Q4 2019 Earnings Call
Tom.
The webcast replay of the called will be available at the same time same site approximately one hour. After the end of the call before we begin and we'd like to caution listeners that comments made by management. During this conference call will include forward looking statements within the meaning of federal security laws.
These forward looking statements reflect management's expectations about future events milestones and results of operations.
I don't anticipate a regulatory approvals clinical trial status product portfolio updates and financial and operating projections and plans.
There are known and unknown risks and uncertainties and other factors that may cause the company's actual results performance or achievements to be materially different from any future results performances or achievements expressed or implied by the forward looking statements.
For discussion of risks factors that could currently used to review the most recent annual report on form 10-K quarterly reports on form 10-Q, and subsequent reports as filed by the cut me with the Securities Exchange Commission. Furthermore.
The content of this conference call contains time sensitive information that is accurate only as of the data to live broadcast February 19, 2020, and your logics undertakes no obligation to revise.
Updating statements reflect events or circumstances after the date this call.
In addition, today's discussion will include references to adjusted EBITDA.
Which is a non-GAAP financial measure adjusted EBITDA is a key measure used by the company to evaluate operating performance generate future operating plans and make strategic decisions for the allocation of capital. Please refer to the company's press release issued earlier today for further information.
With that said I'd now like to turn the call over to John.
The Chico Endologixs Chief Executive Officer, Mr. went up would you. Please go ahead.
Thank you operator, and good afternoon, everyone and welcome to our fourth quarter Conference call.
Today I'll provide a brief overview of our fourth quarter and full year 2019 results and also provide an update on our product portfolio I.
I will then turn the call over to our Chief Financial Officer, the seemed to be will review, our fourth quarter and full year financial results and 2020 financial guidance in more detail.
After that we'll open the call for questions. As a reminder, we have posted an updated investor deck on our Investor Relations website directly below the webcast link.
I'm pleased with our performance in 2019, as we achieved our revenue and operating expense goals for the year and we believe we are well positioned us to sustain this momentum in 2020.
She's our full year financial guidance, why we effectively managing expenses and cash burn and how to achieve stability in several key areas of our product portfolio.
Additionally, we had made significant progress on the regulatory front and are preparing for the launch of Alto in the first half the 2020.
I'll now turn to our quarterly and annual highlights.
Total revenue for the fourth quarter was $35.8 billion, representing a 3% year over year increase.
She's annualized growth for the second consecutive quarter, we saw with sales and say hey, it makes too and it will be should.
Total revenue for the full year was $143.4 million and 8.4% year over year decrease but above our guidance of at least 149.
Our commercial teams continue to execute by leveraging our expanded body of clinical evidence to secure cases.
Quarter by quarter, we rebuild credibility and transparency in evidence in the marketplace, while building on crashes in high volume centers.
Additionally, we continue to manage your tertiary risk we didn't change comes opportunity. So as we've been managing through attrition rates. We also have been very purposeful in recruiting some terrific folks who recognize our recovery will need and our strategy and our call to action on the captive can you.
And our ultimately inspired to join the site.
For example, during the quarter you crews back to highly productive sales reps that had previously left and healogics to join a competitor.
This is not only a clear positive for organization, but it also blends burger credence to the market opportunity in front of us.
We continue to achieve consistent and meaningful progress against our operating expense targets and the fourth quarter marked our second consecutive quarter of operating cash burn of $5 million less.
We expect our expenses to be maintained at these levels through 2020 subject to seasonality as we drive toward our goal of achieving operating cash flow breakeven in 2021.
Now I'd like to give you an update on our current product portfolio, including a comprehensive update on the status and timelines related to invest to also she that's nellix and hey affects too.
Turning first to aspects to as I mentioned before I am pleased with the performance of already affects two business. Despite the challenges that we staged throughout the year.
Our team worked diligently to drive the business forward in 2018, and I'm proud to say the effects to procedure volume in the U.S. has stabilized and we achieved year over year group in the fourth quarter of the year.
The most recent data cut of our Leopard trial reported comparable performance between I guess extra reply area, that's too and the control arm, which was composed of subjects receiving under graphs from Medtronic Cook and door.
