INVO Fertility, Inc. (IVF) Q3 2020 Earnings Report, Transcript and Summary

Good afternoon and welcome to the INVO Bioscience Science Third Quarter fiscal year 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this even it being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Thank you very much, Gary, and good afternoon everyone. Thank you all for joining us today during INVO Bioscience's third quarter 2020 update conference call. Joining us on today's call is INVO Bioscience's Chief Executive Officer, Steve Shum; as well as the Company's Chief Operating Officer and VP of Business Development, Michael Campbell. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. We've also received questions that were submitted in advance of the event, and we'll try to get those addressed as well. Before we begin with the event we submit for the record, the following statements. Certain matters discussed on this conference call by the management of INVO Bioscience may be forward looking statements within the meaning of Section 27-A of the securities act of 1933 as amended, Section 21-E of the Securities Exchange Act of 1934 as amended and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements regarding the Company's expected future financial position, results of operations, cash flows, financing plans, business strategies, products and services, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include words such as anticipate, if, believe, plan, estimate, expect, intended, may, could, should, will, and other similar expressions are forward-looking statement. All forward looking statements involve risks and uncertainties and contingencies, many of which are beyond the Company's control, which may call the actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factor that may cause actual results to differ-materially from those in the forward-looking statements include those set forth in the Company's filings with the Securities Exchange Commission. The Company is under no obligation to and expressly disclaimed any obligation to update or alter for forward-looking statements, whether as a result of new information, future events or otherwise. With that said, let me turn the call over to Steve Shum, Chief Executive Officer INVO Bioscience. Steve, please proceed.

Thank you, Robert. We appreciate everyone joining the call today including all of our new shareholders. As Robert mentioned, Mike Campbell, our COO and Head of Business Development, is on the call with us. As many of you know, Mike leads our commercialization efforts and he'll provide a few updates on our key activities. Before we jump into the details and highlights, I want to make a few summary points. This was an important week for INVO, as we put what we believe was a critical foundational piece in place for our long-term future success. We completed our large public offering this week, raising gross proceeds of $11.6 million and simultaneously moving the Company off the OTC markets and onto NASDAQ. Our dramatically strengthened balance sheet and financial position really compliments the other critical developments that have occurred over the last 18 months or so, starting with the partnership early last year, the building of our commercial team headed by Mike throughout this year, the second year of real market usage data, which was made available just this year, which further demonstrates the success of INVOcell. The clinic in Birmingham, Alabama, that we've highlighted recently that has really demonstrated a highly successful business model for implementing INVOcell in clinical practice, which we think is a real testament and really validates all the key attributes we often highlight with INVOcell, and now the financial resources to further execute, drive revenue growth and bring the business into a profitable position. Speaking for the whole INVO team, we could not be more excited about how we are positioned to accelerate INVO's sales presence in the marketplace. With respect to the offering, we recognize that we had to price the deal more aggressively than we originally envisioned, but it was important to complete this task in order for us to take advantage of the opportunity in front of us and give the Company the financial resources to really excel. We did conduct an additional reverse split right before the offering, which was necessary to ensure meeting the minimum share price requirements for NASDAQ. We thought the reverse completed earlier this year would be sufficient, but the pricing necessitated that second small one. We brought in an excellent group of institutional shareholders as part of the offering, which was really well complemented with a strong group of individual investors and also participated. Collectively, we feel this new group of shareholders, both individuals and institutions understand the opportunity we have in our sincere thanks for their participation. Throughout this process, we also enhanced our Board with the addition of Barbara Ryan, Matt Szot and Jeff Segal, all highly talented and independent Board members that I'm confident will add value to our efforts to build the Company and provide the necessary corporate governance. The Board is committed to drive in shareholder value and our newest members are excited to be part of our future. Yesterday, we also announced the formation of our Scientific Advisory Board and the initial four members, all industry experts. We believe this will add another dimension of valuable feedback and guidance as we move forward, and we appreciate the advisory members for their willingness to participate and lend their industry expertise to help guide the Company. With that, let me first briefly recap our third quarter results filed this week. Sales volume improved somewhat over that what we saw in the first and second quarters as our partner Ferring place, a larger order during the period under the terms of our agreement and the annual minimum, so we would expect during to come in stronger for the final quarter. As previously mentioned, COVID-19 has impacted the fertility industry in general the clinics are operating. Although, we hear many are running at reduced capacity to help reduce the risk of the virus. We've also seen some reports indicating an expectation for fewer births this year, which of course implies fewer trying to get pregnant this year. We think that that might lead to a couple of interesting points, assuming we do start to move past COVID-19 in the not too distant future. There could be a bump in the number of couples attempting to get pregnant, and given the greater financial constraints for many more affordable fertility care solutions may become even more needed within an industry that already has a large need for lower costs as well as solutions that can help add capacity to the system, and we certainly feel INVO still addresses both of those coordinated. Excluding non-cash charges for our third quarter which largely related to the accounting treatment of our convertible debt and our option expensing, we had a loss of approximately 935,000 in the period. This is consistent with our internal planning. I'd also note that we have largely put our fixed infrastructure and team in place now with the exception of one or two additional team member we intend to make. We ended the period with approximately 900,000 in cash, and as already noted, we completed our 11.6 million gross offering this week. With our now strong balance sheet, we believe that we have the resources to execute our plan. It's also important to make the point that we believe the size of the offering went beyond our needs to fund the base operating plan. However, that added balance sheet strength affords us the ability to execute our partnership strategy like our recent Mexico deal or the earlier NDA partnership as well as our U.S. plans. These activities require us to invest upfront with our partner to establish the INVO operation, but we were also then participating in a larger share of the revenue per procedure rather than just selling the device. It also enables us to build the market for INVOcell. So, we see this as a win-win. We intend to pursue these activities in a prudent and appropriately measured pace, but we believe the math and the ROI is very attractive and the upfront investment for each individual facility is reasonable, anywhere from a 100,000 to 250,000, depending on our interest percentage. The key is teaming up with good partners and preferably ones that already have a track record of successful clinic operations like what we did with our Mexico partner. Before I hand this over to Mike, let me make a few general comments on our commercialization efforts. First off, we certainly feel that we've learned quite a bit since our early days of commercialization activities. The early adopting clinics have also honed their knowledge around how to best implement and utilize the technology, and we now see that knowledge base as a powerful tool to leverage and help spread across to the broader market. We can also not say enough how important to our efforts to second year, a real market usage data that became available to us earlier this year, that further valid validation has been instrumental. Likewise, we have certain clinics like the one in Birmingham that have also validated how to successfully implement the technology within a practice. These are invaluable building blocks that our team has available when working with new potential customers and partners. Also our important Ferring partnership in the U.S. market is really just one part of our overall commercialization efforts. We are taking a global approach to our commercial activities. Our objective is to find partners that we feel can best help to commercialize the technology within a particular market. And we also now see multiple ways or routes in which to deliver our technology to the marketplace, which includes delivering within the IVF clinics, developing these new standalone INVO only clinics, and leveraging the existing infrastructure of the OB/GYNs. Let me turn this to Mike for some additional comments, Mike.

