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 second quarter cash flow report released this morning. Please note that participants are in a listen-only mode. There will be a presentation lasting for approximately 20 minutes, followed by Q&A. We will be finishing up by around 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 will now hand over to Brian and James. Please go ahead.
Great. Thank you, Neetha, and welcome to everybody. Thank you for joining, today's quarterly report. I'm gonna talk briefly about our cash flow position and then talk a little bit about, you know, why we think Aroa is gonna be successful, and then we're gonna conclude with some, Q&A. So in terms of financial highlights for the last quarter, net cash flow from operations was NZD 1.2 million, which is a NZD 2.4 million improvement on the previous quarter. We expect to be, operating cash flow positive in the second half of the year, as we've previously, outlined. Net cash flow from investing activities was NZD 0.6 million, reflecting a small amount of, routine, CapEx.
At the end of the quarter, we finished the quarter with $21.6 million cash balance, so that's a decrease of 58% in our quarterly cash burn. So if you look at that as a whole, we're making this transition through from being cash, you know, burning cash to transitioning through to being cash flow positive. And just reiterating, we expect to be cash flow, operating cash flow positive in the second half of the year. In terms of operational highlights, you know, we continue to make improvements in our commercial operations. We're very focused on improving our sales productivity. We've seen gains there over the last quarter, so 4%-5% increase quarter on quarter in terms of growth in active accounts as well. So that's an area of focus for us.
We've made some changes in terms of our sales organization in the U.S. We've promoted our Mark Martin, who was our Regional Manager in the Florida region, to be our National Sales Manager, and promoted two of our Territory Managers into Regional Manager roles. So we now have six regions across the U.S. We've also established a new role for our distribution networks in the U.S. as well. So, you know, making good progress on that. We'll report more detail on that at our half year. We've had regulatory approval for Endoform and Myriad Matrix in Argentina and Endoform in Egypt. So we continue to expand what we're doing ex-U.S. Over the last quarter, we've had four peer-reviewed studies be published.
Two of those studies were in oral cancer, so tumor resections and the use of Myriad in the oral cavity. Sort of notable for a couple of reasons. It's a very hostile environment, very prone to infection, prone to early breakdown of the graft, and you know what this shows is that Myriad Matrix stands up very well in that hostile environment. We don't see infections, and we see very good healing and restoration of the mucosa in those areas, so important for oral surgery, but also important in terms of validating what we see in other clinical situations where Myriad remains resistant to infection and is persistent. Also a really nice study in there on vascularization of Myriad in reconstructive surgery.
So we've established both on the bench and also with preclinical models that, Myriad revascularizes very quickly. And we're seeing this with, imaging technology in reconstructive surgery that, Myriad revascularizes very quickly, and particularly in areas where, you know, circulation to some of these grafts can be doubtful. So again, just sort of validating what we tend to see across a range of different, clinical situations. The fourth publication looks at, Myriad compared to other commercially available, extracellular matrix products, and what it shows is that, Myriad has a optimal, structure and also a lack of, DNA and cellular material compared to other, other commercial products. That's important in terms of, showing that, you know, our devices are less likely to be immunogenic, in these sorts of applications.
So a nice little collection of studies there that kind of support what we're seeing generally. The other, sort of notable event in the last quarter, has been that we've successfully completed our DEKRA audit. DEKRA is a international notified body that reviews our manufacturing and quality systems, with a view to, you know, acting on behalf of the European authorities, but also, we're in a scheme that allows DEKRA to audit us on behalf of the FDA. So important for ongoing operations and, you know, obviously, we've sort of come through that audit, in good shape and, you know, it's part of our kind of annual and your confidence in our manufacturing capabilities.
So I just wanna briefly talk about, you know, where we're putting our effort, and I presented this information previously just to show you, you know, what's driving growth for Aroa. So, Aroa's direct team is focused on Myriad's sales, and, you know, if you look back over the last four years, you'll see strong growth here. Last year, 70% year on year. Myriad continues to be our main focus. It's our top priority. It's certainly where we've got sales momentum. We're seeing a lot of success in large volumetric defects, but interesting, interestingly, we're also seeing Myriad succeed in a wide range of different soft tissue reconstruction procedures. So what's been particularly interesting is that we haven't really seen Myriad not be successful in soft tissue reconstruction procedures.
