Nuwellis Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the NUELIS Third Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, Investor Relations with the Bill Martin Group.

Operator

Please go ahead.

Speaker 1

Thank you, Danielle, and thank you, everyone, for joining us in today's conference call to discuss Novelis' corporate developments and financial results for the Q3 ended September 30, 2023. In addition to myself, with us today are Nestor Jaramillo, NUELIS' President and CEO and Rob Scott, CFO. We also have Doctor. John Jeffries, NUELIS' Chief Medical Officer with us today. At 8 am Eastern today, Novelis released financial results for the quarter ended September 30, 2023.

Speaker 1

If you have not received Nuulys' earnings release, please visit the Investors page of the company's website. During this call, the company will be making forward looking statements. All forward looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events, end market trends, as well as our estimated results or performance of forward looking statements. All forward looking statements are based upon our current estimates and various assumptions.

Speaker 1

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. All forward looking statements are based upon currently available information and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risk With that, I'd like to turn the call now over to Nestor.

Speaker 2

Thank you, Vivian, and good morning, everyone. Welcome to Nuvela's Q3 2023 earnings conference call. For our call today, I will provide an overview of our Q3 performance and give an update on our strategic initiatives, including our and collaboration agreement with Aveda and our exclusive license and distribution agreement with Cstar for its selective cytopheretic device or SCD, which recently received an FDA approvable letter for use in pediatric acute kidney injury under a proposed humanitarian device exemption. Doctor. John Jeffries, our Chief Medical Officer, will also add additional color on our DaVita collaboration and our clinical programs.

Speaker 2

Anne will provide his perspective on recent news affecting the renal industry. Our Chief Financial Officer, Rob Scott, will then provide detailed commentary on the financial results before opening the call up for questions, followed by my closing remarks. Before I turn to Q3 results, I would like to acknowledge concerns about the current market situation and its effect on companies like Nuvelis. The reason I feel confident in the future of Nuvelis is because we have 3 Fundamentally sound short term growth drivers. First, we have our organic business, which is growing, represented by 5 consecutive quarters of year over year growth in our core heart failure business.

Speaker 2

2nd is the expected commercialization of 3 new products within the next 2 years And third is our supply and collaboration agreement with DaVita. Turning first to our organic growth and 3rd quarter results. In the Q3 of 2023, Nuvelis generated $2,400,000 in revenue, A 17% increase versus the Q3 of 2022 and a 16% increase over the prior quarter. What is most relevant in our view is therapy utilization or the number of circuits per play console, which increased 26% over same period last year, reflecting continued increase in the number of patients being treated with the Aquadex therapy. Last quarter, in Q2, the utilization was 14%.

Speaker 2

By customer category, we are pleased to see firm growth across each of the 3 category targets, With Q3 2023 revenue in heart failure posting a 27% increase over the same period last year, Critical Care, a 16% decrease and Pediatrics, a 9% increase. Higher console sales led The heart failure growth, while utilization gains drove critical care and pediatric performance. We continue to attribute strong organic growth, especially in heart failure, to the growing awareness of our clinical data and support from multiple peer reviewed publications over the past 18 months, validating the clinical and economic benefits of the Aquadex therapy. We are focused on driving awareness among clinicians and providers to help them understand That ultrafiltration through the use of the Aquadex system is the logical step when diuretics are not working and should be implemented earlier in the CARE pathway. Patients for whom oral or intravenous diuretics are not effective should immediately Move to the mechanical fluid ultrafiltration therapy, which is more controllable, precise and predictable.

Speaker 2

This is the message that our field organization is consistently delivering and is having positive results. I would like to point out that our installed base measured by placed Aquadex consoles is key for Nuveilis because it generates revenue quickly and is a leading indicator for growth in utilization of the therapy. The more consoles we place, the more patients are treated. With that, although our installed base in Q3 grew, We also continue to see lumpiness in hospital capital spending trends. Hospitals across multiple geographies are still facing capital budget constraints.

