Biostem Technologies Inc

OTC:BSEM

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by. My name is Katherine, and I will be your conference operator today. At this time, I would like to welcome everyone to the BioStem Technologies First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jeff Ramson, CEO of PCG Advisory. Please go ahead.

[Jeff Ramson]

Good afternoon, everyone, and thank you for joining our conference call to discuss BioStem's First Quarter 2024 Financial Results and Corporate Highlights.

Leading the call today is Jason Matuszewski, Chief Executive Officer. We're also joined by Mike Fortunato, Chief Financial Officer.

Before we begin, I'd like to remind everyone that our remarks today may contain forward-looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the over-the-counter market. You are cautioned not to place any undue reliance on any forward-looking statements, which speak only as of the date made and may change at any time in the future.

Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of BioStem's website. With that, I'm now pleased to turn the call over to Jason Matuszewski.

[Jason Matuszewski, executive]

Thank you, everyone, for joining today's call. I'm pleased to share that BioStem Technologies had a phenomenal start to 2024. As we embark on BioStem 2.0, we are starting to see the fruits of our labor and hard work the team has put in over the last 18 months to transform the business.

Our first quarter revenue rose to $41.9 million, nearly 71x higher than the $600,000 reported on the same period last year. Our growth was primarily fueled by the continued successful commercialization of AmnioWrap2 into the private office setting. This led to an increase of gross margin of 95% compared to 82% in the first quarter of 2023. The improvement in margin is a direct result of our enhanced sales strategy and ongoing benefits from our partnership with Venture Medical.

This quarter also marks a historic moment for BioStem, as we report positive net income for the first time on a U.S. GAAP basis. We've successfully transitioned from a net shareholders' deficit position into a net positive equity position as well.

Another exciting development this quarter was the prioritized examination for our patent application with the United States Patent and Trademark Office, USPTO. This patent is critical as it covers our proprietary BioREtain processing technology. This technology is at the core of our product offerings, distinguishing us from competitors in supporting advanced wound care treatments.

We eagerly anticipate working with the USPTO as our application undergoes priority examination. And once granted, it will significantly enhance our intellectual property protections. BioREtain processing technology currently has 5 patents, 4 in provisional status and 1 in a granted phase.

Additionally, we've taken a major step forward in our clinical capabilities by engaging McCoy Clinical Consulting to lead our Diabetic Foot Ulcer and Venous Leg Ulcer clinical trials. Nick McCoy's extensive experience in clinical research across various therapeutic areas will be invaluable as we aim to accelerate our trial processes and demonstrate the real-world benefits of our BioREtain products. His leadership will be crucial in facilitating product adoption across hospitals, wound care clinics and inventory surgery centers nationwide.

On the regulatory and corporate governance front, we have completed a rigorous 2-year audit, a significant achievement that aligns with our strategic goals for uplifting to a senior stock exchange. This step not only enhances our transparency and regulatory compliance, but it also sets a solid foundation for our next phase of growth in BioStem 2.0.

The successful completion of these audits and our plan to become a fully reporting company with the SEC are designed to solidify our market position, attract a broader investor base and ultimately enhance shareholder value.

With that, I will turn the call over to Mike for a review of our Q1 2024 financial results.

[Michael Fortunato, executive]

Thank you, Jason. For the first quarter of 2024, our net revenue reached $41.9 million, up from $600,000 in the same quarter of the previous year, an increase of $41.3 million. This growth is primarily due to the market demand for AmnioWrap2, which was introduced in the fourth quarter of 2023.

Our gross profit for this period was $39.7 million or 95% of revenue compared to $500,000 or 82% of net revenue in the first quarter of 2023. This increase of $39.2 million in gross profit mainly results from the higher sales volume of our AmnioWrap2 product line.

Operating expenses for the first 3 months of 2024 were $35.1 million, an increase of $32 million over the same period in 2023. The increase in operating expenses is due to the expansion of our team, the bona fide service fees resulting from our partnership with Venture Medical, the distributor of our AmnioWrap2 and increases in share-based compensation.

In summary, the first quarter of 2024 marks the first time BioStem has reported positive GAAP net income. Our financial foundation is strong, setting us up for further advancements and expansion in our market segments.

Thank you, and I'll turn the call back over to Jason.

[Jason Matuszewski, executive]

Thanks, Mike. Before closing, let's turn on our attention to the recent local coverage determinations, or LCDs, proposed by Medicare administrative contractors. This new framework is crucial as it shapes the reimbursement landscape for our industry.

The proposed LCDs suggest the utilization cap of 4 skin substitute applications per case with allowances for additional applications based on medical necessity, which is a significant improvement from the previous stipulations. This flexibility is essential for treating complex cases where patients require extended care to achieve wound closure.

