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| EX-99.1 - PRESS RELEASE - SANUWAVE Health, Inc. | snwv_ex991.htm |
| 8-K - CURRENT REPORT - SANUWAVE Health, Inc. | snwv_8k.htm |
Exhibit 99.2
SANUWAVE HEALTH, INC.
CONFERENCE CALL TO DISCUSS SECOND QUARTER 2018
FINANCIAL RESULTS AND PROVIDE A BUSINESS UPDATE
Tuesday, August 14, 2018
10:00 a.m. Eastern Time
Operator
Greetings, and
welcome to SANUWAVE Health's Second Quarter Financial Results and
Business Update. [Operator instructions]. As a reminder, this
conference is being recorded.
It is
now my pleasure to turn the conference over to your host, Lisa
Sundstrom. Thank you. You may begin.
Lisa Sundstrom - CFO
Thank
you, and good morning. We appreciate your interest in SANUWAVE and
in today's call. SANUWAVE will now provide an update of our most
recent activities, as well as our second quarter 2018 financial
results. Our quarterly report on Form 10-Q will be filed with the
SEC today, August 14, 2018. If you would like to be added to the
Company’s distribution list, please call SANUWAVE at
770-419-7525 or go to the Investor Relations section of our website
at www.sanuwave.com.
Before
we begin, I would like to caution that comments made during this
conference call by management will contain forward-looking
statements that involve risks and uncertainties regarding the
operations and future results of SANUWAVE. We encourage you to
review the Company’s filings with the Securities and Exchange
Commission, including without limitation our Forms 10-K and 10-Q,
which identify specific factors that may cause actual results or
events to differ materially from those described in the
forward-looking statements.
Furthermore, the
content of this conference call contains time-sensitive information
that is accurate only as of the date of the live broadcast, August
14, 2018. SANUWAVE undertakes no obligation to revise or update any
statements to reflect events or circumstances after the date of
this conference call.
With
that said, I’d like to turn the call over to our CEO, Kevin
Richardson. Kevin.
Kevin Richardson - CEO
Thank
you, Lisa and thank you everyone for joining us on our call
today.
We last
updated you in April on our Q1 2018 progress. Today we'll provide
an update on the second quarter 2018 and a number of initiatives we
are undertaking to ensure our success as we rollout dermaPACE in
the U.S. and internationally.
Our
goal as we have stated is to have a device anywhere in the U.S., a
DFU, that’s a diabetic foot ulcer, is treated and then to
drive device usage with the growth in the number of treatable
indications and our ability to combine with other treatment
modalities.
Q2
results show SANUWAVE is making strides to have this vision become
a reality. We have established five goals along with other
priorities to support these goals which will allow us to show
continued strong revenue growth in 2018 and more importantly
establish the groundwork and a platform from which to achieve
market penetration and massive topline growth in 2019 and
beyond.
Let me
spend a second to review each of these goals: first, initial
revenue in the U.S; second, expand our senior management team in
the U.S., specifically in the wound care market; third, enter four
new international markets; next, begin supportive clinical work;
and finally, expand our Board of Directors and our Science Advisory
Board.
Looking
at our second quarter achievements, it is clear we are executing on
our business plan. We have generated U.S. revenue with sales of
devices to Premier as they began to penetrate their vertical
markets Indian Health and the Veterans Administration, the VA. We
are currently seeing more interest out of Indian Health. I think I
underestimated the devastation diabetes has reaped on the Native
American population. It truly sounds like it is a matter of when,
not if, they get this disease. So they are very interested in using
dermaPACE to help them.
1
The VA
is, as expected, a little bureaucratic, but the team is making
great progress and strides within that market. When we made this
announcement back in Q1, we mentioned the size and the potential of
these relationships. We plan on providing more detailed updates on
this channel during our year end call.
Second,
we did hire a new senior management Shri Parikh. Shri comes to us
from Molnlycke which is one of the top two or three wound companies
globally. He led the U.S. surgical units with over 500 million in
annual revenue and had a team of over 100 reporting to him. He is
truly a rock star who we’ll introduce to you
momentarily.
In his
time here so far he has become an invaluable member of the
leadership team and everyone feels like we're headed in the right
direction. With Shri on board, we’re also seeing a lot of
interest from other senior wound care professionals that want to
jump on his ship as it takes off. We’ll hear more from him
after Lisa details the second quarter.
