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Edited Transcript of NXS.AX earnings conference call or presentation 28-Feb-20 12:30am GMT

Full Year 2019 Next Science Ltd Earnings Call

Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Next Science Ltd earnings conference call or presentation Friday, February 28, 2020 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Judith Mitchell

Next Science Limited - MD, CEO & Director

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Conference Call Participants

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* Elyse Miriam Shapiro

Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst

* Martyn Jacobs

Canaccord Genuity Corp., Research Division - Senior Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Next Science Limited 2019 FY Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to Ms. Judith Mitchell, CEO. Please go ahead.

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Judith Mitchell, Next Science Limited - MD, CEO & Director [2]

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Thank you, operator, and good morning, everyone. Thank you for joining us this morning. Given it is reporting season, I'll save everyone the page turn and focus my remarks on a few selected pages. I will be happy to take questions at the end of the presentation.

So let's start on Page 3. For Next Science, 2019 was a year of many milestones. We listed the company. We introduced 2 additional products to the market. We increased our customer base as well as successfully treating over 130,000 patients with our technology. We learned valuable lessons in partner management and improved our knowledge on how to bring disruptive technologies to market.

There were also some challenges as we encountered delays with our distribution in the U.S. and in gaining our regulatory approvals in Europe. Both of these factors, as we previously acknowledged, impacted our revenues for 2019.

As a stronger company, we entered 2020 with momentum. We're focused on improving our current revenue streams with wider market access, growing our evidence base and introducing new products in new channels.

So let's move to Slide 6, and if you don't mind, I'll briefly recap our journey so far. For those of you that are new to the Next Science story, we started in 2012 when our inventor and our current CTO founded the company based on commercializing a novel technology that can disrupt biofilms and eliminate the incumbent bacteria. Biofilms are a natural phenomenon. They're expressed by bacteria, and they act as a bomb shelter protecting the bacteria against the action of antibiotics or other antiseptics. In inventing the Xbio platform, Dr. Myntti started to provide the world with answers to the issues in human health caused by biofilms. In 2017, we had 2 FDA-cleared products ready to go to market, and that started our commercial push. By 2019, we'd acquired 2 global distribution partners in Zimmer Biomet for the field of prosthetic joint infection treated with Bactisure and with 3M in the chronic wound care space utilizing the topical antimicrobial wound treatment BlastX. In 2019, we successfully listed on the ASX and raised $35 million to fund our expanded product development and our growth. We continue to work on our pipeline, and we are happy to announce we're bringing 5 new products to market in 2020.

Outside of our control, in 2019, 3M acquired KCI Acelity, a transaction that was completed in the fourth quarter in the United States. This acquisition takes 3M to the #1 market position in the chronic wound care space. While the transaction caused us delay in sales as the acquisition was implemented, we're now well engaged with the largest sales force on the benefits of BlastX, and it is being actively promoted across the field team.

If we move to Page 7, you can see the products that generated our revenues in 2019. With the exclusion of the acne product, these products are currently on sale in the U.S. and recently released in Canada. The acne product is currently only available in Australia. All of these products are in their early stages of market penetration and continue to grow market acceptance and physician following.

As we move to Page 8, we've given you a road map of our key activities for 2020. This includes the launch of 5 new products, which more than doubles the size of our product portfolio. In the first half of the year, we're going to bring to market 3 new products through a direct-to-consumer channel, that is online. This is a new business model for us.

In the second half of the year, the first product we expect to launch is our Surgical Rinse brand name XPerience. This product is targeted to be used in all surgical procedures to reduce surgical site infection. Surgical site infection, or SSI, is the #1 driver of surgical complication globally. It causes patient morbidity as well as escalate health care costs. This product is going to market through a direct commission-only sales network managed by Next Science. We're supporting this launch with several large, randomized, controlled trials to provide the evidence to drive adoption to standard of care.

The last product to be released in 2020 is the wound bed preparation that will be marketed into the tissue replacement market. All of the products mentioned utilize our unique Xbio technology platform, which eliminates the biofilm and the incumbent bacteria while promoting healing.

In addition, as we previously disclosed, we have made our first submission in our skin cancer project. We're now working through the request list from the FDA to be approved to move to a Phase II and a Phase III trial.

As we move to Page 9, let me just briefly touch on some key issues around the addressable markets that we're trying to help. These products all have the potential to multiply our long-term revenue opportunities. I'll call out 2. The first, XPerience Surgical Rinse, previously called Surgical Rinse, minimally invasive rinse in our previous communications, this product addresses 110 million surgical procedures that occur every year, 48 million of these occurring in the United States. And this product can be used to close each of those procedures to provide antimicrobial coverage as the surgeon is finishing his surgical action.

