Q1 2022 Cardiovascular Systems Inc Earnings Call
Okay.
Hello, everyone and welcome to the cardio vascular <unk> third quarter earnings call.
My name is Glenn and I will be coordinating your call today.
Ask that question. We did the presentation you may do so by pressing the star.
Telephone keypad, you'll have dinosaur line your company is that black eye.
Webb.
Quick question I will now and I'll, let you go.
Jack Nielsen to begin Jack Please go ahead.
Thank you Juan good morning, and welcome to our fiscal 'twenty two first 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.
This quarter, we moved our earnings call to the morning in order to avoid the multitude of Med Tech companies reporting quarterly results. After the market close it's our hope that this new time slide there's more convenient and results in fewer scheduling conflicts for Ya.
Approximately three hours ago, we issued a press release announcing first 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 in a few moments CSI management will discuss results for the first quarter ended September 30th.
2021.
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 1995 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 implied by our forward looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q 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.
Yes.
Yeah.
Yeah.
Thank you Jack good morning, everyone and thank you for joining us today.
Today, we reported Q1 revenue of $58 4 million a decline of 3.6% versus the prior year.
Consistent with the 8-K noticed that we issued in September our procedure volumes were adversely impacted by hospital capacity constraints caused by the Covid Delta variant.
The resurgence of Covid and the related staffing shortages disrupted referral patterns and had the largest impact on our procedures that are deemed to be more elective such as the treatment of patients with lower acuity peripheral claudication.
The severity and duration of the Covid impact was greater than expected and was more pronounced due to the timing and geographic location of the Delta Serge.
Our procedure volumes in first quarter tend to be heavily weighted towards September however.
However, this year ICU capacity was severely constrained throughout the south and the southeast region of the United States, which typically represents more than 50% of our revenue.
We do expect that some of these procedures will be recovered and we are encouraged by improvement in recent trends, but the pace of the recovery is difficult to predict due to the dynamics of the Delta variant and the new variable introduced by staffing shortages.
As a result, we are uncertain, whether the COVID-19 recovery will be in Q2 or later in the second half of our fiscal year.
The financial guidance that we issued on August 4th did not contemplate an impact from Covid.
Because of the waves that are outbreaks experienced in fiscal 'twenty. One caused transient sales declines which were followed by a recovery and then more normalized sales trends over the full 12 month period.
We anticipated that we would experience a similar trend in fiscal 'twenty two however.
However, in the first quarter the negative impact due to the Delta variant was larger than anticipated and we do not expect this impact to normalize over the remainder of the fiscal year.
Although COVID-19 remains the most important factor that is negatively impacting our business. We are also responding to an increasingly competitive environment with new products and new players entering our markets and following the recent issuance of the physician fee schedule. We are anticipating increased economic pressure for our customers who.
Perform P V I procedures in the office based lab setting.
And of course, this may cause a temporary disruption in the market as well.
As a result, we have reduced and widened our fiscal 'twenty two revenue guidance to reflect the uncertainty associated with our current revenue outlook.
Despite the Covid impact we are encouraged by the progress we are making in our commercial programs and our efforts to broaden our revenue streams in a few moments Rhonda will provide an update on our commercial developments and then Doctor Ryan Egeland will address our recent announcement regarding our first in human experience with C V Ts coronary ever.
All our Ms drug coated balloon.
But first Jeff will provide details regarding our financial results and guidance Jeff.
Thank you Scott good morning, everyone.
I will now provide a brief review of our Q1 financial results.
Worldwide coronary revenue increased 10% to $19 4 million.
In the U S coronary revenue increased 2% to $16 2 million.
Outside the U S coronary revenue increased to $3 2 million as a result of continued strength in Japan combined with the growing adoption of coronary OAS and Europe.
Worldwide peripheral revenues decreased 9% to $39 million.
In the U S peripheral revenue decreased 9%.
Device revenue in hospitals decreased 16% and device revenue and I'll be honest decreased about 1%.
Peripheral support product revenue increased to $1.4 million.
Turning to expenses gross profit margin was 75, 5%.
This is reflective of lower volumes and a continued higher mix of Isd and international revenues.
Operating expenses totaled $52 2 million.
SG&A increased 4% compared to the prior year, while R&D expenses increased $1 million.
We anticipated these higher expenses given the COVID-19 savings achieved in the prior year.
Net loss was $8 6 million or 22 cents per share.
We ended the quarter with $188 million in cash and marketable securities and no long term borrowings.
During Q1, we had a milestone payment associated with our strategic investment portfolio.
And we will have more of these payments in Q2, most notably related to our D. C b programs.
Turning to our outlook the Covid pandemic is not over.
In a certain market dynamics persist specifically.
Specifically, the timing of Covid recovery staffing shortages disrupted referral patterns.
And increasingly competitive environment and a reduction to the 2022 physician fee schedule that impacts our OBL customers are all expected to impact revenues for the remainder of fiscal 'twenty two.
For the fiscal year, ending June 30 of 2022, we now forecast.
Revenues in a range of $265 million to $285 million, representing 2% to 10% growth versus the prior year.
