IceCure Medical Ltd. Q2 FY2023 Earnings Call

Good morning and thank you for standing by. Currently, all participants are in a listen-only mode. After management's discussion, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Todd Kehrli. Please go ahead.

Thank you, operator, and welcome to IceCure Medical's conference call to review the financial results for the first six months ended June 30, 2023 and to provide an update on recent operational highlights. Please refer to the earnings press release that we issued early this morning. Participating on today's call are IceCure Medical's CEO, Eyal Shamir, and the company's CFO and COO, Ronen Tsimerman. Additionally, Dr. Robert Ward is joining the call today to share his experience using ProSense and will be available during the Q&A session, which will follow the prepared remarks. Before we begin, I'd like to remind everyone that this call and the question-and-answer session that follows contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of such words are intended to identify forward-looking statements. For example, we are using forward-looking statements in this presentation when we discuss the achievements we expect to accomplish as we continue to advance our growth strategy, our positioning to make significant commercial advances in key markets, pursuit of regulatory approvals in various jurisdictions, expansion of clinical applications, release of results from our clinical trials, potential market adoption and future sales of IceCure's minimally invasive cryoablation technology, advancing regulatory and commercial strategies, strategic plans and our belief that we are well capitalized to execute on commercial opportunities to increase shareholder value. Because such statements deal with future events and are based on IceCure's current expectations, they are subject to various risks and uncertainties and actual results, performance or achievements of IceCure could differ materially from those described in or implied by statements in this presentation. The forward-looking statements contained or implied in this presentation are subject to other risks and uncertainties, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's annual report on Form 20-F for the year ended December 31, 2022, filed with the SEC on March 29, 2023, which is available on the SEC's website, www.sec.gov. The company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law. I'll now turn the call over to IceCure Medical's CEO, Eyal Shamir. Eyal, please go ahead.

Thank you, Todd. Hello, everyone, and thank you for joining us today to review our financial results in addition to some of our key achievements over the past quarter. I will start with a review of our significant business developments for the second quarter of 2023 and Ronen will provide an overview of our financial results for the six months ended June 30. Additionally, Dr. Robert Ward will provide his value perspective as a doctor using ProSense for breast tumor cryoablation. Dr. Ward is an Assistant Professor of Diagnostic Imaging at The Warren Alpert Medical School of Brown University, Program Director for the Breast Imaging Fellowship and Associate Chief of Diagnostic Imaging at the Women and Infant Hospital specializing in women's imaging and breast tumor cryoablation. We are grateful that he is taking the time to share his knowledge and experience using ProSense with us today. We will then open the call for Q&A. We are effectively executing our objectives of transitioning from clinical to commercial stage this year as we are experiencing increased adoption of ProSense worldwide. We reported a 32% increase in system and disposable probe sales compared to the first half of 2022, which we believe reflects a greater awareness of the benefits of our cryoablation solution when compared to the standard of care of lumpectomy. The US FDA review of our de novo application for ProSense is ongoing. We believe a favorable response from the US FDA would be a game changer and could significantly impact our performance. As a reminder, the FDA submission was for the indication of early-stage low-risk breast cancer in patients who are at high risk for surgery. The FDA review is progressing, and it is important to note that the timeline is consistent with the standard de novo review process and we remain highly engaged with the FDA. Outside of the US, ProSense recently received the regulatory approvals in Canada and China. This demonstrates the global momentum and reinforces our transition to a commercial stage company as we expand our revenue-generating efforts in multiple markets. For example, we signed a new nonexclusive distribution agreement in Portugal with MC, the largest distributor of third-party medical devices in Portugal. The initial purchase by the distributor includes two ProSense consoles along with numerous disposable cryoprobes and introducers. So the partnership is already off to a solid start. While we believe our largest market will be for breast cancer in North America, we are pleased to see third-party studies that prove cryoablation efficacy in treating a variety of other indications. During the second quarter, a study was published in the Journal of Vascular and Interventional Radiology reporting 92.8% efficacy in avoiding secondary surgery when using cryoablation for percutaneous endometriosis. The independent study conducted in Paris and the published paper were not sponsored by IceCure. ProSense was one of the two cryoablation systems used in this study. Global adoption of cryoablation continues to gain momentum, and we believe the positive published data from our trials combined with our efforts to raise awareness among end users is a key factor in this trend. Specifically, ProSense was used in the first-ever cryoablation continuing medical education, CME calls at the American Society of Breast Surgeons or the ASBrS annual meeting in April. Moreover, we see this continuing as ProSense will be featured in several other upcoming courses and medical exports later this year and in 2024. In summary, we are executing our key initiatives, and we believe the momentum will continue. While we are awaiting other significant milestones, namely the US regulatory approval, it is encouraging to have so many champions advocating for ProSense. We will hear from one of them in a few moments, Dr. Ward, about why he as well as other doctors are adopting ProSense. For now, I will turn the call over to Ronen for a summary of our financial results. Ronen?

