Q1 2022 MiMedx Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Come to the Memetics first quarter 2022, operating and financial results Conference call.
This time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad. Please.
Please note this conference is being recorded.
I would now like to turn the conference over to your Speaker, Mr. Chang, Our senior Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone welcome to the <unk> first quarter 2022, operating and financial results Conference call with me on today's call are Chief Executive Officer, Jim right.
Chief Financial Officer B Carlson.
President wound care and surgical Dr. Rohit ketchup and President regenerative medicine in Biologics innovation, Dr. Robert Stein.
Different people will provide a summary of our operating and financial results for the quarter and at the conclusion of their remarks, Tempe and doctors ketchup in Stein will be available for your questions.
Before we begin I would like to remind you that our comments today will include forward looking statements, including potential timelines for our ongoing clinical trials FDA submissions and approvals and expected market size for these products.
These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors.
Actual timing, an FDA approval will depend on a number of factors, including the results of our clinical trials. Our interpretation of those results the impact of COVID-19 actions by others that affect our timelines and other factors that the FDA deems important.
Additional factors that could impact outcomes and our results include those described in the risk factors section of our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
Also our comments today include non-GAAP financial measures as we provide a reconciliation to GAAP in our press release, which is available on our website at www Dot <unk> Dot com.
With that I'm now pleased to turn the call over to Tim right Tim.
Thank you Jack and good morning, everyone on today's call I will highlight some of the key drivers behind our consistent top line growth and provide an update on significant initiatives, we have underway to streamline operations expand our reach and enhance shareholder value.
Yesterday afternoon, we reported the third straight quarter of double digit top line growth in our continuing portfolio of tissue and cored product.
First quarter net sales of this portfolio grew 13% year over year.
We are executing on the fundamentals of our growth strategy and driving strong performance.
Last year, we completely reorganized the sales and marketing teams, taking a major step in improving our ability to execute commercially.
We focused on geographic sales force optimization and enhanced educational resources to assist our sales force. Additionally.
Additionally, we aligned the compensation plan to reward revenue growth.
I believe we have the most highly trained memetic sales professionals and agency sales colleagues to communicate the clinical and economic value of our market leading products.
In short the changes we have made to date are working.
We are gaining traction in the under penetrated surgical recovery market by expanding our reach in procedures, where our customers are looking for new clinical solutions to address complex cases, and where patients are seeking a better outcome.
Our commercial research and product development teams are collaborating and executing allowing us to make significant progress toward our targeted objectives.
The initiatives, we implemented over the past year are coming to fruition as.
As we continue to execute towards our objective of sustainable double digit growth.
Following the end of enforcement discretion, we face to 13% shortfall as our section 351 products came off the market.
With this quarter's strong topline performance in.
In our continuing portfolio, we have essentially close that gap.
The major expected near term contributor is the launch of Etsy fix in Japan. Following the approval of reimbursement for this product.
As a reminder.
<unk> received regulatory approval to be marketed in Japan last June and since then we have been in constant dialogue with the ministry of health regarding reimbursement.
And timelines.
The reimbursement review process typically takes nine to 12 months to complete following regulatory approval.
So COVID-19 has slowed down this process for many companies seeking reimbursement decisions in Japan, we will remain vigilant in our efforts to gain full reimbursement approval.
In the meantime, we are focused on our launch readiness plans. We have gained the support of local key opinion leaders and prominent medical societies.
And I would like to take a moment to acknowledge our marketing operations clinical and regulatory teams all of whom had been instrumental to our progress today.
Thanks to their efforts, we have identified clinical sites for the initial product evaluations and have selected our local distributor as a key part of our go to market strategy.
This distributor will help supplement our direct resources on the ground in Japan.
And we are well on our way to putting in place the necessary supporting infrastructure, we remain confident in our ability to secure reimbursement and we stand ready to officially launch the product shortly thereafter.
<unk> is a very attractive market for us.
After you fix will be the first and only amniotic product approved us, giving the medics and first mover advantage.
Our regulatory and clinical operations groups negotiated the labeling for <unk> in Japan to include coverage for all hard to heal wounds, which is considerably broader than.
And our coverage here in the U S.
We estimate that the total addressable market in Japan is just over 600000 patients and we anticipate we can access approximately 100 thousands of those patients with our product.
Turning now to the planned launch of our two new products in the U S.
Ami effect, and our placental collagen matrix product or P. C M.
We are bullish about these innovative product introductions, both of which we expect to launch in the back half of this year.
First family of effect.
