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spk22: 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.
spk21: Thank you and you may begin.
spk17: 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 Pryor's CEO, Pat Mackin.
spk16: 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 21 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 Q2 21 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 quarantine 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, and 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 percent, Aveda OpenNeo grew 115 percent, Ensight grew 25 percent, and onyx grew 17 percent, 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 Perklot product line to Baxter. Perklot is an outstanding product. But as you know, most of the addressable market opportunity for per clot is outside of our customary call point in cardiac and vascular surgery. From a strategic standpoint, divesting per clot 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 cast 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 perclot, while Baxter transfers perclot manufacturing from us to another manufacturer. We will continue to pursue the U.S. PMA approval for perclot on Baxter's behalf. Under current assumptions, we expect per-clot 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 2023 and 2024. 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., Proac Mitral in the U.S., and BioGlue 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 2019. 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, Ensign, is our newest device in our portfolio to treat thoracobdominal aneurysms with endovascular stent grafts. Our revenues in this product line, which include inside and extra design, grew over 25% on a constant currency basis when compared to Q2 of 2019. The fourth category is Avita 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 Perclat and Project Mitral this quarter, while continuing to pursue the Chinese FDA approval for BioGlue. For per clot, 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 Q3 2021 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 in our mid-term pipeline with key products that are currently in U.S. clinical trials or 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 Warfen. 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-10A trial, our partner Endospan continues to make good progress on its USID trial for Nexus known as the Triumph 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 Proactin-A, 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.
spk08: Thanks, Pat, and good afternoon, everyone. Total company revenues were $76.1 million for the second quarter, up 42% on a GAAP basis compared to Q2 of 2020, and up 35% on a pro forma constant currency basis compared to Q2 of 2020. Revenues came in ahead of our quarterly guidance due to improving procedure volumes in the U.S. and Europe as vaccination rates increased and lockdowns eased during the second quarter. On a year-over-year basis, in the second quarter of 2021, aortic stent and stent graft revenues increased 60%, reflecting increased procedure volumes and improved geotech inventory position, the addition of the AMDS in September of 2020, and improved adoption of Nexus in the EU. Onyx revenues increased 46%, BioGlue revenues increased 44%, and tissue processing revenues increased 22%, reflecting improving procedure volumes relative to the second quarter of 2020. On a pro forma constant currency basis, aortic stent and stent graft revenues increased 39%, onyx revenues increased 43%, and BioGlue revenues increased 40%. On a pro forma constant currency basis compared to the second quarter of 2019, onyx revenues increased 17%, aortic stents and stent graft revenues increased 11%, tissue processing revenues increased less than 1%, and bio-glue revenues decreased 1%. On a regional basis, second quarter 2021 revenues in EMEA increased 65% North America increased 30%, Asia Pacific increased 13%, and Latin America increased 133%, all compared to the second quarter of 2020. On a pro forma constant currency basis, revenues in EMEA increased 47%, North America increased 29%, Asia Pacific increased 13%, and Latin America increased 130%, all compared to the second quarter of 2020. Our gross margins were 66% for the second quarter of 2021 and 67% for the second quarter of 2020. G&A expenses in the second quarter were $40.8 million compared to $32.3 million in the second quarter of 2020. The second quarter of 2021 includes acquisition related and other non-recurring charges of $3.4 million primarily related to fair value charges related to the AMDS acquisition. Second quarter interest expense of $4.9 million includes approximately $2.4 million of expense related to our term loan B, $1.1 million related to our convertible debt, non-recurring interest of $835,000 related to the extension of our term loan B and revolving credit facility and approximately $500,000 in amortization of debt origination costs. Other expense in Q2 includes $1.4 million in realized and unrealized foreign currency translation gains. On the bottom line, we reported GAAP net loss of approximately $2.2 million, or six cents per fully diluted share. Non-GAAP net income was $4.8 million, or 12 cents per share, in the second quarter. Additionally, GAAP and non-GAAP earnings include the pre-tax gain of $1.4 million, or approximately 3 cents per share, related to foreign currency translation gains. Reconciliations of GAAP to non-GAAP income in EPS are included in the press release that we issued this afternoon. Adjusted operating income was $9 million for the second quarter of 2021, compared to $1.7 million for the second quarter of 2020. Adjusted operating income reflects add-backs of amortization expense, acquisition-related charges, and other non-recurring charges to operating income. As of June 30, 2021, we had approximately $50.5 million in cash, $319 million in debt, and the full $30 million available under our revolving credit facility. Adjusted EBITDA for the second quarter of 2021 was $12.8 million, compared to $6 million for the second quarter of 2020. Gross leverage, as defined by our credit facility, stood at 5.3 times, and net leverage stood at 4.5 times. These metrics do not include the proceeds from the sale of per clot. Please refer to our press release for additional information about our non-GAAP results including a reconciliation of these results to our GAAP results. And now for our outlook. As Pat mentioned, we're now providing revenue guidance this quarter due to the increased confidence in our business. Our new product launches, AMDS, Nexus, Evita Open Neo, and M-Side are all performing well. We operated the first half of the year without a normal supply of tissue due to the Trish issue, and that issue has now been resolved. We also expect to see improved performance for Asia Pacific and Latin America in the second half as the pandemic subsides. As a result, we are forecasting our second half to be up approximately seven to 10% on a pro forma constant currency basis in 21 versus 2019, which excludes per club resulting in full year 2021 revenues of between 296 and $300 million at a Euro-USD exchange rate of 1.2. We also anticipate revenues for the third quarter to be between $71 and $73 million. These forecasts are based on the current and anticipated state of COVID-19 around the globe. The forecasts take into account the fact that approximately 55% of our revenues are generated in North America and the remainder are generated overseas. Even though we have seen significant improvement in the U.S. and Europe regarding the impact of COVID-19 on our business, new COVID-19 restrictions and lockdowns are being implemented, and COVID-19 remains a significant challenge in Latin America and Asia Pacific. And finally, the guidance reflects the fact that we generated over $1.8 million in per-clock revenue in the first half of 2021, and per-clot revenues in the second half of 2021 will be minimal as Baxter is taking over distribution of SMI manufactured per-clot under the transaction we just consummated. Regarding our ongoing investments designed to fuel future growth, we intend to continue to invest in our commercial channels, particularly in Asia Pacific and Latin America, as well as in our R&D pipeline. We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital. I will turn the call back over to Pat for his closing comments.
