Aroa Biosurgery Limited (ARX) Earnings Call Transcript & Summary

Good afternoon, and welcome to Aroa Biosurgery's Capital Raising Investor Webinar. From the company today, we have the Founder and CEO, Brian Ward; and the company's CFO, James Agnew, run through a brief presentation that was used with regards to capital raising, and we'll have the ability for Q&A at the end of the session via the Q&A button at the bottom of the screen. Brian, I'll now hand it over to you. Thanks.

Great. Thank you, Simon, and thanks to everybody for joining us. What I plan to do is just do a quick summary of the company just as a quick recap for those that aren't familiar with the story and then go on and talk about the capital raising. So just as an introduction. So AROA is a well-established high-growth soft tissue regeneration company. We have guidance this year for revenue between NZD 30 million and NZD 33 million based on our forecast. Last year, we had gross margins of 68%. This year, without the headwinds of COVID, we expect those to improve to be in the low to mid-70%s. This is a well-established technology being used to treat over 4 million patients. We have 6 patented product families that we sell in the U.S., over 100 SKUs. Regulatory approvals now in 49 countries, all of our products based on our AROA ECM platform, which is a well-established platform technology. There's 32 peer-reviewed publications for our technology, both from the scientific and clinical literature. So very strong evidence for all of these products. And we're addressing a total addressable market for existing products in excess of USD 2.5 billion in the U.S. alone. In terms of company employees, we have 130 employees based in New Zealand involved in development, manufacturing and corporate marketing. And in the U.S., we have a sales team of 40. In terms of our products, our initial products were in stalled complex wounds. So initially we targeted a relatively small opportunity, a market of USD 78 million. Within [indiscernible] have launched products for hernia and breast reconstruction through our partner, TelaBio, on much larger markets. And then more recently, we've began selling in our own right through our own direct sales team, that's our Myriad products, Myriad Matrix and our Myriad Morcells. We also had Symphony, which is a product for complex wounds, particularly in patients with severely impaired healing like diabetic foot ulcers. And that's a very large opportunity. That product was approved this year, and we plan to commercialize that product next year. We also have recently informed the market about a dead space management program that we've been working on. We expect to complete all of the regulatory and quality requirements for that product by the end of next year and then file that with the FDA for commercialization in calendar year '23. Just to verify how our products are sold. So AROA sells soft tissue reconstruction products. So that's the Myriad Matrix and Myriad Morcells product through our direct fully dedicated sales team. We also sell Endoform antimicrobial and Endoform natural product through our inside sales team based in San Diego. Together, these products have a total addressable market of USD 1.4 billion. We also have a partnership with a company called TelaBio, who had licensed our rights to sell in the U.S. and Europe, for hernia and breast surgery. And so that's our OviTex products and OviTex PRS products. In the U.S. alone, that market is worth USD 1.3 billion. Half of our revenue comes from AROA products, that's the wound care products and soft tissue reconstruction products. The other half of our revenue comes through TelaBio. So just briefly, where are we at the moment? So we sort of reaffirm our guidance, NZD 30 million to NZD 33 million in revenue this year. We're seeing good volumes coming through in the first quarter. We continue to see improvement in the number of medical procedures happening within hospitals, and we feel like we're making good traction with our Myriad and Myriad Morcells products. So we've been really surprised with how well that's going. And we think we're looking forward to certainly delivering on our revenue guidance. In the other half of our business, we're also seeing good demand for TelaBio's products. So that puts revenue guidance out there of an improvement by between 48% to 65% over last year. We're seeing strong demand come through from them. Last year, they had a large amount of inventory that was built up as part of the launch. They've now been through that inventory, and we're supplying them to meet the current demand. So we're seeing a ramping level of sales from TelaBio. We certainly had 3 strong quarters, and we're seeing really nice growth there. So on both sides of the business, we're seeing both sides of the business perform very well. In terms of clinical studies, we've got a number of clinical studies that will be coming through in the near-term. So we have a large retrospective study for Endoform and diabetic ulcers, which will be published over the next month or so, another study for Myriad, and we have the 24-month data from the TelaBio OviTex study coming through in the second half of this year. As I said earlier, we've informed the market about our pursuit of our database management system, and we expect that to be a very large opportunity, which fits very well with our existing portfolio. Manufacturing construction is progressing to plan, and we expect to have our new facility finished by the end of the year and for that to be fully functional by March next year. So one other comment I'll make just before moving on there is, one of the primary reasons for this capital raising is to be very well placed to respond to the improving situation in the U.S. for all of our products. And so our plan has been based on a very sort of finely tuned sort of revenue and expense profile. And by raising this capital gives us much more flexibility to advance our build-out of our commercial team in the U.S., and we want to be very well positioned to do that as we see those opportunities open up. So a large portion of the funds that we're raising is to put towards building out our commercial organization. So James, I'll hand it over to you to talk through the offer and use of funds.

Thanks, Brian. So AROA is conducting a capital raise of up to AUD 52 million. This is essentially made up of 2 components. So we have just closed a AUD 47 million placement. And early next week, we'll be launching a share purchase plan really as an instrument to offer shares to our supporting shareholders on the register as at date at the same sort of price. So that price has been set at AUD 1.165 that reflects, obviously, a very small discount to the last 5-day VWAP and the price that was closed on last Friday. So what I'll just do is, I'll just turn to the use of funds. So at the end of June, we had just over AUD 30 million of cash from the balance sheet. And as a result of this raise, we will -- immediately following this raise, we will repay the debt on the balance sheet that's owing to Hollister, so that we'll become debt -- the company will become completely debt-free. So then, as a result of that, we'll have pro forma cash of AUD 65 million post the offer and net of that debt repayment. And as Brian mentioned, I mean, this really does -- this does provide us -- it does provide the company with flexibility and fully funds us to profitability. In terms of where the money is being deployed, as Brian mentioned, we're looking to deploy this money and to the investment in our U.S. commercial operations to really take advantage of the opportunities that present themselves for our portfolio of products. There'll be a small portion of the funds deployed to accelerate and broaden our R&D pipeline, and really with the balance of the funds essentially strengthening the balance sheet and having that cash on hand. With that, I'll turn it back to you, Brian.

