Q3 2019 Earnings Call
Greetings and welcome to the motive Gee, I said quarter 2019 earnings call.
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It is now my pleasure to introduce your host.
Bob Yedid. Thank you Bob you make up again.
Thank you operator.
Thank you everyone for joining up.
It is GE <unk> third quarter 2019.
They call representing the company or Kim Moran.
Chief Executive Officer, Andrew Chandler, Chief Financial Officer, Mark I'm around.
Okay, and Chief operating officer of the company.
Before turning the call over to management for their opening remarks.
Taking minutes remind you that this conference call.
Capital contain forward looking statements about the company.
These statements are subject to risks and uncertainties that could cause actual results to differ.
Well you note that these forward looking statements reflect opinion.
As of the data in this call November 14 2019.
Well not undertake an obligation for bars publicly released the results.
Okay any revisions to these forward looking statement in light of new information or future events.
Factors that could cause actual results or outcomes to differ materially from those expressed and implied by such forward looking statements are discussed in greater detail and our most recent filings on Form 10-K .
And other periodic forms.
Other periodic reports on Form 10-Q , and 8-K filed with the FCC.
[noise] those prepared remarks, it's my pleasure to turn the call already Tim Moran CEO Tim.
Great. Thank you Bob and good morning, everyone. Thank you for joining us today for our first quarterly conference calls the public company I'll start off today's call with an overview of our business and progress to date.
Before turning the call over to Andrew So he can review our financial results for the third quarter and then of course, we will open up the call for acuity session.
With that said, let's get started.
We recently entered an exciting phase of our company's history as Mark by the initial commercial shipments of our pure view system to hospital customers in the U.S.
As a reminder, these customers are currently focused on using the pure view system to address inadequate bout prep for patients undergoing an inpatient pulling us could be principally from urgency conditions, such as lower G.I. bleed anemia infection or undiagnosed abdominal pain.
Inadequate bell preparation prior to Colin ask Andy remains a significant unmet need that affects up that 50% of all inpatient procedures.
This leaves the canceled or delayed and even a boarded procedures, resulting in prolonged hospitalizations and increased cost for both patients and providers.
The pure if you system puts the powering control to overcome the challenges I've been adequate bowed threat into the hands of the physician for the first time.
It allows physicians to rapidly and safely clean the Colin during the cold enough to be procedure to achieve high quality visualization.
As a result, we have demonstrated in several studies that the pure view system offers clear clinical benefits and its ability to ensure procedures are completed on time, thereby reducing length of stay improving bet turnover and reducing the overall burden on both patients and the nursing staff.
There are an estimated 1.5 million inpatient calling us capece performed in the U.S., which makes up approximately 10% of the 15 million Colin after these every year.
Outside the U.S., we estimate that over two and a half million inpatient calling ask these are performed in hospitals.
Over the long term, we believe modus G.I. has a unique opportunity to establish the pure abuse system as a new standard of care for bowel prep challenges for this large inpatient global market.
We also see follow on opportunities to expand into the adjacent outpatient market as well as into upper Gi I procedures.
Before I provide a detailed commercial update I think it's important to quickly review the path, we took to get to this exciting inflection point.
Since joining motors G. I as CEO , one year ago, the team and I've been diligently planning for this commercial launch and executing on key milestones designed to optimize our success.
First we put together a top tier leadership team in addition to significantly bolstering our commercial organization.
Mark Pomerance previously CEO of the company, who led the development and regulatory approval of the pure view system assumed the role of President and Chief operating officer.
Mark has been a great partner to me and continues to be an incredible asset to the company, leading our advanced R&D team with deep resources in Israel, as well as our clinical regulatory and manufacturing operations.
We also recently hired two key executives into important leadership roles.
He buys rock joined as our vice President of global marketing and strategy.
And George Peters joined the team as vice President of quality and regulatory affairs.
Finally, our sales team led by Jeff Hutchison, Vice President of sales and commercial operations was expanded in September with the appointment of several seasons medical device sales professionals, who joined US from the G.I. Division of a leading global medical device company.
