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?

Lucas Buchanan: Yes. The potential is in that range, Chris but we launched this product in Q2 and we’ve taken a premium pricing strategy. So where we sit today is this product is in the minority of our accounts that is being used in the minority of our procedures and we’re doing the work to get the product through VAC committees and start to get a trial in each account. So we’ve got a lot of work to do to fully penetrate that product into our account and physician base like we have with the 4 other products. Certainly, each quarter that goes by those — that penetration and utilization will go up. But that product and our expectations for its contribution to our revenue and kind of our revenue per procedure metric is obviously within our updated guidance.

Operator: And our next question comes from Rick Wise of Stifel.

Rick Wise: Let me start off with guidance just from several angles. You — obviously, as you both said had a superb quarter excellent in so many ways. And you raised by the amount of the beat, could you talk about guidance for the second half? I mean I sort of reflect you’ve trained more doctors, your — the 3 new products you talked about a present and positively affecting the whole process. The sales force has been expanded. The territories increased. Why wouldn’t we see sort of more dramatic sequential improvement and impact from all these positive factors, I guess.

Lucas Buchanan: Sure, Rick. I’m happy to take that. Obviously, we’ve essentially cut our range in half here halfway through the year. We touched on the seasonality and which usually takes the form of vacations in Q3. We’ve essentially signaled obviously increased confidence in our overall procedure number for the year and a slight tightening on revenue per procedure. And as you mentioned, raised by the size of the beat. And so we feel confident about all those pieces of the puzzle you mentioned to continue driving this business.

Rick Wise: Last year, we saw a bigger sequential step-up 3Q versus 2Q and the same seasonality. Why wouldn’t we see that same sequential uplift this year?

Lucas Buchanan: Yes. I think each year is a different set of puts and takes. Again, I think we will see a sequential step-up in procedure volume and we’re shifting slightly conservative on the kind of inventory in the channel which is really revenue per procedure and we’ll push the business as we always do to overachieve.

Rick Wise: Sounds good to me. And just on your comment about the new family of tapered stents. It seems exciting. Our physician conversations over the years have suggested that there are maybe 15%, 20% depending on the doctor you speak to of patients who are viewed as not optimal candidates for one reason or another for TCAR, something about their anatomy, et cetera. Does this expand the use of TCAR into maybe populations that have not been sort of available for TCAR in some way? What impact does this have on growth, procedure, penetration, ASP? Help us think through the implication of these new products?

Erica Rogers: Rick, I’ll take that one which is this ENROUTE tapered stent configuration is really in response to listening to our customers and what they want and need to continue to drive adoption, their adoption of TCAR. And this really comes out of just some very specific patient anatomies and configurations of lesions and things like that where a tapered configuration is more suitable for the job. And we’ll get into more of that detail, I think, when we’re launching the product. I’ll spare you the gory details for the moment. But in general, the way to think about it is this just increases the satisfaction of physicians around TCAR and in so doing absolutely drives physicians up the adoption curve.

Operator: Our next question comes from Neil Chatterji of B. Riley.

Neil Chatterji: First off for me, just on the sales territories. So I believe in the prepared remarks, I think you said it were up to 80%. Just curious if you can just elaborate on that, the benefit you saw from that sales force I guess, infrastructure repositioning you had in the first quarter and then kind of your expectations here for the back half in terms of incremental additions?

Erica Rogers: Right. Sure, Neil. I’ll take that one. Thanks so much for being on the call today. So as we said before, our goal here is to really increase the touch points of our sales professionals with physicians because we know from our own data that when we do that, we drive physicians more effectively up the adoption curve. And so we ended 2021 with 58 territories. We took 2022 to 70. We said that we would grow the territories or expand territories roughly similar to that in 2023. And our goal had been to kind of spread that out over the year. As we said in our Q1 remarks, we responded to some incredible talent that became available to us in Q1 and reacted to that wave of talent and brought more people in sooner and also reorganized as a result of that, right, you’re promoting people internally, you’re creating leadership positions, things of that nature.

And so it feels to us like the commercial team is now fully enforced and executing. That said, we also said we’d add roughly a similar number. So there’s probably a little bit of work to do here in the back half and beyond. We’ll continue to respond to the business. But we feel like we’re in a really great place starting Q3 here with 80 territories.

Neil Chatterji: Great. Maybe just flipping back to the NCD proposal. Just curious on that in terms of some of the language that’s in there for the formal shared decision-making tool and kind of the intended neuro assessment. Just curious what are your expectations for that? And how that might help ensure an optimal patient procedure choice and outcomes?

