Cardiovascular Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Cardiovascular Assistance Inc. Fiscal Year 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jack Nielsen, Vice President, investor relations, and corporate communications. Thank you, and please go ahead.

Thank you, Chris. Good afternoon, and welcome to our fiscal 2021 second quarter conference call. With me today are Scott Ward, CSI Chairman, President, Chief Executive Officer, Rhonda Robb, Chief Operating Officer, Jeff Points, Chief Financial Officer, and Dr. Ryan Eglin, Chief Medical Officer. Approximately 30 minutes ago, we issued a press release announcing second quarter results. You may find a copy of this release on the investor relations section of our corporate website. Here you may also find an earnings supplement that includes additional details on our performance and outlook. In a few moments, CSI management will discuss results for our second quarter, which ended on December 31st, 2020. After our prepared remarks, we will entertain your questions. During today's call, we will make forward-looking statements. These forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act, of 1995 and include statements regarding CSI's future financial and operating results or other statements that are not historical facts. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. In particular, the COVID-19 pandemic has created risks and uncertainties for our business, results of operation, financial condition, and prospects, which we will discuss on this call. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's press release contains a reconciliation table to GAAP results. I will now turn the call over to Scott Ward.

Scott Ward Thank you, Jack. Good afternoon, everyone, and thank you for joining us today. I hope that you and your families are successfully navigating through this pandemic. This afternoon, we reported that our second quarter revenue grew 6% sequentially to $64.2 million. The surge in COVID cases and increased ICU demand began to negatively impact our procedures during the final weeks of December, and as a result, our revenue finished slightly below the midpoint of our guidance range. Considering the unprecedented spike in hospital admissions, We are really pleased with these results, and I am proud of our team's focused support of our customers and patients, especially under these extreme conditions. During the second quarter, COVID continued to have an asymmetric impact across the U.S., mainly impacting semielective procedures like the above-the-knee and claudicin segment of the peripheral market. while the non-elective procedures, including critical limb ischemia and coronary, have been more resilient. This trend has continued into January, and as a result, we expect our Q3 revenue to be down sequentially, but about in line with last year. Even though we expect the pandemic to negatively impact our sales in Q3, we remain optimistic about calendar 2021 and we expect our business to ramp sequentially throughout the coming year. We have continued to invest in our product pipeline, and we are excited about near-term opportunities like our peripheral balloons and the wire-on embolic protection device, as well as the longer-term opportunities like our hemodynamic pump and now our drug-coated balloon portfolio. So this afternoon, we will update you on how we are managing our business in this environment, Rhonda will provide commercial highlights, and our Chief Medical Officer, Dr. Ryan Egland, will discuss our recent announcement to partner with CVET on the development of drug-coated balloons for coronary and peripheral artery disease. But first, Jeff will provide you with details regarding our financial results and our third quarter guidance. Jeff.

Thank you, Scott, and good afternoon, everyone. First, I would like to point out that today, We introduced several new slides and financial details in our updated quarterly earnings supplement, which can be found on our investor relations site. We believe these new slides will help enhance your understanding of the business. I will now provide a brief review of our Q2 financial results. Some additional revenue color includes domestic peripheral franchise revenue of $43.9 million increased 2.3% sequentially led by continued strong growth in office-based labs. Domestic coronary revenue increased 13.1 percent sequentially to 18 million, led by strong unit growth and steady ASPs. In addition, revenue from coronary interventional support devices increased 14.1 percent to 2.2 million. And finally, international revenue increased 32 percent sequentially to 2.3 million. Turning to expenses, gross profit margin came in as expected at 78.3%. Operating expenses of just under $50 million were more than $8 million lower than last year. As we have throughout the pandemic, we are managing our expenses and targeting to maintain break-even operating cash flow until the pandemic subsides. The sequential improvement in revenue combined with our strong and stable gross margins and lower operating expenses allowed us to deliver near break-even profitability and generate $5.2 million of adjusted EBITDA. On the balance sheet, we ended the quarter with $225 million in cash and marketable securities and no long-term borrowings. As I move to our expectations for Q3, please note that the resurgence in new COVID cases and increased hospitalizations in large parts of the U.S. make forecasting near-term results more difficult. Although we expect the availability of vaccines will eventually have a favorable impact on the healthcare system, it's difficult to predict how the pace of vaccinations will proceed and what impact this will have on our business in the short term. Please note that our Q3 guidance considers these and other factors. Revenues through the first half of the fiscal year have been at approximately 94% of prior year levels. our Q3 revenue guidance of 60 to 65 million represents approximately 98 to 106% of our Q3 revenue one year ago. On the expense side, gross margins are expected to be in the 77 to 78% range. Operating expenses are forecasted to be in a range of 52 to 54 million. This represents a four to 8% increase compared to Q2 and is primarily related to the timing of various project and study expenses, product launch and sales training expenses associated with a series of peripheral products we plan to launch in the second half of the fiscal year, and increased payroll taxes. Compared to third quarter last year, we expect a nominal increase in operating expenses of 1% to 4%, primarily due to project and study timing, along with the product launch and sales training expenses. On the bottom line, We anticipate a Q3 net loss of $3.5 to $6 million and to generate near neutral adjusted EBITDA. I will now turn the call over to Rhonda, who will discuss our commercial developments. Rhonda?

