Q2 2020 Earnings Call
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Good day and welcome to the Surmodics second quarter fiscal 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference <unk>, Tim Aronson, Vice President of financing Chief Financial Officer. Please go ahead.
Thank you John Good afternoon, and welcome to Surmodics fiscal 2022nd quarter earnings call before we begin I would like to remind you that during this call. We will make forward looking statements. These forward looking statements are covered under the safe Harbor provisions other private Securities Litigation Reform Act of 1995 and include.
Statements regarding surmodics future financial and operating results or other statements that are not historical facts.
Please be advised that actual results could differ materially from those stated or implied by are forward looking statement, resulting from certain risks and uncertainties, including those described in our FCC filings.
Surmodics disclaims any duty to update or revise our forward looking statements as a result of new information future events developments or otherwise.
Well also refer to non-GAAP measures, because we believe they provide useful information for investors.
Today's news release contains reconciliation tables to GAAP results.
This conference call is being webcast and is accessible through the Investor Relations section of the Surmodics website, where the audio recording of the webcast will also be archive for future reference.
Press release disclosing our quarterly results was issued this afternoon and is available on our web site at Surmodics dotcom.
Ill now turn the call over to Gary Maharajah, Gary. Thank you Tim Good afternoon. Thank you for joining us.
I want to begin by recognizing the worldwide impact as the Qubits 19 pandemic and the challenges that we have collectively experiencing as a result of this global band.
Accordingly, I want to include in our discussion today, how are we have responded and how we position.
Both operationally and financially for the long term.
We need facing an unprecedented time in our history when circumstances other evolving the by D.
On the full impact school bid 19 is uncertain, what healthy balance sheet confidence in our supply chain and dedicated team will enable us to manage through this challenging time.
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It's a little known doesn't Surmodics occupies a unique please in the supply chain for vascular devices and diagnostic reagents.
Products are used extensively in thousands of vascular devices and diagnostic test everybody in both elective and acute procedures.
As an essential supply of enabling technologies for the diagnosis and treatment of patients in need we have undertaken extensive measures to both continued production and to ensure the health and safety follow team.
We have implemented our pandemic preparedness plan, yes, we actually did have one.
I have appointed Joe stitch. According to that plan use all senior VP of Ivy D and human resources as though achieve pandemic off so would deem tend to ensure the necessary executive leadership and speed of decision making.
Beginning with our key.
Ill employees involved in essential services, including manufacturing operations and customer support has been working on site in both our U.S. an Irish facility.
We have implemented measures to ensure the safety of fall on signed team.
Including stagnant shifts and social distancing protocols to decrease the risk of exposure to Colby 19.
Within our medical device business, coupled with 19 has resulted in the de Leon proceed is deemed elective which negatively impacted all medical device business beginning late in Q2 and is expected to continue to even more significant degree in coming quarters.
The extends and duration of these impacts depend on a multitude of factors, so thats difficult to forecast, resulting in our decision to suspend ita.
Notably our ITD business experienced 21% growth in Q2 and at first blush did not appear to be negatively impacted by cool the 19.
Im quite pleased with our second quarter results in this environment and we'll leave it to Tim to discuss in greater detail.
In response to cool that 19, we have taken steps to manage our operating expenses and preserving liquidity, while continuing to execute on our strategic objectives to position us for long term value creation.
We're fortunate to be the solid position financially without continuous focus and optimizing revenue and cash performance.
As far as a whole product solutions commercialization strategy I'm quite pleased that Cook medical and Surmodics, a proud to announce a new agreement in which Cook medical will distribute to new surmodics products, namely, our hydrophilic PT or one full and on a balloon catheters.
Had an excellent longstanding relationship with cold, where they use our innovative surface modification technology with many of the vascular platform products and platforms.
We're excited to expand on this partnership with these new or one four on one platform.
These balloon catheters, which will launch in the U.S. later in 2020 can be used to help patients who are suffering from below the knee critical limb ischemia, we have already shipped the initial orders for this product to cook.
Moving to our product pipeline and our three platforms DCB programs thrombectomy and vascular treatment for radio access.
We remain on track to respected these strategic objective and the timeline.
Let's discuss those surveil DCB.
Im pleased to note that the notified body is in the latter stages of reviewing our CE Mark application.
While it's still too early to comment on the outcome of the review process, we remain highly confident in the data and the strength of all applications.
As far as the transcend pivotal trials with the vehicles. We continue to conduct 12 month follow up visits with patients in the transcend trials. We have observed some believes with respect to the follow up windmills, depending on the site location and as a direct result of recorded 19 impact we are engaging.
With the FDIC and how to best treat this delayed out of window and all missing data out there.
