Earnings Call Transcript - STXS Q2 2024

Operator, Operator

Good afternoon, and welcome to the Stereotaxis, Inc. Second Quarter 2024 Earnings Conference Call. Certain statements during the call and question-and-answer period to follow may relate to future events, expectations, and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the company in the future to be materially different from the statements that the company's executives make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

David Fischel, CEO

Thank you, operator, and good afternoon, everyone. We have made significant progress this quarter on several key aspects of our strategic transformation. I want to spend the majority of today's call reviewing those advances and how we are establishing a solid foundation upon which to build a substantial and successful company. Before getting to that, though, I want to address head on our commercial results and financial position. I recognize the quarterly numbers were disappointing. Our results for the first half of this year were significantly impacted by reduced capital revenue. These results do not reflect a steady state reality. We are confident in a significantly stronger second half of this year from both a revenue and cash flow perspective. Let me briefly address the weak first half and share the source of our optimism in an improved second half. Despite our significant backlog of Genesis orders, the timing of multiple hospital projects and associated system shipments became elongated, leading to minimal capital revenue in the first and second quarters. Capital sales are inherently lumpy, and the first half was far below our normalized level. Our visibility into system shipments during this third quarter and the remainder of this year gives us high confidence in significantly higher revenue recognition and cash flow. There are currently two Genesis systems in transit to European customers as we speak, with revenue recognition taking place upon delivery of those systems. There's one additional system ready to be shipped within the coming days, and we have signed purchase orders with down payments for two additional systems planned to be shipped before year-end. One of those has a contractual requirement dictated by a tender to deliver the system in the fourth quarter. The three Genesis systems currently being shipped will generate $5.5 million in revenue recognition upon delivery. The two additional systems I noted would add an additional $3 million. There remains a backlog of ordered systems beyond these five, which are still waiting on hospitals to be ready for delivery and will likely take longer but could accelerate. We also have an active late-stage sales pipeline in all three of our key geographies, and we expect additional purchase orders for Genesis systems in the coming months. Our cash utilization in the first half of this year was significantly impacted by the weakness we had in capital sales. We can model the substantial cash receipts due with delivery of the systems I just referenced, and based on those, our best assessment is to end this year with approximately $13 million in cash and no debt. While it would be nice to have a more substantial balance sheet, we feel confident in our upcoming milestones and the incremental revenue and profit they will deliver. Our existing balance sheet allows us to reach key milestones, commercialize our new innovation, and profitably grow our business. Shifting now to the progress I mentioned on our strategic innovation efforts. On the past several calls, I reviewed the full spectrum of strategic efforts we're advancing in parallel and how those are establishing a solid foundation upon which to build a substantial and successful company. I'll focus today's call going in more depth on three of the most impactful areas for future commercial success for which we have made significant progress in the last quarter: GenesisX, MAGiC, and the APT acquisition. Let me start with GenesisX. In a press release this afternoon, we were excited to introduce GenesisX publicly and to share the accomplishment of key regulatory milestones: obtaining CE mark for the system in Europe and submitting a 510(k) application with the FDA. GenesisX is an entirely new robotic platform, the third for Stereotaxis after Niobe, which was released in 2003, and Genesis in 2020. It incorporates newly designed magnets that are significantly smaller than before, a particularly innovative robotic base with built-in magnetic shielding and more streamlined, distributed and sophisticated electronics throughout the system. GenesisX builds upon the well-established proprietary technology Stereotaxis has pioneered and mastered: robotic magnetic navigation. It's designed with the same uncompromising eye towards clinical performance, robust real-world reliability, and intuitive ease of use. It retains the speed and immediate responsiveness of Genesis, which has been well received by our physician users. What is special about GenesisX is that we have made robotic magnetic navigation available in a form factor that supports broad accessibility and commercial scalability. As mentioned in the past, the challenges of translating physician interest in robotics into adoption and commercial growth, we operate in a huge and highly attractive market, in which we hold less than 1% market share despite our established clinical benefits and unique differentiation. We have had hundreds of physicians express genuine interest in our technology since launching