5/7/2024

speaker
Operator

Good day and welcome to the NUELIS first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, Investor Relations with Gilmartin Group. Please go ahead.

speaker
spk05

Thank you, Cindy. Good morning, everyone. Thank you for joining us in today's conference call to discuss Noellis' corporate development and financial results for the first quarter ended March 31st, 2024. In addition to myself, with us today are Nestor Jaramillo, New Orleans' president and CEO, as well as Rob Scott, CFO. At 8 a.m. Eastern today, New Orleans released financial results for the first quarter ended March 31st, 2024. If you have not received New Orleans' earnings release, please visit the company's investor page on its website. During this conference call, the company will be making forward-looking statements. All forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends, as well as our estimated results or performance, are forward-looking statements. All forward-looking statements 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. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance in these statements. Please refer to the cautionary statements and discussion of risk in the company's filings for the SEC, including the latest 10-K. With that, I'd like to now turn the call over to Nestor.

speaker
Nestor Jaramillo

Thank you, Vivian, and good morning, everyone. Welcome to New Orleans' first quarter 2024 earnings conference call. On today's call, I will provide an overview of our first quarter performance and give an update on our strategic initiatives. Our Chief Financial Officer, Rob Scott, will then provide detailed commentary on the financial results before opening of the call for questions, followed by my closing remarks. New Well has generated $1.9 million in revenue for the first quarter of 2024, a 2% increase year-over-year, driven by our 11% increase in consumable utilization. Our pediatric customer category once again led the way with 40% revenue growth which was driven by 54% increase in consumable utilization. We continue to grow our pediatric customer category, acquiring five new accounts over the past 12 months for a total of 40 accounts compared to 10 accounts in 2019 prior to FDA clearance. Revenue in our critical care customer category was flat, however, Consumable utilization grew by 9%, and heart failure revenue decreased by 38%, which was driven by lower utilization and consult sales. We are pleased to continue to see a healthy consumable utilization trend signaling strong therapy adoption. Consumable sales in Q1 represented 82% of the total revenue, which grew 11% compared to last year. we continue to balance the strong sales of consumables with the unpredictable capital sales cycle in our hospital's accounts. Our capital rental program provides an alternative to our customers experiencing capital budget constraints with a solution to treat patients with Aquadex. Similar to last year, first quarter capital sales were lower than expected. However, as in the second half of 2023, we expect capital sales to increase throughout the year, as our pipeline of new target accounts is robust. We are confident of our growth momentum in 2024 because of the increased awareness of the efficacy of Aquadex, including recent clinical data reported at the Technology and Heart Failure Therapeutics Conference also known as the THG Conference, in early March. At the late-breaking clinical trial session, the use of the Aquadex demonstrated a clinically and a statistical significant reduction in heart failure hospitalizations and heart failure events at 30 days. This new clinical data is the result of our key priority to continue developing strong clinical and economic evidence for using the Aquadex system to treat patients with fluid overload and who are unresponsive to diuretics. In addition to the steady organic growth in our based business, we look forward to new product sales in our fast-growing pediatric category. In addition to expanding the utilization of Aquadex as we progress our Davida pilot program, which I will provide more details next. Now turning to our recent commercial developments and expected new product introduction. In February, Seastar Medical received Humanitarian Device Exemption, or HDE, from the FDA for its Selective Cypheretic Device, or SCD, branded Qualimune, for use in pediatric patients with acute kidney injury due to sepsis or a septic condition. New Welles has exclusive US license and distribution rights, and we have begun commercializing Qualimmune in targeted medical centers by pursuing IRB approvals in five accounts while simultaneously engaging in preliminary dialogue with other key pediatric institutions. The unique technology behind Qualimmune has demonstrated a 77% ICU survival rate in children with potentially deadly hyperinflammation. We believe this product will have a positive impact on the patient population for which it serves, and we look forward to providing continued updates as this collaboration progresses. We also continue the development of our pediatric continuous kidney replacement therapy device branded Vivian. We, along with many pediatric nephrologists, believe this product will have a positive impact on survival and improve the quality of life of neonates and small children with kidney malfunction, kidney issues, or those born without kidneys. This device is complementary to C-Star Medical's Qualimmune device, and we believe these two products together will add meaningful value to our growing portfolio of products for pediatric patients with fluid overload and renal disease. We continue to advance the pilot phase of our supply and collaboration agreement with DaVita. As a reminder, this collaboration allows DaVita and New Welles to pilot Aquadex therapy for adults, heart failure patients in selected U.S. markets. Pairing Aquadex with DaVita's clinical infrastructure could potentially help accelerate the clinical adoption of ultrafiltration when diuretic therapies are ineffective. We have made introduction in nine hospitals with very positive results. We look forward to providing more specific information during the quarter. In early April, we announced the launch of ultrafiltration therapy for heart failure patients using the Aquadex at Henry Ford Health as part of our pivotal reverse heart failure clinical study. Based in Michigan, Henry Ford Health is one of the nation's leading academic heart failure centers recognized for clinical excellence in heart failure, heart transplant, and left ventricular assist devices. We are honored to be working with them as their heart failure program is one of the largest in Michigan. Dr. Jennifer Cogler, head of the heart failure program, will lead the efforts, and I look forward to hearing her findings as the study progresses. We currently have 123 patients enrolled in the randomized multicenter trial, and Henry IV is the only site in Michigan offering this study intervention. I'd like to now turn it to Rob to discuss our first quarter financial results.

