Hi, good afternoon, and welcome to the Sidoti & Company Virtual Investor Conference. The next company to present is Spectral AI. We have representing the company the CEO Peter Carlson and the CFO Vince Capone. It's, as usual, a 30-minute presentation. If you do have questions, you can type them into the Q&A tab at the bottom of your screen, and we'll read those off, assuming we have time at the end. And with that, it's all yours, Peter and Vince.
Thank you, Jim, and good day, everybody. We're excited about the opportunity to introduce you or help you understand more about Spectral AI, a company that uses artificial intelligence to provide a predictive diagnosis of a wound situation. Here on the cover, you can see the device in action, that the practitioner is holding what looks like a household iron, and it's just about that size and weight. In this case, they're holding it about 40 centimeters above a wound or a burn situation, burn here. Because the lights are green, they're taking the image.
The image capture happens in less than a second, and then it is compared to a database. All of that happens within the computer that is inside the cart below where that gray holder is. Within 30 seconds, the device provides a predictive diagnosis as to whether the tissue imaged is healthy or not. That is, will it heal or will it not heal? As we get to the next slide, you'll see our background information. We were formed in 2009 here in Dallas at UT Southwestern.
Beginning in 2013, in that second box on the left, we reference funding from a government agency known as the Biomedical Advanced Research and Development Authority, or BARDA. BARDA's mandate is preparation and readiness for a mass casualty event. Burns are certainly an aspect of that, so they have been funding the company to help have a predictive, objective, readily available tool to predict these outcomes.
From a financial standpoint, we have $10 million on our balance sheet, and we have another $7.5 million set to be received under a convertible instrument that we recently put in place. The funding from our BARDA partners at the government is pay-as-you-go, so monthly w e'll get into that. And the combination of that payment schedule and our cash balances, we think, takes us well into 2025 from a capital standpoint.
As we go to the next slide, some recent accomplishments include the two financing arrangements. First, we have an equity line of credit. And second, we have a separate equity purchase agreement that is tied in with a prepaid advance that you would essentially think of as a convertible note a nd that's the convertible note for $12.5 million w e've received $5 million of that funding.
Excitedly, on this last box, we have deployed devices now in the U.K. W e have devices in the field being used for diagnostic purposes. We expect to have revenue transactions from those devices in the second half of this year. On the next slide, we get into what we think is a really positive track record on the right-hand side of working with this government agency and delivering on milestones. That's important as we look to revolutionize wound care by providing this objective, instantaneous, and consistent assessment and diagnosis of wounds.
But what's important about those commitments is we do not yet have FDA approval, but we feel like the probability of success of FDA approval is quite high, given our track record of working with BARDA and given that BARDA has on their team an FDA-specific resource or consultant, if you will. A ll of our work and trial design and things of that nature have been done with the FDA in mind w e think that really does help that probability of success.
The next slide gets us into the technology itself a gain, there is the cart t he image capture device is placed in its holder at this point. The image capture is proprietary in that it captures images across multiple spectrums. Those are represented by the various colors in the box there in the second column. We literally capture images ranging from near ultraviolet light through the spectrum visible by humans to the near infrared range. And it's that robust image capture that allows us to make such a thorough assessment of the wound and its healing capabilities.
The data captured is then processed through the AI tool, and there is data analyzed at a pixel level y ou see here that we have over 340 billion pixels in our database i t's a very robust database that's been built over these years. Each new image is compared to that database to provide that diagnosis on the right-hand side.
We look to use this device for two different indications in two different markets. Our primary focus is on the burn indication here in the U.S., and that is by far the largest near-term market opportunity. In the meantime, as I mentioned, we are already in the U.K. where we did receive the necessary approval, and so that's where you see the 2024. For diabetic foot ulcers, we are winding up gathering the information needed to submit for approval in the U.K. that is a shorter time frame, and the 2025, early 2025, is when we'd expect to be in the market with the device there, and then following on sometime in 2026 in the U.S.
The U.K. market, as we say in the bottom right, provides a nice proof of concept. We will get into revenue transactions, i t's a paid proof of concept, if you will. And it's a wonderful opportunity to acquire real-world data, which is so critical to payors and buyers here in the U.S. On the right-hand side, you see a smaller version of the tool. We have a second series of funding arrangements with government and non-government agencies that support the Department of Defense, where they are asking us to prepare or to develop a miniaturized version that could be used for battlefield purposes.
