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Vascular Solutions, Inc. (NASDAQ:VASC)

Q2 2013 Results - Earnings Call Transcript

July 23, 2013 04:30 PM ET

Executives

Phil Nalbone - Vice President, Corporate Development

Howard Root - Chief Executive Officer

James Hennen - SVP, Finance, CFO and Secretary

Analysts

Jason Mills - Canaccord Genuity

Tom Gunderson - Piper Jaffray

Ben Haynor - Feltl and Company

James Terwilliger - Wunderlich Securities

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to Vascular Solutions' Second Quarter conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, July 23, 2013. I would now like to turn the conference over to Phil Nalbone, Vice President of Corporate Development at Vascular Solutions. Mr. Nalbone, you may begin.

Phil Nalbone

Thank you, Coreena. Good afternoon everyone. Thank you for joining us for Vascular Solutions' second quarter conference call. You will be hearing presentations today from our CEO, Howard Root and our Chief Financial Officer, James Hennen and I'll be available again later during the Q&A portion of this call, but first the necessary preamble.

This conference call is being webcast to the public and is completely open to members of the media, Vascular Solutions shareholders and other interested parties. Today's conference call is a proprietary Vascular Solutions presentation and is being recorded by Vascular Solutions. No other recording, reproduction, transmission or distribution of today's call is permitted without Vascular Solutions' consent. This call is being audio simulcast on the internet via our company website at www.vasc.com.

A replay of the conference call will be available on the internet shortly after this call is concluded through Tuesday, July 30. To listen to the replay, visit the Investor Relations section of our website. Forward-looking statements made in the course of this conference call and webcast are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements can be identified by words used such as may, will, expect, continue or other similar expressions.

There are certain important factors that could cause the company's actual results to differ materially from those anticipated by the forward-looking statements as described in our Annual Report or Form 10-K and other recent filings with the Securities and Exchange Commission. Forward-looking statements are made based on our analysis as of today's date and we undertake no duty to update the information provided on this call.

I'll now turn the call over to Howard Root.

Howard Root

Thank you. This afternoon we issued our press release with financial results for the first quarter of 2013. First I will review the top line results of the quarter including the performance of our three product categories and several of our key individual products. Then James will go through the financial details of the second quarter and provide our guidance for the third quarter and updated guidance for the full year of 2013. Finally, James, Phil and I will answer your questions.

The second quarter was another very strong performance for Vascular Solutions, both our sales and our earnings came in at the top end of our guidance range, we continue to increase our sales and earnings in a challenging medical device market through continuous new product innovation and the success of our strategy was evident in all three of our product categories demonstrating growth during the quarter.

As we enter the second half of the year, we're well on our way to delivering a tenth consecutive year of double-digit sales growth and due to our continually improving operating margin, we are increasing our earnings by an even higher double-digit percentage. Net revenue in the second quarter grew by 11% over the second quarter of 2012 to a new record quarterly level of $27.4 million compared to $24.7 million in the year ago quarter. Our guidance had called the second quarter revenues of between $26.5 million and $27.5 million. So we came in at the top end of our guidance.

Our geographic mix of revenue during the second quarter was 85% U.S. and 15% international. Our U.S. product revenue grew by 13% to $23.3 million compared to $20.6 million in the year ago quarter, while our international revenue was $4 million essentially flat from last year's level.

Our international business in the second quarter was impacted by two limitations. First we only initiated the relaunch of our acquired venture catheter during the second quarter in the U.S market. So international sales did not benefit from this new product, but will starting in the third quarter. And second the Guardian valve is proportionally more significant for us in international markets than in the U.S. So the lack of sales in the second quarter due to the recall affected international sales disproportionally.

We believe we have resolved the vendor issue on the Guardian that caused the recall and we expect to resume Guardian sales and shipments worldwide in the third quarter. Also benefiting our future international sales, we continue to project launch of our GuideLiner catheter in Japan, late in 2013 and after receipt of the Shonan regulatory approval by Japan Lifeline, our Japanese distribution partner.

