Spectranetics Corp (NASDAQ:SPNC)
Q2 2016 Earnings Conference Call
July 28, 2016 04:30 PM ET
Michaella Gallina - Director, IR
Scott Drake - President and CEO
Stacy McMahan - CFO
Mike Weinstein - JPMorgan
Jason Mills - Canaccord Genuity
Chris Pasquale - Guggenheim
Brooks West - Piper Jaffray
Mike Matson - Needham & Company
Matt Blackman - Stifel
Suraj Kalia - Northland Securities
Vic Lam - UBS
Good day, ladies and gentlemen, and welcome to the Spectranetics’ second quarter 2016 earnings 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. As a reminder, this conference is being recorded.
I would now like to hand the conference over to Michaella Gallina, Director of Investor Relations. Please go ahead.
Good afternoon, everyone, and thank you for participating in today's call. Joining me from Spectranetics is President and Chief Executive Officer, Scott Drake, and Chief Financial Officer, Stacy McMahan. Earlier today, Spectranetics released financial results for the quarter ended June 30, 2016 which can be found on the Investor Relations portion of our website.
Before we begin, I'd like to remind you that management will make statements during this call that include 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 today, July 28, 2016.
I will now turn the call over to Scott.
Thanks, Michaella, and good afternoon everyone. We appreciate all of you joining us today. On our call I'll begin with financial highlights and provide an overview of our business segments, recap Stellarex data and upcoming releases, and provide color on our strategic initiatives. Stacy will review our financials and we'll open the line for questions.
I'm pleased with our results and feel they represent continued progress, both on our commercial performance and innovation pipeline. Regarding Q2 segment highlights, all numbers will be on a constant currency basis.
Our second quarter revenue growth was 10% and our team performed well across the business. I'll break down each segment in more detail.
Our vascular business grew 13% over prior year. In the US, peripheral and coronary atherectomy were the primary growth drivers. Internationally AngioSculpt and Stellarex led the way. We continued to outpace the market in peripheral atherectomy, delivering 2 to 3 times the market growth rate. AngioSculpt increased mid single digits over prior year, and we're pleased with the improvement.
In lead management, revenue grew 3%. Our focus remains on developing the market and delivering important life saving technologies to serve this undertreated patient population. We launched our Bridge product at both HRS and CARDIOSTIM in the US and European markets respectively. Importantly, Bridge was put to use just a few weeks ago to help save the life of a patient. More on this in a moment.
On a regional basis, our US revenue increased 9% and international grew 11%. We are steadfast in our focus of growing by way of product innovation, compelling clinical data and commercial execution. Now I'll highlight strategic efforts regarding our drug coated balloon platform, the in-stent restenosis opportunity and expansion of the lead management market.
On the DCB front, in early June, Dr. Krishnan presented a second 12-month interim analysis of our ILLUMENATE Global Study at NCBH in New Orleans. The data continues to support our earlier top tier results. Primary patency was 90.3% at day 360 and 86.5% at day 365. Freedom from clinically driven TLR was 93.9% in both time periods.
Dr. Krishnan stated, "The patency rates from this interim data are top tier and compare well with the highest DCB patency rates in comparable clinical studies. The fact that these results were achieved with a low dose DCB is especially compelling."
We remain pleased with these rigorous clinical study outcomes and customer feedback indicates that we have a unique technology due to top tier clinical performance with relatively low drug dosage. Additionally, we have begun to enroll patients in our SABER study, which is a European registry designed to enroll over 5,000 patients. Our goal is to continue to lead the way in clinical science. Customers and patients want and deserve proven treatment algorithms and we're anchored in this pursuit.
Regarding upcoming data releases, as we announced last week, Professor Brodmann will be presenting our European randomized control trial data on August 10 at the Amputation Prevention Symposium in Chicago. We expect to share our US pivotal study data at TCT in October.