This is a membrane products similar to that'd be fixing amiel picks, but it's thicker and can hold a suture.
At launch our direct and agency sales teams will target surgical procedures, where a surgeon needs to anchor suture. The graft such as in a rotator cuff repair or a complex wound reconstruction.
<unk> with experience using our amnio cord portfolio have been asking for a larger size offering and we believe amnio effect can address that market need.
We are on track for a limited market release next month and have more than 20 unique sites identified for the first clinical evaluations.
Our second product introduction PCM is made from the placental disk and will be available in a particular format for us primarily in complex wounds that are deep tunneling or difficult to reach with conventional products.
Advisory panels that evaluated P. C N provided positive feedback and shared excitement about its features and benefits. We know the target market for this product and our sales representatives and medical liaisons will be ready to engage those customers when the product is ready to launch.
Transitioning to our novel late stage drug biologics pipeline.
We view, our Micronize D. Hacker injectable platform is an outstanding opportunity, we're taking meaningful steps to accelerate the start of trial enrollment and our planned knee OA clinical trial program.
Our clinical operations team under the leadership of Dr. Bob Stein is preparing for the initiation of our next studies in knee osteoarthritis and consistent with the industry best practices.
We're lining up industry, leading clinical and scientific resources to augment our own efforts along with world class experts in the field of osteoarthritis.
We have been big rigorously assessing third party collaborators, who can help oversee clinical trial site monitoring data management statistical analysis and reporting activities and I look forward to updating you on our progress in the very near future.
Furthermore, I'm excited to share that we are well on our way towards the formation of an exceptional scientific advisory board charged with providing both external expert and clinical perspective and high level counsel on the Companys micronize, the heck am injectable pipeline in knee OA as well as other.
<unk> in musculoskeletal disease and in sports Medicine.
These individuals' share enthusiasm about memetic says micronize, the Hackett placental biologic injectable and are eager to be engaged with us to help drive our Registrational studies forward.
In addition, I've asked our R&D teams to accelerate our publication strategy.
It is imperative we fast track these research initiatives to build on the data derived from our phase two b K oar study and further educate the market on the potential impact of micro <unk>.
The underlying disease process.
If approved.
We see blockbuster revenue generation potential in these programs and we're working to accelerate our path to serving these patients suffering.
From a gaping void in safe and effective treatment options for patients suffering from knee entre osteoarthritis.
And other diseases, where our underlying mechanism of action can be clinically beneficial.
Now turning to strategic initiatives in April we created to define cohesive internal business units within the company. The first is focused on wound care and surgical recovery markets, our existing product portfolio and near term innovation.
This team is charged with growing our existing business.
And an important part of that is the development and launch of two new products each year we.
We are focused on significantly improving our overall product vitality index.
The second business unit is focused on regenerative medicine technologies, specifically progressing our central biologics platform towards registration as an FDA approved biological drug in the treatment for knee osteoarthritis.
This organizational structure allows for each business unit to focus on areas, where they can create the most value for our patients and our shareholders. The senior leadership team we've assembled at memetics his talented experienced and well equipped to accomplish these strategic initiatives that we've outlined and I'm confident.
That this realignment best positions, our collective ability to innovate execute and achieve the next phase of growth in R&D milestone achievements for <unk>.
These are exciting times for your company.
The commercial business is consistently performing and growing at double digit rates. Moreover, it provides the funds necessary to drive innovation in our research programs.
Now I'd like to turn the coal call over to Pete for a review of our first quarter results Pete.
Thank you Tim and good morning, everyone before I begin unless otherwise specified all result comparisons referenced in my prepared remarks are on a year over year basis.
We had strong revenue growth in the first quarter outperforming our own expectation.
We recorded net sales of $58 $9 million down one 8% from $60 million.
This slight decrease reflects the loss of sales from our Micronize and particular products in the U S offset by the strong growth in our continuing portfolio.
As Tim mentioned.
Following the end of the F D. A spirit of enforcement discretion on May 31, 2021, we faced a 13% shortfall as our section $3 51 products came off the market in the U S. With this quarter's strong topline performance in our continuing portfolio we have.
Essentially close that gap.
To put that in perspective.
Section $3 51 products represented $8 $1 million or more than 13% of net sales in the first quarter of 2021.
Compared to 377000 in the current quarter.
Our advanced wound care portfolio comprised of tissue and cord products used in wound care and surgical recovery applications grew seven $2 million or 13%.
Our traction in the surgical recovery market, which continues to gain momentum fueled double digit growth.
Gross margin for the quarter was 83, 1% compared to 83, 9% last year.
