Q4 2021 Surmodics Inc Earnings Call
Good day and welcome to the Thermotics fourth quarter fiscal 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Tim Arens Senior Vice President of Finance and Chief Financial Officer. Please go ahead Sir.
Thank you Madison, Good morning, and welcome to <unk> fiscal 2021 fourth 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.
1995 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.
<unk> 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 developments or otherwise.
We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains reconciliation tables to GAAP results.
This conference call is being webcast and is accessible through the Investor Relations section of the somatic <unk> website, where the audio recording of the webcast will also be archived for future reference.
Press release disclosing our quarterly results was issued this morning and is available on our website at <unk> Dot Com I will now turn the call over to Gary Maharaj, Gary. Thank you Tim Good morning, and thank you for joining us it has been a solid quarter with significant progress on our strategic objectives before providing a quick recap of our.
Achievements in fiscal 'twenty, one I would like to thank our incredible team of Synbiotics, despite difficult circumstances stemming from the ongoing global COVID-19 pandemic. The PUC via tirelessly our success in fiscal 'twenty. One is because of the sacrifices I'm proud to be a member of such an amazing community that you know as <unk>.
Thanks Les.
Last fiscal year, we have three primary areas of focus the first was to continue building traction with Serbia marching towards PMA approval, beginning with our final submission to the FDA. The second whats the accelerated advancement of our robust product pipeline through product development regulatory clearances in clinical evaluation and.
Food was to optimize cash flow from the in vitro diagnostics and medical device coatings offerings to support our strategic growth initiatives. We've made great strides in delivering on each of these goals, let's begin with a summary of our full year fiscal 'twenty one performance during the year, we generated $105 $1 billion of Rev.
Compared to $94 9 million in fiscal 'twenty, our revenue grew 11% and was driven by solid top line performance in both our medical device and in vitro diagnostics businesses, which grew 10% and 15% respectively. Also we reported GAAP diluted earnings per share of <unk> 30.
For the full year, which benefited from an anticipated $3 6 million reimbursement associated with the cares Act employee retention credit, which favorably impacted our earnings per share by <unk> 19 cents, our full fiscal year 2021, non-GAAP earnings per share was $2 seven.
Tim will provide additional details on our quarterly results, including the impact of the cares Act on our fiscal 'twenty, one operating performance as well as our full year fiscal 'twenty two guidance.
Moving on to <unk> as we discussed on last quarter's call. We submitted our final module of the <unk> PMA submission to the FTE on June 20, <unk> as per the request from the FDA. This module included mortality follow up data for patients with both two and three years from the time of treatment recently.
Recently, we had a planned follow up meeting with the FDA regarding our submission to <unk>.
D is requesting additional data in order to the value of the product and its unique technology.
While additional data requests, including more mortality data and not surprising in and of themselves the process of achieving clarity regarding these additional detail that are needed to support the approval does take some more time. The agency has asked us to use their recommended process to discuss the data requirements.
Versus just providing answers to their questions as it better more reliable way towards the PMA.
We have requested accelerated turnaround times for scheduling such data discussions we believe that we can secure these meetings early in Q2 of fiscal 'twenty two.
Given that the agency still has a further 90 days on the clock. After we have discussed has submitted any additional data. They require we do not see a viable path to achieve the PMA in the first half of fiscal 'twenty two.
In addition, we have comprehensive audits by the agency for our manufacturing sites in order to have selected clinical sites.
These are typical and so far we have performed quite well in all of these audits.
As in the past we choose not to include regulatory related milestones in financial guidance. However, we will clearly lay out the financial impact of such regulatory approvals for you to make your assessments.
Needless to say our goal is to secure this PMA in fiscal 'twenty two.
Moving to our Sundance below the knee sirolimus coated balloon in fiscal 'twenty, one we completed enrollment in our swing first in human clinical trial in January.
Six month patient data and follow up visits were completed in our fourth quarter and the clinical team along with the principal investigators are presently collating. The data are developing the clinical report, which we expect to complete in our first quarter and share with Abbott in our first quarter as well.
With respect to EV fistula ECB averse during fiscal 'twenty, one we completed design verification for the full matrix of balloon sizes for the base balloon catheter and began the process validation work on the <unk> capital.
Additionally, the FDA has provided some high level feedback on the requirements for the best pivotal clinical trial and its design considerations.
Our non drug delivery portfolio consists of our sublime radial access platform.
Pumps arterial and revealed thrombectomy system.
These are all made substantial progress, which I'll spend a little more time than usual describing since these are the mood is even more exciting catalyst for our future.
Starting with sublime, our sublime radial access platform consists of the sublime radial axis Guy cheat.
<unk> <unk>, one for Rx Pte, dilation catheter and supply or 108 dilation cat. So what makes the portfolio. So unique is that each of these devices are purpose built for above and below the knee peripheral interventions and that can employ both the conventional transdermal approach and trans.
Radio approach will believe that the radial access procedures offer significant benefits by improving patient comfort, reducing recovery and ambulation times or potentially lowering access site complications. However, they do require a longer low profile devices that are robust enough to deliver from the risks.
All the way to the pedal in the foot.
Following successful validation of these devices. We believe the platform is uniquely positioned to lead the market for dedicated device that facilitate a radial to peripheral approach.
Let's start with the Guy cheat the device has been used at 45 cases, among 15 peripheral intervention lists and formal clinical evaluations. The sublime guide sheath is only five French guide sheet available and the length up to 150 centimeters drew.
During evaluation the Sublime guide sheath received excellent feedback fluids low profile design its ability to track through tortuous anatomy and its resistance the king king when compared to alternatives competitive devices.
We continue to be extremely pleased with the performance of our sublime or one for PTA balloon catheter, which started clinical evaluations in Q2 and recall that the sublime or forecasted at 250 centimeters as longest Oman for PT PTA catheter in the U S market on an evaluation basis.
<unk> have used almost 70 devices and 10 U S. Peripheral interventional sites with remarkable success. There has been continued demand for the device beyond the initial evaluation cases and to data I'm pleased that we have actually shipped commercial units to customers either through a direct sale of consigned.
