Kips Bay Medical, Inc. (NASDAQ:KIPS)
Q1 2014 Results Earnings Conference Call
May 13, 2014 9:00 AM ET
Scott Kellen - Chief Operating Officer and CFO
Manny Villafaña - Founder, Chairman and CEO
Good day, ladies and gentlemen. And welcome to the Kips Bay Medical Inc. Business Update Conference Call. My name is Dave, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)
As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the call over to Mr. Scott Kellen, Chief Operating Officer and Chief Financial Officer. Please proceed, sir.
Thank you, Dave. Good morning, ladies and gentlemen. I’d like to welcome everyone to our business update conference call. We are very happy to have you with us this morning. Today, we’d like to discuss our latest developments with Kips Bay, including our progress with the eMESH I clinical feasibility trial and in particular, recent advances with the U.S. FDA and our ability to continue our study work here in the United States. Mr. Manny Villafaña, our Founder, Chairman and Chief Executive Officer is also here for this morning’s call.
Now before I begin I’d like to do two things, first, I want to remind everyone, that during the course of this call, we will be making forward-looking statements regarding our business and future operating and financial results. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements are based on our current expectations. However, please know that actual results could differ materially from those stated or implied by our forward-looking statements, due to certain risks and uncertainties, including those described in our most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q. We recommend that you read these reports and our other SEC filings. We assume no obligation to update any forward-looking statements that may be made during today's call.
Secondly, I'd like to take a moment to embarrass Manny a little bit. This Saturday, the University of Iowa is recognizing Manny for his lifelong accomplishments and contributions to the enhancement of the treatment of cardiac disease around the world. University of Iowa will be conferring upon Manny an honorary Doctor of Science degree.
If you know anything of Manny’s history, you know that he was unable to attend college but that never stopped him from a lifelong pursuit of learning or from dedicating his professional life to the development and sharing of knowledge.
Through his many companies, Manny has certainly as we say, advanced the science of medicine. I know that this doctoral degree truly means a great deal to Manny and I wanted to take a moment to recognize him and say congratulations on a well deserved honor.
Now let me turn you over to Manny for an update on Kips Bay Medical.
Thank you very much, Scott, for those kind comments. Good morning, ladies and gentlemen and welcome to our conference call. I appreciate having the opportunity to speak with you about our progress here at Kips Bay that has been awhile since we last spoke. We've achieved yet another milestone with the FDA and I wanted to take this opportunity to share this with everyone.
That milestone is a receipt of our expanded IDE approval from the FDA. As you all know, IDE stands for the Investigational Device Exemption and IDE from the FDA is required to conduct any clinical trial here in the United States.
In March, we announced that we had received the expanded IDE from the FDA. In this expanded approval, the FDA is allowing us to enroll up to 27 patients here in the United States, an increase of 12 patients from a prior approval.
They had also allowed us to add up to an additional six centers here in the U.S. As we disclosed in the past, both the Cleveland Clinic and the Lenox Hill Hospital of New York have been ready to begin participating in our eMESH number one clinical feasibility trial for quite sometime. We are very pleased with this expanded approval and that both of these world renowned institutions are now able to begin working with us.
Based upon our communications with these two institutions, they are now able to enroll eligible patients. In addition to allowing more U.S. patients in study sites, the FDA also approved changes to the manner in which the eMESH is applied to the saphenous vein graft and to the surgical implant techniques used by the cardiac surgeon.
These changes greatly simplify the process just basically make it easier, the surgeon will no longer have to alter his or her preferred technique performing the surgical connection or as we called the anastomosis.
In addition, the fibrin sealant that we have been using in the past, which appears the mesh to the vein is no longer required. This should reduce time to apply the mesh to the vein and an added benefit is to reduce the procedural costs.
These changes are intended to reduce the surgical variability from surgeon to surgeon involvement in planning the mesh treated with the vein graft as compared to with the control vein graft.
This is important as it reduce the variability should reduce the risk that early technical failure can adversely affect the outcome of our feasibility trial and our ability to demonstrate the safety of the performance of the eMESH.
Just basically in simple words and I just read, we are basically seeing that these changes will make it easier and more consistently possible for the surgeon to incorporate our device and hopefully improve the outcome.
Let me now discuss how these changes impact our clinical study. Our U.S. study sites including Cleveland Clinic and Lenox Hill Hospital were required to submit an updated IDE approval to their respective internal review boards in order to begin recruiting and enrolling patients again. This is generally a one to two-month process.
