Elutia - Q1 2024

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen. Welcome to the Elutia First Quarter 2024 Financial Results Conference Call. If you would like to ask a question, please press star 1 on your telephone keypad to join the queue. Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to Matt Steinberg, Finn Partners. Please go ahead.

Matt Steinberg (Investor Relations)

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended March 31, 2024. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, 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. Accordingly, you should not place undue reliance on these statements. For a detailed description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2023, that's accessible on the SEC's website at www.sec.gov.

Such factors may be updated from time to time in Elutia's other filings with the SEC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2024. Elutia disclaims any intention or obligation, except as required by applicable law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.

Also, during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results release for the first quarter ended March 31, 2024, which is accessible on the SEC's website and posted on the investor page of the Elutia website at www.elutia.com. With that, I will turn over the call to Elutia's CEO, Randy Mills.

Randal Mills (CEO)

All right. Thank you, Matt. And it's hard to imagine that any part of this presentation could get better than our forward-looking statements slide, but I'm going to give it a shot here. We have some new people on our call with us today, so we're going to go over a little bit of the background and history of the company, but we've got a whole lot of exciting stuff to talk about. I hope you got a chance to see the earnings release that was just put out, but we'll be going through that. Matt will be taking us through some of the financial components, and then at the end, obviously, we'll be happy to take your questions. So Elutia, our mission: humanizing medicine so that patients can thrive without compromise.

We are a commercial-stage company now with a $27 million revenue run rate and growing on the backs of two proprietary product platforms: our CanGaroo product platform, which is used to protect implantable pacemakers and electronic devices, and our SimpliDerm product line, which is used in breast reconstruction. But very excitingly, we are pioneering the drug-eluting biomatrix, and we use that to solve very serious problems with implantable devices that currently are not addressed by the state-of-the-art technology. Importantly, we expect FDA clearance of our first drug-eluting biologic, CanGaroo RM, in June, coming up right now. And I'll go over this, but that gives us the ability to jump into a $600 million device protection market within pacemakers that really is ripe for disruption. So let's jump into it.

Okay, so from a business highlight for the first quarter, we had another exceptional first quarter, but this one was really quite a standout. $6.7 million in revenue for the quarter puts us at a run rate of about $27 million. SimpliDerm, from a revenue standpoint, was the real star, with sales surging 55% in the quarter. Then, obviously, all eyes are on our CanGaroo RM product line, and we expect clearance for that now in June of this quarter coming up. A little bit of background. What we do at this company is we are pioneering the drug-eluting biologic, and we do that by taking natural biological matrices and adding a pharmaceutical payload to that. By combining those two things, we are able to create products that have a regenerative component as well as a pharmaceutical component.

So it's really the idea is the best of both worlds, being able to have an implant that incorporates and regenerates in your own healthy tissue but also deliver active pharmaceutical agents that are able to impact things such as postoperative infections. And we're really excited about what that technology brings us. So with that said, let's jump into our first application of this, which is on our CanGaroo product line and CanGaroo RM, the next one coming up. So CanGaroo is a product, and the CanGaroo line is a product that's used in the CIED, or basically pacemaker and internal defibrillator space. So each year, there are about 500,000 pacemakers that are placed. There's really only four significant players in the pacemaker field.

Medtronic has 40% market share in that space, with the other 60% divided between Boston Scientific and Abbott at about 25% each, and then Biotronik, a bit of a distant fourth at 10%. And so this is the marketplace in which we are able to not compete with but instead actually facilitate and make these implantable pacemakers perform better in the patients that they're intended to help. So why do we need CanGaroo or CanGaroo RM? Well, this is what it can look like for somebody receiving a pacemaker. And so some of the comorbidities and problems that these patients and their physicians face, things like thin skin, you can see in the picture on the left there, you have no problem identifying the pacemaker and the lead wire even coming off of it.

If you look closer, you might even be able to see the serial number on the pacemaker. But this idea of a patient with thinner skin and having this pacemaker placed directly underneath that skin really sets off a cascade of events. And so one of them is migration. So the next picture over to the right, you can see an arrow where the actual incision was and the pacemaker was placed. And you can see that this pacemaker is rotating laterally towards the armpit. And that starts in motion, a series of events that can lead to problems. One is you can have tension and pulling on the leads, and those leads could dislodge. But another thing that you can see happen here is the pacemaker can move and have micro-motion against the skin, and that can lead to pacemaker erosion, which is the next picture over.

