All right, perfect. Let me go ahead and read a research disclosure first. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Hi, everyone. Nice to be here with you all today. My name is Anthony Yu. I'm an executive director in our investment banking division, based in San Francisco. I'm joined here today by Tony Bihl, CEO of Bioventus, and looking forward to digging in with you.
Thanks. Thanks for inviting us.
So, Tony, you had done what I dream of doing every morning, which is retire, and you came back out of retirement, to come back to Bioventus. So what drove that decision, and what's been your focus since you've been back?
Good. Well, thanks. Again, thanks for inviting us today. Yeah, my six years as CEO at Bioventus prior to retiring was probably some of the best of my career. I had a great team, built a great team, brought in a lot of new products. Orthobiologics was our focus as a company, and so much of what you see in Bioventus was part of what we were building at that time. So great, great experience there. As you say, decision to retire are what people in mid-sixties think about, and all those reasons are what caused me to retire. But got the call from Bill Hawkins in April, and I think it was about an hour it took me to say yes.
Most of that was what he described of what the board felt like they needed, was something I felt like I could bring. Felt very much loyalty to the team and the products and the business, but also, you know, this was a, this was a bit of a reset and a turnaround situation, I think. You know, the board's focus was the mandate was clear. It was make the numbers, revenue, EBITDA, cash, stabilize the organization, reset, focus on a consistent, profitable growth rather than simply growth, and then address the debt. That was the mandate that I had. That's what I've come in on, and I think that stabilization has happened, and I'm feeling really good about, after five months, about the progress we've made so far.
That's great. Clearly, the results have been in a positive direction for you and Bioventus. Are you interested in staying on and becoming permanent CEO? How are you thinking about that?
I'm 100% committed to being the CEO right now, and that's as long as it takes.
Mm-hmm.
I've been real clear with the board about that. I do plan to return to retirement, for the same reasons you think about it every day. So I don't have to explain it, but I'm here until they need me. The board has engaged a recruiter, and that process is underway.
Okay.
So don't know how long that takes, but my focus every day is continue to run the business.
Okay, great. So there's been a lot to the story over the past year, and clearly some challenging times at the end of the year, trickling over into the beginning of this year. But the results over the last quarter have definitely shown the beginnings of a turnaround and moving the company in a positive direction, building momentum on those results, as you mentioned. You know, where do you feel the company is at now in terms of stabilization and, you know, what needs to be done over the remainder of this year and into next as you continue that momentum?
Yeah, that, I mean, the solid results from Q1 and Q2, I'll tell you, the team did an awful lot before I arrived at the company. Took a lot of cost out, eliminated some programs, got very, very focused on the things that would be the growth opportunities for the company. So again, a lot of that was done, and so my role was to continue to keep us focused there. We did a bit more trimming, and we'll continue to look at that. How can we take layers out of the organization? How can we make our cost structure better? And we looked at the portfolio more deeply, and I think that'll continue to go on. But I think what you see from the first and second quarter is sustainable.
The culture in the company is very solid on we've reduced the cost and our spend levels, and as we think about where we go forward in the future, we're very careful about adding those back in. We want to invest in places we can create sustainable growth, and trim back the number of things we try and take on. And so, I think we've got a good path forward, and I think, again, what you saw in Q1 and Q2, I feel real good about the ability to continue that along the way as we go forward.
That's great. You mentioned portfolio. You recently divested the wound care business. What was the rationale behind that divestiture?
So the wound business came with the Misonix acquisition, and I think probably at the time, it sort of came along with it. Sounds interesting. Let's see what we can do with the wound space. Very tough market. A place where you'd have to make a real commitment to that and make investment in that area. We had three really good products, but that's not a place we're going to be able to compete and become a market leader in that market space, and so divestiture made sense for us. LifeNet was an excellent partner. They actually provided the company we sold the business to, provided one of the main products, the TheraSkin product.
So we were able to transfer the whole employee base, which was mostly a sales force, over to them in a deal that was, I think, good and has some milestones in the future. So for us, it lets us focus, and that didn't fit the portfolio, I think, as we looked long term.
