Next Science (ASX:NXS) 1H 2021 results presentation, August 2021

Company Presentations

Next Science (ASX:NXS) Managing Director Judith Mitchell presents on traction growth of the company's products, delivery on key milestones, financials and second half priorities.

Judith Mitchell: Good morning, and thank you for joining the Next Science (ASX:NXS) results call for the first half of 2021.

As you know, Next Science is a company whose purpose is to improve people’s health by eliminating or preventing infections. Through our unique technologies we have helped tens of thousands of people resume normal life and as we increase our focus on infection prevention, we look forward to the opportunity of quietly protecting millions of people from the complications of post operative infection.

Moving to slide 3. In this report, I’ll focus on our platform technology and products, the execution milestones we have achieved in the last half and the progress we are making in attaining VAC approvals to commercialise XPerience, our market leading No Rinse Antimicrobial Solution that has been launched in the United States. I will explain the VAC process in some detail a little later in the presentation.

We are pleased to report that the first half of 2021, we delivered the largest half of revenue in Next Science’s short history. I’ll talk you through the numbers shortly.

We secured several significant milestones in the first half of 2021. At the beginning of April 2021, we finalised the dissolution of our distribution agreement with 3M for the BlastX Antimicrobial Wound product. This product is now being sold directly from Next Science, and sales are building every month. Then, at the end of April, we received our 510(k) clearance from the FDA for XPerience, the No Rinse Antimicrobial Solution to be used as a prophylactic against surgical site infection. At the end of May, we received the Australian TGA clearance for BlastX, so that we now have two products in the Australian market, the other being Bactisure, which is sold by Zimmer Biomet.

Throughout the half, we continued to build on our science foundations, and as we talk today we hold 36 unique patents for our technologies and their applications.

Over the next two slides, pages 4 and 5, are the details of the products we currently have in the market and their commercial pathways. All of these products have significant runways for growth as we continue to build market awareness around our technology and increase the education of physicians, surgeons and hospital management to the opportunities these technologies can provide when they're treating their patients.

Moving to slide 6, we will just spend a few minutes on each of the key products. The first product into the market was Bactisure, sold globally through our partner Zimmer Biomet. The product is currently marketed to address known infections, predominantly in prosthetic joint infection. The product is sold in the United States, Canada, Australia, New Zealand, South Africa, and now Europe and the UK.

Moving to slide 7, the next product into the market was BlastX, our Antimicrobial Wound gel, used to treat patients with chronic wounds. This product is now available in the US, Canada and Australia and has been approved in Europe, but not yet launched. As you would remember, we brought the distribution of this product back from 3M to Next Science in April of this year, and we are building a hybrid distribution network to provide the greatest market access across what is a very diverse set of treatment sites, from formal wound care clinics, to home health and long-term acute care centres.

On slide 9, we have the product details for SurgX, the sterile version of BlastX. This product is used to protect the surgical close at skin level. The product is sold through the Next Science surgical team and has shown excellent clinical results. Some of this work was presented at the recent Surgical Infection Society in Denver, and it will also be presented at a workshop at the upcoming American Academy of Orthopaedic Surgeons Annual Meeting in San Diego this week.

Moving to slide 10, you will find the technical details behind our XPerience No Rinse Antimicrobial Surgical Solution. This product was cleared by the FDA in late April and is currently being launched in the US, with dossiers under review in both Canada and Australia for additional approvals. The product provides a unique value proposition. It can be used in any open surgery. It provides market-leading antimicrobial coverage (or bug killing ability) that is been shown to be 10 million times more effective than the competitor products in invitro testing. And it is not required to be rinsed away, so it is also faster to use than the competitive products, as they often require their solutions to dwell to get their kill time, and then must be rinsed away before the surgical cavity is closed.

On slide 11, we show that the next step for XPerience, following the FDA clearance, and is the approval at the various hospitals and medical institutions. This individual approval generally requires a Value Assessment Committee or "VAC" approval. That approval can take anything from 14 days to 6 months.

To move to slide 12, you can see we continue to progress monthly in growing our VAC approvals and our covered hospitals. Over the last 60 days we have received approval in several major health systems, including Robert Wood Johnson in New Jersey, Steward Health, who are in both Florida and the North-East of the US, Northside Hospital group in Atlanta, Atrium Health in the Carolinas and Duke University in North Carolina. We are currently leaning into building additional surgeon users in these sites.

