Q2 2023 KORU Medical Systems Inc Earnings Call
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Greetings and welcome to the core medical systems second quarter, 2023 financial results Conference call.
And webcast.
At this time all participants are in a listen only mode.
And that's your session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would like now to turn the conference over to your host.
Often gilmartin group. Please go ahead.
Thank you and good afternoon, everyone earlier today total medical systems released financial results for the second quarter ended June 30th 2023.
A copy of the press release is available on the company's website.
During this call you will make certain forward looking statements regarding our business plans and other matters. These comments are based on current predictions.
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Actual events or results could differ materially due to many risks and uncertainties, including those mentioned in the associated press release and 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 filings with the SEC.
Each of which are posted on our website.
You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures in our press release.
That's your presentation.
And the benefit of those listening to the replay. This call was held and recorded on Wednesday August nine 2023, and approximately 430 P M Eastern time.
Since then the company May have made additional comments related to these topics discussed.
And please reference the company's most recent press releases and filings with the M. D C.
Joining us on today's call is Linda sorry, Reed, President and CEO of thermal systems, and Tom Polen Medical's, Chief Financial Officer and does please go ahead.
Thank you Hannah good afternoon, everyone and thank you for joining us today.
During today's call, we will use slides to support our commentary I will begin by walking through key business updates for the second quarter.
Tom will then review our financials and updated 23 guidance.
I will then close with the milestone progress update against vision 2026.
During our prepared remarks, we'll be happy to open the call for Q&A.
We are very pleased with the progress and milestones achieved in our second quarter as we continued to make important advancements towards vision 2006.
A few key highlights on the quarter that I will dive into further in today's presentation.
First in our core business, we saw growth of about 8%, which continued to outpace the U S subcutaneous.
Globulin, or SCID script market, which contracted in the quarter.
In our international business, our efforts over the past year continues to progress and we had another quarter of double digit growth.
Signed another novel therapies collaboration for use of our freedom system and a phase III trial, and we submitted ahead of schedule five 10-K for the freedom 60 infusion system, but by Sentra 50 ml pre filled syringes. Finally, we are updating the company's full year 'twenty three outlook.
Black the Q2 decline in the U S S AIG markets and a change in timing of novel therapies deal signing and subsequent revenue.
Before jumping into the details of the quarter I would like to take a moment to welcome Tom to his new role as our CFO .
Tom has been integral to the company achieving many of the milestones I discussed as well as building out our finance team processes and stuff.
I'm excited for him to continue to grow and add value as he stepped into his new role.
I wanted to begin today by taking a moment to remind everyone. What we did our.
Our mission at Corium continues to be making subcutaneous drug treatment a reality at home.
Our freedom infusion systems has more than 35000 patients and new ones being added every day.
Many of them chronic that's helped them to use their drug in the comfort of their homes.
Freedom system can be customized for Dragan infusion volumes from five to 100 and Mt.
Supports multiple therapies and disease States and has established regulatory approval in over 25 countries.
Our novel therapies business supports biopharmaceutical companies with products and nonrecurring engineering innovation and services on our freedom system to support their clinical efforts towards their drug launch.
It's a drug that's completed clinical requirements and received regulatory approval, we've become an approved drug delivery provider and it becomes a part of our core business the.
Core business includes our domestic and international commercialization of our freedom system specialty pharmacies and homecare organizations, we have a broad label indication predominantly in the <unk> market with less than 20% of that market penetrated.
Majority of our patients suffer chronic illnesses and our lifetime users of the system operating a valuable source of recurring revenue.
Our business model has both a recurring revenue car business and future revenue with our <unk> business with 15 total collaborations to date.
The potential for several new drugs on the core system.
Moving to a deeper dive in our vision 26 strategy and our three growth drivers.
Starting with the first growing our leadership position that's C E today quarter, who has over 35000 patients in the U S and strong relationships with our specialty pharmacy partners, who transitioned the patients to drive therapy in the home.
