Q4 2020 MiMedx Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
<unk> fourth quarter, 2020, operating and financial results Conference call.
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The speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your speaker today.
Jack Howard.
Please go ahead Sir.
Thank you operator, and good morning, everyone welcome to the <unk> fourth quarter and full year 2020, operating and financial results Conference call.
With me on today's call are Chief Executive Officer, Tim Wright, Chief Financial Officer P. Carlson.
Decorative vice President and Chief Commercial officer, Dr. Rohit, Cassia and executive Vice President of research and development Dr. Robert Stein.
Kevin <unk> will provide a summary of operating and financial results for the fourth quarter and full year 2020 and.
And at the conclusion of their remarks, Tim Pete Docter ketchup and Dr. Stein will be available for your questions.
Before we begin I would like to remind you that comments made during today's call include non-GAAP financial measures and we provide a reconciliation to GAAP in our press release, which is available on our website at www Dot magnetics Dot com.
Also our comments today will include forward looking statements. Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions actual outcomes and results are subject to risks and uncertainties and may differ materially from those anticipated due to many factors.
Listeners are directed to the cautionary notes in the press release issued yesterday as well as the risk factors set forth in <unk> 2020 annual report on form 10-K for factors that could cause actual outcomes and results to differ materially from those reflected in the forward looking statements the.
The company assumes no obligation to update or supplement any forward looking statements, except as required by law.
With that I'm now pleased to turn the call over to Jim Ryan Kim.
Thank you Jack good morning, everyone and thank you for joining us.
2020 was a foundational year for <unk>.
We focused on a number of operational and financial initiatives in order to move the company forward in its transformation.
Propel its pipeline and regain momentum.
Before I get into 2020, one strategic initiatives, Let me review some of the many accomplishments from last year.
Yeah.
First let me talk about the efforts to restore the business and our accomplishments there.
We recruited experienced high integrity leaders with subject matter expertise across the board.
We've converted 90% of our executive and senior management during this period.
We also did a fantastic job of reconstituting the board.
Focusing on improved governance diversity.
And expertise.
We're also pleased to announce Dr. Phyllis Gardner is joining our board.
Doug Gardner is regarding for contributions and accomplishments across academia biotechnology in the healthcare industry Dr.
Dr. Gardner is a professor of medicine at Stanford University School of Medicine, and a distinguished business leader.
He brings more than 35 years of experience to the company marked by numerous National Awards and honors.
She has conducted extensive research and cell biology, and gene therapy is widely published in the fields of cell biology and pharmacology.
Her insight perspective.
And strategic expertise.
Combined with our existing board will be invaluable as we propel our late stage pipeline towards biologic registration and guide memetics into the future of regenerative therapeutics.
The efforts to restore our business sorry.
Start with getting current on our financial reporting.
In addition, we raised needed capital of $150 million through financing led by EW healthcare.
Also an important aspect of restoring the business was re listing on NASDAQ on November 4th.
In addition to restoring the business capability and capacity.
With creating value in the business long term value for shareholders.
We completed the knee OA enrollment of our phase <unk> study, we completed plantar fasciitis enrollment.
<unk> III study.
We launched a new product out of our core franchise called Etsy Covid expandable.
This offers the potential to.
Provide physicians and patients with expanded wound coverage.
Economically.
In addition.
<unk>, we received <unk> fix diabetic.
Diabetic foot ulcer coverage.
From the largest U S commercial payer in the U S.
2020 was a busy busy year I'm proud of everything that we accomplished and now we're in a position to begin really focusing on the operating aspects of our business and investing it.
We are the pioneers in using birth tissue as a platform for regenerative medicine.
And we believe our biologics pipeline in our advanced wound care business will create extraordinary value for our shareholders.
Our primary goal is twofold.
<unk> access and utilization of our wound care products.
Number one and by doing so we.
We will grow our top line by over 10%.
Number two.
To accelerate our novel late stage pipeline and regenerative medicine.
In addition to those two primary objectives to support that.
We have reorganized re incentivized and reinvested in our sales force in order to capture momentum and support for the growth of our core wound care business.
We're confident also.
Completing the registration process for <unk> in Japan.
We anticipate we received registration approval midyear 2021.
This presents another attractive growth opportunity for <unk>.
These are very very exciting times for our company.
So let me get started by giving you an overview of two very impressive pipeline assets.
First pipeline opportunities plants are fasciitis.
As you know.
Our phase II <unk> study was completed and demonstrated a 76% reduction in pain versus control at three months.
Now we completed enrollment of our phase III study, which included 277 patients in September of 2020.
Our last patient out is anticipated to be Q2 2021.
Let me give you our estimates on BLA filing we anticipate on filing our BLA in the first half of 2022.
We also have plans to accelerate that and if at all possible we will file in late fourth quarter.
We anticipate FDA approval and product launch predicated on when we submit our application.
The earliest would be fourth quarter of 2022 or later the first half of 2023.
The market for plantar fasciitis has been articulated before in some of our calls just as a reminder, approximately 2 million patients are treated annually for P. S. There are about 10% of those patients are Rick calcitriol and require advanced therapies like corticosteroids.
We believe in the first year the potential candidates for an injection.
