Good day, and welcome to BioVentis Incorporated Third Quarter 2022 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Dave Crawford, Vice President of Investor Relations. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the BioVentis 2022 Q3 earnings conference call. With me this morning are Ken Rielly, CEO and Mark Singleton, Senior Vice President and CFO. Ken will begin his remarks with a review of the Q3 and an update on our progress our 2022 priorities.
Mark will then provide further detail on our Q3 results and updated full year guidance. We will finish the call with Q and A. A presentation for today's call is available on the Investors section of our website, bioventus.com. Before I begin, I would like to remind everyone that our remarks today may contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A Risk Factors for the company's Form 10 ks for the year ended December 31, 2021, as well as our most recent 10 Q filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance Any forward looking statements, which speak only as of the date they were made.
Although it may voluntary to do so from time to time, the company undertakes no commitment to update or revise the forward looking statements whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include reference to certain financial measures that are not calculated Important disclosures about and definitions and reconciliations of those non GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website at bioventis.com. Now I'll turn the call over
to Ken. Thanks, Dave, and good morning, everyone, and thank you for your continued interest in BioVentis. As we finish the year, We continue to build a foundation for sustainable long term growth. Earlier in the year, we successfully completed the integration of BioNess. In addition, we are on schedule with the integrations of Misonix and the recently completed acquisition of Cartiheal, which provides us with a transformational long term opportunity to accelerate growth.
With the Misonix integration, We are on target to achieve our goal of $20,000,000 in synergies by the end of 2023. We are focused on improving our execution and internal processes to make us more efficient and strengthening our long term outlook. And we are proud of the way our global team continues to strive toward achieving our goals. Our financial results for the quarter fell below our expectations, and we are updating our full year revenue and financial guidance to reflect these results and the expected impacts to our business during the Q4. For the Q3, revenue increased 26 percent to $137,000,000 Organic growth was 7% and after adjusting for exchange rate impacts, Constant currency organic growth was 8%.
Adjusted EBITDA of $23,000,000 for the quarter was the result of lower than expected revenue as well as temporary impacts on our adjusted gross margin, which Mark will discuss in more detail. Our revenue shortfall in the quarter can primarily be attributed to transitory headwinds related to Jelsin, our 3 injection therapy, as well as changes in customer buying patterns near the end of the quarter due to reimbursement changes announced by Medicare that resulted in greater than expected volatility across our entire portfolio. We faced 2 primary headwinds specific to Jelson. The first of these was higher than normal rebate claims due to unexpected prior period rebate charges from a private payer who found errors in their earlier claims reporting. We are working with this private payer on their reporting of rebate claims in an effort to avoid future volatility.
The second impact in the market was related to the recent change in pricing to average selling price or ASP from wholesale acquisition cost or WACC. Importantly, as I mentioned last quarter, We have successfully negotiated a decrease in the amount of the rebates to be paid on our preferred payer contracts. This change took effect at the start of the quarter and is now offsetting some of the deduction in selling price due to the change to ASP. However, we experienced volatility due to the change to ASP that was beyond our expectations during the quarter, As Jelfin sales volume shifted during the quarter and more price sensitive or non contracted accounts as market pricing disadvantages arose. While we expect to see continued pressure on Gelson revenue through the first half of twenty twenty three, We believe that the mechanics of ASP reporting will resolve this issue as full ASP reporting takes effect And Gelsin pricing stabilizes to a more competitive position.
As a reminder, ASP reporting is based on a 4 quarter look back. While both Jelsin and Duralaine moved from WACC to ASP pricing, This dynamic did not impact Duralaine, which maintained strong double digit growth for the quarter. Duralane possesses the highest molecular weight of any product and that clinical differentiation coupled with our market access strategy Continues to resonate with customers as we further increased our market share in single injection therapy, which is the fastest growing segment of the market. In addition to these factors impacting Jelsin, We also experienced some volatility across our broader portfolio at the end of the quarter as customers delayed purchases While they awaited potentially lower pricing resulting from the quarterly reset in our ASP, which happens at the middle of the last month of We expect decreasing impact from the ASP shift as quarter to quarter pricing changes become less volatile over the next few quarters. Despite these near term challenges, we continue to take overall market share in the quarter, and we are confident we can build on our number 2 market share position.
