Q2 2021 Surmodics Inc Earnings Call
[music].
Good day and welcome to the symbiotic second quarter fiscal 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Tim Arens Senior Vice President of Finance and Chief Financial Officer. Please go ahead.
Thank you Stephanie and good morning, and welcome to Surmount ex physical 2021 second quarter earnings call before we begin I would like to remind you that during this 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 19 years.
95 and include statements regarding <unk> future financial and operating results or other statements that are not historical facts. Please.
Please be advised that actual results could differ materially from those stated or implied by our forward looking statements, resulting from certain risks and uncertainties, including those described in our SEC filings.
<unk> disclaims any duty to update or revise our forward looking statements as a result of new information future events development or otherwise.
We'll also refer to non-GAAP measures because we believe they provide useful information for investors and today's news release contains a reconciliation table to GAAP results.
This conference call is being webcast and is accessible through the Investor Relations section of the Paramount ex website, where the audio recording of the webcast will also be archived for future reference a press release disclosing our quarterly results was issued this morning and is available on our website at <unk> Dot com and.
I'll now turn the call over to Gary Maharaj Gary.
Thank you Tim good morning, and welcome to <unk>.
<unk> second quarter 2021 earnings call, we had an excellent second quarter every cylinders firing and the semantics engine, we recognized $10 $8 million of revenue from the survey clinical report milestone.
And we saw a return to growth and our medical device coatings royalty portfolio.
And we made solid progress and the execution of our key strategic objectives during the quarter.
To top it off for IV businesses developed delivered record revenue performance. My Thanks go out for the tie is somewhat ex team for their continued dedication.
Total revenue for the quarter increased 53% and $35 million and the second quarter of fiscal 'twenty one.
Third to $22 8 million in the prior year quarters.
And our second quarter performance benefited from the achievement of the $15 million for deal.
Okay.
Of which we recognized $10 8 million in Q2.
Excluding the impact of this business milestone payments total revenue grew 6% as both a and medical device and IBD businesses delivered year over year revenue growth.
Reported diluted GAAP earnings per share 58 cents and non-GAAP earnings per share of <unk> 62 cents and the second quarter.
During our second quarter I was pleased with our progress and our key strategic objectives for fiscal 'twenty. One as a reminder, they are first complete the final PMA submission to the FDA for surveil drug coated balloon.
Second continues to advance and default robust product pipeline and third to optimize cash flow from the IBD and medical device businesses to fuel our strategic growth initiatives.
Starting with surveil.
As we discussed and our last earnings call. The results of the transcend study of our surveil drug coated balloon and presented in January. These data demonstrated that <unk> was non inferior to the impact that mood ECB and both the primary safety and efficacy endpoints. Despite the in fact device, having 75% more types of attack.
So on board.
Our teams and the process of collecting and assembling the final data package for PMA submission.
As we have previously communicated this includes as required by the FDA and minimum threshold of mortality follow up data for patients that two and three years from the time of their treatment.
As part of our service development and distribution agreement with Abbott and Q2, we received a $15 million milestone payment from Abbott associated with successful completion of the clinical report.
<unk> demonstrated these primary safety and efficacy endpoints and the transit and clinical study.
As previously communicated there remains a final $30 million milestone payment upon successful.
And after the deal by the FDA.
Based on the timing of the last patient to be enrolled and the trends and study we.
We are still on target to submit to FDA.
For PMA in Q4 of this fiscal year and we continue to expect that we will be in a position to receive PMA by the end of calendar year 2021.
While decisions related to <unk> launch timing and ultimately to be made by our partner Abbott all conversations with Abbott have led us to believe that <unk> commercial launch, including Europe is most likely to occur following U S PMA approval.
Moving to our Sundance ECB as a reminder, enrollment was completed ahead of schedule in January for a swing and first in human clinical study for our Sundance below the knee sirolimus coated balloon.
Several patients have completed their six month follow up visits and we anticipate for the remaining follow up visits will be completed by late August.
We are excited about the potential for Sundance provided important and effective therapy for patients suffering from critical limb threatening ischemia.
With an estimated 1 million Medicare patients treated for CLI annually and very few effective treatment options and no current FDA approved drug coated balloons, our Sundance drug coated balloon has the potential to be a game changer changing therapeutic option looks.
And look forward to sharing our six months data Liza and calendar year 2021.
Regarding our best EV Fistula ECB, we are completing the build out of the full matrix of balloon sizes to treat to knows the fistulas.
