Sanara MedTech Inc.
Q2 2021 Earnings Call Transcript

Published: 17 Aug 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sanara MedTech Inc. Second Quarter 2021 Results and Business Update Conference Call. All lines have been placed on a listen only mode and the floor will be open for questions and comments from the web and phone following the presentation. At this time, it is my pleasure to turn the floor over to your host, Callon Nichols, Director of Investor Relations at Sanara. Sir, the floor is yours.

[Callon Nichols:]

Thanks, Karen and good morning, everyone. I'd like to welcome you to Sanara MedTech's earnings conference call for the quarter ended June 30, 2021. We issued our earnings release yesterday afternoon. And I would like to also highlight that we have posted a link to today's deck on our Investor Relations page. This supplemental deck, as well as a copy of the earnings release, the 10-Q and a transcript of this call, will be available on this page. We will reference this information in our remarks today. We expect today's prepared comments from Ron Nixon, the Chairman of our Board; Mike McNeil, the Chief Financial Officer; and Zack Fleming, President of Surgical, to last approximately 15 minutes to allow time for Q&A. Certain statements in this conference call and our press release and in our supplemental deck include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other things, the anticipated benefits of the Rochal asset acquisition, the development and approval of new products and expansion of the company's business in telehealth and wound care. For more information about the risks and uncertainties involving forward-looking statements, please see our most recent Form 10-Q and annual report on Form 10-K. Now I'd like to turn the call over to Ron. Ron, the floor is yours.

[Ron Nixon:]

Thank you, Callon and good morning, everyone. I'll start with an overview of the second quarter and then we'll dive more deeply in each topic in the subsequent slides. Sanara generated $6.3 million in sales and a net loss of $1.2 million in the second quarter of 2021. This was the fourth record revenue quarter in a row for the company and was driven by continued growth in surgical product sales. Surgical team has continued to focus on hospital for this product adoption and adding high quality experienced regional and territorial sales managers to our team. Zack will discuss the specifics in his remarks. We continue to see strong growth and significant opportunity for our products in surgical pending no long-term effects of the COVID-19 virus or experience. We're constantly focused on our product pipeline and bringing to market highly efficacious solutions that offer a good value proposition. We continue to see cap partners see our proprietary products that fit within our six focus areas. In addition, following the acquisition of Rochal assets, we now have numerous products development projects in-house. We intend to submit five 10-K applications for several of these products in our pipeline within the next 24 to 36 months. Now I'd like to discuss our telemedicine and virtual care business. We renamed United Wound and Skin Solutions to WounDerm, which we feel is more appropriate name. Previously WounDerm referred only to our proprietary wound and skin EMR and mobile app. The team at WounDerm is actively engaged in discussions regarding multiple pilots to prove the efficacy of WounDerm solutions and demonstrates the company's overall value proposition related to costs and outcomes of its comprehensive wound and skin strategy. Subsequent to the end of the quarter, we've completed the acquisition of certain assets for our research and development partner Rochal Industries. We believe this acquisition will be an important contributor to our future development and growth plans and it was structured as a win-win between the parties. With that overview, I'd now like to turn it over to Zack Fleming to discuss our surgical business and the latest on our partnership with Cook Biotech.

[Zack Fleming:]

Thanks, Ron. Our surgical division continues to grow in both terms of sales, hospital approvals and the size of our team. In the second quarter, we hired eight new regional sales managers, bringing the total to 26 regional and territory sales managers. At the end of Q2, CellerateRX had been sold in over 300 hospitals and ambulatory surgery centers across 21 states. The product is currently approved for use in over 900 hospitals and ASDs. And as we’ve discussed before, we believe that there are over 12,000 hospitals and AFCs in the United States where Cellerate could potentially be used. Turning to the Cook products. We plan to have FORTIFY TRG, which is the tissue repair graft and FORTIFY FLOWABLE extracellular matrix fully rolled out and available for sale in the second half of this year. We're currently working on the marketing and distribution strategy for VIM Amnion matrix and the exact timing of that rollout for that product. Now I'll turn it back to Ron to discuss our product pipeline in more detail.