With these additions our sales team now average is more than 15 years, a proven experience in med Tech LNG I and we believe our geographically situated to allow optimal proximity to our largest customer our opportunities.
Next we completed the detailed market assessment and crystallized our go to market strategy, we've carefully analyzed and segmented accounts as well as patient and procedure profiles in order to focus our launch where we believe we'll have the highest success both in driving adoption and utilization as well as in generating recurring revenue.
New streams that may help the company achieve sustainable future growth.
Based on this detailed market assessment, we are initially focusing our commercial launch on larger hospital networks, where the average hospital conduct anywhere from 500 to more than 1000 inpatient, calling us can be procedures per year, which I'll discuss in more detail in a moment.
The last key milestone in preparing our launch strategy was to generate robust clinical data.
This was established through the multi center inpatient reduce study we completed earlier this year.
As you may recall to reduce study showed statistically significant improvement in bout cleanliness after pure view use as compared to the standard of care.
Specifically patients demonstrated that adequate bout preparation rate improved to 96% following the use of pure view from 38% at baseline.
There is no technology that we're aware of in the market today that is capable of delivering these outcomes.
This of course brings me to another key milestone in 2019, which was receiving FDA clearance for the second generation, a pure view and commencing shipments of our commercial system.
The Gen. Two system incorporates major upgrades to our workstation that improves setup time mobility ease of use and reliability.
It also incorporates important enhancements to our single use sleeve, which further facilitates loading onto most commercially available scopes as well as improves handling and navigation, while maintaining our outstanding rapid cleansing capabilities.
I cannot overstate the importance of all of these gentoo system improvements and now positioning motors G.I. for future commercial success.
As previously announced the first commercial placements I fear for your system began in early October . Our initial focus is on early adopter hospitals. These are hospitals that had previous experience and using our first generation system.
The reason we are rolling pure view out to early adopter site is because given their prior experience. They are providing us with rapid real world feedback on the system, including its handling characteristics ergonomics and ease of use.
To date, the feedback has been extremely positive.
This early feedback is critical as we accelerate our deployment to additional hospitals throughout the remainder of Q4 and of course into 2020 and beyond.
In addition to these early adopter hospitals, our initial pipeline of commercial opportunities is focused on high value target that can help position us for long term substantial and sustainable growth in this large market, which I've just outlined from a macro perspective, if you look at hospitals that perform between 500 to greater.
Then a thousand inpatient calling us can be procedures a year. This represents approximately 1000 potential hospital customers many of which we are already targeting and all of which we have the opportunity to target in the future. As we proceed with our strategic rollout of the pure of you system to the hospital market.
With that understanding let me provide an outline of the commercial strategy. We're currently executing.
First appeared to be system typically is required to go through a value analysis Committee review.
This has become a standard process for medical device purchases within most hospitals.
To be successful in this stage it starts with our sales team identifying and building relationships with one to two key physicians, who will champion the pure view system through the vac process.
Well this process can vary most hospitals require a brief evaluation of the device prior to final vac approval in purchase which can take anywhere between 90 to 180 days from start to finish.
Once approved we then offer a variety of capital acquisition options. The hospital has the choice to utilize one of our lease or rental programs or they can make an outright purchase.
If we dive a bit deeper into the progress we've made with our pipeline. We have now engage directly with more than 50 target hospitals.
Most importantly, a meaningful number of these hospitals have very submitted the pure view system to their backs and received approval to conduct an evaluation.
Following positive evaluations, we expect to move these customers through the leasing rental or purchase process in the fourth quarter and into 2020.
Hi, winning percentage in the back process is of utmost importance at this stage and we believe our tenured team armed with powerful clinical and economic tools is making very good early progress.
To further elaborate on these initial targets most if not all or part of larger IDN or integrated delivery networks, which consist of numerous additional affiliated hospitals.
Our strategy is to gain approval in the flagship site, which me then provide an easier pathway to adoption within sister hospitals that are part of that seem IDN.
