Q2 2021 Nuwellis Inc Earnings Call
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Today's conference is scheduled to begin shortly please continue to standby. Thank you for the patients.
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Yes.
Good day, and thank you for standing by the local 2 of newer less incorporated second quarter 2021earnings conference call. At this time all participants on the on listen only mode. After the speaker presentation. There will be a question answer session to ask a question. During the session you will need to press the star 1 on your telephone.
If you require any further assistance. Please press star zero on when they were at the end the conference over to speak of today Matt.
Net Nashville from Gilmartin Group. Please go ahead.
Thank you operator, and thank you for joining today's conference call to discuss new else's corporate developments and financial results for the second quarter ended June 30 of 2021. In addition to myself with US today are Mr. Herring meal of the company's CEO George <unk>, the company's CFO at 8 a M. Eastern today, New else released financial results for the quarter ended.
June 30 of 'twenty 'twenty 1.
You have not received nuances earnings release, please visit the investors page on the company's website. During this conference call of the company will be will be making forward looking statements except for historical information mentioned during the conference call statements made by the management team of new wireless of forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation reform.
Of 1995 forward looking statements involve known and unknown risks and uncertainties that are based on managements beliefs assumptions expectations on information currently available to management of those risks include but are not limited to risks associated with the possibility that the company may be unable to grow revenue in future quarters of the company may not be able to commercialize its products success.
Lee the possibility that it may be unable to raise the funds necessary for the company's anticipates the operations and the other risk factors described under the caption risk factors and elsewhere in the company's filings.
The use of Exchange Commission.
By providing this information the <unk>.
Company undertakes no obligation to update or revise any projections or forward looking statements, whether because of the information new developments or otherwise you should review the the cautionary statements and discussion of risk factors included in the company's press release issued today. The company. The latest 10-K subsequent reports as well as other filings with the Securities exchange.
<unk> under the titles risk factors or cautionary statements related to forward looking statements for additional discussion of risk factors that could cause actual results to differ materially from management's current expectations those discussions regarding risk factors as well as the discussions of forward looking statements in such sections are incorporated by reference in this.
Call and are readily available on the Companys website with that I would like turn the call over to Mr. Here of meal, the wallets as CEO.
Okay.
Yeah.
Operator.
Lester on the line.
Yes. He is connect the necessary you may be on mute.
Okay.
Yeah.
Once again, you may be on mute.
Okay.
I'm not sure why he's not responding.
Design of so connected.
Let me give him up the call can we pause the call.
Sure.
Hello. This is Dr. Nestor.
Victor.
Mr You're coming on loud and clear now.
Okay.
Yes.
On my greatest golf.
Yes, Matt.
Yeah, I'm still here.
You need me to re do you need me to reread that or I mean are we are we on the lifeline right now yes.
Yes, we are on the lifeline.
Hey.
Okay.
Okay, I'm going to start and now first and foremost thank you very much the b.
We're connected to the.
The new well its second quarter 2021 earnings call I apologize for the technical difficulties that we just experienced.
Before providing our corporate update I would like to review of 3 importantly, the bands that are mark, making our company very different than what we were a quarter ago.
First I would like to officially welcome George Montague, our new CFO, who is joining us on today's call.
George brings more than 2 decades of healthcare finance on leadership experience.
Most recently he served as the Chief Financial Officer, and Chief Operating Officer, Opex Smiths Medical a $1.2 billion device manufacturer, where he was instrumental in restoring growth and improving profitability.
He also led finance on strategy for 2 of Medtronic, 4 operating groups, including the restorative therapies group.
Similarly on roller season healthcare industry executive Neely, yet recently joined the <unk> as our senior Vice President.
General Counsel Secretary and Chief compliance Officer.
Both are here with me on this call and you will hear from Georgia in a few minutes.
We are already benefiting from the experience and expertise that George on Neil brings to the team.
The second of bank relates to our rebranding.
We are thrilled by the early positive reception from the health care community of our new corporate name the wellness.
Both hospitals and physicians alike have share positive feedback recognizing the us at the company that he is no longer solely focused on serving the chronic heart failure community, but 1 that is truly transforming care to restorative fluid balance as many patients as possible.
Our strategy to expand our therapeutic focus to include heart failure and pediatric patients. In addition to those suffering from acute needs in the critical care setting personalize, our corporate goal to become the new well for brighter today and better tomorrow.
And thirdly last week, we announced.
A research and development collaboration agreement to design and develop a fully integrated pediatric continuous renal replacement therapy device that will expand our current indication to include children weighing less than 20 kilograms.
In previous earnings earnings calls.
We have communicated our commitment to the pediatric segment in.
In addition, our vision states that we are dedicated to transforming the lives of patients suffering from fluid overload from science collaborations and innovation.
Of the partnership with Corona's Biomedical technologies is an example of how we are fulfilling our vision.
This fully integrated the the outbreak continuous renal replacement therapy device would be funded in part by a $1.7 million grant from the national institutes of upheld.
We are excited to partner with Corona biomedical technologies in designing and developing this product to better care for babies with limited kidney function.
Now turning to the business update.
In the second quarter of 2021, we generated a record of $2.5 million in total revenue representing growth of 35% of over the prior year periods.
As a reminder, on light mainly businesses during the pandemic new relics grew low double digits in the second quarter of 2020 compared to 2029.2019.
Therefore, when comparing the second quarter of 2021 revenue to the comparable period in 2019 sales increased 50% over the 2.
2 year period.
This demonstrates the soundness of our growth strategy to expand into pediatric and drive increased utilization among critical care customers.
On a sequential basis revenue increased 31% compared to the first quarter of 2021 with.
With a strong sequential growth across all segments.
Most notably heart failure, which I will speak to shortly.
As mentioned in last quarters call, our revenue mix have meaningfully shift given our strong commercial execution to expand into critical care and pediatric accounts.
In the second quarter of 2021, our revenue mix was comprised of 41% critical care, 33% pediatric and 24% heart failure.
Now I will provide further details on each business segment, starting with critical care.
Critical care continued strong momentum, having now realized 3 consecutive quarters of sequential growth and segment quarterly revenues now approaching $1 million.
This remains 1 of our top performing segments driven by increased utilization on unit replacements of our newest generation <unk> system in hospital icu's across the country.
