Q2 2020 Silk Road Medical Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Silk Road Medicals second quarter 2020 earnings Conference call. At this time, all participants' lines Arnold listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during this session.
You will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today. Thank you Caroline Paul.
And last year.
Please go ahead.
Thank you and thank you all for participating in today's call.
Joining me are or Rogers, Chief Executive Officer, and Lucas Buchanan Chief Financial Officer.
Earlier today Silk Road medical released financial results for the quarter ended June Thirtyth 2020.
A copy of the press release is 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.
I used statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
All forward looking statements, including without limitation that it was relating to our operating trends in future <unk> future financial performance the impact of code 19 on our business and prospects to recovery expense management expectations for hiring.
Mission training growth in our organization and reimbursement market opportunity guidance for revenue gross margin and operating expenses in 2020 commercial expansion legal expansion and product pipeline development are based upon our current estimates in various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ most anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements.
Burleson description of the risks and uncertainties associated with our business you referred to the risk factor section of our quarterly report on form 10-Q filed with the Securities and Exchange Commission on May 15th 2020.
This conference call contains time sensitive information is accurate only as of the wife broadcast today August 2020.
So crude medical 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.
And with that I will turn the call over to Erica.
Thanks, Caroline good afternoon, everyone and thank you for joining us for Silk Road Medicals second quarter earnings call. Joining me is Lucas Buchanan, our Chief Financial Officer.
I would like to again start our coal by thinking those in the medical community, who remain committed to helping patients throughout the recent cobot 19 outbreaks [laughter] those on the front lines continue to put others first and impress us with their creative determination to keep our health care system functioning for all.
Who need it.
Thank you.
Turning to our quarterly results.
By many challenges posed by the pandemic, we had a solid second quarter with many accomplishments. Our performance is a testament to the resiliency of our team at Silk Road and is driven by our clinical outcomes strong commercial strategy and the underlying severity of carotid artery disease.
We are pushing ahead initiatives to further penetrate and broaden our market opportunity and we are increasingly confident in the strength of our platform and ability to change the standard of care in carotid artery disease.
Before I touch on progress toward our longer term initiatives I would like to provide some additional color on our recent performance.
Total revenue for the second quarter was roughly $15 million, reflecting growth of 1% year over year.
Excluding the recognition of $1.3 million in deferred revenue in the quarter, which Lucas will address in his remarks second quarter revenue declined 8% compared to the same period over the prior year.
With respect to U.S. procedure volume as expected we experienced a trough in April and then improvement through the quarter with approximately 385 procedures in April 685 in May and 900 in June.
For a total just shy of 2000 procedures in the second quarter.
Well. This trend is certainly encouraging we are aware of the lingering regional variability that has impacted provider and patient behavior in July and into the early days of August.
From what we observed in the latter part of the second quarter into early days as a third quarter.
There has been a judicious use of hospital resources in the hardest hit areas and overall.
And while volumes are below what we would typically expect procedures are continuing at a steady pace.
We are cautiously optimistic as we think about the second half of the year acknowledging both the strength in procedure volumes and ramp in June compared to the trough in April as well as the many unknowns ahead.
Despite these unknowns our collective team members are supporting our physicians and creative and.
[laughter] still highlighting clinical outcomes and efficiency benefits, a t. car, which are ever important in today's environment.
Also encouraging is that the practice of medicine related to vascular disorders, including carotid artery disease is benefiting from the recent emphasis on tele health.
An example of this comes from one of our physician partners Dr., Scott Berman of Pima Heart and vascular who is innovating to engage with his carotid patients and to continue providing the best possible care in the current environment.
Counter typical physician workflows for T. car Dr. Berman has been conducting many of his visits with patients remotely.
He begins the telehealth process pre operatively once an older sound or C.T.A. or ordered for suspected carotid artery disease and continues utilizing tele health throughout the care delivery process, culminating with virtual follow up visits.
During his telehealth visits he can easily explained the disease, the risk of stroke and the treatment options, which for Dr. Berman Archie car or CEA.
He often utilizes materials provided by silk road to educate patients on the less invasive advantages of T. car carefully engaging with patients over the video monitor as they determined a treatment plan.