The growth of the business is bi-dimensional. Yes, it's about getting approval in hospitals through VAC approvals and then it's about growing support through the hospital by increasing the number of surgeons using the product in the approved sites.

Our very active digital marketing program is driving brand awareness. We are achieving market-leading rates for hits and clickthroughs on our posts and web-based advertising, giving us strong feedback that our value proposition is resonating with a real market need.

Moving to slide 13, we know that to get mainstream acceptance for products, you need Level 1 clinical evidence, and so for XPerience to become a standard of care, we have an extensive plan for study, for both current and future indications. Across the next couple of years, we will invest between US$4 and US$5 million to create the evidence that will allow the product to become standard of care.

Looking at slide 14, you can see from the map of our submissions, that the South-East of the US has been a focus for us, with our US office located in Jacksonville, Florida. Over the next 6 months, that focus will extend, and we will light up the North-East, the Central areas and then the West Coast as we build out the team and increase the awareness.

On slide 15, you can see the sales and marketing management teams, remembering that this is a hybrid model, and beneath these teams are more than 70 unique distributor entities and their own sales forces.

Moving to slide 16, we have the Profit and Loss statement for the company for the first half. As I mentioned, the first half was our best result on record. It is a large improvement on 2020. This slide shows the metrics of sales of US$3.9 million for the half, an increase of 271 per cent on prior year. Gross profit increased 234 per cent, and losses were reduced by 37 per cent.

On slide 17, you can see the cashflow waterfall. At the end of the first half, we had US$13.2 million in the bank. We have not yet deployed the proceeds of our last capital raise. We have modelled the working capital cost of XPerience sales growth carefully and have the funding needed for our current business plan.

As we look forward, I would like to call out how the mix of our cost base will change as we continue to directly commercialise our technology platform. We do expect sales and marketing expenses, including headcount increases and the accompanying travel expense to grow. Additionally, as you are aware, our commissions for our distributors will come through as an SGA expense. So, while gross margins will improve as our direct sales grow as part of our product mix, so too will we see an increase in our SGA expenses, reflecting a more typical direct medical device business.

So what are our priorities in the second half? Turning to slide 18.

We are seeing some resurgence of another wave of COVID in the United States. The market had rebounded back to 2019 levels in the first half. Hopefully we will not see expensive lockdowns again in the second half, and the vaccination rates will continue to lift, and business will stay as close to the normal historic levels of 2019.

The Bactisure business continues to grow with the product launching in Europe earlier this year.

BlastX continues to grow, and we will continue to organically grow the sales team to support the business opportunities. In Q3, we are trialling a 4-pack of 7.5ml tubes, designed to match the demand and price point for Home Health Services. This will give us the opportunity to properly service this large and growing market segment. We are spearheading our West Coast commercial activity by further sales investment in our system-wide approval from Kaiser.

As we have come back to face this chronic wound market, we have found the customers are very happy to see Next Science return. The flexibility in order sizes that small companies can easily manage becomes a strong advantage across this variable and large marketplace. Servicing the chronic wound market is definitely not a one-size-fits-all situation. We have contracted with Owens and Minor and Cardinal Health, both as third-party intermediaries, for logistics as part of the development of our service offering in this space.

We will continue the charge with SurgX, and also push through the XPerience VAC submission process in hundreds of sites in the next six months. But with over 15,000 hospitals and ambulatory surgery centres in the US alone, VAC submissions and the timelines they take will be part of our way of life for quite some time to come.

As I mentioned earlier, the VAC process involves a formal submission by a surgeon or physician at the institution, and a dossier of information. Ours is a novel product, so it requires education at all levels of the hospital decision process. With VAC submissions for over 371 hospitals in process, this demonstrates the very strong support that the technology has, and we are humbled by the number of surgeons who have the faith and trust in our technology and are prepared to support it becoming part of their everyday practice. Our ambition for these products is to become the standard of care in the majority of open surgeries.

We are driven every day by the knowledge that our products are needed in every hospital and surgery centre. Our responsibilities are to ensure the staff in these facilities know that our solutions are available and provide the support as they are increasingly using our products. It is well documented that infection is expensive to treat and can be fatal. We believe we can demonstrate how our products can decrease the overall cost of treatment by reducing infection rates and complications, improving patient outcomes and, in turn, saving lives.

In closing, I would like take this opportunity to thank our shareholders and our Board for their support, our staff for all of their extraordinary efforts to bring our novel technologies to market and our customers for their continued trust and support.

