Hi, everyone. Thanks for joining us for our preliminary Q3 results. I want to introduce the folks that are here representing EBR. I'm John McCutcheon, President and CEO. We're joined by Dr. Robert Canby. Dr. Canby is our highest commercial, I would say enrolling as if you're still in a study, but has been the most commercial cases since we've launched. He's also one of our advisors, so we thought he'd be great to add color to some of the questions that we might get. We've got Gary Doherty, our CFO, Andrew Shute, our Chief Business Development Officer, Justin Crockett, our Global VP of Marketing and Market Access, and Michael Sot, our Director of U.S. Sales. With that, we'll get started with the presentation, and we will be entertaining questions.
I believe there's an opportunity to type in your questions and we'll do our best to get to all of them or most of them. What we'll probably do if there's similar questions, we'll just group them into one rather than trying to go through each one individually. It looks like we're also joined by Allan Will, our Executive Chairman. Allan, great to have you with us. We're just kicking it off and we'll go through the presentation now. As everybody's probably seen our results, and this will be a reflection of what we've already presented publicly. In the third quarter, we completed 40 WiSE procedures, and that means that we're now up to 157 implants since we went commercial.
These implants this quarter are below our expectations, so that's disappointing. We'll talk about why we think that happened and what we're doing to remediate that. The contributing factors are some of the commercial leadership transitions that we made, and those were intentional and we'll talk about what led to that. The implementation of a more focused strategy. The original strategy was to be focused, and we've drifted from that. We'll talk about what led to that drift. We want to get back to our original strategy. That's not a new strategy. It's one of going deep and being concentrated and not going too far abroad too quickly. The additional field training requirements are essentially, we want every field person to be trained on all elements of the procedure. What's also not said on this slide is we want to accelerate that training program.
We're working on several things, several pathways to get training through more quickly, and we think that'll really bode well for future growth. As we announced in the ASX release, we did a realignment. I am now running the field group, the commercial team, that consists of Justin Crockett, who's here and introduced, and Michael Sot. Justin's marketing, Michael Sot, sales. We also have Megan Fair, who's not on the call here, and she's our Director of Training, and all three will report to me while we conduct a search for a replacement Chief Commercial Officer. In my new role, I've been out in the field meeting with physicians and with our salespeople, and that's been very rewarding.
I might speak to that as we go through the Q&A, talk about my experiences being out in the field and the good feelings that we have from our clinicians and the opportunities that are there, and what we are hearing from the positive news we are hearing from clinicians and what they see with their patient results. A lot of positive things there. We do not want to shy away from the bad news that we had. We did not have sequential quarter-over-quarter growth, and we want to own that and address that. We will talk more about the commercial growth, but also some of the other milestones that we achieved were the FDA completed its pre-approval inspection, and we had two observations. Having done a lot of these in my past, getting two observations is like an A grade. It is a good sign.
If you have a lot of observations and there is some tipping point, 5- 10, it does not look good. These were observations. The other good news about them, they are addressable through basically their administrative fixes, not facility fixes or things that take a long time to qualify. We are very optimistic about getting through that process. That is very good news for us. We also had our ISO certification, which goes part and parcel with the FDA inspection that says we are running a tight ship in our operations, and the regulatory agencies are recognizing that and are giving us these good results during these inspections. The expanded facility, I think we said this before. Once we are in it and we are starting to ramp, we can do almost 10,000 systems per year. That is a substantial amount of capacity to get into our TAM.
We will not be limited on manufacturing capacity. I have also said this in the past, it is not just the capacity, but it is the capabilities. Our cost of goods are still high. We want to continue to drive margin improvement, and the new facility will give us the capability, the ability to do that. We have got a lot of new manufacturing equipment and things that will help drive down cost of goods, bring in some of the, or maybe most of the operations that are done through contract manufacturers. We will be able to bring them in-house. That will really significantly help us drive our margins in a positive direction. Going into some of the details, you have seen these charts before. This is our quarterly KPIs that we present, and a lot of it looks good.
We continue to grow quarter-over-quarter, but you can see physicians trained dropped off significantly in the third quarter. That was deliberate, and that is back to going into this focused strategy that we have talked about, going deep in the current sites. If you think about everything needs to be balanced, we have a finite number of trained salespeople, and the salespeople need to proctor each case. If you have too many trained physicians and too few trained proctors, you start to get a bottleneck, and you are not able to service your customers.
We deliberately said, "Let's slow that down and let our training catch up and go deeper in the physicians that we've trained." What's probably hard to understand for a lot of folks that aren't really close to med tech and how the devices are rolled out is that you don't just start a physician, train them, get the site going, and then leave. You need a constant contact because you're helping, you're partnering with the physician to identify patients. The best salespeople develop deep relationships and spend a lot of time in their accounts. You don't want a salesperson going to 10 or more accounts. You want them in three to five and spending a lot of time there. You certainly don't want them going to other territories where we're starting centers and physicians that don't have support.