[Ron Nixon:]

Thanks, Zack. As I mentioned earlier, we're focused on acquiring or developing novel and innovative products that fit within our six focus areas. We currently have five products in our pipeline at various stages of development. CuraShield, an antimicrobial barrier film, an FDA 510(k) cleared product, is intended for application on minor wounds and damaged skin as a liquid film forming barrier, which creates a waterproof breathable film dressing protecting the wound of damaged skin. Sanara's licenses product from Rochal Industries was currently exploring manufacturing options and potential partnerships to bring this product to market. We continue to progress our efforts to develop a debrider that will be complementary to our hydrolyzed collagen and biofilm cleanser products once it's cleared through the 510(k) process. We're currently finalizing and testing the formulation and expect to have the final formulation ready to file a 510(k) application in 2022. Our sales results to date have been driven by our hydrolyzed collagen products, developing the next generation of these products is the key initiative of ours, I've said this in many previous calls. We're currently working on the next generation product with our newly acquired team at Rochal. an antimicrobial wound solution is expected to be an additional product for surgery and is derived from our BIAKŌS skin and wound cleanser line. This product, which we plan to start testing in the next quarter will be the first biofilm and antimicrobial irrigant for surgery. We believe it could have significant impact on reducing biofilm and surgical wounds, leading to fewer surgical site infections when compared to the current standard of care. Now I'd like to turn it over to Mike McNeil, our CFO, to discuss our Q2 and first half of the year financial results.

[Mike McNeil:]

Thank you, Ron. During the second quarter, we generated revenues of $6.3 million compared to $3 million during the second quarter of 2020, representing 112% increase over the prior year. Year-to-date sales through June 30th totaled $11.3 million compared to revenues of $6.5 million for the same period last year, which represented 74% increase over the first half of 2020 and 105% increase over the first half of 2019. The higher revenues in 2021 were primarily due to increased sales of our surgical products as a result of our ongoing sales force expansion and our continuing strategy to expand our independent distribution network in both new and existing US markets. In addition, revenues in the second quarter of 2020 were negatively impacted due to the suspension of elective surgeries and restricted access to patient facilities throughout most parts of United States as a result of the COVID-19 pandemic. We had a net loss of $1.2 million for the second quarter of 2021 compared to a net loss of $1.1 for the second quarter of 2020. For the first half of 2021, we had a net loss of $2.4 million compared to a net loss of $2.9 million for the same period of 2020. The improvement in our net loss was primarily due to much higher sales revenues in 2021. Finally, a quick look at our balance sheet shows we ended the second quarter in a strong financial position with $24.4 million of cash on hand. I will now turn it back over to Ron to discuss the Rochal asset acquisition.

[Ron Nixon:]

Thanks Mike. As we mentioned, we recently acquired certain assets from Rochal, including intellectual property, four 510(k) FDA cleared products, rights to license certain products and technology currently under development, equipment and supplies. In addition, we hired all the Rochal personnel. The Rochal acquisition is strategic to our comprehensive wound and skin strategy, as well as the development of additional surgical products. This transaction, which was effective July 1, 2021, allowed us to combine the Rochal technical team and their extensive experience in commercializing technologies with Sanara’s extensive distribution network. As we gather more data at the bedside through precision healing, our in-house team will have the capability to work on new innovative products based on an analysis of the data that's collected at the bedside. The addition of the Rochal team is also expected to strengthen Sanara’s expertise, Sanara’s regulatory compliance, manufacturing and quality control. The products that were under development at Rochal acquisition closing date, Sanara has the first right of refusal for product license agreements, as well as certain economic rights for products Sanara chooses not to license. For a three year period following the execution of the asset purchase, Rochal is entitled to receive consideration from Sanara for products developed during that time. During the same period, Rochal has entitled to receive an amount in cash equal to 25% of the grant proceeds that Sanara or Rochal receives as done by the work of Rochal. For more details on this, please see the license agreements that we filed. We excluded certain assets from the deal including licenses for products already licensed to Sanara. One, silicone 510(k) approved product and the rights to five products currently under development. The reason for the excluded assets that were not already licensed to Sanara was that at the time of the deal, we could not adequately value these assets. In order to come up with an appropriate price, we would have had to monetize future royalty streams that were felt we just didn't have enough clarity on them at that point. Sanara will review all of the above products at the appropriate time for commercialization opportunities. That concludes our prepared remarks and we look forward to answering any questions that you may have during the Q&A. Operator, we're ready to open the call for questions, and thank you.