The funding associated with that is over $6 million to date, and we expect to have that available in 2026. The commercial application of this is quite high, as we list some areas there, so we're very excited about that opportunity. Then in the bottom center here, you would note that we do believe there are many future opportunities here. The diabetic foot ulcer is an example of an additional indication beyond burn. We can get into wound bed preparedness. We can get into amputation t here are numerous opportunities down the road to continue to leverage this technology.
Again, on the left side, you see the image capture happening. The items of interest there, the two LED light panels, are the rectangle boxes, and then those four cameras in the center are used to capture across the spectrum that I previously mentioned.
We're pleased on the feedback that we've received and how powerful the tool is. I will tell you that having been in the UK with a burn surgeon that has the device in use, they were just so interested in better care. We think that is exactly what this provides. I've been with the company four months now i started in early January. The thing that drew me to the company is a belief that this is a tool that allows for more efficient and more effective provision of healthcare, and thus the whole system benefits.
If we go to the next slide, you can see the progression here. Currently, an assessment of a burn is subjective in that the practitioner or physician is making that assessment as to whether it will heal or not. Many burns will heal without advanced treatment. The treatment for most burns is a skin graft because of the size of the wounds. Obviously, a skin graft creates another issue for a patient. If you are able to avoid a skin graft where a burn will heal, that's certainly a positive aspect.
Generalists in healthcare are about as good as a coin flip in determining the outcome of a burn, and specialists in the 125 burn centers can be closer to 70%. Our experience to date is that our tool outperforms that from an accuracy standpoint.
What the tool provides, as we've said, is a consistent objective assessment, and it's a will heal or not heal, which you see represented sort of by that red X. On the right-hand side, you can see two images. This is an output from the device also. The first is a picture of the burn that has been taken. The second is a picture of that burn with an overlay in purple of the areas that will not heal i t's a guide to the practitioner of which area needs to be treated.
The next slide then does that same concept with the diabetic foot ulcer. You can see the picture here a gain, it's providing an objective assessment. The way the device is built is to assess whether a burn will heal in 21 days or not. Then for a diabetic foot ulcer, it's whether that foot ulcer would reduce in size by 50% within four weeks. The four weeks is a reference to the time period that is required currently by payors in the U.S. for the time period to elapse before advanced treatment can be applied to a diabetic foot ulcer.
The opportunity with payor support is that advanced wound care could begin immediately if the tool indicates the wound will not heal. What's important there is many diabetic foot ulcers can lead to amputation g etting advanced care on the wound as soon as possible is very important to the system overall.
As we think about target markets on the next slide, we talk about facility counts. You can see here in the white box how we look at the U.S. market. There are 125 burn centers in the U.S. and then 5,000 emergency departments. 20% of those emergency departments are urban, 80% are rural. Our contract with BARDA anticipates in the last phase that begins in 2026 for BARDA to purchase and deploy into all those burn centers and to begin deployment into the emergency departments.
We think with BARDA's assistance, FDA approval, and the effectiveness of the device, that we'll be able to make a meaningful penetration into that emergency department population over several years. Diabetic foot ulcers are treated at different facilities i t opens up wound care centers and podiatry offices, as you see here.
One of the things about that miniaturized version is it's exactly the type of tool that could be used not only for home healthcare, but also in a podiatry office where having a cart may be less receptive. I f the handheld device is being cheaper, it should be more affordable for an environment like that.
We are approaching commercialization with our work going on in the UK a nd these are the sort of four steps that are required or going on a nd you start at the bottom with the regulatory approval. This would be a De Novo 510(k) medical device approval in the U.S. We certainly need to get reimbursement, and it would start out with a temporary CPT III code. As we build evidence, we would look to get a more substantial support through the CPT Category I code. T hen we obviously need to show the health economics and meet the publications in KOL.
An example of health economics is on the next slide where we talk about at the bottom left from a burn standpoint that DeepView, the average stay at a burn center is eight days. We believe, or we've done work previously that indicates use of our device could reduce that stay by three days. O bviously, a very significant percentage reduction, as well as each day is very expensive.
One of the doctors we work with has done some work and has found indications that 40% or more of admissions into a burn center are discharged after a day, which generally means they didn't need to be there. Getting to a burn center is expensive t here were costs that were incurred that didn't need to be incurred, etc. W e think that's very powerful.
