Q3 2023 Nuwellis Inc Earnings Call
[music].
Good day and welcome to the New wireless third quarter 2023 earnings Conference call all participants will be in a listen only mode.
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After today's presentation there'll be an opportunity to ask questions to ask a question. Please press Star then one to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Vivian Cervantes Investor.
Investor Relations with the Bill Martin Group. Please go ahead.
Thank you Danielle and thank you everyone for joining us on today's conference calls the discussion of why were six corporate developments and financial results for the third quarter ended September 32023, and.
In addition to myself with us today are Nestor how to media.
As president and CEO and Rod Scott CFO, We also have Doctor John Jefferies now wireless as Chief Medical Officer with Us today.
At eight a M. Eastern today, the wireless released financial results for the quarter ended September 32023.
You have not received in the wireless its earnings release. Please visit the investors page of the company's website.
During this call the company will be making forward looking statements. All forward looking statements made during today's call will be protected under the private Securities Litigation Reform Act of 1995.
Any statements that relate to expectations or predictions of future events and market trends as well as our estimated results or performance are forward looking statements.
All forward looking statements 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.
All forward looking statements are based upon currently available information and the company assumes no obligation to update these statements.
Warningly you should not place undue reliance on these statements.
Please refer to the cautionary statements and discussion of risk and the company's filings with the SEC, including the latest 10-K and subsequent reports.
With that I'd like to turn the call now over to Nestor.
Thank you Vivian and good morning, everyone welcome to new <unk> third quarter 2023 earnings Conference call.
For our call today, I will provide an overview of our third quarter performance and give an update on our strategic initiatives, including our supplier collaboration agreement with Davita and our exclusive license and distribution agreement with six star for each selective side of erratic.
Device or S. C D, which recently received an FDA approvable letter for use in pediatrics acute kidney injury under our proposed humanitarian device exemption.
Dr. John Jefferies, Our Chief Medical Officer will also add additional color on our Davita collaborate.
And our clinical programs.
And we will provide his perspective on recent news affecting the renal industry.
Our Chief Financial Officer, Rob Scott will then provide detailed commentary on the financial results before opening the call up for questions.
Good Bye my closing remarks.
Before I turn to third quarter, we sold I would like to acknowledge concerns about the current market situation and its effect on companies like new wellness.
The reason I feel confident in the future of Novellus is because we have three fundamentally sound short term growth drivers.
First we have our organic business, which is growing represented by five consecutive quarters of <unk>.
Year over year growth in our core heart failure business.
Second is the expected commercialization of three new products within the next two years.
And third is our supply and collaboration agreement with Davita.
Turning first to our organic growth in third quarter, we sold in the third quarter of 2023, new wellness generated $2.4 million in revenue.
17% increase versus the third quarter of 2022, and a 16% increase over the prior quarter.
What is most relevant in our view is therapy utilization or the number of circuits.
<unk> console, which increased 26% over same period last year.
Reflecting continued increase in the number of patients being treated with the <unk> therapy.
This quarter in 'twenty in Q2, the utilization was 14%.
By customer category, we are pleased to see firm growth across each of the three category targets.
With third quarter 2023 revenue in heart failure, posting a 27% increase over the same period last year.
Critical care, a 16%, Greece, and pediatrics, a 9% increase.
How youre console sales led the heart failure growth, while utilization gains drove capital care critical care and pediatric performance.
We continue to attribute the strong organic growth, especially heart failure to the growing awareness of our clinical data and support from multiple peer reviewed publications over the past 18 months valleys.
Valley dating the clinical and economic benefits of the Aqua therapy.
We are focused on driving awareness among clinicians and providers to help them understand that ultrafiltration through the use of the <unk> system is the logical step when diuretics are not working and should be implemented earlier in the care pathway.
Precise and predictable.
This is the message that our field organization is consistently delivering and is having positive results.
I would like to point out that our installed base measure by placed athletics consoles is key for dwellings, because it generates revenue quickly and is a leading indicator for growth in utilization of the therapy.
Be more consoles, we place the more patients are treated.
With that although our installed base in Q3 grew we also continue to see Lumpiness in hospital capital spending trends.
Hospitals across multiple geographies.
Steel phasing capital budget constraints.
As we navigate this environment, we are pleased to offer both rental programs and console sales all while driving increased utilization in our systems.
For example in the first half of this year, our sales of consoles were soft, but our revenue rent our rental revenue increased by 36%.
However in Q3, our sales of console grew sequentially, but our rental revenue was soft.
Good news is that hospitals are getting around the capital budget constrained by renting consoles, while still growing the number of patients treated with <unk> therapy.
We will continue to monitor hospital capital expanding especially in light of an elevated interest rate environment.
