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Operator
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.
David Carey
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.
Lucia
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.
David
Okay. Thanks, Randy. So as you've heard from Randy, this has really been a seminal quarter for Lucia, both from an operational and a strategic and from a financial point of view. First and foremost, in this quarter, we announced two significant transactions, two major transactions. The first of those was the divestiture of our Orthobiologics business unit. And that was really important because it, first and foremost, it streamlined the business. It allowed us to focus on really what's important strategically for the company going forward. But it also brought in cash. So it brought in an upfront $15 million, and we'll use that to fund operations and to fund growth. We'll also use some of it to pay down some debt. And then there's also an earn-out associated with this transaction, where in the coming years, we can generate up to $20 million based on the sales of the acquiring company. So that was the first of the two transactions. On the heels of that transaction, that actually enabled us to execute on a private placement financing. And so right after we signed the orthobiologics divestiture, we went out and we brought in a handful of new investors who anchored an important private placement transaction for us where we sold stock and warrants, and the The transaction brought in $10.5 million up front through the sale of stock, and it also, importantly, had warrants attached to that, not warrants that are going to hang out there for a long, long time. These are warrants that are cash exercise only, and they actually expire 30 trading days after we receive FDA clearance for Kangaroo RM. So as Randy talked about, we expect that to happen in the first half of 2024. And so when that happens, that should translate to another $16 million of cash that we receive basically on the same terms as the original financing. So very exciting. Together, these two transactions really put us into a great position and allow us to really focus on operations and executing against our strategy. And we have already been executing against that strategy. In the third quarter, as Randy mentioned, we had great commercial performance, great operational performance. We grew revenue to $6.1 million. And now this is on a new presentation basis, which really presents the company just based on continuing operations. So 6.1 million in revenue, that's up from the prior year. But importantly, when you drill down on that, you look at Simpliderm growing 44% year over year, Kangaroo growing 11% year over year. And then even more importantly than that, when you look at the efficiency of that commercial execution, we can see that a year ago to generate the revenue from the third quarter of 2022, We actually used 76% of that revenue as we spent 76% of that revenue to generate it. This year, third quarter of 2023, that number was down to 46%. So just a dramatic change in terms of the efficiency of the operations and how much it's costing us to generate those top line results. And we expect that to continue to improve as we move forward. Overall, operating expense declined by $1.7 million. A big chunk of that was in sales and marketing, like I just talked about, but we also saw declines in general administrative and R&D expenses. So, really, all parts of the business are operating effectively and efficiently. From a gross margin perspective, we were at 60.2% for the quarter. Again, the financial profile of the company really has improved, much more of a high margin, high growth company when you look at just the proprietary products that we are operating with now. That's 62.2%. If you look at the two main categories, Kangaroo and Simpliderm, Kangaroo was at 66%, Simpliderm at 54%. So we're really pleased with both of those areas, but we also see opportunities to continue to improve those numbers over time. And then just touching on cash for a little bit, we talked about the transactions that we completed in the third quarter. Both of those really will make a big difference in our cash position. We ended the quarter at $14.5 million in cash, and that was up from $9.3 million at the end of the second quarter, so that's a $5.2 million increase. So that reflected the $10.5 million that we brought in from the financing. offset by a cash burn of approximately $5.3 million, which was in the range of what we were expecting. And that does not yet include the benefits or the proceeds from the orthobiologics divestiture, which just closed just last week. So, looking forward, we do expect cash to increase again as we move through the fourth quarter into the year end. We'll have the orthobiologics divestiture, which will add to our cash balance. We'll have a cash burn as we transition the business into this new operating profile. It will probably be about the same as what we We burned in Q3, so in that $5 million range. But then we expect to see that cash burn number come down as we move through 2024. and uh uh overall we feel like we're really well positioned to kick off the the coming year in great shape so to sum up uh you know we dramatically strengthened our balance sheet uh through these transactions that we executed on during the quarter we saw tremendous top line growth from our proprietary products kangaroo and simpliderm and we're also really seeing the benefits of the expense control measures that we've been putting in place over the last several quarters But when you look at our operating expense profile and our margin profile, we're really starting to see those results show up in black and white. So we're very much looking forward to continuing to execute on this strategy, and we're looking forward to reporting on our progress in the coming quarters. With that, I'll turn it back to Randy before we take questions.
