Q2 2023 Aziyo Biologics Inc Earnings Call
Given that background, let me provide a more detailed update on our progress towards obtaining FDA clearance for Kangaroo RF.
We had previously submitted a five 10-K for Kangaroo M that resulted in the issuance of a not substantially equivalent or NSE letter the silver lining of that letter is that we were given the explicit list of outstanding items needed for us to demonstrate substantial equivalents and gain.
Market clearance.
In total there were four items listed.
Two were administrative in nature. The FDA requested that we provide them with information on a test method and requested a few specific document numbers.
Other two items that were more substantive in nature related to our in vitro elution method performed as a quality control step in the device manufacturing process. This.
This test is used to show a consistent rate of drug release from batch to batch.
F D. A requested that we one developed and accelerated I V. E method that can be completed within 48 hours or less and to establish a lot release criteria of greater than 80% elution within that timeframe.
Now this is challenging for an extended release products such as Kangaroo R. M.
Since the product is designed to alert the drug over days and weeks not hours.
To better understand this request we met with the FDA soon after receipt of the NSE letter N.
N F E F D. A provided helpful clarification in their request.
And Gabe and expressed to us that their interest was in a tool to assess a lot to lot variability that ensured the label claim was represented accurately importantly, they did not have concerns about the actual.
In vivo performance of the product.
F D. A to also clarified that certain conditions could be adjusted to facilitate the acceleration of the test and provided options such as changes in P. H. The addition of detergents and agitation that were acceptable to the agency.
With this information the teamwork can generate elution profiles under these accelerated condition.
For the sake of time and because they represent new intellect intellectual property I'll spare you the details but here is what matters.
The graph on this graph represents a curve that we had under the original conditions notice that the curve plateaus in the 70% range with 48 hour result of only 75% drug release.
Here's a curve that we were able to create under the accelerated conditions as you can see drug release exceeds 80% threat exceeds the 80% threshold by the 24 hours and reaches 93% at 48 hours.
We believe this new method to be fully responsive to Fda's request and are now in the process of completing the work necessary to put the new test in the practice.
We will be discussing this data with FDA prior to Resubmission to make sure our filing its first fully responsive to their needs.
We expect to have all of this work completed compiled and submitted for review by the end of the year since the review clock for the 500 10-K is 90 days.
And we are only updating the specific items in the NSE letter, we hope to gain clearance sometime in the first quarter of next year. We will of course provide you with updates along the way and with that I'll turn the call over to Matt Ferguson, our CFO for the financial update.
Okay. Thanks, Randy for the second quarter, we generated net sales of $10 $3 million as compared to $12 $6 million in the corresponding prior year period.
The Q2 2023 result included a revenue reversal of $3 million in our orthopedics business.
Weighted to the viable bone matrix recall and market withdrawal.
In our other three segments growth was led by our simple derm product line with a 32% increase compared to Q2 2022.
Sales of our Kangaroo product line in our device protection segment were relatively consistent versus the prior year quarter. Despite the significant reduction in sales head count that we implemented earlier this year.
Lastly, we completed the handoff of our cardiovascular products to make basket are during the quarter. This resulted in a significant increase in volume, but largely a distributor transfer pricing rather than the previous end user pricing. We're really pleased that the limited partnership is off to a good start it's allowing us to focus on the parts on the higher growth.
Parts of our business and we believe it will also improve the bottom line contribution from the cardiovascular segment.
Gross profit for the second quarter of 2023 was $1 million and gross margin was nine 5%.
Substantially decline in gross profit and gross margin was directly attributable to the viable bone matrix recall and market withdrawal, which decreased gross profit by $5 million and gross margin by 35 percentage points.
Substantially decline in gross profit and gross margin was directly attributable to the viable bone matrix recall and market withdrawal, which decreased gross profit by $5 million and gross margin by 35 percentage points.
Total operating expenses were $10 $1 million for the second quarter of 2023 compared to $13 1 million in the corresponding prior year period, we realized nearly $4 million of $4 million of expense reductions across sales and marketing R&D and G&A, primarily as a result of organizational streamlining.
Mining enabled by our strategic partnerships with limit and see intra as well as reduced spending on Kangaroo RM development is that project approaches completion.
The decreases were offset by approximately $900000 in increased fiber selling litigation expense, which to date has been covered by insurance and therefore has not resulted in cash outlays by the company.
Factoring in all of the above our net loss in the second quarter of 2023 was $10 $6 million as compared to $9 $4 million in the corresponding prior year period.
As of June 30th 2023, our cash position was $9 $3 million. This reflects cash usage of $2 $5 million for Q2 down.
