ENDRA Life Sciences (NASDAQ:NDRA) Q1 2020 Earnings Call

0:00 Hello, everyone, and welcome to this Andra Life Sciences first quarter 2020 earnings conference call. During today's prepared remarks, all phone participants shall remain in a listen-only mode, but later you will have the opportunity to ask questions. As a reminder, today's conference is being recorded, and to get us started with opening remarks and introductions, I am pleased to turn the floor to CFO Mr. David Wells. Good afternoon, Mr. Wells.

0:25 Thank you, Jim. Good afternoon and welcome to NDRA's first quarter 2020 business update and financial conference call. We issued a press release this afternoon. For those of you who don't have a copy of the release, you can access it in the investor section of our website at www.ndrainc.com. Before we begin, please note that today's presentation includes forward-looking statements. All statements, other than statements of historical facts, including statements regarding our strategies, financial condition, operations, costs, plans and objectives, as well as anticipated results of our development and commercialization efforts, and the timing for receipt of required regulatory approvals and product launches are forward-looking statements.

1:19 except as otherwise required by federal securities laws, the company disclaims any obligations are undertaking to update or revise any forward-looking statements. Please refer to our form 10-K for the 2019 fiscal year filed with the SEC to get a better understanding of the risks and uncertainties related to forward-looking statements. I will now turn the call over to our Chairman and Chief Executive Officer, Francois Michelon. Francois?

1:53 Thank you, David. Good afternoon, everyone, and thank you for joining us today to review NDRA's first quarter 2020 performance and 2020 business update. Along with David and me on today's call are Renaud Maloberti, Chief Commercial Officer, and Michael Thornton, NDRA's Chief Technology Officer. Let me quickly go through today's agenda. First, I'll highlight our recent achievements and David will review financials. Then I'll provide an update on our key milestones and expectations for 2020, followed by Renaud, who will provide additional commentary on commercial activities with a focus on Europe. And finally, we'll open the call for Q&A. Before I begin, I want to acknowledge all the people who are dealing with COVID-19 as a patient, parent, family member, or friend.

2:42 Our thoughts and well wishes are with all of you, and our particular appreciation goes out to the frontline caregivers providing help to those in need. On a corporate level, David will detail proactive actions we've taken to align the company's structure with this environment, while also ensuring our ability to bring the TEA system to market in 2020. Right now, I'd like to discuss the company's progress during the quarter on our stated 2020 objectives and commercial milestones. For those who may not be aware of Endra's story, we're the pioneer of thermoacoustic enhanced ultrasound, known as TEAS. TEAS allows clinicians to visualize tissue in ways similar to an MRI, but at 50 times lower cost at the point of patient care.

3:34 Endra's goal is to develop clinical applications for the TEAS technology in areas of high unmet clinical need. and our initial focus is on helping the more than 1 billion people globally affected by non-alcoholic fatty liver disease known as NAFLD and non-alcoholic steatohepatitis known as NASH where there's an acute need for a practical tool to assess and monitor liver fat before the conditions progress to fibrosis, cirrhosis and possibly cancer. During the first quarter, we achieved a major milestone paving the way for commercialization of TEIS. When we receive the CE mark approval for our TEIS fatty liver imaging probe, also known as FLIP, we receive this ahead of schedule in March.

4:25 The CE mark indicates that the TEIS FLIP system complies with all applicable European directives and regulations in the European Union and other CE mark geographies, which include 27 EU member states. In spite of the global slowdowns brought on by the COVID-19 pandemic, we've continued to move aggressively to capitalize on our CE mark approval and our first mover advantage. More specifically, we've launched new clinical education tools and are advancing a network of potential TAIS evaluation sites in Europe where we see the greatest opportunity to achieve near-term commercial success. We remain on target to install TEAS at our first evaluation sites in Europe this summer.