And programs at these facilities.
As we announced in our recent press release, we started at clinical evaluations of the sublime <unk> PTA balloon catheter in late September. The first case was performed by Dr. <unk> at the cardiovascular Institute of the South in Lafayette, Louisiana to date 22 units of these or one four campuses have been used at <unk>.
Full peripheral centers throughout the U S.
It complements our <unk> catheter by providing larger balloon diameters and larger guidewire <unk> footprint physicians prefer to operate in that <unk> platform. While the evaluations are not complete the feedback from our early experience is consistent with that of its brother or one for PTA in terms of its delivery.
Ability and ability to cross difficult lesions in fact, following a recent height universally high known.
Well known peripheral intervention lists that participated in these trials. His quote was these are the best <unk> ever used not once have I failed to cross the lesions with this device.
I know that this is merely anecdotal to this audience, but I can't remark that as feedback makes us quite proud internally and is consistent across the sites that we have evaluated these devices.
Next is our pounce arterial thrombectomy platform in July we received a five 10-K indication expansion for smaller vessels down to three five millimeters, which expands the market opportunity for our <unk> system to treat arterial clots in some vessels below the knee.
Since announcing the first successful case in June an additional 21 pounce arterial thrombectomy procedures have been conducted in six U S hospitals outpatient facilities. The device has been used for a variety of cases, reaching from relatively simple acute clot extraction to the most complex procedures dealing with mixed <unk>.
Allergy or acute and chronic clots, notably pounce has been brought into complete cases involving organized clot with other devices. We initially use but were unable to fully restore blood flow to the liver.
In these cases, the unique design of pounds and its basket and trumpet assemblies was able to capture and remove challenging clots without the need for additional devices north surgical intervention, thus, providing a good outcome for the patient.
Although the majority of Pompe cases have been involved in arterial interventions in the lower extremity. The device has also been used for clot retrieval.
Her full anatomy, including the superior mesenteric artery in the abdomen.
And in each of these cases the pounds has been able to efficiently remove the clot from the vessel and restore <unk> flow.
Without the need for aspiration for additional capital equipment.
We are quite encouraged by the positive response of physicians and the care team to the simplicity and effectiveness of the pound's arterial thrombectomy device even in the most challenging clinical situations. We have already received commercial interest from peripheral intervention list and vascular surgeons, who are eager to have the device on dish.
<unk>, India facilities, primarily in the hospital setting and have recently received our first commercial orders for the pumps arterial device. We believe it's important to facilitate continued access to the use of these devices.
<unk> sales through these interested facilities.
As for our recently acquired redeem mechanical thrombectomy system, we are working in a branding change to full listen to pounce thrombectomy platform, but more on definitely the time, we're pleased to see the recent acquisitions of other suction based and mechanical thrombectomy systems by several large strategics.
This not only validates the space and our own acquisition of <unk>, but the headline numbers involved in at least one of these deals highlight the parent and implied future market value of mechanical thrombectomy devices and the rights to what's the market for this value.
We believe that our pounce arterial thrombectomy and our reveal venous thrombectomy systems are quite well positioned for future competitiveness.
We continue to target a Q2 completion of our process and manufacturing validation efforts.
Related to the acquisition of <unk> and it's reviewed mechanical thrombectomy system.
A note of caution here, we've been facing ongoing supply chain related issues with several key components required to build our validation devices.
The shortages are not unique to our device components, but rather a part of a large scale shortage of components of each type.
Any slippage and timelines for the delivery of these components could delay our Q2 target completion. However, we continue to aggressively manage our supply chain. Following validation activities, we plan to quickly initiate clinical product evaluation.
These important achievements positioned us to execute on the meaningful opportunities in fiscal 'twenty two.
These are first to achieve the PMA for <unk> and to support our partner Abbott's commercialization efforts.
Second to become the first line treatment for patients with our sublime radial platform and pounds arterial and the pounds roofing venous thrombotic Jimmy platform for intervention list, who have access to these devices and demonstrate their commercial viability on a limited scale.
<unk> is to drive topline revenue growth and optimize cash flow from our IBD and medical device coatings offerings.
With the first objective, which remains to obtain FDA approval for <unk>.
As I mentioned and I'll follow up meeting with the FDA typically off the premarket approval process, we had one hour to discuss the agency's questions.
And request for additional data as outlined in the 90 day letter, we will be meeting with agency in the coming months to align on the information that they required to support the approval of our PMA application.
Though we cannot be 100% sure what action the agency will ultimately peak regarding the application for PMA, We believe our application of relevant data strongly support approval of the product. However, until we complete our meetings with FDA and understand the process for any remaining data.
To be completed at this time it is really difficult to estimate the specific quarter when the FDA be reached.
Conclusion to Brent the PMA.
Importantly, we have spoken with our commercialization partner Abbott about the FDA meeting Abbott has communicated that it is developing its commercialization plans for <unk> U S launch. They have also indicated that they intend to launch in the U S. Shortly following the FTC's approval, while we are working to secure FDA approval.
<unk> as quickly as possible. We are also preparing to support abbott's launch in the United States.
Moving onto the second objective.
Eminent treating the first line benefit and early commercialization of the sublime radial platform and pounce arterial and venous thrombectomy platforms. This is an important next step to create solutions that improve patient outcomes.
Does have its importance I'll provide a little additional context and meaning behind the subjective.
Recently because of our.
Clinical evaluation of these portfolios, we have begun to bear fruit in the form both physician interest.
Ordering on a commercial basis as well as commercial partnership interest from several large multinational medical device companies.
While the interest from the industry is exciting.
I'm most pleased that several of the clinics that have participated in these evaluations have ordered the product and even recently rewarded to supply products.
These orders support our view that we have created something special with these products as to the interest from large strategics.
We have decided that engaging in negotiations and signing a distribution agreement now with an established medical device partner for either platform would not harvest quite significant value from these platforms and absolutely the best interests of our shareholders. We've all seen the recent group.
And significant value of several publicly traded med tech companies.
With innovative products that address large market needs.
Confident that our pumps and supplying platforms have similar long term value creation potential.
