Milestone Scientific Inc.
Q2 2019 Earnings Call Transcript

Published: 16 Aug 2019

[Operator:]

Good day and welcome to the Milestone Scientific Second Quarter 2019 Investor Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Natalya Rudman. Please go ahead.

[Natalya Rudman:]

Good morning and thank you for joining Milestone Scientific's second quarter 2019 financial results conference call.On the call with us today are Len Osser, Interim Chief Executive Officer; and Joseph D'Agostino, Chief Financial Officer.The Company issued a press release yesterday, Thursday, August 15th, containing second quarter 2019 financial results, which is also posted on the Company's website. If you have any questions after the call or would like any additional information about the Company, please contact Crescendo Communications at 212-671-1020. The Company's management will now provide prepared remarks, reviewing the financial and operational results for the second quarter ended June 30, 2019.Before we get started, we would like to remind everyone that during this conference call we may make Forward-Looking Statements regarding timing and financial impact of Milestone's ability to implement its business plans, expected revenues and future success.These statements involve a number of risks and uncertainties, and are based on assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions all of which are difficult or impossible to predict accurately and many of which are beyond Milestone's control.Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions, failure to achieve expected revenue growth, changes in our operating expenses, adverse patent rulings, FDA or legal developments, competitive pressures, changes in customer and market requirements and standards and the risk factors detailed from time-to-time in Milestone's periodic filings with the Securities and Exchange Commission, including without limitation Milestone's report on Form 10-K for the year ended December 31, 2018, and Milestone's report on Form 10-Q for the second quarter ended June 30, 2019.The forward-looking statements made during this call are based upon Management's reasonable beliefs as of today's date, August 16, 2019. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.With that out of the way, we will now turn the call over to Len Osser. Please go ahead, Len.

[Leonard Osser:]

Thank you, Natalya. Good morning to everyone and thank you for joining the call. Our Company has made substantial progress in advancing our commercial efforts around the CompuFlo Epidural System.A key element of our commercialization strategy includes entering the medical education market with a CompuFlo Epidural Trainer. We believe that entering the medical education market is an important step to position CompuFlo as a new standard of care for the next generation of anesthesiologist and certified registered nurse anesthetist.The CompuFlo Trainer reduces uncertainty with objective measurements that help reduce the number of Epidural attempts, builds confidence and speeds training competency. Generally, 80 Epidural are required for training before a resident is considered proficient enough to do Epidurals.Our studies on a number of years ago, which was part of our decision making in moving into Epidurals first from our broad platform of technology was the efficiency of our product and reducing those attempts in a study that was done in the United States, which show that after one to two days of training as opposed to two years of training these, first year residents were successful on first attempt.We previously announced that we signed an agreement to distribute our CompuFlo Trainer with American 3B Scientific. A leading supplier of didactic material for medical education covering North, Central and select countries in South America.For the first time, instructors, who previously depended on student feedback and their tactile feel during a procedure are now empowered to empirically monitor needle placement and movement. This is the first time that this has been able to recur or Epidural Trainer.The CompuFlo Trainer features a visual display of pressure, as well as a corresponding audible tone for more precise feedback and student guidance. Procedure documentation is also generated to enhance educational discussion and monitor skill development. This is not available in any other way or any other product for Epidural Trainer.In May, we unveiled a new CompuFlo Epidural Trainer and educational suite to thousands of anesthesia professionals at the EuroAsia 2019 Congress. Europe's largest annual event showcasing the latest knowledge in the field of anesthesia.We now have a full suite of learning tools to improve Epidural placement by trainees by providing or complete training solution, medical residency programs and simulation labs are now able to accelerate the procedures learning curve by reducing stress on the part of both the students and the trainer uncertainty and a number of attempts to locate the Epidural space.We also announced that the CompuFlo Epidural system was featured into research abstracts at EuroAsia 2019 Congress. Researchers from the Hospital Universitario La Paz in Madrid, Spain shared a case report using CompuFlo for blood patch repairs after an accidental dural puncture and upset its patients.An accidental dural puncture is a known risk of Epidural anesthesia and occurs when the needle accidentally punctures the dura resulting in the leakage of cerebral spinal fluid. This can lead to severe migraine headaches, pain and additional morbidity. Leading to additional procedures for the patient additional costs for the hospital, which can be costly to repair both the puncture of the Epidural.In the United States, when a new procedure is done to repair an Epidural that has gone aerie, another anesthesiologist must do that pull blood and attempt to do the repair. It is a costly and very involved procedure. In the La Paz case report, a dura puncture occurred using a traditional loss of resistance syringe during Epidural space identification, which had been difficult with multiple attempts.CompuFlo identified the Epidural space for the blood paltry pair on the first attempts, avoiding the false loss of resistance associated with repeated punctures and failed repairs. The abstract also concluded and “it is a safe technique that reduces the volume of saline or here administered avoiding dilution of the blood inserted and the accumulation of sailing. We think it is a reliable method to be used for blood patches.”The other abstract highlighted how CompuFlo accelerates clinical competency for trainees. The European School on Ascetic Anesthesia in Rome, Italy recorded a study of 60 trainees, who had never performed in Epidural block.The results show copy flow assistant training reduced the number of attempts and made the procedure easier for the inexperienced trainees. CompuFlo increased threefold the chance to identify ligamentum flavum at the first attempt during the simulator assisted training module.Now turning to a dental segment, our Wand Dental subsidiary remains cash flow positive on a standalone basis with continued growth opportunities. Although revenues within our Wand Dental subsidiary declined slightly from the same period last year. This was due to a one-time large water in 2008 from an overseas distributor. Moreover, we reported an 18% sequential increase in revenue versus the first quarter of 2019.At this point, I would like to turn the call over to our Chief Financial Officer Joseph D'Agostino, who will go over the financials in detail. But I will be back at the conclusion of Joseph's discussion. Please go ahead, Joseph.