Gross margins of approximately 75%.
Net loss in a range of 5% to 8% of revenues.
And adjusted EBITDA in a range of 1% to 4% of revenues.
I will now turn the call over to Roger who will provide a commercial update.
Thank you, Jeff and good morning, everyone. Today I will provide my thoughts regarding Q1 results share some of that key drivers for fiscal 'twenty, two and update you on recent reimbursement developments.
Regarding Q1, we did see the momentum we had established in Q4 decelerate in the face of another kind of occurrence.
And as we have seen throughout much of the pandemic and most significant weakness remains in the peripheral hospital segments of our business.
While market research reveals that Covid remains a near term headwind in select geographies. Many of our customers are now anticipating backlogs a patient and they believe it. It's just a matter of time before they return for treatment. We are just now starting to see improvement in states like Florida, and Texas, albeit the ramp in procedures.
Appears to be slower than previous waves due to staffing issues and the need to normalize the full patient referral pipeline.
The OBL segment of our business was less impacted than our hospital site of service, where we saw a modest increase of 2% in procedures over last year.
While the site of service is more resilient with patient referrals and patients showing up for their procedures.
We still did experience a sequential impact from Q4, given the pandemic.
Patients low issues were less pronounced than in the hospital. However, staffing has been equally challenging.
Competitive entrants have also recently targeted OBL and we are seeing increased and recent trailing of low priced atherectomy device devices for ATK clock in patient turning to coronary U S. Coronary revenue growth of 2% was driven by the continued adoption of our coronary support products and offset by.
A 2% decline in coronary OAS procedures.
We believe this decline to be primarily related to COVID-19 with some competitive impact as introduction and trailing of a new balloon expanded into a number of our accounts.
Stated previously we largely see these cases as complementary given the increased use of imaging to discern leasing morphology, which enables proper patient selection and that is why we continue to focus on driving adoption of orbital atherectomy in hospitals that treat complex coronary artery disease, where imaging is used to distinguish calcium.
We have distinct youth and severely calcified lesions such as in small calcium nodular any centric calcium long lesions and multi vessel disease and of course, heavy stenosis, where a balloon simply won't try.
Revenue per coronary procedure continues to grow during Q1, we sold $756 at support products for every coronary OAS salt.
The increase quarter over quarter shows how resilient, our Isps, where even ask coronary procedures modestly decline.
Our expanded contracts are also opening new doors for our representatives to sell.
Recent agreements have enabled our representatives access to sell our IFC portfolio and or you know over 50% of U S health system in total sales of coronary support products were $2 7 million in the quarter.
Our ability is where our customers with case coverage wasn't you did in Q1 as a result of access restrictions in many facility. Nevertheless, we continue to train new users in coronary fellows on the use of our product and in Q1, we certified 80, new coronary users. This rate is consistent with prior quarters and is a leading indicator of our continued progress to grow.
Oh as beyond the pandemic.
Outside the U S Q1 international revenues of $3 3 million demonstrated the strength of our business in Japan, where we now have 44% market share we.
We are seeing increased demand for our product in Europe, where we are actually ahead of the pace of adoption that we saw in Japan in.
In addition, we have launched in Canada and Australia.
We continue to experience strong demand for physician training and certification and all of our international markets. We certified nearly 80 coronary interventional less outside the United States during the quarter exclusively using remote training and case support.
Again, we see new user certifications as an important leading indicator for growth.
Shifting to Q2, we believe we are poised to resume sequential growth. This quarter. We will continue the training of new P. E D accounts and new users to deepen penetration in large hospital systems and nobody else. We will also and escape the full commercial launch of the Viper Cross peripheral catheter. So now we offer a full array of peripheral balloon.
Loon guide wires and catheters and we continue to believe that these specialty support products will experience strong adoption going forward.
For our coronary business. We are also focused on new accounts and new users and our training pipeline has expanded significantly and new user certification will be a growth driver in the quarter, along with Isps and revenue per case.
For both our coronary and peripheral businesses, we will leverage new contracts for OAS, and IFC access and to deepen penetration.
Turning to international we expect strong revenue growth and we will plan to launch OAS in several countries throughout Europe in Q2, and beyond bringing us close to 30 countries by our fiscal year end.
Now turning to reimbursement reimbursement in the U S is complex with a lot of changes this year, mostly positive starting with coronary both inpatient and outpatient reimbursed reimbursement increase for a weighted impact of 2.2%.
In peripheral we see increases across all sites of service, except the OBL. It is notable that even with the decrease the weighted impact of all the changes across all sites of service, including the OBL is a reduction of one 9% for peripheral.
So let's look at the OBL changes more closely.
2022 physician fee schedule will result in a decrease of 14, 5% for OBL atherectomy procedures effective January one while a reduction this is actually better than expected as the proposed rule contemplated an approximate 23, 5% reduction.
This continues the trend of ongoing CMS reimbursement pressure on the side of service.
We believe this could result in further consolidation of Obl's andother impact adoption of atherectomy for underserved patient populations.
