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Echo Therapeutics, Inc. (NASDAQ:ECTE)

Q2 2013 Earnings Conference Call

August 8, 2013 09:00 ET

Executives

Christine Olimpio - Director of Corporate Communications and Investor Relations

Patrick Mooney - Chairman and Chief Executive Officer

Christopher Schnittker - Chief Financial Officer

Analysts

Nathan Cali - Noble Financial

Operator

Good morning, and welcome to the Echo Therapeutics’ Second Quarter 2013 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Ms. Christine Olimpio. Please go ahead.

Christine Olimpio - Director of Corporate Communications and Investor Relations

Good morning everyone. This is Christine Olimpio, Director of Corporate Communications and Investor Relations of Echo Therapeutics. Thank you all for joining Echo Therapeutics today for our second quarter 2013 financial results call. Leading today’s call is Patrick Mooney, our Chairman and CEO and joining us on the call is, Christopher Schnittker, our CFO. Shortly after this call is concluded, a replay of this call will be available in the Events section of our website through August 22.

Before we get started, I’d like to remind everyone that our discussion today may include forward-looking statements as defined under the securities laws. The statements in this call that are not historical facts may constitute forward-looking statements that are based on current expectations and are subject to risks and uncertainties that could cause actual future results to differ materially from those expressed or implied by such statements. Those risks and uncertainties include, but are not limited to risks related to general market conditions and the other risks and uncertainties identified and described in more detail in Echo’s filings with the Securities and Exchange Commission, including without limitation of our Annual Report on Form 10-K for the year ended December 31, 2012, its Quarterly Reports on 10-Q, since that day and its current reports on Form 8-K since that day. Echo undertakes no obligation to publicly update or revise any of these forward-looking statements.

I would now like to turn the call over to our Chairman and CEO, Patrick Mooney.

Patrick Mooney - Chairman and Chief Executive Officer

Thanks, Christine. Good morning everyone. And thanks for joining us on our second quarter financial results call. Since we last spoke with you in May, I think we have made progress on a number of fronts. During the second quarter and in recent weeks, we made substantial progress at our Symphony CGM System in non-invasive, continuous glucose monitoring system for use in hospital patients, and subsequently in people with diabetes in the outpatient setting.

In today’s call, I will provide some detail on our second quarter operational, clinical, and regulatory highlights, and then Chris will review our financial results. We will then provide an opportunity to answer few of your questions. I’d like to begin with an update of our CE Mark regulatory trial. During the second quarter, we received IRB approval from each of our core clinical sites as well as agreement from our notified body in Europe on our clinical trial plan. This enabled us to initiate the clinical trial that supports our CE Mark technical file submission later this year. As a remainder, the study is designed to evaluate the safety and performance of the Symphony CGM System in a critical care setting. We continue to actively refer and enroll patients at the core U.S. sites. The Symphony CGM System will be evaluated in 32 patients entering their glucose values are being paired with reference to blood glucose measurements taken from a YSI 2300 STAT Plus Glucose Analyzer.

While patient enrollment is out of our control, it can vary for a variety of reasons, including unrelated clinical issues in the ICU. We believe that we can conclude the study in a timely manner. Following completion of the clinical trial, we will submit the analyzed data to our notified body in a tax file along with other additional documentation in support of our Symphony CE Mark application needed to obtain marketing approval in the year.

Turning now to the U.S. as we begin to sharpen our focus on working towards FDA approval, we first submitted a free submission package to the FDA in June of this year. As a result of this commission, we will be meeting with the FDA later this month to obtain the FDA’s guidance regarding U.S. regulatory pathway for Symphony. More specifically, we are seeking feedback on the pivotal trial protocol and endpoints in the preparation of the pre-marketing application. Following the feedback, we expect to receive from our meeting we plan to initiate the U.S. pivotal clinical trial for Symphony. This could represent a significant milestone as to our knowledge. No CGM has been approved by the FDA specifically for use in critical care units. We will work diligently to complete the clinical and regulatory requirements to make Symphony available in the U.S. as quickly as possible.

On the business development front, we haven’t testified our efforts to secure commercial partnership with Symphony in the critical care setting. Our management team is focused on meeting this goal and I believe Echo was very well-positioned with its current resources to finalize such a partnership. We believe that obtaining commercial partner will allow us to leverage the existing sales and marketing infrastructure of that partner and will be significantly reducing our own commercial infrastructure requirements.

Additionally, we continue to conduct demonstrations and exhibitions during medical conventions and congresses in order to ensure that the full range of Symphony’s benefits are well known and widely understood. In fact just last night, we held an event here at Philadelphia office bringing annual convention of the American Association of Diabetes Educators, or AADE. Many of the nurse educators who attended the AADE convention work in a inpatient setting helping to manage glucose levels are critically ill patients. We invited approximately 40 of these nurses to our office to conduct a live demonstration of the features and functionality of the Symphony’s system and to educate them on Symphony’s clinical evidence to-date. The positive feedback and excitement that was provided by the attendees was particularly encouraging.

