Q2 2022 Bioventus Inc Earnings Call
[music].
Good morning, and welcome to the bio Ventas incorporated second quarter 2022 earnings Conference call. All participants will be in listen only mode shutting any assistance. Please signal a conference specialist by personal Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
Last question you May Press Star then one on your telephone keypad withdraw your question. Please press Star then two.
Please note. This event is being recorded I'll now turn the conference over to Dave Crawford Vice President of Investor Relations. Please go ahead.
Good morning, everyone and thanks for joining us it's my pleasure to welcome you to the bio Rad just 2022 second quarter earnings Conference call with me. This morning is Ken reality, CEO , and Marc Singleton Senior Vice President and CEO CFO .
Ken will begin his remarks with a review of the second quarter highlights and his thoughts on the current market environment. He will conclude his remarks with an update on our progress on our 2022 priorities.
Mark will then provide further detail on our second quarter results and recent financings for our party heal acquisition before concluding with an update on our full year financial guidance.
I'll finish the call with Q&A.
A presentation for today's call is available on the investors section of our website viral vector dot com.
Before we begin I would like to remind everyone that our remarks today may contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including the risks and uncertainties described in the company's filings with the FTC, including item one a risk factor.
<unk> for the company's Form 10-K for the year ended December 31, 2021, as well as our most recent 10-Q filed with the SEC.
Youre cautioned not to place undue reliance upon any forward looking statements, which speak only as of the date.
Although it may voluntarily do so from time to time the company undertakes no commitment to update and revise the forward looking statements whether as a result of new information future events or otherwise, except as required by applicable securities laws.
This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures important disclosures about definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in <unk>.
Lawrence with GAAP are available in the earnings press release on the Investor Relations portion of our website at <unk> Dot Com now I will turn the call over to Ken.
Thanks, Dave Good morning, everyone and thank you for your interest in bio Rad.
As we move into the second half of the year, we look to build on the meaningful progress. The bio Ventas team has made towards accomplishing the goals, we laid out in January and.
A few of our successes to date include closing the financing and acquisition of Carr to heal compete.
Completing the integration of biomass and materially progressing on the integration of my Sonics.
And positioning ourselves to achieve double digit organic growth for the year by leveraging our technology, leading medical devices are significant commercial organization and improving market access with expanded reimbursement.
Preferred coverage agreements across our verticals.
We are extremely proud of the way that our entire organization continues to drive toward achieving our goals and strengthening our long term outlook. When we are looking forward to continuing to build on our momentum in the second half of the year.
We are pleased to report that throughout the second quarter, we saw a steady recovery across our surgical solutions vertical.
Which was impacted by the more acute hospital staffing shortages and omicron related challenges, we faced in the prior quarter.
Mark will discuss our guidance shortly but we believe hospital volumes will continue to trend towards a normal environment in the second half of the year.
We believe the foundation and diversification of our business and end markets will remain strong despite the increased potential for economic challenges in the coming months.
Over half of our product portfolio is sourced to enable fixed gross margins, allowing us to have a strong and consistent gross margin. Despite the inflationary headwinds impacting the global economy.
In addition in past recessionary environments, we have not experienced significant business interruption.
Still we are prepared to take the necessary actions to control costs in order to ensure we deliver on our EBITDA and earnings commitments, while continuing to support the long term needs of our business.
Moving to our results revenue increased 28% during the second quarter to $140 million, including organic growth of 8%.
Which positions us well to achieve double digit growth for the year.
Constant currency growth was 9% a good performance compared to a solid comp versus 2021.
Additionally, we generated strong sequential revenue and adjusted EBITDA growth.
While growth was robust across our portfolio supply chain and regulatory disruptions and our advanced rehabilitation portfolio limit our limited our second quarter growth.
Moving forward, we expect this revenue to be recognized in the second half and thus do not expect this shift in timing to have an impact on our full year results.
Across pain treatments, we saw double digit revenue growth driven by continued market share gains by our single injection Dura line H eight therapy, and our three injection Jolson H a therapy.
As we highlighted on previous earnings calls reimbursement for H, a shifted from wholesale acquisition cost to average selling price at the end of June .
Given the sales mix of our H a portfolio.
New pricing dynamic has not fundamentally impacted our overall growth opportunity.
As expected, we have been able to lower our reimbursement rebate rates on all of our preferred contracts with private payers, which is offset lower pricing for other areas of our business.