The SD clearly understands the current limitations of trial management during this pandemic, including Ontime follow up and recently released the guidance document on this very topic. Nonetheless, we are working with the site research coordinators and investigators individually to maximize in window primary endpoint fall.
Hello.
We remain confident in the amount of data, we expect to have to demonstrate both the safety and efficacy of our surveil drug coated balloon.
With respect to the events, we have completed a clinical data collection of all first in human study as planned and a filed finalizing the clinical study report.
We had planned to release these data last week in the late breaking trial a presentation by professors, Andrew Colin from Auckland, New Zealand and Professor Ramon VAALCO from Sydney, Australia at the well known Charing Cross Symposium in London last week. Unfortunately, the symposium like all of this type was cancelled Utica.
Slide 19.
We are looking for the appropriate for up to present these important late breaking trial data.
No I knew you acutely interested in the results and what I can say the signs of the trial was successful and provided important safety data on events and provided directional data regarding the efficacy of the device that was quite encouraging.
Now keep in mind mine to while the number of subjects with small 12 subjects. The freedom from Revascularization that six month was greater than 90%.
We're excited to lead these details first in human trial results of our best drug coated balloon, but in the clinical form it deserves within the next six months.
Finally on our Sundance around on the score the balloon fell below the knee disease.
We were poised to initiate that Sundance trial as early as much we have already received a regulatory and ethics committee approvals and some of the relevant geographies. However, due to cope with 19 and the sequestering of leads wonderful investigators because of the presumed contact we had to delay.
We hope there will be safe and favorable conditions by the end of Q4 to initiate the trial.
But as quite difficult to predict when we can work with the sites to initiate the study.
While we're disappointed we have controlled what we can and will initiate this trial as early as safely feasible.
Well continue to make progress and our radio platform and a file for clearance with the FDA on all one for radio balloon catheters.
This device can access the vascular jupiler radial artery and treat below the knee lesion.
We have started work on our all one eight peripheral balloon catheter to treat more proximal vessels behind and above the the value of radio access.
With respect to pounce, our unique arterial thrombectomy system, we have an active submission for the fighting key approval with the FDA clearance and are responding to request from the agency for more data, which requires actual further device testing so stay tuned.
As you can see we haven't focused on all key fiscal 2020 strategic objective as even as we confront this corporate 19 pandemic.
Our capital allocation strategy remains intact, and we are appropriately maintaining the investments and pacing for critical strategic programs, even as we ensure that we have the liquidity for the long run continue to operate surmodics.
Finally.
Early in April we had a realignment of executive responsibilities that will improve our execution.
Three sides of Chief marketing Officer will become our senior Vice President of product development, and the Chief marketing Officer.
Terry is held this rule successfully 14 years ago had my last company, resulting in the launch of multiple market leading products that have to date treated millions of patients choose the founding member of our drug coated balloon programs and has 26 patents issued and pending uneven expired gives us a 28 plus years.
An industry.
Joe Stitch will add the HR organization to his responsibilities as those senior Vice president of IBT and HR.
Joe is an amazingly cultural up culturally aligned to leading the organization with several decades of leadership experience and an excellent choice for HR position as well as we continue to build Synbiotics culture is supported by a terrific aged our key both into us and an ROI.
Charlie Olson will report directly to me as a senior Vice President of commercial development for medical devices. Charlie has been an industry for over 25 years and Hell disposition that surmodics for almost 19 years is responsible for signing over 250 commercial agreements.
Up to including the recent Cook agreement.
And finally, this would free up Tom Graney, our Chief operating officer to focus on the quite essential component of our strategy, which is to be able to scale up our products and these partnership agreements in a high quality cost efficient environment.
Tom is simply to most capable executive to lead this effort given has decades of experience in both combination products that is with drugs and peripheral medical devices.
And also adopted this wrestle Tanner will continue to lead our clinical efforts as a VP of clinical affairs with over 20 years of experience in this area.
I want to thank all surmodics team for their contributions to supporting our customers and patients.
Im proud of our team and our unwavering efforts through these challenging times I also want to thank all healthcare providers, who are on a front lines for each each day with deeply grateful for their service and dedication to help us in overcoming this pandemic.
Ill now turn the call over the 10 to provide more detailed in our second for the fiscal 20 results, including some further perspective on the impact of the call with 19 pandemic is having in our company financial details of our liquidity position Tim. Thank you Gary during today's call I will provide an overview of our second quarter.
Operating performance as noted in our press release issued this afternoon due to the uncertainty created by the call that 19 pandemic, where withdrawing our full year guidance. However, I will provide some commentary to help provide insight into the impact of coal that 19 on our company. These comments are based on circumstances that.
Exist today, which we acknowledge our highly fluid and are likely to change.
Revenue for the second quarter fiscal 2020 grew slightly to 22.8 million.
Compared with 22.7 million and the second quarter of 2019.
