Greetings and welcome to the IsoRay Incorporated Q2 [ph] Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded.

I now would like to turn the conference over to your host, Mark Levin, Investor Relations. .

Thank you, operator. Good afternoon and thank you for joining us today for the IsoRay Fiscal Fourth Quarter and Year End 2018 Earnings Call. Before we get started, I will take a few minutes to read the forward-looking statements.

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 used – 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 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. Statements made on today’s call are as of today, September 25, 2018.

Momentarily, I will turn the call over to IsoRay’s Interim CEO, Lori Woods, who will review the fourth quarter and full year financial results. Following her prepared remarks, we will take questions from our analysts and institutional investors. I will now turn the call over to Lori..

Thank you, Mark. Welcome everyone to IsoRay’s fiscal fourth quarter and year-end earnings conference call. I will begin our call with an overview of our financial results and then I will give some updates on several developments that have occurred over the past few months since we reported our Q3 results.

We anticipate that our Form 10-K will be filed with the SEC on or around September 26th. I will begin with our fourth quarter results that marks the sixth consecutive quarter of revenue growth for the company. Revenue for the fourth quarter ended June 30, 2018 grew 17% to $1.60 million versus $1.37 million for the period last year.

Fourth quarter revenue was comprised of 87% for the prostate brachytherapy with the balance or 13% of revenue attributed to other brachytherapy that includes brain, gynecological, head and neck, lung, and pelvis.

Gross profit as a percentage of revenues for the fourth quarter ended June 30, 2018 declined to 27.3% compared to 36.4% for the quarter ended June 30 2017.

Although overall gross margins have been expanding over the last several quarters, increased production costs related to increased purchase of raw materials to support sales growth negatively impacted our gross margins this quarter versus fiscal fourth quarter 2017.

Total operating expenses consisting of sales and marketing and general and administrative and research and development were $2.81 million in the quarter versus $2.36 million in the fiscal quarter 2017.

R&D and G&A expenses each grew by over $200,000 versus fiscal fourth quarter 2017 and were partially offset by a modest decline in sales and marketing expenses. G&A expenses included $360,000 attributable to the executive severance agreement of the former CEO during the quarter.

The year-over-year increase in R&D is primarily due to expenses related to upcoming product launches later this calendar year. IsoRay posted a net loss of $2.36 million for the three months ended June 30, 2018 compared to a net loss of $1.85 million for the quarter ended June 30, 2017.

The net loss per diluted share was $0.04 versus $0.03 in the prior year period. Turning now to our full year 2018 results. Revenue for the full year ended June 30, 2018 increased 24% to $5.92 million compared to $4.76 million for the prior year.

Prostate brachytherapy revenue represented 86% of total revenue at the fiscal year end 2018 versus 88% for the prior fiscal year. Our strong growth is the result of the hard work of the entire IsoRay team, whose passion to improve the lives of patients with life-threatening diseases like cancer shows in these full year results.

For the full year ended June 30, 2018, gross profit dollars more than doubled. Gross profit as a percentage of revenues was 31.1% for the fiscal year ended June 30, 2018 compared to 17.6% during the same period last year.

In addition to higher sales, gross margin benefited from decreases in payroll, benefits in share-based compensation resulting from the reduction of full-time employees, as well as the reallocation of some resources to research and development activities.

Operating expenses were $8.57 million for the year ended June 30, 2018 versus $7.15 million for the prior year. Total R&D expenses increased to $1.75 million from $965,000 in fiscal 2017 largely due to the shift of resources from cost of product sales.

Additionally, the company incurred product development costs primarily related to our exciting new loader product called Blu-Build that is a delivery system for real-time prostate brachytherapy.

Lastly, the collaboration agreement portion of our R&D expenses increased in fiscal 2018 to $395,000 versus $194,000 in 2017 as we continue to invest in support of our partner GT Medical Technologies and the GammaTile Therapy.

