ENDRA Life Sciences Inc (NDRA) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the ENDRA Life Sciences, Inc. fourth-quarter 2020 financial results conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Yvonne Briggs. Ma'am, the floor is yours.

Thank you, operator. This is Yvonne Briggs with LHA, ENDRA Life Sciences' Investor Relations firm.

Good afternoon, and welcome to ENDRA's fourth-quarter 2020 business update and financial results conference call. Earlier today, ENDRA issued a press release on this topic and for those of you who don't have a copy, you can access it in the Investors section of ENDRA's website at endrainc.com.

Before we begin, please note that today's discussion will include forward-looking statements. All statements other than statements of historical facts, including statements regarding the company's strategies, financial condition, operations, costs, plans, and objectives, as well as anticipated results of development and commercialization efforts, the timing of clinical studies, potential partnership opportunities, and expectations regarding receipt of required regulatory clearances and product launches are forward-looking statements.

Except as otherwise required by federal securities laws, the company disclaims any obligation to update or revise any forward-looking statements. Please refer to the company's Form 10-K for the 2020 fiscal year filed with the SEC for more information about risks and uncertainties related to forward-looking statements.

And in terms of the structure of today's call. Francois Michelon, Chairman and Chief Executive Officer, will begin the prepared remarks; followed by Renaud Maloberti; ENDRA's Chief Commercial Officer; and then David Wells, Chief Financial Officer. Michael Thornton, ENDRA's Chief Technology Officer, will join us for the Q&A portion.

With that said, I will now turn the call over to Francois Michelon. Francois?

Thank you, Yvonne. Good afternoon, everyone, and thank you for joining us today to review ENDRA's fourth-quarter 2020 financial results and business update. Despite the headwinds of COVID-19, I'm very pleased with the progress ENDRA made in 2020 and so far this year. We accomplished several key regulatory and commercial milestones, which we'll review today during the call.

On the regulatory front, early last year, we received the CE Mark for the NAFLD-NASH application of our Thermo-Acoustic Enhanced Ultrasound System, known as TAEUS. Then in mid-2020, we submitted a 510(k) application with the US FDA. While not required by either regulatory body, but in order to further demonstrate the clinical utility of TAEUS, we secured our sixth clinical study partnership and have started scanning patients at our first site in the US.

On the business development front, we extended our collaboration with GE Healthcare for two more years and established our first foothold in Asia for the distribution agreements in Vietnam, a highly populated and fast-growing market. More recently, we signed a collaboration agreement to include TAEUS as an add-on technology to support patient screening and biomarker measurement for Hepion Pharmaceuticals, upcoming clinical study of their drug for the treatment of NASH.

It has been a productive time for ENDRA. And I couldn't be more proud of our accomplishments. As way of background, TAEUS is a simple to use proprietary technology platform that works with and enhances existing ultrasound systems. TAEUS allows clinicians to visualize tissue in ways similar to an MRI, but at the point of patient care and at 50 times lower cost.

Currently, there are about 400,000 card-based ultrasounds used globally by radiologists and other clinicians to perform tens of millions of abdominal ultrasounds checking for gallstones, sources of bowel pain, and other conditions.

Unfortunately, these traditional ultrasounds can't accurately measure liver fat. ENDRA intends to build on this large user base of ultrasound systems and enable a new capability to measure liver fat for the early assessment of non-alcoholic fatty liver disease known as NAFLD, and it's inflammatory stage known as non-alcoholic steatohepatitis or NASH.

NAFLD and NASH affect over 1 billion people globally. And there's a large unmet need for a practical technology to help clinicians diagnose and monitor the treatment of the disease, especially with the advent of the first targeted therapies rapidly approaching. In June, we submitted our 510(k) application to the FDA. TAEUS continues to be in the normal process with the FDA. We continue to actively support the process and respond to FDA's questions as they arise.

These requests for information include, for example, additional detail on how TAEUS technology functions and how it relates on a number of levels to our chosen predicate. We consider this back and forth with the agency to be a standard part of the process for a new technology like TAEUS.

Naturally, this Q&A with the FDA may extend historical review timeframes as may unforeseen impacts of COVID or other burdens on FDA resources. But I want to assure investors we are in compliance with the process and remain optimistic about securing FDA clearance this year.

We've been asked by investors for specifics about when we'll obtain FDA clearance. And let me be blunt we don't know. While working collaboratively with the FDA, they don't offer anticipated timeframes. And therefore, we can't provide a specific answer on timing. But as exciting as the FDA clearance will be for ENDRA, I also want to remind investors that this is one of several milestones along the path to commercialization and revenue.

