Avita Medical, Inc.

Good day and thank you for standing by. Welcome to the Avita Medical second quarter conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jessica Eckberg, Director of Investor Relations.

Thank you, operator. Welcome to Aveda Medical's second quarter 2024 earnings call. Joining me on today's call are Jim Corbett, Chief Executive Officer, and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website, www.evitamedical.com under the investor relations section. Before we begin, I'd like to remind you that this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and insurgencies that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Jim for his comments.

Thank you, Jessica. Good afternoon, and thank you for joining us today. I will begin today's call by discussing our financial and business results for the second quarter, followed by our priorities and outlook for the remainder of 2024. Following this update, I will turn the call over to David, who will provide commentary on our financial performance for the quarter before opening the call to Q&A. During the quarter, we focused on addressing the challenges we faced in the first quarter by implementing an enhanced coverage strategy and other strategic initiatives focused on execution. Our commitment to these efforts and sustaining growth are reflected in our second quarter commercial revenue of $15.1 million, which was at the higher end of our previously provided guidance range of $14.3 million to $15.3 million. Additionally, one week ago, we entered into an exclusive multi-year development and distribution agreement with Regenity Biosciences. Through this agreement, following 510K approval by the FDA, we will hold the marketing, sales, and distribution rights to an Aveda medical labeled collagen-based dermal matrix manufactured by Regenity. I will discuss it in more detail later in the call. To further support our growth and strategic initiatives, we have significantly strengthened our management team, with the addition of Robin Vandenberg as Senior Vice President of U.S. Commercial Sales. Robin, who joins us from a distinguished career at Smith & Nephew, is an accomplished executive with a proven ability to drive new product adoption and growth across multiple specialties, making her the ideal leader of our sales organization. She officially joined us earlier this week, and we were confident that her vision and industry experience will be instrumental in expanding our market presence with the ResellGo driving adoption of our portfolio products and accelerating growth. In addition to implementing enhanced coverage strategies, we are beginning to yield results from our full thickness skin defect launch. As presented on slide three of our earnings presentation, we have become more efficient with both the VAC approval process and closing new accounts. In the second quarter, we added 31 new accounts, all of which placed orders. Moreover, we had an additional six accounts receive VAC approval but have not yet ordered, for a total of 37 accounts for the quarter. As a reminder, new accounts are launching with ResellGo from the gate, eliminating the need for conversion. In terms of our pipeline for full-fledged skin defects, we have 52 accounts in the evaluation stage and 37 accounts in the decision stage. For a total in VAC as of July 31st of 89 accounts with a healthy pipeline of additional prospects for the rest of the year. In addition, we have 19 facilities that are in VAC for Permioderm. With that, let's turn our attention to Resell Go. In 2022, I outlined three initial priorities for Aveda Medical, which included a commitment to a next-generation resell device, now known as ResellGo. For those new to the story, the prior version was a single-use, battery-operated manual system used to prepare spray-on skin cells capable of covering a wound area of up to 1920 square centimeters, or approximately 10% total body surface area. Resell-Go prepares the same spray-on skin cells and treats the same wound area, but features an evolutionary design with two components, a multi-use AC-powered processing device and a preparation kit containing a single-use cartridge, disaggregation head, the Resell enzyme, and other components. The Resell-Go processing unit controls the pressure applied to the donor skin to disaggregate the cells and precisely regulates soak time to optimize cell yield and viability. The standardizing of the process produces consistent results. Additionally, these enhancements streamline the preparation and simplify the user interface, reducing the training burden on medical staff and on our field team. On May 29, we received FDA approval for ResoGO for the treatment of thermal burns and full-fitness skin defects. Demonstrating our unwavering commitment to patient care and rapid response, we shipped the first Resell Go the next day. This swift action allowed clinicians, together with our team, to complete the first Resell Go case on May 31, just two days after FDA approval. And yes, the procedure was a success. This extraordinary effort was made possible by the dedication of our entire organization I want to thank each