SILK (2020 - Q3)

Good afternoon, ladies and gentlemen, and welcome to the Silk Road Medical's Third Quarter 2020 Earnings. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, the conference call is being recorded. I would now like to hand the conference over to your host, Ms. Caroline Paul. Ma'am, please go ahead. Caroline

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 and Chief Operating Officer. Earlier today, Silk Road Medical released financial results for the quarter ended September 30, 2020. 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 and 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, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, physician training, growth in our organization and reimbursement, market opportunity, guidance for revenue, gross margin, and operating expenses in 2020, commercial expansion, legal expansion and product pipeline 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2020. This conference call contains time sensitive information and is accurate only as of the live broadcast today, November 10, 2020. Silk Road Medical disclaims any intention or obligation, 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 will turn the call over to Erica.

Thanks, Caroline. 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 and Chief Operating Officer. Our third quarter results are a testament to our team's steadfast commitment to serve prevention and the underlying severity of carotid artery disease. We achieved total revenues of $20.1 million, reflecting growth of 18% year-over-year. Our top line performance was driven by 25% growth in procedures for a total of approximately 2825 in the quarter. With these encouraging trends, we remain cautiously optimistic about the fourth quarter, recognizing strength and procedure volumes and underlying demand, but also acknowledging the very recent trends and potential negative impacts of the COVID-19 resurgence. That being said, we are incredibly proud to have recently crossed the 25,000 cumulative procedures milestone, a testament to our team's drive and the underlying market opportunity. Over the course of the year, we've been strengthening our ability to drive long-term growth. We are investing meaningfully in R&D initiatives, expansion of our commercial team, and the recent launch of our new website featuring our brighter campaign, the future of Silk Road is indeed bright. We are also positioning our leadership and organizational structure for growth ahead. As we announced earlier in the year, Andy Davis is spearheading our commercial efforts in the newly created position of Chief Commercial Officer. Andy he continues to have a monumental role in our commercial success by driving safe adoption of TCAR across the United States while gearing up for future legal expansions, product launches and international strategies. We are also pleased to have announce, Bill Whealon as our Executive Vice President of R&D. Bill brings two decades of scientific and development leadership to Silk Road where he is responsible for advancing our pipelines, and expanding our intellectual property portfolio. Bill has a passion for identifying and solving unmet clinical needs and a proven track record leading innovative R&D teams. He will be instrumental to our growth both today and tomorrow. And finally, I am excited about the promotion of Lucas Buchanan, who now has an expanded role as our Chief Operating Officer in addition to Chief Financial Officer. Lucas has deep knowledge of our business and strong leadership skills make him the ideal COO, as we scale our organization and pursue new strategic initiatives while maintaining operational excellence. Turning now to the three strategic initiatives for 2020 that we outlined at the beginning of the year, we are making significant progress on all three; U.S. Commercial execution, developing our strategy for label expansion and coverage for the standard surgical risk patient population, and further pipeline development. Starting first with U.S. commercial execution, we remain focused on our large untapped market opportunity to drive TCAR penetration in high surgical risk patients through increased physician utilization. While expanding our base of sales territories, hospital accounts and trained physicians, we have continued to add to our talented commercial team and remain on track to end 2020 with 40 to 45 active territories. Our team has also done an excellent job training physicians in new and innovative ways that adjust to the realities of the COVID-19 environment. Our physicians training in Q2 that we talked about on last quarter's call, we have successfully pivoted to new methods, and we are quite pleased with our training progress in the third quarter. Demand for TCAR training remains strong. As further validation of our platform we were also honored by the recent peer reviewed publication of the ongoing TCAR Surveillance Project in Annals of Surgery in September and our ROADSTER 2 Study in the American Heart Association’s journal Stroke this past July. These datasets in high impact factor journals enable the benefits of TCAR to reach a broad base of referring and treating physicians across the stroke care continuum and further validate our ever-growing clinical evidence-base as it reaches payers, regulators, medical societies, and other critical stakeholders. Collectively, these papers represent over 7,000 patients worth of data published in just this quarter. In this business, clinical data is a major tailwind for long-term growth. And now, shifting to our second key priority, providing more clarity on the regulatory and reimbursement strategy for standard surgical risk patients, we continue to make meaningful progress on our ongoing discussions with key stakeholders including the FDA. As previously disclosed, we have been targeting the end of this year to discuss our strategy in this area in more detail. While nothing substantial has changed in the assessment of our strategy, the process of working through it with the FDA, CMS and the Society of Vascular Surgery is simply taking more time. As a result, disclosure of our strategy is likely to occur after the end of the year. Our goal all along has been to reach an optimal path forward to obtain not just expanded FDA label, but also Medicare coverage and ultimately adoption and we remain on that path. Finally, our third strategic priority is focused on continued pipeline development. We consider ourselves experts in transcarotid access and neuro-protection, and we have made meaningful progress on product development, not just for TCAR, but also in acute ischemic stroke. We are expecting to move into clinical and regulatory activities for our neurovascular program next year. While much has been achieved in acute stroke thrombectomy in recent years, significant unmet needs remain in terms of patient outcomes, and we are excited about the potential for transcarotid therapies to usher in a new paradigm. In summary, we are continuing with our progress on our long-term initiatives, and we believe our opportunities in stroke prevention and acute stroke treatment, are brighter than ever. With that, I will now turn the call over to Lucas to review our financials in more detail.

