Baxano Surgical's (BAXS) CEO Ken Reali on Q2 2014 Results - Earnings Call Transcript

| About: Baxano Surgical, (BAXS)

Baxano Surgical, Inc. (NASDAQ:BAXS)

Q2 2014 Earnings Conference Call

August 5, 2014 4:30 PM ET


Casey Stegman - IR, Stonegate Incorporated

Ken Reali - President and Chief Executive Officer

Tim Shannon - CFO, Treasurer and Secretary


Dan Trang - Stonegate Securities

Bruce Wong - Brean Capital

Vic Daniels - Piper Jaffray


Good day, ladies and gentlemen, and welcome to Baxano Surgical’s Second Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Casey Stegman, Investor Relations. You may begin.

Casey Stegman

Thank you, Amanda. Good afternoon everyone and welcome to Baxano Surgical’s earnings call for the second quarter of 2014. We appreciate you joining us today. With me on the call is Baxano Surgical's President and Chief Executive Officer, Ken Reali and its Chief Financial Officer, Tim Shannon.

Purpose of today’s call is to review the Company’s financial results for the quarter as well as provide some additional color on the business. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to among other things our expectations concerning management’s forecast of financial performance, the growth of business and managements plan, objectives and strategies. Actual results could differ materially from those stated or implied by our forward-looking statements, due to risks and uncertainties associated with the Company's business.

The Company disclaims any obligation to update any forward-looking statements made during the course of this call. For a discussion of the risks and uncertainties associated with Baxano Surgical's business, I encourage you to review the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2013, the Form 10-Q for the quarter ended March 31, 2014 and for the Form 10-Q for the quarter ended June 30, 2014 expected to be filed on or about August 8.

In addition, please note that we will discuss certain non-GAAP and pro forma financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP and pro forma measures to the comparable GAAP measures is included in the earnings release posted on our Web site at in the Investor Relations section.

With that, it's my pleasure to turn the call over to Baxano Surgical's CEO, Ken Reali.

Ken Reali

Thank you Casey, good afternoon everyone and thank you for joining us on the call today. Just a quick overview of the agenda for today’s call, I will spend the first few minutes going over our operating highlights for the second quarter. I will then turn the call over to our CFO Tim Shannon who will discuss our financial results in greater detail. At the conclusion of Tim’s remarks I will then review our guidance as well as update you on our key operating priorities for the remainder of the year. I will then turn it back over to the operator for Q&A.

Starting with this call and going forward, we’re going to be reporting our numbers and making comparisons on a sequential basis. This is a request which has been made by a number of investors and analysts and quite frankly given how much our business has evolved over the past year sequential comparisons maybe the most accurate indicator of our current performance.

Furthermore, the focus of our business is to drive revenue growth. And in our opinion the best way to monitor our progress is by evaluating those metrics in successive quarters. We will continue to breakout year-to-date and prior year comparisons in our 10-Qs. But for the sake of these calls we intend to focus on sequential comparisons for at least the near-term.

Finally as our Company grows and we continue to get our story out to investors we’re seeing new names on these calls each quarter, for the benefit of those who are new to our story I am going to describe our different product lines as we break out our results, to provide some additional context. Attracting new investors is vital to our long-term growth as a company, so we would like to accommodate those new investors and make these calls as informative as possible.

And with that let’s get into our second quarter results. Overall we were pleased with our performance for the second quarter of 2014. Baxano Surgical reported $4.7 million in revenue for the quarter which represents an increase of $250,000 or 5.5% from the first quarter of 2014. While our total surgeon users in the second quarter remained consistent with the first quarter, our revenue growth was primarily driven by increased cases per surgeon. Our domestic quarterly revenue growth was also led by our core products primarily iO-Flex and AxiaLIF which grew 6% and 11% respectively.

As we alluded to you on our last call, we started to see a nice uptick in case volume in April which continued throughout the quarter. Our second quarter results were also positively impacted by improved operating expenses versus the first quarter of 2014. Despite incurring some one-time expenses related to severance costs as we adjusted our staffing and reorganized our sales team in mid second quarter. We expect that we’ll begin to see the operating expense benefits from our staff and salesforce adjustments during the third quarter and fourth quarter which I will go into in more detail later in the call.

