The Spectranetics Corporation's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.23.14 | About: The Spectranetics (SPNC)

The Spectranetics Corporation (NASDAQ:SPNC)

Q1 2014 Earnings Conference Call

April 23, 2014 4:30 PM ET

Executives

Lynn Pieper – IR

Scott Drake – CEO

Guy Childs – CFO

Shahriar Matin – COO

Analysts

Brooks West – Piper Jaffray

Chris Pasquale – JPMorgan

Rick Wise – Stifel Nicolaus

Jeff Chu – Canaccord Genuity

Mike Matson – Needham & Company

Charles Haff – Craig-Hallum

Shagun Singh – CRT Capital

Operator

Good day, ladies and gentlemen, and welcome to the Spectranetics Corporation 2014 First Quarter Financial Results 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, today’s program is being recorded.

I would now like to introduce your host for today’s program, Lynn Pieper. Please go ahead.

Lynn Pieper

Thank you, Jonathan. This is Lynn Pieper with Westwicke Partners. Thank you for participating in today’s call. Joining me from Spectranetics is President and Chief Executive Officer, Scott Drake; and Chief Financial Officer, Guy Childs.

Earlier today, Spectranetics released financial results for the quarter ended March 31, 2014. If you have not received this news release or if you’d like to be added to the company’s distribution list, please call Westwicke Partners at (415) 202-5678.

Before we begin, I’d like to remind you that management will make statements during this call that includes forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a list and description of those risks and uncertainties, please see the company’s filings with the Securities and Exchange Commission.

Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, April 23, 2014.

With that, I’ll now turn the call over to Scott Drake. Scott?

Scott Drake

Thanks, Lynn, and good afternoon to everyone. Thanks for joining our Q1 call. We put our preannouncement earlier this month. We posted Q1 top line growth of 5%. The mission is clear for 2014. We must continue our strong performance in the Vascular and International businesses, and we must improve commercial execution in the U.S. Lead Management segment.

With both sets of mechanical tools approved ahead of schedule, our sales force expansion complete, and the ISR opportunity in front of us, never have we been better positioned to create shareholder value. Performance defines our team and we must.

This afternoon, we’ll breakdown our comments as follows. First, I’ll walk through the quarter’s financial performance for each segment. We’ll then discuss significant progress on our growth drivers in clinical data. Guy will go deeper into the financials and 2014 outlook, and then we look forward to fielding your questions.

Our Vascular Intervention business delivered revenue of $20 million, an increase of 16% and U.S. peripheral atherectomy was up 29% over prior year. This performance was balanced across hospital and office-based labs, and our growth rate was 3x to 4x that of the overall market. These results reflect increased traction on sales execution, case penetration and the great opportunity in front of us.

The Lead Management business achieved revenue of $14.5 million, a 5% constant currency decline. This was disappointing and we have taken immediate steps to return this business to growth in the second half, and expect to return to double-digit growth in the fourth quarter.

We attribute the weakness primarily to a temporary disruption associated with the expansion of the U.S. Lead Management sales team. To provide a bit more color. The LM sales force expansion was significant. About 67% increase in quota-carrying reps and relatively larger than VI.

As two out of three territories were impacted, there were significant customer transitions and tenured reps played a major role training new people.

In short, the disruption was greater than projected and not managed as well as it should have been. Also given our market position, if we’re not driving procedure volumes, leads are likely getting capped. We don’t see competitive disruption, nor do we see fundamental changes in the market. We own the miss and are incredibly focused on the fix.

Our International team posted revenue of $7.8 million and 11% constant currency increase. Robust growth in Japan and strength in Europe highlight these results. Our gross margin improvement efforts continue to pay dividends and results were again strong at 73.9%, a 130 basis point year-over-year improvement. All the right levers continue to drive these results including production efficiencies, leverage of overhead price and revenue mix. Our net loss was $5.7 million or $0.14 a share.

Now let’s talk growth drivers. Our Vascular business growth is predicated upon three things; atherectomy penetration and shared gains: capitalizing on the ISR opportunity and expanding our product portfolio. Our U.S. atherectomy growth in the first quarter was 29%, driven by sales execution, case penetration and new accounts. Our sales force expansion is complete and significant training has been conducted.

We are encouraged by the energy and expertise of these new teammates, and look forward to their full productivity in the future. We are well positioned to capitalize on the ISR opportunity ahead.

