Q3 2022 Surmodics Inc Earnings Call
[music].
Okay.
Good day and welcome to the <unk>.
Third quarter fiscal 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Jim <unk> Senior Vice President of Finance and Chief Financial Officer. Please go ahead Sir.
Thank you Cecilia good morning, and welcome to <unk> fiscal 2022 third quarter earnings call before we begin I would like to remind you that during this call. We will make forward looking statements. These forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 19.
<unk> 95 and include statements regarding <unk> future financial and operating results or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward looking statements, resulting from certain risks and uncertainties, including those disk.
Grabbed and 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 our GAAP results. This.
Conference call is being webcast and is accessible through the Investor Relations section of the <unk> website, where the audio recording of the webcast will also be archived for future reference a press release disclosing our quarterly results was issued this morning and is available on our website at <unk> Dot Com I will now turn the call over to Gary Maharaj.
Ari.
Thank you Tim Good morning, and thank you for joining us on our third quarter earnings call. We are pleased with both our financial performance and the progress we have made in executing our strategic priorities during this quarter.
Starting with our third quarter financial performance, which was in line with our expectations. We grew revenue, 4% to $24 9 million in the third quarter compared to $23 9 million in the prior year quarter, driven by solid performance from both our medical device and <unk> businesses.
We reported GAAP diluted loss per share of 41.
And non-GAAP diluted loss per share of 34%.
Now, while we are lowering our revenue guidance for the full year based on some predicted softness in our business.
We are however, raising our EPS guidance to reflect our Q3 performance and continued focus on efficient capital allocation, Tim will provide additional detail on our quarterly results as well as our revised guidance later in today's call.
During our third quarter, we continued to make progress on our strategic objectives for the fiscal year. As a reminder, these are first to achieve the PMA pursue valent support abbott's commercialization efforts second to build the commercial pipeline for our sublime radial pounds arterial and venous thrombectomy platform.
And third to drive topline revenue growth and optimize cash flow from our IBD and medical device coatings offerings.
Starting with surveil.
I'm quite happy to report that we have made substantial progress in addressing the fda's questions regarding our PMA submission for surveil.
Since our April earnings call, we have had multiple discussions with the FDA regarding the submission in.
Importantly, we have clarified the additional data and tests that are required to complete the final submission for PMA.
These tests are currently underway now.
Now they all along the lead times are normal due to supply chain constraints at independent Test laboratory.
We are working all angles to minimize the impact on our timelines the majority of the data and by that I mean, the vast majority of the day there will be completed in our fiscal Q4.
However, some data may not be received back from these labs until October .
While we're not changing our target of receiving the PMA by December it is tight and it will depend on our ability to overcome some critical supply constraints at these independent labs.
In addition, we are preparing for abbott's commercialization of Surveil. In fact, we have recently met with our partner Abbott to discuss their perspectives on the drug coated balloon market, which we found quite encouraging.
Over the coming months, we expect to continue our discussion with Abbott the boats commercialization plans and forecast the expectation continues to be the U S launches movie will follow the receipt of the PMA approval.
Moving to Sundance a.
Below the knee sirolimus coated balloon as we've discussed previously our surveil distribution agreement with Abbott included an exclusive option period for Abbott to negotiate an agreement for Sundance BTT DCD.
Abbott has informed us that it has elected to allow this option period to expire.
Abbott communicated that its decision was based on current strategic priorities at this time and does not reflect the technology's potential clinical benefits.
In the meantime, we are assessing the next steps for the clinical development and future commercialization of the Sundance DCD for which another multinational strategic partner has already expressed interest.
The current investment in the Sundance program consists of completing the swinging trial follow up period, and some baseline R&D work. We are intentionally not actively gearing up for an IDE submission nor pivotal trial at this point, especially since a potential partner with one substantial input.
This important trial design considerations and decisions will.
We believe in the possibility for Sundance DCE to improve the treatment of T real blockage below the knee.
Our optimism reflects the promising early efficacy and safety results, which we intend to present and submit for publication later this year.
Our second strategic objective is to demonstrate the commercial viability for our sublime radial platform.
<unk> arterial and venous thrombectomy platforms.
