KORU Medical Systems, Inc. (KRMD) Q1 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to the KORU Medical Systems First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Greg Chodaczek. Mr. Chodaczek, you may begin.

Thank you, Alex, and good afternoon, everyone. Earlier today, KORU Medical Systems released financial results for the first quarter 2021. A copy of the press release is available on the company's website. During this call, we will make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today, actual events or results could differ materially due to many risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter. During the call management will discuss certain non-GAAP financial measures in our press release and in our filings with the SEC, each of which are posted on our website. You will find additional disclosure regarding these non-GAAP measures, including reconciliations of these measures with the comparable GAAP measures in our press release and those filings. For the benefit of those listening to the replay, this call has was held and recorded on Wednesday, May 12, 2021 at approximately 4:30 PM Eastern Time. Since then the company may have made additional comments related to the topics discussed, and please reference the company's most recent press releases and filings with the SEC. Joining us on the call today is Linda Tharby, President and CEO of KORU Medical Systems; and Karen Fisher, KORU’s Chief Financial Officer. We are excited to have Linda joining us from a successful 25-year career at Becton Dickinson, with a great breadth and depth of experience in global business leadership roles. Linda, please go ahead.

Thanks, Greg. Good afternoon, everyone, and thanks for joining us today. During today's call, I would like to share my thoughts in three key areas. First, I would like to share my excitement in joining KORU Medical at this time in its evolution. I will then go over a few highlights from our first quarter and my early thoughts on the opportunity ahead. I will then turn it over to Karen to discuss the quarterly financials in more depth before ending with a few closing remarks. When I was approached with the opportunity to lead KORU Medical, it was a great fit for several reasons. It's a company with a strong purpose, with a leading market position and a growing space. It's a company that has the ambition and the opportunity to be a global leader. And it's a company where I could grow and develop the team. Over the past four weeks, I've had the opportunity to talk with and work alongside our dedicated employees and have met with many of our customers. During these discussions, my initial thoughts about the company were confirmed. KORU Medical improves the daily quality of lives for patients with the KORU Freedom Integrated Infusion System, has the potential to increase our leadership in a growing global home infusion market and has a tremendous emerging opportunity in the pharmaceutical drug delivery space. I'm excited to join this team merging my skills and capabilities gained over the last 25 years. Those most relevant to KORU are the decades spent building and leading strong performing and diverse global teams, the development and commercialization of multiple products and service innovations and delivering drug delivery device solutions to patients in the home, working in partnership with pharmaceutical companies. I look forward to working with the team here at KORU and defining and executing on our current strategic plan, as we evolve it to drive even more meaningful value for our customers and shareholders. Turning to our results for the first quarter. Our revenues were affected by one-time prior year purchases, as well as the current year COVID-19 impact on new patient starts. 2020 was a complex year for our business, as the pandemic affected ordering patterns from our customers in the US and abroad, as well as our initiatives in novel therapies. I'm encouraged by several key fundamentals from the quarter. We are very excited by the sequential revenue growth from Q4 2020. To Q1 2021, which together with a review of our inventory levels at our distributors, reaffirms that there is no excess inventory in the channel. Additionally, our end user sales data, which measures sales to the specialty pharma channel confirm strong sequential quarterly growth in our new pump placements as a measure of new patient starts. Further, although we can't necessarily rely on this to be indicative of the full quarter, April net sales exceeded the monthly sales of each of the prior six months. Looking ahead a few comments on our critical areas of focus over the next several quarters. First, in the US market, we will continue to advance our efforts to have newly diagnosed Ig patients, start their therapy with the KORU freedom system. We will review the larger US market opportunity to convert the 75% plus patients who receive IVIg therapy in a hospital and clinic setting to subcue, working in partnership with our pharmaceutical customers. In Europe, we will accelerate our focus on growing our distribution and reimbursement. And finally, a significant opportunity for KORU Medical, as the market leader in delivering millions of safe subcue large volume home infusions annually is to expand our focus on indications with new drug therapies. As a foundation for these plans, we will review our portfolio and build out the team necessary to take KORU Medical to the next level. We look forward to sharing our progress. I will now turn the call over to Karen, who will take you through our first quarter results.

