Good day everyone and welcome to the IsoRay First Quarter Fiscal 2018 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Ms. Stephanie Prince at PCG. Ma’am please go ahead..

Thank you, Jamie. Good afternoon everyone and welcome to the IsoRay’s first quarter fiscal 2018 earnings conference call. With me on the call today are Tom LaVoy, Chairman and CEO; Bill Cavanagh, COO and Chief Scientific Officer; and Mike Krachon, VP of Sales and Marketing.

IsoRay issued its first quarter earnings press release just a little while ago after the market closed. For those of you who’ve not seen the release yet, it is available on the Investor Relation section of the company’s website at isoray.com.

Before starting the call, I’d like to remind you that today’s call will contain forward-looking statement as defined by the Private Securities Litigation Reform Act of 1995.

These words can be identified such as believe, expect, anticipate, plans, project, seeks, and similar expressions and involves numerous risks and uncertainties and company’s actual results could differ materially from those anticipated or implied in these forward-looking statement as a result of certain factors set forth in the company’s filings with the SEC.

The company undertakes no obligation to update any forward-looking statements. With that I’d now like to turn the call over to Tom LaVoy.

Tom?.

Thank you Stephanie and good afternoon everyone. Welcome to IsoRay’s first earnings conference call. We’re excited to share with you our recent results and provide a little perspective on our outlook for growth.

We’re very excited about the changes that we have brought to IsoRay over the last 18 months, and believe we’re on a path that will result in continued growth and success.

I’ll begin with an overview of our results for the first quarter and the state of the business, and then try to provide some targeted thoughts on our opportunities with different applications for our core Cesium-131 product. I’ll then turn the call over to Michael Krachon, our VP of sales and marketing who was previously at C.R.

Bard and has years of experience in the prostate brachytherapy market. He’ll focus on our sales strategies and then discuss some of the sales and marketing initiatives. I’ll then end the call with a discussion of our first quarter results, operating initiatives and their financial impact, and guidance before opening the call for questions.

To begin, I want to share IsoRay management team’s excitement about the progress that we’ve made over the last 18 months. We’ve reversed our revenue trend, we’ve contained our manufacturing costs, and we’ve put in place an infrastructure to provide the foundation for increased growth and efficiencies in coming quarters.

In the first quarter of fiscal ’18 which we released today, we reported 1.2 million in revenue, a 12% year-over-year increase. This is the third consecutive quarter of year-over-year sales increases, following sales of 1.28 million and 1.37 million in the third and fourth quarter of fiscal 2017.

And while prostate still accounts for 89% of our revenue, we are also making progress in other applications that we expect will diversify our revenue base in the future.

We believe these recent revenue increases are the first indication of the IsoRay turnaround story, and a result that focused execution of our two-pronged growth strategy that the management team launched 15 months ago.

Let me explain a little further, the product management strategy placed a large focus on growing the clinical applications of Cesium- 131; however, the foundation for non-prostate applications was not in place, so progress was limited. And at the same time, the prostate market was deemphasized, as it was thought to be difficult and declining.

Our September 2016 strategy shift reflected a different thinking. The existing prostate market is challenging, but it’s real, and IsoRay has an opportunity with a third generation isotope Cesium-131 to take market share and grow revenues.

The continued stream of positive data on Cesium-131 and permanent seed prostate brachytherapy gives us an opportunity to change the momentum in this market.

The surgical applications for brain, gynecological, head and neck cancer, sarcomas have promising initial data, but need further investment to establish reimbursement, collect additional clinical data, and develop educational and training programs for a long-term sustainable growth.

Mike will share some thoughts on the initiatives that we have started to execute on this strategy. I want to highlight a few key elements that we believe have positioned us for a significant growth, first there is a growing recognition in body of data to support the value of clinical qualities of Cesium-131.

In its simplest form, Cesium-131 provides a faster delivery radiation dose than existing permanent isotopes while providing a broader distribution of the energy. This delivers what we consider the goldilocks effect for treatment delivery, quick energy with even dose across a very targeted area.

As such, we believe that Cesium-131 is the next generation brachytherapy isotope that has potentially a disruptive alternative to the global radiation therapy market, which is projected to be 9.3 billion by the year 2024. IsoRay is the exclusive producer of Cesium-131 and as a radioactive isotope it has high barriers to entry.

Cesium-131 delivered a faster, more consistent treatment than other alternative isotopes and in a single treatment session. This is supported by a recent publication highlighting the long term efficacy and safety of the procedure.

