Motus GI Holdings, Inc. (NASDAQ:MOTS) Q3 2022 Earnings Conference Call November 14, 2022 4:30 PM ET
Garth Russell - Managing Director-LifeSci Advisors, LLC
Tim Moran - Chief Executive Officer
Andrew Taylor - Chief Financial Officer
Mark Pomeranz - President & Chief Operating Officer
Conference Call Participants
Steve Lichtman - Oppenheimer and Co.
Ben Haynor - Alliance Global Partners
Ladies and gentlemen, thank you for standing by, and welcome to the Motus GI Holdings, Inc. Third Quarter 2022 Financial and Operational Update. At this time, all participants are in a listen-only mode. There will be a presentation by the Motus management team, followed by a question-and-answer session. I must advise you that the conference today is being recorded.
I'd like to turn the call over to Garth Russell of LifeSci Advisors. Please go ahead, sir.
Thank you, operator, and thank you everyone for joining us for the Motus GI third quarter 2022 update call today. Representing the company are Tim Moran, Chief Executive Officer; and Andrew Taylor, Chief Financial Officer; and Mark Pomeranz, President and Chief Operating Officer of Motus GI.
Before turning the call over to management for their opening remarks, I would like to take a minute to remind you that this conference call and webcast will contain forward-looking statements about the company. These statements are subject to certain risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call.
We will not undertake any obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K and our other periodic reports on Form 10-Q and 8-K filed with the SEC.
I’d now like to turn the call over to Tim Moran, CEO of Motus GI. Tim, the floor is yours.
Thanks, Garth, and good morning, everyone. Thank you for joining our call today. I'm pleased to share an update on our progress through the third quarter of 2022, as well as provide early insights of what we're seeing in the fourth quarter. Following my update, Andrew will provide an overview of our financial performance for the third quarter and then we will open the call to take your questions.
Let's get started. We reported revenue in the third quarter of $278,000, which represents an approximate 50% increase compared with the second quarter of 2022 and our highest quarterly revenue to date. We continue to drive steady quarterly growth since the launch of our Pure-Vu EVS, six months ago.
With that as an overarching view, let me take a step back and offer some additional color behind the key drivers of our performance in the third quarter. Our success is being primarily enabled by the improvements we've made to our technology with the launch of Pure-Vu EVS, as well as the expansion of our commercial reach. Physicians continue to comment on Pure-Vu's efficacy and have been specifically complementary of the rapid setup, enhanced cleansing capabilities and the flexibility to use at the bedside on a dirty scope.
All of these improvements were based upon direct feedback from our customers over the last three years. This brings me to the number of placements for the Pure-Vu EVS. Through the end of Q3, we now have Pure-Vu in use at 25 hospitals. As expected, most new placements are coming from customers with no prior experience and are comprised of a balanced mix between academic, community and VA hospitals. While we believe Q3 represented a solid performance, we did see a handful of accounts delayed their purchasing decisions to Q4, primarily driven by capital budget constraints and hospitals continuing to manage through staffing shortages.
This leads me to our growth strategy and pipeline. Now that we've established a solid base of hospitals with Pure-Vu EVS and use we are incentivizing our sales team to increase same-store sales, meaning going deeper in existing accounts to drive higher quarter-on-quarter utilization within each site.
Driving consistent repeat utilization is key to our long-term success, as it will provide predictable recurring revenue. It's important that we have a thoughtful approach in each metro market to go deeper, while also strategically expanding to new hospitals. Two metrics we continue to track are procedures by month at each facility and the number of physician users. Expanding our base of physician users is important, as it speaks to our ability to extend adoption beyond the initial physician champions, that we worked with during the evaluation period.
Let me provide an example of the progress we're seeing in this area. As a proxy for what we are expecting to see across our growing base of hospital accounts, one of our VA hospitals in the Midwest has increased their monthly procedure volume by approximately 40% from Q2 to Q3. This is a result of both expanding the number of physician users and our sales team staying front of mind to be sure the doctors are thinking about the various opportunities, where Pure-Vu EVS can benefit customers.