spk16: Thanks, Ashley. So in closing, as you've heard this afternoon, despite the global pandemic, our business performed quite well during the second quarter. I once again give the credit to the outstanding efforts of our employees around the world. Going forward, uncertainty regarding the impact of the Delta variant and uncertainty about continued vaccine adoption make it difficult to predict the impact on our business over at least the next couple of quarters. But what I can say with confidence that our product offering is second to none in the treatment of aortic disease. When the pandemic largely subsides and procedure volumes return to normalized levels, we expect exceptional products to deliver double-digit growth on a year-over-year basis. We have several catalysts in 2021 that we do not have in 2020. As I explained earlier, we have three initiatives that will drive growth between 21 and 24. First, in 21, we should see continued growth in our five new aortic stents and stent grafts, AMDS, Nexus, Enside, Neo, and Enya. Second, we also anticipate further upside from our investments in our channels and new regulatory approvals in Asia and Latin America. And third, we'll be filing our PMAs for both Perclot and the Onyx Mitral Valve. All of these catalysts and our expectation to continue to deliver on these goals I've outlined previously, supported by our strong financial position, leave us optimistic and confident as ever about the future of our prospects. With that said, I'd like to open the line for questions and turn it back over to the operator.
spk22: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Mike Mattson. with Needham & Co. Please proceed with your question.
spk18: Yeah. Hi, Pat and Ashley. This is David Saxon on for Mike. Thanks for taking the questions. My first one is just on the per-clut sale to Baxter. As I understand it, it's going to be about $19 million upfront to you. So just wondering how you're thinking about prioritizing that. Is that going to be mostly for paying down some of your debt? maybe doing some smaller M&A or kind of reserved for any potential milestones you might have coming up, like some of these deals like Osiris.
spk16: Yeah, so, I mean, regardless of where we put the cash, I mean, we do, I think the last comment you made, you know, we've got two milestones coming up, one for for Cyrus which was 10 million dollars once we get the ID approved and we just talked about we're submitting that ID actually this weekend so we're anticipating that that idea will be approved in the in the second half of this year so that's obviously 10 million of it and then we've got a five million dollar milestone for Nexus once they enroll 50% of their trial we don't anticipate that happening probably for another until outside of 2021 but that would be a you know, a chunk of the first up front.
spk18: Okay, got it. And then, I mean, you've talked about the lower INR label for onyx mitral. I was just wondering if you can help us think about the size of that opportunity. And I know the onyx aortic valve has a pretty high gross margin, at least in the U.S., so should we expect something similar
spk16: uh to to the gross margin profile of the aortic uh onyx yeah so the the the mitral valve has a similar profile to the aortic from a gross margin standpoint in the us it's around 90 percent um the second part is you know that the the mitral uh kind of the overall market opportunity and this is i think being conservative when we're just talking about mechanical valves um that it's probably about a $40 million opportunity at 90% gross margin for us. There's also an opportunity, and as we've seen with the Onyx Aortic, where we actually cannibalized tissue surgical valves. So we haven't even used those numbers in the math to come up with a $40 million. That's just kind of the mechanical mitral opportunity we have to go after once we get this product approved and out in all the markets.
spk18: Okay, that's helpful. And then I guess last for me, I mean, it sounds like the tissue issues are resolved. So how should we think about preservation services in the back half? Thanks so much.
spk16: Yeah, so it was actually very positive, because if you think back to the beginning of the year, you know, we caught it. The good news was we caught this quality issue, and we worked through all the testing and the submissions and the tissues at the highest level of quality we expect. So, you know, at the beginning of the year, we said we're either going to write off $5 million by, you know, this summer, or we're going to have a bunch of extra tissue in the freezer. It turns out it was very positive. And like I said, we're not writing off any of that tissue. And we have an extra quarter of tissue kind of in quarantine in the freezer right now. So now it actually shifts to a kind of processing and getting the tissue out, going through our quality process and procedures. So we've got a lot of tissue. We just got to get it out the door. So I can't tell you exactly how it's going to flow. But we feel pretty bullish over the next 12 months that tissue will have a kind of a tailwind to it compared to what you saw in the first half.
