Nuwellis, Inc. (NUWE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day. Thank you for standing by, and welcome to the CHF Solutions, Inc. First Quarter 2021 Earnings Conference Call. I would now like to turn the conference over to Matt Basco from the Gilmartin Group. Please go ahead.
Matt Basco: Thank you, operator. Thank you for joining today’s conference call to discuss Nuwellis’ corporate developments and financial results for the first quarter ending March 31, 2021. In addition to myself, with us today are Nestor Jaramillo, the company’s CEO; and Paul Wotta, the company’s Corporate Controller and Principal Accounting Officer. At 8:00 a.m. Eastern today, Nuwellis released financial results for the quarter ending March 31, 2021.
Nestor Jaramillo: Thank you, Matt, and good morning, everyone. Welcome to the First Quarter 2021 Earnings Call and Corporate Update. Before we get into the details, I would like to take a moment to thank all the health care workers who continue to work hard, especially those who are administrating the COVID-19 vaccine to help reduce the spread of the virus and allow society to return to normal. Also, I want to comment on our recent corporate name change. Over time, CHF Solutions has evolved to serve more than just chronic heart failure community.
Paul Wotta: Thank you, Nestor, and good morning, everyone. Turning to our financial results. Revenue for the first quarter was $1.9 million, up 18% from Q1 of last year. Revenue performance for the quarter was driven by increased capital equipment sales and strong utilization of disposables among our critical care accounts.
Operator: And your first question is from Jeffrey Cohen of Ladenburg Thalmann.
Destiny Buch: This is actually Destiny on for Jeff. Perhaps I’ll just start with a couple from these last few comments. When talking about SG&A, what percentage was nonrecurring this quarter? And then in terms of R&D beyond the registry, are there any other developmental efforts you’d like to call out?
Nestor Jaramillo: Well, Destiny, thank you for the questions. The percentage of the -- majority of the SG&A expenses were due to our expanding of our sales organization and marketing. A percentage of that was due to a onetime current expense due to our registration in Delaware. We had also -- another percentage of our expenses in Q1 was due to the rebranding of the company. So those were the 3 areas that amount to the SG&A increase. So you can see there that two of them are nonrecurrent, and we expect our SG&A next quarter to be lower than it was this quarter. Was there another part of your question, Destiny?
Destiny Buch: Yes. Just the R&D increase, I know you have the registry going on. Are there any other development efforts that you could call out or is it strictly related to the registry?
Nestor Jaramillo: Well, in addition to the registry, we have talked about in previous quarters about our continuing improve in our development, in our innovation. We continue to innovate our technology, both on the pediatric as well as on the adult offering.
Destiny Buch: Okay. And then could you just remind us the size of the sales force as of current? I know it’s split between reps and then clinical specialists. Has that -- has either of those changed since we last spoke?
Nestor Jaramillo: Yes. We have increased -- the last quarter, we had some territories without clinical specialists. So this quarter, we filled most of those territories with the clinical specialists. And as you remember, the clinical specialist is a very key function in our sales process.
Destiny Buch: Got it. Okay. Would you also be able to discuss average units per center? And then remind us how many consumables are typically utilized per patient per day?
Nestor Jaramillo: Okay. I don’t know if we have disclosed that information in the past, Destiny, but there is a significant difference between the utilization per patient in the adult population versus the pediatric population. It’s probably around, I’m going to say, 1.2, 1.5 circuits per adult patients treated with the Aquadex compared to about 4 or 5 circuits for a pediatric patient. And that’s due to the fact that pediatric patients tend to stay longer on the therapy than the adult patient population.
Destiny Buch: I see. Okay. And then just sticking with the pediatric patients for a moment. I know you announced the first patient during the quarter. So I’m wondering if there’s any additional update here, maybe percentage of patients enrolled?
Nestor Jaramillo: Yes. We continue to have our accounts enrolled patients. We’re not providing at this time what the count but it’s being well received and the centers that are participating in the registry are really excited about gathering the information that is going to provide more information about the efficacy of the therapy.
Destiny Buch: Okay. And then my last one, and I’ll jump back in queue. I think you touched on it briefly in the beginning of the call, but I’m just wondering if you could provide the initial feedback from your reps, your customers, your patients, et cetera, about the name change?
Nestor Jaramillo: Good question, Destiny. It’s been well received, not only because the name now represents more of what we are doing in the company but also the tag line is very important. We’re restoring fluid balance in patients suffering from fluid overload. And therefore, we’re transforming the care. The new data that we are receiving on the efficacy of the therapy is indicating that the therapy is working very well and that early use of the therapy would benefit patients as well as the health care system. So the customers and the sales organization are very excited about the new name. Any other question, Destiny?
Destiny Buch: No, that was my last one.
Operator: Your next question is from Anthony Vendetti of Maxim Group.
