Half-Year Report

Spectral MD has achieved all the project milestones it set to be achieved by this time in 2021 and has achieved other important milestones ahead of schedule, including early receipt of increased U.S. Government grant funding of c. US$20 million post-IPO and progress on new burn and DFU patient studies

Revolutionary technology to transform the future of wound care

LONDON, U.K. AND DALLAS, TX, U.S Spectral MD Holdings, Ltd. (AIM: SMD), a predictive analytics company that develops proprietary AI algorithms and optical technology for faster and more accurate treatment decisions in wound care, announces its unaudited results for the six-month period ended 30 June 2021, and provides an update on further development of the DeepView® Wound Imaging Solution. 

Wensheng Fan, Chief Executive Officer of Spectral MD, said: “I am delighted by Spectral MD’s progress in the first half of 2021. We have exceeded the commercial milestones we set for the Company in our admission document, which we believe will position the Company for success in the important and growing wound care market. The Company has begun the next phase of our U.S. Government contract with BARDA and received the recently announced accelerated approval of BARDA’s Option 1B funding. This brings our total funding committed from BARDA since 2013 to over US$92.8 million, including US$39.4 million of commitment in 2021 year to date. We have successfully initiated a 250 patient multi-center burn clinical study to further develop and enhance the DeepView® Wound Imaging Solution and look forward to providing further updates as enrollment progresses. Spectral MD is on target for its second half 2021 milestones, including current enrollment of 143 patients in our DFU study, and we are on track to complete the study of 150 patients by the end of 2021. Critically, the Company is positioned to achieve milestones that are foundational for our planned regulatory approvals and commercialization plans in 2022 and 2023. I am particularly proud of the Spectral MD team which we continue to build so we can further position the Company for future success. “We are thankful for the support you have shown in our AIM IPO, and we will endeavor to continue to meet or exceed the objectives we have set for the Company.”

Half Year Operational highlights:

  • Accuracy of DeepView®’s artificial intelligence (AI) algorithms in development is currently 91 percent for burn indication and 83 percent for diabetic foot ulcers (DFU) indication, with expected further improvements
  • Completed an Expanded Proof-of-Concept (ePOC) for DeepView® burn application on 124 subjects at Wake Forest Baptist Medical Center Winston-Salem, NC; University Medical Center New Orleans, LA; and Medstar Washington Hospital Center Washington D.C. 
  • Entered into a US$20.6 million U.S. Government contract (Option 1A) with Biomedical Advanced Research and Development Authority (BARDA) as a result of the successful ePOC outcome
  • Enrolled 117 (increased to 143 since 30 June 2021) of the targeted 150 subjects into the AI training study for ‘Day One’ DFU healing assessment and on schedule to complete the study by the end of 2021
  • Increased burn and DFU data to 8.1 terabytes and 66.7 billion pixels for the deep learning algorithms training and to build a proprietary, market-leading wound image database
  • Awarded a US$1.1 million contract with U.S. Department of Defense’s Defense Health Agency (DHA) to miniaturize DeepView® for U.S. military use
  • Secured a total of six U.S. patents and four foreign and international patents for the DeepView® imaging technology
  • Hired 17 new employees in support of the Company’s growth and development plans, as anticipated in the IPO

 

Half Year Financial highlights (unaudited):

  • Raised £11.3 million (approximately US$16.0 million) in an oversubscribed placing and entire share capital admitted to trading on AIM on 22 June 2021
  • Gross revenue of US$7.0 million
  • Net loss before tax of US$0.9 million
  • Cash on hand of US$18.5 million as of 30 June 2021

 

Post-period highlights:

  • On 29 July, the Company began a multi-center clinical study to further develop its DeepView® Wound Imaging Solution for the burn application, which is anticipated to include 10 sites and 250 patients
  • On 6 September, the Company announced early entry into the next phase of U.S. Government contract (Option 1B) with BARDA. This Option 1B funding totals US$18.8 million, bringing the total U.S. Government funding since inception to US$93 million, including US$40.5 million in 2021
  • The DFU clinical study has enrolled an additional 21 subjects (making a total of 143 subjects) across six clinical study sites in the U.S.
  • The hiring of our first General Counsel who will lead the legal, compliance, ethics, corporate secretary, and human resources functions, and will support intellectual property workstreams; a lead data scientist; and additional hires anticipated to facilitate future growth

 

CEO statement

It is a privilege to present the first half year report for Spectral MD. For the first six months of 2021, the Company has made substantial progress towards the goal of commercializing the DeepView® Wound Imaging Solution to provide 'Day One' healing assessments for burn wounds and diabetic foot ulcers (DFU).

