Good morning. Welcome to the Nuwellis First Quarter 2023 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note that this event is being recorded. I would like now to turn the conference over to Ms. Vivian Cervantes, Investor Relations at Gilmartin Group. Please go ahead.
Thank you, operator. Thank you everyone for joining us for today's conference call to discuss Nuwellis' corporate developments and financial results for the first quarter ended March 31st, 2023. In addition to myself, with us today are Nestor Jaramillo, Nuwellis' President and CEO, Lynn Blake, CFO. We also have Dr. John Jefferies, Nuwellis' Chief Medical Officer, and John Kowalczyk, the company's Senior Vice President of Sales and Marketing. At 8:00 o'clock Eastern today, Nuwellis released financial results for the quarter ended March 31st, 2023. If you have not received Nuwellis' earnings press release, please visit the investors page on the company's website. During this call, the company will be making forward-looking statements. All forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995.
Any statements that relate to expectations or predictions of future events and market trends, as well as our estimated results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risk in the company's filings with the SEC, including the latest 10-K and subsequent reports. I would now like to turn the call over to Nestor.
Thank you, Vivian, and good morning, everyone. Welcome to Nuwellis' first quarter 2023 earnings conference call. On today's call, I will provide an overview of our first quarter performance and give an update on our strategic initiatives. Our Chief Financial Officer, Lynn Blake, will then provide detailed commentary on the financial results. Before I open the call up for questions, followed by my closing remarks, Dr. John Jefferies, our Chief Medical Officer, and John Kowalczyk, our Senior Vice President of Sales and Marketing, are also on today's call and will be available during the question and answer section. Turning to our first quarter results. In the first quarter of 2023, Nuwellis generated $1.8 million in revenue, a decrease of 5% over the first quarter of 2022.
By segment, first quarter 2023 revenue in heart failure increased 21% over the same period last year. While pediatric and critical care revenue declined 28% and 4% respectively. In heart failure, which in the last six months has had a bolus of support from multiple peer review publications, the 21% revenue growth in Q1 follows similar strong year-over-year heart failure revenue growth of 47% in Q4 of 2022. We attribute the growth in heart failure to the steady flow of positive peer review publications and clinical evidence bolstering the activities of the sales and marketing organization, which is now fully staffed in all territories. We remain committed to driving market penetration in our ultrafiltration treatment earlier in the hospital admission cycle and across multiple hospital specialty units.
Key to the execution is driving awareness among clinicians and providers to understand that ultrafiltration is the next logical step in the care pathway. In other words, patients from whom oral or intravenous diuretics are not effective should immediately move to ultrafiltration therapy, which is a mechanical fluid removal solution, and as such is more controllable, precise, and predictable. This is the message that our field organization is now delivering. Based on the heart failure segment results for the past 2 quarters, the message is having a positive effect. In pediatric, we remain well-positioned and excited about our opportunities, which include the expected IDE approval of our new pediatric-dedicated continuous renal replacement therapy device in the 1st quarter of 2024. The softer-than-expected results in the 1st quarter were driven by lower patient census in key accounts with fewer hospitalization of babies born with kidney disease.
Census-driven factors are not new to our business. Having seen this trend in the past with similar decline in the third quarter of 2021. While changes in hospital census are difficult to predict, we are confident that we have all the right measures in place to execute on our pediatric growth strategy, including increasing the use of Aquadex ultrafiltration system to treat other pediatric conditions such as heart failure and cardiothoracic surgery. Today, we have 30% more pediatric centers using Aquadex than in the same quarter last year. Overall, our Q1 revenue does not reflect the positive activities that make us excited about the future of Nuwellis.
Include, number 1, developments in a number of hospitals to use Aquadex, not only for treating heart failure and critical care patients, but expanding its use to other hospital specialty units, including liver disease and left ventricular assist patients. Number 2, steady product development progress on our pediatric device aimed at saving lives and increasing the quality of life for neonates and small children with kidney disease. We believe this device will be a game changer in pediatric kidney treatment. I'd like to provide additional updates on our top strategic initiatives aimed at making Aquadex the standard of care for fluid overload patients resistant to diuretics. In the first quarter, we were pleased to announce a peer review publication advocating the use of ultrafiltration for heart failure patients resistant to diuretics.