The lesser data or the FX platform reported statistically significant superiority in some outcome measures such as aneurism related complications at one year and was not interior in any parameters. Most relevantly there was no statistical or clinical difference.
Three endoleaks.
These data continues to support the performance a day FX when directly compared to other commercially available endo graphs.
Now turning to ovation as we've outlined before similar effects to growth in 2019 came at the expensive movie should as it was necessary for us to ship sales essentially to assets in the U.S. in order to respond to the safety communication issues in late October.
We intend to rebalance sales attention with innovation and remain confident in its ability to grow by leveraging the outcomes data supported by encore as well as the discrimination positive user experience.
Turning to the best to like each day, we continue to make progress and currently have 92 patients enrolled and two cases schedule.
At this rate of enrollment we anticipate that the last patient will be planted in the IB study in early in Q2 as we near the end of the clinical study. We have concurrently started preparation of the PNNT, we will be working with the FDA to determine the final schedule. However.
We anticipate initial submission activities in the latter part of 2020.
Plan to present, the first view of the primary end points of the best to I.E. clinical study.
Clinical results at the Beach Symposium in November of this year.
Additionally, the mid and long term fees asked one results.
Can you just demonstrate good outcomes within the revised indications and have just been published in the journal of vascular surgery.
It is noteworthy that the signal from E. That's one of the association between lead us any reduced all cause mortality in comparison to embark continues as recently published in the animals vascular surgery.
As we reached the end of enrollment for the best too we will concurrently ramp up activities for T. bass, which we plan to begin enrolling midway through the year.
Have our core principle investigators in the first 15 sites identified and are progressing through site activation and training.
Regarding alto, we submitted our formal response to the FDA deficiency letter on December 16 to re initiate the review process. We continue to work interactively with the FDA in our anticipated a cool timelines remain few one of this year, we expect you.
So in a similar timeframe.
We executed well 2019 and as a result have achieved this stability that now enables us to focus on short and long term growth.
We recognize that there is still a significant amount of work to be done in order to achieve our clinical regulatory and financial goals. What we believe that our commitment to execution backed by the culture of accountability have put us on the path to profitable growth.
Hi, I'm very proud of the resiliency displayed by the entire team here than the logics as we faced more than our fair share of challenges on the relative stability.
We will carry this mentality forward as we continue to improve the business and work to generate growth in 2020.
We look forward to continuing to leverage our ever growing outcomes data as well as the launch of the also this year in order to deliver value to patients.
Through differentiated products that enable superior outcomes for patients with AAA.
And now I'd like to turn the call over to the seem to discuss the fourth quarter and full year 2019 financial results and provide you with details on our Twentyth waiting guidance the scene.
Thank you John and good afternoon, everyone [noise].
Total revenue for the fourth quarter of 2019 increased 3% year over year to $35.8 million compared to $34.7 million into fourth quarter of 2018.
This is the second consecutive quarter of growth after nine consecutive quarters of year over year declines and we're excited to be going again.
You as revenue increased 1.5% grew $24.4 million into fourth quarter of 2019 compared to $24 million a year ago, which represents the first time to us business has grown in 10 quarters.
The 40 at our driven revenue decreased 8.4% the $143.4 billion you SFW for the full year decreased 12.6%, primarily due to the headwinds we faced related to work more should restructuring and the negative impact on the field safety notices ovation and FX, mostly in the first half of here.
Fourth quarter International revenue of $11.4 million increased 6.5% compared to revenue of $10.7 million in the fourth quarter of 2018.
This increase was largely driven by the strong performance of FX in Europe, and Japan and ovation in our capital markets.
Full year International revenue booked 48, we $1 million increased 1.4%.
The $47.4 million in 2018, we had growth in our Japan business offset declines due to commercial restructuring in Europe and in Asia.
On a product line basis in the fourth quarter or legal aspects system sales were up 13% year over year ovation was up 10% year over year and now lets was down 80% year over year in the U.S. Marcon FX system sales grew sequentially once again with physician seemed the benefits of this data and the product.
As of quarter in the Leopard study.
For 2019, our global effects business generated revenues of 93.3, $9 ovation revenues were $48.8 million and Ellison revenues totaled $1.2 million.
