Aziyo Biologics, Inc.
Q4 2020 Earnings Call Transcript

Published: 1 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Aziyo Biologics Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to one of your speakers today Hunter Kabi . Sir, please go ahead.

[Unidentified Company Representative:]

Thank you, and thank you all for participating in today's call. Joining me are Ron Lloyd, Chief Executive Officer; and Matt Ferguson, Chief Financial Officer. Earlier today, Aziyo released financial results for the fourth quarter and full year ended December 31, 2020. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that Management will make statements during this call and include forward-looking statements within the meanings of the Federal Securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

[Ronald Lloyd:]

Thanks, Hunter , and good afternoon, everyone, and thank you for joining us. Today marks our second earnings call as a public company following our IPO last October. Undoubtedly, 2020 was an extraordinary year. But the Aziyo team has continued to make meaningful progress on our mission to provide advanced regenerative medicine products to improve the outcome in patients undergoing implantable device related surgery. Our products are designed to reduce the complications associated with implantable medical devices. We do this through our unique and proprietary platforms based on our deep understanding of the science related to the cells, growth factors and the structural matrices to best optimize our tissue products.

[Matthew Ferguson:]

Thanks, Ron. As mentioned, net sales for the three months ended December 31, 2020 were $12.5 million, a 3% increase from the $12.1 million in the same period of the prior year. This included a 10% increase in sales of core products, partially offset by an 18% decline in our non-core products. While our top priority is the continued growth in our core products, we were pleased to see our contract manufacturing business achieve its best quarter of 2020 as a result of several recently-signed contracts that are driving performance in this area.

[Operator:]

Our first question comes from the line of Josh Jennings with Cowen. Your line is open, please, go ahead.

[Unidentified Analyst:]

Thank you. This is Eric , on for Josh. Just thinking about the guidance range that you offered here. How should we be thinking about the breakdown of core versus non-core revenue growth in the guidance? How are they contributing to that 17% to 22%? And as part of that question, what assumptions are you guys making for elective procedures and when they will return to normal? Are you thinking that's Q2 this year? Or maybe second half of the year? Any detail there would be great. Thanks.

[Ronald Lloyd:]

Let me start out with the first part of that question and then I'll have Matt also comment related to some of the surgical volume projections. So again, we're excited about our core product business and as we reported, it grew 10% in Q4 in somewhat of a challenging environment as we know, with the uptick in COVID at the end of Q4. As we look forward here for 2021, as we've given guidance here in the range of 17% to 22% across our businesses, we actually think that we're going to continue to see very strong growth of our core products. But we're also going to see a return to growth of our non-core contract manufacturing business. And I think when we look at it collectively for the year, we're probably anticipating similar growth rates for both the core products and the non-core products for 2021.

[Matthew Ferguson:]

Yes. Eric, I would concur with all of that and I would just add that we do expect our business has some seasonality where Q1 is generally a little bit lighter than say, Q4 is. So, thinking about the sequential comparisons there and how revenue will grow as we move through the year. And I agree with Ron, while longer term we expect more growth. I'm talking about longer term beyond 2021, we expect more growth to come from our core products. I think in 2021 as we're rebounding from a lower year with our contract manufacturing business, we expect that growth rate, probably to be in a similar range to what we see with the core products. So hopefully, that's helpful. Let me know if you have any follow up.

[Unidentified Analyst:]

Great, thank you. That's definitely helpful. And then think about your pursuit of clinical data here. You recently announced the first patient enrollment for HEAL, and you have some other studies like Care Plus continuing to move forward. We're just wondering how impactful do you think these data sets will be once they hit in driving stronger adaption and utilization trends? Thank you.

[Ronald Lloyd:]

Sure. So we want to make sure that we're collecting the clinical data that shows the differentiation of our products and the benefits our products can bring forth to patients. Again in reducing complications associated with implantable medical devices. And so we've embarked on a number of studies. You mentioned the HEAL Study. We just announced the first patient enrolled in this study. This is a multi-site study with the United States to collect around 100 patients that have received CanGaroo or Tyrx from Medtronic or no envelope at all. And at time of change out, look at histology, look at the pocket itself and the health into the pocket and complications that arise from having fibrotic tissue at time of change out. So we're excited to embark on this study, we believe it will demonstrate the benefits of having a biological envelope and the remodeling benefits of reducing complications associated with scar tissue, and so we're pleased to have this study up and running in the first patient enrolled. And likewise, the Care Plus study is a single-site looking at patients that receive CanGaroo Tyrx or no envelope. It's a short-term study and we look forward to seeing the data from that study, probably the second half of this year as it looks at some of the short-term complications of putting in envelopes related to treating patients with CIDs. So, we believe it's important to make these investments that show the clinical differentiation. Again, we're hearing anecdotal feedback from doctors that see the benefit of CanGaroo and reducing complications by having a biological solution and a healthy pocket. And we want to make the investments to collect that same data clinically, to have it be available to promote to doctors as it relates to our products.

