Silk Road Medical, Inc (NASDAQ:SILK) Q2 2023 Earnings Call Transcript

Silk Road Medical, Inc (NASDAQ:SILK) Q2 2023 Earnings Call Transcript August 1, 2023

Silk Road Medical, Inc beats earnings expectations. Reported EPS is $-0.35, expectations were $-0.39.

Operator: Good afternoon and thank you for joining Silk Road Medical’s Second Quarter 2023 Earnings Call. [Operator Instructions] Now, I will turn the call over to Marissa Bych with Gilmartin Group for a few introductory comments.

Marissa Bych: Great and thank you for joining today’s call. Joining me are Erica Rogers, Chief Executive Officer; and Lucas Buchanan, Chief Financial Officer and Chief Operating Officer. Earlier today, Silk Road Medical released financial results for the 3 months ended June 30, 2023. 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 the 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 operating trends and future financial performance, expense management, expectations for hiring and growth in our organization and our business, physician training and adoption, market opportunity and penetration, commercial and international expansion, regulatory approvals, reimbursement, competition and product development 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 refer to the Risk Factors section of our latest quarterly report on Form 10-Q filed with the Securities and Exchange Commission.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 1, 2023. 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 now, I will turn the call over to Erica Rogers, Chief Executive Officer.

Erica Rogers: Good afternoon and thank you all for joining us. I’m proud to report another strong quarter for Silk Road as we fortify our leadership in stroke prevention, execute our commercial objectives and to innovate next-generation solutions. In the second quarter, we achieved revenue of $45.3 million, reflecting 37% year-over-year growth, driven by over 6,450 TCAR procedures. The quarter reflects the seventh straight sequential increase in procedures per physician, demonstrating broad and deepening demand for TCAR as we increase touch points with physicians. Based on our first half performance and current trends in our business, we are also updating our 2023 outlook. We now anticipate between $180 million and $184 million in revenue for the full year, reflecting 30% to 33% year-over-year growth.

We are beginning the third quarter with 80 active sales territories, covering roughly 2,600 trained physicians in over 1,200 leading hospitals. As a reminder, on our last earnings call, we shared that we had accelerated our 2023 hiring plan to welcome a wave of high-quality talent which also yielded an opportunity to optimize our territory design and sales management structure. Our realignment work continued early into the second quarter and we are pleased to share that our field team has transitioned smoothly following these changes. The energy of our team is palpable and we are optimistic about our continued commercial progress, leading to incremental territory expansions into Q4 and beyond. Let me take a moment to discuss the exceptional skill and day-to-day impact of our field team, who now cover the majority of high-volume carotid centers in the United States.

This team of sales professionals and therapy development specialists, along with their colleagues from our reimbursement, Office of Medical Affairs and professional education teams, comprehensively support our physician customers along with the entire continuum of carotid artery disease care providers. They spend each and every day focused solely on carotid artery disease as trusted and clinically adept partners to our customers. Each person in our field team undergoes an intensive 3-month training program, including proprietary didactic training, CT, MRI and ultrasound imaging assessment, principles of local and general anesthesia, blood pressure management and pre- and post-op medication management. We train our team with the skills to assist physicians in moving forward with TCAR and when to discourage the use of TCAR when appropriate, a skill borne out of our commitment to patient outcomes, our North Star.

While our U.S. commercial engine drives forward, we are also advancing the next generation of TCAR products to fortify our leadership in stroke prevention. In the second quarter, we initiated the full-scale commercial launch of ENFLATE, the first balloon, purpose-built for TCAR and the fifth product in our portfolio. The launch is tracking to our expectations and we look forward to updating you on our future progress. In addition, we are very pleased that we received 510(k) clearance for our next-generation neuroprotection system or NPS Plus in April. This product supports additional ease of use and further minimizes the risk for complications. We are on track for a limited market release later this year. Finally, we are also very pleased to share that we received PMA approval for tapered configurations of our ENROUTE stent in mid-June.

