Elutia, Inc.

Good afternoon, ladies and gentlemen. Welcome to the Alusha fourth quarter and full year 2024 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 call over to David Carey, FinPartners. Please go ahead.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Alusha released financial results for the quarter and full year ended December 31st, 2024. 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. Our forward-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 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 Alusha's annual report on Form 10-K, for the year ended December 31, 2024, to be filed with the SEC. accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Alusha's other filings with the SEC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 6, 2025. Alusha 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. 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 31, 2024. 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 will turn the call over to Alusha's CEO, Randy Mills.

Thank you, David. And good afternoon. Welcome, one and all, wherever you might be joining us from today. Since we pre-announced so much of this, I'll do my best to keep my remarks short and brief, but like the preacher said, once I get started, I often get too lazy to stop. We are really on a tear here at Aleutia. Our mission, humanizing medicine so that patients can thrive without compromise, and we do that by pioneering the drug-eluting biomatrix. We're able to take really complex, highly engineered biological matrices and and couple that with the power of active pharmaceutical agents to come up with products that we think offer really significant and unique value propositions to some of the most challenging procedures that exist in medicine. We're a commercial stage company, and we have two platforms that we're growing off of, LU Pro which is our flagship product, our flagship drug-eluting biologic for pacemakers and internal defibrillators and neurostimulators. And behind that, we have our emerging SimpliDerm product that's often used in breast reconstruction. But we're a company with a lot of focus and a lot of discipline. And so even though we have a technology that can be broadly used across a number of different platforms, We have a very focused strategy for growth, and it goes like this. One, prove out the commercial value of our drug-eluting biologics technology on our LU Pro product platform. Two, drive continued growth with our Simpliderm product line. And then three, really explode the value of this technology by taking our drug-eluting biologics and adding it to other product lines, including our SimpliTerm product line, specifically for use in breast reconstruction and other surgical repairs. That's the high-level strategy for the company, but today I'm going to spend really all of my time focusing on LU Pro and the amazing work that we're doing there, because that's really a tremendous value driver for the company. So, Launching LU Pro. It's going on right now. We are now FDA cleared for LU Pro to be used in cardiac implantable electronic devices as well as neurostimulators. And while it took a while to get here, we've got a real winner on our hands, as I think I hope I'll be able to communicate to you through these upcoming slides. A little bit about the market dynamics that we have underlying this field of using Eliapro to protect a pacemaker that's getting implanted into somebody. So each year, there's about 600,000 pacemakers and internal defibrillators that are placed in the United States. Up until now, Medtronic's had the only antibiotic eluting envelope that's been available to electrophysiologists for use. It's Tyrex. synthetically based antibiotic eluting envelope that does about $200 million a year. And like I said, that was up until now. Medtronic, from a market dynamic standpoint, they have about 40% of the pacemaker market. So that means they're in about 40% of pacemaker cases. And so they had actually a really nice platform in which to introduce Tyrex. And they've done a nice job creating the market for device protection and this concept of an antibiotic-eluting envelope going around a pacemaker. But that leaves 60% of the market, Boston Scientific, Abbott, and Biotronic, that don't have an antibiotic-eluting envelope. and that really don't like the idea of having a Medtronic Tyrex envelope going around their pacemakers. And this isn't something that happens sort of as a one-off. We estimate now that there's about $85 million a year of Tyrex that goes around pacemakers of either Boston Scientific or Abbott and Ike. I'll just share with you, you know, when I say things like, you know, a rep, just the last thing they want to see is a piece of Tyrex around one of their pacemakers. I'll share with you, this is an actual quote I got from a rep. He came up and said, I don't want Tyrex on my cans. It's like ketchup on turkey. It just doesn't go. And I couldn't agree more. We don't want Tyrex on their cans either. And now we actually have a product that we can offer to them that we think isn't just as good as Tyrex, but is actually a much, much better product. And let me sort of explain why. So we have done this marketing survey in the past. It's at 88%. basically of Tyrex users that were polled, said they would switch some or all of their business over to, over to LU Pro once it was, it was released. But now that we're out in the field, right, we're, we're, we're actually getting to engage with these electrophysiologists on a, on a day-to-day basis with an antibiotic envelope and with a, really with a different offering and a different approach to delivering the same powerful antibiotics, rifampin and minocycline, but in a completely different envelope that's not a synthetic base, but instead it's a natural biologic base that fully conforms to the can, we actually get to understand why why they're so interested in a different solution, where this 88% comes from. These are actual direct quotes from electrophysiologists, and they talk about this surface of Tyrex being a very rough surface. It's so rough, in fact, that it doesn't slide easily into the pocket. So imagine you're making an incision into a patient's you take your envelope, you put it, or you take your pacemaker, you put it inside an envelope, and then you're trying to put that into this incision, but it's got this really rough texture. It doesn't slide easily into the pocket. And one of the quotes that really sort of stuck out to me was like, it reminds me of the no-slip coating you sometimes see on garage floors. And you know what? We think we can do better than