Let me start by saying, we like what we see as we've previously described fiscal 'twenty. Two is about building our customer base, which is an essential catalyst to driving future value creation.
We've attracted high quality sales talent, which has led to a sizable increase in the number of customers purchasing pounds. So sublime products during the third quarter.
We are well on our way to finishing the fiscal year with one over 100 customers for both our parts and supplies products.
Much of this credit goes to our commercial team, which has grown to a total of <unk> field professionals at the end of Q3.
Importantly.
Our current pipeline of prospective customers has expanded significantly during the third quarter, we experienced a greater than 100% increase in the number of hospital value analysis committees that are considering our sublime and pouch products.
We're still early in our commercialization efforts our average rep tenure is less than five months and our average customer tenure is approximately four months to date. Our sales organization is primarily focused on building our customer base. However, they are also driving repeat orders in our existing accounts.
In my view early indicators of success include adoption and stickiness, which we are seeing today.
Over 85% of our customers ordered one or more times during the third quarter and since the launch of commercialization efforts last fall two thirds of our customers have ordered several times to normal despite nearly half of those customers ordering for the first time during the third quarter. Furthermore, we are seeing an increase fleet.
Increasing quarterly product utilization amongst these early customers.
So again, we're seeing some early evidence of the adoption and stickiness, which we believe our foundation for growth.
Now our products continue to demonstrate the profound clinical impact on patients and our recent key step to navigate Patel Mercy Gilbert Medical Center in Gilbert, Arizona use our pounds thrombectomy system to treat a 65 year old patients admitted to the ER with extreme linde team called the subtle leg and foot pay.
Patient presented with clots that extended from the femoral artery at the top of the tie to the tibial arteries below the knee approximately 50 centimeters in length.
Cause of the significant thrombus burden of complexity of this keys, which consisted of both acute.
And chronic clots the physician use the pound's device.
Due to the high volume of parts removed by the pumps thrombectomy device along with the mechanical disruption of the clots ICU team was able to shortened infusion to only a few hours of half the dosage thrombolytic therapy that would've been prescribed.
Alternative case.
Following this therapy the patient was discharged from the hospital 24 hours after a follow up the balloon angioplasty procedure.
The physician and staff, who astounded at the success of the intervention because of the overwhelming amount of thrombus burden removed with the need again for only half of the dose of thrombolytic.
This case is one example of parts offering physicians and care teams, a new standard for treatment of peripheral arterial thrombosis.
Moving onto our pounds thrombectomy platform, which enables physicians to safely separate large mixed morphology clot from the vein wallach rapidly extracted without removing the device from the patient.
We have experienced some delays in our initial manufacturing efforts.
The resulting product availability to start our clinical evaluations on any consistent basis. Our team is working diligently diligently through these issues because of this we don't anticipate starting a cadence of product evaluations until the issues are resolved and we will have more to share on this matter during the next quarter's call.
Sure.
Turning to our third strategic objective to drive topline revenue and optimize cash flow from our diagnostics and medical device coatings offerings.
Our medical device coating offerings, and diagnostic businesses reported 1% and 3% year over year growth respectively.
With both delivering strong operating results in line with our expectations, we remain confident in the ability to generate meaningful cash flow contributing to our growth initiatives.
We continue to believe that the long term growth will be what rewards our shareholders. While early our recent performance provides initial evidence supporting this value creation thesis the.
The strength of our balance sheet has been and is essential to unlocking our long term growth potential.
Given this and the current macroeconomic uncertainties I believe it is prudent to assess financing options such as increasing the size of our credit facility.
This will allow us to strengthen our balance sheet. So that we may be financially resilient in this current macro economic environment I expect it will have more to report on this topic in the coming months.
Our team has delivered solid results during the first nine months of our fiscal year delivering on our long term goal of consistent and robust revenue growth starts with executing our fiscal 'twenty two strategic objectives and we are pleased with this progress during the third quarter and look forward to sharing with you significant progress throughout the remainder of our fiscal year.
Turn this call over to Tim to provide more details on the third quarter fiscal 'twenty two results and full year guidance Tim.
