Spectral AI Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

Key Takeaways

  • Q2 R&D revenue grew 76% year-over-year to $7.5 million, gross margin rose to 44.3%, and net loss narrowed to $2.9 million; the company reiterated full-year 2024 revenue guidance of ~$28 million, excluding expected UK burn sales.
  • Spectral AI plans its first commercial sales of the DeepView AI burn assessment system in the UK later this year after deploying five UKCA-authorized devices to gather real-world data and prepare for broader rollout.
  • The US burn pivotal study is over 85% enrolled (with 100% pediatric enrollment achieved), targeting a de novo FDA submission in H1 2025 and US commercialization in early 2026.
  • To date, Spectral AI has secured ~$258 million in US government contracts (including $113 million received), with $12 million in BARDA payments so far in 2024 and a $55 million base phase funding clinical validation through Q1 2026.
  • Development of the DeepView Snapshot M handheld device for combat and first-responder burn triage has garnered over $6 million in contracts, with potential expansion into civilian wound-care settings.
AI Generated. May Contain Errors.
Earnings Conference Call
Spectral AI Q2 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good day, and welcome to the Spectral AI, Inc. second quarter 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Devin Sullivan of The Equity Group. Please go ahead.

Moderator

Thank you, Nick. Good afternoon, everyone. Thank you for joining us for Spectral AI's 2024 second quarter financial results conference call. Our speakers for today will be Peter Carlson, Chief Executive Officer, and Vince Capone, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements may be made that constitute forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategy, plans, objectives, initiatives, and financial outlook.

Moderator

When used during these discussions, the words estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seek, may, will, should, and variations of these words or similar expressions, or the negative versions of such words or expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions, or results and involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside the company's control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Moderator

As such, investors are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and the other risks and uncertainties described in the Risk Factors sections of the company's filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that said, I would now like to turn the call over to Peter Carlson, Spectral AI's Chief Executive Officer. Peter, please go ahead.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thank you, Devin, and good afternoon, everyone. We appreciate you joining us today for our second quarter financial results conference call. We had strong revenues in the second quarter, and I'm pleased to say we are making significant progress in advancing our proprietary AI-driven DeepView System wound assessment platform technology. Our focus as a company is to achieve product commercialization for a technology that we believe will improve patient outcomes while providing tangible economic and operational benefits across the healthcare system.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We have spent more than 10 years creating the DeepView platform, which we believe is the only AI-driven predictive medical diagnostic tool that supports the delivery of a fast, accurate, and improved informed wound assessment. The development of DeepView reflects more than $250 million of non-dilutive government awards, multiple successful clinical trials that validate the accuracy and utility of our technology, and a commitment from a dedicated group of executives, engineers, clinicians, and partner institutions.

Peter Carlson
Peter Carlson
CEO at Spectral AI

The evolution of our business from an exclusively clinical development stage company to development along with product commercialization, will manifest with the first commercial sales of our DeepView technology for the burn indication in the United Kingdom later this year. Although the initial impact of these commercial revenues will be modest, the validation provided by this landmark achievement should prove to be significant with respect to our planned submission to the FDA in 2025 and the long-term commercial success of the DeepView system as a platform technology.

Peter Carlson
Peter Carlson
CEO at Spectral AI

I'll spend some time discussing our recent achievements and highlighting the catalysts we expect over the next several quarters. In addition to preparing for the commercial availability of DeepView for burn in the United Kingdom, we are taking important steps to establish a commercial presence in the United States and over the longer term, other geographies. We deployed a total of five DeepView AI burn devices at facilities across the UK following the February 2024 receipt of UKCA authorization. These initial deployments increase clinical familiarity of the device in advance of commercialization, provide real-world data that enhances the AI algorithm, and allow us to partner with these institutions as we gain a better understanding of how to commercialize, train, and deploy future units.

