Q4 2021 Aziyo Biologics Inc Earnings Call
Hello, and thank you for standing by welcome to S. C O biologics fourth quarter and full year 2021 earnings conference call. At this time all participants are in.
Listen only mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any forgiveness assistance. Please press star Zero I would now like to hand, the conference over to Leigh Salvo with Investor Relations. Please go ahead.
Thank you and thank you also participating in today's call.
In EMEA, Ron Lloyd Chief Executive Officer, and Matt Ferguson, Chief Financial Officer.
Earlier today.
Released financial results for the quarter and full year ended December 31 2021.
A copy of the press release is available on the company's website.
Before we begin.
Like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Statements contained in this call, but do not relate to matters of historical fact.
Well relate to expectations or predictions of future events.
Our performance are forward looking statements.
All forward looking statements, including without limitation those relating to our operating trends and future financial performance the impact of COVID-19 on our business and prospect for recovery.
<unk> management.
But tissue for hiring growth in our organization market opportunity.
Revenue gross margin and operating expenses commercial expansion and product pipeline development expected future product launches and milestones unexpected results and performance of our partnerships and commercial products, including patient outcomes.
Based upon our current estimates and various assumptions these statements.
Involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for.
Well listen description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our public filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended September 32021, such factors may be updated from time to time in other filings with the FCC.
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Annual report.
Our Form 10-K for the fiscal year ended December 31, 2021 to be filed with the SEC accessible on the SEC's website at SEC Gov.
This conference call contains time sensitive information and is accurate only as of the live broadcast today March three 2022.
Biologics disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
During this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's earnings release for the fourth quarter and full year ended December 31, 2021, which.
Is accessible on the SEC's website and posted on the Investor page of <unk> website at <unk> Dot com with that I'll turn the call over to Ron.
Thanks, Mike Good afternoon, and thank you all for joining us.
I'm incredibly proud of the progress we've made in setting up 2022.
As a breakout year for us deal.
By the end of this month, we anticipate submission of a five 10-K application for Kangaroo art, how our next generation envelope and <unk>.
You need to plan for this product launch in the second half of the year.
Targeting an estimated $600 million annual addressable market.
We believe Kangaroo RM has the potential to reach more than $100 million in annual revenues.
Can be a core driver of our value creation over the next several years.
In parallel we have continued to advance simpler or soft tissue reconstruction product as.
As well as our orthopedic and spine repair platform if you will.
Combination of product development.
Good day, though expanded market access.
And new distribution partnerships.
These products not only contribute to our topline revenue today.
What are additional drivers of future growth.
And in December we completed a pipe financing that yielded net proceeds of approximately $13.8 million.
Which enables us to further scale, our commercial activities generate data through our ongoing clinical studies and support the remaining development costs associated with the filing for 10 grew our Cao.
As we reflect on 2021 undoubtedly our team navigated through unprecedented challenges.
Both from the enduring disruptions associated with the pandemic.
As well as the five or so related to recall.
Despite these extraordinary headwind.
The goals and timelines that we've been working towards since our decision to become a publicly traded company in 2020 have remained largely on track I.
I am confident we have the right levers in place to ensure success.
Deliver long term value to our customers and shareholders.
With that as a backdrop I will now provide highlights and updates for each of our product portfolio.
Starting with our flagship product Kangaroo.
The momentum we started to see in the second half of the year carried through most of the fourth quarter.
As a reminder, our kangaroo in cardiovascular products are sold primarily through a direct sales force of approximately 30 representatives.
This organization Leverages, our partnerships with Boston scientific and bio tronic to enhance our presence throughout the United States.
The investments we've made in our commercial organization has translated to significant growth already but.
More importantly, we believe the experience and relationships of this group will be a critical asset and driving a successful launch of Kangaroo art now.
As we've discussed on previous calls we also benefit from multiple agreements with major Gpo's in health care delivery systems.
Especially Congress designation by Premier is a breakthrough technology.
During the fourth quarter, we continue to onboard individual premier member hospitals, as new customers, which was an important driver of our growth in the group business.
