KORU Medical Systems Inc. Q1 2023 Earnings Call
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Greetings and welcome to the co room medical systems first quarter 2023 earnings call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded today Thursday may 4th 2023.
I would now like to turn the conference over to Greg from Gil Martin Group. Please go ahead.
Thank you grant and good afternoon, everyone earlier today co Ro Medical systems released financial results for the first quarter ended March 31 2023.
The press release is available on the company's website.
During this call we will make certain forward looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today.
Actual events or results could differ materially due to many risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC.
We assume no obligation to update any forward looking statements I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter.
During the call management will discuss certain non-GAAP financial measures in our press release and accompanying investor presentation, and our filings with the SEC each of which are posted on our website you will find additional disclosures disclosure regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures in our press.
At least in the accompanying investor presentation in those filings.
For the benefit of those listening to the replay this call will be held was held and recorded on Thursday may four 2023 at approximately 430 P M Eastern time.
Since then the company May have made additional comments related to the topics discussed.
And please refer to the company's most recent press release releases and find it filings with the SEC joint.
Joining us on today's call is Linda <unk>, President and CEO of Cobra Medical systems, and Tom Adams Co Road Medical's interim Chief Financial Officer, Linda. Please go ahead.
Thank you Greg good afternoon, everyone and thank you for joining us today.
During today's call, we will use slides to support our commentary.
To start I will walk through business updates for the first quarter and provide updates on our progress thus far for 'twenty three.
Tom will then discuss our financials and 'twenty three guidance.
I will then end with an innovation update and closing comments.
Following our prepared remarks, the call will be opened up for Q&A.
Yeah.
The first quarter of 2023 marked a strong start to the year for the company as our team continues to make meaningful progress towards our vision 26 strategy of achieving $60 million in revenue.
This strategy is focused on one of the largest health care macro trends movement of care from the hospital to the home.
In the quarter, we made significant progress in all three of our core business areas, delivering our sixth consecutive quarter of double digit growth.
In our U S core business, we saw growth accelerate to 15% and.
And we remain focused on increasing our leadership position in the growing subcutaneous immunoglobulin market.
In the quarter, we saw growth in several key areas, most notably our pump business indicate increases in new patient starts and continued penetration of Prefilled syringes.
In our international business and increase in S. E drive availability combined with our expansion efforts led to a strong uptick in growth in the quarter to 23%.
Importantly, we continued to progress our novel therapies business with the goal of adding additional drugs to our coral freedom subcutaneous pump infusion system.
In the first quarter, we grew novel therapies revenue by 62% and added another pharmaceutical collaboration bringing our total to 15.
And our focus on building our foundation I am pleased to report that we passed a significant milestone in the quarter as we completed our transition to a dual source contract manufacturer for our consumables business.
We also completed the closure of our Chester, New York facility and consolidated operations in our Milwaukee facility.
Our operations and project management teams, great efforts will pave the way for further margin improvement and inventory reduction throughout the year.
With the momentum with which we started the year.
We remain confident to reaffirm our guidance and expect to end the year with revenues between 32, and a half and $33 5 million.
Lending growth in the range of 17% to 20%.
I would like to begin today with our U S business, where our team is focused on continuing to build our leadership position and sub Q.
Again this.
Quarter, we saw our growth exceed the overall market as we reported 15% core U S domestic growth.
We continued to see the number of patients on sub acute therapy rise as all drug suppliers have reported consistent supply and continue to focus their efforts in this area.
While there are occasional fluctuations in reported monthly IV gram that data the overall SCID drug market trends remain positive.
This is evidenced by the fact that volumes grew 7% and 11% in the first and second half of 'twenty two respectively.
Volumes jumped to 12% for the first two months of 'twenty, three but fell in March consistent with scripts, resulting in a flat Q1 versus 2022 based.
Based on our review in conversations with the IV drug manufacturers, we remain confident of double digit market growth for 'twenty three. Additionally.
