Minerva Surgical, Inc. (NASDAQ:UTRS) Q2 2022 Results Conference Call August 9, 2022 4:30 PM ET
Company Participants
Caroline Corner – Investor Relations
Dave Clapper – President and Chief Executive Officer
Joel Jung – Chief Financial Officer
Conference Call Participants
Rohin Patel – JPMorgan
Matthew O’Brien – Piper Sandler
Operator
Good day and thank you for standing by. Welcome to the Minerva Surgical Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Caroline Corner, with Investor Relations. Please go ahead.
Caroline Corner
Thank you, operator. Welcome to Minerva’s second quarter 2022 earnings call. Joining me on today’s call are Dave Clapper, President and Chief Executive Officer; and Joel Jung, Chief Financial Officer.
This call will provide forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which Minerva Surgical operates, trends and expectations for Minerva’s products and technology, trends and demands for Minerva’s products, Minerva’s expected financial performance, expenses and position in the market and outlook for fiscal year 2022, and the impact of COVID-19 and its variants on Minerva’s operations and Minerva’s customers’ operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements.
Please review Minerva’s most recent filings with the SEC, particularly the risk factors described in Minerva’s quarterly report on Form 10-Q for the quarter ended June 30, 2022, which was filed on August 9, 2022, for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management’s expectations as of today. Minerva undertakes no obligation to update these statements to reflect events that occur or circumstances that exist for today, except as required by applicable law.
Minerva’s press release, the second quarter 2022 results, is available on Minerva’s website, www.minervasurgical.com under the Investors section and includes additional details about Minerva’s financial results. Minerva’s website also has the latest SEC filings, which you are encouraged to review. A recording of today’s call will be available on Minerva’s website by 5:00 p.m. Pacific Time today.
With that, I will hand the call over to Dave.
Dave Clapper
Thank you, Caroline. And thanks to all of you for joining us on our second quarter earnings call. Minerva Surgical is solely focused on women’s uterine health. Our line of four products: Minerva ES, Symphion, Genesys HTA and Resectr address abnormal uterine bleeding or AUB. AUB is caused by either a dysfunctional lining of the uterus called the endometrium or by abnormal intrauterine tissue structures called fibroids and polyps.
Minerva has a complete line of products for either the ablation of the endometrium or the resection of fibroids and polyps. As I’ve mentioned on previous calls, AUB affects one in three women, which equates to 18 million women in the U.S. between the ages of 25 and 50. Importantly, AUB is the leading cause of hysterectomies. Next to C-sections, hysterectomy is the highest volume women’s surgical procedure in the U.S. with approximately 500,000 hysterectomies performed each year.
It is often underappreciated that hysterectomy is a major surgery. In most cases, it requires general anesthesia and overnight stay in the hospital, a four- to six-week recovery time and a mortality rate directly attributed to the surgery of up to 1.5 patients per 1,000 hysterectomies. Our mission at Minerva is to eliminate the unnecessary hysterectomies performed for AUB.
Our flagship product, the Minerva ES endometrial ablation system, received FDA premarket approval in July of 2015 and is indicated for women with abnormal uterine bleeding for whom childbearing is complete. The Minerva ES ablates the endometrium to significantly reduce or eliminate heavy menstrual bleeding. Our Genesys HTA system performs a similar procedure to the Minerva ES, but uses hot saline as the energy source for the ablation, providing the gynecologist with an instrument that is better suited for irregular-shaped uterine anatomies. Our Symphion uterine tissue resection system is indicated for resecting fibroids and polyps. Fibroids are a significant cause of pain and excessive bleeding and are another leading cause of hysterectomies. And finally, Resectr addresses polyp removal and is generally used in office settings to round out our portfolio of products.
Now let’s turn to our performance in the second quarter. We reported revenues of $13 million in the second quarter of 2022, versus $10.9 million in the first quarter of 2022 and $14.1 million in the same period for 2021. While we were disappointed with the year-over-year revenue decline, we are very encouraged by recent positive trends in Symphion sales. The ablation markets have experienced challenges that we believe are due to lingering impacts from COVID, hospital access, nursing shortages and patient reticence to seek out elective treatments. However, indications are that the tissue resection markets are returning from their low points.
