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Kips Bay Medical, Inc. (NASDAQ:KIPS)

Q1 2013 Earnings Call

May 9, 2013 9:00 AM ET

Executives

Scott Kellen – COO and CFO

Manny Villafaña – Chairman and CEO

Analysts

Kip Pazol – Capital Stratford

Louis Margolis – Select Advisors

Operator

Good day ladies and gentlemen and welcome to the Kips Bay Medical Inc First Quarter 2013 operating and financial results conference call. My name is Steve and I’ll operator today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder this call is being recorded for replay purposes.

Now I would like to turn the call over to Scott Kellen, Chief Operating and Financial Officer. Please proceed sir.

Scott Kellen

Thank you Steve. Good morning ladies and gentlemen I’d like to welcome everyone to our first quarter 2013 conference call and say thank you for joining us this morning. The purpose of our call today is to keep you up to-date on the clinical progress with our eSVS Mesh-I clinical feasibility trial as well as to discuss our financial results for the first quarter ended March 30, 2013.

Please note that earlier today we filed our quarterly report on Form 10-Q with the SEC and we issued a press release disclosing this quarter’s results. After our prepared remarks we will open up the phone lines and answer any questions that you may have. Also on today’s call is Manny Villafaña our Chairman and Chief Executive Officer.

But before we begin I want to remind everyone that during the course of this call we will make forward-looking statements in our prepared remarks and may make additional forward-looking statements in response to your questions. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and includes statements regarding the future operating and financial results of Kips Bay Medical or other statements that are not historical facts.

These statements are based on the current expectations of our management team and involve inherent risks and uncertainties, including those identified in the risk factors section of our most recently filed 10-K. These risk factors contain a more detailed discussion of the things that could cause actual results to differ materially from those projected in any forward-looking statements. We assume no obligation to update any forward-looking statements that may be made during today’s call.

Now let me turn you over to Manny for an update on Kips Bay.

Manny Villafaña

Good morning everyone, it’s funny but it seems like we just finished our last call which was about a month and a half ago. Now I know it hasn’t been a long time but I am pleased to say at this time that our second site has begun enrolling the patients with our – in our eMESH clinical feasibility trial. This site of course as we announced was the Mayo Clinic in Rochester, Minnesota. They joined the Northeast Georgia Medical Center in Gainesville, Georgia who began enrolling patients in February.

We are very excited about this event. Two additional sites have already received their IRB approval and we expect to have our contracts signed with them within the next 30 days at which point they may begin enrolling patients.

In Europe where we have already eight sights the enrollment continues but it’s been slower pace than we would like. There are a number of factors impacting our enrollment rates. These include situations where the patient’s veins do not qualify which unfortunately the surgeon does not find the shot until they’re in the middle of the bypass surgery itself. Also some referring cardiologist request that their patient’s bypass be performed with both the left and right internal mammary artery which generally limits the use to one saphenous vein making the patient ineligible for a study. As you know we require at least two veins one for the Mesh and one for control.

Lastly and probably the thing that is the most frustrating is that we’re still waiting for the BfS that’s an agency of the German government that oversees radiation exposure. We’re waiting for them to provide approval for our German groups to performance the six month follow-up angiogram which is required in the study. With this said let me assure you that we are working very diligently with our active study sites to identify patients and we’re working with additional hospitals to expand a number of sites participating. We will get this study done it may be a little bit longer than we anticipated but we’ll get it done. As of today we’ve enrolled 20 patients and we expect that we will have enrolled the minimum FDA required number of patients by the fourth quarter of this year.

Now let’s get on to some more fun things. This week was a very fruitful week as we had the AATS world conference that’s the American Association of Thoracic Surgeons conference here in Minneapolis. There were several 1000 surgeons from throughout the world attending. What was exciting for us was the fact that we were able to corral about 40 surgeons into my home to get a closer look at who we are who Kips Bay is and what we’re doing further more and most importantly was that there was a luncheon in which probably one of the most prominent surgeons at the meeting a Dr. Billy Cohn from Texas Heart indicated that he and his group are ready to begin implanting. Also at that very conference was another two prominent surgeons Dr. John Puskas from Emory as well as Dr. Larry Cohn no relation to Billy Cohn but Larry, Cohn Boston who both indicated that they were ready to participate in this study.

We had groups that were asking each other and conferring with each other how is it going, what is happening with the eMESH, how many have you done all this cross (colonization) that we saw among the surgeon was very, very exciting. I don’t mean to be bragging but I have to say that I felt that probably that product, the technology that was most discussed at this meeting was what we were doing. The luncheon itself was sponsored or brought forth I should say by Dr. Hartzell Schaff the Chief at the Mayo Clinic who wanted to have this technology discussed and it was discussed in a luncheon (forum) in which approximately between 200 and 250 surgeons as well as additional people outside the room to listen what we were doing. I don’t know about you but we were having fun.

I think these are some of the events that happened this week alone that makes it exciting for us, next week my people our team including myself will be going to Europe to meet with additional centers a new sensor in Rome will be opening up in which both Eric Solien our Director of R&D and myself will be present for the training and for the first implants. We have additional people going to France to visit not France to begin training and begin some implants there. There is a lot of things I am probably missing and we’re going to open this up for questions and answer but first let me turn you back over to Scott for a quick review of our financial results.