The new configurations will provide greater choice for physicians to address the diversity of patient-specific anatomy. With the cadence of our ENFLATE balloon and ENROUTE neuroprotection system plus launches in mind as well as inventory considerations, we anticipate launching our tapered ENROUTE sizes in the first half of next year. With 3 major product clearances and approvals, our R&D pipeline efforts are bearing fruit, extending our leadership in the TCAR category and freeing up our R&D teams to work on the next set of next-generation solutions. Internationally, we are making meaningful progress towards unlocking the $2.3 billion global market opportunity for TCAR. In China, we are focused on approval of our ENROUTE stent following clearance of our ENROUTE neuroprotection system earlier in the year.

In Japan, we continue to investigate distribution partners while we move towards reimbursement submission. In both geographies, we are conducting regulatory activities to support future clearance of our next-generation ENROUTE NPS Plus that was just cleared in the U.S. Looking beyond our Q2 progress and commercial momentum. I’d like to take a moment and address the proposed national coverage determination issued by CMS in July. As a reminder, CMS’s proposed decision is to cover TCAR and other methods of carotid stenting, collectively known as CAS in both high and standard surgical risk patients that are either asymptomatic with greater than 70% stenosis or symptomatic with greater than 50% stenosis. A second 30-day comment period is underway with a final decision expected on October 9.

The bottom line of this proposal is access, broader access to less invasive options for patients with carotid artery disease, including for underserved and underdiagnosed populations. As stated in the proposed decision, CMS believes the expansion of coverage for carotid artery stenting to our beneficiaries will serve to allow greater numbers of individuals to access this procedure for stroke prevention. CMS is also acknowledging the importance of patient preference and choice of treatment to ensure that patients receive the most appropriate treatment and that physicians are held accountable for their outcomes. Underwritten by the deep knowledge of the risks and benefits of differing treatment options and market forces, CMS has elevated the role of FDA labeling and indications for use, society guidelines and clinical practice updates, regional and national quality initiatives, hospital credentialing committees and multidisciplinary panels.

And importantly, physician and patient shared decision-making. These forces serve to ensure patients are given the best opportunity for a successful clinical outcome. As the experts in the treatment of carotid artery disease, our assessment of this proposal starts with our deep understanding of this patient population and the referring and treating physicians managing their care and centers on 3 principles. First and most importantly, data support TCAR first for patients. Patients get TCAR because of the vast clinical evidence in support of the procedure, especially as compared to the alternatives. Over decades of study, CEA has shown a persistently higher rate of serious surgical complications, including myocardial infarction and cranial nerve injuries as compared to TCAR while transfemoral CAS has shown a persistently higher rate of peri procedural stroke.

Meanwhile, TCAR was specifically designed to solve the trade-off between the excess stroke risk of transfemoral CAS and adverse events associated with open surgical procedures by effectively mitigating both. As acknowledged by CMS in their review, large contemporaneous propensity matched real-world evidence has revealed direct comparisons of TCAR to both CEA and transfemoral CAS. For example, in the December 2019 Journal of the American Medical Association, Schermerhorn et al. compared outcomes of TCAR and transfemoral CAS in 3,286 propensity matched patients. The authors found a statistically significant decrease in stroke, death and stroke death for patients who underwent TCAR versus transfemoral CAS. In addition, the authors found a significant decrease in stroke or death at 1 year in TCAR patients.

Similarly, in the Journal of Vascular Surgery in 2020, Dakour-Aridi et al. found TCAR reduced procedural stroke risk by 72% over transfemoral CAS in the elderly, therefore, also reducing the rate of disabilities from stroke which can include impaired speech, restricted physical abilities, limb paralysis, difficulty gripping items and slowed ability to communicate. Stroke is a devastating complication. These data are just a few examples of the recent and now vast literature well in excess of 25,000 patients worth of published TCAR data that clearly defines contemporaneous risks and benefits of carotid intervention methodology. TCAR’s clinical evidence and safety profile is rooted in our purpose-built flow reversal technology which is not only safe but exquisite as measured by stroke rate and the hidden procedural fingerprint of silent cerebral ischemia.

