Cardiovascular Systems Inc (CSII) 2015 Q3 法說會逐字稿

Good afternoon, my name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Cardiovascular Systems Inc. Third Quarter Earnings Call. (Operator Instructions)

I will now turn the call over to the Chief Financial Officer, Larry Betterley. You may begin your conference.

Thank you, Mike. Good afternoon and welcome to our fiscal 2015 third quarter conference call. During 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 will 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 will now turn the call over to CSI's President and CEO, Dave Martin. Dave?

Thanks, Larry. Hello everyone. CSI delivered another strong fiscal third quarter. Revenues increased 35% to $47 million. This marks the 11th consecutive quarter of revenue growth of 25% or greater. We shared compelling two-year data from our ORBIT II trial and continue to make progress on all of our clinical initiatives, and we continue to train and position our growing sales force for market expansion in both peripheral and coronary opportunities.

CSI is leading the expansion of the peripheral and coronary interventional markets. We have a technology advantage and we back it up with unmatched scientific proof. We've demonstrated that CSI is patient, physician and payer centric by delivering positive clinical and economic outcomes. And finally, we're committed to providing physicians with the tools they need to treat calcium throughout the body.

Earlier this month, we broadened our Micro-invasive portfolio of products and gave physicians improved options for treating this challenging patient population. Just 25 days after we submitted our request, we received FDA clearance for the new 1.25 millimeter Diamondback 360 Solid Crown and the modified 1.25 millimeter Diamondback 360 Micro Crown. Both of these devices are 4 French compatible. Now physicians have four low profile, Micro invasive, Diamondback 360 devices to reach lesions from hips to toes and use access points in the foot, ankle or groin.

Our 1.25 millimeter Micro devices for legs and heart now account for well over 50% of all units sold. Low profile devices like these are patient centric. By gaining access to the arterial vessel through a smaller opening, these devices substantially reduce the risks and the complications associated with larger sheath sizes. In fact, for every increase in sheath size, there is 15% increase in bleeding at 30 days. Our competitors are dominantly larger sizes. Uniquely, the Diamondback 360 could be used in pedal or ankle access, and as a result, the closure device is often a few seconds of thumb pressure and a band aid, saving cost and complication. Diamondback patients can be mobilized immediately after their short procedure.

Equally important, these small devices can access even the small torturous vessels located below the knee where calcified plaque resides 80% of the time. Our device goes where the disease goes. Calcified and small vessel disease is the key contributor to critical limb ischemia or CLI. 4 million Americans suffer from CLI today; 150,000 of whom who will suffer an amputation this year.

As we've mentioned previously, our technology enabled Dr. Mustapha at Metro Health Center and his partners to treat hundreds of patients who otherwise would've been candidates for amputation. CSI will use our expanded sales footprint to launch more amputation prevention programs and treat more patients in need. CSI can reduce patient suffering and save the health care system millions of dollars with this initiative.

Coronary Diamondback, we received FDA approval for our coronary device 18 months ago. In fiscal 2014, we sold over a thousand units. In the first nine months of fiscal 2015, we've sold nearly 5,000 units including 2,000 in the third quarter. The controlled rollout of the coronary device has delivered strong clinical outcomes and unit growth. We anticipate this to continue for years to come as we train more of our representatives to build market in both the coronary and peripheral franchises. We begin the fourth quarter with over half of our sales representatives trained to sell both peripheral and coronary applications. By investing time and money now in cross-training our representatives, we enable them to grow enormous underserved markets with our unique products. The larger sales footprint, 90 new clinically-oriented sales professionals who we'll hire over six quarters, the three previous to now and the three going forward will allow us to reduce territory size and increase activities for market expansion and driving programs like amputation prevention, as one example.

We continue to cross-train about 25 or so hybrids each quarter while simultaneously adding new representatives as needed to optimize focus and future productivity. These investments can be disruptive in the near term, but the team has executed very well over these past three quarters. Revenue for example in a territory where the representative represented both coronary and peripheral grew from $318,000 to $341,000 quarter-over-quarter in those territories on average. We continue to pursue these upgrades in market expansion footprint and service alignment. We expect to be largely finished by Christmas of this year. The success of our hybrid representatives will drive growth and profits for both applications for years to come.

Larry will now discuss our quarterly financial results in more detail. And then, I will return to comment on a few other items before we take your questions.

