Q1 2021 Nuwellis Inc Earnings Call
Good day, Thank you for standing by and welcome to the CHF Solutions, Inc. First quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during the session. Please press star one on your telephone keypad.
I would now like to turn the conference over to Matt back So from the Gilmartin Group. Please go ahead.
Thank you operator, thank you for thank you for joining today's conference call to discuss the whilst the corporate developments and financial results for the first quarter ending March 31, 2021. In addition to myself with US today are Nestor Jaramillo, the company's CEO and Paul one of the company's corporate controller and principal accounting officer at eight a M. Eastern today, the well it's really.
Financial results for the quarter ending March 31 2021.
You have not received the losses earnings release, please visit the investors page of the company's website.
During the course of this conference call of the company, we are making forward looking statements except for historical information mentioned during the conference call statements made by management of new laws for forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements involve known and unknown risks and uncertainties that are based on managements beliefs assumptions expectations.
<unk> and information currently available to management.
Those risks include but are not limited to risks associated with possible possibility that the company may be unable to grow revenue in the future quarters that the company may be unable to execute in its commercialization strategy of the possibility that it may not may be unable to raise the funds necessary for the company's anticipated operations that the company may not be able to commercial.
The products successfully and the other risk factors described under the caption risk factors and elsewhere in the company's filings with the Securities and Exchange Commission by providing this information the company undertakes no obligation to update or revise any projections or forward looking statements whether as a result of new information on new developments or otherwise you should read.
Read the cautionary statements and discussion of risk factors included in the company's press release issued today. The Companys latest 10-K subsequent reports as well as other filings with the Securities Exchange Commission under the titles risk factors or cautionary statements related to forward looking statements for additional discussion of risk factors that could cause.
Actual results could differ materially for managements current expectations.
There's discussion for those discussions regarding risk factors as well as discussions of forward looking statements in such sections are incorporated by reference in this call and of readily available for on the Companys website with that I would like to turn the call over to Mr. Herron meal, the while if the CEO.
Thank you, Matt and good morning, everyone. Welcome to the first quarter 2021 earnings call on corporate update.
Before we get into the details I would like to take a moment to thank all of the health care workers, who continue to work hard, especially those who are administrating. The COVID-19 vaccine to help reduce the spread of the virus and allows for society to return to normal.
Also I want to comment on our recent corporate name change.
Over time, the CHF solution has the ball to serve more than just chronic heart failure of community.
We have learned that our gentle fluid management therapy, not only effectively serves the chronic needs of heart failure patients, but kind of address acute fluid overload in critical care patients and can provide lifesaving treatment for pediatric patients.
Yeah.
As a provider of innovative technology, we have an obligation and duty to help improve outcomes for as many patients as possible.
When we expanded the therapeutic focus areas. We serve to include pediatric critical care on her failure will realize that our name was no longer a true representation of what we do.
On April 27, CHF solutions became new wellness.
With the tag line of restoring fluid balance transforming care.
The named signifies the new well for brighter todays and better to more of patients families on providers as.
As we look to the future our evolution does not stop here our commitment to restore fluid balancing patients remains the same.
But who we support perhaps expand it.
We have the ball on his time on where named shows that.
Now turning to the business update although we wish.
We were negatively impacted by persistent COVID-19 headwinds and extreme weather conditions in parts of the country, especially in the month of February we ended the quarter strong the.
The company achieved solid performance in the first quarter of 2021 with 18% revenue growth over the prior year.
On a sequential basis, we generated growth in our critical care and pediatric carnival race for how fairly or decline.
First quarter of 2021 revenue mix was comprised of 50% critical care, 34% pediatric and 16% heart failure.
Our revenue mix will shift significantly over the last 12 months, given our strategic expansion into pediatric and critical care opportunities.
Specifically critical care revenue increased materially due to the synergistic effect of Tweedy non COVID-19 critically ill patients in the ICU.
We also generated solid revenue growth from our pediatric segment due to the clinical benefits that our therapy is offering the pediatric patient population.
And the increased utilization by recently trained centers and the legacy pediatric accounts.
While heart failure remains an integral part of the business.
