Aroa Biosurgery Limited (ARX) Earnings Call Transcript & Summary

Good morning, and welcome to Aroa Biosurgery's Quarterly Results Webinar for the period ending June 30, 2022. On the line today, we have the company's Founder and CEO, Brian Ward; and the company's CFO, James Agnew. Before I hand it over to the guys to get started and go through the presentation, I'll just remind you again, if you did want to ask a question, please do so via the Q&A panel down the bottom of the screen, and we'll get to those post the end of their presentation. Brian and James, I'll now hand it over to you to get started. Thanks very much.

Great. Simon, thank you, and thank you to everybody for joining our quarterly webinar today. I just want to quickly go through the highlights, a little bit of background of the company and then we'll go on Q&A, as Simon said. So just kicking off on the cash receipts, cash receipts last quarter were $13.9 million, a big part of this comes from the previous quarter. So we did a large shipment to TELA Bio in the last quarter of financial year -- of last financial year and this is thus cash coming through from that quarter. Our net cash outflow was only $3.2 million. That's also obviously impacted by the large cash receipts coming in. Net cash outflow from investing activities, $1.1 million for the quarter. And this is reflecting in our investment to our additional manufacturing capacity implant. So overall, cash flow very strong over the last quarter. We ended the quarter with $55.4 million in the bank. So we're in a very strong position in terms of our cash balance. The company is very well set up to continue to grow without the need to raise additional capital. So I think very well placed to drive growth. In terms of revenue guidance, we maintain our revenue guidance at $51 million to $55 million. We've had a very good quarter on the sales side. We now have 32 direct field reps selling Myriad, 95 active Myriad accounts. And we also now have 2 sales reps on an average run rate over $850,000. So delighted with what we're seeing with the sales team, certainly, good access to accounts. And then we're also seeing the sales team be able to build those accounts now up to some quite significant levels quite quickly. We're very focused on improving our sales productivity and that's certainly that with the mode that we're operating in this year. So making sure that we can really lift the level of sales performance right across the team and get that average run rate up. And that's really about making sure that, that investment into sales and marketing is proving itself out and that it's scalable as we continue to invest in the sales and marketing team. So finishing the quarter in great shape and really building momentum as per our plan. Also very good to see on the TELA Bio side, continuing strong demand on both for OviTex and OviTex PRS. So we continue to see OviTex succeeding, very good signals in terms of the outlook for OviTex and OviTex PRS. And we have a lot of confidence in the buildup of that business over the rest of the year, and TELA delivering on guidance. So overall, from a revenue perspective, certainly tracking to plan and really encouraged that hospitals remain open enough so that we continue to build the business. In terms of product development, our Enivo dead space management products continue to track well and development testing activities for that for a U.S. FDA submission at the end of the year remains on track. So we're very pleased with how that's going. We're doing small manufacturing runs and a lot of the requirements to put together the regulatory dossiers for that product. We expect to have a preclinical publication, which details the operation of Enivo to be published shortly. So it's under peer review, and we expect that to be published within the next 2 to 3 months. On the clinical study side, we got Symphony, we've wrapped up our pilot clinical study with Symphony, and that was 10 patients, and that was designed to be a precursors of doing a large RCT in the U.S., evaluating Symphony and treatment of diabetic foot ulcers. We've now got the design of that study locked in. We're working through the contracting process with our CRO in the U.S. and we expect to initiate that study by the end of the year. So that's all come together very well, and we were on track in terms of the execution of that study. The Myriad registry study is tracking well as well. So this is a prospective study of 300 patients in 10 clinical sites or up to 10 clinical sites. And we now have 2 sites up and running and we have 48 patients enrolled to date into the registry. So we're 1 quarter into the year. We had a target of enrolling 70 this year, we're at 48. So delighted with the progress that's been made on that. And that registry is expected to deliver a number of publications over the next 3 years. So expect 2 publications from that registry this year. So overall, we're very pleased with how the last quarter has gone. We feel like from a sales perspective, both on the Aroa side and on the TELA Bio side, things are tracking very well. From a development perspective, projects remain on track and certainly from a clinical study perspective, clinical development remains on track as well. So just briefly, for those that are not familiar with Aroa, we're a soft tissue regeneration company. All of our products are based on our AROA ECM material. We have our product families, treating both chronic wounds, acute wounds and surgical wounds. And we also have a partnership with TELA Bio for hernia and breast reconstruction. In terms of market sizes, the opportunity being addressed by Aroa is an excess of $1.4 billion in the U.S. and then the opportunity being addressed by TELA Bio is in excess of $1.3 billion in the U.S. So we have a very large opportunity in front of us. We're only just getting started in these markets. We're less -- particularly on the Aroa side, less than 5% of the total market opportunity that we're participating in at the moment. So we still see a lot of opportunity for growth with our products over the coming years. So we feel like we're in a strong position to capitalize on that. And certainly, from an execution perspective, we are performing very well to date. So just in terms of the outlook, certainly, we are seeing, despite in our ongoing interruptions with the COVID, certainly plenty of opportunity to keep our sales reps busy, and we're certainly seeing cases continue. We're seeing our excess improve into account. So we don't, at this stage, believe that COVID will hold us back in terms of achieving our guidance. We've continued to build our direct sales team. I'm very pleased with how that's gone, very pleased with how TELA Bio is performing as well. So on both of those accounts, I feel like that's really coming together for us. Product synergies, we're continuing to see those product synergies between our products. And people use Myriad and Myriad Matrix, Myriad Morcells in the form through the continuum of care. Building our clinical data, as I sort of outlined earlier, so both on the Myriad side and on Symphony side, so really pleased with how that's gone. Our GPO access is very strong as well. So on contract with Vizient Health Trust, an extension and we're also selling very successfully into premier accounts as well. So very pleased with how GPOs -- how GPO contracting is going. In terms of pipeline products, we've got a very strong pipeline of products coming through, based on our existing AROA ECM technology. So line extensions for both Aroa and TELA Bio and also our new Enivo platform, expect to take that to the FDA by the end of the year. In terms of global expansion, a smaller part of our business at the moment, but we continue see expansion globally and secondly, revenue building quite nicely now in those markets as they move past COVID. So certainly looking good on that front as well. So Simon, I'm going to hand it back to you for Q&A.