spk18: Great. Thank you.
spk04: And congrats on the quarter. Thanks.
spk22: Our next question comes from Cecilia Furlong with Morgan Stanley. Please proceed with your question.
spk12: Great. Good afternoon, and thanks for taking the questions, Pat. I wanted to just start on ONIX strength in the US recently over the past few quarters. Could you talk about what you're seeing on an underlying basis? Is this more the mechanical heart valve market, ONIX specifically? If you could just provide more color in terms of really what's driving that growth that you've seen over the past few quarters.
spk16: Yeah, hey, Cecilia, thanks for the question. You know, I've had an opportunity, and I think when we last spoke, I mean, I was out in 30 of the top cardiac centers in the last six months. And I can tell you to a person at every institution, and I probably talked to more than 100 surgeons, to a person, they all... believe in the onyx kind of, you know, it's the anticoagulation, you know, lower coagulation story. You know, we're the only valve that can have less Coumadin today, and we're the only valve that's looking at and studying the use of Eliquis. So it's just kind of a groundswell around it. And literally every center I go to, we're either bringing on new users in those centers or actually bringing on brand new accounts. So it's just a continued kind of momentum. And I think it's the combination of, you know, the story that's in the guidelines having the only ones with a low INR. And, you know, I think a lot of people are paying attention to this trial, which we've now enrolled 360 patients in. So I think it's hard to pin down exactly what it is, but it's obviously been, you know, very strong growth over the last, you know, several quarters.
spk12: Okay, got it. And just in terms of 3Q guidance as well, and I recognize there are a lot of moving parts, but could you provide a bit more color in terms of what you contemplated just from a geographic standpoint, Americas versus other geographies that are still kind of undergoing COVID issues. Thank you.
spk16: Yeah, I mean, one of the things that I think we've all learned in the last 18 months is it's, you know, this is clearly a moving target and it's a very kind of dynamic world. We obviously had a nice Q2. We've got a lot of momentum. We talked about, you know, we put up 6.7% growth even without a quarter's worth of tissue, particularly it impacted our cardiac tissue. So we feel that's positive. Obviously, this Delta variant has started heating up even in the last week. So, you know, we put these forecasts together with, you know, kind of what we knew at the time. And we wanted to come out and give guidance for the full year with the second half being, you know, you already know the first half. So, you know, that being said, we tried to take into account everything we knew, knowing that the things we started learning in the last few days, obviously starting a little more negative. So I think we've got a pretty good, you know, a pretty good shot at having a good second half. Now, if things go crazy, I don't have a crystal ball like anybody else. You know, I'm not sure what this next. you know, what's the fall going to look like with this Delta variant? So, I mean, I think we feel pretty confident with the forecast we put out there, given what we know today.
spk07: Hey, Cecilia, this is Ashley.
spk08: The only other thing that I would add to that, too, is that, I mean, if you look back at our business historically, the third quarter has always been down sequentially compared to the second quarter, and a lot of that is due to the, you know, the heavy holiday season that we experience in And there's no reason to think that we won't see something similar to that this year. And as you've seen in the last few years, we always follow that sequentially with a very strong fourth quarter. So that was another consideration that we factored into our guidance.
spk01: Great. Thank you for the call.
spk22: Our next question is from Shiraj Khalia. from Oppenheimer and Company. Please proceed with your question.
spk25: Good afternoon, Pat. Ashley, can you hear me all right?
spk22: Hey, Raj.
spk25: Yeah, we hear you fine. Yes. So let me start out. Pat, Ashley, congrats once again. Great quarter. Pat, I know you talked about the Delta variant, and maybe I could be a little more specific geographically. Are you seeing any initial signs of the Delta variant impacting any of your proctoring sessions, OUS?
spk16: Yeah, and this is the part I mentioned, Suraj. It's literally like a day-to-day situation. I'll give you an example. I got an email from our country manager in Spain where they started locking down. They started pushing off elective cases. We had a Nexus case that was scheduled with a proctor that had to get canceled. So it absolutely is affecting the proctoring. You know, two days ago, I got a message from somebody about a hospital in Florida that has more patients in their hospital than they had in January, right? So it's just like, you know, every day there's new news that comes in. Now, I will say that this, you know, particularly the U.S. has done a great job managing COVID, and I think they will continue to do so. And there will be some hot spots, and you know where they are. I mean, Missouri has been a hot spot. Florida has been a hot spot. We're also seeing, you know, we have a lot of growth expectations in Asia Pacific and Latin America, and those places are still getting hit pretty hard. Australia's locked down. Malaysia's locked down. You know, Brazil's had a tough go of it. But particularly in Europe, you know, we saw issues in the U.K. in the quarter. We saw issues in Spain in the quarter. And I can't predict what the Delta variant's going to do. But, you know, we're obviously still putting up numbers. It's just not, I guess, the way to think about it. It's like we're running with a weight on our back. We're not fully untethered at this point where we can do all of our cases and nothing gets canceled. There's been tons of cases moved and canceled for COVID impact type things.