Our second quarter revenue was negatively impacted by the previously communicated expiration of our fourth generation hydrophilic coating patent as well as by the postponement to procedures as a result of covered 19.
Medical device revenue declined approximately 1 million or 6% to 16.3 million in the second quarter.
Impacting second quarter revenue was a significant reduction in royalty revenue driven both by the expiration of the fourth generation hydrophilic coating patent and buyer cobot 19 related procedure postponement.
We saw strong performance from R&D, TRO diagnostics business, which delivered quarterly revenue of 6.5 million and the second quarter at 21% increase over the prior year.
Order volume from customers are distributed engine products, which fluctuates quarter to quarter grew significantly in Q2 compared to the prior year. Additionally, we continue to see demand expansion for our micro Ray DNA slide products.
Our second quarter royalty and license fee revenues totaled 8.2 million down 1.7 million or 17% from the prior year period.
As I mentioned primary impacts where the expiration of our fourth generation patents and coated related procedure postponements.
Surveil distribution and development agreement with added vascular generated revenue of 1.5 million in the second quarter and was essentially flat with a year ago period.
And in line with expectations at this stage of the clinical study.
Product sales of 11.8 million during the second quarter increased 1.9 million or 19% compared with a year ago period.
Performance was broad based and driven by increased demand from in vitro diagnostic customers as well as from our medical device customers.
Both of our business segment saw double digit product sales growth.
I want to take a moment to echo Gary's earlier comment as a manufacturer and supplier of critical components for diagnostic tests and medical devices, our talented and dedicated operations team continues to come to work each day to ensure the availability of our products and enabling technologies and our customer supply chains.
For this we're all very much appreciated.
Unlike our royalty revenue, which has been impacted by cobot 19 through the second quarter, we did not see the pandemic and favourably impact our product sales, which have historically been approximately 40% of our revenue.
Today as in the past, we have visibility into the majority of our medical device and in vitro diagnostic product sales from customer purchase orders going out four to six weeks or longer.
While the future is uncertain, our recent experience a seeing consistent demand for our medical device products and coding reagents.
Since March R&D Metro diagnostics business continues to manufacture and shipped product to the majority of our customers in a manner consistent with the pre coal that environment.
While it is too early to speak to future potential we have seen increased interest in our chemical components from customers, who are involved in coated related research programs and the development and commercialization of diagnostic tests to detect the presence of antibodies that signify the previous presence of the virus.
R&D services revenue of 2.8 million was essentially flat with the prior year period look steady demand from our medical device coatings customers.
Since March we're seeing a pullback in customer demand for our coating services related to the call that pandemic as our customers are experiencing the effects of procedure postponements.
The medical device business reported an operating loss of 1.5 million in the second quarter compared to an operating loss of 23000 in a year ago period.
Medical device operating results were unfavorably impacted by the decline in current quarter revenue.
650000 dollar favorable adjustment in the claim reserve in the prior year and a 300000 prior year contingent consideration gain.
Medical device operating expenses, excluding product costs had a neutral impact on the quarter with an increase in SGN a expense offset by a decline in R&D expense.
Which was primarily related to the reduced clinical study costs.
I have any revenue of 6.5 million in the second quarter was up 1.1 million or 21% compared with the prior year quarter.
Performance was broad based and as previously mentioned benefited from sales growth of our distributed energen products and DNA slide products.
I have any operating margin in the second quarter was 53% as compared with 54% in the prior year quarter.
Operating margin was impacted by shifting revenue mix toward products with relatively lower gross margins.
Product gross margins were down slightly in the quarter at 68% as compared with 68.7% in the prior year quarter as improvements in our medical device product gross margins were offset by the impact of unfavorable product mix within our IBT business.
Before I comment on the second quarter operating expenses, let me share thinking on how we are responding to the current environment.
Our leadership team is continually assessing controllable discretionary spend with an eye toward operating expense and cash management.
As a result, we have implemented several cost saving measures, including delaying certain capital investment and hiring.
As well as reducing discretionary operating expenses, where possible without sacrificing investments in our key strategic initiatives.
As a percentage of revenue second quarter fiscal 2020, R&D expenses, including cost of clinical and regulatory activities totaled 52% compared with 60% in the year ago period.
R&D expense was 11.9 million for the quarter down 1.6 million from a year ago period.
The decline in R&D expense was driven by a decline in current year transcend and other clinical study costs as well as prior year activities to establish surveil commercial production capacity.
As Gary mentioned during the remainder of fiscal 2020, we continue to work towards initiating our first in human clinical study of our Sundance below the knee sirolimus drug coated balloon and advanced development efforts on several products related to our Ponce thrombectomy and sublime radio access platforms.
SGN a expense in the second quarter fiscal 2020 were 6.7 million or 30% of revenue compared to 22% of revenue in the prior year period.
