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KORU Medical Systems, Inc. (NASDAQ:KRMD) Q1 2024 Earnings Call Transcript

KORU Medical Systems, Inc. (NASDAQ:KRMD) Q1 2024 Earnings Call Transcript May 1, 2024

KORU Medical Systems, Inc. beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.04. KORU Medical Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the KORU Medical Systems' First Quarter 2024 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Louisa of The Gilmartin Group. Please go ahead, Louisa.

Louisa Smith: Thank you, Rachel and good afternoon everyone. Earlier today KORU Medical Systems released financial results for the first quarter ended March 31st, 2024. A copy of the press release is available on the company's website. During this call, we will make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to many risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter.

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During the call, management will discuss certain non-GAAP financial measures in our press release and accompanying investor presentation and our filings with the SEC, each of which are posted on our website. You will find additional disclosure regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures in our press release. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, May 1st, 2024 at approximately 4:30 P.M. Eastern Time. Since then, the company may have made additional comments related to the topics discussed. Please reference the company's most recent press releases. Joining us on the call today are Linda Tharby, President and CEO of KORU Medical Systems; and Tom Adams, KORU Medical's Chief Financial Officer.

Linda, please go ahead.

Linda Tharby: Thank you, Louisa. Good afternoon, everyone and thank you for joining us today. During our call today, we will use slides to support our commentary. I will begin I will begin with our first quarter 2024 results and key business updates, followed by Tom, who will review our financials and 2024 guidance. Following the prepared remarks, we will open the line for questions. I'm very pleased with our first quarter results with progress against multiple key milestones of our Vision 2026 growth strategy. We have started the year with an $8.2 million quarter and double-digit revenue delivering the highest quarterly revenue in the company's history. The core business grew 14% overall, driven by double-digit growth in consumables and strong performance internationally.

Underlying this was another solid quarter in the global immunoglobulin market. We also continued with great progress in our Novel Therapies business which is the catalyst for getting new drugs approved on our FREEDOM Infusion systems and for new patients in our core business. Year-to-date we have signed three new collaborations and I'm also very excited to announce the addition of a new oncology collaboration, which I will discuss in more detail later. From an operational perspective, we have hit several key milestones. I'm pleased to report our third consecutive quarter of gross margin above 60% hitting 62.3%. We finished the quarter with a cash burn of $700,000, a significant decrease from a $5.2 million burn in the same period the prior year.

This reduction is the outcome of disciplined operating expense management and continued efforts to decrease our working capital, further evidence of our meaningful headway towards cash flow breakeven and profitability. Finally, we are reaffirming our 2024 guidance metrics. Overall, I'm very pleased with our performance this quarter as we continue to execute on our Vision 2026 growth agenda. Moving to the next slide. I'd like to detail the progress we are making in our strategy across our three growth pillars; increasing penetration in our domestic core, international expansion, and adding multiple large volume subcutaneous drugs to our label, our novel therapies business. Starting with domestic core, we saw a growth of 4% over the first quarter of 2023.

I want to highlight that similar to last quarter, we saw a double-digit increase in our sales from our distributors to end user specialty pharmacies. This is indicative of strong patient demand in our core business. Our growth was largely attributable to competitive share gains and growth in new patient starts, driving double-digit growth and recurring consumable volumes. Our consumables growth following strong pump volumes in prior quarters, represents a recurring revenue stream and becomes increasingly valuable as we continue to expand our customer base and win new patient starts. Q1 was the fifth consecutive quarter of sequential market growth for immunoglobulin, indicating growing patient diagnosis. Pre-filled syringes continue to drive penetration into the Ig market remaining the fastest-growing segment and subcutaneous immunoglobulin, a key catalyst for potential increased levels of subcu penetration and growth in 2024 and beyond.

We also continue to make good progress towards the Q4 510(k) submission for our new consumables, designed for a more convenient and comfortable experience for our patients. Moving to International Core. We saw explosive growth in the quarter, with a 63% year-over-year increase in revenue. I want to begin the international results with great news. We were successful in the previously communicated appeal, regarding ongoing certification of our products in Europe our international notified body BSI. As a result, we intend to proceed with the routine BSI assessment process. In the quarter, we saw strong Ig supply versus the prior year, continued geographic expansion and increased penetration and approved indications. We saw strength in our established ex-US geographic markets, as we penetrate deeper into these markets and into targeted indications specifically in CIDP, a neurological condition requiring large subcutaneous volumes and a typical twice per week dosing schedule, and SID secondary immunodeficiency.

