ENDRA Life Sciences Inc. (NDRA) CEO Francois Michelon on Q1 2019 Results - Earnings Call Transcript

About: ENDRA Life Sciences Inc. (NDRA)
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ENDRA Life Sciences Inc. (NASDAQ:NDRA) Q1 2019 Results Earnings Conference Call May 14, 2019 4:30 PM ET

Company Participants

Chris Tyson - Managing Director, MZ North America

Francois Michelon - CEO

David Wells - CFO

Michael Thornton - Chief Technology Officer

Conference Call Participants

Kyle Bauser - Dougherty and Company

Brooks O'Neil - Lake Street Financial Advisors

Ed Woo - Ascendiant Capital


Good day, and welcome to the ENDRA Life Sciences’ First Quarter 2019 Conference Call and Webcast. Today’s conference call is being recorded.

At this time, I would like to turn the conference over to Chris Tyson, Managing Director at MZ North America, ENDRA Life Sciences’ Investor Relations firm. Sir, please go ahead.

Chris Tyson

Good afternoon. I’d like to thank you all for taking time to join us for ENDRA Life Sciences’ first quarter 2019 conference call. Your hosts today are Mr. Francois Michelon, Chief Executive Officer; as well as Mr. David Wells, the Company’s Chief Financial Officer; and Mr. Michael Thornton, the Company’s Chief Technology Officer.

Francois and Michael will provide a business update, which will cover product updates and operational milestones, while David will discuss the financial results.

A press release detailed on these results across the wire today and is available on the company’s website endrainc.com. Following managements prepared comments we will open the floor to questions for those of you who are dialing in for today’s call.

Before we begin the formal presentation, please take note of the Safe Harbor paragraph that appears at the end of the press release covering the Company’s financial results. And that any forward-looking statements that we make only apply as of today’s date and are subject to inherent risks and uncertainties including those described in the Company’s SEC filings and should not be unduly relied upon.

All statements other than statements of historical facts included in this presentation regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include among others, statements we make regarding expectations for revenues, cash flows and financial performance. The anticipated results of our development and commercialization efforts and the timing for receipt of required regulatory approvals and product launches, except as otherwise required by the federal securities laws, the company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements. We also would refer to the company's website for more relevant industry information.

At this time, I'd like to turn the call over to Francois Michelon. Francois, the floor is yours.

Francois Michelon

Thank you, Chris and welcome everyone to ENDRA Life Sciences’ first quarter 2019 conference call. I'll start by highlighting our key accomplishments thus far in 2019 and how they've advanced ENDRA's goal of bringing our Thermo Acoustic Enhanced Ultrasound, also known as TAEUS to market, with a clinical goal of helping assess and monitor the earliest stage of liver disease affecting over a billion people globally.

First, we advanced our first in human feasibility study with the Robarts Institute in Canada, translating our real time learnings into our commercial TAEUS product design, building our documentation for the European Regulatory CE file application and gaining a preliminary insight into the quantitative capabilities of our technology.

Second, we achieved ISO 13485 Certification reflecting a year's work to define test and train our employees on nearly 50 processes related to product development, manufacturing, quality and other key areas. The ISO certification will be an essential foundation of our CE application.

Third, we grew our IP portfolio to 50 assets consisting of defined, filed, issued and license patents. Fourth, we advanced our pre-commercial activity with ENDRA Booth at two key radiology and hepatology conferences in the US and Europe and we learned some interesting takeaways, which I'll share with you shortly. And finally, looking further ahead, we kicked off an artificial intelligence collaboration with the Ladak Laboratory to enhance future TAEUS capabilities.

We're digging into details about some of these accomplishments. I always believe it's important to provide some context and reaffirm ENDRA's goals and strategy, especially for new and potential investors.

ENDRA's top level goals are to broaden access to better healthcare, while driving shareholder value. To achieve these goals, our strategy involves three core elements. First, introduce new point-of-care technologies that increase the utility of ultrasound. Our first implementation of the strategy is the commercialization of a thermo acoustic hardware and software accessory that plugs into existing ultrasound systems and helps clinicians diagnose early stage liver disease.

Over time, we plan to expand other software based clinical applications beyond the liver and eventually license ENDRA - excuse me license ENDRA technology to strategic partners, all the while aggressively growing our intellectual property to defend ENDRAs freedom to operate.

