Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cardica, Inc. (NASDAQ:CRDC)

F2Q 2013 Earnings Conference Call

January 31, 2013 16:30 ET

Executives

Bob Newell - Chief Financial Officer

Bernard Hausen - President and Chief Executive Officer

Analysts

Akiva Felt - Wedbush

Ed Arce - MLV & Company

Operator

Good day, ladies and gentlemen, and welcome to the Fiscal Second Quarter 2013 Cardica Financial Results Conference Call. My name is Derrick and I will be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Bob Newell, Chief Financial Officer. Please proceed.

Bob Newell - Chief Financial Officer

Thank you. Good afternoon and thank you for participating in our fiscal 2013 second quarter financial results conference call. Earlier today, we issued a press release setting forth our financial results. So, please refer to the release for complete details.

This conference call will include forward-looking statements, including all statements regarding the continued clinical and other developments, product features, regulatory approval, and commercial launch and use of products in our planned MicroCutter product line, including our MicroCutter XCHANGE 30 and XCHANGE 45, including the timing thereof and our expectations regarding future support for and sales of our automated anastomosis products.

Any statements contained in this conference call that are not historical facts may be deemed to be forward-looking statements. The words anticipated, expect, continue, believe, can, potentially, may, plan, planned, beginning, would, will, intend, look forward and similar expressions are intended to identify forward-looking statements. There are number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including those set forth in our press release of today as well as other risks detailed from time-to-time in our reports filed with the U.S. Securities and Exchange Commission, including our quarterly report on Form 10-Q for the quarter ended September 30, 2012. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement. You are encouraged to read our reports filed with the SEC available at www.sec.gov. This call is the property of Cardica and any re-broadcasting of this call without the express written permission of Cardica is prohibited.

At this time, I’d like to turn the call over to Bernard Hausen, Cardica’s President and CEO for a corporate update.

Bernard Hausen - President and Chief Executive Officer

Thank you, Bob. Good afternoon, everyone and thank you for joining us on our call today. The second quarter of fiscal 2013 marked the turning point for Cardica. And then we shipped our first commercial units of the MicroCutter XCHANGE 30 to DACH Medical Group, our distributor for Germany, Austria and Switzerland. The accomplishment of shifting commercial units resulted from years of diligent efforts in innovative design and ongoing upgrades to improve performance and reliability to ensure we manufacture a product that surgeons can confidently use in a variety of surgical procedures.

As you know, the MicroCutter XCHANGE 30 is a cartridge-based device with a 5-millimeter shaft diameter and articulation of up to 80 degrees. The XCHANGE 30 is a revolutionary device with more than 80 individual components, the majority of which are intricate and requires specialized manufacturing. To create a device of this size, which is approximately six times smaller in cross-sectional area than the commercially-available staplers on the market today with reliability, the ease-of-use and consistent functionality is exceptionally complicated and necessitates repeated iterations and significant testing. We continue to work closely with our surgeon customers to ensure the XCHANGE 30 meets their predictably high expectations of performance and reliability based on the experiences with currently available and well-established stapling products. We strive to improve reliability and consistency with each iteration of our device. Today, we believe we have a product that will serve cutting-edge surgeons who are early adopters of the device in the months ahead.

These surgeons have been hand-selected by our sales professionals as leaders and the innovators in the field of laparoscopic and thoracoscopic surgeries. They are familial with the intricacies of new products and are helping us fine-tune our device for broader consumption, so that we can continue to detect areas requiring improvements or iterations. While feedback has been positive in terms of functionality and performance, we are committed to continuous improvement to ensure that the XCHANGE 30 device performance, reliability, and consistency for surgeons who do not have a familiarity with innovative technology of this type and complexity.

We expect to continue to ship small batches of XCHANGE 30 to our distributors to serve early adopting physicians. In parallel we plan to implement incremental changes to the device moving towards a device that serve a broader surgeon population. We are pleased with the progress we have made and remain steadfast in our commitment to deliver the highest quality, most reliable product to the market. We are proud of our company’s ability to have implemented important product changes and iterations quickly and effectively. Clearly the Cardica employees and for me personally as a surgeon and physician product performance and reliability in the patient remains the company’s highest priority.

Importantly, we have a detailed and scaleable production plan in place with the ability to escalate unit production as we meet our stringent reliability criteria. In continuing our commercial introduction, we expect to focus on selling our products through DACH Medical Group our distributor for Germany, Austria and Switzerland initially. As we established the device adoption of the XCHANGE 30 among key surgeons in these countries, we expect to expand shipments to our distributors in other European countries, initially the Benelux countries, the UK and Italy.