[Operator:]

Ladies and gentlemen, the floor is now open for questions . And our first question comes from Brandon Folkes from Cantor Fitzgerald.

[Brandon Folkes:]

So firstly, just in terms of Cellerate, you've done very well to get approved in over 900 hospitals and ASCs. Can you just elaborate the market opportunity to go deeper in those accounts as you continue to bring on additional hospitals and ASCs. And then similarly along those same lines you're approved in over 900 hospitals and ACSs, the products being used in 300. So just any color in terms of what's needed to get the other 600 that are approved, ordering and using the product? And then secondly, my second question, I guess, just in terms of traditional sales people. Are they covering new territory, just any splitting those territories there would be helpful?

[Ron Nixon:]

Zack, why don't you answer that if you wouldn’t mind.

[Zack Fleming:]

So I think the first question was, how do we go broader, deeper into the 900 hospitals across the 300 we’re in but also into the 900. So first I'll go into the 300 that we're in, and 300 approximately. And the key is this product is very wide applications across surgical specialties. So if you just kind of stop and think anybody that is working on surgical wounds, this would be appropriate for. So that's a very broad group of surgical specialties. Really you could go from plastics general of course orthopedics, spine. But if you kind of get the point is there's a whole bunch of specialties that could use this product in favor of helping patients that aren't doing well from a healing standpoint, maybe they have a comorbidity that keeps them from healing well. So it really is very widely applicable. In terms of how do we get from 300 and get closer to the full 900. I think it ties into the next part of your question. And that is we are hiring additional people, as you know, and we mentioned. And then we're going to try to go into new territories, of course, and try to expand into those territories where we have approvals. So those are obviously very much important to us. We've highlighted each of those IDNs, each of those hospitals and all of our people that we've hired, nowhere those are and are certainly working very hard to gain interest from surgeons. So it's simply a reach for us. We've been very successful with this model and have seen it played out very consistently that when you put a person in the field, the product is very promotionally responsive. So in other words, people immediately see the need for this product and start to use it. So it's just a matter of reaching out to those surgeons and getting the product in their hands. I think I didn’t answer the third part of that. Go ahead…

[Ron Nixon:]

No, I was just going to add one other key point to that, Zack, and that is Brandon, that this product ends u getting adopted by surgeons that really like the results that they see. So therefore, it ends up being more word of mouth as opposed to more selling of the product. This is really adoption of the product. And so you get that fill in within your territory from more and more surgeons talking to other surgeons about the benefits of what they've seen with the product. And with any surgical group, obviously, there's usually 20 or 15 surgeons with each surgical group and you start to see it spread across that surgical group within that orthopedic group side or the plastics group and then across specialty. And that usually is because we’ve also worked with the mid levels, the nurse practitioners, as well as the PAs, the first, the fifths that are in the surgery and helping to work through those surgical wounds.

[Brandon Folkes:]

One additional question, if I may. You've got a lot going on a number of very interesting launched in the back half of the year, but I'd be remiss if I didn't ask. Any color and your thinking around what we’ve seen with COVID Delta variants or any of these other variants on substantial timing of product launches at this stage?

[Ron Nixon:]

I don't think it's actually impacting our product launches. What I would tell you is that we're always mindful and keep an eye on what goes on since we've seen this already once before, and went through this last year. So we're mindful of paying attention to where the elective surgeries maybe starting to get temporarily stopped. And Zack, you want to add any color to that.