As I have previously alluded to given the comfort level on familiarity that these accounts have developed over the course of the pandemic.
We are realizing increasingly.
Level of utilization among non COVID-19 critically ill patients.
Due to this synergistic effect of our athletic systems capability to treat COVID-19 critically ill patients, we have been able to meaningfully drive demand and utilization within the critical care segment, primarily tweeting non COVID-19 critically ill patients.
With Covid cases in the U S. Having significantly decline sank the vaccine rollout. We view these utilization trained to be favorable unexpected to be durable as the company continues to build awareness of the clinical benefits of the <unk> system in treating patients in the ICU.
Now moving to our pediatric business.
Increased penetration on utilization and establish accounts combined with the adoption by new customers resulted in our second straight quarter of strong double digit sequential revenue growth in pediatrics.
Our ability to sell additional athletic units on increased consumable volumes at established accounts is tangible validation that our technology is a vital tool decisions can rely on to improve the lives of children.
1 pattern that we often observe is that when a hospital III just 1 child suffering from fluid overload and witnessing the benefits of the <unk> smart tool system. They adopt it for use in treating more children.
While only 918 months prior to our market development, the lack of IDEXX treating children with fluid overload.
We remain optimistic about <unk> prospects and highlight the significant untapped opportunity within the pediatric hospitals.
Transitioning to our pediatric registry, which was initiated in January as of today. We have selected 8 of the 10 total institutions to participate in this registry on are actively enrolling patients at 4 of them.
The registry is designed to collect real world evidence on the use of the Atwood exits Mark loans, all property trades from system in pediatric patients with fluid overload.
The registry will include data on ultrafiltration utility.
Formats on safety profile for up to 500 pediatric patients weighing over 20 kilograms.
Over a 2 on a half year period.
We are grateful grateful to partners with organizations like Joe the major children's hospital.
Millions of Alabama.
Cincinnati Children's Hospital, and Seattle Children's Hospital, all of whom have started enrolling patients in this registry as part of our commitment to improve on customized pediatric care with the <unk> smartphone system.
We are excited that the registry will of spread awareness within the pediatric community regarding the clinical efficacy of the <unk> therapy and ease of increased utilization.
Turning now to our heart failure of business you may recall from our last earnings call that sales of the heart failure segment declined sequentially from the fourth quarter of 2020 to the first quarter of this year.
We have previewed bad to Covid <unk> impact on heart failure patient behavior.
Overall procedure volumes on our limited access to hospitals.
At that time, we anticipated the segment will recover over the remainder of 2021 fueled by more normalized patient behavior.
<unk> and increase access to hospitals due to declining COVID-19 infection rates and additional clinical evidence demonstrating the therapeutic benefits of athletics therapy.
Display this played out as we expected, resulting in heart failure of having the fastest pace of sequential growth among our segments during the second quarter.
Regarding our continued progress building the body of clinical evidence supporting the ultrafiltration.
The 2021 American College of Cardiology conference included of presentations.
Net of data supporting the effectiveness of our Aqua the ex flex low system in the treatment of acutely the compensated heart failure patients.
The single Center study evaluated 30 acutely be compensated heart failure patients in the mainstream setting who were treated with the <unk> therapy.
The study showed a significant weight decrease and fluid removal without affecting kidney function.
More specifically the studies reported a mean fluid removal of almost $9 of half leaders and 16 pounds of mean weight loss.
Additionally, the authors reported a hospital readmission rate of 17% at 30 days post treatment.
Compared to the national average of 25%.
A reduction of almost 50% in hospital readmission at 30 days.
This strength thing supporting evidence disc.
Discussed during the last quarter's call and demonstrates the impressive benefits to patients and to overall health care system, even in the first year following treatment with the <unk> therapy.
I'm also excited to announce that in July of this year of the American Medical Association issued a category III CPT code, commonly known at the category 3 or T code.
For the use of therapeutic ultra fluctuation.
This caused our issue for emerging technologies services of procedures.
And they allowed for data collections to substantiate more widespread usage.
They also allow health care providers to obtain reimbursement and develop pathways to eventually pursue a corollary 1 code.
Obtaining these new T code, which goes into effect January 1st of 2020 to March of significant step towards advancing the commercialization of the athletics therapy into a standard of care.
It is also important to point out that while the CPT code applies to outpatient procedures reimbursement steel provided via DRG codes for in patient care, which is the primary application of our therapy today.
That said, we believe patient access to ultrafiltration through the outpatient market represents a sizable opportunity and addresses a significant problem for hospitals on heart failure patients that we are uniquely positioned to solve.
We believe earlier intervention in the outpatient setting V I peripheral venous access will reduce overall hospitalizations.
True patients quality of life and lessen the burden on the overall health care system.
We bertman is an integral aspect of hospital administration decisions, making and can play a huge role in whether patients have access to lifesaving technologies.
As Dr. Maria Davita said in the press release quote.
If it is if it were entirely up to the providers, we would always use the most innovator innovative technologies to treat our patients.
Yet the reality is the health care system using mains in the dynamic and components such as reimbursement must be consider when choosing the best tools to include in our our momentum.
This reimbursement opens access to more hospitals and ultimately patients across the nation, who otherwise may not have had access to ultra filtration and that is news worth celebrating.
Of course.
We appreciate the recognition of therapeutic of the therapeutic benefits of ultrafiltration by the medical societies, who endorsed the application and we are confident the category 3 CPT code will enable patients access to our adoption by providers, who prescribe ultrafiltration.
For the fluid overloaded patients.
Yes.
During the second quarter, we also announced a 3 year national purchase agreement with Premier incorporated.
1 of the nations largest group purchasing organization.
Specifically, new wells on Premier partner to create a new Aqua per recent Paraguay, which allows premier members to purchase <unk> smartphone consoles on a pre negotiated price.
<unk> is the first on only therapy.
Currently available in a newly established Aqua for reach this product category.
The collaboration provides me well as with the opportunity to expand into many of the thousands of hospitals with with Premier holds relationships.
The Premier is a trusted health care leader and working with them to expand access to ultra penetration with the <unk> is a significant milestone for the company and the customers we serve.
When you put it all together you can see many signs of progress in executing our strategy and of ultimately, making athletics therapy, the standard of care for fluid management.