I'll now review some of the key performance factors in each of our three product categories. Our largest product category is catheter products, representing nearly 64% of our total sales during the second quarter and up 13% compared to the second quarter of 2012 to $17.4 million. Once again our GuideLiner guide extension catheter was a standout performer.

During the second quarter, the GuideLiner became our top selling product out of more than 75 products. Second quarter GuideLiner sales increased 41% to $5.2 million compared to $3.7 million in the year ago quarter. Since it was launched in late 2009, our GuideLiner has created an entirely new market within interventional cardiology called rapid exchange guide extension which improves guide placements and stent delivery. The third generation version of our GuideLiner is now in prelaunch clinical evaluations with excellent initial clinical response and we expect to launch GuideLiner V3 in the third quarter.

Related to GuideLiner as we reported on May 16, we filed a lawsuit in U.S. district court for the district of Minnesota, alleging that Boston Scientific has infringed three patents owned by Vascular Solutions concerning rapid exchange guide extension technology by manufacturing and selling Boston Scientific's new Guidezilla guide extension catheter.

We have now brought a motion to request the preliminary injunction to stop U.S. sales and manufacturing of Guidezilla while the litigation is preceding that will be fully briefed this week and hopefully will be decided by the court in early August. Without going into litigation details, we believe that this is a clear case of patents and the copyright infringement that should be subject to an injunction stopping sale and use of Guidezilla.

However, rulings of patent litigation are always unpredictable. So we are also prepared to compete against what might become our first ever competition for GuideLiner. We believe the GuideLiner is the superior product and that our new V3 version adds even further user benefits. We have an excellent cost structure on the product due to our manufacturing experience and we have established customer relationships built on our status as the pioneer of rapid exchange guided extension.

While Boston Scientific is not to be underestimated, we have faced similar competition before on some of our largest products, including our Pronto extraction catheters with Medtronic and our hemostat patches with multiple competitors and so succeeded. We are confident in our GuideLiner product, and our sales force's ability to meet the competitive challenge.

Because of the success of the GuideLiner, Pronto is now our second highest selling product with second quarter sales of $5.1 million, once again stable on both a sequential and year-over-year basis. This represented the seventh consecutive quarter of steady sales for Pronto, which has been our objective in this mature product category. Our sales force and distributors continue to do an excellent job of highlighting the distinct features and benefits of Pronto, and as a result Pronto remains the market share leader in the intensely competitive and price sensitive extraction catheter market.

Another major contributor to second quarter growth in our catheter business was the Venture catheter, which we acquired last year from St. Jude Medical. We relaunched Venture in the U.S. on April 29, and in the second quarter booked nearly $500,000 in sales of this one of a kind device. The second quarter obviously benefited from a restocking of the customer's shelves since Venture had been off the market for a while, but we are off to a very strong start and U.S. physicians who have relied on Venture in challenging interventions are very happy to see this product back in the market.

Starting in the third quarter we will broaden the launch at the international markets on a country by country basis. The recall of our Guardian hemostasis valve at the end of February due to a vendor issue with the seal component negatively impacted sales of catheter products in the second quarter. Typically, the Guardian has been one of our important growth drivers in our catheter mix. For example, in the quarter before the recall, which was the fourth quarter of 2012, Guardian sales were up 16% and during the year ago second quarter, sales of Guardian as related inflation device totaled $600,000.

Because of the recall, we had no Guardian sales in this second quarter, but we have now resolved the vendor issue and we expect to resume worldwide shipments of Guardian during August, which should provide added benefit to our third quarter sales due to the restocking of our customers, who have been without this product since February.

Other catheter products that contributed to our strong growth in the category during the second quarter were our line of guidewires for interventional procedures which grew 38%, our Langston dual-lumen pressure measurement catheter which grew 18%, and our micro-introducer kits which grew 14%.

