Q1 2022 Avinger Inc Earnings Call

Good day, ladies and gentlemen.

Two the harbinger.

First quarter 2022 results call.

At this time, all participants have been placed on a listen only mode.

And the floor will be open for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Mark correct circa floor is yours.

Thank you and thank you.

Got it.

Thank you and thank you everyone for participating in todays call I.

I'd like to welcome you to <unk> first quarter 2022 conference call.

Joining us today are <unk> CEO , Jeff <unk>, Chief Financial Officer, Mark Lyons.

Earlier today <unk> released financial results for the quarter ended March 31 2022.

Copy of the release is posted on the average our website under Investor Relations.

Before we begin I would like to remind you that management will make statements. During this call may include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Any statements contained in this call, but are not statements of historical fact should be deemed to be forward looking statements. All forward looking statements, including without limitation, our future financial expectations are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements accordingly.

Accordingly, you should not place undue reliance on these statements.

And description of the risks and uncertainties associated with our business. Please see our Form 10-K, and 10-Q filings with the Securities and Exchange Commission.

<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise and with that I'd like to now turn the call over to Jeff.

Thank you Matt good afternoon, and thank you all for joining us.

As discussed on our March call, we experienced a challenging hospital environment that affected many medical device and procedure focused health care companies in the first quarter of 2022.

The surge in COVID-19 infections from the Omicron variant and hospital staffing shortages limited facility access and reduce procedural volume.

As a result of the surge during what is typically a lower volume seasonal period first quarter revenue decreased compared to the year ago and prior quarters.

We've seen improvement in procedural volume and revenue trends starting from March and are happy to report that these trends continue to improve in the second quarter we.

We've also seen an increase in customer activity associated with our new Lightbox III imaging console, which we recently launched into full commercial availability in April .

Our proprietary Lula vascular system supports best in class patient outcomes by combining real time, OTT intravascular imaging with highly effective therapeutic catheters for the treatment of peripheral artery disease or PID.

Primarily focused on the hospital market, where PID cases can be more challenging including the treatment of chronic total occlusions in stent restenosis and critical limb ischemia, the most severe form of <unk>.

<unk>.

With averages proprietary image guidance system physicians are empowered to safely and effectively treat these challenging cases in order to preserve the lens and lives of their patients.

As we focus on expanding market penetration of our platform and increasing case volume through the remainder of this year. We've identified three key growth drivers for our business.

First after receiving FDA clearance in January and completing a successful limited launch in the first quarter, we expanded availability of our Lightbox III next generation imaging console with a full commercial launch in April .

The response to this new system is exciting receiving highly positive reviews from existing users and already helping our field team opened new accounts and expand our user base without permanent installation of a console.

We believe the Lightbox III has the potential to transform our business model by expanding our ability to effectively support hospitals with customized strategies.

<unk> III is a compact portable imaging console designed for easy setup in connection with existing monitors in the Cath lab.

The Lightbox III incorporates an advanced solid state laser for high definition OTT imaging.

More powerful computing platform and redesign software system with an intuitive user interface designed for procedural efficiency and ease of use.

During the limited launch phase physicians use the new Lightbox III with adventures Tigereye, CTO crossing and pen therapy Atherectomy catheters at 12 clinical sites throughout the U S. Users were extremely impressed by the enhanced high definition imaging, which facilitates the identification of disease morphology.

Arterial wall structures, allowing physicians to effectively target the disease and avoid injury to the vessel wall during treatment.

The limited launch also validated a new mobile strategy option in which a single highly portable lightbox III can be efficiently deployed across multiple hospital sites.

The new Lightbox III weighs less than 20 pounds and fits into a hard sided roller case the size of a carry on suitcase.

Can be easily wheeled into the facility and set up an affordable stand by our clinical support team in minutes. We believe this portable strategy will enable us to increase the productivity of our sales team and accelerate the pace of new account acquisition.

We've rolled out 10 portable configurations to our sales territories to support catheter utilization and new sites and for onsite demonstrations and evaluations of this exciting new platform.