Thank you, Eyal. For the six months ended June 30, 2023, revenues increased by 9% to $1.65 million compared to revenues of $1.5 million for the six months ended June 30, 2022. Excluding licensing revenues from our distribution agreement with Terumo Corporation of Japan, product sales increased by 32% in the six months ended June 30, 2023, to $1.37 million compared to $1.03 million for the same period last year. Product revenues were driven by higher sales in the United States, China, and other territories, partially offset by a decrease in sales in Europe. Gross profit was $0.75 million for the six months ended June 30, 2023, compared to approximately $0.82 million in the same period last year. Gross margin was 46% for the six months ended June 30, 2023, compared to 54% for the six months ended June 30, 2022. The decrease in gross profit and gross margin is primarily attributable to the decrease in revenue recognition from the Terumo distribution agreement. Research and development expenses for the six months ended June 30, 2023, were $4.19 million compared to $4.65 million for the six months ended June 30, 2022. The decrease is primarily due to the effect of the devaluation of the Israeli shekel compared to the US dollar on Israeli shekel-denominated expenses and a reduction in development expenses related to IceCure's next-generation single-probe system and the decrease in clinical and regulatory costs. In anticipation of ramping up US commercial efforts, sales and marketing expenses for the six months ended June 30, 2023, were $2.25 million compared to $1.53 million for the same period in 2022. General and administrative expenses for the six months ended June 30, 2023, were $2.35 million compared to $3.34 million for the same period last year. The decrease is mainly due to a reduction in directors' and officers' insurance costs and the effect of the valuation of the Israeli shekel compared to the US dollar on expenses. Total operating expenses for the six months ended June 30, 2023, were $8.79 million compared to $9.52 million for the same period last year. The decrease in operating expenses was primarily attributable to the reduction in research and development expenses and directors' and officers' insurance costs. The net loss reported for the six months ended June 30, 2023, decreased by $7.66 million or $0.17 per share compared with a net loss of $8.97 million or $0.24 per share for the same period last year. As of June 30, 2023, the company had cash equivalents, including short-term deposits of approximately $16.7 million compared to $23.66 million as of December 31, 2022.

