Q4 2022 Aziyo Biologics Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Z O Biologics fourth quarter and full year 2022 financial results call.
At this time all participants are in a listen only mode. A question and answer session will follow formal presentation to ask a question press star one on your telephone keypad, if anyone should require operator assistance during the conference Press Star Zero on your telephone keypad.
Please be advised that today's conference is being recorded I would now like to hand, the conference call over to Matt Steinberg Finn partners.
Thank you operator, and thank you all for participating in today's call.
Earlier today <unk> released financial results for the quarter and full year ended December 31st 2022.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events results or performance are forward looking statements.
Forward looking statements, including without limitation those relating to our operating trends and the future financial performance are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Lee you should not place undue reliance on these statements.
Listen description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our public filings with the SEC, including as he goes annual report on Form 10-K for the year ended December 31st 2020 to be filed with the FCC accessible on the SEC's website at Www Dot FCC.
Gov.
Such factors may be updated from time to time and as you know as other filings with the FCC.
The conference call and turn the conference call contains time sensitive information and accurate only as of the live broadcast today March 22nd 2023.
C O biologics disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure.
A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measures is available in the company's financial results released for the fourth quarter ended December 31st 2022, which is accessible on the SEC's website and posted on the Investor page of their website at Www Dot Zillow Dot com.
With that I will turn the call over to as Youll CEO Randy mouse.
Good afternoon, and thank you for joining the call today, we will provide an overview of our business, including recent achievements and lay out our key goals and objectives for 2023.
We concluded 2022 on a very strong note posting record annual revenues of $49.2 million led by robust sales growth of our simple term and Kangaroo product lines, Matt will provide additional details on these and other financial results later on in the call.
But first I would like to address the announcement, we made on Monday regarding the receipt of a not substantially equivalent or N. S. C determination from the food and drug administration for our Kangaroo R. M. Antibacterial envelope as a reminder, kangaroo R. M is the latest advancement of all.
Kangaroo product line and contains the antibiotics rifampin, and minocycline, which have been shown in preclinical testing to prevent bacterial colonization.
As noted in Monday's announcement, the items in the N S C relate to drug testing and centrally a request by F. D. A to modify in in vitro drug release assay employed as the manufacturing control that is used primarily to assess batch to batch variation.
And support manufacturing process changes.
We believe that the most expeditious path forward is to work with the F. D. A to provide the additional data requested in a timely manner.
Well, we cannot provide a firm timeline of how long this will take right now we do know that the request does not involve the generation of any additional human or animal data.
Our team is already hard at work and we will provide updates on our progress.
While we work diligently to resolve the F D A's outstanding questions around Kangaroo R. M. We continued to expand the opportunities for our other product lines as announced earlier today, we have entered into a distribution agreement with C. Entre for our simpler Durham Acellular dermal matrix.
This partnership allows us to further accelerate the rapid growth of simple term. It also supports our overall growth strategy of profitably expanding our proprietary biologic platforms to improve patient outcomes.
Now let me provide a quick overview of our company.
Everyone at zero is focused on our mission of humanizing medical devices for better patient outcomes.
Our marketed products and pipeline programs are designed to mitigate the key mechanisms of failure that commonly occur with implantable medical devices.
These failures include migration fibrosis.
Erosion and infection.
Kangaroo in simpler derm are indicated for use in over 700000 surgical procedures, each year and address a staggering $7.5 billion in added costs associated with surgical complications.
Our Kangaroo RM technology is designed to address key mechanisms of device failure, namely infection and we are confident that we are strongly positioned to capture a significant portion of the $600 million pacemaker protection market.
It is important to reiterate that Ftes completed review did not raise any additional questions surrounding the appropriateness of the pathway or the majority of the data submitted to support the filing. Consequently, we do not expect to appeal the decision and we believe that the most.
Expeditious path forward is to work with the F D. A to provide the additional data requested.
Regarding our simpler derm product line breadth.
Reconstruction is a $500 million market, providing us with significant growth potential and an evolving competitive landscape.