and every team member for their invaluable contributions. Now let's dive into what ResellGo means for our business. Please turn to slide four so you can see for yourself. For those of you participating by telephone, slide four has three images. In the first image, two ResellGo processing devices were used. One device has completed its multi-step process, while the other device had seven minutes left. Given that two single-use cartridges were necessary, we can assume that this patient had a burn injury of more than 10%, but less than 20% total body surface area, as one cartridge can treat up to approximately 10% total body surface area. In the second image, three devices were utilized for this case, indicating a burn injury of more than 20% but less than 30%. One cartridge had been fully processed, and those spray-on skin cells were ready for application, while the other two devices were still in use. And in the third image, four Reselco processing devices are operating simultaneously, suggesting a burn injury of more than 30%, but less than 40% total body surface area. If you find that compelling, please turn to slide five. Here, you see a burn center clinician proudly showcasing not one, not two, but six ResellGo processing devices that were used for a patient with more than 50%, but less than 60% total body surface area. It's hard to see because of her mask, but I can promise you, she is smiling, and so are we. For starters, ResellGo's advanced features not only streamline the preparation of spray on skin cells, but also significantly boost workflow efficiency in the operating room. A physician could start preparing a patient's burn wound for the application of spray on skin cells while the resell go device is processing the donor skin sample. Whereas with our prior resell device design, the physician would still be scraping cells from the first skin sample. Importantly, When the injury exceeds 10% total body surface area, like slide number five, multiple ReselGo processing devices can be used concurrently. This allows physicians to continue delicate and complex patient treatment while the machines are processing, significantly reducing operating room time for patients with major and severe burns and trauma injuries in critical condition. When you shorten the operating room time, a positive domino effect occurs. especially with large burn injuries. Following major burn injuries, patients lose the ability to regulate their core body temperature, placing them at high risk of hypothermia and other metabolic issues. As such, the ambient temperature in operating rooms for surgeries can be upwards of 100 degrees, most commonly around our average body temperature of 98 degrees, depending on the size of the injury and the patient's vitals. Compare that to the average temperature in an office space, which is between 70 to 74 degrees. Thus, shortening operating room time directly benefits the patient by reducing thermoregulatory and hypermetabolic danger. Most importantly, Result Go was not just designed with the clinicians in mind. It was designed for patients, as a reduction in operating time means patients spend less time with open wounds and less time under anesthesia. The faster patients exit the operating room, the faster patients start their healing journey. This is Resell Go. Resell Go, along with the ability to run multiple Resell Go devices simultaneously, ushers in a new era in the treatment of partial thickness and full thickness wounds. We believe integrating Resell Go into patient care empowers clinicians to expand treatment capabilities, reach more patients, and achieve optimal outcomes, thus drive a greater adoption and setting a new standard of care in wound care management. As discussed last quarter, we identified the need for a solution to treat smaller wounds, leading to the development of Resell Go Mini, designed to address small wounds up to 480 square centimeters or approximately 2.5% total body surface area or less. While resale is viewed as highly effective for large burns, it's primarily seen as a large burn solution, leading to underutilization for smaller wounds. Trauma and burden surgeons prioritize clinical utility and often perceive the use of the current large kit for smaller wounds as inefficient. Recognizing that a majority of full-fitness skin defects are smaller than 480 square centimeters, Resell Go Mini is poised to address the significant market need, offering a tailored solution for these smaller wounds. Regarding the timing of Resell Go Mini, we submitted a PMA supplement to the FDA on June 28. This version utilized the same multi-use processing unit as Resell Go, and features a cartridge designed for the smaller donor samples needed for smaller wounds. Importantly, this submission benefits from the same breakthrough device designation that was granted to our existing resale system, ensuring a prioritized 180-day interactive review period implying an approval date of December 27th. Before we move into our new DERMA matrix, I have a brief update on our international expansion efforts. We are making progress expanding into most of the European Union through third-party