Elutia Q4 2023 Earnings Call Transcript

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March 7, 2024

There are 5 speakers on the call.

Operator

Greetings. Welcome to the Eleuschia 4th Quarter and Full Year 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 will now turn the conference over to Matt Steinberg with Fin Partners. Thank you. You may begin.

Speaker 1

Thank you, operator, and thank you all for participating in today's call. Earlier today, Allusia released financial results for the quarter full year ended December 31, 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

All forward looking statements include, 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 list and 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 Alisha's Annual Report on Form 10 ks year ended December 31, 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 Ellucian's and other filings with the SEC.

Speaker 1

The conference call contains concepts of information and is accurate only as of the live broadcast today, March 7, 2024. Allocean displays any intention or obligation, except as 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 Q4 ended December 31, 2023, which is accessible on the SEC's website and posted on the Investor page of the Alisha website at www dotalicia.com. And with that, I will turn the call over to Alisha's CEO, Randy Mills.

Speaker 2

Thank you, Matt. I am super excited to be with you today and to share the story of Volusia. Our mission, humanizing medicine so that patients can thrive without compromise. We're going to talk about that word compromise today and what that means particularly with our flagship product that we're in the process of getting ready to launch Kangaroo RM. But what we're really trying to do is we're trying to take away those instances in patient care where patients and physicians are forced to choose between 2 options when in fact we could actually give them both.

Speaker 2

So, Volusia is a commercial stage company. We have 2 proprietary product platforms, Kangaroo, which is for our pacemaker and internal defibrillator space and Simplederm, which we use in breast reconstruction. But more importantly, and I think what a lot of people are on the call today, we are pioneering the drug eluting biometrics to solve some of the most complex problems that exist. I'm going to be giving an update in this and I'm super excited to do it where we're going to be talking about our regulatory progress that we've made. We're really excited about that.

Speaker 2

We're really excited about moving on and launching this product. So, with that, let's just jump right into it. For the year, we had an exceptional year, we had a transformational year at Allusia. And I am I couldn't be more proud of this team. Our commercial teams kept their eye on the ball, delivered 3.4% growth in Kangaroo and a stunning 38% growth in SimpleDerm.

Speaker 2

All the while, we were making these rather significant strategic shifts within the company, but everybody kept focused and kept their eye on the ball and really did a beautiful, beautiful job commercially and operationally. From a development standpoint, as many people on this call know, we submitted our 510 pre market notification in December. The FDA accepted that application and that review is progressing really pretty much exactly the way we expected. We have not had any request for any new data. We've had some requests for clarification, but we are looking squarely at a clearance decision expected in the first half of twenty twenty four.

Speaker 2

And we believe actually this is really going to be a May June timeframe. But from us, from our standpoint where we are, everything is, we believe, right on track. In preparation for that launch, we have established a strategic advisory committee to help us prepare and get the most value out of Kangaroo RM launch. Kangaroo RM is a very transformational event. We think this is a transformational product for the company and we need to make sure that we are able to position it in a way such that we can realize not just the most value for the product, but the most value for the company.

Speaker 2

So with that end, we have established this strategic advisory committee that really has the best been there, done that minds from the space. We're talking about leading executives from the pacemaker and implantable defibrillator space, people that have led significant marketing and commercial launches of sophisticated biologic products. Obviously, business development is in there, as well as reimbursement and hospital penetration. So, we're really 1st class group of advisors to help us make sure we get this launch right. And then lastly, one of the things that I'm very proud that we do at Aleutia is execution.

Speaker 2

And we continue to execute. We announced last year that we divested our orthobiologics business, but the group handling that kept our eye on the ball and actually closed that divestiture bringing in gross cash proceeds of $14,600,000 So thank you to the team all around for an exceptional year. Just a quick overview on what we do. So, Eleusia is developing the drug eluting biologic really to reduce and remove the complications that exist at the device host interface. And so when a surgeon implants a device into a patient that's going to be there for a long period of time, there are a number of complications that arise quite predictably, things like device migration, erosion of the device through particularly dense skin patients, obviously infection and pathologic fibrosis, which can lead to things like capsular contracture.

Speaker 2

And when you look at the two markets that we're in, pacemakers, we're seeing complication rates here 7% to 11%, breast reconstruction and a stunning 20%. So we think this is an area where we can go and add really significant value and improve outcomes for our patients. So how do we do that? Well, we do that with the drug eluting biologics, again, which is able to solve these problems without compromise. We don't think a patient and a physician should have to decide, hey, should I go with the device that offers pharmaceutical payload and drug efficacy or should I go with the natural biologic that will remodel into the patient's own natural tissue and have a lower byproduct response.

