All right. Let's go ahead and get started. My name is Matthew Park. I'm part of the MedTech and Diagnostics Equity Research team here at Canaccord, and we're excited to be joined by the management team from Elutia today. So maybe to kick things off, would you mind briefly introducing yourselves before we jump into the discussion?
Sure. Randy Mills. I am the CEO, and I'm also a co-founder of Elutia. Been in this particular space for about 30 years. Started my career off in this space. I was fortunate enough in graduate school to invent some technology that actually became the core technology of a company called RTI. Took that company public, then went on and did Osiris Therapeutics, and then that ultimately got sold to Smith & Nephew, and then on to Elutia.
Great. Matt?
Matt Ferguson, CFO of Elutia. Been here for about five years. Have been in similar roles at life sciences companies over the last twenty-five years, both public and private.
Great. And then, maybe to level set the room for those less familiar, would you provide, please provide a background on yourselves and a high-level overview of Elutia?
Yeah, well, I think enough of my background, right? About that. But it's sort of interesting, when I started out in graduate school, the thing that actually I was working on, my dissertation was working on, was this intersection of transplantation and pharmacology. My dissertation was actually around creating the first drug-eluting biologics, even back then, looking at anti-infective technologies that you could combine with these biological matrices and implants.
That's exactly what we do at Elutia today. I think definitively we've become the best in the world at that. So what I mean by that is, we will take a biological material, a biomatrix, which, you know, there's a multi-billion-dollar biomatrix market out there.
But what we look for are opportunities where you can take this biological material, which will work with the body, which will heal, which will incorporate and regenerate with the patient, and add an active pharmaceutical agent to that, and improve the outcomes for patients. So our first example of this, and really our prototype was EluPro.
This is an envelope that goes around pacemakers. The biological part of the envelope helps stabilize the pacemaker so it doesn't move, so it doesn't migrate, so it doesn't erode through the patient's skin. And to that, we're actually able to add the powerful antibiotics, rifampin and minocycline, and address postoperative infections as a complication for that. That's, you know, for us, a good market to start in.
We were able to get that from a development standpoint through the FDA, we were able to get it approved, and in the first quarter, we launched that product commercially, and it's been doing gangbusters. It's really been off to the races, and really, we think for us, very good proof of concept that this idea of drug-eluting biologics has really great commercial traction. We added partnership with Boston Scientific.
They come along now, they're helping accelerate the growth for that. So that's our first drug-eluting biologic and our proof of concept, you know, that we can develop and commercialize this technology. But behind that, we're doing the same thing in breast reconstruction.
That, for us, is, we think, represents an even bigger unmet medical need and a much, much bigger market opportunity for us.
Great. And then maybe off that, can you just walk through the U.S. CIED market today and the importance of having an antibiotic-eluting envelope?
Yeah
... for pacemakers like EluPro?
Right. So EluPro has market approval for use with CIEDs, a fancy term for pacemakers and internal defibrillators. We also were able to get a label claim for use in neurostimulators, right? So this is things like pain, urinary incontinence, fecal incontinence, sleep apnea, like in Inspire products. So we have approval to go into both of those markets.
But for us, the one we're focusing on right now, because of market concentration purposes, is this pacemaker space, right? So in the United States, that pacemaker protection market, the one we play, it's about a $600 million market. Now, up until now, that space has been dominated by only one player, and that is a plastic offering.
It's a plastic pouch that elutes antibiotics as well, and it's a Medtronic offering, right? It's a product called Tyrx. We come along and we have introduced EluPro into that space, basically, the same antibiotics, so the same protection from an antibiotic standpoint, but instead of using a plastic envelope, we've replaced it with this biological matrix, this biomatrix, that regenerates into the patient's own healthy tissue. So not only is it, we think, a much better product, and we think can differentiate that pretty substantially, that using a biological envelope in place of a plastic one is a better thing from a surgeon and a patient standpoint. But from a market dynamic standpoint...
You know, if you look at 60% of the pacemaker market is not controlled by Medtronic, and if you're Abbott or if you're Boston Scientific, the last thing you want is a Medtronic piece of plastic going around your pacemaker, right? And so here we come with not just a better product, but with the market dynamics that lets us go after a full two-thirds of this market, not just, sort of, unencumbered, but with actual support from the underlying device companies. And we think that's a real good place for us to be with that.
