Vascular Solutions, Inc. Q4 2007 Earnings Call Transcript

| About: Vascular Solutions, (VASC)

Vascular Solutions, Inc. (NASDAQ:VASC)

Q4 2007 Earnings Call

February 4, 2008 4:30 pm ET

Executives

Howard Root - Chief Executive Officer

James Hennen - Chief Financial Officer

Analysts

Matthew Scalo - Canaccord Adams

Phil Nalbone - RBC Capital Markets

Ernest Andberg - Feltl & Company

Chris Cooley - FTN Midwest Securities

Operator

Good afternoon and welcome to Vascular Solutions fourth quarter conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today Monday February 4, 2008.

I'd now like to turn the conference over to Mr. Howard Root, CEO of Vascular Solutions. Mr. Root, you may begin.

Howard Root - Chief Executive Officer

Thank you. Good afternoon, everyone, and welcome to Vascular Solutions fourth quarter conference call. Joining with me today is James Hennen our Chief Financial Officer. This conference call is being webcast to the public and is completely open to members of the media, Vascular Solutions shareholders and other interested parties. After our remarks, today we will open up the call to questions.

First, the necessary preamble. Today's conference call is a proprietary Vascular Solutions presentation and is being recorded by Vascular Solutions. No other recording, reproduction, transmission or distribution of today's call is permitted without Vascular Solutions' consent.

This call is being audio simulcast on the Internet via our Company website at vascularsolutions.com. A replay of the conference call will be available on the Internet shortly after this call is concluded through Monday, February 18, 2008. To listen to the replay visit the investor relations portion of our website.

Forward-looking statements made in the course of this conference call and webcast are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements can be identified by words used such as may, will, expect, continue or other similar expressions.

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

Today, we issued our press release with results for the fourth quarter ended December 31, 2007, which was an excellent quarter and completed an excellent year for Vascular Solutions. Net revenue in the fourth quarter set a new quarterly record at $14.4 million, a 25% increase over the fourth quarter of 2007.

Net revenue was almost $500,000 above the top end of our guidance for the quarter and was 5% above the consensus analyst estimate. Even with continued high legal expenses due to our pending litigation, we exceeded $500,000 in net income on both a GAAP and adjusted net income basis in the fourth quarter and for the fifth quarter in a row, we were cash flow positive.

In this call, I'll first provide an update on the components of our fourth quarter net revenue by product category and our new product developments projects within each of these product categories.

As a reminder, we group our products into five product categories, Hemostat products that include our D-Stat Dry, D-Stat Flowable and ThrombiGel products, all of which utilize thrombin to clot blood. Extraction catheters, consisting of the Pronto V3 and other new aspiration catheters for the removal of intravascular blood clots, Vein products, including our Vari-Lase Laser Console and Procedure Kit for the treatment of varicose veins, Specialty Catheters including our Langston, Twin-Pass and Skyway catheters for unique clinical niches in catheterization procedures, and Access Products including our micro-introducers and guidewires used in gaining percutaneous access to arteries and veins.

After summarizing the results and developments in each of these categories, I will then provide guidance for net revenue for the first quarter of 2008 and for the entire year. Finally, James will review the financial details of the fourth quarter and comment further on our financial projections for 2008.

In the fourth quarter of 2007, our revenue growth resulted from strong sales growth of our existing products in both the US and the international markets. US net revenue increased by 23% compared to the fourth quarter of 2006, while international sales posted an impressive 39% growth over the prior year's fourth quarter.

Our highest sales product category in the fourth quarter once again was our Hemostat Products with $6.2 million in net revenue, an increase of 14% over the fourth quarter of 2006. Fourth quarter sales of the D-Stat Dry continued to increase both sequentially and year-over-year and will begin to benefit from a new contract with a large group purchasing organization that was signed in the fourth quarter.

In the first quarter, we also are launching two new versions of the D-Stat Dry, one as a new bandage option called the D-Stat Dry Clear and the other as a lower cost version called Thrombix.

