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Edited Transcript of AVGR earnings conference call or presentation 6-Mar-19 9:30pm GMT

Q4 2018 Avinger Inc Earnings Call

REDWOOD CITY Mar 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Avinger Inc earnings conference call or presentation Wednesday, March 6, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey M. Soinski

Avinger, Inc. - President, CEO & Director

* Mark B. Weinswig

Avinger, Inc. - CFO

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Conference Call Participants

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* Jeffrey Scott Cohen

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research

* Matthew Kreps

Darrow Associates Inc. - MD of IR

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Presentation

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Operator [1]

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Greetings, and welcome to Avinger's 2018 Fourth Quarter and Full Year Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. (Operator Instructions)

It is now my pleasure to introduce Matt Kreps, Managing Director at Darrow Associates Investor Relations. Mr. Kreps, you may begin.

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Matthew Kreps, Darrow Associates Inc. - MD of IR [2]

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Thank you, Kevin, and thank you all for joining us in today's call. I would like to welcome all of you to Avinger's Fourth Quarter and Full Year 2018 Conference Call. Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig.

Earlier today, Avinger released its financial results for the fourth quarter and year ended December 31, 2018. A copy of the release is posted on the Avinger website under Investor Relations.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation or future financial expectations, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q filings with the Securities and Exchange Commission. Avinger disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

With that, I'd like to now turn the call over to Jeff.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [3]

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Thank you, Matt. Good afternoon, and thank you all for joining us. 2018 was a year of significant progress for Avinger as we repositioned the company to focus on higher-margin disposables sales, drove growth in total cases and expanded our product line with truly innovative tools and the fight against peripheral artery disease. These efforts culminated in the 510(k) clearance and launch of our Pantheris next-generation device, a major advancement in our technology. We also secured CE Marking and submitted a 510(k) application to the FDA for Pantheris SV, which enables treatment of lesions in smaller diameter vessels. We believe Pantheris SV has the potential to expand our available market by as much as 50%, which should allow us to address a significantly larger portion of the estimated $500 million atherectomy market. We also made substantial progress on multiple post-market clinical study initiatives and made significant advances in redding our next-generation CTO crossing device, Ocellaris, for submission later in 2019.

Importantly, we've achieved these goals while reducing operating expenses by more than 40% from 2017. This was a difficult but necessary process, and we've come through leaner, stronger and more focused as an organization. This was evidenced by multiple key milestones achieved during the fourth quarter in both our commercial and clinical programs. These include quickly ramping Pantheris next-gen utilization to over 500 cases, the successful completion of our first Pantheris SV cases in Europe, strengthening our balance sheet with an $11.5 million public offering that brought in over $10 million of net proceeds, and the release of preliminary results from our SCAN clinical study which indicated that OCT imaging with Pantheris was statistically superior or equivalent to IVUS on all parameters evaluated as a diagnostic imaging tool in the peripheral arteries.

Perhaps most importantly, feedback from the physicians across these excerpts has been very positive. Our real time intravascular imaging platform enables the interventionalist to not only affect highly targeted treatment, but also to confirm in real time that he or she has treated the disease while avoiding damage to vessel walls. Such damage often leads to high rates of disease recurrence or restenosis with competing methodologies. Recurrence that are clinical studies in real-world clinical experience sure can be reduced with our proprietary Lumivascular approach. This distinction truly differentiates Avinger from any other treatment modality.

At this point, let me recap a few key developments on each of our platforms, starting with next-generation Pantheris, the first and only image-guided atherectomy system for the treatment of peripheral artery disease. As you may recall, we received 510(k) clearance for this significantly improved system in May 2018. In September, we treated our 200th patient across 35 accounts. In December, we announced treatment of our 500th patient across 65 accounts. The next-gen device is performing extremely well on quality, reliability, and most importantly, clinical results with our positioned customers.

Pantheris next-gen sales continue to be a primary driver of our success, with Pantheris revenue rising 18% sequentially and breaking the $1 million mark in the fourth quarter. As we look to 2019, our sales team remains focused on driving utilization in existing accounts and building a pipeline of high-potential new accounts for further expansion. We added 2 salespeople to our organization in the fourth quarter and anticipate continuing to expand our sales team on a measured basis in 2019, with a target of ending the year with approximately 30 sales professionals. We believe the strategic investment in our sales force will be an important contributor to our growth as we continue to ramp utilization, increase our focus on opening new user sites and expand our presence in regions of the country with high incidence of PAD.