We continue to build supporting clinical evidence establish the foundation for the appropriate reimbursement.
Expand commercial relationships and develop differentiated products.
You also see in our financial results the details of which George will take you through now.
Knowing that we will open up the call for questions.
Thank you Nestor and good morning, everyone I'm glad to be part of new wireless and look forward to helping the business achieve its potential as it transforms the lives of patients from suffering from fluid overload through science collaboration and innovation.
Turning to our financial results revenue for the second quarter was $2.5 million up 35% from Q2 of last year and 50% above the second quarter of 2019, which we consider a pre COVID-19 baseline revs.
Revenue performance for the quarter was driven by increased capital sales and strong utilization of disposables across all our segments.
Regarding our gross margin and operating costs I will briefly comment about major drivers.
First our gross margin was 62% per the second quarter of 2021.
As mentioned in previous earnings calls gross margin is heavily dependent on volume and the revenue mix between capital equipment and disposable circuits sales growth during the second quarter resulted in higher sequential production volumes, which benefited gross margin increasing it from the 54% reported in the first quarter of 2021 and the 54.
5% reported for the fiscal year 2020, however.
However, it was below the 64, 4% reported in the second quarter of 2020 due to a production ramp last year to support the launch of the awkward X smart flow system and the expected future demand increases.
The next regarding our SG&A expenses Q.
Q2, 2021 expenses were $5.1 million, an increase of 20% over the second quarter of 2020. The increase in SG&A expense was primarily due to our continued investment in sales and marketing activities, along with nonrecurring leadership transition costs.
Our research and development expenses were $1.2 million in the second quarter of 2021, a 33% increase compared to Q2 of last year.
The increase in R&D expenses over the prior year were primarily driven by investments in new products and clinical support of our pediatric registry. The net loss for the quarter was $4.7 million or <unk> 72 per share compared to a net loss from the second quarter of 2020 at $3.9 million or $3 <unk>.
<unk> per share based on an adjusted share count.
Regarding our liquidity position, we used $3.9 million of cash in the second quarter to finance our operations and we ended June with $24.0 million of cash and marketable securities.
Looking forward to our projection for the remainder of 2021, we continue to closely monitor the situation caused by the Covid pandemic, we expect to see increased utilization of our therapies in areas of the country, where we have an established presence. However, if access to hospitals continues to be limited it could potentially impact our traditional business at this point we're planning.
Per quarterly revenues to continue increasing sequentially for the remainder of the year.
On an annual basis, we expect our gross margin will continue to benefit from increased volumes, although the eventual eventual product mix will also have an impact I will now turn the call back the Nestor for some final remarks.
For my final remarks, I want to communicate on the well as the financially stable on entering an exciting new phase with significant opportunities in critical care pediatrics on heart failure.
We have sufficient cash on the balance sheet to provide a meaningful runway to fund operations, while we execute our strategy.
We have seen impressive growth rates during the last 6 quarters, thanks to our expansion into pediatrics on critical care.
Now that we have of dedicated CPT code to treat patients suffering from fluid overload. We believe our heart failure business is poised to accelerate in 2022.
I want to thank you for joining our second quarter conference call and I wish you all the good day.
The later you can open the call for questions.
As a reminder to ask the questions you'll need the press star 1 on your telephone.
And so we would drive part of your question.
Okay.
Sam viral with some part of the Q&A roster.
Our first question on current from the line of Jeffrey Cohen from land.
The common you may begin.
Oh, Hello, Investor and George how are you.
Good Jeff how are you on.
During the first congratulations on a meal joining as well so I have a number of crushers of I guess I would sort out and.
Pediatrics as far so could you give us a sense of.
Number of accounts up in the pediatric space now.
Just thinking about the other as it relates to our penetration rates.
And a number of perhaps of.
How utilization terms of Lyft recently and also our trading as far of stack on the sector as well.
Good question Jeff.
First of all we don't want to give the exact numbers of how many accounts. We have open on a quarterly basis, we will do that at the end of the year, but we're seeing Jeff that once the hospital.
<unk>, the first baby and they see the clinical benefits that they receive from our decks. The immediately purchase additional consoles to treat more children.
In our current accounts, we see the same.
Situation, where they are buying more console to treat more children's in some of our hospitals. They have up to 5.6 consoles and in many times during the quarter. They would have 4.5 years from patients under treatment.
Perfect got it and then.
Give us a sense of the.
The registry of Pediatrics. The you mentioned so it sounds like a 8 out of 10.
All of our abuse of inflation for enrolling currently can you give us a sense of how they were rolled and how do you expect that to fall on the enrollment membership over the coming quarters.
We have approximately 6 to 8 patients enroll.
The registry as of today and as big.
Tweed more children's we will see an increase in the number of patients enrolled in the registry.
And what's the total expected to be for the trial.
During the trial 500 patients.
Okay.
And there will be forward for.
2 of our peers Mr. Carlo that's correct.
On the follow up.
Yes.
Hello, everybody about a year, but we expect about 2 and a half years to enroll the patients and also to follow to do the follow up.
Okay, perfect and as far as equipment and manufacturing and assembly with the on the newer smart flow systems Cornell.
Are these new ads that youre getting out there in the field with your commercial organization or some of this was also our upgrades or replacements.
Book, we see new accounts purchasing.
On a smart flows for the first time, but we also seen a number of accounts of our replacing the select slow with the new generation smartphone.
So as book New accounts purchasing the smart flow as well as current accounts, replacing their old generation.
Got it and then.
You spoke a little bit about ASC is has there been any replacement to day specific for for issues that you're seeing or current facilities that are taking units and are pushing them out to their own assays.
That's a good question that Jeff.
Since the approval of the CPT code is early yet to determine how the outpatient is going to play out.
In the past, we have seen or we know of accounts they used to use the <unk> in the outpatient setting and I believe that those hospitals will continue to tweak in the inpatient and start again to use it in the outpatient.
Okay got it and then lastly for US 1 more if I could.
Could you talk a little bit.
About the the.
Premier arrangement as it coming of ships 3 years is coming with any of the minimums as far as unit or Utilizations and what kind of timeframe should we see for the rolling out from their side.
Good question I'm going to start with the latter part of the of your question.
