Q2 2019 Earnings Call
Welcome to the polls Bio Sciences second quarter 2019 earnings conference call.
At this time, all participants I read in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Speaker buying don't follow somebody finds its senior Vice President and Chief Financial Officer. Please go ahead Sir.
Thank you very much operator, good afternoon, everyone and welcome to pulse Bio Sciences.
Quarterly Investor and analyst update call on the call with me today are Darren you Gerber, President and Chief Executive Officer, and Ed ever our executive Vice President and general manager of Dermatology.
Our comments and responses to your questions. During today's call reflect managements views as of today August eight 2019, only and will include forward looking statements.
These include statements regarding our plans and expectations relating to regulatory clearance, including the process unexpected outcomes or commercial operational scientific clinical and financial projections products, including the uses and applications of such products and other future events.
Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Form 10-Q filed earlier today.
Our FCC filings can be found through our website or at the FCC is what I'm sorry.
Investors are cautioned not to place undue reliance on forward looking statements.
Please note that this conference call will be available for audio replay on our website at post bio Sciences Dot com on the news and events section on our Investor Relations page.
In addition, today's press release has been posted it is available on our website.
Today's format will consist of providing you with highlights of our second quarter results as described in our press release announced earlier today, followed by a question and answer session with that I would now like to turn the call over to our President and Chief Executive Officer guarantee occur.
Thanks, Brian Good afternoon, everyone and thank you for taking time to join us on today's call.
Our driving focus at pulse Bio sciences is the near term commercialization of our proprietary cell effect system and aesthetic dermatology in pursuit of our mission to build a viable company that makes a meaningful difference for the betterment of patients and clinicians.
Today I'll start with some important recent updates, including an update on our regulatory progress before turning the call over to add to update on our preparations for commercialization of the teletext system. Once we receive an after your clearance I will then provide additional updates on our clinical programs and then Brian will provide a financial update.
Necessary to commercializing the Celtics system in the United States is obtaining clearance from the U.S. food and drug administration.
As we communicated previously during February of this year, we submitted a premarket notification five 10-K to the U.S.F.D.A. first teletext system.
On April Thirtyth, just prior to our Q1 Investor call. We received an additional information or AI letter from FDA.
This is a typical part of the five 10-K process in which FDIC identified specific questions and clarifications required by the company in order to proceed with the review process and it allows the company 180 calendar days to submit responses.
Importantly, after a thorough review of the AI letter and discussions with FDA. We are confident the five 10-K regulatory path is the appropriate path for the cell effect system.
We remain in a standard five 10-K review process and we are making good progress in preparing a response to the AI letter and route to a five 10-K clearance.
We have been communicating with the FDA on an almost weekly basis over the last couple of months as we work through each question and requested clarification in the AI letter.
Although we are still working through this process. We believe we are getting very close at FDA has requested some additional review and analysis of the clinical data that was provided as part of the initial five 10-K submission and we are performing that now we have not been required to perform any additional clinical studies during this process.
We believe we will complete the additional review and analysis and submit a complete response to the FDA AI letter they end of Q3, which would position us for an FDA clearance during Q4.
Earlier this year, we estimated a quicker review process and projected a few three FDA clearance for the cell effect system.
We believe the additional review time can be attributed to the time required by the agency to review a novel technology and products like Nanoss, well stimulation and the cell effect system in dermatology for the first time, given the amount of safety and efficacy data provided in our bench preclinical and clinical studies.
We have experienced a productive collaboration with the FDA throughout this process and expect that to continue and we believe that the initial clearance will pave the way for future regulatory clearances for additional applications.
We view this as a pivotal in foundational step for the cell effect system in dermatology.
In other updates we continue to receive validation of our NPS technology and the cell effect system from the clinical and scientific Humana community in dermatology as further evidence of this we are pleased to report the manuscript detailing our initial histologic skin studies, which demonstrated the safety and unique mechanism of ourselves X system impact cellular structures, while sparing surrounding non cellular structures was published earlier this week.
In the August 2019 edition of the prestigious peer reviewed journal of the American Society for laser medicine, and surgery or S. LMS.
