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Edited Transcript of MYOS earnings conference call or presentation 8-Nov-19 3:00pm GMT

Q3 2019 MYOS RENS Technology Inc Earnings Call RIVERSIDE Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of MYOS RENS Technology Inc earnings conference call or presentation Friday, November 8, 2019 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Joseph Mannello MYOS RENS Technology Inc. - CEO & Director * Joseph DiPietro MYOS RENS Technology Inc. - Controller ================================================================================ Conference Call Participants ================================================================================ * Brian W. Marckx Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst * Matthew Abenante Porter, LeVay & Rose, Inc. - SVP ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings and welcome to the MYOS RENS Technology Third Quarter 2019 Financial Results Conference Call and Webcast. (Operator Instruction] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew Abenante, Investor Relations for MYOS RENS Technology. Thank you. Sir, you may begin. -------------------------------------------------------------------------------- Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [2] -------------------------------------------------------------------------------- Thank you, Jesse, and thanks to all of you for joining us today, and welcome to the MYOS RENS Technology Third Quarter 2019 Results Conference Call. Joining us on the call today is Joseph Mannello, Chief Executive Officer; and Joseph DiPietro, Financial Controller. I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products through research and development, the successful results of strategic initiatives; the successful launch of our products, including Qurr, Yolked, MYOS Enteral Nutrition Formula and Myos Canine Muscle Formula products; the success of our research and development, including the clinical studies, the results of the clinical evaluation of Fortetropin and its side -- and its effects, the ability to enter into new partnership opportunities, and the success of our existing partnerships; the ability to generate revenue and cash flow from sales of our products; the ability to increase our revenue and gross profit margins; the ability to achieve a sustainable, profitable business; the effect of economic conditions; the ability to protect our intellectual property rights; competition from other providers and products; the continued listing of our securities on the NASDAQ stock market; risks in product development; our ability to raise capital to fund continuing operations, and other factors discussed from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made, except as required by law. The statements made on today's call have not been evaluated by the Food and Drug Administration. Our products are not intended to diagnose, treat, cure or prevent any disease. With that, I'd like to turn the call over to our first speaker, Joseph DiPietro, to go over the financial results. Good morning, Joe. -------------------------------------------------------------------------------- Joseph DiPietro, MYOS RENS Technology Inc. - Controller [3] -------------------------------------------------------------------------------- Good morning, everyone. For the third quarter of 2019, our net revenues increased $284,000 or 430% to $350,000 compared to net revenues of $66,000 for the 3 months ended September 30, 2018. This substantial increase was primarily due to an increase in net revenues of $240,000 for our 2 new products launched in 2018, $108,000 for Yolked and $132,000 for Myos Canine Formula. Gross profit for the 3 months ended September 30, 2019, increased $169,000 or 2,414% to $176,000 compared to $7,000 for the 3 months ended September 30, 2018. Our operating expenses for the 3 months ended September 30, 2019, increased $171,000 or 18% to $1,087,000 compared to $916,000 for the 3 months ended September 30, 2018. This increase was primarily due to the marketing of our company's new products and the hiring of an in-house sales team that began approximately a year ago. Net loss increased $10,000 or 1% to $921,000 for the 3 months ended September 30, 2018, compared to $911,000 for the 3 months ended September 30, 2018. As of September 30, 2019, we had cash of $396,000; total assets of [$3,573,000] compared to cash of $459,000 and total assets of $403,000 at September 30, 2018. As stated earlier, this decrease in cash was primarily due to the marketing of our company's new products. Working capital increased $154,000 to $1,115,000 on September 30, 2019, compared to $1,269,000 at 12/31/2018. Our changes in working capital were primarily due to net proceeds provided by financing activities of $2,285,000 offset by net cash used in operating activities of $1,904,000. Also, other current assets decreased due to a collection of $1,124,000 tax receivable. Our total current liabilities decreased $586,000 primarily due to a decrease in accounts payable, accrued expenses and other liabilities of $431,000 and the conversion of $250,000 of the promissory note payable, offset by accrued interest of $29,000, an increase in deferred revenue of $20,000 and an increase of $46,000 for operating income. With that, I'd now like to turn the call over to someone that I've had the pleasure of working with the last 