The Lightbox III is available for permanent sale to new accounts and as an upgrade option to existing accounts.

The second exciting growth initiative is the development of two new catheter line extensions for our peripheral product portfolio.

In combination with our new Lightbox III. These new products are designed to broaden the appeal of our technology expand our user base and drive growth.

The first new catheter product in development as an extension of our Tigereye CTO crossing platform. This new image guided CTO crossing catheter has an integrated spending out or tip for tough flat caps and calcium and advanced shaft design for push ability and torque response in a challenging environment and.

Three marker imaging system to facilitate consistent image interpretation across our platform.

We expect to submit a 500 10-K application mid year with anticipated FDA clearance and commercial availability in the second half of this year.

By adding advanced capabilities to the platform. This new device is expected to expand the utility and addressable market for our CTO products and a challenging patient population.

The second new PID catheter in development as an extension of our <unk> family of image guided atherectomy devices.

This new device emphasizes a streamlined approach for physicians and expands our capabilities for the treatment of larger vessels, including the SFA and popliteal arteries, where the majority of procedures are performed today, we are calling this new catheter Pantera Lv four large vessel as a complement to.

Our successful <unk> SV catheter, which is designed for the treatment of small vessels, especially those below the knee.

<unk> Lv utilizes the proprietary design for <unk>.

Position and large larger vessels without the need for a balloon and is designed to operate at higher rotational speeds and challenging Black Panther <unk> also adds rotational control for efficient Guidewire management, and a modified plaque management system partition packing as well as several other enhancements.

We expect to file a 500 10-K application for this new device in the second half of 2022 with anticipated commercial availability in the first half of 2023.

We believe <unk> will expand market penetration by bringing significant advancements to our atherectomy product portfolio and supporting a more streamline procedure with an easier to use device and the largest atherectomy segment.

The third growth initiative is the opportunity to leverage our proprietary image guided platform to address the unique challenges and vast potential in the coronary artery disease market.

We believe expansion into the coronary market provides a transformational value opportunity for average or due to its large addressable market existing reimbursement profile and a compelling clinical advantages of our lumia vascular approach.

Our first foray into this market as the development of an OTT guided catheter for percutaneous crossing of chronic total occlusions or Cts in the coronary arteries.

By leveraging advances we've made across the platform, including our new Lightbox III imaging console, we have the opportunity to deliver a safe reliable patient oriented solution to what is today, a complex expensive and uncertain procedure.

We believe a coronary CTO crossing device that incorporates our OTT guided system can trends transform avon's, thereby expanding our proprietary solutions into a new large addressable market.

Approximately 50000 CTO PCI procedures are performed in the U S. Each year with an increasing number of hospital centers interested in treating these patients.

Existing CTO PCI crossing procedures are highly complex requires specialized and demanding technique with a steep learning curve and the use of multiple devices.

These procedures also require extended time under fluoroscopy, which results in high X Ray radiation exposure and contrast media burden, creating health risks for both the medical team in patients.

In addition, it's estimated that more than 200000 highly invasive coronary artery bypass grafting or cabbage procedures are performed in the U S annually with estimates of up to 30% of these procedures related to the treatment of coronary CTO Pos.

This market provides an exciting target for our image guided system, which would make a percutaneous approach accessible to more physicians and reduced X ray radiation exposure and contrast burden during the procedure.

And image guided coronary CTO crossing device with diagnostic capabilities would also access highly attractive reimbursement immediately upon FDA clearance percutaneous CTO crossing in the U S. Currently has reimbursement of 10000 to $16000 per procedure.

In addition, we anticipate that high resolution OCD guided catheters with diagnostic and measurement capabilities will qualify for existing OTT diagnostic imaging reimbursement in the coronary arteries we.

We believe that an image guided catheter designed for crossing efficiency with the need for fewer support devices combined with an attractive reimbursement scenario provides the opportunity for a very compelling economic value proposition.