Our team is now beginning the process and product validation efforts concurrent with these activities. We continue to assess the optimal regulatory and clinical strategy for and that stroke.
Next.
And as our sublime radial access platform.
Earlier this month, we announced that we successfully completed the first clinical cases, using our supply and radial access guide sheet and the sublime radial access or one for Rx PT and dilatation catheter and since then we have continued to receive favorable physician feedback on their experiences with these devices.
As we expected the feedback has been consistently positive with physicians, commenting on the ease of use push ability track ability and lesion profitability of the products doing.
During our last earnings call I mentioned that we had encountered some delays and to scale up manufacturing validation and all sorts of line or one forecast.
Based on the hard work of our team we have completed these important and necessary validation.
Regarding our follow on offering the sublime radial axis <unk>, Inc. PTA dilution capital we file for <unk> earlier this month.
As with all of our applications and submissions with the FDA. We expect that we will have additional information to share on our clearance of this device and the coming months.
The supply and will want to eat catheter will complement our survival and for capital, allowing physicians to treat the entire limb segment via radial access with balloon angioplasty.
And finally, I'd like to give a brief update and our pounce thrombectomy platform.
Our teams are working diligently to complete the product and process validation that allow us to be ready to conduct limited clinical evaluations of the product later this year.
Regarding our food and strategic priority, our medical device and IBD business segments and continued to deliver solid performance.
We're seeing strong growth and uptake of our serene coating technology, which offers advanced performance benefits, including lower particulates and best in class Lubricity. In addition, we were pleased to see our coating royalty revenue returned to growth and Q2.
For IBD business, we continued to deliver strong operating performance driven by our focus on customer service commercial excellence and our gold standard product performance revenue from our IBD business unit was up 9% this quarter versus the prior year to a record $7 one.
$1 million.
While generating excellent operating margins once again exceeded 50%.
These core offerings continued fee the bedrock of our operating performance funding not only the own steadily growing operations and business value, but also fueling our strategic growth initiatives.
Our strong operating performance and execution and our strategic objectives as a result of tactical perseverance.
Pool of talented team members that we have continued to build on and develop behind the scenes and a rigorous process of dynamic capital allocation.
While it may be early we have improved our competitive positioning and the capability. So that when we believe the global economic future Brightens and the post COVID-19 World. We can continue to accelerate the programs to build long term shareholder value.
After living through a challenging and unpredictable period. This past year was pleased to see our strong Q2 performance and believe that better times lie ahead, and consequently, we believe that now is an appropriate time to provide our financial outlook for the remainder of fiscal 2021, which will Tim will cover in a moment and closing we have delivered exceptional.
Results, and our second quarter, and our IBD and medical device businesses.
And we are successfully executing on all of our strategic objectives, including our product development clinical and regulatory efforts 2021 is and has been about execution and I firmly believe we have a dedicated world class team and <unk> to position us for the bright future we have in front of us Tim.
Thank you Gary during today's call I will provide an overview of our second quarter operating performance and provide our outlook for full year fiscal 2021 <unk>.
Revenue for the second quarter and fiscal 2021 increased 53% to $35 million, which includes $10 8 million of revenue recognized from the 15 million and clinic report milestone under our surveil distribution and development agreement with Abbott and this compares to $22 8 million and the prior year.
Excluding the impact of this milestone payment as Gary mentioned, our second quarter revenue grew 6% or.
And our medical device revenue increased 71% to $27 9 million, which includes the clinical report milestone revenue.
Excluding the impact from this milestone payment second quarter medical device revenue grew 5% year over year, our in vitro diagnostics business grew 9% to a record $7 1 million driven by broad based demand for our diagnostic test component products and development projects.
Our second quarter royalty and license fee revenue totaled $20 1 million up 11 $8 million from the prior year period, primarily as a result of the $10 8 million impact from the $15 million milestone payment.
License fee revenue under the added agreement totaled $12 5 million and the second quarter of fiscal 2021, compared to $1 5 million and the prior year quarter.
Royalty revenue increased 11% to $7 $5 million and the second quarter compared to $6 7 million and the prior year quarter.
We saw broad based underlying growth and our royalties portfolio, including strong double digit growth from our serene coating.
In addition, we are seeing growth from device applications that leverage our gen four technology.
And as a result, we anticipate no further year over year headwind from the Gen four patent exploration.