Thank you, Linda and good afternoon, everyone. Total net sales for the first quarter of 2021 were $5.4 million, a decrease of 14% from $6.3 million in the first quarter of 2020 with strong sequential quarterly growth versus Q4 2020. The biggest drivers of the decline were lower novel therapy sales of 400,000 due to non-recurring clinical trial for domestic core comm sales of 400,000, primarily related to ordering patterns and a one-time pharmaceutical customer pump purchase. Domestic core business also reflected our first quarter 2021 market slowdown in the growth of new patient starts for subcue Ig therapy as a pandemic continued to delay provider visits and new diagnosis. With our sequential quarterly growth and new pump placements, we’re encouraged that market growth is returning to pre-COVID levels. International revenues were $1 million, flat with prior year. Net of one-time purchases, we saw double-digit growth, and it was the strongest quarter of the last four. Gross margin for the first quarter of 2021 was 59.5%, 30 basis points lower than the same period of 2020, primarily due to lower volume and pump sales where we have higher gross margin. This was partially offset by favorable production variances. Selling, general and administrative expenses were $5 million for the first quarter of 2021, compared to $2.9 million for the same period in 2020. This increase is mostly due to $1.3 million in costs associated with leadership changes, which includes non-cash equity expense of 400,000 and the recruitment of two new board members. Further contributing to the increase was higher salary and related benefits of $600,000, from new hires in the second half of last year to support commercialization, business development and medical affairs for our novel therapies initiatives. Net loss for the quarter of 2021 was $1.3 million, compared to a net gain of $400,000 for the first quarter of 2020. Driven by lower gross profit and higher selling, general and administrative expenses, as previously described. Offsetting the loss was a tax benefit of $500,000, resulting from book-to-tax differences related to stock option expense. Diluted earnings per share was negative $0.03 for the quarter compared to $0.01 diluted earnings per share for the same period last year. On a non GAAP basis, adjusted diluted earnings per share was $0.00 for the quarter of 2021 and $0.02 for the same period of 2029. Non-GAAP adjust EBITDA for the first quarter of 2021 was negative $400,000, compared to $1.3 million for the first quarter of 2020. Turning to our balance sheet, we ended the first quarter of 2021 with $26.8 million in cash, compared to $27.3 million at the year ended 2020. Our inventory position grew from $6.8 million at December 31, 2020, to $8.1 million at March 31, 2021, due to the efforts to transition our manufacturing to our secondary source. As you know, the Board authorized a stock buyback in Q4 of last year for $10 million, of which we have used $3.5 million and have not made any repurchases in Q1. We are in the process of reviewing our strategic plan and cash requirements with the Board and we will update you accordingly. I will now turn the call back over to Linda for closing comments.

Thank you, Karen. Today marks my one month anniversary with the company and what a month it's been. I want to thank our analysts and our long term shareholders who took the time early in our relationship to share their thoughts and feedback on KORU Medical. I appreciate your time and your feedback. And I want to assure you that we are committed to increase visibility, with respect to our business and our results. I especially want to thank the incredible team here at KORU Medical, who have done a great job through this pandemic in keeping the company growing and fully operational. We are continuing to execute and evolve our strategic plan to improve the quality of life for our patients, provide further value add to our customers and maximize long term value creation for our shareholders. We look forward to sharing our updated plan with you later this year. I'll now turn the call back over to the operator for Q&A.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Matt O'Brien with Piper Sandler. Please proceed with your question.

Hi, good afternoon. Actually Drew [ph] on for Matt. First off, Linda welcome and congrats. I was just wondering if you could speak to some of your strategic priorities over the next 12 months, there's obviously been a couple dynamics in the channel, you had COVID, a lot of things like summer last year, so maybe you could speak to what your focus will be or where you want investors cover the next couple months?

Yeah, thanks, Drew. So, I think first focus is, the team here has done a great job of ensuring that every new drug that's coming into the IG space is using the KORU freedom system. So continuing to ensure that in the IG market, we are capturing all new drugs coming into that space. Second, clearly is ensuring that every one of those new patients that get started start on a KORU freedom system. And we've share today, I think the team has continued to do a great job there, so continued energy there. The opportunities that I see putting further focus on first is the biggest part of the U.S. market today is the conversion from IV therapy to IG, sorry, sub-q IG therapy in the home that today is over 75% of patients are still doing their IVIg therapy in a hospital setting. So that's first. Second is Europe, really accelerating our efforts in Europe on the reimbursement and distribution side. And then finally, an initiative that we started last year with success is the novel therapies initiative. So with the KORU freedom system and the millions of safe infusions we deliver every year, I think it's a great opportunity for future candidates in the pipeline.