3 years, our Chief Executive Officer, Joseph Mannello. -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Joe, and good morning, everyone. I want to thank you for being on the call today. First, I want to thank the MYOS team. We've added some great talent recently to go along with the talent we have and that has made an incredible difference. I met a very successful venture capital investor this week, who spoke about the most important components when he's looking to make an investment. He said the #1 thing he looks at is people. Do they have great people? And #2 was a great product. This year, we proved we have incredible, and I mean incredible products, with 2 positive trials and amazing testimonials. Please read our reviews and the testimonials on Amazon or yolked.com or Myospet.com. More importantly, look at our science and the quote from Dr. Evans, who did our Berkeley study, what he said about Fortetropin. "It is rare for a nutrition product to show such a consistent and positive effect." Get used to that line because I'm going to use it a lot. We also added this talent recently. And I will continue to evaluate the talent we have and look to add more talent as we go forward. It has taken me some time to figure out this business. I think I'm getting closer to putting together the right team as well as getting a better understanding of this space that MYOS RENS is in. After today's call, I'm going to be heading to the Javits Center to present at the New York Vet Show at their innovation showcase where I'll deliver remarks on the impact of Fortetropin on dogs recovering TPLO surgery and our new MYOS Vet Strength formula. We hope to have a great turnout with veterinarians, scientists and other key industry people. This event has provided veterinary health care professionals the opportunity to get better educated on products offered throughout the industry. And I'm excited to be presenting our successful studies as well as one of the only products that is effective and clearly as effective for muscle health in dogs. To sum up not only the third quarter, but thus far, in 2019, I'm very pleased with where we are positioned today. The process of launching brands and having them rapidly accepted in the marketplace is challenging to say the least. It can be an expensive proposition if you don't have a plan and if you don't have the ability to call that occasional audible when the market requires it. In a little over a year's time, we've made investments in manpower and capital to launch 2 new brands, Myos Canine Muscle Formula and Yolked, that are backed by clinical research data proven to support muscle health. Since the launch of Myos Canine at the end of June in 2018, we've seen double-digit growth in sales, which continued in the third quarter of 2019, a 48% increase from the second quarter. While I'm pleased that Myos Canine continues to grow at a rapid pace, I'm more optimistic about the upside potential. Remember, the global veterinarian supplement market is massive. It is expected to reach over $8 billion by 2023, with a compound annual growth rate over 6%. We're finding that when we approach new customers, they love the product. They see the difference over time in their dogs' activity, movement and muscle mass, and they become repeat customers. There is nothing in the marketplace like MYOS Canine. I would again invite you to take a look at the customer testimonials we receive on our Amazon page and as well as all our social media channels. All of these channels have proven to be major catalysts for sales for our Myos Canine brand, and I look forward to what I anticipate being our biggest marketing push as we approach the holiday season. So what does this tell us? First, the product works. Second, the product works, works so well that people are willing to write compelling reviews and testimonials. Literally, if you look at these reviews, it's just tremendous. And I promise you, less than 30% are family members. These are our best sales force in the direct-to-consumer space. And now we need to reach this audience at a wider scale. So we're shifting more of our marketing spend to Myos Canine. The marketing dollars we spend with Myos Canine really generate sales, and we want to capitalize on that. We have also received great feedback from veterinary practices and distributors in the vet space that supply Myos Canine for its customers. After hearing that feedback, we decided to offer a more specialized product that would be available exclusively through vet practices, as opposed to Amazon, other retailers or other e-commerce options. So we announced on Tuesday the launch of Veterinarian Strength Myos Canine Muscle Formula. This formula combines Fortetropin with the branched-chain amino acids, leucine, isoleucine and valine, further boosting the beneficial effects of muscle protein synthesis, resulting in a greater improvement of muscle health in canines. Providing this additional skew comes at a minimal cost to MYOS, while providing us further entry into the commercial veterinary market. Turning to Yolked, our all-natural NSF Certified for Sport nutrition market. We made progress in the quarter with sales doubling. This is largely a result of the marketing investments we made, particularly in our direct-to-consumer vertical, which includes yolked.com, Amazon and our social channels, along with what I define as our Yolked pro