Q2 2021 Cardiovascular Systems Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the cardiovascular systems, Inc. Fiscal year 2021 second quarter earnings Conference call.
At this time all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the 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, Jack Nielsen Vice President and.
Investor Relations and corporate communications. Thank you and please go ahead.
Thank you Chris Good afternoon, and welcome to our fiscal 2021 second quarter Conference call with me today are Scott Ward, CSI, Chairman, President and Chief Executive Officer, Rhonda Robb, Chief operating Officer, Jeff points, Chief Financial Officer, and Dr. Ryan Egeland, Chief Medical Officer.
Doximity 30 minutes ago, we issued a press release announcing second quarter results you may find a copy of this release on the Investor Relations section of our corporate website. Here. You May also find an earnings supplement that includes additional details on our performance and outlook.
Few moments CSI management will discuss results for our second quarter, which ended on December 31 2020.
After our prepared remarks, we will entertain your questions.
During today's call we will make forward looking statements. These forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 and include statements regarding Csi's future financial and operating results or other statements that are not historical facts actual results could differ materially from those stated or.
Applied by our forward looking statements due to certain risks and uncertainties included those described in our most recent form 10-K and subsequent quarterly reports on form 10-Q in.
In particular, the COVID-19 pandemic has created risks and uncertainties for our business results of operation.
Financial condition and prospects, which we will discuss on this call.
CSI disclaims any duty to update or revise our forward looking statements as a result of new information future events developments or otherwise we will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's press release contains a reconciliation table to GAAP results I will now turn the call over to Scott Ward.
Thank you Jack good afternoon, everyone and thank you for joining us today.
Hope that you and your families are successfully navigating through this pandemic.
This afternoon, we reported that our second quarter revenue grew 6% sequentially to $64 2 million.
The surge in Covid cases, and increased ICU demand began to negatively impact our procedures. During the final weeks of December and as a result, our revenue finished slightly below the midpoint of our guidance range.
Considering the unprecedented spike in hospital admissions, we are really pleased with these results and I am proud of our team's focused support of our customers and patients, especially under these extreme conditions.
During the second quarter Covid continued to have an asymmetric impact across the U S mainly impacting semi elective procedures like the above the knee and Claude <unk> segment of the peripheral market.
While the non elective procedures, including critical limb ischemia and coronary has been more resilient.
This trend has continued into January and as a result, we expect our Q3 revenue to be down sequentially.
About in line with last year.
Even though we expect the pandemic to negatively impact our sales in Q3, we remain optimistic about calendar 2021, and we expect our business to ramp sequentially throughout the coming year.
We have continued to invest in our product pipeline and we are excited about near term opportunities like our peripheral balloons and the wire an embolic protection device as well as the longer term opportunities like our hemodynamic pump and now our drug coated balloon portfolio.
So this afternoon, we will update you on how we are managing our business in this environment Rhonda will.
<unk> commercial highlights and our Chief Medical Officer, Dr. Ryan Egeland, who will discuss our recent announcement to partner with CVT on the development drug coated balloons for coronary and peripheral artery disease.
But first Jeff will provide you with details regarding our financial results and our third quarter guidance Jeff.
Scott and good afternoon, everyone.
First I would like to point out that today, we introduced several new slides and financial details and our updated quarterly earnings supplement.
It can be found on our Investor Relations site <unk>.
We believe these new slides will help enhance your understanding of the business.
I will now provide a brief review of our Q2 financial results.
Some additional revenue color includes.
Domestic peripheral franchise revenue of $43 9 million Inc.
Increased two 3% sequentially led by continued strong growth in office based labs.
Domestic coronary revenue increased 13, 1% sequentially to $18 million led by strong unit growth and steady asps.
In addition revenue from coronary interventional support devices increased 14, 1% to $2 2 million.
And finally international revenue increased 32% sequentially to $2 3 million.
Turning to expenses gross profit margin came in as expected at 78, 3%.
Operating expenses of just under 50 million or more than $8 million lower than last year.
As we have throughout the pandemic, we are managing our expenses and targeting to maintain breakeven operating cash flow until the pandemic subsides.
The sequential improvement in revenue combined with our strong and stable gross margins and lower operating expenses allowed us to deliver near breakeven profitability and generate $5 2 million of adjusted EBITDA.
On the balance sheet, we ended the quarter with $225 million in cash and marketable securities and no long term borrowings.
As I move to our expectations for Q3.
Please note that the resurgence in new Covid cases, and increased hospitalizations and large parts of the U S made forecasting near term results more difficult.
Although we expect the availability of vaccines will eventually have a favorable impact on the health care system.
It's difficult to predict how the pace of vaccinations will proceed and what impact this will have on our business in the short term.
Please note that our Q3 guidance considers these and other factors.
Revenue through the first half of the fiscal year have been at approximately 94% of prior year levels.