And on another positive note and Q2, we experienced the lowest impact and royalty revenue from COVID-19, since the onset of the pandemic.
Yes.
Product revenue of 11 $8 million and the second quarter was essentially flat compared to the prior year quarter across both our medical device and in vitro diagnostics businesses.
Our medical device business reported product revenue of $5 4 million and benefited from our recent distribution partnership with Cook medical for Owens for an <unk> PTA balloon catheters.
As well as a modest increase and our coating reagents, which was offset by softness in our legacy balloon catheter sales.
Our in vitro diagnostics product revenue totaled $6 4 million and was essentially flat with increased demand for our protein stabilizers and color metrics substrate offerings offset by unfavorable order timing for distributed advantage and products.
R&D services revenue of $3 2 million was up 12% for our $330000 compared to the prior year period as our IBD business continues to benefit from increased customer development project opportunities.
This was offset in part by lower code and services demand and our medical device business.
Product gross margins were down in the quarter at 65% as compared to 68% and the prior year quarter.
Product gross margins were unfavorably impacted by product mix with a shift to relatively lower margin product lines.
R&D expense, including cost of clinical and regulatory activities was $12 9 million for the second quarter up 8% for 940000 as compared to the year ago period.
And for both R&D expense and SG&A expense, we face difficult comparisons to the prior year period, which did not include any expense related to incentive compensation as a result of the uncertainty related to the pandemic.
Also as expected compared to the prior year, our surveil related R&D cost declined including transcend.
SG&A expense and the second quarter of fiscal 2021 was $7 9 million and increase of $1 2 million or 17% compared to the year ago.
In addition to the unfavorable comparison with respect to incentive compensation for.
Personnel and other investments to support product development and our strategic initiatives contributed to the expected increase.
And.
And our medical device business reported operating income of $8 6 million and the second quarter compared to an operating loss of $1 5 million and the year ago period.
Medical device operating results reflect $10 8 million and license fee revenue recognized on the Abbott milestone payment and higher royalty revenue compared to the prior year offset by increases in R&D and SG&A expense.
The IBD business grew operating income by 10% or 350000 to $3 $8 million and the second quarter.
Operating margin grew to 54% up from the prior year quarters, 53% as we benefited from solid top line growth and continued focus on expense management.
Now turning to income taxes for it.
Recorded income tax expense of one 4 million and in the second quarter compared to income tax benefit of $1 9 million and the prior year period day.
Current quarters tax expense reflects strong pre tax results with the receipt of the Abbott milestone payment.
Prior year quarters tax benefit was a result of our ability under the cares Act enacted in March 2020 to carry back net operating losses to higher tax rate periods.
Both periods reflect the impact of taxable income for the full year and the U S. Non tax benefitted amortization and operating losses and Ireland.
On a GAAP basis diluted earnings per share was <unk> 58, and the second quarter compared to 11 and the prior year quarter.
And a non-GAAP basis diluted earnings per share was <unk> 62, and the second quarter versus <unk> and the prior year quarter.
Moving to the balance sheet, we continue to have a strong cash position and no debt and the second quarter, we began with $53 9 million of cash and investments and generated $16 million and cash from operating activities.
During the quarter, we paid 650000 and for capital expenditures and.
As of March 31, 2021, we have cash and investments totaling $70 million.
Our current cash and investment balances provide adequate capacity to support our strategic growth initiatives.
Turning now to our outlook for 2021, we.
We expect fiscal year 2021 revenue to range from $101 million to $105 million.
This outlook includes between $16 5 million and $17 5 million of license fee revenue associated with the Abbott Surveil agreement.
Our guidance reflects growth and royalty revenue of mid to high single digits year over year.
Regarding operating expenses, we anticipate and acceleration of investment and our strategic initiatives through the remainder of the year for.
For the full year SG&A is expected to grow on the low double digits and R&D spend is expected to be somewhat consistent with the prior year.
In addition, we expect the full year impact of income taxes.
To be neutral to $1 million of tax expense.
Finally, our fiscal 2021 revenue outlook excludes any revenue associated with the achievement of the final surveil milestone payment.
Surveil product sales or surveil profit sharing revenue.
We expect fiscal 2021 diluted earnings per share and the range of a loss of share.
<unk> <unk> to earnings per share of <unk> 20.
We expect non-GAAP diluted earnings per share to range from 10.
To 35.
Operator. This concludes our prepared remarks, we would now like to open the call to questions.