Our second largest product category is hemostat products which includes our D-Stat Dry, D-Stat Flowable and radial products. Second quarter hemostat revenues were $6 million, representing a 4% increase on both a sequential and year-over-year basis. As we have stated previously, one of our major objectives for 2013 has been to restore year-over-year growth to our hemostat category. I am very pleased to report that we achieved this goal in the second quarter, principally by focusing on new products that cater to the rapid growth in the radial catheterization market in the U.S.

We're still in the very early stages of our expanded product offerings for radial catheterizations, but it has clearly begun to payoff for us. Last June, we acquired the Accumed wrist positioning splint, and in October we launched the radial hemostasis band under a distribution agreement with Lepu Medical. We now call that radial hemostasis band, the Vasc Band, which combined with the Accumed wrist splint, drove the improvement in our overall hemostasis sales during the second quarter with combined sales of over $750,000.

Looking forward, we have several additional radial products targeted for launch over the next year. On the traditional femoral hemostasis side, although the patch market remains intensely competitive and price sensitive, it is important to point out that we maintain our dominant position in the past market due to the superiority of our thrombin based products, D-Stat Dry and Thrombix.

Our third product category is vein products and services. Here second quarter revenues increased 12% to $3.8 million compared to $3.4 million in the year ago quarter. This growth was driven by 77% increase in revenues from our ClosureFAST reprocessing service to nearly $1.8 million in the second quarter. On a sequential basis, revenues from our reprocessing service grew 20%, compared to the first quarter of 2013.

Reprocessing has proven to be an extremely popular service with our customers due to the substantial cost savings and reduction in medical waste. We launched our reprocessing service in January of 2012 and to-date nearly 400 vein clinics have reprocessed their ClosureFAST catheters through our service. Approximately 65% of these reprocessing accounts represent entirely new vein clinic customers for Vascular Solutions. To-date, our reprocessing partner, Northeast Scientific, has successfully reprocessed more than 25,000 ClosureFAST catheters establishing a track record for reliability among our customers. From this space, one of our continuing objectives is to boost our sales of ancillary vein products to the suspended list of vein clinic customers.

Concerning product development, as we've said many times, continuous new product innovation is the key to our success. Our relentless goal has been to launch around 10 new products each year, I think we're maintaining that pace. Right now our internal pipeline remains very full. We have approximately 40 new devices in various stages of research and development.

Beyond the internal pipeline, we have a strong balance sheet that supports an active program to evaluate tuck-in acquisitions and product distribution opportunities. Our large direct sales force makes us a highly attractive distribution partner for companies that lacked U.S. direct sales capability and we remain committed to acquiring the right products that fit with our existing call points.

Now I'll turn the call over to James to review the details of the second quarter and to review our guidance for the third quarter and updated guidance for the full year.

James Hennen

Gross margin in the second quarter was 68.8%, level on a sequential basis and increased from 66.7% in the second quarter of 2012. On a year-over-year basis, our gross margin has been benefiting from higher proportion of sales from GuideLiner, another higher margin products. For the remainder of this year, we forecast gross margins of between 68% to 69%.

Operating income in the second quarter was $4.4 million, an increase of nearly 13% from $3.9 million in the year ago quarter. While our operating margin improved to 16.2% from 15.9% in the year ago, the new 2.3% excise tax on U.S. sales of medical devices from the Affordability Care Act which took effect in January 1st resulted in $339,000 of added expense during the second quarter. Without the new excise tax, our operating income would have grown by more than 21% and our operating margin would have been improved by nearly 160 basis points to 17.5%.

Sales and marketing expenses were $6.8 million or 24.8% of revenues, an improvement from 26.2% of revenues or $6.5 million in the year ago second quarter. Sales and marketing expense remains the key leverage point but continue to increase our operating margin as more products are added to our relatively constant field sales organization.