Sales and marketing expenses increased by 15.2% to $2.66 million for the full year ended June 30, 2018 and was attributable to increased payroll benefits and share-based compensation and travel for sales activity in support of our sales growth.

General and administrative expenses increased 6% to $4.17 million and included $360,000 attributable to the executive severance agreement of the former CEO during the fourth quarter. The company had a net loss of $6.7 million for the fiscal year ended June 30, 2018. This compares to a net loss of $6.16 million for fiscal year 2017.

The net loss per diluted share was $0.12 versus $0.11 in the prior year period. The weighted average share counts were 55.2 million at fiscal year end versus 55 million in the prior year period. Now, I would like to focus on the company’s liquidity and capital resources.

As of June 30, 2018, the company had cash and cash equivalents of $3.43 million, compared to $8.97 million at the end of the prior fiscal year. The company has zero debt.

Subsequent to fiscal year end, in July, we closed the public offering of 11 million shares of common stock at a price of $0.75 per share, which gave us gross proceeds before underwriting discounts, commissions, and offering costs of approximately $8.25 million, further boosting our liquidity position.

Since I returned to the company in the Interim CEO role on June 4, there have been some exciting developments I would like to briefly update you on. On July 9th, IsoRay and GT Medical Technologies received FDA 510(k) regulatory clearance for the brachytherapy technology known as GammaTile therapy.

This innovative solution that incorporates our proprietary Cesium-131 seeds within customizable collagen-based carriers presents a promising option for patients in the treatment of recurrent brain neoplasms.

Recall that we executed a collaborative development agreement and an exclusive ten-year supply agreement with GT Medical Technologies for GammaTile therapy. Per the collaboration agreement, we have transferred the 510(k) to GT Medical Technologies this past July.

We are working diligently with our partners at GT Medical Technologies to finalize the testings and validations required for commercialization of the GammaTile therapy. We look forward to GammaTile therapy procedures getting underway with the managed launch of patient cases which will follow treatment recommendations by GammaTile experts.

These are set to begin in the fourth calendar quarter of 2018. Following this limited market launch, GT Medical Technologies will begin to ramp up commercialization toward the middle of 2019. Every Cesium-131 seed purchased by GT Medical Technologies will help IsoRay leverage our fixed infrastructure and overhead.

In the next year or two, we look forward to working with GT Medical Technologies to support the potential expansion of the existing FDA label to include new or de novo tumors and thereby bring this groundbreaking technology to more brain cancer patients.

This is powerful and very exciting for us to be part of the much needed option for patients who previously had no good options left. Another promising opportunity set to launch this calendar year will be our proprietary customizable intra-operative delivery system called Blu-Build.

This disposable seed stranding device which has been updated from the previously named Build-Blu loader is in the final stages of development and we anticipate a formal product launch within the next 30 to 45 days after final testing and validations are complete.

We are very pleased to be able to provide an innovative solution for physicians to perform prostate brachytherapy using intra-operative or real-time techniques.

Just think of what this means, for the first time, physicians will literally have the real-time ability to make decisions about what’s best for the patient in the operating room availing themselves and ultimately the patient of the precision and significant benefits that Cesium-131 represents in a disposable, affordable device.

In this age of medical discovery, when we understand and appreciate the importance of moving away from one size fits all treatments and instead seek to address patient needs in a personalized, customizable approach. IsoRay will deliver just that with all the advantages of Cesium-131 through Blu-Build.

The benefits to patients and surgeons who treat them are clear. There is also a clear benefit to IsoRay. Blu-Build will allow IsoRay to serve the 25% of U.S. prostate brachytherapy cases that involve some form of customization in the operating room.

In short, it is a breakthrough for the company in being able to now serve these patients and we believe that it is significant in that the benefits of Cesium-131 can now be within reach of so many more patients with this innovative new product. As you know, this is my first earnings call as Interim CEO of IsoRay.

I am excited to lead the company and bring new ideas and explore new opportunities for existing and new products that can be utilized across the number of key vertical markets.