Similar to many companies, we are seeing modest inflationary pressures on our material and labor costs other.
Other factors, including higher yields and product mix helped offset these increases.
Selling general and administrative expenses or SG&A.
Were $49 $6 million compared to 45 $4 million.
Increases in personnel costs and sales commissions and travel expenses drove this change.
Yeah.
Increases in personnel costs and sales commissions were result of the sales force realignment and expansion.
Additionally, our focus on sales of products into areas of surgical recovery results in a proportional increase in sales through sales agents.
The increase in travel expenses reflects the removal of travel restrictions, but the company had in place during the first quarter of 2021 due to the COVID-19 pandemic.
After the end of the F D. A period of enforcement discretion, we made the strategic decision to maintain our staffing levels, including for our sales force and support of our commercial growth objectives.
As a result, the level of SG&A as a percentage of net sales is higher in the first quarter of 2022 compared to the prior year quarter and to our historical trends.
In addition, due primarily to the annual reset of insurance deductibles at the beginning of each calendar year net.
Net sales in the first quarter are typically lower than other quarters within a single year.
We therefore expect the level of SG&A as a percentage of net sales to decline over the remainder of 2022.
Research and development expenses were $6 million for the quarter compared to $4 $3 million the.
The increase reflects higher personnel costs driven by increases in head count to support clinical research efforts connected to our commercial and late stage pipeline.
Investigation restatement and related expenses for the quarter were $2.6 million compared to $7 $2 million.
The decrease was primarily the result of fewer legal fees advanced on behalf of certain former officers and directors of the company.
Net loss for the quarter was $10 $5 million compared to a net loss of $8 $4 million.
Adjusted EBITDA was a loss of $1 $7 million compared to a gain of $5 million.
As of March 31.
2020 to come.
The company had $75 $7 million of cash and cash equivalents compared to $87 $1 million as of December 31, 2021.
The decrease during the three months ended March 31, 2022 reflects payment of annual incentives.
As well as payroll taxes previously deferred under the Corona virus aid relief and economic security or cares Act.
Looking ahead on a full year basis in 2022, we continue to expect 11% to 14% growth in our continuing portfolio of products, which totaled $240 million of net sales in 2021.
Additionally, as previously communicated we expect to be free cash flow neutral in 2022, including the investments we are making to initiate our clinical trial program later this year.
I will now turn the call back to Tim.
Tim.
Thank you Pete.
Before we open the call for Q&A I want to take a moment to reflect on how far <unk> come over the past few years when I joined the medics almost three years ago we.
We had some tough hurdles to overcome.
Through the hard work and dedication of our entire team we have cleared our past litigation and accounting issues reorganize the commercial business and to find a path forward to Registrational studies for knee osteoarthritis potential blockbuster opportunity.
Now we've established two business units by once again, putting the right people in the right places with the right tools.
The fundamentals of our patient and performance oriented culture, and our growth strategy are driving strong results across the board.
As we continue to execute against our stated objectives, we are even better positioned for the future with operational resources infrastructure and expertise position for innovation and value creation.
I believe the path we have chosen is the right one for memetics.
Congratulations and a huge thank you to all 800 plus employees for their commitment to patients.
And exceeding performance expectations.
Operator, you can now open the lines for our Q&A session.
Thank you.
At this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one from your telephone keypad.
Information, telling me indicate your lines is in the question queue.
You May press Star two if you like to remove your question from the queue.
So I've just arent using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we poll for questions.
Thank you and our first question comes from the line of spun off from concert with H C. Wainwright. Please proceed with your question.
Thank you.
This is RK from H C. Wainwright, good morning, Tim and Pete Congratulations on a great start for 'twenty two.
Thank you.
So starting off.
Hum.
The business itself.
Obviously.
The current growth.
On your advanced wound care products kind of wiped out.
No.
The $3 51.
<unk> revenue.
Slash decline.
<unk>.
So.
Yeah.
Then then.
When youre seeing such growth I'm trying to understand.
Why youre trying to be a little bit conservative still for.
For the full year.
You know.
Anything that you're seeing.
Our thinking off that you could potentially.
C or the next couple of quarters.
So just trying to get a get a feel for it or just trying to becomes overdue.
It's still the start of the year.
Okay. Thank you with US today, obviously, Pete and myself. We also have doctors Kashyap then Dr. Stein the presence of our two operating units.
I appreciate your question I'm going to let <unk> take that.
Thanks, Bob and good.
Good morning.
We are very pleased with the results obviously in Q1 I think the.
