SANUWAVE Health, Inc. (OTCQB:SNWV) Q1 2016 Earnings Conference Call May 16, 2016 9:00 AM ET
Lisa Sundstrom – Chief Financial Officer
Kevin Richardson – Chairman and Chief Executive Officer
Brian Marckx – Zacks Investment Research
Thomas Pfister – RedChip Companies
Greetings and welcome to the SANUWAVE Health First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]
I would now like to turn the conference over to your host, Lisa Sundstrom, CFO of SANUWAVE Health. Please go ahead.
Thank you, Kevin, and good morning. We appreciate your interest in SANUWAVE and in today’s call. SANUWAVE’s will now provide an update our activities during the quarter as well as our preliminary first quarter 2016 financial results. Our quarterly report on Form 10-Q with the SEC will be filed shortly. If you would like to be added to the Company’s distribution list, please call SANUWAVE at 678-578-0103 or go to the Investor Relations section of our website at www.sanuwave.com.
Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of SANUWAVE. We encourage you to review the Company’s filings with the Securities and Exchange Commission, including without limitation our Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.
Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 16, 2016. SANUWAVE undertakes no obligations to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that said, I’d like to turn the call over to our Chairman of the Board, Kevin Richardson.
Thanks, Lisa, and good morning everyone. We had a very busy first quarter, which I will give the highlights. There were some strong orders that came in. And as you know, all of our orders, right now, are international and we will touch on that in a bit as well. We completed the warrant exchange, which again Lisa will talk about, a capital arrays. And let me spend a lot of the time preparing for our meeting with the FDA to discuss how our results from our trial when that meeting occurred about two weeks ago, we will talk briefly about that.
And now, we’re preparing to submit to the FDA at the end of June, early July. And with that again, it’s going to be a brief call today, I am going to turn it back over to Lisa to talk about financials, I will conclude with some concluding remarks and then open it up to Q&A. Go ahead, Lisa, thanks.
Thank you. Revenue for the first three months ended March 31, 2016, were $269,000, an increase of $59,000 or 28% from the prior year. Our revenues results primarily from sales in Europe, Asia and Asia-Pacific of our orthoPACE and dermaPACE devices and the related applicators. There were increases in revenues for 2016 was due to higher sales of orthoPACE devices and applicators in Europe and Asia-Pacific.
Research and development expenses for the three months ended March 31, 2016 were $310,000, a decrease of $325,000 or 51% from the prior year. R&D expenses decreased in 2016 as a result of lower payments to third-party clinical sites participating in the dermaPACE clinical study as patient enrollment was completed in 2015. In addition lower consulting related costs and we also had lower consulting cost related to the data results. This was partially offset by a consulting expenses related to the pre-submission package to the FDA that was completed in early 2016.
General and administrative expenses for the three months ended March 31, 2016 were $499,000, a decrease of $67,000 or 12% from the prior year. This decrease in general and administrative expenses is primarily due to reduced salary and related costs as a result of reduction in headcount in July 2015, this is also partially offset by higher professional and legal fees related to the equity offering and the warrant exchange in 2016.
Net loss for the three months ended March 31, 2016 was $1.7 million or $0.02 per share compared to a net loss of $1.2 million or $0.02 per share for the same period in 2015, an increase from the net loss of $500,000, or 49%. The increase from the net loss was primarily due to the loss and warrant valuation related to those Series A warrant conversion to stock in January 2016.
We also had higher interest rates due to amendments to the notes payable related parties completed in June 2015 and issuance of promissory notes in 2016. These higher costs are partially offset by reduced operating expenses in 2016 discussed above. Looking at our cash flows as of March 31, 2016, we had cash on hand of $604,000 compared with $153,000 at December 31, 2015. Net cash used by operations was $1 million for 2016 compared with $1.1 million for 2015.
The decrease for 2016 in used cash for operations was primarily due to lower operating expenses in 2016. We continue to project our cash burn rate from operations will be approximately $175,000 to $225,000 per month in 2016 during the preparation of the submission of strategy to the FDA and the actual submission to the FDA.
Now, let me turn the call back to Kevin.
Thanks, Lisa. Normally, we would spend some time having our various leaders talk about the different aspects of the business here at SANUWAVE. I will then provide color on the business and the FDA outlook. The team Pete, Iulian and myself are currently in Europe meeting with our distribution partners. Specifically, we’re in Italy with our distribution partner that’s why we’re making this phone call from. And this is very difficult for us to interact on the call from the road.