We believe we are on track to become the market leader across our portfolio given 4 distinct factors that position us favorably against our competition. Number 1, our market access strategy with our exclusive and preferred payer contracts. Number 2, our complete portfolio of 1, 3, and 5 injection therapies is unique among our competition. Number 3, Duralane possesses the highest molecular weight of any product on the market, providing it with longer residence time in the knee And clinical differentiation in the single injection space, the fastest growing category in the market. And number 4, We have the largest sales force focused on the specific customer base prescribing therapy.
While we are disappointed that total company organic growth was below our double digit target, we achieved high single digit organic growth, driven by strong results and execution across our restorative therapies and surgical solutions verticals. Within Surgical Solutions, we delivered strong double digit organic growth as we continue to see a steady recovery in elective procedures As hospital staffing issues improved, Osteoamp Flowable, our injectable allograft bone graft solution continues to grow rapidly following its introduction last year. We have also fully launched BoneScapel Access In early Q4 and combined with Osteoamp Flowable, we now offer a complete portfolio in minimally invasive spinal fusion, the fastest growing area in spine. Additionally, Misonix continues to grow double digits in the U. S.
On a pro form a basis. Last month, we put our full surgical solutions portfolio on display at the North American Spine Society Conference. We were encouraged by the reception our hardware agnostic portfolio received from spine surgeons. Our sales and marketing team had many positive with attendees about the clinical and economic value that our combined portfolio can bring to their spinal fusion and decompression procedures, as well as the economic benefit our products can bring to their hospitals. Within Restorative Therapies, we delivered high single digit organic growth, driven by Unfortunately, in the past week, we were informed by our contract manufacturer that supply chain headwinds have arisen again for key portions of our Advanced Rehabilitation portfolio, which has reduced our expected revenue for the 4th quarter.
The improved performance of Advanced Rehabilitation during the quarter was partially offset by a slower than expected recovery in ExoGen, which we anticipate will remain a headwind for the rest of this year. ExoGen underwent significant changes earlier this year to our internal processes
as
well as a realignment of our sales force to improve overall sales effectiveness. While this has caused some disruption throughout the year and contributed to the shortfall against our original full year revenue expectations, We are seeing tangible evidence of a sales force that is gaining effectiveness and rapport with their accounts. We are also driving steady reductions in the time required for us to process orders through the payer. As we continue to improve our processes and our reps gain greater effectiveness, we are building momentum and expect to see a positive inflection in the coming quarters. Finally, our International segment grew 27% On a reported basis, driven by our Misonix acquisition, constant currency organic growth was 5%, primarily driven by continued strength in DuraLAN.
As discussed on our Q2 earnings call, we continue to See MDR related regulatory headwinds in our advanced rehabilitation portfolio in the 3rd quarter. Despite productive conversations with our EU notified body indicating no outstanding issues in our final submission For the MDR CE Mark, we have not yet received formal approval. Therefore, we now believe this headwind will continue through the Q4. Reflecting on the significant and strategic changes over the past 20 months, BioVentis has invested in multiple growth drivers to diversify a business that has been historically concentrated in and ExoGen. Many of these new growth drivers are now coming to fruition and will be critical for us to execute as we move forward.
The value of these investments is evident when looking at the combined double digit growth achieved across the Bioness and Misonix businesses we acquired last year. These investments have nearly quadrupled our total addressable market to roughly $16,000,000,000 providing us with a pathway for accelerated growth across the short, medium and long term. Additionally, products launched within the last few years such as Duralane and Osteoamp continue to gain market share and grow double digits. Today, 40% of our legacy BioVentis product revenue comes from products launched since 2018, demonstrating a significant track record of innovation as well as successful product launches and commercialization. While we expect to fall short of our goal of double digit organic revenue growth this year, The BioVentis team remains highly focused on improving our execution, internal processes and operational efficiencies.
Turning to our recent acquisitions. We continue to make good progress on the integration of Misonix and successfully completed the first phase of our IT transition at the end of August. Over the course of the next 12 months, we will complete our systems integration and moved manufacturing of Misonix products from Farmingdale, New York to our facility in Memphis. We remain on track to complete the integration of Misonix by the end of 2023. During the quarter, we also kicked off the integration of Cartagena and we began to execute on our launch plans.
