Q2 2020 LivaNova PLC Earnings Call
Time, all participants' lines are in listen only mode. After the speakers presentation they'll be a question and answer session to ask a question. During this session you'll need to press star one when your telephone.
As a reminder, this conference call may be recorded I would now like to introduce your host for todays conference Mr., Matthew Dodds, even know bus senior Vice President of corporate development. Please go ahead Sir.
Thank you Catherine and welcome to our conference call and webcast discussing leaving Novus financial results for the second quarter of 2020.
Joining me on today's call, our Jamie Macdonald, our Chief Executive Officer Dad used in our Chief Financial Officer, and Melissa Farina, Our Vice President Investor Relations before we begin I would like to remind you that the discussions. During this call will include forward looking statements factors that could cause act.
Actual results could differ materially or discussed in the company's most recent filings and documents furnished to the FCC, including today's press release that is available on our web site, we do not undertake to update any forward looking statement.
Also the discussions will include certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures can be found in today's press released as available on our web site.
We have also posted a presentation to our web site that summarizes the points of today's call. This presentation is complimentary to the other call materials and should be used as an enhanced communication tool you can find the presentation and press release in the Investor Relations section of our website <unk> under news and events. Thank.
Patients at Investor day, leaving no, but dot com.
With that I will now turn the call everything.
Thank you Matt.
Thank you for joining us and I Hope you and your families continue to remain safe and healthy during these challenging times.
In the second quarter of 2020, we improved our liquidity increased financial flexibility and took actions that allowed us to effectively navigate this new environment.
Overall, we saw a steady improvement in procedure volumes as we move through the quota.
With some geographies and product lines recovering faster than others.
I'm going to start off by discussing some recent highlights and then results for our primary growth drivers epilepsy and ice yes.
Then I will move to our pipeline and finish with the results of at remaining businesses.
After my comments said, we'll provide you with additional detail on the financials and our updated 2020 bps gardens.
Finally, I will wrap up with closing comments before moving on to Q1 night.
In may.
The International Journal of bipolar disorder is published data that shows combining BNS therapy with treatment as usual significantly improves outcomes in patients with treatment resistant bipolar depression.
Patients treated with BNS therapy have increased chances of achieving a response in less time than the treatment as usual group.
63% of patients a cheap response compared to only 39% of the treatment as usual.
The study also shows that these patients treated with adjunctive BNS therapy, we are less likely to be suicidal.
This study was complemented with a separate publication and contemporary clinical trials detailing the design of the recover clinical study.
These articles further support and dedication to the patients who suffer from this debilitating disease.
At the W.P.S. meeting in May we presented new data from up persist <unk> clinical study, which is the largest clinical study for surgical aortic valve replacement.
The new clinical data demonstrates consistent outcomes and lower procedure times, the percival as compared to search in valves.
The study validates the Clinton critical benefits Percival building on 13 years of clinical evidence technology.
In the second quarter, we also announced the launch the Percival plus in Europe.
A key innovation intended to deliver better.
Long term patient outcomes.
Importantly, we completed a two step financing to increase our liquidity and improve financial flexibility.
We entered into a five year 450 million dollar credit facility with Aeris capital and completed I 287.5 million dollar offering of cash exchangeable notes.
The combined proceeds were used in part to repay all private debt facilities.
With $233 million in cash and equivalents held at the end of the second quarter. We believe our balance sheet is strong enough to where the further kind of at 19 related business disruptions.
Now I'll discuss how gross drive us epilepsy and advanced circuits to support.
On that sales results will be starting on a constant currency basis.
Epilepsy sales declined 45% versus the second quarter of 29 team. This decrease is attributable to the impact of kind of at 19, new patient and end up service implants.
You S. epilepsy sales declined 45% in the quarter consistent with other public commentary phenomena merchant procedures. We saw at U.S. epilepsy performance bought him in April and improved sequentially in both night in June.
Epilepsy sales in Europe declined approximately 50% due primarily to the performance of regions highly impacted by type at 19, which include the UK, Italy and France.
The rest of World region declined 36% relating to the suspension of non imaging procedures in impacted areas, including Brazil and AIPAC.
