AngioDynamics Inc (ANGO) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics first quarter earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday, October 6, 2009.

I would now like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Thank you for joining us today for the AngioDynamics conference call to review the results of the fiscal first quarter of 2010 which ended on September 30, 2009. The news release announcing the first-quarter earnings crossed the wire this afternoon after the market closed and is available on the AngioDynamics website. We have arranged for a recording of this call, which may be accessed by phone. The replay will become available at approximately 6:30 PM Eastern time this evening and will remain available for seven days. The operator will provide the dial-in information at the conclusion of today's call. In addition, the call is being broadcast live on the web at www.angiodynamics.com. A replay of the call will also be archived on the AngioDynamics website.

Before we get started, during the course of this conference call the Company will make projections or forward-looking statements regarding future events, including the statements about revenue and earnings for fiscal 2010. We encourage to you review the Company's past and future filings with the SEC, including, without limitation, the Company's Forms 10-Q and 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

In addition, today's presentation includes certain financial measures used to better understand our business that have not been prepared in accordance with the Generally Accepted Accounting Principles, better known as GAAP. An explanation and reconciliation of those non-GAAP measures has been provided in today's news release issued by the Company and is available on the website. AngioDynamics uses non-GAAP measures to establish operational goals and believes that non-GAAP measures may assist investors in analyzing the underlying trends of the Company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to, financial reporting measures prepared in accordance with GAAP. In today's call the Company has reported non-GAAP EBITDA and EBITDA per share and has reviewed these measures as an internal analysis and review of operational performance.

Finally, during the question-and-answer period today we'd like to request each caller to limit themselves to two questions and encourage callers to requeue to ask additional questions. We appreciate everyone's cooperation with this procedure in advance.

And now I'd like to turn over the call to Jan Keltjens, President and Chief Executive Officer of AngioDynamics.

Thank you, Doug, and good afternoon to everyone. Thank you for joining us for our first quarter conference call. With me today is Joe Gersuk, our CFO. This afternoon we reported solid net sales growth of 13% from -- over the prior year and we estimate our organic growth rate to be around 9%, a strong number. It's encouraging to see that our growth was driven by strength in two of our areas of focus; our interventional oncology business, as well as our laser vein ablation franchise. However, there remains a lot of opportunity and a lot of work ahead of us to achieve our goals. This is reflected in below-market growth rates in our Access in international business, as well as our gross margins and inventory levels. Joe will provide more detail on our financial performance in a few minutes.

As I mentioned during our last conversation with you back in mid-July we have taken deliberate steps to focus the Company on global market segments that allow us strong global growth. Those segments are venous intervention, oncology and dialysis access, and minimal invasive oncology. These segments offer a combination of growth opportunities for market share growth, favorable long-term demographics and opportunities for leveraging our technologies, IP and infrastructure. During the quarter our focus markets continued to be quite robust, despite the overall economic environment, and our healthy state was a factor behind our double-digit revenue growth.

VenaCure EVLT performed strong in the quarter, with reported growth of 24%, which when adjusted for the Diomed acquisition about half a month into the year a quarter ago -- year ago a quarter would represent an estimated organic growth rate a least in line with overall market growth, if not beyond that. The increased focus of our sales team, the introduction to strong marketing programs, as well as the fundamental clinical strengths of our new NeverTouch laser fiber system, are driving this growth. Dr. Lowell Kabnick, director of New York University Vein Center and associate professor of surgery at the division of vascular surgery at NYC Medical Center, compared treatments of varicose veins with a bare-tipped laser fiber against our covered-tip NeverTouch (inaudible) fiber. In a clinical study published in the July edition of Endovascular Today, Dr. Kabnick found the NeverTouch showed easier post-operative recovery and reduced bruising amongst other benefits. These important finding distinguish NeverTouch in the marketplace and create the beginning of a strong clinical evidence foundation.

Peripheral vascular cells were also aided by our Benephit renal infusion system acquired from FlowMedica in January 2009. The anecdotal clinical evidence continues to be very promising, and true to our commitment of evidence-based medicine we have started enrollment in the PROVIDE registry to study, and our goal is to enroll a total of 2,100 patients over the next few years and have the results published. During the quarter Bioniche Pharma, our supplier for Sotradecol, a product which we distribute, received a warning letter from the FDA for certain promotional literature. AngioDynamics was mentioned in, and copied on this letter and as a consequence we have taken down relevant sections of our website. We do not expect that any of this will have a material impact on our financial performance as we continue to sell Sotradecol.

The oncology surgery business continued to generate strong growth during this first quarter, driven by all product lines, including RF Ablation, the Habib RF Knife and in particular, LC Beads. We are very pleased with our continued and consistent strong double-digit sales growth in the oncology surgery division, and while this is certainly a tribute to the strength of our product lineup I would also like to acknowledge at this platform our sales and market team. In my view they are the strongest sales team in the space -- in the interventional oncology space in the US.