Modifications to these agreements are consistent with our modeling exercises done.
Over the past several months as we prepared for this new environment.
Additionally, we are seeing some potential opportunities to increase our market share where a few competitors are no longer able to utilize pricing.
As an incentive for physicians to receive a higher reimbursement.
As the only company with a portfolio of products across single three and five injection therapies. We have held the number two share position in the HOA market and continue driving toward becoming the market leader over the coming years.
Turning to surgical solutions.
I mentioned, our business rebounded from last quarters macro headwinds with organic growth returning to double digits. We are encouraged by the sequential improvement that we generated throughout the quarter and continued to experience strong momentum thus far in the third quarter.
We also saw a similar recovery and Rmi Sonics bone scaffold during the quarter.
Restorative therapy revenue generated double digit growth bolstered by the inclusion of our my Sonics wound business.
As I mentioned earlier growth was limited and our advanced rehabilitation business due to supply chain issues impacting our domestic business as well as back orders for international customers as we await regulatory certifications related to the new European medical device regulation.
<unk> or M D our process.
The domestic supply chain issues have been resolved early in the third quarter and we are back to a fulfilling orders and eliminating our back orders, we expect to receive M. D. Our certification in the third quarter. So that international revenue will be back online in the fourth quarter.
Finally, our international segment grew 26% on a reported basis driven by Rmi Sonics acquisition and constant currency growth was 1% primarily driven by continued strength Enduro Lane.
The regulatory challenges related to our advanced rehabilitation portfolio are expected to continue into the third quarter, but we anticipate recapturing most of this revenue in the fourth quarter.
As a result, we expect to see organic growth trend below normal in the third quarter, but then trend above normal in the fourth quarter for our international business.
Finally, given the current geographic mix of our business, we do not anticipate the recent movement in foreign exchange rates to have a material impact on our revenue.
Our international business continues to be a low double digit percentage of our total revenue.
Now I'd like to update you on our 2022 priorities.
As highlighted earlier, we are off to a great start to the year and remain focused on our execution across our key priorities for 2022.
Our first priority is to achieve double digit organic growth for the year through our technology, leading medical devices and the continued strong execution of our commercial organization.
While we fell just short of that for the quarter, we made significant progress across some of our key growth areas.
In pain treatments, we solidified market access for our H a business by reaching a three year extension on our United Health contracts, where Dura line remains the exclusive single injection products and gel sand continues to be one or two products for three injection therapy.
In addition, our two year contract with Cigna, which we announced in May for Dura line and Jetson also became effective at the start of the third quarter.
Within surgical solutions I still am slower ball, our injectable allograft bone graft substitute solution continues growing rapidly since its introduction last year.
That's a great example of the innovation being infused into our portfolio over the past three years, we have launched several new products, including Osteo Amp global.
Which now represents close to 60% of our bone graft substitutes revenue.
Enable are enabling us to grow our market share.
Also in surgical solutions, we received five 10-K clearance for Sona Star Elite in late July .
To start our elite represents the newest handpiece for our Nexus ultrasonic surgical systems platform and it will deliver best in class and significantly more power versatility and control and the removal of hard and soft tissue and multiple surgical specialties, including spin.
Typically neurosurgery this.
This creates a large market expansion opportunity for biomass as we plan to commence a limited market release in the fourth quarter.
Our second priority is to complete the integrations of our recent acquisitions, while delivering on our cost synergy commitments and leveraging our enhanced scale to accelerate revenue growth.
We continue to drive progress on that front and we remain on track for the integration of my Sonics could be completed next year and to deliver at least $20 million in cost synergies by the end of 2023.
Besides the realization of cost synergies are combined commercial teams continue to leverage our enhanced scale and customer relationships to accelerate sales growth and cross selling opportunities.
Additionally, last week, we gathered all our U S. Direct sales representatives over four 500 reps in total together for the first time since the acquisitions of biomass and my Sonics for a summer sales conference.
The conference has enabled us to further cross train our sales representatives on the new products in their verticals.
Hear firsthand from their colleagues unaffected sales techniques.
We expect this meeting to be a significant springboard to further increase momentum in the second half of the year.
We unleash broader cross selling efforts within our entire sales force after piloting multiple initiatives earlier this year.
Our third and final priority for the year was recently completed with the closing of the acquisition of Carr to heal, which we believe is a revolutionary and game changing device for a multitude of patients suffering from knee osteoarthritis and osteochondrosis defects.
