Welcome, ladies and gentlemen, to the First Quarter of Fiscal Year 2024 Earnings Conference Call for Organogenesis Holdings Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors, of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings' President, Chief Executive Officer and Chair of the Board. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Organogenesis Holdings First Quarter Fiscal Year 2024 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we will cover during our prepared remarks. I will begin with an overview of our first quarter revenue results and an update on our key operating and strategic developments in recent months. Dave will then provide an in-depth review of our first quarter financial results, our balance sheet, financial condition at quarter end as well as our financial guidance for 2024, which we reaffirmed in our press release this afternoon. Then I will share some closing thoughts before we open the call for your questions. Beginning with a review of our revenue results for Q1. Our sales results came in above the high end of the guidance range outlined on our fourth quarter call, reflecting a continuation of the positive momentum in business trends in early 2024 that we discussed on our call at the end of February. Our commercial team continues to see progress in their broad-based efforts to reengage with our customers to bring our products back to the healing algorithms and formularies. We believe our first quarter results support our confidence that we focused our commercial team on the right strategy to navigate this challenging operating environment. We are encouraged by the evidence that the commercial support programs we implemented to enhance our existing customer relationships regained lost accounts and to drive growth in our customer base by emphasizing our differentiated products, and that clinical validation are continuing to prove effective. Turning to an update on our progress on our ReNu program. Our ongoing Phase III clinical trial evaluating the use of ReNu for the management of symptoms…

Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the first quarter was $110 million, up 2%. As Gary mentioned, these results were well ahead of expectations we provided on our fourth quarter call, which called for a total first quarter revenue in the range of $98 million to $104 million as we experienced strong momentum building at the end of February that carried into March. Our Advanced Wound Care net revenue for the first quarter was $103.9 million, up 3%. And net revenue for Surgical & Sports Medicine products for the first quarter was $6.1 million, down 9%. Gross profit for the first quarter was $81.3 million or 73.9% of net revenue compared to 75.3% last year. The gross margin was impacted year-over-year primarily due to shifts in product mix compared to the prior year period. Operating expenses for the first quarter were $85.1 million compared to $85 million last year, an increase of $0.1 million or less than 1%. The year-over-year change in operating expenses in the first quarter was driven by a $1.5 million or 2% decrease in selling, general and administrative expenses, offset by a $1.6 million or 14% increase in research and development costs compared to the prior year period. Operating loss for the first quarter was $3.9 million compared to an operating loss of $4 million last year, a decrease of $0.1 million. Net loss for the first quarter was $2.1 million compared to a net loss of $3 million last year, a decrease of $0.9 million. Adjusted net loss for the first quarter was $1.4 million compared to $0.7 million last year, an increase in adjusted net loss of $0.8…

Thanks, Dave. As a market leader, I'm confident that the MACs' prioritization of demonstrated clinical efficacy will strengthen our competitive position over the long term. Additionally, our ReNu program continues to exhibit significant promise to provide clinically meaningful benefits to millions of patients suffering from knee OA symptoms. And our intention this year is on developing a clear regulatory path, supported by robust safety and efficacy data. If approved, introducing ReNu as an innovative pain management solution for the millions of patients suffering from knee OA represents a significant new addressable market and a transformational opportunity for Organogenesis. I am very pleased with our advancements and the execution on our priorities that ultimately will allow us to deliver on our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care. With that, I'll turn the call over to the operator to open the call up for your questions. Thank you.

[Operator Instructions] And our first question will come from Ryan Zimmerman with BTIG.

Can you hear me okay?

Yes, yes.

Yes.

All right. Great. Congrats. Nice to see the results this quarter. I want to ask a little bit about guidance first, a couple of components to it. So Dave, just to confirm, the guidance today includes the impact of the proposed LCD. And if I look at the way you're setting it up based on the second quarter, it would suggest second half '24 maybe lower in total sales versus the first half '24. And I assume you're kind of factoring that in from the impact of the LCDs. And I just want to kind of get your thoughts around how that plays out, whether that's all in the third quarter and you expect that disruption in the third quarter. Or you expect that to carry into the fourth quarter, just so we all kind of have an understanding around pacing.

Yes, sure. I think it's unclear as to exactly when this will be enacted. And so from our understanding, we think it will be the late Q4 or maybe even to January of 2025. So what we learned last year when this happened is the customers started to pull back ahead of the enactment date. And so whether it's January or whether it's earlier than that in Q4, we just wanted to make sure that we had some leeway there. We obviously beat fairly handily in Q1 and wanted to have some cushion into the back half. But our expectation is that would be disruption that we would experience in the fourth quarter.

Okay. Very, very clear and very helpful. Two other questions for me. One, can you just talk about, Gary, kind of what products really kind of bounced back this quarter? What you saw on trends? As you kind of put that impact to competition from last year's LCD behind you this quarter, certainly nice to see what stood out from a product perspective that worked. And then the last question I'll just ask now is just on ReNu. It looks really good top line data coming out of last week. Just curious to get your thoughts around kind of that responder rate versus maybe some of what we've seen with like other products in the market, like Cingal, and kind of how you think about the benefits of amniotic suspension versus traditional HA.

