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Edited Transcript of MSTY.I earnings conference call or presentation 20-Sep-19 12:00pm GMT

Half Year 2019 Mainstay Medical International PLC Earnings Call

Dublin Sep 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Mainstay Medical International PLC earnings conference call or presentation Friday, September 20, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason Marshall Hannon

Mainstay Medical International plc - CEO & Director

* Matthew W. Onaitis

Mainstay Medical International plc - CFO & Company Secretary

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Conference Call Participants

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* Andrew Young

Davy, Research Division - Healthcare Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Mainstay Medical 2019 Half Year Results Conference Call. (Operator Instructions) And just to remind you, this conference call is being recorded.

Today, I'm pleased to present Jason Hannon, CEO; and Matt Onaitis, CFO.

Before I hand over to Jason to begin today's call, please note that this call may contain forward-looking statements. In this regard, please refer to the note on forward-looking statements included in the company's 2019 half year results announcement issued this morning and to the statements regarding the company's principal risks and uncertainties contained in the company's public disclosures available on its website on www.mainstay-medical.com.

Jason, please go ahead with the meeting.

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [2]

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Thanks, operator, and thanks, everyone, for joining us today to discuss our 2019 half year financial results and the general company update. We look forward to providing details for you regarding our progress and our plans.

A few highlights just to frame our call. First we're pleased to announce that we submitted our premarket approval application, or PMA, for ReActiv8 to the U.S. FDA in August as planned. Next, we continue to make progress working with key physician partners in Germany, who are incorporating ReActiv8 into their practices in order to validate commercial adoption of ReActiv8, refine patient selection strategies and follow ongoing patient progress. With a very small team, we are nonetheless on track with our goals of attracting new implanting physicians to ReActiv8.

From a finance perspective, in July, we completed the last steps of our financing plan, which provided approximately $28 million of cash runway to support our clinical, regulatory and commercial objectives. This financing is designed to fund the company through and beyond the expected FDA time line and enable us to build further commercial validation in Europe.

I'll now cover our key regulatory, clinical and commercial developments in more detail, followed by a brief review by Matt of our half year financial results and financing efforts, and then I'll open up the call for questions.

Let me begin by discussing the PMA for ReActiv8. As I mentioned, we submitted the PMA in August. Assuming acceptance of the submission by the FDA in October after its limited administrative review that's ongoing right now, a decision on approval is expected around the end of 2020. We remain optimistic regarding the chances for approval of the PMA based on the unmet need for these patients and the totality of our clinical data, which we believe provides solid clinical evidence of the efficacy and safety of ReActiv8.

As a reminder, the pivotal clinical trial, upon which the PMA submission was based, is the ReActiv8-B clinical study. Indicative of the unmet need in this patient population, the patients in this study had an average duration of chronic low back pain of 14 years. These patients have tried many other treatment alternatives without success and have to resort to coping strategies and pain medications. Importantly, 79% of the patients were on pain medication at baseline and 37% were on opioids at that time.

Now I'm going to help you understand the source for our optimism for approval. While the responder rate on the primary endpoint at 120 days was 57% in the treatment group compared to 47% in the control group, which was less than statistical significance, a plethora of other critical data points demonstrate the effectiveness and safety of ReActiv8 in this patient population, and these will form the core of our PMA.

First, regarding the primary endpoint data. We conducted 2 analyses, which were each prespecified in the protocol, using the exact same data as the primary endpoint. But looking at cumulative proportion of responders, we achieved statistical significance. A cumulative proportion of responder analysis measures the number of patients that reported each given amount of pain relief from 0% to 100% rather than simply looking at how many were above or below just 30%. This is a comparison of ranks, which naturally provides much greater information than a dichotomized endpoint and, therefore, has greater statistical power. In that analysis, a P value of less than 0.05 is achieved with the treatment group showing a higher proportion of responders across all threshold levels. The other prespecified analysis focused on the monitoring of the subjects' medications, which is crucial since any increase in medications would automatically deem a patient to be a nonresponder under our study protocol. Focus on this analysis was placed on patients that increased their pain medications for reasons other than low back pain and the impact of those increases on a 120-day responder endpoint.

