Earnings Call Transcript - BEAT Q3 2023

Operator, Operator

Greetings and welcome to the HeartBeam Third Quarter 2023 Financial Results Conference Call. 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 want to highlight that the statements made during the call and the webcast may include predictions, estimates, and information that could be considered forward-looking. While these statements represent our current judgment regarding future developments, they are subject to risks and uncertainties that could cause actual results to vary significantly. We advise against placing excessive reliance on these forward-looking statements, which reflect our views only as of this date. Please note that we are not obligated to update or publicly release any revisions to these forward-looking statements based on new information or future events. Throughout today's discussion, we will address some important factors related to our business that may impact our predictions. You should also review our most recent Form 10-K and Form 10-Q for a more comprehensive discussion of these factors and other risks, particularly under the Risk Factors section. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website, heartbeam.com. Your host today, Branislav Vajdic, Chief Executive Officer and Founder; Rob Eno, President; and Rick Brounstein, Chief Financial Officer, will present the results of operations for the third quarter ending September 30, 2023. At this time, I will turn the call over to HeartBeam's Chief Executive Officer, Branislav Vajdic. Please go ahead.

Branislav Vajdic, CEO

Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's third quarter 2023 Financial Results Conference Call. On today's call, we will be sharing some important updates about our business and products, including our landmark peer-reviewed study publication and a significantly enhanced HeartBeam team. We continue to make steady progress towards upcoming clinical and regulatory milestones. I would like to give you a brief overview of HeartBeam and our Technology for those joining us for the first time and as a reminder for those already familiar with us. It’s essential to understand how our VECG Technology differs from the more common personal ECG Technologies currently available. There are various ECG Technologies offered to consumers and patients outside of medical facilities. You can see a few examples on this slide. These are not 12-lead ECGs; rather, they are one-lead, three-lead, or six-lead. This is sufficient for detecting many arrhythmias but not adequate for identifying a heart attack or complex arrhythmias. While there are many 12-lead ECGs available, what I want to emphasize is that some of today’s ECG Technologies are suitable for home use, but we believe these are not sufficient for easy use and consumer adoption. We think our technology has the potential to address the challenge of heart detection outside medical institutions. The primary goal of HeartBeam technology is to enable clinicians to quickly and accurately identify a heart attack. HeartBeam AIMIGo is a personal portable and user-friendly system that generates a 12-lead ECG. The AIMIGo device, paired with a smartphone app and a cloud-based agnostic software system, allows remote evaluation of cardiac symptoms by physicians. Additionally, by collecting heart's electrical activity signals, HeartBeam AIMIGo can provide unmatched data for developing AI algorithms and creating a rich data set for AI. We believe that AIMIGo could shorten the critical time to intervention for heart attack patients. On average, patients wait three to four hours before seeking care. Taking action sooner can reduce complications and save lives. Furthermore, over 80% of patients with chest pain who visit the emergency room are not experiencing a heart attack. An effective triage tool for patients could lower unnecessary ER visits and decrease costs to the healthcare system. The potential for our technology in the United States is six times larger than the Atrial fibrillation or AFib market, with about three million AFib patients representing a $2 billion market. Simultaneously, there are around 20 million total coronary artery disease patients, representing a $12 billion market. These figures are estimated market numbers for the U.S. alone. We have the opportunity to expand our focus beyond arrhythmia, as the AIMIGo technology will provide standalone care throughout the ECG to physicians from their patients, anytime and anywhere. These capabilities have the potential to surpass the 12-lead ECG standard of care, as they can record and process vector electrocardiography (VECG) signals and employ powerful 3D vector-based algorithms to detect heart attacks. We have been refining our core technology, AIMIGo with a credit card form factor, while our robust product pipeline offers us a remarkable opportunity to form partnerships with key strategic players in multiple industries, including wearables and ambulatory monitoring. Our product pipeline includes our on-demand 12-lead extended wear patch, for which we recently received our third U.S. patent, positioning us to introduce 12-lead technology to the established extended-wear patch market, estimated to reach $4.8 billion by 2030. Additionally, we hold extensive IP on continuous cardiac monitoring through our acquisition of LIVMOR, the developer of the first FDA-cleared prescription wearable for continuous cardiac monitoring. Also in our pipeline is our integrated system, combining continuous cardiac monitoring with our 12-lead patient-carried ECG. The HeartBeam Watch integrates a 12-lead ECG and a continuous cardiac monitor into one device. Lastly, we are implementing the latest advancements in deep learning to our cardiac signals. We look forward to providing updates on these initiatives soon. I will now turn the call over to our President, Rob Eno, for product and business updates. Rob?