[Joseph D'Agostino:]

Thank you, Leonard. Revenue for the three months ended June 30, 2019, was $2.3 million versus $2.4 million for the second quarter of 2018. The decrease of approximately $171 thousand dollars is primarily due to a non-recurring order of hand pieces and devices in 2018, from a distributor in Mexico of approximately $400,000.Medical revenue for the free months ended June 30 2019 decreased slightly. We are in the process of attending medical device trade shows, and attending introductory meetings with medical device distributors within the United States and European markets, which we believe will set the stage for our broader commercial rollout.Gross profit for the second quarter ended June 30, 2019 was approximately $1.5 million, or 67% of revenue, versus approximately $1.4 million, or 58% of revenue for the second quarter ended June 30, 2018. Gross profit for three months ended June 30, 2018 included an inventory reserve expense of $290,000.Operating loss for the three months ended June 30, 2019 was approximately $1.1 million versus approximately $1.4 million for the quarter ended June 30, 2018. The decrease in operating was is due to an increase in gross profit and reduction of general, and administrative expenses of approximately $300,000, partially offset on an increase of approximately $100,000 in research and development expense. Net loss for the three months ended June 30, 2019 was approximately $1 million or $0.02 per share versus a net loss of $1.3 million or $0.04 per share for the prior period.Now I would like to turn our attention to liquidity and capital resources. At June 30, 2019, the Company had cash and cash equivalents of $2.3 million, compared to cash and cash equivalents of approximately $700,000 as of December 2018.As a result June, 2019, total current assets were approximately $6.3 million. Revenue for the six months ended June 2019 and 2018 was approximately $4.2 million respectively. Dental revenue for the six months ended June 30, 2018 included a non-recurring order for hand pieces and devices in 2018 from a distributor in Mexico of approximately $400,000.The gross profit for the first six months of 2019 was $2.8 million or 67% of revenue versus $2.6 million or 63% of revenue for the first six months of 2018. Operating loss for the six months of 2019 was approximately $1.9 million versus approximately $3.4 million for the first six months ended 2018.The decrease in operating loss is due to the increase in gross profit, reduction in general and administrative expenses of approximately $1.2 million and reduction in Research & Development expenses of approximately $135,000.Net loss for the six months of 2019 was $1.8 million, or $0.04 per share, versus net loss of $3.2 million, or $0.09 per share, for the comparable period in 2018. One final note, our cap structure has been further simplifies with a recent conversion of Series A preferred stock into common stock by Bp4 S.p.A. an entity affiliated with Gian Domenico Trombetta, a director of Milestone Scientific and Chief Executive Officer and Director of Wand Dental Inc.Bp4 converting its preferred shares into approximately six million shares of restricted common stock and effective conversion rate of $1.17 per share based on an initial investment amount of $7 million. We appreciate the continued support involvement from Mr. Trombetta.At this point, I would turn the call back for Leonard. Leonard.