SGN a expense was impacted by prior year $650000 reduction to expense for a claim that was settled in the period for less in the amount we had reserved.
Personnel and other investments to support product pipeline development and preparation for product market evaluations also contributed to the increase.
Now turning to income taxes, we recorded an income tax benefit of 1.9 million in the second quarter as compared with an income tax benefit of 162000 in the prior year period.
The current year tax benefit was the result of our ability under the cares act to carry back net operating losses to periods, where the statutory tax rate was 35% versus our current tax rate of 21%.
Both periods reflect the impact of Nontax benefited amortization and operating losses in Ireland.
On a GAAP basis, our diluted earnings per share were 11 cents in the second quarter as compared with nine cents and the prior year quarter on a non-GAAP basis, our earnings per share were four cents in the second quarter fiscal 2020 versus seven cents in the prior year quarter.
Non-GAAP EPS was reduced by 13 cents for discrete tax benefit recognized under the carriers Act for the carry back of those net operating losses.
Moving to the balance sheet.
We continue to have a strong cash position and no debt in the second quarter, we began with $48.3 million of cash and short term investments and generated 2.2 million of cash from operating activities.
During the quarter, we paid 1 million for an installment obligation associated with our fiscal 2018 embolic asset acquisition.
As well as 600000 per capital expenditures.
As of March 30, Onest 2020, we had cash and short term investments totaling 48.4 million.
We are taking a thoughtful and disciplined approach to manage our balance sheet and protect our liquidity as we navigate the uncertainty surrounding the cold and pandemic.
Early on in the coded outbreak our business units decided to increase the inventory levels to ensure we are protected in the event of supply chain disruptions.
From a liquidity perspective, where prudently managing our $33 million bond portfolio.
During our third quarter over 50% of the portfolio matures, and we will roll into cash and money market accounts with the remainder maturing over the subsequent nine months.
Overall, we are in a solid financial position and believe our expense in cash management discipline, and our focus on cash flow and liquidity will serve us well in these uncertain times.
Operator. This concludes our prepared remarks, we would now like to open the call to questions.
Sir if you would like to ask your question. Please signal by pressing star one on your telephone keypad, if you're using a speaker from please make sure. Your mute function is turned off to allow your certain overreach are equipped.
Again press Star one to ask your question.
We'll pause for just a moment to allow everyone an opportunity just circle.
And our first question.
Comes from Brooks O'neil with Lake Street capital markets.
Known guys it sounds like you're managing well, we formed Sir and so congratulations.
Thank you.
All of a few quarters. So close I would just curious if you could share we will.
What your device revenue would have been without post home.
And maybe a little bit broader can you just help us I know you have a lot of different cuts in the reason I assume they may be any differently up and down the line, but what in general are you seeing from your device customers in terms of therapy.
Now and maybe just one more related business when I have a bunch more but.
Would you expect to see a bounce back in revenue when.
Portable procedures begin to be down again in healthcare marketplace.
Books out I'll take the last part of the question and Tim has some really well developed analyses of the first bought.
You know, we we have heard seen that into the fourth calendar quarter could be a time have bounced back and penta procedures, depending on the type of procedures.
But it's really difficult for us to predict we have an aggregate portfolio in coronary per fro.
Structural heart the neurovascular procedures in the vascular speeds at least so we we simply don't know we either this tacoda V shaped recovery does talk about a U shaped recovery.
If anything we.
We have to be prepared for you shape, the lopsided U shape recovery, where the new norm may not still be as good as it is today, but we also have to prepare with our customers as a critical supply of full a rebound where we know the caught flat footed an inventory.
Waterfall logic customers, though.
They have shifted from like Oh, My Gosh Surmodics, we began to show the supply and we would take whatever you can send to recognizing their liquidity management that high inventory levels may not be near best interest from where we can capital viewpoint.
And so it's a dynamic thing where.
We don't know because of the unserved uncertainty, but we have to be period to get back up to sustainable inventory levels very quickly. It's a challenge I will tell you that.
You know working capital needs to manage is really well.
But we're lucky where we can quickly convert from in many respects leads into reagent Deere is from raw materials.
Two reagents device side is not as quick of a conversion.
And so we're watching that dynamic will prepare for the was but have plans that we have not caught off guard things. If a V shaped recovery does have I'd answer on the question It goes up.
Very helpful. I appreciate the color.
Thank you broke so the question. So you had a couple of questions in there one of them was what type of revenue impact are we seeing on our med device business as it pertains to cobot 19 for Q1.
And what I'll tell you is it's all.
In the royalty.
Revenue stream, so where we're really not seen much of an impact here as it pertains to the product revenue you saw in Q2, we saw revenue growth of 20% and the product sales and we saw double digit revenue growth both within the diagnostics as well as within our med device business.