The acceptance of this manuscript titled a dose response study of a novel method of selective tissue modification of cellular structures in the skin, but nanosecond pulse electric fields.
With lead author and plastic surgeon Dr. de pop Dr., David Kaufman.
Further validates the importance of this really foundational data the understanding of the effects of NPS and scan and the potential that has been treating many difficult to treat skin lesions.
Based on the histologic findings highlighting this publication and in consultation with our key opinion leaders. We successfully executed studies that demonstrated outstanding safety and efficacy and our first two targeted commercial applications sebaceous hyperplasia or S. age. It's small raise lesion caused by overactive sebaceous glands typically on the face and February carrier ptosis or escape it common.
Common benign pigmented lesion of the scan that resides in the epidermis.
These represent difficult to treat benign skin lesions largely go untreated due to the lack of acceptable treatment options for patients and highlight the unique capabilities of the teleflex system to target cellular lesions, while sparing surrounding on cellular structures.
Our results in S. H S K provide empirical evidence.
That our tunable Celebrex system is safe and based on its unique mechanism has the potential to treat a large number of high value and difficult to treat skin conditions.
Today. We're also pleased to report that a manuscript detailing our S. H clinical data has been accepted for publication in the journal of Dermatologic surgery. The manuscript is tied his title safety and efficacy of nano second post electric field treatment of sebaceous glands hyperplasia.
It has lead author Dr. Gilly Luna volley of laser convened specialists in North Carolina.
The publication of this manuscript in this important peer reviewed journal validates the importance of treating sebaceous hyperplasia to dermatologists and provides important peer reviewed clinical safety and efficacy data for physicians to better understand the important role that NPS technology and the teletext system can play in clearing this difficult to treat lesion that affect as much as 1% of the adult population.
We're excited about these recent publications and expect additional publications from our growing body of clinical data in the coming quarters.
Earlier this week, we announced another important validation of the continued acceptance of our NPS technology and the Celtics system within the field of dermatology better NPS technology will be highlighted in a podium session at the controversies and conversations and lasers and cosmetic surgery Symposium, starting tomorrow August 9th in San Francisco, California, and running through Sunday August 11.
This prestigious annual scientific symposium assembled the best and brightest specialist and innovators in the field and aesthetic procedures and features the most important advancements in the use of energy based devices for dermatology.
Three of the fields top aesthetic procedures specialists and also our clinical investigators will be presenting clinical data from the podium. During this session titled Hot topics nano pull stimulation technology, which will occur on Friday August died from 11 30 am to 11 45, yeah.
Dr. Thomas War going on a volley and Brian Jellison, we'll be presenting data and observations from our SH SK wart basal cell carcinoma and tattoos studies.
As we have discussed previously the Celtics system as a platform with a novel and well differentiated mechanism and we plan to deliver a growing array of valuable applications that patients desire and aesthetic dermatology clinics will be excited to provide for their patients. We have a growing pipeline of potential applications that take advantage of the mechanism of ourselves back system and builds on the success of our early clinical results I'll be updating on our clinical programs later on in this call.
We continue to build out our commercial infrastructure in anticipation of an FDA clearance to provide an update on our progress in bringing ourselves X system to the market post FDA clearance I will now turn the call over to Ed.
Thanks, Darren and good afternoon, everyone. It is an exciting time here at post bio sciences, and I'm excited to share our preparations for introducing the Celtics system to that to get static dermatology market.
And just a few short years, we have successfully transform the science of our patented NPS technology into the commercial so opex system that we are targeting to launch into the large and growing aesthetic procedure market.
Once we receive the FDA clearance, we will commence the commercial introduction of our software system into the cash paying aesthetic procedure Mark.
According to recent industry estimates Americans from approximately 22 billion annually on a set of procedures, including the removal of a common lesions that we studied.
Furthermore, this market has an estimated annual growth rate exceeding 10%.
Here in the United States. This market is driven by a 3000 to 4000 skin specialty position number that have a history of utilizing energy based devices to offer cash paying procedures to improve the appearance of their patients.
In recognition of this growing market for casting procedures. The American society of Dermatologic Surgeons conducts an annual survey of consumer interest in aesthetic procedures.
