Q2 2020 Transmedics Group Inc Earnings Call
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And as a reminder, this conference call is being recorded that wouldn't I like I had the conference over to your speaker today Mr. Ryan Johnston.
Thank you operator earlier today trends Minex released financial results for the quarter ended June Thirtyth 2020, a copy of the press releases available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that really to expectations or predictions of future events results or performance.
Our future are forward looking statements all forward looking statements, including without limitation, our examination of operating trends.
Central commercial opportunity for our products and our future financial expectations, which include expectations for growth in our organization regulatory approvals and reimbursement and guidance and or expectations for revenue gross margins and operating expenses in 2020 are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or.
Implied by these forward looking statements Accordingly, you should not place undue reliance on these statements.
For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factor section of our annual report on form 10-K filed with Securities and Exchange Commission on March 17 to 2020.
Implemented buyer at other SEC filings, including our quarterly report on form 10-Q for the second quarter 2020.
Transmitter disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive information and is accurate only as a book as of the live broadcast today, Obviously August 2020.
With that I'll now turn the call over to lead Hosni, President and Chief Executive Officer.
Thank you so much Brian.
Good afternoon, everyone and welcome to transmitted second quarter 2020 earnings call.
Joining me today, Stephen Gordon, our Chief Financial Officer.
I want to start our call by extending my gratitude and well wishes to our Transmix clinical support team and transplant health care professionals for being on the front lines, ensuring that organ transplant procedures are continuing during this call with pandemic.
As we highlighted in our last call cobot caused significant disruption to the global transplant activities beginning in late March.
And throughout the second quarter.
Similar to medical procedures broadly transaction activity fell to near zero throughout April in early May.
The slowdown caused the waiting list numbers continue to grow and ultimately transplant programs decided to temporarily deactivate portion of the waiting lists in order to allow transplant activities to recover before.
Bringing these patients back in the waiting this thing letting dead weight and just continue to grow.
Despite these challenges posed by the pandemic, we made meaningful progress on our commercial regulatory and clinical initiatives throughout the second quarter of 2020.
Since the trough in April two early May.
We've experienced recovery of transplant activities across many regions in the U.S.
As we have light as we have highlighted previously resuming transplant activities is a priority for many hospital systems.
We're seeing continuing recovery.
However, we remain cautiously optimistic given the emergence of new Haas hot spots in key regions in the us where major CF centers reside.
With that context, let me now shift to review of our Q2 results.
Our second quarter net revenue was 3.4 million.
What's your present.
A 40% the overall decline from second quarter 2019.
Given our strong first quarter.
First half 20 net revenue was up.
6% compared to eight first half 2019.
Through the quarter, we recognize revenue for all three oregons.
We'll see us Oregon programs.
We'll see as long was the most heavily impacted by cool that in Q2, given the virus impact on donor lungs, and the new testing mandates that were implemented on donor lung.
Donors.
Our Rcs Heart DCD program continued to accelerate and grew in Q2 to a total of 51 transplants up from 26 at the end of Q1.
In June we filed our Lcs liver pmeight to FDA and the review process is currently underway.
We expect to receive a list of review questions and hold our 100 day meeting review meeting with the agency in October to map out the approval process and timeline.
We're also continuing to make significant progress with our National service model offering.
And in the second quarter conducted significant outreach to major opioids across the us.
We are confident that our service model, we'd be active in many regions in the us in the second half of 2020.
In May we successfully closed.
Equity offering that contributed approximately $75 million in net proceeds two bucks us our balance sheet.
And give us along robust runway to drive our business growth.
We are grateful to all new and existing investors who participate in this financing.
Now, let me shift to review, our key strategic milestones and catalyst for 2020 and 2021.
Most significantly the FDA has informed us that are OTI has heart panel will be held virtually to review our PMC application.
On October 7th.
We are looking forward to that important day, and we're laser focused on securing a strong positive panel vote to support the approvals Lcs heart system.
Assuming a positive panel vote, we would expect approval within three to four months.
As mentioned, we remain ahead of schedule for the Lcs liver approval and following our earlier than expected Pmeight submission continue to expect approval in 2021.
As we look ahead, we also expect a continued rebound of Lcs lung programs.
As hospitals better navigate the balance of Matt.
Managing the cold with crisis, while enabling other procedures, particularly transplants.
We also expect to benefit from expansion of our National Service initiative.
Specifically the National service initiative would be initiated across major regions in the us in 2020.
And we'll expand through early 2021 and beyond.
Lcs long, we'd be the main driver through the launch of this initiative and will expand to include Lcs heart and LCFS liver once if the approvals on hand.
From a clinical perspective, Lcs hard DCD programs remain on track to complete enrollment in 2020 and for our PMA submission in 2021.
Overall, we fully expect that we would have all three lcs product approved and generating commercial revenue in the us in 2021.
Turning to our thoughts on the second half of this year.
As I mentioned earlier, we are optimistic however, we're cautious in our optimism.
Even though we have seen incremental recovery in transplant procedures.
We are concerned that the rebound may not be linear given the emergence of new hot spots and the resurgence of the coal with buyers in regions that have already stabilized.
We also continue to keep an eye on the potential for a second peak in the US later in 2020.
Given these uncertainties, we are not restating guidance for 2020.
That said, we're not pulling back.
Actually leaning forward.
To initiate many key regions in the us with our National service initiative to potentially lessen the impact of any future piece on transplant activities, if and when they happen.
We will also use this as an opportunity to demonstrate the benefits of our Lcs.
Service offering to reshape the face of news then of the new standard of care of organ transplantation, using those yes technology into Trans Medix service initiatives.
Importantly, we're continuing to push our key of the approvals forward for heart and liver to best position us for 2021, regardless of the near term impact of corporate.
Finally, our strong balance sheet.
Gives us a maximum maximum flexibility to drive the business and whether this current covert storm.
With that I will turn the call to Steven Gordon our CFO to review our financial results for the quarter.
Thank you all lead I will provide some additional detail on the second quarter results and other financial information in the quarter.
Well the second quarter 2020, gross revenue was $3.9 million net revenue was 3.4 million though.
Our net revenue decreased by 40% from the second quarter 2019.
In the US gross revenue was $3 million and net revenue was 2.4 million though.
US net revenue was down 43% from the second quarter 2019.
The organ breakdown on US net revenue was <unk> point, fourmillion, mostly us long $1.3 million, mostly as heart.
Point 7 million associates liver and outside the US net revenue was $1 million followed.
All of which was obviously as harp.
As we mentioned in previous communications, the substantial impact of the global covert linking pandemic on organ transplants significantly reduced our revenue from our earlier expected growth trajectory.
The most significant impact was in the month of April which had a really almost no revenue.
But we did recover somewhat in May and June of two guests are the three point fourmillion, although one obviously not back to pre cobot levels.
Our gross margin for the second quarter of 2020 was 56% that's down from 59% in the second quarter 2019, Adele from the 65%, though we were in the first quarter 2020 in the lower gross margin is also result of the lower volumes in the quarter.
Our total operating expenses were $9.8 million in the second quarter of 2020, let's delve a 1.3 million from the second quarter 2018 that it's down $3.1 million from the first quarter 2020.
This reduction in operating expenses was the result of specific cost reduction actions that we took to preserve cash during the pandemic as well as certain areas that were naturally reduced.
Like travel and trade shows which were on hiatus during this time.
Our operating loss was $7.9 billion in the second quarter of 2020 compared to 7.7 million in the second quarter 2019, compared to 8 million in the first quarter 2020.
And our net loss for the second quarter of 2020 was $8.5 million compared to $9.2 million in the second quarter, 2019, and compared to $8.9 million in the first quarter of 2020.
That's why we've mentioned we raised an additional net cash of $75 million or the public stock offering the quarter.
I'm just allowed cash cash equivalents and marketable securities to end at $139.4 million as of June Thirtyth 2020.
Providing a very long runway for the company to weather the Cobot 19 storm.
We continue to maintain investment in our commercial growth as planned.
Finally weighted average common shares outstanding for the quarter was 23.3 million.
With that I'll turn the call back over to what leads.
Thank you Stephen.
Despite the challenges posed by the pandemic, we are extremely confident trends medix mid and long term prospects and unit and durability to the coal that disruption.
Fair, the fact supporting our position.
Organ transplant procedures are immersion.
Non elective and lifesaving procedures.
Despite the cobot impact, we expect that transplant procedures would recover as cold with cases starts trending down.
As we stated earlier, we don't expect their recovery to be exactly linear due to the ups and downs of the new hotspot throughout the U.S.
There is a buildup pent up demand in the form of the national waiting this that continue to grow even during the call with crisis.
Organ transplant procedures are high margin high revenue procedure that many hospitals rely on forfeit their financial stability.
And relating to key FDA approvals were looking forward to the October Lcs Heart panel meeting and Lcs liver Pmeight is already under review.
Both of which should be approved in 2021.
Our balance sheet is strong to allow us to whether this call that storm and FDA delayed panel as well as invest in our platform and growth initiatives.
Thank you so much for joining us on this call and now we'll open up the line for questions operator.
As a reminder to ask questions. Please press star one on your telephone and to withdraw your question you may for us to pounds.
And first question comes from lineup Robbie Marcus from JP Morgan is probably your line is now open.
Hi, guys is actually Allen on for Robby set a few quick ones. So I guess as we look to the back half of the year.
I was hoping that you guys preferred may provide some additional color on the trajectory of the recovery I know you said that April was down almost nothing to get back up to three and half milling has clearly had a very sharp recovery.
In May and June so I guess, when we look out to Threeq and Fourq.
How should we think about that recovery trajectory continuing should we think about it.
As a bit more sequentially, even though you are seeing a resurgence and some major geographies and how should we think about returning to maybe back to like say like the 100% of what you had last year.
This is eventually growing above that.
Thank you Alan so for the as far as the trajectory is not linear.
We've seen continued.
Improvement, but.
Yeah.
Given that the research the emergence of hot spots in the south and southwest.
And the west part of the country.
No.
Some of that blunted the recovery so at we expect sequential but it's not linear.
Recovery line that we see that's why we were cautious in our optimism.
Are we seeing a recovery absolutely we are seeing a recovery.
But it just these with these with these hot spots coming on in major regions in the us that are that are actually heavy lcs regions.
We just think that this could launch.
The the recovery in one month and may be recover or once they once that crisis subsides. What we know is institutions hospital centers are much more equipped and better equipped today than they were in March and April where once we see at hotspot kind of easing off we see that transplant activities returning maybe.
A little bit faster than what we've experienced before but definitely during the hearing the peaks.
It things kind of get slow slowed down.
Leading to the second half of your questions a question.
No I suspect that we are still going to be.
You know at at last years level by end of this year.
I think it will take us through Q3, and and maybe even through Q4.
To get to last years level. These before we start seeing growth beyond last years level. That's at least based on what we know today I.
I would agree with that OTA group.
Got it and I guess, just another quick follow up.
On the clinical trial pipeline. It sounds like you guys have managed to maintain your timeline is there a little bit better than maybe some other peers within the medical device group I guess, how confident are you in that and I guess since youve managed to make it through the worst event guessing you're pretty confident but I guess why have you been able to sustain your clinical trial pipeline a little bit better in some of your peers.
No I cannot.
Again, it goes back to what we talked about organ transplantation.
The we maintained our clinical we both clinical programs book deliver continued access and definitely the DCD heart.
Maintained as on.
Essential during that that the major peak of cobot, and we expect that to continue.
As you can see Alan we nearly doubled our enrollment rate in Q2, and the DCD heart. So we feel very confident that we are even despite that resurgence in the new hotspot that we continue to drive the clinical programs forward animals that the most time sensitive one is the DGD heart.
Breakthrough program and we expect that to be completed in 2020, regardless of the.
Of the.
Any hot spots or even another peak.
So that's that.
We were fortunate that heart the leading heart.
Centers, we're not in hotspot and they have naco, what they haven't been impacted that much.
In fact, some of them actually receive patients from other areas in the country that transplanted balance yes.
From other regions on so we expect we expect that the timelines for the DCD harp program to be maintained and we expect to finished enrollments of the DCD program in 2020.
So much and next question comes from the line of David Lewis from Morgan Stanley Baby Gear lens Nelson.
Hi, Thanks for taking the question. This is our Calvin on for David Steven or you just.
Just kind of a follow up on the on the trends.
Sharon the Alan as can you. Please comment when you're seeing in terms of the resurgence resin impact on your business at the end of a quarter or coming out of the quarter in July and how thats impacted monthly trend.
Sort of five organ and how those are perhaps translating into June or July kind of exit rates.
I have a quick follow up.
Sure. So this is Steve and I am not having to take that so as I mentioned.
The I just want to be cautious about drawing a linear trend.
Because we just don't feel like Thats, the right answer, but as I mentioned April is very low we did about five to six undertake in April.
It may and June made up the difference there were pretty similar we didn't really see it wasn't like June was way higher than maybe they are pretty similar in July.
Little bit better than that May and June and so we feel like we're seeing that uptick.
In the month of July and we hope its continues in August, but again, we're being a little bit cautious because of.
There's just a lot of uncertainty in the market.
So hopefully that helps I don't I would typically not do it by Ordan, but we're seeing the same credit or digital long as being hardest hit.
Harp program is doing well and our liver program is a little bit behind the heart.
Thanks, very helpful and just a quick follow up could you just provide an update on time, but some of your key county kind of touched on this one is just on the Lcs lever data publication when is that expected or we are still tracking for.
This quarter or.
Later, and then the heart panel timing you had mentioned that the approval timing with the three or four months. Following the panel is that kind of on track with your expectation or is it maybe a little delayed from.
What you have expected before.
Thanks.
So so calvin relating to the publication of delivered data.
We are tracking we said that H. to 2020 is we're going to be published.
We are on track to submit it to.
To a major Peter view.
Journal in Q3, and it will take the time it take four for review process and so we feel very confident that h. too.
We'll hold relating to the heart.
Approval there is no there's no change in our sentiment we always said it's anywhere between two to four months.
From the panel date. The panel date was delayed by six months. That's that difference is just that the panel date instead of being in April on April 16th now it's in October 7th, but we always expected two to four months after the.
After the panel to get final approval order, so thats Theres no change there. It's just that the panel has been changed just waiting to.
Waiting for that day to going to give us that time slot.
Thank you. So much next question comes from Atlanta Suresh Calia.
Oppenheimer and company Suresh Your line is.
Sure good afternoon, while it could happen see from getting having all right.
Can you just fine Suresh perfect, so really thinks for and different things for.
The information just in terms of the cadence as you move through Q2, well. These given the two to four months timeline that you have laid out post panel for approval. It is safe to say that the ft is not going to throw a range at the last minute and say we want additional data from let's say the DCD.
X number of can plans from the DCD ongoing DCD program is that is that the safe assumption.
So Raj we never we never.
Predict or assumed to predict what FDA will end will not do.
We have not hurt.
I request like that so that's all I can comment but.
We have not been told or hinted to about a linkage between the DCD program and and the along PM May review twos completely different indications.
So.
That's that's all I can answer is for us.
We're not aware of any linkage.
Between the two programs.
Got it.
Fair enough and it will lead one of the things that keeps coming up and repeat client conversations is.
Okay, let's say you or beyond.
Making the technology argument then the question becomes how do you jump start growth post Corbett, how do you jump start growth how do you get these centers on board.
So that you can reduce the imbalance between demand and supply of solid Oregons I'd love for you too as you think past covance to just sort of give us a idea about your strategic layout isn't working on guidelines post approval is that training.
Is what are the critical elements in your opinion as you'll lay out the future post covance that'll help jumpstarting growth for Rcs for any indication for that matter heart lung liver.
Just overall in an umbrella viewpoint would be greatly appreciate it. Thank you for taking my questions.
Thank you Sir us.
I think without.
I think that it's an excellent question I think.
We have not made it any secret how excited we are about our national service initiative and removing all the logistical barriers to adoption.
I think.
There's a reason why we're leaning forward into the cobot pandemic.
The reason why I think our clinical support team that was actually.
On the front line supporting lives supporting cases on the field during the cold with pandemic and continues to do that today.
So.
I think that's that's really a critical part of of.
No.
Not just regaining growth, but really establishing ourselves on during the pandemic to be at reliable partner during the pandemic imposed on them.
We are redefining the standard of care psoriasis as you know and.
This is the cobot pandemic, we believe underscores the huge need for a better and new way to do Oregon retrieval for transplant and we believe it's going to be the Lcs way through our National Service initiative.
I think thats, a big part of our strategy.
So thats the foundation.
We are we are.
Where we are driving the growth with.
Again, if he had many questions. Please press star one on your telephone.
Next question comes from the lightest us Jennings from Cowen.
Your line is no.
Great. Good afternoon, thanks for taking the questions.
Just two from from our team.
On the heart.
Submission and panels or any other any post panel steps need to be completed and also could you provide an update on how you'll manage the.
Access program between now and when the system is.
Formally approved for the heart indication then just have one follow up.
Thanks, Josh.
So the only follow up after the panel is the finalizing the post approval.
Post market registry.
We have Airbus design, there were some several question back and forth questions with FDA and we feel.
This needs to be finalized.
And finalizing their labeling language.
So usually the too.
Major.
Topics that needs to be finalized.
So thats what were expecting Josh.
This will be our third post approval.
Post market registry.
Program. So we we use our knowledge from the previous to kind of lessen the back and forth than and we feel we feel.
We feel pretty pretty good at where we are and I think FDA also.
The has seen that improvement.
And the second part of a question laws.
Well managed on the.
Sure sure just an update on just how you manage the could you access program between now and that's supposed to Christmas when the at yes.
So the.
The DCD program is active the cap is active.
And we expect that to continue to be active even once we enrolled that DCD.
Program, we will file continued access program so.
We have all the heart centers involve some lcs activities until hopefully that M&A.
Approval orders in hand.
Excellent and then just a follow up on the liver submission can you just share your expectations in terms of the timeline for the review.
And I was a fair assumption based on the data in prior panels proceeds technology. This review cool will not involve an AD com panel.
To be honest with you Josh we are assuming an outcome panel conservatively, because we always assume that conservatively weve.
We've highlighted in our submission strong argument why does not the why does this application may not require an AD com panel and given the superiority now some but obviously, we always will always going to assume that conservative assumption that it will take 12 to 14 months.
Because we assume an add on the meeting.
We have to wait and see where is that on and during our footwear meeting and we'll ask the question explicitly but.
So far we have not.
Receive any indication one way or another whether it's going to be subjected to an outcome or not.
Understood and with the if you had come panel assumption any.
Yes, you can provide just in terms of.
The submission and the review timeline and when we could potentially seen approve that obviously.
So John so at the heart of the hard filing that there was a covert pandemic that through things off but but assuming there is nothing disruptive to that to the degree.
Well.
Thats an excellent question, Josh the 12 to 14 months, that's assuming that.
At home.
The FDA agreed with our analysis and our recommendation for no outcome it should be shorter than that but we always assumed.
More conservative assumption at 12 to 14 month, that's the in an outcome meeting.
Relating to.
Overhead or something related to covert thing now the FDA.
Ill leave the more prepared and more.
Comfortable virtual meeting.
In the device side, we're aware that Lcs Hark panel is going to be the first ever panel.
For approval.
CRH.
That was done virtually so where trailblazing there and I think.
A couple of others that are after us and hopefully if we need of virtual panel for deliver I don't think it's going to be something that they'd be able to take that much time to decide on because now that is accepting virtual panels as sort of there.
The new new.
The new way of doing business.
Great. Thanks for those insights appreciate it.
Thanks, Josh.
Again, if you have any questions. Please press star one on your telephone.
And next question comes from line of William false teams have snow linear capitals.
Well in your line is now.
Yes, thank you for ticket.
Michael from somebody on the on the buy side.
I was wondering if you can expand.
A little bit more on the service offering.
And my justified to believe that you're going to have.
Teams that go out and.
Harvest the Oregon.
And then.
Except reimbursement from the payers and from the from CMS.
I think the service offering is nothing but as a mechanism by us.
Providing the same type of service that we provide today supporting transdigm programs.
And.
We have to the biggest part of it does that technology. So the technology.
Expense or cost is the same and with just providing additional logistical support and management of the of the perfusion service to support the that that technology in the field.
The same reimbursement mechanism apply there's no there's no difference there.
You know so that's the that's you know at a high level. That's how the service model would work as shouldn't be any different mechanism for billing or different mechanism for reimbursement. It's the same mechanism will just providing support to the technology utilization.
So the transplant centers will send out their own team of surgeons or.
Petitioners to harvest the Oregon, and you will just continue to provide support for you the company will be getting actually vertically integrating into actually.
Taking the grid the grass.
No no we can't we know we we can do that.
That's not the that's not the service model that we're talking about where we're only supporting the management of the Oregon on that Technology Forum, Oregon that is allocated to a transplant program in the normal allocation and normal transparent fashion.
Okay. Thank you I understand it now.
And if you have any questions. Please press star one on your cellphone.
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And there are no further questions at this time presenters he may continue.
We want to thank everybody for participating in the call and we're looking forward to our next call.
Okay. Thanks, so much for our presenters tend to everyone participating. This concludes today's conference call you may now disconnect.
First we stand in line for so Scott.
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