Motus GI Holdings Inc (MOTS) 2019 Q4 法說會逐字稿

Greetings and welcome to Motus GI's fourth quarter and fiscal year 2019 earnings call. At this time, all participants are in a listen only mode. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Arndt of LifeSci Advisors. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us for the Motus GI fourth quarter 2019 update call today. Representing the company are Tim Moran, Chief Executive Officer; Andrew Taylor, Chief Financial Officer; and Mark Pomeranz, President and Chief Operating Officer of Motus GI.

Before turning the call over to management for their opening remarks, I would like to take a minute to remind you that this conference call and webcast will contain 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 an 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 in 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 Forms 10-Q and 8-K filed with the SEC.

I would now like to turn the call over to Tim Moran, CEO of Motus GI. Tim?

Thank you, Paul, and good afternoon, everyone. Thank you for joining us today for our Q4 2019 earnings call. I would like to start by providing a business update before turning the call over to Andrew to review our financial results for the fourth quarter. At the end of our prepared remarks, we will open up the call for a Q&A session.

My business update today will focus on three key points. First, there remains a substantial unmet need and large market opportunity for the Pure-Vu System, and we are focused on what we believe to be the right initial segment, critical inpatient colonoscopy.

Second, we are making solid progress with the initial stage of our commercial launch in the US, with the Pure-Vu System being placed in a number of leading hospitals that we intend to make our key reference centers to support future commercial expansion.

And third, the current COVID-19 crisis has created an unprecedented new reality in the healthcare and broader financial markets. And we are responding by significantly streamlining our organization and reducing overhead costs it more efficiently manage our capital resources. I will elaborate on each of these key points.

In the fourth quarter of 2019, we launched the initial stage of our commercial program for the Pure-Vu system in the US. This marks a key inflection point for our business, and I am pleased by the early success we are seeing as we bring our revolutionary new technology to the market. We expect the Pure-Vu system can have a significant positive impact on patient care in the multi-billion dollar colonoscopy market as awareness of its capabilities grow throughout the medical community.

In order to optimize our initial commercial focus, we completed an extensive market assessment and enacted a clear go-to-market strategy. We weighed several factors, including clinical need, economic benefit, and reimbursement, that ultimately focused our efforts on hospital-based critical colonoscopy principally for emerging conditions such as lower GI bleeds, severe anemia, infection, or undiagnosed abdominal pain.

To offer greater context, let me share a few key statistics. There are an estimated 1.5 million inpatient colonoscopies performed each year in US hospitals. These are not elective nor are they screening procedures, but procedures that typically require immediate diagnosis. In terms of the significant unmet needs, a new study conducted at the Cleveland Clinic that was published in 2019 demonstrated that 51% of the approximately 9,000 patients included in this study experienced inadequate bowel prep prior to their inpatient colonoscopy. To address this universal unmet need, we've designed our Pure-Vu System to allow the GI position to rapidly and safely cleanse the colon during the colonoscopy procedure, thereby eliminating costly delays.

The execution of our commercial strategy supports building brand awareness among leading physicians and hospitals, generating physician-to-physician dialogue, and validating Pure-Vu as a critical tool in hospital GI programs. We are focused on being at the right centers with the right physician, and making sure we are providing the appropriate training so Pure-Vu is utilized for the right clinical scenarios and use cases.

During our third quarter call, I set clear objectives for the fourth quarter, including expand our sales pipeline and backlog of target hospitals, gain product evaluation with the national and regional hospital network, work through the value analysis committee for back-purchasing process, and begin to build further awareness of Pure-Vu in the market. I am pleased to share that we are executing against each of these objectives.

Since our launch in October 2019, we've now placed the Pure-Vu system in more than 15 major hospitals, including several of the top ranked GA centers in the United States. These include prominent hospital systems such as the Cleveland Clinic, UCLA, the University of Texas, USC, and Geisinger Medical Center.

Each of these initial hospitals are moving through the sales process as expected. Based on our current experience, timing to complete the entire sales process is ranging from approximately four to six months, or possibly longer depending on the complexity of the institution. I would think about this group of hospitals as each progressing through the various stages of the continuum towards purchase, including one, the product is on site and currently in evaluation, two, the evaluation is complete and now pending final value analysis committee approval begin purchasing, or three, the value analysis committee has approved purchase and the hospital is now purchasing the Pure-Vu disposable fleet on a repeat basis.

Additionally, although early in our launch, we are encouraged by the fact that we have been approved for evaluation in all of our targeted hospitals, and also have not been rejected by a single value analysis committee in the hospitals that have submitted for approval.

As it relates to the capital purchase of our Pure-Vu workstation, we are working with our hospital customers around their internal capital budget cycle, which can vary widely by institutions. As I mentioned previously, we are offering a simple lease 4 monthly rental program as alternatives to outright purchase of the workstation. That said, we are not delaying hospital conversions while we work through the capital purchase process. The long-term success of our business model is built on driving repeat utilization of the Pure-Vu system, which ultimately drives repeat purchases of our disposable fleet.

