Milestone Scientific Inc.
Q2 2017 Earnings Call Transcript

Published: 15 Aug 2017

[Operator:]

Ladies and gentlemen, please stand-by. Good day and welcome to the Milestone Scientific Inc. Second Quarter 2017 Investor Conference Call. This conference is being recorded. And now at this time, I would like to turn the conference over to Mr. David Waldman, please go ahead sir.

[David Waldman:]

Good morning and thank you for joining Milestone Scientific second quarter 2017 financial results conference call. On the call with us today are Dan Goldberger, Chief Executive Officer; and Joseph D'Agostino, Chief Financial Officer and Chief Operating Officer. The company issued a press release yesterday, Monday, August 14, containing second quarter 2017 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 212-671-1021. The company’s management will now provide prepared remarks, reviewing the financial and operational results for the second quarter ended June 30, 2017. Before we get started, we’d 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 plan, 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, 2016 and Milestone’s report on Form 10-Q for the second quarter ended June 30, 2017. The forward-looking statements made during the call are based upon management’s reasonable belief as of today’s date, August 15, 2017. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason. With that, we’ll now turn the call over to Dan Goldberger, CEO. Please go ahead, Dan.

[Dan Goldberger:]

Thank you, David. And thanks to everybody who is joining us today. Since joining Milestone Scientific just over a month ago, I’m pleased to report we’re making steady progress following successful FDA marketing clearance of our CompuFlo Epidural Instrument. Len Osser has been relentless in his efforts to establish a solid platform to growth for Milestone Scientific and our Dynamic Pressure Sensing technology. Not just in dental but across a number of medical verticals. I’m honored to now lead our transition to a commercially focused global medical device company. I’m grateful that Len will be actively involved in the company going forward both at the board level and overseeing our expansion across China. Employees of Milestone are talented, dedicated and very lean team with professionals and I look forward to building a great company with this team. I also want to point out that before joining Milestone I conducted my own due diligence in market research. I truly believe in the enormous market potential for this platform technology. Turning first to our Wand Dental subsidiary, we are gaining momentum under Gian Domenico Trombetta’s leadership. In addition Joseph D'Agostino, our Chief Operating Officer and Chief Financial Officer is working closely with Henry Schein to drive sustainable, profitable growth in the United States. Revenues grew from $5.8 million in the first half of 2016 to $6.2 million in the first half of 2017. In the U.S. we’ve launched several promotional programs in partnership with Henry Schein that should drive revenue growth in the second half of the year and throughout 2018. This quarter alone, we achieved a 70% increase in domestic handpiece sales in our dental business demonstrating the early success of those promotional programs. We believe these marketing initiatives along with further investments in education and research activities with our worldwide team of key opinion leaders should help build market awareness and serve to accelerate revenue growth in the second half of 2017 and throughout 2018. The increase in domestic handpiece sales was partially offset by the reduction in sales of handpiece system Milestone China, which is working through inventory purchases from late last year. In Europe, we’ve replaced several underperforming distributors this will help us accelerate international sales in the second half of the year. Importantly, our dental subsidiary continues to generate positive cash flow on a standalone basis. Turning to our medical instruments. The CompuFlo Epidural computer controlled anesthesia system recently received its 510(NYSE

[Joseph D'Agostino:]