Additionally, overall <unk> U S pump volumes grew by 16% for the first quarter of 'twenty three a strong signal of our strength in our specialty pharmacy account activity and new patient starts.
We continue to see increasing penetration of Prefilled syringes in the market due to their overall convenience and patient preference.
Conversion to prebuilt threatened as a critical business driver as our freedom edge is currently the only pump with FDA clearance for use with pre filled syringes.
First quarter saw over 130% pre fill trends growth with overall penetration increasing to 12% of the market.
The current formats available and pre filled syringes are 510, and 20 ml, which address approximately one third of the Alberta market.
Last month CSL the leader in SCID therapy reported exciting news they received FDA clearance for their <unk> 50, a month.
This approval will enable a much broader addressable <unk> market is over 60% of patients require greater than 50 amount.
CSL expects, a 50 ml greenfield trends will be available in early 2004.
Expected 10-K approval ahead of their launch and we will be well positioned to capitalize on the opportunity.
Overall, a great start prior U S team outperforming the underlying drive market growth.
Moving to our international business, we have seen increasing positive momentum we ended the first quarter with growth across several key markets, representing 23% year over year growth.
Expanding internationally is a key growth driver for the company.
New patient starts fueled by the increase in supply in the EU continue to drive growth and we are well positioned to benefit with our distribution in over 25 countries.
In the first quarter, we strengthen our international distribution with sales into Canada.
All contributing to our overall double digits international pump sales year over year.
We have also begun to focus our efforts on conversion of electronic Pompe patients in Europe , and I would like to provide a few updates.
The early feedback on our electronic pump conversion efforts is positive with health care professionals and patients appreciating the benefits of our freedom system.
The electronic pump comparison trial is expected to be delivered and completed in December of 2023.
Moving to our novel therapies business during the first quarter, we brought our novel therapies collaborations to 15 as previously announced we signed a development agreement with <unk> pharmaceutical manufacturer to use the freedom system from upcoming <unk> Prefilled syringe product.
This builds on our leadership position in the <unk> sales market and demonstrates that our market experience patient insights and pharmaceutical collaborations capabilities make core medical the partner of choice for SCID device innovation. This program does not require human clinical trials and we expect it to.
Launched commercially in the next one to two years.
New collaborations are essential to our empty strategy and the novel therapies pipeline as appeal for increased signed collaborations.
<unk> team has worked hard to build a funnel of 10% to 15 additional pipeline opportunities.
Funnel spans new therapy areas indication opportunities from existing partners geographic expansion and faced progression.
We have seen a steady intake into the funnel, including new interest in infectious disease.
Increasing interest from oncology opportunities and new geographical targets.
Taking a look at our collaborations in total we now have 15 collaborations including over $2 8 million potential patients and the Tam of roughly $2 5 billion.
Roughly two times, our original aspirations with.
With the execution of our Q1 collaboration in our current pipeline of new opportunities. We are one step closer to our milestone of ending 23 or 'twenty total collaborations we feel we have a clear line of sight to our 26 commercialization goal with multiple phase III opportunities as.
As we look to the rest of 'twenty three with the pace of pipeline to signed deal. We expect our collaborations to increase in the back half of 2023.
Thanks to the team for a great start.
223, I will now turn the call over to Tom to review, our financial results and guidance.
Thank you Linda and good afternoon, everyone I'm excited to report a strong quarter of 18% growth with total net sales of $7 4 million, an increase of $1 2 million over the prior year.
That's the core led with 15% revenue growth that was driven by increases in volume for pumps consumables from new account wins in our key specialty pharmacy accounts and continuing to shrink and prebuilt penetration.
International core net revenues increased by 23% with growth across several key markets.
Driven by international expansion efforts and increased availability of <unk> drug.
Novel therapies net revenues grew by 62% driven by a nonrecurring engineer and sharing innovation service agreement with revenue supporting progression toward a clinical supply milestone.
