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Operator
Good afternoon, ladies and gentlemen, and welcome to the Avenger fourth quarter and full year 2022 results call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. If you would like to enter the queue at any time, you may press star 1 on your telephone keypad. Should you wish to remove yourself from queue, you may press star 2. It is now my pleasure to turn the floor over to Matt Kretz, Investor Relations for Avenger. Matt, the floor is yours.
Matt Kretz
Thank you, Tom, and thank you, everyone, for participating in today's call. I'd like to welcome you to Avenger's fourth quarter 2022 conference call. Joining us today are Avenger's CEO, Jeff Zawinski, and Principal Financial Officer, Nabil Spanetti. Earlier today, Avenger released financial results for the quarter and year ended December 31, 2022. A copy of the release is posted on Avenger's website under the Investor Relations tab. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which remain pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation our future financial expectations, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q filings with the Securities and Exchange Commission. Avenger disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Today's presentation will also include reference to non-GAAP financial measures, such as adjusted EBITDA. A reconciliation of these non-GAAP financial measures and the most comparable GAAP financial measures is available within the earnings release, which we found on AVENGER's website. And with that, I'd like to now turn the call over to Jeff.
Tom
Thank you, Matt. Good afternoon, and thank you all for joining us. Over the past year, we made important strategic moves to advance our technology platform, build out our peripheral product portfolio, and create exciting new future growth opportunities for the company. In April, we launched our Lightbox 3 next-generation imaging platform, which incorporates a state-of-the-art laser system into a sleek, highly portable console. expanding our capabilities, and bringing new efficiencies to our engagement with both new and existing accounts. We've also filed FDA 510 submissions for two new image-guided catheters, Tiger IST for CTO crossing and Pantheris LV for atherectomy, which bring important new features and benefits to our peripheral portfolio and provide the opportunity for two new product launches this year. Over the past several months, we've made significant progress in the development of our first coronary product application, establishing a clinical advisory board made up of highly experienced interventional cardiologists in the fields of coronary CTO crossing and intravascular imaging and gaining important feedback on design prototypes for further development and evaluation. Our work to date has made us even more enthusiastic about the potential for our proprietary OCT-guided approach to revolutionize this market with the first and only image-guided system for crossing coronary CTOs. During the fourth quarter, we reported solid operating metrics, improving gross margin and driving continued improvement in our operating cost model compared to the year-ago period. While the direct impact of the COVID crisis itself has lessened, we continue to see the effect of staffing shortages on facility and procedure availability in certain areas. Our fourth quarter revenue was more directly impacted by turnover in our sales force, leading to reduced sales headcount and clinical case coverage capability. While total revenue declined in the fourth quarter of 2022, our sales productivity, measured by revenue per field sales head, remained consistent with the year-ago period. We are in the process of recruiting additional clinical specialists to expand our case coverage capability in key markets, and are beginning to see a larger pool of available talent as larger companies trim their head counts to reduce costs. By leveraging the flexibility provided by our new Lightbox 3 imaging console, we added five new accounts during the fourth quarter, bringing our total number of new accounts added during the year to 20. As we gain more experience with Lightbox 3, we continue to be thrilled with the performance and reliability of this innovative new platform. Lightbox 3 has now been used in approximately 600 cases by 85 physicians in more than 60 accounts. Our Pantheris image-guided atherectomy products continue to perform well in the market, with both our Pantheris 7 French and Pantheris SV devices each growing 6% on a sequential quarter basis. Atherectomy is a competitive and growing market with attractive reimbursement rates that continue to trend positively for Avenger. For 2023, the Centers for Medicare and Medicaid Services, or CMS, has increased outpatient reimbursement in the hospital by 4% to 5% and decreased atherectomy reimbursement in office-based labs, or OBLs, by approximately 6%. This is the second year in a row with increasing hospital reimbursement and decreasing OBL reimbursement, widening the gap in reimbursement between the two settings. We see this as a net positive for Avenger since approximately 90% of our revenue is derived from hospital accounts. Our Pantheris SV small vessel atherectomy device, introduced in 2019, continues to be a strong performer and is now our single largest selling SKU. Pantheris SV is primarily used to treat patients with below the knee lesions, many of whom suffer from critical limb ischemia, or CLI, the most severe form of PAD. Physicians rely on the real-time imaging and precise control provided by Pantheris SV to precisely target the disease while avoiding damage to the arterial vascular structures, of great benefit when treating lesions within these narrow 2 to 4 millimeter diameter vessels. Clinical outcomes in this challenging patient population continue to be excellent. To document