Ivivi Technologies, Inc. F4Q08 (Qtr End 3/31/08) Earnings Call Transcript

Ivivi Technologies, Inc. (IVVI)

F4Q08 Earnings Call

June 30, 2008 4:30 pm ET

Executives

Andre DiMino, Vice Chairman and Co-CEO

David Saloff, President and Co-CEO

Alan V. Gallantar, Chief Financial Officer

Steven M. Gluckstern, Chairman of the Board of Directors

Analysts

 

Matt Dolan – Roth Capital

Jamie Houde – RBR Capital

Anthony Petrone – Maxim Group

Unknown Analyst – Maxim Group

Peter Siris – Gorilla Capital

Unknown Analyst – SSM Investment Corp

Philip Anderson – Pinnacle Fund

 

Presentation

 

Operator

Good evening, ladies and gentleman, and welcome to the Ivivi Technologies Incorporated Fiscal Fourth Quarter 2008 Conference Call. (Operator Instructions). It is my pleasure to introduce your host Alison Ziegler with Cameron Associates Investor Relations. Thank you Ms. Ziegler. You may begin.

Alison Ziegler

 

Thanks. Good afternoon and thank you for joining us for Ivivi’s conference call and webcast for fiscal fourth quarter and year ended March 31, 2008, as well as its recently release Cleveland Clinic results. You should’ve all received a copy of the press release issued a little bit earlier today. If you’d like to be added to our e-mail list, please call Devin Rhoades at Cameron Associates at 212-554-5461.

Before we begin, please note that we have arranged for a replay of the call. The replay will be available approximately one hour after the call’s conclusion and will remain available until July 14th. The replay number is 877-660-6853 with the passcode 286 and conference ID 288959. The call is also being webcast live with a replay available. To access the webcast, go to the investor relations section of the company’s website, www.ivivitechnologies.com and look under events and presentations or www.investorcalendar.com.

Before we get started, I’d like to remind everyone of the Safe Harbor Statement included in press release and that precautionary statement applies to today’s conference call as well. During the course of the call, the company will make forward-looking statements that reflect management’s current expectations regarding future performance or events including those related to future studies, strategic partnerships, and future sales. Although management believes that the expectations reflected in such statements are reasonable, they give no assurance that such expectations will prove to be correct, and you should be aware that actual results could differ materially from those that contained in the forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties including but not limited to the company’s limited to the company’s limited operating history, history of operating losses and substantial accumulated earnings deficit, failure of the company to market products to continue to develop, the inability for customers to receive their part of the reimbursement, the inability to obtain additional capital, the inability to protect the company’s intellectual property, loss of any executive officers or key personal or consultants, competition, changes in the regulatory landscape or the imposition of regulations that affect the company’s products and others as detailed from time to time and company’s filings with SEC including the company’s form 10-K SB for the fiscal year ended March 31, 2008. Company’s forecasts are dynamic and subject to change. Therefor, these forecasts speak only as of the day of the webcast, June 30, 2008. The company assumes no obligations to update the information contained in today’s call.

With that, I’d like to turn the call over to Andre DiMino, Vice Chairman and Co-CEO. Go ahead Andre.

 

Andre DiMino

 

Thanks Alison. Good afternoon everyone and welcome to Ivivi Technologies Fiscal 2008 Fourth Quarter and Year End Conference Call. Today on the call with me are David Saloff, President and Co-CEO; Alan V. Gallantar, CFO; as well as Steven M. Gluckstern, Chairman of the Board of Directors.

I’d like to start off the call with a brief overview of the quarter and the year. Then I’ll turn it over to Alan to review our financials. Dave will then provide an update on our business development activities, the Allergan launch, and also what you can expect in the coming months, and Steven will conclude the call with a discussion on the Cleveland Clinic results and some comments on our future direction.

During fiscal 2008, we put into place the building blocks for what we anticipate to be an important inflection point for our company. We continue to compile clinical evidence that differentiates our proprietary targeted PEMF signals from others in the industry and demonstrates our effectiveness at treating a variety of diseases. Our proprietary signals target the anti-inflammatory and growth factor cascades critical to healing, and we have gained significant recognition for our technology over the past year including most importantly the just released results of our cardiac study at the Cleveland Clinic, Florida, and the recent online publication of a study on the significant positive effects of our targeted PEMF in the reduction of postoperative pain and a corresponding reduction in the use of narcotics and other pain medications in a double-blinded randomized pilot study in breast augmentation patients.

We also have studies planned that we utilize our targeted electroceuticals to treat the pain of osteoarthritis and skin ulcers. Our collaboration agreement with DSI Renal, which was announced back in February, involves a double-blind randomized placebo control clinical trial to examine the effect of our targeted PEMF technology on the healing of skin ulcers thought to be caused by either ischemic and/or diabetic vasculopathy in patients with end-stage renal disease being treated by hemodialysis. The trial which we believe will be one of the largest randomized control trials of this kind ever conducted in this patient population is awaiting IRB approval, currently expected this summer with recruitment to be completed within 12 months of initiation of the trial.

