Corindus Vascular Robotics, Inc. (NYSEMKT:CVRS) Q1 2019 Earnings Conference Call May 7, 2019 4:30 PM ET
Judy DiClemente - IR
Mark Toland - CEO
David Long - CFO
Conference Call Participants
Drew Ranieri - Stifel
Jeffrey Cohen - Ladenburg Thalmann
Good afternoon. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Corindus Vascular Q1 2019 Earnings Conference Call. [Operator Instructions] Thank you.
Judy DiClemente, you may begin your conference.
Thank you, Julian. Welcome to Corindus Vascular Robotics first quarter 2019 earnings call. This is Judy DiClemente, Investor Relations for Corindus. With me on today's call are Corindus' Chief Executive Officer, Mark Toland; and Chief Financial Officer, David Long. This afternoon, the company issued a press release detailing financial results for the three months ended March 31, 2019. This press release and a webcast of this call can be accessed through the Investors section of the Corindus website at www.corindus.com.
Before we get started, I would like to remind everyone that any statements made on today's conference call that express beliefs, expectations, projections, forecast, anticipation or intent regarding future events, and the company's future performance, may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements.
These forward-looking statements, including without limitation, Corindus' future financial and operational expectation, including the expected timing of commercial activities, timing of pre-clinical studies, Corindus' ability to expand technology platform and achieve the advances necessary for telestenting and remote procedures, including in humans, Corindus' ability to expand its technology platform for use in other segments of the vascular intervention market, including neuro interventional and other more complex cardiac interventions, obtaining necessary regulatory approvals for the use on humans and marketing of its products in the United States and in other countries and anticipated collaborations are based on information available to Corindus' management as of today and involve risks and uncertainties, including those described in the sections titled Risk Factors in Corindus' filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as reports on Form 8-K.
Such forward looking statements are not guarantees of future performance. Actual results may differ materially from those projected in forward looking statements. Corindus specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. The archived webcast of this call will be available for one year on our website corindus.com.
For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 7, 2019. Since then, Corindus may have made announcements related to the topics discussed. So, please reference the company's most recent press releases and SEC filings.
And with that, I'll turn the call over to Corindus' CEO, Mark Toland.
Thank you, Judy. Good afternoon, everyone, and thank you for joining us today.
We're pleased that the emerging trends we noted in the fourth quarter of last year have continued to build in the first few months of 2019. Our first quarter order numbers reflect a positive progression in both the adoption and usage of our CorPath GRX robotic technology.
Let me start with some key highlights of the quarter that reflect the momentum we are seeing in 2019. Revenue was $3 million roughly double the $1.5 million of revenue in the first quarter of last year. We received purchase orders for 11 CorPath GRX systems including one purchased upgrade and installed nine GRX systems bringing our total installed base up to 61 systems.
We sold a record 602 single use cassettes in Q1 generating sales of nearly $300,000 which continues to affirm growing adoption and utilization of the robot. We received CE mark for our neurovascular indication allowing us to sell neurovascular robots in 33 countries. In February, we submitted for premarket clearance of our neurovascular indication or CorPath GRX with the FDA.
We have continued to make significant inroads in markets outside of the United States including a first quarter installation of a GRX in France. As noted last quarter, the Japanese government granted our Class A-1 reimbursement listing and we recently completed the first clinical robotic assisted percutaneous coronary intervention procedure in Japan marking initial enrollment in our post market study of CorPath GRX.
And finally as announced previously we completed a $19.8 million private placement in Q1 with a large new institutional investor Capital World and existing stockholders Hudson Executive and BioStar Ventures. These proceeds will support our ongoing development efforts.
Now let's take a closer look at our CorPath GRX progress. From a demand standpoint we're really pleased with our first quarter results. The interest garnered from the live case demonstrations at multiple medical conferences, nine of which were performed in Q1 of this year and the first in human remote PCI trial performed in India last year is driving an increase in adoption and utilization of our technology.
The rising interest is evident in the growing number of purchase orders for the CorPath GRX, 11 orders were placed in Q1, 10 new systems and one upgrade. This represents an increase of 83% over Q4 of last year at a 267% increase over purchase orders in the first quarter of last year. These numbers tell us that more facilities are initiating robotic programs.
The record number of cassettes sold in the first quarter further speaks to greater utilization of the system already in place. Overall there were more procedures done using the CorPath GRX than ever before.
Another notable trend during the quarter was the increased enrollment in service agreements which are normally priced at approximately 10% of our capital equipment selling price on a per year per robot basis. Service revenue added $300,000 to our revenue during the quarter significantly exceeding our internal expectations.
Hospitals are embracing the value proposition around automation as they opt to include software upgrades which could include automated movements in the technique series and additional system functionalities as part of their bundles. This is noteworthy as we grow into a full service robotics company.