speaker
Rob

Thank you, Nestor, and good morning, everyone. Turning to the Q1 financial results, revenue for the first quarter was $1.9 million, representing a 2% growth over the prior year period, driven by an 11% increase in consumables utilization, partially offset by a decrease in console shipments. Our pediatric customer category had the strongest growth in Q1, with a 40% increase year over year. Pediatric results were driven by a 54% increase in consumables utilization. Critical care revenue was flat, but experienced a 9% increase in consumable sales. Total revenue was offset by a decrease in utilization in console sales and heart failure. Gross margin was 64.1% for the first quarter compared to gross margin of 58.4% in the prior year quarter. The margin improvement was primarily driven by higher manufacturing volumes of consumables in the current year period. Selling, general, and administrative expenses were $4.6 million in the first quarter, a decrease of 16.1% as compared to $5.5 million in the first quarter of 2023. The decrease in SG&A was primarily due to reduced headcount in compensation-related expense and lower corporate administrative expenses. First quarter research and development expense was $1.3 million compared to $1.4 million in the prior year period. Total operating expenses were $5.9 million in the quarter, a decrease of approximately $1 million as compared to the first quarter of 2023. The period-over-period decrease was due to cost-saving measures implemented early in the second half of 2023 and carried forward to the current period as we continue to drive operating efficiencies. We anticipate significant expense reductions approaching 50% through operating efficiency initiatives for the rest of the calendar year. Operating loss in the first quarter was $4.7 million compared to an operating loss of $5.8 million in the prior year period, resulting in a $1.1 million period-over-period improvement. Net loss attributable to common shareholders in the first quarter was $3.8 million for a loss of 60 cents per share compared to a net loss attributable to common shareholders of $6.5 million or $5.76 per share for the same period in 2023. We ended the first quarter with $1.4 million in cash and cash equivalents and with no debt on the balance sheet. On April 30th, New Ellis closed an underwritten public offering with gross proceeds of $2.7 million before deducting underwriting discounts and commissions related to the offering. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

speaker
Operator

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two.

speaker
Nessar

At this time, we will pause momentarily to assemble our roster. Our first question comes from Anthony Vendetti of Maxim Group.

speaker
Operator

Go ahead, please.

speaker
Nessar

Thank you.

speaker
Anthony

So, Nessar, I was just curious on the C-Star distribution agreement. You mentioned it on the call. I was just wondering if you could talk about where that's at in terms of are all your salespeople trained on it?

speaker
Nessar

Have they started selling it?

speaker
Anthony

Do you have expectations on a quarterly basis or by the end of the year for that? And also just talk about the cross-selling opportunities.

speaker
Nestor Jaramillo

Okay. Good questions, Anthony, and good morning. We started to train – we have started already to train our personnel, especially our clinical education specialists. We have target initially two phases. The first phase is five centers, and we are pursuing IRB in each one of them per the HDE requirements. We have, I expect that the clinical personnel from C-STAR will be very involved in these first five sites along with our clinical personnel. Once they are educated, then we move into the next five centers, which all of these 10 centers have been identified. And we have, in terms of the cross-selling, this opportunity with Qualimmune would be very good for us to start talking about our technology that is coming up, because the two devices together would be a perfect combination. Our device will be a pediatric-dedicated CRRT, and Qualimmune is a pediatric-dedicated cytopheretic device. So the combination of the two are going to be fantastic in terms of saving lives and improving the quality of life of children and neonates. Okay, great.