After the T. car procedure Dr. Bourbon finds that follow up till health interactions are often easier for patients and he is able to provide even more careful oversight.
Post operative recovery. In addition, the important follow up data points required to be entered into the vascular quality initiative registry can be gathered in a timely manner with tele health.
For Dr. Berman this represents a more efficient way to continue to monitor the hundreds of patients. He has under observation for carotid disease.
The pandemic has accelerated the removal of some of the barriers to tele health, which in his view has improved the overall efficiency of vascular medicine.
Well, we know many patients and physicians will always prefer in person visits Dr. Berman exemplifies how physicians are rising to the occasion to ensure carotid patients received the care they need.
We will continue to evolve and look for additional opportunities to support our partners with T. car adoption and provide the best care for their patients.
Moving now to the long term and the enduring aspects of our value proposition.
We are continually reminded that carotid artery disease is a chronic progressive disease that typically worsens steadily over time. Our team is committed to monitoring this pipeline of patients and supporting T. car procedures in any environment to ensure the best possible patient outcome.
Yes.
With that in mind, our vision remains very much intact, we're progressing forward with our three strategic priorities that we previously outlined for 2020.
As a reminder, these are.
You asked commercial execution.
Identifying a path forward for label expansion and coverage for the standard or surgical risk patient population and further pipeline development.
With respect to our first strategic priority U.S. commercial execution, we remain focused on our large untapped market opportunity to drive T. car penetration in a high surgical risk patients through increased physician utilization, while expanding our base of sales territories.
Hospital accounts and trained physicians.
We are continuing to add to our talented commercial team and expect to end 2020 with 40 to 45 area sales managers up from 35 at the beginning of the year.
We're also excited to have recently announced the promotion of Andy Davis, who now has an expanded role as our Chief commercial officer. Andy has played a critical role in our success to date in driving T. car adoption across the U.S. and is expanding his focus to our global commercial execution and pipeline device.
Element.
With respect to physician training, we were fortunate to train a large number of physicians in 2019 and in the first quarter of 2020.
And we continue to focus on moving already trained physicians up the adoption curve.
Although the pandemic significantly affected our previous second quarter training goals by severely limiting travel to our centralized training program.
We are pleased that physician demand for certification has not wait.
We have quickly met this demand by training physicians in new and innovative ways, including virtually and in smaller socially distance formats and through Proctoring.
We believe these new methods will allow us to continue certifying new physicians going forward at a higher rate than we experienced in the second quarter.
Additionally, we were also pleased to see that our comprehensive training program and methods are consistent with the recently established and published T. car training guidelines from the society of vascular surgery.
Moving to our second key priority broadening the indication for the on route stent, two standard surgical risk patients and expanding Medicare reimbursement.
We have made significant progress over the past few months and continue to have collaborative discussions with the FDA and we think our colleagues at the FDA for soldiering on through this pandemic.
Although we still do not have any details to share we have incrementally more confidence in our ability to delineate our strategy later this year.
Finally, our third priority is focused on continued pipeline development.
We consider ourselves experts on carotid access and neuro protection and we remain committed to leveraging these core competencies and our broad intellectual property platform.
Innovation is fundamental to our culture and we have maintained our investments in additional and next generation products to meet evolving needs of physicians and their patients.
We are looking forward to shedding additional light on our pipeline progress by the end of the year.
In summary, we are making meaningful headway on the priorities, we outlined for 2020, and we are continuing with planned investments to drive durable long term growth.
We strengthened our balance sheet in may providing ample capital to execute on each of these initiatives and we are marching forward on our journey to change the standard of care.
We remain confident that silk road is well positioned to weather the duration of the pandemic impact and is poised for long term success.
I will now turn the call to our Chief Financial Officer, Lucas Buchanan to review, our second quarter performance.
Thank you Erica revenue for the three months ended June 32020 was $15.1 million a 1% increase.
14.9 million in the same period of the prior year.
These results include the recognition of 1.3 million in deferred revenue due to a decrease in the provision for sales returns related to certain prior sales with a shorter shelf life.
