Avinger Inc (AVGR) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Avinger First Quarter 2019 Results Call.

(Operator Instructions)

At this time, it is my pleasure to turn the floor over to Matt Kreps, with Darrow and Associates.

Sir, the floor is yours.

Thank you, Christie.

And thank you all for participating in today's call.

I would like to welcome you to our Avinger's First Quarter 2019 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 first quarter ended March 31, 2019.

A copy of the release is posted on the Avinger website under Investor Relations.

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, which are made pursuant to safe harbor provision 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 or future financial expectations, are based on our current estimates and various assumptions.

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

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

For a list and description of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q 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.

Thank you, Matt.

Good afternoon, and thank you all for joining us.

On our last call, we discussed how 2018 was a year of significant progress for Avinger.

We repositioned the company to focus on higher-margin disposable sales, drove growth in total cases, reduced operating expenses, strengthened the balance sheet and expanded our product line with truly innovative tools in the fight against peripheral artery disease.

We also discussed 5 strategic goals that form the pillars of our growth strategy going forward in 2019.

These include: first, driving utilization at current sites and in current markets; second, launching new sites in underserved areas with high rates of PAD; third, launching new devices to expand our addressable market and revenue per site opportunity; fourth, continuing to produce compelling clinical data confirming the unique benefits of Avinger's Lumivascular platform; and fifth, maintaining a lean operating structure as we scale the business.

I'm pleased to report that we made good progress against these goals in the first quarter and year-to-date.

Pantheris next-generation cases continue to ramp on a year-over-year basis.

We secured FDA clearance for our Pantheris SV device.

We've added new Lumivascular accounts and increased our number of active ordering accounts.

We improved our balance sheet with $8 million in new proceeds since the start of the year from the exercise of preexisting warrants.

We announced the publication of new clinical data demonstrating the outstanding clinical outcomes possible with our Lumivascular products.

And we've continued to advance our pipeline products, including our next-generation Ocellaris CTO-crossing device, which we expect to submit for regulatory clearance later this year.

At the same time, we achieved the lowest operating expense level in the past few years through a continued focus on cost control and efficiency.

Let me break this down a bit more and discuss some of the specific progress we've made against our strategic growth initiatives in the first few months of 2019.

First, driving utilization at current sites and in current markets.

While our business experienced typical seasonality in the first quarter, we delivered strong growth in Pantheris revenue, with Pantheris sales increasing 46% compared to the year ago period.

The next-generation Pantheris device continues to perform extremely well from a quality, reliability and most importantly, clinical results perspective.

This performance, combined with the efforts of our clinical sales force, translates to higher customer satisfaction and increased utilization.

The second quarter is off to a strong start with revenue and case volume trending positively compared to both the year ago and prior quarters.

We continue to make strategic investment in our sales force to support this growth, including the hiring of 2 new sales people since the beginning of the year.

With these new hires and additional recruiting efforts in process, we continue to track towards our target of approximately 30 sales professionals in our organization by year-end 2019.

We believe this investment in our sales force will be important to facilitate continued ramping of Pantheris cases, support the launch of Pantheris SV, enable the opening of new user sites and expand our present scenarios with high incidence of PAD.

We've also made good progress against our second growth initiative, adding new Lumivascular sites.

We launched 4 new Lumivascular accounts in the first quarter.

With the addition of these new sites and recurring catheter orders from existing sites, we had a total of 75 active ordering accounts for our Lumivascular products in the first quarter.

We expect this positive trend to continue in the second quarter and throughout 2019 based on the strong performance of our next-generation Pantheris, excitement around the pending commercial launch of Pantheris SV and the strategic expansion of our sales force.

Earlier this quarter, we announced some exciting news related to our third growth area, launching new devices to expand our addressable market and revenue per site opportunity.

In April, we received 510(k) clearance from the FDA for our Pantheris SV image-guided atherectomy device.

Designed with a lower profile and longer length than our current Pantheris device, Pantheris SV is indicated for the diagnosis and treatment of PAD in small diameter vessels, including those below the knee.

By providing access to smaller vessels, we believe that Pantheris SV could expand our available market by as much as 50% or $180 million and allow the company to address a significantly larger portion of the estimated $500 million atherectomy market.