[Leonard Osser:]

Thank you, Joseph. As discussed on our Wand Dental subsidiary remains cash flow positive on a standalone basis with continued growth opportunities. We are also carefully managing our expenses as evidenced by our reduce SG&A.We all continue to advance the rollout of the CompuFlo Epidural System. Most recently we signed a distribution agreement for the CompuFlo with Paragon Care Limited, a leading provider of medical equipment, devices and consumables in Australia.Australia is a large market in our sector, as Epidural anesthesia is used in one third of the approximately 300,000 births in Australia each year. Reduction and complications, seizure failures and the associated costs are essential to increasing the popularity of Epidurals in childbirth.We believe Paragon Care is the perfect partner as they have strong relationships and a deep reach into Australian hospitals and medical schools. Our goal is to collaborate with distributors worldwide to build a new standard of care with the Epidural with our Epidural instrument.I would like to thank you for joining the call today. At this point we would like to open the call to questions.

[Operator:]

[Operator Instructions] Our first question from Anthony Vendetti with Maxim Group. Please go ahead.

[Anthony Vendetti:]

Thank you. I wanted to just focus on the distribution agreement with Paragon that looks like a great opportunity in Australia. I was wondering one if you could just give an update on presence discussions with other distributors, whether that is internationally or in the U.S., and give a little more color on the ramp possibility in Australia with Paragon.

[Leonard Osser:]

Sure. Paragon has extraordinarily good reach in Australia, as I mentioned into both medical schools and to hospitals. We have just signed the agreement very recently and we are now beginning to supply them demo units, to train their sales people to go into the hospitals to train the anesthesiologist.We also look to the future and we try to deal with companies such as Paragon, because they deal with the medical schools, which is the next generation that will help us to enter the market. As far as other distributors are concerned, we believe in Italy, we have the best distributor and [Moby] (Ph) for that country.And we are looking forward to moving in - we have moved into one hospital in Italy, we are looking forward to moving into a number of others in different areas of Italy by the end of the year. We are also working in the Mid-East. But our main focus as you know, because we are a U.S. Company has to be the United States.And we are in quite a number of hospitals now along the process, which unfortunately is a long one. For testing our product, we have set up a number of distributors in the United States. Our goal is to double or triple that amount within the next 18-months. And we are looking forward by the end of the year to finalize arrangements with hospitals so that they start using our instrument.We believe that the arrangement that we made with 3B will significantly enhance our entry into the market, because the ease of which the teacher works with the students. What you have to really look at is you have an attending, sitting next to residents, who is trying to give an Epidural to a woman in labor, who by definition is morbidly obese, which is the most difficult patient to give an Epidural to.The attending has really no idea where the tip of the needle is. So the opportunity for morbidity by invading the dura with the point of the needle is significantly enhanced. With our instruments both the students and being attending know exactly where the tip of the needle is.This is the first time that this has occurred to this procedure. So in the first instance, it is far safer than what is presently known as the standard of care, which is the hypodermic syringe, which we know was invented in 1860.So what we do is we remove significantly the stress on the part of the student, giving the injection on the part of the attending, not knowing where the tip of the needle is, though they are sitting right next to the students.So, in the first instance, it is far safer, but in the second, it will significantly expedite the learning curve of that student. As I spoke to earlier, the clinical study done in the United States show that after one to two days of training with our instrument on a robot, the students who are 100% successful in locating the Epidural space, that is compared to approximately two years.So the training and the arrangement we made with 3B is very, very important to enter the market. Our success in giving injections in various parts of the world continues at the same or higher level than our very, very large multicenter study, which we use for FDA approval.So we are now putting most of our energy to answer your question in the United States. That is where our resources are going to at the moment. And we believe that once that occurs, as our CFO quoted, getting the first olive out of the bottle, we believe that that will significantly expedite our sales, both here and overseas. So that is really where our money is being placed at the moment.

