Q3 2022 Silk Road Medical Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day, and thank you for standing by.
Welcome to the Silk Road Medical's 2022 third quarter earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question answer session.
Ask the question during the session you will need to press star one on your telephone you will get into an automated message advising you had it right.
Please be advised that today's conference is being recorded.
Now I would like to hand, the conference over one of your speakers today Marissa Baisch Marissa. Please go ahead.
Alright. Thank you for joining today's call. Joining me are Erica Rogers, Chief Executive Officer, and Lucas Buchanan, Chief Financial Officer, and Chief operating Officer.
Earlier today Silk Road medical released financial results for the three months ended September 30.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1095.
Fitments contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
All forward looking statements, including without limitation those relating to our operating trends and future financial performance expense management expectations for hiring growth in our organization physician training and adoption market opportunity and penetration commercial and international expansion regulatory approval reimbursement competition.
And product development 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, you should not place undue reliance on these statements.
For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August nine 2022.
This conference call contains time sensitive information and is accurate only as of the live broadcast today November eight 2022.
Suffered medical disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements because of new information future events or otherwise with that I will turn the call over to Erica Rogers Chief Executive Officer.
Thank you Marisa good afternoon, and thank you all for joining us.
As pre announced we achieved revenue of 37 $4 million in the third quarter buoyed by over 5250, T car procedures, representing 51% and 55% year over year growth respectively.
Two substantial drivers of line for the first time, enabling our exceptional performance.
First was relatively more normal healthcare operating environment.
And second we began executing against the full addressable market in the U S carotid artery disease treatment, marking the early stages of an exciting trend and paving the way for ongoing momentum in <unk> adoption and utilization.
Our strong commercial execution comes on the heels of recent FDA label and Medicare coverage expansion for the use of T car in standard surgical risk patients.
These achievements to open up our addressable market to include all patients eligible for <unk>.
We estimate this to be over 430000 diagnoses and approximately 170000 procedures annually.
Representing a three 2 billion dollar opportunity in the U S.
Our expanded label supported by robust clinical evidence now in the tens of thousands of patients offers physicians a minimally invasive approach for all of their eligible patients who may benefit.
In a sense. This was the first time in over seven decades that a minimally invasive procedure for carotid artery disease was on a level playing field with open surgery.
And while a paradigm shift doesn't happen overnight. We are encouraged by our early results as we push T car towards the standard of care.
We know that every patient faces the risk of a surgical complication from invasive surgery, and we are committed to driving increased awareness and adoption of the less invasive <unk> approach.
To that end, we maintain our patient first commitment with multiple campaigns underway to drive home the benefits of T car.
These efforts are targeted towards both physicians and patients and include real world patient stories, and testimonials highlighting quality of life after T car <unk>.
Direct patient feedback comparing recovery from T car versus cei, and social media and website strategies aimed directly at patients and their families, including through our bespoke patient portal protection from stroke Dot com.
Momentum is building and positive feedback from our sales team and our customers is palpable.
<unk> are now evaluating key car suitability for their patients based on their individual and unique clinical presentations rather than first screening for high surgical risk factors. This enables superior care and a tangible shift in sentiment as more experienced T car users begin to.
Extend their reach into a broader patient population.
It remains early days, but we are excited to see many of our physicians increasing T car utilization and in fact, our most recent physician tracking survey more than half of responders said, it's easier to choose T car when they don't need to consider surgical risk criteria.
Yes.
In addition, we continue to see excellent momentum in clinical publications coming from the vascular quality initiative or <unk> with 55 publications in 2022 to date for.
For example, just last week at the Viva Conference and analysis of over 124000, <unk> patients who underwent carotid revascularization between 2015 and 2020 was presented by Dr. Caitlin Hicks.
After adjusting for baseline demographic and clinical characteristics, the odds of Peri operative stroke as well as combined stroke and death were lower for key car versus carotid carotid endarterectomy and high surgical risk patients and similar.
<unk> in standard surgical risk patients.
In both patient populations T car patients had significantly lower odds of myocardial infarction than carotid endarterectomy.
These data have now been published in the journal of vascular surgery and the authors concluded that their data support the use of <unk> in standard surgical risk patients.
Looking forward as we build upon our robust clinical evidence base.
Enrollment in roadster three our post approval study designed to assess the real world treatment or standard surgical risk patients is underway with the first patient enrolled in early September .
As a reminder.