In addition to our initial hospital placements, our sales team has established a strong pipeline of scheduled evaluation. Of particular note, our upcoming evaluation at the Mayo Clinic, NYU, and Northwestern University Medical Center, three prominent GI hospitals.

I want to remind everyone that we are employing a thoughtful and strategic approach at each and every hospital where Pure-Vu is being evaluated, ensuring we have well-trained and satisfied customers is critical to our success. We do not see this as a numbers game in terms of rushing to as many hospitals as we can for placements. It's all about driving utilization at these initial hospitals, which includes the repeat sale of our disposable Pure-Vu sleeves. Our goal is to establish key reference centers, which will become essential component of our long-term growth. Creating this strong foundation is a critical first step to building this market and sustainable growth over time.

In terms of driving utilization. Our strategy is to target 2 to 3 GIs per hospital initially, and then upon approval, expand to additional physicians on a monthly basis. To that end, I am pleased to report that in Q4, we trained more than 50 GIs on the Pure-Vu system. More importantly, our earliest sites have now moved from the initial 2 to 3 GIs to upwards of 10 GIs using the Pure-Vu system. We believe that these are positive early signs that our strategy is working. For modeling purposes, we expect customers over time to initially ramp up to approximately 5 to 10 Pure-Vu System procedures per month.

I want to share a few additional commercial and product related updates.

First, let me share the story of remarkable procedure that was conducted this past quarter using the Pure-Vu system. A 52 year old male was admitted to the intensive care unit with hemorrhagic shock caused by post polyp [activity] bleeding. In order to manage this critical situation, the physician chose to utilize Pure-Vu without any pre-procedural bowel prep in order to expedite the [case].

The procedure was conducted at the bedside in the intensive care unit. Upon entering the colon, use of the colonic mucosa were obstructed by blood, at which time the physician utilized Pure-Vu, which he indicated worked perfectly, allowing for excellent visualization. As a result, he was able to identify the source of the bleed and therapeutically treat the patients.

The physician's conclusion was that the Pure-Vu System help stop a massive lower GI bleed, and avoid the extra time associated with bowel prep, as well as the need for angiography. The patient was transferred out of the ICU in less than 10 hours after presenting in the emergency room. This is the value that we believe Pure-Vu brings to the market. We continue to be encouraged to see these real-world use cases where our system enables the physician to perform critical therapeutic intervention.

Next from a product development and market expansion perspective, I have two updates that I'd like to provide. First, we announced last week that we received CE Mark approval for the generation Pure-Vu system. This approval means that the system and disposable sleeve meet all of the regulatory, safety, and performance requirements for it to be commercially launched in Europe. This is a significant opportunity as we estimate there are approximately 1.2 million inpatient colonoscopy is conducted in Europe annually, making it one of the largest potential markets for our system.

Receiving the CE mark is an important milestone in our commercialization strategy for Europe. With this approval in hand, we are now able to further assess potential strategic partnership opportunities. We've established medical device companies and distributors that have commercial operations in place across Europe.

Next, we are seeing a very compelling new opportunity develop as it relates to the potential future use of our Pure-Vu core technology. Multiple physicians that are using the Pure-Vu in lower GI colonoscopy have repeatedly inquired about using our system during upper GI endoscopy. Upper GI bleeds, which occur in the oesophagus and stomach, occur at a rate of approximately 400,000 cases per year in the United States. The mortality rate of this condition is upwards of 10%. Removing an (inaudible) blood clot from the field of view is a significant need in terms of allowing the physician the ability to find and treat the bleeds.

We believe we can potentially adapt the safe and effective cleaning capabilities of the Pure-Vu system for use during upper GI bleed cases. We are actively exploring the market product requirements and the regulatory pathway. While we are early in our exploration, we believe this could be an opportunity to leverage our existing sales team and physician relationships. We will provide additional updates as we continue our work in this area.

Finally, I want to address the impact of the COVID-19 pandemic on Motus GI, as well as the proactive and aggressive response we are implementing allow us to continue to execute on our business plan, extend our cash runway, and build long-term shareholder value. While the majority of all hospitals have implemented rules that prohibit nonessential visitors, including our sales team, we have maintained continuous contact with customers. Through the use of technology, I am pleased to say that we successfully supported several Pure-Vu enabled colonoscopies remotely. Additionally, we also built appropriate inventory of both workstations and disposable sleeves to support our customers for the next several months, and our manufacturing partners continue to be fully operational.

In the near-term, we do expect this situation will cause a disruption in the flow of inpatient colonoscopies, as hospitals push resources for treating COVID-19 patients. We anticipate device placements at new hospitals could be limited, and the advancement of Value Analysis Committee reviews may likely be postponed on a near-term basis as hospital purchase decisions are put on hold.

While this disruption persists, we recognize it will have an impact on our ability to begin new scheduled evaluation in our pipeline. That said, it is important to remember that we believe the utilization of the Pure-Vu system provides the means to complete inpatient colonoscopies more predictably, allowing hospital patients to be discharged more quickly.