Thank you Gary during today's call I will provide an overview of our third quarter operating performance as well as an update on our fiscal 2020 to financial guidance and liquidity position Rev.
Revenue for the third quarter of fiscal 2022 grew 4% to $24 9 million compared to $23 9 million in the prior year quarter.
Revenue from our medical device business grew 5% year over year to $17 5 million driven by strong product sales our in vitro diagnostics business revenue grew 3% to $7 3 million compared to $7 1 million in the prior year quarter IBD performance was driven by solid product sales growth, which offset.
Lower R&D revenue.
Product revenue increased 15% to $13 9 million in the third quarter compared to $12 1 million in the prior year quarter, and our medical device business product revenue grew 23% or $1 2 million to $6 7 million and broad based growth across our medical device products and coating reagents with <unk>.
Growing contribution from our parents arterial and sublime radial commercialization efforts.
Product sales of our medical devices in the third quarter grew 64% from the year ago period, which includes contract manufactured balloon catheters specialty catheters partnered with Cook and Medtronic and our partner <unk> Thrombectomy and sublime radial device products.
Turning to the fourth quarter of fiscal 2022, as Perry discuss the commercialization timing of our pumps being this product has been delayed which is one factor unfavorably impacting our revenue guidance for the full year.
However, we expect double digit year over year growth to continue in Q4 for medical device business product sales driven in part by our policy of arterial and sublime radial commercialization efforts.
Our in vitro diagnostics product revenue grew 9% or 590000 to $7 2 million in the third quarter IBD product sales growth was broad based for the fourth quarter and our IBD business, we anticipate unfavorable order timing for a distributed antigen products as well as softness in R&D revenue.
Our third quarter royalty and license fee revenue totaled $8 8 million and was essentially flat compared to the prior year license fee.
Fee revenue under the Abbott agreement was $1 million for both the third quarter of fiscal 2022 in the prior year quarter.
Royalty revenue totaled $7 8 million in the third quarter and was essentially flat compared to the prior year quarter.
Third quarter royalty revenue performance continued to benefit from growth from our serene coating we.
We believe that there are several macro factors impacting royalty revenue reported by our customers, including multiple pressures in procedure volumes related to hospital capacity constraints and customer supply chain disruptions. We expect these headwinds to persist in our fourth quarter, and therefore expect royalty revenues to be relatively.
Flat for the full year of fiscal 2022.
R&D services revenue of $2 1 million in the third quarter was down 850000 compared to the same prior year period, primarily as a result of the completion of our customer development program and our IBD business. In addition, R&D revenue was impacted by lower customer customer demand for our medical device coating services.
Largely due to continued supply chain challenges related to certain customer supplied products. I also expect these headwinds to persist during our fourth quarter.
Product gross margin in the third quarter of fiscal 2022 was 63% compared to 58% in the prior year quarter.
The prior year quarter included a tailwind of 730000 in charges in our medical device business related to a product replacement matter for one of our contract manufactured products.
Gross margin for the third quarter benefited from leverage on higher sales volume compared to the prior year quarter I expect that our fourth quarter product gross margin will be unfavorably impacted by several headwinds related to higher material costs and product mix.
R&D expense, including cost of clinical and regulatory activities was $13 million in the third quarter or <unk>, 52% of revenue compared to $12 2 million in the year ago period.
R&D spend for the quarter was lower than what we previously communicated as a result of recent decisions related to the prioritization and timing of certain product development activities. We continue to invest in our pumps and supplies platforms, including commercial readiness activities for both our surveil drug coated balloon and our parks being a strong back to me device.
For the remainder of the year quarterly R&D spend is expected to be approximately in line with our Q3 levels.
SG&A expense in the third quarter of fiscal 2022 was $12 9 million or 52% of revenue compared to $7 9 million in the year ago period. The increase in SG&A expense is primarily related to sales and marketing activities, including new hires to support the commercialization of our <unk> and <unk>.
<unk> products.
Gary mentioned, we now have a team of 30 experienced and talented sales professionals dedicated to building the commercial pipeline for our parts and supply products up from approximately 20 at the end of the second quarter.
While we do not anticipate increasing the size of our sales team in the near term. We do believe that we have the appropriate scale to build a meaningful customer base to demonstrate the value of our commercialization strategy.
