Soliton, Inc.
Q1 2020 Earnings Call Transcript
Published:
- Operator:
- Good morning, ladies and gentlemen, and welcome to Soliton's First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' prepared remarks, we'll be having a question-and-answer session. [Operator Instructions]. As a reminder, today's conference is being recorded.I would like to introduce your host for today's conference, Ms. Carol Ruth, Founder and President of the Ruth Group, Soliton Investor Relations firm. Please go ahead.
- Carol Ruth:
- Thank you, operator, and welcome to everyone participating on today's call. This call is also being broadcast live over the Internet at soliton.com and a replay of the call will be available on the company's website for 30 days.This morning we posted an updated investor presentation which can be accessed from the Investors section of our website.With me today are Wally Klemp, Co-Founder and Executive Chairman; Chris Capelli, Co-Founder, Chief Executive and Scientific Officer; Lori Bisson, Chief Financial Officer.In our remarks today, we will include statements that are considered forward-looking statements within the meaning of the United States Securities Laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions, and expectations of future events and trends, which may affect the company's business, strategy, operations or financial performance.A detailed discussion of the risks and uncertainties that the company faces is contained in its Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate projection are forward-looking statements. The company intends to file the Form 10-Q for the quarter ended March 31. 2020. by the end of today.The company has allotted 30 minutes for today's call.And now I'll turn the call over to Wally.
- Wally Klemp:
- Thanks, Carol, and good morning.We're pleased to share with you our first quarter 2020 results and provide further color on the next chapter of Soliton's story, especially given the lingering uncertainty regarding COVID-19.As you may recall, Soliton announced in early April, a revised launch plan for our Rapid Acoustic Pulse or RAP device given the impact of the current crisis on the aesthetic and financial markets. To launch an aesthetic device amid this global pandemic would clearly be ill advised. And sticking to our original launch plan wouldn't have made sense for us, or for our customers. Instead, we've chosen to delay the limited launch of the RAP device until the aesthetic industry demonstrates a return to normalcy or at least a patent device initialization [ph]. In the interim, we'll focus on advancing the regulatory profile of the cellulite indication so that when the expected release of the RAP device becomes feasible, both the tattoo removal and the cellulite improvement indications can be incorporated into the same device. This of course is conditioned upon the FDA's clearance of the Cellulite Treatment indication.Additionally, we're using the added time to incorporate manufacturing costs down design work so that we will be able to launch our initial product with improved margins. Of course, the COVID-19 crisis is forcing companies to reevaluate strategy and make difficult decisions. But in our case also affording us the time to develop a more valuable product for our customers, which we believe will position Soliton for long-term success.Although COVID-19 affected all of us during the first quarter, it did not prevent Soliton from achieving some very important milestones.First, we submitted and received FDA for the special 510 (k) premarket notification for our Generation 2 RAP device. And in addition, we completed the pivotal cellulite clinical trial as well as the 12-week keloid and hypertrophic scar proof-of-concept clinical trial.I'll now pass the call on to Chris Capelli, our CEO, for more context around the operational and regulatory progress made and our upcoming milestones. Chris?