The second strategic element is to focus internal resources on the highest value items, namely fundamental research, intellectual property and software algorithm development. And finally, the third strategic element is to partner where it makes sense, such as in core engineering or commercialization with paid service providers or strategic partners who can help amplify our resources and enable an asset light business model.

ENDRA's first clinical TAEUS application targets the epidemic of non-alcoholic fatty liver disease, also known as NAFLD which affects over a billion people globally. NAFLD is a metabolic disorder in which fat accumulates in the liver, driven by lifestyle, obesity, diabetes, hepatitis and certain drugs. NAFLD is often asymptomatic and can progress to inflammation also known as NAFLD to scarring of the liver known as fibrosis and eventually to cancer or cell death known as cirrhosis.

Currently there are no practical assessment tools to diagnose and monitor the progression of NAFLD. Liver enzyme blood tests cannot quantify NAFLD and in fact about a quarter of NAFLD sufferers have no elevated liver enzyme levels. MRI is able to measure NAFLD, but it's big, heavy, very expensive and not broadly available to the rising global population.

Surgical liver biopsy can be used, but it's painful and has surgical risk, so it's not well suited to monitoring patients repeatedly every six to 12 months. There is also an increasing concern about biopsy measurement variability hinging on the qualitative reviews by pathologists and we'll talk a little bit about this later.

Finally, traditional on enhanced ultrasound can qualitatively assess NAFLD by seeing how white and opaque the liver is but this is really only possible at advanced stages of the disease with fat infiltrations above roughly 30%.

For example, with traditional ultrasound medical professionals cannot know if the patient has 30%, 40% or 50% liver fat, nor which way they're trending over time. Today clinicians and sonographers already perform an estimated 70 million abdominal and liver ultrasound scans annually, checking for things like cysts, lesions, gallstones, fluid retention.

Wouldn't it be great to build on this existing base of ultrasound technology and clinical practice by enhancing ultrasound or the new ability to accurately quantify liver fat at the earliest stages of this silent epidemic. That's what ENDRA is working towards, with the first clinical application of TAEUS. We want to become as ubiquitous as a blood pressure cuff, but for liver disease.

Turning now to our pre-commercial activities. In April ENDRA formally participated in two radiology and hepatology conferences, the American Institute of Ultrasound in Medicine, known as AIUN, and the European Association for the Study of the Liver, known as EASL. These conferences allow us to raise awareness of ENDRA’s technology with thousands of attendees, develop new clinical relationships for commercialization and collect valuable feedback from radiologists, gastroenterologists, hepatologists and endocrinologists.

At the AIUN conference in Florida, GE had a prominent booth and we had a good meeting with them. Our ongoing collaboration with GE remains strong. I personally staff the AIUN booth and Mike Thornton attended both conferences because we feel it's essential to hear the clinical feedback firsthand.

Here are the three most important things we learned. First, there is a growing clinical interest in measuring and treating liver fat specifically in addition to the inflammation scarring associated with NASH and fibrosis, why? Because liver fat is increasingly viewed as a barometer of broader health, correlated with metabolic disorder and cardiovascular disease.

This increased attention on fat was evident in posters, presentations and individual clinical discussions we had. In fact, at the AIUN conference there was a dedicated standalone session entitled liver fat quantification task force, which assembled clinicians, including our own scientific adviser Dr. Jon Rubin from the University of Michigan to discuss the need for a rigorous, practical and cost-effective liver fat measurement tool.

Clearly this growing interest in liver fat at a clinical community further supports the business case for our ENDRA TAEUS liver project and is one of the major reasons why GE Healthcare partnered with ENDRA.

Related to this topic, it's interesting to note that our Canadian human study has thus found a poor correlation between human body mass index, also known as BMI and the real liver fat measurement calculated by MRI. In other words, you can't assume that an overweight person with a high BMI also has high liver fat. Clearly, we've experienced this challenge firsthand, while recruiting the first batch of subjects for the Robarts study.

And in fact, one of our study subjects with highest liver fat had a normal BMI and a very low abdominal fat level. The person was very lean, but they had NAFLD. So clinicians really need a simple and practical diagnostic tool to assess and monitor the treatment of fatty liver disease. It's not possible to say hey, obese person you probably have NAFLD so lose some weight or you skinny person, you're probably not at risk. Clinicians need a measurement tool.

The second lesson we took away from these conferences is a growing acknowledgement that MRI proton density fat fraction also known as MRI PDFF is becoming the gold standard over live liver biopsy for accurately measuring NAFLD.

