HeartBeam, Inc. Q2 FY2022 Earnings Call

Greetings and welcome to the HeartBeam Second Quarter 2022 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-K and Form 10-Q for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. A press release detailing these results crossed the wires this afternoon at 4:01 P.M. Eastern Time and is available in the Investor Relations section of our company's website, heartbeam.com. Your hosts today are Branislav Vajdic, Chief Executive Officer and Founder; Jon Hunt, Chief Business Officer; and Rick Brounstein, Chief Financial Officer, who will present results of operations for the second quarter ended June 30th, 2022. At this time, I will turn the call over to HeartBeam Chief Executive Officer, Branislav Vajdic.

Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's second quarter 2022 financial results conference call. Our second quarter was highlighted by steady progress along our commercialization pathway, including the upcoming submission of our emerging product, now called AIMI, to the FDA on or about August 15th. We continue to prepare our second product, the telemedicine platform, now called AIMIGo, for FDA submission in Q4 of this year. In evaluating the database for the clinical validation of HeartBeam AIMI product, we discovered a significant number of patients with unstable conditions. Patients with unstable conditions may have subtle electrical changes brought on by stress without definitive injury to the cardiac tissue. Based on these findings, we expanded the patient population for the company's software product to include this diagnosis for analysis and provide access to wider patient information for our technology once we have clearance from the FDA. We have recently acquired the source code together with a perpetual royalty-free license for the Heart branded version of the FDA-registered livemore HelloPlus platform, key components for our products. Moreover, this development will enable us to continue development of this powerful platform internally. We were privileged to welcome Ken Persen to the role of Chief Technology Officer to lead overall technology strategy and development of the HeartBeam AIMI and HeartBeam AIMIGo platforms. Ken has over 25 years of experience in the Digital Healthcare and Cardiac Devices Industries. Most recently, he founded a digital health company, where he served as Chief Technology Officer. We were honored during this quarter to be selected as a winner of the annual 2022 Cardiovascular Innovations award, recognizing our unique approach to heart attack detection. I would now like to turn the call over to Jon Hunt, our Chief Business Officer, to further discuss our products and commercialization plans. Jon.

Thank you, Branislav. Turning to our product timelines and updates, we had several key developments and strategic partnership agreements related to our HeartBeam AIMI and HeartBeam AIMIGo platforms. As Branislav mentioned, the 510(k) submission of our HeartBeam AIMI platform to the FDA is imminent, and we expect to receive FDA clearance for a limited market release by the end of 2022 and full commercial rollout in Q1 of 2023. We partnered with LIVMOR Digital Health Solutions to develop a HeartBeam branded version of LIVMOR's Halo+ FDA-cleared turnkey solution for remote patient monitoring to connect physicians and patients. During the quarter, we acquired the source code for the HeartBeam branded version of the FDA registered LIVMOR Halo+ portal, which will help us meet our schedule for FDA submission and allows us to continue developing the solution internally. Recently, we engaged multiple partner health systems, and they provided the necessary ECG data to complete our clinical trial that will be part of the FDA submission of our HeartBeam AIMI software product in the coming days. After this, we have plans for additional pilot studies for our end-to-end prescription-only HeartBeam AIMIGo System for remote heart attack detection in at-risk patients, as well as other future scientific and commercial collaborations with these health systems. HeartBeam AIMI is software as a medical device and the market clearance of the product is by the 510(k) regulatory pathway. The HeartBeam AIMI algorithm used in an acute emergency department setting slots into existing clinical workflow, leverages existing 12-lead ECG hardware, and provides the attending physician with an instant comparison of the patient's baseline and symptomatic ECG for their consideration in the patient's diagnosis. Quickly determining if a patient needs intervention or can be discharged helps emergency departments manage patient throughput. Revenue will be via a subscription model and for high-volume emergency departments, we estimate this to average about $3 per patient. Briefly, the total addressable market for the emergency department software solution is about $500 million, and for telehealth, we estimate it to be at $10 billion, and these estimates are for the U.S. market only. Turning to our HeartBeam AIMIGo product, we engaged Triple Ring Technologies, a co-development company, to assist in the design and development of our HeartBeam AIMIGo complete solution, a 3D vector ECG collection device for remote heart attack monitoring. Triple Ring has a long history of successfully designing a wide variety of innovative medical products and underlying technologies. We're now working closely with its medical device team to rapidly build and test our 3D ECG device. This joint partnership is a five-phase expedited device development project, scheduled to be completed in the fourth quarter of 2022 in time for our 510(k) submission to the FDA. The HeartBeam AIMIGo product incorporates the hardware design and development efforts of Triple Ring and our software firmware and remote patient monitoring platform development efforts. Engaging Triple Ring for the hardware development of the HeartBeam AIMIGo 3D ECG device to plug into our RPM platform allows the company to provide an end-to-end telehealth solution for patients and physicians. An added benefit of the partnership with Triple Ring is that they have an established relationship with an OEM manufacturer, who is able to manufacture the HeartBeam 3D ECG device at scale. In addition, the OEM manufacturer is capable of handling logistics and distribution for their customers, and so by engaging experienced development partners like Triple Ring, management is confident we'll meet our project timelines for Q4 2022 FDA submission. HeartBeam is also in active discussions with Triple Ring’s manufacturing partner to support market release of the HeartBeam AIMIGo product in Q2 of 2023. The AIMIGo product will follow the 510(k) regulatory pathway. We've already identified a product device to demonstrate substantial equivalence with a simple clinical validation study. Clearance of the Gen 1 device allows us to collect 3D Vector Cardiogram Data and use this data to develop advanced features for our Gen 2 product. HeartBeam AIMIGo can utilize a clear reimbursement pathway with existing CPT Codes, and the plan is to have a subscription model where HeartBeam builds the practice on a per patient, per month basis. In our discussions with the commercial team from cardiology practices, they indicate that this is a very attractive business model for the practice and provides an enhanced level of care for at-risk patients that they currently are not able to monitor.