We are also working with Henry Ford Health System and Fred Nelson in department of orthopedic who will study our prototype device using targeted PEMF signal confirmations on human patients with established osteoarthritis of the knee. According to the Center for Disease Control and Prevention and the National Arthritis Data Workgroup, in a study published in the January 2008 issue of Arthritis and Rheumatism, yearly one in five US adults or 46.4 million people have arthritis, the nation’s most common cause of disability, with osteoarthritis the number one form of the disease. The double-blinded randomized placebo control study which has been approved by the RB from Henry Ford Health System is expected to begin in July 2008 with enrollment of up to 100 patients expected. The study is expected to continue for up to eighteen months. We’re hopeful that this trial will demonstrate the efficacy of our targeted PEMF signals in knee osteoarthritis and provide physicians with an alternative therapy to help patients deal the loss of independence and inability to work and remain active that is often associated with this debilitating disease. In our fiscal fourth quarter, we filed the 510(k) application for a prescription pain relief product as a drug-free alternative to pain relievers such as nonsteroidal anti-inflammatory drugs for osteoarthritis and other inflammatory conditions. We are currently working with our FDA advisors in order to respond to the FDA’s initial request for additional information. We are also in discussions with partners for this market, although FDA clearance would be needed to market our product for this indication.

As you know, the company’s medical devices are subject to extensive and rigorous regulation by the FDA as well as other federal and state regulatory bodies. In February 2007, in response to increase from the FDA, the company voluntarily submitted a 510(k) for its current products, the SofPulse M-10, Roma and Torino PEMF products. The company has had discussions with the FDA regarding its application and received various requests from the FDA for additional information which information has been delivered to the FDA. Following the delivery of such information, the company received a letter from the FDA regarding its voluntarily submitted 510(k) for its current products, the SofPulse M-10, Roma and Torino PEMF products. The letter stated that FDA determined that such products are substantially equivalent to other devices cleared for marketing through the 510(k) process or otherwise legally marketed prior to May 28, 1976.

The company believes the FDA made an incorrect assessment of the data, and the company has undertaken efforts to have the FDA reconsider the information it has provided by informally appealing the FDA determination while maintaining the ability to formally appeal pursuant to establish FDA regulations and guidance. The company discussed its position with the FDA in a meeting conducted in early June 2008 and sent the FDA further information subsequent to the meeting as requested by the FDA. The company is awaiting the FDA’s response to the meeting and subsequent submission. The company believes based upon regulations and guidance published by the FDA, as well as discussions with its independent expert consultants including former FDA officials that all of its current products are covered by the FDA clearance provided in 1991. Based upon the safety and efficacy of the company’s products, it does not believe the FDA will require to cease marketing and/or recall current products which have already been sold or rented. However, if the company is unsuccessful in its efforts to have the FDA reconsider the data and it does not modify its determination, the FDA may require the company to do so until FDA marketing clearance is obtained. In addition, the FDA could subject the company to other sanctions set forth under government regulation and the company’s annual report on form 10-KSB for the fiscal year ended March 31, 2008.

With that now, I would like to turn the call over to Alan Gallantar to briefly review our financial.

Alan Gallantar

 

Thanks Andre. For the fiscal year ended March 31, 2008, we reported total revenue of $1,606,441, a 36% increase from $1,182,340 for the fiscal year ended March 31, 2007. The increase in fiscal 2008 revenues was primarily driven by the increase in our licensing sales as we commenced the initial term of our agreement with Allergan. Revenue from licensing sales and fees increased to $427,923 in fiscal 2008 and included $62,500 related to the amortization of milestone payments as well royalty revenue of $1,040. This compared to $26,042 in fiscal 2007, all of which was related to the amortization of milestone payments. Initial royalties from Allergan are from a from a limited launch of our product to select doctors in select geographic regions. Royalties are received by us in the quarter following Allergan's sale of product to their customers. Direct sales which represent product sold into medical facilities increased to $440,846 during fiscal 2008 from $416,292 in fiscal 2007 while rental revenue related to the wound care market decreased marginally during fiscal 2008 to $737,672 from $740,006 in fiscal 2007.

Cost of licensing sale for fiscal 2008 was $495,008 for a negative gross margin on the sale of our products to Allergan of $67,085. This was the result of initial production runs. As production volume increases, we expect more economies of scale, although we cannot predict when it will be at breakeven levels anticipated under the Allergan agreement. Anticipated royalties when received are expected to far exceed the Ivivi initial production losses. Further, we reported a net loss for fiscal 2008 of $7,503,091, or $0.74 per share as compared to a net loss of $7,778,611, or $1.13 per share for fiscal 2007. The fiscal 2008 net loss reflects share based compensation expenses of approximately $1.8 million. In fiscal 2007, the net loss was negatively impacted by a $2.1 million charge for share-based compensation expenses and a $1.7 million charge for net interest and financing costs.

For the three months ended March 31, 2008, total revenue increased 43% to $526,094 compared to $369,166 in the comparable period in 2007. The fiscal fourth quarter included licensing sales and fees of $289,156, direct sales of $31,154 and rental revenue of $205,784. This compares to revenue from licensing sales and fees of $15,625, direct sales of $196,060, and rental revenue of $157,481 in the prior year period. The company had a net loss for the three month period ended March 31, 2008, of $2,232,611, or $0.21 per share compared to a net loss of $1,422,944, or $0.15 per share for the three month period ended March 31, 2007. The increased net loss was primarily the result of losses on the distribution of our products through Allergan and increased sales and marketing and general administrative expenses partially offset by the increased revenue.

On March 31, 2008, Ivivi had cash and cash equivalents of approximately $6.6 million, and there were 10,715,130 shares outstanding and no outstanding long-term debt. It’s probably worth noting that we have not received any material royalty revenue and will not until up to 60 days after the end of the quarter in which Allergan sells our products. An expanded national launch is currently planned. In efforts to further align our employee interest with shareholders during this fiscal year, we will require our 401(k) provider to purchase our common stock in open market tractions at predetermined times to match the employee contributions into the 401(k) plan in accordance with formulas established in the plan documenta. We feel this will enable employees to own and accumulate our common stock.

With this, I’ll turn the call over to David.

