Q3 2024 Nuwellis Inc Earnings Call
Good day, everyone. And welcome to Newellus' third quarter 2024 earnings conference call.
At this time, all participants are in a listen-only mode.
Speaker Change: Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call may be recorded. I'll be standing by if you should need any assistance.
Speaker Change: It is now my pleasure to turn the program over for forward-looking statements. Vivian Cervantes, Investor Relations.
Vivian Cervantes: Thank you. Good morning, everyone, and welcome to NWELIS's earnings conference call for the third quarter ended September 30, 2024.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star on your touchstone pad.
Speaker Change: Thank you for joining today's conference call to discuss New Ellis' corporate developments and financial results for the third quarter ended September 30, 2024.
Speaker Change: In addition to myself, with us today are Nestor Jaramillo, who else is president and CEO, Dr. John Jefferies, our chief medical officer, as well as Rob Scott, our CFO.
Speaker Change: At 8 a.m. Eastern Time today, Newell has released financial results for the third quarter 2024. If you have not received Newell's earnings release, please visit the investors page on the company's website.
Speaker Change: During today's 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.
Speaker Change: All forward-looking statements are based upon our current estimates and various assumptions.
Speaker Change: 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.
Speaker Change: All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements.
Accordingly, you should not place undue reliance on these statements.
Speaker Change: Please refer to the cautionary statements and discussion of risks in the company's filing to the Securities and Exchange Commission, including the latest 10-K.
Speaker Change: With that, I now would like to turn the call over to Nestor.
Nestor Jaramillo: Thank you, Vivian, and good morning, everyone. Welcome to New Welles Third Quarter 2024 Earnings Conference Call. On today's call, I will provide an overview of our third quarter performance and give an update on our strategic initiatives.
Nestor Jaramillo: followed by Dr. Jefferies, our chief medical officer, who will provide a summary of the recent publication on the efficacy of Nuelis in a real-world community hospital setting.
Nestor Jaramillo: Our Chief Financial Officer, Rob Scott, will then provide detailed commentary on our financial results before opening up the call for questions, followed by my closing remarks.
Rob Scott: Newell has generated $2.4 million in revenue for the third quarter of 2024, a 2% decrease year-over-year. However, sequentially, we grew 8% over Q2.
Rob Scott: While the adult category of our business saw a lower volume of patients treated during the summer month, our pediatric customer category experienced a surge in revenue of 28% compared to the same quarter of last year.
Rob Scott: Driven by three new pediatric accounts opened this quarter, including one of the largest hospital networks in Florida.
We also experienced a sequential improvement in pediatric census.
Rob Scott: In addition to the pediatric account, we also opened two additional adult accounts. We are excited to continue to drive market penetration of our differentiated aquadex ultrafiltration therapy as we leverage our body of clinical evidence.
For the reminder of our customer category,
Rob Scott: Critical care and heart failure were down 25 and 36 percent respectively on lower consumables utilization and consult sales reflecting the generally lower volume of patients treated during the summer months.
Rob Scott: One of our key initiatives for the last three years have been to build our body of clinical evidence in order to make this therapy standard of care and get into the medical society guidelines.
Rob Scott: In support of this initiative, I would like now to turn it over to Dr. Jefferies to discuss the latest addition to our growing body of clinical evidence.
Speaker Change: and the impact that this clinical information may have in broad day-to-day clinical practice.
Dr. Jefferies
Thank you, Nestor, and good morning, everyone.
Speaker Change: In August, we announced the publication of a new study in current problems in cardiology.
Speaker Change: demonstrating the effectiveness of Aquadex in significantly reducing 60-day hospital readmission rates.
Speaker Change: for patients with acutely compensated heart failure who are otherwise resistant to diuretic treatment in a community hospital setting.
Speaker Change: is the senior author on this paper. I was pleased to see the analysis of an aqueducts program.
Speaker Change: and community-based regional hospitals showing how refractory acute decompensated heart failure patients benefited from significant volume loss and weight reduction along with stable renal function and remarkable clinical benefit.
Speaker Change: I would like to highlight that the outcomes of this community-based hospital setting trial demonstrate the broader applicability and effectiveness of the Aquadex therapy.
Speaker Change: Real-world data in some ways is often more powerful than randomized controlled trials because it uses everyday patients that need to be treated rather than a cohort of pre-selected patients which typically occurs as a certain group of academic institutions.
Speaker Change: The outcome of this study shows that ultrapiltration can be very effective for these real-world types of patients.