As mentioned before we did not the U.S. sequential growth from formation in the fourth quarter and our sales team spend a significant amount of time defending effects due in the us at the expense of recent sales.
Our recent system sales in the second half of 2019 were up high single digits versus the second half of 2018 and sequentially higher yielding each of the first three quarters of 2019.
Fourth quarter gross profit was $21.8 million, representing a 61.1% gross margin compared to 32.8% in the prior year period. As a reminder, gross margin in the fourth quarter of 2018 was negatively impacted by approximately $8.7 million inventory reserves it really.
Due to the water Gary Nellix recall.
Excluding the impact of the recall gross margin during the fourth quarter of 2018 was 58.7%.
Gross profit for the year was $91.1 million represented 63.5% gross margin compared to 58.7% in 2018, excluding the impact of the recall gross margin during the full year 2018 was 64.3%.
We had another strong quarter continued cost controls total operating expenses for the quarter were $31.7 million compared to $35.1 million a year ago, which is a 9.6% reduction year over year.
Looking more closely in the fourth quarter operating expenses on a year over year basis marketing and sales expenses were down 6.2% research and development expenses increased 7.6% DNA spend between 7.6% and our political and regulatory expenses decreased 11.1%.
Im pleased to say that operating expenses for the year were $133.6 million towards the lower end up our previously communicated opex guidance range of $130 million $140 million, which is a testament to our improved expense Matt.
We will build on this momentum by continuing to reduce operating expenses in 2020, as we drive towards our goal of cash flow breakeven in 2021.
Looking more closely are the 2019 operating expenses as compared to 2018 marketing and sales expenses were down nearly 16% research and development expenses decreased 13% DNA decreased 17.2% well benefit and regulatory expenses increased 1.3%.
Net loss for the fourth quarter of 2019 was $7.8 million or 40 cents per share compared to a net loss of $25.9 million or $2.65 for failure, though.
Listen that lawsuit uplift the structural changes we have made since the August 2018, reset and the strategy that we laid out at the Investor day in October of 2018.
The year net loss totaled $64.8 million, what $3, an 84 cents per share compared to $79.7 million or $9.07 per ship in 2018.
Adjusted net loss for the quarter totaling $8.1 million compared with an adjusted net loss of $21.3 million for the fourth quarter of 2018, adjusted EBITDA loss to who the loss of $5.2 million for the fourth quarter was 19 compared to adjusted EBITDA loss of roughly $17 million for the fourth quarter of 2018.
For the year adjusted net loss totaled $36.9 million some bid when adjusted net loss of $62.7 million in 2018.
Adjusted EBITDA in.
Total lost $23.9 million compared to adjusted EBITDA loss of $43.4 million in 2018.
Moving to the balance sheet, our total cash cash settlements and restricted cash were $42.8 million as of December 31, 2019, compared to $24.7 million as of December 31st 2000, anything and $47.8 million as of September 32019, the availability in order to well over the near field as of December was approximately.
He million dollars, providing us with approximately $60 million available liquidity.
Our operating cash run for the quarter was approximately $5 million brings our year to date operating cash burn through roughly $29.6 million within our previously communicated range of $30 million in Dolby cash burn.
As we had discussed previously we had anticipated $10 million of working capital improvements in 2019. However, these improvements did not begin to accrue an ability to see the FX do you see a shelf life extension in October 2019.
We expect our inventories to remain at current levels as we ramp up production for the pending also launched.
Regarding our balance sheet and that ordering we have been an active negotiations with a senior lender and certain other stakeholders to restructure our net in a manner that will address the near term balance sheet overhang and also provide a pathway to significant de leveraging of the companies that we hope to be able to announce the consummation of this transaction.
Very near future.
Turning now to guidance in 2020, we expect revenues at least $145 million when operating expenses are anticipated to be approximately $130 million.
Additionally, as you can see on slide 17 of the Investor presentation. It also providing quarterly revenue guidance for 2020 for the first quarter of 2020, we expect revenue at least.
At least $30 million when looking at a negative year over year growth for the first quarter of 2020 recall that our results through the first quarter of 2019 included revenue from South Korea, and a onetime inventory adjustment order from our distributor in Japan. Additionally, we expect sales in Brazil in the first quarter most 20.
