Pulse Biosciences, Inc. (PLSE) Q3 2021 Earnings Report, Transcript and Summary

Greetings and welcome to Pulse Biosciences' Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Philip Taylor, Investor Relations. Thank you, sir. You may begin your presentation.

Thank you, operator. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today November 15, 2021 only and will include forward-looking statements and opinion statements including, predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, can be found in the press release. Please note, that this conference call will be available for audio replay on our website at pulsebiosciences.com on the News and Events section of our Investor Relations' page. With that, I would now like to turn the call over to President and Chief Executive Officer, Darrin Uecker.

Hello and thank you all for joining us this afternoon. 2021 has proven to be a transformational year for Pulse Biosciences as highlighted by our first recognized revenue in the third quarter. On today's call, we'll be discussing some of our recent accomplishments and plans to drive growth as we expand CellFX System commercial efforts. I will also touch on our clinical and regulatory pipeline. Then Ed will provide details from the field on the Controlled Launch program and the planned ramp up of commercial activities. Sandy will then share details around our financial results, and then I will conclude and open up the call for Q&A. Our product, the CellFX System with CellFX CloudConnect is a multi-application platform for the delivery of our novel and proprietary Nano-Pulse Stimulation or NPS technology. The post-electrical energy delivered by our CellFX System directly impacts cellular structures, leading to the clearance of cells, while sparing non-cellular structures, such as collagen. The differentiated non-thermal modality has been shown to clear benign skin lesions with a more favorable healing profile and aesthetic outcome than the thermal modalities currently used in dermatology practices today. In the third quarter, 12 dermatology practices that were participating in our Controlled Launch program opted to purchase their CellFX System and order initial cycle units to begin performing CellFX procedures commercially. The unique features and benefits of the CellFX System are enabling these clinics to launch a new category in dermatology, the treatment of benign skin lesions. These industry leaders took the time to learn and experience the unique features and benefits of the CellFX System and have determined that offering this unique procedure to clear common spot, bumps, and growth in a fashion that is not only acceptable, but ascetically pleasing for patients will meaningfully enhance the offerings of their practice. Previously, dermatologists were hesitant to address these lesions currently available thermal modalities because either they were concerned about not being able to adequately clear the lesion or about the resulting aesthetic skin appearance. The benign lesion market is readily accessible by dermatologists, as these patients are typically already visiting their practices for other treatment. But it remains largely untapped, due to the lack of an adequate solution. CellFX procedure is unlocking what we believe is a currently addressable $3 billion market, contemplates CellFX procedures on a few benign lesions, sebaceous hyperplasia, seborrheic keratosis and non-genital warts. Based on patient's perceived value of these treatments, and the time required for dermatologists to perform them, which is roughly 15 minutes, this category is positioned to be one of the strongest revenue and profit generating service lines in their practice. To simplify the economics for the clinic and the patient, we have created an innovative utilization based model, facilitated by the CellFX CloudConnect Infrastructure, CellFX Controlled download purchase Cycle Units via our e-commerce Store to power the use of the CellFX System in a treatment. Each lesion treated requires the use of Cycle Units, the number of Cycle Units used per lesion generally depends on the size and type of the lesion being treated, by offering Cycle Units, rather than charging a fixed price for consumable procedure based accessories, physicians can charge patients on a per lesion basis, which is how patients prefer to pay and also directly aligns with the clinic costs. We believe this model will facilitate utilization and remove obstacles that can occur with traditional medical device consumable based business models. As we begin to grow our commercial installed base through control large participant conversions and commercial sales Cycle Units will represent the key recurring revenue stream associated with each CellFX System. Q3 mark the first Cycle Unit purchases by clinics, converting to commercial use of their CellFX System. In a long-term, we expect the utilization of the CellFX System to increase along with clinician experience, as they become more comfortable with the procedure and new applications are introduced. As reminder, CellFX CloudConnect is not only the backbone of our business model, it offers clinics and array of services and practice management tools to track utilization data and other metrics. Having the software connected to our Internal Customer Relationship Management and enterprise resource planning system provides us and the clinics with crucial insights into the productivity and profitability of the CellFX System. Turning back to the commercial launch, we are now in the final phase of onboarding remaining clinics that have been selected to participate in the Controlled Launch program. We started the program in Q1 and to-date has successfully on boarded 68 clinics across the U.S., Canada and the EU. Due to administrative delays and a couple of European countries, we believe we will onboard the remaining clinics in Q4, taking the total number of clinic participants to approximately 75. At this point, the initial Controlled Launch clinics are actively completing program requirements and converting to commercial use, by opting to acquire their CellFX System. We expect many of the Controlled Launch clinics to be through the program by the end of the fourth quarter, and the remainder will complete in Q1 of 2022. While we anticipate a high percentage of the Controlled Launch participants, will converge commercial use we'd have had a few clinics opt out to the program, due primarily to the resource commitment required to participate in the program. Generally speaking, those that have opted out have done so early in the Controlled Launch process, while those that follow through to the end of the program had been converting. This was anticipated. And we believe bodes well for future conversions. In addition to continue Controlled Launch conversions, we also anticipate initial commercial sales and CellFX System in Q4, marking our transition from Controlled Launch to our broad commercial launch, as we enter 2022. The leading aesthetic dermatology clinics and key opinion leaders who have participated in the program and have opted to purchase, I've provided very positive feedback and the deep relationships we have built with these key opinion leaders will form our foundation for growth, as we expand our commercial efforts. An important development coming out of the Controlled Launch program is the physicians understanding of the CellFX System and its underlying mechanism of action through hands-on experience with the CellFX System and observations of the treatment and healing process, physicians are beginning to identify new applications to address additional unmet needs. We expected use of the CellFX System would naturally facilitate uncovering new opportunities to treat benign lesions and are pleased to see this is playing out as anticipated. One example of a new lesion of interest emerging from the controlled launch utilization is the