Q4 2023 Nuwellis Inc Earnings Call

Participants

Vivian Cervantes; Investor Relations; Nuwellis Inc

Nestor Jaramillo; President & Chief Executive Officer; Nuwellis Inc

John Jefferies; Chief Medical Officer; Nuwellis Inc

Robert Scott; Chief Financial Officer; Nuwellis Inc

Jeffrey Cohen; Analyst; Ladenburg Thalmann & Co

Anthony Vendetti; Analyst; Maxim Group LLC

Presentation

Operator

Good morning, everyone, and welcome to the Nuwellis Fourth Quarter and Full Year 2023 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) I'd also note today's event is being recorded. At this time, I'd like to turn the floor over to Vivian Cervantes, Investor Relations. Ma'am, please go ahead.

Vivian Cervantes

Thank you, operator. Good morning, everybody. Thank you for joining us on today's conference call to discuss the Nuwellis' corporate developments and financial results for the fourth quarter and full year ended December 31st, 2023. In addition to myself with us today are Nestor Jaramillo, Nuwellis' President and CEO, Rob Scott, our CFO, and Dr. John Jefferies. Our Chief Medical Officer, Mr. Hermelin, as reported from Boston, where he is attending the 2024 THT conference. At 8 AM Eastern today, Nuwellis released financial results for the quarter and year ended December 31, 2023. If you have not received the wireless earnings press release, please visit the Investor Relations page on the company's website during this conference call, the Company will be making forward-looking statements.
All forward-looking statements made during the today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends as well as our estimated results or performance are forward looking statements. All forward-looking statements 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.
All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risks in the company's filings with the SEC, including the latest 10-K.
With that, I would now like to turn the call over to Nestor.

