Q2 2019 Earnings Call
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Jason Hormann HR and man.
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Thanks.
Welcome.
Actions and are subject to certain risks and uncertainties.
The company's actual results could differ materially from any anticipated future results performance or achievements.
Please see our SEC filings for more information about factors that could affect our results.
Certain financial measures, we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial performance.
A reconciliation of these non-GAAP financial results to the most comparable GAAP measures calculated and presented in accordance with GAAP is available in the investors relations section of our web site.
I will now turn the call over to our CEO Joseph Darling Joe.
Thank you Sylvia and good evening everyone.
Welcome to our second quarter 2019 earnings call.
In the second quarter, we continued to transform into a global promotion company positions to deliver innovative products across the continuum of orthopedic and regenerative medicine therapies.
We also generated strong earnings and cash flow in the quarter.
We are realizing the benefits from our international commercial expansion initiatives as evidenced by 28% growth in our international digital supplements revenue year over year.
As a result of our strong year to date performance, we are raising our revenue and adjusted EBITDA guidance for the full year 2019.
So we will discuss our updated outlook in detail following my remarks.
Please turn to slide number three.
Before we discuss the quarter and hope and our other ongoing initiatives I'd like to start with a new important update on single.
After extensive clinical regulatory commercial and business analytics, along with discussions we have decided to move forward in our efforts to bring this innovative treatment to the us market.
Initially we will conduct a pilot study using a newly designed clinical trial protocol, which we will discuss was up with the FDA in the coming months.
We believe that this approach best balances time cost in risks, we intend to use this pilot program to confirm our trial design increase our probability of success in a phase three trial and generate data that ultimately will be needed to support an FDA approval.
And the analysis, we conducted to reach this decisions.
One of our most important considerations was the real world evidence demonstrated by the continued strong performance and growth in single in Canada and across Europe .
International revenue from single increased 125% year over year in the second quarter.
The success with over 100000 procedures since launch together with the overwhelmingly positive feedback we continue to receive from patients and physicians has further reinforce our confidence in singles clinical value as a safe and efficacious non opioid solution to provide fast and durable relief.
Additionally, we recently conducted new primary market research with over 140 us treating physicians.
The results underscore the clinical need the patient benefit and the market opportunity for this innovative treatment in the U.S.
The survey outcome indicated the single is among the most likely treatments.
To be described part of a multiple new products evaluated and the research.
All of these factors have increased our confidence and singles us market opportunity, which we estimate to be approximately $1 billion.
The pilot study is expected to enroll approximately 240 patients across 15 sites, primarily in the U.S randomized to receive either seeing all the steroid try and sit alone ex the seat nine or sailing placebo.
We expect the study to start in the first half of 2020 and take approximately one year to complete.
While the pilot study will delay the potential launch of single, we believe will improve the probability of success by confirming our belief that the new study design, including modified patient and site selection criteria were produced the pain related outcomes. The FDA seeking for its successful and the submission.
We intend to explore with the FDA.
Whether an adaptive trial design can be used so that a successful outcome in the pilot study may be leveraged to streamline a larger phase three trial.
Throughout this process. We also intend to explore potential collaboration opportunities on terms that would be beneficial to annika and its shareholders. The can enable us to share development costs with a strategic partner.
Please turn to slide number four.
In addition to the single pilot study.
Yes, as a robust product pipeline spanning beyond osteoarthritis pain management to petition repair and regeneration in cartilage restoration.
Which we continued to actively advance in the second quarter.
While also strengthening our executive leadership and commercial teams.
As I have discussed on previous calls per company and growth prospects are driven by our focus on people.
Products and ultimately on enhancing our financial and operational performance.
During the second quarter, we continued to identify and recruit the right people to drive our transformation.
It is very exciting to see the caliper professionals, joining annika at all levels of the organization.
In particular recently, we're pleased to announce that we continue to advance our U.S. hybrid commercial strategy and Onboarded three highly skilled regional sales directors under the leadership of our vice President of U.S sales.
These sales directors have extensive and relevant industry and product knowledge and will provide feet on the street to help build pre market awareness for the upcoming launch for bone repair therapy.
Additionally, they will support other orthopedic therapies currently in development, which will also be launched in the us utilizing our hybrid commercial model.
We also continued to focus on our international sales performance under the leadership of our Vice President of International sales.
Year to date, we have added three new international distribution partners to our global sales network and are aggressively expanding the international reach for product portfolio.