- Chris Capelli:
- Thank you, Wally, and good morning.As Wally touched upon, during the first quarter, we filed for special 510 (k) premarket notification with the FDA for our Generation 2 Rapid Acoustic Pulse device and received FDA clearance in early March. The special 510 (k) filing designates the device as an accessory to the 1064 Q-switched laser for tattoo removal on the arms, legs, and torso in Fitzpatrick Skin Type I-III individuals.Clinical trials have demonstrated they use it in companies RAP device in conjunction with a Q-switched laser, allows for multiple laser passes in a single treatment session, resulting in accelerated tattoo fading in comparison to traditional laser treatments.The Generation 2 RAP device delivers the same tattoo removal therapy as the Generation 1 device, but is slightly modified for improved ease of use in the physician's office. The Generation 2 RAP device has the same underlying technology the RAP device that will be used in the U.S. commercial launch. Only the tattoo removal indication was reviewed by the FDA in the submission and cleared for marketing. A similar technology was utilized in the companies' cellulite trials and other proof-of-concept trials.Upon completion of the pivotal cellulite trial, our data was accepted for presentation at the Annual American Academy of Dermatology Conference, the AAD, in March of this year. But due to the COVID-19 pandemic, the medical meeting was postponed. The AAD has now notified us a virtual conference is expected to take place in mid-June where we will present our cellulite trial findings to the scientific community.We're very excited with this new RAP indication, as cellulite affects up to 90% of women with over $1 billion spent annually on treatments in the U.S.Results of the pivotal study to support our anticipated 510 (k) filing with the FDA for the treatment of cellulite during the second quarter. Currently, we believe, we could receive an FDA clearance for this cellulite indication as early as the fourth quarter of 2020, possibly in the first quarter of 2021, should we experience delays in the FDA's process.Although we're highly focused on advancing the cellulite indication in the near-term, the keloid and hypertrophic scar indication is an exciting potential expanded indication longer-term. Clinical results from our 12-week keloid and hypertrophic scar proof-of-concept study which was completed in January were very encouraging demonstrating approximately 30% average reduction in scar volume in the single initial treatment.The overall average reduction in both the volume and the height of the scars after 12-week follow-up visits further appear to show the potential efficacy of our RAP device with treatment of keloids and hypertrophic scars.In addition, we believe this proof-of-concept trial provides early support for the RAP devices impact on other fibrotic disorders. The same mechanism of action and work to reduce keloid and hypertrophic scars may be far reaching and important for such indications as capsular contraction, Peyrone's disease, and even liver fibrosis.To close, I'm very pleased with the progress made during the quarter and highly optimistic about the future of Soliton. We're hyper focused on building an innovative multi-indication device that provides our customers the latest technology in the aesthetic market.Now, let me pass the call over to Lori, who will review our financial performance.
- Lori Bisson:
- Thank you, Chris, and good morning everyone.For the first quarter, operating expenses are $3.3 million as compared to $2.4 million in the first quarter of 2019. The increase is primarily attributed to higher research and development expenses, resulting from greater spending with development partners and costs related to our ongoing clinical trials for cellulite.Net loss for the first quarter ended March 31, 2020, was $3.3 million or $0.19 per share on a basic and diluted basis. For the same period in the prior-year, net loss was $3.4 million or $0.43 per share on a basic and diluted basis.As of March 31, 2020, outstanding shares are approximately 6.9 million.Total cash was $7.7 million as of March 31, 2020, compared to $12.1 million as of December 31, 2019.We had previously indicated that our December cash balance will be adequate to finance operations into the third quarter of 2020. Given the modification in our timeline and the instability in the financial market, we've reduced our planned spending related to commercialization and now expect our cash on hand to finance operations to December 2020, assuming that we do not encounter any unforeseen costs or expenses.Although our commercialization timeline has been modified, and we're facing incremental challenges as a result of COVID-19, we remain committed to providing our future customers with the innovative Rapid Acoustic Pulse technology and generating long-term value for our shareholders.I'll now turn the call back over to Wally for closing remarks.
- Wally Klemp:
- Thanks, Lori.Although the world remains in a state of instability driven by the lack of clarity created by COVID-19, we at Soliton have a clear mission. We remain optimistic that the aesthetic and financial markets will recover and our team is working diligently to be ready when they do. We look forward to providing details of our future U.S. commercial launch once conditions have stabilized for our dermatology customers. And I'd like to thank our Soliton employees for their continued dedication and our investors for their ongoing support.With that, I'll turn the call over for Q&A. Operator?
- Operator:
- Thank you. [Operator Instructions].Our first question comes from Scott Henry with ROTH Capital. Your line is now open.
- Scott Henry:
- Thank you and good morning, I guess first for clarity. I wanted to make sure I was following this correctly, the Generation 2 approval for tattoo removal. Now, is that going to be the same product when you refer to the Generation 2 for cellulite reduction? And will the PMA or the 510 (k) will that be filed with that same Generation 2 or is there a Generation 1 that you have to switch to 2 because I know there is Generation 3 as well, I just want to get clarity around all that?
