Attached files
file | filename |
---|---|
8-K - FORM 8-K - BAXANO SURGICAL, INC. | g23306e8vk.htm |
EX-99.1 - EX-99.1 - BAXANO SURGICAL, INC. | g23306exv99w1.htm |
Exhibit 99.2
Operator: Good day, ladies and gentlemen and welcome to the TranS1, Inc. First Quarter 2010
Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will
conduct a question-and-answer session and instructions will be given at that time. [Operator
Instructions] As a reminder, this conference call is being recorded.
I would now like to hand the conference over to your host, Mr. Mark Klausner. Sir you may begin.
Mark R. Klausner, Managing Partner, Westwicke Partners, LLC
Thanks, operator. Joining us on todays call are TranS1s Chief Executive Officer, Rick
Randall; President and Chief Operating Officer, Ken Reali; and Chief Financial Officer, Joe
Slattery. 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.
Actual results could differ materially from those stated or implied by our forward-looking
statements, due to risks and uncertainties associated with the companys business. The company
undertakes no obligation to update information provided on this call. For a discussion of risks
and uncertainties associated with TranS1s business, I encourage you to review the companys
filings with the Securities and Exchange Commission, including its annual report on Form 10-K for
the year ended December 31, 2009.
With that, its my pleasure to turn the call over to TranS1s CEO, Rick Randall.
Rick Randall, Chief Executive Officer
Thanks, Mark. Good afternoon and thank you for joining us today to discuss TranS1s first
quarter results. On todays call, I will discuss the key highlights of the quarter and our new
CFO, Joe Slattery, will provide you with the details of our financial results. I then would like
to share with you some additional perspective on the key developments in our business after which
Ken, Joe and I will take your questions.
Worldwide, 692 TranS1 procedures were performed and we generated $6.7 million in revenue
during the first quarter. While we are encouraged by the case and revenue performance in the
quarter, as Joe will detail in a few minutes, we benefited from the limited release of our AxiaLIF
2L+ and Avatar products, which will transition to full release later this year.
We are continuing to take a cautious stance towards the businesses. We see how our new
products gain traction and we work with our surgeons as well as the spine societies and payers on
reimbursement. Before I turn the call over to Joe, I would like to highlight some recent
operational developments, which I will detail after Joe discusses our financial performance.
One of the most important accomplishments of the year so far is the significant additions that
we have made to our senior management team. Ken Reali joined us as President and COO in January,
Dwayne Montgomery joined us in March as our Vice President of Sales and Joe Slattery joined us
recently as our Executive Vice President and CFO. Ken, Dwayne and Joe all bring significant
operating and medical device industry expertise to the team, which will help us execute on our
business strategy.
On the product front, we have commenced the limited market release of the AxiaLIF 2L+ along
with both the Avatar pedicle screw system and our next generation Vector facet screw system. Early
cases have gone well and surgeon feedback has been strong. We continue to have early success in
the complex spine market. We held our first Association of Pre-Sacral Spine Surgeons or APSS
meeting focused on deformity surgeons in January and intend to hold another one in June.
In addition, we are beginning to see some good clinical data published on the use of our
product in this area. We continue to work through reimbursement, as our reimbursement personnel
work with our current and prospective surgeon users, the payers and the spine societies.
We recently had one peer reviewed paper published and have been informed of an additional peer
reviewed paper that has been accepted for publication, which will build upon the strong clinical
evidence supporting the use of our products.
I would now like to turn the call over to Joe to review our financial results. Joe?
Joseph Slattery, Executive Vice President and Chief Financial Officer
Thanks, Rick. Good afternoon everyone. Let me start by conveying how excited I am to join
the team here. Having been involved as a Board member over the last couple of years I have been
able to hit the ground running since joining the company last month and I look forward to working
with you all.
