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spk04: Good afternoon, ladies and gentlemen, and welcome to the Silk Road Medical's 2020 Third Quarter Earnings. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Caroline Paul. Ma'am, please go ahead.
spk06: Thank you, and thank you all for participating in today's call. Joining me are Erica Rogers, Chief Executive Officer, and Lucas Buchanan, Chief Financial Officer and Chief Operating Officer. Earlier today, Silk Road Medical released financial results for the quarter ended September 30th, 2020. A copy of the press release is available on the company's website. 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 are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, physician training, growth in our organization, and reimbursement, market opportunity, guidance for revenue, gross margin, and operating expenses in 2020, commercial expansion, label expansion, and product pipeline development 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 refer to the risk factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2020. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 10, 2020. Silk Road Medical 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. And with that, I will turn the call over to Erica.
spk03: Thanks, Caroline. Good afternoon, everyone, and thank you for joining us for Silk Road Medical's third quarter earnings call. Joining me is Lucas Buchanan, our chief financial officer and chief operating officer. Our third quarter results are a testament to our team's steadfast commitment to stroke prevention and the underlying severity of carotid artery disease. We achieved total revenues of $20.1 million, reflecting growth of 18% year over year. Our top line performance was driven by 25% growth in procedures for a total of approximately 2,825 in the quarter. With these encouraging trends, we remain cautiously optimistic about the fourth quarter, recognizing strength in procedure volumes and underlying demand, but also acknowledging the very recent trends and potential negative impact of the COVID-19 resurgence. That being said, we are incredibly proud to have recently crossed the 25,000 cumulative procedures milestone, a testament to our team's drive and the underlying market opportunity. Over the course of the year, we have been strengthening our ability to drive long-term growth. We are investing meaningfully in R&D initiatives, expansion of our commercial team, and the recent launch of our new website featuring our brighter campaign. The future of Silk Road is indeed bright. We are also positioning our leadership and organizational structure for growth ahead. As we announced earlier in the year, Andy Davis is spearheading our commercial efforts in the newly created position of Chief Commercial Officer. Andy continues to have a monumental role in our commercial success by driving safe, adoption of TCAR across the United States, while gearing up for future label expansions, product launches, and international strategies. We are also pleased to have announced Bill Whalen as our Executive Vice President of R&D. Bill brings two decades of scientific and development leadership to Silk Road, where he is responsible for advancing our pipeline and expanding our intellectual property portfolio. Bill has a passion for identifying and solving unmet clinical needs and a proven track record leading innovative R&D teams. He will be instrumental to our growth both today and tomorrow. And finally, I am excited about the promotion of Lucas Buchanan, who now has an expanded role as our Chief Operating Officer in addition to Chief Financial Officer. Lucas' deep knowledge of our business and strong leadership skills make him the ideal COO as we scale our organization and pursue new strategic initiatives while maintaining operational excellence. Turning now to the three strategic initiatives for 2020 that we outlined at the beginning of the year. We are making significant progress on all three. U.S. commercial execution, developing our strategy for label expansion and coverage for the standard surgical risk patient population, and further pipeline development. Starting first with U.S. commercial execution, we remain focused on our large untapped market opportunity to drive TCAR penetration in high surgical risk patients through increased physician utilization. while expanding our base of sales territories, hospital accounts, and trained physicians. We have continued to add to our talented commercial team and remain on track to end 2020 with 40 to 45 active territories. Our team has also done an excellent job training physicians in new and innovative ways that adjust to the realities of the COVID-19 environment. After the dip in training in Q2 that we talked about on last quarter's call, we have successfully pivoted to new methods, and we are quite pleased with our training progress in the third quarter. Demand for TCAR training remains strong. As further validation of our platform, we are also honored by the recent peer-reviewed publication of the ongoing TCAR surveillance project in Annals of Surgery in September, and our Roadster 2 study in the American Heart Association's journal, Stroke, this past July. These datasets in high impact factor journals enable the benefits of TCAR to