Our clinical evidence that underpins the ISR growth driver continues to strengthen. I’ll provide context on our progress and also frame the broader market inclusive of recent drug-coated balloon data.

First on the EXCITE front. We achieved early success with 250 patients versus the originally planned 353. This was accomplished without borrowing from PATENT and speaks to the strength of the clinical performance. This represents the toughest lesion set of any peripheral IDE trials ever conducted.

Highlights include; at mean lesion length of 19 centimeters, the EXCITE lesion set was 54% longer than PATENT and more than twice as long as the drug-coated balloon lesion set presented at Charing Cross. A third of these patients were previously treated for ISR. Also about a third were total occlusions. The laser arm had roughly three times as many moderate or severely calcified lesions than the PTA-only group.

We prove to be highly superior from both, the safety and efficacy standpoint. Regarding safety, the trial was designed for non-inferiority, yet a highly superior result was achieved. The punch line is that EXCITE is the first and only randomized control trial ever conducted in the peripheral ISR space and the data is truly powerful. We will hold off on presenting the full dataset until we successful achieve the indication and submit our journal publications.

In the mean time, physician investigators intend to present single-center or subsets of data such as acute results at upcoming conferences. We cannot risk the perception of off-label promotion, but we very much look forward to executing on our podium and publication strategy.

We submitted our 510(k) slightly faster than anticipated and are happy to report that the FDA has decided to review this application through their interactive program. As such, our relationship with the Agency remains highly constructive.

Also on the clinical front. The drug-coated balloon data coming out of Charing Cross validates the importance of DCB therapy to treat relatively short de novo lesions in the SFA. From a broader context, European physicians have attempted to utilize stand-alone DCB therapy in ISR patients, only to the frustrated with high rates of TLR.

Dr. Van Den Berg’s work published in the Journal of Cardiovascular Surgery points to the efficacy, durability and superiority of laser prior to deploying a drug-coated balloon. Dr. Gandini took it a step further by conducting a randomized study to Tosaka Class III patients comparing a laser DCB combination therapy to DCB alone. This is the sickest, trickiest classification of ISR patients, all of whom have total occlusions.

Patients in the laser plus DCB arm demonstrated superior patency versus DCB only. At six months, the laser arm yielded 92% patency versus 58% for DCB. And at 12 months, the results were 67% versus 38%. This data was published in the Journal of Endovascular Therapy. The clinical hypothesis being proven is that the bulking of watery, sponge-like tissue is required for effective drug uptake.

After FDA approval, we’ll be the only company with an ISR indication and primary competitors are contraindicated. We’ll be the only company with a randomized clinical data that has the power to change clinical practice. And as drug-coated balloons enter U.S. labs direct on the wheel of big companies that are spending hundreds of millions of dollars developing the market. We are in an excellent position to capitalize on this $750 million opportunity.

In summary, our vascular business is gaining momentum and we are poised for future success.

On the Lead Management side, our efforts remain focused on penetrating Class I indications, innovation and portfolio expansion, world class physician training and capitalizing on our larger commercial footprint. This market is significantly under-penetrated and better patient care is dependent upon driving procedural growth. Our key initiatives are completely aligned to this goal.

On the portfolio front, we recently received 510(k) clearances for both platforms of mechanical devices. Building on our position as the market leader, these new products will provide our customers with the most comprehensive set of options for lead extraction. We are currently in a controlled launch phase, and, as is our practice, we will generate enough real world commercial experience before providing a view a financial contribution.

Along with launching these new products, we are incredibly focused on improving tactical executions in the U.S. market. Our confidence in our new talent is high. The heavy lifting on training is nearly complete, and our guidance assumes flat year-over-year performance in quarters two and three, and a return to double-digit growth in Q4. Within that, we expect sequential improvement each quarter throughout the balance of the year.

We are bullish on the Lead Management opportunity as market dynamics and trends are strong, our position is unparallel and growth drivers are in place. We’re dedicated to getting back to the kind of growth we’ve delivered for many years.

Internationally, we continue to drive rapid growth in Japan and solid results in Europe. Highlighting recent accomplishments. First, we continue to accelerate the pace of new laser installations internationally. Second, substantial progress in Japan continues. We started enrollment in our 50-patient peripheral atherectomy study. We’re the first company to achieve this milestone.

Approval and reimbursement for our entire Quick-Cross family has been achieved. Also the team was successful attaining the 0.9 ELCA coronary approval. These achievements point to continued success in Japan.

