Q3 2020 CHF Solutions Inc Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily. Thank you for your patience and please standby.
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Good morning, and welcome to the CHF Solutions earnings Conference call for the third quarter ended September Thirtyth 2020.
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I would now like to turn the conference over to Claudia Drayton, The company's Chief Financial Officer. Please go ahead Madam.
Thank you Bridget.
Thank you for joining today's conference call to discuss CHF solutions corporate development.
Financial results for the third quarter ended September Thirtyth 2020.
With us today are John or if the company's CEO and chairman of the board myself, Claudia Drayton, the company's CFO and Mr. heard me or the company's president and Chief operating officer.
I am to eastern time today, CHF solutions released financial results for the quarter ended September Thirtyth 2020.
We have not received.
CHF solutions earnings release, please visit the investors page at Www Dot CHS does solution dotcom.
During the course of this conference call the company will be making forward looking statements.
Except for historical information mentioned during the conference call statements.
Made by the management of CHF solutions are forward looking statements.
There are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
1995.
Forward looking statements involve known and unknown risks and uncertainties that are based on management's beliefs assumptions expectations and information currently available to management.
Those risks include but are not limited to risks associated with the possibility that the company may be unable to grow revenue in future quarters. The company may be unable to execute in its commercialization strategy the possibility that immediately able to raise the funds necessary for the companys anticipated up.
Operations that's.
That the company may not be able to commercialize its products successfully and the other risk factors described under the caption risk factors and elsewhere in the Companys filings with the Securities and Exchange Commission.
By providing this information the company undertakes no obligation to update or revise any projections or forward looking statements whether.
Whether as a result of new information new developments or otherwise.
You should review the cautionary statements and discussions of risk factors included in the company's press release issued today. The Companys latest 10-K subsequent reports as well as its other filings with the Securities and Exchange Commission under the titles risk factors or cautionary statements related to forward looking statements.
For additional discussion of risk factors that could cause actual results to differ materially from management's current expectations.
Those discussions regarding risk factors as well as a discussion of forward looking statements in such sections are incorporated by reference in this call and are readily available on the company's website at www W. Duck CHF desk solutions dotcom.
With that said I will now like to turn the call over to John or CHF solutions, Chief Executive Officer, and chairman of the board.
Thank you Claudia and good morning, everyone welcome to the third quarter 2020 earnings call a corporate update.
This year continues to be a challenge for health care throughout the world due to the ebb and flow the pandemic all the world. Although the world has dramatically changed our business model has not and we remain optimistic about the durability of our business and the tenacity of our team.
We are confident that our priorities are clear and focused our goal is to grow our global market leadership in fluid management with solutions that change patients' lives.
The company achieved very solid performance in the third quarter of 2020 with a 52% revenue growth over prior year. The Q3 U.S. revenue mix was comprised of 46% pediatrics, 31% critical care and 23% heart failure.
Our revenue mix has shifted meaningfully over the last 12 months, given our strategic focus on pediatric and critical care opportunities there.
During the third quarter, we were able to grow the utilization of the Aquilex therapy in several pediatric hospitals, while opening six new pediatric hospitals.
Our continued growth was fueled by accomplishing several important milestones.
In partnership with the acute kidney injury critical care Research Foundation, and Watermark Research partners, we initiated a pediatric registry. The registry will begin enrolling patients next week and we'll collect real world evidence on the use of I could X smart glow Ultrabooks ration system in P.
Yeah treat patients with little bit overload red.
Registry will include data on utilization, an ultra filtration utility performance and safety profile in pediatric patients from approximately 10 research institutions over an anticipated two and a half year period.
The parties anticipate collecting data on up to 500 patients. We expect the registry will spread awareness within the pediatric community regarding the clinical efficacy of the Acrodex therapy and increase utilization of the architects therapy.
In August we announced that our AWC products product line has been added to the federal supply schedule expanding access to all federal government agencies, including the Department of Veterans Affairs Indian Health services, and the department of Defense medical treatment facilities.
With the Acrodex product line now included on the federal supply schedule. It government agencies can implement the architects therapy and purchased product without the multiple approval steps required for products not on the schedule.
We are in discussions with several VA hospitals to implement our therapy and we do believe inclusion on the federal supply schedule will eliminate several months of the fulfillment process.
Further we are seeing increased interest in architects from the federal government. Most recently the U.S. International Trade Commission or U.S. ITC convened a hearing on September 20, threerd to explore ways, our nation can be better prepared for this and future pandemics.
