KORU Medical Systems, Inc. (KRMD) Earnings Call Transcript & Summary

Good morning, everyone. And thank you for joining us today for our virtual Investor Day. I'm Linda Tharby, the President and CEO of KORU Medical, and I've been a proud member of this team for the past 8 months. During that time, we have spent a lot of time with our customers, our patients and our providers. And today, we are excited to share our KORU Medical Vision 2026 road map for the next phase of value creation as we empower patients to receive the benefits of life-improving therapy at home with our KORU Freedom home infusion system. Please find our forward-looking statements. I will begin our agenda today walking you through our strategy for the next phase of value creation at KORU. And then you'll hear from 2 additional members of our 75-strong KORU team. Josh Bennett, our VP of Strategy and Business Development, will lead you through a deeper dive into our strategy, and Karen Fisher, our CFO, will take you through our financial plan. I'm also very pleased to have John Fletcher, the Chair of our Board joining us today to close the call. We also have all members of the KORU leadership team on site with us today and our Board of Directors joining us on the call. So 4 important takeaways that we hope you leave today's discussion with as we are excited to create significant value for our patients, our providers and our shareholders. So first, we are the market leader in the growing subcutaneous immunoglobulin home infusion market, a market that over the last 3 years has seen a 16% growth CAGR as we continue to see the movement of health care to the home. We are proud to support 25,000 patients with our KORU Freedom system, and we see a long runway ahead of us with a total addressable patient population of about 300,000 who are currently on IV immunoglobulin therapy administered by a health care professional. Second, we have a compelling and proven pharmaceutical model, where we've worked with our pharma companies to bring 8 immunoglobulin or IG drugs to the market in collaboration from preclinical to commercialization with the KORU Freedom platform that is scalable with FDA clearance and approvals in 28 countries, ensuring that we can support our pharma partners with their global launches. Third, we have an attractive, scalable business model. Once the drug gets approved and the pharma partners are supporting the adoption of the physician channel, we work with our specialty pharma channel where about 80% of our business is done through 20 key accounts, saving the expense of a large sales force. This long-standing relationship with our SP partners has brought a network of thousands of trained nurses. Their expertise in training in combination with the ease of use and reliability of our KORU pump has led to high satisfaction rates and high stickiness with our pump. Once the patient is trained, the KORU infusion sets are shipped each month for an average $750 per patient per year. And finally, we have a large and growing total addressable market that represents about $1.3 billion today. This starts with the market that we play in today, which is a $300 million SCIg market and expands to a growing total subcutaneous therapy market that we project to be worth about $1 billion based upon the overall number of drugs we see coming to market in that category. Transitioning to my next slide. I want to spend a minute talking about the unmet patient need that we're trying to solve. So I'm going to talk about immunodeficiency and neurologic disorders, which is the markets we play in today. However, our pump can be used across any class of drug requiring immune -- infusion therapy. These include oncology, neurology and hematology. Today, looking at the left-hand side of the slide, there are about 300,000 patients in the U.S. today diagnosed with chronic immunodeficiency disorders. The majority of these patients are on IV administration requiring expensive infusion nursing time, either in a hospital or an infusion center or in the home. This can generally take up to 4 hours, and it happens about once a month. Because there is a spike of the drug in the body following therapy, these patients often suffer from side effects, such as nausea, headaches and have many recorded adverse events. The KORU pump is designed for home self-administration. Pump uses an infusion set, which is disposable and these patients can use this system at home where they administer their own therapy about once per week. You see the FREEDOM pump sitting here in front of me and then the infusion sets, our HIgH-Flo infusion sets and our precision tubing. This pump is designed to support multiple therapies and disease states and as I mentioned earlier, has established regulatory approval in over 28 countries. Today, about 30,000 patients administer their therapy at home. And so as I said, we see tremendous opportunity for upside. And now let's hear from the voice of one of our patients.

My name is Jennifer Landry. I was diagnosed with the type of primary immunodeficiency called an antibody deficiency just over a year ago. From the start, my immunologist recommended that I start on a subcutaneous immunoglobulin product. So that means I've been using the FREEDOM pump system for just over a year now. And I love the control that the FREEDOM pump system and subcutaneous infusions has allowed me in my life. The whole point of infusions was to get well enough to get my career going, to have a social life, to be able to travel again and self-infusion gives me just that. I've never had to sacrifice any aspect of my life for treatment. So I'm very grateful for that.