We're starting to see implementation.
Right now in the in the members of that participate in the Premier.
Relationship.
And now we believe that this is going to continue improving access.
For the therapy in those accounts that either have used the therapy before or we will start using the therapy.
Great.
Okay got it Mr. George Thank you very much nice quarter.
Thank you thank you Jeff.
Our next question on comes from the line of Anthony Vendetti from Maxim you may begin.
Thank you.
C suite on the CPT code necessary.
Have a category 3 code.
It goes into effect January 1st.
Okay.
And do you have a plan to obtain a category 1 code and can you elaborate on on the significance of what that would mean.
Yes for your business.
Net.
Yes, good question Anthony.
On the.
The current gory 3 is set up for emerging technologies, and new procedures and the idea of the category III is to collect data on the utilization and the cost of using the therapies.
So we expect to have.
2.3 years of data collection.
And information to then apply for the category, 1 which is our intentions.
The category 3.
Is good for up to 5 years.
So within that period.
We expect to and we plan to apply for category..1 1 big data has been obtained in terms of utilization and cost of utilizing the therapy.
Yeah.
Okay, and youre expecting that to be about.
About 2 to 3 years correct.
I would think so yes the experience from other companies that have followed the same strategy that's what it appears to be.
Okay, and then and then the shifting gears to critics.
Critical care.
Obviously a spike.
Initially during during the.
Onset of the Covid pandemic.
It looks like there might have been a sequentially the sequential decrease even though.
The revenues were up year over year on certainly up from from 2019.
Do you expect.
With the with the Delta variant and with Covid patients now increasing.
Nationwide do you expect your critical care revenues of.
To not only go up.
Year over year, but also also sequentially.
And then.
As as critical care has become a significant part of your of your revenues.
Due to Covid have you noticed at least anecdotally.
The increase in hospital utilization.
Of the.
The <unk> system as they have seen the benefits on critical care and has that translated into into more use and heart failure I know your pediatric as a separate business, that's doing well, but but have you seen the utilization within a particular hospital increase throughout the hospital.
Absolutely Anthony in the last Q1 on Q2, we saw of significantly decrease in the utilization of the <unk> to treat COVID-19 critically ill patients. However, you saw the numbers that in both quarters. Our critical care numbers went up and that was due to.
The treatment of non Covid critically ill patients in the ICU no doubt about that so that synergistic effect of hospitals.
I appreciate the clinical benefit of the <unk> when treating COVID-19 critically ill patients to treat non COVID-19, non coffee. The critical eel is very obvious and we have seen not only anecdotally what we have seen in the numbers and when talking to our customers that's exactly what is happening.
Excellent.
Thanks, very much all of.
Turn it back over thanks.
Thank you Anthony.
And once again that sort of on 1 for questions. Our next question will come from the line of Brooks O'neil from Lake Street Capital markets you may begin.
Good morning, guys and congratulations on the progress of the quarter.
Obviously pretty new here, so my questions might be a little more basic that Jeff and Anthony I apologize for that upfront, but I wanted to start with the CPT code.
Can you help us to understand what the current reimbursement under the category 3 code.
The likely the B for both doctors and hospitals number 1 number 2 do you believe that level of reimbursement will be sufficient to drive increased.
Utilization.
Out there while the data collection process underway.
And then 3 what would the level you hope for B, when we moved to a category 1 code and the couple of years.
Net and sort of my first set of questions here.
Good morning, broken I'm on I tried to answer them.
In the reverse order the first 1.
The third question is there a part that you asked that do we expect to see an increased utilization once the category 1 once the category 1 is established.
Pretty much.
You can.
I assume that the therapy is gating to be the standard of care.
The second part of your question, we do believe that there is going to be an increased utilization even with the category III in those hospitals using it for heart failure.
And the first part of your question was about how does the current reimbursement works on how it's going to play out with the corollary free so.
Right now patients are treated.
In 2 steady in the inpatient.
And the patient in the in patient right now the hospital gets paid under the DRG.
And the precision could get paid under on on list at.
CPT code.
But you know the only if the coals they are cumbersome not necessarily.
The the petitions are going to get pay 1 basically made the gains that on listed gold. So this current already suite in the inpatient setting would allow for the physicians to get paid for of the use of the therapy. The facility. The hospital will continue to get paid under the DRG.
Now on the outpatient setting up until now there has not been any CPT code to cover the treatment of patients in the outpatient setting.
This code would allow more of the hospital on the decisions to get paid.
That's great that's great that's very helpful.
So just staying on the outpatient setting since you finished there I was just curious I heard Jeff ask about ASC I was curious if you anticipate outpatient use being more hospital outpatient departments.
Within the hospital I see a lot of outpatient departments.
On the first floor of the hospital, whatever or do you anticipate us actually gravitating to freestanding outpatient centers.
We believe so.
Brooks.
We know of about 9 hospitals that were using the <unk> in the outpatient setting.
And with now getting paid for you for using it in the outpatient is going to increase the utilization of perhaps of shifting from the inpatient to the outpatient is the savings are significant.
As you know when they treat patients in the outpatient setting.
And.
Okay.
Go ahead.
I was just curious and I get that I totally understand the is gonna be a big deal to save the.
Cost in the outpatient setting but is it going to be in the in the hospital outpatient departments or is it going to be in free standing centers in Europe opinion.
I understand your question now.
We believe that initially is going to be in the hospital outpatient clinics.
Okay got that and then the last question I had is.
You seem particularly excited about the pediatric opportunity.
And.
I know, it's the smaller market on paper in terms of Tam, but can you just explain to US what you think aqua <unk> brings to the treatment of <unk>.
Ladies and small children that is not available today and why you're so excited about the opportunity there.
Yes.
Right now Brooks, the Acura <unk> as an adult device.
But it happens to be the most gentle and the most effective when he when treating baby neonates.
With and reasoning kidney dysfunction, okay, whether they are bored office of kidney or they have renal issues.
Because of our gentleness decisions are using the produce neonates, but he is not the optimal device for pediatrics.
If they have to use separate pumps on those neonates to feed them with.
And nutrition, so our new device will incorporate those pumps into the device therefore, better synchronization between the infusion of true width and the removal of excess crude.
And that's the key is new device.
