Avinger, Inc.
Q2 2019 Earnings Call Transcript

Published: 1 Aug 2019

[Operator:]

Greetings, and welcome to your Avinger 2019 Second Quarter Conference Call. At this time all participants are in a listen-only mode, a brief question-and-session will follow the formal presentation. [Operator Instructions]At this time, it is now my pleasure to introduce Matt Kreps, with Darrow & Associates, Investor Relations. Mr. Kreps, you may begin.

[Matt Kreps:]

Thank you, Tom. And thank you everyone for participating in today’s call. I’d like to welcome all of you to Avinger’s second quarter 2019 conference call. Joining us today are Avinger’s CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig. Earlier today, Avinger released its financial results for the second quarter ended, June 30, 2019. A copy of the release is posted on the Avinger website under Investor Relations.Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be as forward-looking statements. All forward-looking statements, including without limitation, our future financial expectations, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q filings with the Securities and Exchange Commission. Avinger disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise.I’d like to now turn the call over to Jeff.

[Jeff Soinski:]

Thank you, Matt. Good afternoon, and thank you all for joining us. I’m excited to be with you today as we report a strong second quarter with 26% sequential revenue growth and significantly improved gross margins. During the quarter, we’ve made substantial progress on our Lumivascular platform, including the mid-quarter announcement of our 1,000th case with next-generation Pantheris and the U.S. FDA clearance of Pantheris SV for the treatment of small vessel disease, which we believe can expand our available market by as much as 50%.This positive momentum is carried into the third quarter. Earlier this week we announced initiation of our Pantheris SV limited launch and successful treatment of the first patients in the U.S. We’ve also recently reported an important progress in our clinical studies, clinical education programs and international expansion, with the signing of a new distribution agreement for Hong Kong and the commercial launch of our Ocelot image-guided CTO-crossing device in Australia.On our past calls, we’ve discussed five key strategies to drive growth in 2019 and beyond

[Mark Weinswig:]

Thank you, Jeff. Total revenue was $2.3 million in the second quarter, ended June 30, 2019 compared with $1.8 million for the first quarter, an increase of 26% sequentially and 13% over the second quarter of 2018. Key to our second quarter results was the strong ongoing demand for our Pantheris platform as well as expanded market reach. Through the second quarter, Pantheris revenue has increased 43% compared with the first half of 2018. We are excited to now add Pantheris SV to our stable of best-in-class solutions and anticipate it will contribute significantly to our organic case growth in the second half of 2019.Gross margin for the second quarter of 2019 was 31% compared with 20% in the first quarter. Our margins reflect the increased revenue level and continued focus on driving efficiencies in our manufacturing operations. We believe that there are significant opportunities to further increase our gross margin as we grow our revenues. Operating expenses for the second quarter were $5.4 million, flat with the first quarter.Over the past year, we have made significant progress in lowering our cost structure, down 9% in the first half of 2019 versus 2018. At the same time, we are investing in Avinger’s future. With more sales personnel on the field, strong progress on our clinical study, additional development efforts in R&D and a push in our marketing efforts, we have kept our operating expenses flat from the first quarter. Net loss declined to $4.7 million from $5.1 million in the prior quarter, an improvement of 8% sequentially and 20% year-over-year.Net loss attributable to common stockholders for the second quarter of 2019 was $5.5 million, an improvement from $6.0 million for the first quarter of 2019 and $6.6 million for the second quarter of 2018. Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, restructuring, stock compensation and other items as noted in the tables today in the release, was a loss of $4.0 million down from $4.3 million for the first quarter and down from a loss of $4.2 million for the second quarter of 2018. A copy of the reconciliation relating to adjusted EBITDA can be found in today’s press release, which is also posted on our website at www.avinger.com under the Investors section. Cash and cash equivalents totaled $14.8 million as of June 30, 2019 compared to $16.7 million at March 31. As of July 31, 2019, there were approximately 6.4 million shares of common stock outstanding.Finally, we have regained compliance with NASDAQ’s minimum bid requirement after the one-for-10 reverse stock split implemented in June 2019.At this point, I’d like to turn the call back to Jeff.

