This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Our success in fiscal 21 is because of their sacrifices. I'm proud to be a member of such an amazing community that you know at Thermonix. Last fiscal year, we had three primary areas of focus. The first was to continue building traction with Surveil, marching towards PME approval, beginning with our final submission to the FDA. The second was to accelerate the advancement of our robust product pipeline through product development, regulatory clearances, and clinical evaluation. And the third was to optimize cash flow from the in vitro diagnostics and medical device coatings offerings to support our strategic growth initiatives. We've made great strides in delivering on each of these goals. Let's begin with a summary of our full year fiscal 21 performance. During the year, we generated $105.1 million of revenue compared to $94.9 million in fiscal 20. Our revenue grew 11% and was driven by solid top-line performance in both our medical device and in vitro diagnostic businesses, which grew 10% and 15% respectively. Also, we reported GAAP diluted earnings per share of 30 cents for the full year, which benefited from an anticipated 3.6 million reimbursement associated with the CARES Act Employee Retention Credit, which favorably impacted our earnings per share by 19 cents. Our full fiscal year 2021 non-GAPS earnings per share was $0.37. Tim will provide additional details on our quarterly results, including the impact of the CARES Act on our fiscal 21 operating performance, as well as our full year fiscal 22 guidance. Moving on to Surveil. As we discussed on last quarter's call, we submitted our final module of the Surveil PMA submission to the FDA on June 21st. As per the request from the FDA, this module included mortality follow-up data for patients of both two and three years from the time of treatment. Recently, we had a planned follow-up meeting with the FDA regarding our submission. The FDA is requesting additional data in order to evaluate the product and its unique technology. While additional data requests, including more mortality data, are not surprising in and of themselves, The process of achieving clarity regarding these additional data that are needed to support the approval does take some more time. The agency has asked us to use their recommended process to discuss the data requirements versus just providing answers to their questions as a better, more reliable way towards the PMA. We have requested accelerated turnaround times for scheduling such data discussions. We believe that we can secure these meetings early in Q2 of fiscal 22. Given that the agency still has a further 90 days on the clock after we have discussed and submitted any additional data they require, we do not see a viable path to achieve the PMA in the first half of fiscal 22. In addition, we have comprehensive audits by the agency for manufacturing sites and audits of selected clinical sites. These are typical, and so far we have performed quite well in all of these audits. As in the past, we choose not to include regulatory-related milestones in financial guidance. However, we will clearly lay out the financial impact of such regulatory approvals for you to make your assessments. Needless to say, our goal is to secure this P&E in fiscal 22. Moving to our Sundance below-the-knee serolimus-coated balloon, In fiscal 21, we completed enrollment in our Swing First in Human clinical trial in January. The six-month patient data and follow-up visits were completed in our fourth quarter, and the clinical team, along with the principal investigators, are presently collating the data and developing the clinical rich report, which we expect to complete in our first quarter and the share with the doc Abbott in our first quarter as well. With respect to our AV fistula DCB, a vest, During fiscal 21, we completed design verification for the full matrix of balloon sizes for the base balloon catheter and began the process validation work on the base catheter. Additionally, the FDA has provided some high-level feedback on requirements for the Avess Pivotal Clinical Trial and its design considerations. Our non-drug delivery portfolio consists of our Sublime radial access platform and our Pounce arterial and Ravine thrombectomy systems. These have all made substantial progress, which I will spend a little more time than usual describing, since these have emerged as even more exciting catalysts for our future. Starting with Sublime. Our Sublime radial access platform consists of the Sublime radial access guide sheet, the Sublime 014-RX-PTA dilation catheter, and the Sublime 018 dilation catheter. What makes the portfolio so unique is that each of these devices are purpose-built for above and below the knee peripheral interventions, and that can employ both a conventional transfemoral approach and a transradial approach. We believe that the radial access procedures offer significant benefits by improving patient comfort, reducing recovery and ambulation times, and potentially lowering access site complications. However, they do require longer, lower profile devices that are robust enough to deliver from the wrist all the way to the pedal loop in the foot. Following successful evaluation of these devices, we believe the platform is uniquely positioned to lead the market for dedicated device that facilitate a radial to peripheral approach. Let's start with the guide sheet. The device has been used in 45 cases among 15 peripheral interventionalists in formal clinical evaluations. The sublime guide sheet is the only five French guide sheet available in a length up to 150 centimeters. During evaluations, the sublime guide sheet received excellent feedback for its low-profile design, its ability to track through tortuous anatomy, and its resistance to kinking when compared to alternative competitive devices. We continue to be extremely pleased with the performance of our Sublime 014 PTA balloon catheter, which started clinical evaluations in Q2. Recall that the Sublime 014 catheter at 250 centimeters is the longest 014 PTA catheter in the U.S. market. On an evaluation basis, physicians have used almost 70 devices in 10 U.S. peripheral interventional sites with remarkable success. there has been continued demand for the device beyond the initial evaluation cases. And to date, I'm pleased that we have actually shipped commercial units to customers either through a direct sale or consignment programs at these facilities. As we announced in our recent press release, we started the clinical evaluations of the sublime 018 PTA balloon catheter in late September. The first case was performed by Dr. Ankur Lodil at the Cardiovascular Institute of the South in Lafayette, Louisiana. To date, 22 units of these 014 catheters have been used at four peripheral centers throughout the U.S. It complements our 014 catheter by providing larger balloon diameters, and larger guide wire lumen for physicians who prefer to operate on an 018 platform. While the evaluations are not complete, the feedback from our early experience is consistent with that of its brother, the 014 PTA, in terms of its deliverability and ability to cross difficult lesions. In fact, following a recent universally well-known professional interventionalists that participated in these trials, His quote was, these are the best balloons I have ever used. Not once have I failed to cross a lesion with this device. I know that this is merely anecdotal to this audience, but I can remark that this feedback makes us quite proud internally and is consistent across the sites that we have evaluated these devices. Next is our Pounce Arterial Thrombectomy Platform. In July, we received a 510K indication expansion for smaller vessels down to 3.5 millimeters, which expands the market opportunity for our pound system to treat arterial clot in some vessels below the knee. Since announcing the first successful case in June, an additional 21 pounds arterial thrombectomy procedures have been conducted in six US hospitals, all patient facilities. The device has been used in a variety of cases, ranging from relatively simple acute clot extraction to the most complex procedures dealing with mixed morphology or acute and chronic clots. Notably, pounce has been brought into complete cases involving organized clot where other devices were initially used but were unable to fully restore blood flow to the limb. In these cases, the unique design of pounds and its basket and trumpet assemblies was able to capture