As of today we are aware of at least three sites, the Mayo Clinic, Lenox Hill and the Cleveland Clinic have completed this process and are -- and we expect that the remaining sites to be ready soon.
Those additional steps required for our international sites to begin using tech -- the new techniques that I have been describing. Just they needs to obtain an update to the CE Mark approval, which include the technique changes.
Remember that we were able to perform -- that we are able to perform our clinical study work in Europe because we have the CE Mark approval and also which allows us to sell commercially in Europe.
Once the CE Mark approval is updated, our European sites can submit the new technique to their ethical committees again and to began enrolling patients using the new techniques.
We, of course, have already begun this process. While we can't provide any assurance that we will receive this approval, we are very optimistic that we will -- that we are close to obtaining an updated CE Mark approval.
Until this approval is received, our clinical study sites must use the currently approved implant techniques for the patient that they enroll in our feasibility trial. We are currently conducting our study in order to demonstrate initial safety and performance of the Mesh, for the U.S. FDA. As we disclosed in last week’s earning release, we have enrolled 54 patients as of May 1st.
Now, let’s be honest. Let me tell you, we are not satisfied with our enrollment rate. We believe that this recent slowdown may be related to our planned changes in the implant techniques. I know that for a fact, I'm talking to a couple of our centers. They have stopped enrolling until they receive the new IRB approvals from their institutions.
As we have discussed these changes with our surgeons at the European study sites, we have put them in a position of having to decide how aggressively to pursue the enrollment, while waiting for the CE Mark approval of the new techniques.
In the U.S., we don't anticipate problems getting through the next 15 enrollments. Our focus in the U.S., once all the approvals are in place for existing European and U.S. study sites, will be to work with the FDA to increase the number of allowed U.S. patients.
In other words, we are not satisfied with the 27, we want more. As we look at our study sites and the status of their various approvals, we believe that we will be able to enroll enough patients by the end of the 2014 to complete our feasibility trials. Based upon our six month angiogram endpoint, that is to say, every patient has to be reviewed with a six-month -- at six months with a semi-angiogram. This would allow us to collect that last angiogram by the third quarter of 2015.
With the time to process the results and prepare our submission for the FDA, we continue to expect that we will submit a request for an IDE, once again to conduct the pivotal trial in the fourth quarter of 2015. But again, let me remind you, we anticipate to have been able to start this pivotal trial in Europe earlier as we do have a CE Mark. We are working right now to prepare the pivotal study protocol, so that we can begin as soon as possible.
One last note on the feasibility trial, there are additional sites of both Europe and the U.S. that are eager to participate in this trial. I personally just cannot believe the continued enthusiasm that we’ve received from the doctors whenever I'm out there. Just last night, I was with the head surgeons of the Mayo Clinic and they are just anxious to get started.
We are gratified that we have always had this high level of interest from the cardiac surgeons. I don't have information to share today, but we will keep you posted as we activate these additional sites. Another items that we will keep you posted on the long-term follow-up of the patient from our regional international feasibility trial, which completed in the enrollment -- which we completed our enrollment in 2009.
Let me rephrase that. Another item that we are looking at, for which, we will keep you posted is the long-term follow-up that we are having with some of the regional feasibility studies patients that we had enrolled in 2009. This was the study that we completed to obtain the CE Mark.
In 2011, that is two years later, we were able to find 20 patients, bring back 20 patients and do follow-up angiograms. The angiograms that we retained were in a range of 2 to 3 years after the initial surgery. In all 20 patients, in all 20 of these angiograms, the Mesh treated vein graft showed no change from their initial follow-up angiogram, which were done approximately nine months after the patient bypass surgery.
That is to say, if we take a look at the vein at nine months with the Mesh, compared to a two or three-year image now with the Mesh, we saw no difference, indicating that we saw no hyperplasia, no change in the performance. This is of course, very, very encouraging.
Now to make it more interesting, we are now working towards bringing back some of our -- for additional follow-up angiograms for these patients, so that we can look at their graphs at five to six years after their bypass surgery. And again, if we see no changes, you'll find the baseball outside Fenway Park over the big green wall. So it will definitely be a homerun for us.
Another accomplishment or let say great source of pride for Kips Bay is the amazing people who are interested in and willing to work with us. We announced yesterday that Dr. Larry Cohn has recently joined us as a consulting medical advisor.
