Q3 2021 Cardiovascular Systems Inc Earnings Call
And led by our coronary franchise, which generated strong procedure volume domestically increase.
Increased sales of procedure support products and growing adoption of orbital atherectomy internationally.
Peripheral revenues were flat as strong growth and the OBL was offset by the temporary deferral of above the knee procedures for the treatment of quantification.
Office based labs represented nearly one half of our peripheral unit purchases during the quarter and.
As an increasing number of complex peripheral procedures were performed outside the hospital.
Throughout the pandemic, we have seen the office based lab emerge as an important site of service for complex procedures and we expect this trend to continue even as the pandemic subsides.
As we look to the health care landscape today, most markets. We serve have either returned to pre COVID-19 procedure levels or are now poised to do so.
As a result, the momentum and our business that we built towards the end of Q3 as continued through early may and we are optimistic that we will benefit from sustained growth and peripheral and coronary procedure volumes throughout the rest of Q4.
The improving health care environment aligns well with the planned commercial launch of our peripheral support devices. As we have stated the introduction of peripheral angioplasty balloons support catheters and embolic protection devices will become an important growth driver for CSI and we are preparing for the full launch of this.
Portfolio this quarter.
<unk> will provide additional details on this launch and our commercial progress and a few moments, but first Jeff will provide the details regarding our financial results and our fourth quarter guidance Jeff.
Thank you Scott and good afternoon, everyone.
I will now provide a brief review of our Q3 financial results.
For additional details please refer to the earnings supplement slide deck on our website.
Worldwide coronary revenue increased 13% nearly $21 million.
And the U S coronary revenue increased 9% to $17 5 million led by a 9% increase and units sold.
And at 24% increase and the sale of coronary support products.
Outside the U S coronary revenue increased 36% for $3 5 million as a result of continued strength and Japan combined with the successful introduction of coronary OAS and Europe.
Worldwide peripheral revenue were about flat with a year ago period.
However, we again experienced strong growth of peripheral atherectomy and the OBL side of service.
<unk> revenues increased 21% from the prior year.
Peripheral units sold to hospitals declined about 6% compared to last year due to ongoing to for all of treatment for qualification.
Turning to expenses for.
Gross profit margin came in on plan at 77, 9%.
Operating expenses totaled $54 9 million and included a onetime expense of $3 4 million for the acquisition of peripheral catheters from waypoint medical.
Excluding this expense operating expenses were about flat with last year and below our forecast.
During Q3 and in early Q4, we announced several strategic investments and we believe will drive future revenue growth.
In addition to the waypoint peripheral catheters that we will commercialize and early fiscal 'twenty two.
We also announced a partnership with CVT to develop novel Everolimus drug coated balloons, and and the investment and the <unk> digital telehealth platform.
We ended the quarter with $211 million and cash and marketable securities and no long term borrowings.
As I move to our expectations for Q4, we remain optimistic that the increased vaccinations will have a positive impact on the health care system and procedure volumes and future periods.
We note however that the COVID-19 pandemic is not over and on certain market dynamics may persist that could negatively impact our Q4 forecast.
With that and mine, we forecast Q4 revenues to be and the range of $67 million to $70 million.
Representing a sequential quarterly increase of 6% to 11%.
And a year over year improvement of 58% to 65%.
Turning to expenses.
Gross margins during Q4 will be impacted by two nonrecurring factors for.
First.
We will incur a onetime charge to cost of goods sold related to our recent decision to upgrade sailing pumps that will be reaching end of service over the coming 24 to 36 months.
The saline infusion pump pumps are capital equipment that provide saline and lubricant infusion during on orbital atherectomy procedures and are typically provided at no charge to our customers.
This is a normal course of action to replace the remaining older generation pumps over several quarters beginning in early fiscal 'twenty two.
Upgrading these pumps now will benefit our gross margin over time, while we assure on.
Interrupted support for our customers.
Additionally, as we stated at the outset of the pandemic one of our primary goals was to invest and our business to ensure that we were able to support our customers and patients throughout the duration of the pandemic.
Over the past 12 months.
And we operated both of our production facilities to ensure that we maintained adequate safety stock and the event one of our facilities experienced a pandemic related disruption.
With the recovery now underway.
