Surmodics, Inc.

Hey, everyone, and thank you for standing by. Welcome to the Sermonix Third Quarter Fiscal 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tim Ahrens, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

Thank you, Hannah. Good morning, and welcome to Sermonix Fiscal 2021 Third 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 Sermatix'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. Sermotics 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. It has been an exciting quarter filled with many important accomplishments. We have these updates and developments to share with you in our strategic initiatives. In addition, we are pleased to announce in July the acquisition of Vitex Medical. I will provide an update on this important acquisition and certain key milestones and timing related to the Ravine Venus thrombectomy catheter, which is now an important and complementary product to our Pounce arterial thrombectomy platform. Let's begin with a summary of our third quarter financial performance. During the quarter, we generated $23.9 million of revenue compared to $26.9 million in the year-ago period. Recall that a respective period last year included $6.7 million in revenue from the receipt of a $10.8 million CE mark milestone payment from Abbott. Excluding the impact of this milestone payment, third quarter revenue grew 17 percent. Our performance was fueled by a second consecutive quarter of record IVD revenue, as well as significant royalty revenue growth. Also, as expected, we reported a gap loss per share of $0.24, which included a $0.03 of VTEX-related acquisition costs, and a non-gap loss per share of $0.17. Tim will provide additional details on our quarterly results, including the impact of the VTEX acquisition and an update to our full-year fiscal 2021 guidance. While I'm pleased with our financial performance this quarter, I'm extremely proud of the significant progress we have made executing on our key fiscal 2021 objectives, which I'll remind you include, first, completing the final PMA submission for our surveilled drug clod balloon, second, advancing and expanding our robust product pipeline, And third, optimizing cash flow from our IVD and medical device businesses that fuel our strategic growth initiatives. Starting with Surveil. I'm happy to announce that in June, we submitted the fourth and final module of our Surveil PMA submission to the FDA. As previously discussed, our submission was delayed since the FDA requested mortality follow-up data for patients at both two and three years from the time of treatment. Following the agency's administered review of our filing, they have informed us that our submission is complete and we have a filing priority date of June 21st. While it may still be possible to receive the PMA for surveyor approval by the end of December 21, that now appears to be a best-case scenario, as several pre-approval inspection visits have yet to be scheduled with the agency, and the type of feedback we receive during the process may also impact the timing. we will have much more clarity by October. As previously communicated, following receipt of the Surveil PMA, we expect to receive the final $30 million milestone payment from Abbott. While decisions related to Surveil's launch timing are ultimately to be made with Abbott, our commercialization partner, we are pleased to receive their non-binding estimate of order volume to support a U.S. commercial launch. Moving to our Sundance DCB. We remain on track to complete the six-month patient follow-up visits for our swing first-in-human clinical study for our Sundance below-the-knee serolimus-coated balloon at the end of Q4. With respect to our Avess AV fistula DCB, we have now completed a design verification for the full matrix of balloon sizes for the base balloon catheter. The team is continuing the process validation work on the base catheter and will begin the design verification and process validation steps for the drug-coated balloon in its entirety. We have already received pre-submission feedback from the FDA on the high-level expectations regarding a pivotal clinical trial design, 4FS, and I'm happy to report that we are in general alignment with the agency. Next is our sublime radial access platform. In June, we received FDA regulatory clearance for sublime radial access 018 PTA dilation catheter. This is an important accomplishment since the sublime 018 balloon catheter complements our sublime 014 catheter and along with our sublime radial guide sheet provides the tools necessary for physicians to treat the entire lower limb segment via radial access with our sublime system. We now have not just one, but two different balloon platforms to treat patients suffering the consequences of PAD via radial access. Our team is currently working to complete the important and necessary manufacturing process validation of the sublime ONA balloon catheter, which will enable us to begin clinical product evaluations. continue to receive encouraging physician feedback on their recent clinical experiences using our sublime radial axis guide sheet and 014 balloon catheter. In fact, physicians who have completed the clinical product evaluation have expressed an interest to continue to access these products and use the sublime products based on their remarkable performance and benefits to their patients and practice. We are excited about this level of interest, and in order to facilitate their continued use, we have actually signed agreements with several clinics to sell these products directly to the clinic, even as we continue to build our clinical experience. On a side note, the Sublime Radio Guide Sheet and Radial O1-4 catheter were successfully featured in three live cases at the recent New Cardiovascular Horizons meeting in New Orleans in June. Next is our Pounce thrombectomy platform. We completed product and process validation for our Pounce arterial system during our third quarter as planned. In June, the first patient was successfully treated at our Pounce system. In this procedure, Pounce was able to restore blood flow in a patient diagnosed with an occluded superficial femoral artery without the use of thrombolytics after three passes of the device, which removed approximately 30 centimeters of thrombus. Since this first case, Pounce has been successfully used in eight additional procedures. As we expected, physician feedback has been encouraging, with positive comments on devices' ease of use and ability to remove clot, resulting in restoration of blood flow to distilled tissue beds. In addition to the progress of our Pounce arterial thrombectomy system in these clinical product evaluations, We have recently received a 510K indication expansion for smaller vessels down to 3.5 millimeters. This will allow us to extend the applicable treatment area to include not just femoral arteries, but infrapopliteal arteries, that is those below the knee, within the size range. This widens the therapeutic range of the pound system. We're continuously looking for opportunities that are synergistic with our technology platforms. Last month, we completed acquisition of Vitex Medical. Vitex's Revene mechanical thrombectomy catheter is designed to remove large mixed morphology clots commonly found in venous thromboembolism and complements our POMS arterial thrombectomy device. This acquisition strengthens our existing thrombectomy IP portfolio and provides us with opportunities to expand our thrombectomy platform to other vascular beds. We believe the VTEX technology, which has already received both US 510 clearance and CE mark, has meaningful advantages compared to existing devices in an exciting, large, and under-penetrated market. This technology was designed to be extremely intuitive and easy to use for efficiently removing large clot volume in veins. We believe that the Reveen system with the appropriate approach to the market and the clinical development has the potential to become the eventual market leader. Thermotics is now one of a small group of successful companies that has a portfolio of devices that can clear clots in both arteries and veins. Our team, which now includes all the key VTEX employees, is working to complete process and manufacturing validation efforts for the Ravine system. We expect these efforts to be completed in our second quarter of fiscal 22, which will then allow us to initiate clinical product evaluations. Following the successful completion of these evaluations, we anticipate the Ravine product will be ready for commercialization in the second half of calendar 2022. Regarding our third strategic priority, our medical device and IVD business segments, they continue to deliver solid performance. We continue to see strong growth in our serene coding technology, which essentially doubled from the year-ago period and helped us deliver a second consecutive quarter of royalty revenue growth. Our IVD business delivered its second consecutive record-setting quarter with revenue of $7.1 million, growing 12% versus last year's fiscal third quarter. These core product offerings and technology offerings have continued to generate strong operating performance and cash flows, which has been an important source of funds fueling our other strategic growth initiatives. In closing, we are firing on all cylinders and have made exciting progress across all our strategic objectives. I want to offer my heartfelt thanks to our team for their tireless dedication to our cause. We've been quietly but consistently building a portfolio of amazing products that will create significant long-term shareholder value. I believe we have an exciting future and many growth catalysts in front of us. Tim?