So as you see from the voice of our patient, a phenomenal impact in terms of what our product allows these patients to do in terms of living a full life. That patient unmet need, along with these trends, we see fueling the growth of subcutaneous home infusion into the future. On the left, you see a slide, a clinical study that was recently completed by one of our largest care providers, Optum. It really extrapolates on some of the key value features that we see in the system. So overall, the number of side effects, you see a 17% decrease in the study in infusion-related adverse events. Cost savings anywhere from 30% to 50% from the site of care change, huge 93% of patients in this study preferring SCIg over IVIg. And I think one of the biggest factors here, you see 100% remain on SCIg therapy. So over time, and then you see for the overall health care system in this study, $14,000 in annual savings or about 30% to 50% across all the studies that we see. So overall, we see tremendous growth in the number of pharma partners that are bringing large volume drugs into the market and obviously, seeing this trend continue to the home, given the COVID challenges and the nursing shortage. This slide shows you the number of drugs, both in the U.S. and EU that either utilize the KORU system or for which we have a pending 510(k). This is really proof of concept for pharma companies that want to get into the space that see the KORU system being widely adopted and used in the marketplace. Primary class of drugs you see on this slide and that we work with today are in the IG or immunoglobulin therapy class. But we're really excited by the clinical trial work that we have done with Apellis for their hematology drug Empaveli that was launched earlier this year. And we expect to see our first major drug outside of IG approved in early 2022. So I want to spend a minute talking about the company has been known as being an IG therapy provider, and we're really looking to switch to being a broad home infusion drug delivery device provider. And as we've been out, expanding and beginning to get the KORU name out there with pharma companies, the biggest thing that we see here is why do we have such a compelling value proposition. So first of all, we're market tested. Over 1.5 million annual infusion, over 25,000 patients using our pump today. So this gives the pharma company assurance on a safe, reliable product. We can rapidly deploy. So we can get into clinical trials right away if you're dosing anywhere from 10 ml to 100 ml of drugs, so this large volume space category, we have an opportunity to rapidly deploy their drug into clinical trials. And finally, we have a broad regulatory acceptance with, as I said, approval in 28 countries around the globe, and importantly, here with the 510(k) clearance in the U.S. So as we think about -- and I get asked this question a lot. So what happens, what is the role of KORU and what is the role of the pharma company. So we thought we'd lay this out for you, right from the beginning as the pharma company begins to think about their product and developing a new SC drug, they're leveraging the FREEDOM system for clinical and commercial use. We then go into clinical trials, the company actively seeking a pump partner. And given KORU is one of only a very few companies in this space, we are generally chosen to enter early phase in Phase III clinical trial with their drugs. Then we go through the regulatory clearance where they're approving their drug and simultaneously, we're submitting a 510(k) for approval with that drug candidate. And then in the commercialization realm, they market the drug directly to the physician channel. And again, KORU's market-leading position in the specialty pharmacy channel makes it an easy commercialization path for their drug. So again, the big value proposition here for us is the high customer retention. You saw it in the earlier study, 100% of patients retained on the therapy and recurring annual revenue rate of about $750. This means we don't have to add thousands of reps into the field as we begin to commercialize. So as we begin to think about how do we expand beyond being an IG company, we really looked at where is the total market for subcutaneous therapy going. So this chart really lays out today what the market looks like and what we see ahead of us. So today, over 10 ml, again, large volume is where we're looking to play. 13 drugs on the market, 8 of them in the class we play in today using the FREEDOM system, 1 pending 510(k) submission, which is the Empaveli drug, which is our first drug candidate showing our proof of concept outside of IG. And we have 3 remaining targets those are in the oncology class. So those would be IV-to-subcu conversions. We see in total, and this is the very exciting part, close to 1,000 new drugs in development, of which the volume has been established for about 100 of those drugs, and we know they're going to be above 10 ml. So overall, we're targeting about 75. And to date, we've closed about 5 of those opportunities. As we look, and I've said that this is about $1 billion total addressable market but we really feel that with IV-to-subcu formulations that are available, more new drugs we see entering the pipe, choosing the subcutaneous route and the fact that the high molecular weight drugs are more prone to larger volumes of infusion, we really see this as being an incredible opportunity for the company over time. So let's spend a minute on how we get to our TAM, and I'm going to start, and I think one of the exciting parts about the story is we are in a market today where we have a commercialized product that is driving double-digit growth in that marketplace. And then we have a mid- to long term with our novel therapies market expansion. So the market on the left is the subcutaneous immunoglobulin market. That market has been growing at about 16% CAGR. But we get to the $300 million because that market today is about 12% penetrated, about a $30 million market with upside potential here to about $300 million. And you see -- I get asked the question very often, what has been the impact of COVID on the business. Certainly, we have seen some overall softening in the market in 2021, where we saw the market somewhere in ending the year -- will end the year in the high single-digit range, and we've seen it recovering as the year has progressed. On the right side, this map is what I talked to you about earlier, but think about 900 drugs in development, 100 of those 10 ml or larger, we're projecting about 25 of those are expected launches. And if we look at our ratio of $750 to $1,000 per year in therapy and about a 30,000 patient base, that's how we get to the $1 billion TAM. So let me share a little bit more of the particulars around our next phase of value creation. So the first phase is really around increasing our core SCIg penetration in the market that we participate in today. And we're really going to do that through focus in 4 key areas. Number one is that new start -- patient start. Once we get a patient started on the therapy, we know they stick. So there's going to be an ordinate focus on gaining that new patient start. Second is winning with SCIg prefills. We see tremendous growth in prefills because of the convenience that it adds for the patient. Josh is going to take you through a little bit more of this, but we feel because we are the only pump approved on the market today with the prefills, with our 510(k) clearance that we received just about 3 weeks back, we think this is a tremendous opportunity not only to grow the category but also to grow our share position. We have a heavy focus on innovation and the 3 Cs of comfort, convenience and connected care and finally, ensuring that we can support our partners with the geographic expansion that they need to support their drug candidates. So we're looking to extend what is a leadership position we have today in large volume home infusion in 1 drug category, outside of that 2-drug categories and broader oncology, neurology. So several different drug classes we're looking to expand to. But our focus here is on large volume, which is the market where we are the leader today. We intend to support our customers from preclinical to commercialization and ensure that we have the clinical leadership data and support that they need in large volume home infusion. Of course, supporting all this, we've been looking and are building a very strong team. We've grown the organization by about 15% over the course of the last 8 or 9 months with a heavy focus on innovation and quality and regulatory. To keep critical pillars underlining all of this, of course, is our innovation strategy and building out a world-class quality and regulatory competence. And of course, we've talked to you a lot about our operational excellence mandate, all of which are underway to progress our gross margin profile. So speaking about the team, I just want to highlight a few new members of the team that we've added on the left, the leadership team additions, Chris coming most recently to us from Hillrom, 17-plus years in the med tech space, brings a great background in quality and regulatory and has made an immediate impact on the team. Brian Hertzog has been with us since early October, 15-plus years, all of those in drug delivery and recently joining us from Nemera, and then Rob Cannon, our VP of Sales, broad experience across our space, immunoglobulin with our distributor base having come directly from McKesson and again, adding tremendous value. I also want to talk for a minute about our Board additions. So Donna French and Shar Matin. Donna clearly brings expertise in drug delivery. She's worked with Amgen, Genentech and today is at AstraZeneca as Vice President of Dosage, Form, Design and Development, so brings a great deal of expertise in drug delivery development. And Shar Matin, who joined us earlier this year on our Board coming from Spectranetics and ViewRay as the COO and today is the CEO of Cordis. He brings great operational background to our Board. So I just want to bring you home on a couple of critical numbers that underlie our model. So increasing our core SCIg penetration, we got to the $300 million U.S. market TAM. We're projecting an underlying market growth of about 10% to 15%. And as I said, we see coming out of this year at high single digits and are projecting for next year, somewhere between 8% and 10% growth in the market. Looking at the efforts that I talked about and our assumptions around SCIg penetration increases, prefilled syringe adoption which subsequently increases the overall market and our share of that market. And then looking at the targets that we have for novel therapies. So we're projecting 5 new large volume candidates getting through Phase III trials with KORU and 14 Phase III trials by 2031. And I think this is the great part, right? We don't need a lot of new drugs to commercialize. And what we're projecting here is 1 commercialization and 5 by 2031. So where does that get us to a 2026 CAGR, somewhere between 15% and 20%, $60 million revenue projection and $200 million by 2031. With that, I'm going to turn it over to Josh, who's going to talk to you about the next level of detail in executing our plan.

