Okay, thank you for your patience, and we'll kick off now. Welcome to Aroa Biosurgery's Investor Webinar and Q&A, following the company's third quarter results announced this morning. Please note that participants are in a listen-only mode. There'll be a presentation lasting for approximately 10 minutes, followed by Q&A. We will have to finish up by 9:30 A.M., Australian Eastern Standard Time. If you have a question you'd like to submit, please type it in using the Q&A function on the Zoom app. We will also be opening the floor to live questions. If you would like to do that, when the Q&A session commences, please use the Raise Hand function on the Zoom app. Please note that the session is being recorded. On behalf of Aroa today, we have Brian Ward, Founder and CEO, and James Agnew, CFO. I'll now hand over to Brian and James. Please go ahead.
Thank you, Nita, and welcome to the Q3 quarterly update. Thank you for joining. So, as Nita said, this is gonna be a relatively quick presentation. So just for those that are new to the company, Aroa is a well-established soft tissue regeneration company. Four families of products that we sell in the U.S., all based on our Aroa ECM technology, targeting an opportunity in the U.S. in excess of $3 billion. We sell through two channels: our own U.S. direct sales team and our commercial partner, TELA Bio. The technology is well established. We've treated in excess of six million patient treatments, a large body of scientific and clinical evidence that's behind the technology. So we essentially isolate a tissue layer from the forestomach of sheep.
We purify that in a way that allows it to be implanted into people and, removes all of the things that the human body would react against, but conserves the structure and the biology of that material. And from that, we derive, four different products, adapted for specific use cases. So Endoform, Myriad, and Symphony, sold by Aroa, and OviTex, sold by our commercial partner, TELA Bio. So just going straight to the financial highlights. So, $17.7 million in cash receipts from customers, in the last quarter, so this is up 20%, on the previous quarter. We continue to make good progress towards, break-even operational cash flows.
Next, net cash outflows from operations decreased to $1.7 million from $3.2 million in the prior quarter. So if you look at operational cash flows, we're certainly tracking towards break even. Net cash outflows from investing activities are $1.1 million for the quarter, and this reflects further investment into additional manufacturing plant and equipment to build capacity. You know, we finished the quarter with a strong cash balance of $30.5 million, and the company remains debt-free. So we have a very strong balance sheet and certainly well positioned to continue to fund the company, you know, and track towards break even.
Just, in terms of guidance, we are updating our revenue and EBITDA guidance, so we're reducing that to $67 million-$70 million of total revenue. So this reflects sixty-six to sixty-nine million dollars of product revenue. Gross margin is expected to be maintained at 85%, and a normalized EBITDA loss of $1 million-$3 million. We have a one-off decrease in expected revenue from TELA Bio that has contributed to this, really due to an overestimation of our revenue share from TELA Bio. And based on inventory supply to them, and a delay to a joint product development project, which we were forecasting to ship product from. Now, OviTex and OviTex PRS remain on a strong growth trajectory.
Now, we continue to see very strong sales performance with Myriad. You know, 10% growth in the active accounts between Q2 and Q3. And you know, comparable field sales productivity to last quarter. And so we're looking at a 70%-85% year-on-year growth of Myriad for the full year. So strong revenue growth for Myriad. Not quite at the 100%, which we've been expecting, but still tracking very positively. In terms of operational highlights, in the last quarter, we have received a 510(k) clearance for a new product. This is a resorbable dental membrane product. It's a project that we've been chipping away at for the last four or five years. We've completed a clinical study for the...
Sorry, a pre-clinical study for this, which was required for clearance, and that was submitted to the FDA last year, and we in the last week received notification that they are clearing this product. So, you know, we see this as an opportunity to develop another line of products that will contribute through a partnership. So we're out looking to secure a partnership with another company to commercialize this product for us. It doesn't fit with our own strategy and with our own sales team targeted, so in our minds, this makes sense to partner it off in a similar way that we did with TELA Bio.... We've received feedback from the FDA regarding our Myriad Flow device.
So this is a version of Myriad designed specifically for use in combination with the Enivo. They have requested some additional preclinical and clinical data to support that clearance. We expected that this may be the case. I think the good news on this is certainly that what they're requiring doesn't appear to be particularly onerous, and the studies look less complex. We think, worst case, we'd expect to have this you know cleared within 24 months. It could be quicker than that. So really kind of pleased with how that's tracking. Certainly feel like we have more certainty around the clearance of that and the indications that that will be cleared for.
