Q2 2021 Repro Med Systems Inc Earnings Call

Greetings and welcome to cover and medical systems second quarter, 2021 financial results conference call and webcast.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded I would now like to turn the conference over to your host and Jeffrey with the Gilmartin Group. Please go ahead Hana.

Thank you Gary and good afternoon, everyone earlier today Covid medical released financial results for the second quarter on 2021.

A copy of the press release is available on the company's website.

During this call and we'll make certain forward looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today.

Actual events or results could differ materially due to many risks and uncertainties, including those mentioned and the associated press release and our most recent filings with the U S E C.

We assume no obligation to update any forward looking statements I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on our quarter.

During the call management will discuss certain non-GAAP financial measures and our press release and our filings with the SEC.

Each of which are posted on our website, you'll find additional disclosure regarding the non-GAAP measures and.

Reconciliations of these measures with comparable GAAP measures and our press release and those filings.

For the benefit of those listening to the replay. This call was held and recorded on Wednesday August 11th 2021 at approximately 430 P. M. Eastern time. Since then the company may have made additional comments related to the topics and Scott.

And please reference the company's most recent press release and filings with the SEC.

Joining us on the call today is Linda therapy, President and CEO of Cobra Medical system, and Karen and Fisher coverage Chief Financial Officer, Linda. Please go ahead.

Thanks Hannah.

Good afternoon, everyone and thanks for joining us today.

During today's call I will review, our second quarter results and our strategy to accelerate top line growth.

And increase our pharmaceutical pipeline of new drug candidates and build a strong foundation for continued bright future at par and medical.

I will then turn it over to Karen to discuss the quarterly financials in more depth before ending with a few closing remarks.

Our mission of courtroom medical is to improve patients' quality of life through the development and delivery of high quality therapeutic drug delivery solutions for use and home.

Our FDA cleared market, leading freedom integrated infusion system is used today by patients to sell from pews life, improving immunoglobulin I G treatments and the commencement of their home and at lower overall cost to the health care system.

And with more than 85% of patients on <unk> therapy, receiving treatment intravenously, and a hospital or infusion clinic setting.

There's a great opportunity and the subcutaneous ICD market.

With a greater than $250 million total addressable U S market potential.

Expanding beyond I G. We've also characterized a potential pipeline of over 60, new high volume drug candidates in development that capitalize on the freedom system, leading position and the space.

Later in the call I will share our progress and both of these areas.

Turning to our results for the second quarter.

We reported revenue of $5.5 million compared to $7.7 million and the second quarter of 2020.

Our year on year revenue growth was negatively impacted by two one time events and the second quarter of 2020.

The first was $1.1 million and sales due to increased inventory levels related to COVID-19.

The second was approximately $1.2 million and sales from a palace pharmaceuticals for the clinical trials with them for valley.

When normalized for these one time events, we experienced positive year on year growth of approximately 3% and on a sequential basis, we reported an increase in revenue of approximately 4% versus last two quarters versus last quarter.

The two key indicators that we measure on our core domestic business the <unk> market data measuring total gram sold into the market.

And our end user data, which measure sales force specialty pharmacy channel both saw high single digit growth and Q2.

And our novel therapy franchise, we saw small, but encouraging increase in our quarter over quarter revenues as we increase our early stage feasibility agreements with pharmaceutical companies.

This quarter marks my first full quarter with the company.

I've been able to meet with the majority of our specialty pharmacy customers and our pharmaceutical partners and <unk>.

Spent a great deal of time with our team and we are engaged and market research to better understand market and patient needs.

The company has a great reputation with our customers a very high retention rate with our patients and we have a very knowledgeable tenured team here at corporate.

We have characterized the large opportunity both on our core sub Q I G business, and then the new drug pipeline and.

And we are focused on building out the team and executing on our plan.

And the late fall, we will be prepared to share a three year plan.

Today I will share the continued evolution of our near term strategy.

As we have focused our efforts over the past quarter and further defining the specific actions milestones and resorts and required.

While the plan is still and it's early stages of execution. We are confident that we've laid out on the road map for future success to accelerate top line growth.

And increased pipeline drug therapy candidate.