So we're not seeing contamination be an issue that leads to infection. So that's very interesting. We're also seeing that the rates of application for Myriad are very low, so that has a huge impact on the economics of using our products. We're continuing to build a compelling body of clinical data. Adam Young presented a summary of our clinical data at our last quarterly. We have an upcoming study for lower limb reconstruction, which has just been accepted for publication, so we expect that to be released within the next month. That outlines the treatment of a hundred and twenty patients with a hundred and thirty defects.
And, you know, what we see in there is no infection, which is super interesting, given that these patients are compromised, and typically, these wounds are contaminated. So look out for that publication. You know, we think that's very relevant for lower limb reconstruction, but also, you know, it translates into a wide range of other procedures, and, you know, we see similar outcomes in other procedures. You know, Myriad also offers disruptive value. I'm gonna talk a little bit about that further in the presentation. On the TELA Bio side, this still accounts for 50% of our sales, so they're a key partner. They have the rights for selling hernia and breast reconstruction. As you can see, over the last five years, they've had very strong momentum in terms of sales.
You know, at their quarterly release last quarter, they had a flat quarter. You know, but previous to that have been strong. You know, we expect that to continue to grow strongly. And, you know, we believe that the OviTex products are very well placed for success. So, you know, we expect continuing momentum on the TELA Bio side. The clinical data looks very strong. The value proposition looks very strong as well, and, you know, particularly with the recent class action settlements with Bard, with their permanent synthetic meshes, we think the TELA Bio portfolio is very well placed to capitalize on the withdrawal of some of those products.
I want to talk briefly about why we think that we can be very successful in this market, and I think it's a combination of five things. You know, we don't think we know that the clinical outcomes with Myriad are superior to what we're seeing with other competing products, particularly when you look at the rates of healing, so this volumetric fill of soft tissue defects. What really stands out also is the low rates of complications. In our published reports, our published studies, we don't see infection rates. I think if you contrast that with synthetic products, and that's, you know, synthetic polymers, but also synthetically synthesized products like Integra, you see a very different level of infection. I think Myriad certainly shows low rates of complications.
That's very important, both for the patient, but also for hospitals, and the reason is that patients that have infections tend to require additional treatment, they stay in hospital longer, and that erodes the reimbursement, or increases the cost and erodes profitability for hospitals. So this has a huge impact on the economics of treating, we also see that our products typically require fewer applications, so particularly in soft tissue reconstruction, we're seeing that a single use of Myriad leads to very good clinical outcomes. If we contrast that with competing products, what we tend to see there is that they may require two, three, four, five applications to get the same result, so patients don't need to be taken back to surgery. It's great for the patient, great for the hospital, 'cause that incurs additional cost.
If there's fewer complications, there's a shorter length of stay for patients as well. So again, you know, saving hospitals money. And, you know, we've priced our products to be competitive, and, you know, provide cost savings to hospitals, and we think this does a couple of things. Straight off the bat, it saves hospitals money, but it also presents the opportunity for our products to be used much more widely on more patients. So I think if you take those five factors together, we're very well placed to do exceptionally well within this market. You know, we've got a great product portfolio, and it's built off two platforms: our AROA ECM platform and our emerging Enivo platform. Both of these platforms have the ability to for us to produce a number of different products.
We've seen that with our AROA ECM. You know, we see further opportunities with our AROA ECM to develop a wider group of products. We also see with Enivo, you know, the opportunity for that to develop a family of products as well. With Enivo, we're still in discussions with the FDA regarding the design of a clinical study to have the third component of that Enivo platform cleared. And we're looking at options whereby we can potentially accelerate the professionalization of Enivo. And then, I think the other thing that's important is that we, you know, we've designed our products and our processes so that we can do this at very large scale in a very economical way.
And what that means is that our margins for, we get a very high margins on our products, and I think with continuous improvement, that's going to only improve. Our scale-up for our manufacturing is very simple. Manufacturing is very well established, and for us to continue to scale up, it's just essentially replicating modules of that process going forward. So this is a mature part of our business. There's certainly opportunities for us to improve this, and that will lead to margin improvement, but also increasing capacity as well.