Biopsy results depend heavily on human interpretation of a tissue sample by pathologists, leading to measurement variability. Conversely, quantitative fat measures by MRI are precise and have been validated. That said, I want to remind our listeners that neither MRI, nor liver biopsy are frequently used today in clinical practice to measure NAFLD due to the costs and risks that I mentioned. They tend to be reserved for things like liver cancer.

So why is this relevant ENDRA? Very simply, for ENDRA's clinical studies to be credible with clinicians we need to compare our TAEUS technology to the highest quality measurement standard MRI PDFF and ENDRA is doing that.

The third takeaway from our discussions at the two conferences is that clinicians consider zero to 6% percent fat as a healthy liver fat level. While clinicians want to focus their time and treatment efforts on patients with more than 6% liver fat, they still need an assessment tool to stratify and monitor patients over time across the full range from 0 to 30% plus liver fat. In other words, clinicians need to know when a patient is in the healthy liver fat zone and when they're outside of the healthy zone. ENDRA TAEUS technology is seeking to achieve that.

Turning now to our ISO 13485 certification in April by the British Standards Institute, BSI. We're very proud of this achievement. For those who don't know the ISO 13485 certification, it's an internationally recognised standard for the medical device industry. And the certification represents an important milestone towards our CE Mark as it validates the quality management system designed to ensure the highest quality product development and manufacturing of our TAEUS liver system.

ENDRA certification is the culmination of a year's work of development, implementation, training and refinement of nearly 50 core business processes. Our new leadership member Amy Sitzler, head of Engineering and Programs led this effort. So a big thanks to her and the team.

Interestingly the U.S. Food and Drug Administration, FDA recently announced its intention to adopt the ISO 13485 standard in an effort to harmonize current FDA quality system - quality system regulation 21 CFR 820 with the international ISO standard. So we believe our ISO certification puts us ahead of the game and will strengthen our 510 K application in the second half of the year.

I've been asked if our ISO certification granted by the British Standards Institute has any inherent risk associated with the Brexit turmoil. And the answer is No. We've made sure of this by migrating our certificate to the BSI offices in the Netherlands.

Okay. Let's talk about the human study. On ENDRA's full year 2018 earnings call in March, we shared the progress that we had made in our first in-human feasibility study, the Robarts Research Institute in Canada, namely that we had advanced our understanding of the workflow and ergonomic requirements of the TAEUS fatty liver device in the hands of clinicians.

We observed and documented how clinical ultrasound users hold the fatty liver imaging pro, position it on a patient, interface with the GE ultrasound system and obtain fat measurements with our TAEUS development platform. We also identified and implemented several noise immunity strategies that significantly reduced measurement artefacts.

These detailed workflow elements will be incorporated in our documentation for CE Mark applications this summer and we've channeled the design improvements to our product, engineering partner StarFish Medical who's finalizing our first commercial product.

On the last earnings call after trying to properly set expectations, we also committed to keeping investors informed and to provide another update at the end of March. So on March 29 we released a short update on quantitative findings and to our surprise there was a mixed response from investors.

On the one hand, our institutional investors, banking partners and research analyst interpreted the 61% correlation of our TAEUS system to MRI fat measurements as an encouraging first result for a feasibility study, particularly when accounting for the small 25% sample size. They understood that this was a starting point with more to come.

On the other hand some investors are frustrated as we were too that the Robarts study recruitment was progressing more slowly than predicted. Hopefully the BMI example I shared earlier provide some insight into why it's challenging to identify subjects distributed across the NAFLD spectrum. You can't just pick a heavy person off the street and assume they have NAFLD. But we're making progress on this, as Mike Thornton will explain shortly.

Finally, some investors were hoping for opening pitch home run from a fully mature TAEUS product. In essence, they reacted to our progress update as if it was a pivotal clinical trial read out, which it certainly was not. Based on investor feedback, it was also unclear to some that the R-squared and this [ph] 0.61 statistic what that meant. Due to the small sample size of the preliminary findings we chose to be conservative in our interpretive comments, especially with a study in progress.

That said, to give everyone a frame of reference, while still underscoring that ENDRA's findings are based on a small sample size, in medicine typically some guidelines for interpreting our values fall along the following lines, a correlation of 0.2 is considered a poor correlation, 0.3 is a fair correlation, 0.6 is a moderate correlation and 0.8 and above is a very strong correlation. We cite a source in our recent press release for this information, but we wanted to give people some rules of thumb to interpret it even though it's a very small sample size.