D-Stat Flowable sales also substantially increased in the fourth quarter to over $1 million as a result of the continued growth and its use as a pocket protector to prevent bleeding complications following the implant of pacemakers and ICDs.

Sales to King Pharmaceuticals of our Thrombi-Gel and Thrombi-Pad products for subsequent sale into the non-cath lab market through King's direct sales force totaled $232,000 in the fourth quarter.

We continue to be pleased with the progress in King's launch of our products, as it exceeded our original $1 million estimate in sales for 2007. Some investors have questioned the effect of Zymogenetics recent approval for their recombinant thrombin on our hemostatic products business because Zymogenetics product is only sold in a liquid thrombin version. It does not compete with any of our existing products and there are several substantial hurdles to Zymogenetics ever developing a new product to compete with our D-Stat Dry.

We also believe that as it relates to King's sales of our products utilizing Thrombin-JMI the unique cost effective and user friendly characteristics of our Thrombi-Gel, Thrombin-Pad and in development Thrombi-Paste products along with the well understood and excellent safety profile of Thrombin-JMI will maintain King's substantial presence in the surgical thrombin market.

Our second highest sales product category in the fourth quarter was our extraction catheters, which are used to extract soft thrombus from within blood vessels.

In the fourth quarter, we recorded net sales $2.9 million with the Pronto V3 and its derivatives, which was an increase of 22% from the fourth quarter of 2006.

In the fourth quarter, we extended our launch of the 035 version of the Pronto for treatment of thrombus and vessels greater than 4 mm in diameter. In late December, we received 510-K clearance with the FDA for the launch of a new low profile or LP version of the Pronto catheter.

In early January, we received CE Mark clearance for the international launch of a new low cost aspiration catheter named the QXT. We expect to begin to generate material revenue from these two new versions starting in the first quarter of 2008, which together with continued emphasis on the use of our Pronto V3 for removal of coronary and peripheral thrombus. We expect we'll result in continued growth in our extraction catheter sales throughout 2008.

Our third highest sales product category was our vein products. Principally the Vari-Lase products for the treatment of varicose veins, which recorded $2.7 million in that sales a 27% increase over the forth quarter of 2006.

The clinical response to the Bright Tip version of the Vari-Lase fiber continues to be excellent. Now with over 15,000 fibers sold since it was launched on April 11th and no reports of recanalization.

We continue to see excellent customer response and anecdotal evidence of improved cosmetic outcomes to our Bright Tip fiber. In January, we completed enrollment in a clinical study called the Release Study that is designed to support an indication for the use of a specially designed Vari-Lase Bright Tip procedure kit for the treatment of perforator veins.

We expect to file for this new indication during the first quarter with an expected launch in the second quarter of 2008. We also have commenced enrollment in our multi-center randomized 200-patient clinical study named the Brilliant Trial that will compare the clinical success and patient satisfaction of our Bright Tip fiber to a competitor's bare-tipped fiber. Regarding our litigation surrounding our Vari-Lase business in January, the court ruled in our favor on the contempt motion that Diomed raised six months ago concerning our continued sales of Vari-Lase consoles for use with our Bright Tip fibers.

With this decision the court has confirmed that we are able to continue sales of our full range of Vari-Lase products unimpeded by the jury's verdict concerning U.S. sales of our since-discontinued bare-tipped fibers. We also remain convinced that the Bright Tip fiber is clearly non-infringing product with respect to Diomed sole patent in this area.

In the fourth quarter, we also completed our appeal of the Diomed verdict to the Federal Circuit, and we expect an oral argument to occur in the second quarter. As a reminder, we have posted a bond in the full amount to the Diomed verdict and recorded the full litigation expense in the first quarter of 2007, so the appeal is pure upside for us.

Concerning the separate patent litigation affecting our Vari-Lase products with VNUS Medical, the trial which was originally scheduled to start on October 29, 2007 has been delayed due to courtroom scheduling issues to start June 23 and last approximately four weeks.