Speaker Change: This is vital for New Wellesley's strategy as we now have the data to leverage as we expand the use of this therapy to these hospitals in a non-academic center setting.
Speaker Change: Going deeper into the study's findings, it showed that favorable aquadex therapy programs can result in achieved early as shown in this hospital system in the form of reduced acute decompensated heart failure readmissions.
Speaker Change: There were numerically fewer 30-day acute decompensated heart failure readmissions after Aqueduct's program initiation compared to pre-program initiation with a statistical p-value of 0.351.
Speaker Change: However, at 60 days, there are significantly fewer acute decompensated heart failure readmissions with a statistically significant p-value of 0.013.
Speaker Change: Additionally, patients experience significant volume reduction with a mean food loss of 9.4 liters and a significant weight loss with a mean decrease of 7.4 kilograms.
Speaker Change: Notably, all 30 patients had stable renal function and no significant change in serum creatinine, a test used to measure kidney function, and 72 hours of ultrafiltration therapy.
Speaker Change: Finally, the study had important practical implications for heart failure clinics, demonstrating that a successful Aquadex program is reproducible and can be coordinated by general cardiologists without the need for a dedicated heart failure unit.
Speaker Change: We continue to enroll patients in the REVERSE-HF trial, which is designed to help increase awareness and provide the data to support becoming standard of care. The study has enrolled over one-third of the patients contemplated by the protocol.
Speaker Change: I welcome any questions on this new evidence during the Q&A session and now I'd like to turn to Rob to discuss our third quarter financial results.
Thank you, Dr. Jefferies, and good morning, everyone.
Rob Scott: Turning to the Q3 financial results, revenue for the third quarter was 2.4 million dollars, representing an 8% sequential growth and a 2% decline over the prior year period.
Rob Scott: Our pediatric customer category surged with a 28% increase compared to a year ago as we expanded our Aquadex offerings to three new pediatric centers, one of which is within one of the largest hospital networks in Florida.
Rob Scott: Our critical care and heart failure customer categories were down 25% and 36% year over year respectively. These declines are due to lower consumables utilization in the summer months and also because of capsule sales.
Rob Scott: Gross margin was 70% for the third quarter compared to gross margin of 57.3% in the prior year quarter.
Rob Scott: The margin improvement was primarily driven by higher manufacturing volumes of consumables and lower fixed overhead manufacturing expenses.
Rob Scott: Selling general and administrative expenses were $2.7 million in the third quarter.
Rob Scott: A decrease of approximately 21% as compared to 3.4 million dollars in the third quarter of 2023.
Rob Scott: The decrease in SG&A was primarily realized through efficiency initiatives enacted in the second half of 2023.
Rob Scott: Third quarter research and development expense was $486,000 compared to $1.1 million in the prior year period.
Rob Scott: The decrease in R&D expense was primarily due to reduced consulting fees and compensation-related expenses.
Thank you.
Rob Scott: Total operating expenses were $3.2 million in the quarter, a decrease of approximately $1.4 million or 30% as compared to the third quarter of 2023 as we continue to realize savings from operating efficiency initiatives enacted in the second half of 2023.
Rob Scott: Operating loss in the third quarter was $1.5 million compared to an operating loss of $3.2 million in the prior year period, resulting in a $1.7 million period-over-period improvement.
Rob Scott: Net income attributable to common shareholders in the third quarter was 2.4 million dollars.
Rob Scott: or a gain of $1.74 per share compared to a net loss attributable to common shareholders of $3.4 million or a loss of $63.27 per share for the same period in 2023.
Rob Scott: Third quarter net income improvements was primarily the result of the revaluation of a prior period warrant liability resulting in a 3.9 million dollar benefit.
Rob Scott: We ended the third quarter with $1.9 million in cash and cash equivalents, and with no debt on the balance sheet.
Rob Scott: Our cash balance in the third quarter includes the August and July registered direct offerings priced at the market under NASDAQ rules with gross proceeds of approximately $892,000 and $2 million respectively
Rob Scott: As we previously disclosed, we mutually terminated our license and distribution agreement with Seastar Medical, resulting in a settlement in October whereby they agreed to pay New Willis $900,000 by the end of the calendar year.
We received approximately $500,000 in the month of October.
Rob Scott: This concludes our prepared remarks. Operator, we would now like to open the call to questions.
Speaker Change: At this time, if you would like to ask a question, please press star 1 now on your telephone keypad.
Speaker Change: If you've pressed star 1 before, please press star 1 now, star 1 to ask a question.
Speaker Change: We'll take a question from Jonathan Ashoff. Overall, your line is open.
