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spk06: Good day, and thank you for standing by, and welcome to the Silk Road Medicals 2021 Second Quarter Earnings. At this time, all participants are in a listen-only mode. After the speaker's remarks, 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Caroline Paul, Investor Relations. Please go ahead.
spk07: 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 three months ended June 30th, 2021. 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 and adoption, growth in our organization and reimbursement, market opportunity, commercial and international 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 May 10th 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, July 29, 2021. 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.
spk15: Thank you, Caroline. Good afternoon and thank you all for joining our second quarter 2021 earnings call. Joining me today is Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer. At Silk Road, we have set out to compete and win against invasive surgery and establish TCAR as the standard of care. We are back on offense and doing just that. The body of evidence supporting TCAR as a clinically proven, less invasive treatment option continues to expand, including for the first time into standard surgical risk patient population. Over the last year, we took significant procedural share from carotid endarterectomy, and we also became the number one share leader in both units and revenue for carotid stents by a significant margin. As we continue into the second half of 2021 and beyond, we are exceptionally well positioned to leverage our robust base of clinical evidence, proven TCAR efficiencies, trained physicians, and committed commercial organizations to drive TCAR adoption and advance our impact on the lives of patients at risk for stroke due to carotid artery disease. Our primary strategic objective in 2021 is U.S. commercial execution, and our second quarter performance resulted in roughly 3,650 TCAR procedures. Importantly, in each of our physician segments, our efforts aimed at increasing adoption are gaining traction. Procedures per physician were up 17% sequentially in the quarter, coming back to pre-pandemic levels across a significantly larger trained physician base. Additionally, initiatives aimed at driving adoption among physicians newer to TCAR bore fruit, as nearly 300 physicians from our recent training programs performed procedures in Q2, most of whom who had not performed a procedure in the prior quarter. Additionally, the time to the 1st and the 10th key car cases post-training continue to shorten. Overall, we are seeing improved adoption trends across each of our physician segments. Driven by the improving healthcare backdrop and growing utilization, we achieved total revenue of $26.5 million in the quarter, reflecting growth of 75% year over year. On an adjusted basis, total revenue increased 92 percent compared to the same period of the prior year when excluding the recognition of $1.3 million in deferred revenue in the second quarter of 2020. Based on the positive trends we are observing in the field, we are raising our full-year revenue guidance to $104 million to $109 million. Turning to our second strategic objective for 2021, we advanced our preparations for a potential standard surgical risk label expansion. As a reminder, the on-route stent is currently indicated for patients considered at high risk of adverse events from traditional carotid endarterectomy or high surgical risk. Though the high surgical risk population is a very large opportunity for us, Unlocking access to the additional subset of standard surgical risk patients would increase our US TAM by roughly 50%, and more importantly, put us on a level playing field with CEA. We are pleased to highlight that an analysis comparing TCAR versus CEA in standard surgical risk patients utilizing real-world evidence from the Vascular Quality Initiative will be presented by Dr. Patrick Leong of Beth Israel Deaconess in a plenary session on August 18 at the upcoming Society for Vascular Surgery Annual Meeting, or VAM, in San Diego. This is the first ever presentation of outcomes for TCAR in standard surgical risk patients. The abstract shows compelling outcomes and is viewable on the VAM website. We expect significantly more details around the data will come in the presentation and ultimate publication, and we look forward to sharing those details as they become public. The data to be presented at VAMP are similar to the data provided to FDA in our Q1 2021 PMA Supplement Submission, with slightly different statistical analyses to meet regulatory objectives. The submission of real-world evidence in the filing followed multiple collaborative pre-submission interactions with the FDA to refine our regulatory strategy and statistical approach. Overall, we are pleased with our progress with the FDA, including productive interactions since filing, which have largely centered around statistical programming questions. Given the progress in the quarter, we are currently refining our standard surgical risk launch strategy, engaging with CMS regarding coverage, and anticipating FDA post-approval study requirements. Please note that our current 2021 revenue guidance does not assume any contribution from treating standard surgical risk patients. In addition to our focus on our top two 2021 strategic objectives, we continue to invest in additional long-term growth drivers, including new and improved TCAR products, expansion into international markets, and new trans-carotid therapies in neurovascular and carotid disease states. For example, we are making progress on a new trans-carotid guidewire and a new trans-carotid balloon catheter that we could see approvals in 2022. Stay tuned on these initiatives that we believe are beneficial for continued penetration of TCAR into the market. On the international front, We're pursuing regulatory approvals in both Japan and China. In the second quarter, we filed our shown in applications with PMDA in Japan for both the en route neuroprotection system and the en route stent. And we submitted to NMPA in China for the stent with the NPS system already under review. We have also begun to take preliminary commercial steps in both countries. and have advanced our discussions with potential distribution partners in both Japan and China. We remain committed to exporting TCAR globally, and these steps mark the first phases of unlocking our global total addressable market of $5.1 billion. As a reminder, we do not expect any revenue this year from Japan or China. Turning to our neurovascular acute ischemic stroke program, we are in the process of initiating sites for our NITE1 feasibility study, which as a reminder stands for neuroprotection in transcarotid embolectomy. The FDA approved this IDE during the first quarter, and we expect the study to begin enrollment this year. In summary, we are thrilled with the progress that our team is making on U.S. commercial execution, preparation for standard surgical risk expansion, long-term pipeline development, and international expansion. The second quarter marked a noticeable overall elevation of our organization, driven by operational improvements, a new facility in Minnesota, expanded leadership capabilities in regulatory, clinical, quality, and R&D, and the continued addition of top commercial and sales force talent. With that, I will now turn the call over to Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer.