Okay. Super, super helpful. And then just turning to the performance in the quarter, I think you referenced COVID is having an impact on new patient starts on sub-q and new diagnoses in general. So as we're just thinking about 2021 from a cadence perspective, maybe you could help us understand how it’s trending through the quarter. I think I caught your comment correctly that you said April was the strongest month out of the last six. And then second part to that question, just your overall comfort level and KORU delivering some year-over-year growth in 2021?

Yeah. So first maybe just start. Overall on the quarter, I mentioned that we saw some overall slowdown, and we look at data sources that we buy externally. And we saw overall slowdown in the market, still some growth in the market, we expect that to rebound with vaccinations beginning and we're encouraged, what we also look at is our new pump placements. And we're seeing a trend in our new pump placements month-on-month that are growing very healthy. In terms of overall outlook for the year, we don't guide for the year, I would say that April was strong, I would say we should see the overall category come back to high single-digit, low double-digit, and expectations would be that we track with or slightly outperform the overall category.

Okay, that's helpful. And then last one for me in your press release, I think part of that $1.3 million you called out was associated with new hires. Historically, the business has been run through distributors and in large portions, so I guess, is the intention to build out a larger direct sales force? And if so, is there anything we need to be thinking about from the SG&A modeling perspective? Thank you.

Yes, probably, I would say two opportunities that we'll focus on. One is, as you mentioned, we will do this in close correlation with market data that we purchased to understand where we have areas of opportunity, either on a share basis our large areas that are heavily IBIG focus. So if we find those areas, putting a rep in those places, where we can quickly gain share and/or new starts will be a top priority for us. So yes, you can you can absolutely think about as adding some commercial efforts there. And then secondly, is in the R&D area. As we begin to work with the pharmaceutical companies and understanding the requirements there, both for testing with their drugs and for future portfolio evolution, those would be the two biggest places that I see as adding at SG&A.

Okay. Thank you.

Thanks Drew.

Thank you. Our next question is from Alex Nowak with Craig-Hallum Capital Group. Please proceed with your question.

Greg. Good afternoon, everyone and welcome, Linda. I just wanted to touch on the last piece there. Around the new market dynamics, ordering has been pretty lumpy, historically. And that's obviously distorted. What's been the underlying growth rate out there? So, what sort of improvements do you plan to make? Or are there any improvements to help kind of smooth out this lumpy ordering practices to distributors and pharma, and then ultimately, how your underlying sales back to the to the demand that you're seeing?

So Alex, the easiest way to lump out -- to smooth out the lumps is to make the business bigger. So, that would be my first response is, obviously to grow the business overall. But we have really focused a lot over the course of, I would say the last several months, the team prior to me with gentlemen, and certainly me in the last month to ensuring that we have a keen handle on not only our distributor, inventory levels, but also our specialty pharma inventory levels that are in the channel. So, we're going to monitor those, but when the business, you know, one, one big order from a distributor that falls behind the quarter by few days can affect things, but at least we'll have visibility to those and we can talk you through those as they occur. But overall, the biggest way to do it is we're going to grow the business.

No, that's good to hear. As you see the new subq IG drugs come online this year, more so exemplifying CUVITRU, I guess, what are you hearing out there from the pharma companies about those rollouts? Those drugs been out there for a few years now, they're really starting to get going according to the script volume, but what are you hearing specifically about the uptake there?

Yeah, I would say overall, the -- as you said that the starts happened late in 2019. So, what 2020 they're really just getting started for us right now. I would say probably, the biggest opportunity we see is, you know, the prefills that one of those indications has could be an interesting start for them to gain overall share in the marketplace. But you know, I think overall, having two new drugs in a category can only do one thing which is grow the overall category which we look at as a positive.

No, that makes sense. And maybe just pivoting over to the hematology drug launching, which should be the summer, just how are you anticipating the rollout there and then the ramp of demand going into that approval? And then ultimately, once that product starts to sell through into the market, just curious how you're modeling it or just generally thinking about it?