Speaker 2

As we navigate this environment, we are pleased to offer both rental programs and console sales, all while driving increased utilization in our systems. For example, in the first half of this year, our sales of consoles were soft, but our rental revenue increased by 36%. However, in Q3, our sales of consoles grew sequentially, but our rental revenue was soft. The good news is that hospitals are getting around the capital budget constraints by renting consoles, while still growing the number of patients treated with the Aquadex therapy. We will continue to monitor hospital capital spending, especially in light of an elevated interest rate environment.

Speaker 2

Our second growth driver is our expected new product introductions within the next 2 years. We are excited that CStar Medical recently received the FDA approvable letter for its selective cytokine device or SCD, where we are exclusive U. S. Distribution rights for the use in pediatric acute kidney injury patients. We are even more excited about the pool analysis from 2 non controlled clinical studies Showing that pediatric patients over 10 kilograms with acute kidney injury requiring continuous kidney replacement therapy Treated with Cstar's SCD had a 77% reduction in mortality and 0 dialysis dependency at day 60 and 0 device related Serious adverse events or infections.

Speaker 2

Turning to our internal product development program, also earmarked For our high growth pediatric patient category, we continue to advance development of our pediatric continuous kidney replacement therapy device, which is complementary to the Cstar SCD therapy. We, along with many pediatric nephrologists, believe this product will have a Foundly positive impact in survival and significantly improved the quality of life of neonates in the first half of twenty twenty four with full FDA clearance and commercial launch in the U. S. Early in 2025. Finally, we continue to move forward with our supply and collaboration agreement with Aveda to pilot Aquadex Ultrafiltration to treat adult patients with congestive heart failure and related conditions in selected U.

Speaker 2

S. Markets. In pairing the Aquadex system with DaVita's care team, we aim to expand ultrafiltration therapy to many of the heart failure patients in the U. S. Suffering from fluid overload and unresponsive to diuretics.

Speaker 2

We are actively engaged in finalizing treatment pathways and pilot study sites. At the conclusion of the pilot, DaVita has the option to deliver its ultrafiltration service approval and expand ultrafiltration services to inpatient, emergency room, observation units and outpatient facilities in their contracted hospital accounts. Once that approval is delivered, our supply and collaboration agreement will be effective for up to 2 5 year terms. We believe the future success of our pilot program with DaVita could potentially accelerate the clinical adoption of ultrafiltration when first line medical treatments are ineffective, changing the revenue growth trajectory for Nuvelis with an accelerated path to profitability. I would like now to turn the call over to our Chief Medical Officer, Doctor.

Speaker 2

John Jeffries, who will provide additional color on our OIBDA collaboration and our clinical programs, in addition to his perspective on recent news affecting the renal industry. Doctor. Jeffrey?

Speaker 3

Thank you, Nestor, and good morning, everyone. I'd like to cover 3 topics with you today. First, our collaboration with DaVita, as you heard Alluded to. 2nd, the progress we are making with our REVERSE clinical trial. And then 3rd, our thoughts on ongoing announcements Regarding the impact of a certain class of weight loss drugs or the so called GLP-one agonists in renal care and our business.

Speaker 3

So for us, it's encouraging to note that our collaboration with DaVita continues to leverage expertise from cardiovascular medicine and nephrology, which provides a powerful vehicle to enhance our understanding of the cardiorenal syndrome. As such, we continue to look forward to increased awareness of the growing number of heart failure patients in the United States and improve recognition of ultrafiltration as a safe and effective therapeutic option. Whereas treatment of fluid overload continues to center on the use of Oral and intravenous diuretic therapies, Aquadex offers a more predictable and precise approach to treatment of this very difficult clinical condition. Building on our body of clinical evidence, we continue to make progress on our REVERSE HF trial, evaluating mortality and heart failure events within 30 90 days of hospital discharge. To date, we now have 15 As it relates to weight loss drugs, GLP-one receptor agonists are increasingly prescribed in the U.

Speaker 3

S. And internationally. These drugs are known to help regulate blood sugar levels. There are reports that GLP-one receptor agonist may also reduce the risk of heart failure and other cardiovascular events and patients with Type 2 diabetes. There is also evidence that these drugs may improve symptoms of heart failure.