Next we
announced and entered three new markets in the second quarter
providing coverage of an additional 15 new countries outside the
U.S. As I had mentioned before, the groundwork for the
international growth has taken place over the past two years and is
now coming to fruition. The three markets range from small to
large.
Romania
is our initial foothold into Eastern Europe. It will act as our
base of expansion in that region with training having already
occurred, product being sold, and patients being
treated.
Tarbaca
is our foray into Central America. The agreement covers Costa Rica,
Panama and Guatemala. Most important here is bringing in a
relationship with Gustavo Di Mare. Gustavo ran Convatec in Central
and South America for years and we’re excited to now have him
part of the SANUWAVE family. His insights and expertise will be
nice contributions to have despite the relatively small size of
these end markets.
The
largest deal announcement in the quarter was with FKS. It covers 11
countries in Southeast Asia. FKS is a company with over $400
million in revenue. They will soon be publicly listed as well, and
their CEO, Fei remains one of the most driven business partners I
have come across in all my years. The agreement was signed, funding
came into us right away, and then they began sales and training in
July with two members of our team working with them at a Malaysian
conference. I was recently asked if this could be as big as the
Brazilian deal and given the recent activities out of FKS, I would
argue it could be much bigger as they rollout across Southeast
Asia.
Next,
we started our clinical work on our perfusion study. We discussed
this briefly on our Q1 call but we plan on making sure we have the
appropriate studies to support growth with our medical
professionals. One critical area we’ll plan to exploit is our
ability to vascularize the areas where wounds having trouble
healing. We are unique and novel in this and it will help us
differentiate as we educate the clinicians on
shockwave.
Also
during the quarter, we added to our science advisory team and plan
to add additional board members by year-end. Dr. Perry Mayer out of
Canada runs one of the most prolific clinics where he is treating
80 to 90 patients a day. He has also been invited to speak at a
conference in Malaysia in September on our behalf. The global reach
we’re developing is very exciting and we’re beginning
to link everyone so that the entire global SANUWAVE team is pulling
together.
All in
all the second quarter was significant on many fronts but our main
accomplishment was establishing the platform from which we will
grow in the future. On our last call we detailed some of the areas
you'll see us look to grow and develop. Internally, we have a plan
which calls for revenue growth accelerating throughout 2018 and
then tripling in 2019. This will mean our headcount will increase
from eight at the beginning of this year to between 20 and 30 by
the end of this year and potentially doubling again in
2019.
As we
talk more about additional studies and additional senior management
and sales people and expansion overseas, the question that is on
most investors’ minds is, how we going to pay for this? How
are we going to raise money and are they going to dilute or do
anything toxic with the stock?
2
We’re
actually very fortunate to have the board and investor base that we
have. Most of you all know we've been through a lot over the years
and quite frankly there have been times when we could have thrown
on the towel and given up hope but we didn't. We never gave up on
the dreams of making this a reality.
We have
also made sure we did in the right way, not taking toxic money or
investors who could put the company at risk. We were actually
thoughtful in our approach especially in regards to thinking about
the future funding needs.
2018
funding and as we enter 2019 will come from two primary sources.
International details which involve some sort of upfront
exclusivity payment, and then usually coupled with milestone
payment as those milestones are achieved.
The
others is an asset we have on our balance sheet and our warrants.
The investors who helped fund the company in 2016 and late 2017
received warrants that will expire in March of 2019. These warrants
amounts to $7.5 million in cash that will come into the company
upon exercise. We are contemplating incentivizing those investors
to exercise those warrants earlier than their expiration. We have
more to discuss on this in the next few weeks. We will most likely
not take in the full amount today. Having spoken to some warrant
holders already, I am extremely confident we’ll be in a
situation where will have an oversubscription when we officially
announce the warrant exchange.
Between
the warrants and the international deals we should be in good
position to add to the infrastructure, build the platform and meet
our revenue targets for 2018 and 2019. As we've said all along, we
will manage our cash to minimize cash burn and dilution so that
means we won't be hiring 60 people tomorrow but we’ll try to
pace it with the revenue growth. All these steps will allow us to
show revenue growth that will accelerate throughout the
year.
Today
Lisa will discuss Q2 financials and then I will summarize the
initiatives we are undertaking and update you on the success we've
had at the various conferences. And then we’ll turn it over
to Q&A for the normal questions at the end of the conference.
Lisa.
Lisa Sundstrom - CFO
Thank
you, Kevin.