[Jeff Soinski:]

Thank you, Mark. We’ve made significant progress against our strategic milestones and growth initiatives over the past several months, and we are excited to see that progress translate to meaningful revenue growth. Our Pantheris next-generation device continues to perform extremely well and gain market adoption. We are encouraged by the early clinical experience with Pantheris SV in our first U.S. sites and are in the process of expanding distribution to approximately 13 centers as we prepare for broad commercial launch in the second half of the year. We continue to build compelling clinical data in support of our Lumivascular approach and advance our pipeline products. And while we remain focused on maintaining a lean operating cost structure, we’re investing strategically in the commercial infrastructure to expand our market presence and provide for our future growth. We look forward to reporting our continued progress against these initiatives in the quarters ahead. At this point, we’d be happy to take your questions.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Jeffrey Cohen with Ladenburg Thalmann.

[Jeffrey Cohen:]

Hi, Jeff and Mark. How are you?

[Jeff Soinski:]

Good. How are you, Jeff?

[Jeffrey Cohen:]

Pretty well. So just a matter of questions pretty much across the board. So it looks like margins were a little better, congratulations. Any read into this? Is it a trend? Is this going only move in one direction from current levels now produced quarter or still a little choppy on a few dollars here and there kind of spring or stings?

[Mark Weinswig:]

No. That’s a great question, Jeff, and thank you for asking. Right now, our contribution margins are quite strong. So when we are able to increase our revenue levels, we do see a significant amount of leverage to both the margin and the bottom line and that’s what we saw in the second quarter of 2019 when we were able to increase our revenue base up to $2.3 million, which brought us additional leverage to our operating margins.

[Jeffrey Cohen:]

Okay, okay. I got it. And then on the SV launch, you talked about second half broad launch – broader launch, I should say, from the 13-or-so centers by the end of this summer. What might that got you towards the end of the year, so kind of, in the mid-20s? And then could you talk about the current centers, typically, how many physicians at each center have been trained or have used a device on the procedures thus far?

[Jeff Soinski:]

Yes. Thanks for that question, Jeff. As you know, our strategy and the way approach really starting with the next-generation Pantheris is, first, to introduce the device under CE Mark into Europe, get feedback from the product, make any necessary improvements, then lead to, of course, the 510(k) clearance and the launch in the U.S. We then undertake the limited launch program to make sure the device is performing as intended in real-world clinical settings, even in light all of our rigorous benchtop validation and rigorous testing. That lets us really understand not only that the device is performing the way we expect it to, but also the capabilities of the device. And for example, we’re already seeing great performance in more calcified vessels than we might have expected going in. We also are seeing the physicians use this device not only to treat very low, below the knee but also to treat highly occluded vessels above the knees. So, I think there’s a lot of versatility there.One of the other learnings we get is how best to support physicians in the case, training requirements, tips and tricks for success, et cetera. So we think it’s a really important process and something that we will continue to do and not only this product, but other products. So we’ve identified 13 sites that we’re going to start in. We already launched to four. We’re launching to three more this week and the original four are continuing to do cases as well. We will launch to the additional sites – fixed sites by – we expect by the end of August. And so our goal is to have at least three to four cases done in each of these centers, so 40 to 50 cases as we prepare for the commercial launch.So again, an important process. We expect that all of that work can be done within this quarter. And at the same time, we’re preparing our next wave of accounts for launch. But we aren’t kind of projecting a specific number by the end of the quarter. We are enabling and will enable our sales reps to – once they get the code end of the system to start taking orders prior to shipping the product when we make the call on limited launch starting, so a bit of a fluid situation. But given the way things are going now, we’re really encouraged by those early results.