For the full year, we anticipate SG&A expenses to be in the high <unk> as a percentage of revenue.
Our medical device business reported an operating loss of $7 3 million in the third quarter compared to an operating loss of $2 5 million in the year ago period.
In addition to sales and marketing investments our third quarter performance includes the addition of $1 million in operating expenses of which 520000 isn't <unk> intangible asset amortization related to our fourth quarter fiscal 2021 <unk> acquisition.
Our IBD business reported operating income of $3 4 million in the third quarter.
<unk> was consistent with the prior year quarter <unk> operating income for Q3 was 46% of revenue compared to 48% in the prior year.
Now turning to income taxes, we recorded an income tax benefit of $1 5 million in the third quarter of fiscal 2022 compared to income tax expense of 780000 in the year ago period.
The current quarter's tax benefit as a result of the pre tax loss for the third quarter.
Prior quarters tax expense reflects pre tax income for the full fiscal year 2021, with the receipt of the $15 million Abbott milestone payment.
On a GAAP basis, we reported a loss per share of <unk> 41 in the third quarter of fiscal 2022 compared to a loss per share of 24 cents in the prior year quarter.
On a non-GAAP basis, we reported a loss per share of <unk> 34 in the third quarter versus a loss per share of <unk> 17 cents in the prior year quarter.
Moving to the balance sheet in the third quarter, we began with $27 million of cash and investments during the third quarter with cash used by operations was $3 5 million and capital expenditures totaled 860 <unk>.
As of June 32022, we had cash and investments totaling $22 million and the balance of our line of credit remained unchanged at $10 million related to the funding of the July 2021 <unk> acquisition.
We anticipate that we will finish the year with approximately $17 million in cash.
This estimate is lower than the $20 million that was previously communicated and part due to ongoing delays in IRS payment uncertain income tax related receivables.
As Gary discussed we are taking measures to assess financing options such as increasing the size of our credit facility and we will have more to share on this topic in the coming months.
Turning now to our outlook for 2022, we expect fiscal year 2022 revenue to range from $97 million to $99 million. This revenue outlook reflects delayed timing for the commercial launch of our parts BNS product.
As well as expected softness in customer demand affecting both product revenue and R&D services revenue.
As a reminder, this outlook includes between four 5% to $5 million of license fee revenue associated with the added surveil agreement.
As a result of our financial performance for the first nine months of fiscal 2022, we now expect full year diluted GAAP EPS in the range of a loss per share of $1 50 to a loss of $1 35.
We also expect non-GAAP diluted EPS in the range of a loss per share of $1 23 to a loss of $1 eight.
With respect to income taxes, we expect the full year impact of income taxes to range from a tax benefit of $5 million at the low end of the guidance range to $4 $5 million at the high end of guidance range.
Operator. This concludes our prepared remarks, we would now like to open the call to questions.
Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our real quick once again. Please press star one to ask a question.
We'll now take our first question from Brooks O'neil from Lake Street capital markets. Please.
Thank you and good morning, guys. Appreciate all the comments I guess I'll start off by mentioning that I had a long talk with another CEO yesterday, who was also involved with trying to get some laboratory testing done.
And he mentioned to me it was what I would call a highly variable environment.
And a lot on who the suppliers are depends a lot on the labor situation at those suppliers the workload et cetera.
How confident do you feel in your lab.
Testing partners that youre going to be able to get the work done on surveil in a timely fashion and get it get that whole submission buttoned up for the FDA.
Quite confident and in fact, we chose not to go shopping around the type of.
Data, we have to generate a very highly specialized and all.
Several of our R&D is depending on the type of tests, we have to do but these though lab partners, we would not want to switch from them because of expertise through the whole survey of programs. So they are running the test it's simply is a.
Back up.
Testing and some of these.
Our 30 plus day studies, so really we can compress that time as well so quite confident the issue for us is.
Really the pursuit of trying to get this PMA before the end of the year the calendar year.
Theres a certain amount of time left when the submission as complete and Thats 90 days left on the clock. So you can imagine the end of September .
As a critical the Flores.
On the other hand, there are some reports and analyses that we simply cannot rush.