Our Q3 revenue guidance of $60 million to $65 million represents approximately 98% to 106% of our Q3 revenue one year ago.
On the expense side gross margins are expected to be in the 77% to 78% range.
Operating expenses are forecasted to be in a range of $52 million to $54 million.
This represents a 4% to 8% increase compared to Q2.
And is primarily related to the timing of various project study expenses.
<unk> launched a sales training expenses associated with the series of peripheral products, we plan to launch in the second half of the fiscal year and increased payroll taxes.
<unk> to third quarter last year, we expect a nominal increase in operating expenses of 1% to 4%.
Primarily due to project study timing along with the product launch net sales training expenses.
On the bottom line, we anticipate our Q3 net loss of $3 $5 million to $6 million and to generate near neutral adjusted EBITDA.
I will now turn the call over to Rhonda, who will discuss our commercial developments Rhonda. Thank you, Jeff and good afternoon, everyone I would like to start with some additional color as to how we're managing through and a resurgence of COVID-19, with a variation of impact or by franchise and by site of service and.
In Q2, our domestic peripheral business increased 2% versus last quarter and decreased 7% compared to last year, notably performance was impacted differently by site a fair day obs.
OBL revenue accounted for 32% of our peripheral business and yielded an increase of 13% versus Q1.
And was also up 1% versus last year.
Outside of service continues to be more resilient due to improve patient access lower patient anxiety and absence of restrictions on elective procedures.
Increased COVID-19 related hospitalizations during Q2 impacted the <unk> segment of our hospital peripheral business the most.
Mining, 2% sequentially from Q1, and 12% year over year in.
In December increases in ICU bed utilization and subsequent decreases in elective procedure capacity and staffing resulted in delayed outpatient in elective procedures for many <unk> patients.
Complex patients like our CLI patients are continuing to be treated in the hospital setting and hospitals are seeing more and more advanced disease from patients that have either been deferred or have been waiting on the sidelines.
Our Doctor and advisor tax do you expect a rapid rebound in elective procedures and treatment of advanced disease. During the next recovery period when it occurred.
In the hospital setting we did see continued adoption and growth of our exchangeable platform, where purchase of an extra cartridges from multi level disease remains at nearly 20% of our exchangeable unit volume consists.
Consistent with prior quarter physicians are increasingly providing full leg revascularization in one procedure and we continued to achieve a meaningful ASP uplift to capture the value in this important innovation as well as extra revenue per case, when a second cartridges used the strength of our peripheral portfolio and channel competitiveness are key to CSI holding.
Our market share leader leadership position and peripheral despite increased competition.
Coronary revenue increased 13% versus Q1, which as you recall increased 63% sequentially compared to Q4. This continued strength resulted from hospital protocols in place to prioritize patient increased referrals to treat complex patients at higher volume centers, where CSI is present, the continued ability for they're thrilled.
Panel process patients and increase the ability for hospitals to perform OAS procedures with same day discharge. Our sales channel is considered essential in supporting these cases and our reps have been able to continue to focus on building further penetration of OAS and existing and in new account.
This is a growth driver to build upon our user base for the treatment of advanced disease and adoption of OIS.
In addition, we continue to make great progress, bringing value to the cases, where OAS with units and expanding the patients we are able to treat with a more diverse and unique portfolio of Isps for complex complex patients with the Sapphire, one millimeter balloon and teleport micro catheter.
The sale of these products in Q2 continue to generate incremental revenue of $542 for every coronary OAS device sold this is four quarters in a row now where we have had stable revenue per case above $500 per elas despite calling.
The combination of increased procedure volumes and strong ISP sales resulted in U S coronary revenues at about 97% compared to last year.
Turning to international International revenues improved 32% over Q1 to reach $2 3 million with Japan, continuing to be the major growth driver in Japan, We now estimate CSI market share to be over 40%.
I'll close with some key element elephant is that for us in the second half of fiscal 'twenty, one and Q2, we restarted enrollment in eclipse, our 2000 patient randomized clinical trial in coronary we expect enrollment to progress at a modest pace until COVID-19 is behind us and we are so thankful to our investigators and coordinators that are committed to seeing this trial.
Through despite a challenging enrollment here we.
We are equally encouraged by evolving practices for increased imaging and calcium characterization for example to better identify long lesions heavily stenosed lesions and lesions with non duals. This benefit CSI in the identification of severe calcium that only CSI can treat.
In our second half we plan to launch a series of peripheral products, which will expand our peripheral interventional support devices considerably and add meaningful revenue per case.
These products include our IRA an embolic protection device, a full line of peripheral angioplasty balloons and additional peripheral catheter.
Successful launch of these products is expected to be an important growth driver in our second half and in the years to come as you know in about two years, we captured over 50% of the incremental revenue opportunity per case and coronary now selling over $500 of balloons in micro catheters for every OE asphalt and.
In peripheral the revenue opportunity for case for balloons, and catheters is about $800 and we continue to believe that we can capture roughly 50% of that opportunity over a similar timeframe.