There are other important milestones, including building clinical evidence with our six evaluation sites, establishing pharmaceutical partnerships, such as with Hepion and deploying great additions to our sales teams. I mention these to broaden the field of view beyond FDA clearance to the enterprise we are building. We remain optimistic about securing FDA clearance. And as soon as we have material updates, we'll communicate with you through normal channels. In anticipation of this milestone, we will continue to build ENDRA.

As I mentioned earlier, we expanded the market potential for ENDRA last week when we announced a collaboration with Hepion Pharmaceuticals to incorporate TAEUS into their upcoming Phase 2b study of CRV431 for the treatment of NASH. TAEUS will be used as an add-on technology to support patient screening and biomarker measurement of liver fat.

This is a very for important first pharmaceutical partnership for ENDRA, which will initially generate TAEUS liver fat mass measurement data, furthering our base of clinical evidence and supporting our commercialization efforts. Beyond data, this first pharmaceutical collaboration may also open the door to broader commercial adoption of our technology in the pharmaceutical and CRO sector as they see the efficiencies our technology can drive beyond the radiology, hepatology, and other clinical end user markets we're already pursuing.

There are approximately 50 therapies in the pipeline targeting NAFLD and NASH and even more targeting metabolic disorders beyond the liver. We're experiencing growing interest from pharmaceutical companies and contract research organizations to explore efficiencies in drug development.

Drug development companies experienced the same impractical constraints as doctors in using MRI and liver biopsy to assess liver fat. And ENDRA's technology may offer a cost effective, non-invasive, add-on tool to achieve three potential benefits for drug developers.

First, TAEUS can potentially help screen in or out suitable study patients more quickly and less expensively before they're subjected to an MRI or a liver biopsy. The NAFLD-NASH drug development industry currently incur screening failure rates over 50%. In other words, they reject one out of two potential recruits for their clinical studies. We also hear that the fully loaded cost of a typical MRI in a NAFLD-NASH study can cost up to $5,000 per patient per MRI scan.

And with studies enrolling thousands of people, the cost avoidance opportunity for pharmaceutical companies is compelling. In other words, screen out 10 potential study recruits with ENDRA's technology before they reach an MRI and you've paid off the purchase of the TAEUS system, not to mention the time savings you generate.

The second opportunity for this market is during the clinical studies themselves, TAEUS can provide easy and more frequent interim liver fat measurements between MRI and biopsy measurements, which can add to the trials dataset and help pharmaceutical companies quickly identify liver trends during the study.

Eventually, and third, once therapies are approved, TAEUS could serve as a non-invasive, point-of-care technology to identify patients suitable for therapy and to monitor their treatment. Beyond companies targeting NAFLD and NASH specifically, we're also seeing interest from pharmaceutical companies in non-liver focused drug areas showing interest in measuring liver fat as a biopsy -- as a biomarker, if it's easy and cost-effective to do so.

This makes sense in our opinion because pharmaceutical companies seek to capture the most complete profile of their test subjects health, recording things like BMI and blood pressure and with liver fat being a leading indicator of metabolic health and being associated with several other co-morbidities. If liver fat is as easy to capture as blood pressure, then it's relevant to a range of pharmaceutical companies beyond NAFLD and NASH. ENDRA's TAEUS may play a role here.

So the key points here are that ENDRA sees commercial opportunities for its TAEUS technology with multiple healthcare provider segments, the doctors, radiologists, gastro-hepatologist, endocrinologists, primary care physicians, and pharmaceutical companies, and contract research organizations, developing therapies for both liver and other diseases. We look forward to deepening our relationship with other companies and announcing more pharmaceutical collaborations in the future.

Turning now to ENDRA's global commercialization strategy, let me highlight the three key initiatives underway. First, we've established and are ramping up six clinical evaluation sites. These sites are important to build independent clinical evidence for the TAEUS system with the expectation that the evidence will be submitted for publication and will drive further adoption of our TAEUS technology.

We now have a total of six clinical research partnerships with the addition of two new sites in the last few months, including Inselspital University Hospital in Bern, Switzerland and the Centre Hospitalier Universitaire d'Angers, in France. These and additional procedures partners are located in ENDRA's target commercial geographies in Europe and the US. And I want to remind investors that these clinical studies are unrelated to our FDA application. Renaud will dig into the status of the current sites further in a few moments.