Revenues for the
three months ended June 30, 2018 were $453,000, an increase of
$342,000 or 308% from the prior year. Our revenues resulted
primarily from sales in the United States and Europe of our
dermaPACE and orthoPACE devices and the related applicators. The
increase in revenue for 2018 was also due to higher sales of
devices, both new and refurbished applicators, as compared to the
prior year.
Research and
development expenses for the three months ended June 30, were
$368,000 a decrease of $70,000 or 16% from that prior year. The
decrease in 2018 was a result of lower consulting expenses related
to the FDA submission and follow-up which was partially offset by
the hiring of full time software engineers.
General
and administrative expenses for the three months ended June 30,
2018 were $2 million, an increase of $1.1 million or 113% from the
prior year. The increase for 2018 was due to the hiring of
President and Human Resources Director and related non-cash
compensation expense related to stock options issued, higher public
company costs related to Investor Relations, higher travel expenses
related to conferences, higher costs related to leasing of the
products, and higher consultant fees related to the
commercialization of the dermaPACE system.
Net
loss for the three months ended June 30, 2018 was $2.9 million
compared with net loss of $1.4 million in 2017, an increase in the
net loss of $1.5 million or 104%. The increase in the net loss for
2018 was due to higher general and administrative expense already
discussed, as well as higher interest expense related to the
convertible promissory notes and that was partially offset by a
gain on the warrant valuation adjustment.
3
Looking
at cash flows, as of June 30, 2018 we had cash on hand of $671,000
compared with $730,000 at December 31, 2017. Net cash used by
operating activities was $1.6 million for 2018 year-to-date
compared with $572,000 from the same period in 2017. The increase
in 2018 cash use for operations was primarily due to increase
operating expenses and a decrease in payables.
We
continue to project that our cash burn rate from operations will be
approximately $125,000 to $225,000 per month in 2018 as we continue
to expand our international market, prepare for the
commercialization of dermaPACE and continue research and
development of non-medical use of our technology.
Now let
me the turn the call to Shri Parikh to introduce
himself.
Shri Parikh - President
Thank
you, Lisa. Hello everyone good morning and thank you for joining
us.
With
this being my first call with you, I would like to just take a few
minutes to introduce myself, share what I learned during my
research about the opportunity here with SANUWAVE, what attracted
me here, and what I have learnt these past two months during my
short time here at SANUWAVE, all which I hope explains to you my
increased confidence and heightened enthusiasm towards our
capabilities to doing more, supporting our growth and most
importantly helping patients have a more meaningful and positive
lifestyle as a result of the therapy they receive from our
technology.
As a
background, I have been in healthcare for as long as I can
remember, from parents, family pressures of pursuing a career as a
physician to choosing a more personally interesting path of
research and business within the healthcare vertical. The
healthcare companies range from five years in pharmaceuticals to 16
years in med devices mostly in cardiovascular and then orthopedic
to then most recently, as Kevin shared, the past five being more
with the global commercial engaging role with Molnlycke, where I
was the GM for surgical business, but also having responsibility
for both wound care and surgical leading the national corporate
accounts teams.
My work
experience was just one part; however, it was a personal connection
to diabetes that really peaked an emotional interest. This included
witnessing the challenges endured by my mother who was a type II
diabetic for the past 25 years of her life, ultimately suffering
with end stage renal disease, kidney failure, and passing away 11
years ago as a result of diabetes related complications. It was
this which encouraged me to consider SANUWAVE more
seriously.
As I
researched the technology, the data, clinical evidence, feedback
from the clinical advisors, the differentiating value benefit, the
type of shockwave that only dermaPACE provides all helped me and
revealed more of the compelling attractions towards SANUWAVE. This,
compounded by the remarkable resolve demonstrated by the very
capable, committed and passionately loyal team, helped spark my
excitement in wanting to join and become a part of the SANUWAVE
family.
Then
came the business side and the significant opportunities there.
Given the FDA clearance supporting dermaPACE for diabetic foot
ulcer and with it the $4 billion U.S. market potential and a $20
billion potentially worldwide for DFU treatment opportunity, I felt
increasingly confident that successfully commercializing, offering
my help in this role, instilling focus, accountability with
strategy and execution to be well within our reach. And this
confidence in our ability to successfully brand and commercialize
dermaPACE in the U.S. and existing global markets with DFUs and
beyond continues to grow each and every day.
