Avinger Inc (AVGR) 2022 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Avinger First Quarter 2022 Results Call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Matt Kreps. Sir, the floor is yours.

Thank you, and thank you, everyone, for participating in today's call. I would like to welcome you to Avinger's First Quarter 2022 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 quarter ended March 31, 2022. 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 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 facts 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 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.

And with that, I'd like to now turn the call over to Jeff.

Thank you, Matt. Good afternoon, and thank you all for joining us. As discussed on our March call, we experienced a challenging hospital environment that affected many medical device and procedure focused healthcare companies in the first quarter of 2022. The surge in COVID-19 infections from the Omicron variant and hospital staffing shortages, limited facility access and reduced procedural volume. As a result of the surge during what is typically a lower volume seasonal period, first quarter revenue decreased compared to the year ago and prior quarters.

We've seen improvement in procedural volume and revenue trends starting from March and are happy to report that these trends continue to improve in the second quarter. We've also seen an increase in customer activity associated with our new Lightbox 3 imaging console, which we recently launched into full commercial availability in April. Our proprietary Lumivascular system supports best-in-class patient outcomes by combining real-time OCT intravascular imaging with highly effective therapeutic catheters for the treatment of peripheral artery disease, or PAD.

We primarily focus on the hospital market where PAD cases can be more challenging, including the treatment of chronic total occlusions, in-stent restenosis and critical limb ischemia, the most severe form of PAD. With Avinger's proprietary image-guided system, physicians are empowered to safely and effectively treat these challenging cases in order to preserve the limbs and lives of their patients. As we focus on expanding market penetration of our platform and increasing case volume through the remainder of this year, we've identified 3 key growth drivers for our business.

First, after receiving FDA clearance in January and completing a successful limited launch in the first quarter we expanded availability of our Lightbox 3 next-generation imaging console with a full commercial launch in April. The response to this new system is exciting, receiving highly positive reviews from existing users and already helping our field team open new accounts. The Lightbox 3 incorporates an advanced solid-state laser for high-definition OCT imaging, a more powerful computing platform and redesigned software system with an intuitive user interface designed for procedural efficiency and ease of use.

During the limited launch phase, physicians use the new Lightbox 3 with Avinger's Tigereye CTO-crossing and Pantheris atherectomy catheters at 12 clinical sites throughout the U.S. Users were extremely impressed by the enhanced high-definition imaging, which facilitates the identification of disease morphology and arterial wall structures, allowing physicians to effectively target the disease and avoid injury to the vessel wall during treatment. The limited launch also validated a new mobile strategy option in which a single highly portable Lightbox 3 can be efficiently deployed across multiple hospital sites.

The new Lightbox 3 weighs less than 20 pounds and fits into a hard-sided roller case, the size of a carry-on suitcase. It can be easily wheeled into a facility and set up on a portable stand by our clinical support team in minutes. We believe this portable strategy will enable us to increase the productivity of our sales team and accelerate the pace of new account acquisition. We've rolled out 10 portable configurations to our sales territories to support catheter utilization in new sites and for on-site demonstrations and evaluations of this exciting new platform.

The Lightbox 3 is available for permanent sale to new accounts and as an upgrade option to existing accounts. The second exciting growth initiative is the development of 2 new catheter line extensions for our peripheral product portfolio. In combination with our new Lightbox 3, these new products are designed to broaden the appeal of our technology, expand our user base and drive growth. The first new catheter product in development is an extension of our Tigereye CTO-crossing platform. This new image-guided CTO-crossing catheter has an integrated spinning outer tip for tough plaque caps in calcium, an advanced shaft design for pushability and torque response in a challenging environment and a 3-marker imaging system to facilitate consistent image interpretation across our platform.

We expect to submit a 510(k) application midyear with anticipated FDA clearance and commercial availability in the second half of this year. By adding advanced capabilities to the platform, this new device is expected to expand the utility and addressable market for our CTO products in a challenging patient population. The second new PAD catheter in development is an extension of our Pantheris family of image-guided atherectomy devices. This new device emphasizes a streamlined approach for physicians and expands our capabilities for the treatment of larger vessels, including the SFA and popliteal arteries, where the majority of procedures are performed today.