We now have six patients that have been enrolled into the pilot study for Enivo. This is our tissue acquisition platform. They've undergone a unilateral vasectomy and completed follow-up after that. What we've been looking for here is seroma formation and complications post-mastectomy. We're really pleased to report that none of the patients have had clinically relevant seromas or reported complications. So we're seeing a very similar outcome in the first six patients to what we've seen previously in the preclinical models, which is very encouraging. On the Myriad side, we now have enrolled an additional 36 patients into our master study. So this takes the total number to 268 patients.
We have been targeting 300 patients into the study, and we may extend that to increase the number of patients. But really pleased with how this is tracking, and this serves as a source of further clinical data for future marketing in the future for Myriad. The study for Symphony continues to progress well. We're now at 86% participants of the total 120. We expect to complete this study through the middle of this current calendar year, and then report out on an interim basis towards the end of the year with final reporting at the end of the FY 2025 financial year.
So this is progressing very well in terms of recruitment and, we're very excited to be, you know, recruiting at the pace that we are. So I'm gonna leave it there, Neetha, and pass it back to you for questions.
Thanks, Brian. We will now move on to the Q&A session. As I mentioned at the start, please use the Raise Hand function on the Zoom app if you'd like to ask a question live. You can otherwise type your question in using the Q&A function. We will start with some live questions. If you are asking a question live, I will introduce you and send you an unmute prompt, which you will need to accept. We will give you the opportunity to ask a follow-up question, if required. To facilitate this, you will remain unmuted while your question is being answered. The first question I have is from Sebastian Clemens of Jarden Australia. Sebastian, please go ahead.
Hello, can you hear me?
Yes, I can. Thank you.
Okay. Sorry about that. Yeah, just on the TELA revenue share, the one-off downgrade, can you maybe refresh us on the different components of that agreement and how they work? And then, is this reflecting sales to TELA early in the year or this quarter? I just want to understand your confidence that, you know, this isn't gonna continue to impact further quarters. Thank you.
Yeah, maybe I'll start, and then James can sort of pick up around the technicalities of how the true-up works. So, you know, we have a revenue-sharing agreement where for every $100 that TELA receives, we receive $27. You know, over the last over this financial year, what we've seen is a big focus from TELA Bio on improving their inventory management, really to address some issues around product obsolescence, but also I think, you know, as a function of the maturity of their business and refining some of their business processes. So they've made good progress on that. We saw a big impact from that in the first half of the year. We've seen that turn around in the second half of the year and track more positively.
So, you know, they've significantly decreased their inventory holdings. When you look at the materiality of that, and that is material for us this year, we don't see that continuing into the future. You know, we think, you know, to make a similar type of effect, you know, that would be out of phase or wouldn't be able to sustain demand in the future. So it is a one-off effect, and certainly we've seen, and as we look into the next quarter, we see that coming right. So James, maybe if you want to talk about the true-up and how we've been impacted there.
So part of our accounting treatment for, you know, the under the agreement of TELA Bio, as Brian mentioned, we, you know, ship a certain amount of product at transfer price, and then—
... every quarter, we receive a true-up in cash, okay? Now, for accounting purposes, when we ship product, we essentially accrue an amount that is attributable to the top-up, okay? And, you know, in the past, to date, we've always, you know, taken a relatively conservative approach to that accrual. One of the sort of key assumptions we made with our estimates for the second half was that we, you know, we're seeing there was gonna be, you know, a much better stock management. And as a result, you know, that accrual increasing. However, what we saw, what we've learned is that, you know, we had to make a one-off adjustment to that. And again, sort of there is an adjustment.
You know, I see it as one-off, and I think the other important factor is, it's also non-cash, so it doesn't impact cash flow.
Okay, and just to follow up then, is it so this is a change in your assumptions? Because I know that we were, I guess, we were familiar with the inventory issues with TELA Bio last quarter. I'm just wondering if this is, you know, those issues getting worse from your perspective, or if this is more, as you said, an accounting assumption.
I think it's more, it's more around an accounting assumption, and if anything, we haven't really changed our assumptions. I think our assumptions, well, we'd made assumptions that it was going to improve a bit more, more than what we anticipated.
Okay. Thanks very much. I'll jump back in the queue.
Hello?
Yeah. Hi, Elise.
Oh, hi. Great, thanks. So I guess on the Myriad side, you know, you previously anticipated triple-digit growth. Is that downgrade due to, like, slower account growth, slower growth within your existing accounts, or are you finding, you know, some variability in your kind of dollars per patient or per procedure?