This trend may also introduce new dynamics between treating patients in the hospital OBL N. A S C as hospital outpatient and ASC affect the service become more economically attractive.
In anticipation of these trends CSI has developed and will be launching a new program to help our OBL customers mitigate reimbursement challenges and enable CSI to support high volume sites. It will continue treating complex patients where our technology has focused.
This program will be focused in areas like volume based contracts inventory management digital products and services clinical support claims assistant and business consulting to help drive efficiencies and throughput.
So in some for our business.
75% to 8% of our business is seeing an increase of between two and two 6% showing continued stable and positive reimbursement for our coronary procedures and for our peripheral procedures with the exception of the OBL the.
The overall weighted impact of all of the reimbursement changes to CSI in 2022 is minus 0.9%.
Finally, as you know the lower extremity Revascularization codes were reviewed by the CPT editorial panel last month and the panel recently published that the LCR could review has one thing once again and postpone.
So at this point, we believe the societies will continue to work with the panel to restructure the codes that and it remains uncertain. When the panel will review. These codes again, our estimate is that it will be 2024 or later before these new codes are implemented that.
That completes my prepared remarks, and I'll turn it over to Ryan.
Thank you Rhonda and good morning.
Last week, we announced the first in human experience with the coronary everolimus drug coated balloon that we're developing with Champs, who vascular technologies or CVT.
We had CSR and our colleagues at CVT are incredibly pleased with the rapid pace of this program with this first in human milestone being completed almost two years earlier than we originally estimated.
Everolimus, the active drug and Cvt's DCD formulation acts as a cytostatic agent to reduce tissue tissue hyperplasia and associated restenosis and has a long history of safety and efficacy in coronary drug Eluting stent applications.
Physicians are increasingly interested in using this agent for treating complex coronary artery disease and associated in stent, restenosis small vessel and bifurcated lesions.
As we reported last week CVD conducted the first human use of its D. C B and a case of instant restenosis in the left anterior descending coronary artery.
The treating physician reported a successful procedure and emphasize the excellent profitability and deliverability of CVT use balloon.
Looking ahead, CVT will enroll up to 50 patients at 10 to 15 sites across Europe over the next 12 months.
Six month follow up data from these procedures will be used to support an IDE submission for a U S. Pivotal study, which will begin approximately two years from now.
In parallel to these exceptional coronary achievements, we're delighted to report that CVT continues to meet and exceed keep peripheral DCD program milestones as well.
I look forward to providing further updates on this program in the coming year.
Scott I'll now hand, it back to you for your final comments.
Thank you Ryan R. D. C. B program is a great example of the progress we are making to diversify our business and broaden our revenue streams.
And while the Covid headwinds are affecting our near term financial results. They are not diminishing our drive to innovate and develop a long term pipeline of new products.
As we have indicated previously we plan to introduce a new line of coronary scoring balloons and a large vessel crown later this fiscal year as well as a full line of CTO catheters in fiscal 'twenty three.
The large vessel crown will be available on all of our peripheral atherectomy platforms and is designed to treat soft and mixed plaque providing greater luminal gain and the larger vessels above the knee.
We continue to make excellent progress on the hemodynamic support device and continue to target first in human experience later this fiscal year.
In addition, we have initiated strategic investments for the development of other new products, specifically targeting fast growth segments of the peripheral and coronary markets.
We intend to share details of those programs with you in the coming months.
Like everyone else, we are frustrated by the resurgence of the Covid headwinds the dynamics of the Delta variant and a growing shortage of health care workers introduces a higher degree of uncertainty and volatility that is now reflected in our fiscal 'twenty two revenue guidance.
To be clear Covid has imposed the greatest impact on our business and.
And here is how I frame up our revenue guidance of $265 million to $285 million over the remainder of the fiscal year.
If we see sustained improvement in Covid and staffing conditions combined with strong sales execution and continued success in our international markets, we could deliver revenue performance in the upper end of that range.
The midpoint of this range reflects domestic procedure volumes at the current level.
Stable health care worker staffing.
Stable U S market share.
Modest growth in our international markets.
While new Covid searches deteriorating health care staffing and decelerating U S market share could reduce our performance to the lower end of the range I described.
Although we don't expect a dramatic rebound in the near term and the near term. We do believe that Covid is a transient challenge and that our orbital atherectomy business will return to its historical double digit growth trajectory.
I would like to thank our CSI employees for their perseverance dedication and compassion and delivering exceptional support to our customers and patients. During this extraordinary time I would also like to thank all of you for your continued interest in CSI and we will now take your questions.
One would you please repeat the instructions.
If you would like to ask a question. Please press is followed by one on your telephone keypad now units in your mind.
Followed by two for those joining us online.
That's correct.
When preparing to answer a question so you've launched a music locally.
I don't know what first question comes from Matthew Blackman from Stifel. Please Matthew Barrhead.
Hi, good morning, everybody. Thanks for taking my questions maybe to start and maybe this is for Scott or Jeff just thinking about the cadence and thinking about the fiscal second quarter should we expect any sequential growth or should we think more like to queue looking like <unk> and then I have a couple of follow ups.
