Q2 2022 MiMedx Group Inc Earnings Call
Greetings and welcome to the medical groups second quarter 2022, operational and financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Jack <unk> Senior Vice President Investor Relations for my Medics group. Thank you you may begin.
Thank you operator, and good morning, everyone and welcome to the <unk> second quarter 2022, operating and financial results Conference call.
With me on today's call are Chief Executive Officer, Jim Ryan.
Chief Financial Officer, Pete Carlson.
Resident wound care and surgical Dr. Roderick Cassia, and President regenerative medicine, and Biologics innovation, Dr. Robert Stein.
And then Pete will provide a summary of our operating highlights and financial results for the quarter and at the conclusion of their remarks, Jim P and doctors ketchup from Stein will be available for your questions.
Before we begin I would like to remind you that our comments today will include forward looking statements, including potential timelines for our ongoing clinical trials and FDA submissions and approvals and expected market sizes for Fox.
These expectations are subject to risks and uncertainties.
Actual results may differ materially from those anticipated due to many factors.
Actual timing of FDA approval will depend on a number of factors, including the results of our clinical trials. Our interpretation of those results the impact of COVID-19 actions by others that affect our timelines and other factors that the FDA deems important.
Additional factors that could impact outcomes and our results include those described in the risk factors section of our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
Also our comments today include non-GAAP financial measures and we provide a reconciliation to GAAP measures in our press release, which is available on our website at www Dot Dot com.
With that I'm now pleased to turn the call over to Jim Ryan.
Thank you Jack and good morning, everyone. I appreciate you, calling in I'm going to start off today with five very important news items number one I want you to know how excited I am about the strong commercial momentum.
This momentum has led to four sequential quarters of double digit revenue growth in our continuing portfolio of products and energized about the performance of our commercial team. We are on strategy and more patients are being treated with better outcomes.
Number two.
<unk> expanded research and product development team is creating new and novel products to meet the unmet clinical needs of our surgical community.
I am very pleased to share two new launches are on track for September number three we are preparing for the launch of Purion engineered that'd be fixed in Japan. Later this year as early as September Perry.
Perry on engineered if he thinks is the first and only amniotic tissue product approved in Japan.
And it's important to note that we have first mover advantage in this large and underserved market number.
Number four.
But you didn't know that we are on track to enroll the first patient in our knee osteoarthritis right its clinical trial by year end.
I'm confident that.
That's the important recent progress by our clinical regulatory and manufacturing teams increases our overall probability of a successful drug registration.
And number five I think it's worth repeating that our business is generating the cash needed to fuel future investments.
I'm bullish about what can be accomplished in the second half of the year.
Starting with our second quarter growth I'm pleased to report fourth.
<unk> consecutive quarter of double digit revenue growth in our continuing portfolio of products tissue and core revenue grew 11, 6% over last year with a strong performance in our surgical recovery business.
Surgeons are incorporating our products to biologically enhance procedures, where patients are at risk of potential complications.
This can be ensured trees, where there are wounded, Jason for example, podiatric surgical wounds orthopedic lower extremity procedures.
Or in areas, where we are leveraging our direct and agency relationships to expand our reach and our customer base, we have strong momentum here.
I'd like to share with you that our two upcoming product launches are on track for full release in September .
Innovation is an important part of our near and long term growth potential and I'm excited that our research and product development engine is developing new and novel products that meet specific unmet patient needs.
In June we initiated a limited market release of <unk> effect.
And surgeon feedback has been positive.
Andy I'll say.
I'll first say thicker graft with broad size availability and complements our leading amnio fix and amnio cord brands in the surgical suite.
Actually I'll fill is it placental collagen matrix product. It offers a flexible form factor that can be easily apply to deep tunneling wounds more conformed to a large uneven surface.
Axial Phil has impressive clinical utility and serves as an outstanding platform for further iterations of new products.
What I'd like you to remember is that annual effect and actually I'll fill or.
