Vyome Holdings, Inc. (HIND) Q3 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to the EnteroMedics' Year End Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Greg Lea, Chief Financial Officer. You may begin.

Thank you for joining us this morning. As previously indicated, we decided to host a year end conference call in order to give our new CEO Dan Gladney time to transition into the role. I am pleased to be joined by Dan on this call as he provides an update on our commercial progress and we discuss our recent company developments. Dan Gladney, Brad Hancock, our Chief Commercial Officer and I will be available for questions during the Q&A session that will follow our prepared remarks. As a reminder, this conference call, as well as EnteroMedics' SEC filings and website at enteromedics.com contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those discussed due to known and unknown risks, uncertainties and other factors. These risks and uncertainties are described more fully in the company's filings with the Securities and Exchange Commission, particularly those factors identified as risk factors in the company's 10-K filed March 13, 2015. I will now turn the call over to Dan. Dan?

Thank you, Greg. And thank you everyone for joining us this morning. I apologize in advance I am losing my voice really, so please bare with me. I am looking forward to sharing my observations with you. That’s my first month of tenure with EnteroMedics'. What attracted me to this opportunity was the ability to create significant value for our patients, our company and our shareholders with the unique groundbreaking technology, vBloc, Neurometabolic Therapy. In 2015 it has been a transformational year for the company, beginning first with a FDA approval of vBloc Therapy on January 14, an accomplishment that could not have been achieved without the hard work of the dedicated and talented employees and the support from you our shareholders. This achievement marked the beginning of a change from a developed and stage organization to a commercial enterprise and I am excited to be leading the company at this crucial point in its growth. vBloc therapy is in a class all its own within the obesity treatment spectrum. One that fills a wide gap between diet an exercise, pharmaceuticals, restrictive short term options and of course traditional bariatric surgery. vBloc is designed with the patient experience in mind, something really no other bariatric procedure can offer. Unlike these other options, vBloc therapy yields weight loss without altering a restricting anatomy or the digestive tract, rather it reduces calorie consumption by controlling fullness in hunger using cutting edge neurometabolic technology. vBloc offers the safest long-term device options for people with obesity looking for both personally and medically meaningful sustained weight loss and control of their obesity related diseases, such as type II diabetes. Our system is implanted in a minimally invasive same-day procedure, allowing for a discreet and quick recovery. vBloc patients experience fewer daily side effects giving them the flexibility to meet their changing health goals and daily life style needs, including eating a normal, healthy diet, combined these attributes make this a revolutionary device in the obesity treatment paradigm. Our US commercial launch strategy is focused on three critical areas. The first is engaging and certifying hospitals and centers. We spent the majority of 2015 focused on identifying and training centers which was critical first step. One that would determine how and when we would roll out our marketing campaign to achieve the second stage, increasing the patient base and driving growth. With our surgeons, training and our marketing activities beginning, these combined efforts will help us execute our third objective and most significant revenue driver and that is achieving reimbursement. The company has identified and trained over 50 centers and nearly 80 physicians, putting us on path to establishing vBloc as a preferred bariatric therapy for physicians and patients alike. Our product has the lowest complication rate of any currently available options. No long-term quality of life consequences and with our robust aftercare program vBloc achieved, we are building a support network to reach even greater weight loss results in the commercial environment than we did in the clinical setting. I have had the chance now to meet with a number of physicians over the past month and the y are adamant with a long-term, minimally invasive and non-anatomy altering solution like ours is needed to serve their patients that have been left without an options as they decline of gastric banding. These conversations indicated to me that we have the right value proposition to establish with our partners as we move into the second phase of our commercial strategy and that is driving patient demand for vBloc. Recognizing the challenge of competing with existing reimbursed technologies with ours a non-reimbursed first of its kind sophisticated therapy, our company is focused on identifying self paying patients, while our efforts to secure reimbursement for vBloc continue. Led by a small and expanding sales team, our strategy initially centers on supporting a limited number of accounts with patient recruitment and the intension to collaborate – to calibrate our market campaign before launching it nationally. We have engaged and experienced medical device marketing organization to help us lead and direct to consumer, geography focused media outreach program or generate committed patients in high income areas. Some of these activities have begun recently with a digital marketing campaign, with a majority will commence in early 2016 when patients are more focused on their health goals than other time of the year. These outreach programs will drive patients into one or two buckets. The first, patient that can afford to pay for the therapy using their personal resources and or the second patients that want to explore their options through their insurance provider and are willing to engage in the prior authorization and appeals process which are called PA process in an attempt to gain access to vBloc therapy. Focusing on select high income geographies will allow us to find those patients that will use their own resources, but will also allow us to