Morning, Jason Bednar, KORU Medical here at Piper. Next fireside chat is with KORU Medical. Very happy to have with us today CEO Linda Tharby and CFO Tom Adams. Thanks a lot for being here, both of you. Always great to have you at our conference.
Good afternoon, Jason. Great to be here.
So we'll just get into Q&A. Clearly, a lot of progress that's been made at KORU this year following what was maybe a challenging 2023 for the whole SCIG market. You've executed a number of strategic priorities. Maybe talk through what's gone right, what do you see as the major successes from 2024 as you reflect back that you can build upon going forward?
Yeah. So, clearly, thank you. A lot of things have gone well in the company this year. We set out with a clear strategy that we wanted to do two things. Number one was return the company to double-digit growth and hit cash flow positive by Q4 this year. We're on track to do both of those things with our latest quarter and growth certainly in that 15%-20% range. So what's gone well? First, our core U.S. business, the underlying SCIG market, has really rebounded, and we see that growth now in the 8%-10% range. And I have to give our U.S. team a ton of credit. We're executing really well on a new go-to-market strategy and plan that we had coming into the year, and they've been able to successfully take share. Second, our OUS growth has been a tremendous multiplier.
We went from being a high single digit, low double digit to +30% year to date this year. And I see that as a continued area of opportunity for us, ex-U.S.. And then third, our novel therapies business. We signed three new collaboration deals this year. We have just expanded the number of players that we're dealing with. And although that will always be a $2-3 million part of our business, it has been nice. It means those will be the future drugs that are coming onto our pipeline. And then underlying that, the management team has done a phenomenal job. The gross margin profile has stepped up nicely. Our overall control on OpEx to really make the right choices to get cash flow positive are all things that I think the growth levers obviously being the greatest, but pretty excited by progress all over this year.
As you should be. Let's maybe focus on that SCIG market growth for a second. I think the market improved pretty nicely this year towards high single digits or so, at least in the recent quarters. That's translated directly to better growth for your U.S. business. What makes you confident that this level of growth will continue or maybe even improve further, but at least let's just say continue as we look forward to next year? What gives you that visibility?
Sure. So confidence comes from a number of areas. First, I would say the SCIG market overall is still only 20% penetrated. So there's still a lot of headroom to continue to grow a lot of new patients to go after. And then if I look at the pharmaceutical companies, the two biggest players that control 80% plus of that market, CSL and Takeda, if you look at their pipelines and their growth, SCIG market for them, you're going to have some price in there, but it's growing nicely in that double-digit range, which is fantastic. They have invested a lot of money, therefore, in both their plasma production, which means a lot more drug is available on a global basis, and we've seen that drug now all over the world. So they've invested for decades to come in that production.
And then on the visibility part, I think that we buy data from an external source. They've gone out, they've talked to all the pharmaceutical manufacturers, and they see the headway, growing that penetration level in SCIG. Patients love SCIG. The healthcare system increasingly is adopting SCIG as a new form of therapy, and they make a lot more money on their SCIG pharmaceutical products. So our external forecasts say 7%-9% growth on a global basis, predictably.
Okay. Is there anything that can help that market accelerate further?
Yeah, I think that there are a number of things. I think over time, SCIG subcutaneous therapy in general. There are now over 1,000 drugs in the pipeline going to subcutaneous as the major route of growth versus IV. I think as subcutaneous growth happens over time, doctors, where the initial script needs to start, will become more and more comfortable with that as the major mode of therapy. So I think we'll see this evolution occur. I think more convenient ways of administering to the patient subcutaneously, both things that we're working on from an innovation perspective, things that other competitors in the market are working on, I think all of those will lead to increased SCIG penetration over the next several years.
All right. And you mentioned, I think in the response to the first question I had, that you have deployed a new commercial strategy this year. Maybe unpack that a bit more. What changed? What can you lean into that's gone well this year and, again, help that market growth as we, or not market growth, but your growth within the market, as we look ahead to next year?
Sure. So maybe I'll start with international since I see that as being a major area of opportunity of growth for us. So in the U.S., we have 60% to 70% share of the market. So that's why the market growth is so important. Outside the U.S., we have 10% share. So we put a concerted effort this year to really go out and look at working ex-U.S. with electronic pump companies. So the market ex-U.S. is an electronic pump market. We have one region where they use mechanical pumps, but the format that they've used for over a decade is electronic pumps. None of those electronic pump companies have consumables, which are 75% of our revenues. So we went and formed several partnerships, both with pharmaceutical companies and with the e-pump companies, and we've just gotten into several new geographies.
