Q1 2022 AVITA Medical Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the Davita Medical Inc. First quarter 2022 conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
Ro.
I'd now like to hand, the conference over to your speaker today Karen.
Align corner managing director Investor Relations. Please go ahead.
Thank you operator, welcome to Davita Medical first quarter 2022 earnings call. Joining me on today's call are Dr. Mike Perry, Chief Executive Officer, and Michael holder, Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
All statements made on this call that do not relate to matters of historical facts should be considered forward looking statements, including statements regarding the markets on which Aviva medical operate.
<unk> demand and expectations for products and technology. It is expected financial performance expenses and position in the market and the impact of COVID-19 on its operations and its customers operations.
These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results performance or achievements to differ materially from any results performance or achievements expressed or implied by the forward looking statements.
Please review a beta medicals, most recent filings with the SEC.
The risk factors described in the beta Medical's F. Three and 10-K filings and then a beta Medicals quarterly report on Form 10-Q for the first quarter ended March 31, 2022 for additional information any forward looking statements provided during this call including projections for future performance are based on management's expectations as of today.
Medical undertakes no obligation to update these statements except as required by applicable law.
It would be the medical press release with first quarter 2022 results is available on its website www dot a beta medical dot com under the investors section and includes additional details about its financial results have either medical's website ultimate at the latest SEC filings, which you're encouraged to review a recording of today's call will be available on our beta medical's website by five PM Pacific time.
Today, now I would like to turn the call over to Mike for his comments and first quarter of 2020 to business highlights.
Thank you Caroline and thank you everyone for joining us today.
We saw good growth in our top line revenue this quarter and we're pleased to report record resell commercial revenues of seven $5 million and over 60% growth compared to $4 $6 million in the same quarter one year ago.
During the quarter multiple factors drove this performance as Covid further abated, there was an uptick in burn incidents and we achieved greater penetration in the <unk>.
Larger base of accounts, leading to an increase in overall burn cases treated with resale.
Improvement in the access to burn centers and more in person meetings as well as the return of live attendance at conferences allowed us to further educate and train physicians and perhaps more importantly, this change in dynamics permitted burn surgeons and staff to share successful.
Resell case experiences.
We had strong participation at several in person burn events, this past quarter, including the Boswell burden wound symposium and the American Burn Association or.
Annual meeting.
At the Ada Conference there were 15 podium presentations featuring resell in addition to presentations referencing resell underscoring burn community adoption of the refill system.
We also hosted an event that.
That was attended by 140 customers and successfully previewed our recently FDA approved ease of use device.
We plan to begin selling the ease of use device approved in February 22, two are larger accounts this quarter.
Although we are focused on broadening penetration into our existing accounts. We're also continuing to add new accounts.
Our current commercial footprint of more than 110 certified hospitals, and 270 trained surgeons positions us well for further penetration and growth in our <unk> business.
Turning now to the outpatient market.
Initiated our limited launch in March we are driving adoption and leveraging our transitional pass through payment or TPG code, which became effective on March 1st of this year. Additionally.
Additionally, based upon initial experience and field research conducted to date, we are confident our ease of use device will enable us to better address the outpatient market.
To address hospital staffing challenges our field force continues to provide a high level of support in the hospital, including in operating rooms are operating theaters as well as in post operative support.
In this environment, we continued to prioritize training and education efforts with advanced practice providers, who have a tremendous influence on the use of <unk>.
And this last quarter, we held over 600 hands on training in the field and we also hosted regional and National training events. We plan to continue trainings for the rest of this year.
For the many centers experiencing staffing shortages, our ease of use device should be especially helpful and well received.
I have heard some recent media reports regarding the use of resell for the treatment of Burns.
One recent story highlighted.
A patient of Dr. Theresa Chins.
Dr Chin treated the patient a carpenter who is.
Injured at a worksite when a propane tank explosion resulted in severe burns to the skin on his arms.
And legs, ultimately, leaving him in a coma for two months.
During his course of care he underwent seven surgical procedures and he experienced multi organ failure.
Patients who is expected to make a full recovery stated that the most amazing technology quote unquote.
<unk> probably used in his treatment was resell.
One last item that I would like to touch on and our Byrne's business Cosmic <unk>, our partner in Japan secured Japanese regulatory approval of resell for the treatment of Burns and we will meet with the Japanese Ministry of Health Labor and welfare for reimbursement review, which they.
Now anticipate will occur in the fourth quarter.
The delay from Q2 to Q4 is due to our COVID-19 related backlog of reimbursement applications.
<unk> will launch in Burns once reimbursement is established.
When we have been <unk> in soft tissue data from our U S. FDA pivotal trials Kosmos Tech, we will pursue these indications as well.
Our commercial performance was strong in the quarter and we also continued to make solid progress in our registration trials that are ongoing and soft tissue reconstruction and stable <unk>.
In January we completed enrollment in our pivotal trial evaluating the resale system and soft tissue reconstruction.
We're on track for topline data and PMA submission of our soft tissue reconstruction trial. During the second half of 2022 with FDA approval anticipated in the second half of 2023 as Ive mentioned previously once approved we expect to immediate.
Lee leverage our installed base of burn centers to treat traumatic wounds.
Initially we also plan to leverage our existing infrastructure to launch the <unk> system into approximately 350 level, one and level two trauma centers of which 220 centers will be new trauma center call points, notably centers will be.
We're able to use the reimbursement codes are ready and in place for the burn setting.
We are enthusiastic about the opportunity in soft tissue.
<unk> to thoughtfully invest in growing this business to ensure commercial success again, our improved ease of use device will enable us to better address soft tissue reconstruction and adoption will further be facilitated by our existing indication agnostic CPT code.
In recent compelling market research, 94% of health care practitioners indicated that our new ease of use device will reduce their workload, enabling staff to attend to other duties and allowing for faster penetration of spray on skin cells.
This represents another meaningful step forward on our pathway to becoming the standard of care and acute wounds and it also provides further opportunities for us to expand our intellectual property estate.
Turning now to a bit of Lego and as I've stated in previous calls. This is a skin disorder characterized by deep pigmented areas of skin that appear as white spots or patches, and which are primarily attributed to an underlying autoimmune disorder in the patient.
There are an estimated 100 million sufferers of <unk> worldwide, including up to $6 5 million Americans.
As we mentioned previously our resell product involves manual and somewhat time consuming preparation of cell suspension in the range of 25 to 30 minutes.
