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

Endologix, Inc. (NASDAQ:ELGX)

Deutsche Bank 38th Annual Healthcare Conference Call

May 30, 2013, 03:30 pm ET

Executives

Shelley Thunen - CFO

Analysts

Unidentified Analyst

Okay. Thank you for joining us here at the Deutsche Bank Health Care Conference. It is my pleasure to introduce Endologix. I have Shelley Thunen and she is the CFO and from out of town and she is going to just give us a quick overview and a slide presentation and then we're going to take a Q&A. If any of you have any questions, raise your hands or you can submit them online through Your-In.com/db.

So without further ado, Shelley thanks again for coming and look forward to your presentation

Shelley Thunen

Thank you, [Kristen]. I am happy to be here, you can probably even hear me without this, not that many people in the room. I just have a couple of slides before we go into Q&A to kind of grant you about Endologix. This is our Safe Harbor statement; I will be making some forward-looking statements as well.

For those of you who do not know the company, we are in the AAA space, so that’s EVAR, endovascular and aortic aneurysm repair. We are unique and that we have been growing over 20% per year for the last five years; we have guided to 19% to 25% growth this year based on our strong core business, but we also have a very deep product pipeline to capture share and expand the market. We have been expanding our sales force in the U.S. and went direct in Europe about 18 months ago.

Consistent with our guidance, revenue growth as compared to the prior quarter in 2012 was 22% growth rate at a 76% gross margin and we ended the first quarter with $42 million in cash. We have guided to slight cash use in 2012 and $0.01 to $0.05 gain on an adjusted EBITDA basis for this year with use of cash in the first half and generation of cash in the second half of this year overall.

I want to just talk a little bit about the market and our products before we go into Q&A. As I said, we are in the AAA space with endovascular repair, EVAR. There are about 200,000 people who are diagnosed annually with abdominal aortic aneurysms. The U.S. is the largest market with about 46,000 procedures performed in 2012; about 75% of these are done with EVAR procedures which is less invasive, much faster recovery time for the patient. The second largest market is Europe, just slightly behind the U.S. in terms of size and then the third largest market is Asia dominated by Japan.

As I mentioned before we recently when into Europe with a direct sales force in last 18 months and our anticipation is that we will grow from about 20 sales people at the end of last year in Europe to about 30 at the end of this year. In United States, we have 80 sales and in clinical reps in the U.S. at the end of 2012 and we’ll grow to about 88 at the end of this year, so focused on that and largest market in Asia we’re represented by a distributor in Japan.

It’s a large market; it’s about $1.7 billion; if you look at the market today, we compete in this area called EVAR, right here at the bottom, I don’t know if there is a quicker on here or not, but we’re in the EVAR market that’s the largest market which is $1.2 billion; we are just now entering the FEVAR market which is the Fenestrated EVAR market with a new product called Ventana and I will talk about that in just a moment. And then the TVAR market which is the thoracic EVAR market, we do not yet compete in.

The market is expected to continue to grow; it’s growing at about a 5% compound annual growth rate overall and that’s a worldwide market and as I mentioned before we are growing in the 20% plus range by capturing market share from the three major players, Medtronic, Gore and Cook. The fenestrated market is expected to grow primarily based upon the fact that it’s underserved market today and it’s a market that we hope to enter in Europe towards the end of this year as well.

If we look at the competing products, the Endurant product is a product by Medtronic, they are about 35% market share in the U.S today and Cook and Gore the other two large competitors are private each selling about 25% of market in the U.S. And then Endologix is the number four player in the market growing at a much more rapid rate with our AFX product. And we are unique in that; our fixation methodology is different than all the competitors. And so right now we’re fixated and get our stability from the aortic bifurcation and that’s a one piece aortic bifurcation which allows for future crossover procedures if required. The competitors’ products are all fixated at the top with hooks and bars, so a different kind of design and a different kind of capability to allow for re-intervention. And so this product uniqueness is what has allowed us to grow at a much faster rate and capture market share from the competition as well.

AFX is our core product; this is what we’re selling primarily in the marketplace today, but we have a deep product pipeline. We have a product called Ventana which is for the FEVAR market, for the fenestrated market. It addresses about 20% of the market that is underserved today; the main competitive product in this marketplace is by Cook, it’s a custom device and it’s ordered for a particular patient anatomy which takes about six to eight weeks to obtain the product. We're in a process of introducing a off the shelf device. We had received approval for two sizes in the EU and had commenced our U.S. IDE trial.