Thank you for having me. I'm glad to be here today. I've been performing breast cryoablation since 2016 and have used three different cryoablation consoles, completing nearly 100 cases that include both benign symptomatic fibroadenomas and cancers. Most of the cases I've worked on involve cancers, and all were alternatives to surgery. My extensive experience has allowed me to publish numerous articles on the subject and speak at various national meetings. Since 2016, I've seen an increase in the number of cases, which has risen significantly from the few I started with. There is growing interest in cryoablation, partly due to increased awareness of the technology. Both breast radiologists and breast surgeons, along with interventional radiologists, are performing these procedures. Many national organizations are also focusing on this technique. Earlier this year, the American Society of Breast Surgeons held a half-day course dedicated to breast cryoablation, and similar courses are being organized by the Society of Breast Imaging and the Society of Interventional Oncology. We are at a pivotal moment for breast cryoablation, aligning with a trend towards less invasive treatment options. Regarding IceCure's ProSense cryoablation system, I’ve been using it for the past two years and have found IceCure to be extremely supportive throughout. After receiving approval from my hospital's value analysis team, IceCure provided vital training for our ultrasound technologists before we started performing procedures. They also attended some of our early cases, offering support as needed. The device itself is user-friendly and intuitive—more so than others I've used. For instance, when we place a needle through the center of the targeted lesion, the system allows us to enter the long axis dimension and helps position the needle tip accurately within the growing ice ball, enhancing our targeting confidence. The console is compact and fits well in our smaller procedural rooms. It’s a liquid nitrogen device, which is easier and less expensive to obtain compared to other available argon devices. Cryoablation offers many benefits over other ablative methods since it is painless and only requires local anesthesia, avoiding the need for sedatives. While some heat-based methods may require conscious sedation due to discomfort, cryoablation does not cause pain, surprising many patients who expect to feel something but do not experience any sensation during the procedure. It takes 15 to 30 minutes depending on the lesion, and patients can quickly return to their normal activities. I often perform these procedures in the afternoon, and many patients leave to enjoy dinner with their families, appreciating the minimally invasive nature of their treatment. Additionally, patients have reported high satisfaction with the cosmetic results, as the procedure only leaves a small entry point in the skin similar to biopsy needles. Research published in peer-reviewed journals shows excellent outcomes with complete ablation and long-term follow-ups indicating no recurrence in certain cases, sometimes better than surgical results. Quality of life measures also favor cryoablation over surgery. As you know, cancer is quite common, particularly among women, and with better screening technology, we are identifying cancers earlier, allowing for cryoablation as an effective treatment option. Patients are becoming aware of the procedure not just through media but also from their doctors, often opting for cryoablation when it's a viable choice. At our facility, we encounter 10 to 15 new cancers each week, with over 50% of those being small, screen-detected cancers suitable for cryoablation. I'll stop here and am happy to answer any questions afterward. Thank you.

So I'll go into the questions. Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. The first question is from Anthony Vendetti of Maxim Group. Please go ahead.

Thank you. First for the doctor, maybe if you could just talk a little bit about the advantages of cryoablation over lumpectomy. I know you mentioned the advantages of liquid nitrogen, which is IceCure's way of freezing the tumor, but versus Argon. But maybe just the advantages over lumpectomy. And then what you have been able to witness in terms of recurrence regarding your lumpectomy cases versus cryoablation. Thank you so much.

Yes, happy to fill that question. Cryoablation versus surgery. Well, the main advantage is that it's a less invasive procedure to perform, right? Surgery entails a pre-operative localization procedure where we put either a wire or a magnetic seed or something similar at the site of the cancer so that the surgeon can find that area in the operating room. Those patients need to go to the operating room and undergo general anesthesia. So there are a lot of people involved, including the operating room staff and anesthesiologist. Some patients are at increased risk from having general anesthesia due to medical issues, which is becoming more common as patients live longer with chronic problems. Also, there are costs associated with pathology and surgical specimen related to surgery. Therefore, surgery involves a lot of coordination. As we've observed in medicine over the decades, there is a trend toward less invasive treatments as long as they prove effective. Recent literature supports that cryoablation successfully treats these targeted lesions. In a 2016 study, they performed cryoablation followed by lumpectomy to evaluate if the tumor was eradicated. For cancers less than one centimeter in size, it was shown to be 100% effective. That has been our experience as well. Moreover, cryoablation offers superior cosmetic outcomes, costs less to the healthcare system, and is safer for patients who are high-risk for general anesthesia. Furthermore, it's a painless cryo procedure that solely requires local anesthesia. However, some breast cancers are not suitable for cryoablation, such as very extensive cancers that are not amenable to effective ultrasound guidance. If I didn't answer your question, please let me know, and I can elaborate further.

No. That was great. Just a quick follow-up. Currently, is cryo recommended for Stage 1 and Stage 2 cancers? Do you think it is possible that it could eventually be applicable for Stage 3? Or do you believe that Stage 1 and Stage 2 are the most suitable stages? What has been the reoccurrence in your cases?

