Nuwellis Q2 2023 Earnings Call Transcript

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August 8, 2023

There are 8 speakers on the call.

Operator

Day, and welcome to the Novelis, Inc. 2nd Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Please note that this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, Investor Relations.

Operator

Please go ahead, ma'am.

Speaker 1

Thank you, Sherry. Thank you, everyone. Good morning. Thank you for joining us to discuss Novelis' corporate development and financial results for the Quarter ended June 30, 2023. In addition to myself, with us today are Nestor Jaramillo, Nuulys' President and CEO and Lynn Blake, CFO.

Speaker 1

We also have Doctor. John Jeffries, Novelis' Chief Medical Officer joining us today. At 8:15 am Eastern today, Novelis released financial results for the quarter ended June 30, 2023. If you have not received Novelis' earnings release, Please visit the Investors page on the company's website. During this conference call, the company will be making forward looking statements.

Speaker 1

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 and market trends as well as our estimated results or performance are forward looking statements. All forward looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results All events could materially differ from those anticipated or implied by these forward looking statements. All forward looking statements are based upon current available information the company assumes no obligation to update these statements.

Speaker 1

Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risk the company's filings with the SEC, including the latest 10 ks and subsequent reports. With that, I would now like to turn the call over to Nestor.

Speaker 2

Thank you, Vivian, and good morning, everyone. Welcome to Nuellis' Q2 2023 earnings conference call. I would like to begin today's call with a recap of the press release that we issued this morning announcing our CFO transition. Effective September 1, Lynn Blake will step down from her role as CFO. We sincerely thank Lynn for her contributions in Welles.

Speaker 2

Her positive impact would be felt long after her departure. Lynn has agreed to consult with the company through March 31, 2024, to ensure a seamless transition. Rob Scott, our current Senior Finance Director, will be appointed as Lynn's successor. Rob has been with the company over 10 years and have an utmost confidence in his ability to lead the finance organization Through the company's next finance excuse me, next phase of growth. Rob has very deep knowledge of the business, And I look forward to working with him on the leadership team.

Speaker 2

In the same vein, I would like to extend a warm welcome to our newest Board member, Mike McCormack, who joined Wellest in June. His extensive experience as an executive in the medical technology Phil will be of great value to the Board, me and our entire organization. Welcome, Mike. Turning to our earnings agenda. On today's call, I will provide an overview of our 2nd quarter performance and will give an update on our strategic initiatives.

Speaker 2

I will also discuss our recent announced supply and collaboration agreement with DaVita. And Doctor. John Jeffries, our Chief Medical Officer, will add his perspective on the DaVita collaboration as well. Our Chief Financial Officer, Lynn Blake, will then provide detailed commentary on the financial results before opening the call up for questions, followed by my closing remarks. Turning to our Q2 results.

Speaker 2

In the Q2 of 2023, NUELAS generated $2,100,000 in revenue, a 6% decline versus the Q2 of 2022 And a 14% increase over the prior quarter. Utilization or the number of circuits Per console sold increased 14% over the same period last year, reflecting an increase in the number of patients treated with the Aquadex therapy, offset by a decrease in sales of consoles. We have observed similar macroeconomic conditions with other medtech companies that have announced growth in treatment procedures, but lingering capital constraints in many hospital accounts. By segment, We are pleased to report a rebound of our pediatric business in the 2nd quarter with sales increasing 72% From the Q1, reflecting an improvement from the low census we saw in Q1 And continued momentum in our heart failure segment supported by growing awareness of our clinical evidence. 2nd quarter 2023 revenue in heart failure increased 8% over the same period last year, While Critical Care and Pediatric revenue declined 20% 5%, respectively.

