Elutia, Inc.

Greetings. Welcome to the LUCA Q3 2023 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, David Carey of FinPartners. You may begin.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Lucia released financial results for the quarter ended September 30, 2023. A copy of the press release is available on the company's website. Before we begin, I would 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 of 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. Over-looking statements including without limitation those relating to our operating trends and future financial performance 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 this and description of the risks and uncertainties associated with our business, please refer to the risk factor section of the filings with the SEC, including Aleutia's annual report on Form 10-Q for the quarter ended September 30th, 2023, to be filed with the SEC, accessible on the SEC's website at www.sdc.gov. Such factors may be updated from time to time in Aleutia's other filings with the SEC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 13, 2023. ELUSHA disclaims any intention or obligation, except required by law, to update or revise any financial projections or overlooking statements, whether because of new information on 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 the most directly compatible GAAP financial measure. It's available in the company's financial results release for the third quarter end of September of the year 2023, which is accessible on the SEC's website and posted on the investor page of the Alusha website at www.alusha.com. And with that, I'll turn the call over to Alusha's CEO, Randy Mills.

Thank you, David, and thank you all for joining the call today. Last quarter, Alusha was born, and we are excited to tell you all about it. Today, I'm going to discuss our very strong third quarter results and the significant progress that we have made advancing our Kangaroo RM FDA submission. Matt Ferguson, our CFO, is going to go over our financial results in detail. And after that, we're going to open the line up for your questions. Since we have so many new listeners on the call today, I would like to start out by providing an overview of Ellucian so that everyone has a solid understanding and proper context in which to evaluate our business strategy and performance. We think that the more you know and understand, the more you will like Ellucian. Now, as a CEO that's been doing this for more than 25 years, I've come to realize that any great success first starts with a great team. And over my past 25 years, I can honestly say that the collection of people that I get to work with in and out on a daily basis form my greatest hits album of leadership teams. And not just because they are remarkable people with remarkable pedigrees that have claim to tremendous ego and attitude, but because each of them shows up each day with a humble but confident, relentless Aleutia First mindset. And it is such a joy and honor to be a CEO with this remarkable team. Aleutia is a commercial stage company that is working with a set of proprietary platforms in both the CIED, or pacemaker, and breast reconstruction spaces. So Kangaroo RM is our product line in the CIED space. Simpliderm is our product line that's primarily used in breast reconstruction. And what we're doing is pioneering the drug-eluting biomatrix. We'll talk more about this today, but we believe the drug-eluting biologics matrix can solve problems unaddressed by available alternatives. And we expect to launch our first of these, Kangaroo RM, in 2024. And Kangaroo RM has the potential to be a real blockbuster. It's entering a market with over $600 million in market opportunity and only one other competitor. And from there, we intend to leverage this drug-eluting biologic platform into adjacent markets such as neurostimulators, sleep apnea, and drug pumps. And so our mission here at Aleutia is this concept of humanizing medicine so that patients can thrive without compromise. And let me show you a little bit about what we think that means. When you implant medical devices, serious challenges and problems can arise. And while medical devices have gotten more sophisticated over time, it's often that actual last mile of care where a problem can develop. So for example, I'm going to... leave my comments specific to pacemakers and breast reconstruction here. But for example, device migration. So a pacemaker that's implanted into the chest wall can literally migrate down the chest wall, putting tension on the leads and actually causing lead failure. You can have hematoma formation or a lot of blood and bleeding after implantation. The device can literally erode through the thin skin tissue of patients and start expelling itself out of the body. Infection can develop. This is a problem both with pacemakers and especially in breast reconstruction. And then lastly, there's this concept of pathological fibrosis and contracture. And when we look at our primary markets, pacemakers and breast reconstruction, we see some pretty remarkable procedure failure rates, seven to 11% procedure failure rates in pacemakers, 12 to 20% failure rates in breast reconstruction. And this doesn't have to be the case. And so this is what we are looking to solve at Aleutia. Aleutia is breaking silos that are leading to the development of great solutions. So when a pharma company sees a patient with one of these problems, they see a company that needs a drug. When a device company that sees a patient with one of these problems, they see a company that needs a device. A biologics company sees a patient that needs a biologic. We actually just see the patient. And by breaking down these historical silos that have existed, we can actually create great solutions, solutions that are greater than the individual parts. And that's where we have developed this concept of the drug-eluting biologics, breaking down the silos between pharmaceutics, biologics, and devices, allowing patients to thrive without compromise so how do we do that well we we start by a great base biological material an extracellular matrix or a cellular dermal matrix in our cases that provides the necessary structural support