these results, we're conducting a post-market clinical study called ImageBTK designed to evaluate Pantheris SV for the treatment of below-the-knee lesions in a real-world clinical setting. We have now enrolled approximately 40 patients in the study and expect to complete enrollment this year. Interim results continue to be outstanding. As of December 31st, 35 subjects have been enrolled in the study, with 25 patients completing their six-month visit and 22 patients completing their 12-month visit. Primary safety for this patient population has been excellent, with 100% freedom from major adverse events at 30 days. Performance against the efficacy endpoints are equally compelling, with 94% of lesions having a residual stenosis of less than 50% after treatment with Pantheris SV alone, and 100% of lesions having a residual stenosis of less than 30% post-adjunctive therapy. On average, patients had a stenosis or blockage of 95% prior to treatment. Treatment with Pantheris SV alone reduced the stenosis by 75% to 24% on average. This reduction in stenosis increased to 92% post-adjunctive therapy, with average stenosis of only 8% at the end of the index procedure. Most exciting are the longer outcomes reported so far in the study. At six months, patients exhibited 100% freedom from target lesion revascularization, or TLR, and 94% patency via duplex ultrasound, adjudicated by an independent core lab. These results are proving to be extremely durable, with patients showing 92% freedom from TLR and 92% patency at 12 months. Truly remarkable results in this challenging anatomy and challenging patient population, many of whom would otherwise be at significant risk of amputation. We plan to build on this success with the introduction of Pantheris LV, our new large vessel device that incorporates key design principles from our Pantheris SV device. We filed a 510K application for Pantheris LV in early January and anticipate FDA clearance by mid-year 2023. which would allow for commercial launch in the second half of this year. Pantheris LV is designed to treat vessels 3 to 7 millimeters in diameter and is ideally suited to treat lesions in the SFA and popliteal arteries above and behind the knee, where the majority of PAD procedures are performed. Pantheris LV utilizes a proprietary design for plaque opposition without the need for a balloon, and is designed to operate at significantly higher rotational speeds to streamline the atherectomy procedure and expand our capabilities in this anatomy. It also enhances guidewire management and implements a modified plaque management system to further improve procedural efficiency. In addition to our new Pantheris LV filing, in the third quarter of 2022, we filed a 510 submission for our new Tiger Eye ST catheter for CTO crossing in the peripheral arteries. While clearance for this device has taken a little longer than our most recent 510 filings, we've provided all documentation and additional testing, including some longer lead time biocompatibility testing requested by FDA as part of their standard review process. We have no open requests on our 510 submission at this time. Time to clearance for our 510K submissions typically takes from four to eight months, so we are still within our normal time frames with this filing. Given the completeness of our response and the strength of our data, we believe that we are nearing the end of the review process and anticipate FDA clearance in the coming weeks. We are making preparations to initiate limited launch on an expedited basis pending FDA clearance and are excited to gain clinical experience with this significantly advanced new device. Tiger IST incorporates design upgrades to the tip configuration and catheter shaft to increase crossing power and procedural success in challenging lesions. It also incorporates design enhancements for ease of image interpretation during the procedure. Tiger IST continues to provide the high-definition real-time imaging, user-controlled deflectible tip, and faster rotational speeds introduced to the platform in 2021. By bringing new capabilities to the system, Tiger IST is expected to expand the addressable market for our image-guided CTO catheters in the treatment of advanced peripheral disease. Taken together, we believe the anticipated commercial launch of our Tiger IST CTO crossing device in the first half of the year and launch of our new Pantheris LV atherectomy device in the second half of the year will bring excitement to our platform and expand addressable case opportunities for our products. Combined with our new Lightbox 3 imaging console, we believe these new catheters will assert our technology leadership in the peripheral vascular space and provide new growth opportunities for our company. As we look to the future, we're very excited about the progress we're making in the development of our first coronary product application. which provides the opportunity for first mover innovation in a large and growing market with existing reimbursement codes in place. Crossing chronic total occlusions in the coronary arteries is a complex, expensive, and challenging procedure utilizing currently available technology. By leveraging our proprietary technology platform, we believe we can redefine this market with the first and only fully integrated image-guided system for crossing coronary CTOs. Our coronary CTO development efforts are focused on low profile catheter designs that combine real-time OCT guidance with precise control and steerability to facilitate an integrated approach and allow physicians to safely and efficiently cross coronary CTOs. Similar to our peripheral catheters, our coronary devices will incorporate a precise measurement capability to help physicians properly size balloons or stents prior to placement. which is critical for optimal outcomes. An image-guided coronary CTO crossing device with diagnostic