Coupled with a downward trend in our historical return rate.
We do not expect future potential decreases in the sales return provision to materially impact subsequent quarters.
Excluding the contribution of the 1.3 million second quarter revenue declined 8% compared to the same period of the prior year.
There were approximately 1972 car procedures performed in the second quarter of 2020, representing a 2% decline compared to the same prior year period.
As we had previously discussed total procedures improved from approximately 383 in April to 900 procedures performed in June.
Lighting, the relatively quick recovery and ability to recapture many of the deferred procedures intra quarter.
Small portion of previously scheduled second quarter procedures were rescheduled into the third quarter.
And we estimate that during the scope of the pandemic, thus far our physician base as collectively lost about 5% to 10% previously scheduled patients.
That may or may not return for a procedure in future periods.
Gross margin for the second quarter of 2020 was 65% as compared to 75% and the corresponding prior year period.
Gross margin decline was largely driven by unfavorable production variances as a result of temporarily idle manufacturing operations and lower demand.
Partially offset by the decrease in the provision for sales returns.
Total operating expenses for the second quarter of 2020 were 19.2 million, an 11% increase from 17.2 million to the second quarter of 2019.
R&D expenses for the second quarter of 2020 were 3.4 million compared to 3.1 million in the second quarter of 29 team.
The increase was primarily driven by an increase in personnel related expenses.
Sales general and administrative expenses for the second quarter of 2020 were 15.8 million compared to 14.1 million the second quarter of 29 too.
The increase was primarily attributable to expenses related to growth in our commercial team and marketing efforts as well as costs associated with being a public company.
Fence growth was modulated by cost control initiatives in the natural reduction and travel trade show and other expenses due to the cobot 19 pandemic.
Net loss for the period was 10.4 million or a loss of 32 cents per share as compared to a net loss of 12 million or a loss of 42 cents per share for the same period of the prior year.
Net loss for the second quarter of 2019 included a five point Threemillion noncash charge, resulting from the re measurement of the fair value of our convertible preferred stock warrant liability.
We ended the second quarter of 2020 with 157.9 million of cash cash equivalents to short term investments, which includes approximately 70.5 million a net proceeds from the follow on offering in may.
Turning to our outlook for 2020, we remain unable to provide guidance given the lack of visibility on the duration severity geographic impact as a covert 19 outbreak on our operations and financial results.
While the proceeds from our recent follow on offering have provided additional capital we continue to be mindful of preserving our financial flexibility as we invest in our R&D programs in commercial footprint, while maintaining our COO incredibly valuable and talented workforce.
With that I would like to open the call for questions.
Yes.
Ask a question.
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And your first question comes from the line.
Kim with Bank of America.
Oh, great and good afternoon can you hear me okay.
Yes, Bob Hi.
Terrific Urika congrats on the rapid recovery over the course of the quarter and appreciate the numbers you gave us.
Just to try to clarify that though it looks like.
June procedures were probably up in the neighborhood of 25% year over year, just wanted to kind of confirm that math and then also you know you had some comments in the prepared remarks about how you know July may have been a little bit wobbly relative to the rapid recovery in June just given the spread of coded so that any quantification of those of those comments would be.
Would be helpful. Just going to want to compare how June related or sorry July really to June and am I in the ballpark on the 25%.
Yes, Bob I'll take the quantification side of that and there are kicking in Canada the color but.
You know, it's a little bit difficult to do period comparisons just because we've been growing so fast year over year, and expanding the treating physician base and commercial footprint, but.
You know June of 2020 was significantly stronger than June 2019.
July of 2020 versus June of 2020, just a month on month growth I think what Eric I mentioned is is a lot of the recovery happened in June and.
We typically noncovered times see a little bit of seasonality in the front half of the third quarter and it picks up in the in the back half.
Fourth of July and things like that coupled with some of the timing of the resurgence in different parts of the region.
In July.
Look similar to June essentially.
Okay, So you're saying like yeah, if we do year over year comparisons it feels like July is real quickly.