For those of you who may not be familiar with my previous roles at IsoRay and with the expertise that I bring to my current role, I am going to share a bit of my history with you and give you my personal insight as to what makes me a good fit for this position.

Since I returned to the company in June, I have found many reasons to feel optimistic about what lies ahead with the recent growth trajectory of the core business, as well as new products and expanding applications for Cesium-131. This is a very exciting and key time for the future of IsoRay.

I believe I bring a unique and qualified perspective to the role of Interim CEO because I have worked in healthcare for over 30 years and I have particularly focused on radiation oncology and brachytherapy for the past 20 years.

Central to my understanding and vision for the future is the experience I bring having been on both the clinical and products sides of the industry in companies related to brachytherapy and in executive roles including CEO. This makes me particularly well suited and prepared to lead the company forward.

Clearly, I am a believer on the benefits of brachytherapy for patients and the importance of the treatment opportunity it presents to clinicians due to its unique ability to treat many forms of cancer and deliver the precision dose to the intended treatment area without the typical unintended damage and residual impacts to healthy tissue and organs as is commonly the case in other cancer treatment options.

I wholeheartedly believe that IsoRay’s Cesium-131 is the best option for brachytherapy given these benefits along with the added significant value as its high energy and short half life.

There is another importance in vital aspect to the work that we do with Cesium-131 and it underscores our mission and the dedication of so many talented employees here at IsoRay. We are a patient-centric company. That focus is intrinsic to all that we do.

We are constantly reminded of what our work really means because it literally is defined by the patients we touch and the lives we impact. It’s both the blessing and the responsibility that we carry with us every single day.

I have personally seen the lives we have touched and the difference we have made with prostate patients treated by this isotope and heard their stories of fast recovery, enjoying the most normal life experiences and hobbies like playing a round of golf literally the day after their treatment and how we have enabled them to return with healthy and happy outcomes to their normal lives.

There are so many of these stories and we look to get better as sharing them with you. Through the years, patient outcomes have also been a part of what physicians share when I have spoken with them about Cesium-131.

They speak to the alternatives we have provided for patients who are out of options and how those patients are alive longer than anyone expected. It is those very successes that we believe will continue to attract more medical professionals as they come to understand our powerful alternative.

This is exciting is where we are forging new path as IsoRay and Cesium-131 have continued to successfully address markets beyond prostate, something the other brachytherapy isotopes have not done effectively. Some of you have known me from my prior physicians with the company, but for those of you who don’t, I will give you a brief history.

I first joined IsoRay in 2006 and eventually became COO in 2008 before leaving the company at the beginning of 2010. Admittedly, the pool of the work we did and the people dedicated to it was a pool I couldn’t resist, which led me to return to IsoRay in 2016 as a consultant supporting the sales and marketing efforts and I’ve been here ever since.

During my tenure, I am pleased by the contributions I have made. As COO, I led the company in setting up initial Medicare reimbursement for Cesium-131. I initiated automation and reorganized the operations of the company to be more effective and I worked to develop relationships with our international isotope suppliers, which I maintain to this day.

I pushed the development of our suture and mesh products and I also ran sales and marketing and very proud to say that during that time we experienced very strong sales growth. In the short-term I’ve been back with the company as Interim CEO. I have worked at the many facets of this company and have been exploring ways we can achieve progress.

For example, I looked for areas of operational improvement. One of the initial steps I have taken has been to end our isotope supply agreement with the University of Missouri in favor of focusing on more cost-competitive options.

This has allowed us to help self-fund investments in needed full-time employee positions and manufacturing infrastructure to gear up for GammaTile, Blu-Build and other expected production. This is just a start given my short tenure.

I will continue to work with key staff to look for more ways to improve and refine our operations to better support the future growth of the company. Because of tenure in the industry, I carry with me the returns of those years invested.