Treating small vessels, especially those below the knee, presents a number of challenges and physicians have had a limited set of minimally invasive tool to provide safe and effective outcomes for this high-risk patient operation.

By combining directional atherectomy with real-time image guidance, Pantheris SV has the potential to provide several clinical advantages, including an enhanced safety profile, the ability to maximize luminal gain without causing vascular injury and precise vessel measurement capabilities.

The initial case experience with Pantheris SV under CE Mark in Europe has been positive, and this innovative new device was featured in a live case transmission at the prestigious LINC clinical conference in Germany in the first quarter.

Now that we've received FDA premarketing clearance for introduction into the U.S. market, we're preparing for an initial limited launch into approximately 12 U.S. key opinion leader sites, all of which have experience with our Lumivascular platform and our current Pantheris device.

As with next-gen Pantheris, we believe this is an important step in gaining new device experience with multiple users in a variety of vascular anatomy, lesion types and clinical setting.

It also provides an excellent opportunity for us to fine-tune our clinical support and physician and sales training programs prior to full commercial launch.

We're now engaging with accounts to add the new Pantheris SV product code to their ordering systems, providing any necessary updates to the Lightbox imaging council in clinical sites, training our clinical support staff and sales teams and building product inventory to support product launch.

We'll also be showcasing Pantheris SV at the NCVH conference in May, and the CVC conference in early July, both important U.S.-based clinical conferences focused on the treatment of vascular disease.

While there's a lot of Pantheris SV-related activity this quarter to prepare for market launch, we anticipate beginning limited launch cases early in the third quarter and then proceeding to full commercial launch later in the third quarter, once initial cases have been performed.

We expect Pantheris SV to drive increasing case volume and be accretive to our revenue growth in the second half of 2019.

Next up in our product development pipeline is Ocellaris, our next-generation image-guided CTO-crossing device.

We're very pleased with the progress we're making in the development of this product and anticipate gaining CE Marking for commercialization and initial case experience in Europe in the second half of this year.

Following our initial case experience in Europe, we anticipate submitting a 510(k) application to the U.S. FDA for the use of Ocellaris in the peripheral arteries.

If all goes according to plan, we hope to be in a position to launch Ocellaris under the U.S. market by about this time next year.

This creates the opportunity for our third new Lumivascular product launch in as many years with the launch of next-gen Pantheris in 2018, the launch of Pantheris SV in 2019 and the launch of Ocellaris in 2020.

CTO stands for chronic total occlusion or a completely blocked artery, which is one of the most severe and challenging forms of PAD to treat.

Ocellaris will be a new product extension of our Ocelot family of catheters, the first and only image-guided CTO-crossing devices available on the market.

While the Ocelot catheters are extremely reliable with strong clinical data, we see the opportunity to expand our presence in the CTO-crossing market with the development and introduction of Ocellaris.

This next-generation device will leverage real-time, high-definition OCT imaging and incorporates a number of other advances, such as the ability to spin at speeds up to 1,000 rpm and a steerable tip for precise maneuverability.

We believe these improvements will result in a device that is easier to use and a more streamlined procedure as well as provide greater utility of our physicians to treat a wider range of CTOs.

We're excited about the application of this new technology platform for the treatment of CTOs in the peripheral arteries and are starting there.

We also see great potential to apply this technology for the treatment of CTOs in the coronary arteries.

Total blockages in the coronary arteries are a driver of highly invasive coronary bypass surgery, and we believe represent a substantial unmet need in the medical community, with the critical need for the precision and safety we can deliver with our image-guided devices.

Once the development work has been completed for Ocellaris in the peripheral arteries, we plan to transition our R&D focus to development of a specific product application of this platform technology for the coronary arteries and expect this to be one of our primary R&D programs in 2020.

We've also made good progress in our fourth strategic growth initiative.

Developing additional clinical data in the support of our Lumivascular platform.

In April, we announced the publication of a retrospective single-center study in the peer-reviewed Journal of Cardiovascular Surgery.

This study reported outstanding clinical outcomes for patients treated with Pantheris image-guided atherectomy prior to the delivery of anti-restenotic therapy.

