Stereotaxis, Inc.
Q4 2018 Earnings Call Transcript

Published: 12 Mar 2019

[Operator:]

Good morning. Thank you for joining us for the Stereotaxis Fourth Quarter and Full Year 2018 Earnings Conference Call. Certain statements during the conference call and question-and-answer session to follow may relate to future events, expectations, and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. [Operator Instructions] As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

[David Fischel:]

Thank you, operator. Good morning everyone. I'm joined today by Marty Stammer our Chief Financial Officer. My prepared remarks today are a bit longer than normal, as I want to use the occasion of this being our annual call to provide a broader overview on Stereotaxis, our vision and goals, our accomplishments in 2018 and our focus in 2019. Stereotaxis is the global pioneer and leader of robotics for endovascular Surgery. We have developed and are commercializing a suite of robotic technology that address the inherent limitations, risks and challenges posed by manual catheters. Endovascular catheter based surgery has emerged in recent decades as the least invasive approach to a broad range of procedures. Various surgeries that once required large open incisions have been transformed into minimally invasive operations where a catheter is inserted into a blood vessel, navigated through the vascular system to an area of interest and then used to perform a surgery directly from the catheter tip. Some examples include the shift from open chest bypass heart surgery to angioplasty and stenting, from invasive brain surgery to thrombectomy and coiling for stroke, and more recently from surgical to Transcatheter Heart Valve Replacement. This progress takes place because catheter based approaches are less invasive and thus reduce surgical risk and improve access to therapy for a broad range of patients. Many millions of catheter base surgeries are performed annually, and the technology is a testament to human ingenuity and progress. That being said, the mechanism of catheters has fundamental flaws. While therapy takes place at the catheter tip, a manual catheter is held and manipulated by a physician's hand several feet away at the catheter based. The technique is akin to gardening delicate flowers by holding a hose from its base or writing in small font while holding a pencil from their eraser. The translation of force from the physician's hands at the base of the catheter to the tip relies on catheter rigidity and pull wires. This mechanism of action limits manual catheter precision, reach and stability. The need for a rigid catheter shaft increases the risk of injury to the patient. Procedures are complex and highly operator dependent, and visualization of a catheter requires X-Ray, exposing patients, physicians and staff to radiation. Stereotaxis robotic platform is designed to address these inherent risks, limitations and challenges. It fundamentally transforms and improves catheter navigation. Our technology includes a Robotic Magnetic Navigation System composed of two magnets next to the operating table on which the patient lies. During the procedure a physician sits behind a large screen computer control station and using a mouse and intuitive interface manipulates those magnets to adjust the magnetic field around the patient. This allows a physician to precisely direct and steer a cardiac ablation catheter that has a magnet at its tip. The magnetic mechanism can be viewed as using virtual tweezers to directly hold and control a catheter by it tip. By moving the catheter directly from the tip, a robotic magnetic catheter has unprecedented precision and stability. It can reach areas far beyond the capabilities of manual catheters. Since a robotic magnetic catheter does not rely on pull wires or shaft rigidity, it can be designed to be gentle, like a piece of cooked spaghetti increasing patient safety while moving in delicate anatomy. Our technology is a platform technology, applicable across a broad spectrum of endovascular procedures. In the coming years we will invest in expanding the technology into several clinical application. To-date however we have remained focused on one specific endovascular application, cardiac ablation for the treatment of arrhythmias. Arrhythmias are a common condition where the heart beats irregularly and cardiac ablation has become a widely accepted therapy to treat arrhythmias. In a cardiac ablation procedure, a catheter is navigated into a patient's heart, where ablative energy delivered to the heart muscle, stops rogue electrical impulses causing arrhythmia. Cardiac ablation has become a widely accepted therapy over the last two decades, with nearly 1 million procedures performed annually and over $4 billion in annual sales of medical devices. The benefits of robotic magnetic navigation, precision, stability, reach, safety are pronounced in cardiac ablation procedures. Over 350 publications have documented the clinical benefit of Stereotaxis robotic technology. A comprehensive and objective assessment of the clinical literature was recently completed, looking at every head to head robotic versus manual peer reviewed publication where the same physicians and hospitals performed some procedures robotically and others manually. To ensure relevance we looked at studied since 2012 that had over 50 patients. The results were dramatic. Every study showed robotics meaningfully reducing major adverse events. Across nearly 5,000 patients, 4% of patients treated manually suffered from a major complication, compared to only 1% of those treated robotically, a reduction of 72%. The same was true of minor complication and patient radiation exposure, with robotics reducing both by approximately 40%. Efficacy defined as freedom from arrhythmia, both when measured acutely or long term, and across the breadth of arrhythmia types showed trends toward improvement with robotics. Acute efficacy improved 7% on average and long term efficacy improved 8%. All of this data with the appropriate references and links to all the peer reviewed publications can be easily accessed on Stereotaxis new website. The clinical benefits of our robotic technology extend to physicians and nurses as well. Healthcare professionals that operate in a typical interventional lab are exposed to radiation from X-Ray and are weighed down by heavy lead west worn to protect them from the radiation. The long term safety risk is significant, with studies showing 49% suffering orthopedic injuries as a direct result of their work and 85% of brain tumors in interventional physicians being found in the left side of the brain, the side closer to the X-Ray source. With our technology, a physician performs a robotic procedure seated and scrubbed and protected from radiation with all the procedure information on a large screen in front of them and all the controls over the procedure at their fingertips. Our clinical value is not just validated through clinical literature; it is validated every day in real world usage globally. Hundreds of physicians at over 100 leading hospitals have treaded over 100,000 patients with our technology to-date. On our website we have testimonials from dozens of these physicians describing why they use robotics and the array of benefits it provides them, their patients and their practices. I have full confidence that Stereotaxis robotic technology and the robotic magnetic mechanism of action represents the best way to treat patients and to then direct the inherent limitations and risk of manual endovascular surgery. Stereotaxis vision is to become the intuitive surgical of endovascular surgery. Cardiac ablation is our beach head and we will grow from there. Despite the significant benefits of our technology, our beach head in cardiac ablation is still small and fragile. When I joined Stereotaxis two years ago, I recognized that it was a company with significant challenges. Initial missteps was an aggressive premature commercialization, poor allocation of financial and human resources, limited engagement with partners and potential partners in the industry, and the lack of a clear innovation in commercial strategy lead Stereotaxis in need of a turnaround. 2018 was an extremely active year at Stereotaxis with progress on multiple fronts to bring about this turn around. Our primary focus has been on advancing a robust innovation strategy and developing the commercial infrastructure to support improved performance. These have been accomplished while maintaining financial discipline. We have reinvigorated Stereotaxis commitment to innovation and collaboration and are advancing in innovation plans that is elegant, realistic and medically and commercially sound. Our innovation plan addresses the five core technologies utilized in a robotic cardiac ablation procedure, our robotic magnetic system, the magnetic oblation catheter, software that allows for intuitive navigation, the cardiac mapping system and the fluoroscopy system. The three guiding goals of our innovation plan are improving patient care, improving physician choice and improving the availability of our technology. We can provide these benefits to patients, physicians and hospitals, while also meaningfully improving Stereotaxis’s financial opportunity and strategic positioning. We have made significant progress on our innovation strategy. During 2018 we announced an extension to our collaboration with Johnson and Johnson's Biosense Webster and a new collaboration with Acutus Medical. Our integration with Acutus’s cardiac mapping system has gone well and we will provide additional updates in the very near future. Our mapping integration was implemented through an open mapping API, reflecting Stereotaxis commitment to an open environment where physicians can combine the benefits of robotics with any mapping technology that integrates with us. There are other meaningful innovations at Stereotaxis done internally and in collaboration with others, which we have not yet shared publicly. We will showcase these innovations and expect to launch some of them in May at the Heart Rhythm Society’s Annual Conference, the largest global gathering of electric physiologist. We have had the opportunity to show our progress confidentially to select industry and hospital partners. We are very pleased by the reactions we have received and are confident that our strategy is sound. Shifting to commercialization

