Greetings. Welcome to KORU Medical Systems Fourth 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'll now turn the conference over to your host Greg Chodaczek. You may begin.

Thanks Shamali and good afternoon, everyone. Earlier today, KORU Medical Systems released financial results for the fourth quarter and full year ended December 31, 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 accompanying Investor presentation and 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 accompanying investor presentation and those filings. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, March 02, 2022 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.

Thank you, Greg. Good afternoon, everyone, and welcome to KORU Medical Systems fourth quarter and full year 2021 earnings call. Before reviewing our Q4 2021 highlights from the year, I would like to start by thanking our incredible team. Our company is supported by a talented and growing group of individuals who believe in our mission to improve patient's quality of life by developing and delivering high quality therapeutic drug delivery solutions for use in the home. Each quarter, we continue to build upon our foundation and KORU Medical today is a stronger organization due to each individual's continued dedication and hard work. Today, we'll be using a slide deck to guide our comments. I will begin with a brief overview of KORU Medical Systems and our fourth quarter highlights followed by an update on our strategic milestones delivered during the quarter. I will then turn the call over to Karen to discuss the quarter and yearend financials. I'll then review our 2022 guidance before ending with a few closing remarks. After our prepared remarks, Karen and I will be happy to open the call up for Q&A. Prior to jumping into Q4 highlights, I wanted to begin with an overview of who we are today and how we are positioning ourselves to deliver continued value to our customers and shareholders. We have enabled over 25,000 patients to receive at home subcutaneous immunoglobulin treatments or SCIg treatment via market leading KORU Medical Freedom infusion system. We have a proven pharma partnership model with over 11 commercial drugs and indications on our Freedom infusion system and registrations in over 26 countries. As we continue to grow our business, we have a scalable foundation from which we can build. We have a recurring monthly consumables revenue stream supported by our specialty pharmacy…

Thank you, Linda and good afternoon, everyone. As a reminder, prior to discussion on Q4 financials, I want to remind everyone of our three business areas. KORU Medical defines revenues into three areas, domestic core, international core and novel therapies. The core revenues consist of our product sales for specialty infusion therapies that are cleared for use with the KORU Medical infusion system. Novel therapies consist of product sales to support feasibility and clinical trials of biopharmaceutical companies in drug development process, as well as non-recurring engineering service revenues to ready or customize the freedom system for clinical and commercial use. Each new signed agreement could represent potential revenues in subsequent quarters. Once cleared for commercialization sales associated with these drugs will be reported as core revenue. I'm pleased to report net revenues for the fourth quarter of 2021 were $6.5 million, a 60% increase from the fourth quarter of 2020. Adjusting for net inventory stocking of a $1 million last year, net revenue grew 27.6% with growth in all areas of our business, domestic core driven by pumps and consumables, international core driven by consumables at new key customers and increased novel therapies revenues as we expand our pipeline and execute on our strategy. Sequential quarterly net revenue growth was 7% driven by international core. Gross margin was 59% for the fourth quarter of 2021, an increase from prior year of 60 -- I'm sorry, 56.6% driven primarily by price increases. Selling, general and administrative expenses increased $1.9 million or 63.4% in the fourth quarter of 2021 compared to the same period last year. The increase was driven primarily by investments in commercialization, regulatory and business development, all in support of our strategic plan and to build our novel therapies pipelines. Research and development and expenses increased $1 million…

Thank you, Karen. Turning to expectations for fiscal 2022, our outlook reflects several key drivers underlying market growth reflecting continued recovery from the COVID 19 pandemic related to new SCIg patient starts, plasma supply clinical trial activity and supply chain impact. Currently we expect the SCIg market to recover and grow in the high single digits. Assuming this US market growth, we believe that we will continue to outpace the market and grow our core IG business in the low to mid double digits, including a target of closing multiple new novel therapy agreements, where guiding revenues for the full year in the range of $26 million to $27 million or 10% to 15% growth in 2022. We expect to slower start in Q1 in the US market due to the late Q4 Omnicom impact on new patient starts as from diagnosis to the start of core Freedom therapy could take between 30 and 90 days. We are reiterating our gross margin guidance to begin the first three quarters of 2022, roughly in line with 2021 and plan to exit the year to 60% run rate as we expect the transition to our secondary source to be completed at that time. In order to support our strategic initiatives and drive top line growth, we expect to increase operating expenses to roughly $27 million to $28 million for the full year 2022. Our operating expense includes continued investment in our strategic initiatives with near term goals of expanding our TAM through securing additional new non-IG novel therapy deals, building our innovation pipeline, including advancements on our Freedom system and development of our next generation product. You can expect a 10% to 15% run rate off of where we finished Q4 2021 that will then hold fairly consistent quarter to quarter. Looking…

