Avinger Inc (AVGR) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Avinger's Second Quarter 2018 Earnings Results Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Camarra, Investor Relations for Avinger.

Thank you.

You may begin.

Thank you.

Thank you, everyone, for participating in today's call.

I'd like to welcome all of you to Avinger's Second Quarter 2018 Conference Call.

Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig.

Earlier today, Avinger released financial results for the second quarter ended, June 30, 2018.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws.

These 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 on 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 forward-looking statements.

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

For a list and description of 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.

With that being said, I'd now like to turn the call over to Mr. Jeff Soinski, CEO.

Thanks, Chris.

Good afternoon, and thank you all for joining us.

Avinger made significant progress on multiple fronts during the second quarter, and I'm excited to share this update with you.

During the second quarter, we delivered strong sequential quarter revenue growth, obtained FDA clearance of our next-generation image-guided atherectomy device, and made significant progress on the development of our pipeline products and in our clinical programs, while at the same time, maintaining a lean cost structure.

In recent months, we also added new capital to our balance sheet and made 2 important new additions to our senior leadership team.

Mark Weinswig, our new CFO, who joins me on this call, is a highly experienced financial leader with an extensive operational background.

And Dr. Jaafer Golzar, who joined us in July as our Chief Medical Officer, is a practicing interventional cardiologist, long-time Lumivascular user and key opinion leader in the treatment of peripheral artery disease.

Both are already making important contributions to Avinger as we build our organization to provide a strong foundation for growth, pursue operational improvements and expand our clinical and physician outreach programs.

Moving to our next-generation Pantheris image-guided atherectomy device, we announced in May that we'd received 510(k) clearance from the U.S. Food and Drug Administration, or FDA, for this improved device.

This is an important milestone for our company, and based on our initial experience in a growing number and wide variety of cases, we believe that our next-generation Pantheris represents a significant leap forward in meeting the needs of our physician customers.

Pantheris is the first ever image-guided atherectomy solution for the treatment of peripheral artery disease or PAD, a condition that is estimated to affect nearly 20% of the population over the age of 60 in the United States.

Our unique and highly differentiated device is based upon Avinger's proprietary Lumivascular technology, which is the only technology available that combines real-time intravascular imaging, with highly effective catheters for the treatment of PAD.

Our technology and products are protected by a broad patent portfolio, which includes over 120 issued and pending patents in the U.S. and international markets.

We're extremely excited about the early results with our next-generation Pantheris atherectomy device, which incorporates several design improvements, including a simplified single-balloon system for both cutter apposition and blood flow management, a stiffer shaft for increased pushability, a reinforced nosecone with the option for more tissue storage capacity and an enhanced cutter design.

These primary feature improvements and other advancements are intended to augment the performance and reliability of the device, and have thus far, resulted in very positive acute outcomes across a variety of lesion types, including heavily calcified disease, chronic total occlusions and in arteries above and below the knee.

Following FDA clearance in May, Lumivascular physicians in the U.S. began treating patients with the new device in our initial 13 U.S. sites.

Based upon the positive case experience and impressive clinical outcomes in initial sites in the U.S. and in Germany beginning earlier this year, we made the decision to launch the next-generation Pantheris more broadly to our installed base in June.

Since that time, we've discontinued all sales of our previous version of Pantheris in both the U.S. and in Europe, and are now selling the next-generation device in 2 versions, the A400, which has a standard nosecone and the A400x with an extended nosecone with the ability to capture up to 70% more plaque in a single insertion.

We continue to be very pleased with the physician response to the next-generation Pantheris, the strong clinical outcomes achieved with the device and the significantly improved reliability of the next-generation product.

We've also made the appropriate filings with the FDA to incorporate our next-generation Pantheris into our INSIGHT IDE clinical trial currently in progress.

INSIGHT is a multicenter clinical study, designed to evaluate the safety and effectiveness of Pantheris for treating in-stent restenosis, or ISR, in lower extremity arteries.