[Marty Stammer:]

Thanks David and good morning everyone. Revenue for the fourth quarter of 2018 totaled $7.3 million. Recurring revenue for the quarter was $6.7 million and system revenue was $500,000. Revenue for the full year 2018 totaled $29.3 million. Recurring revenue for the full year 2018 of $27.8 million represents a 3% increase above the recurring revenue for the full year 2017. System revenue for the full year 2018 of $1.6 million declined from $4.3 million in 2017, primarily reflecting the impact from the shipment two Niobe systems to an international distributor in 2017. Gross margin for the fourth quarter and full year 2018 was approximately 80%. Operating expenses in the fourth quarter were $6.4 million, up from $5.9 million in the prior year quarter, predominantly driven by increased investment in R&D. Operating expenses for the full year 2018 totaled $26.1 million, down slightly from $26.3 million in 2017, with increased R&D investment offset by decreased general and administrative expenses. Operating loss and net lost in the fourth quarter were approximately $600,000. Operating loss and net income for the full year 2018 were $2.5 million and $100,000 respectively. This was the first year in the company's history that we achieve annual positive net income. Negative free cash flow for the full year 2018 was $2.8 million, compared to $4.8 million for the full year 2017. At December 31, 2018 Stereotaxis taxes had cash and cash equivalents of $10.8 million, no debt and $3.3 million in unused borrowing capacity on its revolving credit facility, for total net liquidity of $14.1 million. I will now hand the call back to David.