In 2020, we now expect at U.S. epilepsy business, which excludes DT data declined 15% to 25% due to the impact of kind of at 19 on non emergent procedures.
The decline is slightly higher than we previously forecast due to the continued impact from new waves of cobot 19 cases that have been occurring in some parts of the country.
We still expect sequential progress as we move through the year and the second quarter represents the trough quarter.
Advanced definitely to support sales were $6 million in the quarter, a decline of 28% from the second quarter of 29 team.
As custom as anticipated the launch of livestock numerous orders with the fit into the third quarter.
Early this month, we began the full commercial release of livestock and customer feedback has been positive.
We still expect I see us business to grow at least 30% in twentytwenty.
Turning now to difficult to treat depression sales in the quarter were $1.3 million up 11% versus the second quarter of 29 team.
We still expect D. today sales of approximately five to 10 million for the year.
Based on what we know we hope to transition to the registry component of the recover that study in light Twentytwenty early 2023, <unk> like 2022 early 2023, recognizing that this is highly dependent on the continuing impact of kind of at 19 on patient follow up in scoring.
In Hot sorry, Yeah, I ran some heparin U.S. pivotal trial was temporarily paused in March two type at 19 after enrolling just I have a 200 patients.
During the quarter the team was able to re initiate enrollment in more than half of the sites. We continue to focus on remote engagement to support patients physicians and sites.
Still expect to reach the first clinical milestone of 300 patients enrolled in the second quarter of 2021.
For a cardiopulmonary business sales were 101 million told us in the quarter, a decline of 21% versus the second quarter of 29 team.
Heart lung machine sales declined in the high teens, Judah Cobot 19 impact on hospital budgets for capital equipment.
Oxygenated sales declined roughly 25% compared to the prior year due to the decline of known imagine cardiac procedures globally.
Oxygenators experience the smallest o'clock in the rest of World region.
Looking at heartfelt sales, a heartfelt were $18 million in the quarter a decrease of 47%. This is the second quarter of 2019.
Mechanical valves performed slightly better than Percival and other tissue valves.
I'll now turn the call evidence that for another view that financial results.
Thank you Damian.
I'm going to discuss the second quarter results in greater detail and then provide an update to our 2020 guidance.
Sales for the second quarter were $182 million, a decline of 33% compared to the same quarter prior year.
Cardiovascular sales were $125 million down 26% from the second quarter 2019.
Neuromodulation sales were $57 million, which has declined to 45%.
The second quarter 2019.
Adjusted gross margin as a percent them that sales in the quarter was 61%.
Now from 69% for.
For the second quarter 2019.
The margin decline was primarily driven by mix from lower Neuromodulation cells.
Unfavorable manufacturing variances.
Adjusted R&D expense in the second quarter was $35 million compared to $40 million in the second quarter 2019.
R&D as a percentage of net sales was 19.3% versus 14.3% in the second quarter 2019.
The R&D spending decline is due to planned reductions in legacy products and the impact of cobot 19 or clinical studies.
Adjusted SGN expense for the second quarter was $80 million compared to $108 million in the second quarter 2019.
SGN as a percentage of net sales was 43.7% up from 39% for the second quarter 2019.
This 28 million dollar decline SGN expense is result of planned cost containment actions.
Adjusted operating loss from continuing operations was $4 million.
Compared to adjusted operating income from continuing operations of $44 million in the second quarter last year.
Adjusted operating income margin from continuing operations was a loss of 2% compared to income of 15.9% in the second quarter 2019.
Our adjusted effective tax rate in the second quarter was 2.8% as compared to 15.4% in the second quarter 2019.
The lower tax rate is related to changes in geographic income mix and a partial valuation allowance in the United States.
Finally adjusted diluted.
Loss per share from continuing operations in the quarter was 15 cents compared to adjusted diluted earnings per share from continuing operations of 70 cents in the second quarter of 2019.
The incremental impact or refinancing activities in the second quarter 2020 amounted to two cents.
Moving to cash flow.
Our cash balance at June Thirtyth, 2020 was $233 million up from $61 million at December 30, Onest 2019.