The first new important products, we are internally developed for use in the surgical recovery market.
The importance of these innovative products cannot be understated.
Not only support our revenue growth goals, but they act as an important foundation for future product development.
I'd like to turn your attention to the upcoming launch of that'd be fixed in Japan. We are on track for this launch as I stated.
We plan to launch this as early as September .
As I mentioned.
That'd be sections, the first and only amniotic tissue product approved in a large.
Underserved market and pneumatics as first mover advantage in this market.
Our dialogue with the Ministry of Health has been productive and we believe we are in the final stages of the approval process narrowing in on a specific reimbursement rate we.
The general manager for this market and last month, an additional 100 physicians in Japan were trained on the proper use and application of that be fixed.
The product is in country and ready for use and I'm pleased to share that we wanted to be treating the first patient in Japan later this month.
<unk> commitment to engineering, new products, expanding our market and customer base and generating robust clinical scientific and economic evidence all position us to achieve our double digit growth objective and our commercial business in 2022 and beyond.
Transitioning to our regenerative medicine to biologics innovation efforts I think you'll be impressed with our recent progress.
We have an upcoming type B armet meeting scheduled with the FDA to review the results from our phase two be knee osteoarthritis clinical trial and our protocol for the next knee OA study.
We plan to use WOMAC pain WOMAC function.
Co primary endpoints and are on track to enroll the first patient before the end of the year.
We selected an engaged a world class contract research organization Nordic Biosciences clinical development and image analysis group and expert imaging company with their operational support we can greatly streamline patient recruitment and accelerate study initiation and enrollment in our upcoming knee OA trials.
Yeah.
And I'm honored to have an exceptional industry and academic experts joined Memetics regenerative medicine Scientific Advisory Board. These multidisciplinary leaders will provide guidance on our pipeline initiatives that can help us optimize the overall value of our central base biologics pipeline.
We view our micronize.
<unk> platform is a significant future year growth opportunity I want to stress how important it is to do things right.
These products are one of a kind and I'd like to reinforce that the medics has more than a decade of experience with these products I.
I am confident these recent milestones increase our overall probability of successful drug registration.
<unk> is growing creating value and innovate.
The commercial business has strong momentum and is growing at double digit rates I think it's worth repeating that is that the business is generating the cash we need to fuel investments in our future.
I will now turn the call over to Pete.
Thank you Tim and good morning, everyone before I begin unless otherwise specified all results referenced in my prepared remarks are on a second quarter 2022 versus second quarter 2021 comparison basis.
But as Jim mentioned earlier, we had strong revenue growth in the quarter once again outperforming our expectations and our continuing portfolio of products.
I want to highlight that we now have a full trailing 12 month basis, our revenue since the end of enforcement discretion.
And going forward total net sales comparisons on a quarterly basis, we will fully reflect our continuing portfolio of tissue and corn products.
Along with the new product launches in the U S and our international expansion.
I Hope you agree this simplifies our message and that our business trends will be easier to understand.
Over the last 12 months ended June 30th 2022, we reported net sales of $256 $3 million.
<unk> 253, $8 million, representing our continuing product portfolio.
This represents growth in that portfolio of over 12, 5% compared to the 12 months ended June 30th 2020 one.
Yeah.
For the second quarter of 2022, we reported net sales of $66 9 million a $1 3 million dollar decrease from 'twenty to 'twenty one.
I want you to remember that the prior year period included net sales of $8 $2 million of section 351 products sold in.
In the United States.
As you know these products can no longer be marketed domestically. Following the end of the Fda's period of enforcement discretion on May 31 2021.
Our tissue and corn products grew $6 $9 million or 11, 6%.
This fourth consecutive quarter of double digit sales growth was primarily driven by our strategic focus and the surgical recovery market.
Along with the results from our prior initiatives to expand train and realigned our sales force.
Gross margin was 82, 3% compared to 81, 3%.
In the current quarter lower than planned production levels negatively impacted gross margin.