Primary pace in patency, the primary outcome measure of this study, was 93% in 12 months.

Freedom from target lesion revascularization or TLR, which is an indication of restenosis was 100% with no patients showing TLR at 12 months.

This clinical study provides yet another highly compelling data set demonstrating the differentiated clinical benefits of Lumivascular approach to the treatment of PAD.

In addition, we continue to enroll patients in our INSIGHT IDE clinical trial, which is a multicenter study designed to evaluate the safety and effectiveness of Pantheris for treating instant restenosis, or ISR, in lower extremity arteries.

Early results are encouraging, and we anticipate that one of the physician investigators will present an interim analysis of first patients treated in this study at a clinical conference later this year.

We believe a specific indication for the treatment of ISR, which currently has very limited treatment options, would be an important label expansion for Pantheris.

Once the IDE study is completed, we plan on filing a 510(k) application with the FDA to pursue this claim.

Importantly, we've made progress in each of these strategic areas while maintaining significantly lower operating expenses.

In the first quarter of 2019, we continued this trend by delivering a 19% reduction in operating expense compared with a year ago quarter.

We've become a leaner, stronger and more focused organization and are committed to translating the progress we've made against these strategic growth initiatives to recurring and sustainable revenue growth throughout the remainder of 2019 and beyond.

At this point, I'd like to turn the call over to Mark to discuss financial results.

Thank you, Jeff.

Total revenue was $1.8 million in the first quarter ended March 31, 2019 compared with $2 million for the fourth quarter ended December 31, 2018, and a slight increase from the first quarter of 2018.

Key to our first quarter results was the strong 46% increase in Pantheris sales year-over-year to $0.9 million.

Gross margin for the first quarter of 2019 was 20%.

Our gross margin was impacted due to the lower revenue level.

We continue to believe that there are significant opportunities to increase our gross margin as we grow our revenues.

Operating expenses for the first quarter were $5.4 million, a decrease of 23% from $6.6 million for the fourth quarter of 2018, and a decrease of 14% from $6.3 million in the first quarter of 2018.

Loss from operations for the first quarter was $5 million, an improvement of 17% from the loss of $6.1 million for the fourth quarter of 2018, and an improvement of 15% from a loss of $5.9 million for the prior year first quarter.

Net loss attributable to the common stockholders for the first quarter was -- of 2019 was $6 million, an improvement from $6.9 million for the fourth quarter of 2018 and $15.9 million for the first quarter of 2018.

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, restructuring, stock compensation and other items as noted in the tables in today's press release, was a loss of $4.3 million, a slight improvement from a loss of $4.5 million for the prior quarter and a significant improvement from a loss of $5.1 million for the first quarter of 2018.

Over the past year, we have made significant progress in lowering our costs structure, while at the same time, investing in Avinger's future.

With the upcoming rollout of Pantheris SV, we are investing in additional sales and marketing resources to grow our business, which may increase our operating expenses over the next few quarters.

Cash and cash equivalents totaled $16.7 million as of March 31, 2019 compared to $16.4 million as of December 31, 2018.

Subsequent to March 31, 2019, Avinger has received an additional $1.7 million in proceeds from warrant exercises, bringing the year-to-date total to $8 million.

As of December 31, 2018, there were approximately 60.1 million shares of common stock, 44,745 shares of Series A preferred stock, 178 shares of Series B preferred stock and no shares of Series C preferred stock outstanding.

Each share of Series B preferred stock is convertible into 2,500 shares of the company's common stock at a conversion price of $0.40.

In addition, subsequent to March 31, 2019, we have issued an additional 4 million shares associated with the warrant exercises noted previously, bringing our total share count to over 64.5 million.

Assuming conversion of all our outstanding shares of Series B preferred stock at the current conversion price and the exercise of all outstanding warrants, the company would have approximately 92.2 million shares of common stock outstanding as of March 31, 2019, excluding the Series A preferred stock, which is not presently convertible.

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

Thank you, Mark.

While we've made good progress against our strategic milestones and growth initiatives in the first part of the year, we're even more excited about the events to come in the months ahead.

Our next-generation Pantheris device continues to gain momentum and we'll soon add Pantheris SV to our marketed product portfolio.