The 2018 to ask do you have consumer research concluded that 70% of patients are currently considering anaesthetic procedure can be and would be willing to pay out of pocket for this procedure.
This is up 30% from just five years ago.
The same past few years, yes, Psps research confirms that board certified dermatologist continue to be the number one influencer of patient decisions when it comes to the skin enhancing procedures.
This is precisely why we are focusing our initial commercial efforts for the Celtics systems on this group of into one single commissions.
For planned commercial launch of Salt book system in the United States. We are focused on this 3000 to 4000 group will help us better dermatologist that consistently adopt new technologies and energy based devices in their practices temp directory promote peace to patients.
We are already pursuing FTC clearance for the first two specific applications, we plan to launch to be specialists.
These these procedures are super so basis hyperplasia and several of your current overseas.
Turning first to sebaceous hyperplasia for SH.
This is a race lesion, which was caused by overactive oil Peterson glance called sebaceous glands.
Excellent solutions are significant cosmetic problems. Since these 40 lesions almost always occur on the face and are difficult to conceal with makeup for clothing.
Our marketing research indicates that these cosmetically pockets firms lesions are often I'm treated because current modalities to not reliably clear these lesions and can leave behind damaged Kim that that looks worse than the original lesions.
In contrast, our clinical studies of the cell effects as each procedure demonstrate greater than a 90% efficacy rate.
With the important additional benefit of restoring healthy looking skin in the area of declared lesion.
Our marketing research with both physicians and patients indicate that the CIO effects.
Procedure can fill a major unmet need for this common and bothersome facial lesion.
And that the sell effects procedure profile is perceived as superior to available choices.
For our target position, we estimate an average of over 400 patients each week that present with sebaceous hyperplasia.
With an average of 6.2 lesions presenting and each patient.
This is a significant opportunity for celebrex utilization.
And our excellent clinical data demonstrating the effectiveness of the Celtics system for treating ethics passage lesions.
Puts us in a great position to capitalize on this opportunity.
Our second major skin application is separate care coaches.
These common benign lesions usually present as dark waxy are squarely gross on the skin generally associated with aging.
And on the single most common lesions seen kind of dermatology practice.
When presented with the Celtics procedure profile for clearing test case target Commission survey believed the non thermal saw Opex procedure were both displaced existing proven methodologies, primarily crown therapy and increase their desire to treat patients by over 50%.
In addition, there is a special subset of stress case called macular or flat gas case that are particularly difficult to treat with existing modalities.
In this makeovers SK subset physicians indicated that having a cell effect system could double the legions they would choose to treat because of its superior profile.
Our patient focused market research confirms that aesthetic dermatology patients with both acetate and SK lesions are extremely motivated to treat these very common regions.
Offered a better alternative as we've described in the Celtics procedure profile.
This alignment of interest between aesthetic procedure specialists and their current patients who are candidates for the Celtics procedure provides further evidence of the significant potential of the Celtics system in both of these very common in difficult to treat lesions.
Got it okay and SH are compelling initial commercial targets for ourselves Tech system for which we are seeking FDA clearance. However, these represents just the beginning for potential for establishing and growing our utilization based business model with additional high volume cash paying aesthetic applications.
The next target on our list of priorities is the common work and the very early clinical results are very promising.
As we discussed in just three months ago, we have commenced a pivotal study evaluating the safety and efficacy of using our cell type system for the treatment of common cutaneous warts based on outstanding results and investigator feedback from our earlier feasibility study.
Dermatologists, we work with frequently place awards at the top or near the top of their list of common but difficult to treat skin conditions.
And our marketing research indicates that our target physicians see an average of over 30 patients per week, presenting with works that could be suitable for self ex treatment often with multiple works on each patient.
Beyond works, we are actively evaluating and conducting early feasibility work in a number of additional applications that we believed the Celtics system is well suited for with its non thermal sell centric mechanism of action.
There will be providing further updates on a number of these future applications shortly.
These future applications add even greater utilization potential to our plans for the long term growth of our utilization based revenue model.
We specifically designed to solve it systems to support our utilization based business model that builds upon our collective team experience.
