IceCure Medical Ltd. Q3 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 Michael Polyviou. Please go ahead.

Thank you, Tony, and welcome to IceCure Medical's conference call to review the financial results for the nine months ended September 30, 2023 and provide an update on recent operational highlights. You may refer to the earnings press release that we issued earlier this morning. Participating on today's call are IceCure Medical's CEO, Eyal Shamir, and the company's CFO and COO, Ronen Tsimerman. Before we begin, I will now take a moment to read a statement about forward-looking statements. This call and the question-and-answer session follows it contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Security Litigation Reform Act of 1995 and other federal security laws. Words such as expects, anticipates, intents, plans, beliefs, states, 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 position to make significant commercial advances in key markets, pursue the regulatory approvals in various jurisdictions, including with respect to the appeal we file requesting review of the De Novo classification for ProSense, expansion of clinical applications for results from our clinical trials, potential market adoption, and future sales of IceCure’s minimally invasive cryoablation technology, advancing regulatory commercial strategies, strategic plans, and our belief that we are in a position to meet our primary goals in 2024. 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 during this call. The forward-looking statements contained or implied during this call 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 Securities and Exchange Commission on March 29, 2023, which is available on the SEC's website, at www.sec.gov. The company disclaims any undertakes any intentional or obligation except required by law to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time sensitive information and speaks only as of the live broadcast today, November 15, 2023. I will now turn the call to IceCure Medical CEO, Eyal Shamir. Eyal, please go ahead.

Thanks, Michael, and hello, everyone, and thank you for joining us today to review our operating results for the nine months ended September 30, 2023. To begin, and on behalf of the entire IceCure team, I want to thank those who have reached out to us over the past few weeks. We greatly appreciate your thoughts, well wishes, and concern. While our team and everyone in Israel is personally impacted by the war with Hamas, and it remains a difficult and challenging matter, I want to reiterate that IceCure will remain laser-focused and we will continue to execute our plan of delivering our life-reserving technology to people around the world for improved healthcare outcomes. We will continue to push forward, as reflected in several key developments we have achieved during the current quarter. We are also experiencing a high level of interest in our ProSense system. We had some significant achievements on the regulatory front, including approval for ProSense in Brazil and Canada. Additionally, we are encouraged by the vast number of independent studies being initiated, conducted, and published by doctors using ProSense. Our cryoablation system was highlighted at several medical conferences, and commercial distribution continues to expand as our ProSense systems and disposable probes continue to increase. Given the importance of this development, I have asked Shay Levav, our Vice President of Regulatory Affairs, quality assurance, and clinical applications, and Tlalit Bussi Tel-Tzure, our Vice President of Business Development and Global Marketing, to provide some additional comments. Earlier today, we announced that we filed an appeal with the FDA requesting an additional review of IceCure’s De Novo classification request. Shay will provide more specifics about the appeal along with our regulatory pathway. Tlalit will also provide more insight into the impact of the independent study and how it helps our global commercial penetration. They will both be available to answer your questions during the Q&A session at the end of this call. Shay, let's begin with our prepared remarks. Please go ahead.

Thank you, Eyal. As most of you know, in October 2022, IceCure filed a De Novo classification request with the FDA for ProSense for treating patients with early-stage low-risk breast cancer. The filing included interim analysis from the IOL ICE3 breast cancer study because we believe that the data demonstrated efficacy and safety, with a five-year estimate of 95.7% recurrence-free rate and 100% doctor and patient satisfaction with cosmetic results. We saw this as an opportunity to make this minimally invasive cryoablation procedure available to women in the U.S. sooner. Following a nearly one-year review, which is typical, the FDA denied our De Novo request in September 2023. We reviewed the FDA's comment letter in greater detail, and in consultation with our regulatory consultants, we have concluded that the FDA's response was largely due to the agency's choice of a comparator group against which the I3 interim results were evaluated. There is a large amount of data from published studies in the scientific literature, including meta-studies, that provide efficacy and safety numbers for women with early stage low-risk breast cancer. We added substantial literature in the De Novo filing request, and this is why we had been expecting a more favorable response from the FDA. It was consistent with our expectation based on the conversation we had with them during the review process. We decided to appeal because we believe a dialogue with the FDA will allow us to come to an agreement on a proper comparator, mainly due to the fact that a newly published article that was not available at the time of the last material submission to the FDA was cited in the denial letter, and incorporating this article into the meta-analysis is more appropriate for the patient population we seek to treat with ProSense. We believe a subsequent analysis of the data may make the benefits of ProSense more obvious and therefore lead to granting of the De Novo submission and marketing authorization. We expect a response to our appeal from the FDA by the end of January 2024, and our goal is to work closely with the FDA to come to agreements on the comparator and on the classification of ProSense. After completing the review process with the FDA, we seek to finalize the classification of ProSense. Our I3 study remains on track and is expected to be completed in the first quarter of 2024, following the last patient's five-year follow-up exam, which has remained consistent throughout the trial. Furthermore, the FDA's decision regarding the De Novo for breast cancer has no effect on ProSense FDA-cleared authorizations for other indications in the U.S., so patients and doctors continue to have access to and benefit from ProSense in the U.S. Outside of the U.S., ProSense is approved for early-stage low-risk breast cancer in numerous countries, including various European countries, Brazil, and China. I will now turn it over to Ronen, who will share our operating developments.