Got it. How are you and the team working to prioritize and focus on the core areas of your portfolio? You know, are there other areas that you're thinking about in terms of a similar path as the wound care business? Any other potential divestitures and, you know, areas that you're assessing?
Yeah, it's important, and like any other company, you look at where you can win, right? And you know, what's interesting about Bioventus, you think 65% of our revenue are products where we are number one or number two in our marketplace. It's a great place to build off of, and even where we're number two, we've got a path to number one. The remaining 35% of our revenue base, of our portfolio, are products where we're growing faster than market for the most part. And so those are places we think, can we invest? Is there an opportunity for future growth in some of those places? And you know, our OsteoAmp product, our Misonix Nexus platform, are among those where we think there's opportunity for that to continue to see growth.
We'll look then, and we're still looking at the portfolio, and I think we've said that we're not finished with that activity, but we want to finish very soon, because it's important to get the organization to, you know, this whole, am I core or non-core? You can't have that. You've got to move the organization forward, and so we're trying to sort out a few last decisions and then take this, this business forward with the right build on those, products that I've described, that I think are really the places where we'll, we'll see a, a growing investment. And then we're looking at what do we do from an R&D perspective? What do we do from an acquisition perspective out in the future? Near term, probably a little bit R&D. We're making some investments there.
We'll continue that, and we'll continue to look at it as a healthy company we look at a portfolio.
Great. Turning to the results of the business, you all delivered results ahead of consensus for two quarters. You know, how would you characterize your, your first half?
Yeah, I mentioned the board mandate, and it was a mandate to the management team before that, and that was make the revenue number, make the EBITDA numbers, make the cash number, address the debt. And I think the organization has taken steps very carefully and very diligently on, we are going to do that. And so I think what you saw was the outcome of that. A lot of good steps, as I said, taken before I arrived, and that momentum is continuing. So I think that it was achieved by focus and attention and trimming some things out that we didn't need to focus on, and it will continue that way through the rest of the year.
On the upside, I think a number of things are going to turn positive for us as time goes on, and so I think we're going to get a little help. We had a lot of tailwinds, a lot of headwinds, excuse me, and now I think we're going to see some tailwinds that'll help our business, so I, I feel very positive about it.
Got it. But on the headwinds front, HA was the center of some challenges for you all, with pricing pressure from shifting from wholesale acquisition prices to ASPs.
Mm-hmm.
along with the impact of needing to increase your rebate accruals for volume from private payers. Are you seeing any relief from those pressures? And, you know, when do you, you know, expect that to be alleviated or addressed?
Yeah, I think, I think an understanding of the rebate process and how the accruals come in, and, you know, there were some surprises that we didn't see coming from some of our partners. I think we've got that process tightened up, and we got smarter and smarter as time has gone on and worked closely with them. We now look at every one of the invoices we get on rebates with not only our finance team, but with our market access team, and we look line by line by line. So the diligence that the team has built around that, under Mark Singleton's guidance has been, I think, excellent. And so now we've eliminated variability, much of the variability. That's helping us in one way. The underlying business is excellent. Our volumes have consistently grown very strongly.
DUROLANE is, in a very solid double-digit grower, even SUPARTZ seeing growth this year, which has been more of a, our five-injection product we thought would continue to decline over time. And GELSYN has been a challenge, but we think that GELSYN will turn the corner as we, as we start to see some-- we're seeing some volume lift even now from GELSYN. DUROLANE, we believe, as we predicted, that we'll see, start to see a price movement more positively in the fourth quarter of this year. We, we still feel confident in that. So there's a number of things that we think are going to start to get only. But underlying, we're taking market share, we're growing the volume of the business. That's the foundation for the future in that business. I think we'll- I think it's, it's still a very profitable business for us.
On DUROLANE and GELSYN, you know, what, what's driving volume gains, as you mentioned? What's the sort of potential for further volume gains, in that part of your portfolio? And, you know, how do you see your market share shifting in those areas?