speaker
Anthony

And before I have a couple of cost-reduction questions, I wanted to talk also about you said that during the year you expect capital equipment sales to pick up. When you place a capital equipment or have a capital equipment sale, what is the expected consumable generation for that capital equipment per year? What are the factors that determine that? Maybe just give us a little color into how that sales process works and how that works.

speaker
Nestor Jaramillo

Okay. Well, first of all, I just want to acknowledge that our capital equipment sales have been lumpy, just as we saw in the first part of last year. And we're not the only ones with that situation. I saw the earnings release of two companies, GE being one of them, and they reported a very low capital sales due to all the capital constraints that the hospitals are having. as post-pandemic. So the use of consumables per console in a hospital depends a lot on how much utilization in the different specialty units that the hospital is using the Aquadex. We have centers like Mount Sinai in New York City or Washington MedStar, in Washington, D.C., that they treat 20, 30 patients a month. And this high utilization of the consults, they have anywhere from 6 to 12 consults in this institution. We also have institutions that only have one or two consults, and they probably treat, you know, 5, 10 patients per quarter, as low as per quarter, or as high as per month. So the only driving factor here is how much the doctors are prescribing the therapy to the different patients in the hospital.

speaker
Anthony

Okay, that's helpful. And then switching gears to the cost reduction, I think there was a comment about 50% reduction in cost for this year. In addition to salary reductions and so forth, were there any programs that you have either scaled back or discontinued to hit those targets? And if not, how did you get to a 50% number?

speaker
Nestor Jaramillo

Well, the three initiatives, strategic initiatives that we have been mentioning over the years are three, sales and marketing, reverse heart failure, and Vivian, the pediatric dedicated device. The first two initiatives were not affected, have not been affected. And the third one, Vivian, we are in the final phases of the development and the software development development is the tall pole in the tent. And for that, we are using a lot of consultants on software development. And that was the part that was affected the most.

speaker
Anthony

Okay. And then just lastly on the cash, so $1.4 million at the end of the quarter, $2.7 million was the gross proceeds, I believe, for the offering on April 30th. So what were the net proceeds of that offering that was added to your balance sheet?

speaker
Nestor Jaramillo

Well, it's approximately $2.4 million. Yep, approximately. Yep, that's correct.

speaker
Nessar

About $2.4. Okay, great.

speaker
Anthony

You know, obviously we can try to estimate what the burn rate is per quarter. Internally, with the cost reductions as you're trying to put that all together, as we're in the second quarter here, do you have an anticipated cash burn rate for this quarter?

speaker
Nestor Jaramillo

Well, we believe that with the net proceeds that we received from this last financing, we'll have enough cash until early fall. which would allow us time to execute on three key milestones that we have communicated. Those three milestones are, you know, commercialization of Qualimmune, the C-STAR device, the continuing execution on the Davida pilot, which we expect to have patients starting to be treated soon, and also a potential for a reimbursement change in the APC code. So once we execute on those three milestones, then we can go back to market and do another financing if we need to.

speaker
Anthony

Okay, great.

speaker
Nessar

Thanks, Paul. I'll hop back in the queue. Appreciate it. Thank you, Anthony.

speaker
Operator

This concludes our question and answer session. I would like to turn the conference back over to Nestor for some concluding remarks.

speaker
Nestor Jaramillo

Thank you, Operator. We are confident that our growth momentum in 2024, led by increased awareness of the efficacy of Aquadex and increased therapy adoption, will result in a strong year helped further as hospital capital expenditure headwinds diminish. In addition, we look forward to the new product sales in our fast-growing pediatric category as we commercialize Qualimmune SCD from our exclusive license and distribution agreement with Seastar Medical, in addition to expanding the utilization of Aquadex as we progress our DaVita pilot program. I would like to conclude by highlighting the New Wellness mission which is to transform the lives of patients suffering from fluid overload. Our Aquadex ultrafiltration therapy is the superior method for removing excess fluid from patients suffering from fluid overload, as demonstrated in the THG conference. And it is our goal to reach as many patients as possible to enhance their quality of life. I want to thank all our stakeholders, New Orleans employees, stockholders, physicians, nurses, patients, and healthcare workers in the field. Without your support, we would not be able to achieve key advances in transforming the lives of patients suffering from fluid overload. Thank you for your participation and support, and we look forward to a productive 2024.

speaker
Nessar

The conference is now concluded. Thank you for today's presentation. You may now disconnect.

Disclaimer

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