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Edited Transcript of NXS.AX earnings conference call or presentation 23-Feb-21 3:00am GMT

·22 min read

Full Year 2020 Next Science Ltd Earnings Call Feb 23, 2021 (Thomson StreetEvents) -- Edited Transcript of Next Science Ltd earnings conference call or presentation Tuesday, February 23, 2021 at 3:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jacqueline Butler Next Science Limited - CFO * Judith Mitchell Next Science Limited - MD, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Elyse Miriam Shapiro Bell Potter Securities Limited, Research Division - Analyst * Martyn Jacobs Canaccord Genuity Corp., Research Division - Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Next Science Limited 2020 Full Year Results Conference Call. (Operator Instructions) I would now like to hand the conference over to Ms. Judith Mitchell, Managing Director. Please go ahead. -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [2] -------------------------------------------------------------------------------- Good afternoon, and thank you for joining the Next Science full year 2020 results call. We've released a new PowerPoint deck to the ASX that we'll be using today as part of the presentation, and we'll start on Slide 2. As you know, Next Science is a company that has unique technology platforms that allow the dispersion of biofilm and the elimination of bacteria, virus and fungus that can be thriving beneath that biofilm. Our proprietary technology Xbio works physically on the biofilm and the bacteria. So our products are currently creams, gels and washes. We're the only company in the world with approved products that resolve biofilm-based infections in humans. Over 150,000 patients have now benefited from treatment of our Xbio products, and Bactisure is now actively used in around 10% of the U.S. hospitals and ambulatory surgery centers. Moving to Slide 4. This slide highlights that we have a broad-based opportunity in health care, literally from head to toe in humans. And our current #1 priority for 2021 is the launch of XPerience, the first antimicrobial solution that does not require to be rinsed out of the surgical cavity after use. And the product is expected to launch in the first half of 2021. Let's move to Slide 5 and take a look back at 2020. In the 2020 year, we had 3 products being sold in the U.S. market, and Bactisure was also sold in Canada, South Africa, Chile, New Zealand and was launched by Zimmer Biomet into Australia in quarter 4. We also received the CE Mark clearance for Bactisure. And in December, BlastX was cleared, giving us access to the European market where products will be launched in 2021. This is an important point as these approvals expand our addressable market and support our growth outlook. The CE Mark for BlastX is a major milestone for the company as this is the first product we had approved as a Class III product, so it passed through examination and assessment by the Medical Evidence Board of Europe. Like many companies serving the U.S. hospital and hospital outpatient market, our revenue was impacted by COVID-19 in 2020. Why? The treatment of chronic wounds was not considered an essential service and many wound care clinics were, in fact, closed. Our BlastX distributor 3M went as far as sequestering their wound sales force at home from Q2, Q3 and most of Q4. I'm pleased to say that by Q4, Next Science had returned revenue to growth. Our year-on-year Q4 grew 75% on the prior year, and the impact of COVID was restricted to a 15% increase in annual revenue, all attributable to a reduction in BlastX sales, so our chronic wound business. During COVID, we were able to continue our work on product development and our pipeline, and we expanded our patent database to 31 patents. As part of our experienced distribution strategy, we built out the surgical sales network, offering SurgX as an Xbio introduction in the preparation for the launch we experienced in 2021. As we look at the key contributors to revenue, the product mix was heavily tilted towards Bactisure with contributions from SurgX and then acne treatments and BlastX. As we continue into 2021, we're pleased to see our revenue lift in Q4 and anticipate this run rate holding through Q1 and Q2 of 2021. This excludes any contribution from XPerience, our major new product. So deep diving into our key products on Slide 6. The Bactisure Wound Lavage is sold by the leader in hip and orthopedic cell, Zimmer Biomet. Our relationship is global, and business continues to grow year-on-year since its launch in 2017. Bactisure continues to grow support as a key part of the treatment of prosthetic joint infection, either during a debridement and irrigation procedure, known as a D&I, or during the stages of joint revision surgery. As noted in the conclusion of the clinical trial, Bactisure can have a profound reduction on the bacteria present. Bactisure is now being sold in Europe, having launched the beginning of this year with Zimmerbiomet. Our chronic wound product, BlastX, will be distributed by ourselves, Next Science, from Q2 of 2021. In bringing the product back from 3M, who had the distribution rights from January 2019, Next Science gets the opportunity to expand the market to all sites of service for nonhealing or chronic wounds and offer it across the broad range of indications. Put simply, bringing BlastX in-house allows us to more than double our addressable market. This is