Sure. So I think what was really exciting for us is the number of accounts. And I'll get to the products, Ryan, to answer your question. But the number of accounts that we were able to bring back, particularly as you get into February and March really started to accelerate and the number of units of product that we were able to sell. So that was probably the most exciting thing for us. Clearly, our amniotic products did extremely well. Our new product with CYGNUS did extremely well. We launched that product at our national sales meeting, and it definitely had a strong impact on the quarter. But fundamentally, the accounts and the number of customers that we brought back really started to accelerate. On the ReNu side, I think what's exciting for us is when you look at HA, some of the historical data, the nonresponse rate is pretty high for HA products, up to 40%. And we haven't seen that in our amniotic suspension technology. Obviously, the p-value is extremely strong, which indicates that the response rate was significantly higher than what you would see in typical HA. But until it's completely finalized, we really don't have a strong comparison really to discuss. But I think the response rate in our product clearly demonstrated in this study was very strong.

[Operator Instructions] Our next question comes from Ross Osborn with Cantor Fitzgerald.

Congrats on the quarter. So maybe starting off on the products that were not on the covered list. Would you be able to walk through by product where you stand in terms of current data and where you think you'll need to collect more to get those on the covered list.

Yes, sure. So we have a very strong RCT for our NuShield product that's completed, ready for publication. And our expectation is that we will have that product ready, the publication ready for submission and our comments. We also have a significant amount of real-world data for PuraPly, some of which has not been seen by CMS. We have an extremely large study with PuraPly, over 1,500 patients, very powerful. So we'll be submitting that with comments. And we've also initiated already studies with PuraPly AM and PuraPly XT. So we expect those studies will be coming along.

Okay. Great. And then maybe following the proposal, have you seen any attrition in your sales force? And then just kind of current plans around where you stand in terms of your comfort level, which is to the 5-year sales force.

Well, it's interesting. We did see some attrition early on in the first quarter and then it started to stabilize. Actually, the LCD change will probably continue to stabilize the sales force for obvious reasons. There's not a lot of products out there available in the market. And we certainly have our 2 products that we're pretty excited about in the market. So we think it actually will stabilize. We've actually already received calls from sales representatives from other companies already looking for opportunities. So I think the stabilization will continue for the rest of the year. And we do expect to add reps during the year. We'll probably pace that a bit as we see how this LCD continues to roll out and ultimately finalizes. But our expectation is we will stabilize and continue to add reps probably more so in the back half of the year.

Okay. Great. And then last one for us. Would you be able to share the percent reduction from baseline on the WOMAC same-score basis at 6 months?

No. It's not -- we don't have that data set available.

[Operator Instructions] Our next question comes from Drew Ranieri with Morgan Stanley.

Gary, maybe just for you to start with. We've been getting a few more questions recently on maybe expectations for the upcoming proposed PFS coming up in July. I mean we've talked before about CMS wanting to move to a bundled payment. But I think it might be helpful for -- maybe for you to kind of reflect on what might happen if that is the case, if it does move to a bundled payment. I mean if we look back to when the hospital settings shifted over a decade ago, I think ORGO at the time was a one-product company. I mean a lot has changed over the last decade plus. So maybe just how should investors kind of think about the potential impacts? Or any type of framework to think about what a bundled payment might mean for you and for the business on top of maybe this proposed LCD.

Sure. So I think the bundle payment system is probably the kind of the final step in really putting the final pieces of controlling and managing this market. So it will allow for, I think, a more clinically focused market. We won't have the large swings in ASP that you see out there now. So from that perspective, having a clinical focus, which is where we like to compete, we think is very positive from our perspective, and I think positive for the space. So that step in the process, which may not happen in 2025 with all of these changes, it may move to '26 or some other period, we don't know. But it clearly is another piece that's necessary to actually control the spending in this space. And it will make the bar higher to get into the bundle. And right now, that bar isn't very high to get on the market. It will make it a little bit higher, both clinically and from a pricing perspective. Those products are going to have to be priced in the market and not really drive the market or disrupt the market. So from that perspective, I think the bundle is an important piece. Now it needs to be structured appropriately to provide access, so we're not eliminating patient access. So there's some thoughtful design that needs to go into it. But structurally, it's an important piece.

Got it. I appreciate the color there. And maybe just on ReNu to ask maybe kind of next steps and milestones. I heard that you're -- by the end of May, you're looking to complete the data analysis. Can you maybe just give a date or time frame in mind for FDA meeting and kind of the path forward of whether a -- the second Phase III would be required or not. Just trying to get a better sense of how you're thinking about approval, commercialization and kind of really building some commercial momentum maybe into approval.

Sure, Drew. So our expectation is that we're going to be requesting a meeting around June 3. We expect that we would have a meeting. I believe there's a 60-day requirement to establish that meeting. So sometime early August that we would be meeting with the FDA. And then they have, I believe, 30 days to actually summarize the meeting and the meeting minutes. If that schedule holds by the end of September, we would probably be able to announce the results of that meeting. And we'll have a better sense on whether we move forward with 1 study or 2 studies. If we move forward with 2 studies, I think as we said before, our expectation is we'd be submitting the BLA in Q2 of '26 with expected approval in Q2 of '27. If we're successful in only needing 1 study and perhaps an interim analysis of the second study, we would cut 1 year off of those time lines. So Q2 of '25 and commercializing in Q2 of '26 with, again, that one study, or one study and an interim analysis of the second study.

Thank you. We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.

Thank you.