NMT Medical Inc. Q2 2009 Earnings Call Transcript

NMT Medical Inc. (NMTI)

Q2 2009 Earnings Call Transcript

August 4, 2009 10:00 am ET

Executives

Rick Davis – COO

Frank Martin – President & CEO

Presentation

Operator

Good day everyone and welcome to NMT Medical’s second quarter 2009 operational results conference call. Today’s call is being recorded. There will be an opportunity for questions after the prepared remarks. (Operator instructions)

At this time, for opening remarks and introductions, I would like to turn the call over to NMT’s Chief Operating Officer, Mr. Rick Davis. Please go ahead, sir.

Rick Davis

Thank you, Jessie, and thank you everyone for joining us this morning. Let’s begin today’s call with our Safe Harbor statement. The company would like to remind everyone that various statements management may make on this conference call today, Tuesday, August 4, 2009, may be considered forward-looking statements for the purposes of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements, including statements regarding the timing, cost, clinical status and outcome of the company’s CLOSURE I trial, its bioabsorbable technology programs, the company’s expected savings from cost reductions, the company’s expected cash position and burn rate for 2009, revenue expectations for 2009, the success of our new distribution partnerships, expansion of the company’s cardiovascular business and market opportunities, including stroke, and TIA and any other new applications for the company’s technology or products, regulatory approvals for the company’s products in the United States and abroad, and the company’s investment in product development involve known and unknown risks, uncertainties or other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Factors that may cause such a difference include, but are not limited to, the company’s ability to develop and commercialize new products, a potential delay in the regulatory process with the US Food and Drug Administration and foreign regulatory agencies, as well as risk factors discussed under the heading “Risk Factors” included in the company’s annual report on Form 10-K for the year ended December 31, 2008, quarterly report on Form 10-Q for the quarter ended March 31, 2009 and subsequent filings with the US Securities and Exchange Commission. These filings can be accessed in the Investors section of NMT’s web site. NMT undertakes no obligation to update the forward-looking statements made on this conference call today.

Let me begin with a review of our second quarter 2009 financial results and I’ll finish with NMT’s outlook and guidance for the full-year 2009, and then turn the call over to our President and Chief Executive Officer, Frank Martin.

For the three months ended June 30, 2009, NMT reported total revenues of approximately $3.2 million compared with $4.5 million in the second quarter of 2008. Cardiac septal repair implant sales in North America were approximately $2.4 million, compared with $2.9 million in Q2 of 2008. As a result of reductions in inventory levels, hospitals are taking longer to reorder products; thus slowing our sales cycle. Implant sales outside of North America were approximately $800,000 compared with $1.6 million in the corresponding period of 2008.

As part of our efforts to increase sales outside the United States, we continued our strategy to aggressively target emerging overseas markets through new distribution partnerships. This strategy has proven effective and we have added several promising markets in both Europe and Latin America. However, it has taken longer than we initially anticipated to complete the necessary product registrations in some of these markets. As a result, our international revenues came lower than we expected for the second quarter. In addition, as one appears many worldwide after the results – are waiting worldwide for the results of CLOSURE I, and we continue to be faced with some continued competitive pricing and ongoing clinical trials that are aggressively competing for procedure market share.

Our cost of product sales on a percentage basis in the second quarter of 2009 were approximately 45% compared with approximately 31% during the same quarter in 2008. The increase is primarily due to the impact of fixed manufacturing expenses and royalty expenses on lower sales volumes.

Q2 2009 R&D expenses were $2.4 million or approximately 76% of total revenue, compared with $3.8 million or approximately 85% of total revenue in the same quarter of 2008. Our R&D expenses are considerably less in 2009 due to reduced cost associated with our clinical trials primarily CLOSURE I, our pivotal PFO, stroke and TIA trial.

G&A expenses were approximately $1.7 million in the second quarter of 2009 compared with $2.4 million during the second quarter of 2008. During the quarter, we received $375,000 from Cardia related to the settlement agreement with NMT from the patent infringement lawsuit. In addition, our cost reduction efforts have contributed to another approximately $0.25 million reduction from the beginning of 2009.