[Zack Fleming:]

Yes, I just think that the launch is a targeted opportunistic launch that will be based on where we have access in volume and influence into the facilities. Volume meaning an availability of cases that would fit the product. And we're using existing relationships, the agents that sell for us, our regional sales managers and/or surgeons that like to work with Sanara.

[Ron Nixon:]

I’d also add, Brandon, that one of the things we will do is continue to focus on expansion of our geographic reach, so that if there are hotspots of COVID or the variants that we hope that those -- the impact into those other geographies, which are less impacted can pick up the difference if we see any of that decline.

[Operator:]

And our next caller is Neil Cataldi from Blueprint Capital Management.

[Neil Cataldi:]

Could you give us any further updates on the wound care and pilot, and maybe elaborate a little bit on what the go-to-market strategy is there. How it ramps to revenues and maybe a timeline for that?

[Ron Nixon:]

The first pilot is going to begin within the next two weeks and it is in a very large home healthcare, it will include multiple facilities. And so therefore, we'll get a much better feel. This is a company that's very much focused on PDGM. And so that’s that patient driven group modeling and understand the value that that brings to them as it relates to being focused on conditions like wound care where there is higher value ascribed to that patient that has multiple morbidities and has a wound. So we will be testing our virtual console. We will be testing -- obviously, our products will be used in that. And we'll be gathering our data to see how our overall value proposition plays out. And so that will -- I will assume that within the next quarter or by the end of the next quarter, we’ll be able to give updates on exactly how that has progressed, because typically we'll be able to judge that on 30-day episodes since that's the way home health is done today. We're not abandoning the skilled nursing facilities but the skilled nursing facilities have been under pressure ever since COVID. We've seen a decrease in their census. They're scrambling just to make sure that they can keep people safe in their facilities. And you're seeing a movement towards more acuity, higher acuity patients going to the home to be dealt with. You're seeing the coming of the hospital at home, you're seeing a lot of focus on bypassing the with these patients. So we think the home health is an area that we need to be focused on while the is kind of getting their situation under control with what they've had gone with COVID over the last year. So that's probably all we can say at this point in time. We have other pilots that we're exploring right now with other different providers. And we'll keep you updated as those become material and as we execute those agreements.

[Neil Cataldi:]

One or two more, if I may. I know the first analyst asked a question around the RSM and the hospital counts. I was just wondering, maybe different spin on it. How many more RSMs do you have to hire to penetrate the 600 hospitals that you're not currently in, and maybe how many more are you looking to hire through the balance of this year?

[Ron Nixon:]

Go ahead, Zack.

[Zack Fleming:]

I would say, in terms of our current way we're looking at this is that we go to market through 1,099 agents. And as long as those agents are able to be managed via the number we hire, I think that's really the key. And so roughly you can kind of imagine that RSM can cover about two states. And obviously, in the northeast, that's a little bit tighter geography. However, there are travel demands that are difficult there. So approximately somewhere around 30 to 40 is where we think we're probably going to need to be to get all of the coverage with regional managers. And one of the reasons is while we're employing a new strategy, which is the TM model, I don't know if you heard us say, TM, that's really a territory manager that's going to be stationed in a large MSA where you have a lot of concentration of hospitals and where we're trying to go exactly what the first question was, which is trying to go deeper into facility. So this TM really sits on a few accounts, identifies additional surgeons where we can use CellerateRX more and further and deeper into those facility. So hopefully that answered your question.

[Neil Cataldi:]

How should we think about the training ramp? Is it three, six months or is it more six to 12? Any color there?

[Zack Fleming:]

So we really want our people to be trained well. And so internally, we have about a five week track that they go through, which includes field rides, internal training, et cetera. So just in terms of being up to par and be able to talk to talk and be able to go out and serve the customers well, roughly about six weeks by the time they get back to the field. And then in terms of the impact, it’s starting to get quicker because we are seeing with the approvals sitting out there, now that can go right in and just find surgeons. If you're going into a blank territory, which we do have a few of those where we don't have a lot of penetration in hospitals, it does take a little bit longer.