Thank you, Linda. I'm excited to describe how we're going to achieve the goals that Linda laid out. The first pillar of our growth is, as she mentioned, is increasing penetration of our subcu Ig core market today. A theme that you're going to hear throughout our strategies in our core market is a task of helping physicians see a greater proportion of patients as being eligible for and well suited to subcu therapy. Today, we know that many prescribe most of their patients on subcu but some only prescribe a small number. And all of our efforts are going to be focused on increasing that. This actually though starts with the pharmaceutical companies. They continue to invest heavily in growing SCIg market. It's beneficial for them. They make substantially higher profit margins on their subcu products as opposed to their IV products. And you can see some -- a highlight of the publicly available innovations that are planned in formulations, new formats and indications. To give indications as an example, there's a substantial amount of work going on to add neurological indications to the subcu labels. Neurology patients receive a good proportion of the Ig grams today, but very few are on subcu therapy. As they bring these indications onto their labels, it will help the drug partners bring more subcu patients onto therapy growing the market. But each of these steps they take creates a new set of unique requirements. For example, with these neurology patients, they tend to have a higher dose requirement than primary immune deficiency. And that's where they come to us as the market share leader and the leader in having an understanding and demonstrated track record in regulatory, commercialization and patient use to help them make sure patients can benefit from their innovations. To continue the example of the neurology patients, we have active efforts underway to make the infusion process easier for those patients at high doses so that physicians can have the confidence writing subcu for them. Another great example is what Linda mentioned, which is our recent 510(k) clearance for the Hizentra prefilled syringe product. This benefits us in growing the market, but also gives us the opportunity to increase our share. Prefilled syringes are wonderful innovation because our research has shown that the process of drawing the drug from the vial is one of the more physically difficult and stressful tasks for the patient. Prefilled syringes solved that by completely eliminating that task. And with our FREEDOM Med system, the patient can simply put the syringe in the pump and start their infusion. That helps more patients receive therapy, but it also enhances our value proposition with our specialty pharmacy partners. They have a strong incentive to standardize across their patients to get the efficiency on the supply chain side of having a primary standardized platform as well as training efficiencies by having nurses trained on a single device and have a consistent quality delivery of training to the patient. Because we are the only system specifically cleared for a 20 ml syringe and for now, the prefilled 20 ml syringe, we can meet a higher proportion of patient needs across the SCIg spectrum, making it easier for pharmacies to give us a higher proportion or all of their share. And each time a new drug innovation comes out and we deliver a best-in-class solution for bringing it to patients, the value proposition to specialty pharmacies to give us more of their business and to partner with us and standardize to us is only going to increase. This also extends internationally as we look to expand geographically where our products today are being used in multiple pivotal trials in new markets for SCIg products. We're also going to put a significant focus on increasing subcu growth overall. As Linda said, today, it's only 12% penetrated with tremendous room for growth. 12% is nowhere near the number of patients who should benefit from this therapy. We're going to do so through a series of innovations. First, we're going to invest in education and support tools. Today, the patient start process can be complex and overwhelming for patients. To give 1 example, a patient may receive a primary immune deficiency diagnosis and their prescription on a single visit with a physician. Only several days later, they get a call from the pharmacist talking about drug risks and trying to figure out what kind of supplies they might need. And then just a few days later a nurse shows up to start training. But the reality for the patient is they're still absorbing the reality of their diagnosis and what it means for their life and not quite ready to fully embrace the training. Our partners are eager for us to provide them tools that simplify that process and help the patient have a faster progression to being self-reliant on therapy. And that's going to both make physicians confident that some of the patients that today they might see as not able to make that transition are able to do it and increases our value proposition with pharmacies. We'll also be investing in clinical thought leadership in KOL mobilization to help optimize the subcu treatment process and make sure that there is evidence to support doing it the best way every time. And we have a significant product road map focused on increasing the convenience and the comfort of the process for patients. Our leadership position lets us do all of this efficiently. As you think about the patient journey, getting to that key prescriber decision point is influenced by the drug companies at that point of prescription and by the pharmacies. Physicians have told us in research that they are excited to prescribe more patients to therapy if they can have help in identifying them. And specialty pharmacies would like to see more patients on subcu therapy as it's both economically beneficial for them. And in this nursing shortage, they are very motivated to have more patients self-reliant on infusion. All they need from us are the tools to connect the dots and help them do that, and that will be a key focus. Over the last several months, we've invested in extending our commercial team and our clinical team focused on bringing expertise at key points in that process. This includes trade relations, focused on supporting the pharmaceutical commercial team. So they're highly comfortable not only with the efficacy and safety profile of the drug, but the entire infusion process so they can bring confidence to physicians, nurse education to have peer-to-peer conversations with nurses and pharmacists at specialty pharmacies in addition to our SP commercial team that has been calling on those customers today. When we summarize our efforts in the core SCIg market, we expect this to result over a 5-year period and roughly a 12% to 15% CAGR, fueling a significant part of our revenue growth over that period. Turning to the second pillar of our therapy, which is extending out into new drugs. We do more large volume subcu infusions today. And as Linda mentioned, this makes us a logical partner for drug companies to come to as they're bringing new drugs to market. When they do so, they have a unique set of needs across the development process that our system and our capabilities meet very well. At the clinical stage, often, especially at the early stages, the infusion requirements of the drug are not yet established, and they can actually change based on the results of each pivotal trial. Our system is modular. That allows them to quickly move into the clinic to exactly meet the requirements of their drug without lengthy and expensive customization as well as to progress quickly to the next phase based on the result of the first trial. On the commercialization phase, they need to work with a partner who can provide confidence that the delivery system can be cleared from a regulatory standpoint, commercialized and adopted successfully and successfully used by patients. Because of our track record of regulatory clearance, broad channel access, patient use, and our ability -- our commercial scale production, we can give them that confidence. Over the last several months, we've had significant engagements with drug manufacturers. And what we find is they face a choice for a large volume subcutaneous drug between developing something on their own, which is usually a last resort and not something they're in the business of doing. Betting on a novel system has never been through the regulatory process or used commercially in the real world with patients or choosing a proven system like KORU. We've had the opportunity over the last several months to test this value proposition. Historically, KORU is a company who is very focused on successful commercialization in the SCIg market, and you can see the evidence of that with our share of leadership position but not as focused on winning new drug candidates. We've invested and built out a business development capability to prospect, engage with and support pharmaceutical companies along their development cycle and the early results are very encouraging. We've built a broad and diverse funnel in a short period of time where everything I've said to you we're hearing back from our biopharmaceutical partners. And they're looking to us to help them everywhere from preclinical feasibility through entry to a Phase III study, and we're seeing interest from small, start-up innovative biotechs to the largest biopharmaceutical companies in the world. Maybe bring this to life, I'll give you a few real world examples of what we've seen. So one, a company has an IV biologic on market, has developed a subcu formulation. And concluded that in the subcu formulation, it's going to continue to require weight-based dosing, which means wide variety in dosing, flow requirements and other infusion parameters from patient to patient as well as changes over time. In this case, this is a problem we've already fully solved in SCIg because these are the same requirements for those patients. So we meet their needs exactly. To give a second example, A company is moving into Phase II, but has concluded that they don't have a suitable infusion set that can meet the very demanding infusion requirements of this drug, and we're developing a customized infusion set for this drug for Phase II study and then eventually for commercialization. And finally, a highly innovative biotech addressing multiple rare diseases that are untreated today are looking to us to bring them all the way from Phase II through Phase III through commercialization, meeting some of the challenging needs of the patients that they're going to serve. In total, this gives us tremendous confidence, and our team is on the ground running, generating new opportunities on a continuous basis. And over the next several years, as Linda said, we're looking to have at least 3 Phase III -- 5 Phase III trials over the next 5 years and 1 commercialized drug and then an additional 9 Phase III trials and an additional 4 commercialized drugs by 2031. This will all be supported by continuous innovation. Our innovation and product road map supports both our core SCIg market and our drug partners. We're going to innovate on a few dimensions. First, we have a road map of line extensions and product improvements, all focused on improving the comfort and convenience of the infusion process for patients, and we'll expect to roll those out on roughly in annual cadence. You'll continue to see from us a series of new indications, as Linda mentioned, starting with our additional SCIg indications and Empaveli clearance that we expect next year and other new indications both in the SCIg space as well as for new drugs and our [ planning on this ]. And finally, we're investing in a next-generation system that will retain what people already love about the FREEDOM system but make further improvements and add capabilities such as connectivity. Before I hand this over to Karen, I'd just like to summarize that no innovation, whether from us or from a drug company benefits a patient until it can navigate the gates at the regulatory process, the payer process, the prescriber, pharmacy and patient. We are able to leverage our deep experience across this development cycle to bring solutions and innovations to market that we, our patients and our drug partners can be assured of actually making it to patients and helping them live the life they want to live and those insights underlie everything we're investing. With that, I'll turn it over to Karen to walk you through our financial story.