To unlock this potential will begin by building a small commercial team of highly skilled and experienced sales professionals and clinical specialists to introduce the benefits of these products and drive customer adoption and the small scale much like the initiation of these very highly valued current companies.
These activities have the potential to demonstrate a very large and skews scalable future commercial value of these devices real time in the market.
I am a firm believer that these incremental investments of this approach will deliver dramatic an outsized returns for our shareholders.
To accomplish this goal we recently added eight experienced field sales team members. In addition to several marketing team members to drive our commercial efforts awareness adoption and sales of our portfolio.
Onboarding. These had been individuals' has recently begun to ensure we have the best possible position to take advantages of these opportunities importantly, we have already developed all internal commercial processes and systems to enable this effort along with a significant amount of team experience and serving customers.
<unk> directly.
To accelerate our value creation strategy in fiscal 'twenty, two which Tim will cover in a moment. This will reflect additional SG&A investments of approximately $10 million to support initial commercialization of these platforms.
Beginning in our third fiscal quarter, we expect to see modest and meaningful growing revenue associated with the adoption of this platform. However.
However, we expect to see significant growth in our value for this portfolio as we gain this early commercial traction.
Finally, turning to our IBD and medical device businesses.
Our IGD business is expected to continue to outperform the immunoassay market growth of 3%.
While generating excellent operating margins, while our medical device coating revenue is expected to grow low to mid single digits.
Which is the rate in line with that of the Endovascular device broader market given the recent vagaries of COVID-19, rolling impact on interventional procedures.
Im excited and energized by fiscal 'twenty, two how we can help patients and care providers, what it means so team and a large positive impact on our shareholder value. These are the right moves we have the right talent and capabilities and the financial resources to execute on these fiscal 'twenty two objectives.
I'll now turn the call over to Tim to provide more details on fourth quarter of fiscal 'twenty, one and our outlook for fiscal 'twenty to Tim.
Thank you Gary during today's call I will provide an overview of our fourth quarter operating performance and provide our outlook for full year fiscal 2022.
Revenue for the fourth quarter of fiscal 2021 grew 6% to $24 million compared to $22 5 million in the prior year quarter are.
Our medical device business revenue grew 1% year over year to $17 4 million and exceeded our expectations driven by growth in both product and R&D revenue.
Our in vitro diagnostics business grew 23% to $6 6 million.
In the fourth quarter, our IBD business delivered another quarter of broad based growth.
IBD revenue performance also benefited from a favorable comparison with respect to antigen sales.
Our fourth quarter royalty and license fee revenue totaled $8 9 million down $1 million from the same prior year period royalty revenue declined 7% to $7 6 million in the fourth quarter compared to $8 2 million in the prior year quarter.
As you may recall, the prior year quarter benefited from approximately $2 million associated with a true up from our third quarter fiscal 2020 royalty revenue as the actual royalties reported by our customers during the Q3 period exceeded our estimate.
The impact of this true up was partially offset by COVID-19 related impacts on procedure volumes during the prior year quarter.
Setting aside these prior year factors once again, we saw double digit growth in royalty revenue from our next generation serene hydrophilic coating and the fourth quarter.
<unk> royalty revenue has grown to comprise 26% of our royalty revenue as of Q4 fiscal 2021.
License fee revenue under the Abbott agreement totaled $1 2 million in the fourth quarter of fiscal 2021 compared to $1 6 million in the prior year quarter.
Abbott agreement license fee revenue is recognized in line with costs incurred for the transcend clinical study, which have declined this fiscal year as expected.
Product revenue increased 18% to $12 5 million in the fourth quarter compared to $10 6 million in the prior year quarter.
In our medical device business product revenue grew 18% to $6 3 million compared to $5 4 million in the same prior year period.
We saw another strong quarter of coating reagent sales.
Additionally, we continue to see revenue growth from our new products launched through distribution partnerships that were signed in fiscal 2020.
These include our <unk>, four and <unk> <unk> PTA balloon catheters with Cook and our coronary micro catheter with Medtronic.
Our in vitro diagnostics business reported product revenue of $6 2 million up 19% or $980000 compared to the same prior year period.
As I mentioned, a moment ago IBD revenue benefited from an easier prior year comparison with respect to antigen products.
We are pleased to see a return to growing demand for our antigen products for use in autoimmune disease testing.
Growth in sales of our protein stabilization in color metric substrate products also contributed to a strong fourth quarter.
R&D services revenue of $2 6 million was up 24% or 500000 compared to the same prior year period.
In our medical device business, we've seen an increase in customer customer development programs, leveraging our medical coatings.
Our IBD business continues to benefit from increased customer development project opportunities for our microarray DNA slide products.
Before I move on to product gross margin and expenses. It is worth noting that we had a $3 $6 million benefit to operating income this quarter related to our eligibility for the employee retention credit under the cares Act.
This reflects anticipated reimbursement of personnel expenses, we actually incurred in prior quarters, providing a $460000 benefit to gross margin of $2 $2 million benefit to R&D and a 930000 benefit to SG&A expense.
Since the beginning of COVID-19, we have not reduced U S head count or cut back on R&D investments and this cares act benefit reflects reimbursements of these types of expenses for companies that did not lay off employees, our PPP loans.
Product gross margin in the fourth quarter of fiscal 2021 was 67% compared to 63% in the prior year quarter.
Product gross margin adjusted for the benefit of the employee retention credit was 63% and consistent with the prior year.
R&D expense, including the cost of clinical and regulatory activities was $10 7 million in the fourth quarter or 45% of revenue.
Impaired to $12 8 million or 57% of revenue in the year ago period.
R&D expense adjusted for the benefit of the employee retention credit was essentially flat with the prior year period and was 54% of revenue.
The fourth quarter is the first period concludes R&D expense, resulting from our acquisition of <unk>.
The incremental expense associated with the tax was offset by an expected decline in our transcend clinical trial costs.
SG&A expense in the fourth quarter of fiscal 2021 was $7 9 million or 33% of revenue compared to $7 3 million or 32% of revenue in the year ago period.
