Q1 2022 Repro Med Systems Inc Earnings Call
Greetings and welcome to go to a medical systems first quarter 2022 earnings conference call.
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I would now like to turn the conference over to your host Greg Halter check.
Managing director. Please go ahead Sir.
Yeah.
Thank you Peter and good afternoon, everyone earlier today co room Medical systems released financial results for the first quarter ended March 31, 2022, 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.
All 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 I encourage listeners to have our press release in front of you, which includes our financial results as well as our commentary on the quarter.
During the call management will discuss certain non-GAAP financial measures in our press release and accompanying investor presentation, and our filings with the SEC each of which are posted on the website. If you find it you will find additional disclosure regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures in our press release and accompanying.
Investor presentation in those filings.
The benefit of those listening to the replay this.
Call was held and recorded on Wednesday May four 2022 at approximately 430 P M Eastern time.
Since then the company may have.
We 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 on the call today is Linda <unk>, President and Chief Executive Officer of Cobalt Medical systems, and Karen Fisher Cobra Medical's, Chief Financial Officer, Linda. Please go ahead.
Thank you Greg good afternoon, everyone and thank you for joining us today.
Before we begin I want to express our heartfelt thank you to them.
<unk> team for their dedication and passion in delivering another strong quarter in our mission to improve the quality of life for patients self administering infusion therapy in the home.
During today's call, we will use slides to support our commentary.
I will begin with a brief overview of financial results before turning to our business update.
I will then turn the call over to Karen to discuss the quarterly financials before ending with updates to our 2022 guidance.
Karen and I will then be happy to open the call up for Q&A.
Before jumping into Q1 highlights a few comments on our progress and vision as a leading drug delivery provider.
Our freedom infusion system is being used today by over 25000 patients to subcutaneously and fuse large volume drugs.
Setting.
Supporting a growing trend to health care delivery in the hub.
With our label expansion, we continue to increase our penetration.
<unk> total addressable market population of over $300 million.
We continue to expand our pharmaceutical partnerships with our on label indications now totaling 12 with our announcement of another new label into shouldn't this week.
As a market leader in provider, we deliver our pumps and disposables into the home through our specialty pharmacy partners as we continue to strengthen our relationships with them.
And as the overall market for sub Q development.
Continues to expand we are extending our leadership position and to new drug categories.
With further agreements and pipeline expansion that I will discuss today.
We're driving closer to the $1 $3 billion total addressable market.
Turning to our first quarter results, we reported net revenues of $6 2 million for the first quarter of 2022.
This represents a 15% increase year over year and marks the company's second consecutive quarter of double digit growth.
Our domestic core business led our growth with a 13, 2% increase.
The strong quarter in our U S business is indicative of our continued implementation of our strategic plan to outpaced the underlying market growth.
Overall <unk> drive market also saw an uptick in growth from 1% in Q4, two 7% in Q1.
We believe these trends signal market recovery as patients return to the regular cadence of therapy.
We see increases in patient diagnosis as concerns over the pandemic subsides.
Net revenues were down eight 6% year over year for international core due to ordering patterns at a few of our smaller distributors.
Novel therapies revenues increased over 350000 for the first quarter as we began to recognize pre commercialization revenues from our pharmaceutical pipeline deal expansion.
We are very pleased with our solid start to the year.
In December of 'twenty, one we rolled out a strategic plan and I will now turn our focus to providing Q1 update.
The five year plan strategic initiatives include increasing core <unk> penetration.
Standing to novel therapies, and continuing to build our foundation to support growth.
And our efforts to increase penetration in our core business.
The U S business nearly doubled the pace of the overall <unk> drug market growth.
Driven by a 40% increase in our pumps as an indicator of new patient starts.
One of the biggest areas of progress has been the expansion of our label with four new drug device additions over the last five months and in particular, the pre filled syringe clearance in November .
This has assisted in expansion of pre sales in the market in Q4 of three 4% to 5% penetration in Q1.
In support of expansion in our international business. We are also pleased to announce the signing of a distributor agreement with diet expert a leading provider in the German market, our products and services for patients administering therapy in the home.