Thank you for the question, Matt, Yes, I think our second quarter will be stronger than our first quarter and we anticipate a continuing momentum as we head through the second half of this fiscal year.
Okay I appreciate that and then I'm curious you obviously called out 50% of the business and geographies that were heavily impacted by Covid is it possible you know quantitatively qualitatively sort of talk about the growth you saw in that 50% of the business versus maybe.
50% of the business in the U S. That's outside of those regions. Just so we can get a sense of the impact of Covid.
Yeah, I I, it's difficult to segmented isn't that way because it is the the other states were not necessarily unaffected by Covid. So it depends where you kind of draw. The line. If you anticipate let's say that states that had greater than 80% ICU.
Utilization, which represented largely the south and southeast that in those states, we saw a a larger or a disproportionately larger reduction in our sales in states that were less impacted our business did better.
Although we continued to see pressure even in that segment of our business as well.
Alright, I'll squeeze one last one in for Jeff and I apologize if you've mentioned this in the prepared remarks, but the G. M are the gross margin guide does imply I think a step down from the first quarter and so what are you anticipating a you know in terms of what's driving that drag. If you if you call that out and how we should think of.
The pace of gross margin as we kind of work our way through fiscal 'twenty two thanks, so much.
Yeah. Thanks, Matt for the question in my guidance I did provide 75% for the year I think it's going to be pretty consistent balanced at about 75%.
For each quarter here moving forward and the biggest the biggest reason for that reduction from the previous guidance I provided was really the mix. We're just seeing just a higher proportion of I S. T and international revenues of course, that's a bit of a lower margin segment and then also just the lower overall revenues I think is also pulling that down slightly so.
I think you'll see a balance 75% really throughout the rest of the year.
Yeah.
Thank you. The next question comes from Chris Pasquale from Guggenheim Securities. Please go ahead.
Thanks, Scott you called out competitive pressure in a way that I don't think I've heard you do previously it sounded like it was hitting you.
Really two different fronts across peripheral and coronary you talk a little bit more about what youre seeing and what portion of your procedure volume in those segments. You think is really.
Vulnerable to Trialing of some of these other technologies versus something that you think OIS is really uniquely suited to deal with.
Yes, thanks for the question Chris.
As we consider our market share right now we are seeing new players and new.
New products enter our market in our peripheral segment and both in hospital and in the OBL and we're also obviously seeing a renewed or new competitive pressure in.
In our coronary business. So let me let me take the peripheral segment first.
In peripheral we are seeing a number of new entrants that are coming in with lower cost and let's say more economically favorable alternatives and these products are typically being trialed for the treatment of patients that have a lower acuity claudication.
We expect that this is a transient impact largely because of the unique nature of our device you know that we have a very differentiated product we focus on the treatment of these severely calcified lesions, we generally sustained our market share in the in hospital segment of peripheral isn't that high.
30% range and we anticipate that that will continue mainly because our technology treats a very unique pathology and that is principally focused as you know 60% of our revenue comes from below the knee and is is largely focused on the treatment of.
Patients that have critical limb ischemia. So as we continue to focus on these higher volume accounts that are also focusing on more complex patients. We're quite confident that we will continue to sustain our strong market share in those segments.
Turning to coronary.
We are seeing increased trialing of the IV old balloons, I think the reimbursement improvements have resulted let's say have removed some of the economic barriers and and have increased the amount of trialing that is being performed.
However.
We believe that our device and in fact atherectomy.
Still has a very unique indication for use in the care of patients that have complex coronary artery disease.
We know for example that it is very important to remove calcium from the lumen. We know it's very important to change the compliance of a vessel. So that you get really good deposition of a stent when you place that Stan So we are very confident that.
Overtime. This trialing will level out and that indeed will continue to get our cases and that we expect to really sustain that low double digit growth that you've come to expect from US I think we can continue to perform in our coronary business in that.
10% to 13% to 15% growth range over time, obviously right now we're being impacted by a number of macro.
Environmental variables that.
Are impacting our business and our ability to grow but over time and in particular as we head into the second half of this fiscal year. We expect that these trends will begin to normalize.
Thanks for that.
The other piece, though is obviously incremental this quarter.
On the reimbursement front with Obl's can you talk a little bit about what you're hearing from customers now that the final rule is out and the idea that potentially this could be the first.
In several years, so it's not the first for.
Peripheral but based on the changes to the folks that were made to somebody's gonna be a multiyear process of right sizing. This portion of the payment structure, how does that impact the viability of that piece of the business over time. Thank you.
Thanks, Chris I think it's still early days for us to really interpret the impact of these.
Physician fee schedule.
Our customers are very frustrated customers that perform cases in office based labs, you know have incurred about 5% reductions on an annual basis over the course of the past few years due to the expense the direct expense reduction that was implemented by CMS in 2000.
19.
The origin of that frustration really comes from their commitment to the treatment of their patients.
This P E D continues to be a really important epidemic and our country you know the incidents in the demographics of this disease are staggering.
20 million patients have P E D in the United States 2 million with CLI and that's growing at a high single digit rate.
