Good afternoon, ladies and gentlemen. Welcome to the Elutia First Quarter 2024 Financial Results Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to Matt Steinberg, FINN Partners. Please go ahead. Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended March 31, 2024. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, 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. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2023, that is accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2024. Elutia disclaims any intention or obligation, except as required by applicable law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure, the most directly comparable GAAP financial measure, is available in the company's financial results release for the first quarter ended March 31, 2024, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com. And with that, I will turn over the call to Elutia's CEO, Randy Mills.

All right. Thank you, Matt, and it's hard to imagine that any part of this presentation could get better than our forward-looking statement slide, but I'm going to give it a shot here. We have some new people on our call with us today. So we're going to go over a little bit of the background and history of the company, but we've got a whole lot of exciting stuff to talk about. I hope you got a chance to see the earnings release that was just put out. But we'll be going through that. Matt will be taking us through some of the financial components. And then at the end, obviously, we'll be happy to take your questions. So Elutia, our mission is to humanize medicine so that patients can thrive without compromise. We are a commercial-stage company now with a $27 million revenue run rate and growing on the backs of two proprietary product platforms. Our CanGaroo product platform, which is used to protect implantable pacemakers and electronic devices, and our SimpliDerm product line, which is used in breast reconstruction. But very excitingly, we are pioneering the drug-eluting biomatrix and we use that to solve very serious problems with implantable devices that currently are not addressed by the state-of-the-art technology. Importantly, we expect FDA clearance of our first drug-eluting biologic CanGarooRM in June coming up right now. And I'll go over this, but that gives us the ability to jump into a $600 million device protection market within pacemakers that really is right for disruption. So let's jump into it. Okay. So from a business highlight for the first quarter, we had another exceptional first quarter, but this one was really quite a standout $6.7 million in revenue for the quarter, it puts us at a run rate of about $27 million. SimpliDerm from a revenue standpoint was the real star with sales surging 55% in the quarter. And then obviously, all eyes are on our CanGarooRM product line, and we expect clearance for that now in June of this quarter coming up. A little bit of background. So what we do at this company is, we are pioneering the drug-eluting biologic, and we do that by taking natural biological matrices and adding a pharmaceutical payload to that by combining those two things, we are able to create products that have a regenerative component, as well as a pharmaceutical component. So it's really the idea of the best of both worlds, being able to have an implant that incorporates and regenerates in your own healthy tissue but also delivers active pharmaceutical agents that can impact things, such as postoperative infections. And we're really excited about what that technology brings us. So with that said, let's jump into our first application of this, which is on our CanGaroo product line and CanGarooRM the next one coming up. So CanGaroo is a product – the CanGaroo line is a product that's used in the CIED or basically pacemaker and internal defibrillator space. So each year, there are about 500,000 pacemakers that are placed. There's really only four significant players in the pacemaker field. Medtronic has 40% market share in that space, with the other 60% divided between Boston Scientific and Abbott at about 25% each and then Biotronik, a bit of a distant fourth at 10%. This is the marketplace in which we are able to not compete with, but instead actually facilitate and make these implantable pacemakers perform better in the patients that they're intended to help. So why do we need CanGaroo or CanGarooRM? This is what it can look like for somebody receiving a pacemaker. And so some of the comorbidities and problems that these patients and their physician face, things like thin skin, you can see in the picture on the left there, you have no problem identifying the pacemaker and the lead wire even coming off of it. If you look closely, you might be able to see the serial number on the pacemaker. But this idea of a patient with thinner skin and having this pacemaker placed directly underneath that skin really sets off a cascade of events. One of them is migration. So the next picture over to the right, you can see an arrow where the actual incision was and the pacemaker was placed, and you can see that this pacemaker is rotating laterally towards the armpit. That starts in motion a series of events that can lead to problems. One is you can have tension and pulling on the leads and those leads could dislodge. But another thing that you can see happen here is the pacemaker can move and have micromotion against the skin, and that can lead to pacemaker erosion, which is the next picture over. And so if you're not sure how big of a problem pacemaker erosion can be. Well, the third picture over, you can see pacemakers literally dangling from this patient outside of his body. That's obviously not a sustainable picture; somebody has to go back into the operating room and have that fixed. In the meantime, it's pulling on those leads, which are supposed to be placed firmly in the right ventricle. And that can lead to, obviously, failure to pace. And then lastly, it's this idea of infection. So anytime you're putting a long-term implantable device into a patient, particularly those that have comorbidities such as things like smoking or obesity or type 2 diabetes, you're at a significant risk for postoperative infection and that can be a really catastrophic event in patients who need pacemakers. The problem that we're trying to address is the most common type of failure that you see with pacemakers. Pacemakers themselves generally don't fail very often. They don't spontaneously break; most failures with pacemakers occur at the device-host interface, just like I've shown here. And that's actually what we're trying to address with CanGaroo and CanGarooRM. The first real entrant into this space that we're now playing in is a product called TYRX that was introduced originally by a company called TYRX, that shortly after their product was approved, the product was acquired by Medtronic. TYRX is a fully synthetic polymer that you place the pacemaker inside of, it dissolves, and as it dissolves, it elutes off different rifampin and minocycline. The thing here that TYRX and ultimately, Medtronic got right was this idea of having antibiotic protection around a pacemaker implantation procedure was something that resonated with the electrophysiologists that are putting these in. Since TYRX was acquired by Medtronic