Avinger, Inc. (NASDAQ:AVGR) Q3 2018 Earnings Conference Call November 13, 2018 4:30 PM ET
Christopher Camarra - Director, Client Communications, IRTH Communications
Jeffrey Soinski - Chief Executive Officer
Mark Weinswig - Chief Financial Officer
Destiny Buch - Ladenburg Thalmann & Co. Inc.
Greetings, and welcome to the Avinger Third Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Chris Camarra, Director of Client Communications and IRTH Communications. Thank you, sir. You may begin.
Thank you. And thank you all for participating in today's call. I'd like to welcome you to Avinger's third quarter 2018 conference call. Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig. Earlier today, Avinger released financial results for the third quarter ended, September 30, 2018. Before we begin, I'd like to cover the Company’s Safe Harbor statement.
This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding the anticipated use of proceeds from Avinger’s November 2018 public offering. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially.
These risks and uncertainties, many of which are beyond the Company’s control, and include their dependency on a limited number of products; their ability to demonstrate the benefits of Avinger’s Lumivascular platform; the resource requirements related to Pantheris; the outcome of clinical trial results; potential exposure to third-party product liability, intellectual property and other litigation; lack of long-term data demonstrating the safety and efficacy of Avinger’s Lumivascular platform products; experiences of high-volume users of the Company’s products may lead to better patient outcomes than those of physicians that are less proficient; reliance on third-party vendors; dependency on physician adoption; reliance on key personnel; and requirements to obtain regulatory approval to commercialize our products; as well as the other risks described in the section entitled "Risk Factors" and elsewhere in Avinger’s Quarterly Form 10-Q filing made with the Securities and Exchange Commission on August 13, 2018. These forward-looking statements speak only as of the date hereof and should not be unduly relied upon. Avinger disclaims any obligation to update these forward-looking statements.
With that being said, I'd now like to turn the call over to Jeff. Jeff, please go ahead.
Thank you, Chris. Good afternoon and thank you all for joining us. We've continued to make significant progress on the execution of our operating plan and I'm excited to share this update with you. During the third quarter, we hit key milestones in the commercial expansion of our next-generation Pantheris image-guided atherectomy device.
We submitted a new 510(k) application for our Pantheris SV atherectomy system for the treatment of smaller vessels and we made important advancements in the development of our other pipeline products and clinical programs, including completion of enrollment in our SCAN clinical study, which compares OCT to IVUS imaging in the peripheral arteries.
We also continued to expand our intellectual property portfolio with the issuance of our fifth U.S. patent for Pantheris. With the issuance of this patent and new patent filings, we now have 137 patents issued or pending in the United States and other countries related to our proprietary technologies.
I am happy to report that we've been able to make this progress while continuing to maintain a lean cost structure. We've also added new capital to our balance sheet with the completion of a registered direct offering in July and completion of an underwritten public offering in November, which provided total gross proceeds of $15 million from the two transactions combined.
At this point, I'd like to provide some further updates on our next-generation Pantheris, the first and only image-guided atherectomy system for the treatment of peripheral artery disease or PAD. We received 510(k) clearance for the significantly improved system in May 2018 and following a limited release launched more broadly to our U.S. installed base in June.
We have been pleased with the performance of the device since launch with quality, reliability, and most important clinical results, meeting or exceeding our and our physician customers’ high expectations. During the third quarter, our sales team's focus was on expanding penetration and supporting utilization of next-generation Pantheris.
Within the first three months of launch, next-gen Pantheris cases were performed in 35 accounts and we announced in September, that Lumivascular physicians had successfully treated over 200 patients with the new device. Pantheris sales in the third quarter increased 10% compared to the second quarter and were the primary driver of our catheter growth during the period.
Total revenue of $2 million for the third quarter was relatively flat with the second quarter based on lower capital sales during the third quarter as we focused on next-generation Pantheris along with typically lower seasonal sales trends for elective procedures in the summer months.
As we look to the fourth quarter, our sales team is focused on driving utilization and existing accounts, expanding next-generation Pantheris into more of our installed base and building a pipeline of high potential new accounts for further expansion.
