ENDRA Life Sciences Inc (NDRA) 2019 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ENDRA LifeSciences fourth quarter 2019 financial results conference call. (Operator Instructions) At this time, it's my pleasure to turn the floor over to your host for today, Mr. David Wells, ENDRA's Chief Financial Officer. Sir, the floor is yours.

Thank you, Jess. Good afternoon, and welcome to ENDRA's fourth quarter and full year 2019 business update and financial conference call. We issued a press release this afternoon. For those of you who don't have a copy of the release, you can access it in the Investors section of our website at www.endrainc.com.

Before we begin, please note that today's presentation includes forward-looking statements. All statements other than statements of historical facts, including statements regarding our strategies, financial condition, operations, costs, plans and objectives, as well as anticipated results of our development and commercialization efforts, and the timing for receipt of required regulatory approvals and product launches are forward-looking statements. Except as otherwise required by federal securities laws, the Company disclaims any obligations or undertaking to update or revise any forward-looking statements. Please refer to our Form 10-K for the 2019 fiscal year filed with the SEC to get a better understanding of risks and uncertainties related to forward-looking statements.

I will now turn the call over to our Chairman and Chief Executive Officer, Francois Michelon. Francois?

Thank you, David. Good afternoon, everyone, and thank you for joining us today to review ENDRA's fourth quarter and full year 2019 performance and 2020 business update. Along with David and me, on today's call are Renaud Maloberti, Chief Commercial Officer; and Michael Thornton, ENDRA's Chief Technology Officer.

Let me quickly go through today's agenda. First, I'll highlight our recent achievements, and David will review financials. I'll then provide an update on key topics and expectations, followed by Renaud, who will provide additional commentary on pre-commercial activities with a focus on Europe. And finally, we'll open the call for Q&A.

Before I begin, I want to acknowledge all the people who are dealing with COVID-19 as a patient, a parent, a family member, or friend. Our thoughts and well wishes are with all of you. And our particular appreciation goes out to the frontline caregivers providing help to those in need. These are unprecedented times.

Like you, we here at ENDRA are adhering to the recommended public health guidelines on social distancing and have implemented remote work protocols for our staff. While this has required some adjustment, I'm proud to say that our team has all transitioned to a new normal, and we remain unified in our commitment to make a positive impact on the care of patients with chronic liver disease like NAFLD and NASH through better diagnosis and monitoring.

So let's focus on recent progress and what's ahead.

As many of you know, ENDRA is the pioneer of thermal acoustic enhanced ultrasound known as TAEUS. TAEUS will allow clinicians to visualize tissue in ways similar to MRI, but at 50 times lower cost at the patient bedside. Our goal is to develop applications for the TAEUS technology in areas of high unmet clinical need, and we've developed a TAEUS application to assess and monitor elevated liver fat which is associated with nonalcoholic fatty liver disease, also known as NAFLD, and nonalcoholic steatohepatitis, also known as NASH.

These often asymptomatic chronic liver conditions affect over 1 billion people globally. And there are currently no practical diagnostic tools available to clinicians. We believe our TAEUS liver fat application is well positioned to address the unmet need by enabling clinicians to noninvasively assess liver fat with a safe cost effective procedure at the point of care. ENDRA remains highly focused on bringing TAEUS liver fat application to market in 2020.

2019 was a productive year for ENDRA and has given us strong forward momentum. Key 2019 highlights include we successfully completed a first in-human feasibility study with the Robarts Research Institute, which provided data required to support first regulatory filings, informed a number of technology improvements, and helped elucidate the initial clinical use case for TAEUS measurement of liver fat.

We also established two clinical partnerships with Rocky Vista University and the University of Pittsburgh Medical Center. Widely regarded institutions will conduct independent clinical studies that will gather data on use of the device with our target patient population, results of which will strengthen our clinical database and support our commercial activities.

In 2019, we expanded our leadership team in key areas with the addition of Chief Commercial Officer, Renaud Maloberti, and Vice President of Engineering and Programs, Amy Sitzler. We built and strengthened relationships with a number of clinicians and key opinion leaders in Europe and the US and developed our go-to-market strategy. We bolstered our strong intellectual property position. Our IP portfolio currently stands at 67 assets defined, filed, issued, and licensed.

