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Lori Woods - Chief Executive Officer Jonathan Hunt - Chief Financial Officer Mark Levin - Investor Relations

Good day ladies and gentlemen, and welcome to your IsoRay Inc. Q1 FY 2022 Call. At this time all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Mark Levin. Sir, the floor is yours.

Thank you, operator. Good afternoon and thank you for joining us today for the IsoRay fiscal first quarter, 2022 earnings call for the quarter ended September 30, 2021. Before we get started, I will take a few minutes to read the forward-looking statement. Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When used in this conference call, words such as will, believe, expect, anticipate, encourage and similar expressions as they relate to the company or its management, as well as assumptions made by and information currently available to the company's management identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs about future events as of today, November 10, 2021. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the company undertakes no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether resulting from such changes, new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the headings of Safe Harbor Statement and Risk Factors listed from time-to-time in the company's filings with the Securities and Exchange Commission. We will get in today's call with Lori Woods, IsoRay's Chief Executive Officer, and then Jonathan Hunt, IsoRay's Chief Financial Officer who will discuss the fiscal first quarter 2022 financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors. I will now turn the call over to Lori Woods.

Thank you, Mark. Good afternoon and thank you for joining us today for IsoRay's fiscal first quarter 2022 earnings conference call for the quarter ended September 30, 2021. Following my prepared remarks, our Chief Financial Officer, Jonathan Hunt will provide a more detailed review of our fiscal first quarter financial results. I am pleased to share with you the steady growth we experienced in our first fiscal quarter. Revenue for the first quarter of fiscal 2022 increased 8% versus the year ago quarter to $2.56 million. I am encouraged by the general trend we experienced this quarter, as our prostate business grew year-over-year for a second quarter in a row. Our non-prostate brachytherapy business, notably the treatment for brain cancers, including the sales of GammaTile therapy continues to become a more meaningful driver for the company. As you may recall, the summer months of July through September historically tend to show some modest seasonality. This is typically when both physicians and patients take vacations or time off. We believe this seasonality played an even greater factor this quarter than in past years. We consistently heard antidotes from both physicians and patients taking extended vacations during the summer months as many parts of the country began to reopen. Additionally, we are being told by hospital administrators that nursing and other related staffing shortages are making it difficult to perform elective and non-emergent procedures in many markets. This reinforces the rational of our recent strategic pivot to drive more procedures to ambulatory surgery centers and licensed physician offices, where inadequate staffing is not as pronounced as it is presently in many hospital settings. Ultimately, cancer doesn't go away. We continue to believe that the increasing backlog of patients who had delayed seeking treatment or who may have not been diagnosed yet, will eventually flow through the system and be treated. A development that we expect will benefit Cesium-131 treatment opportunities comes in the latest action from the Center of Medicare and Medicaid Services or CMS. On November 2, CMS released the calendar year 2022 hospital outpatient prospective payment and ambulatory surgery center payment systems final rule, which becomes effective January 1, 2022. This rule also includes the final rule on the radiation oncology alternative payment model or ROAPM. In this final rule CMS has kept the proposed changes from July, specifically that brachytherapy and sources such as Cesium-131 are removed from the list of included modalities. This means that brachytherapy treatments will still be reimbursed under the current fee for service model and sources or seeds will continue to be paid separately. We maintain our belief that this will prove to be the best outcome for patients, physicians and payers. We expect one likely immediate benefit to patients will be for those who need duel treatment to treat intermediate or advanced prostate cancer. Those patients will now have access that is supported by reimbursement from CMS. As CMS guidelines typically drive reimbursement policies that other insurance companies follow, we believe that this will increase access for patients with private insurance as well. Looking back on the quarter, another very important development is one that we believe will create more market traction. At the end of September we announced that the American brachytherapy society has recognized Cesium-131 in a new consensus statement, our low dose rate prostate brachytherapy sources. This was noteworthy, because it represents the first time Cesium-131 has been included in ABS's highly respected consensus guidelines. We noted in our press release that ABS is a neutral professional organization. It does not rank or endorse any specific treatment option, instead remaining evidence based and providing insight into research surrounding the use of brachytherapy in addressing malignant and benign conditions. Physicians hold this information in high