The infrastructure and the processes that we have put in place to drive execution from our sales team are working.
And you saw that take effect in Q1.
But what I'll say is effectiveness model.
The infrastructure, we put around providing the sales team the tools and the training.
The overall scale of our sales team all of those factors contribute tremendously to our.
Execution and growth in Q.
Q1, as well as some elements in the market as well as he saw a robust demand.
We've seen that execution continuing for the rest of the year and are confident that we can.
Earlier indicated growth rate target for 11% to 14% we do see there are some challenges as we go through the <unk>.
For the year.
Based on new launches based on our market entries into.
Japan and everything so I think.
Taken all those factors into consideration as we have looked at for the full year and we will continue to keep you posted as those things become more and more clear throughout the year.
Hey, guys. Thank you for that.
Go ahead.
The second question is on the on the product.
Launch expectations.
So regarding M&A effect.
You would start off you.
You know in a in a limited fashion from next month.
But what is PCM also going to be starting at the same time or are you going to kind of staggering.
Start over time, the effect and then.
At a little bit later.
Startup PCM I'm, just trying to get a feel for that and then.
Also.
How long of a period generally in the market do you think you'll need to do this limited launch kind of a situation.
Before you go full steam.
Both products.
Yeah, Great question, Zach I'll take M&A effect, plus so you outlined the timeline correctly that we will start with a limited market release.
In June we.
More than 20 sites are unique sites lined up to participate in that limited market release. The reason for a limited market release, mainly affected.
It's a product that's going to be used in surgical procedure and that would be the first time, it's really used on patients that besides the animals and cadavers as you might have done in the lab.
I had to do that at launching.
So we want to make sure that there are no surprises during the course associated with physicians and surgeons use it and hence the need for a limited market release.
We anticipate that limited market release and.
About 60 to 90 days before we can.
We'll get to a fluid market.
Penetration, yes, I'm flu market access and open up the flu market, Florida.
<unk> put up with regards to the PCM.
The product itself is defend used differently, we will not be doing an LCM limits by a limited market release of that product.
Even when we are ready to launch we will be ready to launch that product in the second half of the year and when we do launch based on how the product's been handling characteristics out for that product.
And we will be just a ready to launch it on a full scale basis.
Second half of the year.
Thank you for that.
Tim One last question from me.
And it's interesting to see.
The strategy of you know.
I'm trying to separate the two business subunits.
Is it are these.
I've just find out is just only operational divisions or youre trying to put some accounting also behind Dallas I'm trying to do it but.
Nationally as well as operationally, yes, two separate units.
Great question first.
The internal reorganization is designed to.
Focus and align resources against.
The task for each of these two groups as you can appreciate RK, we wound care and surgical recovery business everything from the commercialization of those products to the product development cycle is much different than developing a drug for knee osteoarthritis. So it allows Dr Stein to focus on.
<unk> bye.
Biologics group, that's focused really on driving.
Drug applications or allows <unk> to focus on driving our commercial business. Both are equally important there is a certain amount of independents. There is also an important interdependency, particularly when you look at it from a regulatory.
Product development research and so on.
I'll, let Pete address the accounting.
Part of that question that you brought up which is a good one yes, thanks, okay and good morning.
Formation of these units in and of itself doesn't drive the accounting.
Segment reporting for instance, but it is something that is appropriate to assess.
And we will be doing that here in the second quarter.
<unk>, whether there are one of those segments are not under an accounting standpoint, we recognize that investors.
Always appreciate more granularity and weather. So we do recognize this as an opportunity to provide some granularity regardless of the accounting answer.
Perfect. Thank you gentlemen, thanks for taking all my questions I'll step back in the queue alright. Thank you RK.
Our next question is from the line of Anthony Petrone with Mizuho Group. Please proceed with your questions.
Hi, good morning, and congrats on another strong quarter of execution and closing the $3 51 gap from from last year.
High level question, then a couple of follow ups on the core and in timelines from a high level standpoint, you know, we're taking a closer look here at my medics. The stock is off about 70% or so from peak part of that of course was the top line data readout last year in September part of it is certainly market.
In addition.
From the end of last year through year to date, so with that said as a as a backdrop. We're looking closely at valuation here in shares or about one and a half times the midpoint of forward guidance.
If you sort of take a blended average of therapeutics med tech and wound care comp group that.
That peer set you know one could argue is at least two X higher.
Then that one and a half forward sales depending on the constituents. So.
Maybe at a high level, Tim Dr. Stein ROE hit Pete what is the market missing here one about the.
