Cardiovascular Systems, Inc.
Q3 2015 Earnings Call Transcript

Published: 30 Apr 2015

[Operator:]

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to your Chief Financial Officer, Larry Betterley. You may begin your conference.

[Laurence L. Betterley:]

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 now to CSI's President and CEO, Dave Martin. Dave?

[David L. Martin:]

Thanks, Larry. Hello, everyone. CSI delivered another strong fiscal third quarter. Revenues increased 33% or $47 million. This marks the eleventh 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 from market expansion in both peripheral and coronary opportunities. CSI is leading the expansion of the peripheral coronary interventional markets. We have technology advantage and we backed 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 are committed to providing physicians with the tools they need to be 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 mm Diamondback 360 Solid Crown and the modified 1.25 mm 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 mm 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 getting access through arterial vessel through a smaller opening, these devices substantially reduce the risks and complications associated with larger sheath sizes. In fact, for every increase in sheath size there is a 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. Four million Americans suffer from CLI today, 150,000 of them 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 have been candidates for amputation. PSI would use our expanded sales footprint to launch more amputation prevention programs and treat more patients in need. PSI can reduce patient suffering and save their healthcare 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 1000 units. In the first nine months of fiscal '15 we sold nearly 5000 units including 2000 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 to enormous underserved markets with our unique products. The larger sales footprint, 90 new clinically oriented sales professionals who we will hire over six quarters the three previous now and 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 representatives or represented both coronary and peripheral grew from 308,000 to 341,000 quarter-over-quarter in those territories on average. More than half [ph] of 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.

[Laurence L. Betterley:]

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 2000 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 in stock issued under our employee stock plans. Adjusted EBITDA loss improved to $6 million versus a loss of $6.4 million last year and our operating loss increased. The improvement was driven by a higher level of stock compensation expense. At quarter end we had cash balance of $94 million. Cash usage this quarter of $8 million included about $5 million 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. Thought 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?

[David L. Martin:]

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 5000 patients and well over 6000 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 revealed a 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 33 patient single center subset of our ORBIT I study showed an even higher rate of 97% freedom from TLR. Next month at the [SKY] conference we'll build on these compelling results when share the one-year economic data for these patients. On the peripheral side we recently enrolled or 800th patient in the 1200 patient LIBERTY 360° study. This study is designed to evaluate the clinical and economic outcomes of our systems for up to five years. It is 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 our Q&A, first our guidance for the fiscal fourth quarter ending June 30, 2015. Revenue will be in the range of $49 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 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 our 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 U.S. sales force and have a vast opportunity to drive value for our shareholders with proprietary CSI products. Revenue from Asahi guide wire sales was not material for total revenue in the third quarter. That completes our prepared remarks. Operator, we are now ready for questions.

[Operator:]

[Operator Instructions] Your first question is from Ben Andrew from William Blair.

[Q –Unidentified Analyst:]

Good afternoon everyone. This is actually Scott here for Ben. Thanks for taking the question.

[David L. Martin:]

Hey Scott.

[Unidentified Analyst:]

Just first some modeling questions about what you were just talking about with Asahi, I understand that it is not material but in terms of just keeping models where they are 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 to the quarter because it seems like you have to come from there or your substance for growth in peripheral would have to come down quite a bit. So any color there will be great?

[Laurence L. Betterley:]

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

[Unidentified Analyst:]

Okay and then 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 in the quarter to kind of get where you are coming out at.

[Laurence L. Betterley:]

Yes, we still dominate in those three critical alpha vessels that are key to durable results and calcium everywhere including the SFA which calcium as mentioned is a complication and something for the 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 us lesser extent than our competitors, one is the launch of DCBs, the data points and they could be effective if the large vessel SFA plaque is truly soft, it works pretty well. And most of our competitors their business as 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 drug therapy. We think it is a tailwind and it goes very nicely with the Diamondback as the primary therapy.

[David L. Martin:]

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

[Unidentified Analyst:]

Of your peripheral revenue?

[David L. Martin:]

Yes.

[Unidentified Analyst:]

I mean, so that will make it your above the knee would be roughly flat from a year ago, is that fair?

[David L. Martin:]

They grew a little bit.