Our Symphion system saw a 20% growth over last year’s second quarter. We continue to make progress with new account evaluations and trials, and believe that as the macro environment improves, we are well positioned to continue this growth. In fact, overall, we have added 238 new accounts during the past 12 months, approximately 40% of which were new Symphion accounts. In spite of this continued progress with new accounts, we are seeing the lingering impact of COVID on both limiting patients who are seeking treatment as well as hospital staffing challenges and sales force access, but we believe we are seeing the light at the end of the tunnel, particularly with Symphion.
We know and the data underscores that Minerva ES is the best product on the market. Our FDA-approved efficacy results, which come from our clinical trials conducted for FDA approval, showed that our treatment success rate, i.e., reducing a woman’s excessive menstrual bleeding to a normal or less level, was 93%. This compares to our biggest competitor’s NovaSure product FDA-approved success rate of only 77.7%.
And in that same clinical trial for FDA approval, the Minerva product treatment amenorrhea rate, which is the complete elimination of a woman’s menstrual bleeding, was 72%, which is double the 36% zero bleeding rate from our biggest competitor’s NovaSure treatment. Finally, the rate of hysterectomies experienced in our clinical trial during the three-year follow-up period was less than 1%, compared to our biggest competitor’s NovaSure hysterectomy rate over that same three-year period of 6.3%.
In summary, the FDA approved our Minerva ES endometrial ablation labeling to read that when compared to the efficacy results of the group of five previously FDA-approved endometrial ablation devices, the objective performance criteria or OPC, the Minerva ES generated statistically significantly greater efficacy.
We believe these are compelling statistics and data. And when doctors and patients are given the facts, uncolored by our major competitors’ marketing claims supplied to physicians for their practice websites, they will choose to select the best device for the treatment. Let’s lay out the facts on what we have done to ensure women and their physicians are given the correct information.
Several years ago, we lodged a formal complaint with the FDA and ask that they require Hologic immediately correct the false efficacy claims on their corporate websites and to officially recall and replace all the NovaSure website modules and images that Hologic sent to thousands of physicians and health care providers across the U.S. The misleading claim, which today still appears on physician websites, inflates the FDA-approved 77.7% NovaSure treatment success rate by saying, “for 90% of women, menstrual bleeding is dramatically reduced or stopped altogether.”
Following our complaint to the FDA, the U.S. corporate website of our competitor was changed to reflect the more accurate efficacy data. However, their ex U.S. corporate websites continue to this day to erroneously promote inflated efficacy claims, which were not approved by the FDA. In fact, the misleading 90% efficacy claims still appear on Hologic’s Canadian NovaSure website at www.novasure.ca. Additionally, the same misleading efficacy data were sent to thousands of health care providers across the United States to display on their websites, and they are still displayed today, resulting in physicians and patients using this misleading data as the basis for their treatment decisions.
Today’s U.S. Hologic NovaSure website has even gone so far as to claim that NovaSure is the gold standard. Again, we have requested that the FDA takes steps to correct these claims, but to date, have not seen full and satisfactory action to protect women and their physicians from relying on these misleading marketing claims. Because there is no post-treatment diagnostic test to evaluate the efficacy of the endometrial ablation treatments, patients and doctors rely on the medical device companies to provide them with accurate information.
Moving on to our tissue resection product, Symphion. Sales were a bright spot this past quarter, having increased 20% over Q2 of 2021 and 19% over Q1 of 2022 sales. We believe this rate well exceeds market growth, indicating we are successfully taking market share in this important and growing market. The product safety features unique to Symphion and our ability to compete with a full suite of products are beginning to show results.
We are actively hiring and training our dedicated women’s health sales force. Our field sales force is now comprised of 80 sales territories, covering most major metropolitan areas. It takes three to six months for a sales representative to get up to speed, and we are encouraged by our progress and the enthusiasm of our sales team.
With a full slate of four products, we continue to gain access to group purchasing organizations and independent delivery network through new contracts. We are progressing on our national account strategy. And today, we are approaching 50% of our current business under contract.