The valuable role Pure-Vu can play aside, we are taking decisive action based on the assumption that the current market environment and unprecedented circumstances taking place in hospitals across the US will impact our business plan. After careful consideration, I am announcing today a plan that we will execute upon immediately with expected completion by the end of the second quarter. This plan will allow us to continue to successfully execute our commercial strategy by driving our technology into the large national and regional influencer hospital, significantly extend our financial runway by reducing operational expenses through a material reduction in departmental and project related spending.

This program is expected to reduce our 2020 internally forecasted cash burn by approximately 50%. We will make material labor and non-labor related expense reductions in both our Israel and US operations. We will also be reducing headcount by approximately 50%, with reductions across all departments, including a significant reduction in our sales and marketing organization.

These are very difficult decisions, but also necessary to ensure that we protect our business, our customers, and our shareholders. By reducing our cash burn and extending our runway, we believe we will gain the time needed for our hospital customers to come back online, helping us to continue to build a foothold with Pure-Vu in this very large market.

While our organization will be leaner, our commercial focus, developing reference centers at major national and regional influencer hospitals, will not change. We will continue to focus on driving demand generation and Pure-Vu procedural volume, which is our top priority. The more experienced a physician gets with Pure-Vu, and the more clinical cases that they're exposed to, the better they are able to see the true value of our technology.

In addition, we will strategically work through our pipeline of targets, and seek to complete the sales process in accounts where we are already engaged. The key metrics we'll be monitoring closely will be back approvals, fleet utilization, and the number of physician trained and performing repeat procedures.

Finally, as we look ahead, we believe this approach will enable us to continue to build the necessary foundation of accounts and validation of our technology to allow for an array of strategic alternatives over time.

I will now turn the call over to Andrew to discuss our fourth quarter financials. Andrew?

Thank you, Tim, and thank you, everyone, for joining us today. We reported revenue for the fourth quarter of approximately $100,000 from sales related to the Pure-Vu system, which first became available for sale in October 2019. As Tim mentioned earlier, we continue to gain new system placements at leading hospitals across the US in our ramping up the training of GI. However, the majority of these centers were operating under an evaluation period and working through the elements of the hospital back purchase process at year end.

For the three months ended December 31, 2019, we reported a net loss of approximately $5.9 million, or a net loss per diluted share of $0.21, compared to $5.6 million or a net loss per diluted share of $0.34 for the same period last year. The fourth quarter of 2019 included non-cash expenses of approximately $727,000, principally related to stock-based compensation, compared to $623,000 of non-cash expenses for the same period of 2018.

For the year ended December 31, 2019, we reported a net loss of approximately $23.1 million, or a net loss per diluted share of $0.92, compared to $22.3 million or a net loss per diluted share of $1.47 for the same period last year.

The year ended December 31, 2019, included noncash expenses of approximately $3.6 million, principally related to stock-based compensation, compared to $6.8 million of non-cash expenses, principally related to stock-based compensation and warrants expense for 2018.

During the quarter, we entered into an $8 million secured term loan with Silicon Valley Bank. The term loan requires monthly interest-only payments through December 31, 2021, followed by monthly payments of principal and interest until December 1, 2023. Additional material terms related to the loan can be found in our 8-K filed with the Securities and Exchange Commission.

We reported approximately $28.7 million in cash, cash equivalents, and investments as of December 31, 2019. As Tim noted, we are taking important strategic action across the organization to reduce costs with minimal impact to our commercial business objectives. This plan is expected to be implemented during the second quarter, with our new normalized quarterly cash burn taking effect as of the beginning of the third quarter, which is anticipated to be approximately 50% less than our previously internally forecasted rate. Once this cost reduction plan is in place, we believe our cash, cash equivalents, and investments will be sufficient to ensure compliance with our Silicon Valley Bank liquidity covenants into late fourth quarter 2020, and meet our anticipated cash requirements into 2021.

And with that, I'll now turn the call back over to Tim.

Thank you, Andrew. I want to conclude where I began my business update, reiterating three key takeaways. There remains a substantial unmet need and large market opportunity for the Pure-Vu systems. We are making solid progress with the initial stage of our commercial launch in the US, and we are responding to the current COVID-19 crisis by streamlining our organization and overhead costs to more efficiently manage our capital resources.

In closing, we are receiving positive response from GIs at some of the leading hospitals in the world. We believe that this speaks volumes about the opportunity for the Pure-Vu system in the market. We remain bullish about the compelling technology we've created, our substantial first mover advantage, and the significant positive impact we can have in terms of improved patient care, health economics, and hospital resource utilization. We believe these metrics have become even more critical with the COVID-19 pandemic. While we are faced with an unprecedented external situation that requires immediate intervention and leadership, we are acting with urgency to adapt to the circumstances while remaining steadfast in our commitment towards creating long-term shareholder value.

I would now like to open up the call for questions. Operator?

Thank you. At this time we'll be conducting a question and answer session. (Operator Instructions)

Matthew O'Brien, Piper Jaffray.

Afternoon. Thanks so much for taking my questions. Tim, just for starters, the Q4 result was [good]. I think we were expecting a little bit more. I know year-end capital purchases tend to be a little bit stronger, which just sounds like you got caught up in some back analyses and some other processes there. So can you talk about what were some of the gating [factors] that you saw in Q4 specifically as far as post placing Pure-Vu?