In the second quarter of 2021 gross margin was impacted by similar negative production variances higher than planned compensation.
And reserves recorded for products affected by the end of enforcement discretion.
Selling general and administrative expenses or SG&A.
Were $55 $8 million compared to $53 $6 million.
To draw your attention to the fact that the current year quarter included $2 $2 million of bad debt expense.
And a $2 1 million dollar expense related to the company's annual meeting of our shareholders.
As a reminder, our SG&A expenses in 2022, and 2021 were negatively impacted by $2 $1 million and $3 $8 million respectively.
As a result of a shareholder activist actions. The net effect was a reduction of $1 $7 million between periods on a comparative basis.
Additionally, SG&A results reflect increases in sales commissions driven by growth in the surgical recovery area.
And increased travel expenses compared to 2021 levels.
I'd like you to remember that after the end of the Fda's period of enforcement discretion, we made the strategic decision to maintain staffing levels, including our sales force to support our commercial growth objectives.
This results in a higher level of SG&A expenses as a percentage of net sales compared to our historical trends.
We expect that level to decline over the remainder of 2022.
Reflecting our continued anticipated revenue growth as we put the revenue loss.
Section 351 products behind us.
Research and development expenses were $5 $5 million compared to $4 1 million.
The increase reflects clinical research efforts connected to our commercial and late stage pipelines as well as increases in development and testing costs.
Investigation restatement and related expenses were $3 2 million compared to a benefit of $2 $1 million.
The prior year benefit reflected funds received from certain director and offers or insurance policies as well as negotiated reductions and previously recognized legal expenses advanced on behalf of certain former members of management.
Yeah.
Net loss was $10 $9 million compared to a net loss of $1 $8 million.
Adjusted EBITDA was a loss of $1 million compared to a gain of $3 $1 million.
As of June 32022, the company had $72 $5 million of cash and cash equivalents compared to $87 $1 million as of December 31, 2021.
The decrease reflects payments of annual employee incentives.
As well as payroll taxes previously deferred under the cares Act.
For the six months ended June 32022, adjusted EBITDA was a loss of $2 $7 million, including the annual shareholder meeting costs mentioned earlier.
Capital expenditures and patent acquisition cost.
Other components of free cash flow were $601000 in that period.
We continue to expect to be free cash flow neutral for the full year 2022.
Also expect overall revenue to return to pre enforcement discretion levels during that period.
Looking forward to revenue growth for the full year of 2022, I want to share that we are maintaining our expectations of 11% to 14% growth.
This includes the anticipated full launch of MTO effect and axial Phil during the third quarter of this year and our current expectation of the timing.
Once the F B fix and Japan later this year.
Let me remind you that the growth percentages based on our continuing portfolio of tissue and corn products, which generated $240 million in revenue in 2021.
Importantly, I want to reemphasize that we remain well capitalized to invest in our growing commercial business and deep innovative R&D pipeline.
I will now turn the call back to Tim Tim.
Thank you Pete and in closing I want to reiterate the five very important news items.
Number one I'm excited about the strong commercial momentum and our four sequential quarters of double digit revenue growth.
Continuing portfolio, we are on strategy.
Number two I'm pleased to share that two new launches and the effect and actually fulfill are on track for September .
Number three we.
We are preparing for the launch of Purion engineered that'd be fixed in Japan, which.
Which we anticipate as early as September .
Number four.
We have an FDA scheduled meeting in the third quarter and are on track to enroll the first patient in our knee osteoarthritis clinical trial by year end.
And five the.
The business is generating the cash to fuel future investments.
I look forward to your questions.
Operator would you please open the lines.
Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from Nick him for participants using speaker equipment may be necessary to pick up your handset before pressing.
Mr. Archie.
Our first question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.
Thanks, and congratulations on a great quarter here good to see.
The action in.
The positive announcements central corridor, so well have to upfront and then I'll I'll I'll circle back with a follow up.