Nestor Jaramillo

Thank you, Vivian, and good morning, everyone. Welcome to Nuwellis Fourth Quarter and Full Year 2023 earnings conference call. As we mentioned, I'm currently in Boston attending the technology and heart failure Therapeutics Conference, also known as THT. This conference provides attendees a look into the latest heart failure innovations focusing on device and technology based treatment for heart failure. This has been a productive meeting for us with much to report. Last night, we hosted a well-attended symposium titled aquifer raises new technological and clinical developed WERE four of our key opinion leaders presented three separate significant clinical evidence findings on the safety and efficacy of the Aquadex therapy. Dr. Jefferies will provide more detail later on this call.
On the symposium yesterday, we had one podium presentation showing a statistical significance. Several endpoints at 30 days, including fewer patients were hospitalized fewer days in the hospital due to heart failure readmission, lower rehospitalization rates due to cardiovascular events and fewer We hospitalization days due to cardiovascular events and fewer patients rehospitalization for cardiovascular events. More detail on this data will be presented tomorrow in a late breaking our clinical trials presentation. This conference has served as a platform for the clinical reestablishment of the superiority of ultrafiltration using new well as Aquadex technology as compared to the traditional diuretics. I'm happy to open our call today with an emphasis on how excited we are about the future of new well as despite the difficult environment for micro-cap companies, like new wells with our steadfast focus on executing on our strategic growth initiatives, positive momentum in our business continues to build 2024 is poised to be another important year for us with key value milestones targeted.
This includes continued commercial introduction of our strategic collaborator, SeaStar Medical, with their selected sites for early device branded quality means for pediatric for treatment of pediatric acute kidney injury, where we have an exclusive US license and distribution rights and also the steady progress on our products pipeline with our new pediatric dedicated CRRT. device branded Viviant, but we also look forward to completing our diabetes pilot program in 2024, paving the way for expanded clinical and market access for our Aquadex system and finally, we expect to complete the IDE submission for Viviant. I will dive deeper into each one of these initiatives momentarily and provide an overview of our fourth quarter and full year results. Dr. Jon Jefferies, our Chief Medical Officer, will also discuss recent positive peer-reviewed publications on our Aquadex system included, including expanded applications for our therapy to the end-stage liver disease in addition to providing an update on the clinical evidence presented here at PHD. conference, our Chief Financial Officer, Rob Scott, will provide detailed financial results before opening up the call for questions followed by my closing remarks.
I'm pleased to report that we ended 2023 on a high note recording our highest total quarter revenue in the company history in the fourth quarter of 2023 Nuwellis generated $2.6 million in revenue, a 9% increase versus the fourth quarter of 2022, led by increase in disposable utilization and record quarterly international sales. For the full year 2023, Nuwellis generated revenue of $8.9 million, a 4% increase versus full year 2022, while our overall growth might seemed modest at 4%, we had a very strong second half of the year, resulting in a 27% revenue growth compared to the first half of the year. Our capital equipment sales faced industry-wide headwinds in the first half of the year. However, we saw a remarkable turnaround in the second half with domestic console sales skyrocketing 207% compared to the first half. This signifies strong potential for future utilization growth. Hospitals navigated budget limitations by utilizing our rental programs resulting in a 23% year-over-year revenue growth, highlighting the flexibility and affordability that we offer. Despite the nursing staff shortages, the number of patients treated with Aquadex therapy increased by 9% from the first half of 2023 to the second half of 2023, demonstrating the value of our therapy provides.
Now back to the fourth quarter we saw in the fourth quarter, our pediatric customer category once again led the way with 35% growth over the prior year, driven by a 28% increase in utilization and a 49% increase in console sales. And we opened four new pediatric accounts. Our failure and critical care sales declined 27% and 7%, respectively. For the full year 2023, there was a 7% increase in disposable utilization. The pediatric customer category led with an 11% increase in utilization, followed by critical care with a 9% increase in utilization. Our failure was relatively flat, posting a 1% decline in utilization. Total sales decrease. Total console sales excuse me, decreased by 21% for the year because of the industry headwinds we faced in the first half of the year. Overall, we continue to drive utilization gains on opening new accounts, which reflects continued increase in the number of patients being treated with the Aquadex therapy on an expanding console pool.
Frank, now turning to our recent commercial developments and expected new product introductions in early January of this year, we were pleased to announce that we received FDA clearance for an additional dual lumen extended length peripheral catheter, also called Dell. The addition of a new 12 centimeter catheter provides clinicians who treat patients with fluid overload with an additional venous access option to use our Aquadex ultrafiltration system. This new 12 centimeter Delta has the same features as the longer 16 centimeter option, but eliminates the need for trimming when a shorter catheter is needed, ultimately leading to increased patient comfort. Introduction of this new Active Catheter should be well received with clinicians confirming to us the need for this product.
On February 22nd, we were pleased to announce that our strategic collaborator, SeaStar medical received the Humanitarian Device Exemption or HDE E from the FDA for its selective cytokine Cytokinetics device, also called SCD. branded programming. We're used in pediatric acute kidney injury patients. We have exclusive US license and distribution rights for Column E, and we have begun commercial launch activities at targeted medical centers with further commercial expansion expected later in the first half of this year. The unique technology behind call, immune has demonstrated a 50% reduction in mortality rate in children's with potentially deadly hyperinflammation. The addition of this product to our growing pediatric customer category will help save lives of many pediatric patients and further bolster our top line growth. We also remain encouraged by our own internal product development program as we continue to advance development of our pediatric continuous kidney replacement therapy device branded as video. We along with many pediatric nephrologists, believe this product will have extremely positive impact on survival and significantly improve the lives of neonates and it's more children's with kidney malfunction, kidney issues of those born without kidney.
This device is complementary to C-stores, medical called Nu, and we believe these two products will add tremendous value to our growing portfolio of products for pediatric patients with fluid overload and renal disease. Our collaboration with WNS is progressing well, with both teams actively engaged in key areas like pilots selection, patient criteria, development, target metric definition and establishing patient care pathways and order sets for medical staff to start treating patients. We recognize the novelty of this initiative for DaVita for hospitals and for us as well as and we are taking a meticulous approach to ensure a successful pilot launch. We will enable us this initiative will enable us to begin treating patients in the inpatient setting with diabetes personnel and resources. We look forward to sharing further updates of this program advances in the near future.
I would now like to turn the call over to our Chief Medical Officer, Dr. Jon Jefferies, to discuss recent peer reviewed publications on our Aquadex system and provide an update on last night symposium. John?