spk19: Thank you, Erica. Revenue for the three months ended June 30, 2021, was $26.5 million, a 75% increase from $15.1 million in the same period of the prior year. Growth was driven by increased adoption of TCAR across an expanded base of hospital accounts, trained physicians, and active sales territories. Our revenue for the second quarter of 2020 includes the recognition of $1.3 million in deferred revenue due to a decrease in the provision for sales returns related to certain prior sales with a shorter shelf life, coupled with a downward trend in our historical return rate. Excluding the contribution of the $1.3 million, second quarter revenue in 2021 increased 92% compared to the same period of the prior year. Gross margin for the second quarter of 2021 was 75% compared to 65% in the second quarter of the prior year. As a reminder, gross margin in the three months ended June 30, 2020 was impacted by unfavorable production variances due to temporarily idle manufacturing operations driven by COVID-19. Total operating expenses for the second quarter of 2021 were $29.8 million, a 56% increase from $19.2 million in the second quarter of 2020. R&D expenses for the second quarter of 2021 were $7.3 million compared to $3.4 million in the second quarter of 2020. The increase was primarily driven by growth in personnel and investment in new and ongoing R&D programs. Sales general and administrative expenses for the second quarter of 2021 were $22.5 million compared to $15.8 million in the second quarter of 2020. The increase was primarily attributable to expenses related to growth in our commercial team, as well as the resumption of travel, trade show, and other expenses as the impacts of COVID-19 declined compared to the second quarter of 2020. We expect continued growth in operating expenses in the second half of 2021 as we further expand our commercial team, invest in continued and new R&D initiatives, and expand our presence in Minnesota. Net loss for the second quarter was $10.5 million, equating to a loss of 31 cents per share as compared to a net loss of 10.5 million or a loss of 32 cents per share for the same period of the prior year. We ended the quarter with $128.1 million of cash, cash equivalents, and short-term investments. As we continue broadening our team and footprint, we are excited to have recently expanded our operations to include a temporary 18,000 square foot facility in Plymouth, Minnesota, part of the broader Minneapolis-St. Paul region. We have also initiated construction on a larger 62,000 square foot building in Plymouth, which we expect to begin moving into early next year. This region has a rich history of technological innovation and serves as a great talent pool complement to our continued and growing presence in Silicon Valley. Lastly, as Erica mentioned, we are raising our guidance to $104 to $109 million, representing growth of 38% to 45% over 2020 revenue of $75.2 million. Our confidence is driven by the continued demand for and pace of new physician training, our progress in hiring in the commercial organization, and continued strong trends in average selling prices and procedures per physician, both new and tenured. At this point, I would like to turn the call back to Erica for closing comments.
spk15: Thank you, Lucas. Before we close, I would like to highlight how honored we are to have recently added Dr. Tanisha Carino to our Board of Directors. Dr. Carino is a widely esteemed health policy expert with over 20 years of experience in healthcare leadership positions across governmental, for-profit, and nonprofit sectors. Her insight will be an important asset as we drive TCAR towards standard of care and push forward our efforts in new indications, new therapies, and global expansion. Entering the second half of the year, we are bolstered by our business performance and the trends that we are seeing for the healthcare delivery system overall. We are making a real difference in the lives of patients and the physicians who treat them, and we are committed to advancing new indications and new therapies to drive significant growth in the years ahead. With that, we will now open it up to questions. Joining me and Lucas Buchanan today for the question and answer portion of our call is our Chief Commercial Officer, Andy Davis. Operator?
spk06: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Again, that is star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Robbie Marcus with JP Morgan. Your line is open.
spk09: Hi, this is actually Lily on for Robbie. Thanks for taking the question. Um, so two quick ones, I'll ask them both upfront. Um, you know, the street is at 28 million for third quarter. Um, is that a level that you're comfortable with and are there any concerns that you have with regards to the Delta variant in third quarter? And second, it's nice to hear about the step-up in utilization. Was any of that tied to a catch-up in procedure volumes and backlog, and what gives you the confidence that you'll be able to sustain the increasing trends in utilization over the back half of the year? Thank you.
spk19: Sure, Lily. I'll take the first part of that one and maybe part of the second one. So in terms of the third quarter, the third quarter, as we all know, is a quarter that's typically affected by seasonality in the form of vacations and tends to be back half loaded as school gets back in swing. And certainly that is the case this year. And there's a lot of discussion around patients and physicians taking vacations just after a tough year and change behind us. So that's part of it. Obviously, we're cognizant of a lot of the Delta variant trends and how those are impacting certain parts of the country. So that, I think, influences all of our thinking on Q3 and hope to be back to even more normalization in Q4.
spk15: And Lily, this is Erica. Thanks for joining us. I can take this back, half of your question there, which is utilization and the potential influence of the COVID backlogs. Look, I think it's safe to say that in Q1, we really started to emerge back to a place where elective procedures were on schedule for the most part. And so, for the most part, we don't believe that the procedures per physician were driven by any backlog effect in the second quarter, but more driven by just getting back to the business of medicine and back to the business of stroke prevention. And as we said in our prepared remarks, we returned to a procedures per physician level that looked more like where we were in 2019 prior to the pandemic. But I do want to point out that that is on a larger denominator, a larger base of physicians trained. And to answer the last part of your question, yes, we are confident that we can sustain the growth in procedures per physician because that's what we are all about. And that is our focus, Lily, for this year. is moving physicians continuously up the adoption curve.