In early April we received FDA 510(k) clearance for our Avance MIS Pedicle Screw System, which we view as a significant accomplishment for the Company. In late June we announced the first case utilizing the Avance System was performed by Dr. Sameer Mathur in Cary, North Carolina. We believe this represented a major milestone in the evolution of our Company, as it should significantly enhance our ability to service our surgeons and hospital customers. With the full launch expected in the fourth quarter of 2014 we can offer a complete fusion solution coupled with our AxiaLIF and VEO interbody fusion implants, which can improve our competitive position in the market and drive more sales per fusion case.

This important strategic initiative also increases our overall presence in the rapidly growing MIS spine arena, as MIS Pedicle Screws account for a significant percentage of total revenue in the MIS spine sector.

Now looking at worldwide product revenues. Revenue from our iO-Flex product which as a remainder is our minimally invasive disposable lumbar decompression instrument was $2.5 million for the second quarter as compared to $2.3 million in the first quarter. iO-Flex had 16 new users in the second quarter.

AxiaLIF which is our implants and instruments used for predominately single-level L5 to SI minimally invasive lumbar fusion utilizing the pre-sacral access recorded revenue of $1.4 million in the second quarter of 2014 compared to $1.2 million in the previous quarter an increase of 15% in worldwide revenue. While we also performed two-level AxiaLIF cases from all L4 to SI the majority of our cases are single-level L5 to S1 and we will continue to report the combined AxiaLIF results going forward. It should be noted that this is our first meaningful growth in AxiaLIF in sometime.

This increase was primarily attributable to increased domestic revenues driven by more cases per surgeon, while we had no increase in covered lives during the second quarter. We have started to see some impact with our Medicare and workers’ compensation targeting efforts with specific surgeon users. We expect our improved targeting efforts to continue to provide some stability to the AxiaLIF product line in the near-term.

Second quarter revenue for VEO which is our direct lateral access and interbody fusion system is $531,000 down slightly from the first quarter of 2014. Total surgeon users were flat quarter-over-quarter of cases per surgeon were down. We do expect that the further optimization of our sales channel will positively benefit this product line. The direct visualization capabilities of VEO that allow for the avoidance of the general femoral nerve a nerve which is not tracked by neuro monitoring systems continue to provide clinical benefit.

And we are seeing this become a greater focus area for surgeons over the past couple of years with some of the recent clinical data published in this area. We also expect VEO to benefit from our Avance Pedicle Screw System launch in the fourth quarter of 2014 as we will be able to offer a bundled interbody fusion and posterior fixation solution for the first time to our hospital customers. We believe this bundling option addresses an important competitive dynamic with this product.

Revenue for our iO-Tome product, a minimally invasive facetectomy removal instrument used in TLIF procedures of $127,000 during the second quarter was essentially flat on a sequential basis. We are in the process of developing a TLIF system that will combine our iO-Tome instrument so we can offer a complete solution in this area. We’re excited by the prospects of the differentiated MIS TLIF that will round out our portfolio in the MIS degenerative lumbar segment.

I’d now like to update you on the status of some of the operational initiatives we discussed last quarter that are designed to drive sequential revenue growth, as well as a decline in operating expense over the coming quarters. As discussed previously, we have decided to implement a sales strategy that utilizes our direct salesforce in certain geographies where we have strong candid reps and established momentum.

In other regions, we intend to partner with well-established distributor leaders which should allow us to shorten the time required to build hospital and surgeon relationships and gain sales momentum in these markets much faster than with the direct model while also reducing the upfront investment. We believe that this hybrid sales model coupled with our expanding product portfolio should enable us to achieve sequential revenue growth and also lead to a sequential reduction in our operating expenses through each remaining quarter in 2014.