John Jefferies

Thank you, Nestor. And good morning, everyone. We're pleased to continue to expand our clinical evidence, including a symposium yesterday at THT on the clinical merits of Aquadex for a growing number of patients. Cht is a conference attended by heart failure specialists who are looking for innovative medtech solutions presentations at the Symposium last night highlighted three important topics, including the role of ultrafiltration in the treatment of acute decompensated heart failure, a clinical comparison of ultrafiltration and diuretics using the data from a 224 patient trial called avoid HS and the ultrafiltration best practice from a high-volume center. These three presentations further reinforced the efficacy of ultrafiltration, reestablishing Aquadex as the preferred method of treating congestion in patients with fluid overload resistant to diuretics of the recent clinical publications that featured the benefits of our Aquadex therapy.
Let me highlight the new case series featured in clinical transplantation, which demonstrated the potential of Aquadex to safely and effectively remove fluid volume for end-stage liver disease patients who did not respond to diuretics Of note, the findings present a new clinical application for Aquadex already within its current FDA labeling and adds a new patient population for treatment publication is a single-center retrospective case series that assess the utilization of Aqua freezes therapy with Aquadex in the intensive care unit setting at Mount Sinai Hospital between January 2020 and July 2023, 14 severely ill patients with end-stage liver disease were treated with the Aquadex system during this period, for clinicians treating patients with end-stage liver disease. It can be an enormous challenge to remove fluid when patients don't respond or can't tolerate diuretic therapy safely and effectively. This study demonstrates a new application for the Aquadex system for a large and growing patient population with end-stage liver disease. Unlike continuous renal replacement therapies, Aquadex allows for slow, controlled and predictable fluid removal that can be adjusted to reduce the risk of kidney injury and help alleviate the hepatorenal syndrome. Additionally, treatment with Aquadex may help patients participate in physical therapy and help better prepare them for subsequent surgery and liver transplantation. Let me turn it back over to Nestor. Thank you.

Nestor Jaramillo

Thank you, Dr. Jefferies. I'd like to now turn to call to discuss our Q4 financial results, and I'm going to turn it over to our CFO, Rob Scott.

Robert Scott

Thank you, Nestor, and good morning, everyone. Turning to the Q4 financial results, revenue for the fourth quarter was $2.6 million, representing 9% year-over-year growth and a 6% sequential increase from the third quarter of 2023. This follows a similarly strong third quarter, which saw 16% growth over Q2 2023. Our pediatric customer category had the strongest growth in Q4 with a 35% increase year-over-year. Our failure and critical care decreased 27% and 7%, respectively.
Gross margin was 54.4% for the fourth quarter compared to gross margin of 56.9% in the prior year quarter. Margin decline is primarily driven by product and geographical sales mix and lower fixed overhead manufacturing absorption, leading to more efficient inventory levels. Selling, general and administrative expenses were $3.6 million in the fourth quarter, a decrease of 23% as compared to $4.7 million in the fourth quarter of 2022 the decrease in SG&A was primarily due to reduced headcount and related compensation expense.
Fourth quarter research and development expense was $1.4 million compared to $1.2 million in the prior year period, reflecting a modest increase in R&D spend related to the development of our new pediatric dedicated CRT. device. As we approach IDE. submission in the current year period, the company recorded a nonrecurring expense reduction of approximately $800,000, reducing incentive compensation impacting both SG&A and R&D.
Additionally, the company recorded a $550,000 SG&A expense in the current year period for contractual spend related to the SeaStar licensing and distribution agreement. Total operating expenses were $5 million in the quarter a decrease of approximately $884,000 as compared to the fourth quarter of 2022. The period-over-period decrease was due to cost saving measures implemented early in the second half of the year and carry through year end 2023 as we continued to drive operating efficiencies.
Operating loss in the fourth quarter was $3.6 million compared to an operating loss of $4.5 million in the prior year period, resulting in at $941,000 period over period reduction net loss attributable to common shareholders in the fourth quarter was $7.9 million or a loss of $2.24 per share compared to a net loss attributable to common shareholders of $1.9 million or $5 per share for the same period in 2022.
The current period, net loss attributable to common shareholders includes $2 million of other expense and $2.4 million of a deemed dividend in PIC dividends related to the company's October 2023 financing. The prior year period. Net loss attributable to common shareholders includes $2.6 million of other income related to the company's October 2022, five years. We ended the fourth quarter with $3.8 million of cash and cash equivalents and with no debt on the balance sheet, understanding the near term needs to raise capital, we have recently undertaken steps to reduce our monthly cash burn rate by approximately 40%, balanced against our strategic growth initiatives, which will provide more flexibility in anticipation of tougher capital market conditions for microcap companies like new wells.
This concludes our prepared remarks. Operator, we would now like to open the call to Q&A.