Revenues in the first quarter of 2010 were $6.7 million, an increase of approximately $400,000
or 7% over the fourth quarter of 2009. Versus the prior years first quarter, revenues were down
about $2 million or 23%. The decrease from the prior years Q1 was due to the impacts of the
reimbursement environment, which began to cause a headwind in the second quarter of 2009. Within
the $6.7 million revenue figure, U.S. revenues were $6.0 million, an increase of $100,000 or 1.5%
above the fourth quarter of 2009.
As Rick mentioned, we initiated our 2L+ limited market release during the quarter. We have
already met our minimum enrollment requirement and well continue selling under our limited release
program in the second quarter. Based on historical 2-level case run rate, we believe that the
limited release contributed about $300,000 in revenue in the quarter that may be non-recurring in
the second quarter, because we will be awaiting data and preparing for a full launch in the
beginning of Q3.
Since it will take some time to train our existing surgeon base, as well as new surgeon users
following the launch, we expect the fourth quarter to be the first in which we see the full impact
of the 2L+ product. 537 domestic cases were performed in the first quarter of 2010 using our
products, a small drop from the 550 cases performed in the fourth quarter of 2009. On the 2L
versus single-level mix, 26% of cases were 2-Level, up from 21% in the previous quarter.
Average revenue per AxiaLIF case of approximately $11,000, was up nicely over last quarters
ASP of $10,300, reflecting stable to slightly improved underlying prices and mix shifts to higher
priced 2-Level procedures, as well as an increase in the penetration of our other products, such as
our Avatar Pedicle Screw System into our AxiaLIF cases.
Revenues generated outside of AxiaLIF cases were about $100,000 in the quarter. On the
International front, revenues for the quarter were approximately $700,000, an increase of almost
100% over the fourth quarter of 2009 and about 50% over the first quarter of 2009. Last year, we
began to transition to a higher mix of direct revenues and these results show the benefit of
recognizing end-user sales. Because of this transition, in the past we had reserved for the
potential return of inventory from terminated distributors.
Now that the landscape has settled, in the current quarter we recognized approximately $80,000
in revenues associated with these accounting treatments. When we normalize revenues for the
quarter after considering the impact of the 2L+ launch of about $300,000 and the deferred revenues
in Europe of about $80,000, the underlying run rate for the quarter was about $6.3 million.
Taking into account this adjusted run rate, in terms of guidance for the second quarter of
2010, we expect revenues in the range of $6 million to $7 million. Gross margin for the quarter
was 78.7%. The decrease from the prior quarter was due primarily to an increase in inventory
reserves associated with our current 2L inventory, a significant portion of which is likely to
become obsolete upon the full 2L+ launch.
This increase in reserves had a 396 basis point impact on gross margin, implying a normalized
gross margin of about 83%.
Moving on to operating expenses, total operating expenses were down 7.4% in the first quarter
of 2010 as compared to the first quarter of 2009, as a result of cost management efforts undertaken
over the last year.
2
In the first quarter of 2010, we incurred approximately $875,000 of non-recurring costs
associated with organizational transition and facility relocation, primarily related to changes in
the management team. Excluding these costs, operating expenses are about 14% lower versus the same
period last year and were approximately equal to operating expenses in the fourth quarter of 2009.
Some of these organizational transition costs are ongoing and we expect another $500 to
$600,000 over the balance of 2010. We finished the quarter with a little under $50 million in cash
and investments. Accounts receivable DSO was 61 at quarter end, which is a little higher than last
quarter, but the difference had mostly to do with the timing of revenue in the quarter.
Inventory turns improved from 0.7 to 0.8 turns. We expect to continue to see inventory turns
improving in the coming quarters, as several efforts are underway to reduce inventory through
better forecasting and the implementation of improved systems to manage field inventory. Cash burn
for the quarter was $5.5 million.
When we factor in all the non-recurring items Ive mentioned above, the underlying cash burn
for the quarter on a normalized $6.3 million in revenue was about $4.7 million. We continue to
believe that we have adequate cash and investments to sustain the business for the foreseeable
future. Rick?