In terms of our PMA submission of Stellarex, we remain on track and anticipate FDA approval in the back half of 2017. Our in-stent restenosis indication and portfolio continue to be key drivers for our peripheral atherectomy franchise. Again this quarter, we grew 2 to 3 times faster than the market. Integral to this performance is our new turbo power device. Customers appreciate its ease of use and clinical performance characteristics.
Turning to lead management, last quarter we discussed our excitement surrounding our Bridge to Surgery device, designed to mitigate mortality risk. As I mentioned earlier, Bridge is already having a life saving impact. A physician that recently deployed the balloon credited our device with saving the patient, stating, and I quote, "It was a small investment to save a life." We believe Bridge is highly complementary to our existing portfolio and will play an important role in improving patient care going forward.
Lastly, let me mention the FDA warning letter we received. The situation is being managed as a top priority. We are in the midst of constructive dialogue with the FDA and making progress on remediation. At this point, we do not expect there to be a material impact to our top or bottom line.
With that, I'll now turn the call over to Stacy to discuss our financial performance.
Thank you, Scott. And good afternoon, everyone. I will begin by referring you to the press release issued this afternoon for details and our Form 10-Q that we anticipate filing tomorrow.
Consolidated second quarter revenue was $67.7 million as reported, or up 10% in both reported and constant currency. Total US revenue growth was 9%. International revenue growth was 13% as reported or 11% on a constant currency basis. Vascular intervention revenue was up 14% as reported and 13% in constant currency.
Lead management revenue was up 3% over last year on both a reported and constant currency basis. And laser, service, and other remained relatively flat both on a reported and constant currency basis. In the US, the growth rate in peripheral and coronary atherectomy was somewhat offset by the lower growth rate of AngioSculpt, and as expected, ongoing declines in laser related revenues.
Regarding laser placement, we placed 43 lasers globally during the second quarter. 21 of the lasers were redeployed within the field, demonstrating our continued effort to drive greater productivity from our installed base.
Moving down the P&L. Gross margin for the quarter was 74.9%. The improvement over last year's second quarter was driven by production efficiencies, mix and higher average selling prices on certain product lines. Selling, general, and administrative expenses were up 14% versus last year and represented 60% of sales, primarily due to higher performance based compensation expenses and the full-year impact of our 2015 sales and marketing team expansion.
R&D spending was up 6% year over year and represented 26% of our sales. The increase was primarily driven by our continued investment in Stellarex and related clinical studies. In terms of certain special items on our P&L, as expected we are seeing reductions in costs related to our AngioScore and Stellarex acquisitions and integrations.
Total operating losses of $11.3 million in the quarter compared to a $5.3 million operating loss in the same quarter a year ago. Net losses for the quarter were $14.9 million or $0.35 per share versus a $7.2 million net loss or $0.17 per share in the prior year.
Excluding special items, non-GAAP net losses were $11.1 million or $0.26 per share in the second quarter of 2016 versus a $9.2 million net loss or a $0.22 per share in the last year's second quarter.
Cash on hand as of June 30, 2016 was $64.3 million. Net usage of cash in the second quarter was $1.9 million. Our lower cash usage in the second quarter of 2016 reinforces our previously stated confidence in our liquidity position through the US launch of Stellarex and beyond, as well as forward progress on our path to profitability.
Now let me discuss our updated guidance as we look to the remainder of 2016. We are increasing and narrowing our revenue guidance, originally from $254 million to $266 million or 3% to 8% growth to $258 million to $268 million or 5% to 9% growth.
GAAP net loss per share, originally expected to be $1.34 to $1.45, is now projected to be in the range of $1.37 to $1.49. And non-GAAP lost per share is expected to be in the range of $1.06 to $1.18. The increase in loss per share from the prior estimate is the result of lower than anticipated shares outstanding due to fewer than expected option exercises and performance based awards from 2015.
For modeling purposes, shares outstanding are now estimated to be 42.9 million in 2016. There is no change to our previously given full-year estimates for gross margin, SG&A, R&D, GAAP net loss or non-GAAP net loss.