and remove challenging clot without the need for additional devices nor surgical intervention, thus providing a good outcome for the patient. Although the majority of pound cases have been involved in arterial interventions in the lower extremity, the device has also been used for clot retrieval in other peripheral anatomy, including the superior mesenteric artery, in the abdomen, and in each of these cases, the pounce has been able to efficiently remove the clot from the vessel and restore arterial flow without the need for aspiration or additional capital equipment. We are quite encouraged by the positive response of physicians and the care team to the simplicity and effectiveness of the pounce arterial thrombectomy device, even in the most challenging clinical situations. We have already received commercial interest from peripheral interventionists and vascular surgeons who are eager to have the device on their shelves in their facilities, primarily in the hospital setting, and have recently received our first commercial order for the Pounce arterial device. We believe it's important to facilitate continued access to the use of these devices via commercial sales to these interested facilities. As for our recently acquired Ravine mechanical thrombectomy system, we are working in a branding change to fold this into a pounce thrombectomy platform, but more on that in a later time. We're pleased to see the recent acquisitions of other suction-based and mechanical thrombectomy systems by several large strategics. This not only validates the space and our own acquisition of VTEX, but the headline numbers involved And at least one of these deals highlights the current and implied future market value of mechanical thrombectomy devices and the race towards the market for this value. We believe that our pounce arterial thrombectomy and our venous thrombectomy systems are quite well positioned for future competitiveness. We continue to target a Q2 completion of our process and manufacturing validation efforts related to the acquisition of VTEX and its ravine mechanical thrombectomy system. A note of caution here, we've been facing ongoing supply chain related issues with several key components required to build our validation devices. These shortages are not unique to our device components, but rather a part of a large scale shortage of components of these types. Any slippage in timelines for the delivery of these components could delay our Q2 target completion. However, we continue to aggressively manage our supply chain. Following validation activities, we plan to quickly initiate clinical product evaluation. These important achievements position us to execute on the meaningful opportunities in fiscal 22. These are, first, to achieve the PMA for surveil and to support our partner Abbott's commercialization efforts. Second, to become the first-line treatment for patients with our sublime radial platform and Pounce arterial and the Pounce Ravine venous thrombectomy platform for interventionalists who have access to these devices and demonstrate their commercial viability on a limited scale. Third, is to drive top-line revenue growth on optimized cash flow from our IVD and medical device coatings offerings. Let's start with the first objective. which remains to obtain FDA approval for surveil. As I mentioned in our follow-up meeting with the FDA, typical of the premarket approval process, we had one hour to discuss the agency's questions and requests for additional data, as outlined in the 90-day letter. We will be meeting with the agency in the coming months to align on the information that they require to support the approval of our PMA applications. Although we cannot be 100% sure what action the agency will ultimately take regarding the application for PMA, we believe our application and relevant data strongly support approval of the product. However, until we complete our meetings with FDA and understand the process for any remaining data to be completed at this time, it is really difficult to estimate the specific quarter when the FDA may reach a conclusion to grant Importantly, we have spoken with our commercialization partner Abbott about the FDA meeting. Abbott has communicated that it is developing its commercialization plans for Surveil's U.S. launch. They have also indicated that they intend to launch in the U.S. shortly following the FDA's approval. While we are working to secure FDA approval as quickly as possible, we are also preparing to support Abbott's launch in the United States. Moving on to the second objective. demonstrating the first-line benefit and early commercialization of the subline radial platform and the pounce arterial and venous thrombectomy platforms. This is an important next step to create solutions and improve patient outcomes. Because of its importance, I'll provide a little additional context and meaning behind this objective. Recently, because of our clinical evaluation of these portfolios, they have begun to bear fruit in the form of both physician interest, product ordering on a commercial basis, as well as commercial partnership interest from several large multinational medical device companies. While the interest from the industry is exciting, I'm most pleased that several of the clinics that have participated in these evaluations have ordered the product and even recently reordered the supplying products. These orders support our view that we've created something special with these products. As to the interest from large strategics, we have decided that engaging in new negotiations and signing a distribution agreement now with an established medical device partner for either platform would not harvest quite significant value from these platforms, and that serves the best interests of our shareholders. We've all seen the recent growth and significant value of several publicly traded medtech companies with innovative products that address large market needs. I'm confident that our pounce and sublime platforms have similar long-term value creation potential. To unlock this potential, we'll begin by building a small commercial team of highly skilled and experienced sales professionals and clinical specialists to introduce the benefits of these products and drive customer adoption on a small scale. much like the initiation of these very highly valued current companies. These activities have the potential to demonstrate a very large and scalable future commercial value of these devices, real-time in the market. I am a firm believer that these incremental investments of this approach will deliver dramatic and outsized returns for our shareholders. To accomplish this goal, we recently added eight experienced field sales team members, in addition to several marketing team members to drive our commercial efforts, awareness, adoptions, and sales of our portfolio. Onboarding these individuals has recently begun to ensure we're in the best possible position to take advantage of these opportunities. Importantly, we have already developed all of the internal commercial processes and systems to enable this effort, along with a significant amount of team experience in serving customers directly. To accelerate our value creation strategy in fiscal 22, which Tim will cover in a moment, this will reflect additional SG&A investments of approximately $10 million to support initial commercializations of these platforms. Beginning in our third fiscal quarter, we expect to see modest and meaningful growing revenue associated with the adoption of these platforms. However, we expect to see significant growth in our value for this portfolio as we gain this early commercial traction. Finally, turning to our IVD and medical device businesses, our IVD business is expected to continue to outperform the immunoassay market growth of 3% while generating excellent operating margins, while our medical device coding revenue is expected to grow low to mid-single digits. which is a rate in line with that of the endovascular device broader market, given the recent vagaries of COVID-19's rolling impact on interventional procedures. I'm excited and energized by fiscal 22, how we can help patients and care providers, what it means to our team, and the large positive impact on our shareholder value. These are the right moves, we have the right talent and capabilities, and the financial resources to execute on these fiscal 22 objectives. I'll now turn the call over to Tim to provide more details on fourth quarter fiscal 21 and our outlook for fiscal 22.