[Unidentified Analyst:]

Excellent. I appreciate you guys taking the questions.

[Operator:]

Thank you. And our next question comes from the line of Matthew O'Brien with Piper Sandler, your line is open. Please, go ahead.

[Matthew O'Brien:]

Good afternoon. Thanks for taking my questions. I guess, just to be clear on the guidance, either Matt or Ron, you're saying 17% to 22% growth for both core and non-core this year, is what we should be expecting?

[Matthew Ferguson:]

Yes, generally in that range for 2021, is what we're talking about.

[Matthew O'Brien:]

Okay, well, the reason I'm asking that, Matt, is that you've obviously got an easy comp on non-core, but it implies a little more strength on the core side of the business, which is a key for you guys and even in the face of COVID. So I was just hoping to hear a little bit more about some of the strengths that you're calling on now that you hadn't seen maybe this time last year. I don't know if it's the HealthTrust arrangement, or Premier or what, but just where that incremental confidence in the core business is coming from? And I do have one quick question for you, Matt.

[Ronald Lloyd:]

Sure, so let me start. So actually, again, we were pleased last year with the core products and then collectively for the year, they're up 17%. And as we think about our businesses, we continue to build momentum. You've mentioned the expanded market access with the breakthrough designation that came in December 1 of last year for CanGaroo. Again, we're very excited about that. We're pleased with the initial progress. We've focused on the top 120 Premier hospital accounts and health systems with in the first two months, to be able to do presentations to those accounts and we already have accounts now that have put CanGaroo on contract and are starting to order product. And likewise, we've just announced today the acceptance of SimpliDerm on HealthTrust. Again, another large -- GPO looked at the product, the product characteristics, saw the benefits of SimpliDerm and actually added this product mid-cycle. So we're pleased to be able to have it added into the mid-cycle period for HealthTrust. So we think the expanded market access is going to continue to help us drive volume increases. We're obviously investing as well into a commercial organization as we continue to just likely add additional sales reps. We actually get tremendous leverage from our partnerships as it relates to having that share of voice, and reach, help drive the penetration of our products. And then finally, hopefully, we'll start to see some additional data generation and communication of that data generation showing the differentiation of products start to reach the market here in 2020 as well. So all those factors we believe will help drive a very strong year as it relates to our core products.

[Matthew O'Brien:]

Okay, that's helpful, Ron. And then, Matt, just quickly on gross margin. Again, really strong here in Q4. I know there's obviously a benefit on the core side doing better than non-core. That's going to reverse a little bit here in 2021. So, how durable are some of those production and inventory management improvements that you've made to -- maybe you can provide a little bit of upside on the gross margin side as we move through 2021 versus what we kind of expected?

[Matthew Ferguson:]

Yes. Well, it's true. Our core products obviously are higher margin than non-core products. But we have a number of gains that that we think will be durable as you say, and we have several more that we'll be working on as we move through 2021 as well. Some of those will take a little bit longer to come into play. So, I wouldn't expect much of an increase in gross margin going into this first quarter, especially given that it's a little bit more of a seasonally-light quarter from a revenue perspective. But I think if we move through the year, we should see at least that same level of gross margin gain year-over-year potentially a bit more even. So, we're optimistic and feeling good about that part of the business.

[Matthew O'Brien:]

Got it. Thank you.

[Operator:]

Thank you. And our next question comes from a line of Kaila Krum with Truist. Your line is open, please, go ahead.

[Kaila Krum:]

Hi, guys, thanks for taking our questions and congrats on another good quarter. Just starting out, we're two months into the first quarter. Can you just speak to what you're seeing year-to-date and how you're thinking about the cadence of results as you look out through the year?