spk08: Great. Thank you.
spk06: We have our next question coming from the line of Rick Wise with Stifel. Your line is open.
spk03: Hey, guys. This is actually Dylan Hassan for Rick. I wanted to ask one on standard risk, just on what you're doing to prepare and thinking about the launch strategy. And in terms of the comments on leveling the playing field, do you think there's a way to frame whether you see more incremental opportunity in terms of currently trained docs converting standard risk patients to TCAR or more for docs either not doing TCAR or using it in a smaller subset to more readily adopt?
spk15: Yeah, sure. Let me take some of that, and then I think Andy Davis is really the best guy to answer most of that, Dylan, and thanks very much for joining us. So in terms of what is the launch strategy, you know, as you can imagine, there are just some basic kind of nuts and bolts that have to be done to get ready for this type of a launch. We do consider it a big launch. We're going to make quite the fanfare about it, as you can imagine. And that will include new educational materials, new marketing materials, obviously change in packaging labels and things like that to consider the new potential label expansion. But I think most importantly, it's really how we're thinking about the conversation with physicians and changing the way that we talk about TCAR as a procedure for high surgical risk. And I think with that, Andy, I'll let you take the back half of that
spk00: Sure. As Erica mentioned, the conversations that we've been having with the physicians over the course of several years is the differentiation between high surgical risk and potentially patients that aren't high surgical risk. But what we've learned is the vascular surgeons don't necessarily speak in that language. So as Erica referenced, with the onset of standard surgical risk label indication, we will be able to then put all patients on an even playing field as it relates to how doctors can choose what they feel is best for that patient. So we have a lot of doctors that are at very high levels of adoption with TCAR in their individual practices. And those particular physicians, they will be the ones that will move to higher levels of adoption now that this distinction has been taken off the table. But, you know, as it relates to everybody else, every doctor will come along on their own as they, again, march towards their own adoption of TCAR based on their own experiences. So it's still going to be, we still have a lot of opportunity ahead of us. in our current addressable market, and that is the high surgical risk patient population. So we'll keep working very hard with those doctors to move them along the adoption curve. But where we're really going to see movement in the short term upon this label indication is with those physicians that have already achieved higher levels of adoption. So we still have a long way to go, but we're very encouraged by being an even playing field once we do get this indication.
spk21: Great, thanks.
spk03: And I just had another on Salesforce expansion and adding new territories. Is there any way to provide color on the timing of those new territories in terms of how long they take to start opening new accounts in those new territories and driving incremental procedures?
spk19: Yeah, let me take the front half. of that. You know, we ended last year with 40 active territories, obviously had some additional sales reps in training. We guided to in excess of 50 by the end of this year, and we've talked historically about building towards 75. Our hiring this calendar year is slightly second-half biased, and so we have... some more territories becoming active in Q3 and more so in Q4 with some additional reps that'll be in training entering next year and again building towards that 75. I'll let Andy comment on how he thinks strategically about territory design as we grow over a relatively concentrated group of docs and hospitals.
spk00: Yeah, so we have spent a lot of time over the course of the last several months doing some studies on optimization and efficiency of size of territories, number of accounts, size of total addressable market, and what we're trying to achieve is our territories that we can, again, as Erica referenced, we can continue to drive adoption, go deep in our trained user base, and the way to do that is to create smaller, more efficient territories that are better optimized. So as we are marching very aggressively towards that 75 territory target, we're on pace and we're really starting to see the benefits where we have been able to achieve the smaller, more optimal, efficient territories where we are driving higher market shares a deeper penetration. We have several examples of where we've been able to get to that level in this early in this process, and it's paying huge dividends. So over time, when we have full 75 territories with trained reps, I'm very confident in that we'll be able to continue to drive higher penetration with more focus and more time for our reps to go deep.
spk02: All right. I appreciate you guys taking the questions.
spk06: We have our next question coming from the line of Joanne Wendt with Citi. Your line is open.
spk17: Hey, this is Anthony on for Joanne. Thanks for taking our question. So my first is on utilization. So how does utilization of physicians that were trained around 12 months ago in the height of the pandemic, how is that comparing to their utilization this quarter? And then to break it down a bit further, how is their utilization comparing to physicians that were trained pre-pandemic that had about a year of TCAR experience under their belts, and then I'd want to follow up.
spk19: Yeah, well, Erica touched a little bit this on her prepared remarks, but if you think about during the pandemic, the overall procedural volume was down for carotid repair in general, and we took share against CEA. So taking share as the overall national procedural volume was depressed. So we like those metrics. And as she also mentioned, there was some real targeted efforts in the second quarter on relatively recently trained physicians coming that didn't have as much ability to do cases during the peaks of the pandemic. And those efforts bore fruit. And we're back to pre-pandemic levels. and marching upward from there across a larger trained physician base. So all of those things are encouraging trends, if that answers most of your question.
spk17: Yeah, that's helpful. And then my second one is on the NYE-1 trial. So one of the inclusion criteria is patients that failed trans-thermal therapy, which I'm guessing to mean is aspiration or stent retriever, So should we think about the Novus neuroprotection system as a second-line treatment once patients have failed transfemoral, or how should we be thinking about that?