Our strategy will focus on three areas.

First a targeted commercial plan to increase penetration and growth and core subcutaneous I gene therapy.

Second a plan to increase our overall pipeline of new drug candidates focused and korea's leading market position and large volume, which we characterize as above 10 milliliters.

And finally, improving our foundation focused and the areas of innovation operational excellence and quality and regulatory.

The short term opportunity to accelerate growth is through increasing share and penetration of at home therapy, and our core domestic sub Q I G business.

The total addressable market for sub Q, IGN and the United States is approximately $250 million and currently sub Q I G makes up less than 15% of patients and this market.

We have three focus areas first increasing our go to market price and and targeted accounts based upon recently purchase data at the specialty pharmacy level.

Second is converting the greater than 85% of patients on IV I G to sub Q I D based upon the overall health care economics improve patient outcomes and convenience for the patient.

The third area is value added services to ensure we gain and increasing share of new patient starts and make the onboarding process to the freedom system and at home therapy is easy as simple as possible.

Over the next few quarters, we will be launching new services and the select accounts before rolling them out at scale.

We are also focused on expanding our presence in Europe with an expected new distribution partnership completed by Q4 and Germany.

The second phase of our strategy is increasing and the pipeline of new pharmaceutical drug candidates focused on high volume, which we define as over 10 milliliters.

The market today, where the freedom pass platform has leadership.

In order to complete their clinical trials for type two drug candidates pharmaceutical companies are seeking a regulatory approved product with an attractive safety profile.

That has modularity to span dosing requirements. The freedom system meets all of these requirements.

Over the past quarter, we have identified at Targa pipeline of over 70 high volume drugs with the majority of these and phase one to three clinical trials and a handful that are currently on market.

This pipeline includes candidates across oncology and.

Immunology cardiology, hematology and endocrinology, we have five small scale committed agreements and seven and peeves ability discussions across both our core <unk> business and a new drug therapies targeted for geographic expansion and reformulation and new clinical developments.

We also anticipate three FDA clearances on new indications for the freedom pump by the end of this calendar year.

Our third area of focus is building the foundation for the company with a focus on innovation operational excellence and quality and regulatory.

The biggest area of investment and focus is on innovation.

Over the last several quarters, we have done market research to better understand the patient experience with the court system and we will focus on near term attention on patient comfort and ease of use.

Longer term, we're focused on new technologies and partnerships.

Our operational excellence strategy is focused on reducing our overall costs with the first stage being and outsourcing initiatives already underway and expected to reduce our overall cost position between two five and 3.5 percentage points.

Given the impact of Covid on patient starts and volume we expect to see the impact from these initiatives delayed to the early part of 2020 two.

The final area of focus is building quality and regulatory competency that will lead to competitive advantage with our pharmaceutical partners.

Underlying this strategy is building out our executive team with top tier talent. We were pleased to announce that we've hired both the director of regulatory and our vice president of quality and regulatory with deep Brac on backgrounds and class two regulated devices.

We are also and active recruitment for both the VP of sales for the U S market and the Chief Technology Officer.

Before turning the call over to Karen I want to reiterate a few points core of medical is a market leader and delivering millions of safe subcutaneous high volume infusions per year.

The market for sub Q I gene therapy is and the early stages of penetration.

With a greater than $250 million total addressable market potential and.

And we have identified a large potential pharmaceutical pipeline of new drug candidates.

And our solid financial position with the resources to begin implementing our strategic plan.

Plan is designed to increase top line growth, while expanding our pipeline and increasing spend and focused manner.

As we look towards the second half of 2021 we look forward to after dating you and executing our plan with discipline.

I'll now turn the call over to Karen to review our financial results.

Thanks, Linda and good afternoon, everyone.

Total net sales for the second quarter of 2021 were $5.5 million a decrease of 28% from $7.7 million and the second quarter of 2020, resulting from difficult year over year comparisons due to two one time events, including increased inventory build due to the uncertainty of the pandemic last.

Sure and large novel therapy sales from nonrecurring trials during the second quarter of 'twenty, and 'twenty and aggregate totaling $2.3 million.

