Q3 2021 Repro Med Systems Inc Earnings Call
Good day and welcome to the core room Medical systems third quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask.
A question you May Press Star then one on your telephone keypad and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Greg Halter check managing director. Please go ahead Sir.
Thank you Chuck and good afternoon, everyone earlier today Covid medical systems.
<unk> financial results for the third quarter of 2021, a copy of the press release is available on the company's website.
During this call we will 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 in the associated press release and our most recent filings with the SEC.
We assume no obligation to update any forward looking statements.
Encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter.
During the call management will discuss certain non-GAAP financial measures in our press release, and our filings with the SEC each of which are posted on our website.
You will find additional disclosures regarding non-GAAP measures, including reconciliations of these measures with comparable GAAP measures in our press release and those filings.
For the benefit of those listening to the replay. This call was held and recorded on Wednesday November 10th 2021 at approximately 430 P M Eastern time.
Since then the company May have made additional comments related to the topics discussed.
And please reference the company's most recent press releases and filings with the SEC.
Joining us joining us on the call today is Linda Darby, President and CEO of Cobra Medical systems, and Karen Fisher Co Russo Chief Financial Officer, Linda. Please go ahead.
Thanks, Greg.
Good afternoon, everyone and thanks for joining us today I.
I wanted to kick off today's call by welcoming three new members of the core of medical leadership team, Chris Patten, joining as a V P quality and regulatory.
Rob Canon as VP of sales and Hertzog as V P of Biopharma business development.
Chris has been onboard for two months and has already begun to make a great contribution to building a world class quality and regulatory functions, including our recent five 10-K announcement today.
Robin Brian who joined in October each bring an impressive set of experiences.
Rob brings deep expertise in specialty pharmacy alternate site and the plasma and biologics industry with over 30 years dealing with our customer base and will be responsible for accelerating growth in our core domestic business.
Brian brings over 15 years of relevant experience in drug delivery and will be responsible for increasing the number of new biopharmaceutical drugs on the freedom platform.
Both will be integral to our growth strategy.
Welcome to the team.
During today's call I will report on the highlights of our third quarter results and the continued progress on our near term strategic objectives.
Then I will turn the call over to Karen to discuss the quarterly financials in more depth.
Before ending with a few closing remarks.
After our prepared remarks, Karen and I will open the call up for Q&A.
Now, let's jump into our results and key highlights for Q3.
Begin with our results for the third quarter, we were very pleased with our revenues of $6 million.
On a sequential basis, we grew by 9% over Q2, 'twenty, one marking our third consecutive quarter of positive sequential growth.
Our adjusted quarterly year over year growth was also 9%.
Our strong top line results reflect continued momentum in all areas of our business driven.
Driven by our domestic cornett cells with solid demand for our pumps. In addition, our early stage novel therapy revenues grew as we continue to broker progress our pipeline.
And our international sales were up year over year.
As reported our gross margin was down compared to the third quarter of 2020, we have begun the transition of our production to a third party manufacturing services company.
And we have had delays in implementation, resulting in increased costs.
We remain confident in our outsourced manufacturing strategy and anticipate improving our gross margin to the low 60% range in 2022.
I now want to take some time to discuss the progress we have made in executing on our strategic objectives.
Health care continues to transition to home settings.
We believe corot medical can make a significant difference in enabling that transition with our leadership position in large volume home infusion being extended to new drug therapies.
We highlighted key.
Three key areas of focus and investment that we believe are essential in driving near and long term impact and revenue growth during our previous call.
As a reminder, the three areas of focus include.
Increasing penetration and growth in our core sub Q I D therapy business via a targeted plan to improve the caregiver and patient experiences.
At all stages of the therapy process.
Second extending our leadership position and sub Q I G into a targeted pipeline of new large volume drug candidates addressing a significant unmet need in this area.
And investing in building our foundation to support our growing core of novel therapies business through increasing our capabilities and innovation.
And quality and regulatory expertise to support growth.
While executing on our operational excellence initiatives to generate a stronger gross margin profile.
Regarding our first objective our primary focus throughout the third quarter has been increasing our market penetration and share across the sub Q I G at home.
Infusion therapy market within our core business.
Key area of focus in this area is improving the patient and caregiver initiation of therapy process with the key driver being the movement pre filled syringes.
As part of this strategy, we filed the 10-K with the F D. A to expand the label for the freedom Etch pump to include CSL Behring, Zandra 20 ml Prefilled syringe.