- Wally Klemp:
- Yes, Scott, this is Wally. So I'm glad you asked that question. It's simpler than it sounds. The Generation 2 device incorporates some usability features that are really important for the commercial launch. And so we -- but there are enough of a change in the product that it required a special 510 (k) but that Generation 2 device is launchable. Okay, that then it's capable of supporting both the tattoo and the cellulite indications of course we have to get the cellulite approval. But we'll be getting that cellulite approval on this same Generation 2 platform. So when we refer to Generation 3, that's an envisioned future version that incorporates what we learn from the initial limited market launch, so that that device doesn't really enter the picture right now. That's a future opportunity.
- Scott Henry:
- Okay, great. That's helpful. So it seems like the gating factor to launch at this point is cellulite approval. And when you deem, when you have cellulite approval, and you deem the market for aesthetic favorable, you would launch both at the same time. Is that how we should think about that?
- Wally Klemp:
- That's right -- that's right, you bet. Yes.
- Scott Henry:
- Okay. And separate question on the keloid indication, when you expect to start that second dosing study, is that a near-term event or perhaps waiting for a more favorable environment?
- Chris Capelli:
- This is Chris. As you know, we still have more proof-of-concept work to be done with scar to determine the optimum dosing regime for our therapy. This was scheduled to be done in the second half of this year. At this time, we're continuing to evaluate the impact of COVID that is having on clinical trial work in the field before we make any decisions to kick-off a dosing study. We would expect the proof-of-concept work to take around nine months to complete and read and indeed to do this prior to our pivotal studies submission to the FDA; we still feel it's possible that we could initiate this study in 2021.
- Lori Bisson:
- The pivotal study, correct, Chris?
- Chris Capelli:
- The pivotal study, yes.
- Lori Bisson:
- Yes.
- Operator:
- Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Your line is now open.
- Anthony Vendetti:
- I just wanted to check on the plan for tattoo removal. I know the original goal was to launch it with 20 KOLs. And now as we hold off, conserve cash and wait to do it in conjunction with cellulite. Are those 20 KOLs going to be the same 20 KOLs when you do eventually launch it? And do you have other KOLs set up for cellulite?
- Wally Klemp:
- So let me maybe start that off but Chris and Lori, if you've got thoughts here that would help Anthony --
- Lori Bisson:
- Sure.
- Wally Klemp:
- Definitely add them in. Anthony, the -- clearly, if we were only launching the tattoo indication, it would make sense for us to select at least among the KOLs that get devices to select players who or what I would call heavy users, right and that's a different profile, different operating profile than let's say a practice that doesn't do a lot of tattoo removal, but would have a very high demand for cellulite reduction.So, I think you're onto something there that we're likely to probably, look, there are some core KOLs who we've promised the device to, they're eagerly awaiting this device and so they're going to have devices regardless. But the margin, I think where we have the discretion to guide devices to players who will provide really important market feedback. We're undoubtedly now going to be choosing some players that we think will give us really good cellulite market feedback in addition to the tattoo. So it's a bit more confusing mix.But I can tell you that based on what the feedback we've gotten from clinicians so far, it's really clear that the unmet need in cellulite is a big driver. So it's going to be natural for us to deploy into that that heavy at least anticipated demand.
- Anthony Vendetti:
- No, that's helpful. And then I guess for Lori, if you could just talk about what expenses in particular you have cut or reduced to push the cash availability until the end of this year, is it specifically related to pushing back the launch or were there other cost reductions that you took to extend the cash from what?
- Lori Bisson:
- Sure, Anthony. I would bucket our cost reduction activities into three main categories. One related to the pushback of our launch. So we pushback things like the money that we would spend for fixtures and validation of our manufacturing line. So those costs are on hold.Secondarily, there were clinical trials that we had budgeted and planned to spend money again in the back half of this year. That quite frankly in today's environment, we couldn't execute because patients aren't coming into doctor's offices for clinical work. So those costs could have been avoided this year.And then, lastly, there were some G&A type or call them investment spending categories that we have put on hold in the meantime as we watch to see the market recover in both the financial markets and the aesthetic markets as well. So things like any ramp-up in staffing has been paused, investment and system upgrades and that sort of thing also paused, Anthony.
- Anthony Vendetti:
- That's very helpful. Thanks for the clarity, Lori. Appreciate it. Look forward to the clearances, and stay safe and healthy. Look forward to catching up again soon.
- Lori Bisson:
- Thanks, Anthony.
- Wally Klemp:
- Thanks, Anthony.
