Q2 2021 MiMedx Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to my medical second quarter 2021 operating and financial results Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during this session.
You will need to press Star then 1 on your telephone.
Have you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker today, Mr. Jack Howard. Please go ahead Sir.
Thank you operator, and good morning, everyone welcome to the <unk> second quarter, 2021, operating and financial results Conference call.
With me on today's call are Chief Executive Officer, Tim Wright.
Chief Financial Officer, Pete Carlson.
Executive Vice President of research and development, Dr. Robert Stein, and executive Vice President and Chief Commercial Officer, Dr. Rohit ketchup.
And then Pete will provide a summary of our operating and financial results for the second quarter 2021, and at the conclusion of their remarks, Tim Pete and Dr. Stein in ketchup will be available for your questions.
Before we begin I'd like to remind you that our comments today will include forward looking statements, including anticipated timelines for our ongoing clinical trials and FDA submissions and approvals and expected market size for these products.
These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors.
Actual timing of FDA approval will depend on a number of factors, including the results of our clinical trials the impact of Covid actions by others that affect our timeline and other factors that the FDA deems important.
We list the additional factors in the press release issued yesterday afternoon, as well as the risk factors section of our annual report on form 10-K.
Also our comments today include non-GAAP financial measures and we provide a reconciliation to GAAP in our press release, which is available on our website at www Dot <unk> Dot com.
With that I'm now pleased to turn the call over to Tim right Tim.
Thank you Jack good morning, everyone and thank you for joining us on the call today yesterday. After the markets closed we issued a press release reporting our second quarter 2021, operating and financial results.
Like to start today's call with a brief review of our commercial business and recent operating highlights and then move right into an overview of the progress to date, we're making on our promising late stage pipeline.
Afterwards, Pete will take you through a discussion of our strong second quarter financial results.
Starting with an overview of our performance second quarter net sales grew 27% year over year to $68.2 million driven primarily by our advanced wound care business, reflecting solid execution by our expanded commercial sales team.
Adjusted net sales, which excludes the impact of change in our company's message for recognizing revenue grew 31%.
This increase was primarily driven by MP cord expandable and the B shoot portfolio in our advanced wound care business, along with sales of our Micronize injectable products prior to the end of enforcement discretion that occurred on may 31st I.
I will touch on enforcement discretion in more detail shortly but remind you that this was a category wide guidance that applied to all http manufacturers and for <unk>. We believe the impact is limited to our Micronize and particular products only.
Our most prescribed flagship branch at the fix in Amnio fix are not impacted and continue to see strong demand across the market.
In the second quarter, we reached our 2021 goal of increasing our sales force size by 10% Inc.
Currently stand at 289 customer facing sales professionals complemented by a strong network of sales agents to expand our reach frequency and impact of our products into additional surgical procedures and deepen our penetration into targeted accounts.
<unk> speaking over the past year, the easing of Covid restrictions at health care facilities and minimize the disruption for our sales personnel and allowed us to conduct meaningful medical education programs.
As the only data driven amniotic tissue allografts to have complete national commercial coverage for the treatment of diabetic foot ulcers, we continue to leverage our extensive reimbursement coverage to reinforce.
The differential advantage of our products and to convey the clinical and economic value of our brands.
We are also closely monitoring recent reports of possible COVID-19 spikes in certain parts of the country. Our sales team is well positioned to adjust and adapt to any changes in facility protocols, we remain committed to keeping our employees safe ensuring continuity of care for patients.
<unk> and continuing to ensure providers have access to our flagship brands.
Overall, we are extremely pleased with the commercial progress that we've made in the second quarter. We realized that we must continue to execute and I believe we are well positioned going into the second half of the year.
Now moving on to some recent highlights in May we announced the important collaboration with the Wake Forest University Institute for regenerative medicine to develop an advanced scientific evidence in support of safe and effective clinical therapies.
Led by Dr. Tony Atala, the Wake Forest Institute for Regenerative Medicine is recognized as an international leader in translating scientific discovery into clinical therapies.
Was the first in the world to engineered laboratory grown Oregon's that were successfully implanted into humans.