[Unidentified Analyst:]

Okay. 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 holes in your product portfolio, are you most interested in filling in either the peripheral or the coronary segments?

[David L. Martin:]

Yes, there is from our expansion is there are two avenues. There are so many patients in need with coronary calcium, the peripheral calcium that were in the market expansion story. 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 to 250. We are 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 and 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 do 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 out forth of the foot is absolutely key to durability in just trying to see it. In our two-year OASIS trial produced an 85% freedom through 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 they produced extraordinary result. And now you see that its 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 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 easy to use and redefining the space. We think when we are done with that, we’ll 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 Walker has been very aggressive and now we're looking on the outside of the company for those technologies and therapies that could help advance our market expansion in both markets, peripheral and coronary. So I think ours is a sales expansion story to get to that new market and product pipe line, both organically and outside the company.

[Unidentified Analyst:]

Great, that’s it. Thanks.

[Operator:]

Your next question is from Danielle Antalffy with Leerink Partners.

[Danielle Antalffy:]

Hi guys, can you hear me, okay?

[David L. Martin:]

Sure, can Danielle.

[Danielle Antalffy:]

Alright, thanks so much for taking the question. So just a follow up on the impact from drug coated balloons etcetera, I mean can you the revenue, we did see a little bit of its deterioration in the quarter, if the numbers, I have in here right, sort of mid teens growth from 20 plus percent, the last few quarters and before that. Can you talk about what may be is going on there and what you’re are seeing and maybe give a little more color on what you’re seeing in the competitive environment, because I’ll tell you the feedback we get on the DCB side of things is that actually that is very complimentary, so maybe where is the impact that’s driving that growth deceleration?

[David L. Martin:]

It's absolutely complimentary to CSI. We handle calcium everywhere and calcium prevents drug coated balloons from using that and Dr. Tepe had a real nice paper on that and some secret studies will show that. So we like our position there, quite a bit will allow the 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 it's 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 of doctors like these the plain old balloon as the best prep and it would only work as we know from the studies in soft plaque, soft plaque vessel prep with a plain old balloon followed by drug-coated balloon can work, but when it is calcium that’s the role for CSI. So, we like the market expansion capabilities and the dual technologies quite a bit. So we agree with you Danielle on that count. For CSI we’re half way through in 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. We’ll be done with that at Christmas and we’re looking forward to being fully optimized at the end of the year.

[Laurence L. Betterley:]

So Danielle, that transaction Dave just referred to in the hybrids and cross training, that takes a lot of investment and time and does pull away from the amount of time that are rough skin used for selling peripheral and they have to get their initial coronary counts up and going as well. So that’s probably the biggest thing that we're balancing right now is during the transition for the future and doing it right.

[Danielle Antalffy:]

Okay, that make sense, so then is it fair to think that actually P80 growth can once you complete the transition by December, can it actually accelerate from there or is the mid teens level sort of the right way to think about this longer term?

[Laurence L. Betterley:]

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. We’re looking to get us 250 total and over 200 trained in both franchises, at that point in time with the time and country for all those people recognizing that 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, these can accelerate at that point in time.

[Danielle Antalffy:]

Alright, thanks so much guys.

[Operator:]

The next question is from Mike Matson from Needham and Company.

[Mike Matson:]

Hi, thanks for taking questions. I guess just want to start with coronary the numbers look pretty good this quarter, but just wondering, are you able to track how much of that, how much of your business is coming from positions that are former Rotablator users versus physicians that were not doing coronary atherectomy before and where you are in that process, have you kind of convert in lot of the Rotablator users mainly at the [Indiscernible] or are you starting to penetrate the more Greenfield opportunities as well.

[David L. Martin:]

Well, thanks for the question Mike, we haven’t scratched the surface and we don’t track it specifically, but it’s a little bit of both in each camp that we drive in.

[Mike Matson:]

Okay and then since you are mostly U.S. focused company at this point, just wondering was there any sort of weather impact in the first quarter?

[David L. Martin:]

No, no other impacts for CSI.

[Mike Matson:]

And then just wondering about the competitive environment, have you seen any changes. I think of Volcano entered the market and they were focusing on below the knee and I don’t know if 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?

