Minerva Surgical, Inc. (UTRS) CEO David Clapper on Q1 2022 Results - Earnings Call Transcript

May 15, 2022 7:37 AM ETMinerva Surgical, Inc. (UTRS)
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Minerva Surgical, Inc. (NASDAQ:UTRS) Q1 2022 Earnings Conference Call May 11, 2022 4:30 PM ET

Company Participants

Caroline Corner - Investor Relations

David Clapper - President and Chief Executive Officer

Joel Jung - Chief Financial Officer

Conference Call Participants

Danielle Antalffy - SVB Securities


Good day, and thank you for standing by. Welcome to the Minerva Surgical First Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Caroline Corner, with Investor Relations. Please go ahead.

Caroline Corner

Thank you, operator. Welcome to Minerva's first quarter 2022 earnings call. Joining me on today's call are Dave Clapper, President and Chief Executive Officer; and Joel Jung, Chief Financial Officer. This call will provide forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding the markets in which Minerva Surgical operates, trends and expectations for Minerva's products and technology, trends and demands for Minerva's products, Minerva's expected financial performance, expenses and position in the market and outlook for fiscal year 2022, and the impact of COVID-19 and its variants on Minerva's operations and Minerva's customers' operations.

These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements. Please review Minerva's most recent filings with the SEC, particularly the risk factors described in Minerva's quarterly report on Form 10-Q for the quarter ended March 31, 2022, which was filed on May 11, 2022, for additional information.

Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Minerva undertakes no obligation to update these statements to reflect events that occur or circumstances that exist after today, except as required by applicable law. Minerva's press release with first quarter 2022 results is available on Minerva's website, www.minervasurgical.com, under the Investors section, and includes additional details about Minerva's financial results. Minerva's website also has the latest SEC filings, which you are encouraged to review. A recording of today's call will be available on Minerva's website by 5:00 p.m. Pacific Time today.

With that, I will hand the call over to Dave.

David Clapper

Thank you, Caroline, and thanks to all of you for joining us on our first quarter earnings call. For those of you who are new to our story, I'd like to begin with a brief reminder of who Minerva Surgical is and then move to our recent updates and plans for the future. Minerva Surgical was one of the few medical device companies that is solely focused on women's uterine health. The indication for our current line of four products is the treatment of Abnormal Uterine Bleeding or AUB. AUB is caused by either a dysfunctional lining of the uterus called the endometrium or by abnormal intrauterine tissue structures called fibroids and polyps.

Minerva has a complete line of products for either the ablation of the endometrium or the resection of fibroids and polyps. AUB, according to the American College of Obstetrics and Gynecology, affects one in three women, which equates to 18 million women in the U.S. between the ages of 25 and 50. And sadly, AUB is the leading cause of hysterectomies.

Next is C-sections, hysterectomy is the highest-volume women surgical procedure in the U.S. with approximately 500,000 hysterectomies performed each year. Hysterectomy is a major surgery that in most cases require general anesthesia, a multiple night stay in the hospital, a four to six week recovery time, and a mortality rate directly attributed to the surgery of up to 1.5 patients per 1,000 hysterectomies.

Our mission at Minerva is to eliminate these unnecessary hysterectomies performed for AUB. Our flagship product, the Minerva ES endometrial ablation system received FDA pre-market approval in July 2015 and is indicated for women with abnormal uterine bleeding for whom childbearing is complete. In the clinical trial for FDA approval, the efficacy of the Minerva endometrial ablation product was judged by the FDA to be statistically significantly greater than the efficacy of the control group, which was comprised of the five previously FDA-approved products. The Minerva ES ablates the endometrium to significantly reduce or eliminate heavy menstrual bleeding.

Our Genesys HTA system performs a similar procedure to the Minerva ES, but uses hot saline as the energy source for ablation, providing the gynecologist with an instrument that is better suited for a regular uterine anatomy. Our Symphion uterine tissue resection system is indicated for resetting fibroids and polyps. Fibroids are a significant cause of both pain and excessive bleeding and are a leading cause of hysterectomies.

