Myomo, Inc.
Q3 2018 Earnings Call Transcript

Published: 6 Nov 2018

[Operator:]

Good afternoon. And welcome to the Myomo Incorporated, Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, Investor Relations. Please go ahead.

[Vivian Cervantes:]

Thank you, operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statement. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate belief, estimate, expect, intend, guidance, confidence, target, project and other similar expressions are used typically to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance, and may involve and are subject to certain risks and uncertainty and other factors that may affect Myomo’s business financial condition and other operating results. These include but are not limited to the risk factors and other qualifications contained in Myomo’s almost filing with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward looking statements. Myomo’s expressly disclaims any intent or obligation to update these forward looking statements. At this time, it is now my pleasure to turn the call over to Mr. Paul Gudonis, Chairman and Chief Executive Officer of Myomo. Paul, please go ahead.

[Paul Gudonis:]

Thank you, Vivian, and welcome to all of you. Thanks for joining us on our third quarter 2018 earnings conference call. And I'm joined today by Ralph Goldwasser, Myomo’s Chief Financial Officer, who’ll provide a discussion of our financial results and be available for your questions after our prepared remarks. In terms of administrative items, we issued a press release with our third quarter earnings results soon after the market closed today. And a copy of this press release can also be found in the Investor Relations section of our website. As I've outlined in our investor meetings and recent quarterly conference calls, we've now begun our commercialization scale up to address this large opportunity we have to conquer upper limb paralysis. Many individuals who suffered a stroke, a spinal cord injury or other neurological conditions are left with arm and hand paralysis, and it's a growing number with new incidences each year. So, I’m pleased to provide a status report on our four growth programs. One, expanding U.S. sales and marketing; two, new product developments; three, clinical studies and reimbursement; and four, our international expansion. I'll start with U.S. sales and marketing. We had a record quarter of 130 new patients entering the reimbursement process for MyoPro during the quarter. And here's how our scale of activities are achieving this result. Earlier this year, we opened new sales regions by hiring business development managers and clinical support staff. These professionals then recruited and trained Orthotics and Prosthetics clinics to provide the MyoPro Orthosis. We then followed this up with local digital marketing campaigns and hosted patient screening days to evaluate patients and demonstrate how our products can change their lives. In the quarter, we added six new own key providers who are certified to fit the MyoPro in total 13 locations in metro areas including the Atlanta Georgia area, Sacramento California and the Greater Seattle Washington area and we continue to expand our distribution footprints. After piloting online and digital marketing campaigns inviting patient prospects the screening days in the first quarter. We expanded the number of screening days from 12 in Q1 to 25 in Q2 to 100 in this last third quarter. As a result of these marketing activities, our reimbursement pipeline stands at 222 units which represent potential revenue which may be realized over the next 12 months as these cases are approved by insurance payers. To put this in perspective, we're now adding around 40 new patients per month will then evaluated for MyoPro and entered the reimbursement process. For comparison purposes, we sold 94 units in all of 2017 so the front end of our pipeline is growing with the additional sales and marketing activities. We're also continuing to work on expanding our target patient population by introducing the MyoPro for adolescents to children's hospitals across the country and by attending medical conference such as the recent Cerebral Palsy conference in Cincinnati. You may have also heard the report from the Center for Disease Control, the CDC about the new cases of Acute flaccid myelitis known as AFM, which is polio like symptoms of paralysis with the majority of these individuals under the age of 18. We are offering our assistance to these families with teenagers with AFM to obtain a MyoPro rates for them so they can regain movement of their paralyzed arms. We're also testing prototypes of our pediatric sized device working with organizations such as the Cleveland Clinic Children's Hospital to identify candidates for a smaller lighter weight device that we expect to bring to market next year. As you may recall, we applied to the Center for Medicare and Medicaid Services CMS for a unique product code known as a HCPCS code for the MyoPro. And we reported in May of this year that we received a favorable preliminary decision to establish two new codes for our devices. Over the next several months CMS may establish codes and fees for the MyoPro and if all goes well Medicare coverage would be effective in the first quarter of 2019. While we're cautiously optimistic about this development I need to emphasize that there's no guarantee that CMS will actually issue a code with suitable policy in allowable amounts. If it does happen will certainly increase the number of patients who can benefit from our technology and expect that their overall healthcare costs for these patients will also be reduced. And our fourth growth initiative is opening up new country markets for the MyoPro focusing initially on Europe where we have the CE mark allowing us to recruit distributors and start providing devices to patients. In the quarter, we signed O&P provider in Denmark conducted screening days in the UK and we began calling out potential distributors in other markets to expand the number of patients who have access to the MyoPro devices. So with that overview of our four programs to grow our business, I'll now turn the call over to Ralph Goldwasser Myomo’s CFO to discuss the quarter's financial results.

