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spk06: Good day and thank you for standing by. Welcome to the SEO Biologics third quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to speaker today, Lee Salvo, Investor Relations. Please go ahead.
spk01: Thank you, 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, ASEO released financial results for the third quarter and it's September 30, 2021. 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 risks and uncertainties associated with our business, please refer to the risk factor section of our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 9, 2021. ASEO Biologics disclaims any intention or obligation, 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. Reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's earnings release for the third fiscal quarter ended September 30, 2021. 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 will turn the call over to Ron Lloyd.
spk02: Thank you, Lee. Good afternoon, everyone, and thank you for joining us. Since our last call, we've continued to execute on our business strategies and achieved $11.5 million in revenue for Q3. Year-to-date, we have generated over $36 million in total revenues, a 21% increase over the corresponding period in 2020. More importantly, we're preparing for a seminal year in 2022. As we look to next year, we see several catalysts for growth. With Kangaroo, we'll be scaling our commercial organization, generating clinical data, and advancing Kangaroo RM, our next generation product with antibiotics. We remain on track to file Kangaroo RM in Q1 and continue to plan for approval in the second half of next year. We believe Kangaroo RM has potential to exceed $100 million in revenues and be the core driver of value creation for Zio over the next few years. Second, with Simpliderm, we're expecting new clinical data, greater market access, and continued growth. For both Kangaroo and Simpliderm, we're building off strong momentum that's been created over the second half of this year. And third, within our orthopedic and spine business, we anticipate bringing on board additional partners and launching new viable bone matrices as we return to growth mode. In addition, to further support the safety of these products, we'll have in place new screening and testing procedures, which we believe will set a new standard in the industry. Finally, we're participating in a patient support program for those impacted by our single donor lot recall of fiber cells. While it's very early in the litigation, we feel confident we have our arms around the legal challenges of this recall and believe they'll be manageable within the company's resources. Now going a bit deeper in each of the main areas of our business, I'll start with Kangaroo. Kangaroo is the only commercially available biological envelope that forms a natural, healthy pocket for holding implantable electronic devices. We're making exciting progress on the commercial and medical fronts to showcase the remodeling benefits of this product. Despite the headwinds of COVID that negatively impacted CRM device placements in August and September, sales of Kangaroo improved during the quarter. There were several factors that drove this growth, including growing awareness within the electrophysiology medical community for Kangaroo's remodeling benefits. the impact of peer-to-peer programs, which have been very influential in developing new users, opening of new accounts by leveraging our recently signed contracts with healthcare delivery systems and our breakthrough designation within Premier, as well as continued contributions from our partnerships with Boston Scientific and Biotronic. More specifically, during the quarter, we saw increased productivity from our U.S. direct sales force, as our newer reps gained tenure throughout the year and access to our customers reemerged, and we're very encouraged by this increased momentum, both in higher utilization within existing accounts as well as the opening of new accounts. And we see significant opportunity for additional expansion. Also encouraging was the traction we saw with our partners in Q3, with Boston and Biotronic placements of Kangaroo reaching their highest levels for the year, In parallel, we've been successful in mining opportunity through our premier breakthrough technology designation, as well as with other healthcare system partners. These relationships have been key to driving kangaroo sales, and we expect to achieve further leverage through these relationships going forward. We're also confident in our opportunity to add additional healthcare systems in the future. Outside the U.S., we saw increased sales of our Kangaroo Envelope in Europe due to the launch of our new expanded label. As a reminder, Ezeo received approval in January that now permits Kangaroo Envelope to be hydrated and agenomized in solution prior to implantation. This new label was launched in Q3 through our partnership with Biotronic, leveraging clinical data that was presented at the European Society of Cardiology annual meeting this summer. As an update on the clinical front, both the HEAL study and the de novo study are progressing as expected. We look forward to this clinical data for Kangaroo, and we're confident the results will further validate the unique clinical benefits derived from our biological envelope. On the product development front, as mentioned earlier, Kangaroo RM remains on track for FDA submission in the first quarter of 2022. and we're planning for clearance and launch in the second half of the year. The new envelope will be enhanced by adding the antibiotics for FAMPEN and minocycline. Our team continues to execute against these key milestones for this biological product. And again, we're confident in its potential to create substantial long-term growth for EZL. In the soft tissue reconstruction area, we continue to make progress in our SimpliDerm business. Our goal with this product is to generate clinical data, expand access through payers and hospital systems, and drive product sales through our national distributor network. We're completing a clinical study comparing Simpliderm to a market-leading product and plan to submit the results this quarter for publication early next year. We'll leverage this data and our prior publications to expand market access. Finally, we're pleased with the progress our distributor network is making in opening new accounts and further penetrating existing accounts, which is driving sequential quarterly sales growth. Turning to our products for the orthopedic and spine repair market, starting with an update on the recall of a single donor lot of our FibroCell product. While this was an unfortunate event, we conducted a thorough review of our procedures for screening donors and producing FibroCells. and found no deviations from established industry and regulatory protocols. The FDA also completed an inspection of our Richmond, California facility in June and issued no Form 483 observations, meaning that they also found no deviations from accepted protocols and standards. Nonetheless, we remain committed to supporting patients that were impacted by this event They've agreed to fund a patient support program in which we'll participate as a limited sponsor with Medtronic. Under this program, qualifying patients may receive reimbursement for out-of-pocket medical and incidental expenses related directly to seeking testing or treatment related to the recall. This program is designed to support patients and ensure that they are not delaying any necessary treatment. We remain committed to providing high-quality, safe, and effective products. As such, we've developed and implemented measures to further enhance the safety of future production lots for our viable bone matrix products. These measures include implementing heightened donor