a very different strategy than was deployed by 3M, who chose to limit their activities for internal reasons to outpatient clinics. Now we can address the complete U.S. chronic wound population of 8.2 million patients. This market is growing at 5.6% per annum. Why are we excited about BlastX? Because we know how well it works. We know what a significant benefit it can bring to patients. Over the last 15 months, clinical trials have shown that the addition of BlastX to a treatment protocol in the early presentation of chronic wound can quickly change the trajectory of healing. And at the same time, for those wounds that are painful like pressure ulcers, the patient starts to get an almost immediate pain relief as the infection in the wound is reduced. The work of Thomas Serena in showing how effective BlastX worked in bringing wounds that were failing negative pressure wound therapy to a trajectory of healing by using BlastX under the form of the wound back, underlying the opportunity that exists for us to help manage the 2.5 million pressure ulcers that are currently being reported in the U.S. health system. We'll be leaning into these opportunities as the business transitions back to our control. Further details on those products are available on Slide 7 and 8. Moving now to Slide 9 and our new products for 2021. Those of you who follow our company would know we're currently awaiting the FDA clearance for our newest product XPerience, a no rinse antimicrobial solution for use in surgery to prevent surgical fight infection. The in vitro and animal testing completed with this product showed standout results in eliminating and preventing the biofilm and any bacteria fungal viruses that may have been present in the surgical cavity. In September of '20, at the later stage of the review process, the FDA requested further animal testing and bench testing data. All of the requested tests were successfully completed, and the dossier went back to the FDA in December. We'll keep the market abreast of updates as the FDA moved through their clearance process. We expect to receive the clearance and launch experience by the end of the first half of 2021. And as you'll see in our balance sheet, we've already built the inventory to support the early sales post clearance. Our first experience launch will be targeted at the orthopedic surgeries in the United States. There are currently 5.4 million orthopedic surgeries carried out across the 6,000 hospitals and 9,000 ambulatory surgery centers, known as ASCs in the U.S. CMS, the agency paying for Medicare and Medicaid patients, recently approved hip surgeries as well as knee surgeries and some additional hind procedures for reimbursement in the ASCs. And ASCs are often the preferred site of service for patients who want a short-stay episode of care because the patient stay is only 23 hours. Orthopedics is an attractive target for us for multiple reasons. Many surgeons know and appreciate the science and benefits behind Bactisure and are happy to talk about a preventive technology that can work on the same principle. These orthopedic surgeons also now understand or looking for answers against biofilms. This shortens our education process. And post-COVID peak surges, as U.S. hospitals open some elective surgery capacity, it is often preferentially being given to orthopedics as the hospitals need to recover their own profitability, and these service lines are strong contributors to the hospital bottom line. Additionally, the majority of our third-party sales agents are in and out of orthopedic surgery departments day in, day out, assisting with surgeries, so they have open access today to the relevant health care professionals to discuss a new product. Then the product advantages of XPerience itself being active for 5 hours, being the only product in the market that you can rinse in and leave, and of course, the performance of the product in eliminating bacteria with market-leading kill rates against bugs like MRSA or Goldman staff, so the surgeon is able to be more confident about having their patients go home infection free. These benefits have seen us get very positive responses from sites where we've had introductory discussions about the product concept. As we've stated previously, we'll support the commercialization of the product with several large clinical trials to demonstrate not only the product efficacy, but the savings provided to the hospital by reducing the postoperative surgery rate. We expect 2 other products to go to market in 2021. TorrentX our wound wash for chronic wounds and hard surface disinfectant, which is in the process of being licensed out. I'd now like to introduce you to our CFO, Jacqueline Butler, who's going to walk you through the P&L, the balance sheet and our cash flow. -------------------------------------------------------------------------------- Jacqueline Butler, Next Science Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Judith. So if you turn to Slide 12, we can take a look at the financials. You can see that revenue was adversely impacted by COVID-19 with a decline of 15% for the year. The majority of the impact being on quarter 2 and quarter 3. Revenue returned to growth in quarter 4, and this run rate is continuing into the first half of 2021. Gross margins were at 85% in 2020, and we expect these gross margin rates to continue into 2021. Our expenses remained well controlled. The largest increase in expenses was in R&D as we finalize