Q1 2022 Aziyo Biologics Inc Earnings Call
Thank you for standing by and welcome to the real Biologic Q1, 2022 earnings Conference call.
At this time, all participants out of a smelly mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on your Touchtone telephone.
As a reminder, today's call is being recorded.
I would now like turn the conference or would you hope if Leigh Salvo Investor Relations Ma'am you may begin.
Thank you and thank you all for participating in today's call.
Joining me are Rob Lloyd Chief Executive Officer, and Matt Ferguson, Chief Financial Officer.
Earlier today <unk> released financial results for the quarter ended March 31 2022.
A copy of the press release is available on the company's website.
Before we begin I would 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 1095.
Any statements contained in this call that do not relate to matters of historical fact or related to expectations or predictions of future events results or performance.
Our 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 prospects for recovery.
Hence management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion and product pipeline development expected future product launches and milestone unexpected results performance of our partnerships and commercial products, including patient out.
Some are 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.
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 the annual report on Form 10-K for the year ended December 31, 2021, as such factors may be updated from time to time in other filings with the SEC, including <unk> quarterly report on form.
Q for the quarterly period ended March 31, 2020 to be filed with the SEC accessible on the SEC website at SEC Gov.
This conference call contains time sensitive information and is accurate only as of the live broadcasting today May nine 2022.
<unk> 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.
Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure are.
A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's earnings release for the first fiscal quarter ended March 31, 2022, which is accessible on the SEC's website and posted on the Investor page of <unk> website at <unk>.
That would be O dot com.
And with that I'll turn the call over to Ron.
Thanks Leigh good.
Good afternoon, and thank you all for joining us.
Pleased to announce that as he goes off to a great start in 2022.
So far this year, where many of our key product development milestones delivering solid commercial results and making significant progress in improving our operational efficiency.
As expected we submitted our five 10-K application for Kangaroo our al.
Our next generation Biomaterial envelope, which was subsequently accepted for review by the FDA.
As a result, we continue to plan for commercial launch in the second half of this year.
We're obviously very excited about this milestone and confident that with FDA clearance.
<unk> can drive significant future growth for zero.
As the only biomaterial envelope with antibiotics approved for implantable electronic devices, the United States.
Estimated $600 million annual market.
In Q1.
Sales of our flagship <unk> product saw robust year over year growth in excess of 25%.
Our direct sales force with support from our partners Boston Scientific and bio Tronic was successful in driving further product adoption.
And our soft tissue reconstruction product simpler derm.
We also saw meaningful contribution to our top line results with year over year growth also exceeding 25%.
With continued advancement of clinical data and expanded access with hospital systems I am confident that simple derm has the potential for further market expansion.
Sustainable future growth.
Overall, while our business did see some negative impacts from the <unk> variance.
For the quarter as we noted on our last call.
We were able to navigate those challenges and deliver strong revenue results in the first quarter.
With overall growth in our continuing operations of 14%.
Versus the first quarter of last year.
We also saw a substantial improvement in our gross margin, which increased by five percentage points compared to the last two quarters of 2021.
Im looking forward to continued progress in all of these areas.
Turning to some of the highlights and updates for each of our product portfolios.
First in our products for implantable electronic devices.
As I noted earlier, our 510 application for CAGR R&M is now under review by the FDA and we remain committed to tracking to a timeline that will enable launch in the second half of 2022.
Come 2023, we anticipate this enhanced product to be the primary growth driver of our business.
Looking out even longer term, we believe this product has the potential to exceed $100 million.
Annual sales.
With further upside driven by opportunities to expand this platform to international markets outside of Europe .
As well as develop applications for other implantable electronic devices.
In Q1 of 2022, we once again saw significant strength from Congress sales largely due to new account growth and greater penetration into existing contracted hospitals.
As a reminder, our kangaroo in cardiovascular products are sold primarily through a direct sales force that leverages, our partnership with Boston scientific and <unk> to enhance our presence throughout the United States.
We continue to work closely with our partners and are pleased with the progress that we've made thus far in 2022.
Our partners are particularly excited about the FDA filing related to Kangaroo R&M and the prospects of having that product on the market later this year.
Continued investments our commercial organization have already demonstrated a positive return.
And we believe will be a significant lever as we prepare for the launch of <unk>.
As our reps have gained more tenure, we've been encouraged by the increasing productivity.
I'm pleased to see growing traction in driving usage of Kangaroo.
We continued to leverage our breakthrough designation for Kangaroo at Premier and the majority of our new accounts fall under this hospital network.
Sales traction is also beginning to take hold internationally.