Question and Answer Session

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions)
Jeffrey Cohen, Ladenburg Thalmann.

Jeffrey Cohen

Behind this dark future accretion. Rob, how are you?

Nestor Jaramillo

Good morning, very well, how are you

Jeffrey Cohen

Just find a couple of questions from or and so on. Could you talk about the, um, SeaStar column mean device as far as any patient experience thus far or what you're saying is there second half launch?

Nestor Jaramillo

It's the most of if not all of the clinical experience we call immune has been in the clinical study that they have done that they have performed. We have not done any patients under the collaboration agreement yet we now that we have the HD next step is for sensors and HDE. approval each site needs to get there on IRB approval. So we are in that process right now and then we'll be in the utilization can start.

Jeffrey Cohen

Okay, got it. And actually is the on the Tel catheter, the 12 centimeter one is also being manufactured in your facilities?

Nestor Jaramillo

It is correct. Yes, it has been manufactured in our facility and we plan to start selling it in the next two weeks.

Jeffrey Cohen

Got it. And then could you compare and contrast with us what's working impedes that's so beneficial on the top line growth and what's not working in particular in heart failure that's on that's driving that decline now.

Nestor Jaramillo

Okay. And regarding the pediatric babies and this this pediatric started back in 2019 with a very a landmark publication which shows that when you have kids under 10 kilograms born with renal disease or absence of kidneys, having a continuous renal replacement therapy to act as the kidneys of the children is beneficial. However, there has not been a pediatric dedicated debate. Most of this children are treated with adult CRRT. because of the Aquadex have switches look low rate broad rates as well. If it's very small extracorporeal volume of fluid, it became very safe. Gentle and effective to treating these children is under 10 kilograms. The fact of the matter is that there was not such a therapy. The results of the study showed that patients under 10 kilograms treated with the Aquadex survive the therapy at a rate of 66%. So that's what drove our business that started in 2019. And I'm just going to make a parenthesis here because that's exactly what is what we are seeing right now. With the end-stage liver disease.
So coming back to the pediatric, I mentioned the reason for the success on the pediatric because there is no other therapies on heart failure. The decline is something that that is a explainable. We believe that now with the clinical data that we have and there would be more appetite for using the Aquadex in heart failure patients are we still working on the our evidence that reimbursement. So once we get those in place, we'll see we expect to have an increase in sales.

Robert Scott

And I wish I could provide a little bit. I can provide a little bit more color on just the heart failure declined specifically for the quarter. Again, as you know, from a dollars perspective, it was about $160,000 decline. Again, the percentages kind of get kind of wild, but the one $160,000 was the total dollar amount and about $90,000 of that was driven by capital sale sorry, and about a $90,000 reduction. So we had three less capital sales period-over-period.
So again, a majority of that is driven by capital, which can be certainly lumpy from time-to-time utilization up kind of made up the balance there. We had a couple of a couple of accounts that were just a little bit soft in Q3, just a handful of them. The sales both comps would have came in where we typically expect them. You know, this quarter could have been even even a better quarter for us as far as revenue goes.

Jeffrey Cohen

Okay. That was helpful. And then lastly, first, could you talk about what's the current commercial footprint as far as SKUs out there and maybe give us a breakdown of commercial organization focus in what particular areas.

Nestor Jaramillo

We have about 23 people in the field right now, 9 of them are account managers and the other 14 are clinical specialists. It provides clinical and technical support in the hospitals and all the utilization growth that Rob just mentioned, it's purely organic.