spk25: Got it. Pat, let me move on to my favorite topic, which is PROACT 10A. So 125 patients enrolled in Q2. More specifically, Pat, is there any, center concentration in terms of enrollment?
spk16: Yeah, that's a good question. We've had, I'm not going to name the center just because it's not appropriate, but we've had one center in particular, which is one of the highest profile in the country, if not the globe, has been a massive enroller. They've done extremely well. And a lot of this gets to kind of the logistics of the trial. This is different than most trials, as we've talked about. This is not a, you know, trial where you actually enroll patients into surgery and then they do the case. This is going back, and we have 30,000 patients that are, you know, available to be in this trial who've got an onyx valve. So a lot of it is just going and finding those patients, getting them consented, bringing them in. And we've had, you know, a handful of centers who've done an excellent job We just sent out 31,000 letters to existing Onyx patients to see if they're interested in participating in the trial. So we're learning as we go. We're having lots of investigator meetings. But we're expecting the momentum for this trial, I think, even to pick up from here.
spk25: If you don't mind me asking, if you're at liberty to talk, what is the average age of an Onyx patient enrolled in either arm in PROACT-10A?
spk16: Yeah, I'd have to pull that back for you.
spk25: I actually pulled the data on... By age, I mean on ONIX.
spk16: Oh, yeah, yeah. Yeah, I actually pulled that for you because I knew you were going to ask. About 45% of the patients have had the valve less than a year.
spk25: Got it.
spk16: 55% have had it more than a year.
spk25: Got it. One question, final question for you, Pat, and one for Ashley, and I'll plug both of them together. So, Pat, your comments about Onyx being the market leader for patients less than 70 years of age, that caught my attention because that means you're looking at more than tripling your heart valve market. More specifically, Pat, can you square your comments with the push by TAVR companies into moderate ES and asymptomatic ES? That's for you, Pat. Ashley, gross margins were a bit shy of our estimates, and even though per-class was included, just kind of help us flush out, you know, as we look forward Q3, Q4, and once per-class is completely out, how should we think about gross margins? Gentlemen, congrats once again, and thank you for taking my questions.
spk16: Yeah, I'll take your question first, Saraj. So, you know, we've done a bunch of market research on, and my comment was around you know, assuming the PROACT-10A trial gets approved, right? We enroll the trial, we do the two-year follow-up, and it gets approved. So that's obviously if that happens. You know, the market research that we have done shows that there's a big group of patients between kind of 60 and 70 that currently there's a kind of in the guidelines even there's a, you know, kind of you have to make a decision between a bioprosthetic valve or a mechanical valve. And our market research shows that as you get closer to 60, a much higher percentage of patients would opt for an onyx valve with Eliquis. And as you move up to 70, that number would come down, but we still would be taking share from tissue valves up to the age of 70. So it's not saying that, you know, everyone under the age of 70 is going to get an onyx with Eliquis. It's saying, if you looked at all the patients under 70, if this trial gets approved, we would be the market leader in that segment. And then, Ashley, you want to take his gross margin question?
spk08: Yeah, Suraj. Yeah, to your point, the margins for the quarter were a little bit lighter than we even anticipated. But what was driving that is, you know, we routinely evaluate our inventory and our obsolescence this quarter was a little bit higher than it normally is. The other thing is we had some manufacturing inefficiencies that hit the P&L in the second quarter of this year, not indicative of any recurring issues, but we just had a few manufacturing inefficiencies that made their way into COGS in the second quarter. If you look at the second half of the year, we think our gross margins are going to be in the 67% to 67.5% range, give or take a few basis points on either end depending on
spk16: a lot on like uh you know geographic and product mix yeah i think the other thing i would add to that just from a commercial standpoint is you know we we have you know we've we've built up some inventory for kind of waiting for regulatory approvals you know and then the pandemic hit so you know when your volumes drop off by 30 40 percent for a quarter um you know you have stuff that'll expire on you so i think i think we are seeing a little bit of a you know a ripple effect of uh you know kind of the pandemic and some of the write-offs on stuff expiring just from, you know, the demand went down when we had our normal supply plan out.
spk04: So, I think that will reverse going forward. Okay, Operator, any other questions?
spk22: Mr. Metkin, there are no further questions at this time, so I'd like to turn the floor back over to management for closing comments.
spk16: Yeah, well, first of all, thanks again for joining the call. And as you heard from the call, you know, we had, I think, a really strong quarter, both in the top and bottom line. Our new products are delivering. The TRIS issue has been resolved. We're submitting two PMAs, both Proact Mitral as well as the Perclot this quarter. We're submitting the ID for AMDS this quarter. Proact 10A is enrolling. Nexus is enrolling. So the pipeline is really starting to take stride here. And we've got the truce issue resolved. We're not going to write off $5 million. We now have an extra quarter worth of tissue to get out the door. So I think all in all, we'll seem pretty confident about the second half. And notwithstanding this Delta variant, which none of us know how that's going to play out. So we're charging forward and look forward to keeping you updated on our progress.
spk04: Thanks again for joining.
spk22: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you. Thank you. 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.
spk21: Thank you, and you may begin.