Our Symphion System is the only product on the market that cuts and simultaneously coagulates tissue to control intrauterine bleeding during and after a fibroid or polyp resection. The Symphion System also has an exclusive safety feature that employs a pump and filter system that monitors and controls intrauterine pressure, while recirculating the saline distension fluid in a closed-loop system. This system avoids excessive fluid and coagulation, which could endanger a patient during longer or more complicated procedures. This safety feature is exclusive to the Symphion System and not available with competitive resection devices.

And finally, we sell a simple low-cost manual resection device called Resectr for polyp removal used in office settings to round out our portfolio of products. We believe that women should be better informed on their treatment options well before they decide to have a hysterectomy, which is a life-altering organ removal procedure. There are a number of organizations that are focusing on educating women about uterine fibroids, and Minerva is supporting this education effort with our recently launched website, AUBandMe.com.

One of these other organizations seeking to raise awareness about uterine fibroids has even suggested that there is a uterine fibroid epidemic. We at Minerva agree that more needs to be done to educate women about this all-too-common condition, and we are bolstering our efforts through our direct-to-consumer marketing campaign via social media outreach for education, community and advocacy.

Now let's turn to some important performance update for the first quarter. We reported revenues of $10.9 million in the first quarter of 2022 versus $11.8 million in the first quarter of 2021. While we were disappointed with the year-over-year revenue decline, we are very encouraged by recent positive trends in our average daily sales metrics that indicate that the impacts of COVID are improving.

We are pleased with the recent sales growth of our Symphion System, which experienced 20% growth over last year's first quarter. We continue to make progress with new account evaluations and trials and believe that as the macro environment improves, we are well positioned to continue this growth. In fact, overall, we have added 238 new accounts during the last 12 months, approximately 40% of which were new Symphion accounts.

In spite of this continuous progress with new accounts, we are still seeing the lingering impact from COVID on both limiting patients who are seeking treatment, as well as hospital staffing challenges and sales force access. But we believe we are now seeing light at the end of the tunnel, particularly with Symphion.

With a full slate of four products, we are making good progress in gaining access to group purchasing organizations and independent delivery networks through new contracts that will allow us to compete in hospitals that we have previously locked out of. We are progressing on our national account strategy, and today, 44% of our current business is under contract, and that contracted business is up 17% from the prior quarter.

As I previewed on our last call, in March, we held our first in-person national sales meeting since early 2020. It was a pleasure to see the high enthusiasm within the sales team, which is now comprised of 80 sales territories covering all major metropolitan areas. It takes three to six months for a new sales rep to get up to speed. And we are encouraged by our progress and feel well positioned for growth over the coming months.

We have begun the test marketing of our direct-to-consumer DTC digital marketing initiative in 10 select markets, and over the next 12 months, we'll be expecting to build awareness of AUB and our products. With this pilot, we are seeking to educate patients on the AUB treatment options and the clinically-proven advantages of Minerva treatments versus others, and to correct inaccurate marketing messages from competitors' products.

It is our goal to ensure both patients and doctors understand the actual claims as published in FDA-approved labeling. Initial website traffic is very encouraging, showing early signs of success and increasing overall awareness of treatment options for AUB, as well as connecting patients with treating physicians.

Our specific goals are to address the over 36,000 U.S. Internet searches per month that utilize AUB symptom keywords. The early results are encouraging, and we are seeing a significant increase in Minerva website traffic. For example, in January of this year, we had approximately 6,000 website visitors for our minervasurgical.com and AUBandMe.com websites combined.

In April of this year, we had over 32,000 visitors to the website, and of these, over 30,000 were first-time visitors to the website. As patients begin to come back to physician offices and the economy continues to reopen, we are keenly focused on bolstering the foundation for future growth by executing across several key initiatives.