Then we start to send people to other states. Imagine you've got a territory manager or salesperson who started a great KOL, a great physician, and they want to do lots of cases. But you show up for the first two cases, and then you're flying to another state or another part of the country to support other cases in other territories where we don't have that support. You're not driving that revenue. That starts creating this situation where you're getting new revenue by starts, but you're not getting sustainable business. At some point, we have to break that cycle, and that's what we've done this quarter. It's painful, and I recognize how that's come across to our investors, but we felt it's still the right thing to do to build the business in the long term versus just driving short-term revenue.
Then again, there's sites contracted. Still really proud of it and happy with the number of sites that are contracted, but we have enough now. We don't need to keep leaning into that. I think the story early on, or the signal early on was that this was a great win for us. A lot of new technologies struggle with getting site contracted and getting through the VAC committees and getting on the shelf. We've had a, not an easy time, but a relatively easy time, and we've really overachieved there. Now it's time to throttle back. I think we've proved we can do that. Now we need to slow that down and then come back and do that in earnest when we've got more capacity to support them and move it forward. Activated hospitals are contracted hospitals that have done at least one case.
You see we're trying to slow that down. We don't want to pull the plug or stop any physicians that we've already started. It would be not very good politically, and we don't want to leave any patients hanging. Once somebody's in the pipeline, we're going to go ahead and move them forward. But we want to slow that down as well as we get our sales capacity up and making sure that our sales team are focused in their specific territories. Again, right now, we've got a lot of people traveling to a lot of different places versus being very focused on their specific territories. Then at the end of that, you drive cases.
We've been driving cases by combination of getting great depth in Dr. Canby, as I said, one of our not one of our, he's the highest treating physician so far. But we need more of that, and we've got other high-volume doctors that have been doing it. But we've also been getting to the number by driving new sites, and we want to shift that balance to, we add new sites as we get capacity, but we're driving that higher growth by penetrating the sites that we're already in. That's the goal, and that's what we're striving to achieve. That's the presentation. I think we've got a number of questions that came in advance, and there may be questions that are coming in as we speak. If you have any, you can be typing them in.
I think Andrew's going to collate them and then let us know what the inbound questions are. Andrew, are you still there? You're on mute if you're there.
I think he just dropped off, John.
Okay. Well, I think I can read the questions. Let me see if I can find that feed. One question is, if the previous strategy of expanding the sites resulted in revenue growth, why are you changing this? I essentially just addressed that, but let me start again. The site expansion without consistent, sustained presence and accounts, it drives temporary revenue. And we really want sustainable growth for the business for you, and for our customers. If it's not truly sustained, then what we might get is an initial case or two. But that's not a consistent flow from the physician.
Starting too many accounts, it just takes us too broad. It doesn't enable this consistent presence. And someone asked me recently, "Well, once you sell the physician, don't they just start doing it?" It just doesn't work that way. They're very busy and they've got lots of things going on, and not every patient that's eligible in the hospital will come across their desk or across their purview. You need to work the network. The salesperson is working the network within the hospital. And Dr. Canby, maybe that's a good time to bring you in on where you might have one method in your hospital that maybe you could also opine on how you think it works or how you know it works in other organizations to get patients to your desk so that you can evaluate them for WiSE.
For sure. Whenever we're dealing with new technology or new studies, from our standpoint, it becomes very important, I think, when we're looking at enrollment and in this case, identifying patients for the new technology that WiSE brings. It's important that each facility actually has an advocate for that technology. That doesn't necessarily mean the implanting physician. In fact, many times it can be a research coordinator if there's an associated research trial. There can be an APP or a physician assistant that helps in the clinic. But what you want ultimately is to identify an advocate at each facility so that when the pacing clinic, for example, identifies a patient that has too much extra cardiac stimulation and they're going to have to turn off their resynchronization, that they know they can contact that advocate and say there's another option available.
Or if you have a patient that is infected that is going to have to have a device removed that had successful CRT therapy, they know to call that advocacy that ultimately that patient needs to be seen for this technology. That works in clinical trials. I think that is also a winning strategy here. The important thing is the technology works. We are seeing great results today. I followed up three patients I implanted in the last six months, and we are just seeing great results with the technology. So continuing to find that advocacy in each of the programs, I think will suit us well.
Yeah. Other therapies that have been successful, other novel technologies that have been breakthrough devices and so on, they followed the same pattern, which is if you look at TAVR and stents, Shockwave, Watchman, all these things, they had to go deep and establish beachheads before they went too broad. We made the classic mistake, which is you go too broad in advance of that. Again, we own that, but that is something that we are set to remedy here. I think, Allan, if you do not mind me asking you to opine. I feel like I have watched quite a few products, but I think you far exceed me in that. This is the formula that works that we have both done before and ended up with huge successes if we follow that right strategy.