We are honored that the U.S.I.T.C., but it nester harming to testify and he described for the commissioners, how CHF solutions rapidly scale to earlier this year to meet increased demand and how we were able to free up dialyzers and CRT machines, which were in critical shorts.
Supply in COVID-19 hotspot areas.
Key to our success on both counts of course is the fact that architects system is domestically sourced and manufactured so we were not delayed by any international trade issues U.S.I.P. She is now preparing a final report for Congress and several senators are requesting that the report include a case.
Steady on AUC with acts as a model for medical supply security, we expect the U.S. ITC to present or report to the U.S. Senate in mid December.
Lastly, we hosted two webinars in the third quarter. The first was held in July featuring Dr., David I was Canarsie director of the pediatric and put center for acute nephrology at children's of Alabama. The hospital the pediatric hospital affiliated with the University of Alabama at Birmingham.
Webinars, which was attended by over 300 people highlighted dr. Oz canarsie his experience and perspective on the treatment of fluid overload in pediatric patients weighing more than 20 kilograms Dr.
Dr. Oz can us. He also stated the Acrodex therapy is a helpful and complementary fluid management tool offering high benefits to a low risk at a low risk for patients.
Pediatric patients can be very delicate and having a gentle and flexible option on hand can improve the quality of care provided to fluid overload of children.
The second wherever they are whether now I was hosted.
That we hosted was attended by over 350 individuals where Dr. John Jefferies discuss the use of precision medicine for the treatment of fluid overload in heart failure patients, including alternatives to directs such as ultra filtration using our Acrodex smartflow system.
Increasingly one of the bright spots related to the pandemic has been the enthusiastic reception by the medical community to attend these webinars.
As a result, we are seeing increased efficiency from our sales force as they have increased touch points, leading to more follow up meetings lastly, our digital web video and Webinars capabilities have improved training efforts, which we believe will gradually improve utilization rates.
On October six during the 24th annual scientific meeting of the Heart failure Society of America. The real World retrospective study of 335 patients treated with the Acrodex flexible system was presented demonstrating the ultra filtration compares favorably in reducing.
Heart failure Rehospitalizations.
Renal function response, and wait and volume loss the patients had a substantial need I mean would removal of 3.8 gallons and no negative changes in renal function and had a 12% and 24% re hospital hospitalization rate after 30 days.
In one year's from treatment respectively.
I would like to emphasize the importance of the reduction reported in this study.
The current national rate for 30 day re hospitalization is 24% twice as high as three reported in the study.
Therefore, with the use of Acrodex system, there's a significant economic savings to the national health care system. So.
Specifically when compared to diuretics fluid removal by ultra filtration reduced hospital readmission days, leading to a cost savings or $3975 per patient at the 90 day follow up.
The authors of the study stated that the ability to adjust the rate of fluid removal with the architects system is believed to be a major contributor to favorable outcomes.
Also presented at the Heart failure Society of America meeting was a case study titled outpatient Ultra penetration degree bed Hospital Readmission drink Cup in 19 pandemic in dire attic intolerant patient.
Which detailed the successful outpatient treatment of a 70 year old female with heart failure, the patient did not respond to outpatient therapies, including directs and experienced multiple hospitalizations due to recurrent congestion.
Given the patients co morbidities and high risk status. The patient received multiple attrition treatment with the awkward ex smartpost system in an outpatient setting to avoid exposure to cope with 19.
Because the ease of use and simplicity of the architect system over the course of four days a total of 4950 milliliters of I should tonic fluid was removed.
The patient showed immediate improvement in clinical symptoms and was effectively stabilized in the outpatient setting at advocate good Samaritan Hospital in Downers Grove, Illinois.
I will now turn the call over to Cloudier, who will walk you through our Q3 2020 results and financial details following that we'll probably provide some additional comments and we'll open the call to questions.
Thanks, John Good morning, everyone, turning our financial or financial results.
Revenue for the third quarter was 1.9 million up 52% from Q3 of last year, representing a 2% sequential growth from Q2 2020.
Revenue performance was the order for the quarter was driven by increased utilization among establish pediatric accounts and the addition of six new pediatric accounts.
During the quarter, we saw a path to positive mix shift in favor of pediatrics, which closely aligns with our long term strategy.
Regarding our cost of sales and operating costs I will briefly comment about major drivers.
First regarding our cost of sales.
Our gross margins were 46.1% for the quarter a decrease from Q2 2020 margins of 64.4% and from Q3 2019 margins of 56.9%.