Similar kind of growth is June Erika, maybe just like from a qualitative perspective, if you like you're just going to articulate your thoughts on the progression of the recovery here over the last two months is that you know just like qualitatively July fuel similar jewel Loon outside of July outside of these are similar to June outside of these Blair UBS, just want to get People's hands because what.
We have is we have different medtech companies kind of getting different thoughts on on <unk> on July you got a couple of saying things were definitely improving a little some are saying things are wobbling, but still in the general direction of June just want to good kind of your your qualitative sense, yeah, absolutely absolutely Bob So.
I'd say overall, we're pleased to with everything that we're seeing in terms of recovery here you know we had a couple things.
To think about engine in July you know as Luke as already mentioned, that's a typical seasonality period for us kind of the you know early parts of the corridor and so hard to tease out.
What's happening seasonality wise, and what's happening with kind of regional flare ups.
But even given all of that I'd say, we're overall I'm pleased with how the business is progressing.
Okay. Thank you very much.
And your next question comes from the line.
With JP Morgan.
Great. Thanks for the question Erika I was hoping you could give us a little color.
What you're seeing in terms.
Pacing trends going into clinic.
Our docs tilting patients and identifying new carotid patients at a healthy clip.
Was there a focus more on maybe this is your patients.
Is limited.
Our space, which.
Helped you out in the quarter, just any kind of trends you could give us on the patient or the doctor treatment side would be helpful.
Absolutely Robbie high nice nice to hear your voice. So yeah. You know we talked about this kinda phenomenon in the early parts of this pandemic win win elective procedures were sort of shut down across the country and of course symptomatic carotid artery disease was not considered elective.
Hi.
Both the American college of Surgeons, and and CMS and others and so we saw you know kind of an interesting flip of the procedural mix and symptomatic and asymptomatic early in this pandemic and I'm very pleased to say that that you know procedural mic is mix is kinda back to what we would normally expect.
Right and so as a result of that Robbie its safe to say that we are treating asymptomatic patients asymptomatic patients are being diagnosed.
There are coming in for their vascular labs as you heard from the Doctor Berman story, you know it's interesting because he can order avascular lab in other words, an ultrasound or is he tea.
You know sort over the phone and then tele health and method. The patient can go and have just that exam and that's their only exposure in the health care system, which is pretty safe.
And then do all the follow up with that patient discussing the results of the exam over Tele health. So these are the kinds of things that we are continuing to see obviously the pockets of flare ups around the country not only impact what might be happening at the hospital level.
But certainly do impact.
Patient behavior, and so you have kind of ebbs and flows of patients willing to get out of that go out of their homes I would say, but overall, we're pleased with the you know the new procedures being posted on the board.
Great and you gave us a great teaser with the the we're getting more confidence and the ability to talk to you later this year about the pathway forward and standard risk you know what are some of the things.
That you would have to contemplate I imagine there's a trial as one pathway I.
Hopefully you can avoid a big long expensive trial, what are some of maybe the different.
Things that you have to consider that we should consider expect as options going forward and just any other commentary you could give us.
Blind.
Car as a delivery system has a lot of potential move into other indications beyond carotid artery disease any updates on where you stand on some of that progress. Thanks sure. So on the kind of standard risk question I think the thing that.
Please us the most I'm here was that FDA was still very much willing to engage you know when you hear a lot about what's happening at the federal government just in general terms of dealing with this pandemic. These people have a lot of things on their plate.
And I think there was some question.
So why a lot of folks is too it was an FDA going to kind of act business as usual or will there be fits and starts there. So we are grateful im pleased with the interactions weve had with the FDA over the period.
Those interactions are obviously centered around what is the specific regulatory requirement, which as we've said before Robbie is only one piece of the puzzle there's regulatory there's coverage and there's adoption and all three of those things we're trying to solve for I'm not just the regulatory pace, but.
And on the regulatory piece, you're you're right. It's a conversation around you know what do the regulations require.
And how are we going to respond to those requirements with respect to what we ultimately submit to the FDA and unfortunately, we're not to position to give more color other than to say, we're pleased with the progress in the conversations that we've been having.
And then as it relates to pipeline I see you snuck in a third question there Ravi, but we'll we'll give you this one.
That's it and as it relates to pipeline.
