Artivion, Inc.

Greetings and welcome to the Cryolife second quarter 2021 financial conference call. At this time, all participants are in a listen-only mode. A brief 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. I will now turn the call over to Brian Johnston from the Gilmartin Group. Thank you and you may begin.

Thanks, operator. Good afternoon, and thank you for joining the call today. Joining me today from Prylust's management team are Pat Mackin, CEO, and Ashley Lilley, 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 that are 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 these 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. Now I'll turn the call over to Pryley's CEO, Pat Mackin.

Thanks, Brian, and good afternoon, and thanks for joining. I'm pleased to report we had a solid quarter as our recently acquired and newly introduced products performed quite well, even in the face of the pandemic. In evaluating the performance and progress of our business, we believe it is more meaningful to compare Q2 2021 results against Q2 2019 results. because Q2 of 2020 performance was substantially impacted by COVID-19. So when comparing Q2 of 2021 against Q2 of 2019 performance, our pro forma constant currency revenue growth was 6.6%. This excludes TMR in both periods as we sold TMR in Q2 of 19, but not Q2 of 2021. This revenue growth shows that our business momentum has returned and we are returning to growth. Our Q221 performance is even more impressive when you consider that cardiac tissue declined 7% in the quarter due to the inadequate supply of cardiac tissue valves that were affected by the previously mentioned tris issue, which has now been resolved. In the last few weeks, we confirmed with the FDA that the quarantined tissue are safe to distribute, and as a result, we will not write off any of the $5 million of tissue that was quarantined as a result of the tris issue. As a result of this positive news, we now have an extra quarter of tissue that we've begun working through our release process, which should have positive impact on tissue revenue going into the second half of 2021. Given our confidence in our business, notwithstanding the continued impact from COVID-19 on our business, particularly outside of the U.S., we are issuing guidance for the second half of 2021. We are forecasting second half revenues will increase approximately 7% to 10% on a pro forma constant currency basis versus 2019. This will exclude per clot as a result of the Baxter transaction, which will end up with full year revenues in 2021 between $296 and $300 million. Our performance through this quarter benefited particularly from our new product launches and strength in our onyx aortic valve business in the U.S. For example, in the second quarter of 2021 compared to the second quarter of 2019, our AMDS increased 65%. Aveda Open Neo grew 115%. Enside grew 25%. And Onyx grew 17%, each on a pro forma constant currency basis. Nexus revenues grew 48% versus 2020 on a constant currency basis as it wasn't available in Q2 of 2019. I also wanted to highlight the outstanding growth of the onyx aortic valve revenue in North America, which is a 25% increase. Since our last call, the number of people with COVID vaccines and EMEA has increased substantially, and the number of hospitals operating on a more traditional workflow also continues to increase. Both of these factors have led to further market normalization and improved our sequential revenue. Unfortunately, we are seeing an increase in outbreaks in various markets around the world, due to the highly contagious Delta variant. While we do not foresee a return to conditions like in 2020 or early 21, certain areas of the U.S. as well as Europe are starting to experience renewed spike of COVID-19 infections. And Latin America and Asia Pacific continue to experience significant impact from COVID-19. That said, while COVID may continue to be a headwind in the months to come, we believe that our revenue performance in the second half of this year will be better than the first half of this year. Ashley will provide more commentary on our outlook for Q3 later in the call. Before moving on to provide a broader recap of our second quarter progress, I wanted to provide some more color on our announcement this morning regarding the sale of our Perclot product line to Baxter. Perclot is an outstanding product, but as you know, most of the addressable market opportunity for Perclot is outside of our customary call point in cardiac and vascular surgery. From a strategic standpoint, divesting Perclot allows our commercial channels to remain focused on selling our expanding portfolio of cardiac and vascular surgery products focused on aortic repair, and simultaneously it improves our cash position to strengthen our balance sheet. As a result of this transaction, Baxter will take over distributing SMI-manufactured Perclot outside the United States and will sell Cryolite-manufactured Perclot for approximately two years post-U.S. approval of Perklot, while Baxter transfers Perklot manufacturing from us to another manufacturer. We will continue to pursue the U.S. PMA approval for Perklot on Baxter's behalf. Under current assumptions, we expect Perklot to be approved in the U.S. in the second half of 2022, and we will generate revenue in 2023 and 2024 on the product we manufacture for Baxter, which should contribute to our growth rate. As a result, the investment of this product line is a clear strategic benefit and will contribute to our revenue growth in 23 and 24. Moving on to review of our progress in the second quarter. As I explained in our last call, our near-term plan is to accelerate revenue growth with three main initiatives. Our first initiative is to commercialize our five new aortic stent and stent graft products in Europe. This includes the AMDS, Nexus, our three next-generation Yotech products, Enside, Aveda Open Neo, and Enya. Our second initiative is to continue to expand in Asia Pacific and Latin America. And our third initiative is to secure regulatory approvals in major markets for Perclot in the U.S., Proact Mitral in the U.S., and BioGlu in China. I will walk you through an update on each of these items going forward, starting with a review of the commercialization of our enhanced portfolio of new aortic stents and stent grafts. First, with AMDS, this is the