back in 2014 for about $200 million, they have really taken this market, and they have created a market where there was none. We estimate they do about $250 million to $300 million a year in this space with this product. That's a market we think we can do better in. It's a market that we think we can disrupt by having powerful antibiotics like rifampin and minocycline, but instead of the synthetic pouch moving over to one that's a more natural regenerative biologic matrix. So you're getting all the benefits of having antibiotic elution, but in one that's able to address some of the complications of thin skin and migration and fibrosis and inflammation and all of these other things. In fact, we did a market survey when we went out and talked to electrophysiologists that were using TYRX as part of their cases; 88% of them, an overwhelming majority, said they would move some or all of their business to a biologic envelope like CanGarooRM when it came out. We view this not as a competitive product in this $600 million market with only one player. But we actually view it as a superior product, and we're super excited about getting it approved and launching it. So that said, let's give you an update on where we are in our path towards FDA clearance. We submitted our combination product filing in December of this year. It's gone through a pretty significant review with the FDA. All of our interactions to date have been very positive. We are now working through, I would say, the very final details. We expect to close out all of those details within the month. That would then put us on track for an FDA decision in June. Where we stand right now, we fully expect that to be a favorable decision. After that, we need to launch this product. Here's a brief overview of our commercialization strategy following approval. We identify two groups of customers as our primary targets. The first group consists of customers and centers currently using CanGaroo, our base product. We have 356 centers that have CanGaroo on formulary. Transitioning these centers to CanGarooRM and pursuing existing sales could yield about a $25 million revenue opportunity, which we consider to be quite attainable. Following that, we aim to target electrophysiologists currently utilizing Abbott and Boston pacemakers but using a Medtronic product, TYRX, around them. We estimate there is approximately $75 million in TYRX business available. Combining these two opportunities, we believe there’s around $100 million in revenue for us to target first. This represents our initial strategy. Additionally, we believe we have a superior product, so we will also pursue Medtronic TYRX customers and those who are currently not using any envelope in their procedures. We see a significant advantage for them to switch to CanGarooRM. Consequently, we have been increasing our production capacity at our manufacturing facility in Atlanta, Georgia, in preparation for a launch in the second half of the year. Next, it would be nearly impossible to proceed with this call without highlighting the exceptional performance of our SimpliDerm product. To provide some context, regarding the role of a biomatrix in breast reconstruction, approximately 13% of women will unfortunately face some form of invasive breast cancer in their lifetime. In the United States, this results in around 151,000 mastectomies each year, with about 50% to 60% being bilateral mastectomies. When you combine these factors, the breast reconstruction market in the U.S. represents about a $1.6 million addressable market that has not experienced much improvement or innovation. This is precisely what we aim to change. Much like our successful efforts in the pacemaker protection area, where we've developed strong technology that has grown somewhat outdated, we believe there is an opportunity to disrupt the breast reconstruction market. We plan to introduce second-generation and next-generation products to deliver superior outcomes for patients. Now, let me share why SimpliDerm is performing so well in the market. To begin, the first thing a surgeon looks for is a conformable and flexible product. SimpliDerm easily conforms to curved surfaces, making it suitable for complex areas around breast implants or expanders. It offers the right look, fit, and feel, and comes pre-hydrated, allowing the surgeon to utilize it directly in the operating room. It also arrives terminally sterilized with a high level of sterility assurance. This allows surgeons to open and use it just like any other surgical tool; it is a fully compatible biologic product. During the development of SimpliDerm, our focus was on creating a proprietary processing method to reduce the inflammatory response, thereby minimizing the risk of foreign body and fibrotic reactions that can occur. We believe we have achieved notable success in this area. I am going to present some impressive data derived from a nonhuman primate model where SimpliDerm was implanted. We used ALADERM, the market leader, as a control. The graph on the left shows the TNF alpha response in the nonhuman primate model at 2, 4, and 6 weeks, indicating a statistically significant reduction in TNF alpha. TNF alpha is a chemokine marker of inflammation associated with various inflammatory responses. The histology on the right, stained for CD68, illustrates different types of inflammatory cells, specifically looking at macrophages that attack foreign body substances. Combining these findings shows significantly less foreign body response and inflammation in the animals receiving SimpliDerm compared to those receiving AlloDerm, a result of our proprietary processing methodology. You might wonder why this is important. The next slide illustrates this, as it highlights the significance at the patient level. A publication examined a condition known as red breast syndrome associated with acellular dermal matrix. In breast reconstruction procedures, there can be a significant postoperative inflammatory response in up to 10% of cases, leading to considerable pain and the need for additional surgeries. One case study reported a patient who experienced intolerable red breast syndrome after using a different acellular dermal matrix, requiring a return to the operating room to replace it with SimpliDerm. This switch resolved the issue thanks to SimpliDerm's less immunogenic properties, resulting in a reduced inflammatory response and ultimately better patient outcomes. This scientific basis is why there is excitement around SimpliDerm in breast reconstruction. Additionally, it has translated into commercial success, with SimpliDerm growing by 55% this quarter. We distribute SimpliDerm through our skilled internal distributors, and we also have a nonexclusive partnership with Sientra, which experienced some disruption in the first quarter. The 55% growth occurred despite this disruption. Sientra was recently acquired by Tiger, which may be beneficial in the future. Meanwhile, our distributor network is performing exceptionally well. We are very enthusiastic about the progress of both our CanGaroo and SimpliDerm products in the breast reconstruction market, reflecting the company's evolution into a serious commercial entity. I will now pause for a moment to let our CFO, Matt Ferguson, present some financial details.

