ENDRA Life Sciences Inc (NDRA) 2020 Q1 法說會逐字稿

Hello, everyone, and welcome to this ENDRA Life Sciences first quarter 2020 earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded, and to get us started with opening remarks and introductions, I am pleased to turn the floor to CFO, Mr. David Wells. Good afternoon, Mr. Wells.

Thank you, Jim. Good afternoon and welcome to ENDRA's first quarter 2020 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 and 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 the 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 first quarter 2020 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. Then I'll provide an update on our key milestones and expectations for 2020, followed by Renaud who'll provide additional commentary on 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, parent, 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. On a corporate level, David will detail proactive actions we've taken to align the company's structure with this environment, while also our ability to bring the TAEUS system to market in 2020.

Right now I'd like to discuss the company's progress during the quarter on our stated 2020 objectives and commercial milestones. For those who may not be aware of ENDRA's story, we're the pioneer of thermal acoustic enhanced ultrasound known as TAEUS. TAEUS allows clinicians to visualize tissue in ways similar to an MRI, but it's 50 times lower cost at the point of patient care.

ENDRA's goal is to develop clinical applications for the TAEUS technology in areas of high unmet clinical need. In our initial focus is on helping the more than 1 billion people globally affected by nonalcoholic fatty liver disease, known as NAFLD; and nonalcoholic steatohepatitis known as NASH, where there's an acute need for a practical tool to assess and monitor liver fat before the conditions progress to fibrosis, cirrhosis and possibly cancer.

During the first quarter, we achieved a major milestone paving the way for commercialization of TAEUS when we received the CE mark approval for our TAEUS fatty liver imaging probe, also known as FLIP, we received [as] ahead of schedule in March. CE mark indicated the TAEUS FLIP system complies with all applicable European directives and regulations in the European Union and other CE marked geographies, which include 27 EU member states.

In spite of the global slowdowns brought on by the COVID-19 pandemic, we've continued to move aggressively to capitalize on our CE mark approval and our first mover advantage. More specifically, we've launched new clinical education tools, and are advancing a network of potential TAEUS evaluation sites in Europe where we see the greatest opportunity to achieve near-term commercial success.

We remain on target to install TAEUS at our first evaluation sites in Europe this summer. This will be followed by training our partners, recruiting and scanning patients as soon as hospital operations return to work. And we see this cycle gaining momentum over the summer and are encouraged by our partners' enthusiasm to start using the TAEUS system. Renaud will provide more details in a few minutes regarding the important activities underway to support the commercial ramp in Europe.

Turning now to the progress we're making in our second key market, the US. With our CE mark in hand, we focused our regulatory resources on completing our 510(k) application to the FDA during the current quarter. I'm happy to report we remain on track to make the final submission to the FDA during the current quarter, finalizing verification testing, labeling requirements, and assuring compliance with SEC regulation, which will position ENDRA to receive approval and begin initial commercial activities of the TAEUS FLIP system in the US second half of this year.

I cannot overstate the significance of this upcoming milestone, as the FDA approval will position ENDRA to simultaneously ramp partially in two major markets in 2020, the US and Europe, each with an acute need for a practical and cost effective liver diagnostic solution. In anticipation of the FDA milestone, we continue to advance our precommercial activities in the US. This includes renewing our collaboration agreement with GE Healthcare during the first quarter, extending the agreements term to January of 2021.

As a reminder, under the terms of the agreement GE Healthcare will continue to support ENDRA's commercialization activities for its TAEUS technology for using the fatty liver application by facilitating introductions to GE healthcare ultrasound customers. In return, ENDRA will afford GE certain rights of first offer with respect to manufacturing and licensing for the TAEUS liver application.

As widely reported, COVID-19 has impacted existing and new clinical trials for countless companies. However, we're encouraged by the fact that health care facilities appear to be gradually returning to normal. What's new the recent centers for medicare guidance about health care facilities restarting elective procedures aligns with the feedback we are getting clinical partners.