Thank you, Shay, for that thorough review. In the context of early-stage low-risk breast cancer, two independent studies conducted in Spain and Italy were recently presented at the European Society of Breast Imaging annual scientific meeting by doctors who are using ProSense. The studies produced data that are similar to our I3 results, adding to the growing body of evidence pointing to ProSense as a minimally invasive alternative in this indication. While ICE3 is in the process of conducting two studies, I3 in early-stage low-risk breast cancer and ICESECRET in kidney cancer, it is important to acknowledge that there are 17 additional independent non-sponsored studies ongoing for ProSense. This is in addition to the 12 studies that have already been published in peer-reviewed journals and medical conferences. Thirteen of the published and ongoing studies are for breast cancer, further reinforcing confidence in our minimally invasive cryoablation options. Why would so many doctors using ProSense around the world for multiple indications be taking their own time to conduct and publish such studies? We believe it is because they see first-hand the benefit that ProSense provides for their patients. This gives us the greatest confidence in ProSense and IceCure. We hope you agree. This growing body of data and our focus on effective commercialization strategy are leading to greater ProSense usage globally, as evidenced by increased sales of ProSense systems and disposable cryoprobes. In the U.S., we recently appointed Mr. Shad Good, a talented healthcare sales executive with a solid track record in breast diagnostics and therapeutic devices, as our VP of sales for North America. This market represents a significant opportunity for ProSense, and I believe that upon a successful outcome of our trial and regulatory strategy, we will fully realize this as Shad and his team will significantly contribute towards the acceleration of ProSense sales in the U.S. In Europe, we expanded distribution in Portugal with a new distributor, MC Medical, the largest distributor of third-party medical devices in the country. In India, the first-ever breast cancer cryoablation procedure was performed using ProSense. We believe as India adopts more early detection for breast cancer, migrating to a minimally invasive solution like ours will improve the life of women by providing them with an alternative to lumpectomy. I will now turn the call over to Tlalit, our Vice President of Business Development and Global Marketing, for further insight on how ProSense is gaining increased recognition globally as an excellent minimally invasive alternative to surgery across multiple indications. Tlalit?

Thank you, Eyal. As independent user data continues to grow and is shared at medical conferences and in journals, this is creating momentum as more and more doctors and patients become aware of ProSense as a minimally invasive option. We believe the independent study data is a major catalyst for ProSense adoption and our marketing team and distribution partners are very active at medical conferences, speaking with doctors, answering questions, and providing non-financial support to those who are interested in conducting studies. We encourage these doctors who use ProSense to share their insights in our presentations and at medical conferences. Recently, we led a symposium with ProSense. In India, at the 10th Annual Conference of the Breast Imaging Society of India, results from IceCure's ICE3 study were presented by the study's Co-Primary Investigator, Dr. Kenneth R. Tomkovich. In Copenhagen, Denmark, at the Cardiovascular Interventional Radiology Society of Europe for 2023, a tumor ablation hands-on device training with ProSense was conducted, and a symposium about cryoablation was conducted by two leading interventional radiologists who used ProSense, one of whom conducted a cryoablation for endometriosis, which was recently published. In Valencia, Spain, at the European Imaging Annual Scientific Meeting, the two independent studies in early-stage low-risk breast cancer were presented as previously mentioned by Eyal. Clearly, ProSense is gaining significant traction and momentum among doctors, and we believe this translates into more system and disposable demand globally. I'll now turn the call over to Ronen for a summary of the financial results. Ronen?