Okay. Thanks, Randy. I'm just going to hit a few of the highlights from our financial performance for the quarter. As Randy mentioned, net sales of $6.7 million for the quarter, that compares to $6.4 million from the first quarter of 2023. So that was led, as Randy mentioned, by SimpliDerm with 55% growth, but we're also really pleased with our performance with CanGaroo, our other main proprietary product line, where we were able to maintain roughly consistent revenue with last year, but with a much smaller commercial organization. It’s really showing the leverage we're getting in our operating model. We are extremely pleased with that and really excited about what that area of the company can do once we get CanGarooRM clearance. Moving down the P&L, our gross margin on an adjusted basis, so this is the non-GAAP version, which excludes noncash amortization expense, was 55% in Q1 versus 66% a year ago. Again, we are very pleased with this; both our proprietary product lines in the range that we have been expecting and looking for the real driver of the decline was our cardiovascular business, which has been partnered exclusively in the U.S. with LeMaitre Vascular. We're very pleased with how that's going. The result from a financial point of view is selling the product there at a transfer price versus the end user price, which kind of distorts the overall gross margin. That was the main driver there. Overall, we're very pleased with how we're performing operationally. We do expect, as we continue to scale up, we'll see good positive gains in our gross margin; both of our proprietary and private lines ultimately should get into the 70% range or so. From an operating expense perspective, we were at $11.3 million for the quarter, down slightly from $11.7 million a year ago. However, again, there's some noncash expenses going on a little bit behind the scenes that mask what is really very positive progress there, in terms of how we're operating, namely about $2 million of that expense was noncash stock-based compensation expense. When you exclude that, we're really looking at a pretty significant decline year-over-year. Jumping down all the way to adjusted EBITDA, which is non-GAAP but probably more instructive metric than net loss or operating loss, we saw an improvement there as well to $3.6 million for the quarter versus $4.8 million last quarter. That's where you're really starting to see some of the gain associated with lower cash operating expense, particularly in the sales and marketing line and then the reduced expense in our R&D area, as we're getting to the end of the development process for CanGarooRM, as we've discussed. So those are the main points from our P&L, our statement of operations. Just finally from a cash point of view, we ended the quarter at $12.6 million, and that does not include about $15 million in warrants, which are now nearly 100% in the money. Those warrants expire 30 trading days after the clearance of CanGarooRM. So we're looking forward to that cash coming in the not-too-distant future. That end of the quarter number also does not include about $4 million in reduction in our debt and revenue interest obligation. So we're improving our balance sheet and our operating performance and feel really good about where we are from an overall financial perspective. With that, I will hand it back to Randy before we take questions.