The publication title, Extracorporeal Ultrafiltration for Acute Heart Failure, was featured in the CardioRenal Medicine Journal and authored by Dr. Amir Kazory and contributing nephrologist physicians. The publication includes a review of a pool data from 7 randomized controlled trials of ultrafiltration with a total of 771 patient participants. The authors outlined the scale of the clinical burden of heart failure. Approximately 6.5 million adults in the U.S. have heart failure. 1 in 8 death include heart failure as a contributing cause of mortality. Nearly 40%-45% of patients who develop heart failure die within 5 years of diagnosis. Heart failure has the highest rehospitalization rate among all medical conditions, with 24% patients readmitted within 30 days and 50% of patients readmitted within 6 months.
The annual cost of care for patients with heart failure is estimated at $60 billion in the U.S., with the hospital-related expenses accounting for almost 70% of the total cost. The authors highlighted the clinical application and value of ultrafiltration. The most important findings were as follows: predictable, adjustable, and more efficient fluid removal with ultrafiltration compared to diuretics without clinical adverse impact on renal function, which leads to a reduction in hospital readmissions and related healthcare expenses. Applicability of ultrafiltration therapy in other clinical settings, such as cardiac surgery, burn, and other specialty units, where active and prompt fluid volume management is of utmost importance. Expanding the use of ultrafiltration into outpatient centers and other ambulatory settings to treat patients before their symptoms become severe and require hospital admission.
We have been and plan to continue using this peer-reviewed study to further expand our efforts and grow the heart failure segment of our business. We also continue to make progress on our REVERSE heart failure trial with 11 sites activated and a 2-fold increase in the number of enrolled patients since last quarter. As a reminder, the primary effectiveness endpoint of the REVERSE heart failure trial will evaluate mortality and heart failure events within 90 days as a comparison between Aquadex ultrafiltration therapy and intravenous loop diuretics. We look forward to updating you on additional clinical data supporting the use of ultrafiltration using Aquadex as a mechanical fluid removal therapy to treat new indications, including liver disease and left ventricular device, assist device implantation.
Turning to our product development initiatives, we remain on track with the development of our pediatric continuous renal replacement therapy device. We continue to anticipate IDE approval in the first quarter of 2024. We, along with physicians, namely pediatric nephrologists, are beyond excited about this product as it addresses the unmet needs of the pediatric patient population and could significantly increase the quality of life for neonates and small children with kidney malfunctioning, kidney issues, or those born without kidneys, all of whom suffer from life-threatening fluid overload. As I mentioned earlier, we believe the device will be a game changer in pediatric treatment. In conclusion, our team remains focused on leveraging our clinical data to steadily build awareness and drive market penetration of our Aquadex ultrafiltration system to treat fluid overload patients resistant to diuretics.
We are addressing a $2+ billion market with opportunities across multiple inpatient specialty units and outpatient service centers. Our team is highly engaged in executing on our growth agenda as we continue to improve the lives of patients and support caregivers and clinicians who are battling day in and day out the limitations of diuretics, which is the current standard of care. For fluid-overloaded patients resistant to diuretics, we are confident that a mechanical fluid removal alternative using the Aquadex ultrafiltration system is the solution. I would like to turn the call over to our Chief Financial Officer, Lynn Blake, to discuss our Q1 financial results.
Thank you, Nestor, and good morning, everyone. Revenue for the first quarter of 2023 was $1.8 million, a 5% decline year-over-year. By segment, first quarter 2023 revenue in heart failure increased approximately 21% over the same period last year, while pediatrics and critical care declined approximately 28% and 4%, respectively. In pediatrics, as Nestor mentioned, the decline was driven primarily by lower patient census with lower than expected neonate hospital admissions. Gross margin was 58.4% of sales for the fourth quarter, an increase of 120 basis points compared to gross margin of 57.2% in the prior year quarter, driven by an increase in circuit ASPs and to a lesser extent, favorable product and geographic sales mix.
Selling, General, and Administrative expenses were $5.5 million in the first quarter of 2023. Compared to the first quarter last year, SG&A expenses increased by approximately $1.1 million, or 24%. This increase reflects both increased staffing expenses and seasonally higher year-end related public company expenses, which were increased this year due to additional year-end audit and legal work associated with our October 2022 financing and related stockholder meetings. We incurred incremental professional fees associated with consulting related to our strategic initiatives in the quarter. First quarter Research and Development expense was $1.4 million, an increase of approximately $300,000, or 29%, compared to the first quarter last year. On a sequential quarter basis, R&D cost increased $227,000 or 19%.
These increases were driven by increased product development expense associated with the ongoing development of our pediatric dedicated device. Total operating expenses were $6.9 million in the quarter, an increase of approximately $1.4 million as compared to $5.5 million last year, given the factors discussed. The net loss in the first quarter was $6.5 million or a loss of $5.76 per basic and diluted common share, compared to a net loss of $4.5 million or $42.45 per basic and diluted common share for the same period in 2022. That loss is adjusted for our December 2022 reverse stock split.
The current quarter's net loss includes a non-recurring non-cash expense of approximately $750,000 associated with the revaluation of the warrants issued in conjunction with our October financing. That expense was recorded in other expense on the income statement. From a liquidity perspective, we ended the first quarter with $12.1 million in cash equivalents, and marketable securities and no debt on the balance sheet. We had approximately 1.2 million common shares outstanding at the end of the quarter. This concludes our prepared remarks. Operator, we'd like to open the call to questions now, please.
Thank you. We'll now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we'll pause momentarily to collect the question. The first question comes with Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
A few questions from our end. I guess, firstly, could you talk about pediatrics that came in light? It sounded like the census was lower for candidates for your therapy. Talk about that. Also, could you give us a frame of reference as far as % of revenue for the quarter that pediatrics was?
Okay. Good morning, Jeffrey Cohen. Thank you for your question. The peds shortfall was mainly in our large legacy accounts. In these accounts, we have experienced a much lower census than we expected, meaning those patients that qualify for our therapy, neonates being admitted, and also needing critical care. If you remember, most of these patients that are treated with the Aquadex SmartFlow ultrafiltration system are off-label. Our indication is on 20 kilograms and above. We're still increasing our focus on pediatrics on other indications such as cardiac surgery, heart failure, to compensate for the lower census that we are seeing right now. Lynn Blake, do you wanna provide the answer on the percentage of the revenue that was.
Yeah.
attributed to pediatrics?
Sure. Sure. Hi, Jeff. The Q1 revenue was at 23% pediatrics. 23% of total in the quarter.
Perfect. Okay. Got it. Jumping over to, while we're on pediatrics, you're anticipating an IDE approval in the first quarter of 2024. Is that correct?
That's correct, Jeff.
Okay. Can you talk about the reverse heart failure trial a little bit? 11 centers. What % enrollment are you at? I think I heard a number, but what's the total enrollment number that you're trying to get to? What % are you there, and when might that conclude?
Right. Jeff, the total number that we anticipate to have is somewhere around 372 patients. However, we are redoing our statistical analysis that perhaps that may change in favor of a lower number, sample size. We're not completely done with all the statistical analysis that need to be done. If I use the 370, we are about a little bit over 10-15% of total enrollment. We anticipate to finish enrolling patients in 2024. That's our target that we have discussed with all our principal investigators, and we believe that that is achievable.
Got it. Okay. gonna jump over to heart failure now that you're fully staffed on your territories. What would you anticipate to be the impact on the top line for the balance of this year?
We will continue to see double-digit growth in heart failure. We will continue to execute on all the clinical data that we have obtained to drive awareness among clinicians.
Okay, got it. You talked about some other areas such as, liver and LVAD. Can you talk about, in what segment of the hospital and what typical populations that you're seeing some utilization there on?
Yes, a good question, Jeff. Recently on my visit, we visited an account that has been a good account for us, have used it for a number of years. They mentioned to us that they have quite a few LVAD patients that have been treated with Aquadex immediately after transplant and later follow-ups. On the liver, we have a very important center in New York City who has been using it for liver. They have submitted a publication that we are waiting for that publication to be published in a journal. The liver is usually in the liver department, a unit of the hospital.
Got it. Okay, I think that those are for us. Thanks for taking the questions.
Thank you, Jeff.
Thank you. The next question comes with Anthony Vendetti with Maxim Group. Please go ahead.
Thanks. Maybe just a follow-up on the REVERSE-HF trial. Did you say all the sites are activated at this point?
Anthony. We have a target of 20 sites to be participating. We have now 11 activated. The rest of them are in the process of getting activated, getting approvals for the IRBs, contracts, etc.
