Q1 2021 Aziyo Biologics Inc Earnings Call
Okay.
Welcome to the us you'll be out by Alex Q1, 2020 on earnings call. My name is Adrian and I'll be your operator for today's call.
At this time all participants are in a listen only mode.
Later, well conduct a question and answer questions from the question answer session. If you have a question. Please press Star then one on you touched on phone.
I'll now turn the call or at least Savo Investor Relations Lee you may begin.
Thank you and thank you all for participating in today's call. Joining me are Ron Lloyd Chief Executive Officer, and Matt Ferguson, Chief Financial Officer.
Earlier today <unk> released financial results for the first quarter ended March 31 2021.
A copy of the press release is available on the company's website.
To begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that do not relate to matters of historical fact or relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements, including without limitation those relating to our operating trends and future financial performance the impact of COVID-19 on our business.
Prospects for recovery expense management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion and product pipeline development expected future product launches and milestones unexpected results and performance of our.
Our partnerships are commercial products, including patient outcomes 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 our annual report on form 10-K for the year ended December 31 2020.
This conference call contains time sensitive information and is accurate only as of the live broadcast today may four 2021.
Z O biologics disclaims any intention or obligation, except as required by law 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 on the company's earnings release for the first fiscal quarter ended March 31, 2021, which is accessible on the SEC's website and posted on the Investor Relations page of the Geos website at <unk> Dot.
D O dot com and with that I will turn the call over to Ron.
Thankfully good afternoon, everyone and thank you for joining us.
We were very pleased to see the momentum in our business that emerged in the second half of 2020 continue into our first quarter performance.
We saw meaningful traction across our product portfolios and strong execution towards our mission of providing advanced regenerative medicine products.
It can approve the outcome in patients undergoing implantable device related surgery.
We believe we are on track to meet or exceed our key goals for the year.
We're establishing a solid foundation for sustained long term growth of our company.
As a quick reminder, our core product platforms address three primary markets.
<unk> electronic devices, such as pacemakers, defibrillators bone repair and orthopedic and spine procedures.
Soft tissue reconstruction.
Additionally, we fulfill tissue processing contracts through our Richmond, California manufacturing facility.
That's a highly leveraged bowl component of our business.
In my prepared remarks today I'll cover our recent highlights and accomplishments in each of these primary markets.
Well as updates on the progress of our goals, we set for 2021.
Matt will go into more detail on our financials and guidance and then we'll open up the call for your questions.
Turning briefly to our recent financial highlights the Zillow team once again delivered strong results.
<unk> total revenue of $12 $9 million.
31% increase over the first quarter of 2020.
And despite the seasonality, we typically see in the first quarter falling higher year end purchasing patterns as.
As well as ongoing COVID-19 related impacts from key territories.
Our total revenue grew 3% sequentially over the fourth quarter of 2020.
Core product revenue contributed the vast majority of this at $10 $7 billion.
Presenting a 29% increase year over year, and a 4% sequential increase over the fourth quarter of 2020.
Growth in core product revenue also increased substantially in comparison to pre COVID-19 levels.
Growing 49% from Q1 2019 to Q1 2021.
We attribute these strong results to a number of factors, including the performance of our direct sales organization with.
The strength of our partnerships and the market share we've been able to capture as a result of the quality of our product portfolio.
Turning now to some recent highlights in our business and how we see the trending of this from the current quarter and through the remainder of this year.
Starting with our products address the market for implantable electronic devices.
Made significant progress advancing our kangaroo envelope over the past several months.
Kangaroo is the only commercially available biological envelope the forms of natural systemically vascularized pocket for holding implantable electronic devices.
We're excited about our commercial progress product advancements in clinical trials currently underway.
On the commercial front, we continue to build our presence in the U S through a combination of direct sales reps at our commercial partnerships with Boston scientific and <unk>.
At the end of March we had 29 direct sales reps and we're encouraged by the recent progress made in Onboarding, our new reps.
Our plan is to selectively continue to add sales headcount throughout 2021.
With hiring targets more heavily weighted towards the second half of the year.
We approach additional development milestones with our pipeline program about antibiotics the kangaroo.