Thanks, Josh. Good morning. Now that Linda and Josh built out our strategy for you, let me talk to you about the resulting financial projections. Historically, we delivered an 18% CAGR. Coming out of COVID, we are recovering, recognizing sequential quarter-over-quarter growth in '21 and expecting to exit '21 between $23 million and $23.2 million. Starting with those projections for 23 -- to $23.2 million, we expect to deliver a 15% to 20% CAGR through '26 with SCIg growth driving the revenue dollars as we execute on IV-to-subcu conversions, gain share with prefilled syringes while building on our pipeline in novel therapies. In '22, we expect the market to recover to mid- to high single digits, and we project to be slightly ahead of that. We will update you with our Q4 results. Over the next 5 years, SCIg is expected to be 80% of our total revenues and drive the majority of our growth. And novel therapies with 5 Phase III trials and 1 new indication to be about 20% of our total revenue. Beyond '26, we expect to deliver 25% plus CAGRs with novel therapies becoming about 50% of our total revenue. Our plan also includes increased margins of 500 to 700 basis points driven by our outsourcing initiatives currently underway. As we work through the details of our plan, we are confident that our $26 million in cash as of September 30 leaves us well capitalized to drive value as we execute our plan. As you heard from Linda and Josh, we expect the majority of this investment to be in innovation and 30% will be in driving growth through commercial efforts and selling and marketing, in areas of commercialization, as Josh highlighted earlier. The remaining 20% will be to strengthen our foundation, which includes elements in regulatory and EU MDR. We will be very disciplined in our approach and deployment of funds with monitored milestones and stop gates in place to drive the execution of the plan.