Yeah, I think it's the. I'd say there's two things. So a little bit of a just a softer quarter in the last quarter, not particularly explainable. There's more holidays, you know, at that time of the year. But I think part of it, I mean, the second thing I'd say that's mainly been part of it is a bit of a tweak to the strategy and, you know, that having an effect in terms of changing focus. So we're putting more focus on trauma now, less focus on other areas, and it's taking us a little bit of time to continue with the momentum there. So I see it as a temporary change, but, you know, getting back on track pretty quickly.
Got it. Thanks. And then, you know, just kind of delving into that comment that you just had, around traumas, like, you know, things like nec fasc, you know, or trauma wounds. I mean, do you really think that those would be variable depending on kind of a, you know, holiday season? Or was it used historically in the non-trauma setting?
Yeah, there's a little bit. I mean, some of it's our, our guys taking breaks as well, so that's, that's a little bit of it. It's normally, I mean, acute is normally pretty constant throughout, throughout the year. So I think it's more of a, you know, just a change in our, in our alignment around where our sales team is.
Got it. Thanks.
Thanks, Elise. Do you have any more questions?
Yeah, I was just gonna pop back in the queue, though, but, yeah, maybe just one more. You know, looking at that, that Myriad Flow study that has to be done, what are the costs associated with those, and are those incorporated into guidance? Thanks.
Yeah, they are. The costs are incorporated. We've budgeted for that. I think when we look at what we've got back from the FDA, it's a, it appears to be a reasonably simple request from them, so we're just in the process of reaching out to CROs and, you know, looking to see what that might cost, what they might cost and how long that might take. I think with it being less complex, we think it's gonna be more, you know, more straightforward for us to do. Less cost, probably take a shorter time, but we need to confirm that.
Okay. Thank you.
Thank you. Now turning to some written questions. I've got a question around TELA's demand and what their reorder profile might look like.
Yeah, look, I mean, if you look at TELA Bio, they're growing in excess of 40%, you know, per annum. So you're still seeing very strong growth there. And so, you know, will reestablish itself as, or is reestablishing itself as, they work through inventory. So we don't really see... You know, we see a slight-- this year has been, a bit of a disconnect in terms of what's been happening from a customer demand perspective and what's been happening from a, demand on an Aroa perspective. You know, they're continuing to win accounts, they're continuing to grow, and we see that starting to, that flow through. And next year we certainly see things, tracking back to, how they were in the previous year.
... Thanks, Brian. Turning to another question, there's a question around Myriad performance. And if you could speak to that as well as, you know, how it might have impacted guidance.
Look, I think from a product perspective, we're not worried at all about the product performance. You know, we're seeing excellent results in a range of soft tissue procedures. I mean, I think what really stands out with Myriad is the rate of tissue formation and the lack of infections, and I think that that's very relevant in all soft tissue recon. So, you know, we're thrilled with how that's going. I think we're, you know, if you look back over the last three years, we've commercialized Myriad in a range of different sorts of procedures. We're now refining our strategy and focusing on those target procedures that are where we think, where we think we can be most impactful and, you know, where the case value is high.
I think that's what we're seeing a little bit in the Myriad numbers, is a realignment around moving from doing lots of things to a more refined strategy, focusing on doing a few things.
Thank you. Now, there's another question on the 510(k) for Myriad Flow. And asking you to expand on, you know, the feedback that's come through from the FDA to the extent that you're able to share that.
Yeah. So, we submitted a 510(k) to the FDA. They reviewed the full dossier, and the way these interactions normally work is they come back, and there'll be, I think there might have been 16 questions that came back we had to address. We're now left with two outstanding questions, and they really relate to the safety of the Enivo range in some of the procedures in soft tissue reconstruction. And so, the FDA is, it has looked at our previous preclinical studies. They included a small Aroa ECM envelope on the device. We're now proposing to use a much larger device. So they want to see a preclinical study with that larger device.
And then on the clinical side, they want to see some safety data in humans relating to the removal of the catheter. So both studies are relatively straightforward. They're focused more on safety. They don't require, certainly on the face of it, don't seem to require very large sample sizes, and seem to be quite straightforward to execute. So that's what we're focused on. I mean, we, as I say, we need to work this up a little bit, and, you know, we can come back with an update later. But it's, they appear to be smaller studies, and will take, you know, a shorter period of time and be less expensive than we've previously anticipated.
Thanks, Brian. Now I've got sort of two questions on the similar theme. The first question is, you know, when does Aroa expect to become profitable? And the second question is, you know, noting share price performance, what is the company doing to maximize shareholder returns?