Thank you very much for your attention. We'll now take questions.

Q&A

Cameron: Thank you. If you wish to ask a question, please press Star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star and then two. If you are on a speaker phone, please pick up the handset to ask your question. Our first question today comes from Shane Storey at Wilsons. Please go ahead.

Shane Storey: Thanks very much, and good morning, everyone. Jenny, if I can just ask my first question, which... I might refer you back to slide 12 of the presentation just to help us understand the nomenclature there. So, can you explain the hospitals covered piece of the chart, please? And is it naïve of me to think that the uptick that you've seen in recent months has anything to do with the publicity that the product seems to have attracted of late?

Judith Mitchell: So, let me answer the first half of the question first. If you're looking at somewhere like Steward Health, we get an approval in Steward Health, that's one VAC, but it covers 11 or 12 hospitals. Like Northside as an approval covers I think eight or nine. So it becomes an easier process, which is the differential between VAC submissions and the number of hospitals covered. That's why that looks like an umbrella. Does that help?

Shane Storey: Yeah, that explains it perfectly. Thank you.

Judith Mitchell: And in answer to why, the advertising is definitely helping. We have a big push coming through at AAOS, so this is the American Academy of Orthopedic Surgeons. There are a few less people going than normal, unfortunately, because of COVID. But we actually will be in front of every person attending that meeting because we've taken the banner advertising on the escalators to get to and from all the meeting rooms. So, we're pushing hard to get people to go at least, "What is Xperience? I should find out what this thing is. Why is everybody talking about this?" And I'd say our marketing is leading the push because if you play in anywhere looking at antimicrobial surgical solutions, you're going to get pinged by Next Science thanks to the Google Gods. We've managed to make good use of those tools, so we're turning up when people are looking for answers.

Shane Storey: Great. Look, second question's really on BlastX. Maybe if you could give us an update maybe on just how you're going in terms of repatriating, if that's the word, the user accounts there across to your sales organisation. And the second one on BlastX… I heard you mention the level one evidence push there on Xperience, but any desire to extend that to BlastX with a view maybe to securing some, I guess, better reimbursement for that product?

Judith Mitchell: Okay. So, in answer to the first question, of the top 80 accounts, we're two-thirds of the way through pulling them back to us. And it's been actually a really nice process, because they are very happy to see us. And, in addition to that, we never really managed under 3M to really light up Kaiser, whereas we're now seeing a lot of interplay with Kaiser and lots of the sites of the Kaiser network coming online, which is joyful. So we're going to put two people into Kaiser just to sell into that 138 office system that they carry right across the West Coast. We are looking at a proposal on evidence for BlastX. That's with one of the payers, right? So, going into a payer provider system, because there are few of those that exist. Yes, Kaiser is one. This is a bit smaller than Kaiser. They have 1.2 million lives in this system to actually bring in a standard of care that includes BlastX, and for them to be able to report what that does to their cost. We are mindful of the fact there's no great level one evidence, because level one evidence in wound care is really very difficult, giving the variable of patient compliance and things like nutrition that affect your outcome. But we're comfortable that the offer we've had from this particular group, we can get pretty good process controls. And we're very comfortable that we know what the outcome is going to be as far as patient outcomes, because the thing we notice most about BlastX is people are so happy to get it back, because it just works, and they don't have anything in wound care really that just works to take down infection. So, the answer is yes. Not ready to announce who it is yet, but we're working through the process to be able to do the same thing for BlastX that we're going to do for Xperience.

Shane Storey: Great, that's very helpful, thanks. That's all my questions.

Judith Mitchell: Thank you.

Cameron: We have no questioners at this time. I'll now hand back for closing remarks. Pardon me, we've just had a questioner registered. This will come from Martyn Jacobs at Canaccord. Please go ahead.

Martyn Jacobs: Morning Judith. Just a couple of things. So, on the Home Health pilot with BlastX, can you talk to how long they're going to last and what results you expect to get out of those commercially?

