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Edited Transcript of SILK.OQ earnings conference call or presentation 29-Oct-19 8:30pm GMT

Q3 2019 Silk Road Medical Inc Earnings Call

Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Silk Road Medical Inc earnings conference call or presentation Tuesday, October 29, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Erica J. Rogers

Silk Road Medical, Inc - President, CEO & Director

* Lucas W. Buchanan

Silk Road Medical, Inc - CFO

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Conference Call Participants

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* Dylan Haas

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Robert Justin Marcus

JPMorgan Chase & Co, Research Division - Analyst

* Lynn Pieper Lewis

Gilmartin Group LLC - Founder & CEO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Silk Road Medical's 2019 Third Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Lynn Lewis, Investor Relations, you may begin.

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Lynn Pieper Lewis, Gilmartin Group LLC - Founder & CEO [2]

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Thank you. And thank you all for participating in today's call. Joining me are Erica Rogers, Chief Executive Officer; and Lucas Buchanan, Chief Financial Officer. Earlier today, Silk Road Medical released financial results for the quarter ended September 30, 2019. A copy of the press release is available on the company's website.

Before we begin, I'd 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 relate to expectations or predictions of future events, results or performance are forward-looking statements.

All forward-looking statements including, without limitation, those relating to our examination of operating trends and our future financial expectations, which includes expectations for hiring, physician training, growth in our organization and reimbursement, market opportunity, guidance for revenue gross margin and operating expenses in 2019, are based upon our -- my 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 refer to the risk factors section of our Form 10-Q filing with the Securities and Exchange Commission on August 13, 2019, in connection with our most recent quarterly reports.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, October 29, 2019. Silk Road Medical 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.

And with that, I'll turn the call over to Erica.

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [3]

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Thanks, Lynn. Good afternoon, everyone, and thank you for joining us for Silk Road Medical's third quarter earnings call. Joining me is Lucas Buchanan, our Chief Financial Officer. Total revenue for the third quarter was $17 million, up 77% year-over-year. Our team continues to deliver strong consistent revenue growth driven by our relentless focus on outcomes.

Our patient-first culture and investment in clinical evidence, education and innovation are beginning to change physician behavior as we drive toward our long-term goal of becoming the standard of care in the treatment of carotid artery disease in patients at risk of stroke. We are raising our revenue expectations for 2019 to a range of $62 million to $63 million, which represents growth of 79% to 82% over 2018 revenue.

Growth and momentum continue to be driven by our focus on our 2019 priorities: one, building the clinical evidence base; and two, commercial execution. Let's take those in reverse order and start with commercial execution.

Our overarching goal with physicians is to first build awareness and interest in TCAR based on the strength of our clinical evidence. And then from there, move them through our physician training programs, support them during their initial procedures and learning curve and work toward deeper adoption through recurring procedures. At this stage and for the foreseeable future, our primary market opportunity is driving the conversion from carotid endarterectomy to TCAR in high surgical risk patients, and we are laser-focused on that effort.

That effort starts with our flagship TEST DRIVE physician training courses. As a reminder, TEST stands for TCAR education and simulation training. These courses are held at a centralized training facility in the Midwest and are led by a highly regarded faculty of key opinion leaders who are experienced TCAR practitioners, allowing for valuable and credible peer-to-peer interaction. We believe these professional education initiatives are a key factor in driving successful outcomes from the first patient of each physician's learning curve and enables physicians to establish the confidence to more broadly integrate TCAR in their own practices.

Our goal at the outset is to identify physicians who will invest the time and energy to build a TCAR program. This typically means they are willing to take a day out of their busy practices to attend the course, have already championed the Silk Road products at their hospital value analysis committees and have identified 3 to 4 patients they think could be suitable candidates for their first procedures.

The content of the course and our ensuing clinical support are designed to ensure that physicians have positive outcomes in their own hands early on. We know that their personal experiences with their first few procedures will impact their adoption curve.

Ideally, physicians will perform their first 10 procedures swiftly post training, so they can capture muscle memory and preserve the knowledge they glean in the course in their own practices. Our experience to date shows that after about 10 to 15 successful procedures, most physicians have the confidence and comfort to accelerate their adoption of TCAR.

Conducted on a regular basis, our TEST DRIVE courses have been oversubscribed since inception. We held our first inaugural TEST DRIVE at the end of 2016, in which we trained 12 physicians across 10 states and hospitals. In just 2 short years, that initial group of trainees grew their adoption of TCAR from 0 to over half of their carotid procedure volume by the end of 2018. These pioneers are critical in conveying their personal positive experiences with TCAR to other physicians in their hospitals, regions and on the national stage.

