Avinger Inc (AVGR) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Avinger, Inc.

Earnings Conference Call.

(Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Mr. Mark Klausner of Westwicke Partners.

Please go ahead.

Thank you.

And thank you all for joining us on today's call.

On today's call are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Matt Ferguson.

Earlier today, Avinger released financial results for the second quarter ended June 30, 2017.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements.

All forward-looking statements, including, without limitation, our future financial expectations, are based upon our current estimates and various assumptions.

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

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

For a list of and a description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission.

Avinger disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.

I'd now like to turn the call over to Jeff.

Thanks, Mark.

Good afternoon and thank you all for joining us.

Following our strategic reorganization in April, I'm very pleased with how the company has pulled together and made good progress on the objectives we laid out on our last call, related to the advancement of our Lumivascular platform for the treatment of peripheral artery disease.

Our sales team has been increasing utilization of our image-guided catheters within key accounts in our install base, and we've seen solid progress with reorder trends within our loyal user base.

Our R&D efforts are proceeding well and as we laid out before, we expect to have 2 new products fueling our growth in 2018.

Before I update you on our various growth initiatives, I mentioned on our last earnings call that we had the goal of reducing quarterly cash usage by approximately 50% in the second half of this year, compared with our average quarterly cash usage in 2016.

Our results today show we are well on our way there.

With our cash usage in line with our plan and a cash balance of $14 million at the end of the second quarter, we believe we have sufficient cash to fund our operations through year-end.

We're also continuing our process of evaluating various financial and strategic alternatives, and we're looking forward to updating you on these initiatives when appropriate.

I'm now going to provide a bit more color on our progress and also review some of the growth drivers we have ahead of us.

After that, Matt will walk you through our second quarter financial results, and then we'll be happy to take your questions.

As we mentioned on our last earnings call, our sales team's focus is on driving utilization in the hands of our most committed users.

While we are continuing to strategically add new accounts during this transition period, we are also taking the opportunity to clean up our installed base.

Allowing us to focus our resources on more productive accounts and our most productive sales territories.

After accounting for these adjustments, we ended the second quarter with an install base of 157 Lumivascular accounts.

Our current team of 25 sales reps is focused on utilization and reorders, moving beyond the stocking orders we've seen in prior quarters, and we're pleased with the $2 million in disposable sales they brought in last quarter.

We continue to hear great reports from physicians about the positive outcomes they're seeing in their Lumivascular cases and the unique value this technology brings to their practices.

We had many positive conversations with physicians and significant podium presence at the CVC meeting in Chicago in July, with our products featured in live cases.

Over the next few days, our technology will be featured at the AMP meeting, also in Chicago, and we're also looking forward to engaging with thought-leading physicians at Diva in September.

At these conferences, we're building awareness of the many benefits provided by our Lumivascular technology, and continuing to gain physician feedback on our next-generation products and future growth opportunities.

Now, turning to our product development and pipeline products.

As we discussed on our last call, our R&D team is working hard to complete verification and validation testing and prepare our 510(k) filing for Pantheris 3.0, our next-generation image-guided Atherectomy Catheter.

As we've discussed in past calls, we've been making a series of incremental improvements to the current version of the Pantheris over the past several months, with most of these changes made under a letter to file regulatory pathway.

In the second quarter, we filed a 510(k) application that rolled up these multiple improvements into a single filing and hope to receive clearance of that filing in the next few weeks.

Our goal is that this interim clearance might streamline the FDA review process for Pantheris 3.0.

As you may remember, Pantheris 3.0 involves a number of meaningful changes compared to the improved current version of Pantheris, including a redesigned single-balloon system for both apposition and occlusion, a stiffer shaft for better pushability, a more robust nosecone with 2 length options and an enhanced cutter design to name just a few.

We plan to file for 510(k) clearance of Pantheris 3.0 in early fourth quarter, which is slightly later than previously planned, but we believe this is the right strategy given the number of improvements in our next-generation Pantheris device.

Our Pantheris BTK program is also tracking well and we recently completed our GLP animal safety studies for this device, as well as incorporated additional improvements from our Pantheris 3.0 program.

