Greetings. And welcome to KORU Medical Systems Second Quarter 2021 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Hannah Jeffrey with Hilmar & Group [ph]. Please go ahead, Hannah.

Thank you, Sherry [ph] and good afternoon, everyone. Earlier today, KORU Medical Systems released financial results for the second quarter of 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 the 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, August 11, 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. Linda, please go ahead.

Thanks, Hannah. Good afternoon, everyone, and thanks for joining us today. During today's call, I will review our second quarter results and our strategy to accelerate top line growth, increase our pharmaceutical pipeline of new drug candidates, and build a strong foundation for continued bright future at KORU Medical. I will then turn it over to Karen to discuss the quarterly financials in more depth before ending with a few closing remarks. Our mission at KORU Medical is to improve patient's quality of life through the development and delivery of high quality therapeutic drug delivery solutions for use in the home. Our FDA cleared market-leading Freedom Integrated Infusion System is used today by patients to self-infuse life-improving immunoglobulin Ig treatments in the convenience of their home and at lower overall cost to the healthcare system. With more than 85% of patients on Ig therapy, receiving treatment intravenously, in a hospital or infusion clinic setting; there is a great opportunity in the subcutaneous Ig market with a greater than $250 million total addressable U.S. market potential. Expanding beyond Ig, we have also characterized a potential pipeline of over 60 new high volume drug candidates in development that capitalize on the Freedom Systems leading position in the space. Later in the call, I will share our progress in both of these areas. Turning to our results for the second quarter; we reported revenue of $5.5 million compared to $7.7 million in the second quarter of 2020. Our year-on-year revenue growth was negatively impacted by two one-time events in the second quarter of 2020. The first was $1.1 million in sales due to increased inventory levels related to COVID-19. The second was approximately $1.2 million in sales from Apellis Pharmaceuticals for the clinical trials of EMPAVELI. When normalized for these one-time events, we…

Thanks, Linda and good afternoon, everyone. Total net sales for the second quarter of 2021 were $5.5 million, a decrease of 28% from $7.7 million in the second quarter of 2020 resulting from difficult year-over-year comparisons due to two one-time events including increased inventory bill due to the uncertainty of the pandemic last year, and large novel therapy sales from non-recurring trials during the second quarter of 2020, in aggregate totaling $2.3 million. Sequential quarter net sales growth was 2%, driven by a 4% increase in domestic core and growth in novel therapy revenues. Both the overall domestic market growth in Q2 and our end-user sales, which measures sales to specialty pharmacy channel grew high single digits, we believe indicating market recovery and new patient starts for SCIg therapy. International sales increased 1% from the prior year quarter. Gross margin for the second quarter of 2021 was 50.1% [ph], a decrease of 5.6 percentage points, negatively impacted primarily by lower volumes resulting in unfavorable absorption. Total operating expenses for the second quarter of 2021 were $4.6 million compared to $5.9 million for the same period in 2020, which included litigation fees of $2.3 million last year. Excluding the litigation fees, expenses grew with spent focused primarily in areas related to our strategy including market research, testing and consulting fees, also support commercialization, research and development and strategic and our regulatory initiatives. Net loss for the second quarter of 2021 was $1.1 million, or negative $0.03 per diluted share, unchanged from the same period in 2020. On a non-GAAP basis, adjusted diluted earnings per share was negative $0.02 for the second quarter of 2021, $0.04 lower than the same period in 2020. Non-GAAP adjusted EBITDA for the second quarter of 2021 was a loss of $300,000 compared to a loss of $1.8 million for the second quarter of 2020. Turning to our balance sheet, we ended the second quarter of 2021 with $26.5 million in cash, compared to $27.3 million at the end of the year. Our inventory position grew $6.8 million at December 30, 2020 to $7.6 million at June 30, 2021 due to efforts to transition our manufacturing to our secondary source. I'll now turn it back over to Linda.

Thanks, Karen. Before turning the call over to the operator for Q&A, I want to reiterate that the future is very bright for KORU Medical. We're the market leader in subcutaneous home use Ig therapy due simplicity, reliability and safety of our Freedom Infusion System. Based on published market data, we believe subcu-Ig sales have turned the corner and we begin to accelerate, and we expect to grow at or above the underlying therapy sales growth rate. In addition, our strategic plan focused on driving growth and penetration of subcu-Ig therapy increasing our pharmaceutical pipeline and innovation will accelerate overall top line growth. We're excited to continue our focused execution bringing increased value to our customers, patients and shareholders. I'll now turn the call back over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question is from Matt O'Brian with Piper Sandler. Please proceed. Hi,

Hi, this is Carine [ph] on for Matt. Thanks for taking the questions and congrats on the quarter. So starting off with COVID cases on the rise, and especially with delta and other variants; it's been a pretty hot topic this earnings season. Just curious your thoughts on how this will impact - how this has impacted your outlook for the remainder of the year? We know you don't guide but if you just share some of your internal expectations and assumptions on how the market may perform here and how you may perform versus the market, factoring in all these COVID uncertainties?