To make the best use of physician.
Practice personnel time in the dermatologist office to support our <unk> opportunity, we're developing a fully automated resell device, we expect topline data from our <unk> trial, followed by PMA submission during the second half of 2022.
With FDA pre market approval and commercial introduction anticipated prior to the end of 2023.
Today, we estimate approximately one 3 billion people in the United States have stable vitiligo, meaning that their underlying auto immune disease is being well managed and that their disease is not continuing to progress.
Of note there are several pharmaceutical companies developing JAK inhibitor products and aiming for an indication in the treatment of non stable that ally go.
As we are pursuing an indication for resell to treat stable, but alike lesions. These JAK inhibitor products would be complementary to resell.
Jack inhibitors modulate the underlying autoimmune disease that causes the white patches, but the white patches once form often remain even after disease stabilization.
We are seeing promising JAK inhibitor product candidates from the likes of Pfizer.
Insight.
If approved use of these products, which appear to have potential for stabilizing that ally go would likely increase the number of candidates for whom resell treatment is indicated.
As JAK inhibitors come to market with a bit of Lego indication, we anticipate an increase in awareness and interest in vitiligo treatments, including resell.
We have been working diligently on our <unk> pre commercialization activities.
We have participated in six vitiligo conferences since January of this year, including Maui Derm, the global bid <unk> Foundation or GBS annual scientific symposium.
The skin of color Society meeting, the American Academy of dermatology or AAD.
The San Diego Dermatological Society.
The symposium for cosmetic advances and laser education or scale, Dr. Kt Bush, our senior VP of scientific and medical Affairs.
<unk> are a good ally go clinical trial protocol on podium in Boston at the GBS annual scientific symposium.
At the conferences Vida has had numerous meetings with and gathered valuable feedback from dermatology Kols, who have expressed strong interest in <unk>.
Of note at these conferences 19 sessions featured Biddle I go a marked increase year over year as JAK inhibitors, and our resale device of stimulated interest in vitiligo treatments.
<unk> resell received numerous mentions in these sessions.
In addition to completing enrollment in our pivotal soft tissue and vitiligo trials. We recently establish proofs of concept for novel treatments and skin rejuvenation and end up with derma licensed below sub.
Work continues on both programs as we aim to refine and optimize these potential therapeutics with an aim to meet with FDA in the second half of 2022 to two.
To discuss readiness for first in human clinical trials importantly, we plan to pursue strategic partnerships.
Provide necessary funding for these programs to minimize our cash outlays as these programs proceed into the clinical phases of their development.
With that I'd now like to remind you of our growth drivers.
Our first growth driver relates to pipeline indications for both soft tissue reconstruction and <unk> clinical trials, we anticipate topline data during the second half of 2022 with expected submission of PMA supplements by the end of 2022.
<unk> entering the market in the second half of 2023 in both indications.
Second.
With our C code in place we have commenced our pilot launch into the outpatient setting and we are gearing up for a broader nation wide launch targeting all existing users in the middle of this year.
Third we are keenly focused on driving health care provider engagement through education, maintaining our recent momentum.
In summary, despite past pressures from the pandemic on burn procedures as well as continued market turbulence.
Our investment sector, we have continued to execute on our business objectives, and we have successfully completed several key milestones.
Encouraged by our commercial teams performance driving advanced practice training and keeping resell front and center in the minds of burn care practitioners I look forward to updating you later this year on our continued progress and our exciting pipeline indications.
With that I'll now turn the call over to Michael for details on our financial performance in the quarter Michael.
Thank you, Mike our commercial revenue, which excludes BARDA revenue was $7.4 million in the current year, an increase of $2 8 million or 61% compared to $4 $6 million in the corresponding period in the prior year.
Total revenue, including BARDA revenue was $7 5 million compared with $8 $8 million in the corresponding period in the prior year, which included $4 $1 million in BARDA related revenue that resulted from our delivery of units to manage inventory for BARDA.
Emergency response preparedness the increase in commercial revenue was largely driven by broader utilization.
Among our customer base as well as deeper penetration within individual customer accounts.
Gross profit margin was 76% and is flat compared to the corresponding period in the prior year, we expect gross profit margins to return to historical levels of low 80%.
In the next quarter and going forward for the balance of the year.
While our supply chain has experienced some challenges due to COVID-19 and other global issues, neither our gross margin nor our ability to deliver resale product to customers have been materially impacted.
Total operating expenses increased by 21% to $16 million compared to $13 $2 million in the corresponding period in the prior year.
The increase in operating expenses is primarily attributable to higher share based compensation salaries and benefits.
Higher share based compensation expenses are associated with acceleration of expense for certain performance milestones being met in the current quarter.
Higher salary and benefits are driven by the expansion of our workforce to support overall operations and increase in field resources to expand our market coverage and hiring of an executive at the end of March 2021.
Net loss increased by 58% or $3 five to $9 5 million or <unk> 38 per share compared to a net loss of 6 million or <unk> 26 per share in the corresponding period of the prior year.
non-GAAP adjusted EBITDA loss increased by 42% or $1 9 million to $6 4 million.
Over the $4 5 million recognized in the corresponding period in the prior year.
A table reconciling non-GAAP measures is included in our press release for reference moving onto guidance, we expected to project total commercial revenues of approximately $30 million, excluding BARDA revenues of approximately 300000.
And with that we thank you for your attention and now I will turn the call back over to the operator for your questions.
As a reminder to ask a question you will need to press star one on your telephone.
I would draw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Josh Jennings from Cowen. Your line is now open.
Hi, Good afternoon I appreciate you taking the questions and congratulations on a strong start to 2022.
I was hoping to just start off with.
Absolutely.
The new resale system, sorry, if I missed it.
<unk> is definitely already and I missed it but just thinking about the approval.
<unk> potentially in any in any setting including off label in soft tissue and just any feedback you've been getting including EBITDA.
Would be helpful.
How are you seeing the efficiencies of this next gen system, taking hold.
Sure. Thanks for the question.
Our.
We're really seeing.
Nice reception.
Two our ease of use device.
We had.
And introductory.
Session at the <unk>.
Okay.
Where we had.
Very.
Good attendance and a high level of enthusiasm.
From burn surgeons.
And other ancillary practice advisors.
We haven't launched yet.
That's going to be.
Mid year.
When we're going to be launching.
The actually limited launch is going to be later this quarter.