Then in the second quarter we had 91 field sales and sales management employees in the U.S., a number that has been stable since the beginning of 2008. We do not expect to have significant headcount to our field sales organization through the remainder of 2013, and therefore we estimate that sales and marketing expenses as the percentage of revenue decline to approximately 24% by the fourth quarter of this year.

U.S. product revenue generated per field sales employee was $288,000 during the second quarter or just over $1.1 million annualized. This represents an improvement of 13% in productivity compared to the second quarter of 2012. Having reached our off-stated goal of $1 million in annualized U.S. revenue per field employee in 2012, we now believe we can continue to leverage our existing sales organization to double our annual revenue to $200 million with only modest sales headcount additions.

Research and development expenses were $3.5 million or 12.7% of revenue. In the second quarter compared to just under $3 million or 11.9% of revenue in the year ago quarter. For the remainder of 2013 we expect R&D as a percentage of revenue of between 11% and 12%. Clinical and regulatory expenses were just over $1 million or 4% of revenue in the second quarter compared to nearly $1.2 million or 5% of revenue in the year ago quarter. We expect clinical and regulatory expenses as a percentage of revenue to continue to be approximately 4% in the remaining two quarters of this year.

General and administrative expenses were $2.3 million or 8% of revenue in the second quarter compared to $1.6 million or 6.5% of revenue in the year ago second quarter. The increase reflects mainly added legal expenses due to the Boston Scientific and Terumo patent cases. While legal expenses are always difficult to forecast based on our assumptions that both these lawsuits we now expect our G&A level to be between 8% and 9% of revenues for the remainder of 2013.

Amortization expense was $393,000 from the second quarter, an increase from $330,000 in the year ago quarter. We estimate that our amortization expense will be approximately $400,000 per quarter for the remainder of 2013. Income tax expense in the second quarter was $1.6 million and pretax income $4.4 million, representing an effective tax rate of 37%.

In the 2012 second quarter our tax expense was $1.5 million on pretax income of $3.9 million which represented an effective tax rate of 39%. For the remainder of 2013 we expect our effective tax rate to be 38% resulting in a full year average for 2013 of approximately 36%. We expect that our $8.6 million of deferred tax assets reflected on our balance sheet at June 30, will offset all but approximately $2.6 million or income tax expense 2013 on a cash basis.

We expect our NOLs to be exhausted before the end of 2013. We have an additional approximately $3.6 million of federal R&D tax credits and AMT credits that are not reflected on our balance sheet that we plan to utilize to offset tax payments in to 2014. Net income in the second quarter was $2.8 million, an increase of nearly 18% from the earlier quarter.

Earnings per diluted share during the second quarter were $0.17, an increase of more than 13% from the second quarter of last year. The total number of shares used in calculating fully diluted earnings per share in the second quarter was 16,855,000 compared to 16,243,000 for the year ago quarter.

Turning to the balance sheet and cash flow. During the second quarter, we generated just under $4 million in cash from operations. We used cash of almost $1 million for capital expenditures. For the full-year, we estimate that our capital expenditures will be approximately $4 million.

At June 30, we had $19.7 million in cash and cash equivalents, up from $14.1 million on March 31. We have no debt. We still have an unused $10 million line of credit. For 2013, we expect to generate cash from operations of just under $20 million. Our days inventory in hand at the end of June was 147 compared to 146 at the end of March. We expect our days inventory in hand to be approximately 145 days during the remaining two quarters and we continue to project an inventory balance of approximately $14.5 million by the end of 2013. Accounts receivable day sales outstanding was 51 days of end of June, compared to 52 days at the end of March.

Now, I'll turn to financial guidance. Starting with the full year, we are raising the low end of our 2013 revenue guidance and we now expect full year revenues of between $107 million and $110 million. At the midpoint that would represent growth of 10% from $98.4 million in revenue in 2012. Previously our revenue guidance for the year was $106 million to $110 million. But 2013 earnings we are maintaining our earnings per share guidance of between $0.66 and $0.70 on an adjusted basis after backing out the impact of the Guarding recall. At the midpoint of the adjusted range it would be an increase of 13% from the $0.60 reported in 2012.