We are excited for the first case in the U. S, which we expect to be completed in Q4, and we anticipate the first cases in Europe will take place in the first half of next year. As we've discussed in the past, we are taking a measured approach to our initial launch in order to ensure that all surgeons receive mandatory cadaveric training and understand both the clinical utility of the implant and the reimbursement mechanics. We believe that this methodical approach will lead to broader private payer coverage and facilitate successful adoption of the product. As a reminder, CardiQule gives us A significantly differentiated treatment in the high growth market of cartilage replacement with a total addressable market size of $2,600,000,000 As discussed on prior earnings calls, Given the increase in debt to finance the Cartagel transaction and future milestone payments, we are pausing on further M and A.
Additionally, we have begun a thorough review of our spending with a recognition that we need to carefully manage our resources and discretionary spending. Also in order to drive optimal efficiency and set the company up for sustainable long term growth, We reorganized into 3 business units during the Q3 that are centered around our revenue based customer focused verticals. These business units consist of pain treatments and restorative therapies, surgical solutions and international. BioVentis has consistently focused on internal talent development. And as we have made this transition, We promoted 3 leaders from within each business to newly created general manager roles, while simultaneously eliminating The Chief Commercial Officer role.
I'm excited for my colleagues that have received these promotions and look forward to their success as we continue to execute our growth strategy. In conclusion, BioVentis has made a significant transformation since going public about 20 months ago. We created a more diversified portfolio that has driven high single digit above market growth in a medical device business of significant size and scale, all while successfully integrating 3 acquisitions. Our expertise and success in commercializing new technologically advanced medical devices and our ability to gain market share with our best in class commercial channels are key strengths that bode well for our future product launches that are in our pipeline. Our larger scale has been meaningful, particularly when faced with the volatility of the temporary pricing shift with Jelsin and our softer than expected Exigent performance.
Importantly, we view our headwinds as temporary and not impactful to our long term goals. We are excited about the multiple growth levers and market opportunities across our businesses and believe that there are significant opportunities to gain share in large and growing markets. We remain confident in our ability to deliver cost synergies from our acquisitions and improve our overall expense profile across the business, as well as enhance our growth and margin profiles by leveraging our leading medical devices, scale and commercial infrastructure. Now I'll turn the call over to Mark.
Thanks, Ken, and good morning, everyone. Let me begin with a review of our Q3 results. Revenue of $137,000,000 increased 26% compared to the prior year. We saw a 7 percentage point increase from organic revenue along with a 19 percentage point increase related to our acquisition of Misonix. Lower sales and gross margin headwinds also impacted our earnings as we generated adjusted EBITDA of $23,000,000 and adjusted diluted earnings per share of $0.08 Across Paint Treatments, sales were flat compared to prior year as double digit growth in Duraline was offset by a double digit decline in Jelsun.
In Surgical Solutions, we grew 94%. We saw 32 percentage points of organic growth across our bone graft substitutes, representing back to back quarters of double digit growth as the market normalizes from recent hospital staffing issues. The 3rd quarter included a 62 percentage point contribution from Misonix Surgical portfolio. Finally, restorative therapies delivered 38% growth. Revenue from Misonix wound products contributed 31 percentage points.
Organic growth of 8 percentage points was enhanced from the recovery in our advanced rehabilitation portfolio from supply chain challenges seen in prior quarter and offset by a slower than expected recovery in Exigent. The return of supply chain headwinds and advanced rehabilitation, along with the delayed receipt of EU MDR certification will hinder our organic growth in the 4th quarter. Moving down the income statement, adjusted gross margin of 75% was down 3 50 basis points compared to the prior year and was driven by 3 factors. First, we had unfavorable product mix due to the strong recovery of our lower margin Advanced rehabilitation products combined with lower sales of ExoGen, which is a higher margin product. Additionally, The impact of our Misonix acquisition also negatively impacted our sales mix during the quarter.
