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Edited Transcript of IPD.AX earnings conference call or presentation 15-Apr-20 11:15pm GMT

Q3 2020 ImpediMed Ltd Earnings Call

Eight Mile Plains,Qld May 5, 2020 (Thomson StreetEvents) -- Edited Transcript of ImpediMed Ltd earnings conference call or presentation Wednesday, April 15, 2020 at 11:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Richard Carreon

ImpediMed Limited - MD, CEO, President & Executive Director

* Timothy Cruickshank

ImpediMed Limited - Executive VP of Finance & Acting CFO

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Conference Call Participants

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* Rajeev De Silva;Salter Brothers;Salter Brothers

* Sally Watson;Oblique Logic;Owner

* Shane A. Storey

Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Thank you for standing by. And welcome to the ImpediMed Limited quarterly results investor conference call. (Operator Instructions)

I would now like to hand the conference over to Mr. Richard Carreon, Managing Director and CEO. Please go ahead.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [2]

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Thank you, Lexy. Good morning, good afternoon and good evening. And thank you for joining us today. We're hosting this conference call to discuss our 4C for the financial quarter ending 31 March, 2020.

Before I begin, I'd like to acknowledge and thank the clinicians, caregivers, staff and all those involved in the fight against COVID-19. And although the fight is far from over, the courage these individuals show every day is nothing short of remarkable.

On today's call, I'll be referencing the 4C we launched this morning Australian time. Due to the possibility of communications problem impacting this conference call, I have asked Mike Bassett, our Senior Vice President of Corporate and Strategic Development, to join -- Tim Cruickshank, our Vice President of Finance and acting CFO, to join me this morning as well. As always, at the conclusion of my remarks, we'll be taking questions.

The financial results for the quarter ending 31 March were as follows. Total revenue for Q3 FY '20 was $1.7 million, up 73% from the previous corresponding period of $1 million and up 14% quarter-over-quarter. During this quarter, a number of new records were established. SOZO revenue came in at $1.4 million, up 158% from the previous corresponding period and up 25% quarter-over-quarter. SOZO SaaS revenue was $0.9 million, up 94% from the previous corresponding period and up 10% quarter-over-quarter driven by the strength of the recurring revenue from existing SOZO customers. SOZO annual recurring revenue was $5.5 million, up 98% from the previous corresponding period and up 30% quarter-over-quarter. SOZO total contract value came in at $3 million, up 58% from the previous corresponding period and up 27% quarter-over-quarter.

Cash on hand as of 31 March, 2020 was $6.9 million. An additional $9.3 million has subsequently been received to date in April. Cash receipts from customers for the quarter were $1.3 million. This is below the forecasted range of $1.5 million to $1.9 million due to the timing of sales in the quarter. Net operating cash outflow of $5.8 million, which is above the range we reported of $4.8 million to $5.2 million, was primarily driven to unrealized negative FX movements, the timing of cash receipts associated with sales in the quarter and some additional clinical and statistical data analysis expenses.

Before I get into our strong operational results, I want to provide an update on COVID-19. Now these are unprecedented times that are requiring extraordinary measures, and we are doing everything [possible to mitigate the impact on our employees] and to support our customers through this period of uncertainty. Shortly before the shelter-in-place orders started to occur across United States, we moved all of our employees to their home offices. We expanded our distribution [network to date], and we secured our inventory supply. And we began qualifying new vendors for our components so we have multiple sources from which to draw from should this health crisis last longer than currently expected. And finally, we developed virtual training, virtual demonstrations and peripheral installation modules for use by our teams with their customers. And we believe we're in a very good position to successfully navigate COVID-19.

Our subscription of SaaS model has positioned us well with $0.9 million in revenue generated this quarter, and we exited the quarter with annual recurring revenue of $5.5 million. On March 18, the Centers for Medicare and Medicaid Services released recommendations calling on hospitals to limit all nonessential planned surgeries and procedures in response to COVID-19. In a recent survey of more than 2 dozen hospital administrators chosen from across the United States, they reported that total surgeries were down 64% and expect that, that number to drop further to 71% in the coming weeks. Endoscopy, ophthalmology and orthopedic surgeries were down 71%, 67% and 65%, respectively.