[David L. Martin:]

Yes, we see a ton of activity. Overall it's great for the space. These patients in the peripheral space, needs the attention, they need more solutions, better outcomes, but largely it's all part from the SFA, that one large vessel that feeds the 3 below the new vessels and we’re getting better outcomes because we eliminate the bigger barrier to a clinical and economic outcome that’s and that’s calcium. So we're architecting our sales force differently than other sales forces. One, they're going to be a vascular expert, appearing simple heart and legs, two, they're going to be able to drive market expansion activities, like amputation prevention and that’s unique to see at CSI, so we could partner with hospitals who are in-line with hospital chain mission statements. We consider the payer, our customer, we consider the healthcare system, millions and millions of dollars by treating 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 in six months or a year and there is a significant follow up, 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 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 rest of the bucket 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 going to help highlight the need and the promise that need to solved.

[Mike Matson:]

Okay and just a question on the guidance, I may have missed this, but do you give a guidance number or range for coronary for the fourth quarter?

[David L. Martin:]

We used an estimate of about 9 million.

[Mike Matson:]

Okay and then got this it upcoming med-hack panel on PAD, it's kind of unclear what they are going to be focusing on, but I was just wondering if you had spoken to anyone at CMS about that and if you have any thoughts as to what that might involve and the degree to which atherectomy could be discussed at that meeting?

[David L. Martin:]

Yes, you bet, it’s a great question. So we know a lot about that. The MEDCAC meeting is CMS expert panel, 70 physicians, there are looking at lower extremity intervention. That meeting is going to happen on July 22 and right now in the open common period and will be in that open common period until June 16th. There have been 39 meetings like this since 2009 and two of those have resulted in coverage decisions and the output from this group is going to be recommendations. We’re the leaders in lower extremity intervention. We’ve got plenty of data, 6000 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 U.S. healthcare and they’re going to recognize that calcium is the culprit. Not only do we have the 6000 lesions under study, but ongoing we've got LIBERTY 360° study that captures a lot of the other end points 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 the other cardiovascular societies to provide them with the information that they need, so we’re looking forward to that and we’re ready.

[Mike Matson:]

Alright, thanks a lot.

[Operator:]

Your next question is from Bob Hopkins from Bank of America Merrill Lynch.

[Bob Hopkins:]

Thanks for taking the question and congrats on a strong quarter.

[David L. Martin:]

Thanks Bob.

[Bob Hopkins:]

So, just a start, I’m curious in SFA in this quarter I'm curious how you are seeing drug-coated balloons impacted your peripheral sales, was it a slight negative because of the broad trialling, was it is a slight positive because of the synergies or was it do you think it really did not have much impact at all in SFA this quarter?

[David L. Martin:]

Yes, it is unclear, we won some and lost some. We didn’t loose 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 teams doing a great job with that, the studies that we are putting out are getting more, more attention. We’ve got a great faculty and key opinion leader, a team, so the word is getting out about calcium and how its disruptive to patient clinical and economic outcome. 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 old balloon first. So we do see some direct ballooning with the DCB and in those situations where there is no calcium it probably works pretty good. But we've seen it all. We've seen people mistakenly balloon in calcium that doesn’t turn out well. They are essentially required in that, 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 and patient profile for drug-coated balloons, but by and large I think the market is pretty excited about it.

[Bob Hopkins:]

Yes, so it sounds like may be, I mean your results were good, so its sounds like may be kind of net neutral to maybe a little of trialling and then is there any consistency to where you’re seeing drug-coated balloons trialled 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.

[David L. Martin:]

Well, they’re not being tried below the knee. We see it largely in the SFA and when we're there, we can educate the physician calcium and the benefits of eliminating that using as this as the primary therapy and they’re getting great results. We do get some physicians together on a couple different occasions called the think-tanks and the physician too were identifying calcium treating with the Diamondback as the primary therapy and using a low pressure drug-coated balloons felt great about the acute results and there were curious to watch those. We'll 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'll avoid high pressure ballooning, we've got a lot advocates for that and we’ll put it under study and get that proof sourced out there in the market.

[Bob Hopkins:]

Do you have any sense again in SFA, which I realize is an area for you where there is less focus, less growth, less percentage of your 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 kind of soft plaque large vessels versus through calcium cases?

[David L. Martin:]

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 you get a get a great result. So I don’t have anything specific to tell you on that.