Erica Rogers: Right. Well, just to reemphasize, our read of this CMS proposed memo here is really about access, providing patients access to care and mainly access to minimally invasive options. And we continue to believe TCAR is in the best possible position given its short learning curves and other real physician benefits to provide better access to patients. And so shared decision-making and some of the other sort of boundaries around this national coverage proposed memo are really shifting that responsibility back to providers and their patients and allowing them to make this decision together versus having CMS make a decision for them. And so we expect that physicians will adhere to the shared decision-making. We may or may not see more color or more granularity as to what that means in the final memo.

Operator: And our next question comes from Felipe Lamar of Citi.

Joanne Wuensch: It’s actually Joanne Wuensch on for Joanne Wuensch. I’m being silly, it’s a long day and night. I got a bunch of questions. So this is the thing. Do you think you can still grow TCAR revenue as fast as you have been growing under the NCD, not in 2023 because this won’t start impacting procedures until sometime probably in the first half of next year but maybe in next year.

Erica Rogers: Yes. So Joanne, good to have you on the call. I’m glad it’s you authentically for you on this call. Yes. So the answer, of course, is we’re not here to give long-range guidance and long-range predictions with any granularity. Of course, we’re not going to do that. But what we can say emphatically is this proposed decision is around providing access to minimally invasive options. TCAR is now the gold standard in minimally invasive options for the treatment of carotid artery disease. So we emphatically believe that this is a tailwind for TCAR. When you think about the entrenched nature of where TCAR is today across the care continuum from referring physicians all the way to treating physicians, from nurses and vascular labs and everything in between that I talked about in my prepared remarks.

Bucking against that entrenchment is going to be difficult for anyone else. But let’s be very clear that the real competitor and the real thing we’re going after every day is carotid endarterectomy which is still the majority of procedures today and the bar against which everything else will be measured. And when that is the bar, TCAR wins.

Joanne Wuensch: Okay. Let me ask a different question. Let’s just knock some of these out. Do you think you’re going to have to lower your ASP comparing the TCAR ASP versus CAS?

Erica Rogers: No.

Joanne Wuensch: And then my final question. Do you think you’ll be generating international revenue next year?

Erica Rogers: Joanne, we haven’t really sort of guided yet on where international revenue is going to come in, when it’s going to come in. I’ll just reiterate that we’re making really good progress on all fronts in both Japan and China. We’re very pleased with that progress. But I think we’ll hold the cards a little longer — I know that’s not very satisfactory — on revenue from international markets until we flip a couple more cards.

Operator: And our next question comes from Robbie Marcus of JPMorgan.

Unidentified Analysts: This is actually Rohin [ph] on for Robbie. Thanks for providing the background and your perspective on the NCD. Just to follow up a bit on that as Joanne’s question. What do you expect from cash adoption if the NCD is finalized? And do you have a plan in place to maintain share, whether that’s through price, further innovation or more evidence generation? And then I also had a follow-up.

Erica Rogers: Yes. Well, thanks for joining the call. I’ll take the first part of that which is that I’ll reiterate that the competitor here for everyone is carotid endarterectomy. And carotid endarterectomy has 70 years of history of a very low, exceedingly low, periprocedural stroke rate. Competition is at the procedural level. So it’s TCAR trying to unseat that inertia of CEA that’s been in place for 70 years. And we’ve been doing that and we have been winning. So anyone else who wants to come into this market or reenter this market, I should say, is going to have the same fight, right, against those outcomes. Now, we know a lot about transfemoral CAS because it’s, in fact, 30 years old. And in those 30 years, what everyone has learned about transfemoral CAS is that the periprocedural stroke risk is unacceptable.

It is twice that of carotid endarterectomy. So it starts there in terms of whether or not we think transfemoral CAS is going to make significant headway. We know from learning curve, transfemoral CAS is very hard to learn and get good at. It takes 70 at least procedures before you can get over a stroke and death hurdle. So I think the question everyone needs to ask is, how many cardiologists are going to go over that hurdle against all of the other exciting and interesting and well-paying things that cardiologists do all day every day. How many are going to take that risk? Well, the ones who are already doing it, who are successfully — the handful of interventionalists who are good at, who have been doing it for the last 20, 30 years. Those physicians we believe will continue to do transfemoral CAS as they always have.

Unidentified Analysts: That was really helpful. And I guess one more for me is that you mentioned the priority moving forward will be leverage down the P&L. So how are you thinking about sales growth versus OpEx growth moving forward? And when do you think investors can see the company breakeven.