Lucia
Alusha is born, and as you can tell, like all proud parents, We like to talk about it. It's a great company. We think it's in a great position executing, firing on all cylinders, growing at 26%. We've got, we think, a great future with Kangaroo RM, our first drug-eluting biologic, which we expect on the market in the first half. of next year. And lastly, we have the team and resources to get this job done. And so with that, I'm going to turn the call over to the operator and thank you all for joining us today.
Operator
Thank you. And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Participants use the speaker equipment. It may be necessary to pick up your handset before pressing the start keys. Our first question comes from the line of Ross Osborne with Cancer Fitzgerald. Please proceed with your question.
Ross Osborne
Hey, guys. Congrats on the progress. Thanks for taking our questions. So starting off, maybe just on the new rebranding and Alusha, you're now 100% focused on kangaroo and cephaloderm offerings. Have you seen the shift in focus affect your Salesforce mindset yet to further push Kangaroo? Is there a potential to get Kangaroo growing faster ahead of RM?
Lucia
So thanks, Ross, for the question. We absolutely have seen a shift in mindset because of focus. Recall that prior to our deal with Lomate, we actually had that Salesforce mindset between our cardiovascular product line and our bio envelope product line, Kangaroo. And those are very different call points. They're very different procedures and surgeries. And that's one of the reasons we think the Lemaitre deal is really so transformational for us, is it takes a great product and it puts it in the hands of a company that's phenomenal at marketing that kind of product. And they're doing a great job with it, and we love that partnership. And it reduced our top line a little bit, which is the only actual reason that you see the sales overall not growing higher. It's just because of the way we're recognizing that revenue. But that's been a great move for us in cardiovascular. But as you said, Ross, what it's done is it's allowed this Salesforce to really focus up on kangaroo. And the new leadership there has helped as well. So we have Kimberly Mulligan who's gone in there and, you know, former Medtronic person that's been with us now for the last 14 years. really understands technology. She actually has a PhD from Wake Forest in regenerative medicine and understands the systems really well and has created a collaborative relationship with Boston Scientific and with others. And you're starting to see that product move, but you're starting to see it move because we're selling on the science and the technology of the biology. And we think that creates exactly the right messaging going into the launch of Kangaroo RM. Keep in mind, we're going to be going up against, you know, a synthetic, a polymer that releases antibiotics and will have the ability to offer all the benefits of the biologics. So, yes, we do think that that move has... has created focus and that focus is exactly why you're seeing this growth, uh, really resurgence of, of Kangaroo and it couldn't happen at a better time.
Ross Osborne
Okay. Sounds great. And then going off of that, um, and looking at OpEx, you know, it sounds like Burns should improve from here. Um, but assuming REM does get approved, how should we think about the size of your Salesforce ahead of launch, uh, next year, or are you expecting Boston or others to increase their support?
Lucia
Well, we are planning to launch Kangaroo RM on our own. Now, we're open-minded and that could change, you know, depending on what other strategic offers there are. But I'm going to tell you, they'd have to be really, really good offers because we think we have a product that's worth to us hundreds of millions of dollars. And that's not something we're going to let go of. let go of for cheap. The other thing is we have extreme confidence in this Salesforce. So I can't emphasize this team thing enough. We have the right leadership in place. That right leadership has the right understanding and background and messaging in place. Kimberly has that sales team firing on all cylinders, and the message works. Take that and pair it with 88% of Tyrex users want to be Kangaroo RM users. And, yeah, we're going to put some additional resources into those Salesforce ahead of this launch. But we actually think that's going to be money well spent.
Ross Osborne
Sounds great. Thanks for taking our questions and congrats on the progress. Thanks.
Operator
And our next question comes from the line of Frank Tackenden with Lake Street Capital Markets. Steve, we'll see what your question is.
Frank Tackenden
Great. Thanks for taking the questions and congrats on all the progress. Maybe I'll start with just following up on Ross's point about the commercial strategy post Kangaroo RM clearance. Can you just talk about maybe, I know I heard your comments around 88% of Tirex users mentioned that they would likely switch over to the Kangaroo RM product. But maybe talk about where you think you can take share most easily. Obviously, it's a Medtronic sale on that side. But then Abbott and Boston have big opportunities as well. But maybe the Medtronics are more familiar with the benefits of an envelope. So maybe just talk through where you think you can take the most share and how you expect that to play out throughout next year.