The breakthrough designation for Kangaroo that we received last December with Premier significantly expanded our market opportunity in the U S and <unk>.
Further validated the value and safety this product offers patients.
In the first quarter of this year, we benefited from contract expansion within Premier.
With a number of these new accounts now ordering product.
We are encouraged by this valuable continuing contribution from this relationship.
Outside of the U S. Following CE Mark approval in January to update the label instructions for Kangaroo.
<unk> hydration with antibiotic gentamicin.
We're working with our partner bio tronic to further expand sales in Europe.
We'll begin shipping product with a new hydration label to customers. This month.
On the product development front, we remain on track to bring to market. Our next generation Kangaroo envelope next year, which will be enhanced by adding the antibiotics for sampling in minutes cycling to our biological envelope.
We're continuing to advance down the path of manufacturing validation, followed by data collection and in vivo and in vitro studies.
Our goal remains to reach FDA submission in Q1 2022 with product launch in the second half of 2022.
This next generation product has the potential to be a leader in its category and we view this as a key driver of long term growth beginning in the second half of next year.
Finally on the clinical front, we continue enroll patients into our heels study, which is designed to investigate the biologic and clinical effects at time of C. I E. The change out in patients with Kangaroo versus those with Medtronic tire ex envelope or no envelope at all.
We also recently announced the initiation of the study to evaluate the clinical profiles procedural details and post implant outcomes in patients receiving kangaroo.
Or no envelope during your initial or de Novo.
<unk> placement.
We believe the benefits of Kangaroo may be even more pronounced in patients receiving their first tid implant.
And for this reason this study focuses on these de novo implant patients.
We look forward to the insights from both these valuable studies, including patient profiles clinical decision, making by physicians and of course patient outcomes.
Now turning to our index product group and market orthopedic and spine repair market our product platform. In this market consists of five or so.
By bone endoscopy growth.
Overall, we're seeing the benefits of market share expansion within both new and existing accounts for this product portfolio.
Which we believe further validates the importance of both the scientific properties as well as the differentiated capabilities that we've built into this viable bone product platform.
More specifically during the first quarter, we continue to work with our partner Medtronic to expand fiber sales sales.
We're very pleased by the growing market acceptance of this product.
In particular positive feedback from end users supports our confidence in the scientific capabilities that we've developed and deliver to market truly differentiated products.
We're also generating additional characterization data to further support the unique features of this product in the marketplace.
In January our partner Searchlight Holdings launched fiber, one multiple which is complementary to our existing viable product.
Vive, one multiple as a next generation viable cell bone matrix processed using a proprietary method optimized to protect and preserve the health of native cells to potentially enhance new bone formation.
This brought that contains consensus bone particles as well as demineralized cortical bone fibers, delivering the necessary components for bone formation, along with excellent handling and cohesive properties.
And finally, we continue to add orthopedic and spine partners to support the sales velocity growth V <unk>.
And our viable bone product portfolio.
And lastly, we're seeing expanded product awareness and clinical evidence as well as growing market access and our third product portfolio addressing soft tissue reconstruction.
Our primary product in this market simple the term.
It's increasingly receiving positive feedback from our physician customers.
As we announced from our last call effective March one.
<unk> was added to healthtrust purchasing group platform.
Designation now provides access for our direct sales reps and distributors.
It helps trust member facilities, representing more than 600 hospitals and health systems in the U S.
In addition, we continue to collect clinical data on simple term compared to other human dermis products and look forward to the results in publications later this year.
In summary, we've consistently demonstrated our ability to generate robust sales growth for our core products.
And we continue to make substantial progress advancing our pipeline of new products that we anticipate will drive growth well into the future.
Turning to our contract manufacturing business, we were pleased to see further contribution in the first quarter from several contracts that commenced in the fourth quarter, resulting in 36% year over year revenue growth.
Looking ahead, we believe that offering tissue processing for a range of third party health care companies can continue to positively impact our business.
It is also quite efficient as it leverages the available capacity at our manufacturing facility and also contributed positively to our bottom line.
The additional revenue was also a good source of capital to further drive growth in our core product platforms.