On a GAAP basis including the impact of the Guardian recall, our earnings per share projections are still between $0.62 and $0.66 included in the earnings per share projections for 2013, our $3.4 million and non-cash stock-based compensation $1.6 million and amortization intangibles and between $1.3 million and $1.5 million in expenses associated with the U.S. medical device excise tax, and an assumed 36% tax rate for the year.

Turning to the third quarter, we are providing revenue guidance of between $26.5 million and $27.5 million at the midpoint that represents growth of approximately 10% from the $24.6 million in revenues in the third quarter of 2012.

We expect net earnings for the third quarter of 2013 between $0.16 and $0.17 per share in the year ago third quarter, we reported earnings per share of $0.16. Our net [earnings] guidance for the third quarter of this year includes $800,000 non-cash stock-based compensation, $400,000 in amortization of intangibles, $350,000 for the U.S. medical device excise tax and a 38% tax rate. With that I will turn the call over to the operator for the question-and-answer portion of our call.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. In an effort to field as many questions as possible, please limit yourself to one question and a related follow-up. (Operator Instructions) And first we'll go to Jason Mills with Canaccord Genuity.

Jason Mills - Canaccord Genuity

Hi guys, congrats on another good quarter.

Howard Root

Hi, Jason. Thank you.

Jason Mills - Canaccord Genuity

Hi, Howard. First a couple of questions, first with GuideLiner, obviously main annoyance with Guidezilla you're having a fee, at least with their lease for the time being. You mentioned your cost structure being favorable. Have you or will you work with clients or have you been asked to work with our customers on pricing, I would imagine that's, if so reflected in your guidance. But any commentary you can make regarding, I'm sure in your mind, short period of time you'll be competing is that product would be helpful?

Howard Root

Yeah. So as of now, I think without getting to legal details that you know we can't do, but they are just in the process of starting to rolling it out and we're in the process of bringing the motion for the preliminary injunction. So as of right now, we're continuing doing what we've always done, showing the GuideLiner. And then if we get the injunction, obviously we won't have to make any adjustments, if we don't get the injunction we compete, we would have to look what we do there.

And I really don't want to tip my hand as to what we would possibly do and compete competition at Boston Scientific, but just to say as I said in the remarks, we have been down this road before with Medtronic in the export versus our Pronto and the patches with other people, it is something you work with customers. The one benefit we do have is I think almost every customer out there realizes, we were the one who created this market, we brought a new product to the market and its really revolutionary product in the minds of lot of interventional cardiologist. So there is some loyalty there that we built up and we hope with the GuideLiner V3 and the improvements there that will still have that relationship to build on.

Jason Mills - Canaccord Genuity

That's helpful. Moving to the vein business Closure FAST is fast becoming a very, very important and it's been proven out to be great acquisition for you, where can this go is the first part of the question. Is the glass half full, part of the half empty I suppose as we see a business and management team that's executing so well, I guess the common thing to do is just look for, just make sure we're covering all our bases in terms of what could happen on the down side and I guess the one thing that came to my mind on that front is the possibility that the manufacture couldn't some way change the product with manufacturing to make it hard to reprocess, I'm sure you've contemplated that but it struck me as a question I've never asked you, so I thought I might do so now?

Howard Root

Yeah, so we've been out there, we started January of 2012, so it's a year and half out and there was always rumors that they do something but they haven't, and it would be, in my opinion very difficult to do. We've seen nothing indicating that they would, obviously in this product area you have a generator which is purchased by the customer, and then you have the disposable. So how you would do something that would lock or the inability to use a reprocess catheter which is the actual original catheter just sterilized the second time, it's hard to imagine, I'm not saying it can't happen, we haven't seen in a year and a half and I don't think it's a very easy thing to do, so I think it's a low risk of that happening.