I have been able to successfully nurture relationships with people who have compelling ideas or products that IsoRay can research and possibly develop. I have maintained relationships on capital, Helen was lobbyist working in healthcare which you all can appreciate us to remain to the ever evolving regulatory and business climate we deal in.

It is my sense that all these relationships hold great potential in the days ahead as we seek to maximize brand awareness and create a sense of the unique benefits we bring to patients as a state-of-the-art medical technology company, which will play a prominent role in the ongoing fight to defeat cancer in the many forms it takes.

So those are the qualifiers, if you will, but there remains a deeply important rationale behind my acceptance of the role as CEO. I alluded to it in my earlier remarks, but it deserves perhaps demands that I return to what is at the heart of what we do at IsoRay.

One of the primary and compelling reasons I accepted the CEO role was the opportunity to rejoin other passionate and innovative people who work at IsoRay and keep building on our shared commitment. It is about more than let’s service or a turn of a phrase, it is about what it takes to be a successful company. It’s about its people.

Without that team, that shared sense of drive and determination, no company can truly move forward. Those key values rest here at IsoRay and I know that every day, our dedicated team is focused on the patient and the lives we do and will touch in everything we do.

Who has not been touched one way or the other by cancer, who has not seen how it tares at the very fabric of families and loved ones and friends. I am proud of that shared passion and commitment that begins and remains with the each patient we help and the ripples of that work in the many lives that remain intact.

It is a feeling like no other to understand the potential and power behind what we do. Where it’s truly pale in describing its importance to each of us and that’s why I want to highlight the importance of our team. I believe we have an incredible team in place to the lead the company forward.

Our COO and Chief Science Officer, Bill Cavanagh brings years of scientific research, relationship with thought leaders and physicians putting IsoRay in an exceptional position to be able to capitalize on R&D and the potential it yields like GammaTile therapy, and other applications for Cesium-131.

I have known Bill for years and it’s such a pleasure to be working with him again. An important contributor to achieving the company’s growing success over the past year and more is the addition of Mike Krachon who joined IsoRay as Head of Sales and Marketing in early 2016.

His years of experience in the industry and the relationships he has built, his knowledge of marketing and his gist for sales brings important and beneficial skills to the company. As with Bill, Mike and I have worked together before and it’s a pleasure to continue that partnerships.

Shortly after Mike Krachon joined the company, IsoRay added another solid member of the team when Jennifer Streeter came on board to run Human Resources. Jennifer brings a strong background and cultural development and organizational design.

IsoRay has benefited greatly from her background and skills in human resources, an area the company had not focused on in the past. In coming back to company, it has been very exciting to see the development of key leaders from my past tenure at IsoRay. Krista Cline is a perfect example.

She was a team member at IsoRay even before I joined the company in 2006. She has guided many of the company milestones including FDA 510 (k) clearances, CE marks, and FDA and ISO audits. As a Director of Operations, Krista leads manufacturing team and serves as the company’s Corporate Secretary.

Mark Austin, the newest member of the team brings his audit and public accounting background to IsoRay. He has been invaluable in all that he does as Controller.

Of course, there are many more members of the team and I wish time allowed me to recognize each one of them, but suffice it to say that as we have united as a team, so have we also recommitted to what lies ahead.

It is a period I believe we’ll be punctuated by growth, expansion and opportunities to better convey to you, our current shareholders, would be shareholders, the medical community and the patients we seek to serve that IsoRay has just begun to hit its strides.

We understand that there is hard work ahead that we know that together, we have much that we can achieve. I look forward to our next call and the opportunity to update all of you on further progress. This concludes my prepared remarks. The operator will now take questions from our analysts and institutional investors. .

[Operator Instructions] Our first question comes from the line of Jason Kolbert from H.C. Wainwright. Please proceed with your question..

Hi, Lori and congratulations on your debut. I’d like to dive a little bit into GT Medical and kind of understand the relationship between IsoRay and GT Medical.