SG&A expense adjusted for the benefit of the employee retention credit was $8 8 million a year over year increase of $1 $5 million and equal to 37% of revenue driven by sales and marketing activities, including new hires to support the commercialization of our sublime and pump products.
Our medical device business reported an operating loss of 800000 in the fourth quarter compared to an operating loss of $1 9 million in the year ago period.
Adjusted for the benefit of the employee retention credit the medical device business operating loss was $3 4 million.
The fourth quarter includes the addition of $1 1 million in operating expenses from the <unk> acquisition of which 570000 as intangible asset amortization.
Our IBD business reporting reported operating income of $3 4 million in the fourth quarter of fiscal 2021 compared to $2 5 million in the prior year quarter.
IBD operating income adjusted for the benefit of the employee retention credit was $2 9 million a year over year increase of $430000 and equal to 44% of revenue compared to 46% of revenue in the same prior year period.
The fluctuation in operating margin was a result of lower gross profit due to a shift in revenue mix.
Now turning to income taxes, we recorded income tax benefit of 270000 in the fourth quarter of fiscal 2021.
Compared to income tax expense of 870000 in the prior year period.
The current quarter's tax benefit as a result of the pretax loss for the fourth quarter, including the contribution of <unk> expenses.
Both periods reflect the impact of taxable income for the full year in the U S. Non tax benefitted amortization and operating losses in Ireland.
On a GAAP basis, we reported a loss per share of <unk> <unk> in the fourth quarter of fiscal 2021 compared to a loss per share of <unk> 22 in the prior year quarter.
On a non-GAAP basis, we reported a loss per share of <unk> 10.
In the fourth quarter versus a loss per share of <unk> 18 in the prior year quarter.
Non-GAAP EPS excludes the tax affected benefit to EPS of <unk> 19.
The employee retention credit as well as the <unk> impact to EPS associated with the <unk> acquisition costs.
Moving to the balance sheet, we continue to have a solid cash position in the fourth quarter, we began with $72 million of cash and investments and generated 890000 of cash from operating activities.
During the quarter, we paid $2 4 million for capital expenditures we.
We funded the July 2nd acquisition of <unk> medical with $30 million of cash on hand, and $10 million from our $25 million line of credit.
As of September 32021, we had cash and investments totaling $41 million and the balance on our credit line was $10 million.
Turning now to our outlook for 2022.
We expect fiscal year 2022 revenue to range from $97 million to $101 million.
We expect revenue from our sublime and pumps platforms to range from 2 million to $2 5 million.
Abbott Surveil license fee revenue is expected to range from $4 5 million to $5 million.
This compares to $16 million in fiscal 2021, which included $11 3 million in revenue recognized on that $15 million clinical report milestone payment, which was received earlier during the year.
Our fiscal 2022 outlook excludes revenue associated with the achievement of the final surveil milestone payment upon FDA approval, which has been our practice with previous regulatory milestones.
It also excludes surveil product sales and surveil profit sharing revenue.
The potential revenue associated with the final milestone payment from Abbott would be approximately $25 million.
Also our guidance does not reflect any unfavorable COVID-19 impacts.
We.
<unk> fiscal 2022 diluted GAAP EPS in the range of a loss per share of $2 <unk> to.
To a loss of $1 55.
We expect non-GAAP diluted EPS in the range of a loss per share of $1 75 to a loss of $1 25.
Our guidance reflects an acceleration of investment to advance our value creation strategy, which includes commercialization of our supply and advanced platforms for.
For the full year SG&A is expected to range in the low to mid <unk> as a percentage of revenue.
Full year R&D spend is expected to be approximately 60% of revenue as we support our rabin validation efforts and expand our thrombectomy and radio access product pipelines.
With respect to income taxes, we expect a full year impact of income taxes to range from a tax benefit of $6 7 million at the low end of the guidance range to a $48 million benefit at the high end of the guidance range.
Operator. This concludes our prepared remarks, we would now like to open the call to questions.
Alright. Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow you to thank you all three care equipment.
Okay I'm press Star one to ask a question. We'll go ahead and take our first question from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good afternoon, good morning, everyone and thank you for that significant update on everything.
As you guys know I've kind of been watching the company for 40 years, but theres a lot for me to unpack. It all you provided for US this morning.
I have a few quarters.
Yeah.
This morning.
I'm not trying to get you to criticize the United States.
A.
Got it.
I am hoping you could remind me I think there are competitors still on the market in the area, which surveil is targeted.
That have significantly more Paclitaxel then does serve Vale.
Probably don't have the level of clinical validation or documentation related to mortality.
Over a period of years that they are now asking you to provide that.
The bowl understanding of the current environment in which the world is operating.
Yes Brooks.
And the FDA could verify the.
Gulfport has shifted and they have shifted because of their concerns of the significant public health interest for long term mortality so that we.
We're aware of that even back in January when we're ready to submit and they did make it clear they wanted.
Long term I should say three year up to three year mortality data on certain cohorts of patients and so.
It's a waterfall chart I mean, it's really three years from the time you enroll that patient. So theres nothing you can do to expedite.
That quiver of arrows left a long time in the future. We just have to wait for them to land.
And so we submitted the first cohort and we re cutting the data submitting additional long term mortality data of an additional cohort of patients, meaning just more patients.
What I mean.
And so.
While.
We don't feel.
Unfair because of flat I mean, it's because of the prevailing issues of Paclitaxel. The agency also does have some other questions, which are not surprising on some of the chemistry manufacturing controls some biocompatibility nothing with human safety data by the way.
I will say this as.
As we have looked and what we.
Intending to submit and have looked at the mortality compared to our control device, which is the Medtronic impact we have we have no questions or issues internally the data is solid.
However, we have to.
Follow the FDA process and specifically the process of.
The.
Decisions.
They require both clinical and non clinical and clinical the pre submission process, which sometimes takes a long time, we've asked for expedited review, but typically it's a 70 day cycle time to.
To get that meeting and so we're still in the process of seeing if we can expedite that to be 30 days.
So that's the nature.
Where we are.
And the process for it but I just wanted to be clear we don't.
It's a new year, it's not an unfair or is just something we have to deal with.
With new devices.
Office site.