One, completing this year's expansion of our sales and marketing team. Two, signing complete product line contracts with GPOs and IDNs. Three, increasing our installed base of controllers in both new and existing accounts. Four, cross-selling our products to drive new Minerva and Symphion device sales in established accounts. And five, leveraging our DTC marketing efforts to increase awareness of our less invasive procedures versus hysterectomy and statistically significant greater clinical results than competitive products for endometrial ablation.

I'll finish up by saying that here at Minerva, we are excited about our future and remain keenly focused on helping women realize their best solution for AUB, and we truly appreciate your support.

With that, I'll hand things over to Joel for our financial results. Joel?

Joel Jung

Thanks, Dave, and good afternoon, everyone. Total revenue for the first quarter of 2022 was $10.9 million, a decline of 7.6% from the first quarter of 2021. At the product level for the quarter, Minerva ES was $4.8 million or 44% of total versus $5.5 million or 46% of total revenue in the first quarter of 2021. Genesys HTA was $3.3 million or 30% of total revenue in the first quarter of 2022 versus $3.9 million or 33% of total revenue in the first quarter of 2021. And Symphion was $2.7 million or 25% of total revenue in the first quarter of 2022 versus $2.3 million or 19% of total revenue in the first quarter of 2021.

We're encouraged to see the growth in Symphion sales in the first quarter. However, sales of our Minerva ES and Genesys HTA ablation products were both following more of the challenging market trends also seen by our peers. Gross margin for the first quarter of 2022 was 49.5% versus 57.7% in the first quarter of 2021.

Gross margin in 2022 was negatively impacted by the product mix shift from ES and -- Minerva ES and Genesys HTA to Symphion, which has a lower gross margin. Additionally, our fixed overhead costs, which were essentially unchanged from the first quarter of 2021 were spread over a smaller base of product revenue in the first quarter of 2022.

Gross margin was also reduced by an increase in Symphion and Minerva ES controllers that were placed with customers during 2021 and the first quarter of 2022. We recognized depreciation expense on controllers over a three year period, which is offset by future sales of single-use handsets over the life of the instrument.

We've historically seen customer utilization increase over time, which then would increase gross margin with additional use of handsets. In sum, we predict gross margin improvement in the coming quarters and years through increased utilization of controllers placed with customers, fixed overhead costs being spread over a projected increase in volume of single-use handsets sold, as well as future end user pricing adjustments and cost reduction initiatives being pursued with contract manufacturers.

Total operating expenses in the first quarter of 2022 were $15.7 million versus $11.6 million in the first quarter of 2021. Our sales and marketing expenses increased due to the expansion of the sales force and increased spending in physician and patient outreach.

Additionally, general and administrative expenses increased primarily as a result of the increased costs of now operating as a public company. Non-cash depreciation and amortization expenses included in operating expenses were approximately $2.1 million in the first quarter of 2022, unchanged from the first quarter of 2021.

Non-cash stock-based compensation costs included in total operating expenses were $1.5 million in the first quarter of 2022 versus $0.1 million in the first quarter of 2021. Our reported net loss for the first quarter of 2022 was $10.9 million versus a net loss of $14.9 million in the first quarter of 2021.

On a non-GAAP adjusted EBITDA basis, we reported negative $6.3 million in adjusted EBITDA for the first quarter of 2022 versus a negative $2.2 million of adjusted EBITDA in the first quarter of 2021. As a reminder, we have significant non-cash expenses related to the amortization of intangibles from the May 2020 acquisition of the Genesys HTA, Symphion and Resectr assets, as well as significant non-cash stock-based compensation costs.

From a balance sheet perspective, we finished the quarter with $27.9 million in unrestricted cash. In total, our cash outflow for the first quarter of 2022 was $12.7 million, which included a $5 million revenue milestone payment to Boston Scientific related to 2021 revenues for the three products acquired from Boston Scientific. Our long-term liabilities were substantially unchanged from the fourth quarter of 2021 following our IPO and refinancing of our previous long-term debt facility.