I will just say that we do have on calls on a weekly basis with the teams to get an update in terms of where appeals our scanning and what we're hearing from customers.
Generally speaking what we're hearing and what we're seeing from appeal perspective is what Weve anticipate an expected.
Being said, we fully appreciate that as the postpone procedures continue there are customers are likely building inventory and at some point, we'll probably reached that level, where they may be look into order fewer reagents in products from us as they work through their inventory.
But it's too difficult for us to get a read on that and we're not getting clarity from the customers at this point, yet, but we're staying on top of that I will say that in terms of the impact on our royalty revenue, it's a little bit hard to parse apart the the decline in the royalty revenue for the from the corridor as it pertains to the the patent.
Expiration and Covance as you can imagine these are interrelated and married but I'd say, probably the way we think about it our expectation is it's probably about 50% related to.
To the coal that impact.
As a result of the declines in the procedures.
That we saw really coming online in March fairly substantially.
You'd asked what types of behaviors and we're seeing from the customers and I kind of gave you a little bit a heads up on that we're seeing.
Just at this point, what I would consider to be.
Expected peos from our customers we have through through April for the most part seen expected.
Has come through from the customers, but again, we'll we'll have to see how that plays out in the coming months as inventory may become a concern for our for our customers.
Yes, well that's all extremely helpful. Let me shift gears.
We support you guys like some price.
Thank you.
Just curious.
Number one.
Expect any milestone payments related to anything happening in the EU on that product to get sold to share with that without being specific normal timeline weighted by adaptable short sequence.
Okay.
Well were you referring pool will flow through that product you assuming you get.
Sure you know I suppose the fall as you know would regulatory.
Punditry.
Really hard to predict but we have been working interactively with the notified body.
They did pick up the file in our second quarter again, and we've been moving through interactively so far of C.
With our team and I am on lot of as close as well. We believe we have successfully and so that all of the clinical questions.
Baby there maybe a few more.
I doubt it but I can't see for show and I think this is the steps within these notified bodies that goes through a higher level review before ultamate issuance of the CE Mark.
So if if a CE mark is.
Issued do we have to clearly provide evidence of that sounds pretty straight followed to commercialize vision partners Abbott and there will be a milestone that we would receive as a result out of Tim I don't believe we have declared how much. It is but these are not insignificant as you recall our completion milestone.
And for completing enrollment was $10 million last August so its of that type I will say and and also the EBITDA and Rev. Rec impacts of the that we'll have a subsequent to that in this environment and with our partner Abbott exceedingly difficult to plan the I'd launch.
Each time, I mean in Europe right now.
Surely doesn't look like a good time.
In addition, surmodics still has to have some time to be able to fulfill our manufacturing the product skills. So we'll say today, we'll update you more on that as as those things become eminent.
But Europe is very.
It's a difficult market right now with the.
Clearly the cool bid environment, we still have ongoing as either at a paclitaxel.
Bait and ultimately when we have our trial results it could give all partner Abbott a lot more marketing cloud.
With the trends and study to be actually cool build them. All countries. So will we called out in reserve I think the first thing we we want to make show is make sure. We are able to do whatever we can to achieve that CE blog.
I know there was a question about the MDR, Tim I think they have pushed out to FDR Flint data.
Greg voted on it.
I would not.
We're not depending on that does is outside of fall window. We opened it we can get the CE Mark.
Within our fiscal year.
Yes, okay. Thanks.
Well that go with that little coil Chad's question. Thank you so much.
I just hope things continue to go well thank you.
Thanks, Thanks Brooks.
And our next question comes from Jim Sidoti with Sidoti and company.
Good afternoon can you hear me.
So here, you and Jim area Jim.
Great.
Just kind of following up where are you just left our CE mark.
Good.
You are the recent approval from Medtronic for their bill.
Does that have any soil would you see people when they see that does that help them, making that all feel more comfortable with the paclitaxel devices.
Which which DTV were you talking about the is the events the ABDC, there's an impact.
Yes, yes, so yes, so yes, theyve had I believe if at the mall sometime they got at the EMEA approval.
Right.
But.
Yes go ahead, we are they got the FDA approval. After all the controversy does that have any sway at all with the see people.
No no.
Well, we will be.
Okay.
European authorities have their own particular requirement.
Clearly I think if anything it clearly helps in the us any process flow back capacity by isn't and Medtronic clearly had the data to back it up so so no I think.
The way I wouldn't look at it is.
The notified body was equal despite the fact of backfill issue and you.
I can say much more budd as when you could imagine outlaw.
Bridging that we believe it's the right thing to review the filed the the picks it up earlier this year to softer review process and so.
That's why we're moving as quickly as we can.
Through it so but we are in the latter stages that it's still hard to know I.