spk05: Tim? Thank you, Gary. During today's call, I will provide an overview of our fourth quarter operating performance and provide our outlook for full year fiscal 2022. Revenue for the fourth quarter of fiscal 2021 grew 6% to $24 million, compared to $22.5 million in the prior year quarter. Our medical device business revenue grew 1% year-over-year to $17.4 million and exceeded our expectations, driven by growth in both product and R&D revenue. Our in vitro diagnostics business grew 23% to $6.6 million. In the fourth quarter, our IBD business delivered another quarter of broad-based growth. IBD revenue performance also benefited from a favorable comparison with respect to antigen sales. Our fourth quarter royalty and license fee revenue totaled $8.9 million, down $1 million from the same prior year period. Royalty revenue declined 7% to $7.6 million in the fourth quarter, compared to $8.2 million in the prior year quarter. As you may recall, the prior year quarter benefited from approximately $2 million associated with a true-up from our third quarter fiscal 2020 royalty revenue as the actual royalties reported by our customers during the Q3 period exceeded our estimate. The impact of this true-up was partially offset by COVID-related impacts on procedure volumes during the prior year quarter. Setting aside these prior year factors, once again, we saw double-digit growth in royalty revenue from our next generation, Serene Hydrophilic Coating, in the fourth quarter. Serene royalty revenue has grown to comprise 26% of our royalty revenue as of Q4 fiscal 2021. License fee revenue under the AVID agreement totaled $1.2 million in the fourth quarter of fiscal 2021, compared to $1.6 million in the prior year quarter. AVID agreement license fee revenue is recognized in line with costs incurred for the transient clinical study, which have declined this fiscal year as expected. Product revenue increased 18% to $12.5 million in the fourth quarter, compared to $10.6 million in the prior year quarter. In our medical device business, product revenue grew 18% to $6.3 million, compared to $5.4 million in the same prior year period. We saw another strong quarter of coating reagent sales. Additionally, we continue to see revenue growth from the new products launched through distribution partnerships that were signed in fiscal 2020 These include our 014 and 018 PTA bloom catheters with Cook and our coronary microcatheter with Medtronic. Our in vitro diagnostics business reported product revenue of $6.2 million, up 19% or $980,000 compared to the same prior year period. As I mentioned a moment ago, IBD revenue benefited from an easier prior year comparison with respect to antigen products. We are pleased to see a return to growing demand for our antigen products for use in autoimmune disease testing. Growth and sales of our protein stabilization and colorimetric substrate products also contributed to a strong fourth quarter. R&D services revenue of $2.6 million was up 24% or $500,000 compared to the same prior year period. In our medical device business, we've seen an increase in customer development programs leveraging our medical coding. Our IBD business continues to benefit from increased customer development project opportunities for our microarray DNA slide products. Before I move on to product gross margin and expenses, it is worth noting that we had a $3.6 million benefit to operating income this quarter related to our eligibility for the employee retention credit under the CARES Act. This reflects anticipated reimbursement of personnel expenses we actually incurred in prior quarters, providing a $460,000 benefit to gross margin, a $2.2 million benefit to R&D, and a $930,000 benefit to SG&A expense. Since the beginning of COVID-19, we have not reduced US headcount or cut back on R&D investments, and this CARES Act benefit reflects reimbursements of these types of expenses for companies that did not lay off employees or take PPP loans. Product gross margin in the fourth quarter of fiscal 2021 was 67% compared to 63% in the prior year quarter. Product gross margin adjusted for the benefit of the employee retention credit was 63% and consistent with the prior year. R&D expense, including the cost of clinical and regulatory activities, was $10.7 million in the fourth quarter, or 45% of revenue. compared to $12.8 million, or 57% of revenue, in the year-ago period. R&D expense adjusted for the benefit of the employee retention credit was essentially flat with the prior year period and was 54% of revenue. The fourth quarter is the first period to include R&D expense resulting from our acquisition of VTEX. The incremental expense associated with VTEX was offset by an expected decline in our transcend clinical trial costs. SG&A expense in the fourth quarter of fiscal 2021 was $7.9 million or 33% of revenue, compared to $7.3 million or 32% of revenue in the year-ago period. SG&A expense adjusted for the benefit of the employee retention credit was $8.8 million, a year-over-year increase of $1.5 million, and equal to 37% of revenue, driven by sales and marketing activities, including new hires to support the commercialization of our Sublime and Pounce products. Our medical device business reported an operating loss of $800,000 in the fourth quarter, compared to an operating loss of $1.9 million in the year-ago period. Adjusted for the benefit of the employee retention credit, the medical device business operating loss was $3.4 million, The fourth quarter includes the addition of $1.1 million in operating expenses from the VTEX acquisition, of which $570,000 is intangible asset amortization. Our IBD business reported operating income of $3.4 million in the fourth quarter of fiscal 2021, compared to $2.5 million in the prior year quarter IVD operating income adjusted for the benefit of the employee retention credit was $2.9 million, a year-over-year increase of $430,000 and equal to 44% of revenue, compared to 46% of revenue in the same prior year period. The fluctuation in operating margin was a result of lower gross profit due to a shift in revenue mix. Now turning to income taxes, we recorded income tax benefit of $270,000 in the fourth quarter of fiscal 2021, compared to income tax expense of $870,000 in the prior year period. The current quarter's tax benefit is a result of the pre-tax loss for the fourth quarter, including the contribution of V-tax expenses. 