Aziyo Biologics, Inc.

Good day, ladies and gentlemen. Welcome to the EzeoBiologics Second Quarter 2023 Financial Results Conference Call. If you know you would like to ask a question, please press star 1 on your telephone keypad to join the queue. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Matt Steinberg with VIN Partners.

Thank you, Operator, and thank you all for participating in today's call. Earlier today, Zio released financial results for the quarter ended June 30th, 2023. 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 the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act 1995. Any statements contained in this call that do not relate to matters of historical facts 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, future financial performance, and expectations for our product development and sales 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 factors section of our public filings with the SEC including ASEO's annual report on Form 10-Q for the quarter ended June 30, 2023, to be filed with the FCC, accessible on the FCC's website at www.fcc.gov. Such factors may be updated from time to time in ASEO's other filings with the FCC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 14, 2023. ASEO 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. And with that, I will turn the call over to ASEO's CEO, Randy Mills.

Thank you, Matt. Today, I will discuss our second quarter results and the progress we continue to make on our strategy to transform ASEO into a drug-eluting biomatrix company. Matt Ferguson, our CFO, will then discuss our financial results in more detail. After that, we'll open the lineup for your questions. First and foremost, I would like to address the recent events surrounding our viable bone matrix products within our orthopedics business. Patient safety is and always will be our priority. Patients are at the heart of our organization's mission and motivate us each and every day. Last month, we were contacted by the Center for Disease Control regarding a patient who had developed symptoms consistent with mycobacterium tuberculosis or MTB infection following the implantation of one of our viable bone matrix. We immediately initiated a voluntary withdrawal of these products and opened an investigation in cooperation with health and regulatory authorities. A review of the production records indicated that samples from the specific lot of bone matrix had been tested and found negative for MTB prior to release. This pre-release test is part of our standard operating procedures and exceeds guidelines set by both the AATB and FDA. It was also conducted by an independent laboratory using a nucleic acid assay specific for MTB. So far, additional testing of this same lot, both by independent laboratories as well as the CDC, have not detected the presence of MTB via either nucleic acid testing or culture methods optimized for TB. We continue to work closely with the FDA and the CDC to further investigate the circumstances surrounding this event. Now let me turn to our progress of transforming Azeo into a high-growth drug-eluting biometrics company. As previously communicated, we are focusing the company on what we believe to be our highest value-creating assets, namely kangaroo and simpleter. Here's what we are doing to make this vision a reality. First, we signed an exclusive distribution partnership with Lemaitre Vascular for our cardiovascular product lines. And as you can see from our second quarter results, the partnership is off to a strong start. Second, we engaged an investment bank to help divest our orthopedics business. We have received strong interest and are negotiating multiple LOIs at this time. We are working through the process to find the best home for this business, one where the acquiring entity appreciates the value of our stellar orthopedics team. Our goal is to get this divestiture wrapped up as quickly as possible. These moves enable us to focus on what we think will drive both short and long-term value for the company, our drug-eluting biomatrix technology. This is our unique and proprietary platform that combines the benefits of biological matrices for soft tissue repair with powerful drug-eluting activity designed to target specific surgical needs. We are building this platform on two established biologic product lines, Kangaroo, our extracellular matrix product line for CIED placement, and Simpliderm, our Acellular Dermis product line used in breast reconstruction. Both are safe, sterile, and ready-to-use implants with years of clinical data to support their use. Our most advanced drug-eluting biomatrix product is Kangaroo RM, for which we hope to have cleared in the first quarter of 2024. Kangaroo RM should be the second entrant into the drug-eluting pouch market for pacemakers and implantable defibrillators. Currently, the only antibiotic-eluting pouch on the market is Tyrex, a synthetic product marketed exclusively by Medtronic. Medtronic acquired the product line for approximately $200 million back when Tyrex was early in its launch. Since the acquisition, Medtronic has done a nice job developing the market, and it's now estimated that worldwide, Tyrex does between $200 and $300 million in revenue and currently addresses about one-third of the U.S. market. Because of these dynamics, we think that Kangaroo RM is will become a highly valuable asset that can help capture not just pouch, but CIED market share for a strategic partner. We also think that it is a product that physicians will prefer given the benefits of a biologic envelope that turns into a patient's own healthy tissue instead of one made from a synthetic polymer. Therefore, we believe that the approval of Kangaroo RM should represent the creation of several hundred million dollars of value for Azeo, making it our greatest near-term opportunity. And behind Kangaroo RM, we see a similar opportunity for our Simpliderm product in breast reconstruction. Given that background, let me provide a more detailed update on our progress towards obtaining FDA clearance for Kangaroo RM. We had previously submitted a 510 for Kangaroo RM that resulted in the issuance of a not substantially equivalent or NSE letter. The silver lining of that letter is that we were given the explicit list of outstanding items needed for us to demonstrate substantial equivalence and to gain market clearance. In total, there were four items listed. Two were administrative in nature. The FDA requested that we provide them with information on a test method and requested a few specific document numbers. The other two items that were more substantive in nature related to our in vitro elution method performed as a quality control step in the device manufacturing process. This test is used to show a consistent rate of drug release from batch to batch. FDA requested that we, one, develop an accelerated IVE method that can be completed within 48 hours or less, and two, establish lot release criteria of greater than 80% elution within that timeframe. Now, this is challenging for an extended release product, such as Kangaroo RM, since the product is designed to elute the drug over days and weeks, not hours. So to better understand this request, we met with the FDA soon after receipt of the NSC letter. FDA provided helpful clarification in their request and expressed to us that their interest was in a tool to assess lot-to-lot variability that ensured the label claim was represented accurately. Importantly, they did not have concerns about the actual label in vivo performance of the product. FDA also clarified that certain conditions could be adjusted to facilitate the acceleration of the test and provided options such as changes in pH, the addition of detergents, and agitation that were acceptable to the agency. With this information, the teamwork could generate elution profiles under these accelerated conditions. For the sake of time and because they represent new intellectual property, I'll spare you the details, but here's what matters. This graph represents a curve that we had under the original conditions. Notice that the curve plateaus in the 70% range with 48-hour results of only 75% drug release. Now, here's a curve that we were able to create under the accelerated conditions. As you can see, drug release exceeds the 80% threshold by 24 hours and reaches 93% at 48 hours. We believe this new method to be fully responsive to FDA's request and are now in the process of completing the work necessary to put the new test into practice. We will be discussing this data with FDA prior to resubmission to make sure our filing is fully responsive to their needs. We expect to have all of this work completed, compiled, and submitted for review by the end of the year. Since the review clock for the 510 is 90 days and we are only updating the specific items in the NSE letter, we hope to gain clearance sometime in the first quarter of next year. We will, of course, provide you with updates along the way. And with that, I'll turn the call over to Matt Ferguson, our CFO, for the financial update.