Turning now to our pipeline. We have outlined our land-and-expand approach, or targeting of additional hospitals within a health system, following approval at the flagship center for the use of Pure-Vu EVS. In fact, we have already had success at several hospital networks in getting introductions to associated hospitals and centers. As an example, we recently received system-wide VAC approval at Texas Health Resources Group, a large system comprised of 24 affiliated hospitals, as well as the Methodist Health System in Houston comprised of eight affiliated sites.
During Q3, we also announced that the VA system has recognized Motus GI as a sole-source provider and the small business. These special designations provide us direct access to the VA's procurement arm, thereby streamlining and shortening purchase decisions in sites that expressed interest in deploying Pure-Vu EVS. The VA's population often experience higher rates of inadequate valve preparation, travel longer distances for care and can experience longer average wait times.
Additionally, the VA medical centers have a strong desire to provide improved care for their patients and are penalized for referring procedures outside of the VA system. Ensuring a high-quality procedure, the first time is a top priority. Finally, the VA health care system is not beholden to the reimbursement policies of third-party payers. As a result, physicians can use our Pure-Vu EVS system for both inpatient and outpatient procedures.
In terms of sizing this opportunity, the Veterans Health Administration is the largest integrated health care system in the United States with approximately 170 hospitals performing approximately 645,000 colonoscopies over the last three years. We now have Pure-Vu EVS in use at five different VA medical centers, including two new agreements that closed in the third quarter. We are also actively pursuing new VA evaluations across the US which we expect will result in new commercial agreements in the coming quarters.
Now, let's discuss our progress on other key upcoming catalysts. First, let me provide an update on our outpatient reimbursement study, a large outpatient-focused clinical study evaluating the use of the Pure-Vu EVS system. The study will enroll approximately 1,000 patients with the primary endpoint designed to show a significant reduction in the number of aborted or poor quality exams that lead to an early repeat procedure as defined by the GI Tri-Society guidelines. This study will be conducted at a mix of academic and community hospitals, as well as ambulatory surgery centers, including NYU Langone Health. We anticipate initiating this study in the near-term with completion expected before the end of 2023.
The study's aim is to generate data, quantifying the percentage of patients with an adequate prep and showing the Pure View system's ability to achieve a substantial clinical improvement in those patients compared to the standard of care in a large multicenter trial.
The results from this study are expected to support applications, seeking reimbursement of the Pure-Vu System when used in certain outpatient colonoscopies. We see a tremendous need in the outpatient market. However, without reimbursement to the Pure-Vu System, it is difficult for us to reach many of these patients. How big is the problem you may ask – the answer is that, of the more than 18 million outpatient procedures conducted in the US each year, approximately one in four or almost 4.7 million patients struggle to get a high-quality prep prior to their procedure. This can lead to delayed, aborted and repeat procedures, which puts a burden on the health care system, and the patient, both from a clinical and economic perspective.
However, early repeat exams only occur between 10% and 20% of the time as many patients do not come back as prescribed, leaving them at a higher risk for interval cancer. Another pending catalyst that we expect to drive additional growth for our business is the Pure-Vu EVS upper GI device.
We continue to make progress advancing the development of the Pure-Vu EVS gastro which is designed to add upper GI capabilities to the existing Pure-Vu EVS Workstation platform. Some of the key enhancements in the EVS system, such as a much larger suction channel, more efficient irrigation jets, a smaller profile and improved flexibility will be further optimized to allow the system to provide broad utility in an upper GI procedure.
This device has the potential to address a significant unmet need by providing improved visualization during challenging upper GI bleed cases. These procedures can be complex and challenging with the reported mortality rate of approximately 13%. We believe the addition of an upper GI solution enhances the overall value proposition of our Pure-Vu EVS platform.
In early Q4, we completed an animal and cadaver lab, which provided solid initial feedback on the eventual design of the new device. The product development project is on track with an anticipated launch in 2023.