capabilities would access existing reimbursement codes both for the therapeutic procedure as well as for coronary OCT diagnostic imaging immediately upon FDA clearance. We believe that an OCT-guided catheter designed for crossing efficiency with the need for fewer support devices and less contrast media usage combined with a highly attractive reimbursement scenario, provides the opportunity for a differentiating and highly compelling economic value proposition. To guide our development efforts, we've established a clinical advisory board made up of highly experienced interventional cardiologists who are key opinion leaders in the fields of coronary CTO crossing and intravascular imaging. Over the past several months, we've evaluated different design approaches and benchtop models and have recently shared our designs and findings with our clinical advisors, getting important feedback for further development and evaluation. We anticipate assessing prototypes and animal studies in the second quarter with a goal of filing an Investigational Device Exemption, or IDE, with the FDA in the next 12 months to allow for initiation of a clinical study to evaluate safety and efficacy of the device in 2024. There is a definite excitement around our development program and the opportunity to meet a large market need with an elegant solution to what is today an incredibly difficult procedure. Given the vast potential represented by the coronary markets, advancing coronary CTO product development is our principal R&D program for 2023. On a commercial basis, we're focused on execution in three strategic areas to drive growth of our peripheral business. First, increasing case coverage capability and catheter utilization in our core geographic areas through the expansion and training of our clinical sales team. Second, driving new account activity and expanding our user base through deployment of our new Lightbox 3 imaging console. And third, completing the regulatory approval process for our two new peripheral devices in preparation for commercial launch this year. which we believe will broaden the appeal of our product portfolio and create new usage drivers for our platform. We look forward to updating you on these initiatives, as well as the continued progress on our coronary product development program throughout the year. At this point, I'd like to turn the call over to Nabil Spinetti, our Principal Financial Officer and Accounting Officer, to take us through the financial results, and then I'll return for Q&A. Nabil? Thank you, Jeff.
Matt
Total revenue for the fourth quarter of 2022 was $2 million, compared to $2.3 million in the third quarter and $2.4 million in the fourth quarter of 2021. As Jeff mentioned, the decrease in revenue compared to the prior periods was primarily related to reduced sales headcount during the quarter. Gross margin for the fourth quarter was 34%, relatively stable at 35% in the third quarter, and representing a 4 percentage point increase from 30% in the year-ago quarter. primarily reflecting favorable product mix and certain cost efficiencies. Operating expenses for the fourth quarter were $4.5 million, flat with the third quarter and decreasing 15% from $5.3 million in the year-ago quarter as we complete peripheral product development activities and continue to control operating expenses while investing in our core strategic initiatives. Net loss and comprehensive loss for the fourth quarter of 2022 is $4.2 million, relatively stable with 4.1 million in the third quarter and representing a 16% improvement from 5 million in the fourth quarter of 2021. Adjusted EBITDA as defined under non-GAAP financial measures in the press release was a loss of 3.8 million compared to a loss of 4.3 million in the fourth quarter of 2021 and a loss of 3.6 million in the third quarter of 2022. a copy of the reconciliation from net loss to necessity, but that can be found in today's press release, which is also posted on our website at www.avenger.com under the investor section. Cash and cash equivalents totaled $14.6 million as of December 31st. We remain in a strong financial position as we continue to fund our strategic initiatives and invest in the growth of our business. At this point, I'd like to turn the call back to Jeff for Q&A.
Tom
Thanks, Nabil. We're encouraged by the progress we're making in advancing important strategic initiatives for our future. Our new lightbox three system opens new account opportunities and new opportunities for physician engagement. Our image BT case study continues to provide irrefutable evidence of the clinical advantages of our image guided approach. Our peripheral catheter development program provides the opportunity for two major new product launches in 2023. and the development of our first coronary product application provides the opportunity to redefine a large and underserved market with a highly differentiated solution that we believe can advance the standard of care for millions of patients and provide a transformational value opportunity for Avenger. At this point, we'd be happy to take your questions.
Operator
Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to join the queue to ask a question at this time, you can press star 1 on your telephone keypad. We do ask if listening on speakerphone today that you pick up your handset to provide optimal sound quality. Once again, ladies and gentlemen, that will be star 1 at this time if you would like to join the queue to ask a question. Please hold a moment while we poll for questions. And our first question today is coming from Ramakant Swayampakula from H.C. Wainwright. Ramachand, your line is live. Please go ahead.
Pantheras LV
Thank you. Good afternoon, folks. So a couple of quick questions. First one is, you know, what's your confidence in approval of the Tiger IST during second quarter and the Panther SLV in the second half?