David Saloff

 

Yes, thanks Alan. I just got back from an Allergan training session last week, and it was evident that Allergan is ready to put some marketing muscle behind the SofPulse line of products in the esthetic surgery market. While a pilot launch of the SofPulse line of products for the esthetic surgery market began earlier this year, Allergan intends on expanding their launch nationally next month in July. During the fourth quarter, we substantially completed the shipment of Allergan’s initial 20,000 unit order which is now complete. Additional promotion materials are now in place. New patient brochures are being placed in doctor’s offices that focus on key patient concerns of speed recovery, decreased downtime, and increased comfort postoperatively. Samplings and mailings to plastic surgeons and positioning of SofPulse on their website are also underway, and other promotional efforts are planned. While it’s taken longer than initially expected to get to the national launch, we remain confident of Allergan’s commitment to the product and believe that we’ll see important progress in getting the SofPulse into doctors and patient’s hands.

In addition to the marketing efforts I mentioned, Allergan and Ivivi are committed to ongoing studies to support the marketing effort and potentially accelerate the adoption of the therapy. In addition to the breast augmentation study that was recently published online, a randomized control trial of use of SofPulse post facial surgery is underway and there are two studies in the planning and design stage: Use following abdominoplasty and as therapy to treat or prevent capsular contracture.

On the wound care side of our business, we continue to make gains with Regency Hospital Company, a leading owner/operator of long-term acute care hospitals across the United States as well as with other US-based LTAC hospitals.

We’ve completed a successful evaluation with one of the largest LTACs in the US which has resulted in a rollout into the first 8 of their more than 80 hospitals. With the presentation of five clinical case studies in the last four months at both national and international forums such as the Symposium on Advanced Wound Care (SAWC) in San Diego and World Union of Wound Healing Societies (WUWHS) in Toronto, we are beginning to see more significant clinical recognition and adoption. Advantages such as improved rates with wound healing, a reduction in the use of more costly negative pressure wound therapy device rentals, and overall per patient cost savings continue to generate evaluation and increased usage. We have also see, interest from outside the US. We’ve received an opening order from our first European distributors and have plans to target additional strategic distributors in Europe to help expand the use of our technology abroad.

As Andre mentioned we are also moving ahead with our noninvasive, nonpharmacological alternatives to pain relievers like NSAIDs for pain associated with inflammatory conditions. As you know, we have had a working prototype and have ongoing discussions with potential partners for this market, and we are also talking to leaders in some of our other market verticals. Steven, with that I’ll turn it over to you for some closing comments.

Steven Gluckstern

 

Thanks David. Within the last hour, the company released results from our completed study at the Cleveland Clinic. The results of the 30-patient cardiac study where individuals with ischemic cardiomyopathy treated themselves at home demonstrated a dramatic clinical improvement for these no-option cardiac patients. No option means just that. These were patients who could not for a variety of reasons undergo surgical procedures such as bypass, stenting, or angioplasty. The patients in the active treatment arm demonstrated significant reductions in angina pain and frequency with a corresponding reduction in nitroglycerin use. These results began emerging at 1 month after commencement of treatment with increasing significance at the 3- and 5-month measurement intervals. Most important to note, the changes in the clinical outcomes were consistent with those seen in angina patients who can and do undergo successful angioplasty. These results were based on the Seattle Angina Questionnaire which is a well-established method of quantifying the functional status of people with coronary artery disease including frequency and severity of angina and its effects on physical limitation.

In addition to significant improvements in the SAQ scores, increased myocardial perfusion was observed in these patients, and in several patients, it was quite dramatic. This indicates that our noninvasive therapy had significantly improved blood flow in those patients. Although the short study duration and limited number of subjects did not allow statistical significance to be seen vis-a-vis perfusion at this time, it is important to note that a majority of the treated patients continue to improve even after the therapy was removed which provides compelling evidence for increased research in this area. In particular, standard cardiovascular models will be used to establish clear goals response relationships for targeted PEMF in this area of application.

We also intent on designing and implementing a larger multicenter human clinical trial to confirm both the dramatic clinical outcomes and the perfusion benefits seen here in a larger population of patients with the aim of ultimately making targeted PEMF therapy available to this no-option patient population which today exceeds 5 million individuals in the United States alone. We look forward to sharing the data with the medical community. As many of you know, inflammation plays a key role in a number of diseases, positioning our technology in a number of other significant markets.

 

Early results from our core scientific and animal research with respect to the range of neurodegenerative diseases such as Parkinson's and Alzheimer's appear promising. It is not surprising that as we look to our future, the fields of cardiology and neurology will represent the key areas of focus and investment for the company. As Andre indicated earlier, beyond our early inroads into wound care and plastic surgery where our revenues are today being generated, in the near term, we also see the potential use of targeted PEMF for treating pain associated with conditions such as osteoarthritis. As we continue to focus internally on research and development, we remain committed to seeking partners in these near-term target markets to help further commercialize our noninvasive electroceutical therapy system.

With that, I’d like to open the call up to your questions.

 

Question-and-Answer Session

Operator

(Instructions). Our first question is from the line of Matt Dolan with of Roth Capital.

 

Matt Dolan – Roth Capital

 

David, on the Allergan rollout, now that we are essentially through the June quarter, can you give us any anecdotal feedback out of maybe the meeting you just depended on, reorder rates, and the proportion of their sales team or their marketing group that are actually selling the device today versus the number that we’re up and running in the March period?

 

David Saloff

 

Matt, actually the meeting that I went to was a meeting to train the regional managers, retrain them, put a focus on it, and then beginning July 7^th, that whole week they train at each of the regions’ each of the sales people. This as the product manager said, everything up to this date has really just been a pilot launch. This is now the national launch for the product, and so I see an absolute commitment to it and I think that we’re really going to finally see the results of them really getting behind this now.