20 to be down significantly year over year due to the unavailability of effects, one and ovation prime as the result of our pending regulatory approvals, we made a deliberate choice the sunset, both FX and one and a wishing prime in order to simplify our supply chain footprint and improve our cash performance, we expect to receive approval for FX.
Two in Brazil in April, which will allow us to make up for the Q1 aspects of revenue loss in the second third and fourth quarters of 20 point. However, we expect the ovation prime headwinds to persist until you see also approval both of these headwinds that already factored into our guidance for the full year.
If you take away for investors is that the negative year over year growth is primarily the result of transient headwinds in Japan, and Brazil. We have also experienced some softness in the U.S. business due to competitive counter detailing as a result of the recent stopped breaking decline, which we believe is largely attributed to the near term balance sheet overhang again do you believe you can address.
This overhang in a very near future, we anticipate delivering mid single digit a year or what are your revenue growth in the second and third quarters and accelerating year over year revenue growth due to high single digit range in the fourth quarter on the heels up and also launched.
The Green, Brazil, Japan, and Europe, we expect the second quarter sales pick up in the range of $4 million to $5 million and coupled with the pending onto them onto the U.S. and the seasonality of our business. We have good line of sight to the mid single digit growth guidance for the second quarter and beyond.
Overall, our fourth quarter and full year 2019 performance positions us well as we head into 2020, we're pleased with this performance and we remain committed to execution in order to deliver value to our customers our faces and our shareholders and now let me turn the call back to John John. Thank you perceive this marks the sixth.
Consecutive quarter since our 2018 reset in which we delivered on our commitments for revenue operating expenses, reducing operating cash burn through both expense reduction in working capital improvements.
We are encouraged by sequential growth in our effects to system sales during the fourth quarter as our ability to secure the existing and new customers continues to improve with promising early results.
We will continue this aggressive but disciplined approach in 2020 across our product portfolio, including the upcoming alto release.
Looking ahead, we plan to present our elevate.
Clinical trial data at the S. CBS in March of 2020.
Finally, we continue to make progress on alto events to achieve S. In pursuit of realizing our mission of transforming aortic care for life.
I wanted to take the last few moments of the call to reiterate what we presented at JP Morgan last month.
And took place our current product portfolio and clinical evidence strategy in a contemporary perspective.
Traditionally bar using self expanding oversize sense with proximal fixation has been adopted as the primary treatment for patients with abdominal aortic aneurism due to the excellent short term outcomes, which mitigate the Harry operative morbidity and mortality.
The scene.
With open surgical repair.
However, these early advantages are essentially offset by the lack of long term dill durability that is manifest by I'd high rate of both the re intervention and aneurism rupture.
The challenges of traditional E bar are illustrated by a recent report authored by Columbia, Let out which was partially funded by the FDA and published in the analysts of surgery.
This study reported on 12911 patients undergoing eve art between 2003 in 2015.
Nearly 95% of the patients received an endograft from cool Gore Medtronic.
The mid and long term outcomes of traditional evolved were poor with one third of the patients requiring reintervention at 10 years.
Most concerning was the fact that at least 5% of the patients ruptured their aneurism at 10 years and that Reintervention was associated with a 20 fold increase in the incidence of aneurism rupture.
As Dr. Conti from you CSS stated in the commentary quote it would not be a stretch to say that similar evidence of late failure. One in three patients for a mechanical heart valve would likely constitute a front page story in the national media.
Just the vascular communities response is largely muted and quote.
In light of these filings it is imperative that we strive to develop a therapeutic modality that achieves excellent acute outcomes, but addresses long term durability, we resolutely.
That our product portfolio addresses these challenges.
Our anatomically fixed Endograft FX two has been rigorously tested in the only randomized trial of contemporary undergrads.
And our leopard data report some significant performance advantages.
The ovation I absent alto platforms use a differentiated mechanism of achieving seal in the proximal aortic neck without the use of oversize self expanding sense and we believe that this differentiation will be manifest in a lack of a word it next dilatation and subsequent improved durability.
When compared to traditional endo grass, we plan to test this hypothesis in a randomized controlled clinical trial and believe that physicians will be compelled to using therapy that addresses the failings of traditional gemar.