The least impacted of all procedures were oncology, which is down 28%; and (inaudible) down 52%. And while we see a decline in overall patient testing in our large institutions, they have not stopped testing. If a patient is brought in for follow-up cancer care, that patient is being run through the normal protocols, which include obtaining an L-Dex score. And because SOZO is a connected platform, we're able to attract patient testing down to the individual device anywhere in the world. Now this allows us to see

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field again. But, more importantly, we'll know when the testing starts to rebound, and we can allocate our resources supporting those. We're now monitoring this data several times a week.

Now let me address the PREVENT trial as clinical studies are being impacted globally, especially those being conducted in hospitals hardest hit by COVID-19. In a number of cases, studies have been halted, samples were delayed. In our case, the PREVENT trial is in its final phase with almost 1,000 patients completing the study requirements. And as you'll recall, we originally set out to enroll 1,100 patients. Based on this information, we do not see a risk to our trial or the final [outcome]. We remain extremely confident L-Dex will reach statistical significance.

As I stated earlier, we had strong operational results for the quarter. We sold 64 devices this quarter, 40 of these devices were sold to existing customers who expanded their current programs. Notable among these sales were additional units to the University of Kansas Cancer Center and Sharp Healthcare. Now if you'll recall, both of these are original Centers of Excellence when we launched the product just 2 short years ago. We had a 100% renewal of 11 agreements that were ending this quarter, and our churn rate continues to be less than 1%. (sic) [0.5%]

We also announced a new software release that includes heart failure. The new software also includes an assessment for patients with end-stage renal disease as well as usability and data management improvements. This quarter, we signed 2 of the largest contracts in the company's history. First with Baylor Scott & White, adding 20 SOZO units to their Lymphedema Prevention Program after the release of our iOS software. Baylor Scott & White Rehab now has a total of 25 units under their program with an expectation of continued expansion across their 100-site network.

The second was our initial sale of 16 SOZO devices under a national purchasing agreement with McKesson's U.S. Oncology Network. The national purchasing agreement allows 1,200 physicians across 470 cancer treatment locations access to our technology. These physicians treat over 1 million cancer patients annually.

Dr. Michael Seiden, the President of the U.S. Oncology Network stated, "Staying on the leading edge of technology is part of our commitment to provide the best care for our patients. With SOZO, we will enhance our survivorship program by offering lymphedema prevention as part of our comprehensive cancer care. This adds tremendous value to our patients as well as the promotions in our network. Both of these contracts have been on the works for more than 12 months, and we expect to see further expansion of SOZO in their facilities in the coming quarters as they drive to make SOZO [secure].

Lexy, these conclude my remarks. Can we please open the lines up for questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Shane Storey with Wilsons.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [2]

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Can you hear me?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [3]

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We can, Shane.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [4]

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Great. Rick, maybe if I can begin with the quarterly results today. Just -- look, having a look at those new contracts totaling $3 million, would I be right in assuming that most of the new business that's coming in is on a 3-year sort of term contracts?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [5]

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Yes. That would be correct.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [6]

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Okay, yes. And then if I look at the installed base, which is now sort of 540, I'm interested to get any information you can share with us or sort of observations around the take-up of modules, say, outside the unilateral lymphedema. I guess what I'm sort of angling to try and understand is when we try to model out the SaaS component in terms of an average revenue unit sale, like I'm just interested in what that kind of number is averaging, say, in U.S. dollars per month right now sort of across the installed base as an average number, just as an estimate.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [7]

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I just want to make sure I understand your question, Shane. What you're looking for is any additional modules outside the lymphedema that people have taken up with their devices. Is that correct?

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [8]

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Yes. That would be helpful because we sort of know what the pricing is around the unilateral lymphedema part of it but just seeing that protein malnutrition and other sorts of indications have been available on other modules, just interested to see whether that's had an impact in terms of the average revenue.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [9]

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I would say that it had marginal impact at this point, we really have not put an effort into those other indications. We are waiting for 2 things: one, iOS, which obviously we've just released; and the advent of our new software, which would include the heart failure and, for outside the U.S., for renal failure. So I would say it would be negligible at this point. But I can tell you, there's been a lot of interest in the expansion of those other indications as they start to establish their program. So I think it's something we should report in the future, but I would tell you right now, it would be a negligible part of the business.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [10]

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Okay. And then, look, obviously -- I have 2 more questions for me. But I guess when we look at the U.S. oncology network, and sort of, I guess, news this quarter, seeing you placed 16 units into that network, but conscious that there's some 470-odd clinics there. I mean are we seeing now like a pilot phase that would then sort of segue into a more structured rollout across that network? I'm sort of just interested to know what we can expect from that relationship and how it sort of comes into the numbers over the next 12 to 24 months.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [11]

