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Edited Transcript of EYES earnings conference call or presentation 13-Mar-19 8:30pm GMT

Q4 2018 Second Sight Medical Products Inc Earnings Call

Sylmar Apr 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Second Sight Medical Products Inc earnings conference call or presentation Wednesday, March 13, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John T. Blake

Second Sight Medical Products, Inc. - CFO & Corporate Secretary

* Jonathan Will McGuire

Second Sight Medical Products, Inc. - CEO, President & Director

* Lisa Wilson

In-Site Communications, Inc. - IR

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Conference Call Participants

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* Amit Dayal

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

* Jeb Terry

Aberdeen Investment Management - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you very much for standing by and welcome to the Second Sight Q4 2018 Results Call. (Operator Instructions) As a reminder, this conference is being recorded today, Wednesday, March 13, 2019.

I would now like to turn the conference over to Lisa Wilson, Investor Relations for Second Sight. Please go ahead.

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Lisa Wilson, In-Site Communications, Inc. - IR [2]

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Thank you, Dave. Good afternoon, and welcome to Second Sight's Fourth Quarter 2018 Results Call. This is Lisa Wilson, Investor Relations for Second Sight. With me on today's call are Will McGuire, President and Chief Executive Officer; and John Blake, Chief Financial Officer of Second Sight.

At the close of market, the company issued a press release detailing results for the 3 months ended December 31, 2018. The press release can be accessed through the Investors section of the Second Sight website at secondsight.com. You can also access the webcast of this call from there.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act.

These forward-looking statements are based on information available to Second Sight management as of today and involve risks and uncertainties, including those noted in this afternoon's press release and Second Sight's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements.

Second Sight specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. A telephone replay of the call will be available shortly after completion of this call for the next 2 weeks. You'll find the dial-in information in today's press release. The archived webcast will be available for 1 month on the company's website, secondsight.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 13, 2019. Since then, Second Sight may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.

And with that, I'll turn the call over to Second Sight's CEO, Will McGuire.

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [3]

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Thank you, Lisa, and thank you all for joining our call this afternoon. In 2018, we took significant steps to reposition the company and focus resources on moving our Orion clinical and R&D programs forward in order to achieve our ultimate goal of delivering useful artificial vision to virtually all blind individuals.

Orion has the potential to deliver benefits to a large patient population with a significant unmet need. We believe this large market opportunity will enable us to create meaningful shareholder value in future years. On this call, I'd like to review achievements from 2018, update you on the recent progress of our clinical and R&D programs and outline key goals for 2019, as we focus on building value in the business over the long term.

Before reviewing 2018, I was pleased to announce a few weeks ago that we strengthened our balance sheet by successfully completing a rights offering, raising approximately $34.6 million. This financing will allow us to gather additional safety and efficacy data in the U.S. early feasibility study for Orion, advance our key Orion development programs and move several research efforts related to -- and move forward several research efforts related to complementary technologies to the clinical evaluation stage.

Once again, our Chairman, Gregg Williams, furthered his commitment to Second Sight and belief in our strategy by participating in the offering. Given our current plans, we believe, these funds will be sufficient to support our activities into the second quarter of 2020.

Now let's talk about 2018. We completed a number of important initiatives last year, including a reprioritization of resources to focus on Orion, which better positions us for future success.

Some key achievements include: number one, we completed enrollment of the first 5 subjects in our U.S. early feasibility study for Orion.

Number two, we experienced great initial results from the first 5 Orion feasibility subjects in which their average performance compared favorably to Argus users with an overall safety profile that is very good.

Number three, we advanced Orion regulatory and clinical pathway discussions with the FDA and continue to have a very constructive dialogue as part of the agency's breakthrough devices program.

Number four, we completed the R&D work on our next-generation externals, Argus 2s, and started a clinical validation with current Argus users in December.