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 2 cents in the fourth quarter of fiscal 2021 compared to a loss per share of 22 cents in the prior year quarter. On a non-GAAP basis, we reported a loss per share of 10 cents in the fourth quarter versus a loss per share of 18 cents in the prior year quarter. Non-GAAP EPS excludes a tax-affected benefit to EPS of 19 cents from the employee retention credit, as well as a $0.04 impact to EPS associated with the VTEX acquisition costs. Moving to the balance sheet, we continue to have a solid cash position. In the fourth quarter, we began with $72 million of cash in investments and generated $890,000 of cash from operating activities. During the quarter, we paid $2.4 million for capital expenditures. We funded the July 2nd acquisition of VTEX Medical with $30 million of cash on hand and $10 million from our $25 million line of credit. As of September 30th, 2021, we had cash and investments totaling $41 million and the balance in our credit line was $10 million. Turning now to our outlook for 2022. We expect fiscal year 2022 revenue to range from $97 million to $101 million. We expect revenue from our Sublime and Pounce platforms to range from $2 million to $2.5 million. Abbott Surveil license fee revenue is expected to range from $4.5 million to $5 million. This compares to $16 million in fiscal 2021, which included $11.3 million in revenue recognized on the $15 million clinical report milestone payment, which was received earlier during the year. Our fiscal 2022 outlook excludes revenue associated with the achievement of the final surveil milestone payment upon FDA approval, which has been our practice with previous regulatory milestones. It also excludes surveil product sales and surveil profit sharing revenue. The potential revenue associated with the final milestone payment from Abbott would be approximately $25 million. Also, our guidance does not reflect any unfavorable COVID impacts. We expect fiscal 2022 diluted GAAP EPS in the range of a loss per share of $2.05 to a loss of $1.55. We expect non-GAAP diluted EPS in the range of a loss per share of $1.75 to a loss of $1.25. Our guidance reflects an acceleration of investment to advance our value creation strategy, which includes commercialization of our sublime and pounce platforms. For the full year, SG&A is expected to range in the low to mid 40s as a percentage of revenue. Full year R&D spend is expected to be approximately 60% of revenue as we support our ravine validation efforts and expand our thrombectomy and radial access product pipelines. With respect to income taxes, we expect the full year impact of income taxes to range from a tax benefit of $6.7 million at the low end of the guidance range to a 4.8 million benefit at the high end of the guidance range. Operator, this concludes our prepared remarks. We would now like to open the call to questions.
spk02: All right, thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll go ahead and take our first question from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
spk03: Good afternoon. Good morning, everyone. And thank you for that significant update on everything. As you guys know, I've kind of been watching the company for 40 years, but there's a lot for me to unpack in all you provided for us this morning. I have a few questions. Yeah. This morning, I'm not trying to get you to criticize the United States FDA, but I'm hoping you could remind me. I think there are competitors still on the market in the area in which surveil is targeted that have significantly more paclitaxel than does surveil and probably don't have the level of clinical evidence validation or documentation related to mortality over a period of years that they are now asking you to provide. Is that a reasonable understanding of the current environment in which the world is operating?
spk07: Yeah, Brooks, and the FDA could verify this. The goalpost has shifted, and they have shifted because of their concerns of the significant public health interest for long-term mortality. We were aware of that even back in January when we were ready to submit, and they did make it clear they wanted long-term, I should say up to three-year mortality data on certain cohorts of patients. It's a waterfall chart. It's really three years from the time you enroll that patient. So there's nothing you can do to expedite that quiver of arrows left a long time in the future, and we just have to wait for them to land. And so we submitted the first cohort, and we are recutting the data and submitting additional long-term mortality data of an additional cohort of patients, meaning just more patients. That's what I mean. And so, you know, while... You know, we don't feel unfair because of that. I mean, it's because of the prevailing issues of Paclitaxel. The agency also does have some other questions which are not surprising on some of the chemistry manufacturing controls, some biocompatibility, and nothing with human safety data, by the way. I will say this. As we have looked and what we are intending to submit and have looked at the mortality compared to our control device, which is the Medtronic Impact, we have no questions or issues internally. The data is solid. However, we have to follow the FDA's process and specifically the process of the decisions of what sort of data they require, both clinical and non-clinical, something called the pre-submission process, which sometimes takes a long time. We've asked for expedited review, but typically it's a 70-day cycle time to get that meeting. And so we're still in the process of seeing if we can expedite that to be 30 days. So that's the nature of where we are and the process for it. But I just want to be clear. It's a new era. It's not an unfair era. It's just something we have to deal with with new devices.
spk03: of the site right i get that i guess to use your analogy i just see it like the goal post for the competitor has not moved an inch and the goal post for you guys i think understandably has moved and so you you've got a kick from a much farther distance just to compete inferior products allowed to stay on the market right
spk07: Sure, and I don't know this for a fact, but I believe, I don't know this, but I'll give that qualifier, but I believe the Boston Scientific Ranger device probably had to go through a similar review. But I don't, as I said, I don't know that for a fact.
spk03: Right, but Advo?
spk07: No, it's a recent vintage.
spk03: Advo? Pardon me?
spk07: No, no, the Boston Scientific, the Ranger, the Ranger device.
spk03: Oh, no, I know. Not the market leader, though. Anyway, let's move on. So, secondly, I'm curious. Obviously, the clear conclusion from your commentary across the pipeline is right this minute you're not getting or not seeing the value from the potential strategics, so you're electing to go it alone. Do you feel confident? that A, you have the capabilities to go it alone, and B, that that's likely to result in value maximization for the company from this extraordinary pipeline?