 

Background

Spectral MD Inc. was established through the technology transfer department of the University of Texas Southwestern Medical Center, and incorporated in the State of Delaware, in 2009. The Company’s initial focus was to provide clinicians with the ability to evaluate and predict pressure ulcers for bed-ridden patients. After seeing the greater market need, the Company shifted focus towards burns, DFU and other peripheral vascular disease indications. From 2013 to 2021, the Company engaged in contracts with the US Department of Health and Human Services’ Biomedical Advanced Research and Development Authority (BARDA) to investigate the use of its technology as an assessment and triage tool for burn victims in mass casualty events. In 2018, the FDA designated the DeepView® technology with Breakthrough Device status for its burn indication.

 

Burn application

Since first entering into a contract with BARDA in 2013 and receiving the initial BARDA funding of US$26 million, the Company has used this funding to develop DeepView® for its burn indication and leveraged development to explore additional indications. Under the terms of the BARDA contracts, Spectral MD is reimbursed for qualifying spending as it enrolls subjects and progresses its clinical objectives.  The Company entered into a new contract with BARDA in July 2019 that anticipated funding of up to US$92 million across various phases and provided initial funding of US$27.3 million for an Expanded Proof-of-Concept (ePOC) study. In February 2021 the Company completed the ePOC for the DeepView® burn application at three clinical sites with 124 adult and pediatric participants. Despite COVID-19, this complex ePOC study was executed successfully and on schedule across leading clinical sites – Wake Forest Baptist Medical Center in Winston-Salem, NC; University Medical Center in New Orleans, LA; and Medstar Washington Hospital Center in Washington, D.C. The results from this study, as well as the 2019 Expanded Proof-of-Concept study, have enabled the continued improvement and training of the AI algorithm as an aid in assessing the healing potential of burn wounds.

On May 1, 2021, the Company entered into the next phase of the BARDA contract (Option 1A) providing funding of US$20.6 million to begin a clinical training study of the DeepView® Wound Imaging Solution for burn wound healing assessment with approximately 100 subjects at five clinical sites. With our recently announced Option 1B funding of US$18.8 million, the Company now intends to enroll a total of approximately 250 subjects before the end of 2022 across ten clinical sites. The Company has officially started enrolling patients into the study and is on track to meet its enrollment objectives.  The Research & Development revenue recognized from the BARDA contract is dependent on the timing of, among other things, invoicing from participating institutions with a small amount of expected 2021 R&D revenue now expected to be recognized in 2022.

 

DFU application

In December 2020, the Company began a Wound Assessment using Spectral Imaging to Predict Healing (WASP) clinical study for DeepView®'s DFU application across six clinical sites with a goal of enrolling 150 participants. The study’s purpose is to collect DFU wound images to build a database for the development of a Machine Learning (ML) algorithm for DFU healing assessment, and to explore other DFU characteristics and physiology using images and clinical data obtained with the DeepView ® technology. During the first six months of the study, the Company enrolled 117 subjects at six sites with 57 patients having completed the study. The Company has enrolled 143 subjects year to date. As each patient completes the study, the Company organizes, assesses, and integrates the data to refine the algorithm, which progressively increases DeepView®’s prediction accuracy. The Company has made substantial progress in the DFU study in 2021, allowing the study to stay on schedule, and anticipates completion of this DFU study later this year.