Yes, that's great. That's very very helpful. I appreciate it congratulations I'm excited about the the progress you're making.
Thank you thank you Bruce.
Thank you noted on the last question for today I'll turn the call over to NASA for any closing remarks.
Well I want to thank you everyone for participating in the new World Q second quarter earnings call and I wish you all the happy day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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[music].
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Good day, and thank you for standing by the local to a new wireless incorporated second quarter 2021 earnings conference call. At this time all participants on the on where she called the mode. After the speaker presentation. There will be a question answer session.
I ask the question during the session you will need to press star 1 on your telephone.
If you require any further assistance. Please press star zero and went out at the end the conference over to the speaker today.
Not that flow from Gilmartin group. Please go ahead.
Thank you operator, and thank you for joining today's conference call to discuss the analysis corporate developments and financial results for the second quarter ended June 30 of 2021. In addition to myself with US today are Mr. Here of meal of the company's CEO and George <unk>, the company's CFO at 8 a M. Eastern today in the wall, It's released financial results for the quarter ended.
<unk> 30 of 'twenty 'twenty 1.
You have not received any losses earnings release. Please visit the investors page on the company's website. During this conference call of the company will be will be making forward looking statements except for historical information mentioned during the conference call statements made by the management team of new Wallets of forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation reform.
<unk> of 1995 forward looking statements involve known and unknown risks and uncertainties that are based on managements beliefs assumptions expectations on information currently available to management.
Risks include but are not limited to risks associated with the possibility that the company may be unable to grow revenue in future quarters of the company may not be able to commercialize its products successfully the possibility that it may.
The unable to raise the funds necessary for the company's anticipates the operations and the other risk factors described under the caption risk factors and elsewhere in the company's filings with Securities and Exchange Commission.
By providing this information on the comp.
On the undertakes no obligation to update or revise any projections or forward looking statements, whether because of the new information new developments or otherwise you should review the the cautionary statements and discussion of risk factors included in the company's press release issued today. The Companys latest 10-K subsequent reports as well as other filings from the Securities Exchange Commission.
Under the titles risk factors or cautionary statements related to forward looking statements for additional discussion of risk factors that could cause actual results to differ materially from management's current expectations those discussions regarding risk factors as well as the discussions of forward looking statements in such sections are incorporated by reference in this.
Call and are readily available on the Companys website with that I would like turn the call over to Mr. Here of meal, the wallets as CEO.
Okay, I'm going to start and first and foremost thank you very much the b.
We're connecting to the.
The new well, it's the second quarter 2021 earnings call I apologize for the technical difficulties that we just experienced before.
Before providing our corporate update I would like to review 3 important the bands that are making our company very different than what we were a quarter ago.
First I would like to officially welcome George month of you, our new CFO, who is joining us on today's call.
George brings more than 2 decades of health care finance on leadership experience.
Most recently he served as the Chief Financial Officer, and Chief operating Officer of Smiths Medical a $1.2 billion device manufacturer, where he was instrumental in restoring growth and improving profitability.
He also led finance on strategy for 2 of Medtronic, 4 operating groups, including the restorative therapies group.
Similarly, I know Theyre see some health care industry executive nearly yet recently joined the wellness of our senior Vice President.
General Counsel Secretary and Chief compliance Officer.
Both are here with me on this call and you will hear from Georgia in a few minutes.
We are already benefiting from the experience and expertise the Georgia Neil brings to the team.
The second of bank relates to our rebranding we are thrilled by the early positive reception from the health care community of our new corporate name the wellness.
Both hospitals and physicians alike of share positive feedback recognizing the us at the company that is no longer solely focused on serving the chronic heart failure of community, but 1 that is truly transforming care to restorative fluid balance as many patients as possible.
Our strategy to expand our therapeutic focus to include heart failure and pediatric patients. In addition to those suffering from acute needs in the critical care setting per.
<unk>, our corporate goal to become the new well for brighter todays and better tomorrow.
And thirdly last week, we announced.
Research and development collaboration agreement to design and developed a fully integrated pediatric continuous renal replacement therapy device that will expand our current indication to include children weighing less than 20 kilograms.
In previous earnings earnings calls, we have communicated our commitment to the pediatric segment.
In addition, our vision states that we are dedicated to transforming the lives of patients suffering from fluid overload from science collaborations and innovation.
Our partnership with Corona's Biomedical technologies is an example of how we are fulfilling our vision.
This fully integrated pediatric continuous renal replacement therapy device will be funded in part by $1.7 million grant from the National institutes of upheld.
We are excited to partner with Corona biomedical technologies in designing and developing this product to better care for babies with limited kidney function.
Now turning to the business update.
On the second quarter of 2021, we generated a record of $2.5 million in total revenue representing growth of 35% over the over the prior year period.
As a reminder on.
Unlike many businesses during the pandemic new relics grew low double digit from the second quarter of 2020 compared to 2000.2009 2019.
Therefore, when comparing the second quarter of 2021 revenue to the comparable period in 2019.
<unk> increased 50% over the 2.
2 year period.
This demonstrates the soundness of our growth strategy to expand into the outbreak and drive increased utilization among critical care customers.
On the sequential basis revenue increased 31% compared to the first quarter of 2021 with a strong sequential growth across all segments.
Most notably heart failure, which I will speak to shortly.
As mentioned in last quarters call.
The revenue mix have meaningfully shift given our strong commercial execution to expand into critical care and pediatric accounts.
In the second quarter of 2021, our revenue mix was comprised of 41% critical care.
33% pediatric and 24% heart failure.
Now I will provide further details on each business segment, starting with critical care.
The critical care continued strong momentum, having now realized 3 consecutive quarters of sequential growth and segment quarterly revenues now approaching $1 million.
This remains 1 of our top performing segments, driven by increased utilization and unit replacements of our newest generation <unk> system in hospital icu's across the country.
As I have previously alluded to given the comfort level on familiarity that these accounts have developed over the course of the pandemic we are realizing increasingly.
The levels of utilization among non COVID-19 critically ill patients.
Due to this synergistic effect of our Aqua the X systems capability to treat COVID-19 critically ill patients, we have been able to meaningfully drive demand and utilization within the critical care segment, primarily treating non called the critically ill patients.