- Operator:
- Thank you. [Operator Instructions].Our next question is from Kristine Williams [ph], a Private Investor. Your line is now open.
- Unidentified Analyst:
- Hi, yes, thanks for taking the questions. Two quick ones here. First of all, what market indicators are you evaluating that would signal market recovery?
- Lori Bisson:
- Sure. Hi, thanks for being on the call today, Kristine. We're going to be watching the aesthetic market very carefully for signs of recovery. Today, most cosmetic dermatology practice have closed or at least minimized their practice to the point where they're just seeking or treating patients with urgent needs.And so we're going to need to see those practices start to reopen and see those practices start to have traffic coming in. We expect initially the kinds of procedures that will start first are those procedures that patients have been waiting to come in and have redone like Botox treatments and that sort of thing. And we expect dermatologists to initially focus on procedures that are cash cows for them and that don't require cash outlay. Quite frankly, we expect capital purchases to be the last thing that comes back in aesthetic dermatology space.So we are -- we partner with a group of scientific advisory board members that are all well respected cosmetic firms that are in practice. And we're in touch with them and in regular communication with them. Members of our board are in senior management positions within aesthetic companies in the industry. And so we're getting really solid guidance and input from those players. And we'll take all that feedback and make our best determination is the right time for us to launch our products.
- Unidentified Analyst:
- Great, thanks for that update there. More specifically, have any of your physicians reopened their practices and any feedback you can provide on the environment if so?
- Lori Bisson:
- Sure. So today the physicians that we're talking to regularly have not fully reopened their practice. But what has started happening over the last week or two is planning and preparation is going on to reopen. That's going to be as everyone would expect very much so a state-by-state decision as different states are operating under different stay-at-home and provision. And so we're seeing the first signs that doctors are going to start to get back to work, but it's just now starting.
- Operator:
- And our next question comes from John Furman [ph], a private investor. Your line is now open.
- Unidentified Analyst:
- Thanks for taking questions. I just had a question about the cellulite indication approval. Do you expect due to COVID-19 a delay in approval?
- Wally Klemp:
- Yes, it's a good question, John. We have been in touch with our regulatory advisors obviously on a constant basis. And the feedback that they're getting is that the FDA is -- device division of the FDA is committed to continuing to hit their stated timelines. So officially, and I would say also just sort of unofficially, the observation is it doesn't look like COVID-19 is setting back the device clearance process in that side of the FDA. We're all concerned that there could be an impact there. But so far, it looks like we're in pretty good shape.The big question for us is -- is this indication going be treated as a 510 (k) or de novo. And as you may know that decision pivots on whether or not the description of a predicate device is accepted by the FDA. There are devices out there that have clearances for the cellulite indication. And we think we have a pretty good connection to those other technologies, even though ours is unique.We think the connection here between us and our predicates is actually stronger than it was between us and our predicates for the tattoo removal. So we're optimistic about the opportunity here, but you never know. And so if it is a 510 (k), they accept our predicate argument move it forward that way. Probably -- it's probably in the 90-day kind of timeframe for an approval. If instead they don't accept our predicate arguments, and they say no, this needs to be a de novo application. Well, those are taking around six to nine months to process.So in either instance, we still believe we have a really good shot at having both the tattoo indication and the cellulite indication in place before we're ready to launch. That's the plan.
- Unidentified Analyst:
- Thanks for the color on that. That's helpful. And just one quick follow-up, has the AAD given you a specific date or time to present the cellulite data?
- Chris Capelli:
- This is Chris. We understand that AAD will be having their virtual conference beginning June 12. I think it goes for a few days. We do not have a specific time, when our presentation will be given. So that's sort of where we are right now.
- Lori Bisson:
- We will update investors with more concrete information when we get it.
- Operator:
- I now pass the call back to Walter Klemp, Executive Chairman for closing remarks.
- Wally Klemp:
- Thanks, Operator. Thank you again to everybody for getting up early and taking this time with us. If you do have follow-on questions, please feel free to address them. We've got an email link at our website for investors who have questions and we aggressively monitor that and follow-up. And right now, we're just looking forward to giving you more updates as milestones unfold for us and everybody be safe and have a good day.
- Operator:
- Ladies and gentlemen, thank you for your participation on today's conference. This does concludes your program and you may now disconnect.