The first Tim you mentioned you know Japan is on track at fix for a launch in September I'm. Just wondering if you can give us an update on timing around reimbursement, specifically I know, there's a lag between product clearance and reimbursement. So an update on timing on Japan reimbursement will be helpful. And then the second question.
Would be around the the FDA announcement here meeting is set in the next month or so so can you walk us through what your expectations are.
For the phase three protocols, what would those look like how many patients would be targeted for enrollment.
And then maybe even as you look deeper into the calendar what would be the projected timing.
To file a BLA and then I'll have one follow up.
Okay.
Thanks for joining the call I have been the questions first on Japan, we do know that the the.
Government or looked at took a look at our application yesterday and.
So we think the reimbursement.
In Japan is eminent.
Until we have the official word.
We can't make any commitments on that but certainly where it's a very positive sign that the fix is being reviewed.
For reimbursement so, let's we affirm reimbursement, let everyone know I do.
<unk>.
Do believe that once we do have reimbursement there are several things that are that will we'll be able to get done in preparation for our launch.
That's correct.
Said that he believed reimbursement is imminent, but having more definitiveness around that allows us to also formalize some of our partner relationships that are essential in making sure that we can.
Commercialized in Japan.
But over the last.
A couple of quarters as we have been waiting for the flow of our reimbursement application, we've been preparing and working with local societies and kols and establishing ourselves.
Making sure.
We have about 250 trained customers.
In Japan by the Society, which is a requirement.
And feel that we are well positioned to take advantage of binging.
The first of its kind the amniotic product to the market in Japan and creating.
A whole new set of options for treatment of <unk>.
The diabetic foot ulcer, and lower extremity else's Ah patients that we will be able to access once this reimbursement.
<unk> is finalized, which we expect should take place soon.
Yeah. Thank you Rohit and the other question on.
Our plans with the FDA just going into this meeting it is a type b meeting and it is in our map meeting so where.
There's a lot of consideration around that.
Usually in these meetings, particularly the arm at you get more attention from more people from the FDA. So we're looking for a big crowd, there which has been helpful. This isn't our first interaction with the FDA regarding our.
Our biologics innovation program, which includes knee osteoarthritis we've.
We've had several meetings Dr. Stein in a particular I've had several meetings.
With the FDA regarding our <unk>.
Various approaches and then I'll, let Bob go into a little bit more deeply Anthony.
Good with you.
Thank you, Tim Hi, Anthony Yeah, Hi.
Hi, how are you Tim.
Tim.
Articulated we do have in on that a type b meeting scheduled.
It will be an opportunity for us to review the phase II data and why we're enthusiastic about the initial result, there on <unk>.
Reduction in pain and improvement in function.
Investigational product was still potent.
We also will be reviewing with the agency our planned Registrational trial, which we expect to start before the end of the year, we're still on our timelines for filing of BLA in late 2025 with the expectation of potential registration in 2026.
Likely in the latter part of the year, but because of that designation. We may have some opportunity to move that forward with the agents.
That's that's very helpful and one quick follow up would just need it to pivot to surgical surgical recovery.
It looks like some good traction in the quarter. There. So couple of questions here one would be is the sales force.
Now fully staffed and trained at this point or is there still some building blocks that have to go on on that front and then as you look deeper within to recovery, which surgical categories are you seeing the most traction and thanks again and congratulations.
Thanks, Ann Anthony Great question.
And that on the sales force side in terms of servicing the surgical recovery market. We used both our direct sales team as well as our agency partners in order to serve that market.
We continue to evaluate and adjust staffing levels in order to meet the needs of the market on both fronts.
The direct as well as on the agency side.
As far as getting trained and being ready.
Honestly invest a lot of time and energy in making sure that our sales team as proficient.
Both the clinical needs as well as the value our products bring to the market and the clinical data and value that we can communicate.
But honestly as a leader I can say that I'm always ever satisfied completely with it and continue to invest more time and energy in that process. In fact, we are making a lot more effort and energy are training some of our agency partners.