Rob Eno, President

Thank you, Branislav, and thanks to everyone joining us today. Turning to recent milestones. Our landmark study, based on our novel VECG technology, was published in JAK Advances, a journal of the American College of Cardiology. This peer-reviewed study demonstrated the ability of HeartBeam's VECG technology platform to detect the presence of coronary artery occlusion. This is a very interesting study design that used balloon inflation during a stent procedure, also called a percutaneous coronary intervention, or PCI, to simulate coronary occlusions. HeartBeam's technology and a standard 12-lead ECG were both tested for their ability to detect coronary occlusions. There are three main takeaways from the study. First, on the left, HeartBeam's technology matched the performance of a standard in-hospital 12-lead ECG with similar accuracy. This in itself is important as HeartBeam's technology is intended to be used by patients outside of a healthcare institution. Second, the study showed that both for HeartBeam's technology and a standard 12-lead ECG, when assessing chest pain, performance was much better when the reading was accompanied by a baseline ECG taken before the event. The area under the curve, or AUC, a measure of accuracy was 0.95 or greater when including both the symptomatic and baseline recordings. The AUC when only the symptomatic was included was much lower, around 0.7. In other words, assessing pairs of ECGs or VECGs, the patient's baseline plus one taken during an event can increase accuracy by more than 30%. Twelve plus twelve is better than just a 12-lead ECG. And this is particularly important because HeartBeam's technology by design always includes the patient's asymptomatic baseline taken when he or she is onboarded. And the final takeaway is that in practice, the HeartBeam technology could have a dramatic improvement in accuracy over a 12-lead ECG taken in an emergency room. While the HeartBeam technology will always have a patient's asymptomatic VECG and we'll be able to assess the pairs of readings, when a patient's ECG is assessed in an emergency room, there's often no baseline. So our HeartBeam's twelve plus twelve reading could be almost 40% more accurate than a single 12-lead ECG recording in the emergency room with the AUC increasing from 0.68 to 0.95. So when all this study demonstrates the potential that the AIMIGo system holds, and we'll be conducting additional studies focused on our 12-Lead synthesis and on the performance of the system as a whole. We believe these studies will be key to driving clinical and patient adoption. During the quarter, we were privileged to add multiple new respected industry executives and physicians to our leadership team, Board of Directors, and Scientific Advisory Board. We strengthened our Board of Directors with the appointment of Dr. Michael R. Jaff, Chief Medical Officer and Vice President of Clinical Affairs, Technology and Innovation of the Peripheral Interventions division at Boston Scientific. Dr. Jaff is a renowned vascular physician and researcher, bringing a wealth of clinical and industry experience to the Board. This follows the recent additions of Ken Nelson and Mark Strome. We also made three key hires to our senior management team: Richa Gujarati joined HeartBeam as Senior Vice President of Product. Richa has over 13 years of experience collecting market-level insights and translating them into business needs for companies ranging from St. Jude, iRhythm to Apple. Her deep expertise in go-to-market strategies for health-sensing technologies will be instrumental as we ready the HeartBeam AIMIGo system for market release. Debbie Castillo joined HeartBeam as Vice President of Regulatory Affairs. Debbie is an experienced Biomedical Engineer with extensive knowledge of FDA, EU, and Health Canada regulations. She also has industry experience in various positions with the FDA. She is responsible for leading our regulatory affairs function and overseeing the company's interactions with regulatory agencies worldwide. And finally, we welcomed Pooja Chatterjee as Vice President Clinical. She brings over 15 years of extensive clinical leadership experience in the medical device industry, most recently at Abbott, and will oversee our clinical studies and related efforts. We recently added five distinguished physicians to our Scientific Advisory Board. This group brings expertise in interventional cardiology, electrophysiology, clinical research, and new technologies. The new members are Charles L. Brown III, Tony Das, Robert Harrington, Campbell Rogers, and Niraj Varma. They joined our Chief Medical Officer, Peter Fitzgerald, and the previously announced Chair of the Scientific Advisory Board, Michael Gibson. I encourage you to read our press release on the appointments to get a sense of the wealth of experience they bring. We continue to make steady progress toward our key product milestones. As previously discussed, we will have two 510(k) submissions to the FDA. The first, which we call version 1, is for clearance of the HeartBeam AIMIGo VECG device. This application, which was submitted to the FDA in May, is for the hardware clearance as a three-lead VECG collection device. This submission is progressing well. We've received questions from the FDA and have submitted our responses. The second submission planned for after we receive the clearance for version 1 is for the software, including the algorithms that generate a synthesized 12-Lead ECG for physician review. On this application, which we call version 2, we have held a successful pre-submission meeting with the FDA. This meeting focused on the design of the clinical study that will demonstrate the performance of our synthesized 12-Lead ECG in relation to a standard 12-lead ECG. We're encouraged by our interactions with the FDA and we continue to expect the product will be ready for limited market release during the second half of 2024. I'll now turn the call over to Rick Brounstein, Chief Financial Officer, to discuss operational updates and financials.