To remind you, the 6-French version of Pantheris has a lower profile and longer length than our existing Pantheris products, and will enable treatment of vessels down to 2 millimeters, which can be found below the knee, where we believe our outstanding safety profile will be key.

Given the small size of the vessels being treated, this product design also eliminates the need for an inflation system to provide apposition and occlusion, which we believe will make the product even easier to use and result in a more streamlined procedure.

We believe this new device will expand our available market opportunity by as much as 50%, and therefore will also result in increased utilization by our customers.

We're also excited that much of the R&D work for this lower-profile device will be directly leverageable when we begin discussions with the FDA about devices that can be used in the coronaries, which represents another future market for us.

We now expect a first quarter of 2018 510(k) filing for this product.

We're extremely pleased with the unique features and benefits provided by this catheter and believe it's addressing a real unmet need in the peripheral vascular space.

Over the past few months, we've also made important progress on our in-stent restenosis or ISR pivotal study for Pantheris.

As you may recall, while Pantheris is currently not contraindicated for ISR, this study will support a filing with the FDA to expand the product label to specifically include treatment of ISR and enable us to directly promote Pantheris for this purpose.

We are optimistic about Pantheris' potential role in this challenging area, which represents approximately 20% of PID procedures in the U.S. Our trial is approved for up to 140 patients at up to 20 sites.

We filed for IRB approval at our 2 initial trial sites and, pending approval, we expect to begin enrollment in both sites during this quarter.

We plan to expand to additional sites in the fourth quarter and will seek clearance to incorporate our Pantheris 3.0 catheter into the trial once we file for 510(k) clearance of that device.

Our current plan is to complete enrollment in the ISR trial in the first half of 2018.

As a final update, we've been engaged with our reimbursement consultants and are making good progress on finalizing our CPT application strategy in defining our clinical programs to pursue incremental reimbursement for OCT diagnostic imaging for our devices in the peripheral arteries similar to the reimbursement currently provided for the use of intravascular ultrasound, or IVUS, in this setting.

Needless to say, this could be extremely compelling from a clinical and economic standpoint.

While this is still a work in progress, the team is executing well against the program and we expect to be in a position to share more details related to our plans and anticipated timing on our next quarterly earnings call.

In summary, we're pleased with the progress our more focused commercial team is making in the field and continue to believe that our Lumivascular platform, including Pantheris, will prove to be an important therapy in the treatment of vascular disease.

To that end, our product development, regulatory and operations team are all working hard to ready our new products and indications for launch, which we anticipate will drive our growth in 2018 and beyond.

I'd now like to ask Matt to review our Q2 financial results and then we'll open up the call for your questions.

Matt?

Okay.

Thanks, Jeff.

Total revenue was $2.5 million for the second quarter ended June 30, 2017, a 47% decrease from the second quarter of 2016.

Revenue from disposable devices was $2 million, a 46% decrease compared to the second quarter of 2016.

Revenue related to Lightbox imaging consoles was $0.5 million, a 50% decrease compared to the second quarter of 2016.

In the second quarter, our Lumivascular install base decreased to 157 accounts.

Gross margin for the second quarter of 2017 was negative 59%, which was down from 22% in the comparable quarter of 2016.

The decreased gross margin was primarily attributable to $2.3 million in charges for excess and obsolete inventories, which were primarily related to reduce expectations for the opening of new Lumivascular accounts through 2018.

Without this charge, gross margin for the quarter would have been positive 35%.

Operating expenses for the second quarter of 2017 were $9.8 million compared to $13.3 million in the second quarter of 2016.

This decrease was primarily attributable to higher sales and marketing expenses in 2016, when the company expanded its commercial organization in conjunction with the commercial launch of Pantheris.

Loss from operations for the second quarter of 2017 was $11.3 million compared to $12.3 million for the second quarter of 2016, and net loss for the second quarter of 2017 was $12.8 million compared to $13.5 million for the second quarter of 2016.

As we mentioned before, expenses related to our April restructuring were recognized in Q2 in the amount of $0.5 million.

Loss per share for the second quarter of 2017 was $0.54, compared to $1.06 for the second quarter of 2016.