Lucas Buchanan: Yes. So again, in my prepared remarks, we talked about the sequential decline in total OpEx as a percentage of sales even as we continue to expand the sales team. And so the incremental investments right now are truly in the sales team. We are at scale in our R&D function, in our G&A functions and our commercial support functions. And so as we grow the topline, we’ll continue to see that leverage and we’ll continue to see OpEx grow at much lower rates relative to revenue growth. And that will drive our pathway to cash flow positive and profitability. And as I said, we’re well capitalized to achieve that journey.

Operator: And our next question comes from Travis Steed of Bank of America Securities.

Travis Steed: I guess going back to the things that impacted your revenue procedure in Q1, maybe talk about what happened with those issues over the quarter? And curious why there wasn’t a catch-up — a more of a catch-up in revenue procedure but there was some destocking in Q1, just anything on the revenue procedure and the issues that happened in Q1.

Erica Rogers: Yes. Travis, thanks so much for joining the call. What I can say is that the very minor disruptions we had at the tail end of Q1 are well behind us.

Travis Steed: But no catch-up and no reason to see a catch-up in revenue procedure this quarter? Or should we see that this year or…

Lucas Buchanan: Yes, Travis, revenue per procedure in Q2 was roughly $7,020 by the math which was a step up off of Q1, as I said in my prepared remarks. Q1 and Q2 were well within the normal variation of history. So I want to really emphasize to not over index, right? We are — this business is meeting our expectations. It’s increasingly mature. Everything is normalized as we said that revenue per procedure will start to approach the combined ASP but never meet it. Remember, we’ve gone from sales rep 1 to 80 and we’ve gone from hospital 1 to 1,200 and we’ve gone from trained physician 1 to 2,600 which over many years is putting — take our products into the channel to get hospitals started, to get each individual physician started.

But here in 2023 and beyond, it’s really about driving deeper. And so it’s really kind of normalizing that reorder range. And so the business is performing as we expected. And we recognize revenue when a hospital orders a product and we utilize a unit when a physician does a procedure. And so quarter-to-quarter variation is not something to overly focus on. If you look at our last — our trailing 12 months, right, revenue per procedure is roughly $7,050, if you look at our last 8 quarters, it’s $7,100. So there’s always quarterly variation. It’s always a little bit lighter in Q1 and it steps up in Q2 and Q3 and sometimes it’s a little bit higher in Q4 and the cycle repeats itself. But there’s also pandemics and hospital financial pressures and our own sales territories that increasingly cover a smaller number of physicians and accounts so that they can go deeper.

And therefore, there’s just more focus and energy on helping hospitals manage their inventory. So we’d like to get beyond talking about this and talk about procedure growth and our strong ASP metrics. And I just caution you not to over-index on quarterly variation.

Travis Steed: That’s helpful. And then I think bringing the NCD step up again. But maybe, Erica, just add a view on the hospital economics here, same reimbursement, TCAR higher device costs. How much do you think economics might impact decision-making here, if at all? And there was some comments about the lack of a randomized controlled trial for TCAR. Do you feel like you need that at some point here to really develop TCAR longer term?

Erica Rogers: Yes. I’ll take the last part of that, Travis. And Lucas can help me out on the first bit. On randomized controlled trial, look, we’ve been in partnership with CMS for a very long time on the collection of real-world evidence. And as you’ll recall, that whole reimbursement paradigm for Silk Road for TCAR went into being at the behest of the Society of Vascular Surgery and in combination with FDA and CMS. And so this was well thought out from the beginning that real-world evidence was really what they wanted to see here. The paradigm of stenting the carotid artery and stents themselves has been well studied for many decades. So the new question was really how does TCAR do in the real world. And that is satisfying the CMS goal of access into the real world and extending this into broader patient populations and in the hands of more physicians.

And so keep in mind that CMS is not the customer here. The customer are patients and physicians. And physicians and referring physicians are deeply satisfied with the comparisons that have been made in these highly rigorous propensity matched studies that have been published in very high-impact factor journals such as JAMA.

Lucas Buchanan: Yes. I’ll take the economics question, Travis. So we’ve done deep work here and a lot of that work is in our investor deck relative to carotid endarterectomy. But obviously, we’ve been competing with transfemoral CAS all this time as well. And if we up level for 1 second, generally, the economic argument comes into play when there’s true clinical equipoise, right? But for all the reasons we’ve stated, there are many referring to treating physicians that don’t believe there’s clinical equipoise here. So the economic argument is less relevant, right? We’re talking about major complications and major impact on patients’ lives. But if we just held — if we assume clinical equipoise, TCAR and CAS cost about the same.