Thank you, Dave. Compared to last year's third quarter, total revenues grew 35% to $47 million. Device revenues represented 89% of the total. We sold over 13,000 devices bringing the life-to-date total sold to nearly 200,000. Devices sold included over 2,000 coronary units contributing to $7.9 million in coronary revenue. Reorder revenues were 95% of total revenue, slightly less than 96% in the prior year. The decline is due to the lower rate in our coronary business which is still in an early commercialization stage. We added 53 new peripheral accounts and 37 coronary accounts. All but five coronary accounts are also peripheral customers. Please note that in our earnings release, we are excluding new coronary accounts that are in an early stage of product introduction and training. This is a change from prior quarters.

Gross profit margin was 78%, similar to the prior year quarter. This was below the 79% in second quarter of fiscal 2015, primarily due to lower production volumes, as a result of our move to our new Minnesota headquarters. We anticipate margins will improve in the fourth quarter. Operating expenses increased 28% versus last year. This increase was primarily due to the impact of additional sales and marketing professionals and programs, sales training and coronary commercialization. Net loss was $10.7 million or $0.34 per share versus a loss of $9.7 million or $0.32 per share last year. Weighted average shares outstanding rose to 31.6 million from 30.4 million last year. The increase was primarily driven by warrant exercises and stock issued under our employee stock plans.

Adjusted EBITDA loss improved to $6 million versus a loss of $6.4 million last year, even though our operating loss increased. The improvement was driven by a higher level of stock compensation expense. At quarter end, we had a cash balance of $94 million. Cash usage this quarter of $8 million included about $5 million of property and equipment, primarily for our new facility in Minnesota. We believe we have sufficient cash to fund our current growth strategies and reach profitability, but we may seek additional funding in the future if we identify additional opportunities to enhance value for our shareholders.

Dave will now provide additional comments. Dave?

Thanks, Larry. Marrying our easy-to-use technology with scientific proof drives adoption of orbital atherectomy. Each quarter, we build on our scientific proof. Our 5,000 patients and well over 6,000 lesions under study are more than all of our atherectomy competitors combined. We seek to establish the use of our Orbital Atherectomy Systems as the primary therapy to treat calcium everywhere.

In the third quarter, we continue to advance these initiatives. At CRT, a meeting in February, we shared compelling two-year data from our ORBIT II study. As you recall, this study evaluated Diamondback 360 safety and effectiveness in treating severely calcified coronary lesions. The one-year data reveal the 95% freedom from target lesion revascularization or TLR. Our ORBIT II results showed a 94% freedom from TLR at two years post treatment. This is unprecedented and starkly different from anything else available for these patients in need and recently published five-year data from a 33-patient single center subset of our ORBIT I study showed an even higher rate of 97% freedom from TLR. Next month at the SCAI Conference, we'll build on these compelling results when we share the one-year economic data for these patients.

On the peripheral side, we recently enrolled our 800th patient in the 1,200 patient LIBERTY 360 study. This study is designed to evaluate the clinical and economic outcomes of our systems for up to five years. It's the first study of its kind to compare orbital atherectomy to any other interventional treatment option in a difficult to treat patient population. The LIBERTY design protocol is expected to be presented at VIVA this November.

Just a few more comments before I turn the call over to Q&A. First, our guidance for the fiscal fourth quarter ending June 30, 2015. Revenue will be in the range of $49.0 million to $50.5 million representing year-over-year growth of 24% to 28%. This includes approximately $9 million of coronary revenue. Gross profit, as a percentage of revenue, to be about 50 basis points higher than the third quarter of this year. Operating expenses to be approximately 3% higher than the third quarter of fiscal 2015 primarily due to the effects of sales force expansion. And net loss to be in the range of $9 million to $10 million or a loss per share of $0.28 to $0.31 based on 31.8 million average shares outstanding.

Finally, I'll offer a few thoughts on the expiration of our distribution relationship with Asahi Intecc. CSI's distribution agreement for Asahi peripheral guide wires will expire on June 30. The agreement served every proposed purpose, and we thank Asahi friends for a fruitful relationship over these past five years. However, we need to focus on selling our own products. We have a large clinically-oriented US sales force and a vast opportunity to drive value for our shareholders with proprietary CSI products. Revenue from Asahi guide wires sales was not material to our total revenue in the third quarter.

That completes our prepared remarks. Operator, we are now ready for questions.

(Operator Instructions) Ben Andrew, William Blair.

This is actually Scott Schaper in for Ben. Just, first some modeling questions about what you just talked about Asahi. I understand that it's not material, but in terms of just keeping models whether at with coronary revenue being $9 million, can you just give us some kind of idea in terms of a rough dollar amount of how much that's been contributing per quarter? Because it seems like (inaudible) have to come from there or your assumptions for growth in peripheral would have to come down quite a bit, so any color there would be great?