So we have three parts of the story, increasing capital orders, greater utilization and growing service revenue. As physicians and hospital administrators recognize the benefits of gaining expertise in robotics now to extend their reach going forward. I'm sure a couple of examples that illustrate the different ways in which our customers are building out their capabilities and how the shortening of the selling cycle has continued as discussed last quarter.
Chesapeake Regional Healthcare is a medium sized hospital in Norfolk, Virginia. This facility has two cath labs and in January they purchased and installed their first robot. The response from their physicians was so overwhelming that they maxed out its capacity and by March they purchased and installed their second robot to address the needs of their physicians.
Their cath labs are now fully robotic and they have increased their procedural volume by 2.5 times. Interestingly there is a growing patient demand as well. Hospital administrators and doctors shared that patients in the community have requested the robot for their procedures and have selected the hospital based upon the availability of the robot.
WellSpan York Hospital a 580-bed acute care hospital located in Pennsylvania is an example of what I call a restart program. York was an early adopter of the first generation CorPath system. The facility upgraded to the second generation robot in July of 2017 and recently restarted its program. York understands that technology increases safety and accuracy ultimately leading to improved patient outcomes. They continue to train doctors and adoption has grown. In Q1 2018 they performed zero cases while in Q1 of 2019 they performed 39 cases.
HCA is another example of growing adoption and of the sizeable opportunity given its extensive network of 185 hospitals. To-date HCA has one system in place and we're off to a good start. In Q1 we focused on getting this first HCA hospital up and running it indications are that usage has been strong. This has created growing interest across other HCA hospitals, some of which are in our near term funnel which we believe creates great opportunity for initiating programs in 2019. We've had discussions at the corporate level for potentially broader applications in multiple hospitals across the HCA network.
Let me turn now to the multiple global opportunities we are pursuing. To date, the majority of our revenue has been U.S. based, but we're seeing changing mindsets within the clinical communities around the world, driven in some measure by the first in-human telerobotics study we did in India.
As mentioned earlier, we recently completed the first clinical robotic assisted PCI procedures in Japan, marking initial enrollment in a post-market study of CorPath GRX. The addition of the CE Mark for neurovascular treatment will enable us to expand our opportunities in the European markets.
As mentioned on our last call, we received our first order from the Clinique Pasteur in Toulouse, France. We spent the last few months setting up their program and are seeing high utilization rates. It's important note that the physicians in France have almost full remote capabilities of their procedure room including a robot, imaging capabilities, essentially everything they need to do a case in the room.
They have remote built into their hospital so they can perform a procedure from a separate control room. This is a great example of a stepping stone towards long distance remote capabilities enabling procedures to be performed by interventionist multiple miles away from the patient.
And just recently we received an order for the first CorPath GRX system in Italy and also launching in Australia and building out our presence in India and Singapore. 2019 has the potential to be a year of significant growth for us in markets outside the U.S.
Hospitals today are starting to think about remote differently. As the Clinique Pasteur example I just show a demonstrates remote is happening today while we work on the enhancements of remote capabilities for the future, as a follow on to the successful telerobotic study we did at the Apex Heart Institute in India last December, we're conducting beta test with Verizon on their 5G network.
Verizon has shown great interest in and supporting a remote technology and our continual efforts to capitalize on the potential of long distance telerobotic procedures around the world. This work with Verizon is an exciting piece that will help us as we envision and build a road map to the ultimate hub and spoke model, where specialists is in the hub facility, who would perform a remote procedure robotically in a matter of minutes on a patient at a spoke facility, thus significantly reducing the time to treat. In this way the technology could deliver life-saving interventions to patients in geographically underserved areas wherever they are.
Let me now turn to our neuro efforts, this is an area where enormous potential to improve patient outcomes, time to treat is particularly critical in strokes and yet only a fraction of the patients receive immediate treatment given the distance to comprehensive stroke centers and the limited number of specialists trained to perform these types of procedures. Interest from physicians and comprehensive stroke centers continues to grow as the efficiencies and financial benefits become better understood.
Let me share some recent developments in the neuro space and how we believe we can progress to the future state we envision. First on March 29, we received CE Mark for a neurovascular indication, allowing us to sell neurovascular robots into 33 countries that except CE Mark.
We are currently selecting sites in Europe to conduct our first clinical use cases and could potentially be performing neuro cases with GRX in Europe this summer. It's a very exciting for us as we broaden our footprint across Europe.
Second, one of the goals we mentioned last quarter was to complete a proof of principle robotic system for our next generation remote stroke system. We are pleased to share that we have a proof of principle and are planning preclinical trials later this year. This system has advanced capabilities over the current robot today. Our goal is to have it fully integrated into procedure rooms when we launch, especially for remote control of the robot.