treatment of dermatofibroma. Dermatofibroma are small benign lesions typically found on the extremities, especially the lower legs. These persistent and sometimes painful growths are fairly common with dermatologist reporting, seeing as many as 30 patients presenting with them per week. However, the current treatment rate is low, due primarily to the lack of available treatments. Current standard of care, surgical excision is used infrequently because it typically results in undesirable scarring. There are currently no energy based devices; they're regularly used to treat dermatofibroma. And for this reason, we believe this could potentially be a large market opportunity any viable CellFX procedure performed with the current available treatment tips. That brings us to our current clinical work. The advancement of specific indications in dermatology for our CellFX System in the US is a top priority for Pulse Biosciences. As we have stated previously, we have implemented a stepwise regulatory strategy in the US, under which we're pursuing specific indications for high value applications. The first specific indication we are seeking regulatory clearance for is the treatment of sebaceous hyperplasia. We completed the FDA approved IDE study for the treatment of sebaceous hyperplasia earlier in the year and recently finalized all of the necessary analysis. We are pleased to report that 510(k) will be submitted this week to FDA. A second specific indication we are targeting is for cutaneous non-genital warts. In the third quarter, we completed enrollment of our 150 patients FDA IDE approved pivotal comparison study. After the appropriate follow-up visits are completed, which should occur in early Q1 2022 the data will be analyzed and we are anticipating a 510(k) submission in the first half of 2022. We will continue to pursue additional benign lesion clearances to grow the CellFX Systems application portfolio where it makes the most sense for dermatologist. The early data sets for syringoma and Nevi or common moles are promising. We will provide updates on the progress with these lesions as we approach pivotal clinical trials. Outside of our benign lesion pipeline, we have completed enrollment of all 30 patients and our FDA IDE-approved treat and resect basal cell carcinoma BCC feasibility study. We believe that NPS technology and the CellFX System can be used to treat smaller BCC lesions with improved outcomes in cosmetically sensitive areas such as on the face, because BCC is the most frequently occurring form of cancer in the US. And the current treatment of BCC is wide margin surgical excision, which typically results in undesirable cosmesis is a very attractive market opportunity. In accordance with the BCC study protocol, we expect to complete the excision of the treated BCC lesions by the end of this year, with analysis of the tissue by the study pathologist, taking place in the first quarter of 2022. In addition, we plan to meet with the FDA in the first half of 2022 to discuss the details of a potential pivotal study for specific indications to treat BCC lesions with the CellFX System. At this time, it's difficult to estimate what FDA may require for a pivotal study, and therefore, the timeline for an FDA submission is also difficult to estimate. However, we remain encouraged by the potential of this opportunity for the CellFX system. Our pipeline philosophy is to target the most prevalent and compelling conditions to realize the true potential of the CellFX platform and maximize the value of NPS technology. Though there is clinical and regulatory work to be done before we can commercially launch additional applications, we believe it is beneficial to our physicians and patients to invest our resources where there's the greatest potential in improving their lives. On the global regulatory front, we are pleased to report that we have recently received approval to market and sell the CellFX system in Australia. This represents another validation of the safety of the CellFX system from regulators. This is the first country in the Asia Pacific region that we have received approval to ship and march the beginning of our Asia Pacific commercialization. At this time, we expect our first shipment to Australia and early 2022, as we begin working with the top KOLs in that country. This is the first step to entering this territory. And although we do not anticipate significant shipments to this region in 2022, it will set a foundation for expansion in 2023. As we have mentioned previously, we continue to invest in investigational areas outside of dermatology. Early successful research initiatives have created tangible opportunities. And for that reason, we are pleased to have Mitch Levinson joined the company as Chief Strategy Officer in addition to serving on the board, which he has done for several years. Mitch has over 30 years of experience developing and launching novel medical device technologies across multiple medical disciplines, including dermatology, wound care, surgery, diagnostics, patient monitoring, and digital health. Mitch’s experienced in medical devices and with Pulse Biosciences and his expertise bringing new technologies to market, making me uniquely qualified to be leading our efforts to expand the applications of the CellFX system and NPS outside of dermatology. As evidence of our early research success, preclinical data was recently presented on the use of the NPS technology platform in the field of gastroenterology by Dr. Robert Duggan at the Annual Meeting of the American Foregut Society. The presentation titled Nano-Pulse Stimulation Technology is a promising new energy modality for Barrett's Esophagus was extremely well received by this group of physicians. Dr. Duggan’s is a key opinion leader in this field, and one of the foremost experts on the treatment of Barrett's Esophagus using ablative technologies. Barrett's Esophagus is a complication of Gastroesophageal Reflux Disease or GERD faced by approximately 10% of people with chronic GERD symptoms, in which the tissue lining the esophagus becomes dysplastic or precancerous as a result of the damage caused by the chronic acid reflux. The dysplastic cells are associated with an increased risk of esophageal cancer, and for that reason, are typically removed or destroyed using thermal energy modalities. The porcine study presented by Dr. Duggan demonstrated that the CellFX system using our novel and proprietary esophageal applicator can remove the esophageal epithelium and submucosal glands without causing significant fibrosis or evidence of stricture, suggesting that NPS may provide unique safety and efficacy benefits for the treatment of Barrett's Esophagus over currently used thermal ablative technologies that can sometimes lead to adverse outcomes such as esophageal stricture, scarring, pain and retreatment. Importantly, this evidence also demonstrates that the proven mechanism of action of NPS and skin can be applicable to other tissues of similar architecture, such as in the esophagus. This early preclinical work represents one new potential application area for the CellFX platform and NPS technology outside of dermatology. And while we believe there are exciting potential applications across many medical specialties for the CellFX platform, we remain committed and focused on execution of our commercial launch in dermatology. Going forward, we will continue to be disciplined with our pipeline strategy to prioritize R&D efforts based on comprehensive consideration of factors, like the most important clinical unmet needs for patients and commercial opportunities. As plans and developments materialize, we will share our progress. Overall, we've made excellent progress across the business in 2021. In the third quarter, we continue to execute our strategic initiatives. Now I will let Ed provide a more detailed update on the CellFX system launch.

