Elutia Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 13, 2023

There are 6 speakers on the call.

Operator

Greetings. Welcome to the Alusa Q3 2023 Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I'll now turn the conference over to your host, David Carey of Fin Partners. You may begin.

Speaker 1

Thank you, operator, and thank you all for participating in today's call. Earlier today, Alicia released financial results for the quarter ended September 30, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward looking statements within the meaning of the federal securities laws, which are pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, Results or performance are forward looking statements.

Speaker 1

Forward looking statements including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to Materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements. For a description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including AlloSure's Annual Report and Form 10 Q for the quarter ended September 30, 2023, to be filed with the SEC, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Alisha's other filings with the SEC.

Speaker 1

The conference call contains time sensitive information and is accurate only as of the live broadcast today, November 13, 2023. Alicia disclaims any intention or obligation, except required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non GAAP financial measure. A reconciliation of this non GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results Release for the Q3 ended September, 2023, which is successful on the SEC's website and posted on the Investor page of the Allusia website atwww.alicia.com. And with that, I'll turn the call over to Alisha's CEO, Randy Mills.

Speaker 2

Thank you, David, and thank you all for joining the call today. Last quarter, Volusia was born, and we are excited to tell you all about it. Today, I'm going to discuss our very strong Q3 results And the significant progress that we have made advancing our Kangaroo RM FDA submission. Matt Ferguson, our CFO, He's going to go over our financial results in detail. And after that, we're going to open the line up for your questions.

Speaker 2

But first, since we have so many new listeners on the call today, I would like to start out by providing an overview of Allusia, so that Everyone has a solid understanding and proper context in which to evaluate our business strategy and performance. We think that the more you know and understand, the more you will like Volusia. Now, As a CEO that's been doing this for more than 25 years, I've come to realize that any great success first Starts with a great team. And over my past 25 years, I can honestly say that the collection of people that I get to work with in and out on a daily basis form my greatest hits album of leadership teams. And not just because they are remarkable people with remarkable pedigrees that have claimed to tremendous ego and But because each of them shows up each day with a humble, but confident Relentless Allusia First mindset and it is such a joy and honor to be a CEO with this remarkable team.

Speaker 2

Alluja is a commercial stage company that is working with A set of proprietary platforms in both the CIED or pacemaker and breast reconstruction space. So Kangaroo RM is our Product line in the CIED space, Simbladerm is our product line that's primarily used in breast reconstruction. And what we're doing is pioneering the drug eluting biometrics. We're talking more about this today, but we believe the drug eluting biologics matrix can solve problems unaddressed by available alternatives and we expect to launch our first of these Kangaroo RM In 2024, and Kangaroo RM has the potential to be a real blockbuster. It's entering a market With over $600,000,000 in market opportunity and only one other competitor.

Speaker 2

And from there, we intend to leverage this Drug eluting biologic platform into adjacent markets such as neurostimulators, sleep apnea and drug pumps. And so our mission here at Allucia is this concept of humanizing medicine, so that patients can thrive without compromise. And let me show you a little bit about What we think that means. When you implant medical devices, serious challenges and problems can arise. And while medical devices have gotten more sophisticated over time, it's often that actual last Smile of care where a problem can develop.

Speaker 2

So for example, I'm going to leave my comments Specific to pacemakers and breast reconstruction here, but for example, device migration. So a pacemaker that's implanted into the chest wall Can literally migrate down the chest wall, putting tension on the leads and actually causing lead failure. You can have hematoma formation or a lot of blood and bleeding after implantation. The device can literally erode through the thin skin of patients and start expelling itself out of the body, infection can develop. This is a problem both with pacemakers and especially in breast reconstruction.

Speaker 2

And then lastly, there's this concept of pathological fibrosis and contracture. And when we look at our primary markets, pacemakers and breast reconstruction, we see some pretty remarkable procedure failure rates, 7% to 11% procedure failure rates in pacemakers, 12% to 20% failure rates in breast reconstruction. And this doesn't have to be the case. So this is what we are looking to solve at Aleutia. Alluja is breaking silos that are leading to the development of great solutions.