Number five, we announced research efforts on various complementary technologies that hold the potential to considerably enhance the user experience with Argus and Orion. These technologies include but are not limited to, eye-tracking, object recognition and localization, thermal imaging and depth-based decluttering.

Number six, we were granted an average 2019 Medicare outpatient payment rate of $152,500 dollars for the Argus II and associated surgical procedure and CMS committed to a new rate-setting methodology for extremely low-volume procedures that now considers multiple years of data.

Number seven, we completed enrollment in our U.S. post market study for Argus II and will be seeking publication of 1-year results later this year along with publications on other similar international post market studies.

We are pleased with these post-approval results, showing significant functional benefit, a visual prosthesis in an end-stage blind patient population. We believe this growing body of data will serve as a great foundation for our future market access and reimbursement initiatives for Orion.

Number eight, we hired and developed a new team of full-time vision rehabilitation specialists that began to deliver vision rehab training to new and existing patients. This team has become increasingly proficient in assisting our blind patients to develop their full potential. And as I will get into it in a moment, they have become an integral part of the Orion feasibility study as they work with study subjects during home use.

Number nine, we completed the restructuring of our commercial operations outside of North America to align with the company's overall corporate strategy. This realignment is expected to result in annual operating expense savings of approximately $3 million beginning this year.

And then finally, we added 2 key members to the senior management team: Pat Ryan as COO; and John Blake as CFO.

Now, I'd like to provide a few recent updates relative to our business before turning to 2019 objectives. As previously disclosed, we enrolled a sixth subject in the Orion feasibility study during January of this year at Baylor College of Medicine in Houston, Texas. This subject has since been successfully activated.

Also, a fifth subject has now been cleared for home use. As a reminder, home use clearance is important for 2 reasons: one, we believe that safe, effective stimulation parameters have been established for that subject; and two, the critical artificial vision training process can begin.

We are encouraged by the performance of several Orion subjects whose experiences compare positively to the average Argus user. Of course, as expected, the performance has varied by subject. Based on artificial vision rehab sessions and self-reporting, Orion subjects have used the system to identify parked cars in driveways while walking down a sidewalk; identify the queue ball and striped balls on the pool table; sort light from dark laundry; and most recently, identify candles on the subject's birthday cake and then successfully blow out all the candles.

The current Orion subjects will continue working with our artificial vision rehab specialists in the coming months to further increase their proficiency with the Orion system, while allowing us to better define the expected performance of Orion subjects in a larger study.

Safety is our top priority and I'm pleased to report that the safety profile remains very good with no additional serious adverse events since the single event that we previously reported.

Over the past several months, we have continued our constructive dialogue with the FDA regarding next steps for the Orion program. As stated previously, the FDA's breakthrough devices program is fantastic in that it allows frequent productive interactions as we develop and finalize the clinical and regulatory pathway for Orion.

In the near future, we plan to approach the FDA concerning the enrollment of additional feasibility subjects. The rationale for enrolling additional subjects is to collect further safety and performance data before starting a larger more expensive pivotal study for commercial approval. The added data will provide more confidence in our selection of endpoints as well as inclusion/exclusion criteria for the pivotal study. We also think that we can enroll the additional subjects without significantly impacting the overall project time line.

Now, turning to the Argus business. We completed 16 Argus II implants worldwide in Q4, and 69 implants for our full year -- for full year 2018. The Q4 performance was consistent with our expectations, given our actions to restructure the international business and focus on core markets.

The Argus 2s clinical validation study for our next-gen externals was completed earlier this quarter. We passed the validation and received positive feedback from the current Argus II users. We did encounter a few technical issues that are -- we are currently addressing. Once the issues are resolved, we plan to move forward with the regulatory submissions to gain approval. We will continue to monitor the effectiveness of our Argus commercial efforts and make changes as necessary to ensure maximum capital is allocated to Orion clinical and development programs.