As a reminder, it received FDA breakthrough device designation in December of 2020, and FDA PMA approval in late March of this year.
Carter he'll have significant potential with a $1.3 billion total addressable market it.
It is also supported by significant clinical data used for PMA approval.
Evidence by the robust data generated from its pivotal clinical trial, demonstrating superiority to microfracture and debridement procedures.
The completed clinical trial is the largest cartilage repair trial undertaken to date.
And we expect it will be published in a peer reviewed medical journal by next year.
The addition of car to heal complements our joint preservation technologies, and specifically, our H E business and customer base.
Further supporting our growth drivers and helping us deliver on our goal of sustained double digit revenue growth.
Our restructured agreement not only enabled us to finance the acquisition, but also aligns future milestone payments with value creation that unlocks the full potential of car to heal.
We will continue to compile clinical evidence and expect multiple articles to be submitted for publication and medical journals over the next few years to support reimbursement coverage and coding.
In the coming months as we launched car to heal we will work with our surgeon customers to ensure that each case is pre authorized to build its reimbursement profile.
As we progress on the market development plan, we will update you as we achieved the key value driving milestones for Carty here.
Lastly, given the increase in debt to finance the car T field transaction.
Including future milestone payments, we intend to pause on future M&A activity.
Until we return to our targeted range of net debt to adjusted EBITDA of three to four times.
We expect to achieve this goal by the end of 2023, primarily through EBITDA growth driven by double digit revenue growth and margin expansion as well as free cash flow generation.
In conclusion, we continue to build momentum as we execute on our growth strategy and we have further bolstered our growth potential with the acquisition of Carr to heal.
With the acquisition behind Us our second half focus will be on achieving our other priorities and financial commitments for the year.
I remain confident we will deliver on cost synergies from our acquisitions and enhance our growth profile by leveraging our technology, leading medical devices scale and commercial infrastructure to deliver consistent double digit growth.
Now I'll turn the call over to Mark.
Thanks, Ken and good morning, everyone. Let me begin with a review of our second quarter results revenue of $140 million increased 28% compared to the prior year.
We saw an eight percentage point increase from organic revenue along with a 20 percentage point increase related to our acquisition of my Sonics.
You were able to delever deliver revenue and within our plan via multiple growth drivers, despite the supply chain and regulatory challenges and our advanced <unk>.
The <unk> portfolio that Ken highlighted earlier.
Our sales performance drove adjusted EBITDA of $23 million as expected, we saw strong sequential momentum for both revenue and adjusted EBITDA.
Cross pain treatments, we grew organically, 13% driven primarily by Berlin and jellison as they continued to capture market share across the single and three injection therapy markets respectively.
In surgical solutions, we grew 77% we saw 17 percentage points of organic growth across our bone graft substitutes, which rebounded from the prior quarter's impact from delays in elective procedures due the omicron and hospital staffing.
The second quarter included a 60 percentage point contribution from my Sonic surgical portfolio, which also showed a strong sequential acceleration.
Ken mentioned, we believe hospital volumes will continue to trend towards a normal environment in the second half of the year.
Finally, a cost restorative therapies, we delivered 23% growth revenue of my Sonics wound products contributed 28 percentage points organic growth was impacted by a few million dollars related to disruptions in our advanced rehabilitation portfolio.
These issues are expected to be resolved in the second half of the year, which should contribute additional growth.
Moving down the income statement address the gross margin of 77% was up 30 basis points compared to the prior year.
Overall, adjusted operating expenses increased $19 million, driven primarily by cost related to my sonics when compared to the prior year.
Now turning to our bottom line financial metrics, adjusted EBITDA totaled $23 million compared to $20 million in the prior year increase.
Increased revenue was offset by higher operating costs related to the acquisition of my Sonics adjusted.
Operating income increased to $18 million from $14 million in the prior year.
Adjusted net income totaled $8 million compared to $5 million a year ago, and we earned 10 cents of adjusted diluted earnings per share.
Now turning to the balance sheet and cash flow statement, we ended the quarter with $41 million of cash on hand, and $374 million of debt outstanding which included a $25 million draw on our revolving credit facility at the end of the second quarter.
Operating cash flow represented an inflow of $3 million for the quarter as we projected on our last earnings call. We saw a sequential improvement in cash flow and continue to expect operating cash flow to accelerate in the second half of the year as EBITDA increases and we see improvement in working capital.