Yeah, DUROLANE is a very unique product in itself, and so it has a multiple of explanations, but it is a very differentiated product. You've heard molecular weight, you've heard residence time in the knee. The market sees that as something different than the rest of the HAs, and so that has helped. And we recognize a lot of the rest of the market is viewed as commoditized, and so we have been able to differentiate DUROLANE. Led that process by really strong contracting. We got on contracts, we got in practices, we build out from there in the practice. And that is still the great formula for DUROLANE, and I think it'll continue that way. I think we're taking market share in the single injection market, and I think, you know, we have really great prospects.
We'll talk more about that as time goes on, but that product has really landed very strong. GELSYN is a very solid product, and contracting has been the game for that. It's been get on contract and then win the three-injection market versus one or two other players. A little bit more commoditized, a little bit more challenging that way, but we bring a portfolio in, and so our portfolio sale is: why don't you deal with one company? If you're going to buy our DUROLANE, that carries the day, why not pull through GELSYN in three-injection? And by the way, SUPARTZ's market-leading, one of the, you know, viewed as one of the really just a reliable, safe product over time. We got a portfolio that's helped us to build as well.
Makes sense.
Yeah.
Okay. In surgical solutions, you had some mixed results recently. On the positive side, you know, what's driving the double-digit growth in ultrasonics and you know, how sustainable is that growth? But, you know, and then on the flip side, on the headwinds, bone graft substitutes business, you know, what are the challenges there? How do you plan to turn that around? And, you know, how much confidence do you have in the ability to turn that around? So a couple of things on both the headwinds as well as tailwinds.
Yeah. The Nexus platform, as you said, ultrasonics, has been double-digit growth for us, and we see that prospect continuing. We're a small player taking market share out in the marketplace. We've shifted that model, and we're selling more of the consoles than maybe was the past, where it was simply a consignment model. So we've got a combination of ways to put the product in the marketplace, and the pull through on that has been very, very strong in the disposables it takes to do each case. So we've built that business that way, got a terrific sales force. The team has been finding its way after the integration, and so we're finding that that's a place we can continue to grow.
So I think we can go out and take more share in that market because we're a small player. I think double-digit growth makes sense for us for a good long time. We're only in spine right now. We are not in neurosurgery yet, and so there's some other opportunities there for us, is how do we move out into other parts of this bone cutting or aspiration marketplace? And so I think there's upside there, potential for that, for that product. Bone graft substitutes, fantastic product, and OsteoAmp always been differentiated. We probably took our eye off the ball a bit. OsteoAmp primarily sold through distributors. We have probably 200 distributors in the U.S. selling OsteoAmp.
While we integrated the two companies, we were beginning to have our direct sales force from the SonicOne, OsteoAmp as well, and so we were focused on getting that started and maybe didn't pay as much attention as we needed to on our distributors. We lost some distributors, didn't replenish very fast. We've now turned back on that, and it's taking longer than I'd like for it to spool back up, but it's gonna spool back up. The product, the underlying product is right. The underlying market is good. Yes, there's competition, but OsteoAmp, it can still be a, a very solid grower. It's gonna be in the next year, though, before we see the double digits back again.
Okay. Well, we'll look forward to that.
Yep.
And then rounding out the conversation of the portfolio with Restorative Therapies, you saw some improving trends for EXOGEN after a period of some pressure. You know, it although muted, what gives you the belief that you can regain momentum in the U.S. in particular? And last year, you shifted the sales force around EXOGEN, that caused some headwinds, but, you know, more now, you know, now you're more than a year into the shift in the sales force. You're starting to see some of the benefits of the initiatives that were put out there for EXOGEN. You know, anything further that's needed from an operational standpoint to help support that? And, you know, and then along those lines, how do you see the long-term growth trajectory for it?
Okay. Yeah, EXOGEN, great product. Number one in its marketplace. Number one, bone stim product, and it has been an execution story for us. You're right; we changed so many things, and we have fewer people marketing the product, but they are focused only on EXOGEN. So we are deeper, but not as broad as we were in terms of our field coverage, and we are working our way through that right now. Got an excellent team on it. We've brought a lot of new junior people into that business, and they are getting traction. So that gives me a lot of confidence. That said, you know, we see what you see. How come that business isn't growing at least mid-single digits, maybe low single digits?
It's probably ±1% right now, you know, if they look at-
Mm-hmm.
about over the year. That's interesting, very profitable business. You're happy with that, but you'd like to see some growth. We formed an internal tiger team on this topic and said, "You know, what is it about what we're doing that we have not been able to restore that growth?" Really interesting things are coming out of that. I have a lot of confidence in that product, a lot of confidence in our ability. Again, I think that could be a low-single-digit, maybe mid-single-digit grower in time.
Mm-hmm.
But we've got some work to do to get back to that. It's a good product. You're starting again, great foundational product, good field coverage, well respected by physicians and surgeons. Why is it we can't get that back? I think we can. People aren't talking about competition. People aren't talking about payers. They're talking about... It's execution.
Yep.
I love those problems.
You got some young blood in there.
I love those problems.
Great.
Yeah, you can fix those.
All right. A big driver for your improved EBITDA over the first half of the year has been your ability to reduce and maintain your operating costs. How sustainable are those savings, and, you know, is there gonna be any sort of need to increase the spending once you get the business on a more solid foundation to accelerate that growth trajectory? And or, you know, as you mentioned, the portfolio, but do you find opportunities for additional savings going forward as well?
Yeah, we're always looking at that. It was some very, very sharp cuts in cost. I mean, we took out things that are fundamental in an organization, but it's what's interesting. So for example, we cut our national sales meeting. However, each one of our teams found a way to have a meeting this year and got their teams together. I joke with them. They went to Phoenix in the summertime, so you can get a great rate on that, you know. But we didn't go to a warm spot in the middle of January and spend a lot of money. The culture is, we can live with that. That actually works for us, and so I think we've created a lot of spirit in the organization around that. I think it is sustainable.
We will see some things we'll put back in carefully, but that'll be over more than one year. That'll be over a 2year + period. So I think what you'll see is we will spend responsibly. We'll put back some investment responsibly, but it isn't last year, we took it out this year, we put it back. We've got good discipline. I'm confident we can hang on to that. And yes, we continue to look at delayering every opportunity. When somebody leaves, there's a chance to say: Do we really need that? Could we do it differently? Could we do it at a different level? Could we combine functions? And we need to be careful about that, but I think, that has begun to... Well, we see those opportunities every day. So is there still some opportunity? Yeah, more, in individual situations.
But I think there's a good opportunity to hold the gains on the cost.
Got it.
Yeah.
Last question for you. As you, as you look ahead to parts of the portfolio, you're most excited about from a revenue growth standpoint, anything you'd want to call out that's maybe a little less visible to investors?
Yeah, I commented that when I left and what's here when I got to the company again, and obviously some great products that were in place. The hyaluronic acid is going to be a good foundation for us and good generator of cash. EXOGEN is a neat, profitable product, and we think we understand what it takes to grow that business, and OsteoAmp, I described as well. The Nexus platform in from the Misonix acquisition, I think opens up a lot of opportunity potential for us. I've mentioned that we are strong in the spine bone cutting part of the marketplace, but there are opportunities for us to approach neurosurgery and look for other avenues for that product, and we are a small player. The team has done a really nice job of growing that business.
What else could we do with it? So I think that's got some... And a great R&D team came with it out here in Farmingdale, Long Island. And when I look at that, I see a place to build from. Same way, peripheral nerve stim. We bought a business that we were a tiny little player in, but we had this development platform called Talisman that basically is implanting the pulse generator. It's a different kind of a concept, and we'll take that to FDA later this year, early next year. Could be an upside opportunity for the company as we look out over time. So I see a couple of things that have longer-term prospects and near-term prospects that are kind of exciting, and we'll see where they go.
All right. Well, great. Thank you, Tony, for your time. Congrats on all the progress so far, and, you know, look forward to your continued time in the seat and seeing all the, you know, building off the momentum you have thus far.
Thanks, Anthony. Appreciate it.
Appreciate it.
Thank you.
Thank you.