So this year, again, growing that market 30% plus and a market that's growing 8%, you can do the math. That says we're stealing three times the share positions. And we think there's a lot more geographies to enter. And I believe that the OUS market, we're working on a major deal right now with a major pharmaceutical company that could be an even bigger lever to that OUS growth that we talked about. In the U.S., we've used analytics, so some AI kind of work to say, where are we penetrating, where are we not penetrating? We've refocused our sales force into those areas, and we're starting to see the results of that in those accounts where we're putting more focus.
And then also at key accounts, which five accounts control about 60% of the business, we've negotiated some new deals with them, which have really, obviously, that levers into thousands of pharmacies. So those are what I would say have been the two biggest levers of our growth from a go-to-market perspective this year.
Okay. That dovetails nicely into kind of this wrapping it all together around the go-forward look into 2025 and 2025 and beyond if we want to even take it that far. Are there specific areas that you'd say or specific things that need to happen to deliver high 10s, low 20s growth? And I don't want to summarize or put words in your mouth, but it seems like continued market growth, share gains with maybe modest in the U.S., but then even more so international.
Yeah.
And then feel free to add on anything else.
Yeah. So I'm not going to promise that we're going to get there, but if you take 10%-60% and we take 50%, that's a $30 million opportunity ex-U.S., of which you can see us rapidly penetrating into with our growth this year. So that to me is the biggest and lowest risk. It's doing what we do here in the U.S. really well ex-U.S. and capitalizing on the pharmaceutical partnerships that we already have in order to do that. So that's a big lever. You got it for the U.S. market, right? We have to continue to incrementally grow our share position, protect and grow our share position there. And that'll come with some new products that we've talked about.
And then finally, the other lever we haven't talked a lot about is now we'll get some new products and we'll get some new drugs on our label. So we have two new submissions that we intend to make this year, one for a rare disease candidate that could be 500,000 to 2 million infusions over the next several years. We do those infusions at about $15 an infusion. So that's a nice lift. And then obviously the oncology opportunity that we've talked about, which is about 2 million infusions per year this year. We won't get all of them, but 10%, 20%, 30% share in those markets. Number of new infusions coming onto our pump is a major driver for us as we move forward.
That $30 million opportunity on the international side, that's for the markets in which you play?
That is for markets in which we play and some new markets that we would count on entering where we have little to no share position today. Canada being one of those markets that we've talked about in the past.
Yep. Yep. I mean, to go from 10%-60%, that doesn't happen overnight. It doesn't happen over a couple-year period. I mean, what's a reasonable expectation for people to have around how quickly you can move your current international market share from 10%?
Yeah. I would say that this year we certainly moved it by three or four points, I think, to expect us to continue to grow that business at a minimum of 20%. We're working on a couple of things today that could take that position, could be a $20-plus million opportunity with a major pharmaceutical player that we'll know more about in Q1 .
Q1.
Yeah.
You read my mind on where I was going to ask on timing, but thanks for that. You know the questions I like to ask. Let's talk about maybe the competitive landscape, what that looks like, which is not something we often look at with your business, in part because you are such a dominant player in the U.S., but you're not a 100% share player. So let's talk about the competitive landscape in the U.S., but then also even more so, talk about the competitive landscape in novel therapy is just not something that I think a lot of investors tend to think about, and maybe it doesn't even matter. So feel free to say that if that's the case.
Sure. So we feel certainly with our IG business, the U.S. market is a mechanical pump market. We have 60%-70%. We feel very confident in our position. We've been gaining share. We have one smaller privately held company called EMED. They would be what I call a price player and a fast follower. When you're dealing with the kind of patients that we do and the pharmaceutical companies that need an innovative pipeline, they need clinical services, we think we have a pretty strong value proposition there. OUS is an electronic pump market. The great thing for us is none of them have consumables. So you need to go from that electronic pump into the body. You need a needle and a tubing set, and none of those companies have—sorry, you need a needle set, and none of those companies have those needle sets.
We're able to play with all of those companies ubiquitously with our needle sets. Then finally, on novel therapies, this is really a volume game. KORU, above 20ml in the marketplace, has 40,000 patients. We've been in the market for a decade. There's nobody above 20ml that touches that. If I come down to 10 to 20ml , there are what we call on-body devices that there is one drug, one company that has been approved for use, a company called Enable Injections with a drug from a company called Apellis Pharmaceuticals. Very, very low volumes, just a completely different cost play. Probably to get into that device is going to cost you anywhere between $10-40 million in capital and R&D expense. Then our pump is tens of dollars per infusion. Theirs is hundreds of dollars per infusion. Just very different dynamics.