I'm excited to announce that we received FDA clearance for this indication earlier this week as a matter of fact yesterday.
And <unk> is now the only products specifically five 10-K cleared for use with an S. C. I G pre filled syringe.
Pre filled syringes simplify the infusion process by eliminating steps of a challenging drug transfer process.
And it's the fastest growing segment in the gene therapy market.
As the market continues to fluctuate in part due to waves of the pandemic. We remain focused on executing strategies that will also increase the number of new patients on SCID therapy.
To increase the number of new patients on <unk> therapy, we have stepped up our progress in Q3 in several areas.
First we expanded our collaborations with our pharma partners, who focus on the physician channel and the initial route of administration.
Second we held an advisory board with our specialty pharmacy channel partners.
They do the initial transition to patient self administration of I G and this generated multiple opportunities.
These leading pharmacies further confirm the opportunities to switch patients who have initiated therapy.
And our aligned that Sop cute there are P is underpenetrated and we will continue to grow.
And finally, we have started our initial pilots of value added new patient start kits intended to educate users and make onboarding to the freedom infusion system easier.
We have witnessed some early success and will broaden the offering.
Offering.
We also completed a market review by specialty pharmacy to define a targeted commercial plan to drive initial pump placements with the core of medical Brett.
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And to understand where to employ resources to increase our penetration and market share.
We've also targeted.
Continued international expansion efforts in general supporting the planned geographic expansion of our pharmaceutical partners and in Germany, where our efforts are progressing well.
As a measure of success in our core S. E argue business a key performance indicator of new patient starts as new pump placements, where we experienced a double digit increase in pump volumes outperforming the market.
Our second near term focus is our pipeline, which represents a total opportunity that we reported on our last call of approximately $1 billion.
We have identified over 70, new large volume drug candidates about 10 milliliters, the space, where corot medical is the domestic market leader.
We are pleased with our progress in the quarter and securing new collaborations to build our funnel.
We signed three new agreements during the quarter and expanded our pipeline of opportunities by 50%.
With the majority of these and new drug therapies.
Biopharma has expressed strong interest in using our FDA and EU cleared freedom system to expand opportunities in our core Sci G market and for new drugs.
Our funnel of course, the idea opportunities is primarily for phase III trials.
As our partners grow geographically pursue new indications and develop product enhancements.
Our new drive opportunities span the entire development cycle ranging from early feasibility work phase one two and three studies, including new to market drugs and IV the sub Q re formulations.
The third area of near term focus is investing in building on the company's foundation to support our growth strategy.
These initiatives include building, our innovation capabilities to bring new products to market faster.
Building, a world class quality and regulatory systems and continuing the work we have started on operational excellence.
We have made innovation a COO.
Core near term focus and we are excited to have kicked off our collaboration with collateral as we like to continue evolving our at home infusion products and portfolio.
We are increasing our innovation efforts and collateral will be a valued prosser partner in this process.
Additionally, we began the next phase of our implementation with our outsourced manufacturing partner command.
While we experienced some delay in the rollout of this next phase we remain confident in our plan to increase our long term gross margins.
Both of these relationships will be a vital part of our foundation moving forward.
We're excited about the progress we have made this quarter in all areas of our strategy as we continued to build momentum.
I will now turn the call over to Karen for a more detailed financial review.
Thank you Linda and good afternoon, everyone.
Total net sales for the third quarter of 'twenty, one where 6 million or a negative <unk>, 7%.
Compared to last year, removing inventory stocking of approximately 600000 last year adjusted net sales grew 9% year over year.
Sequential quarter net sales growth was 9% with domestic core growth of 10% driven by pumps a needle.
International net sales increased six 4% from the prior year driven by increased consumable sales.
Novel therapy sales also increased for the three months ended September 32021, as compared with the same period last year as we continue to expand our pharmaceutical pipeline.
Gross margin was 57, 9% for the third quarter of 21, a decline from prior year, which was 64, 8%.
The majority of the decline was driven by delays in the transition to our secondary manufacturing source.
We also recorded a reserve for impress us material scrap.
This was partially offset by favorability in product mix.
We are confident in our path to accelerate margin improvement in the second half of 2022.
Selling general and administrative expenses increased $800000 or 26, 9% in the third quarter compared to the same period last year.
Due primarily to higher salary and related benefits as we build our team as well as for fees for our five 10-K filings and commercialization efforts.
Research and development expenses doubled to 800000 in the third quarter compared with the same period last year as we have higher salary and related expenses due to building, our internal research and development team and the consulting fees to support product development for novel therapies.
Yes.
Net loss for the quarter of 2021 for the third quarter of 2021 was $1 1 million or negative <unk> <unk> per diluted share of <unk>.
Decrease of three cents from the same period in 2020.
Turning to our balance sheet, we ended the quarter of 23rd quarter of 2021 with $26 2 million in cash compared to $27 3 million at year end 2020.
I will now turn it over to Linda for closing remarks. Thank.
Thank you Karen.
In closing I want to thank the team for their hard work in the third quarter as all three areas of our business produced solid growth.
Throughout the third quarter, we strengthened our foundation with strategic hires.
And we are laser focused on executing on our growth strategy. In addition, we have scheduled an update to our strategic plan in early December and look forward to sharing more on our growth strategy and our plans to increase value for our patients our customers and our shareholders I'll now turn the call back over to the <unk>.
Operator for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys slipped.
Flip to all your question. Please press Star then two and at this time, we will pause momentarily to assemble our roster.
And the first question will come from Matthew O'brien with Piper Sandler. Please go ahead.
Hi, Good afternoon, ladies this is Tim Ryan on for Matt. Thank you for taking the question.
To start congrats on.
The FDA approval for <unk> can you detail what the rollout of this product looks like now that you are able to distribute it in a pre filled form are you focusing on converting existing users or driving new patient starts or is it kind of a combination of those things.
Yeah, So our summer and thanks for the question Yeah. We're very excited by the five 10-K approval, which we received yesterday, but has been a long in the works with CSL.
The great part about this is that the pump that we're using the freedom edge has been on the market for several years. So no need in and today is is the market preferred product with over 50% share. So no need for any patients to switch the pump that they are using.
The pre filled syringes are will be also sent into the same channel or our specialty pharmacy channel and what the combination of these two products is really aimed at is when we did our patient research. The one of the biggest most difficult factors is really drawing up the drug from.
Mobile to a syringe so pre filled syringe is now you're going to be able to place that directly into our freedom etch pump and you remove that whole.
Part of of the buyout transfer process, so very excited about that.
And we will begin the media, okay, but you'll see the marketing materials on it.
Lately.
Okay, Yeah that makes a lot more sense. Thank you.
Sure and then on that note you had mentioned, having three FDA clearances for new indications for the pump by year end are you still on track to hitting that goalpost and can you remind us what those indications are.
And then how you're most near term opportunity I think it was hematology you had mentioned how that's coming along.
Yeah. So the two new indications are both N S AIG and no one can predict what the FDA will do but we remain on track in terms of our filing process with the FDA for what were reported so I said three we've got one completed and we hope to get two more by the end of the year.
The hematology Ah indication is a is also on track for early 2022 for us to submit that maybe late 2021, when we get that one in.
Okay and then just lastly, we've we've been hearing broadly about.
Supply chain challenges and labor shortages and the Med Tech space can you talk a little bit about if that has had any impact to the business. Both from an internal workforce perspective, and then you know like a distributor perspective.
Yeah. So.
First we are not experiencing a in our supply chain any disruptions either from a material or a labor perspective, I think we got a little bit ahead of this earlier this year and we did a.
Complete change to how we're paying our workforce, which I think has helped us to retain what is a very loyal workforce for us in our manufacturing space also with the outsourced manufacturing. It represents a dual source of supply for us. So again, we don't see any interruptions in our supply chain.
That would affect our our our year.
Okay got it thank you.
The next question will come from Alex Nowak with Craig Hallum Capital Group. Please go ahead.
Great. This is turned Mccarthy on for Alex.
I just wanted to talk about the the strategic plan update that you had scheduled in December it's great to see you guys. Finally have it on the schedule here, but is there anything you can preview for us leading up to this event.
Well I think I previewed a lot of it on on the call today are.
Italy, what we're trying to do it in our core is we have a very strong healthy core business with Sci G and the challenge today is only 20% of patients are on subcutaneous at home therapy, we see a huge opportunity to increase that today about a $30 million market overall market potential close to.
<unk> 300 million. So so that's the number one core focus area number two you know we have a great position in large volume were the leaders in large volume home infusion therapy or 70, new drug candidates, many of which do not know about <unk>.
Really.
I guess someone doesn't like well it doesn't like what's going on in Florida for the static.