Sequential quarter net sales growth was 2% driven by a 4% increase and domestic core and growth and novel therapy revenues.

Both the overall domestic market growth and Q2, and our end user sales, which measure sales to the specialty pharmacy channel grew high single digits, we believe and indicating market recovery and new patient starts for <unk> therapy.

International sales increased 1% from the prior year quarter.

Gross margin for the second quarter of 2021 was 51% and decrease of five six percentage points negatively impacted primarily by lower volumes, resulting in unfavorable absorption.

Total operating expenses from the second quarter of 2021 were $4.6 million compared to $5.9 million for the same period on 2020, which included litigation fees of $2.3 million last year.

Excluding the litigation fees and expenses grew with spend focused primarily on areas related to our strategy, including market research and testing and consulting fees Ultra support commercialization research and development and strategic and regulatory initiatives.

Net loss for the second quarter of 2021 was $1.1 million or a negative three cents per diluted share unchanged from the same period and 2020.

On a non-GAAP basis, adjusted diluting earnings per share was negative <unk> <unk> for the second quarter of 2021, four cents lower than the same period in 2020.

Non-GAAP adjusted EBITDA for the second quarter of 2021 was a loss of 300000 compared to a loss of $1.8 million for the second quarter of 2020.

Turning to our balance sheet. We ended the second quarter of 2021, with $26.5 million and cash compared to $27.3 million at the end of the year.

Our inventory position grew $6.8 million at December 30.

<unk> 2020 to $7.6 million at 22, and June 30th 2020, one due to our efforts to transition our manufacturing to our secondary source.

I'll now turn it back over to Linda.

Thanks, Karen before turning the call over to the operator for Q&A I want to reiterate that the future is very bright for cargo medical.

We're the market leader and subcutaneous home use IGT therapy due to the simplicity reliability and safety of our freedom infusion system.

Based on published market data, we believe sub Q I G sales have turned the corner and we begin to accelerate.

And we expect to grow at or above the underlying therapy sales growth rate. In addition, our strategic plan focus on driving growth and penetration of <unk> therapy, increasing our pharmaceutical pipeline and innovation will accelerate overall top line growth.

We're excited to continue our focused execution, bringing increased value to our customers patients and shareholders.

Ill now turn the call back over to the operator for Q&A.

Thank you.

To ask a question. Please press star one on your telephone keypad and.

And confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment and it may be necessary to pick up your handset before pressing the star keys. Our first question is from that and O'brien with Piper Sandler. Please proceed.

Okay.

Hi, this is carrying on for Matt Thanks for taking the questions and congrats on the quarter and.

So starting off with Covid cases on the rise and especially with Delta and other variance.

It's been pretty hot topic. This earning season just curious your thoughts on how this will and how this has impacted your outlook for the remainder of the year. We know you don't guide, but if you can just share some of your internal expectations and assumptions on how the market maker Forum here and how you may perform versus the market on factoring and all of these.

And as Covid uncertainty and uncertainties.

Yeah. So I would say that we're looking at overall vaccination rates versus the impact of the Delta variant and I would expect that overall the market as we thought perform and quarter, two which was about.

8% overall about 6% year to date, we're modeling about the same impact and the back half.

Yeah.

Awesome. Thank you.

And then you touched on a little bit your initiatives and Europe can you just expand a little bit more on how that's going along.

With respect to distribution and reimbursement and how we should be thinking about contribution from these geographies over the coming years.

Yeah.

So.

And I'm going to start upfront by saying the majority of our focus and the last quarter has really been on the on the larger opportunity here and the U S market and on accelerating our pipeline for pharma. However, the work we've done to date and Europe is focused and the two largest markets, Germany, and France, and Germany, we have made.

Really good progress.

And arrow to a distributor where and the final stages of signing the agreement with them and we should expect a couple of hundred thousand dollars by the end of the year in terms of stocking opportunity.

Great. Thank you and then just last one for us on margins.

Gross margin and I believe.

And it's about 58 this quarter is that a run rate we should base off of for the remainder of the year or how should we be thinking about that gross margin line and the back half and then when should we expect that to bump back up to that 60% range.

