Sintx Technologies, Inc. (SINT) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter and Full-Year 2015 Amedica Corporation Financial Results Conference Call. [Operator Instructions]. I would now like to introduce your host for today’s conference, Mr. Mike Houston, VP of Commercialization. Mike you may begin.

Thank you, Dennis. Good afternoon, and welcome to Amedica Corporation’s fourth quarter and full year 2015 earnings conference call. On the call with me today are Dr. Sonny Bal, Chairman and Chief Executive Officer; and Ty Lombardi, Chief Financial Officer. By now, everyone should have access to the earnings release for the period ended December 31, 2015 that went out this afternoon at approximately 4:00 p.m. Eastern Time. If you have not received the release, it’s available on the Amedica’s website at www.amedica.com. This call is being webcast and a replay will be available on the Company’s website. I’d like to remind you that certain items that may be discussed in today’s call are not based entirely on historical facts. These items should be considered forward-looking statements, and are subject to many risks, uncertainties and other factors that are difficult to predict and may affect our businesses and operations. As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements. A discussion of some of these risks, uncertainties and other factors are set forth in our SEC filings. We undertake no obligation and do not intend to update any forward-looking statements, as a result of new information or future events or circumstances, arising after the date on which it was made. With that, I would now like to turn the call over to Dr. Sonny Bal. Dr. Bal?