Thank you, Darrin. I will start by reviewing the success we've had with the controlled launch. As of September 30, 2021, over 1,800 procedures were completed on the CellFX systems across 67 clinics in North America and Europe. To date, progress with a controlled launch is tracking largely in line with expectations and we could not be more pleased with the overwhelmingly positive feedback from KOLs on the CellFX system and how it is enabling a new avenue of expansion for their practices. Just as importantly, KOL feedback on best clinical and commercial practices from the controlled launch experience will lay the foundation of acceptance for the next wave of early adopters in the coming quarters. The controlled launch continues to provide us with many important learnings regarding real-world utilization, business model and franchise development, technical training, and the account on-boarding process. We've already begun utilizing some of these lessons to advance doctors and providers through the controlled launch process faster than the initial participants. Our sales force also had a unique opportunity to build understanding of the adoption dynamics with both physicians and consumers, while developing a process of best practices to drive both utilization, and future capital equipment sales. The lessons from the controlled launch will continue to reinforce the foundation for our future business, as we look to scale and expand our commercial operations. The application of these lessons will continue to support our KOLs and customers in the field, as the next phase of our broader launches rolled out. As part of the controlled launch, we are collecting vast amounts of data and feedback from both physicians and patients. We are seeing high physician satisfaction with the system functionality and treatment outcomes. We also saw exceptional patient satisfaction with procedure experience, procedure time and treatment results. The high level of patient satisfaction translated to a high likelihood to recommend the CellFX procedure to friends and family. From a qualitative perspective, the results from patient and provider surveys were a major success for us and hit our expectations for the program. These factors reinforce our conviction in our commercial launch process and NPS technology. We will continue to provide a high level of commercial support to our KOLs and their patients, as they've already become our biggest advocates, as we tend to target other clinics in North America and Europe. As we complete conversion of controlled launch participants to commercial users, we are simultaneously transitioning to a broader commercial launch, targeting early adopters. This requires us to build out our sales force as our base of users increases. Our current sales reps are focused on driving procedures and supporting KOLs participating in the controlled launch. In addition to these efforts and to comprehensively address this large market, we are now actively hiring and training a team of capital sales specialists focused on new system sales. Going forward, we plan to have two integrated sales teams, clinical application specialists and capital specialists. Clinical application specialist will continue working with the current customers to drive utilization and implement CellFX treatment workflow best practices across clinics and provide marketing support to help capture the large market for benign lesion clearance. Capital specialists will be responsible for accurately qualifying and engaging potential system customers to expand our installed base among these early adopter prospects. They are actively qualifying the known aesthetic technology purchasers. The sales force structure will enable us to scale and maintain the top tier service or control once participants lauded in their feedback. As of September 30, 2021, we had 11 North America commercial field personnel and six commercial field personnel in Europe. They will be pursuing the prospect funnel of top opportunities in the coming quarters to purchase self existence and drive utilization revenues. Clinical application specialists will support 10 to 20 accounts initially and ramping to potentially 40 accounts at scale. These clinical application specialists will drive utilization and be incentivized to improve utilization rates as we place new systems. We anticipate scaling the commercial team as necessary to support this growth. Supplementing our commercial marketing efforts, we continue to stay engaged in the scientific community to support the CellFX System clinical evidence generation. For example, recently, Dr. Brian Biesman, a leading expert in eyelid and facial surgery, and based in Nashville and a member of Pulse Biosciences Scientific Advisory Board, presented feasibility study results of NPS technology for treating Syringoma at the Annual Symposium of the American Society of Ophthalmic, Plastic & Reconstructive Surgery in front of a highly specialized audience of oculofacial plastic surgeon. Syringoma is a benign overgrowth of cells from sweat glands that occur in clusters in the upper and lower eyelids, posing a difficult to treat cosmetic condition that has high value to patients. We are equally pleased to announce that Dr. Biesman will be on the virtual podium presenting these early clinical results on Syringoma at the annual meeting of the prestigious American Society of Dermatologic Surgery or ASDS in the coming days. Of the high clearance rate and short healing period demonstrated in this early study are encouraging signs of NPS’s technology’s broad applicability in dermatologic conditions, even in these most delicate areas of the face. These promising early results will lead to the additional studies of efficacy and safety needed to pursue an indication for this lucrative new application for CellFX technology. The Syringoma application is another demonstration of how the cells specific mechanism of action of the CellFX platform will apply to many common lids that have high value in the cash paying aesthetic procedure market. Our scientific presence continues in December with Dr. George Hruza from St. Louis and past President of the American Academy of Dermatology, who will be presenting a overview of NPS technology at a Cosmetic Surgery Forum, which is a multi-specialty educational symposium that covers the latest research, treatment and techniques in dermatology and cosmetic surgery. We are thrilled with the early results of the first commercial use of the CellFX System and are exciting to extra strategy to drive a worldwide system installed base and increase utilization with this installed base. Thank you. And now I will turn the call over to Sandy.