Matt Dolan – Roth Capital

In terms of the actual royalty fall through, how long do you think it takes for them to work through their initial inventory of 20,000 units?

 

David Saloff

 

Their expectation is clearly that it will start to go quickly now, and in fact they are doing a promotion to get the product out there more quickly and get it into the hands of as many physicians as possible, so that the adoption will get accelerated. They haven’t given me their exact projection of when that’s going to happen, so I can’t comment exactly on it, other than to tell you that they are very optimistic about the launch now.

Matt Dolan – Roth Capital

 

Okay, great! May be a question for Steve on the Cleveland Clinic’s result, and I apologize if I missed it, but when will we be able to actually see the quantitative results, and then secondly can you give us your expectations for next steps with this angina indication? Is this PMA route? How long will the next study be and many patients, etc.?

 

Andre DiMino

 

Sure. The first question was when can we start to see the data. The press release has a fair amount of the discussion with respect to the clinical outcomes. Obviously, we expect this trial to ultimately be published. That’ll be sometime between the principal investigators and others there. I’m not exactly sure when that’ll come, but I know it’s obviously something we all want to get out soon.

With respect to the additional studies, we are commencing immediately in some of the design questions. Obviously, we have to look at this data, understand what it tells you to figure out exactly where you will go. We would expect in this fiscal year obviously to be starting at least a number of different studies, both the dosimetry study which we talked about as well as setting up for our large-scale human trials. Clearly, this is a PMA route for us, and so at sometime in the future, the use of this product will require FDA approval, and we’d expect to go through that process as soon as we have all of our data ready to go.

 

Matt Dolan – Roth Capital

 

On this FDA 510(k) issue, just to clarify, you’re still able to sell products under the current clearance that you got in the 90’s? When is your next meeting with the agency, and will you appeal if they decided at that meeting, and if the appeal is accepted, you still have a stable market, but if it’s not, what would you assume the next steps to be?

 

Andre DiMino

 

We are in discussions right now with the FDA. It’s an ongoing process. We are continuing to market the product as our position remains the same as it has been throughout all of our disclosures, and dealing with the FDA, as you’re probably aware, we don’t have any specific timelines that we’re working on, but we are going to be using whatever routes that we can use with respect to our filings with the FDA.

 

Operator

Our next question is from the line of Anthony Petrone with of Maxim Group.

Anthony Petrone – Maxim Group

 

Just a couple of quick followups to start on the FDA matters. Can you just clarify what applications specifically the voluntary 510(k) covered and if there were other specific applications that were covered under there, or was it just a blanket 510(k) that you submitted, and then as a followup on that, do you know what specifically were their questions from the FDA? If you could just give a little more clarity.

 

Andre DiMino

With respect to applications, it was original indication for the currently existing products that are out in the marketplace which is for the treatment of postoperative pain and edema in the soft tissue. Again, following guidance, we believe that the original 510(k), which was granted in 1991 for the predicate device carries over into the current units that are in the marketplace, and the modifications made would be covered there under, but we did voluntarily submit the 510(k) with the same limitation that was in the original 1991 clearance. So there really is nothing new before the FDA except for the modifications to the technology which we believe we’re covered by the previous 1991 issuance.

 

Anthony Petrone – Maxim Group

 

Most of my questions have been answered; one additional one on the Allergan agreement. In terms of the amount of inventory, at this point, in terms of how the deal is actually structures in terms of distribution, the Allergan sales force, the way the sales structured, is the mandatory sale breast implants or are they still presenting the physician over on the Allergan side with the physician to either purchase or pose with the unit, and is there flexibility on the pricing on their end as well?

 

Andre DiMino

David, could you take that?

David Saloff

Sure. It’s the latter. It’s still a separate purchase decision, but with the now published double-blind randomized control study, after breast augmentation, they believe that they have the tool now to really, as I said earlier, to get the adoption going now, but it is in fact a separate purchase decision. They did not bundle it with their implants.

Anthony Petrone – Maxim Group

Lastly on pricing, is that flexible on Allergan’s end in terms of dealing with their physician-patient clients?

David Saloff

Yes. We don’t have the absolute initial offer, but they’re putting a limited time offer at a reduced cost to get it out there. The list price remains the same. The 5-pack is $1250 or $250 each.

Operator

 

Our next question comes from Jagadish Patel, a private investor.

Jagadish Patel

Is this product reusable from patient to patient?

David Saloff

That depends upon which product we’re talking about. With respect to our facility-based unit, the base itself, the main unit, can be used from patient to patient, but the applicators which go on the patient are for single patient use. The other units which are the Torino site units are battery operated, and they too are intended for single patient use and are disposable.

Jagadish Patel

As a regular investor from the IPO, how are we supposed to keep confidence now the way the situations are happening? I have confidence with you guys, but there are a lot messages coming on the internet, and I’m losing my patient, and I’m losing my sleep.

Andre DiMino

I don’t know specifically what you’re referring to…

Jagadish Patel

Referring to the price from the IPO to this much, like 70% down.

Andre DiMino

None of us obviously are happy with the price of the stock being where it, but it’s certainly not without effort on our part to do what’s appropriate for the company, and we continue to go towards the goals of the company. We’re hoping that the stock will reflect the potential of the company, but literally we have no control over the stock, and I don’t know of anyone internally at the company who has been selling any stock, so it really is based upon the supply and demand in the stock market, and we don’t have any specific control over the price of the stock.

Jagadish Patel

As in investor and not a gambler, can I consider that’s the best news?