During the quarter, we saw a larger than normal Q2 seasonal fluctuation in overall SCID reported scripts down 13% on the quarter, our conversations with specialty pharmacies pharmaceutical partners industry, researchers and reimbursement specialists. So no concern over these growth levels returning to historic level.
From high single digits, and low double digit growth over the coming quarters as they continue to focus efforts on supporting the movement of health care to the home.
Many saw this as a blip due to lower infection rates versus the prior year, which is generally a preceding event to an immune deficiency diagnosis.
We remain confident in our ability as we have shown we can outperform our growth again outpaced the underlying market growth was led by our recurring consumables rooms revenue and we had double digit new pump sales from.
A key driver of our U S core business. It's continued strength in pre filled syringes in the second quarter was no different from recent trends.
They're all convenience and patient preference continued to drive <unk> adoption and overall pre filled syringe penetration.
Increased to about 12, 5% for the second quarter.
During the quarter the company submitted a 500 10-K to the FDA for the use of our freedom 60 infusion system with high <unk> 50 ml Prefilled syringes.
Admission marks another milestone in Cora Medical's mission to simplify sub acute therapy for patients.
The FDA approved the 50 ml, how does enter proof drought trends in April 2023 High center as the most prescribed sub Q immunoglobulin and the first to be available in pre filled syringes currently operating 510 and 20 ml formats.
Satisfy a further.
Two thirds.
Uh huh.
And the 50 ml when available in 'twenty 'twenty four will satisfy an additional two thirds of the patient market.
The conversion to pre filled syringes as an important growth driver for us as it drives share and we believe over time increased new starts and conversions to sub acute therapy. As a reminder, our freedom edge system remains the only pump with FDA clearance for use with pre filled syringes.
Moving to our <unk> business, where we are focused on new biopharmaceutical collaborations for clearance of our freedom system for at home use we announced a few weeks ago. The signing of another novel therapies collaboration disagree.
This agreement is with a biopharmaceutical company to validate it with freedom infusion system for use with a novel Endocrinology biologic drug developers is expected to begin phase three studies by the end of 2023 for treatment of a rare genetic disease with global preference of roughly 10000. It currently has no pharma.
Clinical treatment.
The closing of this collaboration and draw July we brought our year to date, new collaborations to chew and remain on track for six new collaborations in 2023.
In total we.
We have 15 signed collaboration and we also have a pipeline of 15 additional high potential opportunities.
And finally, we're excited about our growth opportunities geographically.
We ended the quarter with growth across several key markets representing growth of over 17% year over year.
New patient starts steel by the increase in supply in the U EU continue to drive growth and we are well positioned to benefit from our distribution, which is now in over 80 countries.
International has become a vital key third growth strategy more.
For the company.
I will now dive a bit further into our <unk> business and this slide which shows our total pipeline of empty opportunities. We now have 15 collaborations to date, including over 2 million potential patients and a tam of roughly $2 5 billion.
Our base at the top of our pipeline becomes an important source of recurring revenue as we support the work of the ITU manufacturers and increasing subdue penetration lifecycle management strategies and on growing their label indications. The bottom of this pipeline represents nine additional candidates outside of AG across.
Six additional drug categories with the potential to launch five new drugs in the next five years.
We know that not all of these will likely succeed but with two of these with patient populations over 100003 with patient basis up to 50000 any combination has the potential to double forums current patient base.
I have bolded, our newest entry we are excited to add late stage pharmaceutical collaboration as it's a shot on goal closer to launch this solves a major unmet patient need we.
We are excited by our novel therapies business as we continued to progress our relationships to help them drive greater knowledge and adoption around the benefits of subs choose delivery for patients in the home.
This next slide brings both our core and <unk> business together to show you our growth potential over the coming five years, our core business with multiple commercialized drugs gives us strong recurring revenue today.
Weather was 90 plus percent of those drugs being AIG, which is less than 20% penetrated on sub Q treatment today, we see a lot of growth ahead.