In this litigation, we are codefendants with Diomed and AngioDynamics concerning VNUS Medical's claim that the endovenous laser procedure violates VNUS's U.S. method patents on the use of tumescent anesthetic in a catheter-delivered percutaneous procedure. We continue to believe in the merit of our defenses and also our preparation for dealing with the range of outcomes possible in any litigation.

In January, we received FDA clearance for our new WireFiber, endovenous laser fiber that we believe is outside the scope of the current litigation with VNUS and last week, we performed our first successful clinical evaluation of this new fiber. We expect to have the launch of the WireFiber begin gradually in the first half of 2008 and be fully launched before the conclusion of the VNUS trial.

Our fourth largest product category in terms of sales was our Access Products with $892,000 in net sales, an increase of 77% over the fourth quarter of 2006. The Access Products product line primarily consists of our line of micro-introducer kits and 18,000 guidewires.

In the fourth quarter, we benefited from increased sales of the Guardian Homeostasis Valve that we launched in July as the exclusive U.S distributor of Zerusa, a medical device development company based in Ireland. We also completed development of two new specialty versions of introducer sheaths in the fourth quarter that we have now launched at our national sales meeting in January.

Looking into 2008, we have a new guidewire that's called the Access Wire that we expect to launch in the beginning of the second quarter for use in interventional radiology procedures and several additional Access products that we expect to launch throughout the year, coming both from internally developed ideas and as distributed products from other medical device companies.

Sales of our Specialty Catheters were $881,000 in the fourth quarter essentially even with $877,000 in net sales in the fourth quarter of 2006, but a sequential growth of 20% from the third quarter of 2007. This product line consists of our Langston, Twin-Pass and Skyway catheters for specialty purposes in catheterization procedures.

With the required attention to the development of new Vari-Lase products in 2007, our Specialty Catheter product line was not the focus of our development efforts. Now with our major R&D work in the Vein product category completed, we are devoting additional effort to developing new and improved specialty catheters in 2008.

In January, we completed improvements to our new Gopher catheter and began an expanded market launch. We also recently completed development and submitted for FDA clearance for our new specialty catheter call the Gandras, catheter for pelvic artery catheterization procedures that we expect to launch by the end of the first quarter.

We also to plan to launch a new support catheter call the mini catheter in the third quarter of 2008.

License and collaboration revenues were $559,000 in the fourth quarter. This line item includes the recognition of licensing revenue from King Pharmaceuticals and the amount of approximately $175,000 per quarter as well as payments from King for their pre-clinical and the clinical work. We are performing to obtain a surgical indication for the Thrombi-Gel and Thrombi-Paste products.

This line item also includes revenue earned under a product development agreement for a new version of our Twin-Pass dual access catheter that we develop for Cardium Therapeutics for delivery of their angiogenesis therapeutic agent, which was completed in the fourth quarter.

Turning to future sales guidance, our continued incremental growth in sales makes us very confident in our strategy and execution. In the first quarter, we expect continued sequential growth across all product lines with the access products once again having the highest percentage growth.

Overall, we expect to achieve revenue growth of 20% over the first quarter of 2007 to between $14.5million and $14.8million. For the entire 2008, we are reiterating guidance of net revenue to increase to between $61 million and $64 million. We believe there is significant upside in these numbers based on new product launches which we have not factored into our revenue guidance.

Looking even longer term, we maintained our goal of exceeding $100 million and annualized net sales in 2010. And we believe that our current strategy will allow us to achieve this goal.

In 2008, we are working to complete the development of several products with larger revenue potential much like the D-Stat Dry and Pronto products that we fully launched three years ago and now represent over $30 million in combined annualized revenue.

Importantly, in 2008, we also are restarting work on two additional larger market opportunities that are already in our development system. One being the Acolysis peripheral atherectomy device and the other being the mechanical Duett and basis sealing device. Both of which we believe will materially factor into our revenue plans beyond 2010.

James, will now review the details of our fourth quarter financial results and the rest of the financial projections.