The market leader in this space was acquired by a major pharma company, creating an opportunity for us to take market share and we have already witnessed rapid uptake of simple Durham amongst surgeons, who perform breast reconstruction surgery.
And we are not the only ones excited about the benefits that simple derm has to offer as announced earlier today, we have entered into a sales agreement with CN shrunk for simple term.
So the answer is a medical aesthetics company focused on progressing the art of plastic surgery and is a leading manufacturer and distributor of silicone breast implants.
Have an extensive network with 55 dedicated sales professionals and a trusted surgeon relationship across the United States.
We believe this partnership will accelerate the already impressive sales trajectory of simple term.
I'll now turn the call over to Matt for a review of our financial results.
Okay. Thanks, Randy.
We continued to generate solid revenue growth in the fourth quarter and closing out a record revenue year.
We achieved 17% growth in our fourth quarter 2022, net sales of 12 of $12 $7 million.
This growth was driven by strong performance within our Kangaroo and simple derm product lines, which in aggregate grew by 30% compared to the prior year period.
Our gross margin expanded by eight percentage points on a GAAP basis to 39% as compared to 31% in the previous year's period.
On a non-GAAP basis, which we consider to be more indicative of our operating performance gross margin grew to 46% up from 39% in the fourth quarter of 2021 inch.
The increase was due to efficiency improvements primarily in our human tissue processing operations.
Total operating expenses were $13 $8 million for the fourth quarter 2022, compared to $11 $2 million in the corresponding prior year period.
The increase was primarily due to legal expenses and updated estimates of contingent liabilities in excess of currently available insurance coverage related to the 2021 recall of our fiber to cell product.
Increased sales and marketing also contributed to higher operating expenses, partially offset by a decrease in research and development.
Our bottom line results for the fourth quarter of 2022 also included $5 million of other income related to a reduction of the company's revenue interest obligation, which is based on the forecast the timing and extent of net sales for the company's kangaroo in cardiovascular product lines and the associated revenue and milestone payments.
Combining all of these results our net loss for Q4 2022 with $5.4 million.
As compared to $9 $1 million in the corresponding prior year period.
Turning to our full year 2020 to resolve as Randy mentioned, we achieved record revenue of $49 $2 million excluding.
Excluding fiber cell sales of $4 $9 million in 2020, one net sales from current products increased 16% and the full year 2022 compared to the prior year.
To provide.
Greater transparency and perspective on these results I will now break down our 2022 revenue performance by each of our four business segments.
Device protection produced $9 $1 million in revenue and grew 15%.
Women's health generated $7 $5 million growing 48%.
So biologics sales were $25 $3 million representing growth of 15% excluding fiber cell that is then lastly, cardiovascular produced $7.3 million in sales, which was down 3% from the prior year.
As of year end 2020 to our cash position was $17 million, we remain focused on prudently managing our expenses and reducing our cash burn.
In that regard earlier this week, we implemented a significant reduction in our workforce, whereby we lowered our head count by about 10 or 12%.
This translates to annualized expense savings of approximately $4 million.
Going forward.
We continue to work on a number of strategic transactions and we anticipate these deals will accelerate revenue growth, while also reducing cash burn.
However, because we can't predict the exact timing of implementation periods for these relationships it would be difficult to provide specific revenue guidance. At this time. So we've chosen to hold off on that for the time being.
We expect to revisit that revisit this later in the year as we gain more clarity on King grew our EM and other strategic milestone for our business.
We look forward to updating you on our progress.
With that I'll hand, it back to Randy.
Thanks, Matt we're poised for a transformational year at us.
With almost $50 million in revenue, 30% growth in our proprietary lines.
And the use of our products in over 50000 surgeries annually, we are well positioned to capitalize on the multitude multitude of opportunities that lie ahead.
As we move forward our priorities are to one <unk>.
Ron our four business units as effectively as possible looking for opportunities such as our recent pickups in gross margin to improve our profitability.
To work with F D a to gain clearance of Kangaroo R. M.