As we build our anti pipeline based on projected dry launch timing, we see multiple revenue opportunities over the next one to five plus year timeframe.
As we love to the remainder of 'twenty. Three we are confident that we will continue making important additions to our novel therapies collaborations and are excited to provide ongoing updates.
In addition to the progress in our businesses progressing new products and innovation is also key drive quarter to the next phase.
This slide lays out both our product and expected new commercial label milestones over the next few years.
Our product strategy is centered on comfort convenience and connected.
During the second quarter, we completed two milestones with our five 10-K submission for our 50 ml Prefilled syringe label expansion with the Freedom 60 pump line extension.
For the remainder of 'twenty three we anticipate another five 10-K filing for our consumables. Looking further ahead. We are extremely excited about the next generation pump platform for IGN novel therapy, and multiple new drugs on the <unk> system.
Another very good core growth strategic progress about cross, both core and tea and innovation.
I will now turn the call over to Tom to review our financials.
Thank you Linda and good afternoon, everyone.
While we saw a challenging quarter and a decline in U S. SCS market I am excited to report a solid quarter of 6% growth with total net sales of $6 9 million.
Domestic core growth of 8% was primarily driven by increased growth in consumables pumps, new accounts and increased pre filled syringe adoption.
International core growth of 17% was driven by strength across several EU markets and growing and growing global.
I G volume availability.
Novel therapies, and that revenue declined by 28% in the second quarter of 2023, primarily related to strong NRT revenues in the comparable quarter last year as well as timing of some of the 2023 pipeline.
Yeah.
Gross margins increased to 56, 1% compared to 51, 1% in the second quarter of 2022. The increase in gross margin was primarily driven by increased efficiencies in manufacturing.
We completed the first half of the year with gross margins in the midpoint range of our guidance as we look at the second half of the year, we expect significant improvements in gross margin driven by two full quarters, lower outsource products, which as we reported in Q1 is fully completed.
We also see lower overall labor costs overhead and improved efficiencies as we have now consolidated our U S manufacturing from two sites to work.
The outsourcing and reduction of the manufacturing site contributes about 400 basis points to our gross margin increase and combined with a 100 basis points improvement in pricing will lead to increased back half gross margins.
500 basis points.
We project to exit the year between 60, and 62% and our full year gross margin of 58% to 60%.
Our cash balance at the end of Q2 was 11, 7% and represented a 500000 cash burn from the prior quarter.
The biggest driver of cash burn was our net cash operating loss of $2 1 million, excluding noncash items for stock compensation and depreciation.
We also invested 300000 in capex for equipment or next generation products.
Offsetting these cash flows these cash outflows were working capital improvements of $1 9 million driven by DSO improvements worth 500000, and executing on our plan reductions.
Inventory of $1 4 million as we draw down finished goods and raw material inventories from our outsource manufacturing transition.
We continue to control and plan our cash according to our revenue gross margin and expense guidance and reaffirm our end of your guidance of having a cash balance greater than $10 million.
Which I will get into more of a as I discuss guidance.
We are updating our guidance for full year 2023 to reflect the Q2 decline in the U S group market, resulting in a change of our outlook on underlying U S core market growth assumption from 10% to the mid single digit range.
In addition, we are updating our guidance to reflect the change in timing of novel therapies revenues.
Full year 2023 revenue is now expected to be between 31 million to 32.5 million representing growth in the range of 11% to 17%.
This implies a growth rate of 15% in the back half of the year at the midpoint versus 12% that was delivered in the first half.
Some key drivers that will get US there include SCID drug market, returning to growth and the execution on our current and future empty.
Novel therapies pipeline deals as well as the <unk>.
<unk> double digit international growth.
Gross margin guidance remains between 58% to 60% for the full year.
And to exit the year between 60% to 62%.
With the completion of the manufacturing transition behind us in the first half gross margin are on plan, we expect to see a progressive step change in our second half gross margins as we continue to see two full quarters of the lower cost of goods benefit from our outsource manufacturing initiatives and improvements in average selling prices.