We will reduce build levels during Q4 and.
And in effort to eliminate the accumulated safety stock.
Combined these factors will result in Q4 gross margins to be and the range of 70% to 71%.
We anticipate gross margins to recover beginning in Q1 fiscal 'twenty two.
Operating expenses are forecasted to be and the range of 53, five to $55 5 million.
On the bottom line, we anticipate our Q4 net loss of $6 million to $7 million.
And and adjusted EBITDA loss of $1 million to $2 million.
I will now turn the call over to Rhonda, who will provide a commercial update rhonda.
You, Jeff and good afternoon, everyone. Today I will provide a few thoughts regarding our Q3 results and will then to Scott some of the key drivers for Q4 and beyond as we emerge from the pandemic in Q3 on our domestic peripheral business was approximately flat versus last quarter, our typical growth and PD was impacted by the third and hospitalization.
And that began in December and continued through the first half of Q3. During the time, we saw a temporary reduction and the treatment of communications one of the more complex patients with CLI and.
<unk> below the knee continued can be treated.
Since mid February we have seen a considerable rebound in our PD business.
Revenue drivers within Q3 included the continued adoption and adoption of the exchangeable platform systems and continued strength in the OBL and.
And as noted on how the pandemic, we have seen an increase and the number of procedures performed outside the hospital.
As Jeff mentioned, OBL revenue increased 21% compared to last year.
We all have become an important site of service during the pandemic due to improve patient access and satisfaction as well as less restrictions on elective procedures as compared to the hospital setting.
Turning to coronary.
Domestic coronary revenue increased 9% year over year.
Pandemic related disruption to hospital procedures early in Q3, followed by a strong increase in procedure volumes in late February and throughout the month of March and.
COVID-19 admits and decrease our reps are increasingly invited back into the Cath lab to support physicians and the treatment of their most complex coronary and <unk> and we've taken this opportunity to focus on driving deeper penetration of OAS and existing and in new accounts.
Improving cash flow of access is also helping us drive increased revenue per coronary procedure. During Q3, we sold 600 for $1 of support products for every coronary OAS Hello.
And total sales of coronary support products totaled $2 4 million.
And can also mentioned net throughout COVID-19, we have focused on and expand in many of our existing OAS contracts with large IBM and GTO group to include our full line of coronary support products and now seem to be launched peripheral products expanding these contracts unlocks new opportunities for growth.
Today, our reps now may sell these support products into most of the largest hospital systems in the country, representing over 600000, PDI and PC PCI procedures annually.
International revenue increased 25% in Q3 to $3 7 million led by continued strength in Japan, we executed and effective launch and Japan three years ago based on peer to peer training and this approach continues to deliver exceptional results.
We also received a CE mark for our coronary OAS and January and are employing theme launch approach and Europe. However, due to the pandemic. We arent currently redefine our new customers with remote training is.
It has proven to be an incredible accomplishment, especially when you consider we launched coronary and six European countries and less than two months.
The reception by our customers has been overwhelmingly positive and we look forward to continued adoption and momentum as the launch continues.
Looking ahead to Q4, we anticipate procedure volume to show sequential improvement compared to Q3, and Max nieces increase and patients for you.
And routine medical visit and as COVID-19 admissions decreased.
We are positioned to resume strong unit growth for growth in both peripheral and coronary atherectomy going forward.
And peripheral we anticipate growth and sales of our interventional support devices and we begin driving more revenue per case later this month with the launch of the peripheral Jade angioplasty balloons. These.
These are noncompliant balloons designed for the controlled opening of resistant lesions in recent months, we've conducted over 400 product evaluations with 80 physicians at 60 facilities and have received exceptionally strong feedback regarding your overall performance.
<unk> will be and important components of our peripheral often and offering is expected to drive meaningful revenue per case and and.
And following the recent FDA clearance of our wire on Embolic protection system, we will initiate the full market launch for this product later this month our market test received high marks from our customers with wire on being evaluated in a variety of lesion types and locations and were followed these it is wire agnostic and can be used with any.
And atherectomy device.
One final comment on peripheral and the journal of Medical Economics recently published an article highlighting our Liberty 360 trial overall the authors found that the use of orbital atherectomy resulted in lower mean cumulative PD related cost.