As we enter the second quarter, we see opportunities for sustained growth across all product lines.
Courage by the growing number of vaccinations in the many positive signs of truly turned the quarter on the pandemic that script the world from most of the past year.
Brazil. This means better access to hospital customers and of course, an increase in patients that can benefit from our products.
We're pleased.
With the momentum we're seeing in the first part of Q2.
Looking forward to continuing our growth as we move through the year.
Based on this favorable outlook, we're increasing our guidance for 2021 revenue to a range of $52 million to $54 million.
In addition to growing revenues, we're proud of the many milestones we have reached in our core product portfolio and we're confident we're on track to achieve many more in the coming quarters.
Our key priorities are unchanged and as such we remain focused in 2021 on the following.
First expanding our direct sales force and growing revenues of our core products.
Second developing our next generation Kangaroo envelope with integrated antibiotics.
And third generating clinical data to further differentiate the uniqueness of our core products.
We'll also continue to evaluate opportunities to as synergistic products through partnerships or acquisitions to augment our long term growth opportunity, we see in our existing businesses today.
To close I am truly encouraged by the progress we've made despite the many challenges to the health care delivery system.
I've been inspired every day by the resilience and ongoing motivation of our team to advance our vision and improve the standard of care for patients treated under a wide range of implantable device procedures.
We have a number of very exciting growth catalysts on the horizon and I look forward to sharing the achievement of key milestones along the way.
With that I'll turn the call over to Matt to provide a review of our first quarter results and guidance for 2021.
Thank you Ron.
As mentioned net sales for the three months ended March 31, 2021 were $12 9 million.
31% increase from the $9 9 million in the same period from the prior year.
This included a 29% increase in sales of core products and.
36% growth in our non core products.
While our top priority is the continued growth in our core products. We were pleased to see our contract manufacturing business once again contribute more than $2 million to our top line as a result of several recently signed contracts that are driving performance in this area.
Gross.
<unk> for the first quarter of 2021 was 49% as compared to 53% in the corresponding prior year period and 48% in the fourth quarter of 2020.
We also look at gross margin, excluding the impact of noncash amortization of intangible assets.
On that basis, Q1 would have been 56% versus 61% in the year ago quarter and 55% in Q4 2020.
The lower year over year gross margin in Q1, 2021 was primarily due to the impact of onetime nonrecurring events in the first quarter of 2020.
Whereas the improvement in gross margin from Q4 of 2020 resulted from continued improvements in operational efficiency.
We're pleased with the sequential improvements in gross margin we've seen in each of the last three quarters.
And expect continued improvement as we move through the year.
Total operating expenses for the first quarter of 2021 were $10 million.
19% increase from $8 4 million from the first quarter of 2020.
The increase primarily resulted from costs related to operating as a public company.
And development costs associated with our program to add antibiotics to our Kangaroo envelope.
Loss from operations was $3 $7 million for the first quarter of 2021 as.
As compared to a $3 $2 million loss for the year ago quarter.
Net loss for the quarter was $5 1 million.
As compared to a net loss of $4 6 million in the first quarter of 2020.
Loss per share in the first quarter of 2021 was 50.
Compared to a loss of $7 <unk> per share in the year ago quarter.
Which was prior to the conversion of the company's preferred stock into common stock in association with the company's Q4 2020 initial public offering.
As of March 31, 2021, we had a cash balance of $38 $5 million with an.
Additional $4 $5 million available for borrowing under our working capital line of credit.
Turning to our outlook for the full year 2021.
As Ron mentioned, we are encouraged by the traction we've continued to make and while COVID-19 continues to pose some risk of uncertainty to our operating results.
We anticipate the macro environment, we will continue to improve and expect to continue to execute at or above our original plan for the year.
We now expect total net sales to range between 52 and $54 million representing growth of approximately 22% to 27% over total net sales for the full year 2020.
This compares to our previous full year 2021 guidance of $50 million to $52 million provided on March one 2021.
To the extent, we achieved net sales ahead of our original plan for the year.
We expect to reinvest those gains back into the business through a variety of commercial and R&D initiatives, which will be designed to bolster long term growth.