This prospective single arm study will enroll a maximum of 400 patients across roughly 60, leading clinical research sites and the primary endpoint is a composite of death stroke or myocardial infarction through 30 days post procedure plus.
Ipsilateral stroke from day, 31% to $3 65 post procedure.
We are excited to add prospective data to the already compelling real world clinical evidence for key car in standard surgical risk patients and we look forward to updating you as the study progresses.
Now I'd like to touch upon some of our key commercial metrics as a reminder, we exited 2021 with a presence in nearly 1000 hospital accounts that performed the majority of carotid procedures in the United States, We have a critical mass of almost 2100 trained.
<unk> served by 58 active sales territories and I am pleased to announce that we have hit our goal for active sale sales territories. This year with ongoing training for the next tranche in sales reps underway.
Regarding trained physicians as.
As we have at various periods in the past, we decided to react to the very strong demand for our educational programs and we now expect to exceed the high end of our goal of training 200 to 300 physicians this year.
On the product innovation front I am pleased to share the recent clearance of our on route inflate Trans carotid rapid exchange balloon dilation catheter or in fleet for short.
First balloon purpose built for key car and the fifth product Anarchy car portfolio.
We are planning to begin a limited launch of inflate this quarter rolling into a broader market release next year, we do not expect measurable revenue from our limited release this year, but we do expect a slight lift in the procedural revenue for key car in 2023 and beyond.
Well, we remain laser focused on the U S commercial opportunity, we are making progress with ongoing initiatives to expand our commercial presence into international markets.
We recently received shown on approvals in Japan for both are on route neuro protection system and the on route stent.
These approvals mark an important step towards pension penetrating the estimated $2 3 billion dollar international market opportunity ahead of us.
Our next steps include assessing the reimbursement process and post market study requirements, which will further define our pathway and timeline to launch.
We are also making steady progress in our non feasibility trial in the setting of acute stroke thrombectomy.
Although it remains early we've already learned a lot about our potential here and our investigators are enthusiastic about the future of neuro protection in Trans carotid endarterectomy.
Turning to our outlook for 2022, we are raising our full year 2022 revenue expectations to a range of $134 million to $137 million and we now expect to exceed 19000 total <unk>.
Seizures performed this year, which would represent over 11% procedure share in the U S market.
Lucas will provide further details on our outlook shortly.
In summary, we are thrilled with our progress this year and feel momentum building for key car as a result of our growing commercial presence and recent label expansion.
Having recently participated in World stroke day on October 29th we Couldnt be more excited about our long term potential to reduce the devastating burden of stroke for patients and their families.
With that I will turn the call over to Lucas Buchanan, our Chief Financial Officer, and Chief operating Officer.
Thank you Erica revenue for the three months ended September 32022 was $37 4 million, a 51% increase from $24 7 million in the same period of the prior year.
Growth was driven primarily by growing <unk> adoption.
The number of CCAR procedures in the quarter was over 5250, representing a 55% increase from the same period of the prior year.
Adoption trends as measured by procedures per physician continued to increase across all core titles of our trained physician base.
Not just quarters, but years from initial training.
No time and experience drive durable and growing adoption and we are excited about the future given our significant progress in training physicians over the last few years.
As anticipated our top users are leaning in early and many of them have already successfully performed a CCAR kind of standard surgical risk patient.
We see significant greenfield opportunity remaining across our trained physician base.
Gross margin for the third quarter of 2022 was 75% equal to the third quarter of 2021.
While we took on increased manufacturing overhead costs associated with our Minnesota facility. These costs were partially offset by the increased volume relative to the same period last year.
Additionally, with Minnesota coming online for commercial production.
Third quarter. This necessitated that we revalue our standard costs.
The revaluation resulted in an increase in standard costs as we capitalized additional expense into our inventory balances.
Thereby decreasing cost of goods sold and benefiting our gross margin in the quarter.
With two manufacturing facilities now in mind for the on route Neuro protection system. We continue to expect slightly lower full year 2022 gross margin as compared to 2021.
Total operating expenses for the third quarter of 2022 were $37 3 million or <unk>.
17% increase from $31 9 million in the third quarter of 2021.
R&D expenses for the third quarter of 2022 were $8 5 million compared to $6 9 million for the third quarter of 2021.
The increase in R&D spending was driven by growth in personnel as well as continued investments in ongoing product development and clinical programs.