reach a broad base of referring and treating physicians across the stroke care continuum, and further validate our ever-growing clinical evidence base as it reaches payers, regulators, medical societies, and other critical stakeholders. Collectively, these papers represent over 7,000 patients' worth of data published in just this quarter. In this business, clinical data is a major tailwind for long-term growth. And now, shifting to our second key priority, providing more clarity on the regulatory and reimbursement strategy for standard surgical risk patients. We continue to make meaningful progress on our ongoing discussions with key stakeholders, including the FDA. As previously disclosed, we have been targeting the end of this year to discuss our strategy in this area in more detail. While nothing substantive has changed in the assessment of our strategy, the process of working through it with the FDA, CMS, and the Society of Vascular Surgery is simply taking more time. As a result, disclosure of our strategy is likely to occur after the end of the year. Our goal all along has been to reach an optimal path forward to obtain not just expanded FDA label, but also Medicare coverage and ultimately adoption. And we remain on that path. Finally, our third strategic priority is focused on continued pipeline development. We consider ourselves experts in trans carotid access and neuroprotection, and we have made meaningful progress on product development, not just for TCAR, but also in acute ischemic stroke. We are expecting to move into clinical and regulatory activities for our neurovascular program next year. While much has been achieved in acute stroke thrombectomy in recent years, significant unmet needs remain in terms of patient outcomes. And we are excited about the potential for trans-carotid therapies to usher in a new paradigm. In summary, we are continuing with our progress on our long-term initiatives and we believe our opportunities in stroke prevention and acute stroke treatment are brighter than ever. With that, I will now turn the call over to Lucas to review our financials in more detail.
spk08: Thank you, Erica. Revenue for the three months ended September 30, 2020, was $20.1 million, an 18% increase from $17.0 million in the same period of the prior year. Growth was again driven by increased adoption of TCAR across an expanding base of hospital accounts, trained physicians, and active sales territories, partially offset by regional headwinds related to COVID-19. There were approximately 2,825 TCAR procedures performed in the third quarter of 2020, representing a 25% increase compared to the same prior year period. Gross margin for the third quarter of 2020 was 73%, as compared to 76% in the corresponding prior year period. The gross margin decline was due to unfavorable production variances as a result of temporarily idled manufacturing operations early in the quarter related to COVID-19, as well as the timing of certain manufacturing engineering projects. Total operating expenses for the third quarter of 2020 were $23.9 million, an 18% increase from $20.3 million in the third quarter of 2019. R&D expenses for the third quarter of 2020 were $4.7 million, compared to $3.2 million in the third quarter of 2019. The increase was driven by an increase in personnel-related expenses and product development initiatives. Sales, general, and administrative expenses for the third quarter of 2020 or $19.2 million, compared to $17.1 million in the third quarter of 2019. The increase was primarily attributable to expenses related to growth in our commercial team and personnel-related expenses. Expense growth was partially offset by the continued reduction in travel, trade show, and other expenses due to COVID-19. Net loss for the period was $10.3 million, or a loss of 31 cents per share as compared to a net loss of $8 million or a loss of 26 cents per share for the same period of the prior year. We ended the third quarter of 2020 with $153.9 million of cash, cash equivalents, and short-term investments. To further strengthen our balance sheet and cash flow, on October 29th, we successfully refinanced our long-term debt at a significantly lower cost of capital with a new $50 million loan facility. As we approach the end of the year, we would like to provide some additional commentary on our strategic priority of U.S. commercial execution, with the caveat that COVID-19 resurgence could impact our ability to achieve these. We currently have 40 active sales territories and expect to begin 2021 with 43. As it relates to physician training, we expect to have trained approximately 325 physicians by year end, which would bring our total trained physician base to just over 1,770. As Erica mentioned, demand for training remains strong. Regarding our revenue outlook for the remainder of the year, we are cautiously optimistic as we continue to execute during the fourth quarter, but we want to be transparent about the difficulty estimating the impact of the pandemic on our near-term financial results. That said, our team is resilient, our balance sheet is strong, and our therapy delivers value, which positions us well as we close out the year and look forward to 2021. At this point, I would like to turn the call back to Erica for closing comments.