We also implemented in 2019 a company-wide quality management system and secured our ISO 1345 certification. And finally, we submitted our technical file for CE mark review to our notified body for the TAEUS device in Europe.

We entered 2020 with notable momentum and enthusiasm for the year ahead, which has and will include a number of important regulatory, clinical, and commercial milestones for the company. Already in Q1, we have secured our CE regulatory mark approval for the TAEUS fatty liver imaging probe, also known as FLIP targeting NAFLD and NASH. The CE marketing indicates that the TAEUS FLIP system complies with all applicable European directives and regulations in the European Union and other CE marked geographies, including the 27 EU member states.

ENDRA is now registering a CE mark in each initial target markets, including Germany and France, to enable commercialization of the TAEUS product in each market. Renaud will provide more details on our commercialization strategy in Europe in a few minutes.

In Q1, we also renewed our collaboration agreement with GE Healthcare, spending the agreements term to January of 2021. Under the terms of the agreement, GE Healthcare will continue to support ENDRA's commercialization activities for its TAEUS technology for use in a fatty liver application by facilitating introductions to GE Healthcare ultrasound customers. In return, ENDRA will [afford] GE's certain rights of first offer with respect to manufacturing and licensing rights for the liver application.

And finally in Q1, we expanded ENDRA's Scientific Advisory Board with the addition of Dr. Raza Malik, Director of Hepatology and Associate Chief Division of Gastroenterology at Tufts Medical Center. Dr. Malik joins Dr. Gambir from Stanford, Dr. Rubin from the University of Michigan, and Dr. Gao from Rocky Vista University as a distinguished clinician and advocate for a noninvasive and clinically practical tool to assess and monitor liver fat. Dr. Malik's addition to the team will aid us in delivering the TAEUS clinical value proposition to the worldwide liver health community, which is essential as we enter the commercialization phase of TAEUS this year.

Now let me provide more detail on other key topics. Last week, as you saw, we provided updates on our EU commercialization plan and our FDA regulatory timeline. With a CE Mark in hand, ENDRA is mobilizing its EU commercialization efforts over the coming months, focused initially on establishing clinical reference sites in target European markets, as well as deepening our clinical relationships in a number of ways, including initiating TAEUS product marketing communication campaigns, implementing digital education tools and education events, as well as participation in key hepatology and radiology conferences.

Like other companies in our industry, we are anticipating the potential for conference cancellations or postponements due to COVID-19, and we'll be able to deliver plan presentations and maintain awareness in those scenarios to our target audiences through digital communications, including webinars and other learning tools. These are all important activities to support the commercial ramp in Europe, and Renaud will provide more details in a few minutes.

Regarding our regulatory pathway in the US, we and our regulatory advisors remain confident in our strategy to pursue 510-K clearance for ENDRA's TAEUS liver system. And we're in the process of finalizing our 510-K package with additional testing that we believe will bolster our submission. In early 2020, ENDRA became aware of a recently cleared 510-K submission for a device that ENDRA believes offers regulatory advantages as a predicate device to TAEUS compared to what we had previously been able to utilize.

As a result, we made the decision to invest a modest amount of additional time and testing to support demonstration of substantial equivalence to this new predicate, which we believe will yield the strongest possible FDA submission and further mitigate regulatory clearance risk. We view this as time well spent. We anticipate filing the 510-K application to the FDA during the second quarter of 2020, which would position us to receive FDA clearance of the TAEUS system in the second half of 2020.

We're working closely with our current US clinical evaluation sites, Rocky Vesta and the University of Pittsburgh Medical Center, and making final preparations in support of their respective clinical trial initiations. These sites will be using TAEUS systems with design elements that extend the CE mark platform for compliance with the US regulatory standards, and include a number of recent enhancements and required features that will also be included in our upcoming 510-K submissions.

Recent communications with these sites has confirmed their enthusiasm to move forward with clinical testing, but we're also acutely aware that COVID-19 may have an impact on existing and new clinical trials, at least in the very near term as healthcare facilities refocus resources to fighting this pandemic. So we'll work closely and collaboratively with our clinical partners if and when they need to make adjustments to the research plans. Bottom line, when the healthcare facilities are ready, ENDRA will be ready, and we'll keep you updated as best as we can in this rapidly evolving environment.

I'd now like to turn the call over to David to review the financial results for the fourth quarter and full year ending December 31, 2019. David?