Whatever qualitative statistical descriptor you assign to our findings the two key takeaways for ENDRA's in March were first, ENDRA's thermal acoustic enhanced ultrasound measurement tracks MRI fat measurements, BMI and abdominal fat do not track to MRI measurements of liver fat and traditional ultrasound also doesn't track to MRI. ENDRA's feasibility design TAEUS tracks and should continue to get better as I'll explain in a minute.

Second, despite trying to set expectations on March 11th earnings call, we misread some of our investor’s expectations and we lost some of their confidence. For that, I apologize. We can do better.

So I'd like to underscore a few things that support ENDRA's optimism about the TAEUS technology and the first human study. First, as you know our preliminary findings were based on a small data set of 25 subjects, only four of which had liver fat levels above 6%.

Seen another way, ENDRA TAEUS system is generating thermo acoustic signals at very low concentrations of liver fat. Think about that. The TAEUS technology appears to be sensitive at low fat levels. I think this is very good news because the physics indicate the TAEUS signals should be stronger as fat concentrations increase. There is no guarantee, but it makes sense from a scientific perspective.

The second reason I'm optimistic is that the data set of human subjects for the Robarts study is growing in quantity and diversity. We've now scanned 36 subjects. As the data grows, we'll have the opportunity to A, strengthen our statistical analysis and evaluate things like non-linear correlations and multifactorial relationships in the data and B, We’ll have an opportunity to refine our definition of what constitutes a good versus a bad TAEUS measurement.

For example did the patient move during the scan. We can correspondingly include or exclude scans with full transparency to achieve the most representative and true performance of our TAEUS system. And see beyond the Robarts study in Canada, as we discussed on our last earnings call, we've always planned to conduct multiple human studies to achieve a critical mass of 150 plus human data points to support our clinical value proposition for a controlled launch TAEUS in Europe this year.

Our discussions with you healthcare and the scientific advisory board reaffirm that multiple and diverse research studies are beneficial to the commercialization of a new medical device. So these additional studies will be additive to what we learned in the Robarts study. We plan to announce this next research sites in June.

The third reason for our optimism is that we're continually improving the TAEUS hardware. The TAEUS prototype being used in the Robarts study is our first generation development platform, which uses for example a tube amplifier, rather than the solid state amplifier that will be used in our commercial products.

We continue to implement noise immunity unity strategies, that reduce measurement artifacts in both our Robarts study system and the upcoming commercial system.

As I've said before, we're in a feasibility study stage and medical device development is much more iterative and evolutionary than pharmaceutical development, which front loads a lot of experimentation and then runs a pivotal human trial. In other words, ENDRA aims to improve its TAEUS technology before and after commercialization

So in summary before turning it over to Mike, our early Robart study findings are a great starting point for such a small dataset from which we can advance long multiple improvement paths that I've outlined.

Number one, deeper statistical analysis enabled by a larger and more diverse dataset. Number two rigorous and transparent definition of what constitutes a good versus a bad scan and corresponding inclusion or exclusion of those data points to represent the true capabilities of TAEUS.

And three, ongoing hardware improvements to generate cleaner signals in both our Canadian Studies system and the Canadian - and the Commercial TAEUS system.

At this point, I like to turn it over to Mike Thornton, ENDRA CTO. Michael?

Michael Thornton

Thanks, Francois. There's been good progress since our last earnings call, a total of 36 subjects have been scanned so far. With the aim of adding subjects with greater than 6% liver fat, the study investigators are recruiting subjects that are at higher risk for fatty liver disease. The profile of the study subjects is becoming more representative of the general population. Additional subjects are being recruited, including some from a hepatology clinic.

We recently released the initial findings from the study and that has generated a lot of interest in this feasibility study and our clinical activities going forward. Before I discuss our current activities, I’ll mind all of our listeners that we are in the feasibility phase of clinical investigation with our TAEUS technology, fatty liver application.

In this early phase of clinical work, our principal aim is to transition from in vitro bench top fat estimation with our TAEUS development platform to estimation of liver fat fraction in humans. This work largely focuses on understanding and addressing the challenges and collecting measurement data in human subjects, as is the norm - and it is enormously valuable to our efforts to develop a product for routine clinical use.