Thank you I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Ladies and a speaker phone please make sure and new function is turned off to allow your signals for Richard Glickman.
And again, you May press Star one to ask a question. Our first question comes from Brooks O'neil with Lake Street capital markets.
Hey, good morning, guys. Congratulations on the great quarter, I had a little trouble dialing and this morning, because I think somebody might have given me the wrong phone number, but I got that figured out.
Thank you Brooks and glad Youre able to join us.
Alright.
A couple of questions I know.
It's pretty early with regard to some of the pipeline projects, but can you comment at all and and.
Any of them about.
And he interest you're seeing.
From potential partners.
Up and down the line.
Right. Thanks Brooks.
And said, we we have been.
Intentionally shy in terms of.
Meeting and talking with partners and South Tim If you would have talked and I would acknowledge that because we really want to develop the clinical and Keith <unk> the breadth of cases and the first.
50 to 100.
Cases with this.
We are aware of interest, but as I've told our team.
And the real value creation here is us understanding the value of what we have from the clinical feedback and so so far that's been going well and the other thing Brookfield.
Having done this for 33 years, we like to do really shake out every nuance of the product.
The good and and not so good as well and so that gives us and ability to address any feedback that comes up for product improvement so how.
Usability, so really we're still really have the blinded zone and driving that but as I'm aware there is external interest but we.
And now we we intentionally trying to avoid those conversations.
Yep that makes sense for me thank you for that.
I'm curious I think I heard him say in his prepared remarks that the R&D spending is likely to stay relatively flat and it.
Assume that the dollar terms so it's.
The revenue growth begins to accelerate most likely.
In fiscal 'twenty two.
I'm just checking to see if if.
If I'm right in believing that your dollar.
Okay.
Okay.
Relative flat, but.
The <unk>.
Percentage.
Revenue spend is likely to begin to fall is that the right way to think about it.
That's right.
And give you a little color here clearly this this fiscal year compared to fiscal 2020, we expect that.
And our R&D revenue will be somewhat flat and if you take a look at Q1. It was really kind of a low water point here and recent quarters and kind of how we're thinking about Q3 and Q4.
There is a lot of work to do as Gary has been describing what these three platforms and.
We will allocate capital to them appropriately, they're all extremely value, creating or have the potential to be extremely value creating.
So I will I will answer the question in terms of 2022, and we absolutely think as a percentage of revenue R&D spend well look like it's declining just from a percentage perspective, but as it pertains to the aggregate dollar amount.
And it's probably a little difficult for me to give you a whole lot of clarity on that and the primary factors are with regard to any pivotal studies with <unk> and Sundance. So stay tuned on that Theres still some thinking and potential negotiations and need to be done on those fronts.
But thinking through this at the rate of of maybe 50 ish million a year is probably not a bad way to think about it what perhaps some some growth on top of that based upon our clinical studies.
Okay. That's great. That's very helpful and just ask one more if I remember correctly you had a retirement of your senior manager and Ireland and then.
And think about what I hope will be a ramp up and manufacturing activity for you guys. How do you feel about your.
You or your team and your capability and the mainly manufacturing site. Thank you very much again, congratulations on a terrific quarter.
Thanks, Brooks and that actually has an excellent and often unasked question.
Behind the scenes, we have been developing.
And I don't want to sit bench strength, but really that's what it is behind the executive team we have.
Really.
Accretable depth chart and the company here and that's what specific intent and areas of succession planning at all levels and so our new.
Executive and manage and Ireland has been trading for this position for many years and really the best News is he is he has jumped and without skipping a beat and even Tom who.
Who left the company would agree with that as well.
<unk> continues to be a mento for this person but.
And not a skip and the beta to audit and Irish scheme and did very well served with <unk> carbon who is over there.
Thank you very much.
Thank you Brooks.
Thank you. Our next question comes from Mike Matson with Needham and company.
Hi, good morning, Thanks for taking my questions.
I just wanted to reconfirm something you said the timing on surveil So youre.
Expected to submit the Pea at the final part of the modules or whatever and the fourth fiscal fourth quarter and you said you.
And you expect to receive approval by the end of calendar 'twenty, one did I hear that correctly.
Yes, yes.
Okay.
Alright, and then.
Just wanted to see what you are hearing from the clinicians that you talked to you about the trends and results we've spoken to a few.
Cardiologists that do a lot of peripheral procedures and.
It seems honestly, it's been kind of lukewarm people seem really entrenched with the bard and Medtronic balloons and <unk>.