Second quarter selling and marketing expenses decreased to approximately $1.5 million or 48% of total revenues, compared with $2.7 million or 61% of revenues for the same period in 2008. The decrease was primarily the result of a decline in sales compensation expenses due to lower sales volumes and travel expenses. We continue to enhance our international sales efforts by evaluating distribution partnerships outside the United States.

Across the board, we are maintaining lower expense levels, which demonstrate that our cost control initiatives originally implemented in the fourth quarter of 2008 are working. We will continue to evaluate programs and take additional measures to further reduce discretionary spending while making appropriate investments to help increase revenue.

Looking at the bottom line, despite the lower revenue this year, we narrowed our Q2 2009 net loss after the provision for taxes to $3.8 million or $0.29 a share from a net loss of $5.6 million or $0.43 per share for the same period in 2008.

Turning to our balance sheet. As always, we have been effectively managing our capital resources. As a result, we ended the second quarter with approximately $12.4 million in cash, cash equivalents and marketable securities, compared with approximately $17.6 million at December 31, 2008.

During Q2 2009, we secured a $4 million credit facility with Silicon Valley Bank. With this two-year non-equity-based credit facility, we now have additional financial flexibility to help ensure that we have sufficient capital resources to complete CLOSURE I. In addition, during the second quarter, we received the previously mentioned installment of $375,000 from the $2.25 million settlement with Cardia that they had agreed to pay NMT. We expect to receive the remaining $500,000 over the next two quarters.

Although the registration process in some of our – the new territories we have entered has slowed our BioSTAR sales momentum, we are confident that the opportunity in those new markets is worthwhile for NMT. Many of the territories we are targeting are under-penetrated and under-served. We believe these territories offer us the opportunity to expand our global presence as a technology leader in the structural heart repair PFO CLOSURE space. We expect to begin to realize top line benefits from these markets during the second half of 2009. We remain confident in our financial position. We believe we have the sufficient funds to complete our ongoing clinical trials, first and foremost CLOSURE I.

For the full-year 2009, we currently anticipate, as we previously announced, revenues of approximately $14 million to $15 million. We also expect our year-end 2009 cash, cash equivalents and marketable securities to be in the range of between $6 million and $8 million.

And with that, I’ll now turn the call over to Frank Martin. Frank?

Frank Martin

Well, thank you, Rick and welcome everyone. Thank you all for joining us. As you can see, the first half of 2009 has been challenging to NMT, to say the least. And during the second quarter, we continued expand into new international territories, as Rick has outlined, by adding distributors in previously untargeted countries in Europe and Latin America. And we are in the early stages of adding more in Eastern Europe, Middle East and parts of Asia. However, registration in these new target markets has taken a little longer that we expected when we made our initial plans for the year. And as a result, revenues were less than anticipated in the second quarter. We view this as a timing issue and not a systemic issue. We believe that we will ultimately increase our commercial market share in many of these markets and we expect to realize the top line benefits from these new territories later this year.

We remain focused; the company remains focused on our primary goals which are steadily improving the sales of BioSTAR, a product which we view as the best product available in the market; successfully completing our ongoing clinical trials and development programs; receiving a PMA for stroke and the TIA indication in the US.

And in order to achieve these milestones, we have dedicated significant resources to several initiatives during Q2 in order to pave the way for our future success; the first of which is, in an effort to increase our international BioSTAR sales, we have continued to aggressively expand overseas. Most recently, as I mentioned, we began the process of entering territories in the Middle East, Eastern Europe and parts of Asia. This may be several months before our sales ramp in those territories due to the registration process. We are confident that there are significant opportunities for profitable growth in these new markets based on our initial success with the countries we entered earlier this year.

Second, as Rick mentioned earlier, in order to reduce our selling and marketing expenses in certain territories outside the US, we are in the process of streamlining our sales operations as we transition from direct sales to distribution arrangements in various countries. We expect to benefit from increased sales in those markets with minimal additional costs. We will continue to pursue opportunistic distribution partnerships to expand our international presence, and we are in the midst of those as we speak.

Third, we have been closely monitoring our costs of all our internal programs in order to most effectively manage our capital resource. And today, we have reduced our expenses by more than $500,000 – this is similar to what Rick has just told you, since the plan was implemented in Q4 2008.

