As you know, Spectral AI is a commercial-stage medical diagnostics company focused on developing a novel imaging system that includes a predictive AI solution to generate more accurate and faster treatment decisions in wound care. To discuss the company's DeepView system and the development strategy that the company has put together for 2024 and beyond, I welcome Pete and Vince to this fireside chat. Good day, folks. Glad to see you accepting our invitation and talking to our audience today.
Thanks, RK. We look forward to the discussion.
So Pete, to get things started and, to help set the stage for our audience, could you give us an overview of Spectral AI, and what is predictive wound healing?
Yeah, very happy to. And again, we appreciate the opportunity to talk to investors like this. Spectral AI is a company that uses artificial intelligence to provide a predictive diagnosis of the outcome of a wound, particularly burns. And so predictive wound healing is the use of analytics and artificial intelligence to predict how long a wound will take to heal, and whether the patient is at risk of not healing. It is a binary question of sorts.
Mm-hmm.
Our algorithm classifies wounds as whether they are non-viable, meaning non-healing, or cannot heal without surgical intervention, or viable, or otherwise healing.
Mm-hmm
... and thus does not. It would heal with routine care. Additionally, the tool will display an image comparing the original image of the burn with an overlay of the parts of the burn that are either healing or non-healing, and it's. So we find that is very useful in the clinician standpoint. This is a technology that is an adjunct to clinician assessments.
Perfect. So, you know, my understanding is DeepView is a disruptive technology. But, you know, how do you folks see this? And, you know, should we be thinking of DeepView as a disruptive technology?
We think so, and although I will note it is also an adjunct. So we are not proposing that DeepView be the only assessment made, but we believe it greatly increases the efficiency and effectiveness of care, particularly for these burns or wounds across the system, and that's because it's providing an objective and consistent assessment of the outcome of a burn.
Mm-hmm.
The breakthrough aspect of this is the use of artificial intelligence with an image capture capability that is quite robust across a wide spectrum of wavelengths, and it provides equity of care across all care settings. So if you think about wound burns today, there are 125 burn centers in the country, and about, you know. And there are a couple of burn surgeons on average at those centers. They're the experts, and they are obviously very few and sparsely located. So burns are presented across 5,000 or more emergency departments throughout the year. And so our experience is our tool is even better than the experts at predicting the outcome of a burn, and much, much better than the generalist in an emergency department.
And so that's the equity of care that we think of from a breakthrough aspect of this.
Very good, so with this technology, you're actually looking at two different indications. One is in burns, the other is in diabetic foot ulcer. How should we think of DeepView being used in these two indications?
The burn indication has been the primary focus of the company since its beginning in 2009, and certainly since first partnering with our governmental partner, BARDA, in 2013, and that is where our deepest research exists. As well as the technology has been developed using that as the indication. The technology is very leverageable, and thus the opportunity to work on numerous other indications, the first one being a diabetic foot ulcer. The diabetic foot ulcer is quite a large market. There's a lot of solutions out there, you know, that fall into something referred to as advanced care. There is a time of waiting until that advanced care can be applied and reimbursed.
We think the benefit in the diabetic foot ulcer is, with payer support, confirming or providing that extra bit of evidence that advanced care is needed immediately, rather than waiting the prescribed four weeks currently. In diabetic foot ulcer, sooner care and better care can help avoid amputations, and amputations are horrible for the patient, and they're horrible for the system. On the burn side, many burns will heal without advanced intervention. An advanced intervention in a burn is often a skin graft, which creates another situation. It's an autologous skin graft most of the time, so that just creates another situation on the patient. If you can avoid that type of procedure, that is beneficial. Giving the physician that added confidence that they do not need to do surgery is important.
Further, and from an economic standpoint, those burn surgeries, again, happen in those burn centers, and so making it where only the burn patients that need to go to those burn centers are transferred is important. There is a study out there that indicates 40% of admissions to burn centers are discharged within 24 hours, which means they did not need any advanced care, and we believe our device can help reduce that, and thus reduce the unnecessary transportation costs.
Mm-hmm
... and stress on the individuals and their families, you know, related to the transfer.
Okay. And in terms of market, you know, what's the TAM for these indications?
We think about TAM, TAM a couple of different ways. The simple answer is, in burns, there's about $3 billion spent annually, and in diabetic foot ulcers, there's close to $12 billion of spend annually.
Mm.
That's focused on the care. We're focused on the diagnosis and a tool for that, so we aren't necessarily going to grab some of that market share. What we're trying to do is give the providers a better way to treat their patients, and so we think about TAM as the sites of service. Again, in burn centers, there's 125 burn centers, but then there's 5,000 emergency departments. That is the population we see supporting and using the device for burn. As you think about diabetic foot ulcers, you would add 1,100 wound care clinics, 4,000 private office practitioners, as well as other care settings. Additionally, we're very excited about this. We are working on a handheld version, a miniaturization of the tool. This...