It seems unbelievable at this time that CMS would make and we'd taken out on an effort to reduce patient access to care, especially in an environment, where there's such important disparities in care you know Black Americans are two times more likely to receive an amputation in caucasians.
We we have we have a situation where the office based labs are critically important to deal with the volume of patients that need to be treated and yet in that environment policymakers have chosen to significantly reduce payment in that side of service.
Quite frankly at this point I think I expect to see more patients return to the hospital, where care is obviously more expensive we do expect to see consolidation in the OBL segment with some of the smaller obl's consolidating into larger Obl's and we do expect to see these large obl's that.
Focus on high volume and more complex patients, which by the way is our segment of the market, we expect them to probably be more successful over time and as Rhonda described we have been implementing initiatives over the course of the past several years that will improve our positioning with those high volume account.
Accounts and will also improve their ability to continue to provide care for large volumes of patients. So that's where we're headed you know certainly this reimbursement environment has been a challenge over the past few years. This latest P. F. S ruling now indicates that it will continue to be for the <unk>.
Several years, we can no longer assume that reimbursement is just going to get better. It's continuing its going to continue to be a challenge in the OBL and we now have to work with our customers to assure that they are able really to care for their patients and that's our focus I hope that answers your question Chris.
Yeah. It does thank you.
Okay. Thank you.
The next question comes from Danielle <unk> from <unk> Leerink. Please go ahead.
Hi, Good morning, everyone. Thanks for taking the question just just to follow up on Chris's question, there regarding what's going to happen with the Ob ALS I mean I I.
I guess, we have to see how this all transpires, but if in fact, a higher proportion of these cases shifts back into the hospital can you talk a little bit about your competitive differentiation in the hospital. It felt like the OBL was it was an area where CSI was very competitively differentiate it from there.
Service and support perspective is the hospital any different how do we think about how that dynamic changes if more of these procedures go into the hospital and I have one follow up.
Yeah about 20% to 25% of our overall CSI revenue is generated in the office based lab as as Rhonda indicated it is.
Okay.
Back to the peripheral hospitals segment are we.
We have of course, the leading market share in that segment.
Which has been fairly stable in that high 30% rate. So as cases move back to the hospital.
We would expect to actually probably gained more of those cases in an environment, where we have more favorable pricing.
And obviously, we're very well positioned with a very strong sales.
Salesforce are and where we're in a position to support you.
About 70% of our cases, I think our concern about patients migrating back to the hospital is that there just simply isn't capacity in the hospital to deal with this epidemic of P. E. D that exists today and so while patients may try to what wild care may return to the hospital setting the.
Two two to two <unk>.
Handle the number of patients coming back maybe quite difficult. So that is I think what frustrates many of the physicians in the market.
There is a lot of questioning right now about just where will these patients go and how will they be cared for and where will we see the volume open as Roger pointed out we may see that in ambulatory surgery centers, we may see <unk> take on a larger role here, but all of that is to be determined and I think we'll see that bigger.
In to shake out obviously over the course of the first half of <unk>.
Calendar year 2022.
I hope that answers your question Daniel.
That's helpful and then just.
As a follow up.
Is it the whole dynamic of competitive Trialing can you just remind us and sort of maybe give us a little bit of color on what's reflected from a pilot Trialing perspective is this.
Multi quarter since it usually one quarter how long this competitive trialing generally impact sales should we be thinking about that you know well.
All 23, any any color on sort of how to think about the timing of how.
How long it will persist the competitive dynamic both in the coronary and peripheral thanks so much.
I think and in coronary we will see this trialing continue until we probably annualized to the IV launch.
And then I think we will we will begin to see it slow down so as we head through the second half of this fiscal year will begin to see that slow down what what is.
Prolonged the Trialing period here is that the reimbursement environment has continuously change for the use of IV LS and that has enabled sites that perhaps you may not have trialed to begin trialing the product.
And that as a result, it was kind of extended this period.
In peripheral I think we expect to see a less impact on CSI.
And maybe very little impact due to trialing.
The area, where we see some of the Trialing impact our businesses off is also in the office based labs, largely because of the introduction of lower cost products that are perceived to be more economically favorable for customers in that environment.
I expect that the Trialing of those products is probably coming to a close here soon and as we head into the second half we'll see improvement.
In that area as well.
Thank you.
Thank you. Our next question comes from Jayson Bedford from Raymond James Please Jason.
Okay.
Good morning, and thanks.
As always for all the detail here. So just a few questions for me.
Just on the guidance.
The initial framework for the year was roughly 10% growth in your base OAS business can we assume that the guidance revision comes.
From that base OAS business, just given the strength in U S and support.
Yeah, I think that's a reasonable assumption Jason the majority of that reduction does come from our U S OAS business.
Okay.
And just on the OBL hospital mix in your peripheral business I'm getting to about 40% OBL, 60% hospital is that in the ballpark.
No that would that would be high where we're probably more like 20% to 25%.
OBL.
And 70, 580% hospital.
And I'm just I'm sorry.