But in peripheral we sell four times as many OAS devices. So the total revenue opportunity is substantially higher.
In addition, we believe we can capture meaningful share with our wire on embolic protection system to be launched in Q4 today.
Today, there are about 55000 EPS sold annually in the U S. At an ASP of about $1000. An estimated one third of above any atherectomy cases utilize an embolic protection device today.
All of these devices will help us drive additional revenue, even when orbital atherectomy isn't the primary therapy as wire on can be used with any atherectomy device.
As we've headed into Q3, our collaboration with the American Diabetes Association is now ramping up.
Just last week on January 27th we sponsored the 88.
Roundtable event entitled Policy solutions to prevent amputation in the United States and that was attended by over 50 different Medical Society and Health care organization Representatives involved in <unk> and diabetes care and Dr. Ryan Egeland and Dr. <unk>, where speakers at the event providing information on diabetes.
Chronic limb threatening ischemia modern revascularization capabilities, an amputation, while also highlighting policy opportunities to prevent amputations like those included in Congress maintains amputation reduction and Compassion Act later this quarter. We will also partner with the Ada on a clinician event with their diabetes physician network to better educate.
Get those on the front lines of diabetes care around PD diagnosis and referral to skilled physicians, who can help prevent amputation.
Turning to international we now have CE Mark for our coronary Diamondback device and first cases will begin in our Q3, we anticipate Europe will be will continue to be impacted by Covid. As a result, this will be a very deliberate launch as we train and educate remotely until travel may resume as stated previously we are targeting sites that are.
Already had experience in treating severe calcium and have the patient flow and structure to adapt quickly.
And finally, we continue to plan for first in human experience for our <unk> now targeted for our fiscal year 'twenty two as we've stated previously COVID-19, and other factors could result in timeline changes and indeed COVID-19 has impacted our ability to complete some product builds and some other testing required in the timeframe that had previously been contemplated we are making solid progress and we.
We continue to have productive and regular interactions with the FDA on a path to <unk>.
Our Chief Medical Officer, Dr. Ryan <unk> will now address our recent investment in CVT Brian.
Thank you Rhonda Scott.
As Scott mentioned CSI has entered a partnership with chance to vascular technologies or CVT to develop and every level most based drug coated balloon portfolio.
The partnership will bring together CSI as market leadership in the treatment of calcified atherosclerotic lesions with Dr. Felipe Marco are respected and experienced pioneer in the development of multiple drug coated devices.
Personal experience working with Dr. Marco and his team on past drug device combination programs, we were able to rapidly recognize and validate cvt's technical platform development team and entrepreneurial experience.
We're confident this is a very efficient approach to answer the DCP market.
<unk> or of course, a widely accepted percutaneous interventional treatment option for above the knee lesions in patients with peripheral arterial disease and are increasingly recognized for their potential and complex coronary artery disease.
Including their use for instant restenosis small vessel and bifurcated lesions.
And all of these applications with Dcd's offer the potential for sustained anti <unk> efficacy without the limitations of permanent implants.
<unk>, the active drug and Cvt's DCD formulation acts as a cytostatic agent to reduce tissue hyperplasia and associated restenosis and has a proven history of safety and efficacy in coronary drug Eluting stent applications.
Under the terms of the agreement signed with CVT.
<unk> will provide milestone based financing to CVT for the development of the BCBS.
Following cvt's completion of key technical and clinical milestones.
Sai will have exclusive rights and obligations to acquire CVT.
In short, we're excited to add Everolimus <unk> to our product portfolio.
This program will bring new products to our customers and affirms our mission to enhance treatment options for patients with the most advanced forms of peripheral and coronary artery disease.
I'll now turn the call over to Scott for his closing remarks.
Thank you Ryan.
Excited about the CVT partnership working with CVT and Dr. Mark Colby will enable CSI to build a new core competency and our new <unk> product platform that will be sold through our current sales force and to our current customers.
Before we get to your questions I will offer my thoughts regarding our guidance and outlook for the rest of this calendar year.
As I stated earlier based upon our quarter to date experience. We expect that our Q3 revenue of 60 to 65 million may be slightly down sequentially, but essentially in line with last year.
This guidance recognizes that the recent surge of Covid cases has negatively impacted our procedure volumes in January and we expect to Covid headwinds to continue into early February with procedures rebounding and steadily improving in the spring as Covid cases decline and vaccination rates increase.
It is important to note that we are not expecting any new resurgence in COVID-19 cases, due to a new variant of the virus or some other cause.
Covid makes it difficult to precisely forecast our business in the near term, but as we look to 2021, we are enthusiastic about our growth potential as we leverage advancements in our core product offering drive higher revenue per procedure and resume our international expansion plans.
Prior to Covid, we had just launched our next generation coronary and peripheral atherectomy devices, including exchangeable and radial and diamondback with cloud assist.