Turning to Pantheris SV or small vessel, we submitted a 510(k) application for this important new device to the U.S. Food and Drug Administration in August. Pantheris SV offers a lower profile and longer length intended to expand the number of addressable procedures for our platform. It incorporates key improvements from the next-generation Pantheris system plus additional modifications to simplify treatment of small vessel disease. We have answered all open questions and submitted all additional data requested as part of the FDA review process, and hope to have a good news to share with you soon. As with the next-generation Pantheris, following U.S. 510(k) clearance, we plan to first introduce Pantheris SV into a limited number of U.S. sites prior to national launch to our installed base of accounts. We've begun internal preparations for this limited launch process, which we expect to occur in the second quarter of this year.

As mentioned earlier, we received CE Marking for Pantheris SV in October 2018, which allowed us to perform our first clinical cases in Europe beginning in December of last year. We're excited about the early clinical outcomes that physicians have achieved with the new device. And in January of this year, Dr. Arne Schwindt, a vascular surgeon, at St. Franziskus Hospital in Muenster, Germany performed highly successful live case with Pantheris SV for transmission at LINC 2019, one of the top clinical conferences in the field of vascular medicine. Based on this early experience, we're even more excited about the potential for Pantheris SV to improve the standard of care for patients with small vessel disease and drive growth of our business.

Turning to our CTO crossing products, we continue to make progress in the development of our next-generation devices. CTO stands for chronic total occlusion or a completely blocked artery. This is a severe form of PAD, necessitating the treating physician to create a passage through the blockage so that a guidewire can be introduced to facilitate further treatment. Our Ocelot family of catheters are the first and only image-guided CTO crossing devices available on the market. The Ocelot catheters are extremely reliable with strong clinical data and excellent real-world results. We see the opportunity to expand our presence in the CTO crossing market with the development and introduction of Ocellaris, our next-generation system. Ocellaris will leverage real-time high-definition OCT imaging and incorporates a number of other advances, such as the ability to spin at speeds up to 1,000 rpm in a steerable tip for precise maneuverability. We believe these improvements will further our competitive advantage for the treatment of CTOs. While our near-term product priority is final commercialization and U.S. launch of Pantheris SV, we anticipate making significant progress in the development and commercialization of Ocellaris in 2019. Our current strategy is to pursue CE Marking for commercialization of Ocellaris in the European Union and other CE Mark countries in the third quarter of 2019.

Following our initial Case experience in Europe, we anticipate submitting a 510(k) application of the U.S. FDA in the second half of 2019 for the use of Ocellaris in the peripheral arteries. In addition, we believe the Ocellaris platform will provide a strong foundation for the development of proprietary image-guided CTO crossing devices for total blockages in the coronary arteries, which are a driver of highly invasive coronary bypass surgery and which we believe represents a substantial unmet need in the medical community.

We've also made exciting progress in our clinical study programs. In December, we announced preliminary data analysis from the SCAN clinical study, which indicated that OCT imaging with Pantheris was statistically superior or equivalent to intravascular ultrasound or IVUS on all parameters evaluated as a diagnostic imaging tool in the peripheral arteries. The study's physician investigators have now submitted a manuscript with final results to a peer-review journal, and we anticipate publication in 2019. We believe the study is an important step forward in building a body of evidence to pursue incremental reimbursement for the diagnostic imaging capabilities of our OCT image-guided catheters in the peripheral arteries, similar to the reimbursement currently provided for IVUS.

In addition, we continue to enroll patients in our INSIGHT IDE clinical trial. INSIGHT is a multicenter clinical study designed to evaluate the safety and effectiveness of Pantheris for treating in-stent restenosis or ISR in lower extremity arteries. We now have 16 sites open for enrollment, including 2 new German sites, which have already begun enrolling patients. We're encouraged by the early results of the study and anticipate that one of the physician investigators in the study will present an interim analysis of the first patients treated in the study at a clinical conference later this year. We believe that a specific indication for the treatment of ISR would be an important label expansion for Pantheris, and once the IDE study is completed, we plan on filing a 510(k) application with the FDA to pursue this claim.

Before turning the call over to Mark to discuss the financial results, I want to reiterate the 5 strategic goals that will form the pillars of our growth strategy in 2019 and forward. These include: driving utilization at current sites and in current markets, launching new sites in underserved areas with high rates of PAD, launching new devices to expand our addressable market and revenue per site opportunity, continuing to produce compelling clinical data confirming the unique benefits of Avinger's Lumivascular platform, and maintaining a lean operating structure as we scale the business. We look forward to reporting our progress on these initiatives in the coming quarters.

With that, I'd like to now turn the call over to Mark.

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Mark B. Weinswig, Avinger, Inc. - CFO [4]

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Thank you, Jeff. Total revenue was $2 million for the fourth quarter ended December 31, 2018, relatively flat with the third quarter. Revenue from disposable devices was $1.7 million for the fourth quarter, higher than the third quarter of 2018.