Of our <unk> and neo fixed product would be about 20050 thousand patients.
It's important to note that recovery from chronic plantar fasciitis tends to be a lengthy and recurrence is very common in this patient setting.
Our second pipeline opportunity is a knee osteoarthritis.
As you all know this is a very significant unmet need.
We completed our enrollment in our phase two b trial in September as well.
Let me remind you that that trial enrolled 447 patients a large phase two b trial.
Last patient out for the six month blinded observation will be late 2021.
Included in this trial is also a six month open label extension that allows patients the option to received Micronize the hackamore amnio fix.
What's important to note from our two pipeline assets here.
Is that there are several enabling factors that are afforded by filing our plantar fasciitis registration.
One we're advantaged by GMP readiness, that's afforded here by P. F by filing a P F.
Means that we don't have to go through that process again with the agency.
Also as you know the company was first to receive <unk> designation.
This advantage is the company and having frequent dialogue around clinical trial protocols surrogate endpoints et cetera was also it allows us the opportunity to discuss our manufacturing process and release criteria.
The current timeline to the market.
So as follows.
Obviously, we'll be meeting with the FDA in mid 'twenty, one will be reviewing our phase two b.
Miles presenting our phase III protocol.
And we plan to initiate.
Our phase III trial in the first half of 'twenty 'twenty, two if not sooner.
We would then anticipate a BLA filing in the second half of 'twenty for the first half of 'twenty five.
Approval, we anticipate would be the second half of 'twenty 25 for the first half of 2026.
So.
Both pipeline opportunities, we think offer this company exciting potential to create value for our shareholders more importantly value for patients who are suffering from these particular issues.
As we know the knee OA market is bearing very large it's growing around 2% a year off of a base of $17 5 million patients.
Today about four.
4 million patients are being treated.
With intra articulate injections.
And there are about $8 8 million injections per year.
When you do the math around this and you look at what we think based on our leading what we how we penetrate this market.
We think annually, we would predict we would treat 1 million to one and a half million patients that would be on an annual basis.
We have proven in phase two.
If the efficacy is proven in our phase III trial, this will be very very important.
New tool for physicians to treat knee osteoarthritis.
Shifting to our commercial organization as I mentioned earlier.
We have redesigned the organization re incentivize them to.
To focus on distinct areas of promotion.
With our products that are used for D abuse and be able to use.
Importantly, we have a very.
Robust commercial infrastructure that is supported by our in expanding medical science liaison program clinical evidence and.
And improved reimbursement today, we cover over 300 million lives.
For contractually to support our efforts to pull through and provide access to our products. We currently have multiyear contracts in place with the largest GPO and ideas.
Our field based reimbursement and National account teams were also used to accelerate commercial adoption of our products.
I've covered off our strategic initiatives, which can be summarized as focus on our pipeline focus on our core business now I'm going to turn the call over to Pete Carlson.
Thank you Tim and good morning, everyone today, I will discuss our fourth quarter and full year 2020 results and comment on some of the underlying trends we are seeing in the business.
I do want to take a moment and reiterate some of the achievements <unk> accomplished in 2020.
As a company.
And we are working to restore our financial reputation is to support the continued delivery of products that make a difference in the lives of patients and their families.
Many of us have seen the impact that our Purion engineered technology can have is an advanced treatment options for hard to heal acute and chronic wounds.
Our 700, plus employees are dedicated to delivering the level of quality and excellence of our customers deserve and I appreciate the team's commitment to elevating the standard of patient care.
In 2021, as we have talked about we are increasing our investments in both parts of our business our core advanced wound care portfolio and our late stage pipeline.
All amniotic tissue products are not the same and we believe our differentiated platform is positioned to exceed market growth.
Recent efforts and our commercial organization and position us for this growth in the coming year.
We are 265 sales personnel strong and plan to increase that number in 2021 by 10% or more.
Along with aligning territories to ensure we have the right people in the right places.
The team is leveraging recent coverage by the largest U S commercial payer for epic fix our flagship brand as a proven and medically necessary treatment option for diabetic foot ulcers.
We're also increasing our medical education efforts and personnel to help pull this through with our customers.
Returning to 2020 results I would note that the impact of the company's transition in revenue recognition methodology on quarterly results is now behind us.
However, I do want to clarify the impact on our reported full year results.
Net sales for the full year ended December 31 2022.
$248 million, primarily recognized on an air ship basis compared to $299 $3 million for 2019, primarily recognized on a cash receipt basis.
Net sales for 2020 and 2019 include the benefit of $7 8 million.
$29 $6 million, respectively, resulting from the change in revenue recognition methodology.
Adjusted net sales, which excludes impact of the company's transition and revenue recognition.
We're $245 million in 2020, a decrease of 11% from 2019.
This decrease primarily reflects access restrictions decreases in elective procedures.
And cost saving measures implemented by hospital as a result of the COVID-19 pandemic.
And looking at a breakdown of our tissue and umbilical cord product the skin substitute part of our advanced wound care business.
The decline is much less in 2020 compared to 2019.
This can also be seen in our quarterly trends.
Reported adjusted net sales for the fourth quarter or flat compared to the same period in 2019.