distribution partnerships. Over the last few weeks, we have executed distribution agreements in Belgium, Holland, Ireland, Italy, and in the United Kingdom, and four Nordic countries. Additionally, the countries of Spain and Portugal are on the near-term horizon. In regard to our European Union efforts, we expect to receive the CE mark for ResellGo this quarter. As demonstrated with our success in the U.S., we are fully prepared to meet the supply demands upon approval. Moving on to our portfolio of products. Last quarter, we showed you slide six, which reflects a broad continuum of clinical needs in burn, surgical, traumatic, and chronic wound care. While resell will remain the cornerstone of our portfolio, we have been actively exploring wound bed preparation and dermal replacement products to complement resell and address this full spectrum of clinical needs. To that end, we had a permioderm in the first quarter and now have an Aveda medical label dermal matrix in development with Regenity. Both Permuderm and the Dermal Matrix are compatible with Resell and each other, and both can be used alongside the treatment of many of our burn and bolt thickness cases to further aid in healing. Collectively, these products align with our vision to build a broad-based wound care company. To better understand our strategy with Regenity, I will provide an overview of Regenity and discuss our regulatory, clinical, and commercial plans for our dermal matrix. For more than 25 years, Regenity has been a leading global developer and manufacturer of proprietary bioresorbable materials used to repair and regenerate natural tissue and bone for a variety of clinical areas, including dental, spine, orthopedic, neurosurgery, ENT, advanced wound care, and nerve repair. Initially focused on collagen-based medical devices, Regenity has since expanded its platform to include versatile bioresorbable and biocompatible synthetic polymers, bioceramics, and other bioresorbable materials. Throughout its history, Regenity has successfully assisted med tech clients in securing regulatory approval for more than 70 product lines. After robust diligence and preclinical research, we have the animal data to demonstrate the effectiveness of a Regenity dermal matrix to promote cell growth in the wound bed. We expect 510 clearance in the fourth quarter, followed by an initial launch with the 510K indication. Regarding our clinical plans, immediately following clearance, we plan to initiate multiple post-market clinical studies to establish the unique synergies between our new dermal matrix and resell. These studies will include the evaluation of our new dermal matrix and other commercially available dermal matrices in full thickness wounds, followed by delayed treatment with a split-thickness skin graft plus resell and a two-stage procedure, which is the current standard of care, to demonstrate improved time to grafting and wound closure. clinical studies will evaluate the use of our new dermal matrix with immediate grafting together with resell and a single procedure aiming to establish a new standard of care. We expect to begin enrollment in both of these studies in the fourth quarter for completion in 2025. Let's revisit slide seven of our presentation which illustrates the complementary nature of ReCell, Permutaderm, and our new dermal matrix with the other potential additions to our portfolio. Here's an example of a full-thickness skin defect with concern for infection. In this instance, the dark blue layer represents dressings for wound bed preparation, a current focus. This product serves as a protective antimicrobial layer in the base of the wound bed to maintain an optimal healing environment. This layer can be used in every single patient. The green layer represents the new dermal matrix. This type of matrix aims to generate vascularized tissue, further supporting definitive closure. The light blue layer represents resell with a meshed split thickness skin graft. As you are aware, this procedure provides definitive closure using significantly less skin compared to traditional autographing. Lastly is the purple layer, which is the transparent Permioderm dressing optimized for protection and moisture management. By addressing the full spectrum of clinical needs across our portfolio, we believe that we can improve accessibility and reach more patients, which is our number one priority. Now, an update on TONE, which is our post-market study for Vitiligo. We have completed the six-month follow-ups and are on pace to have the research accepted for publication with the six-month TONE data and manuscript by the end of the fourth quarter. The same timeframe applies to the healthcare economic study associated with our Vitiligo initiative. In closing, we are taking advantage of our well-executed quarter and our momentum and remain committed to our efforts to expand our reach, drive increased adoption, and sustain growth with our indications, as well as our expanding portfolio, all with the goal of delivering value to our shareholders, our customers, and their patients and our employees. With that, I'll turn the call over to David.