However, the proposed LCDs would limit the number of covered products to 15 of the approximately 200 products currently used by clinicians. We believe the proposed LCDs would severely limit patient access to well-established products. While this limits the field, it also sets a high standard that aligns with our commitment to evidence-based medicine. It's worth noting that a vast number of products, nearly 180 do not meet the threshold and will not be reimbursed. This potential change would significantly alter the competitive landscape, emphasizing the importance of solid clinical evidence in product validation.

BioStem is actively engaging in dialogue surrounding the proposed LCDs. We see the common period as an opportunity to contribute constructively to the discussions that shape these policies. Our aim is to ensure that these changes benefit patients by maintaining access to high-quality affected products, while curbing the misuse of resources. The finalization of those LCDs expected by October following a similar time line as last year, while mark a critical pivot in our operational and strategic planning.

However, we do think it's important to note that currently 60% to 80% of the private office volume is on the noncovered list. Our response to these potential reimbursement changes is multifaceted. Firstly, we are accelerating our clinical trial activity, particularly around our BioREtain products, enlisting the expertise of McCoy Clinical Consulting, led by Nick McCoy, a seasoned veteran in clinical research to lead pivotal trials for our Diabetic Foot Ulcer and Venous Leg Ulcer treatments. The data generated from these studies would satisfy the proposed LCD requirements.

In parallel, the significant milestone of the prioritized examination of our recent patent application for sterile human placental allografts protect our proprietary BioREtain processing technology, ensuring that our innovations remain at the forefront of the market, distinguishing us from competitors and reinforcing our commitment to advance scientifically backed wound care solutions.

Additionally, our recent completion of conference of 2-year audit performed by Marcum and our strategic steps towards uplisting to a major stock exchange reflect our commitment to transparency and corporate governance. These efforts not only enhance our market position but also solidify our financial foundations, preparing us for sustained growth and success in a changing regulatory environment.

While the proposed LCDs introduce a new layer of complexity to the market, they also present an opportunity for BioStem to lead with our strong product portfolio and clinical programs. We are confident in our strategy, our team and our technology to navigate these changes effectively, continuing to provide value to our stakeholders and improve patient outcomes in the wound care space.

We look forward to keeping you updated on our progress and our ongoing contributions to shaping our responsible and patient-focused health care environment.

In conclusion, BioStem is entering the most exciting and unprecedented phase of its journey to date, BioStem 2.0 with continued robust growth, advancing clinical programs and a clear path to expanding into new markets in 2024. We are committed to increasing our presence in hospital wound care and other wound care settings. By broadening our product offerings and geographical footprint, we aim to meet the growing needs of wound care patients worldwide.

Looking ahead, our focus remains on driving sustainable growth and continuing to innovate within the MedTech industry.

With that, I invite questions from the audience. Operator, please open the line.

[Operator]

[Operator Instructions] Mr. Ramson you may begin with the Q&A.

[Jeff Ramson]

The first question we have is, could you -- it's from Brad, from Zacks. Could you expand on how the margins were improved through the sales process and that can continue?

[Michael Fortunato, executive]

Jason, you want me to take that one?

[Jason Matuszewski, executive]

Yes, go for it, Mike.

[Michael Fortunato, executive]

Sure. So Brad, really, the story here for the first quarter is really sales volume with the high -- we have a high ASP, average selling price on AmnioWrap2. That's really the driver. Our cost structure continues to be relatively the same with respect to inventory production. It's really just all top end ASP. I would expect that to continue, I guess, given Jason's comments around LCD. However, we'll have to see how that happens with how that shakes out sometime later this year.

[Jeff Ramson]

Another question we have is, can you address the status for any application on a national exchange.

[Michael Fortunato, executive]

Jason, you want me to handle that one?

[Jason Matuszewski, executive]

Yes, go ahead, Mike.

[Michael Fortunato, executive]

Yes, sure. So the plan, we mentioned in the remarks, the plan here is to first register -- get registered and current with the SEC. We're planning on doing the Form 10 registration statement this year. And once that's done or concurrent with that, we will be making application to a national exchange. So near term.

[Jeff Ramson]

Okay. Next question is, how soon do you think these proposed changes will take place and then -- sorry, forgive me my mistake, let that one go.

With forward-looking use case for your product, do you see diversification into internal use or diversification of the product line, once patents are obtained.

[Jason Matuszewski, executive]

Yes. I mean I can take that one. We are actively looking at other use cases. I mean, right now, our core concentration is in the wound care space, specifically, looking at treating Diabetic Foot Ulcers, pressure ulcers and Venous Leg Ulcers. But we are looking at other use cases.