Thank you, Jeff, and good afternoon, everyone. I would like to start with some additional color as to how we're managing through the resurgence of COVID-19 with a variation of impactors by franchise and by site of service. In Q2, our domestic peripheral business increased 2% versus last quarter and decreased 7% compared to last year. Notably, performance was impacted differently by site of service. OVL revenue accounted for 32% of our peripheral business and yielded an increase of 13% versus Q1 and was also up 1% versus last year. The OVL site of service continues to be more resilient due to improved patient access, lower patient anxiety, and the absence of restrictions on elective procedures. Increased COVID-related hospitalizations during Q2 impacted the claudicant segment of our hospital peripheral business the most, declining 2% sequentially from Q1 and 12% year over year. In December, increases in ICU bed utilization and subsequent decreases in elective procedural capacity and staffing resulted in delayed outpatient and elective procedures for many claudicant patients. Complex patients like our CLI patients are continuing to be treated in the hospital setting, and hospitals are seeing more and more advanced disease from patients that have either been deferred or have been waiting on the sidelines. Our doctor and advisor checks do expect a rapid rebound in elective procedures and treatment of advanced disease during the next recovery period when it occurs. In the hospital setting, we did see continued adoption and growth of our exchangeable platform. where purchase of an extra cartridge for multilevel disease remains at nearly 20% of our exchangeable unit volume. Consistent with prior quarters, physicians are increasingly providing full leg revascularization in one procedure, and we continue to achieve a meaningful ASP uplift to capture the value in this important innovation, as well as extra revenue per case when a second cartridge is used. The strength of our peripheral portfolio and channel competitiveness are key to CSI holding our market share leadership position in peripheral despite increased competition. Coronary revenue increased 13% versus Q1, which, as you recall, increased 63% sequentially compared to Q4. This continued strength resulted from hospital protocols in place to prioritize patients, increased referrals to treat complex patients at higher volume centers where CSI is present, the continued ability for the referral channel to process patients, and increased ability for hospitals to perform OAS procedures with same-day discharge. Our sales channel is considered essential in supporting these cases, and our reps have been able to continue to focus on building further penetration of OAS in existing and in new accounts. This is a growth driver to build upon our user base for the treatment of advanced disease and adoption of OAS. In addition, we continue to make great progress, bringing value to the cases where OAS is used and expanding the patients we are able to treat with a more diverse and unique portfolio of ISDs for complex patients with the Sapphire 10 millimeter balloon and Teleport microcatheter. The sale of these products in Q2 continue to generate incremental revenue of $542 for every coronary OAS device sold. This is four quarters in a row now where we have had stable revenue per case above $500 per OAS despite COVID. The combination of increased procedure volumes and strong ISD sales resulted in U.S. coronary revenues at about 97% compared to last year. Turning to international, international revenues improved 32% over Q1 to reach 2.3 million, with Japan continuing to be the major growth driver. In Japan, we now estimate CSI market share to be over 40%. I'll close with some key events for us in the second half of fiscal 21. In Q2, we restarted enrollment in Eclipse, our 2,000-patient randomized clinical trial in Coronary. We expect enrollment to progress at a modest pace until COVID is behind us, and we are so thankful to our investigators and coordinators that are committed to seeing this trial through despite a challenging enrollment year. We are equally encouraged by evolving practices for increased imaging and calcium characterization, for example, to better identify long lesions, heavily stenosed lesions, and lesions with nodules. This benefits CSI in the identification of severe calcium that only CSI can treat. In our second half, we plan to launch a series of peripheral products, which will expand our peripheral interventional support devices considerably and add meaningful revenue per case. These products include a wire-on embolic protection device, a full line of peripheral angioplasty balloons, and additional peripheral catheters. The successful launch of these products is expected to be an important growth driver in our second half and in the years to come. As you know, in about two years, we captured over 50% of the incremental revenue opportunity per case in coronary, now selling over $500 of balloons and microcatheters for every OAS sold. In peripheral, the revenue opportunity for case for balloons and catheters is about $800, and we continue to believe that we can capture roughly 50% of that opportunity over a similar timeframe. But in peripheral, we sell four times as many OAS devices, so the total revenue opportunity is substantially higher. In addition, we believe we can capture meaningful share with our wire-on embolic protection system to be launched in Q4. Today, there are about 55,000 EPDs sold annually in the U.S. at an ASP of about $1,000. An estimated one-third of above-many atherectomy cases utilize an embolic protection device today. The sale of these devices will help us drive additional revenue, even when orbital atherectomy isn't the primary therapy, as wire-on can be used with any atherectomy device. As we've headed into Q3, our collaboration with the American Diabetes Association is now ramping up. Just last week on January 27th, we sponsored the ADA's PAD Roundtable event entitled Policy Solutions to Prevent Amputations in the United States. And that was attended by over 50 different medical society and healthcare organization representatives involved in PAD and diabetes care. Dr. Ryan Egland and Dr. Felicis Akerede were speakers at the event providing information on diabetes, chronic limb-threatening ischemia, modern revascularization capabilities, and amputations, while also highlighting policy opportunities to prevent amputations like those included in Congressman Payne's Amputation Reduction and Compassion Act. Later this quarter, we will also partner with the ADA on a clinician event with their diabetes physician network to better educate those on the front lines of diabetes care around PAD, diagnosis, and referral to skilled physicians who can help prevent amputation. Turning to international, we now have CE-MARC for our coronary Diamondback device and first cases will begin in our Q3. We anticipate Europe will continue to be impacted by COVID. As a result, this will be a very deliberate launch as we train and educate remotely until travel may resume. As stated previously, we are targeting sites that already have experience in treating severe calcium and have the patient flow and structure to adopt OAS quickly. And finally, we continue to plan for first-in-human experience for our PVAD, now targeted for our fiscal year 22. As we've stated previously, COVID-19 and other factors could result in timeline changes, and indeed COVID has impacted our ability to complete some product builds and some of the testing required in the timeframe that had previously been contemplated. We are making solid progress, and we continue to have productive and regular interactions with the FDA on our path to EFS. Our chief medical officer, Dr. Ryan Egland, will now address our recent investment in CVT. Ryan.