On that front, we continue to strengthen our relationship with our US clinical partners, Rocky Vista University, and the University of Pittsburgh Medical Center, finalizing experimental design and patient recruitment, even as COVID-19 has affected hospital operations. As soon as these sites are ready to resume normal operations ENDRA will be ready, and we see that happening in June and July.

As an important reminder, clinical data from the two US evaluation sites, Rocky Vesta and University of Pittsburgh are not required planned US 510(k) submission this quarter. I want to make that very clear. The agreements with Rocky Vista and UPMC were signed using the Institutional Review Board process, also known as the IRB, which allows research institutions to use technology that's deemed to be a low risk ahead of the FDA regulatory clearance.

So we'll be ahead of the game, collecting clinical data that can support our US commercial launch even before we anticipate receiving the 510(k) approval later this year. Following 510(k) approval, we can look forward to leveraging Rocky Vesta and UPMC has great reference sites for our US commercial team.

Organizationally, I'd like to highlight the recent addition to the ENDRA team. During Q1, we expanded our Scientific Advisory Board with the addition of Dr. Raza Malik, Director of Hepatology and Associate Chief Division of Gastroenterology at Tufts Medical Center in Boston. More recently, we added Louis Basenese, founder of Disruptive Tech Research to ENDRA Board of Directors?

While Dr. Malik bolsters our already strong team of clinical professionals advocating on behalf of ENDRA to the worldwide liver health community, we look forward to leveraging Louis's expertise in identifying disruptive patent-protected technologies as well as corporate communications to help us broaden awareness with institutional and retail investors as we begin our commercialization phase.

Bottom line, could not be more pleased with the progress we've made during these challenging times to keep the company on track, to received critical regulatory approvals, and advanced commercialization activities on schedule in Europe and the United States.

I'd like to turn the call over to David Wells to review the financials for the first quarter ending March 31, 2020. David?

Thank you, Francois. I will now provide a summary of our reported 2020 financial results. Our operating expenses increased to $3.1 million for the quarter ended March 31, 2020, up from $2.7 million for the same period in 2019. Our research and development spending decreased year over year by $255,000, while our sales and marketing cost increased to $114,000 for the quarter.

Our general and administrative costs were up by $551,000 due to employment related costs, including non-cash expenses for stock compensation, additional spending on costs associated with being a publicly-traded company, including Investor Relations, and increased cost per insurance.

Our net loss for the quarter ended March 31, 2020 was $3.3 million as compared to a net loss of $2.7 million for the quarter ended March 31, 2019. Our net loss included non-cash charges, which totaled $817,000, comprising expenses for equity-based compensation and amortization of debt discount. Our net loss per share for the quarter ended March 31, 2020, was $0.29 per basic and diluted share.

Our cash balance as of March 31, 2020, totaled approximately $3.1 million as compared to approximately $6.2 million as of December 31, 2019. The decrease in cash for the first quarter is the result of our spending for normal operations, costs associated with submission of key regulatory filings, as well as the purchase of inventory and preparation for the sale of TAEUS system.

We do not expect this elevated level of spend to persist for the remainder of the year. In fact, during the last call, I reminded our shareholders of the advantages of our asset-light operating model. This is especially relevant and advantageous now in the uncertain and challenging economic environment that we find ourselves.

As Francois mentioned earlier, as COVID-19 pandemic has unfolded, ENDRA has taken preemptive actions to align the company's cost structure with this environment. We're also ensuring our ability to bring the TAEUS system to market in 2020. These actions include for the remainder of 2020, implementing a cash salary reduction of 33% for the company's management team and paying non-employee directors annual retainers in the form of restricted stock units instead of cash.

We also submitted an application under the Small Business Administration Paycheck Protection Program, or PPP. The application was approved in on May 22 of this year -- excuse me, on April 22nd of this year. We received the proceeds of this PPP loan in the amount of approximately $308,000.