Our coronary CTO development efforts are focused on low profile catheter design that combines real time, OCG guidance with precise control and <unk> ability to facilitate and add a great approach and allow physicians to safely and efficiently cross coronary CTO is while avoiding injury to the vessel wall.

Similar to aventura peripheral catheters, our first coronary device will incorporate a precise measurement capability ideally suited for physicians to properly size balloons stents prior to placement, which is critical for optical outcomes. We anticipate the U S regulatory pathway for this new device to be a 510.

Submission supported by data from an IDE clinical trial, our goal is to be in a position to initiate this study by the end of 2023.

In addition to our product development efforts, we continue to build the clinical body of evidence to support the benefits of our luma vascular approach for the treatment of ph D. <unk>.

Clinical data from our Insite trial evaluating <unk> tariffs for the treatment of in stent restenosis or ISR was presented at the Veeva clinical conference in the fourth quarter of 2021 the.

The highly positive data from this <unk> study provided the basis for our successful five 10-K submission to expand the <unk> Paris clinical indication to include the treatment of ISR.

We anticipate the physician investigators in this study we'll submit the full data set from insight for publication this year.

In addition clinical data.

We expect to enroll up to 60 patients in this study with patients evaluated at intervals up to one year post procedure.

We are currently enrolling patients at two key opinion leader sites in the U S and expect to begin enrolling patients at two leading clinical centers in Germany This quarter.

Most patients enrolled to date suffer from critical limb ischemia or CLI, the most severe form of PID and.

<unk> investigators are excited about the early clinical results. They are seeing in this challenging patient population.

We expect to complete enrollment by the end of 2022 with interim data available for presentation.

At clinical conferences this year.

As we look forward in 2022, we're encouraged by the increasing case volume, we're seeing in the second quarter as market conditions improve.

We're excited about the recent commercial launch of our new Lightbox III and the potential for this new console to expand market penetration and accelerate our pace of new account acquisition.

We are on pace to file 500, 10-K submissions for two new innovative products in our product portfolio, which we believe will broaden the appeal of our platform and create new usage occasions.

We continue to document outstanding patient outcomes and build the clinical body of evidence in support of our products through our clinical study programs and we're preparing for entry into the coronary market through a highly focused R&D effort to deliver the first ever image guided CTO crossing device for the treatment of CAE.

All of which we believe will be important growth drivers for the company and build value for our stockholders.

Before I turn the call over to Mark I'd like to comment on a change to our management team. We recently announced that <unk> has resigned as chief financial officer effective the end of this week to pursue an opportunity outside the medical industry. We appreciate Mark's many contributions to our company since joining us in 2018, helping us transform.

Business through the development and launch of our next generation PID catheters, and the introduction of our new Lightbox III platform and we wish him well as he moves to the next phase of his career, we've initiated a search process to fill the CFO position and look forward to providing you with an update in the future.

At this point I'd like to ask Mark to cover our financials and then I'll return for Q&A Mark.

Thank you Jeff.

Total revenue for the first quarter of 2022 was $1 9 million, reflecting the hospital staffing challenges and access limitations, Jeff described at the beginning of the call those issues appear to be largely abating and we are seeing procedure volumes growing in the second quarter.

Gross margin for the first quarter was 28%, reflecting reduced revenue for the quarter as we've discussed previously <unk> contribution margin on our disposable products is far higher than our reported gross margin. Therefore, we would expect gross margin to improve as <unk> grows its revenue base.

Operating expenses for the first quarter were $5 $2 million down from $5 5 million in the first quarter of 2021 with the completion and commercial release of the Lightbox III counsel, we have seen our R&D expenses declined even while we are investing heavily in development efforts for our new two new <unk> catheter.

And the coronary CTO crossing device.

Net loss and comprehensive loss for the first quarter of 2022 was $5 1 million flat with the first quarter of 2021.

Adjusted EBITDA as defined under non-GAAP financial measures in this press release was a loss of $4 6 million compared to a loss of $4 million in the first quarter of 2021.

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges depreciation and amortization expenses stock compensation and other items as noted in the tables in today's press release.

