Apollo Endosurgery, Inc.
Q2 2018 Earnings Call Transcript

Published: 12 Aug 2018

[Operator:]

Good day, and welcome to the Apollo Endosurgery Second Quarter 2018 Conference Call and Webcast. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Lee Roth of The Ruth Group. Please go ahead, sir.

[Lee Roth:]

Thanks, Corina. And thanks everyone for participating on today’s call. Joining me from the company are Todd Newton, Chief Executive Officer; and Stefanie Cavanaugh, Chief Financial Officer. Before we begin, I’d like to caution listeners that comments made by management during this call will include forward-looking statements that are within the meaning of federal securities laws, including Apollo’s financial outlook and Apollo’s plans and timing for product development and sales. These forward-looking statements involve material risks and uncertainties, and Apollo's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company’s quarterly report on Form 10-Q filed today, August 8, 2018, with the Securities and Exchange Commission. The content of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, August 8, 2018. Except as required by law, Apollo undertakes no obligation to revise or otherwise update any statement to reflect events or circumstances after the date of this call. With that said, it’s now my pleasure to turn the call over to Apollo Endosurgery's Chief Executive Officer, Todd Newton. Todd?

[Todd Newton:]

Thank you, Lee. And good afternoon, everyone. And thank you for joining us today's call to discuss our second quarter 2018 results. This quarter, we made steady progress of our most important corporate goals and we are very enthusiastic for the opportunities that lie ahead for us. In the second quarter, OverStitch became our top-selling product in all of our direct markets accounting for 35% of total revenue. And we also continue to see great progress with Orbera365 in Europe. There were also some revenue challenges this quarter, United States LAP-BAND sales declined at a rate we had not anticipated based on previous trends. And US Orbera momentum was slowed in the last month of the quarter because of perceptions and we think misperceptions about the FDA's latest letter to healthcare providers concerning liquid-filled intragastric balloons that they issued on June 4. Although the letter's intention was to communicate new labeling which will ultimately be beneficial for the US intragastric balloon market, the manner in which the media covered the FDA letter was with a negative bias and this led to lower Orbera consumer lead generation and sales in the US during the month of June. In addition, we had a very soft second quarter in Brazil, which is our largest six month balloon market outside the United States. One thing I want to point out, starting this quarter, we have decided to separately disclose our suturing product sales and Intragastric balloon sales so that you're able to see the makeup of our Endo-bariatric product sales. With this additional information, we think you'll be better able to examine our results and the future developed more informed estimates of how certain external events such as the letters issued by the FDA over the last year might affect the relevant portion of our business. And now, I'll turn the call over to Stefanie to give more details on our second quarter financial results.

[Stefanie Cavanaugh:]