Utilization within existing accounts also increased in the fourth quarter, demonstrating that physicians are seeing the benefits of the only biological envelope available on the market.
We expect this momentum will continue to expand in 2022.
To further validate Congress unique biological remodeling benefits.
We continue to enroll patients in our heel and de Novo clinical studies.
As a reminder.
Seal study compares patients with the Kangaroo envelope against patients with either a synthetic envelope or no envelope at time, but CIB change out.
The Kangaroo registry study follows the novo kangaroo or no envelope patients for up to five years.
Based on current enrollment trends, we hope to have interim readouts from both studies later this year.
And most importantly, we expect FDA submission by the end of the first quarter for Kangaroo Art al.
Our next generation biological envelope loaded with antibiotics with sampling and minutes like Wynn and the Dissolvable polymer ring.
We are confident this enhancement will drive further utilization and significantly improve our competitive advantage within hospitals, a major health care systems in the U S.
We continue to receive feedback from potential customers that this will be a compelling offering once cleared for sale.
Notably in our recent market research study among U S electrophysiologist.
Currently using envelopes more than 80% indicated they would consider using a biological envelope that also contained antibiotics.
We look forward to launching CAGR our M. In the U S market given its potential to contribute 100 million or more towards top line in the coming years.
We also see upside opportunities to extend the kangaroo franchise through launches outside the U S and by developing additional applications for other implantable electronic devices.
Turning to our other core products.
And the soft tissue reconstruction area, we continue to make progress in our simple business.
Our plan for this product is to generate clinical data.
Can't access to payers and hospital systems and drive product sales to our national distributor network.
Spite the market headwinds in the fourth quarter.
We are pleased to see another quarter of significant growth.
Further supporting growth in this part of our business is a recent peer reviewed publication reporting on a multi site retrospective study of simpler Durham use a reconstructive surgery compared to the current market leading product.
The paper reports on procedural statistics and outcomes in more than 100 patients.
Study concluded that simply <unk> is clinically equivalent to the market, leading acellular dermis product.
We believe this publication will help increase acceptance of our products, both among practitioners and Payors and what is currently in approximately $500 million total market.
And in our products for orthopedic and spine repair which include by bone Asta grow V and our fiber V. B M. We saw steady performance through our distribution partners through most of the quarter.
Excluding the impact of fiber itself sales long term trend for our orthopedic and spine repair business is headed in the right direction.
With growth in the high single digits for the full year of 2021.
We are working diligently to complete development of multiple new products as well as the signed new distribution partners for our products within the orthopedic and spine repair business.
As the process to onboard new partners take time, we're likely to see the benefit pay off later this year setting up a very strong 2023.
Turning to our contract manufacturing business we.
We continue to see meaningful revenue contribution during the fourth quarter as our partners leverage the tissue processing and development capabilities of our Richmond, California facility.
Overall.
This part of our business augments our growth while utilizing available capacity at our manufacturing facility and contributed positively to our bottom line.
In summary, as we look towards 2022, we have several important and exciting catalyst ahead.
First and foremost in our Kangaroo business, we have our five 10-K filing.
Anticipated clearance of Kangaroo our al.
We're also expecting data readouts from our clinical trials to support the product lines remodeling benefits and commercial differentiation.
For simple derm.
We'll leverage recently published clinical data to expand our customer base and support continued robust growth.
And our orthopedic and spine business, new product launches and new partnerships are expected to drive steady growth from the current levels and continued contribution to our bottom line.
And finally as we've discussed in previous calls we're pursuing multiple efficiency initiatives across our entire business to increase our margins and improve our productivity.
With that I'll now turn the call over to Matt to provide a review of our fourth quarter results and outlook for 2022.
Thanks, Ron.
Net sales for the three months ended December 31, 2021 were $10 9 million, a 13% decrease from $12 $5 million in the same period of the prior year.
However, excluding the sales of fiber cell, we saw 6% growth over the fourth quarter of 2020.
In late December and it was broad.
<unk> experienced across much of the health care sector.
Cron variant Spike had a meaningful impact on our business, which has continued into the current quarter of <unk>.
<unk> related hospitalizations and labor shortages in the hospital setting impacted patients' ability to move forward with procedures.
And while we're starting to see improvement as patients returned to hospitals for postponed procedures. We do expect expect this will have some impact on our sales in the first quarter.
Gross margin for the fourth quarter of 2021 was 31, 2% as compared to 48, 3% in the corresponding prior year period.
We also look at gross margin, excluding the impact of noncash amortization of intangible assets and on that basis Q4 would have been 39.8% versus 55, 1% in the year ago quarter.
The lower gross margin in Q4, 2021 was mainly attributable to increased inventory reserves that are human tissue business, which in total impacted gross margin by approximately 10 percentage points or $1 1 million.
Despite gross margins coming in below our target levels over the last few quarters as Ron mentioned, we have a number of efficiency initiatives that are underway and we expect them to generate meaningful results in 2022.
I expect gross margin, excluding intangible asset amortization to return to 50% or better in the coming quarters.
Total operating expenses for the fourth quarter of 2021 were $11 2 million.
A 12% increase from $10.1 million in the fourth quarter of 2020.
The increase was mainly due to development costs associated with our Kangaroo R&M development program.
Loss from operations was $7 $8 million for the fourth quarter of 2021 as compared to a $4 $8 million loss for the year ago quarter.
Net loss for the period was $9 1 million as compared to a net loss of $5 $4 million in Q4 2020.
Loss per share in the fourth quarter of 2021 with 82.
Compared to a loss per share of 57.
In the year ago quarter.
We ended 2021 with a cash balance of $34 million.
In total liquidity, including availability under our revolving line of credit of $32 5 million.
Our yearend cash balance includes the $13 8 million in net proceeds from our December equity financing and.
And including the shares issued in that transaction. We now have approximately $13 6 million shares of common stock outstanding.
Now turning to our full year results net sales for the full year 2021 were $47 4 million, an 11% increase compared to the full year 2020, net sales of $42 $7 million.
Excluding the impact of fiber cell, we saw 19% revenue growth over the full year 2020.
Gross margin for the full year 2021 was 41% as compared to 48, 2% in 2020.
Excluding the impact of noncash amortization of intangible assets.
Most margin would've been 47, 3% in 2021 as compared to 56, 1% in 2020.
Total operating expenses were $42 $1 million for the full year compared to $34 $2 million in 2020.
Net loss for the full year was $24 8 million, which compares to 21 $8 million in 2020.
Loss per share for the full year, including the accretion of deemed dividends to preferred stockholders was.
With $2 38.
Compared to $8 88 in 2020.
Turning to our outlook for the full year 2022.
We project net sales in the range of $47 million to $50 million.
Excluding approximately $4 $9 million of fiber to cell sales in 2021. This range represents growth of 11% to 18%.
The biggest variable in this range has to do with the timing of clearance and launch of Kangaroo R&M.
The low end of the range assumes no contribution from Kangaroo RM by the end of the year.
And the high end assumes clearance and commercial availability during the fourth quarter.
This guidance also assumes some continuing impact of Covid during the first half of the year with procedure volumes largely returning to more normal levels in the second half.
We remain excited about the milestones we expect to achieve in 2022 and.
And we believe we are well positioned to drive growth and shareholder value for years to come.
And with that we'd like to open the call for your questions.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw your question press the hash key.
One moment, while we compile the Q&A roster.
First question is from Matthew O'brien with Piper Sandler.
Afternoon, Thanks for taking the questions I guess, Matt just for starters the impact to Q1 that you're kind of expecting in terms of the omicron softness and then how that relates to the rest of the year kind of getting to the midpoint of the range.
Or am I guess, what are you seeing in those.
Those new accounts that give you confidence in kind of that step up as we get later in the year.
Sure. Thanks, Thanks, Matt for the question.
So we are.
We definitely did start to see some some impact from <unk> as we got into December in particular last year.