At both one and two years after the procedure.
Liberty 360 continues to provide convincing data demonstrating and orbital atherectomy provides durable and patient relative relevant outcomes while simultaneously.
Reducing total health care costs, and this extremely challenging and resource intensive patient population.
And coronary we will leverage improving cath lab access to drive increased sales of our current OAS and increased utilization of our support devices.
With increased imaging utilization, there is better identification of calcium and recognition of the unique benefits and OAS and its mechanism of action.
As a result healthcare providers increasingly appreciate orbital atherectomy as a single device solution and subvert the tile easy to use and treat a broad range of lesions by a bleeding and fracturing, both superficial and deeper calcium pathology.
Turning to international we look to build on the strong interest and coronary OAS and Europe, and we will continue to remotely train and certify new physicians and <unk>.
Of the recent surge and COVID-19 cases in many parts of Europe, we will be very targeted with focus on sites that have experience and treating severe calcium along with the patient care experience and medical infrastructure to adopt owing on quickly.
We also recently received approval from health, Canada for our peripheral OAS and with our coronary approval in hand, we intend to launch both there and Q4.
That completes my prepared prepared remarks, Dr. Ryan and Glenn will now update you on our recent development regarding our plans to develop drug coated balloons, Brian. Thank.
Thank you Rhonda as you recall on January CSI entered a partnership with chance do vascular technologies for CVT develop and Everolimus based drug coated balloon portfolio.
We're pleased to report that CVT has continued to demonstrate the effectiveness of its research and development strategy and has recently received the FDA breakthrough device designation for the development of its coronary GCB.
The FDA breakthrough device program was designed to help patients receive more timely access to innovative devices intended to treat life, threatening or debilitating diseases, where few or no approved products exist on.
Under this breakthrough program the FDA will provide priority communication and its review of CVT ECB development plans.
And we're really pleased to be working with CVT to add everolimus dcd's to our product portfolio.
This program will bring important new products to our customers as we seek to enhance treatment options for patients with the most advanced form forms of peripheral and coronary artery disease.
CVT remains confidently on schedule for launch first in human clinical trials for both the peripheral and coronary dcd's by calendar year and 2023 as we reported earlier.
I will now pass the call back over to Scott.
Thank you Ryan.
Our investment and CVT as just one example of the many recent actions we have taken to add new growth drivers and diversify our business we.
We are poised to execute on and an impressive portfolio of initiatives and the next few quarters are extremely important to us as we expect an inflection and our growth rate driven by COVID-19 recovery, our new product pipeline and renewed momentum and international.
And calendar 2019, and 2020, we launched several exciting products, including glide assist exchangeable and radial OIS.
Each of these have had a muted growth ramp directly related to the pandemic.
As these headwinds subside, we remain very excited about these products and look forward to driving their adoption and a more normalized environment.
Our new product pipeline is as robust as it has ever been our wire on embolic protection device. The Jade peripheral angioplasty catheters resilient guide wires and the Viper Cross family of peripheral support catheters will be fully launched over the next few months and will contribute meaningful incremental revenue and <unk>.
2022 and beyond.
Aside from our product pipeline, we continue to invest and growing our international business and we expect to see strong growth outside the U S with renewed momentum in Japan, and the launch of coronary OAS and Europe.
Looking out longer term, we have positioned the company to sustained robust growth and the years ahead.
We continue to make progress on our <unk> program, which we are targeting for fiscal 'twenty to.
This product will provide access to and $800 million market and PCI support.
Enrollment and our eclipse trial is gaining momentum and we are on pace to complete patient enrollment and about 12 months to 18 months we.
We are targeting and report out on this trial and fiscal 'twenty for.
And collaboration with wave point, we are developing a portfolio of specialty catheters to be used and the treatment of chronic total occlusions and complex PCI.
CTO micro catheters will allow CSI to penetrate a $100 million to $150 million market and we will significantly increase our potential revenue per procedure, adding $500 and revenue opportunity per coronary case.
We are targeting a launch date and fiscal 'twenty three for the CTO portfolio.
Brian described the Everolimus drug coated balloon program the market for coronary and peripheral BCBS and is estimated to exceed $1 billion and size over the next five years and we're targeting first in human trials to begin and 23.