It's very important to note that in the feasibility phase of development ENDRA staff [ph] is directly involved in the collection and processing of study data. Unlike a product evaluation where the study is independent investigator initiated, in a feasibility study ENDRA personnel collaborate with the study investigators and meet regularly to discuss interpretation of data, along with changes to the device and measurement procedure.

ENDRA team members were closely with the sonographer, MRI technologist and study coordinator. As we complete our product development, our clinical studies will shift from application feasibility with a development platform to product testing with a preproduction device. Ultimately post regulatory approval, the shift will be to independent clinical evaluation with a commercial system.

Our aim is to be active in presenting at scientific conferences and publishing in peer reviewed journals starting with the development phase feasibility studies and continuing through the clinical product evaluation process.

Now before discussing our first Robart study, I want to ensure that our listeners understand key terms commonly referenced in association with human studies, namely REB and IRB.

REB stands for Research Ethics Board and involves approval by Canadian research institution conducting a human study that ensures that the study adheres to their research standards and guidelines. The REB approval is granted after the government regulatory agency Health Canada gives report - approval for the use of the device. The Robart study has both of these approvals. IRB stands for Institutional Review Board and is essentially the same as an REB, but is the term used by U.S. institutions.

So now let's discuss the evolution of the Robart feasibility study since its inception last year. With the aim of moving the TAEUS technology from bench top to first in human, and REB application was approved for 25 healthy volunteer volunteers recruited through advertising within the Robarts Research Institute.

Quantitative MRI scanning of the first 25 study volunteers showed that only four out of the twenty five participants had fatty livers exceeding 6% proton density fat fraction known as PDFF, as measured by MRI.

In order to obtain additional study subjects with significant levels of liver fat, the study investigators requested an amendment for the study protocol and received approval for expanding the study size to 50 volunteer study subjects.

A second amendment was more recently approved to allow for expanding the study recruitment advertising and to a liver clinic in order to recruit from a population with a high incidence of fatty liver disease. At the moment, the study investigators have recruited and obtained data for 36 study subjects and have the aim of completing the data collection within the next four to six weeks.

Our initial findings shared on March 29th included only four study subjects with liver fat in the range that we expect our development platform TAEUS device to be sensitive and clinically relevant. When including all study subjects we found a moderate correlation between our measurement and PDFF by MRI.

Secondly, we found that conventional non- TAEUS ultrasound imaging varied wildly. For example in some cases subjects with very mild fatty liver demonstrated ultrasound features associated with severe fatty liver disease, while others with mild to moderate fatty liver appeared healthy by conventional ultrasound.

It is exciting to see that in those subjects where traditional ultrasound features are contradictory to MRI our measurements tracked the liver fat fraction values as determined by MRI.

Finally, the study included valuable data relating BMI and abdominal fat thickness to MRI liver fat fraction measurements and found that both parameters were very poor indicators of true liver fat fraction in our study cohort.

As Francois I mentioned earlier, we have implemented several probe improvements and changes to the measurement process and have called back a number of study subjects for re-scanning as allowed by our approved study protocol.

The first liver fat fraction feasibility study with TAEUS has been posted to the NIH ClinicalTrials.gov site for several months now. Recently a second feasibility study also led by researchers at the Robart has been posted to the NIH ClinicalTrials.gov website.

The second study is a new and separate study aimed at expanding recruitment to clinics with the aim of recruiting patients at high risk for fatty liver disease, rather than healthy volunteers, while maintaining the measurement and imaging protocol of the first feasibility study.

As Francois referenced earlier, this study will contribute additional clinical data to the growing pool of human data we are building to support TAEUS controlled launch in the second half of the year. This study has not yet received REB approval. The June 3rd start date listed on the NIH website is an estimated date for the start of recruitment. We'll provide an update when this second study receives REB approval and study subject recruitment is initiated.

In anticipation of moving from the feasibility phase of clinical studies in Canada to product testing with a pre-commercial device, we have investigators at two U.S. sites that have leveraged the Canadian REB approvals to submit their own study protocols to their respective institutions IRSs. One of these IRBs has already been approved. These U.S. studies will have similarities and some distinct elements from the Canadian study.

Similar to the Canadian study, the US studies will include TAEUS measurements, conventional ultrasound and quantitative MRI imaging. As Francois mentioned earlier, it's essential that we maintain a consistent basis of comparison to the clinical gold standard MRI PDFF.

