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Edited Transcript of MOTS.OQ earnings conference call or presentation 12-Nov-20 9:30pm GMT

·48 min read

Q3 2020 Motus GI Holdings Inc Earnings Call Nov 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Motus GI Holdings Inc earnings conference call or presentation Thursday, November 12, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Lawrence Taylor Motus GI Holdings, Inc. - CFO * Mark Pomeranz Motus GI Holdings, Inc. - President, COO & Director * Timothy P. Moran Motus GI Holdings, Inc. - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Benjamin Charles Haynor Alliance Global Partners, Research Division - Analyst * Kyle Royal Bauser Colliers Securities LLC, Research Division - Senior Research Analyst * Matthew Oliver O'Brien Piper Sandler & Co., Research Division - MD & Senior Research Analyst * Steven Michael Lichtman Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst * Robert A. Yedid LifeSci Advisors, LLC - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. Welcome to Motus GI Holdings, Inc. Third Quarter 2020 Financial Results and Operational Update. (Operator Instructions) I must advise you that the conference today is being recorded. I would like to turn the conference over to Bob Yedid of LifeSci Advisors. Please go ahead, sir. -------------------------------------------------------------------------------- Robert A. Yedid, LifeSci Advisors, LLC - MD [2] -------------------------------------------------------------------------------- Thank you, operator, and thank you, everyone, for joining us for the Motus GI third quarter 2020 update call. Representing the company are Tim Moran, Chief Executive Officer; Andrew Taylor, Chief Financial Officer; Mark Pomeranz, President and Chief Operating Officer of Motus GI. Before turning the call over to management for their opening remarks, I would like to take a minute to remind you that this conference call and webcast will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will not undertake an obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K and other periodic reports on Form 10-Q and 8-K filed with the SEC. With those prepared remarks, it's my pleasure to turn the call over to Tim Moran, CEO. Tim? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Bob, and thank you, everyone, for joining our call today. I hope you and your families remain healthy and safe. I will begin by providing a business update and discuss Motus GI's performance in the third quarter. I will then turn the call over to Andrew, who will review our financial results. At the end of our prepared remarks, we will open the call to take your questions. I'd like to start by discussing the current environment we are seeing in U.S. hospitals, specifically as it relates to inpatient colonoscopy procedure volume, sales rep and clinical support access to hospitals and procedures, physician mind share as it relates to evaluating a new technology like the Pure-Vu System and Value Analysis Committee, or VAC timelines. It goes without saying that the COVID-19 pandemic created significant challenges for U.S. hospitals. During the second quarter, the New York Society for GI Endoscopy published a report showing endoscopy volumes had declined by 57% to 96%. This massive reduction in endoscopy procedures significantly hindered our commercial introduction of Pure-Vu in the first half of 2020. With that said, I'm pleased to report that we saw a positive turn in our commercial progress towards the end of Q3. In speaking to our GI customers, we saw inpatient colonoscopy volumes ramp up to approximately 80% to 90% of prepandemic levels, and we are resuming the trajectory we started in Q1 prior to the COVID-19 pandemic. As procedure volumes started to return to more normal levels, in August and September, we began to see a positive turn in our results in terms of Pure-Vu utilization. We now have on-site sales rep and clinical support access at about 80% of our accounts. All of our accounts have implemented stricter controls, but gaining on-site access is critical when launching a new product, particularly as it relates to conducting efficient, successful evaluations. While the remote access support tools we have developed have been very useful, we believe in-person sales and support is simply more effective with a new product launch. We have also seen positive momentum in physician mind share at our targeted accounts. We have provided our investors and analysts a window into the traction we are building with various physicians and hospitals through our podcast series that began in the third quarter. This series currently has 4 episodes featuring leading GI physicians from across the U.S. For anyone who hasn't had a chance to review this material, please visit the Motus GI YouTube channel. In addition, we recently held a KOL event for the investment community with Dr. Seth Gross of NYU Langone Health. Dr. Gross touched on a number of topics, including the unmet needs and challenges associated with inpatient colonoscopy, the benefits to patients in reducing time in the hospital and mitigating increasing cost to hospitals due to delayed or incomplete procedures. A replay of the webcast for this event is available on the Events page in the Investors section of our website. The key takeaway from these events as it pertains to you, our investors, is our belief that we have established a solid foundation of leading GIs that are vocally supporting the use of our system. Finally, it is important to note that since the pandemic started, our overall sales process taken longer than expected, specifically related to delays in the hospital Value Analysis Committee process. This is a result of the burden the pandemic has put on hospital staffing and priorities. However, with each month, our sales team continues to conduct shorter and more effective evaluations, which helps to mitigate some of these delays. There have been a number of notable wins in Q3, and I'd like to take a moment to highlight one in particular. I mentioned earlier the KOL call we conducted with Dr. Seth Gross at NYU. Last week, we also announced our partnership with NYU with an aim of improving the management of inpatient colonoscopies. Let me provide some background on how this came together. In Q3, we through our collaboration with Dr. Gross and Dr. Melissa Latorre, Director of Inpatient GI Services, we conducted an evaluation that was completed in just 2 short weeks. Following their positive experience, Pure-Vu was submitted to their Value Analysis Committee for review. After receiving approval from their VAC, NYU placed their first purchase order for Pure-Vu sleeves and began full implementation. In addition to adding NYU to our base of key reference sites, we are thrilled to be supporting their new clinical protocol that incorporates Pure-Vu for the effective management of inpatient colonoscopies. NYU has indicated they will now utilize Pure-Vu for any patient that presents