We reorganized our sales team during the second quarter and are pleased with the performance of our direct salesforce. It’s important to note that the hybrid distributor strategy did not materially impact our second quarter result. However, we do anticipate seeing a positive impact by the fourth quarter as we bring more of the full line distributors which we referred to internally as distributor leaders onboard and go through a product training and acclamation process.

Just a couple of weeks ago we announced at the Journal of Managed Care Medicine has accepted an economic analysis of the AxiaLIF pre-sacral interbody fusion procedure offered by doctors Matthew McGirt and Scott Parker in comparison to TLIF, the most commonly performed interbody fusion today. The study analyze the bibliography for AxiaLIF and TLIF procedures and assessed relative costs by looking at reoperation rates, complication rates, blood loss, OR time, and hospital stay. This study found that AxiaLIF resulted in approximately $4,500 lower cost per procedure when looking at these parameters.

The Journal of Managed Care Medicine is a leading peer-reviewed publication targeting the community of insurance company Medical Directors that make decisions regarding which technologies to cover. We view this as a key third-party validation and we look forward to leveraging this publication as an integral part of our ongoing discussions with payor-policy decision-makers.

Lastly, I am pleased to announce the Company’s recent award from Frost & Sullivan on our product line strategy leadership in minimally invasive spine. This award was based on an independent assessment and evaluation. We are proud of our ongoing efforts to diversify and build a successful product portfolio as well as pipeline in the MIS spine space, and view it as critical to driving continued growth.

I would now like to turn the call over to Tim to review the financial results from the second quarter. Tim?

Tim Shannon

Thank you, Ken. Just to quickly reiterate what Ken said earlier in the call I am going to do a quick review of our financials on a sequential basis. For a more in-depth review of our financials including pro forma comparisons, please consult our earnings press release that we filed this afternoon.

For the second quarter of 2014, we reported worldwide revenues of $4.66 million, a 5.5% increase, compared to $4.41 million for the first quarter of 2014. Domestic revenues were $4.48 million compared to revenues of $4.26 million in the prior quarter, representing a 5.1% increase. International revenues were $174,000 compared to $149,000 in the first quarter which is a 16.8% increase on a quarter-over-quarter basis. Recall that our international revenues can vary significantly from quarter-to-quarter due to the timing of stocking orders from our international distributors.

Second quarter gross margin was 69.6%, a decrease of 1.8 percentage points from the 71.4% we recorded last quarter. This slight decrease in gross margin was primarily attributable to variability in product mix.

Operating expenses were $11 million in the second quarter as compared to $11.8 million in the first quarter of this year, which accounts for 6.7% decrease on a sequential basis. While we were able to realize some additional cost savings in the second quarter primarily in our sales and marketing spend, the benefits of our second quarter headcount reductions will primarily be realized in subsequent quarters. Net loss was $5.9 million in the quarter or $0.12 per common share compared to $9.1 million or $0.19 per common share in the prior quarter.

Moving on to the balance sheet, our cash and cash equivalents as of June 30, 2014 was $2.3 million versus $1.5 million at the end of the last quarter. The $2.3 million reflects a $10 million private placement of convertible debentures which we completed on April 22nd. Domestic accounts receivable day sales outstanding were 56 at quarter end which was unchanged from the prior quarter. Total accounts receivable day sales outstanding was 69 at quarter end compared to 71 in the prior quarter.

I will now turn the call back over to Ken. Ken?

Ken Reali

Thanks Tim. Now I’d like to take a minute to discuss guidance and our expectations for the third quarter. We are pleased with where we are going in the business right now. We feel we have the leaders and people in place to execute on our strategy. We’re getting to where we want to go and are a couple of quarters behind our initial expectations.

Our financial performance in the second quarter was solid considering changes made to reshape the business and do not yet reflect the upside of our hybrid sales model or the impact of our Avance Pedicle Screw System. We have made the necessary adjustments at the Company and now we feel that we are well-positioned for the future. We are optimistic that our growing product portfolio and optimized sales channel will continue to drive sequential revenue growth while reducing operating expenses over the remaining quarters of 2014.

Considering each of these factors and taking into account the typical seasonal weakness experienced with fusion procedures during the summer months, we expect revenues in the range of $4.5 million to $5 million for the third quarter.