Strength and resiliency of the core business for one.
And then two the potential for the pipeline to yield value.
Going forward, particularly within the knee OA indication and then I'll have a couple of follow ups.
Yeah. That's a great question clearly when you look at the peer group and look what's happening in the biotech sector.
Clearly there is a dislocation.
When you think about the fundamentals of this business, we've had three consecutive quarters of growth.
And.
As you know over the past three years. This company is going through a significant amount of change not only change in.
Personnel, but also a significant change in the culture, which is now starting to drive the performance of the business. So I don't know exactly what is missing here from.
An investor viewpoint part of the.
Part of the chain internal change here to decrease the business units was to bring more clarity and granularity around the business for our investors I think people can see how strong our commercial businesses.
And when we look at the pipeline.
We've had many questions about what is the size of the market. What is the peak sales I can say this.
Every large pharmaceutical company has worked to try either through a small molecule application or a biologic to crack the code on knee osteoarthritis.
Nobody has been able to do that.
A tough target.
However, under the leadership of Bob Stein and his team I feel we have done all the right things as far as building the five.
Foundational understanding of how to attack this particular progressive disease, and I'll, let Bob talk a little bit about the efforts, we made there and I'm not sure. If that's been fully appreciate it clearly its a substantial market today, there are 17, and a half to 20 million patients suffering just on.
On the US correct arthritis alone in the U S. When you scale up the worldwide for knee and hip it's over 300 million patients. So the epidemiology around this is why it makes it so attractive for other companies to take a look at this particular opportunity to help these patients.
The labeling on this drug will be very important to drive the peak sales.
For example.
If you are injecting with.
In a bilateral way.
With many of you are injecting both needs at the same time, that's going to drive the revenue on this.
If.
Dr. Stein's group is able to demonstrate in the clinic that theres a disease modifying characteristic of this drug.
And it's probably going to be used in a more prophylactic way.
The top 10 drugs in the United States.
Have sales that.
If you look at Humira that $20 million to 20 billion.
The characteristics of the epidemiology, the understanding populations of patients that could be served with a meaningful drug here makes us an extraordinary and novel opportunity for not only this company or any other company.
The way we produce our product.
I think as a differentiating characteristic among all amniotic tissue. So all plus centers may be created equal, but not all finished product is created equal so Bob I'll turn it over to you. If you want to elaborate more on the EMEA OE program Thats being under recognized from a valuation standpoint, and thank you Tim I think it is.
Very good question, Anthony and my belief is that last year in September when we had the final results for all 446 patients in the phase <unk> trial.
Required because it was material to indicate that the overall study hadn't met its primary endpoints.
And at that time, we didn't understand for certain why that was true we saw a very clear signal on the first 190 patients that we had not only as statistically significant difference in pain and function compared to control, but it was a very clinically significant difference and it was after one injections six months for the very good.
Clinical result.
And then in the next 256 patients there is really no difference between the investigational product as daily in the clinical outcomes.
And it took us a couple of months to fully dig into that and convince ourselves that we understood what had gone wrong and that we were able to identify the fact that as the product aid from time of manufacturer. It lost its potency, which is a pretty steep cliffs starting in about two years post manufacturer.
So there was a several month lag.
Had the appearance that we had a failed study before we had an explanation for what might have caused that and I think it also.
People were distracted by that result from the fact that we had a very strong signal in the 190 patients treated.
Treated.
So I think the other piece of that is that we've had to progressively develop insight into the possibility that the investigational product.
<unk>.
Could modify the course of the disease. So it could slow down the rate of cartilage loss or even potentially lead to some cartilage build back which would have an important impact. If it also was accompanied by the reduced pain and improved function that we've seen and ultimately it might allow patients to either delay the need for knee replacement.
Or perhaps even avoid knee replacement.
A lot of anecdotal evidence from the clinic and very strong preclinical evidence both from the mechanism of action standpoint, and also animal model results, which support our interest in the evaluation of the disease modifying activity.
So I think that we have some very strong forward motion that we'll be able to talk about very shortly.
Still intend to start a registrational trial before the end of the year, we're still on target for BLA filing in 2025 and potential approval in 2026 and of all the mechanisms that have been evaluated to try to alter the signs and symptoms and progression of knee OA I actually think we have them.
Most promising in the form of Micronize, the hack them based on both our preclinical and clinical experience.
Yeah.
Thank you, Bob and Anthony the performance of the business.
Of our wound care and surgical recovery business.
It speaks for itself.