The other product I'll call out is the acne cream and cleanser, which is launching with our newest business partner, tbh Skincare, in March. The product is going to target the 1.5 million female teenagers in Australia. This is a groundbreaking non-salicylic acid formula that reframes acne treatments. More details on the branding and the products can be found in the appendix, and tbh are very kindly offering discounts to NXS shareholders. Details can also be found on tbh's website, which is alive today taking pre-orders for the product.

If we move to Slide 15, we'll take a brief look at the financials. Our revenue grew 43% in the comparative period. Our gross profit grew 42%, and our gross margins were held stable at 86%. There was an increase in R&D expenditure to help us widen our product portfolio. Our other costs were carefully controlled. As we talk about our revenues, we were temporarily impacted by the M&A activity at 3M and the industry-wide delays in the European regulatory process.

If you then move to the balance sheet on the next slide. Our net cash at the end of December was USD 16.9 million to fund our growth strategy, and we are debt free.

Let's move to Page 18 and 19, and I have just a few closing remarks. As I've said at the beginning, our strategy is to launch new products, grow new markets, build new evidence and grow our revenue. We're very proud of our R&D and operations teams, which have given us the portfolio of 2 products that began in '19 to now 9 by the time we finish 2020. 2019 was a year of achievements and learnings. As we enter 2020, we're a stronger company, and we look forward to updating you on our exciting new product launches through the year.

I'll now hand you back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Elyse Shapiro with Wilsons.

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Elyse Miriam Shapiro, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [2]

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Just around the KCI integration into 3M, what have you seen over the last few months that has given you confidence in the order patterns for growth there?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [3]

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So the first thing that happened is the team has now moved out to 120 people. So all of the 90 people that are in the advanced wound care team in the U.S. with KCI had now BlastX as a priority product in their bag. We, as Next Science, got the opportunity to go to the national onboarding meeting for the KCI team that was held in San Antonio, and we delivered the training ourselves on the product, both the technical and the clinical aspects. And then our team today, so the 90 people, are divided in 9 regional teams. And we're slowly, with KCI's 100% support, riding with those 90 people across our teams so that everybody can be very comfortable with the technology. My own small team that are helping this group are flat out. Their inboxes are full every morning with emails from KCI's employees and leaders. We're hosting sessions in our Jacksonville premises for KCI and their customers. And we're co-presenting at the SAWC meeting in May. So very active.

And the differential between where they are in the marketplace and where the 3M post-acute team are, the KCI people also sell topical products. So they understand that process where the 3M team came from the bandage background, and so topicals were a little new for them. And everybody knows you'd rather have an experienced sales force than a less experienced sales force. So we're very comfortable that it is moving very nicely in the right direction, and probably activity has more than doubled.

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Elyse Miriam Shapiro, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [4]

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Great. And can you give a little bit more color around the anticipated clinical catalysts, especially for the surgical wash? When are you going to provide a bit more around trial design and outcomes?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [5]

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We're just finalizing the contracts with the trial site, but I'm happy to give out the trial design. So these studies are being done prospectively with a full control that is saline versus the XPerience product in the other arm. It will be a blind trial. Those patients will get chosen with an envelope prior to the surgery. We won't be able to mimic the product line, so the doctors will know what they've applied because it's just a little bit too hard within the saline space. But people are comfortable that it will be level 1 evidence.

The first trial is in knee replacement, where we wash in with XPerience when we do the first 2 osteotomies and then when we close the patient again. Currently, all of that washing is done in saline. Right. So that will be the trial versus an XPerience wash. When you cut -- cleaning up your surgery field with saline while you're operating and then in XPerience wash when you close, we anticipate across the 3 sites over a 12-month period, that's about 4,500 patients in each arm of the study.

Then the second study that's happening is in, actually, orthopedic trauma treatment. So a marketplace where right now because it is trauma and these are often open fractures, meaning the bones come through the skin, they can be quite dirty surgical areas. So again, a prospective study, again, we will do a saline trial, that's about 3,000 patients, so about 1,500 patients in each arm.

We anticipate starting as soon as XPerience is ready. And right now, that looks like July. And we will have reporting volumes 4 months out. Right. And we would just continue to build that evidence across the 12-month period. The aim is to do a whole year so that when we do the cost economics, we've got a reference point of a cost economic position for the hospital from the previous year. Does that help?

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Elyse Miriam Shapiro, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [6]

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Yes, that's very helpful. And I saw just on clin trials, there is a new study assessing BlastX in combination with negative-pressure wound therapy, only has about 10 patients. Are there any larger studies there planned?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [7]

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That study is going to 20. And then we're also doing a BlastX study in DFUs with something called PROMOGRAN, which is a product from KCI that's basically a collagenase. So that study should get up on clinical.gov (sic) [ClinicalTrials.gov], whatever, very shortly. It's happening in New Jersey, again, another 20 patients. You know the issues around trying to run big wound care studies where one of the contingent factors in getting people to heal is clearly nutrition, and so all of us try and keep something relatively controlled so at least we can manage the process.