We firmly believe that patients are at a disservice if we aren’t preventing every chance of cell death in the brain from procedure debris. And our technology is the only carotid stenting approach that diverts all sizes of debris. unlike distal filter-based approaches which by definition, discriminate by side. The risk reward in favor of TCAR extends further when we consider its rapid and safe learning curve, well documented in the medical literature, showing that adverse event rates are achievable from procedure 1 of a physician’s TCAR experience and remains reproducible across a broad spectrum of patient presentations. The transfemoral CAS learning curve is also well documented with at minimum over 70 cases required to lower the periprocedural stroke and death rate.

When properly informed of the comparative risks and benefits, we are confident that patients will overwhelmingly choose TCAR. Second, TCAR is redefining the standard of care in an expanding market. As we have said in the past, the prevalence of severe carotid artery disease is estimated at over 4 million people in the United States, with over 400,000 people receiving a new diagnosis of critical carotid stenosis every year and less than 200,000 who receive procedural treatment to address the at-risk lesion. We also know that there are likely more stroke from carotid disease than there are carotid interventions to prevent those strokes. But given the comparative procedural risk of CEA and transfemoral CAS, carotid intervention is historically very conservatively applied.

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We believe TCAR is changing this paradigm. Among patients already treated, we have made substantial progress converting CEA and transfemoral CAS procedures to TCAR by educating and driving awareness of the safety and efficacy profile of TCAR across the care continuum. With its comparatively short learning curve and broad patient applicability, TCAR is well positioned to reach farther into an underserved and underdiagnosed at-risk population, while offering a compelling stroke prevention option for the remaining currently medically managed population of over 200,000 patients. Should the CMS final decision near to date proposal, we expect to see tailwinds for TCAR, including increased screening, diagnosis and demand for minimally invasive carotid intervention as a whole.

Third, TCAR is entrenched, marked by the deeply rooted and concentrated nature of carotid disease referral and treatment patterns, predominantly from internal medicine and neurology to vascular surgery. And rather than attempting to shift long-standing and trench referral relationships, our strategy with TCAR from the beginning was to become an effortless part of this network. And our work to establish TCAR has resulted in a tenured presence in hospitals performing the vast majority of carotid procedures today. An important component of patient momentum toward TCAR is their referral to the vascular lab for definitive ultrasound diagnosis of a suspected carotid blockage which typically results in an immediate referral to a vascular specialist.

We see significant self-referral from vascular surgeons in these vascular labs who are already screening patients with peripheral artery disease, who they proactively screen for carotid disease. We are also seeing neurology, primary care, internal medicine and cardiology increasingly encourage patients to choose TCAR as the minimally invasive carotid stenting option because the last thing they want for their patients, not to mention the reputation of their hospitals and programs, is the devastating possibility of a stroke during a procedure with prophylactic intent. In addition, our work to establish TCAR has resulted in diffusion of TCAR in most major fellowship training programs and an increasingly tenured presence in hospitals performing the vast majority of carotid procedures today.

In addition to TCAR being entrenched in the continuum of care, our field team itself is entrenched as essential partners to our physician base from diagnosis to case planning and postoperative care. The nature of their leadership and relationships across the referring and treating physician communities stems from their thorough understanding and ability to meet the specific patient and physician needs in this market. We have spent years developing and cementing the strength of this team. And the hard work of navigating multispecialty dynamics and hospital credentialing committees to firmly establish minimally invasive TCAR alongside open surgery is largely behind us. We are on the ground and running deeply embedded in the carotid continuum from vascular imaging labs, referring physicians and ancillary health providers to in-hospital nurses, anesthesiologists and hospital administrators.

Our track record of pristine patient outcomes is favorably influencing referring physicians. And TCAR’s hospitals efficiency and favorable economics are now well understood by hospital administrators. After years of battling the inertia of CEA and rising to the challenge of meeting and exceeding a high bar, TCAR’s momentum is building and its own inertia is setting in. In summary, looking across today’s market forces, there are many dynamics that continue to work in TCAR’s favor. We are confident that our team and our business will continue to drive the paradigm shift towards more minimally invasive patient options. And we are pleased to be the leading force for stroke prevention for patients with severe carotid artery stenosis. We expect the renewed focus on this topic to act as a rising tide to the diagnosis and screening of carotid artery disease and ultimately, the safe and effective treatment of more patients.