With that I will now turn the call back to Scott for closing remarks.
Thanks, Stacy. In summary, we're well positioned in both the vascular and lead management markets. We are seeing rapid adoption of drug coated balloons in the marketplace and increasing interest in vessel preparation for complex disease. We feel confident that we have a differentiated portfolio to address both existing and emerging trends in our target market. I'm pleased with our Q2 results and look forward to answering your questions.
Shar Matin, our Chief Operating Officer and Zach Stassen, Senior Director of Finance, are also joining us for Q&A. With that, Operator, please open the line for questions.
[Operator Instructions] Our first question comes from the line of Mike Weinstein from JPMorgan.
Thank you and good afternoon guys.
Mike, your line is open. Could you check the mute button please?
Can you hear me?
We can hear you, Mike.
He may have stepped away from the phone. We can move along. Our next question comes from the line of Jason Mills from Canaccord Genuity.
Operator, we can hear Mike. Operator?
Jason Mills, your line is open.
Okay, so would you like to go back to Mike Scott or just kind of go from here?
We’ll go from here, Jason. We will put Mike in queue next. Operator, I am not sure what’s going on there, but there was something with your line I think. Go ahead, Jason.
Okay, thanks Scott. Congratulations on a very nice quarter. I wanted to start with Stellarex. And I'm wondering if you could give us sort of an update on how things could play out from here, just the components of the process. We'll see the European randomized study. It's based on the same trial design as everything else we've seen thus far. So maybe you could talk about whether or not there are any relative differences in baseline characteristics to the global study that may have existed in the European or US studies. And then the process by which you plan to file with the FDA and sort of what -- sort of the maybe best case, worst case timelines, assuming the data is approvable data, which of course is a big assumption, but without data in hand, we have to sort of make something here.
Yes, that's right, Jason. Happy to give you some detail on that. To step through it, the data that we're going to be presenting here in a couple of weeks is, as you said, the randomized European data. The inclusion, exclusion criteria from the US pivotal study, the European randomized study, the global study and our first in human study are all very similar. So just to affirm that point.
Beyond that 12-month European randomized data, we anticipate presenting the US pivotal study data at TCT in the October timeframe. I think that puts us in a position for a PMA submission toward the end of the calendar year. And it's very difficult for us, given that we don't control all aspects of it, to give a hard point of when we anticipate approval. So we're saying back half of 2017. I think that's the right way to think about it. When you look at the average timeframe for a PMA to be approved, it puts you in the back half of 2017. So we think that's the right assumption at this point in time and we'll certainly keep you apprised as we go forward.
That's helpful color. Just on the quarter, it sort of trends in your existing businesses. Both exceeded our expectation, so maybe a quick question on both and I'll get back in queue after that. The atherectomy business still grows faster in the market. Could you talk about the lesions that you're perhaps migrating into, whether or not there's been an expansion in utilization relative to the disease states that laser atherectomy is being used in? Also, maybe talk about the locales and whether it's been any change in hospital versus OBL that's helping you sustain above market growth rate. And then on lead management, could you give us a sense for what a base lead management grew procedure wise in the quarter when you sort of back out the incremental revenue from the Bridge to Surgery device? That's it for me, Scott.
Yes, happy to Jason. So let me take each one of those components. Specifically as it relates to peripheral atherectomy, as we mentioned in the prepared remarks, we grew about 2 to 3 times the market rate. Overall market growth rate, as you're aware is in the 8% or so range. So that business continues to perform very nicely. We said last quarter, Jason, and I would reaffirm here that the importance of vessel preparation we believe is increasing and in concert with drug coated balloons in the peripheral market, and with bioresorbable scaffolds in the coronary market, there too our atherectomy franchise in the coronary segment grew very nicely on a year-over-year basis. So we're pleased with what's going on in the atherectomy franchise in the peripheral market, in the coronary market and in the various care settings, to your point, both hospital and OBL.