We expect our cash balance at year end 2023 to be greater than $10 million, we expect our operating expenses to be approximately 29 million.
Versus 30 million reported prior phases that will vary between quarters, driven by our R&D programs and.
And we expect to invest in capital equipment for our innovation products.
And we continue to improve working capital.
<unk> lowering inventory by a further $1 million during the second half of the year.
It's also important to note, we will see lower cash burn in the second half driven by improvements in net losses from stronger second half revenue.
Our gross margin improvements and the working capital improvements.
While we may look to increase the cash on our balance sheet through non dilutive debt financing, we are not anticipating or planning any equity raise at this time.
I will now turn the call back to Linda for closing comments. Thanks, Tom.
In December of 2021 about 18 months ago, we launched vision <unk> to transform the company over five years from an <unk> company to a leading drug delivery provider and revenues of $60 million.
This played out a series of key milestones and I wanted to take a moment to review our progress.
Our first milestone where phase III trials the final phase before a drug launch we projected five phase III trials by the end of 'twenty, which we now have two in progress we projected one significant new commercial drug indication or a patient population of over 100000, we.
We have launched one with the patient population of 15000 and up five further potential drug candidates by 2026.
Rejected eight new products and indications, which drive our core revenue of which we have four completed one further expected with 50 ml prefilled syringe clearance by the end of this year and we remain confident in three fronts.
Our revenue projections to $60 million is now supported by five key strategic areas are.
Our core business and current approved products and increased up two penetration into that base as our largest driver.
Followed by our N. Two revenues further share gains driven by innovation and the final major opportunity being O U S expansion.
Excited to look back and see our advancements to date and we look forward to further updates.
In closing I am encouraged by our second quarter progress across all of our businesses and on the innovation front.
We continue to have exciting work ahead that will evolve the company strategically as a leader in drug delivery in the home and our continued value to patients customers and shareholders.
Finally in closing I want to thank the entire core routine for exceptional efforts on another great quarter, operator, I will now turn it over to you for Q&A.
Thank you.
I will begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're 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'll pause momentarily to collect the questions.
The first question comes with Alex Nowak with Craig Hallum Capital. Please go ahead.
Hey, great good afternoon, everyone.
Linda just curious what theories are you hearing out there to kind of explain this first half slump in the <unk> market. Just you mentioned you spoke with pharmacies.
The drug companies I'm sure patients as well.
Just what are you hearing out there that would explain the weakness and then ultimately how is the <unk> market evolving so far in Q3.
Hi, Alex Thanks for the question I figured it might be the first one that we received so.
As we know we had a very strong fourth quarter of 2022, and the overall market with the market growing somewhere between 7% and 10% and then January and February also very strong with January high single digits in February double digits, and then we started to see this decline, which we typically.
We see a quarter to a bit of a decline in the overall market, but this one was bigger than what we've seen in prior.
So our review and discussions with pharmaceutical companies.
Specialty pharmacies reimbursements, you can imagine we spoke to a lot of a lot of different people on this one.
The one thing that that came back was that Oh overall diagnosis.
<unk> deficiency disorders are driven by infections.
People get impaction, they go to the Doctor and generally that's where you see the diagnosis occur.
Given that we had a lower overall reported infections in the last quarter of 2022, we think we may have seen some lag of that impact into 2023.
That is the the most consistent factor that we heard.
Other than that everybody.
You know we saw at Takeda reported publicly as did Brepoels I was encouraged to see both of them have strong franchises and both of them mentioned.
Subcutaneous <unk> therapy, as a big growth driver for them moving forward.
Very helpful and then maybe expand on that.
S. L. A is getting physicians here for these 50 Bell later pre filled launch what are the I guess what are they saying what this can do to their business about the IV subdued conversion and also with regards to their market share for his address.
And maybe I'll speak more broadly about about how we feel at Cora, which is informed by all of our discussions.
