Aziyo Biologics, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the ASIO Biologics Third Quarter 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Lee Salvo, Investor Relations. Please go ahead.

Thank you, Sarah, and thank you all for participating in today's call. Joining me are Ron Lloyd, Chief Executive Officer, and Matt Ferguson, Chief Financial Officer. Earlier today, Zio released financial results for the quarter ended September 30, 2020. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical fact or relate to expectations or predictions of future events, results, or performance are forward-looking statements. all forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin, and operating expenses, commercial expansion, and product pipeline development, expected future product launches and milestones, and expected results and performance of our partnerships and commercial products, including patient outcomes. are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risk and uncertainties associated with our business, please refer to the risk factors section of our 424 filing with the SEC on October 8, 2020, in connection with our initial public offering. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 19, 2020. ASEO biologics explains any intention or obligations, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Also, during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to most directly comparable GAAP financial measure is available in the company's earnings release for the third fiscal quarter ended September 30, 2020, which is accessible on the SEC's website and posted on the Investor Relations page of ASEO's website at www.aseo.com. And with that, I'll turn the call over to Ron.

Thanks, Lee. Good afternoon, everyone. I'm pleased to welcome you to ASEO's first earnings call to review our third quarter results. Joining me today is Matt Ferguson, our Chief Financial Officer. As many of you know, we completed our initial public offering in October, raising approximately $43 million in net proceeds. I'd like to express my sincere appreciation to all the investors who participated in the offering. As this is our first call as a public company, I'll use the first few minutes of this call to lay out our vision for the company, provide an overview of our businesses, and then move to an update on our third quarter accomplishments. Matt will then offer some additional commentary on our financials, and then we'll open up the call for questions. ASEO's mission is to provide advanced regenerative medicine products that improve outcomes in patients. primarily undergoing implantable device-related surgery. Our vision is to build Azeo into a leading regenerative medicine company comprised of multiple high-growth product lines that will create sustained and substantial value for our shareholders. We currently focus on three main markets, implantable electronic devices, bone repair, and soft tissue reconstructions. We have a commercial organization that calls directly on physicians in the implantable electronic devices and soft tissue reconstruction markets. And for the bone repair space, we partner with established commercial leaders, including Medtronic and Surgiline. This hybrid commercial structure makes for a cost-efficient operating model that should ultimately generate significant profitability while also maintaining robust top-line growth. Importantly, we've assembled a high-performance team led by experienced executives across all parts of the business. This team has a track record of developing differentiated products, growing businesses into the hundreds of millions of dollars, as well as identifying opportunities for growth through partnerships and acquisitions. We intend to pursue all three of these strategies as we continue to develop Azeo into a leader in the regenerative medicine market. I'll now drill down a little deeper into the specifics of our business. Starting with the market opportunity, last year approximately two million patients in the United States received implantable devices. These devices included pacemakers, defibrillators, hardware for spine and orthopedic procedures, or other devices for reconstructive surgeries. Based on the material in the implantable medical device, and the location in the body, a number of complications can arise. These include scar tissue formation, device migration and erosion, nonunion of implants, and device rejection. As an example, a fibrotic capsule that forms in a patient with a pacemaker is problematic because of the limited battery life requires these devices to be replaced. Often, physicians need to perform a capsulectomy which can result in longer surgical times, increased risk of infection, and increased risk of bleeding. All of our products are designed to reduce the complications associated with these implantable medical devices. We do this through our unique and proprietary platforms based on our deep understanding of the science related to cells, growth factors, and the structural matrices that best optimize our tissue products. From a product perspective, we've brought three new products to the marketplace over the last 12 to 18 months. And we've executed commercial partnership agreements with Medtronic, Boston Scientific, and Biotronic to enhance our presence in key markets. Our first franchise in plant of electronic devices is a $600 million market with about 600,000 procedures performed in the US in 2019. is primarily comprised of pacemakers, defibrillators, and to a lesser extent, neurostimulation devices. Our primary solution for device complications in this market is Kangaroo. Kangaroo is an extracellular matrix that regulates the biologic healing response to decrease inflammation and stimulate the formation of healthy tissue. Essentially, a healthy envelope forms around the device that's been implanted. This is the only product that revascularizes and remodels into tissue for the life of the device. And the remodeling benefits of healthy tissue actually help address the complications that I mentioned. We have our own sales force for this particular market, which includes 25 representatives across the country as of September 30th. Additionally, our partnerships with Boston Scientific and Biotronics provide support from over 1,400 sales professionals