spk07: You know, we, and first of all, I wouldn't want it to be felt that we have a value point from the strategics, because we're not entering what I would call deep-did-its Deep negotiations where you know the value point, that's not the case here at all. But as we look at what it takes to build early commercialization, there's a significant value increase if you can demonstrate commercial value. So remember in the past it's been we're trying to clinically, technically, and regulatory de-risk the products, right? And here we're seeing a really huge return by going further and demonstrating that it has real commercial legs on it. And some of this also came about as we were doing evaluations and physicians are saying, and I'm quoting anecdotally here, so, you know, this has changed my practice. How can I order it? This happened to us. couple of years ago with our coronary micro catheter, and we had no way of continuing to use the device. And once you've had that impact in the clinical site and they want to continue to use it as part of their practice, we thought it was quite important to be able to provide that. And as clearly you know, there's anti-kickback, there's laws against continuing to supply evaluation products free of charge. So we've started to sell them. When you start to sell something, you need somebody to also manage that account. And if you have somebody to make sure you manage that customer's account, you also have a field asset that can actually get more business. So this is very recently in the last maybe six weeks. Some of it probably started in Q4, but a lot of the onboarding or the hiring we do is actually in our Q1. We have just decided to hire a small A team of salespeople who have significant experience. Some of these people have been in thousands of venous thrombectomy cases, not tens. So the idea then, Brooks, is if you can demonstrate commercial viability in a small scale, keep in mind the strategics also see that the future has already been created, it's just not equally distributed. So when they see the commercial value versus them trying to build a commercial value, the value back to us and our shareholders is significantly more. I have had this discussion with very high-level executives at Interested Strategics, and they also get it. But the multiple and return is significantly higher than just we got an approval or clearance, now it's yours, what you're willing to pay for it.
spk03: Absolutely. Makes total sense. Again, I appreciate all the color. I don't think I heard you say anything about how Sundance is coming along.
spk07: Yes, Sundance, in fact, at 8 or 9 o'clock on Monday night, I sat through with the clinical team the case review with the principal investigators and steering committee. These are Professor Varkul in Sydney and Professor Holden in New Zealand, hence the late night, and then of Dr. Schneider in Honolulu. And so they were going through the case reviews there of both safety and efficacy. So I believe, from what I understand from our clinical team, we'll wrap up that clinical study report sometime in mid-December. But I just sat through it just to listen for myself.
spk03: Sure. Absolutely. Well, congratulations on all the progress. I can't wait for the future.
spk05: Thanks, Brooks. Thank you, Brooks.
spk02: Again, that is star one to ask a question. If you find your question has been answered, you may remove yourself from the queue by pressing star two. We'll go ahead and take our next question from Mike Mattson with Needham & Company.
spk04: Yeah, good morning. Thanks for taking my questions. So I want to ask about this change in direction here of, you know, building a sales floor, selling the products directly to the customers. It's a pretty big change from this whole product solutions, you know, strategy where you were going to partner and have the bigger companies distribute the products. So I think I understand where you're coming from. But, you know, I guess the cynical view would be like, hey, you know, you're not able to find companies willing to pay for these things or that want to share in the economics with you. And, you know, we've seen in thrombectomy area in particular, as you mentioned, a couple, you know, acquisitions with Abbott buying Locke and Boston buying Devorah. So, you know, I guess maybe just talk more about this change in direction here in terms of, you know, the sell direction.
spk07: Yeah, and thanks, Mike. First of all, Mike, this change in direction is not because of strategics and the value we've seen. We're actually holding them off. We're actually telling them repeatedly we're not interested. I mean, and there's interest issues. There's even interest in our recent VTEX acquisition. And as you brought up, the strategic acquisition of these other mechanical thrombectomy platforms, which, by the way, are not that far ahead of us, were in the 300-plus million, at least the one that's publicly known, right, 400 million. And we acquired VTEX for 39 million up front and 7 million potential earnouts. The VTEX product has both U.S. FDA clearance and a CE mark. Keep that in mind. And so when we look at that device, I mean, it was jokingly told we can flip that acquisition and make a couple hundred million. We're not interested in flipping it or underserving our shareholders by taking crumbs. And when I say crumbs, crumbs might be significant in the past, but these portfolio devices sublime and both Pounce Arterial and the ravine thrombectomy system, their value, and this is what I want to get across, are not worth the tens of millions. They're worth hundreds of millions. And so if we choose to sign a deal in the former category, we're leaving a lot on the table. And so it's not a change in direction to say, we're going to compete with our customers, it's a change in direction to say, how do we get the deserved value for shareholders of what I consider the best products in this category? And so we're on the inside seeing the clinical evaluations, and this is not from friends and family. These are from doctors in Sioux Falls, South Dakota, who would pick up our device before they would pick up another thrombectomy device. And so as we see that, we believe it's important to say get this popcorn stand going, serve the customers who actually are asking us to buy it. We weren't trying to sell it to them. They're saying, you've changed my practice, we need to buy this. We need to continue to use this product in our practice. And so by supporting this product, continuing the use, not letting the product go cold, hiring a very small, as I said, best-in-class sales team, we think that's worth an investment versus a wholesale change in strategy. So someday when we have, you know, 50 to 100 accounts that are continuing to use these devices as their everyday device, that will mean significant value for our shareholders. And also potentially for strategic down the line.
spk04: All right. I guess, but so is the end game then still to, you know, ultimately sign some kind of a deal with a bigger company to distribute the products and And I guess, you know, how does that fit with the sales people? I mean, if they're, you know, being called to sell this product for six months or 12 months or whatever, and then it's going to get taken away from them at some point. I mean, how is that going to work?
spk07: So again, we're starting with a very small sales team and we are taking one step at a time into that future. We're not, I don't want to suggest that we're going to flip this in six months time. and get money for it. I think as we continue to see how these devices play out in the market, rather than hiring 100 salespeople up front and saying, you're plunging into the deep end, that's not him and my style. We'll grow as we go. So as we see how we perform with the sales of these products, we reserve the right to keep going. And if the success breeds success, we can, in terms of our investment, continue to not get too far ahead of ourselves. So you don't hire a bunch of salespeople and completely blow up the P&L, but you hire sufficient to demonstrate it. And as you see how that's going, you can hire more to continue to fulfill that need. And I think that's a very disciplined approach. What I will say, though, is in any part of the company, any part of semantics and the divisions, if there's strategic interest, and the value significant for our shareholders, we will certainly pick up the phone.