Thank you, Ed. As Darrin mentioned, in the third quarter, we recorded our first revenue as a company. For the third quarter of 2021, revenue was $574,000. Revenue was driven by the conversion of 12 controlled launch participants, opting to purchase their CellFX Systems following completion of the program. System sales of $490,000 for recognized on a non-cash basis, revenue related to cycle units was $84,000 recognizes cash for the initial cycle units purchase for commercial systems. Revenue in North America was $405,000, representing 71% of total revenue. Moving down to income statement, I'll focus my comments on our adjusted or non-GAAP results to provide insights into the underlying trends of our business. Please refer to today's press release for a detailed reconciliation of non-GAAP measures with the most comparable GAAP measures. As we have now shifted to a commercial organization recognizing revenue. All uncapitalized manufacturing operation costs are now recorded in cost of revenue. Previously, these costs were recorded in research and development expense. Non-GAAP gross loss in the third quarter of 2021 was $113,000. Gross loss is calculated as total revenues, less cost of revenues. For the third quarter of 2021, non-GAAP operating expenses, representing research and development, sales and marketing and general and administrative expenses were $12.3 million compared to $10 million for the prior year period, and approximate $2.3 million increase year-over-year. The year-over-year increase in operating expenses was primarily driven by the expansion of commercial and operational infrastructure, including increased headcount to support commercialization activities. Non-GAAP research and development expenses increased by approximately $0.3 million to $6 million for the three month period ended September 30, 2021, primarily due to increases in personnel, clinical trial costs and consulting and outside services in support of our FDA submissions, and new application development. These additional costs were largely offset by uncapitalized manufacturing costs now recorded in cost of revenue. We expect to incrementally elevated research and development expenses compared to the prior year period to remain at approximately these levels for the remainder of the year as we continue to invest in CellFX Systems application expansion initiatives. Non-GAAP sales and marketing expenses increased by approximately $1.9 million to $3.3 million for the three month period, ended September 30, 2021, primarily due to increase personnel, consulting and outside services to support commercialization activities not conducted in 2020. Sales and marketing expenses in the third quarter of 2021 include approximately $600,000 of non-cash expenses related to our controlled launch program. Prior to receiving FDA clearance and CE Mark approval for the CellFX System, sales and marketing expenses were included in general and administrative operating expenses. We expect sales and marketing expenses will continue to incrementally increase as we invest in activities to support our full commercial launch and the CellFX System. Non-GAAP general administrative expenses increased by approximately $0.1 million to $3 million for the three month period ended September 30, 2021, primarily due to increases in personnel from a year ago to support the transition to commercial operations. Non-GAAP net loss for the third quarter of 2021 was $12.4 million, compared to a net loss of $10 million for the third quarter of 2020. Cash, cash equivalents and investments totaled $42 million as of September 30, 2021, compared to $47.4 million as of June 30, 2021. Cash used in the third quarter of 2021 was $13.8 million, excluding net proceeds received under the June 2021 private placement, of which $8.4 million was recorded as related party receivable at the end of the second quarter. We did not issue any shares under the ATM equity offering program during the third quarter. Cash usage will continue to increase incrementally, as we invest in activities to support our growing commercial operations, including building a commercial team in Europe, increasing inventory levels and conducting additional studies to support indication expansion with the FDA. Inventories were $4.3 million as of September 30, 2021. We remain focused on our commercial launch and wrapping up the enrollment of the controlled launch program in the fourth quarter. We continue to make calculated investments to drive long term adoption of the CellFX System and our proprietary NPS technology. Nonetheless, we continue to anticipate incremental revenue generating systems will come online throughout the remainder of the year, as participants in the control launch program convert their systems to commercial use following completion of the program commitments. Now I'll turn the call back to Darrin, for final remarks.

