Q1 2023 Surmodics Inc Earnings Call
Speaker 2: And.
Speaker 3: So it I another.
Speaker 4: F.
Speaker 5: Welcome everyone to Cermotic's first quarter of Fiscal Year 2023 earnings call.
Speaker 6: Please note that this call is being webcast.
Speaker 7: The webcast is accessible through the Investor Relations section of the Schermodics website at www.Sermodics.com where an audio replay will be archived for future reference.
Speaker 8: And earnings press release, the Sclosing Sermonics quarterly results was issued earlier today, and is available on the company's website as well.
Speaker 9: Before we begin, I would like to remind everyone that remarks and responses to your questions today on today's call may contain forward-looking statements.
Speaker 10: These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Cermotic's future financial and operating results or other statements that are not historical facts.
Speaker 11: Please be advised that actual results could differ materially from those stated or implied by semantics forward-looking statements.
Speaker 12: resulting from certain risks and uncertainties, including those described in SIRMATICS SEC filings.
Speaker 13: Thermodynamics disclaims any duty to update or revise these forward-looking statements as a result of new information, future events, developments, or otherwise.
Speaker 14: This call will also include references to non-GAAP measures because Cermotix believes they provide useful information for investors.
Speaker 15: Today's earnings release contains reconciliation tables to GAAP results.
Speaker 16: I would now like to turn the call over to Mr. Gary Maharaj, Cermatic's President and Chief Executive Officer. Please go ahead, sir.
Speaker 17: Thank you, operator. Hello everyone and thank you for joining us for our first-quarter fiscal year 2023 earnings call.
Speaker 18: I've stopped my remarks today with a brief review of our first quarter revenue performance.
Speaker 19: In the first quarter of fiscal 2023, we achieved total revenue of $24.9 million, representing 8% growth on a year-over-year basis.
Speaker 20: Importantly, our total revenue performance exceeded our expectations for the first quarter, which we shared on our earnings call in November .
Speaker 21: Our higher than anticipated total revenue growth was driven exclusively by our medical device revenue, which increased 12% year-over-year, more than offsetting a 3% decrease in our individual diagnostics or IVD revenue.
Speaker 22: Within our medical device business, our year-over-year sales growth was driven primarily by strong sales of our performance coding reagents and device products, including important contribution from sales of our pounds and sublime products.
Speaker 23: We also saw higher royalty and licensee revenue.
Speaker 24: In summary, we will largely please the DOWA revenue results in the first quarter.
Speaker 25: Tim will talk through our revenue and other financial performance, including our updated fiscal 2023 guidance, in further detail during his prepared remarks. But first, let me discuss some of the key operational developments during our first fiscal quarter and in recent weeks, beginning with an update on our surveilled drug-coded balloon.
Speaker 26: As we shared on our November earnings call, our regulatory and clinical team finalized our complete response to the FDA's comments on our survey PMA application, and we submitted our response to the agency on October 13th.
Speaker 27: On January 19th, we should press release announcing the receipt of a letter from the FDA related to our PMI application for surveil.
Speaker 28: In the latter, the FDA indicated that our PMA application was not approvable in its current form.
Speaker 29: We are understandably disappointed to receive this letter, given the hard work and dedication of our team who have been focused on working collaboratively with FDA to address your requests and provide additional clarification, data, and testing as necessary, as well as our numerous interactions with the agency in recent months. It is important to understand that you are not approval letter is not it.
Speaker 30: permanent denial decision. The agency provided specific guidance in terms of the information that must be added to our PMA application in order to place it in an approvable form.
Speaker 31: The information the agency requested was within two general categories, labeling and biocompatibility.
Speaker 32: With respect to labeling, the agency requested revisions to some of the language related to the device's patient labeling and instructions for use, and shared revised language incorporating these revisions. We view the FDA's labeling questions as generally routine and believe that it can be easily addressed.
And with respect to biocompatibility, the agency raised additional questions related to our non-clinical testing and requested additional data to address these questions.
First, let me say that we continue to believe that Servil is both safe and effective with clinical outcomes for patients that are equivalent to the current market-leading device while using a substantially low dose of a known cytotoxic drug, Paxotaxel.
These outcomes are reflected in the 24-month data from our surveilled transcended clinical trial, which represented the Viva conference on November 1st, and most recently at the ISED conference in January 18th, which demonstrated the sustained durability of surveilled safety and efficacy outcomes.
Specifically, these data demonstrated comparable sustained clinical outcomes between the Surveiled DCB and the Impact Admiral DCB cohorts through 24 months in both the primary and safety and efficacy endpoints.
despite the impact having 75% more packlet axel.