Now looking forward to 2019, our key goals and initiatives include the following: first, complete the analysis of 12-month data from the first 5 Orion early feasibility study subjects. Second, enroll additional subjects in our U.S. early feasibility study to gather further safety and performance data. Third, reach agreement with the FDA concerning the clinical and regulatory pathway to commercialization for Orion. This will enable us to develop clear estimates of the total capital required to reach important Orion milestones.

And finally, advance research projects intended to enhance the Argus and ultimately, the Orion user experience including the delivery of prototype eyewear, suitable for patient testing with eye-tracking technology, distance filtering/decluttering or thermal imaging.

Before turning the call over to John, I'd like to thank the entire team at Second Sight for their hard work and dedication in 2018. Their achievements have positioned the company for success in 2019 and beyond.

With that, John will now review our fourth quarter 2018 financial results. John?

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John T. Blake, Second Sight Medical Products, Inc. - CFO & Corporate Secretary [4]

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Thank you, Will. Net sales on a GAAP basis were $1.8 million for the fourth quarter of 2018 compared to $3.1 million in the fourth quarter of 2017. Revenue was recognized for 16 units in the fourth quarter of 2018 compared to 26 units in the prior year quarter. This decrease is mainly due to lower international sales as we restructured our international commercial activities, and we experienced a lower average revenue per implant in 2018 due to a lower reimbursement rate set by CMS as compared to 2017.

On a GAAP basis, revenue recognized per implant was approximately $112,000 in the fourth quarter of 2018, and $120,000 in the same period of 2017.

During the quarter, 10 implants were performed in North America and 1 in Europe and 5 in Asia. For the year, 38 implants were performed in North America with the remaining 30 in markets outside of North America.

Gross profit for the fourth quarter of 2018 was $0.2 million compared to a gross profit of $1.2 million in the fourth quarter of 2017. Cost of sales in the fourth quarter of 2018 was $1.6 million as compared to $1.9 million in the fourth quarter of 2017. The decrease in cost of sales was driven primarily by lower unit volume and an increase in our inventory reserve of $0.4 million. Cost of sales in the fourth quarter of 2017 included a decrease in the inventory reserve of $1.4 million.

R&D expenses net of funding received from grants were $2.4 million during the fourth quarter of 2018 compared to $2.3 million in the prior year quarter. The small increase from the prior year was primarily due to verification and validation activities related to Argus 2s, and consist of increased headcount, outside services and costs for internally produced prototypes partially offset by $0.5 million of deferred costs, which are expected to be funded by our NIH grant.

As a reminder, last year, we received a $1.6 million grant from NIH with the intent to fund $6.3 million over 5 years for Orion clinical development.

Clinical and regulatory expenses increased during the fourth quarter of 2018 to $1.2 million compared to $1.1 million in the prior year quarter. The increase of $0.1 million was primarily related to costs associated with the Orion feasibility study, offset by a completion of post market studies for Argus. We expect clinical and regulatory costs to increase in the future as we conduct additional clinical trials to assess new products such as Orion and enhancements to existing products.

Selling and marketing expenses were $2.4 million during the fourth quarter of 2018 compared to $2.5 million in the fourth quarter of 2017. The decrease is attributable to decreased market development activities, including compensation expenses.

General and administrative expenses were $2.5 million in the fourth quarter of 2018 compared to $2.8 million in the fourth quarter of 2017. The decrease is primarily attributable to lower outside services costs.

As Will mentioned, we completed the previously announced restructuring of our commercial business outside of North America. We anticipate this will result in an annual operating expense savings of approximately $3 million beginning this year. We incurred $0.6 million in restructuring charges in the fourth quarter of 2018 consisting of severance and other employee termination benefits.

Net loss for the fourth quarter of 2018 was $8.9 million or a loss of $0.12 per share. This compares to a net loss of $7.4 million or a loss of $0.13 per share in the fourth quarter of 2017. Our non-GAAP net loss, which excludes stock-based compensation and changes in our excess inventory reserve, both noncash items, was $0.10 per share for the fourth quarter of 2018 compared to a non-GAAP net loss of $0.14 per share in the fourth quarter of 2017.