5:12 This will be followed by training our partners, recruiting and scanning patients as soon as hospital operations return to normal. And we see this cycle gaining momentum over the summer and are encouraged by our partners' enthusiasm to start using the TEAS system. Renaud will provide more details in a few minutes regarding the important activities underway to support the commercial ramp in Europe. Turning now to the progress we're making in our second key market, the U.S., with our CE mark in hand, we focused our regulatory resources on completing our 510 application to the FDA during the current quarter. I'm happy to report we remain on track to make the final submission to the FDA during the current quarter, finalizing verification testing, labeling requirements, and assuring compliance with FCC regulation. which will position Andra to receive approval and begin initial commercial activities of the TEA slip system in the U.S.

6:08 in the second half of this year. I cannot overstate the significance of this upcoming milestone as the FDA approval will position Andra to simultaneously ramp commercially in two major markets in 2020, the U.S. and Europe, each with an acute need for a practical and cost-effective liver diagnostic solution. In anticipation of the FDA milestone, we continue to advance our pre-commercial activities in the U.S. This includes renewing our collaboration agreement with GE Healthcare during the first quarter, extending the agreement's term to January of 2021. As a reminder, under the terms of the agreement, GE Healthcare will continue to support Endra's commercialization activities for its TEAS technology for use in the fatty liver application by facilitating introductions to GE Healthcare ultrasound customers.

7:01 will afford GE certain rights of first offer with respect to manufacturing and licensing for the TEAS liver application. As widely reported, COVID-19 has impacted existing and new clinical trials for countless companies. However, we're encouraged by the fact that healthcare facilities appear to be gradually returning to normal. What's more, the recent Centers for Medicare guidance about healthcare facilities restarting elective procedures aligns with the feedback we are getting from our clinical partners. On that front, we continue to strengthen our relationship with our U.S. clinical partners, Rocky Vista University and the University of Pittsburgh Medical Center, finalizing experimental design and patient recruitment, even as COVID-19 has affected hospital operations.

7:51 As soon as these sites are ready to resume normal operations, Endra will be ready, and we see that happening in June and July. Jonathan Behr, Scott Sober, Alexander Tokman, Richard Jacroux, Ziad Rouag, also known as the IRB, which allows research institutions to use technology that's deemed to be a low risk ahead of the FDA regulatory clearance. So we'll be ahead of the game collecting clinical data that can support our US commercial launch even before we anticipate receiving the 510 approval later this year.

8:44 Following 510 approval, we can look forward to leveraging Rocky Vista and UPMC as great reference sites for our U.S. commercial teams. Organizationally, I'd like to highlight the recent additions to the NDRA team. During Q1, we expanded our scientific advisory board with the addition of Dr. Raza Malik, Director of Hepatology and Associate Chief, Division of Gastroenterology at Tufts Medical Center in Boston. More recently, we added Lou Bassanese, Founder of Disruptive Tech Research to NDRA's Board of Directors. While Dr. Malik bolsters our already strong team of clinical professionals advocating on behalf of Endra to the worldwide liver health community, we look forward to leveraging Lou's expertise in identifying disruptive, patent-protected technologies, as well as corporate communications to help us broaden awareness with institutional and retail investors as we begin our commercialization phase.

9:43 Bottom line. could not be more pleased with the progress we've made during these challenging times to keep the company on track to receive critical regulatory approvals and advanced commercialization activities on schedule in Europe and the United States. I'd like to turn the call over to David Wells to review the financial results for the first quarter ending March 31st, 2020.

10:06 David. Thank you, Francois. I will now provide a summary of our reported first quarter 2020 financial results. Our operating expenses increased to $3.1 million for the quarter ended March 31, 2020, up from $2.7 million for the same period in 2019. Our research and development spending decreased year over year by $255,000, while our sales and marketing costs increased to $114,000 for the quarter. Our general and administrative costs were up by $551,000 due to employment-related costs, including non-cash expenses for stock compensation, additional spending on costs associated with being a publicly traded company, including investor relations, and increased costs for insurance.