The revenues decline in the first quarter due to the negative impact of COVID-19 has had on heart failure patient behavior.
Overall procedures volumes on our limited access to hospitals.
Now I would like to provide for details on each business segment, starting with our fast growing critical care segment.
During the first quarter critical care once again outperformed all current glories, driven by increased utilization and unit placements of our Aqua The X system in the ICU city at many hospitals across the country.
Specifically utilization among the strategic accounts was the highest we have seen in the last five quarters.
Given the comfort level of familiarity that these accounts have developed over the course of the pandemic, we are seeing increasing levels of utilization on non COVID-19 critically ill patients.
As mentioned on previous calls tail winds from treating COVID-19 patients establish a unique synergistic effect, leading to increased aqua ex utilization to treat non COVID-19 critically ill patients in the ICU.
Due to the effectiveness of athletics system treating COVID-19 patients early in the pandemic. We believe an increased number of hospitals are wanting our device in the ICU to treat non COVID-19 critically ill patients.
With the likelihood of declining COVID-19 hospitalizations in 2021.
We view these utilization train to be favorable as the company continues to build awareness of the clinical benefits of the <unk> system.
Moving to our pediatric business, we once again experienced the strong utilization of the Agua ex therapy amongst our current installed base.
We believe the increase in utilization is the direct reflection of two initiatives first the support that our enthusiastic key opinion leaders are providing in the training of doctors and nurses with the pediatric hospitals regarding the clinical benefits of Aqua ex therapy in pediatric.
Patients.
Second once the hospital staff is comfortable with the athletic system. We are seen existing account purchase additional equinix units given the high number of patients suitable for the Atwood ex therapy.
It is important to remember that the addition of new hospital accounts can be lumpy quarter over quarter.
That said, we remain excited about the pediatric opportunity in front of us given.
Given the underlying momentum that would pediatric business and the dedication and focus of our expanded sales team.
Pipeline of pediatric accounts remains robust.
As mentioned in the fourth quarter earnings call, we initiated the pediatric registry in January and enroll our first patient in April at Jordan Module Hospital in Hollywood, Florida.
The registry is designed to collect real world evidence on the use of the act with the ex of smart flow Ultra filtration system it would be the.
The attic patients with fluid overload.
The registry will include data on ultrafiltration utility performance and safety profile in pediatric patients over 20 kilograms from approximately 10 research institutions over to one of half years period, and anticipate collecting data on up to 500 page.
<unk>.
We are grateful to partner with organizations like Joe Dimaggio Children's hospital as part of our commitment to improve and customized pediatric care with the Aqua ex smart roll system.
As part of our continued grow.
Growth, we are committed to finding ways to advance future technology and progress our pipeline, while demonstrating that this innovative and gentle therapy is safe effective and beneficial for pediatric patients who are suffering from fluid overload.
We are excited the registry will spread awareness within the pediatric community regarding the clinical efficacy of the athletics therapy in eats and eats increase utilization.
Now turning to heart failure.
While heart failure remains an integral part of our business.
Revenues declined compared to the prior year period.
While our access to hospital has been limited due to the pandemic. We expect this segment to recover in 2021 fueled by more normalized patient behavior and increase access to hospitals due to the decrease in the spread of the virus.
Also recent clinical evidence demonstrating the clinical benefits of the Atwood ex therapy.
And the expected, Colorado read three code approval later this year.
As mentioned last quarter, we successfully submitted our category III CPT code application in November for the ultrafiltration therapy, using the Atwood ex smart flow, which we expect will provide access to the outpatient market.
We believe the outpatient market represents a sizable opportunity and addresses a significant problem for hospitals and heart failure patients that new relic is uniquely positioned to solve.
Especially we believe early intervention in the outpatient setting via peripheral venous access will reduce overall hospitalisations improve patient quality of life and lessen the burden on the overall health care system.
In conjunction with the submission will receive strong endorsement from the Abbvie for the application from two major medical societies.
And in January we received positive news from the regulatory body, allowing us to use the recent published meta analysis title on.
Ultrafiltration is better than <unk>.
Demonstrating ultrafiltration superiority for the management of volume overload in acute decompensate of heart failure patients are support for reimbursement submission.