Very thanks, Brian. First question is from Elyse Shapiro, Canaccord. How many sales reps do you anticipate having by the end of the year?

Yes. Look, we sort of -- we started we were looking at Portugal so, and I think it's probably going to be a little bit less than that. I mean we really want to make sure that sales productivity is working. So it's probably at the record region of 37, 38.

Perfect. Thank you. Our next question from Elyse, what's the impact of TELA Bio in closure into Premier, any synergies with Myriad here?

Yes. I think we are seeing that where we're both on contract, we both, and hospitals that helps both businesses. So it means that those facilities are familiar with our technology. So I think as their excess increases, then that can only help us.

Great. Thanks Brian. Question from Melissa Benson at Wilsons. How does the recent -- sorry, she just asked about TELA Premier? How broad is the contract. Either it covers all SKUs, including open laparoscopic and robot-assisted procedures.

Yes, look, we don't have the details of -- the exact details of that contract, but our understanding is that it is across the full product portfolio.

Great. Thanks, Brian. Just a question from Seb Clemens at Jarden. Can you give us a sense to how procedural volumes and hospital access has improved over the June quarter relative to the previous quarter and what momentum was like going into the month of June.

Yes. Look we're certainly up significantly up on our first quarter. And so we continue to see that build up. In terms of procedure volumes, they're not back to the pre-COVID levels, but they're up that sort of 90%. And that's plenty of volume for what we need and all of it to succeed. So from a sales run rate, sales perspective, certainly, seeing enough procedure volume to keep those sales levels up.

Great. Thanks, Brian. Another question from Seb. Any comment on inflationary pressures that may have emerged over the quarter? If so, can you elaborate where i.e., wage inflation, supply chain inflation, et cetera.

Yes. There is a little bit of inflationary pressure. I think for us, the thing that's really making a difference is that our margins are -- we expect our margins to improve because our sales mix is changing. And so we are increasingly selling more Myriad. Myriad a very high-margin product for us, and that's going to help us in terms of lifting those margins up. So we don't expect inflationary pressure to have an impact on dragging margin down. We expect margin to improve in the coming year.

Thanks, Brian. That concludes the Q&A. I'll hand it back to you for closing remarks.

Thank you, everyone, for joining. Aroa, I think continues to build really nicely, and we're just looking forward to delivering a really strong half year result. So thank you and appreciate your ongoing support.

Thanks, Brian. Thanks, James. Thanks all.