Speaker 2

So when a pharma company sees a patient With one of these problems, they see a company that needs a drug. When a device company that sees a patient with one of these problems, they see a company that needs a device. A biologics company sees a patient that needs a biologic. We actually just see the patient. And by Breaking down these historical silos that have existed, we can actually create great solutions, solutions that are greater than the individual parts.

Speaker 2

And that's where we have developed this concept of the drug eluting biologics, breaking down the silos between the pharmaceutics, Biologics and devices allowing patients to thrive without compromise. So how do we do that? Well, we start in our cases that provide the necessary structural support plus the biological response that reduces inflammation and fibrosis. We combine that with a specific therapeutic payload that gives us strong powerful pharmaceutical activity such as antibiotics In our case, and we have technology that allows for those antibiotics to be delivered over a sustained release profile. You put those things together and you end up with the drug eluting biometrics, which gives durable structural integrity, enhanced surgical site healing, Targeted therapeutic delivery that all remodels into the patient's own healthy tissue when it's over.

Speaker 2

So there's nothing left to be rejected. There's nothing left to be expelled. There's nothing left to be explanted. And so we're super excited about that and we think we can own this space. We spent a lot of time and we spent a lot of money developing this technology.

Speaker 2

And so therefore, we've also created lots of layers of protection around it. So over 40 issued U. S. Patents, exclusive licensing agreements for the technology, including Specialized manufacturing facilities and most recently proprietary product release assays that relate to meeting regulatory requirements for how you might introduce these types of drugs onto the market. All of this is in service of creating value by protecting this platform that we've developed.

Speaker 2

So with that, Let me turn my remarks over to the specific products. So our 2 product platforms are Symploderm, which is used in the breast reconstruction space, kangaroo, which is used with our cardiac implantable devices such as Pacemakers and Internal Defibrillators. So again, simboderm and breast reconstruction. Let me start first with a little bit of background On the role of a bio matrices in breast reconstruction. So unfortunately, about 13% or 1 in 8 women 1,000 times a year, that's going to require reconstruction and that's in the U.

Speaker 2

S. Alone. There's basically 2 procedures, where breast recurrence or how breast reconstruction is done that uses a biometracy. One of them is this procedure called the subpectoral. And in this procedure, The implant is placed underneath the pectoralis muscle.

Speaker 2

And in that case, what you end up with is a gap between the inferior And the chest wall and that gap needs to be spanned with a biometrics. The other is called prepectral. And in this case, you actually take the implant and sit it directly on Top of the pectoralis muscle. And in this case, you really need a biometrics to keep it, 1, from moving around, either from side to side or falling down And 2, from preventing this phenomena of erosion, which we've talked about before, where the device can wear against the thin skin of the patient it's being implanted to. Now, AlloDerm is the market leader in this space and this technology has been around for a very long time, Been around for over 25 years.

Speaker 2

But in that time, the science has advanced and it has advanced quite significantly. This Allergan product, which was developed by Lifecell, ultimately was acquired by AbbVie in 2020 as part of the Allergan acquisition. AbbVie deemphasized marketing AlloDerm and that created an opening for simploderm. And that opening for simploderm allowed surgeons to try it and when they did, they loved it because we believe it's superior technology. And so here we are Sitting on this $1,600,000,000 opportunity to improve outcomes in breast reconstruction with a product, Simplederm, that is simply a great product The superior handling characteristics, it comes ready to use pre hydrated and sterile because We've gotten really good at understanding biologics remodeling.

Speaker 2

We have a product that's designed to lower pro inflammatory macrophage and TNF alpha response, which leads to lower fibrotic response, which we know has a direct and positive effect on things like capsular contracture. And surgeons can see these results for themselves. We market this product through A very effective distribution network. So we have a highly trained group of proprietary distributors that have market I've taken this product into the surgical suite and we have recently augmented that with the addition of Sientra. Sientra is The number 3 player in the breast reconstruction space and have 23% of this $1,600,000,000 market.