Genesis. Over 95% never end up getting the robot. The single largest impediment is the reliance on hospital construction and the long extended timeline that creates, along with the complexity of translating physician clinical interest into full organizational movement at the hospital. Our Niobe and Genesis Systems require architectural planning and construction to accommodate their installation. Preparing an operating room to accommodate a system entails significant structural modification, including the installation of thousands of pounds of magnetic shielding in the walls, reinforcement of the floor, high-power electrical work, and extensive cabling through conduits between the operating room, control room, and cabin room. This adds cost for the hospital, but more importantly, turns a purchase into a long complex process. The complexity of coordinating site planners, architects, and contractors leads many potential deals to stall or fizzle away. In the fortunate cases where a robotic sale comes to fruition, we and the interested customers work through a multiyear sales cycle before translating interest into actual use. GenesisX allows us to transition from a construction model to a placement model. The system's smaller magnets are stored in magnetic shielding built into the robotic base itself, negating the need for the shielding otherwise installed in the walls of operating rooms. GenesisX requires no structural anchoring through the floor and operates using standard 120- or 230-volt power outlets, the same that was used for your laptop or iPhone. A single thin fiber is routed from each robot to the system cabinet, with 96% and 99% reduced volume compared to the cable bundles routed to the cabinets of Genesis or Niobe. The cabinet of GenesisX is itself 80% smaller than the cabinet of Genesis and can fit under a table in the operating or control room rather than in a separate dedicated cabinet room. We expect to be able to install a GenesisX system over the weekend and for it to be a viable solution for the majority of labs. Accessibility for customers is of primary importance. Also important is ensuring scalability of manufacturing and operations. We designed GenesisX to support improved supply chain, manufacturing, and installation operations. The two sides of the GenesisX robot are identical to each other rather than mirrors of each other like in Genesis or Niobe. This substantially reduces the number of unique components in GenesisX, improving supply chain management and simplifying assembly and testing. We're reducing the shipping requirements from 12 big crates per Genesis system to six crates with GenesisX. The system will be shipped nearly fully assembled, with the magnets already installed, aligned for rapid installation with less time spent on site. Simplifying site planning, shipping, and installation allows us to scale our business without the strains and investment of scaling those organizational capabilities. Transitioning from a construction model to a placement model may sound minor, but it is a world of difference. Being freed from complex planning or construction enables a more streamlined and rapid translation of clinical interest into clinical use. It allows us to confidently offer alternative financial models for adoption. While GenesisX will demand a premium over Genesis, it will be available for purchase, operating lease, or for placement with disposable commitment. As we look at the EP field and then the broader universe of endovascular surgery, there's easily room for thousands of robotic magnetic navigation systems. GenesisX comes in an architecture that allows us to envision realistically scaling a business that can positively transform our large markets. Obtaining CE mark and filing our 510(k) submission are major milestones. We look forward to supporting the FDA review of GenesisX, and it is reasonable to expect regulatory clearance by year-end. There is some additional work to be done prior to full commercial launch. First and foremost, and I'll discuss this in more detail in a moment, we are advancing towards regulatory approval of the compatible MAGiC ablation catheter, which is necessary to use GenesisX. In parallel to the regulatory efforts, we will use the coming months to enhance compatibility of GenesisX with various X-rays, prepare our supply chain in manufacturing, installation and commercial processes, and demonstrate real-world use of the system. We expect the full launch of the system and initial significant adoption of GenesisX in 2025. This segues into the second critical puzzle piece in our new foundational product ecosystem, our proprietary robotically-navigated ablation catheter, MAGiC. As we have discussed in the past, we've been hampered clinically, commercially, and strategically by our dependence on the J&J catheter used in every robotic procedure. That ablation catheter is a 20-year-old design with significant room for improvement in clinical performance. MAGiC incorporates many design enhancements that we believe will improve the experience of our physician users and the outcomes of their patients, including increased stability, more intuitive navigation, better information from the ablation tip, and reduced fluid load. Commercially, Stereotaxis receives no revenue or economic value from J&J sales of the current catheter, robbing us of the vast majority of disposable revenue in every robotic procedure. While we have a razor-razor blade business model, we've been giving up 80% of the razor blade. MAGiC