The markets for our Access product line continue to hold significant opportunities for our Company, but we've got work to do in this area, as a relatively small sales increase in this quarter illustrates. The pricing pressures we're experiencing are likely to continue to impact our sales growth, as well as margins, until we bring to market new products with a clinical advantage and lower cost. A prime example of this is our DuraMax Step Dip chronic dialysis catheter, which was released for full -- released for full sales early in the quarter. The Morpheus PICC supply continued to be suboptimal during the quarter and suppress growth. As of today we have been able to clear back orders and build critical inventory, and going forward we see significant opportunity following the launch of our redesigned PICC lines. This design work is progressing well and is anticipated to result in more stable supply, lower cost, and better clinical performance compared to the current products. The launches are planned for the second half of the current fiscal year.

Now I would like to turn our focus on innovation, the key driver of organic growth. Back in July we committed to 11 new product launches for this fiscal year and we do remain on target to achieve that goal. The four product launches discussed with you back in July are performing well and this includes, amongst others, the StartBurst XLi-E Semi-Flex probe, the first RF probe designed specifically to deliver a 7cm ablation of a tumor in a single placement. In addition we also began shipping DuraMax chronic dialysis catheter, which incorporates our new curve step tip technology. And also we released the NanoKnife software version 2.07, which includes the successful cardiac synchronization function and has proven to be successful in the clinical marketplace since. Key new product launches, including our Centros Curved Tip Permanent Dialysis Catheter, the triple lumen Morpheus PICC, and new SmartPorts are on track for launch in the second half of this fiscal year.

We also believe that international expansion is an attractive source of organic growth. In July we announced the formation of a new business unit focusing entirely on our international business. I'm very pleased to report we have recruited the leader for this unit who we'll introduce later this month. His appointment is the first step towards building a strong international presence.

Turning now to IRE technology and our NanoKnife product line. Since mid July physicians have treated an additional 20 patients in eight centers around the world and this is a pace of approximately two per week. To date a grand total of 86 patients have received treatment in a total of five different organs, including prostate, liver, lung, kidney and lymph nodes and in all cases the safety profile remained strong. At the CIRSE meeting in Portugal two weeks ago we held a scientific symposium that was extremely well attended by more than 270 physicians from all over the world. This symposium served as an excellent introduction to NanoKnife and its capabilities and was very well received by the F&D's.

The IRE clinical development program continues to make progress, as well. The IDE for the focal prostate cancer study has been submitted to the FDA and we are responding to some of their questions. An IDE for the pancreatic cancer study is scheduled to -- for submission to the FDA this calendar year, and during CIRSE we also met with the investigators on the international liver tumor study and are finalizing the protocol. Despite the increasingly complex regulatory environment we continue to anticipate first patient enrollment in at least one of these studies before the end of calendar 2009. Preclinical work for pancreatic, focal prostate and liver cancer studies have been completed and preclinical work for lung and whole gland prostate ablation is underway. The full completion of all of this clinical work is anticipated to take several years. However, we're pleased with the current increasing commercial interest in the NanoKnife system and anticipate sales to grow as we continue to roll out this system.

Finally I'd like to address our focus on operational excellence. Our goal here is to improve gross margin, as well as supply chain, including inventory management. The transfer of the manufacturing of FlowMedica Benephit products from California to Queensbury is in full swing and production start up is now scheduled for late this calendar year. Albeit small, once completed this transfer should be a contributor to improving gross margins. The increasing market penetration of DuraMax, our first internally-developed and manufactured dialysis catheter will also help improving gross margins in the balance of the year. And once available, the newly-developed PICC family will also lower cost, stabilize supply and improve gross margins. Longer term we continue to drive the strategy of consolidation and vertical integration where and when it makes business sense. The inventory situation in the last quarter was driven up mainly due to some supply agreement commitments; however, we expect to be able to start driving it down in the back half of this fiscal year. We are also pleased that Shawn McCarthy, the new leader of our Peripheral Vascular business unit, is now on board and providing the leadership required to maximize the long-term peripheral vascular market potential, as well as bring a great new skill set to our senior leadership team.

In summary, we made good progress in the quarter, but a lot remains to be done. Sales growth was a bit stronger than we were expecting and we have begun the execution of a manufacturing strategy. We are making tangible progress in demonstrating the effectiveness of IRE technology. Clearly, there's a lot of hard work ahead of us. Revenue growth in the Access unit will remain challenging for another quarter or two. In addition, the gross margin and inventory situation will require a lot of work before we are satisfied. New products must be delivered to the market on time and with the most competitive economic and clinical benefits. We must continue to drive technical excellence and manufacturing efficiencies.