Thank you, Tlalit. For the nine months ended September 30, 2023, ProSense systems and disposable probe sales increased by 11% to $1.7 million, compared to $1.5 million for the nine months ended September 30, 2022, driven by higher sales in the U.S. and China. Total revenue for the nine months ended September 30, 2023 was approximately $2 million, compared to $2.1 million for the nine months ended September 30, 2022. As expected, the lower revenue is due to the end of the revenue recognition from the Exclusive Distribution Rights Agreement with the Terumo Corporation in Japan. However, this was partially offset by an increase in ProSense systems and disposable sales. Gross profit was $0.73 million for the nine months ended September 30, 2023, compared to $0.98 million for the nine months ended September 30, 2022. Gross margin was 37% for the nine months ended September 30, 2023, compared to 46% for the nine months ended September 30, 2022. The decreasing gross profit and gross margin were attributable to the decreased revenue recognition from the Terumo Distribution Agreement. If we deduct the revenue recognition, our gross margins increase slightly. Research and development expenses for the nine months ended September 30, 2023 were $6.39 million, compared to $6.89 million for the nine months ended September 30, 2022. The decrease was primarily due to a reduction in development expenses of IceCure's next-generation single-probe system. In support of ongoing global commercialization adoption and in anticipation of enhancing our U.S. commercial sales infrastructure, sales and marketing expenses for the nine months ended September 30, 2023, were $3.23 million, compared to $2.22 million for the nine months ended September 30, 2022. General and administrative expenses for the nine months ended September 30, 2023, narrowed by 30% to $3.27 million, compared to $4.67 million for the nine months ended September 30, 2022. Total operating expenses for the nine months ended September 30, 2023 were $12.89 million, compared to $13.79 million for the nine months ended September 30, 2022. The decrease in operating expenses was primarily attributable to reductions in general and administrative expenses as well as a decrease in research and development expenses, which were partially offset by the increase in sales and marketing expenses. The net loss reported for the nine months ended September 30, 2023, decreased by 11% to $11.66 million, or $0.26 per share, compared with a net loss of $13.03 million, or $0.5 per share for the same period last year. As of September 30, 2023, the company had cash and cash equivalents including short-term deposits of approximately $13.2 million, compared to $23.6 million as of December 31, 2022. We believe our efforts to reduce non-revenue generating and clinical effort costs will lower our monthly cash utilization, ensuring the company can meet its primary goals in 2024. Before I hand the call back over to the operator, Eyal and I will be in San Francisco during the JPMorgan Healthcare Conference in January, and we hope to see you there as well. Please reach out to Michael Polyviou at EVC Group if you would like to schedule a meeting.

Thank you. The first question is from Anthony Vendetti of Maxim Group. Please go ahead.

Thank you. I just want to focus a little bit on a point you made in the press release as well as on the call. Even though the FDA denied the De Novo classification in the ProSense, it is still approved. The ProSense system is still approved here in the U.S. Can you remind us what indications it is approved for right now in the U.S.? I'm going to have a follow-up question. Thank you.

Yes, thank you, Anthony. Shay, please respond with the approved indications in the U.S.

Yes, thank you, Eyal. So the system is approved in the U.S. in several areas including urology and oncology, dermatology, gynecology, ENT, general surgery, as well as thoracic surgery and proctology. This is maintained without any change.

Okay, great. And then, you submitted an appeal. You said that you expect a response to the appeal by the end of January. What are the options? If they deny the appeal, do you wait for the last patient follow-up data and then resubmit, or what are the next steps for the early stage low-risk breast cancer approval?

Thank you, Anthony, for this question. We believe that the appeal is the best way for us to come to an agreement with the agency on the comparator. This is the main issue. If they do not re-open the file, we could submit a new breast application and agree with the FDA on the comparator, and then we will make a formal submission after the study is completed. As we mentioned, we have less than 20 patients that need to complete the final exam, which is expected to be done during the first quarter. So we could proceed with a new submission and then engage in discussions and reach an agreement on the comparator before submitting the entire study.