I would now like to provide you with an update on our key operating priorities for 2014 and the progress we’ve made to-date. As a reminder our priorities are; number one, continue to broaden our customer base, utilizing our differentiated iO-Flex products, that allows us to establish ourselves with minimally invasive focused spine surgeons; number two, take advantage of cross-selling opportunities especially VEO and AxiaLIF in the near-term and Avance our minimally invasive pedicle screw system by fourth quarter this year; number three, introduce new products and product improvements such as Avance and development of a TLIF system to be used with our iO-Tome instrument that leverage our existing product lines and surgeon relationships; number four, build a strong foundation by continuing to expand the clinical and economic data on our minimally invasive family of products that will support adoption with surgeons, hospitals and payors; and number five, expand private payor reimbursement for AxiaLIF which we believe will unlock the door for significant growth in this product line.

We believe that with the opportunity to continue to utilize iO-Flex in particular as a door opening product with minimally invasive surgeons and as our relationships develop we can effectively cross-sell other products. We have added 81 new iO-Flex customers to Baxano Surgical over the past three quarters, serving as the tip of our spear relative to surgeon engagement. This expansion of our customer base is critical to our near-term success and we have begun to see evidence of cross-selling in the second quarter particularly to our iO-Flex product line.

As we seek to expand our customer base and regain positive sales momentum, our expanded portfolio including Avance and ultimately TLIF gives us a broader product portfolio allowing us to leverage our customer base created by iO-Flex through strong cross-selling efforts. This expanded portfolio works directly with our sales strategy as it appeals to experienced spine distributors interested in MIS degenerative spine product line up that we will be able to fulfill for the first time.

Our R&D efforts are focused on delivering products that will have a near-term impact on sales. As a result we’re primarily focused on Avance and the TLIF project. TLIF development is making progress and as a reminder already has FDA 510(k) clearance. We’re in the midst of the design of the instrumentation that will be combined with our iO-Tome instrument creating a unique and differentiated MIS TLIF system.

We continue to be active on the clinical front in 2014, besides the economic analysis being published this fall on AxiaLIF, we’re executing on a pilot study with iO-Flex aimed at demonstrating a potential reduction in hospital stay when the iO-Flex instrument is utilized in a standalone decompression. We also continue to collect long-term data on two iO-Flex studies that we expect 12 and 24 months data to be published over the next two years.

At the end of the quarter our portfolio of publications stood at 98 of which three relate to VEO and four related to iO-Flex and the remainder, are AxiaLIF related. We’re also active in the quarter at tradeshow meetings and had a presence at six meetings in the quarter many of which we offered surgeon training events on all of our MIS-based degenerative lumbar spine products. We also had a paper presentation at the International Society for the Advancement of Spine Surgery or ISASS, their annual meeting on longer term outcomes utilizing iO-Flex and decompression procedures.

Finally on the reimbursement front. We’re continuing our efforts to secure private payor coverage for AxiaLIF. We’re excited by the recent acceptance of the AxiaLIF economic paper in the Journal of Managed Care Medicine that demonstrates a $4,500 savings per procedure versus TLIF. We feel the paper and its data would be a strong aid in discussing the economic benefit of the procedure with Medical Directors, once it is published this fall.

Additionally, we feel that a critical step to positive payor coverage is going to come through specialty society support. We’re working with multiple societies including North American Spine Society or NASS, ISASS and the Congress of Neurological Surgeons or CNS to continue to educate them on the benefits of all of our technologies but specifically AxiaLIF. In addition to our efforts with specialty societies, we’re continuing our push along with our key opinion leaders to educate private payors directly on the expanding body of clinical evidence supporting AxiaLIF. All that said, as soon as we expect positive news on reimbursement through the end of this year.

We’re now a year post the merger and acquisition of Baxano Incorporated and we’re pleased with have progress. We have completed operational and sales integration efforts and have returned the Company to sequential revenue growth. We have also developed a pipeline of products that we believe will allow us to lead in the MIS lumbar degenerative spine space and have completed a salesforce reorganization that we feel gives us the best chance to drive sustained growth.

