Earnings Call Transcript - ICCM Q2 2022

Operator, Operator

Welcome to IceCure’s Conference Call on the Financial Results for the First Half of 2022. Management will provide an overview of IceCure’s financial results as well as clinical, commercial, and operational highlights. Participating on the call today are IceCure’s CEO, Eyal Shamir; and CFO, Ronen Tsimerman. They are joined today by Dr. Kenneth Tomkovich, the Co-Primary Investigator for IceCure’s ICE3 ProSense clinical trial on cryoablation of small, low-risk breast cancer. Following the presentation, IceCure’s management and Dr. Tomkovich will be available for a question-and-answer session. Before we begin, I will now take a moment to read the statement about forward-looking statements. This call and the question-and-answer session that follows contains 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, IceCure is using forward-looking statements in this presentation when it discusses pursuit of regulatory approvals in various jurisdictions, strategic plans, commercial growth, expansion of clinical applications, and potential market adoption of its minimally-invasive cryoablation technology, advancing regulatory and commercial strategies, and expected quarter-over-quarter revenue variations and other key business highlights for future periods. 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 the 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, 2021, filed with the SEC on April 1, 2022, which is available on the SEC’s website. 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 will now turn the call over to IceCure’s CEO, Eyal Shamir.

Eyal Shamir, CEO

Hello, everyone, and thanks for joining us today. We will start with a review of our significant business development in the first half of 2022, followed by an overview of the financial results. We’ll then hear from Dr. Tomkovich, who will share thoughts on breast cancer cryoablation and there are important perspectives before opening the call for Q&A. During the first half of 2022, and through our wholly-owned subsidiary IceCure Shanghai, we signed an exclusive distribution agreement in Mainland China for IceSense3, which is the ProSense brand name in China. We signed this agreement with Shanghai Medtronic Zhikang Medical Devices Company Ltd., an affiliate of Medtronic plc, and Beijing Turing Medical Technology Company Ltd. This high-value commercial agreement with a division of Medtronic, the world’s largest medical devices company, is a key strategic milestone for IceCure in one of the most important healthcare markets in the world. Shanghai Medtronic Zhikang Medical Devices Company Ltd. has the expertise and market power to facilitate rapid market penetration for IceSense3 in China. We believe China is a market where cryoablation technology currently has minimal market penetration and immense potential driven by the country’s accelerated adoption of new technology that improves outcomes. The Government of China is investing heavily in healthcare infrastructure; by 2030, the size of the healthcare market in China is expected to reach $2.3 trillion, according to McKinsey reports. This is more than double its size in 2020, according to statistics. Shanghai Medtronic Zhikang Medical Devices Company Ltd. will be the exclusive distributor for the IceSense3 system and its disposable probes in Mainland China for an initial period of three years. Minimum purchase targets for the first three years of the agreement is $3.5 million. We expect to deliver and book revenues from the first IceSense3 systems under this agreement in the second half of 2022. IceSense3 has already been approved by the China health regulatory body, the National Medical Products Administration. We have submitted an amendment application to the registration certificate for approval of the disposable probe, which, if approved, will allow us to sell disposable IceSense3 Cryoprobes for commercial use. We expect to receive such approval for the probes by the end of 2022. In addition to this major deal with Shanghai Medtronic Zhikang Medical Devices Company in China, in the second quarter of 2022, we sold and installed our ProSense system in several clinics worldwide. This includes clinics in the U.S., such as the MANA Breast Center in Arkansas and Georgia Breast Care in Georgia. ProSense was also installed at other healthcare facilities in Turkey and Poland, where the first breast fibroadenoma treatment was conducted with ProSense in those countries. We have also sold and installed our ProSense system in France and at Bnei Zion Medical Center in Israel, which conducted its first breast cancer treatment with ProSense. Based on the level of commercial interest during and after the second quarter, we expect that the number of these kinds of installations and sales may potentially increase. We continue to extend our regulatory landscape; during the second quarter, regulatory applications were filed in Brazil and Canada. In addition, the one signed in China for the IceSense3 disposable probes at the end of 2021. In Brazil, the regulatory application was filed for the ProSense system for indications, including breast and other cancer-related benign tumors and palliative intervention. We have been approached by a number of Canadian healthcare providers interested in ProSense as they seek to offer minimally invasive treatment for breast and other tumors. Amid this demand, a regulatory application was filed in Canada for the ProSense system for numerous indications, including the ablation of benign and malignant breast tumors. We are very active in presenting, demonstrating, and training physicians in the use of ProSense, which is consistently very well received. During the second quarter of 2022, we participated in ten conferences and events. We presented the course of a cryoablation breast cancer tumor at the Society of Interventional Radiology annual meeting in Boston. Our publication regarding our ICE3 breast cancer cryoablation study interim results was chosen as one of the best papers of 2021 from thousands of breast cancer articles published annually. We conducted demos of ProSense at the European Conference on Interventional Oncology; moreover, at the Society of Breast Imaging and the American College of Radiology Conference where breast tumor ablation courses were presented by two users of ProSense. Clearly, ProSense is gaining traction in the U.S. and with the global medical community, including breast surgeons, interventional radiologists, and interventional oncologists. As we work to expand our regulatory landscape and commercial reach, we believe that this activity will be reflected in our revenue in the future. I will now turn the call over to Ronen Tsimerman for financial results.