A full reconciliation of our GAAP net loss to our non-GAAP net loss, including a per-share reconciliation, can be found in the tables at the end of our earnings release.

Finally, as of December 31, 2018, we had $4.5 million of cash and cash equivalents and have no debt. In February 2019, we completed a rights offering that provided us with gross proceeds of $34.6 million. Approximately $30 million in units related to this offering were required by entities controlled by our Chairman, Gregg Williams. We expect this current cash to fund our operations into the second quarter of 2020. With that, I'll open the call up for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Andrew D'Silva with B. Riley.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [2]

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Congrats on getting that raise done. Just a couple of quick ones. Basically, I just want to try to figure out Argus and volumes and how we should really think about 2019 as it compares to 2018?

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John T. Blake, Second Sight Medical Products, Inc. - CFO & Corporate Secretary [3]

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I'll take that one. So while we're not providing any specific guidance on the unit volumes for Argus, I can give you some color on how we're thinking about that business going forward.

Given the limited addressable market of Argus, we made the decision last year to maximize capital efficiency with our Argus commercial activities and increase our investment in resources sort of redeploying the savings into Orion and -- clinical and R&D programs.

So with the restructuring of the international commercial activities and personnel, we're no longer going to support new implants of Argus in Turkey, Iran, Singapore and Russia. But that -- we have a healthy business in the U.S. and in key European markets. So while -- we're not in a mode of maximizing implant volume if doing so would require significant investment in market development or if we produce a negative contribution margin for those incremental sales.

But I want to be clear that the changes made on the commercial side are really designed to reduce our cash burn and to address the prior situation where we were deploying more capital than we were generating with incremental sales. So -- and maybe -- well, I'll finish -- most importantly, we remain committed to servicing our Argus patients and to continue to develop important competencies that are essential to the success of Orion such as with our artificial vision rehab. So I'll pause there.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [4]

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Okay, yes, that was very good color, a good segue to my next question. I guess, when we start thinking about sales and cash burn in 2019 versus the previous year, maybe, just year-over-year without committing to guidance or anything, what that -- the differences could look like? At least from a variance standpoint would be useful, when I think about modeling. And then, maybe, with the cash that you currently have, what milestones do you expect to be able to achieve with that?

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John T. Blake, Second Sight Medical Products, Inc. - CFO & Corporate Secretary [5]

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Yes, perfect. So with the raise, the $34.6 million that we raised in the rights offering, we are now guiding runway into the second quarter of 2020, so you can get a sense for our burn that way. Some of the ups and downs, certainly, we're going to continue to deploy more dollars towards R&D and clinical. You can reflect some of the savings from our Europe restructuring out of the sales and marketing line of roughly $3 million, and then otherwise, what will shake out in terms of gross margin.

So in terms of milestones, that runway, it gives us the ability to capture key milestones this year with respect to Orion in the clinical study, we'll have our 12-month safety and performance data. And as Will described, we're going to be enrolling additional feasibility subjects, reaching agreement with the FDA on our clinical and regulatory pathway to commercialize Orion, and then we'll continue to advance our research projects for the complementary technologies.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [6]

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Okay, okay, great. And last question for me, I just -- as it relates to what you've learned from having Argus out in the market and actually figuring out different sales channels and marketing methodologies. Have you learned anything that you could take away and then apply to Orion when you start to think about commercially launching that?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [7]

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Hey, Andy, this is Will. Yes, I think we've learned quite a bit. Almost everything that we've learned in the commercial channel or in the field, I think will help us with Orion eventually.

And some of the things that I think are most important are what happens, say, before the surgery and what happens after the surgery. So before the surgery, we spent quite a bit of time really learning how to do outreach and to find people who are completely blind and would be interested in our technology.