Speaker 2

In heart failure, the 8% revenue growth in Q2 follows year over year heart failure revenue growth of 21 To growing awareness of our clinical data and support from multiple peer review publications over the past several months, Validating the clinical and economic benefits of the Aquadex therapy. We continue to focus on driving awareness among clinicians and providers to help them understand that ultrafiltration is the next logical step in the CAR pathway. In other words, Patients for whom oral or intravenous diuretics are not effective should immediately move to ultrafiltration therapy, Which is a mechanical fluid removal solution and as such is more controllable, precise and predictable. This is the message our field organization is now delivering. And based on the Heart Failure segment revenue results The past two quarters, the message is having a positive result results as demonstrated by increased sales of disposable circuits.

Speaker 2

Now I would like to provide additional updates on our top strategic initiatives to help accelerate clinical adoption of our Aquadex Ultrafiltration Therapy. On June 20, we announced we have entered into a supply and collaboration agreement with DaVita To pilot Aquadex Ultrafiltration therapy to treat adult patients with congestive heart failure and related conditions in select U. S. Markets. Pairing the Aquadex system with DaVita's care team could expand access to ulcer filtration therapy To many of heart failure patients in the U.

Speaker 2

S. Suffering from fluid overload and reduced related health care costs For providers and payers, the planning phase of the pilot program is underway. Nuvelas and DaVita are working together to actively explore sites for selection and develop treatment pathways. Through the pilot, ultrafiltration therapy using Aquadex will be available at certain DaVita Hospital 4. At the conclusion of the pilot, DaVita has the option to extend the supply agreement with Nuvelas for continued Provision of ultrafiltration services for inpatients, emergency rooms, observation units and outpatient facilities for up to 10 years.

Speaker 2

DaVita's clinical infrastructure Potentially help accelerate the clinical adoption of ultrafiltration when first line medical treatments are ineffective. Our organization is thrilled and actively collaborating with the DaVita team as we prepare to roll out the therapy. Turning to our product development initiatives. We continue to advance the development of our pediatric continuous renal replacement therapy device and anticipate IDE approval in first half of twenty twenty four. This product addresses the unmet needs of the pediatric patient population and could significantly increase the quality of life All of whom suffer from life threatening renal dysfunction.

Speaker 2

We, along with many pediatric nephrologists, Believe this product would be a game changer for this patient population. I would now like To turn the call over to our Chief Medical Officer, Doctor. John Jeffries, to further discuss our strategic collaboration with DaVita. John?

Speaker 3

Thank you, Nestor, and good morning. We believe there are multiple benefits that will be realized from our collaboration with DaVita. First, the collaboration will increase awareness of the growing number of heart failure patients in the United States. Importantly, this collaboration will improve recognition of a safe and effective therapeutic option in the form of Apophoresis, although this therapy has been available for many years, awareness and access continue to be opportunities that are not fully realized. Our Phase continues to increase in incidence and prevalence across all age spectrums.

Speaker 3

Although frequently targeted by industry for research and development, The collective approach to the treatment of volume overload continues to center on the use of oral and intravenous diuretic therapy. Orthodex offers a more predictable and precise approach to treating this very difficult clinical phenotype. With this collaboration, the opportunity to increase access will most likely result in more utilization of the therapy. In addition, this pilot leverages expertise from cardiovascular medicine and nephrology, which provides a valuable vehicle to enhance our

Speaker 2

Thank you, Doctor. Jeffries. Before turning the call Over to Lynn. I would like to reaffirm our business fundamentals, financial discipline and commitment to organizational efficiency. During the quarter, we streamlined our commercial operations to support increased productivity and utilization.

Speaker 2

We believe our team is now well designed to continue to increase market penetration of our Aquadex Ultrafiltration therapy. Now, I would like to turn the call over to our Chief Financial Officer, Lynn Blake, to discuss our Q2 financial results.