<unk> grew sales in Europe remains a small percentage of our total.
But we've begun to see uptake through our distribution partners, there and believe international opportunities can be a meaningful contributor to our long term growth.
More information about the benefits of our Congress platform is also reaching investors.
Mid April Cowen hosted a key opinion leader call with two leading U S. Electrophysiologist.
On this call the doctor's discuss remodeling benefits of CAGR rule and how they envision its future use with implantable electronic devices.
We were pleased to hear that both doctors support the benefits of creating a natural systemically vascularized pocketed for implantable electronic devices.
They also shared their enthusiasm for the potential FDA approval of our next generation Kangaroo envelope.
Loaded with antibiotics.
Investors interest in learning more about this you can visit our website or E mail us at investors <unk> Dot com.
In late April we attended the heart Rhythm Society meeting and met with EPS throughout the conference.
It was great to see the interest in Kangaroo is a biological solutions for specific patient types, especially de novo patients is continuing to grow.
We also conducted market research for Kangaroo RM.
That EPS were impressed by the products design and its performance in our preclinical studies.
As an update on our clinical trials for Kangaroo.
Enrollment in both the heel and de Novo studies are progressing well.
We continue enroll patients and anticipate interim readouts from both studies later this year.
As a reminder, the heel studied compares patients with the kangaroo envelope against patients with either a synthetic envelope or no envelope at time of Tid change outs.
The Kangaroo registry study follows de Novo Kangaroo and no envelope patients for up to five years.
Turning to our other core products sale.
Sales of our soft tissue reconstruction products simpler derm continued to expand in the first quarter.
As we highlighted on our last call recently published clinical data confirming that simply <unk> is clinically comparable to the market, leading acellular dermis product.
Proving to be a key factor in expanding market access with hospitals.
We believe simpler is now better positioned than ever to capitalize on the estimated $500 million total market.
Moreover, our national distribution network, it's been a strong asset for us.
We're pleased with our ongoing ability to generate revenue and anticipate growing momentum throughout the rest of this year.
Turning to our products for orthopedic and spine repair which include viable Asti grow V and our fiber bvm.
We saw results in line with recent quarters and were pleased with the continued traction in this category with our existing partners.
One of our goals for 2022 identify and onboard new distribution partners.
As this process evolves, we believe that we're on track to see benefit of additional partnerships and relationships in the second half of the year.
You will coincide nicely with our targeted launch of <unk>.
We also have the ability to create additional products in the orthopedic and spine repair space by leveraging our viable bone matrix platform.
We anticipate launching at least one more product this year to complement and further expand our existing portfolio.
Lastly, our contract manufacturing business saw significant growth over a year ago quarter as well as the fourth quarter of 2021.
We were pleased with our partners contribution and leveraging our tissue processing and development capabilities of our Richmond, California facility.
We're seeing strong growth in revenue and margin improvement in this category of our business.
In summary, the team is off to an excellent start in 2022, and we continue to deliver on a major catalyst for growth.
These include.
First and foremost in our kin group business, our five 10-K submission, which has been accepted for review by the FDA for Ken grew our al.
Pending FDA clearance, we expect to commercially roll this product out by the end of the year.
We're also expecting data readouts from our clinical trials to support the product line's remodeling benefits and commercial differentiation.
For simpler there will 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 current levels and continued contribution to our bottom line.
And finally as discussed in previous calls we are implementing multiple efficiency initiatives across our entire business.
<unk> already begun to yield and margin improvement with further gains expected throughout the year.
With that I'll turn the call over to Matt to provide a review of our first quarter results and outlook for the rest of 2022.
Thanks, Ron net.
Net sales for the three months ended March 31, 2022 were $11 $5 million.
10% 10, 8% decrease from $12 9 million in the same period of the prior year.
However, excluding the sales of fiber cell, we saw 14% growth over the first quarter of 2021.
Gross margin for the first quarter of 2022 was 37% as compared to 49% in the corresponding prior year period and 31% in the fourth quarter of 2021.
We also look at gross margin, excluding the impact of noncash amortization of intangible assets and on that basis, Q1 would have been 45% versus 56% in the year ago quarter.
39% in the fourth quarter of 2021.
The decline in gross margin compared to the prior year quarter, primarily relates to product mix and lower yields in the company, it's viable bone product line.
However, the sequential improvement in gross margin is an indicator of the more recent efficiency improvements in our enrichment production facility.
Total operating expenses for the first quarter of 2022 or $11 2 million, a 12% increase from $10 million from the first quarter of 2021.