As we look at our gross margin, we can think about margin progression in two halves for 2023.
In the first half, we expect margins to range from 55% to 67%. We are on track with a 56, 1% gross margin reported in the quarter.
During the quarter, we completed our manufacturing transition to a third party CMO and we can and we consolidated manufacturing into our new site in Mahwah, New Jersey.
This consolidation allowed us to close down and exit our Chester facility.
In Q2, we will be recognizing on the P&L of the incremental costs incurred from Q1 during the manufacturing transition period, and therefore expect to see a similar margin profile to Q1.
As we as we look at the second half of the year, we expect significant improvements in gross margin with two full quarters of lower cost outsource products, lower labor and overhead and improved efficiency in mahwah.
This will lead us to achieving strong second half margins in our plan to exit the year at a gross margin rate between 60% and 62%.
Our cash balance at the end of Q1 was $12 2 million and represented a $5 2 million decrease from the beginning of the year.
Similar to last year, we planned for a higher level of cash burn in the first half than in the second half.
For instance, you might recall that our cash burn in the first half of 2022 was about $7 million and.
And we reduced that to under $1 million in the second half we.
We expect a similar cash usage pattern and this year, we're about a 90 10 split between the first and second half.
Given this pattern I wanted to spend a few minutes on first quarter cash burn and we'll come back to outlook and expectations for the remainder of the year on the guidance slide.
As we look at the usage of the $5 2 million of cash in the quarter. We saw the majority or two eight coming from working capital three major areas in the form of higher accounts receivable driven by higher March revenues.
A higher level of transition inventory to avoid supply disruption as we move manufacturing locations.
And the higher level of payments driven by bonus and year end accruals.
Net losses, excluding noncash items were $1 8 million of which the biggest driver was total operating expenses for the first quarter of 2023 at $7 2 million, primarily due to innovation and investments in research and development.
We expect a lower overall cash burn in 2003, and continuing to prioritize our expenses and capital plans. According to our revenue growth goals, we will come back to cash outlook on the next slide.
We reaffirm our year end guidance of a cash balance greater than $10 million driven by working capital improvements revenue growth and gross margin expansion.
We are reaffirming our outlook and expect the following for the full year 2023.
Revenue to be between 32 5 million to $33 5 million representing growth in the range of 17% to 20% and as previously stated we have identified several key milestones we will attract throughout the year that will serve as the foundation for revenue growth.
These include.
Expanded novel therapies pipeline with five additional new collaborations expecting more of these in the back half with one already signs, bringing our total collaborations to at least 20 by the end of the year.
Two five 10-K filings in the second half of the year.
Core SCID drug market growth.
Greater than 10% and pre fill penetration increasing to the 15% range.
Our gross margins between 58% to 60, 60% for the full year and to exit the year between 60% to 62% gross margin.
Key drivers behind the increase in our 2023 gross margins that were successfully completed in Q1 include <unk>.
Completion of the manufacturing transition, including the trust or site closure and consolidation into mahwah and ramp up of our outsourced consumables.
Contract manufacturing.
With this we target 55% to 57% gross margin for the first half.
More than 60% margins in the second half of 2023.
We expect our cash balance at the end at year end 2023 to be greater than $10 million.
Given our revenue and gross margin guidance. The other major drivers include total operating expenses for the year inclusive of stock compensation expense of $30 million and we expect to see higher sequential level of R&D spend in Q2 as we advanced several of our key product development programs into its next phase of development.
And an improvement in working capital, including lower lowering inventory by approximately $2 million throughout the course of the year and then keeping our DSO and <unk> balances in the range of 45 to 50 days and finally, receiving the ERC credit of 700000.
With these assumptions this gets us to the ending cash balance of greater than $10 million we.
We continue to expect to breakeven in the second half of 2024 and with enough cash to execute our strategic plan.
