Earnings Call Transcript - ICCM Q3 2022

Operator, Operator

Welcome to IceCure’s Conference Call on the Financial Results for the Nine Months Ended September 30, 2022, and update on recent operational highlights. 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 by Dr. Hania Bednarski, Oncoplastic Breast Surgeon and Cryoablation Specialist at Serenity Surgery & Wellness in Myrtle Beach, South Carolina. Currently, all participants are in a listen-only mode. Following the presentation, IceCure's management and Dr. Bednarski will be available for the 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 it 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, we are using forward-looking statements in this presentation when we discuss pursuit of regulatory approvals in various jurisdictions, strategic plans, commercial growth, 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 and expected quarter-over-quarter revenue variations and other key business and operational 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, www.sec.gov. The company undertakes no obligation to update these statements or 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 thank you for joining us today. We will start this review of our significant business developments for the third quarter of 2022 followed by an overview of the financial results for the nine months ended September 30, 2022. We will then hear from Dr. Bednarski, who will share her thoughts on breast tumors and cryoablation from the breast surgeon's perspective, before opening the call for Q&A. Dr. Bednarski has been performing cryoablation for benign and malignant breast tumors since 2014. During and immediately following the end of the third quarter, we made huge strides towards the commoditization of ProSense for breast cancer in the U.S. on both the regulatory and reimbursement fronts. We believe women with low-risk, early-stage breast cancer need a better alternative to the current standard of care of lumpectomy. Minimally-invasive cryoablation, which destroys tumors without open surgery, reduces recovery time and cost while improving cosmetic outcomes. Most importantly, our interim data from the ICE3 clinical trial for ProSense breast cancer treatment shows a recurrence-free rate of approximately 97%. In October, we submitted a De Novo classification request regulatory filing with the FDA for marketing authorization of ProSense for the indication of early-stage low-risk breast cancer in patients who are at risk for surgery and therefore are not suitable for surgical alternatives. These initial indications alone represent approximately 43,000 women in the U.S. annually. We were able to submit for marketing clearance based on our very strong results from our interim ICE3 clinical trial analysis. In the first half of 2024, we expect to release the final results from the ICE3 five-year follow-up. At that time, we plan to file for a broader indication with the FDA reflecting the entire study population of early-stage low-risk breast cancer for patients aged 50 and older, representing approximately 65,000 women in the U.S. annually. In the future, we plan to explore more indications for additional subgroups that are part of the total group of Luminal A breast cancers, an estimated 144,000 cases annually for women of all ages in the U.S. While we look forward to the FDA's response to our filing, we have concurrently achieved a significant milestone in Medicare reimbursement in the U.S. for ProSense’s breast cancer treatments. In November, the Center for Medicare and Medicaid Services assigned ProSense breast cancer cryoablation treatment a specific CPT Category III code, which will go into effect on January 1, 2023. Under the CPT category III code, the ProSense breast cancer treatment will be covered at approximately $3,400. This is for the facility fee alone; we expect additional coverage, including payments for the physician upon establishment of the permanent CPT Category I code, which will be conditioned on several factors, including our receipt of FDA marketing authorization for breast cancer. To our knowledge, IceCure is the first and only company to file and receive the CPT code for cryoablation of breast cancer. We achieved this based on the results of our ICE3 study, the largest controlled multicenter clinical trial ever performed in the U.S. for liquid nitrogen-based cryoablation of small low-risk early-stage malignant tumors as an alternative to surgery. We are proud of this achievement and our leadership position, which helps to pave the way for the wider use of minimally-invasive cryoablation treatments that deliver better outcomes for patients. Globally, we made additional advances on our regulatory front. In Brazil, ProSense cryoprobes and introducers, which are essential single-use disposable components of our ProSense system, received regulatory approval for indications including breast and other cancers, benign tumors, and palliative interventions. Applications for ProSense were also filed in Canada and Vietnam. I will turn the call over to Ronen now for the financial results. Before I do, I want to point out a very encouraging trend in the increase in sales of our single-use disposable probes. This indicates that the increasing number of treatments are being conducted with the installed base of ProSense systems worldwide. While our quarterly revenue may continue to be variable in the near future, we see ProSense as a positive indicator for market acceptance of our liquid nitrogen-based cryoablation therapy, which we believe will translate into sales.