[David Fischel:]

Thank you, Marty. We entered 2019 with a solid financial foundation to execute our strategic plans. 2019 is setting up to be a very exciting year. We look forward to sharing our broader innovation plans at the Heart Rhythm Society Meeting in May and are comfortable that our balance sheet will allow us to deliver on our commercial and innovation initiative over the coming years and reach profitability without the need for additional financing. That concludes our prepared remarks. Operator, can you please open the line to questions.

[Operator:]

[Operator Instructions]. We’ll take our first question from Chris Vaster, a Private Investor. Please go ahead.

[Chris Vaster:]

Good morning guys. Congrats on the continued progress and record procedures in 2018.

[David Fischel:]

Good morning Chris.

[Chris Vaster:]

David, on the last call you stated that the innovation plan which frankly I’m looking forward to hearing more about in a couple of months, would or could more than double the annual revenue opportunity for the company in just its existing commercial footprint of active hospital customers? Can you provide a timeline for when you expect this potential doubling of revenues within the customer base, when it may occur?

[David Fischel:]

So I recognize greater disclosure would be appreciated. When we showcase our innovation plan in May that will become much clearer. I think there are certain aspects that I have hinted at before on previous calls, there’s other aspects that I have not mentioned at all. It will not happen all in one sweep. It will happen in stages, so it includes multiple innovation plans coming together, some of which are very near term and some of which will take kind of over the mid-term and I think again it will become much, much, clearer in May.

[Chris Vaster:]

Okay, and then again, I just want to be sure this is existing customer base, right. Outside of that you talked about under penetration of the overall markets. So outside that opportunity will be significantly larger.

[David Fischel:]

Exactly, so that comment was related to our existing installed base of hospital customers and the current number of procedures that they are performing. Obviously our innovation plans are not meant to just address the existing installed base. So while it should support our existing customers and provide a more solid foundation to work with our existing customers, it also is obviously meant to increase our market size.

[Chris Vaster:]

Okay, great. And then one more, with respect to the expansion of opportunities or use cases for the Stereotaxis system in the future that you alluded to earlier, obviously there's a lot of conversation around J&Js acquisition of Auris for a significant number not so long ago, and Auris has bought one of your primary competitors in Hansen Medical. Is the potential future use cases that you foresee Stereotaxis tackling? Can they do what Auris does? Is that a possibility?

[David Fischel:]

So I think kind of one of the large challenges, if you look at interventional medicine more broadly is navigating tortuous anatomy. Navigating blood vessels and in Auris’s case navigating the lung tree, kind of in a more efficient manner, because it's oftentimes difficult to move guide wires, to move catheters through tortuous twists and turns of the blood vessels. I would think that that would be a natural place for us to play and one of the difficulties that Hanson at the time had in operating in the endovascular suite was that its robotic mechanism of action increased the size of a catheter and increased the rigidity of the catheter. And that led to various safety risks insensitive anatomy that's perhaps why that mechanism of action was better suited for the lung and the endovascular system. Stereotaxis’s key benefit is the safety aspect and so while we can operate in the lungs we also have a benefit of being able to operate safely across the vascular system and I think that those are kind of benefits and advantages that we should take advantage over the coming years. Again, I think our focus on shoring up our footing and our place in electrophysiology is the right thing to do. We have a great product there. It's being used by hundreds of physicians at 100 site. It generates great clinical data. We really have to make sure we focus on that market first; start to become successful there as I described in my prepared remarks, but as we're doing that, we're starting to think about how to expand applications beyond.

[Chris Vaster:]

Thanks David. I will say I think continue to be successful is probably better than start to be successful, but again, congrats on the success and I look forward to hearing more about the innovation plan in a few months.

[David Fischel:]

Thank you very much.

[Operator:]

[Operator Instructions]. There are no questions over the phone. This will conclude today's question-and-answer session. I would now like to turn the conference back your host, David Fischel for any additional or closing remarks.

[David Fischel:]

Okay. Thank you very much for your continued support and interest in Stereotaxis. We are excited for the year ahead of us. This is really a transformational period for Stereotaxis. We look forward to showing you what we've been busy with in two months. Thanks.

[Operator:]

This concludes today’s conference. Thank you for your participation. You may now disconnect.