We also recently conducted a survey in Europe among 100 Healthcare Practitioners or HCP comprised of anesthesiologists and critical care nurses. This survey generated tremendous insight of the current practices of glucose monitoring and the need CGM in a critical care setting as well as the interest in Symphony’s CGM. Some of the noteworthy results from the survey include 92% of HCPs agreed CGM would have a positive impact on glycemic control in the ICU. 90% of the HCPs believe in non-invasive needle free approach for glucose monitoring in the ICU is valuable. 4% of the HCPs agree that Symphony CGM could reduce hypoglycemia in the ICU. And more than half report that they would use Symphony that becomes available. This type of feedback is very consistent with other feedback. We heard from healthcare practitioners who believe in the importance of frequent glucose monitoring, but the challenge is by the tools that are currently available. CGM has the potential to revolutionize how glucose is monitored in the ICU and Symphony’s non-invasive approach to CGM, a significant appeal for those who work with patients everyday in the study.

Also during the second quarter, we significantly strengthened our cash position. In June, we affected a 1% reverse split of our common stock, which was done to allow us to maintain compliance with the NASDAQ Minimum Bid Listing Requirement. Following the reverse, we completed a public offering of common stock raising $11.3 million after expenses. Proceeds from that offering are being used for manufacturing clinical trial and other expenses.

With this brief overview, I would now like to turn the call over to Chris Schnittker, our CFO for a review of our second quarter financial results. Chris.

Christopher Schnittker - Chief Financial Officer

Thank you, Pat and good morning everyone. Let me first review our financials in the end of the second quarter of 2013. Our cash balance as of June 30, 2013 was approximately $11.6 million which includes the net proceeds raised in the June public offering that Pat just mentioned. Turning to the income statement for the quarter, operating expenses were $6.1 million during the second quarter of 2013 compared to $3.5 million during the second quarter of 2012. Operating expenses during the first half of 2013 were $11.6 million compared to $6.8 million in the first half of 2012. The increase in operating expenses included an increase in research and development expenses in the second quarter of 2013 by 83% to $4 million from $2.2 million for the same period in 2012.

Research and development expenses for the first half of 2013 increased to 102% to $7.2 million from $3.6 million for the same period in 2012. These increases in R&D expenses for the second quarter and first half were attributable to couple of factors including increased engineering and design expenses incurred with outside contractors and personnel resulted to Symphony development during the period.

Selling, general and administrative expenses increased $763,000 to $2.1 million for the second quarter of 2013 or $1.3 million for the same period in 2012. Selling, general and administrative expenses increased $1.2 million to $4.4 million for the first half of 2013 from $3.2 million in the second – in the same period in 2012. The primary reasons for the net increases related principally the increased marketing and manufacturing personnel as well as expenses related to pre-launch marketing and manufacturing activities.

As a result of the above factors, we generated a net loss for the second quarter of 2013 at $3.3 million, or $0.51 loss per share compared to a net loss of $3.2 million or $0.81 per share for the second quarter of 2012. The net loss for the first half of 2013 was $7.3 million, or $1.73 per share compared to a net loss of $6.1 million, or $1.58 for the first half of 2012.

I’d now like to turn the call back over to Pat Mooney. Pat, thank you.

Patrick Mooney - Chairman and Chief Executive Officer

Thanks, Chris. I would like to add more than ever we are enthusiastic about the potential of Symphony, and we look forward to completing our EU study into filing the CE Mark technical filing for potential European market clearance and commercial launch. That concludes our prepared remarks.

Operator, we’d now like to open up the call to questions.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) Our first call comes from Nathan Cali of Noble Financial. Please go ahead.

Nathan Cali - Noble Financial

Hey, guys. Good morning.

Patrick Mooney

Hey, Nathan.

Nathan Cali - Noble Financial

Still just a couple of questions based upon your EU study, are you guys seeing any gaining excitement in Europe due to the study and what kind of feedback you are getting over there?

Patrick Mooney

Well, remember, Nathan, the four sites were actually four US sites. We are not running the study at any centers in Europe right now. Our notified body was fine with that back at counter practice for U.S. sponsors to run their studies in the United States and then you have had data as the basis for CE Mark technical filing. What I can tell you that the investigators in the United States and the nurses -- some of actually the nurses, as you know, we are doing some studies at Jefferson and Cooper in the Philadelphia. And there were couple of Jefferson nurses here last night and I think it’s safe to say that they are pretty excited about the product. Importantly, I would also go back, I mean, Dave Walton we have been from market research as we continue our final approach for launching the product in Europe. And I mean, we have got very, very good feedback from the survey that was conducted in Europe, I mean, with 100 healthcare practitioners, whether it was IP, and said that IP nurses were intensive. You know what I mean we are talking 90% non-invasive CGM was important and valuable 92%, and that’s why I would have a positive impact on group blood sugar pressure controls. If you look at the feedback that we got last night, the feedback that we continue to get, is this the thing works, there is a real excitement and a real market opportunity here for us, there is a real need for us. So, (indiscernible) last year at the diabetes symposium had said I think you were there Nathan, I mean there is going to be full demand for this product. So, in answer to your question, yes, I think there is a lot of excitement.