And finally, we recently announced a small investment and exclusive acquisition option and <unk> and Telehealth company offering a digital platform designed to improve outcomes for patients with CLI and lower extremity wounds.
In closing, we look to the future with great anticipation and optimism our entire organization here at CSI is excited to execute on these opportunities support our customers improve patient care and accelerate our revenue growth beginning in the current quarter.
Want to thank all of our CSI employees for their extraordinary dedication and commitment to our mission and the patients that we serve.
<unk> by our mission to save limbs and save lives. Our exceptional team continues to make meaningful progress on our efforts to transform CSI and to a multi product company with worldwide reach.
We appreciate your continued interest and CSI and we will now take your questions. Christine would you. Please repeat the instructions for the Q&A. Thanks.
As a reminder to ask your question and the different star one on your telephone to withdraw your question press the pound or hash Keith Thanks for.
And by we compile the Q&A roster.
Your first question comes from the line of Mike Matson from Needham Your line is open.
Yes.
Hi, guys. This is Joseph on for Mike.
I guess just to start off can you maybe talk about the investment and Capex and how that fits with cardiovascular.
Okay.
Yes. Thank you Joe I appreciate the question.
And as we've shared with you over the years the care of.
Peripheral patients is really oftentimes quite fragmented and physicians.
Are often really unable to share information and data or diagnosis amongst themselves. So this fragmentation is really slow and patient referrals, which lead to poor patient outcomes and it just made the difficult the care of these patients more difficult. So our shared vision of <unk> is to have really the most robust referral network.
Global to podiatrist to skilled nursing facilities home healthcare agencies wound care providers primary care physicians really everybody that touches and these patients and have them integrated it with now our interventional us. So we believe that this multi disciplinary case management approach.
Net debt will be really.
Facilitated on this platform that this can really accelerate patient access to the appropriate treatment at the right time.
Improve the quality of care and ultimately really reduce the frequency of amputations. So we really look at this as a way for us to <unk>.
And solidarity and accelerate the referral channel and our business.
Okay. Thank you very much for thoughtful.
And then I guess, maybe moving on to Europe can you tell us a little bit more about the coronary atherectomy market opportunity there.
I guess, how big is the overall market and and how much share.
And you guys expect to gain.
And then also is there I guess and opportunity to sell the peripheral product in Europe as well. Thanks.
Sure.
On.
Yes, why don't I.
I'll just take that it's a $50 million market in Europe, and remember it's a distributed products. So we worked through distributors there.
But right now our launch is going extremely well and I'll.
Rhonda just go ahead and comment on that yes.
Yes, as I said, we've launched into a number of countries, which is really really excellent reception to.
And to the product and to the clinical outcomes in particular.
As I said in my prepared comments, we're going to be very.
Measured and <unk>.
Directed in terms of our launch in Q4, and just given the continuation of COVID-19.
For the $50 million market is really attractive and I'm very optimistic for our share position.
In Europe that is consistent with our share and other geographies and we do have peripheral there as well and it has been going well and we're continuing to roll it out that's a little bit more of a market development without peripheral is not as established in Europe as it is in the United States. For example, so we're working with the thought leaders throughout western Europe to really weighted.
Raise awareness for the therapy drive those patient referral and drive better organization and ultimately.
On a bigger market and I appreciate the question.
Okay. Thank you very much and then can you guys also just briefly touch on some of the pricing trends.
You've seen periods for coronary and peripheral atherectomy.
Sure so the pricing trends and coronary have continued to be very stable and.
And frankly, the pricing trends in both segments of our OBL and and hospital segment for peripheral have also been stable I think the what we've seen in the past quarter was.
And a mix shift where.
Largely due to COVID-19, we saw just and increased growth rate and more patients being treated and the office based lab setting and what we saw on me and hospital setting otherwise our pricing there sequentially actually was quite consistent.
Thanks for taking our questions.
Thank you Joe Thanks.
Your next question comes from the line of Danielle, but Danielle and Kathy from VEB Leerink. Your line is open.
Hey, good afternoon, everyone. Thanks, so much for taking the cash.
Scott or Ron.
And it will take this question but.
This is around the <unk>.
And the competitive IV Oliver I don't think you guys necessarily characterize it as competitive but the ongoing ICL launch and.