Peter Carlson
Peter Carlson
CEO at Spectral AI

I'm pleased to announce that we have exceeded 85% enrollment of our desired total subject count at burn centers for our US burn pivotal study and expect to complete enrollment for this portion of the study shortly. As a reminder, it was just last month that we achieved 100% pediatric enrollment at burn centers. This burn pivotal study is one of the largest burn studies ever conducted in the United States. It is designed to validate the AI-driven algorithm used by DeepView and will be the final clinical trial before we seek FDA approval in 2025. We've expanded the total number of US clinical sites to 16, comprised of both burn centers and emergency departments, or EDs.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Enrollment at EDs will continue into 2025, as some of those sites are just now beginning to enroll, and more generally, conducting trials in EDs have longer enrollment periods than centers focused on a particular single practice. Why two different sites for the pivotal study? That reflects the structural limitations of wound care for burns in the United States and how we believe that DeepView can address this care gap. In a nation of more than 330 million people, there are approximately 125 burn centers across the US and less than 250 burn surgeons. Inversely, while the number of emergency departments exceeds 5,000, they are generally limited in having burn care specialists on staff.

Peter Carlson
Peter Carlson
CEO at Spectral AI

To that end, any efficiencies that can be introduced to the workflow of the EDs by DeepView would yield significant operational and economic benefits, allowing the most severely injured patients to be more accurately triaged and quickly treated. At burn centers, we believe that the predictive assessment offered by the DeepView technology can accelerate time to surgery for patients who require such treatment, while avoiding unnecessary surgeries for those patients who are likely to heal on their own. At emergency departments, where we estimate that most burn wounds are initially assessed, DeepView can avoid unnecessary transfers to a burn center or trauma units, while adding confidence in deciding when a specialist should see a patient.

Peter Carlson
Peter Carlson
CEO at Spectral AI

In both scenarios, DeepView also provides uniform imaging documentation and standardized total body surface area, or TBSA, measurements. Reflecting the enrollment momentum in burn centers, we expect to submit the request for a De Novo classification for use of DeepView AI Burn in burn centers in the first half of 2025. We believe this will result in commercialization in the US early in 2026. After receipt of the De Novo classification for use in burn centers, we plan to immediately submit the request for 510(k) approval for use in emergency departments, where we will have completed the remaining clinical trial work.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We anticipate that the sequence of commercialization would begin with deploying the DeepView technology into those US burn centers to promote expert adoption of the technology, followed by the deployment into emergency departments, where we would leverage this primary point of entry into the US healthcare system. Beyond the UK and the US, we have an opportunity to establish a presence for DeepView in multiple geographies, such as in Australia, through our recent memorandum of understanding with PolyNovo Limited, one of the world's most respected providers of burn treatment solutions, and an established market leader.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Under the MOU, PolyNovo will support our application to the Australian Special Access Scheme, or SAS, with a goal of allowing Spectral AI to deploy two devices to lay the groundwork for an eventual commercial rollout based on clinical evaluations and experiences. A significant benefit of our years of developing both the image capture technology and the AI algorithm is how DeepView can be applied to potential indications that extend beyond our current focus. To that end, we are making great progress in the development of DeepView Snapshot M, a handheld version of our cart-based DeepView technology that is intended for burn wound assessment in a combat and military setting.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Earlier this year, we inked a new contract valued at over $500,000 that brings the total for just the DeepView Snapshot M to more than $6 million. DeepView Snapshot M is designed to be an integral part of the battlefield triage process by providing a quick and accurate wound care assessment so that soldiers with more severe burn injuries can be prioritized for evacuation. We believe that the potential applications of DeepView Snapshot M expand well beyond military use to serve our first responders and other healthcare providers with that more mobile unit.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We are presenting an abstract titled, Advancing Combat Burn Assessment of DeepView's Handheld Device for Military Field Use, at the upcoming 2024 Military Health System Research Symposium. This event is the Department of Defense's foremost scientific meeting, and we look forward to sharing our progress with the attendees. Now, let's talk a bit about timing of revenues from our US government contracts, which is helpful in assessing our future cash flows. Through the first six months of 2024, we have received approximately $12 million in cash payments from BARDA, primarily from the base phase of the Project BioShield contract awarded in September 2023.

Peter Carlson
Peter Carlson
CEO at Spectral AI

This base phase of nearly $55 million will take us through the first quarter of 2026, in support of the clinical validation and FDA approval processes for the burn indication. The next phases, which we expect to commence no later than the first half of 2026, are estimated to be $95 million for feature enhancement, procurement, and deployment of devices to burn centers and select emergency departments across the US Specific timing of amounts under these remaining phases are subject to discussions with BARDA. In summary, to date, BARDA has awarded contracts to Spectral totaling almost $250 million, and since 2013, has paid over $113 million to the company under these contracts.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Total US government contracts awarded to Spectral since 2013, which include MTEC and other government agencies, approximate $258 million. Couple more items to discuss before turning things over to Vince. We were very happy to announce that our stock was added to the Russell Microcap Index, effective July first. We continue to strengthen our intellectual property moat and increased our granted patents from 20 to 26. We also have an additional 38 pending patent applications worldwide. Finally, regarding our newly formed healthcare IP-focused subsidiary, Spectral IP, we continue to identify potential intellectual property for acquisition and to assess alternatives to leverage those assets.

Peter Carlson
Peter Carlson
CEO at Spectral AI

As a reminder, the activities associated with this subsidiary require limited management resources and no additional capital from the company. Additionally, no core operating assets of the company will be involved in this subsidiary. I'll now turn the conversation over to Vince.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Thanks, Pete, and thank you all for joining us today. We issued our press release this afternoon, which contains additional details of our operating results, and we filed our 10-Q with the SEC this afternoon as well. With that in mind, I will focus my remarks on select financial highlights and key metrics. We are pleased to report that R&D revenue in the second quarter rose 76% to $7.5 million, from $4.3 million in the second quarter of last year. This growth reflects an increased level of activity under the BARDA Project BioShield contract, as previously noted, which was awarded to the company in September 2023.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Gross margin also rose to 44.3% from 42.1% in the second quarter of last year, due to the higher reimbursement rate under the BARDA Project BioShield contract, as compared to the reimbursement rate in the BARDA Burn II contract, which accounted for most of our operating revenue throughout 2023. General and administrative expenses during the second quarter of 2024 rose to $5.8 million, as compared to $4.8 million, reflecting higher headcount during the comparable periods. With that said, general and administrative expense as a percentage of revenue in the second quarter of 2024 decreased to 77% from 112% in last year's second quarter.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Non-revenue generating research and development activities decreased by approximately $100,000 for the three months ended June 30, 2024, as compared to the comparable period in 2023. This decrease was offset by an increase of approximately $1.1 million related to other administrative expenses for the three months ended June 30, 2024, as compared to the same period in 2023. Other expenses for the second quarter of 2024 were up approximately $314,000 from the second quarter of 2023, primarily reflecting our new borrowing-related costs of $699,000, as compared to no costs in the second quarter of last year.

Vincent Capone
Vincent Capone
CFO at Spectral AI

This was due to debt issuance costs and payments from the convertible notes issued with the standby equity purchase agreement announced in March that were expensed during the quarter. Lastly, we're pleased to announce we trimmed our net loss for the quarter to $2.9 million or 16 cents per share, as compared to a net loss of $3.1 million in the second quarter of last year, or 23% per share. As of June 30, 2024, we had 17,606,367 shares outstanding. Moving now to the balance sheet, as of June 30, 2024, cash and cash equivalents totaled $6.9 million, up from $4.8 million on December 31, 2023.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Cash at June 30, 2024, included $900,000 in the company's newly formed, wholly owned subsidiary, Spectral IP. As discussed on our last call, we enhanced our access to capital by completing a common stock purchase agreement with an investment bank and entering into a standby equity purchase agreement with a long-only investor. The standby equity purchase agreement has a total capacity of $30 million, that included $12.5 million of prepaid advances. As of June 30, 2024, the company received a net $9.2 million in these prepaid advances.

Vincent Capone
Vincent Capone
CFO at Spectral AI

The final advance of $2.5 million was received by the company on July 15, 2024. As a reminder, any additional draws above the total prepaid advances of $12.5 million are at the sole discretion of the company. For 2024, we are reiterating our revenue guidance of approximately $28 million, an expected increase of about 55% from the $18.1 million we reported in 2023. This growth reflects our work on the BARDA Project BioShield contract, as well as additional governmental funding in the continued development of our handheld device, DeepView Snapshot M.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Our guidance does not reflect contributions from any sales of the DeepView System for the burn indication in the UK that are expected to begin later this year, or any other contributions that may result from the commercialization of our DeepView System. With that, I thank you, and we'll turn the conversation back over to Pete.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thank you, Vince. We are pleased with our progress through the first half of the year and are very optimistic about our future. Nick, let's open the call for questions. Thank you.

Operator

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Ryan Zimmerman with BTIG. Please go ahead.

Ryan Zimmerman
Ryan Zimmerman
Md & Medical Technology Analyst at BTIG

Good afternoon, and, congrats on your progress. Maybe just to start, I have a couple questions, guys. First, just from, on, I mean, related to guidance. So I think last time, Vince, you guys had suggested that maybe the second half would see a little bit more revenue from BARDA, relative to the first half. I just want to confirm if that's still your expectation, you know, as we move into the second half, just based on the timing and, you know, the development milestones, et cetera, for the second half of the year, you know, regarding the $28 million.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Yeah, Ryan, nice to talk to you. Yeah, we continue to see the second half ramping up in our BARDA revenue, really as the clinical trials continue to grow. I think as we sit here, sitting on $13.8 million in the first half of revenue for 2024, you know, we feel confident that, you know, $28 million is something we can reiterate to the market, and we're excited to continue with our clinical trial development in the second half of this year.

Ryan Zimmerman
Ryan Zimmerman
Md & Medical Technology Analyst at BTIG

Okay. Very helpful. And then, you know, Pete, as you think about, and you, you talked about this a little bit, but a commercial presence in the US, as you think about going after that burn market, you talked about kind of building that commercial presence. What does that look like to you at this stage, either from a cost standpoint, or a size standpoint, or any kind of early thoughts around, you know, targeting that burn market?

Peter Carlson
Peter Carlson
CEO at Spectral AI

Ryan, good to talk. As you look, and particularly to the burn centers, you know, we have a partner in our distribution to the burn centers in BARDA. We do not need to build a large commercial org operation to service that market, or frankly, even the emergency department market. We need some resources, but you know, this is a deployment of a device. It's sort of a one-time transaction. And really, where we'll have the volume of people, but it'll still be only moderate, is in field service as we get the devices out into the emergency department. So, we do not see the need to build a large commercial operation with a significant sales force.

Ryan Zimmerman
Ryan Zimmerman
Md & Medical Technology Analyst at BTIG

Okay. Very helpful. And then just, let me sneak one more in. The wound trial in the US, you guys reached 475 patients, it looks like. And, you know, what is the current determination for what to do with that data? You know, clearly prioritizing burns over wound right now. Just help us understand, you know, what the timelines will be for DFU, potentially in the US, based on completing those 475 patients. Thanks for taking the questions.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Yes. What we talked about, kind of assessing the insights of the study, we'll get the final readouts, internally, here, probably early fourth quarter, as the last patients go through the, full trial. And while we work, focus on the burn indication and application to the FDA, we do want to look at, you know, how the data set, what the data set tells us, and how that relates to our best approach going forward, particularly from a reimbursement standpoint. Is it a particular indication, like diabetic foot ulcers? Is it a broader indication of wounds, wound bed preparedness, et cetera?

Peter Carlson
Peter Carlson
CEO at Spectral AI

And so we feel we have a very significant asset in this data set we are finalizing with this trial, and that's the assessment we're going to look to do, is what's the best strategic path forward, given the results of that trial and where the market stands today? When you look at it on a broader basis, as we think about our near to midterm, you know, we see the vast majority of the economics coming from the burn indication. That would mean not only the burn centers, but meaningful penetration into the emergency department. So, relative to our longer-term plans, for that second indication, it's not a very significant change in timing, as you look out three to five years.

Ryan Zimmerman
Ryan Zimmerman
Md & Medical Technology Analyst at BTIG

Thanks for taking the questions, Pete and Vince.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thanks, Ryan.

Operator

The next question comes from Carl Byrnes with Northland Capital Markets. Please go ahead.

Carl Byrnes
Carl Byrnes
Md & Senior Equity Research Analyst at Northland Capital Markets

Thanks for the question. Congratulations on, on the progress as well. Most of my questions have been answered here, but maybe you can drill a little bit further on UK. I know you cited you had five deployments. What might you be looking for, you know, by the end of the year in terms of deployments in the UK? And I know that that's not included in the $28 million guidance in terms of contribution. Thanks.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thanks, John. Good to talk. From a deployment standpoint there, we one or two more deployments are possible here as the year goes on. What's going to be important is that we're going to convert those some of these deployments into commercial revenues. We are not yet ready to further the impact or to roll out, but we also have a pretty neat opportunity coming up next week. The International Society for Burn Injuries has an annual conference, and there are going to be attendees from across the burn wound care or the burn care environment in the UK, but also a significant number of US burn surgeons and burn healthcare providers in attendance.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We'll have a significant attendance there, presence there ourselves, including on the podium, and are excited to share output from the device with these burn healthcare participants. It's really going to be one of their first opportunities to see that output. I mentioned that because that will help inform our next steps in the UK as we visit with each of the sites we're already working with and get indication of interest from others.