We have separate funding for this by agencies that support the Department of Defense here in the U.S., and the goal of the miniaturization project is for a battlefield application. Very mobile, very remote usable.
Mm.
The commercial aspects of that are tremendous and open up things. We think those would probably be more easily accepted in the private office practice, but home healthcare, traveling nurses, places where a cart would not be helpful.
Mm-hmm
... the device currently for the burn centers and emergency departments is a cart-based device. But even to go to the extreme of ambulance, you know, EMT, first responders, being able to make that assessment, in the field and take somebody directly to a burn center would be very helpful in the system.
Very good. So as you said previously, earlier, BARDA has been a champion of your technology right from day one, or literally from day one, and also has helped you build this technology up. And, you know, in terms of how they have contributed to this development, can you highlight some of those things? Plus, you know, how are they helping you to... You know, if there is any help at all from them in terms of getting the diagnostic approved and also in terms of commercialization.
BARDA has been a great partner, and for those that don't know what BARDA stands for, the Biomedical Advanced Research and Development Authority. It's an arm of the government, or an agency inside the government, that is tasked with preparedness for mass casualty situations, such as a massive fire, an explosion, or hopefully not to occur again, but if it did, a terrorist-type event, and so their mandate is preparedness, and so on burns is a particular focus they have. We are the only diagnostic tool that BARDA is working with, and they have been a great partner since we first started working together in 2013. We are in our third series of contracts with BARDA.
The first two totaled about just under $100 million, and we completed that, the second of those, in late fall 2023. Earlier in the fall of 2023, we signed a new award with BARDA that is quantified at $150 million. We currently are in the base phase of that contract, which is just under $55 million, and that is set to run from that fourth quarter of 2023-
Mm-hmm
... to the first quarter of 2026. That funding continues the development that has been going on these 11 years, and also supports the clinical trial work and the application work needed to submit to the FDA for approval of the device. We have, in our conversations with BARDA, and they're frequent, they also have a broad set of skills in advising us, and that includes people that are very familiar with the FDA process. So to your part of the question of how are they helping us, it's a great partner to work with on a weekly and monthly basis as we prepare for FDA approval, and we all know that that is a requirement, and so it is a common goal.
Additionally, we have breakthrough status or breakthrough designation with the FDA, and that allows us to have more frequent and less formal interaction with the FDA than just simply submitting an application. BARDA helps us prepare for those meetings as well. So they are a great partner, both supporting us financially and supporting us from a development and application standpoint.
Perfect. So in terms of clinical evidence, you know, what's the current clinical evidence that you have in terms of utility of DeepView AI in both burn and DFU?
So let me start with burn. We are in the midst of completing, or have actually just completed, enrollment for our burn pivotal study at burn centers. We continue to enroll in emergency departments, and that's going forward. That burn pivotal study has, in the burn center arm, 160 patients, or 160 subjects have been enrolled there. This follows two prior clinical trials, the most recent being the, what we refer to as the burn training study, that had 243 participants. And what's happening in these trials is a patient presents at the clinic and is identified as a participant in the study. The clinician makes their own assessment, and the clinician uses the device to capture an image, and the device will have an indication of whether the burn will heal or not heal.
In these trials, the clinician is blinded to that determination, and the clinician goes about its care plan. The binary question on a burn is will it heal in 21 days or not? And that's what it's comparing to our database, where we know wounds have healed or haven't healed in 21 days, and the way we kind of check the device is, if no intervention occurs, then we re-image it 21 days to see what's happened. If intervention is occurring, then we take biopsies, skin biopsies from the patient, and that is used to make assessments by professionals. It's called truthing, so literally, doctors look at that biopsy, experts in the field look at that biopsy and determine what would heal and what would not heal.
And so those are the two factors that are compared to what the device says. And so, as I said, we've completed the enrollment in the burn center aspect of this. Emergency departments are a different animal for enrolling in these studies like this, so it we did anticipate it taking being a little bit different time pattern. We think that will take us into 2025 on the emergency departments. But we are looking and working on an enrollment, or a, I'm sorry, a submission to the FDA for burn center use of the tool in burn centers, and so we think that is the near opportunity for us. On diabetic foot ulcers, we recently completed enrollment of patients in really a two-prong trial. It's 475 patients.
Yep.
About two-thirds of those were in the arm of the study we refer to as the training of the algorithm, and then one-third is in the validation study. We completed the enrollment on the training arm of that, and we've paused the enrollment on the validation as we take a step back and do some assessment of the data we've received, and wanna have a better assessment of is the right path forward for that second indication. Is it specifically diabetic foot ulcers? Is it better a little more broadly defined as wounds? And so that's what we wanna build, that's what we're analyzing that data for. So we have robust data on both indications.