James Hennen - Chief Financial Officer

As Howard, described net revenue for the fourth quarter was $14.4 million an increase of 25% from net revenue of $11.5 million in the fourth quarter of 2006. US net revenue represent a $12.5 million or 87% our fourth quarter revenue.

Our product gross margin for the fourth quarter was 67.4% up 40 basis points from 67% in the year ago quarter. Primarily, result of our reduced cost of thrombin during the King supply agreement.

The agreement that we entered into with King in January of 2007 provided a 25% reduction in our cost of thrombin which include our gross margin on the D-Stat Dry by $120 basis points compared to the year of prior period.

Our product gross margin in the fourth quarter of 2007 was slightly lower than our projected 68% level due to our better than expected sales of Vein products, which carries a lower margin.

We expect our product gross margin to increase to 68% in the first quarter as we continue to. implement cost improvements on all of our product categories. Collaboration expenses related to our work of King and Cardium Therapeutics were $327 in the fourth quarter. Looking forward, we project a margin of approximately 35% on license and collaboration revenue.

Sales and marketing expenses were $5.2 million in the fourth quarter, up 17% from year ago quarter. This increase in expenses was due primarily to the addition of seven headcount in our US direct sales force compared to the year ago quarter along with higher spending and marketing activities.

At the end of the fourth quarter, we had a total of 84 field sales and management employees in the US. Looking into 2008, we expect to realize significant leverage in our sales expenses as we don't plan to materially increase the headcount in our field sales force. As a result, we estimate sales and marketing expenses to decrease from approximately 37% revenue at the beginning of 2008 to approximately 33% of revenue by the end of the year.

Revenue generated per US field sales employee was a $158,000 in the fourth quarter or $632,000 annualized. We believe that we can grow this number to over $1 million per field employee by 2010 with our current and plan new products.

General and administrative expenses were $1,463,000 in the fourth quarter up 65% from the year ago quarter. This increase was primarily the result of incurring legal expenses of approximately $500,000 related to the VNUS, Diomed and Marine Polymer litigation increased stock based compensation and the addition of two headcount. We expect to incur legal expenses of approximately $1 million in 2008 weighted heavily in the first half of the year.

The litigation with Marine Polymer is currently scheduled for trial commencing on March 10 and the VNUS litigation is currently scheduled for trial commencing on June 23, 2008. We expect general and administrative expenses to start the year at approximately 10% of revenue and then decline to approximately 7% to 8% of revenue by the end of the year subject to unexpected variances in legal expenses.

Research and development expenses for the fourth quarter were $1,482,000 up 17% from the year ago quarter. This increase was mainly the result of increased R&D activity in the quarter and was in line with our expectations. We project R&D spending to be in a range of 9% to 11% of net sales in 2008, as we continue to complete development on additional new products and move our larger market development projects forward.

Clinical and regulatory expenses were $844,000 in the fourth quarter, an increase of 41% from the year ago period. The increase was a result of additional four headcount increased regulatory submissions and the addition of clinical study activity in the fourth quarter. We project clinical and regulatory expenses will be approximately 6% of revenue in 2008.

In the fourth quarter, we incurred $10,000 of thrombin qualification expenses. We have now incurred a total of $4.8 million of expenses on this project and we do not expect to incur any additional expenses relating to the thrombin project. We continue to have approximately $500,000 in inventory of thrombin-VSI in vials and approximately $800,000 in bulk thrombin.

We expect to gain CE Mark approval by the end of the first quarter to use this Thrombin-VSI in our hemostatic devices for sale in international markets, starting in the second quarter of 2008. Litigation expenses related to the Diomed judgment were $36,000 in the fourth quarter resulting in a total of $5.8 million expense to date. While our appeal to Diomed verdict is pending before the Federal Circuit, we intend to maintain a bond rather than pay the judgment, which will result in approximately $75,000 of litigation expense per quarter in 2008 related to interest on the bonded amount.