Our second commercial thrust drives awareness for TAEUS with our target users through a mix of e-marketing, clinical demonstration tools and active participation in over seven industry conferences this year alone, as we've done every year since 2018. These clinical conferences are the places clinicians and pharmaceutical companies go to share research and learn about new products.

Naturally, many of the 2020 and first half '21 activities have been conducted online due to COVID, but to ENDRA's benefit, we've already built a strong base of awareness amongst clinicians from our historical physical participation in key meetings since 2018. We see several of these important industry gatherings in Europe and the US returning to at first hybrid models and then full physical meetings in the second half of this year.

The third piece of our commercialization and bringing TAEUS to market is to build an efficient commercial team. We started building a team in Europe to be composed of one sales representative in each target European country, and upon 510(k) clearance, we'll do the same in the US, focusing on major domestic regions. The ENDRA sales team will support our clinical evaluation sites as well as work with the local GE sales teams to introduce TAEUS to GE ultrasound customers.

As we announced in December, we renewed our partnership with GE Healthcare and extended it through the end of 2022. GE Healthcare is a global leader in clinical ultrasound and has been ENDRA's partner since 2016. Pursuant to our agreement, GE will continue to support our commercialization activities by facilitating introductions of our clinical ultrasound customers on a worldwide basis for the liver application.

In return, GE has rights of first offer for certain manufacturing and licensing rights. ENDRA sales team will focus on radiology customers with GE. These are the doctors doing most of the abdominal and liver ultrasound scans today. But in parallel, the ENDRA team will independently pursue additional sales opportunities in gastro-hepatology and other clinical segments interested in liver health, such as endocrinology.

Continuing on the topic of commercial channels and prompted by the awareness building initiatives I mentioned earlier, ENDRA was approached by a premier distributor of value-added medical technology in Vietnam. Many of you might be surprised to learn that Vietnam has a population of around 100 million people with GDP growth of 7% and a high prevalence of liver disease.

This represents almost a third of the US population growing at over three times the 2019 US GDP growth rate. So Vietnam is a substantial market opportunity. After careful diligence by ENDRA, in December, we entered into an exclusive three-year distribution agreement for 40 TAEUS systems in Vietnam. Sales are expected to begin once TAEUS receives 510(k) clearance from the FDA along with local country approvals.

Finally, we remain committed to fortifying our intellectual property portfolio to protect our core technology along with current and future applications. Recently, we announced several patent issuances in the US, Europe, and China that enhance our initial TAEUS application focused on liver fat as well as indications beyond NAFLD-NASH.

To date, our IP portfolio has grown to 82 assets, which are defined as filed, issued, licensed for pending patent applications. And this represents a 28% increase from the 64 IP assets we had at the end of 2019. With that overview of the progress we've made, I'd like to turn the call over to Renaud Maloberti to provide more detail on TAEUS commercialization activities. Renaud?

Thank you, Francois, and good afternoon, everyone. I am also quite pleased by the progress we have made, given the challenges that by launching initial commercialization efforts in the middle of the global pandemic. Notwithstanding, I am confident we are building a strong foundation that positions TAEUS for success this year and beyond.

As Francois mentioned, I'd like to provide some additional updates, clinical evaluation partners, which totalled six worldwide. It is worth mentioning, our pending 510(k) is not dependent on these studies, which are specifically for the purpose of demonstrating clinical utility of TAEUS as we commence our commercialization efforts.

These studies are independently run and are approved by each institutions -- institute thought process, which allows research institutions to use technology deemed to be a low risk prior to FDA or other regulatory clearance. Again, that applies to our US partners as TAEUS has CE Mark in Europe. Our six clinical evaluation sites will each scan approximately 75 patients on our TAEUS system and compare the liver fat measurements to the gold standard MRI-PDFF.

Typically, these types of study can be completed in around nine months. Rocky Vista will be a larger study targeting a total of 200 patients and may take a little longer to complete. As healthcare facilities gradually return to normal operation in 2021, we are seeing a number of factors putting temporary pressure on our clinical partners.

One of these factors is the limited availability of MRI resulting from delayed elective procedures returning in volume, combined with a limited hospital staff and longer cleaning procedures between each patient. But this is a temporary situation that we believe is actually a good sign. Hospitals are working through their backlog and returning to normal.

Notwithstanding those factors, two of our domestic sites, Rocky Vista University College of Osteopathic Medicine and the University of Pittsburgh Medical Center have installed the TAEUS system and Rocky Vista has begun scanning patients. Our European sites are expected to be up and running when the local markets reopen, and we are confident these studies will gain traction in 2021. We look forward to collecting these valuable clinical data and having the sites to be great reference sites for our commercial team.