Speaker 3

However, these reports are relatively small and long term benefits in these areas are yet to be determined. Therefore, it is Given the increasing number of heart failure patients around the globe, There will likely still be a strong need for fluid removal in these patients, some of which will benefit from mechanical diuresis as opposed to drug based interventions. In addition, this class of drugs may have the potential to bend the curve across multiple phenotypes, It means that there may be different rates of progression to advanced heart failure and other diseases such as end stage renal disease. It may mean that more people will ultimately benefit from additional therapeutic options such as Aquadex. For example, instead of going to a mechanical device such and experience heart failure exacerbations, which presents an opportunity for us to deliver ultrafiltration therapy to improve volume status in these acute and chronic settings.

Speaker 3

Thank you, and I'll turn it back over to Nestor.

Speaker 2

Thank you, Doctor. Jeffries. With that, let me now turn the call over to Rob to discuss our Q3 financial results. Rob?

Speaker 4

Thank you, Nestor, and good morning, everyone. Revenue for the Q3 of 2023 was $2,400,000 representing a 16% increase for the Q2 of this year and a 17% increase versus the Q3 of 2022. By customer category, Q3 2023 revenue in heart failure increased approximately 27% over the same period last year and critical care Pediatrics increased 16% and 9%, respectively. We are pleased to highlight that despite hospital capital budget constraints, Console sales increases led heart failure category growth, while increases in utilization of the Aquadex systems Growth Critical Care and Pediatric Performance. Gross margin was 57.3% for the Q3 of 2023 compared to 61% in the prior year period.

Speaker 4

The decline in gross margin was primarily driven by lower console manufacturing volumes. However, our U. S. Disposable product margins are 74%, which are in line with medical technology industry standards. Selling, general and administrative expenses in the 3rd quarter were $3,400,000 a decrease of approximately $800,000 compared to the prior year quarter, driven by reduced headcount and related compensation expense.

Speaker 4

3rd quarter research and development expense was $1,100,000,000 an increase of approximately $200,000 compared to Q3 of 2022, reflecting a modest increase in spend related to the final phases of Total operating expenses were $4,500,000 in the quarter, a decrease of approximately 12% compared to the Q3 of 2022 and a decrease of 26% sequentially. Both the year over year and sequential decreases or due to cost saving measures implemented early in Q3. Net loss in the 3rd quarter was $3,400,000 for $36.72 per common share in the prior year period. The year over year decrease in the net loss Per share is driven by an increase in sales, lower spend and an increase in weighted average share count. We ended the Q3 with no debt and $4,900,000 in cash and cash equivalents on the balance sheet, and we had 1,900,000 common shares outstanding at September 30.

Speaker 4

On October 17, We closed $2,250,000 of gross proceeds before deducting underwriting discounts and commissions and a public offering of Series J convertible, redeemable, preferred stock and warrants. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Operator

We will now begin the question and answer The first question comes from Aaron Wickmer from Lake Street Capital. Please go ahead.

Speaker 5

Hey, good morning guys. This is Aaron on the line for Brooks this morning. I guess I want to start with sort of your Expectation regarding the partnership with DaVita as it sort of relates to what you see them contributing to your And the financial arrangement you have with them. I know you mentioned a little bit in the prepared remarks, but I'm just trying to Get a bit more color on what we can sort of expect with that aspect going forward here.

Speaker 2

Yes. Good morning, Aaron. Good question. As you know, DaVita provides both ambulatory dialysis service as well as inpatient Dialysis for patients that are hospitalized needing dialysis. And they have a team of nurses and medical staff to provide that dialysis in the inpatient in their what they call the DaVita multi treatment rooms.

Speaker 2

So the idea is for patients needing ultrafiltration that have contract with DaVita for the dialysis is to do their ultrafiltration in their rooms. Now, when you look at their public documents that they have published, you see that they have a large number of contract hospitals during the dialysis. So the idea with this collaboration and supply is for us to sell the product to DaVita and they will provide the services to the hospitals to do ultrafiltration in fluid overall patients.

Speaker 6

Okay.