the experienced product development. Moving to Slide 13. Clearly, the second half was a tale of 2 different quarters, with quarter 3 depressed due to pandemic-related restrictions. Quarter 4 saw a strong recovery. We show this recovery with a 75% growth year-on-year in that quarter. As we move to the balance sheet on Slide 14, you can see that we have USD 15.3 million in the bank, and we are debt-free. This cash balance includes the proceeds from the successful AUD 15 million capital raise, which we completed in the second half to support the experienced sales launch and sales growth. We expect that working capital through accounts receivable and product inventory will increase in 2021 as we build out the direct distribution model for XPerience for the U.S. market. I will take the cash flow waterfall on Page 15 as read, and I'll now hand back to Judy. -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Jacqueline. So rounding out to a close, as we look at our outlook on Slide 16, and as both Jacqueline had mentioned, moving through Q1 and Q2, we expect our Q4 run rate to continue. In addition, we expect that the experience will launch in the first half of 2021 and also that the introduction of BlastX back to our hands as the retail supplier and into a wider wound care market will provide additional revenues. As mentioned, our gross margins will be maintained and our working capital is expected to increase. Our SG&A will also increase, reflecting increased commissions for XPerience and the cost associated with the direct sales of BlastX from the first of April. Ladies and gentlemen, we've entered 2021 with a very positive momentum. And with the focus of bringing experience to market and improving our direct sales capability, we look forward to the opportunity for our technology to be much more broadly used. For those who we should take a deeper dive, our medical device clinical trials are shown in the appendix along with the external references for some of the facts in the presentation. We'll now take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Martyn Jacobs with Canaccord. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- Just start off with XPerience. How do you assess the probability of the FDA turning around and finding something new of a substantive nature of this late-stage to delay you again? Or if not, some sort of minor delay? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [3] -------------------------------------------------------------------------------- This is the FDA, Martyn, and you've covered many health care companies, so you know that this organization defines anybody predicting anything. We're on track. We've pulled the best experts we can find in on our submission, and we are totally in their hands. We will certainly keep the market abreast of anything that happens along the way that should change the trajectory from the first half launch. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [4] -------------------------------------------------------------------------------- Okay. In the clinical trial page, I noticed that the main arthroplasty trial has been cut back from 7,000 to 1,200. Can you sort of talk to what's going on there? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [5] -------------------------------------------------------------------------------- Yes, I can, and thank you for the question. So as we move through our medical Advisory Board group, that suggested to us that the better contribution we can make to medicine is actually show people a way to reduce the infection rate in those patients nobody wants to treat. So these are your high-risk patients, people who are overweight or they're diabetic or they've got cardiac issues or their smokers so there are plenty of clinics in the world that just won't accept these patients because they know the rate of infection or the likelihood of infection is so much higher. So the suggestion has been that we do that study in those patients. Because the rate of infection is so much higher, we need much fewer patients, remembering that it's between 0.9 and 1.3 in the general population in knees. This is multiples thereof in people that are in this compromised group. So we can take our recruitment requirement from 7,000 to 1,500 or somewhere between 1,200 and 1,500. And the other thing that allows us to do is actually get through the study in a year. So we're benefiting the world because this is medical data they're chasing, how to help these patients without just rejecting them from joint surgery. We're benefiting the market because we can get this data faster, and we're benefiting all the shareholders because there's seriously less cost in a study of those hundred 1,200 to 1,500 patients than there would be if this was 7,000. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [6] -------------------------------------------------------------------------------- Okay. So in your balance sheet, is that inventory number? Is that only XP? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [7] -------------------------------------------------------------------------------- No. There are a few things that contribute to the inventory number, including the fact that we buy and stockpile our pharmaceutical-grade benzalkonium chloride for Bactisure and BlastX. So it's a combination of work in progress, raw materials and experience, but we have 33,000 bags of experience to launch the product and will play out next quarter as soon as the approval is received. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [8] -------------------------------------------------------------------------------- Okay. So it's 33,000 units to start off with, right? And so you previously talked about 200 hospitals as a target to sign up by December, if all things go well from here. How many orthopedic surgeons does that translate to? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [9] -------------------------------------------------------------------------------- Depends on your hospital. I mean, some have 15 to 30. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [10] -------------------------------------------------------------------------------- The ones you're targeting? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [11] -------------------------------------------------------------------------------- Probably an average of 6 a hospital. So about 1,200 people. So we've probably met 1/6 of that by now. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [12] -------------------------------------------------------------------------------- Right. Okay. And just finally, from me, with BlastX rebuilding it into the home health and acute care markets, two questions. One, how are you going with finding a partner in Europe? And secondly, are there other models, other commercial models you have could consider for the distribution of BlastX beyond home health? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [13] -------------------------------------------------------------------------------- There's three questions, but okay. So we're actually in discussions for several jurisdictions outside the U.S. that will be distributorship, but we're looking to learn from the things that didn't work for us with 3M to make sure we have partners who have a more complementary call regimen. As I alluded to in the body of the announcement, 3M made a strategic choice that truly limited who got access to BlastX. So we're doing that work right now, seeing that we have a CE Mark that gives us access to many markets not just Europe. Then when we look in the United States, the first large segment will go after is actually in the acute care market. And the reason I say that is there are 2.5 million patients in there, and the hospitals are not reimbursed treat Stage III and IV pressure uses. So this is a burden on the hospital operating system that CMS refuses to pay for and their insurers refuse to pay for because they supposedly never have an event. So we can give people help to take those off the table. But the first thing we're actually going to do text month is actually lift and shift the existing business lines that have been through 3M. So all of the VA customers we talk to them from our original business in 2018 all come back to us, all still doing business with us. So first line into the revenue shift is that revenue, obviously, moving from -- back from wholesale price that we were with 3M to retail revenue values. And then we build out from there. We -- you might remember that as part of COVID, we took several steps with different home health networks to assist them with their patient loans. And in fact, some of the case studies that will appear in our annual report come from home health. We've proven our value such that people see that this product makes such a difference that they can find a way for the cost fit even though it isn't reimbursed in their segment. And I missed -- what was the third question, Martyn, I think I missed it. -------------------------------------------------------------------------------- Martyn Jacobs, Canaccord Genuity Corp., Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- Are there other commercial models or sectors that you could have targeted or can target in the future? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [15] -------------------------------------------------------------------------------- Yes, there are, but I think we're going to try this direct for a while, at least in the United States. Definitely outside the U.S., it will be partnership based. But in the U.S., it will be direct for now until we find those people who think and act like we do. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Your next question comes from Elyse Shapiro from Bell Potter. -------------------------------------------------------------------------------- Elyse Miriam Shapiro, Bell Potter Securities Limited, Research Division - Analyst [17] -------------------------------------------------------------------------------- Can you please just talk to the revenues and the orders that you've seen coming through since the end of December? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [18] -------------------------------------------------------------------------------- We're comfortable that we will keep our revenue rate from December into Q1 and into Q2. We would hope in Q2 to then start to augment that run rate with additional revenues from XPerience, all being completely dependent on the FDA. But the BlastX revenue, which was not present really at least in Q4 at all, will start to come through in Q2 as well as an addition. So we've got a baseline. That baseline is heavily supported by growth in the Bactisure business from Zimmer Biomet. Zimmer, as I mentioned, had launched in Australia in Q4 and have already started to launch in Europe in Q1. So that is getting us really quite significant growth on previous years. And this month, I think there are 3 publications based on Bactisure in the orthopedic press, so it's going to continue to grow in volume as we go forward. -------------------------------------------------------------------------------- Elyse Miriam Shapiro, Bell Potter Securities Limited, Research Division - Analyst [19] -------------------------------------------------------------------------------- Yes. And just on Bactisure, do you have any visibility on the -- like the number of new accounts that are being added quarter-on-quarter? And is the growth, I guess, coming from new hospital accounts? Or is it just based on increased volume from existing accounts? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [20] -------------------------------------------------------------------------------- The current growth is probably coming from new markets. So we grew -- we -- you won't open a new account, I don't believe. It would be quite hard through cover through last year. So we got to like 1,600 plus accounts. They'd be finding it January for everybody in the medical device space, I believe, how was one of the worst month on record in medical devices. So I have no expectation that they managed to open new accounts in the U.S. That being said, there are accounts opening in Australia every week, and we started to open accounts across Europe. So that's probably where the growth is going to come in the first quarter while the U.S. get through this surge of the pandemic. Hopefully, vaccinations will make a big change, and we can start to get something a little bit more normal. -------------------------------------------------------------------------------- Elyse Miriam Shapiro, Bell Potter Securities Limited, Research Division - Analyst [21] -------------------------------------------------------------------------------- Yes. And then just on to BlastX, building out that internal sales force, will that sales force be up and running by April when you get BlastX back into your hands? Or do you think there's going to be a lag there? Just to get an idea of when we can expect to start to see that coming back? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [22] -------------------------------------------------------------------------------- No, I expect we'll be able to deal with it from April. These are customers that we already know. They're already in our system. More importantly, we're already in their system, the majority of which are VA hospitals. Probably 85% of the customer base that 3M handled were the customers we gave them and the VA customers. We've already talked to some of them. They're happy to come back, and we've lined up kind of the back-office processes to be able to go forward. Our letters all go out to the customers in the next 2 weeks to bring them back into next science. The VP of Wound Care, our new appointee, starts on Monday. He'll be in the Jacksonville office on Monday, along with 3 additional new area sales directors for the surgical business. So we're expanding our sales footprint across second quarter, particularly, to be ready to build out that revenue for the second half. -------------------------------------------------------------------------------- Elyse Miriam Shapiro, Bell Potter Securities Limited, Research Division - Analyst [23] -------------------------------------------------------------------------------- Got it. And just a follow-up on that. With you having BlastX kind of back under your control, obviously, you're not going to be paying the distributor margin on that to 3M, so do you think gross margin could actually improve from here? -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [24] -------------------------------------------------------------------------------- It is an option that we may see, yes, but don't forget, we're living in a COVID world. So the risk we run in a COVID world is that due to clogging in the shipping highways, we have to air freight everything out of Europe. We can't put it on a boat. Benzalkonium chloride is an ingredient that is much more in demand than when we started this business or the execution of the commercialization of this business 3 years ago because it's in everybody's hand sanitizer. So let's just say we're very comfortable at 85%, and if we can do better, we will let it flow through the operating statement. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- (Operator Instructions) There are no further questions at this time. I'll now hand back to Ms. Mitchell for closing remarks. -------------------------------------------------------------------------------- Judith Mitchell, Next Science Limited - MD, CEO & Director [26] -------------------------------------------------------------------------------- Thank you, Melanie. Ladies and gentlemen, thank you very much for joining us today. We appreciate everybody's support for the company. As a group, we are very happy to have seen the company rebound from the troughs at the height of the COVID disaster. As we move forward, as you've seen for the very first time, the company has been comfortable enough with our order book to give you the run rates for Q1 and Q2. We look to be able to bring you very good news as we move through to the end of the first half with, not only our FDA releases, but also moving BlastX back to us and the various ways forward. Once again, thank you for joining us, and everybody, have a good afternoon. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.