Yes. Thanks, Matt. You know, if I look down a hole at the work that we did in Q4, I would say that the progress we've made is really in line with what we see from the typical value analysis committee process and the internal processes that these hospitals go through to make final purchasing decisions. So there's always a handful of priorities that these hospitals are dealing with in addition to all of Motus GI and getting getting the approvals done.

So I would say there's nothing out of the ordinary, Matt. I feel like we've made very good progress. The earliest accounts that we started with back in October have been able to move through that process and call it roughly that 90 day period. And the others are now continuing and are getting close here to being across the goal line, if you will, and becoming full purchasing customers.

So really, the guidance that we gave around the sales process timing of roughly four to six months I think is pretty much nailing it in terms of accuracy. Some of the larger multi-hospital IDNs can be a little bit more complex from a bureaucracy perspective. But I think the way to think about this is probably four to six months roughly to kind of work through from the beginning of the process till ultimate purchase.

Okay. And those 50 hospitals that you've pointed out, you know, last quarter you were engaged with. I mean, again, it sounds like none of those have fallen off as far as being in the funnel.

No. it's a really good point actually. As a matter of fact, so we've had really none of them fall off of the funnel. And quite frankly, on the front end in terms of generating leads, we've been able to generate a backlog of leads well beyond what the size of our organization could could immediately follow up with. So from the standpoint of activity and account targets, the funnel has been built very nicely, Matt.

Okay. And then two more for me. First one is -- I don't know how much you want to actually get into this, but I think it might be helpful given how as far we are in the Q1 here. Just to talk or provide any kind of commentary that you can as far as how things are trending maybe in January, or would even want to go into February pre-COVID? Just to help us get a sense for the demand that you're seeing. I know it's kind of [a softer quarter for capital] but how things were trending before all this really broke out, because they're trying to get a sense for the demand side of things for Pure-Vu.

Yes, absolutely. So I would maybe give you a couple examples. So, as I said earlier, very pleased with the progress we're making. And we continue to set up new installations and evaluations in all of really the accounts that we've targeted and we feel are the right facilities to be in to build this foundational group of facilities that will become our reference site. So that has continued on track in January and February, and for the most part, even early part of March. And then obviously, given this situation, things came to a pretty abrupt halt as hospitals started to become overwhelmed with the current environment of COVID.

But what we've seen in those earliest accounts where we started with a couple of physicians, we've been able to expand that and multiply from, call it 2 to 3 docs to upwards of 10 or more, in some cases, 14 or 15 physicians that we've trained and have now done procedures. So when I look at that, to me, those are the metrics that you want to see happening in accounts that you've converted, have gotten approval, are buying the sleeves, and you've been able to expand to more docs. And what that's led to in those accounts is repeat orders. So, our intention now is to continue to focus on this group of accounts that are in the pipeline and get them all to that place. But really, leading into the COVID situation, everything was moving along as expected.

Okay. Thanks. And then last one for me is just on the financing side. So I just want to make sure I'm summing up everything, and then I'd love some comments as far as the go-forward strategy. But $28 million of cash exiting 2019, with the Silicon Valley Bank loan included in there, gets you through to the end of this year, roughly with enough cash to make sure that you don't have any covenants. I'm assuming SDB will be pretty calm pretty lenient as far as covenants go with you and everybody. And then you have enough cash to get you into it 2021, probably something like the first half. Is that fair?

And then more importantly, I'm sure you're not sitting sitting idly by. But can you -- you don't have to get into details, but just give us a sense of some of the options that you're potentially pursuing via strategic -- other options but you may be pursuing on the financing side to give investors confident that you'll be able to come through this and come out of it and then we can get back to the growth trajectory that we all think you'll deliver going forward? Thank you.

Sure. Thanks, Matt. So let me start by saying, you know, what we've announced today in terms of this cost reduction program. First of all, we felt -- as I said it, it was very critical that we were decisive and we took immediate action here and to make sure that we protect our business, our shareholders, our customers. Which is why you heard me lay out that plan.

And, you know, part of it is the current environment, as you know, with hospitals, obviously there's disruption. And there's a degree of uncertainty about when will things start to come back to any degree of normalcy. But the other part of that is the financial markets. And I think the way we're thinking about this is, we've now taken the action to give ourselves more time to gain that clarity and hopefully for the market to come back a bit and for us to be able to get right back on our trajectory in terms of the progress that we're making and be able to show the validation of Pure-Vu being utilized in these major centers, the types of facilities that I commented on earlier.

I think what that does is it allows us to continue to consider a variety of different strategic options. And I think those include -- and these are things that we've actively been discussing and working prior to COVID, and we'll continue moving forward. Obviously there's the potential for strategic partnerships. Not necessarily even financial but strategic partnerships for commercialization. And that could include, obviously, OUS territories. And that's an opportunity to potentially bring cash infusion into the company. And we'll continue to explore that. And I think this device is of interest to folks that we've been speaking with.