In the near term we are on track to finalize the number of agreements and product registrations in a multitude of countries.
Within Europe , Asia, and South America.
We are actively increasing our focus on driving international growth through active and improved interactions with all key stakeholders across the more than 65 countries, where we have a presence.
Additionally, we have paid we appointed James Larocque to the newly created position of executive Vice President of business development and strategic planning.
Jim has a 30 year industry veteran who will oversee our global business development function and advance our efforts to identify and evaluate potential acquisitions partnerships alliances and licensing opportunities to expand our commercial portfolio and global footprint.
Please turn to slide number five.
In Africa is at an inflection point in its evolution.
And we are confident in our ability to take greater control of our future with our us hybrid commercial model.
As I noted previously we expect that this hybrid commercial approach will yield significant benefits from Utica as compared to a full direct commercialization model.
This approach will enable us to benefit from more rapid market penetration allow us to drive stronger revenue growth and increased profitability without the significant investment usually associated with building a large sales force internally.
We believe this model will provide the most optionality and the ability to scale as we launch products across multiple categories.
We will also benefit from greater visibility.
Control and predictability of product demand volume and fulfillment.
The upcoming launch of our first surgically delivered therapy for bone repair procedures in the us in the third quarter 2019.
We will be our first product launch under this hybrid commercial model.
Our recently hired regional sales directors are actively preparing for the soft launch in the third quarter.
As we move to full scale commercial launch we initially intend to utilize our sales directors and leverage regional and local distribution partners to drive rapid market uptake.
In parallel we will continue to evaluate potential commercial partners with established US orthopedics sales forces for this therapy.
Please turn to slide number six.
I am very pleased to announce that we recently began showcasing the bone repair product at industry conferences.
Including at the recent American Orthopedic Society for Sports Medicine held here in Boston and the International Society of Arthroscopy knee surgery in Orthopedics Sports Medicine meetings held in Canada and Mexico.
To continue building relationships with leading positions in gain clinical light side insights as we prepare for its commercial launch.
We are very encouraged by the positive feedback and constructive input. We received from these influential thought leaders and look forward to building on this momentum as we approach the launch.
We expect our rotator cuff repair therapy will be the second product launched in the us under our hybrid commercial model.
Product development is progressing as planned and in the second quarter. We continued prototype refinement work following the completion of a pilot animal study in the first quarter.
In the second half of the year, we will focus on the surgical instrumentation design for the rotator cuff therapy.
Of note. We recently reviewed this therapy at multiple industry meetings, and we conducted in depth interviews with surgeons to gain insights on the design and optimize the optimization of the product and instrumentation.
Both the bone repair and rotator cuff repair categories represent large and attractive near term us growth opportunities for Seneca.
We expect we estimate the bone repair market to be $250 million to $300 million in the rotator cuff market to be $150 million to $200 million.
Please turn to slide seven.
During the quarter, we worked with the FDA to amend the protocol for the Hyalofast phase III trial.
In order to accelerate enrollment and enhance our probability of success.
Through the protocol Amendment, we expanded the number of sites from 40 to 60.
And are currently adding new sites outside the U.S in Europe , which has the potential to accelerate the pace of enrollment.
We also received approval to augment the inclusion criteria to target our optimal patient population.
Additionally, we recently held an educational symposium for orthopedic surgeons on Hyalofast at the international cartilage regeneration and joint Preservation Society focus meeting.
We continued to see a very high level of enthusiasm among physicians and patients for this innovative regenerative treatment.
Hyalofast represents another significant us market opportunity.
Which we conservatively estimate to be more than half a billion dollars.
We believe that our future increasingly lies in regenerative medicine and other areas, we do where we can leverage the broad utility of our proprietary solid ha or HYAFF technology platform.
We also know that the important steps that we're taking now will help pave the way for new product lines increased control on the commercial managed on those products and enhance value for our physician users patients in key shareholders.
There are a number of value optic valuable opportunities ahead, and we look forward to sharing the details of our five year strategic plan at our analyst and Investor Day on September 18 here in Boston.
We are very pleased with our second quarter results and the progress we are collectively making across our organization as we evolve into a global commercial company.
I'll now turn the call over to Sylvia to review, our second quarter results.
Sylvia.
Thank you Joe.
Please turn to slide number eight.
Total revenue for the second quarter was $30.4 million compared to 30.5 million for the second quarter of last year.