Jason Mills - Canaccord Genuity

Okay, what about the first part Howard in terms of what do you see that business doing over the course of next couple of years?

Howard Root

Yeah, Phil is really modeling that, so let him answer.

Phillip Nalbone

Yeah, I don't know if we are prepared to talk about what it will look like beyond this year, but as you know last year ClosureFast reprocessing contributed $4.4 million in revenues. Earlier this year we thought we would do a little over $6 million in revenues for growth of around 40% after a very strong first half during which ClosureFast reprocessing contributed about $3.3 million in revenues compared to $1.5 million in the year ago first half. We are now pretty comfortable in projecting 50% growth to about the $6.5 million level. And from what we can see we think this will be a growth generator for us for at least another couple of years.

We are really still in the very early stages of converting accounts. I think we've had about 450 vein clinics signed contracts with us to-date. About 400 of those have actually been sending in catheters, so we still have a ways to go with just those accounts that have signed contracts with us and with probably about 2000 ClosureFast accounts in the United States, we still have an opportunity to convert accounts.

Jason Mills - Canaccord Genuity

Good to hear. Last question for me Howard and thank you for that fillers. Just what do you see now versus a year ago or couple of years ago on the M&A front? You are constantly looking I know, but you've always been very prudent. So as you look at things and look at your criteria for acquisitions, are there more robust targets, group of targets or last, or any color there?

Howard Root

Yeah, there is a lot of target out there for us to look at. When we look at that, obviously the first screen is it has to be in our space, something our sales force can sell to our existing customers and then within that, it has to be a product, not a project because we have 40 projects already. We don't need another one. We need something that has existing sales. And then we look for something that's a reasonable valuation and you get those free right, and then we go about doing it and make it work and we've gotten about four or so of those. We're always in that $3 million or $2 million, up to $6 million acquisitions in the two to three time sales and with margins that work with our structure only, we pop it and take cash forward and you've done models. It works extremely well. We just want to stay away from buying things that don't work or buy things that we can't sell or that's something that has to have a redesign on it and we've managed to do that and with some things easier than others, others are a little more difficult.

As we look where we're now, we see the same field. The only thing that's different is there is not a lot of new companies being created, but the ones that are out there aren't finding it any easier to raise money and certainly they are finding it much harder to distribute their products. A lack of distributors in the U.S. is almost gone in the interventional cardiology space and there aren't that many people who are interested in a space out there, but the challenge is at that point there is always valuation and there are some people who want too high valuation and we're not going to pay for something of that high. And so we're going to be disciplined in what we do and we've done that. We have a couple that we're looking at right now and until we have it signed, we don't announced it, but I would be surprised if we didn't announce something before the end of the year, but it has been a little while since we announced one and did one. I think Venture was the last one we did which is about a year ago now.

Operator

We'll go to Tom Gunderson of Piper Jaffray.

Tom Gunderson - Piper Jaffray

I just have two quick questions for the detail on some of the things you asked and talked about in the prepared remarks. One is, Guidezilla and the patent litigation going on there, those are U.S. patents, Minnesota Court, et cetera, et cetera. Have you had to go up against Guidezilla anywhere else in the world and/or any other GuideLiner like product and can you give us details on that?

Howard Root

So Boston Scientific announced I think just a week or two ago that they've now started their launch in the U.S. and in Europe. So we have seen the products in Europe in evaluations in limited market releases, but Europe this time of year is fairly slow obviously for new things at holiday season, but we expect to see it there as well as in the U.S. and probably Canada and some of the other major markets. I think Japan will be ways behind because it obviously takes a lot longer to get approval. We are not even approved yet in Japan, hope to be before the end of the year. So we have seen it out there, we competed against and we think that we have got the better product in V3, we will bring it up to next level. Was there another part to that question?

Tom Gunderson - Piper Jaffray

If there was any other GuideLiner like products that you competed against overseas?