During the quarter, we entered multiple new markets including, the Middle East and North Africa, increasing our global footprint and patient base and onboarded multiple new distributors. Expansion in further geographies remains a key focus for our business for the remainder of the year namely Japan, where we remain optimistic that we will receive clearance for the FreedomEdge and consumables by Q2 or 3. Within novel therapies, we now have a total of 16 collaborations and have already hit our goal of three new deals signed within 2024, highlighted this quarter by the addition of the first drug therapy in oncology. The oncology collaboration is exciting for many reasons. First, the oncology therapy patient population is large, with up to 500,000 patients as an addressable population for this drug therapy.

Second, it will be our first entry into oncology infusion centers, with administration via health care professionals. This is a large and growing market, as several launch subcu, oncology drugs require health care professional administration due to potential side effects post administration. Finally, this new collaboration is with the launch drug, which removes the risk and time related to the drug's approval. We are currently in feasibility testing of the drug, with a Freedom Infusion System prior to an FDA 510(k) submission, which we anticipate in the next six to 12 months. I'm also pleased to report, ongoing progress within our pipeline. The endocrinology drug which we first announced last year has successfully passed validation, and will enter Phase III trials with the FREEDOM Infusion System, another pivotal step towards commercialization.

A hospital nurse operating a FREEDOM infusion system, demonstrating its user-friendly interface.
A hospital nurse operating a FREEDOM infusion system, demonstrating its user-friendly interface.

We also progressed the development of our efforts, with the previously announced collaboration with the launched rare disease biologics. This drug has successfully passed its feasibility testing and will be moving into product development, with a customized Freedom Infusion System. We anticipate a 510(k) submission for the use of the drug with the Freedom System in the fourth quarter of this year. Overall, it was a successful quarter across all three strategic growth areas. Moving on to Slide 5. This slide depicts our novel therapies collaborations, representing opportunities for new drugs on our label and/or new innovations, with launched on-label drugs. Although many of these drugs will take several years to attain regulatory approval, all 16 represent opportunities to bring new patients into our KORU Freedom Infusion system.

A few key highlights. First 16 total collaborations represent our largest number of collaborations to-date and with 19 new opportunities we're pursuing, this represents our broadest pipeline to date. Second, the addition of the oncology asset has expanded our global patient population by approximately 0.5 million patients, bringing our total addressable population to approximately 2.1 million patients. Third, the highlighted collaborations in to create the progress we are making with our pharmaceutical partners. And most importantly, the last column with potential core FDA clearance date indicate there are seven opportunities within our Vision 26 time line for new decor drug label expansions, launch drugs in new geographies and/or drug product lifestyle for expansions with KORU.

For example, this year, we expect the clearance for Takeda's CUVITRU drive Japan opening a new market for KORU. I'm very excited to see the novel therapies pipeline continue to get deeper and more diverse with opportunities with multiple pharmaceutical partners. I'd now like to turn the call over to Tom to review our financial performance.

Tom Adams : Thank you, Linda, and thanks to everyone joining us this afternoon. We are pleased with our first quarter results, as we saw a return of double-digit top line growth and a record setting quarter. Net revenues for the first quarter were $8.2 million, an 11% increase compared to the prior year period. Domestic core grew 4% with net revenues of $6 million, driven by double-digit consumable volume growth due to new patient starts and share gains. Our international core business grew 63% year-over-year with revenues of $1.8 million, driven by an improved Ig supply versus the prior year, increased sales, and improved indications, and the strong growth in our geographic expansion strategy. The 63% growth rate for international core consisted of approximately $260,000 and of revenue for expedited inventory orders relating to the BSI regulatory determination, as Linda addressed earlier.