While we may look to increase the cash on our balance sheet through through non dilutive debt financing to fund our growth we are not anticipating or planning any equity raises at this time.
I will now turn the call back to Linda for closing comments. Thanks, Tom.
Given our investment in R&D I wanted to spend a few moments laying out our progress in this area.
We have a product today with our freedom and fusion system that is trusted and preferred by patients and we are continuously looking at ways to further support our patients and customers as.
As we think about innovation, we consider both new products that we're launching a new label indications that we add with the ongoing work of our pharmaceutical collaborations.
As a reminder today.
Our freedom system has the largest drug label for large volume subcutaneous drug delivery with nine label indications in the U S and 13 ex U S and participation with biopharmaceutical companies.
From a new product perspective, our focus is on comfort convenience and connected to.
The three seats as it applies to our freedom infusion system.
For 2023.
We have a few exciting innovation milestones, including afraid emerge and freedom 60 line extension and a new 500 10-K filing for our consumables high flow needles and precision flow tubing in the fourth quarter.
Looking ahead, we are working towards our next generation pump platform, which we expect to rollout before 2026.
The second focus of innovation for the company as new indications for commercial use and the near term, we expect a new core <unk> indication for pre filled syringes 50 amount in the second half of 2023, and we expect multiple new drugs on the freedom system over the course of the next three to five years and a.
<unk> will continue to be an important priority as we look to drive further improvements for our patients and customers and expand our leadership as a drug delivery company.
In closing another great quarter of performance of the company.
As we continue to demonstrate significant progress in advancing our strategic priorities.
We have built strong fundamentals in our U S and international commercial business strong.
<unk> business development capabilities, and our novel therapies business and.
And our innovation efforts are beginning to yield progress.
The future of the company remains bright as we move through the remaining quarters. You can expect to see continued execution toward our milestones backed by a strong and determined team with a great vision and continued momentum in closing I want to thank our employees for another great quarter.
Operator, I will now turn it over to you for Q&A.
Thank you <unk>.
And if you would like to register for a question. Please press. The one followed by the four on your telephone you'll hear its retail prompt to acknowledge your request to question has been answered or you would like to withdraw your registration. Please press. The one followed by the <unk> III and.
And one moment please for the first question.
The first question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.
Hey, good afternoon, everyone. Thanks.
Thanks for the questions nice nice start to the year here.
As we think forward to the balance of the year.
With <unk> in the books, the comps do get a little bit tougher here, but you have a lot of momentum around the core business right now.
How would you have us think about the cadence of revenue growth.
There anything you would suggest we have in mind when thinking through the modeling of the next few quarters again, whether that's at a company level.
Or looking at the individual segments. Thank you.
Yeah. Thanks for the question Jason.
Maybe I'll start and I'll turn it over to Tom for additional commentary first of all if you recall from last year, our overall core business.
Our core U S and international business grow in the range of about 11% and we're looking to uptick that growth this year somewhere from the range of 10% to 15%.
See strong fundamentals obviously.
The U S core we see the market coming back we see continued penetration in pre filled syringes.
So we feel quite good.
But would probably expect.
Overall.
Not huge elevations until we start to see that market growth continued to elevate for our international business again strong performance relative to if you recall last year, we kind of had single digit growth in the first half up to 15 and now we got it about that 20% range.
I would continue to.
To expect that kind of outlook Kevin.
The return to supply in those markets and our increasing penetration into several different countries of note. This quarter was Canada, we see increases in Germany.
So we feel good about our international business as well so think about an overall uptick up a couple of points from where we are last year.
Between our core.
Total core between domestic and international.
Okay, Linda Thanks for that but just maybe on a growth rate basis like notes meaningful inflections, one quarter to another maybe staying within the.
For the full year growth rate band.
As we think forward on the on the growth rate per quarter.
Maybe I'll hand that one over to Tom.
Yes, hi, Jason Thanks for thanks for the question.