Down significantly from $5 $2 million for the first quarter of 2023.
With the loss of revenue from a viable bone matrix products, we do expect cash burn to increase somewhat in the current quarter, but we expect to moderate that impact through ongoing optimization efforts across the business and continued growth in our simpler derm and kangaroo product lines.
We look forward to sharing these results as we continue to execute on our growth strategy in coming quarters.
And that concludes our prepared remarks, operator, you may open the line for questions.
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Maam. Please so we poll for questions. Thank you.
Thank you when we have a question coming from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your questions.
Hey, guys. Thanks for taking our questions and congrats on the progress on our MAA submission. So starting off on the product recall and regarding at $3 million reversal of revenue related to V. P. M. During the two Q does this reflect an entire quarters worth of revenue and a good way to think about the lost revenue for the three cubic park you assuming it doesn't it's not that that's it.
Hi, Ross.
That's exactly right.
The recall reflected the.
The outstanding viable bone matrix product for the quarter and the sales associated with that and that is just about the amount for the entire quarter. So in terms of ongoing a reduction in that segment of the business that is that it's about the right assumption going forward.
Okay got it and then turning to your partnerships, where do you believe lanete and cancerous cells teams are in terms of productivity levels and selling their products.
Hey, Ross this is Randy.
So well mate is further ahead, obviously because they they have started the transition process and are in our further.
Along into it.
And Theyre doing them I think they're doing a beautiful job in and either at or where or beyond where we had expected and hoped.
They would be so we're really excited about the partnership. We're also super excited about this juncture partnership too it's just much much earlier.
On that as a partnership that is as we said on previous calls would would really start launching the product in.
In the second half of this year and with that said, even even more so in the fourth quarter than in the.
Then in the third quarter, we do love their coverage.
And so you know they do represent a very significant increase.
In surgical coverage for us actually about five fold increase in surgical.
Our coverage for us as as they get up and running but I would be remiss if I didn't.
Congratulate the existing team on what again was another blowout quarter, you know another 32% increase and that was that was done by the by the existing team. So we're super excited about both of those partnerships limit is is well underway and the answer is getting up and running in our existing commercial.
Team.
Both for a simpler derm as well as our team for Kangaroo, arguing beautiful jobs as well.
Got it and then last one for US you know one of your goals for twenty-three into strengthening our relationship with Boston scientific regarding the synergies between their CRM products in your current kindred offering do you have any update there on how that's going.
Yes, So we had a great meeting at the Heart Rhythm Society meeting in New Orleans, where.
We were at there was a lot of data that was presented around kangaroo in the clinical benefits of Kangaroo in C. I E D placements.
I think it got the attention of a number of clinicians, but it also got I think the attention.
Of Representatives at Boston Scientific and I think there was a sort of a light went off and said hey, this this actually could be a pretty strong offensive.
Tool and so.
With that said I mean again as we think about the use of Kangaroo.
Kangaroo is it is it is a great product in and of its own right, but it's it's.
Tremendous value comes from its ability to to help drive C. E D business and so we really we really like the leverage that that it's if it's able to bring and we think there was a sort of a light went off and said Oh, we can actually use kangaroo and then do it to a much greater.
Extend kangaroo our album to really help.
Good cardiologist.
You know our preference around the actual placement of our of the pacemaker.
Or distributors, so with that said coming out of that meeting.
It actually led to it actually lead to additional interaction between the leadership of our CEO and Boston scientific and our head of of our Kangaroo business regularly participates with the commercial organization.
Boston scientific on their different strategy in and and tactic meeting so very good partnership very good relationship on our current Kangaroo business and.
Really we look we look forward to the work at <unk>.
You're getting the work our R&D teams.
Have now done.
To get to get the rest of the questions button up on our M. So we can get that product in front of F D, a and and and get a really really great.
Drug Eluting biologic on the on the market.
Youre right, if I could just add.
Just add one thing to that Ross.
I think it kind of combines the previous question about my mate and and Boston Scientific. The fact that this is now the first quarter Q3 that is it's the first quarter, where the focus of our sales force is really 100% on.
Kangaroo as opposed to selling the cardiovascular patch products.
We're already starting to see the benefit of that so while we're really pleased with what <unk> is doing with the cardiovascular business. It's also having associated positive effects on the Kangaroo business as a result of the additional focus there.
Got it makes sense. Thank you guys.
Thanks Ross.
Thank you. This will conclude our question and answer session and this will also conclude our call. Thank you for dialing in today and joining us and thank you for your participation and have a wonderful day.