Our global Orthobiologics franchise grew approximately $300000 during the quarter, primarily due to strong international fiscal supplement revenue.
Global vertical supplement revenue represented 84% of the second quarter total revenue.
The us fiscal supplement revenue decreased approximately 6% year over year for the quarter.
And during the second quarter, U.S., Orthovisc and Monovisc product transfer prices were impacted by the decreased market pricing that occurred in the fourth quarter of last year.
As a reminder, the transfer prices for based on end market net selling prices two quarters in arrears.
This impact was partially offset by increased royalty revenue in the quarter.
Which is calculated on a basis of U.S. orthovisc and Monovisc end user pricing during the period.
On a sequential quarter basis domestic orthovisc end user net sales price increased around 20%.
And Monovisc net sales price increased in the high single digit percent range.
On a year over year basis, and use our volume for the quarter increased 9% for Orthovisc and 18% for Monovisc.
The net 6% decrease in the US Viscosupplement revenue was more than offset by international difficult supplement revenue growth of 28% year over year.
This was driven primarily by single, which achieved a 125% revenue growth year over year for the quarter.
Product gross margin increased to 78% for the quarter compared to 73% for the second quarter of 2018.
The strong year over year increase in product gross margin was primarily due to prior year results included inventory charges related to solid ha product lines.
In addition, a more favorable revenue mix also positively impact at the product gross margin during the quarter.
Total operating expenses in the quarter were $18.5 million compared to $19.3 million in the second quarter of 2018.
The year over year decrease in total operating expenses were primarily due to lower cost of product revenue.
And lower research and development expenses, partially offset by higher selling general and administrative expenses.
Net income for the quarter with $9.4 million or 67 cents per diluted share compared to $10.1 million or 68 cents per diluted share in the second half of 2018.
The year over year decrease in net income for the quarter was due primarily to tax benefits related to employee stock option exercises in the second quarter of last year.
Adjusted EBITDA increased to 14.8 million for the quarter compared to $14 million for the second quarter of last year.
The increase in adjusted EBITDA was primarily due to improvements in product gross profit and operating income as a result of reduction in inventory related charges and more favorable revenue mix.
We generated approximately $14 million in cash from operating activities in the first half of 2019.
And we ended the quarter with cash and investments totaling approximately $141 million.
During the quarter, we received an initial delivery of approximately 450000 shares of common stock under our ongoing $30 million accelerated share repurchase program.
We expect this MSR program to complete no later than the first quarter of 2020.
Our cash deployment strategy remains focused on making organic investments to drive top line growth pursuing strategic M&A to augment organic growth and returning capital to shareholders through share repurchases.
We will continue to be highly disciplined to ensure we are deploying our capital to the most value creating opportunities.
Turning to guidance on slide number nine.
Based on year to date results and currently available information, we expect total revenue to be up around a 1% to 4% for the full year of 2019 from prior year.
Total revenue for the third quarter is expected to be up year over year in the low single digit percentage range.
We now expect total operating expenses to be in the high $70 million range for the year as a result of internal cost control initiatives, which will fund the thing our pilot study we discussed earlier on the call.
Adjusted EBITDA is anticipated to be in the high 32, low $40 million range for the year.
Based on a net income expectation around the mid $20 million range for 2019.
We continue to expect capital expenditures for the year to be between five and $8 million.
This concludes our financial review and I'd like to now turn the call back to Joe to discuss our near and long term growth drivers.
Thank you Sylvia.
Please turn to slide number 10.
As we look to the second half of the year, we will continue to take advantage of the multiple levers we have to drive near to long term growth across our business.
These include.
Advancing our hybrid commercial model and the launches of our bone repair rotator cuff cartilage repair therapies.
Continue to focus on the international commercial expansion of our Orthobiologics franchise, specifically Monovisc Cingal and Hyalofast.
Also advancing or deepen innovative orthopedic and regenerative medicine pipeline, including the commencement and completion of the Cingal clinical.
Program.
And continuing to evaluate targeted partnerships and strategic tuck in acquisitions that would complement our product portfolio enhance our commercialization capabilities and augment our technology.
We also remain focused on solid execution across our organization and maintaining strong operational efficiency.
As we continue our disciplined and balanced approach to capital allocation.
Before we open the line to questions. There are three things about Canada, but I hope you will take away from our call today.
First we have taken significant steps over the last year to transforming annika into a global commercial company and position the company to accelerate growth and shareholder value creation in the coming years.
Secondly.