Before moving to updated guidance, let me discuss the financing to facilitate the closing of our car to heal acquisition.
As Ken highlighted we recently completed the financing and we took into consideration several factors and implementing our new capital structure.
It was important that we maintain the ability to pay down a portion of our debt without breakage costs in order to delever.
Second we sought to manage interest rate exposure and volatility by increasing the percentage of fixed rate debt.
Third given the car to heal as a midterm growth driver, we sought to minimize the need to refinance our capital structure in the near term.
As Ken highlighted we modified our purchase agreement and established five milestone payments totaling $215 million over the next several years tied to key deliverables that will unlock the full market potential of party deal.
The first two milestones each of which are $50 million will be paid no later than the end of the third quarter next year.
Our next two milestones each of which are $25 million will be paid by the end of 2024 and 2025, respectively.
With the final milestone of $65 million to be paid by the end of 2026.
These payments will accrue interest at 8% until payment of each milestone occurs.
Interest on the balance of milestone payments will be paid annually on the anniversary of the acquisition closing with any additional accrued interest to be paid at the time of the milestone payments.
We have also increased our existing term a bank loan by $80 million to raise the necessary funds at close and repay the draw on our revolver, providing liquidity for next year's milestone payments.
The amended term loan has a balance of approximately $430 million.
Composed of the lowest cost of debt available, while providing us the ability to prepay without penalty.
In addition, we retained a $50 million revolving credit facility, which is now undrawn. After the closing of the amended term loan.
Following the completion of our financing for the car to heal acquisition. Our secured net leverage ratio has peaked at just above four times.
Over the coming quarters, we expect our leverage to gradually decline, though we anticipate reaching a similar leverage ratio following the payment of the second milestone.
From that point, we expect our leverage to decline considerably given our expectation for EBITDA and cash flow growth.
And by the end of 2023, we anticipate that our secured net debt to EBITDA ratio will be below three five times.
Finally, let me provide an update.
Our 2022 guidance with six months completed and based on our current trends in our business. We are narrowing the range of our net sales guidance.
Now expect revenue to be in the range of $547 5 million to $562 5 million compared to our previously issued guidance range of 545 million to $565 million.
The guidance includes both biomass and my Sonics and the midpoint is unchanged, reflecting double digit organic growth for the year.
With the closing of the car to heal.
And the inclusion of spending related to its launch and ongoing clinical study we are slightly lowering the high end of our adjusted EBITDA guidance. Adjusted EBITDA is now expected to be in the range of $94 million to $104 million compared to our previously issued guidance of a range of 94 million to one <unk>.
Third and $7 million.
In addition, with the completed financing for car to heal in place. We are now providing full year 2022, adjusted diluted earnings per share guidance of a range of 47 to 57.
This guidance incorporates interest expense accruing at 8% on the $215 million deferred purchase price beginning at the closing of the acquisition as well as the interest on the company's approximately $430 million in term loans that will accrue at sofa plus 325.
Basis points.
This guidance also contemplates a full year 2022, adjusted effective tax rate in the range of 24% to 26%.
In closing, we continue to execute on our growth initiatives and maintain our topline momentum as we anticipate continued increase in cash flow and EBITDA as we delever, our balance sheet and prepare for future milestone payments related to Carty deal.
Operator, please open the line for questions.
We went out to begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
And our first question comes from Alex Nowak of Craig Hallum Capital Group. Please go ahead.
Great. Good morning, everyone I was hoping we could start with the organic growth guidance for the year I think the plan is to hit double digit organic growth maybe speak to the bridge to get to that range in the 8% growth today, you mentioned the improvement of their store to therapy supply chain and then some of the acquisition starting to kick in so maybe just speak to the guide there.
Yeah, Good morning, Alex and thanks for that question, Yeah, just just as a note we tightened the guidance with the midpoint once again.
Is in the double digit range and that's what we expect for the year.
As we look at our portfolio, we had certainly headwinds in our advanced rehabilitation product area as we talked about bolt supply chain domestically, which has now been cleared up and we started to ship on those pose here in the third quarter and then with the M. D. Our certification process in Europe , which we expect to get cleared.
In the late third quarter and begin shipping those units in the fourth quarter, when we add that into the mix with our continued growth across our business pain treatments in surgical solutions as well the double digit growth. There, we expect to achieve double digit growth for the year. So that bridge is pretty well.