[Anthony Vendetti:]

Len, could you tell some of the feet on the street 3B has so we could try to gauge how quickly this can ramp?

[Leonard Osser:]

Sure. They have over 1200 people on the street.

[Anthony Vendetti:]

Okay, great.

[Leonard Osser:]

They are one arm of a very large European Company. They, they cover all of North America and various countries in Latin America. So they are one of the strongest in the world in this area of education.

[Anthony Vendetti:]

Okay, great.

[Leonard Osser:]

They have training centers throughout the territory.

[Anthony Vendetti:]

And, okay, and then just switching gears a little bit. I know intra-articular has been on hold. You have a roadmap, or when do you foresee potentially revisiting intra-articular? Is that imminent, or is it more up the years down the road and the focus is really on at the Epidural right now.

[Leonard Osser:]

It is yes. The latter, the focus, given our resources as you see on last report, we have 2.3 million in the bank. Our burn is approximately 250,000 or less per quarter. We are husbanding the cash very, very carefully. So the Board has made a decision that we should use all of our resources for the success of the Epidural.So unfortunately, as we see our stock price so low that would have moved up in the last couple of weeks a little bit. We would like to use the capital which we have, avoid dilution whenever we can and show the success to the marketplace of the Epidural product, and avoid raising any capital unless we really have to sell it. So for that reason we have the IA on hold and we are putting all of our efforts into the Epidural.

[Anthony Vendetti:]

Okay, it makes sense. Last question and then I will hop back in the queue. Dental was up year-over-year and sequentially. Do you think that is on that kind of trend where we should see more consistent results or based on orders from certain customers that will continue to be somewhat volatile or up and down a little bit?

[Leonard Osser:]

I don't think it will be volatile year-on-year, I think under Gian Domenico Trombetta, what he has done is, he has formed a much stronger base of, he has bettered the distribution network considerably. He has brought in quite a number of not just key opinion leaders but top key opinion leaders that lecture constantly throughout the world. So he set a good foundation.So I think that we can continue seeing some growth from it. But we are financially and we have been for the last three years treating it kind of with benign neglect, and not putting any real money into it taking the money out to support us in the, for the Epidural, because we believe the future of the Company is in the medical sector.And from the platform, which we have, we can produce so many different instruments with the related disposables. So we have decided to put hardly any money into the growth of dental. So the effort is certainly being made to increase year-on-year. But we are not supporting it as we would if we had more capital.

[Anthony Vendetti:]

Okay, thank you.

[Leonard Osser:]

You are welcome.

[Operator:]

And we will take our next question from [Anthony Marchese] (Ph) he is a Private Investors.

[Unidentified Analyst:]

Hi, Len. Two questions for you. Could you just take us through sort of not just how long it takes, but the procedures that hospitals have to go through, at least in the United States to get the Epidural from the time that a doctor likes it to the point where the hospital says to the staff we can use it here?

[Leonard Osser:]

