Cheryl Blanchard: Yes, we are continuing to sell those products, and we continue to train and educate on them. We continue to make some investments in them. I will just highlight, again, one of the things that we announced last quarter with our cost reduction initiatives really put us in a place where that — again, we report on one segment, but that part of the business is no longer kind of a drag on our adjusted EBITDA. So we’ve been thoughtful about how we’re making our investments there and where we can invest to really drive that growth. And we’re focusing on the products that we think are more differentiated.
James Sidoti: Okay. And then if we switch to Cingal, you talked about working with the FDA to figure out what nonclinical data they require. Once you guys come to an understanding, how long do you think it will take to get that data to the FDA?
Cheryl Blanchard: Yes, it’s a great question. As soon as I have complete clarity on the additional nonclinical testing that we’re going to need to do, I will be in a better position to answer that question. So it is not — again, just to reiterate, it is not the — what — some years ago, the company was talking about doing a significant clinical trial. It is really just the remaining nonclinical testing that the FDA has been talking to us about. As soon as I have that clarity, I will be the first one to be talking about it.
James Sidoti: Okay. Got it. And then on pain management, your numbers the past few quarters, even with the lumpiness to the distributor, your numbers have been growing very, very nicely. Your competitor [ reported the last time ] they’re seeing some good growth. So it feels like that market is very healthy right now. Is that more attributable to procedure growth or pricing improvements?
Cheryl Blanchard: Yes. I think there’s a couple of things that have happened. First of all, I think the companies that were more subject to the ASP changes that happened have anniversaried out of that dynamic. I think really just starting to see it happen this quarter. So over a period of time, that complete market in the U.S. actually shrunk a bit because of that ASP dynamic. With a couple of those companies that have anniversaried out of that dynamic, I think we’re going to start to see growth of that market [ in dollars ]. That market, although had some dollar shrinkage because of the ASP dynamic, it never stopped growing from a unit perspective.
And so we continue to see kind of low single-digit growth of that market in the United States. And it is a healthy market. It is still the kind of along with immediate release steroids that can be used repeatedly to frontline treatment for osteoarthritis before people move on to a total knee replacement. So it does continue to have very healthy underlying market fundamentals.
Michael Levitz: And I would just add, consistent with what I said at year-end, we’re seeing really healthy growth in our injection volume. But the pricing has essentially been fairly consistent over the last couple of years for us, a decline low to mid-single digits on a fairly consistent basis. But the volume growth in our Cingal and in our Monovisc products is very healthy.
James Sidoti: Okay. And then 2 quick ones for Mike. Gross margin — adjusted gross margin for the quarter was 62%, but you’re guiding 66% to 66.5% of the year. So is that because of a bunch of onetimes in the first quarter? Or do you expect product mix to become much more favorable in the back half of the year?
Michael Levitz: Jim, both, actually. So we expect favorable mix as we go through the year compared to the first quarter, and we just had a number of onetime things in the quarter. So we had production inefficiencies that got amortized into the period. We expected that. That was built into our guidance. We also had some reserves that were recorded in the period. Oftentimes, those happen throughout the year. It happened in Q1. So that’s why we felt comfortable reiterating our guidance for the year, and we expect that to improve for the balance of the year so that we’re in line with our — the full year guidance.
James Sidoti: Okay. And the $900,000 of severance costs, is that in the SG&A line?
Michael Levitz: The severance costs were split in the areas — they’re recorded in the areas to which they related, and so they’re split evenly between research and development and SG&A.
Operator: Your next question comes from the line of Mike Petusky from Barrington Research.
Michael Petusky: So I’m curious on the sort of the severance and sort of the cost reduction. When did that happen? Did that happen sort of in March, second half of March? When did that happen? Like I’m just curious how this is sort of going to — how much of that actually impacted Q1 versus Q2.
Cheryl Blanchard: Yes. Mike, it was at the end of Q1, so it really didn’t have an impact yet in Q1. So you’re going to see this year basically an impact of that on 3 quarters but not fully annualized until next year.
Michael Levitz: And from a cash perspective, the severance was actually paid out in the second quarter.
Michael Petusky: Okay. Okay. That’s helpful. All right. And then, Cheryl, on the FDA feedback, you said some clarity. You talked about nonclinical data. What’s your confidence level that you’re not going to get surprised and they’re going to come back to you and say, actually, we’re going to need a material clinical trial to sort of finish this out? I mean what’s your confidence level that, that is not on the table?
Cheryl Blanchard: Yes. I would never want to try to speculate around FDA, but we have met with our clinical data the endpoints that they set out for the company to meet. We’ve done so with statistical significance in multiple Phase III clinical trials, and FDA continues to reiterate that our clinical data will be a review issue. So there — I’m not going to get any additional clarity on that topic until we actually file. But we do have continued ongoing dialogue with them. They did give us some feedback here recently. We went back to them with some additional clarifying questions, and I look forward to continuing to give updates on this as we make progress.
Michael Petusky: And shifting over to Integrity. Any learnings from the last 100 or so cases and new surgeons? Any feedback that is worthy of mention?
Cheryl Blanchard: Yes. Thanks for asking. The feedback has been really quite stellar. The surgeons — a number of the surgeons now have patients in a number of shoulder applications, although primarily rotator cuff repair and a number of foot and ankle applications and some even in other parts of the body with appropriate on-label use where the feedback has just been this is great. It’s a — the implant, the patch implant itself is strong. It’s manipulatable under arthroscopy. It’s simple surgical technique. The fixation elements are great. Their patients are having great outcomes. And it has just given us really great feedback and the confidence that we need to — as we remain on track for our full market release in midyear. We’re also really experiencing uphold from surgeons and distributors on this product. So we’re very excited to get to that full market release.
Michael Petusky: And then just last one, jumping back to the gross margin question. Mike, would you expect sort of — particularly given the inefficiencies in production manufacturing, I suspect. Is this sort of the cadence of gross margin? I mean should we look for sort of gradual improvement? Or are the factors that sort of impacted Q1’s gross margin completely behind and it should be a much cleaner number even starting in Q2?
Michael Levitz: Good question. And Mike, we don’t give quarterly guidance in part because of the lumpiness of the business, which can impact things on a quarterly basis. One of the things that we did this year, our guidance is essentially consistent with what we guided to last year and what we actually delivered last year. And in Q1 of last year, we had a low gross margin, and then it was higher in the remainder of the year.
I don’t know that there’s anything unique to the subsequent quarters that I can speak to just because it can move. I think it’s fair to say you could take the guidance for the year. And if you wanted to spread it evenly, you probably — that’s a pretty reasonable place to go in terms of the gross margin percent. But what — but keep in mind that from a gross profit dollars, the revenue growth that we expect to be weighted towards the second half, both in OA Pain Management and in joint preservation. So — but from a percentage basis, we might get some that moves into Q2 from the timing of things, but it’s hard to say at this point.
