Silk Road Medical, Inc
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Silk Road Medical's 2021 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. . Please be advised that today's conference is being recorded. . I would now like to hand the conference over to your first speaker today, Ms. Caroline Paul from Investor Relations. Please go ahead.

[Caroline Paul:]

Thank you. And thank you all for participating in today's call. Joining me are Erica Rogers, Chief Executive Officer, and Lucas Buchanan, Chief Financial Officer and Chief Operating Officer.

[Erica Rogers:]

Thanks, Caroline. Good afternoon and thank you for joining our first quarter 2021 earnings call. Joining me is Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer. With the beginning of the end of the pandemic in sight, we are on the precipice of an exciting time, not only for Silk Road, but for the healthcare delivery system as a whole. As of April 28th, confirmed COVID-19 hospitalizations have fallen by 70% since early 2021. Furthermore, nearly 70% of the Medicare-age population in the US is fully vaccinated and getting back to routine healthcare activities.

[Lucas Buchanan:]

Thank you, Erica. Revenue for the three months ended March 31st, 2021 was $22.1 million, a 16% increase from $18.9 million in the same period of the prior year. Growth was driven by increased adoption of TCAR across an expanded base of hospital accounts, trained physicians and active sales territories, partially offset by regional headwinds related to COVID-19. Gross margin for the first quarter of 2021 was 75% compared to 72% in the first quarter of the prior year, which was driven primarily due to lower fixed cost per unit from increased production volume in comparison with the prior period. As a reminder, gross margin in the three months ended March 31st, 2020 was impacted by unfavorable production variances as a result of temporarily idled manufacturing operations due to COVID-19. Total operating expenses for the first quarter of 2021 were $26.7 million, a 17% increase from $22.8 million in the first quarter of 2020. R&D expenses for the first quarter of 2021 were $5.5 million compared to $3.1 million in the first quarter of 2020. The increase was primarily driven by the timing of research and development initiatives. Sales, general and administrative expenses for the first quarter of 2021 were $21.2 million compared to $19.7 million in the first quarter of 2020. The increase was primarily attributable to expenses related to growth in our commercial team and personnel-related expenses. Expense growth was partially offset by the continued reduction in travel, trade show and other expenses due to COVID-19. We expect continued growth in operating expenses over the course of 2021 as we expand our commercial team and invest in a number of continued and new R&D initiatives.

[Erica Rogers:]

Thank you, Lucas. As we exit the first quarter, we remain confident that our fundamentals are intact and our business outlook remains strong. During the first quarter, we made headway on product, clinical, regulatory and commercialization fronts further expanding our leadership as the sole player innovating transcarotid therapies.

[Operator:]

. First question comes from the line of Robbie Marcus from J.P. Morgan.

[Allen Gong:]

This is actually Allen on for Robbie. I had two quick questions. So, the first one, I was just wondering if you could comment on kind of the trends that you saw over the course of the quarter, say, like January to February to March and what you're really seeing so far in April? You've gotten some from other peers outside of your space really highlighting that March and then April were significantly better. So, I was wondering if we should assume the same for you guys?

[Erica Rogers:]

As we talked about in the prepared remarks, certainly, we saw the effects of the pandemic heading into the first part of Q1. January and February deeply affected by hospitalizations and just a whole crimping of the healthcare system. And I'll let Lucas kind of comment on where we are today.

[Lucas Buchanan:]

Allen, we like to call kind of Thanksgiving through February Q5 of 2020 and we were anticipating a rebound in March. And indeed, that's played out and, as Erica mentioned, continued into April. March also had the most selling days, but it also had kind of the least COVID barriers around it relative to prior months.

[Allen Gong:]

The second question is really on the NITE-1 trial. Are there any details you can kind of give us on like the endpoint in terms of – what you're looking for in terms of the time endpoint? Any details you can provide us on that would be very helpful.

[Erica Rogers:]

Obviously, there's some more details have become public as we move forward throughout the year. But I think let's calibrate, in that this is a feasibility study, and so that means that the endpoint really, what we are aiming to accomplish, is looking at the feasibility and safety of the use of transcarotid access and flow reversal in the presence of large vessel occlusion. And so, so it's really all about that, all about studying the feasibility and safety as we move forward in that study. I think the point that I would like to emphasize here is that we're really excited about NITE-1, obviously. This is a major event and, certainly, moving the treatment of stroke forward in a significant way. But the headline really is that the transcarotid era has begun for neuro and that this is the first of what we hope to be many initiatives in this space.

[Allen Gong:]

Sorry, one more quick follow-up. Can you provide some color on – like, when you look at the existing devices on the markets today, just in a few words, what are the shortcomings that you're really looking to address? We've, obviously, seen that TCAR makes the procedure much safer compared to CEA. But we don't have the same kind of safety data, so to speak, for stroke. So, where exactly are the flaws that you're looking to address? Thank you very much.

[Erica Rogers:]

Yes. And I appreciate the question because, like TCAR, we've really looked at the fundamentals of carotid endarterectomy and the fundamentals of transfemoral CAS to understand what were the shortcomings in those two procedures and what was potentially leading to poor patient outcomes in some cases. And so, this is not a new endeavor for the company. We've been involved in looking at acute stroke and other neurovascular disorders for a long time. And we believe there is room for improvement in stroke, particularly around the things that we know lead to a poorer outcome, even with complete recanalization. Things like first pass efficacy, we know, matters. Things like emboli in new territory, we know, matters to outcomes in the end. So, these are just a couple of examples of the things that we think are potentially interesting to address here.

[Operator:]

Next question comes from the line of Rick Wise of Stifel.

[Dylan Haas:]

This is actually Dylan Haas on for Rick. Thanks for taking the question. I just had a question related to standard risk, one on the filing and one on the potential pace of adoption. I'll just ask both upfront. First, on the filing, could you provide any sort of color on the feedback or discussions you've been having with FDA? And then, just as we think about the potential pace of adoption post-approval, how are you guys thinking about how fast uptake could be among currently trained docs, ones that we speak to, some seem already more aggressive about treating some of their patients, others more conservative. Just trying to understand how you guys think about how quickly they could flip the switch on that.

[Erica Rogers:]

With respect to the PMA, the supplement, we're just not in a position to give any more color at the moment. Obviously, we have filed the supplement, the clock is ticking and there really are no meaningful updates beyond that at this time, other than we continue to prepare for the moment if and when approval comes our way. And that preparation looks like getting the commercial team ready, the reimbursement strategy is outlined and the potential post-approval studies outlined. So, that's the work that we're really engaging in now.

[Dylan Haas:]

Just as we think about guidance for the full-year, essentially, it seems like kind of raised the lower end by the – beat relative to what we had in the first quarter and just trying to get any other added color on how you're thinking about the rest of the year, whether it's still being conservative about current trends and the extent to which they'll continue, any added color on that? Just kind of curious what you're thinking about guidance.

[Lucas Buchanan:]

I can take that one. We're really kind of two months into the normalization process, so to say, with March and April, with January and February being really COVID affected. So, our guidance assumes continued normalization as we commented in the healthcare delivery system as a whole, as well as patient behaviors. But in hindsight, throughout the pandemic, those two aspects have been at times unpredictable and are variable. And so, there is some continued acknowledgment of that, as well as typical things like seasonality in Q3, driven often by vacations among providers and patients. And as we and others have said in the past, 2021 could be a year where vacations are a bigger effect, and so that's all part of our thinking.

[Operator:]

Next question comes from the line of Danielle Antalffy of SVB Leerink.

[Danielle Antalffy:]

Congrats on a solid quarter. Just a question for you, Erica, around what sounds like a sort of new or maybe more focused initiative to ramp efforts around your existing physician base. I think, Lucas, you gave a data point around the number of procedures that your earlier trained physicians did in the quarter. But I guess I'm just curious to see how quickly – so, with these new efforts, how we should see these physicians that were trained later in 2019 and early 2022 kind of immediately pre-pandemic? Now that the pandemic is starting to ease, should we expect to see a similar ramp that we saw with the earlier trained physicians from a utilization perspective? Or is there something different among this physician base that we need to be mindful of that might drive a little bit of a slower ramp? That's my first question. And I have one follow-up.

[Erica Rogers:]

Yes, I think what's fair to say is there's nothing fundamentally different about these physicians in terms of their DNA, if you will. What is different is the moment in which they came into their TCAR experience. If you think about it, if you got trained and certified as a TCAR physician in latter 2019 or early 2020, really early, and then all of a sudden we're slammed with a pandemic and your overall procedural volumes go down, patients stop coming into your office, you stop being able to engage the way you would like to with your Silk Road sales professional team, all of those things really have an impact on how these physicians moved early in their adoption journey. And so, the focused effort, Danielle, is really to make sure that those physicians are really on the same footing as all of the other physicians that we've trained thus far. And so, we have a very focused effort. We've segmented these physicians by behavioral traits and where they are in their journey. We have targeted engagement tools. We have hands-on programs that are in-person, that are targeted for each of these segments. So, I'm super pleased with the commercial team's approach to this, Danielle, and I think it ensures that these physicians can get off to the same journey as the physicians we've trained previously.

[Danielle Antalffy:]

So, just a little bit more handholding immediately coming out of the pandemic is maybe the right way to think about it than anything fundamentally different about the physician base we're talking about?

[Erica Rogers:]

I think that's a fair comment.

