Business context and reporting period
This is Aziyo Biologics, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The filing describes a commercial-stage regenerative medicine business selling Core Products and contract-manufactured Non-Core Products. The supplied request metadata names ELUTIA INC.; the filing itself identifies Aziyo Biologics, Inc.
On October 13, 2020, after quarter-end, Aziyo completed its IPO. It sold 2,941,176 shares at $17 per share and reported approximately $43.0 million in net proceeds.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2020 | Three months ended Sep. 30, 2019 | Nine months ended Sep. 30, 2020 | Nine months ended Sep. 30, 2019 |
|---|---|---|---|---|
| Net sales | $11.8m | $11.1m | $30.2m | $30.8m |
| Gross profit / margin | $5.5m / 47.1% | $5.5m / 49.8% | $14.5m / 48.1% | $14.9m / 48.2% |
| Operating loss | $2.7m | $1.8m | $9.6m | $5.2m |
| Net loss | $6.7m | $3.1m | $16.5m | $9.2m |
| Net loss attributable to common stockholders | $10.2m | $3.1m | $20.0m | $9.2m |
| Basic and diluted loss per share | $15.79 | $4.81 | $30.82 | $14.19 |
Amounts are in U.S. dollars; per-share data reflect the 1-for-13.9549 reverse stock split effected September 29, 2020. The higher common-stockholder loss includes $3.5 million of preferred-stock accretion, a deemed dividend rather than operating expense. Nine-month other expense included a $2.3 million loss on early extinguishment of debt.
- Sales mix: Q3 Core Product sales increased 31.3% to $10.3 million, while Non-Core sales fell 56.2% to $1.4 million. For nine months, Core sales rose 20.4% to $26.0 million; Non-Core sales declined 54.1% to $4.3 million.
- Costs and margins: Q3 GAAP gross margin decreased 2.7 percentage points. Management attributed the decline partly to a two-week plant maintenance shutdown, which added idle-capacity costs. Nine-month gross margin was broadly unchanged.
- Cash flow: Nine-month operating cash use was $8.3 million, investing cash use $0.5 million, and financing cash provided $7.8 million. Cash and restricted cash totaled $1.6 million at September 30, versus $2.6 million at December 31, 2019.
- Liquidity: September 30 cash was $1.5 million, restricted cash $0.1 million, and revolving-credit availability $2.1 million. Current assets were $22.2 million and current liabilities $25.6 million.
- Debt and obligations: Balance-sheet long-term debt was $24.1 million, including the term loan, tissue-supplier note and approximately $3.0 million PPP loan; a separate $5.9 million was outstanding under the revolver. The revenue-interest obligation to Ligand was $19.4 million, including $2.75 million current. Aziyo was in compliance with its minimum-revenue covenant at quarter-end.
- Other balance-sheet items: Inventory was $9.8 million, up from $7.2 million at year-end 2019; accumulated deficit was $74.9 million.
Changes, outlook, commentary and risks
- Q3 sales growth was driven by Core Products, including orthopedic/spinal products and SimpliDerm. Non-Core sales weakened after a significant contract customer’s contract expired in the first half of 2020. The company reported initial shipments to three new Non-Core customers in Q3.
- For the first nine months, sales declined 2.0% despite Core Product growth, as Non-Core sales fell and COVID-19 disrupted procedures, particularly in Q2. Management said postponed or canceled procedures, facility restrictions and limits on sales representatives’ access negatively affected sales and operations.
- Operating expenses rose year over year over nine months: sales and marketing to $12.5 million, G&A to $8.9 million and R&D to $2.8 million. Management cited sales-force expansion, leadership additions, public-company costs and development of an anti-infective CanGaroo product; Q3 G&A also included a $0.8 million HighCape-related fee settled with preferred shares.
- The company expected continued losses and said it could not predict when, or whether, it would become profitable. Management estimated that IPO proceeds, existing cash and revolver availability would fund operating and capital needs through 2022, but cautioned that assumptions could prove wrong and resources could run out sooner.
- Key risks include continued COVID-19 effects and procedure backlogs; dependence on commercial partners and a limited number of contract customers; competition, pricing and reimbursement pressure; supplier and tissue availability; manufacturing and quality-control risks; regulatory and clinical uncertainty; significant debt and Ligand payments; and possible future financing needs.
- Management reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2020. The PPP loan’s forgiveness status was undetermined at filing.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Aziyo Biologics, Inc., not ELUTIA INC.
- Track whether Core Product growth can offset the sharp decline in Non-Core sales and the loss of volume from the expired customer contract.
- Assess cash use, post-IPO liquidity and management’s runway estimate through 2022, including whether additional financing may be needed.
- Review debt service, revolver availability, covenant compliance, Ligand’s minimum annual payments and the outcome of the PPP-loan forgiveness request.
- Monitor COVID-19 procedure trends, maintenance-related gross-margin effects, and clinical, regulatory, supply and product-quality developments.