11:04 Our net loss for the quarter ended March 31, 2020 was $3.3 million. as compared to a net loss of $2.7 million for the quarter ended March 31, 2019. Our net loss included non-cash charges which totaled $817,000 comprising expenses for equity-based compensation and amortization of debt discount. Our net loss per share for the quarter ended March 31, 2020 was 29 cents per basic and diluted share. Our cash balance as of March 31, 2020 totaled approximately $3.1 million as compared to approximately $6.2 million as of December 31, 2019. The decrease in cash for the first quarter is the result of our spending for normal operations, costs associated with submission of key regulatory filings, as well as the purchase of inventory in preparation for the sale of pay assistance.

12:10 We do not expect this elevated level of spend to persist for the remainder of the year. In fact, during the last call, I reminded our shareholders of the advantages of our asset life operating model. This is especially relevant and advantageous now in the uncertain and challenging economic environment that we find ourselves. As Francois mentioned earlier, as COVID-19 pandemic has unfolded, Endra has taken preemptive actions to align the company's cost structure with this environment while also ensuring our ability to bring the TEA system to market in 2020. These actions include for the remainder of 2020 implementing a cash salary reduction of 33% for the company's management team and paying non-employee directors annual retainers in the form of restricted stock units instead of cash.

13:07 We also submitted an application under the Small Business Administration's Paycheck Protection Program, or the PPP. The application was approved and on May 22nd of this year, excuse me, on April 22nd of this year, we received the proceeds of this PPP loan in the amount of approximately $308,000. We continue to actively pursue and evaluate opportunities to strengthen our balance sheet and position our company for the exciting commercial growth opportunities that lie ahead. This includes the exercise of outstanding warrants, various market-based funding opportunities, strategic partnerships, as well as non-dilutive academic research grants.

13:54 I will now turn the call over to Renaud. Renaud?

13:58 Thank you, David. Since joining NDRA in May 2019, We have made a great progress in building awareness and seeding the market for sales of Andros Theos technology ahead of key regulatory approval. With that in mind, today, I'd like to update investors on our European commercialization strategy and key progress. Immediately upon securing CE mark approval, we accelerated our efforts to establish clinical evaluation reference sites in each target European market, including Germany, France, The purpose of these reference sites is to get the theus technology into the hand of early clinical adopters who will serve as commercial springboards.

14:43 We believe this go-to-market strategy is the fastest way to establish clinical usage, secure initial sales, as well as achieve a faster sales ramp. On the last call, we indicated that we plan to deploy our CE marked TS liver systems to the selected evaluation sites beginning in the second half of 2020. We remain on track with this goal and anticipate installing our first EU evaluation sites this summer. These evaluation sites in Europe and the US will serve two very important purposes to support our commercialization efforts. This site will help build our clinical evidence, human data, with our TAIS liver device. As we've mentioned before, all medical technologies need to have a strong base of data on which to build a compelling clinical value proposition.

15:38 These evaluation sites will also serve as regional reference and anchor sites for the commercial country teams, allowing them to bring new potential customers to see the product in clinical use. We also discuss our adapted approach to engage with our target audiences in a digital format to maintain a high degree of market awareness and grow our clinical relationship despite the reformatting of key clinical and industry conferences to online venues due to COVID-19. To that end, we launched Andra's new liver focus website on April 30th that reinforces our commitment to enabling better, earlier detection of NAFLD NASH. This site is being translated into multiple languages to educate the market and support commercial pipeline expansion.

16:29 We also shared a new educational video with over 3,500 interested clinicians entitled, How to Use the Teus Leber Device, which is available on our website. These clinicians' relationships have been developed through marketing outreach, participation in key global clinical conferences, Thank you very much. Thank you for joining us today.

17:44 execute our launch and learn demo strategy and continue building awareness and credibility for the TS technology in target market. We plan to start making job offers to the final commercial candidate in June. So we are very excited to initiate our commercial activities in Europe, and I look forward to updating you on our progress and initial sales in the coming quarters. Now I'll turn the call to Francois, who will make some final remarks.

18:12 Thanks very much, Renaud and David. I'll wrap up the call before Q&A with the following key points looking forward into 2020. First, we remain laser focused on two key milestones, ramping up commercialization activities in Europe and finalizing our 510 submission to the FDA in the US. We look forward to providing investors with updates in the coming weeks and months as we make specific progress on both fronts. As I mentioned in the Q&A of our last quarterly call, we've definitely seen an uptick in the strategic partners approaching NDRA from the pharmaceutical and contract research organization sectors involved in the development of therapies for NAFLD and NASH.

18:57 I don't want to overstate the progress of these partnership discussions, but I believe NDRA's technology is a natural fit for these companies who are seeking to drive efficiencies in their clinical trials while facing the same impracticalities as clinicians with liver biopsy and MRI to screen in and monitor patients during the studies. A partnership with one or several of these companies makes perfect sense for Andra and would nicely complement our GE partnership with the ultrasound equipment side. With that, I'd like to open the call for questions. Operator? Gentlemen, thank you for your remarks today. and to our phone audience joining, if you would like to ask a live question over your telephone line at this time, please press star and one on your telephone keypad. Pressing star and one will place your line into a queue and, of course, we'll take your questions one at a time. Also, a friendly reminder that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and one to be certain that your signal does reach our equipment.

19:55 Once again, ladies and gentlemen, that is star and one. We'll hear first from the line of Brooks O'Neill with Lake Street Capital.

20:03 Good afternoon, guys. How are you?

20:06 Great. Thanks. Thanks for joining.

20:09 Sure. So, as always, I guess I'm trying to understand how you think about the speed to commercialization, both in Europe and ultimately in the US. And how do you balance that against your rate of cash burn? and obviously your available cash. Just trying to think forward to the rest of the year and kind of assess how these two key factors balance out.

20:42 Yeah, great question. So I think building on what David mentioned earlier in terms of our Acid Light historical operating model, we're clearly ramping down the engineering spending as the product is finalized and carefully ramping up The commercial spending. So you're not going to see a net doubling, per se, of our spend with commercialization underfoot. That's one of the benefits of having partnered with service providers and engineering. And as David Andronov also mentioned, we're being very careful about timing the build out of a small commercial team in Europe. So right now, to be very clear, we've got a great pipeline with some final candidates. But we don't have any people on our payroll sitting idly in Europe.

21:30 We're carefully engaged with the evaluation sites that we're talking to. And at the right time, starting in June, we're going to start building out that small team. I anticipate it will be four to five people in Europe. And that, as I've mentioned, historically is for a couple of reasons. One, we want to control our destiny for the company and the investor's sake. and, you know, having a small team there, carefully managing evaluation sites, pursuing commercial opportunities locally is something that we want to control. But it also allows us to be complemented by our partner, GE Healthcare, as we've mentioned. And GE's been very generous in their sharing of customer information and will continue to introduce us to ultrasound customers focused on the abdomen and deliver. And we believe that that'll help us manage our cost structure commercially in Europe in partnership with GE. I hope that's helpful in answering your question.

22:28 Very helpful. Very helpful indeed. So the second question, I'm just curious how you view the COVID-19 impact on the U.S. regulatory approval pathway. And do you see that slowing things down at all or do you think you can continue to move forward more or less on schedule as you head towards U.S. approval.

22:51 Yeah, I can tell you what we control in terms of our submission this quarter is certainly in hand and there's no issue as we've discussed or impact us for the submission from COVID. I can't speak for the FDA, but the signals we're getting, Brooks, are positive. Medicare, as David mentioned, has decreased. referenced returning to elective procedures, and those elective procedures are not cosmetic procedures. They're all the bread-and-butter operations, orthopedic, joints, general surgery, and many, many other procedures. So I am seeing that opening up. We're certainly getting the same feedback from our U.S. and European evaluation sites, and I have to imply, since I have not seen otherwise, that the FDA is also remaining efficient in that regard and not being impacted or defocused, if you will, from game-changing technology like Endra. So I remain confident that we will file the 510k in the U.S. in June, and that will, according to historical timelines, position us to get approval by the end of the year in November.

24:02 I hope that's helpful.

24:04 Yep, that's very helpful. And then the last question. I had is obviously we see the value of the GE partnership. They have a huge brand and organization in place. Can you begin to speculate on how you might envision the relationship extending beyond the deadline of the current agreement?

