Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the wrong Medical systems fourth quarter 2019 conference call.
At this time all participants are in listen only mode. Following management's prepared remarks, we will hold a question and answer session.
The question at that time, Please press star followed by one on your Touchtone phone.
If anyone has difficulty hearing about conference. Please press star zero for operators systems. As a reminder, this call is being recorded today March 10th Twentytwenty I'd now like to turn call over to Jody Cain. Please go ahead.
This is Jody Cain with L.A.J.. Thank you for participating in.
This call joining me for my medical as Andrew Jackson, Chief Financial Officer, and interim Chief Executive Officer.
We are today why medical issued a news release announcing financial results for the 2019 fourth quarter and full year. If you've not received this news release, where you'd like to be added to the companies.
They'll distribution list. Please contact L.A.J. in Los Angeles, That's we won't know 691, 7100 and speak with caution Chen.
News release is also available on the Investor Relations section of the bomb medical website.
During this call mentioned that we'll be making a number of forward looking statements within.
The meeting other private Securities Litigation Reform Act of 1995 to the extent the statements made by management or not prescriptions. The store. It goes back to gardening Mama medical the forward looking statements, reflecting the beliefs and expectations of management as of March 2020, you should not place undue.
Reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that are in some cases beyond the company's control it could materially affect actual result.
Well details about these risks please see the earnings news release that accompanies this call I'm copies.
FTC filings, including wrong about equals annual report on form 10-K for the year ended December 31st 29 team to be filed with the FCC.
Medical expressly disclaims any intent or obligation to more update forward looking statements, except as required by law.
Today's call.
This call remarks will include both GAAP and non-GAAP financial result, well medical believes the non-GAAP financial results provide investors with useful supplemental information about financial performance up its business enable that compares to the financial results between periods, where certain items me very independently of business.
Performance, then allow for greater transparency with respect to key metrics used by management, an operating the business.
These non-GAAP financial measures are presented solely for informational and comparative purposes. It should not be regarded as a replacement corresponding GAAP measures reconciliation between GAAP.
Non-GAAP financial measures can be found at the end of the financial results news release that was issued earlier today.
No I'd like to trim, it's called Overture, Andrew Jackson Andrew.
Thanks, Jody good afternoon, everyone and thank you for joining us.
20 light gene was a year of transformation for on medical.
And I'll begin with coal by recapping some of the highlights and sharing all progress.
As reported we were experiencing some consistency with the dad return for the performance.
Being taken corrective measures.
Through data collected from the steel as well as from a internal performance testing we observed at world.
As a form sort of spread pretty a two one year.
It is that were more than two months from sterilization has a significantly higher rates among calibration and those within two months from sterilization.
As a result in the third quarter, we initiated the voluntary recall about tends to be able to the 12 month shelf life to replace.
Even with catheters labeled two months shelf life.
We estimated the warranty costs associated with the recall to be approximately $200000.
We all replacing tends to do this position fights to match the average monthly usage and expect the final costs to be with you know estimate.
Well I'm encouraged by the result, as we have.
She was significant decrease in the range of non calibrations. Following this voluntary recall.
In addition in a third quarter of 29 team, we implemented certain operational efficiency and cost savings initiatives intended to better align all resources with all this this strategy reduced operating expenses and manage.
Cash flows.
These cost efficiency initiatives include its targeted workforce reductions within our sales and marketing teams.
More specifically, we reduced as far as about ever sales force from 34 employees as of June Thirtyth 29 team down to five clinical specialists as of December 31st.
29 team.
Given these developments, we've refocused our business strategy on continuing to manufacture captive to service how core accounts, while we completely mission is that all key tonight, leading us to ultimately relaunch Deborah to a broader market.
Key components of our Deborah re launch strategy.
Engineering activities to provide a longer shelf life with the capital.
Right.
Good design to reduce kington.
At a rapid exchange platform designed to allow physicians to track Deborah regard while.