Launching new technologies in this set of procedure market.
Our business model Faultlines aligns our outstanding patient outcomes with the economic interest of patients clinicians and pulse bio sciences.
Patients pay for the treatment of lesions and commissions received payment and incurred costs when the treatment of those lesions are providing.
Allowing for informed pricing decision and alignment with the operational aspects of their cash paying business.
Pulse bio sciences participates in the economics of each lesion treated towards novel network conducted design and makes it easy for physicians to understand their cost structure.
The Celtics system, it's comprised of a compact Kirklees council, which powers a reasonable handpiece that accommodates a variety of single patient.
Multi lesion Hughes consumable treatment tips.
The Celtics system connects to our proprietary cell effects cloud.
Which is an internet based cloud portal that connects all of our Celtic systems in the field to our corporate enterprise system.
Third the Celtics cloud infrastructure clinics can purchase and download some opex cycle units.
Which is the currency of the Celtics system.
These loans directly onto the so opex system through the Internet.
And as these several units that are consumed each time, a patient receives a cell effects treatment.
Each cell effect cycle or treatment has a predetermined cost to the clinic.
And our revenue to Paul's ranging from 40 to $80 per cycle more per lesion, which will be marked up or the clinic in charge to the patient again aligning the economics of the patient the physician and profile Sciences.
Once cleared by the FDA, we plan to offer different tip sizes for S.H. and S.K. lesions that can also be used across an array of additional benign skin lesions.
We plan to launch the cell effect system with an initial ASP of $45000 a price that we believe will encourage rapid adoption.
We estimate that by just treating three SHR SK patients per week, which is a very modest number.
The clinician can recoup their initial investment in as little as four months.
To put that number in perspective market research indicates that on average our target conditions are seeing 10 times that number of patients per week with these conditions.
So adjusting that and our oil four months is quite conservative given these numbers.
When combining the number of patients presenting conditions suited for south, Texas, each week and the expected patient treatment rates suggested by our market research the cell effects becomes a highly valued treatment franchise within the clinic.
And in turn a powerful value driver for pulse bio sciences.
To deliver on this value proposition of our utilization based cell effect system. We are already building a sales organization steep and experience working in the field of a set of procedures with a proven track record of success and the utilization based business model.
As you may recall from our earlier discussions this year.
Mr., Bob Tyson has joint pulse bio sciences, as our vice president of sales.
He is the foundation of our sales team that is being built to leverage our soft ex system and how it turns into a franchise in the clinic with a large installed base of physicians, who are committed to providing self procedures done me to say, hi, and uniform standard of clinical anesthetic outcomes.
Fostering these positions relationships and adhering to these high standards is key to making our vision of a collaborative partnership with clinicians and customers a reality.
Bobby and I go back to the early days of commercialization at Zeltiq anther much both pioneers of utilization based business models that you'll get high enterprise values.
Bobby knows the aesthetic procedures space. He knows the opinion leaders and brings with him the ability to recruit hire train and inspire a high caliber network of sales team professionals that will make our vision for reality.
But he has already hired and trained three outstanding regional directors dispersed across the initial our initial regions in the United States.
These initial regional directors will facilitate and lead the early days of our controlled launch and recruit picture sales team candidates in anticipation of expanded commercial launch activities. During the early months of launch.
Once FDA clearance is received it is this core group that will lead our controlled launch of the Celtics systems in their respective geographies.
As I mentioned earlier the initial placement of the Celtics system is truly the beginning of the post bio sciences clinician relationship.
As I also discuss a few months ago, we are a treatment application business with a business model built upon a recurring revenue model that aligns the economic benefits of clinicians and pulse bio sciences.
It's much more than just placing systems in the clinic.
It's built on establishing a long term relationship with the clinic and their staff and establishing the Celtics system as a franchise within each of these aesthetic dermatology clinics.
It is and then Bobby and my own experience from Zeltiq that the best way to generate a steady and growing pipeline of new system sales is to ensure that the current installed base of commissions is realizing excellent results in profit and providing positive references to their colleagues about their experience.