Thank you, Todd. And good afternoon, everyone. To start, our second quarter revenue results were mixed. For OverStitch or what you will see in our press release and 10Q being called ESS, product sales growth was very strong, increasing to $5.5 million in the second quarter versus $4 million in the second quarter of last year, an increase of 37%. Outside the US, ESS sales increased 44% and in the US sales increased 31%, both due to new account starts and greater utilization within existing accounts. Intragastric balloon or IGB sales were the most volatile across our markets in the second quarter, but netted to mostly flat on a consolidated basis. IGB sales were $5.3 million in the second quarter versus $5.5 million in the second quarter of last year. In the United States, IGB sales declined 18% or $400,000 in the second quarter of this year versus the second quarter of last year. Through the first two months of the quarter, Orbera reorder sales volumes had been rebuilt by our commercial team back to April and May of 2017 levels, but dropped in June following the FDA’s letter. Outside the US, IGB sales increased 4%. Product sales were especially strong in those direct markets where we have Orbera365 available but weak in remaining six months balloon markets, most notably, Brazil where IGB sales declined $300,000 in the second quarter. Across all of our OUS direct markets, IGB sales increased 15% this quarter and excluding Brazil would have been 43% as a result of the increased market share and unit price from Orbera365. In distributor markets, IGB sales were lower versus the second quarter of last year mostly due to distributor order timing. Worldwide Surgical sales were $4.7 million this quarter compared to $7.4 million in Q2 2017 or a decline of 36%. In the US, Surgical sales declined 45% which was an unexpected acceleration and a departure from our Q2 trend experienced in both 2016 and 2017. In each of these two preceding years, consistent with the overall decline in gastric banding procedures, we have experienced an initial drop in Q1 LAP-BAND compared to the prior Q4. However, Q1 was followed by an increase in sequential Q2 sales each time. This year, rather than this typical pattern, our Q2 US LAP-BAND sales declined sequentially versus Q1. Surgical sales outside the US declined 21% including our distributor markets and 15% in our direct markets outside US. Taking into account the very strong ESS results, our volatile worldwide IGB results and Surgical sales results, our total revenues for the second quarter 2018 decreased to 8% compared to second quarter of 2017 from $17.1 million to $15.8 million. Moving to gross margin for the second quarter 2018, gross margin was 58.2% compared to 61.2% in the prior year period as our sales mix continued to shift from Surgical products with higher gross margin to Endo-bariatric products and especially our ESS products which have a lower gross margin. While overall gross margin was down, ESS variable gross margin has increased in 2018 compared to 2017 as a result of higher selling prices and cost reductions achieved from initial gross margin improvement projects. Total operating expenses increased 5% to $16.7 million for the second quarter 2018 compared to $15.9 million in the second quarter 2017. Research and development expenses accounted for this increase due to higher clinical trial activity associated with our ESS and IGB products. Our net loss for the second quarter 2018 was $9.5 million, compared to $6.9 million for the second quarter 2017 primarily due to the lower product sales, reduced gross margin and higher R&D expenses as I just described. We expect gross margin to continue as a percentage of revenue until the completion of our current gross margin improvement projects which are expected to begin to improve gross margin in 2019. We also expect R&D expense to remain at current levels until the completion of enrollment in the MERIT trial and the Orbera in US post approval study. Finally, we finished the quarter with total cash and cash equivalents of $35.4 million which includes total net proceeds of $21.9 million from our recent follow-on offering. As we indicated last quarter, our average inventory balances and therefore our use of cash in the first half of this year has been elevated as we have rebalanced our inventory due to our changing sales mix and to reduce our supply risk as we conduct our gross margin improvement projects. We expect our inventory balance to work back down towards our historical averages during the rest of 2018. With that, I’ll now turn it back to Todd.

[Todd Newton:]