spk17: Thanks, operator. Good afternoon and thank you for joining the call today. Joining me today from Pryliff'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 Pryor's CEO, Pat Mackin.
spk16: 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 21 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 Q2 21 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 quarantine 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, and 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 percent, Aveda OpenNeo grew 115 percent, Ensight grew 25 percent, and onyx grew 17 percent, 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 Perklot product line to Baxter. Perklot is an outstanding product. But as you know, most of the addressable market opportunity for per clot is outside of our customary call point in cardiac and vascular surgery. From a strategic standpoint, divesting per clot 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 cast 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 perclot, while Baxter transfers perclot manufacturing from us to another manufacturer. We will continue to pursue the U.S. PMA approval for perclot on Baxter's behalf. Under current assumptions, we expect per-clot 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 2023 and 2024. 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., Proac Mitral in the U.S., and BioGlue 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 2019. 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, NSAID, is our newest device in our portfolio to treat thoracobdominal aneurysms with endovascular stent grafts. Our revenues in this product line, which include inside and extra design, grew over 25% on a constant currency basis when compared to Q2 of 2019. The fourth category is Avita 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 Perclat and Project Mitral this quarter while continuing to pursue the Chinese FDA approval for BioGlue. For per clot, 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 Q3 2021 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 in our mid-term pipeline with key products that are currently in U.S. clinical trials or 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 Warfen. 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-10A trial, our partner Endospan continues to make good progress on its USID trial for Nexus known as the Triumph 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 Proactin-A, 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.
spk08: Thanks, Pat, and good afternoon, everyone. Total company revenues were $76.1 million for the second quarter, up 42% on a GAAP basis compared to Q2 of 2020, and up 35% on a pro forma constant currency basis compared to Q2 of 2020. Revenues came in ahead of our quarterly guidance due to improving procedure volumes in the US and Europe as vaccination rates increased and lockdowns eased during the second quarter. On a year-over-year basis, in the second quarter of 2021, aortic stent and stent graft revenues increased 60%, reflecting increased procedure volumes and improved geotech inventory position, the addition of the AMDS in September of 2020, and improved adoption of Nexus in the EU. Onyx revenues increased 46%, BioGlue revenues increased 44%, and tissue processing revenues increased 22%, reflecting improving procedure volumes relative to the second quarter of 2020. On a pro forma constant currency basis, aortic stent and stent graft revenues increased 39%, onyx revenues increased 43%, and BioGlue revenues increased 40%. On a pro forma constant currency basis compared to the second quarter of 2019, onyx revenues increased 17%, aortic stents and stent graft revenues increased 11%, tissue processing revenues increased less than 1%, and bio-glue revenues decreased 1%. On a regional basis, second quarter 2021 revenues in EMEA increased 65%, North America increased 30%, Asia Pacific increased 13%, and Latin America increased 133%, all compared to the second quarter of 2020. On a pro forma constant currency basis, revenues in EMEA increased 47%, North America increased 29%, Asia Pacific increased 13%, and Latin America increased 130%, all compared to the second quarter of 2020. Our gross margins were 66% for the second quarter of 2021 and 67% for the second quarter of 2020. G&A expenses in the second quarter were $40.8 million compared to $32.3 million in the second quarter of 2020. The second quarter of 2021 includes acquisition-related and other non-recurring charges of $3.4 million primarily related to fair value charges related to the AMDS acquisition. Second quarter interest expense of $4.9 million includes approximately $2.4 million of expense related to our term loan B, $1.1 million related to our convertible debt, non-recurring interest of $835,000 related to the extension of our term loan B and revolving credit facility and approximately $500,000 in amortization of debt origination costs. Other expense in Q2 includes $1.4 million in realized and unrealized foreign currency translation gains. On the bottom line, we reported GAAP net loss of approximately $2.2 million, or six cents per fully diluted share. Non-GAAP net income was $4.8 million, or 12 cents per share, in the second quarter. Additionally, GAAP and non-GAAP earnings include the pre-tax gain of $1.4 million, or approximately 3 cents per share, related to foreign currency translation gains. Reconciliations of GAAP to non-GAAP income in EPS are included in the press release that we issued this afternoon. Adjusted operating income was $9 million for the second quarter of 2021, compared to $1.7 million for the second quarter of 2020. Adjusted operating income reflects add-backs of amortization expense, acquisition-related charges, and other non-recurring charges to operating income. As of June 30, 2021, we had approximately $50.5 million in cash, $319 million in debt, and the full $30 million available under our revolving credit facility. Adjusted EBITDA for the second quarter of 2021 was $12.8 million compared to $6 million for the second quarter of 2020. Gross leverage, as defined by our credit facility, stood at 5.3 times and net leverage stood at 4.5 times. These metrics do not include the proceeds from the sale of per clot. Please refer to our press release for additional information about our non-GAAP results including a reconciliation of these results to our GAAP results. And now for our outlook. As Pat mentioned, we're now providing revenue guidance this quarter due to the increased confidence in our business. Our new product launches, AMDS, Nexus, Evita Open Neo, and M-Side are all performing well. We operated the first half of the year without a normal supply of tissue due to the Trish issue, and that issue has now been resolved. We also expect to see improved performance for Asia Pacific and Latin America in the second half as the pandemic subsides. As a result, we are forecasting our second half to be up approximately 7% to 10% on a pro forma constant currency basis in 21 versus 2019, which excludes per club, resulting in full year 2021 revenues of between $296 and $300 million at a Euro-USD exchange rate of 1.2. We also anticipate revenues for the third quarter to be between $71 and $73 million. These forecasts are based on the current and anticipated state of COVID-19 around the globe. The forecasts take into account the fact that approximately 55% of our revenues are generated in North America and the remainder are generated overseas. Even though we have seen significant improvement in the U.S. and Europe regarding the impact of COVID-19 on our business, new COVID-19 restrictions and lockdowns are being implemented, and COVID-19 remains a significant challenge in Latin America and Asia Pacific. And finally, the guidance reflects the fact that we generated over $1.8 million in per-club revenue in the first half of 2021, and per-clot revenues in the second half of 2021 will be minimal as Baxter is taking over distribution of SMI-manufactured per-clot under the transaction we just consummated. Regarding our ongoing investments designed to fuel future growth, we intend to continue to invest in our commercial channels, particularly in Asia Pacific and Latin America, as well as in our R&D pipelines. We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital. I will turn the call back over to Pat for his closing comments.