screening procedures and developing additional methodologies to test tissue products. We believe these safeguards exceed applicable FDA and industry standards for donor screening and testing. Despite these actions, we were obviously disappointed to receive notice from Medtronic of the company's decision to discontinue distribution of any cellular bone matrix products, which includes an existing agreement for Xeo's FibroCell product. As mentioned in previous communications, our agreement with Medtronic for our fiber-based, viable bone matrix product was non-exclusive, and we continue to sell this fiber-based product through our other partners. We remain confident that the quality performance of our products will enable us to expand business through our existing partners, as well as secure additional distribution partners for our products that we have on the market today, as well as pipeline products we plan on launching in 2022. Turning to our non-core contract manufacturing business, we saw upside in the quarter, largely due to fulfilling the supply requests from a new customer building inventory in advance of their product launch. Going forward into Q4, we anticipate that this segment of our business will return to levels more in line with the first half of this year. Finally, I'll mention that we recently welcomed Peter Edwards to the company as our general counsel. His extensive legal and business experience in the healthcare space has already proven valuable in numerous aspects of our business. His addition makes a strong team stronger. And together, we believe we're poised for great accomplishments in the years ahead. With that update, I'd like to turn the call over to Matt. Thank you, Ron. As mentioned, net sales for the three months ended September 30th, 2021, were $11.5 million, a 3% decrease from $11.8 million in the same period of the prior year, and a 5.6% decrease from $12.2 million in the second quarter of 2021. Net sales of core products were $8.6 million in the third quarter of 2021, compared to $10.3 million for the third quarter of 2020. And net sales of non-core products were $2.9 million in the third quarter of 2021, compared to $1.4 million in the third quarter of 2020. The decrease in core products was driven primarily by a decline in our orthopedic and spinal repair business, following the discontinuation of sales of FiberCell by its distributor. The sales across product lines were also impacted by lower procedure volumes in certain geographies due to the resurgence of COVID-19 hospitalizations. These decreases were partially offset by growth in our Kangaroo and Simpliderm product lines. And as Ron mentioned, the significant increase in non-core products was driven primarily by one contract manufacturing customer building inventory for a new product launch. Gross margin for the third quarter of 2021 was 32.1%, as compared to 47.1% in the corresponding prior year period and 46.2% in the second quarter of 2021. We also looked at gross margin excluding the impact of non-cash amortization of intangible assets, And on that basis, Q3 would have been 39.5% versus 54.3% in the year-ago quarter and 53.1% in Q2 2021. The decrease in gross margin was primarily due to lower yields in our orthopedic and spinal repair product lines related to heightened donor screening criteria ahead of the implementation of enhanced product testing, as well as write-downs of inventory in certain categories. Together, these factors impacted margins by approximately 12 percentage points, and we do not expect these costs to continue at similar levels going forward. Total operating expenses for the third quarter of 2021 were $10.7 million, a 30 percent increase from $8.2 million in the third quarter of 2020, and a 4 percent increase from $10.2 million in the second quarter of 2021. The main drivers of the increase compared to the year-ago period were R&D spending related to Kangaroo RM development and G&A increases related to operating as a public company. Loss from operations was $7.0 million for the third quarter of 2021 as compared to a $2.7 million loss for the year-ago period. Net loss for the quarter was $8.3 million as compared to a net loss of $6.7 million in the third quarter of 2020 and $2.4 million in the second quarter of 2021. Net loss per common share in the third quarter of 2021 was 81 cents compared to a loss of $15.79 per share in the year-ago quarter, which was prior to the conversion of the company's preferred stock into common stock in association with the company's Q4 2020 initial public offering. As of September 30th, we had a cash balance of $22.6 million, with an additional $4.5 million available for borrowing under our working capital line of credit, resulting in total liquidity of $27.1 million. Turning now to our outlook for the business, we project full-year 2021 net sales in the range of $47 to $48 million, which represents growth over 2020 of 10 to 12.5%. Providing a bit more color on the final quarter of the year, within our core products, we've been seeing solid growth in Kangaroo and Simpliderm, and we expect that to continue. However, this growth is being offset by softness in our bone repair business, primarily due to our fiber cell distributor exiting the market. We expect the net result of this to be core product sales in the fourth quarter in a similar range to the Q3 results. And as we look ahead to 2022, we're confident we'll see core product sales grow on a sequential basis and for the full year. As we advance Kangaroo RM, sign up additional orthopedics and spine partners, and make further gains with Simpliderm. In our non-core business, as Ron mentioned, we expect Q4 sales to settle back close to the levels achieved in Q1 and Q2 of this year. But there again, we also see multiple opportunities for growth in 2022. And with that, let me now turn the call back to Ron for closing comments. Thanks, Matt. There's no question we face challenges in 2021, but I'm proud of how the team has managed through these events. Again, as we looked at 2022, we see multiple opportunities to increase value in the company. In Kangaroo, we'll be scaling our commercial organization, generating clinical data, and plan to be launching Kangaroo RM. With Simpliderm, we're expecting new clinical data greater market access, and continued growth. And within our orthopedic and spine business, we anticipate bringing new partners on board and launching new viable bone matrices as we return to growth mode. In closing, I want to thank the Azio team for their continued drive towards the success of our company. We have a very dynamic future ahead with the number of catalysts on the horizon that I am confident will enable the company to realize its full potential in shareholder value. And with that, we'd now like to open up the call for your questions.
spk06: At this time, to ask a question, please press star, then the number one key on your touchtone phone. And to remove yourself from the queue, just press the pound key. Once again, that's star one for questions. One more for questions. Our first question will come from Matt O'Brien from Piper Sandler.
spk04: You may begin.
spk08: Hey, good afternoon, guys. This is Drew on for Madden. Thank you for taking the questions. You know, you're one of a smaller group of med tech companies that was able to get to their Q3 numbers despite what was a pretty disruptive quarter from a COVID perspective. So maybe you could just kind of walk us through what you saw from COVID here in the quarter, how meaningful that headwind was that you were able to offset. And then your guidance does assume a bit of a step down or a little step down from a sales perspective in Q4. You know, I think you mentioned a little bit the details on that between core and non-core. But what exactly is the difference that gets you to the higher the law of the range? Is that due to COVID?
