to the decrease in the sales of handpieces and devices throughout the country and internationally due to the COVID-19 pandemic.

Gross profit for the 6 months of 2020 was $1.3 million or 71% of revenue versus 2.8% or 68% of revenue for the first 6 months of 2019. Operating loss for the first 6 months of 2020 was approximately $4.7 million versus approximately $1.9 million for the first 6 months of 2019. This increase in loss is a direct result of our decrease in dental revenues. Net loss for the 6 months ended 2020 was $4.7 million or $0.09 per share versus a net loss of $1.8 million or $0.04 per share for the comparable period in 2019.

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

Thank you, Joseph. We remain encouraged by the outlook for the business and especially the market potential for the CompuFlo Epidural Instrument for a variety of epidural procedures and other medical applications. However, our initial focus is on the labor and delivery market. We believe that our technology has the potential to transform the industry and ultimately become the standard of care.

Given the uncertainty in the market, we took the opportunity this past quarter to raise capital. As of June 30, 2020, we had cash and cash equivalents of $16.6 million. We believe the strength of our balance sheet provides a substantial runway to help mitigate the risk related to COVID-19 as well as provide additional resources to accelerate our sales and marketing activities around the CompuFlo Epidural System and The Wand Instrument. Moreover, we now plan to resume development and commercialization of other indications for our proprietary DPS Dynamic Pressure Sensing technology. We believe this technology platform is quite broad with multiple indications in large and underserved markets.

Let me be clear. We did not intend nor did we want to raise this capital. But given the uncertainty presented by the pandemic, it was the prudent thing to do to protect the company and our shareholders. Not knowing how long the pandemic will persist and the effect that, that will have on the overall economy caused us to raise this capital. We are committed to driving shareholder value and look forward to providing further updates as developments unfold.

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) First question is from the line of Anthony Vendetti with Maxim.

So welcome aboard, Arjan.

Thank you, Anthony.

So I wanted to just talk a little bit first about Dental, and then we can move to the medical side. I think you said dental offices are beginning to reopen this month. Obviously, we're in mid-August here. What about July? Did you see a slowly -- a reopening starting July that's continuing into August and getting better in August? Or did it not -- the reopening really not start in any meaningful way until August?

Let me answer your question. The reopening, what we see is beginning to start and going back to, let's say, closer to normal levels, of course, at reduced activities, but definitely for the month of August.

Okay. That's helpful. And then in terms of the Medical business, you mentioned that the sales pipeline is developing. The interest level has increased and you're trialing it in multiple hospitals in the U.S. as well as multiple countries in Europe. As that trial is going on, and I know you have an agreement with GPO, how are the negotiations going with the actual hospitals and the GPO about actually purchasing? Or has that really been severely limited by COVID-19, and right now, it's just -- it's just more of a pipeline of interest?

Well, everything has been limited around the world and particularly in the United States, given the fact that we've lagged significantly compared to other western countries. Certain areas opened up, which gave us an opportunity to go into those areas. One was Florida, one was Texas. They obviously have opened up too soon and have closed down again. But we've made headway there with some news -- we've hired a couple of new salespeople. We now have 3 sales people reporting to our Head of Sales in the United States. Fortunately, New York State has done very, very well in flattening the curve. So we're putting a lot of attention into New York State at the moment.

The problem at the moment because of COVID-19 is both the doctors and the staff and the VAT committees are totally engulfed because of COVID-19. Hospitals, however, have opened up in New York State, so we're taking advantage of that and moving wherever the opportunity lies. So to answer as best as I can, the funnel, because of what I just mentioned, both with new salespeople, additional salespeople and with New York state opening, has increased dramatically. So we're moving much closer to having the product in hospitals, but the attention right now is on COVID-19. So I cannot predict when we will start closing hospitals, but we are at the end of the process. And I can say that both the Epidural Product and the CathCheck product are very, very well received by the doctors and the staff. Does that answer your question, Anthony?

Yes. No, that's very helpful. Just a follow-up, though, on it. So assuming you get an actual trial and they go through the process of saying, okay, we agree this is significantly better than the current standard of care. What do you anticipate, in a normal environment, the sales cycle to be once you make contact with the hospital and trial it? Is this a 3- to 6-month process, a 6- to 12-month process in terms of being able to close it? And maybe relate that to the Dental, what's the general sales cycle there? And do you expect it to be around the same or a little bit longer on the Medical side?

Well, the Medical, traditionally, to get a product to a very high level of acceptance is 1.5 to 3 years. However, we've been doing this for 1.5 years. So we're at a point now where the product has been accepted by the vast majority of anesthesiologists that have tried it. We've already piloted it in many different hospitals successfully. So we are now waiting with a number of hospitals so that the VAT committee approves the purchase of the product. We are selling disposables to some hospitals as they continue to use it, having finalized the pilot. So what's keeping us from actually making arrangements with hospitals where they use our product exclusively to replace the hypodermic syringe is the VAT committees because of COVID-19 and the enormity of the expenses because of the pandemic. So that's the problem at the moment.

Being that the both products, both the CathCheck and the Epidural, are working as they are supposed to, and it's obvious to the doctors, the answer to part of your question is 8 months ago we would have been in many hospitals. We wouldn't be having this conversation today. We'd be having a very different conversation if not for the pandemic. We would've, at this point, I believe, and our Head of Sales, Eric Gilbert, believes that we have -- we would've been in quite a number of hospitals at this point, especially given the economic study that has been released with the enormity of savings with using our product.