As it relates to the FDA led us specifically, I want to stress that the ledger did not question the human clinical data that we submitted, including the data from the Transcend Clinical Trial. Moreover, the ledger did not request any further human clinical data, and there were also no concerns cited.
with our large animal studies, our engineering. With that said, the questions and requests are received with respect to biocompatibility do require additional non-human testing and analysis to address.
In the day since we received the letter, our regulatory and clinical teams, in conjunction with our external advisors, have been focused on evaluating its contents and preparing to formally engage with the FDA.
Specifically, our team has had an informal call with the agency representatives and is now preparing a request to obtain feedback from the FDA review team through the FDA's Q submission process.
The goal of this request is to see clarification and obtain feedback on the specific requirements for the additional testing and analysis to address the items outlined in the FDA letter. Assuming normal timelines, we anticipate receiving the FDA's formal feedback on our proposed approach via this process in May.
In tandem, following the receipt of the FDA letter, we informed our commercial partner on the outlet and provided them with a copy of the communication.
Our interactions with Abbott remain continuously productive as we pursue the next steps with FDA that I just outlined.
Our overarching goal in pursuing these steps is to obtain additional clarity from the Agency.
on what is required for this amended application to receive an approval decision.
Based upon the feedback received from the agency during this process, our team and external devices will determine the appropriate path followed and will look forward to sharing additional details.
While we work to obtain additional clarity and evaluate the path forward, we believe it is important for the investment community to appreciate some of the important considerations as we continue to navigate the regulatory process.
clarity and evaluate the path forward, we believe it is important for the investment community to appreciate some of the important considerations as we continue to navigate the regulatory process. First.
While we are optimistic we will be able to address the FDA's questions through our engagement with the agency, we could learn that it may not be practical for us to pursue the level of evidence or request.
While unlikely, if this were to occur, we would need to evaluate or re-value regulatory and commercial strategy for the product.
Second, as we have shared in the past, if we obtain P&A approval for surveil before December 31st of this year, we are entitled to a final milestone payment of at least $24 million under our development and distribution agreement with our commercial partner, Allen.
After December 31, we remain entitled to the $24 million milestone payment following the receipt of the PMA approval, provided that ABBA chooses to commercialize the product and does not exercise a right to terminate the agreement.
Ultimately, despite this unfortunate development in our path to commercialization of the surveilled BCB, our team remains focused and productive.
We will continue to engage with the agency and our commercial partner Albert as we navigate the next steps in the regulatory process that I have outlined with a goal of bringing this innovative product to physicians and patients as efficiently as possible.
We look forward to providing investment community with additional details on our strategy as we obtain additional information from the FDA.
providing investment community with additional details on our strategy as we obtain additional information from the FDA and determine our path forward.
Now, let me provide you with an update on our progress related to other strategic objectives for fiscal 2023. Beginning with our second strategic objective, so advance the initial commercialization of our sublime radial and punts arterial fromectomy platforms. During the first quarter of 2023, our recently established
with two dedicated supplements published in Endovascular Today, which is viewed as one of the most recognized publications in endovascular medicine.
The Sublime Radio Access, RIST 2-Foot Supplement, was published in November of 2022, and outlines the compelling case for our radio revolutions spearheaded by the Sublime Line of Products in the peripheral space, is gaining momentum.
With the shift of endovascular procedures moving from hospitals to ambulatory centers and office-based labs, the benefits of radial access approach will be strategically important for owners and operators while having a positive impact on patients.
In December of 2022, the Pounds Thrum back to me supplement was published and reinforces the importance and success of our grab and go device that offers on-the-table results.
The risk of arterial clot has increased significantly in the post-COVID era, which exemplifies the need for a simple, efficient endovascular solution versus the more complex capital-intensive devices that exist today, and the traditional surgical FOGODI procedures. I highly recommend for you to read each of these if you want to understand more about the
of the quarter with over 135 total customers for Pounce and Sublime compared to over 100 at the end of fiscal 2022.
Lastly, our pipeline of prospective customers has continued to expand at a healthy pace. At the end of the first quarter, the number of value analysis committees that are considering our products increased by more than 20% compared to the end of fiscal 22.
We are beginning to see the impact of our brand awareness and market education programs, which continue to drive new customer interest.
Ultimately, we remain in the initial months of commercialization with a small but growing customer base and an average sales force tenure for approximately nine months at quarter U.C.'s large screen quality ASRE ben, Pards fore and divided.
Looking ahead, we remain focused on building our recent progress through the next nine months of fiscal 2023 as we progress through our first full year of commercialization and continue to lay the foundation for strong future growth. I'm excited about ongoing clinical performance of our commercial offering.
and we'll continue to find ways to accelerate growth in these areas. Lastly, an update on our Pounce Venus Trampectomy device.