concentrate on demonstrating demand with certain regional payers using the PA process. As results from marketing activities help increase the number of patients in this program we expect two things will happen. The PA process which can take three to five months will grow gradually leading to more patients gain access to vBloc. Simultaneously the program will increase our product visibility with these targeted payers to the point of creating a critical mass with the potential of leading to a regional coverage decision over time. The compliment, the visibility of this part of the program, we will also be working with these payers at the administrative level to educate them about the overall value of our technology. Prior to the initiation of our direct to consumer marketing efforts, we have had 13 self paid patients already implanted and over 60 patients in various stages of the PA process. Although our success with the prior authorization process should improve over time, not all of these patients will obtain the PA approval or convert to an implant. That’s why as we move forward we won't be focused and talking about the patient funnel as its too early for those numbers to be meaningful, instead we will be concentrating on revenue. As that is the key metric. Demonstrating patient demand to the PA process is an important part of the company's reimbursement strategy. But there are several other components that are just as critical to have success. To that end, the company has made important advancements in several of these other areas in 2015. Just last month a payment amount of approximately $27,000 and an outpatient classification was assigned by CMS securing a value for vBloc therapy inline with other sophisticated neuromodulation technologies. This assignment takes effect on January 1, 2016 and will play a large role in how prior payers will assign value to vBloc as they begin to make coverage decisions. With the coding in place and payment amount issued two of three Medicare requirements are met, allowing us to turn our full attention to the third and that is securing coverage. Payers also looked to clinical and economic evidence to support vBloc therapy. Therefore we have and we'll continue to publish data from clinical trails and commercial experience in support of the long-term efficacy and safety of vBloc therapy, as well as impact and addressing obesity related comorbidities. This year we have presented data from our FDA study that supports the efficacy and safety of vBloc at two years and data that demonstrates the patients with moderate obesity that would be a body mass index from 35% to 39.9%, with an obesity related comorbidity our patients achieved excess weight loss of 34%. This data gives us insight into which patients could be the most successful with our technology and therefore provides another data point supporting our belief that in the commercial environment we maybe be able to deliver a higher level of weight loss. The compliment, the clinical data publication initiative we are working with experts in the bariatric field to publish the results of an economic modeling report that supports the cost benefits of vBloc therapy, which we look forward to seeing published in a peer review journal in early 2016. Payers also looked to independent assessments of technologies in their coverage decisions. Earlier this year our therapy was evaluated at a California Technology Assessment Forum panel. The panel which was made up of leading healthcare industry experts voted favorably on its met health benefit when compared to conventional therapy in adult patients with a body mass index greater than 35. There are number of assessments being performed across the country and we plan to make our case for vBloc at every opportunity. And finally, payers want to measure the support of our technology in the medical community, utilizing the prior authorization process method is one measure of this support because it requires a physician to participate in the process. But another broader gauge of this validation are the formal physician statements endorsing the therapy. To that end we, are working with the American Society of Metabolic and Bariatric Surgery and the obesity society to formalize their support of vBloc therapy. Securing widespread national coverage is going to take time. That doesn’t mean that vBloc will be without coverage during the entire period. Coverage decisions happen at the local and regional levels before escalating to the national level. So while we align all of the components of our reimbursement strategy there will be some wins with the prior authorization process and with local and regional payers coming on line. We believe that we are moving through the coverage milestones and schedule and we fully anticipate that over the next year we will begin to show initial coverage with select innovative plans and you should expect to see those results in late 2016 and or early 2017. In support, of securing early coverage decisions, the company has embarked on an effort to bridge the gap between the self paid environment and broad national coverage by working with integrated delivery networks or IDNs. IDNs are network of self insured hospitals that insure their staff directly, as well as offer coverage plans to other employers in the market. They offer a continuum of care that focuses on controlling costs through both early interventions and innovative solutions to promote better care. For new technologies the IDN would conduct a small trial in a short timeframe to validate the results and then add technology as a covered benefit for all their lives under contract in a manner similar to currently covered bariatric procedures. We are in early negotiations with a number of IDNs and we look forward to providing you with more details as these discussions unfold. At the heart of all these efforts is the patient, from patients in our clinical trials to those early in the commercial setting I have heard resoundingly that vBloc has changed their lives. They have found a solution that’s allowed them to lose weight, while still maintaining a high quality of life. They have been waiting for a technology like this to happen. To make the changes they need to improve their overall health. With that, I will now ask Greg to make a few comments about our current financial position and other company developments.