Thank you, Erica. Revenue for the three months ended September 30, 2020 was $20.1 million, an 18% increase from $17 million to the same period of the prior year. Growth was again driven by increased adoption of TCAR across an expanding base hospital accounts, trained physicians and active sales territories, partially offset by regional headwinds related to COVID-19. There were approximately 2,825 TCAR procedures performed in the third quarter of 2020, representing a 25% increase compared to the same prior year period. Gross Margin for the third quarter of 2020 was 73% as compared to 76% to the corresponding prior year period. The gross margin decline was due to unfavorable production variances as a result of temporarily idled manufacturing operations early in the quarter related to COVID-19 as well as the timing of certain manufacturing engineering projects. Total operating expenses for the third quarter of 2020 were $23.9 million, an 18% increase from $20.3 million in the third quarter of 2019. R&D expenses for the third quarter of 2020 were $4.7 million, compared to $3.2 million in the third quarter of 2019. The increase was driven by an increase in personnel related expenses and product development initiatives. Sales general and administrative expenses for the third quarter of 2020 were $19.2 million, compared to $17.1 million in the third quarter of 2019. The increase was primarily attributable to expenses related to growth in our commercial team and personnel related expenses. Expense growth was partially offset by the continued reduction in travel, tradeshow and other expenses due to COVID-19. Net loss for the period was $10.3 million or a loss of $0.31 per share, as compared to a net loss of $8 million or a loss of $0.26 per share for the same period of the prior year. We ended the third quarter of 2020 with $153.9 million of cash, cash equivalents and short-term investments. To further strengthen our balance sheets and cash flow, on October 29th, we successfully refinanced our long-term debt at a significantly lower cost of capital with a new $50 million loan facility. As we approach the end of the year, we would like to provide some additional commentary on our strategic priority of U.S. commercial execution with the caveat that COVID-19 resurgence could impact our ability to achieve these. We currently have 40 active sales territories and expect to begin 2021 with 43. As it relates to physician training, we expect to have trained approximately 325 physicians by year-end, which would bring our total trained physician base to just over 1,770. As Erica mentioned, demand for training remains strong. Regarding our revenue outlook for the remainder of the year, we are cautiously optimistic as we continue to execute during the fourth quarter, but we want to be transparent about the difficulty estimating the impact of the pandemic on our near term financial results. That said, our team is resilient, our balance sheet is strong, and our therapy delivers value which positions as well as we close out the year and look forward to 2021. At this point, I'd like to turn the call back to Erica for closing comments.

In closing, we are well positioned for continued growth and we remain dedicated to meaningfully impacting both stroke prevention and acute stroke treatments. And in fact, we recently observed World Stroke Day on October 29th. Every year, this provides an excellent opportunity to raise awareness of the serious nature and high rates of stroke and the huge burden it places on over 40 million people worldwide, who are directly and indirectly affected by the catastrophic disease. This year, it is just as important as ever to highlight the prevalence of stroke and remind people not to delay their health care. I want to thank all of our many partners for collaborating with us on this important cause. Our team is working alongside them on this journey to change the standard of care and improve patient lives with innovative technology. As we like to say, at Silk Road delivering brighter patient outcomes through brighter clinical thinking. At this point, I would like to open the call for questions.

[Operator Instructions] Your first question is from Robbie Marcus from JP Morgan. Your line is open.