Excluding the impact of out of period accruals in the fourth quarter of 2020 adjusted net.
Sales are down slightly.
Our tissue and umbilical cord products are up slightly in that period.
Gross margin in the fourth quarter of 2020 was 84, 2% compared to 83, 4% in the fourth quarter of 2019.
Collecting improved manufacturing efficiencies and lower levels of scrap.
For the full year 2020, we saw slight gross margin decline from 85, 6% in 2019 two.
84, 2% in 2020.
Primarily a result of the higher quality standards of current good manufacturing practices, we have been implementing since the second half of 2019.
Selling general and administrative expenses or SG&A for the fourth quarter of 2020 or $48 $7 million.
Or an increase of seven 2% compared to the fourth quarter of 2019.
Spending on corporate initiatives and non executive stock based compensation contributed to this increase for the quarter.
For the full year, we saw a decrease in SG&A driven in part by the company's efforts to manage expenses in response to the COVID-19 pandemic.
As previously disclosed we.
We implemented a number of initiatives, including a temporary salary reduction and travel restrictions.
In addition, reduced commissions, resulting from a reduction in sales contributed to the full year decrease.
Research and development expenses were $3 4 million for the fourth quarter of 2020 compared to $2 $7 million for the fourth quarter of 2019.
For the full year, our research and development expenses were $11 $7 million in 2020 compared to $11 $1 million in the prior year consulting.
Consulting fees related to the company's clinical research efforts drove this increase.
The company expects these costs to increase as much as threefold in the coming year.
As previously mentioned this investment supports our future growth objectives that Tim outlined although the amount could vary depending on the results of our clinical study readouts in the second quarter of this year.
We plan to continue working towards the filing of our biologic license applications.
File new.
Or additional investigational new drugs in the first half of the year.
And published further clinical and scientific research, including efficacy and economic data.
Investigation restatement and related expenses for the fourth quarter of 2020 were $24 million consisting.
Consisting of cost incurred under indemnification agreements with the company's former management and directors.
And costs related to certain legal matters involving the company, including resolution of some matters as I've previously indicated.
In the year ago period, these totaled $21 million and consisted of legal and restatement expenses.
For the full year 2020 investigation restatement related expenses were $59 $5 million compared to $66 $5 billion in 2019.
In 2020 one.
<unk> expects a significant decline in the investigation restatement and related expenses.
Prior to any resolution of the pending securities class action matter.
Of course actual.
Results may vary and depend in part on the outcome of certain legal matters. We disclosed in note 14 of our 2020 form 10-K.
I'll remind you that the audit Committee investigation was completed in mid 2019, and the restatement was completed in mid 2020, we do not expect to incur those related expenses going forward.
Further we are not currently incurring an advancement in indemnification expenses for the former C. E O N C O O because judgment of conviction hasn't entered against these individuals.
And it is the company's position that the judgment is they now span cut off our advancement in the indemnification obligations.
Turning to the bottom line net loss in the fourth quarter of 2020 was $16 $6 million compared to a net loss of $7 5 million in the fourth quarter of 2019.
Net loss for the full year 2020 was $49 3 million and includes an.
And $8 $2 million loss on extinguishment of debt.
Of the company's previous term loan.
As well as a $6 $7 million benefit from the change in revenue recognition.
Net loss for the prior year was $25 $6 million, including a $24 $5 million benefit from the change in revenue recognition.
Adjusted EBITDA was $10 $3 million in the fourth quarter of 2020 compared to $14 $1 million in the fourth quarter of 2019.
The full year, adjusted EBITDA was $36 million or 12, 7% of adjusted net sales.
Compared to $42 1 million or 15, 6% of adjusted net sales.
In the prior year period, reflecting the factors I have already discussed.
Now, let me review our cash position.
As of December 31, 2020, the company had 95 8 million of cash and cash equivalents.
Compared to $69 $1 million.
As of December 31, 2019.
Our healthy cash position gives us the financial flexibility to invest in initiatives that strengthen our core business.
And invest in research and development activities as I outlined earlier.
Turning to 2021.
We expect our adjusted net sales will increase 10% or more over the prior year, assuming we are able to sell our micronize articulate an umbilical cord products for the full year.
Again actual results may differ materially and there are some caveat as we have indicated.
Specific to our Micronize and particular products as an example, if these products are required to be removed from the market. Following the period of enforcement discretion.
We estimate the negative impact on our expected 2021 net sales could be in the range of $20 million to $25 million.
As Tim mentioned, our dialogue with the FDA continues and we expect to gain additional clarity on the full impact and timing of enforcement discretion in the coming months.
You will note that we have included our umbilical cord products within those that could potentially be impacted by the end of the period of enforcement discretion.
This disclosure is primarily based on a limited number of communications from the F. D. A to other companies selling umbilical cord products.
Some of which are marketing their products outside of the diabetic foot ulcers and venous leg ulcer areas, where our products are currently utilized.
The reasoning and analysis here is different than their up micronize and particulate products, which are viewed as more than minimally manipulated.
The discussion for the cord products focuses on the homologous use standard and the way. These products are described and marketed.
We are working to gain additional clarification of the potential impact within the FDA guidance and we'll keep you updated.