regard, so we believe that this is another substantial step forward and provides additional credibility. As a result, we believe it should further augment Isoray’s opportunity to continue to gain market share within the prostate brachytherapy market. Another potential driver for future growth in our prostate business is one that you may remember we shared with you at the beginning of the calendar year 2021. At that time we received FDA 510-K clearance for the use of C4 imaging Sirius MRI Markers with Cesium-131 seeds. We believe that the pairing of these innovative technologies give doctors who preferred to use MRI as a imaging component and even more precise targeted prostate brachytherapy treatment option. I am pleased to report that we completed our pre-market activities related to the Sirius Marker in September. We have now begun our product performance evaluation of this technology with the first few patients having been successfully treated in the past couple of weeks. Outside of prostate, we remain excited about the prospects from the University of Cincinnati Phase I, II clinical trial. You may remember that this involves the study of the combination for our Cesium-131 seeds with Merck's PD-1 inhibitors immunotherapy drug, KEYTRUDA for the treatment of recurrent head and neck cancers. We are pleased to report that the first patient was enrolled at the end of October and has begun receiving treatment. Of note, are the hospital related restrictions that have been in place in many parts of the country due to COVID. These have proven to be a headwind for finding and enrolling patients in clinical trials such as this. Hopefully, we are turning the corner on that front and enrolment will begin to expand from here. We believe that immunotherapy in tandem with resection and Cesium-131 brachytherapy could be an effective treatment option for patients who continue to battle this critical cancer. We're not alone in this belief. We have recently heard from other leading institutions who have expressed interest in potentially collaborating with the University of Cincinnati on this study. If this were to evolve into a multi-center study, it can likely speed up and broaden patient enrollment for this study. We look forward to keeping you updated on further developments. We recently attended the Annual Meeting of the American Society of Therapeutic Radiation Oncology or ASTRO held last month in Chicago. There were several presentations and abstracts on Cesium-131 that continue to support the use of Cesium-131 for recurrent brain cancers, both with GammaTile and Isoray’s legacy product with strands. We believe the results of these presentations and abstracts continue to add to the growing body of data suggesting that Cesium-131 targeted radiation therapy has a place in the treatment of brain cancers. We remain excited about Isoray’s potential here as the ease of use of GammaTile therapy with Cesium-131 and the related therapeutic benefits may serve to drive further adoption of our unique radio isotope as a compelling option in the treatment of brain cancer. Cesium-131 received additional positive recognition in the treatment of different cancers in the recent addition of a respected regional medical publication. I hope you've seen the article on Cesium-131 in South Florida Hospital News and Healthcare Report. It is on our website under news and has recently been featured in social media posts. The article includes comments from three doctors who are treating brain, head and neck, and prostate cancers respectively. A bit of information about the publication. It is the South Florida regions only monthly healthcare newspaper. Its reach includes more than 32,000 healthcare professionals in the Broward, Miami Dade, Palm Beach, Munro and Martin Counties. Its audience is an extensive group of professionals, comprised of healthcare executives, administrators, practice administrators and managers, hospital department heads of all key areas, physicians, business executives of health focused companies and South Florida's top business and political leaders. The article was shared to their Print Publication as well as one of their email newsletters serving to maximize its reach. We are interested in expanding our presence in this key market given its demographic profile. To that end, we will have a full time sales person located there starting January 2022. Before I turn the call over to Jonathan, I want to touch on some of the increase in expenses this quarter. Recall that we are continuing to evaluate a number of strategic opportunities. This process has extended over the past several months since our capital raised earlier this year. To successfully capitalize on potential new opportunities, as well as the growth we anticipate from our existing business, we continue to add more staff in key areas, including operations and R&D over the past several months. A specific example is the new project management office or PMO, which we initiated during the quarter. This department will be integral in the implementation of the strategic opportunities that we are currently evaluating. As our innovation pipeline continues to evolve, we concluded that it is strategically critical to have the dedicated resources, a framework and the necessary processes here within the organization. The PMO bridges strategy and execution to ensure that Isoray has the ability to successfully integrate these opportunities. We believe that these investments in additional head count and functions are critical to support the scaling of the organization in anticipation of future growth. Now I will turn the call over to Jonathan to review the results of our fiscal first quarter in more detail.