Yes, it's this less than 5% of revenues, so somewhere in that $1.5 million to $2 million range per quarter. We'll still be selling in our fourth quarter because the agreement expires at the end of June and then we'll wind down from there during the first quarter.

And then moving to -- staying with peripheral, I know you've talked in the past about your mix above the knee and below the knee and kind of your historical growth rates in those segments. Can you just comment on how that was in the quarter and what your guidance is kind of assuming going forward? It seems like either above or below the knee would have had to come back a little bit in the quarter to kind of get where you're coming out at?

Yes, we still dominate in those three critical outflow vessels that are key to durable results and calcium everywhere, including the SFA, in which calcium as mentioned, is a complication and something for this physician to deal with in 80% of the cases below the knee and about half above the knee and that continues to be strong. I think a couple of things may be affecting soft plaque large vessel and to a lesser extent than our competitors, one is the launch of DCBs. The data suggests they can be effective if the large vessel SFA plaque is truly soft, it works pretty well. And most of our competitors, their business is parked in soft plaque large vessel. For calcium, Dr. Tepe showed us that in the presence of calcium, drug-coated balloons don't work. And in fact for that technology to reach and provide utility below the knee, you need to clear the calcium out, and we do that every time. So we look forward to a drug therapy, we think it is a tailwind and it goes very nicely with the Diamondback as the primary therapy.

I will just add on to that our below the knee business estimate for the quarter is about 60% of our revenue.

Of your peripheral revenue?

Yes.

So that would make it -- your above the knee would be roughly flat from a year ago, is that correct?

It grew a little bit.

And then, so I guess what's next in coronary, is it just driving adoption or the penetration in existing accounts. Are there any new products in the pipe that will address unmet needs in the future? And then I guess more broadly, what hole in your product portfolio are you most interested in filling in either peripheral or the coronary segments?

Yes, there is -- for market expansion, there is two avenues. There are so many patients in need with coronary calcium or peripheral calcium that weren't a market expansion story. We can't -- we literally can't get to all those patients and we've, one, expanded the sales force. We're going to grow it from 160 members the 250. We're about three quarters into that expansion. In addition, we're going to train each one of those to handle both franchises. And we've been a market expansion story to date. We're providing amazing clinical results and economic results in patients that just wouldn't have been treated before. And we're the enabling technology for things like drug-coated therapy, so that's one big driver.

We have an aggressive pipeline and you saw two new Micro devices come out. We're opening up the whole new market both in terms of area of treatment below the knee, the three tibial vessels used to be no touch vessels until CSI's technology came along. Those vessels need to be treated, outflow to the foot is absolutely key to durability and you are starting to see it. Our two year OASIS trial produced an 85% freedom for re-intervention. And that's our original trial, all those patients were treated below the knee, they all had calcium, they wouldn't have been treated like that before and it produced extraordinary result. And now you see that it is matching up with the freedom from intervention rates at two years with our coronary.

So eliminating calcium, which is the biggest enemy to a great clinical and economic outcome for those patients with it is enormous. So our product pipeline is rich, we've got an internal pipeline as evidenced by the two Micro products that came out. We've got more to come both in devices and ease of use and redefining the space. We think when we're done with it, we will redefine the minimally invasive to mean not only small access, but what you do and don't do with the vessel. We're nice to the native artery but we get the calcification every time. We also are six, seven months into our Vice President of Corporate Development and his activities. Chris Volker has been very aggressive and now we're looking on the outside of the Company for those technologies and therapies that can help advance our market expansion in both markets, peripheral and coronary. So I think ours a sales expansion story to get to that new market and product pipeline, both organically and outside the Company.

Danielle Antalffy, Leerink Partners.

So just a follow-up on the impact from drug-coated balloons et cetera. The revenue did see a little bit of deceleration in the quarter, if the numbers I have in here are right, it's sort of mid-teens growth from 20% plus the last few quarters before that. Can you talk about what we maybe is going on there and what you are seeing and maybe give a little more color on what you're seeing in the competitive environment? Because I'll tell you that the feedback we get on the DCB side of things is that actually that is very complementary. So maybe where is the impact that's driving that growth deceleration?

It's absolutely complementary to CSI. We handle calcium everywhere and calcium prevents drug-coated balloons from using that. Dr. Tepe had a real nice paper on that and subsequent studies will show that. So we like our position there quite a bit. We will allow that great technology to get to more places over time. We're hoping that drug therapies can reach the peripheral vessels below the knee as well.

So two factors for us. We are seeing all kinds of usage of drug-coated balloons out there. Some of it is direct ballooning. Not a lot doctors like to use the plain balloon as a vessel prep and it would only work as we know from the studies in soft plaque. Soft plaque vessel prep with a plain balloon followed by drug-coated balloon can work. But when there is calcium, that's the role for CSI. So we like the market expansion capabilities in the dual technologies quite a bit. So we agree with you, Danielle on that count.