Revenue related to Lightbox imaging consoles and other products was $0.3 million, down from the prior quarter, as our commercial sales focus continues to evolve to supporting catheter utilization in our most productive territories. Gross margin for the fourth quarter of 2018 was 28%. Over the past year, we have significantly increased our gross margins due to reductions in excess in obsolescence charges, lower cost of quality-related expenses and lower operating expenses.

We continue to believe that there are significant opportunities to increase our gross margins as we grow our revenues. Operating expenses for the fourth quarter were $6.4 million compared to $5.7 million in the prior quarter. As we mentioned last quarter, we expect our sales and marketing expenses to increase in future periods as we invest in expanding our direct sales team in key territories to drive revenue growth. The success of our next-generation Pantheris and the upcoming launch of our Pantheris SV product provides us with a great opportunity to reengage with existing customers to increase utilization and develop new accounts for our Lumivascular technology.

Loss from operations for the fourth quarter of 2018 was $5.8 million compared to $5.1 million for the prior quarter, and net loss attributable to common stockholders for the fourth quarter of 2018 was $6.9 million. Adjusted EBITDA, which is a non-GAAP measure that excludes excess and obsolete inventory reserves, restructuring and severance, stock compensation, depreciation and amortization and other items, as noted in the tables in today's press release, was a loss of $4.2 million for the fourth quarter of 2018 compared to a loss of $4.1 million in the preceding quarter.

Over the past year, we have made significant progress in controlling costs and lowering our overall cost structure. With the successful launch of our next-generation Pantheris device, we are making some investments in our sales and marketing functions to grow our business, which may slightly increase our operating expenses over the next 1 to 2 quarters.

In addition, we are investing in expanding our clinical data to improve our competitive position in our -- in the marketplace. Cash and cash equivalents totaled $16.4 million as of December 31, 2018. This includes the net proceeds of approximately $10.2 million that we raised in November 2018 as part of the sale of common and preferred stock with warrants.

As of December 31, 2018, there were approximately 34.9 million shares of common stock, 41,800 shares of preferred Series A stock, 1,701 shares of Series B preferred stock and 2,170 shares of Series C preferred stock outstanding. Each share of Series B and Series C preferred stock is convertible into 2,500 shares of the company's common stock at a conversion price of $0.40. Assuming conversion of all outstanding shares of Series B and Series C preferred stock at the current conversion price, the company would have approximately 44.6 million shares of common stock outstanding at December 31, 2018, excluding outstanding warrants and the Series A preferred stock, which is not presently convertible.

At this point, I'd like to turn the call back to Jeff.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [5]

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Thank you, Mark. We're pleased with the progress we made in 2018 and the achievement of several important milestones in the fourth quarter. We're thrilled with the performance of our next-generation Pantheris in clinical settings as we scale case volumes and are excited for the addition of Pantheris SV, which we believe will drive additional cases and increase revenue generated from our clinical sites. We look forward to executing against our growth targets in 2019 and continuing to report our progress in the quarters ahead.

With that, we'll be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Jeffrey Cohen from Ladenburg Thalmann.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [2]

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So -- sorry, I'm just going to jump around a number of questions. So as far as the SV usage you'd suddenly experienced thus far, you spoke about that when you talked about some submittal here in August. Can you talk about that specifically as far as iterations and questions in the -- was that a Q2 limited launch? What you spoke about? Can you review that, please, for us?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [3]

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Certainly. Yes, Jeff, we submitted in the U.S. to the U.S. FDA our 510(k) application in late August 2018. As you know, the FDA has an interactive process where several questions were asked and answered and discussions that occurred that did lead to a formal request for additional information in the fourth quarter. We have now answered all of the questions that were answered or were asked by FDA as well as provided some additional data in response to those questions. So right now, the ball is in FDA's court. We feel, based on past experience and based on the nature of the questions, that we're moving towards the end of the process. But clearly, we can't anticipate at a fine point when that will happen. We are -- our plan is to proceed similarly to how we launch next-gen Pantheris where we first launch once we get the FDA clearance into a limited number of sites in the U.S., just again as one final check and confirmation that everything is operating the way we intend to, following that initial experience, which also helps us get our sales and marketing programs checked out prior to broader launch. We do expect to launch more broadly to our entire installed base. So where we are right now is we're waiting and hopeful that we're near the end of the FDA approval process. Once we get that process or that approval, we will again launch this device into a limited set of accounts. And then following that, and as we did with Pantheris next-gen, not terribly long after, look at expanding our full base. So our plans and what we're working towards is a second quarter launch of Pantheris SV. But again, the caveat, the timing isn't fully in our control.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [4]

