BioStem Technologies, Inc. Second Quarter Financial Results Call, August 22, 2022

C O R P O R A T E   P A R T I C I P A N T S

Nicolas Johnson, Russo Partners

Jason Matuszewski, Chief Executive Officer

Michael Fortunato, Controller

C O N F E R E N C E   C A L L   P A R T I C I P A N T S

Stefan Roaczek, Benzinga

P R E S E N T A T I O N

Operator

Welcome to the BioStem Technologies BSEM Second Quarter Financial Results Call.

Now, I would like to turn the call over to Nic Johnson, Russo Partners. You may begin your conference.

Nicolas Johnson

Good afternoon everyone, and thank you for joining our conference call to discuss BioStem’s second quarter 2022 financial results and corporate highlights. Leading today’s call is Jason Matuszewski, Chief Executive Officer. We will also be joined by Michael Fortunato, our Controller.

Before we begin, I would like to remind everyone that our remarks today may contain forwardlooking statements based on the current expectations of management, which involve inherent risk and uncertainties that could cause actual results to differ materially from those indicated, including risks and uncertainties described in the Company’s filings with the over the market. You are cautioned not to place any undue reliance upon any forwardlooking statements, which speak only as of the date made, may change at any time in the future. Although it may be voluntary to do so, from time to time, the Company undertakes no commitment to update or revise forwardlooking statements, whether as a result of new information, future events, or otherwise, except as required by the applicable security 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 nonGAAP financial measures. Reconciliations of those nonGAAP financial measures to the most comparable measures calculated and presented in accordance with the GAAP are available in the earnings press release on the investor relations portion of our website.

With that, I am now pleased to turn the call over to Jason Matuszewski.

Jason Matuszewski

Thank you Nic. Good afternoon everyone, and thank you for joining us.

Today marks a major milestone for BioStem Technologies, as this is the first of many earnings calls.

Before Mike discusses in more detail the financial results, I would like to outline seven key business objectives that will support our continued accelerated growth, commercialization performance, and fortify BioStem Technologies as a recognized leader in perinatal tissue allografts for regenerative therapies.

First, as I’ve shared previously, we have put our Company on a tremendous growth trajectory for 2022 and beyond. We are pleased to announce that we continue to exceed that trajectory, with an exceptional financial performance by our commercial team for the second quarter of 2022. Gross revenue for Q2 was $2.2 million, with an 82% gross margin on our product lines.

Second, we are transitioning from indirect to direct sales and implementing training programs for our national commercial team to deliver compelling messaging to our clinical partners in the private and Federal markets about the value of our product line. We’re setting out to add a minimum of five commercial team members per quarter, starting in Q3 of 2022, with a total team size goal of 25 members by Q4 of 2023.

In anticipation of the upcoming launch of Vendaje AC and Vendaje Optic, which we expect following reimbursement approval of Q1 2023, we are strategically building out our commercial team in eight specific regions throughout the United States, and introducing medical education programs, specifically to Vendaje AC and Vendaje Optic, and expanding our current Vendaje programs.

With the addition of these two product lines entering the wound care market this year and expanding commercial team of our product experts, we are confident in our ability to execute our longterm strategic plan that will help us to increase profitability.

Third, we have invested heavily in our sales and ordering platform. We anticipate a rollout of our new Salesforce B to B commerce platform in early to mid Q4, as well as deploying our commercial team with the Salesforce Sales Cloud CRM. We feel the B to B platform is a game changer for our customers, as it’ll give them easier access to order product and support documentation to increase the success of product reimbursement. Also, with Salesforce Sales Cloud, we will have better insight on our commercial pipeline and our commercial team’s interactions with clinical providers throughout the Salesforce data analytics platform for future forecasting.

Fourth, we have recently launched new product webpages that highlight the unique advantages of our Vendaje, Vendaje AC and Vendaje Optic product lines. These bold new designs describe the healing, natural and superior biological retention attributes of our proprietary BioRetain process. We will continue to launch the updated branding in the months to come, including a new corporate website, conference and exhibit booths, and a full suite of customerfacing support materials.