This is
what excites me and what ultimately drew me here to be a part of
SANUWAVE. As we approach the 30-year anniversary for when corn
syrup was introduced into soda, the lifestyle choices both on the
dietary and exercise front as a global society we are failing with
diabetes. Diabetes is an increasing epidemic and SANUWAVE’s
dermaPACE is one very critical technology to support the treatment
for DFU and ultimately amputation prevention.
4
With
our ongoing studies and increase reimbursement guidance and
commercialization efforts, I know we can become the best clinical
and economically responsible choice for every healthcare provider
responsible for restoring the functionality, mobility as well as
enhancing the quality of life for every DFU patient.
Now let
me hand it back over to you, Kevin.
Kevin Richardson - CEO
Thanks,
Shri.
As you
can see from Shri's background, we found a great leader to help us
on our next leg as a company, one switching from R&D to
commercialization. Just to summarize the quarter, we met many of
the goals that we have outlined to you earlier in the year and
began the process of developing the platform for future growth.
Included in the Q2 that we really didn’t spend a lot of time
talking about was our topline growth of over 300% which we’re
very proud of as well.
We have
explained that we do have a plan, a plan used by other successful
wound care companies that introduced the new technology. The plan
gets refined continuously through prioritization exercises so we
are always thinking operationally today and strategically about
tomorrow. Success will involve hiring the right people, performing
the proper clinical work to support the technology and indications,
educating the marketplace on how and when to use dermaPACE,
successfully navigating reimbursement arena, and working globally
to support our infrastructure in global branding.
We’re doing
all of the above and more. We’re shipping a record number of
devices. We’re training more clinicians than ever before.
We’re getting the job done on a daily basis. It does not mean
every day runs perfectly smooth and without any glitch, but the
team here at SANUWAVE has one goal in mind: to have a device
anywhere DFU is treated in the U.S.
Lastly
I want to again thank the shareholders who have helped us get to
where we are today. Many of you have stop by and visited the
facility. We’ve had just shy of a dozen investors visit us
since the beginning of the year. We encourage those who are near to
stop by meet the team, see what we’re working on and where
the company is headed.
With
that, let’s head to Q&A. Rob.
Operator
[Operator
instructions]. Our first question comes from Brian Marckx with
Zacks Investment Research. Please proceed with your
question.
Q: [Indiscernible] and congratulations
on the progress. Can you tell me how much U.S. revenue was in Q2
and how much U.S. revenue utilization based?
Kevin Richardson - CEO
Brian,
I'm going to repeat your question just because there was some
interference. And so maybe what will do is, I’ll repeat the
question, answer it and then maybe if you get back in queue the
line will be cleaner.
So the
question was progress in the U.S. what extent was U.S.-based
revenue, was there any Premier revenue, were there any usage base
revenue in the quarter?
So with
regards to Premier there was some revenue from Premier in the
quarter as expected. We've already seen some in the third quarter,
we’ll see some in the fourth quarter and we expect usage
revenue out of Premier to go up throughout the year. We have
performed our first treatments on patients in the U.S. as well
non-Premier.
5
In the
quarter, U.S. revenue was small. It was a very small percent most
of the revenue came from our international partners out of Europe,
FKS, the FKS agreement, the Brazilians and so that's where you saw
the bulk of the revenue coming from in this quarter again. The
first half of the year even in the third quarter we’ll see
mostly international. Fourth quarter will be when we begin to see
both U.S. revenue start to really ramp up for Premier and for
ourselves as we have placements turning revenue
positive.
Q: I’m happy to get back in
queue.
Kevin Richardson - CEO
No,
you’re much better now keep going, Brian.
Q: In terms of the additional personnel
that you've mentioned you probably add in the remainder of 2018,
can you give us a sense of what you expect in terms of incremental
cost related to that. And then in terms of the functions that
they’ll fulfill what are the functions that the new personnel
will tell?
Kevin Richardson - CEO
Sure.
Let me take a step back so before we go out and just start hiring,
you have to have a good strategic plan in place, a good budget in
place and know what it is we're looking for and not just roles for
the immediate today but whose is going to benefit us two, three,
five years down the road. So we’re playing a little bit of a
long game here which is why we’re taking our time, to make
sure we get the best talent. And again its kind like a draft, you
want to get your best athletes on the team to put your team in best
position going forward.