Thank you, Rhonda. As Scott mentioned, CSI has entered a partnership with Shansu Vascular Technologies, or CVT, to develop an everolimus-based drug-coated balloon portfolio. The partnership will bring together CSI's market leadership in the treatment of calcified atherosclerotic lesions with Dr. Philippe Marcot, a respected and experienced pioneer in the development of multiple drug-coded devices. Having personal experience working with Dr. Marcot and his team on past drug-device combination programs, we were able to rapidly recognize and validate CVT's technical platform, development team, and entrepreneurial experience. We're confident this is a very efficient approach to enter the DCP market. DCBs are, of course, a widely accepted percutaneous interventional treatment option for above-the-knee lesions in patients with peripheral arterial disease and are increasingly recognized for their potential in complex coronary artery disease, including their use for instant restenosis, small vessel, and bifurcated lesions. In all these applications, DCBs offer the potential for sustained antirestenotic efficacy without the limitations of permanent implants. Everolimus, the active drug in CVT's DCB formulation, acts as a cytostatic agent to reduce tissue hyperplasia and associated restenosis and has a proven history of safety and efficacy in coronary drug-eluting stent applications. Under the terms of the agreement signed with CVT, CSI will provide milestone-based financing to CVT for the development of the DCBs. Following CVT's completion of key technical and clinical milestones, CSI will have exclusive rights and obligations to acquire CBT. In short, we're excited to add Everolimus DCBs to our product portfolio. This program will bring new products to our customers and affirms our mission to enhance treatment options for patients with the most advanced forms of peripheral and coronary artery disease. I'll now turn the call over to Scott for his closing remarks.

Thank you, Ryan. We are excited about the CVT partnership. Working with CVT and Dr. Markov will enable CSI to build a new core competency and a new DCB product platform that will be sold to our current sales force and to our current customers. Before we get to your questions, I will offer my thoughts regarding our guidance and outlook for the rest of this calendar year. As I stated earlier, based upon our quarter to date experience, we expect that our Q3 revenue of 60 to 65 million may be slightly down sequentially, but essentially in line with last year. This guidance recognizes that the recent surge of COVID cases has negatively impacted our procedure volumes in January, and we expect the COVID headwinds to continue into early February. With procedures rebounding and steadily improving in the spring, as COVID cases decline and vaccination rates increase. It is important to note that we are not expecting any new resurgence in COVID cases due to a new variant of the virus or some other cause. COVID makes it difficult to precisely forecast our business in the near term, but as we look to 2021, we are enthusiastic about our growth potential. as we leverage advancements in our core product offering, drive higher revenue per procedure, and resume our international expansion plans. Prior to COVID, we had just launched our next-generation coronary and peripheral atherectomy devices, including Exchangeable, Radial, and Diamondback with Clyde Assist. These products were just beginning to gain traction before the pandemic hit, and we are confident that they will propel our company to double-digit growth in our core business as normal operations resume. We will supplement this growth by driving higher revenue per procedure through the sale of angioplasty balloons, guide wires, and microcatheters. Over the past two years, we have made great progress with the sale of these products in coronary. And as Rhonda just described, next quarter we will launch our wire-on embolic protection device and an innovative line of peripheral support products to a substantially larger number of OAS customers. Finally, we expect to resume international expansion in 2021. Orbital atherectomy is the market leader in the United States. We have quickly captured over 40% market share in Japan, the number two market, and now we have received CE mark for our coronary device in Europe, the third largest market. We have confidence that OAS will gain share in markets where atherectomy is used, and we are committed to introducing our technology to physicians around the world. For the past few years, we have been pointing to fiscal 21 as an inflection point for CSI, where we would move beyond low double-digit revenue growth. I'm pleased to tell you that COVID has only paused our growth trajectory. As we emerge from the grips of this pandemic, the drivers of our strategy remain intact, and we are poised to accelerate growth and improve profitability beginning in the latter half of this calendar year. For those of you on the call, we appreciate your continued interest in CSI, and we will now take your questions. Chris, would you please repeat the instructions? Thank you.