Increase was primarily due to higher expenses related to the development of Kangaroo R&M.
Loss from operations was $6 9 million for the first quarter of 2022.
As compared to a $3 $7 million loss for the year ago quarter.
Net loss for the period was $8 1 million as compared to a net loss of $5 1 million in Q1 2021.
Loss per share in the first quarter of 2022 was 60.
Compared to a loss per share of <unk> 50 in the year ago quarter.
We ended Q1 with a cash balance of $22 2 million.
In total liquidity, including availability under our revolving line of credit of $23 1 million.
Turning now to our outlook for the full year of 2022.
We continue to project net sales in the range of $47 million to $50 million.
Excluding approximately $4 $9 million of fiber cell sales in 2021, which have been discontinued.
This range represents expected growth of 11% to 18%.
The biggest variable in this range has to do with the timing of clearance and launch of Kangaroo RM and.
The low end of the range assumes no contribution from <unk> by the end of the year and the high end assumes clearance and commercial availability by the fourth quarter.
We remain excited about the additional milestones we expect to achieve in 2022.
As well as our ability to drive long term growth and shareholder value.
And with that.
To open up the call for your questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone again to ask a question. Please press Star then one.
Our first question comes from David <unk> of Choice Securities. Your line is open.
Hey, guys can you hear me.
Okay, Yes.
Hey, great. Thanks for taking the questions.
Yes first.
You mentioned, 25% growth here in the quarter, where there may be some some new accounts as well as the existing accounts, but I guess did.
Can you provide any color on what maybe is impacting that and perhaps if at all the submission here.
The 500, 10-K has driven any incremental growth thus far.
Yes sure. Thanks for the question David.
Answer the latter part no I don't believe that submission of the Kangaroo RM is impacting the current growth that we're seeing for kangaroo.
The growth rate that we're seeing really is attributed to the benefits that physicians are now seeing with CAGR of ROE and the remodeling benefits that the product provides and so I think.
Logical aspect of our product and these benefits are starting to really resonate with our customers.
And as such I think we're seeing that as being a key driver I think the second factor here is as you know we've got the breakthrough designation from Premier and we've continued to leverage that breakthrough designation to add more accounts.
And as we think about our growth in Q1 actually the majority of our volume increase came through new accounts. So we're excited to see this uptick in new accounts and the volume that is being generated from these new accounts.
Because obviously, that's very exciting news as it relates to future growth.
And then finally, we are also driving deeper penetration in terms of our credit grew sales in our existing accounts and we're doing that in conjunction with the partnerships that we have with Boston scientific and <unk>.
I think thats the main reasons for the growth that we're seeing in Kangaroo in I think it sets us up very nicely for additional growth. This year and of course, obviously, we're very excited to have the potential to launch Kangaroo RM in the second half of the year, which they didn't give us the opportunity also to talk about the benefits of having a preloaded with antibiotics.
Okay, that's helpful and actually a little bit into the next question, but I guess could you talk maybe a little bit about.
Private color on how you are investing ahead of this launch.
As far as the accounts that Youre in now I mean, really where do you see.
Some low hanging fruit.
Perhaps how you're really thinking about leveraging kind of the existing Boston about China partnerships, how does this launch.
Second kind of part of that question.
How do we think about the incremental opex spend as we progress through the rest of the year.
Sure. So yeah, we're obviously very excited about tanker our Cambria RM.
And then as we think about it we really have to benefit with this product. We've got the continuation of the biological aspect that comes with Kangaroo and then the ability to have it then loaded with antibiotics to reduce the risk of infection. So we see it as an opportunity to drive growth for this product in both de novo patients and in patients with <unk>.
<unk> outs, which have a higher rate of infection.
So we're currently in the launch planning phases for this product we have a very comprehensive launch strategies that we've developed we look forward to working with the FDA to get this product through clearance and then as I mentioned before hopefully rolling this product out in the second half of this year.
It relates to our partners.
Had a chance to spend time with them. We just completed the heart rhythm Society meeting earlier this month and had a chance to be with our partners at that meeting obviously theyre very excited about the submission of Kangaroo RM.
We're looking forward to participating in assisting us with the launch of the product and they see the opportunity of this product also as a way to be able to partner with the kangaroo product in their devices and see it.
As an opportunity to also be able to communicate to their customers the benefit of using CAGR what their specific devices.
As it relates to the Opex portion of your question, Matt Why don't you address that.
Sure.
So in terms of Opex I think Q1 is a pretty good indicator of where we expect to be for on a quarterly basis for most of the year.