The two just announced patents on VEO and AxiaLIF which brings our total domestic patent counts to 92 provides further evidence of the differentiation and ultimate value our products can provide. The Frost & Sullivan award on our product strategy leadership provides an endorsement on our vision and why we have brought this Company together. But perhaps most importantly the ultimate success it can achieve with its complementary products. This vision has started to bear out in the 81 new customers we have brought into Baxano Surgical over the past few questions leaving iO-Flex as the main driver for new surgeon customer acquisition.

We look forward to the full market launch of our Avance Pedicle Screw System this fall which we see having meaningful impact on our overall fusion business, and the further expansion of our product pipeline beyond that. Broadly speaking, we continue to remain bullish on our focus in minimally invasive spine surgery which remains the fastest growing segment in the spine market today. We look forward to updating you all on our progress on the next call.

With that I’d like to open the call to take your questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Dan Trang with Stonegate Securities. Your line is open.

Dan Trang - Stonegate Securities

Thanks for taking my call, congrats on a good quarter. Regarding what you labeled full line distributors what are some of the criteria on a distributor becoming that level full line so to speak?

Ken Reali

Dan, good clarifying question here, we look at distributor leaders for us as geographically based so they’re able to manage a larger geography a major metropolitan area or depending on the location a state and the ability to sell all of our products, both our decompression instrument iO-Flex as well as our fusion technologies across the board. So they have to be unencumbered prior spine experience and relationships is obviously critical to this. And what found is that the market dynamics changing in particular the consolidation in spine and our growing portfolio in spine of both differentiated products and more meat and potato products like our pedicle screw system Avance that we’re a very appealing partner.

A lot of these distributors enjoy working with small companies, they enjoy growing with small companies, they have a history of doing that and the consolidation of spine has given us opportunities there to put distributors in place where we have very little market penetration today and where our direct salesforce does not exist. So it’s a complementary strategy designed to drive growth into the business with our expanding product portfolio in markets we don’t exist today very little upfront cost but to us it’s picking the right distributor as you so aptly asked and it’s really those criteria that we look for very carefully.

Dan Trang - Stonegate Securities

Okay. And then can you give any color behind how many other distributors you will sign in the next in fiscal year ’14?

Ken Reali

We haven’t given out that number I think and we’re going to shy away from that. Today we have obviously close to 80 different types of distributors selling our products but they’re not what we call distributor leaders. The distributor leader metric and how we’re looking at that on a geographical full line product basis we expect to really start to see some momentum in that area here in the third quarter and are starting to but we’re going to shy away from reporting that metrics specifically Dan.

Dan Trang - Stonegate Securities

Okay. Thank you.


(Operator Instructions) Our next question comes from Bruce Wong with Brean Capital. Your line is now open. Please check your mute button.

Bruce Wong - Brean Capital

Sorry I was on mute. Hi Ken. Thanks for taking my call I am in for Jason today. Sure I just had a question regarding your salesforce strategy implementation and where you are today. Can you provide a little more color on like how many direct sales reps you have and possibly a number you’re trying to get down to?

Ken Reali

Well, on our direct salesforce we’re not providing headcount numbers, we haven’t done so in quite a while Bruce but I will tell you that our salesforce count is stable we don’t expect to reduce our salesforce anytime in the future. We’re happy with where we have our reps and what they’re doing for us they had a very solid second quarter that drove our sequential revenue growth and we expect that particular part of our sales strategy to continue and as we add more products we expect them to become more effective, we expect higher sales per headcount but we’re going to shy away from giving that direct headcount at this point in time.

So on the distributor side as I have just mentioned with the previous question we continue to drive that part of our strategy, we see it as a key piece for us to have an impact by the fourth quarter. And this is always a process picking and working with the right people. But we’ve had ample avenues here in the geographies that we’re looking for to pick the right people. So we’ve had choices and some of that’s based on what’s happening in spine and some of the consolidation and some is based on the attractiveness of our product portfolio and the expansion of our line and the addition of our pedicle screw system principally. So we’ll have further updates on that as we go into the third quarter call.