Thank you, Lori. I am going to discuss some of the financial information that was contained in our press release for the fiscal quarter ended September 30, 2021 that we really a short while ago. We anticipate that our form 10-Q will be filed with the SEC on or around November 12. Revenue for the first quarter ended September 30, 2021 grew 8% to $2.56 million, versus $2.38 million for the same period last year. Prostate brachytherapy revenue increased 4% versus the first quarter of fiscal 2021. First quarter revenue was comprised of 77% for prostate brachytherapy with the balance for 23% of revenue contributed to other brachytherapy. Driven primarily by seed and services revenue from GT Medical Technologies, other brachytherapy revenue increased 20% versus the first quarter of fiscal 2021. Gross profit as a percentage of revenues for the first quarter ended September 30, 2021 was 40.1% compared to 52.3% for the quarter ended September 30, 2020. The gross margin decline was primarily the result of a 35% increase in cost of product sales when compared to the year ago quarter. Due to actual sales volumes being lower than forecasted volumes, we had excess isotope on hand which went unused. Other material costs, increased due to supplier price increases. Additionally, payroll and benefit expenses increased as a result of greater head count versus the comparable year ago period as we continued our investments in the business. First quarter gross profit dollars $1.03 million decreased 17% when compared to the same period last year. Total operating expenses consisting of research and development, sales and marketing, and general and administrative increased 69% to $3.3 million versus $1.96 million in the first quarter of 2021. As Lori mentioned, in anticipation of future growth, we've increased headcount throughout the organization which contributed to the year-over-year increase in expenses in general. Additionally, recall that our annual employee and director stock grants were granted in July, rather than the fiscal fourth quarter ended June 30, 2021 like in prior years. As a result, fiscal first quarter 2022 total share based compensation expense increased to $596,000 from $85,000 in the prior year comparable period. The majority of this expense were approximately $552,000 was with in total operating expenses. As a reminder, stock based compensation expense was a non-cash expense. Total R&D expense increased 125% versus the comparable prior year quarter to $702,000. The increase in total research and development expense was primarily the result of increased payroll and benefits expense due to greater headcount, increased share based stock compensation expense due to the aforementioned training shift in annual employee stock grants and higher market research expenses versus the prior year comparable period. Sales and marketing expenses increased 31% versus the comparable prior year quarter to $761,000. The increase in sales and marketing expenses was driven primarily by increases in travel and trade show costs, as well as higher share based stock compensation expense, versus the prior year comparable period. G&A expenses of $1.84 million represented an increase of 72% versus the fiscal first quarter 2021. The year-over-year increase was primarily the result of increased payroll and benefits expense due to annual merit increases and greater headcount, increased employment hiring expenses and increased shared based stock compensation expense due to the timing shift in annual employee and director stock grants versus the prior year comparable period. The first quarter net loss was $2.24 million versus a net loss of $713,000 during the same period last year. The net loss per basic and diluted share was $0.02 versus the net loss of $0.01 for the prior year fiscal first quarter. Basic and diluted share results are based on weighted average shares outstanding of approximately $141.9 million at fiscal first quarter 2022 versus $68.9 million for the prior year period. As of September 30, 2021 the company had cash, cash equivalents and certificates of deposit that totaled $61.7 million or approximately $0.44 per share compared to $63.8 million at the end of fiscal year 2021 ended June 30, 2021. The company has zero long term debt. Shareholder’s equity at the end of the fiscal first quarter 2022 totaled $65.8 million versus $67.4 million at the end of fiscal year 2021. I will now turn the call over to the operator to take questions from our analysts and institutional investors.

Thank you. [Operator Instructions]. Our first question today is coming from Frank Takkinen at Lake Street Capital Markets. Your line is live, you may begin.

Lori, Jonathan, thank you for taking my questions today. I wanted to start with the headwind you were referencing in the quarter as it relates to more than average vacation time over the summer months as well as staffing shortages. Can you help us quantify just how much this impacted the quarter? And then can you maybe give us a feel for it some of these headwinds have subsided as we look into the fourth quarter and how October has looked.

Hi Frank. Yeah so, typically we see a little bit of seasonality in the summer as you would in this industry of people taking vacations. But with the country and to some degree the world opening up a bit, we saw extended vacations from some of our physicians. They went on vacation and decided to stay on vacation a little longer, and we also got information from them that a lot of them were taking extra vacation because their patients seem to be taking vacations. So we feel like that there was definitely a little bit more seasonality than we would typically have this time of the year. In terms of just access to care, what we're hearing from hospitals is that during the pandemic they had to lay off nurses and even physicians who did a lot of their elective surgeries and what we're hearing back is that they are having a hard time filling those empty positions. They are ready to get back to doing more elective surgeries, but they are having a hard time hiring nurses in particular is what we've been hearing. So we feel that it's going to take a little bit of time for everybody to get geared up and not having a crystal ball, I'm really hoping we're not looking in a winter where COVID rears its head again. But assuming that it doesn't and that we can start getting back to more normal season, we would hope that going into the fall here people will start to get back to see their doctors, they will get diagnosed, get into the system and then get treated.