spk04: Yeah, okay. Let's see. And then, you know, question for Tim. So, you know, the revenue guidance, you know, and I understand you're excluding the milestone, which, you know, makes sense. But, you know, it's really not up from where you ended, you know, 21. So... But I understand 21 had some kind of one-time, you know, stuff in there, too. So, you know, can you help us with the math in terms of, like, you know, what's the true apples-to-apples comparison to the guidance, you know, the revenue range you've given for 22? Like, how much growth does that sort of imply? Is there a way to even do that math?
spk05: Yeah, absolutely, Mike. It's a really great question. Thank you for asking that. And I think I'll just highlight my comments with regard to the guidance reflects surveil revenue of about $4.5 to $5 million for the year. Remember, in 2021, we generated $16 million. So if you compare our guidance, we're talking $97 to $101 compared to $105. You can basically, if you want to normalize for surveil, you could back out $11 million from the $105 million. And it will give you a sense that, you know, you're right around 90-ish million. And so, in essence, we're growing, you know, mid-single digits on the diagnostic and coding business for the most part. Plus, we've introduced about two to two and a half million of revenue associated with Pounce and Sublime. So, it's, you know, it's really looking like solid growth in fiscal 21 on the legacy businesses and Just for those of you who are modeling, I'll give you a little bit more insight. I anticipate that every quarter of fiscal 2022, we will see year-on-year revenue growth with the exception of Q2, which is a period, I'll remind folks, when we receive the written clinical report milestone payment. And if you normalize for that, we'll see modest growth or real slim growth in Q2. So there will be growth in every quarter. That's the expectation. Hopefully that helps with the question and happy to go into a little bit more detail if you'd like.
spk07: Yeah, and Mike, just getting back to your first premise, I think the difference with semantics is we're sort of undressing ourselves as a public company. And if you look at the companies that have significant valuations, they all started at a place similar to this. It's just they didn't do it as a public company. And so I just want to remind everybody, If you want to create significant value in terms of billions of dollars of market cap, at some point you have to think through how to get there. Ideally, you can do it as a private company, and then when you've spring-loaded the pump, then you go public. But we're doing it in a very disciplined fashion as a public enterprise, where we're sharing probably more than you clearly would share if you were in public. So I'll keep that in mind in terms of the significant value.
spk04: ramp in shareholder value that's that's that's possible because of this yeah okay um and then you know just on the you know back to the thrombectomy product so um or any of them for that matter but the you know how do you how would you capture the value i mean short of just selling it which i don't think you would do uh i mean selling that the asset or the business product Um, you know, would you expect some more, are you hoping for something more like the Abbott surveil agreement where you just get, you know, more of a lump sum upfront just to get, you know, access to the product and then ongoing, you know, you know, share revenue and profits.
spk07: That's a good question. There's a whole gamut of how we can extract the value. I think for us as a public company, The issue is you want ongoing commercial revenue streams. The downstrokes are great, and they replenish our balance sheet, but any type of thing we do would have to have significant ongoing revenue streams, including our own revenue streams from our own direct sales team. So that's a clear thing. But the headline numbers, however the revenue streams come through, Again, we're trying to raise our shareholder sites here. We're not seeing in the tens of millions. Abbott was good, and we have received almost $61 million from that so far. Clearly, it's a P&A program, so it consumes a lot, even as it's bringing in a lot and being self-funding. But we're talking about value above that type of value for our shareholders. So, DCB, we love that deal, and it's significant. but thrombectomy and the radial access platforms we believe are at least as significant. And I don't say that lightly. Yeah. Okay. Got it. Thanks.
spk02: All right. We can go ahead and take our next question from Jim Sedoti with Sedoti and Company.
spk01: Hi, good morning. And thanks for taking the questions. You guys have said a lot. I just want to be clear on a couple of things. First, even though there's additional data requested, you still think there's the opportunity to win that FDA approval for Seville in fiscal 2022. Is that correct?
spk07: I believe there is, yes. You know, the issue with the agency, and I say this not as a critique, they have a process. And, you know, from a sponsor side, it does feel painfully slow, you know, in terms of turnaround time. But that is the process. You know, when you submit all of this, you get one hour for the meeting to cover everything, and nothing, by the time we have introductions back and forth, it's 50 minutes. So you really cannot do the arm wrestling on the data and what specifically they are looking for. You're really covering higher ground. So the meetings to cover the actual data are the ones that you have to get into the process, and you can either answer it and take a risk and say, well, this is what we think, or the agency encourages us to use this pre-submission process, which unfortunately has its own cadence. So my concerns are more about process time than data. And keep in mind, as a sponsor, you know much more about your technology and the clinical data than the agency does. So it's how do you present and relate that. I am not concerned with that. I'm actually concerned with process time.
spk01: Okay. And Tim, you indicated that if the approval does come in fiscal 2022, that would add about 25 million to the top line. What would the impact of that approval be on EPS or in your case, the loss per share?
spk05: Yeah. Thank you for the question. You know, clearly it will depend on the tax rate and all of that, but Assuming, you know, a tax rate of about 21%, we'd probably be looking around $1.40. Okay.
spk01: And then with regards to the salespeople you hired, I assume it's, you know, it's a handful at first. Could potentially those salespeople move, you know, to other products? Assuming that you sign a distribution deal for the product they're selling right now, you have a fairly full pipeline. Could you move those salespeople off of, product A and move it to product B should you sign a deal with one of the major distributors?
