Soliton, Inc.
Q3 2020 Earnings Call Transcript

Published: 12 Nov 2020

Operator:

Good morning, ladies and gentlemen. And welcome to the Soliton’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Please be advice that today’s conference is being recorded. . I would now like to introduce your host for today’s conference, Carol Ruth, Founder and President of the Ruth Group, Soliton’s 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.
Walter Klemp:

Thanks, Carol. Good morning, everyone and thank you for joining our third quarter 2020 earnings call. We’re pleased to share with you all the progress Soliton made during quarter. Our focus remains on ensuring the success of our planned U.S. commercial launch of our Rapid Acoustic Pulse device in 2021. And we believe the achievements we made during the quarter position us optimally for this launch. I first like to formally welcome Brad Hauser as our new President and Chief Executive Officer. Brad is a true veteran in the aesthetics industry. He most recently served as VP of R&D and General Manager at Allergan Aesthetics which is now an AbbVie Company. There he oversaw the integration of the CoolSculpting business in to both the Allergan and AbbVie organizations. Prior to this time at Allergan, Brad was instrumental in the commercialization of CoolSculpting, while serving as a Senior Executive at Zeltiq. He held multiple leadership roles across the aesthetics industry serving as EDP of Commercial Operations for Cutera, Director of R&D at Medicis, and Managing Director of Product and Clinic Marketing at Solta Medical. Our confidence in Brad's ability to lead a successful launch of our product is reinforce by his long standing membership on board of directors. During his time on our board he has provided excellent guidance and insight for the development of our products and our strategies.
Brad Hauser:

Thank you, Wally, and good morning. This is an exciting time for us at Soliton. And I'm truly thrilled to join the team in such a pivotal point in the organization's lifecycle. During my time as a member of Soliton's board, I have seen the company progress from a private clinical stage company to preparing to launch our innovative technology that has a potential to disrupt the industry by meeting two key unmet patient demands. A faster and a more effective solution for tattoo removal, and a completely non-invasive approach to cellulite reduction, currently pending FDA clearance. We believe launching the RAP technology with both tattoo removal and cellulite reduction upon approval of the ladder will significantly strengthen the caliber of accounts that may adopt the device in the limited launch. The physician support and excitement we build in this initial launch phase will be fundamental to a successful nationwide rollout in the following year. In order to realize our goal of launching the RAP device during the first half of 2021, we reach several key milestones during the quarter, which optimally positioned us for commercialization. We first made several improvements to our RAP device. These include a new design for the hand piece and cartridge and several key features which provide ease-of-use and a more user-friendly experience. Following the R&D completion of the optimized hand piece and cartridge, we initiated tooling production and issued orders for all the critical components, which should allow for production at scale of the new cartridge to design at an improved cost of goods. Additionally, we have generated the first parts off of these new tools. We also made several inroads in our upcoming sales and distribution efforts. We entered into a distribution and sales agreement with a Aesthetics Solutions Inc. to help distribute our improved RAP device for the initial U.S. commercial launch. The team at Aesthetic Solutions is strategically focused on the target placement of the RAP device in physician practices that currently treat high volumes of patients for tattoo removal. The Aesthetic Solutions team will sell and service the selected tattoo focused accounts until our direct sales force is fully established for the expected national rollout. Focusing on brand development to support the introduction of our technology, we selected greater than one group as our integrated marketing agency. We believe our relationship with greater than one will raise the visibility of our RAP device and help establish the Soliton brand in the aesthetic industry through multi-channel marketing efforts.
Lori Bisson:

Thank you, Brad, and good morning everyone. For the third quarter ended September 30, 2020, operating expenses were $3.7 million as compared to $4.3 million in the third quarter of 2019. The decrease was primarily due to lower research and development expenditures resulting from lower expenses for contract, engineering and clinical trial costs. Net loss for the third quarter ended September 30, 2020 was $3.6 million or $0.17 per share on a basic and diluted basis. For the same period in the prior year, net loss was $4.3 million or $0.27 per share. As of September 30, 2020, outstanding shares were $21.2 million. Total cash, cash equivalents and restricted cash was $34.8 million as of September 30, 2020, compared to $12.1 million as December 31, 2019.
Walter Klemp:

Thank you. And thank you all for your ongoing support. We're certainly excited about the progress we made during the quarter and believe that with Brad as our new CEO, we are ideally positioned and well funded to execute a successful initial launch. So with that, I'll turn the call over for questions and answers. Operator?
Operator:

Thank you. And our first question comes from the line of Louise Chen with Cantor. Your line is now open.
Louise Chen:

Hi. Congratulations on the quarter, and thanks for taking my questions here. So, first question I have for you is on operating expenses in 2021 versus 2020. If you can give exact numbers, maybe just some qualitative feedback and how we should think about it? And then you did present some data this quarter-end. Just curious what the physician feedback has been on the presentation of that data, especially in cellulite. And then last thing is, do you have any updated thinking on the pricing points for your product as you head into this launch next year? Thank you.
Walter Klemp:

Thanks, Louise. Obviously, with regard to the quarter-end numbers and pricing discussion, I'm going to suggest that Lori respond to that. And then Brad may want to weigh in relative to some of the data points.
Lori Bisson:

So, hi, Louise. Nice to speak with you this morning. Your question, I believe was more related to guidance on where we should expect expenditures to go in 2021 versus 2020, correct?
Louise Chen:

Yes. That's correct.
Lori Bisson:

Okay. So in general, we'll start to see more investment spending in the brand development and marketing side of the business. And you'll start to see costs increase as we began to hire and bring in and train our salesforce and service team and quality team to deal with an interface with customers and account. So we'll see an uptick in the sales and marketing area. And engineering and research and development costs will remain relatively stable, as well as G&A won't move very much. Brad, do you want to cover physician feedback?
Brad Hauser:

Sure. I had a reasonable amount of conversations. I've obviously only been on board for just over a week. But in speaking with a lot of our current key opinion leaders, as well as some other physicians in the space that I've long term relationships with, I think the physician community is very excited by the data that has been shown so far. And want to continue to look to see how primarily around cellulite, we will be coming to the market.
Louise Chen:

Great.
Brad Hauser:

So overall, all the data has been very positive.
Lori Bisson:

Thank you, Brad. And Louise, in response to your last question about how we're pricing the device. We are staying away from specifics right now as we gear up to enter the marketplace with our technology. But to give some color to that, our pricing strategy is designed to allow the doctor to achieve payback on the device within a year. And we will be facilitating financing arrangement for doctors where that number is significant to them.
Louise Chen:

Okay. Thank you very much.
Lori Bisson:

Thank you, Louise.
Operator:

Thank you. Our next question comes in on line of Scott Henry with Roth Capital. Your line is now open.
Scott Henry:

Thank you. Good morning, and congratulations, Brad on the new role with the company. A couple questions. First, with regards to the regulatory update, I guess should we -- I would assume from your comments that it will not be a de novo review. Is that correct at this point?
Walter Klemp:

So Scott, this is Wally. I understand your question. As you know, when it comes to regulatory matters, we can sometimes be limited in what we could say. And especially -- that's especially true in an active submission review. This is in substantive review. And so, this is one of those times. So we're pretty limited -- basically we're limited to what we said in the Q. Having said that, I think you've been around the business long enough to know that in the normal course of 510(k) process, if you've gotten this far and haven't been pushed back on in terms of the 510(k) status versus de novo, then the probability is go up dramatically, that you probably stay a 510(k). We can't guarantee that of course. But we do acknowledge that we've sort of made it beyond the time point when most conversions to de novo would have already happened. And so we're pleased by that. But we're mindful that FDA always has the latitude to change their mind at the last minute. So we certainly can't make any promises in that regard.
Scott Henry:

Okay. That's very helpful. And I'm going to ask one more question. You may have limited comments, but I did want to ask is, has the correspondence, you mentioned, getting questions and back and forth, which is not a typical? Would you classify these as normal events within a review period? Or was there anything unusual?
Walter Klemp:

So we -- unfortunately, everything are limited. Obviously, if something had been sort of a knockout punch or a big problem, in the normal course, that would have given rise to the potential for specific disclosure. And since we haven't had that disclosure, I think anybody can conclude that we consider ourselves in the normal course of a 510(k) submission. And I'm comfortable with that representation.
Scott Henry:

Okay. That's helpful as well. And then, could you talk about -- assuming we're getting approval in early 2021? Can you talk about the launch metrics for the first kind of six to 12 months? Is there a number of placements you would like to have? I know, in the past, you've talked about getting in into some thought leaders. How should we think about what to expect as far as the strategy and the initial kind of six to 12 months?
Walter Klemp:

So Lori, I think you might want to start that answer, just given your focus on the model.
Lori Bisson:

Sure. So Scott, we are intending to place approximately 25 devices in and around the country with softer , that would be considered key opinion leaders or that lead other doctors in the adoption of new technology or have podium present at conferences. And we've identified most of those physicians that will participate and will be ask to participate. We're trying to concentrate in key markets, as much as we can do that, and still include the physicians that we'd like to include, so that we have an easier time supporting the rollout. From a metric standpoint, we are going to use this launch period to really perfect our program for interacting with training and working with office staff to help them, bring in existing patients that are in their practice to become adopters of our technology. And to help them ultimately learn how to reach out into their marketplaces and attract new patients to their practice for our technology. We'll be building experience around how many patients are we going to expect a practice to be able to treat in a month. And we'll be learning some key things about how the device works in a commercial operation. So there's a lot of things that we want to get out of this launch. But primarily, our focus is building advocacy in these key accounts that we launched with which will help us as we prepare to roll out nationally in early 2022.
Scott Henry:

Okay. And from a modeling standpoint, those initial 25 placements, will you book those as revenues or even the recurring revenue? Will you book that or will that be more of just getting them out there?
Lori Bisson:

No. We are actually selling these devices in the initial launch. So it will be revenue.
Scott Henry:

Okay. And when we think about sales reps, do you expect because you know where these 25 we're going to, expect the rep rollout will be more of a 2020 to 2022 event versus 2021. Just trying to think about this selling costs?
Lori Bisson:

Yes, it will, Scott. The ramp up of the salesforce will not begin in 2021. We'll hire several key people. Several practice development managers. Those are the folks that will be on the ground, interacting with the practice on a very regular basis. And helping to support the pull-through of our cartridges. And so we will have -- that team will start to be built out in 2021. Sales leadership will be put in place. And some of the sales leadership infrastructure will also start to be put in place. And then we'll start to really ramp up to appropriate numbers of sales people in early 2022.
Scott Henry:

Okay, great. Thank you for taking the question.
Lori Bisson:

Absolutely.
Walter Klemp:

Thanks, Scott.
Operator:

Thank you. We have time for one more question. And that question comes from the line of Anthony Vendetti with Maxim Group. Your line is now open.
Anthony Vendetti:

Thanks. Good morning everyone.
Brad Hauser:

Hey, Anthony.
Walter Klemp:

Good morning, Anthony.
Anthony Vendetti:

Hey, Wally, hey, Lori, welcome to board again Brad.
Brad Hauser:

Thanks so much.
Anthony Vendetti:

So, you've identified most of the 25 KOLs, and the rollout in 2021, to those KOLs depending on when you get the FDA approval. Is for both tattoo removal, as well as cellulite. As you're going to be getting that feedback back from them, are you are you expecting to make many changes to the protocol or device? Or is it just tweaks at this point, because you already have approval for -- you already have 510(k) approval for the tattoo removal?
Brad Hauser:

So, just some initial thoughts there. We clearly have, as you mentioned, regulatory clearance for the tattoo removal. Our expectation is that we'll have the cellulite clearance by the time we launch as we've disclosed multiple times. And that of course has -- that treatment protocol is different than the tattoo removal procedure. But it's been pretty well established through the context of fairly large pivotal trial. So, we definitely know how we want physicians to use the device. Now, having said that, there are still things we don't know. For example, we haven't had the opportunity to test, for example, multiple procedures. So in the case of cellulite removal, there's an expectation that -- we -- obviously our results are impressive. We've gotten dramatic reduction in cellulite severity scores from a single treatment. But the question remains, how much better could that be with multiple treatments. So we fully expect that with those KOLs, it's normal course for them to experiment to sort of use their own judgment in terms of how they might be able to improve outcomes. So we're definitely expecting that some along the way from some of these KOLs. And that often leads to publications and additional learning that helps other physicians. So we expect that to take place. It's kind of part of the rationale behind having this limited launch. So that we know that the device is in the hands of people who have the background -- the necessary background and experience to undertake that kind of learning and continued development. And that's -- it's part of the normal process and we want to take full advantage of it.
Anthony Vendetti:

Okay, great. And just to just to verify. With the 510(k) approval for tattoo removal, that's been approved in conjunction with a Q-switched laser. And for the cellulite, the approval you're going for is for standalone use?
Brad Hauser:

Correct?
Anthony Vendetti:

Correct. Welcome.
Brad Hauser:

Yep. And another distinction there is, in most states that tattoo removal procedure because it involves the laser, it usually involves a physician and the physicians got to be involved in the entire procedure. In the case of cellulite, it's different with a -- in fact, the entire pivotal trial was conducted with staff providing -- applying the procedure. So it's a real advantage of the standalone nature in cellulite removal is that the device can be -- the procedure can be administered by staff members and not take up the doctor's time.
Anthony Vendetti:

Then just a follow up on that, Wally. How long does the treatment time take for cellulite?
Walter Klemp:

So in the pivotal trial, it varied between, let's say, 20 and 30 minutes. Now, that was a single buttock or thigh. And obviously most people would want symmetry in their treatment. So, I think we would -- our expectation would be that a normal treatment session that covers both legs, for example, that's probably going to be a 40 to 60 minute total visit, if you will to cover two treatments.
Anthony Vendetti:

Okay, great. Thanks for that color. I appreciate it.
Operator:

Thank you. And this does conclude today's question and answer session. I will now like to turn the call back to Walter Klemp for any closing remarks.
Walter Klemp:

Thanks, operator. And again, we really want to thank everyone for joining today's call. We really appreciate your continued support and interest in Soliton. And we look forward to the next update. In the meantime, have a great day.
Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating You may now disconnect.

Soliton, Inc. Q3 2020 Earnings Call Transcript

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