Thank you, Francois. I will now provide a summary of our reported full year 2019 financial results. We had no revenue for the year ended December 31, 2019, as compared to $6,000 for the same period in 2018. Revenue earned in 2018 was a result of service revenue for our now discontinued Nexus 128 product line.

Operating expenses increased to $10.8 million for the year ended December 31, 2019, up from $9 million from the same period in 2018. The increase in operating expenses year-over-year was due almost exclusively to increased costs associated with the development of our TAEUS product line.

Our net loss for the year ended December 31, 2019, was $13.3 million compared to a net loss of $9.8 million for the year ended December 31, 2018. During the year, we incurred a charge for a deemed dividend related to the sale of our preferred stock, which totaled $4.2 million. This noncash charge is a GAAP based adjustment to earnings only and does not represent a liability or other tangible obligation. It resulted from the preferred stock and warrants that we sold in December. As a result of this charge, our net loss per share for the year ended December 31, 2019, was $2.34 per basic and diluted share.

Our cash as of December 31, 2019, totaled approximately $6.2 million as compared to approximately $6.5 million as of December 31, 2018. The small decrease in cash year-over-year is the result of our spending for normal operations, offset by our funding activity throughout the year. With the current world crisis, it is easy to forget the successes of the past, and considering the magnitude of the COVID-19 dilemma makes future planning tenuous at best.

In December of 2019, we retired approximately $2 million of debt and raised over $6 million of new equity capital. We are fortunate to have completed this funding, which provides adequate capital as we all weather the COVID-19 impact on the financial and capital markets near-term. We are proud of our accomplishments and honored that many investors and shareholders continue to express their faith and confidence in ENDRA and its management team through continued investments.

While what we are experiencing today is unheralded in many regards, I am proud to say that ENDRA's management team and our Board of Directors is an experienced and well seasoned team, having seen emergencies, anomalies, and near panics of prior years, and successfully emerged on the other side. We intend to do just that at ENDRA.

For many quarters, we have used the phrase asset-light operating model, and this approach has never been more relevant than right now. We continue to actively review our spending plans for the year, adjusting projected growth related expenses, balancing between capital preservation and product acceleration. We are -- I am actively engaging with our vendors and suppliers as we focus on building our supply chain. No easy task in this uncertain climate, as you might imagine. But we are fortunate to have assembled an impressive and resourceful set of suppliers who appreciate the opportunity that ENDRA and TAEUS affords, and are therefore able to secure what we believe is a reliable chain of supplies and services to ready our finished product for delivery. Like every growing company in this uncertain environment, we don't know what we don't know, but I can assure you, we will stay nimble and responsive on the road which lies ahead.

Lastly, we will continue to actively pursue and evaluate opportunities, strengthen our balance sheet, and position our company for growth opportunities that lie ahead, including market-based, government funded, or partner provided sources of capital. Our focus remains on delivering the great value proposition we see with TAEUS to the benefit of patients, clinicians, and our shareholders.

I will now turn the call over to Renaud. Renaud?

Thank you, David. Since joining ENDRA in May 2019, we have made great progress in growing our connection network and building awareness for ENDRA's TAEUS technology in relevant clinician communities like radiology, hepatology, and gastroenterology. In total, we had a formal presence at seven leading radiology and gastro hepatology conferences in Europe and in the US in 2019. My interaction with the clinical community have validated that there is a strong need for an interest in a noninvasive cost effective and point-of-care assessment tool like TAEUS.

In the fourth quarter of 2019, we hosted a key opinion leader event at the AASLD Liver Meeting with now ENDRA scientific adviser, Dr. Raza Malik from Tufts University Medical Center. This presentation highlighted the difficulties in diagnosing patients with NAFLD and NASH. He also emphasized the need for point-of-care diagnostic device to better assess this fast-growing disease, which Dr. Malik highlight as a massive healthcare [burden]. The presentation is actually on our website, and I encourage you to listen to it. We are thrilled to have him join our scientific advisory board and believe his insight will be invaluable as we work to bridge the diagnostic gap for NAFLD and NASH, and further define the clinical use case for the device in the hepatology and gastroenertology community.

In addition to the liver meeting, we also had a strong presence at the Radiological Society of North America, RSNA, Annual Meeting in December. We had a well-positioned booth where we displayed and demonstrated the TAEUS system to a number of clinicians and industry leaders. Our proprietary technology for assessing liver fat generated meaningful conversation and facilitated the building of relationships with the clinician community globally. We look forward to continuing this endeavor as we work toward commercialization.