Speaker 2

We look at that and we say both. Both should be the answer. And so that's why we've developed the drug leading biolocks that provides all of those benefits of an act pharmaceutical payload, but on a regenerative scaffold that enables it to regenerate in the patient's own healthy tissue. So let's get into Kangaroo and Kangaroo RM. So a little bit of a landscape overview here from a commercial standpoint.

Speaker 2

Each year, there are about 500,000 CIDs, this is a term that we use for pacemakers and internal defibrillators, that are placed in the patients in the United States alone. When you look at that market space, Medtronic has 40% approximately of that space. Boston Scientific and Abbott have another 50% and then BIOTRONIK at this and 4th at about 10%. But this is a really some really interesting market dynamics that this sets up because only one of these players actually has an antibiotic eluting pouch and that's obviously Medtronic. But all of them have really, really significant pacemaker business.

Speaker 2

And so, we start about Medtronic a little bit and their product, TYRX. So TYRX was actually developed by the TYRX company back in the early 2010s. And it is a synthetic polymer envelope that as it dissolves in the body, it releases antibiotics. And this product took a while to develop, but it eventually got its clearance from FDA in 2014. And shortly after clearance, Medtronic was able to acquire this product for about $200,000,000 Again, this is in 2014 numbers and they have since just knocked it out of the park.

Speaker 2

So they've grown this product to about $250,000,000 to $300,000,000 by our estimates and they've really done a great job. They've really done 2 things here. So first, they were able to have a foresight pay $200,000,000 in 2014 when there was no market for this technology. They had to create the market. The second thing that they did was they actually proved out that this market could exist and that the value proposition to physicians and particularly electrophysiologists about local antibiotic delivery really worked.

Speaker 2

These physicians like the idea of having a local antibiotic present with their surgery so that they don't have to worry about a post operative infection. But Medtronic did a great job here. But TYRX isn't a perfect product. And that's why we developed kangaroo RM. TYRX does a really great job of looting antibiotics, ripamp and imidocycline, but it doesn't have any of the benefits of biologic.

Speaker 2

As you said, it's a polymer that dissolves in the body. We like the idea of using biologic scaffolds for a couple of reasons. One is a biologic scaffold around the pacemaker fits and forms really like a glove. It gives the physician great fit and feel. There's less inflammation.

Speaker 2

Therefore, there's less pathological example where we looked and said, there is an opportunity where a patient and a physician are having to make a compromise and we can remove that compromise. We can help patients thrive without compromise and we've done a pretty good job of that with Ken Brewer. We went out and we talked to electrophysiologist about this concept. There was a study. 88% of electrophysiologist and these are TYRX users, 88% of electrophysiologist that use TYRX would start using Kangaroo once the product became available, 88%.

Speaker 2

And we think that gives us a really, really great opportunity to move into the $600,000,000 market and actually have some really great penetration. So back to our market, our favorable market dynamics slide here, sort of the payoff of this. So when you look now, you overlay the drug eluting envelope on top of this, you have Medtronic sitting there with Pyrex, right? And they do about $250,000,000 to $300,000,000 in Pyrexel. And then you have Boston, Abbott and Vioptronic and they don't have a pouch between them.

Speaker 2

Now here's what we found was really a market. We started doing our own internal market research. 50% to 75% and it's probably more like 70% to 75 percent of TYRX is actually used on non Medtronic pacemakers. So a lot of TYRX is going on to a Boston Scientific or an Abbott pacemaker. And we think when you sort of when you look at this all together, this does 2 things.

Speaker 2

1 is, it creates a great opportunity for us to go out and launch this product. We are viewed kind of like Switzerland here. It doesn't matter whether Boston or Abbott or BIOTRONIK, if you're going to ask them whose drug eluting envelope would you rather have in your case, Allusia's or Medtronic's, they're going to say Allusia every single time. Why it's simple? We don't make a pacemaker and Medtronic does.

Speaker 2

And so that's a real great opportunity for us to go out and take this really low hanging fruit of $70,000,000 $75,000,000 Tirex sale, but really 60% of the market that's essentially uncontested right now in this space. But if you also look at it from the company's point of view, you're talking about a plug and play product here, It could do $100,000,000 $150,000,000 we're estimating gross margins in the 70%. There's no additional selling costs, right, because these players are already in every one of these cases anyway. And so, you do the sort of the math on that, you're dropping something like $90,000,000 a year to earnings, look at their PDEs somewhere between $25,000,000 to $60,000,000 and you're talking about a product that could add $2,500,000,000 to $5,000,000,000 in value to these companies. So we are really, really can't tell.

