Aziyo Biologics, Inc. (Nasdaq: AZYO) — Q1 2022 Form 10-Q
Filing identity: The filing is for Aziyo Biologics, Inc., not Elutia Inc. It covers the three months ended March 31, 2022, with comparative results for Q1 2021. Amounts below are in millions unless noted.
Business context and reporting period
Aziyo is a commercial-stage regenerative medicine company selling core products for implantable-device, cardiovascular, orthopedic/spinal and soft-tissue markets, as well as non-core contract-manufactured tissue products. It reported one operating segment.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $11.5 | $12.9 |
| Gross profit / gross margin | $4.3 / 37.2% | $6.3 / 49.1% |
| Operating expenses | $11.2 | $10.0 |
| Operating loss | $(6.9) | $(3.7) |
| Net loss | $(8.1) | $(5.1) |
| Net loss per share, basic and diluted | $(0.60) | $(0.50) |
| Net cash used in operating activities | $(7.4) | $(5.2) |
- Gross margin excluding intangible amortization, a non-GAAP measure, was 44.6%, down from 55.7%.
- At March 31, cash and restricted cash totaled $22.2; current assets were $41.1 and current liabilities $27.3. Working capital was approximately $13.8.
- Debt included $15.4 of term loans (net of financing costs), $6.2 drawn on the revolver and a $1.4 supplier note—about $23.0 in aggregate. Revolver availability was $0.9. The term loan matures July 2024 and has scheduled monthly principal payments.
- The revenue interest obligation was $19.3, including $2.8 current. It requires annual minimum payments of $2.75 plus 5% of specified product sales; a $5.0 milestone payment was forecast by management for mid-2023.
- Cash and restricted cash declined $8.3 during the quarter. Investing activities used $0.03 and financing activities used $0.9.
Material changes versus prior comparable period
- Sales declined 10.8%. Core product sales fell 23.7% to $8.1, primarily after Medtronic stopped purchasing FiberCel following the single-lot recall; FiberCel sales to Medtronic were $2.8 in Q1 2021. Non-core sales rose 51.1% to $3.4, mainly from contract manufacturing customers.
- Gross margin fell 11.9 percentage points. Management cited product mix, including greater lower-margin non-core revenue, and lower orthopedic/spinal yields related to enhanced donor screening.
- Operating expenses increased 11.7%, led by higher R&D and G&A. R&D spending rose principally for final development and testing of CanGaroo with antibiotics; G&A included FiberCel litigation costs and higher stock compensation.
- Operating cash use increased by $2.2, reflecting a higher adjusted net loss and timing of annual insurance prepayments. Net loss widened by $3.1.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year after issuance. It said existing cash, revolver availability and expected sales may not cover operating needs and obligations. Potential responses include equity issuance, debt or royalty-obligation restructuring/refinancing, or asset sales; success is not assured.
- FiberCel: The June 2021 voluntary recall of one donor lot was followed by 47 lawsuits and 44 additional claim notices as of May 9, 2022. Plaintiffs allege infections, including tuberculosis, and seek various damages. The company could not estimate a probable loss range; a material financial effect is possible. Insurance coverage is uncertain and may not cover all costs.
- Operating outlook: The company expects continued expenses and operating losses and cannot predict when, or whether, it will become profitable. It gave no quantified revenue or earnings guidance. It described historical seasonality, with typically lower first- and second-quarter sales and higher fourth-quarter sales.
- COVID-19-related procedure disruptions may continue to affect sales and operations. The company also cited dependence on commercial partners, a limited number of suppliers, variable-rate debt, and the risk of needing additional capital. As of March 31, it reported compliance with its financial covenant.
Key facts for investors to verify
- Confirm the issuer identity: this document names Aziyo Biologics, Inc. (AZYO), despite the request metadata naming Elutia Inc.
- Track cash burn, revolver availability, debt payments and any financing or restructuring actions in subsequent filings.
- Monitor core-product sales recovery and gross-margin trends, including whether orthopedic/spinal yields improve and contract manufacturing growth persists.
- Review developments in FiberCel lawsuits, claim notices, insurance coverage and any eventual loss accrual or estimate.
- Verify timing and funding of Ligand minimum and milestone payments, particularly the forecast $5.0 million payment in 2023.