Thank you, Dan. Revenue for the three months ended June 30, 2017 was $2.5 million versus $2.4 million for the second quarter of 2016. The increase in total revenue by approximately $152,000, or 6% was primarily related to increase both domestic sales. And the domestic market total revenue increased by approximately $517,000 in 2017 as Henry Schein completed its sales force training. We believe that the agreement with Henry Schein will lead to increased domestic sales of the STA devices handpieces during the second half of 2017. On the international front our total revenue decreased by approximately $365,000 due to a reduction in shipments of handpieces to Milestone China. This decrease is due to Milestone China working through its current inventories. Gross profit for the second quarter of 2017 was $1.7 million or 65% of revenue versus $1.6 million or 67% of revenue in the second quarter of 2016. Operating loss for the three months ended June 30, 2017 was $1.6 million versus an operating loss of $2 million for the same period last year. This decrease is primarily attributable to the completion of the clinical studies and other expenses relieving to Milestone’s medicals epidural and intra-articular devices in 2017. Net loss for the three months ended June 30, 2017 was $1.5 million or $0.04 per share versus a net loss of $1.6 million or $0.06 per share for the comparable period in 2016. Now we’d like to turn our attention to liquidity and capital resources. At June 30, 2017 the company had cash and cash equivalents of $2.9 million, total current assets of approximately $11.5 million and working capital of $7.5 million. We believe that our cash on hand, accounts receivable and revenues from the dental business will be sufficient to operate the ongoing business for at least the next 12 months. Revenue for the six months ended June 30, 2017 was $6.2 million versus $5.8 million for the second quarter of 2016. The increase in total revenue by approximately 6% was primarily related to increased handpiece sales in the United States. Domestic sales increased by approximately $499,000 in 2017. International sales decreased by approximately $123,000 over the same period in 2016, principally due to the reduction of shipments of handpieces to Milestone China. Gross profit for the second quarter of 2017 was $3.9 million or 63% of revenue versus $3.7 million, we’re again 63% of revenue in the second quarter of 2016. Operating loss for the six months ended June 30, 2017 and 2016 was approximately $2.1 million and $3.1 million respectively, a decrease of approximately $1 million. This decrease is primarily attributable to the completion of the clinical studies and reduced research and development expenses relating to our epidural and intra-articular devices in 2017 and an increase in revenue in related gross profit. Net loss for the quarter of 2017 was $2 million or $0.06 per share, a net loss of approximately $2.4 million or $0.10 per share for the comparable period in 2016. At this point, I’d like to turn the call back over to Dan.

[Dan Goldberger:]

Thank you, Joseph. The Board of Directors and I are focused on the long-term success of Milestone Scientific and increasing shareholder value. Since joining Milestone, I’ve met with our commercialization teams and multiple clinicians in the United States and abroad that are familiar with our technology. The doctors and dentists that I’ve interviewed are universally excited about the long-term benefits of Dynamic Pressure Sensing painless injections and our unique ability to detect tissue planes and transitions. We have an enormous opportunity when we harness the passion and enthusiasm generated by Dr. Hochman’s invention. We recently announced treatment of our first patient in the United States with the CompuFlo Epidural instrument at the University of Miami Hospital. And we look forward to bringing this innovative technology to more physicians and patients in the United States. The data from our previously announced COMPASS Study was compelling to the FDA and will be a powerful marketing tool for us going forward. The technology provides anesthesiologists and other healthcare providers the ability for the first time the quantitatively determine and document the pressure at the needle tip in realtime. The CompuFlo Epidural instrument is easy to use, with varying level, which further drives the value proposition of this technology. We have an exciting pipeline of products that utilize our proprietary DPS technology in multiple vertical markets. We envision additional product rollouts over the next three years. Our balance sheet, our balance sheet remains solid and we continue to generate positive cash flow in our dental division. So to wrap up, I’m encouraged by the outlook for divisions and look forward to announcing additional developments as they involve. We will attend a number of investor conferences this fall and I look forward to meeting our stockholders in person. I want to thank Len Osser and the Board of Directors for the opportunity to join Milestone and I want to recognize the hard work of our small dedicated team of employees over many years. Thank you for joining us today. At this point we’ll open the line to questions. Operator?

[Operator:]

Very well. [Operator Instructions] We will hear first from Anthony Vendetti with Maxim Group. Go ahead please.

[Anthony Vendetti:]

Thank you. Welcome aboard Dan.

[Dan Goldberger:]

Thank you, Anthony. Good to be here.

[Anthony Vendetti:]

Just on the epidural and then on the intra-articular, I know you resubmitting the application for the intra-articular. Can you talk about first on the epidural? What’s going to be the challenge for rolling that out nationwide? How are we going to drive that business significantly forward? Is it going to be through distribution partners and direct sales in the U.S. or direct sales? How we’re going to get that out there? It’s clearly a better product and safer product than what’s out in the market today.