Speaker 4

Thank you, Nestor, and good morning, everyone. Revenue for the Q2 of 2023 was $2,100,000 representing a 14% increase over the first As noted earlier, pediatrics revenue increased 72% over the Q1 of 2023 as we saw pediatrics census rebound the end of the Q2. And as Nestor mentioned, 14% more patients were treated with the Aquadex therapy than in the same period last year. Gross margin for the quarter was 55.3 percent of sales, an increase of 7 30 basis points compared to gross margin of 48% in the prior year quarter, driven by a combination of favorable sales mix as well as a $100,000 non cash inventory write off in the prior year period related to the discontinuation of the distribution agreement. Selling, general and administrative expenses were 4 point $7,000,000 in the Q2 of 2023.

Speaker 4

Compared to the Q2 of 2022, SG and A expenses increased by approximately $400,000 This increase primarily reflects increased legal, audit and other professional fees in the current quarter. 2nd quarter R and D was $1,500,000 an increase of $400,000 compared to Q2 of 2022. This increase reflects higher on our new pediatric CRRT device as we ramp up development in preparation for IDE submission in the Q1 of 2024. Total operating expenses were $6,200,000 in the quarter, an increase of approximately 15% compared to the Q2 of 2022. Sequentially, total operating expenses decreased about 11%, primarily due to reduced professional fees and lower compensation expense versus the Q1.

Speaker 4

Net loss in the quarter was $4,800,000 or a loss of $3.55 per common share Compared to a net loss of $4,300,000 or $40.67 per common share for the same period in 2022. The decrease in the net loss per share in the current year quarter is driven by the year over year increase in our weighted average share count. From a liquidity perspective, we ended the 2nd quarter with approximately $9,000,000 of cash and cash equivalents and no debt on the balance sheet, And we had approximately 1,900,000 common shares outstanding at June 30. This concludes our prepared remarks. Operator, we'd now like to open the call for

Operator

The first question is from Jeffrey Cohen of Ladenburg Thalmann.

Speaker 5

Hi, good morning. How are you?

Speaker 2

Good morning, Jeff.

Speaker 5

So just a couple of questions from our end. I guess firstly, Any commentary specific to the Critical Care division for the quarter, down 20% year over year? Was it one time in nature or Contributing factors that we should be aware of?

Speaker 2

Yes. Good question, Jeff. I believe that The decline in critical care has a lot to do with our sales of consoles, opening new accounts And also increasing what we call penetration in our current accounts. As I mentioned before, we're still seeing some of the lingering effects Of the capital expenditure of hospitals.

Speaker 5

Got it. Okay, that's helpful. Can you talk a little bit about the commercial team Now versus last quarter, you talked about some streamlining that was done. Could you elaborate a bit on that for us? Thank you.

Speaker 2

Yes, of course. We consolidated 3 territories, because we felt that it was more efficient And more productive to consolidate these territories, they were close in proximity. We had a very good sales reps and clinical specialists Covering those after the consolidation, and we feel that this is going to be a more efficient way for us to provide Clinical support to these territories.

Speaker 5

Okay, got it. And lastly for us, For us, Lynn, any commentary on margins? Certainly, better than last year, not quite to the level that we were expecting. Do you expect that to come back a little bit in your favor over the back half of the year? Or should we kind of need our estimates for the back half to Match up with the front half.

Speaker 4

Yes. So the year over year improvement was roughly half driven by Favorable miss was higher disposable sales and about half by the write off of the the write off I mentioned in the prior year quarter, which was about $100,000 Sequentially, we would expect modest improvement in the second half of the year, along with improved volumes, somewhat dependent, however, on mix of disposals and consoles We also expect higher console sales in the second half of the year. So, I would say modest improvement sequentially.

Speaker 5

Okay, got it. That does it for us. Thanks for taking our questions.

Speaker 2

Thank you, Jeff.

Operator

Next question is from Andriy Van Delski of Maxim Group.

Speaker 6

Thank you. Before I ask a couple of questions about the DaVita agreement, Can we just talk about the I don't know if you get the number, but how many Aquadex systems were sold or reactivated this quarter?

Speaker 2

We have activated reactivated 3 accounts And we have opened 2 new accounts in the first half of this year.