Interest income was $120,000 for the fourth quarter as we yielded a 4.7% return. We anticipate a lower rate of return in 2008 due to the declining interest rates. Interest expense was $28,000 for the fourth quarter relating to our equipment line of credit. The line of credit bears interest at prime plus 1.5%, currently at a rate of 7.5%.

Income taxes were $118,000 for the fourth quarter as a result of alternative minimum tax. All of the $7 million in licensing and milestone payments we received from King in 2007 is treated as taxable income, resulting in overall taxable income for the year.

We estimate approximately $50,000 in AMT tax expense in 2008. The resulting GAAP net income for the fourth quarter was $519,000 or $0.03 per share, compared to net income of $90,000 in the fourth quarter of 2006.

Reflecting the adjustments described in our press release, we achieved adjusted net income of $649,000 or $0.04 per fully diluted share in the fourth quarter compared to adjusted net income of $430,000 in the year ago quarter.

We project our adjusted net income to be in the range of $0.04 to $0.06 per share in the first quarter of 2008. For 2008 as a whole, we are increasing our guidance for adjusted net income to between $0.25 and $0.33 per fully diluted share from our previous guidance of $0.22 to $0.28 per share. We project that our GAAP net income per fully diluted share will be slightly higher than our adjusted net income due to the tax benefit of our substantial net operating loss carry forward.

Regarding the balance sheet, we ended the fourth quarter with $10.8 million of cash, an increase of $8.2 million from the end of the fourth quarter of 2006. A total of $5.5 million of our cash is restricted in a money market account under a trust agreement related to our bond in connection with the Diomed judgment.

In the fourth quarter, we increased cash by $853,000 and we get now been cash flow positive for five consecutive quarters. We expect our inventory levels to continue to increase with our expected increases and revenue and end 2008 at approximately $9.9 million.

During the fourth quarter, we incurred $395 of capital expenditures, mainly consisting of manufacturing equipment and leasehold improvements. We expect total capital expenditures to be approximately $1 million in 2008.

We continue to believe that our current working capital of $14.5 million is sufficient to fund all of our foreseeable operating requirements. In December, we also increased our line of credit to $10 million with a two-year term for additional working capital flexibility.

We incurred approximately $1.5 million of stock based compensation in 2007 and we expect to incur approximately $1.9 million of stock based compensation in 2008. We expect a GAAP calculation of our weighted average fully diluted shares to start 2008 at 15.9 million an increased to 16.4 million by the end of the year. We currently have 15.6 million shares outstanding of 17.1 million shares fully diluted on a share account basis.

Finally, looking longer term, we are reaffirming our more general targets. We continue to believe that we can achieve $100 million in net sales in 2010. In this timeframe, we target our product gross margin to be approximately 66% to 69% on a blended rate across all of our products including sales of non-cath lab hemostat to King for subsequent resale.

As a percentage of net revenue, we have targeted our 2010 research and development expenses to be 10%, clinical and regulatory expenses to be 5%, general and administrative expenses to be 8% and sales and marketing to be 25% with the resulting operating margin at or greater than 20% of net sales.

With that, I'll turn the conference call back to the operator for questions.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) Your first question comes from the line of Matthew Scalo with Canaccord Adams.

Matthew Scalo

Hey guys, very good quarter here.

Howard Root

Hi, Matt, Thanks.

Matthew Scalo

Just a couple of quick questions on the WireFiber here. May be, Howard you could discuss a little bit about the first clinical experience kind of the positives here, the outcomes for the patient per se, and then I will ask some follow-up questions, if I could?

Howard Root

Yeah, obviously, that's kind of tied into the VNUS litigation. So, I can't say a lot about it. All I can say is we had our initial clinical evaluation last week and they were successful. I can't really -- I don't want to really go into the scope how it works or how it's deployed. But it successfully treated a saphenous vein and the way that we would normally treat it with the Bright Tip but it's a different method with the new product.

Matthew Scalo

Okay, fair enough. And then just moving on to the Pronto, what kind of percentage of total Pronto sales could go to this low profile product?