In most cases now, and probably in many cases with Orion, the individuals that we're looking for, there's not a natural referral channel from another physician from them because they've been blind for a period of time and are not actively seeing an ophthalmologist because there's not much the ophthalmologist can do for them.

So we've learned how to do outreach there. We've learned how to build a U.S. patient database. As a matter of fact, in that database now, given our outreach on Argus, we've already built up over 1,000 people that could be potential Orion candidates one day. Now we haven't screened them very closely, so a lot of those will fall out. But again, we're building that database.

And then the second thing is probably after the surgery, what has to be done so that we have patients who get the most benefit and then are subsequently happy and also have happy surgeons and that is all the work that we need to do, and that we're actually doing a lot of it ourselves now to provide the artificial vision rehab and to provide good rehab and consistent rehab to all patients.

So on all of those things, we've kind of learned how to do it and how not to do it. So I think we're much more proficient on finding patients, on screening patients and then ultimately, after a surgery, making sure they get maximum benefit from the technology. Thanks for the question.

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Operator [8]

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And our next question comes from the line of Amit Dayal with H.C. Wainwright.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [9]

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You provided some color on how the patients are doing with Orion. Can you any -- can you provide any more details in terms of how much progress the patients are making relative to your expectations with use at home?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [10]

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Sure. Yes, I could just -- maybe a few more comments. We provided probably most of the color that we can, but they do continue to progress. And so maybe I can tell you a couple of ways that we measure that or that -- what we've seen.

First, there is some testing before they go home in which we try to measure their visual acuity. One that I've talked about in the past is square localization and the ability to see a square on the screen and then touch within the boundaries of that square. And the Orion subjects have performed quite well on the square localization testing with several of them performing better than the average Argus user does.

But then going home, I would say, it's safe to say that most of the subjects get more and more benefit from the technology as they get more and more rehab. So we are continuing to provide rehab services to many of these subjects, and it's just allowing them to better incorporate Orion in what they do for daily living.

And so that is one thing that we will report on, Amit, later on is, we will measure kind of the impact to their daily living and is it a positive or mild positive or neutral type impact on what they do. But I gave some examples in the script and those are representative to what many of the subjects are doing now.

They -- as I said we've -- an individual can get out, he can walk around the block, made a comment to me after walking around the block one time and being able to identify the edge of the sidewalk and seeing cars and seeing driveways, that it was the most freedom or independence that he had felt in 12 or 15 years. And so I think others are getting the same feeling.

So doing it for that, as I said, sorting laundry, finding things around the house, blowing out birthday candles, stuff like that. And we would anticipate in most cases that the more training and the more rehabilitation that we provide, the better their performance and the more utility they will get from the technology.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [11]

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So as you go through this experience, I mean, will this become -- eventually if the product is launched and then it's successfully introduced to the market, will this become sort of a cost factor for you guys in terms of just training these patients, et cetera? Have you given any thought to how that might play out? I know it's a little bit of a longer-term question but how should we think about supporting it?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [12]

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I think eventually, if we have enough -- let me back up. Right now with Argus, there are so few patients, relatively speaking, out there that we have found, even though we could train some low vision specialists in various geographic areas to provide the rehab, they just didn't have enough experience and they weren't getting enough practice in providing this rehab. So we felt it was better that we just kind of take it over ourselves. And for us right now that means 3 or 4 people that are dedicated to this.

When we move to Orion, I would expect, number one, a significantly -- we've said 50x maybe -- larger patient population. And we should have enough Orion users in the various geographies that we would be able to then basically train the trainer. So we would go out and train local vision rehab or low vision specialists to be Orion rehab specialists.

And in essence, our team would just start training other people to do it, and the expectation would be that we could do that. They would be effective and that they would have enough practice and enough users in their area that they could handle it and would be proficient. So yes, there's probably some expense for us certainly in the near term and as we transition, but ultimately, we would see that as something that others would do.