Thank you, Sandy. 2021 continues to be a transformational year for Pulse Biosciences as the business recorded its first ever revenues. As we wrap up enrollment in our controlled launch program, we're taking the lessons we learned from participating clinicians and their patients to build the foundation for our business in 2022 and beyond. Q4 is continuing to shape up into an exciting quarter as those KOLs that participated in the Controlled Launch program begin to converge commercial use. And we look forward to our first commercial sales with CellFX System as we capitalize on the positive feedback and momentum we have received from the Controlled Launch program. Our dedication to developing new applications for the CellFX System, for the benefit of both patients and clinicians is unwavering. And we were pleased with the recent cadence of developments. We look forward to providing more details around our commercial launch and clinical trials on our next earnings call. Before we open the call to questions, we want to welcome Laureen DeBuono, to our Board of Directors. She is an experienced healthcare executive who has been successful driving strategy and operational excellence at several medical technology and esthetics companies. We look forward to her contributions. And with that, joining me for Q&A are; Ed Ebbers, Executive Vice President and General Manager Dermatology, and Sandy Gardiner, Executive Vice President and Chief Financial Officer. Operator, please open the call for questions.

Thank you. Good afternoon, Darrin and Sandy. And this is RK from H.C. Wainwright. Good. Good. Congratulations on recording your first quarterly sales. That is certainly exciting. So I totally apologize for asking a kind of a negative question. But that's just my only negative question. I promise. You folks said there were some clinics that opted out. Just want to understand, you said few -- I'm just trying to figure out what the few means?

Yeah, so that's okay, RK. It's a good question. And, at the end of the quarter, I think we had had two clinics that had opted out. And, like I mentioned, those are those clinics, I think we developed a -- what we believed was a pretty detailed process for selecting clinics and setting expectations with clinics and getting them involved. You could imagine there's a lot of interest in a new technology like this that we feel has a lot of unique capability and applications and there's a lot of interest on the clinician side. But I think even with all the filtering and selectivity that we did, I think some clinics as you begin to get them involved in the program, they start to realize sort of how much we're asking of their time, in terms of not just using the technology, but surveys from the patients, from physicians, from the staff and how much we want to work with him. And I think there -- there's a handful of clinics and as I mentioned too an early going, that sort of opted out and said, look we're -- you know, this is a lot for us right now, we're probably not in a good spot to be able to take on a new technology participant in a program like this. But of course, we think they'll be excited to take it on later in the process. So, I think it was -- it's more -- our observation is that, it's more kind of that process that's going on with some of these early clinics, as opposed to anything else.

Okay, that's fantastic. So as opposed to those to 2, the 12 that converted into commercial, couple of things come to my mind as to, how long did it take for these folks after they completed their trial period to decide to go commercial? And also, do you think the -- what these 12 clinics are experiencing, both from their side and from your side, is sort of the typical experience that the clinics that are coming on board, continue to handle? Just trying to understand how that process is working?