that. We think that patients should be able to have access to to an antibiotic envelope that delivers these powerful antibiotics that protects them from infection, but it does it in a way that enables them to thrive without compromise. And that is what we do at Aleutia. We are humanizing medicine so that patients can thrive without compromise. And Eliapro, we think, is a really great example of doing that. So in the fourth quarter, which I guess technically we're reporting on now, in the fourth quarter, that was our initial pilot launch of ValuePro. We had just received clearance from FDA, and we needed to basically crawl before we walk, before we run. And so that's what our pilot launch was about in the fourth quarter. And we had three main goals. that we wanted to demonstrate in the fourth quarter pilot launch. One, we wanted to demonstrate operational excellence. Can we make and ship and distribute this product, right? Sounds simple and like blocking and tackling, but if you can't do that, you can't win the game. Second, we needed to obtain hospital and GPO approvals. You can't sell a product inside a hospital if you can't get through the value analysis committees and you can't get through the contracting organizations that make it available to the physicians to use. And then third, we wanted to drive clinical uptake of the product. Can you actually turn it into sales? Will the physicians use the product? And not just once. but will they use the product over and over again? And we are really thrilled. As I think you will see, our pilot launch exceeded all of our expectations across all three of these. And I want to thank the team for doing such an exceptional job with this. In the background of this, and I know I don't talk much about it, but we have a lot of ongoing business development activity um and we are engaged in strategic discussions right now with with with multiple partners and um in time we will have more to say about those but right now we we don't and i hope you understand okay so let's dig into uh what we do talk about and and and what is so important is that we demonstrate the value of elia pros the first thing we need to do is demonstrate operational excellence Now, fortunately, you know, we had a bit of a head start here. So we're manufacturing Eliapro in the same facility that we've been manufacturing our base kangaroo products since 2013. So we had a good head start there with that team in place. That's a facility that has a capacity to do about $140 million in of LU Pro sales without needing much in the way of additional configuration or expansion. So we've got a nice base facility to grow off of. We're also scaling up and growing into what ultimately we believe we will get to, which is a gross margin north of 70% with this product. Super important was that we completed or FDA site inspection of this facility with no deficiencies noted and were able to commence commercial production and did that in full compliance with the regulatory standards. And we're really proud of the organization down there for not just running an operationally efficient organization, but one that puts the quality of product above everything else. Okay, so moving forward from an operational excellence standpoint, we are in a situation of demand where we are needing to significantly increase our production capacity earlier than we had originally anticipated. One of the ways that we're going to be doing this with specificities, we're going to be adding to the work that we bring in-house The ability to manufacture the actual drug-eluting disc technology itself, and that will actually help us not just lower our cost of goods fairly significantly, but it will also increase our overall capacity, which it is every day it becomes more and more apparent that we need that in order to meet customer demand. We're also increasing our testing lab capacity, and this actually has to do with reducing cycle time. Again, all in service of making sure we can get the product manufactured within perfect quality standards and then hit service level so all of our sites and all of our physicians have the product available to them when they need it. Okay. Moving on now to obtaining hospital and GPO approvals. We had a goal in, just to give you an idea of this, we had a goal in the fourth quarter of 25 vacs. We wanted to be able to get through 25 vacs and on contract. We actually ended the quarter with 67 up and running. About 15 new approvals a month. And the reason we're having... such significant success getting through the VAC process right now has really been driven by two separate things. One of them we actually expected, and that was physician support. So we have a lot of physicians out there, right? 88% of Tyrex users are saying, hey, I'd like to be using Eliapro. Well, it needs to get through the vac doc in order to be able to have this product on the shelf. Well, tell me what I need to do. Who do I need to talk to? And we've been getting a lot of support navigating the product through the vac process, and that's been helpful. But the other thing, and we saw this both with the vacs as well as with the GPOs, is that the hospitals and the GPOs really like the idea of having LU Pro on contract so that they have an alternative to Tyrex. Purely, they just don't like having a sole source for any product. And that's really been gratifying, and that's frankly been helpful. It's been a bit of a tailwind in this whole process. So as we look today, not just updating for the quarter, but getting you sort of real-time up to speed, we're at about 100 centers that aren't just through VACs, because we don't count that, that's too easy. They actually have to get through the Value Analysis Committee and actively be ordering the products. We have about 100 centers that are already through that, that are actively ordering the process. We are also through four GPOs, including Premier and S3P, and We have others and we have others coming in that we expect that our conference call coming up for the first quarter, we'll be able to have several new announcements about that. All that to say, we are having a lot of success on this second goal, which was obtaining hospital and GPO approvals. The team really knocked the cover off the ball on this one and we're super happy about it. Okay. None of that would matter if the physicians didn't trust the product, if the physicians didn't think it was the best thing for their patients, and there wasn't the corresponding clinical uptake with it. But we've been seeing a tremendous amount of success here. Expanding our LU Pro Nation. There's a lot of pride in