We continue to build compelling clinical evidence in support of the rightness of our Lumivascular approach and advance our pipeline products.

And while we're focused on maintaining a lean operating cost structure, we're investing strategically in the commercial infrastructure to provide for our future growth.

We look forward to reporting our continued progress in the quarters ahead.

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

(Operator Instructions) And we'll take our first question from Jeffrey Cohen with Ladenburg Thalmann.

Jeff and Mark, can you hear me okay?

Yes, we can, Jeff.

Awesome.

So I'll go in reverse order.

So Mark, you were talking about the share count.

So firstly, you talked about what was taken in for the quarter currently up to $8 million.

So what's left?

And you want to take a stab at the share count currently?

You said 64 million, I heard?

Yes, 64.5 million is our share count as of April 30.

In terms of kind of the remaining shares, we have about 8.7 million warrants outstanding at the $0.40 level.

All of our other Series 1, Series 2 and Series 3 warrants, there has been no activity since the end of March.

So there's still out there, what another $3.5 million available?

Is that a good guesstimate?

Yes.

If all of the Series 4 warrants ended up converting, it would be an additional roughly $3.5 million of capital for the organization.

Okay.

Great.

I got it.

So could you talk a little bit about the SV, as far as some of the clinical experience that you've heard of or you've attended in some of the EU territories?

And talk a little bit about U.S. You said you're going to be launching into 12 sites.

There's been no cases yet, I'm assuming in U.S., thus far.

That's right, Jeff.

We've been really pleased with the initial cases that we did in Europe.

As you know, part of our strategy is to first seek the CE Marking so that we can get the initial case experience in Europe, understand how to best position and support the device, understand if there's any small improvements that we want to make prior to launch in the U.S. We did have a number of cases in both below the knee in the tibial vessels as well as above the knee with the device where the stenosis had narrowed the vessel to below 4 millimeters.

So as you might remember, we got our approval for this device in the U.S. and in the EU, not based on above the knee or below the knee, but based on vessel size.

So while we do believe that a significant number of these cases due to the smaller size of the vessels below the knee will be and below-the-knee lesions, there is the potential propositions to also use this device in the popliteal behind the knee and above the knee.

And we've had experience in all of those anatomy in Europe.

It's a six-French device and there are some physicians who just have a preference for a six-French sheath and accessibility.

So that does provide a great opportunity for Pantheris SV.

We also talked about -- there's recordings available of case that Dr. Schwindt at LINC, which again was a very positive and well received.

So now that we have the clearance in the U.S., we have identified our initial sites.

We're engaging with those sites to get the product into their system representing the VAC committees where required.

And we're also adding Pantheris SV to contracts that exist.

There was an update that we will be doing to the Lightbox imaging console, as we bring in Pantheris SV since Pantheris SV runs at, as you might remember, 2,000 rpm, which is twice the speed of our current Pantheris, which we think will have benefits related to the clinical ability of the device as well as the imaging.

And so, while we're doing that, we're training our clinical specialists, our clinical support staff.

We're training our sales team who're going to be really focused on those initial sites as we get that experience.

And we're transitioning to a commercial manufacturing program and building the product inventory to support that launch.

So we're really busy this quarter.

But we don't expect to actually launch our limited launch until early in the third quarter.

And we'll announce and expect to announce at that time our first case experience with the device.

So when we're in the initial launch period, not only will we be getting great experience, clinical experience in a variety, in a number of users' hands, in a number of anatomies and lesion types and building case studies, et cetera that we can use in further marketing, we'll also take advantage of that as an opportunity to train our broader sales force beyond those initial sites, with the goal, if everything goes according to plan, to launch by the end of third quarter into the remainder of our sites to begin the rollout into our 75-plus Lumivascular sites.

So we do see Pantheris SV being an important driver or incremental driver of revenue growth as we go into the third quarter and especially into the fourth quarter.

But everything -- we're right at the front of it.

And a lot of excitement here.

A lot of excitement, I believe, even in the field, as we now can legally talk about and promote this device since we have the approval from FDA.

Got it.

So -- and can you talk about so for Europe the SV has a label to get into the lower extremities obviously.