And then one other comment related to that, when we're looking at our overall strategy now and we're thinking about reimbursement and market access, we are considering early on how -- what we need to do to make sure that all these various activities would be reimbursed. So for example, here, we would want to have as part of our strategy to address the rehabilitation piece being reimbursed in the U.S. and in other key markets at some point. Does that answer your question?

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [13]

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Yes, yes, that's very helpful. You highlighted planning to enroll additional subjects. How many are you looking to maybe add? And what is the timing on this? And is this coming from you organically? Or is this part of your discussions through the FDA that this is coming about?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [14]

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Yes, good question. It's from us. I mean, it's something that we think would be wise. And maybe I should make a point first that it's not because we're unhappy with the data that we're receiving or that we see a problem with the data.

I mean, we've just looked at this, and we think the -- probably the smartest thing that we could do right now would be to enroll additional patients or subjects to give us additional data that we could then use to inform our selection and finalization of endpoints and form the number of subjects we think we should enroll in the pivotal and maybe even give us some more data to use when we set the final selection criteria with the FDA. So what are the appropriate inclusion, exclusion criteria?

We've -- our expectation is that we can enroll some additional subjects without having a significant impact on the overall project timeline. We also think, Amit, that we could utilize the NIH grant that we announced last year to potentially offset some of the costs of these additional feasibility subjects. So in the end, it's being driven by us and by our belief that some additional data would increase the odds of success in the pivotal trial.

As far as the number of subjects, we have not finalized that, and we haven't even opened up the discussion, if you will, with the FDA. But if you're thinking, I would say, thinking 4 to 6 is an appropriate number. I mean, if we only do 6, that still doubles the amount of data that we have. And the timing on it would probably be in the very, very near future.

We still have a couple of steps that would have to happen before we could do this. One would be, of course, agreement with the FDA. And to be clear, we do not have agreement with the FDA right now, so we need to have the discussion with the FDA and explain our logic and what we hope to accomplish and then would have to get some IRB approvals with specific sites to go forward. So you should -- it would be some time in the summer before we could start enrolling these subjects.

And then as far as the time to enroll, it's hard to say it, but I think we could enroll fairly quickly. Once we get a little closer to the start of enrollment, we could give some guidance maybe on what to expect from a timing, okay?

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Operator [15]

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(Operator Instructions) Our next question comes from the line of Jeb Terry with Aberdeen Investment Management.

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Jeb Terry, Aberdeen Investment Management - Analyst [16]

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So some of my questions have been reasonably well addressed, but a couple of things that I'm curious about. Relative to the FDA, we always worry about the FDA giving us surprises, and I'm just -- and as I understand, with your designated break-through device status, which I'm just curious, but I don't know that there are many -- that many companies that have that.

How does that kind of govern the dialogue and -- or the amount of dialogue and therefore, the degree of comfort you have relative to FDA being in agreement with, say, example, adding 4 to 6 patients and also you're -- giving you confidence as to what might be those enrollment criteria in the future and what might be those endpoints relative to the pivotal study?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [17]

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Yes, that's a good question. Let me take that one. First of all, being designated as a break-through device in the agency program, I'd say, one of the hallmarks and one of the unique things about it is you do get to have frequent communication or interactions with the FDA.

So it can be as -- sometimes as straightforward as sending an e-mail or making a phone call and then having a conversation or an exchange within a week or 2. It's not always like that, but sometimes it can be quite easy to have a dialogue. I mean, they still -- to keep in mind, they still have -- completely have the same goals of safety and efficacy per patient, but it just allows you to get answers and to get feedback in a much more productive, quick environment.

So -- and kind of the way it's gone just to back up maybe is, after we got accepted, the first thing that we do is we develop a document. It's called a data development plan or DDP, we call it, and it's a document that really describes all of the preclinical and clinical testing and validation that we expect to do from early feasibility through pivotal through post market.