With the CE mark approval, we are now positioned to enter Europe, which is a very large commercial healthcare market. To put this in perspective, in Germany alone, there are approximately 2000 acute care hospitals with an estimated 25,000 ultrasound systems delivering around 1.8 million abdominal ultrasound scans each year. Germany is a large healthcare market in the European Union, but it is just one state. So there are a lot of opportunity for ENDRA to succeed.

My near-term priority is to begin executing our European Union commercial plan, which comprises the following key elements. Establish clinical evaluation reference sites in each target European market, including Germany, France, Switzerland and the UK to get the TAEUS products into the hands of early adopters and investigators and serve as commercial springboards. We are picking this reference sites based on a set of stringent criteria. One, level of interest of the investigators in TAEUS. Two, center of excellence and reputation. Three, center location to maximize market distribution. And four, costs.

We plan to deploy our CE mark TAEUS liver systems to these selected evaluation sites in the second half of 2020. We plan to use 2020 as a building year in both the EU and the US to lay the foundation for longer commercial -- longer-term commercial success. Given the risk of cancellation or postponement of some clinical conferences we had planned to participate in, we are adapting our approach to engage with our target audiences in a digital format to maintain a high degree of market awareness and grow our clinical relationship. This effort will be reinforced by initial TAEUS product marketing communication campaigns, digital education tools targeting ENDRA's database of opt-in clinicians, as well as a revamped well-resourced liver focused company website in multiple languages.

We also have begun recruitment efforts to build a team of TAEUS clinical specialists who will provide direct support and on-site training to clinical reference site partners and work with our commercial partner, GE Healthcare, at a local level. This small team of market development specialists will focus on fostering relationship with key local opinion leaders, execute our launch and learn and demo strategy, and continue building awareness and credibility for the TAEUS technology in target markets. We will continue to build new relationship with clinicians in Europe and the US, while engaging on a deeper level with early-adopter and investigator, as well as the various national societies for the study of liver diseases.

We will continue to communicate the clinical value that TAEUS is designed to bring. With marketing communication and education activities on the horizon, we will continue to leverage the customer relationship management system that we implemented to manage and effectively target our growing list of our 1,000 radiologists, hepatologists, gastroenetrologists, and endocrinologists who have already opted in and have shown interest in learning about TAEUS and collaborating with ENDRA. We are very excited to initiate our commercial activities in Europe, and I look forward to updating you on our progress in the coming quarters.

Now I will turn the call to Francois who will make some final remarks.

Thanks very much, Renaud and David. I'll wrap up the call before the Q&A with the following key points looking forward into 2020.

First, we remain highly focused on our goal to make a positive impact on the care of patients with chronic liver diseases like NAFLD and NASH. We've been encouraged by the strong reception to date of our ongoing pre-commercial activities, focused on the clinical community, and are very optimistic about the market potential of the TAEUS liver device. There are over 1 billion people with NAFLD, NASH globally. While targeted therapies are starting to become available, clinicians still don't have a practical and rigorous liver fat measurement tool to identify and monitor patients. We're excited about the potential of TAEUS to address this significant clinical need and diagnostic gap.

Second, building on our CE Mark approval, we have a solid foundation in place to implement initial commercial launch activities in Europe, and ramp up precommercial activities in the US as we finalize our 510-K submission to the FDA. The submission is expected in the second quarter of 2020, which positions us to receive approval in the second half of 2020.

And finally, we're closely monitoring the COVID-19 situation with respect to our businesses, our clinical community, and will remain vigilant and nimble to adapt our plans where necessitated by the COVID-19.

With that, I'd like to open the call to questions. Operator?

Thank you, the floor is now open for your questions and comments. (Operator Instructions)

Brooks O'Neil, Lake Street Capital.