Our successful execution on these initiatives will enable AngioDynamics to deliver strong and profitable growth above the market rate. As I've mentioned before, our short-term target is to achieve revenue growth consistent with the market's overall growth of 7% to 10%. Over time we have the aspiration to generate growth rates above the market rate and this will be achieved through focusing on those business areas which show above-average growth, international expansion, strong pipeline execution of key programs like NanoKnife and (inaudible), enhanced by M&A activities where and when this makes business sense. And beyond all that we are committed to improving our operational performance as we drive this growth. We have a strong business, focused on non-elective and disposable products for treatments that address large, global-diverse and growing markets. Our financial position is sound and we continue to generate solid positive cash flow.

Before I turn this call over to Joe, I'd like to thank the AngioDynamics associates for their continued focus and hard work in delivering these first quarter results. I'd also like to thank our shareholders and our board of directors for their ongoing support and confidence. Joe?

Thank you, Jan, and good afternoon, ladies and gentlemen. Today we're reporting first fiscal quarter sales growth of 13% to $50.1 million, or 14% on a constant currency basis. Our growth this quarter was led by our Oncology Surgery division, which grew 25% from a year ago and reported its best quarterly growth rate since we acquired RITA Medical two-and-a-half-years ago. We also had a strong sales quarter in our Peripheral Vascular division, with 14% sales growth led by our laser vein ablation business. We estimate the Company's first quarter organic sales growth rate at 9%, which is a marked improvement from the 2% organic growth rate in the fourth quarter, and 6% for last fiscal year. We calculate this rate by excluding in both periods the sales of all laser ablation products as a result of the acquisition of the Diomed business and the subsequent restructuring of the product line, as well as the sales of the Benephit renal infusion system that was acquired in the third quarter of last fiscal year.

This quarter marked the first anniversary of our acquisition of the Diomed EVLT business and we are pleased to report that the integration process is complete from a sales, product and manufacturing perspective. Since acquiring this business a year ago we have right-sized the laser manufacturing facility in Cambridge, England to reduce costs. To enable us to standardize on the Delta series laser we have engineered the NeverTouch disposable to operate with the Delta laser and we have trained our peripheral vascular sales force to sell the system. As a result of these efforts, today AngioDynamics has the most comprehensive product set and the leading market position in the laser vein ablation business.

Our gross margins in the EVLT business have also steadily improved over the past year and is the primary reason for the four percentage point improvement in gross margin that our Peripheral Vascular business unit achieved in the first quarter compared to the comparable quarter a year ago. With this acquisition and successful integration AngioDynamics is well positioned to compete successfully in the vein ablation market in the years ahead. This is one of our key focus areas and our goal is to increase our market share of this attractive market.

Peripheral Vascular business unit sales totaled $21.1 million in the quarter and included laser ablation sales of $7.7 million. This is a 24% increase in laser ablation sales from the $6.2 million reported a year ago. Also included in this business unit are sales of the Benephit renal infusion system, which totaled $643,000 in the quarter. Access business unit sales grew 3% in the quarter to $16.2 million, with competitive pricing pressures in the dialysis market and the supply issues in our PICC business limiting growth in the Access unit this quarter. Jan addressed both of these developments in our action plan during his remarks. Sales in the Oncology Surgery business unit grew 25% in the quarter to $12.8 million and were led by strong sales of LC Bead and included $74,000 from the sale of NanoKnife disposables.

From a geographic perspective 90% of the first quarter sales were in the US and 10%, or $5.1 million, came from the international markets. The strengthening of the dollar over the past year meant that reported international sales were flat compared with the prior quarter a year ago and would have grown 5% on a constant currency basis. In the direct markets, which represent about one-third of our international sales and where we sell in Sterling or Euros, sales grew at a double-digit rate. While currency movements had a negative impact on reported sales their impact was slightly positive on operating income due to the costs that we incur in Sterling and Euros.

Continuing down the income statement, gross profit totaled $30.1 million in the quarter, or 60.2% of sales, compared to 61.9% a year ago. There are a number of factors that caused this margin decline, including the product sales mix, the competitive pricing environment in which hospitals and other customers are aggressively seeking lower prices, cost increases on products we will be insourcing in the future, and the cost of transferring product production to Queensbury. We are working to mitigate the impact of these items and are taking a number of steps that we expect will improve gross margins in the second half of the fiscal year.

Operating expenses were $26.6 million in the first quarter, an increase of $3 million, or 12% from the prior year. As a percentage of sales total operating expenses were 53% in the quarter compared with 53.3% a year ago. Research and development increased to 9.7% of sales compared to 8.9% in the prior year, as we continue to invest heavily in the IRE program. Sales and marketing expenses increased to 30.7% of sales versus 29.5% a year ago, due to the expansion of the Peripheral Vascular and Access sales forces and related marketing activities. As a percent of sales the increases in sales and marketing and R&D were more than offset by leveraging G&A costs. G&A was 8.1% of sales versus 9.8% one year ago. The total investment in the IRE program for the quarter was $2.6 million, a $700,000 increase over the same period last year. On an after-tax basis the investment in IRE amounted to $0.06 per share in the first quarter compared with $0.05 per share impact in the first quarter a year ago.