We are laser focused on delivering on the many organic and external growth opportunities for income.
We have actively redeployed resources and added world class talent.
As we leverage our strong market position to achieve our growth objectives.
And third.
Erika as I've mentioned in previous calls is at an inflection point in its ongoing year evolution.
As evidenced by our strong year to date performance, we are committed to sustaining our legacy of operational excellence.
For you and financial discipline, while we drive our next phase of growth.
We're now happy to take your questions. Thank you.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the one key on your Touchtone telephone.
If your question has been answered or you wish him I'm just so from the queue. Please press the pound key.
For our Q and a session. We are allowing one question and one follow up then we will move on to the next questioner.
Our first question comes from Joe Munda with first analysis. Your line is open.
Good afternoon, Joe and Sylvia can you hear me okay.
We can Joe good afternoon.
So.
My first question revolves around.
Single and study.
Im just curious if you know first question and a follow up.
Can you give us the context of why the decision to do a pilot study.
240, why not do a bigger or study or phase three and then you talked about the possibility of adaptive trial design could you roll that pilot study into a phase three depending on the.
You know the data that's coming out of that study.
I'm, just curious to get some thoughts and how much is that pilot study.
Do you think is going to cost on the from an R&D perspective. Thanks, Yes, Joe great questions. So you've got a multitude of questions in there, we'll try to break it down and address each one okay.
First.
We believe this approach best balances as I mentioned previously time cost and risk.
We intend to use this pilot program to confirm our trial design and increase our probability of success in a phase III trial in potentially generate data that ultimately.
Would be needed support FDA approval.
We expect to discuss the trial design with the FDA in the coming months.
And there are a number of factors that solidified our decision to move forward.
On the planned pathway was single.
One of those that we've done so encouraged.
By the continued international revenue growth from some gale.
As Sylvia and I, both mentioned during the call.
It increased 125% year over year in the second quarter.
The real World evidence demonstrated by the continued strong performance and growth of single in Canada and across Europe with over 100000 procedures since launch further highlights to us the strength of the product.
So to me the six us together with the overwhelmingly positive feedback we continue to receive from patients and physicians has further reinforce our confidence in singles clinical value has a safe and efficacious non opioid solution to provide fasting durable relief.
And Additionally, George I'd like to add to that.
We recently conducted primary market research with over 140 interviews with us treating physicians.
And the results from the survey underscore the clinical need the patient benefit and the market opportunity for this innovative treatment in the U.S.
All of these factors combined.
Have increased our confidence in singles us market opportunity.
Which as I mentioned on the call.
To be approximately a $1 billion.
While the pilot study will delay the potential launch of single.
We also believe that will improve the probability of success by confirming our belief that the new study design, including modification of patient and site selection criteria.
Would produce the pain related outcomes that the FDA seeking for successful San Diego submission.
Throughout this process, Joe we also intend to explore potential collaboration opportunities on terms beneficial to unica that could enable us to share development costs with a strategic partner.
Given all this it was clear to us that moving forward and our efforts to bring this innovative treatment. The us market is the right decision.
And I'll now turn it over to Sylvia to address some of your financial questions related to the cost of stuff yes.
I think.
The other two parts one is the adaptive design and the other piece is costs related to the single pilot study.
From a trial design standpoint, we do believe that the revised trial design will be successful in meeting the requirements that the FDA has.
Our intention as Joe mentioned earlier is to talk with the FDA on a design over the next few months and particularly our specifically there are three elements.
That are involved in a revised design one is the placebo arm. The second one is on a much larger th arm.
Meaning the steroid arm and the third is modify modifying patient enrollment criteria to target the profile of the patients for inclusion and exclusion purposes.
These elements that we believe are important in order to generate the data that we need and a from a.
Adaptive study standpoint, we have not yet had the detailed discussions with the FDA.
But as I mentioned earlier, we'll be we'll be conducting that in the coming months from a cost standpoint.
We estimate the cost of the pilot study to be in the mid to high single digit million dollars range and this is included in the revised operating expenses that I discussed earlier.
So hopefully that answered your question questions.
Thank you. Our next question comes from Jim.
The Doty with Sidoti and company your line is open.
Good afternoon can you hear me.
We can generate good afternoon.
Great great. So.
Two more questions on the pilot study.
You said it or take a year to complete is that a year to complete enrollment our year to complete the entire study.
It's one year to complete the entire study the follow up period is six months.
Okay. So to be 18 months before you have the data from this pilot study.