The robustness from the burn standpoint, we talk about the number of pixels, as that is the assessment, that's the level at which the assessment is being made. We have over 340 billion pixels in our database, so it's a very robust database, being used for these comparisons to each additional image generated.
Fantastic. So, you recently have deployed three systems in the U.K. and planning for a commercial launch in this half of the year. So how has that helped you in terms of defining commercialization of DeepView when you finally get the approval here in the United States?
... It's a tremendous help, RK. We actually are now up to five sites, and we received approval to deploy the device in the U.K. in the first quarter of this year, and these devices are in the field going through customer evaluations. Those evaluations will lead to commercial sales, and that's our commercialization opportunity. Recognizing that, you know, those handful of devices are not a significant financial impact, and the U.K. market is obviously not the U.S. market, but it gives us this opportunity to be in the field using the device, having clinicians use the device, and all the benefits of that. Capturing data, but capturing experience on how clinicians are using it. What is the right support they need around them from a training and a service standpoint?
What are any issues that are going on with the device that, you know, need tweaking, but it's really that real-world evidence, both clinically and just, service-wise, that are very beneficial to us, and we look to build on that with further deployments in the U.K., and as I said, we expect a commercial transaction later this year from these deployments, and after the evaluations are complete. There was just a burn conference, international burn conference in the U.K., and one of the clinicians, one of the burn surgeons in the U.K. that has been using the device, gave a brief presentation to talk about how well, or how much they felt the device helped them provide better care. That included talking about the accuracy of it and their clinical use.
So it's the first time in that burn conference that any population has heard about clinical application of the device, and that's an international conference that included not only U.K., but a lot of U.S. physicians and burn surgeons. So we were very happy to be able to have that information shared based on this deployment in the U.K.
Okay, perfect. This is great. And then, outside of U.K., do you plan to have some commercialization, and, you know, if not, what should we expect, at least over the next three to five years?
Yes, we are looking beyond other jurisdictions, and we've announced a memorandum of understanding with PolyNovo in Australia. Vince has been very instrumental in getting that going, and this gives us an opportunity to begin understanding that market, working with a couple of physicians there, a couple of facilities. Vince, what's the name of the scheme that we're working with?
So we're under the Special Access Scheme in Australia, and we're working with it through Melbourne, and then Royal Adelaide Hospital as well in Australia.
Perfect. Perfect.
And then, you know, the way we got authority to deploy the device in the UK was through what they call a CA mark.
Mm.
This is the post-Brexit-
Yeah.
... UK version of what's more familiar to many of us as the CE mark.
CE mark.
If nothing else, just from the stickers on the extension cords we all buy.
Correct.
And so we would want to get into Europe, we would need to do that. That's a little longer tail process than it was to get in the U.K. approval, and then there is some work to do by countries, but country by country, but that's certainly a place we would look at. Again, Vince has been working with our team in the U.K. on interactions, frankly, in the Gulf Council countries. We think there's an opportunity there, as that aspect, and then this Australia. So we believe there are again a very leverageable technology and needed in multiple places, both for burns or for wounds, or other types of indications.
Perfect. Then in terms of catalysts, what should we expect or what should investors expect, or let's say, over the next six to 12 months?
The ultimate catalyst here, and it's in that sort of six-month timeframe, is FDA submission, and then at the nine to 12 months after that is FDA approval. That's the big catalyst in the U.S. The near-term catalysts are not only this completion of the burn center enrollment, but completion of the study work-
Mm
... so that the patients, the subjects, have gone through the study. And then, us having the time to analyze that and provide some readouts. And readouts would probably be, you know, they're months away, but, there is an opportunity for a catalyst there. And then, the other near-term catalyst that's very exciting is gonna be the commercial transactions in the U.K., from that standpoint. There are multiple steps as we get to the FDA approval. The study is one of those, development work, that we're doing internally, and, and then ultimately, the application, those are gonna be the near term, over these next six months or so.
Okay. So one last question from me, it's regarding the cash position, where you stand, and what sort of a runway should we expect from that?
Our cash at June 30th was just under $7 million. It's really six million, so it's $6.9 million, and $0.9 million of that relates to a subsidiary. So it's somewhat isolated. So $6 million of cash at the end of June. And we see that getting us into 2025 as a capital need. And we've received funding from a convertible transaction. We did use some cash to amortize that in the first half of the year, but the market conditions are gonna support us being, we think, able to use the equity as planned. Then, you know, we have additional capacity through a variety of equity lines to have access as needed.
So, but this cash we have right now, we see getting us into 2025, which is what's important.
Perfect. Thank you very much. Thanks, thanks for your time, and really appreciate you both talking to our audience today. Thank you.
Thank you.
Thanks, RK.