Some of
the areas that we need to bring on people over the next six months
will be on domestic sales and that will be a process that’s
already begun—everything is already kind of underway. We have
identified what the roles are we’re looking to bring on, who
will bring on there is a balance that Lisa talked about that I've
talked about we're trying to make sure that we’re not
bringing on 60 people tomorrow and having expenses go through the
roof. It's really have to be additive so when we’re bringing
people on there is a, I don’t want to say net present value,
but a positive aspect to the nature of them coming on.
One of
the things—I'll give an example over the summer one of the
areas we focused on was clinical support, and this is trainers,
people who can actually go train clinicians, nurses, doctors on how
to use our device. And it was an area that we identified as a
bottleneck back in June, began the process and then we’ll
bring on boarding people in the third quarter, so that we can then
start rolling out at a fairly rapid rate, because it is a new
device that we need to educate on and it’s a global company.
We have a training that’s going to take place domestically,
internationally. We're looking at the numbers of sites we’ll
be training in the next four months and it was something like 30
different locations that we had to be in on average for two to
three days of training. And so that's an area that you’ll see
us ramp up.
Reimbursement is an
area that I think we should have on before the end of the third
quarter. A clinical type director someone to help us with all
these—we keep talking about these clinical trials and
we’re moving forward with them. But now we’ll bring on
someone who can manage the speed of which—part of that if we
have time internally, so we can meet the needs we have on the
manufacturing side. We're going through a ramp that we’ve
never seen before and so we’re being very practiced about how
we do that in making sure that we have the right people and players
in place.
So, I
think in the third quarter the hires you’re going to see are
more at the reimbursement, clinical training type level.
You’ll probably see some sales people coming on in that
September, October time frame. And then there’ll be ramping
throughout the end of the year as we roll it out for 2019. It
isn’t like we’re going to go hire 20 sales people,
it’s probably going to be very precise.
Again,
with Shri’s background, we’re getting a lot of cool
resumes that are coming in. People want to be involved because they
see the opportunity in front of us. So from an expense standpoint,
Brian, I think you’re going to see probably five to ten
additions in the third and fourth quarter that are probably all
six-figure plus type people. And again we have a pretty good
visibility on revenue right now and so we’re trying, again,
to stay balanced so that we’re not bringing on too many
people ahead of revenue and we’re trying to make sure that
the revenue can offset as we bring on more people to get to that
inflection point where all of a sudden it comes down.
6
Sales
are growing so fast it's more about implementation people and I
think that's more of a Q1/Q2 next year issue that will have
to—again, we're going to get ahead of it the same way we got
ahead of it here, the same way we brought on Shri, the same way
we’re bringing on other people in finance and operations, and
there is a lot of people helping make things come
here.
And we
also want to make sure the culture stays—we’re a tight
family and anytime you grow from, like any family, we can laugh and
we can cry together, so as we grow that culture I think it's
important that everyone embraces it too.
Q: MiMedx had problems and they are
essentially in your backyard I assume that there's probably a few
resumes that are out there. I know MiMedx had a number really
quality people on the sales side anyway, clearly their management
had some issues, but are you seeing potential ex-MiMedx people that
may have interest in joining from the sales side or any other
functions?
Kevin Richardson - CEO
Yes, so
Brian one of the things that we're fortunate here where we are
[indiscernible] is that if I had to look and you have to clump
together all the different wound companies, Atlanta kind of locked
it, part of that is because you have Molnycke North America located
here. You have a MiMedx, you have some McKesson folks that have
forayed into this, a lot of the old Halyard guys are in this
territory.
So
within Atlanta it’s really a nice hotbed of opportunity and
Southeast U.S. is a great area. Atlanta is a fantastic community as
far as schools go for recruiting as well. Specifically with regard
to MiMedx, they’re going through their own pains,
they’ve brought in their own restructuring people.
We’re seeing resumes come on board, we have interviewed a
number of them. They are really, really good people and as you
pointed out just because management made some poor decisions
doesn’t mean that the people who were part of that growth and
part of activity are bad people. I mean they are actually looking
for a good home and I think our culture our family here at SANUWAVE
is a great landing spot for lot of them.
Q: Can you provide any more detail on
Premier and where they are in terms of getting on the GSA
schedules. And then in terms of Indian Health, what is the process
that needs to happen before you can commercialize the Indian
Health? Is there something that's analogous to getting on a GSA
schedule with Indian Health so you have to clear that hurdle before
Premier can start selling to that channel?