Over the longer term our view is that he bats will be a paradigm altering therapy that will revolutionize Anders and freight repair three radicalisation evangelism Saks low in a modification of the biological response to E bar that offers the promise of an all cause mortality benefit.
With that we will now open the call for questions operator.
Thank you, ladies and gentlemen, if he'd like to ask a question. Please single are pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to layer signaled to reach our equipment.
Again, Please press star one to ask a question, we'll pause for just a moment hello, everyone an opportunity to signal for questions.
Well take our first question from Robbie Marcus with JP Morgan. Please go ahead.
Hi, This is Alan on for Robby Congratulations on the Gail order.
I just wanted to ask about kind of the second corridor.
Going from declining corridor in first quarter, two growing mid single digits.
Obviously, you do have a bit of dynamics weighing on first quarter, there with comps on Brazil, but I guess you know it sounds like you mentioned ovation.
Alto really potentially being a driver of second quarter strength.
However, should we think about the lawn should like a kind of fragile limited launch still really the way to think about it with a bigger benefit I think you mentioned fourth quarter is that's the right way to think about it.
Yes, Alex so there's two parts to the pickup from the third million guidance for the first quarter to the mid single digit number for the second quarter. So what we mentioned is that the pick up just from Europe, Brazil in Japan. The non also pick up is about four to 5 million.
Is there we would like to be on a on a normalized basis. That's the true kind of run rate of the business and then on top of that we would expect to see.
Some acceleration on the heels of also on two dynamics. One is just the use of ovation.
And ovation I add and then some purpose will pick up and sales and not a huge number dependent get back to north of that.
Mid single digit 5% growth number for the second quarter.
Got it and then a final question kind of on you know really bouncing profitability in sales so you're approaching the all to launch, which I think we acknowledge where you're going to be very exciting one for you and you also looks like you're on track.
No Alex.
Into the pipeline from say like 2021, 2022, PMDA approval, but at the same time, you're also really looking to cut down on span really hit a 2021 spending target. So I guess, how should we think about your priorities. If the also opportunity if enough opportunity really do proved to be major ones for you would we think of you may.
The prioritizing a little bit of spend say on your sales team to really accelerate those launches and maybe push out profitability or as 2021 like a hard target.
So I mean I think.
No different from where the.
Lefty that at the Investor Day in October 2000, anything in terms of the priorities. So we have prioritized.
World Class also launched here and Twentytwenty.
And as you saw the actuals for the toward video came in towards the bottom half of the guidance at the 130 to 149 and the member Ellen you have said this many times in the past that that onetime restructuring that we did it was not to the restructure to take cost out of the business was to rightsize the business.
To kind of ahead of the capacity that we saw within for example, our sales organization in the U.S. and outside of the U.S. The countries that we executed you have a less some revenue on the table, but on a cash basis. They came out on top so as we think about the new number for operating expenses for for 20.
20 to 130 million dollar number represents a very similar capital allocation process, where we will continue to invest in the clinical evidence generation will continue to invest into Pmeight and we had we taken costs out is.
DNA in some of the more you know discretionary items and at the same time being mindful that we have a compliance quality management system that we don't risk and compliance and controllership infrastructure over the company that we have so worked so hard to continue to invest and over the time that we were taking cost out. So this is going up.
Rebuild brave very purposeful cost management approach and not one that was just predicated on taking cost per cost out sake.
Well take our next question from Richard Newitter with S. VB Leerink. Please go ahead.
Hi, guys, it's Jamie on for rich and thanks for taking my question I guess first one being just kind of on the guidance you know you're guiding to the 130 million in operating expenses could you give us a sense of how we should be thinking about on the gross margin cadence as they move through the year.
Yes, I think I'm very similar to as we have done in years past, we haven't formally given our guidance, but we expect the business in 2020 to be in that low 60 range. So I would say.
The 60% to 62% range for the year, but again, it's predicated on Williams is predicated on.
The ramp up of also and how we launch it and where we launched and so again.
We haven't probably given guidance, but I would give you know that 60% to 62% of end and not get worse than where we ended the year.
Got it Okay, and then just to product related question. So.
I appreciate kind of some of the commentary around to the one Q impaction headwinds from the U.S. business on some of the products, but you know looking specifically at DHX business in the U.S.