Yeah, Yeah, that's could you correct that yes, Jason it's just above 30% in the OBL and nearly 70% or so for the hospital, if you're just looking at peripheral revenues.
Okay. That's helpful.
You mentioned in the release and on the call here and improvement in recent trends I'm. Just wondering if you can talk about where you're seeing this improvement coronary peripheral hospital OBL, just a little bit more detail on what you're seeing kind of today in the month of October.
We are seeing improvement in our coronary business and we're seeing really much of the improvement come in the south and the southeast.
Where are the impact of Covid.
It was the greatest.
The peripheral business our peripheral in hospital business continues to lag and I think that is largely due to the impact of staffing shortages are not only critical staffing shortages, but staffing shortages throughout our referral chain actually beginning with <unk>.
Mary care and continuing straight through to the interventional.
Intervention will.
Health care workers themselves.
So.
The referral chain in peripheral in particular for the more let's say the lower acuity.
Plotkin patients.
We think has has been pretty.
Damaged in the south and southeast.
It will take time to rebuild that channel we have seen this happen before.
In.
In relationship to Covid, if you recall in the period.
Right after the.
A COVID-19 crisis had begun there was a quite a large impact to the referral channel there as well and it took six or seven months for that to recover. So it we hope that it won't take that long, we hope that it will be geographically isolated to these states that were heavily impacted but as I've said.
Now, it's really difficult for us to predict that and it's very difficult for us to predict what that pace might be because we're dealing with just an entirely new set of variables that we hadn't seen before.
Okay. Thank.
Thank you and maybe just if I could squeeze one in for Rhonda.
Just adapting to the reimbursement environment in the OBL setting you mentioned, the new program and kind of various.
Factors within that program.
An expected change in price into the OBL, we kind of bundle this altogether.
We don't really expect an impact on price what we're really trying to do is use all of the expertise that CSI brings including the development of some new programs to really help.
<unk> become more efficient and it's really increased their throughput given the new economic environment.
Okay. Thank you.
Okay.
Thank you. Our next question comes from William William Blair. Please go.
Go ahead.
Hey, good morning, everyone. Thanks for taking the question.
That compensates for my dog in the background.
Yeah.
The story of work from home.
I was hoping to focus a little bit more on the OBL business.
And sorry, I'm gonna be a repeat of what others are but I guess, what I'm trying to get a sense of.
Is given the changes in reimbursement competition consolidation should we still think about this as a low double digits or mid teens growth rate given that some of that focus on more difficult cases, and all kind of have a part one being this question because.
Because he's sort of answered it with Daniels question, but it sounded like there is a risk around maybe overall market volume or at least growth in that peripheral segment driven by that consolidation. So did I hear that right and what could that do that its I guess market growth dynamics.
Margaret I think you did hear that right I think that that's a reasonable assumption for the OBL growth.
The low double digits to mid teens roughly yes.
Yes.
That's helpful. And then you know as we think about that consolidation as well in the in the OBL. You know if you can quantify that for us in terms of site service or counts, maybe what you've seen over the last few years and.
Maybe that sense of the trade potential between potentially volume because these guys are more efficient versus some of the consolidation and pricing concerns that they could bring as well.
Yes.
Thanks for that question Margaret the consolidation is a little bit difficult to exactly predict I think we see really in any economic environment. When you see a significant change in in pricing or value are you oftentimes do see consolidation with lower smaller players.
Basically moving out of the segment and some of the larger players.
Increasing their volume in other words, becoming a higher volume providers of let's say a lower priced service, we have seen that happening and as you know our strategy over time has really always been to focus on the higher volume Obl's.
That treat more complex patients.
As we look to the future now with these changes and the PFS certainly we think that that that strategy.
<unk> has been correct and we believe that we will see more consolidation more of these patients moving to these higher volume sites, we've been implementing and and we are we're continuing to implement these strategies that will support that segment of our market.
And these these ob LS I think we also anticipate over time that reimbursement will shift.
Towards.
Let's say, you're a stratification where.
The more complex patients receive a a.
Higher payment rate.
And it just simply makes sense that patients with critical limb ischemia, let's say.
Are more expensive to care for than let's say, a lower acuity Claude again patient.
So we believe that our strategy focusing on these high volume accounts that also focus on more complex patients is very well suited for our core technology is well suited for the reimbursement environment and we are really well positioned to support customers as that change now.
Curves.
<unk>.
It's very difficult for us to predict at this time exactly how this transition from the OBL to the hospital or will the will patients continue to migrate from the hospital setting to the OBL.
We don't know the one thing we do know is that the value of atherectomy in the OBL setting remains intact.
It still is a.
A procedure that is reimbursed.
Effectively and is reimbursed at a rate that enables physicians to perform all these cases, so I hope that answers your question Margaret.
We are still in early days and we will continue to give you updates on this as we proceed probably over the course of the next year or so.
Okay.
That's helpful. I know, it's a it's a tricky question to ask.
Then the last question for me is just talking a little bit about the support product.
You guys have been able to launch that.
And just to get a little flavor of whether you were able to get into those accounts throughout kind of the slip COVID-19 headwinds.