On the lead management front, I think as you're quite aware, the underlying procedural growth varies from quarter to quarter. When you look over the past couple of years on the high end, we've seen double-digit procedural growth and on the low end, we've seen single digit negative growth. Here more recently the growth has been in the kind of low single digit range. The Bridge impact in the quarter is not really worth calling out and I think, as you're aware, the play there is really to unlock the market and to save patients' lives and I think it's going to take us time for that to show up in our business, if indeed it does. So hopefully that touches on each of your points there.
Thank you and I apologize for the technical mishap. Mike Weinstein, your line will be open in just a moment.
Scott, can you hear me?
Sure, can. Sorry about that, Mike.
Scott, I was saying earlier, when I look at this quarter, it looks a lot like last quarter and so maybe we're getting a little bit better flavor for how the business looks after the kind of disruption you saw in 2015. Couple of questions I had relative to some comments you've made in the last couple of calls. One of them has been you've highlighted in the commentary on gross margin that the contribution from price to gross margin improvement. Can you just tell us what the overall contribution from price is to the top line?
Yes, happy to, Mike. The three primary drivers of gross margin and, Stacy, I'd invite you to weigh in here, I believe in order are number one, production efficiencies. Number two, impact from mix, and number three, price. And we have some pricing leverage, Mike, in particular in the lead management business and you see in our Turbo-Power new device that we're getting a price premium there. We've not talked publicly how much for competitive reasons, but there is a step up that's reasonably meaningful for Turbo-Power versus the Turbo-Elite franchise. Stacy, would you want to add anything to those comments?
Yes, I would say also regarding prices that we had just a favorable reimbursement situation on our coronary business and that's reflected in a higher average selling price there for the laser used in that procedure. The Turbo-Power price really speaks to the mix component and that gives you a fairly defined idea. The production efficiencies have been ongoing incremental improvement efforts really throughout the several past quarters and we continue to see some runway ahead there.
Scott, would love to get your updated thoughts on laser atherectomy versus other atherectomy technologies being used in conjunction with drug coated balloons. So if we believe the drug coated balloons are going to become a bigger and bigger part of the peripheral vascular procedure base. And so then a question continues to evolve in terms of how atherectomy is used with it. I think we're feeling better about that question than probably people were 12 months ago. But I think people still wrestle with laser versus other technology, so would love to get your thoughts on that. And then second, how are you anticipating the impact, if any impact to Admiral getting an ISR indication on the business?
Yes, happy to comment on both. Mike, I would say just kind of baseline, we have positioned the company over the past several years as we play in complex disease, both in the coronary and in the peripheral market. So CTOs, ISR, CLI, that's really where the vast majority of our volume in, and that's where we play. And inside of that, inside of complex disease generally, and where DCBs are being used, there's a lot of overlap there, but there's also areas where DCBs are being used in less complex disease, either as a standalone therapy or some kind of vessel prep in conjunction with it.
And given that laser atherectomy we believe is highly useful across the broadest set of lesions in the peripheral space, we think we're very well positioned there. And as you know, we're the only company that's done randomized controlled work in the space and we have an ISR indication. So I think generally speaking, we're positioned very well as DCBs are more broadly adopted and we very much see that happening in the US market in particular. So I think current trends and emerging trends, we're well positioned as a company in particular when we get Stellarex approved in the US market.
As it relates to IN.PACT Admiral achieving the ISR indication, we don't see anything notably there. I think you see in the quarter pretty strong growth there and I really don't think the indication is going to be a major impetus for us or anybody else. As it relates to DCBs I think customers broadly believe in the therapy and so the lack of indication, I don't think, is getting in the way of utilization today. So I'm not overly concerned about that, Mike, but we've got our eye on it.
Last question, then I'll let some others jump in. The guidance for the second half appears conservative relative to what you posted in the first half of the year. Any commentary on that?