Our second growth driver is our expected new product introductions within the next two years.
We are excited that ceased our medical recently received the FDA approvable letter for each selective cytokine device or S. C D.
Where we are exclusively exclusive U S distribution rights for.
For the use in pediatric acute kidney injury patients.
We are even more excited about the pool analysis from two non controlled clinical studies showing that pediatric patients over 10 kilograms with acute kidney injury, requiring continuous kidney replacement therapy treated with these tariffs S. C D.
<unk> had a 77% reduction in mortality and zero dialysis dependency at day 60.
And serial device.
Late at serious adverse events or infections.
Turning to our internal product development program also earmark for our high growth pediatric patient category. We continued to advance development of our pediatric continuous kidney replacement therapy device, which is complementary to the six star S. C D therapy.
We along with many pediatric Nephrologist believe these product would have a profoundly positive impact in survival and significantly improve the quality of life of neonates and small children with kidney malfunction kidney issues or Bo or those born without kidneys.
We are executing to plan to continue and continue to expect I D. E approval in the first half of 2024 with full FDA clearance and commercial launch in the U S. Early in 2025.
Finally, we continue to move forward without war supply and collaboration agreement with Davita to pilot Equitex ultrafiltration to treat adult patients with congestive heart failure and related conditions in selected U S markets.
Impairing the Equinix system with diabetes care team, we aimed to expand ultrafiltration therapy to many of the heart failure patients in the U S suffering from fluid overload and unresponsive to diuretic.
We are actively engaged in finalizing treatment pathways and pilot study sites.
The conclusion of the pilot Davita has the option to deliver its ultrafiltration service approval and expand ultrafiltration services to inpatient emergency room observation unit and outpatient facilities in their contracted hospital accounts.
Once that approval is deliver our supplier collaboration agreement would be effective for up to two five year terms.
We believe the future success of our pilot program with Davita could potentially accelerate the clinical adoption of ultrafiltration. When first line medical treatments are ineffective changing.
Changing the revenue growth trajectory for new wellness with an accelerated path to profitability.
I would like now to turn the call over to our Chief Medical Officer, Dr. John Jefferies, who will provide additional color on our feet a collaboration and our clinical programs. In addition to his perspective on recent news affecting the renal industry.
But the Jeffrey.
Thank you Nestor and good morning, everyone.
I'd like to cover three topics with you today first our collaboration with Davita as you heard alluded to.
The progress, we're making with our reverse clinical trial, and then third our thoughts on ongoing announcements regarding the impact of a certain class of weight loss drugs or the so called G. L. P. One agonists and renal care in our business.
So for US it's encouraging to note that our collaboration with Davita continues to leverage expertise from cardiovascular medicine, and nephrology, which provides a powerful vehicle to enhance our understanding of the cardio renal syndrome.
As such we continue to look forward to increased awareness of the growing number of heart failure patients in the United States and improve recognition of ultra filtration is a safe and effective therapeutic option.
Whereas treatment of fluid overload continues to center on the use of oral and intravenous diuretic therapy.
Ah codecs offers a more predictable and precise approach to treatment of this very difficult clinical condition.
Building on our body of clinical evidence, we continue to make progress on our reverse H F trial, the borrowing mortality and heart failure events within 30, and 90 days of hospital discharge.
Today, we now have 15 sites activated and a seven fold increase in the number of enrolled patients since Q4 of 2022.
As it relates to weight loss drugs G. L. P. One receptor agonists are increasingly prescribed in the U S and internationally.
These drugs are known to help regulate blood sugar levels. There are reports that G. L. P. One receptor agonist may also reduce the risk of heart failure and other cardiovascular events in patients with type two diabetes.
Theres also evidenced that these drugs may improve symptoms of heart failure.
These reports are relatively small and long term benefits in these areas are yet to be determined.
Therefore, it is currently unclear how G. L. P. One receptor agonist will impact the use of ultrafiltration.
Given the increasing number of heart failure patients around the globe, there will likely still be a strong need for fluid removal on these patients some of which will benefit from mechanical diuresis as opposed to drug based interventions.
In addition, this class of drugs may have the potential to bend the curve across multiple phenotypes.
It means that there may be different rates of progression to advanced heart failure and other diseases, such as end stage renal disease.
It may mean that more people will ultimately benefit from additional therapeutic options such as awkward eggs. For example, instead of going to a mechanical device such as a left ventricular assist device or a heart transplant patients may continue to be treated with guideline directed medical therapy and experience heart failure exacerbations.
Which presents an opportunity for us to deliver ultrafiltration therapy to treat <unk>.
<unk> volume status and these acute and chronic settings.
And I'll turn it back over to semester.
Thank you Dr. Jefferies with that let me now turn the call over to Rob to discuss our Q3.