We want to do this quickly, but more importantly, we want to get this done to F. D a satisfaction.
And we have confidence in our team now led by our Chief Scientific Officer, Dr. Michelle Williams.
And three continue to profitably scale, our businesses by entering into strategic partnerships like the one we announced today with centura that fuel rapid growth in a cost efficient manner.
Lastly, a note of gratitude.
Our ability to continue executing on our strategy for humanizing medical devices for better patient outcomes would not be possible without the dedication of our employees. The ongoing support of our partners and investors and continued physician and patient trust in our products and mission.
Thank you to all involved and with that I'll turn the call back over to the operator for questions.
Thank you.
And ladies and gentlemen at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Ross Osborne with Cantor Fitzgerald. Please state your question.
Hi, guys. Congrats on the strong for you in simple Garen partnership.
Starting with the F D. A notice I understand youre not wanted to provide an updated timeline for approval and commercialization.
As far as providing the FDA with the requested data can you walk us through the lab test data you need to perform in detail and the level of difficulty that's quality control test as well as the bar that the FDA is asking for.
Ross.
I think as Randy.
Great question, what I can so the specific tests that we're talking about is called an in vitro elution assay.
And.
No.
What I can so what I can tell you about it as the FDA is looking this is a test that's done after manufacturing on each block.
And what it's designed to do is to detect batch to batch variability.
Hum.
The F. D. A is is looking for us to do is develop a method, where we can get the.
Antibiotic.
Off of the alluding desk and off of the Kangaroo membrane itself and into solution.
In a faster manner than would otherwise happen naturally so instead of normally we would take the device and we would.
We would put it into a beaker of basically water sailing.
We would allow the antibiotic to elude over overtime, what they've asked us to do is to accelerate that test and to do it.
Instead of what would normally take a few days.
To be able to get it done within.
Within a few hours and more.
More completely get the antibiotic out of the desk off the device and and into solution and there are a number of different ways to do that including using things like detergents and D. M. S O an acidic conditions and the like and that's what our that's what our our R&D team.
Is is developing it's fairly straightforward it will require though.
Assay validation and then we'll have to gather that data and package it up and send it back T. F. D. A I would say in a pre COVID-19 environment. This would be a lot easier to nail down it seems like particularly when something like this requires the use of out.
Syed vendors, what normally would have been more predictable becomes a little less predictable and so that's why we're hesitant to chicken.
Can you give any more exact timeline on this we don't think though this is a protracted kind of situation, where it's going to require you know like I said long term sort of animal studies or or anything like that and as soon as we do.
No more about the time frame Ross, we will obviously make that.
Make that known.
Okay understood and thanks for the additional color there.
And then maybe turning to a potential partnership for Tanger Kangaroo around following the FDA pushed back yeah.
This does not occur or isolate how should we think about your burn rate. This year and can you provide a little bit more color on.
On your cash runway.
I'll kind of headcount reduction sure I'll.
I'll just make a quick comment we are.
We are still.
I'm actively involved in the creation of a partnership.
For for Kangaroo a R M.
And then this.
Setback did not derail that it it it Mike.
Mike might delay it a little bit, but it certainly it certainly didn't derail that so that's something we still think is is in our future and if that changes well, let you know Matt you want to provide guidance on.
Sure sure. So as we mentioned Ross we are.
<unk> ended the year at about $17 million.
And.
We have taken some actions recently difficult, though they may be to reduce our cash burn and reduce expenses more generally and.
Some head count reductions that took place this week.
Where also we have started to implement and will continue to implement other cost savings initiatives that don't have anything to do with head count.
So we think that actually will make a very material difference in our cash burn historically, if you look back over the last few quarters, we've been averaging about $5 million a quarter.
And our burn rate and we actually believe that we can more.
More or less cut that in half so end up.
In the $2 million to $3 million per quarter range over the course of the next couple of quarters.
So.