2nd, We were impacted by the unexpected prior period rebate claims related to Jelson, which Ken discussed earlier. And third, We incurred higher freight costs throughout the quarter. Overall, adjusted operating expenses increased $15,000,000 primarily by costs related to Misonix when compared to the prior year. Now turning to our bottom line financial metrics, adjusted EBITDA totaled $23,000,000 compared to $21,000,000 in the prior year. Increased revenue was offset primarily by higher operating costs related to our acquisition of Misonix and lower gross margin as discussed a moment ago.
Adjusted operating income increased to $18,000,000 from $16,000,000 in the prior year. Adjusted net income totaled $6,000,000 compared to $11,000,000 a year ago due to higher interest expense Cash on hand and $424,000,000 of debt outstanding, our revolving credit facility remained undrawn at the end of 3rd quarter. Operating cash flow represented an outflow of $1,000,000 for the quarter as we saw increased working capital. We expect operating cash flow to accelerate in the final quarter of the year as EBITDA increases and we see improvement in working capital. Finally, let me provide an update to our 2022 guidance.
We now expect 2022 revenue to be in the range of 5 $27,000,000 to $532,000,000 compared to our previously issued guidance of $547,500,000 to $562,500,000 representing a $25,500,000 reduction in revenue at the midpoint. Our updated guidance primarily reflects 3 changes in our outlook. First, we expect Jelson sales to continue to be impacted by the shift in sales volume related to the transition from WACC to ASP acquisition cost. This represents approximately a quarter of the reduction to our revenue guidance. And while we expect gels and pricing to continue to be a headwind through the first half of next year, we expect pricing to become more favorable in the second half 2023.
2nd, we expect to see ExoGen sales recover more slowly than previously expected As we regain our sales momentum following the realignment of our sales force and operational challenges changes earlier this year. This represents slightly less than half of the reduction to our revenue guidance. And lastly, we expect lower revenue from our advanced rehabilitation portfolio due to supply chain headwinds and delayed EU MDR approval, representing approximately a quarter of the reduction to our revenue guidance. With the reduction in our revenue guidance, Pressure related to gross margin and slower reduction in planned spending due to prioritization of initiatives, we are lowering our adjusted EBITDA guidance. Adjusted EBITDA is now expected to be in the range of $75,000,000 to $79,000,000 compared to our previously issued guidance of a range of $94,000,000 to $104,000,000 Corresponding to the reduction in adjusted EBITDA guidance, we are reducing our full year 2022 adjusted diluted earnings per share guidance to $0.20 to $0.25 compared to our previously issued guidance of a range of $0.47 to $0.57 The updated in our EPS guidance Also now takes into account the impact of purchase price accounting for our Cardiheal acquisition that was recently finalized.
While we continue to pay interest On the financing at 8%, for accounting purposes, we will accrue interest at approximately a 15% rate. As a result, we now expect to recognize higher interest expense related to our seller financed acquisition. In closing, we are focused on bringing increased discipline and rigor to our revenue forecasting and expense management processes. Though we are not satisfied with our results, we are confident in our ability to drive revenue growth and expand our margins as we delever our balance sheet and prepare for future milestone payments related to Cartagile. Operator, please open the line for questions.
The first question today comes from Alex Nowak with Craig Hallum Capital Group. Please go ahead.
Good morning, everyone. This is Chase on for Alex. So Ken, starting out from us, on the piece, it looks like revenues were down about 13% sequentially for pain, while we have volumes up for Duraline. So You gave some helpful color there, but can you go more in-depth for us a bit around Jelson versus Duralin impact? Was all this sequential revenue decline Jelson or did see any top line impact on Duraline as well as diluted those volume increases you're seeing?
And then is pricing actually helping you take share with Duraline? Because I mean we saw a pretty nice increase in Q3? Thanks.
Yes. Thanks for your question on that. So the market is really 3 distinct markets is the best way to think about that. We have a single injection market, duraline, where we continue to grow double digits and take market share And under favorable pricing conditions as well. Duralaine also has a factor where it's the highest molecular weight With the strongest clinical data on the market, so it gives us distinct product feature advantages as well.