These product design changes well driven in large part by feedback from physicians, who are strong support.
It is about technology and it provided input on improvements to help us getting widespread adoption in the market.
Another key components of our commercial strategy is obtaining FDA approval for the atherectomy indication.
As you May recall, we received CE Mark for Atherectomy in Europe in 2016.
The FDA clearance for crossing chronic total occlusions in 2017.
We have initiated a pivotal atherectomy clinical trial that'll enroll between 80 and 100 patients.
It up to 10 clinical farce.
Patients will be followed for six months crews procedure.
Primary outcome measures for trial in crude.
Shoots technical success and safety.
Charles primary efficacy endpoint is I mean reduction percents diameter summer says in each patients primary lesion as measured by geography immediately following treatment with Debra.
For any adjunctive treatment.
The trials Carmody safety and.
Point, it's the incidence of 30 day major adverse events.
Secondary endpoints include incidence of target lesion Revascularization, that's a six month follow up.
And then sort of achieving a residual diameter percent, most as well at less than or equal to 50% and the primary lesion on a day of treatment.
Prior to any adjunctive therapy.
In late February we were pleased to announce enrollments well the first subject in the trial.
When these initiatives progress towards completion, we intend should begin to expanding our sales force in preparation for commercial relaunch.
As an update on our dermatology business in 2019.
We increased focus on a product offering in this segment.
Which utilizes the same excimer laser platform as Debra.
We launched ferrous optimize the next generation of ourselves excimer laser system.
So it is optimized is designed to enhance physician and patient experience with faster treatments and extended peak.
Performance.
Turning now to the previously disclosed audit committee internal investigation related to whistle blower complaints by former employee.
Late last year, we announced the findings and remedial actions we took.
These included the separation of certain former executives and employees the.
Hiring of qualified personnel.
Implementing additional and enhance policies and training, including with respect to our current business ethics and conduct.
Strengthening our quality and regulatory systems.
Bolstering documentation requirements for third party consulting advisory and training agreements.
And adopting.
Certainly enhanced controls related to the matters investigative audit committee.
As a result of these remediation axis activities and controls in place as of December 31, 29 team. Our management team concluded. This we ever mediated the previously disclosed material weaknesses in the internal controls.
We voluntarily contracted.
These securities and Exchange Commission enforcement Division.
As previously announced the department of Justice and you actually see all conducting investigations related to the company.
We are cooperating with these investigations and intend to continue to do so.
We've also strengthened our management team with key hires.
In June 20.
Team elemental are joined us as vice president of clinical quality and regulatory.
Oh has tremendous experience implementing 58, and I sleep quality systems, obtaining five 10-K clearances and running clinical studies.
Oh previously served for seven years as Chief operating Officer, Dan One medical.
Which is a company focused on manufacturing external closure and what the pubic devices.
For that he held several senior positions medical device companies with responsibilities for clinical quality and regulatory assays.
To date has made significant improvements in our quality control environment.
We're seeing our atherectomy.
To me study.
In January 2020, we welcome Dr., Chris folks are all medical as Vice President of Engineering.
With more than 20 years or engineering experience, primarily in Med Tech Chris has led to design development and engineering.
Novel Medical devices, that's highly specific.
Design requirements, leading to commercial successes.
He has managed teams responsible for more than 20 device development programs, but firms ranging from startups to multinationals.
Notably Chris has significant experience with catheters from his years of Covidien Neurovascular 83, where he led the.
Actual launch of three five 10-K catheters.
Chris and his team focused on improving the design and manufacturing of the Deborah Canada.
Improvements all this performance consistency and extended shelf life as well as developing on next generation devices.
In addition to these key hires a search for a permanent CEO.
He is progressing and all board is working to ensure that at this critical juncture, we hire the right candidates in the significant industry knowledge commercialization experience and operational expertise.
Now I'll review, our financial results for the fourth quarter of 29 team followed by the full year.
Net.