These products were just beginning to gain traction before the pandemic hit and we are confident that they will propel our company to double digit growth in our core business as normal operations resume.
We will supplement this growth by driving higher revenue per procedure through the sale of angioplasty balloons guide wires and micro catheters over the past two years, we have made great progress with the sale of these products in coronary and as Rhonda. Just described next quarter, we will launch our wire, an embolic protection device and <unk>.
An innovative line of peripheral support products to a substantially larger number of OAS customers.
Finally, we expect to resume international expansion in 2021.
Orbital atherectomy as the market leader in the United States. We are quickly captured over 40% market share in Japan. The number two market and now we have received CE mark for our coronary device in Europe, the third largest market.
We have confidence that OIS will gain share in markets, where atherectomy is used and we are committed to introducing our technology to physicians around the world.
For the past few years, we have been pointing to fiscal 'twenty, one as an inflection point for CSI.
Where we would move beyond low double digit revenue growth.
I am pleased to tell you that COVID-19 is only paused our growth trajectory as.
As we emerge from the grips of this pandemic the drivers of our strategy remain intact, and we are poised to accelerate growth and improve profitability beginning in the latter half from this calendar year.
For those of you on the call. We appreciate your continued interest in CSI and we will now take your questions. Chris would you. Please repeat the instructions. Thank you.
Certainly ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question.
Excuse me to withdraw your question from <unk>. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Michael Matson with Needham Your line is open.
Hi, Thanks for taking my questions I guess I'll start with the DCP agreement.
I was just wondering if you could give us any insight to the sort of timing here.
When do you expect sort of first in human trials for these products are the peripheral or coronary balloon is going to be developed in parallel.
Et cetera.
Yeah. Thanks, Mike I think I'll have Ryan egeland to take that question Ryan Yes, Thanks, Mike while I think it's important to recognize the first step in the program is obviously the identification of a.
Of a drug formulation and of course as I mentioned, we're confident that cvt's plans to pursue the everolimus formulation are compelling in this regard.
With respect to.
Milestones, we we do anticipate reaching first in human for both the peripheral and coronary indications in calendar 'twenty three.
And ultimately, we're working with CVT to optimize those those timelines in both programs.
Okay. Thanks.
And then I guess I'll ask about <unk>.
The exchangeable product.
Ronda I think you commented on the progress there the adoption of that but.
You mentioned, 20%, but I was confused with that 20% net is that mean.
We moved from 20% of your peripheral cases or.
Yes. Thanks. Thanks for the question, we're pretty excited about the progress, particularly now where physicians are dealing with more complexities that have disease, along their entire leg multiple vessels and so that has really been a driver for us as physicians want to get patients in and out in a single day, and that's why patient volume and the number I refer.
<unk> was 20% and net with the use of a second cartridge and 20% of the exchangeable cases.
Okay got it and then.
As the support devices continue to grow and become a bigger part of your revenue how is that can affect the gross margin side imagine they have lower gross margins because they are.
Coming from a distribution partner.
Yes, I think actually our Mike our gross margins as we've said over the course of the next few years, we expect to remain in that high <unk> range, probably in that 78 <unk>.
79% range.
Clearly we have.
<unk> done a great job over the course of the past few years with our.
Efforts in our manufacturing operations and substantially have been reducing our cost of goods sold.
And those efforts continue we have a lot of room in that still and as we look at our mix of revenue over time, we'll think we'll we think we'll be able to manage that gross margin.
Net high seventies.
Okay, great. Thank you.
Thanks next question is from Chris Pasqual with Guggenheim Your line is open.
Thanks, I appreciate the extra detail in the presentation, particularly on our support devices, which I think really highlights the opportunity there well a couple of questions related to that piece of the business first when do you expect that the lineup you need on the peripheral side to really start to gain meaningful traction if we're comparing it to that coronary experience.
The two year ramp you're kind of there when does that clock started for peripheral.
Yes, the clock for peripheral will start in our fourth quarter here actually over the course of the next two quarters, we'll be launching those products. So I would say that the clock probably starts about then.
As Rhonda mentioned.
We have sustained that kind of 500 plus range in coronary now for the past four quarters. So really we've got up to that in just about a year's time, maybe a little bit more than that.
And that was just effectively Chris that's effectively penetrating 50% of the potential opportunity. If you consider that there's about $1000 per case thats available in the coronary segment. So as we look at the peripheral segment than we have probably 600 to $800 in the femoral.
Access portion of that.
Market as we broaden our opportunities to look at.
The radio opportunities there, we probably have more like theres a bit of a premium. So we probably have more about $1200 per case in radio and then of course, we will also be launching the wire an embolic protection device, which really is a bit different although it will increase our revenue per procedure is it may be used more often than our competitors.
Receivers and that device actually is probably going to have in asps consistent with competition and that at $1000 per device range. So hopefully that gives you a little bit more detail on how to think about those those products and how that will ramp over time.