Thank you, Gary. During today's call, I will provide an overview of our third quarter operating performance, discuss financial implications of the recent VTEX acquisition, and provide our updated outlook for our full year fiscal 2021. Revenue for the third quarter of fiscal 2021 declined 11% to $23.9 million, which was favorable to our expectations. The prior year period, as you recall, included several favorable and unfavorable impacts that should be noted when evaluating our current performance. The prior year quarter benefited from 6.7 million of revenue recognized from the 10.8 million CE Mark milestone payment achieved under our surveilled distribution and development agreement with Abbott. Excluding the impact of this milestone payment, revenue grew 17%. Additionally, you will recall that it was a year ago quarter that saw significant unfavorable COVID impact on our revenue. Medical device revenue declined 18% to $16.8 million and exceeded our expectations. As previously mentioned, the prior year period included the CE milestone revenue. Our in vitro diagnostics business grew 12% to a record $7.1 million, just exceeding last quarter's revenue. IBD performance was driven by favorable order timing for our distributed antigen products as well as microarray slide development projects. Our third quarter royalty and license fee revenue totaled $8.8 million, down $3.6 million from the prior year period, primarily as a result of the prior year impact from the CE mark milestone payment. License fee revenue under the AVID agreement totaled $1 million in the third quarter of fiscal 2021, compared to $7.6 million in the prior year quarter. Royalty revenue increased 63%, to 7.8 million in the third quarter, compared to 4.8 million in the prior year quarter. Our third quarter fiscal 2021 royalty revenue growth benefited from an easier prior year comparison that was unfavorably impacted by reductions in procedure volumes due to COVID-19. In the third quarter of fiscal 2021, we continue to see broad-based underlying growth in our royalties portfolio, including our serene hydrophilic coatings, which essentially doubled compared to the prior year period. Serene now accounts for greater than one quarter of our total royalty revenue. Product revenue of $12.1 million in the third quarter was essentially flat compared to the prior year quarter. In our medical device business, product revenue was $5.5 million, down 5% or $270,000. Due to softness in legacy balloon catheter sales, which were impacted by a product replacement matter for one of our contract manufactured products. This was offset in part by strength in our coating reagent sales. Our in vitro diagnostics business reported product revenue of $6.6 million, up 6%, or $370,000, due primarily to favorable order timing of year-on-year for our distributed antigen products. R&D services revenue of $3 million was up 20%, or $500,000, compared to the prior year period, as our IVD business continues to benefit from increased customer development project opportunities. In our medical device business, we saw modest growth in R&D services revenue. Product gross margins were down in the quarter at 58%, as compared to 63% in the prior year quarter. Product gross margins were unfavorably impacted by $730,000 in charges in our medical device business related to the previously mentioned product replacement matter for one of our contract manufactured products. This was offset in part by the favorable impact of revenue mix with a shift to relatively higher margin product lines. R&D expense including the costs of clinical and regulatory activities was 51% of revenue or 12.2 million for the third quarter. Down 8% or 1.1 million compared to the year-ago period. As expected, surveil-related costs declined, including transcend clinical study costs. SG&A expense in the third quarter of fiscal 2021 was 33% of revenue, or $7.9 million, an increase of $470,000, or 6% compared to the year-ago period. Personnel and other investments to support product development and our strategic initiatives contributed to the expected increase. Our medical device business reported an operating loss of $2.5 million in the third quarter compared to operating income of $530,000 in the year-ago period. Driving medical device operating performance was lower revenue that was partially offset by lower operating expenses as the prior year quarter's operating results benefited from the $6.7 million of revenue recognized from the CE Mark milestone payment. Our IBD business