Okay, that's helpful. I want to shift over to the non-prostate business. Looks like that was a little bit more impacted in the quarter, 20% growth, that's impressive, but I think you've been more closer to triple digit percent growth on a year-over-year basis, and had a lot of exciting things going on there. But it looks like that may have taken a little step back, maybe just tease out those specific customers as well. And then can you just touch on, give us a little level set on how many accounts right now are actually offering non-prostate brachytherapy.

So, in terms of growth for the summer, I would say the same thing happened with non-prostate that happened with prostate. There was an awful lot of people on vacation and that really did kind of – the seasonality of it impacted it, and that seasonality I definitely believe was affected by the fact that people could get out and move around again. So I would say the same thing applies for the non-prostate business. And the second part of your question was how many…?

How many accounts currently offering non-prostate brachytherapy, do you have?

At this point in time, we would have to add in the GT numbers and so I don't have a number for you specifically of how many people are actually ordering from us, because we wouldn't know what their number is. But we – it’s a solid number of accounts and we continue to see growth in that area as well.

Got it, okay. I’ll ask one, and this one’s a little bit higher level. It sounds like there's a lot of things going your way, guidelines, papers, tenure data, ROAPM. So maybe just take a step back and focus us in on the most important thing. What’s going to drive the business to grow at a more aggressive rate and where we can start to potentially double the top line and go beyond that? Obviously we're in a massive end markets, but it's a little bit challenging to penetrate those further. But just maybe, well run through some of the tail-winds you have and which ones are most important to really start to grow the top line?

Yeah, absolutely. So you know assuming that we are getting past COVID and that things will start to come through the pipeline again, we see several things that will be very beneficial. One would be, there are a lot of patients out there that haven't gotten back into the system again. The American Cancer Society estimated that this year we would see a huge increase in patients coming through from 2020. Well unfortunately COVID’s extended longer than we thought it would and so we haven't seen that group of patients come through in the numbers we would have expected yet. So we still believe that there are patients out there that are going to get into the system and come through the system. And so when you talk about our core business in the prostate brachytherapy, you know the things we are working on and making sure set up and in place are things like our brand and product awareness. We're doing some new things that you guys will be seeing soon. Proximie in our physician training and getting Proximie in multiple hospitals, so we can do virtual training as well as in person training. And then we have the C4 Markers that we are hoping that we'll be able to looking at rolling out in a broader way later this year, as well as working with advocacy groups like

Okay, that's helpful. Thanks for taking my questions.

Thanks Frank.

Thank you. Our next question today is coming from Mike Ott at Oppenheimer. Your line is live, you may begin.

Good afternoon Lori and Jonathan, thanks for taking my questions. Congrats on the C4 initial treatment and the University of Cincinnati first enrollment. On the latter, curious if you know yet, how soon you might hear on a collaboration that could enable a multicenter study and how that could impact the timeline, both with and without the multicenter, if you can speculate on any of that?

Yeah absolutely! So we hope to actually hear some additional institutions joining and collaborating with the University of Cincinnati here in the next couple of months. I mean you know that takes some time because the hospitals have to run these kinds of things through IRP and other committees to get them approved. So it's not going to happen overnight, but we also do see a lot of very serious interest that we believe that that process will go as quickly as those regulating bodies allow. And then once we have more centers on, that absolutely opens up the ability to get more patients enrolled. You know the University of Cincinnati is doing a wonderful job of spreading the news about this. They've done some really great things about letting the community know that they have this available, but there's only a certain amount of patients that they're going to be able to enroll and so having multiple institutions getting the word out like that to multiple communities should be very beneficial and we would expect it to be.

Great, that's helpful color. And then understanding about the seasonality in the quarters reported, the nurse shortage, but you know how much is COVID still impacting your core prostate because? If you see, are there still restrictions in place and you know kind of alongside that realizing its early days, but have you seen any traction yet with the new virtual training program Proximie which you mentioned, you know specifically in those outpatient settings?