Speaker 2

They're adding This partnership to us adds 50 new reps and you can really start to see this. Our performance with this product really speaks for itself. So For the quarter, simpler terms up 44%. It's crossing the $10,000,000 annualized run rate. And we're just at the front end of actually seeing Sientra contribute to this performance.

Speaker 2

So we're super excited about this product and where it can go both with our own proprietary network and with the addition of Sientra marketing. Now let me turn it over to our Kangaroo product line. Kangaroo is our biologic envelope that helps stabilize pacemakers and internal It is the only biologic envelope on the market and This ECM helps support wound healing by decreasing inflammation and fibrotic response. It's also the only envelope on the market of any variety that can actually hold these larger subcutaneous implantable defibrillators, which are becoming quite popular, particularly in younger patients. The market dynamics here are worth understanding.

Speaker 2

So this is a $600,000,000,000 market in the United States alone It only has one other player. What we've done here and this is something we've been working on strategically is we have Singularly focused our sales team to be able to go after this. We've also strengthened our distribution arrangement by creating a great partnership with Boston Scientific and this is created for this quarter. This has created our sales growth, which have gone up 11 Percent, as Matt will talk about, on actually substantially lower Cost of selling. So you might ask, how did we do this?

Speaker 2

Well, we did it sort of with 3 things. One is, We did a strategic partnership with LeMaitre Medical. This partnership with LeMaitre Medical actually allowed us to take our sales team and focus them directly and solely on the Kangaroo envelope. The second thing we did was we made some leadership changes in the commercial organization. And what we put in were places or we put in people that really understood this technology and understood the science behind this technology and the benefits that that translates to patients.

Speaker 2

And then thirdly, they went and developed stronger partnership with Boston Scientific. And that all led to greater usage. And that's more customers gaining a greater appreciation for the benefits of using a biological envelope. And that becomes important as we Set up to introduce our next generation Kangaroo RM. So Kangaroo RM Is our next generation product to have all of the benefits of our biologic plus the addition of powerful antibiotics, rifampin and minocycline for what we think is a more complete option.

Speaker 2

We don't view this as a me too product In this market space, let me be really clear about that. We view Kangaroo RM as what will be the clear superior product and we are not Alone with that, our market data and our market research shows that 88% of TYRX users Say that they will switch to a biologic envelope once introduced provided that it has the antibiotics rifampin and minocycline. So we're really excited about that. And when you look at these market dynamics, it's not hard to be excited. So Sort of understanding this, on one hand, you have TYRX on the market.

Speaker 2

Medtronic has done a great job with this product, growing sales We estimate to be somewhere between $250,000,000 $300,000,000 globally. They've really just done a great job demonstrating the need for an antibiotic alluding pouch. On the other hand, you have Boston Scientific, Abbott and BIOTRONIC That don't have a pouch. So when Kangaroo RM gets approved, it will be the only other antibiotic pouch In a $600,000,000 market, it's kind of like a game of musical chairs. You don't really want to be left without a pouch When the music stops.

Speaker 2

And so that's why we believe upon approval, Kangaroo RM is an extraordinarily valuable asset for us. The question is, is it going to get approved? So let me hit that question head on. We are in the process of obtaining FDA approval for Cangivorm. So a little bit of history here.

Speaker 2

We received what's referred to as a not Substantially equivalent our NSC letter from the FDA this previous March. Now important to note is that this review was satisfactory With the exception of 4 items, that is to say the FDA completed their review of the entire 510 and the entire product and had 4 remaining items that they wanted fixed before they would grant approval. 2 of these items were purely We feel really confident that we can address. The other 2 were related to a quality control test. 1, the FDA wanted us to develop an Accelerated version of what's called an in vitro elution test.