Thanks Mike and good afternoon to everyone. I will begin by providing an update of recent highlights and afterward Ty will give us details on the financial results for the quarter. And before we open up for questions, I will review or outlook and strategy for the year 2016. During the last half of 2015 last year and especially during the fourth quarter we were very busy and very active with our business. We signed an international private label agreement with WinnTi, a medical, a fast growing orthopedic company in China. This agreement has led to increased interest in our company and we anticipate revenues in the future. I can discuss this in greater detail during his remarks but I am pleased with the recent amendments to the previously outstanding series A and C1. The exercise price for those warrants became fixed in mid December reducing the uncertainty of our capital structure and fixing the number of common shares outstanding something we have worked very hard to accomplish since June of 2014. The company also cleaned up its cap and operational structure while lowering operational cash burn by $5.5 million as compared to the prior year period. A lot of the hard work we set out to do in the early parts of 2015 has already begun to pay dividends this year. In addition to fixing our cap table and reducing cash burn something that will stay a key focus in this year we continue to place an emphasis on generating awareness, enthusiasm and excitement for silicon nitride. Our R&D team met it's impressive goal of submitting 12 peer reviewed scientific professional papers for publication during the last 12 months where the nine major presentation at and scientific and all key forums, top notch over the past four quarters. These efforts have significantly increased interest in our business development efforts and help underscore a strategy of becoming a differentiated unique biomaterials company. In fact we plan to publish another 15 basic science manuscripts for peer review during the balance of this year and at least that many clinical reports which will further contribute to a deeper understanding of our material and differentiate a unique silicon nitride composition from all other biomaterials that are used in medicine today. This is a truly a phenomenal feet for any company regardless of size and I'm very proud of our efforts to continue validating our existing body of science among our peers. In particular strength of silicon nitride we got ability to engineer the materials by manipulating its surface microchemistry something we have learned to do thereby altering its properties. We have run our materials through a battery of tests and I'm very excited to announce that we expect to unveil the next generation silicon nitride in the fourth quarter of this year. According to the initial testing we've done. This new version should have a faster and more intense [indiscernible] growth than existing composition. And what's even better we can upgrade our existing inventory of silicon nitride fusion devices to this new standard by applying minimal additional manufacturing processes. This material upgrade is captured in a number of our recent publications that have been printed and will further distinguish strengths and differentiate, validate silicon nitride as a truly cross-platform foundation for medical implants and beyond. I can't put enough emphasis on the focus we have on the development and commercialization of silicon nitride for medical applications, that's what we are as a company. In Amedica, silicon nitride addresses a member of the relevant serious limitations in modern hip, spine and knee replacement surgery, dental, extremities and sports medicine and others. Each of these is a large markets and the addressable portion for Amedica the opportunity is huge in the billions. While we currently have clearance for spinal fusion products made with our silicon nitride technology, we are busy developing where and corrosion resistance hip and knee implants very much applicable today given the demands of the industry and the challenges in addition, dental implant in collaboration with the strategic partners. We’re are the only company with the skill and knowhow and art to manufacture and refine silicon nitride for medical implants and we have now implanted over 25,000 implants with eight years solid successful track record, it's out there. That knowledge and experience and legacy is a key strength that enables us to offer new and transformative products in medicine. Our goal is to become a leading differentiated different biomaterial company focused on our unique silicon nitride technology to develop manufacture and commercialize a broad range of medical devices. A key component of this strategy is to educate, educate, educate surgeons and others in the medical community about a material and it's benefits. Truth be told we're doing these things that should've been done years ago. This is not an overnight effort but it is evidence in our aggressive publication and professional meeting schedule and our enthusiasm to get before our peers and be challenged and our sales and marketing efforts through a variety of channels including industry conferences and key meetings media outlets through our sales and marketing. Throughout the balance of this year, we will continue to establish and cultivate OEM and private label partnerships with multiple spine, orthopedic and dental companies. Now non-medical i.e. industrial silicon nitride manufactures that all [indiscernible] for material and our unique manufacturing acumen. Our material formulation compares very favorably for industrial use as well across a variety of platforms. As you might know silicon nitride is used very commonly in a variety of applications from electronics to total machinery, aerospace and many, many other industries where an extremely tolerant and strong material is needed. Regardless of the application we believe in the superiority of our technology. We have proven it we have the scientific data to support these claims. Through OEM and private label partnerships we can enhance existing implants by offering a more robust material platform that has validated benefits and the clinical data behind it. These opportunities all offer incremental revenue while providing our partners with a better material as manifested by improved [indiscernible] growth anti-microbial properties and better diagnostic imaging and better resistance to fracture wear and corrosion, all issues that face the medical market today. As Ty will outline later we are in an improved financial position and making headway toward the short term and long term goals. We have positions of continued success in 2016 and I believe we're in a great growth trajectory. As we've shown in Brazil and in recent private label announcements we're looking at additional opportunities both in the U.S. and abroad and we are capitalizing on them. Feedback from our recent participation in the Annual Brazil Spine Congress was very positive as we generated additional interest and awareness with our science and clinical presentation. We anticipate further positive revenue impact to the balance of this year and next as we continue to cultivate these relationships that we have built across the country. And now before I turn over to Ty to review the financials I would like to remind our listeners that while we made considerable headway in 2015, 2016 will be even busier and more productive by any measure for Amedica. We are delighted with our progress in 2015 but we will not rest on our laurels in 2016. Amedica is a unique company with a unique biomaterial and a very promising future. And that said let me turn it over to Ty Lombardi who will discuss our financial results. Ty?