Speaker 2

Did that answer your question, Aaron?

Speaker 5

Yes, yes. And then I guess Sort of the same question in reference with Seastar, how would that differ materially, I guess?

Speaker 2

Well, their device for pediatric use, we have an exclusive license and distribution agreement with them.

Speaker 5

Patients

Speaker 2

pediatric patients needing to come into the hospital with inflammatory reaction can be treated with the C STAR device and significantly improve their mortality as well as their quality of life. So the idea is for us, for our Organization, our field organization to distribute that product in the pediatric hospitals, especially the ones where we have also Ultrafiltration Business.

Speaker 5

Got you. Okay. And then if I could ask just one quick follow-up. Obviously, there was a fairly significant reduction to operating expenses this quarter. You sort of mentioned that they were due to some cost saving measures.

Speaker 5

Is this sort of the plan moving forward to continue to make these cuts to OpEx? Or do you sort of see a Different path to sort of achieving your longer term goals. Thanks for taking the questions.

Speaker 2

Yes. On the last question, We did some savings measures in Q3, Because we needed to right size and also provide more runway to our cash. So, we don't expect to do anything more in the future, anything drastic in the future, but we will continue to find ways to be more Effective and efficient both in the field as well as here in our headquarters with our product margins.

Speaker 5

Got you. That's very helpful. Thank you, guys.

Speaker 4

Thank you. Thank you, Aaron.

Operator

The next question comes from Anthony Vendetti from Maxim Group. Please go ahead.

Speaker 6

Thanks. Good morning, guys.

Speaker 2

Good morning, Ann.

Speaker 6

Just a little bit more of a follow-up on DaVita. So I know it's the pilot phase, but Can you talk a little bit about what the plan is for the rollout? How many centers? And during this pilot phase, do you expect there to be a contribution to sales either in this quarter at all or Is it more of a 2024 situation?

Speaker 2

Yes. Good question, Anthony. Just to be clear, this is this collaboration that we were doing with DaVita is new To every stakeholder in this treatment. I mean, it's new to DaVita, it's new to us And is new to the hospitals. So we decided to do a pilot just to learn everything that we need to learn about this collaboration, which includes treatment pathways for patients, billing, contract Amendments that DaVita would have to do with their hospital customers.

Speaker 2

So we wanted to take the time to make sure that everything goes well, Both for the hospitals as well as for DaVita and for us. So that's why we're initiating this pilot. And we are in the process of Defining the care pathway, where are the sites that are more fitted to do this collaboration. So we're having a lot of good results, a lot of good acceptance by hospitals that are contracted by DaVita, But they want to do ultrafiltration and for reasons, they have capital budget issues or nursing staff issues. So they feel that the collaboration with Nuvelas and DaVita will fit their needs, appropriate.

Speaker 2

So to answer your second part of your question about the impact in Q2, The idea is that DaVita will buy the consoles and the circuits as we start treating patients in the hospitals.

Speaker 6

Okay. So they'll start actually purchasing them. You mentioned the contract, Contract amendment, Nestor. So DaVita has a certain contract with their customers and the amendment to add in ultra Tration, is that just a small amendment that they add And how what would that look like? Are they do they have to agree to purchase?

Speaker 6

Could they rent? Is there a lot of flexibility there? Or are you attempting to Standardize it with DaVita and their customers.

Speaker 2

Yes. Good question, Anthony. The answer to those questions is what we plan to obtain with this pilot. So right now DaVita has contracted hospitals to do dialysis. So they would have to amend those contracts to do ultra filtration.

Speaker 2

DaVita would buy the product from us and they will provide the services to their patients with their own clinical staff. So what I Assume is or what we are all assuming is that the hospital will pay a per patient fee to DaVita for treating those patients for ultrafiltration. But DaVita will take care of the rest.

Speaker 6

Okay, great. That's very helpful.

Speaker 2

Yes, and that's the benefit for the hospital. Hospitals that are having some capital budgets or nursing staff, this is a viable way for them to treat ultrafiltration patients.