The INSIGHT IDE allows for the inclusion of up to 20 sites in the study.

We added several new sites in the second quarter and now have 12 sites open for enrollment, with several more expected to be open for enrollment by the end of the third quarter.

We expect most of the enrollment in this trial to take place once the next-generation Pantheris is cleared for use in the trial.

Due to the precise control and strong visualization of stents struts afforded by Pantheris, and our early clinical experience here in the U.S. and in Europe, we're excited about the prospects for Pantheris to provide a safe and effective solution for treating these challenging lesions, which represent approximately 20% of PAD procedures in the U.S. We've also made significant progress in our SCAN study, a small-scale clinical trial we initiated in the second quarter, which is intended to support our CPT code application for incremental reimbursement for OCT diagnostic imaging in the peripheral arteries.

SCAN is a post-market study that compares OCT imaging with Pantheris to intravascular ultrasound, or IVUS, which currently receives reimbursement as a diagnostic tool in the peripheral arteries.

Enrollment in SCAN has progressed well and we expect to complete enrollment in the study this week.

In addition to the next-generation Pantheris recently launched in the U.S., we also anticipate submitting a 510(k) application with the FDA in this third quarter for U.S. clearance of a lower profile six-French version of Pantheris for smaller vessels, including those below the knee.

We also plan on filing for CE Marking for clearance of the small vessel device in Europe soon after our U.S. submission.

Based on our past experience, we anticipate that earlier clearance in Europe would provide the opportunity for clinical experience with this new lower-profile device in select sites in Germany in the fourth quarter of this year.

We remain extremely excited about the potential for this anticipated expansion of our Pantheris product line, which incorporates the highly differentiated benefits of real-time imaging in a longer length, lower-profile device.

By allowing our physician users to access smaller vessels, including those below the knee, we estimate that this new device could expand our available market by as much as 50%, allowing us to address a significantly larger portion of the estimated $500 million plus U.S. atherectomy market.

On the commercial front, our sales team is focused on the launch of the next-generation Pantheris to our installed base, and driving utilization of Pantheris and our Ocelot product line, our image-guided CTO-crossing devices in existing accounts.

Doctors and patients are realizing the significant benefits of our Lumivascular approach.

With the availability of our next-generation Pantheris, we're building our pipeline of new accounts for future expansion of our installed base, and we're in the process of strategically expanding our field sales team with the addition of experienced new sales professionals in key geographic territories to support our growth through the fourth quarter and into 2019.

In summary, we're pleased with the progress that we're making on multiple fronts as we position the company for growth.

Avinger has a very bright future, and our entire team remains focused on leveraging the numerous opportunities that lay ahead of us as we strive to achieve our ultimate goal of improved utilization, increased market share and enhanced shareholder value.

At this point, I'll turn the call over to Mark to take you through our financial results.

Mark?

Thank you, Jeff.

First, let me take a moment to express my excitement at being at Avinger.

I believe the company is in a great position to capitalize on its historical level of R&D investment, new product introductions and improved financial position and cost structure.

With strong execution, the company could be a disruptor by significantly improving the lives of patients and doctors as Avinger's Lumivascular products win traction in the marketplace.

I'm happy to be a member of the team contributing to seeing this vision become a reality.

Now let me turn to our financials.

Total revenue was $2.1 million for the second quarter ended June 30, 2018, a 14% increase from the first quarter of 2018.

Revenue from disposable devices was $1.6 million for the second quarter, a 7% increase compared to the first quarter.

Revenue related to Lightbox imaging consoles and other products was $0.5 million, up roughly $150,000 from the prior quarter.

At the end of the second quarter, our Lumivascular installed base was roughly 140 accounts, as the company continues to focus on supporting catheter utilization within our most productive territories and accounts.

Gross margin for the second quarter of 2018 was a negative 5%, which included approximately $0.6 million of excess inventory related charges and noncash stock compensation expense.

Excluding these items, gross margins would have been 25% in the second quarter, up from 18% in the prior quarter.