spk03: In closing, we are well positioned for continued growth, and we remain dedicated to meaningfully impacting both stroke prevention and acute stroke treatment. And in fact, we recently observed World Stroke Day on October 29th. Every year, this provides an excellent opportunity to raise awareness of the serious nature and high rates of stroke and the huge burden it places on over 40 million people worldwide who are directly and indirectly affected by this catastrophic disease. This year, it is just as important as ever to highlight the prevalence of stroke and remind people not to delay their healthcare. I want to thank all of our many partners for collaborating with us on this important cause. Our team is working alongside them on this journey to change the standard of care and improve patient lives with innovative technology. As we like to say at Silk Road, delivering brighter patient outcomes through brighter clinical thinking. At this point, I would like to open the call for questions.
spk04: Thank you, ma'am. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question is from Robbie Marcus from J.P. Morgan. Your line is open.
spk01: Oh, great. Thanks for taking the question, and congrats on a nice quarter. I'll just ask both my questions up front. You made two presentations. let's call them incremental new announcements on the call here, one about the new ischemic stroke pipeline product, the other about the strategy for standard risk. Maybe you could address them separately. First, you know, there's a lot of ischemic stroke products out there. You know, I've always viewed TCAR as a delivery system. Do we look at this as a delivery system for an existing ischemic stroke product, or do we think about this as a totally independent new product of your own? And then second, on the standard risk approval pathway, maybe you could give us a little flavor for what's causing the delay. Is it COVID or otherwise? And what's the chance we still need a new trial from start to finish to get that? Thanks a lot.
spk03: Hi, Robbie. Thanks very much for the question. Good to hear from you today. Let me take those in the order they were asked. Let's talk about our initiatives in acute ischemic stroke first. So, you know, I think it starts by saying we're taking a very differentiated approach to what is available in the market today, Robbie. And, you know, as you well know and as you pointed out, it's a very competitive space, and therefore, we believe it's not in our best interest to disclose all of the details right now. There will become a point in time where it makes more sense to talk about the products very specifically. But I will say this, which is we've always been a company dedicated to improving outcomes. And when we look at the statistics on the outcomes from acute stroke thrombectomy and find that less than half of the patients do well in other words, can live independently after a procedure, we see that as an opportunity for innovation and for improvement. And so I think it's safe to say our approach is quite differentiated and will be aimed at outcomes. On the second part of your question on standard risk, really nothing substantive has changed, Robbie. It's simply a matter of time. This just took more time than we had all hoped. And that's in part due to the fact that we're working with a multi-headed partnership here with the Society of Vascular Surgery and the FDA really at the head of all of that. And while these entities have been very forthright and forthcoming in their assistance in this project throughout the year, I think it's safe to say there are some distractions around the table that don't necessarily always make Silk Road their very first priority. And so while nothing substantive has changed, we feel good about the path that we're on as we were in the last call. We just need some more time.
spk01: Great. And maybe just to clarify on the stroke product, because, you know, the TCAR system right now uses a Cordis stent. Is the whatever device that's going to be used for ischemic stroke, can you say if that's a third-party product, or will it be an all-inclusive in-house product? Thanks.
spk03: Yeah, I think at this point we're not really disclosing any of the details, but I will say that Silk Road has been, as disclosed in our S1, Robbie, way back in the day, has been working on products in this area for some time, and we've really spent this last year honing our internal efforts.
spk01: Great. Thanks for the question.
spk03: Thanks, Robbie.
spk04: Your next question is from Joanne Wencht from Citi. Your line is open. Good evening, everybody.