As demonstrated by Bobby and my track record a satisfied first wave of early adopters as a faster and more certain road to new system sales then focusing just on the system sales.
To facilitate this vision of establishing the Celtics system as a valuable franchise, we are creating a role in our sales organization called the clinical application specialists.
The role of the clinical application specialists is to enable training support and inspire our clinical customers to maximize the utility and value to their patients their clinic and the post bio sciences of this important sell effects franchise.
To date, Bobby has already recruited and hired our first three clinical application specialists again geographically distributed across the United States to partner with our regional directors and facilitates the effective implementation and adoption the Celtics system into a clinical practice.
Over the next 24 months as our installed base satisfied so opex users and systems expand.
We will be expanding the ranks of our regional directors and clinical application specialists to meet the demands of the growing number of clinic relationships.
And to facilitate the introduction of new applications for the cell effects within the base already delivered Celtic systems.
We expect that the recurring revenue nature of our business model will enable significant leverage.
Allowing regional directors and clinical application specialists to solicit support and service multiple accounts cut production levels in excess of what we would typically expect in this space.
The first quarter of business, however for bobbing and his sales organization is a successful rollout of our controlled launch program.
Let me take a moment to explain what we are doing with our controlled launch program.
We have identified 30 of them are key key opinion leaders in the aesthetic dermatology space geographically distributed in key media markets across the United States as the initial set of target launch clinics for Celtic system.
These key markets include the likes of Los Angeles, Miami, Palm Manhattan, San Francisco, Dallas, Boston, Chicago and others.
With these hand picked care wells, which were selected for the reputation and expertise and aesthetic dermatology.
And the willingness to champion in new technologies in the clinics and successful track records contributing to the introduction of new technologies.
Not just to their own clinics, but to the broader aesthetic dermatology market in which they're considered key opinion leaders.
Once we received clearance from the FDA, we will commence shipment to these elite controlled launch customers, giving them. The earliest access to the commercial use of our Celtic system.
In exchange for this early access to our technology, they will be working with us closely to integrate the Celtics system into the clinic.
And it's from their success of these controlled launch.
Units. These participants will build the beachhead from which we will further expand into the market.
Building upon the successful track record of integration and commercial implementation of these controlled launch sites.
We plan to extend our installed base into the next group of early adopters of new technology and aesthetic dermatology across United States again, focusing on additional markets.
Hi, patient population in clinic density in order to efficiently leverage our sales organization and to afford the opportunity for Celtics procedures to the greatest number of patients in the high density markets for dermatology procedures.
Over time, we will expand on the success of a controlled launch an early adopter clinics moving into additional geographies and more broadly across United States.
Again effective utilization and satisfied patient outcomes with our early installed base is a key focus of our sales and marketing organization.
New applications for the Celtics system will continue to increase our utilization rates.
Our ambitions are not limited within the borders of the United States. We have already commenced analysis and assessment of international opportunities and expect to pursue a CE mark in Europe and expand into European markets.
As well as subsequent launches into South America, and Asia Pacific region.
That's in our near future and we are keenly aware of the potential of this application and the potential of these international markets for which a strong United States Kilo efficacy is considered an important leverage point.
I hope you take away from our comments today, the bullish sentiment percolating internally here at pro pulse Bio sciences about our commercial prospect.
This optimism is driven in large part by our ongoing interactions with scientific and clinical advisors partners and investigators.
From the clinic the podium we have been fortunate to garner support for our Celtic system, our NPS technology and our treatments applications.
It has been rewarding to see the caliber of clinical key opinion leaders that we have been able to attract to our clinical programs.
Demonstrating unique treatment options offered by our South Texas system.
To date, we have been lifted over 20 of the top key opinion leaders in the static dermatology across United States not just for one study, but many of the clinicians in our early studies have enthusiastically enlisted could be investigators in subsequent quarters subsequent studies of new applications.
This reflects a true validation of the clinical value of our Celtic system.
Key opinion leaders, we have an opportunity to use our system to treat their value patients are willing to participate in additional studies with additional applications to treat even more of the existing patients using our unique Celtics platform.