We have recently begun to conduct limited market evaluations to gain experience across a wide variety of cases and clinical conditions and evaluate the feedback from numerous physicians.
The real-world feedback obtained through these renewed evaluations will help inform potential future design enhancements that benefit physicians and patients while optimizing its commercial viability. With respect to our third strategic objective, to drive revenue and cash flow growth from our medical device coding offerings and diagnostic businesses.
Broadly speaking, we will please deliver the overall performance of our core businesses during the first quarter.
Revenue from our medical device performance coatings offerings grew 10%, while revenue from our IVD business decreased 3% year-over-year in the first quarter.
The decrease in IBD revenue is driven primarily by the completion of a customer development program.
Together, these businesses generated significant cash flow to support our growth initiatives, including the Yale VA Increasing Operating Expenses related to the expansion of our direct sales force.
With this as an operational update, I would like to turn now to discuss the spending reduction plan we have recently implemented.
As we indicated in our press release on January 19th, the FDA's response to our survey PMA application, which means that we will not receive the related abit mild zoom payment in our second fiscal quarter as anticipated.
This prompted us to evaluate options and take action in order to preserve capital as we prioritize investment in our key strategic growth initiatives.
As a result, we have recently implemented a spending reduction plan designed to reduce our planned use of cash by approximately $10 to $11 million for the remainder of fiscal 2023 prior to the restructuring charges. Approximately 48% of the spending reduction is from SG&A.
the response to the FDA.
The spending reduction plan includes two primary components, a workforce restructuring and additional cash saving measures.
Let me take a minute to cover both of these components in some more detail.
The workforce restructuring involves a 13% reduction in our employee headcount.
These workforce reductions are intended to streamline and refocus the teams in several areas of our business.
including manufacturing and operations, R&D and clinical, sales operations, and our direct sales force, so that we can continue to execute our growth strategy more efficiently in fiscal 23.
On the manufacturing and operations front, we have reduced the number of positions that support the manufacture of our Servale drug coated balloon, while retaining our core team that support Servale, including key manufacturing, technical, regulatory and clinical personnel.
On the R&D and clinical front, we have aligned our headcount to support our current R&D priorities from a product development standpoint, which I'll discuss in a minute. And finally, we've reduced the size of the commercial organization supporting our Pounce Thrombectomy and Sublime Radial Access products to optimize our investment in sales operations.
Our direct sales force consists now of 21 territory managers as of today's call and remains focused and committed to driving growth in these product platforms. The additional cash saving measures that I mentioned, including a reduction in our planned gift, recycle, and expand on our proposed dish plan continues to Rae.
a reduction of our hiring plans that remained fiscal 2023, and they're refocusing of our investments in product development to prioritize progress primarily on our near-term commercialization opportunities.
In terms of our priorities from the product development standpoint, we'll focus our product efforts on areas including pounds arterial, pounds venous, and the sublime radial product platforms.
Several of our pipeline projects with a longer path to commercialization, including our Sundance and Avast drug-coded programs have been placed on hold.
As it relates to our Sundance and the vest, our coat of balloons.
We continue to be proud of the compelling first and human clinical data we have generated for these products to date and the ongoing follow-up of all first and human studies that is ongoing.
More recently, we were pleased to see the 12-month data from our 35-patient swing trial for Sundance.
presented at the International Symposium on Endophascular Therapy, or ISEC, conference on January 19th. These data clearly show that the use of Sundance was associated with a primary patency maintained at 12 months. The title of this committee has been conducted in accordance with the launch of the National Pentecostal dietary committee by the University of Baltimore, the National CDC Office of Motor Sid descriptor and Rory
80% of the per protocol analysis population.
Based on the 12-month data, our co-lead investigator for the trial, Professor Ramon Varco,
concluded that Sundance holds significant promise for treating real world patients for peripheral vascular artery disease.
Given that Sundance and the best DCBs use the same similar.
Drug delivery technology to that of Surveil will use the experience we gained from the Surveil Product PMA application process to develop the commercial and regular strategies for these drug-coded balloons.
So, stepping back, implementing the spending reduction plan and the related adjustment in our staff at intervals was a very difficult decision for us and in no way is it a reflection of the incredible talent and hard work of our team members during their time at Symartix. We value every employee of Symartix and have taken careful measures to ensure that the
with our near-to-ums strategic priorities and growth opportunities.
As we look ahead, we remain focused on our three strategic priorities. First, we will continue to make progress with respect to our regulatory strategy for the subvalle drug code, the BULU, as we prepare to engage with the FDA and evaluate the appropriate path forward. Second, we will continue to advance initial commercialization of our sublime radial and Equ delay on real-time passenger
turning the corner from market entry eventually to rapid growth. And third, we will drive revenue on cash flow growth from our medical device performance with coatings offerings and IVD businesses.