In our first six weeks since launch I'm pleased to report that the pure view system is now being utilized in approximately 10 of our early adopter hospital targets.
These sites or a combination of customers who have either one purchased the entire system.
To purchase sleeves, while using our workstation on short term loan and they proceed through their capital budget process.
Three are doing brief evaluations prior to submitting to their back for purchase approval or for has completed their evaluation and have submitted to their back for approval and implementation.
This is very typical of an early sales funnier for men funnel for medical device companies, introducing a new solution to the market.
In terms of our revenue model, it's important to recognize our belief that the long term growth opportunity for modus JPY is through the sale of our disposable sleeves and therefore, we will be focused on driving utilization at every site.
Initially for modeling purposes, we expect customers overtime to ramp to approximately five to 10 pure view system procedures per month per workstation.
One driver of utilization utilization will be the expansion within a hospital JCI staff.
For example, a new customer account they only have two to three positions with pure view system experience out of a G.I. staff that can range from five to 20 doctors. This will limit the initial utilization at a hospital account once an account has a pure view workstation in place the objective of our clinical product specialist.
Is to implement our account activation program, which includes training additional G.I. doctors and their staff on the system and establishing an agreed upon protocol within the hospital that can lead to broad and regularly use of the pure abuse system for inpatient cases.
We believe the execution of our account activation program will lead to additional utilization each quarter, which in turn would lead to growing sales of our disposable sleeves.
While we're pleased with the initial uptake of our system. It is too early in the launch to provide specific guidance. However, after we get several quarters of commercial experience, we plan to share key metrics on the penetration of the pure view system into the market.
Looking ahead, we're committed to generating additional clinical evidence of the benefits of the pure view system in collaboration with leading investigators and world class medical centers.
Earlier this week, we announced the initiation of expedite an investigator initiated study being conducted at Boston Medical Center.
The study is primarily designed to assess the pure view system's ability to minimize the use of conventional bow preparation regimens in order to further accelerate the time to a successful colonoscopy for the in patient population as well as for outpatient cases performed at the hospital.
I want to close out my remarks by sharing a real world procedure that I think exemplifies the power pure view.
A few weeks ago, one of our new accounts had an emergency G.I. hemorrhage patient arrive at their hospital. The patient was then admitted admitted into the intensive care unit.
Knowing they now had the pure view system available the physician rolled our system up to the I see you conducted an immediate bedside Poland asks can be identified the source of the bleed and treated the patient immediately.
This patient had no pre procedural bowel prep.
Without the pure view system, the successful and rapid approach to this case would likely not had been possible.
It's pieces like this the truly resonate with our customers and then ultimately could help us drive adoption across the U.S. and globally. Unfortunately, g. I believe you're all too common worldwide and bowel prep has inherently been an obstacle to diagnose and treatment.
We are all inspired by the positive impact we can have on patients through the use of our technology.
I'll now turn the call over to Andrew to discuss our financials for the third quarter Andrew.
Thank you Tim and thank you everyone for joining us today.
For the three months ended September Thirtyth 2019, we reported a net loss of approximately $5.2 million or a net loss per diluted share of 18 cents compared to $5.2 million, where net loss per diluted share of 33 cents for the same period last year.
The third quarter of 2019 included noncash expenses of approximately $600000 principally related to stock based compensation compared to $1.4 million of noncash expenses for the same period of 2018.
For the nine months ended September Thirtyth 29 team, we reported a net loss of approximately $17.1 million or a net loss per diluted share of 72 cents compared to $16.7 million or a net loss per diluted share of $1.13 for the same period last year benign.
Months ended September Thirtyth 2019 included noncash expenses of approximately $2.7 million principally related to stock based compensation compared to $5.8 million of noncash expenses for the same period of 2018.
The company ended the quarter with approximately $26.4 million in cash cash equivalents and investments. This reflects the investment of about $700000 into additional inventory this past quarter for the gentoo pure view systems in order to prepare for upcoming commercial placement.
And with that I'll turn the call back over to Tim.
Thank you Andrew.