We reported operating income of $3.6 million in the quarter compared with $3.8 million a year ago. The reduced operating income reflects the reduction in gross margin and the substantial investment in IRE, and sales and marketing costs associated with acquisitions and the transition to business units. EBITDA was $6.6 million, or $0.27 per share in the quarter, compared with $6.7 million, or $0.27 a year ago. After other income and taxes are taken into account the result is $2.1 million in net income, or $0.09 in diluted earnings per share, compared with $0.09 in earnings per share a year ago.

The tax rate was 38% in the first quarter and consistent with the prior year. Of particular note, subsequent to quarter end we received $1.7 million in cash as a tax refund related to a federal income tax audit for the fiscal years 2006 and 2007. As the refund was primarily related to costs associated with the acquisition of RITA Medical Systems the accounting for the refund primarily impacted the balance sheet and the goodwill account. Nonetheless, the $1.7 million was most welcome, of course. We previously indicated that we expect to achieve cash tax savings of $7.5 million from the use of RITA NOLs this fiscal year. That is not affected by the receipt of this tax refund.

Turning to the balance sheet and cash flow statement, we ended the quarter with cash and liquid investments of $68.8 million compared with $68.2 million at the beginning of the year. We generated $1.1 million in cash flow from operations in the quarter, despite a significant investment in inventory. Net inventory has increased $7.4 million, principally relating to contractual purchase requirements and planned advance purchases of product to alleviate supply chain concerns. We have established a goal of reducing the inventory balance by the end of the fiscal year to a level close to where we began the year. Our accounts receivable remain in very good shape. DSOs were 42-day sales outstanding in the quarter, an eight day improvement from one year ago. Our balance sheet and liquidity positions remain extremely strong and we expect to continue to generate significant free cash flow.

And finally, as indicated in the release we are increasing the low end of the range of the guidance for fiscal 2010 in net sales and EPS. The net sales guidance is now $211 million to $215 million, a $2 million increase in the low end, and EPS guidance is now $0.45 to $0.47, a $0.02 per share increase at the low end. The guidance on gross margin, operating income and EBITDA remain as before and are shown in the release.

I will now turn the call over to the operator to begin the Q&A session. Val?

Thank you, sir. (Operator Instructions). Our first question comes from the line of Christopher Warren with Caris & Company. Please go ahead.

Thanks so much, and it's very gratifying to see you guys above the consensus for the quarter. My question is, to what extent were maybe an extra selling day or two contributors to results?

Not significant.

I think it's like one or two days extra, something along those lines. It is not material. I think when Joe quoted the -- we estimate the organic growth rate to be approximately 9%, that would pretty much account for all that kind of stuff.

Perfect. And do you think there were any benefits or impacts this quarter from a smoothing out of what has historically been a bit of an unhealthy sales cycle where the fourth quarter number was particularly big?

Well, I think in the July conference call, when I commented on the Q4 sales and we had to report a 2% organic growth rate, I think I said that was probably below where we really are as a Company and I think with the 9% we did in the last quarter we like that number a lot. I think it's the right way to start the quarter and we're quite pleased with it, so we hope it's real and we think it's real.

And then just one last question on the Access side. Are you seeing any change overall in the pricing for ports and PICCs?

Well, I think what we see in general -- and I believe Joe commented on that -- that if you want to summarize it, I'd say all products that are on contracts and on purchasing and group contracts and stuff like that there's increasing pressure. There's certainly a willingness from customers to focus and consolidate suppliers but they like to see something in return for that. So that's a -- we're certainly seeing that and I think we saw it a little bit stronger in PICCs, but I think PICCs ports are the kind of product you would expect to see that kind of pressure of that primarily.

Okay, thank you very much. Nicely done.

Thank you.

Thanks, Chris.

Thank you. And our next question comes from the line of Jason Mills with Canaccord Adams. Please go ahead.

Hey, this is Jamar Ismail for Jason.

Hey, Jamar.

I've got a quick question. Can you clarify the PICC supply issue? You said you're going to launch a new PICC in the second half of 2010 so that means you're going to be supply constrained until then, or will you have an adequate supply of old PICCs before then?

Well, it's a great question there, Jamar. Let me maybe reiterate some of the statements I made in the July quarter -- on the July call and extrapolate that to the comments I made today. So in July we said that the supply of the existing Morpheus PICC line will be hand-to-mouth, hit or miss, whatever phrase you want to use there, until we launch a new generation PICC, new design PICC. That is a high-priority, project, which is progressing well, which as Joe said, we'll launch that in the second half of the fiscal year, not calendar year, but fiscal year. And until that moment you're going to have decent quarters. You may have a good quarter; you may have a somewhat disappointing quarter. I think this quarter we're seeing growth. Growth is always good, but I think the PICC market is more healthy than the growth we are reporting so effectively we have been losing market share. In the quarter -- in our fiscal Q1 we have been battling supply constraints, which suppressed growth. Clearly today we're in a better supply situation and right now we can ship whatever we sell.

