Organogenesis Holdings Inc. Q3 FY2025 earnings call

Gary started by noting Q3 revenue exceeded the high end of guidance, driven by strong growth in Advanced Wound Care (+31% YOY) and Surgical & Sports Medicine (+25% YOY) products. He discussed CMS finalizing the 2026 Medicare physician fee schedule, which is a significant industry development, and praised CMS for recognizing clinical differentiation of PMA products. Updates on ReNu were provided, including the second Phase III trial not meeting primary endpoint but showing numerical improvement in pain reduction, and a December 12 FDA meeting to discuss BLA submission. Also, mentioned ongoing clinical and regulatory developments, including LCD coverage submissions for certain products.

Net product revenue for the third quarter was $150.5 million, up 31% year-over-year and up 49% sequentially. Advanced Wound Care net product revenue for the third quarter was $141.5 million, up 31%. Surgical & Sports Medicine products net product revenue for the third quarter was $9 million, up 25%. Total revenue included $0.4 million of grant income related to the Rhode Island Life Sciences Hub grant. Gross profit for the third quarter was $114.2 million or 76% of net product revenue.

For 2025, net revenue is expected to be between $500 million and $525 million, representing a year-over-year increase of 4% to 9%. Advanced Wound Care net revenue is projected to be between $470 million and $490 million, up 4% to 8% YOY. Surgical & Sports Medicine products net revenue is expected to be between $30 million and $35 million, up 6% to 23% YOY. GAAP net income range is $8.6 million to $25.4 million, EBITDA range is $19.1 million to $41.9 million, non-GAAP adjusted net income range is $21.5 million to $38.4 million, and adjusted EBITDA range is $45.5 million to $68.3 million. Profitability guidance assumes gross margins in the range of approximately 74% to 76%, GAAP operating expenses excluding cost of goods sold up 1% to 2% YOY, and non-GAAP operating expenses up 3% to 5% YOY.

Potential impact of market competition on sales and margins, uncertainties related to product approvals such as ReNu's BLA submission, and changes in healthcare policies that could affect revenue and profitability.

Q: Congrats on the strong quarter. Starting off, I would be curious to hear how your conversations are going with the clinical community in terms of when you're expecting physician behavior to change following the PFS. Any thoughts there?

A: Yes. So this is Gary, Ross. We're starting to see some of that behavior change now. Where clinicians are moving to products that are on the approved LCD list. We're seeing some contracts starting to get processed to get those products on and apparently get the other products off. So we're starting to see some of the administrative behavior starting now. I'm not -- I don't think we've seen any sales behavior at this point in time, but we're certainly seeing the pieces being put in place where there'll be a change in utilization going forward based on the physician fee schedule.

Q: Looking to next year, what can you do from a company standpoint to help generate awareness regarding your products as incremental volume opens up as many players that were selling higher ASP products won't be able to operate in the market.

A: Well, fortunately, we have strong brand equity for our products, and we focus on the clinical efficacy of what our portfolio contains. We will continue to message that. I think that plays extremely well in today's -- or into next year's world. We think with wiser as well, getting products that are appropriate for use and will get reimbursed. I think -- will carry a lot of weight. The clinical evidence of those products will support utilizing those products and will carry a lot of weight. And those are the messages that we'll continue to beat and to make sure the market is aware of what we have, the clinical evidence, the likelihood of reimbursement as a result of being on the LCD and being appropriate with appropriate data, if challenged.

Q: I wanted to start or continue, I guess, on the physician fee schedule for 2026. I was curious how you think the new rates might impact margins as we start to think about our models for next year?

A: Yes, sure. So I mean, obviously, it's a little bit early to be talking about 2026, but we'll maybe connect on a couple of things around the revenue profile and the margin one as well. Again, we're not providing financial guidance today, but I'm glad you asked the question because I think there are several key changes in the marketplace for 2026 that I think people should be cognizant of. First off, with the LCD going into place, there's over -- well over 200 products that will no longer be covered for DFUs and VLUs under that LCD that's scheduled right now to go and be enacted on 1/1/26. As Gary mentioned in his prepared remarks, we have 3 commercialized products that are covered by the LCD with an additional one in Dermagraft coming back online in the back half of 2027. And those products are NuShield, which is a dehydrated amnion that's covered for DFUs, Affinity, which is a living amnion, which is covered for DFUs and then our Apligraf product, which is a bioengineered cellular product -- and it's the only PMA-approved product for both DFUs and VLUs. So we're excited about having those on the covered list. In addition to that, the financial incentives will be dramatically reduced in the marketplace, leveling the playing field, which is what we've been advocating for, for quite some time. And overall, as Gary mentioned, too, we have the brand equity, efficacy and service, which puts us in a very nice position, which is the attributes that we'll be competing against in 2026 once the field is leveled, as I mentioned. And then, of course, we've got a broad portfolio across many different FDA classifications that are addressing multiple indications. And then the last piece I'd say is that the commercial team has done a nice job of pivoting in a dynamic market environment. And I think that's indicated over the last couple of years and certainly in this last quarter. So all those things coming together, I think there's obviously no implication to the surgical business next year. So that's one element that you should think about. And I think the other components around wound care would be is that our dominant position in the hospital outpatient setting can drive incremental growth given that the reimbursement there has been unbundled. In addition to that, I think, obviously, there's been several new entrants into the market over the last couple of years, and we expect that share that's been lost over the last couple of years to be regained. And so we expect to participate in that. The offset to that is, of course, the market has expanded to some extent, and we expect that to contract based on overuse. And then the last piece I'd say is overall on the market standpoint, ASPs across the entire market will decline. So from that perspective, ours will as well, but there's a couple of other components there. Obviously, with Apligraf on the market and again, the only PMA-approved product for both DFUs and VLUs, very, very strong product, particularly in HOPD, will now be reimbursed at a much higher rate than it has been in years past. So from our perspective, we see a lot of growth drivers next year, and we also see improvements in margin and cash flow as well.

Q: I was curious if the initial approval time lines that you had called out before, I believe it was late 2026 or early 2027 are still on the table given the recent data readout.

A: Sure. So we still think there is an opportunity to still file and we'll be filing in a modular form in December if we have a successful meeting with the FDA. But I would guide to a 2-month delay is probably safe. It's possible we could stay on our current time line, but 2 months, I think, is reasonable based on where we are today in preparing for that December 12 meeting.