Our novel therapies business, we continue to see an uptick in our pipeline with one new non deal signed this quarter and five total deals in the last two quarters.
We are also pleased to announce a scope expansion of an innovation development agreements signed last quarter and for which we have begun to recognize revenues for a milestone completion this quarter.
In support of all of these initiatives, we continue to build a stronger foundation for growth at <unk>. We are on track to move our new building location Tomorrow on New Jersey on June 1st we have built out our executive team with the hiring of a new Chief Technology Officer, Brian case, who brings his 20 plus years of experience in tech.
<unk> and product development.
And finally, the final phase of our outsource manufacturing is on track for Q3 implementation.
Part of expanding our core business margin to the 60% plus range.
I am now going to dive a little deeper into our expanded label indications.
Our label expansion as critical as it does two things first it enables us to work prelaunch with our pharmaceutical partners and ensuring a safe and effective drug delivery device experience for patients.
Second with a broad label, we make it easier for our specialty pharmacy accounts to service patients with an FDA cleared platform.
So two key highlights on this slide first as the pace of label expansion we.
We have seen four new indications in the past five months months, indicating an uptick in new drugs and sub Q delivery and our efforts.
Second the two new clearances, we announced this week expand our use.
The quarter over freedom edge infusion system outside of IAG.
The pump is now clear to deliver empathy Ali marketed by a palace in the United States and branded as Asper Valley and marketed by Selby outside the United States.
<unk> asked the valley are prescription drugs used to treat <unk> a rare blood diseases.
The total U S addressable market population is approximately 500 patients with about 150, new diagnosis each year.
With the treatment of occurring twice per week. This could expand <unk> total addressable market by approximately $2 million to $3 million.
The most critical part of this new indication is that we establish our platform outside of <unk> as a proof point as we look toward the future and further solidifying <unk> medical as a leader in high volume subcutaneous drug delivery.
Turning towards a pre filled syringe market. This represents a significant opportunity in an early stage fast growing market.
Prefilled syringes are rapidly capturing market share and represent 5% of the total SCID grams.
<unk> today.
From three 4% in the prior quarter.
Driven by expanded efforts from our label expansion for Prefilled syringes in November .
Pre filled syringes offer distinct advantages to patients by removing five steps from the infusion process.
As the only pump specifically 510 cleared for the use of high interest.
20 ml format. This provides us an excellent opportunity to capitalize on this growth we.
We are focused on commercialization with a specific effort on new patient adoption and conversion.
We also have coordinated efforts with our partners as they rollout their marketing strategies.
We look forward to continued work with our pharmaceutical and specialty pharmacy partners.
To increase <unk> penetration and simplify the lives of our patients.
To date, we have focused our strategic efforts on our U S core and novel therapies businesses. However, having just returned from a multi country European tour I'm excited to announce progress on our strategy to expand geographically in our international business.
Germany is one of the largest <unk> markets, where we did not participate it.
It has a large population high utilization of <unk>.
And double digit growth.
After a thorough search we have signed an exclusive distribution agreement with di expert we.
We chose the <unk> expert based on several key capabilities.
First just the scale to serve the German market.
Second is our track record of success.
And third is a best in class capability to deliver clinical training and patient care owned over many years, serving diabetes patients in the home.
We expect commercial activities to begin in Q2.
This geographic expansion is also relevant to our novel therapies business as <unk> broad regulatory approval and distribution is a differentiated offering to pharmaceutical companies.
Moving to our novel therapies business during the first quarter novel therapies was driven by revenue associated with the support of feasibility work for the aforementioned innovation agreement.
We are encouraged that novel therapies continues to play a more prominent role in our strategy and believe there is room for broad application beyond immunology as evidenced by our recent successes.
We continue to expand our pipeline and we are currently pursuing.
Over 18 opportunities for new drug candidates for our pump.
This quarter, we are pleased to announce that we have assigned one additional deal outside of IAG and the hematology area.
And have expanded the scope of our prior signed innovation deal with an <unk> manufacturer.
We have dedicated significant time to expand our engagement regarding novel therapies pipeline and.
And we are beginning to see the results both in signed deals and pre commercialization revenues.