plus the biological response that reduces inflammation and fibrosis We combine that with a specific therapeutic payload that gives us strong, powerful pharmaceutical activity such as antibiotics, in our case, and we have technology that allows for those antibiotics to be delivered over a sustained release profile. And you put those things together and you end up with a drug-eluting biomatrix, which gives durable structural integrity, enhanced surgical site healing, targeted therapeutic delivery that all remodels into the patient's own healthy tissue when it's over. So there's nothing left to be rejected. There's nothing left to be expelled. There's nothing left to be explanted. And so we're super excited about that, and we think we can own this space. we spent a lot of time and we've spent a lot of money developing this technology and so therefore we've also created lots of layers of protection around it so over 40 issued u.s patents exclusive licensing agreements for the technology including specialized manufacturing facilities and most recently proprietary product release assays that relate to meeting regulatory requirements for how you might introduce these types of drugs on to the market. All of this is in service of creating value by protecting this platform that we've developed. So with that, let me turn my remarks over to the specific products. So our two product platforms are Simpliderm, which is used in the breast reconstruction space, kangaroo, which is used with our cardiac implantable devices such as pacemakers and internal defibrillators. So again, Simpliderm and breast reconstruction. Let me start first with a little bit of background on the role of a biomatrices in breast reconstruction. So unfortunately, about 13% or one in eight women are going to develop some form of invasive breast cancer. and that's going to lead to a mastectomy. 151,000 times a year, that's going to require reconstruction, and that's in the U.S. alone. There's basically two procedures where breast reconstruction or how breast reconstruction is done that uses a biomatricy. One of them is this procedure called the subpectoral. And in this procedure, the... And the implant is placed underneath the pectoralis muscle. And in that case, what you end up with is a gap between the inferior margin of the pectoralis muscle and the chest wall. And that gap needs to be spanned with a biomatrix. The other is called pre-pectoral. And in this case, you actually take the implant and sit it directly on top of the pectoralis muscle. And in this case, you really need a biomatrix to keep it, one, from moving around, either from side to side or falling down, and two, from preventing this phenomena of erosion, which we've talked about before, where the device can wear against the thin skin of the patient it's being implanted to. Now, Alloderm is the market leader in this space, and this technology has been around for a very long time. It's been around for over 25 years. But in that time, the science has advanced, and it has advanced quite significantly. This Alloderm product, which was developed by LifeCell, ultimately was acquired by AbbVie in 2020 as part of the Allergan acquisition. AbbVie de-emphasized marketing alloderm, and that created an opening for Simpliderm. And that opening for Simpliderm allowed surgeons to try it. And when they did, they loved it because we believe it's superior technology. And so here we are sitting on this $1.6 billion opportunity to improve outcomes in breast reconstruction with a product, Simpliderm, that is simply a great product. It has superior handling characteristics. It comes ready to use, pre-hydrated, and sterile. Because we've gotten really good at understanding biologics remodeling, we have a product that's designed to lower pro-inflammatory macrophage and TNF alpha response, which leads to lower fibrotic response, which we know has a direct and positive effect on things like capsular contracture. And surgeons can see these results for themselves. We market this product through a very effective distribution network. So we have a highly trained group of proprietary distributors that have taken this product into the surgical suite. And we have recently augmented that with the addition of Sientra. Cientra is the number three player in the breast reconstruction space and have 23% of this $1.6 billion market. This partnership to us adds 50 new reps, and you can really start to see this. Our performance with this product really speaks for itself. So for the quarter, SimpliDerm's up 44%. It's crossing the $10 million annualized run rate And we're just at the front end of actually seeing Ciantra contribute to this performance. So we're super excited about this product and where it can go, both with our own proprietary network and with the addition of Ciantra marketing. Now let me turn over to our Kangaroo product line. Kangaroo is our biologic envelope that helps stabilize pacemakers and internal defibrillators. It is the only biologic envelope on the market. And the biologic material, this ECM, helps support wound healing by decreasing inflammation and fibrotic response. It's also the only envelope on the market of any variety that can actually hold these larger subcutaneous cells. implantable defibrillators, which are becoming quite popular, particularly in younger patients. The market dynamics here are worth understanding. So this is a $600 million market in the United States alone, and it only has one other player. What we've done here, and this is something we've been working on strategically, is we have singularly focused our sales team to be able to go after this. We've also strengthened our distribution arrangement by creating a great partnership with Boston Scientific. And this is created for this quarter. This has created our sales growth, which have gone up 11%. And as Matt will talk about on... on actually substantially lower cost of selling. So you might ask, how did we do this? Well, we did it sort of with three things. One is we did a strategic partnership with Lemaitre Medical. This partnership with Lemaitre Medical actually allowed us to take our sales team and focus them directly and solely on the kangaroo envelopes. The second thing we did was we made some