Great. Thanks for taking the question and congrats on a nice quarter. I'll just ask both my questions up front. You've made to what's called incremental new announcements on the call here; one, about the new stroke -- ischemic stroke pipeline product; the other about the strategy for standard risk, maybe you could address them separately first? There's a lot of ischemic stroke products out there. I've always viewed TCARs as delivery systems. Do we look at this as a delivery system for an existing ischemic stroke product? Or do we think about this as a totally independent, new product of your own? And then second on the standard risk approval pathway, maybe you could give us a little flavor for what's causing the delays of COVID? Or otherwise and what's the chance we still need a new trial from start to finish to get that? Thanks a lot.

Hi, Robbie. Thanks very much for the question. Good to hear from you today. Let me take those in the order they were asked. Let's talk about our initiatives in acute ischemic stroke first. So, I think it starts by saying we're taking a very differentiated approach to what is available in the market today, Robbie. And as you well know and as you pointed out, it's a very competitive space. And therefore, we believe it's not in our best interest to disclose all of the details right now. There will become a point in time where it makes more sense to talk about the products very specifically. But I will say this, which is, we've always been a company dedicated to improving outcomes. And when we look at the statistics on the outcomes from acute stroke thrombectomy and find that less than half of the patients do well, in other words, can live independently after a procedure. We see that as an opportunity for innovation and for improvement. And so, I think it's safe to say, our approach is quite differentiated and will be aimed at outcomes. On the second part of your question on standard risk, really nothing substantive has changed, Robbie. It's simply a matter of time. This just took more time than we had all hoped. And that's important due to the fact that we're working with multi-headed partnerships here with the Society of Vascular Surgery and the FDA really ahead of all of that. And while these entities have been very forthright and forthcoming in their assistance in this project throughout the year, I think it's safe to say there are some distractions, around the table that don't necessarily always make Silk Road, their very first priority. And so, while nothing substantive has changed, we feel good about the path that we're on as we were in the last call. We just need some more time.

Great and maybe just to clarify on the stroke product because the TCAR system right now uses a Cordis stent, is the, whatever device, that's going to be used for ischemic stroke. Can you say if that's a third party product or will it be an all-inclusive in-house product? Thanks.

Yes, I think at this point we're not really disclosing any of the details, but I will say that, Silk Road has been as disclosed in our S-1 Robbie way back, and the day has been working on products in this area for some time, and we've really spent this last year honing our internal efforts.

Your next question is from Joanne Waite for Citi. Your line is open.

Thank you for the update on standard risk and other products. Can we touch a little bit on international expansion and what you're thinking about there?

Yes. Hi, Joanne. Good to hear from you. Sure, we haven't disclosed anything on international in terms of the specific timing, other than to say we're, we're first working on removing the regulatory barriers to entering certain markets. And throughout the year, we've said we're focused on regulatory processes in both China and Japan. Certainly, Andy's new role as Chief Commercial Office, he has international responsibility now, which is providing some additional focus. But for now, we're not reviewing the details of the timing.

Thank you. And then my second question has to do a little bit with think about 2021 and I'm not asking for guidance, but what I'm trying to get my head around is. How you think about training the impact of a vaccine on your business? And in terms of any patients that may be sort of in a watchful waiting state that are looking for that entry to come into the pool?

Yes, really interesting question, Joanne. The news on the vaccine is obviously fairly new. I think we all knew it was coming eventually. And so, I think it's hard to pinpoint exactly how that's going to change or not change patient behavior, physician behavior, hospital behavior, all of that. I think it's safe to say that organizations like the American Heart Association, our physician partners, their hospitals, they're all working really hard at patient education to make sure that patients don't defer their healthcare. Obviously, there was strength in our procedure volume in Q3, which I think is a good sign. The patients are doing what they need to do to get their healthcare. As it relates to physician training, as we said in the prepared remarks, the demand for training remains high, and we've been pleasantly surprised by that focus among our physicians who also have a lot of other things to be thinking about in this period. And I think we're really proud of our team who has completely pivoted and learned new and innovative ways to train that that in many cases may, may be more efficient and better.

Your next question is from Rick Wise with Stifel. Your line is open.

Hey guys, this is actually Don on for Rick. Just had a question around the procedure number for the quarter, kind of seems to imply that the July through September procedures per month, on average are similar a little bit better than the extra in June, which is around 900. And I think that you said on the last call, July started off maybe a little bit less than that. Just wanted to hear from you any comments on sequential trends you saw within the quarter?