spk15: Well, look, I really appreciate that question, and thank you for paying attention to the details in the posted study. So first of all, the failed transfemoral therapy, this is really just because this is a feasibility trial for the first time, really looking at this method of neuroprotection and while we're doing a stroke thrombectomy procedure. And so it's a very much kind of walk before you run. And the failed transfemoral is really because, you know, we're in this feasibility phase and you don't want to set patients up for, you know, potential failure on the front end. The definition of failed attempt is very broad, and it does not necessarily mean what you said it meant. Really, the failure can be lots of different reasons why there was a failed attempt. So I wouldn't read too much into what that means. So it's really about understanding this therapy, the benefit of this therapy, and considering this failed transfemoral as sort of the beachhead from which to expand.
spk16: Great. That's helpful. Thank you.
spk06: We have our next question coming from the line of Adam Rader with Piper Sandler. Your line is open.
spk20: Hey, Erica. Hi, Lucas. Congrats on the nice quarter. Maybe just to start, wanted to ask a little bit more about the progression in Q2, if you're willing to give it by month, and even kind of how July played out, just trying to get a better sense for recent trajectory and exit momentum, and if you're seeing any kind of early impact from the Delta variant in past weeks, and then I had a follow-up. Thanks.
spk19: Adam, I think we'll keep our comments to Q2. We had talked on the Q1 call about kind of a strong march heading into Q2. Things are not linear. They've not been linear for some time, and they probably won't be perfectly linear for another quarter at least. But I think The tone and the trends and the stats is we're really confident in the underlying fundamentals of the business and the setup for not just the rest of this year, but 2022 and beyond. And we'll all continue navigating what's happening with Delta and patient behavior and all those things in the meantime.
spk15: Hey, Adam, I think the best way to kind of sum up our sentiment is we're back on offense.
spk20: Got it. Okay. Thanks, guys. It's crystal clear. And then maybe next question just on standard surgical risk. I guess this is a multi-part question, but, you know, first there was an abstract release from the VQI and TCAR surveillance project. It showed you know, noninferiority to CEA in standard surgical risk. You know, in your opinion, is this enough to kind of force a sea change in physician behavior in that patient cohort? And then you also talked a little bit in the prepared remarks about refining launch strategy, engaging with CMS. Just wondering if you can shed any additional color there on, you know, reimbursement pathway and how you're thinking about things. Thanks.
spk15: Sure, Adam. First, let me just kind of frame this up, which is that if you go back in time to 30-plus years ago when transfemoral CAS was trying to take over carotid endarterectomy, the first question on everyone's mind is, is it as good as CEA in the protection against stroke and death in the first 30 days? Can you protect against a stroke in the long term without creating a stroke or a death in that first 30 days? And, of course, transfemoral CAS failed. to live up to that expectation. And so the first and foremost question of any modality to get at carotid artery disease is how does it do in that first 30 days? And what you saw in the abstract, which is the first ever abstract in the standard surgical risk patient population in a propensity-matched comparison, that TCAR is equal to CEA in that particular measure. What you don't see in the abstract, Adam, is all of the other color that we expect will be added in the presentation at VAM and in the ultimate publication. And that is likely to include things that this group has published on in the past, such as length of stay, such as home discharge, such as cranial nerve injury, myocardial infarction, and all the rest. And so we have shown in the most difficult patient population, in the high surgical risk patient population, that we are superior to CEA in every other measure. We don't expect that will change in this new patient population. Regarding the second part of your question on reimbursement, we've been working all along in conversations with CMS and FDA since the very beginning. on our long-term strategy of opening up first high surgical risk and second standard surgical risk. Those conversations are ongoing. Coverage typically follows approval, and so we'll update you on more details as we get closer to approval.
spk20: Very good. Thanks so much for the call, Erica.
spk01: Thanks, Adam.
spk06: We have our next question coming from the line of Rebecca Wang with Your line is open.
spk04: Hi. This is Rebecca for Danielle and Taufei. I want to follow up on the utilization question. So you guys have 300 new physicians perform the TCAR procedure for the first time in Q2, which is, I think, higher than the number of physicians you trained in recent quarters. There are some physicians that were trained in late 2019 or early 2020 immediately before the pandemic and didn't do procedures after they were trained. Now as the pandemic is starting to ease, should we see a similar ramp that we saw with early with those physicians from utilization perspective?
spk19: Rebecca, this is Lucas. I'll take that. I think you're slightly misinterpreting Erica's prepared comments. We didn't give kind of a when exactly those folks were trained, and it's a bolus of physicians in a particular time period, not necessarily one quarter. I think the way to think about all this is we entered the year with 1,800 trained physicians, right? And we've talked about training in excess of another 200 this year. But if we just focus on the 1800, we've made progress in every single way that we segment, you know, deciles, quartiles, behavioral, tenure, all sorts of different ways. Every which way we look at it, they're making progress. And you have to filter through the noise of COVID, but we have analytical ways to do that. So we're building targeted programs and efforts to different segments of physicians, and it's working. And if you just simplified the math and said, okay, could we take those 1,800 docs and get them to do a single incremental procedure over the course of a year at our Q2 revenue per procedure of roughly $7,250, that's over $13 million in incremental revenue. So small... incremental improvements to procedures per doc off of a large trained physician base, you know, yield a lot of growth. That's where the organization is focused. And, you know, we're finally, you know, maybe one quarter away from all of the COVID noise, but we're really well positioned given the trends we see and the assets we have across trained docs, tenured territories, clinical evidence, great products, new products, and hopefully new indications coming.
spk05: All right. That's helpful. Thank you.
spk19: Thank you, Rebecca.
spk06: Thank you. There are no further questions at this time. I will now turn the call back over to Erica Rogers, CEO.
spk12: Thank you all very much for attending the call today.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you. Thank you. Thank you. Bye. Thank you.
spk10: Thank you.