Okay.

Does that answer the question, Jamar?

Yes, it does.

Okay.

My second question, can you talk more about the venous market, give us maybe an estimate for what you think the market growth there is in '10, and have you seen any pricing pressure, especially from the smaller competitors in there?

Well, yes, but nothing unusual. We think -- we believe the market continues to be healthy. One of the public companies that gave a lot of market intelligence has been taken off the grid, of course, recently, so it's a little more difficult to track the market. There are some companies that report. We do report. From what we see we're quite pleased with how strong that market is holding up and we believe it continues to grow at a very good clip. One important indicator for us is the number of new customers we can open up; the new laser installs, as we call that here. Whether we sell a system, or have a lease program, or amortization program it doesn't matter, but the pace at which we open up new [centers] is holding very strong. We beli -- we think, or we know for our customers it's a profit source so they're quite interested in it. And again, we continue to like this market a lot and we have no reason to step away from the growth rates we've quoted in the past of mid-teens. We believe it is a good space, it's holding up very well under the economic pressures, and fundamentally there's a lot of growth opportunity.

All right, thanks a lot.

You're welcome.

Thank you. And our next question comes from the line of Jayson Bedford with Raymond James. Please go ahead.

Hi, good afternoon, guys. A couple of questions here. Just on the oncology business, what is really driving that, meaning your portfolio seems to have been on the market for quite some time. Are there any new products there? Clearly the market's not growing that quickly, so maybe if you could just pinpoint of what's the key driver here to what appears to be strong oncology growth?

Well, we agree with you, Jayson, there's very strong oncology growth and it is not the first time and I think we've got just a great team in place with a winning product portfolio, as well, and I think that combination, again, proves to be very effective. I think all product lines have been growing; I think we commented on that. So RF ablation, the Habib Knife, as well as LC Beads, each of those lines have been growing. You gain some share, you open some new accounts, it's all attractive in combination.

I think LC Beads, in particular, have been really driving the engine of growth for that whole unit, and are outgrowing all of the other products. It's the fastest grower we have in the Company as such. And in that, I think with the emerging clinical evidence, every single meeting -- I quoted the CIRSE meeting in the context of the NanoKnife system, a lot of buzz over there on chemoembolization, more and more interest in the US, more and more centers converting to that kind of therapy, and within that segment we're clear number one and we're growing with the market and frankly picking up -- increasingly picking up share, as well. So it's one of those situations where all the stars line up from a revenue point of view and we're able to take share. We're growing the market and we're the leader in that whole segment.

We've also recently introduced a new RF product to ablate 7cm lesions, so we do have some additional product there and there's also some new application area -- application work being done in the renal market, as well with the Habib surgical resectioning device. So we've seen strength outside of the LC Bead product, as well, in that business unit.

Okay. Just jumping to gross margin, I'm a little confused by the weakness there given the top-line growth. You mentioned mix, but I look at mix, your highest margin segment is also growing the fastest and seems to be accounting for a bigger piece of the pie, so I'm just a little confused as to why the margin is down -- sequentially down year over year despite much higher revenue?

Yes, the -- well, in that -- the fastest growing unit, the Oncology Surgery unit, the LC Bead product is not a product that we own so it has a lower-than-average margin in it, so that contributes to the mix in a negative way, and then beyond that there are other products and different margins, and so forth. But it's a combination of that mix plus the pricing pressure that we talked about, in the access unit, in particular, where ASPs are under some pressure and on the -- some of the purchased products that we buy we have had material cost increases. So it's a combination of all of those factors, as well as some utilization -- under utilization of the plant that have caused some manufacturing variances. So it's a number of things in combination that brought it to that level.

Okay. And if I could just squeeze one more in, you raised the low end of the EPS guidance but you didn't change your EBITDA guidance, and I'm just wondering what accounts for that? Is it just lower non-cash cost incorporated there?

Yes, slightly. And we were fully comfortable raising the two that we did, and not ready to raise any of the others at this time.

Okay. Thank you.

Thank you.

Thanks, Jayson.

And our next question comes from the line of Brooks West with Craig-Hallum Capital Group. Please go ahead.

Hi, can you hear me?

Absolutely, Brooks.

Great, thanks for taking the question. Joe, I just wanted to push a little bit more on the gross margin question. Looking at the 60.2% in Q1, you maintain the guidance of 61% to 62%, and you gave us a couple of scatter-shot reasons on how that's going to prove it. Can you point to a couple of major points that is going to bring that margin up to that range for the year? And then are we going to see that happen sequentially over the year, or are we going to see a significant move here at the end of the next quarter?