with an inadequate bowel prep, which we believe will improve their overall clinical and health economic outcomes. We believe the success at NYU illustrates several points that align with our strategy. First and foremost, the implementation of a proactive protocol for the effective use of Pure-Vu is significant. We believe this will allow NYU to optimize the use of Pure-Vu for patients who would otherwise be delayed. For Motus, we believe it will provide more predictable and consistent usage because it will allow us to train additional physicians and staff based upon the hospital's protocol, helping to ensure optimal use of the Pure-Vu System. Next, winning at NYU's flagship hospital and leveraging their clinical and economic data can provide us a clear path to expand to other hospitals within the NYU system. This is part of our land-and-expand strategy, which we plan to replicate across other health systems in order to accelerate future growth. As it relates to strategically adding new hospitals, our team is doing so by implementing a meticulous pre-evaluation planning and site qualification process to ensure optimal success. As an example, in advance of initiating an evaluation at a large Midwestern hospital this past quarter, we worked with the site to track their inpatient colonoscopies for a 30-day period prior to kicking off. In their analysis, they found that 50% of their inpatient colonoscopy patients presented with poorly prepped colons, resulting in 21 additional nights of unnecessary hospitalization, which represented substantial additional cost to that hospital that are typically not reimbursed by commercial insurers or Medicare. This data was critical to supporting the hospital's decision to move forward with an evaluation of the Pure-Vu System, which will conclude in the fourth quarter. Employing learnings such as this will be paramount towards driving efficient and sustainable results in the quarters ahead. I am pleased to see that our efforts are beginning to bear fruit as we had several new hospitals initiate evaluations and several existing hospitals resume and complete their evaluations in Q3. I am encouraged by the renewed engagement we saw from our targeted customers and expect continued momentum in Q4 and in 2021. We currently have more than 20 major hospitals who have Pure-Vu on site. And in Q3, we initiated new evaluations at additional target institutions. As I reflect on the quarter, I want to reiterate the incredible opportunity we believe is before us at Motus GI. We've created a solution that addresses a significant unmet need associated with inpatient colonoscopy in a market that comprises approximately 1.5 million annual procedures in the U.S. and approximately 4.8 million every year worldwide. We believe the Pure-Vu System continues to demonstrate the potential to improve outcomes and lower costs for hospitals by reducing the time to a successful colonoscopy, minimizing delayed and incomplete procedures and improving the quality of an exam. We've protected our technology with a robust global patent portfolio and believe we have first-mover advantage in the large addressable inpatient colonoscopy market. Clearly, the pandemic slowed us down, but I am encouraged by the renewed enthusiasm we are seeing from our targeted physicians and hospitals. We have now become a lean and efficient organization, adapting to changing market conditions, and we plan to continue our focused efforts to build upon the positive indicators we saw at the end of Q3. I believe Q4 is off to an excellent start, and I expect we will see clear indicators of acceleration of our Q3 progress in our next quarterly results and beyond. As it relates to our strategic outlook, we continue to evaluate all potential options, including commercial partnerships with large medical device companies that can provide scale to bring Pure-Vu to customers more quickly. We also view these potential strategic partnerships as a means of expanding the commercialization of the Pure-Vu System and sleeves to Europe, Asia and other markets. Finally, as it relates to the resurgence of COVID-19 cases across the U.S., our hospitals have indicated that they have a greater confidence in their ability to respond to COVID based on their experience principally in Q2 and are implementing safety measures to avoid another period of lockdown. We will continue to monitor this closely and respond with efficient and effective commercial strategies. I will now ask Andrew to recap our financial results for the third quarter. -------------------------------------------------------------------------------- Andrew Lawrence Taylor, Motus GI Holdings, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Tim, and thank you, everyone, for joining us today. We reported revenue for the third quarter of approximately $33,000 primarily from the sales of Pure-Vu single-use sleeves. As Tim discussed, we continue to grow our number of Pure-Vu procedures each month as well as new system placements, working with hospital Value Analysis Committees to finalize commercial contracts at these sites. We expect to see a continuation of our progress and momentum in the fourth quarter. For the 3 months ended September 30, 2020, we reported a net loss of approximately $3.9 million or a net loss per diluted share of $0.13 compared to $5.2 million or a net loss per diluted share of $0.18 for the same period last year. During the third quarter, net cash used in operating activities and for the purchase of fixed assets was $2.7 million as compared to $4.8 million for the same period of 2019. As reflected in our year-over-year comparisons of net loss and cash spend activity, the results of our previously announced cost-cutting measures have been and continue to be impactful. This plan has now been fully implemented, significantly reducing our cash burn by approximately 50%. At September 30, 2020, we held approximately $23.7 million in cash and cash equivalents. This included the $8 million from our 2019 term loan agreement with Silicon Valley Bank. During the third quarter, the company bolstered its balance sheet through the sale of equity securities, which raised net proceeds of approximately $9.2 million. The company believes its cash balance will be sufficient to meet its anticipated needs into 2022 and ensure compliance with the Silicon Valley Bank liquidity covenant into Q3 2021. And with that, I'll now turn the call back over to Tim. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Thanks, Andrew. And before taking questions, I'd like to summarize just a couple of key points. While the current COVID-19 environment continues to present challenges, we saw a positive turn in our commercial progress at the end of Q3. The combination of a rebound in colonoscopy procedure volume, regaining on-site access and steady gains in both repeat and new sleeve purchase orders is encouraging. And we expect this momentum will continue in Q4. It's important not to lose sight of what we are playing for here. When you consider the proven efficacy of our Pure-Vu technology, our first-mover advantage and the size of our addressable market, we believe Motus GI remains well positioned to create shareholder value as we bring Pure-Vu to patients across the U.S. I will now ask the operator to open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Matthew O'Brien with Piper Sandler. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Okay. I guess, Tim, for starters, can you talk about what you saw throughout Q3 and especially as we kind of exited Q3 in terms of utilization of Pure-Vu and just maybe the building interest in using the technology more frequently going forward? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Yes, Matt, thank you for the question. So what was very encouraging is September was our best month as it relates to Pure-Vu utilization. And that's both measured by the number of sleeves that were consumed via purchase as well as evaluation. So that was really encouraging. I would say the early part of the quarter was still very difficult in July and August as it related to access and also just priorities of these hospitals in terms of getting back to new technology. We really started to see it ramp-up in the middle of August. And then September, as I said, was very encouraging. I'm not -- won't get into the details of Q4, but we saw a very positive continuation of that in October. So that was really, really nice to see. As you recall, we reduced the size of our sales team, but this group has done an excellent job being very, very productive, driving a lot of procedures. And I think a part of it, Matt, is driven by what these accounts have experienced and the conversations that we had with a variety of different KOL champions throughout the downtime about seeing this opportunity to get Pure-Vu in and being prepared. So if there is a resurgence that they've got a technology that really allows them to, at least as it relates to GI patients, eliminate unnecessary delays. So we're encouraged by what we're seeing, as I said. I mean, it's good to see the restart. We're cautiously optimistic as it relates to Q4 and COVID. But so far, with what we saw in the early part of the fourth quarter, seems to be continuing nicely. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. And I don't want to put words into your mouth, Tim, but it sounds like July, August were probably minimal in terms of revenue contributions. You probably saw most of it in September, and then it sounds like it's carried through here in October. So as we're thinking about Q4 from a modeling perspective, you did about $100,000 last year. Is that kind of the ballpark that you're thinking? Or could it even be a little bit better than that? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [5] -------------------------------------------------------------------------------- So, Matt, what I'll tell you on the first part is you're right in terms of your view and assessment based on my comments of Q3, right? So it was very much the end of the quarter. So September was the -- a really strong month for us. I won't get -- I'm not going to give guidance, as you know, for the fourth quarter. But based on what we're seeing, we do expect that we're going to see sequential improvement Q4 over Q3 for sure. I don't want to talk about the specific numbers because we haven't given guidance, and we're not ready to do that. But what I will tell you is some of the drivers that I think we're looking at is, capital has been very difficult due to COVID. We do have some capital deals in the works. And I think as we look to those coming through in the fourth quarter, that can really kind of change the trajectory. So I don't think that's out of the realm, but I'm not going to comment specifically on an exact number. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- And you didn't have any capital deals in Q3? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [7] -------------------------------------------------------------------------------- That's correct. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [8] -------------------------------------------------------------------------------- Okay. Got it. And then as far as New York goes, that commentary about the protocol now in place to be using Pure-Vu for every single poorly prepped case, how big of a -- just an opportunity is New York alone, given the feedback that they've just provided? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [9] -------------------------------------------------------------------------------- Sure. So what I'll say is, we were really pleased with the work that was done at NYU. And I'll answer your question, but I want to provide a little bit of color, too. Beyond just getting an account -- a prominent account like NYU, using Pure-Vu and what comes with that in terms of the KOL support and Dr. Gross and Dr. Latorre, really proud to have them on board as advocates for the technology. But the protocol development, actually having a plan for the utilization is something that, of course, we've been working on with all of our accounts in the pipeline. And not every account is the same, and there's different numbers of GIs and how they manage their inpatients. But we were really pleased to get that in place because what that does for us, as I said in the prepared remarks is, one, it allows us to train around a protocol. So everyone understands from the nursing floors down to the GI unit exactly how the Pure-Vu system is going to be utilized and how they can best optimize it and get the benefits from it. But it also will allow us to drive sustainable utilization without having to have a rep there on-site catching cases, if you will, right? So I don't want to specifically comment on one customer. But, Matt, I think we're looking at this as absolutely a 6-figure customer, and I'll go that far to kind of give you that kind of detail. They do somewhere, call it, in the 700 to 800 inpatient procedures a year. So you can kind of start to model that based on, call it, half or somewhere in that range being poorly prepped. So we're really pleased. It's the early days. We got that done at the end of the quarter. But even in October, we saw repeat orders coming in from NYU. So we believe we can really develop that into a great site and a great reference account, quite frankly. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [10] -------------------------------------------------------------------------------- Got it. And then just last one for me. Tim, when -- there was a pivot as far as the strategic direction of the company years ago from outpatient to inpatient. I know you're still -- got work going on, on the outpatient side of things. But given the focus on inpatient, given these 20 kind of core accounts you're targeting right now, how do you think about the outlook for the business from an inpatient perspective? And that meaningful increase in terms of utilization, are those 20 accounts all -- can they all be 6-figure accounts, similar to NYU? And then can we see a meaningful pickup as we kind of progress throughout '21? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [11] -------------------------------------------------------------------------------- Yes. Yes, great question. And to your point, listen, outpatient, the pivot was really a focus of entry point, as you know, Matt, and our investors know, that we've talked about this, building kind of our beachhead in inpatient, where you don't have the kind of headwinds of reimbursement in place was the reason for that. And getting this kind of core 20, 25 facilities built in our first year, which we've said from day 1, has been a priority. And we think foundation is critical for everything that we do next. But yes, as we look to now kind of finalize getting these -- all of these accounts fully through the system and consistent with the protocol like we've seen at NYU, and we're in development at other sites of protocols. We'll talk more about that in Q4. But '21, for sure, gives us, I think, the opportunity to really start to scale the business. But you got to get to that point first, right? And we've said that. And the reason that's so important is, one, it kind of allows us to make some decisions in terms of how does that scale come. As I mentioned a few times, we've continued to have good dialogue with strategic partners. But of course, even to get to a point where we would enact something like that, you've got to have a foundation of accounts that are using the technology. And a strategic partner's going to want to see that as well, which is why that was an important first step. But it also kind of gives you, informs you of okay, well, if you're going to double down in terms of sales and commercial resources, where do you do it? And what have we learned so we can be as efficient as possible as we kind of strategically build? So yes, we would expect the ramp to continue into '21 and start to bill to really scale things. Right now, we're going at this, as you know, with a very lean team. They've done a tremendous job, but we haven't lost sight of what the size of this market opportunity actually is. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question is from Stephen Lichtman with Oppenheimer & Co. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [13] -------------------------------------------------------------------------------- Tim, you just talked about NYU. And I wanted to ask about some of the higher-volume accounts that you currently have in the fold. So just utilizing that 700 to 800 number and saying 50% are poorly prepped, is there a reason why we shouldn't be thinking your ability should be high to get the overwhelming majority of those poorly prepped patients? Or in other words, why wouldn't that 50% not use Pure-Vu? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [14] -------------------------------------------------------------------------------- Yes. Sure, Steve, and thanks for the question. So remember, as you know, the -- and I said earlier, the dynamics of each account, obviously, are not uniform, right? So at a place like NYU, we've done a nice job with that group getting the protocol in place. They have a very precise plan as it relates to how they manage their inpatients, and we're able to get those physicians on board and agree to implementing the protocol. Why there's challenges at other sites in terms of the time, right? And why we've said in the beginning, model 5 to 7 procedures a month, which is only a small percentage of the actual available market. But the reason for that is, in many of these large teaching institutions, there's a significant number of GIs, right? So expanding from one GI to the next, and kind of quarter-to-quarter bringing on more GIs doing the procedures allows you to get kind of critical mass and then implement that protocol, if that makes sense, right? Because it's hard to have a protocol unless you've got kind of a large number of the docs using the technology on a daily basis or else the protocol is difficult to get standardization on. So that's one of the dynamics, and we continue to make progress with some of these sites that have a large number, where each quarter will bring on more physicians. But quite frankly, and I've said this before, when you're -- whenever you're putting a new technology out there, there -- it's a bit of change management. So you have your early adopters in those dynamics where they want to get on board, they want to be leading the way with a new technology that can not only improve the economics, but quite frankly, change the way the procedure's done and include improved clinical outcomes, improved patient satisfaction, right? Not having a patient sit up in the bed. And some physicians are very motivated by that. Others, change is something they don't want to do, right? So it's a constant focus on trying to drive to more physicians. So I would say that's the biggest difference between some sites versus others. And part of our commercialization effort was you need this flagship. You need these who's who facilities and the KOLs that come along with that because getting physicians out there talking about the technology, writing papers, getting on podiums is a really important early part of commercialization. But we also now look to and have started to add some other more regional kind of community large centers, if you will, that looking at the economics and getting things done more quickly, may be more feasible. So that'll be part of our blend. As we talk about new accounts, I would expect even in Q4 and Q1, you'll hear some names and facilities that may not be the academic medical centers because we think we've gotten to a lot of those key sites already in our kind of target reference base, if you will. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [15] -------------------------------------------------------------------------------- Got it. Okay. And then Tim, can you talk to us at all about the pipeline of potential accounts? Any color you can provide in terms of your targets looking forward here over the next 12 months in terms of potential new accounts would be helpful. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Sure. Yes. So this is a really important point that I'm glad you asked. So right now, there's a balance that we need to -- a balance of a few things that we're working through, right? So one, obviously, seeing procedure volume come back in the market was critical for us. It's hard to introduce new technology when procedures were down so much in the quarters and months leading up to Q3. But we're also balancing the ratio of the number of folks that we have out in the market and how many accounts they can manage to be effective. And part of our strategy that we said from the beginning was, we target these 20 to 25, we get into the flagship site, so the main hospital within that health system. And then once we have them on board, which what it gives us is, it gives us a VAC approval that typically will cover the system, that Pure-Vu becomes a vendor in the purchasing, the Lawson systems, right? So someone can actually order the sleeves from the purchasing system at another site. It gives us the data from their own system in terms of economic and clinical outcome improvements. And it gives us the reference that comes within their site so they can talk to a KOL and a physician, a colleague at another location and talk about their experience. So we talk about it as land and expand. So we are now just starting to see the ability to move from the flagship to other affiliated or sister sites. We've got evaluations that are scheduled now in Q4 that are part of some of our regional systems. And that's the approach that we're taking. So we want to go deeper in existing sites. We want to ensure protocols. So we're getting same-store sales. We're getting consistent revenue. We're beating the 5 to 7 per month and have that grow and then move to the other affiliated sites because we think winning in those sites will be easier than when you get the first one, if that makes sense. If you put that kind of all together, you look at these 25, give you another, call it, 100 to 150 additional affiliated sites that are part of these systems that we're calling on. And we think right now, Steve, that's kind of the right target to stick with. So go deeper, get these accounts to be consistent and then move to their affiliated sites. And that gives you 100, 150 account you can look at. And with the size of the current team, that's more than we can get to, but it allows you to kind of get ready for scaling of the business with more resources as we look at 2021. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [17] -------------------------------------------------------------------------------- Great. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [18] -------------------------------------------------------------------------------- I hope that helps. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [19] -------------------------------------------------------------------------------- Yes, no. Yes, it does. And then just lastly for me. Great to hear that you have a couple of outright purchases teed up here potentially in the fourth quarter. How should we be thinking about that overall as you look out over the next 12 to 24 months? I mean the percentage of placements that will be outright purchases, any help you can provide in terms of how you're thinking about what percentage that would be? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [20] -------------------------------------------------------------------------------- Yes. So listen, it's -- I'll give you my view of today, right? This disruption with COVID puts a bit of a twist in the dynamic on kind of the crystal ball of what that would look like. But what I think Andrew and I believe right now is probably 75%/25%, meaning 75% of the accounts will be covered under -- whether it be a volume-based agreement, where they're committing to a certain number of Pure-Vu sleeves on a quarterly basis in order to have the capital and/or an outright lease. I think 25% will probably fall into the we've got the budget, and we can pull the trigger, and we can spend the 68 5 on the capital equipment. That's our best view today. We will have some -- we should have some deals to talk about in the fourth quarter as it relates to volume-based agreements. That's seeming to be of interest to many of the sites that we're there today that don't have capital dollars to spend, at least not until the end of the year. And we've been working on that. But I think that's probably the right ratio to think about, Steve, in terms of modeling. What I will say is we'll give more color. As we start to do leases, and depending on certain parameters of the lease, we may be able to recognize that revenue in full. But I think it's a little bit early to start making predictions on how many we can recognize the full revenue and how many we can't. But we'll give you more color on that in the coming quarters. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next question is from Kyle Bauser with Dougherty & Company. -------------------------------------------------------------------------------- Kyle Royal Bauser, Colliers Securities LLC, Research Division - Senior Research Analyst [22] -------------------------------------------------------------------------------- Apologies if I missed this. But as we look out over the next couple of quarters, what sort of catalysts or milestones should we be watching for? For example, I think the EXPEDITE trial wrapped up, so potentially a publication, and another trial's underway. But in terms of clinical milestones or collaborations or OUS activities, I'm just trying to get a sense of what to keep an eye on. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [23] -------------------------------------------------------------------------------- Yes. Kyle, thank you. Thank you for your questions. Why don't we start? Let me ask Mark to provide just a quick update as it relates to our clinical activity. There's some really good things happening there. And then I'll come back and add a little bit of color in other areas. So Mark, if you can just provide some feedback here on clinical, that would be great. -------------------------------------------------------------------------------- Mark Pomeranz, Motus GI Holdings, Inc. - President, COO & Director [24] -------------------------------------------------------------------------------- Sure. Hi Kyle, hope everything's all well. Hi everybody. Just some quick color on what's going on in the clinical world. And as you mentioned, things like EXPEDITE and some of our other studies are -- we're looking to get those -- that data published in the relative near term. So those things are in the works. So I think you'll see some exciting data coming out in the relative near future in the next quarter or so. So I think that will help bolster our efforts to get that data out there. And really as we continue to look at our clinical stuff, we'll be starting some exciting trials, with really a focus on the key emergent patients, which we think not only drive significant value from a health economic perspective but are really critical for these patients that are urgent with significant GI bleeds in the ICU-type population, which we're getting data out there, more and more pushing that arena. We'll really make it something that is kind of paramount for every hospital to have to have our system when you look at the ability to treat these critical need patients as well. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [25] -------------------------------------------------------------------------------- Thanks, Mark. Kyle, does that help on a clinical -- from a clinical perspective? -------------------------------------------------------------------------------- Kyle Royal Bauser, Colliers Securities LLC, Research Division - Senior Research Analyst [26] -------------------------------------------------------------------------------- Yes. Excellent. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [27] -------------------------------------------------------------------------------- Yes. And Kyle, I think, can't really comment as it relates to strategic partnerships from a time line perspective, but I think we've made very good progress in terms of engagement and evaluating a variety of different options that are out there. And I think together with the Board, we'll continue to evaluate those things as we get into, call it, the first half of 2021. But our key focus right now, as you've heard from the call and earlier today, is now that we're starting to see things get back on track in our trajectory is really kind of continuing this execution, continuing to get more and more of these accounts with the protocol, with consistent volume coming through. And I think that's a key priority and a key thing that we're looking forward to be able to communicate to the market, to our investors and to others. And we've got some exciting accounts kind of here in the pipeline that we'll be able to talk about next quarter that we've been working through. -------------------------------------------------------------------------------- Kyle Royal Bauser, Colliers Securities LLC, Research Division - Senior Research Analyst [28] -------------------------------------------------------------------------------- Sure. No, that's great. I appreciate that. And lastly, you've identified upper GI as a natural target for expanding the Pure-Vu indication. How have the activities been going here in terms of any modifications to the gen 2 device and maybe even a potential application package that you're working on? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [29] -------------------------------------------------------------------------------- Sure. Yes. Listen, we're interested in this opportunity. We think -- and the reason I say that is it, it can be a very natural add on to what we're doing today, right? So one of the things that we talk about as a leadership team all the time is, keeping our team focused, particularly the size of the organization that we have and what we're trying to accomplish, given some of the market dynamics, is we need a great team. We have great people that are focused on executing our strategy every day. So we don't want to add any distractions. However, when I look at upper GI, I think it's just a natural extension of what we're doing. From a call point perspective, from a physician perspective, it overlaps perfectly. And this opportunity, as I've talked about before, was brought to us by a large number of very prominent GI physicians that have years and years' experience dealing with upper GI, scoping and dealing with some of the difficulties when you're presented with an upper GI bleed case in the esophagus, stomach. There's very difficult, adherent blood clots that can obstruct their field of view. And they just intuitively, after using Pure-Vu and with our capabilities in terms of our pulse vortex irrigation and how we have the 2 very large suction ports, they look at that and say, this could be a really nice fit for upper GI procedures. The other thing about upper GI procedures is the mortality rate is significantly higher. It's in the 10% -- call it, 10% to 13%. So this is something that is very, very serious in terms of a complication. So with that, as I think I've mentioned publicly before, we have an active R&D project. We are looking to leverage a lot of the work that's already in place in terms of the gen 2 design. And we're working hard on right now some of the market analysis, some of the health economic modeling, which would be required when we kind of go-to-market with a product like this. Right now, we're looking in kind of half -- first half of 2021 to be kind of the timing for potential submission to FDA. And in all likelihood, it would be a 510(k) or potentially a special 510(k). So you're not looking at a very extensive kind of approval process. So that's something we're really bullish about. And as we get a little bit further, there's certainly more feasibility that needs to be done, but we think it's a real natural extension to kind of what we're doing today. And today, I'd call it, 20%, 25% more procedures to our inpatient focus, if you will. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question is from Ben Haynor with Alliance Global. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [31] -------------------------------------------------------------------------------- First off from me, just listening to the commentary so far, it really sounds like protocol development may be even more important than one more install. And just thinking about that, hospitals having varying protocols or maybe in some cases, even none at all, but how much weight does it carry having the thought-leading hospitals like NYU? I would think it would carry quite a bit within their hospital system within that they're already in, but how much weight does that carry outside of the hospital system to other accounts? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [32] -------------------------------------------------------------------------------- Yes, Ben, thanks for the question. And yes, so on the first part, that balance about, the kind of, when we look at return on investment every day is so important, right? So one more install versus deeper into existing accounts, protocol, same-store sales, right? It's an important metric that we -- and it's a balance because you want to continue your momentum and add more accounts. But what you don't want is 50 accounts doing very little volume, right? You want -- much rather have 25 accounts that have protocols and are driving significant demand. So I think our balance is favored towards deeper with strategic wider, if you will. But to the second part, that's one of the things that we're really excited about, and it's not only NYU. There's other systems that we will be communicating with the market about in the coming weeks and months around protocol development and leveraging those accounts for assistance and support and just name recognition of what they've done, how they've implemented, what are some of the analysis that they did to make the decision to create their protocol. We'll leverage that and ask for their assistance and support at other sites. And we've already gotten some of it, quite frankly, where we brought new accounts on for evaluation in Q3, and we've had KOLs from other sites that are using Pure-Vu, be part of kind of that onboarding experience. And whenever you can have peer-to-peer engagement, it's so much more important than even coming from the company itself. So that's something for sure that we'll continue to try to build on and leverage. And I think that -- those are all the right things that we need to be doing right now. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [33] -------------------------------------------------------------------------------- Okay. That makes sense. And then just thinking about how investors should track protocols being put in place. I mean, is that our best bet just trying to kind of work out utilization per system metric? Or is there something that you think down the road, you'll be able to disclose a little bit more on that front? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [34] -------------------------------------------------------------------------------- Yes. Yes. For sure. I mean, listen, I want to keep in perspective as I said earlier. It was really the end of the quarter that we really start to see kind of this turning point and getting back toward our trajectory, right? And if you -- listen, you can't -- COVID's not something anyone can control, right? And everyone has been impacted by it. But if you erase the last couple of quarters of COVID, right, I think we would have further along, and that's just the facts. But we have to move forward from here. And I think what we've said is like starting to model these accounts in that 5 to 7 procedures, call it, 80 to 100 procedures a year is -- it may be conservative, but I still think that that's the way we should be modeling it right now. But as we get more and more of these protocols in place, I absolutely think we can then start to provide better metrics to the market that are based on a trend and a larger number of sites to be able to give you that, Ben, and the other analysts in terms of the modeling. And we'll look to do that as fast as we possibly can. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [35] -------------------------------------------------------------------------------- Okay. Great. And then lastly for me, you mentioned -- I think it was a Midwestern facility that half inpatient colonoscopy patients were inadequately prepped that led to 21 additional nights in the 1 month that you guys did the study in. Was that like 10 patients? Is that 15 patients? Is that 20 patients? And just on that same front, I guess you kind of addressed it in response to my previous question, but what level of utilization needs to be visible or needs to be apparent that you would need to be running out and installing the system. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [36] -------------------------------------------------------------------------------- So let me -- the first part of your question, right? So that was roughly about 20 patients, right? And that was an analysis that they did at their site with us as a means of -- so there was 2 things at play there. One, they were kind of locked down with COVID, so they weren't allowing rep access or new technology evaluations. So rather than lose that time, we talked to the customer about let's track this information, which will only be helpful when one, you evaluate the product; but two, when you go to Value Analysis Committee, you'll actually have data to say, here's an example of the dollar impact of this problem. And quite frankly, if you look at just 1 month there, that basically almost pays for the system itself, right? So it's really important work, and I was really proud of the work that the team did. And that's a learning that we continue now to try to employ where we can at other sites. So that was really, really important. But the second part of your question, Ben, can you just clarify? You're asking about how many account or how many procedures they need to see? Would you just give me a little... -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [37] -------------------------------------------------------------------------------- Yes. I mean -- well, I guess I was kind of asking, I think you mentioned 80 to 100 procedures per year was kind of the -- a level that is attractive for you guys. And I guess I was asking, is that -- what is the level that you need to -- the volumes that you would need to see to make it attractive to be putting an install out there? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [38] -------------------------------------------------------------------------------- You mean from the Motus... -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [39] -------------------------------------------------------------------------------- New way in the hospital. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [40] -------------------------------------------------------------------------------- You mean from the Motus perspective? -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [41] -------------------------------------------------------------------------------- Right. Well, in a -- the hospital perspective, too, I suppose. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [42] -------------------------------------------------------------------------------- Sure. Yes. So listen, we -- when we look at the total addressable market, we believe that we will, over time, penetrate a large part of this market. And if anyone who has invested in Motus GI and other new technologies, right, unfortunately, it just doesn't happen overnight. You have to go out, and you have to build your business. And you have to do all of these early foundation building steps to be able to get there. And there's numerous examples in the market that you know and we know that it takes time in the early days. But we're playing for the full price, right? And that's why I came to Motus GI. That's why our management team is here and why we work hard every day to try to fight through some of these market dynamics that we've had to contend with, because we know that we've got first-mover advantage in a, quite frankly, $1 billion market, just in inpatient that we can penetrate. Starting out with these accounts doing, call it, 80 to 100 procedures a year in their first year to us, it makes sense because it's less about the revenue. And it's more about getting conviction around the procedure because as soon as you have conviction around the procedure and it becomes part of their normal tool that they use in their GI unit, right, things start to -- you get to that tipping point where that just starts to become routine and then more and more physicians are using it. And then you're talking about much, much larger numbers. It's just -- it's getting through that kind of curve, if you will, of adoption. I think from a customer perspective, from a hospital perspective, the reality is the disposable sleeve pays for itself after one procedure. I mean, just straightforward. One night of hospitalization, if you can eliminate that with Pure-Vu, you were paying for the disposable sleeve and saving money on top of that. If you want to factor in capital, you probably need to do, call it, 10 or less procedures to pay for the capital if you amortize it in any given year. So there's very few number of cases that have to be done for a hospital to actually justify the investment of Pure-Vu. So I hope that answers kind of both sides of the coin, if you will. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [43] -------------------------------------------------------------------------------- No, that was perfect and exactly what I was looking for. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Our next question is from Yi Chen with H.C. Wainwright. -------------------------------------------------------------------------------- Unidentified Analyst, [45] -------------------------------------------------------------------------------- This is [Bo Balan] dialing in for Yi Chen. Can you hear me okay? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [46] -------------------------------------------------------------------------------- Yes, [Bo Balan]. -------------------------------------------------------------------------------- Unidentified Analyst, [47] -------------------------------------------------------------------------------- So I wanted to start off with VAC approval process. You previously stated that the process could take several months. And considering the COVID-driven uncertainties, do you think it may be time for hospitals to revisit and change how they deal with the VAC process? If so, what kind of suggestions you might have to the hospital approval committee? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [48] -------------------------------------------------------------------------------- Yes. So as I mentioned in the prepared remarks, we are seeing some of these processes take longer. And quite frankly, hospitals had a lot on their plate and staffing and just kind of dealing with COVID and then getting back to some degree of normalcy and then obviously now a bit of a resurgence. So it's understandable that they've been delayed. In terms of -- I'm not sure I can make a recommendation in terms of how a hospital would necessarily overhaul their process internally. But what I will say is there's things on our end that we believe we can do to be more successful in the process. And in my many years of leading and building sales teams, right, there's a lot of learnings that we've had and others in our organization that we're trying to employ. So we put tools in place, value analysis pack that every one of our salespeople use, that really kind of walks them through a methodical approach of everything that would be needed in order to ensure an approval in that meeting when it occurs, right? So what you don't want to do is have a -- wait 30 days or 60 days for a meeting to happen where you're on the agenda, and then not have all the detail, not have the economic supporting case, not have clinical detail, not have your champion and any references that need to be provided. So the committee can have everything that's required to make that decision. So I think just being as efficient as possible on our end, some of that prework that I just talked about that we did in the Midwest, that -- things like that separate yourself from other companies that may not be as prepared and allow you to get the approval that day. So we can only control the things on our end. We talk a lot internally about controlling the controllables, and that's something that I think we've done a good job. And every month, quite frankly, I think we get better and better at that as we learn more from our customers. So hopefully, that's helpful, but those are the kinds of things that we're trying to do to shorten the process, if you will. -------------------------------------------------------------------------------- Unidentified Analyst, [49] -------------------------------------------------------------------------------- Understood. So assuming COVID-19 persists for a big chunk of 2021, how do you plan to scale the business in the future? And what new steps that were not taken in 2020 might be required in 2021? -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [50] -------------------------------------------------------------------------------- Yes. So as it relates to the resurgence, we're -- we've talked, as you'd imagine, to all of our customers, quite frankly. And right now, we have not seen any impact in terms of procedure volumes or access. We're monitoring it closely, but our hospitals have indicated that they feel confident that we won't find ourselves in a position we did in March in terms of broad lockdowns. But obviously, there is a question mark that has been communicated to us by several of the GIs is, we might be prepared and have all of the measures in place to ensure we don't get overrun with patients, but patients may make the decision that they're concerned about coming in and maybe procedures that there might be an issue with the patient, but it's not an emergency, they may choose to elect not to come. So we'll have to keep a close eye on that. But right now, we're feeling good about how hospitals are managing this, and we're expecting not to go back into the impact that we saw. If it does occur, I think we learned a lot through the first situation with digitizing our go-to-market strategy. We talked a lot about that. Those tools have been utilized. I think they've worked well. Nothing replaces being in front of the customers, especially when you're creating a new market as opposed to taking share in an existing market. So getting there, as I said in the prepared remarks, and being in front of the physician and the staff is really important. But if we have to do things remotely again, we will. And I think the thing that we're trying to proactively do right now is reiterate and remind customers that from day 1, the minute we launched this product, before anyone even knew about COVID-19, the value prop, the big takeaway from our system is, this is a device to increase throughput in a hospital, to eliminate unnecessary length of stay and to basically get patients out of the bed that they don't need to be in. So we continue to kind of hit that messaging hard. And hopefully, if there was a lockdown, more facilities would be looking to technology that would allow them to fix their issue, which was ICUs being overrun with patients. So those are some of the things that we're -- that we'll continue to look at and continue to communicate with our customers, if you will. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks. -------------------------------------------------------------------------------- Timothy P. Moran, Motus GI Holdings, Inc. - CEO & Director [52] -------------------------------------------------------------------------------- Great. Thank you, operator. And I just want to thank everyone for their calls, their questions, their interest in Motus GI today. I do hope everybody remains safe and healthy in the current environment. And we'll look forward to the next call in Q4 and giving an update on our progress. So thanks again for joining today. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.