Third as you know, we submitted our dossier for 510(k)review for our neuro indication with the FDA on February 14.In April,2019,the FDA made an initial request that we provide additional data and we are in ongoing discussions with the FDA to determine the type and extent of the additional data they will be required. We plan to provide an update after our discussions with the FDA.
Finally, we're continuing to have conversations with potential strategic partners and we will update you on the developments as appropriate. I'm very pleased that the technical work that we did as a company in 2018 is beginning to come to fruition this year.
It's especially encouraging that our first quarter orders reflect robust demand, adoption and utilization for robots. We're especially proud of the fact that the first quarter alone we had three major strategic launches; HCA, the largest healthcare system in the United States, Japan, the number three PCI market in the world and in Europe.
Since they are changing rapidly in the sense of urgency within the global clinical community to embrace robotics is growing. For the balance of 2019, we're focused on the following goals; continuing to work towards FDA clearance of CorPath GRX for neurovascular applications, conducting the first neuro clinical case in Europe, submitting the next wave of CorPath GRX automation to the FDA for clearance, adding initiation of a clinical trial for remote intervention and completing a potential partnership agreement to co-develop and commercialize the neurovascular robot.
As always, we're committed to delivering value to our shareholders while addressing the large unmet needs of patients who lack access to the most skilled physicians and lifesaving technologies.
With that, I'll turn the call over to David Long to review our financial in more detail. David?
Thanks, Mark and good afternoon, everyone.
Revenue in the first quarter of 2019 total $3 million compared to $1.5 million in the same period of the prior year. During the quarter, Corindus installed nine new CorPath GRX systems, increasing the installed base of CorPath GRX to 61 systems at the end of the quarter.
Two additional units were ordered including one system upgrade but not installed as of March 31, 2019. Gross profit for the first quarter of 2019 totaled $622,000 compared to a loss of $444,000 in the first quarter of 2018.
Gross profit improvement was driven by increased system volume, partially offset by reduced average selling price for GRX systems, driven by strategic bundled pricing with select development sites.
Selling, general and administrative expenses totaled $7.1 million in the first quarter of 2019, compared to $7.5 million in the first quarter of 2018.The decrease reflects our continued emphasis on controlling costs including reduce travel and consulting expenses.
Research and development expenses totaled $2.9 million for the first quarter of 2019 compared to $2.1 million in the first quarter of 2018.The increase reflects our investment in neurovascular and remote activities as we expand engineering headcount, clinical initiatives and prototype expenses to enable achievement of our targeted goals.
Net loss totaled $9.7 million in the first quarter of 2019 compared to a net loss of $10.1 million in the first quarter of 2018. Cash and cash equivalents as of March 31 were $37.8 million. In Q1 2019 Corindus completed a private placement raising an aggregate amount of $19.8 million in gross proceeds.
With that, I'd like to turn the call back over to Mark.
Thank you, David. As we envision the future of medicine, robotics and telerobotics will no doubt be at the forefront. As physicians get comfortable with the technology, we're optimistic that we will continue to hear stories like the one at Chesapeake, where the ability to drive volume and treat more patients in a shorter time frame results in greater demand.
I'll now open the call up for questions.
[Operator Instructions] Your first question comes from Rick Weiss from Stifel. Your line is open.
Hi, Mark and David, it's Drew Ranieri on for Rick tonight. Thanks for taking the question. Just the start, really impressive start to the year recording 11 purchase orders and Mark, last quarter you're discussing an inflection point in interest and you reemphasize that here today, but as you just look at the sales funnel, how should we think about system sales for the remainder of 2019, should we think this level is sustainable or no should it accelerate just given all the opportunities you have for indication expansion, international expansion in the short end selling cycle?
We're very pleased obviously with the demand in Q1 particularly coming off the heels of a very, very good Q4 from our opinion. As you think about the year, we're just getting going in international and I think that's going to continue to accelerate with the CE Mark approval for neurovascular indications, us just now getting going in Japan, we're now in Europe and gaining a significant amount of presence there.
I think the opportunity to grow from where we are here in Q1 over the course of the year continues to be very doable for the company and kind of an exciting time for Corindus is more and more institutions are thinking about how they build their robotic programs in their hospitals today, so they can get ready for telerobotics tomorrow.
Just I know you update us on the co-development for neuro robot, but can you just remind us kind of what you're looking for from the ideal candidate for a partnership and what we expect that to maybe come before or after an FDA neurovascular indication?
Yes, great question. We feel like we have three elements that really are perfectly suited for what we're trying to do offered for a, I'll call it, neurovascular partner to go solve a remote stroke therapeutic solution.