As you noticed, unfortunately, in New York, we've yet again had the death of a young woman probably because of the epidural. All these things can be avoided by using our product, including the other less significant morbidities. So I think it's quite obvious what we can do in replacing 1860 technology with a technique that was developed in the 1920s. It's a matter now of where the VAT committees are spending money, and the fear that the VAT committees don't know how long the virus will be with us and what that cost will be.

So this is our problem at the moment. And this is why we raised the capital that we raised because we are not aware, nor is anyone else, with how long the virus will be with us. Nor the underlying economic effects.

Understood, Len. Yes. That's very helpful. On the CathCheck, if you could just clarify for us, and for the investors, that was just a -- it's using the same CompuFlo system. It's just checking now to make sure that catheter is properly placed or hasn't been displaced. And so that doesn't require any type of 510(k) clearance, you just had to put a letter to your file, correct?

Yes, you're exactly correct. What the CathCheck does, keeping in mind that the anesthesiologists have told us in many cases, and that's why we had to redo the disposable, that they work in seconds, not minutes. So time is of the essence in labor and delivery with anesthesiologists. So one of the major problems that they have is when the catheter is left in for pain management for the epidural after the needle is removed, the woman is going through labor, the woman is now placed on a gurney, moved to another room. Once again, placed on a gurney, moved to the other room with the end of the catheter tubing taped to her back. They then place that tubing in a pump and they pump in pain medication. If the woman is still experiencing pain an hour, 2, 3 hours when the anesthesiologist, a different anesthesiologist is doing the rounds, there can only be 2 reasons: one is that there's not enough medication; the other is that with all the movement, the catheter has become dislodged and the medication is being deposited in the wrong location, if you will.

In order to determine this, the procedure calls for the anesthesiologist to pump in a bolus, a large amount of anesthetic solution, to see whether the amount of the solution is not enough to mitigate the pain. They wait 20 to 40 minutes to see if the woman now has the pain mitigated. That is a very long period of time for the doctors, the nurses, but particularly for the woman that's in pain. What we can do is because of our location ability, given our ability to read the heart rate, if you will, the pulse wave, we can tell in a very short period of time, within a minute, within 2 minutes, whether depending on if it's a dry or wet epidural. So we've reduced that time from perhaps 40 minutes to a minute or 2 minutes. That is enormous. And it's definitive. It's conclusive. So they know immediately whether to increase the dosage or to do another epidural and replace that catheter. That's why that is so very important.

(Operator Instructions)

Our next question is from the line of Jim Dowling with Jefferies Capital.

You referenced additional uses for your technology. Could you just give us a sense of what those additional uses are?

Sure. Well, there are enormous applications because whatever the hypodermic syringe can do, we can do. Now naturally, we're not going to do vaccines, but any subcutaneous injection we could do. So if you look at -- we have entered the labor and delivery first because of the very high morbidity rate. I'm speaking now of morbidity, not mortality. It's 4.5% to 5% in labor and delivery. However, labor and delivery is a relatively small market compared to pain management with epidurals. We can do that as well. Also epidurals are used for operations of short duration, even under general anesthesia. So we can do that as well.

BOTOX is another area. BOTOX is pay per play, very expensive, and the fallout for people that want to use the BOTOX for cosmetic purposes is due to the excruciating pain of injecting into the nose, the eyelid, so on and so forth. So we have an instrument that we can use for that. Now we haven't pursued that because we were husbanding the capital for the epidural. Now that we've raised the capital, we're looking into pursuing that as well. Intra-articular injections are a much, much bigger market, and that's for osteoarthritis. When you're placing hyaluronic acid because the synovial fluid has dissipated in the joint, the synovial fluid is not replaced by the body. So the procedure calls for approximately 7 years of continuing the patient with injections 3 to 4 times a year with hyaluronic acid or another drug, which will replace this synovial fluid, and it does that very well. Eventually, the patient would have a joint replacement.

So in one instance, you can't do that in the small joints, the fingers and the hands because it's excruciatingly painful. And in the other instances, in the large joint, the problem is finding the right location because when you're delivering a drug, for example, the epidural and the woman is in pain, the indication that you haven't placed in the correct spot, the catheter, is the fact that the woman is in pain, the woman is telling you that. When you inject in other areas unrelated to pain, you don't really know if you've injected in the right spot, possibly for weeks, whether it's not a systemic like chemotherapy, but a drug going to a specific location.

What we could do because of our multiple areas of finding the spot, one being pressure force feedback, the other is the pulse wave, we can assure the physician or nurse in real time whether they're delivering the drug in the real spot. So the answer is anywhere where you want to significantly reduce or eliminate the pain of the injection or be assured that you're delivering the drug in the proper location. So the potential markets are enormous.

Thank you. At this time, we've reached the end of our question-and-answer session. I'll turn the call back to management for closing remarks.

Okay. Thank you very much for attending this call. We are continuing to husband our capital to work diligently to both bring our dental product and our epidural product commercially to market even in this situation. And we are also looking at development of other products based on our underlying technology, keeping in mind that recent patent was issued over the last few months, which gives us another 20 years of patent life on pulse wave, which is obviously very important to the company. And we keep, of course, as a research and development company, continuing to leapfrog ourselves.

So stay healthy. Thank you very much, and we will keep the market informed as we progress. All the best.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.