spk07: One of the things I'll say is the team that we have built here have spent decades in the direct business model. They've spent literally decades in the cath lab and representing these products. Their interest in coming to us, I don't know if you know this, but it's a very competitive environment to hire salespeople. All of the growing mid-cap companies that have high valuations, it's really a competition out there for salespeople. The fact that we can in such short order get, I call them the best of the best, and in a sales model we don't compromise, we get the best of the best, was because of the significant potential they saw in any one of these products. So first thing to be clear is our salespeople will be well taken care of, whatever the value creation activity is. They will be well rewarded, not exploited, and will have a great career here at Somatics. The second thing, though, is as we look at that, we have a very strong pipeline. I don't want to give too much shading on our pulmonary embolism situation, or the filling out of the pipeline in our sublime platforms, and even where we are already going in the Gen 2 of the VTEX device. But the pipeline is significant in terms of what we have. So we're not a one-legged stool, depending on just a surveil, or just a sublime, or just pounds arterial, just pounds Venus. We'll have multiple legs on this tool, and that's exciting.
spk05: And Jim, it's Tim. Let me just give you a few more things to consider as well. As Gary has highlighted with the addition of the eight reps, these are very talented individuals who have a long history of success. There's a reason why they joined the Sermotics team, and you can imagine it's the products, right? They're going to do everything they can. They're excited. They're hungry. I've spent some time with them here recently. they're not going to give us the opportunity to find a partner because they're going to make hay with the technologies that we have. But it's important, I think, for folks on the call to appreciate that Gary and I view this as synergistic, meaning we're not looking at having to build two sales forces for Sublime and Pounce. We believe we can leverage the same sales force for both technologies and products. So that gives you a little bit more perspective and color. I do think there's a fair number of questions rightfully about transformation and the change that we're enacting I think it's probably helpful for folks to realize and appreciate that this is a very thoughtful decision and and clearly we do appreciate that growth valuation multiples are significant but we also you have to understand that over the last year plus we've acquired a lot of learnings from going out and doing product clinical evaluations we've had to build the infrastructure to be able to support We've had to do it onesie-twosie. It's taken time. There's a lot of synergies that you capture by putting more energy and effort into this, and you can move faster and get to market faster, but there's a lot more control that we have. Launch timing control, the amount of focus and attention that we can control and provide to the products versus somebody else. There is the influence on future product improvements that only we can collect by being close to the physicians and understanding the use of our technologies. There is just, like I said, a lot of synergies from what we've built, and it's a very thoughtful decision, and we've got a sales force here, a small sales force, that, as Gary likes to say, he thinks they're going to punch their weight.
spk07: Tim, I'll add to that. The leaders we have hired as well, uh, uh, people who have done this for decades successfully at top companies. So it's not Tim and Gary trying to build a sales force, sales leadership and marketing leadership, uh, people who have known nothing else, but this business model. So it's not, while it may seem odd for semantics, it's not odd for our team. It's actually the water they've always swum in for several decades and are very excited about.
spk01: All right. And then the last one for me, um, Do you think you have enough cash on hand to support the initiative right now? Or at some point, do you think you're going to have to go back and generate, you know, raise some more capital?
spk05: Yeah, great question. Absolutely. You know, Jim, I'll just provide a little bit more color on this question. It's one that I was anticipating rightfully. You know, we ended fiscal 21 with about $40 million, $41 million of cash on the balance sheet. You know, clearly you can tell by the guidance here that we will be utilizing cash on the balance sheet. You know, Gary calls it a dynamic tool for growth, and that's what we'll be doing. But if you think about kind of the guidance range, we could be looking at cash use. We probably could be looking at 15 to about 24 million of cash as we exit fiscal 2022. I think we'll probably be closer to 20 million. You know, this does not reflect a milestone payment from Abbott. I don't, you know, from what I see today and how we're thinking about things, it's always difficult to know kind of what the liquidity will look like going into 23 and beyond. But, you know, I think Gary's view will grow as we go or go as we grow. Um, we'll be very mindful about liquidity and, uh, and we'll probably have more to say on that in the future, but right now I don't really see any challenges for 22 and I'm not seeing them right now for 23 either.
spk01: So it sounds like if you do get that milestone payment, you're going to end fiscal 2022 right around where you started.
spk06: I think we'd probably end higher. Yeah.
spk01: Right. Okay.
spk06: Could be about 10 million higher. Yep. Yep.
spk01: Okay. All right, thank you. You're welcome.
spk02: All right, we'll go ahead and take our next question from Mike Patusky with Barrington Research.
spk08: Hey, good morning. So just on, and you may have mentioned this and I missed it, but on Sublime and Pounce, when do you expect that revenue to start?
spk07: You know, we, as I said, have literally in the past couple weeks we have hired people and I think we onboarded them just the a week ago or two weeks ago, maybe. They were all here for the training and the product training. So the first premise is to support the accounts that are ordering and make sure we have a continuous flow of product. There's a whole cascade of things here. So from our manufacturing supply chain systems, we can't have an account go live as a commercial customer and not have the manufacturing product to supply them. So we're being very methodical. I think really we'll see Q2, we'll have, Sublime is ahead of Pounds right now because internally we have these standards where we don't like to ship any fruit that's totally green. So we're still conducting evaluations with Pounds, but if the early evaluators want to order it, of course we'll facilitate that. I think it will shift into full commercial gear with the arterial Pounds, maybe in the second quarter, later in the second quarter. food quota, Tim's giving me the signal here, but sublime, the products, the 014, and the guide sheet, those are ready to roll. So we'll start commercializing those now.
spk05: I'll provide a little more color for you as well, Mike, and for others. We have maybe about two dozen or so accounts that have been evaluating our sublime products as well as pounds. And as Gary rightfully mentioned, those will be the accounts that were initially engaging with in terms of stocking and selling product to. There is a process of signing agreements and contracts with accounts. It takes some time, and certainly there's a little bit of a difference in terms of the process with regard to an office-based lab versus a hospital setting. Hospital settings, you're going usually through a value analysis committee, which can take months to a quarter or longer. So where we've been guiding folks to think about revenue generation, it will become more meaningful on Q3 and Q4. We have some revenue that's reflected already in the Q4 financial statements. It's very de minimis, but we're seeing more and more POs and sales today. But again, these are very modest as we initiate our efforts, and we do have pretty strong expectations here for Q3 and Q4.