[Ralph Goldwasser:]

Thank you, Paul. Welcome and thank you for joining us for our third quarter 2018 earnings conference call. Total revenues for the third quarter 2018 increased by 120000 to $609,000 an increase of 25% when compared to the Q3 2017 quarter. We achieved this increase despite a decrease of $206,000 in product sales to a major distributor. Total revenues for the nine months ended September 30th 2018 increased by 543,000 to 1,555,000 or 54% increase compared to prior year’s nine months. We achieved this increase despite a decrease of 246,000 in product sales to distributors. Gross margins for the quarter and for the nine months 2018 was $68,000 a decline from 75% and 70% reported in the comparable periods in 2017. The decline in gross margin is primarily due to lower grant revenue, which generally does not result in our incurring any additional incremental costs. Research and development expenses for the three months ended September 30th 2018, were $450,000, a $120,000 increase or 37% increase as compared to the three months ended September 30th 2017. For the nine months ended September 30th 2018, R&D expenses declined by $86,000 or 6%. The decrease is primarily due to an incentive bonus of $300,000 to an engineering executive in the second quarter of 2017. Selling, general and administrative costs for the three months in the September 30th were 2,634,000, an increase of 82% as compared to the same period in 2017. The nine-month period ending September 30th 2018, SG&A costs were 7,537,000, an increase of 86% as compared to the same period in 2017. Most of the cost increases are due to increases in personnel costs and costs associated with continuing to build the company's infrastructure. During the three months ended September 30th 2018, we had an operating loss of $2,708,000 as compared to an operating loss of $1,435,000 during the three months ended September 30th 2017. During the three months ended September 30th 2018, we generated interest income of 45,000 as compared to interest expense of 43,000 in the same period of 2017. We did not incur any interest expense during the three months ended September 30th 2018 due to the payoff of outstanding debt in the quarter ended December 31 2017. The company's net loss for the quarter ended September 30 2013 amounted to $2,650,000 compared with a net loss of $1,259,000 for the corresponding 2017 period. For the nine-month period ending September 30th 2018, net loss was $7,625,000 compared with a net loss of $10,197,000 for the corresponding period in 2017. Adjusted EBITDA for the quarter September 30th 2018 was a loss of $2,538,000 compared with a loss of $1,490,000 for the corresponding 2017 quarter. For the nine-month period ended September 30th 2018 adjusted EBITDA was a loss of $7,122,000 compared with a loss of $4,487,000 in the same period in 2017. Cash on hand at September 30th, 2018 was 9.1 million compared to 13 million at December 31 2017. During the nine months ended September 30th 2018, we received 3.6 million of cash proceeds from the exercise of warrants. Cash used in operating activities was $7.1 million for the nine month. In July we filed and it became effective a short form S3 Universal Shelf Registration statement so that we can be opportunistic in raising capital if and when appropriate. While there can be no assurances that we will pursue a completed transaction we nevertheless believe is good practice to be prepared. We establish our at the market facility with B Reilly FBR as our broker. Under the requirements of using the S3, we are currently limited to the amount that we can sell in a 12-month period namely one third of our public float or about $8.6 million. To date we have not sold any shares under this registration. As Paul pointed out with a growing pipeline of units in reimbursement process, we believe that the 222 units in pipeline our predictor of future revenue. By comparison for the entire year in 2017, we only sold 94 units. We are very encouraged by the growth in revenue prospects as reflected in the increased number of units in the reimbursement process. Now, I’ll turn it back to Paul.