Andre DiMino

Well, I consider myself to be very proud of the accomplishments that the company continues to make. I know it may not be reflected in the price, but I think that Ivivi is an excellent company and is on an excellent track.

Operator

 

Our next question comes from the line of [inaudible] with Maxim Group.

Unknown Analyst – Maxim Group

 

I was wondering if you could expand a little on the European distribution, what that entails, and also will that be affected by any of the FDA future rulings?

Andre DiMino

I will ask David to respond to that, but just to clarify what we talked about in our presentation, it is with respect what’s used on the wound care side, because I just wanted to be clear that Allergan does have a worldwide exclusive, and what we talked about there was the initiation of European distribution for our wound care, but David, perhaps you can give some more details.

David Saloff

Sure. The first distributor that we referenced in the release or in my discussion was an Irish distributor. They placed an opening order for over 100 devices and are starting to get it out into the market place. We actually have a CE mark that references the use of the product actually for treating wounds. Andre can give you the exact labeled indications, so we’re optimistic now that we can get the attention of other distributors over there. We are in discussions with other distributors, and we also again continue to be in discussions with worldwide partners and in different stages of activity with them in terms of getting one worldwide distributor as well.

 

Andre DiMino

 

And also with response to the question on the FDA and so forth, we do have the CE mark, and we do have the individual clearance with respect to whatever countries are currently started in the European marketplace, so they should not be affected by any of the actions right now of the FDA.

 

Operator

 

Our next question comes from the line of Peter Siris with Gorilla Capital.

 

Peter Siris – Gorilla Capital

 

The products that Allergan is selling, all the products are covered by this 510(k) issue, right?

 

Andre DiMino

 

That is correct.

 

Peter Siris – Gorilla Capital

 

So, tell me what the worst case scenario is? The worst worse is Allergan wouldn’t be able to sell the product?

 

Andre DiMino

 

I can tell you more worse case scenarios. For me, I’m not here to postulate on what could be the worst case scenario, because certainly if you look at the worst case scenario, there could be a recall or something like that. We don’t think that there is any possibility of that, and we’re confident that we’re not going to be in that arena, but there is a number of things that can occur with respect to this FDA issue; however, as I said in the presentation, we’re confident that we’re going to prevail and the fact that this technology is cleared under the original 1991 and that the current 510(k) will be cleared.

 

Peter Siris – Gorilla Capital

 

The worst case scenario, however, your position is that because it got approved 15 to 20 years ago and it’s basically the same technology that they will eventually approve it now?

Andre DiMino

In your terms, that’s correct. I would have stated it a little bit differently, but that’s a general summary of what we believe is correct.

 

Peter Siris – Gorilla Capital

 

I just want to understand why is it that they didn’t approve. What were the issues here?

Andre DiMino

 

With respect to the 510(k), as you know, that’s substantial equivalence. We have the original 1991, which covers the technology. The currently marketed devices have modifications to the original technology which we felt based upon guidance published by the FDA did not require the filing of a new 510(k) for those modified units, so that’s the situation we’re in right now. We’re at that point of discussing that with the FDA under the voluntarily submitted 510(k).

 

Peter Siris – Gorilla Capital

 

So, they might make you provide some additional information?

 

Andre DiMino

 

That could be one outcome, sure.

 

Peter Siris – Gorilla Capital

 

I read that thing, and again I don’t understand a lot, but that looked like a pretty impressive result.

 

Andre DiMino

 

We think so internally, yes. In fact, I would say that’s an understatement in my opinion.

Peter Siris – Gorilla Capital

 

When I first heard this story that this device would work on hearts and people could avoid the need for surgery, etc., I thought it was nonsense and told you so, so just shows how stupid I am, but what the study said basically is that people who used the product got better and there were no bad side effects and that they got better than the people who didn’t use it, right? Significantly better.

Andre DiMino

 

That is correct.

 

Steven Gluckstern

It went even further than that. Not only did they get better. This is Steven speaking. Not only did they do better than the people who didn’t use it, but importantly they got better to the extent similar to groups of patients historically who had had angioplasty, so not only did they get better, but they got better comparable to those patients who had significant invasive surgery.

 

Peter Siris – Gorilla Capital

 

So, people who had invasive surgery, and I’ll your word, significant invasive surgery, and these people have a little buzzer sitting on their chest which did at home, and they ended up as good as the people who had significant invasive surgery.

 

Steven Gluckstern

 

That is correct.

 

Peter Siris – Gorilla Capital

 

Again, I apologize for not being bright, but that seems like a huge thing, or am I missing something here?

 

Andre DiMino

I wouldn’t disagree with that assessment personally.

Peter Siris – Gorilla Capital

 

Now, I want to understand, and I guess this was the question somebody else asked, but now you have these 30 people, and somewhere before this can start being used commercially, you need a study of 500 people or something?

 

Andre DiMino

No. Even if we’re talking about product, of course, this is a technology which would require the filing of an FDA PMA in order to make the indication and market it for such indication related to any cardiac use, and the route to getting there is what we will review with our experts in the field as well as with the FDA and determine what it is. I can’t tell you the size of the study today because how a study is powered is based upon the end points that you choose and the potential indication that you’re looking to secure from the FDA.

Peter Siris – Gorilla Capital

 

What this study basically said is people who are so bad off that they can’t even be operated on did as well as people who were better off and got operated on. Am I stating that reasonably?

 

Andre DiMino

 

Somewhat reasonably, yes. I’d say that that would follow with the results that we’ve seen, and as you can read in the press release the actual statements by the investigator himself.

 

Peter Siris – Gorilla Capital

 

So what is the path to seeing this become a billion dollar business?