will fairly rapidly allow us to multiply our disposable revenue and gross profit from every robotic procedure. That improved revenue model allows us to profitably scale a commercial organization in a much more robust fashion. Lastly, strategically, our dependence on J&J's catheter has limited our ability to collaborate and develop a healthy ecosystem around our robot. You've already seen some of the collaborations that have come from the realization that MAGiC is approaching commercialization, and additional opportunities are becoming increasingly possible. The development, clinical, and regulatory process for an ablation catheter is an arduous path. We have invested many years of effort and millions of dollars getting our proprietary MAGiC catheter to the cusp of commercialization. Earlier this year, we announced submission of a CE application to the EU notified body and the submission of a PMA application to the FDA for MAGiC. We have made meaningful progress on both submissions. The European regulatory review consists of three distinct sync sections: a clinical, technical, and microbiology assessment. Since our last call, we successfully completed both the clinical and technical reviews by the EU notified body, with receipt of written confirmation of having met all requirements in those two sections. We are still waiting to receive the microbiology questions, but have been advised that they should arise momentarily and hope to similarly successfully complete that section in the coming weeks. With receipt of CE mark, we will initiate a full launch of MAGiC in Europe, benefiting from the clinical experience and awareness generated by the ongoing MAGIC clinical study. In the U.S., it's not as simple to describe the regulatory review process, but there has also been significant progress in recent weeks. We've had continuous dialogue with the FDA since the PMA submission and are very appreciative of the collaborative and thoughtful discussions and guidance. The PMA submission is being refined with that guidance, and the ongoing dialogue supports our expectation of achieving an initial regulatory approval, leveraging the existing data being generated in the European MAGiC study, with a clear plan for subsequent post-approval studies in the U.S. We appreciate the responsiveness and collaborative nature of these discussions and believe they are reflective of a shared appreciation for the importance of ensuring MAGiC becomes available for patients and physicians who depend on it. The final topic that I want to cover on this call and which will have significant importance to our trajectory is acquisition of Access Point Technologies. We announced the agreement to acquire APT on our call in May and closed the acquisition just over a week ago at the end of July. This was Stereotaxis' first acquisition ever, reflective of our selectivity and focus. The acquisition was opportunistic and pursued in a financially prudent fashion, for what is most important for significant value creation is the strong synergistic and strategic rationale for the acquisition. We were fortunate to announce the acquisition immediately before the largest conference in our field: HRS. APT's products were included in the Stereotaxis group, and both teams worked together at the conference. We had entered into this agreement cognizant of the natural sales synergy. APT had minimal U.S. revenue from differentiated high-quality diagnostic EP catheters, a consequence of having no dedicated sales team. Stereotaxis has over 20 people in the field across the U.S. who are particularly skilled and focused on enabling and improving the treatment of the most complex arrhythmias. APT's products and Stereotaxis' commercial team align beautifully from a messaging perspective and from both the physician and procedure focus. These sales synergies were at full display at HRS. The Stereotaxis commercial team picked up on the products quickly and were enthusiastic about the new opportunity. Physician customers of Stereotaxis were very pleased and supportive of the acquisition strategy, and while the vast majority had never before been exposed to APT's products, they viewed the catheters as attractive and relevant. Following HRS, we did a more formal training of our entire team, began the process of establishing commercial plans and started engagement in the field. We already have over a dozen physicians and hospitals newly exposed to APT that have tried the catheters or have begun value analysis committee submissions at their hospitals to be able to purchase the catheters. APT's U.S. capital revenue in July was approximately 50% higher than the average monthly revenue in the first half of this year in 2023. Working through VAC submissions and building commercial momentum is more like a snowball than flipping a light switch, but we are already seeing an initial impact and believe we can grow these products substantially in the coming months. The sales synergy also works both ways. APT's catheters contribute incremental revenue in the practices our team already calls upon, and in reverse, these catheters serve as a door opener at centers focused on complex arrhythmias to pave the path for the adoption of robotics. Our primary motivation for acquiring APT was not the opportunistic nature of the situation nor the sales synergy, but rather the strategic value of having in-house catheter development and manufacturing expertise. APT's team, expertise, and capabilities will significantly amplify and accelerate Stereotaxis' next