spk07: Great to virtually to you. Thank you for the update on standard risk and other products. Can we touch a little bit on international expansion and what you're thinking about there?
spk03: Yeah. Hi, Joanne. Good to hear from you. Sure. We haven't disclosed anything on international in terms of the specific timing, other than to say we're first working on removing the regulatory barriers to entering certain markets. And throughout the year, we've said we're focused on regulatory processes in both China and Japan. Certainly, Andy's new role as chief commercial officer, he has international responsibility now, which is providing some additional focus. But for now, we're not revealing the details of timing.
spk07: Thank you. And then my second question has to do a little bit with, I think, about 2021. I'm not asking for guidance, but what I'm trying to get my head around is how you think about training the impact of a vaccine on your business and in terms of any patients that may be sort of in a watchful waiting state that are looking for that entry to come into the pool. Thanks.
spk03: Yeah, really interesting question, Joanne. You know, the news on the vaccine is obviously fairly new. I think we all knew it was coming eventually, but And so I think it's hard to pinpoint exactly how that's going to change or not change patient behavior, physician behavior, hospital behavior, all of that. I think it's safe to say that organizations like the American Heart Association, our physician partners, their hospitals, they're all working really hard at patient education to make sure that patients don't defer treatment their health care. Obviously, there was strength in our procedure volume in Q3, which I think is a good sign that patients are doing what they need to do to get their health care. As it relates to physician training, as we said in the prepared remarks, the demand for training remains high. And we've been pleasantly surprised by that focus among our physicians, who also have a lot of other things to be thinking about in this And I think we're really proud of our team who has completely pivoted and learned new and innovative ways to train that in many cases may be more efficient and better.
spk07: Wonderful. Thank you.
spk04: Thanks, Joanne. Your next question is from Rick Wise of Stiefel. Your line is open.
spk09: Hey, guys. This is actually Dylan on for Rick. I just had a question around the procedure number for the quarter. It kind of seems to imply that the July through September procedures per month on average were similar or a little bit better than the exit rate in June, which is around 900. And I think that you said on the last call, July started off maybe a little bit less than that. I just wanted to hear from you. Any comments on sequential trends you saw within the quarter?
spk08: Sure. I think as Q3 typically is, Dylan, absent a pandemic, it tends to be back half loaded. And there was a little bit more noise in the quarter, but certainly we saw a strong September as we did in Q3 of 2019. And so that trend played out. And so as physicians and patients, you know, potentially took a break in vacations in the July and August timeframe and some other seasonality, and as the different, you know, good and bad amplitudes of various regional virus activity plays forth, that we still had a very strong September.
spk09: Got it. Thank you. And I just had a question on the idea of moving docs further up the adoption curve, and it felt like coming into this year that that was maybe an increasing focus with the number of docs that you already had trained, not for lack of interest and demand for new doc training, but you have a large base, it seemed like you'd be spending more time and effort there. But it's always a bit challenging for us to kind of measure, get a sense of the progress there, given the new docs that dilute the procedures per quarter number and maybe COVID. So just any way you could provide some color on the progress you're making on the adoption front, whether that be more docs moving into a bucket that are doing, say, 50% or more procedures as TCAR? Any way that you want to frame that?
spk08: Sure. Well, again, there's certainly more noise quarter to quarter this year with the pandemic, but I think the short answer is we continue to like the metrics we see. Q3 was a return to a lot of the analytics we look at internally, including procedures per doc per time period. Q3 was similar to Q1 in that regard, so a nice recovery back to almost pre-COVID-type metrics, even as we continued to dilute the denominator with our training activities in Q3. So that's the good news. And looking forward to 2021 and beyond, as we've always said, we've spent many years building a really concentrated footprint of a commercial team going after a concentrated group of docs and hospitals. And what will be our driver of growth in the years to come is the adoption curve. So that is still very much the focus of the team, even though we continue to train new docs and add new accounts and add new sales territories. The bias more and more over time is really focused on driving physician utilization and driving procedures in each individual physician's adoption curve. And so I think absent COVID overall and some of the, you know, different trends we've seen each quarter throughout the year, we're still on the right path, which is why we've continued to invest kind of across the board, right, in the commercial team and physician training events and product development. to position ourselves well for the long haul. And so COVID never, you know, deterred us from that goal, those goals, and we have the balance sheet to do that.