spk16: Thanks, Ashley. So in closing, as you've heard this afternoon, despite the global pandemic, our business performed quite well during the second quarter. I once again give the credit to the outstanding efforts of our employees around the world. Going forward, uncertainty regarding the impact of the Delta variant and uncertainty about continued vaccine adoption make it difficult to predict the impact on our business over at least the next couple of quarters. But what I can say with confidence that our product offering is second to none in the treatment of aortic disease. When the pandemic largely subsides and procedure volumes return to normalized levels, we expect exceptional products to deliver double-digit growth on a year-over-year basis. We have several catalysts in 2021 that we do not have in 2020. As I explained earlier, we have three initiatives that will drive growth between 21 and 24. First, in 21, we should see continued growth in our five new aortic stents and stent grafts, AMDS, Nexus, Enside, Neo, and Enya. Second, we also anticipate further upside from our investments in our channels and new regulatory approvals in Asia and Latin America. And third, we'll be filing our PMAs for both per clot and the onyx mitral valve. All of these catalysts in our expectation to continue to deliver on these goals I've outlined previously, supported by our strong financial position, leave us optimistic and confident as ever about the future of our prospects. With that said, I'd like to turn, open the line for questions and turn it back over to the operator.
spk22: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Mike Mattson. with Needham & Co. Please proceed with your question.
spk18: Yeah. Hi, Pat and Ashley. This is David Saxon on for Mike. Thanks for taking the questions. My first one is just on the per-clut sale to Baxter. As I understand it, it's going to be about $19 million upfront to you. So just wondering how you're thinking about prioritizing that. Is that going to be mostly for paying down some of your debt maybe doing some smaller M&A or kind of reserve for any potential milestones you might have coming up like some of these deals like Osiris.
spk16: Yeah. So, I mean, regardless of where we put the cash, I mean, we do, I think the last comment you made, you know, we've got two milestones coming up, one for for Cyrus which was 10 million dollars once we get the ID approved and we just talked about we're submitting that ID actually this weekend so we're anticipating that that idea will be approved in the in the second half of this year so that's obviously 10 million of it and then we've got a five million dollar milestone for Nexus once they enroll 50% of their trial we don't anticipate that happening probably for another until outside of 2021 but that would be a you know, a chunk of the first up front.
spk18: Okay, got it. And then, I mean, you've talked about the lower INR label for onyx mitral. I was just wondering if you can help us think about the size of that opportunity. And I know the onyx aortic valve has a pretty high gross margin, at least in the U.S., so should we expect something similar
spk16: uh to to the gross margin profile of the aortic uh onyx yeah so the the the mitral valve has a similar profile to the aortic from a gross margin standpoint in the us it's around 90 percent um the second part is you know that the the mitral uh kind of the overall market opportunity and this is i think being conservative when we're just talking about mechanical valves um that it's probably about a $40 million opportunity at 90% gross margin for us. There's also an opportunity, as we've seen with the Onyx Aortic, where we actually cannibalized tissue surgical valves. So we haven't even used those numbers in the math to come up with a $40 million. That's just kind of the mechanical mitral opportunity we have to go after once we get this product approved and out in all the markets.
spk18: Okay, that's helpful. And then I guess last for me, I mean, it sounds like the tissue issues are resolved. So how should we think about preservation services in the back half? Thanks so much.
spk16: Yeah, so it was actually very positive, because if you think back to the beginning of the year, you know, we caught it. The good news was we caught this quality issue, and we worked through all the testing and the submissions and the tissues at the highest level of quality we expect. So, you know, at the beginning of the year, we said we're either going to write off $5 million by, you know, this summer, or we're going to have a bunch of extra tissue in the freezer. It turns out it was very positive, and like I said, we're not writing off any of that tissue, and we have an extra quarter of tissue kind of in quarantine in the freezer right now. So now it actually shifts to a kind of processing and getting the tissue out, going through our quality process and procedures. So we've got a lot of tissue. We just got to get it out the door. So I can't tell you exactly how it's going to flow, but we feel pretty bullish over the next 12 months that tissue will have a kind of a tailwind to it compared to what you saw in the first half.