We might see a bit of an uptick in Q2 as we're continuing to have.
Somewhat elevated R&D spending related to the completion of Kangaroo RM I would think about R&D.
Dropping off a bit in the latter half of the year.
And that may be offset somewhat by by increases in SG&A as we prepare for that launch of Kangaroo RM in anticipation of FDA clearance, but.
But all in all I think pretty similar levels of Opex too to what we've seen in the first quarter here.
Okay. That's helpful. Thanks for taking the questions.
Sure. Thank you.
Again, ladies and gentlemen, if you like to ask a question. Please press Star then one when you touch tone telephone.
Our next question comes from Josh Jennings of Cowen Your line is open.
Hi, This is Brian here for Josh Thanks for taking my questions.
Hi, Brian .
Hi.
On our first quarter results can you help characterize the strength in contract manufacturing is this existing customers or did you add customers and how are you projecting.
Specifically for contract manufacturing within your annual guidance.
Sure. So thanks, Brian for the question.
Recall back to 2021.
We spent a fair amount of time in 2021 lining up new partners for our contract manufacturing business.
And so we're seeing really the result of the partnerships that we've really added last year come to fruition as it relates to the growth that we saw in the second half of last year, then obviously, a very strong Q1 for this year.
So we're pleased with that performance again, we've been able to really leverage our <unk>.
Product manufacturing, but also our really our R&D aspects of our Richmond, California facility to our partners to make sure that we're designing and manufacturing the appropriate products for them and again the new partners. We brought on board have been a significant contributor.
Two our growth that we've seen for the business in Q1, and we would anticipate that we would have roughly the similar level of sales from contract manufacturing in the subsequent quarters for 2022.
Okay. That's very helpful. Thank you for that on the RM filing you disclosed that the filing was accepted which I would interpret that you're on a fairly standard review timeline have you reached a point where the agency has agreed upon the sufficiency of the filing or is that coming at the 60 day Mark or just.
How should we think about the submission timeline from here.
Yes, sure. So we submitted the application.
The FDA review of the application of what we've turned in and then accepted for substantial review.
And so now it's under active for your view within the FDA.
And at this point, we've not heard back from the FDA as it relates to any substantial questions or comments on this application.
And so we'll wait to hear from the FDA and then of course, we'll be hopefully be able to work closely with them to address any questions that they may have so from a timeline standpoint at.
At this point since we haven't heard anything back yet.
Probably.
Not appropriate to be able to give you more specifics on timing.
And again I think from our perspective, we're still planning for a launch in the second half of this year.
Thank you and if I could just ask one more on the heels study interim analysis.
Can you remind us of the study size you're targeting for the interim analysis and what the potential outcomes are I guess my main question is.
Is there a possibility that you stopped that early and just the use of the data should we think about that data potentially being used for a label claim or should we think of it as primarily being used for.
I guess commercial non regulatory purposes. Thanks again for taking my question yes.
Say again.
Caring patients that are coming back and for change out data previewed previously received kangaroo.
Or a synthetic envelope or new envelope at all and then we will look at basically the south feeling soft killing tissue characteristics around those implants and look of complications that arise through that procedure. Our goal is to enroll 100 patients roughly a third in each group.
It relates to the interim analysis.
Basically look at where we stand basically in the second half we started to come in the second half of this year Steve.
Steve we are from a patient perspective, and hopefully we'll have a large enough sample size that we can then run an interim analysis.
Look at the results and to address your latter part of that question. It really from our perspective. This is not really designed to change the label, it's really just to get us. The the clinical evidence that physicians are telling us every day that they see when they see kangaroo patient.
Patients coming back for change outs were trying to collect and quantify that same information then to share too.
Other physicians. So they also can understand the benefits of kangaroos. So it's really more from a <unk>.
The market education customer education perspective.
Great. Thank you again.
Thank you.
Again, if you'd like to ask a question. Please press Star then one.
One moment please.
Okay.
I'm showing no further questions at this time I'd like to turn the call back over to <unk> CEO for any closing remarks.
Yes. Thank you.
And so just closed here as I think about <unk> team I want to first of all thank them complement them.
Again, we showed that we have the ability to execute and I'm proud of the results of Q1 as well as the filing for Kangaroo RM, because again to reiterate and shows our ability to drive execution, where company perspective.
We're also very excited obviously confident about the future we have a number of near term growth catalysts and we look forward to updating you on those catalysts as we proceed here throughout 2022 and look forward to giving you updates at our next earnings call. So again. Thank you very much for your time today.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
Yes.
Yes.
Okay.
[music].
[music].