We are excited and motivated by our second quarter progress and we are unwavering in our drive to reach standard of care in treating this patient population. With that, I’ll now turn the call over to Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer.

Lucas Buchanan: Thank you, Erica. Revenue for the 3 months ended June 30, 2023, was $45.3 million, a 37% increase from $33.2 million in the same period of the prior year. The number of TCAR procedures in the quarter was approximately 6,450, also a 37% increase from the same period of the prior year and an 11% increase on a sequential basis. Growth in revenue and procedures was driven by deepening demand for TCAR across our critical mass of trained physicians as evidenced by our seventh straight sequential increase in procedures per physician per quarter. Before turning to gross margin, I’d like to quickly touch on 2 distinct metrics: one, average selling prices for our 5 distinct TCAR products; and two, revenue per procedure trends.

Regarding the former, our product level ASPs remain strong and continue to track flat to slightly up versus history. Regarding the latter, revenue per procedure which represents units sold per period relative to units utilized per period remains within a consistent range versus history as demonstrated by Q1 and Q2 2023 revenue per procedure, roughly in line with the same period in 2022. While we do not drive the business with a focus on this metric, revenue per procedure continues to track slightly ahead of the TCAR product portfolio combined ASP as hospitals reorder units for current and expected procedural demand by their physicians. Looking into the back half of the year, our focus will remain on procedure growth and ASP discipline and we expect revenue per procedure to remain near the $7,000 level or slightly higher.

This reflects the increasing contribution of our ENFLATE balloon, as we further penetrate our account base and increase utilization, offset by the slight moderation in established account inventory par levels and new account first-time orders given our focus on penetrating deeper into our already established presence of hospital accounts. Gross margin for the second quarter of 2023 was 71%, compared to 73% in the second quarter of 2022, driven by higher manufacturing costs associated with labor and materials and supporting 2 manufacturing facilities. Total operating expenses for the second quarter of 2023 were $46.6 million, a 22% increase from $38.4 million in the second quarter of 2022. R&D expenses for the second quarter of 2023 were $10.8 million compared to $10.7 million in the second quarter of 2022 reflecting the largely at scale nature of our current R&D organization in key programs after a period of rapid hiring over the last few years.

Sales, general and administrative expenses for the second quarter of 2023 were $35.8 million compared to $27.7 million in the second quarter of 2022. The increase was largely driven by growth in personnel and personnel-related expenses and continued commercial expansion. Despite our accelerated sales hiring in Q1 and Q2, our overall infrastructure continues to yield operating leverage as we further scale the commercial organization and grow our share of the carotid market, as evidenced by a sequential decline in total operating expenses as a percentage of revenue. Net loss for the second quarter was $13.5 million or a loss of $0.35 per share as compared to a net loss of $15.4 million or a loss of $0.44 per share for the same period of the prior year.

We ended the quarter with over $202 million in cash, cash equivalents and investments. We are confident that we can accomplish our current growth and organizational objectives, including executing on our pathway to profitability with our current capital. Turning to our 2023 outlook. As Erica mentioned, we now expect full year revenue to be in the range of $180 million to $184 million reflecting growth of 30% to 33% over 2022 based on over 25,000 TCAR procedures. As always, our guidance range reflects the pace and progress of hiring and training in our commercial organization, trends and adoption in our trained physician base and a modest tailwind from the rollout of the ENFLATE balloon. Our guidance also implies roughly 15% penetration of our core market opportunity by year-end based on approximately 170,000 U.S. patients treated for carotid artery disease in 2022.

As is typical, we expect some seasonality in our business in the third quarter of the year and forecast flat to very modest sequential revenue growth off of our second quarter. In sum, we made meaningful progress this quarter towards our 2023 financial goals and are well capitalized to continue executing on our vision to become the standard of care. At this point, I will turn the call back to Erica for closing comments.