spk18: Great. Thank you.
spk04: And congrats on the quarter. Thanks.
spk22: Our next question comes from Cecilia Furlong with Morgan Stanley. Please proceed with your question.
spk12: Great. Good afternoon, and thanks for taking the questions, Pat. I wanted to just start on ONIX strength in the US recently over the past few quarters. Could you talk about what you're seeing on an underlying basis? Is this more the mechanical heart valve market, ONIX specifically? If you could just provide more color in terms of really what's driving that growth that you've seen over the past few quarters.
spk16: Yeah, hey, Cecilia, thanks for the question. You know, I've had an opportunity, and I think when we last spoke, I mean, I was out in 30 of the top cardiac centers in the last six months. And I can tell you to a person at every institution, and I probably talked to more than 100 surgeons, to a person, they all... believe in the onyx kind of, you know, it's the anticoagulation, you know, lower coagulation story. You know, we're the only valve that can have less Coumadin today, and we're the only valve that's looking at and studying the use of Eliquis. So it's just kind of a groundswell around it. And literally every center I go to, we're either bringing on new users in those centers or actually bringing on brand new accounts. So it's just a continued kind of momentum. And I think it's the combination of, you know, the story that's in the guidelines having the only ones with a low INR. And, you know, I think a lot of people are paying attention to this trial, which we've now enrolled 360 patients in. So I think it's hard to pin down exactly what it is, but it's obviously been, you know, very strong growth over the last, you know, several quarters.
spk12: Okay, got it. And just in terms of 3Q guidance as well, and I recognize there are a lot of moving parts, but could you provide a bit more color in terms of what you contemplated just from a geographic standpoint, Americas versus other geographies that are still kind of undergoing COVID issues. Thank you.
spk16: Yeah, I mean, one of the things that I think we've all learned in the last 18 months is it's, you know, this is clearly a moving target and it's a very kind of dynamic world. We obviously had a nice Q2. We've got a lot of momentum. We talked about, you know, we put up 6.7% growth. even without a quarter's worth of tissue, particularly it impacted our cardiac tissue. So we feel that's positive. Obviously, this Delta variant has started heating up even in the last week. So, you know, we put these forecasts together with, you know, kind of what we knew at the time. And we wanted to come out and give guidance for the full year with the second half being, you know, you already know the first half. So, you know, that being said, we tried to take into account everything we knew, knowing that the things we started learning in the last few days, obviously starting a little more negative. So I think we've got a pretty good, you know, a pretty good shot at having a good second half. Now, if things go crazy, I don't have a crystal ball like anybody else. You know, I'm not sure what this next. you know, what's the fall going to look like with this Delta variant? So, I mean, I think we feel pretty confident with the forecast we put out there, given what we know today.
spk07: Hey, Cecilia, this is Ashley.
spk08: The only other thing that I would add to that, too, is that, I mean, if you look back at our business historically, the third quarter has always been down sequentially compared to the second quarter, and a lot of that is due to the, you know, the heavy holiday season that we experience in And there's no reason to think that we won't see something similar to that this year. And as you've seen in the last few years, we always follow that sequentially with a very strong fourth quarter. So that was another consideration that we factored into our guidance.
spk01: Great. Thank you for the call.
spk22: Our next question is from Taraj Kalia. from Oppenheimer & Company. Please proceed with your question.
spk25: Good afternoon, Pat. Ashley, can you hear me all right?
spk22: Hey, Raj.
spk25: Yeah, we hear you fine. Yes. So, let me start out. Pat, Ashley, congrats once again. Great quarter. Pat, I know you talked about the Delta variant, and maybe I could be a little more specific geographically. Are you seeing any initial signs of the Delta variant impacting any of your proctoring sessions, OUS?
spk16: Yeah, and this is the part I mentioned, Suraj. It's literally like a day-to-day situation. I'll give you an example. I got an email from our country manager in Spain where they started locking down. They started pushing off elective cases. We had a Nexus case that was scheduled with a proctor that had to get canceled. So it absolutely is affecting the proctoring. You know, two days ago I got a message from somebody about a hospital in Florida that has more patients in their hospital than they had in January. Right? So it's just like every day there's new news that comes in. Now, I will say that this, you know, particularly the U.S. has done a great job managing COVID. And I think they will continue to do so. And there will be some hot spots. And you know where they are. I mean, Missouri has been a hot spot. Florida has been a hot spot. We're also seeing, you know, we have a lot of growth expectations in Asia Pacific and Latin America, and those places are still getting hit pretty hard. Australia's locked down. Malaysia's locked down. You know, Brazil's had a tough go of it. But particularly in Europe, you know, we saw issues in the U.K. in the quarter. We saw issues in Spain in the quarter. And I can't predict what the Delta variant's going to do. But, you know, we're obviously still putting up numbers. It's just not, I guess, the way to think about it. It's like we're running with a weight on our back. We're not fully untethered at this point where we can do all of our cases and nothing gets canceled. There's been tons of cases moved and canceled for COVID impact type things.