Particularly in the U.S. market where reimbursement comes into play, the pharmaceutical company themselves has to be willing to pay those upfront costs and to pay that cost for each infusion that happens because the reimbursement will not handle it. I do think they offer some nice choices on convenience. You talk about what might grow the market overall. I think new devices and bringing new consumers in will overall grow the market. That's basically what we see. Then below 10 ml, you see auto injectors. Not a huge market for us. Today, it's a very few percentage of our infusions, but it's basically a volume play as you think about it.
That's helpful. Maybe go to some recent dynamics here. You had some regulatory dynamics at play in the most recent quarter. Talk a little bit about what happened. You had an adjustment in the 510(k) submission for your consumables platform, right? But why weren't the revenue implications from this adjustment as we look forward? And then what are the derivative impacts for the other parts of your business as a result?
Yeah. So the delay that we announced was we had a consumables 510(k) submission, which was expected to occur by the end of the year. And we pushed that into 2025, the first half of 2025. Why it didn't have a huge impact on our revenues is, again, as I talk about the U.S. market, we didn't have a lot of price planned, and we had a little bit of share planned, but it was a limited market launch that we were doing. So it had relatively little impact in our U.S. market. And the market growth actually made up for what we saw as a loss in some of the consumables in 2025. And for OUS, it really didn't impact our launch timing because just the timing of our submissions now, we're able to bring in the OUS submission. We never had that planned until late 2025.
So we feel pretty good about where we're at.
Okay. What do you think happens to your business in advance of the next-gen pump launch? I guess maybe how do you avoid the pause or lull that might happen in front of a well-communicated next-gen launch? I see this commonly in other parts of med tech, and maybe tell me why it's not an issue for your business.
Yeah. So for us, our patient base, what we love about our patient base, they're recurring. They do it every single week. They need a pump in order to get that done. So for us, utilizing our pump today is not an option, right? They have to use the pump that they have today. And I think our next-gen pump, the way that we're going to lay this out is in combination with our consumables. So it'll be a total switchover for the patient. There's work involved. We've got to send people out to retrain nurses on how to use both systems. So I think that they're not going to pause. They can't. Patients need the therapy every single week.
Okay. All right. Fair enough. Tom, I'm not going to let you off easy here, so I've got to bring you in. But it's all good here, right? Because the gross margin momentum has been pretty strong. You and I talk about this a lot. You seem to be making solid progress on cost takeouts, price pass-through, also to offset inflationary headwinds. If we make an assumption that growth remains strong in 2025, which Linda and I have been talking about all the reasons why it probably will be, but this is in part due to international strength, should we assume there's maybe some mixed impacts on gross margin next year just as we kind of think about all the different moving parts?
Yeah, absolutely. So when we look at the international markets, we tend to have about a 2% difference in gross margin between our U.S. business and our OUS because you're in smaller markets there. But what I would say is as we go into the year, we typically have a good understanding of price increases from our supply network. We also have a good understanding of locally in our manufacturing, all of our operational effectiveness plans that we're going to carry out throughout the year. So from my perspective, I'm not going to give guidance today, but I would expect that we would remain close to where we are today, which is around a 62% or so % margin, 62%, 62.5% margin.
Okay. Do any of the product development or manufacturing ramp up on consumables or the next-gen pump? Does that have margin implications on the business in 2025?
Absolutely. And that's why my margin will be more or less flat as I think about 2025. As we get into the latter part of next year with the launches that are expected in 2026, we're going to start ramping up production. So we'll have effectively an outside contractor that'll be lowering volume, and then we'll be ramping up in our local Mahwah facility with our new product line. So you'll have some inefficiencies there as you bring one down, you bring one up. However, that'll all be in my plan.
Yeah. Yeah. Okay. Okay. I didn't feel the need for either of you to respond on the next question. I think the Street's sitting around mid-teens growth or so for 2025. And as we inch closer to the end of the year here, I'd just like to take your temperature maybe on the comfort level that maybe you have and what's implied here as an acceleration in revenue growth as the Street hasn't modeled.
Yeah. I would say right now we're laser-focused on finishing our year strong, which we feel very, very good about. And I just laid out, right? Obviously, there's several opportunities to accelerate the growth, be that OUS via the new products we talk about or the new drugs on label in some of those submissions. We're not going to talk about any specific numbers for 2025.
It's almost like you've gotten this question before.
Possibly later this year, possibly early next year, but we feel great about how the year we've had this year and how we'll close the year. Tom, I don't know if you want to add anything.
Yeah. And I would just say with our novel therapies pipeline, which we haven't spoken too much about, it's much more diverse than it has been in recent years. We have a lot more partnerships, creating more services revenue than you've seen last year. We're showing good growth this year, and we expect to continue some of that momentum heading into 2025.
Okay. I think it was a year ago, maybe almost a year ago. It was your mid-December investor day last year. You think you had outlined $60 million in revenue by 2026. Is this still, first question, is this still a reasonable target?
Yeah. I mean, we believe we have a clear pathway to the 50, 50 plus. We have shots on goal and opportunities to get there, but obviously, you've got to hit all those. So we feel in terms of just the building blocks, yeah, there's some mixed change in those building blocks. We see more opportunity in international, as Linda mentioned earlier, with some of these future potential partnerships that we're looking at. But yeah, I mean, we feel very strong about the 50 plus.
Okay. All right, and you kind of alluded to the building blocks being a little bit different. Anything else outside of just maybe international being a little stronger, maybe coming to novel therapies?
Yeah. I mean, Linda, you can also come into the novel therapies piece. But the way I see it is international for sure, stronger new markets to get into that we see short-term opportunities. And I would say on the novel therapies, some of these getting these new drugs on label take a little longer. So we'll see revenues from there, but they might come in a little bit later. That's why the mix of the building blocks change.
And maybe just said a little bit differently, right? If we say our international opportunity is a $50 million opportunity and we see headway to get to 20 plus million of that over the next few years, the new drugs on label, I think about it in terms of number of infusions, right? So the rare disease candidate will be somewhere between 500,000 and 1.5 million infusions at $15 an infusion. And you look at oncology, it's 2 million infusions. Let's say we get 20% of that market, there's another 500,000 infusions. I think as Tom said appropriately, so you add those two numbers up, you're looking at basically a new KORU. But does that take us in the next two years, or could that take us a little bit longer to penetrate into those markets?
And then finally, I don't want to miss our U.S. business, which is that underlying bedrock, that business now we've shown capabilities to grow that 10%-15%. That's throwing off a lot of nice growth on a recurring revenue base.
Yep. Absolutely. Cash burn's in a pretty solid spot right now. I'm sure you're all pleased with kind of the progress you've made there. You continue to expect cash flow break even for the fourth quarter, as you kind of reiterated to start the conversation here today. Maybe help us through the trade-off that you're constantly weighing between maintaining a reasonable cash balance while also still plowing ahead for growth.
Sure. Sure. Well, investors want everything, right? Growth.
So do sell-side analysts.
Cash, growth. But as we look at our investments, we don't need to spend millions and millions of dollars to enter into these markets. We could do it in the hundreds of thousands of dollars. So we feel that we could still grow pretty nice on the top line with minimal investments on the bottom line. So from that perspective, our guidance has been operational cash flow positive for all of next year. That's already been publicly said. So we intend to continue on that line. And we'll make decisions, right? We might come into some situations where we see a nice ROI on an opportunity. But again, we're not talking millions of dollars of cash burn. We're talking hundreds of thousands of dollars.
Yeah. And the only thing I would say in addition to what Tom said is if we have an opportunity for OUS, $10-20 million, we're not going to walk away from that opportunity to hit a cash flow target.
Yeah. Of course. Maybe in the last minute, and either of you or both of you feel free to respond. Always a question I like asking is if we're sitting here a year from now, two years from now, three years from now, pick your time period, what does KORU look like and what do you think would define success?
Yeah. So first, I'm always going to start with the key growth drivers, right? So being a much bigger player internationally than we are today. Second would be that we've launched these new products into the U.S. market and have continued to grow our share position there and hopefully see the sub-Q market coming along. And then we've got several new drugs on our platform that have had millions of infusions. If you add all three of those things up, then clearly we're more than double the size of the company we are today. So exciting outlook and a fantastic team that's making that happen and throwing off some nice bottom line returns in the process.
Excellent. Well, with that, we are out of time. Always a pleasure having you both with us, Linda and Tom. Thanks so much for joining. And also everyone in the room, thanks for your attention as well. Appreciate it.
Thank you.
Thanks, [both].
Thank you.