Given the current timeline of events, we expect to obtain the new category III CPT codes for reimbursement in the third quarter of 2021.
Finally, I want to end by thanking our recent CFO of cloudy on a pile of data on <unk> for her six years of service on leadership.
She was instrumental in driving the financial strength of the company. She also helped me and the rest of the executive team in creating the company's mission statement and guiding principles, which is the foundation for what we do.
Equally important was the role that Claudia played at the recent successful 20 million capital raise.
I will now turn the call over to Paul water.
New well as corporate controller, and principal accounting officer, who will walk you through our 20. Our Q1 2021, we sold following that we will open the call to questions.
Paul.
Thank you Mr.
And good morning, everyone.
Turning to our financial results revenue for the first quarter was $1 9 million.
Up 18% from Q1 of last year.
Revenue performance for the quarter was driven by increased capital equipment sales.
And strong utilization of disposables, among our critical care accounts.
In the quarter. We also saw continued momentum in our established pediatric accounts.
Regarding our cost of sales and operating costs I will briefly comment about major drivers.
First regarding our cost of sales our gross margins were 54% for the quarter.
Compared to Q1 of 2020, which had margins of 51, 2%.
As mentioned in previous earnings calls gross margins are heavily dependent on revenue mix between disposable circuits and capital equipment sales.
Given our strong capital equipment placements.
Specifically within critical care or.
Our gross margins were slightly down compared to the first quarter of 2020.
Given the increased utilization, we see in critical care.
We believe the placement of awkward ex systems will lead to increased gross margins by a favorable disposable product mix in the future.
The next regarding our SG&A expenses Q.
Q1, 2021 expenses were $5 2 million.
An increase of 15, 4% over Q1 of 2020.
The increase of SG&A expense was primarily due to the timing of non reoccurring administrative expenses.
And our continued investment in sales and marketing activities.
Our R&D expenses.
Were 950000.
In Q1 of 2020, one of nine 6% increase compared to Q1 of last year.
The increase in R&D expenses over the prior year were.
Primarily driven by clinical expenditures related to our pediatric registry.
The net loss for the quarter was $5 2 million.
For $1 25 per share.
Compared to a net loss in the first quarter of 2020 of for point 6 million or $11.54 per share based on the adjusted share count.
Regarding our liquidity position, we used $5 4 million of cash in the quarter to finance our operations.
To further strengthen our balance sheet in March we completed the $20.9 million capital raise.
With net proceeds of $18 $9 million.
We ended the quarter with cash and marketable securities of $27.9 billion.
Based upon our current operating plan, we believe that our existing cash and marketable securities.
Enable us to fund, our operating expenses and capital expenditure requirements.
In terms of modeling Q2 of 2021.
We continue to closely monitor the situation caused by the COVID-19 pandemic.
We expect to see increased utilization of our therapies in areas of the country, where we have an established presence.
However, if access to hospitals continues to be limited.
It could potentially impact our traditional business.
At this point, we expect Q2 revenues to increase mid to high single digits sequentially.
Regarding our gross margins.
We expect Q2 margins to increase modestly relative to Q1 of 2021.
We expect that on an annual basis, our margins will continue to benefit from increased disposable volumes.
As hospital capital budgets continue to be constrained, we may experience temporary impacts to our margins.
Regarding our operating expenses.
We expect our SG&A spend to decrease sequentially in Q2 of 2021.
Given the nature of the non reoccurring expenses, we incurred in Q1.
In R&D, we expect spending to increase slightly relative to the first quarter of 2021 as we continue to increase activities in our pediatric clinical studies.
Studies and development projects.
Operator.
Please open the call to questions.
Certainly at this time of you would like to ask a question Press Star then the number one on your telephone keypad.
And your first question is from Jeffrey Cohen of Ladenburg Thalmann.
Good morning for Fox.
Destiny on for Jeff and thank you for taking my questions, perhaps I'll just start with the carpel from these last few comments on talking about SG&A, what percentage was non recurring this quarter and then in terms of R&D beyond the registry are there any other developmental efforts you'd like to call out.
Well.
Good morning, Destiny and thank you for the questions the.