About a month ago, we indicated that we were putting a halt to our Ventana trial temporarily. It was very clear to us looking at the data from the first patients we've done which represented just a little over half the patient population that we would definitely face -- we were very well along and within the safety endpoints, but it looked to us this going forward we would fill the efficacy and point for one item which was renal intervention. And so we're looking at root cause right now and we indicated in our conference call that we hope to get back into the trial by the end of the year.

We also have a product that was recently approved which is a disruptive technology and that received its CE Mark in the EU in January and that’s called Nellix and it's a completely new design and it has, what you can see from the photo is there is an outside bag around the aneurysm. So the blood flow is directed into the two lumens, but in addition there is what we called an endo bag around it. So it's a bio-stable bag and it's filled with a polymer that sets in about five minutes and what this does is that it reduces the complication of endo leaks from peripheral stents coming out as well.

And so this is the device that we have now in Europe, we've done at the end of the first quarter, we said we had done 47 cases with this product and we are in limited market launch in Europe. We expect to have our IDE approval and begin patient enrolment in our U.S. IDE by the end of this year.

This is just another description of the product pipeline. In addition to the products we have product line extensions to our EVAR product AFX in the U.S. The most notable today in the U.S. is PEVAR or percutaneous EVAR. We are the first company in the EVAR space to have run a clinical trial and have on label EVAR percutaneous EVAR for large closure. We did this trial with Abbott with the Proglide device. We just received approval from the FDA in April and we began training courses in the month of May and this is the ability for us to continue to gain market share.

We have another AFX to product line extension in United States towards the end of the year and then we continue to bring out all of our products. You will see that we expect to have approval for Nellix and Ventana in 2016 in the U.S.

That’s just an overview of the company. I am happy to answer any questions and I think Kristen you also have some.

Question-and-Answer Session

Unidentified Analyst

I was just wondering I know you mentioned earlier that the overall market growth rate was just kind of about 5% and it looks like you are expecting U.S. approvals Nellix and Ventana until later in the 2016, maybe more an impact on 2017 numbers, but just wondering if you can maybe share just kind of maybe current market trends and what you are seeing with competitors and how do you really continue generic growth from the U.S. perspective?

Shelley Thunen

Okay, thank you. We have guided to overall growth for the company in 2013 of 19% to 25% of revenues between the $126 million and $133 million. We further guided that we expect the U.S. business to grow between 15% and 20% and the O-U.S. business to grow between 40% and 50% in 2013. This means it’s still about 80% of our revenues will be coming from the U.S. market.

So your question is the good one, how do we, what are we using for growth rate in the U.S.? And there are two major factors, first of all is continued sales force productivity we have been steadily adding to our sales force in the U.S. We will add 8% or about 10% clinical and reps in the U.S. We added a comparable number last year. And what we see is a great deal of correlation between tenure and the field and productivity and reps it's been in place for year is just getting productive first is the reps that's going to place three or four years is that peak productivity.

So we continue to do that. We add clinical people and that allows the reps that are most productive to be able to cover multiple cases in a day by having clinical person in place and they are little less than half the price of the quote carrying sales person. The other way we drive revenues in the U.S. is with product line extensions. So first quarter we introduced another size extension, another size that was well accepted and the doctor through initiative in the U.S. allows us to get doctors into training. We are the only EVAR company that can train on large hole closure, about 30% of all EVAR procedures in the U.S are done off label right now percutaneously.

We’re the only company that can now train on label. Abbott has trained our sales reps and our clinical people and we have about 10 to 12 training classes that we run during the year as well as individual trainings that get doctors more interested in us. We have another product line extension towards the end of the year. And then as we recommenced Ventana and we get ready for our Nellix enrollment that continues to get centers and leaving at doctors interested in our core AFX products, Ventana system, the AFX product and now it’s a completely destructive in different technology the empty use. So we leverage our product pipeline in the U.S in order to continue that growth.

O-U.S. we really are growing by going direct in the larger markets in Europe and then we have opportunity to expand geographically as well. We are in Europe, New Zealand and Japan and a couple of the countries in South America. So we still have the opportunity for geographic expansion. Did I answer your question?