But then on the other side, you know, listen, we've shown that we can raise money in the equity market through our publicly marketed deals. But given where our stock is trading right now and given the current environment that is not a top priority for us as a leadership team or the Board. So we'll continue to engage with large potential financial partners as well, of which there are many that we've been speaking with that see the value of the market that we're building. I mean, we're the only one in the space. It's a multibillion dollar market. We've got an incredible technology. And an unmet need that quite frankly resonates in every hospital, small and large, and whatever geography, you're talking about the US or abroad.

So I think we'll continue to explore that and make the right decisions when the time comes. But it's important that the takeaway from this, is the reason we've acted so quickly is to allow us for the world to get back to a little bit more of a normal place and not be up against having to make a decision in the short run. So we'd like to think that we have kind of put the control back in our court to make those decisions down the road. I hope that helps, Matt.

Kyle Bauser, Dougherty & Company.

Hi, good evening. Thanks for taking the questions here. Just to follow up on a net finance question and just to be clear, I think the burn rate previously was about $6 million a quarter. And so, are we looking at, following the 50% reduction, about $3 million per quarter after we're able to complete this in this next month going forward?

Yes. So Kyle, that that's the right way to think about it. So obviously, we haven't put specific burn rate guidance out. But if you look at our history and what we've talked about for 2020, this will be approximately a 50% reduction off of what we were expecting the quarterly burn to be throughout 2020.

And to your last comment, yes, the plan is underway. We fully expect that this will be completed by the end of Q2. So when we come out of Q2, we will be looking at a new normalized run rate in Q3 in terms of cash burn.

Okay, got it. And can you highlight a little bit about what the departmental and projects related spending cuts encompass? And specifically, I know you mentioned there will be some cuts in sales and marketing. Are we still looking at 10 territories or are retrieving that back until things normalize in the market and then ramp it back up?

Yes. So listen, I mean, this decision to do this does not come easily. And a lot of time and careful thought was put into into doing this with both the leadership team and our Board. And you know, when we're faced with a -- really an unprecedented situation such as this pandemic, we had to take action. So as we looked at the departments, what we did is we went back to what's our strategy and what are the key priorities for this business that need to have happen. And the number one thing, by far, is continuing demand generation and validation of our technology in the market with Pure-Vu from a commercial perspective.

And what we've said for the last year is we believe that the first step in that process is getting this core group of large national regional influencer hospitals, the Cleveland Clinics of the world, as our customers and references. So as we went through the process of looking at the various reductions, we kept that as our guidepost in terms of making these decisions. So, things that -- without getting into granular detail, things that were, you know, not a key priority to allow us to do that are things that we're going to put on hold for now. But we don't believe it impacts the most important objective, which is validating the commercial viability and scalability of this business. Which then I think as we do that leads to a variety of different strategic options that we can take later in the year.

So specifically from a commercial perspective, what I want to comment on there is the way I would think about it is roughly about a 50% reduction in terms of the field facing organization. And part of the way we looked at that, Kyle, is, as I was saying earlier to Matt, we have been able to generate a significant pipeline of opportunities. So, the places that we can go is not something that we need to focus on right now. We've got a very, very large backlog of sites, of scheduled evaluations. So basically with a leaner team, we believe that we can still penetrate these large facilities. We've obviously are making decisions where we have the appropriate geographic coverage. The relationships in place with the key centers that are in the works already are already customers of ours, and where we can continue to expand. But I would think about it similarly across the departments in sales and marketing, roughly 50% reduction.

The other point I would make is, we think it's important that we take this decisive measure now. It allows us to pull our head up 90 days from now or 6 months from now. And if we need to add back in certain areas, we will absolutely do that. But we're confident this is absolutely the right decision for the current environment that we're working with and the uncertainty that is still out there with our customers.

Sure. I mean, COVID is unprecedented. I think the spending cuts is wise. Certainly, having $29 million on the balance sheet is enviable position for a small-cap medtech company early in commercialization. So I think that makes sense.

And maybe just one more. From your early commercial efforts in the US, can you talk a little bit more about when the docs are using GEN2, when they're deploying it? I mean, are there any trends you're seeing? Is it primarily in GI bleeds? Or is it in other conditions like colitis? And do you have a sense for how frequently these operators are utilizing Pure-Vu in their poorly prepped cases in general?

Yes, sure. So listen, broadly speaking, the value prop that we provide is the ability to control delays, right, and give predictability to the procedure that is clearly not a predictable procedure for hospitals. And I mentioned earlier that the new study that was done this past year at Cleveland Clinic again showed very similar numbers within their system, 51% of the patients that were poorly prepped after going through 24 hours clear liquid diet and bowel prep, right? So where Pure-Vu comes in is having the ability to impact that entire population.

That said, what I think resonates immediately is the ability to get after the most difficult clinical cases, which is absolutely GI bleeds, right? And GI bleeds make up about 60% of the procedures, what we're seeing in the real world and what we saw in our reduced study. So getting after a GI bleed immediately where you want to get in and get diagnosis, where if you don't get there quick enough, oftentimes it can clot over and then you can't identify the bleed, which obviously could potentially lead to a rebleed, something that you absolutely don't want to have occur. So I think the clinical conviction and the excitement comes around for these physicians comes around being able to treat a patient that they otherwise couldn't treat. And then as the device is on site and they get more comfortable more use with it, it starts to expand to more and more patients. But I would say that's probably the largest trend that we've seen.