We're pleased with our progress and expect to be in a position to announce our 500 successful case with next-generation Pantheris prior to the end of this quarter. With the availability of our next-generation device and looking forward to the introduction of our pipeline products, we've also made progress in building our salesforce.
We increased our sales headcount to 20 sales professionals at the end of the third quarter and anticipate continuing to expand our sales presence on a measured basis in the fourth quarter and throughout 2019. With the expectation of adding two to three sales professionals to our team per quarter, as we increase the business and position the Company for accelerated growth in 2019.
On the new product front, in August, we submitted a 510(k) application to the U.S. Food and Drug Administration for our Pantheris SV or Small Vessel image-guided atherectomy system.
Pantheris SV was designed with a lower profile and longer life and it's intended to expand the number of addressable procedures for Pantheris by allowing physicians to target lesions and smaller diameter vessels and more distal regions of the vasculature.
Pantheris SV incorporates key improvements introduced to the platform with the next-generation Pantheris system as well as additional modifications to simplify the procedure for the treatment of Small Vessel disease.
In October 2018, we announced that we received CE Marking for Pantheris SV. The CE Marking allows for distribution of Pantheris SV in the European Union and certain other countries that recognize CE Markeing. By receiving early CE Marking, we're now in a position to perform our first clinical cases with this innovative new device and look forward to reporting on our first clinical cases with Pantheris SV at initial sites in Germany this quarter.
We're excited about the potential of the Pantheris SV device to improve the standard of care for patients and to expand our business. By allowing for the treatment of lesions and smaller diameter vessels and in more distal regions of the vasculature, we believe Pantheris SV has the potential to expand our available market by as much as 50%, which would allow us to address a significantly larger portion of the estimated $500 million atherectomy market.
We're hopeful that we'll receive 510(k) clearance for Pantheris SV in early 2019 and anticipate commercial launch in the U.S. in the first half of 2019. Over the past quarter, we've also made significant progress in the development of our next-generation CTO crossing devices.
CTO stands for chronic total occlusion, which is used to refer to completely blocked or totally occluded artery, a severe form of PAD, a CTO crossing device is used to create a passage through a blocked artery so that guidewire can be introduced and further treatment can be provided.
We currently market the Ocelot family of catheters, which are the first and only image-guided CTO crossing devices available on the market. This mature product line is extremely reliable and a strong clinical data and excellent real world clinical results. With the development and introduction of our next-generation system, which we call Ocellaris, we see the opportunity to expand our presence in the specialty CTO crossing market.
This new device leverages the Pantheris imaging system for real-time, high definition OCT imaging and will incorporate a number of other advances and improvements, including the ability to spin at the speeds up to 1,000 RPMs and a steerable tip for precise maneuverability.
We believe that these improvements will further our competitive advantage for the treatment of CTOs. We anticipate submitting a 510(k) application to the U.S. FDA in the first half of 2019 for the use of Ocellaris and the peripheral arteries, and we expect to pursue CE Marking for commercialization and the EU and other CE Mark countries during the same period.
This initial release of the Ocellaris product platform is being designed for use in the peripheral arteries. In addition, we believe the platform will provide a strong for the development of proprietary image-guided CTO-crossing devices for total blockages in the coronary arteries, which were a driver of highly invasive coronary bypass surgery and which we believe represents a substantial unmet need in the medical community.
During the third quarter, we also made good progress on our clinical study programs. In August, we announced the completion of enrollment in the SCAN clinical study, a post-market study comparing optical coherence tomography or OCT with Pantheris to intravascular ultrasound or IVUS as a diagnostic imaging tool in the peripheral arteries.
We expect to be in a position to release initial results from the SCAN study this quarter and expect final results to be submitted to a peer-reviewed journal by the studies physician investigators for publication in 2019. In addition, we continue to enroll patients in our INSIGHT IDE clinical trial.
INSIGHT is a multicenter clinical study, designed to evaluate the safety and effectiveness of Pantheris for treating in-stent restenosis, or ISR, in lower extremity arteries. We now have 12 sites opened for enrollment and expect to add three to four more sites to the study by the end of the year.
The next-generation Pantheris has been approved for use in the study and all future INSIGHT cases are being performed with this device. As we continue to build our existing sales channels, we will look for new opportunities to sell our products in the U.S. market and overseas, and we will continue to expand our sales and marketing presence to support the growth of our business.
