Biostem Technologies Inc

OTC:BSEM

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, everyone, and welcome to the BioStem Technologies Incorporated Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I'd like to turn the floor over to your host, Jeff Ramson, Investor Relations. Sir, you may begin.

[Jeff Ramson]

Good morning, everyone, and thank you for joining our conference call to discuss BioStem's Third quarter 2023 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 upon any forward-looking statements, which speak only as of the date made and may change at any time in the future. Although 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 our website.

With that, I'm now pleased to turn the call over to Jason Matuszewski.

[Jason Matuszewski, executive]

Thank you, Jeff. Good morning, everyone, and thank you for joining us. We made strong operational and financial progress in the third quarter of 2023. We continue our tremendous long-term growth trajectory for the remainder of 2023 and beyond, resulting in net revenue of $3.599 million and a 91% gross margin for the quarter.

Before Mike discusses the financial results in more detail, I'd like to cover some of our recent milestones and initiatives. 2023 has been a remarkable year of growth and milestones for our organization. We are excited to share our latest achievements, innovations and strategic partnerships that continue to drive our mission of advancing the development, manufacture and commercialization of cutting-edge placental-derived allografts for advanced wound care.

In this earnings call, we will delve into the recent significant milestones that have shaped our journey, including securing a CMS Q code for VENDAJE AC, a successful capital raise, the initiation of a crucial clinical trial for diabetic foot ulcers, a game-changing partnerships with NovaBay Pharmaceuticals and Venture Medical. These accomplishments reflect our dedication to transforming the field of regenerative medicine and improving the lives of patients worldwide.

In our most recent development, we are thrilled to announce a groundbreaking achievement that marks a significant milestone for BioStem Technologies. The Centers for Medicare and Medicaid Services, CMS, have officially published a new Q code, Q4279, specifically for our flagship product, VENDAJE AC. This accomplishment is the culmination of a rigorous and successful allocation process within the Healthcare Common Procedure Coding System, more commonly known as HCPCS, the Q code framework. Importantly, this HCPCS code will become effective on January 1, 2024.

VENDAJE AC represents a crucial product within our regenerative medicine portfolio. This advanced human connective tissue matrix is composed of dehydrated amniotic and chorionic tissues and is manufactured using our proprietary BioREtain process.

VENDAJE AC serves as an innovative, easy to handle and thicker structural tissue allograft. Its primary purpose is to act as a protective covering for soft tissue wounds, particularly for those patients facing complex chronic wounds and severe burns.

We are equally excited to share that we completed an oversubscribed private placement of common stock to accredited investors in October of 2023. This private placement raised an impressive aggregate of 1.337 million units at a price of $1.50 per unit, resulting in gross proceeds of $2 million. Each unit comprises of 1 common share in the equity of the company at $1.50 a share and 1 warrant at $2 per share for up to 5 years.

The infusion of capital through this private placement will be instrumental in propelling our commitment to innovation and advancement within the regenerative medicine field. These funds will play a pivotal role in several key areas.

We plan to allocate a significant portion of this capital towards the completion of our DFU or diabetic foot ulcer clinical trials. These trials are essential to support the performance of our existing product portfolio, including VENDAJE, VENDAJE AC and AmnioWrap2 brands and to bring additional innovative regenerative medicine solutions to the market.

We also will dedicate a portion of this capital to sales and marketing efforts to build our brand presence in the marketplace. And last, we will utilize a small portion of the capital raise for operating capital.

Another fascinating development within our clinical trials involves the initiation of a 100-patient trial that is focused on evaluating the effectiveness of our VENDAJE tissue allograft in the treatment of diabetic foot ulcers or DFUs. This clinical trial is a significant moment in our journey as it not only provides invaluable real-world support for health care professionals, but also underscores our commitment to deploying VENDAJE in the treatment of patients with chronic wounds.

Diabetic foot ulcers are a widespread and highly serious complication, impacting around 15% of individuals with diabetes. Annually, over 2 million Americans in the U.S. develop diabetic foot ulcers, which are chronic wounds capable of resulting in amputation and in severe cases, even the loss of patients' life.

Current standards of care for managing persistent, challenging to heal wounds like diabetic foot ulcers, often involve absorbable wound dressings. These dressings must create an environment conductive to healing, supporting the development of a structural framework, the growth of new blood vessels and the migration of skin cells across the wound bed.