spk07: Yeah, and, you know, we do, maybe I said this earlier, we're not having to build infrastructure and shipping and receiving and billing and compliance programs. All those things already exist. So it's not like we're doing Post-it notes to try to support these accounts. We do have fully developed back-end systems that are staffed by people who grew up in these businesses and the front-end system as well. it's not like we're a mom-and-pop shop trying to sell. We actually have these developed already.
spk08: Gotcha. So, Gary, you've commented on this a few different ways, but I just want to see if I can dial it in even further, and I understand I'm asking a little bit to look into a crystal ball. But based on the questions from FDA, the issues that you're dealing with, and sort of the bigger macro questions, backdrop for Paclitaxel. Do you think it's more probable than not that you get regulatory clearance this year? And I understand this is speculation on your part, and I will characterize it that way, but I'm just curious. Do you think it's more probable than not that something happens in the next 12 months?
spk07: And, of course, I can't speak for the FDA, but from my viewpoint, this is an absolutely approvable product, you know, So I'll give you one little more insight, just a little. One of the issues that's come up is the sterilization dose for commercial product versus when you do a clinical trial, it's like pizza boxes going through the sterilizer. When you do a commercial product, it's a big shipping carton, right? And so one has a slightly different dose. Things of that nature and how they affect the biocompatibility, the manufacturing, the controls, The clinical data has not so far been in question. And we've run a very tight trial. We completed our pre-authorization inspection. The FDA was on site here in Eden Prairie, I believe, for six days recently. It's called a PAI. And I don't know this for a fact, but the FDA wouldn't be going through the trouble of having auditors go out to clinical sites, to the company and the manufacturing sites. you know, if this was not an approvable product. That's my assumption. But I'll just say we had not a single finding in our operational systems and manufacturing systems under a very thorough preauthorization inspection that went on for, I believe it was six days on site. So that's why I'm confident. The thing is, you all know Tim and I are quite conservative. We don't like to count... count the chickens before they hatch. And so therefore guidance, you know, we take it out of guidance. When we look at cash management, we even put the blinders on and take that out of cash management. So when good things happen, it's always an upswing versus a surprise. And so for me, it's really when. I'd like to get it in the second quarter, but given that there are 90 days left on the clock, and the clock could stop at any time, right? If there are 90 days left on the clock, and we don't get these meetings until early in the second quarter, and then you have to potentially show the data or do whatever you have to to turn the crank, I can't see a way where we can get it with 90 days left on the clock in the second quarter. And so that's a painful issue for me. But that's the issue.
spk08: Okay. All right. And just going back to the shift in strategy and how best to, I guess, capture the value of Sublime and thrombectomy platforms, when you think about sort of proving these products commercially, I mean, is there a level of revenues or sort of on a timeline where you say, hey, these products in these categories are sort of proven commercially? I mean, is there, is there sort of targets there in general that would be, would be deemed by, uh, you know, potential partners as, yeah, you've proven it.
spk07: Yeah. And, and, you know, having done this many years in the past as well, you have to be careful with what I call flash in the pan revenue that comes early, the early adopters. And we're very methodical about that. Um, early adopters will adopt and buy very quickly. You really haven't created significant value until you get into the mainstream market, the early majority and the late majority. And these are people who are a little more skeptical, but when they are convinced, it really is repeat business. And so when we look at it, it's not just showing we have six early adopters who would early adopt anything, right? It's really showing the big accounts and how the growth. We believe rate of revenue growth is significant, and we believe that that is clearly not in the teens. We believe that's in the 20, 30, and 40% rate of growth. And so if you think of our territory as a little homogenous part of the U.S. map, and that territory can grow that quickly, that really imputes the value for us. I think the other thing we're seeing with these devices, and it's a hallmark of somatics, is the utter simplicity for very complex procedures. So we have had physicians in Sioux Falls, South Dakota, that will never pick up one of the high-end devices you hear quite a lot about. Never, okay? Pick up this device and treat a 30-centimeter clot in a patient. And so when we think of Duluth, Minnesota, Billings, Montana, Mobile, Alabama, right? What are these physicians using? There's a lot of press being given to academic institutions and where there's a rep in every case every single time. In 50th case, the rep's still there. Our devices, we believe, not only have great clinical outcomes for the patient, but they're almost ridiculously easy to use. And now you can treat a patient with acute limb ischemia versus trucking them to a major institution and using a $12,000 device. That gets us really excited in what I call democratizing access to healthcare, where the person in Sioux Falls can pick it up and treat that patient versus sending in an ambulance transfer to Twin Cities. But keep in mind, the rate of growth is a significant part of it for us as well. These are premium-priced products.
spk08: Sure. Gotcha. Hey, and last one for Tim. Tim, given the relative importance of Sublime and Pounce, might there be a point where you guys would start sort of disclosing quarterly revenue either in the way you report or just sort of verbally on conference calls, that sort of thing, where you essentially say, hey, look, this is what Sublime did, this is what Pounce product did. How are you going to sort of talk about that or disclose that going forward?
spk05: Yeah. So, you know, we did create expectations for the quarter or for the year. Excuse me, Mike. We will be providing updates as we go through the year. And, you know, Gary and I both believe, you know, we're making significant investments to support the value creation thesis here. And that value creation story is really driven by these three platforms. So we will be providing more context around how we think about guidance as well as the actual performance as we go through the year and beyond.
spk08: When it gets to a material level, could it possibly be its own categories or category?
spk05: I would absolutely think that's probably more likely than not. Yes. Got it. All right. Thanks, guys. Thank you, Mike.
spk02: All right. It appears there are no further questions at this time. I would like to turn the conference back to the speakers for any additional closing remarks.
spk07: Thank you. I hope you can hear the excitement about where we're heading in fiscal 22. I want to close by expressing our appreciation to our team for the incredible dedication and support this past year and going through our future fiscal 22. Stay safe, everyone. Until next time. Thank you.
spk02: This concludes today's call. Thank you all for your participation. You may now disconnect.
Disclaimer