Unidentified Analyst

Yes. And then I think just in terms of the products that you mentioned Nellix that you have approval in Europe and Ventana as well. And so can you maybe just share what you have been seeing some comments from today uptake has Nellix kind of cannibalize your sales or is it more like expense I guess at this point?

Shelley Thunen

We don’t expect Nellix to be cannibalized our existing product line in Europe. We don’t have enough market share. We are under 5% market share right now in Europe. We just went direct about 18 months ago and we are doing a limited market launch of Nellix. At the end of the first quarter we said that we were in four sites commercially with Nellix and that our goal is to have about 20 to 25 sites in place when we start our OUS/EU market surveillance study and that will be at the end of the third quarter. So it's a limited market launch and you know, right now the customers that are in starting on Nellix procedures are also AFX customers. So they're complementary at this point.

Unidentified Analyst

Can you also just maybe talk a little bit about what you're seeing from your entrance, I guess with like TriVascular or what you would expect I guess to see and then also Cook and Gore since those are the two larger private companies, who don't usually get a lot of insights but I'm sure being out there, you guys probably have a lot more of a view from the field. Then Medtronic has always talked about making lot of investments throughout this space, clearly they're the market share leader. I think they've talked about a couple of new products coming. So just kind of how do you feel overall just with the competitive landscape and from a market share perspective.

Shelley Thunen

Oh, okay. Yeah, I think I mentioned that at the beginning with Medtronic about 35%, Cook Gore about 25% each and we're in the 12% to 14% range in the U.S. We feel like we capture market share from all three other competitors, not one disproportionately at all. We don't -- like you - there's not a lot of visibility into Cook and Gore, you know, Cook is very focused on their fenestrated product right now. They have a custom device that is just now coming in to United States. We understand that they have a custom device that is just now coming into the United States. We understand that they have a potential of the shelf device in development as well. And I think probably many of you who're interested in this space saw that Medtronic introduced a product line extension today that addresses about 5% of the AAA market, but we don't see a lot of, we haven't see any indication yet that anybody is developing a product line Nellix.

We're very well patent protected on the product and polymer and we're licensed with an exclusive license for the polymer and our space and the EVAR space. But we haven't seen anything usually, you have pretty good visibility into product pipeline because the requirement for clinical studies. We have not seen much of TriVascular in the marketplace in the U.S. they've just got their U.S. approval, they are building a sales force, but we wouldn't expect to see a lot of activity from them until towards the end of the year because you've got to get the sales force hired and trained in unique cases to train.

So I think they're in that difficult part of just developing sales force right now.

Unidentified Analyst

All right. And I guess so (Inaudible) announced six months delay. And you had mentioned you were still doing some of the root cause analysis with (Inaudible) risk that that six months is really longer and you won't be able to restart the trial by the end of the year?

Shelley Thunen

Yeah. I don't think we'll have an answer for that for a couple of months, we're still doing the analysis and we're looking at the cases where we did have renewal reinvention -- and intervention as well as all the other cases.

Unidentified Analyst

Okay. And was that similar to what -- because I think you had a delay in Nellix is that also --

Shelley Thunen

We did have a delay last year at Nellix and we had announced a pushback of Nellix and then we got our CE a little earlier than we expected so that was nice. And I think in the case Nellix that root cause was pretty clear to us at the time we announced because we had made a change to the product and we're able to go back to what we were previously doing.

And so I think it was a little clear and this is a pretty complicated device with Ventana and when we announced that we were temporarily discontinuing enrollment for the IDE in U.S. that was really brand new news, it would hot off the press, we didn't want to announce a very good first quarter on the top line which we had and then a week or two later, you know, announced a halt in (Inaudible) so we were this was brand new news. We hadn't had a lot of time to do a lot of analysis other than the fact of we had felt that we would not meet the efficacy end point.

Unidentified Analyst

And then I guess just in terms of looking at longer term have you guys talked about this year you've got sales force of 19 to 25, what I mean do you have -- to what extent given the product pipeline do you think that that is sustainable how much, I guess, longer do you think you can continue to gain share and just what should we expect from you guys in terms of the profitability profile, I'll call it, three to five years out?