The percentage of the the majority of the SG&A expenses were due to our expanding the world of our sales organization on marketing.
A percentage of that.
Was due to a one time real all current.
Expense due to our registration in Delaware.
We had also a.
So the percentage of our expenses in Q1 was due to the rebranding of the company.
So those are the three areas.
That amount to the SG&A increase so you can see there the two of them are non or non reoccurring and we expect our SG&A next quarter to be lower than on the west this quarter.
Was there another part of your question Destiny.
Yes, just the R&D increase I know you have the registry going on are there any other.
Development efforts that you could call out or is it strictly the.
Related to the registry.
In addition to the rages too we have talked about in previous quarters of aboard our continuing improve.
In our development in our innovation, we continue to innovate our technology, both on the pediatric as well as on the adult of offering.
Okay. Thank you and then could you just remind us the size of the sales force as of current I know its split between reps and clinical specialists has that have either of those changed Samsung the last fall.
Yes, we have increased we last quarter, we had some territories without clinical of specialists. So this quarter, we filled most of those territories with the clinical specialists and as you remember the clinical especial loses of very key function in our sales process.
Got it okay. Thank you and would you also be able to discuss on average units per center and then remind us how many consumables are typically utilized per patient per day.
Okay I don't know if we have disclosed that information of the pass.
The destiny, but there is a significant difference between the utilization per.
For patients in the adult population versus the pediatric population.
Is probably around I'm Gonna say, one point to 1.5.
Circuits per adult patient treated with the Aqua decks compared to about four of five circuits for the pediatric patient and that is due to the fact that pediatric patients tend to stay longer on the therapy than the adult patient population.
I see okay. Thank you.
And then just sticking with the pediatric patients for a moment I know you announced the first patient during the quarter. So I'm wondering if there's any additional update here at the percentage of patients enrolled.
Yeah, we continue to have our accounts enrolled patients.
We're not providing at this time, what the count but is being well received on the centers that are participant in the registry are really excited about our gathering the information that is going to provide more information about the efficacy of the therapy.
Okay, and then my last one and I'll jump back in queue.
I think you touched on it briefly in the beginning of the call, but I'm. Just wondering if you could provide the initial feedback from the rats are customers for patients et cetera about the name change.
A good question Destiny is has been well received.
Not only because of the name now.
Now.
Represents more of what we are doing in the company are also the tag line is very important.
We storing fluid balance in patients suffering from fluid overload and therefore, we're transforming the care the new data that we are receiving on the efficacy of the therapy.
Is indicating that the therapy is working very well and that early use of the therapy would benefit patients as well of the health care system.
So the customers and the sales organization are very excited about the new name.
And the other question Destiny.
That was my last one thank you so much.
Thank you. Your next question is from Anthony Vendetti of Maxim Group.
Thanks, Thanks, Nester I was just curious you've talked about.
Pediatric patients on.
Also late weighing less than 10 20 kilograms.
As an opportunity obviously, the physicians could use it.
Off label.
Can you talk about where you are.
The processes and trying to get FDA approval for pediatrics pediatric patients less than 20 kilograms.
Yeah, we continue to work with the FDA on on getting the approval.
But anthony.
The <unk> system as gentle and as effective as of it is to treat patients on the 20 kilograms is an adult device. He was the signing for the adult patient population. So we do our we are working right now on looking at the development of a pediatric dedicated device.
That is going to be much.
Better suited for these patients on the 20 kilograms and thus the device that we are going to go back to the FDA and as for the labeling under the 20 kilograms.
Okay that's interesting.
Okay.
Can you tell me a little bit about the timeline for that the development of the device.
And any kind of color you can give around the.
Mhm.
Yes.
I'm sure that you are familiar with the development of Med Tech devices is not something that happens overnight.
But we have a.
With partnering with the outside.
The group organization that is helping us goodbye of design this device and we plan to do it very quickly.
Yeah.
Okay, and just remind us how large is this market.
Pediatrics generally stay on the device longer so there's more consumables. So that's that's that's an opportunity.
For new wallets, but but how large is the pediatric.
The market how many.
Patient per year per year of pediatric patients per year.