Certainly, ladies and gentlemen. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question goes from the line of Michael Mattson with Neto. Your line is open.

Hi. Thanks for taking my questions. I guess I'll start with the DCB agreement. I was just wondering if you could give us any insight to the sort of timing here. When do you expect sort of first in human trials for these products? Are the peripheral and coronary balloons going to be developed in parallel, et cetera? Yeah.

Yeah, thanks, Mike. I think I'll have Ryan Eglin take that question. Ryan?

Yeah, thanks, Mike. Well, I think it's important to recognize the first step in the program is obviously the identification of a drug formulation. And of course, as I mentioned, we're confident that CBT's plans to pursue the Everolimus formulation are compelling in this regard. With respect to milestones, we do anticipate reaching first in human for both the peripheral and coronary indications in calendar 23. And, you know, ultimately we're working with CBT to optimize those timelines in both programs.

Okay, thanks. And then I guess I'll ask about the exchangeable product. Rhonda, I think you commented on the progress there, the adoption of that. But you mentioned 20%. I was confused what that 20% meant. Does that mean it's being used in 20% of your peripheral cases?

Yeah, thanks for the question. We're pretty excited about the progress, particularly now where physicians are dealing with more complex disease that have disease along their entire leg, multiple vessels. And so that has really been a driver for us as physicians want to get patients in and out in a single day. And that's what patients want. And the number I referred to was 20%. And that was the use of a second cartridge in 20% of the exchangeable cases.

OK, got it. As the support devices continue to grow and become a bigger part of your revenue, how is that going to affect the gross margins? I'd imagine they have lower gross margins because they're coming from a distribution partner.

Yeah, I think actually, Mike, our gross margins, as we've said, over the course of the next few years, we expect to remain in that high 70s range, probably in that 78, 79% range. Clearly, we have done a great job over the course of the past few years with our efforts in our manufacturing operations and substantially have been reducing our cost of goods sold. And those efforts continue. We have a lot of room in that still. And as we look at our mix of revenue over time, we think we'll be able to manage that gross margin in that high 70s.

Okay, great. Thank you.

Our next question is from Chris Pasquale with Guggenheim. Your line is open.

Thanks. I appreciate the extra detail in the presentation, particularly on the support devices, which I think really highlights the opportunity there well. A couple of questions related to that piece of the business. First, when do you expect to have the lineup you need on the peripheral side to really start to gain meaningful traction? If we're comparing it to that coronary experience, the two-year ramp you've had there, when does that clock start for peripheral?

Yeah, the clock for peripheral will start in our fourth quarter here. Actually, over the course of the next two quarters, we'll be launching those products. So I would say that the clock probably starts about then. And, you know, as Rhonda mentioned, we have sustained that kind of 500-plus range in coronary now for the past four quarters. So really we've got up to that in, you know, just about a year's time, maybe a little bit more than that. And that was effectively, Chris, that's effectively penetrating 50% of the potential opportunity if you consider that, you know, there's about $1,000 per case that's available in the coronary segment. So as we look at the peripheral segment then, we have probably $600 to $800 in the femoral access portion of that market. As we broaden our opportunities to look at patients The radial opportunities there, we probably have more like, there's a bit of a premium, so we probably have more about $1,200 per case in radial. And then, of course, we'll also be launching the wire anabolic protection device, which really is a bit different, although it will increase our revenue per procedure. It may be used more often in our competitors' procedures. And that device actually is probably going to have an ASP consistent with competition in that $1,000 per device range. So hopefully that gives you a little bit more detail on how to think about those products and how that will ramp over time.

Yeah, that's helpful. Thanks for that, Scott. And then just to correlate that, you mentioned you guys got to $500 or so per case on the coronary side very quickly, but it's kind of flattened out since, and you still have some headroom relative to the opportunity you'd identified originally there. Are there particular product categories where you're not getting the traction that you wanted to or think you need to add something else to the bag to move that 500 higher, or has that been COVID disruption related?