Yes, I would just say there, Mike, that we bumped up the low end of the range to largely capture the performance in the first half of the year and we took up the top end of the range a little bit less than that. We've talked about in last quarter what would have to materialize for the top or bottom end to be true. Nothing has changed there. So we feel as though it's the prudent move here at the mid-year point and so we're going to keep you posted as we go forward, but we feel like it's the right move at this point in time.
And our next question comes from the line of Chris Pasquale from Guggenheim.
Scott, you mentioned last time around that many European physicians were looking for additional data on Stellarex to really validate those first demand results. You have some of that now and you're going to get some more in two weeks. What impact do you expect that to have? Understanding that it's still a very small base over there, do you think that we see a noticeable inflection in sales over the next couple of quarters as that dataset builds out?
I think it's really helpful, Chris. I think it's difficult to quantify the effectiveness of the data on a standalone basis versus the work that the team is doing on market access and just the time that it takes to get conversions made in the market. I think our conversion pipeline has been very steady now and we're pleased with the progress that the team is making. I think it's difficult to break out exactly what this incremental data will mean, but I can tell you anecdotally, and I think I mentioned this, regarding conversations directly at Charing Cross, physicians felt like that incremental data would help them kind of get over any last hurdles in terms of making conversions to us. So I think our progress there from a share perspective ought to be steady, but I don't think we're in a position really to break that out specifically as it relates to the data.
And then it's nice to see AngioSculpt putting up some solid growth. Can you spend a minute on the drivers there? Has the US peripheral piece that was under some pressure returned to growth itself or has the mix finally shifted enough in favor of coronary in international that they're now the drivers?
Yes, I would say, Chris, that the trends there really continue. The coronary business is stronger than the peripheral business. The peripheral business did grow and the international business is growing more rapidly than the US business. But I feel as though the team is really finding their footing in that category and doing a better job of selling all the way across the bag. So hopefully that gives you color, and I think it's in line with the commentary around the interest that physicians have that's increasing in terms of vessel preparation. And I would anticipate as we go forward, that both DCBs and bioresorbable scaffolds are going to continue to be complementary used with vessel prep and hopefully our portfolio will get its fair share of that.
And one last quick one, if I could, just in terms of the warning letter, you mentioned no impact on revenue or earnings. From a cash flow perspective, can you give us any sense of what your spending is going to be like to do that remediation?
We're not breaking that out, Chris, specifically. We've adjusted projects internally and we're going to do what it takes to make the improvements and remediation that the agency is looking for. So we're not going to break that out, but we have the P&L geography we believe at this point in time to accommodate that and we feel good about the interaction with the agency and the progress that's being made.
And our next question comes from the line of Brooks West from Piper Jaffray.
Scott, I apologize, I missed your prepared remarks, so I hope I'm not repeating anything. But I had I guess a couple of macro questions on the peripheral market. I'm wondering, in your experience as we're a year plus out from the launch of drug filled balloons in the United States, what you're seeing with patients who might be coming back in the clinic a year plus out from treatment? And a couple of questions there. I'm wondering if you're seeing differences in patients that might have gotten de novo DCB with or without vessel prep. And then the other question is are we going to start to see an emergence of data and experience that's going to point to either a class effect or really differentiation between the balloons that are available on the market?
Yes, Brooks, great questions. Touching on the first one, I believe both through what we saw at Charing Cross and the survey data that we did on our own that I alluded to last quarter, along with a lot of time spent on the road with our customer base that the real driver to interest in vessel prep is the experience of the physician that's using drug coated balloons in the US market for the first time. And they're seeing those patients in particular with complex disease coming back for retreatment. And I think two things are going on. I think number one, it's making them think more deeply about vessel preparation. And number two, it's making them think about the drug coated balloon that they're using. I don't want to go really any deeper there. I'll let other companies comment on their own products, but we are seeing signals there that we find interesting.