Thank you, Matt. I want to mention that we will be at The Heart Rhythm Society from May 16-19, specifically at booth 1443. If you're interested in seeing what we're working on, we would love for you to stop by and meet some of the team. I will be there along with Matt, our Chief Scientific Officer, Dr. Michelle Williams, and several members of our sales team. We look forward to seeing you in Boston at the Heart Rhythm Society meeting next week. To summarize, we are a fully integrated company from research and development to commercial operations, currently with a revenue run rate of $27 million. We are leading the way in the field of drug-eluting biomatrix with two products in development: CanGaroo and SimpliDerm. We believe there is great potential in this field of drug-eluting biologics, in which we believe we are currently unmatched and positioned to lead in the future. We now expect not only a decision on approval in June but also anticipate the approval of CanGarooRM in June. This will place us in a $600 million market with favorable dynamics and only one competitor, which we believe we can outshine with a superior product. We are excited to bring this opportunity to both physicians and patients. Additionally, SimpliDerm is at a $14.3 million run rate, growing at 55%. I want to extend my sincere gratitude to my incredible team for another outstanding quarter. They are the most talented group I have ever worked with, equipped to execute our plans effectively. I will conclude my comments here and turn it back to the operator for any questions you may have.

Our first question comes from Frank Takkinen with Lake Street Capital.

Congrats on the progress. I was hoping to start with one on CanGarooRM, and I figure you can guess. Any update on some of the conversations with the FDA not looking for you to discuss what you're talking about specifically with the FDA in the public domain but just positive, negative, in line, different from your expectations and then close that up with how we expect the clearance to come in June and the confidence behind that.

Frank, thanks for the question. I won't go into specific details due to the proprietary nature of our discussions. To answer your question about our process, as mentioned in the call and in our release, we expect to finalize any remaining details with the FDA within the next week or two. Overall, we are very optimistic and believe things are progressing as we anticipated. We've taken a thorough approach to this process to minimize any uncertainties. The submission is quite extensive, as it involves a combination drug device and requires review from two centers. I understand there may be concerns about the length of the review, but it's a rigorous process at the Center for Drugs and the Center for Biologics. However, I can confidently say that things are moving along positively. We anticipate being fully submitted with the FDA in the next few weeks, which would keep us on track for a clearance decision in June, and we expect that decision to be favorable.

Perfect. All right. Maybe switching over to the commercial preparation you're doing for CanGarooRM. What are some of the things you're doing to prepare for that? I heard your comments around 356 centers and the Tier 1 $100 million opportunity you're going after. But what are you thinking about today, to set yourself up for success in the second half of the year?

Right. There are a few things we need to accomplish. First, after we receive clearance, we need to ensure we can produce the product. You’ve heard us discuss gearing up operationally and preparing for production leading up to the product launch. However, just because we produce it doesn’t mean we can immediately sell it. We first need to introduce it to various hospitals and centers and secure approval on their formularies. This requires going through a center-to-center VAC process, involving value-added committees to get the product approved. We can't submit to the VAC until we receive the clearance decision, but we can prepare the VAC packages in advance. This preparation includes gathering clinical data, preclinical data, and all necessary value proposition information that the VAC needs to make positive recommendations. Ultimately, we believe the initial sales pace of the product will be limited by supply rather than demand. We anticipate that the main challenge for adoption will stem from these different VACs in hospitals and getting on their formularies. That's why it makes so much sense to start with these 356 centers, where we already have the base CanGaroo product on formulary. CanGarooRM is indeed a different product, and I want to avoid creating any misleading expectations there. But it's 356 centers that have familiarity with the base biologic CanGaroo product. And should we think there's already a tremendous amount of excitement and enthusiasm at these centers for the drug-eluting version of the product. And then lastly, it's a new day for our sales team, right? So they've got to learn and be prepared to articulate the benefits of not just a fully biologic envelope, but one that elutes rifampin and minocycline, all the intricacies that go along with a drug-eluting product. So behind the scenes, that's what we have going on right now. Production being prepared to introduce it and get it on formulary through the VAC and getting the VAC packages up and ready to go. And then lastly, making sure our sales force is fully geared up and trained and ready to talk about the product effectively.