Carl Byrnes
Carl Byrnes
Md & Senior Equity Research Analyst at Northland Capital Markets

Got it. Great. Thanks. That's helpful. And then just another follow-up here. Do you... Are there any other partnerships or alliances, you know, in the works, similar to PolyNovo in Australia, that we might see in the next 6 to 12 months? Thanks.

Peter Carlson
Peter Carlson
CEO at Spectral AI

That's a very open-ended question. We appreciate that opportunity. The answer would be yes, but that's about all we'll be able to say is, yes, we are talking with others, both, domestically and elsewhere, and certainly hope to continue to have, partnerships like that announced, both, you know, in new geographies as well as with, significant partners in current geographies. No, I don't want to make any commitments one way or the other, though.

Carl Byrnes
Carl Byrnes
Md & Senior Equity Research Analyst at Northland Capital Markets

No, fair enough. Thanks so much. Thanks.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thanks, Carl.

Operator

The next question comes from RK Ramakanth with H.C. Wainwright. Please go ahead.

Swayampakula Ramakanth
Swayampakula Ramakanth
Md & Senior Healthcare Analyst at H.C. Wainwright

Thank you. Good afternoon, Pete and Vince. A couple of quick questions here. So, regarding the UK deployment, just trying to understand how, you know, how is it helping you in terms of designing your US commercialization? And also, is it possible for some of the folks in the UK to publish any of the data that can be used for reimbursement here in the US?

Peter Carlson
Peter Carlson
CEO at Spectral AI

RK, thanks for the question. I'll give you my thoughts, and then I'll ask Jeremiah to share his thoughts, and particularly leveraging his experience. You know, we're excited about this early opportunity to work with clinicians, and we're already getting or have been receiving very positive and constructive feedback. So it's informing not only device performance, but it's also for informing our commercial rollout strategy, how we staff, and support rollout, what types of skill sets we need, et cetera. Let Jeremiah give you his additional thoughts.

Jeremiah Sparks
Jeremiah Sparks
CCO at Spectral AI

Thank you, Pete. So I would just echo what Pete said. The ability for us to start and do these evaluations in the UK is giving us very good feedback, constructive feedback, and helping us understand the device better and how we would start the commercialization process in the US. Specifically to your question about publications, that's definitely something that we're looking to work with these clinicians on as they move beyond the evaluation phase, and to publish their results, so that we can get that information out to to payers in the US, et cetera, that will help us with the reimbursement.

Swayampakula Ramakanth
Swayampakula Ramakanth
Md & Senior Healthcare Analyst at H.C. Wainwright

Thank you. Then, in terms of label expectations in the US, I'm just trying to understand the inclusion of the pediatric patients in your study. You know, how, you know, in terms of label expansion and also market expansion, how much of a market expansion could you get by getting, kind of, pediatrics included into the label at the first instance?

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thanks, RK. When you look at pediatrics in the burn environment, you actually generally about 25% of admissions for burn situations are pediatrics, and it can even go higher than that at times. So it's always been a focus of BARDA in working with us to make sure we included pediatrics in our studies. We want to be able to serve that community. One of the technologies, and this is something we see in the UK, as well as in the US, that exists today, is called Laser Doppler Imaging. That technology takes several minutes to capture its image, and thus requires sedation, often, of the pediatric patients. You can imagine a young child with a burn in pain, having to sit still.

Peter Carlson
Peter Carlson
CEO at Spectral AI

This is where the benefit of our less than one-second image capture comes in, and a place where we see the opportunity to, you know, to really be useful in burns. I don't know that it expands the market opportunity. I think it enhances the willingness and acceptance in the market. So I would tell you, the numbers we generally have talked about have included the expectation of the pediatric portion of the burn community. But similar to the measurement capabilities of the tool, we think the ease of use with a pediatric patient are things that will help increase interest in the market, thus help our deployment and our penetration opportunity, both in quantity and in speed.