Rick Randall, Chief Executive Officer
Thanks, Joe. Before we open the call up for questions, Id like to add some color on our
operations and recent developments. As we mentioned on our last call, we had a number of new
products in the market in limited release in the first quarter and we have been encouraged by their
early success. Our 2L+ product was introduced in January to a select number of our experienced
users.
The 2L+ is a 2-piece modular design of our AxiaLIF 2-Level device that provides surgeons more
control during the operation and allows them to dial in the amount of distraction between the L5
and S1 level. Additionally, the shape and dimensions of the device is modified to provide a more
robust and stable implant construct. The feedback from surgeons participating in our limited
release has been positive, and based on this feedback we are optimistic that this product addresses
the limitations of our first generation 2L product.
We expect to complete our limited release follow-up during the second quarter, during which
time 2L+ volume will likely remain muted. We expect that our full release will take place at the
beginning of the third quarter and that our surgeon training efforts will continue throughout the
quarter.
Therefore, we expect to see our first full quarter of 2L+ commercialization in the fourth
quarter of this year. Our Avatar mini open pedicle screw product is also still early in its
limited release. While we are enthusiastic about this technology, we are taking a measured
approach to introducing the device through our sales force, as it is a completely new product for
us, and a new system for our surgeon customers. We continue to expect full launch of this product
in the second half of 2010. Our second-generation percutaneous facet screw product, the Vector
system was also in limited market release in the quarter.
The Vector is easier and more efficient to use in our original percutaneous facet screw system
and also had some added tools to facilitate additional posterior fusion. The feedback from our
surgeons indicates that this is clearly an improved system over our earlier product and we expect
that we will move into full launch in the second quarter.
As we think about prudently investing in R&D over the course of the year, we intend to
continue to improve in our current products on our current products and instrument sets and will
look opportunistically at products like the Avatar system that complement our existing product
family. Along with our new product introductions, we are continuing our focus on penetrating the
complex spine market and we continue to see new deformity surgeon users on an ongoing basis.
To further educate surgeons on the use of our products in complex spine cases, we will hold
our second deformity-focused Association of Pre-Sacral Spine Surgeons, or APSS Meeting in early
June. Additionally, we are expecting to see early biomechanical results presented at IMAST over
this summer. Further, we are sponsoring a
3
sacroiliac fixation study with a few of our surgeons that we expect will be completed by the
end of the year. The study compares our product with other methods of fixation at the base of the
spine to illustrate the biomechanical differences between approaches. We believe that studies like
these will continue to highlight the advantages of our product in complex spine that our current
users are seeing in the clinic.
Turning to reimbursement, our reimbursement team continues to execute on our plans to work
with current and prospective surgeons, the payer community and the spine societies. While this
continues to be a long process, it does feel like we are seeing early signs of stabilization in the
market. We are enthusiastic about the addition of Dwayne to the team to head up the sales effort
and anticipate making selective investments in our distribution channels as we move as market
conditions warrant in the second half of the year.
As our business develops, we will continue to evaluate the market and make the investment in
direct reps or independent distribution, based on what is most appropriate in each geography. On
the clinical front, we had one peer reviewed journal article published in neurosurgery focus in
March that highlighted the use of our product in adult deformity cases.
And at both one and two-year follow-ups, the key findings of the article were that at both one
and two years, we demonstrated 100% fusion at the lumbosacral junction and a stable construct at
the base of the spine. Additionally, we have received notice of acceptance for publication of a
paper that examines a series of single level AxiaLIF patients performed at one site with one-year
follow-up.
Before I open the call up for questions, Id like to comment briefly on the Spine Arthroplasty
Society Meeting that was held last week in New Orleans. TranS1 was discussed prominently in four
podium presentations and eight posters. The highlight of the meeting for us was data that was
presented from one from the podium on a retrospective analysis of a series of 154 patients across
multiple sites with two-year follow-ups. The data showed 90-plus percent fusion rate, low
complication rates, limited blood loss, early hospital discharge, and rapid recovery with sustained
results.
This data along with the other data presented adds to the mounting clinical evidence around
our procedure that will be helpful in our sales process and reimbursement discussions.