Speaker 2

We are really, really excited about Kengro RM coming to market, but we also understand its value and will have the discipline and the patience to methodically roll this thing out and take it to market and launch it, so that we get the greatest value for both the product and the company. Okay. Now, let's move on to our clearance and our clearance strategy and activities. So we filed as you guys know, we filed this 510 December 18, 2023. We did that after meeting with the FDA, the pre submission meeting.

Speaker 2

The interactions since that we've been having with the FDA have actually been very positive and they're going exactly as we thought. As we stated on this call a number of times, we expected we were going to be asked questions and we have been asked questions. Fortunately, they've all been really of the clarification variety. And importantly, the FDA has asked actually for no new data in this. So we believe we are in a really, really good shape here.

Speaker 2

As I said, lining up for what we think will be a favorable clearance decision in the Q2 of May, June timeframe if you're scoring at home. And we are therefore internally preparing accordingly for the launch of this product in the second half of the year. That's why we have Strategic Advisory Committee. We're also doing work with reimbursement, getting ready to get on value added committees, pulling up manufacturing and all of those other things. And then just as a reminder, we're not done with the pacemaker space.

Speaker 2

We actually expect to get approval in indications like NeuroStim, Parkinson's and sleep apnea and the like. And so there is a bigger future here for Kangaroo RM than just the pacemaker market, But we're going to make sure we don't triple the goal in here. We're going to do our best to do that. Okay. Turning now just quickly to Subbuvir, I will not bore you guys going over breast construction 101 again.

Speaker 2

Just to point out, this is a really huge market with a really big unmet medical need. There's about 151,000 mastectomies in the United States each year that are of the variety that require breast reconstruction, that's where we come in with our SYMPA DERM products. And so we look at how this is going here. SYMPA derm, we say it's just simply a great product. It has better handling characteristics.

Speaker 2

It is pre hydrated. What that means is, it actually comes to the surgeon. They open it up and it is ready to go. It's already moist. It doesn't require soaking or anything that.

Speaker 2

It's also sterile. This is a product that's been terminally sterilized and we've been able to demonstrate that it invokes a lower inflammatory and therefore byproduct response. So the surgeons that use this product love this product and they keep using it. So that's why we've seen growth of this product quarter after quarter after quarter and this year being no exception, 38 percent growth. So we distribute this product 2 different ways.

Speaker 2

1 is through our own proprietary network of distributors. The other is with Cientra, which owns 23% of the breast reconstruction plate. And between these two, they are crushing it. So we see really, really good things ahead for Simplederm going forward. Our end goal here is to obviously combine our RM technology with this base scaffold of Simplederm to create Simpler RM to be able to go after and help those women who experience post operative infections following breast reconstruction.

Speaker 2

With that, I will inhale, take a breath and turn the call over to our Chief Financial Officer, Matt Ferguson. All right. Thanks, Randy. Exciting stuff and we really are excited about all of the progress being made in kangaroo RM and CENTILDRUM and all of the value driving catalyst that we see in the near future and continuing for the medium to long term here at Alucia. As a financial update, I'm just going to touch on a few of the highlights.

Speaker 2

We provided a lot of information in our earnings release and we're aiming to file our 10 ks tomorrow. So there will be tons more there as well. But just hitting on a couple of the highlights here, our net sales were 24.7 $1,000,000 for 2023, modestly growing from $23,800,000 in 2022, but that performance actually masks what really is going on underneath, which was the really significant growth of our proprietary products, Kangaroo and Symploderm. If you just look at those 2, growth was about 19% year over year. And what was going on in cardiovascular, which as you probably recall, we've partnered with LeMaitre as the exclusive distributor in the United States for that.

Speaker 2

So for most of 2023, we were selling at a transfer price for that product, roughly half of end user pricing. So while we're selling similar amounts of the product, we're not generating as much revenue. So that affects the optics of our top line. It also affects our gross margin, but at the operating level, it's actually a positive thing for us. And it also has allowed us to really focus on the 2 main growth drivers for the company, which has been a very positive thing overall.

Speaker 2

As an adjusted gross margin, as I mentioned, may look like it's down a little bit year over year 58% versus 63% on an adjusted basis. And again, we provide a reconciliation in the earnings release and our presentation online. Really pleased with the operational performance for the company and we actually see room to continue to see those numbers grow as we go into 2024. So the only other point that I'll touch on here or couple of other points I'll touch on here, adjusted EBITDA, which really allows us to cut through a number of the non cash and non recurring and discontinuing operations within the company. We had adjusted EBITDA of $14,600,000 for 2023 compared to $22,900,000 for the year.

