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Greetings and welcome to the KORU Medical Systems Second Quarter 2023 Financial Results Conference Call and Webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would like now to turn the conference over to your host, Hannah [Indiscernible] Gilmartin Group. Please go ahead, Hannah.

Thank you. And good afternoon, everyone. Earlier today KORU Medical Systems released financial results for the second quarter ended June 30. 2023. A copy of the press release is available on the company's website. During this call, we will make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to many risks and uncertainties including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter. During the call management will discuss certain non-GAAP financial measures in our press release and accompanying investor presentations and our filings with the SEC, each of which are posted on our website. You will find additional disclosure regarding these non-GAAP measures including reconciliations of these measures with comparable GAAP measures in our press release and accompanying investor presentation and those filings. For the benefit of those listening to the replay. This call was held and recorded on Wednesday, August 9, 2023, at approximately 4:30 p.m. Eastern time. Since then, the company may have made additional comments related to these topics discussed. And please reference the company's most recent press release and filings with the SEC. Joining us on today's call is Linda Tharby, President and CEO of KORU Medical Systems and Tom Adams, KORU Medical's Chief Financial Officer. Linda, please go ahead.

Thank you, Hannah. Good afternoon, everyone. And thank you for joining us today. During today's call, we will use slides to support our commentary. I will begin by walking through key business updates for the second quarter. Tom will then review our financials and updated '23 guidance. I will then close with a milestone progress update against Vision 2026. Following our prepared remarks, we'll be happy to open the call for Q&A. We're very pleased with the progress and milestones achieved in our second quarter, as we continue to make important advancements towards Vision '26. A few key highlights on the quarter that I will dive into further in today's presentation. First in our core business, we saw growth of about 8%, which continued to outpace the U.S. subcutaneous immune-globulin or SCIg drug markets, which contracted in the quarter. In our international business, our efforts over the past year continued to progress and we had another quarter of double-digit growth. We signed another novel therapies collaboration for use of our Freedom system in a Phase 3 trial. And we submitted ahead of schedule a 510(k) for the Freedom 60 Infusion system, the Hizentra 50 ml prefilled syringe dose. Finally, we're updating the company's full year '23 outlook to reflect the Q2 decline in the U.S. SCIg market and a change in timing of novel therapies, deal signings and subsequent revenues. Before jumping into the details of the quarter, I would like to take a moment to welcome Tom to his new role as our CFO. Tom has been integral to the company achieving many of the milestones I discussed, as well as building out our finance team processes and systems. I'm excited for him to continue to grow and add value as he steps into his new role. I want us to begin today by taking a moment to remind everyone what we do. Our mission at KORU continues to be making subcutaneous drug treatment a reality at home. Our Freedom Infusion systems has more than 35,000 patients and new ones being added every day. Many of them chronic that self-infused their drug in the comfort of their homes. Our Freedom system can be customized for drug and infusion volumes from 5 to 100 mls, support multiple therapies and disease states and has established regulatory approval in over 25 countries. Our novel therapies business supports biopharmaceutical companies with products in non-recurring engineering, innovation and services on our Freedom system to support their clinical efforts towards their drug launch. Once a drug is completed clinic requirements and received regulatory approval, we become an approved drug delivery provider, and it becomes a part of our core business. The core business includes our domestic and international commercialization of our Freedom system to specialty pharmacies and home care organizations. We have a broad label of indication predominantly in the SCIg market, with less than 20% of that market penetrated. Majority of our patients suffer chronic illnesses and our lifetime users of the system, offering a valuable source of recurring revenues. Our business model has both a recurring revenue core business and future revenue with our NT business, with 15 total collaborations to-date, offering the potential for several new drugs on the KORU system. Moving to a deeper dive in our Vision 26 strategy and our three growth drivers. Starting with the first, growing our leadership position in SCIg. Today, KORU has over 35,000 patients in the U.S. and strong relationships with our specialty pharmacy partners to transition the patient to drug therapy in the home. During the quarter we saw a larger than normal Q2 seasonal fluctuation in overall SCIg recorded scripts down 13% on the quarter. Our conversations with specialty pharmacies, pharmaceutical partners, industry researchers and reimbursement specialists saw no concern over these growth levels, returning to historic levels of high-single digit and low-double digit growth over the coming quarters, as they continue to focus efforts on supporting the movement of