And as Rick discussed in his remarks, in addition to the $12.4 million in cash, cash equivalents and marketable securities NMT had at June 30, we secured a $4 million credit with Silicon Valley Bank. Not only does this provide us with financial security, it reinforces our belief that we'll have sufficient funds to complete our pivotal stroke, TIA trial, CLOSURE I.

And let me say a few words about CLOSURE I. CLOSURE I remains the top priority for NMT. The data continues to be collected and processed regularly. And let me remind you that the company is completely blinded to this data. We don't have any information on the data at this time. And at this time, we expect data analysis to begin in the fall of 2010. And at that time, we believe that CLOSURE I will serve as the single most important assessment of the link between PFO CLOSURE and stroke TIA indications.

We look forward to examining those results when they become available and anticipate publishing them in a peer-reviewed journal. We expect to file the PMA application for STARFlex under the stroke and TIA indication shortly after the data review.

Now, it's a little early to get into detailed plans for that. We have them, but we are not going to be able to discuss them publicly. We have implemented a more strategic marketing and communications strategy for reaching out to our target customers. In the past, NMT's advanced technology was well known. However, in the current market, we see increased competition from a variety of trials that are under way; new PFO closure technology, new competitors entering the market, as the value of this market begins to be recognized.

And lastly, we have significant pricing pressure in certain markets outside the US, Europe in particular. As a result, it became essential to the future growth of the company to ramp up our marketing program and as part of this strategy, which is still developing, we introduced a newsletter that is now delivered to a broad group of cardiologists, neurologists, distribution partners across the globe on a regular monthly basis. This program keeps us visible in front of our customers more regularly. The newsletter is intended to inform our current and prospective customers of all the news pertaining to NMT's advanced implant technology as well as other clinical advancements in the area of structural heart repair.

The selling and marketing initiatives we recently initiated will help increase NMT's profile among our key audiences. And that's in line with our requirement -- our mantra, for lack of a better word, to elevate our communications globally, throughout the company and throughout our markets. And we have got a lot to say; we have got – we are a lean and agile company; we have a very flat organization; none of us are very far removed from our customers; we are very responsive, completely dedicated to reaching our customers on a regular, and I mean often daily and certainly a weekly basis. That momentum will affect our results and also gives us some input into how we might improve our products as we move forward.

Now, we don't – in the near-term, we don't anticipate any meaningful sales momentum. We are confident that the treatment of structural heart disease is steadily being accepted within the medical community. The papers are numerous. In fact, I don't remember a section of cardiology that has had as many clinical papers as this has, and that continues to have.

So, following positive results from trials such as CLOSURE I, we would expect a substantial increase in the adoption rate. And this is another reason why we must continue to invest in educating our customers about the benefits of PFO closure and NMT's advanced technology and our clinical work through our marketing programs. So, as you can see, we have exciting opportunities unfolding. We have great distribution partnerships in place which we will announce as they occur over the next few weeks and months. And with the registrations nearly complete in several new markets, we expect to achieve incremental gains in revenues and profits later this year and into 2010.

Historically Q3, as it is with most companies, is our seasonally weakest quarter due to the summer holidays scheduled for both patients and interventionalists, in our case. But we will remain focused on building sales momentum and expanding our global footprint.

So, let me just summarize all of this. For the second half of 2009, our four major initiatives are: One, pursuing additional regulatory approvals for our technology; two increasing BioSTAR unit sales; three, effectively managing our capital resources while continuing to fund our promising R&D efforts; and four, expanding our international presence in structural heart repair.

In closing, we are confident that our technology and clinical development programs have positioned NMT as a leader in the cardiac septal repair space. So, before I turn the call over for your questions, I would like to take a moment to congratulate Rick Davis on his appointment to NMT's Board of Directors. Rick brings a breadth of industry experience and a deep understanding of NMT's internal operations. He is an excellent addition to our Board and will be a strong asset going forward.

With that, I would like to open the call for your questions.

Question-and-Answer Session

Operator

(Operator instructions) There are no questions. I would like to hand the floor back over to Mr. Martin for any closing comments.

Frank Martin

Thanks, operator, and thank you all for listening. We look forward to speaking to you again when we announce our third quarter results in November. Bye-bye all.

Operator

And that concludes our conference call. Thank you for joining us today.

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