With our product and technology at a much higher level than we have done in the past so that effort continues.
Eh impact us going forward as well with regards to the.
The types of procedures.
Again, our technology as we have communicated many times is a platform and it has application in.
Multiple procedures.
Around surgical recovery just to recap quickly within surgical recovery our products are used in situations, where you're required augmentation or closure our batting a function.
In complex patients are complex procedures, the patients can be complex depending upon.
And their comorbidities, whether there'll be whether they have diabetes diabetes smokers as well as some of the procedures can be complex based on the location of the procedure and the risk associated with that.
We.
Currently target multi.
Multiple specialties across the spectrum with that product.
And we are seeing traction in multiple areas.
Some of them out of wounded adjacent areas like a lot.
Our extremity limb salvage situations, there and so on like at trauma associated in the lower extremities, but also we have seen good traction in other specialties, including.
Including neuro spine and.
Obgyn and general surgery.
Procedures. So we are invested and committed to.
To further develop the portfolio at the same time also further generate data that will allow us to get more precise.
Uh huh.
Out of that.
Kind of procedures, we want to really Ah yeah.
The focus a lot of energy on as we generate that data.
Thank you very much.
Okay.
Thank you. Our next question comes from the line of.
RK from H C. Wainwright. Please proceed with your question.
Thank you good morning, gentlemen, and congratulations it looks like that.
Trust has been looking for an even more exciting second half year.
On Japan, let me just start off with Japan.
So it looks like.
I'm, Brian its comments.
Target is about.
250 positions so.
What's the total target.
Over there in Japan.
You know what's what's.
Watched our commercial strategy in terms of religion.
The.
Slow.
And the concentrate that stock.
It's going to be.
And large and initiate it right from the get go.
Okay.
Yeah.
Go ahead rohit.
Thanks, RK again Youre right. We are very excited about the opportunity in Japan.
The target wounds for lower extremity is about 100000 wounds that we are targeting.
In terms of the number of physicians that 250, or so physicians that we had mentioned there's a requirement.
Based on a regulatory approval.
Establishing a reimbursement as it comes through that clinicians need to be trained by the society in order to first utilized.
Product.
Are we.
<unk>.
Physicians that we've already trained the exact number of physician will be targeting will go through phases of preliminary market the tier one markets versus tier two and so on and.
In terms of our commercial strategy.
We are.
A big part of the effort in Japan will include developing.
Our cable network as I've just mentioned before this will be the first product of its kind in the market.
The first effort of developing kind of the biologic space in Japan. So we know we have to make besides the kyowa left but a lot of market education.
About our product and the value, but also just a broad category itself.
And in terms of our sales efforts, we plan on partnering with the distributor.
Now that we are closer to finalizing the exact parameters of a reimbursement we can finalize some of those discussions as Japan is a complex market with the dealers and distributors and all of that but in order to formalize those relationships do you have to have clarity of reimbursement.
The imminent.
Imminent stage of that debate.
Which is essentially bringing to closure probably a four to five you get effort.
To get there.
Yeah I know.
I'm Gonna say archaic.
Thank the our regulatory team did an outstanding job of negotiating the labeling here, which is a.
A bit broader than what we have in the United States, we're positive about that but.
All hands are on deck to have a successful launch of that and I. Appreciate all the efforts of the team.
Yep Yep.
And then Tim.
You know over the last 12 months.
Uh huh.
<unk> put it out.
Almost.
Wiped out whatever.
Revenue loss that you could incur from section on products.
So what in general.
Tons.
What are the factors that actually helped us to grow.
Is that what part of it is organic growth and what part of it is probably as entries.
And from what you have done in the last 12 months.
What are the learnings such that you can at least sustain that growth it's not in.
In Peru on working out so far.
Yeah, our ability sustained growth is based on three factors number one.
Our clinical data number two our economic data number three is the medical education that we're providing in concert with the.