So thank you, Karen, and thank you, Josh. So I just want to summarize because we threw a lot at you to come back to what are the major milestones that we're thinking about and you should be tracking our progress to. So first of all, the overall 15% to 20% CAGR that we believe is achievable, and I'll talk you through how we get there. So we think about the SCIg market recovering back to that double-digit -- low double-digit growth, and we expect to outperform that with the 12% to 15% CAGR in SCIg. We'll come out a little lighter in 2022 as we see the market continuing to recover, so think about that at the low end of that range. But that will be driven by the conversion of SCIg and new start starting on SCIg therapy, a trend that we already see that we expect to continue will be driven through prefill, which we see being a huge boost to our business with a competitive position today of being the only one in the market with the prefilled clearance and all of these things driving overall market expansion and our overall share position. This next piece of getting to that 15% to 20% is as we suggested 5 new drugs in a Phase III clinical trial. And I think the great part about this story that we all feel good about is we only require 1 new commercialization in that plan. Now of course, our plan is, and you saw in some of the earlier slides, we'd love to have a few more. But in our models, we need 1 to get us to the numbers we're showing. The new products and indications, we should all feel good about that with the 1 that we just received on the pump, which is the prefill indication. We've got 3 more that we expect to have cleared over the next 6 months or so. So getting to that 8 through the plan period, 5 more when we've got 3 that we're pretty confident in is an achievable number. And I believe that the $1.3 billion, again, we use today's market and where that market is at versus projections of incremental growth in all of those. But again, the $300 million from a market we are in today, and the first proof of concept with the Empaveli drug on the platform, we think we have headway to this $1 billion space. So clear milestones that are in place to track our plan, and we will continue to update you on our quarterly calls. So just in summary, I help you see as we do, we feel good about the momentum we are gaining. We have recorded 4 -- sorry, 3 consecutive quarters of growth and just told you that we're projecting a fourth quarter of positive sequential growth. Second, we're a market leader in a large growing subcutaneous market today with a $300 million TAM. And it's a natural extension for us to take that market leadership position into large-volume novel therapies. We've generated 11 new opportunities over the last 9 months. Again, this is the biggest change in the strategy is all the work we're doing with the pharma companies and building out our competence there and this early reception has been wonderful for us. So we feel we have a very viable pathway to a 15% to 20% growth CAGR in 2026 with, again, a lot of runway ahead of us with the $1.3 billion TAM. So we hope you've seen today that we have a clear plan to deliver. We're building out a strong team. Many of those leaders are already in place and the organization underneath that. We have the opportunity to scale for growth from a commercial perspective and certainly from a supply perspective, and we have the investment we require, particularly on the innovation side to get us to where we need to go. So we're pretty excited about our Vision 2026. I'm going to turn it over now to John Fletcher, the Chair of our Board, for a few closing remarks. John?