Despite the challenges we have faced in recent weeks, we believe that pursuing these three objectives represents the best part to achieving strong, sustainable growth and creating long-term shareholder value. With a recently enhanced balance sheet and access to approximately 60 million in incremental debt...
efficiently.
I'll now turn the call over to Tim Ahrens, our Chief Financial Officer, to provide more details on our first quarter fiscal 23 and our updated fiscal 23 guidance. Tim? Thank you, Gary. Total revenue for the first quarter of fiscal 2023 increased 1.9 million, or 8% year-over-year, to 24.9 million.
compared to $23 million in the prior year period. Product revenue increased $1.9 million, or 15% year-over-year, to $14.2 million in the first quarter of fiscal 2023.
The year-over-year increase in product revenue was primarily driven by medical device product revenue, which increased 1.6 million for 23% year-over-year due to strong sales of our performance coding reagents and medical devices, including contributions from sales of our Pounce arterial thrombectomy and Sublime radial platforms.
which fluctuates according to quarter.
Royalty and license fee revenue increased $670,000 or 8% year-over-year to $8.8 million. Royalty revenue from our performance coding increased $520,000 or 8% year-over-year. Compared to the first quarter of fiscal 2022, royalty revenue was less impacted by pressures on procedure volumes related to hospital capacity constraints and customer supply chain disruption.
services revenue was primarily due to the completion of a customer development program in our in vitro diagnostics business and the timing of customer development programs in our medical device business. Product gross margin in the first quarter of fiscal 2023 was 63% compared to 63.6% in the prior year period.
Product gross margin was adversely impacted relative to the prior year by certain manufacturing inefficiencies associated with ramp-up of production of new products, which was partly offset by the favorable impact of product mix.
R&D expense includes costs of clinical and regulatory activities increased 1.1 million, or 9% year-over-year, to 12.7 million in the first quarter. The year-over-year increase in R&D expense was primarily driven by increased product development investments in our Pounce Thrombectomy portfolio.
and costs associated with our Surveyal Drug-Coated Balloon. SG&A expense increased $4 million, or 44% year-over-year, to $13.2 million in the first quarter of Fiscal 2023, primarily driven by a year-over-year increase in headcount related to the expansion of our Direct Salesforce in Fiscal 2022, and related investments to support the commercialization of our Pounce and Sublime products.
Our IBD business reported operating income of $2.9 million in the first quarter, or 50% of revenue, compared to $3.2 million, or 52% of revenue in the prior year period. Turning to income taxes. In the first quarter of fiscal 2023, we recorded an income tax benefit of $170,000.
compared to a benefit of 710,000 in the prior year period. As we discussed in our fourth quarter earnings call, we are no longer recording tax benefits on U.S. net operating losses as a result of having established a full valuation allowance against our U.S. deferred tax assets.
GapNet loss in the first quarter of fiscal 2023 was $7.8 million or a loss of 56 cents per diluted share compared to a loss of $2.8 million or a loss of $0.20 per diluted share in the prior year period.
non-GAAP net loss in the first quarter of fiscal 2023 was $7 million, or a loss of $0.50 per diluted share, compared to a loss of $1.8 million, or a loss of $0.13 per diluted share in the prior year period.
Adjusted EBITDA loss in the first quarter of fiscal 2023 was $3.3 million compared to Adjusted EBITDA of $650,000 in the prior year period. Note, our Adjusted EBITDA in both periods includes an adjustment for stock-based compensation expense.
For your reference, we've included a detailed reconciliation in our earnings press release. Moving to the balance sheet, we began the first quarter of fiscal 2023 with $19 million in cash and $10 million in debt outstanding in our revolving credit facility with Bridgewater Bank.
Cash used by operations during the first quarter was $10.8 million, and capital expenditures totaled $1.00 million. It is important to note that our first quarter historically requires a higher use of cash to fund our working capital needs, such as an annual employee bonus payments and our annual prepaid insurance premiums.
In mid-October, we entered into a new five-year credit agreement with MidCat Financial, comprised of up to $100 million in term loans and a $25 million revolving credit facility. We drew on the term loan and revolving credit facility at close and received net proceeds of $19.3 million.
a portion of gross proceeds were used to retire a prior revolving credit facility with Bridgewater Bank. As of December 31, 2022, we ended the quarter with $26.4 million in cash and $29.4 million in long-term debt.
Long-term debt includes $5 million in borrowings on our $25 million revolving credit facility and $25 million in borrowings on our $100 million term loan facility.