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Okay. So no questions back after your submittal of last iteration at the end of the year. So presumably you could be on this 100-plus day clock for an approval.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [5]

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Once -- the timing is really more predicated on initial response to your initial filing so -- and every case is unique, right? But right now, we have no open questions, no open request for data. And we are feeling, based on past experience, that we're getting near to the end of the process.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [6]

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Okay, got it. And then on Ocellaris, you spoke about the CE Marking in the third quarter and that you would be -- is this correct you'd be submitting FDA data or you'd be filing in the back half for peripherals?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [7]

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Our anticipation is that we would be filing in the back half of the year. We do look forward to the opportunity as we have done with past products to get that early clinical experience in Europe under CE Mark, which typically has a shorter time frame. And that is our plan. We are very pleased with how the product development is going on Ocellaris. We've had substantial feedback from our KOLs and key physicians and feel like we are going to have a marked improvement in terms of capability to treat a variety of CTOs with important new capabilities in that product a little different than next-gen Pantheris. We don't see it as a replacement for Ocelot product, which currently has the best data available for a CTO crossing in the peripheral arteries. We see it as an additional product that will help us expand that franchise with a highly differentiated end device with new capability. We also are very excited about Ocellaris because as we've discussed previously, we see that as the -- that technology platform as our foundation to develop products for treating coronary CTOs, which is a very poorly met need right now from an endovascular percutaneous basis. So a lot of capability beyond even the peripheral product that we intend to file this year.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [8]

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Okay, got it. And then you spoke about, I mean, too on the commercial force in the fourth quarter getting to 30 at the end of the '19. Where is that number now?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [9]

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So we are -- so we ended the year at 22 people in our sales organization. And Jeff, what we had said is for us, it's most important to hire the right people to hire at a pace so we can train them properly and bring them up to speed. And we are tracking, I think, well against that. I'm very pleased with the sales management and the care and diligence that they're putting into the hiring process, and we are able to track some really strong talent.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [10]

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Okay, got it. And then as far as the sites for ISR, you said you'll have some preliminary data in the back half of the year. So what does filing look like as far as timing?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [11]

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So first of all, one of the things that you'll typically see in clinical studies, and these are open label, these are not blinded, of course, studies in any way, is the opportunity once you get more than -- typically more than 30 patients to take an early look at data and present that data at clinical conferences. And one of the lead physician investigators in that study has indicated an interest to do that. So we're hopeful that we'll be in a position to have that data, that early data presented at a major clinical conference this year. The enrollment, I think, as we talked about in our last call is going just a little slower than we anticipated originally. But now with the addition of new sites, including these 2 new German sites, it's picked up. We believe that enrollment will be completed in 2020 for that study. So we anticipate a 2020 time frame for filing of the 510(k) once the 6-month follow-up period has been completed for all patients enrolled in the study.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [12]

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Okay. And then lastly, just walk us through how coding may play out for Pantheris as far as IVUS coding goes and then move back.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [13]

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So we -- as you know, in the fourth quarter, we released the initial results or the preliminary results from the SCAN study. We now have the final results in place. SCAN was a study that was done, A, for the purposes of just reinforcing and proving the benefits of our OCT imaging in the peripheral arteries as diagnostic tools compared to IVUS, there really hasn't been a study done like that in the U.S. There have been studies ex U.S. And that study shows that we were either superior or equivalent to IVUS on all parameters evaluated. So very pleased with the results. That's now been submitted for publication, and we see that study as an important support for a CPT code application that we would file -- anticipate filing this year so that we could pursue incremental reimbursement for both Ocelot and Pantheris for diagnostic imaging in the peripheral arteries, similar to what IVUS has and -- which is about $1,500 a case in the OBL setting or the office-based lab. And we do have, as you might remember, OCD. Diagnostic claims cleared in separate 10-Ks for both Ocelot and Pantheris by FDA, but that doesn't automatically lead to reimbursement. So we're going to that process, and certainly we don't control that process in any way. The next big step is to file the CPT code application and then work forward. The time frame that we're on and just kind of the cycle of how this works from application through -- and moving through the process is that if we are successful in gaining that incremental reimbursement, we would know in 2020, and then it would go effective in January 2021 but, again, a lot out of our control there, but we're thrilled with the data as it relates to the ability to support that application.

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Operator [14]

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We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Jeff for any further or closing comments.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [15]

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Well, thank you very much for joining our call this afternoon. We appreciate your interest in our company, and look forward to updating you on our progress when we report our first quarter results. We'll also be presenting at the Oppenheimer Annual Healthcare Conference on March 20, and hope to see some of you there. Thank you very much.

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Operator [16]

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That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.