[Paul Gudonis:]

Thank you, Ralph. Well, as you heard us described today we're seeing strong growth in our key metrics for future revenue. In this past quarter, 130 patients that were evaluated for MyoPro are moving forward into the reimbursement process. We have a large reimbursement pipeline for potential revenue awaiting insurance authorization a growing distribution footprint of O&P providers in the U.S. and in the early stages in Europe and obtaining a Medicare code would expand our ability to address the needs of more paralyzed individuals as we continue toward our goal of becoming the worldwide standard of care for upper limb paralysis. Well, this concludes the formal part of our presentation. So, operator, we're now opening up the call to questions.

[Operator:]

We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Jim Sidoti with Sidoti & Company. Please go ahead.

[Jim Sidoti:]

Good afternoon. Can you hear me?

[Paul Gudonis:]

Yes, we can Jim.

[Jim Sidoti:]

Great. Great. So in the press release, you indicated you signed up six new O&P centers in 13 more areas. So what's the total now that you have signed for 2018?

[Paul Gudonis:]

So, we now have over 80 locations nationwide signed up to deliver the MyoPro gym.

[Jim Sidoti:]

Okay. And so how many have you added since January of this year?

[Paul Gudonis:]

Let me see so we've been adding up new O&Ps since the beginning of the year I think it's around 50 since the beginning of the year, Jim.

[Jim Sidoti:]

Okay. And as far as the communication with CMS are they waiting on anything additional for you. Or do you have any meeting scheduled or are you just on standby waiting for an announcement from them?

[Paul Gudonis:]

It's the latter. We attended their public hearing. Dr. Brandon Green our Chief Medical Officer spoke at that meeting back in June. And so the ball is really in their court. They're very busy with a number of new code applications. So we expect to hear a response hopefully in the next couple of months about it.

[Jim Sidoti:]

Okay. And then you indicated the backlog right now is over 200 units. How does that compare to where you were three months ago?

[Paul Gudonis:]

If you look where we were at the end of Q2, we added 130. We had 24 units turn into orders so you can see a significant growth quarter-over-quarter. As I said this is our best quarter ever in terms of adding into the pipeline thanks to the increased sales and marketing activity.

[Jim Sidoti:]

So you went from 130 to 222 in the quarter.

[Paul Gudonis:]

Yes, on a net basis. So we had a number of units in the reimbursement process at the beginning of the quarter. We had 24 turning to authorizations that we then shipped and build. And then we added 130 units to end up with up to 222 in the pipeline.

[Jim Sidoti:]

So you basically increase the pipeline over the last three months the same as the number of total units shipped in 2017?

[Paul Gudonis:]

More, so. Yes, and on net basis but on a gross basis you know even more than what we shipped in 2017.

[Jim Sidoti:]

Okay. All right. Thank you.

[Ralph Goldwasser:]

Just to clarify. This is Ralph. Just in the third quarter, we added 130 units into the reimbursement process.

[Jim Sidoti:]

Okay.

[Ralph Goldwasser:]

So, as of the end of the quarter is 222. The third quarter was a significant element in the total.

[Jim Sidoti:]

And then any center any anything you can give some price in the quarter is at about the same to turn up a little bit down a little bit?

[Ralph Goldwasser:]

To discuss the ASP?

[Jim Sidoti:]

Or actually did not the reimburse?

[Paul Gudonis:]

The amount reimbursed goes directly to the O&P provider. So we're not familiar with any changes that – running around that historic norm and then our ASP Ralph has been running at what in this last quarter.

[Ralph Goldwasser:]

Yes, I think the ASP is reflective to what we get from the reimbursement process which is running for the last quarter or so for $25,000 per unit.

[Jim Sidoti:]

Alright. Thank you.

[Operator:]

The next question comes from David Solomon with ROTH Capital Partners. Please go ahead.

[David Solomon:]

Hey, guys. Thanks for taking my questions. I'm just following up; did you say 24 units were sold in the quarter?