Same things like well unless it's really superior to the products that are out there it's going to be tough to switch is going to be tough for me to go to the vac committees and really kind of lobby to get this thing and the hospital et cetera.
So just curious what you're hearing there.
And how you think the product will be marketed to address those issues.
Sure sure first of all that is completely unsurprising to us.
And that is the power of having.
Strategic partners, such as Abbott, who clearly to be best in class in terms of clinical and marketing, where we have so that has not even started yet so normal lead the what I call clinical and Moshe is there and Mike as you know, there's always a GAAP between knowledge and practice and medicine and so until we start the <unk>.
Vacation and forming of these physicians and so.
Fairly straightforward marketing issue.
Other thing I would say and be more difficult for subarctic for loan to do that but with our partner Abbott.
You're selling at all levels, you're doing selling at the group contract level and the IBM level at the C suite at the physician level and at the value analysis committees and so we don't foresee the expected and those show as an issue what whatsoever, it's just the volume against and.
And I can I can.
We predict that our partner Abbott is ready for that compensation.
Okay. Thanks, and then just on the swing trial for Sundance.
What what is the and point of that trial I know, it's a first in human and then what do you need to see there to progress to the pivotal trial.
Right well it really is this first in human trials because of safety for safety study and when we were looking for 30 day follow up and making sure even at the six months for these patients are doing as you know, it's critical limb threatening ischemia and so theirs.
And so many comorbidities with these patients and the other thing we're all looking for is.
And this is more on a secondary basis as the the the.
Patency of the vessel and we are actually doing and additional step where we actually doing a follow up angiogram. So that we can look at late lumen loss of the tibial artery itself and and what it gives us the duplex is really a binary thing opened up close if the PSVR the loss ratio was less than $2 five or whatever.
We set but with late lumen loss, we can actually measure the vast and and we can look for.
The actual size of the vessels compared to the reference I am so prior to treatment and.
And the nice thing about that is even with a subset of 45 patients. It's a continuous variable and actual number with decimal points behind it.
For a binary variable and so it gives us much better.
And our statistical confidence.
And with those but but again it really is a safety study with what we call.
A nice indication of efficacy and.
And that indication allows you to make some assumptions of the <unk>.
Size of the device to power a future pivotal so.
And in transcend is recall, we only have 13 patients. So the 35 patients here.
Really looking forward to.
Okay.
Alright, that's helpful and then just on power.
Yeah.
When would you expect to start working on additional indications for that product would you start that before you get a distribution deal in place for the arterial indication or would you wait until you get to that point start to generate some sales from the product.
Great.
And in the modern era, it's like App updates on your iPhone moving.
And one five years already and development version two is already and development. So we take a very parallel approach to this and in fact, what we're prepared for any feedback we receive and version one is is going to be plowed into one five and then version two and the reason we use those.
That Nam and clutches Watson will require reregulate filing and so if theres a lot of regulatory regulatory requirements to file we might bundle that.
And two so that's ongoing right now and Mike I just wanted to make sure just on the FTE.
PMA the fine print.
As you know well is we're targeting and expect to get it by the end up for the fiscal year, but as with anything regulatory and especially <unk>.
A lot of Fabs and the hands of how the data review proceeds and FDA, just just to add that note and <unk>.
Let me just offer a little more color Mike. Thank you for the questions for your thoughtful and with regard to pumps and clot removal Gary's comments and responses really in regard to arterial.
You had asked a question also with regard to how are we thinking and framing that maybe other indications that could leverage our patent portfolio and the technology.
And all I can really share at this moment as the team has really done a thorough identification of what the problems are.
And with other indications and kind of what our value proposition might need to look like and have begun to think through kind of some of the design requirements et cetera. So we're informing ourselves in terms of what needs to be done to be able to create a technology that can be effective and then trying to make sure that we can we can leverage that insight and.
And understanding what the technology that we have or what do we need to do to complement it. So so stay tuned on that but I.
I would like to go back to your question or your comment with regard to some of the clinician feedback that you received and look Gary and iron and in a position to speak for Abbott, but what I will tell you is that there is clearly from what we're hearing higher market sensitivity with regard to drug dose and coating formulate formulations that bodes very.
Well for us Thermotics, our technology, and I think it could bode very well for Abbott and marketing the technology.