Anthony Vendetti: Nestor, I was just curious, you’ve talked about pediatric patients also weighing less than 20 kilograms as an opportunity. Obviously, the physicians could use it off-label. Can you talk about where the process is in trying to get FDA approval for pediatrics, pediatric patients less than 20 kilograms?
Nestor Jaramillo: Yes. We continue to work with the FDA on getting the approval. But Anthony, the Aquadex system as gentle and as effective as it is to treat patients under 20 kilograms is an adult device. It was designed for the adult patient population. So we do -- we are working right now on looking at the development of a pediatric-dedicated device that is going to be much better suited for these patients on the 20 kilograms. And that’s the device that we’re going to go back to the FDA and ask for the labeling under the 20 kilograms.
Anthony Vendetti: Okay. That’s interesting. Can you tell me a little bit about the time line for that, the development of the device? Any kind of color you can give around the timing?
Nestor Jaramillo: Yes. I’m sure that you’re familiar with the development of MedTech devices. It’s not something that happens overnight. But we have a -- we’re partnering with an outside group, organization that is helping us design this device, and we plan to do it very quickly.
Anthony Vendetti: Okay. And just remind us, Nester, how large is this market? Pediatrics generally stay on the device longer, so there’s more consumables so that’s an opportunity for Nuwellis. But how large is the pediatric market? How many patients per year -- pediatric patients per year suffer from fluid overload?
Nestor Jaramillo: Right, right. Well, as best as we have been able to estimate the market, we believe that the market around $150 million addressable market. These are patients suffering from fluid overload that can be treated with the Aquadex system compared to the adult it is much smaller, but patients tend to stay and the therapy is sometimes for weeks, sometimes for months, and the utilization can be, as I mentioned before, anywhere from 4 to 5 circuits for pediatric patient on average. And sometimes we have seen 10, 11 circuits per patient.
Anthony Vendetti: Okay. That’s helpful. And in terms of the placement of the Aquadex system, generally, it’s easier to sell back into hospitals that have already purchased 1 device. Can you talk about, particularly this quarter, how many new hospitals have placed your systems, new customers versus selling to existing customers?
Nestor Jaramillo: Anthony, we’re not providing a specific numbers of hospitals that we opened per quarter but we have seen an increase of utilization in our existing accounts, both in terms of purchasing circuits and consoles and also the new accounts, they tend to purchase more than 1 console just to keep it as a backup. So many of them, they buy 2 to 3 consoles to place a patient or two patients in therapy and keeping the other console as a backup.
Anthony Vendetti: Okay. That’s helpful. So new customers generally by 2 to 3. And the ability to access these new customers, obviously, COVID headwinds has impacted your company. But we’re hearing that hospitals, not all of them, but a lot of hospitals are starting to open back up to medical device salespeople. Can you talk about what you’re seeing? What your sales force is seeing in terms of the ability to access new hospitals?
Nestor Jaramillo: Yes. Yes. Yes. You’re right. The access to hospitals has started to open up, many of them by invitation only. And pediatric hospitals are a little -- are different just because these patients, pediatric patients, there is nothing else available in the market to treat them. So many of the pediatric hospitals that we have been able to open during this pandemic has asked us to come in. We’ve been very creative in terms of how we train their nursing staff, many of them through video and virtual means. But also training them outside of the hospital. So we’ve been able to access pediatric hospitals during this pandemic.
Anthony Vendetti: Okay. Great. And then the last question is on the new code, the reimbursement code. I think you mentioned by 3Q ‘21, by the third quarter of this year. Can you talk a little bit about what that could mean for Nuwellis? And what kind of catalyst could that be in the near-term or over the next year or so?
Nestor Jaramillo: Yes. Good question. We are very excited about this approval process. We started, as I mentioned in November, with the submission. In January, the CMS editorial panel met, and they recommended the approval of the CPT code. We received a strong support by two medical societies, and the CMS meets -- the final approval is somewhere in the Q3 of this year. What it would mean to the company is a couple of things. One is the access to the outpatient clinics or the outpatient setting, treating patients suffering from fluid overload in the outpatient clinics. This is something that doesn’t exist right now. And as you can imagine, the treatment of patients in the outsetting -- outpatient setting would be much more beneficial for the quality of life of the patient as well as the cost to the hospitals and to the health care system. So the outpatient market is one of them. Secondly, in the inpatient basis, the physicians today don’t have a CPT code to build against. Now with the Category III, they will have a CPT code that they can use to build when they are using our therapy in the inpatient. And thirdly, I would say that this Category III code by nature is a code that allows physicians to collect the data of how much does it cost to treat patients with the Aquadex. And this is going to be very beneficial when we move into the Category I code. So those are the 3 areas of benefits that we see or the impact that we see this Category III on Nuwellis.