Andre DiMino

 

Well, we obviously have to commercialize the product and the technology, and in order to commercialize the technology, as I stated before, we have to follow the path of discussing what it is that is necessary in order for us to submit a PMA which could be approved by the FDA to allow for that indication to be made in marketing.

 

Peter Siris – Gorilla Capital

 

Give me an example of what it might be.

 

Andre DiMino

 

After meetings with the FDA, we would prepare and enter into a clinical study in order to come to an endpoint which we would then use as part of our submission along with other data for the PMA and then work with the FDA to get the PMA to get approved that would allow marketing for that indication, and of course, for those that don’t know, the indication is the eventual claim that you would make for the technology in your marketing documents.

 

Peter Siris – Gorilla Capital

 

And would you do that yourself or would you try to find somebody the equivalent of Allergan in the heart space to be your partner?

 

Steven Gluckstern

 

We ultimately would believe that the thoughts of this company is to have partners to help us distribute our products; however, in this particular case, as I indicated, as well as with the neurology areas, the next step we intend to do independently because the value to a potential distribution partner is substantially larger once the PMA has been granted, so for the next period of time, the company itself will undertake the process of the additional studies and the discussions and negotiations with the FDA.

 

Peter Siris – Gorilla Capital

 

I think this is a gigantic success for you. Like the other guy who is losing money in the stock, I’m losing money on the stock, but this is just a homerun for you guys, and I think it’s great, and congratulations.

 

David Saloff

 

Peter, this is David. Just to add to what your understanding of the significance of this is. This patient population that we’re dealing with, as we indicated in the release, is over 5 million people in the United States alone. Cost to the healthcare system is in excess of $30 billion a year to care for these patients, so that ability to have an intervention that can treat these patient, improve the quality of their life, and reduce the use of medications would be an extraordinarily great feeling, and we can tell you that, although it was a pilot study, that statistically it was quite significant the results that we are seeing here, so I can tell you that the PI on this is very excited about the results that’s seen here, and we’re preparing a paper and finishing up that would be intended to be presented at the large cardiology meeting in the spring.

 

Operator

Our next question is from the line of Philip Anderson with Pinnacle Fund.

 

Philip Anderson – Pinnacle Fund

 

I want to follow along on Peter’s line of question on tonight press release with the study. The 30 patients or particularly the 15 in the active group, did they all arrive at their state of health by the same diseases, or can you help us understand what causes somebody to have a heart and cardiovascular system condition like this?

 

Steven Gluckstern

 

Obviously, we don’t know who the patients are, Phil. We do know that the criterion for entrance into this study was very, very specific, so we’re able to know what kinds of patients could get in and very similar. They may have arrived in different ways into position. The no-option notion which is really the important one when I think in layman’s terms is to say that this is a set of patients whose hearts would not allow them undergo any procedures. They might have had the procedures previously and could no longer be in there, and it depends on how many arteries basically had been “clogged” in layman’s sense. The consistency was very high with respect to the patients and the conditions of their heart. How they may have arrived? We don’t know the answer. We haven’t seen their history.

 

Philip Anderson – Pinnacle Fund

 

I’ve seen pictures of the technology revascularizing I think it was heart tissue from rats. Is it known or expected whether revascularization would have occurred in the hearts of the patients that improved in the study?

 

Steven Gluckstern

 

Yes. We made a comment a little bit about perfusion or the ability to show additional blood vessel growth. Obviously, the measurements, some of the pictures of a rat that you see in various road shows and so forth, those are quite dramatic. By the way, at the end of the procedure, you can open up a rat, kill it, take its heart out and then show it you. Obviously, with human beings you can’t do the same thing, so we have to rely on imaging, pictures which of course aren’t quite as good. Having said that, one of the things that was noted in the study was that many of the patients in the active group showed signs of perfusion. Now remember, they were only treated for 3 months, so this was in a very short time period. I made the comment that we can’t statistically say that we have shown a difference between the sham group and the active group in this regard because the sample size was really too small, so one the things that we are doing and obviously as we move and as Andre talked about the larger patient survey, we hope to be able to statistically show the additional growth. So we see evidence of it, but it’s not statistically significant yet, or we can’t make the statement that it’s statistically significant, and you will see from our PI, in some of the cases, it was quite dramatic based on the measurements that he was able to get.

Philip Anderson – Pinnacle Fund

When you say that it was quite dramatic, Steven, can you give us a sense? Can you put that in some context for us?

 

Steven Gluckstern

We don’t have one of our medical guys on the phone with us. There is a scaling that is used. Obviously they examined these pictures, and there is a scale in which they look at if patient was at this point before and now it’s at that point, so I don’t know what the specific percentage increase or the flow mechanism. It’s a measurement of blood flow. That’s how they do this, but I can’t give you the scale today.

Philip Anderson – Pinnacle Fund

 

In the questionnaires that the patients fill out as part of the study, did they comment on the change in their quality of life? They may have had reductions in angina and be taking less pain medications, or maybe they can get up and walk around, go play a round of golf. Did they talk at all about what changes they’ve seen in their daily lives?

 

Steven Gluckstern

Yes, absolutely. Part of the Seattle questionnaire still is speaking to both angina pain, frequency, duration, intensity, but equally it talks about ability to function, so absolutely it talks about the ability to do those kinds of things, to walk, to walk up steps, and so that all goes into the scoring that happened here, and as we noted in there and as the principal investigator indicated, we still have both the change in angina as well as in the ability to tolerate exercise.