Yes, thanks Steve and thank everybody on the call today, if you're interested as well. So, I'm going to provide some updates on some of our ongoing commercialization activities in the various markets and of course I'll stop at the U.S. First, our distribution partner, Ferring continues to focus on integrating the INVO procedure into existing IVF practices while COVID has certainly had an impact on a number procedures being conducted this year. As Steve mentioned, many of these products are back online and we expect to see increased utilization going forward. I think one of the many benefits of INVO procedures is that employs have streamline process, which can allow when IVF up to increase its capacity of patient throughput without adding any additional resources in both equipment and people. So in addition to training several new IVF partners this year, Ferring is also focused on creating overall awareness within the market itself to help to drive patient demand. Another factor that should help with utilization, as Steve mentioned, is the recent release of the 2018 IVF outcomes data by the Society of Assisted Reproductive Technologies or SART. This is a unique industry in that most all IVF patient outcomes are reported in this database. And in 2017, they began to separate out the INVO procedure as IVC or intra-vaginal culturally in VIVO culturing. And in 2018, the IVC data was consistent with the 2017 data, which showed a combined clinical pregnancy rate of 52.1% on day five transfers, and this compares favorably to the IVF data during the same period, which demonstrated a 53.6% clinical outcome. And that is with our PVT, so I believe it is successful outcomes continuing to grow and what similar success rates to IVF at a much lower cost. So, we believe that this will make an attractive alternative to the dimensional IVF process, especially with the affordability challenge patient segment of the market. As discussed several times as part of a U.S. commercialization plan and agreement with our partner Ferring, we have the opportunity to establish a limited number of dedicated INVO only clinics here in the U.S. And these would be set us offering INVO as their only advanced fertility treatment option. Similar to our international joint venture partner arrangements, our objective is to partner with existing clinical practice management groups to establish these practices. We have several ongoing discussions with various clinical practice groups, and we expect to be finalizing some of these agreements in the near future. Our objective here is to establish a dedicated an INVO center model mimicking the footprints of the AIRM practice, Steven mentioned in Birmingham, Alabama. This is a fertility center that was established to provide IVF services and they expected to perform about a 100 to 150 IVF procedures per year in their facility. In 2018, they were trained on the INVO procedure and soon after converted essentially to INVO only practice. In 2019, they performed approximately 350 INVO procedures, in early this year, pre-COVID, they were performing 60 to 70 procedures per month. And it's interesting to note that these patients traveled to Birmingham for this procedure from over 20 different U.S. States. So, the folks at AIRM still expect to complete at least 500 procedures this year. And this is with the same small footprint, the same lab and the same personnel as they were originally established 150 IVF center practice. And as Steve mentioned, this model demonstrates the efficiency and the increased throughput of the INVO IVC procedure and validates the INVO only clinic as a viable business model. So, our objective here is to replicate the successful practice in other markets within U.S. And as Steve mentioned, the key here is finding the right partners and we hope again to be making some of these announcements before year end. Regarding some of O-U.S. market opportunities, as Steve mentioned, we entered into a joint venture agreement with Dr. Francisco Arredondo, a well respected and experienced board certified reproductive endocrinologist and his business partner, Dr. Ramiro Ramirez, who's a physician and owner of several successful enterprises in Mexico. Dr. Arredondo was an early adopter of the INVO technology and began offering this to his patients in clinics in San Antonio and Austin, Texas in 2016. In 2017, due to the success in extending treatment options to his patients, he opened a dedicated INVO only center in McAllen, Texas. Dr. Arredondo sold his U.S. based fertility practices last year and is now focused on bringing the INVOcell solution to Mexico. The first clinic will be a Monterrey, Mexico. And Chris Meyer, a business development manager for the Americas just returned for visiting with Dr. Arredondo and Ramirez in Monterrey to initiate the site location, logistics, and stop the development of the business. We also submitted a registration application with Cofepris, which is the Mexican Regulatory Authority, and we believe that this will be the gating item to opening up this facility. As you all know, Dr. Arredondo has been a champion of the INVOcell for many years and is well versed in the benefits that INVO can provide to his patients. From a clinical operations standpoint, he knows how to build a successful practice, and we believe his expertise and experience will allow us to accelerate our collective efforts to build the INVOcell technology, not only in Monterrey, but in the entire Mexico. So, I look forward to providing more updates as we move this business forward. The other focus that we just recently turned our attention to is Canada. The Company received clearance from Health Canada a number of years ago, but due to lack of resources, we were never really able to fully recognize this opportunity. Like other markets, we've engaged when several different potential partners in Canada and we in discussions for both distribution and joint venture type arrangements. Although Canada like many healthcare markets around the world employers universal healthcare system, we're still a private network for fertility services for those that want it as well. So in Canada, there's two opportunities both to the public and the private sectors. I just want to let our shareholders know that this is an important marker for us and we are in the process of developing and executing on this plan. The same in South America, we've had a few inbound inquiries now from fertility programs in South America that are interested to offer INVO within their practices. In South America, there was a significant lack of resources in many of these markets, and INVO certainly can be a game changer here. In addition to the cost benefits, many of these South American IVF programs are still doing day three transfers and day three transfers have a significantly lower success rate than day five transfers. So INVO simplifies the day five intubation, and we can potentially have an immediate impact on successful outcomes for practices utilizing our territory -- excuse me, our technology. So, we are currently in discussions with some of the programs to help them develop their practices, and we hope that we're able to again make some announcements on these activity. So, Asia and European, quite active in the markets as well, we have numerous ongoing discussions and have initiated some IRB-controlled studies in both Europe and in Asia markets for partner clinics. This is important as we develop outcomes data and the various markets to split the proof-of-concept and help with the product registration requirements. As you know, it's been a difficult year for everyone due to the travel restrictions, but we've remained active. We're highly optimistic that we have a number of exciting announcements to make in the coming months. And before I turn it back over to Steve, just a quick update on some of the other activities that we announced earlier this year, first in regards to the joint venture agreement we signed with our partner Medesole in India to open dedicated INVO only clinics in that country. We continue to push the initiatives forward the pandemic and various lockdowns have hampered our efforts, but our revised targets for establishing this first clinic is now first quarter 2021. In EMEA region, we executed a series of distribution agreements late last year, and we're still working through some of the registration process requirements as many of the health ministries have reduced. We have reduced resources and are focused on COVID-related technologies and activities. We did receive the first product registration approvals from Turkey and Jordan, and we are working with these distribution partners on scaling up their commercialization efforts. So to summarize, the business development team has a full pipeline, allowing global activities happening all over the globe right now. We're extremely excited about the partnership with Dr. Arredondo and Dr. Ramirez in Mexico, and we are close to signing similar types of arrangements in other parts of the world. We are encouraged with the increased awareness of the INVO technology, and we are now starting to receive inbound inquiries. And lastly, we are thrilled with the latest site being demonstrating the efficacy of the technology. With that, I'll turn it back to you, Steve.