Our meetings are taking us through Italy, Switzerland, Belgium Sweden, Korea and the Middle East where we have meetings setup with the distributors, discussing their outlook so far this year and we will head it for the remainder of the year. So far the feedback has been extremely useful, help us to develop for the reminder of 2016 as we move – and also as we move into 2017.
We apologize for the limited discussion on this call. Our plan at this point in time is holding other call in June – it might be early July to update you on how our meetings with the distributors went and an update on the FDA. We did meet with the FDA recently and they had a very productive session. And we discussed with them how best to proceed to ensure the most likely positive outcome. We add our consultants – and clinician from the study in attendance.
As I mentioned, we will update you and we make our final submission to the FDA, until that time we will be limited on what we can answer and what guidance we can provide with regards to how we’re working with the FDA. Again, come June-July, when we have our conference call after we’ve submitted will be much more open to discussing what our plans are specifically or what our plans have been specifically with the FDA. The meeting itself left us with a positive note and we remain optimistic with regard to our prospects.
With that, I would like to turn it over to Q&A. Kevin?
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Brian Marckx from Zacks Investment Research. Please proceed with your question.
Hi, good morning, Kevin. Relative to the FDA, I understand – and I understand why you don’t want to – you can’t go into too much detail, but is – if you can just tell me is there any I guess ambiguity in terms of when you make the submission in the June-July timeframe in terms of what you will submit essentially? So sort of the meat of the package if you will, is there any ambiguity vast decision making anything that needs to be kind of ironed out before that or is this just putting the package together and that’s why you need the additional time?
Yes – Brian, very good question. In the purpose of the meeting that we had with them at the end of April was specifically to iron out everything that we would have a full package to submit and they provided some great clarity in understanding. I mean they were in some regards overly specific with what they were expecting from us. We get more an hour with the FDA. We had a full hour. We presented a lot of our data to them. And we asked the questions specifically where and what they wanted more clarity around and they were very clear back to us as to what we needed to provide to ensure the most likely chance of success with them.
So that piece of it is now behind us we took obvious notes, we did our follow-up, and that’s what we’re pulling together now. I mean, they’re not asking us to do anything other than take it what everything that we already have in format, reformat and reformat again, so that we can present the clearest picture to them around what we’re attempting to do. They’ll get more patients, there is nothing like that, its all just clarification. So I think your question to spot on, there is no more analysis just a matter of us doing the work that has been asked of us, getting it in the right format and presenting it to them and then awaiting their answer.
Okay. So this will be the supplemental PMA filing.
Yes, we’re putting in exactly what the FDA is asking us to put in. So, it will be our final submission to them.
Okay, okay, great. And just one on your cash position; clearly, you’re going to need to rise again in the not too distant future, if you could talk about that. And then in the context of that you have talked previously about potential interactions with – or interactions with potential partners and has there been any, I guess, additional progress on that front?
Yes. I mean, right now, the focus where we’re – I’ll kind of walk through the three focuses that we have clearly getting the FDA process done in step one. Step two is dealing with our international community and getting the orders in and getting that kind of book of business together. As you know, we had good success at the end of last year and we’re continuing to see strong interest. And then as we’re meeting with our various distributors whether it would be Korea or even the meeting we had all day today in Italy, we’re seeing again strong interest in order flows beginning to come out of that renewed interests that we’re showing with our distributors where we had quite frankly ignored them for a while until recently. And now, we’re reinvigorating those relationships. And we’re beginning to see the fruit in those orders, starting to come in and laying out a ground work for that 2016 as we head into 2017 as well.
As far as distribution partners, domestically, we’re continuing to have discussions. We spoke with someone of our SASSY conference and we’re going to continue to do that. I think the more important aspects will happen after we submit and can share kind of the full submission data. And quite frankly I’m not expecting anything really to occur until we get closer to in a full at least domestically. I think internationally, we’re having good, good success. We’re meeting with some new international partners.
I’m on this trip that I would expect us to announce probably in the second quarter and in the third quarter, a number of new distribution partnerships from a country standpoint. And there’re big markets that we’ll be announcing some in Europe, some in other parts of the world. So we’re – again, we’re seeing the success from the other distributor partners begin to bleed over into other markets where they’re seeing demand for the product as well.
With regards to capital raise and fund raising, I think the important things that we’re exploring a lot of other opportunities just beyond your straightway of doing things, we do have a – I know as Lisa has talked about our burn rate where it is, we’re trying to offset some of the burn with lower expenses, we’re trying to offset some of the burn with increased revenue and we’re having good success with that as we had in the back half of this year. And then we’re also looking at partnerships that could help us internationally from a capital raise standpoint as well. The markets, as we look globally, are right way of our products, but there are also a lot of interests from a capital markets perspective as well.