As of December 31, 2022, we have approximately $60 million in debt capital available, consisting of $50 million on our term loan availability, as well as incremental availability in our revolving credit facility, which is subject to borrowing-based requirements.
Turning now to Fiscal 2023 Guidance. We have updated our Fiscal 2023 Revenue Guidance to reflect our performance in the first quarter, as well as our revised expectations for the remainder of Fiscal 2023.
We now expect fiscal 2023 total revenue to range from $102 million to $106 million, representing an increase of 2% to 6% compared to the prior year.
This compares to our prior range of $103 million to $107 million, or an increase of 3% to 7% compared to the prior year.
Our updated total revenue guidance incorporates revised fiscal 2023 revenue expectations for our Pounce and Sublime products, including changes to reflect our updated sales headcount, which Gary mentioned. We now expect fiscal 2023 gap loss per share.
to range from a loss of $2,040 to a loss of $2. Compared to our prior range of a loss of $2,080 to a loss of $2,040.
non-GAAP loss per diluted share in fiscal 2023 is expected to range from a loss of $2.09 to a loss of $1.69 compared to our prior range of a loss of $2.54 to a loss of $2.14. Our updated fiscal 2023 loss per diluted share guidance.
Reflexer revisions made to our total revenue guidance that I just mentioned, as well as in that favorable impact of our spending reduction measures. It is important to note that guidance does not include any incremental expense that may be incurred to potentially conduct any animal studies or other expenses.
that may be required to address the FDA's biocompatibility concerns related to surveil. In addition, our guidance excludes revenue associated with any potential future habit milestone payment on receipt of PMA from the FDA, which has been our practice with previous regulatory milestones.
I'll now share a few additional considerations for modeling purposes.
Our fiscal 2023 total revenue guidance assumes revenue for our two businesses, medical device and IBD is expected to be approximately 73% and 27% of revenue respectively.
Product revenue is expected to be approximately 58% of total revenue.
Revenue associated with our legacy medical device coding offerings and IBD business is expected to grow modestly.
Abbott's surveillance fee revenue is expected to range from $4 million to $4.5 million. This compares to $5.7 million in fiscal 2022.
Turning to the rest of the P&L, our updated fiscal 2023 guidance reflects the following expectations. Product gross margins are expected to be in the mid-50s for the remainder of fiscal 2023. As a reminder, we continue to expect margins to be impacted by product mix and inflationary pressures.
In addition, we expect higher absorption of fixed overhead costs and our costs of sales. As commercialized products are allocated in the increased share of our overhead expenses, due to reductions in drug-coded boom production.
With regard to operating expenses, excluding one-time severance costs, we expect rest of the year quarterly expense of $12 million to $12.5 million in R&D expense and $13 million to $13.5 million in SG&A expense. Interest expense is expected to be $3.4 million for the full year. We expect a nice increase in the number of people in the industry to be expected to be $4.5 million.
fiscal 2023 to be approximately $26 million, which consists of the total change in cash excluding the net proceeds from long-term debt in the first quarter of $19.3 million. Further, we expect our Q3 and Q4 cash use to be approximately $3.5 to $4 million each quarter.
This reflects the following items and assumptions are updated revenue guidance and active management of working capital.
Our spending reduction plan, which as Gary discussed, is expected to reduce cash use by $10 million to $11 million, excluding severance costs.
We expect one-time severance costs of $1 million to $1.2 million, which we expect will be mostly incurred in the second quarter.
And lastly, we expect to incur no further borrowings on a revolving credit facility and term loans. We expect to continually evaluate and assess capital allocation decisions throughout the year to ensure effective and efficient use of our cash and resources to support our business needs. But that operator?
We would now like to open the call to questions. Thank you. If you would like to ask a question, please press...
please single by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star one.
And our first question will come from Brooks O'Neill with Lake Street Capital Markets. Please state your question. Good afternoon everyone. I appreciate the substantial amount of detail and clearly thought.
thoughtful comments about all aspects of the business.
I guess one thing I didn't hear you discuss that I think
The best you would like a little color on is whether you considered
kind of the go it alone versus partner approach for sublime and bounce and If you did, which I assume you did, perhaps you could just give us a little color about your thinking in that regard.
Yes, I mean we evaluated this a long time ago and continuously scanned the environment on this issue. It was clear that the best way to create long-term shareholder value creation was in the hands of our direct sales force. As you know, we have some experience with the...
but the early development in the first nine months of, I'm sorry, that's an analogy of use of, you don't measure milk production from a cow, you measure it from a cow, right? Just remind everybody. But look, we're nine months of average tenure into this. It's early innings and...