There are elements of each procedure that are more expensive and less expensive. But this assumption that the transfemoral CAS is cheaper and more profitable for hospitals, it’s simply not borne out by the data. We work very closely with a very well-known Stanford professor and consultant who runs a consulting effort for medtech companies, very well known. Jon Peach from Stanford, his consultancy is called [Indiscernible] and there’s very marginal differences in the cost of care for TCAR to transfemoral CAS. But shortly, strokes are very expensive. They add 5 days on average to the length of stay, including 3 in the very expensive ICU environment. So they’re expensive at a dollar level but they’re also extremely expensive at a reputational level.

So our sales team is equipped to go in and have these economic arguments. It’s, again, typically why would I do more TCAR relative to what I’m mostly doing which is CEA. And we’ve been winning that battle with data and we’re well prepared to continue to win that battle for accounts that want to talk about it relative to transfemoral CAS.

Operator: Our next question comes from Kristen Stewart of CL King.

Kristen Stewart: Sorry to beat a dead horse here but just to go back to the revenues per procedure. I’m just struggling a little bit to understand why it shouldn’t be more than $7,000 for the next 2 quarters in light of all your progress with ENFLATE and just kind of thinking about things rebounding off of that first quarter.

Lucas Buchanan: Yes. Kristen, thanks for the question. I mean, you’re right, the primary tailwind is ENFLATE, right? It’s a very small impact but it will be a larger and larger one over time. And the headwind is just what is the par level inventory that hospitals are carrying in this more mature [ph].

Erica Rogers: Yes. And Chris, I would just add. I think one way to think about this is we’ve raised our guidance at $182 million at the midpoint which represents 31.5% year-over-year growth. And we did that in the context of a kind of steady as you go revenue per procedure. And so what that tells you by inference is that the strength of the business is solid. The procedural growth is strong. The adoption of this technology is strong.

Operator: Our next question comes from Adam Maeder of Piper Sandler.

Adam Maeder: Congrats on the solid quarter. A couple of innovation-focused questions from me and I’ll just ask them both upfront. The first is, is there any update on the acute ischemic stroke program in the NITE-1 study? And the second is regarding stent technology. So it sounds like you have approval for these new tapered stents, the ENROUTE stents. You’re going to launch them first half of next year. Wanted to ask who manufactures those? Are these open cell stents still? And what is your view on covered stent technology.

Erica Rogers: Sure, Adam. Thanks for joining the call. On NITE-1, we continue to make progress there. I want to remind everybody that this is a first in-human feasibility trial. And we’re making good progress. I’ll just leave it at that. On tapered stent configurations, that is an extension of the ENROUTE stent family of products and the ENROUTE stent family of products, we have a manufacturing relationship as you well know, with Cordis. And so they are making the tapered configurations as well. On mesh stents, look, I think we should reserve comments a couple of years from now when those products get approved if they get approved.

Operator: And our next question comes from Michael Polark of Wolfe Research.

Michael Polark: I just have one topic and I’ll provide you an opportunity to comment on our research. Look, we dug into a bunch of government and other data sources and tried to re-triangulate market level, procedure volume in the U.S. each year for carotid revascularization. And as you guys know, our conclusion was 35% to 40% below the company’s estimate of 170,000. And so I heard the affirmation of the 170,000 estimate again on this call. And I guess, provide you an opportunity to comment on what gives you confidence affirming that number this evening and feel free to throw us under the bus, what was wrong with our research?

Lucas Buchanan: Thank you, Mike. I’ll take that one. So yes, throughout history and for a long time, we’ve truly vetted and we remain highly confident in our TAM estimate. It’s really not the company’s estimate. It’s a validated rate-based methodology by a market-sizing expert. Modus Health, counting billing records with — that are fraught with billings, incentives and errors and trying to grow them up [ph]. We’ve vetted this different ways we buy [ph]. We got checked this with our field team. We’re in 1,200 hospitals. We trained 2,600 physicians. We ask them all the time. What does your practice look like? How many people are you treating. And again, in the end, we remain really confident in all the various methodologies we’ve got checks we’ve used and we also see this NCD decision if finalized as really a rising tide effect and will accelerate TAM expansion.

Operator: At this time, I would like to turn the conference back to Erica Rogers for closing remarks.

Erica Rogers: Thanks very much, everyone, for joining us. We couldn’t feel better about the business and the future has never been brighter for TCAR.

Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.