Thank you, Dr. Bal and welcome everyone as I discuss in greater detail our fourth quarter and full year financial results for 2015. Our total revenue for the full year was $19.5 million a decrease of 15% from 2014 primarily driven by lower metal cells as a result of a decline in the wealth of activity for a few key surgeons and our outdated metal system which we are addressing and Dr. Bal will discuss later. Silicon nitride cells decreased by $0.7 million or 6% as compared to the same period in 2014. This decline was primarily attributable to consequences from our restructuring and a loss of a few key surgeons during the early part of the year. This is partially offset by the addition of new surgeons during the second half of the year reengaging lost surgeons [Technical Difficulty] private label sales. The cost of revenue decreased $1.7 million or 21% as compared to same period in 2014. The decrease in cost of revenue was primarily a result of reduced sales in 2015 as compared to the same period in 2014. Our gross profit as a percentage of product revenue increased by three point to 68% in 2015 up from 65% from 2014. As a result of our efforts to reduce costs or production efficiencies were overhead costs and a decrease in access and obsolete inventory in 2015 as compared to 2014. Research and development expenses for the year decreased $0.4 million or 7% as compared to the same period in 2014. This decrease was primarily due to a $2.1 million decrease in stock based compensation and $2 million increase in personnel related and other development cost. These decreases were offset by an increase in operating expenses that were not allocated to inventory due to lower production levels of our [indiscernible] in 2015 as compared to the prior year period. General and administrative expenses decreased $7.2 million or 52% as compared to same currency in 2014. This decrease was primarily due to a $5.7 million in stock based compensation, $700,000 decrease in personnel related cost and a $600,000 decrease in other operating expenses as we have reduced operating costs in 2015. Sales and marketing expenses decreased $6.3 million or 34% as compared to the same period in 2014. This decrease is primarily due to a $2.2 million decrease in stock based compensation, a $1.6 million decrease in commissions to lower sales and a $2.6 million decrease in personnel related cost, travel, consulting and other operating expenses. Operating expenses decreased $13.8 million or 35% as compared to the same period in 2014. This decrease was primarily due to the items mentioned previously. Now loss for the full year 2015 was $23.9 million compared to $32.6 million in the prior year period. This year over year improvement was primarily a result of the decrease in non-cash stock compensation expense of approximately $9 million, lower operating expenses and lower operating cost incurred during the year. This was partially offset by a loss recognized on the issuance of warrants and increased interest expense. Majority of the derivative viabilities were extinguished or were classified to equity by December 31, 2015 either as a result of being exercised or fixing the exercise price and a number of securities. Now as a majority of these derivative liabilities are behind us. We have approximately 11.3 million shares of common stock and approximately 12.2 million shares on a fully diluted basis. Adjusted EBITDA which is defined as earnings before deductions for interest, taxes, depreciation, amortization, non-cash stock compensation expense, change in for a value and our derivative liabilities offering cost, loss on extinguishment of derivative liabilities and a loss on extinguishment of debt for the full year of 2015 was a loss of $9 million compared to a loss of 11.9 million for the full year 2014. As of December 31, 2015 our cash and cash equivalents totaled $11.5 million. The decline in total cash for year-over-year was driven by a decrease in operational cash burn of 5.5 million in 2015 or 38% as compared to the prior year period. Total principal debt obligations were $ 17.8 million at December 31, 2015, a decrease a $6.7 million or 27% at December 31, 2014. During 2015 we were very focused on reducing cash burn and we will maintain our focus during 2016 and expect [Technical Difficulty] furthermore we’re focused on improving our current deposition and unlock additional working capital. As Dr. Bal mentioned earlier on the call, additional operational cash burn improved by $5.5 million and continues to improve as we remain committed to conserving our cash for opportunities, a yield with greatest return. These financial improvement speak to the wonderful job our team's have done and we do things operating expenses and proper managing cash levels today. Lastly, I want to take a moment to review our cap table and the progress we made over the past 18 months to get us to where we're at today. As you will likely we amended the terms on our series A and C1 to the end of Q4 as Dr. Bal outlined earlier, it's the exercise practice of those warrants and the cap the number of issuable shares. So [indiscernible] truly minimize the uncertainty of our cap table while also limiting the potential dilutive effect of an exercise of those warrants to help provide perspective as to why this status is critical for Amedica back in June of 2014 existing debt note helped with GE Capital as we refinance with Hercules Capital in the tune of $12 million [ph]. Given the elevated cash burn at the time Hercules required Amedica to an additional 6 million in cash on the books. In order to refinance the note management entered into a convertible note agreement with [indiscernible] and that point of we have participated in two additional follow on offerings to complete the last step towards improving our capitalization and fixing [Technical Difficulty]. 2015 will be start [Technical Difficulty] associated with our capitalization structure. To go from 26 million in total debt in July of 2014 to 18 million in 2015, to get to a position of certainty in our capitalization period in the end of 2015 to the testament of the [Technical Difficulty] team members has put in to get us to where we’re today. We all been able to accomplish in such a short period of time I'm extremely optimistic for what the future holds and although we have a good portion of heavy lifting behind us, we remain laser focused on continuing down this positive trajectory to reduce total cash burn and achieve operational cash flow breakeven and maintain a certainty of our capitalization table. With that I'd like to turn the call back over to you Dr. Bal.