wave of innovation efforts as we look to develop a broader family of interventional devices that are navigated by our robots within electrophysiology and across a range of endovascular procedures. There are three specific areas of focus I want to touch upon. First, a broader family of robotically-steered catheters to complement MAGiC in EP; second, an emerging and tangible multi-life PFA strategy; and third, our expansion into new clinical applications. On the first topic, the emergence of high-density mapping has been a significant change to the EP field over the past decade. Stereotaxis has never developed a robotically-steered high-density mapping catheter, and so in a majority of our procedures, the physician navigates a manual mapping catheter by hand, separate from the robotically-steered ablation catheter. The workflow is viable, but not ideal, and there has been strong physician interest, value from a procedural workflow perspective, and clinical merit for robotically-steered dedicated mapping catheter. We had already begun developing such a catheter prior to the acquisition and are now accelerating that process, with the catheter design complete and production of hundreds of units taking place for formal regulatory testing. We expect the catheter to receive regulatory approval within a year and to be highly synergistic with MAGiC. From a commercial perspective, if the introduction of MAGiC increases our expected revenue per procedure three to fourfold, the addition of a mapping catheter leads to a five to sixfold increase in revenue per procedure. Those numbers may sound absurd given our current vantage point but reflect the normal revenue model and pricing of any other participant in the EP field. They shine light on to the missed opportunity embedded into our current product ecosystem and the structural transformation at play. On to the second topic, PFA. Pulsed field ablation or electroporation is a new energy source available for cardiac ablation procedures as an alternative to radio frequency or cryo. The first PFA catheters just entered the field and are already on track for over a couple of billion dollars in annual revenue, partially through conversion of procedures to the other energy sources, but principally through market expansion. Stereotaxis has been largely protected from the effects of PFA in our existing procedures, but we recognize the impact it is having in the field and the importance of offering choice and a broader ecosystem of catheter options with our robot. I can't yet fully share our activities in PFA, but I can shed some color on our efforts. We have three distinct more advanced PFA opportunities being advanced in tandem. One leverages the MAGiC catheter and the other two use unique PFA catheters. Two are done in collaboration with partners, and one is fully owned technology we acquired with APT that is being advanced in collaboration with the Mayo Clinic. We've had an accelerating pace of preclinical PFA studies in recent months and have line of sight towards first-in-human studies for at least two of these opportunities within the next six to 12 months. One is likely to even become commercially available in Europe in 2025. Our collaboration with the Mayo Clinic is exciting, and I had the opportunity to visit them last month. The PFA catheter they designed with APT is particularly differentiated, addressing some of the clinical challenges with efficacy, durability, and patient safety that are starting to emerge with commercial single-shot PFA catheters. After significant effort, we are starting to see green shoots emerge, with multiple shots on goal for clinically meaningful, technologically differentiated, and commercially impactful PFA catheters. The last topic, the expansion of our robotic technology into a broader set of applications, is something we've discussed previously. We are in the late stages of developing robotically steered guidewires and guide catheters that expand the value of our robot into several large fields, such as neuro intervention, interventional cardiology, and interventional radiology. These are advancing on track for regulatory submission within the next six months and the guide catheter is being developed with APT. Having skilled in-house catheter design and manufacturing expertise will be particularly beneficial as we explore innovative ideas shared by physicians for ways our technology can add value in these new indications. It accelerates dramatically the time to an initial prototype and the ability to iterate with feedback. While the first guidewire and guide catheter sold out for a strong initial offering as we begin to address the broad endovascular surgery field, the in-house capabilities of APT are of great strategic value to accelerating and improving our expansion. We are pleased with the significant progress we are making in establishing a healthy foundation for Stereotaxis upon which to build a substantial, high-growth, profitable business. This was a busy quarter for us, particularly in these three key areas, but also in our other efforts, including regulatory efforts in China, and the Synchrony and Sync telesurgery platform. We see the puzzle pieces falling into place in each of our three key geographies: the U.S., Europe, and China. We have opportunity for a full ecosystem coming together and driving breakout growth. The opportunity in any individual geography can dwarf our current entire business. I'll hand the call over to Kim now to discuss our financial results.