Erica Rogers: Thank you, Lucas. We began our journey at Silk Road with the goal of improving on the critical shortcoming of CEA and transfemoral CAS that were well established over many decades. And we have always prioritized patient outcomes with a deep respect for the absolutely unforgiving nature of the brain as the end organ, while making carotid intervention safe, easier and more broadly accessible to providers and patients alike. We are leading the way in minimally invasive carotid artery disease treatment on these principles with TCAR established as the gold standard for patients. At the start of the year, we set 3 strategic objectives to grow, to strengthen and diversify our business. We are pleased to have made measurable progress on each of these fronts in the second quarter and are excited about our trajectory into the back half of the year.

As we look ahead, we are also looking forward to hosting an analyst and investor event this fall to walk through TCAR history, clinical evidence and practice patterns as well as open up the dialogue for questions and conversations regarding NCD 20.7 and the CMS proposed decision memo. In advance of this event, we have made a resource library available on our investor site to help the public better understand our leadership and position in the carotid market. We welcome you to view this library of history and evidence and to stay tuned for our formal invite to our fall analyst and investor event. The future of TCAR has never been brighter. At this point, I would like to turn it over to the operator for Q&A. Operator?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Chris Pasquale of Nephron Research.

Chris Pasquale: Erica very comprehensive overview of where you guys stand right now on the reimbursement front. I had one follow-up there and then one for Lucas on the numbers. Curious whether you have a breakdown of referral by specialty? What path these patients are walking to get to the treating physician? And how much of that is in sort of a TCAR friendly camp like a vascular surgeon versus a neurologist that might be more open to a variety of different techniques or have an interventionalist partner within their practice that they could conceivably want to send patients to.

Erica Rogers: Chris, thanks so much for the question and for being here on the call. I can give you some broad brushstrokes on that. This is something that we’ve been studying from day 1, really, is understanding these referral patterns within carotid artery disease. So this is not a new topic to us by any means. And our sales and marketing and clinical specialist organizations have been focused on these referring physicians for a very long time. And Lucas can take you through the breakdown but predominantly, the referring specialties fall in the category of internal medicine. And Lucas, I’ll let you take it from there.

Lucas Buchanan: Sure. Thanks for the question, Chris. I mean if we just up level for a second, 75% to 80% of the procedure volume is carotid endarterectomy. So the dominant referral pattern from any source has led to a vascular surgeon for surgery for decades. And then if we add TCAR into the mix over many years, really greater than 90% of referrals are to those same physicians who we — who have been doing carotid endarterectomy and also transfemoral CAS to a lesser extent but are doing TCAR broadly in a very entrenched fashion as Erica mentioned. And if you think about who is the real customer here, it’s the patient and the referring physician. And so those 2 customers obviously want to avoid complications, especially a stroke but certainly any complication of a procedure with prophylactic intent.

But to get into the detail of your question, generally, 30% to 40% of patients are symptomatic. And depending on where they’re diagnosed, in the ER or otherwise, they’re generally under the care of a neurologist. For the 60% to 70% of patients that are asymptomatic, as Erica mentioned, they come through primary care, often for internal medicine and its subspecialties and those referrals generally have a suspicion of a carotid blockage. They get sent to the vascular lab for that definitive ultrasound, as Erica mentioned. A lot of vascular surgeons are controlled and involved in those vascular labs. And there’s a fair amount of self-referral there as well, as Erica mentioned, since they’re seeing a lot of patients with a lot of different vascular problems longitudinally.

And so we, again, understand these referral patterns in depth. We’ve got a lot of data that we use to help influence that referral pattern and influence the treating physician and whether you’re talking about cardiology or neurology or internal medicine or primary care, most referral results in a CEA and increasingly TCAR.

Chris Pasquale: That’s helpful. And then just on the revenue per procedure question. Our check suggest that ENFLATE is being adopted pretty quickly here post the launch. Why shouldn’t that be more of a tailwind to revenue per procedure in the back half of the year? Could you just walk through what you see offsetting that because it should be a few hundred dollars extra that you’re collecting per case?