The first 10 patients is the data that currently is available through our website. People can hear Dr. Serena talk about his experience in using BlastX under the VAC and very positive thing for patients where he's showing patients who previously failed VAC treatment actually being able to successfully be treated with VAC and get their wounds closed in really very reasonable time frames. So we're comfortable -- we were comfortable enough the way that was running and we're hopeful we'll be published by May for both studies.

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Elyse Miriam Shapiro, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [8]

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Great. That's helpful. And just one more from me. What sort of standardization work and feedback have you been getting from the FDA around the claims that different companies are making for biofilms and if that's going to start to become more heavily regulated?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [9]

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Right now, the FDA is still unwilling to give anybody a biofilm claim. They're not heavily policing advertising unless people go and complain. That being said, they have checked all of our advertising and are happy that our website is all within the boundaries of our labeling, but they did give us insight as to a pathway to go down to get a biofilm claim. And that's a project that R&D are going to work on for the next 6 months around us actually putting together a project, combining it with testing both originally on the bench as well as under the microscope with a view to being able to say to people this is biofilm, this is not biofilm, and this is how you get a standard. It took the EPA -- and we worked with Montana state through this process, took 6 years for the EPA to get a biofilm standard. So it won't be super quick. But at the meeting that happened in February in Arlington, everybody, industry, government, everybody agreed we need a standard. But it is very hard because it's not a simple binary look.

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Operator [10]

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(Operator Instructions) Your next question comes from Martyn Jacobs with Canaccord Genuity.

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Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [11]

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Judith, I was wondering if you can give us an update on where things stand with the EPA on the disinfectant product?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [12]

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Thank you, Martyn. And actually, before I answer that, can I just apologize to everybody that the call got delayed an hour this morning. We had a technical hitch with KPMG that stopped the announcement getting to the ASX. All of that got fixed, but unfortunately, all of you got disadvantaged.

The EPA, as you know, we've been there for pretty close to almost 10 months now. It looks like we will get a clearance actually come April. We've allowed in our documentation to say it might be more than that, but they've come back and done the labeling checks as the last stop. So our FDA lawyers are pretty comfortable that it is progressing without any obstacles that people can find. There are no more technical questions coming out of the EPA. So that pushes them into their administrative load.

That disinfectant, it is effective against everything that's known to man, including the current issues with COVID-19 that started in China. The difficulty with all of us and anybody trying to help with this product is the big issue for COVID-19 is airborne, and nothing stops airborne. So when it turns up in the surface or in a wound on a patient, we can deal with it. But it's actually that condition of it moving through the air that I don't think anybody found a great answer for yet.

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Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [13]

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And what does the sort of marketing ramp-up profile look like for that product?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [14]

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The product is still under negotiation, so I need to decline answering you until I get it locked down with the partner. But if you look in the marketplace, this is a very fragmented global market that is governed and driven predominantly by the service models. So the powers in each of the marketplace has come down to the commercial organizations that are the step before the actual service doing the cleaning. Interesting place for us to go and negotiate, very different from everywhere else we are.

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Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [15]

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Right. And how are things started off with Triad?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [16]

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Great little company with enormous ambition to go and disrupt what is the fastest-growing segment in chronic wound care. We've started well. It's a very nice partnership for us. But the real -- the road starts to get very clear, and we get a clear field to run when they get their FDA approval in the middle of the year. So it's all going nicely, but it's not going to impact sales until the second half.

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Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [17]

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Right. And just finally, are you getting a lot of inbound inquiry regarding XPerience?

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Judith Mitchell, Next Science Limited - MD, CEO & Director [18]

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Yes. From both the customer base but also the marketplace, people want to talk to us. Recognizing that in that marketplace today, none of the products that are used in the hospital with the exclusion of saline, can be left in the patient. So your standards of things like Betadine need to be washed out. In fact, Betadine can only be left in the patient for 5 minutes because iodine is technically a poison, right? So people need help. People recognize they need help. They'll push us to prove how valuable we are. We're very comfortable in the space of saying we have a technical answer for these issues now and we will be really happy to start getting them that product come July.

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Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [19]

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Great. And congratulations getting your first result out of the way.

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Judith Mitchell, Next Science Limited - MD, CEO & Director [20]

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Thank you very much, Martyn. And for everybody, thank you very much for dialing in. We look forward to updating everybody on a regular basis as we get through the milestones we've laid out for you today. I hope everybody has a good Friday. Thank you.

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Operator [21]

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