Yes, we weren't going to necessarily see it equally sequentially from here on. The improvements are going to be more in the third and the fourth quarter, as we complete some of the transitions to building some products here and get up above the learning curve. Initially when you bring a product -- transfer production of a product there are always some variances in the standard cost system until you get people fully trained on building the product. So the improvements will be more in the second half of the year, but as we transition some of the products that we had been buying from other parties to building them ourselves, in every case when we do that we see a significant margin improvement once -- up to full production efficiency of them. So we'll start to see those benefits through the balance of the year, and you'll notice, of course, in the guidance we didn't change the gross margin guidance, so we still are comfortable that we can get to that minimum level of gross margin overall for the fiscal year despite the 60.2% that we just reported.

And, Brooks, maybe to wrap it up with two specific examples that we touched upon in our comments here between Joe and myself, so DuraMax is a product that was released for full sales at the beginning of this fiscal year. We think over time it'll become the biggest product that we have in all dialysis segment, replacing a product that we bought -- are buying from a third party that will bring substantial advantage. Again, a simple reason to understand why the back half on that product line at least will be better than the first half. Another one, a little example, but that's how it's being built, is the Benephit. In the tail end of this year we will be building Benephit entirely from this location -- from this facility, which brings us economic advantages compared to the beginning of the year, and that's why. There's a couple of other ones like that, there's a few more that make us feel comfortable saying that the second half will be noticeably better than the beginning of the year and start picking up that curve.

Great. And then maybe if I could switch to the laser ablation business, that feels like a pretty nice turn in that business and I'm wondering, Jan, maybe on a scale of one to ten, is that anywhere near to where you think the potential of that business is, or is it really just back on a footing and you've got some opportunity ahead of you?

Well, there's an old saying in my home country -- you've got to throw in at least one, I guess -- the saying's, spotting one sparrow doesn't mean it is spring yet. But we like this quarter a lot and we don't think it's a coincidence. As I commented earlier on, we believe the market continues to be very healthy, very attractive. But I think also our sales force and our commercial teams, our marketing teams, our clinical teams have regained their confidence, got some spring back in their step. I think we're dealing with competition, be it in the low-cost segment with bare fibers or be it at the more premium segment against our RF technology, with much more confidence and, frankly, much more success. The 24% reported growth, again, includes -- I think it's about half a month, I think 17 days or something like that, or 12 days, what is it, two, three weeks of favorable comparison because of the Diomed acquisition. So you net it down for that and it's hard to do. I think Joe explained this at one of the previous calls, is you can't quite -- when we acquired Diomed and integrated it we discontinued some internal product lines, so you can't look at per forma growth, but we feel comfortable saying that at least in this quarter we've been growing at market rate and maybe even a hair beyond that and we think it's a real number. We think it's a real reflection of our performance there.

And then just if I could just sneak one more in. In that you had talked about a head-to-head study, or some kind of post-market study, laser versus RF, is that still in the works?

That's absolutely in the cards. Yes, it's in the works, yes.

Great, thank you.

Thank you. And our next question comes from the line of Greg Brash with Sidoti & Company. Please go ahead.

Good afternoon, Jan and Joe, thanks for taking my call.

Hey, Greg.

I believe it was last quarter you launched four new products, just curious how those are progressing, did they have a meaningful impact on the quarter?

Yes. Well, meaningful to [shareholders], meaningful to us. It's -- let me take you through the four. Two of them are in the RF field -- RF ablation field, so the XLi-E Semi-Flex and the StarBurst with preattached cable. The -- Joe, I think, was alluding to that. The fact that the RF business has been growing in Q1, I think it's partially also to be attributed to that kind of launches. They're not game changers but they are unique products in their own way. They make a difference in a very competitive landscape and help us to drive growth in the overall business, and innovation is key and you've got to continue to do that to keep also a healthy business very healthy. The third launch was DuraMax, and we like that product a lot. The more we sell the better off we are in multiple dimensions and it's strategically very, very important, but I don't think you've seen the full potential of that kind of product being reflected in our numbers. But if we would substitute the old product line, which DuraMax is replacing, with DuraMax I think it would have a significant impact on the business.

And the finally, the fourth launch I think we reported on in the first quarter was the 2.07 release of NanoKnife, that was for us almost like the go signal, the green flag to go commercial with NanoKnife. Very critical for us to incorporate the cardiac syncing and addressing any issues we saw in the beginning of the whole clinical pathway there. It's been working very well for us, and probably the revenue number that we reported in the first quarter on NanoKnife doesn't impress you all that much. I got the privilege of spending a lot of time with physicians, being in the symposia in Lisbon at the CIRSE meeting; there's a lot of buzz out there and we continue to feel very bullish and very strong about the potential of NanoKnife, yet at the same time also very realistic about what it takes in this day and age to get that commercial potential realized and materialized into real numbers.

So each and every one of them are very important launches. Again, two RF to keep a very healthy business healthy and going forward in a very competitive landscape, allow us to get out of the starting block with NanoKnife, and then DuraMax is an important portion, not only from a customer point of view and great technology but, frankly, also from an internal operations strategy. But I think you have yet to see the full impact of those launches.