Thank you, Jon. I would like to first briefly discuss our sample financial model at scale for HeartBeam AIMI and our AIMIGo solutions, which shows that capturing even a modest percentage of our total addressable market results in a significant recurring revenue base. I'd like to highlight that our solutions also generate high gross margins under either base case assumptions, with gross margins above 80%. And finally, as the company scales, operating margins can be in excess of 30%, even as we increase investment in R&D. Telehealth is a much larger market opportunity compared to the size of the emergency department market; and over time, we expect that it will become the primary source of revenue. Turning now to our financials, I will give a brief review of our financial results. A full breakdown is available in our regulatory filings and in the press release that crossed the wire after market close today. We are comparing results as a private company in 2021 to now a public company working on the commercialization of our first two products. So it's a very different and much more exciting story. Research and development expenses for the second quarter of 2022 were $1.7 million, compared to $25,000 in the second quarter of 2021. Our focus on R&D consisted largely of product development costs for HeartBeam AIMI, which is now essentially done, and also HeartBeam AIMIGo. This includes both software and hardware, the latter with our professional services agreement with Triple Ring Technologies that Jon talked about, to assist in the hardware for an AIMIGo. Additionally, there are clinical costs in support of our FDA submissions for both our products this year, as well as research costs in support of the future product pipeline coming from our patented vector 3D ECG platform technology. General and administrative expenses for the second quarter of 2022 were $1.8 million, compared to $312,000 for the second quarter of 2021, reflecting the growth in our team and other costs in support of being a public company. Interest income during the three months ended June 30, 2022, was $10,000, related to the cash balances from last November's IPO. In 2021, we had a $608,000 expense tied to the 2015 convertible notes, which were converted and added to common stock as of December 31, 2021, at the IPO. Net loss for the second quarter of 2022 was $3.5 million, compared to a net loss of $945,000 for the second quarter of 2021. We ended the second quarter of 2022 with $9.3 million in cash and cash equivalents compared to $13.2 million as of December 31, 2021. We expect that our cash position will provide runway into 2023 and the expected FDA submission in Q4 of this year, as well as the clearance of the HeartBeam AIMIGo next year.

Thank you, Rick. In summary, we are well positioned to create long-term value for our shareholders. During the second quarter, we continued to operate from a position of strength, equipped with strategic partnerships and product development, with a cash runway into 2023. Looking ahead, we are accelerating our commercialization path and remain confident in our anticipated upcoming product milestones. By the end of 2022, we expect to receive FDA clearance for our HeartBeam AIMI platform, and we plan to have our HeartBeam AIMIGo solution submitted to the FDA for clearance. We approach these milestones from a position of strength with an experienced team, bolstered by the hiring of Ken Persen, our CTO, and new partnerships to support our goals. I look forward to providing our shareholders with further updates in the near term as we move forward with our commercialization. Thank you all for attending. And now the HeartBeam team would like to answer any questions.

Thank you. Good afternoon, gentlemen. I wanted to ask a couple of things about the pilot studies you have ongoing. One was in the emergency department side at Phoebe Putney Health System. I think Jon was the one to ask that question of…

Yes, so go ahead, Jon.

Yes. Phoebe Putney was one of the sites that provided some of the ECGs for our retrospective clinical validation study for the 510(k). So that data has been consolidated from the various centers, some used in the training set scenario, others for the validation set, which are obviously blinded to the people doing the testing. And so that's now completed. We've completed that clinical validation study for the HeartBeam AIMI product. So that's now just being finalized and ready for the FDA submission.

Is there additional studies that you have ongoing now that pertain to the AIMIGo product?