Kevin Richardson - CEO
Yes, so
I’ll go into a little more detail probably on the next call
with Premier and we’ll probably go into more about what their
rollout is and how it gone this year and for next year around the
specifics. Around Indian Health I know that it’s kind of
region by region or community by community. And so and their
pricing is really dependent on where the value proposition
lies.
And so
we’re very comfortable that the pricing that we’re
offering them is of good value meaning we’re saving them
money in treating the diseases in a way that they're getting to
closure, getting to management of the wound in a better way than
they would have with some of the other advanced
modalities.
And so
Brian I don't mean the punt on some of this, but I know that it
would be better if we answered this on the next call, and
I’ll have a lot more detail and try to get a lot more
specific around where we are with all those schedules.
Q: Okay great I appreciate that. And
just one on the margins, gross margin was pretty healthy in Q2, up
quite a bit from Q1. Is there anything that you can talk about
relative to margins and what we should expect going forward? I
think it was about 63% this quarter. Is that a level that you think
is maintainable going forward?
7
Kevin Richardson - CEO
As we
rollout a lot of the U.S., specifically as we end this year and go
into next year, I think you’re going to see some margin
shifting around based on just the accounting and it’s a new
kind of accounting policy on how we recognize per procedure revenue
over the life of a piece of equipment.
And on
the international front it's the same old, same old, Brian, I think
in the 60s is a good number. There is some royalty money that comes
in at a very high margin and there is other clinical—like a
clinical device we only make about a 10% margin on, but
they’re using in a field to drive revenue in the
future.
So it's
always kind of a little bit of a mix, but in the U.S., once
we’re at a more mature stage, the margin should be in the
kind of 70%, 75% maybe even touching 80% on a gross margin basis,
but for now I think 65% is probably a good number going forward.
And then as, we learn more on a per procedure basis, a lot is going
to be driven by how many procedures per day a facility is using and
so forth. So I think we'll have a better understanding of that as
we get towards the end of the year, but a lot of it has to do with
the accounting policies too.
Q: And then on the two new JVs congrats
on that I’ll kind of lump the questions altogether relative
to FKS and Tarbaca how many of the, I believe it's nine, countries
in aggregate do you need regulatory approval before you can
commercialize through the JVs? And then in terms of the
reimbursement environment and those sought countries, what does
that look like? Is it all national healthcare or is there some
private payers in there as well?
Kevin Richardson - CEO
So in
the answer to the country by country, every country needs to
approve a new device and we’re a new medical device. So in
that approval process, fortunately with the FDA behind us, we
probably have 80% of the documentation required per country.
It’s just assembling it in the right order and then adding
that incremental 20% of work, which is a lot of work, it’s
just there's a lot of this that’s already been done, and then
as we go each country it gets easier because we've done, for
example, Brazil we’ve answered a ton of questions, we can
reuse that when we enter like a Costa Rica.
With
regard to pricing, it’s probably a 75/25 mix of how people
are paid. Like Costa Rica for example, we need to get on the Social
Security payment schedule. That’s going to take two years,
and then once it's on it will fold into Panama, Guatemala pretty
easily as they copy Costa Rica. In Southeast Asia it all depends on
what region we’re in. They are streaming fast right now. Here
at SANUWAVE inside this room we’re all kind chuckling because
they’re moving very, very quickly as far as placing machines.
We’re smiling just because they’re going really fast.
So it’s a fun thing, but yes you’re going to see a
75/25 split over there as well.
Q: And then in terms of regulatory
process do any of the countries require clinical studies
specifically for their country? And then in terms of who is
responsible for the regulatory activities, is that your
partner?
Kevin Richardson - CEO
So with
the partners we have currently we don't need to do any clinical
work. They handle all that, from our end we do the backend support.
So the documents they're presenting, their translating, come from
us. Some of the countries you’ll see us looking at for 2019,
like at China which is a pretty big market, Japan which is a pretty
big market, those may need to have clinical support behind them.
They have a different FDA kind of approval process, they take a
little longer. We’ve spent a lot of time and we’re
spending a lot of time this year.
The
reality is we’re capacity constrained right now as far as
what we can handle on boarding. If China came on board tomorrow we
wouldn’t be able to handle that. So what we’re doing is
identifying the right partners in those regions. We would
anticipate something potentially by year-end, more likely Q1, where
we have a partner, they’ll work with us on clinical,
they’ll work with us on regulatory, they’ll work with
us on rollout. And I think that’s a next year type of thing
that's where the clinical stuff will kick in, Brian.