It has taken us a little bit of time for our organization to get its swagger back from a commercial standpoint, but we're there now we're going to continue to grow the business.
That's important so it'll help fund our clinical trials, we have other ideas about the application of <unk>.
Of our micro <unk> product in other indications.
As you all know the <unk> is a very sophisticated biological system that supports growth and healing.
That's the attractiveness. This attractiveness of this particular mechanism of action.
These are the things that we've been working on to demonstrate that not only does this product.
A potential significant benefit in knee osteoarthritis, but when you think about other disease states that have an inflammatory component to them, where there is scarring and fibrosis formation.
There are other applications for this across musculoskeletal diseases as well as in the sports medicine area, when you're dealing with trauma.
So Anthony I. Appreciate your question there as you can tell from my perspective, I do think that.
<unk> need to take a close look at the fundamentals of this of our commercial business and also take a look at the significant potential that are.
Regenerative Medicine group is presenting here in the form of knee OA in other indications.
Thank you for the thorough response I'll just have two quick.
Follow ups here and I'll keep it to the core and in the pipeline and so within the core of the guidance. This year is 11% to 14%.
That's excluding of course, the 351 headwind however.
There could be some easy comps due to COVID-19 and theyre on the one hand, but as we look at the pipeline development, we have two new products coming and eventually entry into Japan, and then a deeper pipeline and so do you view the core business as a sustainable.
High single digit low double digit growth story from here that.
That would be question one and then the second question would just be on Mike Micronize. The hack them products, obviously stability was an issue in the in the second and 256 patients and so can you quickly recap the specific changes the company is going to make to improve stability in end.
And really addressed.
You know some of the issues that came up in the 256 patients again. Thanks, Thanks again for taking my questions.
Yes, you've got it you got a couple of questions in there why do we allow ROE hit to address the commercial question and I'll have Dr. Stein address the.
Stability potency thing.
Anthony Good morning.
We absolutely do believe that we have.
As we've outlined in our Investor day.
The ability to sustainably grow the business, 11% to 14% the drivers for that growth multifaceted.
We believe that our core business.
Can continue to outpace the market and deliver growth in the core business that which is around wound care and the application and we have also talked about our ability to continue to penetrate and equally attractive market.
We are defining as surgical recovery. We are just in the beginning stages of that journey of ours, and so we will be able to grow into that market as well.
The third aspect of driving the growth is the innovation as Tim.
Tim talked about earlier, we are committed to launching two new products a year we had.
Not lunching <unk> effect and PCM.
PCM both of those this year, but then we will follow those up with a couple of other new products every year after that.
In addition to that the comment that Tim made was the strategic area of focus which is Japan for us which are fine points to a very.
Exciting opportunity for growth when we look across all of those levers of growth and the.
The investments that we've made in <unk>.
Realizing the potential of those different levers.
Very confident that we can.
Definitely achieve that 11% to 14% growth on a sustainable basis.
But.
I wanted to Bob to talk about the stability. Thanks, Rob.
Thanks, Rohit Anthony we've been intensely focused on first to understanding the difference in the material that is used in the first 190 in the next 256, and then figuring out how to address the findings that we uncovered I'm very confident that we've done that and we have a strong belief.
Is that the material, we'll be evaluating will be in its active form and the commercial product. We will also be distributed in a way that remains active during its use span we've done that in part by reducing the <unk>.
<unk> life from the putative five years that was.
Initially believed to be accurate for the micronize product to two years it still applies to the sheet products with longer shelf life, but we've also made changes in the manufacturing handling of the material that will also prolong its active.
Condition I don't want to give specifics on that because they are strong competitive advantages, but we're very comfortable with.
To address that.
Thanks again.
Thank you Anthony.
Our next question is from the line of Carl Byrnes with Northland Capital markets. Please proceed with your questions.
Great. Congratulations on the progress I think most of my questions have been answered.
But I was just curious if you had any comments regarding sequential progression for 2020 twos you provided.
At the end.
The release of our fourth quarter results.
To align with the 11% to 14%.
Year over year growth for the year. Thanks, and then I have a follow up as well.
Pete.
Carl It's Pete good morning.
This Dr cash upset earlier.
We are we've been looking at the launches market entry in Japan.
Dynamics in the marketplace.
Those you know evolves throughout the rest of the year goes on we're still generally comfortable with.
Those specifics we've talked about.
It certainly is all consistent with our annual grill.
As you saw we.
Probably what we did exceed our own expectations this quarter outperformed them.
And just as Dr. Stein productive tests upset a series of items hits, some hit one quarter versus another quarter et cetera. So.