Thank you, Stefanie. I’m now going to give a quick progress report for this quarter on a variety of our priorities. Our OverStitch momentum remains very good. We continue to run our commercial playbook that centers on medical education for both new and experienced users. In this quarter OverStitch was a focal point at a number of physician society conferences and was well represented on the podium at such major events as Digestive Disease Week in early June. And demand for OverStitch training remains very high. Outside the United States, we trained 50 new physicians on OverStitch during the quarter and another 170 in our US through our Mobile Learning Center, which had made stops and 67 cities so far this year. Similar to past quarters, we also provided educational brands to 23 different third-party sponsored physician training events worldwide. In the US, we continue on pace to meet our internal target to have 100 physicians performing endoscopic sleeve gastroplasty or ESG by the end of 2018. We estimate the number to be around 80 as of the end of the June. We also have roughly 100 physicians currently performing ESG outside the United States. Within our own funded ESG clinical initiatives, the MERIT trial is an active enrollment across the various participating sites, and our last update was that are more than 80 patients have been enrolled. In early May, we also announced the establishment of a European Registry for bariatric suturing procedures which will capture data on ESG and bariatric surgery revisions using OverStitch across multiple European countries and leading into bariatric centers. There are now 10 centers who have interest in participating in the registry and more than 100 cases have been recorded in the registry thus far. As we have discussed many times before, OverStitch is a technology that has many potential uses. In the United States for example, we estimate that about one-third of our OverStitch product sales are in relation to bariatric procedures while the remaining two-thirds are for advanced GI procedures. As a further example of the technology’s utility, in June, the Journal, Endoscopy International published Dr. Petros Benias' study of his is novel resection and plication anti-reflux procedure using OverStitch. What Dr. Benias calls RAP or R-A-P. In this patient series RAP was performed on 10 patients with GERD and who were on long-term proton pump inhibitor therapy. All the patients underwent RAP without adverse events and were discharged on the same day. Patient follow-up ranged from five to 24 months with the median being nine months and all patients were reported as having significant improvement in their GERD-health-related quality of life scores and eight of the 10 eliminated their daily PPI dependence. It’s been very satisfying for us to see the ongoing growth of OverStitch even with the current generation scope compatibility limitations. And we have great anticipation to see the market impact of OverStitch Sx, our new single-channel endoscope compatible version of the OverStitch technology. We currently have over 900 OverStitch accounts in the United States. And it is our internal estimation that the Sx will expand the opportunities within these accounts and provide us access to a significant number of new accounts through lack adequate access to a dual-channel endoscope. In fact, the majority of hospitals, ASCs and endoscopy suites in the US and the world today do not have access to a dual-channel endoscope but majority will have and regularly use a single channel endoscope. We are also looking forward to seeing how a single channel platform expands the various applications with flexible endoscopic suture. As to where we are in our Sx development activity, in late June, we obtained the final US regulatory clearance anticipated for the Sx system and we are building product validation units. Similar to the current version of OverStitch the Sx will be sourced from a variety of suppliers and final assembly is at a relatively high level of complexity. As a result, we are being careful in our validation procedures. But as of today, we anticipate the initial US and European market introduction of Sx units around the end of September. For Orbera in the United States, as Stef already reported, we experienced a disruption in the consumer lead and patient pipeline after the FDA's letter in early June. Of course the media slant and immediate patient reaction to the FDA’s letter was somewhat frustrating to us because our team had done a wonderful job returning our reorder levels in April and May back on par with the same months of the prior year, which was when the US balloon market was on a good trajectory and had not yet been disrupted by the August 2017 FDA letter. And there are two important reasons why we think the impact from June will be shorter-lived than following the FDA letter last August. First, the June letter to healthcare providers issued by the FDA announced the approval of new labeling for Orbera including new physician and patient directions for use and very importantly updated physician training. As Orbera is a Class III device we do not have the authority to update our physician training without first getting the FDA's approval. In particular, the FDA training provides additional guidance to physicians on the identification and management of patients experiencing refractory intolerance, which while infrequent and occurrence can suggest greater patient risk. The updated materials also give more physician guidance regarding the removal of the device for those patients. This additional information has been very well received by our physician customers and we are very pleased with the new labeling that came out of this collaboration with the FDA, notwithstanding the media reports and perceptions that followed. Second, the key physician users of Orbera have continued their marketing program spend without interruption in the aftermath of the label updates. After the August FDA letter last year, we had a notable participation drop off. Not so this year. We basically have two types of patient education programs or what you may also refer to as direct-to-consumer advertising. The first is a cost-sharing co-op program, which is a local market directed and conducted program joint with physician practices. Following the letter on June 4th, we have not had any participation drop-off in our co-op programs. The second program is our national campaign which is Apollo led and funded and we are pleased to see that our lead generation from the national program in July was already back to May levels. Our definition of the lead is a consumer that has asked us for more information about Orbera. So we will see but these are good indicators. Outside the United States Orbera365 continues to be well received by our customers and has had a pronounced effect on our unit volumes and price in the markets where it is available. The increased indwell time extends the time for a patient to make lifestyle modifications and improves weight loss maintenance, thus adding value versus six months or shorter indwell balloon options. We hope to be able to update you soon on our active efforts to expand Orbera365’s regulatory clearance outside of Europe. This past quarter, the clinical dossiers for Orbera continued to build. In June, the Mayo Clinic's perspective open-label study of Orbera patients with Nonalcoholic Steatohepatitis and nonalcoholic fatty liver disease was presented at DDW. We think liver disease is an interesting area, especially for Intragastric balloons and it is currently estimated that 20 million to 30 million Americans have fatty liver in the advanced stages of fatty liver represents progressively higher cost to payers with few effective alternative treatment options. The Mayo study show the following Orbera, 65% of patients had complete resolution of NASH based on their NAS score and 15% of patients had fibrosis regression based on biopsy results. We plan to do more to evaluate this opportunity in future. Also with DDW a meta analysis was presented that concluded fluid-filled balloons like Orbera achieved superior weight loss results versus gas-filled balloons. The study included trials for three FDA approved intragastric balloons and showed fluid-filled balloons resulted in 60% more total body weight loss at six months compared with gas filled balloons with Orbera having the highest average weight loss of any of the intragastric balloons included. Lastly, we continue to make progress in our gross margin improvement projects. We expect two of these projects to transfer a Cinch manufacturing from a contract manufacturer to our manufacturing facility and cost reductions associated with certain components of the Orbera delivery system to be completed and coming online by the end of third quarter. Once these two projects are completed and older inventory is sold off, we expect the two projects together will improve our annual cost of goods sold by more than $2 million at our current unit volumes. Other margin improvement activities are lined up after the completion of these two projects, and after we have the Sx project completed. And we will begin to provide more color on these projects in the near future. So with that, we will now open the lines up, operator, for questions. Operator, please proceed.