The entire study. Okay. And then you also have approvals in Canada and recently in Brazil. Can you talk about the initial sales traction in Brazil and then how are sales going in China?

Yes, in Brazil, after we began our commercial activities, the orders have started to come in. Out of the participating two conferences, we had a group of top KOLs who came to Israel a few months ago for training. So we could see initial penetration and work with the top KOLs to enter the Brazilian market. Canada will be part of our U.S. activities, which will mainly focus on the U.S., but Canada is also our target. I just returned from China and Japan on a business trip, and in China, we are exploring reimbursement options and starting our penetration in the Chinese market.

Okay. And I know you're working with Medtronic there. In Japan, you're working with Terumo, the largest medical device company in Asia. Can you talk a little bit about that and then I'll turn it back over and hop back in the queue? Thank you.

Yes. In China, we have a medical distributor who is the official master distributor, and he is working with Medtronic as well. In Japan, Terumo is busy working to get regulatory approval. As soon as they receive regulatory approval, they will start selling. Meanwhile, IceCure is selling in Japan directly under a doctor's importation license. As soon as Terumo receives PMDA regulatory approval, they will initiate all sales and marketing activities in Japan.

Okay, great. And I'd just like to conclude with, I stand personally with Israel's fight against terrorism. We wish you, your company, and everyone in Israel the best of luck and Godspeed. Thank you.

Thank you, Anthony. Thank you for your great support.

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

Good day, guys. Thanks for taking my question. First off, and I'm sorry if I missed this, but what is the FDA looking at as a comparator group?

Hi Ben, they are looking at the comparator group of local recurrence for standard-of-care, which means lumpectomy.

Okay, and what you've submitted, if I'm not mistaken, is for patients that are at high risk for surgery, as in, you know, not suitable for surgical alternatives. Is that correct?

Yes, Shay, please elaborate on the 510-K, De Novo that we submitted last October.

Yes, sure. The original submission, the De Novo submission and the original indication was indeed for patients at high risk for surgery, which is a subpopulation of the I3 study. In our last material that was sent to the FDA, we demonstrated that the estimated result of the five-year follow-up of the entire population is comparable to the standard-of-care, which is lumpectomy.

Okay, I mean, I guess to me it seems like kind of an odd comparator for the FDA to choose. I mean, to me, if you kind of like saying, while we were trying to evaluate the swimming performance of college athletes, and then we want to evaluate, in that case, we want to evaluate the swimming performance of toddlers or quadriplegics or something that doesn't compute, at least in my mind, and maybe that's more of a rhetorical question than anything. So I don't know if there's any commentary there, or if you'll let that one lie.

You know, Ben, they would like to compare it to standard-of-care. I believe that we will be able to get it via the appeal process, which will facilitate discussions also to management and a fresh perspective, and I believe that there will be open discussions, allowing us to compare and reach an agreement, and then we will be able to make the final submission.

Okay, that's fair enough. And lastly for me, just any color you can share on how the hand-on cryoablation session went for you guys at CIRSE?

Tlalit, please elaborate on the success we had at CIRSE.

I can share that it was overbooked. There is a maximum capacity, and they had to pre-register, and the room was full, with a waiting list. Overall, whenever we do a hands-on workshop, we see that we have full attendance, and there is a lot of engagement and interest, and after the workshop we have participants coming to the IceCure booths to learn more. One more key point is the clear benefit of IceCure versus other companies working in cryoablation. With our liquid nitrogen technology, we're able to perform workshops and demos freely at our booth, while other companies need specific restricted areas for their Argon-based systems to conduct cryoablation. The buzz around the workshop, which is always very well attended, translates into increased demand from potential customers after the workshop.

Okay, that sounds great. Well, thanks for taking the questions, and I appreciate the time, guys.

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

Great. Thank you, and good day. First, I just wanted to follow up on the discussion regarding the comparative group. Is there a basic challenge here that the subpopulation you defined as part of your filing probably hasn't been studied with the same definition in other populations? Because I remember from talking with one of your other KOLs on a call regarding the filing that, to some extent, you had to clarify with the FDA the actual definition of this patient population to proceed with the filing. Is that a fair assessment of the work you need to do here?