With that Id like to open the call up to take your questions.
QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] First question comes from Doug Schenkel from Cowen.
Pardon me, Mr. Schenkel, your line is open. If you have your phone on mute, can you unmute your
phone, please.
<Q Brigham Hyde>: Hi, this is Brigham in for Doug. I think were on two different lines.
Hey guys. Just briefly talk, if you could, about some of the reimbursement management you guys
have been doing. I know that you discussed recently some of the intricacies of coding in maybe
more complex spine, and maybe a kind of a change of strategy heading into the year. Could you talk
maybe about how thats going and if surgeons and payers are receiving that well?
<A Ken Reali>: This is Ken Reali. I can comment on what our strategy is. I think its
too early to comment on the success or not of that strategy. But I would think about our strategy
in three pathways that we are pursuing, which were highlighted on the call today. First off, it is
working with the payers to remove our experimental designation over time and this has to be done on
a payer-by-payer basis. Secondarily, its working with the spine societies to gain endorsement and
acceptance of our procedure in a broad manner. And thirdly, its working with our physician
customers getting further clinical data published and presented at key meetings such as the SAS
Meeting that was discussed last week.
<Q Brigham Hyde>: Okay, thanks. And just one follow-on. What percent of procedures would
be 2Ls without the 2L+ and is this kind of the right run rate to think about for Q2 and Q3, as you
model out just base 2L?
4
<A Joseph Slattery>: Yeah, this is Joe. I would say about maybe about 15% of the cases
in the quarter, 15% to 20% of the 2L cases in the quarter were the 2L+ cases.
<Q Brigham Hyde>: Great. Ill hop back in the queue. Thanks guys.
Operator: Our next question comes from Doug Schenkel from Cowen and Company. Good morning, Mr.
Schenkel. Your line is open. If you have any questions, please un-mute your phone. Our next
question comes from Matt Miksic from Piper Jaffray.
<Q Matt Miksic>: Hey, good evening. Thanks for taking our questions. Can you hear me
okay?
<A Rick Randall>: Yeah. Hi Matt.
<Q Matt Miksic>: Hi, Rick. So, one question on some of the results that you are seeing,
and the data looked great at SAS and one of the things that I guess Ive noticed and you may have
noticed if you have talked to surgeons, there are some folks who seem to be doing quite well with
this procedure and a lot of excitement around some of the folks in complex spine who are picking
this up. But then there are some folks who have either tried it but stopped using it and they feel
like or they talk about having mixed results. And the data is the data, which would suggest that
in a clinical setting with follow-up across the multi-center format that the results are good. I
guess how do you reconcile that and maybe what can you do to start recapturing some of those folks
who sort of wandered off after getting what they felt are mixed results? Any kind of thoughts on
that will be helpful and then I have one follow-up.
<A Rick Randall>: Sure, Matt. Yes, when we analyzed surgeons that we lost to the
procedure, I think the two most common reasons weve lost them is a) or maybe three reasons, a)
they didnt have an expanded clinical need for the technology. They were very narrow in their
indications. And so they just werent using the technology enough to really stimulate them to to
invest the time and effort to improve their results and get better with the technology. Secondly,
if someone I think our total experience in over 9,000 patients treated is right around 50 bowel
injuries, but we if we had one of those, if a surgeon experienced one of those early on, more
likely than not that surgeon didnt come back to the operation, and thirdly, its technique..
There is variability amongst users. Even in that paper I cited that was present that you
saw presented last week, Matt, there was some variability within that group from the mid 80s all
the way up to the high 90s in fusion rates. So what are we doing about it? I think over the next
couple of quarters you are going to hear us talk about some products that we think address all of
those things.
Firstly, we have a soft tissue project that we cant wait to talk about. We should be in the
clinic with it shortly where we completely change the way were protecting the bowel during the
operation. Obviously, we are going to go running back to the surgeons who are uncomfortable with
that aspect of the operation or who left us because of that discomfort.