I’d now like to turn to our direct-to-consumer digital marketing initiative, which, as I mentioned last quarter, is underway in 10 select markets. With our DTC pilot, we are seeking to educate patients on their AUB treatment options and the clinically proven advantages of Minerva treatments. Initial website traffic is very encouraging, showing early signs of success in increasing overall awareness of treatment options for AUB as well as connecting patients with treating physicians.
With that, I’d like to remind you of our growth drivers: one, completing the expansion of our sales and marketing team; two, signing complete product line contracts with GPOs and IDNs. Again, almost 50% of our business is now under contract; three, increasing our installed base of controllers in both new and existing accounts; four, cross-selling our products to drive new Symphion business in established Minerva accounts and new Minerva ablation business in established Symphion accounts; and five, leveraging our DTC marketing efforts to increase consumer awareness of our products. We have a lot of work ahead of us, but we are very excited to deliver on our mission to treat women with AUB and eliminate unnecessary hysterectomies.
With that, I’ll hand things over to Joel for our financial results. Joel?
Joel Jung
Thanks, Dave, and good afternoon, everyone. Total revenue for the second quarter of 2022 was $13 million, an increase of $2 million over the first quarter of 2022, but a decline of 8.1% from the second quarter of 2021. At the product level, for the quarter, Minerva ES was $5.8 million or 44% of total revenue versus $6.7 million or 48% of total revenue in the second quarter of 2021. Genesys HTA was $3.9 million or 30% of total revenue in the second quarter of 2022 versus $4.5 million or 32% of total revenue in the second quarter of 2021. And Symphion was $3.3 million or 25% of total revenue in the second quarter of 2022 versus $2.7 million or 19% of total revenue in the second quarter of 2021.
We’re encouraged to see the growth of Symphion sales in the second quarter. However, sales of our Minerva ES and Genesys HTA ablation products were both following more of the challenging market trends recently reported by our competitor.
Gross margin for the second quarter of 2022 was 59.0%, up substantially from the first quarter of 2022, but below the 61.9% reported in the second quarter of 2021. Gross margin in the second quarter of 2022 was positively impacted by the increased volume of product shipped, but negatively impacted by the product mix shift from our ablation products, Minerva ES and Genesys HTA to Symphion, which today has an overall lower gross margin. Gross margin was also reduced by an increase in Symphion and Minerva ES controllers that were placed with customers during 2021 and the first half of 2022.
We recognized depreciation expense on controllers over a three-year period, which is offset by future sales of single-use handsets over the life of the instrument. We’ve historically seen customer utilization on a recently placed controller increase over time, which then has a favorable impact on gross margin with the additional sale of single-use handsets. In sum, we predict a general gross margin improvement in the coming quarters and years through increased utilization of controllers placed with customers, fixed overhead costs being spread over a projected increase in volume of single-use handsets sold as well as future end-user pricing adjustments and cost-reduction initiatives being pursued with contract manufacturers.
Total operating expenses in the second quarter of 2022 were $12.5 million versus $20.3 million in the second quarter of 2021. Our sales and marketing expenses increased due to the expansion of the sales force and increased spending in physician and patient outreach, and were offset by a nonrecurring $3.9 million reduction in the fair value of the estimated liability for the final acquisition-related revenue milestone payment due to Boston Scientific in early 2023. This potential payment is tied to the net revenue earned in 2022 from the products acquired from Boston Scientific in May 2020. Additionally, general and administrative expenses as a result of the increased cost of now operating as a public company versus the prior year second quarter, where we were still a private company.
Noncash depreciation and amortization expenses included in operating expenses were approximately $2.1 million in the second quarter of 2022, unchanged from the second quarter of 2021. Noncash stock-based compensation costs, included in total operating expenses, were $1.6 million in the second quarter of 2022, versus $4.3 million in the second quarter of 2021.
Our reported net loss for the second quarter of 2022 was $5.6 million versus a net loss of $14.1 million in the second quarter of 2021. On a non-GAAP adjusted EBITDA basis, we reported negative $4.5 million in adjusted EBITDA for the second quarter of 2022 versus a negative $3.3 million in adjusted EBITDA in the second quarter of 2021. As a reminder, we have significant noncash expenses related to the amortization of intangibles from the May 2020 acquisition of the Genesys HTA, Symphion and Resectr assets, as well as significant noncash stock-based compensation costs in the second quarter of 2022, the positive adjustment for a reduction in fair value of the final revenue milestone payment due to Boston Scientific.