Revenue for these things so up until when we get it Tim I am yet imaginable issue a press release.
At that time, so stay tuned.
So so cobot had been delayed that they are still working on that approval.
I'll now.
Yes.
I'll tell you I Newell, what lead review and the lives in Milan and being on the phone with them last time I spoke with EMEA be locked up.
In his appointment for over a full we.
And I basically set and good now we can get I'll follow up no because they have much slowed down because of course is 90 now they are working remotely.
Okay, and then with the.
The radio.
The radio access balloon.
Should we assume since we are.
Other balloons work to cope that there will have first.
Right of refusal for the radio access school as well.
No. These ended because they have very.
This substantially different.
I mean, I wouldnt have an interest.
As well as I will accompany the taught hospitality till we actually get all clinical data on the device off though we get clearance, but these are we call 2.5 needle long devices that can go from your wrist all the we'd see a big tool pretty much in so they.
Assuming we get the clearance for this it will be to first device like it actually in the world.
So.
Well, we'll see who the interested parties are at that time.
Okay and then.
I will say I'll say, one thing, we're very pleased with coke.
We we have significant relationships in industry and Coke has always been.
An excellent alone sending partner for us. So that's that's a very good thing for those devices.
And was there any upfront payment from coke or is that deal structure so that.
You get a percentage of sales are world.
What's the product hits the market.
Thank you for the question, Jim very very similar structure to what we communicated previously with Telemark no upfront no milestone payments no royalty, we manufacture the product and that and then we sell it to cook.
Yes, It will show up in product revenue in the future and by the way, we're quite happy to get the CE Mark for the tell them, while coming seem all seem to be few in fall between even foot non drug delivery devices, so getting that.
Okay.
For our partner Medtronic on Telemark is also a good thing that we accomplished this quarter.
Okay, and then Greg.
Your last couple from me.
If you listen to Medtronic call their guidance for Endovascular procedures was pretty wider.
Can you give us.
Any sense, what you see procedures that youre devices are used in there are going to be down over the next six loan through.
Your guidance was.
The only where from 20% to 60%.
Yes, I'll say, well, what I can give us generally and Tim Tim has more of the detail.
So Tim was an AG is the goal we will very highly coronary.
Focus straight and negative NOI liked that.
Coronary two of the dog eat dog will then come Csps and stuff. So we intentionally with our team, including Polyols and the team tried to get a much better distribution in the portfolio. So coronary at one time was almost 50% of bar royalty. So right now into Tim will have the data was much more evenly distributed between currently peripherals.
Zero and.
Structural heart try to others is also in the as well.
It's.
I'll tell you I have had two kids, who doctors and one's a cardiologists and just some of that makes no sense because.
You, having a semi heart attack I know now in some cases is being used thrombolytics versus take the patient into the Cath lab, but what's mystifying to us is strokes and heart attacks and see elective freight the acute emerging phenomenon you need to treat those patients.
We're hearing in some respects and then in signing those so I don't really can't rely on us.
We're not seeing a whole lot of strokes and hardware like what happened to those stations.
Not coming in on the.
It's sort of mystifying peripheral we do know those except for critical limb Olympus salvage good preliminary meal.
A lot of per foot procedures have been pushed out I don't think those remain elective.
The long, we just don't know what we call the rebound defect and as we've heard.
I think Boston announced today as well.
Zemel, they might be some rebound defect in the town the fourth quarter, but simply I hate to safely. The uncertainty is really the definition and we just don't know apart from the anecdotes we're hearing.
Okay, and then just so I figured neither comment that I always makes it even before we hear in Europe is that you should go back and Craig.
We do you guys every day, because they generate the care.
And your further development or the other businesses large seems like they did a beginning this quarter.
Well, Jim I can guarantee you that their members of the IBT team, who are listening to that call and.
And I can I can assure you they that as much as they may hear appreciation for me, they're probably going to enjoy hearing it from me a little more yes.
Robbinsville Batman. So every now and in Robin comes in and.
Really really like where theyve done.
All right.
Alright, thank you.
Thank you Jim.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Mike Mattson with Needham <unk> co.
Hi, Thanks for taking my questions. So I guess I just want to try to summarize what you're saying about the.
The coated 19 impacts here so.
I'm going to kind of rattle off what I think I heard you say and let me know if that's right or not so it sounds like the impact is really more in the medical device business and then in terms of the other way you categorize it revenue, it's mainly in the royalty.
And license fee line, and maybe a little bit in R&D line, but the product sales at least right now you don't really see that being affected much.
Better assessments.
That is a really fair assessment, that's exactly what we're intending to articulate with regard to the Q2 results.
Mike I'll, just add a little bit of color I think.
As we think through what's happening or what's happened since the end of March I would expect that we'll see our royalty revenue Haven, an additional impact.