Thank you, Linda. Nice presentation. On behalf of the Board, I'm pleased to join our management's presentation today and share our excitement about KORU's progress. The Board has been deeply engaged in supporting management's development of strategies for revenue growth. In 2021, it's been a year of fortifying the foundation of KORU. We believe our advantage is we have a solution for patient needs we serve. We have attractive fundamentals in our business model, enormous market potential and our leadership position provides a foundation for the great success that we plan to achieve. The Board is grateful to have Linda Tharby as our leader. In a short time, she has increased the capabilities of our team, enhanced our management systems and developed initiatives for the pursuit of new business. The Board sees evidence of increased momentum in the short term and sound growth strategies developed for the long term. We are confident our management team can execute under Linda's leadership and create significant value for our shareholders. Thank you. Linda?

Thank you, John. Appreciate all of your work and efforts, and those of the broader Board. And with that, I think we're going to turn it over to Q&A and Hannah from Gilmartin is with us in the room, and she will direct the questions.

Great. Thank you so much, Linda. Your first question comes -- given the market growing 8% to 10% next year, what do you expect -- do you expect KORU to grow above the market? If so, by how much? And what are the puts and takes for 2022?

Yes. Right. So great question, and I knew this would be the lead-off question that we receive. So again, giving official guidance for 2022, we expect to do that when we come out with our fourth quarter earnings. And the only reluctance there is obviously the market -- overall market growth. We saw some very encouraging news. The first time we saw a growth number in the high-single digits happened in the fourth quarter. So we anticipate ending the year with high single-digit growth in that market, which is what we're projecting for next year. So you can anticipate we're going to grow slightly above that range and that will be driven by a number of things. First of all, prefills, right? We saw tremendous growth, 50% growth off a very small base, but growth in prefills in quarter 3 versus quarter 2 in the overall market. So prefills and how much those come in will be a tremendous indication for us. Second will be our subcu penetration efforts and the range of what we see there. Third will be market share opportunities and what we see in terms of our overall commercial presence and driving share there. So think about those 3 things being the biggest factors that will influence numbers above the market growth and ranges on all of those things between the low and the high end. But we feel very confident because we've already demonstrated through Q2 and Q3 growth above the market that we can outperform the market with the efforts that we have in place today.

Okay. A second question, a couple, surrounding novel therapies. Can you explain the novel therapies goals for 2026 and 2031?

Sure. So first, and I think those were iterated on the call. So we're going to have a number of candidates that we get through Phase I and Phase II. And I think one of the things that all of our investor base asked for, and we're pretty proud to be able to publish is our pipeline. So we've begun to share with you by phase, the drug candidates. And so we have very clear milestones for Phase I and Phase II. But I think the ones that are most meaningful are our candidates for Phase III. So we have 5 Phase III trials that we have in our plan by 2026. And as Josh mentioned, 9 additional through 2031. And what we expect to commercialize and again, I hope you feel we're on the conservative end of this and upside to these numbers represent opportunity for upside in our model. But we expect 1 commercialization by the end of 2026. And then beyond that, we expect an additional 4 drugs commercialized through 2031. And I guess underlying that just understanding that, again, we're modeling about 30,000 patients on average. So not the 300,000 we see in SCIg, most patient classes have lower numbers. So we're modeling about 30,000 patients and somewhere between once and twice a week of therapy, so somewhere around just over $1,000 per patient per year.

Great. And then when considering the 2026 target, how much of that dollar amount is novel therapy versus SCIg penetration?

Yes. So think about ending the period about 80% is SCIg and about 20% coming from novel therapies.

Our next question is where do you expect OpEx investments to trend over the near term? And how much cash do you intend to spend before reaching cash flow breakeven again?

So just do me a favor. I'd love to know who's asking me the question, just so I -- so the OpEx -- and I don't know if that's -- sorry, Hannah, just read back the question 1 more time.