We're confident on R.
Our continued growth here year over year, and it's going to drive that 11% to 14% revenue range.
Set for this year.
Got it and going back to.
The first quarter that the section 361 products being up 13, 4% year over year I think that the initial guidance was mid single.
Digit growth for the first quarter.
And hopefully this question is not redundant did you see any effect with respect to improvement of physician access amid the COVID-19 pandemic that that helped the first quarter.
In addition to obviously benefiting from all of the strategic and sales and marketing initiatives. Thanks.
Excellent question.
Good question Carl This is Robert.
Good morning.
I think as.
We kicked off the year again, there was a.
Probably.
Limited access in several markets.
Due to Covid.
But as the quarter progress, especially towards the end of January and as we March through February we saw that the access.
Quite open.
I think one of the other elements that said definitely helped us.
In this market is that we have a balanced access across the hospital market.
Outpatient wound care clinic market as well as the physician hospital physician practice market and having that balance allows us to take advantage of what the market might be positioning itself as due to factors of COVID-19 or other reasons as well, so being adaptive and being nimble in that sense, we are taking.
<unk> have the best access and the best opportunities we have allows us to.
Position ourselves well and some of the patients where they are presenting themselves.
Yeah.
We expect that.
As the quarter would have looked at that stabilized and it will continue to be at least in the near term future as we think.
But.
Great. Thanks very helpful.
Yeah.
Thanks Carl.
Thank you. Our final question is from the line of John <unk> with.
With taxes Yeah. Please proceed with your question.
Good morning, everyone regarding the two new business units could you clarify me clarify for me what are the two new products, which division that junior products will come from and then also.
I guess, we can look at the regenerative medicine to biologics.
R&D.
Center of the company is that is that a correct assessment.
Yeah, great questions first of all let me say that when you think about <unk>.
The wound care and surgical recovery.
<unk> has a dedicated team that is focused on developing 361 products in 15 case as you know the pathway to the market is shorter we're able to.
Innovative products around in the 361 category and put those on to the market. This is absolutely important part of our growth strategy for wound care and surgical recovery businesses. So those products AMU effect, and PCM, where all organically developed inside our surgical and wound care business.
So we have research we have product development and we have the regenerative medicine group, which is focused on the clinical side of this and also driving the research side.
So I think your comment around.
Bob's area is highly focused on.
Really developing out the biological piece of these drugs.
It's really a drug focus so.
But it.
It's area, we have a whole team dedicated just producing products.
We'll and also in that area, we have a medical affairs team that will be conducting if you will more like phase four types of studies there to continuing to provide the data that we need to grow that business. It also substantiates the reimbursement efforts that we have with payers. Let me just talk a little bit about the <unk>.
Generative medicine focus if there ever was a company in this industry.
That was focused on making regenerative medicine practical <unk>.
We have the talent here, we have an orientation.
We're looking at Bob here it looks at this business through the lens of a pharmaceutical or biotech biotech company why because that's the way the FDA is looking at our discussions with them around.
Classifying our injectable products or any products that are more than minimally manipulated are not used for homologous use will be classified as a drug. So we had to build that infrastructure. If you will to satisfy.
The regulatory requirement and also be able to operationalize.
Our efforts, whether its moving into a clinical trial or gaining registration approval there.
So.
I hope that helps Jon with clarification, but youre right Theres no commercial entity inside our regenerative medicine.
Group, there that slipped by Bob.
Okay got it got it and I guess I just it sounds like there will be some R&D that will take place in Dr for ships.
Division.
Yes in fact it is.
Maybe we've just.
Just assume that.
It was readily apparent.
We have really have two R&D functions here.
One to support 361 products and one to support five 10-K applications. That's a different approach to this but the thing that pulls this altogether for us is the underlying.
Research group.
Can feed both of these organizations.
So the products the underlying mechanism of action does it change how it gets formulated does change and then that formulation really drives the regulatory status of each product.
But.
We're excited it gives.
More of.
It gives more.
Intensity around.
Hitting our goals by structuring us internally this way.
Okay, great. Yeah. Thank you for the clarification that helps and also wanted to get your take on inflation and its impact on the business you know I've been talking to a number of companies and I hear about wages CRO Cmos supplies and a whole bunch of other things, causing pressure where are you seeing the most and I guess also the least inflationary pressures.
To date.
Good morning, John It's Pete.
For us our primary Rama our primary raw material is that donated placenta from a consenting mother after a after a birth.
Obviously, no inflation factor or supply chain issues in that.