Thanks, Ty. I too am optimistic for our future and for a good reason. And here's the reason, there's not a single study clinical or otherwise, not one body of research, not one investigation, not a single scientific query of partner to-date that has questioned or failed to show the exceptional advantages of our material. And just how much we can do it. That's the unique strength of a company and validated each time another study or presentation rolls out just about at a monthly clip for the last one year. First I'd like to begin with a composite silicon nitride fusion device as you remember during the fourth quarter of 2015 we submitted the 24 month clinical study outcomes to the FDA for a 510(k) in the U.S. market. These clinical data outcomes were part of our cascade study of blinded randomized trial that compared cervical fusion between our composite silicon nitride spacer device, manufactured with an integrated core of four silicon nitride to the existing standard which is plastic filled with a patient's own bone. Silicon nitride prove to be the first synthetic material to demonstrate spinal fusion outcomes at a statistically equivalent to those achieved with the patient's own bone at 24 months precisely what the goal of this study was. The 24 months data is very clear in both clinical scores and bone fusion, our device is no different than the predicate consistent with a regulatory standards for a 510(k) and these data we will publish soon in a peer review journal. These results are also consistent with our understanding of the molecular and surface chemistry and biological characteristics of silicon nitride as published in engineering journals throughout 2015 and continuing into this year. So they are consistent. As you can imagine achieving clearance for this product is important to us and further our mission to improve patient health by enhancing clinical outcomes which is why we invested the necessary time and data gathering and analysis to make sure we had it right before the FDA submission. A month ago we got questions from the FDA that concerned technical details and we are responding to them with regulatory and law professionals who are experienced at 510(k) submissions with the FDA and exact timeline for a final reply from the FDA is not known because of the intricacies inherent in the process. But I am personally engaged in formulating, editing, writing and helping with a response to the FDA very familiar with the application and very confident about the quality of the data and specifically the outcomes of the data. As our Principal Investigator Dr. Arts presented last week the 24 month follow-up clinical data show very clear equivalence to the predicate standard both in clinical outcomes and fusion exactly what we had hoped. We feel these results will allow us to capture a larger share of the global spinal fusion market because of the ability of this device to reduce surgical complexity, time, cost, duration and eliminates the need to pack a hollow device with biological bone fillers. Our total addressable market should double to $4 billion as the biologics market comes into play for us upon receiving clearance given the bioactivity of our material that we have proved in a number of publications and demonstrated by the cascade study. We are prepared to launch the composite product into the market once we receive clearance from the FDA Products like this composite device show the competitive strengths of our R&D manufacturing teams. We cannot emphasize enough the innovation this composite product has unlocked for the company and it's a first step toward an innovative product pipeline, it's not the only step. Our ability to synthesize a biomedical ceramic in porous formulation with the full control of the porosity of the product speaks to the highly differentiated and comparative strength of our science R&D and manufacturing teams. Keep in mind ceramics have been around in healthcare for the last 40 years, no one has ever formulated it's porous substrate as yet. The applications of a porous bioactive high strength ceramics go well beyond spine surgery and point toward a very innovative pipeline going forward. In addition to this unique composite technology, our R&D efforts have also shown something really wonderful, a stem cell affinity for silicon nitride as confirmed by two independent tests both done by outside parties. Further studies planned in this year will investigate if a material supports cartilage cell differentiation which will be very exciting. These efforts validate a basic science and keep opening novel doors to unique products addressing current needs and partnerships particularly with biologics companies looking for a superior material platform. I cannot identify names but I'm pleased to announce we have several preliminary agreements with spine or [indiscernible] partners who are keen to test this material for a very specific variety of applications. Now keep this in mind in every instance we have expressed concerns not that the testing conditions are too harsh but rather that they are not harsh enough. Our material is very competitive and it has been used in industry, in extreme applications where