spk06: Good day, and thank you for standing by, and welcome to the Silk Road Medical's 2021 Second Quarter Earnings. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during a session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Carolyn Paul, Investor Relations. Please go ahead.
spk07: 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 three months ended June 30th, 2021. 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 and adoption, growth in our organization, and reimbursement, market opportunity, commercial and international 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 May 10th, 2021. This conference call contains time sensitive information and is accurate only as of the live broadcast today, July 29th, 2021. 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.
spk15: Thank you, Caroline. Good afternoon, and thank you all for joining our second quarter 2021 earnings call. Joining me today is Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer. At Silk Road, we have set out to compete and win against invasive surgery and establish TCAR as the standard of care. We are back on offense and doing just that. The body of evidence supporting TCAR as a clinically proven, less invasive treatment option continues to expand, including for the first time into standard surgical risk patient population. Over the last year, we took significant procedural share from carotid endarterectomy, and we also became the number one share leader in both units and revenue for carotid stents by a significant margin. As we continue into the second half of 2021 and beyond, we are exceptionally well positioned to leverage our robust base of clinical evidence, proven TCAR efficiencies, trained physicians, and committed commercial organizations to drive TCAR adoption and advance our impact on the lives of patients at risk for stroke due to carotid artery disease. Our primary strategic objective in 2021 is U.S. commercial execution, and our second quarter performance resulted in roughly 3,650 TCAR procedures. Importantly, in each of our physician segments, our efforts aimed at increasing adoption are gaining traction. Procedures per physician were up 17% sequentially in the quarter, coming back to pre-pandemic levels across a significantly larger trained physician base. Additionally, initiatives aimed at driving adoption among physicians newer to TCAR bore fruit, as nearly 300 physicians from our recent training programs performed procedures in Q2, most of whom who had not performed a procedure in the prior quarter. Additionally, the time to the first and the tenth TCAR cases post-training continue to shorten. Overall, we are seeing improved adoption trends across each of our physician segments. Driven by the improving healthcare backdrop and growing utilization, we achieved total revenue of $26.5 million in the quarter, reflecting growth of 75% year over year. On an adjusted basis, total revenue increased 92% compared to the same period of the prior year when excluding the recognition of $1.3 million in deferred revenue in the second quarter of 2020. Based on the positive trends we are observing in the field, we are raising our full-year revenue guidance to $104 million to $109 million. Turning to our second strategic objective for 2021, we advanced our preparations for a potential standard surgical risk label expansion. As a reminder, the on-route stent is currently indicated for patients considered at high risk of adverse events from traditional carotid endarterectomy or high surgical risk. Though the high surgical risk population is a very large opportunity for us, unlocking access to the additional subset of standard surgical risk patients would increase our US TAM by roughly 50%. And more importantly, put us on a level playing field with CEA. We are pleased to highlight that an analysis comparing TCAR versus CEA in standard surgical risk patients utilizing real-world evidence from the Vascular Quality Initiative will be presented by Dr. Patrick Leong of Beth Israel Deaconess in a plenary session on August 18 at the upcoming Society for Vascular Surgery Annual Meeting, or VAM, in San Diego. This is the first ever presentation of outcomes for TCAR in standard surgical risk patients. The abstract shows compelling outcomes and is viewable on the VAM website. We expect significantly more details around the data will come in the presentation and ultimate publication, and we look forward to sharing those details as they become public. The data to be presented at VAMP are similar to the data provided to FDA in our Q1 2021 PMA supplement submission, with slightly different statistical analyses to meet regulatory objectives. The submission of real-world evidence in the filing followed multiple collaborative pre-submission interactions with the FDA to refine our regulatory strategy and statistical approach. Overall, we are pleased with our progress with the FDA, including productive interactions since filing, which have largely centered around statistical programming questions. Given the progress in the quarter, we are currently refining our standard surgical risk launch strategy, engaging with CMS regarding coverage, and anticipating FDA post-approval study requirements. Please note that our current 2021 revenue guidance does not assume any contribution from treating standard surgical risk patients. In addition to our focus on our top two 2021 strategic objectives, we continue to invest in additional long-term growth drivers, including new and improved TCAR products, expansion into international markets, and new transcarotid therapies in neurovascular and carotid disease states. For example, we are making progress on a new transcarotid guidewire and a new transcarotid balloon catheter that we could see approvals in 2022. Stay tuned on these initiatives that we believe are beneficial for continued penetration of TCAR into the market. On the international front, We're pursuing regulatory approvals in both Japan and China. In the second quarter, we filed our shown in applications with PMDA in Japan for both the en route neuroprotection system and the en route stent. And we submitted to NMPA in China for the stent with the NPS system already under review. We have also begun to take preliminary commercial steps in both countries. and have advanced our discussions with potential distribution partners in both Japan and China. We remain committed to exporting TCAR globally, and these steps mark the first phases of unlocking our global total addressable market of $5.1 billion. As a reminder, we do not expect any revenue this year from Japan or China. Turning to our neurovascular acute ischemic stroke program. We are in the process of initiating sites for our night one feasibility study, which as a reminder stands for neuroprotection in trans carotid embolectomy. The FDA approved this IDE during the first quarter and we expect the study to begin enrollment this year. In summary, we are thrilled with the progress that our team is making on US commercial execution, preparation for standard surgical risk expansion, long-term pipeline development, and international expansion. The second quarter marked a noticeable overall elevation of our organization, driven by operational improvements, a new facility in Minnesota, expanded leadership capabilities in regulatory, clinical, quality, and R&D, and the continued addition of top commercial and sales force talent. With that, I will now turn the call over to Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer.