Secondly, we have a whole series of dispreparation tools that we have actually used sparingly
in the clinic early on, we are going to be doing some more work over the next quarter with that and
hopefully well release that to the market. And the purpose of that is we feel that these tools
will kind of level the playing field from a technique standpoint, that even with a less perfect
technique that we should increase the reproducibility from operator to operator on getting a good
discectomy. And regardless of what you use in the disc space, the key to a good solid robust
fusion, it starts with a good discectomy.
Most of our surgeons spend a lot of time on that part of the operation to get great results.
We think that we can make it less operator dependent. And lastly, what you saw again at that
meeting, the marketplace is now telling the story that the indications for AxiaLIF are a lot
broader than just low back pain that that its a great tool for spondylolisthesis. As minimally
invasive surgery grows and we reach that tipping point with minimally invasive surgery, were
finding with all techniques that the most difficult part of the anatomy to reach and sustain a good
safe result where the complications are limited is the L4, L5, and L5-S1 segment. And what were
seeing now is these patients who have moved on to these multi-level, minimally invasive approaches,
especially with products like the
5
2L+ and thats what weve seen in the limited market release, they are more comfortable
utilizing this approach for both of those segments and we have no nerve damage, we have no patients
with extended thigh pain.
Our complication rate is extremely low. So the marketplace is telling the rest of the world
that this solves an unmet clinical need when it comes to MIS, which is a better fixation and a
safer, more reproducible fusion at L4 through S1. So its a long answer, but I think it covers all
aspects of the question you asked.
<Q Matt Miksic>: Very helpful. And one follow-up on reimbursement. You talked about
seeing some stabilization, and I guess, stabilization in what way? Is that is that sort of the
loss of surgeons stabilize or is this improvement in the process, some of the things that Ken
talked about, working with payers or some sense of what you mean by that. And is the end I
think we understand the sort of shift in near-term strategy, but is the end game here youre still
to get Level 1 code and if so when does that finally happen?
<A Ken Reali>: Yeah, Matt, this is Ken Reali. Let me answer your question. First of all,
its still too early to project the success of our current strategy, as I mentioned. I think what
we mean is by stabilization is just in our results itself, we are not seeing a decline
quarter-over-quarter like we saw in the second half of 2009. What contributes to that? Certainly,
we feel some of that is related to our three-pronged approach on our reimbursement strategy, which
is the current strategy that we are going forward with, and to your point, the end game is the
category 1 code.
Now it is important to remember that the current code we have, which is a T code, is not an
experimental code, it is a tracking code. What we hope to do in the near term is work with payers
to get that tracking code covered. Over time, as we evolve on this strategy and we penetrate the
market, a decision will be made when we would apply for a category 1 code. But until we are
successful in all parts of our strategy relative to payer acceptance and spine society endorsement
and continued publications we will not submit for a category 1 code.
<Q Matt Miksic>: Okay. And just one follow-up on that topic Ken is, Rick talked about,
the broadening indications where AxiaLIF can be helpful to patients. What happens, I guess, with
those indications? Are those things that you look at for clinical development, other things you I
guess how do you go about developing those or is the game plan now is just to sort of continue to
focus on stabilization based on your current T code and current labeling and then tackle this maybe
after you get to this next step of progress in the reimbursement front?
<A Ken Reali>: Matt, I think it actually it needs to be done concurrently. Certainly
some of these areas that Rick mentioned such as deformity, which is a key market segment focus for
us or spondylolisthesis, our new emerging areas beyond just the typical degenerative disc disease
patients. So tapping into that those market segments is critical part of our strategy and
critical part of our market penetration strategy that we have to continue to execute on despite our
reimbursement challenges. So that will be done in concurrence with our reimbursement strategy. We
will work to collect clinical data in those market segments because we feel that will help broaden
the acceptance of AxiaLIF.
<Q Matt Miksic>: Great, very helpful. Thanks for taking the questions.
<A Ken Reali>: Thank you.
<A Rick Randall>: Thanks, Matt.
Operator: [Operator Instructions] We have a question from Michael Matson from Wells Fargo.