Thank you, Dan. To deliver not just on our clinical but commercial promise, our vBloc therapy, the company has spent the years since approval managing its current assets, while concurrently building up its resource to take its commercial plans to the next level. Recently the company entered into an agreement to secure 25 million through an issuance of senior amortizing convertible notes. Key to these efforts is securing shareholder approval to effect a reverse stocks split increasing a number of shares of common stock authorized and approving the issuance of shares of our common stock underlying the convertible notes. With approval from you, our shareholders at the upcoming special meeting on December 21, we will have the necessary resources to support these efforts into 2017. On the product side, we are worth to ensure adequate supply of devices and have lined up our supplier to begin building inventory on demand and product sales begin to ramp. We believe that we have the capability to meet the requirements for the commercial activities anticipate in 2016. With our commercial progress in place, we plan to revisit our product development activities in an effort to reduce the size and product cost of our system and advance our technology to the next level. With that I'd like to open up the call to questions for Dan, Brad or me. Operator?

Certainly. [Operator Instructions] Our first question comes from the line of Suraj Kalia from Northland Securities. Your question please.

Good morning, gentlemen. Dan…

Morning.

Welcome on board.

Thank you.

So Dan, and the obvious question, you all mentioned about and gave some additional clarity on self paying patients. It’s an interesting strategy Dan of DTC, with a relatively higher disposable income geography focused campaign. Can you give little more clarity Dan in terms of how the nuts and bolts of this would work or is it too early in stage to be talking about this? Just trying to get a sense as we roll into, let’s say second quarter of '16, how should we rely on this approach to your ticket [ph] adoption increasing?

Yes, well, first of all what we're doing here is we're going to start with seven markets and those will be seven high income markets and the intention would be to hit those markets with radio advertising, some short TV advertising and print advertising. And there is some indication here that that’s going to be successful, because one of our hospitals in New York recently on their own did a little tri-state area, this were I think about a month, radio advertising, and they had lot of calls and they ended up spending in the neighborhood of about three months seeing a lots of patients. Now of course some of the patients didn’t fit into our category. But the values are - it was, you know, if kind of look at our funnel right now they represented close to half of all locations in the funnel. So we know that that type of program is going to work and we think by doing that test margin it in this kind of initial seven geographies we'll get a very good read of kind of results we're going to have and how many cash paying patients we'll receive. If it ends up being close to over holding then we'll expand that in the next quarter, probably in the neighborhood to about 12 to 15 and then sometime in early in the second half we would expand it from there to more areas. But we'll have a pretty good read I think by early quarter two, early to mid quarter two on the programs.

So Dan, would I be fair in saying that you know, the conventional approach, if I can use that word, where you have feet on the ground, knocking on doors, saying hey, have a look at my product, this is more of a - at least in the initial stages that did drew [ph] strategy where you all are trying to go in very pinpoint marketing, hence cut down on the investments needed on the SG&A line item. Am I thinking through this correctly and then you all look at expanding the feet on the ground?

Well, the realties are you kind of need them both. So what you want to do as you want to put money into this market – very focused marketing program to generate the leads and then those - that marketing program will handhold the patients until it gets to the surgeon. But at the same time you have to remember that the surgeons have to agree and be very loyal to the fact that they are going to work with that patient and hopefully get them implanted at vBloc. So that takes the relationship and to be established there on the ground by our local sales team. And as you know, we have small, very small sales team today, but we are going to be expanding that in 2016. I think you need both components. You need a relationship established at the center with both the surgeons, as well as his coordinator and his staff to make sure that they are handling this patient and bring him through the process, getting them implanted versus kind of losing the patient along the way, with either poor [ph] communication or in that really having a relationship with the company where the patient could slide in something else, like a gastric sleeve or something. So we think it’s important to have both components ready and on the ground force, as well a system that’s – that generate in patient leads.