And the other piece too is, we're really an enabling technology. So we're providing visualization, right? So there's so many different technologies that are now being introduced into medicine, but even into GI like artificial intelligence and other things that provide the ability to identify polyps more quickly. But the reality, is without a clean colon, none of those technologies are a benefit, right? So we've also been adding to our value prop to talk about it from that perspective is, we're able to enable is a better use of some of these other things that they've invested in.

Okay. Understood. That's helpful. Thanks for taking my questions and congrats on the progress, particularly given the unfortunate COVID situation.

Thanks very much, Kyle.

Steven Lichtman, Oppenheimer & Co.

Thank you. Hey, guys. Tim, you mentioned I think the word halt in terms of the current situation. You also mentioned, of course, that the procedures that you guys are focused on are not elective per se, but these are unprecedented times. So can you talk maybe a little bit more about sort of what you're seeing on the ground right now in terms of new hub -- how many or what proportion of procedures that you thought would have gotten done or are actually still getting done? Or any other color you can provide on that front?

Yes, sure, Steven. So listen, it's a bit of a moving target based on, you know, where the hospitals are. And obviously if you're in New York or Chicago and other parts of the country, things are a bit different. And I've been in contact with many of those GI physicians and getting their take. But there's a couple of things here. One, I do want to comment that GI bleed is not an elective procedure, obviously, right? But given the unprecedented situation and these hospitals being overrun, if they have the ability to delay, depending on the degree of the bleed.

I've talked to some of the physicians. They will actually delay the procedure if it can be delayed. Obviously, they're going to provide care as needed. But certainly any of the procedures that are being done in their hospital-based outpatient for the most part are not happening right now. We were picking up some of those procedures as well. So it's a bit of a mixed bag. But what we've been able to do, and I think it's really important, is virtually be able to support these accounts.

So we've had a GI bleed procedures where patient did need care and they're using the Pure-Vu system, and via a variety of different tools, Zoom, FaceTime, things like that, we've been able to support the physician or the staff and help them get through that procedure. So we've been really happy about that. And quite frankly, even before COVID, we've been thinking about, just from an efficiency perspective, how do we remotely provide support so we don't have to be there each and every time. And we've now, with the COVID situation, have accelerated some of our our planning there. So things like an app that would provide a very user friendly walk-through of setup of the device and know other tips and tricks and things like that. So we've accelerated that and we anticipate that the ability to launch something like that here pretty soon.

But right now, you know, it's really hard, Steve, to get a prediction on like what percentage of the cases are being done. I know if it's a critical GI bleed and they have to do it, they're doing it. But other than that, really most of the resources that we're hearing are being put towards COVID patients as you'd expect.

Sure. Understood.

And Tim, in one of your answers to prior questions, you were talking about the value proposition that physicians who have begun to use Pure-Vu are seeing and the breadth of uses. Just given that and the size of the [sites] you're targeting, it seems like the per month target -- I think you mentioned earlier -- I think you said 5 to 10 per month that we should be thinking about seem conservative to me. Can you talk a little bit about the assumptions going into that utilization?

Sure. Listen, the best way to think about this is, let's not forget that we've got a brand new technology that we've launched to the market, right? And despite the significant unmet need and how well the Pure-Vu system works and does everything that we expect and say that it does. it's all around change management. So part of the reason we've taken this approach of targeting just a couple docs at the outset to get approval based on their support and input is because we've got to get initially that buy-in and support. And then once the product's been approved, we then go to work towards expanding to other physicians.

But again, there's training -- there's training that has to happen. We've got to get folks to get out of the old mindset of doing things the way they've always done it. And change management is never easy. In my experience of over many, many years of commercializing devices, when you have something new, it takes time. So I think we've tried to be, you know, as conservative as possible, but as realistic as possible in the early quarters here. For all intents and purposes, we're about a quarter and a half if you look at COVID into this commercialization.

So as we get later in the year, Steve, we will absolutely update if those metrics are indeed too low. But right now, we think given the number of docs that we're training, and the fact that we're trying to be in there and ensure that they have a tremendous, high-quality experience and become proponents, and we have peer-to-peer dialogue, and they're up on the podium talking about Pure-Vu, we're putting the extra time in upfront to ensure that they're well-trained. So really that's the biggest reason why we've we put that number out there to start. Certainly over time, we anticipate that that number will grow given the number of procedures that these large sites are doing.

Okay. Understood. And then just lastly on data, any opportunities that you see now over the next 12 months to get additional data out? I know your expediting started late last year. Obviously, I assume that's on hold. But I didn't know enough patients enrolled to be able to show some data at some point? Anything you could talk to on that front would be helpful.