And you for the fourth quarter 2019 was one point Fourmillion and consisted of product sales of zero <unk> point, Sixmillion and service and other revenue zero <unk> point 8 million.
This compares with net revenue of 2.0 million for the fourth quarter of 2018, which consisted of product sales of 1.2 million.
Service and other revenue of zero.
<unk> point 8 million.
Revenue from the vascular segment for the fourth quarter of 29 team was 0.2 million compared with zero <unk> point Sixmillion for the prior year period.
Revenue from the Dermatology segment was 1.2 million compared with one point fourmillion for the prior year period.
Gross profit margin for the.
<unk> of 29 team was negative 26% compared with positive 40% for the fourth quarter 2018.
Yes, DNA expenses for the fourth quarter of 29 team were 8.6 million compared with 14.8 million for the prior year period.
It's DNA expenses for the fourth quartile of 29.
Seen in 2018 included stock based compensation of 1.1 million and 6.6 million respectively.
It's gene a expenses for the fourth quarter 20. My team included an increase of one point threemillion illegal expense compared with a fourth quarter 2018, primarily due to the audit Committee.
Investigation and Securities litigation.
R&D expenses in the fourth quarter of 2019 was 0.8 million compared with 1.2 million for the prior year period.
R&D expenses in the fourth quarter 2019, and 2018 included stock based compensation of 0.1 million and one.
0.0 million respectively.
R&D expenses for the fourth quarter 2019 included an increase of zero point Fourmillion.
Personnel costs supplies and consulting expenses compared with the fourth quarter of 2018 to understand the inconsistency Deborah catheter performance and assets on the next generation.
Yes.
The GAAP net loss attributable to common stockholders for the fourth quarter 2019 was 9.7 million well 72 cents per share. This compares with a GAAP net loss for the prior year quarter, a 14.9 million well $1.18 for sure.
Adjusted EBITDA for the.
Fourth quarter 2019 was negative 8.0 million.
It was negative 7.0 million for prior year period.
A reconciliation table of gathman loss to non-GAAP EBITDA is included in todays press release.
Turning to our full year financial results net revenue for 2019 was seven point.
2 million, a 15% increase from 6.3 million for 2018.
Product sales for 29 team were 3.9 million up 22% from 3.2 million in 2018.
Service and other revenue was 3.3 million up 8% from 3.1 million for the prior year.
Yeah.
Revenues from the Vasco segment was 1.3 million in 2019.
80 to 1.6 million in 2018.
Revenue from a dermatology segment was 5.9 million for 2019, compared with 4.7 million in 2018.
Gross profit margin for 29 team was.
They go to 23% compared with positive 33% for 2018.
It's DNA expenses were 51.5 million in 29 team compared with 30.4 million in 2018.
15, a expenses in 2019 and 2018 included stock based compensation of 20 point.
4 million, an 11.9 million respectively.
If DNA expenses in 2019 included an increase of 4.8 million legal expense compared with 2018, primarily due to the audit Committee investigation and Securities litigation.
R&D expenses for 2019 were 4.5.
My.
This is 2.8 million for 2018.
R&D expenses for 2019, and 2018 included stock based compensation of 1.5 million and 2.0 million respectively.
R&D expenses in 2019 included an increase of one point sixmillion personnel costs.
And consulting expenses compared with 2018.
To stand the inconsistency, there not Deborah catheter performance and if it from a next generation of taught us.
GAAP net loss attributable to common stockholders for 29 team was 57.0 million well $4.33 per share compared to the GAAP net loss.
30.8 million well $3.34 per share for 2018.
Adjusted EBITDA for 29 team was negative 32.4 million compared with negative 15.8 million for 2018.
We reported cash cash equivalence and short term investments as of December 31, 29 team.
30 point Sixmillion.
We use 33.2 million in cash to fund operating activities for 29 team.