Right I get that I guess to use your analogy I just see it like the goalposts for the competitor has that moved the bench.
The goalposts for you guys I think understandably Hasnt moved and so you've got a kick from much.
Farther distance.
Yes.
Carrier product Brookside allowed to stay on the market right.
Sure and I don't know this for a fact, but I believe I do.
Don't know this but I'll give that qualify but I believe the the Boston scientific range of device probably have to go through a similar.
Ill review, but I don't as I said, I don't know that profile.
Alright, but add below its recent vintage.
Yes.
Don't.
The bulk of the radio right.
Range.
Not the market leader, though.
Anyway, let's move on so.
Secondly, I'm curious.
Obviously the clear.
Conclusion from your commentary across the pipeline.
Right. This minute youre not getting theyre not seeing the value from the potential strategics. So you are electing to go it alone or do you feel confident.
That.
A you have the capabilities to go it alone and be that.
That's likely to result in value maximization for the company from this extraordinary pipeline.
And first of all.
I wouldn't want it to be felt that we have a value point from the strategics because we're not.
Entering what I would call a deep did this deep negotiations, where you noted valuepoint that's not the case here at all but as we look at.
What it takes to build really commercialization there is a significant value increase.
If you can demonstrate commercial value so amendment in the past it has been.
We're trying to clinically technically and regulatory derisked the products right.
In EMEA was seeing.
A really huge return by going further demonstrating that it has real commercial legs on it and some of this also came about as we are doing evaluations and physicians are saying.
Im quoting anecdotally here so.
This change my practice, how can I order it.
This happened to US a couple of years ago with our coronary micro catheter, Tim would rebound and we had no way of continuing to use the device and once you have once you've had that impact in the clinical site and they want to continue to use it as part of their practice, we thought it was quite important to be able to provide that.
Clearly you know theres anti kickback that as low as against continuing to supply your valuation products free of charge. So we've started to sell them.
<unk> started to sell something you need somebody to also manage that account and if you have something to make sure you manage that customer's account you also have a field asset that can actually get more business. So.
This is very recently in the last maybe six weeks some of it probably started in Q4, but there are a lot of.
A lot of the Onboarding of the hiring we did it is actually in our Q1.
We have just decided to hire a small team of salespeople who have significant experience. So some of these people have been in thousands of Venus from Pat can be cases not tens.
So the idea then boxes.
If you can demonstrate commercial viability in a small scale keep.
Keep in mind, the strategics also see.
That the future is not as already been created is just not equally distributed so when they see the commercial value versus them trying to build a commercial value the value back to us and our shareholders is significantly more I have had this discussion with <unk>.
Very high level executives at interested strategics and then they also get it.
But the multiple in return is significantly higher than just we got an approval or clearance now it still is what you are willing to pay for it.
Absolutely makes total sense.
Again I appreciate all the color.
I think I heard you say anything about how Sundance is coming along.
Yes, so Sundance in fact.
At 809, Oclock on Monday night, I sat through with the clinical team.
The review of the case review with the principal investigators and steering Committee visa Professor <unk> in Sydney and Professor hold in New Zealand, Hence the late night and then.
Dr Schneider in Honolulu, and so they're going through the case reviews. There are both safety and efficacy and so I believe from what I understand from our clinical team will wrap up that clinical study report sometime in mid December.
But I just wanted I just sat through listen via itself.
Sure.
Absolutely well congratulations on all the progress I can't wait for the future.
Thanks for thank you Brooks.
Again that is star one to ask a question as you find your question has been answered you may remove yourself from the queue by pressing star two we'll go ahead and take our next question from Mike Matson with Needham <unk> Company.
Yes. Good morning, Thanks for taking my questions.
So.
I wanted to ask about.
This change in direction here.
Building a sales force following the products directly to the customers. It's a pretty big change from this whole product solutions strategy, where you were going to partner and have the bigger companies distribute the products.
So I think I understand where you're coming from but.
I guess, the cynical view would be like Hey, you know you are not able to find a company.
Company is willing to pay for these things or want to sharing the economics with you.
And we've seen in thrombectomy area in particular as mentioned a couple acquisitions with Abbott buying work in Boston by the World.
So.
I guess.
Maybe just talk more about this change in direction here in terms of.
The softer right now.
Okay.
Yes, Thanks, Mike first of all Mike. This this change in direction is not because of strategics into value, we've seen we actually holding them off.
We're actually telling them repeatedly we're not interested I mean, it is interest that doesn't even interests and our recent <unk> acquisition and as you brought up the strategic acquisition of these.
All of these other.
Mechanical thrombectomy platforms, which by the way are not that far ahead of us.
We're in the 300 plus million at least the one that's publicly known right $400 million and we acquired <unk> four.
$309 million upfront and an <unk>.
7 million potential earn outs.
<unk> product has both the U S FDA clearance and CE Mark.
Keep that in mind and so when we look at that device I mean, it was jokingly told we can flip that acquisition and make a couple hundred million dollars, we're not interested in flipping it or under serving our shareholders by taking crumbs.
And when I say crumbs crumbs might be significant in the past, but these portfolio of devices sublime.
Both pumps arterial and reveal thrombectomy system.
Their value and this is what I wanted to get across and not with the tens of millions.
There were hundreds of millions and so if we choose to sign a deal in the in the former category.
We are leaving a lot on the table and so that's.
It's not a change in direction to say.
Going to compete with our customers. It's a change in direction to say, how do we get the deserved value for our shareholders.
Of what I consider the best products in this category.
And so we're on the inside seeing the clinical evaluations and this is not from friends and family visa from.
Doctors in Sioux Falls, South Dakota, who will pick up our device before they would pick up enough thrombectomy device and so as we see that we believe it is important to see.
Get the popcorn stand going.
Serve the customers, who actually are asking us to buy it we were trying to sell it to them.
This thing you've changed my practice, we need to buy this.
The media to continue to use this product in our practice and so by supporting this product continuing to use not letting the product go cold.
Hiring a very small as I said best in class sales team, we think thats worth and investment versus a wholesale change in strategy. So someday when we have.
50 to 100 accounts that are continuing to use the devices as they everyday device that will mean significant value for our shareholders.