spk09: Great. Thanks for taking the questions, guys. Thank you.
spk04: Your next question is from Daniel from SVB Fleerink. Your line is open.
spk05: Hey, good afternoon, everyone. Thanks so much for taking the questions. Congrats on a good quarter. I was just wondering if you could give any color on what's happening, if you have any visibility into the sort of new patient funnel coming into the system. And I don't know if the right way to look at that is sort of the mix of asymptomatic versus symptomatic and how that shifted since sort of, you know, the early days of COVID or what. And whether you can comment, as we look at Q4, it feels like backlog has largely been worked down. And so all of the growth from here, would likely be coming from new patients into the system, and I didn't know if that was an accurate assessment or not.
spk03: Hi, Danielle. I'm so glad you asked that question. It's a question that was on our minds as well recently. And so we actually looked at some recent data to try to get a sense of, you know, how many patients are kind of new patient visits versus, you know, kind of existing, already diagnosed kind of patient visits. And what we saw was what you would expect is this, you know, sort of big dip in new patients in that, you know, March, April, early May timeframe. And then it was interesting to see how it flipped back to kind of, and in that timeframe, existing patients continued to come into their physician's offices, but albeit at a slower rate. What we saw recently was that existing patients are strong and new patients are on the rebound. So, at least across the board, visits to the healthcare provider are going up in both categories, both as new patients and existing patients, which we find to be encouraging. One of the other things that happens, of course, in our business is there's a fair amount of the business that is symptomatic. It's typically about a third of our procedure volume, and those patients tend to be kind of more urgent in nature, and those continue to happen throughout this last quarter.
spk05: Got it. That's helpful. And then just another question. I know this was kind of anecdotal during COVID, but you know, it felt like you saw a little bit of a shift in, at least in some centers, to a higher percentage of TCAR procedures versus CEA, given the shorter length of stay, predictability, safety, et cetera. So I was just wondering if that shift has sort of continued and or accelerated. Is there any trend that's sort of been sustained as we've sort of been coming out on the other side of COVID, not that we're out on the other side yet, but Anything of note there that you guys could point out that could be a more sustainable trend once COVID is hopefully done?
spk03: Yeah, it's a good question, Danielle. Of course, the data are lagging, so it's hard to answer that with anything that's kind of data-driven in nature, but we can tell you anecdotally that that we hear more stories like the one we told at the last earnings call and the one before that, where physicians are choosing TCAR over its efficiencies. It's less burdensome to the patient, to the hospital, to the system, and patients have a higher probability of going home versus a step-down type facility, and that's all good in the pandemic. So we continue to hear more stories like that, but we haven't put any numbers behind it yet.
spk05: Okay, thanks so much. Thanks, Danielle.
spk04: Your next question is from Adam Mader from Piper Sander. Your line is open.
spk10: Hi, good afternoon. Thanks for taking the questions, and congrats on the quarter. I just wanted to ask about recent business trends, and apologies if I missed this in the prepared remarks, but it sounds like you saw good momentum exiting Q3. But just wanted to ask about recent volume trends for October and thus far in November as we've started to see COVID-19 case counts start to climb here. So just any details you could share there would be great. And then I had a follow-up.
spk08: Adam, I'll take that. You know, we obviously didn't provide any specific Q4 guidance. You know, in the prior question, we said September was strong. You know, October was similar, a slight decline numerically on procedures. And, you know, as we sit here on Tuesday the 10th, the virus situation is obviously quite fluid with the news coming out of the Midwestern states, Utah, state of emergency, things like that. Those are real-time, you know, COVID-related things. effects that remain to be seen, how it will affect the month of November and what will happen in December, which creates some of the uncertainty, even though we're fairly close to the end of the year. But the underlying business trends, absent those exogenous COVID factors and patient behavior, remain very strong.