Ill defined at this point Alex.
This is mark I'd just comment also that we would've been at that double digit growth in <unk>. If we didn't have the challenges on the rehabilitation side that we talked about.
That is helpful. And then maybe speak to the rep tone and the feedback after the summer conference. Obviously this is the first time, they've all gotten together after the acquisitions, but I'd, probably say even after the pandemic here, so maybe speak to what product set or acquisitions do they seem to be most synergistic to their own business and how do they ultimately see the hospital.
Physician office environment changing in the second half.
Yeah. It was a great meeting Alex last weekend and there was the first time buyer Ventas has had an in person sales meeting in two and a half years and obviously with the acquisitions of biomass in my Sonic and now car to heal it was a very exciting meeting it allowed us to network our sales reps across the gene.
<unk> a lot of the sales reps from from say my Sonics.
Surgical and my Sonics wound as well as the biomass rehab sales force have not met their counterparts.
Across the bio Ventas core business at all so it allowed us the network those but more importantly drive cross training across our product areas as we've talked about before we're blending our bone graft substitutes and our bone scaffold business together in one combined sales force of course, we've done training at all.
Ready, but we haven't been able to dive into as much in person training and networking as we did last week and then there's some other areas in our wound business.
That will bring them into the office space that we've talked about and allowed us to really complete the training there and we think as I mentioned this will be a big springboard. Two further momentum we saw great sequential growth here in the first quarter of the second quarter, you'd think a meeting like this and the synergies and opportunities in Arkansas.
<unk> sales force will enhance our growth going forward.
That's helpful. And then just one more if I could just on the pricing and what have you seen in July and August here with the changes around CMS are you seeing in the 8-K volumes and the price that you can charge. The docs you know relatively consistent with what the first half.
Well, we did see based on Asps reporting a dip in our pricing.
Daryl Lane Jellison.
Particular suite parts was already ASP reported but as we've talked about that has been countered by our rebate adjustments that per our planning and we're very pleased with the results of this and it's a credit to our market access team, we've been able to adjust to all of our rebates on our contracted business, which is a.
<unk> portion to our lower amounts that net effect Alex <unk>.
The gates any impact on the Asps, because we're paying less rebates on our contracted business. So as we've modeled that over the past several months that turned out exactly the way we thought it would.
So the first phase of this has gone well I would say there could continue to be some volatility in the coming quarters as we continue to adjust to the ASP environment, but we're very pleased with what we're seeing and in fact, gaining some key competitive accounts as the playing field has been leveled.
Once again, we feel very confident in our ability to continue to grab market share and the H a area we.
We have the largest sales force we have the largest portfolio of products and we think we have a market leading product enduro lane, our single injection products with the highest molecular weight. So from our perspective, Alex first phase went really well and we're optimistic as this continues to unfold.
Excellent I appreciate the update.
Yes.
Our next question comes from Robbie Marcus of Jpmorgan.
J P. Morgan. Please go ahead.
Hi, Yeah, thanks for taking the questions.
And maybe just start on first time, my EPS guidance for the year. It came in a good bit below where we and the street had been forecasting even after adjusting.
The recent financing so maybe speak to your views on how you're considering EPS growth.
Going forward relative to your views on growing sales and adjusted EBITDA and part two you talked about improving cash flow in the back part of the year. What do you think a good free cash flow conversion rate for this year and next year might be thanks.
Yes. Thanks Ravi this is mark.
I would say overall that.
When we when we think about the EPS guidance that we took on $215 million of debt that we have the interests. So you think about the increased level of debt.
The part of the the EPS number that we're guiding to and then also the interest rate that we have that we didn't have before but I would just reiterate that the interest rate that we have is really good as far as what's in the market today. So we feel good about that.
And then when you look at the rest of the year as far as EPS goes we're going to see an increase in revenue in <unk> from Q2, you will see an increase in revenue and 40% <unk>.
And so we're going to see the revenue drive that margins are going to come down a little bit and then when we look at our SG&A. We have some actions in place there to lower that as we go through the year EPS, we'll see kind of flat from <unk> to <unk>, just as we take on the additional debt and the interest rate that we talked about and then we would.
See that increase.
The increase in <unk> EBITDA increases.
The step up in revenue in <unk>.
And I would just say add to the to the color Mark provided Robby philosophically our goal at <unk> driven by our double digit growth in our growth in EBITDA, it's consistent growth and EPS as well as operating margin improvement.