Sometimes speed and complexity don't mix.
And the data we're looking for is to be quite accurate and interpreted.
In an accurate manner as well so.
We're doing everything we can to pull it in but at this point the quality is much more important to the final submission to the agency than saving a week or two if we can we will ship, but Chuck compromising, but I would say net net highly confident at all.
Org partners as they have done this for many years with us.
Great.
I know, it's probably dicey to comment on anything from Abbott.
Would you I mean, I'm guessing, they're probably not going to even start ordering it.
Inventory.
Before you get final approval from the FDA so.
Whats your expectation is for free but youll get the approval and then.
Everybody, a really crank up and try to get movement when were in 2023.
I can see two things have been very impressed.
<unk> meetings with the avid commercialization team and their leadership so.
Sure.
The partnership I believe is very anxious to be in the market now there has to be some prudence to that because these products don't have an infinite shelf life.
So even though we would all want to be in the market sooner rather than later I think we have to look at the supply chain the manufacturing and the shelf life. If you build things too. Early then you have a lower shelf life naturally so I'm sure. We'll work these things through with them, but I.
I feel very positive about their commercialization intent in the meetings that I've been with final decision has really come down to the expected timing of this PMA and.
Given the agency it's still there.
There is still a tolerance man with therefore, a couple of months because the clock does stop for questions. In the 90 day period. So we're working through that as soon as we have clarity on the <unk>.
And the date that we can complete the submissions will be able to communicate that back to Abbott to say its clock time now.
I'll just add a little color on to Gary's comment here Brooks for everyone on the call today.
Abbott has communicated several times that it's our intent to launch surveil following PMA approval and and I will tell you that we've shared publicly as well.
To fulfill or satisfy the Abbott stack in order it could take up to four months, so abbott's aware of that as well.
We're making great progress as Gary mentioned in terms of discussions and communication with Abbott.
Our commercialization team and I'm hopeful that we'll have a bit more to discuss on this topic here on an upcoming call.
Okay. That's great. Let me just ask you two more hopefully quick ones, but.
Obviously, youre gaining experience with the direct selling model I'm just curious if you could.
Compare and contrast kind of what you see from the direct model in terms of pros and cons versus what you've seen historically from your partnership model.
They're both quite different and the partnership models of these devices will really slotted in four specific needs of the strategic companies radar customers.
Direct.
In the direct model, though these products.
Our new to the world they require.
They are not part of our portfolio. So what we like about having our direct sales team is that this is their focus they are up 50 other things in the bag, there's not although sales contest or promotions for different parts of the portfolio being our portfolio.
<unk> have the focus and I would say the resilience.
Because these products are breaking ground in how healthcare is conducted.
The treatment of probation isn't that's intrinsically a bit more difficult in the early days of market entry, so the control and intensity and I would see the connection and feedback from the health care practitioners is is highly valuable to us.
In terms of the feedback for our product portfolio, we are industry and know, how we need to navigate and what our future pipeline need set up to.
Which is something it's very hard to hear that.
From all our B to B customers because they are on the frontline and then telling us about it.
Theres always some transmission.
Noise and things like that but our team hearing it being in the Cath lab is quite different and positive environment for us.
Absolutely that's great I'll just ask one more I appreciate all your comments. This is kind of a conceptual question. So historically last couple of years, you've invested 50% plus of revenue in R&D.
Im expecting a fairly significant acceleration in revenue growth and profitability as we get surveil approval in some of these other products move into commercialization so conceptually.
Are you thinking that 50% plus of revenue and R&D spend is whats likely to continue or are you more committed to that.
Whatever it is $3 40.
I forget what the number is for R&D spend right now.
How do you think about that.
It's from an algebraic viewpoint I would expect it to go down if the revenues that we see go up we're not committed to keeping our percentage of R&D depends on what's on the table for us to work on as you know Brooks.
The drug delivery programs.
Cle R&D intensive and expenses and time over time, and so as we look at the partnerships for <unk> and Sundance.
We expect a lot of that will be through the partnership income from our partner as well so net of that our thrombectomy and sublime platforms. The absolute amount we put in there you should see a decline I don't want to I don't want to be abundant unpredicted, but you can imagine if we expect to see double digit.