Howard Root

Yeah, and we have always expected that. I think we launched GuideLiner end of 2008 or 2009, and so always expected to see something out there. We haven't seen another product till this last year. There is rumbling of a small European company having something in that area, but we haven't seen it, certainly not anything that's visible right now in the market. But we will have competition there eventually and that's why we continue to improve it, lower our cost of manufacturing and expect to maintain our leading share in that market as they grow and we're going to continue to grow it and we'll continue to I think dominate it.

Tom Gunderson - Piper Jaffray

And then the other the second question is on Guardian and relaunch in August, I'm assuming that's U.S. and O-U.S. and are you comfortable with inventory supply, is this going to be a slow relaunch or is this headed back to normal launch?

Howard Root

It's going to be a back to normal relaunch in the third quarter, but what that means obviously people don't have any product on the shelves so they have to get restart. So there is a pretty big inventory requirement right at the starts, we're going to start in the U.S. and country by country through Europe. We've got the product already on the shelf, we've already done evaluations and we're starting to do the roll out now and by the end of the third quarter, we think we'll have completed that rollout throughout worldwide.

So I think, it's a gradual, but it's a quick gradual rollup from August and September and by the fourth quarter we'll back on with all the market. And third quarter we will get that benefit, because the sales start very strong as people get reloaded including our distributors, they have to get stocked on their shelves as well as their customer shelves. So that's why we think third quarter will get a nice boost from Guardian after the second quarter, especially on the international side had a limitation based on that product off the market.

Operator

We'll go to Ben Haynor with Feltl and Company.

Ben Haynor - Feltl and Company

Just following up a little bit on Tom's question with regard to GuideLiner, are there any international patents that would apply to that product as well?

Howard Root

No, we have the three U.S. patents that we applied for and we received them, we did not go after international protection on that product on that patent line.

Ben Haynor - Feltl and Company

Okay. And then a little bit more on that, on V3 of GuideLiner, are there any additional patents that you filed one side back and then it sounds like the cost structure is better there than V2, is that the case?

Howard Root

Yeah, the patent is about getting into details, the patents that we have already issued or brought enough to cover V3, V2 and V1. I should emphasize when we say we have U.S. only patents, so U.S. patents cover, make use and sell, so it is not just selling in the U.S. or using it, but there it's also manufacturing in the U.S. So it applied to Boston Scientifics making Guidezilla in the U.S., any patent litigation effects their ability to make it here as well.

Ben Haynor - Feltl and Company

Okay, great. And then looks like a pretty strong start with the Venture catheter, obviously some pent-up demand there, but have you seen your sales guys have success maybe beyond what you might have expected from another there?

Howard Root

Well, we haven't really unleashed our sales force on new customers; all we've done so far is sold them. Here is the people who bought it, one can shoot at the product, go back and tell them it's on the market and tell them they can only order five at a time and lone behold the great sales marketing strategy, people ordered 10. So sometimes that's the best way to get the sales jumping and people really did have a pent-up demand for it. It is not just because they liked it, they really needed it, I mean there are cases being scheduled when they could get the Venture back on the shelves, in case they needed to make sure they complete the intervention the right way.

So that's just a great product for us in our clinical niche. It will never be $20 million product, but we are quickly getting it to that $2 million to $3 million range which we thought it would be. Again keep in mind that if we do 500,000 a quarter as the initial quarter, there is the initial stocking of the accounts and getting it back on the shelves and then you don't continue to grow like that every quarter going forward but it's a great plug and play $2 million to $3 million clinical utility product for us that's got a good base business and we're pleased to see they are still receptive to after it's been gone for about two years.

Ben Haynor - Feltl and Company

That sounds great. That's helpful, I'll jump back in queue.

Howard Root

Thanks, Ben.

Operator

Next we will go to James Terwilliger with Wunderlich Securities.