Further many of our investigators have been afforded top podium slots at major conferences to present the novel attributes of our treatments the success of our clinical programs and our progress towards future applications for the Celtics technology.
This is exemplified by the podium presentations during the upcoming controversies in conversations in lasers, and cosmetic surgery symposium, which Dan referred to.
Earlier in the call.
All this adds up to tremendous confidence in the clinical utility and viability of our Celtic system and the applications, we are bringing to market.
I will now turn the call back to there.
Thanks, Ed I will now provide an update on our growing clinical application pipeline.
First I'd like to discuss our ongoing words program as we reported in the Q1 Investor update call. We are pleased with the results of our words feasibility study.
A partial set of the data was presented earlier this year at the Fms meeting and Dr. deployment of all he is presenting updated data at the controversies in conversations meeting tomorrow in San Francisco based on the learnings from this feasibility study. We are pleased to report that we have initiated a multicenter ward study and have begun treating patients. This study is intended to include up to 60 patients at six centers across the us to date, we have treated seven patients and expect to complete enrollment in the fourth quarter and complete patient follow up in quarter one of 2020.
Works represent a very difficult decision for dermatologists to treat and we are optimistic about the commercial opportunity for cell effects system in treating the many patients physicians see with words, we believe this data will be the basis for eight next commercial application.
We also recently started a new study investigating the treatment of macular SK lesions as Ed mentioned in his remarks, the macular or flat ASCII lesion represents a very difficult to treat subset of SK lesions that we think our cell effect system may be particularly well suited for and we are optimistic about the commercial opportunity given the lack of acceptable treatments available we plan to treat up to 50 patients at several centers to generate data in support of the treatment of these specific lesions and expect to complete enrollment in the fourth quarter and follow up in early quarter one 2020.
As we've discussed previously we plan to have ongoing feasibility studies as part of an expanding pipeline of applications for the cell effect system. We previously discussed our back happening feasibility study and our basal cell carcinoma feasibility study and we continue to make progress in both studies. We recently expanded the number of investigators and our back ACMI study in an effort to increase the pace of enrollment.
Our goal is to is to complete follow up on an initial set of up to 10 patients by the end of the year, we will provide details on future acne studies as the feasibility data becomes available.
As we mentioned on the Q1 Investor call. We are also proceeding with the follow on feasibility study in basal cell carcinoma, where we intend to include the use of imagine in order to evaluate the immune response effects of NPS in the VCC lesion like the initial study this will be an NPS and respect study and will provide important biology data for the design of the future therapeutic endpoints study. This study is already approved and we expect to enroll our first patient soon.
We continue to be optimistic about DCC as an application for cell effect system, and then NPS may provide a unique advantage over other modalities terms of BCC lesions elimination and cosmetic results.
As one might expect our feasibility studies are intended to provide data and insights to guide follow on studies and if appropriate to drive multicenter studies that when successful lead to commercial applications.
An example of this is our awards program. It started with a small feasibility study and has now expanded to a multicenter study.
When we undertake feasibility studies, we set out to explore different treatment levels of our tunable teleflex system treatment timing strategies and in some cases different forms of lesions being treated.
We expect to have several ongoing feasibility studies at any particular time to keep a robust funnel of applications for cell effects system and development. Additional examples of potential near term feasibility studies include tattoo removal share in goma and non neoplastic nearby treatment.
NPS is a very unique energy modality in exploring its capabilities across a wide variety of applications will be an ongoing priority for Paulsboro sciences.
I will now turn the call over to Brian to discuss our financial results from the second quarter.
Thanks, Darren shortly before today's call, we announced our financial results for the second quarter ended June Thirtyth 2019.
Our financial results for the quarter reflect the progress achieved in our development in clinical programs accompanied by the requisite support infrastructure for those endeavors.
Cash and investments at the end of the second quarter totaled $42.6 million compared to $52.8 million at the end of the first quarter, reflecting second quarter cash use of $10.2 million, which is approximately 50% higher than our first quarter cash use of $6.8 million.
Although a portion of this increase was due to increased activity in our clinical studies.
Technology development and general growth of our business during the second quarter, we also incurred $2 million of cash use relating to the annual renewal renewal of our corporate insurance policies for the 2019 20 policy year.