However in contrast to the current Canadian study, the US studies will now employ a preproduction TAEUS liver imaging system, more advanced than the system currently used in Canada. The US studies will also aim to recruit liver patients rather than healthy volunteers with a goal of recruiting subjects efficiently across the population distribution of liver fat.

Finally the US studies will also increase the study size to 75 to 100 subjects respectively. These studies are targeted to begin recruitment mid-year and we will provide an update when these studies initiate.

Finally, as Francois mentioned earlier, we've achieved a portfolio of 50 IP assets disclosed, filed, issued and license patents. And we continue to focus very attentively here. As many of you know, we have two patent agents on staff embedded in our engineering team. And we believe this focus on IP is one of the best ways to protect our technology and innovations and build value for our investors.

And now, I'll turn over the call to David Wells, our Chief Financial Officer. David?

David Wells

Our reported first quarter 2019 financial results. We did not generate any revenue for the three months ended March 31 2019, as compared to approximately $6,000 of revenue for the comparable period in 2018. There was no recognized revenue for this quarter, as we continue to wind down our preclinical Nexus 128 business in order to focus our resources on the development, testing and commercialization of our TAEUS technologies.

Our operating expenses showed a small decrease to $2.7 million in the first quarter of 2019, down from $2.8 million for the same period in 2018. The decrease in operating expenses was a result of decreased sales and marketing expenses and general and administrative costs.

Our net loss for the three months and in March 31, 2019 was $2.7 million or $0.37 per basic and diluted share, as compared to a net loss of $2.8 million in the first quarter of 2018, noting that approximately $300,000 of the first quarter 2019 loss was due to non-cash compensation expenses related to prior option and warrant issuances compared to approximately $380,000 of similar expenses in the prior period.

Our cash balance as of March 31 2019 was approximately $3.9 million, as compared to approximately $6.5 million as of December 31 2018. During the quarter we used approximately $2.5 million in cash for operations as we finalized the development of our TAEUS province.

Our spending remains on track and on budget with our internal projections. We continue to evaluate our capital needs against anticipated milestones to ensure favorable and adequate capital to support our clinical, regulatory and operational activities and we'll continue to do so as we prepare for commercialization of TAEUS in Europe and the US.

As has been emphasized before, we believe the combination of our asset light operating model, clean capital structure and continued effective and efficient use of cash will position ENDRA to successfully commercialize our TAEUS liver product in the European Union as scheduled.

I will now turn the call back over to Francois.

Francois Michelon

Thanks, David. As we move through the second quarter of 2019, ENDRA is positioned to deliver on key milestone for ENDRA's fatty liver application in 2019, including reporting findings on 50 subjects from our first human TAEUS feasibility study of liver fat, initiating several additional North American and European clinical studies, filing for the CE Mark in Europe this summer and the controlled launch of the TAEUS liver device in Europe in Q3 of this year.

Now I'd like to open the call up to any questions. Operator, Jazz if you would kindly look at the queue. Thank you.

Question-and-Answer Session


Thank you. Ladies and gentlemen, the floor is not open for questions. [Operator Instructions] We'll go first to Kyle Bauser with Dougherty and Company.

Kyle Bauser

HI, good afternoon. Can you hear me, okay?

Francois Michelon

Yes, clearly.

Kyle Bauser

Great. Great. So looking at the initial data on the 25 subjects, 61% R-squared, 3% standard error [ph] actually it seemed pretty encouraging given the small sample set coming from a healthy group of volunteers. Mike, I just want to make sure I'm understanding the results here. It's my understanding the thermo acoustic signal increases as the permittivity decreases and you know as you have more fat permittivity decreases. So it would seem to me the value proposition and the signal of TAEUS should only increase as you examine sicker patients. So to the extent you can share, I mean, is this fair and how should we think about the subsequent 25 subjects in this study?

Michael Thornton

Yeah. And I think - thanks for the question Kyle. I think you're referring to the White Paper that we posted on our website to explain you know, at a high level the physics that are involved in the signal generation process that we're using as the measurement, a surrogate measurement for liver fat content.

So you're correct. The permittivity of liver and other tissues decreases with increasing fat fraction. And because we're comparing it to lean tissue that actual relevant signal increases. So that's true that as the fat fraction increases will actually detect a larger signal and be further away from the noise floor [ph]. And that's also one of the reasons why we don't expect lower than 6% to be able to stratify, that's just too close to those small signals and the noise floor of our system.