I think there is also a real key thing to understand and that is Abbott has a very complementary bag and product offerings that are used in conjunction with a drug coated balloon and so I wouldn't underestimate the power that Abbott has from a marketing perspective, but also just from a portfolio perspective.
And two to ensure that there's going to be traction with surveil once its launched so we're all.
Sighted and we're anticipating great things and we will stay tuned until the other launch begins.
Okay, great. Thank you.
Thank you for a quick reminder, if you'd like to ask a question you May press Star one now.
Next question comes from Jim Sidoti with Sidoti <unk> Company.
Hi, Good morning can you hear me.
And you hear you loud and clear Jim.
Great Great Yeah, I, just want to say for for all the sales side, we're glad that books and was able to get that number strength and get on the call.
Yes.
Anyway.
Questions I had were related to.
<unk> you.
And you'll have three product and the pipeline and it's.
And a need that we're able to talk about things beyond surveil.
There is the future beyond that and that Youre coming to the close of that but if you look at the three products beyond surveil the below the knee balloon.
Access for wound and then back to me device.
Can you just kind of give us a.
Of those three and what should the biggest opportunity and which is the nearest term opportunity.
Tim will talk about the addressable markets and stuff beyond that but just.
And just keep in mind. There is also the sublime radial access platforms. So it's really that that in addition to the three you mentioned.
Okay.
I think it's a really it's a really great question now we haven't really given a lot of perspective here in terms of the.
And our best and Sundance and I will just start I'll start there.
Our teams are.
Sally weight and assessing the regulatory and clinical approach folks may have seen some recent data that's been published two year data.
And on one of the balloons I believe it to Medtronic balloon the data looks really good.
We're very optimistic about what we have with regard to averse its a large market opportunity in terms of the overall number of patient set.
Acquire.
Some help with the stent graft and we think that drug coated balloons are going to have a pretty big future to play in there and that space Sundance is really exciting below the knee there is no option.
And you've heard the news with regard to Bard and.
And the panel decision not to grant them.
Crude oil to move forward with marketing and the device. We're hearing others have dropped out of the market or the space on development efforts.
And Theres still a growth decline here, but we are pretty optimistic and these early stages here with regard to Sundance, We'll know a whole lot more later in the fall by the end of the calendar year here and we expect to be and are positioned to share. The data on the first in human study, but that could be game changing and that could be a significant opportunity where.
And there could be high penetration with a drug coated balloon to treat critical limb ischemia and.
And depending on what might happen with our partner Abbott It might just help support and quite frankly strengthen the drug coated balloon portfolio, having bought something to treat lesions above the knee as well as below the knee, but that will take a bit longer from a study perspective, we've seen that the best studies or access day.
These tend to be conducted a little bit faster and and so.
So we'll have to just wait and see but if things go really well we have a couple of of Tigers. If you will and the portfolio that we expect over the next several years.
And generate revenue whether it's in the form of license fees and milestones initially and product and perhaps maybe some other form maybe profit sharing and the future yet to be determined but.
Super excited.
And just on the.
This is the radial thrombectomy is well characterized and people.
For.
And the staff the market in terms of excitement and value from from back to the and so we look at arterial and clearly we do have venous and pulmonary embolism on tap and as Tim.
And alluded to earlier, we tried to give a protective speeds for the development teams within concept development of other companies rush to what we call solution space very quickly, we love to see painfully and what we call problem definition space and what I can see.
Is that and problem definition speeds.
Key holes and the performance of all of the current devices and.
And with some modest to take on a project, we clearly want to address those issues before we come up and concepts and IP associated with it but sublime.
Radial is continues to be a sleeper and this market just because the total addressable market is.
Yes.
Depending on the OBL and Adobe and <unk> continue office based labs continues to grow but I may have said it and the last thing and close what you have to believe is given the profound potential clinical outcome benefit for those patients.
And really dramatic fixed asset cash flow and net profit.
Accrued so there will be errors are they able to conduct more prestigious because of retail access and the end of the day and then a really dramatic.
And this is often misunderstood of patient satisfaction.
The physicians I have talked to Lorenzo and devices believed that product like these are going to make them win because it's better for the patient it's more satisfying for the patient and they are office based labs once they cover those fixed asset utilization with a couple of extra procedures you can get.
Net from radio access because of the discharge time being much shorter.
And is pretty much all free cash flow so.
It's one of those things where the market has not developed yet, but we are positioning ourselves because.
