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Operator: Greetings. Welcome to the Elutia Third Quarter 2024 Financial Results Call. [Operator Instructions] At this time, I’d like to turn the conference over to Matt Steinberg with FINN Partners. Please go ahead.

Matt Steinberg: Thank you, operator, and thank you all for participating in today’s call. Earlier today, Elutia released financial results for the quarter ended September 30, 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 but 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’s 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, November 14, 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, including intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, is available on the company’s financial results release for the third quarter ended September 30, 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 the call over to Elutia’s CEO, Randy Mills.

Randy Mills: Thank you, Matt. It is my sincere pleasure to be with you this afternoon and to go over the current progress that we’re making at Elutia. To start off, like we do everything as a mission-centric company, we’ll go over our mission. We are humanizing medicine so that patients can thrive without compromise. That is taking all of the great benefits of humanized biological materials combining them with active pharmaceuticals and putting them together in a usable formulation that really can improve the standard of care that patients receive. And I think today, we’re going to point out that we are in the midst of one of those revolutions going on with the introduction of our EluPro product line. So we are a commercial stage company with two high-growth proprietary product platforms.

Most of my comments today are going to be aimed towards our EluPro product launch, which we’ve talked about today. But we also — we can’t forget, we also have our fantastic SimpliDerm product line in breast reconstruction. SimpliDerm grew 19% this quarter. So we’re really pleased to see that product return to a more normal rate. But we are pioneering the drug-eluting biologic, and that is to solve complex surgical problems that are not addressed by current technology. We got the first one of those cleared in June of 2024 with EluPro. We had the first implant in September, and we’re building towards our commercial launch in January of 2025 with a tremendous amount of momentum. Matt and I are going to talk through the company today, but I’m going to try to keep my comments brief and to the point, and I hope that you will find really full of substance.

And so I’m going to talk a lot about what it is we’re doing with EluPro and how we’re preparing for this commercial launch full commercial offsets going to start in January. And so as we’ve talked about, obviously, we got approval in June, which was the necessary first step. But then we had to move on to manufacturing the product. And we actually — although that was a third quarter accomplishment, we actually talked about that in our last conference call. So I’ll spare you the details of, of repeating that. But since that time, we’ve made a tremendous amount of progress. Implanting it the first EluPro envelope win in September 5th, since then we’ve been growing our presence with both our sales force and with a representation through VAC and GPOs and then lastly, supporting all of this great effort by publishing peer-reviewed data out there demonstrating the proven activity of the product.

I will say this. I’m going to go through all of that in much more detail. Please know underneath all of this, though, is a pretty earnest business development activity that’s going on. We are engaged in strategic discussions with multiple partners. As you can probably imagine, though, that is mostly confidential and highly sensitive materials, so I will not be going into more detail about that, but I would hope it to investors, you could appreciate the sensibility behind that decision. So let’s move on to the details I can talk about, which is what is going on with EluPro and starting off with implanting it. We are really energized by the fact that we were able to get the first commercial use underway on September 5th. We also had a really – another really significant and cool event happened.

We had the first neurostimulator device go in on October 31st, which is our first use of neurostimulation actually happened much earlier than we had expected. We didn’t really have a big push in neurostim, but that was – that was one of those indications where a physician was looking and saw high risk patient and said, you know what, this is actually really the perfect product to make sure that this neurostimulator is protected now that we have a product on label and can do that. We’re also seeing strong initial adoption. So EluPro is being used across all major CIED brands, and we’ll have a little bit more about to say on that. And it actually accounts now for 25% of our bio envelope sales that are ongoing right now. So it’s starting to make its presence known and we haven’t really unleashed it yet at all to the full market.