[Ron Nixon:]

And the other thing, Neil, is we're really focused on finding experienced people from the beginning where they have some surgery experience. So that if they're not totally agreeing when they come in and we're training them, we don't want to have to educate them fully on what goes on in surgery. We want them to come with at least three years of experience in surgery.

[Neil Cataldi:]

Yes, we've done some work on the new hires already and the pedigree looks great. So kudos to you guys on the people that you're able to find right now. My last question just pertains a little bit to the pipeline, a majority of your revenues today come from Cellerate. I'm wondering which product in the pipeline you would expect to be the next one that might make an impact on financials, could you share anything on that?

[Ron Nixon:]

Zack, do you want to talk a little bit about the Cook products and then also ?

[Zack Fleming:]

So we're really excited about the Cook products, wouldn’t have added them if we weren't -- and the products really fit a need that really isn't being served by other products. So I think that's why that's an exciting space. Our big challenge, as with any company or any product that you're launching, is just the approvals and gaining acceptance out in the field. So we are actively out with initial trials where we're providing product and getting reviews from surgeons. They've been very positive in their use cases for FORTIFY TRG. FORTIFY FLOWABLE coming up in the next month or two where we'll have that in the field and the doctors will be giving us response. Both are already approved products. They're already backed by a lot of science around FIS technology. So we're going to the field with a lot kind of armamentarium and we're really excited about that. Now in terms of projections and market size, we're still working to assess exactly what this product could be. Both those products, the one is the FORTIFY FLOWABLE, that's the micronized product that’s just kind of comes in a capsule and then you swish it back and forth between two syringes and then it becomes gel. And the neat thing about that product it goes down into a wound, fills cavities, really works a really big part into what a surgeon needs. And then the other one is the FORTIFY TRG. And again, that is the product that is going to help to reinforce soft tissue, very broad label, which we like and it's able to be implanted as well.

[Ron Nixon:]

And then Neil, also in addition to that, on the other side of the business on wound care. We think these pilots will prove out that what we have seen in the field and data that we've gathered that our BIAKOS, both our cleanser and our gel, as well as our Hycol and powder, and gel will be well received and they will see the economic benefits that we have seen. And the value proposition that we believe is there. You add the virtual console to that to make it more efficient wound care strategy. We make the kinds of groups that we're talking about right now to do these pilots are going to recognize that and that'll be where we'll get a lift in those products sales as well. We think that will bigger way through 2022.

[Zack Fleming:]

I forgot to mention . I don't know if you guys want me to touch on that. But is a little ways off, still very much in a development process right now. But certainly that market looks very attractive with some of the other product entrants that are in that space, which are the medicate and washes that would go into wounds and surgery.

[Neil Cataldi:]

And while you were talking right now, I was sort of listening and in looking at the deck you provided. I think in there you mentioned CuraShield and a possible partnership. I'm just wondering maybe what that means or what that looks like similar effect more partners with the other products as well?

[Ron Nixon:]

That is a product that is a product that is really geared towards more in hospital use in nursing home, in home health, but it's specifically considered to be more of a skin product than a wound product, even though it is indicated for wound and damaged skin. And we believe it's a head-to-head competitor with Cavilon. And so the 3M product and Rochal was the original inventor of the original formula for Cavilon that is the 3M product and in its early days 20 something years ago. So that's an area that we think is well needed. It's the first antimicrobial barrier film and it's the first to have an indication for wound. And so hard to say exactly what the adoption rate would be, but we're looking at partnerships that potentially maybe in certain segments that we're not in today on the skin side that could help escalate that sales channel penetration.

[Operator:]

And there appear to be no further phone questions at this time and there are no questions on the web. I'd like to turn the floor back over to Ron Nixon for closing remarks.

[Ron Nixon:]

All right. Thank you, everyone for listening in to our first of many to come earnings calls. Thank you all for participation. Thanks for the good questions, Brandon and Neil. And we look forward to reporting on our next quarter. Thank you all for attending.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.