Good afternoon, ladies and gentlemen. Welcome to the Elutia First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to Matt Steinberg, FINN Partners. Please go ahead.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended March 31, 2024. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance are forward-looking statements. All 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-K for the year ended December 31, 2023, that is 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 and is accurate only as of the live broadcast today, May 9, 2024. Elutia disclaims any intention or obligation, except as required by applicable law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure, the most directly comparable GAAP financial measure is available in the company's financial results release for the first quarter ended March 31, 2024, 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 will turn over the call to Elutia's CEO, Randy Mills.

All right. Thank you, Matt, and it's hard to imagine that any part of this presentation could get better than our forward-looking statement slide, but I'm going to give it a shot here. We have some new people on our call with us today. So we're going to go over a little bit of the background and history of the company, but we've got a whole lot of exciting stuff to talk about. I hope you got a chance to see the earnings release that was just put out. But we'll be going through that. Matt will be taking us through some of the financial components. And then at the end, obviously, we'll be happy to take your question. So Elutia, our mission humanizing medicine so that patients can thrive without compromise. We are a commercial stage company now with a $27 million revenue run rate and growing on the backs of 2 proprietary product platforms. Our CanGaroo product platform, which is used to protect implantable pacemakers and electronic devices and our SimpliDerm product line, which is used in breast reconstruction. But very excitingly, we are pioneering the drug-eluting biomatrix and we use that to solve very serious problems with implantable devices that currently are not addressed by the state-of-the-art technology. Importantly, we expect FDA clearance of our first drug-eluting biologic CanGarooRM in June coming up right now. And I'll go over this, but that gives us the ability to jump into a $600 million device protection market within pacemakers that really is right for disruption. So let's jump into it. Okay. So from a business highlight for the first quarter, we had another exceptional first quarter, but this one was really quite a standout $6.7 million in revenue for the quarter, it puts us at a run rate of…

Okay. Thanks, Randy. I'm just going to hit a few of the highlights from our financial performance for the quarter. As Randy mentioned, net sales of $6.7 million for the quarter, that compares to $6.4 million from the first quarter of 2023. So that was led, as Randy mentioned, by SimpliDerm with 55% growth, but we're also really pleased with our performance with CanGaroo, our other main proprietary product line, where we were able to maintain roughly consistent revenue with last year, but with a much smaller commercial organization. So it's really showing the leverage we're getting in our operating model. And we are extremely pleased with that and really excited about what that area of the company can do once we get CanGarooRM clearance. Moving down the P&L. Our gross margin on an adjusted basis, so this is the non-GAAP version, which excludes noncash amortization -- noncash amortization expense was 55% in Q1 versus 66% a year ago. And again, we are very pleased with this, both our proprietary product lines in the range that we have been expecting and looking for the real driver of the decline was our cardiovascular business, which has been partnered exclusively in the U.S. with LeMaitre Vascular. We're very pleased with how that's going. But the result of that from a financial point of view is selling the product there at a transfer price versus the end user price. So it kind of distorts the overall gross margin. That was the main driver there. Overall, we're very pleased with how we're performing operationally. And we do expect, as we continue to scale up, we'll see good positive gains in our gross margin, both of our proprietary and private lines ultimately should get into the 70% range or so. From an operating expense perspective,…

Thank you, Matt. I do want to mention, we are going to be at The Heart Rhythm Society, May 16, 19th, so next week, booth 1443, it would be awesome if you are interested in seeing what we're working on, being some of the team. I know I'll be there and Matt will be there and our CSO, Dr. Michelle Williams, as well as a bunch of our sales teams. So we'd love to see you. You stop by. That will be, as I said, next week at The Heart Rhythm Society meeting in Boston. So just to finish up and get to any questions, I think this is a recap of what I hope you know a fully integrated company from R&D, all the way through commercial with $27 million in accounting, revenue run rate. We are pioneering the field of drug-eluting biomatrix. We have 2 products that we are building on our CanGaroo product line and our SimpliDerm product line, but we think there's a tremendous future in this entire field of drug-eluting biologics, which we think we are -- well, we're the only ones in it right now, and we think that's a position for us to own going forward. As I said, we now expect not just an approval decision in June, but we expect approval of CanGarooRM in June. That will put us squarely in a $600 million market with really favorable dynamics and only one competitor. And we think unashamedly, we think with a superior product, and we are really excited about putting that on the market and giving the physicians and the patients that opportunity. Right behind that, we have SimpliDerm at a $14.3 million run rate, growing at 55% and an exceptional team that I would be remiss if I did not profusely thank today for another exceptional quarter. They are the most talented group I have ever worked with and have the resources and abilities to execute this plan ahead. So with that, I will end my comments and turn it back to the operator and take any questions you might have.

[Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital.

Congrats on the progress. I was hoping to start with one on CanGarooRM, and I figure you can guess. Any update on some of the conversations with the FDA not looking for you to discuss what you're talking about specifically with the FDA in the public domain, but just positive, negative, in line, different from your expectations and then close that up with how we expect the clearance to come in June and the confidence behind that.

Frank, thanks for -- I won't get into the specific -- I won't get into the specific details. Obviously, some of it actually deals with some proprietary things that we're going through. But you're asking for -- where are we in the process. As I said in the call, and I think we put it in the release, too, we expect to close out any last details that we need to get in with the FDA this month in the next really week or 2, with regards to positive, I would say, yes, very positive with regards to in line with expectations. Yes, again, in line with expectations because we expected it to be positive. We've done -- we've really taken what we would say is a belt and suspenders kind of approach to this. We didn't want to leave a lot to question. It's an enormous file, a combination drug device is a really, really sophisticated thing and involved a review at 2 centers. And so I know there's some -- how come the review might be taking so long. It's a really serious review. It's going on at the Center for Drugs and the Center for Biologics. But it's proceeding very positively. And I'm kind of proud to say, as expected, it's perceived as well. So those 2 things are going together. From a timing standpoint we are still anticipating to be fully submitted with FDA in the next, as I said, a few weeks or 2, and that would put us on track for a June clearance decision, we think that clearance decision is going to be positive. And when I said, Center for Biologics, I didn't mean that it's Center for Drugs and the Center for Devices or CDRH. I've spent a lot of time in the Center for Biologics as well. So they're always not too far out of my mind.

Perfect. All right. Maybe switching over to the commercial preparation you're doing for CanGarooRM. What are some of the things you're doing to prepare for that? And I heard your comments around 356 centers and the Tier 1 $100 million opportunity you're going after. But what are you thinking about today, to set yourself up for success in the second half of the year?

Right. So there's a couple of things that we need to do. One is, after we clear it, we need to be able to make it. And so you're hearing us talk about operationally gearing up and preparing from a production standpoint for the launch of the product. Just after we make it, doesn't mean we can go ahead and sell it. Before that, we actually need to introduce it to the different hospitals and centers and get on formulary there. That involves going through what is a center-to-center VAC process, the value-added committees to get the product on formulary, we cannot submit those to the VAC until we get the clearance decision, but what we can do is prepare the VAC packages. And so that's a big part of what's going behind -- going on right now behind the scenes. It's the clinical data, the preclinical data, all of the different value proposition data that the VAC needs in order to make favorable decisions. Ultimately, we think the initial sales trajectory of the product will be constrained by supply, and it won't be constrained by demand. We actually think the rate limiting step for adoption is going to be with these different VACs in the hospital and getting on formulary. That's why the idea of starting with these 356 makes so much sense. We -- we're already on formulary with the base CanGaroo product at these 356 centers. CanGarooRM for sure, is a different product. And so I don't want to create a misleading expectation there. But it's 356 centers that have familiarity with the base biologic CanGaroo product. And should we think there's already a tremendous amount of excitement and enthusiasm at these centers or the drug-eluting version of the product. And then lastly, it's a new day for our sales team, right? So they've got to learn and be prepared to articulate the benefits of not just a fully biologic envelope, but one that elutes rifampin and minocycline, all the intricacies that go along with a drug-eluting product. So behind the scenes, that's what we have going on right now. Production being prepared to introduce it and get it on formulary through the VAC and getting the VAC packages up and ready to go. And then lastly, making sure our sales force is fully geared up and trained and ready to talk about the product effectively.