Sales general and administrative expenses for the third quarter of 2022 were $28 8 million compared to $25 million in the third quarter of 2021.
The increase in SG&A spending was driven primarily by growth in personnel and higher travel expenses in a more normalized environment relative to last year.
We continue to expect a modest sequential increase in total operating expenses into Q4.
Net loss for the third quarter was $10 3 million or a loss of <unk> 29 per share as compared to a net loss of $13 9 million or a loss of <unk> 40 per share for the same period of the prior year.
We ended the quarter with $105 $1 million of cash cash equivalents and short term investments.
And we are very pleased to have recently bolstered our balance sheet through the completion of our follow on equity financing, which fully closed on October 25.
This funding added almost $109 million in net proceeds to our balance sheet and provide substantial additional flexibility and support of our business and growth initiatives.
Quickly touching upon our commercial progress as Eric mentioned, we have hit our goal of reaching 70% to 75 active sales territories and we anticipate exceeding the high end of our prior guidance for 200 to 300 newly trained physicians in 2022.
Which would bring our total trained physician base to over 2004 hundred.
With our commercial team expansion efforts, we continue to drive more touch points with physicians and we continue to see that increased engagement is an important driver of adoption. We've now seen sequential growth in procedures per physician per quarter for four straight quarters.
On the operations front, we are making meaningful investments in our platform as we drive to operational excellence and scale with an eye toward a future of CCAR, becoming the standard of care.
Our manufacturing operations in Minnesota are officially online as of September with commercial on route Neuro protection system units now in production alongside our existing manufacturing operations in California.
The new facility enables a sustained substantial step up in manufacturing capacity and resiliency.
We also continue to work closely with our contract manufacturers component and material suppliers and other vendors to manage and mitigate risk throughout our supply chain.
Labor related issues continue to be a challenge with our vendors, which has manifested in longer lead times and cost pressures.
That being said I'm very proud of our team's ability to manage and support our growth to date as well as drive operating leverage into the future.
Closing with our 2022 revenue guidance as Eric mentioned, we now anticipate full year 2022 revenue to be in the range of $134 million to $137 million.
Representing year over year growth of 32% to 35%.
Commensurate with our revised outlook, we now expect full year 2022 procedures to be over 19000 <unk>.
Flying over 11% penetration of our core market.
Our revised guidance accounts for our strong performance year to date, driven by growing tailwind from therapy adoption. As a result of our continued efforts to drive greater physician utilization and supplemented by our recent label expansion and the more normalized health care system operating environment.
While we are not guiding beyond this year, we have said that we expect standard surgical risk label expansion to provide a gradual layering effect to our growth in 2023 and beyond and that expectation remains intact.
With that I will hand, it back to Erica for closing comments.
Thank you Lucas.
I'd like to close by reflecting on our Kols event, we recently hosted at our new facility implement Minnesota.
Across several physicians with varying levels of experienced two themes from the dialogue were clear.
First the immense importance of decision, making based on data and clinical evidence with key car safety efficacy and minimally invasive nature in focus.
And second the importance of the high patient satisfaction associated with T car.
As we continue training and educating physicians about the benefits of <unk> and as we widen our approach to reach more patients. We are confident these themes will resonate steadily driving T car tour this standard of care.
With that we will open the line up to questions.
Operator.
Thank you.
At this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one to one on your telephone and wait for your name to be announced.
Stand by while we compile the Q&A roster.
And our first question comes from the line of Robbie Marcus.
At J P. Morgan please.
Please proceed with your question.
Hi, This is robin on for Robbie.
My first question is just related to the updated guidance for this year and 540 stepped down at the midpoint and I was just wondering if there was anything onetime in nature in this quarter or planned for fourth quarter that you could comment on.
That could kind of give us more color into this thanks.
Sure I'm happy to take that one.
And give a little bit more color. There. So I think it's important to note that we do expect continued increases in procedures per physician and revenue per day and those types of metrics offset by slightly fewer selling days in Q4 relative to Q3.
And our guidance also accounts for some kind of continued uncertainty and friction.
As you stack up kind of staffing shortages in pockets throughout the country kind of the uncertainty of flu and Covid season.
Typical holiday seasonality and to a lesser extent.
Some hurricane recovery.
And an important state and Florida, and so that gets us to roughly flattish at the midpoint as you point out and those are some of the puts and takes but overall the momentum in the business.
The strong.
And then I guess another question is just what sort of contribution contribution are you expecting next year from Glee.
Without providing obviously formal guidance, how should we be thinking about kind of growth and adoption in 2023.
I missed the first part of your question can you repeat.
Yes, sorry, with the contribution from fleet.
Oh, Okay got it.
Yes.
Okay.
Yeah. So on the balloon we will have more to say on that at the Q4 call. Obviously, we are building up inventory and as we said in the prepared remarks, we will we will start a very limited launch here in Q4.
The way to think about it is it's kind of a third accessory.
And the lineup of CCAR products.
A stent in the neuro protection system remain the flagship devices from a from an ASP and gross margin perspective, but.
The now three accessories, all add to the speed ease and convenience and are important drivers of adoption of the therapy and so there will be a modest lift to the kind of per procedure revenue opportunity.
And we will learn a little bit about utilization trends.
From the early market release, and then into the broader market release later in 2023, so more to come on that front.
Great. Thank you.
Thank you Robert again, just a reminder to ask a question. Please press star 101, a telephone and we plan aimed to be announced.
And our next question is going to come from Rick Wise of Stifel.
Please proceed with your question.
Thank you very much.
Erica maybe just.
Right off with a question I've asked too many times.
And I feel like your commentary at the start of this call through supports the idea that we really are at an inflection point.
You are encouraged by early results you said momentum is building many doctors are accelerating their T car use.
Is this the moment where.
You've removed the sand from the gears.
We can expect.
Really significant acceleration from here.
Hi, Rick Thanks for joining US look we couldnt be more pleased with where we stand today and first of all the label and coverage expansions around standard surgical risk.
Giving us full access to the broader market opportunity.
And as you heard in my remarks, I think where physicians are getting excited is they no longer have to think about what is the surgical risk criteria that qualifies as patient for key car as their first.
Set of questions around this particular patient and so there is significant sand being removed from the gears if you will.
That said, we've always said there is a kind of gradual layering a factor of gradual crescendo and the reason for that is each individual surgeon has their own kind of inflection point, and we said that time from training and as well.
Age of the physician are two important pieces to adoption and thirdly of course, the number of touch points from his silk road sales professional so all of those things kind of add up to this what we would characterize as a layered effect rather than.
The entire school of fish switching all at the same time.
Gotcha.
And maybe one for you.
Lucas.
Maybe a little more color on gross margin.
How much contribution from the inventory revaluation.
I don't know if I should be asking about.
<unk>.
How would you see normalized gross margins in the quarter.
Because it just as a platform to frame and thinking about the fourth quarter next year.
How are you how would you have us think about gross margin from here.
Sure. Thanks, Rick.
Put it in the context of kind of the gross margin throughout this calendar year.
Q1, and Q3, where we're slightly average for different reasons Q1, we had part of our production workforce out sick with omicron and in Q3, we had kind of this accounting methodology, where expenses that were previously going through the P&L were capitalized into into <unk>.
Inventory on the balance sheet.
Whereas Q2 was somewhat more normalized in Q4 will be somewhat more normalized.
And so I think if you look to Q2 as a guide to Q4 and the full year.
We'll get to kind of.
The normalized gross margin and obviously, we've invested significantly in capacity and resiliency and the two facilities and now they are up and running in.
Going forward as we increase.
That volume into 2023 and beyond against that fixed overhead we will have the opportunity to.
To gain further assuming we can control costs on the supply chain side and control price on the customer side.
If I could sneak in one more here.
In announcing your recent transaction lift and long.
Yeah.
Laundry.
<unk> of your thoughts about proceeds and how you would use them.
The first with Salesforce expansion and operations increasing R&D.
I'm sure you remember the lift but your new facilities in place you are telling us that at least for the moment yourself expansion is done help us think through.
<unk>.
Your your priorities from here your investment priorities and sort of what's next.
Now greater financial flexibility. Thank you so much.
Sure.
Many of the things you touched on it is more commercial team expansion and.
On the R&D side.
Our focus first and foremost is to continue innovating and Iterating CCAR for the for the core U S market.
But obviously, we have the whole global opportunity, which is primarily our clinical and regulatory spend.
So it's relatively capital efficient and then we have the broader intellectual property portfolio and list of long term growth drivers.
Leveraging trans carotid technologies and core competencies into quote unquote nearby disease states going north of the carotid and south of the carotid. So those all continue to be.
Areas for investment opportunity, but we're being very deliberate deliberate deliberate excuse me.
About how and when and where we spend as we make progress across those dimensions.
And.
Asleep.
The debt financing earlier this year and the recent equity financing.
Give us a lot of financial flexibility.
As we push this business forward and I'll also just quickly add.
That.
This quarter was the first quarter were.
Opex was not greater than revenue it was roughly the same and so.
So we are having.
Made a lot of investments to date, we're looking forward to leveraging those investments into the future against a growing top line.
Thank you.
Thank you Rick.
Our next question will come from Adam Nida.
Of Piper Sandler.
Adam you will have the line in just a moment.
Hi, guys. Hopefully you can hear me okay. Thank you for taking the questions and congrats on the progress.
Maybe to start I wanted to circle back on the implied Q4 guide.
Lucas I think you've talked about some of the puts and takes and headwinds like selling days staffing holiday seasonality, but.
When I look at even the top end of the implied Q4 guide it only assumes a low single digit growth quarter over quarter, so feel pretty modest and conservative.
Versus historical seasonal pattern. So in that context any color you can provide on the business in the month of October and early.
Early November or should we really just interpret this as a good degree of conservatism and then I had a follow up or two.
Yes, Im not sure history as our guide here and a rapidly growing business, where the pace of inputs in terms of sales territory expansion and physician training and those things against.
The big variations in pandemic effects.
Lack of normalized kind of operating environment due to staffing in contrast, and other issues and so.
Again, I think we've raised by.
More than that in the Q3 beads with some.
Caution around the puts and takes that we mentioned in the prepared remarks, and you just reiterated and so it's a balance between the momentum in the business.
Some of those some of that uncertainty.
Okay understood and appreciate that that color.
And then maybe to follow up I did want to ask about the inflated balloon product.
I do understand that more details it can be shared at a later date, but.
At a high level could you just help us understand exactly what that product does do you envision it will be used in all CCAR cases or specific patient anatomy, and then I think I heard slight lift to asps in 'twenty three.
Can you frame up what you mean by slight thank.
Thank you.
Sure I'll take that one Adam thanks for joining us I'll take the latter part first.
You said the.
The way to think about the inflate balloon is it really falls into the category of an accessory product similar to our micro puncture kit and others that really improves the speed ease and convenience and safety of T car the <unk>.
<unk> shipped products from an ASP point of view continue to be the stent and the neuro protection system.
So that should give you a sense of how we kind of calibrate what insulate will do for the procedural ASP.
As it relates to how it will be utilized in kind of the rationale.
Our balloon is used.
In two parts of the procedure potentially first to prepare the lesion for this debt if the physician feels like he wants to gain or if he wants to gain some additional luminal diameter for example.
Before placing that stent, there can be a balloon angioplasty of the lesion and then the stent is placed and Furthermore, once the stent is in place there.
There may be a need to further expand the stent or touch it up.
With a balloon inflation.
Balloons have been used to date and T car, but they have been using peripheral balloons design for use in the in the leg vasculature, primarily which arent ergonomically ideal for use in a T car case and so we took all of the things that we know about safely gaining it.
Into the common carotid artery and put that into a design of a bespoke balloon for this procedure.
That's really helpful. Erica Thank you for that color and if I could sneak in one more if you don't mind just on Japan, Congratulations on Shogun approval.
It sounds like next steps our reimbursement.
And in the post market approval study.
Wondering if you can give us any.
Broader thoughts on timing there really the simple question is should we have any revenue dialed into our model in 'twenty three or is it more likely a 2024 contributor. Thank you so much.
Yes, sure Adam So first of all yes, we are thrilled with the approval in Japan.
And as you probably know Japan is kind of a methodical progress toward commercial.
Launch and it really starts with the approval of the <unk>.
Things that we are thinking about and working on now are the reimbursement submission. The post market study requirements and of course really understanding the best kind of go to market strategy in Japan, as we've said before Japan is a relatively small market compared to say for example, the U S.
Or China, but it is strategically important to us because we like the neurosurgery call point, which is the same clinician performing neuro interventional procedures as you probably know.
And so.
Way to think about it is.
It's not it's not revenue in 2023 and perhaps longer.
Bill.
Yes.
We will wait to give you more clarity on that.
Okay understood. Thank you.
Thank you Adam at this time I would like to turn it back to Erica Rogers for some closing remarks.
Well. Thank you very much for joining us we couldnt be more pleased with our progress in the third quarter.
You again.
Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
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