(multiple speakers) I hope you're surviving the COVID situation. So could you just highlight, to make it simpler for me, how you see your initial commercialization efforts haven't changed as a result of the COVID situation. And could you just say in a broad general sense, would you expect you're spending too slow as a result? Or are you thinking that responding to the current environment, is it going to cause you to spend more money than you had initially planned? (multiple speakers)

Yes, thanks. Let me see if I can address that. So in terms of spending, as David pointed out, we're lucky in that we still have very low overhead and have had this asset-light model of leveraging partners on the engineering side and elsewhere to help us. So we don't have a heavy burden. If we are affected, as many may be due to COVID in terms of timing, for example, of some implementations on the clinical evaluation sites, first of all, we still have a lot to do. We are very active, and a lot of the activities that Renato mentioned in terms of bringing our awareness building, communication, training to the clinical audiences through electronic marketing is something that goes on for [turbine], I would say is probably more cost effective than going to these conferences if necessitated.

Obviously the regulatory approval in Q2, it continues unabated, as I pointed out. That 510-K filing, just to be very clear, does not depend on data from either Rocky Vista or UPMC. So that is something important to highlight. Just to come back to your spend scenario, I think, Brooks, we've been very, very capital efficient over the years. We'll continue to do so. And if for example we see that, you know, hospitals are locked down in certain markets and that it doesn't make sense to hire a sales rep in that country as early as we thought, we have the flexibility today to build a pipeline of good candidates, to identify those people, and be ready to pull the trigger, but not to hire them now and burden our spend.

So I think we have the current model that allows us to be very flexible. I would say spending if imposed on us through COVID restrictions would probably decrease. But I also want to make sure that everyone understands we have been and are very much engaged in pivoting as necessary to online marketing and other programs to maintain that forward momentum with our commercial plan. I hope that helps answer your question.

Yes, that's great. That's very helpful. So second question is, your comments about the predicate device for the 510-K, I was just trying to understand, have you found another competitive device or are you still feeling very confident that the commercial capabilities you're bringing to market are uniquely differentiated?

Yes. No, that's a great question. I'm going to let Mike Thornton speak to a little bit more detail. But no, it's not a new competitive threat in any way. As you can imagine, people have been interested in the liver and looking at the liver for a long time. There are a number of ultrasound and other technologies that are trying to look at fibrosis, inflammation, and fat. Our technology, to my knowledge remains unique and so far are the highest performing. But clearly, as we seek a predicate example for the FDA, which is a higher bar than the CE Mark, it's good to find similar attempts at a technology and reference points. But to answer your question directly, there is no new competitive threat. Clearly a lot of people are interested. But it's more of a, I would say, an FDA submission exercise to find the best predicate on which to launch our application.

Mike Thornton, would you add some color to that if possible?

Sure. Thanks, Francois. As you know, the 510-K process is based on an existing cleared predicate device requiring us to demonstrate substantial equivalence to use [our] technology. As a first-time filer. It's critical that we select the correct predicate device for a successful 510-K submission. As Francois mentioned earlier, identifying this newly cleared device is really helpful to us, and we're aligning our submission to reflect that. And this is a great thing for us.

Okay. That's good. Thanks.

Thanks, Mike.

Could I just have one or two more real quick?

Okay, sure.

So, is there any change in the and things that are advancing on the therapeutic side? Any approved drug? Any indication that things are moving forward?

Yes. I mean, as as you know, our estimate of the pipeline of liver therapeutic drugs focused on NAFLD and NASH are at a minimum of 50 therapies in the pipeline, about 30 of which are in Phase 2 and 3. And as we picked up and demonstrated in our press release recently, we did pick up that one drug in India from a company called Zydus, has been approved in that market. And we view that as the first among several in the coming 24 months that are targeting fat, be it for fatty liver disease or NASH. The root cause of both of those conditions is too much fat in the liver. There is no blood test to measure fat in the liver. And so we think that this intersection of over a billion people affected by liver disease, and now these first therapies that are becoming available with Zydus and others to follow, just highlight the bottleneck in terms of screening and monitoring these patients.

Just for those who haven't heard me say it before, Brooks, the only tools that effectively measure fat in C2 in the liver today are the MRI, which is very good, but it's extremely expensive, slow, and just not a good tool for screening and monitoring ongoing patients. And the other tool is a liver biopsy, where you insert a large gauge needle between the ribs. You aspirate a section of liver. It's very invasive, painful. And frankly, there is a risk of internal bleeding. So, these tools are typically only used for more advanced liver disease, hepatocell carcinoma, for example, and they're completely impractical for daily screening and monitoring of patients with the early stages of liver disease which progressed to these later conditions. And that's really the reason for being with ENDRA. So I hope that helps answer and expand a little bit on what you asked.