Is that correct.
Sorry can you repeat that.
I guess, how long will it take to complete enrollment.
Oh will take approximately one year to complete enrollment.
Hi, I'm, sorry will take approximately.
Six months to complete enrollment.
Has that reversed Joe apologize yes.
So overall it will take us up roughly a year to complete enrollment as well as the six month follow up from there we'll be looking to complete the statistical analysis.
So.
The specific timeframe thing what you say that 18 month is roughly you know roughly.
The timing that we'll be looking at.
Okay. So after 18 months you will review the data and then.
During Everything's OK you would commend our larger 30 is that correct.
The.
Yes sequentially that will be the process.
Having that said were internally looking at ways to shorten the clinical and the approval timeframe.
But at this point, because we haven't had discussions with the FDA yet we're not at the Liberty of getting into specific details on this call.
Okay. So we shouldn't expect any revenue from single the U.S. for at least.
Three years it sounds like.
That.
Correct correct.
That is a.
Correct assumption I would say three to four years.
Okay.
All right I got it and.
Can you give us any sense on what the cost will be 40 20 for the pilot study.
The overall cost as I mentioned earlier is in the hot out in the mid to high single digit million dollars will be starting some of the expenses. This year a good portion will be next year as we commence enrollment and look to complete the study.
Okay, and you mentioned that you might partner with someone have you ever partner Donna arm clinical study before.
We have in.
Earlier, and Anikas history, we have partnered with a number of.
Uh huh.
A company in terms of developing products, one come to mind with the.
The dermal filler product.
We had also previously partner I given that it was later in the development program.
Partner with five JNJ on.
On clinical programs.
Okay, and so I assume that that all that part of the negotiations for a distribution products or distribution contract covert.
Potentially Joe you know I take it as part of the negotiations and obviously, we're on a public call today.
Lot of opportunity to.
Lot of opportunity Jim to really take advantage of the.
Collaborative environment that we're in today and to look at potential partners.
But I wouldn't really want to get into any more debt than that considering we're in the early stages of those conversations.
Okay.
That's fine and then if we move over to the auto repair products.
It sounds like you're going to.
Our pilot launch or our initial launch in the second half of the year, who is going to be fill in the product in 2019, there will it be your people or will it be some of these regional distributors.
Well, it's going to be a combination of both but clearly our sales directors are going to engage local distributors.
And.
Obviously, we've got a responsibility for account management, meaning selling directly into the accounts. So it's going to be a combination of the two I'd say in the early phases will launch you will see primarily the focus of the sales directors personally selling the product as well.
Okay and.
I assume that you're on your you'll evaluate how things are going with the initial launch and then you could.
You could use a another distributor.
Youre sometime in the future if the product for price cuts.
It's selling well right.
Yes, we're very open to.
Collaborative distribution arrangements with larger nationally based sales forces.
But I think out of the gate to get the product up and running to your point.
We want to focus on the local and regional distributors.
Thank you and our next question comes from Lisa Springer with singular research. Your line is open.
Thank you.
Oh, good evening, I Wonder if Sylvia could give us a little more color around the big year over year decline in cost of product revenue.
Yes, the year over year.
Decline in product cost revenue.
Our due to two factors one was in Q2 of last year, we had some inventory related charges related to our solid ha product lines.
Which warrant recurring for Q2 of 19.
Secondarily the.
Higher than expected pricing in the U.S. for our or for this and Monovisc products, let to a much more favorable revenue mix, which also contributed to the improvement in the product gross margin or yes, the improvement in product gross profit.
Okay. Thank you.
You're welcome.
Thank you and our next question is a follow up from Joe Munda with first analysis. Your line is open.
Yeah join Sylvia.
A couple of follow ups here.
Toby you gave some pretty good color on pricing and volume I missed some of that maybe you could review that and then I guess your thoughts given the guidance.
Your thoughts on pricing and as we go ahead here and look out over the rest of the year. Thanks.
Okay.
Yep, so from a pricing standpoint on a sequential basis orthovisc increased in that 20% range.
And Monovisc increase.
In the high single digit percentage range. So this is our Q2 of this year over Q1 of this year.
And from a volume standpoint.
Both products experienced volume increase.
Largely due to our partner Miteks sales and marketing initiatives Orthovisc volume increase year over year was 9% and Monovisc volume increase year over year was 18%.
From a second half of the year outlook standpoint, the guidance that we update it.
Okay.