We are calling this new catheter, Pantheris LV for large vessel as a complement to our successful Pantheris SV catheter, which is designed for the treatment of small vessels, especially those below the knee. Pantheris LV utilizes a proprietary design for plaque acquisition in larger vessels without the need for a balloon and is designed to operate at higher rotational speeds and challenging plaque. Pantheris LV also adds rotational control for efficient guidewire management and a modified plaque management system for tissue packing as well as several other enhancements. We expect to file a 510(k) application for this new device in the second half of 2022, with anticipated commercial availability in the first half of 2023.

We believe Pantheris LV will expand market penetration by bringing significant advancements to our atherectomy product portfolio and supporting a more streamlined procedure with an easier-to-use device in the largest atherectomy segment. The third growth initiative is the opportunity to leverage our proprietary image-guided platform to address the unique challenges and vast potential in the coronary artery disease market. We believe expansion into the coronary market provides a transformational value opportunity for Avinger due to its large addressable market, existing reimbursement profile and the compelling clinical advantages of our Lumivascular approach.

Our first foray into this market is the development of an OCT-guided catheter for the percutaneous crossing of chronic total occlusions or CTOs in the coronary arteries. By leveraging advances we've made across the platform, including our new Lightbox 3 imaging console, we have the opportunity to deliver a safe, reliable patient-oriented solution to what is today a complex, expensive and uncertain procedure. We believe a coronary CTO-crossing device that incorporates our OCT-guided system can transform Avinger by expanding our proprietary solutions into a new, large addressable market.

Approximately 50,000 CTO PCI procedures are performed in the U.S. each year with an increasing number of hospital centers interested in treating these patients. Existing CTO PCI crossing procedures are highly complex, require specialized and demanding technique with a steep learning curve, and the use of multiple devices. These procedures also require extended time under fluoroscopy, which results in high x-ray radiation exposure and contrast media burden, creating health risks for both the medical team and patient. In addition, it's estimated that more than 200,000 highly invasive coronary artery bypass grafting, or CABG procedures are performed in the U.S. annually with estimates of up to 30% of these procedures related to the treatment of coronary CTOs.

This market provides an exciting target for our image-guided system, which would make a percutaneous approach accessible to more physicians and reduced X-ray radiation exposure and contrast burden during the procedure. An image-guided coronary CTO-crossing device with diagnostic capabilities would also access highly attractive reimbursement immediately upon FDA clearance. Percutaneous CTO-crossing in the U.S. currently has reimbursement of $10,000 to $16,000 per procedure. In addition, we anticipate that high-resolution OCT-guided catheters with diagnostic and measurement capabilities will qualify for existing OCT diagnostic imaging reimbursement in the coronary arteries.

We believe that an image-guided catheter designed for crossing efficiency with the need for fewer support devices, combined with an attractive reimbursement scenario provides the opportunity for a very compelling economic value proposition. Our coronary CTO development efforts are focused on low profile catheter designs that combine real-time OCT guidance with precise control and steerability to facilitate an integrated approach and allow physicians to safely and efficiently cross coronary CTOs, while avoiding injury to the vessel wall.

Similar to Avinger's peripheral catheters, our first coronary device will incorporate a precise measurement capability ideally suited for physicians to properly size balloons or stents prior to placement, which is critical for optical outcomes. We anticipate the U.S. regulatory pathway for this new device to be a 510(k) submission, supported by data from an IDE clinical trial. Our goal is to be in a position to initiate the study by the end of 2023. In addition to our product development efforts, we continue to build the clinical body of evidence to support the benefits of our Lumivascular approach for the treatment of PAD.

Clinical data from our INSIGHT trial, evaluating Pantheris for the treatment of in-stent restenosis, or ISR, was presented at the VIVA Clinical Conference in the fourth quarter of 2021. The highly positive data from this IDE study provided the basis for our successful 510(k) submission to expand the Pantheris clinical indication to include the treatment of ISR. We anticipate that physician investigators in the study will submit the full data set from INSIGHT to publication this year. In addition, clinical (inaudible) we expect to enroll up to 60 patients in the study with patients evaluated at intervals up to one year post procedure.

We are currently enrolling patients at 2 key opinion leader sites in the U.S. and expect to begin enrolling patients at 2 leading clinical centers in Germany this quarter. Most patients enrolled to-date suffer from critical limb ischemia, or CLI, the most severe form of PAD and physician investigators are excited about the early clinical results they are seeing in this challenging patient population. We expect to complete enrollment by the end of 2022 with interim data available for presentation at clinical conferences this year. As we look forward in 2022, we're encouraged by the increasing case volume we are seeing in the second quarter as market conditions improve.