The increase in our non-GAAP gross margin for the second quarter -- through the second quarter was primarily due to increased revenues and higher factory utilization.

Operating expenses for the second quarter were $5.4 million compared to $6 million in the prior quarter.

We expect our sales and marketing expenses to increase moderately in future periods, as we begin to expand our direct sales force with the launch of our next-generation Pantheris device.

With the traction we are starting to see in the marketplace, we believe it is a good time to start adding to our direct sales teams in key locations.

Loss from operations for the second quarter of 2018 was $5.5 million compared to $5.6 million for the prior quarter, and net loss attributable to common stockholders for the second quarter of 2018 was $6.6 million.

Adjusted EBITDA, which is a non-GAAP measure that excludes excess and obsolete inventory reserves, restructuring, stock compensation and other items, as noted in the tables in today's press release, was a loss of $4 million for the second quarter of 2018, compared to a loss of $4.8 million in the immediately preceding quarter.

We have made significant progress in controlling costs and bringing our cost structure down to a much lower level.

As we mentioned previously, with the successful launch of the next-generation Pantheris device in the second quarter, we expect to make some investments in our sales efforts, which may increase our operating expenses over the next 1 to 2 quarters.

We believe the increase in revenues should make up for the increased expense levels.

Moving to the balance sheet.

Cash and cash equivalents totaled $10.1 million as of June 30.

This excludes the net proceeds of roughly $3.2 million that we raised in July 2018 as part of the sale of 2.2 million shares of common stock and approximately 1.1 million warrants.

As of June 30, 2018, there were approximately 9.3 million shares of common stock, 41,800 shares of Series A preferred stock, and 1,701 shares of Series B preferred stock outstanding.

Each share of the Series A preferred stock is convertible into 500 shares of the company's common stock at a conversion price of $2 per share, and each share of Series B preferred stock, after taking into account the effect of the July 2018 registered direct offering, is convertible into approximately 633 shares of the company's common stock at a conversion price of $1.58.

Assuming conversion of all the outstanding shares of preferred stock at the current conversion prices, the company would have approximately 31.3 million shares of common stock outstanding at June 30, excluding outstanding warrants.

Therefore, as of August 1, 2018, including the common stock sold in the July 2018 offering and assuming conversion of all outstanding shares of preferred stock at the current conversion prices, the company would have approximately 33.5 million shares of common stock outstanding, excluding outstanding warrants.

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

Thanks, Mark.

We're pleased with the progress we've made this quarter as we transition the company to growth and believe that 2018 will prove to be a pivotal year for Avinger.

We've achieved a significant milestone with the approval and launch of our next-generation Pantheris image-guided atherectomy device.

We've added important, new executives to our senior leadership team, we've continued to make good progress on the development of our product pipeline and in our various clinical initiatives with a number of important milestones still to come over the next few months, including the anticipated filing this quarter of the 510(k) application for our next-generation Pantheris small vessel device.

And we continue our focus on driving efficiency and productivity throughout the organization, while we make strategic investments to build a strong foundation for growth in 2019 and beyond.

At this point, we'd be happy to take your questions.

(Operator Instructions) Our first question is coming from the line of Jeffrey Cohen with Ladenburg Thalmann.

So just a little further information on a couple of issues.

So you're talking about the trial now, I guess, up to 140 participants for this next-gen device.

Are you talking about the device that was just approved?

Or you're referring to the six-French that will come at some point?

Yes, so Jeff, you're referring to the INSIGHT IDE trial for ISR in-stent restenosis, and we began enrollment in that study using our -- actually our previous version of Pantheris, which was currently available at the time.

And as we said on the call, we've added significant new sites and once we received the approval for the next-gen Pantheris, which is a seven-French size that we're currently marketing, we submitted the appropriate documents to the FDA to request clearance to use that next-gen device in our clinical trial.

And so the plan is, is that the majority of patients that we enroll in that study from this point forward will be with our next-generation device, which is the only device we're marketing currently.