And why we expect better results or better precision at higher fat fractions. So yeah, we're kind of excited to have the subjects now entering who are being recruited from clinics and the second follow up study which will be all from populations that are at high risk for fatty liver to see whether what we do on the bench top and how the physics translate to actually human studies. So it's pretty exciting time.

Kyle Bauser

That's helpful. And so you know, Francois mentioned he can't necessarily just look at the BMI to know if someone has a high fat content in their liver. So you know can you remind me some of the ways here at your screening subjects so that you can bring in another 25 subjects that maybe a little bit sicker than the last 25?

Michael Thornton

Sure, so the approved protocol for the study allows for things such as amount of exercise, hours per week, alcoholic and sugary drinks consumed per week and that's about it. That's most of the biometric and sort of behavioral information we're collecting.

The initial study as approved being a first time use device is to only do it on healthy volunteers. Most of the REB and health agencies like you try in new technologies on healthy subjects before going to compromise and complicated cases. So now that we've had this - we'll have this base of 50 or so healthy volunteers, the various boards that approve the protocols, feel much more comfortable than extending to clinics and patients that are actually in some form of liver care.

Kyle Bauser

Got it. And then Francois you commented on several additional clinical studies over the coming months, some of which Mike mentioned. Can you just speak a little bit more about how these trials might differ from the current study underway and you know, where there'll be significant changes in the trial design or will they be more about generating in a larger sample set of data for patients instead of just healthy volunteers?

Francois Michelon

A little of - a little of all of that, Kyle. Thanks for the question. First of all, the two studies that are in final stages of legal paperwork agreement will be using a pre commercial TAEUS system which is more advanced than the feasibility study system that's in use in Canada. So that's one difference.

The other element and I think you picked it up Kyle is that here in the two US sites in particular, we'll be recruiting from known liver patients. So technically people who are more prone to some form of liver disease, and if you will making it more efficient and likely that we get a distribution of fat across the spectrum. So that's the other difference.

The other final element is that they'll typically be larger studies, now that we've learned a great deal with this first study and in Robarts that we're finishing up in four to six weeks. We feel confident that now with the efficiencies we can kick off these US sites and target 75 or more patients for each site. So I think we'll achieve the minimum 150 subjects comfortably before the controlled launch in Q3. And I hope that answers your question.

Kyle Bauser

Yeah, I know, it does. Great. Thanks for the updates here and for taking the questions.

Francois Michelon

As always, thank you, Kyle and Dougherty and Company for your interest.


We’ll move next to Brooks O'Neil with Lake Street Financial Advisors.

Francois Michelon

Hi, Brooks. Thanks for joining.

Brooks O'Neil

Hi, guys. Good afternoon. Thanks for the comprehensive update. Hey I was just curious, I see you hired a woman named Amy Sitzler. She looks like a person of tremendous accomplishments. Could you just talk a little bit about how you hope to utilize her background and experience in moving your company forward?

Francois Michelon

Yeah, great question. So first of all, I'm lucky to have known Amy several years ago when we worked at GE Healthcare. Amy has a long and deep experience in engineering, program management and quality. So we couldn't ask for a better leader to come and help us manage the following things. And you can read more about her profile and background on our website.

But she is really charged with managing the TAEUS liver engineering program, moving all of the elements and vendors through and meet to our timelines and assuring the quality of our business overall, which has been measured to our great satisfaction with the onsite audit and award of our ISO 13485 quality certification.

So Amy has 30 years of experience in this field. She is based here in Ann Arbor where we are an interesting bit of background that we do note in her biography is that she spent five years in France and she led a 200 person global engineering team that introduced the first digital mammography product.

So her skill set and experience is so perfectly suited for us and we're thrilled to have her, in addition to her speaking almost better French than I do. So that's welcome again Amy. I hope it gives you some background.

Brooks O'Neil

Yeah, it's great. And then last but not least, it sounds like you're very much on track for your CE Mark application around midyear, but are there any significant things you have yet to accomplish before you can submit there and hope to get CE Mark approval?

Francois Michelon

Yeah. So we're making great progress. I think the ISO certification is one of those things. Certainly the human factors that we've been deriving from the Robart study are the other element and those are coming online, I will admit they've taken a little bit longer than we wanted, but those will be a critical input to the CE application, which we'll be filing in July.