Ronen Tsimerman, CFO

Thank you, Eyal. For the six months ended June 30, 2022, revenue decreased by 27% to $1.5 million, compared to $2.1 million in the first half of last year. The decrease is due to a reduction in revenue recognition of approximately $400,000 from distribution agreements with Terumo for the commercialization of ProSense to treat malignant breast tumors in Japan, Singapore, and Thailand, and a decrease in sales in Asia, which continue to be impacted by COVID surges and associated restrictions on commercial activity. These decreases were partially offset by an increase in sales in the U.S. and Europe. Gross profit was approximately $800,000 for the six months ended June 30, 2022, compared to approximately $1.2 million for the same period in 2021. Gross margin was approximately 54% for the six-month period ended June 30, 2022, compared to approximately 58% for the first six months of 2021. The slight decrease in gross margin is mostly attributable to the decrease in sales and in revenue recognition from the Terumo distribution agreement. Research and development expenses for the six months ended June 30, 2022, were $4.6 million, compared to $2.7 million for the same period last year. The increase is attributed to the acceleration in the development of IceCure’s next-generation single-probe system and clinical and regulatory activities, mostly in the U.S., China, Brazil, and Canada. Sales, marketing, general, and administrative expenses in aggregate for the six months ended June 30, 2022, were $4.9 million, compared to approximately $2.2 million for the first six months of 2021. The increase is attributed to the Company’s expanding commercialization efforts, increasing our participation in conventions and conferences, and to increased NASDAQ listing-related expenses. Total operating expenses for the six months ended June 30, 2022, were approximately $9.5 million, compared to $4.9 million for the same period last year. The increase in operating expenses is attributable to increased development, commercialization, and NASDAQ listing-related activities. As a result of lower revenue and increased operational activities, the net loss reported for the six-month period ended June 30, 2022, increased to approximately $9 million or $0.24 per share compared with the net loss of approximately $3.8 million or $0.16 per share for the same period last year. As of June 30, 2022, the company had cash and cash equivalents of approximately $17.7 million compared with approximately $25.6 million as of December 31, 2021. I will now turn the call over to Dr. Kenneth Tomkovich.

Kenneth Tomkovich, Co-Primary Investigator

Thank you very much for that introduction. Again, my name is Dr. Kenneth Tomkovich. I am a radiologist with Princeton Radiology in Princeton, New Jersey, in the United States. I’m also one of the lead investigators in the ICE3 trial for breast cancer cryoablation. My experience with cryoablation has spanned over 14 years. I’ve been practicing as a Radiologist and Interventional Radiologist for 23 years, but my interest in breast cancer cryoablation really began around 2008 when I was doing other interventional procedures and other ablation procedures for other organs, such as the liver, lung, and kidney. I posed the question, why are we not doing more breast cancer cryoablation? I started to research the topic and publish some articles in different journals. From that point, we developed the ICE3 trial and aimed to study patients who were low-risk patients having low-risk breast cancers—low grade, small primary cancers, 1.5 centimeters or less. We included patients who were 50 years and older in the trial. After we began enrolling patients in 2014, we followed them for four to five years with mammography only. This is the first trial in humans in the world that included this patient population while not following the ablation procedure with any type of surgical resection. We had our last patients enrolled in 2019 and continued to follow the results, with final results expected at the end of 2023 or early 2024 for the ICE3 trial. Personally and professionally, it’s been a very rewarding year with the continued expansion and acceptance of this theory and concept of performing cryoablation for breast cancer patients. Only five or six years ago, most of my colleagues would’ve thought that this was not a possibility or maybe not even a good idea, given that surgical lumpectomy was the standard of care. But today in 2022, I can honestly say that the acceptance of this procedure and the way we perform it using the ProSense system and IceCure Medical technology has become increasingly accepted among many sub-specialties, including breast surgeons, interventional oncologists, breast radiologists, general radiologists, and interventional radiologists. It has been an honor to have a publication accepted for scientific presentation and an abstract accepted for scientific publication and presentation at this year’s prestigious RSNA Meeting in Chicago. During that meeting, we presented six-year part results from the ICE3 trial as well as a poster on imaging findings post cryoablation, which are very important to radiologists as there has been no data set on these imaging findings outside of ICE3. I've also had invitations to speak at meetings in India and China where I presented remotely on topics related to breast cancer cryoablation. I see this technology continuing to be adapted more broadly, not only throughout the United States but also around the world. There are registries forming to study the outcomes of breast cancer cryoablation in patients outside of research trials. Looking ahead, I think that there will be wider adaptation of this technology and this procedure. I find it rewarding to see cancer-free patients five to six years post-ablation, who have no cosmetic effects from this procedure. Thank you.