[Lucas Buchanan:]

Danielle, my comments were intended to highlight that there is real upside because, again, the procedures were really driven by the more experienced physicians. So, as we get programs and tools and tactics to the less experienced, we hope that bears fruit.

[Danielle Antalffy:]

I was curious too if you could comment. Erica, you've mentioned in the past, particularly during the pandemic, some centers actually shifting – accelerating shifting to the less invasive shorter length of stay TCAR procedure versus CEA for the patients that they weren't doing, albeit likely at a suppressed level of volumes overall? And I'm curious to hear if you've seen that trend sort of broaden as we continue to move through the pandemic and physicians are more focused now on getting more patients, just in general, through procedures, not just carotid procedures, but procedures overall, they're juggling a lot, hospitals are very cash crunched. Have you seen the benefit of a shift to a more predictable, less costly, safer procedure like TCAR and how sticky is that now as we come out on the other end of this? Thanks so much.

[Erica Rogers:]

Really insightful question. I think you're right in your insights, in that physicians and hospitals are keenly interested in getting back to the business of treating patients and I sort of alluded to that in my prepared remarks, which is physicians are back. And certainly, against that backdrop, efficiencies are an important part of the story. And I think it's not only efficiencies for physicians and hospitals and all of the cost benefits and sort of productivity benefits that come along with that, but it's also reflected in how patients reemerge and reenter into the healthcare system. So, I think net overall, the efficiency of TCAR, the improved outcomes, the less-invasive nature of TCAR, all of that continues to serve as a tailwind for adoption. And I think it's also safe to say that, in the physician groups and individual physicians who really took advantage of the efficiencies during COVID, I think we're pleased about the stickiness of that. We haven't seen a reversion, in other words. And why would you, right? After you've experienced the efficiency of TCAR, why would you go backwards. And that's, in fact, what we're seeing.

[Operator:]

. Your next question comes from the line of Adam Maeder of Piper Sandler.

[Adam Maeder:]

Congrats on the solid start to the year. First one from me is just on the procedure environment. It sounds like things got a lot better in March and April, but wanted to ask a little bit more color there. So, what are you seeing from a hospital or ICU capacity side of things? What are you seeing from kind of a patient willingness standpoint? And then, also the diagnostic funnel, are we kind of back to pre-COVID levels or 80% there or 90%? Just any color there would be helpful. And then, I have a follow-up or two.

[Erica Rogers:]

Adam, I can give you some high-level color on those three things, try to unpack them one at a time. So, on hospital capacity, I think the good news is, with vaccinations really increasing and greater than 70% of the Medicare population vaccinated – and again, that's our patient population, right – we are seeing hospital admissions go down for COVID and certainly deaths thankfully going way down. So, hospital capacity is less and less of an issue, as well as hospital resources. So, it's not just about beds, it's also about people, and I think we're seeing more resources come up as the pandemic wanes here. As it relates to patient behavior, this is the real interesting one. There are some real tailwinds to patient behavior, not the least of which is vaccination and elderly people just feeling better about being out and about in the world. I think also beneficial is the fact that they can enter the healthcare system and have a family member beside them. You remember during COVID, Adam, you couldn't bring a family member to the hospital or even to your doctor visit. So, things like that are really having a positive impact on getting patients back to the business of routine maintenance and routine care. And certainly, many of them deferred that routine maintenance and care for a long time. And so, I think that speaks to your final piece, which is the funnel. And there are not only brand new diagnoses occurring, but also patients who deferred their kind of just routine follow-up exam on their carotid, who are now coming back into the system and, in many cases, disease has progressed farther than it might otherwise have.

[Adam Maeder:]

And maybe I missed this in the prepared remarks, but just any update on the international expansion initiatives that you're pursuing in China and Japan? Just wondering if there's an update on the progress and potential timelines there? Thanks.

[Erica Rogers:]

The update is we are making progress, though nothing specific to report nor timelines here on this call. But we're pleased with the progress that we made in the quarter.

[Adam Maeder:]

One last one, Erica, if I can sneak it in. Just maybe curious about the carotid market more broadly and how you think that recovered and if you think you took share in the first quarter sequentially. And if you did take share, if that came at the extent of CEA or transfemoral stenting? Thanks so much.

[Lucas Buchanan:]

Adam, I'm happy to take that one. We don't have all the data yet from 2020. But we do believe overall procedure volumes were down as a function of COVID-19. And obviously, our procedures were up, and so we are kind of taking share at a national level and we're looking at that at an individual physician level too. They are depressed as well, but we continue to grow the adoption curve. So, the trends are positive in that environment and, certainly, coming out of it. And CEA continues to be the gold standard, and that's where we're focused on taking share from because that's where most of the procedures are.

[Operator:]

Showing no further questions at this time, I would now like to turn the conference back to Erica for closing remarks.

[Erica Rogers:]

Thank you all very much for attending the call today.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.