Throughout recent presentations, we have outline key drivers to achieve growth in our core business, including enhancing the value of our portfolio.
Expanding the market through awareness and data.
Targeting new business with product innovation and pursuing international expansion.
While we are optimistic about our 2021 growth potential.
Mind, you that we still are in the midst of the pandemic and in certain areas local or regional surges of COVID-19 have continued.
We do know that chronic non healing wounds are not getting better without treatment.
And our commercial team is positioned to address the needs of this patient population.
In closing as you expect we're continuing our other outreach efforts and dialogue with investors and analysts.
Another benefit of our NASDAQ listing is the increased opportunity to participate in industry conferences and we have enjoyed the chance to continue sharing our story with members of the financial community.
I will now turn the call back to Tim.
Thank you Pete looking forward.
We have our focus for the company is on our growth drivers for 2021.
They are broken down in R&D operations and commercial let me just quickly review those.
We plan in the second half of the year.
To do an interim data readout.
To accelerate our late stage pipeline for example.
Accelerate the filing of our.
Application into the fourth quarter.
On knee OA accelerate our phase III clinical trial into the first half of the year.
We have an ongoing effort.
Through our medical Affairs organization in R&D to continue to published peer reviewed articles that are clinically oriented scientifically oriented and haven't.
A position on economics.
Additionally, we plan to file a new IND.
In 2021, as well to continue to support.
The company to achieve its goal of advancing scientific rigor.
This category.
In a way that makes a significant difference for patients.
Moving from R&D to operations, we plan to validate our manufacturing facilities to a current good manufacturing practice standards.
In addition, we will continue our high rate of fulfillment above 95%.
Commercially speaking, we plan to grow our top line by 10% our sales force by 10% as well augmented by our efforts in medical Affairs.
We are hopeful that we received Japanese approval midyear and reimbursement approval for our products.
By year end.
Additionally, we will continue to evaluate organic growth opportunities inside our R&D and product development organizations.
Finally.
As you can see from Pete's presentation in mind, we're investing in the core business for expanded growth.
In addition, we.
Laser like focus on accelerating our pipeline.
I'd like to thank you for listening today, operator, you can now open up the lines for questions. Thank you.
Thank you Sir.
To ask a question you will need the pets star one on your telephone so let's try a question press the pound key please stand by while we compile the Q&A roster.
And our first question comes from Sean Kang with H C. Wainwright. Your line is now open.
Hi, Thank you for taking my question.
So my first question is how confident are you that FDA might allow you to continue marketing your med <unk> products for the full year 2021.
Sure.
Hey, Sean that's a great question. This is Tim.
It's hard to anticipate exactly where the FDA is going to fall down on that.
I have a crystal ball however over the last 18 months we've had.
Communication with them about everything that we're doing in our manufacturing facility to convert that to GMP as well as continue to conduct clinical trials as well as file new Isps and I think this is perfectly in line with what the agency is asking the industry to do.
Thank you.
And also.
How much of it and then make impact.
Do you expect for 2021, obviously things are hopefully getting better, but the vaccination program and like what is your plan to like mitigate potential risk.
Sean It's T Carlson and we Havent, given any specifics one way or the other about the first quarter relative to expectations or.
Any numeric about what's going on.
As I mentioned in my remarks, there is that.
We continue to be some local and regional impact and I use the term mixed again, it's not very technical but that's what we talked about earlier in the year or.
A year ago.
It is I think is more isolated than certainly what we saw.
10 months ago, 12 months 10 to 12 months ago.
And then the other thing we did have some ones you know there was a little bit of lost time from weather everybody knows that there was a freak storm in Texas, Texas into high populous state has a high incidence diabetes, so, but otherwise we havent given any specifics.
Okay.
Good.
One last quick one.
I apologize if I missed this during the.
During the call.
But.
Is there any like.
Data readouts from the pipeline product for this year, maybe I missed it.
Now let me, it's Pete again, I'll, just give you some calendar and Dr. Stein is get can fill and yes. There are readouts coming in the first half have been here.
On all really all three of the trials, we have going on in the must be blow skeletal area. Dr. Stein.
Yes, hi.
So as Pete said, we will be completing the last patient out of our phase III <unk> for plantar fasciitis nickel. These tendinopathy in the first half of the year and will be processing and analyzing the data probably for about a quarter.
Well, then want to meet with the FDA and at the appropriate time, we'll be able to describe those results.
We're very much looking forward to the outcomes.
And the knee OA trial, the last patient will have completed the.
The six month blinded observation period.
At the same time as the other two phase III is complete that's in the phase two will still have a six month open label extension.
FDA requires and we'll be moving that program forward as rapidly as we can you may remember, we have <unk> designation for that product.
And we will be discussing the results.
FDA however.
Time, our public description of the results so that they don't interfere with our opportunity to progress the project successfully through the regulatory path towards registration.
So in all cases, we'll share the data as soon as it's prudent to do so with regard to regulatory interactions.
Okay. Thank you that's very helpful. Thank you.
Thank you. Our next question comes from John Benda, Most end with SCR Zacks. Your line is now open.
Good morning, everyone.
Like the FDA has only had limited communication on enforcement discretion. So I wanted to see how you think conversations might go with them would you reach out to them as we get closer to that end of May time period or will they reach out to the industry or whether they be some kind of public announcement on how they're going to address.
And obviously it will be company specific or maybe not obviously, but it could be company specific given that.
Some companies are doing studies in some art and theres different positions out there.
Can you look at it from that perspective for me.
Yeah. This is Tim.
Fairly frequent dialogue with the agency over the last 18 months.
Dr. Stein can opine on this as well.
I believe that the agency has been very thoughtful about how they.
Address this particular issue as you stated in your comments some companies are not conducting any trials.
While there are limited number of companies that are actively engaged and finally <unk> in conducting clinical trials, which would be more in line with what the.
Agency provided near 2017 guidance later.
I feel confident we've done everything that we can do to support the agency and their efforts to implement there.
<unk> from 2017.
Bob do you have any additional comments.
Well I think that Tim summarized it very well, we support the FDA and their interest in trying to get better regulatory oversight.
Alex that are derived from tissues that are more than minimally manipulated and or being used for something other than what they did in the donor.
And excuse me Christine.
And we've worked hard to.
Get our agents that are covered under the $3 51 regulations.
Appropriately moved into clinical trials after filing.
<unk> or in some upcoming cases.
We do believe that we'll be able to demonstrate that our products are safe and effective when used as directed and indications we can specify and we believe it will.
I'll be making a successful transition.
<unk> transitioned to making them under cgmp, which are the.
Conditions at the FDA is looking for.
And we.
We are engaged in some constructive dialogues with the FDA either through the <unk> interaction that.
Fortunately got the designation for the knee OA product at regenerative medicine advanced therapy.
Or through other interactions that the company is pursuing with the agency.
Okay and thank you Bob.
Oh I'm sorry go ahead.
So I was just thinking Bob go.
Please.
And just another question on that on that same topic, what happens to product in the channel.
If if enforcement.
Unfortunately discretion is ended.
I guess, you may anticipate that and hold back or will it be able to be used or how do you anticipate that going forward.
You know the FDA has not provided any perspective on net to us.
<unk>.
Clearly there is a strong track record in our own pharmacovigilance database.
Round safety.
And as you think about what the Fda's central role is as to the safety of the American public so.
I would be speculating to say that we would just let our.
If enforcement discretion expires.
I would be really speculating one way or the other way the FDA would view that.
But obviously, we've looked at different scenarios.
With respect to your question I think we're prepared either way.
How that roles.
Okay.
And as was mentioned in one of them one of the facilities as cgmp compliant and the other is almost there what remains to be done at I think it's the Marietta facility.
What remains to be done to get that up to the cgmp standard as well.
John It's Pete.
Let me comment and Tim May want to add.
What youre what Youre seeing there is just the response from the FDA, we have approached the remediation efforts.
At both facilities at the same time so.
We have submitted that really that middle of 2020 are what we felt like was a completed response to the findings and the FDA frankly is just chosen to response to report out.
The facilities one at a time so.
From our side nothing else to be done relative to response to that.
Tim I don't think I think he covered it off well.
We have.
Over the past for the first half of 2020.
Made a significant effort to address any deficiencies that were noted in the December 19 audit.
And I think the agencies pleased with our response so far.
Okay.
And a big part of the growth plans include the health plans and commercial payers and getting them on board and you've already put the largest the largest commercial payer on.
Included them with <unk>. So what additional efforts are you making to add on.
Others in this in this category and obviously, having the largest largest payer is.
It's a pretty big feather in your cap and are you able to leverage that to <unk>.
<unk> the trend to penetrate these these are these targets.
John It's Pete again, let me start.
The.
With the addition of that largest commercial payor, we really have some indication coverage with all the commercial payers and obviously with the Medicare Medicaid system.
It is now more about getting additional indications inside those payers perspective, and that's clinical evidence sell it.
Tamara and Pandora, Bob comment on that I think that Bob can come in and certainly on the clinical evidence of peer reviewed evidence that we're generating as well as the work that we've done on a retrospective basis to look at the health economic impact of our products.
Bob do you want to comment on that more.
Yeah, I believe that we have an interesting circumstance that we've distributed over $2 million of our various products to patients for us since their introduction and we have an excessively clean safety track record for those products.
And we've been able to do some very interesting retrospective work and the Medicare database to demonstrate the utility of the sheet products and diabetic foot ulcer and some work.
Junction with analysis about how they would function.
United Kingdom in terms of.
The cost for <unk>.
Additional quality of life years, all of which demonstrate quite nicely the value of the interventions.
We've also been ahead of the curve and conducting randomized controlled trials of our sheet products in diabetic foot ulcers, and venous leg ulcers, including comparisons to some of the competitor products and shown.
Superior performance.
And we are.
Continuing to gather data on the sheet products.
The real world and how they perform and in addition, we have the.
$3 51 products Micronize.
Leon and chorion membrane.
Our.
Advanced clinical trials and have already been in many years.
Thousands of patients probably.
100000 patients.
The number there is a little bit more difficult to determine.
And they have an exceptional safety record.
Lots of evidence for their utility in settings, such as our plantar fasciitis and knee osteoarthritis in earlier studies that formed the basis for the current.
Later stage.
Programs that we've described in the call.
Okay, Yeah. It sounds like you've got a lot of ammunition for your sales team to use.
To go out there and and get further penetration. So you're also adding 10% and sales reps I think whats that maybe 26 to 30 people.
Over the next year.
So when you talk about 10% growth.
Overall top line I guess does that does that just include these new sales reps that you are adding on or is there some kind of individual sales rep growth in there as well and how will that all come together.
Over the next year.
Rohit would you like to.
To address the question.
Yes.
Thanks, Dan Yes in terms of the growth I think there are multiple factors driving it.
Growth is a factor of sales force effectiveness, obviously, as we add and increase our sales teams scale people will come onboard but it was.
It typically takes anywhere between six and 12 months for the salespeople who come on board to be fully effective. So the sales growth was a combination of both your existing sales team growing with the market, but above the market with the clinical evidence and data that we just talked about utilizing it with the support of.
Getting more people informed and aware of.
The different options that are available to them for treatment as well as the addition of.
The new head count so.
There are multiple factors that lead up to achieving above market and above 10% growth.
Okay, that's very helpful.
Helpful.
And then jumping to the KLA indication and granted <unk> designation.
It seems like what you are providing now in your estimates it's a very conservative approach that doesn't really take advantage of.
That arm that designation of some of the benefits it confers such as expedited treatment.
That.
Can you can you talk about perhaps some some benefits that are possible for that.
<unk> get it approved with ER, maybe data that you've already generated or crafts and extension on studies that you've done.
I just wanted to hear some.
Like I said are all opportunities that might be available to a company with what you have on your plate right now.
Yes.
Yeah.
As you know there are probably less than 50 products that have received <unk> designation.
The prior management team here was very successful in.
Achieving <unk> status and I think it's probably the first biologic like this to do that.
In the two areas I think are very important to have dialogue with the agency on.
Number one is your clinical trials and as you know we are preparing a protocol for a phase III trial in knee osteoarthritis, we will definitely interest size or are met status to be aligned with the FDA on the phase III trial, and I think it's particularly important that Dr.
Dr Stein can articulate more.
We conducted a very large phase II b trial, and if we if we replicate the results in our phase <unk> trial.
Two the ones that got the old. It is retrospective trial conducted I think we'd be in good shape. There the currency for the agency is data.
And.
That's what our team is focused on is working with the agency around creating the best data, we can and that data it sounds like clinical data, but also data that we produce.
In our manufacturing area all of the chemistry manufacturing and controls and that's another area of dialogue is very important with the agency now.
Our math doesn't.
Subordinate the Fda's.
Standard around product approvals. It just is enabling you.
You'd have more frequent dialogue. So you can streamline your decision, making process around manufacturing manufacturing releasing and clinical trials.
Bob would you like to add to that please.
I think you said it very well I think that the.
<unk> designation is an indication that the FDA believes so you have a potentially important medicine.
And indicates that they are interested in a somewhat more collaborative way on progressing the product through the regulatory process.
So we're very glad to have that it's not an easy designation to get and I.
It is based on the.
Exciting data that were presented up until the point, where the discussion was held yesterday.
Okay.
Okay, great and.
Last question for me is just on the new <unk> that youre going to be filing. This year I think they are in advanced wound care can you go into a little bit more detail there on what youll be pursuing and some of the exciting indications that you may be able to solve.
If successful.
Yeah Bob.
Yeah, I'd be happy to give you a little bit of information about that.
We have both the micronize injectable material for outpatient use square, it's often used in patients with <unk>.
Chronic non healing wounds.
I'm sure you can't.
Have the sheet products equally affected either for compliance or other reasons.
So we're interested in looking at injecting the micronize material around the edges of that.
I bet put ulcer.
Helping to recruit stem cells drive the healing process there.
And then there's also interest in the surgical use of the Micronize material, it's often being employed to help.
Surgical incisions heal.
And we're going to be filing an IND to support that application.
Many patients who are either obese or diabetic or.
Older are malnourished are smokers.
<unk> known to have a lower likelihood of having successful healing after surgical incisions. So theres use in that setting and we're gonna be exploring that.
And then the material that is.
Larger particle size called MG pill is often used to.
Still soft tissue defects of the operating group.
Either in things like applications or traumatic wounds or have an idle cyst or other settings, where you have a.
Missing tissue and you want to put in something that provides extracellular matrix and growth factors and that's what they told us.
We will be exploring that under investigational applications as well.
Great. Thank you guys.
Thanks, John.
As a reminder to ask a question you will need to press star one on your telephone.
The next question comes from Ana <unk> with <unk>. Your line is now open.
Thanks for taking my question guys.
This question is for a procurement Bob.
Just from backing up and looking at the pipeline from a modeling standpoint it.
It sounds like you guys are saying that <unk>.
<unk> has the potential to capture one to one 5 million patients.
With knee OA.
Which seem to make sense in light of it.
It's competitive positioning and.
In terms of its safety profile and benefits relative to those of it.
Alternative treatments such as NSA Ids.
Steroids and a J.
Is it conceivable you know I've heard you guys talk and some of the previous conferences about.
Knee OA.
Potentially.
More likely than not taking place in both knees.
Of each patient.
How many how many shots per patient should we be thinking about in terms of modeling. This out are we thinking three shots for patients.
Our per patient per year.
Or four shots per patient per year can you guys elaborate on how youre thinking about that.
Yeah.
Youre absolutely. This is Tim I'll, let Bob talk about it from his viewpoint.
To answer your question directly.
It.
As a patient progresses.
The ideas.
Having another injection and their other neat is certainly realistic.
It's just when they when they decided.
The other knee, if you will but the idea of bilateral treatment.
He is dialed into our calculus.
The one to $1 five patients treated that's one that's one injection per patient.
That was the initial the initial assumption as we do more primary research, we talk to our advisory Board and key opinion leaders.
We're starting to change our perspective on that so a patient throughout the year for a 12 month period could receive between one and four injections.
So it would be very very patient dependent depending on where they are in the <unk>.
The lifecycle of their degenerative disease.
Disease.
The.
I think we do know that there is a high probability that once you have knee OA in one knee you will eventually get it in your other needs. So.
So it depends on how the physician was once too.
To begin to treat that patient.
Bob.
I think Tim made some good points.
You're absolutely right that.
Many patients end up with buyers lateral knee osteoarthritis. Once you have one bad do you start to take the weight offset and you put more weight on the other knee and that makes the other day.
To generate more rapidly.
And so it's not uncommon that the Tunis may not come is effected at the same time, but it's pretty easy.
Often the case that both of these become affected.
And so I think it's reasonable to believe that many patients will be getting.
<unk>.
And our current phase two study we're exploring.
Duration of the effect after one injection and then we are going to be administering <unk>.
Some patients the second injection. So we'll have a better sense of that but I don't think is unreasonable.
The frequency of injection might be.
Weiss a year could actually be three times, a year, but it's probably.
Looks like twice right now and we're continuing to evaluate that.
So I think that the.
Exciting aspect of the product is that it may.
It may delay the need for expensive knee replacements.
And the.
Anecdotal experience with Doctor all did.
<unk>.
Earlier work that led to our phase III trial.
Many patients who are scheduled for knee replacements actually.
He didn't return for knee replacements that came back and ask for.
Medicine injected into smoke or other achy joints.
<unk>.
So I think it is not unreasonable to speculate it.
Multiple injections per year.
Okay. It's important.
Audience.
That could you just.
Drill down a little bit more thinking around adding the.
The option for the patient to receive an injection, even though they were on placebo.
In our field.
The initial design for the Phase II study just had a single injection.
Followed either.
Mike either by the active drug Micronize debt.
Human amniotic courtyard.
Or by placebo and then the patients are followed blindly for six months.
And then are there.
It's a six month open label extension just for safety and what we did was we modified the design.
But the FDA now that we have done so.
Patients in the second six month interval, if they felt like they didn't have adequate pain control could receive.
Injection of the active material so from that design, we'll see what happens with how long the first injection provides relief.
Whether the second injection restores relief in patients for whom the relief has faded and we'll have an interesting setting where we will have people who were on placebo. During the first six months with NBC back of driving we can have a very clear.
Sense of whether the material providing them relief as well so we like that design a lot and I think we'll learn a lot.
It.
Bites us information.
Thank you Bob.
Sure.
Thank you for that so I kind of.
I kind of wanted to just translate what this all means.
Yeah.
Yes.
The numbers when you think about them are quite staggering.
As you know I don't I.
I wanted to ask you, Tim and I want to ask you guys can it Bob.
It's conceivable, but at one to one 5 million patients.
Three injections per year.
And our price per shot up.
500 to $2000 you get a revenue range of peak sales range of.
$4 $5 billion to.
To $9 billion.
Is that conceivable.
Okay.
Its E on it.
Certainly when you do the math that's why.
Some of the largest.
Pharmaceutical companies doing research and it's a complicated area.
Yeah.
You can do the math on one injection per year, two injections a year.
Signs of patients when you look at other.
Therapies.
The viscose supplementation therapies, there is a regimen this established and something that.
Rheumatologist.
Surgeons are accustomed to.
So patients.
Those settings with those particular type of treatment modalities may be getting at on average two to three injections a year.
We have to really understand this from coming out of our phase II trial in our phase III trial, what is going to be in the labeling.
For our drug.
It's very.
Exciting for R&D.
And for our key opinion leaders.
To work with us in designing the protocol for phase III and also due to the analysis of phase two piece, we're going to have a lot more information.
About that but your.
Your notion that when you when you do the math on it.
We can't argue with you on the math is just that we know there's work to do head to prove this in the clinic.
Bob I don't know if you want to add any more to that but it's.
I'd like to.
So just go about it.
I do think it has very great.
Great potential as a medicine and have your knee replacement is not trivial I had both mine replaced about five years ago I would've loved to have had this medicine as an alternative.
It's about $75000 of need to get it replaced.
So there's quite a bit of potential.
Savings to the system to have a intervention.
Delays or perhaps even avoids the need for replacement.
We have.
So far very promising results with this intervention.
It's not surprising because the micro sized human amniotic chorion membrane.
Contains a large number of active growth factors and anti inflammatory compounds.
<unk>.
Our.
Perhaps the basis for some of what we're seeing with its efficacy.
Yes.
That's really important.
<unk> laid out a range there.
This is a big range.
Opportunity here for us.
I also think that.
As we.
Did the analysis around the tissue engineering that the company had conducted or put in place.
A pioneer in this area.
The.
Scientists here early on developed.
Manufacturing process.
Reserve the inherent qualities.
Amniotic tissue membrane.
And also the winter the extent of terminally sterilized this product to make it a safe product.
We'll supply chain here was well thought through way before the new management team are honest here.
So I think that it's.
It's fair to say that that will be an important consideration in the overall thinking and approval process.
Certainly your clinical data will be important.
But also how you make the product.
How do you make it the same way every time is going to be absolutely critical. So we do have a strong team led by Scott Turner and Mark Rogers focussed on our chemistry manufacturing controls, but you're absolutely correct. There is a big range here as we move through and get final labeling will be able to tighten that up.
Thank you for that Tim.
Alright go ahead Bob.
Hi, This is gonna say that Tim made an important point.
<unk> centre is a remarkable Oregon. It has a plethora of both factors that have been selected to work well in conjunction with each other over.
Maybe 600 million years of evolution of placental mammals.
And so you had a fantastic starting materials.
My Medicine has been particularly good at.
Converting that into a medical product that is stable and saves.
Change the active growth factors in native formats and.
Terminally sterilized. So this derisking transmitting any kind of infections.
Miniscule.
And that's also.
I wanted to make it a lot easier for us to make the transition to <unk>.
Cgmp manufacture.
<unk>.
Sure.
Well characterize stable.
Consistent product, which is going to be another key aspect of getting.
This product registered.
<unk> pointed out we have very good team working on that very hard in conjunction with the ongoing clinical studies.
Okay.
Thank you for that.
I hope it <unk>.
Also think it bears mentioning that the revenue range that I I I just.
Okay.
I just estimated it seems to be extremely conservative when you think about it and Bob you made an important point, if the product delays or prevent the need for knee replacement and hours and and and our research indicates that that is the case.
But if it is true.
Then the pricing per injection could conceivably conceivably.
Fetch $5000 per injection, if you're able to save the insurance companies.
The the cost.
Our funding knee replacements.
But also what Tim isn't it true that that one to $1 5 million.
<unk>.
Ah patients you could potentially capture.
It is in the USA alone.
That is true those that's our estimate range for the U S only.
Clearly.
This is a.
Global issue.
Right company given its size, we haven't had the capacity to examine that.
But you would think that that certainly.
Is the right time for us to examine that as you know.
Products are.
We have approvals in the U K in Germany for our allografts are skin substitutes and we're seeking approval in Japan for our skin substitutes.
There and so.
We do think there is potential upside outside the United States that would.
Somewhat mimic the opportunity in the U S.
And I think it's also worth noting.
That there are probably north of 17 million people with moderate to severe <unk>.
John It's really just in the United States.
Many of those have bilateral disease.
And the idea that there is.
Fewer than 10% of those that would be suitable for treatment.
Is an estimate based on the current injected products like how you roddick acid, which frankly is only marginally helpful at best or steroids, which there's a lot of concern about their use.
The standpoint of long term effects on.
Joint deterioration.
So it may be that if this product performs as we hope it will it will be suitable for use and they are.
Larger swath of that patient population, but that's speculation.
Thank you. This is my final question.
As you're probably aware clinical stage biotech companies with potential blockbuster treatments in their pipeline.
<unk> and <unk>.
Massive multibillion dollar broke out offers following following the publishing of phase one or phase II results. For example, just last year immunomedics with salt for $21 billion. Following the publishing of its phase <unk> results. While 47 was sold for almost $5 billion. Following the publishing of its phase one results given.
Our belief.
Danielle takes us peak sales could potentially exceed $8 billion 12 billion that $1 billion.
Whatever we believe that my medics could fetch a multibillion dollar takeout offer following the publishing of its phase two be knee OA trial results as such we believe it would be in the best interest of shareholders and the company to explore a potential sale to a strategic buyer. After its phase II results are published.
Is this something that management intends to take under consideration.
So look we're.
We are considering every every strategic option.
Right now we're focused on executing.
In our clinical trials.
Gate regaining momentum in our.
In our current core business as.
As well as making sure that we are facilities are validated GMP. So there is work to do in Europe.
Sure.
Your theoretical.
Our notion here certainly there are a lot of examples of this in the industry, we are well aware of that.
<unk>.
Okay.
<unk>.
Right now I think it's most important for us to execute against what we have on our plate for 2021, which includes the readouts for our trials.
We have to get the securities.
And behind Us.
These types of options.
Thank you guys.
Yes. Thank you.
Yes.
Look we're running up against other calls that we're going to have to make 2020 was a very foundational year for us.
'twenty 'twenty, one is going to prove to be transformational for <unk> and I appreciate everybody's interest in this.
And look forward to talking to you throughout the day and next week. Thank.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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