Jelsin is in the 3 injection market and that is more of a commodity market today that is much more price sensitive. And with the shift from WACC to ASP, it put Jelsin in a position where it was not as price competitive Over the Q3. As mentioned on the call, we expect this to write itself. This is a temporary phase. And by the second half of next year, our pricing will be more competitive with Jelson and we expect to regain any market Share that we lost in the 3 injection.
And then Suparts is our 5 injection and that did not go through a pricing change from WACC ASP that was already ASP reported. But all told, we continue to gain market share in our single injection product, Lost a little bit on 3 injection and continue to go well with the 5 injection. And as I mentioned, we continue to gain overall market Share in the market. As you pointed out, we've had significant gains in volume, and we expect that to continue and continue to move forward From our number 2 position is to hopefully be the market leader here in the quarters to come.
Thanks again. That's helpful there. I guess helping us understand a little bit more around the bridge To double digit organic growth would be helpful as well. Is this on the pain side, is this something we should expect to be similarly Year over year impacting the pain business until 3 quarters from now when everything kind of stabilizes for Jelson or Walk us through the bridge to overall organic double digit growth there with obviously strength in surgical and restorative is Good to see, but I guess a bridge there would be
helpful to kind of hear you talk about. Sure. And I'll emphasize that we continue to see strong double digit growth in Big areas of our business, as you pointed out, Surgical Solutions had an outstanding quarter, Advanced Rehabilitation had an outstanding quarter. The biggest impact we had was in pain and we see that headwind, although temporary, continuing until the midpoint of next year. At the midpoint of next year, Jelsin, in particular, will be in a better position pricing wise.
The year over year comps will be favorable As we shifted from WACC to ASP on July 1, so we expect that to kick in. We'll continue to see double digit growth And certain aspects of our business, but certainly the pain area, we don't anticipate that until we get beyond this current situation with Jelson.
And then just last for me. Just from a modeling perspective, it's a little bit helpful And the mix between the top line impact on Jelfin between the volume decline and then that rebate issue, so any more additional color there would be great.
Yes. I think when you just look overall at our EBITDA guidance coming down, I think 2 thirds to 3 quarters of that is due to the revenue drop in total. When you look at gross margin perspective, we have Some headwinds in freight that we incurred in the Q3 that we expect to continue to see the full impact of that in Q4. We had some of our product costs Come in higher in 3Q that we would continue to see in 4Q. We did mention in our script about higher rebates that we saw in 3rd quarter.
And while those should improve in Q4, we do expect to have a higher run rate that we will be accruing to for our private payers. So That was kind of an impact on our margin in Q3. From a Q3 to Q4 perspective or Q3 perspective, we also Had some savings identified that didn't materialize. I guess one example that I would give on that was higher bad debt, Which is really related to our integration of Misonix and Bioness. We expect to be seeing improvement on that as we one thing we did accomplish in Q3 is the integration of our ERP systems and bringing those acquisitions on to our BioVentis ERP system, which gives us more visibility into the customers' contact information and more efficiencies within the organization to Collect accounts receivable.
So, we're working that and expect to see some improvement in that in 4th quarter, But that was an impact for us in 3Q.
Okay. Thanks for the questions guys. I'll hop back in queue.
Thank you.
The next question comes from Kyle Rose with Canaccord Genuity. Please go ahead. Hi, this is Caitlin on for Kyle. Just a quick question on Advanced Rehab. So given these supply issues have How long do you see these issues lasting?
And do you anticipate that any supply issues in any other areas of your business will arise?
Yes. Good question there. As we talked about, this is one specific product Advanced rehabilitation and just to characterize it, it's a capital equipment piece and the order book is very solid and certainly we these aren't lost Sales just because we have a supply chain issue, it's temporary. We do expect it to get resolved by next year and expect to start shipping units again in the Q1 as we move forward. So at this point in time, That's how we're looking at it.
As far as the rest of the business, we've been fortunate. The supply chain issues we've had this year That's been really relegated to this specific product. And as I mentioned, it's capital equipment. The orders do not go away. This is a unique device and we'll be able to capture that revenue as the supply chain issues lessen.
Got you. And then on Cartagena, can you just walk us through the expected ramp on the product and when we can expect meaningful revenue contribution?