Great. And then, I guess just sticking with the commercialization side, you know, you exited the second quarter with a little over 160 accounts actively ordering, and you're adding around 12 VAC approvals a month. Have you guys seen any bottlenecks in terms of accelerating the pace of VAC approvals? And how quickly could you scale towards the 1,600 center target that you-
Right. Yeah. So I think, Matt, that's like sort of the key. Right now, pacemakers implanted at any sort of meaningful rate only done at about 1,600 centers across the United States. That's a pretty manageable, a pretty focused market to go after. It's why, you know, for us, it makes so much more sense to go, you know, to jump into the pacemaker side of this versus the neurostimulator side.
So for context, you know, as you mentioned in our last quarterly conference call, we were in 161 accounts. That's through the value analysis committee process, and where they're actively ordering. With our predecessor CanGaroo, right, which we also sell and market, we're in 400 of those, right?
So, just sort of for context, and we're adding about twelve to fifteen a month. So that is, that statistic is so important because that is the thing that governs the growth of EluPro. If you want to know, if you want to get a good idea of what EluPro is going to do next quarter, look at what it did for VAC approvals this quarter, because we know once we can get through the value analysis committee, hospitals order, and they order very predictably for us.
And so for us, this is really the growth of EluPro is really just a scaling exercise. We know how to get into VACs. We know how to get through VACs. We've done it a hundred and sixty-one times already, right?
We've got to go to sixteen hundred. What helps us do that is our GPO contracts. We already have 7. We put out an announcement today. We're being actually showcased at the Vizient Technology Platform coming up in Vegas in a couple of weeks, so we're super excited about that. But our GPO contracts and our relationship with Boston Scientific, right?
So Boston Scientific, we think, is going to be able to help us accelerate from our 12 to 15 VACs a month to a you know to a much greater number. 'Cause if you do the math, right, we don't want to wait 10 years to get through all 1,600 accounts. We want that to happen a lot sooner.
And we think the GPO support and the Boston Scientific support would help us. Otherwise, you know, it's a six-month process to get through a VAC. That's pretty standard. We're pretty good at it, but we can't sort of speed up time.
Great. And then, maybe sticking with your partnership with Boston Scientific.
Yeah.
I guess, how are you guys thinking about the balance between Boston contribution versus direct account pull-through?
So right now, Boston accounts for about 30% of what we do in that what we do with regards to EluPro sales. So what we mean by that is, a Boston rep will facilitate, like, roughly about a third of those accounts. What's really cool about that is, in those hospitals where we have a Boston rep selling the product, we actually sell twice as much product as the Boston rep is individually accounting for.
And the reason for that is when a Boston rep converts an electrophysiologist to use EluPro on a case, they continue using it, whether they're not. They're putting in a Boston pacemaker, or they're putting in an Abbott pacemaker or a Biotronik pacemaker, right?
They don't. They're sort of like, well, I'm gonna use an envelope and, you know, I'm gonna use EluPro. Very few electrophysiologists only use one pacemaker device company, right? So the Boston relationship is working really well because it's actually pulling through about twice as much business as the Boston rep themselves are driving, if that makes sense. It's a really nice for us multiplier. I don't know if you have-
Yeah, I totally agree. It is a way for us as a small company to really access this large market and do it very cost-effectively. So we're only paying Boston a relatively small commission, kind of in the teens range, for only the cases where they actually are involved in that case. So it doesn't pay them anything in the cases where they're not, but you know, where we may actually have benefited by having their presence in that account. If a case is being done with, without the Boston rep in the room or with another companies' underlying pacemaker or defibrillator.
Yep, super helpful, and then I guess another one for you, Matt, so we saw gross margin expand nicely in the quarter. I guess, how much additional leverage do you expect as EluPro scales, and I guess, can you walk us through the most important efficiency drivers to watch out for?
Sure, yeah. So yeah, we were really pleased with the last quarter result from an operational and gross margin perspective, both in addition to gross margin, also just scaling up our operations to provide for the capacity for what we see as, you know, really, really strong growth ahead. But we did see gross margin overall for the company go from kind of the mid-50s% level up into the low 60s% on an adjusted basis, excluding the non-cash amortization stuff. But part of that is from the scaling that we're seeing. Part of it is also the contribution we're getting from some of our other business lines.
But if you just stick with EluPro for the moment, we initially have had higher costs because we've added the drug, and there's an additional testing component to that. But as we increase the lot size and we bring some of that testing in-house ourselves, we'll see additional leverage, and then we'll also see benefits just to scale. So ultimately, you know, what is really underlying the strong gross margins there is the actual value of the product and the actual clinical benefit that it's providing. And ultimately, that should be a 70-plus% gross margin product.
You know, if you look at our other lines of business, SimpliDerm and breast reconstruction, a little bit lower than that now, given that it's only a biologic product, but as you know, we're moving into a drug-eluting version of a biologic product there, be a different base than SimpliDerm. Ultimately, that will be a very high-margin product, given the differentiation we have there. And then last, our cardiovascular products, not as important strategically, but really nice gross margins there, over 80%, and that is contributing significantly to our bottom line.
Got it. And then, I guess that segues into our next point of discussion. So on the product pipeline, you laid out timelines for commercialization for both NXT-41 and NXT-41X. I guess, can you walk us through the breast reconstruction market opportunity today and where NXT-41X addresses an unmet need in the market?
Yeah. The NXT-41, we just call it 41X, the drug-eluting version of our breast reconstruction product. This is probably the single most impactful product we can have, not just from a financial and a market standpoint, but actually from a clinical impact, right?
So if you look today, breast reconstruction in the United States, and when we say the word breast reconstruction, what we're talking about are oncological procedures, right? So a woman's been diagnosed with breast cancer. She's been told she has to have a mastectomy, right? Has to have that breast tissue removed, and then she goes in for reconstruction, right? So there's. In the United States, there's 151,000 breast reconstructions performed each year.
Two-thirds of those are bilateral, involve both breasts, right? So this is a pretty big number of procedures that's being performed. What's incredible, though, is when you look at the outcomes from those procedures, somewhere in the order of 12%-20% of those procedures are gonna end up with post-operative infections.
Another 10%-12% are gonna develop capsular contracture on top of that. You're looking at a full one-third of breast reconstruction procedures today have a serious adverse event associated with that. Nearly one in five will require implant removal, right? If you're a woman undergoing you've just been diagnosed with breast cancer. It's a horrible thing.
You go into the operating room, you have a mastectomy, you go through breast reconstruction, and you're looking at a one-in-five chance of having an infection that is so significant it's going to cause a failure for the whole procedure. It delays the rest of your treatment, your chemotherapy, your chest wall radiation, right?
All of these other things. This is a really, really big problem, you know, that's going on, and it's a problem that we can fix, and that's what we really like about it. Biologics are already dominantly used. When I say biologics, I'm referring to biomatrices, right? They're already the predominant modality used in breast reconstruction.
So you don't have to, you don't have to retrain the surgeon and say, "Hey, we have this brand-new technology for you." 80% of breast reconstruction uses a biologic, but the biologics today are inert, right? They don't have any activity associated with them. They don't have any way of addressing the number one problem with this procedure. But we've developed that technology.
We have this proprietary technology that we've developed, and in NXT-41X, we've really taken it. Michelle and her team have taken it to the next level, where we have protracted antibiotic release, rifampin and minocycline, two very strong antibiotics that get released after this product, after the biologic is implanted, for the next thirty days, providing thirty continuous days of strong bactericidal protection of this implant. And that makes for a great market.
That also makes for a great thing to do in order to significantly improve the standard of care in this procedure. So that's why we're so excited about NXT-41X. And what we really love is, right, it's. It's everything we've learned with EluPro, right?
We learned how to develop this product, we learned how to get it through the FDA, we learned how to convince the FDA, and we actually developed a lot of intellectual property around how you test it, how you prove to the FDA, you know, certain characteristics in terms of drug elution. But we also learned how to get it through VAC committees, how to get reimbursement for it, and how to commercialize it, right?
So EluPro was a great prototype for us, a great proof of concept to show that we can bring a drug-eluting biologic through the regulatory pathway, and that once you put it on the market, surgeons will buy it. And now we're scaling that.
We're doing that with 41X in a, you know, in a market that's three times the size of EluPro and without a competitor. So we'll be the definitive first to market with 41X, and we're super excited about that. I don't know if you can tell. I get kind of excited about it, Matt.
Yeah. It's a super exciting product.
Yeah.
And then I guess, can you walk us through what type of clinical evidence you expect will be required?
Yeah. Actually, to get the product on the market from a regulatory standpoint, we're actually going through the same pathway that we took EluPro through, right? So, I will sit up here and say it's an easy 510(k), combination 510(k) pathway. All it involves is the Center for Devices and Radiological Health and the Center for Drug Evaluation and Research agreeing on something.
You know, at the last time, our submission only took six months. Michelle Williams, who's our Chief Scientific Officer, will say, "That is an incredibly difficult process to get through, and it- the three years before the six months was really where all the work was done," and she's right about that. But the process itself actually doesn't require any pre-market clinical trials.
Let us do it really efficiently. Now, from a marketing and a market acceptance standpoint, we actually have a pretty robust clinical development program in place, because we know, you know, for the surgeons and for the patients, the proof is in putting on how well it works and the efficacy associated with it. But from a development standpoint and from a regulatory standpoint, we actually, it actually won't be required.
We have a Michelle and her team have a really perfect understanding of what it takes to get a drug-eluting biologic on the market, having just gone through it. But also, you know, they've already held their pre-submission meetings with FDA. They've gotten that regulatory path worked out. They've got that agreed upon with FDA.
So it makes, from an economic standpoint, the things Matt cares about so much, right? This isn't like it's going to take, you know, seven years, and it's gonna cost us $150 million in development costs. It's a very streamlined process, gets the product on the market in the first half of 2027, is the timeline we're on with that.
Got it. Super helpful. And then I guess back to Matt, you know, on the balance sheet and cash burn, how should investors think about your burn profile and cash runway over the next twelve to eighteen months? You know, on the earnings call, you mentioned some potential strategic options.
Yeah, yeah. So, we ended the last quarter with $8.5 million in cash. We did also mention that we have a number of activities going on the strategic front, strategic transactions that would have the likelihood of bringing in non-dilutive cash into the company, and that is really our focus.
We have multiple opportunities that we're working on in parallel, and, you know, we can't speak in too much detail about those, but I would just say that we're getting to pretty advanced stages in those, and, you know, we expect to be able to say more in the relatively near future here. So, we feel pretty comfortable with where we are with all that.
Got it. And then, I guess, back to Randy, you know, as you guys look ahead to the second half of 2025 and 2026, I guess, what milestone should investors be most focused on, both for EluPro adoption as well as for advancing your breast recon profile?
Yeah. So, you know, when you think about the company going forward, first and foremost for us is to continue the great commercial success we're having with EluPro, right? We brought a product to market that the physicians want to use, and we're seeing great adoption with it. And the nice thing about that for us is, we're in the scaling phase now, right?
What we're doing is working. We know we bring a VAC online, they order it, and we just need to continue doing it. It's like, you know, the directions on a bottle of shampoo, right? Lather, rinse, repeat. And we just keep scaling. We can't take our eye off the ball on that, right?
We have a great partnership with Boston Scientific. We have a great, our own direct sales team that's driving 70% of the sales of the product, so it's just a lot more of that. And from a milestone standpoint, you know, we look forward every quarter to letting the scoreboard kind of speak for itself. Like: Look at that, look at what it did.
We, you know, we talked about on the conference call, we think that product is gonna end the year at somewhere between $18 million and $20 million run rate for us. That's pretty, pretty awesome, first-year growth of that product, and, you know, that we expect that to continue and actually accelerate into next year, particularly with Boston Scientific's support of that product.
So there's a lot to love just with EluPro. But again, the point of EluPro was the proof of concept, that we could develop and successfully and competently commercialize a drug-eluting biologic. And that is different. You know, you think about all the different things that have to happen from a regulatory standpoint, obviously from a marketing, from a reimbursement standpoint, but we don't give enough credit to our manufacturing team that's gotta figure out and efficiently, as.
Matt talked about with gross margins, combine a biological matrix and a drug together and do that at scale and pass lot release and all of those other things which, you know, I look at and say, what a wonderful set of barriers to entry to just keep everyone else out, 'cause it's really difficult stuff to learn how to do.
But they do a great job of that. Now that we have that down, we have that recipe down, the next set of milestones that the investors should be looking at is, wow, if you can go do that same thing you did with LuPRO, with 41X, and go into the breast reconstruction market, where, you know, the biologic isn't this $1,000, you know, thing that goes around a $20,000 piece of hardware, but it's actually the dominant thing that's used in a $1.5 billion market, that is a really significant value-creating opportunity for the company. And we've got regulatory milestones coming out, but for both the base matrix, 41, and for 41X.
And, you know, we expect approval of 41 next year, in two thousand and twenty-six, and then approval and launch of 41X in the first half of two thousand and twenty-seven. So, you know, we don't have to do everything with it. People will ask us, like: What could you do with this drug-eluting biologic technology? It seems like you could put it on this, and you could put it on this. We could, but we're pretty focused and we're pretty disciplined.
We're gonna do really well with EluPro. We're gonna do really well with 41X, and then Michelle's got some other things behind there, surprises she doesn't let out, you know, until they're ready to go. We've been working on 41X for three years before we started to talk about it.
Really, we do EluPro, and we do 41X well, and we think we win, so we're gonna do that.
Yep. Super exciting. And then I guess I'll open it up to the audience for any questions.
For the non-dilutive capital, does it give you two or three quarters of breathing room, or does it hopefully take care of you for a year or more?
Yeah, so the question was about bringing in non-dilutive capital and what kind of effect that could have on our cash runway. And as I mentioned, there are a number of different opportunities that we're working on, and there are some differences in terms of what the impact of each of them would be. And so I would say it's everything from looking at something that's more on the order of a few quarters of additional runway, to something that would be large enough to basically give us the cash that we need, likely to get to cash flow breakeven. So that's really the range that we're talking about.
You know, it's hard to rule anything out at this point, but we really think there's a strong opportunity there to to affect our balance sheet in a really positive way.
Do the Medtronic users ever wake up and say, "We can't keep using this, this plastic out..." that the reaction is that it's not right?
Yeah. The question is, do Medtronic users ever wake up and become EluPro users? And it's interesting, when we were developing EluPro, we did some market research with Medtronic users, with Tyrx users. And what we found, when we showed them EluPro and a biological delivery system versus a plastic delivery system, 80% of Tyrx users wanted to be EluPro users.
And we see that out in the space. What prevents 80% from fully coming over, just to be real honest and real about it, is the economics of Medtronic's bundling. Medtronic does a pretty nice job of bundling Tyrx with their pacemakers, right? They put those two things together, and that's what maintains any loyalty, you know, at any scale to that product.
But we're eating away at that really, really well, too. It is a - I mean, it's my baby, right? So of course it's beautiful, but it is a definitively better product. It's a - I mean, it's a brand-new, but Tyrx is 14-year-old technology. It was state-of-the-art then. It's not state-of-the-art now. Biologics are state-of-the-art. You will not find an evangelical Tyrx user. They don't exist.
Are guidelines approved that gives any guidance in this field and help?
So, I mean, EluPro, right, a brand-new product, and Tyrx is the dominant one in the marketplace.
Somebody that says, "Hey, kid-
Yeah
Once a physician uses EluPro, that, and particularly if they've used Tyrx before, they go, "Wow, this is much better. This is much easier to use." It's from a physician's standpoint, it is a much easier product to actually put into the patient.
And so not only does it have the long-term benefits of healthy remodeling in the patient and prevention of scar, and we have a bunch of clinical data out about that, but just ease of use, ease of putting the pacemaker in, it makes it much easier for the patient. So it's a great... We like to build great products. EluPro is a great product. 41X is gonna be an even better product. That's what we like to do.
Yep. Looks like we're running short on time, if you wanna give any closing remarks, Randy?
Well, I have eight seconds, Matt. So, I think, you know, I'm really fortunate to have Matt and to have the rest of the team that we've assembled, a real top-quality team of professionals at Elutia, that we've brought together here. I've worked with many of them for 20 years. They are the best at this. They know exactly what they're doing. We've proven we can do this in a competent and efficient way with EluPro, and now we're just scaling that with our other technologies, staying in our lane, staying focused, but executing, and we're excited to do that.
Great. Well, thanks again, guys, and thanks again to the audience for participating.
Thank you so much.
Thank you, Matt.