So I think we're on track there. The ISO certification is not a guarantee by any means of CE approval, but it does show that we're running systems, have the documentation, all through our supply chain engineering systems and even processes here in Ann Arbor that meet the standards for CE and so that plus the documentation of human factors from Canada we’ll really complete it and we're on track.

But you know, I will say, I think we probably overstepped a little bit with the human study when we kicked it off and we saw that recruitment would be a little bit easier and more efficient and I hope we've been open and transparent with our followers and our investors that it's taking a little bit more time to get that proper distribution.

But the results as I've emphasized are very, very encouraging. There's a lot of headroom for continued improvement and I think all the things that Michael mentioned both in terms of expanding studies in Canada, kicking off the US sites and improving the product iteratively along the way our position us to have a very good product when we're ready to commercialize. I hope that answers your question.

Brooks O'Neil

It does, it definitely does. But I just want to be clear despite the fact you said you maybe overreached a little bit, you're still very much on track for this midyear application right?

Francois Michelon

Indeed, we sure are. We sure are. We suspect that assuming a normal turnaround that we would apply in July, our auditor by the way BSI is shut down for the month of June. So July was the first available day. We're likely to get CE approval in September at which point certainly we have been cultivating evaluation sites early adopters and our first tranche of commercial adopters. So that process continues in parallel.

And as I also mentioned on several earlier calls, we fully plan on leveraging our CE file and documentation for a 510-K application and I think I've been transparent in terms of what we see as a typical approval cycle, which is about 150 days after submission for FDA. But you know, obviously I think that puts us into early 2020 to start ramping up the US.

But you know, as all things could happen it's an average so we could get it sooner or it could be a little later. But we're on track, all the foundational elements that I mentioned, the quality systems, the human factors and the leadership to execute all of those jigsaw puzzles are in place and we're working our butts off and we're seeing these things fall into place very nicely.

Brooks O'Neil

Fantastic. That's great. Thanks for all that detail and keep up all the good work.

Francois Michelon

Thank you again, Brooks.


[Operator Instructions] We will go next to Ed Woo at Ascendiant Capital.

Ed Woo

Thank you for taking my question. On R&D cost for the quarter it was – it looked like it was a little bit elevated. Do you think that this current level will be pretty comfortable going forward?

Francois Michelon

No and actually the R&D expense is about - is about what we expected, knowing that it was on its way down, you know, we've got the development done and so we can expect to see that R&D spending and overall cash burn will reduce in Q2 as we've been projecting.

So Q1 really wasn't elevated. It's what we expected and we're comfortable that we're going to stay on that track.

Ed Woo

Even with these additional studies that you’re hoping will kick off relatively soon?

Francois Michelon

Yeah, the studies - the studies are not - don't require additional development. And from a cost standpoint they are relatively inexpensive compared to the development, as well and really as a complement to the team we've really found a way to get a lot of this testing done very inexpensively compared to what the industry would otherwise expect.

So I think we'll see - you know, we'll be able to enjoy a little bit of savings in Q2 and Q3 on that.

Ed Woo

Great. And then my other question is more on the additional findings, when you guys expect to report those additional findings. Do you guys know down a specific date, other than mid [ph] this year?

David Wells

So, yeah. I'll take that one. The study investigators as I mentioned have the aim of completing data collection in the next four to six weeks, with completion of analysis to follow. In addition to posting the results of - the results of the study two ClinicalTrials.gov is required by our Health Canada approval. We're looking at upcoming conferences and peer reviewed journals to target for publication. That's sort of the aim of the investigators and we obviously support the idea of presenting at conferences which is the most widely used way to present results.

Ed Woo

And what conferences should we be aware of coming out?

David Wells

Yes, so there are some NAFLD conferences and we're looking at the timings associated with that. A couple of European meetings in September that we're looking at.

Ed Woo

Great. Thanks for clarifying that. Well, thank you for answering my questions and I wish you guys good luck. Thank you.

David Wells

No problem.


There appear to be no other questions holding at this time. I'd like to turn the conference back to management for any additional or closing comments.

Francois Michelon

Thank you, operator. And thanks to everyone for joining our call today. As always, like to sincerely thank our hardworking team, our vendor, engineers, scientists, patent specialists who keep our technologies evolving, we couldn't do it without you. Lastly, if we weren't able to address all of your questions on today's call please feel free to contact our investor relations firm MZ Group, they'll be very happy to answer them and we look forward to speaking with you all on ENDRA's second quarter 2019 financial results call later this summer. Again, thanks very much. Bye-bye.+