Shay.

Yes, thank you for the question, Kemp. I would say that the main argument and the reason why we are appealing is because of the newly cited article that FDA referenced in their denial letter, which needs to be incorporated into the comparator. I still have not had a chance to work with the FDA because of the timing of this cited article. In our appeal, we plan to incorporate this new cited article into the meta-analysis submitted in the past and compare it to the results of the I3 interim analysis.

And to be clear, the inclusion of that article is part of what you're doing as part of the appeal?

Yes. In the appeal, we have referred to this new cited article and shown the FDA how it is incorporated and how it compares to our results.

Perfect. Thank you very much for that. How quickly can you re-file after the final visit, assuming you don't get approval? How quickly are you able to complete that process?

Thank you, Kemp. Assuming that the last patient will complete the final exam during the third quarter, I believe that by summer next year we will be able to submit for the entire cohort of the I3 study. So basically, next summer we are planning to make the submission for the final study.

Thank you. And then just turning to one or two financial questions. Are there any potential distribution deals that you could find this year?

Kemp, I will reply today, so until in the next six weeks during the fourth quarter, we are not planning to have any additional new distribution agreements. We are mainly materializing the new distribution agreements that we signed, like in Portugal, which again is extremely important for us to support them for better penetration. Similarly, in Brazil, the team just returned from two important conferences in India and worked with existing top KOLs like Tata Memorial Cancer Center. We are mainly exercising and getting some results from our existing agreements and customers.

Thank you. And my last question relates to the expense controls. How significant reductions or tightening should we expect regarding spending as you work through the process with the FDA?

Ronen.

Thank you, Kemp. As I said earlier, we had $13.2 million at the end of the quarter. The cost reduction we're implementing is primarily to give us additional time to execute our plans in 2024. I believe that it will provide us the opportunity to carry out our plans for the following year. We will, of course, increase our focus on enhancing sales and completing all necessary submissions and everything needed for FDA approval. This is what we will concentrate on in the coming months.

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

Thank you for taking my question. Is the FDA's approach to selecting a comparability group not only affecting the De Novo application but also going to affect the future application for the entire study population? Is that one of the reasons you need to appeal for the De Novo application at this time? Instead of just waiting for the future application for the entire study?

Thank you, Chen. Basically speaking, the comparator that we agree upon with the FDA will be for lumpectomy for low-risk early-stage breast cancer patients. Thus, it will be the same comparator for the high-risk subgroup of patients and for the entire study. The same agreement will support us in both cases. By the time, as Shay mentioned, end of January, we will be close to finalizing the data. Most probably, we will just use this comparator to make a new submission for the entire study, which remains our primary endpoint. We tried to have the first indication based on our excellent interim results, but our main goal remains to submit for the study after the full five-year follow-up. So the comparator will apply to both cases.

Okay, got it. And I noticed that the company's top-level revenue in the third quarter appears to be lower than the first and second quarters. Could you comment on how revenue is expected to trend going forward and what are the current hurdles for sequential growth to occur?

Ronen.

Yes, the third quarter was a little challenging. Usually, we see that the third quarter is not an easy quarter, mostly because of summer vacations, so we see sales tend to be a bit slower. We don't provide guidance for the whole year, so I can't offer any specific numbers for the rest of the year.

Okay, but could you comment on any hurdles in the market that will prevent you from growing faster?

No, nothing significant. We would certainly appreciate having the FDA approval, as it would definitely assist us in market penetration, but we have had sales before the denial letter from the FDA, and we continue to have sales now. We do not see any significant impact on our current sales. As you can see, we reported an 11% increase in product sales this year versus last year.

Okay, okay. Thank you.

This concludes the Q&A session. Eyal Shamir, would you like to make your concluding remarks?

Thank you, Yarni, and thank you, everyone, for participating in our call today. Despite the challenges we are facing here in Israel, our entire team remains committed and continues to put our best effort into bringing ProSense to doctors and patients who clearly appreciate the benefits as an alternative to open surgery. Our ICE3 trial, which is being performed in the U.S., is unaffected. We are working closely with our global distribution partners to ensure uninterrupted distribution and support for ProSense so that patients can receive the care they deserve. We thank all our investors for your continued support and confidence in IceCure. Thank you.

This concludes the IceCure third quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.