Organogenesis Holdings Inc. Q2 FY2025 earnings call

• Gary started by discussing revenue results within guidance, with Advanced Wound Care affected by LCD delay and competitor pricing, but Surgical & Sports Medicine showing better-than-expected growth. - CMS proposed payment reform was applauded as it aligns with their advocacy for integrated coverage and payment policy. - Strategic focuses include submitting clinical data for PuraPly AM and Affinity, expanding biomanufacturing capabilities in Smithfield, RI, with plans to reintroduce Dermagraft and introduce new products, and progress on ReNu program with plan to submit by end of 2025. - Dave provided in-depth financial review, noting second quarter financial results, balance sheet, and updated 2025 guidance.

In the second quarter, Advanced Wound Care had net product revenue of $92.7 million, a 25% year-over-year decrease. Surgical & Sports Medicine had net product revenue of $8.1 million, a 16% year-over-year increase. Advanced Wound Care contributed a larger portion of revenue, while Surgical & Sports Medicine showed growth.

• For 2025, net revenue expected between $480 million and $510 million. - GAAP net loss range $6.4 million to net income $16.4 million; EBITDA range $6.2 million to $37 million; non-GAAP adjusted net income range $5.5 million to $28.3 million; adjusted EBITDA range $31.1 million to $61.9 million. - Third quarter revenue expected approximately $130 million to $145 million. - Gross margins expected 74% to 76% in 2025, reflecting product mix shift.

• Delay in LCD effective date led to aggressive competitor pricing, impacting Advanced Wound Care. - Market changes due to CMS proposed payment reform in 2026 could present challenges if not managed properly. - Execution risks related to launching and reintroducing products and progressing with the ReNu program.

Q: Maybe we could start with the CMS proposal for 2026. It is a radical change from what we've seen. And I believe the proposal was set at about $125 and change per square centimeter, if I'm not mistaken. Maybe, Gary, you could talk about kind of how you see ORGO fitting within that structure as it starts the year in 2026. And what are your expectations for the market from, let's say, today through the back half of '25? And then what changes in '26 with that proposal and how the market may change?

A: Sure. As you know, we've been advocating for this type of payment reform for years, literally years. So it is a transformational event for the industry and a real opportunity for our products and the Organogenesis organization. We agree with the CMS approach of setting tiers and those tiers based on clinical differentiation, relative resource cost. They've kind of broken them out based on FDA classifications where data and evidence really matters. So we feel great about this change. And the fact that it's also in HOPD, it's not just in the ASP sites of care. It's now opened up the HOPD market to larger, more complex wounds where we are the leader in that space, that just gives more opportunity for folks to utilize our technologies like Apligraf and soon to be released Dermagraft. So Apligraf is reimbursed today at $30 per square centimeter and the current proposal at $125 would be a significant change. It would eliminate any of the disincentives financially to use the product and put it on a level playing field. But what we really appreciate is CMS establishing these tiers and we expect that we'll be lobbying for different payment rates based on those tiers. So Apligraf and Dermagraft and other PMA products will have the appropriate reimbursement based on the evidence and relative resource cost to produce those products. So this is very exciting for us, very exciting for the industry. As it relates to the market, today, Apligraf represents about 3% of the units sold, believe it or not, a PMA product with arguably the best evidence in the space has about 3% of the market. And we see that significantly changing in 2026. 510(k) products as well. Our PuraPly product is priced below the $125 per square centimeter today. So we would see an enhancement in that product and more utilization going forward. And then a level playing field for all the amnions. So there wouldn't be a significant price advantage going forward, levels the playing field. So we see a lot of reasons why '26 is going to be extremely positive for us. The rest of '25, I think we've seen in Q2, we've seen some aggressive pricing. We think that's going to continue and get worse at the end of the year. I assume there'll be a lot of discounting and inventory sales. Anybody who's got a lot of inventory at higher prices are going to need to move those products and we expect to see aggressive pricing. But for us, we've seen strong momentum coming out of the second quarter. Dave will talk a little bit about that. That momentum is continuing, both in accounts and in revenue. And we have a couple of new products that we've launched that will compete extremely well in this market as we bridge to 2026.

Q: This is Matt Park on for Ross today. I guess something right n ReNu. As you guys move closer to BLA submission, I guess I was trying to get your thoughts on how you think about ReNu's positioning within the broader knee OA treatment landscape? And I guess, what you guys view as the key differentiators versus existing injectable options?

A: I think what's really exciting is the actual data. So in the -- in both studies, we had a significant number of KL4s in the study. So the second study hasn't been completed yet but in the first study, those KL4s performed similar to KL3s and KL2s. So that is unique and it speaks to the strength of the product and potential labeling improvements in the product over anything else. So we're pretty excited that the data is showing that it's a robust product and will compete extremely well against the other competitors, which is primarily hyaluronic acid and steroids.