Yes, sure. So yes, I mean, in the very near-term, you know, I think just like all clinical studies, there's been a bit of a slowdown, if not stop. And I think expedite would fall into that realm. But we would expect, by the end of the year, we should be able to put out expedite data unless there's a delay longer than any of us are expecting. So that is one area.

There are other conversations that we're having. When we look at this reduction in spending, there will be some investment that we will continue to do as it relates to clinical programs. And these will be clinical programs that allow for commercialization to be bolstered. So there's some big systems in the US that we've been talking to, and I fully intend that we will go forward with some clinical work there, and that would be around economic validation in a real-world setting, and some of the other things that I think will be helpful to bolster things for us commercially later in the year. We'll provide more updates on timing of those once they're initiated.

I will ask Mark -- and as you know, Mark, as one of Mark's responsibilities, he heads up our clinical program. I will ask Mark to comment briefly on a few of the other things that we have underway as it relates to some publications that we would expect to be coming through here in the near-term. So Mark, could you add a bit of color for Steve's question?

Sure. Hi, Steve. Hope you're doing well. Just to add a little color to what Tim mentioned, we do look at that and we're in the works with a few publications on some data. So a more full detailed manuscript on the reduced study should be coming out. That's got some interesting sub-analysis that we think will help from a commercial standpoint. Also, we have some health economic data that will be -- also be published in the fairly near term as well. And to mention what Tim talked about about some studies, we're talking some of the major centers about as well, really looking at some of those critical patients, and really looking at those urgent bleed to get folks out of the ICU, especially in the current environment as quickly as possible. We think we've got some exciting things in the works around that as well.

Got it. Thanks, Mark. l̥Thank you, Tim.

Thanks.

Jeffrey Cohen, Ladenburg Thalmann.

Hi, Tim, Andrew, and Mark. How are you?

Hi, Jeff. Doing okay.

So, I was wondering, could you give a little further clarity, I guess, for Andrew as far as this reduction. Has any of that taken place this quarter in Q1 or would you expect that all to hit during Q2, including the $1 million to $1.5 million charge, at which point you'll have the temporary baseline [backdoor] in Q3?

Yes. Steve -- I'm sorry, Jeff, let me just make a quick comment and Andrew can add color if necessary.

So we are enacting this plan in real time. So this will be enacted here starting this week and will be taking place in Q2. So that's the way I would think about it. So Q2 will be the time that we will work through the entire plan, the costs associated with managing the changes, and then we come out of Q2 with that new reduced spend and normalized kind of run rate for Q3, if that's your question. Hopefully that answers it.

Yes, perfect. And then as far as placements, can you comment about the first quarter beyond the 15 referenced in the press release in totality by the end of last year?

Sure. Yes. So what I would just say, maybe clearly is, we continue to place more on devices in targeted accounts. And the way I would think about it is approaching 20 sites. And you know, obviously when things come back online, we will continue to work with those institutions. So we literally have sites that we shipped, went in, did complete staff and physician training, and then, you know, a week later, things got put on hold. So we anticipate -- we've been in contact with those facilities. We expect to get back on track once they get back to a bit of a normal cadence with things. So, things continued on in Q1 on plan.

Okay. Got it. And then lastly for me, could you talk a little bit -- I know Matt asked a bit about the backlog. As far as last quarter was, I believe, 50 or so facilities. And now you're talking about a pipeline more than double that. So what's the plan as the market kind of pauses for who knows how long? But pretty much the pipeline is more of an initial pipeline. That will be the first number targets that you approach when things kind of free up as far as the hospitals go?

Yes, I think that's a fair way to think about it, right. And the reality is, as I've said, we're going to have a reduced footprint. But we're very comfortable with the footprint that we're going to go with and the folks that will be leading these specific regions in terms of the accounts that they're working with that we're already in, and accounts that we'll be moving to when things come back online. But we will continue to take a hard look. Because at the end of the day, I think what's most important -- and I have said it many, many times about building this foundation of reference sites. The reality is, we want the major GI centers, the large national influencers, the big IDNs that I think carry both the name recognition, the physician recognition in terms of top leaders in the field. So we will make sure as we look at that pipeline that we are focused on the facilities that we feel will accomplish that for us.

I would say, as we look at the pipe, we feel like we've got a plenty, as I mentioned earlier, in the works. And now it's about continuing to get those those sites across the goal line and become purchasing customers. And that's exactly what we'll do. And we're taking this downtime to continue to engage with them. One thing I'm not sure I mentioned earlier, but it's really important to remember about Pure-Vu, is the value proposition. The black-and-white value proposition of this device is we are able to help hospitals get patients out of the hospital or out of an intensive care unit more quickly, right?

And if you think about what they're dealing with now with the pandemic, it may be hard to focus on a new technology. But we believe that pandemic brings -- shining even brighter light on the investments that need to be made to ensure they're running as efficient approach as possible and we don't have how many patients in beds longer than they need to be. So that's something that I think we really need to be focused on when we come out of this. It's absolutely a tremendous benefit and COVID is really pointing that out. Patients need to not be in a bed when when there's a device that gets them out more quickly.

I would concur with them, and kudos on the pause as we deal with this pandemic. Thanks for taking the questions.

Thanks. Thanks very much.