other materials fail. We are keen to put it to the test in every which way, we are open to the most intense testing of our material against any other material in the world by any partner. One such alliance with selling biosciences came about as their testing showed. Silicon nitride has five times better cell adhesion rates than PEEK, a finding which we had suspected based on our engineering and molecular studies. A few of the newer concepts and devices we prototype and could begin testing soon include all porous silicon nitride fusion device for use in spine extremities, trauma or sports medicine applications. The 3D printing of silicon nitride that I'm very excited about, bone integration devices for resurfacing of joints, metal on ceramic bracing for both medical and aerospace applications and other composite devices to meet the unique needs of skeletal articulation. These are not speculations, these are projects and testing going on as we speak. The point is that we have a broad product portfolio and continue to develop and innovate in the medical space and beyond. Unlike a one hit by a pharma style company, our future does not rest with one device or one formulation even as we have full confidence in our FDA submission and an anticipated meeting with the FDA soon about our ceramic femoral head as well where we will educate the FDA in terms of its guidance document and bring it up to date. We will continue to develop new products and novel applications for our silicon nitride that improve the continuum of patient care. I will look forward to announcing additional details on these exciting product and partnership endeavors in the coming future. Now in addition to the strides we have made with our silicon nitride portfolio. Let's go to the metals portfolio we have made progress with new a medical school fixation system. The metals are important because of the pull through effect, our efforts on this front have brought into focus the potential pull through effects that we have talked about with a new school system on our silicon nitride products as we have updated the instrument set for our design and consulting surgeons and anticipation of a launch later this year. Surgeon feedback has been overwhelmingly positive. The unique attributes of a modular screw design and tension head body something no other company we know can claim as a comparative advantage allow for additional surgeon ease of use while potentially reducing operating room time. We remain on track for a limited product release in the fourth quarter of this year and look forward to officially unveiling our updated system at this year's Mass Meeting in Boston. We will continue to introduce new and innovative products throughout this year while developing and solidifying our foundation to support sustainable growth. I truly believe we’re better positioned to develop innovative products and renderings [indiscernible] materials that are adaptable to the market's needs. As a biomaterials company, collaboration with other companies and getting out there aggressively in front of industry is a key priority and we will carry that this year. Our silicon nitride biomaterials truly is unique and we believe it's superior to anything on the market today based not so much on faith but actual data, the material speaks for itself and testing after testing by us and others it's truly unique and it opens the doors to superior products and platforms that the market desperately needs. On that point doctors, medical experts, scientists industry partners, competitors are all in agreement. In tandem with our private label and OEM sales strategy, our sales and marketing staff we will focus on increasing productivity and continuing to engage independent sales distributors with strong orthopedic surgeon relationships to drive the growth of our traditional spine sales. We may also establish distribution collaboration's in the United States and abroad when access of large or well established sales and marketing organizations may help us gain access to new markets, increased sales in our existing, or accelerate market penetration for selected products. Our company has a strong infrastructure in place for a top level unique manufacturing business development and R&D, market such as Europe, Latin America and Asia receptive to ceramic technologies have experienced in them particularly in skeletal reconstruction and we will continue to expand into those markets through existing and yet to be announced private label and OEM partnerships. We anticipate announcing at least four additional partner deals this year which will be achieved through the work of business development, sales and marketing team at conferences, roadshows and through publication efforts. Creating interest and educating peers is a large part of a corporate effort. Our persistence to establish, cultivate and finalize OEM and private label deals leaves the confidence we have in our ability to grow this hybrid sales strategy and speaking for myself personally I'm very passionate about the material and the company and very fortunate to be part of it. Thank you, Dennis will you now please instruct the callers to join the queue for questions.