We continue to actively pursue and evaluate opportunities to strengthen our balance sheet and position our company for the exciting commercial growth opportunities that lie ahead. This includes the exercise of outstanding warrants, various market based funding opportunities, strategic partnerships, as well as non-dilutive academic research grants.

I'll now turn the call over to Renaud. Renaud?

Thank you, David. Since joining ENDRA in May 2019, we have made a great progress in building awareness and seeding the market for sales of ENDRA's TAEUS technology ahead of key regulatory approvals. With that in mind today, I'd like to update investors on our European commercialization strategy and key progress.

Immediately upon securing CE mark approval, we accelerated our efforts to establish clinical evaluation reference sites in each target European market including Germany, France, Switzerland, and the UK. The purpose of these reference sites is to get the TAEUS technology into the hands of early clinical adopters who will serve as commercial springboards. We believe this go-to-market strategy is the fastest way to establish local usage, secure initial sales, as well as achieve a faster sales ramp.

On the last call, we indicated that we plan to deploy our CE mark TAEUS liver systems to the selected evaluation sites beginning in the second half of 2020. We remain on track with this goal and anticipate installing our first [new] evaluation sites this summer.

These evaluation sites in Europe and the US will serve two very important purposes to support our commercialization efforts. First, these sites will help build our clinical evidence, human data, with our TAEUS liver device. As we've mentioned before, all medical technologies need to have a strong base of data on which to build a compelling clinical value proposition.

Second, these evaluation sites will also serve as regional reference and anchor sites for the commercial [concrete] team allowing them to bring in new potential customers to see the product in clinical use. We also discussed our [adapted] approach to engage with our target audiences in a digital format to maintain a high degree of market awareness and grow our clinical relationship despite the reformatting of key clinical and industry conferences to online venues due to COVID-19.

To that end, we launched ENDRA's new liver focused website on April 30 that reinforces our commitment to enabling better, earlier detection of NAFLD/NASH. This site is being translated into multiple languages to educate the market and support commercial pipeline expansion. We also shared a new educational video with over 3,500 interested clinicians, entitled how to use a TAEUS liver device, which is available on our website.

These clinicians' relationships have been developed through marketing outreach, participation in key global clinical conferences, and contributions from partners like GE Healthcare. We continue to add new relationships each weeks and months as we view this database as an important marketing pipeline as we begin commercialization.

This is all part of our plan to increase communications with potential partners and investors as commercialization begins. We encourage people to regularly check our website for updated information and content regarding our TAEUS system and market opportunities.

We are making also excellent progress in our recruitment plans to build a small team of TAEUS clinical market development specialists in Europe who will provide direct support and on-site training to clinical reference sites and work with our commercial partners, GE Healthcare, at a local level.

This small team of market development specialists will focus on fostering relationship with key local clinical leaders, execute our launch and learn them with strategy and continue building awareness and credibility for the TAEUS technology in target.

We plan to start making job offers to the final commercial candidate in June. So we are very excited to initiate our commercial activities in Europe, and I look forward to updating you on our progress and initial sales in the coming quarters.

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

Thanks very much, Renaud, and David. I'll wrap up the call before Q&A with the following key points looking forward into 2020. First, we remain laser focused on two key milestones: ramping up commercialization activities; and finalizing our 510(k) submission to the FDA in the US. We look forward to providing investors with updates in the coming weeks and months as we make specific progress on both fronts.

Second, as I mentioned in the Q&A of our last quarter, we've definitely seen an uptick in the strategic partners approaching ENDRA from the pharmaceutical and contract research organizations sectors involved in the development of therapies for NAFLD and NASH.

I don't want to overstate the progress of these partnership discussions, but I believe ENDRA's technology is a natural fit for these companies who are seeking to drive efficiencies in the clinical while facing the same practicalities as clinicians with liver biopsy and MRI to screen and monitor patients during the studies. Our partnership with one or several of these companies makes perfect sense for ENDRA. It would nicely complement our GE partnership with the ultrasound equipment side.