In conjunction with the progress on the initiatives discussed above we are continually building out our team, including our strengthened executive team.
I'm pleased to highlight another edition.
In late April we announced that we hired Brian case, and R&D veteran with over 20 years of experience as Corot Medical's, New Chief Technology Officer.
As previously discussed investing in innovation is a significant strategic growth area for <unk> as we build out our novel therapies pipeline.
Bryan will lead technology and product development and innovation as the company defines and execute.
It's innovation strategy.
Near term innovation goal include line extensions, new product introductions, and a next generation system and.
And Brian will be instrumental.
To our long term business success.
I will now turn the call over to Karen for a discussion of our Q1 financials.
Thank you Linda and good afternoon everybody.
I am pleased to report our second consecutive quarter of double digit net sales growth ending the first quarter of 2022 with net sales of $6 2 million, a 15% increase from $5 4 million from the same period last year.
Results were driven by domestic core growth of over 13% year over year with higher pumps and consumable sales outperforming a rebounding <unk> market growth at 7%.
As we expand our novel therapies pipeline. We are also excited to report novel therapy sales were 355000 for the three months ended March 31, 2022, a 300000 increase from.
From the same period of 2021, primarily due to recognition of initial NRG revenues from an innovation milestone achievement for a large <unk> customer.
Which is expected to continue to generate energy revenues through 2022, and clinical and commercialization revenues in the years following.
International core was down eight 6% year over year due to quarterly buying pattern changes on a few smaller customers.
As Linda mentioned previously we are excited to report that we have a signed distribution agreement in Germany.
With reimbursement a great distribution partner and a large sub Q patient base in Germany. We are excited about this expanded opportunity in Europe .
Gross profit increased by 400000 or 12, 1% in the first quarter of 2022, while gross margin margin decreased by 150 basis points to 58%.
While we are excited to record the higher energy revenues from the customization effort described earlier this revenue had a dilutive impact to gross margin for the quarter.
Also contributing to lower margin was higher manufacturing costs in our core business from increasing raw material costs and labor costs that were partially offset by increased price and mix.
Total operating expenses were $6 7 million for the quarter 2022, an increase of $1 3 million for the same period last year.
The majority of the increase came from R&D expenses, which drove just over half of the increase or approximately 800000 in the first quarter of 2022 compared to the same period last year.
The increase was driven primarily by higher salary and related costs as we build out our internal innovation capabilities as well as consulting fees to support accelerated product development efforts through our previously announced agreement with Valero.
<unk> drove 30% of the incremental spend over prior year in support of our expanded label indications and our EU MTR registrations the.
The remainder of our SG&A expenses were driven by new hires to support commercialization and business development.
Net loss for the first quarter of 2022 was $2 5 million or negative <unk> <unk> per diluted share compared to net loss of $1 3 million or a negative <unk> <unk> per diluted share in the first quarter of 2021.
The loss was driven by our investments to execute on our strategic initiatives as we just described.
Okay.
As you can see from the previous slide our use of funds remains focused on driving innovation and growth and on strengthening our foundation, including our Q1 investment in our new location.
We used $2 7 million in cash in the quarter, which includes 700000 for leasehold improvements manufacturing and office equipment for our new location.
We have preapproved financing arrangements and the amount of $1 million, which we will execute in Q2 upon commissioning of the assets.
Additionally, we expect to receive cash or build our credits under our new lease.
200000, and we're still waiting for our ERC credit of 700000, which we recorded a receivable for at 12 31 2021.
The company ended the quarter with $22 6 million of cash and we were well capitalized to continue to execute on our strategic plan.
I will now turn the call back to Linda for guidance and closing comments. Thank you Karen.
Turning to our expectations for fiscal 2022 as a reminder, our outlook is rooted in several key drivers underlying market growth continued recovery from COVID-19, pandemic plasma supply clinical trial activity and supply chain impact.
For full year 2022, we are tightening our revenue guidance to the top end of the range of $26.
5% to $27 million.
Previously <unk> $26 million to $27 million due to the Q1 U S market growth, which is approaching our high single digit range prior communicated for the year and expansion in our novel therapies pipeline.