With Covid cases in the U S having significantly decline since the back the rollout we view these utilization trained to be favorable unexpected to be durable as the company continues to build awareness of the clinical benefits of the <unk> system in treating patients in the ICU.
Now moving to our pediatric business.
Increased penetration on utilization and establish accounts combined with the adoption by new customers resulted in our second straight quarter of strong double digit sequential revenue growth in pediatrics.
Our ability to sell additional equity units and the increased consumable volumes at established accounts is tangible validation that our technology is a vital tool decisions can rely on to improve the lives of children.
1 pattern that we often observe is that when a hospital III just 1 child suffering from fluid overload and witnessing the benefits of the <unk> smartphone system.
Adopt it for use in treating more children.
While only 18 months prior the into our market development of like what the ex treating children with fluid overload, we remain optimistic about <unk> prospects and highlight the significant untapped opportunity with the pediatric hospitals.
Yes.
Transitioning to our pediatric registry, which was initiated in January as of today. We have selected 8 of the 10 total institutions to participate in this registry on are actively enrolling patients at 4 of them.
The registry is designed to collect real world evidence on the use of the Aqua exit smart flow all profit duration system.
The average patients with fluid overload.
The registry will include data on ultra filtration utility per.
Performance on safety profile for up to 500 the Dr.
Patients weighing over 20 kilograms.
Over a 2 on a half year period.
We are grateful grateful to partners with organizations like Joe the major children's hospital.
Children's of Alabama.
Cincinnati Children's Hospital, and Seattle Children's Hospital, all of whom have started enrolling patients in this registry.
Part of our commitment to improve on customized the outbreak care with the <unk> smartphone system.
We are excited that the registry will of spread awareness within the pediatric community regarding the clinical efficacy of the <unk> therapy and its increased utilization.
Turning now to our heart failure business you may recall from our last earnings call that sales of the heart failure segment declined sequentially from the fourth quarter of 2020 to the first quarter of this year.
We attribute that to Covid <unk> impact on heart failure patient behavior.
Overall procedure volumes on our limited access to hospitals.
At that time, we anticipated the segment will recover over the remainder of 2021 fueled by more normalize patient behavior and increase access to hospitals due to declining COVID-19 infection rates and additional clinical evidence demonstrating.
The therapeutic benefits of <unk> therapy.
Display.
This played out as we expected, resulting in heart failure, having the fastest pace of sequential growth among our segments during the second quarter.
Regarding our continued progress building the body of clinical evidence supporting ultrafiltration.
The 2021 American College of Cardiology conference included of presentations.
That of data supporting the effectiveness of our Aqua the ex flex flow system in the treatment of acutely the compensated heart failure patients.
The single Center study evaluated 30.
<unk> be compensated heart failure patients in the mainstream setting who were treated with the <unk> therapy.
The study showed a significant weight.
Greece and fluid removal without affecting kidney function.
More specifically the studies reported a mean fluid removal of almost 9% of half leaders and 16 pounds of mean weight loss.
Additionally, the authors reported a hospital readmission rate of 17% at 30 days post treatment.
Compared to the national average of 25%.
And reduction of almost 50% in hospital readmission at 30 days.
This strength supporting evidence of this.
<unk> discussed during the last quarter's call and demonstrates the impressive benefits to patients and to overall health care system, even in the first year following treatment with the athletics therapy.
I'm also excited to announce that in July of this year of the American Medical Association issued a category III CPT code, commonly known asset category III or T code.
For the use of therapeutic ultra fluctuation.
This caused our issue for emerging technologies services of procedures.
They allowed for data collections to substantiate more widespread usage.
They also allow health care providers to obtain reimbursement and develop pathways to eventually pursue a corollary 1 code.
Obtaining these new T code, which goes into effect January 1st of 2020 to March of significant step towards advancing the commercialization of the athletics therapy into a standard of care.
It is also important to point out that while the CPT code applies to outpatient procedures.
<unk> steel provided the DRG codes for in patient care, which is the primary application of our therapy to date.
That said, we believe patient access to ultrafiltration through the outpatient market represents a sizable opportunity and addresses a significant problem for hospitals on heart failure patients that we are uniquely positioned to solve.
We believe earlier intervention in the outpatient setting VII peripheral venous access will reduce overall hospitalizations improve patients quality of life and lessen the burden on the overall health care system.
<unk> is an integral aspect of hospital administration decisions, making and can play a huge role in whether patients have access to lifesaving technologies.
As Dr. Maria Davita said in the press release quote.
EPS is deeply we're entirely up to the providers, we would always use the most innovator innovative technologies to treat our patients.
Yet.
Reality is the health care system is immensely dynamic on components, such as reimbursement must be consider when choosing the best tools to include an hour our momentum.
This reimbursement opens access to more hospitals and ultimately patients across the nation, who otherwise may not have had access to ultra filtration.
And that is news worth celebrating end of quote.
We appreciate the recognition of therapeutic of the therapeutic benefits of ultrafiltration by the medical societies, who endorsed the application and we are confident the category III CPT code will enable patients access to all of the adoption by providers, who prescribe ultrafiltration.
For the fluid overloaded patients.
Yeah.
During the second quarter, we also announced a 3 year national purchase agreement with Premier incorporated.
1 of the nations largest group purchasing organization.
So.
Specifically, new wells on Premier partner to create a new Aqua for research category, which allows premier members to purchase <unk> smartphone consoles on a pre negotiated price.
<unk> is the first on only therapy Curran.
Currently available in its newly established Aqua <unk> product category.
The collaboration provides new wells with the opportunity to expand into many of the thousands of hospitals with with Premier holds relationships.
Premier is a trusted health care leader and working with them to expand access to ultra fluctuation with the <unk> is a significant milestone for the company and the customers we serve.
When you put it all together you can see many signs of progress in executing our strategy and of ultimately, making athletics therapy, the standard of care for fluid management.
We continue to build supporting clinical evidence.
Average the foundation for the appropriate reimbursement expand commercial relationships and develop differentiated products.
You also see in our financial results the details of which George will take you through now.
Boeing that we will open up the call for questions.
Thank you Nestor and good morning, everyone I'm glad to be part of new wireless and look forward to helping the business achieve its potential as it transforms the lives of patients from suffering from fluid overload through science collaboration and innovation.