 

Defense Health Agency (DHA)

On 23 June 2021, the Company was awarded a two-year, US$1.1 million, Sequential Phase II Small Business Technology Transfer (STTR) contract by the Defense Health Agency within the U.S. Department of Defense. This funding allows the Company to research and develop a fully portable, handheld version of the DeepView® solution. The Company has previously been awarded STTR Phase I and Phase II contracts from the DHA.  On 23 July 2021, the Company held a kick-off meeting with DHA to review the two-year project timeline. It is anticipated that Stage One of the study will focus on system development, Stage Two will develop a fully handheld prototype and Stage Three will be a clinical study with the Burn Center at University Medical Center New Orleans to validate the system prototype. The Sequential Phase II contract will fund all three referenced stages. The Company is on track to meet the milestones for the study.

 

Proprietary and Clinically Validated Wound Image Database for AI Development

As of 30 June 2021, approximately 8.1 terabytes and 66.7 billion pixels worth of proprietary DFU and burn data have been acquired and utilized for the deep learning algorithms training.

 

Intellectual Property (IP) Development

The Company places a significant emphasis on obtaining and protecting its intellectual property. As of 30 June 2021, the Company has successfully secured a total of six U.S. patents and four foreign and international patents and has seven pending U.S. applications and 21 pending foreign and international applications. The Company has the following eight active patent application families

  • Burn/Wound classification on Multi-spectral Imaging (MSI) and Photoplethysmography (PPG)
  • Tissue classification on MSI and PPG
  • Amputation site analysis on MSI, machine learning and healthcare matrix
  • DFU healing potential prediction and wound assessment on MSI, machine learning and healthcare matrix
  • High-precision, multi-aperture, MSI snapshot imaging
  • Wound assessment on MSI, optical biomarkers, and machine learning
  • Burn/Histology assessment on MSI and machine learning
  • High-precision single-aperture snapshot imaging with multiplexed illumination

 

People and Organization

The Company added 17 employees during the first half of 2021 and currently has 48 full-time employees in the US and UK and has and will continue to make additional hires over the course of 2021 and beyond. The new hires will be made in all areas, including senior personnel such as our recently hired General Counsel, which will permit the Company to execute and realize its corporate objectives and position the Company to meet its technology, IP, clinical, regulatory, and commercial goals in 2022 and 2023.

Following the successful IPO in June, our CFO Wan Lung Eng will leave the company in due course to pursue other career interests.  The Company has retained the recruitment firm Heidrick & Struggles and initiated a search process for a new CFO, and it is expected that the transition from Mr. Eng to the new CFO will be complete by the end of December 2021.

 

Financial review

IPO

On 22 June 2021, the Company’s shares were admitted to trading on the AIM market of the London Stock Exchange. The IPO was successful and oversubscribed. The Company received gross proceeds of £11.3 million (approximately US$16.0 million) from the placing of new common stock. The admission to AIM is an important step in the Company’s growth. The proceeds are being used to develop the DFU application, build a European presence, and provide working capital for the Company.

 

Results

The results presented cover the period from 1 January 2021 to 30 June 2021. The Company’s revenue for the first half of 2021 was US$7.0 million (H1 2020: US$7.1 million). In the first half of 2021, the direct expenses were US$3.8 million (H1 2020: US$3.3 million), which relate to the development of burn and DFU applications for DeepView®. The Company’s operating expenses for the first half of 2021 were US$4.2 million, (H1 2020: US$2.0 million). Major items in operating expenses include US$2.0 million in salaries and stock-based compensation resulting from an increase in headcount to develop the burn and DFU applications, and US$1.1 million in professional services expenses. As of 30 June 2021, the Company held US$18.5 million in cash (December 31, 2020: US$5.1 million), including the US$14.6 million net proceeds raised from the IPO placing. The strong cash position is anticipated to provide the Company with sufficient resources to fund the ongoing development of DeepView®’s applications.

 

Business Outlook

The Company continues to believe that Spectral MD has developed a unique diagnostic imaging solution that has no direct competition in the assessment of wound healing potential. Given the large addressable market of DFUs and the potential of the BARDA contract, the Company is optimistic that DeepView® has the potential to disrupt current treatment pathways and improve the standard of care for many patients across multiple geographical markets, and in multiple applications.