There were 6 patients in the study who increased their pain medications before the primary endpoint visit for reasons unrelated to low back pain. These reasons included a broken ankle, tooth extraction, anal abscess, et cetera, all clearly unrelated to back pain. We conducted the analysis by removing these patients from the data set since use of these medications for reasons unrelated to low back pain was an exclusion criteria in the study. Importantly, the decision to remove these patients for this analysis was made months before the data was revealed.

When these 6 patients are removed from the data set, the responder rate at 120 days in the treatment group is 61% compared to a responder rate in the control group of 47%. The difference based on this analysis is also statistically significant.

In addition to these 2 prespecified analyses of the responder rates at 120 days, we observed statistically significant differences between the treatment and control groups on several key secondary endpoints and supplemental analyses. These include mean or average reduction in vast pain, patient-reported percent of pain relief, improvement in disability as measured by the Oswestry Disability Index, or ODI, change from baseline in quality of life measured by the EQ-5D metric, the patient's own global impression of change, patient treatment satisfaction and clinician global impression of change, all of those endpoints. All of these metrics showed statistically significant differences between the treatment and control groups and all of them at 120 days. This is with a therapy that is restorative by design and takes time to have a therapeutic effect.

Many people have asked, if ReActiv8 is restorative by design and takes time to be effective, then why was the primary endpoint set at 120 days and not much later, like 6 months or even a year? The answer to this is highly practical and one that will be a large focus of our ongoing discussions with FDA.

First, half of patients were asked to endure a surgical implant of a sham device and not receive the intended therapy during the sham period. Ethically, this can only go on for so long.

Second, as mentioned already, patients are required to hold all pain medications constant during the primary endpoint measurement period. This is the patient population dealing with significant pain in the realities of life in which other issues arise. The longer the control period is set, the more patients will be deemed nonresponders for taking medications unrelated to the back pain. These are the practical realities of running a clinical trial.

So now let's look at the clinical results beyond 120 days. These are the results that are most important to practicing physicians. The proportion of patients reporting clinically relevant improvements continue to grow beyond the 120-day assessment through 1 year for both the treatment group and the control group after the control group having their devices turned to therapeutic levels of stimulation.

At the time we filed the PMA, 160 patients had completed the 1-year assessment visit, consisting of 80 in each group. In this population, all efficacy outcomes for the treatment group and for the control group post crossover, which we just call the crossover group, all of them progressively improved through the 1-year assessment visit, including all of the measures I just mentioned. This is consistent with the rehabilitative nature of therapy.

To make this clearer, let me share a few important results from these patients reflecting 1 year of therapy for the treatment group and 8 months of therapy for the crossover group. 66% of the combined patients had a vast reduction of at least 30% at 1 year. Importantly, 64% of the combined patients had a vast reduction of at least 50% at 1 year. A remitter rate of 53% meaning 53% of patients had back pain resolved based on reporting a low back pain VAS of 2.5 or less. 71% of the combined patients had an ODI reduction of at least 15 points. And the average ODI reduction across the combined groups was 20.5 points, taking these patients on average from a baseline ODI of approximately 40, which is the border of severe disability, to an average ODI at 1 year below 20, which is minimal disability. 74% of the combined patients categorize their own level of improvement as better or much better at 1 year, and 75% of the combined patients have their improvement rated by their doctor as much better. These are significant improvements for this very difficult-to-treat patient population.

These data are preliminary and subject to change as additional subjects reach the 1-year assessment point, obviously, but these are very high response rates that we believe further validate the therapy particularly taking into account that this patient population has been suffering from chronic low back pain for 14 years on average and, in many other therapies they've tried, have not offered improvement over the long term. And when you ask the patients how they felt about this therapy, the additional data point that I'm going to share becomes very clear, and that's 79% of the combined patients rated their total satisfaction with the therapy as definitely satisfied at 1 year.