For CSI, we're halfway through training, hiring and optimizing our sales team and the team has done a tremendous job, on-boarding new people and delivering great service and critical outcomes to the market. So we'll be done with that at Christmas and we're looking forward to being fully optimized at the end of the year.

So Danielle, that transition Dave just referred to on the hybrids and cross-training that takes a lot of investment and time and does pull away from the amount of time that our reps can use for selling peripheral, and they have to get their initial coronary accounts up and going as well. So that's probably the biggest thing that we're balancing right now is, doing the transition for the future and doing it right.

Okay, that makes sense. So then is it fair to think that actually PAD growth can -- once you complete the transition by December, can actually accelerate from there or the mid-teens level sort of the right way to think about that longer-term?

Yes, I think that opportunity is there. So right now, we're at 208 sales professionals, about 200, about 100 of them are trained in both franchises. Where we're looking to get is 250 total and over 200 trained in both franchises. The hybrid professional is highly productive, the average hybrid professional moved from $318,000 in revenue in Q2 to $341,000 in revenue in Q3 all the while delivering great clinical results. We think we'll be in great position for years of market expansion and high growth. So, the answer is yes, things can accelerate at that point in time.

Mike Matson, Needham & Company.

I guess I just want to start with coronary, the numbers look pretty good this quarter but just wondering are you able to track how much of your business is coming from physicians that are former Rotablator users versus physicians that were not doing coronary atherectomy before? And where you're at in that process? Have you kind converted a lot of Rotablator users, mainly the low-hanging fruit as to speak or you starting to penetrate more greenfield opportunities as well?

We haven't scratched the surface, and we don't track it specifically but it gets a little bit of both in each [account that we are driving].

And then since you are mostly US-focused company at this point, I'm just wondering, was there any sort of weather impact in the first quarter?

No, weather impacts for CSI.

And then just wondering about the competitive environment, have you seen any changes, I think Volcanos entered the market and they were focusing on below the knee. I don't know what their focus is, given the Philips acquisition and then Boston Scientific obviously has entered the market as well via their acquisition of the wire business.

Yes. We see a ton of activity. Overall, it's great for the space. These patients and the peripheral space needs the attention, they need more solutions, better outcomes. But largely, it's our part in the SFA. That one large vessel that feeds the three below the knee vessels. And we're getting better outcomes because we eliminate the biggest barrier to a clinical and economic outcome and that's calcium.

So we're architecting our sales force differently than other sales forces. One, they are going to be a vascular expert, pure and simple, heart and legs. Two, they are going to build to drive market expansion activities like amputation prevention and that's unique to CSI. So we can partner with hospitals, we're in line with hospital and hospital chain mission statements. We consider the payer, our customer, we can save the health care system millions and millions of dollars by trading in this way. And our clinical evidence, we want to change the argument from one year to two years and beyond. Everyone knows some of the frustration about the investments in this category over the last three decades is because patients are treated and they come back six months or a year and there is a significant fall off in patient outcome durability after one year and re-intervention is the biggest cost of the system.

So, you're seeing some of our studies in both the legs and the heart extended to two years and beyond and we're delivering a great outcome. So we've got a great patient, physician and payer centric story. So we are different from the rest of the market and we're looking forward to increasing activity with calcium and below the knee. And I think all the other activity investment in the categories can help highlight the need and the promise that need to be solved.

And just a question on the guidance, I may have missed this, but did you give a guidance number range for coronary for the fourth quarter?

We released an estimate of about $9 million.

And then we've got this upcoming MEDCAC panel on PAD. It's kind of unclear what they're going to be focusing on, but I was just wondering if you had spoken to anyone at CMS about that? Do you have any thoughts as to what that might involve and the degree to which atherectomy could be discussed at that meeting?

So we know a lot about that. The MEDCAC meeting is a CMS expert panel of 78 physicians, they're looking at lower extremity intervention. That meeting is going to happen on July 22 and right now, we are in the open comment period and will be in that open comment period until June 16. There have been 39 meetings like this since 2005 and two of those have resulted in coverage decisions. The output from this group is going to be recommendations. We are the leaders in lower extremity intervention. We've got plenty of data, 6,000 lesions under study. And we think that they are looking at things that we're looking at, which is amputation prevention. It's a critical need in US healthcare. They're going to recognize that calcium is the culprit.

