Elutia, Inc.

Greetings. Welcome to a Lucia fourth quarter and full year 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 will now turn the conference over to Matt Steinberg with FinPartners. Thank you. You may begin.

Thank you, Operator, and thank you all for participating in today's call. Earlier today, Ellucian released financial results for the quarter and full year ended December 31st, 2023. 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 the federal securities laws, which are pursuant to the safe harbor provisions 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. All forward-looking statements include 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 can 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 section of our public filings with the SEC, including Aleutia's annual report on Form 10-K, year-ended December 31, 2023, to be followed with the SEC, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Aleutia's and other filings with the SEC. The conference call contains time March 7, 2024. Ellucius explains any intention or obligation, except as required by law, to update or revise any financial projections or forelooking statements, whether because of new information, future events, or otherwise. Also during this presentation, we refer to gross margins, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results release for the fourth quarter ended December 31st, 2023, which is accessible on the SEC's website and posted on the investor page of the Alicia website at www.alicia.com. And with that, I'll turn the call over to Alicia's CEO, Randy Mills.

Thank you, Matt. I am super excited to be with you today and to share the story of Alusha. Our mission, humanizing medicine so that patients can thrive without compromise. We're going to talk about that word compromise today and what that means, particularly with our flagship product that we're in the process of getting ready to launch, Kangaroo RM. Thank you. But what we're really trying to do is we're trying to take away those instances in patient care where patients and physicians are forced to choose between two options when, in fact, we could actually give them both. So Alusha's a commercial stage company. We have two proprietary product platforms, Kangaroo, which is for our pacemaker and an internal defibrillator space, and Simpliderm, which we use in breast reconstruction. But more importantly, and I think what a lot of people are on the call today, We are pioneering the drug-eluting biomatrix to solve some of the most complex problems that exist. I'm going to be giving an update in this, and I'm super excited to do it, where we're going to be talking about our regulatory progress that we've made. We're really excited about that, and we're really excited about moving on and watching this product. So let's just jump right into it. For the year... We had an exceptional year. We had a transformational year at Aleutia. And I couldn't be more proud of this team. Our commercial teams kept their eye on the ball, delivered 3.4% growth in Kangaroo and a stunning performance. 38% growth in Simpliderm. All the while, we were making these rather significant strategic shifts within the company, but everybody kept focused and kept their eye on the ball and really did a beautiful, beautiful job commercially and operationally. From a development standpoint, as many people on this call know, we submitted our 510k free market notification In December, the FDA accepted that application, and that review is progressing really pretty much exactly the way we expected. We have not had any requests for any new data. We've had some requests for clarification. But we are looking squarely at a clearance decision expected in the first half of 2024. And we believe actually this is really going to be a May-June timeframe. But from us, from our standpoint, where we are, everything is, we believe, right on track. In preparation for that launch, we have established a strategic advisory committee to help us prepare and get the most value out of Kangaroo RM launch. Kangaroo RM is a very transformational event. We think this is This is a transformational product for the company, and we need to make sure that we're able to position it in a way such that we can realize not just the most value for the product, but the most value for the company. So with that in, we've established a strategic advisory committee that really has the best Been there, done that, minds from the space. We're talking about leading executives from the pacemaker and implantable defibrillator space, people that have led significant marketing and commercial launches of sophisticated biologic products. Obviously, business development is in there, as well as reimbursement and hospital penetration. So we're really first-class group advisors. to help us make sure we get this launch right. And then lastly, one of the things that I'm very proud that we do at Aleutia is execution. And we continue to execute. We announced last year that we divested our orthobiologic business, but the group handling that kept their eye on the ball, and they actually closed that divestiture, bringing in gross cash proceeds of $14.6 million. So thank you to the team all around for an exceptional year. Just a quick overview on what we do. So, Aleutia is developing the drug-eluting biologic really to reduce and remove The complications that exist at the device host interface. And so when a surgeon implants a device into a patient that's going to be there for a long period of time, there are a number of complications that arise quite predictably. Things like device migration, erosion of the device through particularly thin skin patients, obviously infection, and pathologic fibrosis. which can lead to things like capsular contracture. And when you look at the two markets that we're in, pacemakers, we're seeing complication rates here 7% to 11%, breast reconstruction at a stunning 20%. So we think this is an area where we can go and add really significant value and improve outcomes for our patients. So how do we do that? Well, we do that with the drug-eluting biologics, again, which is able to solve these problems without compromise. We don't think a patient and a physician should have to decide, hey, should I go with the device that offers pharmaceutical payload and drug efficacy? Or should I go with the natural biologic that'll remodel into the patient's own natural tissue and have a lower byproduct response? We look at that and we say both. Both should be the answer. And so that's why we've developed the drug-eluting biologic that provides all of those benefits of an active pharmaceutical payload, but on a regenerative scaffold that enables it to regenerate in the patient's own healthy tissue. let's get into kangaroo and kangaroo rm so a little bit of a landscape of overview here from a commercial standpoint each year there are about 500 000 cids this is a term that we use for pacemakers and internal defibrillators that are placed into patients in the united states alone when you look at that market space medtronic has 40 approximately of that space Boston Scientific and Abbott have another 50%, and then Biotronic, a distant fourth, at about 10%. But this is some really interesting market dynamics that this sets up, because only one of these players actually has an antibiotic-eluting pouch, and that's obviously Medtronic. But all of them have really, really significant pacemaker business. We should talk about Medtronic a little bit and their product, Tyrex. So Tyrex was actually developed by the Tyrex company back in the early 2010s. It is a synthetic polymer envelope that as it dissolves in the body, it releases antibiotic. And this product took a while to develop, but it eventually got its clearance from FDA in 2014. And shortly after clearance, Medtronic was able to acquire this product for about $200 million. Again, this is in 2014 numbers. And they have since just knocked it out of the park. So they've grown this product to about $250 to $300 million by our estimates. And they've really done a great job. They've really done two things here. So, you know, first... They were able to have a foresight to pay $200 million in 2014 when there was no market for this technology. They had to create the market. The second thing that they did was they actually proved out that this market could exist and that the value proposition to physicians, and particularly electrophysiologists, about local antibiotic delivery really worked. These physicians like the idea of having a local antibiotic present with their surgery so that they don't have to worry about a postoperative infection. But Medtronic did a great job here. But Tyrex isn't a perfect product. And that's why we developed Kangaroo RM. Tyrex does a really great job eluding antibiotics, rifampin and minocycline, but it doesn't have any of the benefits of biologics. Like I said, it's a polymer that dissolves in the body. We like the idea of using biologic scaffolds because for a couple of reasons. One is a biologic scaffold around the pacemaker fits and forms really like a glove. It gives the physician great fit and feel. There's less information. inflammation, therefore there's less pathological remodeling, change-outs easier, and that's better for the patient in the long run. And it all remodels into the patient's own tissue. So again, this was an example where we looked and said, there is an opportunity where a patient and a physician are having to make a compromise, and we can remove that compromise. We can help patients thrive without compromise, and we've done a pretty good job of that with Kangaroo RM. We went out and we talked to electrophysiologists about this concept. It was stunning. 88% of electrophysiologists, and these are Tirex users, 88% of electrophysiologists that use Tirex would start using Tangeroo once the product became available, 88%. And we think that gives us a really, really great opportunity to move into the $600 million market and actually have some really great penetration. So back to our market, our favorable market dynamics slide here, sort of the payoff of this. So when you look now, you overlay the drug-eluting envelope on top of this. You have Medtronic sitting there with Pyrex, and they do about $250 to $300 million in Pyrex cells. And then you have Boston, Abbott, and Biotronic, and they don't have a pouch between them. Now, here's what we found was really remarkable. We started doing our own internal market research. 