Yes. So, I would say that we're looking at overall vaccination rates versus the impacts of the delta variant. And I would expect that overall, the market as we thought performed in quarter two, which was about 8%, overall, about 6% year-to-date; we're modeling about the same impact in the back half.

Awesome, thank you. And then you touched on a little bit your initiatives in Europe, can you just expand a little bit more on how that's going along with respect to distribution and reimbursement? And how should we think about contributions from these geographies over the coming years?

So, I'm going to start upfront by saying the majority of our focus in the last quarter has really been on the larger opportunity here in the U.S. market, and on accelerating our pipeline for pharma. However, the work we've done to-date in Europe is focused in the two largest markets, Germany and France. Germany, we have made really good progress narrowed to a distributor, we're in the final stages of signing the agreement with them. And we should expect a couple of hundred thousand dollars by the end of the year in terms of stocking opportunity.

Great, thank you. And then just last one for us, on margins. Gross margin, I believe went to about 58% this quarter. Is that a run rate we should base off of for the remainder of the year? Or how should we think about that gross margin line in the back half? And then, when should we expect that to bump back up to that 60% range?

So provided the volume that we discussed earlier, we would anticipate by the end of the year being back in the 59% range. And then, the outsourcing agreements that are referenced earlier will kick in in the early part of 2022; so think about through 2022 getting to the 60% to 62% range.

Thank you.

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

Great. Good afternoon, everyone. Linda, thanks for all the details on the pipeline. Can you expand on the five agreements you have signed; the seven in feasibility? Are these deals where KORU is the key pump written into protocol during the clinical trials? And is ultimately expected to be the key pump during commercialization? And then, also can you quantify the market opportunity around the three seeking FDA approval by year-end?

Yes. So, of the five that we have signed today; yes, there are agreements that either, A) they would be the commercial opportunity with KORU or would be the pump used in the trials. Two of those are - with - in SCIg today either for geographic expansion opportunities or reformulation opportunities; and then, the other three are in new therapies. I can't really expand beyond that but there are new therapy classes, some as you would imagine with Apellis, with expanded indications, and then another in the respiratory field.

Okay, understood.

The other seven are what I would call earlier-stage feasibility; meaning, we're at a stage where we've defined an opportunity, and we're working to see either is there a particular customization to our system that we need to make for an on-market application or can we go directly into early stage clinical trials with them.

Got it. That makes sense, helpful. On expanded penetration of subcu-Ig, can you maybe talk to how KORU can directly influence that market? It seems like some of it is having enough drug which requires enough plasmin [ph] or decreased penetration. But you're also seeing the newer not high venture subcu-Ig drugs come onto the market too. So, just expand on how KORU can directly influence that penetration, right?

Yes. So, I think first of all, what you've talked about which is new drugs coming into the class is certainly going to help; but I think there are three pieces of data that will rely on heavily working with a KOL group to really increase our presence at overall shows, and then focus primarily with our specialty pharmacies in trying to make that switch. So, we're working with several of them today that identify patient pools that are on IV today that could go to subcu, and are working with us to try and convert patient base; so we're going to start this on a trial basis. So the data exists today, we have first of all clinical data that shows improved patient outcomes; several published papers out there. Second is, the overall cost to the healthcare system; United has done a study that shows a difference - 50% difference in costs over six month period in hospital versus home. And then finally is, the obvious improved outcomes for the patients. So we don't think we can do this alone at the physician level, certainly, we'll need to work in conjunction with our farmer partners. But all of those tools in conjunction working with our pharma partners, and then working with our specialty pharmacy partners; we don't see - the biggest challenge is obviously, the change in clinical practice with prescribers that have written IVs for several years. But we see the market naturally turning because of the improvement in overall drugs in the space, and overtime, you know, our commercial activities we think will get us there.

Okay, that makes sense. And then just last question, just maybe on the R&D pipeline, with regards to the Freedom line of pumps; you've obviously joined the company just a couple months ago, had some more time to study the devices. How do you - what sort of features do you think the Freedom [ph] System is lacking? And I guess, how would you want to expand on the Freedom System, but also go into maybe a patch pump or what other sorts of devices could you add on here?

Yes. So first, I'll just talk about stage one of the strategy; it's clearly focused on the pump we have today. I'll focus there and then I'll talk a little bit about phase 2. So in phase 1, clearly, we've identified I would say 10 to 15, what I would call minor improvements that we can make to the pump that make meaningful difference either to the patients or the nurses that help train on the therapy. Most of these are focused on patient comfort and convenience and deal with the overall size of the pump, getting that smaller. And as I said, I'm not going to get into more detail, but patient comfort and convenience; that's first stage. Second stage, obviously, do we add electronics to the pump, to give the caregiver the signal that something has been delivered. And then, third phase is, as you talked about, what do we look at in our portfolio or patent portfolio to say, what can we do in terms of a smaller pump that is either an on-body or an off-body pump using our infusion set. So, you know, you'll see all of this kick up over the course of the next six months. And I think innovation is critical to commercialize with a lot of pharmaceutical targets that we see today.

All right, understood. Appreciate the update. Thanks.

We have reached the end of our question-and-answer session. So this does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.