Our net debt at quarter end was $517 million up from $272 million a year end 2019.
The cash balances net debt numbers include the impact from the recently completed financing activities.
Capital spending for the first half the year was $18 million, which is $7 million higher than the first half of 2019 related to our initiatives in digital technologies.
Now turning to our updated Twentytwenty EPS guidance.
To reflect the incremental impact over recent financing we are updating EPS guidance for the full year.
We are still forecasting 2020 sales to decline between seven and 17% on a constant currency basis.
Current exchange rates remain unchanged the company's full year revenue guidance will be negatively impacted by one to two percentage points.
We now expect or global Neuromodulation business to decline in the range of 15, 25% in 2020, Dude cobot nineteens impact on non emerge and procedures.
We believe that the largest impact is behind us with a gradual recovery occurring mid third quarter in further sequential improvement through the fourth quarter.
Sales in our cardiovascular portfolio are estimated to decline by zero to 15% in 2020 with strong growth from HCS, largely offset by tighter capital spending budgets.
And the impact of lower cardiac surgery procedure volumes in both Oxygenators in heart valves.
Now turning back to the rest of the piano.
Adjusted gross margin is projected to be in the range of 65% to 66%.
We expect adjusted R&D to be in the range of 16, 17% of sales and adjusted SGN a to be in the range of 38.5% to 39.5% of sales driven in large part.
By our decline in revenue cost reductions in investment DGD.
On the expense side, we have executed actions to offset some of the expected sales impact specifically.
We instituted a hiring freeze adjusted employee related expenses and continue to participate in government sponsored port programs.
We reduced spend related to travel marketing events and field presence and have shifted to working with our customers and stakeholders using remote methods. The teams are focused on reallocating resources to keep expenses contain as geography is continue to open.
And we continue to engage physicians in person and remotely.
We reduced other discretionary spend related to external consulting and contingency stuff.
And finally, we balanced our manufacturing output to coincide with demand.
We are projecting adjusted operating margin from continuing operations to be in the 9% to 11% range.
Our adjusted effective tax rate is expected to be in a range of 10% to 12%.
As a result of our financing we are estimated estimated adjusted diluted earnings.
Earnings per share from continuing operations in the range of $1.15 to $1.35 down from $1.40 to $1.70.
It is important to note. This change includes the full year incremental impact were approximately 28 cents per share related to adjusted interest expense.
With that I'll turn the call back to Damian for some final comments. Thanks Ted.
I'd like to finish by acknowledging the selfless dedication of health care professionals around the world.
They are extraordinary efforts continue and we wish health and safety for them and their families.
I'd also like to extend the same wishes and my appreciation to the entire live and I've a team around the world and how they have reacted to the last quarter and the circumstances of Cabot.
We look forward to updating you on continued progress and delivering on that commitments to drive shareholder value and with that Catherine what I'd throw it back to you for questions.
Thank you if you have a question at this time. Please press Star then one key on your Touchtone telephone. If your question that's been answered or you wish her move yourself from the Q press the pound key.
As we enter the Q a nice session. Please limit yourself to one question and one follow up and then returned to the Q. If you have any additional follow ups.
And our first question comes from Matthew O'brien with Piper Sandler Your line is open.
Good morning, Thanks for taking my questions.
Hi, Matt Damon or morning.
Thanks for taking the questions.
I guess for starters I'm sure everybody on the call wants to really understand the narrow.
No my commentary you know.
You know expected to be down 10 to 15 your stand now it's more like 15% to 25%, that's that's five or 10%.
Increase as far as the the the contraction that we should expect here. So what are you seeing either in certain markets in Europe.
But haven't recovered what are you seeing that's new here in the U.S. a that concerns you I know what competitively from the drug launch you know are you also factoring in that you may have not been factoring and before I think you'd already already.
Considered that so just help us understand that declines there and then how to think about that business as we enter 21.
Yeah, So look a whole series of great questions there Matt.
So first of all just let me talk to the whole team here that I'm, just I'm proud of their efforts in the quarter and their extraordinary a response to the circumstances, we faced and how we achieved the goals we laid out in April for the quarter and I think thats being important to how we thought about the full year.