So provided the volume that we discussed earlier, we would anticipate by the end of the year being back in the 59% range and then the outsourcing agreements that I referenced earlier.

<unk> will kick in and the early part of 2020, two so think about through 2020 two getting to the 62.

62% range.

Thank you.

Yeah.

Our next question is from Alex Nowak with Craig Hallum Capital Group. Please proceed.

Great. Good afternoon, everyone, Linda and thanks for all the details on the pipeline and you expand on the agreements you have side and the seven and feasibility are these deals where kudos to keep operating into protocol. During the clinical trials and is ultimately expected to be to keep object and commercialization and then also can you quantify the market.

Turning around the three seeking FDA approval by year end.

Okay.

Yeah. So so on the five that we have signed today, yes, there are agreements that either a they would be the commercial opportunity with corot or would be the pump used in the trials.

Two of those are with and.

F C. I G today, either for geographic expansion opportunities of our reformulation opportunities and then the other three are and new therapies.

I can't really expand beyond that but.

There are new therapy classes are some as you would imagine with the with what the palace with expanded indications and then another and the respiratory field.

The other.

What I would call earlier stage feasibility, meaning we're at a stage, where we've defined and opportunity and we're working to see either is there a.

<unk> customization to our system that we need to make.

Non market application or can we go directly into our early stage clinical trials with them.

Got it that makes sense helpful.

Unexplained and the penetration of some QA G. Can you maybe talk to how crew can directly influence that market. It seems like some of it is having enough drug which requires enough plasma in order to increase the penetration, but you're also saying the newer non adventures of cure.

And drugs come on coal onto the market to just expand on how crew can directly influence that penetration rate.

Yeah. So I think first of all what you've talked about which is new drugs coming into the class is certainly going to help but I think there are three.

Pieces of data that well rely on heavily working with a K O L group to really increase our presence at at overall shows and then focus primarily with our specialty pharmacies and trying to make that switch. So we're working with several of them today that identify patient pools that are on.

And on IV today that could go to sub Q.

And are working with us to try and convert patient base. So we're going to start this on a trial basis.

And so the data exists today, we have first of all clinical data that shows improved patient outcome. Several published papers out there second is.

The overall cost to the health care system.

You know and United has done a study that shows a difference 50% difference and costs over six month period and hospital versus home and then finally is the obvious improved outcomes for the patients. So we don't think we can do this alone at the position level certainly we'll need to work in conjunction with our pharma.

<unk>, but all of those tools in conjunction working with our pharma partners and then working with our specialty pharmacy partners. We don't see the the biggest challenge is obviously the change in clinical practice with with the prescribers that have Brett and ivs for several years, but we see the mark.

Kit naturally turning because of the improvement and overall drugs and the space.

And over time.

Our commercial activities, we think will get us there.

Okay that makes sense and then just last question just maybe on the R&D pipeline with regards to the freedom line of pumps, you've obviously joined the company just a couple of months ago.

And had some more time to study the devices.

How do you what sort of what's on our features do you think that the freedom system is lagging and I guess how.

How would you want to expand on the freedom system, but also go into maybe a patch pump or what other sorts of devices could you add on here.

Yeah. So first I'll just talk about stage one of the of the strategy is clearly focused on on the pump. We have today I'll focus there and then I'll talk a little bit about base too. So so and phase one and clearly we've identified I would say 10 to 15, what I would call minor improvements that we can make to the pump that make meaningful difference either too.

To to.

The patients are the nurses that help train on the therapy. Most of these are focused on patient comfort and convenience and deal with the overall size of the pump getting that smaller and as I said I'm not going to get into more detail, but patient comfort and convenience.

That's first stage second stage, obviously do we add electronics to the pump to give the caregiver the signal that something has been delivered.

And then third phases as you talked about what do we look at and in our portfolio. Our patent portfolio to say what can we do in terms of.

A smaller pump that is either and on body or and off body pump using our infusion set.

And.

You know you'll see all of this kick up over the course of the next six months.

And I think innovation is critical to commercialize with a lot and pharmaceutical targets that we see today.

Alright understood and appreciate the update thanks.

We have reached the end of our question and answer session. So this does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Okay.

Yeah.

And.

[music].