Our collaboration will involve research into the specific mechanism of action and basic pharmacology involved in the host responses to treatment with our amniotic tissue based platform and other regenerative tissues.
Our partnership reflects a shared vision to advance regenerative science and innovative biologics that restore quality of life for patients and further our understanding of the potential therapeutic targets.
We look forward to updating you on the efforts of this important collaboration with wake forest in the future.
Now in June we announced regulatory approval.
By the Japanese Ministry of Health Labor and welfare to market <unk> in Japan.
Our current efforts are focused on establishing reimbursement pricing, which may take until mid 2022 to finalized based on the ministries calendar.
Following the successful approval reimbursement.
Pricing policy and subsequent listing of the reimbursement rate the medics can begin offering <unk> to physicians and their patients in Japan.
When reimbursement is approved we believe F. B fix has the potential to reach as many as 100000 patients each year for this market.
Look forward to updating you on the progress to help more patients achieve better outcomes across the globe.
As an industry leader in advanced wound care <unk> continues to build a solid foundation of scientific data to support our products. We recently announced the publication of a peer reviewed study in the journal of investigative dermatology innovations highlighting the potential benefit of <unk>.
Purion process dehydrated human Amnion chorion membrane also known as <unk>.
To combat complications stemming from access at fibrosis, a pathological process central to a number of serious unmet medical needs.
Medics Purion process amniotic tissue has been used extensively for the treatment of multiple acute and chronic conditions ranging from diabetic foot ulcers and significant burn injuries to muscular skeletal applications like plantar fasciitis in knee osteoarthritis and other sports medicine apt.
Occasions.
This important work can help enhance our potential to address the needs of patients suffering from.
From pathological scar formation.
Numbering as many as 100000 patients worldwide, including those with minor cosmetic defects significantly compromised.
<unk> architecture.
And impaired function across a number of conditions.
Purion process amniotic tissue has demonstrated remarkable results in safety in a multitude of usage and we are focused on investments that further uncover its tremendous potential.
That also increases our scientific understanding of not only its capabilities, but also its limitations as we continue to gain insights into the complexity of this tissue.
We are building an existing library of peer reviewed literature as we believe that this provides <unk> with a critical advantage for the further development of novel Therapeutics.
Now, let me turn to enforcement discretion as you may recall, we address the fda's communication regarding the category wide into the enforcement discretion.
Our first quarter call and confirmed our plans to discontinue marketing of our Micronize and particular product at the end of the May Unfortunately, both providers and ultimately patients there was significant marketplace confusion across the industry and in particular for companies unprepared for the May 31.
Deadlines.
The medics, we were prepared we planned for and executed on and enhanced communications program with our customers to address and ease some of the confusion.
In our commercial team.
<unk> strong leadership to support our customers as they provide much needed patient care.
The need for scientific rigor and quality is Paramount and our continued open dialog with the FDA is focused on exploring ways that enable continued access for patients to innovative therapies Pete.
Pete will discuss the impact of enforcement discretion of our final financial results in a few minutes.
Shifting gears now to some updates on our rapidly progressing pipeline I'm excited to report that we have achieved our 2021 goal of filing 3 additional investigational new drug applications for our Micronize. Some particular products in the first half of the year on our last quarterly call, we announced the acceptance.
<unk> has filed by the FDA for the first of these indie applications for chronic cutaneous ulcers and I am pleased to report acceptance as filed by the FDA for a second IND to support the use of Micronize the hack them in surgical incisions.
In addition, our third application for soft tissue defects has been filed.
And the FDA is currently reviewing the submission.
We are still in the very early stages of planning study protocols for all 3 of these important programs and we'll update you upon initiation of patient enrollment.
Finally, and most importantly, we are approaching some key milestones with our muscular skeletal pipeline, including the late summer release of topline data for plantar fasciitis and knee osteoarthritis clinical trials, depending on the data. Subsequent next step meetings are to be scheduled and agreed upon with.
The FDA. We are also planning future R&D day to discuss the PFF in knee OA study results in more detail with our financial community.
First let's talk about where we are at the phase III PFS study. The study design included 277 patients with endpoints that measured a pain score on the visual analog score and the modified put in function index.