Thank you, Jim. For the three months ended June 30, 2024, our commercial revenue reached $15.1 million. which is an increase of approximately 29% compared to the same period in 2023. As you can see on slide 8, the revenue growth trajectory over the last eight quarters has been significant, and we believe it will only accelerate over the remainder of the year and subsequent years. Resale products accounted for approximately 98% of our commercial revenue. while our other wound care products contributed approximately 2%. With our two new products, Permiaderm and our Dermal Matrix, the revenue for other wound products will increase in subsequent quarters. Our revenue results for the quarter, plus improved commercial and VAC processes, and the hiring of Robin Vandenberg, positions us well for sustained revenue growth for the remainder of the year. Gross profit margin for the quarter was 86.2% compared to 81.2% in the same period in 2023. This 500 basis point increase is in line with our expectations for the full year 2024, as revenues and volume of production continue to provide a healthy and improving gross margin. Total operating expenses for the quarter were $28.7 million compared to $21.2 million in the same period in 2023. The increase in operating expenses is primarily attributable to an increase of $6.3 million in sales and marketing expenses due to employee-related costs, including salaries and benefits, commissions, and travel expense collectively as a result of expansion of the Commercial Sales Organization in the second quarter of 2023 and again in Q1 2024 to support our growing commercial operations. G&A expenses increased by $1.4 million as a result of higher salaries and benefits and an increase in severance benefits partially offset by lower stock compensation and professional fees. Additionally, R&D costs decreased by 0.2 million due primarily to lower employee compensation costs for our medical science liaison teams. Other income increased by 0.8 million to 1.6 million in the current quarter. Other income for the quarter consists of non-cash income of 2.1 million due to the change in fair value of the warrant liability. offset by 1.2 million of expense for the change in the fair value of the debt, and 0.7 million in income related to our investing activities. Net loss for the second quarter was 15.4 million, or a loss of 60 cents per basic and diluted share, compared to a net loss of 10.4 million, or a loss of 41 cents per basic and diluted share in the same period in 2023. As of June 30th, we had cash, cash equivalents, and marketable securities of 54.1 million compared to 89.1 million as of December 31st, 2023. We maintain our previous guidance that we will reach cash flow breakeven and GAAP profitability no later than the third quarter of 2025. Turning now to our revenue guidance for Q3 2024. We believe it is crucial that we reestablish credibility with our shareholders. We have taken significant steps towards this goal by reaching the upper end of our Q2 guidance. For the third quarter of 2024, we remain committed to providing guidance that reflects our capabilities while achieving substantial revenue growth. With that in mind, we expect commercial revenue to be in the range of 19 to 20 million, representing approximately 40 to 48% growth compared to the same period in 2023. With a strong start in July, we are confident in our commercial team's ability to deliver on this target. Regarding annual guidance, our Q1 revenue miss has impacted our full year expectations. Although we are confident in our Q3 guidance, reaching the lower end of our prior guidance of $78.5 million is no longer feasible. As a result, we are revising our annual guidance to an attainable range of 68 to 70 million. Even with this adjustment, we expect to achieve over 37% growth year-over-year, reflecting our ongoing growth trajectory. With new sales management, improved VAC and commercial processes, the recent launch of ResellGo and PermiaDerm, and the anticipated commercialization of our new dermal matrix in Q4, We intend to build on our second quarter momentum and continue delivering strong results. Given our solid performance in July, we look forward to meeting our Q3 revenue expectations. With that, we thank you for joining us, and now I will turn the call back to the operator for your questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from Ryan Zimmerman at BTIG.