Sure. And first of all, I'd say I was able to see a couple of Cartaheal cases in the quarter And we are extremely excited about this technology. It's a perfect outpatient procedure and cartilage replacement And it's a perfect fit with BioVentis and with our sales team that calls on sports medicine surgeons today with our product. We are going to start cases here in the U. S.
Later this quarter and go through a process where each surgeon is going to have to be trained Via Cadaveric lab and then we walk through the reimbursement steps and what's important is Cartagena has a Category 3 code today That will be crosswalked to an existing Category 1 code for reimbursement and payment. Our goal is to do a methodical approach And building our business with Cartagena. We do not expect meaningful revenue in 2023, but over the next year, we should be able to Provide better guidance on the trajectory of growth in the future years to come. But we're very excited about this. It's been a terrific Start, the team has done a terrific job and bringing on board the key opinion leaders that are going to do the initial cases in the United States.
And certainly, we look to start cases in Europe in the first half of next year. So all of that is in place and moving forward very nicely.
Awesome. Thank you so much. The next This comes from Drew Ranieri with Morgan Stanley. Please go ahead.
Hi, everyone. Just Ken, maybe to start, as you're looking at these issues, and I get that some of these are transitory, What's giving you really the confidence on the visibility to maybe label some of these as transitory? And Maybe specifically with the side, you talked about Being like kind of mid next year until these kind of resolve, but again, kind of what gives you that confidence, that level of confidence and that there's not Broader implications for the other parts of the portfolio to come?
Yes, great question, Drew. So we model this out and we have a full Sanding, where our pricing is going to go over the next year with all 3 products, Duralaine, Jelsin, as well as Suparts. So if you look at it that way, we have a really good understanding of that as well as the market dynamics. And we can pinpoint based on the look back, keep in mind that this whacked ASP pricing change It's really a 4th quarter look back. So when we look back right now, we have the WACC pricing, the wholesale acquisition cost Involved in our ASP calculation, by July 1 next year, that will have gone away and that will put Jelsin in a much more favorable Pricing dynamic than what it is today, where it's a combination of WACC and ASP.
So we're able to confidently look at that. We certainly know the competition, we know the markets and we know where the pricing is going to be and we're confident it's going to be transitory in that respect. So that's Jelson. DuraLANE is a very different story and as articulated, we continue to grow double digits there. Keep in mind DuraLANE was just launched in 2018.
It's early in product lifecycle, it has the highest molecular weight out of any product and we see ourselves continue to gain market share with Duralaine. We know where the pricing is going relative to ASP and we've got a firm handle on our ability to continue to grow. Lastly, I would mention our preferred and exclusive contracting with payers makes a big difference here with both Duralane And Jelson for that matter. With Duralane, we continue to have exclusive contracts with United and Cigna, and that drives Significant entree into many new accounts. And then with Jelson, we are one of 2.
We are preferred payer Our contracts with both United and Cigna, which also helps us with Jelson maintain our presence in key accounts. And obviously, as the pricing transitions, we expect to get back some of the lost accounts or business that we're not getting today.
Got it. Thanks for the detail. And you sort of Talked about this a little bit earlier, but as you're thinking about confidence in growth and driving margin expansions as you're deleveraging, How should we think about that for 2023? I know you don't necessarily want to provide guidance, but I mean this is a significant guidance reduction that we're seeing today. There are some Incremental challenges as we're heading into next year, but how are you thinking about the business, maybe exogen, gelsin And kind of this advanced rehab product as we're as you're kind of thinking about 2023 growth?
Sure. And I can talk about it qualitatively Drew in terms of All the tailwinds we see in 2023 and we obviously built this business over the past 20 months with a long term view of driving growth. And when we look at it, obviously, we're 1 year post integration of Misonix and we see significant Growth and opportunity in Surgical Solutions that includes the BoneScaffold as well as the BoneGraft substitutes as our Direct sales force that we inherited from Misonix with the acquisition continues to gain traction with Bone Graft Substitutes. We see that as a big inflection point and expansion opportunity, keeping in mind that we only have 5% of that market today. We are going to be launching the SonaStar Elite in 2023 as well.