And also potentially for strategic on the line.
Alright, I guess, but so is the end game then spoke to ultimately sample kind of a deal with a bigger company to distribute the products in and I guess, how does that fit with the salespeople I mean, if there.
The coal to sell this product for six months or 12 months or whatever and then get taken away from them at some point I mean, how is that going to work I guess.
So again, we're starting with a very small sales team and we are taking one step at a time into the future we're not.
I don't want to suggest that we're going to flip this in six months time and get money for it I think as we continue to see how these devices play out in the market.
Rather than hiring 100, salespeople upfront and seeing you plunging into the depend that's not Tim and my of styles will grow as we go so as we see how we perform with this the sales of these products we reserve the right to keep going.
Okay. If the success breeds success, we can in terms of our investments continue to not get too far ahead of ourselves. So you don't hire a bunch of salespeople and completely blocked the P&L, but you highest sufficient to demonstrate it and as you see how thats going you can hire more to continue to fully.
Fill that need and I think thats, a very disciplined approach.
What I will say, though is in any part of the company any part of <unk> and the divisions, if they're strategic interests and the values significant forward shareholders.
We will certainly pick up the phone.
Yes, okay.
And then a question for Tim.
So the revenue guidance and I understand you're excluding the milestone which makes sense, but.
It's really not up from where you ended.
'twenty, one so but.
But I understand 21 had some kind of onetime stuff in there too so.
Can you help us with the math in terms of like.
What's the true apples to apples comparison to the to the guidance the revenue range, you've given for 2002.
Like how much growth does that sort of imply.
Is there a way to even do that math or.
Yes, absolutely Mike its a really great question. Thank you for asking that and I think I'll just highlight my comments with regard to the guidance reflects surveil revenue for about four 5% to $5 million for the year remember in 2021, we generated $16 million. So if you compare.
Our guidance we're talking.
97 to 101 compared to 105, you can you can basically if you want to normalize for surveil, you could back out $11 million from the 105.
And it will give you a sense that youre right around 90 ish million.
And so in essence, we're growing.
Mid single digits on the diagnostic and coatings business for the most part plus we introduced about two to $2 5 million of revenue associated with <unk>.
Pumpkin sublime so.
It's really looking like solid growth in fiscal 'twenty, one on the legacy businesses and just for those of you who are modeling I'll give you a little bit more insight I anticipate that every quarter of fiscal 2022, we will see year on year revenue growth with the exception of Q2, which is the period I'll remind folks when we receive the written clinical Rick.
Court, a milestone payment and if you normalize for that we will see modest growth of real slim growth in Q2, So there will be growth in every quarter. That's your expectation.
Hopefully that helps with the question and happy to go into a little bit more detail if you'd like.
Yeah, and Matt might just getting back to that.
Its premise I think the difference with <unk> is we sort of undressing ourselves in as a public company and as you look at the companies that have significant valuations. They all started at a place similar to this it's just didn't do it as a public company and so I just wanted to.
Remind everybody if you want to create significant value in terms of billions of dollars of market cap at some point you have to think through how to get there.
Ideally you can do it as a private company and then when you spring loaded. The pump then you go go public, but we're doing it in a very disciplined fashion as a public enterprise, where we're sharing probably be more than clearly, which would probably so I'll keep that in mind in terms of the significant.
Ramp in shareholder value.
Thats possible because of this.
Yes, okay.
And then just on the back to the <unk>.
Going back to the product so.
Or any of them for that matter, but.
How do you how would you capture the value I mean short of <unk>.
Selling it which I don't think you would do.
Selling the asset or the business product.
Would you expect more are you, hoping for something more like the abbot Surveil agreement, where you just get more of a lump sum upfront just to get access to the product and then ongoing.
Sure.
<unk> profits.
That's a good question there is a whole gamut of how we can extract the value I think for us as a public company. The issues you want ongoing commercial revenue stream.
Downstroke are great and they replenish our balance street, but any type of thing we do would have to have significant ongoing revenue streams.
<unk>, our own revenue streams from our own direct sales team. So so that's a clear thing but the.
The.
The headline numbers. However, the revenue streams come through again, we're not seeing we're trying to raise our shareholders sites, we're not seeing independence of millions.
Avid was good that we have received almost $61 million from that so far clearly PMA programs that consumes a lot even as its bringing in a lot of them being self funding.
We're talking about value above that type of value for our shareholders. So the ECB, we love that deal and its significant but thrombectomy in the radial access platforms. We believe at least as significant and I don't say that lightly.
Yes, Okay got it thanks.
Okay.
Okay. We can go ahead and take our next question from Jim Sidoti with Sidoti <unk> Company.
Hi, good morning, and thanks for taking the questions.
Can you put out I just want to be clear on a couple of things first even though there.
Additional data requested you still think that the opportunity to win that FDA approval for <unk> in fiscal 2022 is that correct.
I believe there is yes.
The issue with agency and I say this is a critique they have a process.
From a sponsor side it does feel painfully slow.
In terms of turnaround time, but that is the process.
You submit all of this you get one hour for the meeting to cover everything and nothing by the time, we have introductions back and forth 50 minutes. So you really cannot do the arm wrestling on the data and what what specifically, they're looking for you really covering higher ground still the meetings to cover the actual.
Data are the ones that you have to get into the process and you can either answer it.
Yourself and take a risk and say well. This is what we think or the agency has encouraged us to use this pre submission process, which unfortunately has its own cadence so that.
My concerns are more about process time than data and keep in mind as a sponsor you know much more about your technology and the clinical leader than the agency does so it's how do you present and relate that I am not concerned with that im actually consume that process time.
Okay.
Tim you indicated there.
The approval does come in fiscal 2022 that would add about $25 million to the top line what would the impact of that approval.
<unk> or near <unk>.
Case, a loss per share.
Yes. Thank you for the question clearly it will depend on the tax rate and all of that but assuming a tax rate of about 21%, we'd probably be looking around $1 40.
Okay.
And then what.
With regards to the salespeople you hired I assume it.
It's a handful at first.