Kimberly Peery, CFO

Thank you, David, and good afternoon, everyone. Revenue for the second quarter of 2024 totaled $4.5 million compared to $7.9 million in the prior year second quarter. System revenue for the second quarter was $0.2 million, and recurring revenue was $4.3 million compared to $3.3 million and $4.6 million in the prior year second quarter. The majority of the revenue decline in the current quarter is driven by timing of system deliveries delayed by elongated customer construction projects. System revenue in the current quarter reflects minimal revenue recognized on system installations compared to more substantial system revenue recognized in the prior year quarter from system delivery. System revenue is inherently uneven from period to period, and the performance in the quarter is not reflective of our expectations for the balance of the year. We maintain system backlog of $15.3 million as of the end of the second quarter. Gross margin for the second quarter of 2024 was 74% of revenue. Recurring revenue gross margin was 76%, and system gross margin was 22%. Operating expenses in the quarter of $9.3 million included $2.5 million in noncash stock compensation expense. Excluding noncash stock compensation expense, adjusted operating expenses were $6.8 million, comparable to prior year adjusted operating expenses of $6.9 million. Operating expenses in the quarter were impacted by higher acquisition-related legal costs and regulatory-related activities counteracted by the reversal of a historical approved liability. Operating loss and net loss for the second quarter of 2024 were $6 million and $5.8 million compared to $5.3 million and $5 million in the previous year. Adjusted operating loss and adjusted net loss for the quarter, excluding noncash stock compensation expense, were $3.5 million and $3.3 million compared to $2.7 million and $2.4 million in the previous year. Negative free cash flow for the second quarter was $3.1 million. Our financial statements for the second quarter do not reflect any consolidation or impact from the APT acquisition beyond legal expenses incurred during the acquisition process. We are consolidating APT's results starting August 1. Our third quarter financial results will therefore include two months of APT results. At June 30, we had cash and cash equivalents of $15.2 million and no debt. I will now hand the call back to David.

David Fischel, CEO

Thank you, Kim. As mentioned previously, we continue to focus on realizing our strategic transformation while maintaining commercial momentum and preserving financial strength. Substantial value creation is ultimately predicated on establishing the right foundations for the company upon which we can profitably grow orders of magnitude larger. While our short-term results had a minimal impact on our long-term value, we recognize the quarterly numbers are disappointing. Our visibility into the second half of this year gives us high confidence in significantly improved performance compared to the first half of the year. We expect greater than $14 million in revenue in the second half of this year, with stable recurring revenue and the minimum revenue from the Genesis systems currently being shipped. We expect likely upside to that minimum expectation, with full year revenue approximately equal to the previous year. These expectations do not incorporate contributions of revenue from APT or potential revenue from the launch of GenesisX and MAGiC. We are cognizant of the importance of protecting our balance sheet, protecting shareholders from unnecessary dilution, and managing Stereotaxis in a financially prudent fashion. We expect to end this year with $13 million in cash and no debt. We view our existing balance sheet as allowing us to reach key milestones, commercialize our new innovation, and profitably grow our business. We have no intention of diluting shareholders at current valuation levels, and will be thoughtful in how we manage our financial position and protect shareholder value. Operator, can you please open the line to Q&A?

Adam Maeder, Analyst

Hi. Good afternoon, David and Kim. Thank you for taking the questions, and congrats on the approval for X in Europe. I guess a couple of questions from me. The first one would be on the MAGiC catheter and wanted to, I guess, better understand the CE mark commentary there. So it sounds like you're getting pretty close. I think I heard you use the verbiage, hope to complete the microbiology part of the submission or review shortly and then you'll kind of be off to the races, and I also heard there's no assumed contribution in the guidance from MAGiC. So David, maybe you can kind of help square that up for us? Once you have CE mark approval in hand for the MAGiC catheter, how aggressively will you launch into the marketplace? That's my first question, and I have a follow-up or two. Thanks.