[Dan Goldberger:]

So you’re absolutely right, it’s a very exciting product. A little bit of background in 2015 and 2016 the company ran the COMPASS Study at five centers around the United States. Some of those were labor and delivery centers, some of those were pain management centers and handful of clinicians both attendings and fellows and in turns at those facilities all participated in the study. Those will be our first five customers and we will handle those initial locations. I guess you would call it direct but that that’s really more of a demonstration of the business model than a commercialization team. In parallel as we go through the end of this year will be assembling a commercialization team and we are evaluating various strategies whether it’s a national distributor, whether it’s working local regional distributors or perhaps in target cities building out our own distribution. But we’re going to start with those centers that participated in the study are excited about the instrumentation are somewhat annoyed with us that the instrumentation had to be taken away pending the FDA clearance and are now very excited with the FDA clearance to be able to use the technology again.

[Anthony Vendetti:]

Okay. And then on the intra-articular, when you say resubmitting the application, the application was submitted before – is this is a new application you’re submitting or is just questions back from the FDA, which you have answered and now ready to resubmit.

[Dan Goldberger:]

We are in dialogue with the FDA as recently as last week and asking for clarification of kind of data that the agency wants to see and then we’ll have to go collect that data and then we will resubmit the application.

[Anthony Vendetti:]

Okay. So it sounds like that they’re requesting some type of additional data before going forward is that correct?

[Dan Goldberger:]

Correct.

[Anthony Vendetti:]

Great. Any other insight you can give me in terms of the dental business, which continues to be strong and then Milestone China. How should we model for inventory there? Some quarters they were more than others. Is there any way to model that more…?

[Dan Goldberger:]

So, we’re very fortunate that Len Osser is going to be focused on liaison with Milestone China and the business opportunity there. Right now we’re not in a position to give guidance relative to the timing of their appetite for additional product. But I expect that we will be able to by the end of the year.

[Anthony Vendetti:]

Okay, great. Thanks very much I’ll turn back in the queue.

[Operator:]

And next we’ll hear from Anthony Markese, Private Investor.

[Anthony Markese:]

Hi good morning, Dan and congratulations on the new position. Two questions, could you share with us…

[Dan Goldberger:]

Thanks.

[Anthony Markese:]

Thanks. Could you share with us – my understanding is that the epidural product has been used quite successfully in Europe. And there are number of key opinion leaders in Europe who have used a product. Could you share with us their experience, have they used it on – my understanding is it’s more difficult patients first or – just give us some feedback on how the products been used and how you guys see that translating into U.S. sales?

[Dan Goldberger:]

So, thank you for bringing that to the forefront. We have two sites in Italy, we have one site in Spain and one side in France. They’re all very active building up a experience base with the epidural instrument. It’s a mix of labor and delivery indications and chronic pain management. And so those are – even though the instrumentation is identical for those two applications, imagine the patients are very different and the access to the patients are very different. If you look at the COMPASS data, which is in Cres, so we can’t really talk about it too much until it’s published. But the CompuFlo arm of the COMPASS data basically said that the epidural injection was successful first time, every time when you look at the control arm of the COMPASS data and you stratify it by type of patient, by BMI of the patient you find that the success rate in the traditional technology is remarkably low especially in BMI patients and especially in some of the labor and delivery cohorts. And so we’re seeing that data get reinforced by the real world experience in Europe and at the centers in the United States. And really looking forward to when that COMPASS data is published so that we can speak about it freely.

[Anthony Markese:]

How are you thinking about presenting this to the insurance companies? It seems to me that, anesthesiologists have in my understanding the highest – they will pay the highest insurance rates of all doctors. Is this something where at some point you see potentially the insurance companies almost forcing, not forcing but it is strongly encouraging the anesthesiologists to use this product because of the potential for less adverse side effects, which obviously leads to less insurance payments.