Fair enough. One last question Dan, and then I'll hop back in queue. Obviously you have a lot on your plate Dan. From all the studies that have been done at vBloc, at least that I remember, the numbers on EWL are fairly consistent should I say, at 24, 25% EWL and the results have been consistent, at least that I remembered, up to 24 and 36 months. So - and also the adverse events what 2%, 3%, 4% give or take in that range. So this integrated delivery network, this chain of hospitals that you were talking about or for their coverage lives. I am just curious I heard you talk it on your prepared remarks about a short trial, what is that that they are looking, is it the different patient of set, is it for their demographics or any color would be great? Thank you for taking my questions.

Sure. Well, I'll give you my initial feedback that I've learned over the last month, and I think this is a pretty good strategy. But I'll also open it up to our –as I spread the sales, if you like to add to that. What it is, its kind of two fold program. First, there is an economic part of the program that shows an IDN that because of the very low complication rates of this product, that it’s cost effective for them to incorporate this into their bariatric program versus lets say some of the already existing technologies that are out there to have much higher complication rate. So complication rates to let say a gastric sleeve take the overall procedure cost from, let’s just say $18,000 as an example, their complication in total now is up in the neighborhood of $65,000. So by just working the percentages and data that’s readily available out in the marketplace you can determine that this is a very cost effective approach because of our low complication rates, number one. Number two, we've got a technology that it really fits nicely into that what I would call the void. The void is what do you have a patient tries, a diet and exercise doesn’t work. The patient tries pills, it doesn’t work, now is a patient willing to take that big step going from pills to an anatomy altering procedure in a lot of cases they are. So this is a perfect step that kind of bridges that gap, and offering them a very minimally invasive same day go home that day procedure that has great result. So we think that the IDNs are - that we're talking to are interested primarily because of those two metrics.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Chris Lewis from Roth Capital Partners. Your question please.

Hi. Morning, guys. Thanks for taking the questions.

Sure.

Thank you, Chris.

Dan, you've been at the helm now for few months, thanks for the clarity, and kind of color on what you've seen so far. One question I guess is just what's been your biggest surprise maybe after coming through your business review relative to before you started?

Well, I don’t know if it would so much be a surprise Chris. The realities are I knew in my diligence before taking this job and I've been at the job about two months. So my diligence I was obviously I was attracted to the technology and the overall size of this market. I mean, I was and first started getting into my diligent point, you'd be surprise that the bariatric market really only addresses like about a 2% of this obesity probably in the United States. So that was an indicator to me that there is a great opportunity to grow this market, especially with a minimally invasive product like we have. So that was of real interest. When I took the company over and had a chance to start working in the field, I worked with our regional directors, I worked with our surgeons, our initial surgeons and I've had the opportunity to talk to patients. What I found is that in a reimbursed versus a non-reimbursed situation, the good news is that I got a kind of strong percentage of the surgeons, telling you that Dan once this thing is reimbursed this is going to be very big successful company. So that suggest to me that they see the benefit and they want to work with us. It was also a little bit surprising to come up against in this non-reimburse environment, you really have to work hard to get the surgeons support who want to work with you because these guys can do a gastric sleeve and get paid the next day, right, and that’s all covered. And getting them to say okay, look, not only do I think it’s a good technology, but I am willing to work with you, I am willing to wait and getting paid as a surgeon by putting these patients through your funnel and its going to take three or four months, and we're not really sure what's going to happen at the end of that three or four month period of time. That’s a big commitment to a surgeon to agree too. And I guess when I first took the position I didn’t realize how much of challenge that was going to be. So that’s why we said okay, what we're going to do is we've got these numerous institutions and 80 surgeons that have been trained. But we're not going to funnel any of our patients into those institutions until we're absolutely sure we have a commitment from that surgeon that he is going to be loyal and work with us which is high probability that if we send that patient to him that that patient is going to implanted with our vBloc therapy. So I think that’s just going to take us some time and that’s why its important that in the first quarter we not do more then about five to seven markets. But we know we already have that commitment then its beginning roll for us. And then the intention again would be that in the second quarter to bring on another six or seven or eight of those institutions. So it gives our people on the ground their reps out there an opportunity and a chance to kind of continue to work with their surgeons and make sure we got that support from them before we just send them another patient that if they choose they can do surgery or with one of our competitors in bariatric surgeon and that is also - developing that relationship is a key.