So we’re very, very pleased with our current market adoption. I think though, this slide is kind of a fun one to do. Let’s meet our emerging EluPro nation. Dr. Catanzaro in the left side of this picture, Dr. Catanzaro, East Carolina University, was our first electrophysiologist to implant on September 5, and we’re really excited to have his support and encouragement. If you go to the right side, the bottom right side of the picture, my good friend, Dr. Kapur at Harvard Medical School, not to be outdone. He wanted to get on the action implanting EluPro around a Boston Scientific pacemaker. In the middle of the picture, we have Dr. Hutcheson, who is protecting an Abbott neurostimulator here down at Spartanburg. And then actually, probably my favorite of these pictures is the one at the top.

This is Dr. Al-Khatib who’s a professor at Duke protecting a Medtronic device, actually lending some credence to this notion that 88% of former TYRX users might actually want to switch over and become EluPro users. And so this is just the beginning for the electrophysiologists out there and the pain management physicians with neurostimulators, I can assure you there is plenty of room on the band lagging for you all and you are all welcome. So, let’s move on into what we’re doing to strengthen our sales and our commercial presence out in the field. So, we are expanding our commercial footprint, we’re doing this strategically, we added significant key additions to Southern California and to the Northeast. We did this through a balanced blend of direct and independent reps.

We are using this balanced blend of direct and independent reps, because it actually helps us get quality coverage where we want it in targeted locations, but actually by keeping a lot of our costs variable and for a company our size, that actually matters. We’re thinking about how we do this effectively, but we’re also thinking about how we do it from a cost conscious standpoint as well. That leaves us a hybrid model right now, 12 direct reps, 34 independent reps, nine product consultants. We’ve also completed a very in depth sales training program for all of these sales professionals that are out in the field, explaining to them and making sure that they understand the science behind the story of not just a pharmaceutical product and not just a device product, but one that actually combines pharmaceutical device and biologics into one.

So, we’re really excited about all the work that Kimberly and her team have done there. And boy, have they done some work? So they have actually completed submissions to over 100 VACs so far. And this number I thought was the most surprising, 36 accounts are now actively ordering. So, typically we would anticipate a VAC on average to take about six months to get through that process. And in six weeks we have 36 through. We’re not leaving it there. We continue to submit to VAC. We have hundreds to go and we’re on the march. But we clearly have a strategy that is resonating with the VAC. It’s working with them, we’re getting through that process, we’re getting them pricing letters and we’re getting pricing on our terms. Speaking of which, we’re also not leaving it at just VAC.

We’re advancing this strategy with our GPO partners as well. And we have made significant progress with the GPOs through major healthcare systems. And we would expect to have favorable coverage decisions by a number of them early in 2025 and we’ll obviously be making those announcements as they warrant. So that’s what we’re doing from an implant standpoint and that’s what we’re doing from a commercial standpoint. But this is a scientifically supported product as well. And this is a next generation product, not a me-too product either. And we’re going out there and we’re making that clinical data known. And so we have an initial clinical study that we have kicked, off our registry study. It’s designed to provide real world outcomes data of people that are actually using EluPro in CIED implantations.

We are going to be using this data obviously for publication and continued ongoing clinical support in the United States. But it actually also forms the basis of our efforts in the EU to obtain the CE Mark. Speaking of which, we’re also really excited to announce our peer reviewed publication. So I should point out here that when we took EluPro through the approval process in 2024, that wasn’t like any FDA approval process that it might have taken place five or ten years ago. We can tell you firsthand the bar has been raised very, very significantly on what it takes in order to get a product through this process scientifically. And frankly we intend to flex our full scientific muscle in this regard. And so we’ve gotten some data published out in the Frontiers – in Frontiers in Drug Delivery.

We’re showcasing – we can go on to the next slide, we’re showcasing how we were able to completely eliminate four of the most important bacterial contaminants that you frequently see in the hospital setting on these types of devices. So staph aureus, and not just staph aureus, methicillin-resistant staph aureus, probably the single most significant hospital pathogen, completely eliminates staph epidermis, the most abundant potential pathogen. Acinetobacter, a really prominent hospital acquired infection Haemophilus influenza, everybody knows about too as well, a significant gram negative pathogen. So gram positive gram negative cocci, bacilli complete kill greater than 99% or 4 log reduction. And just getting the message out there that we really have created a product that physicians can feel scientifically and clinically very, very good about.