[Bob Hopkins:]

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

[David L. Martin:]

No for a couple of 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 athero vessels. The more we shine a light on that the better it is for patients and payers and we’re doing, the team here is doing a great shining the light on that. And I think the physician communities they’re thirsty for science and information and people start to provide it now. So I think that’s good. For soft plaque large vessel a plain old balloon actually works pretty good that’s the one role for the plain old balloon and I think people are excited about drug therapies. I’m not sold and the team here, the scientists that we work with aren’t sold on perhaps the balloon as the ultimate delivery vehicle for drugs, but I think all of us are very excited about drug therapy in the peripheral space its ability to increase durability.

[Bob Hopkins:]

And then lastly from me on coronary, you guys have good momentum, you’ve kind of delivered on your promises and then 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 that 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 the price and reimbursement and ease of use and all those good things, just turn to see for it maybe with 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?

[David L. Martin:]

Well we are calcium everywhere and so far what’s under studies de novo highly severely calcified lesions. We think that there is an opportunity one from our awareness and some an enormous market expansion. So we'll grow on that. In terms of what we're currently finding, Boston Scientific is 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. I mean if this device goes and gets calcium it gives the physicians a ton of control our sanding is 30 seconds sometimes a little bit more. It’s a simple easy to use device. It is low profile micro invasive, which is in line with cost and complication saving. So I don’t know, will we go after an in-stent indication, not at this point in time. Will we improve our products and make them even easier to use? Absolutely, I think there’s a lot of opportunity. What we did though is we smacked 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 are in half time in terms of architecting our sales force for future market building. And if you think about what our commercial team did together, one they on boarded a lot of new people for an organization our size. Two, they trained individuals sometimes in both franchises, but certainly are very educated peripheral sales force. They trained them sometimes it took 21 days out of the field in order to train them in coronary, but when they showed up on their first case independently they could deliver a real great impact for the patient and doctor. And we put our sales force through the same rigor that we do our doctors six proctor cases. So we got these great results over these last three quarters if you look at and while training hiring and kind of recasting territories, because now we don’t have to have a 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 dig a little deeper and really extract the disease state in that community. So, really proud of the team. We 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.

[Laurence L. Betterley:]

And Bob, just to put some numbers around that advancements are its 10% probably 15% of the coronary procedures are calcified or heavily calcified. So that’s our initial focus and that’s could be a 150 to 200,000 procedures initially. But the data would show that even moderate calcium results in much higher there some death. So ultimately that’s going to be our focus as well and that would double that number more.

[Bob Hopkins:]

Okay, great thanks guys I appreciate it.

[David L. Martin:]

Thanks Bob.

[Operator:]

Next question is from Brooks O’Neil from Dougherty & Company.

[Brooks O’Neil:]

Good afternoon guys, no one specifically asked you about reimbursement in the market are you seen or hearing any discussion about reimbursement being either appropriate, too low, to high whatever?

[David L. Martin:]

Well for the calcified patient it’s a really expensive problem both in heart and legs. So I think it could go up even higher, but we ran a great business with lower reimbursement. I think a lot of people know at this point in time January first reimbursement for drug-eluting stents and atherectomy together increased by 92% for atherectomy and bare metal stents increase over a 100%. In the peripheral setting in hospital and in the OBL setting reimbursement for atherectomy improved 62%. We have indications that might even uptick a couple more percentage points in the coming year, but we don’t know that and there is only proposal out there. So we ran a great business with before January 1, with a lot less reimbursement. Our value proposition is dynamite. If you are a patient and then now you choose our device every time if 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 were down back it is enormous and the cost is catastrophic.

[Brooks O’Neil:]

Great Dave, thanks a lot. That’s very helpful. You discussed quite a bit the presence of calcium in the peripheral areas. Can you just talk a little bit about what you believe the facts are with regard to the presence of calcium in the coronary arteries?