I would tell you there's not one key opinion leader that I've spoken with in either the European or US market that believes that there's a class effect with drug coated balloons. I think Professor Brodmann states it most clearly when she says that three drug coated balloons have been studied rigorously and that two of them warrant adoption, Stellarex being one of those two. I cannot find an exception to that in any of the key opinion leaders that I've spoken to and that it's not a small number.
Are you aware, I mean as we come into the cardiovascular meetings in the fall, be it the TCT or [indiscernible], are you aware of any single centers or maybe small groups of data that might be presented that are going to look at some of these phenomena?
Well, I know that the SABER registry that we're kicking off that's a little over 5,000 patients. I don't think we'll have anything in the fall this year, but there'll be data there. And I know that one other company that's got both an extensive vessel prep portfolio and drug coated balloons, I think they're doing very interesting and very good work. I'm unsure, Brooks, what may be on the docket, but we're happy to take a look and follow up with you on any potentially interesting symposia there.
And then I guess one on the coronary atherectomy market. We had Abiomed present this morning, report this morning. They continue to drive I think interest in the high risk PCI market and the first thing that physicians tend to do in a complex revascularization is look to atherectomy. And I'm wondering what your appetite is to really go after that market. And with the laser, with AngioSculpt, is this going to be something that you're willing to really throw a lot of assets and effort at, and I guess balancing versus the opportunities seen in the peripheral?
Yes, I would say without giving specific numbers, our coronary franchise has been growing rapidly well into the double-digits now for a pretty extended period of time. We like what we see, both on the AngioSculpt side and the coronary, as well as laser atherectomy in the coronary market. And we are dedicating a fair amount of resource to serving that market and really driving that growth rate. There's no new strategic initiative that we're looking to talk about here. But we feel good about where we're at and how we're positioned in the coronary market, again, focused on complex disease and the toolset there is highly useful and appears to be being more and more adopted. So feel good about where we're at there.
And our next question comes from the line of Mike Matson from Needham & Company.
I guess I just want to start with the AngioSculpt coronary drug coated balloon. I don't believe that that product's received a CE mark yet, but let me know if that's not correct. What do you expect the timing on that?
Mike, you are correct. We do not have CE mark on that device as yet. We said that we would achieve that in the second half of 2016. We're not looking to narrow that range, again given the lack of total control there. But we anticipate that we will be successful with that here in the back half of this calendar year.
And then Stacy, I think you said you used about $2 million of cash in the quarter, so is that kind of -- were there any one-offs or is that sort of representative of the rate you expect going forward? And I don't know if you can give any kind of annual guidance for this year or for the rest of the year, but that would be helpful.
What I will do, Mike, is give you a comparison to the first quarter. In the first quarter, it's a heavy cash usage quarter as we pay out a lot of the performance based compensation and annual bonuses. So that is a heavier cash usage quarter. The second, third and fourth quarters start to even out a little bit more, but we may have some one-off events that will affect cash. So for instance, the AngioSculpt coronary DCB, you mentioned earlier there is a milestone payment associated with the CE mark. So those sorts of things can disrupt the sort of cash flow you saw in a relatively clean second quarter.
And then just quick question on below the knee trial for Stellarex. What's the timing on that?
The trial on below the knee, Mike?
We're in the midst of negotiating with the FDA as we speak. We anticipate that the first patient enrolled will be kind of at the end of the calendar year or beginning of calendar year ‘17, somewhere in that timeframe. We're really excited to hopefully finalize that with the FDA and be able to share the construct that we have. We think we're setting up a pretty interesting study that will be very beneficial to both customers and patients and hopefully we'll be able to talk about that in the not too distant future.
And our next question comes from the line of Rick Wise from Stifel.
It's actually Matt Blackman in for Rick. So a couple of questions and I think the first one will start on Stellarex, then maybe a follow-on to Mike's question just now. Can you just give a sense of where you are with the European BTK approval? And remind us again of the market opportunity. That's sort of part one. And then part two, why should we be enthusiastic about Stellarex working in BTK where some of your competitors have stumbled? Is it primarily the lower concentration of paclitaxel or is there something else that gives you confidence? And then I'll follow up with a couple other questions.