There is a tremendous amount of data backing this up. And so I’ll close out my comments here with this was a slide we put up last time. But I think now that we are about six weeks into this product being out there and commercially available, this idea that 88% of electrophysiologists that are using TYRX said they would switch some of their envelope – some are all their envelope business to EluPro. That seems to be true. And we’re in this $600 million market and it doesn’t seem to matter whether or not you’re putting on an Abbott pacemaker or whether or not you’re putting on a Medtronic pacemaker or a Boston Scientific pacemaker, you want that pacemaker protected by the only biologic solution out there that offers the complete antibiotic protection of rifampin and minocycline.

And we are seeing that enthusiastic response from physicians, from hospital purchasing organizations and from industry partners. And so we could not be more pleased with how our pre-launch process is going and can’t wait to talk to you again about this once we actually are in the full swing of our commercial launch. So with that, I will step aside and Matt will run us through some pertinent financials. Then of course, we’ll open it up for questions.

Matt Ferguson: Okay, well, thank you, Randy. I would like to first of all say that I completely agree and completely second, what Randy was saying about our enthusiasm, about the progress that we’ve made in the company and it’s really across multiple fronts, commercial, strategic as well as financial. And I’ll just hit on a few of the financial points here and then like Randy said, we’ll take your questions. So from a sales point of view, we were at $5.9 million for the quarter, down slightly compared to $6.1 million a year ago in the same quarter. But when we look at the two key areas, we’re really pleased with what we’re seeing. BioEnvelope sales, we’re really seeing the contribution start from EluPro as Randy talked about in some detail.

And we’re really pleased that people are also continuing to use CanGaroo where they don’t yet have EluPro available, but we are seeing a lot of anticipation of EluPro being available in accounts and we think that actually bodes well for the future and the growth that we expect to see there in the future. And then of course, SimpliDerm continues to chug along and grow quite nicely. We saw 19% growth year-over-year in the current quarter with $3.1 million in sales. From a gross margin point of view, more relevant than the GAAP number is our adjusted gross margin which we saw tick up slightly to 61% compared to 60% a year ago. And then breaking that down a little bit further, it’s a really nice result for our device protection or BioEnvelop business comprised of EluPro and CanGaroo, the gross margin there was 68%; while the gross margin for SimpliDerm was pretty consistent at 56%.

So, really nice results from an operational perspective there. On an operating expense basis, we feel like we’re doing a good job controlling expenses across the company while making the appropriate investments in our commercial organization and continuing to advance the company on a variety of fronts. There we saw an increase of – to $13 million compared to $10 million, but most of that is actually – most of that increase was actually driven by non-cash stock-based compensation expense. And so the cash difference is actually quite minimal given the kind of development and growth that we’re seeing in the company. The loss from operations, just adding all those things together was $10.2 million for the quarter versus $7.4 million last year.

Net income, I’ll just say it’s kind of an interesting note. We actually had positive net income for the quarter of $1.3 million. I’d like to celebrate that when we can get it, but I don’t want people to get too excited because a lot of that had to do with non-cash gain that we had from the revaluation of warrants that were exercised in the quarter. And I won’t get into any more of the weeds than that. But when you’re profitable, you got to appreciate that when you can get it. Probably more relevant to the actual business is adjusted EBITDA where we had a loss of $2.9 million for the quarter. So it’s in a very manageable range, up a little bit from the year ago quarter when it was $1.7 million. And then last, but certainly not least, we ended the quarter with $25.7 million in cash and we are feeling good about that.

That reflects the addition of the exercise of warrants that we had early in Q3. That was an additional $13.8 million that came in as a result of that. So that is the snapshot from a financial point of view. Again, we’re feeling great about where we are as a company. And with that, we will open it up to questions.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed.