Third, we’ve successfully attained approval for a non-laser lead extraction portfolio in China. We are preparing for launch in the coming quarters. These approvals do not include the two brand new sets of mechanical devices highlighted previously on this call.

Fourth and finally, our sales force split in Germany is underway and early signs are promising. We have experienced minimal disruptions and we continue solid performance. To summarize, our growth drivers are more tangible than ever. Our controlled launch for mechanical devices is underway. The ISR label is significantly de-risked. Our expanded sales team is in place and our clinical compendium is meaningful growing.

I’ll now turn the call over to Guy to provide more detail on the financials.

Guy Childs

Thank you, Scott, and good afternoon, everyone. I will review the details of our first quarter financial performance and provide our full year 2014 outlook. During my prepared remarks, I’ll highlight key gross margins and spending assumptions that will assist with model updates. Our revenue results and outlook are unchanged from our pre-announced results on April 7, and net loss was at the low end of the range.

First quarter revenue of $39.6 million was an increase of 5%. Vascular Intervention revenue of $20 million increased 16%, led by U.S. peripheral atherectomy growth of 29%. Unit volume represented nearly all of the U.S. peripheral atherectomy growth supported by a single-digit price increase. Rounding out the VI discussion, crossing solutions revenue decreased 4%. The slight decline was anticipated given the heightened competition in this product segment over the last couple of years.

Coronary revenue from atherectomy and thrombectomy product sales continued recently growth trends and was up 21%. Lead Management revenue declined 4%, 5% constant currency to $14.5 million for reasons we have discussed. Market trends continued to be favorable and we are looking forward to accelerating growth back to double-digits driven by our sales force expansion, improved sales execution and mechanical tools products launches.

Laser System, Service and Other revenue declined 5%; 6% constant currency to $5.1 million in the first quarter. This was due primarily to a 7% decrease in laser revenue, compared with the particularly strong Q1 of last year. On a geographic basis, revenue in the U.S was $31.8 million, an increase of 3%. International revenue was $7.8 million, up 14% as reported, and 11% on a constant currency basis. Our consistent growth internationally reflects progress with our international expansion plans.

Our gross margin was 73.9%, up 130 basis points from the first quarter last year. The improvement was led primarily by production efficiencies followed by a favorable mix of higher margin disposable products and a small contribution from improved pricing. Our revised full year guidance assumes gross margin within the range of 74.5% to $75%.

Research, development and other technology expense was $6.2 million or 16% of revenue compared with $5.2 million or 14% of revenue in the prior year. This increase was planned as we ramp up our product development activities. Our revised outlook assumes R&D spending of approximately 14.5% of revenue for the full year.

SG&A expenses of $27.9 million represented 70% of revenue, compared with last year’s $22.8 million or 61% of revenue. The increase was led by higher personnel cost associated with the expansion of our field sales team. We’ve completed the expansion which called for an additional 55 sales teammates, 80% of which are quota-carrying reps. Our revised outlook implies SG&A spending of 63% to 64% of 2014 full year revenue.

We recorded $0.5 million related to medical device excise tax, which was consistent with prior year level. Acquisition-related intangible asset amortization and contingent consideration expense totaled $0.2 million compared with $0.4 million last year. Together these costs are anticipated to be approximately 2% of revenue in 2014.

We recorded a provision for income taxes of $0.1 million in Q1, consistent with our expectations. We expect 2014 income tax expense to be relatively consistent with 2013 levels. Net loss was $5.7 million or $0.14 per share compared with net loss of $959,000 or $0.03 per share last year. Adjusted EBITDA was a loss of $2.9 million this quarter versus a positive $1.3 million last year.

These losses were planned and primarily result of the sales force expansion, which will be reflected in our revenue growth as the year progresses. The first quarter is typically the highest spending quarter of the year due to the global sales meetings and other seasonally high expenses, combined with the completion of the sales team expansion.

This points to tapering of our net loss as the year progresses. Table showing a reconciliation of non-GAAP financial measures are provided in the press release. Cash and cash equivalents totaled $120.9 million as of March 31, 2014. We used $8.4 million of cash in operating activities, which was also consistent with our plan. Cash used in the first quarter of year was primarily a result of our net loss and payment of incentive compensation throughout the company based on 2013 performance.