grew operating income by 4% to $3.4 million in the third quarter. Operating margin was 48%, down from the prior year quarter's 51%, on lower gross profit from a shift in revenue mix on strong sales of our distributed antigen products. Now turning to income taxes, we recorded income tax expense of $780,000 in the third quarter of fiscal 2021, compared to income tax benefit of $1.3 million in the year-ago period. The current quarter's tax expense reflects strong year-to-date pre-tax results, including the receipt of the $15 million clinical report milestone payment from Abbott. Both periods reflect the impact of taxable income for the full year in the U.S., non-tax-benefited amortization, and operating losses in Ireland. On a GAAP basis, we reported a loss per share of $0.24 in the third quarter of fiscal 2021, which includes $0.03 per share associated with V-tax acquisition-related costs, compared to diluted earnings per share of $0.18 in the prior year quarter. On a non-GAAP basis, we reported a loss per share of 17 cents in the third quarter versus diluted earnings per share of 21 cents in the prior year quarter. Moving to the balance sheet, we continue to have a strong cash position. In the third quarter, we began with 70 million of cash in investments and generated 2.8 million of cash from operating activities. During the quarter, we paid 900,000 for capital expenditures. As of June 30th, 2021, We have cash and investments totaling $72 million and no debt. Next, I'll discuss the financial implications related to our July 2nd acquisition of Vitex Medical. This acquisition reflects our strong financial position and our ability to utilize our balance sheet to accelerate our long-term growth strategy. The upfront cash payment of $39.9 million was funded with cash on hand and $10 million from our $25 million line of credit. Following the acquisition, our cash and investments totaled approximately $42 million, which provides adequate capacity to support our strategic growth initiatives. Purchase accounting is preliminary. However, we expect the majority of the purchase price to be recorded as developed technology intangible assets. Further, we estimate amortization expense for the acquired intangible assets to be approximately $2.4 million on an annual basis. Fee tax acquisition-related costs totaled $460,000 in the third quarter of fiscal 2021, and we expect to record a similar charge in the fourth quarter. Overall, the impact of amortization expense and acquisition costs to earnings per share for the full year fiscal 2021 is expected to be a reduction of approximately 11 cents per share. In addition, our updated full-year outlook includes our expected R&D expense, to continue to support fiscal 2021 activities, including manufacturing and process validation, to further advance the VTEC's venous clot removal product. Looking forward, we expect the acquisition to begin generating product revenue in the second half of calendar year 2022. Further, our estimate suggests that low- to mid-single-digit U.S. market share is all that is necessary for the VTEC's acquisition to be accretive to our non-GAAP earnings which we expect to occur beginning in the second half of fiscal 2023. Turning now to our outlook for 2021. As Gary mentioned, we have refined our fiscal 2021 guidance to include the VTEX acquisition. We now expect fiscal year 2021 revenue to range from $103.5 million to $105.5 million. This outlook includes between $16 million and $17 million of license fee revenue associated with the Abbott Surveillance Agreement. Our guidance reflects growth in royalty revenue of mid to high single digits year over year. For the full year, SG&A is expected to grow in the low double digits, and R&D spend is expected to be consistent with the prior year. In addition, we expect the full-year impact of income taxes to range from $1.5 million to $2 million of tax expense. Our fiscal 2021 revenue outlook excludes revenue associated with the achievement of the final surveil milestone payment upon PMA, surveil product sales, or surveil profit-sharing revenue. We expect fiscal 2021 diluted GAAP EPS in the range of a loss per share of 10 cents to earnings per share of 5 cents. Our GAAP EPS guidance reflects higher tax expense and approximately 11 cents from VTEC's amortization expense and acquisition costs. We expect non-GAAP diluted earnings to range from 16 cents to 31 cents per share. Operator, this concludes our prepared remarks. We would now like to open the call to questions.