Growth, we will see that R&D percentage come down over time and book just one other thing just going back to your last question Thats different sure.
<unk> versus direct.
Your thoughts.
When our customers.
To have supply chain disruptions.
They can send us parts to work on and that impacts our revenue and so.
We while we all have supply chain issues and I'll just tell you it's pervasive in the industry.
When it's revenue dependent on customers, having their supply chain issues resolved.
That puts us at a little bit of a disadvantage as it has been this quarter. So we like controlling the supply chain, a little bit tighter with our direct products still difficult, but one less level of lack of control.
Sure great. Thanks, a lot appreciate all the comments thanks.
Thanks.
We will now take our next question from Jim Sidoti from Sidoti <unk> Company. Please go ahead.
Good morning, and thanks for taking the questions just to follow up on the supply chain and inventory issue.
If you look in your company your inventory was around $7 million at the beginning of the year.
To almost $11 million.
End of the third quarter.
Is that.
Primarily finished goods or is that just the increased raw material hedging.
Hedge the impact of the supply chain challenges.
Great Jen I. Appreciate the question you will see in the 10-Q, which will be filed shortly.
Composition of the inventory youre going to see that probably.
About two thirds of the inventory balances really kind of more materials and work in process.
Third as finished goods and we had been deliberate and I think we've made the comment here in the last couple of calls we've been really looking to get in front of some of the supply chain challenges and philosophically we've been carrying.
Inventory at levels greater than what we have in the past.
And certainly a significant amount of the growth as you mentioned from seven to almost $11 million is really reflective of a lot of the things that we're doing here both on the commercial readiness activities with surveil, but also both with our <unk> platform and our <unk> platform.
Our view is that we feel comfortable where we're at clearly there are certain items and the supply chain that continue to have long lead times and have some risk.
But I do like where we're at with the inventory level at this point and I think if you think about it relative to the product sales product sales have been increasing substantially double digits every quarter. These last few quarters. It kind of gives you a little bit of a perspective in terms of how we're thinking about the future as well. So it's both about preparing for the future and making sure that we're.
Mitigating risk.
And.
I'll give you an example, Jim Paclitaxel is $800.
Plus or minus a gram so.
We have to have an assured supply of paclitaxel, So if Tim and I have to make a decision to buy a kilogram of Paclitaxel will serve us for quite a long time, we need to make sure. There is no risk in key products like that.
So it sounds like part of the increases is your preparation for the launch of some rail.
Correct.
Okay.
In terms of salespeople do you think.
This level of around 30 professionals is about right or do you think youll continue to add.
I feel good where we are right now clearly we're not long term not going to be competitive with 30 salespeople, but what for what we have on our plate right. Now we believe it's an appropriate amount to have that critical mass to demonstrate.
Revenue success we.
We'll wait for the fourth quarter earnings call to talk about our philosophy and goal as we grow but clearly this is part of our commitment to not over extend ourselves and to be efficient users of capital. There. So 30 feels right we may add.
Some field clinical support which is an essential part of creating a sticky business.
But I like where we are right now.
Okay in terms of financing.
Is this something you think you'll continue to need long term or is this just kind of a bridge to get you through.
This approval for severe Allen and the associated payment.
We'll use that payment to pay down the final whatever financing you borrow.
Before that.
Yes, Jim I. Thank you for the question I think the way, we'll talk certainly a lot more about this going forward as we provide guidance for 'twenty, three and beyond but youre thinking about it the way we think about it we.
Look at this as really kind of a bridge.
And really to help just gave us we consider good housekeeping clearly there are challenges in the macro environment.
So it really provides us with the ability to both.
Mitigate risk.
And also gives us the opportunity to <unk>.
<unk> optionality in terms of future decisions, but we think we've got a business model and we've got a plan and products that suggests and support long term growth and we expect that that growth will be will be valuable in the future.
And putting additional financing on the balance sheet will just help us to achieve our longer term goals.
Got it alright, that's it for me thank you.
Yeah.
Thanks, Dan.
As a reminder to ask a question. Please press star one.
We'll take our next question from Mike Matson from Needham <unk> Company. Please go ahead.