We’re focused on securing consistent re-order pattern from our initial customers prior to adding additional counts. We would like to extend the reach of the MicroCutter deep within the target hospital establishing KOLs within an institution as advocates and trainers of their peers in multiple specialties. Our continuous efforts will be geared to ensuring that each surgeon has consistent positive experiences using the MicroCutter in a wide array of surgical procedures.

Turing to our European clinical trial, we have started to supply commercial units of the XCHANGE 30 for continued patient enrollment in Germany. Primary endpoint of this trial is the incidence of device related serious adverse events. Product performance is a very important as it relates to achieving the secondary end point of this trial. We expect the commercial product we have now released to our customers to meet our reliability and performance needs for the study.

The product modifications have resulted in a delay in patient enrollments. We now intend to enroll the remaining approximately 70 patients of the 160 study population and believe this will be completed in the second quarter of calendar year 2013. There is a 30-day follow up period for each patient post-enrollment and there is a significant amount of data acquisition and statistical analysis that is required for our 510(k) submission. We plan a focused effort to meet our revised goal of using the results of this trial as part of our 510(k) regulatory submission to the FDA earlier in the third quarter of this year.

Moving to our cardiac products, during the quarter we added new accounts ordering our C-Port systems specifically focused on less invasive bypass procedures both beating-heart and totally endoscopic coronary artery bypass or TECAB procedures. In addition, we have recently announced that we achieved a significant milestone by completing enrollment in our Multicenter Assessment of Grafts in Coronaries or MAGIC multicenter trial. This is a post market surveillance study for the long term evaluation of bypass graft completed using our C-Port systems. We just returned from the 49th Annual Meeting of the Society of Thoracic Surgeons in Los Angeles where we received many inquiries about our PAS-Port system related to patients with diseased aortas who are clamping and using a heart-lung machine with the stopped heart is not advised. Our PAS-Port system does offer the advantage that no clamp is required for bypass procedures. We believe this is a key selling feature for this innovative device.

Looking at the bigger picture, we continue to believe and receive feedback that our PAS-Port, C-Port systems facilitate less invasive cardiac procedures. As an example, for the end of last year Dr. (indiscernible) and his colleagues published a paper in the peer-reviewed journal Circulation describing how clampless, off-pump coronary bypass surgery facilitated by the use of the Cardica PAS-Port proximal anastomosis system lowers mortality, stroke rate and other morbidity in an unselected group of patients with coronary artery disease. This difference was statistically valid. This is a first study to statistically validate the efficacy of our products for the reduction of neurological events while in CABG surgery one of the most serious complications in this commonly performed surgical procedure. There continues to be a small, but determined group of cardiac surgeons who promote the benefits of our C-Port, PAS-Port system in facilitating less invasive coronary artery bypass.

Finally, I’d like to take this time to thank Chris Littel, our Vice President, Sales and Marketing who will be leaving us at the end of February. Chris has helped us put in place a robust and sustainable launch plan for our European sales operations. Wish him the best as he moves on to his next opportunity. In addition to our Director of European Sales, we have a consultant familiar with Cardica and our products for an interim period to ensure our plans continue without interruption.

At this time, I’d like to turn the call over to Bob for a discussion of our financial results. Bob?

Bob Newell - Chief Financial Officer

Thanks, Bernard. For the fiscal 2013 second quarter, total revenue was approximately $874,000 compared to $912,000 for the same period fiscal 2012. Total product sales for fiscal 2013 second quarter was approximately $772,000 compared to approximately $811,000 for the same period in fiscal 2012. During the fiscal 2013 second quarter, we shipped 927 PAS-Port systems bringing cumulative worldwide shipments of our PAS-Port systems to over 30,500 units.

Orders from Century Medical, our Japanese distributor, were slightly less than they have been in previous quarters due to the timing of ordering within the quarter. There has been no material change in their order pattern that we have seen. We shipped 242 C-Port systems during the quarter with cumulative worldwide shipments of C-Port systems now over 13,500 units. Cost of sales was approximately $968,000 for the fiscal 2013 second quarter compared to approximately $1.1 million for the same period 2012.

Research and development expenses for the fiscal 2013 second quarter increased to approximately $2.3 million compared with approximately $1.5 million in the comparable quarter last year. This increase in R&D expense for the recent fiscal 2013 second quarter is due to an increase in materials purchased, clinical expenses, and depreciation expense related to our MicroCutter program development activities.

Selling, general and administrative expenses for fiscal 2013 second quarter were $1.7 million compared to $1.5 million for the fiscal 2012 second quarter. Total operating cost and expenses for fiscal 2013 second quarter were approximately $5 million compared to approximately $4 million for the same period of fiscal 2012. For the fiscal 2013 second quarter, our net loss was $4.1 million, or $0.11 per share compared to $3.2 million or $0.12 per share for the comparable period last year. Cash and short-term investments at December 31, 2012 were approximately $6.7 million compared to $11.2 million at September 30, 2012.