As I reflect on the last 12 months I'm very proud.
What that has accomplished that said staying laser focused on the execution of our strategy will allow us to reach the full potential for the pure view system, which is protected by 23 issued patents and 28 patents pending globally.
We have a very large market opportunity both in the U.S. and globally, which for the moment belongs to us and us alone.
We believe that modus G.I. isn't the unique position to bring our high impact solution to a large market with significant unmet needs.
We have a great team we are highly motivated to worked diligently to pursue this compelling opportunity where wide whereby we believe we can improve patient care reduce cost for health care providers and drive shareholder value for our investors.
I would now like to open up the call it the Q in AG.
CN.
Thank you we will now be conducting a question answer session.
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Your first question comes from Kyle Basel from Dougherty and company. Please go ahead.
Hi, Jim Good morning, Thank probably updates here.
Morning.
Maybe I'll start with expedite so I'm just for a quick patients are the key difference here.
Between the 50 patient inpatient arm of the expedite and.
The previous reduce study.
That inpatient Alan.
And I.
He will be used with out.
A 24 hour crap.
The case and the reduce trial that right.
Yes, hi, all the way I would think about expedite.
Is for the inpatients they will look at the prep that they administered that was appropriate for that inpatient. So you know for example in a G.I. bleed case, they may accelerate and reduce the prep and they will document that at the end of the study they'll look at that cohort of in patients.
Then determine what the improvement was in time to calling nasca be versus their historical look back at cases over the previous year from an outpatient perspective, they will be looking at cases that they were able to complete that otherwise would have been cancel.
Okay, Okay, and what are your timing expectations for enrollment up 400 patients and I'm, just curious, which RMB you think will grow faster.
Great I'll, let me I'm going to turn that call over that question over to Mark.
Hi, Kyle as we look at that the outpatient arm, we do expects to enroll faster than the inpatient arm and we anticipate.
Study going through the most of the course of next year with the inpatient or you know being the a the longest lead around that and that's just basically due to the volume at BMC on this but it's a great in inner city hospital. So it gives us a nice understanding of the real world setting of utilization.
Okay.
And just a couple of quick.
Additional questions here will expedite study be used for any type of indication expansion or special buys and K clearance or is it primarily.
Prove out the value proposition in the urgent hi medical need patient population.
Yeah. Thanks for the question Carl Yes, So we don't see the expedite study as an expansion of indication, but we do see it as a a valuable data point on the economics being validated in a real world setting so to your point I'm looking at that entire endoscopy unit both their end.
Patient, an outpatient volume a and the impact that they've have on both accelerating inpatient calling off cubbies as well as you know reducing or canceled or delayed a outpatient cases.
Okay understood and then one last question if I may stay on the topic of clinical trials. So you you spoken about other investigator led clinical trials that will eventually be underway and particular thinking about the randomized controlled trials that are in your presentation deck can you just talked about these trials timing and.
Much.
And costing thanks, so much.
Hi houses Mark again, so yeah, we're actually working with some of the the top name institutions in the world on trials, both randomized in the inpatient setting as well as multi center study in the outpatient world and are also randomized controlled trials that were.
Really help establish our ability.
For work in the ultimate setting of reimbursement in the outpatient setting and really driving a lot more cost data for that inpatient world on a randomized basis as well.
Yeah, Kyle if I could just had a little more color. The second part of your question around cost you know one of the things that we've talked about before what's nice about this business in the space that we're in the cost of these trials is I would say is not significant commit compared to other device company. So while we haven't given the specifics out.
These are not a super expensive trials to run which is why you see us continuing to make these investments because they become obviously very important sales tools as we are as we're out now commercializing.
Okay. Thanks, Congrats on the progress and things really updates.
Thank you Kyle.
Thank you. Your next question comes from Matthew O'brien from Piper Jaffray. Please go ahead.
Okay. Thanks, so much for taking my questions.
Jim can you just tell us how many reps you have at this point, if you're not comfortable with the exact number would you just say its.
Low single digit mid single digits, you know even higher than that.
Yeah. Thank you for the question. We currently have approximately 10, a customer facing field based sales rep. So if you. If you look at the team and you know as I mentioned in the prepared remarks, we now have that team, where we want them for the commercial launch and you know geographically located throughout the country.
Great.
Okay, Thanks, and how how do you and I'm sure you just out of these folks you know how do you think about them.
Wrapping up and you know early days, what kind of productivity levels do you think they can get to over maybe six to 12 month period.
Yeah. So you don't one of the things that Weve been.
Been deliberate about is the profile of the rep that weve brought into the organization. So as I mentioned earlier, you know on average 15 years experience, but we've really targeted you know top tier folks that have proven track record at you know a very prestigious organizations in what they're coming to us with.
Is I'm not only the k. all relationships, which is probably of utmost importance, but they also know how to navigate the hospital value analysis Committee process.
You know they've done this for many years, you know and that's that's probably the most important thing right now that we're focused on Matt you know the winning percentage in the vaccine is so critical and then you know you get the license the hunton, we start to be able to then expand and grow our our business as we.
Bring more docs on but it all starts with getting that vac approval and I'm very pleased with the with the early progress you know I think a brand new rap I'm coming into our organization learning our business probably takes about a quarter to get up and running you know a fully which I think is based on my previous experience is pretty quick but again given there.
Their track record and having worked in the G.I. space.
It's what we're expecting and why we've made that type of investment.
From a productivity perspective, I think as we get a couple of quarters under our belt, we'll have better a better view to that.
You know, but I do think overtime, what that is tied to his account independence and and account driven utilization and something that we're focused heavily on in that account activation program that I mentioned, so when we get our product into an account we have a very specific and systematic approach that we take to try.
Turning to physicians and their staff and ensure that they fully understand how to set up our system and operate our system. So eventually after that kind of initial period. We can then move on to other accounts and their cell sustainable and that obviously will allow our reps to cover more accounts, but I think we want to get a couple of quarters under our belt before I can probably.
To give you specifics in terms of or the actual productivity, but absolutely something that we're focused on.
Okay fair enough.
When you talk about the thousand accounts that you're targeting your and 1% I'm already which is impressive in one month.
What percentage of that 1000 accounts are you talking to right now.
So I would say, Matt right now you know where <unk> thousand accounts are a lot of accounts right that can keep us busy for quite some time I would say about 10% of that population. We have had dialogue with as I mentioned in my in my prepared remarks, you know we're engaged with us.
50, right, it's all about qualification and prioritization and when both the facility is ready to to put a pure view as their priority right. These accounts, obviously have other things happening in conversions in their hospitals and you know Fortunately since it's such a large market opportunity for us we're able to spend time.
And with with the accounts that are ready to go a more quickly, but I would say I'm pleased with the progress that we're making you know with 10 reps you know hitting a about 50 that we've had very good qualified communications with and obviously that will continue to expand as we get through the end of Q4 and into early 2020.
Okay, and then you know isn't isn't going to think about the let's think about that inventory investment that she made.
Was that largely just for this systems themselves or was it a lot of sleeves that were belt as part of that $700000 or just on the capital side.
Yes.
Hey, Matt It's Andrew I'll jump in on this one sort of 700000, a that you see there was split a roughly 60 40 I'm on the capital side.
Obviously on the sleeves, and that's a mix of raw materials, and a wip and finished goods.
I think over time, you'll see that there will be a continued investment on both fronts, but ah, but even more so on the on the disposable side as a business model starts to evolve here.
Okay, and then just two more for me. Thanks, so much for all this information Super helpful. You know you're engaged with 50 accounts right now you've got 10, and there's a multitude of options that you're giving them for for working with you. How do you think about those 50.
Eventually hopefully converting or the 100 converting at some point is again to be an outright system purchase are they going to just do a sleep purchase I mean, how do we think about where that couldn't go I know, it's it's kind of an open at a difficult question, but just wanted to hear your thoughts on that.
Yeah, you know what's good Matt is I think it's following you know kind of the typical sales cycle or funnel that that you know I've been.
Associated with it passed in past lives in running medical device companies. So you know we're moving them through you know the I would say the thoughtful process of obviously need to generate that initial champion you know, but a devaluation needs to happen right and so far success with these evaluations has been very high.
You know we've got an excellent technology that are that we believe works each and every time and as I said early years addressing a need that exist and in every hospital in America right. So you've got a big unmet need you've got to technology that works and we put a really high powered team on the street to go out and capture it where they.
Fall in terms of the capital acquisition models, whether a a hospital left to lease.
Rent this system with various programs in both categories or make an outright purchase you know I don't think we have a a clear enough view, yet I'm just given being six weeks in but when I think is really important is that we've been thoughtful upfront to make sure that we do have options for these customers. So that we can meet their needs.
Based on where they stand from a capital perspective at the hospital at the end of the day. This business is built long term on the recurring revenue of the sleeves. You know we want to do what we tend to work with the hospitals to ensure that they can acquire the workstation in a matter that that is efficient for them.
Okay last one for Andrew just you know and again difficult question I know, it's early can you just put some kinda error bars around the cash burn rate over the next maybe 12 months.
Yeah. So obviously, we're not providing specific guidance on that as you alluded to I think what I can say and I've been consistent on this for the last couple of quarters is that our burn rate right. Now you know in 2019 has range to between four and a half to 5 million.
$1 per quarter.
I think we expect to you as you heard we had investment a into personnel. We have obviously continued investment into the inventory.
So we would expect that to tick up I think that it will be in moderation wont be dramatic so I'm not going to put a specific number on it but I think you can expect on anticipate some uptick from that say 5 million dollar per quarter market that will probably be closing 2019 with.
Fair enough. Thanks, so much for all the information appreciate it.
Thanks, Matt.
Your next question comes from Steven.
Hi, Matt.
Please go ahead.
Thank you hi, guys.
Tim you mentioned the the metric that we should be thinking about is helpful. Five to 10 procedures per month per workstation.
Is that based on the assumption of one mean position champion for institution. I know you mentioned you expect the penetration to be sort of multi level as has the institutions gained deemed experience. So could we see more per workstation, if additional physicians come onboard overtime.
Yeah, I think Steve that's a that's the way to think about it you know we're taking a view of you know a new paradigm shifting technology right, we're bringing people along and as I mentioned and you recall that the most accounts. We typically we'll have one or two docs that are our champions that have a you know been by our side.
Leading it through the back so you know as we take a view of that you know ramping to five to 10, you know that I think that another way to think about that that's an early view and over time you know what's nice about this business is you know we're going to expand if you will you know for same store sales. If you will right as we get more guys onboard doing proceed.
Features we would expect overtime for that number to ramp up.
But we also you know we want to be able to have a good view on you know the time it takes to get there.
Okay got it and it just a little bit more on the 50 or so hostels you're currently engaged in how many of those were had experience already with with <unk> with Gen. One and how many true came from a from though the pipeline.
Yeah sure so about half of those accounts had previous spirit experience with Gen. One so half of those accounts kind of fall into that early adopter category that I had outlined.
Okay got it and then obviously U.S. is the primary focus here you mentioned in the press release, a it gaining are looking to gauge CE Mark for Gen. Two <unk> generally what are your thoughts about.
Outside the U.S. opportunities in you know how aggressively pursue those in the coming couple of years. So anything you can talk about you know in terms of international expansion.
Yes, sure so as I as I think we mentioned in the in the P.R.. We will you know key milestone will be to report on the CE approval. We are in that process. You know really in the administrative process with the agency I mean, we anticipate that being a Q1 approval.
Given our kind of line of sight to that now what I'll say, Matt is I can't emphasize enough how important getting our beachhead and executing on U.S. opportunity is so we are we're very focused from a resource in time perspective on executing in this large market, but having said that we have spent time.
Hi, I'm I'm assessing the O U S markets a significant emphasis in looking at the countries in Europe .
You know understanding reimbursement programs, where we think that we can get the greatest return on investment you know and then obviously a little bit longer term, Japan in other markets. So I think we'll provide updates as we as we get into future quarters, we absolutely see of a big market, there, but I would say that that's.
Probably a leader in 2020 priority for us what we're spending our time on now as it relates to all U.S. is getting to the point of being selling ready, but I think pulling the trigger commercially you know will continue to us to think about that and and take a view as we you know further our U.S. penetration.
Makes sense. Thanks, Tim Thank you.
Thanks, Steve.
Thank you. Your next question comes from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.
Well I hate to more coverage or how are you.
Good morning, everyone Jeff.
Sure following stems from the previous questions I was talking about the sales force currently could you walk through how that May will could play out for the balance of the you're going to 2020 , you're expected to increase by.
<unk>.
Or just a sense of or.
Critical capital folks on the fuel.
Good morning.
Sure, Yes, so Jeff the way we're looking at it is right now we have the team that we feel is the right size to go penetrate the market you know and also given you know what I had outlined in terms of their experience and what we think over time they can do from us.
Productivity and efficiency perspective, we will obviously continue to invest in growth you know as we see the growth coming.
So I'm not ready to ER to suggest that we will absolutely double the sales force in 2020, but what I will tell you is as we start to see you know our expectations coming through on a quarterly basis, we already have plenty and you know in place so where would we put that next wrapping and what market and why but I think it's really.
The important at this stage of our evolution as a company as you know you know managing our cash burn effectively and our resources or capital expenditures effectively it's just a buck most important so you know as we as we continue to grow will add more salespeople the mix I'm as you know we've got clinical products.
Specialists that are part of the organization as well.
Thats something that we'll also continue to take a view on as we get a more commercial experience under our belt you've got the sales rep that is really charged with their relationships with the K, a wells and driving through that value analysis committee process, but the clinical product specialists, they're gonna be onsite supporting procedures doing education and play in it.
Port and roll in in bringing additional positions on overtime. So you know to your to your point I think that mix will be will be important then you know again as the customer start to come onboard we will will flex that one way or another.
Okay got it and then you were talking gross CE Mark did you what process are you know that's for sure pursuing Ah.
So far old and when where do you expect to hear something you'd mentioned 2020 Rubtwenty torney previously.
Yes, so we have filed for for CE, Mark approval and right now our best estimate is that in the first quarter, we would expect or the feedback on that that filing.
Okay, and then could you I'm kind of discretionary <unk>, a little bit how you're thinking about somebody European tour tours for sure eventually getting into them is that something you're planning on doing directly or through a distribution partners.
Yeah. So thank you for that question, we are as part of kind of our.
Market research and I was actually just over in Europe , a few weeks ago market Eyewear. You know, we're assessing you know that most appropriate go to market strategy I'm for all of Europe or also by country right and I think that includes the potential for you know all those options that you mentioned right, whether we would continue.
Yeah consider you know a going direct in the market aligning with a strong distributor partner, but also I think the other consideration is a strategic a strategic partnership and we're evaluating evaluating all three and I think as we get further into 2020, Jeff will provide more specifics on.
In that but I would say that were at the early stages that process in terms of a engaging with ER with with both distributors as well as strategic.
Okay, perfect more and more for me I guess for Andrew could you talk about the our inventory build.
Both on the consumable side and as well was to console side, and how that looks and more resources and I'll be put into it as far as our backlog or some demand.
I'm sure course.
So I are as I had mentioned right now our.
Inventory levels are split about 60 40 between the capital and disposables are the disposable ramp will certainly a start to accelerate.
Into 2020, a and I would anticipate a in this is one of the areas or is that Matt had mentioned earlier with respect to burn that I would expect I would expect that they'll be more investment NT inventory, particularly into disposables, so that will be an element.
The growth of the cash burn through 2020.
And I think we're heading that does not direction as the year progresses, we anticipate trying to stay at least a couple of months two to three months ahead on inventory, which is sort of normal course of business in terms of both the capital and the disposables.
Okay, and you don't you in the near term or medium term shoppers are scaling up.
Absolutely not mark you can perhaps out a little bit more about the manufacturing partners, Yeah, Hi, Jeff swear it actually really good shape.
Factoring partners and one of the things we do as we actually have even on the workstations continual manufacturing going on on a monthly basis. So we always keep those production line sort of active you know running those is sort of a.
In line with sort of the where we need to be quarter ahead, or so two to three months ahead as Andrew mentioned, but we can keep the lines continue really running and we have capacity now you know on the life is just adding additional staff you know to service all or an age through next year.
Got it okay. Thanks for taking the questions first.
Thanks, Jeff.
Thank you. Your final question comes and Ben Haynor Allianz Global Partners. Please go ahead.
Good morning, gentlemen, thanks for taking my question was just a couple of here for me.
No I know, it's early days and you know the big broad take away is that you're going to get might be a little bit limited, but given the familiarity with the system that these these early 10 or so accounts have you don't was just curious what are you know looked at what you've seen so far in terms of you know how their utilization is francis or is there any.
Kind of color you provide there.
So bad while saying thank you for the question why not what I'll say is you know we do if you think about the and I've talked about this in the past you know we've had a bit of the benefit of having a ft approved Gen. One unit that we were doing our market development work with which allowed us to cultivate you know this group of early adopter.
Hospitals, which is not always the case right with the product launch so I would categorize that group as having the ability to move a bit Ah faster through the process you know in comparison to the <unk> to the timing that I outlined in the prepared remarks. The you know that 90 to 180 day that are they process, but but being.
Six weeks in you know even with these facilities, having the workstation onsite to comment on you know utilization I think is a is probably premature I am comfortable with a you know the common around the you know the five to 10 procedures per month ramping to that I think that's our best view early on.
But I am pleased with the you know the performance of our sales team in getting these units out here are very rapidly and I think we've continued just to execute on the plan that we had we had said set forth with this early adopter group.
Okay. That's all that's that's helpful or lastly from me you know I appreciate that you don't want to know.
Provide guidance necessarily for the burn rate I'm, just curious if you might be able to share.
If all goes to plan or what you've got internally you know kind of where do you see a breakeven or run rate on a quarterly or annual basis.
So so Ben.
This is Tim let me just start Andrew can add if you'd like here you know again at this juncture I think to give a break even a would be premature for us, but having said that you know I think right now as Andrew mentioned, we've put together a the appropriate organization both the comes.
Actual team, but also the back office right I mean, if you think about this where the inflection point is not only moving to becoming a selling organization, but where commercial company now right. So with that comes back office support you know, how we interact with the customer from an order a processing logistic and we've put the team in place that is.
Is required to be successful from our view, which is why are we don't see you know significant increase in expense through 2020, and we'll continue to 10 to run this business and an effective and efficient manner, but I think at this at this point you know we are focused on.
Executing I'm here in the early days of the commercial launch starting to bring these customers on and build a recurring revenues you know and at some point in the future. Obviously, we will will be very interested in providing more details not only around you know the metrics that we're running our business off a but also you know future potential for breakeven points.
The only thing I'd add is a although we're not going to be providing guidance I think that you.
Well find that both our gross margins overtime at scale will be very much in line with med Tech companies operating margins. Similarly.
We anticipate getting a lot of leverage out of our sales personnel is Tim has spoken to.
With respect to our recurring revenue business model.
And so I think the same thing will occur as it relates to reaching the cash flow positive level that that'll be in line with what you see with other medtech companies in terms of what their level of sales need to get to in the timeframe for which we.
We would get to it as well.
Okay. Then they have small says workers are expressing progress.
Thank you Ben.
Thank you.
There are no further questions at this time I would like to turn the floor Rebecca Cohen for closing remarks.
Thank you Stan you know I just want to say you know on behalf of the the management team here at modus I want to thank everyone for their interest in supporting the company I appreciate the time in the questions today.
Absolutely look forward to speaking to everyone again here in the near term.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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