 

Burn

The Company has initiated the key clinical studies under its Option 1A BARDA contract and is optimistic about achieving all future milestones and enrollments to complete Options 1A and 1B of the BARDA contract. Spectral MD continues to believe that successful completion of the BARDA contract has the potential to lead to a sizeable procurement contract from the U.S. Government for the widespread distribution of DeepView®’s burn application into emergency rooms throughout the U.S..

 

DFU

Spectral MD’s goal is to complete the currently anticipated 150 patient DFU study in 2021 and commence the validation study in Q1 2022. The Company is on track to achieve the necessary milestones to commercialize DeepView®’s DFU application in the U.S. towards the end of 2022. Upon completion of the DFU validation study and FDA clearance, the Company will explore sales and/or distribution models focused initially on selling DeepView® to the US Veterans Administration Health System and podiatry clinics across the U.S.. The Company is optimistic about the potential to accelerate the development of the DFU application and expand into the UK and EU.

 

DHA

The Company believes the recently awarded DHA contract has potential for U.S. Government procurement by the U.S. military and first responders. A fully hand-held version of DeepView® expands the market to the U.S. military and has the potential to enable in-home use for DFU and other consumer applications, beyond anticipated DHA applications.

 

Commercialization

The IPO proceeds enable the Company to advance its commercialization efforts of the DeepView® Wound Imaging Solution. The Company’s primary focus for the second half of 2021 is on the continued training of the AI algorithm for the burn application, and on completing the enrollment of subjects for DFU clinical trials. The Company expects that each milestone will create significant value for the Company.

 

Financial

In the first half of 2021, the Company demonstrated the financial value and stability it can generate even during a pandemic environment. The Company will continue to build on the Option 1A and 1B funding under the BARDA contract for the rest of 2021 and into 2022 to drive the clinical training study of the DeepView® Wound Imaging Solution for burn wound healing assessment. The Company has a strong current cash position which is expected to enable the Company to pursue its objectives and to enhance the prospects of its future success. As noted at the time of the Company’s IPO, revenue for 2021 is expected to be weighted toward the second half of 2021 given the increasing clinical activity in particular.

 

Closing Comments

We believe a critical metric in this phase of our Company history is ongoing government grant support, primarily from BARDA, but also from other sources. This non-dilutive grant funding, US$93 million of which has been received since the Company’s inception and US$40.5 million of which has been obtained in 2021, enables Spectral MD to conduct important R&D efforts and to develop and improve the Company’s AI and optical technology and technology performance. We will then seek to leverage this technology across other indications, including DFU. We believe that these efforts also materially enhance the likely success of our future regulatory and commercial prospects.

Our primary focus is on achieving the core business objectives we set out for the Company in the IPO communications. We continue to opportunistically evaluate additional indications, market opportunities and other initiatives that may enhance our potential for commercial success and shareholder value.

 

Wensheng Fan

Chief Executive Officer

13 September 2021

 

Business Risks

 

The Company continues to assess, monitor, and mitigate the risks in the business. The principal risks, as reported in the corporate governance section of the AIM admission document, remain unchanged. The principal risks, current assessment of the risk status and mitigation effectiveness are listed in the table below.

 