Sure. The process normally, I would say for a product to move in takes about 18-months. It is a long procedure. First, one sets up the distribution when the sales person goes with our sales person to the hospital and demos the product, generally there is significant interest in the product. We are at a stage because of our significant clinical work over the last few years that no one is suggesting that the product doesn't do what we will know it does.So the process then is to have the hospital okay it for a trial. Depending on the hospital that could take three-months, it could take six-months. For the Chairman to then get it for a trial. So it goes into trial because it is different than surgery, in other words, when you are doing surgery, you have an appointment set up, the sales person goes there. They work with the doctors. They try what we have. And there is a way to do this with some expediency.With us, we are working primarily with labor and delivery. With labor and delivery, you don't know when the patient really is coming in. So it takes longer, because of the scheduling for that. So what you would generally look at is by the time you have the buy-in from the Chairman and the other doctors, it could take approximately a year.At that point, it goes to cost analysis for the hospital. At that point, that could take two or three-months depending on their administrative ability. At that point, they then look at the budget where they are in the budget and they basically tell the Chairman, well you wanted this to the last year, would you rather have this or that?So if they choose our product over something else that was in the budget, then they can buy it right away. If not, they can say yes, we will buy it, but we are going to put it in next year's budget. So it is a long and arduous process.However, the good news is that we are adhering to it. We are in quite a number of hospitals at we believe the end of it. We believe that we are very close to a very important independent study, showing the cost benefits of using our technology, which we believe are overwhelming.In addition to everything that we mentioned earlier in the call, the amount of savings for the insurance Company, for the hospital. I believe will be compelling for any institution. So when that study is completed and I'm hoping that is within the next 60 to 90 days.I think that the evidence will be overwhelming in the area of cost savings. And that is why we went into the Epidural first among all the different instruments we could have created. The safety, the cost savings, the benefits of the patient. Tony, did that answer your question?

[Unidentified Analyst:]

More than adequately. Thanks Len.

[Leonard Osser:]

My pleasure.

[Operator:]

And we will take our next question from [John Cord] (Ph) who is also a Private Investor.

[Unidentified Analyst:]

Hi, how are you. Nice to talk with you again. My questions have largely been answered by the previous two calls. But I really wanted to know, like you probably wanted to know what is going to be the springboard at catalysts to get that first olive oil out of the bottle. And this has certainly been a much longer and arduous process than I envisioned since you got approval.I'm wondering at this stage, are you more optimistic than ever or are you more cautious now, because of the realization of how long this takes and the pushback, you get from doctors and hospitals. So where are you guys feeling that we are right now as a Company with Milestone Scientific.

[Leonard Osser:]

I’m very optimistic, because the product is performing. As I said as least as well as our original multi center study. So many of the things that we spent a great deal of money on early in the process that are out of the way, which are the clinical studies and the abstracts. Those are areas that most companies would be doing now, after having produced the price.That is all behind us. We have spent that money, and the proof of the efficacy of the product and the value of the product is irrefutable. I mean, it is compared to the standard of care today, there is literally no comparison as far as safety and cost savings. So I’m very optimistic.Unfortunately, the medical industry in the first world is very slow to take on new technology, mainly for budgetary reasons. But our product sells for a relatively small amount. The disposable is compared to many others is a relatively small amount but very significant to Milestone Scientific. So we believe, particularly with the publication of the cost analysis study that we anticipate in a few months that will make the difference.We have already proved the efficacy. It is irrefutable. We have studies done throughout the world, multisite studies at major universities. We continue to give the injections, I believe, we are somewhere over 2000 now. You have tremendous pressure on the hospitals from insurance companies regarding malpractice and I believe that it is blatantly obvious that the course will be significantly diminished by using our instrument, which is not that expensive.So to purchase our instrument moving into a hospital, even a regular hospital, not a teaching hospital will save that hospital considerable money, one has to report one's mistakes, so the mistakes will come down dramatically. In a teaching hospital, as you are probably aware, the morbidity rate of the Epidural injection pretty much throughout the world is 4.5%,which is enormous.I mean, if I was going for a procedure at [UO] (Ph) we might be looking for one out of the million, one out of 100,000 is 4.5. But in the teaching hospitals is significantly greater than that. This is a major, major problem, but there is no alternative. But that is why 2.4 million women out of 4.4 have the Epidural, the other ones read the risk factor.So I’m very optimistic that this will become the standard of care. Unfortunately, we don't know timing, but thus far the product is acting exactly as advertised. It is doing exactly what it is supposed to do. And when we go into hospitals, that is not being question.So, do I remain very optimistic? Yes. Do I believe that we will get our first [indiscernible] as a bottle this year? Yes. We are already in a small hospital that is using it exclusively in Italy, but it is a small hospital, but they using it exclusively.We speak with Chairman and a woman a few weeks ago from a hospital told us she really wants this product, because she is tired of getting calls at two in the morning that they had a wet cap, that they cause morbidity and she has to run and do a repair. So our technology is very obvious. It is very, very simple learning curve. And it is relatively inexpensive when you look the cost analysis. And that is why I'm very optimistic.