Speaker 2

So that reflects not just the revenue growth, but also really, really good expense control that we had over the course of the year. And we would see as we continue to scale, we would see those numbers also continuing to improve going forward. And then last but not least, from a cash perspective, we ended the year with $19,300,000 in cash that reflects the proceeds from the divestiture of our orthobiologics business that Randy mentioned previously. So we feel like we're in good shape there. But on top of that, as you probably also recall, we did a financing in Q3 that had cash exercise warrants attached to it.

Speaker 2

Those warrants now are significantly in the money to the tune of about 150% and they expire 30 trading days after the clearance of Kangaroo RM. So that's not only a seminal event for us from a strategic perspective, but it also will be the trigger for bringing in about $16,000,000 of additional cash is our expectation. So that's the overall picture from a financial perspective. We feel like 2023 was a really strong year for us and we expect to see that continuing to improve going forward. And before we turn it over to your questions, I would just say that from a strategic point of view, we feel like we're really well positioned for growth.

Speaker 2

We have multiple value driving catalysts in the near future. 1st and foremost, the clearance of Kangaroo RM, which will lead to the launch of the product and we're really excited about all the plans that are coming into place there and then the continued development of our drug

Operator

Thank you. We will now be conducting a question and answer session. Our first question is from Frank Tuckian with Lake Street Capital Markets. Please proceed. Great.

Speaker 3

Thanks for taking the questions. Congrats on all the progress and appreciate all of the background on the kangaroo RM market. I was hoping to start by following up on some of the FDA interactions. I was curious if you're comfortable divulging anymore about some of the requests they made. I heard loud and clear that they were not new data requests, which I think is most important to understand.

Speaker 3

But anything else you can divulge? And then maybe bridge us to the expectation of a May, June timeframe and how you got to that estimation?

Speaker 2

Yes, Frank. So basically, no, we're not going to go too much into the details of the questions. That is not for a lack of transparency. It's actually centers around some of the intellectual property that we have in the technology that's you can imagine super important to us. What I can tell you about the questions are is they were of the clarifying variety, right.

Speaker 2

So they were also completely contained within the scope of what we had responded to FDA from the NSC letter. So they only had 4 issues. We provided them the data for that. So none of the questions were outside of that. So they're not that's good.

Speaker 2

They're not doing anything else there. And then the questions, as I said, were all sort of of this clarifying writing, we submitted to them a pretty substantial package.

Speaker 1

When we answered these questions and

Speaker 2

you have validations and all kinds of other scientific reports, we submitted to them a pretty substantial package. So within that, as you expect as we expected and as we have said actually on our last call, we fully expected them to ask some of these types of questions. We knew what they were, we would have answered them ahead of time. But they've asked us these kinds of questions about tell us more about this method or submit us this underlying report for this or that, like that kind of that kind of stuff. As I said, really importantly, they didn't say this isn't sufficient, you're going to need to provide us more here.

Speaker 2

We had no requests for any additional data there. With regards to the timeline with May, that's me being really conservative. The May, June timeframe and I don't mean just conservative in telling the Street our expectations. The most important thing for our company right now is to get this clearance over the goal line. And so we have a very positive and interactive relationship right now going with the FDA.

Speaker 2

Our R and D teams are in back and forth with them on a collaborative basis. The idea is to make sure the FDA has exactly what they want before we tell them to go and it's a race for the last 30 days. So we're not going to do anything to save off a week or 2 weeks here or there that would in any way jeopardize that. So I'm being really conservative. I'm being really we're being really careful, very methodical, but it's the most important thing for us right now.

Speaker 2

And so in my view, that's the only responsible way to behave.

Speaker 3

Got it. That's helpful. That makes sense to me. And then maybe extending on some the comments you made around the committee you put in place for under trying to understand how you're going to launch the product and whatnot. How quickly could you have supply up and running?

Speaker 3

And should we assume it's more of a limited launch in the second half and then a full launch in 'twenty five? Or how do you think about that assuming it's cleared in the May June timeframe?

Speaker 2

Yes. So right now, our and we are right now, we are I can't emphasize this enough. Right now, we are exactly on track of where we thought we would be. And so right now we are looking for soft launch or limited launch, particularly in the Q3. Most of that has to do with getting into hospital vacs, getting through hospital vacs on formulary, pulling up supply, although we have a pretty good manufacturing team that's ready to go with this.

Speaker 2

But really doing the underlying things that we need to do to get the launch, right? Most of it has to do with reimbursement getting on formulary. We'll also be expanding the sales team as well during that time they'll be training and the like associated with that. So that's largely Q3. Our expectation at this point right now going into the Q4.