Ronen Tsimerman, CFO

Thank you, Eyal. For the nine months ended September 30, 2022, revenue decreased by 22% to approximately $2.1 million compared to approximately $2.8 million for the same period last year. The decrease is due to reduced revenue recognition of approximately $500,000 from the distribution agreements with Terumo Corporation and a decrease in sales of new systems, which was partially offset by higher sales of disposable probes as previously sold and installed systems were utilized for procedures in clinical settings. For the nine months ended September 30, 2022, sales in the U.S. and Europe increased by 65% and 37%, respectively, compared to the same period in 2021. The increase in sales in the U.S. and Europe was offset by a decrease in sales in Asia and other territories. Gross profit was approximately $1 million for the nine months ended September 30, 2022, compared to approximately $1.6 million for the same period last year. Gross margin was approximately 46% for the nine months ended September 30, 2022, compared to approximately 56% for the same period in 2021. The decrease in gross margin compared to the same period last year was primarily attributable to the decrease in sales and in revenue recognition from the Terumo distribution agreement. Research and development expenses for the nine months ended September 30, 2022, were approximately $6.9 million compared to approximately $4.3 million for the same period last year. The increase was attributed to acceleration in the development of IceCure’s next-generation single-probe system and due to clinical and regulatory activities. Sales, marketing, and general and administrative expenses for the nine months ended September 30, 2022 were approximately $6.9 million compared to approximately $3.9 million for the same period in 2021. The increase was attributed to the company's expanded commercialization efforts and increased NASDAQ listing-related expenses. Total operating expenses for the nine months ended September 30, 2022, were approximately $13.8 million compared to approximately $8.2 million for the same period last year. The increase in operating expenses was primarily due 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 nine months ended September 30, 2022, increased to approximately $13 million or $0.35 per share compared with a net loss of approximately $6.7 million or $0.25 per share for the same period last year. As of September 30, 2022, IceCure had cash and cash equivalents, including short-term deposits, of approximately $14.2 million. I will now turn the call over to Dr. Hania Bednarski, an oncoplastic breast surgeon and specialist in breast tumor cryoablation. She is the owner and CEO of Serenity Surgery & Wellness in Myrtle Beach, South Carolina, where she performs a wide array of breast procedures from biopsy through reconstruction of the breast. Dr. Bednarski recently co-hosted an IceCure webinar titled Breast Tumor Cryoablation for breast surgeons that was well received by fellow breast surgeons and radiologists. We are very pleased to have her join us today.

Hania Bednarski, Oncoplastic Breast Surgeon

Thank you so much. So I want to start by just mentioning a few things about the ProSense cryoablation system. It's truly easy to use. It's simple to set up for office-based procedures. I've been using the system on and off since 2014 and more regularly since 2019-2020. Recently, it's become my single cryoablation system in the office. Liquid nitrogen is really easy to handle; it's readily available and super easy to source in the area. This saves a lot of time for the patients and the providers. With the cryoablation procedure, fibroadenomas can be treated in as few as 15 to 30 minutes depending on the size and location of the tumor. Breast cancer cases can be treated within an hour to an hour and a half. There is no need for general anesthesia; this is done under purely local anesthesia. Patients are very comfortable throughout and can resume their normal activities just as soon as they would after an ultrasound-guided biopsy. The other thing that I really appreciate about cryoablation for breast tumors is that we get really wonderful cosmetic results regardless of the size and position of the tumor in the breast. Unfortunately, when we do surgery for breast cancers, especially at the upper inner breast, we can often get a defect that's quite visible. There is very little breast tissue there in the first place, and when we take out more tissue in that décolletage area, patients can really have a defect; even if they don't have a scar, even if the scar is well-positioned, the defect tells all and patients can be very self-conscious about that. The other thing that I'll mention is that statistics in the United States at least are about 20% to 40%, depending on the study that you look at, for general surgery applications. When we do surgical excision of breast cancers, in 20% to 40% of the cases, we have to go back for additional margins, meaning that our margins are not clear. We aim for a minimum of a one millimeter margin, and some studies will say no ink on tumor, but one millimeter is the generally accepted margin for breast surgery. With cryoablation, we actually aim for one centimeter margins. You can actually watch the ice ball form on ultrasound in real-time, which gives me a lot of confidence in achieving the margin that I need to achieve. In the operating room, this is much more difficult, even with the use of ultrasound. I've received wonderful support from IceCure's clinical training team. It doesn't take long to feel comfortable using the system. My staff can use the system easily. It’s been great that in private practice, I've been able to set up breast cryoablation with minimal issues—really no problems at all. Patients want this procedure; they're willing to pay out of pocket for it. I personally do not take any insurance in my office, and everything is out of pocket. They're willing to pay for that. So it's refreshing to offer this procedure and have great success.