spk02: Sure. Yeah, actually, we're very pleased with the performance in Q3 for our business. If we think about some of our products, we had an excellent quarter with Kangaroo. Kangaroo was the leading product from a growth perspective. As we said during the call, there's a number of factors for that. Again, the remodeling benefits of Kangaroo is resonating with customers. We've been able to increase market access through our contracting. We did a number of peer-to-peer programs, which also brought on new users. We've seen increased productivity from our sales reps, as well as contributions from our partners. I think, again, despite COVID, we had a very strong quarter as it relates to kangaroo growth. Also, our SimpliDerm product performed very well in Q3, and we're getting additional traction for that product. But clearly, like others, especially more on the viable bone matrix side, we did see the impact of COVID that impacted cases for that business. And then finally, the other factor that helped us in Q3, we did get a larger order that came in through our non-core business primarily one of our new customers, actually was ramping up for a product launch and wanted to build inventory, so we had a little bit higher amount of sales for that customer in Q3. But all in all, very pleased with the performance of Q3, especially given the headwinds of COVID that certainly impacted August and September and certainly impacted the Southeast, which we also have a very strong business in. As we look to Q4, Again, part of our change from Q3 to Q4, again, if you look at the non-core, the stocking of that one new customer obviously will not repeat in Q4, so that's sort of a walk-down. As we look at Kangaroo and we look at Simpliderm, we really have strong momentum building on those products, and we anticipate continued growth of those products. But I think we're going to have a little bit of offset of that growth through our viable loan business. Again, some of the macro environments still lingering with COVID. And again, we're looking forward to adding additional partners as we get to 2022 to offset some of the impact of our large distributor Medtronic exiting the business.
spk08: Okay. Very helpful. Thank you. And then just You know, as we're thinking about next year here, I think it's a little bit difficult to tease out the exact growth rate of the business, you know, without going into details on each of the product segments. So I was just wondering if you can provide just a general framework on, you know, what sort of range to think about for Kangaroo and Simply Derm growth. You know, I think the street has you modeled at about 20% top line growth for the full business. But obviously you have some comp issues from Fibrocell in the first half of the year. So just maybe overall thoughts to either of those topics there.
spk02: Yeah, I don't know if we really want to get into 22 guidance here on this call. So I prefer probably not to get into specifics on percentage growth. But I do think, again, as we think about Kangaroo in particular, you know, 2022 is going to be really an exciting year for us. We anticipate filing Kangaroo RM, our next generation product, which includes the antibiotics for phanfenamine and cyclin. Our anticipated timing for that is still Q1. We remain on track with the development for that product. And we really see this as the best solution in the marketplace, having a biological product with remodeling benefits and then obviously having with that also the antibiotics. So we do think this is going to be a key driver of growth for the company going forward. And we'll be obviously prepping for the launch of that product next year. In anticipation, we'll look to expand our commercial organization, probably look to add additional sales reps with hiring starting here late Q1 of 2022 and bringing more people on board in the second quarter of 2022. So again, we're very excited about Kangaroo and the possibilities of growth from that product and our pipeline product, RM. On Simpliderm, again, we're seeing nice traction with that product. We're going to have additional publications that we anticipate will hit the street next year in 2022. We anticipate getting additional market access, and we're getting great leverage from our distributor network. So very exciting opportunities for both those products in 2022. And as I mentioned on the viable bone size, again, we're putting in place heightened donor screening. We're going to have in place new testing procedures, which we believe will set a new industry standard. As we get into 2022, and we're confident, again, based on some discussions we've already had with potential partners, we feel really good about the opportunity to bring on additional partners for our viable bone matrices. And we also anticipate launching a couple of new products next year within this category. So, again, very excited where we're going for 2022. Good to hear.
spk09: Thank you.
spk06: Our next question comes from Josh Jennings from Calend. You may begin.
spk03: Hi, this is actually Neil on for Josh. Thanks for taking our questions. Maybe just on SimpliDerm, I think you added a few new regional distributors in the second quarter. Could you maybe just talk about the progress you're seeing kind of with the distributor network there?
spk02: Sure. So with SimpliDerm, Again, let me just take a step back for those that may not be familiar with the product. Again, we've used our patented process to decellularize human dermis tissue, and our process is done in such a way that it removes the cells but really does minimal damage to the underlying structural matrix. And as such, we've shown lower inflammatory response to a market-leading product, and we've shown better integration to a market-leading product in a number of bench and non-human primate studies. We've also now been able to do an initial publication from an early user experience on the product, and we anticipate additional publications, as I mentioned, in 2022. So, again, we've designed this, we believe, to be equal or better than the market leader within this space. From a commercialization standpoint, we've elected to go with a distributor network at this time, We've been able to expand that network in the second half of this year to be a national network, and we're seeing increased productivity from that distributor network. So we're pleased with the progress our distributors are making, and we've been able to complement them with additional market access as we continue to win contracts with the new healthcare systems and hospitals for expanded opportunity as well. So pleased with the progress we've been able to accomplish with SimpliDerm this year, and we're going to ride the momentum into 2022.
spk03: Great. And just one follow-up in terms of the progress you're seeing or momentum with kind of the Premier and Providence Health partnerships and potentially other kind of provider partnerships, anything, any color you can add there in terms of what you're seeing?
spk02: Yeah, actually they've been very beneficial. And again, if you take a step back, I think testament to our team, both on the commercial and the medical front, of doing an excellent job of explaining the unique characteristics of having a biological envelope such as Kangaroo. And so Premier saw the benefits, gave the breakthrough technology designation, as well as other healthcare systems see the benefit of this product, especially in certain patient populations where remodeling is very important. And so we've been able to leverage that and then tap into that to open up new accounts. And so our team has been very focused on adding new accounts and then obviously starting to pull through of that business from those accounts. So very excited about the progress that we're making through our contracting organization. And again, I think as quarters go by, we continue to see the addition of new accounts and now continue to build to the business and again, provide additional growth as we go forward quarter by quarter.
spk03: Great. One last follow-up, if I can speak to that. I'm just curious on your thoughts in terms of your current M&A strategy and kind of areas of focus for that.
spk02: Yeah, so we continue to look at opportunities from an M&A perspective, mostly probably more in a tuck-in perspective. As we think about it, though, we're still very excited about our organic opportunities. If we think about our key products, we're probably in single-digit market shares for our key products, so we have a lot of opportunity to grow Kangaroo, opportunity to grow Simpliderm. Again, we still think there's opportunity to grow within the Bible Bone Matrix business as we bring forth new products. Again, from our perspective, we see tremendous growth opportunity by the assets that we have in hand today or near term pipeline with Kangaroo RM being a key driver of growth. But with that said, we continue to look at opportunities that would be complementary, particular complementary to the products that we have more of a direct presence with, which would be either Kangaroo in the cardiovascular business or complementary to Simpliderm. So we continue to look at opportunities there, and if we see the right opportunity, we'll pull the trigger.
spk05: Thank you.