Yes. So I want to talk a little bit about the outlook over the next 12 months. So we definitely feel like the U.S. is moving into a different phase, and we're certainly seeing an increase in procedure numbers. So procedure numbers are back up at probably about 90% of where they were pre-COVID for the products that we're selling. There's plenty of opportunity at that level for us to be very successful and gain market share. So we feel that with the number of procedures that are happening at the moment, we're in good shape to deliver on our guidance. We've made a big transition with our sales team in the U.S. to a fully dedicated field team. And we're beginning to see that pay off for us. And we're very much focused on Myriad, and we're seeing Myriad start to deliver sales for us. On the TelaBio side of the business, we're seeing good momentum on that side of the business, good clinical outcomes, strong cost savings and that driving adoption within accounts as well. We also have a much broader product portfolio now with both Endoform Myriad, Symphony coming through and OviTex. And we're beginning to see the ability for those product synergies to help us both in helping with clinicians to be able to treat across the whole continuum of care, but also helping us in contracting with both hospitals and GPOs and IDNs. So we think there's a good opportunity now with much fuller suite of products to be increasingly successful. Clinical data is going to be really important over the next 12 months. I've talked about the Endoform study coming out shortly. We'll continue to build on the case series that we've been delivering with Myriad, and we've begun a pilot study in the U.S. with our Symphony product, which will then lead on to a much larger RCT. So a lot of activity on the clinical side as well. There's potential reimbursement changes for Symphony from CMS. So we're still awaiting final decisions on that. We have a good, strong pipeline of products coming through. Our dead space management system is something that we think provides a very strong opportunity for us in the future and also continuing to expand globally. We've got a large number of these distribution arrangements that we put in place in other parts of the world, and we'll begin to see that start to come through for us over the next 12 months as well.

Great. Thanks, Brian. Thanks, James. Just in terms of questions, if you did want to ask a question, please do so by the Q&A button at the bottom of the screen. We have one question through so far. First question. In the past presentations, management said, the company would most likely refinance its debt. What was the consideration that you decided to pay it off using equity? How is the negotiation with the lender?

Yes. Look, we had said that we were going to refinance it. The opportunity [ presented ] itself to raise this equity, and we've taken that opportunity and we wanted to put ourselves in a position where we were fully debt-free. James, do you want to expand on that?

Look, I think, given the opportunity that we presented to raise capital, it just makes sense to clear that debt and stop the clock on any interest.

Right. Next question is just regarding the U.S. and opening up. Can you provide any more further commentary there with regards to how sales are looking and any acceleration there?

Yes. Look, I mean, we've been very heartened by what we're seeing from a sales perspective and certainly tracking in line with where we expect it to be at this early stage in the year. So we're seeing, as I said earlier, procedure numbers stay at a good level, and then also the ability for our salespeople to be able to get into accounts and convert new accounts. So where the environment is at the moment, we see that there's plenty of opportunity for us to be successful.

Okay. Next question. Can you provide any further color with regards to the acceleration of R&D and what products they might be?

Yes. So we have 2 sort of areas where we're really focusing on with R&D. So we have, obviously, our dead space management system and accelerating the development of that. So we're making sure that we can get that filed with the FDA as soon as we can next year. There's about a 12-month process there now from where we are to get -- 12 to 18 months to get all of that work complete. We also have -- we're doing some work to broaden the portfolio with the offering that we have with TelaBio but also with our own products. And so we'll add some additional SKUs to the portfolio to really focus on some niche opportunities that we're seeing.

Okay. Can you talk with regards to the use of funds, whether any of that will be dedicated to growing the U.S. sales team?

Yes, it will, absolutely. So the way we're thinking about that is, we're seeing success in some particular territories. And what we'd like to be able to do is to be able to bring on additional sales with, particularly in areas where we're dealing with large hospital systems, and we only have one single rep to serve those accounts. So what we'll do is, we'll infill some of our sales territories so that we can really maximize that opportunity. We aren't committing necessarily to particular sort of prescribed scale up, but it's more to be able to respond as we see those opportunities open up and increase the rate at which we build out our sales team. So having this additional capital certainly gives us the ability to be able to build on the success that we're having.

Next question. Can you talk to any upcoming catalysts or milestones with regards to validation in terms of clinical papers, et cetera?

Yes. So I think, a big one on the TELA side is the 24-month data for the BRAVO study. I think that's going to further support the real difference and point of difference with OviTex versus the leading competitors. So that's a really critical one. Our Endoform paper that will come out shortly, that's also another really important paper and that looks at Endoform use and diabetic ulcers. I think there's 2 things about that. One is that it talks specifically to the use of AROA ECM technology and diabetic ulcers, but also more widely to the sorts of things that we're seeing right across the whole product portfolio. So that's a large retrospective study with 2 arms with 1,000 patients in each arm, so very significant statistically. So that paper really underpins what we're seeing across the entire product portfolio.

Great. Thanks, Brian. That concludes the Q&A. I might pass it back to you for closing remarks, and we'll finish up there.

Great. Thank you, Simon. Look, we're really pleased to have completed this capital raise. We believe that it sets the company up very well to succeed in the future, gives us some flexibility, strengthens the balance sheet and puts us in a very strong position to deliver over the next few years. Thanks, everybody, for joining.

Great. Thanks, Brian. Thanks, James. Thanks all.