Fifth, we have met with the Hixfix (phon) team at CMS in anticipation of performing a new submission for a Q code from Center of Medicare and Medicaid Services for Vendaje AC, an allograft composed of two layers, amnion and chorion, which is intended for use as a protective covering for soft tissue wounds. We also have gone through the same process for Vendaje Optic, an allograft composed of a single layer or amnion, which is intended for use as a protective covering during the repair of ocular surfaces. We expect to receive favorable judgement in the first quarter of 2023, and are excited to add those two additional items to our commercial team’s product offerings.

Sixth, our operations and quality teams remain dedicated to continuous improvement, and have been working to implement efficiencies within their respective departments. Operationally, we have started construction on a new clean room, which upon completion will double our current processing capacity. We have also invested in new technology and equipment to bring more of the processing activity in house and decrease the overall time it takes to process a donor.

In the quality department, the focus has been transitioning the quality management system or QMS from paperbased to an electronic system. After review of numerous systems, the team has commenced implementation of MasterControl, including their Mx and Px modules, to move both the quality documentation and processing records to electronic format. Not only does that improve the efficiency of the current processes, this system also reduces the probability of human error.

Last, we are well positioned to overcome the challenges of the regulatory and market positions of traditional wound care, as we push the boundaries in the field of regenerative medicine. We are continuing with the development of new products, expanding our intellectual property portfolio, and furthering clinical and scientific research. This includes receiving six provisional patents around our BioRetain process over the past year, obtaining approval of our peerreviewed article around standardizing reporting of amnion and amnionchorion allograft data for wound care, and to be published in the Health Sciences Reports, and plans to initiate clinical research on lower extremity wounds in the near term.

With that, let me turn the call over to Mike to review the second quarter and year to date 2022 financials. Mike?

Michael Fortunato

Thank you Jason. 

Net revenue for the six months ended June 30, 2022 was $4.936 million, compared to $1.809 million for the six months ended June 30, 2021. This is an increase of $3.128 million or 173%. The increase in sales is driven primarily by the expansion of our distribution network, resulting in increased sales of our Vendaje products. Since CMS granted a Q code in September 2021, we’ve seen additional market acceptance and additional sales volumes.

Gross profit for the six months ended June 30, 2022 was $4.191 million or 85% of revenue, compared to $1.088 million or 50% of revenue for the six months ended June 30, 2021, an increase of $3.104 million or 285%. The increase in gross profit resulted primarily from increased sales volume in our Vendaje products, as well as a shift in product mix to our higher gross margin products. 

Operating expenses for the six months ended June 30, 2022 were $4.6 million compared to $1.4 million for the six months ended June 30, 2021, an increase of $3.2 million or 230%. Increase in operating expenses is primarily driven by additional head count, additional marketing spend, investments in a direct salesforce and increases in sharebased compensation related to the conversion of debt, and increased salaries to equity at a discount to the fair value of the equity on the date of conversion. 

Total other expense for the six months ended June 30, 2022 was a net expense of $233,000 compared to $122,000 for six months ended June 30, 2021. This is an increase of $111,000 or 92%. The six months ended June 30, 2021 contained a benefit of a onetime TPP loan forgiveness of approximately $142,000.

Net loss for the six months ended June 30, 2022, was $654,000 or $0.06 per share, compared to $433,000 or $0.05 per share for the six months ended June 30, 2021, an increase in net loss of $221,000 or $0.01 per share.

Moving on to statement of cash flows, cash flows provided by operations were $664,000 for the six months ended June 30, 2022, compared to cash flows provided by operations of $118,000 for the same period in previous year. The increase in cash provided by operations due to management’s continued discipline over operating expenses, as well as an increase in product sales.

The Company maintained a cash balance as of June 30 of $1.4 million, compared to $270,000 as of June 30, 2021. We continue to strengthen our balance sheet. The Company converted approximately $3.3 million of liabilities to common stock during the six months ended June 30, 2022.

Jason, I’ll turn the call back over to you.