In summary, our business and finances are in solid shape and we will.
Look forward to continuing to share our progress with you at future investor events and quarterly calls.
And with that I would like to open the call for your questions.
Thank you well now begin the question and answer session.
Do you have a question. Please press star one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign or they ask Qi.
Speakerphone, you may need to pick up that you said first before pressing the numbers.
Once again, if you have a question. Please press Star then one on your Touchtone phone and your first question comes from Matthew O'brien from Piper Sandler Your line is open.
Afternoon. Thanks for taking my question I guess, just for starters, Ron Andrew or Matt.
The core performance was obviously very strong, but I'm sure you had some headwinds in Q1 associated with COVID-19 and then obviously, it's probably some tailwind towards the end of the quarter can you kind of net out the headwinds versus some of the tailwind you may have seen I guess just for starters and I have a couple of questions on the core business.
Yes sure Matt. Thanks for the question I think we saw pretty much I think what other companies are now reporting obviously in January and February there were more headwinds from COVID-19 in certain in certain geographies the impact of weather.
With that.
Actually decreasing in March and kind of a strong return back to normalcy in March So I think our headwinds were similar probably across what's been communicated by other companies.
But I think if you go back and you think about it.
And you look at last year for example, obviously our core products.
We had a stellar year with 17% growth. Despite all the headwinds of COVID-19 and again, even with the continuing headwinds into Q1 again, posting an overall company growth of 31% and our core products of 29%. So I think you can see that we're able to drive consistent topline growth and I think we're doing that.
Really through our commercial execution.
The performance of our reps in conjunction with our partnerships and I think it's also a testament to the product portfolio that we have and the differentiation of our products.
And the appreciation by our customers based on the performance that they are seeing when they use our products and so I think all of that collectively has led to excellent growth in certain ways, we've been less concerned about.
The actual variations that's happened in the marketplace due to COVID-19.
Got it okay, and so to that end Ron.
No.
I know you don't want to get into product level detail as far as where this outperformance on the core business came from but can you just talk maybe more.
Qualitatively about where where some of this performance came from on the core side that was better than expected was that premier was it.
Simple derm did you see something from from Boston and Kangaroo I mean, it's a little bit more granularity there I think it would be helpful.
Sure Matt So I think all in all again, we're really pleased with the portfolio of products that we've built and the differentiation that we have be it the remodeling benefits that kangaroo offers to patients today.
Viable bone matrix platform and the number of products, we've been able to derive through that platform for orthopedic and spine repair and of course more recently simple adair for soft tissue reconstruction and so again I think the uniqueness. These products to differentiate these products has really helped us drive growth across the core product portfolio.
And so really it's the totality of these products, that's really helped us and benefited us as we think about our Q1 performance.
No we don't breakout detail byproduct.
If we think about it.
If we think about one product category versus the others, probably much like we saw in Q4 are viable bone business also did extremely well this quarter as it has done in the prior quarter.
And again, we believe it's back to the differentiation of the products the messaging of our products to customers with a viable bone matrix.
And the fact that we've got more viable healthy sales is really resonating from.
That we are seeing additional market penetration and market growth within that category.
Okay. That's helpful. And then just one quick one for Matt.
Matt the expenses in the quarter came in on the Opex side lower than we were modeling how much of that is mark just still kind of keeping the belt tight in the COVID-19 environment versus what what youre going to kind of ramp up in terms of spending throughout the rest of the year and what I'm really trying to get to is how durable are some of these these lower.
So the marketing and G&A expenses as a percentage of revenue. Thank you.
Yes.
Well, we're always careful with how we're spending our money certainly, but we do think it's important to drive.
Drive growth and to make the investments in the business that are going to bolster that growth. Both this year and for the longer term and I will say when I when I look at our plan for the year in terms of hiring and otherwise.
Probably.
A little bit behind schedule and some of the hiring and spending that we have planned for the year.
We also do think given the outperformance that we're seeing in the top line, we do plan to reinvest some of that.
Upside into the business as we move through the year.
And so I think there will be some increases in the opex lines as we go through the year, particularly in.