The next slide summarizes our work with BARDA. We, as I've mentioned, have been working with them since 2013. Those first two contracts are completed. We are in this first the next two columns, the $55 million and the $95 million, are together a $150 million contract referred to as a Project BioShield contract. The $55 million runs from the Q4 of last year, 2023, through the Q1 of 2026.
Then we would begin the phase of the project to include procurement, deployment, and payment of annual license fees. To date, through March 31st, BARDA has paid us under these three contracts over $110 million. It's been very robust funding with a lot of funding to come, and they've been a great partner.
When we talk about timelines, we summarize this in the Gantt charts on the next page. I would focus on the U.S. burn. That's where the greatest economics are in the near term, as I've mentioned. We are in our pivotal clinical trial. We expect that to run through the course of this year. Thus, we would be submitting and seeking approval through the course of 2025 from the FDA, allowing us to be in the market sometime in 2026. Just as you look at this slide, remember that the 2024 presentation is by columns. Half years for the next two, and then 2027 is presented as a full year.
We get a lot of questions about how the revenue would come in t he next slide talks about this, that BARDA revenue is this R&D revenue w hen we talk about $28 million revenue expectation for 2024, it is under that BARDA contract where the total is the $55 million over 10 quarters. W e also anticipate a device sales as well as a license fee.
The license fee is the recurring revenue. It would include a maintenance and a service fee also. T hat's really where the value is. We currently anticipate in our models device sales, but it could be that for reimbursement or other purposes, facilities would prefer to pay for the device over a series of years. For us, that would be fine i t doesn't change the overall economics very significantly. Frankly, that's what we are starting to see in discussions with our UK customers as we work towards commercial terms there. Let me turn it to Vince to talk about some financial matters.
Thanks, Pete. Just a couple of things to go through on our balance sheet. If you could take a look, I mean, what's really important for us is ultimately our cash balance. We've had a nice increase in our cash from year-end, which was about $4.8 million. It's moved up to about $10.2 million in the Q1. And as Pete mentioned early on, supplementing that with the transactions that we've completed with a long-term investor, we look to see an opportunity to have significant cash in our coffers through a significant part of 2025.
We're quite pleased to sit at $10.2 million through the end of the Q1 of 2024. As far as where we are from a revenue perspective, we reported on our 10-Q yesterday and our earnings release the day before. We did about $6.3 million in the Q1, up from $5.1 million in 2023, which is about a 25% improvement, which really reflects us expanding on our work and on our new BARDA PBS contract.
I think those are the significant points we should raise when we talk about our financial position. And then on the IP, on the next slide?
In our intellectual property, we've created a significant moat around the intellectual property around our AI algorithm and our marriage between our AI algorithm and our multispectral imaging technology. We have 23 allowed U.S. patents, U.S. and international patents, with 32 additional patents pending. Our largest stockholder has a significant intellectual property background. Marrying that with our work with some significant IP litigation and IP protection firms, we find our IP to be a significant barrier to entry and a moat to protect the development we've cultivated over the last 10+ years.
Thanks, Vince. I n conclusion, as I mentioned, we feel like our device has the opportunity to improve health and cost outcomes for all, more effective care on a more efficient basis. We talk about the various care settings and stakeholders within the process here as to how they would benefit i t is a little bit of a process in the U.S. to demonstrate the economics at each one of these aspects, particularly when you know the system as a whole will benefit from the use of the tool. Our final slide just summarizes our investment particulars that we've talked about. Jim, at this point, we would look to take questions.
That's great. Thank you. It seems like you're very close to having this product commercialized. How long do you think it'll take to finish the DeepView AI burn trial?
T he critical or pivotal trial in the burn indication will wind down where we see that running the course of this year i t's a 240-patient study across some 20 sites, and we're about 20% enrolled at this case. We do see enrollment picking up. Unfortunately, burns happen in summer months. There's a greater proclivity to having burn situations. W e do anticipate having the enrollment increase. Then on the diabetic foot ulcer, we see those trials running down more in the middle of this year.
We're actually running a side-by-side trial, doing training of the algorithm while also doing validation. We're essentially done with the training aspect w e have a few more patients to go through the protocol. Then we're well enrolled on the other side, on the validation side. We just may need to increase our enrollment to get an appropriate number of sizable wounds. Again, we don't see that being a situation t hat trial will wind down here in the second half of this year.
When the trials do get completed? will you present the data, or will you wait till when will investors see the data?
Yes, we would look to, after completion of the trial and the appropriate analysis of the information by ourselves and our partners, to then provide an update to the investing public.