spk19: Thank you, Erica. Revenue for the three months ended June 30, 2021 was $26.5 million, a 75% increase from $15.1 million in the same period of the prior year. Growth was driven by increased adoption of TCAR across an expanded base of hospital accounts, trained physicians, and active sales territories. Our revenue for the second quarter of 2020 includes the recognition of $1.3 million in deferred revenue due to a decrease in the provision for sales returns related to certain prior sales with a shorter shelf life, coupled with the downward trend in our historical return rate. Excluding the contribution of the $1.3 million, second quarter revenue in 2021 increased 92% compared to the same period of the prior year. Gross margin for the second quarter of 2021 was 75% compared to 65% in the second quarter of the prior year. As a reminder, gross margin in the three months ended June 30, 2020 was impacted by unfavorable production variances due to temporarily idle manufacturing operations driven by COVID-19. Total operating expenses for the second quarter of 2021 were $29.8 million, a 56% increase from $19.2 million in the second quarter of 2020. R&D expenses for the second quarter of 2021 were $7.3 million compared to $3.4 million in the second quarter of 2020. The increase was primarily driven by growth in personnel and investment in new and ongoing R&D programs. Sales general and administrative expenses for the second quarter of 2021 were $22.5 million compared to $15.8 million in the second quarter of 2020. The increase was primarily attributable to expenses related to growth in our commercial team, as well as the resumption of travel, trade show, and other expenses as the impacts of COVID-19 declined compared to the second quarter of 2020. We expect continued growth in operating expenses in the second half of 2021 as we further expand our commercial team, invest in continued and new R&D initiatives, and expand our presence in Minnesota. Net loss for the second quarter was $10.5 million, equating to a loss of 31 cents per share as compared to a net loss of 10.5 million or a loss of 32 cents per share for the same period of the prior year. We ended the quarter with $128.1 million of cash, cash equivalents, and short-term investments. As we continue broadening our team and footprint, we are excited to have recently expanded our operations to include a temporary 18,000 square foot facility in Plymouth, Minnesota, part of the broader Minneapolis-St. Paul region. We have also initiated construction on a larger 62,000 square foot building in Plymouth, which we expect to begin moving into early next year. This region has a rich history of technological innovation and serves as a great talent pool complement to our continued and growing presence in Silicon Valley. Lastly, as Erica mentioned, we are raising our guidance to $104 to $109 million, representing growth of 38% to 45% over 2020 revenue of $75.2 million. Our confidence is driven by the continued demand for and pace of new physician training, our progress in hiring in the commercial organization, and continued strong trends in average selling prices and procedures per physician, both new and tenured. At this point, I would like to turn the call back to Erica for closing comments.
spk15: Thank you, Lucas. Before we close, I would like to highlight how honored we are to have recently added Dr. Tanisha Carino to our Board of Directors. Dr. Carino is a widely esteemed health policy expert with over 20 years of experience in healthcare leadership positions across governmental, for-profit, and nonprofit sectors. Her insight will be an important asset as we drive TCAR towards standard of care and push forward our efforts in new indications, new therapies, and global expansion. Entering the second half of the year, we are bolstered by our business performance and the trends that we are seeing for the healthcare delivery system overall. We are making a real difference in the lives of patients and the physicians who treat them, and we are committed to advancing new indications and new therapies to drive significant growth in the years ahead. With that, we will now open it up to questions. Joining me and Lucas Buchanan today for the question and answer portion of our call is our Chief Commercial Officer, Andy Davis. Operator?
spk06: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Again, that is star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Robbie Marcus with JP Morgan. Your line is open.
spk09: Hi, this is actually Lily on for Robbie. Thanks for taking the question. Um, so two quick ones, I'll ask them both upfront. Um, you know, the street is at 28 million for third quarter. Um, is that a level that you're comfortable with? And are there any concerns that you have with regards to the Delta variant in third quarter? And second, it's nice to hear about the step-up in utilization. Was any of that tied to a catch-up in procedure volumes and backlog, and what gives you the confidence that you'll be able to sustain the increasing trends in utilization over the back half of the year? Thank you.
spk19: Sure, Lily. I'll take the first part of that one and maybe part of the second one. So in terms of the third quarter, the third quarter, as we all know, is a quarter that's typically affected by seasonality in the form of vacations and tends to be back half loaded as school gets back in swing. And certainly that is the case this year. And there's a lot of discussion around patients and physicians taking vacations just after a tough year and change behind us. So that's part of it. Obviously, we're cognizant of a lot of the Delta variant trends and how those are impacting certain parts of the country. So that, I think, influences all of our thinking on Q3 and hope to be, you know, back to even more normalization in Q4.
spk15: And Lily, this is Erica. Thanks for joining us. I can take this back, half of your question there, which is utilization and the potential influence of the COVID backlogs Look, I think it's safe to say that in Q1, we really started to emerge back to a place where elective procedures were on schedule for the most part. And so, for the most part, we don't believe that the procedures per physician were driven by any backlog effect in the second quarter, but more driven by just getting back to the business of medicine and back to the business of stroke prevention. And as we said in our prepared remarks, we returned to a procedures per physician level that looked more like where we were in 2019 prior to the pandemic. But I do want to point out that that is on a larger denominator, a larger base of physicians trained. And to answer the last part of your question, yes, we are confident that we can sustain the growth in procedures per physician because that's what we are all about. And that is our focus, Lily, for this year. is moving physicians continuously up the adoption curve.