Given that you kind of rebounded into that and positive territory in the fourth quarter. Just curious on how you guys you're thinking about the cadence of froze for the U.S. business, specifically over the 2020 time period.
Very similar to what I asked and answered Alans question, you know the Investor day presentation that play is the glad we expect the U.S. FX business to stabilize and the level that you're seeing here in the fourth quarter and then you know ovation to pick up and as we said on the price.
Remarks, we did see.
Softness in the ovation number in the fourth quarter and we feel is transitory because we were so busy defending the FX business, we definitely resulted in some coyote effects volumes.
So gives us not only confidence in the FX business, but also the fact that as we.
Go back those selling ovation and also getting ready for the launch of although in the U.S., we would expect to see sequential improvements in our auto business. So a flattening us to FX business stable enrolling automation business through the year is how we continue to go to business into 2020 like we did in the second half of last year.
Great. Thanks for taking my questions.
Thanks, Jim.
Well take our next question from Matthew Blackman with Stifel.
Hi, good afternoon, everyone. Thanks for the questions I'm just are missing your comments about a potential.
I think I heard your right potential near term a resolution on the balance sheet were encouraging and so I guess looking the question is is your hope that all the major for call them major balance sheet headwinds would be resolved near term and I guess of the follow on to that is yet to divest and your ability to answer that conceptually either way to do all this while while minimize.
Thing dilution.
Well cement I'm just going to go back to the comment I mean, we continue to look at opportunities we've been working really hard looking at.
The near term challenges and also the long term challenges listen I think the near term challenges, we can work who.
And well the key stakeholders have become together to solve some of those challenges we feel very confident we can do that but at the same time and on some of the longer term challenges.
We are looking at various options to address those and we'll give you more color on that as we get ready to announce that transaction. So I'll just leave into that.
Okay fair enough.
Maybe shifting to John I guess, you did mention it briefly in your comments, but curious to consider here. How do you think you're tracking against the I'll call. It the high volume Center initiative that you laid out at the analyst day about a year and a half ago or are you tracking on plan. There is it moving faster or slower just yes.
Give us a sense yeah as we wrap 2019, how that that that initiative is playing out.
Yeah. It back in October of 18 at the Investor event.
[music].
Well I set expectations in concert with a crawl walk run approach as we moved up market.
So in 2019, Matt.
We were successful in you define success in getting at least three cases in a trailing six month period.
Well not in 30 targeted accounts and then those 30 targeted accounts. We generated 205 cases are roughly 3.8 million revenue.
Now 12 of those 30 target accounts, we're in that top too high bombing center segments that I define it back in October the so called innovation and performance.
18, new accounts, we're in the third and fourth high volume tiers.
Those high volume segments represented 91, new cases, or roughly 44% of that new case volume.
And.
So we're we're we're diligently making progress this is on the back of.
Expanding supportive evidence in leopard and expanding supportive.
Evidence in encore.
Hi, I appreciate the detail there and I don't want to leave Dr. Thompson out.
Reductions can you just remind us of that achieve asked the study protocol that never patients.
Follow up duration et cetera are there any other endpoints that worth calling out I'm sure you'll be tracking all cause mortality things like that aneurism related mortality was there anything that you can provide us on the study protocol.
Sure.
I couldn't trying to point gave out.
Clinical trials don't go so the abbreviated Chivas protocols actually posted now as we get ready to start enrollments.
But trying to requirement as we go through site activation, but.
Hi, Lotsmart hundred 20 patients.
The primary endpoints as usual.
The typical short term loans and then the effectiveness seven point yeah.
50 sites of which it spending to be outside of the U.S., but in reality. The study endpoints are exactly this you'd see in any of the more complex coding studies. So.
Kozol tirelessly on numerous and provide mortality probably say the visceral vessels and then all the usual second expansion and the Lady can points.
But would you usually see.
And I guess, one last follow up on that it.
Just conceptually is there any reason why we shouldn't see I'm not going up close you guys to it obviously, but.
Obviously, the the mortality singing a positive mortality single you've seen any that studies is encouraging is there anything any reason why you could have you wouldn't potentially see that same sort of benefiting the key that studies.