A copy of the reconciliation from net loss to adjusted EBITDA can be found in today's press release, which is also posted on our website at www Dot <unk> dot com under the investors section.

As noted in today's release related to our January fund, raising average or had a $5 1 million deemed dividend charge associated with the beneficial conversion feature that was included in the net loss applicable to common shareholders.

Cash and cash equivalents totaled $20 million as of March 31. The company raised gross proceeds of $7 6 million in January 2022 through an offering of preferred stock at a post split adjusted commonly equivalent price of $8 per share.

In March we executed a reverse stock split which allowed us to regain compliance with NASDAQ stock market minimum bid rules.

We're in a strong cash position and have the resources, we need to fund our R&D projects and our commercial sales organization into 2023.

I believe <unk> has the team technology and products to be successful and I wish the best for the company in the future.

The point I will turn the call back over to Jeff.

Thanks Mark.

We remain committed to our mission of radically changing the way vascular disease is treated with the commercial launch of our highly portable lightbox <unk> III, we are well positioned to accelerate adoption and drive utilization of our loomer vascular platform we.

Continue to advance our technology and provide new opportunities for market expansion with the development of exciting new products for peripheral and now coronary applications. We are experiencing improved market conditions. Following a challenging start to the year and our sales and marketing teams are focused on executing our strategy to efficiently.

Grow our business as we support new and existing users users and providing the best possible care for their patients at this point, we'd be happy to take your questions.

Yes.

Yes.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.

We ask that while closing your question and please pickup your handset if listening on sneaker performed.

To provide optimum some policy please hold while we poll for questions.

Our first question is coming from Mark Weisenberger.

Riley.

Sir Please proceed with your question.

Thank you. Thank you.

In the prepared remarks, I heard hostile labor market mentioned, a number of times. So from your perspective, which played a more prominent role in the lower procedure volumes in the quarter was at the rise of the omicron variant or kind of the current labor market environment.

Yes, it is hard to mark. Thanks for the question, it's hard to really precisely say, what's what's causing our cause the limitations early really late in the fourth quarter.

To the first couple of months of the first quarter.

The <unk> was a tie.

Time based event rate, we saw that increase in infection rates increase and hospitalization rates and the corresponding limitations that many hospitals put on elective procedures.

So if you were to look at kind of the precise timing of the impact I would say the omicron surge was definitely part of that hospital staffing though.

Has and continues to be although we're seeing some abatement as we go forward into Q2.

<unk> and so probably the the omicron Serge.

Plus hospital staffing caused the acute problem early in the quarter, but the hospital staffing would be more I think difficult and longer term to fully address.

Understood and wondering if you could provide more granularity on the cadence of procedure volumes within the quarter. What are you seeing thus far in the second quarter end and how much visibility into procedure volumes in the second quarter and beyond do you have kind of in terms of your team's scheduling and do you also see any kind of thing.

The backlog, resulting from.

Any delays in the first quarter.

We are seeing.

A steady increase in procedural volume, particularly we started to see increase in March.

And then.

And then improving in April and continuing to improve in May.

We don't think that the market procedural volumes are back to full strength, yet so we see that as a good sign for continued opportunity for growth in volume.

Of course.

There could be some other variant that causes a hiccup a problem, but but we're really optimistic with what we're seeing.

So so I'd say just a continued steady improvement.

Really coming into the second quarter.

And kind of a ramping as we came into the second quarter, we will have to see how much. It continues to ramp and increase but I think there's still room to even kind of get back to where we were.

Kind of pre this last round of variance.

Understood and then you mentioned increased mobility with the new Lightbox three I'm wondering what you can share in terms of how that translates to kind of increase in utilization from your clinical staff.

Yes.

Great question. So we were really excited about.

The performance of our Lightbox III in limited launch not only related to the physician response to the enhanced imaging the streamlined nature of the software and the user interface and most importantly, the patient outcomes that they were able to deliver and we launched that box into 12.