So the study also assessed patients' level of pain medication usage including opioids after the 120-day point, which was the time when the protocol permitted patients to adjust their own medication usage. Despite the fact that the study was not designed for the purpose of reducing opioid use, 49% of the 61 patients who are on opioids at baseline had either discontinued or decreased their use of opioids at the 1-year time point. Notably, patients who decreased or discontinued opioids had similar efficacy results as the overall population. These results are subject to change, of course, as the remaining patients reach the 1-year assessment.

With respect to safety, no clinically relevant lead migration was observed, and the incidence and type of adverse events, including serious adverse events, compares favorably to that of spinal cord stimulator devices with no unanticipated adverse events related to the device, procedure or stimulation.

We look forward to discussing the PMA and our overall data package with the FDA as part of the review process. As I mentioned, assuming the FDA accepts the submission for filing in October, we expect a decision around the end of 2020.

Now on the regulatory topic, a quick note regarding the Australian regulatory process. We submitted the dossier for TGA review and approval this summer. As ReActiv8 is a novel treatment, we expect the Australian TGA to engage in advisory panel to assist with the assessment. In addition, once regulatory approval is received, we will then require a separate approval for reimbursement. Our expected time frame for both approvals is late 2020.

Turning now to our efforts in Germany. First, it's important to understand our overarching commercial objectives in Germany. The nature of the German health care system does not make it ideal for rapid uptake of a new therapy. This is largely because it consists primarily of private purchasing groups that are highly incentivized to drive down costs. However, the system has highly trained physicians, clear diagnostic protocols and a system where potential ReActiv8 patients have mostly all undergone physical therapy and medication management already. These characteristics make Germany a strong market for initial introduction of ReActiv8 and a market where we can validate the lessons we've learned in our clinical studies to date regarding patient selection, patient management and training of physicians and their staff. Success in Germany, although defined in terms of accounts doing repeat procedures rather than sheer volume of procedures or absolute revenue, will pave the way for expansion into other core markets of the U.K., Australia and the U.S.

So how are we doing in Germany? We currently have a small team of 5 people that's focused on building a limited number of high-volume ReActiv8 practices that allow us to gather associated clinical data and refine our selection techniques. Despite our commercial transitions, we were able to approximately double our sales revenue from 2017 to 2018, and our revenue from the first half of 2019 is almost at the level of our full 2018 revenue. We also believe that given the restorative nature of the product, physicians' impressions of the product will become increasingly favorable as they gain clinical experience that correlates to our clinical results. We've been primarily focused on the German market.

In addition, we've now seen our first commercial cases in the U.K. and Ireland, although expansion in those markets will be relatively slow until next year as we work through the reimbursement processes.

In short, we're making good progress with our commercial validation efforts.

With that, I'll now turn the call over to Matt for a brief summary of our financial results for the first half of 2019 and a summary of our financing activities. Matt?

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Matthew W. Onaitis, Mainstay Medical International plc - CFO & Company Secretary [3]

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Thanks, Jason. Our most important financial activities since the beginning of 2018 have been related to ensuring that the business has sufficient cash resources to pursue our clinical, regulatory and commercial objectives.

In July, we completed the final steps of our financing plan by raising gross proceeds of EUR 16.9 million or approximately USD 18.9 million through an equity offering in which we issued 4.6 million new ordinary shares at a purchase price of EUR 3 per share together with the drawdown of EUR 3 million in additional debt from our existing lender. That followed the restructuring of our debt facility, which we completed in April. In exchange for issuing to the lender a warrant to purchase 1.5 million ordinary shares for a per-share purchase price of EUR 6, the debt was restructured to amend the repayment schedule so that no principal interest repayment occurs until 2021, reduce the interest rate and eliminate the repayment fee, make available to us the new tranche of EUR 3 million conditioned upon our equity financing and make the debt convertible into ordinary shares at EUR 8 per share if we receive the FDA approval for ReActiv8 or in certain other circumstances. All of these transactions together resulted in approximately $28 million in cash runway extension for the company. We will deploy our resources carefully over the remainder of 2019 and 2020 as we prioritize the creation of value through commercial validation activities in Europe and regulatory approval activities in the U.S. and Australia.