And what does the ease of use device do it actually reduces the number of steps required to prepare risa.
Our resell suspension by 30%.
And it also requires less pair of hands.
In the sterile field only one pair of hands as required whereas previously you needed another pair of hands outside of the sterile field to open the various packages for written scalpels et cetera.
And this is going to play very well with our our newly issued CPT code.
Which.
Covers the outpatient setting.
We will cover the device.
And also.
94% of.
Providers.
Have.
Said that.
They believe that this will the new ease of use device.
Specifically reduce their workload.
And allow them and their staff.
Additional time for.
Other duties and will make the process.
Just a lot smoother.
I hope that answered your question Josh.
Absolutely emphasize jumping the gun on the launch there I apologize.
Just to focus on on the outpatient opportunity in soft tissue.
Emma.
And just thinking about the broad kind of TPP and solid reimbursement is in play are physicians that are already trained as we think about forecasting out that that launch and.
And building it into our models.
Just remind us of just your pricing strategy.
For the resale kit.
As you are moving into.
Patient burdens with this new system and in the soft tissue eventually thanks for taking the questions.
Sure and so far as the pricing, it's going to be the same.
Our soft tissue as it is for burns.
We've got if you recall about a 50% overlap of our burn centers with level, one and level two trauma centers and then we're going to be adding to that.
An additional 230 240.
Hi.
Passivity trauma centers.
We're.
Going to be discontinuing.
The existing 1920 device.
It's called the 19 'twenty because it covers 10% total body surface area, which is 1920 square centimeters.
<unk>.
But we're very excited about soft tissue.
<unk>.
We're getting a.
A groundswell of support even now while we've just completed enrollment.
The clinical trial.
And we have endpoints coming up for both soft tissue and vitiligo.
The <unk>.
Top line data will be presented in the second half of 2022 of this year.
And then we will submit the PMA for for both indications.
By the end of this calendar year, and we're anticipating approval and commercial launch in the second half of next year.
Thanks, So much I appreciate it Mike.
Of course, Josh.
Thank you. Our next question comes from the line of Matthew O'brien from Piper Sandler. Your line is now open.
Great. Thanks for taking my question I guess.
For starters on the guide for the year on the top line.
I know you were kind of hoping for some Japanese revenue this year youre not going to get until next year, which is really not that big a deal on my mind, but you.
Can you just did about $7 $5 million on the core side of thing basically annualizing that gives you the $30 million you're guiding to so no growth even though it seems like you took some share this quarter.
Just the traditional approaches to treating burn so why not be a little bit more aggressive on the guide for the full year given what we just saw in Q1.
Thanks, Matt for your question.
No.
When we model it we've got the seasonality.
In Burns.
Which I'm sure you've been familiar with it's not.
A steady curve.
And we have some uncertainty relative to COVID-19.
And the in the second half of the year.
So for now.
We're.
Maintaining guidance for the annual year.
Okay makes sense.
And then Mike what are you seeing I know last quarter, you mentioned, there is labor headwind, which makes sense again.
Is that starting to ease at all.
And if not any sense for when that could be.
A little less of a headwind and then I don't know if you said it but just the top 20 account growth what did you see in the quarter. Thanks.
Yes.
I'll take your first question first and then deal with the top 20 account growth.
Relative to the.
Staff shortages, primarily nurses.
That we've seen in the.
Medium size and smaller burn units.
We've responded to that is in trainings.
And as I mentioned in my formal remarks.
We did over 600 trainings in the quarter, we don't anticipate that that will.
Reduce.
In the near term.
But that is allowing us to continue to treat.
New as well as.
To re treat patients.
For surgeons to continue to learn and for staff to not be limited because we are sending in.
Our staff, who are many are former burn nurses and our experts at at utilizing resale of course.
And they know the physicians.
The burn surgeons, and we're able to get in there and mitigate that headwind.
That said.
It will continue.
But we do have the capacity now.
Given that.
We've got.
Free access into the hospitals.
<unk> restrictions are really not there anymore.
That has abated and we're able to get into the cases.
Where we need to and where we have.
<unk> train and utilizing.
The.
The resell system.
Our top 20.
Continue.
To drive a majority.
Of our resell system, but that said.
That number is reducing and were happy to see.
It's actually pretty flat, but what we are seeing that is.
Sort of a lead indicator is that.
The top 20.
Potential grew at about 14%.
Then we are seeing.
A lot more of the lower TBS, a wounds, which means that our adoption curve is going in the right direction.
Great. Thank you.
Youre welcome Matt Thanks for the question.
Thank you. Our next question comes from the line of Ryan Zimmerman from <unk>. Your line is now open.
Alright, good afternoon, thanks for taking the questions.
I wanted to start off a couple for me Mike.
And on the new system.
I don't know Josh asked about pricing is there any gross margin benefit that we should consider.
As a result of the launch of the new system, just navy from lower raw material cost or less parts because it is more efficient.
Actually Ryan it's going to be the same margin the same price.
It's really the efficiency of repackaging and re sterilizing.
The unit so that you don't need that extra pair of hands, you don't need extra boxes to open and the coordination.
Of the burn surgeon in.
The advanced management practice practitioners that are with the surgeon.
Just that flow go so much easier.
It's really the same materials.
Rearranged in order.
That facilitates use.
Usage of the resale system.
Okay got it crystal clear on that and then for the automated system.
Exciting to hear about that I think we will obviously be watching that closely how do you think about the regulatory pathway for that I mean, I don't want to put the cart before the horse but.
You're getting the <unk>.
I believe the PMA supplement.
Do you think you would need a separate trial with.
With the agency for an automated system or do you think you could maybe get that under a PMA supplement on your existing PMA.
So it would definitely go through is the PMA supplement. The question is is it a 90 day or 180 days supplement.
My guess.
Even my own background in regulatory is that this is going to be 180 day supplement given.
That it's going to be fully automated and they are there.
The agency is going to want to see.
Viability.
And.
And and functionality.
<unk>.
There's also the possibility.
A.
Small bridging study.
Being require.
Required, but really what we're what we're looking at is comparability.
Of the manual production of cell suspension to the automated production.
<unk> suspension and that will be the major.
FDA and likely be biologics, because we're looking at cellular suspension cellular viability and cellular functionality.
But as I said likely to be 180 day PMA supplement okay.
Alright, we will closely watch that could be pretty excited and the last one for me and I'll hop back to Hugh.