And you have six or seven more here for the rest of the fiscal year, is that going to be spread out through the year, or should we expect most of those near the end of the year? I was thinking how would I think about that?

Well, I think I said on all of those it's going to be at the back half of the fiscal year. I don't want to comment really beyond that, but we did allude to Centros being a significant part of that. Some of the new PICC lines will come out, SmartPort extensions and all of that, but for competitive reasons, in particular, we would like to abstain from getting too granular on launch dates.

Okay. One more quick one, if I can. St. Jude was -- (inaudible) this morning mentioned a little bit of slowdown in hospital stocking, of certain devices, just curious if you're seeing any of that?

Listen, we've been scouring the marketplace for any viable excuse but we can't use that one, not in our product line. I'm not saying that St. Jude is not seeing it; they're in a very different line of products. We're not being held back by that. Listen. We notice the economic environment, we notice the fact that hospitals are short on money, we do realize shifting regulatory environments, but so far, again, we're trying to deal with it and prepare ourselves for whatever may come in the future, but that's not been a factor in our business performance in the first quarter, I'd say.

Great, thanks, Jan. And then, Joe, would you mind repeating the venous laser sale numbers in the quarter and I'll go back in queue?

Sure, they were -- for the quarter, the sales were $7.7 million in the first quarter, which was 24% growth, and the $6.2 million a year ago.

Great, thank you.

Thank you.

Thank you. And our next question comes from the line of Tom Kouchoukos with Stifel Nicolaus. Please go ahead.

Hi, good afternoon, guys.

Hey, Tom.

I just wanted to follow up on the EVLT question. Being out at TCT you guys had a booth there, which might have been one of the first times I've seen you at that meeting. You were showing that next to Benephit and it seemed like they go hand in hand in attracting the interventional cardiologist and I'm wondering, are you seeing a synergy between those two products? And then how -- talking to your rep it seemed like they felt like they were getting some good interest on the venous product, which historically really hasn't been the call point. Are you seeing more activity from interventional cardiologists getting interested in this technology?

I'd say yes, Tom. The synergy is very pragmatic, very operational sales force. There's no clinical synergy between the TRT and our EVLT product line, but EVLT is -- we see an emerging trend of interventional cardiologists being very interested in the whole segment, again as a source of personal income for them, as well. Very often done in private practice, it's a great opportunity to see the patients, it's not a difficult technique for them to learn, capital investments are very limited. So yes, we see that as a very important segment and that was one of the two reasons for us to indeed show -- exhibit the first time at TCT. The TRT product line, actually I think the original work FlowMedica did with their opinion leaders, the early opinion leaders were interventional cardiologists and there remains a lot of interest in that space. A good chunk -- a large portion of the interventional procedures in this country and in the world are being performed by interventional cardiologists and, again, it continues to be a very attractive segment for us.

So it was somewhat opportunistic. We found a cheap way to exhibit there without diluting and distracting ourselves too much. We held a symposium and a training session on Benephit TRT, which was well attended, albeit early in the day, and we'll evaluate this whole thing and see whether we do it again. But, yes, you're absolutely right. This is a relevant product for the interventional cardiology community.

Okay, great. And then going back to your comments from the last question. Looking at -- you've got a whole string of products coming towards the back half of the year, some which may already have approval and some may not. I'm curious with -- there's been noise around the 510(k) process, I'm assuming that's probably -- all of these products would fall under that. Are you seeing anything different as you go to make your filings and do you have any concerns that there could be some pushback given the FDA's under a lot more scrutiny these days?

Well, as Joe would say, fear is a bad advisor, but we're, at the same time, also very realistic. We have not seen it. We notice -- we've know this, of course, what's out there in the public domain. The statements have been made through the FDA and on behalf of the FDA. And we think there will be change. The good thing, there's going to be a level playing field. The change is going to be the same for all of our competitors. But frankly, for these remaining seven launches in the balance of the year, I don't think we'll see a major impact, if any. There's fairly straightforward products on (inaudible) 510(k)s, and again, we'd be a little surprised if there's a significant impact in those areas.

Okay, that's good to hear. And then one last one, you guys had mentioned the Sotradecol issue, I'm not too concerned about the details of that, but I am curious. You haven't talked about this product in quite a while, I'm just wondering, it was built a couple of years back as being a nice growth opportunity. Have you seen that market improve at all, or is it more just an incremental add to your overall venous business?

I would say at this point in time the way we look at it it's more incremental, rounding out the product line, allowing us to do some bundling where and when that makes sense. But we've also noticed very little appetite from physicians to pay a premium for an on-label product and it's just from that point of view a bit of an uphill battle. So it's an attractive product for us, it works for many reasons, but has limited strategic potential, I'd say.

Okay, great. Thank you very much, guys.

Thank you, Tom.