No I mean, I think where we probably looked at it historically where worthy still in the infancy of gathering a clinical data on that you about therapy as John mentioned and in the prepared remarks, we continue to say.
Starting to signal with regards locals alternate say in the bus patients, but we're certainly going to look very very carefully about in the cheapest patients, but no you're quite right conceptually, we're using them Alex platform. It for side the polymer suicide pressure so.
We'd hypothesized that we see the side effects on all cause mortality.
Okay. Thank you so much guys have a good evening.
Thanks, Matt Thank you Matt.
Well take our next Chris' question from Chris Cooley with Stephen.
Good evening and thanks for taking my questions, maybe just a quick housekeeping one for me the same and then maybe a bigger picture on Alto. So just as we kind of level set expectations to start the year.
Cumulatively, but when you think about south Korea, or the inventory step up in Japan in Brazil decline.
Oh, you're right to think about that as maybe reducing growth on an annual basis and the into three or 4% range or five to 6 million in <unk> dollar basis, just want to try and gauge the magnitude or the impact to that in the first quarter of 20 here before we start to build the ramp throughout the rest of the here.
No. That's a great question here, because I think we historically have not per weighted kind of the cadence that we give them. This time around that we gave you the foot square number but we also want to give you Q2 in Q4 on what to expect and as I mentioned on my prepared remarks to go from this you know at least 30 million number here in the first.
Quarter.
To a mid single digit number for the second quarter as I mentioned previously.
Just to the pickup of $4 million to $5 million and by the way. This is mostly a distributor business, which is under contract and as minimum side to it that pickup alone is it on four to 5 million. So that takes us to the does that number and from there on you got some growth in the U.S. because you guys were better than a lot of people that the second quarter of historic.
He has been our largest quarter in the U.S. business. So there's a seasonal pick up.
If I were to go back and look at history, we have picked up anywhere from 5% to 8% from Q1 to Q2 into us business alone.
And I'm talking sequentially. So so again, so that we still expect to be at least 145 million.
Number, but then when you parse the detail into 145.
You look at a consensus.
For 2020 that number us number is unchanged where I've got to point you is when you look at the U.S. number we attaining that number dropping that number from 50 million down to 44, and if you do the walk on a normalized basis you take out the impact of Japan, you take out the impact of Brazil and.
Take out the impact of Korea, you would essentially going on a normalized basis from $40.6 million, we use to a $44 million, we U.S. business, which organically is growing 8%. So.
Adjusting for the onetime impact our US guidance is the same our or U.S. number is actually up 8% versus the baseline normalized we'll use business.
Thank you that's super helpful. Appreciate that.
And then just as we as we look about your drivers for this acceleration in growth, obviously, we're assuming that alto.
Good.
Early after FDA approval and also approval in the U.S. So.
Kind of along those lines as we think about the encore registry data definitely seeing favorable results there in larger diameter.
It is versus traditional underground, which haven't third as well in that anatomy, just help us think about one percentage of cases that would actually be applicable in terms of that definition and what percent of those cases are being created by E bar right now versus open surgical repair just.
Just kind of size, what the incremental show kind of sweet spot would be there for a helpful. As that starts to ramp and then as a follow on to that I'll get back into do you still plan to do and RCT for Alto at year end and if so could you maybe talk to us a little bit about the endpoints or some of the details there as well. Thank so much.
Chris This is laptops as I can give you a breakdown by next diameters, yet, but broadly what we should think about is outside of increasing uplift to the let's say over liable for the public indications for uses the word gets moved up but obviously increases the proportion of patients.
It will be treated on valuable and in fact, the saving ring mechanism that is pretty much. The same goes for those operational AG. So for the sort of pathological above mechanical parts view, one would expect to say exactly the same results with buybacks I mean resins.
In terms of a randomized controlled trial, we're absolutely committed staying that when we have a timeframe or the end of the yeah.
I can't give you the exact study design, yet because we're still really putting the Polish on the final version of that but we're looking in the range of at least 300 patients in the outside of all.
By comparison on similar so a select bode which would include other commercially available and the gross but the in terms of endpoints I think you should think about as being in two buckets, one would be the traditional clinical endpoints in terms of and delays freedom for bolt.