Just around operating expenses Michael.
Because that came in a couple of different.
One different than we expected.
Love to get your sense about how to think about opex.
Instead of the rest of the year.
Yeah, you bet. Thanks for the question.
So on our last earnings call we saw.
Spoke about 2020% increase in operating expenses year over year.
And that is roughly.
How we came in the first quarter. However, as you dig a little deeper and our G&A, you'll see that there there was.
Stock comp expense that was higher than it was anticipated because.
As mentioned earlier.
There was a performance.
Performance milestone that was that was hit that was pretty material. So we had $2 3 million of stock comp, which.
Flowed through G&A, whereas normally that might be about $1 3 million.
So in terms of the cadence through the rest of the year, we would actually expect.
Our operating expenses.
By our three main line items to stay relatively constant.
Except that G&A will come back down to a normalized basis. So we expect total expenses to remain about the same but perhaps come down a little bit.
And each of the quarters for the balance of the year.
Thank you very much appreciate it great start to the year.
Thanks Ryan.
Thank you.
Finder to ask a question you will need to press star one on your telephone.
John Your question press the pound key.
Our next question comes from the line of Lynn Harrison from Bank of America. Your line is now open.
Good morning, Mike Michael.
Can you talk about RBC.
Quick question on guidance can you give us a little bit of all of it.
Tim.
Thank you.
As in procedure volume for April and May.
That's fine.
Sure.
Not specifically reporting on procedure volumes.
That said, though.
As the.
The year is progressing.
<unk> is generally a slow month for us.
And for incidence of Burns.
However.
We're seeing a nice recovery as we normally do and I think we're seeing.
Our relatively strong.
Second quarter.
Okay, great. Thank you and then on credit.
Margins in motion.
You might see that.
80% into the next quarter can.
Can you talk a little bit about what what's going to drive.
Michael could you take that one.
I'd be glad to.
So.
In this past quarter.
The production level was relatively low.
Given that as Mike mentioned earlier with our existing units, which we call. The 19 twenties, we're looking to.
Run run those inventory levels down over time, as we discontinue that line so as production levels came down.
Some of the <unk>.
Various cost which you.
Average out over your units.
Went up.
That our gross profit margin came down temporarily now that our production levels are are back up to a more normalized level.
We expect again, our gross profits to get back in the low 80% range.
For the balance of the year.
Thank you and perhaps one more question for you Michael is an opera.
Cash outflow.
So.
<unk>.
<unk>.
<unk> calendar year would be.
Cash outlay.
Can be similar to.
What we saw in first quarter.
Yes. Thank you that's a good question actually we would expect cash outflow or.
Our cash flow from operations to be reduced somewhat this past quarter. It was $9 4 million.
However.
The first quarter is usually a higher cash usage quarter for us because.
It's that time of the year that we pay out.
Bonuses.
Additionally.
In this past quarter, we had an.
An increase in various working capital accounts, including receivables, both trade and BARDA and the amount of about six or 700000 as well as an accounts payable by about <unk> three.
$1 million or 300000, so there were a number of things that we wouldn't necessarily expect to continue.
But the way that nets out whereas.
Net cash used in operations was $9 4 million in this quarter, we would expect that to probably be in the seven and a half or $8 million range on average for the remaining three quarters of the year.
Great. Thank you very much.
Youre welcome.
Thank you and our next.
<unk>.
Thank you. Our next question comes from the line of John Hester from Belt border. Your line is now open.
Hi, good afternoon, Marc Lamont.
Tom I just wanted to again follow on question from catch up believe Youre closing cash position was that.
3 million Bucks in the balance sheet.
I think it was maybe it slips discrepancy from the number.
Okay.
On price there.
I just wanted to ask now.
Based on the cash burn and you resign remaining reserves and obviously don't want to be rising cash.
Anyway need Comstock festivals.
What's the plan for development of these longer.
Im good indications, including AP and also in the board of cell and gene program.
Are you continuing to develop both at speed or is it really just a case that you're going to consolidate the existing products that you've got.
Let me start off John its Mike Perry.
Thanks for the question.
Really what we're going to be doing is focusing.
Very much on soft tissue.
The approval of the wording and the commercial launch.
For both soft tissue and vitiligo the.
The amount of spend.
Going into the biologics epidermal licensed low in our rejuvenation program.
Is going to be really minimal.
This year and our intention going forward.
Is likely to partner.
For those indications.
Michael is there anything you might want to add from a numerical perspective.
Cash for John Yes, So Jon actually our cash cash equivalents in marketable securities are in fact.
$95 million.
What you perhaps might be missing is the line item on the balance sheet, which is marketable securities long term, which is $11 million and that actually is.
Let's say that.
Entirely U S treasuries that have a maturity of greater greater than one year. So I would just say that we are Mike.
Mike we're quite fortunate to be in the position, we are with $95 million.
And that takes us through commercialization.
Both indications, yes, and relative to <unk>, just to expound a little bit and.
Cell and gene therapy.
The cash outlay is very modest.
$95 million is earmarked for.
<unk>.
<unk> in soft tissue.
And so as Mike mentioned.
If and as we go into any sort of clinical.
Pathway then.
We would be looking to partner, but I would I would also add that from a BD standpoint.
We've also become much more circumspect with how we're looking at deals.
In today's environment with our share price at levels that we find to be undervalued and given that our cash is earmarked for.
For the the <unk>.
Indications that I mentioned.
Then we're looking for deals that.
AD revenue very quickly if not immediately.
<unk> are accretive to earnings very quickly.
Again are looking at those in a very disciplined way so that we preserve our $95 million in cash.
So it'd be fair to say based on those comments that you are sort of.
We will lose the criss.
Crossing.
Europe .
More active than less active in the <unk>.
For the nine months.
No I would say we're equally active however.
Again, we're being very disciplined about what we pursue.
Because in order to pay for any sort of BD transaction, we we need to use cash or equity or debt.
We have no debt currently and we don't have any desire to take take any on at the moment.
And.
We're not interested in issuing shares at the current share price and again, we're preserving our cash so it's just as active but we're just much more disciplined.
Okay, and just finally, mark with just a follow up on the gross profit.
Margin question you talked about.
The.
Margins in the first quarter should we expect that to bounce back to a better than 90% going forward.
Yes.
Okay.
Good thank you very much.