These are fundamentals of of our goals and strategy at bio Ventas and what the company's foundation built on.
Okay.
Got it.
Maybe I'll use my follow up on that just maybe maybe to put a finer point on it you know you're you're growing sales and adjusted EBITA pretty meaningfully this year, but just that EPS is.
Down roughly 50% year over year. So I guess, that's the question is philosophically how do you think about.
You know when Youre doing future M&A, maybe starting up in 24 again growing earnings relative to just the top line.
Thanks, a lot guys.
Yes, I think when we by the time, we get to 24 will be in the three to three five times Levered until we will have gotten rid of a lot of the interest expense at that point in time.
The double digit commitment that we've made and then it's about double digit growth, it's really about scaling the opex and the infrastructure that we have in driving that increase in an operating margin over time. So it's responsible management of our expense and Hum.
Delivering on the growth that we've talked about so.
When we talk about M&A were.
We're not planning to do any of that until.
Looking at the end of 2023 at the earliest.
Then reevaluate our situation as we go into 'twenty four and start to look at that again, but we feel good about our plan to get to that point in time from where we are today.
Thanks, a lot.
Yeah.
Our next question comes from drew Ranieri of Morgan Stanley . Please go ahead.
Hi, Marc and Ken Thanks for taking the questions Ken.
Ken maybe just to go back to the H a component for a moment I know, we've kind of talked about this before.
But I was hoping we could maybe get a better sense of what's embedded in guidance from from a volume perspective, and if you are I think you mentioned, maybe some volatility.
But are you seeing any initial signs of like surgeon preference changes or anything within our within the portfolio within DHA market.
Yeah.
Yes. Good morning drew thanks for that question and so overall, we are very pleased with our ability to retain nearly all of our accounts.
As we've shifted the AOSP reporting certainly our contracted business with United and Cigna and some of the smaller payers has helped us retain that business.
We also think that will continue to drive higher volume and obviously in this environment. The volume growth is just as important and it's something that we watch very carefully certainly there's always pockets of volatility and we've seen that across certain geographies in the United States.
But those have been the gated largely by our ability to pick up a competitive business. So going forward in the second half of the year, we do see continued volume growth.
As a very healthy environment.
One where more and more patients enter the funnel of osteoarthritis treatment every every day every month.
And that certainly helps our business and our strong market penetration and can take advantage of that.
What's built into our forecast going forward is continued volume growth in our HIV business as we've seen before because we've seen no indication of impact on the volume and that's certainly something we'll take advantage of and as I talked about in.
In the prior question on H a.
A lot of our ASP impact all of our S. P impact has been negated by our ability to renegotiate our rebates on our contracted business, which is a significant portion and that has been true to our model and it's something that we're excited about at the same time I would just caution that because this is a change.
And the first phase of this has gone well we.
We expect some volatility in the coming couple of quarters is as we move forward.
Got it thanks, Ken.
Maybe just on notice I saw on the release that.
To review the review the trial decided to step away from that but maybe can you talk about kind of the strategic rationale now for for making that decision.
Are there other things in your portfolio that you're more excited about matching Carty Hill is one of those but maybe just update us on kind of the rest of the pipeline portfolio as well like pro cost.
Yes. Thanks for that question drew first let me be really clear on notice.
We do not know the results of the phase II trial that enrollment is complete.
But we do not know and those patients are being followed we won't know the results of the phase II trial until next year. So this decision was one that was more priority in financially driven and strategy driven versus anything else.
And as I mentioned in our press release will evaluate strategic options for our motives. Once we know the results of the trial, but as we look at our portfolio and we constantly evaluate our R&D and product development portfolio key part of our growth strategy. We've added a lot of things to it with the ACA.
Physicians of biomass semi sonics and to your point now car to heal and as we look at mode is the risk profile. The fact that it's not medical device development, but a biologic.
Almost pharmaceutical life developments and the cost involved with that.
And going to the comment earlier on EPS growth, we decided at this point it was best to curtail theater future development costs on modus.
But that was not an indictment on modus and I want to be clear on that you do not know the results yet at the phase II trial.
Yes.
Got it and just last for me on Carty Hill.
As you're kind of looking at 2022, maybe what investments are you, making this year on the commercial side I mean, we've talked before about you being potentially able to leverage the existing sales force infrastructure, but anything more on your go to market that you can provide in 2022. Thank you for taking the questions.