I think it's a little bit of a combination of those items, Chris, but actually we feel pretty good about that penetration rate. You know, we don't expect to get 100% penetration in all of our cases, and we don't expect them to use all of our products in all cases either. So, you know, there is a limit to where we think we will take that. Now, as we look at coronary in particular, we have a bit of a barrier there in that we need to go to major hospital settings and IDNs, GPOs, and we have to get on contract, and that takes some time. Now, that probably is the most important driving factor from a temporal perspective. We will have the advantage in peripheral of the fact that we've already addressed some of those contracts and, you know, a portion of our business is in the office-based lab segment where we just don't have to deal with those contracts at that same level. So we do think we can penetrate the peripheral segment at least as quickly as coronary and maybe even a little bit faster. Great. Thanks for that.

Okay. Our next question is from Danielle Antolfi with SBV Unilever, Inc. Your line is open.

Hey, good afternoon, guys. Thanks so much for taking the question. Just to follow up on Chris's question there as it relates to where you are in the coronary and the attach rate or penetration rate, however is best to look at it, where do you think that that can ultimately go? Sort of how should we be thinking about this? And are there still more products to add over time that can push the revenue per procedure higher in the coronary space? Or at what point are you sort of fully penetrated there? from what's reasonable, you know, thinking about what's reasonable.

Thanks, Danielle. We have actually got a really nice and differentiated product line in Coronary. As Rhonda talked about, you know, we have our 1.0 millimeter sapphire balloon, smallest balloon in the market. We've got our teleport micro catheter, which is the smallest torqueable micro catheter in the market. And we have the only nitinol guide wire that can be used with atherectomy in the market. So even though this is a more commodity market, we have a really good differentiated product offering. We intend to bring that same offering to peripheral. Now, as we look at Coronary, I think our ability to increase the penetration rate and grow the business there is at this point more about opening up some of these large contracts and getting into large hospitals and into larger segments of our market. So that does take time, and, you know, we just have to work with each of these hospitals. We've got to get... basically on contract with them and on each of these accounts. We have a group of individuals that work on that day in and day out, and we are making progress. But that's really the most important factor right now that will allow us to continue to increase that penetration. In terms of our revenue per case, we do feel pretty good about that. And, you know, this is probably about the range that you should think about when you think about our ability to penetrate peripheral. I mean, if we can penetrate peripheral, 50% of that peripheral opportunity over a two-year time frame will feel really good about that revenue generated.

Got it. Okay, that's helpful. And then just on the international market opportunity, congrats on the CE mark approval in the coronary.

Thank you.

But just wanted to get a little bit more color on what the barriers are to adoption in those countries. Is reimbursement already largely in place? Do you have to go get reimbursement country by country? How should we be thinking about the – uptake in some of these larger countries thinking, you know, Germany, France, Italy, etc. Thank you.

Yeah. Yeah. Thanks, Danielle. I'm going to ask Rhonda to address that. But I'll just say that, like everything else in the world right now, we are dealt with this unusual circumstance because of the COVID-19 crisis, and in particular, the way that that affects Europe. So This is going to be a bit of an unusual market launch, and our approach to that will be a bit different. I mean, obviously, we have this unique opportunity in Europe where we can focus on accounts that are already treating and are already using atherectomy, and that's what we'll be doing. But, Rhonda, I'll let you take that from there.

Yeah, thanks, Daniel, for the question. We're really excited to have this approval now in hand and be able to launch and And it's a big opportunity. I mean, you know, we look at our numbers and we think that there's the market potential for more than, you know, 100,000 atherectomy cases to occur just given kind of the PCI rates and the rate of severe calcium that exists there. But as you've noted, you know, the penetration of atherectomy in Europe is today low. And I think it's for a variety of factors. I certainly think that there is variable reimbursement by country, so we'll need to be mindful of that. There has been probably not as much of a market development focus as CSI is going to be able to bring there. I think we're seeing some changes, too, in terms of increases. And I made comments of this in my remarks today. Increased imaging is really becoming an important trend in coronary. you know, in Europe, we're seeing that trend take hold as well. So physicians are seeing things, a lot of calcium that they hadn't seen previously. So we think our launch comes at a very, very important time. But I think it's multifactorial. And there are, you know, barriers that CSI will break down to capitalize on that opportunity. But as Scott said, You know, even with 2% penetration in anthraectomy today in Western Europe, we know the sites that are performing these procedures that have the structure and the processes to basically, you know, get patients referred in and to treat them. And so that's where we're going to start.

Thank you. You're welcome.

Our next question is from Matthew Blackman with Spiegel. Your line is open.