As a reminder, our $40 million long-term debt facility is interest-only through the third quarter of 2023, after which it rolls into a three year amortization schedule. We believe our current cash position will last as well as 2023 depending on when our customers return to more normalized operations and on how quickly we can grow revenue. We thus believe we have adequate cash to operate our business for at least the next 12 months.

Moving to guidance. We continue to experience a fair amount of disruption from COVID during the first quarter of 2022. We have seen revenue trending up more recently. And with that, we're cautiously anticipating increased revenue in the coming quarters, primarily focused in the second half of the year. We're thus reaffirming our previous full-year 2022 revenue guidance between $60 million and $63 million, an approximate 15% to 20% increase over 2021.

With that, I'll say thank you for your attention. And I'll turn the call back to the operator for Q&A.

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Your line is open.

Unidentified Analyst

This is actually Lili on for Robbie today. Thanks for taking the question. Maybe just to start with a question on near-term trends. Given the slightly more deferrable nature of the procedure, what are you seeing in terms of the recovery into second quarter? Is there anything holding you back in terms of staffing, capacity, anything like that at this point? And how do you see that trending over the rest of the year?

David Clapper

Hi, Lili, this is Dave. We're actually really optimistic because sales per week on an average are going up every single week. So that's an indication to us that women are getting back to their doctors, doctors are doing procedures, and we just hope that this will continue. We saw this last year at this time and then the Delta variant hit. So we've all got our fingers crossed that we're finally coming out of COVID and it's real this time. One of the trends that we do believe is taking place is that with so many women working from home now that their heavy menstrual bleeding symptoms are much easier to manage from home than they are if they're at work in an office, in a company setting, et cetera.

On the other hand, if the symptoms are severe pain, which is normally related to the presence of fibroids, then we believe those women are not delaying their procedures and proceeding and having the cases done. We're in contact with a lot of gynecologists every week. And one of the things that we do hear from them is that they are still significantly understaffed in their hospitals. So many of the nursing staff that they've laid off during COVID have gone out and found employment elsewhere. So it's been difficult for them to get people to return to work. So in a nutshell, we're encouraged, and we just hope that the increasing incidence of surgery that we see continued.

Unidentified Analyst

Got it. That's really helpful. Just as a follow-up, since you've been spending more on DTC and launched the website. Have you seen any early signs of penetration in that patient population that's been unaddressed up until now or has it really still been more about share capture at this point? Thanks so much.

David Clapper

You're welcome. So I think it's too early to make any call on the direct-to-consumer program. Although as we mentioned in the summary overview, the number of new visitors that we're getting to both our AUBandMe and our Minerva Surgical website is just incredible. Just in the month of April alone, we had over 30,000 new visitors who had not visited before. So we're hopeful that, that pays off in the long run. We don't expect somebody to go to our website and then immediately go out and have the procedure.

But we think that educating women on the benefits of our treatments certainly versus hysterectomy and even in comparison to other endometrial ablation and tissue resection procedures, that's our goal with these websites. So that over time, when they finally decide, okay, I'm going to my doctor and telling, I want a treatment and I want it now that the name Minerva will come up for endometrial ablation or the name Symphion will come up for tissue resection. So that's the goal of that program. So we're really encouraged so far. It will take quite a while to -- for that to actually turn into revenue dollars though we think.

Unidentified Analyst

Got it. Thank you.

David Clapper

You're welcome.


Thank you. [Operator Instructions]. Our next question comes from Danielle Antalffy with SVB Securities. Your line is open.

Danielle Antalffy

Hey, good afternoon guys. Thanks so much for taking the questions. And just to quickly follow-up on Lili's question. I guess it's going to be really difficult to tell given the COVID dynamics in the quarter. But do you think you're seeing yet, I think that speaks to the question she was asking market growth -- market expansion versus just share capture, any sense of how the market is growing? Maybe you can talk about exit rates versus for the quarter, just given the COVID impact?