Eyal Shamir, CEO

Thank you, Dr. Bednarski for sharing your insights. I'm sure our shareholders appreciate your perspective as a clinician in private practice who has been using ProSense. Operator, we would like to now open the call for questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now start the question-and-answer session. The first question is from Ben Haynor of Alliance Global Partners. Please go ahead.

Ben Haynor, Analyst

Good morning. Thanks for taking the questions. First off, for Dr. Bednarski, I appreciate you sharing your experience with the IceCure system. Do you also perform lumpectomies? And if you do, when patients are presented with a cryoablation option versus lumpectomy, what goes into that decision for a lot of patients?

Hania Bednarski, Oncoplastic Breast Surgeon

Yes, I absolutely do. I am an Oncoplastic Breast Surgeon, meaning that I do everything from biopsy through reconstruction, and I absolutely do partial mastectomies, lumpectomies, and mastectomies in my practice. This is an interesting discussion. For patients that fit the criteria for undergoing cryoablation, it becomes a very personal discussion at that point. I equally offer both. If they fit the criteria for Luminal A tumors in women over 50 years of age, they can really have either option. It becomes a patient decision at that point. Some women simply will not rest until the tumor is sitting on a pathologist's desk, and cryoablation does not provide that. With cryoablation, we freeze the tumor and the cryoablation zone and the necrotic tissue stays in the breast, slowly dissipating over time. If a woman wants that tumor out immediately, she's not going to choose cryoablation. The other aspect is the cost. I don't take insurance in my practice; however, patients can apply for insurance, and it's much easier at this time to get reimbursement for a lumpectomy or partial mastectomy than for cryoablation. I'm hopeful that will change in the future. But for now, those are the two biggest decision-making points.

Ben Haynor, Analyst

And for the ones that want to see the tumor on the table, what's your sense of what proportion of women want to see that?

Hania Bednarski, Oncoplastic Breast Surgeon

If cost is taken out of the equation, if we're just talking that specific angle, I would say it's not a big number. It's probably only about 10% of those patients.

Ben Haynor, Analyst

Okay. So it's fairly small. And then, cryoablation since 2014. I think it sounds like you might use systems other than ProSense. Is that the case? Any color on how it stacks up? I mean, it sounds like liquid nitrogen is a better experience for you, but any insight there would be helpful.

Hania Bednarski, Oncoplastic Breast Surgeon

Yes, you're absolutely right. I started with the ProSense system. I tried a couple of other systems. It speaks for itself that I came back to the ProSense system. I feel that this is really the best system on the market for me, at least for my use. I think it's straightforward and simple. I trust the liquid nitrogen aspect of it and feel that the probes are well-sized and achieve great margins for our patients.

Ben Haynor, Analyst

Thanks. That's helpful. And then just your sense of what your colleagues or peers think of cryoablation?

Hania Bednarski, Oncoplastic Breast Surgeon

At the American Society of Breast Surgeons meeting in May of this year, our last speaker addressed the importance of being well-versed in cryoablation, stating that if you're not doing cryoablation, you're being left behind. I believe this is true. The awareness is definitely there, and I'm hopeful that with FDA clearance, more of my colleagues will adopt this process because it offers great benefits for patients.