And we have seen it I would say so far this quarter, but it does feel like its tapering off and things are starting to pick up again in the quarter. So.
As I think about the year.
I do think.
About it's ramping up as we go through the year.
Kind of regardless of the benefit of the contribution that we may get from Ken grew RM.
We get into the latter part of the year so.
Hopefully that's helpful. I guess I would see.
Q1.
Kind of being similar to Q4, maybe.
In that range.
Got it that's helpful.
And then with RM everybody's excited there can you maybe just talk a little bit about.
Whats your hearing from customers as far as the anticipation of that product the uptake I'm sure Boston about China are excited to have it.
Knowing that you're going to roll it out slowly and make sure that things go well, but what kind of appetite is there once you do have that.
Later, this year and I do have one more quick follow up.
Sure. Thanks, Brent Yeah, we're very excited about Kangaroo RM.
I think if we look at the product today on Kangaroo, we're actually starting to see nice momentum build on Kangaroo is due to the remodeling benefits of having a biological product again, thats really resonating with customers as we speak today and we know that when we add then antibiotics to it.
We now have two benefits from a customer's perspective in terms of the patients that are able to then receive the product and have numerous benefits related to having both the biological and an antibiotic.
And as I alluded to in our comments, we recently conducted some market research.
Not surprisingly the physician excitement for the product with very high with more than 80%.
Physicians, indicating a desire to want to have a both a biological antibiotic products.
We believe it's going to be a product that for.
A lot of benefits in the marketplace.
Certainly the entire as the organization is excited about that.
Partners Boston Bio Tronic are also very excited to have that as an offering as well and again as I mentioned earlier, we see it as a key catalyst for growth for the company going forward.
Okay. Thanks for that and then that kind of dovetails into the last question I'll ask that.
Ron Youre talking about our exciting 'twenty three.
5 million Bucks issues, what's your what's a fiber solve this year hopefully you have a partner for next year.
Should be a contributor you know those two together seem like baked it alone be an extra 10 million Bucks next year. So.
Youre talking about 14%, 15% midpoint growth this year.
Excluding five or so I mean should we think of <unk>.
Q3 is 20% plus.
Sure.
Yes, I don't think we want to get into 'twenty three guidance here from a perspective of the company, but I would just wanted to iterate factors. What you've said, we're very excited about where we're going from a company perspective.
We think there's tremendous growth opportunity with the launch of Kangaroo RM.
Again, it's a $600 million marketplace, we've got really one competitor thats more than $100 billion in sales a lot of room for market expansion and again, the dual benefits of a biologic and antibody, we believe should give us tremendous opportunity to grow that brand.
As you mentioned, we do have other growth catalysts.
Dimension Superdome continues to perform extraordinarily well and we continue to believe that'll be a key growth component going forward.
And as you also mentioned our viable bone business, we've already been able to go out and sign some additional partners already here in Q1 again building off our unique platform of our viable bone strategy to best preserve the cells that are inbound reducing a pop doses. So.
So we think we have the opportunity to again bring in additional business through partnerships for that as well. So I think were excited of where the company is going and we see this as I have mentioned a breakout year for us setting.
Setting up a very strong 2023.
Okay. Thank you.
Thank you. Our next question comes from David Ross.
Scott with tourists securities.
Hey, Ron and Matt Thanks for taking the questions.
I just want to start first the guidance from Jenny.
Just some comments around the progression of procedures throughout the year and then some of the assumptions around the contribution of <unk> in the fourth quarter and so just.
What level of penetration I guess, when you're thinking about in the fourth quarter and when you get to that upper end of the guidance range does that assume that RM comes in the beginning of Q4 or maybe toward the back half of the fourth quarter.
Well, David Yeah. So.
As we thought about the guidance for the year.
Biggest thing that that is out of our control that's difficult to predict as the timing of RM clearance and that is largely going to be in the hands of the FDA and we feel good about that.
The track that we're on in terms of getting the filing done in making that a very high quality filing, but but after that.
It's a little bit harder to predict so as we were thinking about the range.