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

(Operator Instructions) Brooks O'Neil, Lake Street Capital.

Good afternoon, guys. How are you?

Great. Thanks for joining.

Sure. So as always, I guess I'm trying to understand how you think about the speed to commercialization, both in Europe and ultimately in the US, and how do you balance that against your rate of cash burn, and obviously your available cash (inaudible) [think] forward to the rest of the year, and (inaudible) kind of assess how these two key factors balance out.

Yeah, great question. So I think building on what David mentioned earlier in terms of our asset-light historical operating model, we're clearly ramping down the engineering spending as the product is finalized, and carefully ramping up the commercial spending. So you're not going to see a net doubling per se of our spend with commercialization underfoot. That's one of the benefits of having partnered with service providers in engineering.

And as David and Renaud have also mentioned, we're being very careful about timing the build-out of a small commercial team in Europe. So right now, to be very clear, we've got a great pipeline with some final candidates, but we don't have any people on our payroll sitting idly in Europe. We're carefully engaged with the evaluation sites that we're talking to.

And at the right time, starting in June, we're going to start building out that small team. I anticipate it will be four to five people in Europe. And that, as I mentioned, historically is for a couple of reasons. One, we want to control our destiny for the company and the investors' sake, and having a small team there carefully managing evaluation sites, pursuing commercial opportunities locally is something that we want to control.

But it also allows us to be complemented by our partner, GE Healthcare, as we've mentioned. And GE has been very generous in their sharing of customer information, and will continue to introduce us to ultrasound customers focused on the abdomen and the liver. And we believe that that will help us manage our cost structure commercially in Europe in partnership with GTE. I hope that's helpful in answering your question.

Very helpful. Very helpful indeed. So second question, I'm just curious how you view the COVID-19 impact on the US regulatory approval pathway. And do you see that slowing things down at all? Or do you think you can continue to move forward more or less on schedule as you head towards US approval?

Yeah, I should tell you, what we control in terms of our submission this quarter is certainly in hand, and there is no issue as we've discussed, or impact to us for the submission from COVID. I can't speak for the FDA, but the signals we're getting, Brooks, are positive.

Medicare, as David mentioned, has referenced returning to elective procedures and those elective procedures are not cosmetic procedures there. All the bread and butter operations, orthopedic, joints, general surgery, and many, many other procedures.

So I am seeing that opening up. We're certainly getting the same feedback from our US and European evaluation sites. And I have to imply -- since I have not seen otherwise that the FDA has also remaining efficient in that regard and not being impacted or defocused, if you will, from game-changing technology like ENDRA.

So I remain confident that we will file the 510(k) in the US in June, and that will, according to historical timelines, position us to get approval by the end of the year in November. I hope that's helpful.

Great. Yeah, that's very helpful. And then the last question I had is, obviously we see the value of the GE partnership. They have a huge, branded organization in place. Can you begin to speculate on how you might envision the relationship extending beyond the deadline of the current agreement?

Yeah, I think to be fair to both of us, what we have in hand already with them is what we need to focus on initially in terms of building out carefully the target markets working with the local GE teams. We are in regular contact with the global GE Healthcare teams.

They've been very generous, as I said, in terms of introductions, but they've also provided demo systems and other ultrasound capital that are very helpful to a small company, and further support our capital efficient process so that we don't have to invest in that.

So without dodging the question, Brooks, I think the best path to success and an enlargement of the relationship in a contract with other partners, is proving that we're very successful executing this commercialization plan in the second half with GE's help, and I think that will prove to all parties and others who may be sitting on the sidelines, that this product is indeed as attractive as we believe. So I hope that's helpful as well in answering the question.

Yes, very, very good. Keep up all the good work. I'm excited for US approval and European commercial launch.

Great. Thanks again, Brooks.

Joe Giamichael, Catalytic.

Hi, Joe.