Yeah. That's helpful. Thanks for that Scott.
And then just a corollary to that and you mentioned you guys got to $500 or so per case on the coronary side very quickly, but it's kind of flattened out since in.
And you still have some headroom relative to the opportunities identified originally there are there particular.
Other categories, where youre not getting the traction that you wanted to or things you need to add something else to the bag to move that 500 higher or has that been COVID-19 disruption related.
I think it's a little bit of a combination of those items, Chris but actually we feel pretty good about that penetration rate.
We don't expect to get.
100% penetration in all of our cases, and we don't expect them to use all of our products in all cases, either so there is there is a limit to where we think we will we will take that now.
As we look at at coronary in particular, we have a bit of a barrier there and that we need to go to a major hospital settings, and Ibm's GP OS and we have to get on contract and that takes some time now.
That probably is the most important driving factor from a temporary perspective.
We will we will have the advantage in peripheral of the fact that we've already addressed some of those contracts.
And.
A portion of our business is in the office based lab segment, where we just don't have to deal with those contracts.
At that same level. So we do think we can we can penetrate the.
The peripheral segment at least as quickly as coronary and maybe even a little bit faster.
Great Thanks for that.
Okay next question please.
Our next question is from Danielle <unk> with SBB Leerink. Your line is open.
Hi, good afternoon, guys. Thanks, so much for taking the question.
Yes.
Follow up on Chris's question, there as it relates to where you are in the coronary and the attach rate or penetration rate.
However.
Where do you think that can ultimately go sort of how should we be thinking about this and are there still more products to out over time that can push the revenue per procedure higher in the coronary space or at what point are you sort of fully penetrated from her.
What's reasonable thinking about what's reasonable.
Thanks, Danielle we have actually got a really nice and differentiated product line in coronary is Ron to talk about we have our 1.1 millimeter sapphire balloon.
Wallace balloon in the market, we've got our teleport micro catheter, which is the smallest talkable micro catheter in the market and we have the only 19, all guidewire that can be used with atherectomy in the market. So we have a even though this is a more commodity market. We have really good a good differentiated product offering we <unk>.
And to bring that same offering to peripheral now as we look at coronary.
Think our ability to increase the penetration rate and grow the business. There is at this point more about opening up some of these large contracts and getting into large hospitals and into larger segments of our market. So that does take time.
And we just have to work with each of these hospitals, we've got to get.
Basically on contract with them and on each of these accounts, we have a group of individuals that work on that day in and day out and we are making progress, but that's really the most important factor right now that that will allow us to continue to increase that penetration in terms of our revenue per case, we do feel pretty good about that.
<unk> is probably about the range that you should think about when you think about our ability to penetrate peripheral I mean, if we can penetrate 50% of that peripheral opportunity over a two year timeframe, we will feel really good about that revenue generated.
Got it Okay. That's helpful. And then just from the international market opportunity and congrats on the CE Mark approval in the coronary. Thank you just wanted to.
Get a little bit more color on what the barriers are to.
<unk> adoption in those countries is reimbursement already largely in place do you have to go get reimbursement country by country, how should we be thinking about the.
Uptake in some of these larger country, you're thinking you know, Germany, France, Italy et cetera. Thank you, yes, thanks, Danielle I'm going to ask Roger to address that but I'll just say that.
Like everything else in the World right now we are dealt with this.
Unusual circumstance because of the COVID-19.
A crisis and in particular, the way that that affects Europe. So.
This is going to be a bit of a of an unusual market launch and our approach that will be a bit different I mean, obviously, we have this unique opportunity in Europe, where we can focus on accounts that are already treating and are already using atherectomy and that's what we'll be doing but I'll, let you take that from there yes. Thanks Danielle for the question.
We're really excited to have this approval now in hand and be able to launch in.
And it's a big opportunity I mean, we look at our numbers and we think that there is the market potential for more than 100000 atherectomy cases to occur just given kind of the PCI rates and the rate of severe calcium that exists there.
But as you've noted the penetration of atherectomy in Europe. It is today low and I think it's for a variety of factors I certainly think that there is variable reimbursement by countries that will need to be mindful of that.
There has been.
Probably not as much of a market development focus.
CSI is going to be able to bring there I think we're seeing some changes to in terms of increases and I made comments like this in my remarks today increased imaging.
It's really becoming an important trend in coronary and in Europe, we're seeing that trend take hold as well so physicians are seeing things.
Lot of calcium that they hadn't seen previously so we think our launch comes in at a very very important time, but I think it's multifactorial and there are no barriers CSI opaque breakdown to capitalize on that opportunity, but as Scott said, even with 2% penetration in atherectomy today in Western Europe. We know the sites that are performing these procedures that have.
The structure and the processes to basically get patients referred in and to treat them and so that's where we're going to start.
Thank you.
Welcome.
Our next question is from Matthew Blackman with Stifel. Your line is open.