Our thesis is that cannot help but but grill, because it's solving three critical issues and U S health care today at the same time I don't know I frankly don't know of another product platform.
That actually can accomplish that.
So we're excited about that opportunity as well.
So and.
With regards to timing.
I know you're hesitant to give long term guidance, but would you be surprised if.
One or two of these products was a significant contributor to revenue by let's say fiscal 2023 of 2024.
Absolutely.
Absolutely and we will.
And we're quite frankly, genmar, hoping for more than one.
Let me replace and where it hope with expecting.
And.
And the.
The.
And the binding issue for <unk> right now from at least for US and Investor point of view is getting those points and the board I think sometimes what we don't articulate that doesn't get across is.
It's almost too much to say one company has is this was I think I said on our last night and if we are a company with only one of these platforms I think and vessels would read it better.
But counter intuitive because we have for exciting areas that we're working on and the three product platforms.
It almost seems like you may need you to discount all of them with us.
Additive Lee look at all of them, but really putting points on the board as we get these things out in terms of revenue and EBITDA growth is really what we're after.
Alright, and then just one last one on the quarter, but just and Tim you you said the IBD business had about six and a half a million.
Sales flat growth, but then on there.
And the release you reported there was about $7 million and revenue from that business. So was there is there a royalty revenue coming in from that business.
And I might be misunderstanding the question, Jim, but let me let me attempt to answer here, what I think youre asking.
And if I, if I referred to the IBD revenue has been $6 5 million that was and are the IBD revenue was.
$7 1 million and grew about 9%.
So if I did make a reference to $6 5 million and I'm going to be honest with you I'm not sure tablets and tending to do alright, alright, and maybe I misheard that.
And of that.
7 million is that.
Is that boosted by COVID-19 testing or is that all your core business no. It's predominantly core business.
I think we've talked here over the last few quarters. We've had we have a couple of customers who have leveraged some of our chemical components for serology tests.
But we're not seeing unfortunately, a big uptake in terms of serology tests, probably for a number of reasons. So the impact on the quarter and it has.
Been de Minimis.
Okay. Thank you.
Youre welcome.
Thank you again, Mr wanted to ask a question and our next question comes from Mike Petski with Barrington Research.
Hey, good morning, guys and a great a great result.
Let's stick with IBD.
And I've talked about very often but Gary I'm, just wondering I mean, when you look at that business. If you looked at it as a standalone and asset I mean, you've got nice topline growth you've got 50% op margins I mean, what is that asset worth Standalone and your view and have you guys assess that or anything.
And anything you can say around that.
Yeah, Tim <unk> for some of the granularity we.
And we keep always keep just to keep it.
Aligned some of the thoughts type analysis of the portfolios and the business operating businesses, we have and the.
The IBD business on an EBITDA basis has continued to grow.
<unk> and we believe it will grow continue to grow like that and the future on an EBITDA basis and.
And so the factor is the multiple on that has actually changed.
Tim I think positively and the last day and day diagnostic space. So it's whatever range you put on the multiple of EBITDA for that business, but the short answer is.
And some growth and that business yes.
Evaluated.
And Joe and the diagnostics team great solid team.
<unk> really done a lot here with this business over the past several years, you've seen revenue continually coming in and the mid to high single digits.
When we first started talking a little bit more about operating margin towards the segment were below 40%.
I don't know, Gary who is eight years ago or so but here, we are 54% for the quarter.
Continued to probably achieve a 50% or higher operating margin more often than not and so if you can just frame it up.
I think the revenues.
And we could be looking at.
26, or higher revenue in terms of millions of dollars and 2021.
In all with the operating margin is 50 ish percent not capital intensive not capital intensive and almost all of that is dropping straight down to EBITDA, it's not unlikely to think that your EBITDA.
In terms of.
And our range is probably going to be somewhere in the teens mid teens and the millions and we have seen multiples range from 13 to 18 ex.
<unk>.
A wonderful gem of a business and it continues to increase and value each year. So I'll, let you do the math.
And I think some of you have done the math and had kind of.
<unk> net it's pretty valuable.
We like the question because behind the scenes because we don't.
Trump up these businesses the value has grown substantially.
And it is not for sale.
Okay.
Okay Alright.
And then.
Fair enough.
So I wanted to just for my own clarity, maybe everybody else knows this but for my own clarity.
30 million and that's still on the table for Abbott related to surveil and regulatory clearance is all of that associated with with regulatory clearance or as part of that.
Related to the filing and then.