Could potentially those salespeople move to other products, assuming that you signed a distribution deal for the product are you selling right now you have a fairly full pipeline could you move those salespeople off of.
Product and move it to product B.
You should you're starting to deal with one of the major major distributors.
Yes, well one of the things I will say is.
<unk>.
The team that we have built here have spent decades in the direct business model.
They have spent literally decades in the cath lab and representing its products. So their interest in coming to US right. So I don't know if you know this but it's a very competitive environment to hire salespeople all of the growing <unk>.
Cap companies that have high valuations, it's really a competition out there for salespeople. The fact that we can in such short order get I call them. The best of the best and in our sales model. We don't compromise we get the best of the best was because of the significant potential base saw at any one of these products.
So first thing to be clear, our salespeople be well taken care of whatever whatever the value creation activities, they will be well rewarded.
Not exploited and we will have a great <unk>.
The second thing, though is as we as we look at that we have a very strong pipeline.
I don't want to give too much shading and our pulmonary embolism.
Or the filling out of the pipeline in our <unk> platforms and even.
Where we are already going into gen. Two of the <unk> device.
But the pipeline is significant in terms of what we have so we're not.
Another one leg, it's too depending on just a surveil adjusts the sublime or just pounce Arturo just pounce.
Venus will have multiple legs on this tool and thats exciting.
And Jim It's Tim Let me just give you a few more things to consider as well.
As Gary highlighted with the addition of the eight reps.
These are very talented individuals who have a long history of success. There is a reason why they joined the <unk> team and you can imagine it's the products right, they're going to do everything they can they're excited they're hungry I've spent some time with them here recently, they are not going to give us the opportunity to find a partner because they're going to they're going to make hay what the technologies that we have but.
It's important I think for folks on the call to appreciate that Gary and I view this as synergistic, meaning we're not looking at having to build two sales forces for supplying in pounds. We believe we can leverage the same sales force for both technologies and products. So that gives you a little bit more perspective and color.
I do think there is a fair number of questions rightfully about our transformation and the change that we're enacting.
I think it's probably helpful for folks to really realize and appreciate that this is a very thoughtful decision and clearly we do appreciate that growth valuation multiples are significant.
But we also understand that over the last year plus we've.
Acquired a lot of learnings from going out and doing product clinical evaluations, we've had to build the infrastructure to be able to support evaluations. We've had to do with onesie twosies its taken time.
There's a lot of synergies that you captured by putting more energy and effort into this and you can move faster and get to market faster, but there is a lot more control that we have.
Launch timing control the amount of focus and attention that we can control and provide to the products versus somebody else.
There is the influence on future product improvements that only we can collect by being close to the physicians and understanding the use of our technologies.
There is just like I said, a lot of synergies from what we've built and it's a very thoughtful decision and we've got a sales force here a small sales force that as Gary likes to say he thinks we're going to touch their weight, Tim I'll add to that.
The leaders, we have hired as well.
Sure.
People, who have done this for decades successfully at top company. So it's not Tim on Gary attractive elder Salesforce sales leadership, and marketing leadership or people, who have no nothing else, but this business model. So it's not while it may seem odd for <unk> is not.
Our team is actually the water they are always swimming for several decades and are very excited about.
Alright.
Just one for me.
Do you think you have enough cash on hand to support the initiatives right now or.
At some point do you think youre going to have to go back and generates raise some more capital.
Yes, great question absolutely.
Jim I will just provide a little bit more color on this question. It's one that I was anticipating rightfully.
We ended fiscal 'twenty, one with about $40 million $41 million of cash on the balance sheet.
Clearly you can tell by the guidance here that we will be utilizing cash on the balance sheet, Gary causes a dynamic tool for growth and that's what we'll be doing but if you think about kind of the guidance range, we could be looking at cash use we probably could be looking at.
<unk> to about $24 million of cash as we exit fiscal 2022, I think we'll probably be closer to the $20 million.
This does without this does not reflect the milestone payment from Abbott.
I don't from what I see today, and how we're thinking about things.
Always difficult to know kind of the liquidity will look like going into 'twenty three and beyond.
But.
Gary's view will grow as we go our goal as we grow.
We'll be very mindful about liquidity and and we'll probably have more to say on that in the future, but right now I don't really see any challenges for 'twenty, two and im not seeing them right now for 23 either.
So it sounds like if you do get a milestone payment youre going to end fiscal 2022, right around where you started.
I think we'd probably end higher.
Right, Okay could be about $10 million higher.
Okay.
Alright, thank you.
Youre welcome.
I will go ahead and take our next question from Mike <unk> with Barrington Research.
Hey, good morning so.
Just on <unk>.
You May have mentioned this I missed it but on the sublime in pounds. When do you expect that revenue to start.
Yes.
As I said literally in the past couple of weeks we have.
Hired people and I think we on boarded them just.
A couple of week ago, two weeks ago, maybe they will here for the training and the product training. So as the first premise is to support the accounts that.
Our ordering and make sure we have a continuous flow of product.
Theres a whole cascade of things here so.
From our manufacturing and supply chain systems and Teva.
Go live as a commercial customer and not have the manufacturing product to supply to them. So we're being very methodical I think really we'll see Q2.
I'll have sublime as ahead of pounce right now because I.
Internally, we have these standards, where we don't like to ship any fruit.
Italy Greens.
We are still conducting evaluations with pounds, but if the early evaluate as want to order. It of course will facilitate that I think it was shifted to full commercial gear with the arterial pounce may be in the second quarter late in the second quarter third quarter, Tim's, giving me the signal here.
So blind the products or one four and the guide sheet those are ready to roll. So we'll see we'll start commercializing those now I'll provide a little more color for you as well, Mike and for others.
We have maybe about two dozen or so accounts that have been evaluating our supply our products as well as pounce.
As Gary Rightfully mentioned those will be the accounts that were initially engaging with in terms of stocking.
Selling product to there is a process of signing agreements and contracts with accounts. It takes some time and certainly theres a little bit of a difference in terms of the process with regard to an office based lab versus a hospital setting.
Spittle settings, youre going usually through a value analysis committee, which can take months to a quarter or longer.