world's first aortic arch remodeling hybrid device used to treat acute type A aortic dissections, and we're very optimistic about the performance of this device. As I noted earlier, during the second quarter, we posted revenues of $1.6 million, which was an increase of 65% on a pro forma constant currency basis over the second quarter of 2019. This growth occurred despite regional lockdowns in Europe, where we have a majority of our AMDS sales. We also continue to secure marketing authorizations in key markets around the world, which, with additional regulatory approvals we expect to secure, position us well for further increases in AMDS revenues, particularly as the pandemic dissipates in these markets. Second, Nexus posted revenues of $451,000, an increase of 48%. on a constant currency basis compared to the second quarter of 2020. Nexus was not approved in the second quarter of 19. We believe these revenue results would have been better for Nexus as well as for our other products if not for the renewed COVID-19 lockdowns and travel restrictions in Europe during a portion of the second quarter. We continue to see Nexus cases scheduled for the upcoming weeks and months and remain optimistic regarding the prospects for this technology. Our third device, N-SIDE, is our newest device in our portfolio to treat thoraco-abdominal aneurysms with endovascular stent grafts. Our revenues in this product line, which include N-SIDE and Extra Design, grew over 25% on a constant currency basis when compared to Q2 of 2019. The fourth category is Aveda Open Neo. This is our newest product in the frozen elephant trunk category, which is used to treat dissections and aneurysms of the aortic arch. Revenues from this product line, which include the Avita Open Plus and Avita Open Neo, grew 115% on a constant currency basis compared to Q2 2019. The fifth device, Enya, we are currently in early stages of our limited market release and expect to move to a full market release later in 2021. We expect demand for these five products to continue to build as the number of people are vaccinated as well as market adoption for these products increases. This will accelerate in Europe as the pandemic subsides. In addition, we expect to benefit from improved Yotech inventory resulting from our own internal efforts and the onboarding of a second source selling supplier. Moving to our next initiative, international expansion in Asia Pacific and Latin America. This will be done through new regulatory approvals for existing products as well as expansion of our commercial footprint in these regions. Our revenues in Asia Pacific increased 3% and our revenues in Latin America decreased 5%. Both were on a pro forma constant currency basis in the second quarter of 21 compared to the second quarter of 19. We feel that these results were hampered in both regions by the continued impact of COVID-19 and anticipate that the growth will accelerate as the pandemic subsides and we gain additional marketing authorizations in both APAC and Latin America. Regarding our third initiative, we continue to make progress on achieving three regulatory approvals in major markets. More specifically, we expect to submit PMAs for Perclot and Project Mitral this quarter, while continuing to pursue the Chinese FDA approval for BioGlue. For Perclot, we intend to submit in Q3 2021 our PMA for approval for open surgery, as well as laparoscopic indications across multiple specialties, as well as for large-scale manufacturing capability. Similarly, we also expect to submit in Q321 our PMA submission for a low INR label for the onyx mitral valve. This is similar to our lower INR label for onyx aortic valve. As a reminder, the onyx aortic valve has a significant clinical advantage for patients over competitor valves. That is, it's the only FDA-approved mechanical aortic valve that can run on lower INRs from 1.5 to 2.0 rather than the standard of care 2.0 to 3.0. If our new label is approved, patients with onyx mitral valves will be able to be maintained on lower doses of Coumadin compared to patients implanted with other mechanical valves. The onyx mitral valve would be at 2.0 to 2.5 versus all competitive valves, which would be at 2.5 to 3.5. This will lead to significant clinical benefits for patients. We believe this approval of our onyx mitral valve will enable us to take significant market share like the market share gains we've experienced with our onyx aortic valve. Lastly, as it relates to regulatory approval for BioGlue in China, we remain actively engaged with NMPA and look forward to providing an update on our approval timeline when we have further clarity. In our view, approval of BioGlue in China does not meaningfully adversely impact our accelerating near-term revenue growth opportunity I described earlier. In addition to our progress on these three initiatives, we also continue to make very good progress on our mid-term pipeline. with key products that are currently in U.S. clinical trials are ones which we expect to start U.S. clinical trials later this year. These three products are Proactin-A, Nexus, and AMDS. We continue to make significant progress on the enrollment of our Proactin-A trial. Our prospective randomized clinical trial determined if patients with onyx aortic valves can be maintained safely and effectively on Eliquis versus Warfarin. We currently have enrolled 360 patients in this study. Feedbacks from surgeons and patients participating in this trial remain very positive. Despite pandemic headwinds and assuming the trial meets its endpoints, we believe we can still achieve FDA approval for this new indication by late 24 or early 25. If we successfully obtain such an approval, we believe the onyx aortic valve should become the market share leader in the aortic valve market for patients under the age of 70. In addition to the PROACT-NA trial, our partner, Endospan, continues to make good progress on its USID trial for NEXUS, known as the TRIANTH trial. As for AMDS, we are on track to submit our ID in Q3 2021, which, if submitted, would put us on track to begin our AMDS clinical trial by year end. If these trials proceed as we expect, we anticipate FDA approval for PROACT-NA, AMDS, and NEXUS by late 24, early 25, which would give the company an additional $1 billion in market opportunity at that time. With that, I'll now turn the call over to Ashley.