putting LU Pro on. Our team's obviously very excited about it. But our physician partners in this have been also very excited. The operating room teams coming together and say, hey, do we get our LU Pro picture? We want our LU Pro picture to show that we're the first. And the one in the middle there, a really gratifying picture. That's actually the first The first usage of LU Pro in a pediatric patient, and if you think about that, there could be no more meaningful, higher value, more precious life than that of a trial than the group down at Joe DiMaggio. in trusting their patients, their pediatric patients with LU Pro was really a super meaningful event for us as a team. As I said before, we're now being used not just with Abbott and Boston Scientific and Biotronic, but actually across all of the major cardiac implantable electrical devices, yes, even Medtronic pacemakers. are going in with Eliuprol around it, and we're happy to do that. We think, obviously, the best thing for the patients. We're also being used now in neurostimulator device protection as well. That's not a market that we're actually doing a lot of active outreach in yet. We're trying to stay focused in the cardiac space, But we're actually getting a lot of pull into that space, and so that's gratifying as well. When we go and we look at the actual numbers here, we're seeing this strong adoption. So in the fourth quarter, our bioenvelope sales, right, this includes Kangaroo as well as LU Pro. up 18% for the quarter. That had been stagnant actually for now a number of years, so that's a pretty significant uptick for us just in that quarter. You think we probably didn't have, for most of that quarter, we didn't have that many sites activated. So that was a pretty significant uptick. Eliapro during the quarter accounted for about 30% of bioenvelope sales. So that's going from zero to already accounting for about 35%. But what we thought was really an important and interesting statistic, obviously we know the accounts that we have sold Kangaroo into for quite a long time, sort of same center sales. And when we flip that center over to an Alia Pro Center. In those centers, sales increased 65% when we flip into a new center. And that's a big deal. It's what we would have expected, right? It's a better, more useful product that you might be thinking, well, maybe that's a stocking order. Actually, it's the opposite. We saw that the initial stocking orders were actually only about 25% higher. It's actually the repeat orders that are driving it up to this 65% and growing level. So we really think we have a winner here. We've got a product. That's going into a market where there was only one one dominant player doing it was doing 200 million dollars. But it was really kind of a skewed thing because since it's, you know, it's Medtronic's product and Medtronic makes a pacemaker, the other, you know, the other. Companies don't feel all that great about having a Medtronic product around their pacemaker. And so we think if we just had a Me Too product with LU Pro, we'd be able to go into this $200 million of existing business and be able to take a fair share. But we don't think we have a Me Too product. We think we actually have a significantly better product. And we think our initial data is bearing that out. And so we're really, really excited about the way this is going. We've also done a little bit of work on the sales model. So as you guys might remember, we have a hybrid model. We have 12 experienced Aleutia territory managers that manage the different territories in the country. as well as 35 independent reps. And we think that blend gives us the ability to cover the entire country, but in a pretty efficient way. We've seen that that actually is also playing out. So if we look actually in the quarter, how our 1099 or our independent reps performed, they counted... for 50% of the LU Pro sales in the corner. And what that's showing us is why that statistic was important is we can use the 1099 rep model to go in and efficiently penetrate these accounts. For us, it's an economically very efficient way of generating these sales. And we think it speaks to the value proposition that the product has. we're able to do that with our outstanding group of 1099 reps. So driving clinical uptake, the third piece, and we're really super excited about how that went as well. So what are we doing moving forward? Here's the plan for the coming quarter or the quarter that we're in right now. One, continue to drive top-line growth of LU Pro. That shouldn't come as a shock to anyone. Two, keep driving our VAC approvals, our Value Analysis Committee approvals, and our GPO coverage. We have seen that VAC approvals is a really, really good surrogate to top-line growth. If we can get on contract with a hospital, if we can get into a hospital, they will buy the product. So number two, drive VAC and GPO coverage. Three, we're going to be initiating. We've done all of this on our own. Little bitty Lucia all by ourself. But this quarter, we're initiating our LU Pro rollout with our distribution partner, Boston Scientific, that you guys know we've had for a while. We want to make sure we do an orderly rollout of LU Pro through the Boston Scientific team, and there are 900 reps that could easily bury us in demand if we're not careful. And so we are initiating the LU Pro rollout with them this quarter, and we're really, really excited about the impact that they're going to be having on these cells as well. Because of all of that, we need to keep increasing our production capacity. This is ahead of the schedule that we thought we would need. We are outpacing what we thought we would need from a production capacity standpoint. It's a good problem to have. The operations people gladly take on the challenge. And in doing that, we'll naturally be lowering the cost of goods. As we scale up, there's just a lot of natural absorption that takes place there. And then lastly, initiating our registry for the data collection of our clinical subjects for other usage that we're going to have. And then lastly, and I'll turn it over to Matt after this, I promise, come visit us at HRS. It's in my hometown. of san diego this year we're going to be having a an event out there um we'd love to see you at the booth um and if not at the booth at at one of the events we're holding and talking to you and maybe get a chance to speak with some of our electrophysiologists physician partners and learn more about why lu pro is such a home run product for us and with that i'll turn it over to matt ferguson our chief financial officer for some financial updates