Rick Brounstein, CFO

Thank you, Rob. Turning to our financials. I will now give a brief overview 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. General and administrative expenses for the third quarter of 2023 were $2.1 million compared to $2 million for the third quarter of 2022. Although, overall G&A expense is flat, cash spending is actually down looking at 2023 compared to 2022. In 2022, we were invested in the commercial team, and due to our change in the near-term focus in early '23, we're not currently emphasizing commercial activities. Reduced sales and marketing expense was offset by increased noncash stock-based compensation of about $0.4 million, resulting primarily from the issuance of employee stock options following the May 2023 financings. Research and development expenses for the third quarter of 2023 were $1.6 million, approximately the same level of expense compared to the third quarter of 2022. In addition to the current development focus on HeartBeam AIMIGo, in both periods, we also invested in research costs in support of the future product pipeline coming from our patented VECG platform technology, which is the basis for our patent portfolio of eleven issued patents. With current interest rates in the short-term markets around 5%, we earned $267,000 in interest income in the third quarter of 2023 compared to $28,000 in the third quarter last year. The net loss for the third quarter of 2023 was $3.5 million compared to a net loss of $3.6 million for the third quarter of 2022. We ended the third quarter of 2023 ahead of plan with $19.2 million in cash and cash equivalents compared to $3.6 million as of December 31 last year. As mentioned in May, we closed the common stock financing with gross proceeds of $26.5 million. The cash is planned to last into early 2025, while we expect to receive FDA clearance for the HeartBeam AIMIGo version 2, which is our commercial product in the second half of 2024. We remain confident that we have sufficient funds to deliver on these important milestones and prepare to move into the commercialization phase of HeartBeam AIMIGo. Hospital of importance in the May 23 financings is the fact that they were common stock-only financings. They did not include any warrants, and as a result, our balance sheet has a very simple and straightforward capital structure with approximately 26 million shares outstanding now. Finally, I would also like to share the results of our recent annual meeting of shareholders; at the event, all proposals passed, which included adding 4 million authorized shares to the 2022 equity incentive plan. I'll now turn the call back over to Branislav for closing thoughts.

Branislav Vajdic, CEO

Thank you, Rick. Let me just say that we remain incredibly optimistic for the future of HeartBeam. Now, I would like to summarize the recent efforts in the following categories: continued validation and company momentum, progress towards key milestones, and financial soundness. First, we had several announcements that demonstrated external validation of the technology and continued momentum of the company. Our landmark clinical study was published in the Journal of American College of Cardiology Advances. We made several key additions to our Board of Directors, our Senior Management team, and our Scientific Advisory Board. And the U.S. Patent Office granted the third patent on the 12-lead extended wear patch, our 11th patent overall. Next, as Rob has summarized, we have made steady progress toward our key milestones, with productive discussions with the FDA on our initial application, our AIMIGo hardware. Equally importantly, we had a successful pre-submission meeting with the FDA on our second application, which will be on the algorithm that synthesizes the 12-Lead ECG from our AIMIGo device. Our expectation for a limited launch in the second half of 2024 remains unchanged. We have a strong cash position. We ended the quarter with significant cash of $19.2 million well ahead of plan. This $19.2 million in cash includes cash equivalents and short-term investments, providing the runway, very importantly, to early 2025. I would like to close by reiterating that we have had positive interactions with the FDA in the past quarter, and we remain on track for our key product milestones. I look forward to providing our shareholders with further updates in the near term. I thank you all for attending. And now the HeartBeam team would like to answer your questions.

Operator, Operator

Thank you all for joining us. We will now move into the question-and-answer session. Our first question is from Ben Haynor of Alliance Global Markets. Please proceed.