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Yes. I would say that the power of the quote by the President of U.S. Oncology, I think, will give you an indication of their commitment. And also it is very rare -- I mean what we were told when we went out and met with them is that very few vendors that they deal with, manufacturers, ever get a McKesson contract across all 470 of their cancer centers. Typically, they'll negotiate with small groups or as one-off. And I can tell you the centers have been working diligently with the corporate staff to get a contract. So I would say this is not a pilot program. This is the beginning of what we see an expansion. They have been looking at our technology for quite some time. They have been trialing it for quite some time. And we were able to sign this contract at the end of the quarter. And we're confident that once COVID-19 is behind us, that we'll start to see an expansion of these programs throughout the entire system.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [12]

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Okay. My last question, Rick, just relates to -- I guess, you gave us a little bit of an update and some comments, I guess, around the COVID impact on PREVENT, but I'm wondering what impact, if any, it's had or is having on your clinical trials and activities at heart failure, just conscious that you released those software updates just yesterday, and whether COVID has sort of introduced any changes to your strategy on heart failure and commercialization, which I understand this kind of scheduled towards the end of the year.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [13]

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The impact has been minimal. And the reason it's been minimal, as you know, COVID-19, the major outbreak has been on our East Coast. So if you look at New York, New Jersey, Connecticut, on the eastern seaboard is really where the biggest outbreak has been and where the tightest lockdown has been. In the state of California, we've been under a lockdown now for just under 30 days, and I can tell you that we continue to enroll patients out here because the order of magnitude difference between California and New York is significant. They're counting the passing of patients to COVID-19 in well over 10,000 now, and we haven't reached 1,000. So the lockdown wasn't as difficult, and the hospitals at this point in California are not in a capacity issue. So though we're starting to see an increase, our top of the -- our apex, as they're calling it, is now behind us, and -- or we're about to enter the next couple days, but it will never reach the levels at this point of New York.

So our trials are on the West Coast. They are putting a halt to it in the hospitals. They're not going to be enrolling any new patients outside of the Scripps location because the Scripps location has a separate cardiovascular center that is not connected to the hospital. And again, they continue to enroll. And I talked to one of the enrolling physicians just earlier this week, and so they'll do several more. And if they start to come to an issue that they don't think they can continue to follow on those patients, then they'll stop.

Now the other good news is, as you know, these are for 45 days, and we're placing devices in the patients' homes. So it's much, much more different than a trial wherein they require office visits or hospital visits on a routine basis. So we're not expecting to see an impact on the heart failure trial. And also recall that we've got a number of abstracts and a paper that had been submitted. So COVID-19 is slowing, I could say, the review of the paper. But once we get the paper out from the Scripps clinicians, I think you'll see a way to risk-stratify these patients. And then, therefore, that's when -- we've got the software ready for that when it comes out that shows how to risk-stratify the heart failure population.

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Operator [14]

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(Operator Instructions) Your next question comes from Sally Watson with Oblique Logic.

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Sally Watson;Oblique Logic;Owner, [15]

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You can hear me okay, I'm assuming.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [16]

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We can, Sally.

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Sally Watson;Oblique Logic;Owner, [17]

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Cool. My question relates to the heart failure applications. I'm just trying to get a feel for the longer-term timing and how you see this market unfolding. You've got the trials in play now and that, I'm thinking, it's kind of a 6-month activity bit by the time patients get out and you start talking to people. And I'm also trying to understand your -- the plan in terms of how you're going to be marketing that given that you -- the cancer community that you're working in now, you have very good profile, but it's, again, probably not really playing out much to the heart patient community and the medical associates community.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [18]

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I will tell you this, the overlap for cancer and heart failure be more significant than I think I've ever appreciated. About 30% of all heart failure -- excuse me, 30% of all cancer survivors are highly susceptible to heart failure. In fact, you can take a look at the breast cancer population, you have a greater chance of developing a heart failure than dying over reoccurrence of your breast cancer just from the toxicity the cardiotoxicity of the radiation and chemotherapy. So we're starting to talk to more and more cardio-oncologists. So there is strong overlap there. I will also tell you from a heart failure standpoint, it is the single biggest impact to the health care system. And so there's a lot of interest, and we continue to have inquiries into our technology by cardiologists and large centers wanting to take a look at -- have a demo of our device and then want to see how Scripps would recommend risk-stratifying those patients.