Absolutely. One last one and then I'll get out of the way. Have you gotten any initial reaction to your selling price? I think you're talking about $50,000 in the marketplaces. Does that seem like it's a pretty scalable figure or (inaudible) so so?

Yes, great question. I mean, I'm a commercial guy for 20 years. You build that target price as I've said before, on multiple factors. The least being cost-plus and the margins you want to get. You have to understand what is the potential value of the product you're offering. You have to understand competitive offerings. You have to understand the price sensitivity of the customers, which are very frankly, by department, radiology versus hepatology, as well as geographic markets. So $50,000 is a target point because we think that this offers enormous value compared to tools that are in that space.

For example, a CART based ultrasound, a high-end CART based ultrasound. Not the portable kind that is really essentially like a stethoscope, but something that's used in regular clinical practice to image the abdomen and deliver ranges in price from $75,000 to $125,000. It can go up to considerably more. But we felt like the relative share of our offering and the value it would bring to an existing ultrasound in that price range is appropriate.

We also have, as you can well imagine, through all the interactions at the clinical conferences, been both sharing the clinical value proposition, but also the economic value proposition at that price point and what it could bring to a clinician. And so, over the years, since we've been in the field at these conferences, the feedback has been very supportive of that price.

Personally, I want to go out with that price. And try to take it up from there as we can determine the market more effectively. But the best way to get there is to bring this to market with good clinical data as we're laying in place today and have the marketing that Renaud mentioned.

Renaud, maybe I would just ask you to chime in a little bit because pricing is a great topic. I think we put a lot of thought into it. Any additional thoughts on your end commercially?

No, I think you're right. I think it's important to understand that pricing is what do we bring from a clinical value standpoint and can the market bear it. I think the price that we have determined, around $50,000, seems to be an adequate pricing. We have not heard any pushback from anybody we've talked to. Obviously, we haven't sold any yet. But the price that we are talking about is not something that has been a major difficult cause of pushback from anybody we've talked to whether it's in US or in the various countries in Europe at this point.

Yes. And Brooks, one final piece because I love this kind of question. I won't name the manufacturer, but there is a well established tool for measurement of fibrosis, which is a later stage of scarring of the liver in the marketplace. And this company is a help develop the market. Their tool which only measures the scarring, separate from what we're measuring, sells for $100,000 to $130,000 in the market. We view that as a very, very good comparable to us, and therefore, with the additional value of quantifying that very early on, we think that there is considerable attraction to the price point. I hope that gives you more than enough to consider.

I know. All that's great. Appreciate all that color. Thank you very much. Keep up the good work.

Thanks so much, Brooks.

[Kyle Bauser, Dougherty & Co.]

Hi, Kyle.

Hi, this is actually Greg on for Kyle. Thanks for taking questions today.

Yes, hi, you bet.

I guess first, can you provide a little more color on the remaining steps that you have before you are able to submit FDA application? Is there much more requirements than the CE mark technical file you submitted?

Sure. Let me ask Mike Thornton, who's our expert here to kind of articulate that, please?

Yes. Briefly, in addition to all the quality systems and key technical file elements, we require additional testing and documentation to comply with the actual FDA regulation process that are different from the EU standards. One of these things, as you might imagine, is FCC regulations. But it's just a different form of a submission rather than a technical file audit.

Okay, awesome. That's really helpful. And then regarding commercialization in Europe, how are you thinking about pricing? Are you exploring leasing or rental options?

Yes, Renaud, since we were on that topic and I took up a lot of the airtime, maybe you could speak to the point of sale, the price point, capital budgets, and whether leasing and other type of avenues is the first consideration in your view.

Yes, I think all those options are good from a capital standpoint. Obviously, we have -- the price point that we have chosen is actually a good price point, whether it's in the US or in Europe, simply because being below some threshold provides us the ability to avoid, certainly in Europe, to go to [heavy] tender and then allow hospitals to buy equipment outright. We will also consider any type of leasing option for our customers. I mean, we haven't completely developed that offering yet obviously. But as we go to market, we'll be developing this type of option for our customers as well. Absolutely.

Okay. Great (multiple speakers) That's really helpful. And then just last question, can you speak a bit more about your partnership with GE? It sounds like it will be leveraging this support partnership in Europe. What sort of sales force resources you might be able to be deployed at GE as it relates to your business?