Yes. Good morning, Thanks for taking my questions.
So I wanted to ask a question that I got a lot back when a few years ago. When I picked up coverage when you kind of embarked on this whole product solutions strategy and Thats.
Whats the risk here that you.
Some of your coatings customers given now competing with them I mean, originally you were intending to just kind of provide products to some of these companies and let them sell them, but you've taken it even a step further now with your own sales force. So.
Is there some risk that that noise. Some of these coatings customers and they start trying to shift that business away from you guys.
Yes, it's something we have put a lot of thought into as we looked at positioning what we're trying to achieve.
Sure.
Some of these spaces, we're not directly competing with our customers.
I think some of our customers are looking anxiousness received we make headway in some markets.
They meet somebody wanted to enter.
The way I look at it as it may have explained in the past that we have.
Really strong firewall, another firewall with a wink wink nod nod.
<unk> two separate types of team members set.
Separated both.
Different facilities and also in what we share so when customers send the supply customer supply product.
R&D team working on our proprietary products does not have any interaction with the R&D team, helping in the commercial development drones. So.
And it is it's a very high bar and a very ethical firewall for us.
Our customers some of them anxious I would say that's a varying degree with 30 salespeople I don't think anyone sees us as.
Existential threats to their business, but I do think they are observing us and seeing how far and what our level of success.
So far the customers I've dealt with the diesel to large strategics have not expressed.
Great concern at.
Ill just add on Mike just to provide a little bit more context, we haven't seen it yet we've not seen any of our customers and pharma said they want to terminate the agreement we have not seen any of our customers that we're aware of switch the coating from.
<unk> put into a competitive coating on existing product or <unk>.
Existing products, so we're not seeing any of that.
I think it's important for individuals to be mindful that within our coatings business. We have about 150 licenses customers. They already compete against one another and so that competitive discussion.
Discussion already exists and it's with other companies not named <unk>.
I think we've established a lot of trust over the 42 years, we've been in business and I don't think we're ever going to jeopardize and have reputation risk by taking advantage of.
Our understanding of some of the development activities that our customers are pursuing we continue to get and see the same level of development feasibility and optimization programs that we've seen over the past.
Seven years, so we're not seeing anything that would suggest.
That our customers are viewing our relationship any differently than they have been doing that over the history of our relationships I think a lot of that has to speak to the coatings team and their professionalism. The service that we provide and the value proposition of our coatings. So.
It's not it's not an area that I quite frankly spend a whole lot of time thinking about but I can guarantee our code and CMS.
Yes.
Okay. Thanks for that comprehensive answer.
I guess.
The other.
Challenge of dealing with Youre covered the company now for almost four years or over four years and <unk> been doing this whole product solutions.
Strategy for that period, and we've yet to really see any material revenue from those as far as I can tell you spent a lot of money on R&D and marketing efforts.
So.
You have these 30 reps now you have some interesting products with power supply.
I mean is 23 going to finally be a year, where we really start to see some some revenue from the from this effort.
Okay.
I expect so Mike.
Ill reiterate maybe what I've said in the last earnings call.
We're doing a very difficult pivot as.
Public company most of the companies who have gone public.
Currently considered unicorns, the messy first year or two.
Kind of public feeds they went in front of the public and so I would say we are still.
You heard us our average tenure of our sales person onboard is five months. So let's just be realistic about what that commercialization revenue should look like in 2022, but you are right in 2022, we expect that to accelerate.
And get to get to that double digit revenue growth for the for the direct model products now the one thing I would say is when in the last 34 years, he's still in market entry.
Until your sales force has been on a weighted average onboard for a year and that is if you've checked the.
Publicly available data off the comparables that we'd like to be compared with someday. Soon you would say you would see that empirically we're on track.
Being public and doing making the sausage.
The public markets in the first year is exceedingly difficult, but we are confident in where we're heading in 2023. So the short answer is totally understand your point, but the keep in mind the empirical growth curves there when you see them after they've gone public.
<unk> already trips skin their knees worked out the bugs for a year or two beforehand.
Okay. Thanks, and then just a couple of product uptake.
<unk>.