The clinical field monitoring teams have clean verified and validated source documents and recently achieved database lock the new.
Next step is final data analysis and generation of a full data set to be reviewed at a meeting with the FDA.
With a goal to agree upon a path forward to an eventual BLA filing.
Of course, the timing of any such meeting will depend on the results of both the phase <unk> trial and the phase III trial after the Fda's review.
An eventual BLA filing will depend on those and other factors, which I will discuss with you in a minute.
I would remind you that a BLA filing is a significant effort.
And if we are successful this would be the first for an amniotic tissue product aspiring for large scale production under a drug biologic pathway.
Moving now to the phase <unk> study in knee OA, which involved 447 subjects.
<unk> was designed with co primary endpoints of pain as measured by visual analog score and Womack, we're approaching final analysis and database lock.
The clinical monitoring team and the 12 month safety visit follow up as requested by the FDA is scheduled to be complete October 2021.
Similar to the PFS study. The next steps include generation of a full dataset to be reviewed at the end of phase 2 meeting with the FDA with the goal of designing a phase III study.
With respect to the timing of communicating top line results for both studies by late Summer. The company now believes that it would be appropriate to discuss top line data to investors, while simultaneously requesting meetings with the FDA to discuss the overall PFS and knee OA study results.
Once the meetings have been held with the agency no medical plans.
To review the full study results with investors at a future company R&D day.
These are very exciting times for our science, our technology and our employees and yet the BLA filing and review process is exceptionally rigorous.
Typical steps for obtaining FDA approval of our BLA to market a biological product in the United States include performance of 2 adequate and well controlled clinical trials in accordance with good clinical practices to establish the safety and efficacy of the products for each indication.
Along with the development of <unk>.
<unk> potency in identity test to demonstrate consistency and reliability of the manufacturing process.
Through.
Rigorous chemistry manufacturing and controls.
Submission to the FDA of a BLA for marketing the product includes among other things reports of the outcomes and the full data sets of clinical trials and proposed labeling and packaging for the product.
In addition, the satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced is required to assess compliance with the fda's current good manufacturing practice regulations.
To assure that the facility's methods and controls are adequate.
We are thoughtfully and aggressively moving these efforts forward, including the preparations for labeling and packaging insert development.
Each of which would allow us to more accurately project and refine the total addressable market for our injectable technologies.
We are in the early stages of <unk>.
Lanning for a poor pricing decisions third party payer discussions and product launch preparations and believes that the commercial ramp up for amnio fix injectable may benefit from its prior clinical use in the market.
Along with its excellent track record of.
Safety.
Finally on behalf of the <unk> team, we'd like to congratulate 1 of our Distinguished Board members Dr. Kato T Lorenson.
On being awarded the spingarn metal.
In Dudley Cps most prestigious honor.
Honoring his accomplishments in the fields of tissue regeneration bio materials science, nanotechnology, and regenerative engineering a field he founded.
Dr. <unk> will rinse and received the spingarn metal at the in double H C. PS 112 annual convention last month.
Established in 1914 by the late Joel E Spingarn <unk> in double E. C. P awards, the metal annually for the highest or noblest achievement by living African American during the preceding year years and any honorable field.
As a pioneer in the field of regenerative engineering Doctor Lorenson discoveries and achievements have pushed the boundaries of science in the service of human health and inspired countless other Richard researchers to do the same.
His addition to the board of directors at our Medics last fall has been invaluable and speaks to our shared mission advancing science to improve patients' lives. We are fortunate fortunate to have the opportunity to learn from.
Learn from and build on his truly unique insights congratulations to Dr. Lorenza.
I will now turn the call over to Pete who will take you through all of our financial results.
Thank you, Tim and good morning, everyone.
I'll provide an overview of our second quarter 2021 financial results, starting with an update on some of the underlying trends in our business.
As Tim mentioned earlier, we had an outstanding second quarter.
<unk> reported net sales of $68.2 million in the second quarter of 2021.
$14.5 million increased compared to the same period a year ago.
Sales volumes increased over last year's second quarter.
You know COVID-19 resulted in access restrictions for lower volume and decreased travel or for lower costs.