We're just in the process now of discussing those with some of our healthcare systems that we've approached, but we haven't finalized those yet, but that's in process. And that will, again, be conducted towards the end of the 510(k) process for AIMIGo.

Okay. I have a question about LIVMOR. I see how that's giving you a good opportunity to develop with their support. What is the outlook for the branded version of Halo+ for HeartBeam?

Hey, Jon, please go ahead.

Yes. So as you know, originally, HeartBeam engaged LIVMOR more to do the development effort given they already had an FDA Registered RPM platform, but that is for their wearable solution. They were creating a white label version of that for HeartBeam. And what we've done in the last quarter is, we've actually acquired the non-exclusive perpetual license that's royalty-free. So, on a go-forward basis, that's more appealing to us, because it gives us control of the platform in its entirety for future development and also relieves us of the royalty payments going forward. So as Rick indicated, that helps us on the margin side as well and puts it firmly in our control once the submission goes in.

I thought the cash management in the quarter was very good. Rick, what’s the outlook for R&D and G&A in the second half of the year?

I think that our spending is generally consistent. We will continue to work with Triple Ring for the remainder of the year. While we are still conducting some research, it's not at a high level. Looking at our expenditures for the first half of the year, I would be surprised if there is a significant change as we progress through the rest of the year.

I don't think there will be any significant sales and marketing efforts until the ED product is commercially ready.

There is already some funding in place. We have introduced new company names for our products and are working on a combination of public relations and investor relations. Jon has a team that is focused on these initiatives. Our sales team is in place, collaborating with individuals who will conduct early trials leading to our initial customers. Overall, we have a complete organization to move forward.

Okay. Those are my questions. Congrats on all your progress. Thanks.

Thank you, Bill.

Hi, guys. Thanks a lot. Congratulations a lot of inflection points coming up. Can you talk with me a little bit about what the clinical risk is associated with the FDA submission in Q3 that's anticipated for the AIMI platform?

So let me answer that question and maybe Branislav might want to add on that. The product that we are first generating with AIMI is geared towards the remote patient point. And in that sense, we defined a clinical study that will basically compare synthesized 12-lead ECG to a recorded 12-lead ECG, because we will be basing a 12-lead ECG synthesized and a plastic 12-lead ECG synthesized to the physician for their review for that patient that's outside of the record facility. So the nature of that study would be a simple comparison between the recorded and the synthesized 12-lead in terms of their diagnostic content. I think we have not decided exactly when that will be performed, we are looking into a number of healthcare systems now. And we feel that that study is of fairly low risk in terms of the content and the outcome of the study. And so Rick, anything else you'd like to add?

Okay. Thank you very much, I apologize.

Yeah, sorry, Jason. From my perspective, were you referring to the software solution first, Jason? That study or are you trying to…?

I was just trying to follow the sequence of events as you've laid the math between the platform and the…

Okay. So the AIMI platform, that study is completed. We feel very good about the results from that study, given the bar for 510K is to demonstrate substantial equivalence to the Predicate device, and we believe the results from the study we've just completed demonstrate that. The good thing is for AIMIGo to Branislav’s point, is that the algorithms themselves are identical in AIMI and AIMIGo. So we feel pretty good about that. But in addition, given we've got a hardware device recording the 3D vector cardiogram and then generating a synthesized 12-lead, we want to demonstrate also the robustness of that emphasized 12-lead compared to an actual 12-lead recording. So that's in addition to the work we've already done with AIMI. So there's a logical regulatory stepping stone for us to follow, and we'll build on the results we've already gotten from the clinical validation study for AIMI comparing ourselves with a Predicate 12-lead.

Right. Where I was really going was, at what point is the data compelling enough to present, and I don't know where you presented at AHA, TCT or other major meetings where you start to get key opinion leaders on board in advance of anticipating the commercial launches that begin late this year and into next year?

Well, I think we already have some key opinion leaders at some of the healthcare systems who are already big believers in the technology. My experience has been companies typically don't spend a lot of time publishing their 510K substantial equivalence data. They might see more value in doing a post-market study and then perhaps having a number of KOLs participate in that study, so.

Yes, is that part of the plan?

Absolutely, part of my plan. I think it gives us a much broader remit to go and recruit some KOLs and do a prospective study rather than what we've just done, obviously, as a retrospective study, which still is of immense value to us to help us get through that regulatory hurdle, but I think most of our clinical value work will occur in a post-market setting.

Can you share who is assisting you with the filings and interactions with the FDA since many emerging companies face challenges in that area? I'm interested in the measures you've implemented to minimize risks in that process. You have an ambitious timeline, and I'm curious about what gives you such confidence in your ability to meet it.