So I think once we have a chance to show that paper, and once we have a chance to demonstrate how simple, how easy this technology can be, I think what you'll see in the beginning is it will be used as a risk-stratification tool in the cardiology -- in the cardiovascular department, and then we'll see that move out to the home environment as they get used to looking at these patients and risk-stratifying them.

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Sally Watson;Oblique Logic;Owner, [19]

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Okay. And are you looking at any, I suppose, grant programs that might be run by BARDA or an organization like that, like the veterans medical organizations, try and leverage some of that as an opportunity?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [20]

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Yes. So I will tell you that the VA in the United States, so the veterans administration in the U.S. is the largest hospital system. Obviously, they have a huge patient population of individuals, which many of them are over 60, 65, which are high risk for developing heart failure, the majority of it takes place. So that is an area that we're currently exploring and that we will continue to explore because that will be one of the quickest ways to get into the heart failure market. There's a company that was acquired by Medtronic called Cardiocom. That's where they got their footprint. That's where they saw the growth of their product. And that's how they established themselves.

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Operator [21]

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Your next question comes -- is a follow-up question from Shane Storey with Wilsons.

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Shane A. Storey, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Analyst [22]

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A rare follow-up question. But it's just if you could please remind us around whether SOZO has an indication in renal. I saw that the software update came out yesterday, but I can't recall, for the last week, what the FDA status is around that indication.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [23]

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So we have a CE mark for renal failure, and we do not have an FDA clearance yet for it in the United States. However, you could use it under an IRB or you could use straight fluid analysis with an off-label. So we are currently working with the FDA, and they have encouraged us to work with them to provide a way for objectively measuring fluid -- excess fluid for dialysis patient. So that's something that we are currently working on. And part of our capital is -- was based on the fact that this is an area that we wanted to move into.

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Operator [24]

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Your next question comes from [Ian Hyde], an investor.

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Unidentified Participant, [25]

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If you can provide some clarification just around -- if possible, just with COVID. I know it's very much a fluid situation. But with the ability to install in market and sales of devices and contracts, has any of that been impacted significantly with your being able to get access to everywhere you want to get to with hospitals or most of that is being closed down so sales are actually going to be impacted in the short term? Or just some clarification around your online training and selling, if than can be also used for online installations possibly from there?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [26]

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COVID-19 is impacting our business. I want to make sure that I'm perfectly clear on that, [Ian]. The -- our ability to get into hospitals, for instance, in New York -- so nobody can get into a hospital who is a vendor, a manufacturer who is not performing a critical care case. I can tell you that we've got a number of appointments that we have done virtually with some of the physicians there. They have asked us to contact them in the next 30 days or 30 days from now after they see this -- after they see their apex starts to subside, and they'd be willing to have another discussion.

In California, we've not had an issue from a standpoint of holding virtual calls. I can tell you, there's not a major hospital in the U.S. today that will accept a sales rep who's not covering a case. And so the good news is all of these hospitals are accepting and have moved a lot of our appointments to virtual cases. So we're doing them virtually. And then we're also doing demos. In several cases, we actually have shipped in our device and showed the staff how to set it up virtually. They -- and we showed them the demo. They can either do it themselves or we do one virtually and then working on the training and installation of that the same way as well. So we're quickly moving to a different model during this time period. And I want to get you to understand is that it's difficult for anybody to get into a major account today.

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Unidentified Participant, [27]

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Okay. So to clarify then, so there is an impact on number of sales that could be made but some are still continuing, and it's really a state-by-state or region-by-region situation.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [28]

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Yes, that would be a good way to put it. That would be correct, yes.

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Unidentified Participant, [29]

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Okay. With the new modules for CHF and ESRD, you touched on there's no approval from the FDA for the ESRD yet. But with the CHF, there is approval from the FDA, and there's also another approval, which I can't remember the condition or the clarification of that, which is still pending. Based upon the activities or the interest you've had when you released the initial data from the CHF trial, are hospitals actively starting to engage for that, such as like Scripps or hospitals that have been in the CHF trial that understand how it works? And now you've got the modules, so that can kick off even though in a limited fashion.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [30]

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I will tell you this, since we released the heart failure initial data, there has been a lot of inquiries into the company. What they're waiting for is information on how they would use that data. We give them data. Up until we just released the software package, we were giving them excess fluid in a heart failure patient. But the new software actually has its own separate heart failure module that gives much more insight into a heart failure patient. I think to couple that new software package that was instrumentally designed by the clinicians at Scripps is going to be the release of their data on how to risk-stratify the patient population. And then once we have that, I think we'll have a total package to start going out and seeing cardiologists and heart failure specialists in the marketplace. But I can tell you there has been a significant uptick in inquiries into our technology specifically designed for the heart failure population.