Similar to other public commentary in Neuromod, we expect sequential improvement in the third quarter compared to the second quarter. So you know that I think is important you know we expect the performance to be linear cobot flare ups ebbs and flows.
But the early signs for the quarter at paying encouraging.
Nevertheless, you know, we just don't see you know I linea.
Change here. So what we're seeing is that you know the impact from drugs, particularly epic dialects with the same in Q2 I bet Q1, So we don't see any particular change there.
We already took into account the other drug launches.
And now earlier guidance and that's included in this.
Again, we haven't seen that particular response, so those are to those new drugs.
You know our efforts here really focused on how we change our business model to partner with these comprehensive epilepsy Senate and focusing more on weight DRA patients.
So over the over the previous in a couple of quarters, we've changed our story to much more focus on how.
The next is accretive to any drug tile we've improved at key account management focus we've added medical science liaisons, we've added patient nudge. It mean nurse educators, so that the conversations at different with patients.
We've worked on a lot of remote.
Protests has to be able to continue at support there and so you know where really taking a look at the whole up the whole system in the U.S., but importantly, also making sure we drive non U.S. business as well.
Okay, but just maybe put a little bit finer point on a day meeting I appreciate that feedback.
Hi, My math is you know you're down about 30 million, maybe 40 million versus what we have had been expecting that's primarily U.S. days are you, saying that.
10, Percentish of your U.S. business is potentially at risk here with with more cobot flare up here in the back half and to be or is that how we see frame it up.
Hey, Matt its Matt a couple of things on this.
So when you asked about the regions I would say you know in our international business. Some of the countries that are stronger for us. If you look at Brazil, China, Japan, the Middle East, Yes, they haven't come back as quickly in neuro not as maybe some other markets and then also in the U.S. as you're seeing from third party reportings or other competitors reporting neuro.
I am I just had a little tougher go in the second quarter than some other procedures. So part of that was factored into our estimate as well.
Got it and I'll just real quick on life spark any any way to kind of quantify the I know you said full year, 3% growth is great quantify the level of delayed purchase in Q2, and then what you're seeing early days here in July as you're rolling that out. Thanks, Yeah, I would say the early stages of paying very.
Encouraging as I said CNN do we saw a delayed orders into the Q3 because of the anticipation of Lux Buck.
The lot Spock limit of commercial release was very successful had either 4000 hours of utilization as we ramped into the launch and I'm really pleased with it you know they information we got back from that and how it informed what we do in this quarter. So I just said in the in the commentary that's why we're saying what's still come.
Turning to at least 30% in a in the full year.
Got it thank you.
You're welcome.
Thank you. Our next question comes from Rick Weiss with Stifel. Your line is open.
Hi, good morning Damian.
Maybe.
So maybe you could.
Touched on it just update us on the TRG trial.
Maybe it it's early and I missed it but I don't think you spoke about it can you give us any update on where you are with enrollment or.
Our things going on smoothly you know how do we think about the next 612 months as things return to normal clinically.
Any color would be welcome. Thank you.
I think the team here is focused all their efforts on what they can do in the absence of being able to imply patients. So what are those things. One is site activation, which we've managed to continue even with the remote behaviors. So I think thats, an important step for us as well as being very.
Very focused on how do we set the funnel.
Patients at the start of the whole inclusion exclusion criteria, what we want to make sure. We do is when procedures do start opening up again that we can start putting patients through that that screening process quickly. So the two things what about site activation and patient stacking.
Very importantly, you know we are continuing to focus on what we have to do to get to the transition to registry, which as I said in the in the commentary was like 22 early 23 and Thatll be dependent on CMS is review timing and the continued impact all kind of it but again I remain very encouraged by the way. This team has continued to focus.
Their efforts and engage with key opinion leaders right through this whole last quarter.
Great.
And maybe turning to heartfelt switch were down so frankly, it can you give us a little more color on what's happening there.
Both.
As a whole lot.
Graphically.
What impact are you.
Expecting or what should be dollar drug thinking about the principal plus launch the impacts on the second half.