I think one is that, within the HeartBeam management team, there are several of us that have pretty extensive experience dealing with the FDA. I've run over 40 IDEs for Class 3 products in my career. Alan Baumel, our Chief Operating Officer, has run a number of IDEs also and Ken Persen, our new CTO has obviously been involved in the cardiac rhythm management and digital health industries for years. So we have used a consulting company with considerable experience that was already very familiar with the LIVMOR platform. So we basically piggybacked on their expertise in helping LIVMOR get their platform through, and so we didn't think it was worth reinventing the wheel, even though we're providing lots of input.

It's always smart to have an outside third party to validate what you're doing, right. You never want to be too convinced that you're drinking your own Kool-Aid, even though your track record is impressive.

Perfect. Thank you so much. That finishes my question.

You’re welcome. Yes, thank you.

At this point, we will take a couple of webcast questions. The first asks, can you provide some color around the product naming?

Yes. At the request of our board, we initiated some work with a branding house and very experienced marketing firm. We have decided from a company standpoint, we prefer to be a branded house rather than a house of brands. So for those of you in the marketing world, a branded house is someone like BMW or Mercedes Benz and a house of brands is someone like Procter & Gamble. So, we elected to be a branded house. We went through the normal naming conventions that you do and created by marketing firms and ended up with five or six potential names. And we ended up with AVI as our software as a medical device platform and then Amigo, obviously, with the product that goes with the patient anywhere and everywhere. So, that's the process we went through. We presented that to our Board at the beginning of this month, and they were quite pleased with the outcome. So, we've run that process over the last four or five months.

And the next question asks if you can provide an update on Triple Ring?

Yes, let me talk to that question. We have been very, very pleased with how this project has been going. We are on budget, we are on schedule, and we have a very intense interaction with the Triple Ring team, a very capable team on all aspects of this project work and submission, readying our product for submission to the FDA. Overall, we feel at this point there is absolutely no reason to believe that it will be delayed. We believe this is totally on schedule here and we’re extremely pleased.

And our last question asks, are you on track for FDA submission on the 15th of the month?

Yes. Let me give you some details about that. We have completed the study. Most of the implementation is as of today, ready. We are sort of crossing the T's and dotting the I's. At this point, it's all a matter of administrative tasks now that need to be accomplished. So we are confident that we will be submitting on or about the 15th of this month; and again, it's all a matter of lining up the administrative things. All of them are being finalized in the review prior to the submission. So we are very much and very close to the submission line here.

The next question is, can you provide some color around the appointment of Ken Persen?

Yes. We were extremely pleased to be able to attract Ken Persen to our company. He brings an incredible amount of experience and capabilities that we need today and will need going forward. He is the architect of the LIVMOR platform. We just acquired a perpetual license for the platform. In that sense, we have the ultimate experience now inside our company to provide us with the expertise to improve and change the platform to meet our needs. He is an outstanding match in terms of his technical capabilities and his overall familiarity with the markets and technologies that are needed. So a 100% match and we’re very pleased that he has joined us.

And our last question asks, how are you different in the ECG that is used by the Apple Watch and KardiaMobile?

Let me ask Jon to talk about that in terms of that competitive stance.

Yes. Thank you, Branislav. Okay. So, Apple Watch is based on photoplethysmography. So it actually reads pulse waves and from that generates an ECG. It's a single-lead ECG. KardiaMobile, on the other hand, uses finger electrodes on a credit card and calculates cardiac activity, but also on a single lead. Our 3D vector ECG is fundamentally different in that we record in three planes: X, Y, and Z. The heart is a three-dimensional organ that conducts in three-dimensional space. And from our three lead recording, we can, in the vector space, generate a synthesized 12-lead, which is the standard of care that cardiologists and clinicians use to evaluate cardiac activity. Thus, the information content in a 3D vector cardiogram is fundamentally more informative to the clinician because we output it in a format of synthesized 12-lead that they're accustomed to reading, and it has infinitely more information in that recording than just a single lead can provide. Therefore, it's a fundamental difference, and neither KardiaMobile nor the Apple Watch are designed specifically for heart attack detection as our device is.

That concludes our webcast questions.

I would now like to turn the call back over to Mr. Vajdic for closing remarks.

Thank you, operator. I would like to thank each of you for joining our earnings conference call today. I look forward to continuing to update you on our ongoing progress and growth. If you were unable to answer any of your questions today, please reach out to our IR firm, who would be more than happy to assist. Finally, we also look forward to seeing some of you at our upcoming conferences, including the H.C. Wainwright 24th Annual Global Investment Conference, September 12 to 14, and A.G.P. Virtual MedTech Conference on September 21, followed by in-person participation at The Dawson James Small Cap Conference on October 1 and the ThinkEquity Conference on October 26. At this point, I'd like to thank you one more time and wish you a good day. Thank you.

This now concludes today's conference. Thank you for attending.