Sales and marketing and <unk>.
And R&D.
We also we recently initiated.
The de Novo Kangaroo study.
With up to 500 patients in.
We're also enrolling in the heel study so.
So we will be continuing to spend in certain areas from public to some increases but.
Understand where youre coming from we are.
A little bit.
We are favorable compared to our original plan on the spending side of things.
Got it thank you.
And our next question comes from Josh Jennings from Cowen Your line is open.
Hi. This is this is neil on for Josh Thanks for taking our questions.
First off.
Just thinking about the.
Kingrey de Nova study in the heat study as you just mentioned.
That should help build out the clinical evidence for Kangaroo in supporting utilization, both in primary and replacement implants.
I guess, if you could just talk about the current utilization trends today between primary and replacement.
Most of those kilogram loves being utilized more replacement procedures.
Secondly.
Secondly.
The results from the de Novo study are positive could that open up the primary segment of the market more fully.
Sure. Thanks for the question.
Yes, I think as we think about the use of envelopes today.
Greater propensity to use envelopes during the change out procedures.
And I think it's.
Think through the logic share obviously during the change outs they are often seeing more complex.
Situations with fibrotic capsules that they have to deal with.
The risk to the patient and to some degree the light bulbs go off to say this is probably a great candidate to put an envelope in and certainly the kangaroo envelope.
And I think thats kind of where we stand today, but if you take a step back and think about it logically the ideal patient to get a kangaroo is the de novo patient.
First in getting an implant for the first time also gets the implantation of Kangaroo CAGR within remodels into native healthy tissue, that's vascularized to prep the patient for the life of that device and so we think over time really the migration should be to de novo patients.
Net patient will drive the greatest benefit and so we've really embarked on two studies here.
Youll study to show the benefits of Kangaroo once in place at a time of change out.
Compared to patients that don't receive any envelope or competitive envelope and then as you mentioned the de Novo study, which again is looking at time, but first implantation and we're going to fall a subgroup of those patients for up to five years day and compare the outcomes versus patients that didn't receive an envelope.
And so we're excited about the data collection, we share every day Neil from from our customers about the benefits they are seeing with Kangaroo.
So what we're trying to do here is actually just have the clinical evidence collected in totality.
From these studies that we can then use for publications and dissemination back to other customers. So they can also understand the benefits of Kangaroo.
Great. Thank you.
I just had one follow up question as well.
And there was a recent FDA safety communication that came out kind of indicating a couple of competing aam's potentially having a higher risk profile.
Adm's just curious how much of a tailwind that could potentially be for simple derm and.
Its competitive positioning.
Or does that how does that impact the market if at all.
Sure. So just one add on question quickly was there is also about potential for a public meeting coming out of that.
Curious on your expectations for that.
So to start with our simpler there which is our <unk>.
We actually used our tissue processing expertise and redeveloped a patented process.
To be able to decellularized removed themselves from from human tumors and do it in a way that best preserves the native structural matrix that exist in the dermis itself and our process being unique and patented we've shown now through a number of studies that our product has lower inflammatory.
<unk> properties and better integration compared to other products on the marketplace, including the market leader Alan R. <unk>.
Actually had a chance now to publish this data on the differentiation of the product through our processing technique.
Now collecting clinical data in patients with simple derm and comparing that to other <unk> products.
We believe we will hopefully have some publications coming out actually in the second half of this year for this product. So we think Neil to answer. Your question. We've designed this with a unique process to hopefully have better outcomes than what's available in the marketplace today.
And so we're pleased.
Seen so far and feedback from physicians on the product performance.
And even though the FDA has put out some safety statements on other products again, we've designed our product to be superior to hopefully what's out there in the marketplace today and again, we'll collect the data over time to see if that holds up but.
But we do think again, we're in an excellent position for simple term based on our processing expertise and the patented process that we have.
The second part of your question is regarding to the FDA.
My understanding is that they do plan to hold a workshop.
Later on this year to talk about.
Implantable materials adm's at other other materials for per breast reconstruction.
So we will look forward to that meeting and see what the outcomes are from the FDA as it relates to.
The product labeling.