Net sales for the quarter includes revenue recognized on the remaining contracts of $300000.
Compared to $1.7 million in the same period a year ago.
Adjusted net sales, which excludes cash collected on the remaining contracts outstanding at the time of change in the company's revenue recognition recognition methodology.
We're $67.9 million in the second quarter of 2021 compared to $51.9 million for the second quarter of 2020.
You will note we have provided disclosure of net sales broken out between product and our base advanced wound care business and products impacted by enforcement discretion, which we referred to as section $3.51 products.
The 31% increase in second quarter adjusted net sales includes 29% grew.
Growth in advanced wound care products, reflecting a positive impact from the sales of Etsy Court expandable, which the company launched in the third quarter of 2020 as well as growth in our flagship that'd be fixed sheet portfolio.
Sales of our section 351 products were up 44% over the prior year period, which were disproportionately impacted by the pandemic.
Gross profit margin was 81, 3% in the second quarter of 2021 compared to 84, 7% for the same period a year ago.
Gross margin was impacted by net goodness variances from reserves recorded for inventory and sales return for products.
<unk> by the end of the enforcement discretion.
Yeah.
In addition, lower than planned production volumes and higher than planned compensation for manufacturing personnel combined to have a negative impact on gross margin.
Higher compensation reflects overtime pay.
Increased use of contract labor and pandemic related temporary bonus payments with eastern central workers.
As we return to normal working conditions currently planned for September of this year, we anticipate the pandemic related payments will end.
Together.
These 2 items had a negative 3.2% impact on gross margin.
Selling general and administrative expenses were $53.6 million in the second quarter of 2021.
Compared to $37.3 million in the same period a year ago.
The increase reflects the salary restrictions last year in the midst of the COVID-19 pandemic.
As you know.
Last April the company enacted temporary decreases in salaries and subsequently restored them early in the third quarter.
In addition company and government imposed travel restrictions during the 3 months ended June 32020 significantly reduced travel costs.
The company anticipates, a travel expenses will approach more normal levels.
The increase in SG&A was also driven by year over year increases in commission expenses, resulting from the increase in sales volumes.
Finally the.
The second quarter of 2021 includes $3.8 million related to the proxy contest associated with our 2021 annual meeting in May.
Research and development expenses were $4.1 million for the second quarter of 2021 compared to $2.3 million in the same period, a year ago, reflecting higher consulting fees and additional head count to support the company's clinical research efforts.
I'm pleased to say that our investments in preclinical studies to fuel our pipeline in base portfolio increased and we expect these costs to increase over time.
Investigation restatement and related benefit was $2.1 million in the second quarter of 2021 compared to an expense of $11.4 million in the same period a year ago.
Results in the current quarter include funds received related to certain of our directors and officers insurance policies.
Along with resolution of amounts owed to law firms for fees related to indemnification commitments.
The second quarter of last year included expenses incurred related to the restatement of prior period financial information, which we completed in the middle of that year.
While we may incur some litigation costs going forward, we expect a continued reduction in investigation restatement and related expenses other than cost related to the resolution of the securities class action matter, the amount and timing of which are highly uncertain.
Net loss was $1.8 million for the second quarter of 2021 compared to a net loss of $8.5 million in the same period a year ago.
Adjusted EBITDA was $2.8 million or 4.2% of adjusted net sales in the second quarter of 'twenty 1.
Compared to $10.2 million or 19, 7% of adjusted net sales in the same period, a year ago, which.
Which include a much lower expense level in the midst of the pandemic.
Adjusted EBITDA in the current quarter was negatively affected by reserving for items impacted by enforcement discretion, primarily consignment inventory.
As well as the expenses related to the recent proxy contest.
These items along with our planned investments with proceeds from last year's capital raise represent about 12% of adjusted net sales.
As of June 32021, the company had $85 million of cash and cash equivalents.
Impair to $95.8 million.
As of December 31, 2020.
Finally, we.
We have come a long way in restoring the financial stability and reporting integrity of the medics.
Last year, we brought our financials current and we listed our common stock on NASDAQ.
In the second quarter of 2021, we were added to the Russell 3000, and Russell 2000, indexes and anticipate being added to the NASDAQ biotech index in the fourth quarter.