spk06: And once again, that's star one for any questions, star one. Our next question comes from David Rescott from Truist Securities. You may begin.
spk07: Hey, Ron and Matt. Thanks for taking the questions here. I guess, you know, I think what we're thinking about or we've thought about this fiber cell as being kind of around 2 million within the quarter. And so when you back that out, it kind of implies, you know, mid-single-digit sequential growth within the quarter. uh, within the core business. I mean, does that, uh, you know, kind of make sense from where, the way you've been thinking about the growth here?
spk02: Uh, yeah, David, this is, this is Matt. Um, you know, we're looking at it both, uh, you know, sequentially and, and quarter to quarter, um, you know, for, um, you know, for Q3, we, um, excluding fiber cell, you know, we definitely felt like we, we saw growth, um, The Q2 number, you had it right. We did call that out at about $2 million for fiber cells. So, you know, without that, definitely would see growth sequentially. But, you know, more importantly, you know, we're thinking about the growth that we can continue to drive, not just through Kangaroo and Sensoderm, which, you know, which we talked about as being the drivers of growth for Q3, but... But really all of the franchises within our business, all of the product lines, we see great opportunities to grow from where they are now.
spk14: Of course, there will be a bit of a hole to fill in the bone repair space, but our other partners are continuing to perform well, and we also see a lot of opportunity to add additional partners going forward there.
spk07: Okay. I guess maybe more of a, you know, high-level question about Kangaroo and then I guess the business as a whole. I mean, I appreciate kind of the more in-depth commentary I think you gave on this quarter just around some of the, you know, utilization within accounts of Kangaroo. But, I mean, I guess, you know, in context, if you think about, you know, the competitor Tyrex out there, back in 2014, they were kind of acquired for around $160 million. You know, and it seems like maybe that business was kind of running maybe the similar rate is kangaroo. I mean, having an accelerating type growth profile. I mean, that obviously was, was a few years ago, but when you think about that really in the context of where the valuation of, of the ZO is it today, I guess, what do you think, you know, is one of the factors or some of the points of the story that, that investors might be missing here. And then I guess, you know, again, from a high level, you know, I guess, could you really discuss how, how you, you know, can create value within the business, um, without necessarily having that infection prevention label, but, you know, also as we think about bringing that infection prevention label online in kind of that 2022, 2023 timeframe.
spk02: Sure. No, I actually think it's an excellent point. And I certainly see, from a valuation perspective, kangaroo being, you know, similar, if not greater valuation than what Tyrex is. So, if you think about it, and you're right, Tyrex acquired for roughly 160 million plus some milestones. at a sales level similar to where Kangaroo is today. I think, again, when you look at the technologies, we believe we have a better technology having a biological envelope. And, of course, we do need to get the indication to have it such that it also includes the antibiotics rifampinib and cyclin to match Tyrex. So I think that's obviously a key driver of value here is to have a similar label from an infection perspective here to have those antibiotics on board. But we would concur. We believe there's tremendous value with Kangaroo. And I think if you fast forward from the Tyrex acquisition, from where we are today, we believe that the Tyrex product is more than $100 million in revenue from a performance perspective. But even with that product at $100 million, there's still a lot of room for envelope penetration within the It's the RM business. We estimate that, again, probably one out of five patients are getting envelopes as it stands today. So we think there's a lot of market opportunity for expansion. And we can easily see Kangaroo being more than $100 million in revenue as well. So when we think about our company and we think about the opportunity with Kangaroo and we think about the near-term horizon, because, again, we're on track here to file in Q1. We see this product on the market. in the second half of next year. We think that unlocks tremendous value creation for the company. And we would anticipate that we should have a similar valuation, if not greater valuation, with Tirex based on the technologies that we have of actually having a biologic that provides remodeling benefits for patients, which go beyond just the short-term reduction of infection by having antibiotics. So we think there's tremendous value, and we need to probably get out to investors to make sure they understand that value creation as well. Okay, that's helpful.
spk07: I guess just a last one then on kangaroo. I mean, from... From, you know, just around, like, the rifampin and minocycline formulation, I mean, I know you've discussed in the past how the manufacturing validation has been completed there, and I guess, you know, in what sense, I guess, is that, you know, validation, you know, somewhat, or the validation of that or the addition of that somewhat de-risked, I guess, from a approval standpoint? You know, I mean, if we think or we kind of have an understanding that the addition of rifampin and minocycline, you know, is used in infection prevention, so I guess, You know, is there a risk at all here either with the formulation itself or with the way that you actually integrate the formulation into the Kangaroo product that we wouldn't expect to see some kind of infection risk reduction? Just any commentary there would be helpful.
spk02: Sure. So, yeah, our goal here in the product design and how we created the product was to embed within Kangaroo the antibiotics rifampidamine and cyclin in such a way that they have the same release kinetics as Tyrex and load them with relatively the same level of antibiotic concentration and dosing as Tyrex. So in a sense, you get the same delivery mechanism of our product that you see off the predicate device in this case, which would be Tyrex for those antibiotics. So that was the design goal. And again, we were able to walk down our product design achieving similar release kinetics of those two antibiotics. And I think that's the most important part here from a risk perspective was to be able to get the antibiotics to be loaded and then released in a similar fashion. And so now we're doing the additional studies required by the FDA to do the 510 filing to show that we're comparable here to the predicate. And those are underway and they're tracking nicely. Of course we do have to complete those studies and make the submission to the FDA. But from a product design standpoint, again, I think we've nailed it by getting the same release profile that matches up identical here in a sense to Tyrex release profile. And so we're very excited about that aspect of it. And again, bringing forth this expanded opportunity in the near-term horizon for Kangaroo. Okay, that makes sense. Thanks for taking the questions.
spk06: Thank you. Looks like that was our last question for today. I'll turn the call back over to Ron for any closing remarks.
spk02: Great. Thank you, and thank you for your time today. Let me just close by saying the Ezeo team is fully energized. We're very excited about the near-term horizon and the number of growth catalysts that we have for our company, and we're very confident in the future of where we're going. And so we look forward to giving you updates at future calls. as we continue to progress and advance the company. So, again, thank you very much for your time today.