Swayampakula Ramakanth
Swayampakula Ramakanth
Md & Senior Healthcare Analyst at H.C. Wainwright

Thank you for that. One last question from me. This is regarding the Australian market. How long do you think it will take, Polynovo to, you know, start commercializing the product? And also, I think you started talking about trying to place, in a couple of centers initially in Australia. So is that part of, initiating the commercialization process, or is that part of the application process such that Australian authorities, would give you the okay to start commercializing the product before then?

Peter Carlson
Peter Carlson
CEO at Spectral AI

Vince, you want to take that? And we can, if Jeremiah has something to add, we'll let him do that.

Vincent Capone
Vincent Capone
CFO at Spectral AI

Yeah, RK, good to hear from you. I think with respect to the work we're doing in tandem with PolyNovo, their help to get us into the Special Access Scheme is good for us to have a potential roll out there of at least two machines. That's probably a good 12 months away, I would say, as we have to work through not just the Special Access Scheme, but also have to get through each of the different hospitals' ethics committees to ensure that everybody's on board with introducing our device there.

Vincent Capone
Vincent Capone
CFO at Spectral AI

So, you know, we look at it as, as really a partnership, the initial starting of a partnership there with them, more so, and, and data gathering, more so than, you know, the commercial opportunity that it may present, you know, subsequent to a 12-month period, you know, beyond that, into 2026, 2027.

Swayampakula Ramakanth
Swayampakula Ramakanth
Md & Senior Healthcare Analyst at H.C. Wainwright

Thank you. Thanks for taking all my questions.

Peter Carlson
Peter Carlson
CEO at Spectral AI

Thanks, RK.

Jeremiah Sparks
Jeremiah Sparks
CCO at Spectral AI

Again, if you have a question, please press Star, then One. The next question comes from John Vandermosten with Zacks. Please go ahead.

John Vandermosten
Senior Biotechnology Research Analyst at Zacks

Hello, good afternoon, everyone, and good to speak with you again. I want to explore some of the opportunities and challenges for the handheld Snapshot M. I guess, first of all, what are some of the challenges, I guess, that you have with developing that and getting that approved? You know, by the time that that's ready, you know, you'll already have DeepView approved and deployed. So what are the incremental challenges for the mobile version of the product to get approval?

Peter Carlson
Peter Carlson
CEO at Spectral AI

John, it's Pete. Good to talk. Certainly the miniaturization is the challenge. So, and you can see this out on our website and in some of our materials. You know, the current image capture device associated with the cart-based version, I refer to it as sort of the size of a large household iron. And the image is captured with four separate cameras. To get those four cameras into something that is, you know, portable, sturdy, portable, and easy to manipulate in difficult environments is a challenge, and it's been amazing to see the team and hear the team talk about the various ways and vendors they've worked with to get the cameras into smaller and smaller perspective.

Peter Carlson
Peter Carlson
CEO at Spectral AI

That's really the challenge, is maintaining the image capture quality while doing it in ultimately cameras that aren't much bigger, if not smaller, than a pushpin. So we are—again, these are four high-quality, high-resolution cameras capturing images. And then there is the ability to have both the data set, either in the device or accessible, you know, sort of by satellite technology. So those are the couple of engineering-type aspects of the device miniaturization. Yes, sort of like I talked about in my prepared remarks, once we get one of these indications and uses through the regulatory approval process, we believe these other five 510(k)s with the predicates will be easier or have a shorter timeframe, not be easier.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We'll have a shorter timeframe because it'll be a more narrow aspect that is being assessed, and that's the same thing. So what we would look to do with the miniature or the handheld version is demonstrate that the image capture and it is consistent and demonstrate that the ability of the AI to make the predictive wound assessment has sort of the same performance statistics.

John Vandermosten
Senior Biotechnology Research Analyst at Zacks

Okay. And what, you know, you mentioned the regulatory side of things there a little bit. And what does that regulatory pathway look like for that machine? Will you be required to do a, you know, a 200-some-odd patient trial, or are you just making sure that, that what worked on the large scale works on a, on a handheld scale as well, in terms of, you know, just getting the regulatory nod from the, regulators?