Our results Rob thank.
Revenue in the third quarter of 2023 was $2.4 million, representing 16% increase for the second quarter of this year and a 17% increase versus the third quarter of 2022.
Customer category third quarter, 2023 revenue and heart failure.
<unk> increased approximately 27% over the same period last year.
Well care, pediatrics increased 16% and 9% respectively.
We are pleased to highlight that despite hospital capital budget constraints.
Console sales increases led heart failure care category growth, while increases in utilization of the Aqua X systems for critical care and pediatric performance.
Gross margin was 57, 3% for the third quarter of 2023 compared to 61% in the prior year period.
The decline in gross margin was primarily driven by lower console manufacturing volumes.
However, our U S disposable product margins are 74%, which are in line with medical technology industry standards.
Selling general and administrative expenses in the third quarter were $3 $4 million, a decrease of approximately $800000 compared to the prior year quarter driven by reduced head count.
And related compensation expense.
Third quarter research and development expense was $1 1 billion, an increase of approximately $200000 compared to third quarter of 2022, reflecting a modest increase in spend related to the final phases of development of our new pediatrics, our RT device as well.
We approach I E submission.
Total operating expenses were $4 $5 million in the quarter, a decrease of approximately 12% compared to the third quarter of 2022, and a decreased 26% sequentially.
Both the year over year and sequential decreases were due to cost saving measures implemented early in Q3.
Net loss in the third quarter was $3 4 million or a loss of $1.81 per common share compared to a net loss of $3 $9 million or $36.72 per common share in the prior year period.
The year over year decrease in the net loss per share is driven by an increase in sales lower spend and an increase in weighted average share count.
We ended the third quarter with no debt and $4 $9 million in cash and cash equivalents on the balance sheet.
And we had $1 9 million common shares outstanding at September 30.
On October 17th we closed $2 million to $5 million of gross proceeds before deducting underwriting discounts and commissions and a pulp public offering of series J convertible redeemable preferred stock and warrants.
This concludes our prepared remarks, operator, we would now like to open the call too.
Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question comes from Erin Wilson here from Lake Street Capital. Please go ahead.
Hey, Good morning, guys. This is Dan on the line for Brooks This morning.
Yes, I want to start with sort of your expectation regarding the partnership with Davita as is it sort of relates to what you see them contributing to their success and the financial arrangement you have with them and I know you mentioned a little bit in the prepared.
Prepared remarks, but I'm, just trying to get a bit more color on what we can sort of expect that aspect going forward here.
Yes, good morning Erinn.
Good question.
As you know Davita provides all ambulatory dialysis service as well as in patient dialysis for patients that are hospitalized needing dialysis and they have a team of nurses and medical staff to provide that dialysis in the <unk>.
Patient in their what they call it a beta multi treatment rooms. So the idea is for patients needing ultrafiltration that have contract with davita for the dialysis is to do their ultrafiltration in their rooms.
Now when you look at their public document that they have published you see that they have a large number of contract hospitals doing the dialysis. So the idea with this collaboration and supply is for us to sell the product to Davita and they will provide the services to.
The hospitals to do ultrafiltration in fluid overload patients.
Okay I answer your question Erin.
Yeah, Yeah, and then I guess sort of the same question in reference with the C store, you know how would that different or how would that differ materially I guess.
Well their device for pediatric use we have an exclusive license and distribution agreement with them.
Patients.
Pediatric patients needing to come into the hospital with.
These types of inflammatory reaction.
Can be treated with the <unk>.
C star device and significantly improve their mortality as well as their quality of life.
So the idea is for us for our organization our field organization to distribute that product in the pediatric hospitals, especially the ones, where we have also ultrafiltration business.
See a different path to sort of achieving your longer term goals. Thanks for taking the questions.
Yes.
On the last question.
We did some.
E savings measures.
In Q3.
Because we needed to right size and also provide more runway to our cash. So we don't expect to do anything more in the future anything drastic in the future, but we will continue to find ways to be more effective and efficient both in.
Do you feel as well as here in our headquarters with our product.
<unk> margins.
Got you that's very helpful. Thank you guys.
Thank you thank you erinn.
Next question.
It comes from Anthony Vendetti from Maxim Group. Please go ahead.
Thanks.
Good morning, guys.
Good morning, Dan.
A little bit more of a follow up on Davita. So.
I know, it's a pilot phase but.
Can you talk a little bit about what the plan is for the rollout.
How many centers.
And during this pilot a do you expect there'd be a contribution to sales.
Either in this quarter at all or is it is it more of a 2024.
Situations.
Yes.
Yes, good question Anthony.
Just to be clear. This is that this collaboration that we were doing with Davita is new to every stakeholder in this in these treatment I mean is new to Davita is new to us and these new to the hospitals. So we decided to do a pilot.