Adjusted EBITDA, a non-GAAP measure, was a loss of $9.0 million for the second quarter of 2017, compared to a loss of $10.3 million for the second quarter of 2016.

Cash and cash equivalents totaled $14.0 million as of June 30, 2017, compared to $36.1 million as of December 31, 2016.

Based on the company's recent organizational restructuring and other expense reduction measures, the company expects cash utilization to decrease to approximately $7 million per quarter during the second half of 2017, compared to an average of $13.4 million per quarter in 2016 and $9.1 million in the second quarter of 2017.

At this point, I'd like to turn the call back to Jeff.

Thanks, Matt.

Looking ahead, we're focused on readying the company for the launch for our new products, while we drive utilization of our current devices and also expand our clinical program.

As a reminder of our key upcoming milestones, we plan to file for 510(k) clearance of our next generation of Pantheris in October and plan to file for 510(k) clearance of our 6-French Atherectomy device in the first quarter of 2018.

We also look forward to beginning enrollment of our ISR trial later this quarter, and on our next call, plan to share more details related to our program to seek incremental OCT diagnostic reimbursement for our current devices.

We look forward to updating you on our progress on future calls.

And with that, we'd like to open the call to your questions.

(Operator Instructions) And our first question comes from the line of Jason Mills with Canaccord.

It's David Rescott on for Jason Mills.

Could you guys comment on kind of on the factors that you saw contributing to the decreased cash burn in the quarter, and kind of really, with $14 million left in the balance sheet and looking forward to $7 million a quarter.

How you really see that tracking forward?

Sure.

So as you know, we conducted a pretty major reorganization of the company in April, just a few months ago.

And so that was during the first part of the second quarter, but we did incur expenses related to that restructuring during the quarter.

So we saw cash burn during Q2 come down to just about $9 million, and that's very much in line with what we were expecting, and we believe we're on track to have that come down even further now that, that reorganization is behind us.

So we're pleased with -- both with the way the organization is responding after going through that relatively difficult process.

But we're also very pleased that we've been able to bring down our cash burn that significantly already, and that we believe we'll be able to bring it down further from that point.

So -- and we're tracking, we believe, to about $7 million as we go through the second half of the year here.

And given the $14 million that we had on the balance sheet at the end of the quarter, that would take us right up to about year end.

And the only thing I would add to that is the big driver of savings of course is the reduction in headcount, but we're looking for every opportunity to operate more efficiently as an organization, while not sacrificing progress on our important milestones related to new product development, new clinical data and importantly, making our sales organization more efficient and driving utilization in our current accounts.

Maybe as an example of that, we actually -- although our revenue did decline on an absolute basis, our sales per headcount did increase significantly, as did our catheter utilization per headcount, which increased by about 50% in the second quarter versus the first quarter of '17.

Okay.

And so -- okay.

And as far as kind of revenue, do you think that the reduction in sales headcount kind of the utilization was the driver of revenue in the quarter?

Yes.

And we -- as you saw in the past quarters, we have been pretty prolific in opening new accounts every quarter.

I think averaging about 15 new accounts a quarter.

During this quarter, we really focused on driving utilization in our existing accounts.

We did strategically add some new accounts, but also took the opportunity to clean up our account base and bring that supported account base in line with our more productive accounts and also our best supported territories.

So what you're really seeing in the second quarter is reorder volume as a primary driver, as well as just some strategic new adds for new accounts versus second quarter last year was virtually all stocking orders for Pantheris, in the Pantheris part of our disposable revenue stream, given that, that was the quarter we launched.

Okay.

And then, so kind of going forward is that what you're expecting, kind of new -- with catheter utilization as being the main driver for revenue, end of the year?

We do, through the -- certainly through the end of 2017 is, will continue to be our primary focus.

Obviously, we'll start to benefit from the launch of our new products early in '18, first with the Pantheris 3.0 device and the multiple improvements that, that incorporates.

And then, with the BTK device or the lower profile device for smaller vessels later in the -- in 2018.

Our next question comes from the line of Steven Lichtman with Oppenheimer.

It's Dennis in for Steve.

I guess, first question, can you kind of go into more detail on the new -- how the new sales force structure is -- has been working for you?

And any noticeable changes you've seen in the field for this past quarter?