Thank you John Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day and thank you for standing by welcome to the Davita Medical Inc. First quarter 2022 conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Caroline corner, managing director of Investor Relations. Please go ahead. Thank you operator, welcome Davita medical first quarter 2022 earnings call.
Joining me on today's call are Dr. Mike Perry, Chief Executive Officer, and Michael hold our Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 95.
All statements made on this call that do not relate to matters of historical back should be considered forward looking statements, including statements regarding the markets in which our beta medical operate from demand and expectations for its products and technology with the expected financial performance expenses and position in the market and the impact of COVID-19 on its operations and our customers' operations.
The statements are made of promises nor guarantees menthol of known and unknown risks and uncertainties that could cause actual results performance or achievements to differ materially from any results performance or achievements.
Beth or implied by the forward looking statements.
Please review our beta Medical's, most recent filings with SEC, particularly the risk factors described in the beta Medicals estimate and 10-K filings and then the beta Medicals quarterly report on Form 10-Q for the first quarter ended March 31, 2022 for additional information any forward looking statements provided during this call including projections for future performance are based on manager.
What's the expectation as of today would be the medical undertakes no obligation to update these statements except as required by applicable law.
Davita Medical press release first quarter 2020 results is available on its website www dot Davita medical Dot com under the investors section and includes additional details about the financial Guy. So I think the medical's website I'll come at the latest SEC filings, which you're encouraged to review.
On today's call will be available on our BD Medical's website by five PM Pacific time today, now I would like to turn the call over to Mike for his comments on first quarter 2020 to business highlights.
Thank you Caroline and thank you everyone for joining US today, we saw good growth in our top line revenue of this quarter and we're pleased to report record resell commercial revenues of $7 $5 million and over 60% growth compared to $4 6 million.
In the same quarter, one year ago.
During the quarter multiple factors drove this performance as cobot further abated, there was an uptick in burn incidents and we achieved greater penetration and a larger base of accounts, leading to an increase in overall burn cases treated with resell.
Improvement in the access to burn centers and more in person meetings as well as the return of live attendance at conferences allowed us to further educate and train physicians and perhaps more importantly, this change in dynamics permitted burn surgeons and staff to share successful.
Resell case experiences.
We had strong participation at several in person burn events, this past quarter, including the Boswell burn and wound symposium and the American Burn Association or <unk> annual meeting.
At the Ada Conference there were 15 podium presentations featuring resell in addition to presentations referencing resell underscoring burn community adoption of the refill system.
We also hosted and I know you've been through.
That was attended by 140 customers and successfully previewed our recently FDA approved ease of use device.
We plan to begin selling the ease of use device approved in February 22, two are larger accounts this quarter.
Although we are focused on broadening penetration into our existing accounts. We're also continuing to add new accounts.
Our current commercial footprint of more than 110 certified hospitals, and 270 trained surgeons positions us well for further penetration and growth in our <unk> business.
Turning now to the outpatient market, we initiated our limited launch in March we are driving adoption and leveraging our transitional pass through payment our GPT code, which became effective on March 1st of this year.
Additionally, based upon initial experience and feel the research conducted to date, we are confident our ease of use device will enable us to better address the outpatient market.
To address hospital staffing challenges our field force continues to provide a high level of support in the hospital, including in operating rooms are operating theaters as well as in postoperative support.
In this environment, we continue to prioritize training and education efforts with advanced practice providers, who have a tremendous influence on the use of resources.
And this last quarter, we held over 600 hands on training in the field and we also hosted regional and National training events we.
Plan to continue trainings for the rest of this year.
For the many centers experiencing staffing shortages, our ease of use device should be especially helpful and well received.
You may have heard some recent media reports regarding the use of resell for the treatment of Burns one recent story highlighted.
A patient of Dr. Theresa Chen.
Dr Chin treated the patient a carpenter who was injured at work site when a propane tank explosion resulted in severe burns to the skin on his arms hands.
And legs, ultimately, leaving him in a coma for two months.
His course of care he underwent seven surgical procedures.
<unk> multi organ failure.
The patient who is expected to make a full recovery stated that the most amazing technology quote unquote that the hospital used in his streetman was resell.
There is one last item that I would like to touch on and our Byrne's business Cosmic <unk>, our partner in Japan secured Japanese regulatory approval of resell for the treatment of Burns and we will meet with the Japanese Ministry of Health Labor and welfare for reimbursement will review, which there.
Now anticipate will occur in the fourth quarter.
<unk> from Q2 to Q4 is due to our COVID-19 related backlog of reimbursement applications.
<unk> will launch in Burns once reimbursement is established.
When we have been <unk> in soft tissue data from our U S. FDA pivotal trials cosmetic will pursue these indications as well.
Our commercial performance was strong in the quarter and we also continued to make solid progress in our registration trials that are ongoing and soft tissue reconstruction and it's stable, but <unk>.
In January we completed enrollment in our pivotal trial evaluating the resell system and soft tissue reconstruction.
We are on track for topline data and PMA submission of our soft tissue reconstruction trial. During the second half of 2022 with FDA approval anticipated in the second half of 2023 as Ive mentioned previously once approved we expect to.
Immediately leverage our installed base of burn centers to treat traumatic wounds.
Initially we also plan to leverage our existing infrastructure to launch the <unk> system into approximately 350 level, one and level two trauma centers of which 220 centers will be new trauma center call points, notably centers will.
We're able to use the reimbursement codes are ready and in place for the burn setting.
We are enthusiastic about the opportunity in soft tissue.
Plan to thoughtfully invest in growing this business to ensure commercial success again, our improved ease of use device will enable us to better address soft tissue reconstruction and adoption will further be facilitated by our existing indication agnostic CPT code.
Good.
In recent compelling market research, 94% of health care practitioners indicated that our new ease of use device will reduce their workload, enabling staff to attend to other duties and allowing for faster penetration of spray on skin cells.
This represents another meaningful step forward on our pathway to becoming the standard of care and acute wounds and it also provides further opportunities for us to expand our intellectual property estate.
Turning now to vitiligo and as I've stated in previous calls this is a skin disorder characterized by deep pigmented areas of skin that appear as white spots or patches, which are primarily attributed to an underlying autoimmune disorder in the patient.
There are an estimated 100 million sufferers of <unk> worldwide, including up to $6 5 million Americans.
As we mentioned previously our resell product involves manual and somewhat time consuming preparation of cell suspension in the range of 25% to 30 minutes.