At least during our Q3 and likely Q4 as these procedures and I think as Jim did a nice job of framing up the question in terms of procedure postponements in what is hearing from Medtronic as well as other med tech firms and if we've been paying attention to what healthcare systems have been saying.
All of this anecdotal information suggest that there is a significant a lot decline and many different types of endovascular procedures that that benefit from a quota device and we just don't have a 100% direct visibility into what's going on it's always a bit of a delay for us as you know.
Our business model is one where our customers actually sell product and and then the period following the quarter. Following their sales actually provide us with the royalty reports and the royalty payment. So we always have a little bit of a lake shore that looking at it from real time, So we're keenly and acutely panicking.
What others are saying.
So as far as some of the R&D revenue.
You did hear me correctly and then on the call with my prepared remarks, we are seeing a pull back and some of our coating services activities that are absolutely tied back to postponement of procedures and we don't have any visibility as to when that might come back on.
But the product revenue has been Ben amazingly strong in Q2 and and through the month of April were tracking with regard to the expectations in some cases, maybe a little bit stronger in certain areas, but I would caution our team and I would caution others to think that that will continue at some 0.1.
Should expect that there could be inventory management on the part of customers and even hospitals, which could have an impact in terms of our royalty revenue.
And reagent sales as well.
Too early to call.
Okay. Thanks, and then just just.
Well from timing standpoint that your customers are seeing the big impacts.
In their June quarters on the does that mean the year Dow would flow through to your September quarter or that here in June.
Although.
It's too too thanks to really contemplate here and be mindful of one is the we will estimate what the out of the royalty payments will be that's we're required to do that.
Under the accounting standards.
So we'll be making our best and most informed estimate in terms of what the royalty revenue will look like during this period of of April through June.
However, the cash.
The cash flow that comes from the royalty payment will be in our Q4 for this period. So.
Sales at our customers make for April through June the remittance of the royalty payments would occur July through September.
Okay.
And then just following the diagnostics business I mean that you saw 21% growth this quarter.
Pretty strong, but it sounds like that really you don't think there was any benefit in there yet.
Many cobot 19 related testing.
Yes, it's pretty I would if I heard a characterize it I would say would be modest at best.
They clearly there is more interest that we've seen in April from customers that are working on cobot research as well as customers that are working on on manufacturing antibody test.
So that will be something that we hope to be able to communicate a little bit more in the next earnings call.
But.
We do have a nice business with our DNA slides that are used for flu testing I think many people might recall.
In February and March.
There was a lot of discussion with regard to what the symptoms of Kobe 19 look like and very similar to the flu and there wasn't a call that test. So folks we're doing we're actually going to get flu test to to determine whether or not they didn't have quoted 19. So they could rule out pull that 19, if in fact head to flu so that could have had.
That have an impact in the quarter.
The Q2 results.
As a pertain to our DNA slides.
Okay.
Alright, and then just a couple of product question, so the thrombectomy product.
You may now because previously maybe I just missed that on an earlier call, but it sounds like you said you had submitted your five to 10-K for that than the FDA came back and had some questions you have to some more testing or something is that right.
Yes, we submitted for it.
We submitted some potentially broader indications for us and what the team has gone to do in.
Product like that.
This is a pretty doggone unique product for that indication no capital equipment.
Very little blood loss.
Really on the table solution so that.
Thats the ones. So a show that they have some additional de though which which is not trivial it's not hot get but it just takes time when you have to go back and potentially do another animal study and generate Dino So thats where that team is right now.
You know, we were hoping to resubmit that detail.
As early and it may slip into the fourth quarter.
But the great to get into back to them in the third quarter.
Okay.
Alright and.
And then the so the Sundance.
First in human trial that you said.
You expect at this point, you're now expecting the starts out in the fourth quarter.
Well, we don't know I mean, we were disappointed.
We had however, teed up to initiate the trial not in all sites that you get both the local the regulatory approval and Ethics Committee approvals.
And one of the investigators expose the colder than that was a site will kicking off first so we had two.
Delay that and that was those March 15th actually is now.
In some of these European countries and also some of the Asia Pac countries, where we have the trial sites.
It's it's now where it's really difficult.
To get patients in full this aleem due to site initiation visits so the thing we're contemplating is what we what we do want to do is.
Stop the study because we said we will do that started to everyone investors and it doesn't really help what would you really want to do is finished as Brent and so it's starting to studies synonymous with finishing the study is good but it's starting to study doesn't really do you anything and the trial goes coal. So you started to go one patients in any way three months for them.
Next one we don't want that we want to have momentum when we thought we want to make sure the sites already and they have identifiable subjects to fit this protocol so.
The delays really depend on what we hear from the seven sites.
If it doesn't make sense is thought we wouldn't saw it.