As we’ve done in the past, we’re going to continue to manage our cash appropriately. We’re going to continue to grow where we can. And then from a capital standpoint, we’ve got a lots of people offer now. So, its just a matter of lining up out the right way and making sure that we focus on the existing shareholders who have got us to where we are today and not necessarily bringing on a lot more dilution because that’s something that a – it's not necessary right now given some of the opportunities that are presenting themselves.
Great, thanks, Kevin. I appreciate all the color.
Thank you. [Operator Instructions] Our next question today is coming from Thomas Pfister from RedChip Companies. Please proceed with your question.
Hi, Kevin. Hi, Lisa. How are you both doing this morning?
We’re good. We’re good.
Okay. So, thank you for having this call. I’m trying to I think just ask my questions in a general manner. So my first question here is given what might be potential approval for certain subgroups potentially? How would this possibly affect your marketing strategy going forward?
Sure. I guess, right now, we’re – the approval we’re going to be going through is for a full labeling with the device to treat all people, but specifically when we met with the FDA, we showed them examples of where we had stronger results with certain other sub-groupings. And I think that will affect us more in the marketing aspect of it and then a lot of the continued follow-on studies.
Internationally, it varies by market. So we’re taking the information, the study, the data we’re getting internationally we’ll incorporate that domestically when we rollup the product. The good news of our product, one of the many good news is that we have – from a patient perspective it’s non-invasive, it’s easy for the doctor to use, it’s really probably administered by a nurse, it takes three to five minutes, it can be incorporated during the existing flow of a diabetic foot ulcer patient. So it isn’t as if they need to go surgery or schedule time at a hypobaric chamber or quite frankly we’re a boot to help on the healing.
So our product works very well within the existing flow of a doctor’s office. So there is a lot of benefits. And then the last benefit is where we’re getting price though, where there is a massive price umbrella for advanced therapy, wound therapy out there today. Hyperbaric is extremely expensive. The boot, even though there is 16 different FDA approved negative pressure wound therapy products out there, its still over $10,000 to get someone fully healed, the surgeries to get the full healing 7 grams to 10 grams. So, there is a lot of opportunity for us to come out and enter the market.
The other aspect that we’re pushing and this is where we’re working and we’ve got one that we’ll kick off in the second half of this year, but we’re going to work a bunch of studies where we can show, we can work with all of the other advanced wound therapies out there. So whereas most of the advanced wound care market is in a silo fashion, are being managed to work with each of those silos if that’s the right thing to do help ultimately the patient. And at the end of the day we got to remember the goal here is to help patients heal. And we have to remember that’s the goal and if we can do that in conjunction with other therapies, I think we are going to have an even greater chance of success. So that’s a long way in order of avoiding your question I guess, but I think answered it. We’ll have other subsections that we can treat or have stronger data behind, but when we get approval from the FDA, it will be for wound closure.
Okay, thanks, Kevin. That color was very helpful. And then just another question from me here. If your marketing strategy – is this – or should we just expect at least over the short-term that you will continue to market the dermaPACE through distributors or is there any potential for maybe a direct sales force or anything of that matter?
So domestically and internationally are two separate things. Internationally, what we’ve realized is having a local distributor is key. There’s no – we’re not – we don’t have the capital structure, we don’t have the infrastructure to support an international sales force. And if we were to try to go build one, one, it would take years, and two, it would cost us a lot of money. So that’s first and foremost.
Second, having the local distributors is unbelievably beneficial. I mean we just our morning – our morning here, it’s now the afternoon where with our Italian distributor. And he just learned the local – the things that drag the local market. For example, one of the thing they’re doing here is – when they’re buying machines or then renting them out on a rental basis. And so – and then what you learn is that the Northern Italian market is very different than the Central and very different than the Southern Italian market. Again, having your local distributors, how you can learn from them, work with them so that you can bring the best product to market.
We did the same thing recently in Australia where we’ve moved a little bit to a market that fits what they are asking for. In Korea, they’re actually treating the wounds before they erupt. The second, neuropathy kind of kicks in, and there’s a chance of an eruption, they’re treating it. So I think internationally it’s a market-to-market basis. And even within Europe, sometimes we take this America centric view of – Europe’s one big homogenous place and what you realize is that trapped even within Italy, you got three different markets. And so I think that’s a little bit of a difference why we’ll stay with the distributors internationally.
