Q3 2021 AVITA Medical Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Yeah.
Ladies and gentlemen, thank you for standing by and welcome to Vida Medical's third quarter 2021 earnings Conference call.
At this time all participant lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press Star then one on your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please press Star then zero I would now like to hand, the conference over to your host Caroline corner.
Managing director Ed Westwick. Please go ahead.
Welcome to a beta medical fiscal third quarter 2021 earnings call. Joining me on today's call are Mike Perry, President and Chief Executive Officer, and Michael holder Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all statements made on this call that do not relate to matters of historical facts should be considered forward looking statements, including statements regarding the markets in which would be to operate trends and expectations for VITAS product and technology trends and demand for VITAS.
<unk>.
As expected financial performance expenses and position in the market and the impact of COVID-19 on our venous operations and it'd be this customer's operations. These statements are neither promises nor guarantees and are well known and unknown risks and uncertainties that could cause actual results performance or achievements to differ materially from any.
Results performance or achievements expressed or implied by the forward looking statements.
Please review our most recent filings with the SEC, particularly the risk factors described in a beta three and 10-K filings and then the Venus quarterly report on form 10-Q for the third quarter ended March 31, 2021 for additional information any forward looking statements provided during this call including projections for future performance are based on managed.
For my expectations as of today.
Aviva undertakes no obligation to update these statements except as required by applicable law.
This press release with the third quarter 2021 results is available on <unk> website, Www Dot Davita medical Dot com under the investors section and includes additional details about it would be the financial results.
This website also has the latest SEC filings, which you are encouraged to review.
A recording of today's call will be available on our website by five P. M Pacific Times, a day now I'd like to turn the call over to Mike for his comments on third quarter 2021 business highlights.
Thank you Caroline and thank you everyone for joining us today for.
The third fiscal quarter ended March 2021 was a solid quarter of execution here at Davita with progress across several of our growth drivers before I delve into our recent performance I realize that some of you listening today, maybe fairly new to Davita medical so I'll commence with our quick backgrounder.
Prior to moving forward with our recent progress.
As the commercial stage regenerative medicine company with a proprietary technology platform known as the resell system, which is commonly portrayed as spray on skin themselves.
Clinicians take a small sample of the patients skin and within 25 to 30 minutes at the point of care can use the resale system to prepare a cellular suspension, which has been sprayed onto the womb to regenerate natural healthy epidermis or skin, including the return of natural pigmentation.
Before we felt received premarket approval or PMA in late 2018, allowing us to begin our commercial efforts in 2019 burn patients received large skin grafts from other parts of their bodies, which created sizable secondary wounds that were extraordinarily painful and provided new sites for.
<unk> infection and scarring.
Today, the resale system delivers compelling well defined clinical benefits by significantly reducing the amount of donor skin required to treat the second and third degree burns and providing a win win dynamic to physicians patients hospitals and payers.
While we are increasingly confident that resale is rapidly becoming the standard of care.
What we estimate as a $260 million serviceable burn market. The resale system is not limited to applications and burns.
We previously disclosed we currently have three pivotal clinical trials in progress in the United States that seek to leverage our PMA approval through a variety of label expansion opportunities.
These indications involve prospective application of our resale technology to patients who have lost their epidermis through injury or accident or for those patients who have impaired epidermis due to skin defects or abnormalities.
We remain especially energized about our opportunity in treating staples that ally ago common yet remarkably under treated skin disorder.
Beyond our near term clinical pipeline prospects, we're exploring applications for the use of resell within the cell and gene therapy arena to attend to a significant number of life threatening or debilitating skin disorders.
So with that background on the company I will now turn to some highlights from our recent quarter.
While our revenues in the third fiscal quarter, we're like many of our peers hampered by COVID-19, we have continued to demonstrate progress with both our legacy Byrne's business and our pipeline initiatives.
Our burns revenues were $4 7 million down 9% compared to the previous quarter ended December 2020, primarily due to a soft January which was our lowest month of sales since the initial COVID-19 shutdown last April.
As a reminder, the slow January was due to a combination of factors, including a lower accident incidents during COVID-19 as well as inventory stocking and december's as customers bought up to achieve their annual rebate tiers.
We did experience some improved performance in the latter part of the quarter. Overall 492 resale procedures were performed during the quarter, which was a slight increase over our second fiscal quarter.
Over the past 18 months, we have made concerted efforts to target small burns in order to deepen our penetration in established accounts.
Burns covering less than 30% total body surface area or TBS, a represent approximately 95% of burn admissions.
We have been successful in moving the needle and close to 80% of our cases now come from these smaller wounds.
Should note that with this increased penetration. We also see the average number of resale units per procedure decrease consequently, while this decreases our average revenue per procedure, if correspondingly allows us to access many more procedures, which is.