Good afternoon, everyone. Thanks for taking my question. I've got a couple, maybe to start for Scott or Jeff. I just wanted to sort of reflect on the fiscal second quarter, and I'm not sure how willing you're willing to go into detail and how the quarter progressed. But is there a way to quantify qualitatively or quantitatively, the divergence that likely happened in mid-quarter. I assume the first half of the quarter, things on the recovery trajectory were tracking well, and then, of course, we had the resurgence. But is there any way to sort of frame how the quarter progressed and how you started the quarter versus how you exited the quarter?

I mean, clearly, as we have pointed out throughout the call, Matt, the impact on our business was largely towards the end of December, as we saw ICU capacity declined, and some of our hospitals begin implementing restrictions. That's really where we saw the impact. I will go back, though, and give you just a little bit more color on that. It principally is in our peripheral segment of our market, and namely in the portion of that market that is our claudicant patient population. And this population of patients is where these procedures are probably considered to be semi-elective, not only by the prescribing physicians, but also by the patients themselves. So there's two things that play into that. First is that when we have hospital restrictions and they begin to slow down some of these elective and semi-elective procedures, Our patients that are claudicants obviously can be postponed. Now, they will come back, and we saw that after the last event. We saw them bounce back as well. So we would expect that again. The other factor that influences this as well is patient confidence. So as patients develop more anxiety, they will feel that, you know, they can put up with this occasional severe burning pain in their leg, and, you know, maybe they'll postpone this a little while until the crisis passes, and they do that. Once again, we saw that, you know, that backlog is ultimately addressed, but that these procedures are postponed. So that was mainly in that, you know, second half of December timeframe. Now, as we looked at our coronary business, that coronary pipeline was actually has been quite robust and has continued to perform well. So unlike the major peaks that we saw in the spring where our coronary business was really impacted, in this second quarter it has not been. And, in fact, it seems that hospitals, and in particular these tertiary care centers, have established the right protocols to assure that they continue to care for these more severely affected coronary patients. while they also care for their COVID patients. And then finally, our CLI patients, which comprises roughly 60% of our peripheral business, they continue to be treated on an as-needed basis. I mean, if they are coming in and there's an open wound and they're coming into the ERs, they're being cared for and hospitalized and treated. And we really haven't seen that much of an impact in our patients. our cli business so hopefully that gives you just a bit more color i think right now you know the majority of the impact we see is in that peripheral in-hospital segment largely the atk claudic patient population okay i appreciate that color and my final question another coronary support

portfolio question. You may want to get at it a little bit differently. You've mentioned the contracting headwinds and preventing sort of broader penetration. Is there a way to frame or help us think about What percent of your customer base is using a CID support product today? Just trying to get a sense of how much meat is left on the bone just getting this into some of these accounts where contracting may be a headwind. Is it still a meaningful opportunity from here in terms of the number of cases you can get into or are we in the latter stages? Thanks.

No, I think there's still meaningful opportunity there. But like I said, Matt, we're at roughly, what, about $540 per case today out of a, let's say, potential of about $1,000 per case. And we might see that continue to improve. I expect that it will. But I don't expect it to improve at the same rate that we've seen up until now. We will get to a point where You know, we've kind of gotten the access to the cases that we're going to get. And so, you know, we're not going to get to $1,000 per case. We will see, you know, continuous improvement over time. But we're going to see that begin to kind of level out and flatten out. And eventually, you know, we'll kind of be balanced at some number in terms of our penetration of these cases.

Okay. That's all I have. Thanks so much. Okay.

Thanks, Matt.

Our next question is from Suraj Talia with Oppenheimer. Your line is open.

Good afternoon, everyone. Scott, can you hear me all right? Yes, we can, Suraj. Thank you. Perfect. So, Scott, one question for you, one for Rhonda, and one for Ryan. I'll take it in that order if I could. Scott, I appreciate the fact that you guys might not be competing with IVL in the coronary setting. But as you think about the perception of IVL versus OAS, how do you plan on an effective messaging, both clinical and economic, in the coronary settings? Is a head-to-head study in the cards?

No, I don't think a head-to-head study is in the cards. I think we, of course, are assuming that IVL will eventually be in the market we do think that the IVL technology is going to actually treat a different patient population than what we treat with orbital arthrectomy. With orbital arthrectomy, we treat a severe form of calcification, and most of our patients have very long lesions. They're heavily stenosed, and oftentimes, probably more than 50% of the time, There's nodules that are present or kind of saber tooths that are present within these lesions. So that is a patient population that is not well treated with IVLs. And you can go back and you can look at the CAD3 clinical data and see in that data that about somewhat over 50% of their patients could be predilated prior to the utilization of an IVL. If you look at our data, about 1.8% of our patients can be predilated. So, you know, we're treating a very rare lesion. And generally speaking, we interact with and support customers that are at tertiary care centers. And these are customers that have been trained. These are physicians that have gone through fellowship training programs so that they are skilled in the treatment of these more complex patients. Where we think the IVLs may gain greater adoption is in the population of physicians who maybe have not been trained for the treatment of these more severe cases, but who come across calcium on a day-to-day basis in their regular practice. So I think there is a pretty meaningful segmentation here. And as a result, I don't think that a head-to-head trial is warranted unless there's some new data that comes to light. But where we're at today, I think that's how we see the segmentation of the market coming forward. Got it.