Great. Thanks Mike. Let me shift to our clinical activities for a minute, as many of, and as Mike mentioned, our original FDA clearance was based on a three-day incubation period, and that is what our product is labeled and currently marketed under here in the U.S. But many, if not, most of our current practitioners are doing day five. So, expanding our product labeling to encompass five day incubation is important and something we are pursuing actively. Our Ferring agreement also provides for a $3 million milestone payment upon completion of that effort. As we noted in our earnings release this week, we are pursuing two paths, the additional real world market usage data that came available earlier this year afforded us the second option, which was to file a 510k based on that retrospect data. We submitted a 510k a few months ago and have received follow-up questions from the FDA. We are preparing a response to those questions and we expect to submit that response by the middle of January. As previously noted, we also designed a prospective clinical study to achieve the five day label enhancement. We received IRB approval early this year to begin that study, although recruitment was put on hold due to COVID-19. We're looking to restart that activity near-term. We plan to keep this effort moving forward in parallel in the event we need the additional clinical data. Before I hand this back to Robert, to quickly recap, INVO is in a large and growing global market. And in the infertility space, there is a very large underserved patient base, which provides a significant opportunity for a technology solution like INVOcell, especially one that can address the capacity challenges. And we believe all the work to-date further validation has come available more recently, and the current foundation of existing users sets an exciting stage for us looking forward. While we're not prepared to give specific guidance for next year at a high level, we believe we can generate strong increase in revenue, especially as we bring our initial partnership activities online with that. With that Robert I'll open it up for some questions.