Now we do have the 6,000 lesions under study but ongoing, we've got the LIBERTY 360 study that captures a lot of the other endpoints that they would be discussing; pain, wound healing, avoiding death. So we're working with some of the societies' SBS. We're working with the new office space, lab society and some of other cardiovascular societies to provide them with the information that they need. So we're looking forward to that and we're ready.

Bob Hopkins, Bank of America Merrill Lynch.

So just to start, I'm curious in SFA in this quarter, I'm curious how you think drug-coated balloons impacted your peripheral sales, was it a slight negative because of the broad trialing, was it a slight positive because of the synergies or was it do you think it really didn't have much impact at all in SFA this quarter?

Yes, it's unclear. We won some, we didn't lose any -- when the physician recognizes calcium, we get every one of those and the awareness of calcium in the SFA, and every other vessel is growing by the day. The team is doing a great job with that and the studies that we're putting out are getting more and more attention. We've got a great faculty and key opinion leader team and so that the word is getting out about calcium and how it's destructive to patient, clinical and economic outcomes. So that helps us.

But there are some situations where the protocol is not clear for DCB. And people don't want to use the plain balloon first. So we do see some direct ballooning with DCB and in those situations where there's no calcium, it probably looks pretty good, but we've seen it all, we've seen people mistakenly balloon in calcium that doesn't turn out well. But that's an opportunity to educate the market. I do think that educating the market is an opportunity over the quarters to come until we land on a protocol and the ideal utility per patient profile for drug-coated balloons. But by and large, I think the market is pretty excited about it.

Your results were good. It sounds like maybe it kind of a net neutral to maybe a little bit trialing. And then is there any consistency to where you're seeing drug-coated balloons trialed or is this really just too early and they are kind of being tried everywhere and we have yet to really land on a protocol.

They're not being tried below the knee. We see it largely in the SFA. And when we are there, we can educate the physician on calcium and the benefits of eliminating that using us as the primary therapy and they're getting great results. We did get some physicians together on a couple of different occasions, called think tanks and the physicians who were identifying calcium treating with the Diamondback as the primary therapy and then using low pressure drug-coated balloons felt great about the key results and they are curious to watch those. We will capture that in study, we're going to have a study in Europe that will be Diamondback plus drug coated balloon. We think we know the answer, we know what happens. The good things that can happen when you eliminate calcium and you avoid high pressure ballooning, we've got a lot of advocates for that and we will put it under study and get that proof of source out there in the market.

Do you really sense, again in SFA which I realize is an area for you where there is -- where it's less focused, less growth, less percentage of total revenues, but still 40% of the peripheral base. Do you have any sense as to what percentage of your revenues in SFA come from soft plaque large vessels versus true calcium cases?

It's hard to know, not a ton, but I'm sure it happens some of the times and of course it's absolutely innocuous and you can get a great result. So I don't know, I don't have anything specific to tell you on that.

And from what you're seeing so far, would you expect that in those soft plaque large vessels that you could see some of the broader atherectomy market soften as drug-coated balloons are used in those lesion types?

No, for a couple reasons. One is the three vessels below the knee that need to be treated and treated with one particular atherectomy device. We'll grow the market for years and years to come. So atherectomy is going to be a great space to play in for years to come. I do think that protocol is going to change. I think a couple of things are going to go away. One is spot welding in the SFA and not doing anything about the outflow vessels. The more we shine a light on that, the better it is for patients and payers, and the team here is doing a great job shining the light on that. And I think the physician community, they're thirsty for information and people are starting to provide it now. So I think that's good.

For soft plaque large vessel, a plain balloon actually works pretty good, that's one role for plain balloon and I think people are excited by drug therapies. I'm not sold and that the team here -- the scientists that we work with aren't sold on perhaps the balloon is the ultimate delivery vehicle for drugs. But I think all of us are very excited about drug therapy in the peripheral space and its ability to increase durability.

And then lastly from me on coronary, you guys have good momentum, you've kind of delivered on your promises and done some in coronary every single quarter since launch. And I recognize the potential market is obviously enormous, but now that you've been in for a couple of quarters, can you give us a sense as to -- is there a specific type of coronary lesion where this is being used more than others, so we can start to kind of maybe understand if you think about three, four years down the road, what sort of market opportunity this truly represents for you when you take into consideration all the issues like pricing, reimbursement and ease of use and all of those good things? Just the (inaudible) the experience can titrate to a realistic market opportunity for you guys when you look out sort of three to four years, what are you thinking?

Well, we are calcium everywhere and so far what's under study is to knowhow highly severely calcified lesions. We think that there is an opportunity, one, for more awareness and enormous market expansion, so we'll grow on that. In terms of what we're currently finding, Boston Scientific's friends to many physicians and I think people are trying to understand the role of our Orbital technology versus that 20-year-old technology.