Increase from previous guidance was taking into account the.
Very positive development that we saw in the first half of the year in particular second quarter of this year.
Having that said, we also look out.
A longer term.
Historical trend, meaning that we took a look at the last 12 to 18 months of pricing.
Trend and noted that.
There was increased volatility so as a result, we want it to be prudent and take a more balanced approach to our guidance adjustment.
So while we are.
Very positive about Q2 s results, we want it to be.
Prudent and we're taking a more.
Cautious approach toward the second half of the year given the volatility that we saw over the last 12 to 18 months.
Overall, we do believe that the volume for Orthovisc and Monovisc will continue to drive the increase in revenue.
Okay.
Thank you.
You're welcome.
Thank you and we have another follow up from Jim Sidoti with Sidoti and company. Your line is open.
Hi, Tobey are you gave us pricing sequentially, but what with pricing year over year.
Year over year.
Monovisc price.
<unk> increased while Orthovisc Christ was decreased from the year two from last year. So.
Let me just get too so orthovisc price decrease year over year in the high single digit percentage range and Monovisc price increased slightly in a low single digit percentage.
In Q2 versus Q2, this year versus Q2 last year.
Okay and Murphy you had two very different types of quarters relative your gross margin in Q1 Q2 do you expect the second half of the year to look more like Q1 or Q2.
It's a good question.
Jim the our expectation of.
Cost of product revenue is built into the overall operating expenses and we don't separately provide margin guidance and I think from a margin standpoint, each of the quarters had there.
Kind of onetime and unique activities behind them.
I would say that keeping to the.
Total operating expense guidance that we gave two.
Two project.
Profitability is.
Is the best approach we will.
Stay consistent with not providing.
Product gross margin expectations.
Okay, maybe you could and then were there any one time items positively affected the gross margin in Q2 or negatively affected in Q1.
In the <unk>.
In the second quarter I had mentioned that the one time.
Hi, AFE related product line inventory.
Reserve in Q2 of last year was a factor that drove the increase in margins I think that should be taken into consideration.
Which means that without the.
Adjustment last year, the increase in margin would be lower year over year.
Okay, but how about sequentially was there anything different from Q1 to two sequentially that that was onetime in nature.
Yep.
From a Q1 to Q2 standpoint, we saw about 7%.
Increase in our product gross margin I would say that roughly half of that is due to revenue mix.
And that is largely due to the price increases that I mentioned earlier for Orthovisc and Monovisc in the second quarter. So.
If pricing continues to trend up then I think it will positively impact our margin profile for the second half of the year. If it doesn't then it would have an unfair more unfavorable impact.
So thats one point to consider for the acute sequential Q1 to Q2 margin change the other half of the increase from Q1 to Q2 is related to certain operating expenses and the timing of those.
If that's.
And these are what I would call period expenses, meaning that they.
Our charged to the period and some of them include it.
Utilities and purchased timing of purchases of supply. So those are more timing driven.
Okay, I guess I'm confused because overall you think you're worth revenue was down 6%.
Good pricing got better for Monovisc year over year volume got better for both Orthovisc and monovisc year over year.
So why was the overall revenue down 6%.
Yes, so the the missing piece is the pricing for the product that we shipped.
Was down and I explained on the.
Prepared remarks that the transfer price in Q2 was driven by the SP in the fourth quarter of last year, which was a low transfer price quarter. So a portion of our Q2 s results was.
Favorably impacted by the end market price in Q2, meaning the royalty component, but the other portion which is the product shipments was unfavorably impacted by the low ASP from Q4 of last year, which is just hitting this quarters.
Product revenue.
Okay that makes sense. So then should we expect that transfer price to move off now all our end market pricing has gone up should that turn from price go up in Q3 and Q4.
The transfer price for Q.
For certainly would go up because of Q2 s.
Pricing improvement.
What we at this point.
Don't know about is the pricing trend for Q3 and Q4, so that is.
The the the element that we have to make some prudent and.
Reasonable.
Estimation.
Based on historic trends.
Thank you and I'm showing no further questions I'd like to turn the call back to Mr. Joseph Darlene for any closing remarks.
Great.
First I want to thank everybody for your time today.
Oh, we are very pleased with our second quarter results and our progress transforming Utica into a global commercial company with a continuing with innovative orthopedic regenerative medicines.
We look forward to continuing to update you as we execute on our strategic initiatives in the year ahead.
Thank you and have a great evening.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.