We're seeing the uptake and growth of these products as this begins to develop and it is best in our direct hands.
Okay, good. Let me ask a second question, which is I appreciated Tim's comments on the guidance and Gary, your comments on the outlook forward for sublime. I'm just curious, given that the FDA has given you some guidance about the path forward, the accuracy in terms of the
Why did you guys decide not to include the potential cost of animal testing in the forward guidance?
Yes, you know he has the issue, bro. We don't want to
Speculate publicly. You know, after we come out of the submission issue meeting, which we expect in the next couple months, and we have alignment with the agency, only then will we have...
What we call much firm a day to share with our shareholders. Right now would be subject to speculation. I'll give one caveat however. This is not $10 million. This could be $1 million or $2 million. And again I'm speculating there but I want to be clear this is not in the...
large number of millions of dollars, which is why we said in the script, if it appears to be that, we will pause and reconsider the best option for shareholders. But I don't want to speculate without having.
the agency basically gets to alignment with us. And then if I speculate now, I'll be updating that and I prefer to hold that in reserve at this point. Okay, just a quick follow-up. You do think it's likely the FDA will want additional small animal testing, right?
So in the letter they laid out a specific but not directly detailed terms. What type of data they'd like to see to cover any gaps that they believe exists?
So, much of this really deals with small animals.
that representation of the illumoph Maharaj.
Thank you for taking my questions.
Our next question comes from Mike Mattson with Needham & Company. Please state your question.
Yeah, thanks. I guess just start with Surveil. So I think you said you you expect to hear back from them in May. So if you hear back from them in May and then you have to do some additional testing.
Maybe you can resubmit something in kind of like the fall. So, I mean, is it possible we could get another, an answer from the amendment in calendar 23? Can you put it in the comment right? Yeah. Yeah. I appreciate the question. And, you know, it's......
The timing, I can lay out just briefly the process. So to get the feedback, it's like filing a brief in front of a judge. You can't secure the meeting until your brief is complete.
So our team is working around the clock to complete our view and our brief and our point of view on the requirements. Only then do you send that in and you secure a meeting, which takes in a matter of, not months, but it's a matter of weeks, so it could be a month. And so this process is really important for us to get it right with our brief.
then get that meeting. So all of that, as we said, on the normal timelines, we would expect to happen by May.
If small animal testing is required, depending on the numbers, the type of species, et cetera, this will then be scheduled with our partners at animal labs that conduct these, these preclinical labs that are independent that were conducted, so.
If you're asking us if we would like this done by the end of the fiscal year, by the end of the calendar year, absolutely.
I appreciate the question, but until I have more appropriate information, again, I prefer it.
to get in front of the agency and get some level of detail before speculating openly.
We want to have it again. Clearly we are working as fast as we can. And if there's a way to get this before the end of the calendar year, oh, really, we would be using every angle. Okay. I understand you don't really know what's going to need to be done on the testing aspect, but let's just...
say that you're able to do that. And then I guess my question would be, once you complete, let's say there's some digital testing, you complete it and submit that back to the FDA and this amendment, is there some kind of time requirement for them to, you know, what's the clock there? How much time do they have to respond to that? Will you re-submit that amendment? Once it's...
compatibility. And so the early indications are they recognize that and they don't I don't want to quote them but until I have this
in a committed written document from the FDA. I don't want to speculate again, but 188 is typical. We don't expect it to take that long. Okay, all right. And then, you know, just maybe, can you explain, you know, this whole process? They just seem to have some kind of hang up on.
whatever you're using in your coding. So what is it in the coding and why are they so worried about this? I mean, the drug is the same, right? And it's a lower dose. So it's gotta be some other ingredient, right?
Please stand by.
The.
I.
Ladies and gentlemen, thank you for standing by. Please continue to hold as we reconnect the speakers. Thank you.
That.
And.
just go ahead and press star 1 on your phone again.
to get you back in the queue. Thank you. Mr. Matheson, go ahead.
Yeah, thanks. So I guess I don't know what point I got cut off, but you know, I was asking a question about, you know, just kind of what the concerns are at the FDA about the back compatibility. I mean, I guess I thought that's why you've done the kind of round of test that you did last fall to address those concerns. So, I mean, what...
I don't know if you can comment, but I mean what is it about the product that they're so hung up on? It's the same drug, it's a war or a dose. It doesn't seem like that's the issue, but there's some of their sort of ingredient that you're using that's unique to your balloon versus some of the others. So certainly, we use some...
and I mean the only pivotal worldwide trial of a low dose versus high dose. No other company has that in the industry. So approaching four-year human safety data now. And so we feel that clearly our technology has a dramatic benefit because no one else has demonstrated it.