The first is from the University of Pittsburgh Medical Center and was published in the International Journal of Radiation Oncology, also known as the Red Journal, which is the definitive journal for radiation oncologists. The study documented the rapid recovery and sustained quality of life following implant with Cesium-131.

This is critical as urologists and patients both are significantly affected by the quality of life effects of the procedure. We believe this will give us an opportunity to return to urologists who may have had some optimal experiences with other isotopes in the past. The second study headed by Dr.

Brian Moran, a Medical Director of Chicago Prostate Cancer Center provide a nine-year comparison of Cesium-131 to Iodine 125, which is used greatly in prostate applications. We are happy that these two long term favorable comparisons are now available to the industry, which validates the value of Cesium-131 in these patients.

Finally, regarding prostate cancer, the ASCENDE-RT study led by Dr. Morris, a randomized study shows a significant advantage for including brachytherapy and high-risk localized prostate cancer treatments. This trial is projected to reintroduce the brachytherapy treatment to a large new patient population.

Mike will talk about this high-risk opportunity in a few minutes. The other area I want to really highlight is how we are working to develop additional applications for Cesium-131. Other isotopes have tried to address these other applications with very limited results. We believe the fast acting nature of Cesium-131 would dramatically change the story.

First in the treatment of brain tumors, representing two different paths to support the market development; one, utilizing the existing product, the clinical team at Weill Cornell Medical College continues to publish their findings with Cesium-131.

Most recently highlighting their experience with large brain metastasis, with a publication in the Red Journal. To date, they have published more than half a dozen papers demonstrating high rates of brain tumor control with a combination of surgery and Cesium-131.

Also, we have a collaborative development agreement with GammaTile, who has IP in place for an alternative method and delivery system for delivering Cesium-131 to treat brain tumors. As part of the agreement, we’re sharing the cost to obtain FDA clearance and establish reimbursement with CMS.

This process continues to move forward as we stated in our press release in July. The FDA requested that we initiate biocompatibility testing for the device. The FDA extended the filing by 180 days to give us time to develop the testing plant. The test plant is now been completed and testing is starting this month.

Completion of the required testing is expected in the first half of 2018. To support reimbursement, we are pursuing a new technology add-on payment, an NTAP application with CMS for the GammaTile and Cesium-131 product inserted at the time of surgery, which was again submitted to CMS this October.

The NTAP has an eight months review process, before a determination is made. In 2017, IsoRay was issued an ICD-10 code that was mapped to a surgery code for this product. We worked closely with GammaTile over the last year through both the FDA and the reimbursement process and we’re encouraged by our preliminary partnership.

In the realm of gynecological cancer treatment, we have a strategic collaboration with the University of Kentucky on a procedure that for the first time provides viable alternative to a complete exoneration of all pelvic organs.

This study has also appeared in the Red Journal and we are also collaborating with key physicians to develop training and awareness programs to introduce this technique to additional institutions. We’ve also been expanding our experience at head and neck cancers.

We have ongoing protocols and strategic collaborations with Case Western, Thomas Jefferson University and Cornell. We’re adding sites for expanded protocols and reimbursement review is underway. Most recently, we issued a press release on the launch of the clinical study for Retroperitoneal Sarcomas that has limited options after surgery.

This study is being conducted by the University of Louisville. In summary, we believe we have significant opportunities in four major markets, prostate cancer, brain, gynecological and head and neck cancers. We believe these segments could represent an annual Cesium-131 market to opportunity the approximately $700 million.

Overall, there are 10 clinical studies either ongoing or to be launched soon investigating the efficacy of Cesium-131 on other cancers. Finally, I want to finish with a quick word of our product development.

As we started working more closely with our prostate cancer customers, we identified a few areas where there are opportunities for new products or derivative products that will improve the procedure, and allow us to reach a wider range of customers.

We are working to further identify these product advances and turn them in to commercial opportunities. We hope to make an announcement soon in this area. I will now turn the call over to Mike for further discussion of our sales and marketing strategy and our focus on addressing on our customer needs. Thanks Mike..

Thank you, Tom. I’m excited to share the progress that we have made over the last 15 months in building a foundation that will allow us to realize sustainable sales and revenue growth. As Tom noted, we needed to turn our trajectory and to do so, we needed to build a new platform to start from.

Leveraging my experience in brachytherapy, we began by assessing the team reviewing the strategic direction of IsoRay Medical. As Tom mentioned, we settled on a two-pronged growth strategy to maintain our focus. The first prong is focused on re-medication of the prostate cancer market.