24:31 Yeah, I think to be fair to both of us, what we have in hand already with them is what we need to focus on initially in terms of building out carefully the target markets, working with the local GE teams. We are in regular contact with the global GE healthcare teams. They've been very generous, as I said, in terms of introductions, but they've also provided us with demo systems and other ultrasound capital that are very helpful to a small company and further Idan Steinberg, Scott Sober, Alexander Tokman, Richard Jacroux, Ziad Rouag, Idan Steinberg

25:31 Yep, very, very good. Keep up all the good work. I'm excited for U.S. approval and European commercial launch.

25:40 Great. Thanks again, Brooks. Next, we'll hear from the line of Joe Jemichael at Catalytic. Please go ahead. Your line is open.

25:50 Hi, Joe. Thanks. Thank you. Hi, Francois. Just one question, really. So, you know, I think I understand the commercialization process in Europe well. really focused around the early adopters and centers of influences with these reference centers. Can you walk me through, I'm going to make a leap of assumption here in the sense that you should have your 510K approval this year. What's the commercialization strategy in the U.S. look like?

26:16 Yeah, great question. Frankly, it's very similar to what we're putting in place in Europe with the, I would say, exception that we've already started will have started the evaluation and clinical data in the U.S. through UPMC and Rocky Vista. To answer your question specifically, as we approach 510K, we will build out a small commercial team here regionally with probably a similar number of commercial people, five or so throughout the U.S., working locally with the evaluation sites. We have the two that I mentioned. Others are in the pipeline, and we have confidence that we'll be announcing those over the coming months. and we will cultivate commercially the next round of adopters around those evaluation sites.

27:02 So having the clinical data in hand from UPMC, Rocky Vista and European sites, you can now imagine a small U.S. commercial team, Joe, leveraging those reference sites, leveraging that data and reaching out to our and GE's shared ultrasound customer database and offering the TEAS liver device to enhance the utility It does, thank you. Thank you so much. Our next question will come from the line of Vernon Bernardino at HC Wainwright. Please go ahead, Vernon. Hi, Vernon. Hi, Vernon.

27:47 Hi, guys. Thanks for taking my question, and congrats on the CE mark approval. I'm sure that was a lot of hard work. Thank you. It seems earlier than expected. I definitely like to get good surprises, especially in this environment. So I just wanted to ask a few questions about the digital format. Just wondering if you could provide a little kind of details. I assume perhaps you already have the videos already ready for that presentation. Okay, great. Sure.

28:26 And by the way, Vernon, yeah, just to emphasize, This is a build-out leveraging our website as the main repository, but we're also very proactively engaging through our own CRM of now 3,500 clinicians and engaging them directly with this new content. But it's publicly available at endrainc.com, and you'll see there new animations that simply explain to clinicians How the product, which we show for the first time in real format in the video, can be integrated seamlessly and easily in their clinical practices. You'll also start seeing a number of videos and interviews that I think articulate in our own voice, mine to begin, the current progress and our plans as a company.

29:17 Okay, and will there be, in other companies that I cover, they often have these life cases. I'm sure you can't, I mean, that wouldn't be possible, especially in a situation where, you know, everybody's protected and in a procedure, especially in small centers, not in hospitals. Is that something, for example, that's in the plan?

29:43 Yeah, yeah, yeah. So I think as soon as, you know, in the case of our product in Europe, it is CE approved, so we are approved to sell and market it. And as soon as we get our product into the reference sites that we've mentioned on this call in Europe in each key market, And by the way, we have verbal approvals and agreements with several of those. We're finalizing the paperwork. Then it's absolutely possible for us to demonstrate. We fully intend to have testimonials and to have video demonstrations of the product, which is noninvasive, which is very easy. You don't have to be in a special room like an MRI or surgery. There's really nothing outside of the COVID limitations that would prevent us from sharing that. And so we certainly intend to build out more content so that clinicians and investors can see our product in use both in the U.S. and in Europe.