Speaker 2

So this is where the drug after manufacturing the product, you test to make sure that the drug Releases from the product in a controlled and appropriate way. The second thing the FDA wanted us to just generate some data to show that This assay would reproducibly get at least 80% of this drug off of the product. Importantly, The FDA requested no changes to the design of the product or its safety or anything like that. So what we did was, we went out and we actually met with the FDA And we wanted to understand their needs because we wanted to be completely responsive with them. Actually, we've met with the FDA twice most recently in the pre submission meeting, but I'll get to that in a second.

Speaker 2

The R and D team then went off and created this new test methodology that the FDA wanted and we believe we've done that. We believe we have A data package that's fully responsive to FDA's request and actually in doing so have generated some brand new IP. So This is at the heart of what the FDA wanted. It's called a drug, in vitro drug elution test. As I said, after manufacturing, you basically Take the product, you put it into a beaker of water and you watch how fast this drug eludes off of the device and into the surrounding water.

Speaker 2

Now, what the FDA was actually looking for here wasn't to see how it occurs naturally. But what the FDA wanted was an accelerated form. So this was the first version that we had where we only had 75% of the drug eluded by 48 hours. Now this is because this is what the product was designed to do. The FDA wanted to see though was for manufacturing quality control purposes.

Speaker 2

They wanted to see us to be able to develop an accelerated method for this test where we could use non physiologic conditions and see if we could reproducibly get the drug off of the device faster. And so that's what the team did. They developed this new methodology by changing the pH and surfactants and agitation and Optimizing the temperature, it's done. And they did it and they did it solidly. So not only do we have 93% of the drug off against the 80% threshold.

Speaker 2

But we actually have well over 80% off within the 24 hour period. So we're really excited With this data package that generates, so what's left to do? Well, what we did was we took that new method and we validated it. It's one of the things that's required. Obviously, if you're going to spend anything like that to the FDA, we validated that to make sure it was reproducible and robust.

Speaker 2

And then we took that to the FDA. We recently held a pre submission meeting with the FDA and we previewed this approach with them, so that we could show them the data that we were attending to submit. And we were really encouraged by how that meeting went. So what's left is we're now in the process of packaging up and refiling our 510 in the 4th quarter and more specifically in December, that submission is focused just on the 4 remaining items. Keep in mind, the rest of this 510 have already been reviewed by FDA and found to be acceptable.

Speaker 2

And we anticipate a decision on kanguruOM in the first half of twenty twenty four. But it's suffice it to say, we feel very, very confident and very comfortable about where we are in this process. We've taken a very deliberate approach in order to satisfy FDA's very specific requirements and we believe We've done that. So with that, I'm going to turn the call over to Matt, who will talk a little bit about our financial results and then we'll open up the call for questions.

Speaker 3

Okay. Thanks, Randy. So as you've heard from Randy, this has really been a seminal quarter for Allusia, both from an operational and a strategic and from a financial point of view. 1st and foremost, in this quarter, we announced 2 significant transactions, 2 major transactions. The first of those was the divestiture of our Orthobiologics business unit.

Speaker 3

And that was really important because it 1st and foremost, it streamlined the business. It allowed us to focus on really what's Strategically for the company going forward, but it also brought in cash. So it brought in an upfront $15,000,000 And we'll use that to fund operations and to fund growth. We'll also use some of it to pay down some debt. And then there's also an earn out associated with this transaction where In the coming years, we can generate up to $20,000,000 based on the sales of the acquiring company.

Speaker 3

So that was the first of the 2 transactions. On the heels of that transaction, that actually enabled us to execute on a private placement financing. And so right after we signed the Orthobiologics divestiture, we went out and we brought in A handful of new investors who anchored an important private placement transaction for us where we sold Stock and warrants and the transaction brought in $10,500,000 upfront Due to the sale of stock and it also importantly had warrants attached to that, not warrants that are going to hang Therefore, a long, long time, these are warrants that are cash exercise only and they actually expire 30 trading days after we Receive FDA clearance for Kangaroo RM. So as Randy talked about, we expect that to happen in the first half of twenty twenty four. And so when that happens, that should translate to another $16,000,000 of cash that we receive basically on the same terms as the original Financing, so very exciting this together these two transactions really put us into a great position and allow us to really focus on operations and executing against our strategy.