Bruce Wong - Brean Capital

In terms of the hybrid salesforce, I guess in the medium to long-term do you see any change in your sales breakout? Would it be like more contribution from VEO versus iO-Flex and AxiaLIF especially with Avance coming up?

Ken Reali

Obviously the Avance, it’s going to be reported within our Fusion business. And we do see upside particularly right in the near-term on VEO. We think we missed out because of the competitive market that exists in direct lateral. We feel our VEO is differentiated based on its visualization capabilities as I talked about on the call. But we miss out on the bundling opportunity with pedicle screws. And to us that will be a big advantage that will provide from upside as we go forward with Avance.

As far as AxiaLIF goes, it can provide some upside as well because of that bundling obviously the hurdles around AxiaLIF are just gaining our private payor coverage. So we feel that as the ultimate key to unlock that growth. But certainly having Avance and the ability to bundle pedicle screws which are used on every case that AxiaLIF has done is going to give is some potential upside there. We just haven’t built into our metrics so to speak. But we do expect penetration with every case that we do with AxiaLIF and VEO today, the average selling price of a pedicle screw is roughly $5,000 to $7,000 per case. So we do see that impacting positively our average selling price per case of those products.


Our next question comes from Matt Miksic from Piper Jaffray. Your line is open.

Vic Daniels - Piper Jaffray

It’s Vic in for Matt. I have three questions, so I guess first one it seems like the salesforce strategy delivered as you guys hoped for in Q2. So just wondering you have enough speed on the street, that you need to deliver growth with the current force. And I guess how much capacity for growth do you have and at what point would you need to significantly expand distribution?

Ken Reali

Well you went right into why we’re doing our strategy and why we see this unfolding in over the next couple of quarters. We do have capacity in our direct salesforce today. We look at our sales per head and what they can do we see our salesforce being able to sell more and certainly as we add more products to their bag becoming even more productive. So we have efficiencies there that we can drive and execution.

As I mentioned we don’t expect to add more sales people on the direct side, we don’t expect to reduce that number either but keep that fairly flat with the growth driven there by more sales per head greater execution in efficiency. The other upside though on our sales strategy is adding these distributor leaders and geographies in the country that we just don’t even exist in today. And this is the opportunity for significant growth by the fourth quarter and beyond as we put these people in place. We do see that as a significant upside for the company, we think we have a portfolio now leading with iO-Flex and keeping in mind as I mentioned we’ve added 81 new customers to the company through iO-Flex in the past three quarters.

We think we can continue to use that as our tip of our spear even in this distributor leader model to really penetrate geographies, especially with distributors that have pre-existing relationships and spine today as much as it’s about product and the product line up it is just as much about owning the local market. And we feel this strategy combination of our 10 year direct reps and adding full line distributor leaders is the best avenue for us to more quickly penetrate the domestic market in the U.S. with our products. So we do see that unfolding over the next few quarters.

Vic Daniels - Piper Jaffray

Can you give us any early indications I terms of update of the iO line of products among your target surgeon accounts and what this potentially mean for pull through of the fusion systems?

Ken Reali

I am sorry you cut out in the beginning on the iO products what was that?

Vic Daniels - Piper Jaffray

Just anything you can share with us in terms of uptick of the iO products amongst your target surgeon accounts any potential pull through for the fusion systems?

Ken Reali

Got it. Well, as I mentioned we’ve seen a lot of uptick in iO. We had good growth sequentially in the quarter. We’ve added 81 new surgeon customers over the past three quarters and we have just started to see and it is reflected somewhat in the AxiaLIF number and the sequential growth we had with AxiaLIF the 15% worldwide growth that we’re starting to see that cross-selling. And I would say that that cross-selling from decompression to fusion isn’t something that happens instantaneously. It’s something that does happen over the course of time like anything else from this business its relationship based it allows our reps to build a relationship with surgeon and then cross-sell overtime as that trust is built.