And so we kind of layout all of the testing that we need to do, bench testing, preclinical testing, our initial thoughts on what a pivotal trial looks like with maybe some thoughts on endpoints as well as what we're going to do on post market. And then the FDA will comment on the entire document. And in many cases, their comments will be questions. We will go back and answer those questions. And then some of their questions or comments will generate questions on our side, and so we'll ask them questions.

So we go back and forth on many of these things. So we've already received feedback on a lot. Now it doesn't mean -- to be clear, Jeb, it doesn't mean that we have completely nailed down everything because we haven't, but what we are trying to do is resolve as many things as possible along the way so that, here later this year, we would hope that we only have a few major items to resolve such as what is the study design for the pivotal trial, how many patients, endpoints, inclusion, exclusion criteria and then what does the post-market trial look like.

Again, though we've already gotten some feedback on our thoughts there, but still the big things would be what we get resolved later this year. But -- and maybe one more comment. It is -- I think it will be safe to assume that this program also does a lot to eliminate any big surprises along the way. So they shouldn't be surprised, and we shouldn't be surprised in a major way as we progress.

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Jeb Terry, Aberdeen Investment Management - Analyst [18]

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Okay. And so relative to the endpoints, obviously, you've been through this process once already with Argus, and with Argus patients, they have some degree of functional site. Where -- currently, what would you -- what would make you really happy or what would be your expectations for the Orion patient vis-à-vis the Argus patients relative to the achievable endpoints? And then how might that impact your FDA study?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [19]

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Yes, it's a good question. That's one we're still working through. I think we would -- of course, if we enroll some additional subjects, we'd get more data there to help us with that, Jeb. But what we've said is that -- we said a couple of things.

We've said overall, that the performance on average of our Orion patients compares favorably or is comparable to overall performance with -- of Argus users. We've also said that we have several Orion patients that are performing very favorably, so they would be performing, what I would say, closer to what some of the very best Argus users would be. So we have some there that are doing outstanding on their testing.

So we're pleased with that. What that means to us is when we look toward endpoints, we don't think we would be proposing endpoints that are radically different than what we've done either in approval studies or in post-market studies with Argus. And so we'd be looking at potentially some sort of visual acuity type measurement like a square localization or something similar to that.

And then there would probably be some measurement, more of a quality-of-life or impact on daily living type measurement, which, frankly, we think is probably a better measurement for our technology. And that would be similar to what we used in Argus, what we call FLORA, where we have an independent third-party that goes out and spends time with the user or with the subject and observes them and also then tries to quantify the impact of the technology on their daily living.

So is it a positive impact or moderately positive or neutral or negative, that sort of thing. And we'd expect to have some sort of tool like that, which we think, again, is a great thing to have to really demonstrate in real life what impact are we making on that subject's life.

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Jeb Terry, Aberdeen Investment Management - Analyst [20]

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And to that point, you've got your -- you've mentioned a full-time team for vision of systems. I think is the way you've stated it. Help me understand what that means. Does that mean someone is sitting side by side or visiting in the home with these people?

Or is there -- and you also mentioned the hardware or software enhancements, your R&D focus, I think, how did you put it, prototype eyewear suitable for patient testing, eye tracking, distance filtering, et cetera. Help me understand how all that works together relative to the post-operative training and rehab?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [21]

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Yes, so good question. So they're 2 separate things, but they could definitely come together at some point in time. So on the vision rehabilitation or artificial vision training, however you want to state it, we do have a group there, and what they do with both Argus and now with Orion subjects is they do go out to their homes.

So they would go out, meet with the -- either the Argus user or the Orion subject in their home. Typically, they would have a discussion about what they hope to get from Argus or from Orion, what kind of things could you not do in the past that you think it could help you do. And they'll try to design, in many cases, design a program that helps them achieve things that are important to them, that would change how they go about their life.