BioStem's VENDAJE allografts play a pivotal role by providing a scaffold for tissue healing. They encompass natural growth factors, extracellular matrix components and anti-inflammatory cytokines known for their support in the body's healing process.

This clinical study is an exciting opportunity for us to demonstrate the real-world effectiveness of our products within a clinical setting and not only underscores the unique advantages of our BioREtain process, but also signifies our commitment to deploying VENDAJE, VENDAJE AC and AmnioWrap2 in the treatment of patients with chronic wounds.

In addition to these exciting developments, BioStem Technologies has recently entered into a strategic partnership with NovaBay Pharmaceuticals, Inc. This partnership grants NovaBay a rights to commercialize BioStem Technologies' Amniotic Tissue Allograft under the brand name Avenova Allograft.

This product is intended for use as a protective covering during the repair of ocular surfaces and aligns perfectly with NovaBay's Avenova Eyecare brand. BioStem's Amniotic Tissue Allograft serves as a protective environment for covering for the repair of the cornea and conjunctiva, facilitating the return of the ocular surface to a healthier state.

This collaboration allows NovaBay to introduce the product as Avenova Allograft and leverage its established Avenova brand to promote its use in conjunction with other Avenova products. Furthermore, medical procedures requiring the use of Avenova Allograft will be eligible for reimbursement through Medicare.

Placental-derived human amniotic membrane is a rich source of profiling growth factors and anti-inflammatory cytokines. Amniotic allografts have been successfully employed in regenerative medicine for over a century, particularly as an ophthalmologic covering.

What sets Avenova Allograft apart is its unique manufacturing process, the patented 6-step BioREtain process developed by BioStem. This process preserves the natural integrity of the placental tissue, ensuring a high-quality, versatile and safe product that is applicable to a wide variety of topical ophthalmologic covering applications.

This strategic partnership with NovaBay opens up new horizons for BioStem Technologies, allowing us to enter the global ophthalmologic amniotic membrane market, which was estimated to be worth $404 million in 2022. Moreover, this market is projected to grow at an impressive rate of 9.8% per year between 2023 and 2030.

Furthermore, BioStem Technologies has expanded its reach through a strategic partnership with Venture Medical, a prominent provider of wound market solutions in the United States. This partnership is centered around the nationwide release of our innovative product, AmnioWrap2.

AmnioWrap2 is a groundbreaking biological skin substitute processed to offer an extensive range of wound healing and wound care solutions. Developed using our proprietary BioREtain process, this allograft is derived from amniotic tissue, is optimized to cater to diverse wound care applications.

Venture Medical with its extensive wound healing focused sales force, leading-edge marketing, clinical reimbursement, logistics and billing and operational solutions, is uniquely positioned to partner with BioStem in addressing the vast unmet clinical need for rapid healing modalities in chronic and postsurgical wounds.

The wound care market is projected to expand to $2 billion by 2026 according to a 2021 Grand View market report. This collaboration represents a pivotal milestone as we expand our spectrum of innovative solutions within the wound care market. By working with Venture Medical, we aim to bring this versatile product to health care providers and patients across the country, significantly enhancing patient care and quality of life.

Our operations, research and development teams continue to implement the BioREtain processing method into our current and future allograft products. This results in an increased retention of the inherent beneficial biological qualities and components. The company will soon be engaging with several market development focus groups, industry thought leaders and key stakeholders to support this initiative and accelerate the adoption of our product offering.

Our BioREtain process is a competitive advantage over our competition as internal data analysis has shown that our allograft products retain elevated levels of the inherent beneficial biological qualities and components of allograft products.

As I mentioned before, we have put our company in a tremendous long-term growth trajectory. In the third quarter, we had executed on the fundamentals of this growth strategy. These recent developments are a testament to our commitment to advancing the field of regenerative medicine and making high-quality innovative solutions accessible to a broader audience.

With our proprietary BioREtain processes, groundbreaking products like VENDAJE, VENDAJE AC and AmnioWrap2 and our strategic partnerships with industry leaders, BioStem is poised to lead the way in regenerative medicine and ultimately improve patient care and quality of life. We look forward to consuming this progress into 2024 as we hone our focus on the advanced wound care market and establishing ourselves as the industry leader in this space.

With that, let me turn the call over to Mike for a review of the third quarter 2023 year-to-date financial results.