Apologize if you went through some of the stockpile during the call all right but.
Can you just give us an update on where things stand with the other <unk>.
Indications for the drug coated balloons I guess.
Averse and.
Forgetting the name of the below the knee you want and then.
And then for Paul.
What's the latest thinking around the penis.
Clarence.
Okay.
Okay. No. Thanks, So first of all I will see.
The take home message from me in this call as we have absolute clarity on what we need for surveil I cannot overstate, how big that was and what a big shift that was from our last quarter earnings call in terms of working through the FDA and that is something I feel really good about getting that clarity is half of the issue of getting the PMA. So thats.
That's in the bag, we've just got to do the doggone tests and get through the supply chain issues and get the results and I feel very confident in what the results will demonstrate as SaaS ongoing for Sundance.
As another multinational has expressed interest.
Clearly we could not.
You see that during the exclusive option period with Abbott. So I believe that we will be progressing.
Sundance the date.
I think it's terrific and Thats why Im excited if we can publish that are submitted for presentation at least on the podium later, the CSO or shareholders can actually see.
The merits of that below the knee Sirolimus technology as I said on the call I don't anticipate as the gearing up for an <unk> submission.
In our pivotal is best done with a partner because of the decisions that need to be need we were quite clear. When we did surveil. We went ahead and started that process there without a partner because we were quite clear the tracks, we will following in and below the knee disease.
There's still some debate of whats the best trial design and how best to conduct it and I'd hate to get ahead of a potential partner and cement those decisions before they are involved.
Also as a partner it could help defray some of those expenses as we go forward as well.
The issue for Us really is.
We believe in the product, but the reimbursement that we expected to come through from the prior strategics working the system with CMS, we haven't seen that come through yet I think ultimately they will be successful.
<unk> four and <unk> to really have a strong market total attainable market will require I believe some some adaptations in the current reimbursement profiles.
EV fistula.
Stenosis is one of the largest costs in Medicare and if you have devices that actually reduce that.
The.
The increase the patency I think I've seen other companies data, we're talking about billions of dollars in health care cost savings I believe CMS needs to move on that and that will open up that market. So the interest in averse is two things one is.
Everybody is waiting it's a similar product to surveil, it's almost identical so I believe the interest will actually grow when we have demonstrated we have gotten the PMA for assuming the two are interlinked that way so almost a slightly different because its a different drug there.
As far as pounds pumped arterial feel really good where we are we have I believe.
Lets say thats, a fighting words, but the.
The only and probably unopposed mechanical thrombectomy in the arterial space that's building a real large clinical profile.
Venus look I was disappointed what came off the first batch of manufacturing lines, we clearly had some issues with that first batch.
Which led us to have very limited product from the first batch. So we're recouping from that but there are some intrinsic changes we need to make for that to make sure that doesn't happen again the product. We do have that we can get into the clinic.
We have to to use it in a certain manner, which doesn't make it optimum for the results. We hope to see you derived by treating the patient as they would treat an open commercial environment. So.
That's going to take us.
It's not in the it's not in weeks it might be a couple of months.
For us to figure out how soon we can get that back into the market to get the clinical evaluation going again.
Still highly confident in the product to but these things happen, sometimes in the manufacturing and design environment.
Okay, just a follow up so the pounds VNS.
The gating factor there is this manufacturing issue as opposed to can you remind me is it cleared right now for venous user.
Okay.
<unk>.
It has both a CE mark and FDA clearance, yes.
Alright. Thanks.
<unk>.
Recall that we do a very intensive limited market evaluation, because the bonds venous product has been used the 19 patients, but we really like to get 30% to 40 patients under our belt before we go to a broad commercial environment and so some of the early learnings from manufacturing and impact.
We are having also on some of the design elements of what we're looking at and saying what do we need to do to get it into the hands of customers, where we're not hovering over the product while it's being used let's put it that way.
Okay got it thank you.
As a reminder to ask a question. Please press star one pause for a moment.
There are no further questions at this time I would like to turn the call back to your speakers for any additional or closing remarks.
Well listen thank you everyone for your time on the call today, and we look forward to updating you next on our fourth quarter earnings call take care.
Thank you that will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
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