Frank Takkinen: Great. Thanks for taking the questions. Congrats on all the progress. I was hoping I could start with one on EluPro mix of implants. I’m sure it’s small numbers, and I’m sure it’s a little bit tough to tell exactly where they’re all being used, but I know you commented on some being used with Medtronic cans, but I was curious if you have kind of in broad strokes, what the mix of implants between Abbott, Boston and Medtronic was with the early implants.

Randy Mills: Yes. Frank, so it is fairly – well, it’s very early, it’s not fairly early. It’s very early into this journey. But right now, we’re not really seeing a bias towards any one of them pretty quickly into the process. We had all of the major pacemakers covered. And that’s – I think now really what you’re seeing is just which centers are getting through the fastest and what underlying pacemaker, that particular electrophysiologist was the customer using in the first place. So we’re not really seeing a bias one way or the other.

Frank Takkinen: Okay. That’s helpful. And then maybe on the account base appreciate the commentary there. Can you just level set us how many CanGaroo accounts you have at this point? And then maybe talk about the broader total account opportunity.

Randy Mills: Yes. So there are, and we have about 400. We talked about this last call in the ballpark of around 400 CanGaroo accounts. Those obviously come in all different shapes and sizes. So they’re all not alike. That makes up the majority of the universe that we’re going after might be a little more than that, but it’s not a lot more than that. And so the – I think we’re at 37 or something like that, that have activated already. It’s about 10% of those accounts. And we were not anticipating to be able to get that done that quickly.

Frank Takkinen: That’s helpful. And then maybe talk a little bit about hiring. Obviously, you guys made a lot of hires in the quarter. Is this feel like the existing team that you’ve now hired is fully staffed? Or do you think there will still be a little bit more hiring?

Randy Mills: We actually feel pretty good with the team we have right now. I mean actually – let me rephrase that. We feel great with the team we have right now. We don’t have the team in every single spot that we want. This is Frank, where we’re using this hybrid strategy. And so where we can pick up an independent distributor, and this is sort of important. That has a key device relationship in a territory that we want, it’s like a two for one because we go directly in with pretty much premade existing business in an area that we want to be in. And so there are a couple of areas, particularly out in the West that we still have opportunity to grow in. But the idea is that we can pick these up and we can keep them in this the split between direct and hybrid and keep at least a lot of our costs variable.

Now what I’ll tell you we won’t do is we won’t compromise on the standards of the type of people, the type of professionals that represent Elutia and represent EluPro. So we don’t allow anyone to cover the product and detail the product that hasn’t fully gone through the training that doesn’t fully understand the products, its benefits, its limitations. And frankly, are – what we call crew values at Elutia. And so we have two different models of compensating reps, but we only have 1 standard for bringing somebody into the company.

Frank Takkinen: Okay. That’s helpful. And then maybe just one last one for me. On the transition from CanGaroo to EluPro, how should we think about kind of short-term noise or lack thereof in the numbers for kind of Q4 until we get into the full launch? I assume there’s a little bit of pause. I think you guys called it out in CanGaroo ordering while they wait for EluPro, that’s kind of more timing than anything. But how should we kind of think about that as we look at our models?

Randy Mills: We don’t give forward-looking guidance, but I appreciate the question. I don’t want to completely ignore it either. I think noise, Frank, would sort of be the right the right way to think about it, whatever it will be, I think it will be around the margins. I think at least in the fourth quarter, I don’t think we’re going to surprise really one way or the other. Obviously, our most enthusiastic adopters of EluPro were our most enthusiastic users of CanGaroo. That is absolutely to be expected. What we are seeing that’s a little bit different is we are seeing larger at least initial ordering patterns. And so we’re seeing when orders are placed for EluPro they’re on average about 20% larger than the orders we were seeing for CanGaroo.

And so even if it’s cannibalization, we are encouraged that there is, as you would expect, upside in that cannibalization because we developed EluPro because it was a product that had a much greater utility for – particularly for people at high risk of postoperative infection. And it seems like, at least initially, again, this is very, very early numbers. But it seems like initially, that threat is playing out.