We will now begin the question-and-answer session. [Operator Instructions]

[Operator Instructions] Some questions that came in here, you described the retrospect data that you recently received. I get data compares 2018 data, if I'm not mistaken. There's a question here. Do you have a timeline on when the 2019 start data may be released?

Sure. If start is consistent with how they've released data or the timing of when they released data each year, we would expect to see that 2019 data probably somewhere around the April timeframe of next year. And we would expect that data to show further increases in the usage of INVOcell. And again, we were looking forward to seeing that additional data. We think that all, yes, it provides further validation.

The next question here in the press release, you obviously mentioned the 510k application utilizing real world data to support that label expansion you mentioned that yours as well in the in your prepared remarks. The question is, is there a timeline that you can provide as it relates to this FDA submission and perhaps any timeline that the FDA might have to respond back to you or a response?

Yes, it's important to know, we have a CRO helping us with this effort on both fronts. And they expect that, after we submit the response that we would probably likely hear back from the FDA late February, early March timeframe. And if the FDA feels like we have enough additional data to support the application, we'd like to receive clearance then. In the event, we need some additional data that is the exact reason why we will continue with our clinical trial to provide additional support, if in fact that's needed.

[Operator Instructions] We have one further question here. You discussed the OB/GYN market opportunity in terms of being an opportunity market for INVOcell here, beyond simply the IVF centers. Any updates you can provide as it relates to the OB/GYN opportunity?

Steve, I'll take that one and this is an interesting topic and what's most interesting is the market dynamics, and what we believe is the necessity to bring advanced fertility treatment downstream into the OB/GYN network to provide these solutions to the folks that need them. So, when I get into this IVF business in the early 2000s, there were approximately 450 IVF centers in the U.S. Well, today there are approximately 450 IVF centers in the U.S,. and we believe this is due to the significant capacity constraint and available qualified REIs and embryologist to administer the necessary amount of procedures needed to meet this demand. And I think the second major factor here is patient awareness. So, as you know, most patients stopped their fertility journey with their primary care physician and OB/GYN physician, and OB/GYN, they do have limited treatment options available such as IUI or intrauterine insemination, but these treatment options have extremely low success rate and 90% of the patients not successful at getting pregnant. At this point, the only option for these patients is to be referred -- best fertility treatment is to be referred out to an IVF center. And unfortunately, up to 90% of these patients do not have the economic means for this treatment plan. This is also one of the reasons why the utilization of INVO within the current IVF practices has been a slow process. Most patients are unaware of the INVO option and they're simply not showing up. So, yes, we believe with proper training of the OB/GYN can successfully perform or start retrieval and transfer process with INVO procedure, and we would support these practices with the embryology lab services requirements. I'd also like to note that, this is the same model that Dr. Arredondo and Dr. Ramirez planned to execute in Mexico. They're going to utilize the OB/GYN plan and bring OB/GYN into the practice for this process.

Yes. Perfect. Thank you, Mike. Steve, as I show no additional questions here, I will turn it back over to you for any closing remarks.

Great. Well, again, we really appreciate everyone listening in on the call today, and I guess if anyone has any follow-up questions, please do not hesitate to reach out to us. With that, I think we can close up the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.