David Fischel, CEO

Sure. Thanks, Adam. Good afternoon. So you understood our regulatory progress and status correctly in Europe. There are three areas of review that the notified body does as part of the review of the submission, and two out of those three including the most important one for us, which was the clinical area, which a year ago prompted us to have to do the clinical study, we passed successfully. So those kind of are buttoned-up and final success marks. The microbiology question, we have not yet received. And so we're waiting to receive. We've been told that they should come any day. We thought that they would already have arrived last week, and we're waiting with bated breath for those questions. We never know exactly what to expect whether those are going to be few questions or many questions, whether there's going to be any questions that require more significant effort to respond to or whether they're largely administrative responses to them. So as we get that, we're obviously going to have a much better feeling for the status. About a year ago or a little bit over a year ago, when we went through the review process, at the time, there were essentially no material questions on the microbiology side of things when they asked us to do a clinical study because they couldn't pass us on the clinical side. So we're hopeful that we'll have something similar like that when we get the first round of questions, but obviously, we have to wait to see those questions. And once the microbiology questions are received, we respond to them. Let's kind of hope that that goes smoothly and we get kind of also written confirmation that we passed the microbiology review. Then really, there's no additional review. There's, I think, some administrative effort just to get the final signatures and kind of the sign-off from them, but that's the last substantial part of the whole process. We have benefited in some ways through this time that we're working through the regulatory process in preparing for a commercial launch. And we have about 35 or so hospital accounts in Europe. The knowledge of the human experience in the clinical trial has spread organically from the physician users in Copenhagen Vilnius, where the clinical trial is taking place naturally to many of the other physician users there. And so I think there's good awareness of the performance of MAGiC and how it has improved the situation. There's also been the benefit of EnSite X integration with Stereotaxis having more and more time to become adopted across multiple sites there. And so that also sets things up well for MAGiC. And so we're going to kind of do a full launch of MAGiC as we have regulatory approval. I think I've spoken in the past that there are certain geographies where there are kind of more local tender requirements beyond the CE mark approval, so you have to wait until you receive CE mark before you can go through some of those tenders. That will slow down adoption in some of the accounts, as you walk through those administrative items. But generally, we plan to do a full launch.

Adam Maeder, Analyst

That's very helpful color, David. Thank you for all that. And for the follow-up, just a multipart question on the GenesisX system. And I guess one part is just trying to better understand the pricing strategy and margin profile of the system. And then I also heard you, I think, reference different selling models there. I think I heard outright capital purchase, operating lease, and volume-based agreements. So I would love for you to kind of flesh those out for us. And then just any color in terms of speed of launch. I mean it certainly sounds like 2025 is really when you're going to kind of be making a bigger push in Europe with X and, I guess, the U.S. for that matter, but I would love just to hear a little bit more about kind of the initial launch plans. Thanks so much for taking the questions.

David Fischel, CEO

Thank you for the question. We cannot proceed with the launch of GenesisX until MAGiC receives approval in both Europe and the U.S. This approval process is currently delaying our ability to launch or even fully announce the system. We plan to spend the remainder of this year securing those approvals and preparing for a comprehensive launch. I see upcoming major conferences next year in both Europe and the U.S. as the perfect opportunity to introduce GenesisX. This launch is significant not just for the product itself but also for reintroducing Stereotaxis to the electrophysiology community, addressing historical misconceptions about our technology. We believe it's crucial to execute this launch effectively when the time is right, and we anticipate making a substantial impact in our communications once we move to a full launch. Regarding the specifics of pricing, margins, and our sales model, I prefer not to share too much detail at this stage, but I will discuss our general approach. When we do launch fully, we will have opportunities to provide more specifics. In general, GenesisX will carry a premium over Genesis because it represents our latest technology and offers significant cost savings for hospitals compared to their potential investments in the system. While manufacturing and installation remain complex, we have implemented strategies to simplify these processes. You should expect us to benefit from these improvements. For our commercial models, we will maintain the inherent value of the robot and will not discount it. However, we can present this value through various cash flow mechanisms. Traditionally, Stereotaxis has sold systems, and we will continue this practice with GenesisX, albeit at a premium. Hospitals will benefit from lower costs related to architects and contractors as well. We will also introduce two additional models that retain the robot's value while offering alternatives for acquiring it. One will be a leasing option, and the other will involve placing a robot with a minimum commitment for disposable purchases. These are not entirely new concepts, as a major company has previously navigated this path, and we are learning from their experience. In the surgical robotics field, the leading company, which does not compete directly with us, has transitioned to leasing and placement agreements more than outright sales for most of their yearly placements. This model is something hospitals are quite familiar with. From a financial perspective, as our recurring revenue model starts to take shape, we find it very feasible to offer these alternative models while managing cash flow without significant working capital challenges.

Adam Maeder, Analyst

Thanks for all the color. David, I'll hop back in queue.