 

Philip Anderson – Pinnacle Fund

Do you know if whatever conditions were affecting the hearts of the people who were in the active group? The perfusion and the other benefits of the PEMF technology, does it arrest whatever was causing their hearts to fall apart, so to speak, or does it slow down or is it still continuing to degrade? Can you help us understand how life-elongating if you will…?

 

Steven Gluckstern

Obviously, those are some pretty long and deep questions you just asked, but we can’t tell very much, although there’s one very important outcome of this study which I mentioned although we didn’t go into detail which is relevant here. You recall this study was set up when we had a 3-month period of active treatment, and then what happened is all patients discontinued the therapy, and then we measured them again two months later, because one of them was called a washout. One of the questions was, was any improvement going to be temporary, for instance, and would it go away when they stopped treatment. Although this is also a statement we can’t make statistically significant yet, but we expect that we will and hopefully will. The measurements at 3 months, month 3 to month 5, and month 5 with respect to the active group, in fact, they continued to get better. Not only did they not decline, but the trend lines are all up on all measurements. So there’s at least one theory that we have done enough in the 3 months of treatment to begin a process of regeneration and improvement in their own ability. That’s a claim we can’t make today, but the evidence is certainly leading us to take a good long look at that because we do see that improvement continuing even after treatment stopped. That’s not the case by the way in sham based and still remained the same or degraded over time.

 

Philip Anderson – Pinnacle Fund

 

Now, once the company has FDA approval to sell this product to people for this condition, how have you envisioned pricing it?

 

Steven Gluckstern

 

I’d say it’s premature to answer that question. We haven’t dealt with first of all exactly the mechanism of distribution. Would this be done by a partner? I indicated earlier I thought that was probably the pattern in which we have done that historically, so we don’t know whether we’d be selling it retail or whether we’d be selling it direct, and I would say at this stage, we have a lot of work to do on dosimetry and regimen and what would be the actual form of the product. Certainly, we would look to achieve a significant return. To the extent that we have patients who have no other options, you obviously have a lot of pricing flexibility. I think I was reading in the AHA statistics, the average heart procedure, this is bypass, stenting, and angioplasty when you add it all together is just under $9000, so that gives you a comparison of that particular invasive treatment compared to ours.

Philip Anderson – Pinnacle Fund

 

Okay. I echo Peter’s comments. I think this is a company which obviously offers a life-changing outcome for the people who are in your active group and this could be huge. Hopefully, you guys will nail it.

 

Operator

Our next question is from the line of Anthony Petrone with of Maxim Group.

 

Anthony Petrone – Maxim Group

Just some follow-on questions, first with the Cleveland Clinic results and the pilot study. How long-lasting is the vascularization once it’s achieved, and is there a need to continue the treatment? Based on the study data so far, once vascularization is achieved, is there still a need for the device? Is the need for the device ongoing?

Steven Gluckstern

I think the real answer to that question is we are not sure because obviously we haven’t followed the patients, but let me just say a little bit of what the study did and what the indication. Each of our patients came, they were treated for three months, and we took measurements when they first came in, a month later, and three months later. Then we waited two months, and we took a look at it, and we said what’s happening to our patients, and what we found is in the active group, although not statistically significant, between months 3 and 5, there was an upward trend, meaning better health, in our group. So we don’t know if that’s unique to this particular 30-patient study or does that go on for ever. We are optimistic that we believe we may have actually been able to provide a kick start to the heart, so we’re not sure. So the real answer is in one extreme you could argue that after three months they get better and they never have to use it again and another could say this is temporary, these patients usually have a lot of other issues as this is usually not a singular issue when it comes to their heart, and so the honest answer is we don’t know, but if you asked us to sort of think about it in our head, we would say maybe what you need is a maintenance dose sometime in the future to assure that your heart remains in that condition. These are very sick individuals, but that’s speculation, and until we do more of our work, we can’t tell.

David Saloff

Anthony, I just want to make sure that what Steven said was clear. The treatment protocol was for 90 days only. The patients treated themselves twice a day at home, and then we stopped the treatment, and then we waited another 2 months, and then we re-imaged. That’s where we saw not only the continuing improvement but the trend in fact was that they seemed to continue to get better. I just want to make sure that was clear.

 

Anthony Petrone – Maxim Group

 

That’s fine. The following question here is regarding the timetable for the follow-on study, and how long does that follow-on study need to be in order to claim statistical significance?

 

Andre DiMino

 

Anthony, I did respond to that earlier that we do have to discuss that and look how a study would be powered, so we don’t have specific information on that right now, but obviously you can understand that we are anxious to get it done as soon as possible in the efficient route, so we’re going to working with our attorneys, experts, and the FDA in order to bring that process forward.

 

Anthony Petrone – Maxim Group

So I guess the current FDA issues, as far as you can see at this point, are not impacting the momentum here? At least on face value here, you don’t see any kind of impact there or do you have to handle the current FDA issues first before you move on?

Andre DiMino

No. In our opinion, they are unrelated as well as the opinion of our attorneys. These are different considerations for the company, and there is no impact on any of the discussion of the current 510(k) with what we would be doing in the cardiac arena.

 

Anthony Petrone – Maxim Group

Finally, the comments on the FDA matters, what exactly is the FDA’s contention with the current model device? You have a new model device out there and they are claiming it’s not substantially equivalent, so you go through and look at why the FDA issues and NSE letter. There are really 4 main issues there. Obviously I wouldn’t say one being predicate device does not exist. Secondly, the device has a new intended use. Those two wouldn’t fall on there, and there is obviously the issue of safety and effectiveness, so what really was their contention. What was the language that they came back to you as to why there was this NSE letter issued?