Any conversations we have would be would be confidential unless it's public but across now I think you have CSL. Obviously is out there and then you have grapples publicly talking about their pre.
<unk> launch as well as Oxford pharma. So we're pretty excited now that three of the four major.
Pharmaceutical IAG providers are working towards prebuilt.
Why are they doing this obviously the comfort and convenience that is offered with pre filled syringes. It reduces the number of steps by over 25 and in some cases as much as 60% to 70% for a particular user and the preference for these as well in the 85 to 95.
Cent range or presale.
So what we see is it.
As we look out over the coming five years, we project.
Much as well.
But on a low end 50 and on a high end, 75% of the market will be converted to pre sales.
So obviously with that kind of conversion.
We believe it will drive significant share and revenue.
Our core rail as well as we believe over time will bring new patients into the therapy as doctors see that at home therapy becomes that much easier to perform with prebuilt. So.
L a and exciting short term as we get 50 ml out here over the next year I really exciting midterm as we see the penetration rate and then.
You know what can I do to overall sub two penetration is what we're most excited about.
Yes, absolutely last question a little multipart one here, it's with regards to the novel therapies pipeline I think it was 15 and the pipeline last quarter you added one during the quarter.
Ended the quarter at 15, so I just want to confirm that one of the drugs drop off any details there and then the final beyond 15 as another 15.
Maybe expand our fees are phase III studies in any re formulas nations.
Any detail there. Thank you.
Yeah. Thanks, Alex Yes, you are correct you did the math well, we had one drop out which was an oncology can candidate. The actual program was canceled at the pharmaceutical company. It was it was that it was a.
Opportunity for oncology therapy in the home so that one was canceled which brought our 16 back down in 15.
So we know that will happen over time, and that's why 15 overall feels like a great number to us and as I am showing in our further projections you know.
We're not counting on all 15 village to make it through.
We also have an and I would say over the last quarter has seen a tremendous uptick in the overall numbers of new opportunities that we see in <unk>.
In our pipeline so those would range in everything from further oncology targets in their autoimmune disorders in there but across.
Many of the existing drug therapy classes I've talked about and also many new ones. So we have lots of work to keep us busy.
I wish that we could.
Get all the paperwork signed sooner so that we can ink the deal faster and get the work done, but we're working hard on hard to do that.
Alright appreciate the update.
Thank you no that's great. Thanks, Linda Thanks, Tom.
The next question comes with Kyle Rose with Canaccord Genuity genuinely T.
Sorry. Please go ahead.
Yeah.
Hi, everyone How's it going it's Caitlin I'm sorry, Kyle.
So all you watch growth was strong this quarter, you know where's the growth synergies being driven from and should we think about this growth rate as you know sustainable moving forward and then on the electronic pump comparison trial, where are you with progress on that thanks.
Great Hi, Kaitlin.
So O U S growth, yes, we are excited by the uptick in the growth the growth is really coming from a couple of areas first of all if you recall last year the drug supply still.
We had some shortages internationally. So now that that drug supply is back we're seeing growth across several markets. So it's not in any one particular market.
<unk>, which we're quite excited about that to everyone from the nordics to the UK to Saudi Arabia. So that's great news for us we.
We see.
Lots of potential opportunity and we see higher levels of penetration of sub acute therapy.
In international markets governments have really driven.
The movement of health care into the home.
On the sustainability part.
That that is what we're planning for however, we will see last year, we had a new drug launch in the second half.
Of the year, which was the Aspen valley product with <unk> that we launched in Europe . So we project that in the second half we've got a tough compare so maybe not as quite as high the growth that we saw in the front half.
Projected for the back half for O U S. So the 23% growth through the front half of the year for us.
What we will see some toughness in the back half given that drug launch.
Yeah.
Great and then one or.
Two questions.
Yeah, No I was just thank you Tom.
So the trial, we are continuing to enroll patients in that trial, which is a trial just for everyone's benefit on the phone is.