This is from Alex Nowak at Craig-Hallum. When do you expect OpEx investments to trend over the near term? And how much cash do you intend to spend before reaching cash flow breakeven again?

Yes. So as we iterated with $25 million to $26 million in cash today, we're pretty confident about our ability to execute our plan over the next several years. What I would say, you've seen us come in around $5 million -- $4 million to $5 million in OpEx. So think about that position with the investments in innovation that we talked about going up somewhere between 20% to 30% on a quarterly basis.

Great. We've got a follow-up question from Alex at Craig-Hallum as well. It's about the 3 oncology targets. Can you provide more details on these drugs, target indications, anticipation for approval on the FREEDOM pump?

Sure. So I can't provide a lot of detail because they're obviously confidential. But I have certainly spoken before that today, oncology drugs in the clinic when they're dosing between 10 ml and 20 ml use what we call a syringe push method. So imagine a nurse working with the patient to push the oncology drug directly into the patient via syringe. So we are working today to simplify that process using the KORU freedom pump. So getting the patient directly connected via infusion set and their oncology drug and so freeing up that nursing time in the clinic with our KORU FREEDOM system. Obviously, we're pretty excited about that because the overall numbers of oncology would mean a tremendous boost with our KORU system.

Great. Next, we've got a question from Kyle Rose. Is the 1 new drug in commercialization by 2026, the Apellis product or incremental to Apellis?

That's an incremental indication. Kyle, yes, it is an incremental indication to the Apellis drug.

And a second question from Kyle. Over what time period would the manufacturing -- will the manufacturing transition occur? And what is the cadence of the TAM improvement of 2021 to 2026?

Okay. And Karen, I may need your help with this question. But the -- so the manufacturing initiative is already underway. We have been working with the outsourced supplier on sub-componentry for well over 5 years. We transitioned that to doing a more complete process for us, making us the entire infusion set. And we anticipate being through -- the majority of that transition through mid-2022. So you'd see our gross margin profile get to that low 60% range by the end of 2022. And then we grow beyond there obviously, by having a full year of that manufacturing transition and then we have several cost savings that we see from there. Karen, I don't know if you have the detail of how we go then from 2022 to '25. But I would just say, think about it probably 100 bps of improvement per year until we get to the 65% that we're projecting in 2026.

Great. Your next question comes from Matt O'Brien. In looking at your growth outlook through 2026, it looks north of 20%. Can you talk about the leverage between the core business and new therapies?

Yes. So getting beyond 2026. So the core business is going to be driven fundamentally by a couple of key factors. First is prefills and overall prefill growth in the market. And we project that market being anywhere between -- on the low end of our model, let's say, 25% of the overall market, on a high end 30% to 40% of the overall market. It's projected on subcutaneous and that market continuing to convert. We think we have some fairly realistic projections in here. We look at the overall growth that's been occurring already in subcutaneous which is about 2% penetration into the broader market every year, and we expect to get beyond that. Again, we have ranges in our models, overall anywhere between 5% and 10% increased penetration. And then our share position growing, again, we have ranges in our model but our share position growing anywhere between 3% and 5% over the course of the model. Beyond that, the novel therapies, we've talked about, but we see, again, having in total about 14 drugs through Phase III by 2031. '26 to '31, we're increasing our cadence in pace. So where we're looking at 5 between '21 and '26, we're looking at 9 between '26 and '31 and commercialized drugs on the market going from 1 incremental commercialized drug in 2026 to 4 incremental new drugs, so 5 in total by 2031.

As a follow-up to that also from Matt. Can you discuss the risks involved getting to new drugs approved?

Yes. So the risk in -- I mean the great part about this is Josh articulated so well in his section is we really work with them in preclinical through the clinical phase. So doing all of our dose-ranging studies. And so we have no risk of product commercialization. We have a product that's available on the market today. I think the biggest regulatory risks that we see are really expansion into international markets and making sure that we keep up with all of our drug filing. But we see -- given we have a commercialized product today, that's 1 of the key areas, I would say the bigger risk for us is what we talked about in terms of innovation. So we need to ensure we continue to innovate on the KORU pump, keeping what customers love and patients love about the product, but we're going to make it a little bit smaller. We're going to make the number of steps required for the patient to use the product less. And we're going to ensure that we have connection in our future platform. So that would be the biggest risk. I don't know, Josh, if there's anything from a regulatory side that we see.

No, not from a regulatory side. Just a couple of things I would highlight is, first, our regulatory experience helps our regulatory track record, having a cleared device helps future submissions. I'd also say, as Linda said, we're thinking about drugs in the 30,000 patient population range, which is a rare therapy drug. Those drugs tend to meet a significant unmet need, which tends to lead to a higher percentage of drug approval, which actually derisks our model somewhat.

Great. And 1 last question from Matt. Can you talk about in more -- how you more than double your penetration into SCIg by 2026? Is it prefills, more reps? Can you just elaborate?