Speaking of our European sales team, as mentioned in our last call, we added two salespeople in Europe, one in the UK and one in Germany. And we currently have a pipeline of candidates for the rest of Europe that we will phase in hiring as COVID related restrictions loosen. We have always highlighted ENDRA's capital efficient model and adding resources as the mobility was severely restricted in most of Europe would not have been the best use of our capital.

We have taken a methodical approach to expanding our sales team, given market uncertainties and the inability for in-person meetings. Yet, we expect an opportunity for further expansion this year as restrictions ease. Our current reps are focused only on engaging with their GE Healthcare colleagues as well as with clinicians in local healthcare systems on a remote basis until they are able to meet face to face.

Their initial focus is to derive local awareness and interest on ENDRA's technology among radiologists, while also targeting clinicians in hepatology, endocrinology, and primary care. In addition, our sales team will be tasked with supporting our clinical evaluation partners as they ramp their clinical studies.

We continue to be active with our e-marketing and education campaigns to build awareness for TAEUS by producing educational videos, publishing white papers, and making our website a rich resource of information with translation into six different languages.

We plan to continue to be active in the virtual industry trade shows in the US and Europe, which despite being virtual, are still quite effective in demonstrating the advantages of TAEUS and in sourcing contacts for potential customers who express interest in our solutions through our virtual booth.

Indeed, the number of worldwide clinicians we've interacted with and added to our CRM currently stands well over 4,000. Global conferences may be opening back up to a full in-person or hybrid formula in the second half of this year. And we will exhibit at those conferences in whatever ways are available. Our interaction with many clinicians over the year confirms that there is a significant unmet clinical need for the TAEUS system.

As we continue to advance towards our first system sale, we acknowledge that's taken longer than expected in part due to those challenges the world has faced over the past year. We remain confident with the reopening of global economies and our strong industry and clinical relationship that ENDRA will be positioned for growth. I look forward to updating you on our progress in future calls.

As a final thought, let me remind you that ENDRA is pursuing multiple TAEUS revenue streams. These will start with the sales of TAEUS liver equipment software and service contract and grow to include sale of disposable product, enhancing TAEUS performance, and eventually to licensing of TAEUS for liver and other applications to original equipment manufacturers, building TAEUS technology into their ultrasound and other types of capital equipment, such as surgical systems.

Now I'd like to turn the call over to David to review the financial results for the fourth quarter of 2020. David?

Thank you, Renaud. Our fourth-quarter and year-end 2020 financial results are as follows. For the quarter ended December 31, 2020, our operating expenses decreased to $2.3 million, down from $3.1 million for the same period in 2019. The reduction was due exclusively to anticipated savings from development costs associated with our TAEUS products.

We have indicated previously, our asset-light model allows us to flex our spending based on our needs, and this is evidence of that ability. Overall for the year ended December 31, 2020, our operating expenses increased to $11.5 million, up from $10.8 million for the same period in 2019. Increases in sales and marketing and general and administrative spending were offset in part by declines in development costs.

Our research and development spending decreased year over year by approximately $700,000 as we completed development and prepared our TAEUS system for commercial launch. Our sales and marketing costs increased by approximately $200,000 for the year as COVID-19 restrictions limited travel, in-person sales contact, and in-person attendance at industry conferences.

Our general and administrative costs increased by approximately $1.2 million due to increases for legal, investor relations, and other services. Our net operating loss for the year ended December 31, 2020, was $11.7 million as compared to a net loss of $13.3 million for the prior year.

A portion of our net loss attributable to common shareholders, which includes non-cash charges for deemed dividends related to preferred stock and fair value adjustments for warrant repricing with $400,000 for the year ended December 31, 2020, and $4.2 million for the year ended December 31, 2019. Our net loss per share for the year ended December 31, 2020, was $0.63 per share. This compared with $2.34 per share a year ago.

Our cash balance as of December 31, 2020, was $7.2 million. This includes $5.5 million in gross proceeds raised through a public offering in December of 2020 and proceeds from warrant exercises during the year of $4.8 million.

Subsequent to December 31, 2020, and therefore not included in our December 31, 2020, reported cash balance, is $2.9 million raised (technical difficulty) good corporate governance, we are today filing revised Form S-3, which provides more flexibility to us. It is good for the next three years, notwithstanding our full capitalization for the year.