You know, where we're working that process in a very detailed bottoms up way, but that's that's our objective and I'm quite confident that we can get there. We will also be working on growth initiatives that will actually bring more money to the bottom line in a cost efficient way. So you know the <unk> deal is a great example of that where.
Where.
We're generating a pretty healthy gross margin on that product line and in this way will gain access to a much bigger sales footprint and a.
With a company with a partner where this is a really strategically important product for them to add to the bag. So we're actually quite.
Quite optimistic about what can be done with that partnership and I know that Sandra as a partner is very eager to to get that up and running as well. So that's an example of something that we're doing we actually have a number of other similar initiatives in the works and you know we're looking forward to rolling that out over that.
Coming weeks and months.
Okay, great. Thanks for taking my question.
Thank you and just a reminder to the audience to ask a question press star one on your telephone keypad.
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Our next question comes from Josh Jennings with TD Cowen <unk> Company. Please state your question.
Hi, good afternoon. Thanks for taking the questions I was hoping to just ask about I mean, it seems like Kangaroo Memorandum has continued in the fourth quarter pre Kangoo R&M approval and was hoping to just better understand where we're just kangri shading.
Today, and when you actually.
But should we be thinking about continued momentum in front of <unk> approval.
It sounds like it's not going to really slow in 2023, and then R&M could accelerate the share gains that we have.
Experiencing but wanted to get a little bit more color just on share and the momentum in 2023, so far.
Yeah. So Josh thanks for thanks for the question it would be difficult to sort of describe.
I think kangaroo as in a you know what a normal way that you would market share in that.
It really doesn't share of the market with anything else. It is not a direct.
It is not a direct competitor to any other product and particularly its not a direct competitor.
To.
Tire ex the indications are actually explicitly different so in that case. It really is in our it is in a class by itself.
We've seen we've seen really nice growth.
In the Kangaroos space absent. The addition of of our M and we're very pleased that we have this we have this base business. We also have this partnership with Boston scientific.
For.
For the distribution of.
Of Kangaroo and and that's progressing nicely internally we've also made.
Some changes with our sales organization that we think will will hopefully also a focus and accelerate our sales force on the opportunities, particularly with our M. So our I'm sorry, with Kangaroo, so while we patiently or if you're like me impatiently weight to the.
We are the launch of our M. We are seeing continued.
Continued nice growth with Kangaroo at at very healthy very healthy gross margins and that is becoming a progressively more profitable business for us.
Understood. Thank you and then just on the Derm just wanted to ask about the central partnership congratulations on that and.
And I don't know if.
Understanding at this juncture has kind of a mid teen share.
The augmentation segment, and maybe stronger share in the recon segment, but just wanted to.
I don't understand how you view that opportunity.
And then you have to have any just because of the central salesperson Cape.
Capabilities to sell simple term it sounds pretty straightforward blades details you can share on that.
And if the answer is currently selling.
And acellular dermal matrix product, we're partnered with anyone else. Thanks for thanks for taking the questions.
Yeah. Thanks, Josh no. There there are they are currently not selling an acellular dermal matrix they have the sales force.
Of approximately 55.
Our reps, including a segment of those reps that actually specialize just in in reconstruction or actually reconstruction.
Experts. This is reconstruction has become a priority.
For them and for us.
You know what this this is really for us it's like shooting simpler to them out of a cannon.
You know we have a limited.
Hum.
Sales group now of our of our own that is distributing it but it opens up the geography geography for us in the United States really exponentially in and does so in a way where the reps. These 55 reps that are carrying this product.
In these cases every day, where the product would would would be used and so we think it's.
No for us.
We think it could be a.
Very very significant acceleration of a product that's already growing what something in the order of 40.
40%.
Year over year and so that's that's that's.
That's saying, let's say quite a bit. We also think it's a good partnership in terms of the product being as strategically important for CN truck as it is.
For us so we're super excited about it.
No that's great to hear thanks again appreciate it.
Thanks, Josh.
Yeah.
Thank you and there are no further questions today and with that we conclude today's conference. All parties may disconnect. Thank you all for your participation.