David Clapper

So we think that the market defined as total tissue resection and endometrial ablation procedures is currently down versus 2019, which was the last pre-COVID year, some place between probably 13% and 15%.

Danielle Antalffy


David Clapper

And our sales are falling right in line with that.

Danielle Antalffy


David Clapper

Yes. So I think -- but I think our share gains, particularly on the tissue resection side are coming from share gains. The response that we're getting with that product in big and small hospitals across the country is really fantastic. These doctors say they've never seen anything like this before. And -- because Boston Scientific really didn't emphasize that the promotion of that product. Most of these doctors have never seen the product before.

Danielle Antalffy


David Clapper

So last week, we were in San Diego for the American College of Obstetrics and Gynecology Meeting, ACOG. And our representatives there from the VP of Sales were flabbergasted, and how many people came by the booth said, I want to see the Symphion product, I've heard that it both cuts and coagulates, can you show it to me? And we've been doing these meetings for 30 years. We've never had people come to the booth looking for products like we did last week. So the interest level is high and that's really encouraging.

Danielle Antalffy

Got it. Okay. And then just as far as what you're seeing from sort of cross-selling, so having success with Symphion, but what about -- are you seeing -- again, maybe COVID muddies the picture here a little bit, but what's happening on the cross-sell side of things?

David Clapper

Well, the initial or our primary focus with cross-selling is to take the newly acquired -- and we acquired them now two years ago, but with COVID, we're just now getting out to promote many of these products for the first time. So we're taking the newly acquired products from Boston Scientific into loyal Minerva accounts. So for example, a hospital uses the Minerva endometrial ablation product is very happy with it. And so now we're able to take in the Symphion tissue resection product and introduce that to the doctors. So our sales reps there already have access. They're well thought of. They're in the operating room. They're helping with cover surgical cases.

So it's just a natural that for them to bring the Symphion tissue resection product in. And then conversely, there are some very large hospitals across the country that were using the HTA system, which is the hot saline endometrial ablation system. So now we're able to go into those accounts and introduce to the Minerva endometrial ablation product for the normally -- normal shape uterine cavity and also the Symphion tissue resection.

So all of this is simply the benefit of finally having a complete line of products that we didn't have for the last -- for the first five years of commercialization following FDA approval. So I can't tell you how enthusiastic our sales force is about having a full line of products now. It's really going great.

Danielle Antalffy

Got it. Okay. And then last question for me, just following up on the DTC initiatives, appreciate it's early to see revenue. But I guess, how -- are you able to track the patient as they -- once they go online? Is there some sort of metric you can look at or is it really just going to come down to hit on the website and then eventually, that will turn into revenue dollars? I guess I'm just getting a sense of like how closely you can track the path of that particular patient that goes to the website?

David Clapper

Yes. So the digital marketing companies that all of the large companies work with, they can track not only visitors, new and old to a website, but they can also generate reports on which pages did they go to, how long were they there. They also track what are called click-through rates, so that they click through from the homepage to Page 3 or 4 or 5 or 6.

And then maybe one of the most important indicators is do they go to the physician finder, put in their ZIP code to see who in their area is actually doing these procedures. So we're tracking -- beginning to track all that. And hopefully, that leads to sales, because this is a prescription health care product, we're not allowed to track actual patients beyond their visit to our website.

Danielle Antalffy


David Clapper

So we cannot track like you see with so many commercial products, you go to this website and order, so you can track or there are promo codes that you enter when you're ordering products, you can't do any of that with medical products. So we're limited to the activity on the website.

Danielle Antalffy

Got it. Okay. Thank you very much.

David Clapper

You're welcome. Thanks.

Joel Jung

Thanks Daniel.


Thank you. And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you all for participating. You may now disconnect.

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