Finally, turning to potential strategic partnerships and collaborations, we continue to pursue various opportunities with strategic partners, both in and outside of the US. We believe success with our commercial program can provide us with potential opportunities in the future. Our focus in evaluating these opportunities is centered upon accelerating our commercial progress and potentially strengthening our balance sheet.
With that, I'll now turn the call over to Andrew to provide detail on our Q3 2022 financials. Andrew?
Thank you, Tim, and thank you, everyone, for joining us today. We reported revenue for the third quarter 2022 of $278,000, compared to $141,000 for the same period last year. Revenues for this past quarter also represented an approximately 50% increase over the second quarter 2022 and were primarily derived from reorders and new customer orders of disposable sleeves, as well as limited workstation sales and rentals.
For the three months ended September 30, 2022, we reported a net loss attributable to common shareholders of $5 million or $1.69 per basic and diluted share compared to a net loss attributable to common shareholders of $4.8 million or $2 per basic and diluted share for the same period last year.
During the third quarter 2022, net cash used in operating activities and for the purchase of fixed assets was $3.8 million compared to $3.1 million for the same period of 2021. At September 30, 2022, we reported $13.3 million in cash and cash equivalents, which includes our fully funded credit facility with Kreos Capital. There are no financial or liquidity covenants associated with this facility. After the third quarter end, we sold approximately $5.5 million worth of shares from our existing at-the-market facility. As a result, our current cash balance is expected to meet anticipated needs through the second quarter of 2023.
And now I'll turn the call back over to Tim.
Thank you, Andrew, and thank you, everyone, for joining our call today. We are pleased by the progress our commercial organization continues to make in launching Pure-Vu EVS in the US market. We plan to build on this momentum by driving higher account utilization while strategically expanding new sites.
I'll now ask the operator to open the call for your questions.
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] We have first question from the line of Steve Lichtman with Oppenheimer and Co. Please go ahead.
Thank you. Evening guys. Tim, I was wondering if you could start with -- you mentioned a handful of accounts that you think pushed off into the fourth quarter. Can you talk a little bit about the visibility on those purchases and confidence in those coming through before year-end?
And then maybe just broadly, I know you talked about balancing between going deeper in current accounts and expanding, but maybe talk a little bit about what that new customer account pipeline does look like for you guys at this point.
Sure, Steve. Thanks for the questions. So the first part of the question in terms of my comments about some accounts that got pushed into Q4. That comment is mainly from a contextual perspective about demand. We wanted to make sure it was clear that the demand has been there. We had a good quarter with nice growth, about 50% over prior quarter, but I think it could have been a bit stronger had it not been for a few mainly capital deals, Steve that were budgeted and expected to have the funds released in the third quarter, and that did not happen, which we've seen before. So they are now on target for Q4.
Hopefully, that comes through as planned. We've seen these delays occur, and our accounts at times don't have full visibility to when the funds will actually be given to them to make the purchase, but we're hopeful that a couple of these that got pushed off will come through in the fourth quarter. We are building a nice pipeline of capital. So eventually, these funds will clear and it will start to hit the numbers.
In terms of the approach, so as you mentioned, we've always been focused obviously on driving kind of same-store sales and conviction around the procedure. But I think as we look at the base of accounts now that we've built, it's really important that we drive kind of the stickiness across the board, across all accounts.
We've been able to now see what grade looks like in some of the accounts that I referenced, where you're seeing 20% to 40% procedural increase quarter-over-quarter, but we're not seeing that in all accounts. And when we diagnose that what it looks like to us is some of these sites just need a little bit more handholding and our rep to be there and kind of keep things front of mind for the physicians until this becomes muscle memory.
Because remember, at the end of the day, we're not just a competitive product. We're building a new procedure, if you will. And you've got to stay front of mind. So as we focus on Q4, we've asked the sales team and we're incentivizing them to go a bit deeper in their accounts. That doesn't mean they're not going to expand to other sites, but I want to see some of that same-store sales start to really ramp up across the board.