Operator, Operator

Our next question comes from the line of Josh Jennings with TD Cowen. Please go ahead.

Josh Jennings, Analyst

Hi. Good afternoon. Thank you for taking questions. It's great to see the GenesisX CE mark approval in hand. I wanted to ask David about the MAGiC-FEST study. I believe we caught a glimpse of the first 40 patients at HRS. Could you share any additional insights on the results from that study? Also, is the dataset submitted for CE mark approval the same one that will be submitted to the FDA for the PMA filing, or will there be more patients enrolled requiring longer follow-up?

David Fischel, CEO

Sure. Good afternoon. Thank you for the question. The MAGiC-FEST study is a clinical trial taking place at two centers in Europe, treating a diverse group of arrhythmia patients since the beginning of this year. We submitted initial data at the end of February regarding the patients enrolled up to that point as part of our CE mark submission, which was also included in the PMA submission. These sites have continued to enroll patients, and although the study was initially designed for a maximum of 30 patients per site, we have expanded that limit. Patients are still being enrolled. We are pleased with the performance of MAGiC. Some data was presented by physicians at HRS, and they are working on submitting additional findings for publication. It's not appropriate for me to disclose specific results as they are seeking publication. However, we are very satisfied with MAGiC's performance. It is an effective catheter, consistently treating patients, and we are observing real clinical and performance improvements compared to the J&J THERMOCOOL RMT catheter. Regarding our interactions with the FDA, I mentioned in my prepared remarks that we are having ongoing discussions to determine what data would be most useful for FDA approval in the U.S., utilizing the data from Europe. These discussions include what data and study designs would support a post-approval study in the U.S. to validate the European findings and to expand our indications there. We are focusing on specific patient types and data collection in Europe based on feedback from the FDA. Enrollment in Europe is ongoing, and we believe that, assuming strong enrollment continues, the resulting data will be advantageous for our FDA submission.

Josh Jennings, Analyst

Excellent. Thanks for that. And just on the MAGiC catheter, I mean, a lot of enhancements and capabilities. One, and it's exciting to hear about all the PFA development programs that are underway under your roof now, but are you going to ultimately pursue a high-power, short-duration energy delivery approach with MAGiC cath? I believe that you can get to 100 watts with MAGiC, but I guess J&J's having some success with QDOT. I just wanted to touch on that topic.

David Fischel, CEO

High power short duration radio frequency ablation is an exciting aspect of the electrophysiology field. We tested the MAGiC catheter through bench and preclinical testing up to 100 watts, and one of its standout features is the stability of the gold tip's temperature, even at high power levels. Typically, increasing power can lead to char and overheating of the tip, which poses clinical risks. However, the MAGiC tip remains extremely stable, even at high wattage, which is a significant advantage due to the tip material and the irrigation flow design, even with minimal irrigation that reduces the fluid load during an ablation procedure. In the U.S., most radiofrequency ablation catheters are only approved for up to 50 watts. Consequently, we aimed for our pivotal animal studies and label submission to be within that limit. While the device can handle higher power, that is not included in our current label pursuit or initial device offering. After approval, we will have the opportunity to explore higher power short duration, but we haven't initiated that process yet. Nonetheless, even at 50 watts, we achieve excellent lesions quickly, demonstrating that the catheter's performance aligns well with advancements in the field.

Josh Jennings, Analyst

Thank you for that. I have one more question regarding your MAGNETIC VT study results, particularly since the Traverse data was presented as a late breaker at ACC. I'm curious about how these two datasets, if positive, could enhance your marketing to EP labs regarding the clinical value proposition for robotic magnetic navigation once the MAGNETIC VT study results are available. Thank you.

David Fischel, CEO

Yes, of course. The MAGNETIC VT study was a randomized prospective study comparing robotics to manual cardiac ablation for ischemic VT patients. We decided to stop enrollment early due to slow recruitment and because it wasn't strategically essential for our development of a new product ecosystem. Nevertheless, it's likely the largest randomized prospective VT study currently in the ablation field, having enrolled around 180 patients. All patients have completed their follow-up, and we are working with statisticians and the principal investigators to prepare the results for presentation at an upcoming conference. I expect the principal investigators will present the findings at one of these conferences, and we will issue a press release at the same time.