Swiftly put up for the diesel numbers with only two weeks or so.
Just curious about what youre seeing out there and the market from a filing perspective on how you think and <unk>.
Impact your Basel could evolve all day.
And go from sort of a more controlled by scale and product lines along at a high level long term impact here cable for.
Primary Paul Paul Thanks for that.
Thank you Danielle.
I think it's early days you can see from our results that we had actual actually quite strong growth year over year and coronary. So I'm very pleased actually with the performance of our coronary business. Our coronary business continued to remain quite strong really throughout third quarter. Despite the challenges that were posed by COVID-19. So at this.
Point, and we really don't have.
Data, it's too early for us to have data to really answer your question on market share, but I would say that.
Right now.
Our market checks, albeit incomplete.
I've actually been quite positive and we feel that what we are seeing as as you somewhat described as that.
The utilization of the IV L is likely to expand this market and the other.
The treatment of these complex coronary patients is difficult and it oftentimes does require multiple technologies and requires different approaches.
And in particular on the complexity of types of regions. Obviously, some can be cared for using our technology and and some may require other technologies. The one thing we do know for certain and I.
I think we're quite confident and there is that our customers know how to use orbital atherectomy. They know when to use it and they know how to use that technique really to optimize patient care. They know how long that will take they have experience and they have confidence so when the device is required.
For use.
We still believe that day.
And my last question is on the peripheral on its around critical and excuse me and just sort of thinking conceptually about that piece of your business and I mean, I I'd be curious to hear how much.
Much or quickly critical women's Skimmia is growing for you guys. I don't know if you guys can parse the numbers that way, but and I'm asking a question because I feel like that's becoming and increasingly important piece with a C. S. I story you know, it's it's a market where it feels like you guys have and monopoly and the most.
I guess near term opportunity if I'm mischaracterizing that let me know, but where you have the most differentiation and I have the biggest benefit to patients. So I'd be curious to hear a how fast critical limits for me therapy is growing and see how much awareness is growing there because it sounds like that's a big piece of.
And the market development, and then see how much like for the what percentage you expect that to be of your business over the net college year two years herself. Thanks, so much.
Thank you Daniel the Hell of a Lotta people and the last movie you know what are the key lessons that we've learned over the course of this pandemic and and I think one of the most important observations. We have made is just how important are device and our technology is and the care of patients that have critical interest you yeah. It hasn't been both rewarding and and at times quite remarkable to see.
That.
Our patient population our growth the number and patience that we treat that have critical let me give me a really has not been negatively affected by the pandemic and that's extraordinary we have seen and packed and and take care of and patients that are that have Clarke and there are that and qualification, but our C. L. I market has remained very stay.
Oh and study and.
And which shows you that even in the face and the pandemic for these patients obviously have a very serious condition and our device is most often times you usually consistently used and their care and that's because our customer population knows how to use this product and they they know how to care for these patients and.
And they get good outcomes and so as a result of that I I think C. L. I think you're right C. L is a very important part of our business I think we got it is obviously the most complex patient population.
This particular market is driven by the and continued increase and the prevalence of diabetes and as a result, we do expect unfortunately see critical and ischemia continue to increase we believe that this market is growing right now at a rate and that's seven to eight per cent range and we expect.
To see that continue going forward.
We also of course, you are now launching products that also target that very soon and patient population. You know there there are patients that and critical and ischemia and may have above the knee or below the knee lesions and and the case and patients that day of above the knee lesions, that's a place where we expect R y.
Her on and Bollock protection device to be utilized quite often and where we think that it can really make it and and improvement and and the quality of care for those patients. So we are actually quite excited about our focus on critical and ischemia and as you've described and I think appropriately so it will become a and.
And continuously more important part of our business as we move forward.
I.
I think I addressed all of your questionnaire, if there's anything I missed and let me know.
Yeah, no that was great. Thank you for that.
Okay. Thanks.
Okay, and if you would like to ask a question. Please press that and then one on your telephone. Your next question comes from the line and <unk> from Oppenheimer. Your line Okay.
Hey, Scott can you hear me all right.
Yes, the rash. Thank you perfect. So thank you for taking my questions at the Scott and let me start out here on the coronary site just pulling up on Daniels question. So the coronary lesion sets being treated with Oh at whereas right at least the way we have thought about it it's stratified as the non.