Yes. It’s good question. And unfortunately, maybe I'll answer it, as you know, each clinic is a little bit different, as you know. So it's a little tough to generalize on all 12 of those. But I would say that for the most part answering kind of the first part of your question, which was, how long after kind of going through the program, did these clinics opt to acquire the system and begin to use it commercially. And I would say that for the most part, these clinics, as soon as they completed, we're pretty much ready to go. Now, it took a different amount of time for each one of these clinics to get through the program, which is very much, very much what we're experiencing across the board. So some clinics come on. They go through their 40 sessions, very quickly, maybe in two months to three months, and they're ready to convert. Others -- take a bit longer. And a lot of that, again has to do with their own clinic dynamics and the amount of time they have to spend on these things. And I think we've mentioned on previous calls, the controlled launches is a very measured program. And from our perspective, we try to keep it as a very controlled program, meaning that we want to be there kind of high touch, high service, every step of the way. So we go in and do initial training and education of their staff. And we want to be present, both during all treatments, if we can be as well as at 30 day post, 60 day post treatment observations. And so we spend a lot of time with the clinics during this process. And so, the amount of time it takes them to get through the program can vary. Generally, I would say between, you know, two months to three months for some of the faster ones, and maybe as much as four months to six months for some that are taking longer, and the 12 that we converted, I think, kind of, it's a it's a mixed bag, in terms of those different clinics, and how long they took to get through the process. Once they converge, I think, it's also a little bit different depending on the clinic. So we've had some clinics convert and begin, their kind of commercial use of the system, begin treating -- commercial patients very quickly and we're liking what we're seeing in terms of utilization. Other clinics will get through the program, agree to acquire the system and cycle units. And then they want to begin to set up a launch of the sell effect system within their clinic, and kind of to their patient population. And so we're involved in that process as well, as you can imagine, helping them put information on their website if necessary, helping to post to social media, which a lot of them want to do, as well as providing them with whatever collateral information we can for use in their clinic. And so some clinics are ready to go right away and some want to get set up and then begin to market to their patients. So it's a -- it varies from clinic to clinic, but I think the good news is -- is that clinics are getting through the program and we're converting them in that conversion means, you know, their agreement to basically take ownership of the system, as well as purchase cycle units for use with the system as they begin to use it on their patients in a kind of more traditional commercial environment.

Okay. One question to Sandy. Sandy, you stated that 70% of the 574,000 came from North America is 70% also the representation of the 68 clinics that you have gone out, and done the – done the – in our initial beta launch? Is that – is that how we should think of, or it just so happened that 70% of this 12 happened to be in North America?

No, I actually think that that's how you should roughly think about it, when you think about the geographic regions that we're in, roughly 70% to 75% will continue to be in North America, and the remaining 25% to 30% will be in the EU.

Okay. One last question that's for Ed and Darrin. So when you're looking at this expansion, the 510(k) filing that you're going in. And I'm assuming it's a 90 day review period. But however, on the other end of it, let's – once you have a positive decision on this – how should we think about the dynamics in terms of usage? Will it be a lot different than what you're expecting without it? Just try to understand, how we should think about the dynamics of usage of cycle times?

Yeah. And it's also a very good question. So with regard to the review time, I think the one expectation, I would said is, we really not sure in terms of the overall timing of this review from FDA. So you're right on FDAs, 510(k) reviews, if 90 days is what they try to hit, and that's the period of time that they are on their review clock, there's usually time that is also taken up by whatever questions they may ask the company. And so the only reason, I bring that up is, this is the first sort of FDA approved IDE study 510(k) that we were submitting to FDA for the CellFX system. And so I think I would, temper some expectations it's probably going to be longer than 90 days, I think, many of these can go, 120, maybe up to 150 days. So, I think, we're excited to start getting this data into the FDA, and get into the review process and, be able to engage with them. But I think we would expect they would take their 90 days and then also have questions for us. So that's just on the timing side. As it relates to, what the impact will be in the market? I think what we believe from the beginning is that in the US, we certainly believe that it's important to get specific indications on lesions that we think there's a significant opportunity, and getting those specific indications is really for the purposes of allowing the clinics to promote these specific indications, more directly to their patients and at large. But I think, what we've said before is, we don't really think that, through the control launch, and even in to some of the early adopters, which we're now starting to talk to. It's not as – it's not as important to them, I think a lot of those clinics are very savvy, in terms of how to incorporate a new technology into their clinic. They're very used to talking to patients about new technologies and new applications. So I think it's – it's a little bit more of a downstream need, as we kind of reach past the early adopters into the larger population of these ascetic physicians and clinics. But we do think, it's important as we get to those clinics to have these indications and to give them the ability to market to their patients in that way. So I think it's -- these are milestones, sort of along the path of commercialization. We already have, as you know, these indications outside the US. So both in Europe and in Canada. And so this is sort of a stepwise expansion, I guess, in the US.

Thank you all. Thanks for taking my questions.

Yeah, thank you, RK. Appreciate it.

Our next question comes from the line of Chris Cooley with Stephens. You may proceed with your question?

Good afternoon, and let me echo those positive sentiments on generating your first revenues. That's great news. Maybe just from me a big picture question and just make a clarification one. On the big picture side, help us think a little bit about how you're prioritizing and queuing potential new indications for use, clearly CellFX system has significant potential use and a number of different indications. I'm just kind of curious how you're assigning focus and kind of letting these all fall into the funnel and then sort them out. Such that you can not only continue to advance the pipeline, not only within dermatology, but outside of dermatology, but also do so in a cost effective manner and targeting those syndications have the highest probability of approval and also highest probability of commercial success? And I've got a quick follow up.