[Operator:]

[Operator Instructions]. We will hear first from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead.

[Matt Hewitt:]

A few questions from me. First up, on the OverStitch, maybe an update, you provided a little bit detail on the MERIT study, is that still on track and have all eight centers now begun enrollment and have any completed?

[Todd Newton:]

Matt, I don’t have the specific center-by-center information that you are asking but we feel like it's on track and there maybe one center that is very close to their enrollment allotment. But by and large last I’ve heard, we’re pretty happy with the results and it seems to be tracking about to what we had expected at this point.

[Matt Hewitt:]

And then a fantastic quarter it sounds like you are adding new trained physician surgeons. Do you have a -- I think you mentioned 900 sites have now been trained but how many physicians or surgeons have been trained to-date on OverStitch?

[Todd Newton:]

The 900 number is the number of accounts who are -- who have in the last 12 month ordered OverStitch, that’s not really a physician number. The physician number we believe would be higher than that because of the number of physicians in a particular location. So we are very pleased with the number of new physicians. Our challenge now is to, of course, have those physicians start using the device in cases.

[Matt Hewitt:]

Okay. Yes, I mean that was a fantastic number. And then I don’t know -- given the decline in LAP-BAND this quarter, is it possible now that you are starting to see some of the surgeons that previously would have maybe done a more invasive procedure are actually starting to shift already to OverStitch ESG, and if that's the case, how should we be thinking about that for the reminder of this year and as we look ahead to next year?

[Todd Newton:]

Yes, I don’t believe Matt that it would be fair to say that ESG is a cause of the reduction in LAP-BAND procedures. I think LAP-BAND procedures are reducing because of different variables altogether and pediatric surgeons just having a preference to conduct alternative procedures. I think the doctors who are by and large doing ESG, they don’t overlap with LAP-BAND tremendously, I think there’s just other variables at stake.

[Matt Hewitt:]

Okay, alright. And then I guess the last one from me. So what does the pipeline look like for Sx? Obviously -- I know I have spoken to doctors and how many physicians do you think are currently in the pipeline and once you get that the initial rollout started here it sounds like maybe in late September, how does that ramp-up into 2019?

[Todd Newton:]

Thanks, Matt. On that last question, our focus right now will be once the product is through the product validation steps, we are going to introduce that with experienced users first and in order to get clinical experience with the product and ensure that it works in that clinical environment the way that we think it will. We've obviously done a lot of testing. But until it really is in that patient treatment environment, you do want to go slow. And then our full launch will most likely to be in early 2019.

[Operator:]

And will hear next from Suraj Kalia with Northland Securities. Please go ahead.

[Suraj Kalia:]

So Todd bunch of questions. First on Orbera. Your prior commentary over the last few quarters seem to indicate, OUS uptick was relatively unscathed after the Dear Doc letters. And if I look at the math, it seems like IGBs are flat lining and/or on a downtrend. Can you help us understand that how this time it’s going to different vis-à-vis your latest efforts and the recent letter also, any color about what is going to be different on the IGB side?

[Todd Newton:]

I don’t know if there is going to be a lot of things different Suraj in the sense that outside the United States the balloon market has been a mature market as you know. And we feel like though where Orbera365 adds a lot of value in that market and that’s why we are seeing improvement in our sales in those markets that are able to offer that product. We still need to roll that out into our other direct markets and that's our goal. In the United States, we feel like our efforts have proven that they work, notwithstanding the fact that we are in a cash pay environment here in the United States and the within that cash pay market there is a heavy dependency on consumer reactions. And so, we continue to have constructive discussions with the FDA as we had leading up to the labeling updates. And hopefully we can continue to run our commercial plan without external distractions for a while and that should make a difference. And of course the other thing that we are intimating and maybe I should just be more blunt and say it, we are pursuing the development of a intragastric balloon market which is tied to a medical relevancy which is tied to treatment of a disease state. And that's why we feel like the study from Mayo that was presented at Digestive Disease Week related to liver is really so important.

[Suraj Kalia:]

In terms of OverStitch, Todd, what are the primary applications that OverStitch is being used for? Is it all for obesity management or are there other indications also that are fueling some of the growth?