Hey, guys. Good afternoon. Thanks for taking our questions. Can you hear me okay? Yes, we can, Ryan.

Good to hear from you.

All right. Well, I wanted to ask about the guidance. You know, I appreciate you guys took a prudent approach, you know, with the adjustment to guidance here. Maybe, David, you know, talk to us about kind of what underpins your view, particularly for the fourth quarter. It's still a sizable step up from, you know, what we saw this quarter. And, you know, how much contribution are you expecting from full thickness skin defects? You know, Jim, if I recall last quarter, your goal as you entered this year was about 15 accounts per month. You know, we're still not there yet. So, you know, I know July is off to a good start, but talk to us, you know, maybe a little bit more about kind of what that means from July.

Yeah, Ryan, I think maybe I'll take this at first. Fundamentally, the big drivers, the number one driver is the ResellGo conversion, which we expect to substantially complete within the quarter. And if you were able to see the slides, you would note using ResellGo has a consequence of greater utilization. So that is one of the underpinning efforts. During the quarter, we did, you're correct, we did not average 45. However, we had a total of 37 approvals, 31 who ordered, and six who got approved who were going to order. So we substantially improved that. We also have 85 in the VAC decision stage of one of two different stages. categorize them in. So that's 85 in the pipeline that have scheduled evaluations or decisions during the quarter. So we have a lot there, plus the Permiaderm, you know, the launch of it takes a little time. It was really a beginning of Q2 launch. So we're just starting to get our legs under our feet at the moment. just under 20, I believe 19 in the VAC stage, and we're getting progressively more activity with that. So we do have a lot of wind at our back in terms of execution materials, the things you need to make the number grow the way that it needs to. So that is fundamental to what's driving our guidance for the next two quarters.

Okay. That's helpful. And then, you know, David, you know, you've repeated the belief, the guidance, excuse me, that you would be cash flow, I think, break even by the third quarter of 25. But your expenses are up. Cash burns down a healthy bit. You know, what are you going to cut back on potentially? Where can you cut back just to get to that point? Or is it all predicated on top line revenue growth? particularly in 2025, as an acceleration off the levels you're seeing this year?

Thanks, Ryan. For the most part, it's all driven by top line growth revenue. We are still projecting 86% greater margin. And so just for example, even with our guidance for this quarter, which is around 20 million, At 86%, that's about $18 million of gross margin. And you're right, our operating expenses are up, but the operating expenses also include non-cash items of stock comp and depreciation amortization. And so if you project out sequential revenue growth over the next few quarters, and you can You can pick a number that you would like to as far as whether it be 30%, 20%. And you can see that we can get there, and we can get to covering our operating expenses in three to four quarters.

No, I appreciate it, David. And, yeah, I understood. Okay, I'll hop back in queue. Thank you for the caller, guys. Thank you.

Our next question comes from Joshua Jennings at TD Cohen.

Good afternoon, Josh.

How are you doing? Good. Thanks for taking these questions. Good to catch up here. I wanted to just ask Jim, I think I know the answer to this, but just early days of the full thickness skin defect indication launch and just what you're seeing out in the field, are you still as optimistic as you were pre-launch and anything different thoughts just in terms of the TAM and the opportunity here in the U.S. for reselling that indication.

Okay. Josh, are you still there?

I am, Jim. Thanks. I'm not sure if you caught my question or not.

I think we solved it. Okay. Back to your question with regard to full thickness. So what have we learned and what have we done? So The simple answer to your question is we're just as optimistic about the TAM and the potential for it as we were. What we learned is that we're going to centers where resell is a very new idea, where they've known about it in the burn world for a long time. So that results in really three forms of VAC processes, and two of them dominate. we'll get a conditional VAC do an evaluation before we give you full approval or they'll say prior to VAC do an evaluation before we approve you at VAC and a smaller number than those two gives us approval straight away. So that's really created that longer VAC approval period and you can see though the interest. Our numbers of accounts last quarter that we converted were 22 We have 37 approvals, 31 have ordered this quarter, and we have 85 additional in the pipeline. Now, further to what we've also learned, it caused us to develop, validate, and submit the data for the ResetGo Mini for the smaller, under 480 square centimeter wounds. So I think that's going to continue to build the adoption But those are things we learned. And we remain quite bullish on the market potential. And of course, we get to add Permiaderm as a dressing addition. And of course, with our dermal matrix, we'll have that. And it won't be tandem because it'll be three product lines that can potentially be used on each of these patients.

That's great to hear. And I wanted to – it's nice to see just the build-out of the portfolio and addressing the continuities of this wound care action. I wanted to hone in on the Regenity Dermamatrix product and maybe just help us think about the competitive landscape there, the size of that segment, and anything you can share in terms of pricing expectations per case. Thanks for taking the questions.