Turning now briefly to our financial results for the first half of 2019. Revenue during the period was $0.6 million compared to revenue for the first half of 2018 of $0.36 million. Operating expenses for the first half of 2019 were $9.5 million versus $15.8 million for the first half of 2018. The decrease was driven primarily by reduced costs relating to activities for the ReActiv8-B clinical trial following the completion of all implants as well as a decrease in payroll-related costs following a reduction in headcount in 2019. Our cash on hand at June 30, 2019, was $5.8 million compared to $29.7 million at December 31, 2018. Cash on hand at July 31, 2019, after our financing transactions was $23.5 million.

With that, I'll turn the call back to Jason.

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [4]

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Good deal. Thanks, Matt.

The market potential for ReActiv8 is significant. And we believe the data from our pivotal clinical trial is compelling, it will help drive commercial adoption in Europe and then support ultimate FDA approval.

Thanks for your time. Now we're happy to take your questions. Operator, can you open it up for questions please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Andrew Young from Davy.

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Andrew Young, Davy, Research Division - Healthcare Analyst [2]

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I've got a couple of questions. I'll start off with my first one to do with the PMA submission. Is it fair to say that the prespecified analyses are the most compelling data in the submission? And typically, do these types of analyses resonate regulators? Have they been considered previously in file submissions?

Secondly, with respect to the approval decision expected end of 2020, could that decision come earlier in the year? Is there any scenario where that might happen?

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [3]

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Sure. Thanks for the questions, Andrew. So first, on the data, the way to think of this is, if you're a practicing physician who treats these patients, the most compelling data in our PMA is the 1-year data because you're most concerned about your patient's long-term outcomes. So you're looking at the 1-year data, you want to know what are the odds my patient benefits significantly from this therapy at a year. I mean it's from a practical physician's perspective.

If you look at it and say what is FDA most concerned about, I think the prespecified endpoints that you described are very important to FDA because if that is -- those are within the confines of how the study was set up, and so having FDA understand all of the data at that primary endpoint of 120 days is very important. And the fact that the prespecified endpoints were defined before the data was revealed makes those things very valuable. And so the 2 analyses that I described as the prespecified endpoints will be very important to our back and forth to FDA. Hopefully, that's satisfactory to them, and then the focus becomes a longer-term data and how well the patients are doing beyond that point. Does that make sense?

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Andrew Young, Davy, Research Division - Healthcare Analyst [4]

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Yes. No, that's very helpful. And with respect to the approval decision...

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [5]

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Yes. So it could come earlier, certainly. Our expectation is that we will have an advisory panel with FDA, and that's a panel where FDA will bring in outside physicians, statisticians, experts, assemble a panel. And that -- the process of doing a panel like that adds a few months to the process. And so the time line that we've put out as a forecast around the end of next year assumes the several month process of assembling that panel and holding a meeting. That's the biggest time block in our forecast that could move. If we don't have an advisory panel and FDA manages this directly itself, it could come meaningfully sooner.

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Andrew Young, Davy, Research Division - Healthcare Analyst [6]

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Okay. I got a couple of questions as well regarding your commercial strategy. With respect to Europe, how does the strategy change there since last year? This year, have you be able to leverage any of the ReActiv8-B trial data with physicians and increase the number of implants? That's my first question.

And second question, how should we think of the commercial strategy in Europe over the next 2 years? Given the expected PMA decision at the end of 2020, will there be modest growth until then and then there might be more resources there to propel activities and, again, using your experience from Europe to accelerate that?

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [7]

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Yes. So just to frame it, I'll take the last piece of your question first. The answer is largely yes. The way to think about it is when we are sitting on a U.S. approval and, therefore, have the capability of raising the resources needed to expand, we obviously will spend the resources where they're most valuable. And I think that and the U.S. approval itself will spur significant opportunities for growth in Europe. So a significant yes to that question.