From a balance sheet perspective, we finished the quarter with $22.4 million in unrestricted cash. In total, our cash outflow for the second quarter of 2022 was $5.5 million. Our long-term liabilities were substantially unchanged from the fourth quarter of 2021, following our IPO and refinancing of our previous long-term debt facility. And as a reminder, our $40 million long-term debt facility is interest-only through the third quarter of 2023, after which it rolls into a three-year amortization schedule. We believe our current cash position will last us well into 2023, depending on when customers return to more normalized operations and on how quickly we grow our revenues.
Moving to guidance. We continue to experience a fair amount of disruption from COVID during the first half of 2022, especially in the endometrial ablation markets, which represent a significant portion of our total revenue. While we saw total Q2 revenue increase from the first quarter, we are experiencing a similar impact in the ablation market revenue that was reported by our primary competitor earlier this month. While Symphion sales are showing good growth, and we believe our market share continues to expand, these product sales are not enough to offset what we perceive as a temporary decline in ablation sales on a year-over-year basis. We are thus modifying our previous full year 2022 revenue guidance to between $50 million and $53 million.
With that, I’ll say thank you for your attention, and I’ll turn the call back to the operator for questions and answers.
Question-and-Answer Session
Operator
[Operator Instructions] We have a question from the line of Robert J. Marcus with JPMorgan. Please go ahead.
Rohin Patel
This is actually Rohin on for Robbie. I want to dive into the demand dynamics for Symphion versus ablation procedures a little bit more. Specifically, why are ablation procedures still significantly more challenged than resection? I understand the logic that as patients work from home during COVID, they can better manage the symptoms and wouldn’t necessarily go in for an endometrial ablation procedure given it’s more elective. And with tissue resection, there tend to be more severe cases and painful. So I understand that dynamic, but is this still the case even though COVID is largely not keeping people at home now? Or is there another dynamic at place that’s more structural in nature? And then I have a follow-up.
Dave Clapper
Rohin, this is Dave Clapper. Yes, you get it. You sound just like me when I answer that question while this is down. But yes, the percentage of women, working women that are still working from home, is still very, very high. And as you mentioned, those symptoms of abnormal uterine bleeding, if they’re bleeding alone and not in pain are much easier managed when you’re home than they are when you’re in an office or working at whatever job that you’re in. So that’s the feedback that we’re getting from doctors and the nurses that work with them on this topic. So that’s all we know.
Rohin Patel
And then kind of, I guess, going off of that, it seems like staffing was also kind of called out in the quarter as well as kind of a headwind to procedure volumes. So what are you seeing in terms of the mix between staffing and then just the general COVID dynamics that you saw with Omicron kind of just hospitals being pressured? Now that, that’s subsided, has staffing become more significant? Or do you see things improving sequentially?
Dave Clapper
I think it’s about even. I think — this is David again. I think it’s about even. And as difficult as it is to admit, and the feedback we get from our accounts, the staffing situation is not improving that much. What has happened is a year or two ago, large hospitals laid off hundreds — individual hospitals laid off hundreds of their nursing staff, OR technicians and so on. And for these people to keep bringing in a way, many of them became traveling health care providers, traveling nurses, they’re called. And these traveling nurses financially, as long as they don’t mind traveling, do very, very much better financially than they do when they were working at the hospital and driving into work every day.
So now the challenge is for these hospitals to get these — get the nursing staff to come back to the hospital at which they work before they became traveling. And many of these traveling nurses, we hear are literally driving across town. They’re not getting on an airplane and traveling from New York City to St. Louis, sort of L.A. or to Phoenix, they’re literally working in a very drivable distance of their area. And none of them, if that’s the case, wants to go back to their previous employer because they’re making a pretty amazing increase in pay, plus many of them are getting a housing stipend along with that.
Operator
[Operator Instructions] Our next question comes from Matthew O’Brien with Piper Sandler. Please go ahead.