For those of you who may not know him, Dr. Cohen is a pioneer cardiac surgeon, researcher and medical educator. He has been on the surgical staff at Harvard Medical School since 1971, has been a Professor of Surgery at Harvard Medical School since 1980. In the year 2000, he was awarded the first endowed Chair in cardiac surgery at the Harvard Medical School. He has also served as the chief of Cardiac Surgery at Brigham and Women's Hospital from 1987 to 2005 and as the Director of the Cardiothoracic Surgery Residency Training Program.
We welcome with great pride Dr. Cohn to our team and look forward to his expert insights and advice. Not to mention, he is a great friend. He has been very cordial to us, always helping us whenever we need him.
Commercially, we are seeing some positive development. We have all been a little bit concerned about the lack of sales that we’re having overseas. But as I say, we are making some positive developments.
This year we have seen implants of our Mesh performed for the first time in two new countries. These occurred in Austria at the Medical University of Vienna in January and in Poland at the Military Institute of Medicine in April.
We attribute these accomplishments to our recent expansion of our sales and marketing team. In the third quarter of last year, we brought two new sales directors. Both of them have significant sales and marketing experience with novel medical device technologies such as ours.
While we are very excited about the potential benefit of the Mesh are now available to cardiac surgeons in these countries, I would still caution you that the sale of the eMesh in these two countries will face the same economic and reimbursement issues that we faced in other countries. Challenge of obtaining approval to use the new technology is a real issue for cardiac surgeon and for us.
Therefore, until we get more clinical data on the Mesh, we expect that our sales will remain at a fairly modest level. We got to get more data. We got to get more -- more angiograms. Typically it takes us, as you can see, three, four, five years to get some of this data.
In other developments, we continue to receive high level of attention at cardiovascular surgical meetings around the world. In April, we attended and participated in the International Congress of the European Society for Cardiovascular and Endovascular Surgery which was held in France.
This is the third largest European meeting for cardiovascular surgeons. Prof. Marc Laskar, one of the co-organizers of the -- and scientific committee member of this meeting is also investigating surgeon for our feasibility trial. Kips Bay held a luncheon symposium at this meeting and Professor Laskar took time from his busy schedule particularly during one of the conventions to attend and be one of our presenter at this symposium.
Lastly, in our effort to try to have more contact with our shareholders and I know you guys just love to hear my voice and you want to hear it from us as much as possible. I would like to point everyone to our new block. Often asked -- I'm often asked to share my thoughts on starting businesses on medical industry, it's regulatory environment and even what I'm doing and where I'm traveling for Kips Bay.
Therefore, in a couple of weeks I will begin blogging. I anticipate sharing few thoughts each week on everything from entrepreneurships to my activities here at Kips Bay. I will be calling it Manny Minute. I hope that you will check it out and find it engaging and interesting.
Obviously on all material information that we may have both good and bad, we will use the standard form of our press releases as required by the SEC and other regulatory bodies. Before we open the lines up for questions, let me ask Scott to highlight a couple of points of our first quarter financials.
Thank you, Manny. Last Thursday, May 8th, we filed our quarterly report on Form 10-Q with the SEC, which covered our first quarter-ended March 29, 2014. We issued a press release that same day. Now, I don’t want to repeat everything that was in that press release or in our 10-Q but let me highlight a couple of items.
Our net sales continue to be modest. We're very pleased to have new surgeons be able to work with our eSVS Mesh. However, as Manny indicated we expect sales to remain at modest levels until reimbursements can be established or improved and additional clinical data on the performance of the Mesh can be obtained.
I also want to highlight our cash position, which is quite strong. Our total cash and equivalents at March 29, 2014, including short-term investments were $7.3 million, and this is up from $5 million at the end of December 2013. The increase resulted from our January underwritten public offering common stock, which generated net proceeds of $3.6 million. The strength of our cash position should allow us to focus on completing enrollment in the eMESH I clinical feasibility trial.
Now, this concludes our prepared remarks. Let me now ask Dave to open up the lines for your questions.
(Operator Instructions) And your first question comes from the line of [Vic Khaitan at Khaitan Advisory, Inc.] (ph). Please go ahead.
Hi, Manny. And Hi, Scott.
Good morning, Vic.
Good morning. You mentioned that you’re not very happy with the enrollment process in terms of speed with which newer patients are enrolled. What additional thing we could do to improve this speed rate, because reimbursement is something which is bureaucratic and probably cannot be helped by you, but could you do something else to help improve this rate, enrollment rate?
Vic, good morning, again. We are taking steps with the FDA in our study, in our protocol and we are, first of all, allowing the physician. Part of the delay is the fact of trying to find them suitable patients and the way our study is designed, the patients got to have a couple of good what we say targets. In other words, the target where he will connect the Mesh, but at the same time, he has to connect a control vessel. So he actually needs to move two good targets and sometimes we can’t find this. So even though the patient has been enrolled and selected when it comes down to doing the procedure, the surgeon has a problem and cannot enroll that patient totally, cannot incorporate that patient.