Number one is that they're interesting co-developing the technology with us. Number two, their interest in co-commercializing the technology and then number three, you know, the ability to kind of fun the journey is kind of how we talk about it. So those three elements are really important in the equation for us and we feel like the confidence continues to grow from our perspective on getting a strategic deal done across these spectrums, sometime in 2019. So that's what we said from a timing perspective, really haven't indicated whether the approval is anything are relevant to that.
And then just back to the 2019 outlook just as a follow up. Should we imagine that orders and sales will just step up sequentially each quarter this year or are there other factors to consider?
Yes, we feel pretty confident that it continues to grow over the course of time.
And just today just a quick housekeeping question. With the 2.5 million in systems revenue this quarter, can you just help us with the geographic break out for that between U.S., International?
Yes, basically most of the revenue came from the U.S. we had one system sale internationally in the period which was in the France as Mark mentioned.
Your next question comes from Jeffrey Cohen from Ladenburg Thalmann. Your line is open.
Hey, guys, just a number of things I wanted to run through. So looks like really strong orders for the quarter. I guess, recently most around the countries talk about backend loading, their years would be kind of continual gradual increase and you are starting off year in a pretty high spot. Any kind of look you are earnings, besides the 1.5 units on clinical backlog that continued, does it feel like itself in Q4 or what are folks saying out there?
Yes, Jeff I think you are hitting a really interesting question here. Historically capital companies have traditionally gotten off to a slow start in Q1, mostly because hospitals are saving their capital towards later in the year.
We experienced that in 2018 but I think what's happening is you're starting see hospitals change their priority of robotics, particularly Corindus GRX and starting their program ASAP with 11 purchase orders on the books for us that really demonstrates an increased demand, a shorter selling cycle for us and illustrates that the time is now for hospitals to the purchase systems and we're seeing that demand globally too.
So we're very pleased to report high demand quarter, particularly early in the year. And you're exactly right, I mean, as the year goes on you anticipate of seeing more capital being utilized to purchase robotic systems, that's why we feel more confident that the system sales will grow over the course of the year and you know the backlog that we just reported, nine installs and two that we haven't installed yet because we got the orders late in the quarter are great examples that the systems are continuing to find their way into the appropriate approvers and the hospitals so that we can get our systems into it quickly.
I've always said that 2018 was the year that clinical community felt like what we were doing at Corindus with automation and with remote was providing some advanced capabilities that they really felt like that they want to get involved and now we're starting to see the hospital administrators feel the same way.
So this 40,60 front half, back half that I've seen bit advancing companies could be fit completely on its head in your case? You hope so.
You never know. I mean, if you think about us just getting started internationally and of the broadening footprint we have with expanding indications, we feel very bullish about the year continue to progress with of a higher growth rate than we are already seeing right now.
And then how does challenge utilization, it seems to me that utilization was pretty solid in the quarter at just straight up math 10 per system out there, so does it feel like that's a good number or is a good number 50 or 60 on average and how would that grow and how is that impacted by new placements?
Yes, we're very pleased with the adoption utilization of the system to start the year. We saw record quarter of over 600 cassettes sold. We continue to see very good programs getting stood up like I mentioned with HCA and the account in France as well as the account that we referenced Chesapeake Regional and north of Virginia.
So we believe that the adoption and penetration of robotic cases continues to grow. We're never please, we always want to see more as we think about the future of adoption we want to see that number go from about we call it about 25% penetration today of cases you could do to closer to 50% by the time we exit the year. So we're continuing to train more and more physicians and I think that is reflective of the adoption numbers, like a set of numbers that we highlighted during Q1.
Then as far as geographies and as previous question, so Japan, France, Italy, Australia, India and
Singapore other territories which GRX is not there at the moment?
We have the only additional one will be Middle East.
And then lastly from me could you expand a little bit upon your horizon comments on beta testing, maybe number of sites has been done at or types of testing and anything that you're finding versus I don't know what network these cases were done on in Michigan?
Yes, so we didn't use 5G at all in our preclinical work at Michigan at the Mayo Clinic nor did we use 5G in India. So we feel like that connectivity that we've seen or demonstrated in our first in humans, as well as our preclinical work is very sufficient to do telerobotics. And so what happened is that we've attracted interest from Verizon to test 5G on what we would do and even though Verizon is a great company to work with we don't feel like 5G is a necessity to catapult the telerobotic space.
However, we do feel like working with a company like Verizon could be very beneficial to an additional avenue for us to consider for connectivity as a potential backup and/or another alternative route for communication from one location to another. So we did some early beta testing with them here in their 5G remote site here in Boston and we're publishing some of that data as we speak. So we're excited about that.
There no further questions. I'll turn the call back over to the presenters.
Good. Thank you. Thank you for everybody joining the call. Have a nice evening.
This concludes today's conference call, and you many now disconnect.