leadership changes in the commercial organization. And what we put in were places or we put in people that really understood this technology and understood the science behind this technology and the benefits that that translates to patients. And then thirdly, they went and developed stronger partnership with Boston Scientific. And that all led to greater usage. And that's more customers gaining a greater appreciation for the benefits of using a biological envelope. And that becomes important as we set up to introduce our next generation Kangaroo RM. So Kangaroo RM is our next generation product that has all of the benefits of our biologic plus the addition of powerful antibiotics, rifampin and minocycline, for what we think is a more complete option. We don't view this as a me-too product in this market space. Let me be really clear about that. We view Kangaroo RM as what will be the clear superior product, and we are not alone with that. Our market data And our market research shows that 88% of Tyrex users say that they will switch to a biologic envelope once introduced, provided that it has the antibiotics rifampin and minocycline. So we're really excited about that. And when you look at these market dynamics, it's not hard to be excited. So sort of understanding this, on one hand you have Tyrex on the market. Medtronic has done a great job with this product, growing sales to what we estimate to be somewhere between $250 and $300 million globally. They've really just done a great job demonstrating the need for an antibiotic-eluting pouch. On the other hand, you have Boston Scientific, Abbott, and Biotronic that don't have a pouch. So when Kangaroo RM gets approved, it will be the only other antibiotic pouch in a $600 million market. It's kind of like a game of musical chairs. You don't really want to be left without a pouch when the music stops. And so that's why we believe, upon approval, Kangaroo RM is an extraordinarily valuable asset for us. The question is, is it going to get approved? So let me hit that question head on. We are in the process of obtaining FDA approval for CANG of RM. So, a little bit of history here. We received what's referred to as a not substantially equivalent or NSE letter from the FDA this previous March. Now, important to note is that this review was satisfactory with the exception of four items. That is to say the FDA completed their review of the entire 510 and the entire product and had four remaining items that they wanted fixed before they would grant approval. Two of these items were purely administrative and we feel really confident that we can address. The other two were related to a quality control test. One, the FDA wanted us to develop an accelerated version of what's called an in vitro elution test, or this is where the drug after manufacturing the product, you test to make sure that the drug releases from the product in a controlled and appropriate way. The second thing the FDA wanted us to just generate some data to show that this assay would reproducibly get at least 80% of this drug off of the product. Importantly, the FDA requested no changes to the design of the product or its safety or anything like that. So what we did was we went out and we actually met with the FDA, and we wanted to understand their needs because we wanted to be completely responsive with them. Actually, we met with the FDA twice, most recently in a pre-submission meeting, but I'll get to that in a second. The R&D team then went off and created this new test methodology that the FDA wanted, and we believe we've done that. We believe we have a data package that's fully responsive to FDA's request, and actually in doing so have generated some brand new IP. So this is This is at the heart of what the FDA wanted. It's called an in vitro drug elution test. As I said, after manufacturing, you basically take the product, you put it into a beaker of water, and you watch how fast this drug elutes off of the device and into the surrounding water. Now, What the FDA was actually looking for here wasn't to see how it occurs naturally, but what the FDA wanted was an accelerated form. So this was the first version that we had where we only had 75% of the drug eluded by 48 hours. Now this is because this is what the product was designed to do. The FDA wanted to see, though, was for manufacturing quality control purposes, they wanted to see us to be able to develop an accelerated method for this test where we could use non-physiologic conditions and see if we could reproducibly get the drug off of the device faster. And so that's what the team did. They developed this new methodology by changing the pH and surfactants and agitation and optimizing the temperature it's done and they did it and they did it solidly. So not only do we have 93% of the drug off against the 80% threshold, but we actually have well over 80% off within the 24 hour period. So we're really excited with this with this data package to generate so what's left to do well what we did was we took that that new method and we validated it's one of the things that's required uh obviously if you're going to spend anything like that to the fda we validated that to make sure it was reproducible and robust and then we took that to the fda we recently held a pre-submission meeting with the fda and we previewed uh this uh approach with them um so that we could we could show them the data that we were attending to submit. And we were really encouraged by how that meeting went. So what's left is we're now in the process of packaging up and refiling our 510 in the fourth quarter, and more specifically in December. That submission is focused just on the four remaining items. Keep in mind, the rest of this 510 has already been reviewed by FDA and found to be acceptable. And we anticipate a decision on Kangaroo OM in the first half of 2024. But it's suffice it to say, we feel very, very confident and very comfortable about where we are. in this process. We've taken a very deliberate approach in order to satisfy FDA's very specific requirements, and we believe we've done that. So with that, I'm going to turn the call over to Matt, who will talk a little bit about our financial results, and then we'll open up the call for questions.