Jason Matuszewski

Thanks Mike.

In closing, I want to reiterate the seven key business objectives we discussed on the call today. 

Number one. We have put our Company on a tremendous growth trajectory for 2022 and beyond.

Number two. We are transitioning from indirect to direct sales, and implementing training programs for our national commercial team to deliver compelling messaging to our clinical partners in the private and Federal markets about the value of our product lines.

Number three. We have invested heavily in our sales and ordering platform, providing better customer experience (inaudible) our commercial team interactions with clinical providers throughout the Salesforce data analytics platform.

Number four. We have launched new product minisites that highlight the unique advantages of our Vendaje, Vendaje AC, and Vendaje Optic product lines, and also expanding our marketing presence through other outlets.

Number five. We have met with the Hixfix team at CMS, and anticipating of performing two new submissions for obtaining Q codes from CMS for Vendaje AC and Vendaje Optic, and hopefully anticipating approval in the first quarter of 2023.

Number six. Our operations and quality team remain dedicated to continuous improvement, have been working to implement efficiencies within their respective departments. Doubling our production capacity with new construction, and moving to MasterControl away from our paperbased quality system.

Number seven. We are continuing with the development of new products, expanding our intellectual property portfolio, and furthering clinical and scientific research.

All seven of these key business objectives will truly position BioStem Technologies on a tremendous growth trajectory for 2022 and beyond.

I look forward to your questions. Operator, will you please open the line.

Operator

Your first question at this time comes from the line of Stefan Roaczek (phon) with Benzinga, your line is open.

Stefan Roaczek

Hi. I just have a couple questions. First question is, what have been the main drivers behind your quarter-over-quarter growth?

Jason Matuszewski

Hi Stefan, thank you so much. Jason Matuszewski here. One of the big drivers for our quartertoquarter growth has really been the commercialization of our Vendaje product line. Is a membrane focus by amnion layer, and we’re placing that over advanced wounds, typically in necrotic state, and that focus right now commercially has been really on the indirect side, which is distributors, and then now, like I said in the call earlier, we’re shifting to that direct W2 salesforce to distribute that product. We’ve been heavily focused in the eight MAC regions, the Medicare regions, in which to commercialize that product, and that’s where we’ve been seeing initial success, we look to kind of bifurcate that and look at distributing not only in Medicare regions but also in the Federal VA system.

Stefan Roaczek

Got you. Another question for you here. Can you provide a little more detail on what you mean by shifting from indirect to direct sales?

Jason Matuszewski

Sure. Kind of what I alluded to earlier. We’re shifting away from a distributorbased model to heavily focused WT (inaudible). We’re investing heavily on sales operation platform through the B to B portal, as well as Salesforce Sales Cloud, and then aggressively onboarding and hiring WT sales representatives throughout the eight regions, specifically MAC regions, and continuing to kind of increase and develop that culture, a sales culture, as well as the sales team.

Stefan Roaczek

Got it. What impact do you expect the rollout of the Salesforce B to B ecommerce platform to have on the sales numbers?

Jason Matuszewski

I think the B to B portal will help on the clinical side from a clinical operations or front office management perspective being able to easily purchase the product, through the B to B portal. I think also we will have the ability to help individuals or clinicians learn more about products on the platform. Hopefully at the end of the day, it helps drive our sales team members or commercial team partners to have an easier transition, but also easier way to transition clinical providers to our products for specifically diabetic foot ulcers, pressure ulcers or venous ulcers, products that are in that kind of advanced wound area.

Stefan Roaczek

Can you provide a little more detail on your sales education programs? Does this include your AC and Optic products, or are these going to be included post Q code approval?

Jason Matuszewski

We’ll start that process on AC and Optic post Q code approval, but as far as on the B to B portal, we’re looking to leverage that platform for sales education. We’re also looking at other ways to help develop a internal platform to help educate clinical providers on the BioRetain process, which is a proprietary process in which we had developed to help retain a lot of those elements inside the issue, as well as the use of the product, whether it be specific use cases in diabetic foot ulcers, pressure ulcers, chronic wounds, things of that nature. So, helping to learn more about the product, but then also help learn on best use cases, using the product on a specific application.