Peter Carlson
Peter Carlson
CEO at Spectral AI

I think there's twofold to that. One is the regulatory path, and one is the commercial acceptance path. Again, we think, we're very pleased. Let me step back. We're very pleased and proud to be working with these agencies supporting the DoD in developing a device that can help the military. We think this is an outstanding use of the technology. But we also think we have a really neat opportunity on behalf of our shareholders to take that technology and commercialize it, in the field, in multiple ways, and in particularly when you get into other indications, that you might do in normal practice, like a diabetic foot ulcer or other, more chronic wound care that is done, say, in private offices.

Peter Carlson
Peter Carlson
CEO at Spectral AI

For them to have access to a more affordable, smaller device, with the capabilities of this technology, we think is going to be very powerful. So, yes, do we need to do a little bit of a trial? We don't think it has to be a significantly large trial, but enough to be able to demonstrate that the technology is working similar to the cart-based technology. We haven't, at this point, tried to size that, but, I certainly don't think it would be 450 patients like this current trial.

John Vandermosten
Senior Biotechnology Research Analyst at Zacks

Okay. And last question is on the size of the market and then I guess, the potential areas of the market. I think you guys have said, you know, ambulances might be a really good place to place these handheld items. You know, and obviously, you're getting your grants to support military use of them. What are some of the other areas that might be appropriate for this, and how is that market size compared to kind of the ED and burn center market size? Is it, you know, equal? Is it maybe just a fraction of it, or maybe is it larger? I mean, any sense of that?

Peter Carlson
Peter Carlson
CEO at Spectral AI

A couple of points here also, and let me give you my thoughts, and I'll let Jeremiah round it out. Part of it is, would we get into a situation where there might be multiple units at one site? So, a large hospital complex, would it want to have several of these smaller devices in various practice areas, as well as, say, a cart-based device in a high-volume place like the emergency department or the burn center? The other it opens up is the private practices. And what we've talked about in some of our material with a chronic wound like diabetic foot ulcers is, you know, the, not only the 1,100 wound care clinics that are out there dealing with situations like this, but also the 4,000 plus private practices as far as market opportunities.

Peter Carlson
Peter Carlson
CEO at Spectral AI

And then, you know, so you get into those types of numbers that we think about. You know, the... If it was cost-effective, would it be, you know, in emergency in ambulance? Yeah, it would be very helpful in that situation, and maybe that's thinking about ambulance, and the areas where you have the level one trauma centers. And maybe that's where the volume would justify this being carried on something like an ambulance, so they could take somebody, if there were no other factors, directly to a burn center. But let me let Jeremiah add his thoughts.

Jeremiah Sparks
Jeremiah Sparks
CCO at Spectral AI

Thanks, Pete. No, I think Pete said it very well, and when we assess this, we're looking at both the indication, basically, what types of wound types that we're looking at, also site of service. There's the inpatient, there's the outpatient, and potentially even physician offices. So when you look at the indications up again, and then, you know, potentially even ambulances, when you look at that, there really could be widespread adoption, but it really starts with the, what is the right indication, and then how do we get that into the clinician's hands? And then you couple that with reimbursement, that'll be some major drivers as we look to assess the overall market.

John Vandermosten
Senior Biotechnology Research Analyst at Zacks

Okay, great. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Pete Carlson for any closing remarks.

Peter Carlson
Peter Carlson
CEO at Spectral AI

We certainly appreciate everybody's participation and your continued interest in Spectral AI. I do want to let you know there are a number of upcoming events, including the H.C. Wainwright Conference in New York City, September ninth through eleventh, where we will be available for meetings. As always, we're also available for shareholders to interact with us, outside of those formal meeting opportunities. With that, I'll say thank you and have a good evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Jeremiah Sparks
      Jeremiah Sparks
      CCO
    • Peter Carlson
      Peter Carlson
      CEO
    • Vincent Capone
      Vincent Capone
      CFO
Analysts
    • Carl Byrnes
      Md & Senior Equity Research Analyst at Northland Capital Markets
    • John Vandermosten
      Senior Biotechnology Research Analyst at Zacks
    • Moderator
    • Ryan Zimmerman
      Md & Medical Technology Analyst at BTIG
    • Swayampakula Ramakanth
      Md & Senior Healthcare Analyst at H.C. Wainwright
Powered by Quartr