Looking forward to 2019, we are anticipating FDA clearance and U.S. commercialization of our Pantheris SV device early next year. And as a result, we believe we could see accelerated growth in 2019 based on the strength of our new product platforms and the highly differentiated benefits of our lumivascular approach for the treatment of PAD.
I'll now turn the call over to Mark to discuss the Company's current financials. Mark?
Thank you, Jeff. Typically in the third quarter, Avinger experiences some softness due to summer vacations and holidays in the U.S. and abroad. We were pleased to see that our business was relatively flat quarter-to-quarter despite the seasonal headwinds. This was due to stronger disposable revenues primarily from our next-generation Pantheris device.
Now let me turn to our detailed financials. Total revenue was $2 million for the third quarter ended September 30, 2018, relatively flat with the second quarter. Revenue from disposable devices was $1.65 million for the third quarter, higher than the second quarter of 2018.
Revenue related to Lightbox imaging consoles and other products was $0.4 million, down from the prior quarter as the sales team continues to focus on supporting catheter utilization in our most productive territories.
Gross margin for the third quarter of 2018 was 27%. The increase in our gross margins for the quarter was primarily due to a deduction in excess and obsolescence charges and lower operating expenses. We continue to believe that there are significant opportunities to increase our gross margins as we grow our revenues.
Operating expenses for the third quarter were $5.7 million compared to $5.4 million in the prior quarter. As we mentioned last quarter, we expect our sales and marketing expenses to increase in future periods. With attraction we are seeing in the marketplace, our next-gen Pantheris device, we believe it is time to start expanding our direct sales team in key territories to drive revenue growth.
Loss from operations for the third quarter of 2018 was $5.1 million compared to $5.5 million for the prior quarter and net loss attributable to common stockholders for the third quarter of 2018 was $6.2 million. Adjusted EBITDA, which is a non-GAAP measure that excludes excess and obsolete inventory reserves, restructuring, stock compensation and other items, as noted in the tables in today's press release, was a loss of $4.1 million for the third quarter of 2018, compared to a loss of $4 million in the immediately preceding quarter.
We have made significant progress in controlling costs and lowering our cost structure. With the successful launch of the Pantheris device, we are making some investments in our sales and marketing functions to grow our business, which may increase our operating expenses over the next one to two quarters.
Cash and cash equivalents totaled $10 million as of September 30, 2018. This excludes the net proceeds of roughly $10 million that we raised in November 2018 as part of the sale of 3.5 million shares of common stock, 8,586 shares of preferred stock, which is convertible into 21.4 million shares of common stock and approximately 29 million warrants.
As of September 30, 2018, there were approximately 11.6 million shares of common stock, 41,800 shares of Series A preferred stock and 1,701 shares of Series B preferred stock outstanding. Each share of Series B preferred stock after taking into account the effect of the November fundraising is convertible into approximately 2,500 shares of the Company's common stock at a conversion price of $0.40.
Assuming conversion of all of the outstanding shares of the Series B preferred stock and the current conversion price of the Series B preferred stock, the Company would have approximately 15.8 million shares of common stock outstanding at September 30, 2018, excluding outstanding warrants and the Series A preferred stock, which is not presently convertible.
At this point, I'd like to turn the call back to Jeff, for any final remarks.
Thanks Mark. We're pleased with the progress we've made this quarter with the achievement of a number of important milestones including the U.S. 510(k) filing and CE Marking approval for Pantheris SV. We're thrilled with the performance of our next-generation Pantheris in a real world clinical setting, and we are making strategic investments to expand our sales and marketing presence and advance our product development pipeline to drive revenue growth in 2019 and beyond.
With that, we'd be happy to take your questions.
Thank you. Ladies and gentlemen, at this time, we will be conducting the question-and-answer session. [Operator Instructions] Our first question is from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Hi. This is actually Destiny on for Jeff. How are you guys doing today?
Great. Destiny, it's hard to hear you.
Okay. Is that better?
Yes. That is better. Thank you.