Speaker 6

And then a follow-up on the difference between that and maybe Cstar's SED device for pediatrics. So is that a similar situation where you purchased from C Store and then you sell that device Either what's your ultrafiltration device for separately depending on what the customer is looking for?

Speaker 2

Correct. We will purchase the product from Cstar and then we will sell it to the customers with our ultrafiltration services. But let me just say clarify something here too. Our new pediatric dedicated device will be a CRRT device. That's the device that would be a pair with Cstar's device right now.

Speaker 2

Right now, when we start selling the C star device, that would be to use with their Own CRRT devices that the hospitals will already have.

Speaker 6

I see. I see. So your new continued replacement immunotherapy device Is what you'll pair with the SCD device. But right now until that device is available, The hospitals are using whatever device they have for CRRT?

Speaker 2

Correct. Right now in the market, There is only adult CRRT devices being used on these pediatric patients. So the Cstar Device will be used with any CRRT device currently used to treat this patient, but they're all adult. When we introduced our pediatric dedicated CRRT device, together with the C STAR device Would be a much better therapy for these patients. This is why we believe as well as many pediatric nephrologists that this is going to Change, be a game

Speaker 6

changer. Yes, it sounds like a good partnership.

Speaker 2

Correct.

Speaker 6

You did mention, I just wanted to say, you mentioned 2 to 3 new products, this being one of them. Were there others that you could talk about or not at this time?

Speaker 2

Yes. Good observation, Anthony. We have 3 new products that we are going to be introducing in the next 2 years, starting with the CStar Device, that's 1. We're also introducing very soon an additional catheter, venous catheter to be used with our Aquadex system. And then mid-twenty 25, We plan to commercialize the pediatric dedicated CRRT device.

Speaker 2

So those are the 3 devices in the next 2 years.

Speaker 4

Great. Okay. Thank you very much.

Speaker 6

Appreciate it. I'll hop back in the queue.

Speaker 4

Thank you.

Operator

Seeing that there are no further questions, I would like to turn the conference back over to Nestor Harmillo for closing remarks.

Speaker 2

Thank you, operator. We are deeply encouraged by our progress across multiple initiatives, including organic growth in our core business. We believe the success of our DaVita pilot program will lead to ultrafiltration service approval, expanding ultrafiltration therapy and meaningfully accelerate our revenue growth and path to profitability. To this, we add new product opportunities in our high growth pediatric Category with the Cstar SED device targeted for marketing approval for commercialization by year end 2023 or early 2024 depending on the HDE approval. Finally, With increased awareness of our body of clinical and economic evidence, we are continuing to advance market penetration in our ultrafiltration With healthy growth in therapy utilization in our heart failure, critical care and pediatric categories.

Speaker 2

As we conclude our call, I would like to thank all our stakeholders, as well as employees, stockholders, physician, nurses, patients and healthcare workers in the field. We have a full and exciting lineup of opportunities ahead and appreciate your continued support as drive meaningful progress in our initiatives to transform the lives of patients suffering from fluid overload with our Aquadex system ultrafiltration therapy. Thank you.

Operator

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

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Key Takeaways

  • Nuvelis reported Q3 2023 revenue of $2.4 million, a 17% year-over-year increase and 16% sequential growth, driven by a 26% rise in therapy utilization and a 27% boost in heart failure sales.
  • Initiated a DaVita collaboration pilot to supply Aquadex consoles and ultrafiltration services in DaVita-contracted hospitals, aiming to broaden access, streamline care pathways, and accelerate the company’s path to profitability.
  • Secured exclusive U.S. distribution rights for CStar’s Selective Cytopheretic Device (SCD), which received an FDA approvable letter for pediatric acute kidney injury and showed a 77% reduction in mortality with no device-related serious adverse events.
  • Outlined plans to launch three new products within two years, including a pediatric-dedicated continuous kidney replacement therapy device in early 2025 and a new venous catheter for Aquadex.
  • Strengthened financial position by cutting operating expenses 12% year-over-year (26% sequentially), exiting Q3 with no debt and $4.9 million in cash, and raising $2.25 million through a preferred stock and warrant offering.
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Earnings Conference Call
Nuwellis Q3 2023
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