Matthew O’Brien
Just maybe to follow up on the last question, especially on Minerva, Dave. It seems like a majority of the reduction to the outlook for the year is in that category. I’m sure there’s a little on HTA as well, but you had a lot of commentary upfront about the competitive dynamic right now. So just given the competitive dynamics, given the economic environment that we’re in, is the majority of the reduction for the year on the Minerva side? And then how do we think about that technology going forward because it seems like it’s the best in class, but is it enough? Is it differentiated enough to take significant share going forward?
Dave Clapper
So we believe that we are still taking share, but not at the same rate that we would be taking it if our customers weren’t being fed misleading information by our largest competitor. You can do a search for — a simple Internet search for “NovaSure, 90%,” and you’ll get thousands of results, thousands of results from websites that are health care providers, GYN physician groups, ambulatory surgery centers, hospitals that are advertising for 90% of the patients that received the NovaSure treatment, their bleeding has dramatically reduced or totally eliminated. So they’re not just saying that the success rate is 90%, they’re saying that if you’re a patient, you read this and you say, “Wow, I could have up to a 90% chance of having my menstrual bleeding totally eliminated.” It’s just wrong, and that’s why we’re up until now have been patiently working with the FDA to get this situation fixed.
So if you’re talking to a physician, and I have on many occasions, and they say, “So I’ve heard about this Minerva endometrial ablation device, why should I use it?” And we’ll say, “Well, it’s the fastest procedure. And in addition to being new technology, not 20 years old, the amenorrhea rate, the zero bleeding rate at one year is twice as high as the older NovaSure product. 72% for Minerva, 36% according to the FDA-approved amenorrhea rate, zero bleeding rate. And as far as success rate, the success rate with the Minerva product is FDA approved at 93% versus 77.7% for NovaSure. And then lastly, the FDA approved hysterectomy rate for three years following follow-up with Minerva is less than 1%, and it’s 6.3% for NovaSure.”
So for all those reasons, we think you should try or at least use or at least try Minerva. And they say, “Well, no, I do much better than that.” And we say, “Well, how do you know that?” And they say, “Well, I’ve been advertising it on my website for 10 years.” And because there is no post-treatment diagnostic test that evaluates women’s bleeding following endometrial ablation, it’s vitally important that companies honestly give the facts on the efficacy results to patients and to doctors. And that’s where — why we are really pressing the FDA to take action here. Sorry about the long answer.
Matthew O’Brien
No, I appreciate that. And I do have a follow-up for Joel, but just quickly on that point, Dave. Is there a set meeting or anything else like that where they’re going to review what’s going on from an advertising perspective in terms of this space?
Dave Clapper
Out of respect for our friends at the FDA, I’m not going to give out any details on meetings or schedules or anything like that. I think we should keep that confidential. But we are actively in discussions with the FDA trying to get this resolved. I think it’s appalling to me that a company would continue to represent to patients and health care providers. So Hologic actually distributed to thousands of health care providers, the website modules with this misleading information. So it’s one thing for Hologic to change their company website for the United States, although as we mentioned in the preceding that they still haven’t changed their international websites. And — so if they provided memory cards and information to all of these websites, and they have not yet changed all those. And like I said, do a search for NovaSure 90%, you’ll get thousands of results.
Matthew O’Brien
Okay. And then a quick question for Joel. Just you mentioned it, Joel, the cash position of the Company exiting Q2 and the burn rate here in Q2, I know that’s likely going to come down, hopefully, the sales grew up in the back half. But can you talk about that burn rate in the back half of this year? And then just how we think about the capitalization of the Company going forward?
Joel Jung
Sure, sure. So our burn rate does come down in the — particularly in the fourth quarter when we have historically seen a rise in sales. And we’ve talked about in the past, largely a function of patients consuming all of their deductibles and copays in the first part of the year and seeking treatments more often in the second half of the year. So the burn does come down. We are looking at our cash position pretty closely right now and considering how and when to raise some additional capital. So we’re in discussions at this point with some potential funders and thinking about how to build that cash reserve a little bit more.
Operator
And I’m not seeing any further questions at this time, this does conclude today’s conference call. Thank you for participating, and you may now disconnect.
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