Good afternoon, everyone. Thanks for taking my question I've got a couple maybe to start.
Scott or Jeff I, just wanted to sort of reflect on on the fiscal second quarter and I'm not sure. How willing you are willing to go into detail on how the quarter progressed, but is there a way to quantify.
Quantitatively.
Or quantitatively to the.
The divergence that likely happened in mid quarter I assume the first half of the quarter things on a recovery trajectory, we're tracking well and then of course, we have the resurgence but is there any way to sort of frame how the.
Quarter progressed, and how you started the quarter versus how you exited the quarter.
I mean clearly as.
We have pointed out throughout the call, but the impact on our business was largely towards the end of December as we saw ICU capacity declined and some of our hospital will begin implementing restrictions.
That's really where we saw the impact.
I will go back and give you just a little bit more color on that.
<unk>.
It principally is in our peripheral.
Segment of our market and and namely in the.
Portion of that market that is our <unk> patient population and this population of patients is where you.
These procedures are probably considered to be semi elective not only by the.
Prescribing physicians, but also by the patients themselves. So theres two things that play into that first is that when we have hospital restrictions and they begin to slow down some of these elective in semi elective procedures. The patients that have that are cloud against obviously can be postponed.
And now they will come back and we saw that after the last event, we saw them bounce back as well so we do.
We would expect that again the other big the other factor that influences this as well is that.
His patient confidence so as patients develop more anxiety they will feel that they can put up with this occasional severe burning pain in their leg and maybe they will postpone this a little while until the crisis passes and they do that once again, we saw that that backlog is.
<unk> addressed but that these procedures are postponed so that was mainly in that second half of December timeframe now as we looked at our coronary business that coronary pipeline.
Actually it has.
Been quite robust and has continued to perform well so unlike the.
Major.
Peaks that we saw in the spring, where our coronary business was really impacted in the second quarter. It has not been and in fact, it seems that hospitals and in particular these tertiary care centers have established the right protocols to assure that they continue to care for these more severely affected coronary patients.
They also care for their their COVID-19 patients and then finally, our CLI patients, which comprises roughly 60% of our.
Peripheral business.
They continue to be treated.
On an as needed basis, I mean, if they if they are coming in and there is an open wound and theyre coming into the <unk>. They are being cared for in hospitalized and treat it and we really haven't seen that much of an impact in our.
And our C&I business. So hopefully that gives you just a.
A bit more color I think right now the majority of the impact we see is in that peripheral in the hospital segment largely the ATK.
Claude <unk> patient population.
Okay I appreciate that color and my final question on other coronary support portfolio question and maybe wanted to get at it a little bit differently.
You've mentioned the contracting of headwinds.
And preventing sort of broader penetration is there a way to.
Frame.
Help us think about.
What percent of your customer base is using a.
Sandy support product today, just trying to get a sense of how much is left on the bone just getting into some of these accounts were contracting maybe a headwind does that mean.
Meaningful opportunity from here in terms of.
The number of cases, you can get into or moving in the latter stages.
No I think there's still meaningful opportunity there, but like I said, Matt I don't we're at we're at roughly what about five $540 per case today out of a let's say.
Potential of about $1000 per case.
And we might see that continue to improve I expect that it will but I don't expect it to occur to improve at the same rate that we've seen up until now we will get to a point, where we've kind of gotten the access to the cases that we're going to get.
And so what we're not going to get to a $1000 per case.
We will see.
Continuous improvement over time, but.
We're going to see that begin to kind of level out and flatten out and eventually.
What kind of be balanced at some number in terms of our penetration of these cases.
Okay. That's all I had thanks, so much okay. Thanks Pam.
Our next question is from Suraj Kalia with Oppenheimer. Your line is open.
Good afternoon, everyone. Scott can you hear me all right.
Yes, we can suraj. Thank you perfect. So Scott one question for you one for Rhonda and one for Ryan I'll take it in that order if I could.
[laughter].
I appreciate the fact that you guys might not be competing with IV <unk> in the coronary setting, but as you think about the perception of IVF vs. OAS. How do you plan on an effective messaging, both clinical and economic in the coronary settings is a head to head study.
In the cards.
No I don't think it head to head study is in the cards I think we.
Of course our.
Assuming that.
<unk> will eventually be in the market, we do think that the IV L.
Technology is going to actually treat a different patient population than what we treat with orbital atherectomy.
With orbital atherectomy, we treat a severe form of calcification.
And most of our patients have very long lesions that are heavily stenosed and oftentimes probably no more than 50% of the time, there's nodules that are present or kind of sabre tooth.
Present within these lesions.
So that is a patient population that is not well treated with IV <unk> and you can go back and you can look at the CAD III clinical data and seeing that data that about somewhat over 50% of their patients could be pre dilated prior to the utilization of an IV L.
If you look at our data about one 8% of our patients can be pre dilated.