Shelley Thunen

We have not given guidance on that. The only thing we have said is that our goal is to maintain growth in the 20% plus range.

Unidentified Analyst

Okay. And how much of that is just going to be coming from I guess international expansion as well?

Shelley Thunen

Again we haven't guided to that level of specificity but I think it's clear that we've got opportunity, geographically -- with the geography to expand as well as with product line and sale force productivity.

Unidentified Analyst

Okay and then just more of - this is going to be more of a -- qualitative question, but you've been with the company now for I think just - how many months has it been?

Shelley Thunen

Five full months, probably so.

Unidentified Analyst

I think it would be interesting just to kind of hear perspective just on opportunities that you see coming in and what really attracted you Endologix, because it's clearly one of the few medical device companies growing at this kind of pace, so what other aspects kind of be attractive to you to this (Inaudible)?

Unidentified Company Representative

Yeah, I think that I was attracted to Endologix for the reason I am always attracted to companies that I worked in the past that are successful. The first its innovation and innovation in the product pipelines, having a disruptive product that can capture significant amount of market share and change the way patients are cared for. And I think that we have that in our product pipeline. And so that had a lot of appeal to me. I think if you see at in our product pipeline and we talk about it. And you see us getting those approvals in Europe and moving along to our IDEs in the U.S. and we think that Nellix is clearly a breakthrough product and Ventana as well. So I think that was personally of a lot of interest to me. But just as importantly is the execution we have been able to have in the last five years since John McDermott our CEO joined the company and the company has had a compound annual growth rate of nearing 30% going back five years. And we've had great execution in the U.S hiring a sales force productivity of sales force continuing to grow with our core AFX platform and of course that products was also brought to the market (Inaudible) with CEO. So I think we've got kind of unique combination of the ability to execute on our business plan and the ability to develop new products and bring them to the marketplace.

Unidentified Analyst

Okay. I'm going to have a actually a question that came in from the audience or from the web. With the recent approval for the PEVAR, PMA supplement what do you see as a ramp in opportunity for PEVAR approach? Then the second one is given the lower procedure times and discharge times, are there any plans to study the economics versus PEVAR?

Shelley Thunen

Okay. And this is for PEVAR. All correct. And I think PEVAR does have faster procedure times. It is certainly a much better procedure for the patients. Generally, a little faster discharge, faster healing time and improvement on that. There's an opportunity for us with PEVAR is it's not going to be easy just to measure all how many PEVAR procedures do we get otherwise because that revenue for the closure device goes to Abbott, not to us, they will pull it off at the shelf but it does give us a lot more mind share and reasons for the doctor to use an on-label device for EVAR and to get trained on the percutaneous use with a company that is trained to do that as well as approved to get that training from the FDA.

So it allows us to go deeper in each account and while we want geographic expansion and to go in to additional hospitals, it is also very important for us to capture more shares out of the existing accounts and get more of the mind share and so I think the training with PEVAR allows us to do that and allows us to offer superior on-label solution.

Unidentified Analyst

Thank you. And then just to kind of recap and maybe we'll just take some additional questions offline but just thinking about the next, I guess six to 12 months, just want to make sure I understand kind of the milestones that are happening. So again on Ventana, you sound like you'll be able to communicate more specifically when to restart that within the next three to six months is that--.

Shelley Thunen

Yeah, that would be our expectation, yes.

Unidentified Analyst

Okay. And then any other major milestone that we should be --

Shelley Thunen

Yeah I think the other, I think that we'll continue to give updates on Nellix on our limited market launch of the Nellix product, we'll also be able to give an update on commencement and enrolment in our Nellix market surveillance study. We expect to get IDE approval for Nellix in the United States and then we would expect to begin enrolment for our U.S. IDE trial as well, between now and the end of the year. And we should have some news towards the end of the year about development of our product right now for lack of a commercial name called AFX2 which would be again continued improvement of our AFX product.

Unidentified Analyst

Perfect. Any other questions? Okay, I think what we'll do is just take some question offline then.

Shelley Thunen

Okay. Great thank you.

Unidentified Analyst

Thank you very much for your time.

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: Endologix's Management Presents at Deutsche Bank 38th Annual Healthcare Conference (Transcript)
This Transcript
All Transcripts