At this time, I’d like to turn the call back to Bernard.

Bernard Hausen - President and Chief Executive Officer

Thank you, Bob. To provide an update on our anticipated product development and commercialization timelines, we continue to make progress on our long-term design modifications to our MicroCutter XCHANGE 30 and advanced development of our MicroCutter XCHANGE 45, the second cartridge based device that allows for the longer and larger green staple line necessary for bariatric and other procedures. We expect to continue to book revenue from commercial sales of XCHANGE 30 in the current quarter. We expect to complete enrollment of our European clinical study in the second quarter of this calendar year. We look forward to reporting our progress in the months ahead.

At this time, I’d like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is coming from the line of (indiscernible).

Unidentified Analyst

Hi good afternoon.

Bernard Hausen

Hi.

Unidentified Analyst

Hi, just had a couple of questions. First on the European trial obviously that got pushed out there by a quarter or by a few months. How come if you were shipping commercial product at the end of December, how come there weren’t any patients that were enrolled in the trial in January?

Bernard Hausen

It had to do first of all with the holiday break in Europe or especially Germany, which basically is about a period from mid-December to mid-January, where it’s very little activity for trial enrollment. And second then to do with the fact that there was the commercial shipment, there was a priority that we set on starting to meet some of the customer demands and that caused this hiatus in enrollments for the remainder of this month.

Unidentified Analyst

Great. So, if you were to prioritize the – that’s still in this coming quarter what for strategically for the company what’s the more important one to push forward with the trial or get some more KOLs up and running with the stapler?

Bernard Hausen

Yeah, it’s a good question. Both are very important, but I think the trial, completing enrollment trial is a higher priority for us. And we are pushing very hard towards that as you know we have added two additional sites to the pool of sites that will be enrolling. We have people on the ground to support that. We have sufficient product in the accounts now to ensure that patients who show up and who agree to be enrolled in this trial can be operated with our device.

Unidentified Analyst

Okay and then just the last question. When can we start to see the stapler at some of the sort of major endoscopic medical meetings or any abstract high presentations even if there might case studies of a single patient?

Bernard Hausen

There have already been some. EACTS Meeting, European Association Cardio-Thoracic Surgery Meeting in Barcelona in September. There was a presentation on the MicroCutter at the STS. There was a mention of the MicroCutter through a VAPs surgeon from Buffalo, New York. There will be more of those I think there is the abstract submission for this year’s EACTS Meeting in Vienna. So, there will be more and more information that will be placed by early adopters of the product.

Unidentified Analyst

Okay, perfect. Thank you.

Bernard Hausen

Thank you.

Operator

Your next question is coming from the line of Akiva Felt from Wedbush.

Akiva Felt - Wedbush

Hi, good afternoon and thanks for taking the questions. Maybe start, could you give some additional color on the feedback that you are getting from commercial surgeons, any pushback in certain areas?

Bernard Hausen

Not really, it depends on what type of procedures, right. So, if in Europe price sensitivity towards using staplers and certain types of procedures is high, so we are in the U.S. we do a big proportion of our appendectomies with staplers. It is a lesser percentage and still a meaningful percentage, but a lesser percentage in Europe. So, pricing is going to be important. And we stated before that we are attempting to be on par with current available staplers to do that. The desire of surgeons to use the product in thicker and thicker tissue for which it’s not designed is always there. We anticipated that, but there is only so much a 5 millimeter device can withhold in terms of clamping pressures and deployment forces. So, if I could dream of an invention that would make that possible, that would certainly be one where there is no limitation. I could staple through wood, but that’s not very realistic. We are quite content with what we have and I think there is a very clear market for those primarily in vascular transections and lung surgery and in appendectomies or small bowel surgery.

There has been a desire for the handle mechanism to become simpler. We were responding to that. We have an iteration of the product that hopefully will be done some time in the second quarter of this calendar year where just a sequence of buttons and sliders you have to push to activate and leave the device, it will be adjusted to be more empowered with what they are used to. Overall, it’s an incredible excitement about the product. There isn’t a day where we’re not hearing from people we have never met, never seen before, they would call us and ask when is this product available in the U.S., can I bring this to other foreign countries where we’re not distributing. So, I think there is a real need and desire for this type of 5-mm product and that’s extremely encouraging for us. At the same time, it emphasizes the need for high-quality product. As I had mentioned in many calls before, this is a mature market. This is a market, where surgeons are using phenomenal products that work all the time almost and have very good results and for us to come into this market in a meaningful way, quality is of the utmost importance. And every cent to use a quote from one of our surgeons, every cent we invest in quality improvements will payback a thousand fold later because of the expectations the surgeons have and the bar that has been set so high.