So what we have been able to do is get the FDA to allow us that if that patient has one suitable target to allow the physician to put the Mesh on that suitable target that of course will then be a treated vessel and will be compared to all the other controls. In other words, even though that patient doesn’t have the control, they will still be able to study the Mesh and how it performs as compared to the other patients, who do have their controls. That’s one effort that we are doing.
We are doing other things to -- although this may not increase enrollment, but we are doing -- taking a lot of steps to make sure that doctors properly studying the targets to make sure that there is a suitable target and we’re finding that the more that we sit down with them, the more that we will get patients enroll. As I mentioned earlier and this morning, I had a meeting last night with the Mayo Clinic, with the two top surgeons that are doing our study, they are very enthusiastic and they also update, brought them up-to-date as much as possibly could and we discuss very carefully the selection of patients and reminded them that if you have a patient, that’s probably only one suitable target, we might be able to use that patient anyway.
So we are doing the best we can. Our study is a good study, but it’s a hard study because patient has to have two suitable targets. Other than that, there is not much that we can do other than every so often pulling up, hey, what’s happening, let’s get going here, and stuff like that.
These changes that we made, of course, for some surgeon say, okay, we like the changes, we are -- we agree with the changes etcetera, etcetera, but we now have to wait until we get the approval from the SGS that is Europe to get the CE Mark changes approve, so that we can continue with the feasibility trial.
Yes, thank you. Just a follow-up, you said that by end of 2014, you would be able to get at least 60 or more patients, is that what your target is?
We need to submit to the FDA 60 angiograms. So we feel that we need somewhere about 80 to 120 patients. Just in case patients fall off, in case patient die, in case patients leave the hospital site or don’t get in contact, in other words, or become non-compliance whatever it might be. So -- but we want to have at least 60 angios because that’s what the FDA requires. So we’re aiming for somewhere around 80 to 120 patients. In reality, all we really need is 60 angiograms.
Okay. Thank you.
You are welcome Vic and thanks for calling in.
Sir, you have no further questions at this time. (Operator Instructions)
Not having any more questions, I’d like to thank all of you for your continued support for Kips Bay. We all know that our mission to improve cardiac surgery is a difficult one. With reimbursement problem, with regulatory challenges and -- but we’re making progress. All of our shareholders should take pride in the accomplishments of your company in bringing a novel product to the cardiac surgeon. And I wish you could be with me when I meet these surgeons and hear their very positive remarks. I see up here that our friend Bert wants to say a few words. Bert, welcome.
Hey Scott, how are you? Thanks for the call. Appreciate it. One of the fellows that I’ve had take a look at the stock, asked me a question yesterday. He didn’t ask it today. So I’ll ask it. His question is what did Kips Bay Medical have that Medtronic didn't have and take advantage of their multimillion dollar investment in the Mesh such that we have it and they don't?
Well, let me just say this that I don’t know all the answers but I can give you what my opinions might be. First and foremost, back in 2007 when we acquired this technology, Medtronic had made a decision to get out of the surgical business, okay. They were focused, of course, on their CRM that is the cardiac rhythm management business and their orthopedic business and back and their entries into neuro. But they decided to get out of the surgical business of which this product has been there. They actually hired Piper Jaffray to try to sell that portion of the business. We got in. We were able to acquire this technology. And later on they change their mind and they did not sell their surgical business but at that time we already had our business.
There are probably other factors that would be just strictly guesses on my part and probably not appropriate to discuss. But we set it up in such a way that they used our skills, our talents, our ability to move things along. Let us do the work, of course. And then you got to remember the company like that say to themselves well, if Kips Bay and Manny can get this thing going, there is nothing preventing us from giving Manny a call.
So sure, enough negotiating table. Well, I get off the table, I left one thing behind and that was my telephone number.
Bert, that’s the best I can say to answer that question.
Yeah. Thanks Manny very much, appreciate it.
So you’re welcome Bert Thanks for calling in. Well, again, we thank you for joining us. And we appreciate your call and then of course at any time, ladies and gentlemen, please, at any time feel free to give me a call directly if you so desire. Take care and have a good day.
Thank you, Mr. Villafaña. Thank you for participation in today’s conference call. Ladies and gentlemen, this concludes the presentation. You may now disconnect. Do have a good day.
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