We would've thought one site and all of us like.
Dead in the water.
Yes.
Yes, Scott.
Thank you appreciate that thought out for now.
Thank you Mike.
And our next question comes from Mike Potocki with Barrington Research.
Hey, guys. Good evening couple of questions.
Gary I thought I caught that you said that you guys had already had a written out pandemic response plan in place I guess, a is that true and then b if it is.
When was that.
That first Phil Hi, I'm.
I'm embarrassed I should have known we had we have a business continuity plan and we ended up trend whats called contend dependent emmick preparedness right Landon.
And I know you sort of dust off these things I think we ask that makes them adaptations to it.
But we I mean, no pandemic is a boiler plate document going to servier, well, but at least the called for the appointment of a pandemic chief academic officer someone to quarter back. This.
And run with it at multiple sites. So thats, one we using all 10 dynamic.
Most of which is really the executive team and some of our CEO manages and direct as.
We need probably four times a week these to be everyday EBITDA. If nothing has changed between Monday in Q. They will will have the meeting on Wednesday every morning attend and there's quite a lot of things we've been rolling out to ensure the health and safety of on site team.
So yes.
Okay.
Yes. It involves the plan so I can't take any crescent.
Okay.
And then I guess in terms of and maybe I missed this if you commented on this but in terms of sort of R&D and sort of the five 10-K.
Longer term outlook there are you guys.
Obviously said you're pulling back on discretionary on hiring some cap some capital project, but in terms of your R&D related to five 10-K are you guys sort of pulling back or pushing out expenses to the right on that or or you just.
Business as usual there.
So ill capital allocation strategy, when we talk about this and we keep refining it does more data emerges.
Pandemic takes its course.
It is really one is companies would see our strategic plan is our strategic plan.
Them to torpedoes Bill moving ahead.
We don't think it's that because you know has to balance the president of preservation of liquidity and so if you could do them both.
Independently then we would proceeding full steam ahead. The question is given uncertainty. We don't think we can do them both and so in setup went up cutting back R&D I think would narrowing the focus on the things that really matter things that can wheat, we're allowing them to wait.
But things that really has to move quickly it had like some of our radio products. We those are not changing at all now there is some delays we would we'll see a tool order both in the us and in Ireland and so it's hard to do run all the projects as planned.
I'll give you an example animal lab, so preclinical studies I mean, a lot of that equipment has been sciquest. It appropriately so for human use given this dynamic so it's not easy to get timeline anytime and animal asked to keep going so.
While we didnt intentionally deli cash expenditures, there's also resulting delay in cash expenditures because things can't move as fast so.
I don't know that gives you have an idea, but will not whole sealed.
Pressing the brakes on all our strategic initiatives, but we're being more methodical where we put the cash.
Okay allocated.
Let me follow up and see if I can dial it in a little bit so for myself on that so.
And it's not like you promise exactly but generally speaking I think I think they view is that that you guys going to try to get two or three or four of these products.
Through regulatory approval every year over the next 345 years.
Possible at somewhere you know 612 18 months down there is essentially a gap because of this period of time, where you guys you couldn't push forward a couple of projects that.
Maybe you would hope to.
You know in terms of a steady stream I would see I do not see an interruption in the steady stream I think the cycle between the steady stream might increase so okay. I wanted to have full products per year.
It's not like without for this year and maybe not in next year it might string out to be Threed, yes. Okay.
That's that's always looking like.
Alright, perfect and then and then just one for Tim Real quick Tim I think last quarter, you guys had said.
Just in terms of your expectations commercially for telemarketing and the one for a one a balloon catheters that may be in aggregate something like two to 3 million would.
Hit in fiscal 20 is that still ballparkish about your expectation.
Expectations really don't exist, Mike that's that's a challenge of the environment I think I made a comment that we have peos that typically go out four to six weeks or longer which clearly doesn't get us to the ended the year.
No.
I'll tell you that we're hopeful that we might see that but I don't have assurance that we well yes, yes.
Just on the pandemic plan I was just informed that we put the pandemic plan together for each one and one India 2010.
And I was here so no I get to take the credit even though I didn't know about it.
So ill make I'll make sure I saw your name right report [laughter] [laughter] just one last quick one last question.
Tim did you say a $1.5 million associated with Abbott this quarter come to Rob I did.
1.5 million that's correct, yes, okay. Thanks, guys appreciate it.
Thank you Mike.
That concludes today's question and answer session. Mr. My garage at this time, let's turn the conference back to you for any additional we're closing remarks.
Well I have to see I'm proud of our Timo employees, and especially that we continue to make progress slowly, albeit on all key strategic initiatives and I wanted to say thank you very one today's stay safe, everyone and be well. Thanks.
This concludes today's call. Thank you for your participation you may now disconnect.
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