[Paul Gudonis:]

Yes, that's right, David.

[David Solomon:]

Okay. And was it $5,000 in grant revenue again to make that $25,000 ASP?

[Paul Gudonis:]

No, the grant revenue is not applied to the ASP that's…

[David Solomon:]

No, no, no. I know but just back out from total revenue.

[Paul Gudonis:]

$10,000 in grant revenue in the quarter.

[David Solomon:]

Thank you.

[Paul Gudonis:]

We'd had a grant from a year ago to begin development or prototype device for pediatrics and sell that has wound down. And so now we're continuing that development to bring that product to market next year.

[David Solomon:]

Great. And so we see that ASP was $22 then $29.25 [ph] this quarter are we -- is this just a mix shift whereas maybe a fewer units with the hand feature or was this just pricing?

[Paul Gudonis:]

Our pricing really hasn't changed. It really depends on the mix. There's some distributor units in there which get a discount off of the list price because they are reselling the product and part of it is mix whether it's the Motion-W for the wrist or it’s the Motion-G which includes the hand. It will vary quarter-to-quarter based on product mix, but I could expect it to be in that range.

[David Solomon:]

Great. And so the pipeline we have over 200 units and we have -- how many would you say have been in the pipeline for six plus months that we think that a decision on reimbursement could be made for a potential sale in Q4?

[Paul Gudonis:]

If you look at the 130 that we had in the quarter, we expect those will turn into authorizations over the next 12 months, probably not in Q4 so much. So, it's really what was in the pipeline from the beginning of the year until mid-year.

[David Solomon:]

Great. So, -- and then we're still dealing with the same kind of hit rate on reimbursement, 80% plus as far as Brandon's team is concerned?

[Paul Gudonis:]

That's right. Yes.

[David Solomon:]

Okay. So, we can assume--

[Paul Gudonis:]

--80% to 90% on those, yes.

[David Solomon:]

Great, great. So, we can assume that the 220 could actually become 200 sales potentially or something along those lines?

[Paul Gudonis:]

Yes, assuming our historical success rate, historical reimbursements that's holding through going forward here.

[David Solomon:]

Great. And then regarding the OUS sales, did you have any in the quarter?

[Paul Gudonis:]

A few to our new distributor in Denmark to get a start-up kit going.

[David Solomon:]

Okay. And I'm just looking at the next couple quarters; do you think that we could be seeing any significant sequential growth going into Q4 based on where people are in the pipeline? Or do you feel like we're going to be seeing a similar kind of unit volume in the next couple of quarters? I'm just trying to understand the cadence of where everybody is in the pipeline. If we have maybe greater weight -- it seems like we obviously have most of the weight towards the beginning of it, but I'm just trying to understand how many people were in there, at least, six to nine months that could be getting a sale or an approval for a sale in Q4?

[Paul Gudonis:]

Well, historically, in U.S. for sales industry, a Q4 is typically the strongest quarter for the industry as the only key providers are seeking to get those approvals, work with their patients on co-pays, deductibles, and so on. So, that's particularly what we see is we have a limited history of Q4 typically being an up quarter.

[David Solomon:]

Great. And then just lastly on the reimbursement, the potential CMS changes, has there been any more discussion? I know you discussed a little bit but is there any better sense on your end as far as who could potentially be covered and whether or not the allowable would be similar to what's currently reimbursed?

[Paul Gudonis:]

No, that is not in our hands. Really CMS has our application. It's for them to -- and the Medical Directors to decide on coverage policy and allowable amount. So, we really don't have any further input into that David.

[David Solomon:]

Excellent. Thank you so much for taking my question.

[Paul Gudonis:]

Welcome.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Paul Gudonis for any closing remarks.

[Paul Gudonis:]

Well, I want to thank all of you for joining our call today. Now, in summary, we're following through on the growth programs that we've outlined, we're demonstrating a large increase our potential revenue pipeline with a record number of patients coming into the queue to be approved for MyoPro, which based on our historical track record, should translate into strong revenue growth over the next 12 months. So, I want to just thank you again for your time this afternoon.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.