So we're treating very beer lesion and generally speaking, we interact with and support customers that are at tertiary care centers and these are customers that have been trained these are physicians that have gone through fellowship training programs.
Our skilled in the treatment of these more complex patients.
Where we think the IV LMA gain greater adoption is in the population of physicians, who maybe have not been trained for the treatment of these more severe cases, but who come across calcium on a day on a day to day basis and they are in their regular practice. So I think there is a pretty meaningful.
<unk> segmentation here and as a result, I just I don't think that a head to head trial is warranted.
Unless there is some new data that comes to light, but where we're at today I think that's how we see the segmentation of the market coming forward.
It.
Hey, Randall.
Pulls you one question what level of preclinical testing has been done on the Pea that should we expect at least three five liters per minute net flow rate and a focus from plasma free hemoglobin within normal thresholds.
Thanks, Raj, Yes, we haven't disclosed.
The degree of preclinical testing, but I will say, we're working very very closely with the FDA to complete all of the bench and animal testing and are making very very very good progress through all of their requirements and all of their protocols.
And I missed the last part of your question I'm, sorry can you repeat that again.
Can you give us some some benchmarks on the piece that is it going to be at least three five liters per minute.
Net flow rates.
Yes, it will be okay perfect.
Ryan I'll just pose the last question for you is choice for Rapamycin analogue primarily on the potential of an improvement in the late mortality signal versus Paclitaxel Awards. This driven more by here's an asset that was available.
Let's jump in.
<unk>.
We know what's going on in Paclitaxel I'm, just curious in terms of timing and please correct me if I'm wrong.
This product would not be commercially available.
Calendar 'twenty four 'twenty five.
Alright, Thank you for taking my actually no.
Good question Suraj, So I think Youre very good question just on the.
Active drug component being Everolimus I think we're very confident that therapeutic window window in the basic biochemistry of that <unk>.
Our masuda component has certain advantages over others and we know that obviously there is a long standing history of safety with that compound so that did weigh into our calculus, but of course.
The broader the broader program realized more than just on the the API and it also includes just the formulation, which we talked about and that leads to kind of the timing as you had asked about we're anticipating really at this 0.1st in human in calendar 'twenty, three and Thats, what our what our focus will.
With respect to the validation of that that formulation.
Our next question is from Jason Bedford with Raymond James Your line is open.
Hi, good afternoon, thanks for taking the questions I have a couple.
Scott I don't want to get cute.
With your words here, but you mentioned towards the end of the call that the business is poised to accelerate.
Growth and profitability beginning in the latter half of this calendar year, So I would've thought you'd see more of an impact in the June quarter. So maybe just a clarification on your thoughts on when you expect revenue growth to accelerate here.
Given the Covid dynamic.
Fluid, but I'd lump.
More clarity on that.
Yes, I think it's really hard to predict I think we can I think as we look at this pandemic.
We are assuming that with the availability of testing and the increased vaccination rates.
That we will see the health care system recover and return to normal operations in the second half of 2021 now.
That's not just us saying that as you know I think nearly every med Tech company. That's reported is basically said the same thing and I think if you look at a low.
Lot of the reports from <unk> and other places.
This is where kind of all of the estimates triangulate I think we do expect to see as I said, a sequential improvement over time and that we will see that actually in our what is our fourth quarter. The June quarter as you referred to.
But I think it's.
Phil a bit uncertain in terms of how that quarter will shape up and honestly that is is driven by.
Uncertainty regarding the degree of vaccination that happens out there and I'll point out as well that as we look at our metrics that we look at are really hospital admissions and ICU bed capacity and as we look at those two metrics, we do see them now really dramatically improving so I would say that.
We are cautiously optimistic that we'll see that continue the other metric as ive referred to earlier, which is really important to us is patient confidence and when does that in particular.
Peripheral patient population there are other clotted against when do we see a restoration of confidence a decrease in anxiety in that patient population. So that they will begin to come back into the health care system for care.
It is really hard to predict.
We do not have.
Solid metric that law allows us to get our hands around that so that's probably more detail than you wanted but.
Rest assured we're studying that closely and really trying to assure that we're well positioned this is completely driven by the COVID-19 crisis. This is really what will either allow us we'll release and allow us to expand and grow more quickly or the grips will continue for a while longer.
We will have a bit more of a longer ramp.
Lately determined by the virus.
Okay, Okay fair enough.
Maybe for Jeff.
Mentioned that coronary pricing was stable in the quarter, but I may have missed any commentary related to peripheral pricing.
Yes. Thanks for the question Jason peripheral price also remained stable continued to see kind of that low to mid single digit price erosion, a little bit higher in the OBL.
<unk> very stable on the hospital environment.
Okay, and then just a couple of questions on the international business from a coronary side are.
Are there stocking orders tied to the CE Mark approval and then secondly, what is the day.
With current size in dollars of the coronary atherectomy market in Europe. Thanks.