[Operator instructions] And our first question comes on the line of Matt O'Brien with Piper Sandler. Please proceed with your question.

Hi, good afternoon. This is Drew on for Matt. Thanks for taking the questions and congrats on a solid end to the year here. I do want to start off on the guidance, I think your pointing folks towards high single digit growth for market, low to mid double digits for KORU. Maybe we could just start off on the March a little bit here. What are you assuming from a COVID perspective, maybe some color on Q1 would be nice and then just with the number of factors that have influenced the market over the last couple years, be it COVID, be it the transition to subcue, what data points are you using to triangulate on that high single digit market growth rate?

Sure. So Drew, thanks for the question. There was a lot in there. So let me try and let me try and unpack that. So let's start with the market which as you know, we track the total IG drug that is delivered subcue into the marketplace. And overall we saw that market on a full year basis grow just over 1% but are encouraged by what we saw in the fourth quarter, which fourth quarter grew about 7% versus quarter three. So that is encouraging. Having said that as we look at early indications in January in the market, we think there's going to be a slight hangover from Omicron that we all experienced in the latter months of quarter four and generally what happens is our patients from time of diagnosis to time of start is about 30 to 90 days. So we project we're going to start out of the gates still at double digits versus 2021 for our business, but a little bit of a slower start in the US market in particular. So where we ended I would project quarter one being a double digital growth. I think I got everything. Karen did I miss drew? Did I miss anything?

Nope, that was perfect. Thank you.

Maybe there is one thing you asked, sorry. There is what went into there. Obviously market growth, we look at subcue conversions, we look at the Appell commercialization. We look at prefilled syringe, we got a lot of assumptions that go on in there, but they get you to that number that I talked about.

Perfect. Very helpful. And then just on the spend side, it looks like you're guiding to a little bit of a larger step up in OpEx here in 2022. Maybe you could just help us understand, how those dollars are being allocated. Is there feet on the street, where they're going to drive sales this year and next is the focus more going to be on building out the novel therapies pipeline, where we should really start to think about those probably paying dividends in a couple years down the road?

Yeah. So first I would say some of it is short term and you've already started to see the improvements. So we made some significant investments first in our commercial capabilities. So in our US sales and marketing teams, we added some new people and turned over that team and you're already starting to see the impact of our growth that we recorded in Q4 in the US market. Second area for commercialization is we added a couple of new people to our novel therapies team to really drive and again you saw four agreements being secured in quarter four. So some of it is short term and you'll start to see that. The other area that we added significant experience and expertise in is in our quality and regulatory function and again, you saw three new on-label indications occur for the company the first in several years. So you're starting to see some short term impact there. And then I'll get into the other spends, which are going to be a little bit longer term, which are our R&D investments. So our R&D investments, you can see the company really had not tested a lot of money in this area. When I say not a lot under a million dollars was the run rate that the company was looking at. So we're really starting from a low basis here and for us to really capture that billion dollar plus novel therapies pipeline, we're going to need to innovate on the product that we have today, a great product, high patient satisfaction we need to make it more convenient and we need to make it connected. That's going to open up that billion dollar plus addressable pipeline. So some of those R&D investments are gonna take a little bit longer for us to pay off and then we've got some investments and things like EUMDR and we've got some investment, some minor investment in the building move. We're just breaking out of the seams here, the company, since its founding over 20 years ago has been based in this site and we need to be in a new location to attract some new talent. So we're moving to a great area for that. So in summary, short term, it's commercialization efforts, which you're seeing the benefit of almost immediately along with quality and regulatory, which we're seeing the benefit of. In the mid to longer term, you'll see some product innovation introductions, and then a next generation system over the next two to five years, you'll see those.

Okay, perfect. That's very helpful as well. And just quick, last question for me here, one of the big topics of conversation has been the pre-filled syringe side. It sounds like you're very excited about that. Can you just give an update on where that stands commercially? Just any feedback, even if it's anecdotal you've received so far and then just, can you remind us if any of your competitors have prefilled products out there?

Okay. So maybe I'll just start with where the market is at and then I'll bring it down right to our customer basis in our competition. So currently the market is about 3.5% penetration just over a year of prefills being launched. So we think that's fantastic. Currently the prefills are in a 5 ml, 10 ml and 20 ml format and Hizentra is the only company with prefills on the marketplace. So we are working today on training. We're trying to get a white paper together to talk about the patient convenience factor. So we should have that out there. We hope in the next quarter so that we can really begin to push into our specialty pharmacy customer's clinic evidence that shows the advantage that the patients have seen both in reduced time to use the product and overall increased preference because of prefills. We believe that the market will continue to move. If you look at any market outside of IG prefills, if you think about at the COVID vaccination that you received, that was in a pre-fill format, right? You didn't see anybody drying up out of a vial. So the broader market is in a pre-fill format and we think SCIg will get there over time. And to date, we are the only pump that is approved for use with that CSL prefilled syringe. So we've got numbers in here for prefills. They start off pretty small given its 3.5% of the market, but it's really a three to five year strategy that we think we have the early leg in and we're working very closely with all our pharmaceutical partners on their developments in this area.

And our next question comes on the line of Alex Nowak with Craig Hallum Capital. Please proceed with your question.

Great, good afternoon, everyone. Hoping to stay on the IG market here for a couple questions, maybe just expand on how things are going with regards to subcue conversion out there in the market. The increase of new patient starts. Is that starting to accelerate and then where supply kind of for plasma today and the uptake of the non- Hizentra subcue drugs.

Okay. So maybe I'll start with new patient starts overall. An early indication for us is our pump sales, which that's why we were so encouraged by the double digit growth that we saw in the US marketplace for pumps. So that to us is a great indication. If I look at, and we think most of that is likely being driven by our activities in the market and our increased share that we're driving in the marketplace. Regarding subcue conversion, we've done a lot of work on this one, Alex, and we're really beginning to unpack both the economic and clinical evidence that is already existing out there, but putting it together for our customers in a way that makes it easy to convert because what we're finding is once a patient starts on therapy converting that patient base is difficult for us to do. I want to remind everyone though it doesn't take a lot, right? There's 300,000 patients on IV therapy. There's currently a shortage, as everyone knows on IV sets for IV infusion. We're hoping that that shortage takes a little longer, and we might get some natural conversion over from that, but just converting 10% of that base is doubling our market. So it just takes a little bit to really grow that marketplace. And we are specifically focused on the new patient start and ensuring that that new patient start and via the growth in our pumps we think we're beginning to make headway there. Supply with plasma, we do not see any concerns at this point, CSL reported some ex-US concerns. But we don't in conversations with our drug partners, they're adding new capability in this area. So we don't see any major or long term impact of plasma supply. Regarding non-IG, obviously we spoke about [indiscernible] will be on our EU label indication in Q1 and we are topping at the bit with our partners at [indiscernible] to be added to our label and we're quite confident that we'll get that in Q2. We filed in December. So we're right on track with our filing and we're hopeful that we have it by the end of Q2.

No, that's great. Very helpful. And I understand the guidance range that you set kind of the puts and takes that you have there, you got to obviously include the kind of the Omicron impact in Q1, but also to the point here in Q4, you did have over 20% growth in Q4 when you back out some of the channel issues from 2020. So just curious if, if we have COVID clear here throughout the rest of the year, you combine that with prefilled syringes, new subcue IG drugs coming online, hopefully some more subcue conversion from IG. Could this business return to a 20% growth sort of number here in 2022 and just kind of what are the levers that get you there?