Speaker 6

Okay. So reactivated 3 opened 2 new. Okay. And then Obviously, the De Veeva agreement should definitely help drive utilization. Is there anything else In the interim that the company is doing differently This year versus last year to drive increased utilization of the current systems that are installed?

Speaker 2

Well, in addition to the DaVita that we expect that to have an important increase in the utilization, We have the clinical data that has come out in the last 7 months in peer reviewed journals. That has Driving a lot of the utilization, especially in the heart failure segment. We expect a few more publications, the second half of this year, in critical care, Cardiac surgery specific, and we expect those publications to continue driving utilization.

Speaker 6

Okay, great. And then just a little more on the DaVita agreement. So there's select markets that you're going to roll this out into. Have those been identified? And then, any color on how once it's been rolled out into those select markets, What's the time frame, if there has been one established, to roll it out into other territories?

Speaker 2

Yes. We have identified a handful of centers where DaVita has Good presence and so do Newellas. This is the ideal accounts for us to start the pilot. We are right now in conversations with them. There has a lot of steps before we start having Patients treated in the multi treatment rooms in DaVita's hospital accounts, And we expect to start treating patients in November of this year.

Speaker 6

In November of this year. Okay, great. And then just on the cash burn and is there any I know you've cut costs, but are there any other costs that you think can be cut to control the cash burn? Or do you feel like at this point the company is as Lean and as right sized as could be at this point.

Speaker 2

There is always ways to cut more expenses, But we have we're playing a balance between cutting expenses and our future. We're investing a significant dollars In our REVERSE trial, multicenter randomized trial as well as in the development of the pediatric device. We have also streamlined our operations here in the home office. So with those changes and the consolidation of few of the territories, We believe that we are well positioned to have an efficient organization As well as prolong our runway.

Speaker 4

Anthony, I'll just add, we have had high professional fees in the first half of the year Associated with a number of activities including negotiation of the DaVita agreement as you would expect. So we would expect I expect lower professional fees overall in the second half of the year as well.

Speaker 6

Okay, great. That's helpful. All right. Thanks, Nestor. Thanks, Lynn.

Speaker 2

Thank you, Anthony.

Operator

The next question is from Brooks O'Neil of Lake Street Capital Markets.

Speaker 7

Good morning, everyone. So I'll just follow on with Anthony's questions a little bit. Strikes me, I guess, that the DaVita opportunity is really substantial for you guys, Assuming they get engaged in really promoting the product, so What are your realistic expectations for what impact the VIDA agreement can have? And you said, I think to Anthony that they're going to start selling in November. What sort of the timeframe in which you expect some impact?

Speaker 7

And are we thinking This could be a meaningful inflection for the revenues at the company or are you would you put more Eggs in the basket of the REVERSE trial or the pediatric device.

Speaker 2

Well, Let me see if I can unwind the 3 points that you were trying to make there. First of all, I do believe that this is going to be an inflection point for us. Their sales organization is 4x the size Very mature and extensive clinical team. Regarding the expectations, And the pilot will last until May of next year. That's the time that we have given

Speaker 6

Yes, you're saying that Yes,

Speaker 4

you're saying that Brooks, I was going to add as well. So thinking about the up Lift in revenue trajectory. As Nestor said, the pilot goes through most of the first half of next year. I think the second half of next year could be a significant uplift once commercialization starts and a factor in that is we mentioned in the call we're continuing to really see headwinds from Hospital's capital purchase cycle and we're not alone in that. And in this model, we sell the product to DaVita.

Speaker 4

DaVita doesn't have to sell The product, they're just offering a treatment across their centers is the vision. So that will also be a really A tailwind for us to have to get around that capital cycle.

