Surmodics, Inc.

Welcome to the Sermatix Second Quarter Fiscal 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Tim Ahrens, Senior Vice President of Finance and Chief Financial Officer. Please go ahead.

Thank you, Stephanie. Good morning and welcome to Sermatix Fiscal 2021 Second Quarter Earnings Call. Before we begin, I would like to remind you that during this call, we will make forward-looking statements. These forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Sermotic's future financial and operating results or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements, resulting from certain risks and uncertainties. including those described in our SEC filings. Sarmatix disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. We'll also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains reconciliation tables to GAAP results. This conference call is being webcast and is accessible through the investor relations section of the Sermatix website, where the audio recording of the webcast will also be archived for future reference. A press release disclosing our quarterly results was issued this morning and is available on our website at sermatix.com. I will now turn the call over to Gary Maharaj. Gary?

Thank you, Tim. Good morning, and welcome to Sermatix's fiscal second quarter 2021 earnings call. We had an excellent second quarter. Every cylinder was firing in the semantics engine. We recognized $10.8 million of revenue from the surveilled clinical report milestone. We saw a return to growth in our medical device coatings royalty portfolio. And we made solid progress on the execution of our key strategic objectives during the quarter. To top it off, our IVD businesses developed record revenue performance. My thanks go out to the entire semantics team for their continued dedication. Total revenue for the quarter increased 53% to $35 million in the second quarter of fiscal 21, compared to $22.8 million in the prior year quarter. In our second quarter, our performance benefited from the achievement of the $15 million for the clinical report milestone, of which we recognize $10.8 million in Q2. Excluding the impact of this business milestone payment, total revenue grew 6% as both our medical device and IVD businesses delivered year-over-year revenue growth. We reported diluted GAAP earnings per share of 58 cents and non-GAAP earnings per share of 62 cents in the second quarter. During our second quarter, I was pleased with our progress on our key strategic objectives for fiscal 21. As a reminder, they are, first, complete the final PMA submission to the FDA for our surveilled drug-coded balloon. Second, continue the advancement of our robust product pipeline. And third, to optimize cash flow from the IBD and medical device businesses to fuel our strategic growth initiatives. Starting with Surveil. As we discussed in our last servings call, the results of the Transcend study of our Surveil drug-coated balloon were presented in January. These data demonstrated that Surveil was non-inferior to the Impact Admiral VCB in both the primary safety and efficacy endpoints, despite the Impact device having 75% more Paxifaxil on board. Our team is in the process of collecting and assembling the final data package for PMA submissions. As we have previously communicated, this includes, as required by the FDA, a minimum threshold of mortality follow-up data for patients at two and three years from the time of their treatment. As part of our surveil development and distribution agreement with Abbott, in Q2 we received a $15 million milestone payment from Abbott associated with successful completion of the clinical report. that demonstrated these primary safety and efficacy endpoints in the TRANSCEND clinical study. As previously communicated, there remains a final $30 million milestone payment upon successful PMA also availed by the FDA. Based on the timing of the last patient to be enrolled in the TRANSCEND study, we are still on target to submit to FDA for PMA in Q4 of this fiscal year, and we continue to expect that we'll be in a position to receive PMA by the end of calendar year 2021. While decisions related to Surveil's launch timing are ultimately to be made by our partner Abbott, our conversations with Abbott have led us to believe that Surveil's commercial launch, including Europe, is most likely to occur following U.S. PMA approval. Moving to our Sundance DCB. As a reminder, enrollment was completed ahead of schedule in January for our swing first in human clinical study for our Sundance below the knee serolimus coated balloon. Several patients have completed their six-month follow-up visits and we anticipate that the remaining follow-up visits will be completed by late August. We are excited about the potential for Sundance to provide an important and effective therapy for patients suffering from critical limb-threatening ischemia. With an estimated 1 million Medicare patients treated for CLI annually and very few effective treatment options and no current FDA-approved drug-coated balloons, our Sundance drug-coated balloon has the potential to be a game-changing therapeutic option. We look forward to sharing our six-month data later in calendar year 2021. Regarding our Avess AV Fistula DCB, we are completing the build out of the full matrix of balloon sizes to treat the Nosed AV Fistulas. Our team is now beginning the process and product validation efforts. Concurrent to these activities, we continue to assess the optimal regulatory and clinical strategy for our Avess Drug-Coded Balloon. Next is our Sublime Radial Access Platform. Earlier this month, we announced that we successfully completed the first clinical cases using our sublime radial axis guide sheet and the sublime radial axis 014 RX PTA dilatation catheter. Since then, we have continued to receive favorable physician feedback on their experiences with these devices. As we expected, the feedback has been consistently positive. with physicians commenting on the ease of use, pushability, trackability, and lesion crossability of the products. During our last earnings call, I mentioned that we had encountered some delays in the scale-up manufacturing validation of our sublime 014 catheter. Based on the hard work of our team, we have completed these important and necessary validations. Regarding our follow-on offering, the sublime radial axis 018 PTA dilation catheter, We filed for a 510K earlier this month. As with all of our applications and submissions with the FDA, we expect that we will have additional information to share on the clearance of this device in the coming months. The sublime 018 catheter will complement our sublime 014 catheter, allowing physicians to treat the entire limb segment via radial access with balloon angioplasty. And finally, I'd like to give a brief update on our Pounce thrombectomy platform. Our teams are working diligently to complete the product and process validations that allow us to be ready to conduct limited clinical evaluations of the product later this year. Regarding our third strategic priority, our medical device and IVD business segments, we continue to deliver solid performance. We're seeing strong growth and uptake of our serene coating technology, which offers advanced performance benefits, including lower particulates and best-in-class lubricity. In addition, we were pleased to see our coating royalty revenue return to growth in Q2. In our IBD business, we continue to deliver strong operating performance, driven by our focus on customer service, commercial excellence, and our gold standard product performance. Revenue from our IVD business unit was up 9% this quarter versus the prior year to a record $7.1 million, while generating excellent operating margins that once again exceeded 50%. These core offerings continue to be the bedrock of our operating performance, funding not only their own steadily growing operations and business value, but also fueling our strategic growth initiatives. Our strong operating performance and execution and our strategic objectives is a result of tactical perseverance, a pool of talented team members that we have continued to build on and develop behind the scenes, and a rigorous process of dynamic capital allocation. While it may be early, we have improved our competitive positioning and the capability so that when we believe the global economic future brightens in the post-COVID world, we can continue to accelerate the programs that build long-term shareholder value. After living through a challenging and unpredictable period this past year, I was pleased to see our strong Q2 performance and believe that better times lie ahead. Consequently, we believe that now is an appropriate time to provide our financial outlook for the remainder of fiscal 2021, which Tim will cover in a moment. In closing, we have delivered exceptional results in our second quarter in our IBD and medical device businesses, and we're successfully executing on all of our strategic objectives, including our product development, clinical, and regulatory efforts. 2021 is and has been our execution, and I firmly believe we have a dedicated world-class team at Semotics to position us for the bright future we have in front of us. Tim?