I would say the top end of the range assumes that we would have.
Very much of a full quarter worth of contribution.
We would certainly see there is also some factors in terms of ramping up production and getting on contract are getting on the formularies within hospitals. So there are some startup effects there.
But.
We are looking forward to that very much and I guess at the lower end of the range.
No.
The clearance extends out to the very end of the year and we have minimal to no contribution.
For revenue for the year that that would.
Guidance more towards the lower end of the range that we talked about.
Okay. That's helpful and then I guess, Ron maybe more on some of the commercialization efforts are the investments we're making around that ahead of the launch could you just discuss.
How youre investing.
Business ahead of the launch and when Youre thinking about either in the back half of the year or into 2023 is there a lot of low hanging fruit for RMS at least within these existing accounts you can currently and how do you think about some of this kind of increase in utilization versus going after new accounts. Once you have the oral formulation approved.
Yes, sure. So as we think about the products I mean, clearly there's some low hanging fruit.
Many customers that said that they would use the product if it also had antibiotics. So I think there is an immediate opportunity to go there.
As we think about our launch strategy here, obviously, we're in the midst of doing our launch planning.
Say that part of this is our ongoing investment in data generation as well. So we have two studies on running ongoing right now the heel study and the registry study we hope to have this year.
Readouts from both studies they'll further I believe better demonstrate our revolving benefits of the product and again, we think thats an important characteristics to further drive can grow RM growth. In addition to antibiotics. So looking forward to those readouts as well.
And then again, we'll make sure that we make the right investments to be able to capitalize on this new product opportunity.
And to basically look at that in totality. So it's probably at this point a little premature to get into specifics as it relates to launch locked launch tactics, but we're going to obviously make sure. We do everything we can to ensure that we had the most successful launch for this product.
Alright thats helpful. Thanks for taking the questions.
Thank you. Our next question comes from Josh Jennings with Cowen.
Hi, This is Brian here for Josh Thanks for taking my questions I wanted to ask first about RM.
If I look at the review times for your recent 500 10-K submissions I see that the average review time is about a month and a half.
Understand wanting to keep the guidance conservative but is there a specific reason to assume a longer review for RM.
And will you be ready for an earlier launch than <unk>, if you get an early clearance.
Yes. So if you think about Kangaroo R. M. It is probably a little bit more complex than your normal five 10-K, obviously, there's the device component and then there's also the drug component.
So being a combination device here with a five 10-K, so we anticipate probably a little bit more complex and so we're building a little bit more review time from that perspective.
We're hopeful that maybe it goes through faster.
Predict the FDA.
And again, we will do everything we can to be prepared to launch as soon as possible.
It relates to the product.
Certainly having the approval sooner gives us the opportunity to go out and start promoting the benefits of.
King grew RM from the biologics antibody perspective, so we'll be as ready as we can be for an earlier approval and hopefully the FDA from.
From a timing perspective allows us to be on the early end of that approval window.
Great. Thanks, and I wanted to ask one about the fiber cell recall, so you've commented previously that on the Fda's.
Is inspection mid last year without any observation is is the inspection process definitively done at this point and is there now agreement that the recall is really limited to that single lot. That's already been identified enacted on thanks.
Yes, the FDA inspection has been completed again with no observations.
Have move forward as a company and we have now raised the bar above industry standards as it relates to donor screening as well as testing a product.
So we believe we again are setting a new standard as it relates to the industry.
But from an FDA perspective, and their inspection and recall matter, yes, it's contained to the single Darla.
Thank you.
And I'm not showing any further questions in the queue I will turn the call back to Ron envoy for final remarks.
Great. Thank you just to close again I think we're really proud of the progress. We've made as these video team is really setting up 2022 to be a breakout year for the company. We're excited about the number of short term catalysts that we have which we believe puts us in an excellent position for growth and as such we look forward to giving you upped.
<unk> as we go throughout the year. Thank you again for your time today take care.
And with that ladies and gentlemen, we conclude today's program. Thank you for your participation you may now disconnect.
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