vertical, which includes over 8 university athletic departments. However, our results in this vertical have been less than I hoped with the focus in marketing dollars we put behind it. We have really seen great responses to the products in the university athletic departments. And that, with professional team, is what I believe a very good fit for Yolked. However, in the direct-to-consumer space, we believe we need to capitalize on the powerful results from our University of California, Berkeley study and aim for that 40-and-over demographic. With that in mind, we announced last week a marketing partnership with the Texas Golf Association, the largest statewide amateur golf association in the United States, with over 147,000 active members. Throughout the partnership, we will present instructional videos through the fall and winter months, introducing members to Yolked and demonstrating its benefits. The golf market is a very attractive potential market for Yolked. This market is competitive and athletic, skews over 40 years old, is affluent and well educated. As we continue to actively market our brands, we believe the foundation for long-term success of our products is driven by our ability to use the powerful research results we have to fully leverage Fortetropin's benefits. We were delighted to announce in June our positive top line results from our randomized, double-blind placebo-controlled study that we conducted at the University of California, Berkeley and the University of Arkansas for Medical Sciences, where we evaluated the impact of Fortetropin on the rate of muscle protein synthesis in older men and women between the ages of 60 and 75 years of age. This study showed that Fortetropin significantly increased the rate of muscle protein since -- relative to placebo in 21 days. I want to again repeat Dr. Evans's quote about Fortetropin. "it is rare for a nutrition product to show such a consistent and positive effect." We also launched a clinical study in September with the Department of Kinesiology at McMaster University in Hamilton, Canada. This study will examine the impact of Fortetropin on reducing muscle disuse atrophy in young men, which commonly occurs in response to immobilization, such as the atrophy of thigh muscles following a period of casting for a fracture or following surgery, such as knee replacement. With this study, we hope to show that Fortetropin can shorten recovery times from injury, as was shown in our TPLO surgery study with dogs. Success with this study will provide MYOS with a large commercial opportunity for our product in the rehab and recovery market. I understand that in the micro-cap stock world, investors are always concerned with shareholder-destructive capital raises that often fall short of meeting the objectives of the company. MYOS stands among the very few in the fact that we don't operate this way. When we've raised capital, it's been traditionally based upon market appreciation. Our at-the-market facilities with H.C. Wainwright allows us to take advantage of price fluctuations, reducing our cost of capital compared with most capital raises in small caps. In addition, both myself and the Board participate in capital raises, free of [taxes], warrants and auctions, and we hope to maintain that discipline. Our interests are fully aligned with our shareholders because we believe this is a great long-term investment, and management should always have skin in the game. We've gotten to this point in our company with steady growth as a result of our approach of building a scientific case for Fortetropin. How many companies can point to 2 successful studies in 1 year, all that while developing vibrant brands and marketing programs to get our products into the marketplace? As the results show, we've made a lot of progress in a relatively short period of time. But I know we're only in the early stages of this process, and I expect only greater results from here. I covered a lot of territory this morning. It's an exciting time for our company. Things have never looked better. And we want to thank our loyal shareholders for their continued support. And with that, I'm happy to take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Brian Marckx with Zacks Investment Research. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [2] -------------------------------------------------------------------------------- And congrats on all the progress. Joe, I have several questions, and maybe it might be best to take some of these off-line just because of the length of questions. You've got a lot going on, so it just generates a lot of questions. So in terms of the Myos Canine Veterinary Strength. I'm curious, is there evidence specifically behind this formula that supports the benefits as does the original formula? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Yes. Look at it this way, Brian, it's 90-plus-percent Fortetropin. So you're going to get the benefits of Fortetropin. And then we add an amount, a small amount of branched-chain amino acids, which also have tremendous clinical evidence of building muscle health -- building muscle. So it is made to really create a product exclusively for vets. There's -- it's -- like I said, it's a negligible amount of branched-chain amino acids. It gives them something different, so they can have it in their practices and be able to sell it there. So is there going to be a lot more muscle benefit from this than pure Fortetropin? Probably not a huge amount, but there will be a little amount. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [4] -------------------------------------------------------------------------------- Okay. And then in terms of where that is relative to the launch. I know you have officially announced the launch. But is this in your veterinary distributors' catalogs? And is it being stocked? Or is it being sold? Kind of where exactly is the product in terms of commercialized? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [5] -------------------------------------------------------------------------------- It was just launched. We wanted to really showcase it today at the New York Vet Show and then start rolling it out. We did get calls from the press release from 1 or 2 vets that want the product. But the idea was to launch this in conjunction with today's New York Vet Show. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [6] -------------------------------------------------------------------------------- Okay. Okay. And then would your veterinary distributors stock this along with the original formula or just the vet formula? And if it's just the vet formula and they have inventory product of the original formula, what do they do with it? Do they sell-through it? Or do they return it or something else? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [7] -------------------------------------------------------------------------------- Just no, we only have one vet distributor we're working with, and that's Miller Vet. They will take this product in. They will sell through the Myos Canine Muscle Formula they have. And they are not a large vet distributor. Most of our vets that we have so far have been done internally through our sales force, which are roughly probably 50 vets. And they, over time, will take the Vet Strength or they can stay with Myos Canine, that's up to them. The idea is, think about it. If there's an argument, and it's less today than it was 10 years ago in the [e-commerce] -- that why should I take in this product when you can go buy it on Amazon. You can go buy it on Chewy. You can go buy it in other places. What we're saying here is, we're going to give you something exclusive. You can have this. So it gets rid of that objection. And the addition of branched-chain amino acids is very positive. I can tell you, there are numerous studies that show the benefit. So it's a good approach to a product with benefits as well as a good marketing tool, I believe. So I think it's going to be accepted from -- we have lots of vets that love Myos Canine. I think this will address 2 things: One, probably give them a little bit more pricing power. And two, the vets that were resistant because they don't want to compete with e-commerce, they can now accept this. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [8] -------------------------------------------------------------------------------- Yes, yes. That all makes sense. Absolutely. And so you talked about the positive reviews with Myos Canine. I've seen them. I read probably just about all of them. It's pretty impressive. I'm curious as to how the kind of a general pet consumer -- how they're influenced by the science behind Myos Canine versus the -- say, like an online review? Do you have a sense of that? Does the science, the clinical science resonate with the general pet consumer? Or is it more, I go on Amazon, I read these reviews, and that's what influences a purchase? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [9] -------------------------------------------------------------------------------- I think it's -- I don't know if there is one answer to that. I think some people look at reviews and that holds a lot of weight for them. I know as being -- I buy a fair amount of products from Amazon. I do look at reviews and that does influence me. I look at the quality of the reviews sometimes, who's saying what. Some of the negative reviews sometimes can be absurd, but -- and some may not be. So I do look at those reviews. And then there are other people who -- it's all about the science. We have vets that we get into, they care about the science, and then they start seeing the results. So I think it's twofold. I know that's somewhat wishy-washy. But I do believe that's the fact, that it depends on who you are. But I think these reviews are really having an effect. Word of mouth is very powerful, especially with social media today. And we, as I said in my statement, are really going to push in this next quarter around the holidays with our -- with Myos Canine because it's just a strong brand for us. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [10] -------------------------------------------------------------------------------- Okay. Relative to -- I'll just cruise through these as quick as I can. The Kansas State quality of life canine study, the 10-Q mentions that you anticipate the conclusion in Q1 of next year. Does that -- can you give us what the specific status is today? Has the canine study quality of life started? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [11] -------------------------------------------------------------------------------- Yes. It's probably about 50%. We probably have a little over 50% subjects in the study. And again, we do believe in first quarter we should see the results. As you know, Brian, these studies, dogs drop out, people move, but we're still anticipating and feel fairly confident that we'll have the results in the first quarter. -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [12] -------------------------------------------------------------------------------- Okay. Okay. Great. And on to Yolked, the McMaster study, do you have anticipated time lines for when that might start and when that might finish? And then more of a design-type question relative to that study. It seems like it's a pretty small study. It's 24 participants, I believe. And the immobilization period is only 2 weeks. Is that I guess robust enough where you would expect to see statistical significance in the primary end point? -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [13] -------------------------------------------------------------------------------- One, we expect it to launch in the first quarter for them to start. We've begun all the processes that we need to, to get it going. And as far as -- it's in something called IRB review right now. And yes, this study -- and we didn't design this. We've designed this in conjunction with Dr. Stuart Phillips. He has done these type of studies before. This is something he does. So he knows that this timing -- so I would love to get a study done in 6 months or 3 months. This is a 2-year study. And he created the protocol working with us on his experience that this time frame will show significance if the product works. If you can read, he has tremendous amount of studies that he has authored or co-authored in this space. So we're really confident. We wouldn't do this unless we felt -- to give you an example. We were looking and got very close to doing a study with total knee and hip replacement surgery. We were down the path in a long way, but we realized that -- we brought in some people to advise us. And they said, one of the problems with total hip and knee replacement is the outcome is -- there is not any normal outcome. People can go into the study earlier, later. They -- their muscle is at a different point. So we were advised that, that protocol is not great. And here is a way to really understand whether the product works or not. And this is why we set up the study this way. This is the why we work with Dr. Phillips because he has had a lot of experience doing this. And it's set up in a way that if Fortetropin works, and we believe and hope it will, will show significance, or else we wouldn't have gone down this path. The reason we left those other paths was because we were advised that even if Fortetropin works, it might not show significance. Does that makes sense? -------------------------------------------------------------------------------- Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [14] -------------------------------------------------------------------------------- Yes. Yes, absolutely. That's -- yes, that's great. And just one last question here. Yolked, you had mentioned -- or I guess you mentioned that you expected to move some sales and marketing dollars from -- sales and marketing dollars towards Myos Canine. Are those coming from somewhere else? And I'll just leave it there. I appreciate it. -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [15] -------------------------------------------------------------------------------- It's really a directional decision, riding the winning horse, basically. Myos Canine, when we spend $1 on Myos Canine, we get a real return. So we believe shifting some of the dollars that we're using to Myos Canine is prudent, and it just works. Yolked. Is it -- Yolked in the demographic we were targeting is a tougher sell. You know that there are a lot of products that 18-year-olds and 25-year-olds take and talk about muscle building. And so it's a harder -- the investment which we have made, and we're getting there, is much greater. We decided that with the success of Myos Canine, it's prudent to move some of those dollars there. And we think we'll see great results or we wouldn't be doing it and to move some of those dollars away from Yolked. Brian, if you want to talk some more or there are more questions, just give me a call. And thank you for your support. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- (Operator Instructions) It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Mannello for additional concluding comments. -------------------------------------------------------------------------------- Joseph Mannello, MYOS RENS Technology Inc. - CEO & Director [17] -------------------------------------------------------------------------------- Great. Thank you so much. I want to thank everyone who supports MYOS. I think the journey is -- has been long over the last 3 years since I've been there, and I'm committed to seeing this out. I really do believe with what has happened this year with MYOS with our 2 clinical studies being positive as well as the momentum we're seeing in both Yolked and Myos Canine, that we have turned -- there's been an inflection point or a transformation of this company. And I'm looking, really looking forward to the next year. So again, thank you. I want to wish everyone a happy Thanksgiving a little early. And that's it. Have a great day, great weekend. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation. You may disconnect your lines at this time.