The expenses associated with the renewed policies will be recognized over the next several quarters, excluding the timing associated with our insurance renewals cashews increased approximately 20% quarter over quarter.
Net loss for the quarter totaled $11.4 million, reflecting a $2.2 million or 24% increase compared to the net loss of $9.2 million for the second quarter of 2018.
Net loss for the quarter included charges for noncash stock based compensation totaling $2.7 million and $3.2 million for the second quarters of 2019 and 2018, respectively.
The increase in net loss represents continued growth of our company on the progress towards the commercial introduction of our cell effect system planned for later this year. This includes the cost associated with growth in our sales marketing and manufacturing operations accompanied by the continued expansion of our clinical study programs, including early work leading to the commencement of our wards pivotal study announced today.
This is exemplified by the growth in our head count which has increased to 77 at June Thirtyth 2019 from 44, a year earlier.
Research and development expenses increased to $6.3 million for the second quarter of 2019, an increase of $2.4 million or 60% compared to $4 million for the second quarter of 2018.
A significant portion of the increase reported reflects the increase in R&D personnel and development work related to our cell effect system.
R&D head count increased to 50 as of June Thirtyth 2019 from 31 at June Thirtyth 2018.
Also contributing to increased R&D expenses are increases in engineering, and prototyping expenses, reflecting the design development and manufacturing deployment of our cell effect systems to our clinical study sites.
Late stage prototypes and acquisition of initial inventory components and preparation for commercial launch.
Ongoing clinical studies.
And support expenses relating to the increase in breadth of R&D.
We expect that R&D expenses will continue to increase going forward, reflecting ongoing engineering and development work focused on refinements to our cell effect system in preparation for commercial introduction, our current and planned clinical studies and ongoing feasibility work on our future applications.
Turning now to general and administrative expenses DNA expense remained consistent year over year totaling $5.1 million for the second quarter of 2019 compared to 5.2 million reported for the same quarter last year.
Reflected in the numbers for the current quarter Gn expenses, our compensation increases from increased headcount primarily in our sales and marketing organization that has increased to 11 in the current period compared to two in the prior period.
The increase in compensation expenses were mitigated on a year over year basis by decreases in stock based compensation accompanied by reduced legal costs associated with prior year corporate matters, including our reincorporation in Delaware.
As we continue to build out our sales marketing and support operations on the path to commercialization of our fellow effects system and continue to maintain and expand the depth and breadth of our IP estate, we expect to generate expenses will continue to increase during the remainder of 2019.
With that I would like to turn the call back to Darren for closing comments.
Thanks, Brian we made great progress in Q2 towards our goal of commercializing ourselves back system and aesthetic dermatology.
We've had very productive and collaborative conversations with the FDA as we work through the questions and clarification in the letter.
We are confident the five 10-K path is the appropriate path. We believe we are close to being able to provide our responses to the letter and expect to do that by the end of Q3 and finally, we look forward to working with the FDA to obtain FDA clearance for the Celtics system in quarter four.
In Q2, we continued to build out our commercial team in preparation for our controlled launch post FDA clearance, we added experienced and successful regional sales directors as well as clinical application specialists that will be responsible for implementing and driving the utilization based business model enabled by our network tunable and multi application sell effects system.
We continue to make progress in developing our pipeline of applications. We have initiated our awards multicenter pivotal study a multicenter study in natural gas case and look forward to completing enrolment for both studies in the fourth quarter and follow up in Q1 2020.
We believe our south Texas system will offer unique treatment capabilities to our aesthetic dermatology partners through the delivery of needed and wanted applications that enable physicians to provide safe and effective treatments to patients we believe will.
In doing this we believe we will achieve our mission of building a viable company.
That concludes our prepared remarks, we would now like to open the call for questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound.
Your first question comes from the line of Swayampakula Ramakanth of HC Wainwright. Your line is open.
Thank you.
Thank you Don and.
Team for that takes us to.
No comments on how the company is progressing.
I think regarding.
In the.
Submission of dress funds in Q3 and expectation for Q4 approval.