spk08: Great. Thank you.
spk06: We have our next question coming from the line of Rick Wise with Stipple. Your line is open.
spk03: Hey, guys. This is actually Dylan Hassan for Rick. I wanted to ask one on standard risk, just on what you're doing to prepare physicians and thinking about the launch strategy. And in terms of the comments on leveling the playing field, do you think there's a way to frame whether you see more incremental opportunity in terms of currently trained docs converting standard risk patients to TCAR or more for docs either not doing TCAR or using it in a smaller subset to more readily adopt?
spk15: Yeah, sure. Let me take some of that, and then I think Andy Davis is really the best guy to answer most of that, Dylan, and thanks very much for joining us. So in terms of what is the launch strategy, you know, as you can imagine, there are just some basic kind of nuts and bolts that have to be done to get ready for this type of a launch. We do consider it a big launch. We're going to make quite the fanfare about it, as you can imagine. And that will include new educational materials, new marketing materials, obviously change in packaging labels and things like that to consider the new potential label expansion. But I think most importantly, it's really how we're thinking about the conversation with physicians and changing the way that we talk about TCAR as a procedure for high surgical risk. And I think with that, Andy, I'll let you take the back half of that
spk00: Sure. As Erica mentioned, the conversations that we've been having with the physicians over the course of several years is the differentiation between high surgical risk and potentially patients that aren't high surgical risk. But what we've learned is the vascular surgeons don't necessarily speak in that language. So as Erica referenced, with the onset of standard surgical risk label indication, we will be able to then put all patients on an even playing field as it relates to how doctors can choose what they feel is best for that patient. So we have a lot of doctors that are at, you know, very high levels of adoption with TCAR in their individual practices. And those particular physicians, they will be the ones that will move higher levels of adoption now that this distinction has been taken off the table. But, you know, as it relates to everybody else, every doctor will come along on their own as they, again, march towards their own adoption of TCAR based on their own experiences. So it's still going to be, we still have a lot of opportunity ahead of us, in our current addressable market, and that is the high surgical risk patient population. So we'll keep working very hard with those doctors to move them along the adoption curve. But, you know, where we're really going to see, you know, movement in the short term upon this label indication is with those physicians that have already achieved, you know, higher levels of adoption. So we still have a long way to go, but we're very encouraged by being, an even playing field once we do get this indication.
spk21: Great, thanks.
spk03: And I just had another on Salesforce expansion and adding new territories. Is there any way to provide color on the timing of those new territories in terms of how long they take to start opening new accounts in those new territories and driving incremental procedures?
spk19: Yeah, let me take the front half. of, of that, you know, we, um, we ended last year with 40 active territories, obviously had some additional sales reps in training. We guided to in excess of, of 50 by the end of this year. And we've talked historically about building towards 75, um, our hiring this calendar year is, is slightly second half biased. And so we have, um, some more territories becoming active in Q3 and more so in Q4 with some additional reps that'll be in training entering next year. And again, building towards that 75. I'll let Andy comment on, you know, how he thinks strategically about territory design as we grow over a relatively concentrated group of docs and hospitals.
spk00: Yeah, so we have... spent a lot of time over the course of the last several months doing some studies on optimization and efficiency of size of territories, number of accounts, size of total addressable market, and what we're trying to achieve is our territories that we can, again, as Erica referenced, we can continue to drive adoption, go deep in our trained user base, and the way to do that is to create smaller, more efficient territories that are optimized. So as we are marching very aggressively towards that 75 territory target, we're on pace and we're really starting to see the benefits where we have been able to achieve the smaller, more optimal, efficient territories where we are driving higher market shares a deeper penetration. We have several examples of where we've been able to get to that level in this early in this process, and it's paying huge dividends. So over time, when we have full 75 territories with trained reps, I'm very confident in that we'll be able to continue to drive higher penetration with more focus and more time for our reps to go deep.
spk02: All right. I appreciate you guys taking the questions.
spk06: We have our next question coming from the line of Joanne Wendt. With Siri, your line is open.
spk17: Hey, this is Anthony on for Joanne. Thanks for taking our question. So my first is on utilization. So how does utilization of physicians that were trained around 12 months ago in the height of the pandemic, how is that comparing to their utilization this quarter? And then to break it down a bit further, how is their utilization comparing to physicians that were trained pre-pandemic that had about a year of TCAR experience under their belts, and then I'd want to follow up.
spk19: Yeah, well, Erica touched a little bit this on her prepared remarks, but if you think about during the pandemic, the overall procedural volume was down for carotid repair in general, and we took share against CEA. So taking share as the overall national procedural volume was depressed. So we like those metrics. And as she also mentioned, there was some real targeted efforts in the second quarter on relatively recently trained physicians coming that were, you know, didn't have as much ability to do cases during the peaks of the pandemic. And those efforts bore fruit. And we're back to pre-pandemic levels again. and marching upward from there across a larger trained physician base. So all of those things are encouraging trends, if that answers most of your question.
spk17: Yeah, that's helpful. And then my second one is on the NYE-1 trial. So one of the inclusion criteria is patients that failed trans-thermal therapy, which I'm guessing to mean is aspiration or stent retriever, So should we think about the Novus neuroprotection system as a second-line treatment once patients have failed transfemoral, or how should we be thinking about that?