Thanks. Very helpful. On the PA process, you mentioned about 60 patients in the - undergoing the PA process now, but not all of them convert to implants necessarily. So can you talk about what determines kind of the success of conversion if you will in that PA process for patients, walk us through the defect [ph] dynamics to think about and kind of what your - what the company is doing to support more of those patients being converted in the implants over time?

Yes. So initially Chris, as you would expect, if you don’t have a lot patients filling up that funnel, it’s really the private payers just saying no. They are not going to pay attention to it. They are not going to focus on it. They are just going to say no. So these early patients that are coming through there is probably high probability that they are not going to get approval, right. I think we need to have a funnel that’s got at least a couple of hundred patients or more in it before a local payer is going to say, hey wait a minute [ph] to pay attention here and maybe we really need to take a hard look at this. So this funnel right now is at 60, I think there is a pretty high probability that number of those folks are going to fall out of the funnel after that three or four months with an answer of no from the insurance payer. So for those patients we just need to be or offer them our technology at a competitive price with what they would receive, lets say with either gastric sleeve or gastric bypass procedure. So we just need to be kind of in a competitive range. We don’t want to meet that pricing. We want to have a premium, but it needs to be a reasonable premium. And those prices kind of vary all over country. I don’t know if you looked at the average reimbursement as an example gastric sleeve by state. But they range as high as about $27,000 in a number of our states, dollars low as $12,000 in just a few sates. So it’s kind of all over the board. So one of the other things we need to make sure we do is that we focus our advertising and our attention hopefully in areas where there is fairly strong reimbursement.

Appreciate it. Just one more for me. You mentioned potential IDN partnerships, can you walk us through what a trial - initial trial would look like in terms of size and length of that and when we could potentially see some of those IDNs establish a more formal network wide reimbursement in that…

Realities are - yes, that’s a good question Chris. The realities are with most of these – they want to have a six month trial, but on small number of patients. So they are willing to do that for about 10 patients. They just want to be a follow up patients for six months if you are really losing weight and what is your – or how does it look on you blood panel, we really starting to see that you're pre-diabetic, but your blood sugars have come down. They need to do that over about a six month period.

Okay. Thanks for the time.

Thank you. Our next question comes from the line of William Plovanic from Cannacord Genuity. Your question please.

Hi, this is Ryan on for Bill. Can you hear me okay?

Sure, can.

We can.

All right. Great. So you mentioned those patients in the funnel, just point of clarification, those patients go in the funnel, are those softer lead per se are they patients that are going through education, qualifications and screening right now. And as you think about that going forward, are there things that can be done to improve the selection process, so that those patients in the funnel increase the livelihood of getting success?

Yes. So those patients have already been screened. Those are patients that know what they have in front of them and they are deciding between us where you have to wait, three or four or five months as far as – to try to get insurance coverage or they can choose to move forward with one of other gastric procedure. So these folks have already been screened. They are already patients that are going to fit into our category and they have chosen to wait and try to get coverage for vBloc.

Okay. Great. Great. And then can you just give a little more color on maybe the society physicians and if and when you could expect something from them in regard to support of a product?

Yes. Actually I think I mentioned it in my script, that we are presenting to the larger societies and we would hope to have their support and have that support published sometime in the first half of 2016.

Okay. Great. Thank you very much. That’s all from me.

Thank you.

Thank you. [Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Okay. Thank you very much folks for your time today and thank you for joining us on our call. I look forward to having an ongoing dialogue with you as we continue on this journey to make vBloc therapy the premier bariatric therapy of choice for both patients and physicians. We look forward to the quarters ahead and to reporting on our progress with this exciting new technology. In the meantime, please feel free to reach out to us today or in the future with any additional questions. Thank you. Have a good day and have a happy holidays.

Thank you, ladies and gentlemen for your participating in today’s conference. This does conclude the program. You may now disconnect. Good day.