<unk> are used did cases and 12 sites as part of our limited launch kind of those sites were all done on a single portable box. So it just shows you how how impactful having that that portable platform can be since we began commercial launch we've now performed close to a one one.

Wondered 20 cases, a 117 cases in 21 sites and we've only.

Just recently.

In mid to late April began rolling our portable boxes out to our 10.

Primary territories. So I think that demonstrates just how how quickly that can be impactful. Our team has been bringing the box not only into new accounts, but they've also been bringing the box into existing accounts, which generates a lot of excitement and also starts to.

Starts the upgrade sales process, although we're not certainly we still can run cases and utilized catheters on the existing <unk> hundred 50 platform.

But probably the most exciting thing to me is how this this new lightbox fundamentally changes how we can engage with new accounts. Just just this past Friday one of our sales sales reps are relatively new sales rep was able to engage with the physician and a new account by bringing in <unk>.

As lightbox three to demonstrate with hands on what the box looks like how it operates and to sell the benefits of our alumina vascular approach so that was Friday.

The rep performed or the physician performed his first cases with luma vascular yesterday. The cases went very very well and theyre already scheduling to do additional cases right away. While they are advancing the sales process with that account. So thats a process that would have typically taken eight to 12 weeks or more.

More to get those first cases on the books and it would've required shipping and installation of the 240 pound Lightbox, which is a big commitment on both sides and so we're really excited how this can that's just one example of many examples of how quickly we think we will be able to move now that we have this highly.

Portable box.

Very helpful for that additional commentary and then just the last one from me wondering if the kind of current environment and any constraints have.

Changed the type of procedures performed in the quarter was there any kind of noticeable change in terms of above the knee below the knee or any kind of details you can see in the data. Thank you.

Yes, so one of the I think as we've seen elective procedures opening up we've seen a more typical mix of procedures in the first quarter. When there were more restrictions, we saw more usage and more treatment cases related to CLI patients.

And boy, we're really thankful that we have what we believe and I think what our data is showing the best in class below the knee atherectomy device, which is almost fully targeting these CLI patients and enable us enabling us to perform cases, even when elective procedures may be delayed.

Or or or limited.

In addition, CTO cases, where there is a total occlusion of the vessel oftentimes are related most of the time related to a CLO type of situation. So our new tigereye in our existing awful lot platform can be utilized in those those cases as procedural volume and electric proceed.

<unk> continue to increase in access is provided we're seeing more and more typical type of SFA popliteal below the knee mix.

And.

And as we kind of work through the latter part of the quarter and into this quarter seeing our Panther Paris, seven French device volume, increasing as a percentage of total atherectomy volume.

So.

I don't know if that gives you the texture you were looking for Mark.

It does that's helpful. I appreciate it that's it for me. Thank you.

Thanks for the questions.

Thank you. Your next question is coming from Nathan Weinstein of Hs capital Sir Please ask your question.

Hello, This is Brian Holland and on for Nathan.

Hello, Brian .

To hear from you.

You as well can you. Please focus on the potential you see in the coronary artery disease market and can you discuss the dynamics there, particularly the potential you see for Avon's yours differentiated product portfolio to add value to patients.

Yes, I appreciate the question because boy, we're really excited about bringing our platform to the coronary arteries. So first of all I think.

One of the most.

Beneficial aspects of our program and our product is that we believe we can make the CTO PCI procedure is accessible to more physicians currently only a a relatively limited number of physicians physicians will attempt to these procedures.

Procedures are very complex they require.

A lot of training a lot of expertise and problem and multiple devices wire support catheters balloons, but most of all they require time typically up to four to five hours of exposure to a fluoroscopy con.

Contrast, burden to the patient to try to cross these challenging cto's with.

Depending on the study to look at a $50 to 75% success rate with anywhere from a 5% to 10% perforation dissection rate and almost always the crossing is done suboptimal not through the true lumen and so.

Many of these patients don't qualify or CTO PCI percutaneous procedures arent, even attempted on them. So the patients are referred to bypass where they'll have a highly invasive cabinets procedure.