spk15: Well, look, I really appreciate that question, and thank you for paying attention to the details in the posted study. So first of all, the failed transfemoral therapy, this is really just because this is a feasibility trial for the first time, really looking at this method of neuroprotection while we're doing a stroke thrombectomy procedure. And so it's a very much kind of walk before you run. And the failed transfemoral is really because, you know, we're in this feasibility phase and you don't want to set patients up for, you know, potential failure on the front end. The definition of failed attempt is very broad, and it does not necessarily mean what you said it meant. Really, the failure can be lots of different reasons why there was a failed attempt. So I wouldn't read too much into what that means. So it's really about understanding this therapy, the benefit of this therapy, and considering this failed transfemoral as sort of the beachhead from which to expand.
spk16: Great. That's helpful. Thank you.
spk06: We have our next question coming from the line of Adam Rader with Piper Sandler. Your line is open.
spk20: Hey, Erica. Hi, Lucas. Congrats on the nice quarter. Maybe just to start, wanted to ask a little bit more about the progression in Q2, if you're willing to give it by month, and even kind of how July played out, just trying to get a better sense for recent trajectory and exit momentum, and if you're seeing any kind of early impact from the Delta variant in past weeks, and then I had a follow-up. Thanks.
spk19: Adam, I think we'll keep our comments to Q2. We had talked on the Q1 call about kind of a strong march heading into Q2. Things are not linear. They've not been linear for some time, and they probably won't be perfectly linear for another quarter at least. But I think The tone and the trends and the stats is we're really confident in the underlying fundamentals of the business and the setup for not just the rest of this year, but 2022 and beyond. And we'll all continue navigating what's happening with Delta and patient behavior and all those things in the meantime.
spk15: Hey, Adam, I think the best way to kind of sum up our sentiment is we're back on offense.
spk20: Got it. Okay. Thanks, guys. It's crystal clear. And then maybe next question just on standard surgical risk. I guess this is a multi-part question, but, you know, first there was an abstract release from the VQI and TCAR surveillance project. It showed you know, non-inferiority to CEA in standard surgical risk. You know, in your opinion, is this enough to kind of force a sea change in physician behavior in that patient cohort? And then you also talked a little bit in the prepared remarks about refining launch strategy, engaging with CMS. Just wondering if you can shed any additional color there on, you know, reimbursement pathway and how you're thinking about things. Thanks.
spk15: Sure, Adam. First, let me just kind of frame this up, which is that if you go back in time to 30-plus years ago when transfemoral CAS was trying to take over carotid endarterectomy, the first question on everyone's mind is, is it as good as CEA in the protection against stroke and death in the first 30 days? Can you protect against a stroke in the long term without creating a stroke or a death in that first 30 days? And, of course, transfemoral CAS failed. to live up to that expectation. And so the first and foremost question of any modality to get at carotid artery disease is how does it do in that first 30 days? And what you saw in the abstract, which is the first ever abstract in the standard surgical risk patient population in a propensity matched comparison, that TCAR is equal to CEA in that particular measure. What you don't see in the abstract, Adam, is all of the other color that we expect will be added in the presentation at VAM and in the ultimate publication. And that is likely to include things that this group has published on in the past, such as length of stay, such as home discharge, such as cranial nerve injury, myocardial infarction, and all the rest. And so we have shown in the most difficult patient population, in the high surgical risk patient population, that we are superior to CEA in every other measure. We don't expect that will change in this new patient population. Regarding the second part of your question on reimbursement, we've been working all along in conversations with CMS and FDA since the very beginnings. on our long-term strategy of opening up first high surgical risk and second standard surgical risk. Those conversations are ongoing. Coverage typically follows approval, and so we'll update you on more details as we get closer to approval.
spk20: Very good. Thanks so much for the call, Erica.
spk01: Thanks, Adam.
spk06: We have our next question coming from the line of Rebecca Wang with Your line is open.
spk04: Hi. This is Rebecca for Danielle and Taufe. I want to follow up on the utilization question. So you guys have 300 new physicians perform the TCAR procedure for the first time in Q2, is I think higher than the number of physicians you trained in recent quarters. Are there some physicians that were trained in late 2019 or early 2020 immediately before the pandemic and didn't do procedures after they were trained? Now as the pandemic is starting to ease, should we see a similar ramp that we saw with early, with those physicians from utilization perspective.
spk19: Rebecca, this is Lucas. I'll take that. I think you're slightly misinterpreting Erica's prepared comments. We didn't give kind of a when exactly those folks were trained, and it's a bolus of physicians in a particular time period, not necessarily one quarter. I think the way to think about all this is we entered the year with 1,800 trained physicians, right? And we've talked about training in excess of another 200 this year. But if we just focus on the 1,800, we've made progress in every single way that we segment, you know, deciles, quartiles, behavioral, tenure, all sorts of different ways, every which way we look at it. They're making progress, and you have to filter through the noise of COVID, but we have analytical ways to do that. So we're building targeted programs and efforts to different segments of physicians, and it's working. And if you just simplified the math and said, okay, could we take those 1,800 docs and get them to do a single incremental procedure over the course of a year, at our Q2 revenue per procedure of roughly $7,250, that's over $13 million in incremental revenue. So small incremental improvements to procedures per doc off of a large trained physician base yield a lot of growth. That's where the organization is focused, and we're finally – you know, maybe one quarter away from all of the COVID noise, but we're really well positioned given the trends we see and the assets we have across trained docs, tenured territories, clinical evidence, great products, new products, and hopefully new indications coming.
spk05: All right. That's helpful. Thank you.
spk19: Thank you, Rebecca.
spk06: Thank you. There are no further questions at this time. I will now turn the call back over to Erica Rogers, CEO.
spk12: Thank you all very much for attending the call today.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
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