Judith Mitchell: So, the purpose of the pilot is to actually test the product sizing. So, this is a 7.5 mil tube, putting four of them into a little box, because the issue in Home Health is the way they build their customers. They're not like a hospital. Their funding is per patient, so their costs need to be per patient. So, trying to sell these people a 40-box of 7.5 mil tubes doesn't get them where they need to go. I anticipate you'll see it become mainstream very quickly because we know the product works, they know the product works. It all comes down to does the mathematics work then on the unit price of instead of a big, fat tube that they'd still have to delegate to just one patient, this allows them to treat four patients really economically and without having a huge investment. So, they can click off a 7.5 mil tube to each of these patients and go forward, and that brings them to a profitability position as well as a position that they can heal patients, so it's a double win. There are now, because of COVID, probably more patients being treated in Home Health than ever before, so you're talking about a market segment that's somewhere between 1.2 and 2.5 million patients. So, it's a sizeable prize for us to go after, Martyn. And no, I'm not going to give you an exact number because I don't know till we get there and actually see how fast we can run, we don't know. But it looks like we're in a much better place than when 3M were trying to sell them a $5,000 unit of 7.5 mil tubes.

Martyn Jacobs: Yeah. Okay, so go back to Xperience, if you do a simple ratio of surgeon sponsors over the hospitals covered in those submissions, as against the surgeons using in the hospitals that are approved and ordering, you've got an uptick in penetration there. So, can you talk to the processes you're going through and the kind of feedback you're getting in the hospitals that are actually approved and using it now, and the proliferation of the surgeons you're getting access to?

Judith Mitchell: Like all things in a market that is North America, I don't know that any two accounts are exactly alike. But it becomes a process, right, for the sales rep to just start, and continue to grow across the accounts, and we are going to invest in that process. So, we expect to add some of our own direct reps in the South-East so that we can lean further into those approvals because it's a day by day thing, it means you're going into... It means that somebody goes to Northside, somebody doesn't leave Northside in their whole of their work life, they just spend their time between the six hospitals ticking off the hundreds of surgeons that work in that hospital, and introducing them one at a time. It's laborious, and that's medical devices. As opposed to pharm, you don't move these people without face-to-face and some relationship being formed and some trust being formed, and some support in their first surgeries. So, you start with an introduction from one of their friend's surgeons, you get them to pull it in for their first couple of surgeries, you stay around for those first couple of surgeries to make sure they're incident-free, and then you check in with them kind of every other week to make sure things are going right, and you build. And it really is building a huge annuity, really, of people that feel comfortable enough that that product is now on their back table for every surgery they're pulling through. And it takes a while. "Trust" I think is probably the word that we use easily, but isn't that easy to build, and that trust is as much with the person serving them as it is about the product. So, six weeks, three months before you feel comfortable that people have a relationship and can actually feel, "Yeah, okay. I just keep doing that." So, up until that time, the sales reps are present basically trying to help build the habit, and this is standard. So, with the guys who've been the evangelists that are calling for it in the back table, they're easy. It's the next level where you really invest in time and energy. I hope that helps a little.

Martyn Jacobs: Yeah. So, of the 45 surgeons that are now using the product, not all of them are in the orthopaedic arena, are they?

Judith Mitchell: No, we have some plastics in there.

Martyn Jacobs: Right, okay. So, it's over 90 per cent orthopaedics?

Judith Mitchell: It depends on where you call podiatry. Some people call podiatry in orthopaedic, so people are operating on foot and ankle because there's at least two podiatry operating people in there.

Martyn Jacobs: Right. And of the 320 surgeon sponsors, do you have sort of a discipline breakdown?

Judith Mitchell: Majority is still ortho, but across ortho we're now starting to see a strong push out of what we call people in orthopaedics who are dealing with oncology, so orthopaedic oncology surgeon, and the people dealing with trauma, and then the people dealing with joints. Really quite interesting to see the oncology just push through, which has some advantages because, to be honest, there's less question in oncology by other people in the hospital. Most people recognize this is a fight for life, and they'll give them whatever ammunition they want. Trauma is a little the same way, right? Most traumas end up coming back to the hospital as a routine, it's not like a 2 per cent or a 4 per cent return rate. But then again, joints are super expensive, so it's a bit of a mix between them. And the plastics are people that we know that have said, "Yes, we want this." Probably our biggest push, though, really from a VAC is at a group level, like going into some of the larger systems like Steward Health and saying, "We think we can do this for you," at a CEO, CFO, Chief Medical Officer level, and then pulling through an approval that we then sell into is kind of where we're looking to push a lot of the work for the next four, five months.

Martyn Jacobs: Cool. Is there any trends so far in the timelines for approvals?

Judith Mitchell: No.

Martyn Jacobs: Cool.

Judith Mitchell: No. And you run the risk of more COVID cancelling meetings, doctors getting sick, doctor relatives getting sick, it... Impossible to predict, Martyn. Completely impossible to predict.