Or should we assume a little bit of a delay towards that as well given some capacity restrictions.
Thanks, guys.
Yes the.
The impact is less there, but you should expect some but some of the delay we have seen a slowdown in the Vac Committee review process and some and some hospitals.
That said I mean, our performance in first quarter was consistent with our expectations.
As we do have high.
Expectations for growth from that segment of our business over time, we do think that because of the slowdown in these vac reviews. In Q1, we will see a slowdown in Q2 and beyond because of that so.
So we are expecting some impact in our ISP segment.
Although probably not as dramatic as what we're seeing in orbital atherectomy.
Okay, great. Thanks, guys.
Thank you. Thank you. Our next question comes from Michael.
Company Ms. Mckenzie Your line is now open.
Yes, good morning. Thanks.
So I wanted to ask another question on the competition situation. So you.
You're using the word trialing a lot.
Understand that's kind of the first step, but how do we think about trialing as opposed to the actual like market share loss in other words, they don't just try it but they actually start using it and sticking with that.
New product the Shockwave everyone of these other things.
Thank you for that question, Mike I, It's an excellent question and what we see obviously early on is that physicians when they receive access to a new technology will begin to trial. It on a wide variety of patients to see how the product performs in their hands and their AR and the procedures that they're perf.
Forming.
This is very common and we've seen this in interventional cardiology over and over over the years as they begin to gain experience with the technology and they then have the opportunity to see.
You know the ease of use to assess the utility of this new technology in the care of their patients then they can determine.
Both individually and at their center exactly how they want to incorporate that new technology into their traditional care patterns. So that is what we referred to really as trialing. It's that period of time, where the physician is evaluating the performance of the product now.
Other evaluations that are going on as well the cath lab manager will be assessing the cost there'll be evaluating the economic impact for their for their hospital setting and then collectively they make a decision on how they want to proceed.
What we are seeing is that <unk>.
After these trialing periods are concluding and in fact as the Trialing is going on most oftentimes we are getting our cases, so where are we where our.
Physicians are treating longer lesions, where they're treating heavily stenosed lesions.
They the requirement for atherectomy remains strong.
And I V L balloon cannot remove calcium from the lumen of a vessel as effectively as an atherectomy device can and atherectomy device also changes the compliance of the vessel and can be used in longer lesions. So these are cases, where.
We will continue to get our.
Our cases and these are also circumstances I think that will and have comprised our growth over the years. So we will continue to gain our growth from that as this trialing settles down we think we will see a return to more normal or more standard practices of <unk>.
There and in that environment, we think we're well positioned to continue to grow as I indicated in that low double digit range.
Okay. Thanks, and then just on the coronary side.
You know do you has anything changed in your view of how much overlap there is between.
The kind of lesions, where shockwave is suitable and where.
Diamondback is suitable and can you quantify that overlap to to the best of your knowledge at this point.
Well, we have not seen really any change Mike I think the our assessment of where this technology is is utilized remains very much. The same we think that the IV else have and will continue to substantially expand the market. So the vessel preparation market.
Is growing very rapidly because of the success of IV LS and.
And that is obviously also increasing awareness of calcium and in time, we think that that is going to create somewhat of a tailwind that that will also.
Result in a just a good and continuously rapidly growing market in terms of the segmentation.
Our segmentation really has not changed we still believe that about 10% to 15% of P. V. I a R are warranted for care using orbital.
Orbital atherectomy and those are patients that have multi vessel disease that have long severely calcified lesions or patients that have a high degree of stenosis, where for example, you just simply can't get a balloon through the lesion.
And those are those are the cases that really continue to to be our cases and those are cases, where you know an IV L. Perhaps is not indicated for use.
The same would be true and in environments, where imaging is used we see.
<unk> continued very strong adoption of atherectomy and that's largely because the physician is observing the presence of a nodule or they have a much better understanding of what is really happening in the lesion and and what would be the appropriate the most appropriate way to treat it. So for example in Japan.
And where we have a very high rate of adoption of imaging our devices is.
Obviously continuously gaining market share there and we continue to do extremely well in that market. There's a smaller percentage of customers that use imaging in the United States, but in those sites that are high volume sites that are are focused on imaging. We also continue to sustain a very strong position.
Okay. Thanks, and then my final question just on the gross margin.
It was weaker than expected I guess, but.
Can you talk about pricing trends on on Diamondback Atherectomy I mean is that you know hasnt been stable does that factor in at all to the gross margin.
Yeah.
Mike. Thanks for the question on pricing trends were very consistent kind of in that low to mid single digit range.
Really kind of what we would've expected there so that really did not have much of an impact on gross margin as I mentioned earlier was more about the mix to lower margin revenue segments, and then just overall volumes coming down a little bit from our earlier expectations.
Okay got it thanks.
Thank you Michael and our last question is from Suraj Kalia from Oppenheimer. Please <unk>. Your line is now open.
Good morning, everyone. Scott can you hear me all right.
Yes, suraj, thank you and good morning.
So two questions if I may one for Ronda, one for you Scott and one for Ryan and I'll, just kind of throw all of these together.