Speaker 3

And we have already been executing against that strategy. In the Q3, as Randy mentioned, We had great commercial performance, great operational performance. We grew revenue to $6,100,000 and now this is on a new Presentation basis, which really presents the company just based on continuing operations. So $6,100,000 in revenue, that's up from the prior year. But importantly, when you drill down on that, you look at Simplederm growing 44% year over year, Caircan grew growing 11% year over year.

Speaker 3

And then even more importantly than that, when you look at the efficiency of that commercial execution, We can see that a year ago to generate the revenue from the Q3 of 2022, we actually used 76% of that revenue as we spent 76% of that revenue to generate it. This year, Q3 of 2023, That number was down to 46%. So just a dramatic change in terms of the efficiency of the operations and how much it's costing us to generate those top line results. We expect that to continue to improve as we move forward. Overall, operating expense declined by 1 point $7,000,000 a big chunk of that was in sales and marketing, like I just talked about, but we also saw declines in general administrative and R and D expenses.

Speaker 3

So Really all parts of the business are operating effectively and efficiently. From a gross margin perspective, We were at 60.2 percent for the quarter. So again, the financial profile of the company really That's improved much more of a high margin, high growth company when you look at just the proprietary products that we are operating with now. That 60 2 point 2%, if you look at the 2 main categories, kangaroo and simploderm, kangaroo was at 66%, Symploderm at 54%. So we're really pleased with both of those areas, but we also see opportunities to continue to improve those numbers over time.

Speaker 3

And then just touching on cash for a little bit, I talked about the transactions that we completed in the Q3. Both of those Really, we'll make a big difference in our cash position. We ended the quarter at $14,500,000 in cash and that was up from 9 point $3,000,000 at the end of the second quarter, so that's a $5,200,000 increase. So that reflected the $10,500,000 that we brought in from the financing, Offset by cash burn of approximately $5,300,000 which was in the range of what we were expecting And that does not yet include the benefits or the proceeds from the Orthobiologics divestiture, which just closed just last week. So looking forward, we do expect cash to increase again as we move through the Q4 into the year end.

Speaker 3

We'll have the orthobiologics divestiture, which will add to our cash balance. We'll have a cash burn as we transition the business Into this new operating profile, it will probably be about the same as what we burned in Q3, so in that $5,000,000 range. But then we expect to see that cash burn number come down as we move through 2024. And Overall, we feel like we're really well positioned to kick off the coming year in great shape. So to sum up, We dramatically strengthened our balance sheet through these transactions that we executed on during the quarter.

Speaker 3

We saw tremendous top line growth from our Proprietary products, kangaroo and simploderm. And we're also really seeing the benefits of the expense control measures that we've been putting in place over the last several quarters. But when you look at our operating expense profile and our margin profile, we're really starting to see those results show up in black and white. So, we're very much looking forward to continuing to execute on this strategy and we're looking forward to reporting on our progress in the coming quarters. With that, I'll turn it back to Randy before we take questions.

Speaker 2

Alicia is born. And as you can tell, like all proud parents, We like to talk about it. It's a great company and we think it's in a great position executing firing on all cylinders growing at 26 We've got, we think a great future with Kangaroo RM, our first drug eluting biologic, which we expect on the market in the first half of next year. And lastly, we have the team and resources to get this job done. And so with that, I'm going to turn the call over To the operator, and thank you all for joining us today.

Operator

Thank you. And at this time, we will be conducting a question and answer Our first question comes from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Speaker 4

Hey, guys. Congrats on the progress. Thanks for taking our questions. So starting off, maybe just on the new Rebranding and Alucia, you're now 100% focused on kangaroo and Sutloderm offerings. Have you seen the shift and focus effect to your sales force mindset yet to further push Kangaroo.

Speaker 4

Is there a potential to get Kangaroo growing faster ahead of RM?

Speaker 2

So thanks, Ross, for the question. We absolutely have seen A shift in mindset because of focus. Recall that prior to our deal with LeMaitre, we actually had that sales force Split between our cardiovascular product line and our bio envelope product line, Kangaroo, And those are very different call points. They're very different procedures and surgeries. And that's one of the reasons we think the LeMaitre Deel is really so transformational for us as it takes a great product and it puts it in the hands of a company that's phenomenal at Marketing that kind of product and they're doing a great job with it and we love that partnership and it reduced our top line a little bit, which is the only actual reason that you see The sales overall not growing higher, it's just because of the way we're recognizing that revenue.

Speaker 2

But that's been A great move for us in cardiovascular. But as you said, Ross, what it's done is, it's allowed this sales force To really focus up on Kangaroo and the new leadership there has helped as well. So right, so we have Kimberly Mulligan, who's got in there and A former Medtronic person that's been with us now for the last 14 years, really understands technology. He actually has a Ph. Steve Whitford in regenerative medicine and understands the systems really well And it's created a collaborative relationship with Boston Scientific and with others, and you're starting to see that product move, but you're starting to see it move Because we're selling on the science, the technology of the biology.

Speaker 2

And we think That creates exactly the right messaging going into the launch of Kangaroo RM. Keep in mind, we're going to be going up Against a synthetic, a polymer that releases antibiotics and will have The ability to offer all the benefits of the biologics. So yes, we do think that move Has created focus and that focus is exactly why you're seeing this growth, really resurgence

Speaker 3

of Tangro and it couldn't happen at a better time.

Speaker 4

Okay. Sounds great. And then going off of that, and looking at OpEx, it sounds like burns should improve from here. But assuming REM does get approved, how should we think about the size of your sales force ahead of launch next year? Or are you expecting Boston or others to increase their support?

Speaker 2

Well, we are planning to launch Kangaroo RM on our own. Now we're open minded and that could change Depending on what other strategic offers there are, but I want to tell you they'd have to be really, really good offers Because we think we have product that's worth to us 100 of 1,000,000 of dollars and that's not something we're going to let go of for cheap. The other thing is We have extreme confidence in this sales force. So I can't emphasize this team thing enough. We have the right leadership in place.

Speaker 2

Leadership has the right understanding and background and messaging in place. Kimberly has that sales team Firing on all cylinders and the message works. Take that and you pair it with 88% of Pyrex Rex users want to be Kangaroo RM users. And yes, we're going to put some additional resources into those sales force ahead of list launch, but we actually think that's going to be money well spent.

Speaker 4

Sounds great. Thanks for taking our questions and congrats on the progress.

Speaker 2

Thanks.

Operator

And our next question comes from the line of Frank Kakinen with Lake Street Capital Markets. Please proceed with your question.

Speaker 5

Great. Thanks for taking the questions and congrats on the progress. Maybe I'll start with just following up on Ross' point about the commercial strategy post Kangaroo RM clearance, can you just talk about maybe I know I heard your comments around 88% of TYRX users mentioned that they would Likely switch over to the Kangaroo RM product, but maybe talk about where you think you can take share most easily. Obviously, it's a Medtronic sale on that side, but then Abbott and Boston have big opportunities as well, but maybe the Medtronics are more with the benefits of an envelope. So maybe just talk through where you think you can take the most share and how you expect that to play out throughout next year?

Speaker 2

Thanks, Frank. So I think one of the great things about this market and really the service that Medtronic's done is Medtronic's Created awareness around the need for the product. And again, this is our estimates. But based on our estimates, It appears that Mark that Medtronic is close to 100% penetrated with their Peacemaker users with TYRX. And yes, it is true that that group It's already made the switch and 88% of them would like to, as we said, would like to become kangaroo users.

Speaker 2

So that's But they only have a third of the market roughly in rough numbers. And so There is this other completely wide open white space with something like $400,000,000 to $450,000,000 A market that's currently not being addressed by anything and that's probably because they're being serviced by The Abbott's and the Boston Scientific's and the BIOTRONICS and those reps certainly don't want to be bringing a Medtronic product in there. But it's not that the need for the product doesn't exist. It's not like Medtronic's electrophysiologists are doing some sort of High risk procedure that requires antibiotic envelope, it's really more of, we think a market dynamic thing. And that's why We're so excited about introducing this product.