Is comparing our core room mechanical pump system to the electronic pump systems available in Europe .
We expect to have the first reported outcomes from that trial in the latter part of this year in the December timeframe.
Yeah.
Great and then could you provide a little more color on the novel therapy, you know deal signing cadence that cause.
Because you didn't change your guidance I'm, a little bit that'd be great. Thanks.
Yeah.
So coming into the year, we would've anticipated.
Year to date, we've signed two deals and how it works is once we get the deal signed we've got work that we need to complete in order to recognize revenues. So we are we anticipated having a few more deals signed in the first half of the year. We now see those deals are lagging into the back half of our year.
Not major cause for concern, we still feel very confident in the six number overall, but caused us to push out the overall revenues and again with that business. What we have to think about it as a total shots on goal, but real price comes with the commercial launch, but obviously all of these deals we sign lead to some <unk>.
Commercial revenues, which we count on.
In our revenue projections, so just some slippage by a couple of months.
Affects our year.
Yeah.
Thanks Caitlin.
Thank you.
<unk>.
The next question comes with Jason Bednar with Piper Sandler. Please go ahead.
Hey, Linda.
All in for Jason can you frame your level of confidence that the U S market will not take a further step backwards and then one of the longer term what does the U S market need to grow out in order for the company to head into 2026 revenue targets.
Excellent question. Thanks, Thanks, Sean so.
If I could show you the number of sheets, we protect it on what we think the U S market can do and I guess.
Your best projection of future is looking is looking back right. So we have not seen a quarter like that happen.
And any prior history.
Through Covid.
Unless we think coal, but it's coming back I don't think we're going to see a continued pace of this we saw and that's why I reported in the earlier.
Shouldn't that I got where we saw the overall subcutaneous therapy grow significantly in the fourth quarter of 'twenty two and in the first two months of 'twenty. Three so I really think this was a blip due to some overhang.
Really an omnicom, probably overhang, where we saw increased infections drive greater Q2, 'twenty two prescriptions.
I really think it's an overhang from that.
So.
Again, I'll end, where I started which is I believe that.
The overall market.
Given the past, we'll definitely see it come back.
Now will we see it come back you know right away with our July month was strong. So we think that's a.
A precursor that that the overall market is coming back and also we look at our end user demand in our end user demand, which is our sales to specialty pharmacies, rather than to wholesalers, which is what we.
Report R R.
And user demand pharmacies was very strong in quarter, two and outperformed our RG out numbers.
As for what will it take to hit our longer term numbers, obviously I'm pretty excited that our U S business grew 11% in the first half of the year with basically a flat scrap market.
That's great news.
We are projecting now to hit these numbers, we're going to need to see that market come back anywhere between an eight and a 12% growth range depending on the year, obviously, we start off a little a little round in eight or 9% and we grow it to 10% to 12% overall projected market as we see things.
Pre sell start to kick in.
Great. Thanks, Linda and then can you speak to any feedback you've received thus far from the FDA on a five 10-K submission for the 50 mode or PFS for Us entre.
So the good news as it has passed the first stage.
It's an informal review now since substantive review that's great news for US. So the file was accepted there was no rejection of the bio for any technical reasons.
Substantive review phase, we have not had any questions to date, which I'm going to take us a good thing.
And we hope to we hope to have a clearance on that in the November timeframe, which would have us.
Be ready for CSL is not publicly announced their launch timing of that.
They just got the clearance and we project it will be sometime in the first half of 'twenty four but.
But nothing's public on that so we project that we will get our clearance in the back half.
The quarter or the fourth quarter, which will put us in a great position to be able to either pre ship either late late in Q4 or more likely Q1 of 'twenty four we will get off to a great start.
Great. Thanks, Linda.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Linda therapy, President and CEO of the company for any closing remarks. Please go ahead.
Thank you everyone for joining us for the Q2 call I'll just say, thanks again to the <unk> team and wish everyone. A wonderful rest of your day.
Okay.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines have a great day.
Yeah.
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