And obviously, as we talked about in the quarter, the bone scalpel access With minimally invasive spinal fusions will be fully launched through the course of 2023. We are also launching in this quarter A new version of ExoGen that it's in patient encouragement software that ensures better compliance and better visibility of patient compliance with ExoGen that we've gotten great feedback on from surgeons. So that's in the launch mode now and that will Impact all of 2023. As mentioned, we do see ourselves regaining traction with Jelson by the second half of next year And we view the rehab business regaining our supply chain issues, resolving those in the early part of 2023 And having that product in place through the course of all of next year. And we do see ourselves resolving the MDR issue mentioned on the call And being able to ship the L300 through most of next year as well.
And then we continue to see growth in our peripheral nerve stimulation, growth market penetration. And as far as Cartagena goes, we'll be able to provide further updates as we go through next year And certainly a more significant ramp as we go into 2024. And then last thing I'll mention, Drew, is just on Talisman, which is our next generation peripheral nerve stimulation device, which we expect to have 510 ks cleared by the end of next year as well. So those are all qualitative tailwinds that we'll talk about as we think about 2023 and discuss that on our Q4 earnings call in March.
Thanks for taking the questions.
The next question comes from Amit Hazan with Goldman Sachs. Please go ahead.
Good morning. This is Phil on for the team. Thanks for taking the questions. I'm going to keep following along the same general lines That we've heard already. So the first one on the Gelson side, I think maybe asking the question slightly differently.
Wondering what Was sort of different or incremental versus what your expectations were internally that you're seeing Sort of occur in the end market. And then the sort of follow on to that line of questioning is, Is Duraline in a premium price position as Jelson in retrospect was, Just for our understanding. Thanks.
Yes. Great question on Jelson. And the one thing we can't anticipate, And we certainly anticipated the pricing in Jelsin, but we can't anticipate what competitors do on their pricing. And in this environment, price discipline is extremely important, meaning that you can't reduce your price to try to get business Because that impacts your long term ASP, as you can imagine with a 4 quarter look back. But we've had some competition that has done that Deliberately to get business.
It's obviously a shortsighted lever for growth and it doesn't lead to long term Maintenance of market share. So that's the situation we found ourselves in with Jelsin and that's a competitive dynamic that certainly we could not predict Because it doesn't it's not a logical approach to the market when you're looking at trying to maintain price and value over the long term. Regarding Duralaine, very different pricing position with Duralaine and it's not as price sensitive of a market. As I mentioned, the 3 injection market It's much more of a commodity market and much more price sensitive. The single injection market with products like Duraline is a premium product With the highest molecular weight, it has product characteristics that are unique and a single injection product.
And once Again, this is the fastest growing area of the market, is a single injection area. So it puts us in a very nice position. It's why we are continuing to gain market share in the market overall in this environment because of a product like Duraline.
That's great. That was really helpful. Thank you. Follow-up question. I believe, Mark, in your prepared commentary, you characterized Roughly 1 quarter of the guidance reduction is attributable to the Gelsin shortcoming shortfall.
So it's another question along the lines of Durability of the other headwinds, it sounded like the supply related issues on the Advanced Rehab side, you expect to sort of Be a catch up in 2023 once resolved and then sort of what are the what are you looking for in the ExoGen end market outside of what you're doing with The product release to see a reacceleration in that business. Thanks.
Yes. Let me speak to ExoGen There on your question and we are laser focused on ExoGen today and here's what we're doing with ExoGen. First of all, as we mentioned, we had a sales force reorganization earlier this year to really put more focus On specific specialties, sports medicine with our business and eventual Cartaheal, key area for us and then lower Remedy with our ExoGen reps, our ExoGen reps who also picked up our wound products and selling those in the office. We also put in place direct sales management and that's effective as of late August. Earlier, We had sales management that really encompassed managing both the as well as the ExoGen areas of our business, But made a decision earlier in the quarter to put this in place and provide more direct focus on the ExoGen business.