Yes. So as we pointed out, GE's commitment to us through the development cycle was just that to help develop and finalize the product. They've been very generous with us as well with demo systems, which helps us not have to invest in a $100,000 ultrasound system as we deploy these systems to either evaluation sites or commercially to demonstration of our product. So they've been very helpful there. They've also supplied insight and names and will continue in the field to introduce us to a certain number of their targeted ultrasound customers. And as I pointed out, we're targeting through them CART based ultrasound users who are currently doing the ultrasounds of the abdomen and deliver today. I think beyond GE's normal focus are the hepatologists and gastroenterologists who are very interested in the liver, but probably today, not doing a lot of liver scans.

And so, my goal and my commitment to the business and to shareholders is to leverage GE whereever they can be helpful on the radiology side. But certainly to control our own future. And therefore, by hiring a small team of ENDRA specialists in Europe, initially, one person per key market working alongside that reference evaluation site in each market. That is the best way that I know to build that market, to engage the GE sales reps, to also call on hepatologists, liver experts who may not own an ultrasound today, and who GE may not call on, but I want to call on them. So it's a hybrid model. GE understands this. And I think it's a good partnership for us to leverage what they can provide and also control our own future with a small capital efficient team. I hope that's helpful.

Yep, absolutely. That was really good. Thank you for that.

Thank you.

All the questions I've got. So yes, thanks for your time and stay healthy out there.

Appreciate it. Thank you so much.

(Operator Instructions)

[Joe G Michelle] at Catalyst Capital Group.

Hey, Joe.

Hey, how are you guys? A couple of quick questions. I wanted to ask a little bit more about what you're seeing on the pharma side. Given the number of compounds in development, are you receiving inbound interest on the drug development front, and have you made any progress on potentially identifying maybe a pharma partner or something along those lines?

Yes. Great question. Thank you for that. So obviously, we can't name names, but we are seeing an uptick in people reaching out to us from the pharma community as well as the contract research organizations, the CROs, who run a lot of these studies. And really the appeal to both CROs and liver pharma companies is obviously what we discussed once the drugs are clinically available to be able to help screen in patients for use of that drug and to monitor the effectiveness of that drug in the patient once it's approved.

But looking even earlier, Joe, what we think we have a real opportunity to do with pharmas and CROs is help them be an added tool in their slow and costly clinical trials even before it reaches commercial stage. I have anecdotal statistics that show that screening failure rates for some of these studies, selecting someone, bringing them in, and scanning them, and finding out that they're not appropriate for the study based on assorted factors and after an MRI scan, those screening failure rates can be upwards of 50%.

And one of the things that I like to highlight is, we will not replace MRI or surgical biopsy as an endpoint measurement tool, Joe, for the pharma trials. However, we can add a very low cost, high value screen early on just to lower those screening failure rates and help drive efficiencies in these trials. So the answer is, I think we've had several new approaches. Naturally, I want to manage expectations of our listeners that these things take time. But we view a pharma or CRO partner as a natural complement and completely in line with our freedom to operate alongside with GE, the ultrasound partner. I hope that helps answer your question.

It does. And specific to the CRO side, obviously, the initial screening of patient selection can be helpful. But is there an ability for you to be tied in? Is there an ability to measure efficacy or progress in an interim basis through this (inaudible) process?

Yes, absolutely. Again, not aspiring yet to replacing MRI, which is the gold standard to which we compare ourselves to. But one of the things we've heard, Joe, is surprisingly liver fat does vary considerably and can look very quickly up or down during a clinical study. And if you imagine the bottleneck of a clinical trial saying, hey, we've got to baseline our subject, screen them in, put them on a drug, bring him back for an MRI, which is expensive and takes, you know, a good half hour or more, having a quick touch point along the way is seemingly of value, and we're getting that feedback from these CROs. So my goal is to highlight that, reassure them that we're not looking to replace biopsy and MRI. They are a conservative and rightly so sector, but to highlight this addition in a non-disruptive way of our technology. Is that helpful?

It is. That's great. And then just one last question here. We've discussed price a bit, and sort of sales versus a leasing model in Europe. You're in the process of going to market initially with the reference centers. Is this more really that awareness at this point or should we think of this is beginning to drive revenues?