Overall, our margins for the quarter were impacted by capital equipment sales and the mix of international distributor revenue, where margins are traditionally lower than the U.S.
In addition in the quarter, we offered incentives to existing customers to upgrade console to our new aquatic smartflow, which resulted in a gross margin headwind.
We believe these council upgrades will improve the customer experience with the therapy and increased.
Station.
Next regarding our SGN a expenses Q3, 2020 expenses were 4.3 million an increase of 3.8% over Q3 of 2019.
The increase results from having fully staffed territories, partially offset by reduced travel expenses.
Our R&D expenses were 871000 in Q3, 2020, 22% decrease compared to Q3 of last year.
Last year, we had reported an increase in product development spending to support our pediatric submission.
And improvements to the next generation Aquatics cancelled, which received FDA clearance and CE Mark during the first quarter of this year.
The net loss for the quarter was $4.3 million or $2 in eight cents per share compared to a net loss in the third quarter of 2019.
4.5 million or $51.12 per share.
Regarding our liquidity position, we used 4.4 million of cash in the quarter to finance, our operations or 13.2 million for the first nine months of the year.
During the quarter, we also announced the closing of a public offering for net proceeds of approximately 13 million.
Additionally, during the quarter we.
1.8 million in cash proceeds from the exercise of warrants.
We ended the quarter with 17.9 million in cash and cash equivalents and no debt.
In terms of modeling Q4, 2020, we continue to closely monitor the situation caused by the COVID-19 pandemic.
Well, we have seen increased utilization in our therapies in areas of the country, where we have an established presence in where hospitals are seeing an influx of coal the 19 patients.
Access to hospitals continues to be limited and thus we believe that it will continue to impact our traditional business.
At this point, we expect Q4 revenue increased mid single digits sequentially in double digits versus prior year.
Regarding our gross margins, we expect Q4 margins will be lower than those reported in Q1 and Q2 in closer to the numbers. We saw in Q3, a hospital capital budgets continue to be constrained over.
Overall for the year, we expect margins to will show slight improvement overtime over last year.
Regarding our operating expenses, we expect our sales and marketing spend to remain consistent with the current quarter.
The impact of having fully staffed territories, it's offset by reduced travel expenses.
R&D, we expect spending to remain consistent with the levels reported this quarter.
I will now turn the call back over to John Thanks.
Thank you Claudia CHF solutions continues to be focused on the health and safety of our employees our production and some of our engineering staff continue to work on site at our manufacturing facility and most of our team.
His maintaining business operations by working remotely.
Production of the architects products continues and because we are domestically sourced we have seen minimal disruption of the supply chain for components and materials.
We now have a full complement of 13 sales reps spilling 13 of our 14, you US sales territories, our 14th U.S. territory in the northeast U.S. has been filled by a distributor with prior architects sales experience.
We also.
Have a clinical specialist team of 13 to not only train the talented professionals, who use our equipment, but also to encourage increased utilization of aquilex cancels in each hospital account.
Our commercial team has been very resourceful and dealing with dealing with limitations with hospital access restrictions and efforts to provide proper training to physicians and nurses. We have established training protocols using remote video web tools and Webinars, we have worked closely via telephone.
Text emails and web tools with key physicians nurses and hospital administration to continue our took continue to offer our therapy services and products.
We are continuing to support our customers as they strive to manage and control the impact of the COVID-19 pandemic.
Physicians on the front lines of treating patients with COVID-19 have used aquadex therapy for patients who need to remove all between dialysis treatments as an alternative therapy. When dialysis machines were trained dialysis personnel are not available.
In addition, patients hemodynamically unstable and fluid overloaded, who may not be able to tolerate dialysis, but still need fluid removal are being treated with the architects therapy.
Most hospitals are struggling with the economic impact caused by the COVID-19, due to the reduction of elective surgeries and patience avoiding hospitals for fear of being contaminated with the virus. Many hospitals have put a complete halt on purchasing any capital equipment to try and manage their losses, we ever.
Initiated multiple purchasing scenarios to help these hospitals acquired the AUC with X console.
The pediatric opportunity is growing as more children's hospitals acquire the architects smartflow product and complete training.
We had 12 children's hospitals purchase product in the third quarter.
The rate physicians and nurses treating pediatric patients can be trained is governed by the availability of third party training courses and access to the hospitals, we anticipate a continued restriction to hospital access for several months.
Growth in the critical care market has slowed.