The cases I handle usually involve older, frailer patients who are at risk for general surgery, and they are often not ideal candidates for cryo if the tumor is very large or close to the skin. However, we've had excellent outcomes. Out of all the cases I've managed, around 75 have been cancer-related, and we have only seen one tumor recur at the margin of the ablation zone. Some patients have experienced what we refer to as an ipsilateral breast tumor recurrence, but those tumors were more than two centimeters away from the original site or located in a different quadrant of the breast, which is considered a separate issue. Regarding our success in treating targeted cancers, we have achieved outstanding results. We are currently analyzing our data alongside data from other institutions and aim to publish our findings either later this year or early next year. The patients we typically see do not qualify for clinical trials because they may be viewed as less-than-ideal candidates for cryo. What was the other part of that question?

No. That's helpful. Just really quickly on lumpectomy, which has been around for much longer. Do you or your colleagues see recurrence rates of 15%, 20% plus in lumpectomy?

No.

No? Okay. So what's your typical recurrence rate for lumpectomy?

Well, when performing a lumpectomy, the tissue is removed and sent to the pathologist for margin evaluation. If there's cancer present at the margin, they conclude that some cancer has been left behind, leading to a re-excision rate of about 10% to 20%, depending on the surgeon group. In contrast, with cryoablation, we rely more on imaging follow-up and treatment planning from the start. Following up with imaging methods usually used post-lumpectomy, we've demonstrated that the recurrence rate is certainly not within the range of 10% to 20%.

Okay. Great. Lastly, and this is for Ronen, could you provide any updates regarding communication with the FDA related to the approval process?

Thank you, Anthony. This is Eyal. I will answer that question. We achieved our submission timeline, and we always expected a lengthy review process. Our interaction with the FDA has been cordial, consistent, and follows normal procedures and protocols, without anything out of the ordinary. To date, the review period remains on track as we expected. According to statistics, it takes 300 to 400 days for the FDA to make its decision. That is why we have consistently stated our expectation to hear back by the end of this year. All the information is currently with the FDA review team, and it would be unwise for us to make public statements regarding timing, as no one wants to get ahead of the FDA. Anthony, and everyone else listening, rest assured that we will communicate the FDA response when we receive it.

Thank you, Eyal. That was helpful. I'll hop back in the queue.

The next question is from Ben Haynor of Alliance Global Partners. Please go ahead.

Good day, gentlemen. Thanks for taking the questions. First off for me, Dr. Ward, you mentioned that the National Societies are taking more interest in cryoablation. In your career, have you seen other technologies or procedures where the National Societies have shown a similar level of interest, and what has become of them? I guess another way of asking is, does it typically lead to broader acceptance?

Yes. I mean, I think these societies are generally managed by very senior, typically academic faculty members who have a good grasp of current trends. Now that they recognize that this is a technology likely to persist, they want to take ownership of it and promote its use. I think that's what we are observing at present. Cryoablation can be performed by both surgeons and radiologists, and both groups are collaborating effectively to advance this technology. We hope to soon bring it into the main stream following FDA approval.

Okay. That's helpful. And for patients who are candidates for cryo, you mentioned that you treat patients that may not qualify for clinical trials. What characteristics do those patients typically have, and what traits do patients who opt for surgery despite being offered cryo have? Is it mainly just the desire to see a tumor on the surgery table?

So, the question was, what are the characteristics of patients who are given the choice between cryo and surgery, yet choose surgery, correct?

Yes, that's a simpler way of putting it, Bob.

In a multidisciplinary tumor board setting, each patient is presented with surgery and cryo as reasonable treatment options. Most of the time, when patients are offered cryo, they choose that option because it's less invasive, provided it can adequately treat their cancer. However, there are instances where patients have heard about both cryo and surgery and then opted for surgery due to misconceptions. They may fear the cancer is merely being frozen rather than removed, leading them to prefer the surgical route. Overcoming this educational barrier is crucial, but very few patients voice this concern. I can count on one hand how many patients have argued against cryo because they mistakenly believe it leaves the cancer behind. In fact, many more patients have approached me with interest in cryoablation when presented with extensive breast cancers that cover a large part of the breast and involve the skin. However, for those cases, we currently lack sufficient evidence to support cryo use. Most patients provided with the option typically choose cryo based on my experience.