Yeah, so great question and I think there are two levers that get us to that 20% growth area. The first one, as you note is the IG market, right? If the IG market grows right now, we have it kind of high single digits. If it gets back to double digits, that's the biggest thing that's going to drive us there. Again encouraged by Q4 versus Q3, but one quarter does not a market make and so we're thinking about the Omicron impact, but that's number one if the IG market grows double digits, that's going to help us. The second thing is more success in our novel therapies pipeline. All the progress we make in the organization we're excited about, that's probably the one that we're most excited about. The revenues that you see in quarter four are not reflective of the total value of the agreements that we signed. A number of those will come into effect through 2022, as we deliver on our commitments and with more deals signed, that's what could push us over the numbers that we're communicating to you.

Okay. No, that makes total sense. And kind of just…

Europe is the third. We haven't invested a lot of energy in Europe at this point relative to strategic and looking at that area, I think Europe with more on label indications coming in 2022 could also push us there.

Okay. Makes total sense and then two housekeeping items here, just the new office in New Jersey, is that going to become the main headquarters or will you be running two different facilities here in the future, and then the three, you mentioned hitting three of the eight 510Ks that you're expecting. I know one of those 510Ks is [indiscernible], what are the other indications or other 510Ks we should be watching for?

Okay. So first, first question is yes. It will become our headquarters the facility located in Mahwah, New Jersey and we have signed an extension just from a risk mitigation perspective that we will maintain the KORU facility in Chester, New York until the end of 2022. So we expect to move to the new facility in June, have production start between Q3 and then close the existing facility in Q4. Regarding the three 510Ks, of course they were the first one was the prefill for CSL and the other two were [indiscernible] and then what you see coming on the horizon, I can't talk about all of them because some of them are confidential, but the one I can talk about is the [indiscernible] indications that I spoke about that we'll see in Q1 and Q2 of 2022. And then you can expect to see more of what we've talked about already, right? There's probably going to be expanded prefill indications. You'll see some new product introductions from us that we hope to file by the end of 2022. So and obviously other things beyond that. As soon as we know that we file something Alex, you and team will be amongst the first to know

That sounds good. I appreciate the update. Thanks.

And next question comes from the line of Kyle Rose with Canaccord Genuity. Please proceed with your question.

Good evening. This is Gibran on for Kyle. Congrats on the strong quarter, and thanks for taking the questions. To start within novel therapies, maybe how did the Q4 shake out in terms of US -- versus US contribution? And Linda, maybe following up on one of the points you just made as the novel therapies pipeline begins to commercialize and come online at the EU too, maybe how should we begin to think about longer term OUS contribution?

Okay. So I think two questions, one is specific to novel therapies, and I want to make sure I have this right. Giron it's how many of the novel therapies deals were US versus exUS,

Correct? Yes.

Okay. So one was ex-US for registration in an ex-US market for a current on market drug. And three were -- three are essentially what could be global. One is a product development initiative and two are for drugs that likely will have global launches, but they're earlier in their phases. And then the second question was how do we see our revenues breaking out over time. I think was, today domestic core is about 80% of our business. International core is about 20% of our business. I think over time you can project that that overall split between those two we don't see changing dramatically with both markets growing double digits. I think the big change you'll see is our novel therapies growth continue to expand and represent about 20% of our business overall over the next five years where today it represents less than 3% or 4% of our business. So that's going to be the biggest area we see expand in our business.

Great. That's helpful. Appreciate the color there, Linda, and then maybe just one more from our end. What did year end patient numbers look like between PIDD and CIDP. And I know you had alluded to some of the dynamics in the Q1, but maybe anything specific to call out there thus far this quarter.

Yeah, I wish I had those numbers. This is -- we do not have numbers for patient starts for PIDD and CIDP. I can tell you overall that the overall growth in the market was about 7% in terms of overall drug IG drug that went into the market. But I don't know the difference at this point between PIDD and CIDP.

Fair enough. Had to ask. Appreciate you taking the question.

Great. Thanks.

And we have reached the end of the question-and-session. I'll now turn the call back over to Linda Tharby for closed remarks.

Great. So I just want to end by saying thank you to the team for fantastic effort in 2021 in particular, in a very strong close to the year. And I want to thank all of our investors for your participation today. Thank you and have a great day, stay safe and stay healthy.

And this concludes today's conference. You may disconnect your line at this time. Thank you for your participation.