<Q Michael Matson>: Hi. Given the push into the deformity market, I was just wondering if
you had any numbers around the size of that opportunity in terms of either dollars or procedures, I
guess U.S. and globally?
<A Rick Randall>: Yes, Michael, we have measured it. Off of the top of my head, I cant
recollect the do you have that number, Joe?
6
<A Joseph Slattery>: Well, I mean, what I can tell you is that we look at a 5-1 as about a
45,000 procedure market in the U.S. and four to five that is included with the 5-1 is about
another 45,000 procedures. Within that since thats whats done in the market today that would
include the long construct cases.
<Q Michael Matson>: Okay. So thats inclusive of non-deformity and deformity procedures?
<A Joseph Slattery>: Thats all thats all yeah thats right. Thats all procedures
are fusions of those joints.
<Q Michael Matson>: Okay. And in terms of what percent the deformity cases would make up
out of those numbers?
<A Rick Randall>: I think its a relatively small percentage of those numbers.
<A Joseph Slattery>: Yeah, maybe you can answer this Rick. Iliac bolts doesnt count as a
fusion now. So, there wouldnt be any existing market, right. So, to the extent that it is 5-1,
then it is additive to the market.
<Q Michael Matson>: Okay. And then, did you give the number the number of sales people
that you have currently, and if not, can you give it to us?
<A Ken Reali>: Yeah, Michael it is Ken Reali. Currently, we have 49 direct sales people.
That does not include our distribution channel.
<Q Michael Matson>: Okay. And then just curious about what youre seeing out there in
terms of pricing. Obviously there is some pretty intense price pressure in the spine market more
broadly, but has any of that filtered down to your products? I imagine youre pretty small, so you
are probably not really in the hospital radar screens, but is there any risk that you could see
some price pressure or is your product unique enough that you should be able to avoid that?
<A Joseph Slattery>: Yeah, Mike, this is Joe. Weve actually held at that unit price
level pretty well over the last couple of quarters. I think what we are experiencing is the
impacts of some price increases offset by some hospitals being woke up by price increases. So, by
and large, our standalone pricing has been stable to slightly ticking up.
<Q Michael Matson>: Okay. And thats kind of what you expect going forward, obviously, in
the remainder of the year?
<A Rick Randall>: Yeah. And just to add a little color to that, now that we are selling
pedicle screws and weve been selling facet screws, just from an environmental standpoint, I can
tell you that there are more there is more pressure on those products than what weve seen
traditionally with AxiaLIF. The fact of the matter is, we are the only one with AxiaLIF and when
you run the economics of AxiaLIF with patients leaving the next day its still a pretty good deal
for the hospital, but now that we have a competitive screw system along with a whole host of other
vendors, I can tell you were getting into those discussions more when it comes to those products.
Michael, just one further, when you talked about the the [inaudible] market size for the complex
spine or multi-level spine, the numbers we have roughly are in the neighborhood of about 130,000
procedures that are greater than three levels. Now 58,000 of those do not involve L4 to S1, the
rest do. So, just to give you some numbers from some data we have.
<Q Michael Matson>: Okay, thats helpful. Thanks. And then my follow-up question is just
kind of a housekeeping question, and you probably gave this but I didnt get it. The total number
of procedures in the quarter globally, and I got the U.S. number but I didnt get the OUS or the
global number, either of those would be fine?
<A Joseph Slattery>: Sure. Hold on, let me get that for you. 692.
<Q Michael Matson>: Okay. Thats all I have. Thanks a lot.
<A Joseph Slattery>: Great. Thanks.
7
Operator: This concludes our question-and-answer session for today. I would now like to turn the
conference back over for any closing remarks.
Rick Randall, Chief Executive Officer
Okay, thank you. Let me close by thanking all of you for taking the time to join us on our
call today. We sincerely appreciate your interest in TranS1 and look forward to updating you on
our continued progress.
Operator: Ladies and gentlemen, thank you for participating in todays conference. This concludes
our program for today. You may all disconnect and have a wonderful day.
8