Okay. So that's a small percentage of patients who might have some doubts about the method not removing the cancer.

Yes, indeed. It's an extremely small number of patients. In fact, far more patients inquire about cryoablation when they have extensive breast cancers compared to those who question the methodology. Currently, for those patients with inflammatory breast cancer that involves the skin, we do not believe there is enough evidence to support cryo use. Typically, the patients we see are those who qualify for procedure.

And regarding the potential for a strong signal among patients' immune responses, what do you believe?

I'm sorry, can you repeat that?

On patients' immune responses, any speculation on the potential for a strong effect?

Yes. I absolutely believe there is potential. Immunotherapy is a hot topic right now with much research focused on it. Research efforts are underway to evaluate immunotherapy in conjunction with other treatments. This has been performed in various tumors throughout the body, including breast cancer, and combining an ablative technique like cryo presents a promising opportunity. There have been captivating studies published since 2016, and ongoing active investigations show promising results. I advise you to look up some studies conducted at Memorial Sloan Kettering regarding cryoablation and ipilimumab, an anti-CTLA-4 antagonist that effectively releases the brakes on our immune systems, displaying favorable intratumoral and systemic antitumor responses.

That's fascinating, and I will need to look into that. One last point for you, Doc—could you clarify whether there are any challenges in interpreting post-cryoablation imaging?

It's very easy to teach other radiologists how to interpret post-ablation imaging. Typically, there's no issue. There are cases where a new density at the edge of the ablation margin or adjacent tissue may arise, which we recommend biopsying. Frequently, this turns out to be a benign process known as fat necrosis, which can also occur after surgery. Therefore, it's really no different in that context.

Okay. Understood. Thank you for addressing my questions. Just a couple for the company. Regarding the endometriosis study that was published—acknowledging the challenges of diagnosing endometriosis—how do you assess the potential opportunity it represents for IceCure?

Thank you, Ben. This is Eyal. The KOL Professor Cornelis, who conducted the trial in Paris, is now affiliated with Memorial Sloan Kettering in New York. He aims to expand research and publications regarding this indication. We regard endometriosis as a vital opportunity for our women’s health strategy. Breast cancer, benign breast tumors, and endometriosis can all be significant avenues for IceCure in the future.

Got it. If I may ask, regarding the investigators using multiple cryoablation systems, it seems they initially used another device and then switched to IceCure. Is that correct or unclear?

He utilized both ProSense and the other system available at his hospital for various cases. Moving forward in MSK, he intends to use our ProSense due to its benefits and ease of use as a liquid nitrogen single-use probe.

May I add that as a user of both Argon and liquid nitrogen devices, I would choose liquid nitrogen given the extreme cold temperatures and rapid formation of ice, which ensures confidence in targeting the lesions.

Okay, understood. One more quick question—any reactions or news related to cryoablation at ASBrS?

At ASBrS, we held a continuing education seminar on cryoablation, with several ProSense systems on display for demonstration. The session was oversubscribed, indicating great interest. Cryoablation for breast cancer was also featured in ultrasound courses and other events. So it was a prevalent topic at the last ASBrS meeting in April in Boston. Additionally, Dr. Ward mentioned that other societies, such as the SIO, have already announced plans for a master class on breast cancer cryoablation in January '24. Discussions are also underway at the Society of Interventional Radiology for later next year. Thus, breast cancer cryoablation is receiving strong attention across all our key demographics: breast surgeons, breast pathologists, and interventional radiologists.

Great! Thank you for addressing my questions, gentlemen. That's all from me.

The next question is from Kemp Dolliver of Brookline Capital. Please go ahead.

Great! Thank you. My first questions are for Dr. Ward. How is your department thinking about the number of consoles necessary for your patient population, both in terms of volume and geographically?

It depends on the number of clinicians performing procedures and the geographic footprint of their locations. Here in Rhode Island, given it's the smallest state, we are in close proximity; anything beyond a 15-minute drive feels far away. Therefore, I can manage with only one console, but of course, we require new probes for each case. At present, I'm handling approximately one case per week, but that will increase significantly once we see the FDA step up.