Later this week, we expect the company will become S..3 eligible our financial filing status made possible by these important milestones.
I am proud of the progress we have made to date and thank all of our team members and partners that worked hard to achieve these goals.
I'll now turn the call back to Tim.
Thank you very much Pete I'm extremely pleased with <unk> performance in the first half of the year, we achieved a significant amount of progress in growing our base wound care business. Despite the challenges of enforcement discretion. In addition, we filed additional R&D to fuel our pipeline and achieve regulatory approval that would be fixed in Japan.
Among other corporate and operational developments.
Our commitment to enhancing the lives of patients is at the forefront of all we do and I believe that our amniotic tissue products have the potential to address unmet needs across large markets and make meaningful and positive impacts.
Our second quarter performance was strong and I, thank our customers our employees and our shareholders for their commitment.
We are focused on maximizing your long term value and I. Thank you for your continued interest and support.
Operator, you May now open the lines for questions.
Thank you as a reminder to ask a question you will need to press Star then 1 on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of Carl Byrnes with Northland Securities. Your line is now open.
Great. Thank you first congratulations on your progress.
So 2 questions here.
There has been a bit of a concern in the industry that core products may be subject at $3.51 classification.
You believe that the medics will be affected by this at all and then I have a follow up as well thanks.
Hi, Karl this is Tim.
Currently we do not believe are at the core.
Alex will be impacted by enforcement discretion simply because of the.
The way the.
Our products are manufactured in how we promote those products.
I'd like to have Dr. Stein gives you a little bit more background on that.
So Bob.
Tim Hi, Karl.
The way that our products are made we take out the vessels in the inside and take the outer wrapping and flattened it out into a sheet.
And we use it as an <unk>.
Substitute or barrier to provide a protected environment for healing.
And so that is.
<unk> used in our opinion towards the outer wrapping of the.
Okay.
The issue that the FDA has been raising is that for people.
We're trying to use it.
Otherwise I think it is a conduit and we believe we have a.
Different use that's in keeping with homologous use.
Great. Thank you that's helpful and then.
Just to kind of follow up with respect to the.
The status.
Excuse me the <unk>.
Cgmp status of the 2 processing facilities, if I recall correctly.
The facility was inspected and it was VII and I think the other you were still waiting for FDA inspection amid COVID-19 do you have any updates with respect to those.
Processes. Thanks.
Hey, Carl this is Tim again.
Youre absolutely correct, we did receive the VA in Ireland, our town Park facility.
We're waiting for the VIII on.
Or the disposition of the agency on that.
There is a lot of congestion at the agency do too.
For a review of.
The vaccine development relative to Covid, but.
We're in contact with the FDA and US weekly on not only this but other aspects of our pipeline, but I can say this we did a significant remediation of our both of our facilities and have responded to on a quarterly basis to the agency. So I think we're gonna have to just wait and see where the agency comes down.
Yes.
Great. Thank you and again congrats on the progress.
Thank you.
Thank you. Our next question comes from the line of Jon Vander motion with Jack.
With Zacks SCR. Your line is now open.
Good morning, and congratulations from me as well on the great revenues and also with getting the advanced wound care IND is accepted.
Let's start off with a question on.
On your successful revenues.
So <unk> that was launched last fall.
Seem to be a prominent driver and in the revenue growth.
Lodging drivers for that product and how penetrated is that market I mean, I know, it's not even been out their full year yet.
We are just in the beginning stages of how far you can penetrate there any background on kind of what we could expect from that single product would be would be helpful.
Yes.
Thanks.
So we have had in the market for several years is what we launched last year with ethicon expandable expanded that portfolio.
In the market.
What that does is allows you to target wounds that we wanted to.
Diabetic foot doses by Covid.
Deeper into the expanded portfolio.
Therefore provide.
Provide another option for treating those fluids because of the nature of the tissue, which is different than an exit things, we believe that opportunity and the uniqueness of our product gives us access to the market, which is significant in size, but we still expect that ongoing growth from that platform as we go forward.
And we also believe that in combination.
Our other portfolio, all our sheet products and I think going forward as they work well in tandem as.