spk25: Got it. Pat, let me move on to my favorite topic, which is PROACT 10A. So 125 patients enrolled in Q2. More specifically, Pat, is there any, center concentration in terms of enrollment?
spk16: Yeah, that's a good question. We've had, I'm not going to name the center just because it's not appropriate, but we've had one center in particular, which is one of the highest profile in the country, if not the globe, has been a massive enroller. They've done extremely well. And a lot of this gets to kind of the logistics of the trial. This is different than most trials, as we've talked about. This is not a, you know, trial where you actually enroll patients into surgery and then they do the case. This is going back, and we have 30,000 patients that are, you know, available to be in this trial who've got an onyx valve. So a lot of this is going and finding those patients, getting them consented, bringing them in. And we've had, you know, a handful of centers who've done an excellent job We just sent out 31,000 letters to existing Onyx patients to see if they're interested in participating in the trial. So we're learning as we go. We're having lots of investigator meetings. But we're expecting the momentum for this trial, I think, even to pick up from here.
spk25: If you don't mind me asking, if you're at liberty to talk, what is the average age of an Onyx patient enrolled in either arm in PROACT-10A?
spk16: Yeah, I'd have to pull that back for you.
spk25: I actually pulled the data on... By age, I mean on ONIX.
spk16: Oh, yeah, yeah. Yeah, I actually pulled that for you because I knew you were going to ask. About 45% of the patients have had the valve less than a year.
spk25: Got it.
spk16: 55% have had it more than a year.
spk25: Got it. One question, final question for you, Pat, and one for Ashley, and I'll plug both of them together. So, Pat, your comments about Onyx being the market leader for patients less than 70 years of age, that caught my attention because that means you're looking at more than tripling your heart valve market. More specifically, Pat, can you square your comments with the push by TAVR companies into moderate ES and asymptomatic ES? That's for you, Pat. Ashley, gross margins were a bit shy of our estimates, and even though per-class was included, just kind of help us flush out, you know, as we look forward Q3, Q4, and once per-class is completely out, how should we think about gross margins? Gentlemen, congrats once again, and thank you for taking my questions.
spk16: Yeah, I'll take your question first, Suraj. So, you know, we've done a bunch of market research on, and my comment was around you know, assuming the PROACT-10A trial gets approved, right? We enroll the trial, we do the two-year follow-up, and it gets approved. So that's obviously if that happens. You know, the market research that we have done shows that there's a big group of patients between kind of 60 and 70 that currently there's a kind of in the guidelines even there's a, you know, kind of you have to make a decision between a bioprosthetic valve or a mechanical valve. And our market research shows that as you get closer to 60, a much higher percentage of patients would opt for an onyx valve with Eliquis. And as you move up to 70, that number would come down, but we still would be taking share from tissue valves up to the age of 70. So it's not saying that, you know, everyone under the age of 70 is going to get an onyx with Eliquis. It's saying, if you looked at all the patients under 70, if this trial gets approved, we would be the market leader in that segment. And then, Ashley, you want to take his gross margin question?
spk08: Yeah, Suraj. Yeah, to your point, the margins for the quarter were a little bit lighter than we even anticipated. But what was driving that is, you know, we routinely evaluate our inventory and our obsolescence this quarter was a little bit higher than it normally is. The other thing is we had some manufacturing inefficiencies that hit the P&L in the second quarter of this year, not indicative of any recurring issues, but we just had a few manufacturing inefficiencies that made their way into COGS in the second quarter. If you look at the second half of the year, we think our gross margins are going to be in the 67% to 67.5% range, give or take a few basis points on either end depending on a lot on like, you know, geographic and product mix.
spk16: Yeah, I think the other thing I would add to that just from a commercial standpoint is, you know, we have, you know, we've built up some inventory for kind of waiting for regulatory approvals, you know, and then the pandemic hit. So, you know, when your volumes drop off by 30, 40% for a quarter, you know, you have stuff that'll expire on you. So I think we are seeing a little bit of a, you know, a ripple effect of, you know, kind of the pandemic and some of the write-offs on stuff expiring just from, you know, the demand went down when we had our normal supply plan out.
spk04: So, I think that will reverse going forward. Okay, Operator, any other questions?
spk22: Mr. Metkin, there are no further questions at this time, so I'd like to turn the floor back over to management for closing comments.
spk16: Yeah, well, first of all, thanks again for joining the call. And as you heard from the call, you know, we had, I think, a really strong quarter, both in the top and bottom line. Our new products are delivering. The TRIS issue has been resolved. We're submitting two PMAs, both Proact Mitral as well as the Perclot this quarter. We're submitting the ID for AMDS this quarter. Proact 10A is enrolling. Nexus is enrolling. So the pipeline is really starting to take stride here. And we've got the truce issue resolved. We're not going to write off $5 million. We now have an extra quarter worth of tissue to get out the door. So I think all in all, we'll seem pretty confident about the second half. And notwithstanding this Delta variant, which none of us know how that's going to play out. So we're charging forward and look forward to keeping you updated on our progress.
spk04: Thanks again for joining.
spk22: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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