[Todd Newton:]

Yes, no. There’s several other applications. And when I mentioned in our prepared remarks that a third of our US OverStitch sales really related to pediatrics, the other two-thirds of course are related to other things. And those other things would be ranging all the way from, let’s call it esophageal stent fixation, which is -- which adds a lot of value because esophageal stents tend to migrate and that prevents them from migrating. It ranges from there all the way to fistula closures where a clip is insufficient for the defect that they're trying to address, or even for POEMs, which, of course, are procedures to treat achalasia; and also endoscopic submucosal dissections which is removing lesions within the submucosal layer of the GI tract. Those are the kinds of applications that OverStitch really built its initial revenue based on. The pediatric opportunities have great upside. We think GERD is something that we hear more about from physicians where they like the endoscopic alternative that OverStitch may present to them because OverStitch is also such a flexible product, it can be -- the approach can be truly tailored to each individual’s anatomy that the doctor is running across.

[Suraj Kalia:]

And finally Stefanie one of the comments you made in your prepared remarks was about inventory rebalancing and I was trying to write it down as quickly as I could but if I remember correctly you said something about there would be some inventory rebalancing and then things would normalize. I guess is there any excess inventory in the channel? Question number one. And question number two, on OverStitch, if OverStitch gross margins are lower than the corporate gross margins and if all this comes across like if were to assume OverStitch is going to be a greater percent of overall revenues moving forward, would that be too far off in saying that the gross margin trajectory is at least over the next few quarters we are going to see a downturn?

[Stefanie Cavanaugh:]

So any -- no, there is no excess inventory in the channel or any of that exists would be properly reserved at this point. What that comment was about was that our average inventory balance over the past couple of quarters has increased a bit compared to our historical norm and that you see in the first part of 2017 in order to rebalance further mix shift and also to prepare safety stock levels for these transitions on our margin improvement projects. And so, we expect that to be largely complete and our inventory balance to work down to sort of our core normal average by the end of the year? And then with respect to gross margin trajectory, our OverStitch gross margin is as we've said our lowest gross margin, and it is putting downward pressure on our consolidated gross margin. We expect that pressure to continue this year, however, our variable margin for OverStitch has improved this year compared to last year. And so, that has a balancing effect as the mix is increasing this year. The improvement that we’ve experienced so far is helping to offset such that we think we will stay near this number for the remaining of this year and that we’ve been experiencing in the first half of the year. And then our gross margin improvement project that we are continuing work on will start to show improvement in 2019.

[Operator:]

And will take our next question from David Solomon with ROTH Capital Partners. Please go ahead.

[David Solomon:]

So I'm going to get started on the Surgical segment and then move my way up. So revenue in US declined 45% and 21% OUS. Any reason to think that this is not going to continue or how many active surgeons are using it currently, is that number shrinking or is the utilization going down?

[Todd Newton:]

Yes. I think we -- our best information, David, is that utilization is going down. We see clear trends that there's just less gastric banding occurring. We're seeing that decline in utilization among active users as well as among sporadic users, although the decline rates with the sporadic users have been historically and is still at a higher pace than with the active users. And I would still characterize the number of active users as being somewhere in that range of 60 day.

[David Solomon:]

And just moving up upward to the Endo-bariatric segment. One thing you’ve given in the past is the number of Orbera docs trained and number of Orbera implants delivered. Are you willing to give those data points this quarter?

[Todd Newton:]

Well, I don't think that it was a deliberate decision not to. The -- for one thing, though, Orbera training is not a major emphasis but the number of doctors that we trained on Orbera this year -- sorry in the second quarter is 26. So we are at now a total of [940] give or take, doctors that we have further training program here in the United States. And then our implant volume which of course is self-reported from the physicians, and as a result, we always add a little caveat about the precision of that number is relatively flat at a 1,000 …

[David Solomon:]

Okay. So you’ve got a 1,000 balloons implanted by about 1,000 doctors or is it a 1,000 balloons implanted by 10 doctors or 20? What is the active users of the Orbera? Who is still using it, how many?

[Todd Newton:]

I don’t know if I have that information but of course it’s never that way where we have a 1,000 implants and a 1000 doctors trained so they all get one that isn’t at first. The top 30 is going to be from our standpoint representing over probably about 50% of the revenue. But one of things that you won't see in our 10-Q is a disclosure about the concentration in the number of customers, and that's because our Orbera revenue is fairly well spread out at least among those who are users. So we clearly have some of the 940 that we trained while they were interested in coming to training, they bought the starter kit for a variety of reasons they never really turned on from the standpoint of having an active balloon practice.

[David Solomon:]

So we are thinking maybe a couple of hundred of the 1,000 in the US is more reasonable or maybe on average they are doing like five a quarter right now? I’m just trying to get a sense.