As we've described in the past, we have the ability to increase or decrease the number of test drive courses and customize our programs for specific physician groups to meet our near- and long-term business objectives. As an example of this, based on the success of TEST DRIVE and the desire to expose TCAR to the next generation of physicians, we developed a specific version of the program for fellows, designed to meet trainees' needs as they first enter practice.

We hosted our first fellows program last year with approximately 50 fellows in attendance and our second, just this past quarter, with over 80 fellows and a substantial wait list. Fellows represent the future of clinical practice, and we strongly believe that by providing educational and training tools specifically for them, we can establish TCAR as a primary modality early in their careers.

I'd like to share a quick story about Dr. Laurel Hastings, a vascular surgeon from Baton Rouge. Dr. Hastings attended our first fellows course in 2018. Upon completing her fellowship, she joined the practice with an already established and vibrant TCAR program and was able to hit the ground running, adopting TCAR as her primary modality for treating patients with carotid artery disease. Dr. Hastings has performed over 30 procedures since her training course and returned to our fellows program in 2019 as a faculty member to talk to new fellows about her success with TCAR.

This is an important example of the power of training physicians early in their career to make sure TCAR has the opportunity to become as or more habitual than CEA. Although many fellows will be establishing their own TCAR practices rather than joining an existing program, Dr. Hastings is representative of the next generation of forward-thinking physicians, who will drive TCAR adoption over the next many years.

With all of that said, we are always mindful that we are challenging the standard of care and changing physician behavior. And this takes time, experience and relentless effort. CEA is a formidable competitor. It has been around since the 1950s and is well entrenched in today's standard of care.

Turning to some metrics on our business. There were approximately 2,250 TCAR procedures performed this quarter, both by new and experienced physicians in new and established hospital accounts and in new and established sales territories. With just shy of 6,000 procedures through the third quarter, we are firmly on track to deliver in excess of 8,000 procedures in 2019.

We remain confident that our commercial expansion plan and physician training cadence will enable us to achieve our procedure and revenue goals for the year. As always, we are balancing our efforts between training new physicians and driving the adoption curve with our more tenured physicians.

And now shifting to our second key 2019 priority. We are firmly rooted in the belief that physician awareness, confidence and adoption are driven by TCAR clinical evidence. Since our inaugural TEST DRIVE course in 2016, the safety, effectiveness and clinical advantages of TCAR have been demonstrated in multiple clinical trials, post-market studies and registries that have evaluated outcomes in more than 6,500 patients.

As we discussed on the second quarter call, updated results from the TCAR Surveillance Project or TSP as well as the final results from our ROADSTER 2 post-marketing study were presented at the Society of Vascular Surgery's Vascular Annual Meeting in June. With data from TSP showing that TCAR had lower odds of composite in-hospital stroke, death and myocardial infarction compared to CEA and ROADSTER 2 demonstrating sub-1% 30-day stroke risk, physicians have taken notice and are increasingly inquiring about TCAR. The remarkable consistency and reproducibility of these data coupled with the procedure's short learning curve and ease of use has further elevated awareness and interest among the physician community.

Last month, I attended the Western Vascular Society Annual Meeting in Maui. As the largest vascular surgery scientific meeting on the West Coast, this event attracts many physicians from a mix of teaching and community hospitals. A large number of attendees were seeing the updated results from TSP as well as final results from ROADSTER 2 for the first time.

After the data presentation, there was a groundswell of interest in registering for TEST DRIVE courses and learning more about TCAR. As our expanding clinical evidence is presented across national, regional and local meetings and ultimately published in peer-reviewed journals, we were able -- we are able to continue to drive awareness of the benefits of TCAR, prompting new physicians to get trained on TCAR and tenured physicians to convert more of their overall procedure volume to TCAR.

Building off the TCAR data on over 5,000 patients presented from the TCAR Surveillance Project this past year, we expect a larger body of evidence to be presented at the upcoming VEITH Symposium taking place from November 19 to November 23 in New York City along with several other podium presentations regarding TCAR. With our intense focus on building best-in-class clinical evidence base and commercial execution, TCAR is finding its place prominently in the carotid treatment continuum. While we are still in the very early stages along the path toward standard of care, we look forward to continuing this journey.