Due to the reduction of elective surgeries and hospital access restrictions there are limited procedures being done at this time, but we do see some product revenue coming from hospitals that have used architects and do not have all their IC you bet dedicated to cope in 19 patients there.
There is also a strong reluctance on the part of patients that may be critical care procedures, but do not want to be in a hospital that is carrying for COVID-19 patients for fear of contamination.
We have seen a growing use of ultra filtration therapy in heart failure since the release of the upgraded our codec smartflow console with the improved them adequate and SBO two diagnostics to guide therapy.
We also anticipate increased utilization after several presentations made during the early October heart failure Society of America meeting, describing the clinical and economic value of ultra filtration using the awkward X system in managing fluid overload in heart failure when the standard of care treatment is in.
Effective.
We are very optimistic about the value, we can bring to our customers and our investors, we anticipate that when healthcare returns to some level of a new normal we will see accelerating sales growth by continuing to position ourselves as the primary provider of ultra filtration therapy for card.
Geologists hospitalist intense burst cardiac surgeons, pediatricians, and nephrologist, who treat fluid overload.
Operator, please open the call to questions.
As a reminder, ladies and gentlemen, if you have a question at this time, Please press star and the number one on your Touchtone telephone.
If you'd like to remove yourself from the queue. Please press the pound key.
Please stand by while always impelled acuity roster.
Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi, Jonah Claude <unk> administered how are you.
Good thank you.
So first question just wanted to drones Rubin firstly.
Pediatric from if you could spend.
Yeah.
On your commentary.
Right right.
Six centers last quarter sooner. So this quarter Im trying to do that Brinderson server.
Auctions and training as well.
She backlog and our backlog do you anticipate fulfilling during the fourth quarter.
Yes, sure we yes.
Good question Jeff.
Given the size of the market opportunity and the number of children's hospital interest in using the codex to treat their patients.
We're very optimistic about the future.
However at this point at this time, we are not in a position to talk about our pediatric pipeline. We're very happy with the addition of the six new accounts in Q3, but given the challenges regarding COVID-19, we're cautiously optimistic.
Regarding opening new accounts, given the capital constraints in the hospitals.
While our goal is to always expand our installed base of word team is also focused on driving utilization in the current accounts.
Did I answer your question, Jeff your broker Oh perfect. Okay.
Next if you could speak to your federal supply schedule move more into strong is your perception of the good.
That's going to be huge worldwide view in hospitals.
On the refocus upon heart failure.
Or critical care.
Could you maybe give us a better sense Uh huh.
I mean, when you move.
I know some of your view facilities, maybe on the order she does.
Jeff I'm going to let nester respond to that again, let me, yes, I'll be happy to answer that question Jeff.
It has been only a few months sands being added to the federal supply schedule.
We do have target accounts list that we prefer not to comment at this moment. However, we are in discussions with several VA hospitals to implement the therapy in heart failure as well as in critical care and we believe that this inclusion in the federal supply schedule will be a lot.
Long term benefit.
Eliminate several months of the fulfillment process.
That exist in each one of these hospitals and to acquire the Aquatics system in place order regularly so we expect to be.
In discussions with hospitals very soon.
Okay got it and then lastly for me she could discussion a little more in depth.
Any recent trends.
Utilization should flow through or critical care and heart failure.
During October.
The balance of the years for sure Okay.
And as soon.
As soon as you know sanction showed her thank you.
Okay.
I'll answer that question again.
Jeff.
With the critical care, we do expect us to continue opening new accounts as well as driving utilization and penetration in our current accounts run.
Regarding heart failure.
Specifically using the data that was published in the heart failure Society of America that John alluded to specifically to increase utilization in our current accounts no current heart failure outcomes.
Okay got it and then one more if I may the registry that you were speaking about room Mccall.
Could you discuss from phones number of centers that will be participating windows store enrolling.
And any specifics as to what areas, but it will be closer to do.
So Jeff we anticipate that registry to actually kick off next week.
There's been 10 centers identified that will be participating in this.
They anticipate enrolling approximately 500 patients and we think it will take about two and a half years to complete enrollment.
Okay perfect that does it for me thanks for taking my questions.
Thanks, Jeff.
Thank you once again, ladies and gentlemen, do you have a question at this time Please press star.
The number one.
Okay.
I'm not showing any further questions at this time, so I'll now turn the call back over to John Herb Chairman and CEO for closing remarks.
Well I want to thank you for joining our third quarter 2020 conference call and I wish you all a very good day. Thank you.
Ladies and gentlemen, this does conclude the program you may now disconnect. Thank you.
Meeting.
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