Sanara MedTech Inc.

Good day, ladies and gentlemen, and welcome to the Sonara MedTech Inc. Second Quarter 2021 Results and Business Update Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments from the web and phone following the presentation. At this time, it is my pleasure to turn the floor over to your host, Callan Nichols, Director of Investor Relations at Sonara. Sir, the floor is yours.

Thank you, Karen, and good morning, everyone. I'd like to welcome you to the Senara MedTechs earnings conference call for the quarter ending June 30th, 2021. We issued our earnings release yesterday afternoon, and I would like to also highlight that we have posted a link to today's deck on our investor relations page. This supplemental deck, as well as a copy of the earnings release, the 10-Q, and a transcript of this call will be available on this page. We will reference this information in our remarks today. We expect today's prepared comments from Ron Nixon, the chairman of our board, Mike McNeil, the chief financial officer, and Zach Fleming, president of Surgical, to last approximately 15 minutes to allow time for Q&A. Certain statements in this conference call and our press release and in our supplemental deck include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other things, the anticipated benefits of Rochelle asset acquisition, the development and approval of new products, and expansion of the company's business in telehealth and wound care. For more information about the risks and uncertainties involving forward-looking statements, please see our most recent Form 10-Q and annual report on Form 10-K. Now I'd like to turn the call over to Ron. Ron, the floor is yours.

Thank you, Callan, and good morning, everyone. I'll start with an overview of the second quarter, and then we'll dive more deeply into each topic in the subsequent slides. Sonera generated $6.3 million in sales and a net loss of $1.2 million in the second quarter of 2021. This was the fourth record revenue quarter in a row for the company and was driven by continued growth in surgical product sales. Surgical team has continued to focus on hospital approvals, product adoption, and adding high-quality experience regional and territorial sales managers to our team. Zach will discuss the specifics in his remarks. We continue to see strong growth and significant opportunity for our products in surgical pending no long-term effects of the COVID-19 virus or its variants. We're constantly focused on our product pipeline and bringing to market highly efficacious solutions that offer a good value proposition We continue to seek out partners who have proprietary products that fit within our six focus areas. In addition, following the acquisition of Rochelle Assets, we now have numerous development projects in-house. We intend to submit 510K applications for several of these products in our pipeline within the next 24 to 36 months. I'd like to discuss our telemedicine and virtual care businesses. We renamed United Wound and Skin Solutions to Wounderm, which we feel is a more appropriate name. Previously, Wounderm referred only to our proprietary wound and skin EMR and mobile app. The team at Wounderm is actively engaged in discussions regarding multiple pilots to prove the efficacy of Wounderm solutions and demonstrate the company's overall value proposition related to cost and outcomes of its comprehensive wound and skin strategy. Subsequent to the end of the quarter, we completed the acquisition of certain assets for our research and development partner, Rochelle Industries. We believe this acquisition will be an important contributor to our future development and growth plans, and it was structured as a win-win between the parties. With that overview, I'd now like to turn it over to Zach Fleming to discuss our surgical business and the latest on our partnership with Koch Biotech. Thanks, Ron.

Thanks, Ron. Our surgical division continues to grow in both terms of sales, hospital approvals, and the size of our team. In the second quarter, we hired eight new regional sales managers, bringing the total to 26 regional and territory sales managers. At the end of Q2, Celerate RX had been sold in over 300 hospitals and ambulatory surgery centers across 21 states. The product is currently approved for use in over 900 hospitals and ASCs, And as we've discussed before, we believe that there are over 12,000 hospitals and ASCs in the United States where Accelerate could potentially be used. Turning to the Cook products, we plan to have Fortify TRG, which is the tissue repair graft, and Fortify flowable extracellular matrix fully rolled out and available for sale in the second half of this year. We're currently working on the marketing and distribution strategy for Vim Amnion matrix and the exact timing of that rollout for that product. Now I'll turn it back to Ron. to discuss our product pipeline in more detail.

Thanks, Zach. As I mentioned earlier, we're focused on acquiring or developing novel and innovative products that fit within our six focus areas. We currently have five products in our pipeline at various stages of development. Curashield, an antimicrobial barrier film, an FDA 510K clear product is intended for application on minor wounds and damaged skin as a liquid film-forming barrier which creates a waterproof, a breathable film dressing protecting the wound or damaged skin. Sonera has licensed this product from Rochelle Industries that's currently exploring manufacturing options and potential partnerships to bring this product to market. We continue to progress our efforts to develop a debrider that will be complementary to our hydrolyzed collagen and biofilm cleanser products once it's cleared through the 510K process. We're currently finalizing and testing the formulation and expect to have the final formulation ready to file a 510 application in 2022. Our sales results to date have been driven by our hydrolyzed collagen products. Developing the next generation of these products is a key initiative of ours. I've said this in many previous calls. We're currently working on the next generation product with our newly acquired team at Rochelle. Biosurge and antimicrobial wound solution is expected to be an additional product for surgery and is derived from our BioCoast skin and wound cleanser line. This product, which we plan to start testing in the next quarter, will be the first leave-in biofilm and antimicrobial irrigant for surgery. We believe it could have significant impact on reducing biofilm and surgical wounds, leading to fewer surgical site infections when compared to the current standard of care. Now I'd like to turn it over to Mike McNeil, our CFO, to discuss our Q2 and first half of the year financial results.

Thank you, Ron. During the second quarter, we generated revenues of $6.3 million compared to $3 million during the second quarter of 2020, representing a 112% increase over prior year. Year-to-date sales through June 30th totaled $11.3 million compared to revenues of $6.5 million for the same period last year. which represented a 74% increase over the first half of 2020 and a 105% increase over the first half of 2019. The higher revenues in 2021 were primarily due to increased sales of our surgical products as a result of our ongoing Salesforce expansion and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets. In addition, revenues in the second quarter of 2020 were negatively impacted due to the suspension of elective surgeries and restricted access to patient facilities throughout most parts of the United States as a result of the COVID-19 pandemic. We had a net loss of $1.2 million for the second quarter of 2021 compared to a net loss of $1.1 million for the second quarter of 2020. For the first half of 2021, we had a net loss of $2.4 million compared to a net loss of $2.9 million for the same period of 2020. The improvement in our net loss was primarily due to much higher sales revenues in 2021. Finally, a quick look at our balance sheet shows we ended the second quarter in a strong financial position with $24.4 million of cash on hand. I will now turn it back over to Ron to discuss the Rochelle asset acquisition.

Thanks, Mike. As we mentioned, we recently acquired certain assets from Rochelle, including intellectual property, four 510 FDA cleared products, rights to license certain products and technology currently under development, equipment and supplies. In addition, we hired all the Rochelle personnel. Rochelle acquisition is strategic to our comprehensive wound and skin strategy, as well as the development of additional surgical products. This transaction, which was effective July 1, 2021, allowed us to combine the Rochelle technical team and their extensive experience in commercializing technologies with Sonera's extensive distribution network. As we gather more data at the bedside through precision healing, our in-house team will have the capability to work on new innovative products based on an analysis of the data that's collected at the bedside. The addition of the Rochelle team is also expected to strengthen Sonera's expertise in the area of regulatory compliance manufacturing and quality control. The products that were under development at Rochelle acquisition closing date, Sonera has the first right of refusal for product license agreements, as well as certain economic rights for products Sonera chooses not to license. For a three-year period following the execution of the asset purchase, Rochelle is entitled to receive consideration from Sonera for products developed during that time. During the same period, Rochelle is entitled to receive an amount in cash equal to 25% of the grant proceeds that Sunera or Rochelle receives as done by the work of Rochelle. For more details on this, please see the license agreement that we filed. We excluded certain assets from the deal, including licenses for products already licensed to Sunera. one silicone 510K approved product and the rights to five products currently underdeveloped. The reason for the excluded assets that were not already licensed to Scenero was that at the time of the deal, we could not adequately value these assets. In order to come up with an appropriate price, we would have had to monetize future royalty streams and we felt we just didn't have enough clarity on them at that point. Scenero will review all the above products at the appropriate time for commercialization opportunities. That concludes our prepared remarks, and we look forward to answering any questions that you may have during the Q&A. Operator, we're ready to open the call for questions, and thank you.

Absolutely, thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide favorable sound quality. Once again, ladies and gentlemen, if you do have a question or comment, please press star 1 on your telephone keypad at this time. And our first question comes from Brandon Folks from Cantor Fitzgerald. Brandon, please go ahead.

Hi. Thanks for taking my questions, and congratulations on the quarter. So, firstly, just in terms of accelerate, you know, you've done very well to get approved in over 900 hospitals and ASCs. Can you just elaborate about the opportunity to go deeper in those accounts as you continue to bring on additional hospitals and ASCs? And then similarly, along those same lines, you're approved in over 900 hospitals and ASCs. The product's being used in 300. So just any color in terms of what's needed to get those other 600 that are already approved, ordering and using the product. And then secondly, my second question, I guess, just in terms of the eight additional salespeople, are they covering new territories? Just any splitting of territories there would be helpful. Thank you.

Zach, why don't you answer that if you wouldn't mind?

Sure, man. If you know something, I get all your answers. So, I think the first question was, you know, how do we go broader, deeper into the 900 hospital, across the 300 we're in, but also into the 900. So, first I'll go into the 300 that we're in, or 300 approximately. And the key is this product has very wide applications across surgical specialties. So if you just kind of stop and think, anybody that is working on surgical wounds, this would be appropriate for. So that's a very broad group of surgical specialties. Really, you could go from plastics, general, Of course, orthopedics, spine, podiatry, you kind of get the point is there's a whole bunch of specialties that could use this product in favor of helping patients that aren't doing well from a healing standpoint. Maybe they have a comorbidity that keeps them from healing well. So it really is very widely applicable. In terms of how do we get from 300 and get closer to the full 900, I think it ties into the next part of your question. And that is we are hiring additional people, as you know, and we mentioned, and then we're gonna try to go into new territories, of course, and try to expand into those territories where we have approvals. So those are obviously very much important to us. We've highlighted each of those IEMs, each of those hospitals, and all of our people that we've hired know where those are and are certainly working very hard to gain interest from surgeons. So it's simply a reach for us. We've been very successful with this model and I've seen it played out very consistently that when you put a person in the field, the product is very promotionally responsive. So, in other words, people immediately see the need for this product and start to use it. So, it's just a matter of reaching out to those surgeons and getting the product in their hands. I think I did answer the third part of that. Go ahead. Sorry.

No, I was just going to add one other key point to that, Zach, and that is, Brandon, that This product ends up getting adopted by surgeons that really like the results that they see, so therefore it ends up being more word of mouth as opposed to more selling of the product. This is really adoption of the product, and so you get that fill-in within your territory from more and more surgeons talking to other surgeons about the benefits of what they've seen with the product. Absolutely.

And within each surgical, you're welcome. And within each surgical group, you know, obviously there's usually 20 or 15 surgeons within each surgical group, and you start to see it spread across that surgical group, you know, within that orthopedic group, say, or the plastics group, and then across specialty. And that usually is because we also work with the mid-levels, the nurse practitioners, as well as the PAs, the first assists that are in the surgery and helping to work through those surgical wounds.

Great. Thank you very much. One additional question, if I may. You've got a lot going on, a number of very interesting launches in the back half of the year. But I'd be amiss if I didn't ask. Any color in your thinking around what we've seen with COVID, Delta variant, or any of these other variants, on the potential timing of product launches at this stage? Thank you.

Sure. I don't think it's actually impacting our product launches. What I would tell you is that we're always mindful and keep an eye on what goes on since we've seen this already once before and went through this last year. So we're mindful of paying attention to where the elective surgeries may be starting to get temporarily stopped. And, Zach, you want to add any color to that?

Yeah, I just think that the launch is a targeted opportunity. opportunistic launch that will be based on where we have access and volume and influence into the facilities, volume meaning an availability of cases that would fit the product. And we're using existing relationships, whether that be our agents that sell for us, our regional sales managers, and or surgeons that like to work with Sonera.

I also think, Brandon, that one of the things we will do is continue to focus on expansion of our geographic reach so that if there are hot spots of COVID or the variants, that we hope that the impact into those other geographies, which are less impacted, can pick up the difference if we see any of that decline.

Great. Thank you. I appreciate all the color in taking my questions. Thank you very much.

As a reminder, that's Star 1 if you do have a question or comment. Apologies, and we do have another question. And our next caller is Neal Cataldi from Blueprint Capital Management. Please go ahead, Neal.

Hey, guys, great quarter. Could you give us any further updates on the Wounderm pilots and maybe elaborate a little bit on what the go-to-market strategy is there, how it ramps to revenues, and maybe a timeline for that?

Yeah, I'd be happy to, Neil. The pilot, the first pilot is going to begin within the next two weeks, and it is in a very large home health care facility. It will include multiple facilities, and so therefore we'll get a much better feel. This is a company that's very much focused on PDGM, and so that's that patient-driven group modeling and understand the value that that brings to them as it relates to being focused on conditions like wound care. where there is higher value ascribed to that patient that has multiple comorbidities and has a wound. So we will be testing our virtual consult. We will be testing, obviously, our products will be used in that, and we'll be gathering our data to see how our overall value proposition plays out. And so that will, I would assume, that within the next quarter, or by the end of the next quarter, we'll be able to give updates on exactly how that has progressed because typically we'll be able to judge that on 30-day episodes since that's the way home health is done today. We're not abandoning the skilled nursing facilities, but the skilled nursing facilities have been under pressure ever since COVID. We've seen a decrease in their census numbers. They're scrambling just to make sure that they can keep people safe in their facilities. And you're seeing a movement towards more acute acuity, higher acuity patients going to the home to be dealt with. You're seeing the The coming of the hospital and home, you're seeing a lot of focus on bypassing the SNF with these patients. So we think the home health is an area that we need to be focused on while the SNF is kind of, you know, getting their situation under control with what they've had going with COVID over the last year. So that's probably all we can say at this point in time. We have other pilots that we're exploring right now with other different providers, and we'll keep you updated as those become material and as we execute those agreements.

All right, great. Thanks, Ron. One or two more, if I may. I know the first analyst asked a question around the RSMs and the hospital counts. I was just wondering, maybe a different spin on it, how many more RSMs do you have to hire to penetrate the 600 hospitals that you're not currently in? And maybe how many more are you looking to hire through the balance of this year?

Go ahead, Zach. Okay. Yeah, I would say, you know, in terms of, you know, our current way we're looking at this is that we go to market through 1099 agents. And as long as those agents are able to be managed via the number we hire, you know, I think that's really the key. And so roughly, you know, you can kind of imagine an RSM can cover about two states. Now, obviously, in the Northeast, that's a little bit tighter geography. However, there are travel demands that are difficult there. So, you know, approximately somewhere around 30 to 40 is where we think we're probably gonna need to be to get all of the coverage with regional managers. And one of the reasons as well, we're employing a new strategy, which is the TM model. I don't know if you heard us say TM. That's really a territory manager that's gonna be stationed in a large MSA, where you have a lot of concentration of hospitals and where we're trying to go exactly what the first question was, which is trying to go deeper into facilities. So this TM really sits on a few accounts. identifies additional surgeons where we can, you know, you accelerate our X more and further and deeper into the facilities. So hopefully that answered your question.

Yeah, thanks. How should we think about the training ramp? Is it, you know, three to six months or is it more six to 12? You know, any color there?

Yeah, I think so. We really want our trainer, our people to be trained well. And so internally we have about a five week track that they go through, which includes field rides, internal training, et cetera. So just in terms of being up to par and be able to talk the talk and be able to go out and serve the customers well, roughly about six weeks by the time they get back to the field. And then in terms of impact, it's starting to get quicker because we are seeing, you know, with the approval sitting out there, now they can go right in and just find surgeons. If you're going into a blank territory, which we do have a few of those where we don't have a lot of penetration in hospitals, it does take a little bit longer.

The other thing, you know, is we really focus on finding experienced people from the beginning where they have some surgery experience so that they're not totally green when they come in and we're training them. We don't want to have to educate them fully on what goes on in surgery. We want them to come with at least three years of experience in surgery.

Yeah, we've done some work on the new hires already, and the pedigree looks great. So kudos to you guys on the people that you're able to find right now. My last question just pertains a little bit to the pipeline. You know, a majority of your revenues today come from celery. I'm wondering which product in the pipeline you would expect to be the next one that might make an impact on financials. Could you share anything on that?

Zach, you want to talk a little bit about the Cook products and then also Biosurge? Absolutely.

So we're really excited about the Cook products. Wouldn't have added them if we weren't. And the products really fit a need that really isn't being served by other products, so I think that's why that's an exciting space. You know, our big challenge, as with any company or any product that you're launching, it's just the approvals and gaining acceptance out in the field. So we are actively out with, you know, initial trials where we're providing product and getting reviews from surgeons. They've been very positive in their use cases for Fortify TRG. Fortify Flow will be coming up in the next month or two where we'll have that in the field and the doctors will be giving us responses. Both are, you know, already approved products. They're already backed by a lot of science around SIS technology. So we're going to the field with a lot of kind of armamentarium, and we're really excited about that. Now, in terms of projections and market size, we're still working to assess exactly what this product could be, both those products. So one is the Fortify Flowable. That's the micronized product that kind of comes in a capsule, and then you swish it back and forth between two syringes, and then it becomes gel. And the neat thing about that product, it goes down into a wound and fills cavities, really works a really big part into what a surgeon needs. And then the other one is the Fortify TRG, and again, that is the product that is going to help to reinforce soft tissue, very broad label, which we like, and it's able to be implanted as well.

And then also, in addition to that, on the other side of the business on wound care, we think these pilots will prove out that what we have seen in the field and data that we've gathered, that our Bacos, both our cleanser and our gel, as well as our high-calling powder and gel, will be well-received, and they will see the economic benefits that we have seen and the value proposition that we believe is there. You add the virtual consult to that to make it more of an efficient wound care strategy. We think that the kinds of groups that we're talking to right now to do these pilots are going to recognize that, and that'll be where we'll get a lift in those product sales as well. We think that will happen in a bigger way through 2022. Thank you.

Fantastic. Sorry, I forgot to mention Biosurge. I don't know if you guys want me to touch on that, but Biosurge is a little ways off, still very much in a development process right now. But, you know, certainly that market looks very attractive with some of the other product entrants that are in that space, which are, you know, the medicated washes that would go into wounds and surgery.

Okay, great. You know, and while you were talking right now, I was sort of listening and looking at the deck you provided. I think in there you mentioned CuraShield and a possible partnership. I was just wondering maybe what that means or what that looks like. Can we expect, you know, more partners with the other products as well?

That is a product that is really geared towards more in hospital use, in the nursing home, in home health. but it's specifically considered to be more of a skin product than a wound product, even though it is indicated for wound and damaged skin. And we believe it's a head-to-head competitor with Kevlon. And so that's the 3M product. And Rochelle was the original inventor of the original formula for Kevlon that is the 3M product in its early days, 20-something years ago. So that's an area that we think is well needed. It's the first antimicrobial barrier film, and it's the first to have an indication for wound. And so it's hard to say exactly what the adoption rate would be, but we're looking at partnerships that potentially may be in certain segments that we're not in today on the skin side that could help escalate that sales channel. Got it.

Well, thanks, guys. Thanks for taking all the questions, and I look forward to seeing what comes in the rest of the year. Thank you, Neil.

As a reminder, that's Star 1 if you do have a question or comment. And there appear to be no further phone questions at this time, and there are no questions on the web. I'd like to turn the floor back over to Ron Nixon for closing remarks.

All right. Thank you, everyone, for listening in to our first of many to come earnings calls. Thank you all for participation. Thank you for the good questions, Brandon and Neil. And we look forward to reporting on our next quarter. Thank you all for attending.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.