Lucia
thanks frank so i think one of the great things about this this market and really the service that medtronic's done is medtronic's created awareness around the need uh for the product and again this is our our estimates but based on our estimates it appears that mark that medtronic is close to 100 penetrated uh with their pacemaker uh users um with uh uh with tyrex and yes it is true that that group is is is already um made made the switch uh and 88 of them would like to as we said would like to become kangaroo users um and so that's certainly fertile hunting ground But they only have a third of the market, you know, roughly in rough numbers. And so there's this other completely wide open white space with something like $400 to $450 million of market that's currently not being addressed by anything. And that's probably because they're being serviced by, you know, the Abbots and, you And the Boston Scientifics and the Biotronics and those reps certainly don't want to be bringing a Medtronic product in there. But it's not that the need for the product doesn't exist. It's not like Medtronics electrophysiologists are doing some sort of high-risk procedure that requires an antibiotic envelope. It's really more of, we think, a market dynamic thing. And that's why we're so excited about introducing this product. Yeah, we can go after 88% of the Tyrex users. This $400 to $450 million opportunity out there that nobody's addressing. And we kind of think we're the Switzerland in there and can go in and and actually be quite effective at taking a lot of that market relatively uncontested.
Frank Tackenden
Got it. That's helpful. And maybe to stay on the Kangaroo RM theme for now, talk us through any clinical strategy you may be thinking through. Do you think you need to run some sort of clinical trial to show the benefits of the drug eludings? pouch, or is it well-known enough via Tyrex's study that's out there? Maybe just kind of talk through that strategy and how you're thinking about it at this point.
Lucia
Sure. First, Frank, we are a science-based, science-first company. So we have done a number of clinical programs. We are also planning for the initiation of of a few trials once Kangaroo RM is approved to continue to show out that, prove out that clinical benefit. We think perhaps the biggest area to show differentiation actually centers around the biological components of it versus the infectious components of it. Recall that that, you know, that Tyrex, you know, that that tire X study required thousands thousands thousands of patients to show a relatively small benefit on infection we look at the overall procedure failure rate and think that there is actually an opportunity where a biologic can go and make and make a big difference so I know Michelle and her team with clinical has a number of studies plan for it and again that's how we intend to market not just Tyrex, but all of our products as a science evidence-based company.
Frank Tackenden
Okay. And then maybe the last one for me, switching over to Simpliderm, how should we think about a steady state growth rate in that business? Clearly it's growing very quickly right now, but a couple of moving pieces with the Sandra partnership coming online. So I was hoping you could talk through some of the moving pieces and how we should think about the growth rate in that line.
Lucia
So Simpliderm, we actually have two different distribution channels for Simpliderm. Our proprietary distributor network, which we've been working with and developing now for some time, and they are knocking the cover off the They are doing, have been doing, and continue to do an absolutely phenomenal job for us. We've augmented that, though, recently with Cientra. And I think it's important to appreciate the magnitude of what Cientra brings, right? So they have about 23% of the reconstruction market. That's about a $1.6 billion ADM market. for us that 50, 50 brand new reps that are working on this product. And we're talking about where we are right now, relatively small numbers. And so they have started contributing the third quarter. They actually were in a prelaunch state. They're starting to ramp up their launch activities. Now, they have the ability to contribute in a very meaningful way for the growth of this product. And right now, we like what we're seeing. As it relates to next year, I would say we're kind of in a wait and see mode. But they have the potential, you know, to not, you know, grow it in the way we have been growing it, but growing it more sort of in the orders of magnitude. kind of realm.
David
That's really what we're hoping to see out of that. Yeah, maybe one thing to add to that, Randy, I would just say that in the third quarter, you know, the 44% growth that we saw in the third quarter, that was fantastic. We were thrilled with that. But really, most of that was driven by our own, you know, existing sales network, distributor sales network. And so we're, you know, we're starting to see some material contributions from the Ciantra partnership, we saw more later in the quarter than we did earlier in the quarter, and I think it's safe to say that we'll see an even bigger contribution in Q4. Where that can go next year I think is an open question, but we are really optimistic about what that can do. We're also really optimistic about what we can do even just with our own distributors, and we think we'll see benefits from both. So when we think about The 44% growth that we saw in the third quarter, that's been, you know, that's really been a bright spot for us almost every quarter. If anything, I would see that accelerating as we go into next year. It's hard to put a number on it right now, but we don't see that tapering off. We see that continuing to grow at, you know, similar percentage rates at least through next year and probably longer than that.
Frank Tackenden
Got it. Okay. That's helpful, Keller. Thanks for all the answering the questions and congrats on all the progress.
Lucia
Thanks, Frank.
Operator
And we have reached the end of the question and answer session, and this also does conclude today's conference, and you may disconnect your line at this time. Thank you for your participation.
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