With the product being used in the U.K., will that help you in the U.S. with some of the third-party payers here? Because I assume the next step after approval is getting reimbursement in place.
Exactly. W e are working on reimbursement already. W e won't wait for approval to get reimbursement i t is certainly important to get into the marketplace. We do believe that payers and buyers at the facilities, as well as physicians, will very much be pleased to rely on real-world data obtained in the U.K. The FDA is looking for U.S.-based data, and that's why we're running those clinical trials w e do see the real-world data obtained in the U.K. as additive and helpful in those reimbursement and payment processes.
How do you plan to distribute the device? Will you hire sales force? Will you go to outside distributors? Will you partner with one of the larger strategics? What's your plan?
Jim, we're actually still working through that. We hired our chief commercial officer at the beginning of April. He has asked for a little bit of time to have a definitive answer there.
It's been a month. I don't know.
Exactly. S eriously, we are making that assessment. In the UK, we're doing it internally i t's a smaller environment there. T he burn environment, a burn-focused, is actually also a relatively smaller environment. W e'll cover the burn centers working internally and with BARDA. T hen it's the emergency department rollout that, yes, it might be beneficial for us to work with a partner that already has the field force in there or partner with BARDA and some resources internally w e're still doing that assessment.
For the burns, I understand you'd probably be more in hospitals and burn centers f or the Diabetic Foot Ulcer, would that be something that would be in a doctor's office?
It could be, yes. The other part is the other location is a wound care clinic. Y ou really have three care settings. Unfortunately, those are three different reimbursement protocols.
One of the questions in the audience talks about mobile devices. Can this be a mobile device being used in a similar format?
Yes. And we have the project going on to miniaturize the device. Again, that is being funded with an eye towards battlefield use. But the commercial applications are quite strong there. And there's no limitation for us to use that commercially.
Do you think you'll go for approval for the Diabetic Foot Ulcer in the U.K. as well, or are you going to stick with the burns?
No, we would look to do both. We think that process will be later half of this year, early next year, to allow for deployment and commercial transactions in 2025.
I know it's just a few, but you have had some real-world use of the product at this point in the UK. What are you hearing?
Very positive feedback on the ease of use. Positive feedback about how in a burn center where there's one burn surgeon, the device can be used by all of the clinicians and have sort of the same or better capability of diagnosis. People also like the measurement capability of the device. T he ease of use is really something and how quickly the diagnosis is provided. Those are all positive. Those are all the types of feedback we get. Really, not been any issues t here's obviously not as much of a safety issue because it's non-invasive.
How long does it take to train a physician or a tech to use the device?
Not very long at all because the cameras tell you when you are holding it close enough, and it's literally push one button. It's a fairly straightforward training and use readiness process.
Do you have a contract manufacturer in place to make the device, or how does that?
We do. Yes. We are working with a contract manufacturer i t has plenty of capacity to grow with us, which we're excited about.
You don't think there would be any issues to scale up?
No, not at all w e've worked with the contract manufacturer and BARDA to identify appropriate providers into the assembly and manufacturing process. W e do not see any w e don't have concerns about the ramp-up to higher production levels.
It looks like you have enough cash on the balance sheet to get through the approval process. When it's time to actually launch the device, do you think you'll need capital for that? Do you have any sense how much yet?
We think, as Vince indicated, we think the current capital gets us through the middle of next year. Again, from the burn indication, BARDA is supporting us in that commercialization effort. Ultimately, we would need to become self-funding there. T heir capital need is as much for the diabetic indication as well as the work in the U.K. And again, we think we have that funding well into 2025.
We become what's known as shelf-eligible at the end of 2024, which will allow us to go into the markets directly in appropriate conditions to do that funding. Although those costs are variable i t's really a discretionary situation for us.
Okay. All right. Well, we are bumping up to the time limit. Do you have any closing comments before we?
Just that we appreciate people's interest a gain, we feel like we have a device that is relatively unique through the combination of the image capture AI tool and depth of the database. And we're pleased to have the financial resources to support this ongoing development. And we're happy to take one-on-one questions or spend time with anybody that's interested. And Jim, we appreciate the opportunity to be here at the conference.
Well, I want to thank you and thank you on behalf of the entire Sidoti & Company team. We appreciate hearing stories like this. These are stories that we think are relatively close to really becoming profitable companies. It's good to hear that these stories are out there. Thank you for presenting.
Thank you. And good day, everybody.
Thank you.