Well trained sales organization.
Look there's a lot of headroom here for future growth and in wound care setting as well as in the surgical recovery setting as you recall back in December at our Investor Day meeting real good laid out what our pillars for growth would be wound care surgical recovery in Japan, and we're right on track with that.
At the launch of the MTR effect and axiom Phil.
Really it says a couple of things for me number one our innovation engine is starting to produce products that we need.
We have a goal of generating not only to new products every year, but also the data that should accompany those products.
Gross <unk>.
Can be inhibited by the lack of clinical data our safety data and by the lack of peer response to that data.
As you recall in February of 2020, AHRQ, which is a government body evaluated did did a very extensive meta analysis on this and frankly.
The medics one in several categories here, it's all based on the on the pioneering work that was done in randomized clinical trials. So we have a dedication to continue to generate data that is meaningful for the physician for Allied health care workers and also payers.
So that's been our strategy is to.
Focus on things that really moves the needle with our products we're in great markets.
When you combine the wound care and surgical recovery market, it's over $2 billion addressable market. There then you add Japan in there. We think those are the really the strong elements for a growth year downstream as you know knee OA could have explosive growth there, but we need to get through the clinical trials, there and really stay focused on getting that done.
Right.
Yeah.
One last question from me before I jump back into the queue.
Tim you've been stating for more than a year now about one or two products every year.
And you are delivering on that right now as we speak.
<unk>.
But again, how do you declined to a new products, new defining them as really novel products and independent from the bunch that are already there.
And to the market.
There's going to be isolation of the product sets that you can use it for more indications.
I think there are a couple a couple of things here one we if we see an opportunity and unmet need where we can.
Modify our product.
To serve that need will do that.
Where we see a need where we don't have if you will a platform to develop a product.
We will.
I think when you look at our efforts in research and product development.
We will develop a novel and new product in that in those categories.
As you know, we want to stay and frankly.
To a large extent in this 361 area, but also.
<unk>.
500 case that we would pursue there. So those are things all organically that would be developing but there's we have a if you will long range portfolio that we've laid out our products that we're going to develop over time. Some are iterations of existing products. Some are completely new it.
It doesn't rule out given.
Given that <unk> is a pioneer in this area, we get a lot of.
Inbound calls on new technologies, whether that's in an academic center or from a company that has the technology or has a product, but they don't have a if you will a commercial or a distribution channel. So we will we have been entertaining over the course of the last year or so new product opportunities that would come to.
To us in the form of a licensing type of agreement.
Thank you Tim Thanks.
For taking all my questions and good luck.
Thank you RK.
Thank you. Our next question comes from the line of Carl Byrnes with Northland Capital markets. Please proceed with your question.
Thanks for the question and congratulations on a strong quarter just a couple of things here do you have any guidance with respect to gross profit margin trend in terms of what you anticipate in the second half of 2022 and then also I think we recorded around $3 2 million, an investigational sees in the quarter, which was up sequentially. When do you anticipate there.
She used to.
Be eliminated in.
In the near term or whatever guidance you can provide there and then I have one follow up as well thanks.
Good morning, Carl it's Pete.
It did point out in my prepared remarks, a couple of things that were in the gross margin line. We continue to think you know the that 80, 283% is where gross margin will play out.
Our product mix moves it a little bit, but I think that's a pretty good range to work with.
On the investigational side as we disclosed in our 10-K.
They're really one remaining prior executives at these costs relate to that.
And that process can continue for some time, but it's we don't control the timeline.
We continue to see it as being a small a small single digit millions here really throughout most of the rest of the year and we anticipate that that situation should wind itself down within the next six to 12 months.
Yeah.
Great. Thanks, that's helpful. And then just one quick follow up I mean, considering the strength of the beat in the first quarter in the second quarter.
Did you see in there.
Those periods any benefit from warehousing of patients that had deferred procedures for COVID-19 or any other reasons.
That may have benefited those quarters and.
If so do you still see a potential benefit from.