at these companies, therefore enhancing our commercial efficiencies and expanding our breadth and depth in this market. Turning to our next product group and market, the orthopedic and spine repair market is a $2 billion market opportunity. There are 1.5 million annual orthopedic and spine repair procedures that are using bone repair materials. The complications in this market is inadequate bone formation caused by apoptosis and cell death, which can result from nonunion or nonfusion following a procedure. Our product platform for this market consists of FibroCell, Vibone, and OsteGroVe. These products are designed with the manufacturing process geared towards reducing the factors that impact apoptosis. With respect to our commercial strategy, we are leveraging our partnerships with Medtronic, Surgilign, and others. Lastly, our third product group of market is soft tissue reconstruction, which is a $500 million market opportunity. There are roughly 100,000 procedures using human dermis in this market, and complications arise when native tissue is not substantial enough to repair the area from the original procedure. Our Simpliderm product is manufactured through a patented process that decellularizes and enables the product to more closely resemble natural occurring tissue. Our near-term objectives for Simpliderm are to increase product awareness, build clinical evidence, and expand market access. There's a lot of opportunity in front of us to penetrate the three markets I just discussed. We estimate that the total U.S. market opportunity for our current commercial and pipeline products is over $3 billion. Collectively, we refer to these areas just described as our core products. We also do a small amount of tissue processing work for a range of third-party healthcare companies, which leverages our key capabilities and contributes positively to our bottom line. we refer to this contract manufacturing business as our non-core products. Turning to our recent commercial financial performance, net sales for core products were $10.3 million for the third quarter of 2020, which represents a year-over-year growth of 31%. Sales of our non-core products declined year-over-year to $1.4 million, But in aggregate, we still grew overall net sales to $11.8 million, which equates to a year-over-year increase of 6%. Although our core products had solid growth in the first half of this year, despite the impact of COVID-19, we're very pleased to see the growth accelerate in Q3 based on increases in hospital procedure volumes, coupled with our strong market adoption and commercial execution. Our core products are relatively new to market, and we plan to continue expanding adoption of our products in existing accounts as well as opening new customer accounts in the U.S. through our direct sales force and in collaboration with our key partners. Recently, we were pleased to announce a new partnership with Premier and an expanded agreement with Surgilign. Our recent agreement with Premier designates Kangaroo as breakthrough technology and makes it available to the reliance of 4,100 hospitals and 200,000 other providers to address the complications associated with implantable electronic devices. Premier viewed Kangaroo technology as breakthrough because Kangaroo is completely different, completely differentiated from any other product within the space. We also expanded our partnership with Surgilign to include an additional viable bone product. The product added is Vibone Moldable, a next generation moldable cellular bone matrix product. Vibone Moldable is produced using our proprietary methods to protect and preserve the health of native bone cells to potentially enhance new bone formation. It contains cancellous bone particles, as well as demineralized cortical bone particles and fibers, delivering the necessary components for bone formation, along with excellent handling and cohesive properties. These agreements are a testament to the value that our products bring to both physicians and their patients. Turning to investments of new technologies, we are confident in expansion through our pipeline based on the clinical data that we've been able to generate from our products to date. For example, we've been able to complete feasibility studies for adding antibiotics to our kangaroo product, which demonstrate that we're able to get the release profile of these antibiotics to reduce the risk of infection in patients receiving implantable electronic devices. We remain on track to launch our next generation kangaroo product in the second half of 2022. with our next major milestone being the locking of final product design by the end of next quarter. Looking ahead to next year and beyond, we're very excited about the potential for incremental revenue growth that can be achieved from our on-market and pipeline products. We believe that as we continue to penetrate our target markets and realize returns on our investments in new technologies and an expanded commercial presence, we'll see those initiatives benefit growth in our core products. We also anticipate a return to stable growth in our non-core business based on the visibility that we have from several recent contracts. As we highlighted in our recent public offering, we've identified several key priorities that we are confident will drive Xeo's long-term growth. These include, one, expanding our direct sales organization for Kangaroo and SimpliDerm, two, Continue to launch new and enhanced orthobiologic products. Three, generating additional clinical data for our core products. Four, the development and launch of our next generation kangaroo product. And finally, continuing to explore opportunities to add synergistic products through partnerships or acquisitions. In summary, we've been able to accomplish quite a bit in a very short period of time. And we're very excited about our future. We believe these commercial and pipeline product initiatives will help us build on our success today. Moreover, we believe we are poised to realize our vision to establish our differentiated and proprietary products as the standard of care for treating patients undergoing a wide range of implantable device-related procedures. With that, I'll now turn the call over to Matt, who will provide a review of our third quarter results.