To make the best use of physician and advanced practice personnel time in the dermatologist office to support our <unk> opportunity. We are developing a fully automated resell device, we expect topline data from our <unk> trial, followed by a PMA submission.
During the second half of 2022 with FDA pre market approval and commercial introduction anticipated prior to the end of 2023.
Today, we estimate approximately one 3 million people in the United States have stable vitiligo, meaning that their underlying autoimmune disease is being well managed and that their disease is not continuing to progress.
I would note there are several pharmaceutical companies developing JAK inhibitor products and aiming for an indication in the treatment of non stable that ally go.
As we are pursuing an indication for resell to treat stable, but a legal lesions. These JAK inhibitor products would be complementary to resell.
JAK inhibitors modulate the underlying autoimmune disease that causes the white patches, but the white patches once form often remain even after disease stabilization.
We are seeing promising JAK inhibitor product candidates from the likes of Pfizer Abbvie and insight.
If approved the use of these products, which appear to have potential for stabilizing bid a lego would likely increase the number of candidates for whom resell treatment is indicated.
As JAK inhibitors come to market with a bit of Lego indication, we anticipate an increase in awareness and interest in vitiligo treatments, including resell.
We have been working diligently on our vitiligo pre commercialization activities.
We have participated in six vitiligo conferences since January of this year, including Maui Derm, the global <unk> Foundation or GBS annual scientific symposium.
The skin of color Society meeting, the American Academy of dermatology or AAD.
San Diego Dermatological Society, and the symposium for a cosmetic advances and laser education, our scale Dr. Kt Bush, our senior VP of scientific and medical Affairs presented are a bit of Lego clinical trial protocol on podium in Boston at the <unk>.
<unk> annual scientific symposium.
At the conferences Vida has had numerous meetings with and gathered valuable feedback from dermatology Kols, who have expressed strong interest in resell of note.
These conferences 19 sessions featured Biddle I go a marked increase year over year as JAK inhibitors, and our resale device have stimulated interest in vitiligo treatments importantly, resell received numerous mentions in these sessions.
In addition to completing enrollment in our pivotal soft tissue and <unk> trials.
<unk> Stablish proofs of concept for novel treatments and skin rejuvenation and end up with derma licensed below shop.
Work continues on both programs as we aim to refine and optimize these potential therapeutics with an aim to meet with FDA in the second half of 2022.
To discuss readiness for first in human clinical trials.
Importantly, we plan to pursue strategic partnerships that will provide necessary funding for these programs to minimize our cash outlays as these programs proceed into the clinical phases of their development.
With that I'd now like to remind you of our growth drivers.
Our first growth driver relates to pipeline indications for both soft tissue reconstruction and <unk> clinical trials, we anticipate topline data during the second half of 2022 with expected submission of PMA supplements by the end of 2022.
We anticipate entering the market in the second half of 2023 in both indications.
Second with our C code in place we have commenced our pilot launch into the outpatient setting and we are gearing up for a broader nation wide launch targeting all existing users in the middle of this year.
Third we are keenly focused on driving health care provider engagement through education, maintaining our recent momentum.
In summary, despite past pressures from the pandemic on burn procedures as well as continued market turbulence in our investment sector. We have continued to execute on our business objectives and we have successfully completed several key milestones.
I'm encouraged by our commercial teams performance.
<unk> advanced practice training and keeping resell front and center in the minds of burn care practitioners.
Look forward to updating you later this year on our continued progress and our exciting pipeline indications.
With that I'll now turn the call over to Michael for details on our financial performance in the quarter Michael.
Thank you, Mike our commercial revenue, which excludes BARDA revenue was $7.4 million in the current year, an increase of $2 8 million or 61% compared to $4 $6 million in the corresponding period in the prior year.
Total revenue, including BARDA revenue was $7 5 million compared with $8 8 million in the corresponding period in the prior year.
<unk> included $4 $1 million in BARDA related revenue that resulted from our deliveries of units to manage inventory for BARDA for emergency response preparedness. The increase in commercial revenue was largely driven by broader utilization.
Among our customer base as well as deeper penetration within individual customer accounts.
Gross profit margin was 76% and is flat compared to the corresponding period in the prior year, we expect gross profit margins to return to historical levels of low 80%.
And the next quarter and going forward for the balance of the year.
While our supply chain has experienced some challenges due to COVID-19 and other global issues, neither our gross margin nor our ability to deliver resale product to customers have been materially impacted.
Total operating expenses increased by 21% to $16 million compared to $13 $2 million in the corresponding period in the prior year.
The increase in operating expenses is primarily attributable to higher share based compensation salary and benefits.
Higher share based compensation expenses are associated with acceleration of expense for certain performance milestones being met in the current quarter.
Higher salary and benefits are driven by the expansion of our workforce to support overall operations and increase in field resources to expand our market coverage and hiring of an executive at the end of March 2021.
Net loss increased by 58% or $3 5 million to $9 5 million or <unk> 38 per share compared to a net loss of 6 million or <unk> 26 per share in the corresponding period of the prior year.
non-GAAP adjusted EBITDA loss increased by 42% or one 9 million to $6 4 million.
Over the $4 5 million recognized in the corresponding period in the prior year.
A table reconciling non-GAAP measures is included in our press release for reference moving onto guidance, we expected to project total commercial revenues of approximately $30 million, excluding BARDA revenues of approximately 300000.
And with that we thank you for your attention and now I will turn the call back over to the operator for your questions.
As a reminder to ask a question you will need to press star one on your telephone.
John Your question Brett Labounty, please standby, while we compile the Q&A roster.
Our first question comes from the line of Josh Jennings from Cowen. Your line is now open.
Hi, Good afternoon I appreciate you taking the questions and congratulations on the strong start to 2022.
I was hoping to just start off with.
Absolutely one of the start up of the new resale system, sorry, if I missed it.
If you gave this demo it already and I missed it but just thinking about the approval utilization.
Utilization potentially in any in any setting including off label in soft tissue.
The feedback you've been getting or putting in EMEA.
It would be helpful and just didn't know how you're seeing the efficiencies of this next gen system taking hold.
Sure. Thanks for the question.
We are.
Really sing.
Very nice reception.
Two our ease of use device.
Had.
And then trajectory.
Session at <unk>.
Hey.
Where we had a very.
Good attendance and a high level of enthusiasm.
From burn surgeons.
And other ancillary practice advisors.