Now turning to our 2014 outlook. We project revenue to be in the range of $171.5 million to $174 million, an increase of 8% to 10%. No revenue is included in our outlook for mechanical tools or the ISR indication.

Net loss is expected to be in the range of $7.5 million to $9.5 million or $0.18 to $0.23 per share. Adjusted EBITDA is anticipated to be in the range of $3.5 million to $5.5 million, compared with adjusted EBITDA of $11.2 million in 2013. The medical device tax was included in both periods.

I will turn it back to Scott for closing comments.

Scott Drake

In summary, we are on solid footing. Our growth drivers are more tangible than ever and we’re well positioned to create shareholder value. With that Jonathan, let’s open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Brooks West of Piper Jaffray. Your question please.

Brooks West – Piper Jaffray

Hello?

Scott Drake

Hi Brooks.

Guy Childs

Hi Brooks.

Brooks West – Piper Jaffray

Hi guys. Thanks for taking the question. Scott, I wanted to start with actually the U.S. versus international growth rates. Is that a function of the slowdown that you saw in your Lead Management business, or is that a trend that we should kind of expect going forward from here?

Scott Drake

Yes, I think Brooks it’s exclusively driven by the slowdown in the U.S. Lead Management business. And to give you a little broader context there, the quarter started out pretty slow on both sides of the business in the U.S. market. We triangulated that pretty well with other companies and it also correlated pretty well to where weather was severe and procedural volumes were low.

We then had a very nice bounce back in the VI business. And that did not happen on the Lead Management side. And as you dig deeper and we look at where the tenured reps were impacted, like I said in the prepared remarks, two out of three tenured reps were impacted by the sales force expansion. If you look at the differential in growth between the third that we’re not impacted and the two-thirds that were, it’s a dramatic difference between those two.

And we’re pretty convinced and satisfied that it was a controllable and a miss on our behalf. You know what our guidance is. It implies flat performance in Lead Management in quarters two and three. But we fully expect to get back to double-digit growth in Q4. So I wouldn’t read anything into it other than a controllable miss on the Lead Management side in the U.S. market.

Brooks West – Piper Jaffray

Let me follow-up on Lead Management then. The system sales were a little weak. Was that also on the Lead Management side? And did maybe you, given all the sales force disruption, did you miss out on some system may be bundled deals in the quarter, and could you make that up later on?

Scott Drake

Yes, I would say when you take a look at laser installations broadly, we had a very solid quarter in line with what we experienced all of last year. I believe we had 37 installations in the quarter versus 39 in the year ago period. It was more heavily weighted internationally and on the VI side. So again I think it speaks to a controllable miss on the LM side here.

So I think it really does point to very positive growth in the future, and it puts the miss in a box in our mind.

Operator

Thank you. Our next question comes from the line of Chris Pasquale from JPMorgan. Your question please.

Chris Pasquale – JPMorgan

Thanks. I just want to start with EXCITE. And congratulations again on getting that trial wrapped up successfully. You talked about not wanting to preempt the FDA process by presenting the full dataset. And I think that’s understandable, although we’re interested to see those results. Two questions on that though. Has any single-center data at this point been accepted for presentation at upcoming meetings? And then has a publication strategy for the full dataset been decided on?

Scott Drake

Yes, Chris, first thank you. And we’re very excited about the data for obvious reasons. I believe that we’re going to see single-center data presented at NCVH. I don’t want to commit too much there, but I am aware of couple of physicians that are looking to find agenda spots to present data at that meeting here in the next 30 to 60 days. And as far as the full dataset is concerned, we’re going to have to wait to get the ISR indication and then take a look at what shows are coming up.

It’s in our mind’s eye that maybe TCT would be the opportunity there, but it’s unclear given that we don’t control the timing with the FDA. It’s something that’s interesting that I pointed out. I am not sure how familiar everyone is with it. The Agency has agreed to an interactive program here. That’s a relatively new formal process that they have. And I think speaks to the collaborative nature of our relationship with the Agency. So that’s a very good sign, but that how that reads on timing, we absolutely don’t know.

Chris Pasquale – JPMorgan

Okay, that’s helpful. And then just on the Lead Management side of the business. I’m wondering does this quarter’s result change your thinking at all on the amount of investment you need to make in that segment, and maybe how those dollars are deployed. And I am thinking specifically about whether more rigorous training might be required to help these physicians become more independent?