[Todd Newton:]

Yes, I think David if you go to Orbera.com and the physician locator there and the criteria that we established for the physician locator, it will give you a pretty good feel for estimating that number of physicians who throughout Unites States are really engaged in balloon practice.

[David Solomon:]

And then just on the OverStitch front. We see some growth here, it’s really good and obviously the Sx is coming. What kind of growth rate expectations do you guys have? I mean just given everything we have heard and how the trends are with the Orbera and with the LAP-BAND the focus seems to be shifting more and more towards OverStitch. In the near term is it possible so this could be a -- it looks like it’s on about a $10 million run rate right now. In the near term could it be a $20 million, $25 million product in the US or is that going to take a few years to occur. What are your thoughts? If we can get some color that would be great, we appreciate it.

[Todd Newton:]

Yes, you probably won’t really like my color on that David. The -- we expect OverStitch is going to continue to be a really good growth product for us. As far as putting us feeling on OverStitch, I don’t want to do that, I don’t think that as we look at the addressable market for OverStitch some of which getting at will require reimbursement decisions to be made in the future but the opportunities for OverStitch in our opinion are just very, very high based upon those addressable markets.

[David Solomon:]

And lastly on the reimbursement front, what's going on as far as the non-bariatric procedures? Are you getting -- are doctors getting a higher percentage of reimbursement success using the OverStitch or is that an additional issue that they have to contend with right now?

[Todd Newton:]

Most of those procedures David are actually getting paid. The procedure itself is a well established procedure for a lot of those cases and the cost of OverStitch is paid for as part of various codes.

[David Solomon:]

So the OverStitch itself has a separate code to the procedure?

[Todd Newton:]

No, the procedure has a code and the procedure code is usually pretty adequate for compensating the facility for the use of our device.

[Operator:]

And will take our final question from JP McKim with Piper Jaffray. Please go ahead

[JP McKim:]

I wanted to first start with Orbera and I appreciate some of the leading indicators you gave on the docs continuing to advertise this. But just trying to get an early indication and through August have you seen a snap back in the consumer demand on that end, what gives you confidence that after the second kind of FDA letter that you will get a snap back until this isn’t more permanent blow?

[Todd Newton:]

It wasn’t a permanent blow JP, it took us seven months but last time we rebuilt the business. Consumer lead generation so far in July as I mentioned in the prepared remarks is back to what it was in May but we will have plenty of time to talk about Q3 down the road. But we feel like there is a number of reasons to think that we’d probably see Orbera come back in a shorter time frames than last time which like I said was probably more like six, seven months before it came back.

[JP McKim:]

So it was more the letter came out in June that effected June, but your leads have kind of rebounded back to normal in July. Is that the right way to think about it?

[Todd Newton:]

Yes, that's pretty much exactly what we said.

[JP McKim:]

Okay. And then I just wanted to touch on Sx. It was supposed to be in Q3, and now it seems towards the end of Q3 and you -- the way you framed it up in your prepared remarks is that there is a lot of moving pieces and complex things to get it out there. So just wanted to kind of get your confidence level around getting it out in Q3 or for you as long as it comes out for the end of the year and you get some training on it, that will be a success?

[Todd Newton:]

Yes, I think the standard deviation for Q3 is going to be measured in days if it doesn't happen in Q3. Yes so my confidence level is fairly good. It’s -- we want it out as soon as possible is really the reality. Q3 is somewhat inconsequential to that in some respects, we want it out as soon as possible and we feel pretty good now that we are in product validation that tends to be the last step of making sure that you really have a product ready for the market. And so, I’ll let you just piece all those comments together.

[JP McKim:]

And then the last one from me is just on the decline -- the accelerated decline in LAP-BAND and just that it sounded like you were surprised by it as were we and I didn’t know if there’s any events or anything that changed, that really shifted the procedures in a more dramatic fashion, anything that would jump out to you as why it declined those at faster rate, if they’re shifting somewhere faster than you had expected and is this sort of a new norm for the rest of this year?

[Todd Newton:]

No, we don’t have any event to point to.

[JP McKim:]

Thank you.

[Todd Newton:]

Thank you for your questions. In closing, we want to thank you for your interest in Apollo Endosurgery today. Should any of you have questions for follow up, we would ask you to please contact The Ruth Group team listed on our press release today. With that, we will close our meeting. Thank you, operator.

[Operator:]

Once again, that does conclude today's conference. Thank you for your participation.