When you when you get the first part of that the revenue recognition and how much of that 30 is likely to be recognized either in the quarter or right in the next quarter.
Sort of after you achieved the milestone.
Thank you for the question the $30 million is Theres really a bright line on this one and it's pretty clear PMA approval FDA PMA approval, one thing and so upon receipt of the approval.
There is a $30 million milestone payment that will be received.
And if you take a look and the investor deck, and I think we're going to be posting and the updated deck youre, probably later today or tomorrow. So stay tuned, but if you look at the Investor deck, you will see we have a slide in there that kind of helps folks appreciate how to contemplate how these milestone and license fee.
Payments are recognized and thank for the full year 2021, and it's about 70, 677% somewhere in there. So for example of the $15 million would be record recognizing a good chunk of that the $10 $8 million right away here in Q2, but for the full year, just can take 15 million and multiply by 70%.
<unk> hundred 70, 677% that will tell you the range.
It's going to be a little bit higher because for PMA for the $30 million because we expect that we will have incurred more of the costs associated with the transcend study and that milestone payment Gary we expect we'll be able to achieve that.
PMA approval here by the end of the calendar year. So.
Probably be maybe somewhere closer to 80%.
But I would expect it would be north of 70, 677%, but.
And not a bad way to think about it 80% could be conservative.
Okay for 88.
80% of the 30 could be recognized and meet yes.
Mediately.
And then just one more question, so $70 million between cash and available for.
For sales Securities I mean, 70 million I think that's the most sort of cash or equivalents that you guys have had and a while does that does that change your way of thinking about capital allocation and all does it does it make you want to go deeper and some R&D spend or or can you just talk about if that if that changes anything in terms of your thinking around cap.
Oh allocation thanks.
Yes.
And you recall this time last year, we and.
And as everyone who are prioritizing liquidity.
And having healthy balance sheets.
Think for us.
We continue to look at our balance sheet.
And a dynamic tool for growth as I've said and the pass through static indicator performance. So.
Using that balance sheet is always something we we consider how to dynamically allocate capital and grow the business eventually.
Coming out of this what we hope is a post COVID-19 world with the rebound and economic metrics.
We are also always have a healthy corporate development initiatives, we don't talk much about it but we'll always Tim.
And Tim and the team were all assistant and to find great technologies great.
Greetings and complement where we're going intellectual property, so that will always be and play for the balance sheet as debt, but then the capital allocation alternatives for the Tim as well.
It's a really great question and it's a fair question.
We're really fortunate to be in a position with $70 million of cash and investments and the balance sheet and boy. He would ask Gary and I are about a year ago. If we would have thought that it would have looked like this I think both of US would have said.
Too much uncertainty to call it but.
But we were aiming for it but.
And I would like the capital allocation.
<unk> has a history here of share repurchases.
Do have an authorization in place.
It always comes down to whether or not we think that we can we can utilize the cash and and that we have to.
Further enhancing growth shareholder value creation, so it not.
Signaling that we would be doing a share repurchase but as we kind of continue to look out over the next few years and continue to be in a position, where we could grow the cash balance and it certainly could be on the table.
And our team is pretty well set in terms of the activities that we are engaging on to help to grow the business and I.
And I made a comment earlier and the call with regard to the potential clinical studies to support.
Approvals for some real important products and our portfolio, namely a vast and Sundance.
It's possible that it could be seen capital allocated to support pivotal studies, especially if we think that there could be a really nice and solid.
Investment creation thesis behind doing that.
And Gary highlighted something.
It's taken us five years or so to kind of build this strategy. The transformation, we continue to execute on it and we're looking to put more points and the board, but we got to today by doing some pretty strategic.
I'd say somewhat modest sized transactions.
And what our market cap is.
And I would expect that if there is if we're going to be opportunistic. If there are things that really can help support the value creation that we have in front of us and complement these platforms that we're driving.
Don't be surprised if we do something like that so.
And the one thing and I will say as Gary's pretty clear in terms of capital allocation and <unk> and return on invested capital. We won't do anything that we don't think has real strong likelihood of succeeding and is highly complementary to what we're doing.
Division the mission is really clear around here and.
And you won't see us going off after things that are shiny, we'll be sticking closer to the netting around here.
Very good thanks, guys.
Thank you Mike.
Thank you and there are no additional questions at this time.
Well. Thank you all for joining our second fiscal quarter earnings call and everyone have a good day. Thanks.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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