Great question. So the evaluation sites, for example, University of Pittsburgh Medical Center, Rocky Vista, and the initial sites in each country in Europe, are not going to be revenue-generating. But they will be the seeds and the springboard that are absolutely critical for sales in that market. So our goal, as you can imagine in France, having a reference site in one of the major universities with a key opinion leader is exactly what you want when you walk into Dr. Smith's office and say hey, we're partnered with GE. We have this proprietary technology that allows you to take a liver scan in a couple of seconds. And by the way, doctor, Dupont in this French University is using the product. We'd love to demonstrate it for you there, and you can actually talk to Dr. Dupont.

So for us, in the second half, putting these key opinion leader evaluation sites in place is critical for our success. There will not be a flood of revenue. Quite the contrary. They will enable us to drive revenue in the back half of the year.

I assume that it does it helps me think about the process. Can I assume that we will sort of hear this rollout as an ongoing basis for each new center you're going into? Can we expect a (inaudible) milestone?

Yeah, absolutely. And I've certainly gotten good feedback that over communication and during this difficult time for everyone, it is critical. So we certainly will be announcing. We have a good pipeline. These are not new discussions. These are discussions we've had started. Now with the CE mark, Joe, you can imagine that the European sites, despite the COVID situation over there, are now saying, oh, the thing is -- I can actually use it, even sell it if I want in my country. So we certainly will announce those and point those out along the way.

Thank you very much.

Thank you, Joe.

Ed Woo, Ascendiant Capital.

Yes, thank you for taking my question. My question is, now that you are nearing the finish line to get the liver approval in Europe as well as in the US, have you guys thought about going full steam ahead on other applications yet?

Well, great question. We do get that inquiry periodically. My goal, Ed, is to do an A plus job in the liver. We have these other applications that the TAEUS platform allows us to bring to market. For example, we're able to show tissue temperature change during energy-based surgical procedures for cancer or cardiology. Completely novel. Those procedures are largely done blind today. But we could show a surgeon in real time where heat or cold is going into the tissue. It's very compelling.

The bottom line is though, it's a very different regulatory process, a different call point, a different commercialization plan. And I don't want to create a, you know, a Swiss Army knife business. I think the liver is a big enough opportunity for ENDRA to build itself on. But beyond that, I wanted to kind of do the liver first and then move on with the same focus and success on a subsequent application. So, I answer your question in saying focus is key, keeps our capital low, I think increases the chances of success in this target space. But it's a great reminder to our listeners that ENDRA is first a liver company, but the technology, our IP, and our platform is much, much bigger than the liver.

Thank you for that question.

Great. [In the] commercialization, obviously, you're getting a head start in Europe before the US. Is your road map for commercialization going to be the same exact plan as Europe? Or will it be significantly different?

It's really the same model, Ed, which we believe, which we practice, Renaud, myself, and others over the years. It's establishing those reference sites. So in the US, although we don't have the FDA approval, we do have the formal agreements with the University of Pittsburgh Medical Center and the Rocky Vista University under what is called an IRB investigational review board, which allows universities to perform research pre-FDA approval in limited circumstances. And that's the conditions under which we will be doing the studies here in the US.

But these very sites; UPMC, Rocky Vista, and others that we'll announce in the US are going to be those same reference sites regionally with UPMC in the mid-Atlantic, Rocky West in the Southwest, and the other sites. Those are going to become a reference sites for the key geographies in the US where we want to develop. So I'm going to use UPMC, assuming they're happy with our product and the results, as a reference site. And I hope that we will earn -- there's absolutely no commitment on their part at this point, but I hope we will earn their interest as a commercial anchor account after we get FDA approval when we do commercialize in the US. So it's a nice entry point. Let's have them try our product. If it works, could be very, very interesting for ENDRA. Turned out very well.

Great. Well, thank you for answering my question, and I wish you guys good luck. Thank you.

Thank you. Operator, I think we're done with questions. And if you may, I'd like to just wrap up then. I really appreciate everyone's time today.

Thank you. Would you like to provide any additional or closing remarks?

Thank you very much, Jess. So really just in closing, thank you to everyone joining us today in this incredible time we're living in. I wish everyone well. I appreciate everyone's interest and support of ENDRA, and we look forward to updating you all on our next quarterly call. Good bye.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We thank you for your participation. You may disconnect at this time, and we hope you have a good day.