Artivion, Inc.

Greetings and welcome to the CryoLife fourth quarter year-end 2020 financial conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad as a reminder this conference is being recorded. It is now my pleasure to introduce your hosts. I will now turn the call over to Lynn Lewis from Gilmartin Group. Thank you. Ms. Lewis, you may begin.

Thank you. Good afternoon, and thank you for joining the call today. Joining me today from Cryolife's management team are Pat Mackin, CEO, and Ashley Lee, CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties in our forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from those forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. With that, I turn the call over to Cryolife CEO, Pat Mackin.

Thanks, Lynn, and good afternoon, everyone. Thanks for joining. So despite the continued impact of COVID-19, our business was very resilient given the nature of our products. We continue to launch innovative products and invest in our business, including R&D, clinical trials, and manufacturing site expansions. As we look to 2021, we expect the full commercial potential of our products will start to become more fully realized, especially in the second half of 2021. when we hope to see a return to normalcy first in the U.S. and then followed by Europe later in the year. Today, we'll touch upon the highlights of our Q4 2020 performance and our initial expectations for 2021, as well as provide updates on several strategic initiatives before Ashley reviews the fourth quarter and full-year financial results, as well as providing further details on our 2021 outlook. I will then make closing remarks and open the call to your questions. As we discussed on our last call, we ended the fourth quarter of 2020 with optimisms as we generated year-over-year revenue growth in September and October, as COVID-19-related headwinds appeared to have lessened. However, since November, the pandemic worsened across geographies around the world, lowering procedural volumes again and slowing our return to growth. Fortunately, the impact of this resurgence on our business was lessened because most of our products are used in critical procedures that cannot be postponed for long or at all, As well as hospitals and providers have become increasingly adept at managing procedural continuity throughout the pandemic. So despite these returning headwinds, we had solid performance in the fourth quarter. It now appears that infection rates are once again declining from the 2020 year-end spike. This coupled with the acceleration in vaccination caused us to believe that we should see procedure volumes normalized mid-year in return to growth in the second half of 2021, both relative to 2019 and 2020. Cryolife, like many other companies, was put to the test last year. But as I said before, we continue to advance our R&D initiatives and investments and maintain production at or near capacity. In addition, our field team supported procedures both in person and virtually. Our team was particularly adept at applying creative solutions to ensure continued customer service and patient care, and we thank our entire organization for their outstanding performance during these challenging times. Turning to our fourth quarter 2020 results. In Q4, we achieved total revenues of $67.9 million, which reflected a decrease of 3% versus the fourth quarter of 2019 on a GAAP basis, and a decrease of 5% on a pro forma constant currency basis. When you exclude TMR revenues, the fourth quarter 2020 and 2019 total revenues decreased 3% on a pro forma constant currency basis. Following a return to growth in October, procedure volumes in November and December declined year-over-year, and revenues in December decreased 6% compared to December of 2019. Still, we do continue to see procedures volume being impacted by the most recent spike in cases. Although COVID-19 has been unpredictable, we anticipate that the impact of COVID-19 on our year-over-year revenue performance in the first quarter of 2021 will be similar to what we saw in the fourth quarter of 2020. We also expect to experience a temporary shortage of tissues in Q1 that Ashley will expand on later. Taking these factors into account, we expect revenues to be down between 5% and 8% in Q1 compared to Q1 of last year. But we remain optimistic on the prospect of a return to growth in the back half of 2021. We do, however, anticipate significant growth in the second quarter of 21 relative to the second quarter of 20, the quarter of 2020 which we initially saw the significant impact from COVID-19 on our business. Growth in 2021 will be fueled by predominantly our recently launched next-generation Jotech products, AMDS, and Nexus, as well as our continued expansion into Asia Pacific and Latin America, as well as positive news on the regulatory front. Due to the uncertainty of exactly when normalization of growth rates and acceleration will occur, we will not be issuing guidance for the full year of 2021. Looking specifically at the outlook for AMDS, the world's first ARCH remodeling hybrid device for use in the treatment of acute type A dissections, we remain encouraged. During the fourth quarter, we posted revenues of $1.1 million compared to $580,000 in the fourth quarter of 2019, an increase of 91% on a constant currency basis. Regarding Nexus, our launch is still being impacted by COVID-19 and the lockdowns as travel restrictions currently in effect in Europe. but we are beginning to see more cases scheduled for the near future and remain optimistic regarding the prospects for this disruptive technology. We also continue to get very positive feedback from our surgeons on the Onyx aortic valve. We saw 32% growth in the fourth quarter versus the prior year, even in the face of COVID-19 resurgent headwinds. As a reminder, the Onyx aortic valve is the only FDA-approved mechanical aortic valve that can run at a lower INR of 1.5 to 