The company reiterated guidance to exit the year at a 60% gross margin run rate. Additionally, Q1, 2022 supply chain disruption impacts, which are not expected to recur have resulted in unfavorable manufacturing variances in Q1, which will be recognized in the second quarter of 2022.
As we turn our inventory.
And finally, we iterate our operating expense range in support of our strategic plan, we anticipate higher sequential Q2 expenses due to one time building move expenses.
Okay.
In closing our first quarter represents a very strong start to 2022, we.
We are making great progress in advancing our strategic priorities, we have met our second quarter of double digit growth.
We are progressing our label expansions with our fourth FDA clearance in five months and our first clearance outside of IAG with empathy Ali and ASP of Valley.
We are expanding our novel therapies pipeline in both clinical trial and innovation agreements as a leading indicator of longer term commercial opportunity.
And we are beginning to build out our international strategy as we continue to build a strong team.
We are pleased with our ability to execute against our strategic plan to date as we work towards our longer term vision of becoming a broad drug delivery player.
Thank you again to the cargo team and I will now turn the call over for Q&A.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
Okay.
Our first question is from Alex Nowak with Craig Hallum Capital Group. Please go ahead.
Good afternoon, everyone. This is Jason on for Alex.
So to start for me.
Penetration for pre filled syringe is great to see have you seen any impact to overall sub Q penetration of the IGT market yet in your data.
And any color on what you may be seeing as a result of this concern in new patient adds and pump orders for you guys would be helpful. Thanks.
So hi Chase.
<unk> question, we are very encouraged by the pre fill growth that we see this year.
And we are seeing that is impacting sub Q patient starts although there's a lot of things that a fact that we did see a half a point improvement from Q4, and overall sub Q penetration into the marketplace. So that was encouraging for us.
And then obviously you saw the pump number that was recorded a 40% growth in quarter, one and Ah.
A significant part of that growth was attributable to our freedom edge, which is the pump that specifically cleared for indication with pre filled syringes. So we.
We see pre sales.
We're thrilled as being the only on label indication, we see it as a.
Market opportunity with only 5% penetration with a lot of headroom for growth for us this year in the years following.
Okay.
No very helpful. Thanks.
And then what the CTO announcement any update on the new pump developments.
The other products in the works besides a new pump we should know about.
Any color on how you think the pipe how youre thinking about the pipeline strategically as the new CTO starts rolling there.
Yes. So first just let me say we are thrilled to have someone of Brian's caliber on board with the team. He has experience in developing many different pumps for different applications over the course of his career and both from technology.
From in licensing opportunities. So so we've got a very experienced player and Brian .
So clearly we innovation as you see in our spending resulted in a huge focus of our of our innovate of our efforts as we move forward and Thats really in support of capturing a lot more drug opportunity that we see in the overall pipeline. So our short term activities will be <unk>.
Focus on what I would call comfort and convenience youll see improvements both to our freedom edge platform, what I would call a second generation freedom platform that is more specifically geared to pre pills and then of course in parallel to all of that we have our next generation pump.
And many many new things we're planning for for that next generation pump. So think about the three themes I'd like to talk about comfort convenience connected youll start to see the beginning of that pipeline rollout by.
Certainly next year at that time in the form of line extensions then we'll go into some new products from there and then into our next Gen pump.
And then just considering what you are hearing from the specialty pharmacies.
As pre filled to start to roll it out here.
Have you heard some feedback about potentially addressing some of previous pushback with switching the sub Q.
Do you think things are trending in the specialty pharmacy.
Yeah. So great question, and we have done a lot of work.
We were actually our head of sales now is in meetings with all of them at one of our biggest conferences, but to date, we certainly have heard that the clearance of the 20 ml from CSL. There has <unk> has helped because it allows the patient to just put the pre fill syringe directly into our pump which is fantastic.
I think the challenges that we hear today are obviously.
With the 10 formats and the fact that not everybody is in a 2040 or 60 that patient still at times have to draw up from the <unk> from the pre filled syringe into another syringe to put into the pump so thats.
A little bit of additional work so we're looking forward to.
CSL building out their presale pipeline.
So that we can bring an even better patient experience to the marketplace, but overall I would say.