Hey, Rhonda, I'll pose you one question. What level of preclinical testing has been done on the PVAD? Should we expect at least 3.5 liters per minute net fluoride and a focus on plasma-free hemoglobin within normal thresholds?

Thanks, Raj. Yeah, we haven't disclosed the degree of preclinical testing, but I will say we're working very, very closely with the FDA to complete all of the bench and animal testing and are making very, very, very good progress through all of their requirements and all of their protocols. And I missed the last part of your question. I'm sorry. Can you repeat that again?

I'm just curious. Can you give us some benchmarks on the PVAD? Is it going to be at least 3.5 liters per minute of net flow rates?

Yeah, it will be.

It will be. Okay, perfect. Hey, Ryan, I'll just pose the last question for you. Is the choice of rapamycin analog primarily on the potential of an improvement in the late mortality signal versus paclitaxel, or was this driven more by, here's an asset that was available, let's jump in, because we know what's going on in paclitaxel. I'm just curious in terms of the timing, and please correct me if I'm wrong, this product would not be commercially available until calendar 24, 25. Am I right? Thank you for taking my question.

No, good question, Siraj. So I think you're very good question just on the active drug component being everolimus. I think, you know, we're very confident that the therapeutic window and the basic biochemistry of that pharmaceutical component has certain advantages over others. And we know that obviously there's a longstanding history of safety with that compound. So that did weigh into our calculus. But of course, the broader program relies more than just on the API. It also includes just the formulation, which we talked about. That leads to kind of the timing, as you had asked about. We're anticipating really at this point, first in human and calendar 23. And that's what our focus will be with respect to the validation of that formulation.

Our next question is from Jason Bedford with Raymond James. Your line is open.

Hi. Good afternoon. Thanks for taking the questions. I have a couple. Scott, I don't want to get too cute with your words here, but you mentioned towards the end of the call that the business is poised to accelerate growth and profitability, I think, beginning in the latter half of this calendar year. So I would have thought you'd see more of an impact in the June quarter. So maybe just a clarification in your thoughts on when you expect revenue growth to accelerate here. I realize, given the COVID dynamic, it's fluid, but I'd love a bit more clarity on that.

Yeah, I think it's really hard to predict. I think we can. I think as we look at this pandemic, we are assuming that with the availability of testing and the increased vaccination rates that we will see the health care system recover and return to normal operations in the second half of 2021. Now, you know, that's not just us saying that, as you know. I think nearly every MedTech company that's reported has basically said the same thing. And I think if you look at, you know, a lot of the reports from IHME and other places, this is where kind of all of the estimates triangulate. I think we do expect to see, as I said, a sequential improvement over time and that we'll see that actually in our what is our fourth quarter, the June quarter, as you refer to. But I think it's still a bit uncertain in terms of how that quarter will shape up. And, you know, honestly, that is driven by uncertainty regarding the degree of vaccination that happens out there. And, you know, I'll point out as well that, you know, as we look at our metrics that we look at are really hospital admissions and ICU bed capacity. And as we look at those two metrics, we do see them now really dramatically improving. So I would say that we're cautiously optimistic that we'll see that continue. The other metric, as I've referred to earlier, which is really important to us, is patient confidence. And when does that in particular affect you know, peripheral patient population that are the claudicants, when do we see a restoration of confidence, a decrease in anxiety in that patient population so that they will begin to come back into the healthcare system for care? That is really hard to predict. And we do not have, you know, a very solid metric that allows us to get our hands around that. So, You know, that's probably more detail than you wanted, but rest assured, we're studying that closely and really trying to assure that we're well positioned. This is completely driven by the COVID-19 crisis. This is really what will either allow us, will release and allow us to expand and grow more quickly, or, you know, the grips will continue for a while longer and we'll have a bit more of a longer ramp. Completely determined by the virus. Okay, okay, fair enough.

Maybe for Jeff, you mentioned that coronary pricing was stable in the quarter, but I may have missed any commentary related to peripheral pricing.

Yeah, thanks for the question, Jason. Peripheral pricing also remained stable, continued to see kind of that low to mid single-digit price erosion, a little bit higher in the OBL, continued very stable in the hospital environment.

Okay. Okay. And then just a couple questions on the international business. On the coronary side, are there stocking orders tied to the CMARC approval? And then secondly, what is the current size in dollars of the coronary etherectomy market in Europe?