In order to provide optimal heating outcome for <unk>.
Patient so.
I think that there's a significant go into fortunately.
And that portfolio on an ongoing basis.
We plan on continuing to expand offerings within that need and defend wound care needs for different shapes and sizes as we go forward.
Okay great.
Great.
Another question on enforcement discretion, it's impacted all of the industry as you mentioned and do you anticipate the shift in demand to products that arent subject to enforcement discretion I mean with.
Shire to shift and then also other companies out there have probably been impacted much more than in my.
Medics.
Is there an opportunity to take any share due to the loss of others.
I'm not going to be selling those products anymore.
Yes first of all with the loss of enforcement discretion products.
Obviously.
Theres a lot of emotion.
In terms of the clinical options because they clearly outpatient so we are working continuously in educating customers and.
On a viable alternatives again that it is not 1 of these.
And alternative.
And be used in the same vein clinically.
There are situations.
And you can do instead of using the Micronize I think particular products that vantiv apart of enforcement discretion and replace them with either second quarter or.
Our sheet products and how many of the things are ramping back. So we continue to work with the customers and educate them.
It's a process of fab.
Kind of trying it out and making sure that they can.
Comforted by the clinical techniques and then also with the outcome. So we are confident that we can at least partially due back end.
Not being able to completely address it because some situations you just fine.
Place, an injectable product with the sheet, Florida for example on the <unk>.
Competitive dynamics.
We believe as the market progresses, I can get educated and things that are clear.
Nearly distinguish.
Distinguish.
The performance of the product and the clinical outcomes that has economic data and relationships and education that you provide to your customers. So they can continue to compete in this market shakes out, but I believe that we are well positioned to take advantage of it and are confident of delivering above market growth over the next few years.
Include both penetrating the market further but also capturing some of the share from competition as we go forward.
Great. Thank you Doug.
Our last question from me is there a approximate timing on that R&D day is that kind of a late fall type of thing I mean, I think it may depend on kind of when some of the information comes out but.
What should I put on my calendar 2.2.
Yeah, I think late fall is a good estimate.
We obviously would like to have.
<unk> had our interface to be meeting with the agency on knee osteoarthritis program and be in a position to fully.
Describe where we are with that as well as our plans for phase III.
Clinical trial design, so I would.
I would say that that's probably a pretty good estimate it's really predicated on.
Our ability to meet with the agency on a number of things that we as you know we have a very robust pipeline here.
Wrapping up the data and want to get in front of the agency.
We have decided that.
Given the timing of any of these.
Meetings with the agency.
We've decided that to.
We'd like to be in a position to late summer to present top line results of <unk>.
Great. Thank you for taking my questions.
That would be a separate meeting.
Yeah.
Thank you. Our next question comes from the line of Sean Lee with H C. Wainwright. Your line is now open.
Good morning, guys. Thanks for taking my questions and congratulations on great quarter.
My first question is on <unk>.
Covid. So you mentioned that your sales force is prepared to see did you call that start spiking, we are seeing some states so call us.
Simpson guess Endo do you still believe there are any residual impacts going on from the pandemic and do you expect the new impact that the new spikes, so impacting yourself anyway.
Yes.
Sean.
Morning.
Yes.
As far as Covid is concerned I think as we went into it and progress through Q2, we saw that the businesses are kind of Morgan automotive looks from an external and internal perspective externally.
The access restrictions dual facilities red envelope.
Most of our salespeople couldn't be in front of their customers.
Sure.
Pretty much close to normal or are you able to.
And you'll get customers on a face to face basis as well.
Over the last few weeks.
Covid.
What we see is that broad based impact by pockets.
Got it in response to local markets that access against change in on that and that's what we are expecting as you go forward for that.
As we go forward M&A outlook for the rest of that.
Yeah. So.
As far as.
Our expectation is concerned on COVID-19.
We expect that we will face some restrictions in pockets with spikes in there.
But it won't be able to conduct their business definitely in a much more effective manner than what transpired.
Well.
The second half of last year for example.
Good to hear that.
My second question is on the international opportunity. So would you be pursuing product approvals in other areas. Besides Japan.
Also would you be looking to get.