And requirement if any for any future studies from that meeting, but again all in all we're very excited about the product simple based on the properties and the physician feedback to date.
Great Thanks for that.
And our next question comes to tailor Crum from Scott.
Sir your line is open.
Hey, This is David restaurant per count Thanks for taking my questions and congrats on the quarter.
First I appreciate the commentary you guys have tried so far around raise and I just wanted to dig a little bit deeper into that.
Is there anything really here, specifically that contributed to the quarter and a 29% growth from the core business or any kind of onetime items, maybe the initial bump from the recent add on the contracts that we wouldn't really expect to carry forward.
If we annualize kind of 13 million that you saw in Q1 that really just puts us just below the lower end of your guidance. So I guess would it be safe to assume that income.
About Q1 as a base for 2021, and then expect the business to improve as electric procedures come back and then really accounting for typical seasonality in the business or are there kind of like I said, some one time items in our trends in Q2, so far that we should be thinking about.
Any additional color here would be helpful.
Sure David So yes, there were not any unusual onetime events in Q1.
As it relates to any product performance here.
And again I think as we talked about previously it's really a testament to the commercial execution that we have through our own commercial organization in conjunction with our partnerships.
And then the uniqueness and differentiation of our products, which I believe.
As time has gone by physicians now are starting to better understand the unique properties of our products are seeing the benefits of our products from the patients that they treat and I think thats helped lead us to the growth rates that we're seeing and again, we're seeing additional market development and usage of our products as well as market share gain.
<unk>.
Think that the Q1 is just again, a testament to our execution and our product differentiation.
Okay. That's helpful. I guess, a second one a final one from me.
The core product portfolio right now spans across cardiology or general medicine spine space I know you hinted in the past.
About potentially being acquisitive or expand through partnerships and so I guess given the current financial position the company.
Could you provide any commentary around just balancing investment with net core business, while it while staying flexible to either do acquisitions or partnerships from then the second part of that question, if youre thinking about an ideal kind of.
For a deal or is it something that would be pre revenue revenue generating kind of something that would be a new area to expand into or tuck into an existing market any any information there would be would be helpful. Sure.
Sure. So again, if you look at US we actually think about the go to market strategy in a way that best optimize our technology in a way that the majority of patients in most patients can benefit from it. So we're looking for how do we get the most pendants patient benefit out there in terms of access to our technology and so that's.
To us having a direct sales force in conjunction with with partners for example, in CAGR with Boston and bio tronic, helping to sell in conjunction with our sales reps.
Or in the case of our ortho biologic survival of our matrix platform doing more of a <unk> strategy, where we focused on product innovation manufacturing data generation and then partner with our commercial.
Business partners there as it relates to commercial execution and we found this to be a very effective model, obviously, it's helping us drive very high growth rates.
Think about our product and the penetration in the marketplace. The day. It is also very efficient.
If we think about the investment back into SG&A as well.
As it relates to then adding additional business development opportunities again, we're pretty excited about our current year in future years based on our own assets that we have a market today in our pipeline products, but again, we've got a very seasoned leadership team.
We are actively looking at additional product opportunity company opportunities.
If you just described the best opportunity for us from a fit perspective, we certainly would like to have products that currently match up to our current direct channels.
Which again is back towards cardiovascular EP marketplace or soft tissue reconstruction.
Like other companies with like on market versus pipeline.
But again, we also be open to evolving technologies that would be complementary to the technologies that we have today as well. So we'll continue to look.
I believe when they showed that if we do pull the trigger reported for the right reasons for the right opportunities, but again, it's opportunistically as we think about it given the excellent growth opportunities, we see with our current assets and pipeline products.
Alright, thanks for taking my questions.
And this concludes our question and answer session I'll turn the call back over to Ron Lloyd for final remarks.
Great. Thank you and thanks, everybody for joining US today, just want to also give you a heads up that we hope many of you can listen tomorrow, we have a fireside chat at the truest life Science summit.
We'll have a live and archived webcast and.
This will be available actually beginning tomorrow at 11, a M. So again, thanks, everybody and take care.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
[music].
Okay.
[music].