Yeah, it's a multiple-layer question, so let me give you a range. The competitive marketplace has approximately a price range of, let's say, $14 to $15 a square centimeter on average in the hospital, okay? So if you extended that, and that would be the market leader with about most data, And if you extended that it would be twenty eight thousand dollars for a two thousand square centimeter wound Okay, so that's a substantially Significant potential sale now in our case we have some expectations first of all Selling it with a 510 K. We will have to sell it for less than that at the outset as we build our data and and achieve two-stage comparability, we'll be able to achieve a higher DSP. Now, stepping through that one more time, we have a high belief and based on the validated large animal, they're pigs, models where we've compared the dermal matrix that we've had designed for us versus the competitors in the market, the two key measures are the time it takes to become graft ready and the time it takes to fully close. And obviously that first one is when you apply the graft over the dermal matrix is key. Now in our non-clinical animal studies, we close at nearly half the time of any other product on the market, which will naturally lead, so that's graft ready in under half the time. And that obviously is going to lead to an earlier closure time, which is incredibly valuable for patient care, for the patient getting out of the hospital, for the cost of care. And if you take one further step, which we intend to still have to validate, The other qualities of this dermal matrix include its absorption and histological integration with the wound. We believe that one of the studies we're gonna run is going to be a single stage closure with resell where you apply the dermal matrix with resell and split thickness skin graft all in one procedure and then you don't have two procedures. So it's really rather, if we achieve parity on the two stage but we do it much quicker, that has huge market competitiveness. If we can validate the size of wound that will respond to a single stage closure, we redefine patient care. So this is really a big potential. That's super helpful. Thanks for all those details. You bet.

Thank you. Our next question comes from Brooks O'Neill at Lake Street Capital Market.

Hey, guys. This is Aaron on the line for Brooks. Thanks for taking our questions. Just going back to the guidance real quick. With this new range, I guess, are you guys feeling any sort of heightened pressure from the debt covenants as you sort of move forward to the back half of the year? I think with the new range, you're just a tad above the first revenue covenants to end the year. I guess just how are you sort of thinking about that as we sort of approach the back half of the year here?

Well, fundamentally, what we're thinking about is executing well. In Q2, we improved our execution really significantly over Q1. Q3 we're off to a you know when we set this guys keep in mind July's behind us So we had a very strong July when we look forward to the year Yes, there's a debt covenant there. Are we thinking much about it candidly? No, what we're thinking about is executing q3 we execute q3 q4 Will take care of itself and we don't think there's much challenge there. Yes, it's tighter and But we're not focused on that. We're focused on executing our plan, building out our portfolio, and getting back on the growth track and being reliable in our guidance.

Yeah. Okay. That makes sense. Thank you for that. And then I guess maybe just a little bit more color on the international expansion. I know you mentioned a few countries that you were starting to enter there in your prepared remarks, but Maybe just what does that process sort of look like long-term? Do you have any areas specifically where you want to focus more? Or maybe just how are you sort of thinking about that expansion moving forward? Thanks, guys.

Sure, sure. That's a good question. So let's recall the filter. The filter was, number one, to have a healthcare system that can utilize resell. So there's really not that many of those. The second filter was, was to have a population that made it worthwhile to go there and the ability to pay as a third filter. So that largely confines you to Australia, Japan, and most of the European Union. What we're focused on right at the moment are approximately 10 countries in the European Union when we described it. There's the Nordic countries, UK, which is not in the EU, of course, but it's nearby. little change in geopolitical world. So Belgium, Holland, Germany, Austria, and Switzerland are with a single distributor. We're close with Spain and we're close with Italy. In fact, we expect all those to happen this quarter. One of the things that has paced our entry is the approval of ResellGo in the EU under the new MDR. We do expect that within the quarter. So that is going to make a breakout because really it's much less training to use ResellGo than to implement the coverage strategy we took here in the United States. The amount of case coverage and training that's required has been substantial in our history, and we already see the difference. So we're going to be principally focusing on the countries I just named. Australia, we're not quite there yet. We're on the market in Japan, as you know, with the burn indication. Resale Go is well behind the rest of the geographies that we intend to operate in. But we're going to focus EU, Australia, Japan, internationally through third-party distributor partnerships.

Okay. Thanks for that, Collin. Thank you.

You bet.

Our next question comes from Ross Osborne at Cantor Fitzgerald.

Hey, guys. Thanks for taking our questions. So looking at your full thickness indication, which is clearly a broad indication, are you seeing adoption for any particular defects within it more so than others? And then with the launch of dermal and combination with resell, is that particularly useful for certain defects more so than others, again, within that broad full thickness indication?