Yeah. We we also continued to make progress and that's due to the just the incredible dedication and resiliency of our silk Road team here folks just really creative in figuring out how to move the ball forward on product development and R&D and so we're pleased with progress.
We've made in the quarter and I think will be in a position to talk more specifics later in the year.
Your next question comes.
With Stifel.
Good afternoon to both.
A couple of things Erica.
Yes, the comment that you expect a.
If I Miss your a greater number of docs because of the.
Tell a training tele health a initiatives.
I think your words were going to train more docs going forward I just wanted to make sure I understood. The implications just what might that mean would you quote catch up with what you thought earlier in the you're like you know the number of Dr. expected to train does your well the end up being the same because of this accelerated.
Technology driven approach.
Yes, sure Rick Hi, nice to hear you Ah. So if so what was meant by the comments was obviously it [laughter]. The early parts of the second quarter were pretty severely impacted just because people weren't able to get on planes and travel and still really aren't willing to are able to and so.
Luckily we had a few opportunities in the prior year to kind of practice, some remote and on the road type training formats, and so we were able to fairly quickly pivot, but nonetheless, the training numbers were fairly impacted in the second quarter that said, we have quickly quickly pivoted and what's it.
You're seeing is that the physician demand has not waned for training a and that's you know obviously in part due to T car itself. The minimally invasive advantages of T. car, particularly in this time.
And the fact that some positions a at least early on in his pandemic had extra time on their hands. So you know we have figured out ways to pivot entered trained physicians remotely, particularly the didactic portion and then handling the hands on into much smaller formats or one on one as I said in the prepared remarks.
So I think we're not we're not obviously reinstating guidance in terms of how many physicians that we will train, but safe to say that Q3 is also good start.
Okay.
Yes, and yes, both you and Lukas commented on patience in backlog in numbers and I was going to mature I understood. You know we're just thing have you worked through now because of the fantastic performance and May into June have you work through whatever backlog.
Doug was there and do we imagined that 5% to 10%.
It's patients so that you mentioned last at the car is that temporary loss probably get lost.
How do we think about these numbers and the implications for the second half.
Sure Rick what went on I take that one just to just to reiterate a couple things you know a big portion of our business is symptomatic.
Patients and their squarely in the urgent categories. So they've they've continued pretty kind of it and enduring coated.
To get treated because it's obviously an urgent situation.
I think really the intent of our comments around the patients or deferred which are primarily that asymptomatic patients, although plenty of them or not deferred.
You can only to for them for so long and so just given the timing of of how this is all played out a lot of the recapture of those deferred procedures happened intra quarter. Obviously, we had some in late March that.
We're actually rescheduled and performed in Q2 and there are some in.
June that got pushed out.
The Q3, but that's that's a bit of a wash so I think our our business is.
Back to the.
New normal so to say not not the old normal.
And the the wildcard continues to be can that kinda patients get back into the diagnosis and treatment pipeline, which we talked about through through telehealth and other efforts are certainly parts of the country that are.
Constrained.
By the virus and others that are.
Doing okay, and if the 5% to 10%, what's what's interesting about that figure as is our field team and our commercial ops team continues to have really good visibility in really good partnership.
With these two car centers and physicians to track these patients down.
And so that number is not a guess, it's that's got real analytics behind it and some of them or cancel procedures that just haven't been rescheduled because are having a tough time tracking down the patience and others that are due to be rescheduled, but it's it's been quite some time, so the probability of being rescheduled and bringing those patient back.
Okay.
That's harder to predict and so I think it's probably little bit of both some of them maybe a permanent loss in some of them may actually come back in future quarters or or next year. If they if they haven't had a stroke in the meantime.
Your next question comes from the line of Joanna lunch with Citi.
Yes, Hi, this is not and works and on for Joe in My first question is I'm just on the overall market dynamics did you guys notice that CEA has a similar recovery in the second quarter or was this something of an inflection point, where T core we're starting to get more pending.
Traction within the doctors.
Hi, Matt Yeah, well, let me take some of that kind of qualitatively, which is first and foremost to start with any sort of data gathering exercise that we can undertake on T.A.