So so Greg the second part is really extending that leadership position into new drugs and therapies and of course, what we did with the palace is a Prime example of how we do that so we're excited by the progress in the pipeline you know, we first started reporting our pipeline last quarter.
You know now we have eight signed agreements in total this year. So we're really excited to be talking more about that potential and that really is about getting new candidates of course with commercialization, taking a little bit longer, but really extending our overall total addressable market to the billion dollar range is it's pretty exciting.
For US and then third we're going to talk about you know what are the core foundational capabilities that make that happen with a focus on innovation.
Quality and regulatory and what we're trying to do to build that out to biopharma standards and and and also about our operational excellence initiative.
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And we will also include our plans for international so a lot to share and what Youre seeing is a lot of the progress that we're already beginning to roll out related to that plant and of course, you know which is our longer term revenue.
Potential look like our spending plan, our cash flow projections et cetera.
Okay. Yeah. That's helpful and you kind of just spoke to it there at the end you know I have my follow up was you know.
How are you thinking about the growth next year I mean, when you take the core <unk> business and layer on.
Whatever you see in the pipeline and what sort of growth rate well you'd be expecting.
Yeah. So we'll talk all about that in early December we will talk about what we project for 2022 so.
Stay tuned.
Okay.
Perfect.
Great questions.
Thanks, Greg.
The next question will come from Kyle Rose with Canaccord. Please go ahead.
Great. Thanks, very much you have to Brandt on for Kyle and I guess to start from my end.
Anything to call out in the third quarter in terms of Covid impact.
From a month over month perspective was there any sort of outsized impact in terms of new patient starts are novel drug.
Drug therapy sales and it may be what are you seeing in the fourth quarter, thus far and how are you thinking about the next couple of months going into the beginning of next year. Thank you.
Okay, Brian there were a lot of questions, let me try and unpack. So first what did we see in terms of quarter on quarter.
Yes.
We saw a little bit of softness in the overall market in quarter three likely due to the to the waves of the pandemic that we're seeing that's why we were so pleased with our quarter three results that really outperformed the market in and saw.
High single digit growth. So we were very pleased with that.
In terms of how we're thinking about quarter four I think we'll do more of an update when.
When we speak to you in early December I have been on record as saying that.
Now we project to go from low single digits to high.
High single digits and <unk>.
Ourselves back to a double digit position in 2022, we're going to look to see how the market continues to progress and we'll update you in December I think I got it all day, Brian was there anything else no. That's great. Linda I. Appreciate you on packing that I guess, maybe to dig in a bit more on hydro sentra. How are you thinking about the cadence of that role.
All out and maybe what does the incremental opportunity you start to look like there over the next 12 months and how do we start to translate that over some of the other shots on goal that you have coming up over the next few months to yeah again, we really will really show you.
What we think the prefilled opportunity can look like for us, but let me just highlight a couple of things first of all you have to think that the core of afraid image system is the only pump on the market today that has an indication with a pre filled syringe second you have to think pre filled syringes have gone from nothing a known they were launched into the market.
Just over a year ago kind of mid 2020, the midst of a pandemic and they've already captured about 3% of the market. So we look for this to be a major growth area for <unk>.
Not only for as I said, helping us move more patients to subcutaneous therapy, but also as an opportunity to move our share position. So we will give you more details on what we think that looks like over the next four to five years, but certainly all of our I G pharma partners are thinking about.
They're strategic.
Entries into the pre fill market so.
It will be an exciting <unk>.
Excellent and then if I could just squeeze one more in here on the <unk> collaboration I. Appreciate it's early days with the recent announcement here, but maybe even just at a high level, how does that partnership start to sort of come together and evolve and maybe when can we start to see some fruits from that those efforts. Thanks again and congrats on the good quarter.
Thank you so much so.
So two big efforts fries on the innovation side why one is first where we continue to build out capabilities of our internal R&D team and they are laser focused right now on our five 10-K submission. So it's great to have a partner of <unk> capabilities.
We are not waiting they have already started the process. They are building out a number of test methods and methodologies that are critical for our core foundational business and they're just be getting now concepts for some of our new products I would expect that debt.
Again, we've got a regulatory filing process to get through but we hope that by the end of 2022, we will at least have filed.
Our first new product as a result of that partnership.
Okay.
Yes.
Alright, I think we are done with questions I again want to thank the team and.
To everyone for quarter three.
I'll turn it back over to the operator to close the call.
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