Yes.
Yes on the core business.
We follow obviously the market trends and.
And we grow we grow with the market as you know we lagged the market generally by a quarter.
We saw a nice growth in this past quarter as you can see.
15% with a with a market growth a nice market growth that we saw in Q4 last year. So we continue to watch that market growth and when you look at as Linda mentioned when you look at the U S performance, we saw nice volume performance here in the first quarter, we expect that.
That trend to continue.
Obviously in our O U S business we.
We expect to continue to.
To increase our business on the U S side with our with our projections. So Jason I don't know overall, if you're looking for a specific number in terms of our core business and its elevation, what I would say to you is that overall you saw growth in the first quarter in core between domestic and international.
About 16%.
I'd say.
Within our overall guidance range for the remainder of the year is probably the right place for us.
Okay, Yes.
Exactly I was looking for I mean, I think there is maybe a little bit of a tough comp there in <unk>, but then I think we'll probably acknowledged but but no otherwise that's exactly kind of what I was looking for.
Maybe if you have it right on through already I'll, just yeah Q3, given we cleared a backwater.
Yes, okay.
Okay totally got that and then.
The the 50 ml opportunity with his intra maybe it sounds like that could be it could be pretty large I don't want to.
Get too far over our skews here adults. So maybe first how are you thinking about that in terms of contributions next year and I know, it's early but again it sounds like it could be pretty big.
And then I think Thats one of the two 500 10-K filings that you are referencing there Linda can you help us out with what the other one is and sorry, if I missed on the call.
No.
So first let me just start with pre filled syringes. So overall, we continue to see great growth over 100% growth again in pre filled syringes and you really see these dominating versus vials and what we see in the overall market performance.
So pre sales overall will continue we expect the penetration at about 11% now to elevate to at least 15% by the end of the year that assumes that we.
We don't have anything on the 50 ml, which comes into 2023. Our current expectation is that we wont have that product in market with CSL until 'twenty early 2024.
Hmm.
And with that what we can see there is 65% of patients take over 50 ml of therapy. So obviously as you know it will be a big driver when it comes we see patients loving the presale format, we see.
Prescribers.
And we see pharmacists continually pushing that because of the patient convenience. So certainly a lot to come in that area. So yes.
One of the 500 10-K's, we expect is on the 50 ml clearance with presale in the back half the other one as.
As noted on the last slide is on our consumables business, we're pretty excited about that one and expect to see some major improvements in both comfort and convenience for our patients.
Alright got it yes, sorry, I was trying to access the deck here, so sorry, if <unk> been.
<unk> been having a hard time getting to getting access to that so I'll look into that a little bit later and then maybe one final question here.
When we it looks like the milestones here on the operational front in terms of the.
The facility transitions and everything should get you some pretty good line of sight on gross margins.
Are there any other puts or takes we should consider.
Kind of a similar question that I had on the on the revenue growth side, but more on margins is there is there anything that might move you to the upper upper end or lower end.
Gross margin, whether it be mix or any other factors. Thank you.
Yes.
I'll, let Tom handle that one.
Yeah, Jason certainly as I as I mentioned in the script, 56% is where we're where we're targeting four for Q2 and then you'll start to see some significant improvement in the second half of the year.
As we start to recognize the benefits of the of the outsourced facility and the benefits are locally.
With a more efficient facility.
When we look at potential upsides mix is certainly one.
Which could go one way or the other depending on our unit volume.
We generally have a higher mix for our pumps product versus our consumable so.
Depending on customer demands you could see some puts or takes on the mix side, but I would say generally we have our forecast pretty well built and.
As I mentioned in the script those margins are pretty much.
We're pretty much on track to deliver to deliver those margins that I mentioned earlier.
And maybe the only other thing I would mention is NRT revenues.
As you know if theyre more innovation.
Tend to.
Sometimes see lower margins on an innovation agreements because we trade does for longer term commercial commercialization opportunities.