spk06: And that will conclude our conference call today. Thank you for participating. You may now disconnect. Everyone have a great day. Thank you. you Thank you. Thank you. Good day and thank you for standing by. Welcome to the SEO Biologics third quarter 2021 earnings conference call. At this time, all participants are on a list of only notes. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to speaker today, Lee Salvo, Investor Relations. Please go ahead.
spk01: Thank you, 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, ASEO released financial results for the third quarter ended September 30, 2021. 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 risks and uncertainties associated with our business, please refer to the risk factor section of our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 9, 2021. ASEO Biologics disclaims any intention or obligation, 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. Reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's earnings release for the third fiscal quarter ended September 30, 2021. 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 will turn the call over to Ron Lloyd.
spk02: Thank you, Lee. Good afternoon, everyone, and thank you for joining us. Since our last call, we've continued to execute on our business strategies and achieved $11.5 million in revenue for Q3. Year-to-date, we have generated over $36 million in total revenues, a 21% increase over the corresponding period in 2020. More importantly, we're preparing for a seminal year in 2022. As we look to next year, we see several catalysts for growth. With Kangaroo, we'll be scaling our commercial organization, generating clinical data, and advancing Kangaroo RM, our next-generation product with antibiotics. We remain on track to file Kangaroo RM in Q1, and continued to plan for approval in the second half of next year. We believe Kangaroo RM has potential to exceed $100 million in revenues and be the core driver of value creation for Zio over the next few years. Second, with Simpliderm, we're expecting new clinical data, greater market access, and continued growth. For both Kangaroo and Simpliderm, we're building off strong momentum that's been created over the second half of this year. And third, within our orthopedic and spine business, we anticipate bringing on board additional partners and launching new viable bone matrices as we return to growth mode. In addition, to further support the safety of these products, we'll have in place new screening and testing procedures, which we believe will set a new standard in the industry. Finally, we're participating in a patient support program for those impacted by our single donor lot recall of fiber cells. While it's very early in the litigation, we feel confident we have our arms around the legal challenges of this recall and believe they'll be manageable within the company's resources. Now going a bit deeper in each of the main areas of our business, I'll start with Kangaroo. Kangaroo is the only commercially available biological envelope that forms a natural, healthy pocket for holding implantable electronic devices. We're making exciting progress on the commercial and medical fronts to showcase the remodeling benefits of this product. Despite the headwinds of COVID that negatively impacted CRM device placements in August and September, sales of Kangaroo improved during the quarter. There were several factors that drove this growth, including growing awareness within the electrophysiology medical community for Kangaroo's remodeling benefits. the impact of peer-to-peer programs, which have been very influential in developing new users, opening of new accounts by leveraging our recently signed contracts with healthcare delivery systems and our breakthrough designation within Premier, as well as continued contributions from our partnerships with Boston Scientific and Biotronic. More specifically, during the quarter, we saw increased productivity from our US direct sales force, as our newer reps gained tenure throughout the year and access to our customers reemerged. And we're very encouraged by this increased momentum, both in higher utilization within existing accounts as well as the opening of new accounts. And we see significant opportunity for additional expansion. Also encouraging was the traction we saw with our partners in Q3, with Boston and Biotronic Placements of Kangaroo reaching their highest levels for the year, In parallel, we've been successful in mining opportunity through our premier breakthrough technology designation, as well as with other healthcare system partners. These relationships have been key to driving kangaroo sales, and we expect to achieve further leverage through these relationships going forward. We're also confident in our opportunity to add additional healthcare systems in the future. Outside the U.S., we saw increased sales of our Kangaroo Envelope in Europe due to the launch of our new expanded label. As a reminder, Ezeo received approval in January that now permits Kangaroo Envelope to be hydrated and agenomized in solution prior to implantation. This new label was launched in Q3 through our partnership with Biotronic, leveraging clinical data that was presented at the European Society of Cardiology annual meeting this summer. As an update on the clinical front, both the HEAL study and the de novo study are progressing as expected. We look forward to this clinical data for Kangaroo, and we're confident the results will further validate the unique clinical benefits derived from our biological envelope. On the product development front, as mentioned earlier, Kangaroo RM remains on track for FDA submission in the first quarter of 2022. and we're planning for clearance and launch in the second half of the year. The new envelope will be enhanced by adding the antibiotics rifampin and minocycline. Our team continues to execute against these key milestones for this biological product. And again, we're confident in its potential to create substantial long-term growth for Azalea. In the soft tissue reconstruction area, we continue to make progress in our simploderm business. Our goal with this product is to generate clinical data, expand access through payers and hospital systems, and drive product sales through our national distributor network. We're completing a clinical study comparing Simpliderm to a market-leading product and plan to submit the results this quarter for publication early next year. We'll leverage this data and our prior publications to expand market access. Finally, we're pleased with the progress our distributor network is making in opening new accounts and further penetrating existing accounts, which is driving sequential quarterly sales growth. Turning to our products for the orthopedic and spine repair market, starting with an update on the recall of a single donor lot of our FibroCell product. While this was an unfortunate event, we conducted a thorough review of our procedures for screening donors and producing FibroCells. and found no deviations from established industry and regulatory protocols. The FDA also completed an inspection of our Richmond, California facility in June and issued no Form 483 observations, meaning that they also found no deviations from accepted protocols and standards. Nonetheless, we remain committed to supporting patients that were impacted by this event They've agreed to fund a patient support program in which we'll participate as a limited sponsor with Medtronic. Under this program, qualifying patients may receive reimbursement for out-of-pocket medical and incidental expenses related directly to seeking testing or treatment related to the recall. This program is designed to support patients and ensure that they are not delaying any necessary treatment. We remain committed to providing high-quality, safe, and effective products. As such, we've developed and implemented measures to further enhance the safety of future production lots for