With our plan.
In the third quarter, we opened six new hospital accounts, bringing the total number of burn centers with access to the resale system to 99 with the Abi estimating there are 136 burn centers in the United States. We are very pleased with our commercial team success and we feel that we've established a saw.
All it footprint in this market and our focus will now be on driving utilization as such we don't anticipate regularly updating on this metric looking ahead.
We have also seen an increased number of new surgeons using our products. For example in this past quarter. We saw a 147 unique surgeons using the resell system, which represents approximately 50% of the 300 U S burn surgeons.
We view this as a healthy leading indicator for future growth as we drive penetration into our existing account base.
Today, we're able to gain access to most accounts to support cases, and after care as well as to perform training.
Sales calls are still challenging however, we are seeing traction in small off site of Vita events. Furthermore, on the heels of the successful series of 18 presentations at the 2021 American Burns associated Shouldnt meeting, where our founder Fiona Wood was honored.
With the ever at year. This evidence memorial lecture reward resell continued to be front and center at the John a bus with memorial burn and wound care symposium and the more North American Burn Society meeting.
We observed an important shift in the presentations and discussions at these conferences toward more advanced topics of practice integration and the use of resell with synergistic products, which demonstrates strong adoption and the community's commitment to ongoing post market.
Investigator initiated research with resale.
As we look ahead, our sales force will be focusing primarily on driving and expanding usage and adding new surgeon users within our existing accounts as we mentioned on our last call. We were working through stocking inventory at the beginning of the third quarter, but we saw a purchasing resume in February and March.
Here in May we're still seeing impacts due to reduced access and capacity limitations, but we were also seeing signs of improvement.
Moving now to our progress in our pipeline vitiligo efforts, we continue to see a high level of interest in our <unk> study and have increased the number of sites from seven to 11 during the quarter.
For those unfamiliar with the condition that <unk> as a skin disorder characterized by deep pigmented areas of skin that appear as white patches and are primarily attributed to an underlying autoimmune disorder in the patient.
<unk> presents a sizeable market opportunity for us.
There are an estimated 100 million sufferers of <unk> worldwide, including approximately $4 5 million Americans.
Of those from the U S. We estimate approximately one 3 million have stable vitiligo, meaning that there are underlying autoimmune disease is being well managed and their deep pigmentation is not continuing to spread.
The stable that a lago market in the U S. Currently represents approximately a $5 billion market opportunity and there is no FDA approved product presently available to enable re pigmentation for these patients.
Patients, whose <unk> is stable and unresponsive to frontline therapies, such as topical treatments and photo therapy are candidates for resell.
Our clinical trial sites required support and tapping into this population.
Given that these particular patients have not benefited from conventional treatment. There are no longer routinely seen in the clinical setting to.
To address this situation, we launched a substantial multi media recruitment campaign, including outreach on local radio digital radio and social media.
Rather than spending on media outreach during our third fiscal quarter at a time when vaccinations were still ramping up and many restrictions remain in place we initiated the recruitment campaigns in April and expect to see subsequent increases in enrollment.
We have already seen an uptick in referrals and we've identified potential study participants who are approaching the required 12 months of disease stability and plan to enroll in the coming months.
And the third fiscal quarter, we enrolled three additional patients in our pivotal study assessing the use of the resale system to treat stable that ally go.
Since the beginning of March we have enrolled another three patients, bringing our total to 16 and we expect enrollment completion in this trial by the end of 2021.
Early feasibility data points to the potential for us to consider dropping in the arm of the pivotal study, thereby reducing the total number of subjects required.
Assuming usual FDA review timelines, we continue to believe we should be in a position to enter the U S market commercially with this indication as early as the second half of calendar 2023.
You may recall that we have two other pivotal trials ongoing both with the goal of expanding our PMA label into new indications.
The pediatric partial thickness burn study funded by our BARDA contract aims to expand our burn indication to include the pediatric patient population.
Enrolment in this study increased from 10% to 16 during the third quarter as.
As a potential alternative to completion of this prospective trial, we are engaged in dialogue with the FDA regarding prospective analyses of clinical data collected during the resell compassionate use and continued access programs to potentially support an expansion of resells.
Indication for use to include pediatrics.
Please stay tuned for more communication on this front.
And our soft tissue reconstruction trial for trauma, which involves non burn wounds, such as necrotizing soft tissue infections and the Gloving injuries, we saw an increase in enrollment from six subjects to 'twenty two.
Our site engagement efforts are paying off and it has been gratifying to see the increased momentum.
14 sites are currently enrolling in this trial, we plan to complete recruitment for our soft tissue injury trial in calendar year, 2022, and with a six months follow up for the patients in this trial were aiming for an approval in calendar 2024.