Domestically, our goal as we’ve said all along is to find the right distribution partner. In the mean time though, it does mean we’re going to have to built out our models and sales forces to address some of the initial market that we will try to penetrate into help VA. And those are more what I call a national sales approach. And then also from a reimbursement standpoint, there’s some of the national coverage areas that you’re going to have to focus on as well.
The other thing in the wound market in the U.S. that’s changed over the last decade is the development of wound centers. A decade ago, 15 years ago, wound centers were not a big part of the market and now they’re a large part of the market. They’re driving a lot of the changes, they’re driving a lot of the early adaptor side of the equation, they’re developing the penetration rates. And so focusing on some of the larger wound centers will be an important part of our strategy and that doesn’t necessarily mean you need 500 sales people anymore. And especially with our product, I think that’s something where with our clinical data that we have showing the wound closures that we do, and the wound healing percentages that we do, and the ability to use it in conjunction with other strategies. When we listen to our clinicians that’s what they are looking for.
So, that say, we are still in development on exactly how we’ll rollout our sales force, but in the mean time we will have a plan going forward with that. Ultimately I think the best plan would be to find the right distribution partner, but we have to more forward as if that may not occur. And again, we’re learning greatly from our international success, and then we’re applying what we’ve learned domestically.
Okay. Thanks for the color there. And I just have a one last question. I’ll hop back in the queue. So with regard to some of the international meetings you are having here, could you may be give some color on what the reaction has been to the data that you presented in your recent trial and also just from an international perspective, I think maybe cost here that’s very important to them. So how does the lower cost of the dermaPACE kind of plan to some of their decision making?
Yes. So it’s funny internationally. We’ve really haven’t rolled out data to them. And then part of that is that we have kept everything relatively close until we submit to the FDA, and that purposeful that is there certain rules and regulation we have to follow about what you can and can’t disclose while you are in a FDA process. So we’ve been very close about that. They are all anxious to hear about our prospects with the FDA that they believe will only benefit them moving forward in FDA approved device.
And that separated within wound care and then shockwave. Within the world of shockwave, there are other competitors globally out there that are non-focused on wound care. So they’ve focused mostly on some of the musculoskeletal side of the equation, tendonopathies and so forth. And so a lot of our distributors they have some focus there, and within that sector it’s a competitive landscape and we offer probably the highest end product, probably the highest quality product, and other products out there that are quite frankly inferior, but costless. So when you mentioned where we’re priced, it really depends on the product offering that we’re looking at.
Within the wound care space, it really is a market-by-market decision. And right now, standard of care kind of across the globe is that you change the bandages and hope for the best. And so there is an educational curve that we face in every market we go into and some how much faster rate of adoption than others. And when we can provide data, specifically the FDA data to support that, and other clinical studies that are local market specific, and specifically, when you get the key opinion leaders in those market to buy and that’s really when you get things to takeoff.
I would expect Korea, they replacing four machines kind of their key market leaders, remember, they only got approval less than six months ago placing with the key opinion leaders now. And then if we have success with them that market will open up dramatically. If – and then in Italy we’ve got specific key opinion leaders working with now. And so it’s a hopefully as we head through the year and they have successful, it will lead to further success with everyone.
So it really depends on the market, but the feedback has been great. We’re – it is a market-by-market decision, country-by-country. As I said, even within country there are differences. So we’re learning, adopting and moving forward. Thanks.
Okay. Yes, thanks, Kevin. Thanks so much for the color. I’ll go ahead and hop back in the queue now.
Thank you. We’ve reached the end of our question-and-answer session. I would like to turn the floor back over to Mr. Richardson for further closing comments.
Great. Well, thanks everyone for joining and I apologies for making that a short call given our – where we are trivialize and where we are with the FDA. We thought it would be appropriate at this point in time just to keep it pretty limited. We will be having a call once we have submitted. And as we do with everything, we try to give you as much information as we can. We try to disclose as much as possible. And so after we submitted to the FDA, you will be fully aware of exactly our path going forward. I think at that point in time, we probably would be able to provide some of the feedback from our distributor trip as well. Hopefully, it will be positive and we can move forward. By the end of this year, we’re expecting to have – made some generals on the international market and we’ll have a clear path on the FDA side of the equation.
We didn’t talk much about non-medical today. We’ll do that a little more in that June-July timeframe. But in the meantime, if you have any questions, as Lisa said, feel free to call the company. And then if you need any information, website is chart of great stuff on the investor side. And if you want science data, there is a whole section that dies into all the different papers, videos and so forth. So you can get educated on the company as well. Thank you very much and have a great.
Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!