RiskDescription Risk Status Mitigation Mitigation Effectiveness
BARDA Burn development is heavily dependent on BARDA funding Unchanged Maintaining strong relationships and project focus Effective – entered Option 1A commencing May 2021
DHA Development of a handheld device is reliant on funding Unchanged Maintaining strong relationships and project focus Effective – entered Phase II contract in June 2021
Loss of a major customer No commercial sales have been made; almost all revenue from fixed fees
and costs payable by BARDA
Unchanged Maintaining a strong relationship with BARDA and expect diversification of customers in future years Effective - entered Option 1A commencing May 2021
Commercial The DeepView® system has yet to be launched into the U.S., UK, EU and other markets and so adoption and market penetration can only be estimated Unchanged Maintaining strong relationships and project focus Effective – expanding London office
Research and development Complex scientific research is necessary in the life sciences and medical device development sector Unchanged Recruiting and retaining highly skilled employees Effective – hired 17 new employees with world leading capabilities in the first half of 2021
Product development timelines Unpredictability of the rate of patient recruitment into clinical trials Unchanged Maintaining strong relationships and project focus Effective – on schedule with trials
Regulatory approvals and compliance Obtain various regulatory approvals (including the FDA and EMA approvals) Unchanged Conducting thorough clinical and product market research and maintain strong relationship with regulatory authorities Effective – engaged in regular discussion to update FDA and established partnerships with world leading expert teams of scientific
and regulatory affairs staff
Technological change Changing customer requirements and the introduction of products or services or enhancements embodying new technology Unchanged Continues to invest in technical developments and apply for patents Effective – issued additional patents in the first half of 2021
Reimbursement Pending Medicare approval of the Medicare coverage of innovative technologies (MCIT) reimbursement pathway for FDA breakthrough designated devices Unchanged Continue to monitor Medicare’s assessment process which we expect approval on December 15, 2021 Effective – provides a guaranteed pathway for coding, coverage and payment for DeepView®’s burn application

 

 

Spectral MD Holdings, Ltd.

Unaudited Consolidated Balance Sheets

 June 30,  December 31,
 2021  2020
 US$  US$
Assets    
Current assets:    
Cash and cash equivalents 18,483,914  5,124,639
Accounts receivable, net 1,271,074  2,690,911
Prepaid expenses and other current assets 206,869  92,868
Total current assets 19,961,857 7,908,418
    
Non-current assets:    
Other noncurrent assets   33,695  31,046
Total Assets 19,995,552 7,939,464
    
Liabilities, stockholders' equity and temporary equity    
   
Current liabilities:    
Accounts payable 1,457,018  3,799,208
Accrued expenses 1,198,329  1,122,129
Notes payable  768,575  -
Warrant liability 443,182  -
Total current liabilities 3,867,104 4,921,337
    
Non-current liabilities:    
Notes payable -    768,575
Total non-current liabilities -    768,575
Total Liabilities 3,867,104 5,689,912
    
Series A preferred stock (US$0.001 par value); 10,000,000 shares authorized; 0 and 4,324,330 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively -  1,113,987
    
    
 June 30,  December 31,
 2021  2020
 US$  US$
    
Stockholders' Equity    
Common stock (US$0.001 par value); 400,000,000 shares authorized; 134,639,566 shares and 61,347,000 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively 134,640  61,347
Additional paid-in capital 21,913,715  6,096,178
 
Accumulated deficit
(5,919,907)    (5,021,960)
Total stockholders' equity 16,128,448 1,135,565
Total Liabilities, Stockholders' Equity and Temporary Equity 19,995,552 7,939,464
    

See accompanying notes to the consolidated financial statements

 

 

Spectral MD Holdings, Ltd.

Unaudited Consolidated Statements of Operations

for the six months ended June 30, 2021, and 2020

 Six Months  Six Months
 Ended  Ended
 June 30, 2021 June 30, 2020
 US$ US$
 
Research and development revenue 7,023,319  7,066,182
Cost of revenue (3,770,047)  (3,292,242)
Gross profit 3,253,272  3,773,940
   
Operating costs and expenses:    
General and administrative 4,167,823  2,022,874
Total operating costs and expenses 4,167,823  2,022,874
Operating income (loss) (914,551)  1,751,066
   
Other income (expenses):    
Interest expense (3,842)    (26,758)
Change in fair value of warrant liability 40,321  
Other income -  425
Total other income (expense) 36,479    (26,333)
    
Income (loss) before income taxes (878,072) 1,724,733
Provision for income taxes (7,547) (87,313)
Net income (loss) ($885,619) $1,637,420
Dividend on Series A preferred stock   (1,258,959)  -
Net Income (Loss) Applicable to Common Stockholders   (2,144,578)  1,637,420
    