So that just happened. We also are improving our processes and most of the ExoGen orders today as of mid third quarter Our process within 72 hours and this is a drastic improvement. It's an improvement in customer service and certainly gets the unit to a patient quicker, A patient in need. As I mentioned, we're also launching this quarter the patient encouragement software, which we feel is going to allow surgeons to track Compliance better, this was a key wish and factor that surgeons look to when they want to understand if a patient is using the device and using it In a compliant way, so this is just being launched right now. And the last thing I'll mention that we've really brought Jafar here is an omnichannel approach with ExoGen, which offers a broader reach with an inside sales team that is less expensive, But is able to reach areas, more rural areas in the country, where we don't necessarily have a sales rep or a direct rep that makes financial sense.
Yes. So that's where our approach to really ExoGen is and certainly in the early going here of trends, we're optimistic That we're going to reach a positive inflection point here.
And then just to kind of address, this is Mark, your first part of that question. We talked about Gelson. The other two parts, are MDR, our rehab portfolio from an international perspective. We're working through that with the notified bodies. We've been getting positive feedback from them all the way along the Our teams have been doing a great job of driving that.
It's just not all the way through those hurdles. And as Ken kind of mentioned in some of his remarks earlier, We don't expect we expect the demand because of this unique product to still be there once this MDR gets approved and And we have the inventory to deliver that and hopefully, it will be successful. But we don't expect that to go away. So if it doesn't happen this year, we'd expect that to roll into 2023. The second challenge we had in our advanced rehabilitation portfolio It is also supply chain related.
So the first one is MDR. The second one is supply chain related where we didn't have Parts from our supply from our vendor and this is related to a unique component, so it's separate from the international opportunity, But we would expect that demand to be there as well for this product. We're pretty unique in that market and there's not a lot of competition. So once the supply Jane is strengthened and we'll be able to ship that product accordingly. But right now, we don't have enough confidence to put that into our 4Q numbers.
And just one other comment on MDR. I think it's important to recognize as mentioned on the call, There are no outstanding issues relative to us gaining our CE mark. This is a delay of backlog with the notified body. Unfortunately, with all the products that are going through MDR right now, we've been a little bit of a victim here on that. That's beyond our control, but certainly the team has done a terrific job in addressing all issues related to this.
So now we're just In a wait mode and wait and see mode to get the CE mark.
Thanks for all the additional color.
The next question comes from Robbie Marcus with JPMorgan. Please go ahead.
Hi, this is Rohan actually on for Robbie. So I just wanted to touch on kind of The adjusted EPS guidance, it came down pretty significantly relative to the first time guidance you provided last quarter. And Obviously, without kind of providing formal color on 2023, but with all the moving pieces, could you just elaborate more on some of the drivers here? And also how you're thinking about
Yes. So from an EPS perspective, if you look at that compared to our prior guidance, so when you look at what we Achieved in 3Q and then you move into 4Q and kind of look at the full year. First thing is that when we were closing the Cartagio deal, we didn't have full Ability to the purchase price accounting from an interest rate perspective. And so now we're accruing to a higher interest rate of 15% When you look we're looking at EPS and then but the cash payments that we're making are still at 8% on the milestones for So that hasn't changed, but the purchase price accounting has made that worse than before when we issued guidance. When you look sequentially from 3Q to 4Q, our EPS is coming down, but it's really due to a full quarter We had a gain on a swap in 3Q that's not going to repeat in 4Q.
That's about $2,000,000 Of that, that doesn't repeat into 4Q. And then we have some offsets of that with higher EBITDA moving into
4Q. And we do see as we go forward and we make these 2 milestone payments on Cartagena next year, the $250,000,000 payments, Obviously, interest expense goes down significantly in the latter half of next year, which is going to positively impact EPS.
This concludes our question and answer session. I would like to turn the conference back over to Ken Rielly, CEO for any closing remarks.
Great. Thank you, Betsy, and thanks, everyone, for your continued interest in BioVentis. While we have some near term challenges in our business, we are confident in the revenue and earnings growth opportunities we have created at BioVentis over the past 20 months. We also view these headwinds as temporary and not impactful to our long term goals. We participate in large growing markets and provide innovative differentiated products to our patients.
In the coming quarters, we look forward to building on our short and mid term growth drivers and expanding margins to create stakeholder value through our enhanced portfolio and synergies from our recent acquisitions. And finally, I would like to thank our global team for their dedication and commitment to our mission of bringing innovations for active healing to patients around the world. Thank you very much.