our viable bone matrix products. These measures include implementing heightened donor screening procedures and developing additional methodologies to test tissue products. We believe these safeguards exceed applicable FDA and industry standards for donor screening and testing. Despite these actions, we were obviously disappointed to receive notice from Medtronic of the company's decision to discontinue distribution of any cellular bone matrix products, which includes an existing agreement for Xeo's Fibrocell product. As mentioned in previous communications, our agreement with Medtronic for our fiber-based, viable bone matrix product was non-exclusive, and we continued to sell this fiber-based product through our other partners. We remain confident that the quality and performance of our products will enable us to expand business through our existing partners, as well as secure additional distribution partners for our products that we have on the market today, as well as pipeline products we plan on launching in 2022. Turning to our non-core contract manufacturing business, we saw upside in the quarter, largely due to fulfilling the supply requests from a new customer building inventory in advance of their product launch. Going forward into Q4, we anticipate that this segment of our business will return to levels more in line with the first half of this year. Finally, I'll mention that we recently welcomed Peter Edwards to the company as our general counsel. His extensive legal and business experience in the healthcare space has already proven valuable in numerous aspects of our business. His addition makes a strong team stronger. And together, we believe we're poised for great accomplishments in the years ahead. With that update, I'd like to turn the call over to Matt. Thank you, Ron. As mentioned, net sales for the three months ended September 30th, 2021, were $11.5 million, a 3% decrease from $11.8 million in the same period of the prior year, and a 5.6% decrease from $12.2 million in the second quarter of 2021. Net sales of core products were $8.6 million in the third quarter of 2021, compared to $10.3 million for the third quarter of 2020. And net sales of non-core products were $2.9 million in the third quarter of 2021, compared to $1.4 million in the third quarter of 2020. The decrease in core products was driven primarily by a decline in our orthopedic and spinal repair business following the discontinuation of sales of FiberCell by its distributor. The sales across product lines were also impacted by lower procedure volumes in certain geographies due to the resurgence of COVID-19 hospitalizations. These decreases were partially offset by growth in our Kangaroo and Simpliderm product lines. And as Ron mentioned, the significant increase in non-core products was driven primarily by one contract manufacturing customer building inventory for a new product launch. Gross margin for the third quarter of 2021 was 32.1%, as compared to 47.1% in the corresponding prior year period and 46.2% in the second quarter of 2021. We also looked at gross margin excluding the impact of non-cash amortization of intangible assets, And on that basis, Q3 would have been 39.5 percent versus 54.3 percent in the year-ago quarter and 53.1 percent in Q2 2021. The decrease in gross margin was primarily due to lower yields in our orthopedic and spinal repair product lines related to heightened donor screening criteria ahead of the implementation of enhanced product testing, as well as write-downs of inventory in certain categories. Together, these factors impacted margins by approximately 12 percentage points, and we do not expect these costs to continue at similar levels going forward. Total operating expenses for the third quarter of 2021 were $10.7 million, a 30% increase from $8.2 million in the third quarter of 2020, and a 4% increase from $10.2 million in the second quarter of 2021. The main drivers of the increase compared to the year-ago period were R&D spending related to Kangaroo RM development and G&A increases related to operating as a public company. Loss from operations was $7.0 million for the third quarter of 2021 as compared to a $2.7 million loss for the year-ago period. Net loss for the quarter was $8.3 million as compared to a net loss of $6.7 million in the third quarter of 2020 and $2.4 million in the second quarter of 2021. Net loss per common share in the third quarter of 2021 was 81 cents compared to a loss of $15.79 per share in the year-ago quarter, which was prior to the conversion of the company's preferred stock into common stock in association with the company's Q4 2020 initial public offering. As of September 30th, we had a cash balance of $22.6 million, with an additional $4.5 million available for borrowing under our working capital line of credit, resulting in total liquidity of $27.1 million. Turning now to our outlook for the business, we project full-year 2021 net sales in the range of $47 to $48 million, which represents growth over 2020 of 10 to 12.5%. Providing a bit more color on the final quarter of the year, within our core products, we've been seeing solid growth in Kangaroo and Simpliderm, and we expect that to continue. However, this growth is being offset by softness in our bone repair business, primarily due to our fiber cell distributor exiting the market. We expect the net result of this to be core product sales in the fourth quarter in a similar range to the Q3 results. And as we look ahead to 2022, we're confident we'll see core product sales grow on a sequential basis and for the full year. As we advance Kangaroo RM, sign up additional orthopedics and spine partners, and make further gains with Simpliderm. In our non-core business, as Ron mentioned, we expect Q4 sales to settle back close to levels achieved in Q1 and Q2 of this year. But there again, we also see multiple opportunities for growth in 2022. And with that, let me now turn the call back to Ron for closing comments. Thanks, Matt. There's no question we face challenges in 2021, but I'm proud of how the team has managed through these events. Again, as we looked at 2022, we see multiple opportunities to increase value in the company. In Kangaroo, we'll be scaling our commercial organization, generating clinical data, and plan to be launching Kangaroo RM. With Simpliderm, we're expecting new clinical data greater market access, and continued growth. And within our orthopedic and spine business, we anticipate bringing new partners on board and launching new viable bone matrices as we return to growth mode. In closing, I want to thank the Azio team for their continued drive towards the success of our company. We have a very dynamic future ahead with the number of catalysts on the horizon that I am confident will enable the company to realize its full potential and shareholder value. And with that, we'd now like to open up the call for your questions.
spk06: At this time to ask a question, please press star, then the number one key on your touchtone phone. And to remove yourself from the queue, just press the pound key. Once again, that's star one for questions. One more for questions. Our first question will come from the line of Matt O'Brien from Piper Sandler.
spk04: You may begin.
spk08: Hey, good afternoon, guys. This is Drew on for Madden. Thank you for taking the questions. You know, you're one of a smaller group of med tech companies that was able to get to their Q3 numbers despite what was a pretty disruptive quarter from a COVID perspective. So maybe you could just kind of walk us through what you saw from COVID here in the quarter, how meaningful that headwind was that you were able to offset. And then your guidance does assume a bit of a step down or a little step down from a sales perspective in Q4. You know, I think you mentioned a little bit the details on that between core and non-core. But what exactly is the difference that gets you to the higher, the lower, and the other ranges? Is that due to COVID?