With that, I will now turn the call over to Lucas Buchanan, our Chief Financial Officer, and then will return with closing comments.

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Lucas W. Buchanan, Silk Road Medical, Inc - CFO [4]

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Thank you, Erica. The sustainable growth that our commercial model was built to deliver continued as planned in Q3. We have a defined universe of target physicians in hospitals that we are building our efficient commercial coverage model towards with the goal of increasing adoption of TCAR to deliver reliable, durable revenue growth over time.

Now turning to our Q3 performance, revenue for the 3 months ended September 30, 2019, was $17.0 million, a 77% increase from $9.6 million in the same period of the prior year. Growth was driven by the growing adoption of TCAR across an expanding base of hospital accounts, trained physicians and active sales territories.

Gross margin for the third quarter of 2019 was 76% as compared to 70% in the corresponding prior year period. Gross margin improvement was driven primarily by leveraging manufacturing overhead costs across higher revenue. Also contributing to higher gross margin were the realization of manufacturing efficiencies in the timing of certain manufacturing engineering projects.

Total operating expenses for the third quarter of 2019 were $20.3 million, a 77% increase from $11.4 million in the third quarter of 2018. R&D expenses for the third quarter of 2019 were $3.2 million compared to $2.4 million in the third quarter of 2018. The increase was primarily driven by an increase in personnel-related expenses as we continue to support product development and clinical study programs.

Sales, general and administrative expenses for the third quarter of 2019 were $17.1 million compared to $9.0 million in the third quarter of 2018. The increase was primarily attributable to expenses related to growth in our commercial team and marketing efforts as well as costs related to being a public company.

Net loss for the period was $8.0 million or a loss of $0.26 per share as compared to a net loss of $9.0 million or a loss of $8.49 per share for the same period of the prior year. We ended the third quarter of 2019 with $112.3 million of cash and cash equivalents.

Turning to our capital structure. We completed a follow-on offering of 4.2 million shares in the quarter comprised entirely of secondary shares from certain selling shareholders, which allowed us to diversify our stockholder base.

Turning to our outlook for 2019 and as Erica mentioned, we are raising our 2019 revenue guidance range to $62 million to $63 million, representing growth of 79% to 82% over 2018 revenue of $34.6 million.

At this point, I would like to turn the call back to Erica for closing comments.

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [5]

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Thank you, Lucas. In summary, we are pleased with our third quarter performance and our continued ability to deliver towards our guidance. Before closing, I would like to thank our cross-functional commercial teams for their unwavering dedication, effort and commitment to drive adoption and penetration of TCAR while always being mindful of our focus on successful patient outcomes every patient, every day. This team includes employees involved in education and training, customer success, sales operations, analytics and the sales and marketing organization.

To go up against the inertia of CEA every day and change physician behavior across a well-entrenched standard of care is challenging and takes a large collective effort and unified front. This team's hard work is instrumental in our growing momentum and success, and I am grateful to be working alongside them every day.

With that, we will now open it up to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Robbie Marcus from JPMorgan.

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Robert Justin Marcus, JPMorgan Chase & Co, Research Division - Analyst [2]

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Congrats on a really great quarter here. Erica or Lucas, maybe I can start off. You had a really good procedure number here. Hoping you could give us a little more color into where this is coming from. Is it new docs doing more? Is it existing docs ramping up? Just any color you can add to where you're seeing the biggest increases in traction here with the procedures.

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [3]

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Right. Thanks, Robbie. Yes, we're pleased with the case volume for the quarter for sure. And I think it's fair to say, as we've said in quarter's past, which is -- the business is primarily driven, in any given quarter, by the kind of existing trained physician base. We've talked about the period of time it takes for any newly trained physician to kind of come up their adoption curve.

And so it's fair to assume that a lot of those cases are done by the existing trained physicians. That said, with a strong quarter, the way it looked here, certainly, there's contributions from the newly trained physicians as well.

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Robert Justin Marcus, JPMorgan Chase & Co, Research Division - Analyst [4]

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Great. Is there any color you could add on -- in terms of what new store or existing store sales were in the quarter?

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Lucas W. Buchanan, Silk Road Medical, Inc - CFO [5]

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Well, Robbie, it depends on how you define it, as a store, as a physician or a hospital account and how long they've been open. We stare at all those trends, whether they've been open a quarter or a year, and we continue to have strong same-store sales growth.