Right now, we're not seeing a place where we're ineffective. This device goes and gets calcium. It gives the physician a ton of control. Our standing is 30 seconds, sometimes a little bit more. It's a simple, easy-to-use device. It's low profile, micro-invasive, which is in line with cost and complication savings. So I don't know will we go after an instant indication, not at this point in time, will we improve our products and making it easier to use, absolutely. I think there is a lot of opportunity. What we did do there was we cement the choices for ourselves for years to come by getting great clinical outcomes out of the gate. So we're really proud of the team. They did an extraordinary job and if you think about it, we do feel a little bit handcuffed right now, so we're half time in terms of architecting our sales force where future market building. And if you think about what our commercial team did together, one, when on-boarded a lot of new people for an organization of our size. Two, they trained individuals, sometimes in both franchises, but certainly are very educated peripheral sales force, they trained them, sometimes to 21 days out of the field in a quarter to train them in coronary so that when they showed up on their first case independently, they could deliver a real great impact for patient and doctor and we put our sales process through the same rigor that we do our doctors, six proctored cases. So we got these great results over these last three quarters if you look at them while training, hiring and kind of recasting territories because now we don't have to have our best sales person cover 16 accounts. And really that's kind of unreasonable if you think about it. If they're going to really serve the opportunity and grow market in both the coronary and peripheral franchise, we need to reduce their span of controls and go deep and really effect the disease state in that community. So really proud of the team, we've got three more quarters of that welcome disruption to go and I'm really looking forward to how we look on January 1. So kind of a long answer to your question, but I do think we hampered ourselves, it was the right thing to do for long-term prospects.

Bob, just to put some numbers around that. The estimates are, 10% to probably 15% of the coronary procedures are severely calcified or heavily calcified. So that's our initial focus and that could be 150,000 to 200,000 procedures initially, but the data would show that even moderate calcium results can result in much higher complications. So ultimately that's going to be our focus as well and that would double that number more.

Brooks O'Neil, Dougherty & Company.

No one specifically asked you about reimbursement in the market, are you seeing or hearing any discussion about reimbursement being either appropriate, too low, too high, whatever?

For the calcified patient, it's really expensive problem both in heart and legs. So, I think it could warrant even higher. But we ran a great business with lower reimbursement. I think a lot of people know at this point time January 1 reimbursement for drug eluting stents and atherectomy together increased by 92%, for atherectomy and bare metal stents increased over 100%, in the peripheral setting, in hospital and in the OBL setting reimbursement for atherectomy improved 62%. We have indications that it might even uptick a couple more percentage points in the coming year, but we don't know that there's only proposals out there. So, we ran a great business but with -- before January 1 with a lot of less reimbursement, our value proposition is dynamite. If you're a patient and now you choose our device every time because you've got calcium, but it got a lot better, so it's strong. It's really strong and it's warranted because we're very ineffective in treating the calcified patients. Our re-intervention rates in the absence of Diamondback is enormous and the cost is catastrophic.

You discussed quite a bit the presence of calcium in the peripheral areas. Please talk a little bit about what you believe the facts are with regard to the presence of calcium in the coronary arteries?

Yes, the scientific data and some of it getting back to the 80s and some of it recently shows that 38% patients who get coronary intervention annually have calcification present. We think that our immediate market opportunity is for the 10% that's obvious and severe. We think the opportunity for CSI over time is much larger than 10%, maybe as much as 28% of the 1.4 million coronary interventions in the US annually, and beyond. We've got great news and a jump-start in Japan. We've got our Japan arm of the coronary study complete. We're finishing up the US arm and we'll get a twofer. So not only we are fast-tracked for the ministry and roll out in Japan, but because we're working with the FDA and the ministry at the same time, thanks to the team here and some of our faculty members, we will have, on the same day, approval for Japanese usage of our coronary device. And this study also gets us FDA clearance of our coronary microgram, which is a twofer and that'll be a big event for us in the US as well.

I'm just curious if you could talk to us a little bit about how it's gone the movement into the new headquarters and sort of the benefits you're seeing there?

It's good for all of us to be together. To do the right thing we made it work in our old facility. We outgrew it, and we've built a new facility. It's a world-class. If you came here and we suggest that some of you do. It's utilitarian, right. It serves our needs amongst the things that we could do. One, we're all together now, all of us in Minnesota in the great headquarters and that facilitates communication and problem solving. We've got a best-in-class training lab for the physicians. We are known for our physician training and education and we've got a cadaver lab onsite here with the best-in-class room, procedure room and viewing room, which is great. The R&D team who's put points on the board for year and year and years now are all together in one group and kind of married with our clinical and science teams. We're seeing great productivity, camaraderie and problem solving immediately. And on and throughout the Company, just having all the capabilities part to one place, it's great for Minnesota. It's great for Minnesota employment. It's great for patients with calcium and need, and you're all invited to come on over, it's a great place to do work and solve problems.