spk02: Sure. Yeah, actually, we're very pleased with the performance in Q3 for our business. If we think about some of our products, we had an excellent quarter with Kangaroo. Kangaroo was the leading product from a growth perspective. As we said during the call, there's a number of factors for that. Again, the remodeling benefits of Kangaroo is resonating with customers. We've been able to increase market access through our contracting. We did a number of peer-to-peer programs, which also brought on new users. We've seen increased productivity from our sales reps, as well as contributions from our partners. I think, again, despite COVID, we had a very strong quarter as it relates to kangaroo growth. Also, our SimpliDerm product performed very well in Q3, and we're getting additional traction for that product. But clearly, like others, especially more on the viable bone matrix side, we did see an impact of COVID that impacted cases for that business. And then finally, the other factor that helped us in Q3, we did get a larger order that came in through our non-core business Primarily one of our new customers actually was ramping up for a product launch and wanted to build inventory, so we had a little bit higher amount of sales for that customer in Q3. But all in all, very pleased with the performance of Q3, especially given the headwinds of COVID that certainly impacted August and September and certainly impacted the Southeast, which we also have a very strong business in. As we look to Q4, Again, part of our change from Q3 to Q4, again, if you look at the non-core, the stocking of that one new customer obviously will not repeat in Q4, so that's sort of a walk-down. As we look at Kangaroo and we look at Simpliderm, we really have strong momentum building on those products, and we anticipate continued growth of those products. But I think we're going to have a little bit of offset of that growth through our viable loan business. Again, some of the macro environments still lingering with COVID. And again, we're looking forward to adding additional partners as we get to 2022 to offset some of the impact of our large distributor Medtronic exiting the business.
spk08: Okay. Very helpful. Thank you. And then just You know, as we're thinking about next year here, I think it's a little bit difficult to tease out the exact growth rate of the business, you know, without going into details on each of the product segments. So I was just wondering if you can provide just a general framework on, you know, what sort of range to think about for Kangaroo and Simply Derm growth. You know, I think the street has you modeled at about 20% top line growth for the full business. but obviously you have some comp issues from FiberCell in the first half of the year. So just maybe overall thoughts to either of those topics there.
spk02: Yeah, I don't know if we really want to get into 2022 guidance here on this call, so I prefer probably not to get into specifics on percentage growth. But I do think, again, as we think about Kangaroo in particular, 2022 is going to be really an exciting year for us. We anticipate filing Kangaroo RM, our next generation product, which includes the antibiotics for phanfenamine and cyclin. Our anticipated timing for that is still Q1. We remain on track with the development for that product. And we really see this as the best solution in the marketplace, having a biological product with remodeling benefits and then obviously having with that also the antibiotics. So we do think this is going to be a key driver of growth for the company going forward. And we'll be obviously prepping for the launch of that product next year. In anticipation, we'll look to expand our commercial organization, probably look to add additional sales reps with hiring starting here late Q1 of 2022 and bringing more people on board in the second quarter of 2022. So again, we're very excited about Kangaroo and the possibilities of growth from that product and our pipeline product, RM. On Simpliderm, again, we're seeing nice traction with that product. We're going to have additional publications that we anticipate will hit the street next year in 2022. We anticipate getting additional market access, and we're getting great leverage from our distributor network. So very exciting opportunities for both those products in 2022. And as I mentioned on the viable bone side, again, we're putting in place heightened donor screening. We're going to have in place new testing procedures, which we believe will set a new industry standard As we get into 2022, and we're confident, again, based on some discussions we've already had with potential partners, we feel really good about the opportunity to bring on additional partners for our viable bone matrices. And we also anticipate launching a couple of new products next year within this category. So, again, very excited where we're going for 2022. Good to hear.
spk09: Thank you.
spk06: Our next question comes from Josh Jennings from Calend. You may begin.
spk03: Hi, this is actually Neil on for Josh. Thanks for taking our questions. Maybe just on Simpliderm, I think you added a few new regional distributors in the second quarter. Could you maybe just talk about the progress you're seeing kind of with the distributor network there?
spk02: Sure. So with Simpliderm, Again, let me just take a step back for those that may not be familiar with the product. Again, we've used our patented process to decellularize human dermis tissue, and our process is done in such a way that it removes the cells but really does minimal damage to the underlying structural matrix. And as such, we've shown lower inflammatory response to a market-leading product, and we've shown better integration to a market-leading product in a number of bench and non-human primate studies. We've also now been able to do an initial publication from an early user experience on the product, and we anticipate additional publications, as I mentioned, in 2022. So again, we've designed this, we believe, to be equal or better than the market leader within this space. From a commercialization standpoint, we've elected to go with a distributor network at this time, We've been able to expand that network in the second half of this year to be a national network, and we're seeing increased productivity from that distributor network. So we're pleased with the progress our distributors are making, and we've been able to complement them with additional market access as we continue to win contracts with the new healthcare systems and hospitals for expanded opportunity as well. So pleased with the progress we've been able to accomplish with SimpliDerm this year, and we're going to ride the momentum into 2022.
spk03: Great. And just one follow-up in terms of the progress you're seeing or momentum with kind of the Premier and Providence Health partnerships and potentially other kind of provider partnerships, anything, any color you can add there in terms of what you're seeing?
spk02: Yeah, actually they've been very beneficial. And again, if you take a step back, I think testament to our team, both on the commercial and the medical front, of doing an excellent job of explaining the unique characteristics of having a biological envelope such as Kangaroo. And so Premier saw the benefits, gave the breakthrough technology designation, as well as other healthcare systems see the benefit of this product, especially in certain patient populations where remodeling is very important. And so we've been able to leverage that and then tap into that to open up new accounts. And so our team has been very focused on adding new accounts and then obviously starting to pull through of that business from those accounts. So very excited about the progress that we're making through our contracting organization. And again, I think as quarters go by, we continue to see the addition of new accounts and now continue to build to the business and again, provide additional growth as we go forward quarter by quarter.
spk03: Great. One last follow-up, if I can speak to that. I'm just curious on your thoughts in terms of your current M&A strategy and kind of areas of focus for that.
spk02: Yeah, so we continue to look at opportunities from an M&A perspective, mostly probably more in a tuck-in perspective. As we think about it, though, we're still very excited about our organic opportunities. If we think about our key products, we're probably in single-digit market shares for our key products. So we have a lot of opportunity to grow Kangaroo, opportunity to grow Simpliderm. Again, we still think there's opportunity to grow within the Bible Bone Matrix business as we bring forth new products. So again, from our perspective, we see tremendous growth opportunity by the assets that we have in hand today or near-term pipeline with Kangaroo RM being a key driver of growth. But with that said, we continue to look at opportunities that would be complementary, particular complementary to the products that we have more of a direct presence with, which would be either Kangaroo in the cardiovascular business or complementary to Simpliderm. So we continue to look at opportunities there, and if we see the right opportunity, we'll pull the trigger.