Yes. So I think I want to make sure we understand we're not counting on going from 12% to 24% penetration by 2026. That's actually an overall goal over the course of the entire 10-year model, Matt, would be somewhere between 5% and 10% increased penetration into that base. So today, I think we articulated in the slides, right, all of the key value propositions. Of course, we're excited by the new Optum study that we just saw come out, 100% of patients stuck with the therapy, significant reduction in costs, over a 30% reduction in cost; a reduction in adverse events, significant reduction in adverse events; and overall, the patient satisfaction being in the 90-plus percent range. We think all of those factors, combined with the research we've done directly with physicians and in speaking with our pharma partners, right? First, we have to remember that if there were any shortages, they're putting all of their drug into subcutaneous therapy right now. We've seen the market expand from 2 suppliers to that market with CSL and Takeda now Octa and Grifols coming into the market just as COVID was hitting, so we see the doubling of the number of players in the market who are all putting their therapies in subcu being a tremendous driver for us. Second, we see the opportunity now with prefills. We're seeing some great opportunity with prefills to increase the overall number of patients who come into the market. And again, in the research and ad board work that we've done, we've seen some of our specialty pharmacies have as many of 80% to 90% of their patients on subcu therapy, but we've got a long tail of physicians. So we've just hired some internal and trade relations people that will work specifically with our pharmaceutical partners to ensure that they are well trained on the benefits of not only the drug but also the drug delivery system. So we see an increasing rate that is naturally happening in the market. And we feel that the increased focus of both the pharma companies and ourselves on ensuring that new patients start with subcutaneous therapy. We see those incremental pushes getting us to that place. I guess the other thing that I would say is switching patients from IV to subcu therapy. We haven't made a lot of -- our model does not require any switches, but we do think, based upon the data that we have and what we've heard from our specialty pharmacy group that they are willing to switch patients who they seek and benefit from the therapy, and we also see a receptive physician community who's willing to support that switch.

Great. Our next question comes from an investor. If you could address a bit on the competition, where are they versus KORU? And is anyone else getting close to prefill?

Yes. Okay. So the -- our biggest competitor in the market is a company called EMED. They are a viable competitor. Today, they are somewhere between 25% to 30% of the market. And we tend to see them compete solely in the price area. I would say that in our market research, the #1 thing that matters to our customers and to physicians are value-added services is number one, which is why you see an inordinate focus for us in that area, number 2 is innovation and third is price. So we feel quite good about our position and about what we're looking at. Relative to prefills, we are the only pump available on the market today. It's -- this pump, which is our FreedomEdge pump that is designed to be used specifically with the 20 ml CSL prefilled syringe. So and we know that their pump does not fit. It is designed as a 50 ml pump. So we think we'll have some early market leadership position in that area. I think beyond that, we've heard and are monitoring the progress of a company called Enable. Enable is an on-body device. So think about a patient needing to wear something I think about twice the size of this on their body to fit the format of drugs and think about that as being 20 ml. If you go above 20 ml, what we've heard is you need to wear a number of these on your body. So we think versus wearing a very small infusion set like this on your body. So that is the difference. We don't think on-body or off-body wins the game. We think it's comfort, it's convenience, it's connection, connected care that wins the game over time and certainly with KORU's expertise in the channel and with the nursing community that love and have been keen supporters of KORU pump for several years, we feel good about our value proposition. Of course, as we laid out, we are not -- we are also on our own innovation journey here and pretty excited about what lays ahead in that area as well.

Great. We've got another question from an investor. You mentioned gross margin improvement. Can you clarify the gross margin goal and over what time frame?

Sure. We've talked about ending this year in that high 50%, somewhere between 57% and 59% ending this year. And we anticipate exiting 2022 in the low 60% range. And then beyond that, growing to the 65% range by 2026. That is primarily driven by an outsourced manufacturing relationship, which we have been engaged with this outsourced manufacturing partner for well over 5 years, making subcomponents. So now we're increasing the work that they are doing for us. And so it's a partner we know well, and we feel quite confident in the capability to reduce the overall cost of the product.

Great. Another question from an investor. What will growth in OpEx expense look like over the next couple of years?

So again, I'll come back to. We've worked through all the detailed iterations of the plan and all the puts and takes. So we have clear milestones for how we're going to release our investment funding, which certainly we reviewed as well with the Board. And we feel good about our ability to execute on this plan. The details, we've been spending somewhere in the $4 million to $5 million range on a quarterly basis. Think about that going up about 20% to 30% on a quarterly basis exiting 2021 and then continuing from there. We've made most of the investments that we need to make in headcount. We've got -- the remaining headcount we'll add is on the innovation side and on our pump development side. So that's where you'll see the biggest growth in those operating expenses is in the R&D side as we move forward.

I think that concludes our Q&A.

Right. So I will say -- I'll maybe or end where I started, which is we're pretty excited about our journey here at KORU. We're excited not only for what lies ahead, but we're excited by the momentum that we continue to build day-to-day, month-to-month and quarter-to-quarter. We'll look forward to updating you in February on our Q4 call, and thank you again to all of you, wishing you all a happy holiday and safe holiday season, and thanks for joining us today.