Sure, John. This really is the strategy, our intended strategy from the start. But unfortunately, we strayed from that strategy. The field team strayed from that strategy, starting new accounts, too many new accounts. As John said, when you start too many new accounts, you may get one case, you may get two cases there. But unless you are present and working with the physicians to talk about cases, to discuss whether or not which cases might be good cases and indeed which cases might be bad cases—
Yeah
—you do not end up expanding the use within a particular account. An example of that is often physicians might choose a particularly difficult case or a particularly difficult type of patient that they want to try this on, and they may try it on that patient, but they may not be thinking of the six other types of patients that we could also be applicable for. So it is important for the territory managers to be in the hospitals, to be talking with not only the implanting physician, but as Dr. Canby said, referring physicians, maybe PAs, et cetera, who end up influencing the decision of, oh, this patient might be a good one. But if you are not in that account and you are not there consistently, you do not develop deep penetration and sustained use within the accounts.
So that is a critical factor for building a good foundation for a longstanding business.
It has been true with transcatheter valve repair and transcatheter valve replacement. That is the way stents were developed. That is the way Shockwave Medical built their business. Watchman, left atrial appendage, countless other businesses. This has been proven as a strategy, and this is what we intend to do. Prior growth here in our situation, unfortunately, relied more on new account startups than the original strategy, and we are correcting that. That is really what this disruption over the past month has been is correcting that strategy, slowing down the increase in new accounts, and working to develop more patients being treated, more types of patients being treated in each of the existing accounts. This truly will influence the business for the long term, and it is really the only proper way to build a med tech business, innovative med tech business these days.
Did we just lose Allan? Okay. Thanks, Allan. I do not know if you dropped off, but we got your message there. Thank you for that. We got another question here. "Can management provide monthly implant updates to give the market confidence?" We will continue to report commercial metrics quarterly, because that has been our disclosure practice, and we want to maintain that cadence. But the main reason is that monthly numbers are volatile. You could have an up month because there are more days in the month, and you can have a month with holidays and there are fewer. Or it could be a month where there is physician symposia or like an HRS or something that might distract more physicians. I think it is just too volatile to share those numbers month to month, and the quarter smooths it out.
That is why we are going to maintain that quarterly cadence.
I think most companies do that. I know people are anxious to get real-time data, but I do not think it would add value. It would add more confusion than be helpful. Another question, Justin, this is in your domain. Let me see if I can answer it, but I might ask you to jump in here. "So what changed with Medicare inpatient reimbursement, and does the higher reimbursement mean EBR will immediately see a step-up in revenue?" They increased the payment for inpatient procedures. That is a good thing. Reimbursement varies by hospital to hospital, by area to area. It is a very complex formula. The benefits do not accrue equally to each site. The sites have to then each do their own economics and see does this increase their margins and by how much. I would say in general, this is just good news.
It means one less headwind and more tailwind for us. I do not think we can quantify the benefit. It is good news, but we do not know how much, and I would not expect an immediate step-up. I think it is over time, it is a cumulative benefit would be how I would interpret it. Justin, if you have got a counterview or more color that you wanted to add, that would be great.
John, you nailed it. I would just reiterate that it was a position that EBR took proactively with CMS to get those rate increases for our customers. As you said, we are not able to quantify that yet, but it is a cumulative effect that we should see.
Yeah. Okay, thanks.
John, just as a point to be made is that increased reimbursement does not accrue directly to the company. It goes to the hospitals.
Yeah.
That is why it will hopefully be less headwinds and more tailwinds by virtue of the hospital believing that this could be a more profitable procedure for them.
Yeah.
It will build over time.
Again, we are excited about this. We still believe that most of these will be outpatient procedures, but we will report that as it changes. So far, it has been predominantly outpatient. Still, it is a different reimbursement system, but only good stuff because when they do an inpatient, if they require doing an inpatient, then they will have a better margin and be able to do that. Somebody asked, "How many cases that physicians wanted to perform were delayed because EBR lacked trained field support?" I do not think we canceled any cases because of that. What I would say is the lack of trained field support kept us from focusing on going deeper into sites, and it was more of a running around trying to cover those, and there is a real opportunity cost to that.
Imagine hypothetically, you are a rep that lives in Ohio, middle of the country, upper Midwest, and you need to go support a case in California. That is most of the day flight there, time in the hospital, could be all day, might be a two-day procedure, and then you are flying back another day. That is a minimum two to three days out of your territory. You have covered that case, but you are not building that long-term sustainable funnel that we talked about of being in your territory, and that is the opportunity cost of doing that. If there is a case, I think, and Michael Sot, you might tell me, I do not believe we have canceled a case. We have just, again, been, I think, less efficient with our resources because of the way we have been approaching it. Is that fair?