This is the largest current outlet for permanent brachytherapy seed and provides [dietary] medical and opportunity to gain share and grow revenue. We estimate the potential of a prostate market and current domestic Cesium prices to be over $100 million.

The second prong was a focus on developing the market and strengthening our relationships with key opinion leaders for the other surgical applications of Cesium-131, primarily as Tom mentioned brain, gynecological, head and neck and retroperitoneal sarcomas. I’ll now discuss these strategies and our progress is more detail.

To support the focus on the prostate cancer market, we needed to develop the sales team competencies to support customer identification and delivering value to address their needs. In doing so, we ultimately hired five new account managers in our six territories and provided them with the expensive clinical, procedural and technical training.

To further support the sales effort, we focused on six key elements necessary to support the growth of the business, collecting and publishing clinical data, social and traditional marketing programs, reimbursement support, procedural training, sales materials and product development opportunities to support our customers’ needs.

Over the last 12 months, we have made tremendous strides in each of these areas, which are supporting our recent sales growth. A few key highlights; we are working with our customer base to educate them about appropriate billing practices. Recently, the annual reimbursement update for fiscal year 2018 was published by CMS.

This included appropriate continued reimbursement for Cesium-131. We’ve also redesigned a website and created content to patient and clinical experiences with Cesium-131 and brachytherapy. This revised website and digital presence has experienced a greater than 300% increase in traffic that people are spending an extended period of time on this site.

As noted by Tom, these efforts are starting to pay off, with increased first quarter over the prior most recent quarters. Let me take a moment at this time to note that in my experience in the market, brachytherapy is a long sales cycle product, which often takes 6 to 12 months to influence the customer’s product decision.

So while initially we make gains in existing accounts, as the team matures, we expect to see their impact continue to increasingly expand in to new accounts. In addition to gaining market share, the recent overall positive data about brachytherapy has identified an additional opportunity in the treatment of localized higher risk disease.

The publication of the ASCENDE-RT data, which demonstrated a significant advantage for patients whose treatment included brachytherapy and a combination approach, marks the first randomized study in the patient cohort.

And combined with an increase in the diagnosis of higher risking disease as a result of the decreased screening effort may result in significant new market opportunities for Cesium-131. Finally, we are excited high value of Cesium-131 that has been demonstrated to the urologist and the patient community.

The recent publication from the University of Pittsburgh Medical Center highlighted the value of our fast-acting isotope, demonstrating a fast and sustained return to baseline side effect, this is especially important as historically urologist had to address a longer course of [irater] symptoms following treatments with other isotopes.

We believe working directly with urologist to share the benefits of our fast-acting isotope will create additional sales opportunity.

In the second phase of our strategy, we are focused on building markets for surgical applications based on the following; partnering with key centers to collect SMA and train on the clinical data, establishing pathways for appropriate reimbursement for the procedures and targeting and focusing on key centers for education and evaluation required.

In the past year, we have made significant progress in these areas, with recurrent gynecological tumors and brain tumors, and by supporting the initiation of studies we’ve got in the process started for sarcomas and head and neck tumors.

In the gynecological treatment market, we started targeting key centers with clinical support from the University of Kentucky, a pioneer in the treatment. In recent months, we have added several new [GYN] accounts and have a robust pipeline of targets that are also progressing towards valuation.

In the brain tumor market, we are seeing steady adoption of the Cornell technique, which leverages our Cesium-131 and greater trends, as we also pursue GammaTile partnership. These centers typically evaluate the treatment on one or two patients, and then as they grow more comfortable with their experience, expand their patient selection.

To date, we have more facilities performing brain brachytherapy than any other application outside of prostate cancer. I’d like to close with the following; as noted earlier, my experiences at the sales cycle for new customers is often 6 to 12 months or longer.

With the maturation of our sales team, we are just entering the time period where the team can accelerate their impact. I look forward to sharing more exciting news about our successes at future calls. Thank you. I’d now like to turn the call back to Tom.

Tom?.

Thanks Mike. Now I want to provide a little more clarity on our financial statements. As I mentioned, we reported sales of 1.2 million for the first quarter. These results were somewhat muted by typical summer seasonality, but increasingly reflect the strategic reinvestment we discussed previously.

During the quarter, general and administrative expenses decline by 9% compared to the prior quarter. We believe this is sustainable as well, as the drop primarily reflects lower legal expenses stemming from resolution of two law suits.