Thank you. If you would like to ask a question, please signal by pressing the star followed by the one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, it is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll go first to Mike Mattson with Needham & Company.

Hi, good morning. Thanks for taking my questions. I guess I want to start with surveil. So it sounds like you're now expecting the approval to be a little later than you thought before. But I guess what I was wondering is if you had any feel for timing of when you could start to see revenue once you get the PMA? And then, you know, what is that? order pattern going to look like from Abbott? I mean, is there going to be kind of a large upfront stocking order and then subsequent orders? Is it going to be more distributed, you know, smoothly over time?

Sure. I'll turn the second part of that question, Mike, over to Tim. You know, we had to – collected data on a significant amount of patients of three years, which resulted us getting it in, as I said, a priority date was 6-21. You know, typically this process is about 180 days, but the clock stops for questions, so by the end of September, early October, we will have the, what I call the 90-day feedback from the FDA about the substantive review of the file. And so then we'll understand a little bit more of what questions they have, what fluid analysis they may want. So while it's not out of the question, I mean, six months from 6-21 is still December, it's highly unlikely, especially having they have to do three preauthorization inspections in three different countries for this product where we manufacture it. So it's unlikely, and that's why we want to make sure that while we're still targeting, I think it's more responsible for us to look at the second fiscal quarter. The second part really depends on our commercialization decisions with our partner Abbott, primarily because the question becomes whether you take the risk before you have the PMA in hand. and then develop the launch from that, or do you take a risk, do you wait for that, or do you take a risk before? There are positives and negatives of both, which we'll have to clearly, with our partner Abbott, we'll guide that decision. The issue there is, it'll take us three to four months to really fulfill an opening order to get our manufacturing machine up and running. So let's say the PMA, and I'm making this up here just for the purposes of discussion, but let's say the PMA was February of 22, and then we get the binding order from them. It could take three to four months for us to fulfill that for them to then do their launch quantities. If they decide to do it in October and November based on the initial FDA feedback that would shorten the time frame. So there's a little bit of a window there. And so, Tim, I don't know what other comments you have in terms of the periodicity and so forth.

Right. Thank you for the question, Mike. And Gary, you did a nice job of framing up expectations. You know, I'll just add a little color, Mike. The discussions that we've had with Abbott are similar to the discussions that we had the last time We had our earnings call, which is the anticipation for a launch would occur at some point following PMA approval. We're not at liberty to provide any more detail than that, but Abbott certainly does appreciate and understand that it takes time to get the manufacturing engine started to deliver on their initial stocking orders. I think that speaks to your second part of your question on the order pattern. So what we've received from Abbott is their forecast to support the commercial launch. One would expect that there would be continued orders following that. I would think that at some point here in 2022, we will be able to provide a bit more detail and context, but at the time here, we'll need to respect confidentiality with our partner. The final thing I'll say is we were excited and pleased with what we saw in the forecast.

OK, great thanks. And then I wanted to ask one on You know, you now have two products in your portfolio. It sounds like VTechs, you expect that to potentially be commercialized under the existing 510K and CE mark. Is that right? And then, you know, maybe just talk about the future indications there for things like stroke and pulmonary embolism. You know, I guess which product would be used for each of those, if you know at this point.

Sure. You know, we started working with VTEX in the diligence. I may have mentioned Labor Day in 2020. So they had not received CE mark nor FDA clearance at that point. And so it was serendipitous that they were able to achieve it during the diligence period, which makes it terrific for us. So given the current indications, yes, they are sufficient to support a commercialization in Europe and in the U.S. As you know, this market is very competitive, so the clinical development, I mean, VTEX has done 19 patients. Stephen Black, one of the world's foremost venous thromboembolism experts, presented that at the American Venous Forum earlier this year. We believe we'll need, after we complete that process validation, both in Europe and in the U.S., to continue that clinical development because that data will be important in a competitive environment for us, our partner down the line. The second thing is going for the DVT claim with the U.S. FDA will be important as well. Right now, we have a claim of the ability to remove clot from veins. Now, I know there are very subtle differences, But one is an acute condition claim, and one is a claim of mechanically removing clots. So eventually, to be fully competitive, we want to make sure we get that claim, but that's what the clinical development will facilitate. The second thing is what we really liked about the ravine system, that's also what we liked about our pounds, This market has got a lot of complicated products that are used in high-end academic centers where rep is present at every case. What we saw in Pounce with Dr. Bacharach down in Sioux Falls, South Dakota, he wouldn't pull out complicated devices, but he would pull out the Pounce. And that's what we saw in the same thing for the venous side. in the ravine system, you don't have to be highly specialized with a rep holding your hand to use this system. And that's where we see the power of it. And so the intellectual property that we have from this and Pounce we believe will help us both in PE and stroke. We have already started just an R&D team would be mad for me saying this, but really just broad brush concept development and problem definition for So I want to give them time for that to percolate. I would hope to see viable concepts come from that in fiscal 22. Stroke may be a little bit further down the line because we want to really secure the wind for Pounds and Ravine at this point.

Okay, great. Thank you.

Thanks, Mike.

We'll go next to Brooks O'Neill with Lake Street Capital Markets.

Good morning, guys. A lot of detail you provided. We really appreciate all of that. I just have a couple questions. First, could you just give us your current sense of the paclitaxel sentiment, both in terms of clinical use and in terms of, you know, what you're hearing and seeing from the FDA? Okay.

Sure. And Tim, you may have looked at the recent IMS data as well, so I'll pass that on to you. But that recent publication, which included authors Ramon Varco and Peter Schneider, at least to me, put the seal on it. I mean, it's really now an overwhelming evidence in favor of Pax with Axel, in my opinion. And even if you threw away half of it, it would still be overwhelming. I can't comment on how the FDA is viewing this and what they will do to unwind the label. It's really a label issue. But I'm hopeful that it would be around the time when our partner Abbott is ready to launch. That would be wonderful. And I believe there's been some bounce back in market use, but I'm not up to speed on the recent IMS data. Tim, I don't know if you've looked at that recently, though.

Yeah, Gary, there is also maybe, I'll just step back for a moment and provide Brooks with a little feedback here. I think the initial SafePAD data was published here recently, I think in June, and I'm not sure where it was presented, Gary, you might know, but it was published in the Endovascular Today, June edition. And it is a retrospective study, so it's more of the observational data, but we just continue to keep seeing more and more data that supports the view that there is no signal. And so I think in this particular study, the observational study looked at about 160,000, 170,000 Medicare patients and followed them up for almost three years, and there's just no difference. I think this data and what the FDA has said previously is going to be important for them to to make decisions, hopefully favorable decisions in the not so distant future with regard to the restrictions that are in place. That being said, the IMS data, the data that we're seeing and what we're hearing anecdotally suggests that there's greater uptake of Paclitaxel-coated devices. We've heard other companies that have Paclitaxel devices on the market represent on their earnings calls that they're seeing growth and uptake in their Paclitaxel-coated devices. That bodes well for the industry. And the IMS data that Gary refers to really speaks only to U.S. hospitals, but we've seen that trending higher over the last several quarters, and it's over $45 million per quarter. And, again, that's only the U.S. hospital system. So I think in the U.S. we could be looking at the market getting to about $200 million right now. All in all, the data looks good. What we're seeing on the sales trends and what we're hearing from other companies that have these devices all bode well for Paclitaxel-coated devices.

Great. That's what I was thinking, but I'm glad to hear you say that. So, secondly, I just want to ask a little bit about the core business. I have a sense that patent expirations have affected business and patent transitions, I guess, maybe have affected business. Can you just refresh my memory on where you're at with regard to core patents in the base business?

Yeah, absolutely. So the patent issue that you're referring to, Brooks, is the expiration or the patent expiration of our Gen 4 patent family. And I think folks might recall we had about a $5.5 million unfavorable impact in fiscal year 2020. Going into fiscal 2021, we guided to about a $3 million impact. We're happy to announce that that impact, that headwind, is complete. I think we've had about a million-dollar impact here over the course of the year, and it's really a testament to our business development team working with our customers and continuing to sign agreements to provide continued access of the important technology for their products. So, you know, in fact, in the quarter here, I think Gary and I both mentioned that the royalty portfolio grew about 63%. Every element of that patent portfolio, whether it was Serene, our most recent, generation of hydrophilic coatings, or Gen 4, Gen 3, every single patent family saw year-on-year growth. And again, that's coming from what I would consider to be more of a depressed quarter in Q3 of 2020, given the pandemic impact on procedures. But we are very happy to see the performance was broad-based across all different patents. And we're seeing it across all different categories of devices that leverage our coding technology. So again, really great quarter and part of our business development team. Great.

Let me just ask you, I'm kind of curious, as you have broadened and deepened the product pipeline, Has your thinking about whether you would ever self-distribute any of these products or product families changed, or are you still totally committed to partnering on the sales and distribution side of the product development pipeline?

Well, given our recent sublime experience, I was actually pleasantly taken aback. You know, there are rules – legal rules of how much evaluation product you can provide to physicians and clinics. And then beyond that time, you can't continue to provide free product for clinical evaluation. So the fact that a couple of these clinics said, look, product has changed our practice. We'd like to continue using it. We were compelled to find a way to continue that. We first experienced this a couple of years ago with our telemark product. And woefully, we just had to wait. We didn't have the systems and processes to facilitate that, so we had to wait until we found a strategic partner. I think we're carefully evaluating all of these books because we have to think through what will create long-term shareholder value. For now, we're happy to providing the product under a selling agreement and also getting the clinical feedback. much more clinical data from the product and its use in different types of cases. So we'll look at that in the coming months here. But I'll say it's a good problem to have to think through. We'll have to see our pounds and, you know, the heavy hitters like pounds and Venus and Ravine go as well as we anticipate that. Nonetheless, I'll say this. Generating revenue subsequent to evaluations is can only enhance the value either to us or our strategic partners. So it's either way the river is flowing the way we want it.

Yeah, that's great. Let me just ask one last question, maybe for Tim, and that is, you know, I know you're not ready to provide guidance for 2022. I know there's a lot of moving parts, but as you, is there any way you can help us think about what the impact of surveil could be using basic assumptions about what you're seeing of market size now, penetration, et cetera, in terms of how it might impact your revenue and profits next year, you know, assuming things come along more or less the way we think they're going to.

Brooks, it's a great question. I'm sure you're not the only one that has that question top of mind. Well, all I can tell you is, you know, Gary and I are firm believers in the guidance, the longer term guidance that we've provided here just recently again, which is double digit top line growth. And you know, other than that, I'll ask you to be patient. I'm hopeful that we'll be able to share more here in the coming quarters, but we remain excited about the partnership and clearly we were excited to see the the forecast from Abbott and I think it's all I'll say is I find it to be meaningful. Yeah.

All right. That's good. Thanks for giving me all that color, and congratulations on continued progress.

Thank you, Brooks.

We'll go next to Jim Sidoti with Sidoti & Company.

Hi. Good morning. Can you hear me? Hear you loud and clear, Jim. So I guess you don't have any plans to share those initial estimates from Abbott with us today, do you?

I wish we could, Jim, but we'll have to remain silent on that for the moment. We look forward, though, as I mentioned, to sharing more news on this during the coming quarters. So, again, just asking for some patience. We wish it were otherwise, but we'll respect the confidentiality of our agreement.

Okay. So the one question for me is, you know, you look at your pipeline, and, you know, you have Saban, you have Pounce, you're going to have VTEX, you know, and that ready to go in the next 12 months. You know, when you go out and talk to strategics, do you talk to these products as a group or do you talk to them as individual products? And could these three things go to three different partners?

Yeah, I don't see – it's hard to tell. I mean, if a strategic has a white space that encompasses – both radial access and thrombectomy, that could be, I think that's highly unlikely. I think given how hot the thrombectomy space is, that may be one strategic. The radial access space is a real sleeper, however, and you have to believe that five years from now, the majority of procedures will be done radially. And if you drink that water, the strategics with vision will see this as quite an important positioning move from them. But right now, it's hard to tell, to be on the inside of the strategic portfolio planning of a strategic. Sorry for the redundancy. So, either in combination or individually, we expect that the values wouldn't be that different.

And when you're talking about strategics, do you consider you know, the size of the strategic distribution when you're making the deal. I mean, would you take a slightly lower rate from a partner with a much bigger sales force than you would with a smaller partner?

Yeah, and to be clear, we are not – there are strategics who, I would say, want to talk to us. As I've said, Tim and I have informed our teams, keep your heads down, keep the blinders on, and generate the clinical data. Tim usually has these very sophisticated financial modules that tells us which way is up in any deal. And I know Tim likes to get to market share sensitivity as sort of the waterline for us. Tim, I don't know if you want to comment on that.

No, I was just going to thank Jim for helping share a little context here that might better position our discussion. potential partners in their negotiations with us. So I think we'll remain silent on that. But what I will tell you, I'll just feed off of Gary's response. Yes, we look at a number of important criteria. We do our diligence on partners. And we look at things more holistically in terms of what the overall value creation is. And we understand that sales forces provide and bring a lot of value to the thesis. But the technology and its advantages, its differentiation, ease of use, safety profile, all those things are really important and we want to make sure that from a somatic shareholders perspective, we're capturing the value that we deserve for the investments that we made in the platform. So we'll talk more about this, but today we'll remain a little bit quiet on some of the negotiating things that we look at.

We see our portfolio, I don't know how investors and the strategic see it, but our portfolio is incredibly valuable. With the addition of ravine and pounce, you look at the comparables of companies who have products of this ilk. Now, we have to go generate the clinical data and demonstrate that, but these are not $5 million product lines. I don't believe they're even $50 million product lines. I think they're substantially more valuable than that. So just know that we intend to keep the bar high in any form of negotiation because with this clinical data, we know what we got.

Just for clarity, he's referring to revenue.

Yes, yes. Yeah, thanks, Dennis.

Last one for me. Do you think the portfolio is pretty set right now, or will you continue to go out and look at acquisitions and expand it further?

Well, Tim will comment a little bit on this. Behind the scenes, we have a very active corporate development program. We look at, Tim, I would say a half a dozen serious ones, give or take a few per year, and we're very, very active. picky in what we look at. As I said, I mean, we started with VTEX over 10 months ago. That's what it took to really get that deal done and make sure it was the right deal for our shareholders. So, clearly, you know, as Tim and I have said in the past, we want our balance sheet not to be a static indicator of performance, but to be used as a dynamic tool for growth. making sure we have the buffer to continue to run the business. So the short answer is we will continue to scan for complementary high-value technologies and or companies.

Thank you.

Terry, I have nothing to add. I think that you articulated that accurately and well. Thanks.

And once again, if you'd like to ask a question, that is star one at this time. And it looks like there are no further questions in queue at this time. I'd like to turn it back over to you for any additional or closing remarks.

Thank you, everyone, for joining us on our third quarter earnings call. Be safe out there. Thank you.

And that concludes today's conference. Thank you for your participation. You may now disconnect.