Thank you. Hi, Francois. Just one more question, really. So I think I understand the commercialization process in Europe well. It really focused around the early adopters and centers of influences with these reference centers. Can you walk me through -- I'm going to make a leap of assumption here in the sense that you should have your 510(k) approval this year. What's the commercialization strategy in the US look like?

Yeah. Great question. Frankly, it's very similar to what we're putting in place in Europe with the, I would say, exception that we've already started the -- will have started the evaluation and clinical data in the US through UPMC and Rocky Vista. To answer your question specifically, as we approach 510(k) we will build out a small commercial team here regionally with probably a similar number of commercial people, five or so, throughout the US working locally with the evaluation sites.

We have the two that I mentioned. Others are in the pipeline and we have confidence that we'll be announcing those over the coming months. And we will cultivate commercially the next round of adopters around those evaluation sites.

So having the clinical data in hand from UPMC, Rocky Vesta, and European sites, you can now imagine a small US commercial team, Joe, leveraging those reference sites, leveraging that data, and reaching out to our and GE's shared ultrasound customer database and offering the TAEUS liver device to enhance the utility of ultrasounds in use today. That's really -- it's going to be a repeat in an efficient way of the model that we're taking to Europe. Does that answer your question?

It does. Thank you.

Thank you so much.

Vernon Bernardino, H.C. Wainwright.

Hi, Vernon.

Hi, guys. Thanks for taking my question, and congrats on the CE mark approval. I'm sure that was a lot of hard work, and thank you, [cause] it seems earlier than expected. I definitely [like] to (inaudible) surprises, especially in this environment. So I just wanted to ask a few questions about the digital format. Just wondering if you could provide a little details -- I assume, perhaps you already have the videos already ready for that [CEO] presentation? Okay. Great.

Sure. And by the way, Vernon, yeah, just to emphasize. This is a build-out, leveraging our website as the main repository, but we're also very proactively engaging through our own CRM of now 3,500 clinicians, and engaging them directly with this new content.

But it's publicly available at endrainc.com, and you'll see there new animations that simply explain to clinicians how the product, which we show for the first time in real format in the video, can be integrated seamlessly and easily in their clinical practices. And you also start seeing a number of videos and interviews that I think articulate in our own voice -- [mind] to begin the current progress and our plans as a company.

Okay. And now will there be other companies that [I've] covered -- they often have these live cases, as I'm sure you [can't] -- I mean, that wouldn't be possible, especially in a situation where everybody is protected in a procedure, especially in small centers, not in hospitals where you -- is that something, for example, that the (multiple speakers)

Yeah, yeah, yeah. So I think as soon as -- in the case of our product in Europe, it is CE approved. So we are approved to sell and market it. And as soon as we get our product into the reference sites that we've mentioned on this call in Europe, in each key market -- and by the way, we have verbal approvals and agreements with several of those. We're finalizing the paperwork.

Then it's absolutely possible for us to demonstrate -- we fully intend they have testimonials and to have video demonstrations of the product, which is non-invasive, which is very easy, has no -- you don't have to be in a special room like an MRI or surgery.

There's really nothing outside of the COVID limitations that would prevent us from sharing that. And so we certainly intend to build out more content so that clinicians and investors can see our product in use both in the US and in Europe.

Okay. And I see from some of the companies that [ENDRA] follow in the US that -- especially with their clinical trials, that it will [actually] continue although at a slower pace -- works as far as clinical trials are concerned in these non-hospital small centers. Now for these procedures with TAEUS FLIP, is that the target in the US? And do you see that also as indications where you're going to see initial commercialization in Europe?

Yeah. So on our investor presentation shares our targets in terms of clinical segments burn-in. First and foremost, the radiologist that perform currently upwards of 50 million to 70 million abdominal and liver ultrasound scans for other reasons. They can't measure fat the way we do, but they do that for a sort of other reason. So there's an established clinical practice.