Yeah, sure. Thanks, Chris. Thanks a lot for joining the call and good question. And congratulating us on the revenue, we're certainly excited about it. So, with regard to the pipeline, it's a very good question. As you can imagine, and I think, we've talked about, we get a lot of inbound from physicians on various indications that they're excited about. And I think the more we've been out in sort of a commercial and an early commercial environment, in the US and in Europe, and in Canada, the more inbound we get from physicians about their interests and new lesions. So our -- internally, I think, we really try to focus pretty much as you just said, at the end there, which is, what are the indications where we see a significant clinical unmet need, and I think, in dermatology, this is along the lines of things where physicians are telling us, I don't really have a good treatment for this or the treatments that I have don't really work very well. And so, some of our early indications, sebaceous hyperplasia is one where you talk to physicians, and we know, by our surveys that largely 60% to 70% of these patients go untreated. And this is physicians telling us, that they just feel like they don't have good solutions. And so, they steer their patients away from those treatments. And another one I would say is warts and warts is slightly different. I think most people can understand that warts can oftentimes be treated with cryo, some form of cryo spray or liquid nitrogen. But I think most people also realize that, that is not a very good solution for warts in the sense that those warts often come back. And physicians will say that, they'll see patients month after months, trying to figure out how to treat their warts. And so, I think our warts solution is one that we feel like is very exciting, and is one that is going to give physicians a new way to approach warts with their patients, and that they can be very confident in talking about the efficacy of getting rid of those warts in one to two treatments total. And we hear stories all the time about patients who have spent years trying to get rid of their warts with a whole variety of different treatments. So, we first look at, where can we apply our unique mechanism of action in lesions that don't really have good solutions today. And then like you said, we have to look at what is the probability and timeline for getting them kind of through the regulators, and getting some type of an indication for it if that's what's necessary. And so I think we try to balance those. We talked about today that a new lesion kind of popped up in commercial use. This is dermatophytoma. This is one where physicians tell us sort of the, when we ask how they treat dermatophytoma, they basically say they don't, because really the only reliable thing to do is to exercise them, which they don't want to do for a benign lesion. So, we're excited about that one, that one is quickly, I would say rising to the top of our list based on that clinical unmet need and based on some anecdotal data that we're hearing from physicians that treatments are going fairly well. So we're starting to line up clinical research to look more closely at dermatophytoma. And I think that on a yearly basis, we will have in our pipeline a couple of lesions most likely that we'll be in larger trials, maybe that we would call a pivotal trial. And then we'll probably have a couple applications that might be in feasibility. And that's sort of how we kind of think about it today, as our business grows, I think we can grow that, so that we can take on more. But I think today, as you've heard last -- this last year, we had an SH IDE study, warts IDE study, those are going to be going in to FDA. And so we'll bring some more on this year, and probably some more feasibility studies. So it's sort of I think, how we think about it on the dermatology side. And outside of dermatology, I think, I talked about in the prepared remarks, an interesting application that we had some preclinical data presented at a scientific meeting. And I think, as we've said, in the past, we're beginning to look at some of these applications outside of dermatology. And there's a lot of excitement being generated, I think, with KOLs in these various fields. It will take a measured approach to these, we brought up the treatment for Barrett's esophagus today, because we felt like the preclinical data was at the right point were presenting it on the podium at a scientific meeting made sense. And we had a KOL and wanted to present that. And so it's in the public domain now. And we felt like it was worth mentioning. So we'll continue to do that as that preclinical data gets to that level. And certainly, as things advance outside of dermatology, and we begin to look for regulatory clearances or other human clinical studies, we'll be talking about those milestones.

Super. And maybe just very -- very briefly for me, maybe just clarification. Sandy, when I look at the systems -- the 12 systems and I'm just looking back to the model in the first and the second quarters, can you confirm that there are no more systems that were on boarded during the 1Q, which have not flipped? And I guess maybe as the offshoot to that, I know Ed in the past, you've mentioned that there's been some learnings here in these initial stages that would help you go faster in some select markets. I'm just curious based upon that, is that still holding true? And so that you think as you own board this last wave, the potential to flip those to commercial is in a shorter fashion than those initial ones were? And that's -- then I'll hop back in queue. Thanks so much.

Thank you. Thank you for that question. Great question. I'll start with the last portion of your question first. Indeed the early lessons of Controlled Launch are being applied to the more recently installed sites and we are seeing an acceleration of their adoption because they are applying the lessons of their predecessors. And we're seeing a more rapid transition to a willingness to charge revenues or charge a price to the patient during the Controlled Launch, because they have others who have preceded them, and sort of set the stage for the commercial value of a cosmetically elegant clearance of these various benign lesions. So, I'd say generally speaking, we're seeing the benefit of the early pioneers on the later participants in the Controlled Launch and we certainly anticipate that going forward. And I think Canada actually is a great example, where we have the full labeling, the ability to promote all the tools that you need to help someone build a business. We see that moving, moving – moving quickly, where – generally speaking, the US sites that are seeing others show success, and we're able to show them more things, both clinically and commercially. We're seeing more rapid uptake. So I would say that, it's sort of a bell shaped curve in terms of the distribution of early converters versus late converters. Some people just have different scheduling challenges than others. But generally, the more recently installed sites are going faster.

Thank you.

Our next question comes from the line of Anthony Vendetti with Maxim Group. You may proceed with your question.