Turning to our financial results revenue for the second quarter was $2.5 million up 35% from Q2 of last year and 50% above the second quarter of 2019, which we consider a pre COVID-19 baseline red.
The revenue performance for the quarter was driven by increased capital sales and strong utilization of disposables across all our segments.
Regarding our gross margin and operating costs I will briefly comment about major drivers.
First our gross margin was 62% for the second quarter of 2021.
As mentioned in previous earnings calls gross margin is heavily dependent on volume and the revenue mix between capital equipment and disposable circuits sales growth during the second quarter resulted in higher sequential production volumes, which benefited gross margin increasing it from the 54% reported in the first quarter of 2021 and the $54.
5% reported for the fiscal year 2020, however.
However, it was below the 64, 4% reported in the second quarter of 2020 due to the production ramp last year to support the launch of the Aqua that smart <unk> system and the expected future demand increases.
Next regarding our SG&A expenses Q.
Q2, 2021 expenses were $5.1 million.
An increase of 20% over the second quarter of 2020, the increase in SG&A expense was primarily due to our continued investment in sales and marketing activities, along with nonrecurring leadership transition costs.
Our research and development expenses were $1.2 million in the second quarter of 2021, a 33% increase compared to Q2 of last year. The increase in R&D expenses over the prior year were primarily driven by investments in new products and clinical support of our pediatric registry the net loss for the quarter was $4.
$7 million or <unk> 72 per share compared to a net loss in the second quarter of $2023.9 million or $3.10 per share based on an adjusted share count.
Regarding our liquidity position, we used $3.9 million of cash in the second quarter to finance our operations and we ended June with $24.01 million of cash and marketable securities looking.
Looking forward to our projection for the remainder of 2021, we continue to closely monitor the situation caused by the Covid pandemic, we expect to see increased utilization of our therapies in areas of the country, where we have an established presence. However, if access the hospitals continues to be limited it could potentially impact our traditional business at this point were planned.
Per quarterly revenues to continue increasing sequentially for the remainder of the year.
On an annual basis, we expect our gross margin will continue to benefit from increased volumes, although the eventual eventual product mix will also have an impact I will now turn the call back the Nestor for some final remarks.
For my final remarks, I want to communicate on the well it is financially stable on entering an exciting new phase with significant opportunities in critical care pediatrics on heart failure.
We have sufficient cash on the balance sheet to provide a meaningful runway to fund operations, while we execute our strategy.
We have seen impressive growth rates during the last 6 quarters, thanks to our expansion into pediatrics on critical care.
Now that we have of dedicated CPT code to treat patients suffering from fluid overload. We believe our heart failure business is poised to accelerate in 2022.
I want to thank you for joining our second quarter conference call and I wish you all the good day.
Operator, you can open the call for questions.
Yeah.
As a reminder to ask the question going into cash.
Final 1 on your telephone.
So the address your question first okay.
Okay.
Based on viral with some part of the Q&A roster.
Our first question on comfort from.
From the line of Jeffrey Cohen.
Glenn Coleman you may begin.
So the investor and George how are you.
Good Jeff how are you on.
Congratulations on the Neal joining as well so I heard the number of crush on so I guess I would start out.
Yeah.
<unk> gross flows could you give us a sense of NAV.
Number of accounts up in the pediatric space now and how you're thinking about the out as it relates to penetration rates.
<unk>.
The number perhaps of.
How.
Physician churns of Lyft recently and also our trading is for our staff from the sector as well.
Good question Jeff.
First of all we don't want to give the exact numbers of how many accounts. We have opened on a quarterly basis, we will do that at the end of the year, but we've seen.
Jeff that once the hospital.
Treats the first baby and they see the clinical benefits that they receive from the outward decks. The immediately purchase additional consoles to treat more children.
In our current accounts, we see the same.
Situation, where they are buying more consoles to treat more children's in some of our hospitals they have up to $5.6 consoles and in many times during the quarter. They would have 4 or 5 different patients under treatment.
Perfect got it and then.
Give us a sense of the.
The registry in pediatrics, the you mentioned so it sounds like.
8 out of 10.
Of our abuse inflation for enrolling currently can give ourselves the homeowner roles and how do you expect that to fall on the enrollment numbers so over the coming quarters gross.
We have approximately 6 to 8 patients enroll.
In the registry as of today and as day.
Tweed more children's we will see an increase in the number of patients enrolled in the registry.
And what's the total expected to be for the trial.
During the trial 500 patients.
Okay.
And there'll be forward for true.
Through the half years, Mr. Carlo that's correct.
On the follow on.
Yes, the pie.
Good day about a year, but we expected about 2 and a half years to enroll the patients and also to follow to do the follow up.
Okay, perfect and then as far as.
The equipment and manufacturing and assembly with the.
The newer smart flow systems going out are you seeing or these new ads.
Moving out during the field with your commercial organization or some of this is also upgrades and replacements.
We see new accounts purchasing.
The smart flows for the first time, but we also seen a number of accounts of our replacing the flex flow with the new generation smart flow.
So it's both new accounts purchasing the smart flow as well as current accounts, replacing their old generation.
Yep got it and then.
You spoke a little bit about.
<unk> has there been any placements to day specific for <unk>.
The issues that youre seeing or current facilities that are taking units in the.
Pushing the voucher their own assays.
That's a good question Jeff.
Since the approval of the CPT code is early yet to determine how the outpatient is going to play out.
In the past, we have seen or we know of accounts they used to use the <unk> in the outpatient setting and I believe that those hospitals will continue to tweak in the inpatient and start again to use it in the outpatient.
Okay got it and then lastly for US 1 more if I could.
Could you talk a little bit.
About the.
The premier arrangement as it come of our ships 3 years is coming with any of minimums as far as unit or Utilizations.
What kind of timeframe should we see for the rolling out from their side.
Good question and I'm going to start with the latter part of the of your question.
We're starting to see implementation.
Right now in the in the members of the <unk>.
Net participating the premier.
The relationship and we believe that this is going to continue improving access.
For the therapy in those accounts that either use the therapy before or will we will start using the therapy.
Great.
Okay got it Mr. George Thank you very much nice quarter.
Thank you thank you Jeff.
Yes.
Our next question on comes from the line of Anthony Vendetti from Maxim you may begin.