Or where we see inflation, having the biggest impact is on our labor.
Lot of people and frankly some of that.
Place generic pressure and you wouldn't it wasn't called in place in early and this.
Coming from the pandemic.
Or like a lot of other critical workers.
Our processing and manufacturing teams continue to come on site.
Throughout the entire pandemic, we never shut down our facilities as a critical.
Our business and so that team has done great work, we're very proud of the work they've done and it's been approved.
Preet to recognize that through compensation, but we all know that there's wage challenges in labor challenges out there. So that's where we see it the most.
We are seeing a little bit and some of them are.
Materials used in processing and some of our other indirect materials, but I'd say.
He stepped its significant its in labor and <unk>.
As we noted or I noted in my prepared remarks, it's not overly significant for us in total obviously with the gross margins.
They are our cost the cost aspect of our product it is.
Somewhat limited.
Okay got it got it that's great and.
Last question is on the on the surgical recovery I think you had mentioned in the some of the statements to comments that.
That a large proportion of that goes through sales sales agents. So does that mean that it has a higher margin.
I guess because of those costs aren't incur direct site by yourselves.
So John your question on surgical recovery is.
What's the impact we've talked about.
The prepared remarks, how others are higher that has sizable bit higher portion of our sales through the third party agents that has a different cost structure.
And the and the commission area than through our direct sales force.
When you look at the Bottomline impact you have to look at a variety of factors. When you look at commission in isolation. The commission expense is higher as a percentage of sales for the agents.
<unk> agents, because you are compensating them for staffing training other costs that we incur elsewhere for our direct force. So that's why you see it was talking about it in relation to commission expense itself.
Okay, great. Thank you for the clarification, that's all for me. Thank you.
I appreciate it.
Thank you we've reached end of our question and answer session I will now turn the call over to Tim Wright for closing remarks.
I wanted to thank everybody for joining this call today.
You can see we had a.
Fantastic first quarter.
We're going to continue to.
Drive our sales throughout the remainder of the year.
Sales are exceeding expectations because of our people.
And the tools that we have given them to sell our products based on clinical efficacy and health economic advantages and frankly, the customers are appreciating the difference.
But our products, making their practice and that our people make.
Regenerative medicine as a category is very inspiring to us whether it's in the wound care business or in the research.
Michael recovery area or in our regenerative medicine R&D focus there.
Our regenerative medicine in Biologics innovation operating unit is focused on changing the practice of medicine in knee OA in other disease States. That's what gets us up in the morning, our wound care and surgical recovery operating unit is growing double digit providing the fuel for this type of innovation.
This to me is the dawn of a new area era that we're driving cultural central biologics.
These are the discussions that we have with the agency. These are the discussions that we have internally how we advance the science in this particular category.
The sustained effort over the last three years has the potential to deliver significant growth in the future and value for not only our customers, but also for our shareholders and other stakeholders double digit growth leading products.
Surgical wound care space, our movement, our pivot into surgical recovery was an outstanding move for us because it allows us to amortize the value of our existing products and allows us to innovate in other areas that can support surgeons with some of their complicated cases there.
Yeah.
I just wanted to make sure that.
People walk away with an understanding that.
Bob's area, what we're really doing here is creating a new class of biologics.
It's a novel platform <unk>.
Driven from placental tissue.
If you think about it the placental tissue is mother nature's organic material.
It has evolved over millions and millions of years. That's why this mechanism is so important in disease states that have this inflammatory component.
Addressing a treatment void in knee OA is a laser focus goal of ours.
We do that this product works in other disease states with similar path of <unk> biology.
Yes.
We are able to construct two clinical data through our clinical trials.
A package insert.
Where we have strong lately.
We have a strong dosing regimen easy regimen for physicians to apply where theres, a bilateral potential or application where their prophylactic use and if we characterize a disease modifying element of our purion produced product.
And then there will be a significant multiplier effect on the potential of this novel organic material.
From human placental tissue.
<unk> using our Purion process now internally, we are working on a new manufacturing process under the.
What I would call the code named Triplex Purion triplex.
This is a new engineering technology that supports the effort substantial effort that we have to make in constructing a strong chemistry manufacturing and controls package as part of our BLA filings.
It also affords us.
An opportunity to optimize our manufacturing process improve the scalability. So I want to thank our people here we've had a good strong quarter I wanted to thank our investors for their continued.
Interest in us and appreciate.
All the questions today, Thank you very much.
This.
Today's conference you may disconnect your lines at this time, thank you for your participation.
Okay.