And maybe just one last one on SimpliDerm. Obviously, it continues to grow very robustly. Maybe talk through some of the investments you're contemplating, making in that organization. Maybe it's nothing given how well it's executing, but is there thoughts around additional sales reps there, different commercial support personnel, anything of that nature to keep up that growth rate and maybe accelerate it?

Yes. We continue to make investments in growing the commercial side of that infrastructure. We have been exceptionally pleased and proud of how well our proprietary distributors there are doing our own network and distributors. They are knocking the cover off the ball, and we are investing in expanding there. That is turning out to be an investment that is paying tremendous dividends. There's also some back-office work we're doing. We're also investing in improving our coverage with that. And we recently got another favorable coverage decision and continue to work through -- we have another, I don't know, 79 million lives right now, that we are currently submitted for coverage decisions. So there's a fair amount going on through the commercial side, as Matt talked about, though to -- we're also making investments in -- on all sides of our business and improving as we scale up the gross margins of our product as we think both of these products can and will be in the 70-plus percent gross margin range.

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald.

This is Matt on for Ross. Congrats on all the progress. I just want to start off with CanGarooRM and following up on a previous question asked. Are you able to provide some more insight into what the VAC process will look like upon RM approval? And how long you anticipate the sales process to be with getting into those hospitals?

Yes. So here the VAC process is going to -- is going to be a very variable event depending on whether or not it's one of our 356 centers or whether -- or the -- as we go into these new centers from a cycle standpoint, where we have existing CanGaroo on formulary and where we have surgeon champions there, we can be looking at VAC times as low as a month. We are modeling conservatively though, when you look at sort of the average of all of them, we're modeling a 6-month VAC process across all of them. That might be a little conservative. But we've got a lot of centers to go after, and there's plenty of fertile ground to go after. So that's what we have going on there.

Okay. Sounds great. And then maybe turning to SimpliDerm , I just wanted to get some more color on any initial conversations you've had with Tiger following the Sientra acquisition, and how you view SimpliDerm growth for the remainder of '24?

So we don't give guidance and still nice try. But with regards to Tiger. So Tiger could be some upside for the SimpliDerm product line, we have been very early in the relationship with Sientra, obviously, when they ran into their issues. We are -- fortunately, the vast majority of our product sales is through our own distributor network, which has been crushing it. I happen to -- when you're old like me, you've been around for a while. I happen to get -- have gotten to know and work with a whole lot of people and one of them is the CEO at Tiger, and we have a great working relationship. And so we are in the early discussions there. But Tiger really could be beneficial, certainly, to the team at Sientra by bringing in a fresh balance sheet and the ability to invest more in their sales team. And ultimately, that's something that is makes good sense for both Tiger and Elutia. I would be happy to do that from a personal standpoint, these are some quality people that I've known for a long time. And certainly would have a lot of trust in working with them.

Got it. Helpful. And then maybe one more for me. Turning to OpEx, assuming CanGarooRM gets approval, how should we think about the size of your sales force ahead of launch? And if you guys can shed any incremental spend throughout the balance of the year? And if you guys see any tailwinds that you like to shut out?

Yes. So we're certainly evaluating the investments that we make in the commercial organization and operations. And I think fortunately, we have a really well-established and highly effective organization in place already. So we can very much hit the ground running with the people and the processes and the systems that we already have in place and have been using for quite some time now. We do think that as we ramp up and we get manufacturing going and get through some of these VAC processes like you were talking about before, it probably will make sense to add to the commercial organization, that both could be through additional direct reps, it could also be through some independent distributors in the case of CanGarooRM. So we think we will have more feet on the street -- in the medium term or so, probably won't rush to do that right away, but probably by the end of this year, we will be adding to that organization. That would be my expectation.

Yes. We're -- it's not a lack of willingness to make the investment in the rep, just to be super clear about it. As we get more clarity on the VAC process, we will start to aggressively add more reps. What we don't want to do is obviously add reps and disrupt their lives and take on the expense of reps before they have something to do in the hospital for the products on formulary. So once we get a handle on how long the VAC are taking at the different locations, we will be increasing that sales team right now.

We have reached the end of our question-and-answer session. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.