Thank you. Yeah. I think most of my questions have been answered. Just on the specific learning's from the KOL launch, was there anything specifically that you learned during this process that has caused you to tweak the protocol or the system as you – as you move to the commercial launch? And then on the commercial launch, I understand it is starting this quarter. I know most of the commercial launch will be in 2022. But we're halfway through this quarter. So has the commercial launch actually started, or are you expecting to start it between now and the end of the year?

Yeah. Hey, Anthony. Two good questions, I'll jump in. And then maybe I'll pass it to Ed, for a bit. So just in terms of, tweaking things and learning's, I think you mentioned the system and protocols, I think, from the system perspective, I would say not really, I mean, certainly, we're always looking to improve little things here and there in terms of the user interface, and how physicians interact with the system, but there hasn't been anything significant. I think, fortunately, that we've had a really change in terms of the hardware or the software outside of sort of continuous improvement, in particular in the software, which we're a company that sort of has, I think, we have the hardware piece, which is CellFX System, but we – a lot of the kind of value that we add, I think is on the software side, both in the system, but also in the cloud, as we've talked about. And so we continue to do a lot of development on the software side, whether it's sort of algorithm development, graphical user interface or even into the cloud and how we display some of that data. So I think nothing major has come out of that, except for, you know, as you go through the process, you learn things and you're continually improving the system. In terms of protocols, we've certainly learned things, physicians will share different techniques as they begin to see kind of how the tissue responds, what the healing response is, like, with different lesions and different patients. And so there's nothing specific that I would point to, but I would say, there are certainly things that physicians try, as they begin to learn the system that we appreciate, and we share those learnings across the board. You know, the probably the most significant is learnings about treating different types of lesions. So I mentioned dermatofibroma. I'll just bring it up again, I mean, that's something where a physician or two sort of said, look, this is a Benign Lesion. I think it's very interesting. I think, this based on what I'm seeing, this -- I have a good feeling that CellFX would work well on these types of lesions. And so we've, kind of, gone down that path and seen some good anecdotal evidence and will begin to put some resources behind it in terms of the clinical research. So I think, fundamentally those have probably been the things that, in terms of the system and the protocol. And then just in terms of overall clinic adoption maybe I'll hand it over to Ed, and let him talk a little bit about that, and sort of the economics because I think there have been some important learnings there as well.

Okay.

Ed, I think, you might be on mute.

I'd say, thanks for the question. I'd say first and foremost, our degree of confidence to take a physician in their practice from nothing to significant activity has grown. In part of it -- is that our sales team gets a sense for how the workflow works in practice, and how we can adapt what's required to move a patient through their clinics in an orderly and organized fashion by specifically citing other physicians and how they're doing it. And, of course, these things only learn through observation and iterative learning that continues. So I think especially the workflow management, we are able to go there with a clipboard and sort of check take charge and say to make these patients move through your system most efficiently in terms of consultation, anesthesia, actual treatment, billing, and post treatment management in terms of communications and other activities. We've just gotten a great deal more confidence in applying the lessons as the early participants, the more recent participants. So there's nothing really major. But in combination, all these little tweaks taken together lead to a more commercial like experience that happens earlier and earlier with each newly installed site, which is what we plan for an expected with the controlled launches to have this learning curve be applied to the subsequent installations, and we certainly see continued incremental learning. And each new lesion is its own little lesson plan of what's going to happen next. So, as Darrin mentioned, dermatofibroma is a new lesion that we're still learning on and physicians are still teaching us about where warts, we feel like we made a lot of progress really fast. And physicians are picking up on seeing the impressive clinical results and commercial victories of patients saying, I've had warts for years and years, and this is the first time I've been able to get treated and have it go in a single treatment session, and talk about paying more money than physicians thought was possible for wart treatment, because of those impressive results. So those are those are the kinds of lessons that when physicians pass them on to other physicians has real impact on the adoption curve.

Okay. And then on the marketing…

Yeah, yeah, I'll touch on the commercial progress question. So I think it's not, sort of, a binary transition, I would say from a Controlled Launch program to what we've call broad commercial launch. So we're phasing down as we've described in the Controlled Launch, as clinics get through the program. And we're converting them, that'll continue through this quarter and into the next quarter. And likewise, we we've already started with our field personnel, out talking to kind of early adopters. And you can imagine that as those clinics hear about and see, whether it's on social media or otherwise, their colleagues and local clinics, using the CellFX System, we get inbound. And so we started taking to those early adopters, those clinics that are outside of the Controlled Launch program, and we expect it, we'll see some commercial traction in this quarter. Our field team is really focused on a Controlled Launch and making that a -- successful as we can. But we are spending some time as we begin to sort of roll into the full commercial launch.

Excellent. Thanks for that color. Appreciate it.

Yep.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Darrin Uecker, for closing remarks.

All right, thank you, operator. And thank you, everybody for participating in the call. We really appreciate it. We're excited about where we're at, and we look forward to the next investor call where we can update you. Thank you.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.