[David L. Martin:]

Yes, the scientific data and some of it getting back to the 80s and some of that recently shows that 38% of patients who get coronary and I mentioned annually have calcification present. We think that our immediate market opportunity is for 10% that’s obvious and severe. We think the opportunity for CSI over time is much larger than 10% and maybe as much as 28% of the 1.4 million coronary interventions in the U.S. annually and beyond. We've got great news and a jump start in Japan. We’ve got our Japan arm of coronary study complete. We’re finishing up the U.S. arm and we'll get two foot, so now we’re fast tracked for the ministry and roll on Japan but we because we’re working with 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 a coronary device and this study also gets us FDA clearance of our coronary MicroCam which is a two for and that will be a big event for us in the U.S. as well

[Brooks O’Neil:]

Great, last question just curious if you could talk to us a little bit about how it has gone, the movement into the new headquarters and sort of the benefits you are seeing there? Thanks a lot.

[David L. Martin:]

Yes. thanks for that insight and that question, well it keeps us all to be together. To do the right thing through hook and crook we made it work in our old facility. We outgrew it and we built a new facility. It is world class. If you can hear 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 are all together now all of us in Minnesota in the great headquarters and that facilitates communications and problem solving. We have got a best-in-class training labs of the physicians. We are known for our physician training and education and we've got a Cadaver Lab onsite here with best-in-class room, procedure room and viewing room which is great. The R&D team who has put points on the board for years and years and years now are all together in one group and kind of married with our clinical and science teams. We’re seeing great productivity come around problem solving immediately and on and throughout the company just having all the capabilities parked in one place it is great for Minnesota, it is great for Minnesota employment. It is great for patients with calcium in need and you are all invited to come on over to great place to do work and solve problems.

[Brooks O’Neil:]

Thank you, David.

[Operator:]

Next question is from Ben Haynor with Feltl and Company.

[Ben Haynor:]

Good afternoon gentlemen thanks for taking the questions.

[David L. Martin:]

Hey Ben.

[Ben Haynor:]

First off with how this MEDCAC meeting you didn’t set up this summer and what they are 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 for this?

[David L. Martin:]

You would think so, but we didn’t. But it is 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 incidents of peripheral vascular disease in calcium is catastrophic. So one, we need more site to service thankfully we have got more treating physicians than ever before, three specialty cardiologists, the vascular surgeons, interventional radiologist and we are into the curve. I mean 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 the lesser fee for growth and profit so it doesn’t it make sense to us that it is getting more awareness and attention. I think coronary for 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 we see us help through proliferating it and we are getting a lot of support out there from societies, from government agencies, payers love our story and certainly were here with the patients.

[Ben Haynor:]

This seems to set up such a great meeting for you, but on the clinical data front now that you are about two thirds enrolled with LIBERTY 360° trial, I assume you are still on track to finish by the end of the year, calendar year and wondering if you had made any point the published subset of data at an earlier date?

[David L. Martin:]

Well, we are hoping for VIVA. We got to work on that, there is nothing concrete, but we at least kind of publicize what we are starting the outcome nature of it maybe we can get a book bullish of patients to get over the 1000 mark, we are at 800 right now and we have got a nice pace but you can imagine how anxious we are to finish up the 1200 and have at, it is going to look great, there is a lot of severe disease treated, which will be so to answer couple of questions for the scientific and medical community. One can you retain treat below the knee calcified disease and the answer is clearly going to be as some physicians everywhere as you could see by our unit sales history, are answering that by themselves even advanced the study but and with current clinical proof, but also answer the question should it be done and absolutely if you could do it safely we got one of the safest procedures in the hospital period absolutely should open up those vessels and treat those patients earlier, so those are two exciting things that we think at the VIVA we just kind of exposed the trial design. We can get a bolus in patients and get to that 1200 mark that we’re looking for in the interim. Now we probably won’t stop enrolling there, but at 1200 what we just feel is kind of freeze the trial and allow all of our faculty and physician support us to get in there and in published subsets and larger sets of data.

[Ben Haynor:]

Okay, Great and then lastly, on the 145 centimeter product, any early feedback from doctors that you can share?

[David L. Martin:]

Yes it’s great. We did cases this week and of course typical CSI and our physician treaters, we value so much. One of the first few cases headed off in the amputation. The 4 French access is dynamite. The physician said the deliverabilty was unbelievable, we also add 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 doctor and Dr. Mustapha you can imagine it is pretty hard to please at this point in time. But his quote was, "that's what you call freaking awesome". I think that the same – but that was one of it. 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, "we have something very unique, no other device can treat classified vessels down to the foot". And I think on one of the cases they were down to the toes. So they’re real pleased, the engineers worked very hard on this and our regulatory team amazingly got this cleared FDA in 25 days. We've just got that kind of relationship. We surround every question they might have in the initial path and we have got a great relationship with the agency.