And we’re starting to see some good evidence of that across the country even with our distributor leaders we’re starting to see some evidence of that as well. We’re not going to quote numbers on the exact number of surgeons that we’ve cross sold to but I think what you’re going to look at this quarter and quarters to come is the iO-Flex number and the number of new accounts we’re adding with iO-Flex and then look at our fusion business and know that that timing and additive effect driving that synergy using that relationship to help drive our overall business both decompression and fusion. So we have not been disappointed in that whatsoever. We feel we have a very unique strategy here that no other company can offer.

As you know the decompressions out number of fusions 2:1, so we have a great entrée to many surgeons with a product that no one else can complete an iO-Flex its differentiated it offers true clinical benefit so we haven’t been -- not been disappointed over the past few quarters in terms of what that’s been able to do to expand our portfolio surgeons that we can work with.

Vic Daniels - Piper Jaffray

Great, thank you. And just the last question just a follow up on the fusion opportunity. Can you give us a sense as to what is so special and attractive about the non-AxiaLIF fusion systems? And then just given the number of companies with tried into medical exclusive dose just would be helpful to get some color around how you guys expect to win this business? Thank you.

Ken Reali

Yes, you bet and that’s a appropriate question I’ll start with VEO. We spent the past 2.5 years modulating the VEO interbody fusion system which is the direct lateral system that we feel competes very well with other systems on the market today. In fact we just announced some additional patents that we’ve gained with VEO that we just issued actually today in a press release this morning. What VEO can offer first off is visualization of the psoas muscle which is part of the most difficult part of this procedure. You can use neuro monitoring and neuro monitoring tracks many of the nerves in the psoas muscle that does not track the general femoral nerve.

And when general femoral nerve is damaged or hit during this procedure it causes thigh pain this is the common incident that is been recorded and peer reviewed publications for the past couple of years. We have a paper that was published using the VEO system out of LSU in December of last year showing an improved incident of thigh pain using VEO.

We feel that as we go forward and we’re able to continue to leverage our expanding portfolio that VEO can be more of a factor, because it is differentiated it does offer something that other systems in direct lateral do not. And we do view direct lateral as a real opportunities for Baxano Surgical, it’s one of the faster growing areas of interbody fusion in the MIS sector. As far as Avance goes our pedicle screw system, our goal all along with Avance was to develop a best in class pedicle screw system and what we mean by that is a system that is just as good as the best pedicle screw systems on the market today.

We started this project 26 months ago, and we’re very excited by where we sit today with Avance and what it offers versus competing MIS pedicle screw systems. It gives us an opportunity to bundle with our interbody fusion for the first time with a true system that competes with the best systems on the market today. So we took our time to develop it’s right we’ve cross licensed patents that we think gave us a innovative edge and we’re sitting here today on the verge of a commercial launch in the fourth quarter that we think will be impactful for the company.

As far as TLIF goes, what’s differentiated and will be with our TLIF system is really iO-Tome. We launched iO-Tome in the fourth quarter of 2013 and we’ve seen some success here but what we’re missing is the complete picture or the complete system, because iO-Tome is used to remove quickly a facet joint which is commonly performed most commonly performed in a TLIF procedure. The combination is very important to offer both the cage, the TLIF cage the instrumentation as well as iO-Tome.

So we feel there the instrumentation itself will be what’s differentiated much like VEO and the ability to visualize iO-Tome it will be speed and safety and the ability to quickly remove a facet joint with a facetectomy removal device that no one else offers in a minimally invasive fashion and perform a TLIF. So to us it’s a critical piece of our own inventory and our portfolio because TLIF is so commonly performed we see it performed in conjunction with our other fusion products today. So we see this as an important next step for the Company.


We have reached our allotted time for questions. I would like to turn the call back to Ken Reali for closing remarks.

Ken Reali

Thank you, Amanda. And let me close by thanking all of you for taking the time to join us on our call today. We’re excited about the opportunities that lie ahead at Baxano Surgical. We sincerely appreciate your interest and look forward to updating you on the business next quarter. Thank you.


Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.

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