Okay. Thanks for clarifying that. Just in terms of you said you have more salespeople. Can you talk about the messaging for the Aquadex? I mean, clearly, as you stated, Nestor, it's a huge market opportunity. Do you feel that the message is on point? How do you I guess what's the goal in terms of trying to convince other sites that this is something that you should The Aquadex is something you should have multiple, and depending on the size of the hospital, but multiple units in the hospital to treat fluid overload?
Yes. Anthony, that's a very good question. I'm going to let John Kowalczyk, our Senior Vice President of Sales and Marketing, answer that question. Before I turn it over to him, fluid overload is everywhere in a hospital. It is in the ICU. It is in the burn units. It is in the heart failure, in the step-down, in the emergency room. Our target is to create awareness among physicians. Soon you will hear more marketing strategy that we are implementing to go after the patients' awareness. Let me turn it over to John for him to tell you about the messages that we are conveying to our sales organization for them to deliver to our customers. John?
Yeah. Thank you, Nestor. Good morning, Anthony. The message is really this. As Nestor indicated, fluid overload is everywhere.
It's supported by the data. As a matter of fact, 40% of the patients that are admitted to the hospital will be experiencing some degree of diuretic resistance or suboptimal results. Our messaging, based on the published data, is to identify those patients earlier in the process. By identifying those patients earlier and using the clinical data like Kazory and other published documents, to include Dr. Haas's Abington 10-year real-world experience, we're educating physicians to say use a mechanical fluid removal system, Aquadex, earlier. By doing so, the message then is supported by the clinical data that says we potentially can alleviate or minimize downstream sequela that occur with multiple medications being given over time that contribute to potentially AKI, which then leads ultimately to more aggressive forms of clearance like CRRT and/or dialysis.
Through that process, that then extends the length of stay for the patient, which then incurs not only a less advantageous result for the patient, but also drives up the cost of what the hospital needs to incur. Those are our messages, and it's based on the published data, and the physicians are now responding to this pretty well.
Okay, great. The data is presented to them. They... when you're dealing with the actual sale process, is it the, is it one of the key executives at the hospital? Is it the physicians? Is it a combination? How does that work? Then lastly, on the conference side, getting the KOLs, are there specific upcoming conferences that you'll attend to get the message out there broadly?
Mm-hmm. Good question, Anthony. Let me turn it over to Dr. John Jefferies, who joined the company as the Chief Medical Officer. He is a practicing clinician and has used our therapy, and I believe that he would be the best person to answer your question as to how is the process in the hospital to determine the use. John?
Sure. Thank you. Thanks for the question. You know, I think every hospital is unique, but most of the time, to get the messaging, it really needs to be sort of a dyad approach. I mean, you need to speak with the clinicians. Part of the clinician discussion is about having data, right? How can you support the use of your science? Obviously, you've been hearing about REVERSE-HF. That's exactly what that is intended to do, is provide contemporary data. The other piece, though, obviously, is on the administrative side. Just because a physician wants a technology doesn't mean that it just happens. It has to go through budget and approval and lots of other different committees before those things happen.
What I've been trying to do whenever we, you know, approach accounts or I think this collectively is true, is that we're trying to keep that in mind and that we want to message the value proposition to the hospital, the administration, but obviously to the physicians and the clinicians, provide the data that support the use of the technology, which at this point are very substantial. I think this is just a matter of continuing to build momentum, which will happen, you know, with the data that you heard from Nestor about the different sort of phenotypes that we can use the technology for very successfully. I think that's gonna expand the number of touchpoints we're gonna have in any one hospital. Not just a cardiologist.
Now you could talk to a hepatologist, a liver transplant surgeon, a cardiothoracic surgeon, an intensivist, a pediatrician, a pediatric nephrologist. All these different sorts of opportunities are only going to continue to grow.
Thank you, John.
That's it.
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Nestor Jaramillo for any closing remarks. Please go ahead.
Yes. As we conclude this call, I hope that we were able to convey to you the optimism that we have and also our execution on our growth strategy from heart failure, other indications such as liver, LVAD, pediatric, our pediatric-dedicated device, as well as our unique therapy device that we're building, and also the heart failure clinical trial. I would like to thank all our stakeholders, our employees, our shareholders, our physicians and clinicians, as well as all the medical healthcare staff. Thank you very much for your support. Without your help, we would not be able to help transforming the lives of patients suffering from fluid overload. With that, thank you very much for your participation.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Have a good day.