Scott Drake

Yes. I think it’s a great point Chris. We have focused a lot on training in the past of physicians. We’ve spend a lot of time and money on that front. And I would tell you, we’ve spent a whole bunch of time with our medical advisory board, both prior to and since the miss, to make sure we’re understanding what’s going on here.

And we are convinced, it’s an execution problem. We feel very good that strategically we’re doing the right things. Launching the mechanical devices gives us an excellent opportunity focus on infected Class 1 leads is a very important step for us. Expanding the sales force, so we can really get at the broader market opportunity, as you know previously we only covered about 40% of implanting physicians and now we cover about 80%. And those reps are just settling into their territories.

So we believe strongly that we’re doing the right things. And it’s going to take us a little bit of time to get those folks to settle in and provide that customer training that you mentioned, so these customers are very comfortable doing these procedures even when we’re not in the lab.

Operator

Thank you. Our next question comes from the line of Rick Wise from Stifel. Your question please.

Rick Wise – Stifel Nicolaus

Good afternoon, Scott. Hi Guy. Just if you could talk a little bit more about the new reps. You’re saying – if I understand you correctly, your sales rep expansion training completed, reps just settling to their territory. Just walk us through or talk us through, Scott if you would, how long does it take on average for a rep to get productive? And are reps right way going to be calling on existing accounts, new accounts, spending more time in excellent current accounts where you can get more volume. Just help us think through where the priorities are and how we can think about that evolution in the next few quarters?

Scott Drake

Yes, happy to Rick. Broadly speaking, it takes about nine months on each side of our business to have a rep get to a breakeven point, and another nine months after that to become fully productive. So from day one, it takes roughly 18 months for them to become fully productive in their territories. And our data supports that. Reps that we have hired previously again on both sides of the business support that hypothesis.

We’ve not done anything this dramatically before and I think we managed it as I mentioned better on the vascular side than we did on the Lead Management side. But I feel strongly that both the timing and the size of the adds was right. And when you look at how they are spending their time, on both sides of the business, if we break it down on the vascular side, we’re present in roughly 500 to 600 labs with our laser technology.

We have the opportunity to be in incremental 1,000 or so labs there. So you both want to drive deeper penetration in current account and expand. And I would say the story is very similar on the Lead Management side where we’re in a similar number of accounts between 500 and 600 with our laser technology. And the opportunity to expand into new accounts and do more procedures in current accounts is really the calling on both sides of the business.

There are very few customers on the Lead Management side that are kind of tapped out from a procedural volume perspective. There is literally a handful of people in the country that are maxed out in terms of how much time they spend doing extractions. So that’s really not part of the story here.

Rick Wise – Stifel Nicolaus

Okay. And two other quicker ones. One, what would you have us focus on Heart Rhythm Society in a couple of weeks just from a Spectranetics perspective, any data or anything? And last, just again on this productivity in getting the trained – the experienced reps back in the group after the distractions of training, the new sales hires. Did you expect to see in March, and this early part of April, are things back to normal or back on the normal trend that you would expect? Do you feel encouraged at this point? Thanks.

Scott Drake

Yes, absolutely Rick. So regarding HRS, there is a few very big things that we have going on, on that front and we’re very excited for that show. We have the launch of full sets of mechanical platforms that we’ll be spending a great deal of time and energy with both, current and new customers on that front. Very exciting for us. And I would also say the focus on infection is going to be pronounced as the HRS show. You will hear thought leaders talking a lot about the risks of infection and the need to treat those patients and how profoundly under or untreated those patients are.

So those would be the highlights for us at HRS, and again, very excited for that show. The second part of your question was getting reps up to productivity.

Rick Wise – Stifel Nicolaus

Yes, well sort of again with the existing folks that were distracted by training in maybe January and February. Are they back on track in March and early April? Do you feel like – how confident are you that things are heading in the right direction again?

Scott Drake

Yes, I think we’re very confident Rick. I like what we did from a guidance standpoint. We only want to take one bite at that bitter apple. In the first quarter, we insisted that everyone of the new reps was with the tenured rep in a minimum of 20 cases. And that’s what has really slowed us down. We thought we had contemplated all of that in our revenue projections and obviously we got that wrong for Q1. But I believe things are on track.

It’s very early in the quarter to give you any kind of indication there. So I should stop short of that. But I feel like we’re very much on track as it relates to the training, education and productivity of the sales force.

Operator

Thank you. Our next question comes from the line of Jason Mills from Canaccord Genuity. Your question please.