So can you talk a little bit about the potential ISR indication?

How would that go in Europe?

And then how would that go here as far as timing and filing and cases?

Yes.

So we already have the ISR indication in Europe.

As you know, international is a much smaller part of our business due to the differences in reimbursement.

But we do have the ISR indication under CE Mark in Europe currently.

We are enrolling in our INSIGHT trial with the -- to go after the ISR label expansion here in the U.S. We will need to complete our enrollment in the study, follow those patients for 6 months under the FDA requirements.

We'll actually be following for a full year, but we'll have the data required for FDA after 6-month follow-up.

And then believe that we will have the data and the results necessary to file a 510(k) to seek that expanded label.

We're really very pleased because this is a non-blinded study at the early results that we're seeing in this study.

And we're getting ready to present our initial batch of cases for independent adjudication by an independent review board.

And we expect that, that data will be available to present at one of the important clinical conferences this year, kind of mid-time this year.

So we won't have to wait till the end of the study to get a look at that data and to be able to share publicly some of that data.

But we will continue to be enrolling at least through the end of 2019.

Got it.

Okay.

And then kind of big picture on your income statement.

You talked about in some of your commentary reflecting typical seasonalities as far as the year and how it plays out.

So with Q1 kind of matching up with Q1 '18, what's different now about the composition of revenue, more consumables and less placements currently?

Is that what the differential is?

And how might we think about that as we are expecting the readout for the balance of the fourth quarter to be certainly more pronounced on the top line than '18?

Yes.

So as you do note, Jeff, and as we've talked about on the last call -- on our last call and previous calls, we are shifting the strategy here to focus more on the recurring disposable sales in that recurring revenue versus, kind of, the one-time capital sales from the sale of the Lightbox.

Our goal is to make it easier for the accounts that are going to use the high-margin disposable catheters to get access to the Lightbox.

And we're seeing that in some of the growth that we're driving in our account base and the growth of our active ordering days.

And so there is a transition now happening there and we've kind of, worked through that as we did kind of the latter part of last year and early this year.

And we did expect typically a seasonal dip in the first quarter, which is typically a lower quarter.

The big story for us and the big focus for our sales organization has been on next-gen Pantheris.

And we were very happy to see the almost 50% year-over-year growth in that product.

Great clinical results.

Really strong reimbursement.

And new news, right?

That new device really, which we just launched in the latter part of the second quarter.

So we also have added a number of new sales people to organization over the past few quarters and we're pleased with how they're coming up to speed.

But it typically takes a little time to build confidence and capability with our Lumivascular platform just because it is so differentiated.

What we typically see is that our team will build confidence more quickly supporting atherectomy cases, especially with the improvement in the Pantheris next-gen device to streamline the procedure.

So it takes them a little longer to get up to speed on supporting Ocelot cases and CTOs, which are much more challenging lesion sets but we see good progress and we are already seeing good progress this quarter.

And frankly, one of the big objectives of the company this year is to get our next-generation CTO-crossed Ocellaris submitted on a regulatory basis because we think that could really drive our CTO business as we go into 2020.

So we -- as a mix basis, I would expect to see the recurring disposable revenue to continue to grow, capital to be a lesser percentage of revenue overall.

Atherectomy is a stronger component than it has been in the past because of the very strong performance of Pantheris.

But we're working hard to get more combo cases and bring CTO along as well.

And so really kind of as we look to the rest of this year, we expect to drive more growth of revenue through not only just playing good old execution but expanding the sales force and our commercial activities, adding new customers, re-engaging in some territories where we haven't been represented.

We just added someone this past quarter in Atlanta or early in this quarter.

And we're looking at potentially adding someone in Florida over the next couple of quarters as well where we haven't had representation.

We also expect in the second half of 2019 that Pantheris SV will be exciting revenue growth driver.

So I believe we are well positioned but it's about execution and continuing to drive this positive momentum in our Lumivascular business.

(Operator Instructions) And there appear to be no further questions at this time.

So I will turn it back to Jeff for closing remarks.

Well, thank you very much for joining our call this afternoon.

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

Have a good afternoon.

And that does conclude today's teleconference.

We thank you for attending.

You may now disconnect your lines, and have a great day.