spk06: Thank you. And once again, that's star one for any questions, star one. Our next question comes from the line of David Rescott from Truist Securities. You may begin.
spk07: Hey, Ron and Matt. Thanks for taking the questions here. I guess, you know, I think what we're thinking about or we've thought about this fiber cell is being kind of around 2 million within the quarter. And so when you back that out, it kind of implies, you know, mid-single-digit sequential growth within the quarter. uh, within the core business. I mean, does that, uh, you know, kind of make sense from where, the way you've been thinking about the growth here?
spk02: Uh, yeah, David, this is, this is Matt. Um, you know, we're looking at it both, uh, you know, sequentially and, and quarter to quarter, um, you know, for, um, you know, for Q3, we, um, excluding FiberCell, you know, we definitely felt like we, we saw growth, um, The Q2 number, you had it right. We did call that out at about $2 million for fiber cells. So without that, definitely would see growth sequentially. But more importantly, we're thinking about the growth that we can continue to drive, not just through Kangaroo and Simpliderm, which we talked about as being the drivers of growth for Q3, but... But really all of the franchises within our business, all of the product lines, we see great opportunities to grow from where they are now.
spk14: Of course, there will be a bit of a hole to fill in the bone repair space, but our other partners are continuing to perform well, and we also see a lot of opportunity to add additional partners going forward there.
spk07: Okay. I guess maybe more of a, you know, high-level question about Kangaroo and then I guess the business as a whole. I mean, I appreciate kind of the more in-depth commentary I think you gave on this quarter just around some of the, you know, utilization within accounts of Kangaroo. But I mean, I guess, you know, in context, if you think about, you know, the competitor, Tyrex Southern, back in 2014, they were kind of acquired for around $160 million. You know, and it seems like maybe that business was kind of running, maybe the similar rate is kangaroo. I mean, having an accelerating type growth profile. I mean, that obviously was, was a few years ago, but when you think about that really in the context of where the valuation of, of the ZO is it today, I guess, what do you think, you know, is one of the factors or some of the points of the story that, that investors might be missing here. And then I guess, you know, again, from a high level, you know, I guess, could you really discuss how, how you, you know, can create value within the business, um, without necessarily having that infection prevention label, but, you know, also as we think about bringing that infection prevention label online in kind of that 2022, 2023 timeframe.
spk02: Sure. No, I actually think it's an excellent point. And I certainly see, from a valuation perspective, kangaroo being, you know, similar if not greater in valuation than what T. rex is. So if you think about it, and you're right, T. rex acquired for roughly $160 million plus some milestones at a sales level similar to where Kangaroo is today. I think, again, when you look at the technologies, we believe we have a better technology having a biological envelope. And, of course, we do need to get the indication to have it such that it also includes the antibiotics rifampinib and cyclin to match Tyrex. So I think that's obviously a key driver of value here is to have a similar label from an infection perspective here to have those antibiotics on board. But we would concur. We believe there's tremendous value with Kangaroo. And I think if you fast forward from the Tyrex acquisition, from where we are today, we believe that the Tyrex product is more than $100 million in revenue from a performance perspective. But even with that product at $100 million, there's still a lot of room for envelope penetration within the It's the RM business. We estimate that, again, probably one out of five patients are getting envelopes as it stands today. So we think there's a lot of market opportunity for expansion. And we can easily see Kangaroo being more than $100 million in revenue as well. So when we think about our company and we think about the opportunity with Kangaroo and we think about the near-term horizon, because, again, we're on track here to file in Q1. We see this product on the market. in the second half of next year. We think that unlocks tremendous value creation for the company. And we would anticipate that we should have a similar valuation, if not greater valuation, with Tyrex based on the technologies that we have of actually having a biologic that provides remodeling benefits for patients, which go beyond just the short-term reduction of infection by having antibiotics. So we think there's tremendous value, and we need to probably get out to investors to make sure they understand that value creation as well.
spk07: Okay, that's helpful. I guess just a last one then on Kangaroo. I mean, from... From, you know, just around, like, the rifampin and minocycline formulation, I mean, I know you've discussed in the past how the manufacturing validation has been completed there, and I guess, you know, in what sense, I guess, is that, you know, validation, you know, somewhat, or the validation of that or the addition of that somewhat de-risked, I guess, from a approval standpoint? I mean, if we think or we kind of have an understanding that the addition of rifampin and minocycline, you know, is used in infection prevention, so I guess, You know, is there a risk at all here either with the formulation itself or with the way that you actually integrate the formulation into the Kangaroo product that we wouldn't expect to see some kind of infection risk reduction? Just any commentary there would be helpful.
spk02: Sure. So, yeah, our goal here in the product design and how we created the product was to embed within Kangaroo the antibiotics rifampidamine and cyclin in such a way that they have the same release kinetics as Tyrex and load them with relatively the same level of antibiotic concentration and dosing as Tyrex. So in a sense, you get the same delivery mechanism of our product that you see off the predicate device in this case, which would be Tyrex for those antibiotics. So that was the design goal. And again, we were able to walk down our product design achieving similar release kinetics of those two antibiotics. And I think that's the most important part here from a risk perspective was to be able to get the antibiotics to be loaded and then released in a similar fashion. And so now we're doing the additional studies required by the FDA to do the 510K filing to show that we're comparable here to the predicate. And those are underway and they're tracking nicely. Of course, we do have to complete those studies and make the submission to the FDA. But from a product design standpoint, you know, again, I think we've nailed it by getting the same release profile that matches up identical here, in a sense, to Tyrex release profile. And so we're very excited about that aspect of it. And, again, bringing forth, you know, this expanded opportunity in the near-term horizon for Kangaroo. Okay, that makes sense. Thanks for taking my questions.
spk06: Thank you. Looks like that was our last question for today. I'll turn the call back over to Ron for any closing remarks.
spk02: Great. Thank you, and thank you for your time today. Let me just close by saying the Azio team is fully energized. We're very excited about the near-term horizon and the number of growth catalysts that we have for our company, and we're very confident in the future of where we're going. And so we look forward to giving you updates at future calls. as we continue to progress and advance the company. So, again, thank you very much for your time today.
spk06: And that will conclude our conference call today. Thank you for participating. You may now disconnect. Everyone have a great day.
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