Cardiovascular Systems Inc (CSII) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter Cardiovascular Systems Earnings Conference Call. My name is Brittany and I'll be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions) This conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, Chief Financial Officer, Mr. Larry Betterley. Please proceed, sir.

Thank you, Brittany. Good afternoon and welcome to our fiscal 2014 second-quarter conference call. During the course of this call, we will make forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding CSI's future financial and operating results or other statements that are not historical facts. Actual results could differ materially from those stated or implied by our forward-looking statements, due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. We'll also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains a reconciliation table to GAAP results. I'll now turn the call over to Dave Martin, CSI's President and CEO, for overview comments. Dave?

Thanks, Larry, and hello, everyone. Let me start with an overview of our fiscal second quarter. We're pleased to report another strong quarter. Our performance in the expanding $2 billion PAD market and the launch of our recently approved coronary product led second-quarter revenues to record levels. Revenues rose 28% year-over-year, and 9% sequentially over the first quarter of this fiscal year. We continue to drive success in the PAD market with our easy-to-use technology.

We provide a compelling solution for treating arterial calcium. Calcium is present in approximately 65% of all PAD arteries treated and in nearly 80% of small arteries treated below the knee. Expanding physician usage of our Stealth 360 PAD system was a key factor in revenue growth for the quarter. Talking about coronary, on the coronary side of the business, our October 22 FDA approval of our technology to treat severely calcified arteries was a watershed event for the Company. Our unique technology is the first and the only device specifically approved to treat this complex disease state. Since the approval, we've begun a controlled commercial launch of our Diamondback 360 Coronary Orbital Atherectomy system, or OAS. With a dedicated team that will grow to about 20 coronary sales professionals this quarter, we are initially focused on a select number of top medical institutions in the United States.

We'll continue that strategy for several quarters. More than 50 prominent physicians at 17 sites in the United States have treated over 200 patients to date with our new system. We expect to see the list of hospitals and noted physicians continue to grow as we penetrate this underserved market; a market with a potential estimated to be $1.5 billion in the United States alone. As we look to the second half of the year, our goals are consistent. We'd like to expand the use of our orbital atherectomy system as the primary therapy for treating calcified arteries in the PAD market.

We're on a great path with our coronary franchise and will continue a successful and targeted coronary launch. We'll build on our base of scientific data and continue to support the safety, effectiveness, and economic benefit of our products. Finally, investment in science research development will continue to enhance and expand our product offering.

Now, Larry is going to provide more details or our financial results and I'll come back to recap additional clinical and research activity before we take your questions.

Thank you, Dave. CSI performed well in the second quarter. Compared to a year ago, total revenues grew 28% to $32.3 million, which was above our guidance of $30 million to $31 million. Device revenues were 88% of the total. We sold nearly 9,400 devices, bringing the life--to-date total sold to more than 135,000. Devices sold included more than 100 coronary units. Coronary device revenue was in line with the expectations totaling $388,000.

Our controlled launch, as Dave said, began in late October. Reorder revenues remained high at 96% of total revenue, consistent with last year. We added 59 new PAD accounts and 11 coronary accounts; 10 of which were also PAD customers compared to 48 PAD accounts in the year-ago period. Other product revenues rose 27% from prior year to $3.9 million, which was a similar rate as overall revenue growth. Gross profit margin increased slightly to 77% from 76% last year. The gain was driven by cost reductions from product cost improvements and higher production volumes. These were partially offset by a decline in average ASP.

The decline stemmed from higher office-based lab sales, which tend to have lower ASPs. We expect engineering enhancements to Stealth and increasing production volumes to continue to reduce unit costs in the future. Operating expenses rose 33% over last year, primarily from planned investments, including approximately $7.5 million related to coronary approval, market preparation, and commercial launch. We also made investments in sales and marketing, expanding clinical and product development initiatives and medical education programs to drive PAD adoption. All of these investments are geared towards generating higher future revenues. SG&A also includes $558,000 of expense for the medical device tax, which became effective on January 1, 2013. Net other expense totaled $1.2 million versus $645,000 in the prior year.