So what I'll say, Mike, is I don't want to divulge some of the unique components of somatic technology at this point, but yet, needless to say, these are technologies that are not
that we believe mitigate the risk of using very powerful drugs by being able to use a lot less. And we believe we have actually put our money where our mouth isn't conducted once again the only.
Pivotal trial in the industry versus a high dose device. Nobody else has done it. So we'll work through this with agency. I think it's just a matter of us.
getting in front of them and getting alignment. And until I get that alignment, I prefer to just stick to what we know now. We're still in fact finding mode with them.
Okay, I understand. And then I think on the prior call, maybe it was the last quarter, I don't remember, but you talked about building up some surveil inventory. So is that the case? And I mean, maybe that's why you've had to do the manufacturing reduction. I don't know.
You know, what's the shelf life? Is that stuff going to have to, is there a risk that that stuff has to be written off if this doesn't end up being approved or takes longer than expected?
Thank you Mike, this is Tim and I appreciate the question. There's obviously some moving parts here. You're addressing an important aspect of what's impacting the product gross margins for Q2, 3 and 4. This basically speaks to...
our expectation that we would have been in a position to have received the PMA and begin to support the Abbott Commercialization Engine. You see that in our inventory build, this most recent quarter versus Q4, but it also affects us because... J
the folks that would be working in the production line, all of that that would have been hitting some inventory for Q2, 3, and 4 is now being absorbed into our product sales. So it does have an impact there. You can probably do the math. It's a million and a half to two million.
and those costs are going to be hitting the P&L. In terms of scrap and how to think about, you know, are there things in terms of our raw materials inventory on the balance sheet? It's important to know that we really don't have final finished products on the balance sheet. It's all raw materials or components that are on the balance sheet. There are a few things that will probably have some.
potential for reserving against or scrapping. But again, it really is going to be dependent upon how we think about the timing of a potential FDA decision based upon the process that Gary described with the Q submission. And we should hopefully have greater insight and perspectives on that.
as we kind of get into the May earnings call, but I don't know that there would be anything other than probably something nominal for the fiscal 23.
Okay, gotta think.
Thanks. Sure.
Thank you and a reminder to the audience, to ask a question press star 1 on your phone. Press star 2 to remove yourself from the question queue.
Our next question comes from James Siddhoy with Siddhoy and Company, please state your question. Our good afternoon. Thanks for taking the questions.
So you talked about the $10 to $11 million in…
You talked about the 10 to 11 million in cash spending.
for the remainder of the year. How much of that carries over into fiscal 2024, assuming that you don't bring back Sundance and Yvette?
Thank you for the question, Jim. It's Tim. I would tell you that obviously this is a nine-month view. Actually, it's closer to eight months given the timing of the decision. It's fair that you can run rate a good portion of that. One thing to be mindful of, the $10.11 million that's reflected in the...
incorrect to get you a pretty good view on the dartboard at least, taking the 10 to 11 and run rating that out.
Okay. And then you mentioned that Abbott would have the option.
Okay. All right. And then you mentioned that Abbott would have the option to...
to not commercialize the product if you don't get approval by the end of calendar 2023. If that were to happen, would you have to refund them any of the milestone payments they've given you so far? We would not.
Okay, and so if they've already invested $60 plus million into the product, they're going
it's probably unlikely that they would they would opt to not commercialize it if it takes a few months into 2024. That's the reason.
Understood. You know, we're limited and we can't say what Abbott, but I have found them to be a highly constructive and engaged throughout this entire regulatory process. So that partnership as we continue to interact with them is strong and it continues. However they decide, months from now, I think that will be however...
It's really up to them. So I'm limited what I can say on their behalf obviously All right And then just just one more on Sundance and Avast if you don't decide to go ahead with commercializing those products Are there any options? You know any other option to you to monetize that are those assets that you can tell?
You know, go ahead. I was going to say with a PME approval for surveil, the value is non-linearly increased for those.
Bookending them now, meaning taking them off the stove and putting them in a form where we can pick it up more efficiently, is the best to preserve the value there. Given our cash burn, we don't want to continue with parallelism, even though we believe that that results in an opportunity. We simply want to get through this issue with surveil, and we can pick it up. Those technologies would not be...
Keep that now. We'll pause for a few moments to see if there are any final questions.
Our next question comes from Mike Petuski with Barrington Research. Please state your question. After asking two questions, let's discuss a similar question howorr Speaker was24New inaghan tallow r
Our next question comes from Mike Potosky with Barrington Research. Please state your question.
I guess, Gary, you described Abbott as engaged and highly constructive. I'm just curious, given their wealth of experience and all the rest, have they given you any input on anything based on their experience that's similar or any advice or any...
any, you know, essentially guidance as to how they would sort of try to approach this.