Speaker 2

We would be taking the training wheels off and be ready to go.

Speaker 3

Got it. That makes sense. And then maybe just transitioning for my last one, talking about Simplederm, great to see that continue to grow at an impressive clip. How should we be thinking about a growth expectation in that line item for 2024?

Speaker 2

I could speak to that a little bit, Frank. I think we are continuing to see SYMBOLEDERM show really strong performance even as we're going through the current quarter. As you are aware, we have our distributor in that space, Sientra, is doing some restructuring right now. We actually have seen them continue to perform well, even do that process and we are optimistic that they'll come out of that even stronger than they were when they went into it. So we really expect that we can continue to see the same type of growth that we saw in 2023 continue in 2024 as we move forward.

Speaker 1

Perfect.

Speaker 2

Yes. I mean, I was sort of color commentary that a little bit, Frank. We obviously when that piece came out, we thought about it and so it will be interesting to see how this goes. We haven't seen an effect. They've done a nice job with their team.

Speaker 2

Still the bulk, the vast majority of our product is sold through our own line, but both of them have been performing really, really, really well. So we are excited and stoked about how Cangron is well, Simulner, I got a lot of is performing right now too.

Speaker 3

Got it. Perfect. Always appreciate the color commentary. Thanks for taking the questions.

Operator

Our next question is from Ross Osborne with Cantor Fitzgerald. Please proceed.

Speaker 4

Hey, guys. Congrats on the progress and thanks for taking the questions. It's shaping up to be a very transformative year for the company. Thanks for that. Apologize for background noise traveling today.

Speaker 4

But starting off, the kangaroo number for the quarter came in a little bit below where we were expecting and realized the story is really all about Orion this year. But anything to call out from a market standpoint there?

Speaker 2

No, I mean, we have shifted our focus now from Kangaroo to Kangaroo RM. We still have our sales reps and our accounts in place. But Kangaroo RM isn't a successful product if it's doing anything like what Kangaroo does. This is a product that literally needs to be an order of magnitude or more bigger than that. So while our reps are crushing it, from an internal marketing standpoint, from an internal leadership standpoint, we have really focused our energy now on the product they're about to sell.

Speaker 2

And we haven't seen any softness in the underlying market for BLEEPORT. In fact, I was blown away that we did a restructuring at the beginning of last year. We essentially cut the commercial team in half. And at that time we thought, if we hold 60% of our sales together there, that would be really impressive. Well, that team, not only did they hold it together, that's the most revenue we've ever had in Kangaroo.

Speaker 2

And it's just a tighter, leaner, but far more focused group of really incredible professionals and I cannot wait to give them the product that frankly they deserve to have and let them just go tearing up.

Speaker 4

Okay. Sounds great. I'm glad to hear it. And then maybe one more, but on PilbaraDorm. That continues to exceed expectations.

Speaker 4

At what point does it make sense to devote more resources to that asset to reach its full opportunity? So 2025 story once you get our amount?

Speaker 2

We think it's a great product. Too. We're not holding anything back from it. It is performing really impressively and it's continuing to perform really impressively. We are getting active work from an R and D standpoint on developing Cipladerm RM.

Speaker 2

And we continue to have our own proprietary sales channel and the Sientra sales channel. It's kind of we actually feel really good about that product and how it's working. And if we used to say that is a really small numbers, the numbers are getting a little bigger and the growth rates stay high. So we're pretty excited about that, but we're not holding back

Speaker 1

from it, Ross.

Speaker 4

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

Operator

You have reached the end of our conference call. You may disconnect your lines at this time and thank you for your

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Key Takeaways

  • Management announced that the FDA has accepted the 510(k) premarket notification for Kangaroo RM and is on track for a clearance decision in the May–June 2024 timeframe.
  • The company has formed a Strategic Advisory Committee of pacemaker and implantable defibrillator experts to guide a phased launch of Kangaroo RM, targeting a limited Q3 2024 rollout followed by a full launch in Q4.
  • Full-year 2023 saw 3.4% growth in Kangaroo sales and a 38% increase in SimpleDerm revenue despite significant strategic shifts, reflecting strong commercial execution.
  • Elluscia ended 2023 with $24.7 million in net sales, $14.6 million in adjusted EBITDA, a cash balance of $19.3 million, and potential additional proceeds of ~$16 million from in-the-money warrants.
  • The company completed the divestiture of its orthobiologics business in 2023, generating $14.6 million in gross cash proceeds and refocusing resources on its proprietary product platforms.
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Earnings Conference Call
Elutia Q4 2023
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