[Ben Haynor:]

Okay, great that is all for me, thank you very much gentlemen.

[David L. Martin:]

Thanks.

[Operator:]

Our final question is from Jan Wald from Benchmark Company.

[Jan Wald:]

Good afternoon everyone and congratulations on the quarter, if you might imagine a lot of my questions have been answered but 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 or heavily calcified lesions especially when you are talking about the periphery and I am wondering because I know there is some confusion about where your devices best used versus other devices that maybe used in the same area or being tried to used 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?

[David L. Martin:]

Yes you bet, we have got 5000 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 treat, proving that time and time again as we head our reputations routinely. So we have got thousands of patients under study and so the definition has 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 is your answer, their mechanisms do not treat calcium, and calcium is the enemy of a good clinical and economic outcome. So that is where all atherectomy is not the same. A great way to look at the market opportunities is look at the mechanism. Our mechanism is nice to the native artery. Our device treats vessels large and small. We get calcium every time and that gives us an enormous market opportunity where it is no action that our mechanism is the only one approved in the last 20 years in the coronary artery. The coronary is one millimeter to four millimeters, it is just like those arteries below the knee, one to four 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 mechanism aren’t safe. Low profile, they small device does not make large lumen and they can’t eliminate the barrier to a great outcome calcium, so you just want to see it, but I think you could parley that that to the peripheral stage too. You just won’t find anybody with patients under study with calcification and prolific below the knee use.

[Jan Wald:]

So in essence is any plaque that's below the knee that’s not pliable?

[David L. Martin:]

Yes 80% of the disease of the vessels down there are calcified CE, you almost have to assume that at 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 non-treatment but second of that would be balloon angioplasty. If you balloon a rock pile and dissect that that is also 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 or so fast and entering the vascular system from the ankle or the feet, some people switch completely. All together the growing approach, because we have got four and five – in micro invasive devices to treat those patients. Another way to look at it if there are 11 vessels, three in the heart, three in each leg, that's nine and then the SFA and the two larger vessels one in each thigh, right the SFA, we play in all of those. So 11 of the 11. A lot of our competitors are in two of the 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 is it comes that, if you just treat the SFA, it does come at expense to outcomes and if you don’t tend to the outflow vessel. So we could treat them all 11 a lot of our competitors can treat in just the larger vessels and their mechanisms you got to look at each mechanism, some are good for thrombus, some are good for soft plaque. None of them are good for calcium.

[Jan Wald:]

And I guess one last question it is more on the margin side of the company and I know at this point, the point you are at or at least seem to be at least so it is always a question of whether you want to improve margins and profitability or reinvest or invest in the company. And I know you have cash that you can use to your advantage, but how do you see the company going forward or you have to make large investments in order to grow or you at the point now where profitability becomes more of a goal for you?

[David L. Martin:]

Well we plan out that peripheral if you were just to strip away the investments in peripherals possible growing across it for years and back for scale in the coronary and the investments today to get that franchise up and running will be profitable, it is a choice we could be profitable today. But we are going to marry grow the profit, the market expense, our unique mechanism, the enormous amount of patients need in the heart and the legs justify investments, one of the most existing ones is architecting our sales force the market expansion for years to come and that means adding 90 to a base of 160 trending them all to handle both franchises and be vascular experts morphology experts and bring more patients into queue. Among the things that we will do, do with that sales force is we will drive the amputations below 100,000 amputation to the U.S. annually from its current rate of 150 and will also drive vascular interventions, prefer vascular interventions from its current state of 600,000 above a million. That is what we think that our architecting the sales footprint to be larger and more market building oriented will do in the years to come. Larry, do you have anything to comment?

[Laurence L. Betterley:]

No I think we are balancing both Jan. 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 sales of both franchises. We are working our way through that and we should start seeing improvement in expense growth compared revenue growth just goes 16 probably more in the latter part of the year.

[Jan Wald:]

Okay, thank you very much.

[Operator:]

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

[David L. Martin:]

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 patients that 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 that 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.

[Operator:]

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