We're excited about the recent commercial launch of our new Lightbox 3 and the potential for this new console to expand market penetration and accelerate our pace of new account acquisition. We are on pace to file 510(k) submissions for 2 new innovative products in our PAD product portfolio, which we believe will broaden the appeal of our platform and create new usage occasions.

We continue to document outstanding patient outcomes and build the clinical body of evidence in support of our products through our clinical study programs and we're preparing for entry into the coronary markets through a highly focused R&D effort to deliver the first-ever image-guided CTO-crossing device for the treatment of CAD, all of which we believe will be important growth drivers for the company and build value for our stockholders.

Before I turn the call over to Mark, I'd like to comment on a change to our management team. We recently announced that Mark Weinswig has resigned as Chief Financial Officer effective the end of this week to pursue an opportunity outside the medical industry. We appreciate Mark's many contributions to our company since joining us in 2018, helping us transform the business through the development and launch of our next-generation PAD catheters and the introduction of our new Lightbox 3 platform, and we wish him well as he moves to the next phase of his career. We've initiated a search process to fill the CFO position and look forward to providing you with an update in the future.

At this point, I'd like to ask Mark to cover our financials, and then I'll return for Q&A. Mark?

Thank you, Jeff. Total revenue for the first quarter of 2022 was $1.9 million, reflecting the hospital staffing challenges and access limitations Jeff described at the beginning of the call. Those issues appear to be largely abating, and we have seen procedural volumes growing in the second quarter. Gross margin for the first quarter was 28%, reflecting reduced revenue for the quarter. As we've discussed previously, Avinger's contribution margin on our disposable products is far higher than our reported gross margin.

Therefore, we would expect gross margin to improve as Avinger grows its revenue base. Operating expenses for the first quarter were $5.2 million, down from $5.5 million in the first quarter of 2021. With the completion and commercial release of the Lightbox 3 console, we have seen our R&D expenses decline even while we are investing heavily in development efforts for our new or 2 new PAD catheters and the coronary CTO-crossing device. Net loss and comprehensive loss for the first quarter of 2022 was $5.1 million, flat with the first quarter of 2021.

Adjusted EBITDA, as defined under non-GAAP financial measures in this press release was a loss of $4.6 million compared to a loss of $4 million in the first quarter of 2021. Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, depreciation and amortization expenses, stock compensation and other items, as noted in the tables in today's press release. A copy of the reconciliation from net loss to adjusted EBITDA can be found in today's press release, which is also posted on our website at www.avinger.com under the Investors section.

As noted in today's release, related to our January fundraising, Avinger had a $5.1 million deemed dividend charge associated with the beneficial conversion feature that was included in the net loss applicable to common shareholders. Cash and cash equivalents totaled $20 million as of March 31. The company raised gross proceeds of $7.6 million in January 2022 through an offering of preferred stock at a post-split adjusted common equivalent price of $8 per share.

In March, we executed a reverse stock split, which allowed us to regain compliance with NASDAQ stock market minimum bid rules. We are in a strong cash position and have the resources we need to fund our R&D projects and our commercial sales organization into 2023. I believe Avinger has the team, technology and products to be successful, and I wish the best for the company in the future.

At this point, I'll turn the call back over to Jeff.

Thanks Mark. We remain committed to our mission of radically changing the way vascular disease is treated. With the commercial launch of our highly portable Lightbox 3, we are well-positioned to accelerate adoption and drive utilization of our Lumivascular platform. We continue to advance our technology and provide new opportunities for market expansion with the development of exciting new products for peripheral and now coronary applications. We are experiencing improved market conditions following a challenging start to the year, and our sales and marketing teams are focused on executing our strategy to efficiently grow our business as we support new and existing users in providing the best possible care for their patients.

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

(Operator Instructions) Our first question is coming from Marc Wiesenberger of B. Riley.

In the prepared remarks, I heard hostile labor market mentioned a number of times. So from your perspective, which played a more prominent role in the lower procedure volumes in the quarter? Was it the rise of the Omicron variant or kind of the current labor market environment?

Yes. It's hard to -- Marc, thanks for the question. It's hard to really precisely say what's causing or cause the limitations earlier -- really late in the fourth quarter into the first couple of months of the first quarter. The Omicron surge was a time-based event, right? We saw that increase in infection rates, increase in hospitalization rates and the corresponding limitations that many hospitals put on elective procedures.