50 to 75, and it's probably more like 70 to 75% of Pyrex is actually used on non-Medtronic pacemakers. So a lot of Tyrex is going on to a Boston Scientific or an Abbott pacemaker. And we think when you sort of, when you look at this all together, this does two things. One is it creates a great opportunity for us to go out and launch this product. We are viewed kind of like Switzerland here. It doesn't matter whether you're Boston or Abbott or Biotronic, if you're going to ask them whose drug-eluting envelope would you rather have in your case, Ellucias or Medtronic, they're going to say Ellucia every single time. Why? It's simple. We don't make a pacemaker, and Medtronic does. And so that's a real great opportunity for us to go out and take this really low-hanging fruit of $70, $75 million tire exhale, but really 60% of the market that's essentially uncontested right now in this space. But if you also look at it from the company's point of view, you're talking about a plug-and-play product here. Could do $100, $150 million, we're estimating. Gross margins in the 70%. There's no additional selling costs, right? Because these players are already in every one of these cases anyway. And so, you know, you do the sort of the math on that. You're dropping something like $90 million a year to earnings. Look at their PDEs, somewhere between $25 to $60. And you're talking about a product that could add $2.5 to $5 billion to earnings. in value to these companies. So we are really, really, you can't tell, we are really, really excited about Kangaroo RM coming to market, but we also understand its value and we'll have the discipline and the patience to methodically roll this thing out and take it to market and launch it so that we get the greatest value for both the product and the company. Okay. Now, let's move on to our clearance and our clearance strategy and activities. So we filed, as you guys know, we filed this 510K December 18, 2023. We did that after meeting with the FDA at a pre-submission meeting. The interactions stopped. since that that we've been having with the FDA have actually been very positive and they're going exactly as we thought, as we stated on this call a number of times. We expected we were going to be asked questions and we haven't asked questions. Fortunately, they've all been really of the clarification variety. And importantly, the FDA has asked actually for no new data in this. So we believe we are in really, really good shape here, as I said, lining up for what we think will be a favorable clearance decision the second quarter of May June timeframe if you're scoring at home and we are therefore internally preparing accordingly for the launch of this product in the second half year that's why we have strategic advisory committee we're also doing work with reimbursement getting ready to get on value-added committees pulling up manufacturing and all of those other things. And then just as a reminder, we're not done with the pacemaker space. We actually expect to get approval in indications like NeuroStim, Parkinson's, and sleep apnea and the like. And so there is a bigger future here for Kangaroo RM than just the pacemaker market. But we're going to make sure we don't trip over the goal line here. At least we're going to do our best to do that. Turning now just quickly to SubLidder, I will not bore you guys going over breast construction 101 again. Just to point out, this is a really huge market with a really big unmet medical need. There's about 151,000 mastectomies in the United States each year that are of the variety that require breast reconstruction. That's where we come in with our SubLidder products. We look at how this is going here. Similiderm, we say it's just simply a great product. It has better handling characteristics. It is pre-hydrated. What that means is it actually comes to the surgeon. They open it up, and it is ready to go. It's already moist. It doesn't require soaking or anything like that. It's also sterile. This is a product that's been terminally sterilized, and we've been able to demonstrate that it invokes a lower inflammatory and therefore fibrotic response. So the surgeons that use this product love this product, and they keep using it. So that's why we've seen growth of this product quarter after quarter after quarter after quarter. And this year being no exception, 38% growth. So we distribute this product two different ways. One is through our own proprietary network of distributors. The other is with Sientra, which owns 23% of the breast reconstruction place. And between these two, they are crushing it. So we see really, really good things ahead for SimpliDerm going forward. Our end goal here is to obviously combine our RM technology with this base scaffold of SimpliDerm and create SimpliDerm RM to be able to go after and help those women who experience post-operative infections following breast reconstruction. With that, I will inhale, take a breath, and turn the call over to our Chief Financial Officer, Matt Ferguson.