Yeah, what I would say Alex is, we'll be more comfortable talking about that next quarter, as you know, that drug is expected to have its PDUFA date, May 19. So, we look forward and anticipate. And then, you know, we've got lots of modeling that we're doing on that. But I would say, it's probably a little too early to share all of that data publicly.

That makes sense. And maybe just a bigger picture question on the pipeline here. I think one of the challenges investors had is, the pipeline's always been pretty okay. And we know who's involved with pharma, but we just don't quite know where? So, as you're going forward here, and again, not looking for specific this quarter. But as you go forward to review the contracts and learn the business. How do you plan to communicate the opportunities there, the numbers in the pipeline and communicate that back to investors?

Yeah, so great question. And I would say one of the biggest areas of focus right now is been a review of -- we internally are going to look at that pipeline and review it on a monthly and weekly basis as necessary. So I would say, we'll come -- we'll talk to you about it relative to example, I called one out today, right, we see prefilled pocket into a KORU freedom system is a great opportunity to improve patient convenience around a subcue Ig therapy. So you'll hear us talk about the overall class of prefilled Ig. We'll talk about overall drug classes like Ig. We'll talk about, you know, you hear us talk a lot about oncology in the coming call and where we think opportunities may exist. The way that we think about it is, what are the drugs that are currently on market that today may be low hanging fruit for us, because they may use a type of administration to the body, i.e. a push from a syringe system, that are not always very convenient. So those are the first candidate of targets we'll look at. Second is, anything that has had an expanded ID to subcue indication that may not being used on the market today. And then third, and finally will be drugs in development with the subcue indication. So those are the general three areas we'll talk to you about and how specific we get on the candidates' names. There are probably lots of code names that we release until, obviously the drug is a marketed drug or the partner is in a position to talk about it publicly.

Now that makes a kind of sense. Appreciate the update. Thank you.

Thank you, Alex.

Thank you. Our final question is from Kyle Rose with Canaccord Genuity. Please proceed with your question.

Great, thank you for taking the questions and congrats on the opportunity. Linda, a lot have been asked, but I just wanted to maybe think more higher level. I mean, I appreciate your talking about the you know, the answers with respect to predictability of the ordering patterns, maybe just help us, understand that you've been there 30 days or one month, when you look at the channel now, do you -- are we balanced at a normal run rate on a go forward basis? Is there any sort of destocking or stocking that needs to happen to get to a normal status point moving forward? And then secondarily, just on the demand side, and obviously, patients have an impacted getting into C positions. Do you think that there's a backlog building up or is it just you resume status quo on a go forward basis when patients are able to get into physician offices?

Okay. So first, just I'll reaffirm, we think the business now is at a normal state. We have reviewed not only inventory levels at our largest distributors, but also in the channel itself and our specialty pharma channel. And we are confident that we don't have to work through that any further. Now of course, you're going to continue to see those year-on-year competitors in Q2 and Q3. So we obviously will be talking about that for the coming two quarters. On the demand, I guess, that's a great question. And I wish I had further insight for you, I guess what we look at is we look at our new pump starts, which is our biggest indicator that we have new patient starts. And I would say we've seen that demand for our new pumps growing at a pretty healthy pace, both through quarter one and then again, we saw a big month for us in April.

Great. And then just the last question, I have is just, we get questions from investors, just around the overall impact COVID had on plasma supply and plasma donations through the last call 12 to 18 months. And how that might trickle down to the supply chain over the course of the next 12 to 18 months? Just any commentary there around conversations you've had with your pharma partners, do you think that might be an issue? Or is that something you're not worried about?

So at this point, what we have heard is that, they had talked about shortages earlier in the year. What we're hearing of late, as they think they've worked through most of that, but do we still see a lag effect that could occur from something that happened six months ago? I think if we do we'll see it impact x US markets rather than US markets is what we're understanding. So I think it's a great question, but I haven't heard anything that overly concerns us in this area.

Great. Thank you very much for taking the question.

Thank you.

Thank you, Kyle.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Linda Tharby for closing remarks.

All right. So thank you to all of you for joining us on my first quarter as CEO of KORU Medical. I look forward to many more and I look forward to speaking with you in person. Thank you, operator.

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation. Have a great day.