Just trying to understand what's the.
Is that a normal quote unquote normal time that MDC.
Ticks.
To to make a decision based on.
Such a submission of investments.
And also.
How how confident are you that by.
Even if you have submitted by the end of Q3, you could get a decision by the end of Q4.
Yes, Hey, RK, thanks for dialing in and thanks for the question so.
Yes, there is a I would say there is a normal process to the five 10-K as opposed to a kind of a normal times. So.
The process is such that once you get the AI letter.
The company as I mentioned on the on the prepared remarks, the company has 180 days.
To respond to that letter and so what we've been doing over the last couple of months is we've been engaged with the FDA and essentially.
Working serially through the questions that they asked on the AI letter it's it's.
It's not really possible to do it in parallel with the reviewer it ends up for the most part being kind of a silly serial process. So for example, there are a set of questions.
Or maybe a set of questions about the technology or about some of the bench testing. So we would address those questions with FDA.
Potentially get on a conference call with FDA and once we are comfortable that our responses will address their questions. Then we would move on to next questions and so over the last couple of months, we've been working our way through all the questions that are in that letter. We think we're very close to as I mentioned to being at the end of that.
And then we will be able to to kind of formally send in the responses to all those questions. So we expect that to happen as I said by the end of quarter three.
And.
And we'll we'll work closely with the FDA to make that happen.
Once we do that then FDA is back on their review clock.
FDA strides.
Their goal is to get through the review.
From beginning to end within 90 days and and right now they've used approximately 65 games of their review time and then once they send the AI letter.
They basically.
Put the review on hold until we do the full response or the formal response. So they still have roughly 30 days. They can always go over 90 days.
But their objective will be to try to review our responses to the letter within that period of time.
Typically thats whats called Interactive review, so there will be a lot of.
E mail back and forth with the agency as you try to work through.
Any lingering questions. So.
I think that is the typical process.
I think that's what gives us comfort that.
We should expect.
Something in the fourth quarter, assuming that we can get everything to FDA at the end of the third quarter.
Okay and Q.
And then regarding plateauing indications I know you spoke a little bit about Larson your expectation regarding the data.
That.
Im not sure you spoke about acne and if you did I apologize, but I'm just trying to understand what's the situation with acne.
Yes. So we attacked me, we just mentioned that we've expanded the investigators and.
And we did that to increase enrollment.
And our objective is to enroll up to 10 patients.
And follow those patients by the end of the year. So we're currently ongoing with P. acne feasibility.
We will.
We'll look to get data out potentially in an upcoming.
In an upcoming conference and upcoming Derm conference.
But right now we're enrolling patients and we'll continue to do that over the next several months and follow those patients out to the end of year and then I think you know at that time, we'll be in a good position to describe or to communicate more fully what our next steps are in terms of the act the application.
And then last question from me is.
Let's say, we get approval in Q4.
So in terms of.
Getting ready to launch the product.
How how immediate.
Would it be for you to rollout.
So the effects and devises and from mill facility.
Yes, so we are.
We're preparing for that now.
In terms of having systems ready in inventory and being ready to roll out to our customers. So.
When when that happens when and if that happens I think we'll be prepared to talk about timing for that controlled launch we expect it to be very quick.
Posted an FDA clearance because were in full preparation for that.
So what what can happen at the end of an FDA clearance is FDA can make certain requests about labeling and other things, which once you get the clearance you have some work to do before you can actually.
Commercially distributed product.
Based on those requirements, but it's.
Thats typically on the order of weeks to a month as it as opposed to anything longer than that so.
We are preparing ourselves for that eventuality.
And in India shortly over shortly after a clearance.
We'll be ready to go.
Okay. Thank you thanks for taking all my questions. Yes, Thanks, RK I appreciate it very much.
I'm showing no further questions at this time I would now like to turn the conference back to Darren.
All right. Thank you operator, thank you everybody for joining our Q2 conference call. We very much appreciate everybody dialing in and listening and if you're on your computer for connecting and listening. We're very excited about all the progress, we're making and we look forward to the third quarter conference call and updating you again and providing updates as they happen and we release them. Thank you very much have a great day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.