Now what's changed at all? The only real change over the last year in Europe has been focusing really exclusively on accounts, hospitals where we're confident that we can partner with the physician to do significant implants in a single account so that our limited resources can be used to follow the most number of patients the most efficiently. And so we are looking at accounts that will have the potential to do at least an implant every month on average. That will generate a data set around how we're selecting and caring for patients, that is really valuable to our learnings, and it allows physicians to get up to speed, and we, therefore, can gather and use that clinical data as we go forward. Maybe as part of the FDA process, which would be great, maybe in publications so that we can learn more and work with more physicians, but that's been the main focus. And we have the -- we've achieved the goals we set for ourselves and how many sites are implanting right now in Germany. We have those sites. Now they've all come onboard. Now our job is to get them to the potential we believe they have of doing the implant a month because what typically happens is you identify a site, you introduce the therapy, this therapy is immediately understood by the doctors who see these patients, and they ultimately do their first procedure. And they do their procedure and then they wait, as they should, how does this patient do, how do they recover, let me make sure I can manage them the right way, and then they start doing more implants. And that's what we see. And that's why the uptake, although physicians coming onboard, is as rapid as we'd like, the implant volume just lags behind it. And I would expect the next 6 to 12 months to see that implant volume pick up, even the small number of accounts.

And then what do you look at in the U.S. for the next 2 years? Now we just did our first commercial implants in Switzerland and the U.K. And I think those are both meaningful markets. We use our lessons from Germany to get into those markets more significantly. And ultimately, this experience helps us focus and shorten the adoption cycle in the U.S. moving on.

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Andrew Young, Davy, Research Division - Healthcare Analyst [8]

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Okay. That's very helpful. With respect to -- you mentioned that you did your first implant in Switzerland and the U.K. Are those reps -- do you have reps in the U.K. and Switzerland as well? Or is it just Germany and you -- they're stationed in Germany and then they can -- they travel around? Or how does it work in terms of the costings there and the number of reps that you have in Europe?

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [9]

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Yes, we do have -- yes, we have someone dedicated in the U.K. Lucky for us, the U.K. has been part of our clinical studies to date. So that person has been in the U.K. and dedicated for several years as we've been doing -- we have 6 accounts in the U.K. that are actively recruiting patients as part of clinical studies. So that's been a great transition for us as we get closer to being truly commercial and a person similarly dedicated to Switzerland. But the therapy just requires it. You need someone on the ground who can regularly visit, who can train nurses and staff, who are there for all the follow-ups as the patients come back. It's small numbers of people overall, but they're dedicated to those markets.

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Andrew Young, Davy, Research Division - Healthcare Analyst [10]

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Okay. Finally, I've got a question on financials. Maybe Matt could help. In terms of cost going forward, I know you've mentioned this, but is there any significant costing out of the business in the next 12 to 18 months before you have clarity on the PMA decision? Or is the organization quite streamlined there and as streamlined as it will be?

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Matthew W. Onaitis, Mainstay Medical International plc - CFO & Company Secretary [11]

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It's quite streamlined now. At the -- after we announced the initial ReActiv8 data -- ReActiv8-B data at the end of last year, we undertook a process to narrow the company's focus specifically to regulatory approval activities in the U.S. and Australia and then continued commercial validation efforts in Europe. And so we -- then we streamlined the organization to the headcount of the organization to be aligned to those goals and then raise the money based on that plan. So the -- what you see from -- in OpEx and cash used in operations in the first half of 2019, we'd expect that to be fairly constant, maybe a little bit lower going forward throughout the rest of 2019 and through 2020.

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Operator [12]

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(Operator Instructions) As there are no further questions, I'll hand it back to the speakers.

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Jason Marshall Hannon, Mainstay Medical International plc - CEO & Director [13]

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Thank you. Thanks, everyone, for joining our call. We will have a busy next 6 months as we intensify our interactions with FDA and continue to make progress in commercial validation in Europe. So look forward to checking back in with everybody soon, and thanks for your time and interest in Mainstay. Take care. Bye-bye.

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Operator [14]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.