[Jeffrey Cohen:]

Okay, got it. And then crossing over to Ocellaris, could you talk about the 510(k), you think you’ll submit a 510(k) here by the end of the year or the early part of 2020?

[Jeff Soinski:]

I would say that with the focus on Pantheris SV, we’re really pleased with the progress on Ocellaris. But I would expect that we will get the CE Mark and get our initial case experience in Europe. We will then see if there are any modifications or improvements we want to make on the device, but I would expect more of an early 2020 510(k) filing. We definitely don’t want to rush that device, given its importance to our platform and just kind of this more, I think, measured and disciplined approach we take to product development and as importantly, market introduction.

[Jeffrey Cohen:]

Okay. And you’re still waiting on CE for some market experience there on Ocellaris?

[Jeff Soinski:]

That’s right. We don’t expect to have CE Marking and have that initial case experience on Ocellaris until the fourth quarter.

[Jeffrey Cohen:]

Got it. And then could you talk about the CTO coronary project? I know this is a multitude of market size is larger than yours now. Is this something that you – if start this next year, is this something you would want to partner for the development side or things? Or is it something that you would consumable partner down the road as far as the commercial side of things?

[Jeff Soinski:]

As far as the development of the product, this will be a product application based on the Ocellaris platform technology. So, by developing this five-French small device – Ocellaris device, that will enable us to, in essence, advance the coronary program, which we will then adapt that product or that product application to be more suitable for coronary use. And we are already partnering with a certain of our KOLs and physician partners who do coronary CTO crossing currently in addition to peripherals as well as starting a program of engagement with other CTO coronary specialists to help to find that product and that product application. But our strategy is, first, get Ocellaris development completed because that enables us to advance the platform significantly. And then as we interact with these advisors and physicians, who can help us guide the product development, we anticipate taking that product through development on our own. But would likely look for partners down the road as we anticipate marketing the product. We do expect that, that product will require clinical trials, and it will be a primary focus of ours for 2020 in the R&D area.

[Jeffrey Cohen:]

Okay. Got it. And then lastly as far as the expanded label for ISR, can you give us a little closer timing as far as the filing of a 510(k)? And are you including standard size? Or you also going to be looking at the SV size?

[Jeff Soinski:]

Yes. So, the way – that’s a good question. The way our approvals are gained, it would typically include the entire Pantheris platform. We – – but we – and especially, our Pantheris A400x, the longer-nosecone version of our current Pantheris, is used quite a bit in the trial, because there is such a heavy plaque burden in ISR. And in fact, that’s one of the things that really, we believe, differentiates our approach for the treatment of ISR in that we – since we are directional atherectomy, we get a very large luminal gain and I shared numbers on the call that we got over a 70% luminal gain using just Pantheris alone and over 90% when adjunctive therapy is applied versus some of the – the only other treatment modality that’s approved for ISR, specifically, is laser, which, as you know from your experience in this space, provides minimal luminal gain. So, we do think that’s an important differentiating factor here as we advance this program. As far as timing of enrollment, the data is coming in so strong. We do not believe that we will have to enroll full 140 patients, which are allowed, up to 140 patients in the IDE. So we’re hopeful that we can complete enrollment in that study close to the end of this year, which would enable us to file following the six-month follow-up period for all patients enrolled in study to file our 510(k) if the data pans out the way we expect it to in 2020.

[Jeffrey Cohen:]

Okay. Kind of mid to late year 2020, potentially?

[Jeff Soinski:]

Yes. I would say, that’s a safe bet.

[Jeffrey Cohen:]

Perfect. That’s it from me. Thanks for taking the questions.

[Jeff Soinski:]

Thank you for the questions, Jeff.

[Operator:]

With no other questions in the queue, I’d like to turn the call back over to Mr. Soinski for any closing comments.

[Jeff Soinski:]

Well, thank you all for joining our call this afternoon. We very much appreciate your interest in our company, and we look forward to updating you on our progress when we report our third quarter results. Have a good evening.