[Matthew Ferguson:]

Sure, Kaila, I could speak to that and perhaps, Ron will want to add to it. But yes, we have the benefit here of having a couple of months under our belt in the first quarter and we feel good about the business and we factored that into the guidance that we gave overall for the year. But as we've mentioned, there's a little bit of seasonal trend where we see greater gains towards the end of the year. And then I think the COVID impact, we all hope is less as we move through the year than what we have seen in Q1 and certainly some of the weather impacts that we've seen just recently here. We wouldn't expect to continue as we move through the year. So, I guess we feel good about the year, we think there will be strong year-over-year growth compared to Q1 of last year. But maybe it won't be quite as the same percentage rate as what we're projecting for the full-year. If all of that makes sense.

[Kaila Krum:]

Great. That's completely clear that makes sense. And then you guys completed your product design for the next generation CanGaroo with antibiotics. Can you just lay out sort of the steps now from here through the approval and what sort of additional updates investors should be looking for over the next 6 to 12 months as we get closer to that? Thank you.

[Matthew Ferguson:]

Sure, Kaila. I'll address that one. So yes, we're very pleased to be able to lock product design of our next generation CanGaroo product. And again, this is adding the antibiotics rifampin and minocycline to CanGaroo. We completed actually a number of studies to get to the point to walk the product design. So, very pleased with what we've been able to accomplish, we've also gone out and I've shown the product to a number of doctors and gotten feedback and they're very excited about the product design, and having the antibiotic added to CanGaroo. So now the next step is to complete our manufacturing validation. We're working with our partner here Cook Biotech, who's assisting on that. And then once we have that completed, then we'll run a number of in-vivo and in-vitro studies that will be required for our 510(k) filing with the FDA and those will start to take place in the latter half of this year. And I'm sure we'll be able to give updates throughout the year as we go through earning calls on the progress of this project. Again, we're very pleased with the progress we've made to date, we continue to remain on track, as we said, with our goal of filing this product in Q1 of 2022 with approval then in the second half of 2022.

[Kaila Krum:]

Great. Thank you, guys.

[Operator:]

Thank you. And our last question will come from the line of Brandon Folkes with Cantor Fitzgerald, your line is open. Please, go ahead.

[Brandon Folkes:]

Hi, thanks for taking my question and congratulations on a very good quarter. So, maybe just sort of looking at this from a high-level. What do you see the environment currently in business development? Is there something when we look out to sort I guess, 2021-2022, should we expect sort of additional partnerships? Or maybe in licensing and actually buying in products? What do you have an appetite for and what do you think the environment is currently the most conducive? Is it these continued ViBone-type partnerships that we should expect in the near-term? Thank you.

[Ronald Lloyd:]

Sure, Brandon. Thanks for the question. So, we're very excited about the future growth of our company, off the assets that we have today, the technologies that we have today and obviously the pipeline products that we have in development. And so we do believe there's additional growth opportunity through these assets. We'll continue to look at how to best-optimize the commercialization of these assets, which today we continue to use a hybrid model both direct salesforce as well as partnerships. As we evolve additional products, we'll continue to look at the best model for those to optimize the opportunity for patients to benefit from our technologies. And again, from a company perspective, we're very bullish on the growth with Aziyo organically from what we have today in the market and what we anticipate to come to market in the near term from our pipeline. On top of that, we want to continue to look at inorganic growth opportunities and we are constantly doing that. We want to be able to add additional products technologies to augment the technologies that we have and the channels that we're in today from a commercial standpoint. And if we find the right opportunity that allows us to bring in a new product, new technology and/or have a company be part of that and roll up within us, we'll explore that. We want to make sure that we're making the right choices here and doing the investments in any acquisition that makes the most sense for the company and for the shareholder. So, I think we're in a great position to be somewhat selective in that and that we have great growth prospects off our organic business in our pipeline that we can be a little bit selective here. And we want to make sure that we're making the right acquisitions to drive the right topline growth for the company.

[Brandon Folkes:]

Great. Thank you very much.

[Operator:]

Thank you. And this does conclude today's question-and-answer session. And I would like to turn the conference back over to Ron Lloyd for any further remarks.

[Ronald Lloyd:]

Thanks. In closing, we're very optimistic and confident about our path forward, the foundation that we've laid for optimizing growth for our business, as well as for our shareholders. And I just want to close by saying none of this would be possible without the ongoing commitment of the Aziyo team and our commitment to our mission of reducing complications that are associated with implantable devices. So, we look forward to updating you on our business in future quarters. And again, thanks, everybody for joining.

[Operator:]

Ladies and gentlemen, this concludes today's program, and you may all disconnect. Everyone, have a great day.