health care to the home. Many saw this as a blip due to lower infection rates versus the prior year, which is generally a preceding event to an immune deficiency diagnosis. We remain confident in our ability as we have shown we can outperform. Our growth again outpaced the underlying market. The growth was led by a recurring consumables revenue, and we had double digit new pump sales growth. A key driver of our U.S. core business is continued strength in prefilled syringes, and the second quarter was no different from recent trends. The overall convenience and patient preference continued to drive prefilled adoption and overall prefilled syringe penetration increased to about 12.5% for the second quarter. During the quarter the company submitted a 510(k) to the FDA for the use of our Freedom 60 Infusion system, the Hizentra 50-ml prefilled syringes. This submission marks another milestone in KORU Medical's permission to simplify subcue therapy for patients. The FDA approved the 50-ml Hizentra prefilled syringe in April 2023. Hizentra is the most prescribed subcue immunoglobulin and the first to be available in prefilled syringes, currently offering 5-10 and 20-ml formats that satisfy a further two thirds of the -- and the 50-ml when available in 2024 will satisfy an additional two thirds of the patient market. The conversion to prefilled syringes is an important growth driver for us as it drives share, and we believe overtime increased new starts and conversions to subcue therapy. As a reminder, our Freedom Edge system remains the only pump with FDA clearance for use with prefilled syringes. Moving to our NT business, where we are focused on new biopharmaceutical collaborations for clearance of our Freedom system for at-home use. We announced a few weeks ago the signing of another Novel Therapy collaboration. This agreement is with a biopharmaceutical company to validate the Freedom Infusion system for use with a novel endocrinology biologic. The drug developers expected to begin Phase 3 studies by the end of 2023 for treatment of a rare genetic disease with global preference of roughly 10,000 that currently has no pharmaceutical treatment. The closing of this collaboration in July, we brought our year-to-date, new collaborations to two and we remain on track for six new collaborations in 2023. In total, we have 15 signed collaborations, and we also have a pipeline of 15 additional high potential opportunity. And finally, we're excited about our growth opportunities geographically. We ended the quarter with growth across several key markets, representing growth of over 17% year-over-year. New patient starts fueled by the increase in IG supply in the EU continue to drive growth, and we're well positioned to benefit from our distribution, which is now in over 80 countries. International has become a vital key third growth strategy for the company. I will now dive a bit further into our NT business in this slide, which shows our total pipeline of NT opportunities. We now have to doing collaborations today including over 2 million potential patients and a TAM of roughly $2.5 billion. Our IG base at the top of our pipeline becomes an important source of recurring revenue as we support the work of the IG manufacturers and increasing subcue penetration, lifecycle management strategies and on growing their label indications. The bottom of this pipeline represents nine additional candidates outside of IG across six additional drug categories with potential to launch five new drugs in the next five years. We know that not all of these will likely succeed, but with two of these with patient populations over 100,000 and three with patient bases up to 50,000, any combination has the potential to double for its current patient base. I have bolded our newest entry, we are excited to add late-stage pharmaceutical collaboration, as is the shot on goal closer to launch the solve a major unmet patient need. We are excited by our Novel Therapies business as we continue to progress our relationships to help drive greater knowledge and adoption around the benefits of subcue delivery for patients in the home. This next slide brings both our core and NT business together, to show our growth potential over the coming five years. Our core business with multiple commercialized drugs gives us strong recurring revenue today. Further with 90%-plus of those drugs being an IG, which is less than 20% penetrated on subcue treatment today, we see a lot of growth ahead. As we build our NT pipeline based on projected drug launch timing, we see multiple revenue opportunities over the next one to five plus year timeframe. As we look to the remainder of '23, we are confident that we will continue making important additions to our Novel Therapies collaborations, and are excited to provide ongoing updates. In addition to the progress in our businesses progress in new products and innovation is also key to drive KORU to the next phase. This slide lays out both our products and expected new commercial label milestones over the next few years. Our product strategy is centered on comfort, convenience and connected. During the second quarter we completed two milestones for 510(k) submission for 50-ml prefilled syringe label expansion with the Freedom 60 Pump line extension. For the remainder of '23 we anticipate another 510(k) filing for our consumables. Looking further ahead. We're extremely excited about the next generation pump platform for IG and novel therapies and multiple new drugs on the Freedom system. Another very good quarter of strategic progress across both core NT and innovation. I will now turn the call over to Tom to review our financials.

