Aziyo Biologics, Inc. — Q1 2023 Form 10-Q
Entity note: The request identifies Elutia Inc., but the supplied filing is for Aziyo Biologics, Inc. (Nasdaq: AZYO). The filing covers the three months ended March 31, 2023; financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
Aziyo is a commercial-stage regenerative medicine company selling products across device protection, women’s health, orthobiologics and cardiovascular markets, as well as human tissue products under contract manufacturing arrangements. Products are sold through direct sales, commercial partners and independent agents.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $13.05 | $11.50 |
| Gross profit / gross margin | $6.33 / 48.5% | $4.28 / 37.2% |
| Operating loss | $(6.42) | $(6.92) |
| Net loss | $(7.97) | $(8.15) |
| Net loss per share, basic and diluted | $(0.49) | $(0.60) |
| Cash used in operating activities | $(5.17) | $(7.35) |
Sales grew 13.5%, with increases in all four segments: device protection $2.35 million (+14.5%), women’s health $2.30 million (+40.5%), orthobiologics $6.66 million (+6.6%) and cardiovascular $1.75 million (+11.6%). Gross margin improved, which management attributed to manufacturing efficiencies and, in orthobiologics, a higher share of viable bone matrix sales versus contract services. Gross margin excluding intangible amortization, a non-GAAP measure, was 55.0%, up from 44.6%.
Operating expenses were $12.75 million, including $1.91 million of FiberCel litigation costs versus $0.09 million a year earlier. Sales and marketing expense rose 11.2% to $5.36 million, including approximately $0.5 million of severance costs; general and administrative expense declined 8.6% to $3.68 million; research and development expense declined 20.6% to $1.80 million. Interest expense increased 27.1% to $1.54 million.
Cash was $11.79 million at March 31, down from $16.99 million at year-end. Total assets were $60.63 million and total liabilities were $72.81 million; stockholders’ deficit was $12.18 million. Debt carrying value was $24.59 million, under the SWK term loan; the weighted-average interest rate was 13.7% for the quarter. The loan is secured by substantially all company assets, matures in August 2027, and scheduled amortization begins in November 2024. Separately, the Ligand revenue interest obligation requires 5% of certain product sales, subject to annual minimum payments of $2.75 million and potential sales milestone payments.
The company reported substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements. It cited the quarterly net loss, accumulated deficit of $146.0 million, operating cash use and expected further cash outflows. Management said funding needs may be addressed through equity or debt financing, restructuring the Ligand obligation, asset sales or other transactions, but success is uncertain.
Material changes, outlook and notable items
- Q1 revenue rose 13.5% year over year and GAAP gross margin increased 11.3 percentage points. Net loss narrowed modestly, while operating cash use decreased by $2.18 million.
- FiberCel recall litigation remains a material contingency. The filing reports 71 lawsuits involving 73 plaintiffs and 36 additional claims not yet sued upon. Twenty-six cases had been settled for approximately $7.3 million; 21 were paid by quarter-end for $6.2 million. The company recorded a $14.3 million estimated liability and $10.9 million of related receivables. It is pursuing at least $3.8 million of additional indemnity or contribution recoveries not included in the receivable, and cannot estimate potential losses above the recorded amount.
- In March 2023, Aziyo agreed to expand Sientra’s U.S. distribution of SimpliDerm for selected reconstruction uses. In April, it granted LeMaitre Vascular exclusive U.S. distribution rights for specified cardiovascular products for three years, with an option for LeMaitre to acquire the product line in certain circumstances. Aziyo was also considering strategic transactions involving device protection and orthobiologics.
- FDA issued a Not Substantially Equivalent letter in March for CanGaroo RM, the antibiotic version of its device envelope, citing questions about drug testing and an in-vitro release assay. Aziyo intends to respond and expected to complete responses in calendar 2023; clearance and commercialization timing remain uncertain.
- On May 12, 2023, after quarter-end, the company amended its SWK loan. The exit fee became 6.5% of funded principal plus $62,500. The amendment set minimum liquidity at $5.0 million through August 15, 2023, potentially extendable to November 15, 2023, and thereafter at the greater of $5.0 million or operating cash burn for the prior two quarters.
- On May 4, 2023, Nasdaq notified Aziyo that its market value of listed securities had been below the $35 million minimum for 30 consecutive business days. It had until October 31, 2023 to regain compliance, subject to possible extension.
- The company noted historical seasonality, with generally lower first- and second-quarter sales and higher fourth-quarter sales. It provided no specific financial guidance. It said inflation had not materially affected results in the reported periods, but future effects cannot be assured.
Important facts for investors to verify
- Confirm the correct issuer: the supplied filing is Aziyo Biologics, Inc., not Elutia Inc.
- Track cash burn, available liquidity and compliance with the amended SWK minimum-liquidity covenant; assess the company’s stated going-concern uncertainty and financing needs.
- Monitor FiberCel settlements, recorded liability and receivables, insurance and indemnity recoveries, and any additional exposure beyond recorded amounts.
- Check progress and timing of FDA responses and any subsequent regulatory decision for CanGaroo RM.
- Review the Ligand minimum payments and anticipated initial $5.0 million milestone payment, and any restructuring developments.
- Verify whether Nasdaq listing compliance was regained and whether distribution or strategic transactions produced the expected commercial or financial effects.