We've been guiding folks to think about revenue generation it will become more meaningful in Q3 and Q4.
We have some revenue that's reflected already in the Q4 financial.
Statements, it's very de Minimis.
But we're seeing more and more <unk> sales today, but again these are very modest.
We initiate our efforts and we do have.
Have pretty strong expectations here for Q3 and Q4.
We do maybe I said this earlier.
Not having to build infrastructure and shipping and receiving and billing and compliance programs all of those things already exist.
So it's not like we're doing post it notes that try to support. These accounts. We do have fully developed backend systems that are staffed by people who grew up in these businesses and the front end system as well so.
It's not like we're a mom and pop shop trying to sell we actually have these developed already.
Gotcha.
So Gary you've commented on this a few different ways, but I just wanted to see if I can dial it in even further in and I understand I'm, asking a little bit to look into a crystal ball, but based on the questions.
FDA the issues that youre dealing with.
Sort of the bigger macro backdrop for Paclitaxel.
Do you think it's more probable than Doc that you get regulatory clearance this year and I understand this is speculation on your part yes characterize it that way.
Just curious do you think it's more probable than not that's something happened, yes ballpark.
And of course, I can speak for the FDA, but from.
My viewpoint. This is an absolutely approvable product.
I'll give you one little more insight just a little one of the issues that come up is the.
The sterilization dose for commercial product versus when you do a clinical trials like pizza box is going through the <unk>. When you do a commercial product its a big shipping cost and rate and so one has slightly different dose.
Things of that nature, and how they affect the biocompatibility the manufacturing that controls the clinical data has not so far been in question and we run a very tight trial, we completed our pre authorization inspection. The FDA was onsite here in Eden Prairie.
Belief of six days.
Recently, it's called the PKI and I don't notice for fact, but the FDA wouldn't be going through the trouble of having auditor throughout the clinical sites to the.
Any in the manufacturing sites.
If this was not an approvable product.
My assumption, but I will just say we had not a single finding.
In our operational systems and manufacturing systems under a very thorough preauthorization inspection that went on for I believe it was six days on site. So so that's why I'm confident.
The thing as you all know Tim and I are quite conservative, we don't like to count.
Count the chickens before they hatch and so therefore guidance, we take it out of guidance when we looked at cash management, we even put the blinders on and take that out of cash management to win good things happened, it's always an upswing versus a surprise and so.
For me it's really.
When.
I'd like to get it in the second quarter, but given the the 90 days left on the clock and the clock stop at anytime right at day 90 days left on the clock and we don't get these meetings until.
Early in the second quarter, and then you have to potentially showed.
Sure the data or do whatever you have to turn the crank.
I can't see a way, where we can get it with 90 days left on the clock in the second quarter and so thats.
That's a painful issue for me.
But thats the issue.
Okay Alright.
And then just going back to the shift in strategy and how best to.
I guess capture the value.
Sublime and.
Thrombectomy platforms.
When you think about sort of proving.
Proving these products commercially I mean is there is there a level of revenues.
We're on a sort of on a timeline, where you say hey.
These products and these categories are sort of proven commercially I mean is there.
They're sort of targets there in general that would be would be deemed by potential partners yeah, you've proven it.
Yes.
Having done this many years in the.
Past as well you have to be careful with what I call a flash in the Pan revenue that comes early the early adopters and it will.
Very methodical about that.
Early adopters will adopt and by very quickly you really haven't created significant value until you get into the mainstream market. The early majority and the late majority and these are people who are a little more skeptical, but when they are convinced it really is repeat business and so when we look at it it's not just showing.
We have six early adopters, who would early adopt anything it's really showing the big accounts.
And how the growth we believe rate of revenue growth is significant and we believe that that is clearly not in the in the teens, we believe thats in the 20% to 30% 40% rate of growth.
And so if you think of a territory is a little margin as parts of the U S map and that territory can grow that quickly that that really imputes. The.
The value for Us I think the other thing.
We're seeing with these devices and it's the hallmark of semantics.
The utter simplicity for very complex procedures. So we have had physicians in Sioux Falls, South Dakota that will never pick up one at the high end devices, you'll hear quite a lot about never.
Pick up this device and treat a 30 centimeter clot in Ah patients and so when we think of Duluth, Minnesota Billings, Montana Mobile, Alabama right. What are these physicians using there is a lot of press being given to academic institutions and where there is a rep. In every case every single time, the $50 case, the rep still there.
Devices.
We believe that not only have great clinical outcomes for the patient.
But they are almost ridiculously easy to use and now you can treat a patient with acute limb ischemia versus trucking them to a major institution in using a $12000 device. So that gets us really excited in what I call democratizing access to healthcare.
The person in Sioux falls can pick it up and treat that patient versus sending in an ambulance transferred to two twin cities and so.
But keep in mind the rate of growth is a significant part of it for us as well. These are premium priced products sure gotcha, Okay and last one for Tim Tim given the relative importance of <unk>.
Wyman pounds.
Might there be a point, where you guys would start sort of.
Closing quarterly revenue either in the way you report or just sort of.
Verbally on conference calls that sort of thing where you essentially say hey look this is.
Blind visits pounds pounce product that.
Hi, how are you going to sort of.
Talk about that or disclose that going forward.
So we did create expectations for the quarter.
For the year excuse me, Mike we will we will be providing updates as we go through the year end.
And Gary and I, both believe we're making significant investments to support the value creation thesis.
Pieces here and that value creation story is really driven by these three platforms. So we will be providing more context around.
How do we think about guidance as well as the actual performance as we go through the year and beyond when it gets to a material level could it possibly be its own home categories or category.
I would I would absolutely think thats, probably more likely than not yes.
Got it alright, thanks, guys.
Thank you Mike.
It appears there are no further questions at this time I would like to turn the conference back to speakers for any additional or closing remarks.
Thank you I hope you can hear the excitement about where we're heading in fiscal 'twenty, two and wanted to close by expressing our appreciation to our team for their incredible dedication and support this past year and going through our future fiscal 'twenty to stay safe everyone until next time. Thank you.
This concludes today's call. Thank you all for your participation you may now disconnect.
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