Yes, sure drew next steps or a limited market release in the fourth quarter, we will start doing cases in the United States.
In those cases, we're going to watch carefully for two things a making sure we're getting very strong clinical results. So the product is being used correctly and making sure we're developing the preauthorization and insurance pathway.
So those are key to critical commercial activities that will be ongoing as we enter the first the fourth quarter and into early next year as we look at those metrics and dialed those in we'll certainly continue to accelerate car to heal as it's as as warranted and as we see the coverage in <unk>.
<unk> dynamics play out the other aspect that will be working on is getting clinical publications of.
Of course, the IV study, we expect to get published by next year. We'll also be working on a couple of additional clinical trials now these won't be randomized controlled trials, but there'll be clinical trials to support reimbursement and we're also looking to add international launch a car to heal particularly in Europe .
Where again there is a lot of interest in this technology across the board and across the world and even by a lot of patients that suffer from osteoarthritis and have an osteo chondral defect, but we'll we'll be watching this carefully and updating on our progress we feel very good about the restructured deal.
Is it really a stage to unlock the full market potential of car to heal as we move forward.
Thanks, Ken.
And as a reminder, if you have a question. Please press Star then one.
Next question comes from Hassan of Goldman Sachs. Please go ahead.
Hi, This is Phil on for me Thanks for taking the question.
Following on on the motives point that we just left.
I think I want to understand kind of the decision tree from here so it sounds like.
You know versus what we had thought previously that the next step would have been moving on to the phase III trial. So it sounds like that is being paused or deferred.
Is there a kind of a pathway forward here, where you get positive phase II data next year, and you reconsider and decided to kind of reinstate that program or is the decision basically the modus will not be progressing as an asset inside your portfolio.
Yes at this point, we have to follow the phase two results and based on the strength of the phase II results will evaluate our strategic options with bio ventas will not be incurring the cost of a future phase III trial.
Okay. That's very clear thanks for that and then in your opening remarks can you you talked about an expectation for market improvement to continue in the second half of the year I imagine that that was.
Largely focused on the surgical solution side of the business and ended the bone graft substitutes and market can you talk about what you saw improved during <unk>.
What you expect to continue to get better in the second half of the year from that standpoint.
Yes. Good good question on that end and I would say we saw improvement in the volume of cases done per surgeon in the through the second quarter and that is really hospital staffing related.
A lot of surgeons have seen on their surgery day their cases curtail for maybe.
Where they're used to doing six or seven cases in a day down to three to four and a lot of that is hospital staffing where they don't have the staff. The ancillary staff to turn the room quickly we saw that improve through the quarter and continued into the third quarter as mentioned on the call. So we expect that to continue.
The type of surgeries that we do with both our bone graft substitutes as well as our bone scalpel are highly profitable spinal fusions and decompression and this is something that is a priority for hospitals to get those procedures done and get as much of their volume back as possible. So there is an incentive there that I think is draw.
Giving hospitals to get the staffing back in place to do as many of these cases as possible. So we do see this accelerating.
We go through the third and fourth quarter in this particular area that we live in and again this is 25% of our revenue.
Very specific to spinal fusion and decompression, which is where the bone scalpel as well as our bone graft substitutes are utilized.
That's incredibly helpful. If I could sneak just one more in.
<unk> previously talked about indication expansion on the <unk> side through the bone study I was wondering if you could give an update on where the metatarsal indication and then I think you were working on another indication as well I think on the scaphoid side. So if you could just give us an update there that would be very helpful. Thanks.
Yes.
That is continuing and you're right both metatarsal scale Floyd as well as JV.
Our studies that are underway and ongoing with oxygen and we don't have an update at this time, but we should have an update as we progress here in the next quarter or two.
Great. Thanks for all the color I appreciate it.
Yes, Thank you for your questions.
This concludes our question and answer session.
I would now like to turn the conference back over to Mr. Ken Rally CEO for any closing remarks.
Well thanks, everyone for your continued interest in <unk>, we are off to a strong start in the first half of the year and we are well positioned to deliver on our 2022 priorities in the second half.
We are excited to add car to heal to our portfolio and will provide updates as key milestones are achieved.
We look forward to further accelerating our momentum across our short and midterm growth drivers to sustain double digit organic growth expand margins and create stakeholder value through our enhanced portfolio and synergies from our recent acquisitions.
You very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.
Okay.
Uh huh.
[music].
Yes.
Yeah.