We haven't launched yet.
That's going to be.
Really mid year.
And when we're going to be launching.
The actually limited launch is going to be later this quarter.
And what does the ease of use device do it actually reduces the number of steps required to prepare risa.
Our resell suspension by 30%.
And it also requires less pair of hands.
In the sterile field only one pair of hands as required whereas previously you needed another pair of hands outside of the sterile field to open the various packages for written scalpels et cetera.
And this is going to play very well with our our newly issued CPT code.
Which.
Covers the outpatient setting.
And we will cover the device.
And also.
94% of.
Providers.
Have.
Said that.
They believe that this will the new ease of use device.
Specifically reduce their workload.
And allow them and their staff.
Additional time for.
Other duties and will make the process.
Just a lot smoother.
I hope that answered your question Josh.
Absolutely emphasize jumping the gun on the launch there I apologize, but maybe just to focus on on the outpatient opportunity in soft tissue trauma.
Uh huh.
And just thinking about the broad kind of TPP and solid reimbursement is in play physicians that are already trained as we think about forecasting out that that launch and building into our models.
Just to remind us of just pricing strategy.
For the resale kit.
Moving into outpatient Burns with this new system and in the soft tissue eventually thanks for taking the questions.
Sure and so far as the pricing, it's going to be the same.
<unk> soft tissue as it is for burns.
We've got if you recall about a 50% overlap of our burn centers with level, one and level two trauma centers and then we're going to be adding to that.
An additional 230 to 140.
Hi.
Passive trauma centers.
We're.
Going to be discontinuing.
Existing 1920 device.
It's called the 19 'twenty because it covers 10% total body surface area, which is 1920 square centimeters.
<unk>.
But we're very excited about soft tissue.
<unk>.
We're getting a <unk>.
<unk> well.
<unk> support even now while we've just completed enrollment.
The clinical trial.
We have endpoints coming up for both soft tissue and vitiligo.
The.
Topline data will be presented in the second half of 2022 of this year.
And then we will submit the PMA for for both indications.
By the end of this calendar year, and we're anticipating approval and commercial launch in the second half of next year.
Thanks, So much I appreciate it Mike.
Of course, Josh.
Thank you. Our next question comes from the line of Matthew O'brien from Piper Sandler. Your line is now open.
Great. Thanks for taking my question I guess.
For starters on the guide for the year on the top line.
I know you were kind of hoping for some Japanese revenue this year youre not going to get it until next year, which is really not that big a deal on my mind, but.
Can you just did about $7 $5 million on the core side of thing basically annualizing that gives you the $30 million you're guiding to so no growth even though it seems like you took some share this quarter.
Just the traditional approaches to treating burn so why not be a little bit more aggressive on the guide for the full year given what we just saw in Q1.
Thanks, Matt for your question.
No.
When we model it we've got the seasonality.
In Burns.
Which I'm sure you've been familiar with it's not.
A steady curve.
And we have some uncertainty relative to COVID-19.
And the in the second half of the year.
So for now.
We're.
Maintaining guidance for the annual year.
Okay makes sense.
And then Mike what are you seeing I know last quarter, you mentioned, there is labor headwind, which makes sense again.
Is that starting to ease at all.
And if not any sense for when that could be.
A little less of a headwind and then I don't know if you said it but just the top 20 account growth what did you see in the quarter. Thanks.
Yes.
Take your first question first and then deal with the top 20 account growth.
Relative to the.
Staff shortages, primarily nurses.
That we've seen in the.
Medium size and smaller burn units.
We've responded to that is in trainings.
And as I mentioned in my formal remarks.
We did over 600 trainings in the quarter, we don't anticipate that that will.
Reduce.
In the near term.
But that is allowing us to continue to treat.
New as well as.
To re treat patients.
For surgeons to continue to learn and for staff to not be limited because we are sending in.
Our staff, who are many are former burn nurses and our experts at at utilizing resale of course.
And they know the physicians.
The burn surgeons, and we're able to get in there and mitigate that headwind.
That said.
It will continue.
But we do have the capacity now.
Given that we've got.
Free access into the hospitals.
Restrictions are really not there anymore.
That has abated and we're able to get into the cases.
Where we need to and where we have physicians trained and utilizing.
The.
The resell system.
Our top 20.
Continue.
To drive.
A majority.
Some of our resell system, but that said.
That number is reducing.
And we're happy to see.
That it's it's actually pretty flat, but what we are seeing that is.
Sort of a lead indicator is that.
The top 20.
Potential grew at about 14% and then we're seeing.
A lot more of the <unk>.
<unk> TB assay wounds, which means that our adoption curve is going in the right direction.
Great. Thank you.
Youre welcome Matt Thanks for the question.
Thank you. Our next question comes from the line of Ryan Zimmerman from <unk>. Your line is now open.
Alright, good afternoon, thanks for taking the questions.
Just wanted to start off a couple for me Mike.
On on the new system.
No Josh asked about pricing is there any gross margin benefit that we should consider.
As a result of the launch of the new system, just maybe from lower raw material cost or less parts because it is more efficient.
Actually Ryan it's going to be the same margin the same price.
It's really the efficiency of repackaging and re sterilizing.
The unit so that you don't need that extra pair of hands, you don't need extra boxes to open and the coordination.
Of the burn surgeon in.
The advanced management practice practitioners that are with the surgeon.
Just that flow go so much easier, but it's really the same materials.
Rearranged in an order.
That facilitates use.
Usage of the resale system.
Okay got it crystal clear on that and then for the automated system.
Exciting to hear about that I think we will obviously be watching that closely how do you think about the regulatory pathway for that I mean, I don't want to put the cart before the horse but.
Youre getting that a lago.
I believe the PMA supplement.
Do you think you would need a separate trial with.
With the agency for an automated system or do you think you could maybe get that under a PMA supplement on your existing PMA.
So it would definitely go through is the PMA supplement. The question is is it a 90 day or 180 days supplement.
My guess.
Even my own background in regulatory is that this is going to be a 180 day supplement given.
That it's going to be fully automated and then what the agency is going to want to see.
Viability.
And.
And and functionality.
There's also the possibility.
A.
Small bridging study.
Being require.
Required, but really what we're what we're looking at is comparability.
The manual production of cell suspension.
To the automated production suspension.
And that will be the major.
FTA and likely be biologics, because we're looking at cellular suspension cellular viability and cellular functionality.