And so even with Orion, we will go out to their homes and we will meet with them on a regular basis. I can't say that it's every week, but we are meeting with them on a regular basis and working with them and basically teaching them how to use the system, how to interpret what they're seeing, how to get the best possible results, how to learn more from it, et cetera, et cetera.

So that's one -- one real good thing is that we have a lot of interaction. We know how the Orion subjects are performing. We know how they're feeling. We know how they're progressing. And it's not like we have a blinded study, where we wait 6 months or 12 months and then we get an answer. When we talk about the things that we've observed, it's because we know how things are going on a weekly or monthly basis.

The other technologies that I mentioned, those could end up being very important to us longer term as well, and what they're designed to do is basically to enhance the experience of either an Argus user or an Orion user by providing supplemental information or other information in addition to the artificial vision that we're providing them.

One example is the thermal imaging. And basically, what we do there is we would start creating stimulation based upon a heat signature, so they would have a thermal camera if you will. And an example of that would be then an Argus or an Orion user that has a thermal imaging capability would be able to -- whether it's light outside or dark or whatever, they would be able to scan the room and find out where other people are in the room because the body gives off a heat signature.

They could also use it to find a hot cup of coffee. It could be a good safety tool to identify a hot stove or something else like that. So it basically just provides a different input for stimulation, allowing them to identify heat signatures.

The object recognition or object localization, it's another one where you would have additional software capabilities built into the system. They would look around with their same glasses and the same camera. The camera would start recognizing things that are on the table such as a water bottle or a coffee cup, and then they could ask for audible cues.

And it could tell them in their ear that maybe the thing that's being illuminated by the Argus or Orion system now is a water bottle or a coffee cup. It could even potentially read things to them that they pick up or it could do facial recognition. So a lot of different things there that would complement the artificial vision.

And then the -- we've done some testing with that one as well. I mean, some of the initial testing would indicate that kind of going the other direction helps the most, which is object localization. And in that case, they could maybe scan a table and then ask the system where is my iPhone and the system would only provide stimulation in the location where the iPhone is. So it would help them find things on the table or find things in the room.

So all of that, we'd expect to continue testing those types of technologies, start testing them actually with current Argus users and kind of prove the benefit and maybe which ones have the most benefit. And then there's no reason to expect that we couldn't integrate that one day into the Orion system as well.

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Jeb Terry, Aberdeen Investment Management - Analyst [22]

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And so is that the largest component of your R&D spend? Or how is that -- how does your R&D spend map out over the next, say, 24 months?

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [23]

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Yes, the largest component, by far, is going to be Orion-related things, Jeb. The -- 4 of the technologies that we've called out in our investor calls, we're actually pursuing those, in most cases or in all cases, I guess, with a partner, and in some cases, we also have grant money attached to those.

So we have a relatively low burn on some of those technologies. I'm glad you asked that. And if you look at the various technologies, those are things that are advancing in the world without us. And so we don't have to do a lot of original work there on, for example, creating thermal imaging or creating object recognition or object reader. We need to find technology that's being developed out there.

And then the important thing for us is to demonstrate that we can integrate that technology with our artificial vision technology so there's kind of a seamless integration, and it's easy for our users to get benefit from it. And it doesn't provide too much stimulation or an overload of information that frustrates them. So for us, it's more about finding the technology, forming a partnership and then integrating it and then making it easy and effective for them to use.

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Jeb Terry, Aberdeen Investment Management - Analyst [24]

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I got you. Okay, one really easy one. What's your headcount right now?

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John T. Blake, Second Sight Medical Products, Inc. - CFO & Corporate Secretary [25]

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123 as of December 31.

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Operator [26]

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And gentlemen, there are no further questions waiting. Mr. McGuire, please continue with your presentation or closing remarks, sir.

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Jonathan Will McGuire, Second Sight Medical Products, Inc. - CEO, President & Director [27]

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Yes, thanks again, everyone, for your support and for joining our call today. I look forward to providing additional updates later this year. Have a great day.

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Operator [28]

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Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.