[Michael Fortunato, executive]

Thanks, Jason. Net revenue for the 9 months ended September 30, 2023, was $5.2 million compared to $6 million for the 9 months ended September 30, 2022, a decrease of $839,000 or 14%. This decrease in sales was a result of our change in strategy initiated in the first quarter of this year away from selling directly to private offices toward the strategic distribution relationship with Venture Medical. That relationship began to show significant results in Q3 with a higher overall average selling price as compared to private office sales.

Gross profit for the 9 months ended September 30, 2023, was $4.6 million or 88% of revenue compared to $5.3 million or 88% of net revenue for the 9 months ended September 30, 2022, a decrease in total dollars and $696,000 or 13%. The decrease in overall gross profit resulted primarily from decreased sales volume resulting from our change in strategy initiated in the first quarter to the strategic distribution relationship I just spoke about.

Sales to that distribution partner begin in the third quarter this year at significantly higher average selling prices than we would have otherwise been able to obtain, which has helped keep our gross profit percentages consistent year-over-year.

Operating expenses for the 9 months ended September 30, 2023, were $9.6 million compared to $6.3 million for the 9 months ended September 30, 2022, an increase of $3.2 million or 51%. The increase in operating expenses is primarily driven by additional noncash share-based compensation.

Total other expenses for the 9 months ended September 30, 2023, was $789,000 compared to $2.4 million for the 9 months ended September 30, 2022, a decrease of $1.6 million or 67%. The 9 months ended September 30, 2022 contained a onetime charge of $2 million related to the restructuring of certain debt in March of '22, and that item is not in existence for '23.

Net loss for the 9 months ended September 30, 2023, was $5.7 million or $0.43 per share compared to $3.4 million or $0.32 per share for the 9 months ended September 30, 2022.

I'll give some cash flow highlights. First, I'll start with cash flows from operations. Cash flows used in operations was $2 million for the 9 months ended September 30, 2023, compared to cash flows provided by operations of $746,000 for the 9 months September 30, 2022.

The decrease in cash provided by operations is due to net losses of $5.7 million, slower payments in accounts receivable as compared to prior year of $2.9 million, offset by stock-based compensation of $4.7 million and to the timing of payment of trade payables, which increased cash by $607,000.

For the year-to-date September 30, 2022, cash provided by operations is comprised primarily of noncash charges related to restructuring of debt of $2 million and share-based compensation of $2.2 million, offset by net losses of $3.4 million.

Net cash used in investing activities during the 9 months ended September 30, '23, was $210,000, which was primarily a purchase of property, plant and equipment of $105,000 and purchase of internal use software of $105,000. Net cash used in investing during the 9 months ended September 30, 2022, was $400,000, which was primarily purchases of property, plant and equipment and investments in internal use software of $200,000.

Net cash provided by financing activities during the 9 months ended September 30, 2023, was $1.6 million, which resulted from proceeds from loan borrowings net of repayments of $1.1 million and the issuance of common stock for cash of $445,000. Net cash provided by financing during the 9 months September 30, 2022, was $354,000, which resulted from proceeds from lower borrowings net of repayments of $315,000 and issuance of common stock for cash of $50,000, offset by finance lease repayments of $11,000.

As Jason mentioned in his remarks above, we successfully closed on our private placement in October 2023. The result of those actives will be reflected in our fourth quarter financial statements.

The company maintains cash on hand as of September 30, 2023, of $110,000 compared to $1 million last year. We continue to strengthen our balance sheet. The company converted $378,000 of liabilities into common stock during 9 months ended September 30, 2023. Subsequent to the end of the quarter, we also converted an additional $473,000 of outstanding convertible debt into common stock.

I also wanted to point to investors and listeners to the call to our press release, which includes important non-GAAP financial measures for both the quarter and year-end 9/30, '22 and '23.

I will now turn the call back over to Jason.

[Jason Matuszewski, executive]

Thank you, Mike. We will now turn the call over for questions. Operator, will you please open the line.

[Operator]

[Operator Instructions] And at this time, I'm showing no questions. I'd like to turn the floor back over to management for any closing remarks.

[Jason Matuszewski, executive]

Thank you, everybody, for joining the call today. I hope everyone received the call well, and we look forward to touching base at the end of the year next financial call.

[Operator]

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. Thank you for joining. You may now disconnect your lines.