<unk> more complex lesions R O S on atherectomy for me.
For for conditions on for pulled on Ivy L.
Just picked up a shift and your commentary about about the entry of Ivy L did I get that wrong or are you still seeing it for market relatively stratified definitely.
Oh, we are absolutely still seeing and stratified that way, that's that's exactly what I'm, referring to I I think as we look at our patient population you know our patients are typically more speed the lesions retreat I should say are typically more stenosed.
And they are longer and.
That is that is and and it always has been the benefit of our devices and if you cannot pre dilate that lesion you you can get a wire through it to get our device down and still be able to treat that's really calcify lesion open it up and and ultimately standard so that definitely has an advantage of.
For our product.
Okay got it.
Scott.
On the peripheral side and just if you could directionally give us some some goalposts. So that we can start getting on arms around and how would you characterize you know the number of cases being done independently and just utilization rate.
Per center.
Just a question for you on the number of cases being done independently do me and the number of cases being performed and the office space lab.
No just without the rep on site and.
And I specifically.
Sorry go ahead.
No I I understand what you're saying now I I apologize and <unk>.
Yes, we actually support about two thirds of our cases, so our reps are on site and our peripheral cases about 65% to 70% of the time.
And I should note that that may be a sales rep or a clinical specialist.
Got it and the average share cases per center.
How should we think about that.
I don't know, how we should think about bad Jeff do you have a sense of average cases per center I suppose yeah surrounds and I think a way to look at it and we've got about 1700 active accounts. So you can see how many devices that we sell per quarter and you could you could assume about 1700 active accounts.
Got it Scott one last question and I'll hop back and queue and on this is more of from sort of a good oboe question. If I may not only applicable to you guys, but if you could just kind of give a broader sentiment of what you are seeing and the field.
And that specifically as it related to discernible.
Inventory pattern shifts that you've seen pre COVID-19 two COVID-19 to now.
Because one of the themes that we are picking up on the field is there is inventory of certain suppliers.
Suppliers out in the field I'm curious what you are seeing if that is and you shift any any changes that we could we could pick up and maybe derives from correlations about put through demand or excess supply and color would be great. Thank you for taking my questions.
Thank you sure Raj I would say that our experienced is counter to what you just described.
Our inventory and the field is Lee now as it's ever been we prior to COVID-19, and we had.
And many of our customers purchasing on.
A rather infrequent basis, maybe purchasing only once or twice a quarter and they would do this not necessarily because they're buying and large volumes, but because their their buyers their their purchasing agents. Just don't have time to deal with US every day and so as a result, they want to be efficient about their purchasing.
And.
As COVID-19 became on board, we saw a lot more of our institutions moving towards much more.
Frequent buying of far fewer devices. So as a result today.
Our average daily sales really reflects our average proceed daily procedures and of course, we like that because it allows us to really lean out our business to understand our business exceptionally well.
And and frankly to manage our manufacturing operations and a.
And a much more specific manner, so and that's exactly what we're doing I at least my perception of this is that we do not expect that to to to change. We think that hospital systems are going to continue to conserve their cash and and that they're going to continue these.
Patterns of.
Buying our devices on and as needed basis now that is I shouldn't say that this is consistent across the board. It's most certainly there still are large hospital systems that do large purchases, but I would say the trend at this point is more towards J I T delivery and in particular as we look at our office.
Labs.
Providing that J I T support.
Being present supporting cases this is our core competitive advantage of at least the.
Part of it for for that particular customer groups. So hopefully that Ah addresses your question if not.
Please let me know forgive me Scott I should've been a little more specific I wasn't referring to you guys. I was just saying on on on a global level.
Just in terms inventories chefs and any any differences and ordering Patrick that wasn't a question or field check specific too too CSI sorry about that.
Oh, that's quite alright, no no problem I don't mind, a bit that's certainly the environment, we're operating and.
Thank you.
There are no further questions at this time I turn the call back on for just got work.
Okay very good. Thank you everyone. We appreciate your interest and CSI and we look forward to giving you another update next quarter. Thanks.
That's going for today's conference call. Thank you for participating you may now disconnect.
[noise].