Jonathan Ashoff: Thank you guys. Good morning. I would like to ask you to walk us through an economic comparison of the now profitable, given the heightened reimbursement, the now profitable way that hospitals can use AquaJax in the outpatient setting, and the money they would make.
Jonathan Ashoff: versus the money they would make doing ultrafiltration a different way for these same outpatients.
Very good question, Jonathan.
Speaker Change: This may take a little long, this explanation. Right now, the only way that ultrafiltration is provided is in the inpatient, and patients get hospitalized and it takes anywhere from three to five days to remove the fluid of these patients.
Speaker Change: If you and then the reimbursement is there are three DRGs that reimburses the inpatient treatment of heart failure
Speaker Change: Any one of those three DRGs, the hospital incurs a loss because the cost of a patient to be treated for heart failure, for decompensated heart failure in the hospital is about $24,000.
Speaker Change: and the highest DRG is probably $12,000, so the hospital incurs a loss.
Speaker Change: With this reimbursement, now the hospitals can provide ultrafiltration in the outpatient setting. It could be in an observation unit or even in the ER and the patient doesn't need to be
admitted in the hospital.
Secondly, the reimbursement now is
Speaker Change: $1,639 per day. So if the patient needs three days to remove the fluid that the physician recommends, then it will be that amount every day.
Speaker Change: So the hospital now, given our cost of the circuit, which is $900, the hospital can make $700.
a day for treating these patients.
Speaker Change: And again, the patient can take anywhere from three days treating the patient coming in and out of the observation unit. And so therefore, the hospital would have more profits from the therapy.
Speaker Change: Right, so you would see this totally replacing the inpatient population, you know, for those that don't have to be there for some other reason.
Speaker Change: Right, we envision, exactly, it could replace admitting the patient in the hospital.
Speaker Change: Decongesting the patient in the ER or in the observation unit, not needing to admit the patient in the ICU or in the hospital, therefore would replace the inpatient treatment of using ultrafiltration.
Speaker Change: Okay, so then, I mean, is there any difference in actual outpatient medical benefit between, you know, these two procedures, meaning Aquadex versus, you know, some sort of dialysis machine they might use, you know, because as long as a hospital can justify doing no harm, it's always going to make more money if it can.
Speaker Change: Correct. We believe that treating patients with decompensated heart failure in the outpatient would be more profitable for the hospitals.
Speaker Change: And I forgot to mention one other aspect of treating patients in the inpatient. If the patient gets readmitted within 30 days, then the hospital doesn't get paid by CMS or most private payers, and also it assumes some penalties.
So that's another savings because the patient was not admitted.
Speaker Change: In terms of the patient, the benefit to the patient, it is well documented that patients that get hospitalized, regardless of what is the condition, the mortality rate goes up.
Speaker Change: So therefore, by not having to be admitted, you are exposed to those high mortality rates.
Speaker Change: In addition, the treatment would be anywhere from four to six hours and the patient after that the patient can just go home and then schedule the next visit.
Speaker Change: So, for the patient, it would be much better and also a better quality of life.
Speaker Change: Okay, so then, you know, what's the crux of what went wrong with DeVito? Why that never matured into what it was, you know, hoping to mature into?
Jonathan Ashoff: Yeah, Jonathan, that's a good question, you know, and we have internally debated what were the reasons.
Jonathan Ashoff: When we started the conversations with DaVita, we had a champion in that organization.
Jonathan Ashoff: As soon as we signed the agreement that Champion got promoted and then we were assigned a different team.
So we lost a little bit of momentum there.
Jonathan Ashoff: Also, at the beginning, we did not target the right centers. We targeted centers that were good customers of New Welles.
Jonathan Ashoff: And they were happy treating the patients by their staff in the inpatient. They did not need the DaVita personnel.
Jonathan Ashoff: So then we pivot, and then we went to accounts that were familiar with ultrafiltration. They had issues with capital, budgets, and personnel.
Jonathan Ashoff: And it just took a little too long for them to get ready to use ultrafiltration provided by DaVita.
Speaker Change: All right, thanks. Also, when can we expect to reverse HF trial data? I'm sorry, I had concomitant calls, so maybe you said something about timelines and enrollment percent already, and if you did, could you please reiterate that?
Speaker Change: Right, at the at the current rate of enrollment we expect to finish the enrollment period by the middle of 2026.
Speaker Change: And then after that, there is a 90-day follow-up, and then we would have the data.
Speaker Change: analyzed, and be ready to submit by the end of 2026.