Ben Haynor, Feltl & Company.

First off with how this MEDCAC meeting sets up this summer and what they're looking at, with the CLI amputation prevention, wound healing, et cetera and the data that you guys have, it really doesn't seem like it could be better for you guys. I was just wondering did you somehow pull some strings and kind of write the itinerary and focus of this?

You would think so, but we didn't. But it's what everybody is talking about. So it doesn't surprise us, as CMS and some of the government agencies look at the biggest problems in the United States and they look at it by disease state. Amputation and the growing incidence of peripheral vascular disease and calcium included, it's catastrophic. So one, we need more sites of service. Thankfully, we've got more treating physicians than ever before, three specialties, cardiologist, the vascular surgeon, interventional radiologist. And we are out of the curve, we knew six, seven, eight years ago that going forward the combination of a great easy-to-use technology and scientific proof that was going to be a great company, great contribution and a recipe for growth and profit. So it makes sense to us that it's getting more awareness and attention. I think coronary for a couple of decades got a lot of attention and resources from everybody including the government. And we love now that the wheel has turned on below the knee. We shine a good light on it. There is a technology now that could solve it and CSI needs help proliferating it and we're getting a lot of support out there from societies, from government agencies, payers love our story, and certainly we're hearing the patients.

On the clinical data front, now that you're about two-thirds enrolled with the LIBERTY 360 trial, I assume you're still on track to finish by the end of the year -- calendar year and wondering if you had made any plans to publish a subset of data at an earlier date?

Well, we are hoping for VIVA. We've got to work on that, there is nothing concrete but we at least want at VIVA kind of publicize what we're studying, the outcome and nature of it, maybe we can get a bolus of patients to get over the 1,000 mark. We are at 800 right now. We've got a nice pace, but you can imagine how anxious we are to finish up the 1,200 and have added. It's going to look great.

There is a lot of severe disease treated, which will be -- which will answer a couple of questions for the scientific and medical community. One, can you routinely treat below the knee calcified disease and the answer is clearly going to be yes and physicians everywhere, as you could see by our unit sales history, are they answering that by themselves even in advance of the study and with current clinical proof, but it also answer the question, should it be done? And absolutely, if you could do it safely, we've got one of the safest procedures in the hospital period, absolutely you should open up those vessels and treat those patients earlier.

So those are two exciting things. We think at VIVA, if we kind of expose the trial design, we can get a bolus in patients to get that 1,200 mark that we're looking for in the interim. Now, we probably won't stop enrolling there, but 1,200 at least we'll be able to kind of freeze the trial and allow all of our faculty and physician supporters to get in there and publish subsets and larger sets of data.

And then lastly for me on the 145 centimeter product, any early feedback from docs that you can share?

Yes. It's great. We did cases this week, and of course, typical of CSI and our physician treaters who we value so much, one of the first three cases headed off in the amputation. The forefront access is dynamite, the physician said the deliverability was unbelievable. We also had a little support to those devices so they can get small type calcified places with their device and have the support and lubricity that they need. We did get a couple of quotes and Dr. Mustapha, you can imagine, it's pretty hard to please at this point in time but his quote was that's what you call freaking awesome. I think that's a scientific term but that was one of his quotes and he is a tough nut given the amount of cases that we do. His partner Dr. Saab commented that we have something, quote, we have something very unique, no other device can treat calcified vessels down to the foot. And I think in one of the cases, they're down to the toes. So they are real pleased. The engineers worked very hard on this and our regulatory team amazingly got this cleared by the FDA in 25 days. We've just got that kind of relationship. We surround every question they might have in the initial pass and we've got a great relationship with the agency.

Jan Wald, Benchmark Company.

One of the things I wanted to ask you about was you talked today a lot about calcified lesions, you didn't talk about highly of heavily calcified lesions, especially when you're talking about the periphery. And I'm wondering because I know there is some confusion about where your device is best used versus other devices that may be used in the same area or are being tried to use in the same area. So is there a way for us to think about where your devices are best used in the periphery? But when to use it?

Yes, you bet. As you are going to see, so we've got 5,000 patients under study. We don't exclude any patients. We see the worst of the worst. So there is no calcified patient that we can't treat. We've proven that time and time again as we head off the amputations routinely. So we've got thousands of patients under study. And so the physician has a lot of confidence even before their first case.