Frank Takkinen: Okay. That’s helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Ross Osborn with Cantor Fitzgerald. Please proceed.

Ross Osborn: Hey guys. Congrats on progress. Thanks for taking our questions. So starting off, your comment on EluPro that used with the neurostim was interesting. And while we’ve thought about this opportunity, it really hasn’t been top of mind. So with that being said, is this something you guys are currently marketing as in use case or we start to? Or is it just something nice to have for incremental adoption?

Randy Mills: So two areas, Ross. One is, this was pull-through. So this was kind of neat because this was showing us there’s actual demand out there. We weren’t marketing into the neurostim space. We were requested into the neurostim space. And we think there’s more of that business to be had. We also know that our – it’s something our competitor just doesn’t do very much of at all. And so when we look at particularly neurostim devices going in the hospital setting. We actually see that as a pretty rapid opportunity for us to significantly grow hospital centers where we would already be on formulary for the cardiac device. So that’s piece one. And that’s sort of a new set of business opportunities for us. Piece two is the one we’ve been – we’ve known about all along, and that our BD people are interested in working down.

And that is where would some kind of relationship strategic relationship makes sense in the neurostim space or in the sleep apnea space, you can think about it as pain. You can think about it as a urinary and fecal incontinence, sleep apnea and deep brain stimulation, there could be a number of different opportunities at a more macro level from a business development standpoint. But in the short term, yes, we’re going to – we love seeing EluPro get used in the neurostim space in general. – primarily because there’s a really significant need for it. When you look at the postoperative infectious complications in those high-risk neurostimulator devices, they are in the 20% to sometimes 40% range, and we should do something about that, and we think we have the perfect product for it.

So we’re going to do it.

Ross Osborn: Yes, I’m glad to hear it. And then maybe switching to SimpliDerm. Can you just walk through the top initiatives for 2025 around that offering?

Randy Mills: I’m sorry, Ross, we missed – it broke up. We missed the last part of your question. SimpliDerm, something.

Ross Osborn: Sorry about that. Can you hear me now?

Randy Mills: Yes.

Ross Osborn: Just your top initiative for next year with SimpliDerm.

Randy Mills: So our initiative with SimpliDerm is to keep expanding our commercial – our proprietary commercial distribution efforts with the product. When we think about looking forward in what we feel is the broader concept of reconstructive biosurgery at the very top of our list for having a really significant impact on a major field is breast reconstruction. And that is a area, and that is a case that we want to own. We bifurcate reconstruction from the actual implant. We view that there is a world out there where you can be implant agnostic and give the surgeon, the optimal reconstructive procedure. Keep in mind, this is a two-step, two surgery case in order for a woman going through a mastectomy on her way to reconstruction, doesn’t get the actual implant usually until six months after the reconstructive procedure has been formed, we see ourselves as the ones that can step in there with reconstructive biosurgery and really and really own and innovate that case of Michelle Williams and her team are on a number of exciting things there.

The one we talk about fairly publicly is what we call SimpliDerm RM, which is obviously our drug-eluting version of SimpliDerm. But we really want to own that entire field of reconstructive biosurgery and we’re starting in breast reconstruction. And so in order to do that, we also need to have the commercial infrastructure to go along there. And so we have a relationship, a partnership with Sientra, who was acquired by Tiger Medical. And that performed reasonably well during the period. But as we think about growing this space next year, we think about growing this primarily on the backs of our own commercial infrastructure there, which we’re also making significant additions to. So I hope that helped. That was probably a longer answer than you wanted, Ross.

Ross Osborn: No, that was perfect. Thanks for taking the questions and congrats again on the quarter.

Randy Mills: Thank you.

Operator: Thank you. There are no further questions at this time. I would like to conclude the call. Thank you, everyone, for your participation, and have a wonderful day.