Ben Haynor, Analyst

Okay. Excellent. A couple for, I guess, for Eyal. Considering now we've got a handful of weeks left in Q4, is there anything that you can share in terms of what the financials for Q4 might look like on the revenue side or anything we should look for on the expense side?

Eyal Shamir, CEO

Ben, thank you very much for the question. As you know, we are not giving guidance for revenue and expenses; we will report them at the beginning of the year, as we normally do.

Ben Haynor, Analyst

That's fair enough. I'm just trying. And then congrats again on the FDA submission. Have you had any conversations with the FDA post-submission and anything you can share on that process?

Eyal Shamir, CEO

We have ongoing discussions with them since our submission on October 18. We don't have anything specific to report yet, but we are sharing information with the agency to obtain clearance.

Ben Haynor, Analyst

Okay. So there are no surprises or showstoppers on that point?

Eyal Shamir, CEO

Not at this stage. We have continued good discussions.

Ben Haynor, Analyst

Thank you for taking the questions and congrats on all the progress.

Eyal Shamir, CEO

Thank you very much.

Operator, Operator

The next question is from Anthony Vendetti of Maxim Group. Please go ahead.

Anthony Vendetti, Analyst

Thank you. I'll start with Dr. Bednarski. That was really helpful. Thank you so much for sharing your experience with patients and your expertise. I was just wondering about tumor size. With the ProSense system, is there a limit to size, or is that just a limit right now based on the setup and the consumable? Do you believe it could be used for larger tumors?

Hania Bednarski, Oncoplastic Breast Surgeon

Thank you for the question. The way the probes are currently manufactured, each probe for breast cancer can manage a tumor up to two centimeters, maybe 2.2 centimeters. We prefer not to go larger than that to ensure we cover the entire tumor with a one-centimeter margin all around. That said, hypothetically, nothing prevents us from placing multiple probes within a larger tumor, resulting in overlapping ice balls.

Anthony Vendetti, Analyst

Okay. That's helpful. In terms of stages, right now, it's for early-stage breast cancer. Do you see this evolving to treat later stages, or once it gets to that point, do you discuss different options?

Hania Bednarski, Oncoplastic Breast Surgeon

Yes, I see the system being able to be used for larger tumors and later stages. Currently, it’s mainly used for Stage 1, which is defined as a tumor less than two centimeters. Tumors between two and five centimeters automatically move to Stage 2. So while I see potential for treating larger tumors, some breast cancers simply cannot be treated by cryoablation, such as inflammatory breast cancer or tumors that infiltrate the nipple.

Anthony Vendetti, Analyst

Since you've been using this since 2014, could you give us more clarity on the competitive cryoablation systems out there? You mentioned you came back to the ProSense system. What other systems are out there? Was it just the liquid nitrogen, or anything specific that you think makes the ProSense system the best? A little more color on that would be very helpful. Thank you so much.

Hania Bednarski, Oncoplastic Breast Surgeon

Certainly. One thing I’ll mention is the support from IceCure, which has been significant in my decision to return to the system. Yes, there are competing systems on the market, mainly organ-based systems. I find those systems to be less effective for use in breast cancer, even though they may be suitable for other cancers. The probes in organ-based systems are generally smaller, and the tissue does not get as cold, leading to less effective treatments in my experience. As far as liquid nitrogen's competitors, there don't appear to be any right now, although there were some in the past, and I've heard discussions about new systems trying to emerge. But currently, IceCure remains the only liquid nitrogen-based cryoablation system available on the market.

Anthony Vendetti, Analyst

Okay, great. That's very helpful. Just one question for Eyal. I know you received or are awaiting regulatory approval in Brazil and you submitted for approvals in Canada and Vietnam. Any update on those expectations? Are we on schedule in Canada and Vietnam? And now that you have approval in Brazil, can you talk a bit about commercialization there?

Eyal Shamir, CEO

Yes. Thank you, Anthony. I would like to clarify regarding Brazil. Brazil requires two submissions, and we already obtained regulatory approval from ANVISA on our single-use probes. We are still awaiting approval on our machine. This should occur during the first semester of next year. We have signed distribution agreements, and they started doing a soft launch, including sending some breast training personnel to the U.S. As soon as we obtain regulatory approval, we will commence commercialization. This is set to take place early next year. Canada’s and Vietnam's approvals are also expected in the first semester of next year. This is the plan.