Howard Root

Good question and we don't really have the clear answer, where we just launch that at our sales meeting, I think the second or third week of January and they got it out there and we started selling it and the demand has been much higher than we originally expected. So, we're ramping up our manufacturing to catch up with our sales force getting out there.

Originally, we thought it might be 10-20% kind of targeting 20% now it might be 30-50% of the Pronto sales and as part of that there will be a little bit of cannibalization of the existing Pronto V3 sales. But I think probably 50% of the pronto LP sales just ballpark here will be expansion for us whether it using it in vessels, where they won't otherwise use an aspiration catheter or going against some of the smaller lower profile catheter competitive aspiration catheters that are out there. But it's been well received in the first grand total of two weeks on the market here.

Matthew Scalo

Sure, sure. And from a pricing standpoint is it roughly equivalent to existing Pronto V3 products out there in the market?

Howard Root

Yeah, it's exact same price.

Matthew Scalo

Okay, okay. And is there a way that maybe we can get a sense of first on your 2008 top line guidance, how much does King or how much do you anticipate King pharmaceuticals contributing to that?

Howard Root

Maybe James, you can have the detail on that. I don't want to give him a little specific but we had $1 million in 2007 and I think it's not much up from that in 2008.

Matthew Scalo

Okay

Howard Root

Will be the safe way to say it.

Matthew Scalo

Okay.

Howard Root

Because lot of that 2007 was stocking, but we are just still working through a lot of it. But had a nice fourth quarter based on our estimates.

Matthew Scalo

And then last question on Thrombi-Paste you did mention a little bit on the development side but could you drill into a little bit more detail as far as when we might expect that to potentially hit the market?

Howard Root

Well, we've our 510-K for that product already approved and so it can been sold but it does not have a surgical indication and given where its used King has waited for the surgical indication to do the first sales so that clinical study should go no in 2008. I don't think it will be on the market in 2008. It will be more likely in 2009, but sometime towards the middle of 2009 will be my ballpark guess right now.

Matthew Scalo

Okay. Terrific guys, very nice quarter.

Howard Root

All right, thanks Matt.

Operator

Your next question comes from the line of Phil Nalbone with RBC Capital Markets.

Phil Nalbone

Hello Howard, Hello James, yes that was a very nice quarter and I wish to point out that you attained a level of revenue consistent with where my forecast had been before you guided us down after Q3 results. I should have just left the model alone, so my question is this.

Howard Root

Yes, that's the every quarter, right Phil?

Phil Nalbone

Well, yeah, keep us on our toes Howard. So I wanted to ask the question is, just help us understand the moving pieces in your business a little bit better. What were the major variances during the quarter relative to the way things were looking in Q3, where were the major areas of out performance?

Howard Root

Right. Vari-Lase consoles were better than expected and our overall Vein business as well. So, the consoles held out and disposables had a strong quarter as well. And then we have the annual onetime purchasing for some of the government organizations as well that hit in that number.

So, there was a couple onetime sales and they are coupled with the fact that, let see if we beat our estimate that we're over on our quarter so sales guys push a little harder as well there was some annual bonuses, if they hit three out of four quarters and four out of four quarters. So, generally business was obviously up coupled with a couple of onetime events in there.

Phil Nalbone

How much of that revenue would you consider to have been sort of onetime stocking purchases under these big contracts?

Howard Root

Not a large amount, but enough to make our over -- may be right around, just under a $100,00 I'd say.

Phil Nalbone

And could you clarify what was going on with the sales and marketing headcount during the quarter? Did I hear you currently, you added 7 people during the quarter sequentially?

Howard Root

No, that's seven increases in last year at this time.

Phil Nalbone

Okay. And what happened sequentially? Was there any change?

Howard Root

Yeah, sequentially it was, I think, it was up, may be one, right around the same as last quarter.

Phil Nalbone

Okay. And you alluded to adding some personnel in the research and development area, was that sequentially or those people?