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But
right now it's all about focus, focus, focus. It's about diabetic
foot ulcers here in the U.S. We have our international partners
focused on diabetic foot ulcers internationally and that’s
really how we’re going to continue to achieve 300 plus
percent growth and accelerate.
Q: And then the last one I have is on
MundiMed can you give us an update on and visa approval and where
that process stands?
Kevin Richardson - CEO
Documents have been
submitted. I know consultants have been paid. I would anticipate it
being a Q1 event. It probably won't happen in Q4. They were hopeful
that it would be Q4; it looks more like a Q1. We’ll have
devices in training on a more broad base probably in October.
Again, this comes back to how many trainers do we have and where
can we be in all these locations. So we probably won’t get
down there until October but they have identified some great KOLs,
and they are excited to be on board. I mean, again, communications
and relationships there are fantastic right now.
Operator
Our
next question comes from Terry Johnson, a Private Investor. Please
proceed with your question.
Q: Congratulations on the new numbers.
You mentioned the long game earlier and I think my question is kind
of along those lines. I know you have a number of other patents.
How many other patents do you hold at the present
time?
Kevin Richardson - CEO
I think
right now we’re north of 70. And if we get more specific I
can turn it over to Iulian and he can answer about it. I know we
haven’t announced them all. We’re probably going to
have those announced in the September timeframe-ish, October. Some
are European, some are U.S., but it’s still that mix between
medical and non-medical and again, we’ll continue to pursue
both in that regard.
Q: Do you have an itinerary on which
ones that you'll be moving—and I understand again I said
understand this is a long game, but have you given any thought as
to which ones are going to be in development first when you do
branch out?
Kevin Richardson - CEO
So
right now, again, I think the team about focus, focus, focus on
wound care domestically diabetic foot. I think as we bring on the
right resources and begin to get comfortable that the healthcare
team is implementing everything so that they can achieve their
growth objectives I would view that as the jump point when you're
going to see us pursue some things more aggressively
non-medically.
We
continue to do a lot of work with Montana State, their center for
biofilm. I know that there is some email traffic and proposals back
and forth on things we could do there around different
applications.
But
right now the team has to stay focused on diabetic foot ulcers. It
just too big of an opportunity not to. But that doesn't mean we
can't pursue some of these other things once we get to that comfort
level. There is a certain point we’ll all look around the
table and say okay now it’s time, now we can go pursue these
let’s go try to find the right partners.
We've
had great meetings, I mean Montana State has this great group of
corporate sponsors, and it's a mix of medical and nonmedical and we
had a wonderful meeting there in Bozeman in July. There's a lot of
excitement around Shockwave so it really is just us trying to
again, find the right time, the capacity to work with the right
partners on that.
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Q: And of course, and obviously
you’re doing it exactly the right way, concentrate on the
medical aspects. I just was curious, I was surprised I thought it
was only 20 some patents so that's even better news. I appreciate
again, congratulations and I hope to get down to Atlanta to meet
everybody at some point. Thank you very much.
Operator
Our
next question comes from James Terwilliger with Paulson Investment
Company. Please proceed with your question.
Q: Fantastic revenue growth numbers for
the quarter, couple quick questions. Can you give me just a
ballpark percentage of how much of your current business is coming
from the U.S. and you could do that either by Q2 or for Q1 and Q2
combined?
Kevin Richardson - CEO
So, if
you look at Q1 and Q2, first half of the year it’s probably
about 20%, 25% U.S. Premier is really the only thing we're doing in
the U.S. right now. And again I’m [indiscernible] here on it
James. I think as we as move and exit this year, if FKS
weren’t growing so fast out of Southeast Asia I’d say
that we’ll probably, as we exit the year, flip to U.S. being
the majority, but the speed at which FKS is growing, I don't think
we're going to be able to catch it. So I'm guessing we’re
going to remain under 50% in the back half of this year U.S., and
still achieve all of our revenue goals by the way. And then next
year I think you’re going to see that over 50% just because
we’ll be able to begin rolling out the device, not just with
Premier, but in other channels.
Q: Well, thank you. That was very good
detail. My second question is actually on FKS and since you kind of
teed it up, I'll ask the question. Again, it’s in the press
release, it’s a little bit new to me though. In the release
you talk about an initial payment, initial shipments. Can you talk
a little bit about the structure and just kind of expand on the
language you have in the press release concerning FKS?