The increase was mainly due to debt conversions as all of our convertible debt was converted during the quarter. We also incurred charges for transfers of the remaining balance of term loan to our working capital line of credit, which has a lower interest rate. The resulting net loss of $8.7 million, or $0.32 per share, was smaller than our guidance, and compares to a loss of $5.8 million, or $0.28 per share, last year. The number of weighted average shares outstanding rose to 27.2 million from 20.7 million last year. This was due to the issuance of 3 million shares in our recent equity offering and 2.3 million shares in our March 2013 offering, as well as the issuance of stock from debt conversions, employee stock plans, and warrant exercises. Adjusted EBITDA was a loss of $4.6 million compared to $3.2 million last year. The increase was from a larger operating loss, partially offset by higher stock compensation expense.

Excluding the $7.5 million of coronary investments, adjusted EBITDA was positive for the quarter. We finished the quarter with $146.7 million of cash. We raised approximately $84.4 million of net proceeds in our November 2013 offering. The proceeds will be used primarily to fund growth investments, including coronary launch initiatives, clinical studies, product portfolio expansion, education programs, and international expansion. The press release also contains our six month performance data.

I won't cover that in our prepared remarks, but I'd be happy to answer questions during Q and A. In concluding, I'd like to point out as of January 2, CSI was accepted on to the NASDAQ Global Select Market. This market has the highest initial listing standards and we're pleased to be included in this select group of companies. I'll turn it now back over to Dave for further commentary.

Thanks, Larry. As you look at the coronary market, it's estimated that significant arterial calcium is present in nearly 40% of patients undergoing coronary intervention. Calcium contributes to higher treatment costs and poor outcomes when traditional therapies are used. These include a significantly higher occurrence of death and major adverse cardiac events. The fact remains that calcium is a vastly underestimated problem, previously with limited options for treatment. We're excited about the FDA's approval of our coronary technology. The impacts will be enormous for patients, for our physician users, for payers, and for the Company.

Our 30-day ORBIT II trial showed CSI's Diamondback technology is safe and effective in treating a widespread and complex disease state. One example is Dr. Sharma, Director of Clinical and Interventional Cardiology at Mount Sinai Hospital in New York. You might remember that Dr. Sharma was the first physician in the United States to commercially use the Diamondback 360 Coronary System. To date, he and his colleagues have successfully treated more than 50 patients using the device. Seven different operators, aside from Dr. Sharma, have used the device. Within the medical community, Dr. Sharma is a world-renowned interventional cardiologist. Mount Sinai in New York is one of the most prestigious coronary institutions in the world, as judged by volume and clinical contribution.

We're leveraging their experience and expertise and have made Mount Sinai our first national training center of excellence for the Diamondback 360 Coronary OAS System. When asked about the device, Dr. Sharma was quoted as saying -- the Diamondback is a real advancement in interventional cardiology. It's a device which is very safe and effective, and easy to use. Our initial 50 cases treated at Mount Sinai have resulted in excellent patient outcomes, demonstrating the true value of this advanced technology -- end quote. Our next milestone will be announcing ORBIT II one-year data, which may occur at ACC in March. We'll find out this Friday about acceptance for a March presentation at ACC. This data will be critical to highlighting the longer term efficacy of our technology.

Also, we're currently working on several post-market studies to further build our body of clinical and economic outcomes evidence. Let's turn to peripheral: we continue to enroll Liberty 360. As a short recap here, this study evaluates the acute and long-term clinical and economic outcomes of our OAS in treating PAD. It's the first study of its kind to compare orbital atherectomy to all other PAD interventional treatment options. Practicing and academic physician communities are excited about this study and its opportunity to affect a change in the standard of care. Dr. Cezar Staniloae, New York Medical Center, is the study's principal investigator and he performed the first procedure. Over 70 patients have been enrolled to date and we expect enrollment to accelerate as more sites complete their IRB process.

Now, I'll detail our financial outlook for fiscal 2014 third quarter, ending March 31, 2014. We anticipate revenue to be in the range of $33 million to $34.5 million. That represents year-over-year growth of 25% to 30%. This includes approximately $1 million to $1.5 million of revenue from our controlled coronary launch and PAD revenue growth of 21% to 25% over last year's third quarter. CSI's gross profit as percentage of revenue should be consistent with second quarter fiscal 2014. We anticipate operating expenses approximately 10% higher than the second quarter of fiscal 2014, primarily to support coronary investments and the launch of that franchise.

Interest and other expense should be about $100,000. The resulting net loss is expected to be in the range of $9.2 million to $10.1 million or loss per common share ranging from $0.31 to $0.33. This assumes 30.3 million average shares outstanding. Our fiscal 2014 focus continues to be successfully launching our coronary system, making growth investments as appropriate, and driving further PAD adoption through clinical and educational initiatives, new products, and product enhancements. Now, I'll turn the call back to the operator for questions.

(Operator Instructions) Brooks O'Neil, Dougherty and Company.

Congratulations on the terrific results. I was just curious if there have been any surprises or things that you hadn't anticipated in the controlled coronary launch so far?

Thanks for the question. It's behaving a lot like ORBIT I and ORBIT II, with the easy-to-use device and phenomenal outcomes. It's been a real pleasure and surprise for those physicians who have used the device, like Dr. Sharma at Mount Sinai, who wasn't involved in either of those studies. I think they're amazed how a really risky patient and hair-raising procedure can become routine with the technology and the optimal protocol. There are no surprises. We're excited about the potential. We like the advantage of the controlled launch.

In fact, we had our first physician training in December. We, upon approval, which was at the early part of the window, and a super thanks to team CSI, we really swarmed to a quality submission. If I think about the over five, six years of work to get that data collected and queued up for the FDA, it was really amazing. To get approved on the first day of the window really speaks to the people in this building and the commitment to help patients, especially in this expanse of calcified patients who had no other solutions previous to our device. The physician training in December, we'll continue to pull that into our already capable medical education hands and then our first sales training, we're going to move to a sales force of up to 20 by quarter end. We had some trained professionals who supported the trial of ORBIT II and brought a successful result to that, but we've been able to add to that since approval and we've had our first few training classes in January.

Great. I was just curious, if our math is correct, it looks like you're getting a little of a premium price for the coronary device. Can you just talk about your pricing strategy; in particular, relative to the PAD device and what you're -- I mean, I'm assuming you've not seen any pushback at all in the marketplace, but I'm just curious.

Cost is always a concern, but the value that we contribute, by eliminating complications, we can also eliminate costs. The value for the product and the proposition is really strong. We could save thousands of dollars up front just the day the case will track long term clinical and economic outcomes as well. In fact, our one-year data will show both clinical and economic outcomes. The pricing is a little bit of a premium to the peripheral device and we'll watch that over time.

Sure. Obviously, you said you'd find out about whether your submission will be approved on Friday, but can you give us any feel for what the data shows in the study?

We can't at this time, just in March, we'll be excited to put that out, one-year data, both clinical outcomes and economic. We're relatively confident that the ACC would love to have us present there, but we'll get that data out one way or another and we'll find out formally from the ACC on Friday.

Great, thank you very much, and again, congratulations.

Ben Andrew, William Blair.

First, can you talk a little bit about what you're seeing with an individual doctor that takes up the technology in terms of repeat use? Do they do a case or two and then pause or are you seeing steady usage on those accounts?

Yes, that's a great question, thanks, Ben. We're focused on adoption. Before the launch, we wanted this easy-to-use device to be used broadly for an undertreated population -- calcified coronary arteries, and so far we've seen that. If you take just two of the accounts: one, Mount Sinai, we've had 7 different users in that account. It's too early to really trend the frequency, but right now, we've got a lot of physicians with multiple uses. Some we put on in those first two weeks, others we put on just recently.

Another example is Chandler Hospital out in Phoenix, Arizona. They've had 10 users in a very short period of time. I think that the ease of use is going to allow the physicians to routinely treat this disease that maybe previously they referred to a specialist, a specialist in the practice who might have specialized in treating the complicated cases that come with calcified arteries. Now, every physician can keep and treat those patients in need.

Dave, you talked about 20 reps for the end of this quarter, can you give us a sense of what that may look like at the end of, say, June? And at what time frame you would roll this out to the broader sales group and will you keep that separate coronary group within that or do you fully integrate it at some point here going forward?

We'll keep it to 20, give or take, for the time period, but obviously, over time, we would like to grow that. We do, amongst the 20, and we're not there yet, we do have a few people who carry both the peripheral and the coronary line. Early indicators are that it's great for the account. It allows us to deliver a lot of intense training and service, and it's great for the business in that we just don't, in that case, we don't have a travel territory. The face time of our customer and the time helping educate and treating patients is much more than if you had a larger territory. That experiment is going very well. We look forward to modeling based on the results here in Phase I and II of the coronary launch.

Finally, your guidance seems to assume steady dynamics in the peripheral space. Any impact that you're building in or anticipate from potential changes or changes in the physician/office/lab reimbursement dynamic? Thanks.

Yes, thanks, Ben. Reimbursement is a big issue for the physicians. Everybody is watching it. The reimbursement was raised a little bit in the hospital setting and lowered a little bit in the office space, but we like our physician base, even under continued reimbursement pressure, which we think is going to happen, because we can treat multiple lesions with one device.

We're the safest way to treat, and that's great for the office-based lab. Our growth is market expanse, not only for us, for getting to patients who previously couldn't be treated routinely. But it's market expanse for those physicians who are looking to grow a practice and better serve their patients. We feel good about our potential to face reimbursement challenges coming forward. We think there will be continued pressure on reimbursement in the future.

Thank you.

Danielle Antalffy, Leerink Swann.

Congratulations on a great quarter. Just wanted to ask whether you're seeing some sort of, or any sort of, halo effect in your coronary and conversely, peripheral accounts? What I'm asking is, in the accounts in which you have penetrated the coronary, have you seen an uptick at all in peripheral in those same accounts? Conversely, the one account that you added as a coronary account that's not a peripheral account, do you expect to be able to drive peripheral sales into that account? How do we think about that going forward?

That's a great question, Danielle. Anecdotally we are and over time, we'll be able to trend that. But right now, we've have had some really fun events for hospitals and physicians where we've had four peripheral cases and three coronary cases in the same account and it was met with a lot of fanfare, not only by our team, but I think for physicians who have been on the sidelines, waiting for more data, seeing the fact that we're safe and effective in calcification, even in the coronary setting, I think it will have a halo effect on our peripheral business. Those physicians who said, well, I'm not sure if I want to treat below the knee routinely, but now that they've gone through the scientific and clinical rigor, they're approved in the coronary. I've seen for myself how easy it is to use, literally, 60 seconds sometimes or less, of sanding in the coronary arteries can produce a phenomenal result. They're taking that information and applying it to their peripheral practice. Anecdotally, early on here in the first couple of months, yes, we've seen some halo effect and we'll work to continue that as we go forward.

Okay, great. That's helpful. I wanted to ask what your updated thoughts or views were on atherectomy plus drug-coated balloons. We obviously saw the LEVANT II data from Bard at TCT, so just curious on what you think the opportunity is there, as it seems to be a potentially exciting one?

You bet. It's a fantastic opportunity and I think more and more people, both in industry and in the scientific community, are seeing the advantage of removing calcium, but leaving a healthy native artery intact in advance of applying that drug therapy. That's the path to a predictable result and a better outcome. We're excited about that. We'll be working diligently on that. We're investing, as you know, in research and science and development, drug therapies and producing a better outcome in combination with drug therapy is a big part of that. I think we announced publicly that Michael Yang came on board as our Vice President of Science, Research and Development and we've already got a start on that.

Okay. On Liberty 360, you mentioned you're still enrolling. When can we expect to see some early data out of that trial? Thank you so much.

Yes, thanks, Danielle. There's a lot of excitement about that from practicing physicians and academics. It's the first all comers trial. It's the use of our device and any device that's currently being used in practice and we'll be able to do a great comparison and study the clinical benefit of different modalities for patients and economic impact as well. The short answer to your question is 50 and 100 cases; we're at 70. We'll let those 50 age a little bit and collect that data, but I think you'll see some of our faculty members produce some publications and presentations based on the first 50, we're at 70, and again at 100.

There's really nothing from keeping us from continuing to mine that data for advances and information that would help physicians expand their practices with the use of the Diamondback for this patient population. We think that, in fact, it's been complications and the lack of durability that's gated growth in the market and I think our 28% growth year-over-year is evidence that our technology really opens up broader treatment for patient needs. I think Liberty 360 is an absolute key to understanding the clinical and economic impact, but also to continued high growth in reaching patients in need in the peripheral market.

Great, thank you.

(Operator Instructions) Jose Haresco, JMP Securities.

Just a couple housekeeping items: first, on the expenses for the next quarter, did you say 10% sequentially in terms of an increase?

Yes, 10% over our second quarter, Jose.

Okay, and we can assume that's almost all SG&A, right?

A lot of it has to do with the new coronary reps that are going to be on board for a full quarter. I'd say 80%-plus in SG&A, and the balance in R&D.

Okay. Thank you. Dave, what can you tell us about the coronary cases that have been done? Are they the worst of the worst? Were they (inaudible) cases, were they CTOs? Any regular cases? Can you tell us about the patient population that some of your users have seen in these early days?

Yes, we've seen a range. Certainly, we've seen some really tough cases. We've seen a lot of cases that looked like our ORBIT II population, which was severely calcified, and the device is very safe. The overall experience has been great. Dr. Sharma is a tough critic. He liked what he was using before, the rotoblader, and he's moved very quickly to our devices.

More physicians in his institution have been able to use our device, because we can take a complex case and complex situation and turn it closer to routine. Where there's calcium, we eliminate it, and that's the biggest contributor to risk and poor outcome. We can really do great work, so a lot of wow factor cases. People with maybe tepid expectations before they used the device, but then after a few seconds of sanding, big smiles, and some great feedback to our hard-working team.

Okay. Great. As we think about the next set of accounts who become part of the user base, should we assume that these are still KOLs that you're going after in the big research centers?

Yes, we'll do a mix of KOLs and certainly, there's still some of our study sites, 50 of them, don't even have the device quite yet. Then large practice physicians, in general, on the go-forward, for years to come, we'll start with the top 75 volume institutions in the United States, that's where a lot of the KOLs are parked. We've grown a coronary faculty very quickly and they put on a great training event in December. We're committed to medical education and that's one of the driving forces to market expansion, which we've experienced fantastically in peripheral, we'll experience that fantastically in coronary, as well.

Another driver, too, Jose, is our field sales team. Their intellect and execution has been superior. They have prepared so hard in advance of handling a second franchise and it's really showing up in the quality of outcomes in the patient outcomes, but also the physician satisfaction with how we deliver that technology into an institution and get them to their first case. It's been fantastic.

Okay. Great. Thank you very much. Congratulations.

Jan Wald, Benchmark.

Congratulations on the quarter.

Thanks.

Now that you're in the world in terms of coronary application, how do you see the pacing of the launch? It looks like, in the first few months, 200 patients, 50 physicians, probably that means two to three people per center on average. Do you see that as the way you're going to go or do you see it accelerating or declining a little bit? How do you see the pacing?

Right now, we can't even get to all the opportunity. We want to do it in a controlled way. We're collecting an extraordinary amount of data on every case and we want to, in effect, have an ORBIT III and be able to show that, in the commercial setting, we can produce the same fantastic results that we've produced in ORBIT I in ORBIT II. We'll continue the controlled launch. There's really no limit. If you look at the experience that we've had to date and it's been very short, those institutions that we put on in the initial weeks, by no accident, have more physician operators and more cases.

Then those that we put on in the last couple of weeks here, they've got a limited amount of operators involved and cases. But over time, the device is easy to use, and it just takes a few seconds of sanding. It's all in their hands and I think the physicians are excited; particularly those who maybe referred these patients to the practice expert who handled the complicated cases. It's a big sigh of relief for the physicians to overcome that, keep those patients, and treat more of them.

I guess what you're saying is, it sounds like you're going to have more salespeople on board and fully operational fairly soon, but -- or by the end of this quarter, but it seems as if the number of centers, the number of doctors is not going to increase all that much because of the controlled launch. If we assume 50 doctors per quarter, maybe 17 sites per quarter, would that be a reasonable assumption?

Yes, I think, Jan, over the first 12 months, we're probably targeting 50 to 75 accounts in total. There will be multiple physicians per account.

Okay. Okay. So it's just pacing to get to that over the first 12 months?

It will vary by quarter, I would think.

Sure. I'm just looking for how to pace this out and see where it went, see how it goes. In terms of OpEx and SG&A, should we expect to see a bit of an increase each quarter as you move towards more training, more education, more clinical studies or have you hit the run rate at this point? How should we think about that?

I would say you'll see some increases as we go forward. The large increase, of course, over Q2 to Q3 is really bringing on those 20 reps and having them here for the majority of the quarter. That's going to be a big part of the expense, but you'll still see some increases quarter-to-quarter, though not to that extent, I wouldn't think.

In terms of the office-based lab, what percentage of your business do you think that will become over the next, say, 12 to 18 months?

It's about 20% of our business today, growing a few percentage points per quarter.

It's a healthy part of our business. We really have a great offering out there to get to disease that can't be treated routinely with any other advice. We think that for the access points, too, the additional access points in the office-based lab is a great way to get to the population in need. We don't think it will go away at all. We do think there will be reimbursement pressure and our delivery of a value proposition, clinical and economic outcomes, multiple proof sources and a great, dependable technology, will keep us a front and center, number one grower in that market segment.

But your ASPs are lower than in the other settings.

That's true.

Okay. In the list of things that you said, 135,000 devices are now in use. Did you say 100 coronary units were sold? Did I get that right or did I get that wrong?

In the second quarter, we sold just over 100 units. Over 200 units is our experience, life to date, since launch in October through yesterday.

Okay. Thank you very much. Great quarter.

James Terwilliger, Wunderlich Securities.

Congratulations on the nice quarter. What's the current coronary sales force? Do you have any plans to expand the current coronary sales force as you move throughout 2014, staying strict to your thesis on the controlled launch?

We had about half a dozen last year in the quarter that we're reporting right now. We doubled the size of the team and we're moving on our way to 20. Over time, it'll grow, but one thing that we'll be looking to do is, with the intellect of our sales team in general and the fact that seven out of 10 of our current users are cardiologists and treat both peripheral and coronary patients in the same week, it makes a lot of sense to explore the hybrid, the two franchise salesperson. That experiment is going very, very well. You can imagine the productivity that comes with that. We'll be looking at our sales model over time with a real eye on how to deliver a great experience to the physician in the form of one clinical sales expert in a few accounts; small territory, large productivity numbers could be a great way to continue on or path to profitability and produce science and new technologies as well.

Thank you. How many cases would an interventional cardiologist do before, with your guidance, before you feel that clinician is comfortable going on their own? Does that make sense? And then the sales force would then move to another cardiologist?

Yes, sure. It is an easy to use device, but it's a patient population that everyone could benefit from understanding a little bit more. We've got classroom training, we've got online training for our physicians, there is a certification process for each physician that is being trained. We've got a fantastic medical education capability here at the Company that we've used to drive good results, and growth and market expansion on the peripheral side. We're applying that same capability to coronary. In a couple of cases, we've actually tracked every case to date; at some point in time, we won't be able to do that, the business will get too big.

But three cases, just a few cases, the device is easy to use. Just to coach through technique optimization, patient identification, and some of the advantages of our device. For example, this is the first device ever that's got front and back end sanding, so going slow through the lesion, letting the device do the work means just a few seconds of sanding to get that optimal result. Coaching to the unique assets of our technology has been really successful and important, so we'll always have a process that includes walking physicians through the first few cases.

Okay. Thank you. As we move throughout 2014, I'm under the impression under the controlled launch you're going to be laser-focused on the coronary side. As you move throughout 2014, I think it's in the press release to a degree, as we go into calendar 2015, you're then going to unleash maybe some of your peripheral sales reps to do both. Would the thought process be, get the 50 to 75 high-volume hospitals up and running, penetrated, and then bring your peripheral guys in to cross train and maybe learn from your coronary guys and unleash them in 2015? Is that the process? Am I thinking about this correctly?

Yes, we've already had success with that. Right now, we've got some sales representatives that are handling both coronary and peripheral and doing a great job at it. They're vascular experts, they're professionals, their intellect on the disease state and optimal technology is fantastic. They're partnering with physicians and getting a lot of kudos for it. We're seeing it in the patient outcomes.

We're delivering a great experience. Eventually, over time, with 50% to 75% or more of our sales force handling both franchises; absolutely, that's what we're working to. We'll do that in a controlled way and the productivity, the operating plan optimization with that kind of sales model is really fantastic, and it's a real advantage for continuing on our science heavy, and research and development heavy program going forward. We think there's a great expanse of new technology to deliver to the calcified patient and we think both in coronary and peripheral, we can deliver a better outcome and a new standard.

That's great. I'm very excited. Last question, and you'll probably hate this one and I hate to say it, but I'll say it anyway, you hate to hear it, but what's next? You talked about, in the press release and in this call, hiring some new talented individuals in your R&D pipeline. Where is the R&D focus now, as I know you're focused on the launch, but where is the focus of your R&D team, at this time, going into 2014 and looking into 2015?

Scientific discovery is leading to new tool opportunities and enhancements to our current device. One thing that we didn't mention with all the good news is we got approval for an indication 4 French technology. Our ability to use a 4 French catheter to enter new access points of the anatomy is phenomenal. I think, in the quarters to come, you're going to hear about new product launches in that area. We can enter in through the [pedal] artery, or the foot. We can enter in through the tibial artery or the calf, instead of the groin, and eliminate some of the complications that come with groin access.

One example to how impactful this might be, 18% of chronic total occlusions cannot be crossed, period, from up above, from the traditional groin access point. But we know that we can easily and routinely cross them from below; what a contribution that will be. We've got tools, the procedure that can deliver that. This is continued market expansion and it's a blessing for these patients, but it's a practicing standard for the physicians as well. In the quarters to come, including this fiscal year, you're going to hear more about that.

That's outstanding, from a clinical perspective, in terms of helping the patients. Again, congratulations on a great quarter.

Edward White, Laidlaw and Company.

Just had a question on, if you can give us an update on Europe and Japan, what the approval process is going to be like, a timeline, and a timeline to launch?

You bet. Activity internationally has begun. We'll have a launch in specific countries; likely three or four in Europe, Japan—we've already been over there a couple times, we're working actively with their ministry, right now, on an approval. They're very excited about our technology. It's unique and never been offered before, and they see the merits already. That activity has started. We've had CE mark in the past and we're waiting for one, our technology to be iterated to a point where it is today and we were waiting on coronary approval, which happened, so that activates continued international activity.

We'll get our CE mark, in all likelihood, in advance of approval from the ministry in Japan. We'll start in three different countries. We'll likely use a model that was so successful for us for ORBIT I when we went over and produced a great outcome in that coronary trial; ORBIT I in India. We used some US physicians who had relationships and sometimes family members who were physicians over in India and we were able to enroll and get a result in a very short period of time. We've got the same thing in Europe.

We're going to use United States KOLs, we're going to develop other KOLs and science in the European theater, we're going to get that CE mark and we'll have a controlled launch internationally. Revenue this year, I wouldn't have any big expectations. It's all pre-work, it's all KOL development. Maybe a little bit of hiring and going through the approval process. This fiscal year, I wouldn't expect any units of revenue.

Okay. Great. I appreciate that. All my other questions were already asked. Thanks a lot and congratulations on the quarter.

I will now turn the call over to the Chief Executive Officer, Dave Martin, for further remarks.

Thanks, everyone, for joining us today. We'll continue to advance our technology in both peripheral and coronary fronts the second half of the fiscal year. As a Company, we're committed to helping the millions who suffer from PAD and CAD. A special thanks to Team CSI. The milestone achievement over time has been extraordinary. Each and every individual here at the Company, I just can't say enough about their work, their preciseness, and certainly, we're seeing the outcomes. Also, a special thanks to our own local hero, Ben Hazelman, who won the 2014 Treasure Hunt, a Minneapolis tradition here in the Twin Cities. Thanks, everyone, we look forward to updating you next quarter.

Ladies and gentlemen, that concludes the presentation for today's conference. You may now all disconnect. Have a wonderful day.