When will GT Medical, in your best guess, actually be launching GammaTile? How will that work? And IsoRay has their own sales force, clearly your expertise is more aligned in the prostate cancer market.

Will that sales force be utilized for GT Medical and in what capacity? Where do you see the growth going forward? Is it to continue to drive into the prostate cancer market or is it prostate cancer and then layering in brain? And you talked a little bit about Blu-Build. How will Blu-Build change things? I know that’s a lot of questions.

But if we could go into a little bit more detail in each area, that would be very helpful. Thank you. .

Hi, Jason. Thank you for your questions this afternoon. Starting with GammaTile and when we might recognize some revenue, GT Medical Technologies has stated that they are expecting to do a limited market launch in the late calendar quarter, fourth quarter 2018, with a broader launch by mid-2019.

So, based on what they’ve stated, that’s how we are working to move forward in that area. I believe your second question was related to how our relationship stands with GammaTile.

And I would like to say that, I think, as everyone is aware of, we have a ten-year manufacturing agreement with GT Medical Technologies where we supply Cesium-131 seeds for them.

We are currently working with them to be ready for the launch, and as far as other aspects of our relationship, we will be speaking to them at a later time and an appropriate time going forward. Can you repeat your next question? I believe it was related to core business GammaTile and Build-Blu. .

Well, I wanted to talk a little bit about where the growth is going to come from. So clearly, congratulations, there has been six quarters of growth and I am assuming the majority of that’s been driven in prostate cancer.

So, if I kind of take GammaTile out of the picture, help me understand what the potential is going to be to penetrate prostate cancer and how will Blu-Build help you in that? And will Blu-Build require regulatory approval? Blu-Build is a loader. So, help me understand the relationship of those two things. .

Absolutely. So, as you know, we’ve grown last year 24% in our core business, and we are going to remain really focused on our core business. We are excited about what GammaTile can bring and we are looking to the future.

But right now, we are going to stay focused on our core business, and that’s where Blu-Build comes in and we are really excited about that, because, in the prostate brachytherapy market, we have about 25% of that market that uses some form of intra-operative real-time planning.

And that’s a part of the market that we haven’t had much – any access to in the past, because we didn’t have a product that met that need. So having Blu-Build is really exciting for us because we really see that moving forward.

We have a good portion of the prostate brachytherapy market that we can address and most of that business will be incremental business to us. .

So, if 25% of the market uses the dynamic intra-operative approach, what do you estimate that market opportunity is? And when will Blu-Build kind of come online so that you’ll be able to capture your piece of that market?.

So, we are looking to have the launch of Blu-Build in the next 30 to 45 days, and as far as the other question, we are not providing guidance on that at this time. .

Okay. Okay, thank you so much. I’ll come back in the queue. .

Our next question comes from the line of Ed Woo from Ascendant Capital. Please proceed with your question. .

Yes, also congratulations Lori.

My question is, is there any update on the CEO search? And would you be considered a candidate for it?.

So, at this point in time, as you all are aware, I am considered the Interim CEO, and I have to say, I am very comfortable and confident in working in my current position and in my relationship with the Board of Directors. And at this point in time, that is the comments that I will make. .

Great. And, do you anticipate, I know you said you are doing some new organization for patient safety.

Do you anticipate any other major changes until there is a permanent CEO announced?.

I think, at this point in time, we have a really good solid team which I gave a little bit of color on in my remarks, and I am excited to be working with them going forward. .

Great.

And going back to GammaTile, have you guys disclosed how the economics will work on that or the product sales?.

No, we haven’t. We have the manufacturing agreement with GammaTile, and I think probably the best way I could answer that is to say, for those types of questions you might consider speaking with Matt Likens at GT Medical Technologies, because it really is their business and that’s something they would have to speak to. .

Great. Well, thanks for answering my question and good luck. Thank you. .

Thank you. .

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks. .

Thank you everybody. We appreciate you joining our call today and we hope you have a great evening. .