<unk>.
Fixed putting dependents long ambition to ethics.
Sean It's P. Carlson our focus right now when the approval in Japan is for <unk>.
And it is generally for wound applications.
So that is our focus we have not focused on trying to get amnio fix into the surgical environment there.
We want to certainly get through the process. We're very pleased to have received the.
Approval of the product itself and now want to work through this reimbursement as Tim talked about and then once we are in the marketplace, we can assess opportunities.
And Receptiveness.
The amnio fixed products also.
That's all I have thanks again for taking my questions.
You bet.
Thank you.
A reminder to ask a question you will need to press Star then 1 on your telephone.
Our next question comes from the line of <unk> <unk> with <unk> point capital.
Your line is now open.
Hi, Thanks for taking my questions guys.
Given it fixes a flawless safety record, we believe that the FDA.
Could be willing to grant amnio early approval of the phase 2 be knee OA trial results are positive.
With that said, Matt My first question is during your upcoming meeting with the FDA.
You plan on asking the FDA to consider granting MTA effects early.
Early approval for the treatment of knee osteoarthritis.
Yes.
Nice to hear from you this is Tim.
I'll give you some opening comments on that and I'll, let Dr. Stein follow up with you as well certainly all of our portfolio our amnio fix.
That'd be fixed portfolio theres, a low incidence of.
Any type of adverse event and I think thats 1 hallmark of this platform.
Number 2.
When we do meet with the agency at or close out of our phase 2 b.
Strength of the data will dictate our regulatory strategy.
And I think it's.
Given the size of the phase <unk>.
Trial 447 patients around the world.
Typically large phase II trial.
Thank you.
If we see that opening I'm sure the Doctor Stein to our head of our Ecu acreage Stevens will want to take advantage of that where we can.
Bob do you have additional comments regarding the ads question.
Hi.
It's a good question and if we have remarkably strong evidence.
Micronize the hacking is doing what we hope it will do and as you point out we have a very good safety profile.
Is it possible to talk to the FDA about a provisional approval based on a very strong single study. It is a very large study for phase 2.
And so I believe that's a possibility, but it's not a lock.
I'd say that we will approach that we have the advantage of having the <unk> status it might give us some additional flexibility in speaking with the FDA on this topic.
Okay. Thank you for that.
Based on our understanding of it typically takes.
Biotech companies to process.
Power results it takes them about maybe 2 to 3 months.
Typically publish their results.
In our case with my Medics can you help me to understand and I and I get that.
This analysis that we've run could be a rudimentary and doesn't take all factors into account can you help me understand why in my medics case, it could be taking a longer to process.
And and get the you know the final results from the from the.
Hello.
For example, the face to the knee trial.
Yeah. As you know this is Tim as you know we have 3 trials 1 in PFS.
Neither way we prioritized.
Each of these from an analytical analysis standpoint is consistent with our statistical analysis plan.
Bob can provide you.
Will the timeline for doing that.
I would say that given the size of these studies and that we have 3 studies, where we ended the last patient in.
For PFS in <unk> occurred approximately at the same time with knee OA. Following on the phase II B, just a lot to assimilate here.
For a company our size. So we are working probably with 1 of the best outside consulting firms to do a robust statistical analysis.
So I don't think its taking necessary the longer I think we're being very.
Thoughtful about how we approach our analysis, Bob do you have additional comments on the timing of that so.
There were in the knee OA study <unk> study, we had 447 patients at 17 sites during Covid and as a result, we have to gather all the data, making sure that it's clean and quality control and lock the database for close to being able to do that.
Then you are right.
After that there'll be topline results generated I would say.
So weak or so or 2.
2 weeks, rather and then there would probably be another 2 to 3 weeks for generating a full analysis, we will be sharing top line data as well.
Quickly as we're confident in what we've generated.
And we will be having the discussion to the full data and our analysis of that after we've had a chance to meet with you.
Right now the intention is to do that in an upcoming R&D day as discussed in.
In the fall.
Okay, Yeah. Thank you for that color.
Say in the <unk>.
Summary is that given the circumstances and the size of the study I don't think were slower than the average bear I think we're actually working quite diligently and we will have the information out there quickly as we can generate and we're all excited to see what the results show.