So just in terms of the financial outlook, you know, we maintain our guidance for FY 2025, so guidance range between $80-$87 million in product revenue.
Our gross margin we expect to be in excess of 85%, a normalized EBITDA between $2 million and $6 million. Myriad and OviTex continue to drive growth. Over time, you know, we see gross margin improving beyond that 85%. We're focused on that improvement in sales productivity, so seeing that sales operating leverage come through. R&D is relatively flat, and we'll see that trend towards being 10% of sales over the next couple of years. Then EBITDA margins, obviously expanding, as revenue increases. So I'm gonna leave it there and pass it back to you, Neetha, for questions.
Thank you, Brian. We will now move on to the Q&A session. As I mentioned at the start, please use the Raise Hand function of 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 send you an unmute prompt, which you will need to accept. Please introduce yourself before asking your question. We will give you the opportunity to ask a follow-up question, if required. To facilitate this, you will remain unmuted whilst your question is being answered. We'll go to the first live question. Hi there. Please go ahead.
Hi, thanks for taking the question. It's Elyse from Canaccord. With Myriad, we've obviously seen a big push into trauma, and additional indications. How are we seeing the utilization playing out, and is that strategy starting to reap some rewards in the bigger TAM segments?
Yeah, no, we're definitely seeing success in trauma and, you know, what's interesting is that the, you know, case values are increasing because those wounds are much larger. I think clinically, we're seeing great results, and I think the interesting thing there is, you know, as I said during the presentation, often just a single use of Myriad is leading to good outcomes. So yeah, I, you know, I think what we are seeing also is sort of surprisingly, I think, is that some of these other higher volume, smaller value procedures continue to be quite large contributors to the total number.
And so I think we're, you know, we're seeing kind of this emerging trend of trauma being less frequent, but high case value, but also this baseline of smaller procedures happening on a regular basis, that's helping, you know, contribute to the total month on month. So, you know, and as I said through the presentation, I think what's really interesting is that we're not seeing that Myriad has a particular weak spot in any of these soft tissue reconstruction procedures. And, you know, particularly some of the ones, some of the procedures that are known to be really difficult and where there's high degrees of contamination or the material breaks down quickly, and we're seeing Myriads hold up really well in those procedures.
So I think we can see this opportunity where we think that Myriad could become, you know, a standard in soft tissue reconstruction across a wide range of procedures. So that, you know, that's super interesting.
Great, thanks. And just one quick follow-up. You know, as we think about the opportunity, obviously, we are seeing the sales force expand a little bit, but it is maturing. How many more reps do you think you'll need to be able to service, you know, the U.S. broadly, geographically, and across the opportunities that you've just discussed? Thanks.
Yeah, I think our target number is, you know, 100- 120, and we'll build that out over time. You know, I think this year we're likely to add another 5 or so. So that'll take us up to, you know, 55, 56. You know, next year, you know, it's gonna be sort of 10- 15. So, you know, at the moment, we're focused on improving that productivity so that when we add a new rep, the lag between adding them and getting a reasonable amount of sales is shortened. Then we, you know, get sort of higher productivity quicker. Once we have increased confidence around that, you know, we may accelerate the rate at which we add.
I think that's gonna line up quite well with, you know, where we are in terms of, you know, growing sort of sales, but also profitability as well. We're sort of moving into a slightly different phase next year, you know, as we become more profitable.
Thank you, Brian. I do not have any other live questions at the moment, so I'll switch to some written questions for now. But if you do have any, questions you'd like to ask live, please do raise your hand. So, Brian, there's a question here that references the Bard settlement that you talked about earlier. So obviously, Becton Dickinson has recently announced an $85 million cash settlement in the U.S. relating to about 38,000 hernia mesh lawsuits that were filed relating to the Bard synthetic product. So the question is: Do you think that this will change future U.S. buying patterns?