And those radiologists are typically in a hospital or small clinic setting. Second, clinical segment are the gastro hepatologists. Those are the liver specialists. And frankly, in Europe, quite a few of them use ultrasound already. In the US less so. But they've expressed enormous appetite to have tools, especially with the new therapies that are starting to come online with Zydus and others to be approved later this year.

A tool that would allow them to a SaaS and [screening] patients and then monitor progression of that therapy on those new drugs. Those gastro hepatologists are also in both hospital clinic and private practice settings. And we clearly have messaging and outreach and awareness of where those clinicians are.

I will say, to answer the other part of your question, we are getting signals from both hepatologist and radiologist in our networks that facilities small and large are starting to consider, and in some cases, return to elective procedures.

And so we have confidence that in June and July we'll start placing our systems at those first evaluation sites and continue through the summer. It is going to be institution dependent, but we have very good feedback from the clinicians we're talking to. I hope that's helpful and comprehensive.

No, that's fantastic. And one more question. Sorry, otherwise I'll have to get back in the queue. Renaud, if I missed it -- so you mentioned Germany, Switzerland, UK, and I think there was one other?

And France. (multiple speakers)

Yeah, that makes sense. Okay. Thank you very much and congratulations.

Thank you for your call, Vernon.

Ed Woo, Ascendiant Capital.

(multiple speakers) Yeah, congratulations on the CE approval. My question is more on the US. When you do get approval and you do target these reference centers, will you be targeting a certain geography or will it be pretty broad-based depending on the center?

Yeah. So our criteria for selecting evaluation sites are several but they're clear. One, they have to be a center of excellence in the liver, and have a clear influencers in those facilities that can help us in that regard. So we're not just picking any community hospital that happens to have an ultrasound. University of Pittsburgh Medical Center, as leading example, is a world-class liver transplant and liver health facility.

It's in the mid-Atlantic, in my hometown of Pittsburgh. And so that will be a great [anchor] account there. Our goal is to place our systems in the same vein in Europe. Your question was focused on the US -- in regional centers of excellence with early adopters and leading clinicians. And so you can look forward to having other announcements in the US, likely spread out geographically to support that regionalized model that I mentioned with around five commercial people in the US on ENDRA's payroll.

And I think that will be centered around naturally. Urban centers very often that have a large population and adjacent clinicians that we could sell to. But you'll see a regional diversification -- liver centers of excellence, and most importantly, early adopter influencer clinicians who can help us develop the clinical value proposition and help us influence the next round of customers to buy.

Great. And then have you set a time frame for how long these evaluation periods will last?

Yeah. Great question. So it depends on how many patients we're doing. But just to put it in perspective, we are not talking about a pharmaceutical length type of study that could last several years. Typically in the case of these evaluation sites, they have patients already, and targeting 75 to 100 patients as our base target is something that can be achieved in six to nine months, typically.

We're doing also everything we can to facilitate that with the evaluations by providing loaner equipment of ultrasound when the evaluation site says that it could accelerate the scan so that they don't necessarily have to depend on radiology in their department. So GE has been very helpful in that regard.

And to answer that question, I think six to nine months is a good rule of thumb for 75 patients. And I believe we'll have strong success in recruiting those patients because clearly, we've established those -- the hepatologist and radiologist already have that pipeline of existing patients that they can use in the study. I hope that's helpful.

Yeah, that was very helpful. Thank you for the information, and good luck.

Thank you very much. And operator, I think that seems to be the end of the questions. So after this final thank you to the investors, we can wrap it up, but I appreciate everyone calling in, listening to our story, and all the support we're getting from both the analytical community, the investors directly.

And we remain very optimistic, and we'll continue to inform you of our progress over the coming weeks and months, and look forward to speaking with all of you again on our next quarterly call. Thank you.

Francois, thank you. And on behalf of the rest of the leadership team, Michael, Renaud, and David, we thank you all for joining today. You may now disconnect your lines, and we hope that you have a good evening.