Speaker 2

Yes, we can go after 88% of the TYRX users. This $400,000,000 to $450,000,000 opportunity out there that nobody is addressing. And we kind of think we're the Switzerland in there and can go in and actually be quite effective at taking a lot of that market relatively uncontested.

Speaker 5

Got it. That's helpful. And maybe to stay on the Kangaroo RM theme for now. The talk us through any clinical strategy you may be thinking Do you think you need to run some sort of clinical trial to show the benefits of the drug eluting pouch or is it well known enough via TYRX's study that's out there, maybe just kind of talk through that strategy and how you're thinking about it at this point?

Speaker 2

Sure. First, Frank, we are a science based, science 1st, company. So we have done a number of clinical programs. We are also planning for the initiation of a few trials once Kangaroo RM is approved to continue to shuttle out that prove out that clinical benefit. We think perhaps The biggest area to show differentiation actually centers around the biological components of it versus the infectious components of it.

Speaker 2

It's Recall that that TYRX study required 1,000 and 1,000 of patients show a relatively small benefit on infection. We look The overall procedure failure rate and think that there is actually an opportunity where a biologic can go and make a big difference. So I know Michelle and her team with clinical has a number of studies planned for it. And again, that's how We intend to market not just TYRX, but all of our products as a science evidence based company.

Speaker 5

Okay. And then maybe a last one for me switching over to simploderm. How should we think about a steady state growth rate in that business? Clearly, it's growing Very quickly right now, but a couple of moving pieces with the Sientra partnership coming online. So I was hoping you could talk through some of the moving pieces and how we should think about the growth rate in that line?

Speaker 2

Sure. So The SimpleDerm, we actually have 2 different distribution channels for SimpleDerm. Our proprietary distributor network, which we've been working with and developing now for some time and they are not going to cover They are doing have been doing and continue to do an absolutely phenomenal job for us. We've augmented that recently With Sientra, and I think it's important to appreciate the magnitude of what Sientra brings, right? So they have About 23% of the reconstruction market, that's about a $1,600,000,000 ADM market

Speaker 1

for us.

Speaker 2

That 50 brand new reps that are working on this product and we're talking about where we are right now, relatively small numbers. And so they have started contributing the Q3. They actually were in a pre launch State, they're starting to ramp up with their launch activities. Now they have the ability to contribute in a very meaningful way for the growth of this product. And right now, we like what we're seeing.

Speaker 2

As it relates to next year, I would say we're kind of in a wait and see mode, but they have the potential To not grow it in the way we have been growing, we're growing it more sort of in the orders of magnitude Kind of realm, that's really what we're hoping to see

Speaker 3

Yes. Maybe one thing to add to that, Randy, I would just say that in the Q3, the 44% growth That we saw in the Q3, that was fantastic. We were thrilled with that. But really, most of that was driven by our own existing Sales network, distributor sales network. And so we're starting to see some material contributions from the Sientra partnership.

Speaker 3

We saw more later in the quarter than we did earlier in the quarter, and I think it's safe to say that that we'll see an even bigger contribution in Q4. Where that can go next year, I think is an open question, but we are really optimistic about what that can do. We're also really optimistic about what we can do even just with our own distributors. And we think we'll see benefits from both. So when we think about The 44% growth that we saw in the 3rd quarter, that's been that's really been a bright spot for us almost every quarter.

Speaker 3

If anything, I would see that accelerating as we go into next year. It's hard to put a number on it right now, but we don't see that tapering off. We see that continuing to grow at similar percentage rates, at least through next year and probably longer than that.

Speaker 5

Got it. Okay. That's helpful color. Thanks for all the answer End of questions and congrats on all the progress.

Speaker 3

Thanks, Frank.

Operator

And we have reached the end of the

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Earnings Conference Call
Elutia Q3 2023
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