So if you were to look at kind of the precise timing of the impact, I would say, the Omicron surge was definitely part of that. Hospital staffing, though has and continues to be, although we're seeing some abatement as we go forward into Q2, a challenge. And so probably the Omicron surge plus hospital staffing caused the acute problem early in the quarter, but the hospital staffing will be more, I think, difficult and longer term to fully address.

Understood. And wonder if you could provide more granularity on the cadence of procedure volumes within the quarter? What are you seeing thus far in the second quarter? And how much visibility into procedure volumes in the second quarter and beyond, do you have kind of in terms of your team scheduling? And do you also see any kind of signs of backlog resulting from any delays in the first quarter?

We are seeing a steady increase in procedural volume. Particularly, we started to see increase in March and then improving in April and continuing to improve in May. We don't think that the market procedural volumes are back to kind of full strength yet. So we see that as a good sign for continued opportunity for growth in volume. Of course, there could be some other variants that causes a hiccup or problem. But we're really optimistic with what we're seeing. So I'd say just a continued steady improvement really coming into the second quarter and kind of ramping as we came into the second quarter, we'll have to see how much it continues to ramp and increase, but I think there's still room to even kind of get back to where we were kind of pre this last round of variants.

Understood. And then you mentioned increased mobility with the new Lightbox 3. I'm wondering what you could share in terms of how that translates to kind of increased utilization from your clinical staff.

Yes, that's a great question. So we were really excited about the performance of our Lightbox 3 and limited launch, not only related to the physicians' response to the enhanced imaging, the streamlined nature of the software and the user interface and most importantly, the patient outcomes that they were able to deliver. And we launched that box into 12 sites or use -- cases in 12 sites as part of our limited launch. 10 of those sites were all done on a single portable box. So it just shows you how impactful having that portable platform can be.

Since we began commercial launch, we've now performed close to 120 cases, 117 cases in 21 sites. And we've only just recently in mid to late April, began rolling our portable boxes out to our 10 primary territories. So I think that demonstrates just how quickly this can be impactful. Our team has been bringing the box not only into new accounts, but they've also been bringing the box into existing accounts, which generates a lot of excitement and also starts the upgrade sales process although we're not certainly -- we still can run cases and utilize catheters on the existing L250 platform.

But probably the most exciting thing to me is how this new Lightbox fundamentally changes how we can engage with new accounts. Just this past Friday, one of our sales reps, a relatively new sales rep was able to engage with the physician in a new account by bringing in his Lightbox 3 to demonstrate with hands on what the box looks like, how it operates, and to sell the benefits of our Lumivascular approach. So that was Friday. The rep performed or the physician performed his first cases with Lumivascular yesterday.

The cases went very, very well, and they're already scheduling to do additional cases right away while they're advancing the sales process with that account. So that's a process that would have typically taken 8 to 12 weeks or more to get those first cases on the books, and it would have required shipping and installation of a 240-pound Lightbox, which is a big commitment on both sides. And so we're really excited how this can. That's just one example of many examples of how quickly we think we'll be able to move now that we have this highly portable box.

And then just the last one for me. Wondering if the kind of current environment, any constraints have changed the type of procedures performed in the quarter? Was there any kind of noticeable change in terms of above the knee, below the knee or any kind of details you can see in the data?

Yes. So one of the -- I think as we've seen elective procedures opening up, we've seen a more typical mix of procedures. In the first quarter, when there were more restrictions, we saw more usage and more treatment cases related to CLI patients. And boy, we're really thankful that we have what we believe and I think what our data is showing the best-in-class below-the-knee atherectomy device, which is almost fully targeting these CLI patients and enabling us to perform cases even when elective procedures may be delayed or limited. In addition, CTO cases where there's a total occlusion of the vessel, oftentimes are related, most of the time related to a CLI-type of situation.

So our new Tigereye and our existing Ocelot platform can be utilized in those cases. As procedural volume and elective procedures continue to increase and access is provided, we're seeing more and more typical type of SFA, (inaudible), below-the-knee mix. And as we kind of work through the latter part of the quarter and into this quarter, seeing our Pantheris 7 French device volume increasing as a percentage of total atherectomy volume. So I don't know if that gives you the texture you were looking for, Marc?

It does.

Your next question is coming from Nathan Weinstein of Aegis Capital.

This is Brian Hollenden on for Nathan. Can you please focus in on the potential you see in the coronary artery disease market? And can you discuss the dynamics there, particularly the potential you see for Avinger's differentiated product portfolio to add value to patients?

Yes. I appreciate the question because, boy, we're really excited about bringing our platform to the coronary arteries. So first of all, I think one of the most beneficial aspects of our program and our product is that we believe we can make the CTO PCI procedures accessible to more physicians. Currently, only a relatively limited number of physicians will attempt these procedures. The procedures are very complex.

They require a lot of training, a lot of expertise and multiple devices, wires, support catheters, balloons, but most of all, they require time, typically up to 4 to 5 hours of exposure to fluoroscopy, contrast burden to the patient to try to cross these challenging CTOs with a -- depending on the study, you look at a 50% to 75% success rate with anywhere from a 5% to 10% perforation, the section rate and almost always the crossing is done subintemal, not through the true lumen. And so many of these patients don't qualify or CTO PCI percutaneous procedures aren't even attempted on them, so the patients are referred to bypass, where they'll have a highly invasive CABG procedure.

If we can provide, and our goal is to provide a precisely controlled image-guided device, which can allow a physician to see where they are inside the vessel to steer through the tortuous anatomy and to steer the catheter to the cap of that CTO so they can cross that cap and cross the CTO with a guidewire and then set up the next treatment. Along the way, they're getting a lot of information on how best to treat the patient. The standard of care is typically a placement of a drug-eluting stent, how to size that stent -- provide for good acquisitions of the stent.

And so, we're providing not only the benefit of a more efficient, less x-ray, less contrast, burden crossing if we're successful and as we go through our clinical studies. But we're also providing valuable information to aid the physician in deciding how best to treat their patient following CTO-crossing. We're excited about this as a business opportunity because this is a vast and relatively untapped market.

We believe it's an opportunity for us to create a market with the current 50,000 procedures that we're seeing done now and growing with the ability to expand that to more hospital centers and more physicians with the estimated 30% of total CABG procedures, which are done related to CTOs -- if we can save some of those patients and enable physicians to treat a significant portion of those patients and not subject them to highly invasive CABG procedures. I think we're doing a great service to the healthcare industry and certainly the patients.

Our whole philosophy here is patients first. Everything we're doing is about providing better care for patients. And we think and I think it just makes sense. That fully aligns with a valuable business proposition. So efficiency, hopefully, our clinical studies, and we expect our clinical studies to show a higher success rate, more true luminal crossing, better information for a physician to make good decisions for their patients.

And all of this access would immediately access even though a highly disruptive and completely new approach in technology, it would access to currently -- the highly attractive reimbursement situation currently in place, both for percutaneous CTO-crossing in the coronary arteries and also OCT diagnostic imaging reimbursement via CPT codes that are already in place for the coronary arteries. So again, we're well into the process, but we're still early in the development process for this device.

We expect that we will -- our goal is to be in the clinic with the clinical studies for the device before the end of 2023. But I think that this is a very, very high priority goal for our company as we complete the development of our new peripheral products that we talked about and as we complete enrollment in our IMAGE-BTK study, most of our R&D efforts will be focused exclusively on our coronary program and platform.

Thank you for that color. You've touched on a number of these points already, but could you perhaps recap a couple of the key points about Avinger in terms of what you think investors might be under-appreciating about the opportunity?

Yes. I think when investors look at our platform, one of the most exciting things is the -- our ability to continue to expand this platform with devices and solutions that empower physicians to treat their most challenging patients and cases. I mean this is a highly differentiated technology with data to support it now and more data to come. The ability to -- which I – we are just starting to get the word out about our coronary program, and that will continue, I think, to build value in stockholders' minds as we continue to hit milestones and are able to share more information on that program.

And we are very responsible and very careful with our cash utilization. As we look at our sales force, we're focusing this year as we prioritize investment in R&D and clinical programs on really kind of maintaining a stable force at around 25 sales heads throughout the end of the year, but focusing on continuing to penetrate and grow our business in our core geographic territories, which I think also just builds the case for how compelling and how differentiated our technology is.

And last one for me. Beyond the new products already discussed, are there any more potential new product introductions ahead that investors should keep in mind?

We are just entering and just focused now on the coronary markets. Our first product is an image-guided device for crossing coronary CTOs. We do see potential for expanding the platform further in the coronary arteries, but we are not far enough along to share any details on those programs at this point.

Sirs, there appear to be no more questions in the queue. Do you have any closing comments you'd like to finish in?

I would just like to thank you all for joining our call this afternoon. We very much appreciate your interest in our company and your support, and we look forward to reporting our continued progress on our third quarter 2022 call -- second quarter -- excuse me, second quarter 2022 call in the third quarter. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.