Howard Root

Yeah, there was some in the in the clinical and regulatory people, four people, new people. We also added a few in the R&D area which I didn't mention, but we did add a few sequentially.

James Hennen

That four is not sequential from the third quarter though.

Howard Root

Right. Four is year-over-year as well in the clinic…

Phil Nalbone

I see. Okay. Very good. And then just remind us what you plan to do during '08 in terms of headcount, particularly in sales and marketing.

James Hennen

Yeah, on the sales of field sales, we are pretty much where we want to be. With a current portfolio and territory there might be one or two territories that we could add someone to -- in 2007, we were really doing a lot of bunch of things. We did some regional clinical specialist that kind of thing to give some backup support to people who are really busy, but we don't see anything that we really need to jump on there.

So, relatively confident, and in January we had our annual year end bonuses and our sales meeting and haven't seen anyone, no one left the sales force after that. So, I think, we've got a nice solid team doing the right thing and making good results without any change of plans.

In the home office, it's just incremental growth and its 1z, 2zs throughout the department. We don't see, we've done our budget and we don't see anyone adding four or five people. There might be a couple more marketing by the end of the year. But it's really by choice, as we see opportunities and want to split kind of product lines between product mangers that type of thing. So, well, we're talking in the real small numbers on the headcount additions.

Phillip Nalbone

Great, okay. I'll go back in the queue .Thank you very much.

Howard Root

Thanks, Phil.

Operator

Your next question comes from the line of Ernest Andberg with Feltl & Company.

Ernest Andberg

Good morning or afternoon, we are now.

Howard Root

Ernie that's again you did that.

Ernest Andberg

All right. You talked about some new product introductions, the relief study and you called it perforator for veins launching in Q2. What kind of market are you aiming for with that product, Howard?

Howard Root

Yeah, that's the shortcut as what we call it for the treatment of perforate veins, which is a new area of varicosities that physicians are treating. It's the connection between the superficial and the deep system and they found that if they don't treat those, they sometimes have recurrent varicosities and some cosmetic results as well.

So, they've been going in and treating it. But they really needed a new kit for that, that's we came up with. So, there is an existing market is just getting started but it's, I'd say maybe 25% of the people who get the great saphenous vein treated have a potential for perforator treatment, that's a real rough ballpark number. But that's the kind of thing we are looking at, and a lot of physicians have been looking at a real good kit to treat that.

There is a competitive product VNUS has a RX Stylet that they use for. And I'm not aware of any specific laser, we can figure, although there might be some out there. But it's just starting to takeoff for the markets beginning but growing nicely.

Ernest Andberg

Yeah. I hate to ask a question, is this using your new technology as supposed to the old technology that VNUS is after?

Howard Root

The current shortcut that we completed the clinical study are getting approval is the Bright Tip fiber. So it's existing Bright Tip fiber, it's not the WireFiber although there is potential to use the new technology in that application as well.

Ernest Andberg

I guess, I ask the question wrong as the Bright Tip fiber for the perforator vein have any intellectual property issues with our friends at VNUS? You may not want to answer that, but I'll ask you?

Howard Root

Yeah. I'm you know, we haven't taken a hard look at from a legal standpoint. But and I guess, I wouldn’t know whether it falls clearly within their lawsuit or not. But it has not changed the Bright Tip fiber in the construction of it. So, it's not the WireFiber that as it is clearly outside the scope of their current patents.

Ernest Andberg

Okay. The Guardian hemostasis valve, you mentioned that you're seeing some improved sales there. Can you give us some feel in the Access Products, how this is working?

James Hennen

Well, it's clinically it's working very nicely, and the advantage we've here is well, we just launched it in July. And as Root says, we've have been selling this for a couple of years overseas. So, it's not the first generation version of the product. It's about the third generation version therefore they are -- we knew clinically how it is going to work when we first launched it that allows us to be more confident and push it. And the clinical feedback has been uniformly outstanding.