Absolutely! So, in terms of seasonality and restrictions due to COVID, we continue to see some of that and it tends to kind of come and go a bit. If in certain areas of the country there's a lot of cases, we see some of the hospitals who are getting high number of COVID patients not able to handle some of the rest of the patients that need to be seen. A lot more of that now is less about the number of beds available than it is the number of employees at the hospitals, specifically nursing staff, to be able to actually handle the volume of patients. So we’re seeing a little shift in it, going from you know no beds available in the hospital to there might be beds available in the hospital, but they still don't have the staffing that they need to be able to address all this. So we're hoping as more and more people get vaccinated or more people have COVID that we will get past this and start to see the restrictions ease certainly in parts of the country. There are no restrictions and so again, it really depends on how overwhelmed the hospital is feeling and whether they can actually accept patients or not. In terms of our virtual training, we are working with Proximie right now in several centers of getting it put in and it takes a little bit of time to actually do that. So from a virtual training perspective, I think we're still a little bit – have a little bit of time before we actually do the first one of those. But in terms of training other physicians right now, we've been able to do some in-office types of training. We've done some training using other things other than Proximie. We've done some phone training, we've done some phone training, we've done some video types of work. So there's other ways we are addressing that right now. But we're really excited about this Proximie product, because you know being able to do it virtually and in person is what we think will be really one of the best ways to do it.

Absolutely! Thank you so much for all the color there.

Thanks Mike.

Thank you. Our next question today is coming from Tim Chiang at Northland Capital. Your line is live, you may begin.

Hi! Thanks. Well Lori, could you talk a little bit about just, you know the GammaTile therapy, how that’s being doing as of last and do you expect a resurgence in growth assuming, nurses and healthcare practitioners start to go back to the hospital, hopefully if not this year sometime early next year.

Yeah, absolutely Tim. We are really excited about the potential of GammaTile therapy and I'm going to talk about what's been going on at ASTRO. So the American Society of Therapeutic Radiation Oncologist met in Chicago and I mentioned that in my presentation. But what was really great was GammaTile therapy had several presentations there that were very interesting. They drew a lot of interest from the physicians who are attending and others that were attended remotely or virtually. And so you know although they are suffering from the same kinds of problems we are, I'm very, very encouraged that there's a lot of interest there that showed up at ASTRO, I think that bodes well for the future as these patients start getting back into the system; as doctors can look at bringing on new technologies again, and you know our sales group and GammaTile sales group can get in front of these physicians. So I think this summer definitely had seasonality that impacted everybody, but I would say that going forward I'm very encouraged about the opportunities that GammaTile has to continue to make strong inroads into the market.

And maybe just one follow-up, Lori. You talked about this combination with Cesium-131 and Keytruda. When do you think we could actually see some data from the University of Cincinnati study?

So, we have been having trouble enrolling patients, so that's going to be the first hurdle we have to get over. So getting these other institutions on I think will be very beneficial. Then the other part of the study really is because it's Phase I, Phase II, we're really looking at safety and how these patients to do. So they can't just be treated and then we report on. We are going to have to give it some time to see how these patients do before we can report that. So I'm very eager to share that information with you guys, but I am going to have to be patient while it actually – you know these patients get enrolled and then we make sure that this is a safe and efficacious way to treat them. So we're going to have to be a - I'm going to have to be a little patient for sure.

And Lori, I think on the last call I asked you about just business development. Have you guys looked at more business development type of opportunities as of late? And you know how do you sort of see that market developing for you?

You know we're looking at that, those opportunities every single day, and again ASTRO was a really good opportunity for us to have some really well placed conversations with other companies that were there as well. And there's a lot of strategic companies there, a lot of start-up companies so we had a lot of interesting conversations with people. As I mentioned, we are narrowing down our opportunities and I think some of the key meetings we had at ASTRO were very beneficial to help us narrow down the opportunity, to see what people are interested in, understand what physicians are looking at for the future and what other companies are doing. It was a really helpful place to continue our business development process.

Okay great, that’s helpful. Hopefully you'll narrow down the scope and get to the finish line on a couple of deals, you know next six to nine months.

Yep, we are hoping so too.

Thanks.

Thank you. [Operator Instructions]. We have no further questions in the queue at this time.

Thank you everyone for joining us today, and have a great evening! Bye-bye!