Yes.

Well, first of all, thanks for the question, Dennis.

We're really pleased with how the group has come together.

We did, as you might remember -- had 2 regional VPs and we, as a smaller organization, consolidated under 1 sales leader.

We believe he's done a really great job of pulling the group together and focusing the organization on driving catheter utilization, primarily in existing accounts and the strategic addition of new accounts.

So that is really our focus.

And we continue to see, literally every day, outstanding case results.

So -- and the other thing that the sales organization has been doing, partnering with our clinical group and our marketing group, is to identify the sites where we're going to enroll our ISR study, starting with 2 sites this quarter, which are the 2 physician investigator sites and then expanding beyond that in the fourth quarter of this year.

So we feel like we're making good progress in all areas, pleased with the way the group's come together under strong leadership, and are also -- as I said just a moment ago, pleased with the increase in utilization per rep as well as increase in revenue per rep.

And we think that can continue to improve throughout the end of the year, as we get ready for the launch for our new products.

Great.

I guess a few follow-ups on the -- I guess the financial side.

Any potential for you guys to potentially draw down further on the CRG loan?

Or has that been kind of exhausted in avenue for capital; and I guess in the cost side, any chances on going into more detail on how you might rationalize the cost structure?

Realizing what you're trying to accomplish for the rest of the year?

Yes, Dennis.

The existing agreement with CRG doesn't provide for the ability for the company just to call additional cash.

We are certainly in good regular contact with CRG, and so we have a very good relationship there.

Clearly, the company has a significant amount of debt on its balance sheet currently.

So we don't see that as a primary way to bring more cash into the company at this point.

But I wouldn't rule anything out.

In terms of expenses, we've done a lot at this point in terms of skinning down the organization and also really looking at every discretionary expense that we have.

And we feel we've made great progress there.

There are some other things that we potentially could do to maybe further trim discretionary expenses.

But we're pretty close to I think where we should be at this point, given what we're trying to accomplish and given the kind of long list of milestones that we have ahead of us that we think will really drive value in the company.

So we don't want to sacrifice any of those, and we don't think we have to in order to keep the company going.

Great, that's helpful.

And last one for me would just -- can you speak to any clinical data on the horizon that might help you drive utilization further?

So we did put out, as you know, earlier this year, our 24-month -- 12 and 24-month data from our VISION study, which has been very positively received by the clinical community.

We are continuing to work with single sites and individual physicians to develop case series that they are interested in to show the many different benefits of our device, had a couple of posters and significant as we said, podium presence at CBC; at AMP this week there's a couple of posters being presented as well.

So we're continuing to build data in the smaller ways, while we're beginning enrollment in our in-stent restenosis trial.

And we're very excited about that.

As you know, we are not contraindicated for ISR and physicians are, on their own, using our device for ISR in a certain number of cases and are getting outstanding results, very large luminal gain with the empowerment of real-time visualization providing for an extremely safe procedure and very good visualization of the stent struts so they can be avoided.

So as you know, there's only 1 device that has a label or claim for ISR currently, and the data for that device isn't that strong.

So we believe that we can not only provide much greater luminal gain but better long-term results and are excited to develop that.

I think it'll be very meaningful to our business.

And as we said, we expect to begin enrollment this quarter and complete enrollment in the first half of 2018.

In addition to that, we are very interested in going after incremental reimbursement for OCT diagnostic, similar to what IVUS has, which would be particularly impactful in the op space labs.

We are working with a physician investigator as well as advisers to define a comparative clinical study of IVUS versus OCT to support the CPT application for that incremental reimbursement.

And that will also develop data that we think will be meaningful and important to the clinical community, and expect to begin enrollment in that study in a relatively near time frame and we'll lay out specific time lines on our next call.

So we'll continue to pursue and develop kind of individual physician data as mostly driven by physicians themselves.

And then start enrollment in these larger studies as well.

That concludes our question-and-answer session for today.

I will now turn the call back over to Jeff Soinski for closing remarks.

Well, thank you all for joining our call this afternoon.

We do appreciate your interest in our company and we look forward to updating you on our continued progress when we report our third quarter results.

Thank you, very much.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect, and everyone, have a great day.