Yeah. So again I think in line with the broad commentary, we expected Q2 to be the trough quota you know with Q3 in Q4 sequentially better.
Business for an hour hot Phelps as skewed towards country that that had a bigger impact from covert than perhaps the overall SAP a market. So knock it's like Italy, which were the first into the kind of in crisis in Europe, Brazil, Middle East Eastern Europe, where countries that have been disproportionately more impact that then than others.
So that's why we're seeing a the hot valve response that we had a again what we expect to do is bounce out of that as patients and clinics open.
First of all plus particularly in Europe is a key part of that narrative. It's a an improvement in the technology that we think and again the early signs from the limited commercial release, we did last year really point to a a better patient outcomes. So we're encouraged by what that can do in particularly in Europe.
Yes, just last from me as we think about your your capital position now.
Obviously, you implied balance sheet.
I have plenty of cash it maybe help let's think how you're focusing on.
Profitability, given the additional debt would get new cost reduction initiatives.
May be how long do you feel like the cash.
Takes you in terms of.
You know obviously with significant spending still ahead on clinical programs. Thanks, so much.
Yeah.
Great question I think just in terms of capital overall, you know have focus is on capital preservation and until we get more clarity on the timing and impact of kind of at 19, you know preserving cash rent retaining the strong balance sheet is really came to us.
Kind of it has caused everyone I think to rethink their business model and when no different so our intention is to make sure. We focus on the fundamentals that which you know I bet epilepsy, nice, yes, right with ring fenced that and what we have to do to get those growing weve ring fenced the strategic portfolio initiatives, particularly data.
Good day in heart failure, that's got all sorts of it but we need to continue and then you know we're working hard to improve out cash flow generation and you know you'll see the some of those results rate through in this quarter. So you know we haven't changed does focus areas, what we have thought.
More aggressively about is the model and including how to manage cost tightly yes, there are going to be disruptions to demand, but being very aggressive about the positioning the company for long term growth is came to us and looking at end to end of our business model is how if approach that.
Thank you.
Thank you. Our next question comes from Scott Bardo with Baron Burke Your line is open.
Yeah, Thanks for taking questions.
Great pointing sort of in place so.
Yes. This first of all I Wonder if you could explain why you see gross margins a little bit softer than your initial expectation.
Is that align who deal comments of weaker than expected no more than you saw it in April 29 I.
I think on as she and I, it's pleasing to see that Youve exited some more cost controls, but that seems to thing.
Entirely pump back into our wouldn't be with more spending it on the than you. Initially outlined so I haven't seen any new projects announced today and your revenue guidance at the same. So why is there not the same discipline on the R&D line. This year was up stepping up.
So thats the first question set place.
The second question I'm, just really wonder if you could give us.
A bit more clarity as to the rationale full you'll refinancing, particularly with respect to your senior credit facility, which appears to be quite expensive financing cost can you spell out to us. Please.
What will be your net finance expense in cash calls the shift for the company and do you have ability to work that down next year.
Absolute reductions of debt.
And last question please.
Obviously, you know this experience because it has been a shock to everyone in the med Tech industry, and then I'm pleased to see lever, leaving a this keeping its focus and delivering improvements and progressing its pipeline, but obviously this is situation is good I think quite some pressures for the group also from a balance sheet and liquidity perspective.
The nature of the question is.
Is the increase draw it for the executive management team and the supervisory board to start exiting the sold a cost discipline. The couldn't get you back to a reasonable margin as a company or are you happy to just continue a high investment levels.
And how the more gradual improvement.
I just want to understand whether this experience and precious that you've seen has changed your appetite to improve profitability.
Well, so let me let me start with that one at the end Scott and then we'll come back on because it feeds into some of these other commentary so.
Firstly, you know what I said, just a minute ago kind of its course, everyone to rethink their business model and we're not different. So you know you saw SG night sequentially down 25% in the in the quarter I'm going to execute that inside a quarter I think is.
A big effort and those those are changes are important to us in terms of how we reset and think of at the the company Weve made big decisions around that we've looked at you know not just SG and I, we looked at R&D day, which by the way sequentially also down in percentage terms.
There is an uptick but if you look at the puts and takes in the whole the whole pay NL.