We will continue to exercise a conservative approach to our spending, as we navigate the post-COVID environment and its uncertainties. We will remain opportunistic to strengthen our balance sheet in a manner that preserves shareholder value or a combination of potential strategic investments or additional capital market transactions, leveraging our current strong capitalization structure.

Now I'll turn the call back over to Francois. Francois?

Thanks very much, David and Renaud. As a final topic before we take your questions today, we reviewed numerous important milestones achieved and planned for the remainder of the year in order to provide our shareholders with more timely updates of these future accomplishments going forward.

In addition to the calendar driven quarterly calls, we'll also be conducting conference calls that are news driven and catalyzed by major events, including regulatory, clinical, and commercial accomplishments. We hope you'll appreciate the additional effort to share substantive updates in a more thorough manner instead of waiting for particular calendar driven schedules.

We're really excited about the milestones in front of us for this year, with a strong balance sheet enabling us to achieve five key objectives.

First, securing 510(k) clearance in the US; second, growing the body of clinical evidence to our strategically positioned study sites to support commercialization; third, accelerating our commercial channel and marketing activities in line with reopening of global markets to generate revenue in Europe and the US in 2021; fourth, expanding our pharmaceutical and other industry partnerships to expand adoption of TAEUS beyond the clinical end-user markets; and fifth, continuing to grow our intellectual property portfolio to defend our technology and increase out-licensing opportunities as well.

So with that review of our business highlights and financial results, we'd like to open up the call for questions. Operator?

Thank you. Ladies and gentlemen, the floor is open for questions. (Operator Instructions)

Thank you, operator. While we're waiting for our first question, I'd like to mention that ENDRA recently participated in two virtual investment conferences. Earlier this month was the H.C. Wainwright Global Life Sciences Conferences, and last week was the 33rd Annual ROTH Conference. Our presentation from the ROTH Conference is available in the Investors section of our website at endrainc.com. Okay, operator, if there are any questions, we're happy to take them. Otherwise, we can proceed.

We have no questions in queue. (Operator Instructions) And we do have one question from Ed Woo (technical difficulty) your line is open.

Yes. Thank you for taking my question. My question is on the six universities that you have or the medical centers that you have your ENDRA's system, is there a ceiling of maximum centers that you guys are thinking about doing? Or should we expect more additional announcements shortly? Or is it something like you think that you're at a comfortable level at this point?

Yes, great question. Thank you, Ed. So we need to balance a couple of things when we can make a commitment and six fields for us close to optimal based on our resources, based on the learning we're going to gain through the process. We want to assure that we support and engage closely with each of these clinical sites and also carefully manage costs.

These studies can be quite expensive. I think we've done an incredible job of managing the costs individually with these partners because we both believe in the potential of the technology. I think to answer your question directly, you can anticipate seeing a few more, but we believe that it will be under 10 for the foreseeable future.

That will give us a critical mass by the end of the year of the several hundred clinical data points geographically dispersed that will further allow us to commercialize the product. So I hope that's helpful. But it's a thoughtful process. It's not just, hey, whoever wants to be a steady partner joins the mix. They have to have the right profile. And we also want to be very careful about our resources to support it. Thanks so much for the question, Ed.

Great. And then just a quick follow-up, has COVID pretty much been mitigated at these centers (multiple speakers) --

Yes, it varies. I can't speak day-to-day for each facility, but the fact that we have three in the US in different regions and three now in Europe just illustrates for us that things are starting to turn the corner in some sites faster than others, Rocky Vista in Utah, as we said, we started scanning patients. They're still facing an MRI backlog.

Other places, in Germany and in Europe, as you can surely see in the news are under a little bit more of a lockdown, but we see that abating. And the feedback we're getting from the sites is clearly there's mobility is increasing relative to last year. I can't forecast exactly when, but we're optimistic that these sites will be up and running by the summer as according to the COVID mobility that we see in the marketplace.

Great. Well, thank you, and I wish you a continued luck. Thank you.

Thank you very much, Ed. Well, operator, I think we -- I'm looking at our pipeline. We don't have any other questions, but I appreciate everyone's participation. We've had a very good turnout here today. And if anyone -- we've missed anyone, please reach out to LHA, our Investor Relations partner. We'd be happy to have follow-on conversations and answer any questions we may not have answered today.

Again, thank you for your participation. We look forward to speaking with all of you again at our next event driven conference and keeping you informed of our progress as we have it. Have a nice evening.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.