Clinical if its clinical that the margins will be higher and we can't always predict the mix on that one.
And the next question comes from the line of Alex Nowak with Craig Hallum Capital Group. Please proceed with your question.
Okay, great. Good afternoon, everyone I was hoping just for to expand in the market with regarding the weakness in March there maybe expand on it what are the drug companies are saying out there for why March did come in flat year over year. Despite January and February are being up and then what are they seeing in April and even the start of May here.
Yeah. So overall I would say on the outlook for the total year from everyone that we've spoken west continues to be positive and.
Looking for double digit growth, which we saw in quarter four and for the first two months of January and February Nobody has any real inside our explanations for that Droppage in March so we're anticipating everything to come back in Q2 forward. So no no concerns around plasma supply.
<unk> no concerns around overall patient diagnosis rates, so nothing extraordinary that one that would explain that.
There were some consolidations.
I mean, just just maybe Alex from our side and not them. If you recall, we certainly saw CBS had sold off a number of their pharmacies and consolidated and that did affect our business through fourth quarter of last year and a little bit into this year. So that could be also an explanation for some of that.
Sure.
Okay, Theres distribution dynamics with that okay understood with the 58 milliliter cartridge preferred purchase coming out do you need to do anything with pumps to make that purchase work or is it.
Hey, really just that.
Clarity showing that your devices approved for that without new cartridge.
Yes, we did perform human factor studies with our device and the pre filled syringe. There is one small change in the adapter that we're adding to our system, we don't see it as being anything that.
Given our freedom or human factor studies, we don't see it as being anything that will be a complication.
For our patients and again the overall reduction in staff is pretty.
Any significant now that you've got pre filled syringe is across the entire range from CSL, so great job on their part.
Okay understood and then other novel therapies pipeline again, I haven't had a chance to look at the deck either but.
Maybe walk.
<unk> deals that you now have signed were there anything in the quarter, whether it be some of those clinical developments move forward, maybe it moved from phase II to phase III or we got some sort of data or any of those clinical developments, where maybe it took a step back or maybe it's going to be cut from the program just help us update us on the <unk>.
None of the pipeline.
Yeah. So.
First a couple of key positive.
Thrilled, but nothing fell out.
With everything going on right now with clinical trials in biotech in general I was really pleased that we didn't see any of our clinical trials drop out or fail.
Second I would say clearly we're pleased with having another indication.
Third there is probably one candidate that we believe will progress to phase III, we're hoping in this in this quarter.
Having said that I would say the other big Big thing that we're excited about is we have.
Double number of opportunities on deck as we have in the pipeline I'm sorry in the NDA signed collaborations so think about it like it took us about a year to get those 14 15 collaboration signed.
Usually from the time, we start talking to a customer until we close to the six to 12 months. So you can expect most of our increases in collaborations to come in the back half.
The up 23, and overall I would say good movement good progression.
We're excited our teams are busy.
I measure that by how often I see any of our R&D people associated with that business or business development people and they've been out of the office a lot. This past quarter. So that's great news for us.
That's good to hear maybe with regards to that.
When you think about the funnel does that include names, where you already have a deal signed with the company and they'd like to add a second third fourth drug on that list or are those considered additional on top of that just how do you classify it.
So they are both they could be current companies, we already do business with so best place to get new businesses from your current customer base. So several of those are.
Companies that we may already be a collaboration but they are adding additional drugs or additional indications show that some of what we work on it or they're working geographically to expand and then many of them are I would say 75% of them are brand new companies that that are new to what we're doing today.
Alright, great I appreciate the update thank you.
Thank you.
And there are no further questions at this time I will now turn the presentation back to the hosts.
Thank you again I'll just close by saying Thank you to the core of the system core medical systems entire team and with that thank you to our investors and we will close the call.
That does conclude today's conference. We thank you for your participation and ask that you. Please disconnect your line.
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