Yeah, I mean, it's very interesting. I think there's certainly been concerns around the use of permanent synthetic mesh in, you know, particularly in hernia, and this relates to that. I think it opens up an opportunity for a new technology platform where there's a different type of healing. You don't have permanent material left behind that can cause complications. So in that respect, I think the OviTex products are very well-placed. You know, they represent, you know, a new way of tackling, you know, hernia repair. I think they, they've shown very good results in complex hernia, ventral hernia. You know, lack of complications post-surgery, lack of recurrence. And I think, so, I, you know, I think OviTex has the potential to become the new standard of care.
I think, you know, if you look at the procedure numbers, a lot of the procedure numbers are in inguinal hernia, and, you know, with the launch of the inguinal hernia product, earlier this year, that puts us in a great position for the wider opportunity. I think the portfolio there now is also quite broad, so, you know, it spans the complicated procedures and also right through to the, you know, less complicated procedures. So yeah, I think, you know, there's certainly change coming in that market. I think with the portfolio, for OviTex, it's. I think it's very well-placed to address that change that's coming down the line.
Thank you, Brian.
Yeah.
And then, another written question, and once again, on that OviTex part of the business. So it references TELA Bio sales in Q2, and the question there is: Has this had an impact on the level of ordering from Aroa?
Yeah, look, I mean, you know, don't want to kind of preempt our half-year result, but, you know, certainly, it was a little bit softer there for a period of time. You know, we have seen things strengthen over the last, particularly over the last quarter. So, you know, we're on track. You know, in terms of guidance, we feel like we're still on track for where we're expected to be.
Thank you, Brian. I don't have any questions at the moment, so I'll just take a few more minutes to pause. If you have any more questions to ask, please feel free to send them through.
Hi, it's Elyse again from Canaccord. Just, you know, as we think about TELA and some of the lumpiness that has come through in terms of, you know, in terms of their sales, what kind of systems and processes have you put in place when it comes to formulating guidance to make sure that we're not seeing any, you know, any big hits or swings there? Thanks.
Yeah, look, I mean, I think, you know, look, last year, we obviously saw lumpiness with the inventory management, and, I mean, that's, you know, absolutely confident. I mean, we have regular meetings with TELA that, that's behind us, okay? So that we're now in sync. I mean, in terms of guidance, I mean, look, at the start of the year, I mean, there is, you know, quite a large degree of uncertainty, both sides of the business. So, I mean, look, we take a very prudent approach in setting our guidance, to allow for, you know, any ups and downs, because, hey, it's business, right? It's business, nothing ever goes exactly to plan. Otherwise, you know, it'd be incredibly easy.
So, I guess, yeah, I mean, look, you know, we factor in ups and downs, and like I said, this was one quarter for TELA. You know, it's the first quarter that they haven't, you know, they've had this flatness since they've actually launched the product, so I wouldn't read too much into it.
Thank you, Elyse . I'll now move to a written question that's come through, and still along the lines of that OviTex portfolio. The question is specifically around the TAM that was quoted earlier in the preso, and it's about whether that reflects the forecast extra revenue that you might expect to see coming from the Bard settlement.
Yeah, so, the, I mean, the TAMs will be the same. I mean, you know, the total addressable market, I don't think that changes. I think, you know, have we factored in any sort of tailwind from the Bard settlement, you know, realizing that this year? I think the answer is no. So, you know, it, you know, these things take a little time to come through, but, you know, maybe there's a potential upside, you know, through the rest of the year.
Thank you, Brian. Once again, just waiting for some more questions. Okay, it looks like we don't have any further questions. So Brian, I'll hand it back to you for any closing remarks.
Great. Thanks everybody for joining. I think, you know, I think we're in a good position. You know, I think what's really interesting is we really feel like the pieces are coming together for Aroa to really build on and increase that momentum, you know, particularly around the clinical evidence, particularly around the clarity of the value that we can bring to surgeons, hospitals, and patients. And I think we're much clearer about, you know, how we deliver value, and I think that's gonna help us from a sales perspective. So, yeah, looking forward to the second half of the year. That we have a half-year results on Tuesday, the twenty-sixth of November. So we'll be giving a detailed breakdown of our first half. So look forward to people joining that meeting.
Happy to provide more detail at that point.
Thank you, Brian and James, and thank you everyone for taking the time to join today. We'll leave it at that, and look forward to seeing you next time.
Great.