Andre DiMino

There was no change in the indications for use or in safety. What it came into was with respect to the modification made to the device, and whether those modifications changed the substantial equivalence to the predicate. Our position was that it did not, using the guidance published by the FDA; however, that’s the situation that we’re into right now with those discussions.

Operator

Our next question is from the line of [inaudible] with of SSM Investment Corp.

Unknown Analyst – SSM Investment Corp

If you’re going to pursue this alone without any partners, do you have enough cash to cover the study and the filings?

Steven Gluckstern

It’s a really good question. In the 10-K which we just filed a few moments ago, we indicated that we will require additional capital to pursue various opportunities on our plate, and we intend to address this going forward.

Unknown Analyst – SSM Investment Corp

You’re now saying that you have no idea yet how you plan on raising it?

Steven Gluckstern

At this time, we are unable to talk about any of these issues. Obviously, we are thinking about continually, but we intend to address the problem.

Operator

Our next question is from the line of Jamie Houde with RBR Capital.

Jamie Houde – RBR Capital

 

I’ve just got a couple of questions. The cardiac device, could that possibly be used as a preventative measure?

 

Andre DiMino

 

Theoretically, we believe so. We don’t have any clinical evidence at the time being, but with respect to our theoretical position and knowing the underlying the science, we do believe that it could be used for that purpose.

 

Jamie Houde – RBR Capital

 

The device is different than the device that Allergan is selling. Correct?

 

Andre DiMino

 

Yes.

 

Jamie Houde – RBR Capital

 

And that’s also different from what’s being used in the LTACs?

 

Andre DiMino

 

Yes.

 

Jamie Houde – RBR Capital

I had a question about off-label use of this device. You all are involved with DSI right now. Is it possible that they could use this off-label?

 

David Saloff

You can use any technology off-label. There is a possibility that any of our technologies could be used by a doctor off-label. We certainly don’t encourage that.

 

Jamie Houde – RBR Capital

To harp on the 510(k) issue, is this typical? This seems to have come out of left field, but is this very typical when dealing with the FDA? For 20 years, you all have had approval on it, and all of a sudden, they come out of left field.

Andre DiMino

I don’t know if it can be categorized as typical, and when you say coming out of left field, we have been disclosing this in our filings. I don’t know about the statistics with respect to how much this happens at the FDA, but certainly we are in a highly regulated industry, and the FDA literally controls all of the things that we do with respect to the marketing of our technology, but I don’t know how often this happens.

Jamie Houde – RBR Capital

Lastly, on the pain side, you all have been in talks. I think there was one specifically you all were in discussions with. Are you now talking with others, or are discussions still ongoing with this one company?

Andre DiMino

We continue to keep our options open, but I will let David respond to that.

 

David Saloff

As we’ve talked about at different conferences, we have been in a process with one large company. That process continues. Their level of interest remains very high, and subsequently now we’re in discussions with another group as well. Again, if I could add that the 510(k) that we have filed for that application for treating musculoskeletal pain, again, it’s not related at all to the current 510(k) or the NSE letter, so that would also be separate.

 

Jamie Houde – RBR Capital

Okay, so it doesn’t cover everything.

 

David Saloff

It would not be covered under that.

Operator

Our next question is from the line of [inaudible] with Maxim Group.

Unknown Analyst – Maxim Group

Just a followup. In the past, we haven’t gotten much publicity from the media. I think we had like one TV station way back in Madison, Wisconsin. These headlines sound great, showing reduced angina. I know my dad had angina. A lot of people would react to this. Is there any chance of us getting any more publicity even though this is a limited 30% trial?

Andre DiMino

We certainly look at opportunities for getting publicity on it, and it depends upon what the choice of the media outlet would be. We certainly think that this is important news, and we hope media outlets would feel the same way.

Unknown Analyst – Maxim Group

Yes, I think so. This should be like one of those little medical articles in New York Times or something. What about what this gentleman this just asked leading to over-the-counter approval for pain use? Can you give us any time estimate on that? I’m still looking forward to being able to buy the product in Walgreens or something.

Andre DiMino

The currently filed 510(k) is with respect to its substantial equivalence to a prescription level device, and the company is pursuing how it would handle the filing for an over-the-counter application, but that application has not been filed yet.

Unknown Analyst – Maxim Group

Why are we still waiting on that?

 

Andre DiMino

There’s nothing that’s waiting. It’s just a matter of the course of how the technology moves forward. There is no specific waiting on anything.

Unknown Analyst – Maxim Group

So, what David talked about, talking with possible groups of distributors for pain relief rather, that wouldn’t necessarily lead to over-the-counter approval?

Andre DiMino

No. It could lead to, but it just depends which route and how it’s filed with the regulatory bodies.

Steven Gluckstern

They’re interested in both the prescription and an over-the-counter clearance, and frankly the one large company that we talked to now has their own regulatory strategy about how to do that. We are pursuing our own independently of that.

Unknown Analyst – Maxim Group

You mentioned something about the next spring presentations. We have to wait till then to get this out into the medical journals?

Andre DiMino

I don’t know what you are referring to.

Steven Gluckstern

I think the comment from David or whoever made the comment was that the results of the Cleveland Clinic, that obviously would be written up by a principal investigators and others and then submitted for to be presented at one of the major conferences. That particular conference that Andre or David mentioned is in the spring. That’s just a normal process of getting this out in the right form with the right people.

Unknown Analyst – Maxim Group

Alright. Congratulations on the study results.

Operator

There are no further questions in the queue at this time. I would like to turn the floor back over to management for any closing comments.

Andre DiMino

We appreciate everyone’s participation in the call today. We know we presented a lot of information, and we certainly refer you to all of our filings and press releases to follow up on these. Thank you very much for your participation.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time.

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