So in terms of the market, today's market is relatively small in Europe for below the knee disease. And I don't think it reflects the patient population that would benefit from the device, Matt. I think it's more what has taken place in the market with other technologies. We do believe that the coating is highly relevant in terms of how it works and how that coating binds to the balloon and releases into the vessel wall without having a lot of risk of distal embolization is really very, very relevant. So therefore, given the characteristics of our technology, we're optimistic, but time will tell.
As it relates to the timing, on the Stellarex below the knee in Europe, we're thinking it's toward the end of the calendar year ‘16. But again, as I've said now a couple of times, we don't control all of that, but that's our best point of view at this particular point in time.
And then on the SABER registry, 5,000 patients. Can you give a sense of what's a reasonable expectation in terms of enrollment cadence. Can you enroll 100 patients a year? 500? I'm just -- it's a large -- obviously a large registry over a number of years. I'm just curious how we should think about that enrolling over the next several years.
I think the adoption rate is going to be relatively rapid on that front, Matt. There's a lot of physicians that want to do work and really at the core of it is going after proven treatment algorithms in different patient sets. So I would anticipate relatively rapid enrollment on that front. I don't want to size it for you yet. I'd like to have a little more experience with it before we call for anything. But I can tell you the interest level is very, very high on both our customers and on our end to really shine a light on how patients should be treated. And we'll keep you posted as we go forward.
I guess the follow-up there is could that be a meaningful driver of Stellarex revenues or pull-through for any other part of the business sort of on an annual basis? Or just curious if you could flesh that out a little bit.
That certainly is not the intentionality of what we do clinically. We're really looking to identify again the right treatment algorithm for these patients. And I would say at some risk of redundancy that I think the companies that are doing really serious clinical work are the ones that are going to separate themselves over time. I know some people look to clinical studies to perhaps drive revenue. That's not our business model, so we're just looking to shine a light on what the right algorithm is here.
Understood. And last very quickly, can you talk about sort of redeploying some of these underutilized laser systems, that initiative? And is that having an impact, sort of a directionally positive impact on overall utilization of the lasers in accounts?
Yes. It's having an impact in a few different ways. It is having an impacted on obviously working capital. And as we get closer to our next generation laser launch, as we've shared previously, we want to be very smart about capital deployments in the business. So you see productivity, both on a laser basis and on a rep basis increasing. And scarcity is a bit of a tool and we're raising the bar on disposable expectations in those accounts that have not acquired the laser. So I think there's a positive impact in a couple of different ways there, Matt.
And our next question comes from the line of Suraj Kalia from Northland Securities.
Scott, it's been quite a turnaround in one year and kudos for you and the team for turning the ship around. Scott, both my questions have been asked, so let me come at it from a different angle. You guys obviously have introduced different versions of the laser, whether it's the tandem or the lead. At the same time, there are new indications ISR that are other products, namely AngioScore and on the horizon that is Stellarex. Scott, can you give us a flavor of what new accounts have you all brought into the fold because of product improvements, new indications, the strength of your clinical data? And the reason I really -- and what I'm trying to get at is where are you all right now? What has been the incremental benefit post these -- whether the ISR study of the improvements, product improvements. Where do you expect with Stellarex to go? And how do we get leverage in the SG&A line items from 61% to 63% of sales? Hopefully my question makes sense.
It does, Suraj. And thank you for the compliment. The team has done really good work. We'll share that with them. I would say if you look at the historical business that you know very well, the laser business, on the peripheral side we're in roughly speaking about a third of the 1,500 high volume cath labs in the US market. And I'll stick with US commentary because I think it's probably most instructive to your question.
So there's another 1,000 or so accounts for us to have that laser therapy adopted in. When you take a look, for example, at the AngioSculpt franchise, we're in something like 1,200 accounts with that therapy. So the opportunity to leverage those relationships and cross sell from one product category to another is very helpful to us. And that's part of the work that the field team I feel is doing a better and better job of, which then puts us in a position of good strength when we're launching Stellarex.