And so as you pointed out, we're allowed to enroll up to 140 patients, we might not necessarily need to enroll the full number to get to the data sets that we need.

But that is an initiative that we're focused on, as one of our important clinical initiatives this year, especially, now that we've completed enrollment this week in our SCAN study.

Okay.

And of the 12 centers that are open, can you give us an indication how many are enrolled?

Or when do you expect to wrap that up as far as the enrollment side?

Yes, we -- most of those centers were just added since the beginning of the year and many in the second quarter.

And so we've made the decision that we'd -- although we have been enrolling along the way here, that we would wait to really push on the enrollment until we had the next-generation device, because we want most of that data set to be based upon the performance of our next-generation device, which we're just extremely happy with in the market so far.

So when you kind of look at timing of enrollment, our goal is to be at or close to full enrollment by the end of the year, and I think we're making good progress, especially with the additional sites open towards that goal.

Okay, I got it.

And then just follow-on, the six-French sizing.

Where do you stand now, as far as testing or trial work in front of a filing?

Yes, so we're very pleased with the progress we've made on that device.

As we've talked about, we think it's strategically very important to open up our available market and to provide physicians with the benefit of Lumivascular in small vessels, wherever they are, but given the length and low profile, we do open up, we believe, a much larger opportunity for us in lesions all the way down to the ankle.

And so we have completed all of our, what's called DVT testing and internal verification and validation as well as our user testing.

And we're now -- our next step will be to file the 510(k) submission with the FDA, which we expect to announce this quarter.

Okay, okay, I got it.

And overall, Jeff can you give me just a general sense of current commercialization activity?

Can you walk me through the size of your commercial organization now?

And what that will look like over the next, say, 2 or 3 quarters as far total size for the (inaudible).

So we have maintained our commercial organization at about the same size, since our last quarter.

However, now that we have the availability of the next-generation Pantheris, we are strategically adding.

As you'll remember, we ended the first quarter at about 18 folks and we expect, by the end of the year, to build maybe add another say 4 to 6 by the end of the year, which on an absolute basis, is not a -- I'm sorry, a large number, but on a percent basis, quite significant.

Our primary focus is to get the right people, who have the experience in the clinic, who can become productive quickly.

And we've actually had a couple of folks just start recently, and we're actively recruiting in other territories now, but with a focus and an emphasis on getting them up to speed, so that they can be productive in the fourth quarter and certainly through 2019, depending upon timing of hiring.

Okay, got it.

And one more, if I may.

I think for Mark, if you could walk me through the comment that you're discontinuing sales of the previous version of the Pantheris, and give me an indication as far as what percent of the inventories that represents.

It looks like you have about $3.5 million of inventory, you worked off about $800,000 of inventory?

Yes, so Jeff, thanks for the question.

So regarding our inventory levels, the inventory value that we have as of 6/30, it's already taking into account the fact that we would actually not be selling the older version of the Pantheris device.

So we believe that the inventory value that we have as of right now are good reflection of kind of the current opportunities for the organization.

Okay, so no further write-downs at all to expect on the inventory?

None expected at this time, no.

(Operator Instructions) I'd like to turn the floor back over to management for any additional concluding comments at this time.

Well as we close to call, I'd like to thank and congratulate the Avinger team on a strong quarter.

We have a lot of important work ahead of us, but we're pleased with the progress we're making and appreciate the efforts of all involved.

We'll be out telling the Avinger story at a few upcoming investor conferences, including H.C. Wainwright in -- on September 6, the LD Micro Conference in New York on October 1, and the Ladenburg Thalmann Healthcare Conference on October 2, we'll be issuing notices at the appropriate time.

Thank you, again, all for joining our call this afternoon, and we appreciate your interest in our company and look forward to updating you on our progress when we report third quarter results.

Ladies and gentlemen, this does conclude today's teleconference.

Again, we thank you for your participation, and you may disconnect your lines at this time.