We are still managing across our sales organization anywhere between 8 and 12 accounts per rep that they're working from in terms of pipeline, Steve. So we still have plenty of opportunity, as you know, to be able to both expand and drive utilization.
Got it. Just in terms of some context, you mentioned some of the growth in higher volume users. On an absolute procedure basis, what does a higher volume user look like right now in terms of number of procedures for a month…
Or any, sort of, metric you can provide?
Yes, anything -- really anything north of 10 procedures a month consistently is where we want to see our accounts. And obviously, we think over time, as we penetrate more physicians and it becomes, kind of, second nature tool to all of the docs in the unit. We can go much higher than that, but north of 10 procedures a month is really what we want to see across the board, Steve.
Okay. Got it. And then just lastly, you mentioned on track of the -- with the Gastro device for next year. Can you remind me where -- what your plans are relative to reimbursement? Where will this fall within perhaps on the DRG side? And is there anything you need to do from a CPT perspective as you look to launch this product?
Sure. Yes. So just a couple of comments I'll make there. We remain bullish on this upper GI device. There's absolutely a big gap in the market, and that's been validated across many physicians and KOLs across the country. And we've got a lot of them providing advisory services, participating in the cadaver at animal labs that I mentioned in the prepared remarks. So we're excited on the development, and it remains on track.
Now as it relates to reimbursement and even clinical activities, let me provide a little bit of color, and then I'll kick it over to Mark, and he can add some additional. But initially, a lot of these procedures, Steve, are happening in the hospital. So we are looking at a DRG scenario. So not dissimilar to the ROI model that we present today, as it relates to lower GI and colon. Now obviously, we're not avoiding hospitalization nights necessarily, but we are able -- we believe we'll be able to, with our device to really dramatically cut the time down of these procedures. They can have a complex upper GI bleeder that can take a couple of hours to ultimately get to the source of the bleed and identify and treat that bleed. So by providing pristine visualization during the procedure, allowing them to make that procedure go much more quickly, we believe that the benefit of that will be well worth the price.
And we've done some kind of pricing analysis in the market as well. And because there's such a gap there, and this is a high mortality procedure, I think this -- we think this is a device that is going to be less about cost, particularly if it is giving them the visualization that they're seeing today. So -- let me kick it to Mark. Mark, do you want to add any additional color as it relates to kind of reimbursement and how we're thinking about that or even clinical activities once we have the device available.
Sure. Thanks, Tim. I think Tim hit the highlights on that, Steve. It is really, again, more of that DRG inpatient scenario. And as Tim mentioned, these are high acuity patients and a lot of these patients are the significant bleeders are being transfused, if they can't get visualization and get in there, they'll have to refer them to IOR or more expensive, more invasive type procedures as well, which they'd like to avoid.
And another thing that happens too when they get in, if I can't see anything with the bleed, they will try to see if they can do some more hemodynamic stabilization on these patients, and then have to go back in what they call a second look endoscopy and have to wait and again, more transfusions and other issues around these patients.
And there really isn't -- like in the colon, they could technically say, okay, let me go prep the patient more. But for the upper GI, there is really nothing that works well. They'll typically try to give Erythromycin that tries to help move that digestive track along a little faster, but that really doesn't do much of anything for these fleet patients.
Got it. Thanks, Tim. Thanks, Mark.
Thank you, Steve.
Thank you. We have next question from the line of Ben Haynor with Alliance Global Partners. Please go ahead.
Good afternoon, gentlemen. Thanks for taking the questions. Hey, just following up on your response to one of Steve's questions. On the utilization front, you mentioned kind of consistent repeat utilization being the key to long-term growth. And on one hand, it's obviously what every company wants, but it sounds in your answer to the earlier question that you may have found a sort of threshold that once an account hits 10 per month, then you see utilization accelerate. Is that kind of a fair characterization of what you're seeing there? And if they don't get to 10, then it kind of stalls out. Any more color there would be helpful.
