Filing summary
Entity identification: The request metadata names ELUTIA INC., but the supplied Form 10-Q is for Aziyo Biologics, Inc. (Nasdaq: AZYO), for the quarter ended September 30, 2021, filed November 10, 2021. Confirm the intended issuer before relying on this summary.
Business context and reporting period
Aziyo is a commercial-stage regenerative medicine company focused on products used with implantable medical devices, orthopedic and spinal repair, and soft-tissue reconstruction. It also processes and sells non-core tissue products under contract manufacturing arrangements. Results below compare the three and nine months ended September 30, 2021 with the corresponding 2020 periods.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $11.5 million | $11.8 million | $36.5 million | $30.2 million |
| Gross profit / margin | $3.7 million / 32.1% | $5.5 million / 47.1% | $15.6 million / 42.8% | $14.5 million / 48.1% |
| Operating expenses | $10.7 million | $8.2 million | $30.9 million | $24.2 million |
| Loss from operations | $(7.0) million | $(2.7) million | $(15.3) million | $(9.6) million |
| Net loss | $(8.3) million | $(6.7) million | $(15.8) million | $(16.5) million |
| Net loss per share, basic and diluted | $(0.81) | $(15.79) | $(1.54) | $(30.82) |
Q3 sales declined 2.5%; core-product sales fell 17.0% to $8.6 million, partly offset by non-core sales more than doubling to $2.9 million. For the first nine months, sales grew 20.9%, with core products up 12.6% and non-core products up 71.3%. The filing attributes Q3 core-product weakness primarily to Medtronic suspending FiberCel purchases after the recall. The lower year-over-year nine-month loss included approximately $3.0 million of PPP loan forgiveness income and $550,000 received from a KeraLink settlement.
- Margins and expenses: Q3 gross margin fell 15.0 percentage points year over year. Management attributed lower yields in orthopedic/spinal products and inventory write-downs to an estimated $1.4 million adverse impact; it said it did not expect these costs to persist at similar levels. Operating expenses increased 29.6% in Q3, including higher sales and marketing, public-company and legal costs, stock compensation, and research and development. R&D spending supported, among other work, development of the CanGaroo anti-infective product.
- Cash flow: In the first nine months, operating cash use was $9.1 million, investing cash use $0.3 million, and financing cash use $7.5 million. Cash and restricted cash declined $16.9 million to $22.6 million at September 30, 2021, versus $39.5 million at year-end 2020.
- Debt and obligations: The balance sheet reported $18.7 million of term debt net of discount, a $1.4 million tissue-supplier note, and $2.0 million drawn on the revolving facility. The filing also reports a $19.3 million revenue-interest obligation, including a $2.75 million current portion; it requires annual minimum payments and generally 5% of sales of specified acquired products. Term-loan principal repayments of about $556,000 per month began in August 2021. Debt facilities mature in July 2024 and include monthly minimum-revenue covenants.
- Liquidity: The balance sheet shows $22.5 million of cash and $0.1 million restricted cash. Management says there is substantial doubt about the company’s ability to continue as a going concern within one year after financial-statement issuance, citing ongoing losses, FiberCel-related revenue uncertainty, debt service and uncertain future covenant compliance. It may seek equity capital and/or debt refinancing or restructuring, but cannot assure these will be available on acceptable terms.
Material changes, outlook and key risks
- FiberCel recall and litigation: A June 2021 voluntary recall covered one donor lot of FiberCel. The filing reports 154 units identified, 136 implanted in 113 patients, at least 75 patients with findings consistent with tuberculosis infection, and eight deaths whose causes were still being determined. Tests on the recalled material were positive for Mycobacterium tuberculosis; 11 other tested lots were negative. As of November 5, 2021, 41 lawsuits had been filed and 35 additional claims had not yet resulted in lawsuits. The company could not estimate a probable loss range; any loss could be material. Insurance coverage is subject to reservation of rights and may not cover all costs or damages.
- Medtronic: In October 2021, after the quarter-end, Aziyo was informed Medtronic would no longer distribute cellular bone products such as FiberCel; the parties were working toward mutual termination of the distribution agreement. Lenders waived the event of default that termination would otherwise trigger. Management warned that lost FiberCel revenue could make future revenue-covenant compliance uncertain.
- Outlook and operating risks: No quantified sales or earnings guidance is provided. Management expects continued expenses and operating losses and cannot predict when, or whether, profitability will be achieved. COVID-19 and variants could continue to disrupt procedures, facility access, manufacturing and sales activity. The company also cites dependence on commercial partners and sales agents, customer concentration, product safety and regulatory risks, competition, and reliance on additional financing. Historically, sales have been seasonal, generally stronger in the fourth quarter.
- Other items: The SBA forgave the approximately $3.0 million PPP loan and related interest in June 2021. The filing reports no off-balance-sheet arrangements and states disclosure controls were effective as of September 30, 2021.
Most important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Aziyo Biologics, Inc. (AZYO), not the company named in the request metadata.
- Reconcile liquidity disclosures: the balance sheet and cash-flow statement show $22.6 million of cash and restricted cash, while MD&A states $28.4 million; reported revolving availability also varies between approximately $4.5 million, $5.1 million, and $6.4 million of capacity.
- Track FiberCel litigation, patient outcomes, insurance coverage and any recorded or subsequent loss estimates.
- Assess the effect of Medtronic’s planned distribution exit on sales, revenue-covenant compliance and lender support.
- Monitor cash burn, monthly term-debt repayments, financing actions and the company’s stated going-concern uncertainty.