Operator, Operator

Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please go ahead.

Nelson Cox, Analyst

Hi. This is Nelson Cox on for Frank. Good to see all the progress, and congrats on the CE mark.

David Fischel, CEO

Thanks, Nelson.

Nelson Cox, Analyst

I wanted to follow up on the earlier question on the manufacturing scale-up process for GenesisX. It sounds like confidence there is strong, but can you help us quantify the scale you will be able to build versus how that compares with Genesis and maybe how the timelines of production compare?

David Fischel, CEO

Sure. It's difficult to provide specifics, as we have manufactured only a few GenesisX systems so far, primarily by our R&D team rather than our dedicated manufacturing team. Over the next few months, part of our process will focus on ensuring the manufacturing team can efficiently build these systems. We are confident in our reliable production, but we need to implement all the practices that enhance manufacturing efficiency. Previously, we've mentioned that our new headquarters, established a couple of years ago, enabled us to produce several tens of systems annually. We will need to scale our workforce as we increase production, but currently, we can manufacture about one system per month and have capacity for more than four at a time. Regarding GenesisX, the design allows for assembly without components facing each other, leading to significant efficiencies in time, staffing, and complexity compared to Genesis. While I can't specify the exact outcome, we definitely anticipate a substantial increase in our production capabilities at our current facility with the existing technologies, and I'm eager to tackle the challenges of scaling further.

Nelson Cox, Analyst

Perfect. That's great. And then with the CE mark and expected incoming FDA 510(k), it sounds like interest is strong. I guess one question there is will this cause hospitals to pause and wait for the next-generation system? Or is that not something you're really thinking about right now? Or any color there?

David Fischel, CEO

It's definitely something we're considering, and there is a bit of that happening. We mentioned it in the press release and our prepared comments about having a late-stage pipeline of Genesis orders and systems across three regions. There are definitely customers who find Genesis to be the most reasonable and optimal choice, like a hospital that already has a Niobe system and wants to upgrade. They have already constructed a reinforced lab, so it makes sense for them to opt for the Genesis robot rather than wait for GenesisX. There are certainly labs where GenesisX won't lead to confusion or delays. However, some of our greenfield pipeline might want to wait for GenesisX, and that's fine. We have enough insight into our backlog of Genesis orders and our newer Genesis pipeline to sustain us in the coming months. As GenesisX progresses, it will actually be a more straightforward product for us to scale from an organizational standpoint. I'm pleased that if customers ultimately prefer GenesisX, that’s entirely acceptable to us.

Nelson Cox, Analyst

Perfect. And then maybe just one more quick one. I know a lot of it is construction timelines, but can you just walk us through at a high level, anything from a macro perspective on capital equipment purchasing patterns or what you've seen there?

David Fischel, CEO

It's been a topic in the past. We feel like we're a small player in a vast market, and whether the overall economic conditions improve or worsen, we are still focused on our own challenges, and it doesn't significantly impact us. There are certainly some economic difficulties in China affecting us and other capital equipment companies. The timing of any improvement is uncertain. We hope that by the time we receive approval for our complete robot catheter mapping system in China, the economic situation will be more favorable. Nevertheless, even in tough economic times, there are still opportunities and purchases happening. We have an engaged customer pipeline in China, as well as in Europe and the U.S., where I haven't noticed any significant shifts in the overall environment. Since we began rebuilding our capital sales ability in 2020, we've faced a challenging economic landscape. The chaos of COVID and personnel issues, as hospitals struggled with staffing, have made the environment difficult. This has been the prevailing situation since we restarted capital sales four years ago, but we have managed to make progress despite those challenges. Overall, my sense is that conditions haven’t changed significantly, either positively or negatively. If the environment becomes more favorable, that would be great, but we are not relying on that. Ultimately, what we can control in-house is what will help us strengthen our position in this large market, regardless of any fluctuations in the economic tides.

Nelson Cox, Analyst

Great. Congrats again. Thanks, guys.

David Fischel, CEO

Thank you very much.

Operator, Operator

We have no further questions at this time. I will now turn the call back to David Fischel for closing remarks.

David Fischel, CEO

Okay. Thank you very much for your questions. We look forward to working hard on your behalf and speaking again next quarter. Thank you.

Operator, Operator

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.