So of course for Rhonda.
I heard about the 30% share in pad I believe 44% in CAD, maybe you could just kind of give us how would the marketshare is calculated is IV included and also your embedded expectations for FY 'twenty to market shares.
Got for you.
You mentioned about customers complaining about.
The economics part of it just given the reimbursement changes maybe you could shed some light.
About.
Relative economics, anecdotally that you're hearing from your customers on <unk> versus IV L.
And finally, you Ryan if I could love to get your thoughts on the substantial clinical improvement that was one of the criteria is for and tap on IV L versus.
Most of the others really.
Because that has spurred and tab and you know that is the dominant effect and love to get your clinical take on what we are missing here. Thank you for taking my questions.
Thanks Raj for those questions.
Just in terms of market share I'll hand, this off to Rhonda in one moment, but.
I think it's.
A little bit inappropriate to really be considering market share right now because until we see the IV <unk> in the marketplace begin to annualize. It it probably is not that relevant to look at market share is your question even indicates it's very difficult to.
Determined, let's say atherectomy only market share in other words, the market share of CSI versus Boston scientific.
In contrast to what is your market share in the vessel preparation market and that is where I think we begin to think about how.
The IV L balloons are really broadening and expanding vessel preparation because IV L. Balloons can be used by a larger population of physicians and is used in a broader population of patients, let's say than just atherectomy.
Point, we are continuously trying to make is that atherectomy retains its position within that treatment continuum.
I V L expands vessel prep to a broader population.
So exactly how that plays out the reason I say, it's going to be important to annualize is that at that time, we can really begin to talk about this vessel prep market.
And then discuss the atherectomy market within the vessel preparation segment.
So with that Rhonda I'll try to hand, it off to you and see if you can address maybe there's a little bit more quantitatively yeah. No I think that's entirely appropriate and I think there's a clear distinction for me is those two ways that we look at the market and we do both right. We look at all all companies and where the denominator is all about vessel prep and then we just look.
The companies that have an atherectomy indication.
And then that's a different computation I think you know vessel prep brings in a lot of other types of devices as well you know scoring balloons other types of balloons and so that's really kind of an important distinction there suraj, but I think we're going to see how all of this looks after where it all settles after trailing that we protect the continued strengthen our position.
In the marketplace, both in our coronary and peripheral franchises.
Onto your second question Suraj OAS versus IV L economics as a a.
Quick reminder, D. I V. L is not reimbursed in the OBL setting and as a result, it it really is not utilized there so that.
It doesn't have any impact in that segment.
In peripheral hospital.
We expect in 2022 that I V. L will be reimbursed at a rate equivalent to atherectomy for above the knee lesions and with.
With the improved economics, there, we do expect to see some trialing, but.
Once again, we we anticipate retaining our position in that segment largely because of the unique aspects of our device for the treatment of severely calcified lesions in the coronary segment.
The a T P T. The recent improvements in reimbursement there are.
Clearly have reduced some of the economic barriers to the Trialing of IV L. We don't think the economics are an important factor in coronary.
Largely because reimbursement for atherectomy is favorable.
As is right now at least the reimbursement for the.
The IV else.
So.
In the coronary segment I think we're seeing an environment that is much more defined by the appropriate indications for use for each of these technologies and economics plays a larger or let's say a smaller role.
<unk>.
Over time, our you know the I V. L. Right now is a category three.
<unk> has received a category three CPT code.
And that will need to be improved over time in order to let's say rebalance that.
Reimbursement as we get out after the TPG, let's say is expires. So that is yet to be seen and it's quite a long ways in the distance, but nonetheless.
At this point I would say the economics are probably a level playing field in coronary.
Does that answer your question on the economics rush.
Yep.
Okay. Thank you Alright, Ryan will progress through the third question, Yeah, and I think your Suraj. Thanks for the question I think you know the.
The heart of the question is really the difference in payment over time and I think as you know the new Tech add on code is really the criteria for that code to be met as that really is quite simple the technology needs to be new and it needs to be expensive and adequately reimbursed. So as you see the evolution of payment. If you look at you know long.
Term data ultimately is really what determines the ability of payers to make coverage decisions and I think we can only speak to OAS that you know over the last 10 years now we validated the treatment of severely calcified lesions as Scott mentioned in tight otherwise nine o'clock cross the belief.
And we've demonstrated CLR rates that are as low as 3% in a year with less than 7% at three years and so ultimately as payers look to that long term clinically significant data, we feel very adequate and in fact very strong about the ability to show real clinical benefit with <unk>.
Time will tell whether those long term benefits are shown with with ICL.
Suraj I hope that answers your questions any additional follow up there.
No that should be cut thank you.
Okay.
Further questions I will now hand over to Scott Ward for any final remarks.
Okay. Thank you everyone for joining today's call.
We look forward to updating many of you at the upcoming Stifel and Canaccord conferences later this month and wish you all a pleasant day. Thank you.
This concludes today's call. Thank you so much for joining you may now disconnect your lines and enjoy the rest of your day.
Uh huh.
Yeah.
Okay.
Okay.
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