Kevin Richardson - CEO
So FKS,
think of it as similar to Brazil and not. With FKS there are two
different pieces of the business; one is the exclusivity that they
have signed with us to get to a joint venture. Part of that
exclusivity pays us a certain amount of money, and we recognize it
over the period of that exclusivity.
In this
case, there was some revenue, not nearly the majority of it,
recognized in the second quarter. You'll see a lot more recognized
in the third quarter and some in the fourth quarter this year.
That’s specifically payment for the exclusivity to negotiate
with us the joint venture.
Then
the joint venture, once signed, there’ll be another payment
made. That will be recognized in the third quarter, fourth quarter,
it may slip into the first quarter as well as part of that payment.
From an accounting standpoint, they may make us recognize that all
in a period as well. Those are things that we’re still trying
to work through.
And
then the third piece of revenue you'll see from FKS beginning in
the third quarter is revenue that we ship from SANUWAVE into the
joint venture. That began pretty much immediately. They have
already received and are placing devices and so you're beginning to
see revenue from there as well.
We
haven't disclosed how much the payments are with regard to
exclusivity or joint venture milestones. And again in this
situation what we do as we split profits 50-50, once we get to
profitability. We’ve said that they are looking at least 40
devices through the back half of this year and we’re very
comfortable that again, at the rate they're going they’ll do
that and then some.
Q: My third question is really on the
R&D expenses. They actually declined. You probably tightened
your belt here and with regulatory approval could reassess some of
the R&D expenses. Should they stay at this level as you shift
focus to sales and marketing or should we think that R&D
expenses starts to accelerate in the back half the
year?
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Kevin Richardson - CEO
Yes, so
R&D will accelerate in the back half especially as we go into
next year. Part of it is that we want to keep innovating the
product, and there is always going to be—so think of it in
two different kind of product development and then pure research
too. So there is the product development where we’re going to
continually come out with dermaPACE, dermaPACE 1.5, dermaPACE 2.0,
dermaPACE 2.5 and continue to innovate because what we’ve
seen in healthcare specifically medical devices, you can’t
rest on your laurels, you always have to be listening to your
customers, listening to what’s happening in the science and
moving the product forward.
So
we’re going to continue to do that and again, you'll see us
doing a balanced way and then there is some other research projects
we’re working on that will flow through as well, that will
help us on understanding new medical ideas that are out there. Some
of this is like what we do at Montana State, some of this is what
we do at Augusta and other colleges that we've worked with. And
again I'm not including the clinical work. That’s separate
and above which, as we have stated before, that will go up as we
add more indications, as we add more clinical work.
This is
just pure R&D where we’re looking at are there things we
could do on drug delivery. Other things we can do—and these
are to help the wound and understanding exactly what's happening at
that vascular level as the wounds in humans are being treated. So,
I wouldn’t expect it to quadruple or quintuple or anything
crazy, but it will be in a measured approach.
Q: No, you don't want to cut R&D too
much because that’s the future. So well thanks for taking my
questions and again nice job with the revenue growth. Take
care
Operator
[Operator
instructions]. Our next question comes from Terry Thompson, a
Private Investor. Please proceed with your question.
Q: Do you have any date or plans for a
stockholder's meeting?
Kevin Richardson - CEO
Yes, I
think right now we’re working through timing on that. We have
a board meeting in September and then just looking at calendars,
with our medical show schedule it probably is not going to be until
later this year, meaning probably late November or early December.
It is a priority for us to get one on the docket this year, our
legal guys have been helping us on getting it teed up, but if it
slips into January, don't be surprised, don't be upset. Again, if
you have any questions, please always call, email, come visit, but
I'm hoping we can get something on the docket by year end. It's
just with everyone travel schedules, being pulled into all these
difference conferences, it's hard to get everybody in the
same—I mean today is one of the few days we’re all not
on the road in front of customers. So we’re all here in the
office and it's good to see everyone.
Q: Well I understand, sales comes first,
so that's obviously the most important thing. I was just curious,
that it may be when I get a chance to meet everybody. So, again
thank you and congratulations and I'm excited and I will be
watching for new developments. Thank you.
Operator
Ladies
and gentlemen, we have reached the end of the question-and-answer
session. I’d like to turn the call back Kevin Richardson for
closing comments.
Kevin Richardson - CEO
Great,
thank you, Rob. As always, anyone have any questions, please feel
free to call, visit, come on down and hopefully we’ll have
more news between now and the next time we talk. Thanks,
everyone.
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