Ben Haynor, Analyst

Good afternoon, gentlemen. Thanks for taking the questions. First off for me, congrats on all the progress. Just curious about the interactions with the FDA; the questions on the first submission, I mean, it sounds like it's been a productive dialogue, but just knowing that you've answered the questions. I presume there aren't any things that look like showstoppers in there? Is that a fair assumption?

Branislav Vajdic, CEO

Yes. We definitely had a number of interactions now with the FDA on our first submission, that's under consideration, as well as on our future submission, which was the subject of our pre-submission meeting with the FDA. Without going into details, we definitely tackled the issues that the FDA brought up. But really don't have anything on our horizon that would be a serious concern or, as you termed it, a showstopper. So all in all, it's quite a bit of work, no question about that, but there are no points that would, in our judgment, be of negative nature and hinder our ability to achieve our goal.

Ben Haynor, Analyst

Okay. That’s very helpful and sounds positive. Can you share any insights from the pre-sub meeting regarding the study design? Is it extensive? Can it be conducted in animals or is it for humans? Is the scope in the dozens, hundreds, or thousands? What kind of guidelines can you provide about what that might entail?

Branislav Vajdic, CEO

Yes. Indeed, that was a significant topic in our pre-sub meeting with the FDA, the clinical studies, the nature of the endpoints. As far as, of course, it's going to be in humans, it's going to be a fairly simple study for what we are proposing now, and what the FDA appears to be basically positive on in terms of how the study will be designed and executed. In terms of cost and the number of subjects, it's always the range that we expected, and it is not high. So all in all on the study, everything is looking as we have envisioned so far.

Ben Haynor, Analyst

It seems like everything is progressing well or even better than expected regarding cash utilization. Lastly, could you provide any feedback you've received about the JAK publication? I know a positive editorial was published, but I'm curious about other reactions from the community regarding your findings.

Branislav Vajdic, CEO

Rob, would you please answer?

Rob Eno, President

Yes, I can take that one. Yes, it's a good question. The feedback has been really positive. I think as I highlighted, I think a lot of the physicians we spoke to were intrigued by the study design using the balloon inflation as a really interesting way to look at this problem. I think the themes really resonated. The theme that this is a good way to show kind of apples-to-apples that we're equivalent to a standard 12-lead, even though we're outside the hospital. And then this insight, which I think was new to a lot of people, of the importance of the baseline, especially when assessing potential heart attacks, a potential occlusion and how much that adds to the accuracy, both for a 12-lead and for ours. So I think, as I tried to allude to, the feedback we're getting is that it's really interesting when you put those two together because not everybody who goes to the emergency room has a readily accessible baseline, and that actually our baseline being accessible provides a potential advantage. So I think the physicians we talked to were very excited about it and see it as a really great first step to prove the feasibility of the study and look forward to continue working with us and providing more data.

Ben Haynor, Analyst

Okay. Great. That's helpful. Thanks for taking the questions, guys.

Branislav Vajdic, CEO

Thank you.

Operator, Operator

Thank you very much. We have no further questions on the conference call at the moment. I would like to take the webcast questions.

Unidentified Company Representative, Representative

The first webcast question asks, if you have a 12-week ECG with the patient at home, who will read or interpret the heart attack, the patient, AI or a cardiologist? If the latter, how will they get the ECG?

Rob Eno, President

Certainly, I can address that. It's a very good question and it's quite significant. We believe it's essential for a physician to evaluate the ECG. We want to avoid a situation where HeartBeam's algorithm is determining the outcome, especially in scenarios involving potential heart attacks. The concept is that patients will use the AIMIGo device at home, and with the accompanying app, the data will be uploaded to the cloud. There, the signals will be processed, quality-checked, and the 12-lead ECG will be synthesized. This information will be sent to a reader service for analysis. A physician within that service will interpret the results for the patient and can also initiate a telehealth visit or consultation if necessary. We think it's crucial to have a physician involved, particularly with matters as serious as potential heart attacks, and we are developing the workflow to facilitate this.

Unidentified Company Representative, Representative

Our next question asks, you mentioned the application of deep learning to your system. Do you have more details on that effort?