Thank you, Linda. And good afternoon, everyone. Well, we saw a challenging quarter in a declining U.S. SCIg market, I am excited to report a solid quarter of 6% growth with total net sales of $6.9 million. Domestic core growth 8% was primarily driven by increased growth in consumables and pumps, new accounts and increased prefilled syringe adoption. International core growth 17% was driven by strength across several EU markets and growing global IG volume availability. Novel Therapies' net revenue declined by 28% in the second quarter of 2023, primarily related to strong NRE revenues in the comparable quarter last year, as well as timing of some of the 2023 pipeline wins. Gross margins increased to 56.1% compared to 51.1% in the second quarter of 2022. The increase in gross margin was primarily driven by increased efficiencies in manufacturing. We completed the first half of the year with gross margins in the midpoint range of our guidance. As we look at the second half of the year, we expect significant improvements in gross margin driven by two full quarters, lower outsourced products, which as we reported in Q1 is fully completed. We also see lower overall labor costs overhead and improved efficiencies as we have now consolidated our US manufacturing from two sites to one. The outsourcing and reduction of the manufacturing site contributes about 400 basis points to our gross margin increase and combined with a 100 basis points improvement in pricing will lead to increased back half gross margins of 500 basis points improvements. We project to exit the year between 60% and 62% and a full year gross margin of 58% to 60%. Our cash balance at the end of Q2 was 11.7, and represented a $500,000 cash burn from the prior quarter. Our biggest driver of cash burn was our net cash operating loss of $2.1 million, excluding non-cash items for stock compensation and depreciation. We also invested $300,000 in CapEx for equipment for our next generation products. Offering these cash flows, these cash outflows were working capital improvements of $1.9 million, driven by DSO improvements worth $500,000 and executing on our planned reduction of inventory of $1.4 million as we draw down finished goods and raw material inventories from our outsourced manufacturing transition. We continue to control and plan our cash according to our revenue, gross margin and expense guidance and reaffirm our end of year guidance of having a cash balance greater than $10 million, which I will get into more as I discuss guidance. We are updating our guidance for full year 2023 to reflect the Q2 decline in the U.S. script market, resulting in a change of our outlook on underlining U.S. core market growth assumptions from 10% to the mid-single digit range. In addition, we are updating our guidance to reflect a change in timing of novel therapies revenues. Full year 2023 revenue is now expected to be between $31 million to $32.5 million, representing growth in the range of 11% to 17%. This implies a growth rate of 15% in the back half of the year at the midpoint versus 12% that was delivered in the first half. Some key drivers that will get us there include SCIg drug market returns the growth and the execution on our current and future NT, Novel Therapeutics pipeline deals as well as the continued double-digit international growth. Gross margin guidance remains between 58% to 60% for the full year, and to exit the year between 60% to 62%. With the completion of the manufacturing transition behind us and the first half gross margin on plan, we expect to see a progressive step change in our second half gross margins, as we continue to see two full quarters of the lower cost of goods benefit from our outsource manufacturing initiatives and improvements in average selling prices. We expect our cash balance at year-end 2023 to be greater than $10 million. We expect our operating expenses to be approximately $29.5 million versus $30 million reported prior with phasing that will vary between quarters driven by our R&D program spend. And we expect to invest in capital equipment for our innovation projects and we continue to improve working capital, including lowering inventory by a further $1 million during the second half of the year. It's also important to note we will see lower cash burn in the second half driven by improvements in net losses from stronger second half revenue, our gross margin improvements and the working capital increments. While we may look to increase the cash at our balance sheet through non-dilutive debt financing, we are not anticipating or planning any equity raise at this time. I will now turn the call back to Linda for closing comments.

Thanks, Tom. In December 2021, about 18 months ago, we launched Vision 26 to transform the company over five years from an IT company to a leading drug delivery provider and revenue of $60 million. This laid out a series of key milestones, and I want to take a moment to review our progress. Our first milestone were Phase 3 trials, the final phase before drug launch. We projected five Phase 3 trials by the end of '26, of which we now have two in progress. We projected one significant new commercial drug indication or a patient population of over 100,000. We have launched one with the patient population of 15,000 and a five for the potential drug candidates by 2026. We projected eight new products and indications which drive our core revenue of which, we have four completed, one further expected with 50-ml prefilled syringe clearance by the end of this year. And we remain confident and treat [ph] further. Our revenue projections of $60 million is now supported by five key strategic areas. Our core business and current approved products and increased subcue penetration into that base is our largest driver, followed by NT revenues, further share gains driven by innovation, and the final major opportunity being OUS expansion. We're excited to look back and see our advancements to-date, and we look forward to further updates. In closing, I'm encouraged by our second quarter progress across all of our businesses. And on the innovation front. We continue to have exciting work ahead that will evolve a company strategically as a leader and drug delivery in the home and add continued value to patients, customers and shareholders. Finally, in closing, I want to thank the entire KORU team for exceptional efforts on another great quarter. Operator, I will now turn it over to you for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes with Alex Nowak with Craig-Hallum Capital. Please go ahead.

Okay, great. Good afternoon, everyone. Linda, just curious, what theories are you hearing out there to kind of explain this first half slump in the SCIg market? Just you mentioned, you spoke with pharmacies, the drug companies, I'm sure patients as well. Just what are you hearing out there that would explain the weakness? And then ultimately, how is the SCIg market evolving so far in Q3?

Hi, Alex. Thanks for the question. Figured it might be the first one that we received. So as we know, we had a very strong fourth quarter of 2022 in the overall market with the market growing somewhere between 7% and 10%. And then January and February, also very strong, with January high-single digits in February double digits. And then we started to see this decline, which we typically see a quarter two bit of a decline in the overall market. But this one was bigger than what we've seen in prior. So our review and discussions with pharmaceutical companies, specialty pharmacies, reimbursements, you can imagine we spoke to a lot of different people on this one. The one thing that that came back, was that overall diagnosis of immune deficiency disorders are driven by infections. People get infections, they go to the doctor and generally that's where you see the diagnosis occur. Given that we had lower overall reported infections in the last quarter of 2022, we think we may have seen some lag of that impact into 2023. That is the most consistent factor that we heard. Other than that, everybody -- we saw to Takeda reported publicly, as did Grifols. I was encouraged to see both of them have strong IG franchises, and both of them mentioned subcutaneous IG therapy as a big growth driver for them moving forward.

Very helpful. And then maybe expand on how CSLs getting positioned here for the 50-milliliter prefilled launch. What are they-- I guess what are they saying what this can do to their business about the IV subcue conversion, and also with regards to their market share for Hizentra?

And maybe I'll speak more broadly about how we feel at KORU, which is informed by all of our discussions, because any conversations we have would be confidential unless it's public. But across now, I think you have CSL obviously is out there. And then you have Grifols publicly talking about their presale launch as well as octapharma. So we're pretty excited now that three of the four major pharmaceutical IG providers are working towards presales. Why are they doing this? Obviously, the comfort and convenience that is offered with prefilled syringes that reduces the number of steps by over 25 and in some cases as much as 60% to 70% for a particular user. And the preference for these as well in the 85% to 95% range for prefills. So what we see is, as we look out over the coming five years, we project as much as the on a low end 50% and on a high end 75% of the market will be converted to prefills. So obviously with that kind of conversion, we believe it will drive significant share and revenue for KORU as well as we believe overtime will bring new patients into the therapy, as doctors see that at home therapy becomes that much easier to perform with prefills. So, an exciting short term as we get 50-ml out here over the next year. A really exciting midterm as we see the penetration rates. And then, what can I do to overall subcue penetration is what we're most excited by?

Yes, absolutely. Last question and little multipart one here. It's with regards to the Novel Therapies pipeline. I think it was 15 in the pipeline, last quarter, you added one during the quarter, ended the quarter at 15. So just want to confirm that one of the drugs drop off any details there. And then the funnel beyond the 15 is another 15. Maybe expand on either Phase 3 studies and any reformulations any detail there? Thank you.

Yeah, thanks, Alex. Yes, you are correct. You did the math well. We had one drop out, which was an oncology candidate the actual program was cancelled at the pharmaceutical company. It was an opportunity for oncology therapy in the home. So that one was cancelled, which brought our 16 back down to 15. So we know that will happen overtime. And that's why 15 overall feels like a great number to us. And as I'm showing in our further projections, we're not counting on all 15 of those to make it through. We also have, and I would say over those last quarter have seen a tremendous uptick in the overall numbers of new opportunities that we see in our pipeline. So those who are drained and everything from further oncology targets, in their autoimmune disorders in there, but across many of the existing drug therapy classes I've talked about, and also many new ones. So we have lots of work to keep us busy. I wish that we could get all the paperwork signed sooner so that we could inked a deal faster and get the work done. But we're working hard to do that.

All right. Appreciate the update.

Thank you.

That's great. Thanks, Linda. Thanks, Tom.

The next question comes with Kyle Rose with Canaccord Genuity. Please go ahead.

Hi, everyone, how's it going? It's Caitlin on for Kyle. So OUS growth was strong this quarter, where's the growth surge is being driven from? And can we think about this growth rate, as sustainable moving forward? And then on the electronic pump comparison trial, where are you with progress on that? Thanks.

Right. Hi, Caitlin. So OUS growth, yes, we are excited by the uptick in the growth. The growth is really coming from a couple of areas. First of all, if you recall, last year, the IT drugs supply still -- we had some shortages internationally. So now that drug supply is back, we're seeing growth across several markets. So it's not in any one particular market, which we're quite excited about. That's everywhere, from the Nordics to the UK to Saudi Arabia. So that's great news for us. We see lots of potential opportunity and we see higher levels of penetration of subcue therapy in international markets. Governments are really driven the movement of healthcare into the home. On the sustainability part, that is what we're planning for. However, we will see last year we had a new drug launch in the second half of the year, which was the Aspaveli product with Sobi that we launched in Europe. So we project that in the second half, we've got a tough compare. So maybe not as quite as high the growth that we saw on the front half project for the back half for OUS. So 23% growth through the front half of the year for us, we'll see some toughness in the back half given that drug launch.

Great and then just --

Margin question.

No. [Multiple speakers]

Thank you. So the trial, we are continuing to enroll patients in that trial, which is a trial just for everyone's benefit on the phone is comparing our KORU mechanical pump system to the electronic pump systems available in Europe. We expect to have the first reported outcomes from that trial in the latter part of this year in the December timeframe.

Great. And then could you provide a little more color on the Novel Therapy deal signing cadence that caused you to change your guidance a little bit? That'd be great. Thanks.

Yeah. So coming into the year, we would have had anticipated year-to-date, we signed two deals and how it works is once we get the deal signed, we've got work that we need to complete in order to recognize revenues. So we anticipated having a few more deals signed in the first half of the year. We now see those deals are lagging into the back half of our year. So not major cause for concern. We still feel very confident in the six number overall, but caused us to push out the overall revenues. And again, with that business, what we have to think about is the total shots on goal. The real prize comes with the commercial launch. But obviously all of these deals we signed lead to some pre-commercial revenues, which we count on in our revenue projection. So just some slippage by a couple of months, affects our year. Thanks, Caitlin

Thank you.

The next question comes with Jason Bednar with Piper Sandler. Please go ahead.

Hey, Linda and Tom. This is John on for Jason. Can you just frame your level of confidence that the U.S. market will not take a further step backwards? And then one of the longer term, what does the U.S. market need to grow at in order for the company to hit its 2026 revenue target?

Excellent question. Thanks, John. So if I could show you the number of sheets, we've projected on what we think the U.S. market can do. And I guess, your best projection of future is looking back. Right. So we have not seen a quarter like that happen in any prior history, except through COVID. So unless we think COVID is coming back, I don't think we're going to see a continued phase of this. We saw and that's why I reported earlier question that I got, where we saw the overall subcutaneous therapy grow significantly in the fourth quarter of '22 and in the first two months of '23. So I really think this was a blip due to some overhang really an Omicron probably overhang where we saw increased infections drive greater Q2 '22 prescriptions. I really think it's an overhang from that. So, again, I'll end where I started, which is, I believe that the overall market given the past will definitely see a comeback. Now, will we see it come back? Right away, our July month was strong. So we think that's a precursor that the overall market is coming back. And also, we look at our end user demand and our end user demand, which is our sales to specialty pharmacies rather than to wholesalers, which is what we report, our end user demand to pharmacies was very strong in quarter two and outperformed our RGL [ph] numbers. As for what will it take to hit our longer term numbers? Obviously, I'm pretty excited that our U.S. business grew 11% In the first half of the year, with basically a flat script market. So that's great news. We are projecting now to hit these numbers, we're going to need to see that market come back anywhere between an 8% and a 12% growth range depending on the year. Obviously, we start off a little around 8% or 9%. And we grow it to a 10% to 12% overall projected market, as we think -- see things like prefill start to kick in.

Great, thanks, Linda. And then can you speak to any feedback you've received thus far from the FDA in the 510(k) submission for the 50-milliliter PFS for Hizentra?

So the good news is, it passed the first stage. It's in formal review now, it's in substantive review. That's great news for us. So the file was accepted. There was no rejection of the file for any technical reasons. Substantive review phase, we have not had any questions today, which I'm going to take as a good thing. And we hope to have a clearance on that in the November timeframe, which would have be ready for. CFL is not publicly announced their launch timing of that. They just got this clearance and we project, it will be sometime in the first half of '24, but nothing's public on that. So we project that we will get our clearance in the back half of the quarter of the fourth quarter, which will put us in a great position to be able to either pre-ship either late in Q4, or more likely Q1 of '24 we'll get off to a great start.

Great, thanks, Linda.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Linda Tharby, President and CEO of the company for any closing remarks. Please go ahead.

Thank you everyone for joining us for the Q2 call. I'll just say thanks again to the KORU team and wish everyone a wonderful rest of your day.