Is.
You know sort of has a lag effect to you know we don't get real time data in the quarter around those kinds of procedures because we typically.
Gather those data from diagnosed it diagnosis codes and procedural code and things like that from third party providers. So we don't have honestly real time.
Information on not CEA I think what you're asking about has a procedural mix change too. We certainly have anecdotal evidence of physicians, who have moved t. car up in their adoption curve and in their priority list due to the efficiencies that T car offers particularly in this pandemic time.
I think secondly, the other thing that we're quite pleased about is that.
On the physician sort of regardless of where they might have been on their adoption curve.
There's no evidence that there reverting back to kind of old behaviors and so what we've seen thanks to the just tremendous effort of our commercial sales organization is physicians you know I'm moving ahead in their adoption even in this time.
No. That's helpful. And then my follow up question is you talked about the promotion of Andy David to Chief Commercial officer. So if he is listening congrats on that I noticed though that you mentioned that use expanding his focus to global execution.
Well to provide any commentary on how you're looking at the international markets from the next 612 two years even.
Yeah, Matt you know, we've we've always had international expansion on the list of the long term growth drivers you know sort of going all the way back to IPO and how we think about this business.
We haven't given any specific guidance on timing of international other than to say that we've been working through some regulatory hurdles in both Japan, and China and yeah. We're we're thrilled that Andy is taking on this new level of responsibility he certainly around it.
Great. Thanks for the questions.
You're welcome.
Your next question comes from a line.
[music].
Telsey.
<unk>.
Hey, good afternoon, Erica Lucas Thanks, so much for taking the question.
Hi, this might be a silly question.
Newtek covering the name, but this is not a couple. Good question. This is a question more around.
Look at Ti car versus Ian I ask myself, why would any patient be getting a C.A. at this point in time and so I guess my question for you is what's it going to take to really sort of open. The fossett here do you think getting a standard risk indication, which I appreciate the commentary and color on potentially hearing something.
Later this year as to the regulatory pathway there, but is that what is going to open this up and kind of flip all interventions, the 170000 or 200000 or whatever it is CA to T car or is there something else that can do it either before that or is there something more needed after.
Yeah.
Oh sure Danielle and good to have you on the call. So you know, it's really multifactorial starch with.
Physician behavior, and what does it take for physicians to kind of change what they've been doing in some cases for you know 15 or 20 years.
And the way that we've talked about this in the past is if you have a mid career.
Vascular surgeon, maybe that Midcareer surgeons done 500, or more carotid endarterectomy and so that's a very predictable procedure and their hand, it's one in which they understand the failure mode. That's an important piece for surgeons.
And so it's really overcoming that inertia and the way we do that is methodically walking these physicians up their adoption curve, starting with a beachhead and that beachhead for every physician might be different but it's typically anatomic or severe.
Other co morbidities that put that patients at risk things or just procedures that the physician just simply doesn't want to do as CEA.
So we start somewhere and then we slowly carefully build the experience of that physician, we typically see an inflection point somewhere around the 10th or 15th case.
And if that's a methodical progression aware that vascular surgeon is maybe doing in a one to two cases per month of T. car you can imagine that that kind of inflection point can take several months if not a full year and so that's what we go out and do all day every day in turn.
Most of the light switch what is it going to take its really a couple of things one is data the strength of the National day. It certainly helps the data that were presented last year at the vascular annual meeting was a watershed moment in terms of clinical evidence.
For T. car against CEA in that propensity matched comparison that we talk a lot about so it's things like that and getting those data published are also helpful and peer reviewed journals and ultimately the standard surgical risk labeled indication in coverage really unlocks a much smaller piece.
Most of the pie for us, it's really only about that final one third.
Of the already treated patient population.
Daniel but I think you know it's also an interesting.
Psychological point in which the physicians no longer have to consider a risk factor when they're figuring out which procedure to use for the patient. So all of that combined are the things that we are focused on.
Got it thank you so much.
Thank you Daniel.
Operator are there any more questions.
No further questions on the line at this time.
Okay with that I think we can end this call and thank you all very much for your attention here today to Silk Road medical.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].