So I'll address the first part of that there are not stocking orders related to that launch.
Rhonda would you want to address the second question, Yes, we think it's about $50 million market today, but as I said it is.
Significantly underpenetrated.
So that is that is our mission is to increase that penetration rates and really grow that market significantly.
Okay. Thank you.
Okay. Thanks.
Our last question is from Margaret because with William Blair. Your line is open.
Hey, guys good afternoon.
A few from me I wanted to maybe touch on what changed from what you just talked about for kind of a march quarter in the June quarter, I know, it's tough to predict but on the same token what we saw in the summer months was a pretty rapid reacceleration in terms of demand.
From hospitals reopen and such so.
Maybe some thoughts around that as well as what does guidance assume for March.
And essentially trying to peg into what does that mean for the potential fiscal fourth quarter as you go into it.
Yes.
As I indicated Margaret.
The guidance assumes that we will continue to see some headwinds from COVID-19 here into early February and then after that we will see.
A steady ramp of improvement now if you look at the recent peak in cases that occurred in early January and generally it takes about six weeks for the peaking cases, then to clear through the hospital system.
So that would lead us to say that as we begin to look at the.
And in February we will start to see that release and then that's where we would expect to see actually some backlog in our peripheral business and.
Some some uplift in our peripheral hospital segment, mainly in that.
A portion of our business that is our quality and patient population.
So that's kind of how we're thinking about the remainder of this quarter.
As we look at next quarter.
You may very well be right and I hope that you are and then we'll talk about that next quarter. If there is a rebound and it has.
Yeah.
The pandemic releases in the health care system is very able to deal with it then we'll deal with that in our guidance and as we talk about fourth quarter in our next earnings call.
I guess I'd like to at least have a amount of time to see how this unfolds over that period of time.
Yes that makes sense and I guess, maybe as a follow up question to that is in that September quarter of 'twenty.
Was that more backlog of patients who maybe were already in the Q that got pushed out in this scenario, maybe you don't have as big of a backlog.
We did that.
Well I think that's true I think thats fair, except that we did see in July.
A backlog of patients that were in our peripheral segment that were treated and that as you described that happened in that September quarter. So we did see a bit of other backlog there and it did come back up.
These chronic patients are not lost to the system that we were generally speaking they know where they are.
They continued to experience pain, they have a chronic condition. It wont go away spontaneously so.
They will be treated and they will come back in.
To the health care system for care. So we saw that in the September quarter, we would expect to see it again.
Late this quarter and probably into next quarter.
Okay.
And then two questions from maybe longer term commercial so that with Covid do you guys see a further in Louisville volume sustainably into the OBL.
Moving on that and what impact could it have and then the second question is that.
There's a lot of vascular surgeons right now on the sidelines. Unfortunately, they are not able to treat patients with COVID-19.
Is there anything incremental that you guys have done commercially.
Can provide that maybe drives awareness more adoption or training of Oems on the backend of Covid.
Thanks, Margaret two very good questions. So regarding the vascular surgery community.
Yes, we are.
Focused on that group and offering now very specific medical education programs and in fact in the midst of the COVID-19 crisis, we have been operating.
A large scale.
Digital or remote types of training and education programs that include live case trainings and Q&A and then we're able to do now both peer to peer as well as remote certification of physicians.
Who we.
Just to begin to adopt atherectomy, we are seeing the vascular surgery community begin to adopt atherectomy both in.
In terms of the primary care for their patients as well as in hybrid procedures, where they're performing atherectomy. In addition to the surgical procedure.
So that is evolving and we are continuing to support those efforts. It is mainly a customer training and education program at this time.
But we are really pleased because we've got some very important.
Key opinion leaders in that space, who are now both strong adopters and also strong advocates for.
The treatment of these patients.
Net long explanation I forgot the first question.
Yes, the migration to the OBL is definitely underway we have seen.
Sure.
That debt.
<unk> had started really the past couple of years and I think that the COVID-19 crisis is just accelerating migration to the office based lab.
Its geographic in nature.
Certainly in the south from the southeast it's happening more rapidly than it is in other parts of the country, but.
Most definitely we're seeing that that migration occur.
Thank you.
Thank you.
Ladies and gentlemen, this concludes the Q&A session I'll now turn the call back over to Scott Ward for any closing remarks.
Thank you Chris.
Thanks, everybody. We appreciate your participation on today's call I'd be remiss, if I didn't take a moment to recognize our employees many of whom are joining us on the call today and in Q2 during a pandemic or CSI team of over 800 dedicated employees helped to save the lives or improve the quality of life for over 22000 patients.
And their families. So really now more than ever I would like to thank all of our employees for their continued perseverance and their focus.
On our key growth drivers as we navigate through this pandemic. So thanks, everyone and thanks for dialing in your attention. We look forward to updating you again next quarter.
Yeah.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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Yes.
Okay.
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Okay.
Yeah.