We do have a partnership with NovaBay Pharmaceuticals in the optics space using our product as a barrier, recovering anywhere in the orbital space. But we also are looking at surgical opportunities in regards to the use case of these products. Jeff, I'm open to taking the question that you also just started to ask as well.

[Jeff Ramson]

Okay. Great. So I'll read that again. So how soon do you think these proposed changes would take place? And do you have any products that don't qualify.

[Jason Matuszewski, executive]

Yes. Currently, like I mentioned on the call, there's about roughly over 180 products that are considered as a noncovered category. We are currently working through what's called the commenting and the LCD or Local Coverage Determinations in the proposed status.

Actively throughout the next few months, we'll sit and have discussions with the MAC, Med directors as an individual company, but then also as a group in a group setting, there's planned meetings to meet with those folks and have open-form dialogue from not just us as an organization, as a company, but other physicians, providers, et cetera. And those meetings are happening throughout the month of May. And then there's formal written comments that are due by June 8.

We don't know what the time line in the sense of after all those med directors and those MACs receive all of these comments in regards to the current proposed LCD. But our -- like we mentioned in the call today in regards to worst-case scenario, which would be sometime in October that this proposed LCD would then be converted to an effective LCD.

I think just the sentiment within the industry and also from our viewpoint and perspective,these proposed LCDs have a large detriment to the patient population that are looking to use these types of innovative technologies to treat Diabetic Foot Ulcers, Venous Leg Ulcers and pressure ulcers. And I think what we see is a very limited number of products on the "covered list."And I think not only from a manufacturing perspective but then also from a physician and provider perspective, there's been a very large concern about the impact that these proposed LCD is going to have against Medicare beneficiaries.

[Jeff Ramson]

Okay. Few more. So a follow-up from an earlier question, where do you see the company on an international distribution as the U.S. market picks up?

[Jason Matuszewski, executive]

I think we are having active dialogue in regards to international. I know this was a question that was asked on the last -- on the annual for '23. We're looking at opportunities and kind of taking them in and kind of really analyzing what opportunities we want to pick and choose and look at going forward with.

Right now, we have a lot of greenfield here in the United States. Like we mentioned in the call, a large portion of our revenue is right now focused solely on the private office segment. We're moving forward with Nick McCoy on the clinical trials and getting that data to support, getting commercial payer coverage for our products and then ultimately give us an opportunity to actually have a direct dialogue with some of the group purchasing organizations or GPOs, and then really focus on commercializing products inside the hospital systems throughout the United States here.

I think when we look at peers and competitors to our organization, there's a lot of opportunity and a lot of green field in that space. And I think for us, from a diversification perspective, I think that's -- it lends itself to that as well as kind of diversifying from just solely in the private office, skilled nursing, long-term care, et cetera, markets, but then also expanding into more hospital and stickier business in that area.

[Jeff Ramson]

Okay. Another question. Jason, are you currently using AI? Or do you see how it might aid the company moving forward?

[Jason Matuszewski, executive]

I mean I think there's a lot of opportunities to use AI in a lot of things that we're doing. We're starting to see just feedback from physicians and some of those things on charting and note taking. Since we are currently core focused on selling into the private office segment, a lot of those physicians really need to make sure that they're documenting and noting properly in regards to the use case of these products as well as where the patient is at so that they actually qualify for the use case of advanced skin substitute.

So I think there's probably going to be iterations and use cases of using artificial intelligence within our industry. And I think near term, that might be something that not only we adopt, but others adopted within our industry.

[Jeff Ramson]

One more question. Jason, what is the company doing to create buzz in the hospital market to encourage faster adoption?

[Jason Matuszewski, executive]

Yes. I mean I think one of the big things is this week, we actually have kind of what we call the Super Bowl of Wound Care Conferences, SAWC. SAWC Spring, specifically in Orlando. We're actively engaging with key opinion leaders, physicians that are currently using our products to speak on behalf from a peer-to-peer perspective, about our product lines.

And then also, two, like I mentioned earlier, getting that clinical data around our products, working on these clinical trials both in Diabetic Foot Ulcer indication as well as Venous Leg Ulcer indication really getting robust data to demonstrate that. Our BioREtain process is unique and it has an advantage in regards to the competition on how we actually process our perinatal tissue allografts.

That messaging on top of, like I said, interacting and building report with KOLs within the industry, I think, are 2 areas in which we can leverage to hopefully, like you mentioned, get a buzz in the hospital system.

[Jeff Ramson]

I think that covers everything, Jason. So operator, I believe no other question, sorry.

[Operator]

All right. That concludes our Q&A session. And ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.