[Dan Goldberger:]

So Anthony it’s not just the insurance companies, the whole quality of care initiative under the ACA provides or some substantial financial penalties to the hospital or the hospital group. For example in the case of an epidural, if the success rate falls below what the generally established target is then that would fail a quality of care indicator. So we will have to circle up with our investigators over the next year and design an economic study fundamentally to start to demonstrate why you getting that successful epidural first time, every time. Why that’s an important quality of care indicator and ultimately an economic indicator. So you’re absolutely right, but it’s going to take some time. And if we do choose to go forward with an economic study, it will take some additional investment.

[Anthony Markese:]

Okay. And final question, I guess this is the first time you’re doing the call for the company. At $1.30 the stock is trading lower than where it was before – you had all the successful events which make no sense to me. Could you just give us all, because this is the first time we’re hearing this is your background and what your plans are to – I guess try to get the stock to a level which in my opinion it would be more reflective of your prospects.

[Dan Goldberger:]

Thank you for that. And yes, we’re all frustrated at the trading pattern which we agreed is not – this is not added, it’s not appropriately value the assets and the quality of the business that’s built here. I’ve had success running smaller public and private medical technology companies either growing them operationally or leading them into an M&A process. And I fully expect that we’ll be able to do the same thing. We have a solid base in our dental business Henry Schein and it’s an outstanding partner for our dental business in the United States. We’ve got similar partnerships in Europe and parts of Asia. And so I expect that the dental business will continue to grow as we execute on sort of the straight-forward marketing and promotional activities that are already in place. For the various medical indications obviously the epidural indication is now proved and we’re going to focus on commercializing that. There are several verticals within labor delivery and pain management; there are slightly different settings that we can take the technology too. The intra-articular instrument once it is approved, it is going to take us into sports medicine. And I think the company will talk publically about taking this technology to dermatologists for injections of cosmetic aesthetic applications. So there’s a huge opportunity for the platform technology, as a small company we have to be very, very selective and disciplined at least in the early days about how we deploy our resources to build out that commercialization task. And I think you are going to see some exciting results maybe not in the fourth quarter but certainly as we roll into 2018 as we start to get some sales and identify partners for that epidural indication.

[Anthony Markese:]

All right. Thank you very much.

[Operator:]

And now we will take a question from Keith Goodman with Maxim Group.

[Keith Goodman:]

Hi. Congratulations on the new role as well. Quick question for you, in reference to – the first usage in Miami, first epidural usage in Miami. Can you sort of give some visibility to what led to that anesthesiologist deciding to use the technology and is that indicative that he’s going to continue to use it that the rollout should continue in Miami or how does that work?

[Dan Goldberger:]

So Dr. Gephardt has been – was early adopter of the technology and he has been advisor to the company and he’s been chomping at the bit to use it in his practice ever since he first became aware of the technology. Dr. Gephardt is a pain management specialist and he is introducing it to the labor and delivery folks within his institution. And they’re already clamoring for additional instruments because they’re fighting over the one box that they have access till right now. So yes, that will be an ongoing center for use of the instruments based on having one champion has been following us for a long time. We expect the same kind of thing to happen at other centers. We have a cohort of early adopters who either anticipated in the COMPASS Study or were made aware of the COMPASS Study. And they’re all very excited to gain access to the technology right now.

[Keith Goodman:]

So you have more than one doctor that’s fighting over the tool does that mean you haven’t just used one application on the Miami or it was one-and-done or how does that work?

[Dan Goldberger:]

No, they are continuing to use the technology on a regular basis.

[Keith Goodman:]

Got you. Okay.

[Dan Goldberger:]

But they only have one instrument or I believe they’ve got more than 100 anesthesiologists down there at that center.

[Keith Goodman:]

Okay, great. All right, thanks a lot.

[Dan Goldberger:]

Yes.

[Operator:]

[Operator Instructions] And with no additional questions in the queue I will turn the call back over to Mr. Dan Goldberger fro any closing remarks.

[Dan Goldberger:]

Thank you. And thank you to all of you who took the time out of your morning to listen to our call. This is just the beginning, our dental business is going to continue to accelerate. And as you can tell from our presentation, we’re just getting started with our medical indications and there’s a huge upside opportunity for this little company. Look forward to speaking to all of you in a few months.

[Operator:]

With that ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation. You may now disconnect.