That’s great. How many physicians in your group might perform the procedure?

The procedure is ultrasound-guided and is essentially an extension of typical biopsy techniques. Hence, any of the 10 breast imaging radiologists in my group could perform the procedure seamlessly. The learning curve is minimal for those familiar with ultrasound-guided procedures, which many breast imaging radiologists and interventional radiologists possess. This represents a significant advantage.

Great! How long was the purchasing decision cycle for your institution?

Well, our institution tends to move slowly. We went through a value analysis committee for this capital purchase, and it took nearly a year. However, under different circumstances, it would be much quicker—if we were dealing with a private practice, we could decide over lunch.

Would FDA approval abbreviate that decision cycle?

Yes, undoubtedly.

Fantastic. For the management team, how would you gauge your progress in building out commercial capabilities in the US? Are you halfway there, a quarter of the way, or 5% of the way?

Thank you, Kemp. This is Eyal. Some aspects of our plan have already been successfully implemented. We discussed our attendance at important conferences, mainly the upcoming ASBrS. We've added several team members in the US and are actively recruiting a seasoned Vice President of Sales for North America, focusing on the US but also managing Canadian affairs since we received regulatory approval there a few weeks ago. We are in the final stages of this recruitment and expect to announce a new hire soon. This VP will lead the sales team, and we are expanding our team to accommodate the anticipated FDA indication and the final study results expected in February '24. So we're building the team to be ready upon regulatory approval and to arrive at our commercial stage.

What is your target size for the commercial team?

The team will grow in line with our sales expectations. I cannot provide a specific number at this time, but we will begin working on our 2024 plan shortly as part of a longer-term strategy, and we will staff accordingly for both sales and clinical support to adequately assist new users during case coverage.

Thank you.

The next question is from Yi Chen of H.C. Wainwright. Please go ahead.

Hey, everyone. This is Jake on behalf of Yi Chen. I have a question for the doctor. You mentioned that there may be indications that won't greatly benefit from cryoablation. Following up on that, do you think the optimal indications are in early-stage, low-risk tumors? Do you see this as the ideal target population for cryoablation, or do you think there are other indications that may benefit from this technology? If so, could you provide insights?

fibroadenoma:

One aspect that caught our attention was your evaluation of immunotherapeutic agents paired with cryoablation. This might be a question for management, but could you shed light on your plans to pursue that with ProSense or whether studies are already underway?

Thank you. This is Eyal. The Memorial Sloan Kettering team is using the ProSense system. Dr. Ward mentioned that in one of their studies— a small three-arm trial involving cryo, an immunotherapy drug, and a combination therapy—results indicated that the combination yielded much greater effectiveness. Our technology has also been featured in animal studies assessing cryo-immunological effects conducted at Case University and Cleveland Clinic. Recently, a new paper was published on that work within the last two to three weeks. Hence, we will support this line of investigation conducted mainly as investigator-initiated trials with our partners and leading experts in the field.

Got it. Thank you. Finally, is the five-year readout from the I3 study still slated to occur in the first half of 2024?

Yes, if the last patient comes on time as scheduled. We anticipate the final results during the first quarter of 2024. As everyone is aware, sometimes patients do not arrive precisely as scheduled. Therefore, it could take several additional months to analyze the data. We currently expect to file with the FDA around mid-next year regarding the final results of the study, but as I mentioned, the last patient visit is scheduled for February 2024, followed by another six months for data finalization.

Great! Thank you.

There are no further questions at this time. I'll now pass the call back to Eyal for his closing remarks. Eyal, please go ahead.

Thank you very much, everyone. I would like to especially thank Dr. Ward for taking the time to share his experience and extensive knowledge regarding cryoablation, particularly in the treatment of breast tumors and breast cancer. As Dr. Ward also mentioned some experience in endometriosis, IceCure will continue to work diligently to reach several milestones we anticipate in the next six to twelve months. As we noted, we are expecting regulatory approval for the system from Brazil, and of course, the FDA is our most critical target, and we are continuing to expand in the market. Thank you very much for your time today.

Thank you.

Thank you. This concludes the IceCure Second Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.