Sure, I think as Q3 typically is dealing, after the pandemic, it tends to be back half loaded. And there was a little bit more noise in the quarter. But certainly, we saw strong September, as we did in Q3 of 2019 and that trend played out. And so, as physicians and patients potentially took a break and vacations in the July and August timeframe and some other seasonality and as leave different good and bad amplitudes of various regional virus activity placed forth that we still had a very strong September.

Got it. Thank you. And set a question on the idea of moving docs further up the adoption curve. And it felt like coming into this year that was maybe an increasing focus with the number of docs that you already had trained, not for lack of interest and demand for new doc training, but yet a large base. It seemed like you'd be spending more time and effort there. But it's always a bit challenging for us to kind of measure your sense of the progress there given a new doc to dilute the procedures per quarter number and maybe COVID. So just anyway, you could provide some color on the progress you're making on the adoption front, whether that be more docs moving into a bucket that are doing, say 50%, or more procedures as TCAR, any way that you want to frame that?

Sure, well, there -- again, there's certainly more noise quarter-to-quarter this year with the pandemic, but I think the shorter answer -- the short answer is we continue to like the metrics we see. Q3was a return to a lot of the analytics we look at internally including procedures per doc, per time period. Q3 was similar to Q1 in that regard. So a nice recovery back to almost, pre-COVID type metrics, even as we continued to dilute the denominator with our trading activities in Q3. So that's the good news. And, looking forward to 2021 and beyond, as we've always said, we've spent many years building a really concentrated footprint of a commercial team going after a concentrated group of doctors and hospitals. And what will be our driver of growth in the years to come is the adoption curve. So that is still very much the focus of the team even though we continue to train new docs and add new accounts and add new sales territories, the bias more and more over time is really focused on driving physician utilization and driving procedures in each individual physician's adoption curve. And so, I think that's COVID overall and some of the different trends we see each quarter throughout the year, we're still on the right path, which is why we've continued to invest kind of across the board right in the commercial and physician training events and product development to position ourselves well for the long haul. And so COVID never deterred us from that, that goal -- those goals, and we have the balance sheet to do that.

Your next question is from Danielle Antalffy from SVB Leerink. Your line is open.

Hey, good afternoon, everyone. Thanks so much for taking the questions. Congrats on a good quarter. I was just wondering, if you could give any color on what's happening, if you have any visibility into the sort of new patient funnel coming into the system? And I don't know, if the right way to look at that is sort of a mix of asymptomatic versus symptomatic, and how that shifted in sort of the early days of COVID or what? And whether you can comment, if you look at Q4, it feels like backlog has largely been worked out, and so all of the growth from here would likely be coming from new patients into the system, and I didn't know if that was an accurate assessment or not.

Hi, Danielle, I'm so glad you asked that question. It's a question that was on our minds as well recently. And so, we actually looked at some recent data, to try to get a sense of how many patients or kind of new patient visits versus kind of existing already diagnosed kind of patient visits. And what we saw was, what you would expect is this, sort of big dip and new patients in that March, April or May timeframe. And then, it was interesting to see how it slipped back to kind of -- and in that timeframe, existing patients continued to come into their physician's offices, but albeit at a slower rate. What we saw recently was that, existing patients are strong and new patients are on the rebound. So at least across the board, patients visit to the health care provider are going up in both categories, both as new patients and existing patients, which we find to be encouraging. One of the other things that happens, of course, in our business is there's a fair amount of the business that is symptomatic, is typically about a third of our procedure volume. And those patients tend to be kind of more urgent in nature, and those continue to happen throughout this last quarter.

Got it. That's helpful. And then I just had another question. I know this was kind of anecdotal during COVID. But it sounds like you saw a little bit of a shift in at least in some centers to a higher percentage of TCAR procedures versus CEA given the shorter length of stay predictability, safety, etc. So I was just wondering, if that shift has sort of continued and or accelerated. Is there any trend that's sort of been sustained as we've sort of been coming out on the other side of COVID, not that we're out on the other side, yes? But anything of note there that you guys could point out, that could be a more sustainable trend? Once COVID is hopefully done?

Yes, it's a good question, Danielle. Of course, the data are lagging. So it's hard to answer that with anything that's kind of data driven in nature. But we can tell you anecdotally that we hear more stories like the one we told at the last earnings call and the one before that where physicians are choosing TCAR over its efficiencies is less burdensome to the patient to the hospital to the system. And patients have a higher probability of going home versus a step-down type facility and that's all good in the pandemic. So, we continue to hear more stories like that, but we haven't put any numbers behind it yet.