But as I said likely to be 180 day PMA supplement okay.
Alright, well slowly watching that could be pretty exciting and the last one for me and I'll hop back to the queue.
Just around operating expenses Michael.
Because that came in a couple of different.
No different than we expected.
Love to get your sense about how to think about opex.
And so the rest of the year.
Yeah, you bet. Thanks for the question.
So on our last earnings call we saw.
Poke about a 20, 20% increase in operating expenses year over year.
And that is roughly.
How we came in the first quarter. However, as you dig a little deeper and our G&A youll see that there there was.
Yeah.
Stock comp expense that was higher than was anticipated because.
As I mentioned earlier.
Was a perf.
Performance milestone that was that was hit that was pretty material. So we had $2 3 million of stock comp which <unk>.
Flow through G&A, whereas normally that might be about $1 3 million.
So in terms of the cadence through the rest of the year, we would actually expect.
Our operating expenses.
By our three main line items to stay relatively constant.
G&A will come back down to a normalized basis. So we expect total expenses to remain about the same but perhaps come down a little bit.
And each of the quarters for the balance of the year.
Thank you very much appreciate it great start to the year.
Thanks Ryan.
Yes.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our next question comes from the line of Lynn Harrison from Bank of America. Your line is now open.
Good morning, Mike Michael.
Can you talk about RBC.
Quick question on guidance can you give us a little bit how long are they tend to what you're experiencing.
In procedure volume for April thus far.
Sure, we're not specifically reporting on procedure volumes.
That said, though.
As the.
The year is progressing.
<unk> is generally a slow month for us.
And for incidents of Burns.
However.
We're seeing a nice recovery as we normally do and I think we're seeing.
A relatively strong second.
Second quarter.
Okay, great. Thank you.
Then on gross profit.
Margins you mentioned that you.
You might see that.
The low 80% into the next quarter.
Can you talk a little bit about what.
What's going to drive.
Michael could you take that one.
We'd be glad to.
So.
In this past quarter.
The production level was relatively low.
Given that as Mike mentioned earlier with our existing units, which we call. The 19 twenties, we're looking to.
Run run those inventory levels down over time, as we discontinue that line.
As production levels came down.
Some of the <unk>.
Various costs, which you.
Average out over your units.
Went up such that our gross.
<unk> margin came down temporarily now that our production levels are are back up to a more normalized level.
We expect again, our gross profits to get back in the low 80% range.
For the balance of the year.
Thank you and perhaps one more question for you Michael on.
Operating cash outflow.
10.
Named.
Calendar year would be.
Cash outflow.
Can be similar to.
What we saw in the first quarter.
Yes. Thank you that's a good question actually we would expect cash outflow or.
Our cash flow from operations to be reduced somewhat this past quarter. It was $9 4 million. However.
The first quarter is usually a higher cash usage quarter for us because it's.
It's that time of the year that we pay out.
Bonuses.
Additionally.
In this past quarter, we had an increase in various working capital accounts, including receivables, both trade and BARDA and the amount of about six or 700000 as well as an accounts payable by about <unk> three.
$1 million or 300000, so there were a number of things that we wouldn't necessarily expect to continue but the way that nets out whereas.
Net cash used in operations was $9 4 million in this quarter, we would expect that to probably be in the seven five or $8 million range on average for the remaining three quarters of the year.
Great. Thank you very much.
Youre welcome.
Thank you and our next question.
Thank you. Our next question comes from the line of John Hester from Belt border. Your line is now open.
Good afternoon and welcome Mark.
Tom.
Wanted to again follow on question from catch up believe Youre closing cash position was that.
3 million Bucks in the balance sheet.
Maybe it slips discrepancy from the number it's in the final bullet point.
So on price there.
<unk>.
I just wanted to ask now.
Based on that cash burn and you resign remaining reserves and obviously don't want to be rising cash.
Anyway.
Comstock Cross totals.
Yes.
What's the plan for development of these longer in the longer.
The longer dated indications, including AP and also in the some board of cell and gene program, you're continuing to develop both at speed or is it really just a case that you're going to consolidate the existing products that you've got.
Well, let me start off John its Mike Perry.
Thanks for the question.
Really what we're going to be doing is focusing.
Very much on soft tissue.
The approval of the wording and the commercial launch.
For both soft tissue and vitiligo the.
The amount of spend.
Going into the biologics epidermolysis below in our rejuvenation program.
Is going to be really minimal.
This year and our intention going forward.
Is likely to partner.
For those indications.
Michael is there anything you might want to add from a numerical perspective on cash for John Yes.
So John actually our cash cash equivalents in marketable securities are in fact <unk>.
<unk> $95 million.
What you perhaps might be missing is the line item on the balance sheet, which is marketable securities long term, which is $11 million and that actually is.
Yes.
Clearly U S treasuries that have a maturity of greater greater than one year. So I would just say that we are.
Mike we are quite fortunate to be in the position, we are with $95 million.
And that takes us through commercialization.
Indications.
Yes, and relative to <unk>, just to expound, a little bit and say.
Cell and gene therapy.
The cash outlay is very modest.
The $95 million is earmarked for burns.
Vitiligo in soft tissue and so as Mike mentioned.
If and as we go into any sort of clinical.
Pathway then.
We would be looking to partner, but I would I would also add that from a BD standpoint.
We've also become much more circumspect with how we're looking at deals.
In today's environment with our share price at levels that we find to be undervalued and given that our cash is earmarked for the <unk>.
Indications that I mentioned.
Then we're looking for deals that did add revenue very quickly if not immediately.
<unk> are accretive to earnings very quickly.
And again are looking at those in a very disciplined way so that we preserve our $95 million in cash.
So it'd be fair to say by some nice comments that youre sort of.
We will lose to Chris <unk>.
<unk> Europe .
More active than less active in the M&A.
Mark.
No I would say we're equally active however.
Again, we're being very disciplined about what we pursue.
In order to pay for any sort of BD transactions.
We need to use cash or equity or debt.
And we have no debt currently and we don't have any desire to take take any on at the moment.
And.
We're not interested in issuing shares at the current share price and again, we're preserving our cash so it's just as active but we're just much more disciplined.
Okay and just following the market just to follow up on the gross profit margin question you talked about.
The.
Margin in the first quarter should we expect that to bounce back to a better than 90% going forward.
Yes.
Okay.
Good thank you very much.
Thank you John Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.