And just tying it back to your first question, if it takes a new physician 9 to 12 months to get to their first 10 cases, where we see an adoption inflection, that kind of by definition means a lot of our business is being driven by physicians trained in 2018 or prior. And so we're constantly focusing on training new docs in that effort for the long-term plan, but our business is being more and more driven as time goes by by the tenured physicians by definition.

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Robert Justin Marcus, JPMorgan Chase & Co, Research Division - Analyst [6]

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Great. And then, last question from me. You had a great showing at the VAM conference in June. The ROADSTER 2 data was really impressive. Be great to hear any commentary in terms of what you're seeing in physician attitude, trends, impact in the market that that data set and conferences had?

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [7]

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Yes. You're right, we did have a strong showing in June at the Vascular Annual Meeting. And as we said in the last quarter, it takes time for that information to really disseminate broadly. And that's done by our team, one physician at a time, our area managers talking about the data with their customers. But it also happens now at these regional meetings and local meetings.

An example of that, of course, was the Western Vascular Society meeting story that I told in the prepared remarks. And it was interesting to see how many physicians were seeing the data for the first time. And that meeting was a couple of months after VAM. So it just gives you a sense of how long it takes for the information to disseminate.

That said, we continue to talk about it at the field level. And we also believe that once the data are published in the peer-reviewed journals, they'll have a greater impact. And that is typically a year or so -- within a year of the public presentation.

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Operator [8]

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Your next question comes from the line of Rick Wise from Stifel.

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Dylan Haas, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [9]

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This is Dylan on for Rick. I just had one on gross margin. Gross margin in the quarter came in a little better than we had expected and understand that there was a benefit from maybe higher volume and you referred to some timing of the manufacturing engineering initiatives. But last quarter, you had mentioned you expected gross margin to be flat in the second half due to some of these manufacturing engineering initiatives. And I was just wondering if you could give any updated color on some of those investments and if there's an impact this quarter and how that might impact next quarter if we can expect a larger impact from those.

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Lucas W. Buchanan, Silk Road Medical, Inc - CFO [10]

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Sure, Dylan. Thanks for the question. Happy to provide some color. So just at a high level, we continue to feel confident with my comments on the Q2 call that the back half of the year gross margin will be relatively flat to the first half. And just to put some more color around that, the Q2 gross margin was 75.2%; in Q3, it was 75.5%, so a modest uptick.

And to state the obvious, at $17 million in revenue, 100 basis points is $170,000. So it doesn't take much to swing gross margins in either direction as we think about the timing of payments and the timing of some of these manufacturing engineering projects. But again, at a high level, same guidance as we provided on the prior call.

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Dylan Haas, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [11]

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Okay. And then just one follow-up and kind of following up on Robbie's question about strong procedure numbers. If you could provide any color on where some of these procedures are coming from in terms of -- is it all converting the carotid endarterectomy procedures right now? Are you taking some of the traditional stenting procedures or are you seeing any market expansion?

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [12]

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Yes. Well, Dylan, in terms of the conversion, it is a mix of both. I mean we're highly focused on converting carotid endarterectomy to TCAR. And the reason that we're highly focused on that is the vast majority of procedures performed in the United States in 2018 were carotid endarterectomy.

That said, the transfemoral CAS business continues to be a kind of low-hanging fruit opportunity for us. Vascular surgeons that have historically done that procedure do so somewhat reluctantly, knowing that the stroke risk is higher. And we're kind of -- we've got a little bit of a tailwind in the fact that the most recent data that compared transfemoral CAS to TCAR in a propensity match patient population of in-hospital outcomes, TCAR really showed a significant advantage in composite endpoint of stroke and death, in stroke death and MI, but also important things like the time of fluoroscopy and the amount of contrast volume used. So the data are even stronger and more compelling when you compare TCAR to transfemoral CAS. So yes, we do focus on converting that business as well.

And then lastly, on your market-expansion question, anecdotally, we continue to hear stories about patients who were treated with TCAR who otherwise couldn't be treated at all. But right now, as I said in the prepared remarks, right now and really for the foreseeable future, our focus is on converting business from carotid endarterectomy primarily in high surgical risk patients, which represents 2/3 of the market opportunity.

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Operator [13]

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I'm showing no further questions at this time. I would like to turn the call over to Erica Rogers. Thank you, ma'am.

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Erica J. Rogers, Silk Road Medical, Inc - President, CEO & Director [14]

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Thank you all so very much for joining our Q3 earnings call. Goodbye.

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Operator [15]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.