You know they puts and takes the change that we're making is to the EPA, yes related to the refinancing only so I think you know you've seen us take decisions in the quarter and as I said, what we ring fencing is epilepsy, a nice yes, what were ring fencing is depression and asked them what we're working on aggressive.
Lee on is how are the aspect of the business model need to change to ensure we improved cash flow and margins and as I said that is a significant part of how we've been rethinking the model in the last in the last quarter is kind of it really really takes effect.
With respect to debt.
Continue on that and then you can jump on in you know, we looked and had plans in place prior to coated. They are obviously had to be completely resort as cobot started to expand and not just you know the debt restructuring, but an entire looked at how we improve our financial flexibility and.
Chris as stability, so we evaluated a whole bunch of options and we so what I think was that balance of coupon rights and time links shareholder dilution covenant structure simplifying a strategic relationship so that what we've got and what we feel strongly about is that we haven't come.
As a nation a blend of private debt with these exchangeable securities that really it's the best option for live on either end for shareholders.
So I think we again, we've made conscious decisions here to improve our financial position.
Well I'll just add a couple of comments Scott.
You know obviously, having the biggest impact in Q2 due to co bid had a fairly material impact on our gross margin in the financial profile of the company and so if you look at our gross margin. It was significantly impacted because of the mix effect of of Neuromodulation, but we are.
Also had.
Unfavorable impact those fixed manufacturing overhead that that occurred in the quarter, which we don't anticipate occurring in the future and so as you know the sales mix improves in Neuromod and ultimately the gross margin improves profitability and cash generation will improve.
In Q3, and then sequentially in Q4 and as Damon said, we took this is as of opportunity to really focus on the fundamentals and obviously improving both our expense base and we took a lot of actions around.
Managing labor costs in implementing head count freezes, bringing down expenses and all discretionary spending.
And we'll ultimately looking at any and all opportunities to reset the cost base.
Yes, the R&D did come down sequentially, and we're still trying to.
Continue the investments in the critical programs, we're not adding new programs, but just delivering.
On on the milestones that we have in front of us.
And then you know again I think that the financing that Damian mentioned with something that we were planning to do and address but.
Really positions us well and provides improved liquidity financial flexibility and allows us to navigate this new this new situation.
Yeah. Thanks.
And sorry, I didn't quite low the questions that ones, but can you be a bit more specific. Please what is your net financial expenses going to be this year and is there an ability to the low is that next year. If you improve margins recover earnings and pay down absolute that I'm wondering how we have a maximum point of dilution. If you could just comment that would be helpful.
Yes. So this year I mentioned in my commentary the incremental impact was 28 cents a bps due to the financing and that is really the only adjustment were making to our EPS guidance, we've changed some things in the middle but ultimately that's the only reason that were re guiding.
Yes, and so that's the impact.
We are we are able to repay after two years the debt facility with with Aries cap.
Understood. So.
Sorry to come back to the so so basically.
So.
Your incremental net income net interest expense is going up 15 million can you can you just get those numbers.
We could follow up exactly the number but it's it's equivalent to 28 cents a vps, okay and last question I'm pleased and this polynomial you first.
I mean is it fair to say now in a given the circumstances.
That leaving out of his previous expectation to be a 20% plus margin business. In 2022 is no longer attainable or is that something you do you think you can still shoot full.
I think what we're going to do is work really hard to achieve the targets. We laid out yeah, all sorts of things that a different than we laid out in 2017, notwithstanding the biggest one of that being kind of it and you know our mission is to it as I said drive growth improve cash flow.
And cash conversion and better cash generation. So we've got to make sure we're making the best decisions around the whole portfolio to do that.
Again, all sorts of things have changed but our goal is to keep moving towards what we laid out in 17 and the expense actions that we demonstrated in Q2 really show that we can manage in a different kind of cost structure going forward and and I think help us improve margin over time.
Thanks, guys.
Sure Scott.
Thank you. Our next question comes from Raj Denhoy with Jefferies. Your line is open.
Hi, Thanks, Good morning, maybe just a couple of follow.
Pretty good thanks.