Sure. Yes. Sure, Ben. Thanks for the question. So I would say it's a combination of things when you kind of diagnose it at the granular level, right? There's different dynamics in each hospital, as you'd imagine. But I do think 10 is a number that we've now seen our best accounts in terms of volume, be able to get to. And typically, why that happens is, one, there's a – there's multiple physicians that are utilizing the device, right? So if one of the docs is not on inpatient service, we're still getting procedures happening, and there's not a gap of time before, Pure-Vu gets pulled and gets used again. So a number of physicians, but also just influencing the team and the staff to be thinking about Pure-Vu as a tool and to be kind of thinking proactively about that patient coming down and being sure that they're giving them the optimal care. And just the reality of change management right, and all the dynamics of with that, you kind of need to be front of mind in certain facilities in order to make sure that they're thinking about this. And the more they think about it and the more they do it, the more it becomes second nature and the more volume we get, right? So it kind of plays together.
One of the things we're doing, Ben, in addition to just putting a little bit more focus on that from a rep perspective, we are also piloting some contracted clinical heads in a few metro areas to determine if we had someone that was kind of on the ground constantly rotating between our facilities that have the device and being in those accounts, talking about Pure-Vu, grabbing physicians, training them, will that start to drive more same-store sales, while our rep is able to then go expand to other sites. So we're looking at that as well. We'll provide updates as we get further into it, but that's something that some action that we're taking differently to kind of try to test that theory that being there drives more procedures.
Okay. And then maybe a little bit of a follow-up on that. Once you get to that kind of threshold level or the level of utilization, is it easy to kind of move the -- your sales force assets to go drive utilization in another account, and that account is just kind of automatic at that point, or what's -- what are you seeing out there?
Yeah, exactly. So when you look at those accounts that are doing the most volume for all those reasons I just stated, those are also the accounts that we kind of deem independent, meaning they don't need us to be there for them to either one, use it or they don't need help to use it, right? So in some of the accounts where -- we're not getting as high utilization, oftentimes, that can come down to just comfort level of the staff, setting it up and getting it ready or the physician maybe only has done a couple of cases so they don't -- they're not apt to just grab it, right? So as we get them up to that level, then they become much more independent and we just kind of see the revenue starting to roll in.
Okay. That's helpful. And then just on the VA situation, that sounds like a great development for you guys. How broad could you -- and how quick do you think these 170-or-so VA hospitals could adopt Pure-Vu?
Yeah. So we look at the opportunity as really a good focused area for us to spend our time. And as you'd imagine, we've got our sales team acutely focused on any VAs that are in there areas. That system does about over 200,000 colonoscopies a year, right, across those 170 facilities. So these are high-volume accounts, as we talked about their patients oftentimes have higher bowl prep issues, right? So great target for Pure-Vu.
So we're doing a couple of different things. So in addition to just our feet on the ground and the reps getting into these accounts and building relationships, we're also doing kind of from a marketing perspective, we've now done outreach to directly to all 170 VAs, that's in the works that it will be completed before the end of the year. And they're receiving not only information on Pure-Vu, but they're receiving the value analysis, ROI model, so all that information is kind of front and center.
So we're trying to soften the ground for the sales team, if you will. We also are conducting national webinars. So we executed one in September, where we had a KOL from a VA that's using Pure-Vu on a regular basis. And we were able to invite other physicians from across the country who are working at VA hospitals. And we're able to hear directly from one of their colleagues and peers exactly how they're using Pure-Vu and what the benefit has been. So we're scheduling another one of those here in the fourth quarter. And I think bringing all of this attention will allow us to try to accelerate the opportunity.
I would say, Ben, right now, we have probably 15 to 20 VAs that are in our nearer-term pipeline. So, over the next couple of quarters that we're going to work towards trying to bring online. We were able to close two in this past quarter, and we've got several that are pending for Q4. So I think you'll start to see us report more closes within the VA now that we've got this designation.
So insight it could be your closing several or maybe even half a dozen, a quarter as we look out a couple of few quarters.