Anthony Vendetti, Analyst

So everything's on schedule?

Eyal Shamir, CEO

Yes.

Anthony Vendetti, Analyst

Okay, great. All right. Thank you so much. I'll hop back into the queue.

Eyal Shamir, CEO

Thank you.

Operator, Operator

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

Kemp Dolliver, Analyst

Thank you, and good day. I have a couple of questions for Dr. Bednarski, mainly related to her practice. So how many breast cancer cases do you see annually? And how does the demographics of your patient population square with the data that is in the press release regarding the percentage of low-risk versus high-risk cases?

Hania Bednarski, Oncoplastic Breast Surgeon

Thank you for the question. I will mention that I recently had a change in my practice. I was hospital employed earlier in the year and recently returned to private practice. Consequently, my numbers have dropped a little, averaging probably about 120 new cancers a year. In the past, I averaged about 200 to 250 breast cancers per year. I feel my patient population percentages generally align with the general population; about 60% to 65% of my patients are Stage 1 Luminal A cancers, which is consistent with population data.

Kemp Dolliver, Analyst

Great. Thank you. You mentioned earlier that roughly 10% of your patients want a lumpectomy. Do you notice any demographic patterns here, such as older patients who might be more emotionally tied to lumpectomy versus younger patients who may be more open to trying something new?

Hania Bednarski, Oncoplastic Breast Surgeon

Interestingly, I would say there's no significant demographic difference. I've seen both older and younger patients exhibit varying levels of interest and urgency regarding their treatment options. Patients who are more anxious tend to want the tumor removed, regardless of age. The emotional response to the word 'cancer' often leads to patients perceiving it as a medical emergency, driving them toward immediate intervention.

Kemp Dolliver, Analyst

Got it. Thank you. What improvements would you like to see in either the console or the probes?

Hania Bednarski, Oncoplastic Breast Surgeon

The only improvement I would love to see is the hose that connects the probe to the console. It’s a bit bulky and difficult to maneuver. The handheld probe fits nicely in my hand and is easy to use, but a more pliable hose would improve usability. As for the console's footprint, it works just fine for my practice, though a smaller footprint could be beneficial.

Kemp Dolliver, Analyst

Great. Thank you for your answers.

Hania Bednarski, Oncoplastic Breast Surgeon

Thank you.

Kemp Dolliver, Analyst

How did you finance the acquisition of the system? There are presumably numerous options regarding how you structure the transaction?

Hania Bednarski, Oncoplastic Breast Surgeon

I'm currently leasing the unit and purchasing the disposables, which has been very effective for me.

Operator, Operator

There are no further questions at this time. There is a follow-up question from Ben Haynor of Alliance Global Partners. Please go ahead.

Ben Haynor, Analyst

Hey, just a couple of quick ones for Dr. Bednarski. How do you structure your days when you are doing the cryoablations? I mean, do you do them every couple of weeks, or do you do a handful of patients as they come into your office choosing their treatment modality?

Hania Bednarski, Oncoplastic Breast Surgeon

Right now, we're doing them in sets of Monday, Tuesday, and Wednesday. I would say it averages out to about every other week. I’ll do multiple procedures within three days, then take breaks, allowing us to interview more patients for cryoablation before repeating the procedure cycle. It's refreshing to see many patients opting for this treatment, and I expect to become busier.

Ben Haynor, Analyst

That's good to know. What's the furthest away that you've had a patient travel for the procedure?

Hania Bednarski, Oncoplastic Breast Surgeon

I’m in Myrtle Beach, South Carolina, and interestingly, the furthest patient has come from Los Angeles, California. I also have a potential patient reaching out from Gibraltar, with a previous patient from Canada. It's exciting to have such a wide reach. The LA patient not only reached out but has already had her cryoablation with me.

Ben Haynor, Analyst

Well, that's interesting. More curiosity for my own understanding, but thank you for taking the follow-up question.

Hania Bednarski, Oncoplastic Breast Surgeon

Of course.

Operator, Operator

This concludes the IceCure third quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.