We expect our revenues and gross margins to be negatively impacted in the short term file reduced salesforce and as we continue efforts to remedy the inconsistency Deborah catheter performance.
So in closing we have strengthened our management team was highly qualified and experienced professionals. We are taking actions to improve the design of the Deborah Canada and re launch to a broader customer base, while we focus on servicing our core accounts.
And we are conducting a pivotal clinical trial to evaluate the safety and effectiveness of the.
Excimer laser system for use as an atherectomy device for treatment of peripheral artery disease.
So these reasons I'm excited about the opportunity for our Deborah system and its competitive advantages for peripheral artery disease in a large and growing market.
Our longer term plans include pursuing additional indications for.
<unk>, including coronary artery disease, and potentially other vascular related indications.
We are focused on our mission of saving lives and limbs, we believe our engineering and clinical efforts. This year, our key initiatives that will pave the way toward relaunching, Deborah sort of broader market and building long term shareholder.
[music].
Well these comments I'd like to open up the coal for questions operator.
Ladies and gentlemen, if you wish to register for a question for today's question and answer session. You will need to press Star then the number one on your telephone if your question husband answered and you wish to withdraw your request you may do so by.
Pressing the pound Keith if you are using a speakerphone. Please pick up your handset before entering your request one moment. Please for the first question.
Yeah.
And your first question will come from.
Anthony Vendetti with Maxim Group. Please proceed with your question.
Oh, Thank you good afternoon.
Hi.
Hi, Andrew I just wanted to.
Dive a little deeper into the catheter so.
I understand that the 12 month ones.
That you put out there.
They stayed out there are they had I I guess.
A higher.
Incidence of being.
Out of calibration and then when you replaced them with the two month ones.
Significantly better is there anything.
That needs to be done.
Additionally, on the manufacturing side.
To increase the calibration accuracy or does this now solve the problem between enhancements and improvements you made on the manufacturing site less now labeling them as as two month catheters. There's this completely solve the problem or go a long way towards doing that.
No it doesn't completely solved the problem.
What we found is that's the time from sterilization was a major factor in the non calibrations. So the cap because there's a calibrating well to the 60 day, Mark and after that the rates of non calibration significantly increased served by recalling there's confidence and replacing them with.
Catheters two months shelf life well if you noticed is that these fresh catheters were getting used the rates calibration were very high now what our engineering team is doing is evaluating how they can increase the shelf life by getting the calibrations to be consistent for up to a year or longer.
All right now with a two month shelf life.
Okay. That's helpful. And then I know you've been conducting a permanent CEO search.
Can you give an update as to where are you in the board is.
With regards to selecting a candidate has had have you narrowed it down how many are still.
That being evaluated at this point.
[laughter] progressing the goal is ready evading candidates that have a commercialization and operational background and at this stage.
I have to leave it at that there's not much more I can say at this stage.
Okay, and then and then just lastly on the Salesforce obviously.
You know we significantly reduced he said it was at 34, you're now down to five clinical specialist.
Now did you have catheters that are.
Highly stable and calibration, but can last for too much.
Is there a plan to start slowly.
Adding some sales force or are right now based on on your pipeline and what these five clinical specialist can you can you meet the the demand out there the way you're currently structured.
Currently as we structured you know, we serving our core accounts and we can absolutely meet demand.
Oh Oh approach.
We bought the full prong approach improving the shelf life, adding the arbitrage packets.
Coming up for the rapid exchange so that they can track that the wire and completing the atherectomy studies. So we get that indication for use once we complete those will be able to read commercialized and expand our sales force until we get fines for.
Actually going to probably maintain.
Down Vasco Salesforce.
Okay. Then just lastly on the dermatology side that the ferrous optimize the new.
Version.
Have you dermatology product.
Hi, It's so you launched it at the annual.
Derm conference. The Maui Derm conference is is that available for sale now any any difference in terms of the pricing Hot can tell me a little more about that.
It is available for sale.
I'm very positive responses.
Products It has a faster.
At times.
An extended peak performance.
We're not able to speak to the sales parcel margins at this stage.
Okay, Great all right I'll hop back in the queue. Thank you.
Thanks Anthony.
Your next question will come from matter O'brien from Piper seasonally. Please proceed with your question.
Hi, good afternoon.
This is drew on for Matt.
Thank you for taking the questions.
I just wanted to follow up a little bit on first question I mean, it sounds like you know you there's still a little bit of room for improvement that's really the shelf life, but I mean, maybe you can provide any you know a little bit more incremental detail on.
Some of them.
Since you've made over the last couple of months I mean have you had anything like that and maybe small lots extending that shelf life on the catheter.
But you could potentially be began to scale in the coming months or is it still kind of in the engineering age at this point and then you know if that's not the case anything that gives you confidence that you'll be able to do that.
Yeah.
Yes, it is going to engineering stage. However, we've made significant progress.
You know the root cause analysis is progressing along.
And under Chris folks were very pleased with the FX is a number of solutions potentially that but also being worked on and we just expense.
We plan to extend the show apart from the two months to the as we can validate some of these theories that we working on.
Okay got it and then on the Atherectomy study I believe it started last month.
Maybe you could help us frame up expectations. There you know have you had.
That's bringing additional centers on since you kicked it off that's one.
I guess to what what should we view as a positive result in relation to your primary endpoint and then I guess three are you able to supply enough product to set aside the enrollment in the near term there. Thank you.
So so yes, we are able to spine products, we were happy to.
Enrollment first patients at the end of February.
And yeah, we have a and enrollments to add 80 to 100 patients.
Five to 10 sites.
We're on track to do that and that answers your question.
Very helpful. Thank you.
Your next.
Next question is from Craig did you with Cantor Fitzgerald. Please proceed with your question.
Good afternoon, thanks for taking the question.
Wanted to start maybe as a follow up to the question on the Deborah relaunch strategy.
So I know a Andrew there's a lot of different pieces.
Is that you'll have to come into place too.
Are you guys to really relaunch.
So wanted to know.
You know.
Is there I guess, a little bit more color on the timing of each of those those pieces and then is there a way and I know you said that the salesforce.
Build after you have everything in place.
But is it a gradual or incremental when you get.
You know one or two of the pieces in place or are you really not going to push forward with salesforce build until everything is in place.
Yeah.
Good question I wouldn't say, we're going to wait for everything to be in place before we build we would build measurably as we get positive signs.
These these efforts may require five 10-K approval.
As we get positive signals that we progressing towards that we may start to add measurably, but it's very hard for us at this stage to attach a timeline to these.
Engineering projects.
Got it Okay. That's helpful and just let's see I on the on the FDA trial for or for Atherectomy, just the ultimate timing there I mean, when when should we expect you you having you getting that.
<unk> or I guess, what is your best guess.
Yeah, that's really dependent on the speed at which the sites can enroll patients we have inclusion and exclusion criteria.
We are enrolling 8200 patients with a six month follow up so just how long it takes for that process to complete.
Got it.
Last one for me on term.
The number the revenue number came in a little bit a lighter than what do you guys had done in the previous quarters.
So just wanted to see you what you what if anything you know if there were any headwinds in the quarter. If it was possibly a bit of a delay in.
Purchasing the head of the new launch just any color there would be helpful.
Hi, Dan business has traditionally been lumpy we were excited that our revenue was a million up from the prior year in Durham.
How does that answer the question.
Got it thanks, thanks for taking questions.
Thanks, Craig.
At this time there are no further questions in queue and out I would like to turn the call back over to Andrew Jackson for any closing remarks at this time.
Terrific. Thank you all for your questions I Trust, our conveyed our excitement about the future prospects for.
Our medical and our strategy to relaunch Deborah.
We look forward to providing an update on our next quarterly call in May. So once again. Thank you for joining US today, we very much appreciate your support.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].