[Operator Instructions]. Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is now open.

So a few items that come to mind. So you discuss this additional process for kind of next generation silicon nitride whether the sheer -- and additional process with the current implants, does that mean the current material can be modified or would this just be referred to new material, new implants?

Let me clarify the engineering of the next generation product which is the nitrogen [indiscernible] product is a surface chemistry manipulation and I will spare you the hard science details. So what it does it allows us to precisely engineer the surface to encourage more bones cell in-growth and faster healing. So good news is if you’ve already got a structural part like a spacer in an inventory we can subject it to a surface treatment not a remanufacture and that confers the additional advantageous properties to the existing inventory. So we're very fortunate in that. This innovation can be applied to the existing inventory without having to rebuild all of it.

So requiring its own 510(k) application or do you expect that you will be able to do that with the existing material later this year?

It does not need a new 510(k).

Okay. So you mentioned that you expect four more partnership agreements, is that specific to private label or specific to distribution agreements that you’ve in place now?

It's a blend of the two.

And generally speaking, Ty or Sonny, how do you feel about the OpEx going forward? Is that kind of the 2015 range of call it $25 million or $26 million reasonable for 2016?

From an operating expense?

Yes.

No we would anticipate our operating expenses to decrease going into 2016 kind of consistent with our cash burn decreasing that we will have to anticipate some growth in revenue and then reducing operating expenses to further reduce our operating cash burn.

Okay. So 10% to 20% lower? I know you don’t provide guidance but is that how we should be thinking about it?

Yes we don't provide that exact guidance but that would be in the range, yes, that what we would expect.

Sonny, could you talk a little bit about this cascade study as far as the 510(k) so you will provide a response as far as some of the technical questions from the agency and you’re confident that you will receive a clearance by the end of '16?

Yes that's certainly what we hope so to repeat when I’ve said the a part review of the entire submission I believe we definitely have ducks in a row. The study showed what it was supposed to show we hoped it would show, the questions are more about intermediate data points variability and explanations for which we have the data, it's the matter of reanalyzing segments of the data to answer those very specific questions. And looking at the entire body of questions there are no serious structural issues with the study so we're going to answer those questions, get into a meeting with the FDA, answer any residual questions and take it from there. I'm confident.

Okay and on the metals introduction, it started with -- have been sooner in '16, you’re talking about a limited launch by the end of the year and what products specifically kind of [indiscernible] fixation and what else? Rods, plates?

It's pedicle screw system with the accompanying instrumentation to go with it. So the focus is on the screw and updating the instrumentation that goes with it.

So in agreement [ph].

Correct, and it would include the rods as well.

It's MIS surgery friendly, it's more than a desperate need of an upgrade to modern standards. The design and the features of the screw are very competitive as it is. We recently simply needed a newer model of it.

And one more, Sonny, just generally speaking are you seeing more I guess chatter or papers or publications about PEEK out there kind of going into some of the non-function and crackling that’s going on?

Yes there was a study recently at Mass talking about delamination, I don’t see a surgeon where I can tell you that the lure or the fool's gold of sticking coatings on materials has been with us for a long time and continues to be that way because it's a cheap easy way to get to where we are already. Most materials are not facile [ph], they are one dimensional. So if you've got something soft that can grow into bone but you need something hard on the other side that can articulate, our materially you can engineer it that way, most materials you got to coat it to do something. Not very happy results for the most part and the reason is that the body is harsh. We are asked why the testing conditions are so harsh by our competitors whose got a stone measure up to ours and the reason is any implant in your body has to last over decades, multi-millions cycles in a salty, warm fluid much like an ocean ship only worse. So things just like our ships corrode and undergo changes that are not very good, now on top of that if you add a coating, like the PEEK coatings you’re talking about. You've got one more mode of failure namely shear stresses which the body subjects to any implant in a structural setting. So I predict an unhappy ending for most if not all of these so-called innovations because we've been there before with hip replacement, bearings, knee replacements, polyethylene innovations, in-growth surfaces, so on and so forth.

And this does conclude our question and answer portion. I would now like to turn the conference back over to Dr. Sonny Bal for any further remarks.

Thank you, Dennis and thanks everyone who participated on the call. And a very special thank you to a loyal and patient shareholders. In closing I'd like to restate my optimism and total commitment to the company for 2016 and beyond. The recent industry trends coupled with discussions with potential OEM, private partner labels, private label partners, surgeons, distributors and the ceramic industry at large. It's a very big industry, medical and non-medical, show that there is an increased demand for silicon nitride, silicon nitride specifically across a broad spectrum of medical and non-medical industries, from your cell phone to aerospace to all kinds of industries. We at Amedica are uniquely positioned for this incredible opportunity, being the only truly differentiated player in that space with our experience and strength in biomedical engineering. With our improved financial position, best in class material situations we could not be better positioned to take opportunity of this enormous market. And I will look forward to providing another update next quarter. Really appreciate for your continued support. Thank you.

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.