Understood Yeah, and again, thank you for that color.
I appreciate it.
My last question is that.
And.
Is that during your recent investor presentations. It was mentioned that there is evidence that amnio. Thanks has regenerative properties.
Can you discuss this evidence in more detail and how you intend to flesh this potential out.
Yeah, Hey, Bob I think that's a question right down your alley.
Thank you.
So we do have a number of preclinical study is going on that look at the <unk>.
Properties components of Amnio fix.
Micronize the hack them there are a large number of growth factors in the materials as produced and Thats 1 of the advantages of the way that my medical produces these materials, we make them.
Still have quite a bit of bioactivity well being.
Rois, so that they have a very low risk.
Transmitting any type of infectious complications.
And we've been able to see that.
The materials.
The ability to modulate the activity of transforming growth factor beta.
Endogenous.
Protein involved in wound healing.
That leads to hypertrophic scarring and inappropriate the deposition of collagen.
And that was recently published by the <unk> that we've also been able to show that there were a number of our compound.
Compounds in the material that modulate <unk> signaling, which is known to be involved in.
Maintaining stem cell.
Activity and also a modulating.
Cartilage biology.
And so we are.
We're looking at these.
That was also recently published.
We're looking at moving those observations forward into animal studies, and we do believe that they have an impact in the clinic. However, our intended phase III study as well.
Well not be set up to demonstrate that we have a disease modifying agent in osteoarthritis, because thats, a very long and large study we will be showing that we have both pain reduction and functional improvement and I think thats, a very important aspect of the.
Pharmacology of Micronize the hack them.
And I think ultimately as we talk to.
Practitioners using the materials like Dr <unk>, who published on the <unk>.
Impact of micro nicely hack them in knee osteoarthritis earlier.
There is a suggestion that the use of the product isn't just treating symptoms, but also delaying the need for knee replacement et cetera, So I think that the.
Goal, we have is to get it registered and then to further flesh out its beneficial characteristics.
Subsequent studies allow us to do.
Understood. Thank you very much guys very very much I appreciate it.
Yes. Thank you.
Thank you.
Our last question comes from the line of Jon Vander, mostly with Zacks SCR. Your line is now open.
Hi, guys, just a follow up on gross margin.
You noted.
Some some temporary pressures on gross margin and I think you said theyre going to last until about September should we expect.
Similar gross margin in the third quarter, and then a return to kind of a normal trajectory in the fourth quarter.
John There is 2 things to that pressured the gross margin this quarter, 1 that won't recur or the reserves we recorded.
In the quarter related to products impacted by enforcement discretion, principally related to inventory that was out on consignment. So it had been previously shipped.
But not actually transfer not an implanted in.
<unk> implanted and thus the sale occurring so we have had customers return that inventory and then reserve that so that won't.
That won't recur our production variances.
What we were talking about there on the September is yes, we do anticipate.
What are the additional wages.
As we get out of the pandemic and get into more normal operating.
So our sort of extra compensation related to the pandemic will go away and we're obviously working to adjust.
2 revised operating levels from <unk>.
Get our inventory appropriately set so we're hopeful that the other production variances settled down so about half of the half.
For more than half of the trend the difference from our normal trend relates to those enforcement discretion item. So yes, we should be getting back to more normal levels of gross profit here in the third and particularly fourth quarter.
Great. Thank you.
Yeah.
Thank you.
There are no further questions I will now turn the call back to Mr. Tim <unk> for closing remarks.
I'd like to thank everybody for attending the call today and also I thought the questions were outstanding.
We're very excited about our amniotic tissue platform here.
Given that we feel that it has a lot of utility across different therapeutic areas, where there is significant unmet need we're very very focused on delivering on our PFS and knee OA statistical analysis as well as focusing on.
Our manufacturing facilities, so we're prepared for it.
We'll prior approval audit downstream.
And the third thing that we're hyper focused on is our sales organization supporting them with good strong medical education as well as the best data, we can accumulate around the efficacy of our products and their economic benefits too.
To the payer system and the patient. So I think you look forward to talking to all over the next coming weeks. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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