Work also continues to progress in our collaborations with the University of Colorado Gate Center for regenerative medicine for Epidermolysis, <unk> or <unk> and with the Houston Methodist Research Institute for our rejuvenation using RNA telomerase. These programs both aimed to show preliminary proof of.
Concept during this calendar year.
I'd now like to walk you through the growth drivers we see ahead.
To begin we will continue to drive forward on physician engagement and education.
With approximately 50% of U S burn surgeons using resell in the quarter and 81% of the approximately 300 U S. Burn surgeons training to use our system, we have built a world class burn physician base.
We are further leveraging our training capabilities and physician engagement programs and adding new outreach efforts. For example, we are rolling out a virtual reality program to more adequately engage surgeons remotely.
We are seeing an increase in offsite programs, such as dinners and trainings and we look forward to launching our virtual reality offering very soon.
As of March.
Restrictions relaxing a bit.
We've been able to achieve access into all cases and for all after care support. However, sales calls remain the challenging part and we will update you as access here improves our.
Our commercial team will be continuing to drive penetration into our burn center accounts.
As I mentioned, we are back approved and what we believe is a critical mass of burn centers and with that we are shifting focus to concentrate on penetration within these accounts, we anticipate that our strategy of driving into smaller Burns will result in a broader resell usage and ultimately.
Lee and a substantial increase in the volume of cases utilizing the resale system.
Our pipeline efforts are moving forward and despite a less speedy rebound from COVID-19 than we'd like all three of our registration clinical trials continue to make gains towards completion.
There are potential favorable changes coming with respect to the use of existing data for pediatric burn labeling and a reduction in the number of pivotal <unk> subjects needed to pursue the vitiligo indication.
We continue to be optimistic about our preclinical pipeline work and epidermal license below certain rejuvenation.
Turning to reimbursement.
We've heard previously the company is seeking a transitional pass through payment application known as the TPP, which will support a separate additional Medicare payment or sic code for the resale system, specifically for its use in the outpatient setting.
We had communicated previously that we had hoped that the centers for Medicare and Medicaid services or CMS would have made its final decision in December of last year with a C code to be implemented with effect on January one of 2021. However, if CMS is experiencing delays due to COVID-19 <unk>.
<unk>.
If and when we receive a C code our team is poised to initiate and leverage a pilot launch and to approach commercial payers to seek coverage for those in the outpatient setting.
Based on the new timeline, we expect initial outpatient sales to commence by early 2022.
Moving to our last growth driver, we anticipate broadening our geographic footprint over the coming years.
To that end together with our commercial partner Kosmos Tech, we continue to seek approval in Japan.
Our efforts and interactions with cosmetic and the Japanese regulatory health authority are actively ongoing.
We continue to prioritize the U S market in parallel we are frequently reevaluating our reentry into ex U S markets as we add new clinical indications for the resell system and.
In summary, looking ahead, we genuinely believe in the broad utility of the resale platform across multiple indications and despite the challenging macro environment. We remain encouraged by our sales forces demonstrated ability to build our burn center account base and thereby team.
US up for future procedural growth.
I'd now like to turn the call over to our CFO Michael holder for details on our financial performance in the quarter Michael.
Thank you Mike.
Revenue in the third quarter ended March 31, 2021 was $8 8 million compared.
Compared to $3 $9 million in the corresponding period ended March 31 2020.
And compared to $5 1 million in the prior quarter ended December 31 2020.
In the third quarter ended March 2021, resale commercial revenues were $4 6 million.
While resale revenues associated with biomedical advanced research and development authority BARDA for $4 1 million and attributable to the first delivery of resale units for emergency response preparedness.
Retail commercial revenues in the third quarter ended March 31 2021.
Per to the corresponding period ended March 31 2020.
Increased.
$8 million or 21%.
Gross margin was 76% for the third quarter of 2021.
Compared with 84% in the corresponding quarter last year.
Lower third quarter gross margins resulted from a lower resale price point for.
Units that were delivered for emergency preparedness associated with partners.
Operating expenses were $13 2 million in the third quarter of 2021.
Compared with $19 7 million in the same quarter last year.
The decrease in quarter over quarter operating expenses is primarily attributable to lower stock based compensation.
Along with lower sales and marketing expenses.
Partially offset by higher costs and research and development.
Lower stock based compensation in the third quarter. This year was driven by higher share based compensation expenses in the same quarter in the prior year associated with certain performance milestones being met.
The decrease in sales and marketing expense and the <unk>.
Current quarter is primarily due to reduced travel to burn centers and industry conferences necessitated by COVID-19 related travel restrictions.
Which was partially offset by higher prior year costs incurred with the resale product launch.