spk10: Okay, that's helpful incremental color there, Lucas. I appreciate it. And just for the follow-up, I wanted to ask about the you know, the neurovascular update. And I know you're keeping things a little bit close to the vest for competitive reasons, but just wanted to see if you could give any extra color around kind of, you know, regulatory pathway forward, plans to collect clinical evidence. Is this a 510K or PMA pathway? Just any color that you could provide would be much appreciated. Thanks so much.
spk03: Yeah, Adam, I appreciate the question, but unfortunately, you know, we just really want to keep the cards close to the vest here. You know, I think you follow this market, I know, and I know that you know it's highly competitive, and there's kind of two ways competitors maintain their lead in this space. One is through speed, and the other is through intellectual property, and we're working on both. So we're, you know, we're interested in kind of staying in stealth mode at the moment.
spk10: Okay. Totally fair. Thanks, Erica.
spk04: Your next question is from Bob Hopkins of Bank of America. Your line is open.
spk02: Oh, great. Thanks. And thanks for taking the questions. Good afternoon. I just wanted to follow up a little bit on the pipeline commentary you made and the standard risk part. And on the standard risk, I can't recall if you said this, but are you communicating at this point whether or not you'll need to run a new clinical trial for standard risk or whether that's not likely to be required based on all the data you've gathered through other means? I guess that's question one. And then on the ischemic stroke side, it sounds like you're going to need to do some clinical work. So is it fair to say that this is, from a commercial perspective, This is probably not a 2021 or perhaps even 2022 opportunity for you. So I'll leave it at that. Thank you.
spk08: Hey, Bob, I'll take the second part of the question and then hand standard risk back to Erica. But, no, you should not expect revenue associated with the neuro program in 2021. It's really R&D activities.
spk03: Yeah. And, you know, obviously, Bob, we're excited to talk about it because just in the last, you know, couple of years, there have been multiple published papers looking at the safety and efficacy of trans-carotid access for acute stroke. And many of the authors have concluded that outcomes can be significantly improved in patients who have prohibitive or difficult transfemoral or other access. And so it's interesting that, like TCAR, TCAR was a grassroots effort among vascular surgeons looking for a better way to do things, and we're seeing that happening. And so the same story is kind of playing out here. So we're very excited about what's coming ahead in stroke. On standard risk, we have not talked about whether or not a trial is going to be required. And we're going to continue to hold comment on that, Bob, and we'll obviously provide an update as soon as it makes sense. What we've been trying to do all along is make sure that our partners here, the Society of Vascular Surgery, FDA in particular, are really in lockstep with the strategy. And we just don't want to get ahead of them. And that's in part kind of leading to us pushing this out a little bit here today.
spk02: Okay. And then one quick follow up and just curious on the stroke side. You know, does your vascular surgeon customer base kind of treat acute stroke today? Or is this a are you going to have to kind of develop relationships with the interventional neuroradiology and neurosurgery community that primarily does that today?
spk03: Yeah, it's interesting. You know, the short answer is there are some vascular surgeons who are in the stroke continuum of care, as you can imagine, particularly in symptomatic carotid artery disease. That obviously makes real sense, but I think it's safe to say that we haven't really disclosed the specifics and won't today just because we want to keep the cards close to the vest on what the plan is, but it will reveal itself in time.
spk02: Okay, I'll leave it at that. Thanks so much.
spk04: Thank you, Bob. I'm sure there are no further questions at this time. I would like to turn the conference back to you, Ms. Erica Rogers.
spk03: Thank you very much, and thank you all for your questions and for listening in today. Have a good holiday season. Bye-bye.
spk04: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all
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