Martyn Jacobs: Yeah. You've got a fair distribution in the sort of Northern Central and North-East, so it's not just South-East, where most of the COVID is occurring. So is it business as usual in those Northern areas or are they starting to experience problems too?

Judith Mitchell: No, it is pretty much bus... The North-East in particular is pretty much normal, as long as you consider COVID vaccination passports normal. The things that we're worried about, we're worried about Louisiana, we're worried about Texas. Particularly worried about Texas because Texas is one of the biggest markets in the US of course, huge population, huge surgery numbers. I mean, just... And, of course, there are massive closures going on there, so we'll see. We hope that the West Coast stays open, remembering it had the biggest shutdowns last year in response to COVID, being led by Democratic governments, they shut basically the whole of the West Coast down for a very long time. So, it's open right now and the team are actually all landing in San Diego tomorrow, and they're staying post the meeting in San Diego to actually help the Western Area Sales Manager actually lean into... So we've got series of doctor lectures for the next kind of 8, 10 days post the meeting. But we would not want to suggest to people that there still isn't risk with COVID. There's still risk with COVID. It's not as bad as we are right now in Australia. If you're in many cities, you'd swear that there's nothing happening, but those numbers are going up, and so we need to watch.

Martyn Jacobs: Cool. Okay, thank you.

Judith Mitchell: No, thank you.

Cameron: Thank you. Your next question comes from Shawn Burns from BB Pty Ltd. Please go ahead.

Shawn Burns: Hi Judith, hope you're well. And congratulations on the sales growth achievements over the year. Just my two questions, and I know I was a bit late, so sorry if you've answered this previously, it's just on the legal issues that are going on. And I don't know how much you can actually say about them, but just am I right in thinking like the Zimmer one is... Basically they're trying to say that the deal they have with Bactisure, which I suspect they think is pretty good, actually rolls across your whole range of products? And that's firstly. And the second one with Irrimax, the false advertising of Xperience. I suppose it's just any flavour you could give or feel comfortable giving on those would be great. But just two specific questions. Any idea how long these processes you're expecting to run? Have you got sort of end of line in sight there? And also, it's basically the false advertising, is that undermining your ability to go out... and also the Zimmer thing, is it undermining your progress in doing negotiations with distributors and hospitals, and surgeons, etc? Thanks a lot.

Judith Mitchell: If you don't mind, I'll tackle them in the reverse order. It isn't changing any of the activity. In fact, it kind of makes us the subject in all the tea rooms. So people then go and ask, "Well, what the hell is Xperience? And what's all the fuss about?" So, kind of isn't working in some people's favour, but it isn't causing us difficulty at a hospital and surgeon level at all. If you... To go back to the Irrimax claims, we're very comfortable about, as we pointed in our announcement, around the veracity of the data we presented, because it's all been done by third parties for us. And there are a lot of claims in the market, not from us but from everybody, around using the types of products that Irrimax have, so we'll see this out. They clearly want something from us. I don't know what that is right now. Zimmer and Xperience, we're talking, and I can't tell you when we stop talking. You never quite know how long these things are going to take to get to an end point, and we're talking with a multibillion dollar corporation that have a lot of lawyers, and getting through to the end point on things just takes time. I wish I could give you a timeline, because then I could have a timeline, but I can't, Shawn. I'm sorry.

Shawn Burns: Yeah. I suppose the range of potential outcomes is still wide as this stage. I mean, you hope for the best, and I suppose there's just that uncertainty hanging over the company until they get settled at some point, but you've got to stand up there where your legal position is and run through the process.

Judith Mitchell: We do. And the one thing that is clear is the US use litigation as a negotiating tool.

Shawn Burns: Okay. No, thanks a lot for that, Judith. Good luck.

Judith Mitchell: You're welcome. Thank you.

Cameron: Thank you. Once again, if you would like to ask a question, please press Star then one on your phone and wait for your name to be announced. It is showing no questions at this time. I will hand back for closing remarks.

Judith Mitchell: Thank you, Cameron. I'd like to thank everybody for taking some time this morning. I know we're right on the end of reporting season, so calendars are very full. If people have further questions or things you've thought of later, my e-mail is on the back of the slide deck, and I'm happy to come back to people with what I'm able to share.

Thank you very much, and please everybody stay safe, and, for most of us, I guess, locked down. So, please have a good day. Thank you.


Ends

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