As it relates to leverage, Suraj, as we've said publicly on multiple occasions, we're continuing to augment prudently I think the US VI sales organization and the European commercial footprint. Although we are augmenting, I don't think there's a significant amount of SG&A that we're going to have to add relative to the revenue opportunity that our pipeline represents. So that's really where the leverage comes over time is how much greater the revenue -- the top line is versus the SG&A line, R&D, et cetera. So the model and strategy have been very much built around sustainable, profitable growth and that's what we're anticipating in the future. We're just not yet calling for when we anticipate that happening.
And Scott, in lead obviously the clinical utility of the laser I don't think so, if you look at the HRS guidelines, you'd look in the covenant papers and whatnot, I don't think that that's ever been a question, but the Medtronics and St. Judes of the world have adapted in terms of their own leads, effective leads. Where I'm headed with this, Scott, is what do you think could be the X factor in lead management? We seem to be at 1%, 2%, 3%, 4% growth. Obviously you guys are trying to do what you can. Is there something on the horizon that we should keep our eyes on, which could eventually be the X factor in lead management and cause a jump start again?
Suraj, I think the X factor potentially could be, but I want to be really clear that we are not calling for it at this time. But our knowledge and research lead us to believe that the number one Pareto issue as it relates to the market being current size versus to your point HRS guidelines being followed is the concern over mortality within the procedure. And even though mortality rates are relatively low, that's what physicians tell us is their biggest concern in terms of either doing more lead extraction procedures or referring more patients.
So we're hoping that part of the X factor is the Bridge device and continuing the training and education work that we're doing on that front. I'll end with where I started. I want to be really clear that we are not calling for that, but that's the intentionality of where we're taking the business going forward.
And finally, Scott, vessel prep, we've all been discussing about vessel prep as a precursor to use of DCBs, whether it's for ISR, whether it's for de novo lesions. Scott, Medtronic is also starting their REALITY study. How do you, if you fast forward a year or two down the line in the US, is there a consensus emerging with how these combinations will work? I guess what I'm trying to understand is you have the Turbo Power, plus you have the Invatec balloon from Medtronic. Let's say you have the laser plus the Stellarex, you have something else plus Lutonix. How would the guerrilla warfare look like, especially if vessel prep plus DCBs were to the way of the future?
Thank you, Suraj very much. I think there's a lot of work to be done clinically to really answer the smart question that you're asking, and that's precisely what we're endeavoring with the clinical work that we're doing. I think there's both hard and soft indicators that the future of the PAD market is adjunctive therapy. Some kind of vessel preparation, followed by drug coated balloons and we anticipate very much that we're well positioned inside of that. But I think really answering that question with specificity, it's going to take us some time to get there and have some of the readout from the clinical work that we're doing and others in this space.
And our next question comes from the line of Matt Miksic from UBS.
Hi guys, this is Vic in for Matt. I apologize if this has been asked earlier. We're bouncing around on a couple of calls. Can you provide us with any color on the acceleration of the VI business and how much of that was driven by ISR and Stellarex? And what the annual run rate is for both ISR and Stellarex.
Vic, I would say the real strength in the vascular business has been driven by atherectomy, both peripheral and coronary atherectomy. Real strength there in the US market. Internationally it was driven primarily by AngioSculpt and Stellarex. We don't give specificity in terms of those numbers, but those are the real drivers in that business. And to your question on improvement, in the vascular business we grew 13% year over year and I think about 10% sequentially from Q1 to Q2.
End of Q&A
Thank you. And that concludes our question and answer session for today. I would like to turn the conference back over to Spectranetics management for any additional comments.
Thank you, Karen. And thanks everyone for joining us this afternoon. We appreciate your interest in the company and look forward to doing this again in 90 days.
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.
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