Bake off of warehouse patients or is that not something that was a factor at all thanks.
Carlo It's a great question this is Robert.
I think it's hard to clearly identify which patients were coming in with the deferred treatment as a result of COVID-19.
Versus oh versus patients who are new.
Remember a lot of patients that we treat especially in the wound side of chronic patients and very often they have had wounds for several years. So it's very hard to Uh huh.
Bifurcate the two we definitely think there was a there has been impact there in the flow of patients from the impact of Covid in closures.
At this point it's become.
Very patchy Hollywood, a place to kind of really pick out a nationwide trend in terms of the implications we still continue to see pockets there.
If there's an impact from COVID-19, where facilities limit access and.
And otherwise so we continue to navigate a path.
Through that I think.
Got it.
Whats benefits us in that situation is that strength in multiple channels that include hospital, the outpatient hospital setting, but typically they won't get done as well as the private because patients find a way of getting treatment if its a important and critical in one of those settings and we find that we have typically there too.
Them Ashwin the products be the appropriate products for us.
And again there are other factors as well that way and are they in terms of the flow of patients currently have it.
<unk> of staffing or vacations of it being patience as well is that with the opening up of the travel plans. So we continue to see a.
What I would say its not completely predictable.
The trends in patient volume.
From a month to month and even from <unk>.
First half of the month in second half of the month end of bases as we go through.
Managing the business, but I have heard is typically to be there.
Ready to.
So of the patients wherever.
Wherever it might be across the care settings.
Great. Thanks, that's very helpful and again congratulations.
Thanks Carl.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of John Bandjarmasin with Zach. Please proceed with your question.
Thank you and good morning, I wanted to ask about the arm at pathway and what benefits you might be taking advantage of by using that in the <unk> trial.
Yeah.
That's a good question John or Matt.
As you know.
<unk>.
More access to the agency.
In whether it's a type b meeting or otherwise I also think the attendance at the arm at meetings.
Is broader so it includes professionals from the agency that has a.
<unk> subject matter expertise for example manufacturing expertise.
Clinical trial expertise or they have statistical expertise so.
You get a in addition to the product review or you get a lot of adjacent reviewers which helps in the review process. It.
Helps eliminate some of the surprises that you may encounter. It also helps in the approval process as well, whether thats can be expedited or not it's all based on your data and their confidence in the data and that data ranges from.
Clinical data as well as your.
Frankly, your chemical or chemistry manufacturing and control data. So it's very advantageous to have this I think for the last couple of years. The agency has been so hum full of addressing some of the Cobra types of questions that we're getting in approving vaccines that they put on the side.
But it's back on track now Dr. Stein do you have any other comments you'd like to make on arm and I think that covers it very well. We are excited that the meeting that we have upcoming is a type C meeting with on that.
Aspects.
Having the designation as a regenerative medicine advanced therapy is a very useful.
Aspect as you mentioned you get more attention from other ancillary experts if you.
And you also have the opportunity to interact with them and ask questions and sometimes it's more interesting than the standard interactions.
And I'm really pleased John .
The response that we've received from our colleagues at the FDA.
They are very interested in what we're doing how we're approaching the development of not only the knee OA program, but.
As you know we've said it before.
The way we produce our our tissue is unique unique to our purion process, where.
Looking to.
Advanced that process.
Arent waves are relative to our injectable products, which have a very broad utility in other indications that we would like to explore and we certainly had some of those discussions with the agency as well.
Okay, great. Thanks, Tim and I have a couple of finance and accounting related questions as well.
Regarding your debt are you know looking forward does that seem to be about the appropriate amount you would have going forward or does it makes sense to to alter that if your growth trajectory continues and how do you think about that in terms of capital structure.
But Carlos Pea.
I'm sorry, John it's Pete.
We think that that's fine it's you know it's bid.
It allows us the flexibility to have cash to invest in these businesses on both sides of it the commercial resources and team need to continue the strong sales growth as well as the trial work that Dr. Stein is doing.