I'll say we have an excellent regulatory and technical connection with the Abbott team on this. And so they know what we're filing. They know the idiosyncrasies of the FDA interaction. And I will say I have only high respect for their technique.
I believe it will continue in that way. That said, we and I believe they understand our technologies well enough.
it will continue in that way. That said, we, and I believe they understand our technologies well enough. This comes down to a matter of...
perspective, a matter of, to me at least, using the totality of data.
versus dissecting.
small data sets and then using that to guide the whole. We have...
a plethora of evidence from humans.
to all the way down to small animals. So, I think it's really making sure the FDA understands that perspective and narrative at a high level versus just a major drill down into a specific...
small components data set. So I'll say AVID has been constructive and they know I don't expect that constructive interaction amongst the peers.
small components of data sets. So I would say avatars have been constructive and they know I don't expect that constructive interaction amongst the peers on avatars, but all technical and regulatory appears to change.
I guess probably for Tim, I guess the maybe two and a half million or so of R&D expense reduction, is most of that around Sundance and Vess or is there other things there that make up a meaningful amount.
Yeah, no, it's a good question. It's obviously impacting more than just some dance and of us. We do have, we've made some decisions to delay some of the longer term activities in some of the R&D programs and of course some of the personnel. So there's a number of factors.
you're picking up on a key one there, which is a drug-coated balloon aspect of this. Right, would that be the majority, the two and a half or three million?
It is a fair amount of it, yes.
All right, and then jump it over to Sublime and Pounce. Any, I didn't catch it, if you said it, I missed it. Anything to say on reorder rates and anything to share there, even anecdotal?
I'll say that when dealing with small data and small numbers of time, you can draw many conclusions. When we have looked at the reorder rates, they are exactly where we expect them to be. That's not a negative statement. That's a positive statement. I think what's...
really interesting and frankly quite exciting to us. If you look on LinkedIn and you see physicians unprompted saying things like I just did my first pound skates and I'm gonna tell the world about it.
I really, and I know that I don't want to sound like an advertisement for the fast scale of today, but the best way to get a sense, just a small tip of the iceberg to the power of these products is to read your supplements. There are physicians and cases that talk about the power of these products. So.
Real-o-weights, we're happy with the re-audorates. So I'll let you know that. Girls, we're happy with the girls.
Clearly, we'll take a bit of a trim on revenue given that we have eliminated some of these territories. We'll take a bit of a trim on revenue given that we have eliminated some of these territories
but we're still going to have very efficient growth. It was clearly an optimization of cash versus growth and value creation that way. Tim and I made the right choice of how to get that revenue growth but also to ensure cash burn is within reasonable discipline limits of the local operation.
I'll say this one more time, I'm quite excited about the evolution of those products.
Great. You know, your comments the day, just jumping back real quick, this last one, your comments the day that you got the...
the notification from FDA. You sort of talked about, you know, possibly, you know, we're having to go back and do some animal testing. Is there any anything in your learnings since that day that would indicate it could possibly be expanded beyond animal testing in terms of additional data that would need to be captured?
for dealing with the agency from the lessons learned here have clearly gone up. However...
You know, the way to mitigate that risk is to get assurance from senior management of the agency of the integrity of the process, the timing, and the exchange of scientific information. And that hey, let's take a look now at the
Life as an FDA reviewer has got to be hard. They have to go wide and also deep. However, sponsors, noted technology just by nature much deeper than an FDA reviewer can.
without the right level of interaction, if we are not able to demonstrate to these reviewers
the levels of detail that are relevant to their decision.
we think you'll always get a deficiency. And so part of it for me is the process doesn't lend itself.
to the engagement and dissemination of scientific judgment and understanding when it comes to
to technologies of the new and different. So I'll leave it as that. I don't, so with that being said,
and be quite surprised if there is a...
something to come up about human clinical data. I can't see that happening, but along with the risk adjusted a little bit again. I don't see it happening.
while highly improbable, I would say it could be possible. But I don't mean to scare you with that. I am just giving you the risk that I see until we get full alignment of the agency.
Our data is, I'll say, we run the best trial that's ever been conducted in the industry.
again they only had to have randomized pivotal trial worldwide and so
feel really positive about the clinical data and I think what stuck in my crawl is that this device.
can be having a huge beneficial impact to me on US patients. But we'll work through this with the agency. Very good. Thank you guys. Appreciate it.
to me on US patients, but we'll work through this with the agency. Very good. Thank you guys. Appreciate it. Thank you Mike.
Thank you.
Thank you. And that does conclude our conference for today.