Speaker 7

Sure. I mean, Not to beat a dead horse, I know I've probably asked about this over time, but every time I think about this situation, I think, Unless I really don't understand the clawback to hospitals and other providers Relative to hospital readmissions, to me this seems like a no brainer for a hospital that's dealing with heart failure patients, Could be dealing with them in an outpatient setting, could eliminate or reduce little readmissions related to fluid overload and yet even with all the things you've been doing, it seems like In terms of what preventing these hospitals from seeing What seems fairly logical and obvious to me.

Speaker 2

Yes. No, we totally agree with you, Brooks. The way that these technologies working have a significant clinical and economic impact to patients, Providers as well as hospitals. We need to be patient because in medtech, as you know very well, clinical evidence is very And we have received a lot of publications in the last 7 months, but the unequivocal Data for us is going to be the REVERSE trial. And that's why we continue to conduct that trial, In time, we continue to work on reimbursement and try to and work towards getting this therapy in the guidelines.

Speaker 2

So that's kind of the path that we are taking and we continue to be focused to make this therapy the standard of care. All right. It's very easy. It should be.

Speaker 6

Great.

Speaker 2

Thank you. I was just going to say that It's not easy to change the trajectory of medicine when most of these patients, as Doctor. Jeffries mentioned, Have been treated with oral and intravenous diuretics, despite the fact that there has been a lot of Technology available for more predictable ways to remove fluid from patients that are suffering from fluid overload.

Speaker 7

Yes. When I is the data still the same that it was a few years ago that Heart failure and fluid overload is the number one cause of hospital readmissions Across every area of medicine today?

Speaker 2

Yes. We believe that, that is what the data is showing that of the 1,000,000 heart failure hospitalizations, 90% of them are due to the symptoms of fluid overload.

Speaker 7

Right. Wow.

Speaker 2

And Bruce, our message is working. We increased the number of patients that are treated with Aquadex The number of patients treated, and that is because of the clinical data and that we have Provided to the physicians.

Speaker 7

That's good. All right. I continue to believe. So onward and upward.

Speaker 2

Yes. Continue believing, Brooks.

Speaker 7

Great.

Speaker 1

Thank you. Thank you, Bruce.

Speaker 2

Thank you.

Operator

This concludes our question and answer session. I'd like to turn the conference back over to Mr. Garamillo for any closing remarks.

Speaker 2

Well, thank you, operator. In conclusion, I want to reiterate how excited I am about our future. Our new collaboration with DaVita, the growing body of clinical evidence and the pediatric product pipeline All supports our efforts to make the Aquadex Ultrafiltration Therapy the new standard of care and available to fluid overload patients resistant to which today is the current standard of care. On September 21st next month, Nuvelis will be participating in a fireside chat At the virtual Gilmartin Group Emerging Growth Showcase, live and archived access will be available On the Investors section of our website. As we conclude our call, I would like to thank all our stakeholders, As well as employees, stockholders, physicians, nurses, patients and healthcare workers in the field, Without you, we would not be able to achieve key advances in transforming the lives of patients suffering from fluid overload.

Speaker 2

Thank you for your ongoing engagement and support.

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Key Takeaways

  • Novelis reported Q2 revenue of $2.1 million, down 6% year-over-year but up 14% sequentially, with heart failure segment sales rising 8% YoY and pediatric sales rebounding 72% from Q1.
  • Utilization of Aquadex therapy improved, with circuits sold per console increasing 14% year-over-year, driven by heightened clinician awareness from recent peer-reviewed publications.
  • The company entered into a supply and collaboration agreement with DaVita to pilot Aquadex ultrafiltration therapy in select U.S. markets starting November 2023, with an option to extend the program up to ten years.
  • On the product development front, Novelis is advancing a pediatric continuous renal replacement therapy device and anticipates IDE approval in the first half of 2024, targeting a high-need patient population.
  • Effective September 1, CFO Lynn Blake will step down and be succeeded by Senior Finance Director Rob Scott, who will guide the finance organization through the company’s next growth phase.
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Earnings Conference Call
Nuwellis Q2 2023
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