Scott Kellen

Thank you, Manny. Our net sales in the first quarter of 2013 were $36,000 down from $53,000 in the first quarter of 2012. Gross profit was $20,000 and $29,000 in the first quarters of 2013 and 2012 respectively keeping our gross margins in the mid 50% range. Net loss in the first quarter of 2013 was $1.5 million or $0.05 per diluted share compared with our net loss of $1.3 million or $0.08 per diluted share in the first quarter of 2012. The need for clinical data to support increased usage and favorable reimbursement decisions continues to impact the company’s ability to generate sales. The decrease in net sales during the first quarter of 2013 reflects the impact of continued budget pressures on hospitals in most European countries.

Cash, cash equivalents in short term investments totaled $8.9 million at March 30, 2013 down from $10.4 million at December 31, 2012 this decrease was driven primarily by our use of cash to fund operations during the quarter. Cash used in operations increased from $1.2 million in the first quarter 2012 to $1.7 million in the first quarter of 2013. This increase reflects both an increase in the company’s net loss in the first quarter of 2013 and the payment during the quarter of certain non-recurring costs accrued at year end related to our public offering which closed at the end of December.

During the quarter we also received net proceeds of $276,000 from the underwriters as they exercise the portion of their overallotment option from the December offering. As we look forward we expect that our SG&A expenses will remain at or near current levels as we continue our current sales and marketing activities, R&D expenses should increase slightly as the company’s clinical study related activities increase.

Now let me turn this back over Manny for Q&A.

Manny Villafaña

Thank you, Scott. We’re open for questions and…

Question-and-Answer Session

Operator

(Operator Instructions) and your first question is from the line of Kip Pazol of Capital Stratford. Please go ahead Kip.

Kip Pazol – Capital Stratford

Hey Scott, Manny this is Kip Pazol, Gainesville, Georgia.

Manny Villafaña

Hi Kip.

Kip Pazol – Capital Stratford

I’m sorry can you hear me?

Manny Villafaña

Yes we can hear you good morning.

Kip Pazol – Capital Stratford

Good morning, the Mayo Clinic putting their stand I guess last week or about a week or 10 days ago – they come out with any comments or the doctors come out with any comments in the press or do they usually do that or is that something we can expect or no, is still how they felt about the product?

Manny Villafaña

You have no idea how many whip marks I have on my back. The Mayo Clinic is very I don’t know what the proper world may be conservative, unique and conservative. They do not like to put out anything we had written a very beautiful press release with comments from physicians that were very excited about the technology they were glad to be chosen to participate et cetera, et cetera but the Mayo Clinic just has a rule that says we do not put out anything in any way promoting or discussing these early term results. So, as a result we had to do a little bit of battle and say unfortunately the SEC wants us to put out an announcement so we made a very, very simple announcement that implantations of a eMESH was done at the Mayo Clinic, period that’s all we could say.

Kip Pazol – Capital Stratford

Okay.

Manny Villafaña

And it was a very mundane announcement I don’t know if it was even picked up but that was the unfortunate thing. Now since that time they have done additional implant and they are planning to do another implant in the next few days. So we’re moving along with the Mayo Clinic.

Kip Pazol – Capital Stratford

So they’ve already done the second implant and again right to the third is that you said?

Manny Villafaña

Yeah approaching the third and trying to qualify the patients.

Kip Pazol – Capital Stratford

But obviously the procedure went well and the doctors are just as those are the ones down here sound…

Manny Villafaña

Well that’s all we can say…

Kip Pazol – Capital Stratford

Yeah, yeah.

Manny Villafaña

I mean it went well I mean the patient went home and et cetera, et cetera that’s all I can tell you.

Kip Pazol – Capital Stratford

Thank you much. Thanks Manny.

Manny Villafaña

Alright.

Operator

Thank you. And your next question is from the line of Louis Margolis from Select Advisors. Please go ahead Louis.

Louis Margolis – Select Advisors

Hi Manny. I know it unusual that you have 500 implants I think is your comment. In the last 50 or 100, 200 have there been any adverse developments?

Manny Villafaña

No the – you got to remember one thing this is a brand new technology never been done before and so we’re learning all the techniques to properly use this and of course in some cases we have to tell the doctor to slightly change his procedure, pay more attention to this or that and occasionally we will have someone who will not follow proper protocol. But there has not been anything developing that we know, we do know that we have to be careful how we image these when they study them some people use CT scans and other people use angiograms, the angiogram is the gold standard, it’s a standard used by the FDA but there are doctors who will also use CT scans. I think we’re seeing that with CT scans they got to be extremely careful how you image it otherwise it will give you a false heart attack. So, but no we have not seen anything adverse developing at all.

Louis Margolis – Select Advisors

Thank you.

Operator

There are no father questions at the moment. (Operator Instructions) there are no further questions. So I would now like to turn the call back over to Manny Villafaña Chairman and Chief Executive Officer for closing remarks.

Manny Villafaña

Well again let me say thank you very much for joining us this morning. We really appreciate your support and at anytime again you may call me here at on my phone or visit us when you are in the Twin City areas I promise you that all the snow is gone. Have a good day and thank you again for joining us. Bye now.

Operator

Thank you for participation in today’s conference. This concludes the presentation you may now disconnect. Good day.

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