I think the way to separate the players is to look at any other company and their scientific data, and you will not find any of them who have studied the calcified patients. And that's your answer. Their mechanisms do not treat calcium and calcium is the enemy of a good clinical and economic outcome. So that's where -- all atherectomy is not the same. A great way to look at the market opportunity is to look at the mechanism. Our mechanism is nice to the native artery. Our device treats vessels of large and small. We get calcium every time and that gives us an enormous market opportunity where it's no accident that our mechanism is the only one approved in the last 20 years in the coronary arteries. The coronary artery is 1 millimeter to 4 millimeter, it's just like those arteries below the knee; 1 millimeter to 4 millimeter except the ones below the knee are twice as calcified, so they are harder and other devices, you won't see the other mechanisms enter into an FDA coronary trial because their mechanisms aren't safe, low profile, they don't do -- small device does not make large lumen and they can't eliminate the barrier to a great outcome calcium, you just won't see it.

But I think you could parlay that to the peripheral space too. You just won't find anybody with patients under study with calcification and prolific below the knee use.

So in a sense, any in the plaque that's below the knee, it's not pliable?

Yes, 80% of the disease of the vessels down there are calcified, you almost have to assume that a 100% are because if you make a mistake and you use the wrong device like a balloon and that would be our competitor really. Our competitors are now in treatment but second of that would be balloon angioplasty. If your balloon a rock pile and dissect that vessel, it's a real problem. The patient can leave the hospital worse than they came in. So people have always been shy to treat those patients because there is no tool available.

But now with our device, not only can you treat them every time, you can access from above, you can go from below. We're so (inaudible) entering the vascular system from the ankle or the pedal that some people switch completely altogether the groin approach because we got 4 and 5 French Micro invasive devices to treat those patients. Another way to look at it is if there is 11 vessels, three in the heart, three in each leg, that's nine, then the SFA, and the two larger vessels, one in each thighs, right the SFA. We play in all those. So 11 out of 11. A lot of our competitors are in 2 of 11. They like dozens of other devices can access that large SFA, that large lumen with their larger devices and do something there, but I think what we've seen over the last 25 years as it comes, if you just treat the SFA, it does come at expense to outcomes and if you don't attend the alpha vessels. So we could treat them all 11, a lot of our competitors can treat in just the larger vessels. And their mechanisms, you've got to look at each mechanism. Some are good for thrombus, some are good for soft plaque. None of them are good for calcium.

One last question, it's more on the margins of the Company and I guess at this point -- that the point you are at, or at least seem to be at to me at least, it's always a question of whether you would improve margins and profitability or reinvest or invest in the Company. I know you have a pile of cash that you can use to your advantage, but how do you see the Company going forward? Do you have to make large investments in order to grow or are you at the point now where profitability becomes more of a goal for you?

We're playing out the peripheral if you were just to strip away the investments in coronary. Peripheral is profitable, growing the profits for years and both for scale in the coronary and the investments today to get that franchise up and running, we'd be profitable. It's a choice we could be profitable today, but we're going to marry growth and profit. The market expands, our unique mechanism, the enormous amount of patients who need in the heart and legs, justify investments. One of the most exciting lines is architecting our sales force for market expansion for years to come. And that means adding 90 to a base of 160, turning them all to handle both franchises and be vascular experts, plaque morphology experts and bring more patients in the queue. Among the things that we'll be able to do with that sales force is we'll drive the amputations below 100,000 amputations in the US annually from its current rate of 150,000 and will also drive vascular interventions -- peripheral vascular interventions from its current state of 600,000 above a million. That's what we think that are architecting the sales footprint to be larger and more market building oriented will do in the years to come.

Larry, do you have any comments?

We're balancing both Jan. As Dave said, we are still investing in the sales organization and although at a slower pace than we did earlier this year and heavily investing in that training to get them to sell to both franchises. We are working our way through that, you should start seeing improvement in expense growth compared to revenue growth in fiscal 2016, probably more in the latter part of the year.

I will now turn the call over to President and CEO, Dave Martin for final remarks.

Thanks for joining us this afternoon. Treating calcium remains a large unmet patient need and we are dedicated to making the Diamondback 360 the primary device to treat this complex disease throughout the body. Calcium is the enemy to patient by outcomes and both clinically and economically. Our technology is safe, effective and quickly removes this complication and provides durable results over time. CSI's continued strong performance demonstrates the combining ease of use with scientific proof can drive market expansion and we look forward to updating you on our fiscal fourth quarter and fiscal year 2015 results in early August.

Thanks everybody.

This concludes today's conference call. You may now disconnect.