Jeffrey Cohen

Okay, super. Thanks for taking our questions that does it for us.

Nestor Jaramillo

Thank you.

Operator

(Operator Instructions)
Anthony Vendetti, Maxim Group.

Anthony Vendetti

Thank you, Donnie, on the SeaStar device, the SCD. device. And so because they have HD, you can now go forward, but each hospital as to get there IRB, how long does that take? And are you targeting of the hospitals where you're already you already have relationships with your Aquadex system? And then what's the plan to our rollout beyond that? Is that is that a multi-quarter plan or do you feel that as you start to commercialize it into your current base, you could simultaneously start marketing this device with your device to other hospitals?

Nestor Jaramillo

Good questions, Anthony. Let me see if I can answer the three-question part of there. The first one part was you talked about the period that it takes to get the IRBs and it depends on the hospitals. You know, some hospital would will have IRBs that need on a monthly basis on a biweekly basis. So we expect those to be a lot quicker or the ones use on general IRB's. So that may take a little longer. And so that's in the eye at the time of the IRBs. But the reason that they require IRBs is because this is a Humanitarian Device Exemption, but the FDA is not the regular 510(k) approval in terms of the overlap, which was the second part of your question.
And the reason why we believe that this collaboration is so a strategically fit between the two companies is because of that the majority of the centers that participated in the clinical studies of Quell immune are the same customers that are using our product and our reporting on our products. So they are the big top pediatric accounts in the United States so there was a significant overlap on that. And so the first five and this starts to answer your third part of your question of the first five accounts that we're targeting it, three of them are top users of the app and actually buy. And then after that, we're going to roll out the following quarter. We're going to continue adding another 10 and so on until we have it full launch.

Anthony Vendetti

Okay, great. And then obviously, since there is a lot of overlap, and it seems like there's obvious cross-selling opportunities and does that go both ways. In other words, if you see store in some hospitals that you're that you're not, and does that make it easier, do you believe to sell the Aquadex system as well?

Nestor Jaramillo

Absolutely. Yes. By being there with quality immune is an opportunity to talk about Aquadex our current device and also start paving the way for our pediatric dedicated device.

Anthony Vendetti

Okay, that's what I thought. And then on the cost cutting you if I heard a 40% cut in monthly costs, can you outline where that is coming from? And then when did the cuts start happening what month?

Nestor Jaramillo

Yes, he started in March, March 1. And there are general expenses that, you know, we becoming more efficient in our headquarters in terms of the people that we need for our strategic growth initiatives. It also includes travel and travel, and IT expenses and also includes salary cuts for the executive team and also the amount of and the Board fees.

Anthony Vendetti

I see, and it doesn't it sounds like obviously critical to your success is the clinical specialists and the sales. So that's that that's an area that has pretty much I wouldn't say off-limits, but it hasn't borne the brunt of the cost cutting at this point. Am I correct?

Nestor Jaramillo

Correct. We're not touching the sales organization as they are key for continuing our growth in 2024.

Anthony Vendetti

Okay. And then lastly, obviously, some companies at this stage also employ independent distributors. Is there is there an opportunity to do that to help further spur sales going forward?

Nestor Jaramillo

Absolutely. Yes, we that's a very good point, Anthony, and we have two of them in key markets for us. One is in New York City and the other one is in Northern California. So we continue to look at opportunities to add more of these type of independent distributors.

Anthony Vendetti

Okay, great. Thanks so much. Appreciate I appreciate all the color.

Nestor Jaramillo

Yeah. Thank you, Anthony.

Operator

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Nestor Jaramillo, our CEO, for closing remarks.

Nestor Jaramillo

Yes, thank you, everyone, for participating. As I mentioned before, we're very excited about the 2024. We continue to execute on our strategies there. Redesigning our commercial strategy by adding DaVita and adding the collaboration with SeaStar will also continue in our product development with with our pediatric dedicated device and we continue to committed to clinical research with our reverse heart failure trial.
I want to thank all our stakeholders, including our employees, stockholders, medical staff, physicians and health care workers without your help, we will not be able to achieve the transformation in the lives of patients suffering from fluid overload. Thank you.

Operator

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