2, whereas all other mechanical heart valves from our competitors must run at an INR of 2 to 3. More specifically, the PROAC trial demonstrated the reduction in our INR levels had a dramatic 63% reduction in bleeding compared to the standard INR levels with no increased risk of thromboembolic events. Turning to an update on operations, we have more good news to report. As indicated, we've been able to run at or near capacity across our three manufacturing facilities with few, if any, disruptions, and our supply chain has remained intact. In addition, our second source sewing supplier was recently approved by the European Notified Body and is currently supplying product to us. We are also very pleased with our progress with the enrollment of the PROACT-10A trial, which is a prospective randomized clinical trial to determine if patients on the onyx aortic valves can be maintained safely and effectively on Eliquis versus Warfarin. We currently have 42 sites fully qualified to begin enrollment, Thirty sites are actively enrolling, and we have over 150 patients currently participating in the study. Feedback from surgeons and patients participating in the trial has been very enthusiastic. On the regulatory front, we are in a position to file our per-clock PMA with the FDA now, but it strategically delayed filing to evaluate commercial options for this technology. Endospan recently enrolled its first patient in the primary arm and two patients in the secondary arm of its U.S. clinical trial for Nexus. I'd now like to highlight some of our key operational goals and activities for 2021. First, we will continue to move forward with the rollout of our next-generation Yotech products. We've received good feedback from our physicians on Ensight and Aveda OpenNeo during the limited market release in 2020, and both those products are now in full market release. However, the rollout of these technologies is still currently being hampered by the impact of the pandemic. But we do not expect procedure volumes to improve during 2021, but we do expect procedure volumes to improve during 2021 as the vaccine rollout gains momentum in Europe. Regarding Enya, we received some customer feedback during our limited market release and are incorporating that feedback prior to continuing the limited market release in mid-21, followed by a full market release later in the year. In addition, these full market launches will be backed by improved Yotech inventory, resulting from our own internal efforts the business slowdown associated with the COVID-19 pandemic, and our second source manufacturing supplier. As I mentioned on our last earnings call, our teams are also gearing up to train more and more physicians to support these launches. Second, we expect to make significant progress through 2021 on enrollment in our PROVAC 10A trial. By year end, we expect to have all 60 sites qualified and at least 50% of the trial enrolled. Despite pandemic headwinds and assuming these trials meet its endpoints, we believe we can still achieve FDA approval by late 24, early 25. If we successfully obtain such approval, we believe the Onyx Aortic Valve should become the market share leader in the aortic valve market in patients under the age of 65. For those of you who missed the PROACT 10A webcast on December 7th, I encourage you to watch it. Dr. John Alexander, the co-chair of the PROACT trial, did an excellent job providing a comprehensive overview of key aspects of the trial as well as answering investors' questions. You can find it archived on our website. Our third key initiative in 2021 is to file the per-clot PMA with the FDA during the third quarter. We are currently ready to submit the per-clot PMA application for open surgery and small-scale manufacturing. However, to be attractive to potential commercial partners, we believe we also need laparoscopic indication and large manufacturing capabilities. As a result, we've changed the timing of the PMA submission to include these additional factors in the submission, which we now currently plan to submit in Q3. Fourth, we expect to file our PMA in mid-2021 for regulatory approval for a low INR label for the onyx mitral valve. This is similar to the label we have on our onyx aortic valve. If the new label is approved, patients with the onyx mitral valve could be maintained on a lower dose of Coumadin compared to patients implanted with other mechanical valves. We believe such an approval for our mitral valve will enable us to take significant market share in the mechanical mitral valve market, similar to what we've seen with our onyx aortic valve. regarding the approval for BioGlu in China. We recently received additional questions from the Chinese FDA regarding BioGlu. We are currently evaluating what impact these questions may have on our approval timeline and look forward to providing you with an update on expected timing later in the year. And lastly, we expect to complete in mid-2021 all the testing necessary to file our IDE for the AMDS and receive IDE approval to begin our clinical trial by year end, putting us in a position to receive PMA approval by 2024. Throughout 2021, we also continue to work to mitigate operational risk, manage expenses, and strategically invest for growth. Overall, we believe we are in a better position to deliver accelerated revenue growth once the pandemic subsides. Before I turn it over to Ashley, I have one more piece of good news to report. We received word from the FDA that it has approved our supplier's manufacturing site change, and we are now cleared to resume the sale of our TMR handpieces. We are in the process of working with our supplier to resume production and anticipate that we will have a gradual ramp-up of of TMR beginning in the second quarter. We will have more commentary on a ramp-up in future quarters, but we don't anticipate relaunching TMR until Q2 of this year. With that, I'll now turn the call over to Ashley.