I think that's reasonable. As we look out into 2023 for each rep, if you break it down across the country, they've got a handful each, if not more, right? So to bring those home, I think, seems very realistic.
Okay. Great. Well, thanks for the color, gentlemen. I'll leave it at there.
Thanks, Ben. Appreciate it.
Thank you. [Operator Instructions] We have next question from the line of Yi Chen with H.C. Wainwright. Please go ahead.
Q –Unidentified Analyst
Hi. Congrats on all the progress. This is Chait [ph] on behalf of Yi Chen. I just have two quick questions and a few others have been answered. The first one being, what are your target numbers of hospital placement by the end of 2022 and the end of 2023, if possible? And is the volume of colonoscopy procedures still below normal levels for most hospitals? And lastly, can we expect more publications either in the near term or even 2023? Thank you.
Sure. Yes. Thank you for the questions. Okay. So let me take the first couple, and I'll have Mark expand on some publication work that we're doing, and we just had a few presentations at the most recent GI Conference, the ACG Conference. So we'll circle back on that.
But initially, we have not provided publicly a hard point number in terms of number of sites either this year or in 2023. I would expect that there will come a time where we will do that. The reason we have it is, as you hear from my commentary today, this process of getting these accounts up and running and getting them to be sticky requires us to be nimble, right? So we want to see -- I would rather see us go deeper into the 25 hospitals that have Pure-Vu today and drive revenue that repeat disposable revenue each quarter, quarter in and quarter out, while we expand strategically with the resources that we have, right? So if you all recall, we have a still relatively small sales organization.
So there's only so many resources and we have to be very efficient and effective with those. So we're not looking to just chase a number and say we got into 100 accounts, because over time, that may not be a strong sustainable business if you don't have conviction around the procedure. So we'll provide more detail in the future as it relates to hard point numbers of accounts. But I think as you've seen, we launched this new product in March, and we're now already into 25 accounts. So that can give you a little bit of a sense of run rate.
In terms of hospital procedures, we think that post the COVID period, procedure volumes for colonoscopies certainly feel, like they're back to where they were.
I think the impact that we're seeing mostly on our business is, given the current economy and all of the other macro pressures of this market, capital funds continue to be under pressure as noted, in some of the delays that we've seen.
And some hospitals are still dealing with staff shortages, as you probably heard from other companies that have reported, right? So that just puts kind of a bit of elongation on the sales cycle at times in certain areas.
So I would say that's kind of our view of the current market dynamics right now. And then let me kick it over to Mark, if you could just talk a little bit about abstracts and clinicals.
Sure. So a few things on abstracts, and publications and just clinical data in general, as Tim mentioned, we actually had three abstracts presented at the ACG meeting back in October, which was nice that was the most we've ever had in any one meeting in the history of the company.
And one of the nice things we're seeing, too, and also being approached by is investigators doing their own research and publishing their own data around Pure-Vu. So we're seeing some independent studies around that, which is really nice to see because that shows their conviction around the technology.
And also looking at with folks besides the big clinical trial that we talked about for pushing reimbursement, but also working with several folks on investigator-initiated type studies where we help support their research, as they see things moving forward.
So we think that will continue to generate abstracts. And some of these things will turn into four manuscripts into next year and beyond.
Q –Unidentified Analyst
Thank you so much.
Hey Thanks, Mark.
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back over to Tim Moran, CEO for closing remarks, over to you, sir.
Yeah. Thank you very much, operator. And I just want to thank everyone for joining our call today. As I noted earlier, we're pleased with the progress that we're making.
The commercial team continues to drive incremental quarterly growth.
We have some significant catalysts upcoming that we talked about today during the call, both around the product development opportunity, innovation for upper GI, as a new indication as well as the investments that we're making around additional clinical data to validate the Pure-Vu System and ultimately work towards reimbursement.
So I appreciate your time and attention. We'll look forward to providing another update at the end of this quarter. So thanks for joining.
Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.