Okay, you mean, okay, to the FDA, you mean.
Correct.
Speaker Change: Well, not to the FDA. This is not, I'm sorry, not to the FDA. To submit to publications.
Speaker Change: and to submit to the medical societies for them to include this therapy in their guidelines.
assuming, and we expect, the results to be very favorable.
Thank you. Thank you.
and did you give an update for Vivian?
Progress.
Yes, we continue the development phase of Vivian.
Speaker Change: And we're estimating that by the end of 2025, we will be ready to start the in-human clinical study. It will be an IDE trial. That will be an FDA trial.
Speaker Change: and we have already agreed on the protocol with the FDA.
Thank you very much, Nestor.
Thank you, Jonathan.
Speaker Change: And once again to ask a question, that is star 1 now on your telephone keypad. We'll move next to Anthony Vendetti of Maxim Group.
Thanks. Good morning.
How are you internally?
preparing the organization to capitalize on this and
Speaker Change: in all, you know, all three phases, right? Pediatric, critical care, and heart failure. Specifically, how are you
Speaker Change: You know, what's the, what's the, you know, go forward plan?
Speaker Change: Good question and good morning, Anthony. Well, first of all, we're very excited about this new assigned code that triples the reimbursement. We are preparing.
Speaker Change: by identifying those hospitals, those centers, those accounts that used to do ultrafiltration in the outpatient setting.
Speaker Change: And back in 2012, there were about 12 centers that were doing ultrafiltration in the outpatient setting.
Speaker Change: And it requires a setup, it requires patients to be able to come in, sit down in the chair, and then get the ultrafiltration therapy performed.
Speaker Change: and also they need to set up what is called the order set.
Speaker Change: And also, we're going to ensure that those hospitals in those territories do have coverage from either local CMS administrators.
Speaker Change: and also private payers. So we're getting ready on both helping the hospitals get set up as well as making sure that the reimbursement is ready to be filed.
Speaker Change: Okay, do you feel like at this point you have all the personnel you need in place or do you believe that with this higher reimbursement,
you may hire a couple of.
Speaker Change: either clinical people or salespeople to try to accelerate the adoption.
Yeah, good question. Right now we have nine territories.
Speaker Change: in place with sales reps and clinical specialists so we can start in those territories.
Speaker Change: Most of these hospitals that were doing ultrafiltration in the outpatient in the past, we haven't covered. So we would not need to add anyone in the field to get started with the ultrafiltration in the outpatient.
Speaker Change: We are going to look into bringing some expertise when it comes to reimbursement inside in the headquarters.
Speaker Change: Okay, great. Thank you very much. I'll hop back in the queue. Appreciate it.
Speaker Change: And once again, that is star 1 to ask a question. One moment while we queue.
Speaker Change: And it appears that we have no further questions at this time. I'd be happy to return the conference to our hosts for any concluding remarks.
Speaker Change: Thank you, operator. We continue to see momentum in our business with new accounts steadily opening on increasing awareness of the efficacy and supporting clinical evidence for aquadex ultrafiltration.
in the adult and in the pediatric customer categories.
Speaker Change: We believe these clinical results, as described by Dr. Jefferies, will have a positive impact in growing our business and supporting Aquadex in becoming the standard of care for fluid removal when diuretics are ineffective.
Speaker Change: As we reported early last week, we were pleased to announce the company received the notice from the Center of Medicare and Medicaid Services, also known as CMS.
Speaker Change: that the Aquadex ultrafiltration code will be reassigned to the outpatient reimbursement level most consistent with the administration of ultrafiltration therapy and cost of treatment.
Speaker Change: So effective January 1st, 2025, the facility reimbursement fee will increase 297% from $413 to $1,639 per day.
Speaker Change: With this increased reimbursement, we are opening a new chapter for new welders. We anticipate seeing accelerated top-line growth from this rate increase.
Speaker Change: As a point of clarification, a prior announcement reflected the reimbursement increase as 397%.
Speaker Change: Additionally, as reported early last week, the company raised 5.1 million dollars in gross proceeds from warrant exercises and through a warrant inducement solicitation.
Speaker Change: I want to thank all the stakeholders, as well as employees, stockholders, physicians, nurses, and patients.
and healthcare workers in the field.
Speaker Change: Without your support, we would not be able to achieve key advances in transforming the lives of patients suffering from fluid overload.
Thank you for your participation and support.
Speaker Change: This does conclude Newellis' 3rd Quarter 2024 Earnings Conference Call. You may now disconnect your lines. And everyone, have a great day.