Your next question is from Adam Maeder from Piper Sandler. Your line is open.

Hi, good afternoon. And thanks for taking the questions and congrats on the quarter. I just wanted to ask about recent business trends and apologies, if I missed this in the prepared remarks, but sounds like you saw good momentum exiting Q3. But just wanted to ask about recent going trends for October and thus far in November, as we've started to see COVID 19 case counts start to decline here, so just any details you could share there would be great? And I had a follow up.

Adam. I'll take that. We obviously didn't provide any specific Q4 guidance. In the prior question, we said September was strong. October was similar, a slight decline numerically on procedures. And as we sit here on Tuesday, the 10th, the virus situation is obviously quite fluid with the news coming out of the Midwestern States, Utah, the state of emergency, things like that. Those are, those are real time COVID-related effects that that remain to be seen how it will affect the month of November and what will happen December, which creates some of the uncertainty, even though we're fairly close to the end of the year. But the underlying business trends absent those exogenous COVID factors and patient behavior remain very strong.

Okay. That's helpful. Incremental color there, Lucas, I appreciate it. And just for the follow-up. I wanted to ask about the neurovascular update and I know you're keeping things a little bit close to the vest for competitive reasons, but just wanted to see if you could give any extra color around regulatory pathway forward, plans to collect clinical evidence. Is this a 510k or PMA pathway? Just any color that you could provide would be much appreciated. Thanks so much.

Yes, Adam. I appreciate the question, but unfortunately, we just really want to keep the cards close to the vest here. I think you followed this market I know. And I know that, you know, it's, it's highly competitive, and there's kind of two ways, competitors maintain their lead in this space. One is through speed and the other is through intellectual property, and we're working on both. So, we're interested in kind of staying in stealth mode at the moment.

Your next question is from Bob Hopkins of Bank of America. Your line is open.

Okay. Thanks. And thanks for taking the question. Good afternoon. I just wanted to follow up a little bit on the pipeline commentary you made and the standard risk part. And on the shared risk, I don't -- can't recall if you said this, but do you -- are you communicating at this point, whether or not you'll need to run a new clinical trial presented at risk or whether that's not likely to be required based on all the data you've gathered through other means? I guess that's question one. And then on the ischemic stroke side, it sounds like you're going to need to do some clinical work. So, is it fair to say that this is -- from a commercial perspective, this is probably not a '20, '21 or perhaps even 2022 opportunity for you? So, I'll leave with that. Thank you.

Hey, Bob, I'll take the second part of the question and then hand risk back to Erica. But no, you should not expect revenue associated with neuro program in 2021. It's really R&D activities.

Yes. Obviously, Bob, we're excited about to talk about it because just in the last couple of years, there have been multiple published papers looking at the safety and efficacy of transcarotid access for to stroke. And many of the authors have concluded that outcomes can be significantly improved and patients who have prohibited or difficult transfemoral or other access. And so, it's interesting that, like TCAR, TCAR was a grassroots effort among vascular surgeons looking for a better way to do things and we're seeing that happening. So, the same story is kind of playing out here. So, we're very excited about what's coming ahead in stroke. On standard risk, we have not talked about whether or not a trial is going to be required. And we're going to continue to hold comment on that, Bob, and will obviously provide an update as soon as it makes sense. What we've been trying to do all along is, make sure that our partners here, the Society of Vascular Surgery, FDA in particular are really in lockstep with the strategy. And we just don't want to get ahead of them. And that's in part kind of leading to us pushing this out a little bit here today.

Okay. And then one quick follow up. But just curious on the stroke side, does your vascular surgeon customer base treat acute stroke today? Or is this -- are you going to have to kind of develop relationships with the interventional neuroradiology and neurosurgery community that primarily does that today?

Yes, it's interesting. The short answer is. There are some vascular surgeons who are in this room continuum of care, as you can imagine, particularly in symptomatic carotid artery disease. That obviously makes real sense. But I think it's safe to say that we haven't really disclosed the specifics and won't today, just because we want to keep the cards close to the vest on what the plan is, but it will reveal itself in time.

I'm showing no further questions. At this time, I would like to turn the conference back to Ms. Erica Rogers.

Thank you very much, and thank you all for your questions and for listening in today. Have a good holiday season. Bye-bye.

Ladies and gentlemen, this will conclude today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.