Ben Haynor, Alliance Global Partners.

Good afternoon, gentlemen. Thanks for taking my questions.

First off for me, you mentioned you've got over 50 docs trained now at over 15 hospitals. Is that as of the end of 2019 if I understanding that correctly? Or is that as of today?

Now that's at the end of Q4. So we've continued to train more docs in the early part of Q1, Ben. So, if you do the math on that, obviously, you know, it's right in that target of the number of physicians that we'd expect at each facility. And with the others growing to now sites, as I mentioned earlier, that started with, you know, one or two or three, and now we're doing and having more physicians trained. (multiple speakers) That's the logic that we will continue to focus on as well as. Getting experience and giving these physicians experience with the device. What we found is, when they start to do five, six, seven procedures, that's when they really see the value in the clinical use case across a number of patients of the device. So that's an absolute focus for the team.

You mentioned in the prepared remarks that you expect 10 or more docs to be trained at these facilities ultimately on the one to three that you mentioned. Should we take that to mean that at the facilities at year-end -- at the end of the year, that is somewhere in the neighborhood of 150 total docs that need to be trained?

So it's, you know, I don't know if the math is that simple because obviously, there's a different number of physicians depending on the facility. And if some sites have multiple docs, they can have 15 GI docs that rotate through and manage inpatient procedures. Other facilities, and even some of the largest facilities, dedicate their inpatient work to just a small number. So there's four or five physicians that handle all of the, for example, GI bleeds. So, you can't extrapolate the math that every facility will have 10 physicians. But I think you're right in thinking about it that way. The only caution I would put out there is -- and we'll provide further updates obviously on a quarterly basis. But given the reduction in the size of the team, that will obviously be tied to the number of facilities that ultimately we are in at year-end.

Okay. That makes sense. Just -- How are you thinking about the utilization of these individual docs? Presumably, the first two or three are the early adopters. And then I would think that they would have higher utilization going forward than the whole 10. Or do you expect them all to use it on a pretty similar level once they're all trained up? And obviously, this would vary from institution to institution.

Yes, sure. Well, first of all, I do think that as they get more experienced, the number of procedures that they do will increase naturally. And we've seen that where a physician gets trained, they do five procedures. Next thing they think about is a hospital-based outpatient. One of their patients that they know has had a history of poor prep. They immediately start the light bulb goes off and says, you know what this is a perfect use case for Pure-Vu and then suddenly they're now doing a hospital-based outpatient. So just naturally, as they get comfortable with the device, they start to use it more often. So I would expect that to continue.

The other thing that I would think about is these physicians often have kind of subspecialties, to some are interventional GIs, and they may be doing other types of procedures. So depending on what their daily focus is, kind of drives the number of Pure-Vu cases that they would ultimately be doing. Some docs are doing sheerly colonoscopies. And they're probably over time going to do more Pure-Vu cases where some of the interventional guys may be doing other types of procedures. And when they do have a colonoscopy, they'll then use Pure View because they've been trained and they're comfortable on it. So I think it will vary depending on the actual doc and what their kind of focus is.

Okay, that makes sense. And then finally for me, the upper GI bleed opportunity. That sounds pretty exciting, but how does the headcount reduction impact the development capabilities saw on that front?

Yes. So great question. First of all, we are -- let me make a couple of comments. One, I want to make it clear that our focus is driving the US inpatient colonoscopy market. That is priority number one. But when you hear, time and time again, voice of the customer, and physicians are talking to us about an opportunity for our device to help them therapeutically treat patients in an area where in speaking to doc sounds like there's not been a terrific solution for them. It's something that we look at and take seriously.

So I think that the change that we've just announced in terms of giving ourselves more runway and therefore more options over time actually coincides pretty nicely with the upper GI opportunity. Because we will continue to do the work necessary with the team that we have here and we contemplated that upper GI was something that we wanted to continue. And so, there's market analysis that's underway. There's a significant amount of regulatory work that we're doing. And then obviously, there's R&D work. So that will continue. So this is an opportunity that is not going to be tomorrow, but I think will be in the, call it next 18 months or so.

So we've got the time to continue the project, learn the things we need to learn it potentially enter this market. And we believe that we'll execute on our plan and we'll have the options both financially and resource wise to be able to attack that market. So, more to come on that, Ben, but we will not stop on that project in terms of the upfront work that needs to be done to assess it.

Excellent. Well, thank you very much for taking the questions, gentlemen.

Thank you very much. Thanks for the question.

I just wanted to say in closing, first of all, I appreciate everyone's time today. I know we provided a lot of information, but I think this was really important to not only give kind of the state of the union on the business commercially, but also how we are proactively addressing what is just an incredible and surreal time, I think, in all of our lives with the pandemic.

As I said multiple times today, we are bullish about the unmet need and the opportunity of the size of this market that we are building, the value of the technology that we've created, and the fact that we're taking the necessary approach to to give ourselves the ability to weather this storm and get right back on track when things start to subside. So we appreciate the support of everyone who joined the call today, and we'll look forward to providing further updates in the near-term. So thank you very much and stay safe and healthy.

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