Thanks. So I'll address the first part of that. There are not stocking orders related to that launch. And Rhonda, would you want to address the second question?

Yeah, we think it's about a $50 million market today. But as I said, it is significantly under-penetrated. So that is our mission, is to increase that penetration rate and really grow that market significantly.

OK. Thank you.

OK. Thanks.

Our last question is from Margaret Cazor with Lillian Blair. Your line is open.

Hey, guys. Good afternoon. A few for me. I wanted to maybe touch on what Jason had just talked about for kind of the March quarter and then the June quarter. I know that it's tough to predict, but on the same token, what we saw in the summer months was a pretty rapid reacceleration in terms of demand as hospitals reopened and such. So, you know, maybe some thoughts around that as well as what does guidance assume for March and and essentially trying to peg into what does that mean then for the potential fiscal fourth quarter as you go into it.

As I indicated, Margaret, the guidance assumes that we will continue to see some headwinds from COVID-19 here into early February, and that then after that we'll see a steady ramp of improvement. Now, if you look at the recent peaking cases that occurred in early January, and generally it takes about six weeks for the peaking cases then to clear through the hospital system. So that would lead us to say that as we begin to look at the, you know, end of February, we'll start to see that release, and then that's where we would expect to see actually some backlog in our peripheral business and some uplift in our peripheral hospital segment, mainly in that portion of our business that is our chronic and patient population. So that's kind of how we're thinking about, you know, the remainder of this quarter. As we look at next quarter, you may very well be right, and I hope that you are, and then we'll talk about that next quarter. If there is a rebound and it is, you know, the pandemic releases and the healthcare system is very able to deal with it, then we'll deal with that in our guidance as we talk about fourth quarter in our next earnings call. But I guess I'd like to at least have amount of time to see how this unfolds over that period of time.

That makes sense. And I guess maybe the follow-up question to that is, in that September quarter of 20, was that more backlog of patients who maybe were already in the queue that got pushed out? And in this scenario, maybe you don't have as big of a backlog as you did then.

Well, I think that's true. I think that's fair, except that we did see in July a backlog of patients that were in our peripheral segment that were treated. And as you described, that happened in that September quarter. So we did see a bit of a backlog there, and it did come back up. You know, these Claudic patients are not lost to the system. Generally speaking, we know where they are. You know, they continue to experience pain. They have a chronic condition. It won't go away spontaneously. So, you know, they will be treated and they will come back in to the health care system for care. So we saw that in that September quarter. We'd expect to see it again late this quarter and probably into next quarter.

Okay. And then two questions that are maybe longer-term commercials. So with COVID, do you guys see a further move of volume sustainably into the OBL? And are you planning on that? What impact could it have? And then the second question is, there's a lot of vascular surgeons right now on the sidelines. Unfortunately, they're not able to treat patients with COVID. is there anything incremental that you guys have done commercially that you can provide that maybe drives awareness more or adoption or training of OES on the back end of COVID?

Thanks. Thanks, Margaret. Two very good questions. So regarding the vascular surgery community, yes, we are focused on that group and offering now very specific medical education programs. And in fact, in the midst of the COVID-19 crisis, we have been operating a large-scale digital or remote types of training and education programs that include live case trainings and Q&A, and then we're able to do now both peer-to-peer as well as remote certification of physicians who wish to begin to adopt atherectomy. We are seeing the vascular surgery community begin to adopt atherectomy both in terms of the primary care for their patients as well as in hybrid procedures where they're performing atherectomy in addition to the surgical procedure. So that is evolving, and we are continuing to support those efforts. It is mainly a customer training and education program at this time, but we're really pleased because we've got some very important key opinion leaders in that space who are now both strong adopters and also strong advocates for the treatment of these patients. And that long explanation, I forgot the first question. Yeah, the migration to the OBL is definitely underway. We have seen that, you know, that had started really past couple of years and i think that the covet 19 crisis is just accelerating migration to the office-based lab um it's it's geographic in nature uh certainly in the south in the southeast it's happening more rapidly than it is in other parts of the country but um most definitely we're seeing that that migration occur thank you guys thank you

Ladies and gentlemen, this concludes the Q&A session. We now turn the call back over to Scott Ward for any closing remarks.

Thank you, Chris, and thanks, everybody. We appreciate your participation on today's call. I'd be remiss if I didn't take a moment to recognize our employees, many of whom are joining us on the call today. And in Q2, during a pandemic, our CSI team of over 800 dedicated employees helped to save the lives or improve the quality of life for over 22,000 patients. and their families. So really now, more than ever, I'd like to thank all of our employees for their continued perseverance and their focus on our key growth drivers as we navigate through this pandemic. So thanks, everyone, and thanks for dialing in your attention. We look forward to updating you again next quarter.

Ladies and gentlemen, this concludes today's conference call. You may now