Anthony Vendetti: Okay. Yes. No, it seems like a significant milestone for the company, if you can get final approval by third quarter ‘21.
Nestor Jaramillo: That’s right. Yes.
Operator: Your next question is from Brooks O’Neil of Lake Street Capital.
Brooks O’Neil: I have a couple of follow-on questions. First, just carrying on from Anthony there on the CPT code, you mentioned the Category I code. What would be the timing nester to go from receiving or implementing the Category III code to getting to a Category I code?
Nestor Jaramillo: Right. Brooks, thank you for your question. It’s not that predictable. And that is because it depends on how much information is obtained during the Category III. Once we have a good feel for -- or CMS has a good feel for what is the cost of providing this therapy, then the application for Category I becomes more predictable and easier.
Brooks O’Neil: Okay. That makes sense. Second question, I really like the name change, but I’m curious what the reaction has been from your CHF customers? Obviously, a broadened focus makes a lot of sense, but you want to make sure you keep everybody who’s under the tent going forward. So has the response been positive from them?
Nestor Jaramillo: Yes, it has been very positive, but many customers especially the pediatric physicians, the critical care, the ICU, cardiac surgeons have told us that the CHF Solutions, which means congestive heart failure solutions is no longer a representative of what -- why they are using it and how they are using the Aquadex for their patients that are not heart failure. So we have gotten comments by physicians that is time for us to change the name. Same thing from investors. When we tell the story of our expanded utilization of the Aquadex into critical care, cardiac surgery, sepsis patients, pediatric patients, they do come to realization that the name no longer represents everything that we’re doing in the company. So he has been very well received.
Brooks O’Neil: Good. That’s great. Third question. So obviously, as you mentioned, there’s been tremendous COVID headwinds that have made it difficult to access doctors and hospitals, et cetera. I’m sure that’s been a tremendous impediment. I have a recollection that you did see some benefit from COVID as well, some utilization of Aquadex to help COVID patients. And do you see that as now something that will go away? Or is that something that’s likely to remain a part of the effort going forward?
Nestor Jaramillo: Yes. A very good question, Bruce. And it’s a good observation. We do -- at the beginning of the pandemic, we see a significant increase in utilization of the Aquadex to treat critically ill patients with -- infected by the COVID-19 that came into the ICU with COVID-19 critically ill. So in those hospitals where we had this system in, we saw an increase in utilization. What has happened is that they have -- these hospitals and new hospitals that are starting to use the Aquadex to treat COVID-19 patients have seen how well the therapy is, the effectiveness of this therapy to treat any type of critically ill patients that are coming to the ICU. So now we have seen the synergistic effect of treating COVID-19 patients to 3 non-COVID-19 patients that are critically ill in the ICU.
Brooks O’Neil: That’s fabulous. Okay. Just one more for me. You mentioned the outpatient market. It seems like a great opportunity, and we do quite a lot of work with companies that have important therapies that have been used inpatient and take them to the home. How big a market do you see that for Nuwellis? And can you just talk about how you are starting to think about accessing that market from a go-to-market standpoint?
Nestor Jaramillo: Right. Brooks, we have seen and we have discussed with a lot of hospitals, the use of the Aquadex in the outpatient. Some of the data that has been published recently and that we have discussed in previous calls, indicates that there is a significant reduction of hospitalizations and readmission when treating these patients. So many of these hospitals do want to treat heart failure patients outside of the hospital, in the outpatient setting. And the reason for that is that you schedule -- you can schedule the appointment, the patients who come in, receive the therapy. And because of the therapy has been very effective in reducing the readmission, this will be a significant savings for hospitals if they can treat patients in the outpatient setting. Did I answer your question, Brooks?
Brooks O’Neil: Well, I would love to get a sense for the size of the market, but I’m guessing that’s not data that’s readily available, but it seems to me to be a big opportunity. So we can talk about it more down the road.
Nestor Jaramillo: Right. Yes. Yes. We have not provided any number in terms of the size of the market. But the current heart failure inpatient business is -- the addressable market is $900 million is what we are estimating. So you can imagine that treating some of these patients in the outpatient setting will be a great opportunity for us as well.
Operator: We have no further questions at this time. I will turn the call back over to Nestor for any closing remarks.
Nestor Jaramillo: For my final remarks, I want to communicate that the company is in its best financial shape since 2017. We have sufficient cash on the balance sheet to provide a meaningful runway to fund operations while we execute our strategy. We have seen impressive growth rates during the last 6 quarters, thanks to our expansion into pediatric and critical care. The recent clinical evidence in various therapeutic areas continues to support the ease of use, flexibility in application and the predictable outcomes of the Aquadex system, which is transforming the lives of many patients and their families. I want to thank you for joining our first quarter 2021 conference call and wish you all a good day. Thank you.
Operator: Thank you, everyone. This does conclude today’s conference call. You may now disconnect.