We have not had to cancel a single case.
We work really hard to cover them, but then we are saying, well, do not spend time in your current account, and then that has that kind of downward spiral effect. Let us see. "Can you be more explicit how you will remedy the scale-up?" I might have already covered this, but some of it is we are still working on accelerating the field training. We do have a number of open positions, and we are hiring and filling and trying to get some redundancies in the field so that we have got people in the funnel to keep driving growth. But we are accelerating field training, like I said, increasing utilization by staying local, focusing on a few core accounts, really qualifying the physicians and making sure that they are going to be early product champions. That is an important part of kind of a new technology development.
And then again, we are moderating new site activations, but we are not stopping them. We just want to be more selective and less kind of run and gun after these new sites. Again, I am not sure how you will see these KPIs develop, but I hope you see softened growth and acceleration or deceleration maybe in new sites, new contracts, and more acceleration on cases done per quarter.
John, if I may?
Yeah, please.
On that point, as we develop fully trained territories over time, then you will see those territories starting new accounts, and because they are capable of servicing those accounts. So as we build the field training and further develop complete territories, then you will see more and more accounts starting up over time, but only as we have the capability to service those hospitals properly.
Yeah. Agree. This next one, this is kind of my responsibility. Your 21 August announcement said you did not expect any negative impact on U.S. commercial adoption from the CCO change, and what happened. Again, we clearly didn't meet that expectation. That's what I was hoping and what I thought. As I jumped into that role, again, this is 100% my responsibility, I saw that we needed to make more dramatic changes and abrupt changes. When you're in a leadership position and you see something not working, you can try to fix it incrementally, you can try to go faster. Incremental often feels better, and it's less scary because you can maybe not see the immediate effect of it. But I felt strongly that we needed to make an abrupt change and really course correct, and that's why you saw the drop-off in September.
I think long-term, that's the right thing to do. We did say that, and we were wrong. I was wrong, and I own that, but I stand behind that decision. I think it was the right thing. It's painful right now. It's painful for our shareholders to go through this, and I apologize for that. But really, it's looking at the long-term best interest of the company, of our patients, our clinical customers, and ultimately, that benefit should accrue to all of us. But it's not been pleasant, and it's been really disruptive for our investor base. So I apologize for that. Someone asks, "What are the next milestones?" We've talked about that extra stimulation or the echo-induced arrhythmias, and we're going to be submitting a PMA labeling supplement for that in the very near future. Then we'll get a very definitive read from FDA. It's still very positive.
They're collaborative. In fact, they're going to let us submit it for review and then give us comments before it goes official. So that's still in front of us. We're waiting for the FDA's determination on the site facility. I think we responded to the observations or the Form 483s this week, and so then that'll be under review. We expect that to have a great outcome. But we should know shortly and still expect to have the new facility activated by the end of the year. We do have some backup plans. We might keep the old facility active. But we really still expect to be cutting over by year-end. We've got the 10-Q, which is the official numbers that'll have our full financials from our Q3 results, and that'll come out around the 10th of November, on or about, I think 10 November Australian AEDT.
Then we've got the CMS National Coverage Determination still pending. The decision's due in early December. Again, we don't control that. That's up to CMS, but that's our expectation. If that goes well, then we expect to have the NCD enacted effective April 1, 2027, the National Coverage Determination. Again, for those that aren't tracking that, the National Coverage Determination, it forces the Medicare Advantage side of the Medicare program to cover all of the cases. They don't have any discretion. Now, some of our patients come in, if they have Medicare Advantage and not standard Medicare, they get rejected for coverage the first time. Justin's team then provides support to do an appeal. Classically, if you appeal one or two times, eventually it gets approved. But sometimes the patients go on to something else.
It does lead to some lost cases, but it certainly leads to delayed cases. That NCD, that National Coverage Determination, would avoid that from happening. That, I think our best case, Justin, is April 1, 2027. Am I correct in that?
Correct.
Okay, great. Then we've got the TGA application that should go in shortly for our Australian market. So that's still pending. I think we're out of time. I really thank everybody for joining us. I apologize if we didn't get to all your questions. We tried to cover the ones that seemed the most common. Again, please hang in there with us. We really apologize for the bad news, the impact it had on the market, the impact it has on all of you as investors. We feel that pain deeply, and I think we're still doing the right things. As Dr. Canby said, we're still seeing great outcomes from patients. It all starts with patients. If we're not getting good results, then there's not a business.
If we're seeing good results from patients and there's a lot of patients out there, we're going to build a business around that. That's what we're seeing, and that is not in question from what we see. So thanks everybody for joining us. Really appreciate it, and look forward to speaking to everybody again soon. Thank you.
We've captured all these questions that we didn't get a chance to address, and we'll look to follow up either individually or through a separate release. Thank you.
Thanks, Andrew.