Nathan Cali - Noble Financial

How is enrollment going to stay you guys, is that where you have – with involvement?

Patrick Mooney

It’s moving along pretty good. I mean, I can tell you some site enrollments are quickly than others. In fact, I think one site has enrolled their status quo has enrolled their number of patients today I think to finish. Other sides are a little bit more slowing and then one of the interesting things that you see, learn something at every clinical trial. But some of the patients, we are going out for 24-hour monitoring label. Some of the patients actually are in the study get this charge before in 24 hours. So, we enrolled the patient in a study for instance. They are healthier than some of the other ICU patients that maybe are in the study that get discharge from the unit after 6 to 8 hours. That’s really we’ll use the data as supportive data in that instance, but that’s not really a patient that can be considered valuable in the 32, because it wasn’t close enough to 24 hours. So, the real invasion rate on the patient enrollment within 100% put it that way. So, we are not just going over 40 patients. I mean, it looks like it’s going to be a little bit higher than that, but it’s not a big deal. I mean, in fact, we are able to use that data as supportive data, but it does when you are going for a 24-hour label, then you got to get pretty close to 24 hours for that patient to be valuable, now somebody is discharged after 8 hours in the ICU, really has been accounted in a valuable patient. But other than that, no, I mean, I think enrollment is moving along in a brisk space. We fall very closely obviously between four sites. It’s on track. We are optimistic that we should include this thing shortly.

Nathan Cali - Noble Financial

Okay. Based upon your previous discussions with the FDA, have you talked about primary end points previously for the PMA study and do you have any sort of the forecast there what those maybe?

Patrick Mooney

Yeah. So, yes, and I don’t want to disclose too much, but we have conversations in the past and that’s been a lot of feedback from some of the – some investors account as you know we were seeing who I think are very close to making investment decision like one of the common questions has been what a feedback then from the FDA, what is sort of the right line for you guys in terms of approvability. And we did have a preliminary conversation (indiscernible) conversation we talk with the FDA all the time. We had a conversation with FDA before we submitted our pre-submission package to them and we asked a question where do you guys feel would be an appropriate mark and first of all what are you thinking is the primary endpoint in this study. And where do you feel that that mark needs to be.

We don’t want put something down on paper and suggest it to you, if it’s nowhere in the ballpark of what you’re thinking. And we were actually, well put it this on order right too much guidance right now. But we were pleasantly surprised by the FDA’s response. We put that into the pre-submission package and we plan to meet with the FDA later this month and get clarity on that numbers. So, I’m not going provide it right now and my thought is that we may provide that at some point in the future as we get closer to commencing that study. But current thinking running information is that we were pleasantly surprised where the FDA’s thought process was on for a non-invasive glucose monitor. You will have more visibility in the next couple of weeks.

Nathan Cali - Noble Financial

Okay. And then just one more final question what type of you guys mentioned partnership what type of partnership are you going after right now would it be sort of worldwide partner or U.S. and EU or any color there?

Patrick Mooney

I can say that as we don’t like to write much I mean – we feel good about our potential partner product as you continue to retire risk with the product obviously interest level with potential partners is going to increase. So, we are optimistic. That doesn’t mean that something is going to get done, because my ask – our ask maybe more than what they are offering. So, however, that being said, we are exploring a variety of options on the partnership front from global someone who would actually distribute it. They are – some of them are glucose monitoring companies, there are others who are of ICU type monitoring companies in general that could potentially want this information, I mean, I have plugged into their parametric monitor above the patient’s bedside. So, there are a variety of scenarios that we are exploring. And I think they are also reasonable – regional, excuse me, partnerships of territories, part outs through particular territories which is glucose which we are just monitoring. There are a variety of options in front of us right now. And we are exploring them again. I am not going to tell anybody on this call that we are guaranteeing success that we will get partnership done, what I do feel comfortable telling is that there is a pretty reasonable amount of interest, significant interest from several people for several entities in licensing the technology.

Nathan Cali - Noble Financial

Thanks Pat. Any guidance on the operating expenses throughout the next 12 months?

Christopher Schnittker

Nathan we never might have do that, I mean which is we are not in a position where we provide that kind of guidance.

Nathan Cali - Noble Financial

Okay. Congrats on the progress guys. Thanks for taking the questions.

Patrick Mooney

Thanks Nathan.

Operator

(Operator Instructions) As we have no further questions this concludes our question-and-answer session. I would like to turn the conference back over to Patrick Mooney for any closing remarks.

Patrick Mooney - Chairman and Chief Executive Officer

So, thank you everyone for joining us today. We look forward to providing updates in the near term as we move toward our goal of making Symphony commercially available while we continue to build value for shareholders. Thanks again.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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