[Unidentified Analyst:]

Great. That is what I wanted to hear Leonard. I continue to be a shareholder of Milestone Scientific and I’m like you hopeful that someday there will be that springboard to get this and use and that might be the springboard for other uses of this product. I'm sure you think about that too. But the chicken has to come before the egg or the egg before the chicken. So continue your good work. I appreciate your efforts. Thanks so much.

[Leonard Osser:]

Thank you very much.

[Operator:]

We will take our next question from Tony Kamin with Eastwood Partners.

[Tony Kamin:]

Hi, Len. You sort of answered my question in part, in a bunch of different ways. But I think it is still worth asking. I was curious now that you are obviously in a number of hospitals and you are pretty far along with some of them. Can you talk maybe a little subjectively as you just mentioned with the Chairwoman I think of a hospital, what are you hearing from doctors and is there a chance that there could be sort of a pull demand versus you pushing the product to them that is now as they are trying it, they are like, hey, we really need to get this. So do you have any sense of that sort of pull from the doctors yet?

[Leonard Osser:]

Yes. I think that is the main issue now at this point, is the doctors see it, those attendees that do training, definitely see it. It is blatantly obvious to them. It all comes down to cost analysis. There are limited budgets, and the chairman has to decide what it is that they want.So for us at this stage, having proven the efficacy and having done major studies, certainly not solely for a small company like us, but for any company enormously successful studies. It all comes down to the cost analysis at this point. And we have been working on that for quite a while. We believe that the cost will be compelling when this study comes out.And I could be a little bit more precise, if you have a wet tap and we are aware of that in the hospitals setting, the patient a woman and labor at this point, that patient will now stay in the hospital on average of two extra days. Being that that patient is staying two extra days in the hospital. The new bonus thing two extra days.So we are talking about on average in the United States is $12,000 expense. They now have to have another anesthesiologist pull blood, attempt to rescue on the wet tap, which is basically drawing the blood to cover the hole after doing yet another Epidural. So the cost at a minimum would be $12,000. Our indications are that it is significantly greater than that.Now that doesn't count the average settlement when this happens. In litigation which is somewhere between $350,000 and $400,000. So we believe that we will not only have the push pull of the doctors and the trainers. But we believe that once we have enough evidence of injections out there, which we are very quickly approaching, we can then go to the insurance companies.And our aim is to have insurance companies tell the doctor that if you use the 1860 technology, you are not covered with the malpractice. That is our aim in this. And we believe that we have the scientific evidence and the clinical evidence to back that up. So it is a matter of time, I don't believe, we are looking at a year and I don't believe we are looking at a month either.

[Tony Kamin:]

Great. It would be very exciting to start seeing those first sales. I think that is such an important inflection point for the Company and obviously it is evaluation. On that line, my last question is the strategic review that you guys are committing that you put together several months ago. Are you happy with whatever progress or whatever activities you are working on there and is there a timeframe in which you think, shareholders might expect an update on that?

[Leonard Osser:]

I would love to give a timeframe. We are aggressively working on that. I will say that it is our strategic plan at Milestone not to develop every single market for 100 products. So whatever we end up with, but to have either a situation where we have a joint venture, where we license it or sell outright the technology for a particular area of drug delivery.So I can't give a specific timeframe, but we are aggressively working in that area. And we always announce as we do when we are awarded, we don't announce when we file for patent. We announce when it is awarded and it is the same thing in this situation. So I can't give a specific update regarding where we are in the process. But I can say that we are being very aggressive in that area.

[Tony Kamin:]

Great. Thank you very much.

[Leonard Osser:]

You are welcome.

[Operator:]

[Operator Instructions]. And at this time, there are no further phone questions.

[Leonard Osser:]

Okay. I would like to thank everyone for joining the call. Any questions, I would suggest calling IR David Waldman and Natalya Rudman. Thank you once again. And as things develop, we will put out our announcements as always. Thanks again for joining the call. Bye, bye.

[Operator:]

That concludes today's call. Thank you for your participation. You may now disconnect.