James Terwilliger - Wunderlich Securities

Nice quarter. I've got a couple of quick questions on some of your new product visibility. First of all I'll start with the hemostat products. You had a nice bump here up 4% year-over-year and sequentially, can you dispense what's happening in that business and how you're able to achieve that growth?

Howard Root

Right, and if you take a look at the broad picture we had D-Stat Dry and the D-Stat Flowable which are both fairly mature products. The Flowable is mainly used in pacemaker pockets to prevent the pocket hematoma. We launched that in 2002. So it's above 10 years old and the D-Stat Dry and THROMBIX patches we launched in 2003, so also about 10 years old used for the femoral manual, [assistance] systems to manual compression market and that market is not growing price competitive.

So we've looked at that over the last couple of years and in 2012 really we looked for where the growth driver for that and the growth driver that really stared at us with radial procedures, the radial catheterizations are starting to grow in the U.S., they don't use [sealing] devices, we had our D-Stat Radial which had a small section of that market but there are other products that can hold the wrist in the right position and then simple, easy, less expensive ways of achieving hemostasis.

So when we you know we got the Acumed wrist splint we acquired that product, we partnered up with Lepu Medical out of China and got the VASC Band in here and those two products combined did $750,000 in sales in the second quarter. So that's really all the growth in hemostats us, adding new products in there and growing as the markets was growing from femoral to radial and maintaining the business, maintaining D-Stat Drive, D-Stat Flowable as best we can, we don't want to give up that business but looking for growth by bringing in something new. And I think the radial kind of transition is not even close to mature, I mean it's just started in the U.S. We're getting up to the double-digits now but in some markets in Europe, that adds 50%. We may be at 10% or 12% and I think the next couple of years are going to be a huge shift toward radial catheterizations in the U.S. and we're going to add additional products in to that as well as drive those VASC Band and Accumed wrist splint products deeper and I think that's going to be a growth driver for several years for us in hemostat products.

James Terwilliger - Wunderlich Securities

Excellent, I see you are well positioned to capture the trend of movement from the femoral to the radial. You've worked on this for a couple of years and that seems like you are very well positioned. I had to take another call and I apologize for that but I wrote down before I jumped, Japanese approval in the second half of 2013 with a product launch. Did I get that correct and what was that product?

Howard Root

Yeah, the GuideLiner which we've had pending with the Japanese for a while now and we're expecting by the end of, I won't say third quarter, it'd be more likely fourth quarter, by the end of 2013 to get Japanese Shonan approval. That's the regulatory approval but we're working there with our distributor there with Japan Lifeline, who would get the approval and then launch in to Japan. As you know, Japan market for challenging interventions is a very substantial market. They do like the devices that could be used to get to more distillations and multiple lesions and more challenging bifurcations and GuideLiner is really a product that works well for that. So I'm encouraged by that, but it's not going to start with a bang, it will start with just a push and then get started and then grow from there. But the Japanese market is substantial player potentially for guide extension and we hope that GuideLiner will be in that market before the end of the year.

James Terwilliger - Wunderlich Securities

And for you guys that would be really in terms of setting [expectations] what's really going to be a 2014 event in terms of the revenue and you will be doing this for through a distributor in Japan?

Howard Root

Yeah. We'll be doing it through a distributor in Japan and it would be a material 2013, it won't be material 2013, but 2014 it could be a really material upside for us.

James Terwilliger - Wunderlich Securities

Okay, excellent. Well thank you for taking my questions and nice quarter guys. Thank you.

Howard Root

Thanks.

Operator

At this time I am showing no further questions Mr. Root please continue with your closing remarks.

Howard Root

I want to thank everyone for joining us on this presentation. We appreciate your interest in Vascular Solutions. We're very happy with the quarter that we just reported. And we look forward to providing you with future updates on our company's progress in future guidance. Thanks.

Operator

Ladies and gentlemen that concludes our conference for today. Thank you for participating in Vascular Solutions second quarter conference call. You may disconnect.

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