And maybe just one last one on SimpliDerm. Obviously, it continues to grow very robustly. Maybe talk through some of the investments you're contemplating making in that organization. Maybe it's nothing given how well it's executing, but are there thoughts around additional sales reps there, different commercial support personnel, anything of that nature to keep up that growth rate and maybe accelerate it?

We are actively investing in expanding the commercial aspects of our infrastructure and are extremely satisfied with the performance of our proprietary distributors. They are excelling, and we are continuing to invest in this area, which is proving to be highly beneficial. Additionally, we are engaged in some back-office improvements and working to enhance our coverage. Recently, we received another positive coverage decision and currently have about 79 million lives submitted for coverage decisions. There's a lot happening on the commercial front, as mentioned by Matt. We are also making investments across all areas of our business and working to improve our gross margins, as we believe both of our products can achieve gross margins exceeding 70 percent.

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald.

This is Matt on for Ross. Congrats on all the progress. I just want to start off with CanGarooRM and following up on a previous question asked. Are you able to provide some more insight into what the VAC process will look like upon RM approval? And how long you anticipate the sales process will be getting into those hospitals?

The VAC process will vary significantly depending on whether it's one of our 356 centers or new centers we enter. In locations where we have CanGaroo on formulary and surgeon champions, we could see VAC times as short as a month. However, we are using a conservative estimate and modeling an average VAC process of six months across all centers. This may be a bit cautious, but we have many centers to target, offering plenty of opportunities for growth.

Okay. Sounds great. And then maybe turning to SimpliDerm, I just wanted to get some more color on any initial conversations you've had with Tiger following the Sientra acquisition and how you view SimpliDerm growth for the remainder of '24?

We do not provide guidance, but regarding Tiger, there is potential for upside with the SimpliDerm product line. Our relationship with Sientra has been in the early stages, especially with the challenges they faced. Thankfully, most of our product sales come through our own distributor network, which has been performing very well. Personally, I have known and worked with many people in the industry, including Tiger's CEO, and we have a strong working relationship. We are just beginning discussions with Tiger. Their involvement could certainly benefit Sientra by providing a robust balance sheet and the capacity to invest more in their sales team. This arrangement could work well for both Tiger and Elutia. From a personal perspective, I trust these are quality individuals I've known for a long time and would be happy to collaborate with them.

Got it. Helpful. And then maybe one more for me. Turning to OpEx, assuming CanGarooRM gets approval, how should we think about the size of your sales force ahead of launch? And if you guys can shed any incremental spend throughout the balance of the year? And if you guys see any tailwinds that you like to shout out?

Yes. So we're certainly evaluating the investments that we make in the commercial organization and operations. Fortunately, we have a really well-established and highly effective organization in place already. We can very much hit the ground running with the people, processes, and systems that we have already in place and have been using for quite some time now. We do think that as we ramp up and we get manufacturing going and get through some of these VAC processes, it probably will make sense to add to the commercial organization. That both could be through additional direct reps or through some independent distributors in the case of CanGarooRM. So we think we will have more feet on the street in the medium term or so; we probably won't rush to do that right away, but probably by the end of this year, we will be adding to that organization. That would be my expectation.

Yes. It's not a lack of willingness to make the investment in the rep, just to be super clear about it. As we get more clarity on the VAC process, we will start to aggressively add more reps. What we don't want to do is, obviously, add reps and disrupt their lives and take on the expense of reps before they have something to do in the hospital for the products on formulary. So once we get a handle on how long the VACs are taking at the different locations, we will be increasing that sales team right now.

We have reached the end of our question-and-answer session. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.