Thank you for standing by and welcome to the real Biologic Q1, 2022 earnings conference call.
At this time all participants.
Only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.
As a lot of my call is being recorded.
I would now like turn the conference over to your host Ms. Leigh Salvo Investor Relations Ma'am you may begin.
Thank you and thank you all for participating in today's call. Joining me are Ron Lloyd Chief Executive Officer, and Matt Ferguson, Chief Financial Officer.
Earlier today <unk> released financial results for the quarter ended March 31 2022.
A copy of the press release is available on the company's website.
Before we begin I'd 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.
Any statements contained in this call that do not relate to matters of historical fact or related to expectations or predictions of future events results or performance.
Our 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 prospects for recovery.
<unk> management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion and product pipeline development expected future product launches and milestone unexpected results performance of our partnerships and commercial products, including patient out.
Comps are 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.
Listen description of the risks and uncertainties associated with our business. Please.
Part of the risk factors section of our public filings with the SEC, including <unk> annual report on Form 10-K for the year ended December 31, 2021, as such factors may be updated from time to time in other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended March 31 2000.
'twenty two to be filed with the SEC accessible on the SEC's website at SEC.
SEC Gov.
This conference call contains time sensitive information and is accurate only as of the live broadcast today may nine 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.
Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure.
A reconciliation of these non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's earnings release for the first fiscal quarter ended March 31, 2022, which is accessible on the SEC's website and posted on the Investor page of <unk> website.
That would be O dot com.
And with that I'll turn the call over to Rod.
Thanks Leigh good afternoon, and thank you all for joining us.
I'm pleased to announce that as he is off to a great start in 2022.
So far this year, where many of our key product development milestones.
Levering solid commercial results and making significant progress improving our operational efficiency.
As expected we submitted our five 10-K application for Kangaroo.
Our next generation Biomaterial envelope, which was subsequently accepted for review by the FDA.
As a result, we continue to plan for commercial launch in the second half of this year.
We're obviously very excited about this milestone and confident that with FDA clearance Kangaroo RM to drive significant future growth for zero.
As the only biomaterial envelope with antibiotics approved for implantable electronic devices in the United States.
An estimated $600 million annual market.
In Q1.
Sales of our flagship <unk> product saw robust year over year growth.
Excess of 25%.
Our direct sales force with support from our partners Boston Scientific and bio Tronic was successful in driving further product adoption.
And our soft tissue reconstruction product simpler durum wheat.
We also saw meaningful contribution to our top line results with year over year growth also exceeding 25%.
With continued advancement of clinical data and expanded access with hospital systems.
I'm confident that simply <unk> has the potential for further market expansion and sustainable future growth.
Overall, while our business did see some negative impacts from the <unk> variance.
For the quarter.
As we noted on our last call.
We were able to navigate those challenges and deliver strong revenue results in the first quarter.
With overall growth in our continuing operations of 14%.
As the first quarter of last year.
We also saw a substantial improvement in our gross margin, which increased by five percentage points compared to the last two quarters of 2021.
Im looking forward to continued progress in all of these areas.
Turning to some of the highlights and updates for each of our product portfolios.
And our products for implantable electronic devices.
As I noted earlier, our 510 application for CAGR RM is now under review by the FDA and we remain committed to tracking to a timeline that will enable launch in the second half of 2022.
Come 2023, we anticipate this enhanced product to be the primary growth driver of our business.
Looking out even longer term, we believe this product has the potential to exceed $100 million in.
Annual sales.
With further upside driven by opportunities to expand this platform to international markets outside of Europe .
As well as develop applications for other implantable electronic devices.
In Q1 of 2022, we once again saw significant strength from Congress sales largely due to new account growth and greater penetration into existing contracted hospitals.
As a reminder, our kangaroo in cardiovascular products are sold primarily through a direct sales force that leverages, our partnership with Boston scientific and <unk> to enhance our presence throughout the United States.
We continue to work closely with our partners and are pleased with the progress that we've made thus far in 2022.
Our partners are particularly excited about the FDA filing related to King drawdown.
And the prospects of having that product on the market later this year.
Continued investments our commercial organization have already demonstrated a positive return and.
And we believe will be a significant lever as we prepare for the launch of <unk>.
As our reps have gained more tenure, we've been encouraged by the increasing productivity and.
Pleased to see growing traction in driving usage of Kangaroo.
We continued to leverage our breakthrough designation for Kangaroo at Premier and the majority of our new accounts fall under this hospital network.
Sales traction is also beginning to take hold internationally.
<unk> sales in Europe remains a small percentage of our total.
But we have begun to see uptake through our distribution partners, there and believe international opportunities can be a meaningful contributor to our long term growth.
More information about the benefits of our <unk> platform is also reaching investors.
In mid April talent hosted a key opinion leader call with two leading U S. Electrophysiologist.
On this call the doctor's discuss remodeling benefits of CAGR rail and how they envision its future use with implantable electronic devices.
We were pleased to hear that both doctors support the benefits of creating a natural systemically vascularized pocket for implantable electronic devices.
They also shared their enthusiasm for the potential FDA approval of our next generation Kangaroo envelope.
Loaded with antibiotics.
Investors interested in learning more about the few that can visit our website.
Or E mail us at investors out of zeal dot com.
In late April we attended the heart Rhythm Society meeting and met with EP throughout the conference.
It was great to see the interest in Kangaroo as the biological solutions for specific patient types, especially de novo patients is continuing to grow.
We also conducted market research for Kangaroo RF compounded EPS were impressed by the products design and its performance in our preclinical studies.
As an update on our clinical trials for Kangaroo enrollment in both the heel and de Novo studies are progressing well.
We continue to enroll patients and anticipate interim readouts from both studies later this year.
As a reminder, the heel study compares patients with the care envelope against patients with either a synthetic envelope or no envelope at time of Tid change outs.
The Kangaroo registry study follows de Novo Kangaroo and no envelope patients for up to five years.
Turning to our other core products sale.
Sales of our soft tissue reconstruction products simpler.
Continuing to expand in the first quarter.
As we highlighted in our last call recently published clinical data confirming that simply <unk> is clinically comparable to the market, leading acellular dermis product.
It's proving to be a key factor in expanding market access with hospitals.
We believe simply is now better positioned than ever to capitalize on the estimated $500 million total market.
Moreover, our national distribution network has been a strong asset for us.
We're pleased with our ongoing ability to generate revenue and anticipate growing momentum throughout the rest of this year.
Turning to our products for orthopedic and spine repair which include viable Asti grow V and our fiber bvs we.
We saw results in line with recent quarters and we're pleased with the continued traction in this category with our existing partners.
One of our goals for 2022 identify and onboard new distribution partners.
As this process evolves, we believe that we're on track to see benefit of additional partnerships and relationships in the second half of the year.
Which will coincide nicely with our targeted launch of <unk>.
We also have the ability to create additional products in the orthopedic and spine repair space by leveraging our viable bone matrix platform.
We anticipate launching at least one more product this year to complement and further expand our existing portfolio.
Lastly, our contract manufacturing business saw significant growth over a year ago quarter as well as the fourth quarter of 2021.
We were pleased with our partners contribution and leveraging our tissue processing and development capabilities of our Richmond, California facility.
We are seeing strong growth in revenue and margin improvement in this category of our business.
In summary, the team is off to an excellent start in 2022.
And we continue to deliver on a major catalyst for growth.
These include.
First and foremost an arcane group business, our five 10-K submission, which has been accepted for review by the FDA for Kangaroo our al.
Pending FDA clearance, we expect to commercially roll this product out by the end of the year.
We're also expecting data readouts from our clinical trials to support the product line's remodeling benefits and commercial differentiation.
For <unk>, we will 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 current levels.
You can continued contribution to our bottom line.
And finally as discussed in previous calls, we're implementing multiple efficiency initiatives across our entire business.
<unk> already begun to yield that margin improvement with further gains expected throughout the year.
With that I'll turn the call over to Matt to provide a review of our first quarter results and outlook for the rest of 2022.
Thanks, Ron.
Net sales for the three months ended March 31, 2022 were $11 $5 million.
10% 10, 8% decrease from $12 9 million in the same period of the prior year.
However, excluding the sales of fiber itself, we saw 14% growth over the first quarter of 2021.
Gross margin for the first quarter of 2022 was 37% as compared to 49% in the corresponding prior year period and 31% in the fourth quarter of 2021.
We also look at gross margin, excluding the impact of noncash amortization of intangible assets and on that basis, Q1 would have been 45% versus 56% in the year ago quarter and 39% in the fourth quarter of 2021.
The decline in gross margin compared to the prior year quarter, primarily relates to product mix and lower yields of the company, it's viable bone product line.
However, the sequential improvement in gross margin is an indicator of the more recent efficiency improvements in our rich mentioned production facility.
Total operating expenses for the first quarter of 2022 or $11 2 million, a 12% increase from $10 million in the first quarter of 2021.
Increase was primarily due to higher expenses related to the development of Kangaroo R&M.
Loss from operations was $6 9 million for the first quarter of 2022.
As compared to a $3 $7 million loss for the year ago quarter.
Net loss for the period was $8 1 million as compared to a net loss of $5 1 million in Q1 2021.
Loss per share in the first quarter of 2022 was 60.
Compared to a loss per share of <unk> 50 in the year ago quarter.
We ended Q1 with a cash balance of $22 2 million and.
Total liquidity, including availability under our revolving line of credit of $23 1 million.
Turning now to our outlook for the full year 2022.
We continue to project net sales in the range of $47 million to $50 million.
Excluding approximately $4 $9 million of fiber cell sales in 2021, which has been discontinued.
This range represents expected growth of 11% to 18%.
The biggest variable in this range has to do with the timing of clearance and launch of Kangaroo RM.
The low end of the range assumes no contribution from <unk> by the end of the year and the high end assumes clearance and commercial availability by the fourth quarter.
We remain excited about the additional milestones we expect to achieve in 2022 as.
As well as our ability to drive long term growth and shareholder value.
And with that we'd like to open up the call for your questions.
Thank you again, ladies and gentlemen, if you like to ask a question. Please press Star then one on your Touchtone telephone again to ask a question. Please press Star then one.
Our first question comes from David Swartz vacate at your line is open.
Hey, guys can you hear me.
Okay.
Yes.
Great. Thanks for taking the questions.
First Kingrey, you mentioned, 25% growth here in the quarter with maybe some new accounts as well as the existing accounts, but I guess could you provide any color on what maybe is impacting that and perhaps if at all the submission here.
The 500, 10-K has driven any incremental growth thus far.
Yes sure. Thanks for the question David.
To answer the latter part no I don't believe that submission of the Kangaroo RM is impacting the current growth that we're seeing for kangaroo.
The growth rate that we're seeing really is attributed to the benefits that physicians are now seeing with kangaroo and the remodeling benefits that the product provides and so I think.
Finally digital aspect of our product and these benefits are starting to really resonate with our customers.
And as such I think we're seeing that as being a key driver I think the second factor here is as you know we've got the breakthrough designation for Premier and we've continued to leverage that breakthrough designation to add more accounts.
And as we think about our growth in Q1 actually the majority of our volume increase came through new accounts. So we're excited to see this uptick in new accounts and the volume that is being generated from these new accounts.
Because obviously, that's very exciting news as it relates to future growth.
And then finally, we are also driving deeper penetration in terms of our crane grew sales in our existing accounts and we're doing that in conjunction with the partnerships that we have with Boston scientific and <unk>.
So I think that's the main reasons for the growth that we're seeing in Kangaroo in I think it sets us up very nicely for additional growth. This year and of course, obviously, we're very excited then to have the potential to launch Kangaroo RM in the second half of the year, which then gives us the opportunity to also talk about the benefits of having a preloaded with antibiotics.
Okay, that's helpful and actually a little bit in to the next question, but I guess could you talk maybe a little bit about <unk>.
Color on how you are investing ahead of this launch.
As far as the accounts that Youre in now I mean, really where do you see.
Some low hanging fruit and perhaps how you're really thinking about leveraging kind of the existing Boston about China partnerships. How does this launch and as a second kind of part of that question.
How do we think about incremental opex spend as we progress through the rest of the year.
Sure. So yes, we're obviously very excited about <unk>.
Cambria RM.
As we think about it we really have to benefit with this product we've got the continuation of the biological aspect that comes with Kangaroo.
And then the ability to have it then loaded with antibiotics to reduce the risk of infection. So we see it as an opportunity to drive growth for this product in both de novo patients and in patients with change outs, which have a higher rate of infection.
So we're currently in the launch planning phases for this product we have a very comprehensive launch strategies that we've developed we look forward to working with the FDA to get this product through clearance and then as I mentioned before hopefully rolling this product out in the second half of this year as it relates to our partners.
We've had a chance to spend time with them. We just completed the heart Rhythm Society meeting earlier. This month <unk> had a chance to be with our partners at that meeting.
Obviously, they are very excited about the submission of Kangaroo RM.
We're looking forward to participating in assisting us with the launch of the product and they see the opportunity of this product also as a way to be able to partner with the kangaroo product in their devices and see it as an opportunity to also be able to communicate to their customers the benefit of <unk>.
In Kangaroo, what their specific devices.
As it relates to the Opex portion of your question, Matt Once you address that sure.
So in terms of Opex.
Q1 is a pretty good indicator of where we expect to be for on a quarterly basis for most of the year we.
We might see a bit of an uptick in Q2 as we're continuing to have.
Somewhat elevated R&D spending related to the completion of a kangaroo RM.
Think about R&D.
Dropping off a bit in the latter half of the year.
And that may be offset somewhat by by increases in SG&A as we prepare for that launch of Kangaroo RM in anticipation of FDA clearance, but.
But all in all I think pretty similar levels of Opex too to what we've seen in the first quarter here.
Okay. That's helpful. Thanks for taking the questions.
Sure. Thank you.
Again, ladies and gentlemen, if you like to ask a question. Please press Star then one when you touched on the telephone.
Our next question comes from Josh Jennings of Cowen Your line is open.
Hi, This is Brian here for Josh Thanks for taking my questions.
Hi, Brian .
Hi.
First quarter results can you help characterize the strength in contract manufacturing is this existing customers or did you add customers and how are you projecting growth specifically for contract manufacturing within your annual guidance.
Sure. So thanks, Brian for the question.
If you recall back to 2021.
Spend a fair amount of time in 2021 lining up new partners for our contract manufacturing business and so were seeing really the result of the partnerships that we've really added last year come to fruition as it relates to the growth that we saw in the second half of last year, then obviously, a very strong Q1 for this year.
So we're pleased with that performance again, we've been able to really leverage our product manufacturing, but also our really our R&D aspects of our Richmond, California facility to our partners to make sure that we are designing and manufacturing the appropriate products for them.
And again, the new partners, we brought on board have been a concern.
<unk> contributor to our growth that we've seen for the business in Q1, and we would anticipate that we would have roughly the similar level of sales from contract manufacturing in the subsequent quarters for 2022.
Okay. That's very helpful. Thank you for that.
The RM filing you disclosed the filing was accepted which I would interpret that you're on a fairly standard review timeline have you reached a point where the agency has agreed upon the sufficiency of the filing or is that coming at the 60 day, Mark or just how should we think about it.
Submission timeline from here.
Yes, sure. So we submitted the application.
The FDA review of the application of what we've turned in an accepted it for substantial review.
And so now it's under active review within the FDA.
And at this point, we've not heard back from the FDA as it relates to any substantial questions or comments on this application.
And so we'll wait to hear from the FDA and then of course, we'll be hopefully be able to work closely with them to address any questions that they may have so from a timeline standpoint at.
At this point since we haven't heard anything back yet.
Probably.
Not appropriate to be able to give you more specifics on timing.
And again I think from our perspective, we're still planning for a launch in the second half of this year.
Thank you and if I could just ask one more on the heels study interim analysis.
Can you remind us of the study size you're targeting for the interim analysis and what the potential outcomes are I guess my main question is.
Is there a possibility that you stopped that early and just the use of the data should we think about that data potentially being used for a label claim or should we think of it as primarily being used for.
I guess commercial non regulatory purposes. Thanks again for taking my question.
So said again.
Caring patients that are coming back in for change out that have previously.
Previously received Kangaroo.
Or a synthetic envelope or new envelope at all and then we will look at basically the SaaS peeling soft peeling tissue characteristics around those implants.
Look at complications that arise through that procedure. Our goal is to enroll 100 patients roughly a third in each group.
As it relates to the interim analysis.
We're going to basically look at where we stand basically in the second half we started to kind of the second half of this year.
Steve we are from a patient perspective, and hopefully <unk> or <unk>.
<unk> enough sample size that we can then run an interim analysis.
And look at the results and to address your latter part of that question. It really from our perspective. This is not really designed to change the label, it's really just to get us. The the clinical evidence that physicians are telling us every day that they see when they see kangaroo page.
Patients coming back for change outs were trying to collect and quantify that same information then to share too.
Other physicians. So they also can understand the benefits of kangaroos. So it's really it's more from.
A market education customer education perspective.
Great. Thank you again.
Thank you.
And then if you'd like to ask a question. Please press Star then one.
One moment please.
I'm showing no further questions at this time I'd like to turn the call back over to Ron <unk> CEO for any closing remarks.
Yes. Thank you.
So just to close here as I think about Seo team I want to first of all thanks, Emma complement them.
Again, we showed that we have the ability to execute and I'm proud of the results of Q1 as well as the filing for Kangaroo RM, because again to reiterate and shows our ability to drive execution, where company perspective.
We're also very excited obviously confident about the future we have a number of near term growth catalysts and we look forward to updating you on those tablets as we proceed here throughout 2022 and look forward to giving you updates at our next earnings call. So again. Thank you very much for your time today.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.