OK. Two broad questions. So what I'll say about full thickness is we are much more seeing the responsiveness in acute wounds, degloving, necrotizing, fasciitis, those types of wounds, severe trauma, much less focus in the moment in chronic wounds like diabetes, foot ulcers, or VLUs, for example. So we're seeing them in the acute wounds. That's where the initial, as we've been in the market now just about a year, that's really where the action is for us at the moment. Now, turning to our dermal matrix, where will it apply? It will actually apply to our burn world in a big way. It'll apply to all of the full thickness cases. It will also apply to the chronic wound market, as will PermiDerm. So both the dermal matrix and permuderm will fit the whole full thickness continuum. Resell and chronic takes a bit of study to figure out how to identify which patients will be responsive to that. So we're doing some work on that. And what's in question in terms of effectiveness is chronic wounds are chronic for a reason. They have an underlying condition, for example, a venous leg ulcer's failure to have venous return because of an incompetent deep vein valve failure, right? So without a solution to that, you have difficulty finding which patients will be responsive and have a durable skin graft as a solution. So there's work to do there. But it's a broad and rich and deep market, that is for sure, especially with our new portfolio.

Okay, great. That's very helpful. And then one more on the international side of things. You walk through the reimbursement dynamics broadly, realizing it may vary by geography. And then in terms of the amount of sales force you think you'll need to support growth, and is that contemplated in your 3Q25 Cash Break Even Guide? Thank you.

Sure. Let me take the – the reimbursement in those 10 countries is different in each of them. It's all of them have sufficient healthcare systems and ability to utilize resell and achieve a reimbursement which of course we share with our distributor. That said, reimbursement is a reflection of social system. So it's a really complex question. Maybe we can have a separate call to talk about it because it is different. We do expect to average an ASP at end customer that will be somewhere in the area of 75% to 80% of our U.S. ASP and which will be splitting in each of these cases. So that's, I think, one answer that helps you if that, I think, gets to, it's a less complex reimbursement system. Now, with regard to Salesforce, since we're using third-party internationally, we don't, Of course, we don't need it. In the U.S., we have no plans to expand our U.S. commercial headcount over the next 18 months. No plans. We think we've got sufficient headcount to sufficiently cover and penetrate the accounts, particularly with our broader product line. We'll have a lot to sell over the next 18 months.

Okay, great. Thanks for taking our questions.

You bet.

Thank you. Also, as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Our next question comes from Leanne Harrison at Bank of America.

Hi, Jamie. Hi, David. Can you hear me okay?

Yes, we can hear you. Good morning.

Good morning. Sorry, it's good evening for you over there. But can I talk about your slide three and the pipeline that you've currently got there, something in the vicinity of 89 accounts in the pipeline? Can you tell me how long it's taking currently to get through the VAC evaluation stage, the VAC decision stage? And also for this quarter, you've got some that are VAC approved but no orders yet. How long does it normally take once they're approved for them to put orders through?

Perfect, you're helping us break down, there's a few stages there. So the, in the VAC decision stage, the multiple VAC stages, let me characterize it this way. There are VACs that have a pre-case evaluation clinical use, where the VAC is given that direction, and then they were subsequently approved. There's a category, which is in there, that is VAC has said we provisionally approve, do an evaluation and report back to us before we officially do it. That's a subtle difference between the two, but that's the difference. And that is the majority, those two together. And the third is we occasionally get a VAC approval straight away, but it is a minority of our experience. how long is it taking this group in general? It's between four and six months. So what you see is that of like, for example, the 31 and six this quarter, that of course is up from 22 Q1 to 31 plus six, 31 ordered. Six didn't, they were approved late in the quarter. So typically, following back approval, we'll get an order within a week or two. So it's usually quite quickly. Getting through the process, however, is taking us rather consistently four to six months. So 85 is building. So our pipeline, if you go back, will well achieve more than 200 new accounts this year at our current pace. So it's happening. A bit longer than we expected, and as much as we work at it, we're able to shorten it and make it more consistent and more understandable. It still takes time.

Okay, and just to understand that as well, so if I'm looking at four to six months and where you were at the process earlier in the year, has that process gotten shorter? Has it gotten more efficient for you? I'm just trying to understand if we get to this time next year, do you think it would still be taking four to six months to get through a VAC process?