On the manufacturing side, we are proceeding with the second phase of our automation project to expand capacity in our plant without additional labor. We’ve also increased our investment in R&D, which includes the collaborative development agreement with GammaTile and the other protocols we discussed earlier.

At the same time, we’ve implemented operating efficiencies over the past 18 months that has resulted in sustainable gross profit improvement. In regards to our capital needs, at September 30, IsoRay had cash on hand of over $7 million and no debt. We will continue to review our financing alternatives over the next 6 to 9 months.

We’ve not made any decisions in this regard and will continue to review our options. Turning to guidance, our outlook for fiscal 2018 ending next June 30 is for revenue growth of at least 20%, which will bring us to approximately 5.8 million for all of fiscal 2018.

We expect revenue to progressively accelerate through the year as we continue to expand current accounts and add new accounts to our prostate and other surgical applications. Our ongoing manufacturing and process improvements will continue to support gross profit expansion as operating leverage kicks in with expanded sales.

Looking ahead, we will continue to focus on our two-pronged growth strategy; growing the base of our prostate business with new customers and increased volume at existing customers in the most established and largest market for Cesium-131, and while new data continues to be published regarding efficacy of the treatment and efficacy of Cesium-131, we see growth potential, growth opportunities with high risk prostate patients over the coming years.

In building a market for other applications, we continue to see good clinical results in our clinical trials for brain, gynecological, and head and neck cancers.

As we continue to improve these results and gain acceptance in multiple institutions, IsoRay will be in a position to introduce our products into these treatments on an ever-wider commercial scale. In summary, we hope you share our excitement; we have a lot going on, on multiple fronts.

Like many companies, we’re restricted as to when we can announce and discuss these developments. We are planning to continue these quarterly conference calls in order to enhance and expand our shareholder communication. Thank you for joining us today, and I’d now like to open the call for questions..

[Operator Instructions] And our first question today comes from Jason Kolbert from Maxim Group. Please go ahead with your questions..

Michael Okunewitch on behalf of Jason Kolbert.

Just wanted to know if you could provide us with some color on how you see the growth in the brachytherapy market, and what kind of feedback you’ve been getting from treating physicians around the use of Cesium-131?.

I will turn that one over to Michael, if you’d like to comment on that Mike?.

Yes, I think the feedback we’ve been getting from physicians as we speak with them is very positive. The centers that we have approached over the last 15 months have taken information and we started moving through their sales process to learn about it.

I think historically there was not enough data for some event, you feel comfortable trying a new isotope; and with the recent publications, the Moran data showing long term nine-year outcomes, which showed a comparative and disease control and the Benoit data from new UPMC showing the positive side effect profile.

We’ve had a very good response from that. I think overall the prostate market continues to have a lot of slow moving activity, so it’s taken us a little longer than I think I would have liked, but we are making good progress. I’m sorry, the first part of your question again..

Just a little color on how you see the growth in the brachytherapy market?.

As I noted, I think that the ASCENDE-RT study that came out this year is one of the most impactful sets of data that we’ve seen in prostate cancer treatment or localized prostate cancer treatment in the last several years.

It is a randomized study that showed the addition of brachytherapy for high risk data to be advantageous for the patient from a cancer control rate. And neurologists and physician are becoming aware of it and they are seeking out how they can go back into providing this procedure for their patients.

Several centers that we have talked to over the last couple of months had stopped programs, and that data has kind of driven them back to looking at it a little more.

I expect it’s going to take some time as they look at it, as they select some initial patients, as they get back into providing the procedure for it ramp up dramatically, but it’s certainly a very exciting development within that..

I just wanted to know also, if you could give us an update on the treated patients with brain cancer, particularly the little girl in Peru..

She’s’ doing, as a matter of fact, fine. I think that particular young girl; I think she was eight at the time. She had undergone a course of Whole Brain radiation therapy, which had left her pretty significant neuropathies in her brain. As we’ve told everyone, we had a surgeon go and do a Cesium-131 implant.

That tumor was inoperable on the brainstem , has disappeared and there is no sign of it. So, obviously it’s another great piece of information and a great story..

[Operator Instructions] And gentlemen at this time, I am showing no additional questions, I’d like to turn the conference call back over for any closing remarks..

Thank you for joining us on our first quarterly conference call. The management team and all our employees are very excited about the company’s future growth outlook. We look forward to speaking with you again for our second fiscal quarterly call in February. Have good night everyone. Thank you very much..

Ladies and gentlemen that does conclude today’s conference call. We thank you for attending. You may now disconnect your lines..