As a couple follow through some earlier question. So in the last one so the 28 cents dilution this year from the financing that's for half year. So next year, we should assume.
Closer to 56 cents or so for dilution on the new financing.
Yes about 55.
Okay.
And I guess the earlier question on BNS, the epilepsy business I guess, what was perhaps a bit surprising is we had thought that given.
The replacement for such a large percentage of that business it might prove a bit more resilient.
So have you seen softness on the replacement side as well as to noble maybe give us a little bit more detail around that.
Yeah, I think Npis and end of service performed about the same in the second quarter and it's roughly 60% into service 40, NPR I think for US and of service is.
Much less elective then then and you implant. So yes. That's why you expect a bounce there did countervailing effect is that before you get that lot that implied for the replacement you need one more final device interrogation to be scheduled before the surgery and so you know pay.
Okay, and can't give us need to be available to go into a physician office to do that.
So that's probably the counter to the.
Need for a an end of service and we were working on ways and have seen wise to continue that as I said into service still performed well in the quarter, but what we need to do is make sure we figure out how to ensure patients and caregivers can not returned the physician's office for that one last screen.
Okay helpful and then.
Just on the pipeline a little bit so on on anthem I think you said you'd be at 300 patients by the second quarter of next year, you're maybe you could just remind us on what the path forward is at that point. There were couple of different paths you can take so what if you or what are you thinking about in terms of timing once you get to that 300 patient milestone next year.
Sure Rogers fat so for that to look at the functional endpoints. So the first part of a two step process.
We essentially need nine months follow up so once we get to the mid year enrollment at that point, we'd have to get to the full follow up of all the patients. So assume at that point, we will review the data and then how long you think it might take to get through the FDA, whether we need a panel or not.
Uncompetitive just went through Didnt have a panel so theres, probably some slack there, but if you kind of work through all that you'll see when potentially we could get FDA approval. If in fact, we decide to file for those functional endpoints before we go through the whole study.
And I guess, you will it take you're seeing the data to decide which path you'll go down whether you'll try to get approval on the smaller subset with a functional endpoints exactly.
Looking at that data will will be important not just for the U.S., but also in the CE marked countries. We have CE mark for this product already and that data will be an important decision point for what we do our U.S., but again, there's the potential that commercial.
Really.
At least the taria into the CE Mark countries at that point as well.
Great and sorry, just one one very last night I might've missed this but did you get did you give an update on the number of implants for depression at this point.
No we didn't we and we said we weren't going to update quarterly on that until we get to milestones.
Like the the.
Line that we gave I think back in queue for the Q4 results right. So for US we're not kind of update quarterly as it would just kind of work towards these milestones of when do we shift a registry.
Understandable. Thank you.
Great. Thanks Raj.
Thank you. Our next question comes from Matt Taylor with <unk>. Your line is open.
Hey, good morning, Thank you for taking the questions.
Uh huh, so the first one.
Hi, Good morning, <unk> first doesn't want to asses the follow up on the Neuromodulation business.
So you see a little bit more deferment here I guess, then you might have expected been.
Wanted to understand you think that's temporary and you can you see a lot of these procedures get done in 21 could you have a bolus sand or do you think that your.
Losing patients through the funnel, maybe you could characterize that a little bit where you sorry, you're in epilepsy, Matt.
Yeah.
Yeah, No I think a again what we're working here is on both Npis and end of service.
Best we can to continue the funnel as we said you know this is a highly fluid environment. The ebbs and flows of cultivate a really a really important here to track with doing that at the account level.
And that's why you know we didnt change the range of the overall sales guidance for that for the company globally, but what we're committing to do there as we said in the previous guidance you know at minus seven to minus seven globally.
And the puts and takes.
Very much based on you know how markets respond to various opportunities to wife, an up how patients come back to clinics have surgeries begin to wiping out so.
That's the way we're viewing it sort of account by account geography by geography.
Okay.
Well I guess I'm, just trying to understand the Neuromod results have lips results. This quarter were down more than we would've expected.
I was trying to get behind the patient factors are the facility factors that you think are impacting that the most of that because those patients are afraid to go in or they're losing coverage or facilities are non open why is it more impacted been some other areas that we've seen.
Hey, Matt it's Matt So you're right I mean, my take is that Neuromodulation as an industry not just you know epilepsy. It saw a much bigger hit in the second quarter than lot of other areas, especially in April I would say, we tracked very consistently with the market overall were tough April got better and May got better in June.
Some of it you are correct. Some of it was the physicians just weren't available for the for the actual follow up.
And then in a lot of cases, whether it was the patient or for epilepsy think lessons as the caregiver. They just weren't ready to go back to the hospitals. So we definitely had some dislocation on that front.
And then I guess you'd have to your point, we do assume you know as we said earlier sequentially, we'll see more in the third quarter than the fourth quarter. We're just not ready yet to say, there's going to be any pent up demand or kind of a recapture rate in the fourth quarter or you know even early next year, yet we just want to see how this really kind of moves as we get through the third quarter.
Okay. Okay. Thanks for that.
And then just one follow up on that point, so when you're looking at the sequential improvement that you're talking about.
Assuming that data that comment applies to all your businesses that have been down basically.
Can you just comment on them Differentially do you think one is going to come back more or less than the other and what are the main factors to consider there [noise].
Well I think that's the first factor is really epilepsy, right I think thats, the big drive a timing of patients returning to their physicians I think the other the other procedures I going to really heavily dependent on how they.
How they bounce in terms of procedure cancellations dresses procedures opening the timing and regional impact elective surgeries I think it is important I think you know, we expect HCS to be up sequentially faster than a than the other groups again, you know the focus their own.
On Ecmo is I think a big tailwind for us and unit.
In terms of heart lung machines, I think in a clearing up this capital budget uncertainty is probably going to be the driver on that so first group epilepsy second the other procedures heavily dependent on clinics opening so that I see yes, and the tailwinds for Ecmo and of course very heavily linked to the livestock launch.
And fourth HL EMS around a capital budgets, that's not what sort of categorized the buckets.
Great. Thanks, Matt Thanks, Jamie.
So that she has meant.
Thank you. Our next question comes from Mike Mattson with Needham and company. Your line is open.
Yes. Thanks, So I just wanted to follow up on that his questions about neuromodulation the slower growth outlook there just.
Curious about the impact of the economy. So you know Kobe, that's one thing, but it seems like even once we get a vaccine and hopefully get past kind of a pandemic. The economy could continue to be weeks I was just curious how to any sense for.
What you've seen in the past with with recessions and the impact on Neuromodulation, either people using insurance or just not as willing to maybe pay the out of pocket.
Co pay deductible or whatever procedures.
Yeah, we don't see that as being a big impact I think out at a macro impact here is kind of it and that bouncing out of Cove. It is going to be K, but as I said about patients also helping patients be able to get you know rates being up do things remotely I think it's kind of important so.
Even within the covert framework are there things, we can do differently on would definitely exploring knowledge and we've been working on that for the last quarter.
But in terms of other macro things like recession, we don't believe that's an impact for US and then also something like I would tell you within Neuromodulation epilepsy of the three major buckets, Medicare Medicaid and commercial commercial as the smaller.
Yeah, probably the only area that we would anticipate or even forecast some impact on the economy.
You know, having an impact on our business is really related to capital purchases and so we've tempered a bit of our forecast on each alone.
Okay. Thanks, and then could see the cash balances up significantly given the refinancing can you just remind us on the heater cooler issue have you paid everything out now 30 additional payments you have to make there.
We paid the majority of already both last year and Q1, there's are remaining reserve a $49 million and roughly that's what the of the payments that are or expected to go out we're trying to oversee resolve as many of those this year, but.
Again, the court dates tend to move.
During the situation we've continued to make good progress there, though and I'm really pleased with how the team is dealing with that and there are no trials scheduled until September and again as Ted said that could move.
Okay got it thank you.
Thank you and there are no other questions in the queue I'd like to turn the call over two day Macdonald for any closing remarks.
Thank you Catherine again, thank you everyone. Thank you to the team and thank you for your continued engagement on a live and I have is progressing that transformation and we look forward to updating you next time.
Okay.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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