And so if you're not sure how big of a problem pacemaker erosion can be, well, the third picture over, you can see a pacemaker is literally dangling from this patient outside of his body. That's obviously not a sustainable picture. That's somebody that's going to have to go back into the operating room and have that fixed. In the meantime, it's pulling on those leads, which are supposed to be placed firmly in the right ventricle, and that can lead to, obviously, failure to pace. And then lastly is this idea of infection. So anytime you're putting a long-term implantable device into a patient, particularly those that have comorbidities such as things like smoking or obesity or type 2 diabetes, you're at a significant risk for postoperative infection, and that can be a really catastrophic event in patients who need pacemakers.

So the problem that we're trying to address is the most common type of failure that you see with pacemakers. Pacemakers themselves generally don't fail very often. They don't spontaneously break. Most failures with pacemakers occur at the device-host interface, just like I've shown here, and that's actually what we're trying to address with CanGaroo and CanGaroo RM. The first real entrant into this space that we're now playing in is a product called TYRX. It was introduced originally by a company called TYRX that, shortly after their product was approved, the product was acquired by Medtronic. And TYRX is a fully synthetic polymer that you place the pacemaker inside of. It dissolves, and as it dissolves, it elutes off different rifampin and minocycline.

The thing here that TYRX and ultimately Medtronic got right was this idea of having antibiotic protection around a pacemaker implantation procedure was something that resonated with the electrophysiologists that are putting these in. Since TYRX was acquired by Medtronic back in 2014 for about $200 million, they have really taken this market, and they have created a market where there was none. We estimate they do about $250 million-$300 million a year in this space with this product. That's a market we think we can do better in, and it's a market that we think we can disrupt by having powerful antibiotics like rifampin and minocycline, but instead of the synthetic pouch, moving over to one that's a more natural regenerative biologic matrix.

So you're getting all the benefits of having antibiotic elution, but in one that's able to address some of the complications of thin skin and migration and fibrosis and inflammation and all of these other things. In fact, we did a market survey, and when we went out and talked to electrophysiologists that were using TYRX as part of their cases, 88% of them, an overwhelming majority, said they would move some or all of their business to a biologic envelope like CanGaroo RM when it came out. And so we view this not as a competitive product in this $600 million market with only one player, but we actually view it as a superior product, and we're super excited about getting it approved and launching it. So with that said, let's give you an update on where we are in our path towards FDA clearance.

So we submitted our combination product filing in December of this year. It's gone through pretty significant review with FDA. All of our interactions to date have been very positive. We are now working through, I would say, the very final details. We expect to close out all of those details within the month, and that would then put us on track for an FDA decision in June. And where we stand right now, we fully expect that to be a favorable decision. After that, we've got to take this product to market. And so just a little bit of an overview on our commercialization strategy following approval. We see two groups of customers as really our first and second tier. That first tier are those customers and those centers that are currently using CanGaroo, our base product.

We have 356 centers right now that currently have CanGaroo on formulary, and we think flipping those centers into CanGaroo RM and going after existing sales there would provide us about $25 million of revenue opportunity that we see as fairly low-hanging fruit. Right behind that, though, are those electrophysiologists that are currently using Abbott and Boston Scientific pacemakers, but they're putting a TYRX, a Medtronic product, around that. There's about $75 million of TYRX business we estimate there. So you put those two together, and we think fairly low-hanging fruit. There's about $100 million of revenue opportunity for us to go after first, and that's really our first-tier approach. Beyond that, we do think we have a superior product, and so we are going to go after those Medtronic TYRX customers.

Also, those currently right now that are on the sidelines that aren't using an envelope in their procedures, we think there's significant benefit for them to switch over and use CanGaroo RM. As such, we have started scaling our production at our manufacturing site in Atlanta, Georgia, in preparation of launch in the second half of the year. That's where we are with our CanGaroo and our CanGaroo RM product line. Next, it would be almost impossible for us to go through this call and not mention the standout performance of our SimpliDerm product. As a little bit of background, the role of a biomatrix in breast reconstruction, there are about 13% of women, unfortunately, that will develop some form of invasive breast cancer in their lifetime. In the United States, that leads to about 151,000 mastectomies each year.

Somewhere between 50%-60% of those will actually be bilateral mastectomies. You put all that together, the breast reconstruction market in the United States alone is about a $1.6 million addressable market, and that is a market that really hasn't seen a whole lot of improvement or innovation. And that's really what we're looking to do. Again, just like we're executing in the pacemaker protection space, where we've had some good technology, but frankly, it's gotten a little stale, and we think we can go in there and disrupt it, we see the same opportunity here in the breast reconstruction space to come along with second-generation and next-generation products and really provide the patients with superior outcomes. Let me show you a little bit what we mean here with SimpliDerm. I was getting some questions about why it is that SimpliDerm is performing so well in the marketplace.

I'll sort of take you through a bit of a story here, but it starts out first with the first thing that the surgeon sees. They're looking for a conforming and flexible product. You see SimpliDerm draped over a curved, contoured surface and how well it's able to comply with that surface. Imagine that going around the complex surfaces of a breast implant or an expander implant. It's the right look, fit, and feel. It's prehydrated, so that means the surgeon is able to open it up directly onto the operating field. It comes terminally sterilized at a sterility assurance level of 10⁻⁶. And so right away, the surgeon is able to open up this product directly onto the surgical field and use it like any other surgical tool used in the procedure, except this one is a fully compatible biologic product

And so as we were making this product, we were developing this product, one of the most important things we were doing was we were trying to develop a proprietary processing methodology that would minimize the inflammatory response and therefore minimize the potential foreign body and fibrotic response that could sometimes happen. We think we did a pretty good job with this. So I'm going to show you now some pretty impressive data. This is data that was published from a non-human primate model. So these are primates having SimpliDerm implanted into them, and we used actually, as a control here of the market leaders, is AlloDerm. And so the first thing you're looking at in the graph at the left is that you're looking at TNF-alpha response in this non-human primate model at two weeks, four weeks, and six weeks, and you can see statistically significant reduction in TNF-alpha.

So what is TNF-alpha? It's a chemokine marker of inflammation that's seen in all different kinds of inflammatory responses. So you look at that and say, "Okay, so that's kind of interesting. What does that mean?" Well, if you look in the histology from this on the right, you can see where the arrows are. The areas are stained for CD68. CD68 is a marker that we use to depict different types of inflammatory cells. This one happens to be looking at macrophages that would be attacking foreign body substances. And so you put these two things together, and what this is showing is that there is significantly less foreign body response and inflammation in the animals that are receiving SimpliDerm versus those that are receiving AlloDerm, and that comes from that proprietary processing methodology that we developed.

So you might look at all of that and say, "Okay, Randy, I got it. Why do I care?" Well, you go to the next slide, and it sort of pays this all off because at the patient level, this is where this matters. This is a publication done looking at what's called red breast syndrome with acellular dermal matrix. And so sometimes when you're doing these change-outs, and it can be up to 10% of the time, when you're doing a breast reconstruction procedure, the patient can have a significant postoperative inflammatory response and have so much inflammation it becomes very painful and unacceptable, frankly, for the patient to have to go back in, and they have to change out. So this was a case study that was done where another acellular dermal matrix was used in the reconstruction procedure. It led to this red breast syndrome.

It was intolerable for the patient. The patient had to go back into the operating room. They changed it out for SimpliDerm, and the red breast syndrome was able to go away. This is a direct result of that less immunogenic product that causes less inflammatory response, a reduced cellular inflammatory response, and ultimately a better outcome for the patient. So that's sort of the science behind why everyone's so excited about SimpliDerm in these breast reconstruction procedures, and then you can see it pay off commercially for us. So absolutely stellar quarter again for SimpliDerm growing 55% in the quarter. We distribute SimpliDerm two ways. One is through our highly trained proprietary internal distributors. We also, last year, signed a non-exclusive partnership with Sientra. They went through some disruption in the first quarter, and I would say this 55% growth is despite that disruption with Sientra.

They were recently acquired by Tiger. That could be beneficial. Sort of, I would say, it still remains to be seen, but we have our own network of distributors that are just crushing it. So we are super excited about what's going on with both our CanGaroo product and our SimpliDerm product in the breast reconstruction space, and it's really starting to show in everything about how this company is evolving into a real serious commercial company. So with that, I will stop for a minute or two and allow our CFO, Matt Ferguson, to walk you through some of the financials. Matt.

Matt Ferguson (CFO)

Okay. Thanks, Randy. I'm just going to hit a few of the highlights from our financial performance for the quarter. As Randy mentioned, sales of $6.7 million for the quarter. That compares to $6.4 million from the first quarter of 2023. So that was led, as Randy mentioned, by SimpliDerm with 55% growth. But we're also really pleased with our performance with CanGaroo, our other main proprietary product line, where we were able to maintain roughly consistent revenue with last year but with a much smaller commercial organization. So it's really showing the leverage we're getting in our operating model, and we are extremely pleased with that and really excited about what that area of the company can do once we get CanGaroo RM clearance.

Moving down the P&L, our gross margin on an adjusted basis - so this is the non-GAAP version, which excludes non-cash amortization expense was 55% in Q1 versus 66% a year ago. Again, we're very pleased with this. Both our proprietary product lines are in the range that we have been expecting and looking for. The real driver of the decline was our cardiovascular business, which has been partnered exclusively in the U.S. with LeMaitre Vascular. We're very pleased with how that's going, but the result of that from a financial point of view is selling the product there at a transfer price versus the end-user price, so it kind of distorts the overall gross margin. That was the main driver there.

Overall, we're very pleased with how we're performing operationally, and we do expect, as we continue to scale up, we'll see good positive gains in our gross margin. Both of our proprietary product lines ultimately should get into the 70% range or so. From an operating expense perspective, we were at $11.3 million for the quarter, down slightly from $11.7 million a year ago. However, again, there's some non-cash expenses going on a little bit behind the scenes that mask what is really very positive progress there in terms of how we're operating. Namely, about $2 million of that expense was non-cash stock-based compensation expense. So when you exclude that, we're really looking at a pretty significant decline year-over-year.

Jumping down all the way to adjusted EBITDA, which is a non-GAAP but probably more instructive metric than net loss or operating loss, we saw an improvement there as well to $3.6 million for the quarter versus $4.8 million last quarter. And that's where you're really starting to see some of the gain associated with lower cash operating expense, particularly in the sales and marketing line, and then the reduced expense in our R&D area as we're getting to the end of the development process for CanGaroo RM, as we've discussed. So those are the main points from our P&L or our statement of operations. Just finally, from a cash point of view, we ended the quarter at $12.6 million in cash, and that does not include about $15 million in warrants, which are now nearly 100% in the money.

Those warrants expire 30 trading days after the clearance of CanGaroo RM, so we're looking forward to that cash coming in in the not-too-distant future. That end-of-the-quarter number also does not include about $4 million in reduction in our debt and revenue interest obligation. We're improving our balance sheet and our operating performance and feel really good about where we are from an overall financial perspective. With that, I will hand it back to Randy before we take questions.

Randal Mills (CEO)

Thank you, Matt. Hey, I do want to mention we are going to be at the Heart Rhythm Society May 16th to 19th, so next week, booth 1443. It would be awesome if you are interested in seeing what we're working on, meeting some of the team. I know I'll be there, and Matt will be there, and our CSO, Dr. Michelle Williams, as well as a bunch of our sales team. So we'd love to see you. If you stop by, that'll be, as I said, next week at the Heart Rhythm Society meeting in Boston. So just to finish up and get to any questions, I think this is a recap of what I hope you know: a fully integrated company from R&D all the way through commercial with $27 million and counting revenue run rate. We are pioneering the field of drug-eluting biomatrix.

We have two products that we are building on: our CanGaroo product line and our SimpliDerm product line, but we think there's a tremendous future in this entire field of drug-eluting biologics. We think we are well, we're the only ones in it right now, and we think that's a position for us to own going forward. As I said, we now expect not just an approval decision in June, but we expect approval of CanGaroo RM in June. That will put us squarely in a $600 million market with really favorable dynamics and only one competitor. We think, unashamedly, we think with a superior product, and we are really excited about putting that on the market and giving the physicians and the patients that opportunity.

Right behind that, we have SimpliDerm at a $14.3 million run rate, growing at 55%, and an exceptional team that I would be remiss if I did not profusely thank today for another exceptional quarter. They are the most talented group I have ever worked with and have the resources and abilities to execute this plan ahead. So with that, I will end my comments and turn it back to the operator and take any questions you might have.

Operator (participant)

Thank you. Once again, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Frank Takkinen with Lake Street Capital. Please proceed with your question.

Frank Takkinen (Senior Research Analyst)

Great. Thanks for taking the question. Congrats on all the progress. Was hoping to start with one on CanGaroo RM, as I figure you can guess. Any update on some of the conversations with the FDA? Not looking for you to discuss what you're talking about specifically with the FDA in the public domain, but just positive, negative, inline, different from your expectations, and then close that up with how we expect the clearance to come in June and the confidence behind that.

Matt Ferguson (CFO)

Yeah. Hey, Frank. So thanks for that. I won't get into the specific. I won't get into the specific details. Obviously, some of it actually deals with some proprietary things that we're going through, but you're asking for where are we in the process? As I said in the call, and I think we put it in the release too, we expect to close out any last details that we need to get in with the FDA this month and the next, really, week or two. With regards to positive, I would say yes, very positive. With regards to in line with expectations, yes, again, in line with expectations because we expected it to be positive. We've really taken what we would say is a belt-and-suspenders kind of approach to this. We didn't want to leave a lot to question. It's an enormous file.

A combination drug device is a really, really sophisticated thing. It involves review at two centers, and so I know there's some how come the review might be taking so long? It's a really serious review. It's going on at the Center for Drugs and the Center for Biologics, but it's proceeding very positively, and I'm kind of proud to say, as expected, it's proceeding as well. So those two things are going together. From a timing standpoint, we are still anticipating to be fully submitted with FDA in the next, as I said, week or 2, and that would put us on track for a June clearance decision. We think that clearance decision is going to be positive. When I said Center for Biologics, I didn't mean that. It's Center for Drugs and the Center for Devices, or CDRH.

I've spent a lot of time with the Center for Biologics as well, so they're always not too far out of my mind.

Frank Takkinen (Senior Research Analyst)

Perfect. All right. Thank you for that. Maybe switching over to the commercial preparation you're doing for CanGaroo RM. What are some of the things you're doing to prepare for that? I heard your comments around obviously 356 centers and the tier-one, $100 million opportunity you're going after, but what are you thinking about today to set yourself up for success in the second half of this year?

Randal Mills (CEO)

Right. So there's a couple of things that we need to do. One is, after we clear it, we need to be able to make it. And so you're hearing us talk about operationally gearing up and preparing from a production standpoint for the launch of the product. Just after we make it doesn't mean we can go ahead and sell it. Before that, we actually need to introduce it to the different hospitals and centers and get on formulary there. That involves going through what is a center-to-center VAC process, the value analysis committees, to get the product on formulary. We cannot submit those to the VAC until we get the clearance decision, but what we can do is prepare the VAC packages. And so that's a big part of what's going on right now behind the scenes.

It's the clinical data, the preclinical data, all of the different value proposition data that the VAC needs in order to make favorable decisions. Ultimately, we think the initial sales trajectory of the product won't be constrained by supply, and it won't be constrained by demand. We actually think the rate-limiting step for adoption is going to be with these different VACs in the hospital and getting on formulary. That's why the idea of starting with these 356 makes so much sense. We're already on formulary with the base CanGaroo product at these 356 centers. CanGaroo RM, for sure, is a different product, and so I don't want to create a misleading expectation there, but it's 356 centers that have familiarity with the base biologic CanGaroo product, and we think there's already a tremendous amount of excitement and enthusiasm at these centers for the drug-eluting version of the product.

And then lastly, it's a new day for our sales team, right? So they've got to learn and be prepared to articulate the benefits of not just a fully biologic envelope, but one that also elutes rifampin and minocycline, all the intricacies that go along with a drug-eluting product. So behind the scenes, that's what we have going on right now: production being prepared to introduce it and get it on formulary through the VAC and getting the VAC packages up and ready to go, and then lastly, making sure our sales force is fully geared up and trained and ready to talk about the product effectively.

Frank Takkinen (Senior Research Analyst)

Got it. That's helpful. Maybe just one last one on SimpliDerm. Obviously, it continues to grow very robustly. Maybe talk through some of the investments you're contemplating making in that organization. Maybe it's nothing given how well it's executing, but is there thoughts around additional sales reps there, different commercial support personnel, anything of that nature to keep up that growth rate and maybe accelerate it?

Randal Mills (CEO)

Yeah. We continue to make investments in growing the commercial side of that infrastructure. We have been exceptionally pleased and proud of how well our proprietary distributors there are doing. Our own network of distributors, they are knocking the cover off the ball, and we are investing in expanding there. That is turning out to be an investment that is paying tremendous dividends. There's also some back-office work we're doing. We're also investing in improving our coverage with that. We recently got another favorable coverage decision and continue to work through we have another, I don't know, 79 million lives right now that we are currently submitting for coverage decisions. So there's a fair amount going on through the commercial side, as Matt talked about, though, too.

We're also making investments on all sides of our business in improving, as we scale up, the gross margins of our product, as we think both of these products can and will be in the 70+% gross margin range.

Frank Takkinen (Senior Research Analyst)

Perfect. I'll stop there. Thanks for taking the questions.

Randal Mills (CEO)

All right. Thanks, Frank.

Operator (participant)

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald. Please proceed with your question.

Speaker 5

Hi, guys. This is Matt on for Ross. Congrats on all the progress, and thanks for taking the question. Just want to start off with CanGaroo RM and following up on a previous question asked, "Are you able to provide some more insight into what the VAC process will look like upon RM approval and how long you anticipate the sales process to be with getting into those hospitals?

Matt Ferguson (CFO)

Yeah. So here, the VAC process is going to be a very variable event depending on whether or not it's one of our 356 centers or whether, as we go into these new centers. From a cycle standpoint, where we have existing CanGaroo on formulary and where we have surgeon champions there, we can be looking at VAC times as low as a month. We are modeling conservatively, though. When you look at sort of the average of all of them, we're modeling a six-month VAC process across all of them. That might be a little conservative, but we've got a lot of centers to go after, and there's plenty of fertile ground to go after. So that's what we have going on there.

Speaker 5

Okay. Sounds great. And then maybe turning to SimpliDerm, I just wanted to get some more color on any initial conversations you've had with Tiger following the Sientra acquisition and how you view SimpliDerm growth for the remainder of 2024.

Randal Mills (CEO)

So we don't give guidance and tell, "Ross, nice try." But with regards to Tiger, so to Tiger, could be some upside for the SimpliDerm product line. We had been very early in the relationship with Sientra. Obviously, when they ran into their issues, we are fortunately, the vast majority of our product sales is through our own distributor network, which has been crushing it. I happen to, when you're old like me and you've been around for a while, I happen to have gotten to know and work with a whole lot of people, and one of them is the CEO at Tiger, and we have a great working relationship. And so we are in the early discussions there, but Tiger really could be beneficial, certainly to the team at Sientra by bringing in a fresh balance sheet and the ability to invest more in their sales team.

If ultimately that's something that makes good sense for both Tiger and Elutia, I would be happy to do that from a personal standpoint. These are some quality people that I've known for a long time and certainly would have a lot of trust in working with them.

Speaker 5

Got it. That's helpful. And then maybe one more from me. Turning to OpEx, assuming CanGaroo RM gets approval, how should we think about the size of your sales force ahead of launch? And if you guys can shout out any incremental spend throughout the balance of the year and if you guys see any tailwinds that you'd like to shout out?

Matt Ferguson (CFO)

Yeah. So we're certainly evaluating the investments that we make in the commercial organization and operations. I think, fortunately, we have a really well-established and highly effective organization in place already. So we can very much hit the ground running with the people and the processes and the systems that we already have in place and have been using for quite some time now. We do think that as we ramp up and we get manufacturing going and get through some of these VAC processes, like you were talking about before, it probably will make sense to add to the commercial organization. That both could be through additional direct reps. It could also be through some independent distributors in the case of CanGaroo RM. So we think we will have more feet on the street in the medium term or so.

Probably won't rush to do that right away, but probably by the end of this year, we will be adding to that organization. That would be my expectation.

Randal Mills (CEO)

Yeah. And it's not a lack of willingness to make the investment in the rep, just to be super clear about it. As we get more clarity on the VAC process, we will start to aggressively add more reps. What we don't want to do is obviously add reps and disrupt their lives and take on the expense of reps before they have something to do in the hospital, before the product's on formulary. So once we get a handle on how long the VACs are taking at the different locations, we will be increasing that sales team right now.

Speaker 5

Sounds great. Thanks for the update. Thanks again for taking our questions, and congrats again on the progress.

Randal Mills (CEO)

Thank you.

Operator (participant)

Thank you. We have reached the end of our question-and-answer session. With that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.