Now price wise, we've always complained about our higher price products and that's where the resistance comes in the Guardian. But in this case and challenging interventions is clearly worth it for the physician. We think that this, it's about $1 million product for us in 2008 and do we all think that's really, getting up there in terms of market penetration.

There are some other things we can do with that product packaging, and some other things and expand that maybe into $5 million to $10 million product line by itself in the next several years not in '08 or '09, but that's kind of a scope of it. It's a nice typical Vascular Solutions product and that smaller than what the Boston Scientific would be interested in but certainly material for us.

Ernest Andberg

Okay. In the specialty catheters your new -- you call it the Grandus or Gandras?

Howard Root

Gandras, GANDRAS.

Ernest Andberg

What are your expectations there Howard?

Howard Root

This is a product that in market size, I would equate to Langston which we always said it was about a $ 5 million potential market annual and it could be more than that but we'll have to see how it works when we get it out there.

Ernest Andberg

And you said that I didn't breakdown when you said in fact you will have that actually in the remark it Howard?

Howard Root

Yeah, kind of as we've said before we don't announce products until we have 510-K pending. So, the first time, we really talked about it, we have the 510-K pending and expect a launch in the second quarter.

Ernest Andberg

Thank you.

Howard Root

Thanks. Or by the second quarter I should say.

Operator

(Operator Instructions) Your next question comes from the line of Chris Cooley with FTN Midwest Securities.

Chris Cooley

Thanks and congratulations on the wonderful quarter.

Howard Root

Thanks Chris.

Chris Cooley

Just may be drill down on one aspect of the dry-off, if you could a little bit as we -- you move to '08 talk to me a little bit how you see the mix evolving particularly with the Thrombex product, I realize lower price point products as we see here in the state don't have the same demonstrated clinical efficacy, but how do see your mix evolving versus the premier drive versus the Thrombex at a lower cost version of that as you go through '08? And does that have any margin implications that we should really consider on our models from a growth standpoint? Thanks.

Howard Root

Good question, I'll though talk about where we see and did distinct between two of the division between the two and James can answer on that margin side. We see that Thrombex is being a small addition to our Dry, I think Dry will still be 90% of the sales plus of that and Thrombex we're using opportunistically where places are particularly cost conscious or they were using so many that the price becomes an objection on the overall budget for the Cath lab.

But I think if you look at it been 10% or less that's probably a pretty good place to look at where we see it for '08. By '09, it may grow above that but we're just getting started with it right now.

Chris Cooley

Okay.

Howard Root

And on the margin side, we project for the whole year it is just to be right around 68% gross margin on our product side and obviously if 10% been on the lower margin that hasn't affected much and also you get to remember D-Stat Dry has a close to 90% margins for us to begin so the forecast still has a nice high margin for us.

Chris Cooley

Right. And if I could, this is following either James or Howard. Could you remind us roughly were you trying to price that just from an up door standpoint relative to the Dry?

Howard Root

Without giving you the exact price, I think, we're about 25% below on that kind of ASP wise maybe somewhere around there.

Chris Cooley

Okay. And finally, I'll get back in queue just going back on your comments in regards to the Thrombin-VSI inventory. Did I hear you correctly that roughly a $0.5 million in vial form and 800,000 in bulk thrombin form and just as a follow on to that do you plan to continue your required minimum purchases with Sigma or do you plan to let that contract potentially go open, I guess, if I understand the contract terms correctly there are three lots you have to purchase in the coming year.

James Hennen

Yeah as far as I, you get the right numbers on the inventories there and as far as the contract for Sigma, we haven't made our final decision on that but obviously the agreement with King removes the economic requirement for us to buy additional Thrombin-VSI and manufacture it. So, we'll make that assessment as we go through the year.

Chris Cooley

Okay. Super. Thanks again and congratulations on a great quarter.

James Hennen

Thanks, Chris.

Operator

I am showing no further questions. Please continue with your closing remarks.

Howard Root

I just want to thank everyone for their support. I think, it was an outstanding quarter for us and we look forward to continuing this trend into 2008. Thank you.

Operator

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

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