From fluid overload.
Right right well.
As as best as we have been able to estimate the market. We believe that the market is around 100 on $50 million addressable market. These are patients suffering from fluid overload that can be.
Treat it with the athletics system.
Compared to the adult is much smaller, but ah patients tend to stay in the therapy, sometimes for weeks sometimes for months.
And the utilization can be as I mentioned before anywhere from four to five circuits for pediatric patient on average and sometimes we have seen 10 11 circuits per patient.
Okay.
That's helpful.
In terms of in terms of the placement of the <unk> system.
Generally it's easier yourself back into hospitals that have already purchased one device.
Can you talk about particularly this quarter, how many new hospitals have placed for systems, new customers versus selling to existing customers.
Anthony.
We're not providing a specific numbers of hospitals that we opened per quarter.
But we have seen.
In increase of utilization in our existing accounts, both in terms of purchasing circuits and consoles.
And also all of the new accounts, they tend to purchase more than one console.
To keep it at the backup so many of the NDA by two to three consoles too.
<unk>.
The plays a.
A patient or two patients in therapy, and keeping deal that console of the backup.
Okay. That's helpful for nuclear new customers generally by two to three and the ability to access these new customers, obviously COVID-19 headwinds as it has impacted you.
The company, but.
You know, we're hearing that debt hospitals, not all of them, but a lot of hospitals are starting to open back up.
<unk> two medical device sales people.
Can you can you talk about.
What you're seeing what your sales force of seeing in terms of the ability to access new hospital.
Yes, yes, you're right.
The access to hospitals has started to open up many of them by invitation only and the.
Pediatric hospitals are a little.
There are different just because these patients are pediatric patients.
There is nothing else available in the market to tweet on so.
Many of the pediatric hospitals that we have been able to open. During this pandemic has asked us to come in we've been very.
Creative in terms of of how we train their nursing staff many of them through.
Video on virtual.
It means but also training them outside of the hospital.
So we've been able to access the pediatric hospitals during this pandemic.
Okay, Great and then the last question is on the.
New code the reimbursement code I think you mentioned by by three Q21 by the third quarter of this year.
Can you talk a little bit about.
You know what that could mean.
For new wireless and.
What kind of catalysts could that be.
In the near term or.
Over the next.
A year or so.
Yes.
Good question.
We are very excited about this.
On the approval process.
We started as I mentioned in November with the submission in January the.
The CMS editorial panel, Matt and the recommended the approval of the CPT code will.
We'll receive a strong support by two medical societies.
And the C M as needs of the final approval is somewhere in the Q3 of this year, what it would mean to the company is.
A couple of things one is the access to the outpatient.
A clean eggs on the outpatient setting tweeting.
Patients suffering from fluid overload in the outpatient clinics.
This is something that doesn't exist right now and as you can imagine the treatment of patients in the outstanding AR.
I'll pay outpatient setting would be much more beneficial for the quality of life of the patient as well as the cost to the to the hospitals and to the health care system. So the outpatient market is one of them.
Secondly, in the inpatient basis. The physicians today don't have a CPT code to build against now with the category three they would have a CPT code that they can use to build when they are using our therapy aimed the inpatient.
And thirdly, I would say that these category three code by nature is the code that allows physicians to collect the data of how much does the cost to treat patients with the Atwood ex and this is going to be very beneficial when we moving to the category one code.
Yeah.
So those of the three areas of benefit that we see of the impact that we see these category three.
On new wellness.
Okay, Yeah, no. It seems like a significant milestone for the company. If you can get final approval by third quarter 'twenty one.
That's right, yes, okay great.
Thank you very much Mr. I'll hop back in the queue. Thanks.
Thank you.
Thank you. Your next question is from Brooks O'neil of Lake Street capital.
Good morning, guys I have a couple of follow on questions first just carrying on.
From Anthony there on the CPT code you mentioned the category one code what would be the time the nest or to go from receiving or implementing the category three code the getting to a category one code.
Right.
Good morning Brooks. Thank you for your question is not that predictable and that is because it depends on how much information is obtained during the current quarter. Three once we have a good feel for or CMS has the good feel for what is the cost of our.
Providing this therapy deemed the application for current glory, one becomes more predictable on easier.
Okay that makes sense second question, the I really like the name change, but I'm curious of what the reaction has been from your CHF customers obviously.
<unk> focus makes a lot of sense.
You want to make sure you keep.
Everybody who's under the under the <unk> going forward so.
The response has been positive from them.
Yes, it has been very positive book to.
A you know many customers, especially the pediatric physicians the critical care. The ICU cardiac surgeons have told us that the CHF solutions, which means congestive heart failure solutions is no longer the representative of what why they are using it on how they are using.
The Aqua day X for their patients that are not our failure. So we have gotten.
A comment by physicians that is time for us to change the name of St theme from investors you know when we tell the story of our expanded.
Utilization of the Aqua the eggs into critical care cardiac surgery sepsis patients pediatric patients they do come to realization that the name no longer represent.
Everything that we're doing in the company.
So he has been very well received.
That's great.
Good question. So obviously as you mentioned, there's been tremendous COVID-19 headwinds.
That have made it difficult to access the doctors and hospitals et cetera.
I'm sure that's been a tremendous impediment.
I have a recollection that you did see some benefit from COVID-19 as well some utilization of awkward backs.
To help COVID-19 patients and do you see that is now.
Something that will go away or is that something that's likely to remain a part of the.
The.
Effort going forward.
Very.
Good question Brooks.
The good observation, we do at the beginning of the pandemic, we see a significant increase in utilization of the Aqua ex to treat critically ill patients with call of the infected by the COVID-19 that came into the ICU with COVID-19 critically ill. So in those hospitals, where we had.
At the system and we saw an increase in utilization what has happened is that they have these hospitals and new hospitals out started to use the aqua ex to treat COVID-19 patients have seen how well the therapy is the.
The effectiveness of the therapy to treat any type of critically ill patients are coming to the ICU. So now we haven't seen the synergistic effect of treating COVID-19 patients to treat non COVID-19 patients that are critically ill in the ICU.
It's fabulous Okay, just one more for me.
You mentioned the outpatient market it seems like a great opportunity.
We do quite a lot of work with companies that have important therapies that have been used in patient.
Take them to the home how big of a market do you see that for new wireless and cable.
Can you just talk about how you are starting to think about accessing that market for both from a go to market standpoint.
Alright.
You know Bruce we have seen.
We have discussed with a lot of hospitals the use of the act with ex in the outpatient.
Some of the data that has been published recently on that we have discussed.
<unk> discussed in previous calls indicate that there is a significant reduction of hospitalizations and readmission when treating these patients. So many of these hospitals do want to tweak a power failure patients outside of the hospital in the outpatient settings and.
On the reason for that is that you schedule you can schedule.
On the appointment of the patient to come in and received the therapy and because of the therapy has been very effective in reducing the readmission. This would be of significant savings for hospitals, if they can treat patients in the in the outpatient setting.
Did I answer your question Brooks.
I would love to get a sense for the size of the market, but I'm guessing that's not data that's readily available, but it seems to me to be a big opportunity. So we can talk about it more down the road.
Right, Yeah, Yeah E. We have not.
Provided a knee number in terms of the size of the market, but the current power failure of inpatient business is that the the addressable market is $900 million is what we are estimating so you can imagine debt tweeting. Some of these patients in the outpatient setting.
Would be of great opportunity for us as well.
Absolutely makes total sense. Thank you very much for taking my questions.
Thank you.
Thank you we have no further questions at this time I will turn the call back over to Mr. <unk> for any closing remarks.
For my final remarks, I want to communicate that the company easing its best financial shape. Since 2017, we have sufficient cash on the balance sheet to provide a meaningful runway to fund operations, while we execute our strategy.
We have seen impressive growth of rates during the last six quarters, thanks to our expansion into pediatric and critical care.
The recent clinical evidence in various therapeutic areas continues to support the ease of use flexibility in application and the predictable outcomes of the <unk> system, which is transforming the lives of many patients and their families.
I want to thank you for joining our first quarter 2021 conference call and wish you all a good day.
Thank you everyone. This does conclude today's conference call you may now disconnect.