Branislav Vajdic, CEO

Yes. When it comes to deep learning and, in general, AI, it's always in the headlines regarding its impact on various areas of our society. The future impact is really quite relevant when it comes to the medical area. So all in all, looking at the impact AI will have on specific areas of ECG, we believe that it's going to be impactful. That technology, combined with our unique advantages, which we call the data set and, very importantly, longitudinal data set collected over time, frequently over time for that patient, will provide, we believe, value that goes beyond what a traditional dataset of 12-lead VECGs can offer. So we are keenly interested in AI, and we will be making some announcements about our plans and efforts in this area in the near future.

Unidentified Company Representative, Representative

Our next question asks, do you have enough capital for the 2025 commercial launch?

Rick Brounstein, CFO

So that sounds like a good question for the CFO. Yes. A couple of points on that. Yes, we have enough money to get through the second FDA clearance, which is the commercial product, and get it ready for launch. That said, we clearly plan to do another round of financing to fully fund the commercialization, so a little bit of both, but we have probably several months of leeway between when we expect to get ready for commercialization and when we would need another round to really carry on. So we're feeling very comfortable from the cash position today.

Unidentified Company Representative, Representative

The next question asks, what are your near-term milestones?

Rick Brounstein, CFO

We made a decision to approach our regulatory submissions in two steps. The first one is what we call the V1 system, the hardware system, the credit card-sized hardware system. It's very important foundational to our ability to synthesize the lead, the synthesized lead is our second submission, to be too clear and we'll be seeking for the 12-lead. As it stands right now, we expect both of these to be cleared in 2024.

Unidentified Company Representative, Representative

Our next question asks, can you talk about new business development opportunities?

Rob Eno, President

Sure. I can address that. Branislav mentioned this in his overview of the new technologies. Right now, we are primarily focused on the AIMIGo system, working towards getting it through the FDA and into commercialization. We believe we are making excellent progress in this area, and it remains the main focus of our company. At the same time, we have a strong pipeline of products with significant intellectual property. This includes the continuous monitor watch, which we refer to as the integrated system that combines the watch and the card, as well as the 12-lead ECG HeartBeam watch. Given our company size, we see great potential for strategic partnerships, particularly in wearables and ambulatory monitoring. We will be engaging in discussions in the coming months with other companies regarding these future opportunities. Additionally, I want to touch on the go-to-market strategy for the AIMIGo system. We plan to bring this product to market ourselves and will share more details about our go-to-market plans soon. We are making solid progress in developing these plans, and we will provide more comprehensive information in the upcoming months.

Unidentified Company Representative, Representative

Our next question asks, per CMS guidelines for chest pain patients, is to go to the emergency department. Therefore, how do you plan on becoming a CMS guideline?

Rob Eno, President

Yes, I can take that one as well. It’s another really interesting question. First of all, the guidelines are if you have chest pain, you should go to the emergency room. The reality is patients often delay three to four hours before going. We think that's really one of the fundamental issues that exist today. The ultimate goal is for this technology to be accepted and for us to go down a path of unique reimbursement as well as getting into the guidelines. The short answer is that will all be done with studies and evidence. It's going to be really important for us to generate evidence and data that show the clinical effectiveness and the cost-effectiveness. And so it takes time ultimately, but with evidence showing the benefit when patients use this device, that's the kind of work that would ultimately help to get something like this into the guidelines.

Unidentified Company Representative, Representative

And our last question asks, where do you see the three-lead finding a market? There are several dozen companies in this market. And what is the value of another three-lead?

Rob Eno, President

Yes, I can address that. These are excellent points. Our three-lead collection device captures three orthogonal leads, X, Y, and Z, which forms the foundation of vector cardiography (VCG). By collecting data from these three axes, we can synthesize the standard 12-lead ECG. Unlike other three-lead or reduced lead set devices, ours uniquely utilizes these orthogonal leads, allowing for a complete signal capture. Our strategy involves a stepwise approach, starting with obtaining clearance for the three-lead device. This will enable us to progress from capturing the orthogonal leads to synthesizing the 12-lead. We believe it's crucial for physicians to analyze the 12-lead along with the baseline since that is their familiar format. Thus, having these three orthogonal leads paves the way for the true differentiation of our 12-lead synthesis.

Operator, Operator

Thank you, sir. Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Dr. Branislav for some closing remarks.

Branislav Vajdic, CEO

Thank you, operator. I would like to thank each of you for joining our earnings conference call today, and look forward to continuing to update you on our ongoing progress and growth. If we were not able to answer any of your questions here today, please reach out to our IR FMZ group, who would be more than happy to assist. Good day.

Operator, Operator

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining, and you may disconnect your lines at this time.