So you saw growth et cetera, and you could expect to say that you to having an effect when we get up to three years, but also you know we have a hypothesis on the mechanism of improved the touchwood your ability with outside in the lack of I will take met all the time actually you save about saving mechanism and will be looked very early.
In the southern grades called opportunity dictates and CTG styles, So actually try to show difference between one wabco traditionally.
Assuming mechanism of alpha.
Thank you very much.
As a reminder, do the phone audience. If you like to ask a question start wondering your Touchtone telephone please start one for questions.
Well take our next question from Christopher Squali with Guggenheim. Please go ahead.
Thanks, John I wanted to start with your comments about the long term outcomes of Igor.
That conversation seems to be getting more and more negative as a data matures and yet in the slide deck.
You guys continue to project mid single digit market growth going forward. So first.
You think the market grew in 2019, because based on the two public competitors at least it seems like it may not have.
And then what gives you confidence that at some point this drumbeat of concerning data won't lead to a bigger retrenchment any of our use and a shrinking of that pie.
Thanks for the question, Chris We do believe that the market, but did grow a very modestly in 19.
We also believe.
Based on not only the literature, but her contact with customers.
That.
Very slowly, but very surely the recognition of the gaps in long term do the durability of the bar or being recognized.
Certainly that's been described outside the U.S.
With nice as well as others.
But you know the practice of health care typically is very slow to change.
And so we believe this change will take time.
Accelerants to that change are favorable alternatives.
We don't believe.
We do believe that there may be modest need to rebalance open surgery with the bar.
Just simply do the volume and percentage of off label cases, and the fact supporting that off label use of E bar.
Regrettably points to the essentially disproportionately poor outcome.
Now the second driver of change would be obviously improvements to durability that is offered within endovascular approach and that is the reason for our company.
We certainly believe that the evidence that is supported by leopard continues to defend a effects too as it commercially viable alternative to conventional intergraph's encore points to a very compelling.
Difference in.
Treating large aortic neck diameter shares and the lack of difference in outcomes.
Attributed to the various sizes of ovation IMAX and obviously the subject of.
The Alto RCP as Matt described a moment ago is to really then further strengthened the ability to you know first show good.
Acute outcomes, then expand goes the acute outcome benefits to mid term benefits have not seen.
Next continue to delineate ultimately the endpoint that we are focused on is lowering.
That is statistically significant difference the rate of re intervention.
The Colombo paper clearly points to re intervention.
As a significantly and met indeed and in the byproduct of that significant unmet need is this 20 fold increase of the likely is likelihood of rupture based on re intervention.
So you know our drivers are too.
Maintained and Endovascular approach by providing the durability outcome durability benefit comparatively.
Thanks, that's helpful.
Thank you talk about the process of rolling out Alto post approval will you be ready to go from a sales force and an inventory perspective on day, one and from a customer perspective, if the site is familiar with ovation prime how much training is gonna be required before they feel comfortable with alto. Thanks.
Yes, good question, Chris and I mentioned.
Prior to public settings that you know as a company we have learned our lesson in introducing.
What has what would otherwise be the potential of the world changing therapy in product by taking our time with Alto first you know focusing on high volume last customers and as you suggest you know the.
The trading about so with those customers should be modest, but it will be purposeful.
Then we want to shift our attention to lower volume by X customers that is our in high volume centers.
We certainly want to in the early stages of its introduction establish very positive use experience with that second segment of customers in order to demonstrate our ability to gain share.
And then obviously moving through the introduction targeting new customers, who may have huge dyax.
And have either founded a bit cumbersome.
Or any other.
Potential reserves towards discontinuation.
And really reintroduce the product because it does as Matt on the sick.
I mentioned earlier.
Both.
His abuse advantage as well as indication expansion advantage.
Obviously favourably affects high volume centers.
With the potential of capturing at least a small portion of the complex population on label.
And we will be prepared in terms of.
Inventory treating.
You know customer and Rep readiness.
At this time there are no further questions I would like to turn the conference back to Mr., John Ono Pachinko for closing remarks, Mr. Ono pachinko.
Thank you operator, and thank you everyone for joining the call. We look forward to updating you on our progress next quarter have agreed.
Ladies and gentlemen, this concludes todays discussion. We appreciate your participation you may now disconnect.
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