Eyal Shamir, CEO

Thank you, Dr. Tomkovich for sharing your insights. I’m sure our shareholders appreciate your perspective as a clinician who has been using our technology. Operator, we would like to now open the call for the analysts.

Operator, Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. Please proceed with your questions.

Ben Haynor, Analyst

Good afternoon, gentlemen. Thanks for taking the questions. First off for me, Dr. Tomkovich, I wanted to explore your history. You’ve been looking at cryoablation since 2008. What attracted you to this procedure and what do you think has changed in recent years regarding its perception?

Kenneth Tomkovich, Co-Primary Investigator

I personally don’t know much about the history you mentioned regarding Galil and EndoCare, but I can answer your question on cryoablation. There are several ablation technologies available—microwave, RF, laser ablation, irreversible electroporation. When you administer those modalities, patients often need general anesthesia or at least heavy conscious sedation, which isn’t the case with cryoablation. For the breast, the ice ball formed is highly visible via ultrasound, which is what we use for guidance, and it doesn’t require anesthesia. The patients are awake and alert during the procedure. This visibility and the safety profile of cryoablation have convinced many to adopt this method.

Ben Haynor, Analyst

That's very helpful. Was there inertia against adopting cryoablation due to past failures or just a standard of care mentality?

Kenneth Tomkovich, Co-Primary Investigator

The hesitation stemmed from previous failures with ablation for breast cancer. Colleagues defaulted to surgical lumpectomy because it was seen as the standard of care. Now, as we present our successful outcomes five to six years after ablation, many are having that ‘aha moment’ and realizing the potential of this procedure.

Ben Haynor, Analyst

With regard to imaging post-cryoablation, has any confusion about interpreting findings been resolved?

Kenneth Tomkovich, Co-Primary Investigator

Yes. We’ve been sharing our findings at conferences and continuing to educate others about what to look for in post-cryoablation imaging. Publications are being finalized and will help clarify these findings as well.

Ben Haynor, Analyst

Can you speak to patient preferences between cryoablation and traditional surgical methods?

Kenneth Tomkovich, Co-Primary Investigator

The patients who undergo cryoablation often can't imagine choosing traditional procedures like lumpectomy or mastectomy. They appreciate the outpatient nature of cryoablation, and I believe wider acceptance will come with more awareness.

Ben Haynor, Analyst

Could you elaborate on the interest in developing patient registries?

Kenneth Tomkovich, Co-Primary Investigator

Developing registries is important for sharing data on patient outcomes. It helps to track who is being treated, the success rates, and any complications, all of which are essential for moving the field forward.

Eyal Shamir, CEO

The clinics using ProSense systems are currently utilizing them for both cancer and fibroadenoma cases, but patients are paying out of pocket at the moment. Regarding our regulatory strategy, we are currently in discussions with the FDA based on the breakthrough device designation we received.

Ronen Tsimerman, CFO

The submission to the FDA is expected before the end of the year.

Ben Haynor, Analyst

Is IceSense3 the only product cleared for marketing in the Chinese market?

Eyal Shamir, CEO

Yes, IceSense3 is the brand we are utilizing in China, and it will be our primary go-to-market product.

Kemp Dolliver, Analyst

Could you share updated patient follow-up data from the trial?

Eyal Shamir, CEO

By June 2022, we had 82 patients that completed the trial with a follow-up of five years. The last patient enrolled in February 2019 has now 3.5 years follow-up, with most patients over 40 months.

Kemp Dolliver, Analyst

Regarding spending levels, will this be a reasonable run rate for the full year?

Ronen Tsimerman, CFO

We don’t anticipate any noticeable changes, and our budget is flexible for necessary adjustments.

Kenneth Tomkovich, Co-Primary Investigator

The patients I’m seeing are really the same as those that breast surgeons are seeing. We are working closely with breast surgeons in this field.

Eyal Shamir, CEO

I want to thank Dr. Tomkovich and all the participants. IceCure is working hard to offer our unique solutions for breast cancer treatment and to expand our market presence. Thank you.