Normalized growth, excluding these orders was approximately 40% in the OUS business. Novel Therapies revenue was $500,000, a 21% decline compared to Q1 2023, driven by a major collaboration milestone that occurred in the prior period. It's important to note that our novel therapies business consists primarily of non-recurring revenues, which are variable in nature and are generally milestone-based. The compensation of our revenue mix has diversified with an expanded customer base, highlighted by two additional novel therapies agreements and advancements in pipeline progress for multiple drugs in the quarter. Our first quarter gross margin improved to 62.3%, a 620 basis point increase compared to the prior year. As indicated on the bar graph on the right side.

The strong improvement was largely due to the consolidation of our U.S. manufacturing sites. This marks the third consecutive quarter that we have achieved margins greater than 60%, and we continue to work diligently to realize manufacturing improvements and efficiencies across our operations. Additionally, we have improved gross margins realized in our Novel Therapies business through the in-sourcing and service revenue costs at lower rates. Moving over to cash. As of March 31, we had an ending cash balance of $10.8 million, representing cash usage of $700,000 in the quarter, a substantial reduction from the $5.2 million spend incurred during the prior year period. This year, our cash spending will be lighter than previous years as we continue to achieve operating leverage.

Our cash deployment in the first quarter came primarily from our cash basis net loss of $1 million, which was nearly 50% lower than prior year. Other drivers include investing and financing activities of $300,000 for new production line capital expenditures and financing for insurance premiums. This was offset by a significant improvement in working capital, driven by reductions in inventory levels resulting from operational efficiencies in manufacturing and higher accounts payable due to timing of receipts. We remain focused on our cash and cash flow targets. We substantially reduced spending since the beginning of 2023. We expect the first half 2024 cash usage pattern to remain consistent to the prior year with higher spend relative to the second half, but at a significantly lower burn rate.

The spend will be driven by equipment for our new production lines. We remain confident that we will hit our goals, of at least $8 million and ending cash balance as well as being cash flow positive in the fourth quarter of 2024 and for the full year of 2025. Moving on to guidance, we are reaffirming each aspect of our 2024 outlook expecting the following for the remainder of the year. Revenues of $31.2 million to $32.2 million, representing a 10% to 13% growth driven by growth of a mid-to-high-single-digit SCIg market three, new novel therapy collaborations and an approximately prefilled syringe penetration of 20% to 25%. We anticipate a full year gross margin between 59% and 61%, as we expand into lower ASP regions. We also will face and manage inflationary pressures within our supply chain and incur production line start-up costs later in the year.

Lastly, as I mentioned before, we expect to finish with an ending cash balance of more than $8 million which includes approximately $23.5 million to $24 million in operating expenses. This ending balance is exclusive of stock compensation and includes the expectation, that we will reach cash flow breakeven in the fourth quarter of 2024 and cash flow positivity for the full year of 2025. Our credit facility remains available to us for strategic growth opportunities, but does not included in our estimates for 2024, ending cash balance. I will now turn the call back over to Linda, for closing remarks.

Linda Tharby: Thanks Tom. I'm very pleased by our first quarter results, and the momentum ensuing across all businesses. We remain committed to the milestones I highlighted, in our last earnings call. We have achieved one quarter of double-digit net revenue growth with a commitment to this type of growth for the remainder of the year. We continue to see accelerating levels of growth in our core business, driven by share gains new patient starts, International expansion and increasing prefill penetration. We've completed our goal of three new novel therapies collaborations and we'll continue to actively pursue new opportunities, as we work to move our collaboration closer to commercialization. We are projecting the submission of two, 510(k)s, one for a new product and the other for a new drug indication on the FREEDOM platform, by the end of the year.

And finally, it is our commitment to breakeven cash flows in Q4 of 2024 and cash flow positive for full year 2025. Each of these milestones is a strong indicator of the progress we are making, toward KORU's overarching Vision 26 goals. I'm strongly encouraged by our start to the year, as we continue to evolve our company into a global leader in subcutaneous drug delivery in both the clinic and at-home setting. In closing, I'm incredibly proud of the team at KORU Medical and the effort they put into their work each day, as we strive to improve the patient experience and deliver increasing value to our customers', patients and shareholders. Operator, I will now turn the call over to you, for Q&A.

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