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Unidentified Participant, [31]

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And with that last approval that's been pending for some time with the FDA for the further testing condition for CHF, any progress there because, initially, we had hoped that would be given by the end of December, but we're now end of April.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [32]

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Yes. You're talking about the contraindications for implantable defibrillators and pacing devices. We have the data in front of the FDA, and we're awaiting their direction on the information we've provided to them. We continue to do our testing, and we're continuing to collect data in anticipation of any questions they may have. But yes, it's taken much, much longer than we had expected. And I would say with COVID-19, I think everything at the FDA is slowing down.

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Unidentified Participant, [33]

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Sure. And lastly, the elephant in the room, is there any indication -- because it's now pretty much 4 months since the PREVENT and meta analysis have been subject to or submitted to peer review, is there any indication as to when they might be released? And is there any indication that what's happening now is slowing down the peer review process in some way?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [34]

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Well, I can say the peer review process is slowing down. Obviously, if you're -- in fact, in New York, every physician and every clinician is being called up and even the retired ones are being asked to come in now to cover shifts. So if you're a reviewer in that market, obviously, that's not a priority for you. But I can tell you that the 2-year PREVENT trial is in its final editorial review. So we would expect that out. I don't have a recent update on the meta analysis. But being a meta analysis, it's a much more detailed review because it's a statistical analysis, so getting clinicians with a strong statistical background, there are -- obviously, there's a number of them, but they probably get pulled into a number of meta analysis. But I would say that there may be a slowdown on those -- both of those because of COVID-19, but I would expect that they would be coming out. At this point, I would say, based on where I see the editorial review process, it's probably going to be the 2-year data before the meta analysis comes out.

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Unidentified Participant, [35]

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Okay. And lastly, so thanks and congratulations to the Board and everyone on getting these large contracts, which hopefully will keep everything going forward as we all want.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [36]

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Thank you. We appreciate it, [Ian].

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Operator [37]

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(Operator Instructions) Your next question comes from Rajeev de Silva with Salter Brothers.

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Rajeev De Silva;Salter Brothers;Salter Brothers, [38]

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Could you just address anything you guys are doing on the cost side in terms of staff costs and rent costs, et cetera? Most other companies have taken quite drastic steps on this side. And can I know what you guys are doing?

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [39]

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Certainly. Tim, do you want to take that, and then I'll work on the rest of it as well.

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Timothy Cruickshank, ImpediMed Limited - Executive VP of Finance & Acting CFO [40]

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Sure. No problem. Thanks for the question, Rajeev. So we announced in our prospectus on 2nd of April some of those measures that we're taking. So you see in there, we've got executive and Board temporary reductions to their salaries. That will be in place through the extent of the impact of COVID-19, in addition to some further staged reductions if we continue to see any midterm impact on the company in relation to COVID-19. So we've already begun taking those as well as a disciplined approach to our cost savings. In addition, we're looking at programs throughout the globe in relation to forgivable loans and other items that we can leverage for our business. So we're looking at all the different avenues of that and how to weather through this COVID-19 situation.

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Rajeev De Silva;Salter Brothers;Salter Brothers, [41]

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What's the run rate cost base now? Annualized cost base now, what would it be?

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Timothy Cruickshank, ImpediMed Limited - Executive VP of Finance & Acting CFO [42]

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So we haven't given that information out to the market. But if you see, in this past quarter, we had $3.6 million in staff costs on our cash flow statement. So we would go down from that as we look out over the course of the next few quarters.

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Operator [43]

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There are no further questions at this time. I'll now hand back to Mr. Carreon for closing remarks.

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Richard Carreon, ImpediMed Limited - MD, CEO, President & Executive Director [44]

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Okay, Lexy. Thank you very much, everyone. Thank you very much for your time today. Stay safe. Thank you, Lexy.

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Operator [45]

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Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.