Yeah. So, we are tracking towards profitability, and I think, you know, we, as we've updated the guidance, you know, this year, you know, it's 1 to, you know, potentially 1-3 million dollars, negative at an EBITDA level. Now, you know, we expect to track to being, cash flow positive on an operational perspective, quarter-over-quarter now, and for next year to become, you know, strongly profitable. So, you know, I think we're continuing to track that way. You know, we have a strong, balance sheet anyway, but we're certainly focused on, profitability. You know, when you think about, share price, I think, certainly within the current market, people are focused on, top-line growth, in combination with profitability, and, you know, that's certainly how we're thinking about things.
So, you know, we can see that next year as TELA Bio sales, you know, return to the sorts of demand that, you know, we've seen from them previously and align with their, you know, strong growth, we'll be back on a trajectory to have strong top-line growth. At the same time, you know, we're focused on expanding our sales team, so investing in that to help drive, you know, Aroa's continued growth of our own products that we sell. But also keep, you know, keeping in mind, at the same time, you know, managing our expenses so that we aren't overinvesting and, you know, being too, you know, and not being profitable.
So, you know, we will invest in our own sales growth, but we are focused on developing, you know, increasing profitability over time. So I think, you know, we would expect that, you know, as more money flows back into the small-cap end of the market, that we'll be rewarded for both the top-line growth and an increase in profitability. So that's kind of our, our strategy, I guess, from a share price perspective.
Thanks, Brian. I'll just take a few minutes to pause to see if there are any more questions to come through. So the question, a question's come through around TELA Bio, and, you know, what are the factors that give you confidence around TELA Bio's continued growth - TELA Bio's continued growth of OviTex sales?
... Yeah, I think if you look at both the hernia business and the breast business, they're continuing to win share. I mean, OviTex is now the leading biologic product in the U.S. You know, it's probably. If you look at the clinical data, I don't think the data is probably second to none in terms of the outcomes with OviTex. You know, Breast Recon continues to grow really strongly. So I think the product set is very strong. And you know, the clinical data is showing that. I think they are, they're continuing to build out their sales team. And you know, as the sales team becomes more successful, you know, we expect that to lead to stronger sales as well.
So I think from both a commercial perspective, but also from a clinical perspective, you know, it looks very encouraging.
Thanks, Brian. Just a final question has sneaked in. So it's asking for you to expand on the dental opportunity associated with the new regulatory clearance, and as well as, you know, how you see the competitive position relative to other products.
Yeah. So, the dental product is a product that we're licensed to somebody else. There's, you know, the use of these products in, periodontal procedures, is increasing, so they're typically used as a barrier between the bony tissue and the soft tissue, to hold, bone chips in place, when you're trying to augment, bone in the jaw. And so it's a growing market. I mean, the growth projections are strong. I think at the moment it's about a $400 million market globally, expected to grow, I think to $600 million or $700 million over the next, you know, 10 years or so. So, good opportunity there. And, and, you know, it's a market that where there are a number of products, in this market segment.
You know, we think if you look at those products, it's a little bit similar to what we see in soft tissue reconstruction generally. There are biologic products used within this, within this market. Many of them are based on old technology, so they're essentially reconstituted collagen products. I think you get two things that are advantageous when you use a product based on our technology. The first thing is you get great biology. So all of those things that hold true for Myriad, where you get cells attracted into the tissue quickly, the signals that are there that help develop that tissue quickly, you get that. I think the other thing that's really important in these periodontal procedures is the handling of these existing products is quite tricky.
They tend to be very fragile and quite difficult to handle. I think if you contrast that with a product based on the Aroa ECM, it's much more robust, easier to handle, easier to suture, easier to hold in place. So not dissimilar from the Myriad story, you know, you, I think our advantage is more biology, so faster tissue repair, more robust tissue repair, but also something that's clinically easier to use. And, you know, we think there'll be a preference for that. So, you know, it's early days for us. We are talking to a number of companies. We've had some good engagement already, and I think now that we have the clearance in hand, then you know, we can begin to pursue that a bit more aggressively.
Thank you, Brian. I think we've run out of time now, so I'll hand it back to you for any closing remarks.
Great. Look, thanks, Neetha. Look, we, you know, we, still very positive about how things are tracking. You know, we know—this year has been a little bit flat for us, but, you know, we see that as, you know, that's washing its way through, on the TELA side, on the Myriad side. You know, still very strong growth. And, you know, we're gonna continue to build on that, and certainly see a great opportunity for Myriad, going forward.
Thanks, Brian and James, and thank you to everyone for taking the time to join today. We'll leave it at that and look forward to seeing you next time. Thank you.