Tom
Okay. Hello, RK. Thanks for the questions. Given where we are in the process with TIGER IST, we've been prosecuting this for a while now. We have answered all questions, completed all additional testing, including some biocompatibility testing requested by FDA, which is really a normal part of the process where there will be additional questions and requests for information as you go through the review process. And given that the data from the testing we did is so positive and strong, we feel very confident that we're nearing the end of the review process and should be in a position to get the clearance in the coming weeks. Of course, it is not fully in our control, but based on the information we have at this time, we feel very confident. And due to that confidence, we're making preparations to initiate limited launch very soon after we receive the clearance. On Pantheras LV, we have received the formal request for additional documentation and certain questions. Based on those questions and based on the data we have, and the robustness of the submission that we had made. We feel confident that we can answer all of those questions and provide any additional information by the middle part of the second quarter, which should lead, of course, pending any additional follow-up questions on those specific items to clearance by mid-year 2023. So we feel we're in a good position on both filings. nearing the end on Tiger IST, and I think very well positioned to achieve our goal of clearance by mid-year for the Panthera SLV. I should always qualify, though, that that's based on our understanding of the data, where the process is, and ultimately the FDA will take the time they need to complete a thorough review.
Pantheras LV
Okay. Just to make sure I understand this correctly, so for both the products, you will be starting off commercialization using a limited launch or is it going to be different for different products?
Tom
That is our process. We've been doing that really for several years now. We feel it's an important and responsible step not only to gain clinical experience with our device but also to help understand how to best support physicians with the device. how it gives us an opportunity to provide in-clinic training and experience for our sales force prior to opening up to full commercial launch. So we will initiate limited launch on both devices. Typically in the past, that's taken not a terribly long time, two to three months, before we then make the decision based on the feedback to go into broad, you know, full U.S. commercial availability.
Pantheras LV
So talking about learnings, now that you have 60 clinical sites using your Lightbox 3 and 600 cases, so what are the learnings that you have had at this point such that it can help you to increase not only the usage but also cases using Lightbox 3?
Tom
Yeah, so first of all, I think we always anticipated that the Lightbox 3 would be important as it related to accelerating the pace of new account acquisition and getting from a first meeting with an interested physician kind of through the process and doing first cases. And we are seeing that to be the case. What I didn't anticipate as much is just how exciting the new Lightbox 3 would be to our existing physicians. The user interface is completely different. It's simplified. The amount of space the Lightbox 3 takes up in the lab is not even comparable to the existing platform. But the new state-of-the-art laser system and the advanced imaging capability that we've built into the device really has got the attention of even our users who've used our platform for many years. the crispness of the image, the brightness of the image, the detail that they can see relative not only to the disease but also the arterial vascular structures is quite compelling. And we also, with the LightBox 3, have now brought new capabilities for our catheters. by the original platform as to how fast we could spin or rotate our devices. For example, the current Panthera 7 French device has 1,000 RPM rotation. The new Panthera LV has variable rate rotation that can go up to 3,000 RPMs. We would not be able to spin catheters that fast and preserve the image quality on our original platform. But with the new Lightbox 3, we can now take advantage of some of this increased capability.
Pantheras LV
Fantastic. And the last question from me, I'm understanding that you just put the advisory board together for the coronary CTO product. What do you think is the timeline for getting a clinical program started?
Tom
So we obviously are into and have been now for months into the development program. We've received terrific feedback from a very engaged group of advisors, clinical advisors with tremendous experience, not only in the coronary CTO space, but also in the intravascular imaging in the coronary arteries. And so we're incorporating that feedback into our next round of prototypes. Our goal, and I think this is a very realistic goal, is to get experience with the next generation of prototypes in animal studies in the second quarter, which will then of course lead to more learning, more iteration. Our goal is to complete design selection in the third quarter and to be in a position where we can then advance the product prototypes through verification and validation in preparation for an IDE or an investigational device exemption filing within the next 12 months. Assuming everything goes according to plan and we're able to file that IDE early in 2024 or before, we feel that we would be in a position to initiate our clinical studies in 2024. It's really just a question of when in 2024 do we start. And so a very, you know, I think accelerated process, primarily because we're leveraging years and years of learning, of development and evolution in our peripheral platform to our coronary program. And we're very excited to get the product there. We believe the regulatory route for these products will be a 510K with clinical, human clinical study. And our goal and expectation is that we would be in a position to initiate enrollment in that human clinical study in 2024. Perfect.
Pantheras LV
Thank you very much. Thanks for taking all my questions.
Operator
No, thanks for the questions. Thank you. And there are no further questions in queue at this time. I would now like to turn the floor back to Jeff Soenske for closing remarks.
Tom
Thank you for joining our call this afternoon. We very much appreciate your interest in our company and look forward to reporting our continued progress on our first quarter 2023 call. Have a good afternoon.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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