Jeff Chu – Canaccord Genuity

Hi good afternoon. This is actually Jeff Chu filling in for Jason. Thanks for taking the questions.

Scott Drake

Hi Jeff.

Jeff Chu – Canaccord Genuity

First with respect to the ISR opportunity. Scott, could you give us – could you help us understand how you approach that market initially once the FDA label is granted? I guess specifically help us segment the market between off-label use currently of atherectomy, or other interventions just oppose to just POBA versus no intervention at all?

Scott Drake

Yes. Happy to Jeff. So I want to deliver hopefully a very balanced message here regarding the ISR opportunity. On one hand, we are bullish. The clinical data that we have really speaks for itself and speaks very loudly. And it is absolutely the toughest lesion set in the peripheral ISR space that’s ever been studied, and the strength of the data is profound. Along with that, we have the expanded sales force and we’re going to be treating this as the biggest launch in the history of the company. And we’ve done a lot of work internally and externally to validate and expand and improve our thinking.

That said, I want to be very careful with models, so we don’t get out ahead of ourselves and we’d like to have some real world experience before we give a point of view of what we believe we can accomplish financially. To the part of your question as it relates to procedures, our data is pretty clear especially in the U.S. market, but if we look at the worldwide market, there is about 250,000 ISR procedures done worldwide.

About half of them are PTA-only. And about three-quarters are PTA and stent procedures. The off-label utilization and this includes all atherectomy companies, is in the mid-teens range. And we are a relatively small proportion of that in line with our share. So when you look at the fact that PTAs use so broadly and then you have PTA and stent opportunity, and you take a look at the indication and the power of the data, we are very bullish on the opportunity, but it’s going to take us some time to change clinical practice and we want to be very measured in terms of the expectations that we set with the street.

Jeff Chu – Canaccord Genuity

Very helpful. I guess my second question, could you help us understand the reimbursement environment that exists for laser atherectomy within the ISR arena, and how might having a label provide another advantage for you as it relates to the economics within the cath lab deciding how to treat ISR?

Scott Drake

Yes. I would just really consider the current reimbursement environment for atherectomy. And it is favorable. I wouldn’t factor in any kind of differential reimbursement. Frankly I don’t think it’s necessary for us to be very successful here. And that’s true when you look at the hospital procedures. It’s true when you look at hospital outpatient, and it’s true when you look at our office space procedures in the U.S. market.

Reimbursement is less attractive and varies in different parts of Europe, but we see very clearly the work that needs to be done there and that work is underway.

Operator

Thank you. Our next question comes from the line of Mike Matson from Needham & Company. Your question please.

Mike Matson – Needham & Company

Hi [indiscernible].

Scott Drake

Hi Mike, how are you?

Mike Matson – Needham & Company

Just a couple of quick ones. I know you touched on this. Do you guys see a risk from off-label use of drug-coated balloons for ISR when these are launched in the U.S.?

Scott Drake

I think the data that I would point to Mike that makes us feel very comfortable here is the fact that drug-coated balloons have been used for many years in Europe. And there is a growing body of data that supports the need, especially in Class II and III Tosaka class ISR patients to de-bulk with the laser first prior to deploying a drug-coated balloon to really get the effective uptake of the drug.

There are physician story after physician story that are consistent on that front. So I think we’ll find the same thing in U.S. that we found in Europe. And frankly with the strength of the data that we’re providing and the clinical indication, I think the risk gets lower and lower that we’re going to have the wrong algorithms as we go forward.

Mike Matson – Needham & Company

Great. And then just lastly, what percentage of physicians do use the mechanical tools for defibrillator [ph] versus the laser sheaths? Is it like physician preference or it depends on the patient or do most physicians use both?

Scott Drake

Yes. I think the vast majority of physicians that use the mechanical tools do so primarily because that’s what they were trained on. And I would say the same is true from a laser perspective. We’ve done a lot of research and the early responses, and underlining early, is that the products that we are in the midst of launching have the potential to be preferred over the current technology that’s out there. That said, Cook is very good competitor and a very good company. And we don’t take lightly the work that’s ahead of us.

Mike Matson – Needham & Company

Great, thanks.

Scott Drake

Absolutely.

Operator

Thank you. Our next question comes from the line of Charles Haff from Craig-Hallum. Your question please.