Higher research and development expenses have resulted from a ramping up of clinical trial related activities for treatment of <unk> as.
As well as other research and development costs incurred to further expand the company's pipeline.
Net loss was $6 million for the third quarter of 2021.
And net loss per share was 26.
On a weighted average basic and diluted share count of $22 7 million.
Compared to $15 million and a net loss per share of <unk> 71.
On a weighted average basic and diluted share count of $21 2 million in the same period of the prior year.
Cash was $115 million as of March 31, 2021, which includes $64 million net proceeds from our capital issuance closed in the fiscal third quarter of 2021.
Moving on to guidance for our fourth fiscal quarter.
We expect total revenue in the fourth fiscal quarter to be in the range of eight two to $8 6 million consisting of.
Five to $5 3 million of commercial resale revenue.
And three two to $3 3 million of resale revenue associated with BARDA.
With that we thank you for your attention and now I will turn the call back over to the operator.
Thank you.
As a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Josh Jennings with Cowen. Your line is now open.
Josh Jennings for your line is on mute. Please UN mute your line.
Thank you. Our next question comes from the line of Matthew O'brien with Piper Sandler. Your line is now open.
Afternoon, Thanks for taking the questions.
Just for starters, Mike can you talk a little bit about what you saw from a productivity perspective from the sales force towards the end of the quarter and then.
Smaller burns are really kind of feed into growing.
Kind of the core business.
Sure Matt My pleasure.
Yes.
We're seeing.
Definitely.
Mark for reduction in January and then in February and March we really saw a substantial recovery.
Bringing us in that four six for $7 million.
For the quarter.
And those <unk>.
Smaller burns at all actually.
Turn it over to Erik <unk>, our chief commercial officer to provide a little bit more color.
But our target there is burns that are less than or equal to 30% total body surface area.
Our TB assay and.
We're.
That comprises 95%.
Of burn admissions overall as I mentioned in my prepared remarks.
And we're really very pleased with how we're trending.
Toward getting a lot more patients.
That are being treated with the smaller burns because thats, where the volume is.
Of course, theres going to be less revenue per procedure, but then we're really getting into the volume of procedures with John to boost our revenue substantially.
I'll turn it over to Aaron to give a little bit more color on the latter part of the quarter and if she wishes on the smaller burns as well sure So hi, Matthew.
March things were certainly starting to pick up and so when I look at the analysis in terms of how many case supports our training. We're done remotely there was only I think <unk> done in March and those were not done due to COVID-19 related concern. They were done simply due to resources in travel right. So we are now able to get into these hospitals.
We've got for per Dms that we're also using that are quite busy.
And we're seeing some positive tailwind we've got a couple of centers that have been completely closed down to us.
For about a year since COVID-19 hit and they've recently allowed us to enter.
Hospital, so our field team is out there.
<unk> in the hospital, they're at we had to live events as well the NAV Congress as well as <unk>.
And then we're seeing an uptick as far as.
Offsite kind of local Abita event so.
Yes.
Busy right now and we're seeing that as well trend even further increase in to April.
Thanks, and then just two more for me if I may I'm, sorry go ahead Mike.
No I just wanted to see if that answered your question.
That was actually it was spot on so I appreciate it so I guess the.
The guidance for.
Q4 here.
Again on the core business, if I think about kind of the progression through the quarter and obviously I don't have all the numbers.
Progression during Q3, but it seem like you are probably doing something like 2 million bucks or so in March so net.
<unk> for kind of five two to I think you said $5 six for the core business is actually a little bit below that trend line I don't know if for some inventory that's working around.
Or what's going on but I'm just curious if it's really just more a function of hey, we haven't been able to get into these accounts and really push and that as we get into the next fiscal year. You should be you should see a marked increase or improvement in the core business kind of versus the trend line.
Thank you.
You've nailed that I'm going to pass it over to Aaron but.
Youre absolutely right I think we're seeing spill some restrictions due to COVID-19 and our our guidance on resell specifically sales and being in the five to $5 3 million for the next quarter.
BARDA being three 2% to $3 three is consistent with.
Some of those restrictions starting to ease up and then really easing up in the.
Next quarter following that Erin.
And I think it's a fair point right. So we had fortunately with only 99 accounts, we can certainly kind of forecast each one individually as well and we know that each account has their own circumstances.
So that was a factor as well I think the big thing, though that impacted us.
In the last quarter was the amount of surgeon movement, particularly in our top 10 accounts I think six net of the top 10 accounts had surgeons that had kind of departed or <unk>.
Practicing.
To the normal levels that they typically do and so.
There is some of that still at play that's just a temporary kind of dynamics, but in our top 10 sales as a percentage of total sales went down fairly dramatically last quarter, and we're still seeing kind of the dust settle in terms of where they've moved to and that particular movement. So so I think theres more every every account has some kind of individual dynamics.
We've also factored in.
Got it so let's turn to the right direction, great to hear last one Mike I'm, sorry to monopolize the call here, but just on the commentary on a reduction in the number of patients maybe on the <unk> side.
Is that is that contemplated in the second half of 'twenty three commentary could it be sooner.
If that number comes down and then we're going to get a better sense for.
Whether or not that's going to be the case.
Okay.
Sure so.
I'm not sure that I understood. The question relative to <unk>, you asking when we anticipate the recruitment to take an uptick.
I think what you were saying, Mike and I may have misinterpreted so forgive me, but it just sounded like the number of patients could be lower potentially than you had thought initially and you may get some updates with FDA on that.
Yes, actually what we're doing is <unk>.
Starting a multimedia campaign.
And we decided specifically not to do it in the last quarter, while they were still ongoing.
Vaccinations and a lot of.
COVID-19 related restrictions. So we started this.
Basically in April and this is digital radio radio social media.
And we believe that thats going to really drive recruitment.
And the quick our CTO is on the line as well and I'm going to hand, it over to him for.
For any additional color commentary on recruitment and her vitiligo trial. Thanks.
Mike Hi, Matt.
Just to add to that.
<unk>.
I don't have exact details concerning the timing of dropping an arm.
Our planning at the moment as such and we are optimistic that we will complete recruitment this year.
So this is very much a.
Dynamic situation for us.
Influenced by the incoming data from our feasibility program, so hopefully that kind of rounds out.
The answer for you.
Okay.
No indication and its recruitment coming up so.
A lot of the patients just one last bit of color commentary here.
A lot of the patients that are being referred don't have photographic evidence of stability over the last year. So waiting for additional time period to make sure that these are indeed stable a bit of <unk> patients before we treat them. So.
So we don't get failures is causing a bit of a delay relative to for that.
Enrollment bump that we anticipate.
Got it got it very helpful. Thank you so much.
Sure.
Thank you.
Next question comes from the line of Josh Jennings with Cowen. Your line is now open.
Hi, good afternoon. Thanks for taking the question I apologize for the technology Glitch I wanted to start off and ask about the strategy too.
Go deeper into your current customer base from those accounts and move into the smaller burns.
<unk> had a great presence as you called out on the prepared remarks.
And pause Vic.
And in other conference and I would just wanted to learn if theres any significant data coming out of there that will facilitate this move down the burn size.
The smaller brands and then also.
Any other details in terms of that strategy of moving from those larger size Bernstein two other smaller.
Sure Josh.
Thanks, and again I'll start off with.
An answer and then pass it over to Aaron Liberal our Chief commercial officer.
Really what we're looking at there is the natural progression of.
The adoption curve.
These various centers, where they start with the larger TBS Burns.
The deeper ones, where they're utilizing resell along with a widely meshed autograft.
Then progressing to smaller wounds and less deep wounds and using resell alone.
And that's what we're actually indeed, starting to see and this is exactly what we had in mind for our strategy and our plan.
So that's moving along well.
And with access to the burn accounts.
As <unk>.
Restrictions relax, we anticipate that our reps are going to be able to get into those accounts.
Not just for procedures and dressings.
Actually helping out but for.
For business development, moving forward and getting new burn surgeons.
Two to actually adopt the <unk> system.
And with that I'm going to pass it over to Aaron I.
And I think I think you hit it.
But just a few things to add there so.
Sales calls are still somewhat challenging, but we do know that education and value added education is permitted right and so we've certainly gone very deep in that particular area. We've got from simulation based training, we are rolling out some virtual reality training as well.
And then as I said, some some local events.
That we are having local live events and so our strategy is all about the training, but not just the surgeon training at all levels of the organization within the hospitals levers kind of exposed to resell.
And so it's kind of a kind of all hands on deck kind of surround.
The customer from all angles from a training perspective, and very different types of training right just to keep resell top of mind.
And then clearly as it opens up even further will be able to do to be doing more but this transition to smaller burns who has been something that we kicked off more than a year ago. When we saw that there was interest and really using we sell not just for large burns and so it's something that we've been showing casing through kind of faces campaigns.
Through different promotions, but also podium presentations as well there's been a lot of kind of <unk>.
Energy on it so it's just been a natural progression that we see as Mike said from a from a typical surgeon adoption perspective.
Understood. Thanks, and then just two questions on vitiligo. The first I just wanted to follow up on Matt's questions question, just make sure. We're clear on the trial that you may have.
<unk>.
I interpreted.
Earmarks has a potential to drop one of the interest expansion ratio arms that is currently in the trial design because of some of the feasibility data.
Net the correct interpretation.
When we use.
When will you be alerted to the potential of eliminating expansion ratio arm or is that not correct.
So it is the correct interpretation, Josh you're right on the money on that realm.
Relative to dropping one of the expansion arms and this is based upon what we're seeing in the feasibility patients where each patient is getting all concentrations went to five 1% to 10, 1% to 20.
And any additional commentary Andy we don't have exact guidance as yet on timing Josh.
Okay, great. Thanks, Thanks for clearing that up.
We're clear I just want to make sure.
It was clear.
And then the last question is just on.
Any feedback you can share maybe not from your principal investigators, but if there is anything you can share just in terms of experience with resale in vitiligo.
For.
Any international experience and whether we could see any other publications this year.
On reselling staple vitiligo from from the Netherlands or anywhere else in Europe. Thanks for taking that I'll talk about.
Yes, Thanks, Josh again, I'll pass it over to Andy in a moment, but.
You probably heard before.
We have a lot of.
Legacy data.
For treatment of patients with the resale system, who have stable middle I go.
Over 1000 patients in China, and eight peer reviewed publications showing.
Positive outcomes.
And so far as prospective while we're doing the trials is there anything else ongoing Andy right.
Right now.
So nothing else right now Josh.
Great. Thank you very much.
Thanks for your questions.
Thank you. Our next question comes from the line of Ryan Zimmerman with <unk>. Your line is now open.
Great. Thank you good afternoon, everyone and thanks for taking the questions and Michael Nice to have you on the call.
Maybe just the first question kind of dovetails with bulk, Matt and jonathan's questions on the smaller burns but.
The question relates to the dynamics of where these brands are taking place and so there is clear obviously, a clear push into smaller burns, which will then see the market for the use in outpatient.
Given the pass through status payment dynamics that are in place right now I'm curious if you could talk a little bit about kind of where the smaller brands are taking place.
Whether the lack of pass through is prohibitive or you can still see a lot of adoption in the inpatient setting, but with say smaller burns and just kind of overall interplay between those those dynamics.
Yes, so the smaller burns are pretty much occurring.
Got your question correctly.
In the same patient populations.
That are having the larger burns and they've always been there it's really just a factor of <unk>.
Having.
Significant number of surgeons, who have moved along that adoption curve and are now actually treating those smaller burns. So we're getting more smaller burns treated and youre right that does actually move us toward the outpatient.
<unk> market opportunity.
Which we are awaiting CMS is sic code.
We anticipate at this point that will get the C code.
Bye.
Early 2020 to.
January.
If not before.
Any other color commentary Erin, yes, I guess, it's interesting and how do you define smaller burns and maybe just to put it in perspective right. So.
10% total body surface area, which which inpatient it's considered a smaller burn I mean thats the size of the limb right and so we're talking about 30% total body surface area or smaller is what we're considering on the smaller side. So those are still massive burns right, they're just happening much more often than above 30% so to put it in perspective.
You've got some kind of midsized burn centers that to get the really really large burn they might only get one a quarter right and so if we're really looking at how can we quickly penetrating these accounts and establish we sell as a standard of care you can't wait for only those large burns because don't forget how to use it and they won't become independent right So where.
Or really pushing training getting comfortable on smaller burns.
And essentially anytime you bring anyone from surgery why wouldn't you use resell.
So just to kind of clarify that the firms are still.
Quite large even though I guess, we're calling them small for listing on growth the growth is being skewed towards the smaller size.
Hopefully that helps.
That's very helpful Aaron in and certainly.
Below those levels, 30% <unk>, it's still significant burn so it makes a lot of sense.
Just a follow up.
Sure.
Mike I think you had indicated that there could be an opportunity potentially with the pediatric label to expand that label and so.
We know there's a lot of debt out there about the burn centers in the U S.
But maybe you could just talk a little bit about kind of where pediatrics has traded whether thats in those burn centers, whether thats children's dedicated children's hospitals and if so does that require you to kind of work your way through the Vac committees that you initially had to go through with the burn centers in those pediatric hospitals.
So I'll start off and then I'll pass it over to Andy.
Erin for some additional comments if they have them.
For the pediatric label, what we're looking at is retrospective analysis of our compassionate use and continued access data.
We're in active dialogue with FDA on getting the pediatric.
Indication.
Based upon those data as opposed to the ongoing clinical trial in pediatrics.
That is running right now.
Relative to the treatment of pediatrics.
There is a combination of I would say that most of the adult burn centers treat adults and peds.
Pediatrics are being treated.
Now off label.
Of course.
We cannot and do not promote it.
And there are specific for pediatrics.
Site.
That will need to go through vac and that have not received.
Value analysis committee approval, because we haven't been able to call on them because they are specific pediatric centers.
And those will be new.
Eric anything additional.
The broad majority of the 99 accounts that we have.
The majority of them have pediatric departments or pediatric affiliation right. So there are a handful of kind of new pediatric accounts that expansion of the label would allow us to kind of make a run after.
But.
For.
In broad strokes, the majority of burn centers to treat pediatrics as well they are not solely focused only on pediatrics or only in adult.
Okay. Thank you for taking the questions and congrats on all the progress this quarter.
Thanks Ryan.
Thank you.
As a reminder to ask a question you will need to press Star then one on your telephone.
Yes.
Our next question comes from the line of Brooks O'neil with Lake Street Capital. Your line is now open.
Good afternoon, everyone and thanks for all the information I was just going to start with a couple of quick questions.
And we sell in the burn market and then one question.
Did a legal.
Maybe the combining two questions.
We'll have 90 non burn centers using your.
Product.
That leaves roughly 30 debt and I'm just curious if you could talk about.
What youre seeing from the 30 that are and.
Is this something that.
Do you think you can do to get them to.
Starting with retail I mean, the performance of the product.
So superior it's hard for me to believe that burn centers don't want to use it but tell me what you guys are seeing.
Okay again, I'll start off and then pass it over to Aaron.
Youre absolutely correct, we're in 99 out of 136.
Credit it burn centers, and it's really not that we haven't been able to penetrate those.
36 additional accounts.
It's really been that our focus has been on the larger accounts and where we see the larger opportunity moving forward is to dig more deeply into those accounts get more procedures more surgeons onboard as opposed to getting more of the smaller centers.
Onboard that's going to be more return on investment for us.
Going forwards.
Yes, and anything to add Eric the only other thing I would add is those 99 accounts for what we consider value analysis approval and have placed an order and done procedures. We have many other accounts that are in the evaluation phase, but sometimes it takes.
On average we're around six months to get through value analysis committee, but with time, it gets longer and longer so theres. Some hospitals, it's not uncommon to take a year to get through that right. So we have quite a few accounts.
That are currently either evaluating the product.
And doing procedures, but they just don't have official value analysis approval quite yet so the only accounts that were kind of still prospecting that arent somewhere in kind of that business development pathway are typically pretty small accounts.
Centers that only do about 50 admissions per year said there.
We're in discussions with all of them and prospecting, but I would say there is also a very big chunk of customers that are kind of coming down the customer funnel.
Absolutely okay.
Second question sort of along the same lines, but if I was listening correctly earlier, I think Mike said that U.
They have about 50% of the surgeons.
Actively using the product.
Maybe about 80% of the doctors trained and I was just curious what's holding up doctors who've been trained from becoming active users of the product.
I'll go ahead interest you are so so.
<unk>.
This past quarter, 50% of all burn surgeons did at least one procedure with retail when we talk about training.
Have.
This goes back to your prior comment which is we've trained more accounts than that are that are closed in those 99 accounts right. So there's a lot of the surgeons that are at accounts that don't necessarily have value analysis approval quite yet they are either in the evaluation phase, but they've been officially trained but.
The hospital haven't given official permission to start ordering and purchasing the product yet so that's the difference between.
And then some of them are just very small accounts they might have not had a procedure comment but in broad strokes that has to do with the delta has to do with surgeons at accounts.
That are active yet.
That makes sense, Okay cool yeah, absolutely let me just ask you.
One more if I can.
I think I heard Mike say that the U S opportunity with <unk> 5 billion book, which is really clearly the big price opportunity there could be out there in the relatively near term recognize that you've got to complete the trial recognize you have got to get approval to market for.
That will be coming from here in the United States, but can you just talk to us a little bit about how you see of EBIT going after that $5 billion market and what you think some of the really big keys are they having success within the next couple of years.
Thanks, a lot for taking my questions.
Thanks, Brooks I'll start off and again pass it back over to Erin.
Really what we're going to need for for <unk> going forward is going to be.
New sales force that is.
<unk> focused on interventional dermatologists and plastic surgeons.
Well generally be doing this as an office procedure it won't be an in hospital procedure.
And Erin and her team are.
Working on.
The details of exactly how we're going to get after this.
We're going to be starting.
With a target of <unk>.
<unk> thousand <unk>, dermatologists, and plastic surgeons and I'll now turn it over to Aaron to give you a little bit more color on that yes.
It's a very exciting market.
And when we look at that $5 billion total addressable market that represents essentially.
One in the United States that have stable that a while ago that's eligible for surgery right. So that's the size of the <unk>.
Higher United States to begin with we're going to be focusing on.
<unk>.
Physicians that specialize in vitiligo or more what we call procedural dermatology and likely around 1000 doctors that Mike just mentioned so the shorter term we're looking at maybe a serviceable addressable market is closer to $750 million, but then with time.
We'll be expanding to kind of more and more sites the other.
That will have to do a lot of work on rate is make sure that there's appropriate payment. This will be a mix of cash pay as well as reimbursed. So we have to make sure that we have the appropriate coding and then also the appropriate coverage.
And training in place so.
It is I think.
Very exciting but.
We'll be taking it kind of Theres a few very important milestones that we're going to have to hit before maybe running after that broader 5 billion dollar market.
Great. Thank you very much for the color.
Thanks Brooks.
Thank you.
Our last question comes from the line of Lyanne Harrison with Bank of America Your.
Your line is now open.
Good morning, all organic.
Thank you for taking my questions.
When I think it's probably for Aaron.
You mentioned earlier.
Of course, it's still cash.
Jim can you just clarify for me what does that mean exactly.
The challenges are and the hurdles that because I'm just trying to think about how we.
'cause it.
For the exit COVID-19, what that means for revenue coming from it.
Alright.
So.
In general and this is not just for retail I think this is a general just when youre selling into hospital, you're allowed to enter if you've got a purpose right, which is either supporting our case and you've been kind of deemed necessary or invited or that you need to kind of provide value, meaning training employees in the hospitals, so that they can use.
The product in the appropriate way right. So hospitals in general due to COVID-19 are frowning on just drop by visits for no purpose other than to kind of have a coffee and try and sell you have to have some sort of documented purpose in order to kind of be allowed to enter the hospital for the most parts.
And that's what we're dealing with and that's not that's across industries.
That's what I mean, when I say sales calls you can try and call people right, but you can't just try and what we call case capture right, where we swing by hospital and you say, Okay, who is in the Burns unit, how about we try resell that is incredibly difficult. So you have to kind of use.
There's just other opportunities to kind of be present, but it's more about kind of by invitation.
Or by need versus just swinging by.
And checking in and as COVID-19 Abates, we do anticipate that the usual cadence of being able to swing by and visit a burn center.
I'll return.
Okay.
A follow up from that actually say about Beijing and this is to follow on the earlier call for any question about run rate. If we think about what the exit run rate for the March for month of March.
And within nuts.
Is there any possibility that youll guidance for the for.
Fourth quarter might be slightly lighter given debt.
<unk> been getting better access to the hospitals and can do some of that is jumping in case catch up.
I think I'll pass that over to Michael hold our CFO.
Yes actually.
5 million to $5 3 million U S guidance that we're giving.
Is what we realistically expect.
Erin and her team have done a very detailed buildup from account to account.
As mentioned before.
Run rates did improve in March but at the same time they are still relatively hampered by COVID-19. So that's actually what we're expecting to do.
Mhm.
Okay. Thank you.
And Michael one other follow up question for you is around.
The BARDA contract and the resale for emerging <unk>, we've had the first delivery come through.
In discussion, how many more quarters as we sell them.
And then you can be expenses.
Okay.
Well, Mike Perry here, so for the vendor.
Vendor managed inventory for the national stockpile.
<unk> accounts for the rest of that in this quarter.
<unk> quarter.
But then there will be ongoing maintenance of that vendor managed inventory, which will be about $1 9 million that will be spread out over approximately three years.
Okay.
And just kind of an even spread for that three years.
Michael Yes. Thank you. Good question, yes that is amortized on a straight line basis.
Over those three years.
Okay. Thank you very much.
And just one final question before I go.
Round expectations around margin.
Can we expect.
<unk> margin to improve going into the next quarter or fourth.
Given the product mix in the lines for <unk> revenue.
Michael go ahead.
Thank you that's a good question, we would expect some modest improvement.
In our fiscal fourth quarter as the mix of BARDA revenue compared to total revenue decreases somewhat.
Then going forward after that we would expect to be back in our normalized range of margin in the low to mid 80 percents.
Okay.
And then on lower Op, Inc.
Any savings that might be of a permanent nature going forward.
Yeah.
Well.
As the relatively new CFO here.
Obviously.
One of my core function is.
Maintaining cost controls and looking for cost efficiencies so.
We are in a process of doing that currently as we continue our.
Planning and budgeting processes so.
Yes, we would we would see some opportunities for that but at the same time, we were a growing business where we have.
Increasing.
<unk> expenditures for various <unk>.
Pivotal trials and for various other pipeline activities. So it's really really a balancing act, but relative to <unk>.
To Opex and.
And guidance for the fourth quarter, we would expect those.
We would expect opex to tick tick up slightly.
<unk> still be in the relative.
Same range.
Okay.
Thank you very much for them.
Thank you.
Thank you there are no further questions.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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