So what I will say is we have a much better understanding of it. Do I expect it to get shorter? I do. One of the things that we realized as we launched into it, it's been a year at this point, We had not applied to a VAC of any regularity for more than two years. So it became a new skill and experience for our organization. So I do expect it to get shorter. Also I expect the number of accounts to diminish. At some level, if you take all trauma centers, you're in the order of, let me see, something in the order of 700 to 750 accounts in the United States. And if you reverse back to where we currently are, we've got somewhere around 220, 230. We've got 85 in the pipeline for Q3. So we'll end the year well over 300, three-quarter, 350. And mostly those are the bigger counts. So there will come a time when penetration's the bigger name of the game. And one of the benefits of ResaleGo is that it makes it much easier to adopt. Hopefully you saw the slides. If not, I'll send them to you. But also, the ResoGo Mini will be applicable to many more smaller full-thickness defects. So in combination, those give us a lot of opportunity. And of course, many of them need a dermal matrix, and all of them need a dressing like PermiDerm.

Okay, and previously you spoke about approval rates or essentially the rates that VAC communities didn't approve resale. Can you talk to us about what happened through the second quarter of 24 and to the extent that there were any non-approvals, have you gone back to them and did those change and become approvals eventually?

Yeah, we've had a very small number historically. We had no turndowns during the quarter, for example. And we have historically still had only four or five out of now nearly 200 ads. So it's a statistical, just unlikely event for us as we've learned.

Okay, thank you. And then, um, Permioderm sales. So are you able to give us an indication? I know it's still small, but for the fourth, for the second quarter, how much of, you know, total revenue was Permioderm sales?

Yeah, we, we, um, this is David. Um, so thank you for the question. Uh, it, it, it averaged around 2% for the quarter. Um, so, um, A very small amount in the second quarter. We see that picking up very substantially over the rest of the year.

Okay. And then you mentioned you weren't adding any more headcount to your sales force in the United States. But I'm just trying to understand how much of your sales force time is currently spent promoting or selling resale versus permuderm Um, I guess I'm trying to understand, you know, yes, I think it's great that you've got a wider product of, um, a brighter room portfolio, but, um, you know, could you perhaps have that Salesforce time more directed towards selling resale and getting that top line traction?

Well, the fortunate thing around this strategy is first of all, the center of our strategy is resell. So from a salesperson point of view or any person in the field's point of view, they basically get to sell in the moment, if I may put it that way. If you are covering a case with resell, resell is what is being trained on or coached or supported at that moment. Upon the application of resell, the next thing you do is you put a dressing on it, which is when you would promote, sell Permioderms. The third thing you would do is we follow up with our customers around aftercare. So using resale has some very important requirements around aftercare so you don't change the dressing in a manner that disrupts the healing process. During the aftercare interaction, whoever you're talking to, that is when you get to talk about Permiderm also. And if you apply that to a future dermal matrix, it will happen right after the debridement of the wound. That's when you use a dermal matrix. You then apply a split thickness skin graft combined with resell in the moment. And in the moment after that, you apply a dressing. So it doesn't, they don't conflict with each other from a time point of view. Same patient, same doctor, same procedure.

Okay, thank you. And just one last question around, you know, if I think about costs over the next few quarters. You know, you mentioned that there were going to be some clinical studies using the dermal matrix and resell. How should we be thinking about that in terms of additional cost?

I think, comparatively, year over year, it won't cause a significant increase in cost because, of course, we conduct clinical studies. For example, tone was one that we've been investing in, which is now winding down from a cost point of view. And the size of these studies will not be greater than what we've reflected in the past because, of course, we did clinical research in R&D related to ResellGo. Then we did it related to Resilgo Mini. Those will get replaced from an R&D point of view, which is where clinical goes, in a similar fashion. We're not expecting a big uptick in expense.

Okay, great. Thank you very much. I'll leave it there.

Thank you, Leanne.

Thank you. This concludes the question and answer session. I would now like to turn it back to Jim Corbett for closing remarks.

First of all, thank all of you for attending the call. I appreciate the questions. We're looking forward to our future meetings, communications, and next quarter's call to report our Q3 results. Thank you again.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.