Okay. So I just kind of wanted to touch on the salesforce for a moment, I know you said that you’ve had added some bodies this quarter and you were continuing to do that. Are you able to tell us what territories those are in or at least give us a general area? And then can you also remind us how long the sales cycle is?
Yes. So first of all, we did add a couple of folks in the third quarter. We ended the quarter at 20 sales people and we do expect to continue to build the salesforce at a rate of about two to three sales professionals per quarter as we end this year and all the way through 2019. Our philosophy is to build the group as we build the business as opposed to building a large group in advance.
We are really pleased with the quality of new hires that we've had at the Company. Highly experienced folks who've operated in this space, bring existing relationships and a high degree of clinical acumen. We're adding both clinical specialists to support utilization and existing accounts as well as in certain areas, territory, sales managers to help build our pipeline and grow our business beyond the initial installed base.
So a strategic and important investment for the Company as we drive growth and prioritized revenue growth as a Company, especially on the back of this highly performing next-generation device and our highly anticipated Pantheris SV device.
So we've run primarily going a little deeper and existing territories as we've started to add and build the group when you look at our geographical distribution of sales reps as it relates very directly to volume in PAD, where the disease is, Texas, Louisiana, Philadelphia area, Chicago area, and as we continue to drive volume and build accounts in certain areas, we'll add salespeople or clinical specialists to support an existing rep.
But now as we look to 2019, we'll start to add geographically as well. As you know, we have a pretty large install base. We are not currently actively covering that entire installed base, so we see an opportunity not only to expand within existing accounts, where we have coverage, but then to strategically add to our geographic coverage universe as we go through 2019. Does that answer your question on the sales folks and the strategy, Destiny?
Okay. Yes, it does. Thank you. And then I also wanted to just touch on the insight trial. I know you said that you were continuing to enroll patients at about 12 sites, how many patients have been enrolled to-date?
So we've been focused as we've talked about on last calls, our desire has been to get the new next-generation device into that study. We're currently in the low-20s in our enrollment, but now that we have the approval to put the next-generation device into the study.
We've begun shipping that device to our site and are focusing our, not only our sales organization, but our clinical organization, in working with our physician partners and physician investigators in the study to increase the pace of enrollment. ISR studies typically enroll at a little slower rate just because of the availability of patients to meet the inclusion criteria. But we do expect that to accelerate as we go through 2019.
Okay. Got it. Thank you. And then, I guess was curious if you – if the feedback you were getting on the next-generation Pantheris what you expected or you're thinking that stood out positively or negatively, feedback from the persons, of course?
No, I mean we are really thrilled with the performance of the device. And most importantly, our customers and our physician – users are very happy with the performance of device. I mean, one of the things that we focused on initially and primarily is quality and reliability. We've seen a dramatic improvement in the performance of this device on those metrics.
We also have simplified the procedure by reducing from a two balloon system to a single balloon and have introduced in this system not only a refined OCT imaging, which provides spectacular imaging, but also a new cutter design, which has more active tissue engagement.
Probably the thing that we've been most – maybe surprised to the upside was just how efficient a cutter this is and how effective it is at plaque removal even beyond our initial generation device. But really nothing, but good positive results to report and we're very confident that this will continue to make an important differences in our business as we go forward.
And as you may remember, we did incorporate virtually all of the improvements that we had done in the next generation device into our Pantheris SV platform as well as having now a longer length and lower profile, so that we can treat smaller diameter vessels down to two to four millimeters in diameter.
That system also eliminates the need for a balloon for occlusion due to the smallness of the vessels. So it is an even simpler device to use. So we're very excited to report on first experience in Europe and certainly I'm anxious and hopeful that we'll be able to introduce that device into the U.S. early in 2019.
Got it. Thank you. That’s it for me. Thank you for the thorough responses and for taking the questions.
End of Q&A
Thank you. Ladies and gentlemen, this does conclude our question-and-answer session. At this point, I would like to turn the floor back over to Mr. Soinski for any additional concluding comments.
Well, thank you all for joining our call this afternoon. We appreciate your interest in the Company and look forward to updating you on our progress when we report the fourth quarter and year-end. We also will be presenting the Company at the Canaccord Conference this Thursday and a press release was issued with webcast information as well if you'd like to get further updates. Thank you so much and have a good afternoon.
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.