Thank you.
Just wanted to see on the CPT code necessary.
Have a category 3 code.
It goes into effect January 1st.
Do you have a plan to obtain a category 1 code and can you elaborate on on the significance of what that would mean.
Yes.
Net.
Yes, good question Anthony.
On the current gory 3 is set up for emerging technologies and new procedures and the idea of the category III is to collect data on the utilization and the cost of using the therapies.
So we expect to have.
2.3 years of data collection.
And information to then apply for a category, 1 which is our intentions the cash.
<unk> 3.
<unk> is good for up to 5 years.
So within that period.
We expect to and we plan to apply for the category..1 1 big data has been obtained in terms of utilization and cost of utilizing the therapy.
Okay, and youre expecting that to be about.
About 2 to 3 years correct.
I would think so yes the experience from other companies that have followed the same strategy. That's what the the appears to be.
Okay, and then and then just shifting gears to.
Critical care.
Obviously a spike.
Initially during during the.
Onset of the Covid pandemic.
It looks like there might have been a sequentially the sequential decrease even though.
The revenues were up year.
Year over year on certainly up from from 2019.
Do you expect.
With the with the Delta variant.
And with Covid patients now increasing.
Nationwide did you expect your critical care revenues.
To not only go up.
Year over year, but also also sequentially and then.
Has as critical care of has become a significant part of your of your revenues.
Due to Covid have you noticed at least anecdotally and increase in hospital utilization.
Of the <unk> system as they have seen the benefits in critical care and has that translated.
Enter into more use and heart failure.
I know your pediatric as a separate business, that's doing well, but but have you seen that the utilization within a particular hospital increased throughout the hospital.
Absolutely Anthony in last Q1 on Q2, we saw of significantly decrease in the utilization of the Aqua the extra tweet COVID-19 critically ill patients. However, you saw the numbers that in both quarters. Our critical care numbers went up and that was due to.
The treatment of non call the critically ill patients in the ICU no doubt about that so that synergistic effect of hospitals.
I appreciate the clinical benefit of the Aqua day, when treating COVID-19 critically ill patients.
Sweet non COVID-19, non coffee the critical eel is very obvious and we have seen not only anecdotally what we have seen in the numbers and when talking to our customers that's exactly what is happening.
Excellent.
Thanks, very much all of.
Ill turn it back over thanks.
Thank you Anthony.
And once again the star 1 for questions. Our next question will come from the line of Brooks O'neil from Lake Street Capital markets you may begin.
Good morning, guys congratulations on the progress of the quarter.
Obviously, I'm pretty new here. So my question might be a little more basic that Jeff and Anthony I apologize for that upfront, but I wanted to start with the CPT code.
Can you help us to understand what the current reimbursement under the category 3 code is the.
Likely the B for both doctors and hospitals number 1 number 2 do you believe that level of reimbursement will be sufficient to drive increased.
The location.
Out there while the data collection process underway.
And then 3 what would the level you hope for B, when we moved to a category 1 code and the couple of years.
Let me sort of my first set of questions. Yeah, Yeah. Good morning, gross I'm going to try to answer them.
In the reverse order the first 1 is the start.
So part of you.
Is that do we expect to see an increased utilization once the category 1 once the current gallery 1 is established.
Pretty much.
You can.
Assume that the therapy is getting to be the standard of care.
The second part of your question, we do believe that there is going to be an increased utilization even with the category III in those hospitals using it for heart failure.
And the first part of your question was about how does the current reimbursement works on how it's going to play out with the corollary free so right now patients are treated.
In 2 steady in the inpatient.
And the patients in the in patient right now the hospital gets paid under the DRG.
And the precision could get paid under an unlisted CPE.
CPT code.
But you know the only if the coals they are cumbersome not necessarily.
The physicians are going to get pay 1 basically made the gains that on listed gold. So these current already suite in the inpatient setting would allow for the physicians to get paid for of the use of the therapy. The.
Facility. The hospital will continue to get paid under the DRG.
Now on the outpatient setting up until now there has not been any CPT code to cover the treatment of patients in the outpatient setting.
This code would allow both the hospital on the decisions to get paid.
That's great that's great that's very helpful.
So just staying on the outpatient setting since you finished there.
Was just curious I heard Jeff ask about Afcs I was curious if you anticipate outpatient use be more hospital outpatient departments.
<unk>.
Yes.
The hospital I see a lot of outpatient departments.
On the first floor of a hospital or whatever or do you anticipate us actually gravitating to freestanding outpatient centers.
We believe so.
Brooks.
We know all about 9 hospitals that were using the <unk> in the outpatient setting.
And with now getting paid for you for using it in the outpatient is going to increase the utilization of perhaps of shifting from the inpatient to the outpatient is the savings are significant as you know when the tweet patients in the outpatient setting.
And.
Yeah.
Go ahead.
I was just curious and I get that I totally understand that you're going to be a big deal per se.
Cost in the outpatient setting but is it going to be in the in the hospital outpatient departments or is it going to be in freestanding centers in Europe opinion.
I understand your question now.
We believe that initially is going to be in the hospital outpatient clinics.
Okay I got that and then the last question I had is.
You seem particularly excited about the pediatric opportunity.
And.
I know, it's the smaller market on painful in terms of Tam, but can you just explain to US what you think aqua <unk> brings to the treatment of <unk>.
Babies and small children that is not available today and why you're so excited about the opportunity there.
Yes.
Right now Brooks, the Acura <unk> as an adult device and but it happens to be the most gentle and the most effective when he when treating baby neonates.
With.
The <unk> kidney dysfunction, okay, whether they are bored office of kidney or they have.
Issues.
Because of our gentleness decisions are using it for these new needs, but is not the optimal Dubai for pediatrics.
They have to use separate pumps on those neonates to feed them with.
And nutrition, so our new device will incorporate those pumps into the device therefore, better synchronization between the infusion of true width and the removal of excess fluid.
And that's the key is new device.
That's great that's very very helpful. I appreciate it congratulations I'm excited about the the progress Youre, making.
Thank you thank you Bruce.
Thank you.
Last question for today, I'll turn the call over to measure from the closing remarks.
Well I want to thank you everyone for participating in the new World Q second quarter earnings call and I wish you all of happy day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.