(Operator Instructions). Our next question comes from the line of Chris Sessing with AMI Asset Management. Please go ahead.

Yes, thanks for taking my question. I was wondering if you could talk a little bit about some of the patients that have been treated with the IRE to date. Are those going to be published in a peer journal? Is it up to the individual investigator's responsibility? Maybe you can clue us in on the update there.

Yes. No, a great question. Chris, I believe?

Yes.

The publications of patients treated thus far is entirely in the hands of and driven by the treating physicians. Why? Because they have not been treated under a protocol that is [supported as a part of or owned] by the Company. I know manuscripts have been submitted to do certain journals. At the CIRSE meeting, at the symposium, I know the key physicians that have a clinical experience gave an update verbally, as well. But again, as I said, manuscripts have been submitted and we do recognize the value of getting publications out there, in particular also in peer review journals. Once we go to Company-sponsored studies, in particular the three main studies, we will be more involved in driving those publications, more operationally involved, as such.

Anecdotally, as I said, very important, in particular from the work that Ken Thompson has been doing in Melbourne. The safety profile of the technology is actually remarkable, I'd say quite impressive. A lot of patients take this procedure in an outpatient setting. We're not aware of any significant or serious complications, as such, and he's treating very, very difficult patients, many cases last-resort therapies from that point of view. So we're increasingly comfortable with the safety profile. As I mentioned before, the cardiac syncing function performs very well and is good. Then the anecdotal clinical outcome in terms of follow up continues to be very promising and in many cases I would say exciting. Again, I had the privilege of spending a lot of time with physicians also over the last two months in one-on-one settings and settings where they are very open and very direct and very honest. And as I -- I can only summarize by saying we continue to be very excited about the potential of this technology and are very committed to it.

Okay. And then just as a follow up, as I -- everything that I hear is the safety is -- seems to be there, but the efficacy, we're going on about one year now, I think, since the procedures were first performed down in Australia, so I was just wondering if there's any planned data or if anybody's seen anything as to whether these tumors are actually returning or not over time?

So, Ken Thompson in Australia, he has submitted the follow up and the initial results and the follow up in a manuscript were to a journal, so hopefully that will come out, and I would really hope, and I think realistically, also, before the next conference call. Some of the very early patient data that were done before we acquired this technology may not become available for publication because of some regulatory challenges around that whole set of patients. And again, since this -- the initial strategy was based on an approach, where this was not a protocols -- Company protocols, it may be difficult to get all of that published. But once it's available, again, Ken Thompson, at some point down the road, the prostate work for [Dr. Prazzi] in Italy and a few other data, we're pushing hard to get it published. We absolutely understand the value of getting it out in the public domain, not only for you guys to assess the risk associated with this kind of investments and the early performance, but also in terms of commercial rollouts outside of the US, in particular. Very important and pushing hard.

Okay, and last question. How long do you -- how long should we expect the trials to take place? You talk about several years to getting those indications, but do you have a firm timeframe on those and a firm number of patients yet, or is that still to be determined?

Well, I'll take the prostate study as an example. What has been submitted to the FDA is the IDE for a pilot study, which includes a limited number of patients with limited follow up, which will just then set the stage for a pivotal study, which will give us a much more definitive solution. Obviously internally we have timelines and patient enrollment sizes, et cetera, et cetera, that we think we need to prove our point, but I don't think it would be good form to disclose that in public domain before we have agreed on that with the FDA. Now, it's not rocket science either. The statistics we use are the same that the FDA uses, so you'll -- if you depart from the same assumptions you end up with the same answer. But I'd say in particular in this environment we want to do this in good form and good dialog with the FDA, agree on the study and then commence it and at that point also we'll share it with the marketplace. I hope you understand that.

Sure. Great, thanks a lot. I appreciate it.

Thanks.

Thank you. And there are no further questions in the queue, I turn it back over to management for any closing comments.

Okay. This is Joe. Just before we do I want to respond to an earlier question with regard to the number of business days. And in the first quarter this year we had 65 business days and a year ago we had 64, so we had one additional business day in the current period, which would be about 2% additional compared to the prior year. Jan?

Okay, thanks, Joe. Again, I assume there's no more questions and (inaudible), I want to thank you, but I also want to thank everyone of you for your questions and your interest in AngioDynamics. We will continue to provide you updates on our progress, our developments (inaudible) and I do look forward to talking with you again through our second quarter fiscal 2010 conference call in very early January. Thank you all, have a great evening. Talk to you soon.

Thank you, sir. Ladies and gentlemen, that does conclude today's AngioDynamics first quarter earnings conference call. Ladies and gentlemen, if you'd like to listen to a replay of today's call, please dial 303-590-3030, or 1-800-406-7325. Enter the passcode 4159408. Once again those numbers are 303-590-3030, or 1-800-406-7325. Enter the passcode 4159408. Thank you for your participation and for using ACT conferencing. You may now disconnect.