Charles Haff – Craig-Hallum

Hi Scott. Hi Guy. Thanks for taking my questions. Yes. I wanted to know if you could get in a little bit deeper to your persons in mechanical tools at HRS, now that you have the approvals. I recall last year you guys had people training with the laser with the simulators at your booth. Is that a plan to be done with the mechanical tools? And can you talk a little bit about what type of podium presentation we may see on mechanical tools?

Scott Drake

Yes, absolutely. So we will be doing a considerable amount of training at HRS again with current customers. And when I say that obviously, I am talking primarily current laser customers, and also competitive accounts that are interested in trialing our technology. We have models that we will be using and are very anxious to get a broad swath of customers the opportunity to have these devices in their hand. So absolutely we will be doing that.

As it relates to things happening on the podium, again I would point primarily to the work that’s being done around infection. I think the community is seeing more and more of the opportunity to really drive infection cases up. Infection, you’ve heard many of our thought leaders say infection is a potentially deadly condition and needs to be treated as such. So I think you’ll be seeing that primarily on the podium, but certainly some of our thought leaders will be guiding their peers through hands on demos with our new sets of devices.

Charles Haff – Craig-Hallum

Okay. And then my second question is regarding the simulator trading on the mobile trucks. I know you were doing a little bit of that in the recent past. Have you made your plans for what type of geographies you might be hitting with your simulator on the mobile trucks? And is that a increase versus last year, and if so, if you could quantify it or anything?

Scott Drake

Yes, I would. You’ll see that the simulator at HRS, not the mobile trucks specifically, but we have a more mobile unit that we’ll be using on the vascular side of the business. So we’ll be doing significant simulation training. And you’ll see it at the booth at HRS.

As it relates specifically to the bus to the honest, I’m not sure what our plans are there. But you will see more simulation training being done going forward on both sides of the business.

Operator

Thank you. Our next question comes from the line of Shagun Singh from CRT Capital. Your question please.

Shagun Singh – CRT Capital

Can you discuss the opportunity in mechanical lead extraction devices, a little bit of detail. I know it’s going to possibly a small revenue contribution in 2014, but how should we think about it in terms of revenue contribution longer term?

Scott Drake

Yes. So Shagun a few things that I think are really important to point out on the mechanical tools front. And I’ll start broad and then get more granular. These are very important adds to our portfolio. We’ve been saying now for a long period of time that we’re a clinical solutions company, not a company that’s looking to deploy laser technology. And I think our words have spoken and now our actions are speaking louder. This allows for us to compete directly where mechanical devices are being used today.

And that market is something like a $30-ish million market that we can directly go after. It allows us to open up international markets that are less apt to buy and install a laser. That’s a very important thing for both patient care and business growth. And third, it’s going to allow us to up-sell to laser technology overtime where appropriate for customers.

And as I said earlier to Charles question, customer feedback at this point – and I would underline early, but we’ve had these products in front of some very high mechanical volume users and we’re encouraged by what we’ve heard. So total market size of about $30 million. We have nothing in our guidance. I doubt that you’ll see us make a move on that any time in the near future, but we’re very excited about the opportunity to better serve our customers and treat patients around the world.

Shagun Singh – CRT Capital

Okay. So any color on penetration like maybe one to two years out, or maybe even three years out in the $30 million market?

Scott Drake

Yes, let us – our habit and our preference really is to have some time in saddle with these products. Get some real world commercial experience, make sure we hit the mark and not take the words of a few customers at this point too far and get out ahead of ourselves. So give us a little bit of time there and then we’ll circle back with you and give you a crystal point of view in terms of financial contribution.

Operator

Thank you. Our next question is a follow-up from the line of Charles Haff from Craig-Hallum. Your question please.

Charles Haff – Craig-Hallum

Thanks for taking my follow-up. I wanted to ask you about the publication of the PATENT data. When should we expect that and where could they come from [ph]?

Scott Drake

The PATENT data is in the queue. And again it’s one of those things – it’s difficult to project. It’s not directly in our control. And Shar, do you have some information to share here that…

Shahriar Matin

The PATENT data is published in the first quarter. It’s out in the public domain and there was the abstract. We can get you guys a copy if you like.

Scott Drake

Charles, we’ll get that to you.

Operator

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Scott Drake for closing comments.

Scott Drake

Thank you, Jonathan, and thanks everybody for joining our call here. We look forward to doing the same in another 90 days. Have a good afternoon.

Operator

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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