Stefan Roaczek

Got it. Can you provide any details around the quality of the conversation with the HC PCS team at CMS?

Jason Matuszewski

Yes, we had a great call with the Hixfix team. We are anticipating a positive result in Q1 for Optic as well as AC, and the dialogue was really constructive as far as our submission, and we’re able to kind of suss out any areas of weakness in which would possibly cause a denial of that submission, and I think we have a strong foot forward to get a positive submission here in Q1 of 2023.

Stefan Roaczek

You mentioned the plans to initiate the clinical research on lower extremity wounds in the near term. Are you looking to partner, or what are the indication and timeline there?

Jason Matuszewski

Right now we’re kind of going through the process of potentially identifying a potential partner in regards to specifically diabetic foot ulcers, is kind of the initial area that we’re looking at, and right now we’re kind of going around doing some research and trying to identify which clinical partner group that we want to partner with to start sussing out how we’re going to attack that clinical trial program.

Stefan Roaczek

Got it. Thank you very much. I don’t have any further questions.

Operator

Since there are no further telephonic questions, I’ll turn the call to Nic for the Web questions.

Nicolas Johnson

Thank you.

First question. Are you going to highlight the advantages of the BioRetain process in the literature and your website, such as time to heal or success outcome rates?

Jason Matuszewski

Nic, thanks. We are going to elaborate a little bit more in detail on some of our minisites in regards to literature. Like I mentioned in the call earlier, we’re publishing a article on our current methodology around BioRetain, in Health Sciences Report. We also (inaudible) further that study around clinical use of the product and see what outcomes are, call it, sub 10 weeks for healing rates on diabetic foot ulcers, and that would be kind of really highlighted on as we start getting into some of these clinical trials further down the road and then being able to talk about on the clinical side; on the scientific side, our scientific team is right now working putting and publishing more white papers around the scientific evidence around BioRetain and the retain ability of that process to retain more elements inside the tissue.

So hopefully to come, being able to post and host some of that information on our B to B portal for clinical providers to provide that information, to help highlight that information, get it in the hands of our commercial team members as they walk through the doors of clinical providers to share that information, and then hopefully, as we start rolling out into some of the conferences and things of that nature, being able to get up on the podium and talk about BioRetain process as well as share it with clinicians at this future booth.

Nicolas Johnson

Next question. Can you provide us a timeline for the potential uplisting?

Jason Matuszewski

As many of you know, we’ve been working at this since 2014. We have some really great amazing longterm shareholders that have been involved with the Company. As of recent, we’ve engaged an IR firm, Russo Partners, and we’re taking the necessary steps, not only on the business side but then also on the public company side, to take those next steps to kind of grow the Company and mature the Company as we go. We’re hoping to accelerate that process as fast as we can, and hope to see something here in the near future.

Nicolas Johnson

Next question. What markets are you currently looking at? Is this U.S.based, or a worldwide initiative?

Jason Matuszewski

Kind of what I outlined earlier in the call on our focus as a commercial team. We’re focused specifically in the private practice market, right now with our products, specifically Vendaje, because we have been awarded Q 4252 for Vendaje; that allows us to commercialize that product in the Medicare MAC regions, which there’s eight of them. We’ve had success in Novitas and Noridian being open and reimbursing our clinical partners for our products, just recently launched in First Coast and got some positive reimbursements there. Our tack next is Palmetto and CGS, some of those Eastern coast areas, where we can actually start commercializing the product. Really heavily focused on kind of that MAC region; and then subsequently as we grow the commercial team, we’re going to be looking at commercializing into the VA and Federal systems, locally initially starting in the Southeast and Northeast areas, as well as call it that North Midwest area as far as those regions for VA and Federal partnerships to commercialize product in those areas.

Nicolas Johnson

That concludes our written section of the Q&A.

Operator

There are no further questions at this time. This does conclude today’s conference call, thank you for joining us. You may now disconnect.

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