Just to learn everything that we need to learn about these collaborations which includes a treatment pathways for patients.
Billing E contract amendments that Debbie that would have to do with their hospital customers. So we wanted to take the time to make sure that everything goes well both for the hospitals as well as for Davita and for all so that's why we're initiating these pilot and we are in the process.
This all by defining the care pathway.
What are the sites that are more fitted to do these collaboration.
So we're having a lot of good we sold a lot of good acceptance by hospitals that are contracted by davita, but they want to do ultrafiltration and for reasons, they have capital budget issues or nursing staff issues. So they feel that the collaboration with new well listen Davita would fit.
Their needs are appropriate.
So the answer to your second part of your question about the impact in Q2.
The idea is that the beta would buy the console and the circuits as we start.
Treating patients in the hospitals.
Okay, so they'll they'll start actually purchasing them you mentioned the contract.
Tract Amendment Nestor.
Does davita has in certain contracts with their customers.
And the amendment to add in ultrafiltration.
Is that just a small amendment.
They add in.
And how what would that look like are they do they have to.
Agreed.
Yes.
Could they rent.
If there are a lot of flexibility there or are you attempting to standardize it with davita and their customers.
Good question Anthony.
The answer to those questions is what we plan to obtain with these pilot so right now the beta has contracted hospitals to do dialysis.
So they would have to amend those contracts to do all profit equation.
David I will buy the product from us.
And they will provide the services to their patients with their own clinical staff.
So what I assume is what we're all assuming he's at the hospital would pay a per patient fee to davita for treating those patients for ultrafiltration with Davita would take care of the rest.
Okay great.
Very helpful.
Yeah, and that's the benefit for the hospital hospitals that are having some capital budgets or nursing staff. This is a viable way for them to treat ultrafiltration patients.
And then a follow up on.
The difference between that and maybe see stars C D device for pediatrics.
So is that a similar situation, where you purchase from from C store.
And then and then you you sell that device.
Either.
What your ultrafiltration device or separately, depending on what the customers looking for.
Correct, we will purchase the product from <unk>.
The Star and then we will sell it to the customers with our ultrafiltration services, but let me just say clarify something here to our new pediatric dedicated device would be a C. R. R. T device, that's the device that would be.
A pair with six tower device right now.
Right now when we start selling the a b C star device that would be to use with their own CRT devices that the hospitals would already have.
I see I see so your new continual replacement renal therapy device is what youll pair with.
The SCD device, but right now until that devices available they're used to hospitals using whatever device. They have four C. Archie.
Correct right now in the in the market that is only adult C. R. R. T device is being used in these pediatric patients.
So the six star the buys will be used with any CRT device currently used to treat these patients, but they all adult when we introduced our pediatric dedicated C. R.
Together with the.
These power device will be a much better therapy for these patients. This is why we believe as well as many pediatric nephrologist that this is going to change to be a game.
Can't change yet.
Sounds like a good partnership.
Correct.
You did mentioned I just wanted to say you mentioned two did you mentioned two to three new products this being one of them.
Or were there others that you could talk about or not at this time.
Yes, good good observation that Anthony we have three new products that we're going to be introducing in the next two years.
Starting with the six star.
Ice that's one we also introducing very soon a in additional catheter.
<unk> catheter to be used with our aqueducts system.
And then mid 2025, we plan to commercialize the pediatric dedicated CRT device. So those are the three devices in the next two years.
Okay. Thank you very much I appreciate it I'll hop back in the queue.
Thank you.
As a reminder, if you have a question please press star one.
Okay.
Seeing that there are no further questions I would like to turn the conference back over to Mr. Harmer Melo for closing remarks.
Thank you operator.
We are deeply encouraged by our progress across multiple initiatives, including organic growth in our core business. We believe the success of our Davita pilot program will lead to all property equation service approval, expanding ultrafiltration therapy, and meaningfully accelerate our revenue growth and path to <unk>.
<unk> ability.
To this we add new product opportunities in our high growth pediatric category with the six star S. E D device targeted for market marketing approval for commercialization by year end 2023, or early 2024, depending on the H E approval.
Finally, we with increased awareness of our body of clinical and economic evidence. We have continued to advance market penetration in our ultrafiltration therapy with healthy growth in therapy utilization in our heart failure critical care and pediatric categories.
As we conclude our call I would like to thank all our stakeholders well as employees stockholders physician nurses patients and health care workers in the field, we have a fall an exciting lineup of opportunities ahead and I. Appreciate your continued support as we drive meaningful progress.
Our initiatives to transform the lives of patients suffering from fluid overload with our Aqua system ultrafiltration therapy.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.