If we can provide and our goal is to provide a precisely controlled image guided device, which can allow a physician to see where they are inside the vessel.

To steer through the tortuous anatomy and to steer the catheter to the to the.

Two the cap of that CTO. So they can cross that that that cap and cross the CTO with a guidewire and then set up the next treatment along the way, they're getting a lot of information on how best to treat the patients. The standard of care is typically a placement of a drug eluting stent how to <unk>.

Is that that.

Provide four four.

Good acquisition of the stent and so we're providing not only the benefit of a more efficient less X Ray less contrast burden crossing if we're successful and as we go through our clinical studies, but we're also providing valuable information to aid the physician and deciding how bad.

<unk> to treat their patients following CTO crossing we're excited about this as a business opportunity because this is a vast and relatively untapped market. We believe it's an opportunity for us to create a market with the current 50000 procedures that we're seeing done now and growing with the.

Ability to expand that to more hospital centers and more physicians with the.

Estimated 30% of total cabbage procedures, which are done related to <unk>. If we can save some of those patients and enable physicians to treat a significant portion of those patients and not subject them to highly invasive cabot's procedures I think we're doing a great service to the health care industry and certainly the patients.

Our whole philosophy here is patients first everything we're doing is about providing better care for patients and we think and I think it just makes sense that fully aligns with with a valuable business proposition so efficiency.

Hopefully our clinical studies and we expect our clinical studies to show a higher success rate more true luminal crossing better information for a physician to make good decisions for their patients and all of this access would immediately access even though a highly disruptive and completely new approach in technology. It.

Would access the currently the highly attractive reimbursement scenario is <unk>.

Situation currently in place both for percutaneous CTO crossing in the coronary arteries and also <unk> diagnostic imaging reimbursement via the CPT codes that are already in place for the coronary arteries. So again.

We're well into the process, but we're still early in the development process for this device.

We expect that we will.

Our goal is to be in the clinic with the clinical studies for the device.

Before the end of 2023.

But I think that this is a.

Very very high priority goal for our company as we complete the development of our new peripheral products that we've talked about and as we complete enrollment in our image PTK study.

Most of our R&D efforts will be focused exclusively on our coronary program and platform.

Thank you for that color.

You've introduced you've touched on a number of these points already but could you perhaps recap a couple of the key points about avon's or in terms of what you think investors might be underappreciated about the opportunity.

Yes, I think when when when investors look at our platform one of the most exciting things is is the our ability.

<unk> to continue to expand this platform with devices and solutions that empower physicians to treat their most challenging patients in cases I mean, this is a highly differentiated technology with data to support it now and more data to come the ability to which we're just starting.

To get the word out about our coronary program and that will continue I think to build value and stockholders minds as we continue to hit milestones and are able to share more information on that program.

And we are very responsible and very careful with our cash utilization.

As we look at our sales force, we're focusing this year as we prioritize investment in R&D and clinical programs on unruly kind of maintaining a stable force at around 25 sales heads throughout the end of the year, but focusing on continuing to penetrate and.

Grow our business in our core geographic territories, which I think also just builds the case for how compelling and how differentiated our technology is.

Thanks, and last one for me beyond the new products already discussed are there any more potential new product introductions ahead that investors should keep in mind.

We are just entering and just focus now on the coronary markets. Our first product is an image gated image guided device for crossing coronary CTO is we do see potential for expanding the platform further in the coronary arteries, but we're not.

Not far enough along to share any details on the on the on those programs at this point.

Thank you.

Thank you very much Brian .

First there appear to be no more questions in the queue do you have any closing comments you'd like to finish it.

I'd just like to thank you all for joining our call. This afternoon, we very much appreciate your interest in our company and your support and we look forward to reporting our continued progress on our third quarter 2022 call.

Second quarter excuse me second quarter 2020 to call in the third quarter. Thank you very much.

Thank you ladies and gentlemen, this does conclude today's conference call.

Disconnect your lines at this time and have a wonderful day. Thank you for your participation.