Net income (loss) per common share    
Basic (0.02)  0.03
Diluted (0.02)  0.03
Weighted average common shares outstanding    
Basic   130,409,618  54,454,301
Diluted   130,409,618  54,454,301
    

See accompanying notes to the consolidated financial statements

 


Spectral MD Holdings, Ltd.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

for the six months ended June 30, 2021, and 2020

         Additional Total
      Paid-in  Accumulated Stockholders'
 Preferred Stock  Common Stock Capital Deficit  Equity
 Shares Amount  Shares Amount
  US$   US$ US$ US$ US$
Balance at December 31, 2020 4,324,330 $1,113,987 61,347,000   $61,347 $6,096,178  ($5,021,960) $1,135,565
Issuance of common stock for cash -  -  19,067,797    19,068  15,594,808  -  15,613,876
Issuance cost, net of US$0.5 million warrant liability -  -    -  -  (1,505,901)  -    (1,505,901)
Cumulative dividend on Series A preferred stock -  1,258,959    -  -  (1,258,959)  -    (1,258,959)
Conversion of preferred stock to common stock  (4,324,330)  (2,372,946)  53,889,765    53,890  2,319,056  -  2,372,946
Stock option exercised for cash -  -    22,500  22  2,303  -  2,325
Stock compensation -  -   312,504  313  666,230  -  666,543
Other adjustments -  -  -  -  -  (12,328)  (12,328)
Net loss -  -    -  -  -  (885,619)  (885,619)
Balance at June 30, 2021 - - 134,639,566 $134,640 $21,913,715 ($5,919,907) $16,128,448
              
         Additional Total
      Paid-in  Accumulated Stockholders'
 Preferred Stock  Common Stock Capital Deficit  Deficit
 Shares Amount  Shares Amount
  US$   US$ US$ US$ US$
Balance at December 31, 2019 4,324,330 $1,113,987 53,809,092   $53,809 $3,481,825 ($6,256,691) ($2,721,057)
Stock option exercised for cash -  -   1,500,000  1,500    33,500  -  35,000
Stock compensation -  -    3,428,118  3,428  525,450  -  528,878
Net income -  -    -  -  -  1,637,420  1,637,420
Balance at June 30, 2020 4,324,330 $1,113,987 58,737,210   $58,737 $4,040,775 ($4,619,271) ($519,759)
              

See accompanying notes to the consolidated financial statement


 

Spectral MD Holdings, Ltd.

Unaudited Consolidated Statements of Cash Flows

for the six months ended June 30, 2021, and 2020

 Six Months  Six Months
 Ended  Ended
 June 30, 2021 June 30, 2020
 US$ US$
Cash flows from operating activities:    
Net income (loss) (885,619)  1,637,420
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
   
Stock based compensation 666,543    528,878
Change in fair value of warrant liability   (40,321)  -
Changes in operating assets and liabilities:    
Accounts receivable   1,419,837  (1,513,259)
Prepaid expenses and other current assets (114,001)    101,448
Other assets (2,649)    (11,884)
Accounts payable (2,342,190)    458,609
Accrued expenses 63,872    (755,676)
Net cash (used in) provided by operating activities ($1,234,528)    $445,536
Cash flows from financing activities:    
Proceeds from issuance of common stock, net of issuance cost 14,591,478  -
Proceeds from PPP loan -    768,575
Proceeds from stock option exercise 2,325  35,000
Net cash provided by financing activities 14,593,803    803,575
Net increase in cash and cash equivalents 13,359,275  1,249,111
Cash and cash equivalents, beginning of period   5,124,639    770,292
Cash and cash equivalents, end of period 18,483,914  2,019,403
    
    
    
 Six Months  Six Months
 Ended  Ended
 June 30, 2021 June 30, 2020
 US$ US$
 
Supplemental cash flow information:
   
Cash paid for interest -  -
Cash paid for income taxes -  -
    
Noncash financing activities disclosure:    
Cumulative dividend on Series A preferred stock 1,258,959  -
Conversion of preferred stock to common stock 2,372,946  -

See accompanying notes to the consolidated financial statements