Akiva Felt - Wedbush

So, that’s very helpful, thanks. As a follow-up so given the complexities and intricacies with the design and production of the device that you have outlined, any thoughts about handing it over to a bigger company with more resources and expertise to assist the process?

Bernard Hausen

No, I think we are totally qualified to do that. It’s an iterative process. It is for any other company as well. It is learning what the ranges of components you get from your suppliers and how that impacts the performance of the device in terms of tolerance facts and other factors. They would have to go through that too. We are not limiting our progress by our financial means, it’s quite the opposite. We are so focused on this almost all of our work goes into making these improvements as quickly. I’d say in terms of speed which we implement these changes, we are probably unparalleled to any other medical device company in this industry, because we have so little red tape and because we make decisions we can make decisions very effectively. And maybe because I am a physician and I understand what it means to have a device work in a clinical setting.

Akiva Felt - Wedbush

Since you mentioned finances, I’ll ask this for Bob as well, the current balance sheet, where do you see the cash taking you and what are the plans there ensuring that you can really maximize potential at the launch?

Bob Newell

We’ve reported all along that our cash is sufficient to get us into the fourth fiscal quarter. So, clearly, we need to address our cash needs. We have also been very fortunate to have the support of our insiders and continuing support. So, we have been looking at alternatives and we are confident we can address our cash needs over the next couple of months.

Akiva Felt - Wedbush

Okay, great. That’s all my questions. I really appreciate the update.

Bernard Hausen

Thank you.

Bob Newell

Thanks a lot.

Operator

Your next question is coming from the line of Ed Arce, MLV & Company.

Ed Arce - MLV & Company

Hi Bernard, hi Bob thanks for taking my question.

Bernard Hausen

Yeah, go ahead.

Ed Arce - MLV & Company

A couple questions I had have already been asked, but a couple more I guess on the MicroCutter XCHANGE 30 and your initial shipments in Europe, congratulations by the way.

Bernard Hausen

Thank you.

Ed Arce - MLV & Company

As that is to a distributor, I am just wondering what visibility you have to the initial use and what’s the feedback? I know this is bit of a repeat question, but just wanted to get your thoughts on that?

Bernard Hausen

Yes, we have very direct visibility. We are working very closely with DACH. In lot of these cases, we or myself are physically present. So, I understand how the device is being used and I can help coach and not just the sales rep, but the surgeons using the products. So, we have a lot of visibility. It’s good and it is triggering the next orders and the next shipments of our products in the weeks ahead. If I’d say we’re in a process of growth and of further expansion and we will continue to work very closely with DACH and the accounts that are selected accounts of people who understand the needs of early products such as ours in certain clinical settings.

Ed Arce - MLV & Company

That’s great. And I guess the follow-on question is I hadn’t realized that you worked so closely with these initial early adopters, but that’s impressive. I think the only other thing I would want to find out is how this is impacting the expansion beyond your core markets in Europe. As you mentioned you would like to expand further out, I am just wondering if some of these surgeons will be able to utilize this as sort of KOLs in the space with this product?

Bernard Hausen

Yeah, we have an established system of proctoring from our cardiac devices, so we are very familiar with that process. We do use that, the surgeons actually volunteer and suggest to be involved with that. It takes a certain mental attitude towards new product development that a lot of surgeons do have, that feel it as their role to help advance these types of products because if they didn’t do it there wouldn’t be new products and so they – everybody benefits from that and we have exactly those type of surgeons in mind when we look for early adopters.

Ed Arce - MLV & Company

Great, okay and when do you expect to be prepared to ship outside of these core countries, beyond this initial distributor?

Bernard Hausen

I think when we reach a point where we feel like the same type of surgeons need to be found in different regions because we have kind of used up all the ones in the DACH region, that’s when we expand into the next distributor zone and so on and so on. We are looking for these special type of surgeons early on and I don’t think it will take long before we can expand and move away to a more general type of adopting surgeons.

Ed Arce - MLV & Company

Okay, great. Thanks for taking my questions.

Bernard Hausen

Absolutely.

Bob Newell

Thank you.

Operator

(Operator Instructions) And at this time I am showing no further questions in queue. I would like to turn the call back to Mr. Bernard Hausen for any closing remarks.

Bernard Hausen - President and Chief Executive Officer

Thank you all for joining us today and we look forward to reporting more in the near future.

Operator

Ladies and gentlemen that concludes today’s conference. We thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cardica's CEO Discusses F2Q 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts