Greetings. Welcome to the Elutia Q3 2023 Financial Results Call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, of David Carey of Finn Partners. You may begin.

Thank you, operator, and thank you all for participating in today's call. Earlier today at Elutia released financial results for the quarter ended September 30, 2023. 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 relate to expectations or predictions of future events, results or performance are forward-looking statements. 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 Elutia's annual report on Form 10-Q for the quarter ended September 30, 2023, 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 Elutia's other filings with the SEC. The conference call contains time-sensitive information as accurate only as of the live broadcast today, November 13, 2023. Elutia disclaims any intention or obligation except required by law, to update or revise any financial projections or forward-looking statements, whether because of new information or 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 third quarter and September 30, 2023, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com. And with that, I'll turn the call over to Elutia's CEO, Randy Mills.

Thank you, David, and thank you all for joining the call today. Last quarter, Elutia was born and we are excited to tell you all about it. Today, I'm going to discuss our very strong third quarter results and the significant progress that we have made advancing our CanGarooRM FDA submission. Matt Ferguson, our CFO, is going to go over our financial results in detail. After that, we're going to open the line up for your questions. But first, since we have so many new listeners on the call today, I would like to start out by providing an overview of Elutia so that everyone has a solid understanding and proper context in which to evaluate our business strategy and performance. We think that the more you know and understand the more you will like Elutia. Now as a CEO that's been doing this for more than 25 years, I've come to realize that any great success first starts with a great team. And over my past 25 years, I can honestly say that the collection of people that I get to work with in and out on a daily basis form my greatest hits album of leadership teams. And not just because they are remarkable people with remarkable pedigrees that have claim to tremendous ego and attitude, but because each of them shows up each day with a humble but confident relentless Elutia first mindset, and it is such a joy and honor to be a CEO with this remarkable team. Elutia is a commercial stage company that is working with a set of proprietary platforms in both the CIED or pacemaker and breast reconstruction space. So CanGarooRM is our product line in the CIED space. SimpliDerm is our product line that's primarily used in breast reconstruction. And what…

Okay. Thanks, Randy. So as you've heard from Randy, this has really been a seminal quarter for Elutia, both from an operational and a strategic and from a financial point of view. First and foremost, in this quarter, we announced 2 significant transactions, 2 major transactions. The first of those was the divestiture of our Orthobiologics business unit. And that was really important because it -- first and foremost, it streamlined the business. It allowed us to focus on really what's important strategically for the company going forward but it also brought in cash. So it brought in an upfront $15 million, and we'll use that to fund operations and to fund growth. We'll also use some of it to pay down some debt. And then there's also an earn-out associated with this transaction, where in the coming years, we could generate up to $20 million based on the sales of the acquiring company. So that was the first of the 2 transactions. On the heels of that transaction, that actually enabled us to execute on a private placement financing. And so right after we signed the Orthobiologics divestiture, we went out and we brought in a handful of new investors who anchored an important private placement transaction for us, where we sold stock and warrants and the transaction brought in $10.5 million upfront through sales of stock and it also importantly had warrants attached to that, not warrants that are going to hang out there for a long, long time. These are warrants that are cash exercise only, and they actually expire 30 trading days after we receive FDA clearance for CanGarooRM. So as Randy talked about, we expect that to happen in the first half of 2024. And so when that happens, that should translate to another $16…

Elutia is born. And as you can tell, like all proud parents, we like to talk about it. It's a great company. We think it's in a great position. Executing, firing on all cylinders, growing at 26%. We've got, we think, a great future with CanGarooRM, our first drug-eluting biologic, which we expect on the market in the first half of next year. And lastly, we have the team and resources to get this job done. And so with that, I'm going to turn the call over to the operator, and thank you all for joining us today.

[Operator Instructions]. Our first question comes from the line of Ross Osborn with Cantor Fitzgerald.

Congrats on the progress. So starting off, maybe just on the new rebranding and Elutia. You're now 100% focused on CanGaroo and SimpliDerm offerings. Have you seen the shift in focus affect your sales force mindset yet to further push CanGaroo. Is there a potential CanGaroo growing faster ahead of RM?

So thanks, Ross for the question. We absolutely have seen a shift in mindset because of focus. Recall, that prior to our deal with LeMaitre we actually had that sales force split between our cardiovascular product line and our bio envelope product line CanGaroo. And those are very different call points. They are very different procedures and surgeries. And that's one of the reasons we think the LeMaitre deal is really so transformational for us as it takes a great product, and it puts it in the hands of a company that's phenomenal at marketing that kind of product. And they're doing a great job with it. We love that partnership. And it reduced our top line a little bit. The only actual reason you see the sales overall, not growing higher, it's just because of the way we're recognizing that revenue -- but that's been a great move for us in cardiovascular. But as you said, Ross, what it's done is it's allowed the sales force to really focus up on CanGaroo. And the new leadership there has helped us well, right? So we have -- Kimberly Mulligan has got in there and -- former Medtronic person that's been with us now for the last 14 years really understands technology. She actually has a PhD from Wake Forest in regenerative medicine and understands the systems really well and it's created a collaborative relationship with Boston Scientific and with others, and you're starting to see that product move. But you're starting to see it move because we're selling on the science and the technology of the biology. And we think that creates exactly the right messaging going into the launch of CanGarooRM. Keep in mind, we're going to be going up against a synthetic -- a polymer that releases antibiotics and we'll have the ability to offer all the benefits of a biologic. So yes, we do think that, that move has created focus and that focus is exactly why you're seeing this growth really resurgence of CanGaroo and it couldn't happen at a better time.

Okay. Sounds great. And then going off of that and looking at OpEx, it sounds like burn should improve from here. But assuming RM does get approved, how should we think about the size of your sales force ahead of launch next year? Or are you expecting Boston or others to increase their support?

Well, we are planning to launch CanGarooRM – now we’re open-minded, and that could change depending on what other strategic offers there are, but I want to tell you, they have to be really, really good offers because we think we have product that’s worth to us hundreds of millions of dollars. And that’s not something we’re going to let go up for cheap. The other thing is we have extreme confidence in this sales force. So I can’t emphasize this team thing enough. We have the right leadership in place, that right leadership has the right understanding and background and messaging in place. They – Kimberly has that sales team firing on all cylinders and the message works to take that and to pair it with 88% of TYRX users want to be CanGarooRM users, and yes, we’re going to put some – we’re going to put some additional resources into those sales force ahead of this launch. But we actually think that can be money well spent.

And our next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

Congrats on the progress. Maybe I'll start with just following up on Ross' point about the commercial strategy post CanGarooRM clearance. Can you just talk about maybe -- I know I heard your comments around 88% of TYRX users mentioned that they would likely switch over to the CanGarooRM product. But maybe talk about where you think you can take share most easily. Obviously, it's a Medtronic sale on that side, but then Abbott and Boston have big opportunities as well, but maybe the Medtronics are more familiar with the benefits of an envelope. So maybe just talk through where you think you can take the most share and how you expect that to play out throughout next year.

Thanks, Frank. So I think one of the great things about this market and really the service that Medtronics does is Medtronics created awareness around the need for the product. And again, this is our estimates. But based on our estimates, it appears that Medtronic is close to 100% penetrated with their pacemaker users with TYRX. And yes, it is true that, that group has already made the switch and 88% of them would like to, as we said, would like to become CanGaroo users, so that's certainly fertile underground. But they only have 1/3 of the market roughly in rough numbers. And so there's this other completely wide open white space with something like $400 million to $450 million of market that's currently not being addressed by anything, and that's -- that's probably because they're being serviced by the Abbotts and the Boston Scientific and the Biotronics and those reps certainly don't want to be bringing a Medtronic product in there. But it's not that the need for the product doesn't exist. It's not like Medtronics electrophysiologists are doing some sort of high-risk procedure that requires an antibiotic envelope. It's really more of, we think, a market dynamic thing. And that's why we're so excited about introducing this product. Yes, we can go after 88% of the TYRX users. This $400 million to $450 million opportunity out there that nobody is addressing. And we kind of think we're the Switzerland in there and can go in and actually be quite effective at taking a lot of that market relatively uncontested.

Got it. That's helpful. And maybe to stay on the CanGarooRM theme for now. The -- talk us through any clinical strategy you may be thinking through? Do you think you need to run some sort of clinical trial to show the benefits of the drug-eluting pouch or is it well known enough via TYRX's study that's out there. Maybe just kind of talk through that strategy and how you're thinking about it at this point?

Sure. First, Frank, we are a science-based science-first company. So we have done a number of clinical programs. We are also planning for the initiation of a few trials once CanGarooRM is approved to continue to show out that -- prove out that clinical benefit. We think perhaps the biggest area to show differentiation actually centers around the biological components of it versus the infectious components of it. It's -- recall that, that TYRX study required thousands and thousands and thousands of patients to show a relatively small benefit on infection. We look at the overall procedure failure rate and think that there's actually an opportunity where a biologic can go and make a big difference. So I know Michelle and her team with clinical has a number of studies planned for it. And again, that's how we intend to market not just TYRX but all of our products as the science evidence-based company.

Okay. And then maybe a last one for me, switching over to SimpliDerm. How should we think about a steady state growth rate in that business? Clearly, it's growing very quickly right now, but a couple of moving pieces with Sientra partnership coming online. So I was hoping you could talk through some of the moving pieces and how we should think about the growth rate in that line.

Sure. So the SimpliDerm we actually have 2 different distribution channels for SimpliDerm our proprietary distributor network, which we've been working with and developing now for some time and they are knocking the cover off the ball. They are doing, have been doing and continue to do an absolutely phenomenal job for us. We've augmented that though recently with Sientra and I think it's important to appreciate the magnitude of what Sientra brings, right? So they have about 23% of the reconstruction market. That's about a $1.6 billion ADM market for us. That 50 brand-new reps that are working on this product, and we're talking about where we are right now, relatively small numbers. And so they have started contributing. The third quarter, they actually were in a prelaunch state. They're starting to ramp up with their launch activities now. They have the ability to contribute in a very meaningful way for the growth of this product. And right now, we like what we're seeing. As it relates to next year, I would say we're kind of in a wait-and-see mode. But they have the potential to not grow it in the way we have been growing, growing it more sort of in the orders of magnitude kind of realm. That's really what we're hoping to see out of it.

Yes. Maybe one thing to add to that, Randy. I would just say that in the third quarter, the 44% growth that we saw in the third quarter, that was fantastic. We were thrilled with that. But really, most of that was driven by our own existing sales network, distributor sales network. And so we’re starting to see some material contributions from the Sientra partnership. We saw more later in the quarter than we did earlier in the quarter. And I think it’s safe to say that we’ll see an even bigger contribution in Q4. Where that can go next year, I think, is an open question, but we are really optimistic about what that can do. We’re also really optimistic about what we can do even just with our own distributors. And we think we’ll see benefits from both. So when we think about the 44% growth that we saw in the third quarter, that’s been – that’s really been a bright spot for us almost every quarter. If anything, I would see that accelerating as we go into next year. It’s hard to put a number on it right now, but we don’t see that tapering off. We see that continuing to grow at some of our percentage rates, at least through next year and probably longer than that.

And we have reached the end of the question-and-answer session. And this also does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.