Working on our Clinical's today were working on training.
A lot of new pharmacies and patients on the therapy and I would say expectations for pre sales have outperformed our early expectations on this product.
Great. Thanks for the questions I'll hop back in the queue here. Thanks.
Thank you chase.
Thank you our next.
Next question is from Jason Bednar with Piper Sandler. Please go ahead.
Okay.
Hey, good afternoon. Thanks for taking the question. This is Joe on for Jason.
Yes. So my question is were back in Q4, and obviously reiterated today you guys mentioned the novel therapy pipeline and investments in Europe and internationally as leathers, while we're supporting them to return to 20% growth. So we're curious how we should be thinking about future developments of the novel therapy pipeline as well as progress in Europe , obviously, particularly with the announced distribution agreement.
And Germany is impacting the top line in 2022 and beyond and then.
The odds of you can actually get back to 20% growth moving forward with these levels. Thanks.
Thanks, Joe.
Question, So maybe just I'm going to builders back to getting to the 15, which obviously moving to the high end of our guidance, we're getting more comfortable with and then I'll talk about the pathway to the 20% which is what we're all aiming for so clearly the rebound in the U S market is going to be the biggest thing that drives us.
Back to.
That that 15% plus growth range and be.
What we saw happen in first quarter.
I talked about a 7% average on the quarter, but it looked like a 3% growth in January .
7% growth in February and a 10% growth in March so thats very encouraging to us.
Beyond that obviously novel therapies, and what we have in our pipeline for novel therapies. I mentioned, the fact that we have expanded the scope of an innovation agreement. We signed in Q4, that's very encouraging to US and then finally, the Germany deal while its early we just inked it we've got training to do.
You don't get the product into the hands of all their representatives in the marketplace, we see that as an opportunity. So to go from 15% to 20% I would say, it's we'll look at three things number one is can the U S market growing double digits. This year, we see the U S market grow double digits.
On a quarter.
Quarter on quarter year on year basis, that's going to be M. Barrie encouraging combined with our opportunity to.
To complete that.
That innovation agreement on time and.
And get some incremental deals signed for novel therapies, and then finally I would say that inter.
International expansions beyond Germany, So we're focused on other markets as well.
We will also be a positive to getting us to that 20% growth.
So I see.
Multiple I guess the other thing I would mention is pre sells.
<unk> at 5%.
It is encouraging to us and again, a pre sell customer as a core ROE customer. So we grow our position from 70% of the market to a 100% when it's a prefill customer. So I guess, what I am describing as multiple shots on goal to get from the 15% to 20% and I think we just need a little bit more.
Time to see the market come back a little bit more time to expand on novel therapies pipeline, but you see us with all of those proof points, we're recording each quarter that we're getting closer to those numbers.
That's really helpful. Thank you and then just one more for me. So congrats on the recent thoughts on GE approval from probably a great chief of the business. Obviously can you just talk a little bit about how we should be thinking about the contribution from this approval looking forward and to what extent patients may have already been using it off label with a three dimensional.
Yes, so I can't speak to off label indication.
Although we know that.
The core ROE pump was.
Preferred in their clinical trials that they did early on for the approval. So we assume that pharmacist.
And doctors would have kept some of those patients on the pump.
So.
Overall, and if we look at the numbers that are palaces reporting I'm going to talk about the U S market overall.
We see the potential and remember we have competition out there from electronic pumps on this platform and of.
The 150, new patients or so that start every year and the patient base are trying to convert.
We see the opportunity overall this year somewhere between 100 200000. This year for palace that number is already in the numbers that I would've prior communicated so if they do better and we know they are reporting right now and I hope. They are obviously, we will see that come through in our numbers, but I think this label.
Indication is is going to be a tremendous lift for us to now go and be able to.
<unk>.
The freedom edge pump with with Aspen Valley and <unk>.
Okay.
Thanks, a lot I really appreciate it alright, thanks, Joe.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Linda <unk> for closing remarks.
Thank you everyone for listening in today.
And I want to say, thank you to the entire <unk> team again for a fantastic start to 2022.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yes.
Okay.
Okay.
Okay.