30:44 Okay. And I see from some of the companies that cover and follow in the U.S. that especially with their clinical trials, that they're able to continue, although at a slower pace, work as far as clinical trials are concerned in these non-hospital small centers. Now, for these procedures with TAIS-FLIP, is that the target in the U.S., and do you see that also as indications where you're going to see initial commercialization in Europe?

31:19 Yeah, so our investor presentation shares our targets in terms of clinical segments, Vernon. First and foremost, the radiologists that perform currently upwards of 50 to 70 million abdominal and liver ultrasound scans for other reasons. They can't measure fat the way we do, but they do that for other reasons. So there's an established clinical practice, and those radiologists are typically in a hospital setting. or small clinic setting. Second clinical segment are the gastrohepatologists. Those are the liver specialists. And frankly, in Europe, quite a few of them use ultrasound already. In the U.S., less so. But they've expressed enormous appetite to have tools, especially with the new therapies that are starting to come online with Zytus and others to be approved later this year.

32:19 for a tool that would allow them to assess and screen in patients and then monitor the progression of that therapy on those new drugs. Those gastrohepatologists are also in both hospital clinic and private practice settings, and we clearly have messaging and outreach and awareness of where those clinicians are. I will say, to answer the other part of your question, We are getting signals from both hepatologists and radiologists in our network that facilities small and large are starting to consider and in some cases return to elective procedures. And so we have confidence that in June and July we'll start placing our systems at those first evaluation sites and continue through the summer.

33:10 It is going to be institution-specific. Thank you very much and congratulations. Thank you for your call, Vernon. Next, we'll hear from Ascension Capital and the line of Mr. Ed Wu.

33:49 Yeah, congratulations also on the CE approval. My question is more on the US.

33:56 When you do get approval and you do target these reference centers, will you be targeting a certain geography or will it be pretty broad based depending on the centers?

34:07 Yeah, so our criteria for selecting evaluation sites are several, but they're clear. One, they have to be a center of excellence and deliver and have clear influencers in those facilities that can help us in that regard. So, you know, we're not just picking any community hospital that happens to have an ultrasound. University of Pittsburgh Medical Center, as a leading example, is a world-class facility Liver Transplant and Liver Health Facility. It's in the Mid-Atlantic in my hometown of Pittsburgh. And so, you know, that'll be a great anchor account there. Our goal is to place our systems in the same vein in Europe, but your question was focused on the U.S., in regional centers of excellence with early adopters and leading clinicians. And so you can look forward to having other announcements in the U.S. likely spread out geographically to support that regionalized model that I mentioned with around five commercial people in the U.S. on endless payroll.

35:17 And I think that will be centered around naturally urban centers very often that have a large population and adjacent clinicians that we could sell to. But you'll see a regional diversification, liver centers of excellence, and most importantly, early adopter influencer clinicians who can help us develop the clinical value proposition and help us influence the next round of customers to buy. Great. And then have you set a timeframe for how long these evaluation periods will last? Yeah, great question. So it depends on how many patients we're doing. But just to put it in perspective, we are not talking about a pharmaceutical-length type of study that could last several years.

36:07 Thank you for joining us. providing loaner equipment of ultrasound when the evaluation site says that it could accelerate the scan so that they don't necessarily have to depend on radiology in the department. So GE has been very helpful in that regard. And to answer that question, I think six to nine months is a good rule of thumb for 75 patients. And I believe we'll have strong success in recruiting those patients because clearly we've established those The hepatologists and radiologists already have that pipeline of existing patients that they can use in the study. I hope that's helpful. Yeah, that was very, very helpful.

37:08 Thank you for the permission and good luck. Thank you very much. And operator, I think that seems to be the end of the question. So after this final thank you to the investors, we can wrap it up. But I appreciate everyone calling in, listening to our story and all the support we're getting from investors both the analytical community, the investors directly, and we remain very optimistic and will continue to inform you of our progress over the coming weeks and months and look forward to speaking with all of you again on our next quarterly call. Thank you. Francois, thank you. And on behalf of the rest of the leadership team, Michael, Renaud, and David, we thank you all for joining today. You may now disconnect your lines, and we hope that you have a good evening.