The.
So the opportunity.
For us is that our business will turn the corner here in the second half of the year and generating cash and we will we will be positive generators of cash. So the debt is interest only you know we don't use cash on the debt until 2025.
From that standpoint.
The one aspect I would say is you know at some point, we might want to invest in our in our manufacturing capabilities and we would look at ways to do that but that would be about a growth opportunity for the company and supporting this long term growth of 11% to 14% again the team needs resource.
And as we've talked about but I would remind people is that 11% to 14% reflects the two products that we're going to launch here later in the quarter.
As we develop new products next year going back to the earlier question that's on top of that 11% to 14% growth and if we do we've done a phy in licensing type opportunities that's on top of it and so those are items that have opportunity for future growth, but our debt levels supporting the.
As it is are fine.
Great Yeah. So it sounds like that's going to continue going forward, even after 2025.
And on the SG&A you identified a couple of items about $4 million worse should we expect those too.
Should we subtract those I guess sequentially for SG&A in the third quarter and come up with a good estimate of what that that line item might be.
You certainly should isolate those as not being something that you would expect to recur in the third quarter.
And again the other part I would say is yes, I think otherwise you know a run rate of expenses is there.
The as we have revenue growth, there's obviously a little bit of growth on direct expenses.
From that but overall our SG&A is.
That's a good number to use.
Okay great.
One from E&P for you is just can you walk me through.
From net income to <unk>.
Cash from operations, Okay. It looks like I was estimating about $7 million difference there just where that difference came from between those two.
Sorry, it was between which two numbers.
Net net loss and cash from operations or free cash flow.
Because you got a benefit there is no difference between that is I'm wondering if you know what the major factors there that were driving that that difference in the second.
We define free cash flow as adjusted EBITDA less the.
Capital expenditures in those pets patent acquisition costs that I mentioned.
Between cash flow from operations and.
Net loss, you've got obviously, the noncash items of amortization et cetera outside of their free cash flow, it's with debt service and cost for those.
The indemnification or those investigations as well as just changes in working capital. That's that's what's outside of the free cash flow number.
Okay, great well. Thank you Pete appreciate it and thank all of you for taking my questions.
Take care John .
Thank you. Our next question is a follow up from the line of RK with H C. Wainwright. Please proceed with your question.
Thanks. Thank you. Thank you folks for taking my follow up on this.
This is on the camera.
Hum study.
It's going to be on the care of it.
Doctor sign and all of it.
Most all the pieces in place.
Also having.
Almost all of them.
Longer to reflect and dissect our you know the last clinical trial.
But the U S a b.
You know what are the things that you're focusing on a I'm.
Going into this.
To this meeting.
Yeah.
In terms of.
How to plan for this study and one of the things that you're trying to do it.
Sure.
You don't have that.
Our France at the end of the study.
Thank you for the question RK, we're very encouraged by the earlier result than the private.
Was tested was still pressure now.
And so we've made changes to how we may can store the product.
And how quickly we will use it in this upcoming study you plan to have some discussion around that with the FDA and we want to review our protocol in terms of the endpoints.
Endpoints that we think they'll agree to our plan for dosing the patients.
And the number of patients and a statistical analysis plan. So we want to make sure that they're bought into the approach that we're taking and we are optimistic that that will go smoothly as those stated we do expect to enroll a patient.
Before the end of the year and get the study launched in.
Still on track for BLA filing in the second half of 2025.
Approval of the second half or perhaps earlier in 2026.
So our biggest objective is to make sure that we recapitulate.
The positive result in the initial part of that other study and make sure that it carries through the entire study at this time.
Thank you. Thanks, Thanks for taking my question.
Take care.
Okay.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments.
Thank you for the great questions.
Since summer had descent proud of the progress <unk> made over the last four quarters, we still have a lot to do.
I am bullish about what we can get done in the second half I appreciate your support.
<unk>.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.