Cryolife are offering a multi-Hemostatic platform which will challenge their competitors and offer surgical alternatives, please find below edited comments from Q3, for full info click the link at the bottom of this post. A visit to the CRY site is worthwhile HERE
Ashley Lee - EVP, CFO and COO
We saw evidence that the cardiac business continued to improve during the third quarter. Cardiac revenues for the third quarter of '09 increased 4% compared to the corresponding period in '08 and increased 13% compared to the second quarter of '09. The increase in the third quarter compared to the prior year was primarily due to a 7% increase in unit shipments partially offset by a decrease in average service fees. We believe factors contributing to the cardiac improvement include our efforts in physician training, including the Ross Summit and monthly aortic allograph workshops, the efforts of our new specialized cardiac technical representative sales force, anticipated seasonal increases with respect to the increase over the second quarter and increased shipments into international markets in particular, Germany and Austria. Also positively affecting the cardiac business during the quarter was our 510(k) clearance of CryoPatch SG used for cardiac reconstructive surgeries. We anticipate
that this will be a growing part of our cardiac business in the coming quarters. The vascular preservation service business continues to do well. Vascular revenues for the third quarter and first nine months of '09 increased 8% and 10% compared to the corresponding periods of '08. These increases resulted from an 8% and 10% increase in unit shipments for the third quarter and first nine months of '09 compared to the comparable periods of '08. Surgeons are seeing the benefits of using our preserved vascular tissues, especially for prevention of amputation of lower limbs and in actively infected surgical sites. We believe that this will continue to be a very attractive market for us and we believe that we have significant room for growth in this business. Product revenues which consist primarily of BioGlue and HemoStase increased 5% in the third quarter of '09, compared to the third quarter of '08 and increased 6% in the first nine months of '09 compared to the first nine months of '08. The increase year-over-year primarily reflects the growing usage of HemoStase in cardiac and vascular surgical indications. HemoStase revenues for the third quarter and first nine months of '09 were $1.6 million and $4.1 million.
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Steve Anderson - President and CEO
On August 4, we announced that we had received a CE mark for BioFoam surgical matrix as an adjunct in the ceiling of abdominal parenchymal tissues, specifically liver and spleen when cessation of bleeding by ligature or other conventional methods is ineffective or impractical. The CE mark allows for unrestricted commercial distribution of BioFoam in the European community. BioFoam is based on the same protein hydrogel technology platform from which BioGlue Surgical Adhesive was developed, and becomes our second product from the company's protein hydrogel technology platform to receive a CE mark. The company has been developing BioFoam in conjunction with the United States Department of Defense which has provided the company with most of the funding for advancing this product. We continue to evaluate the potential for using BioFoam to seal penetrating wounds such as gunshot injuries as well as for other types of surgery. Today, the Department of Defense has granted about $5.4 million to CryoLife for the development of this surgical sealant. The controlled clinical launch of BioFoam began in Europe in early September with initial clinical uses occurring in Germany, the UK and France. Based on the number of liver and spleen procedures done annually in Europe, we estimate that this is a $30 million annual market opportunity with a worldwide annual market of about $100 million. As of yesterday, we had completed 21 BioFoam applications in 19 patients with the longest follow up now beyond 30 days in the controlled clinical launch. The product has worked well and provided homeostasis in all of the cases. All of these initial patients will have completed their 30 day follow-up by the 21st of November. We anticipate a full commercial launch in Europe to begin in January of 2010. Additionally, we have begun feasibility animal studies evaluating the use of BioFoam in cardiovascular procedures. One acute and two chronic animals were recently completed with BioFoam applied to the aorta, femoral veins and aortic jump graft. The BioFoam stop bleeding in all cases demonstrating the product's potential utility in these applications. The chronic animals will be evaluated at 30 days. We anticipate that BioFoam would be useful in cardiovascular procedures for external bleeding and suture line sealing. BioFoam is easily visualized in the surgical field and initial studies indicate that it biodegrades more quickly than BioGlue. We expect to conduct a pivotal animal study and file for a cardiovascular CE mark application towards the end of the first half of next year. If BioFoam proves to be valuable in controlling active bleeding in cardiovascular applications, we believe the market opportunity in Europe for BioFoam could be significantly larger than the market opportunity for BioGlue. Initial estimate suggests this expanded opportunity could approach $100 million annually. Earlier this week, we announced that the FDA had approved our Untied States IDE to conduct a human clinical trial for BioFoam for use in sealing liver parenchymal tissue on cessation of bleeding by ligature or other conventional methods, is ineffective or impractical. The approved IDE is for our perspective, multi-center randomized, feasibility study evaluating safety outcomes of BioFoam as compared to standard topical haemostatic agents. We will now seek approval from the United States Department of Defense which will be the final step necessary to begin this trial. Following DoD approval, the feasibility investigation will be conducted at two investigational sites and will enroll 20 eligible subjects with 10 subjects in each treatment group. Upon successful completion of the feasibility study and subsequent FDA and DoD approval, a follow-on perspective multi-center randomized controlled pivotal study will be conducted. It is currently anticipated, that the pivotal investigation will enroll a total of 164 eligible subjects. 82 subjects in each treatment group across a maximum of 10 investigational sites. The successful completion of the BioFoam US clinical trial which we anticipate will take about three years, would give the company a technology platform of three products to control surgical site bleeding that would in the aggregate, address active bleeding sites in vascular and cardiac reconstruction surgeries as well as the sealing of parenchymal tissues such as liver and spleen surgical procedures. Management believes that the total annual worldwide market for surgical adhesives and glues approaches $900 million.
Ashley Lee
As detailed in our press release this morning, we expect total revenues and preservation service revenues for the full year of '09 to be near the lower end of our previous range of guidance, BioGlue revenues to be slightly below our previous range of guidance and HemoStase revenues to be near the higher end of our previous range of guidance. We expect other revenues for '09 to be approximately $1 million primarily related to funding received from the DoD in connection with the development of BioFoam. The amount of other revenues is largely dependent upon actual expenses incurred related to the development of BioFoam. We currently plan to issue our initial 2010 financial guidance at the Piper Jaffray Health Care Conference in New York on either December 1 or 2. Although we are currently in the process of finalizing our 2010 plans, we will say that we certainly expect 2010 to be another record year in both revenues and operating income. There are a few items that we would like to comment on that we believe could be positive developments for the company in the future. As Steve mentioned earlier, we expect to begin enrolling patients in our BioFoam IVE either late this year or early next year under an FDA approved clinical trial. This will be the first step in getting a commercial approval to distribute BioFoam in the United States. We are still optimistic that we will get approval to sell BioGlue in Japan. Progress continues to be made on this matter. We are in the process of completing our second large animal study for the use of ProPatch our FDA cleared, SynerGraft processed tissue patch, for use in general surgery indications and specifically ventral hernia repair. If the studies are concluded successfully, we expect to ramp up our efforts to secure a commercialization partner in general surgery. We continue efforts on the business development front to find complementary products or companies that we can acquire to leverage our existing infrastructure and sales force to deliver more value to our shareholders.
Question-and-Answer Session
Matt Dolan - Roth Capital
First question on Bio, may be you can give us some detail there. We haven't seen a level quite as low for a year or two. What's happening there with pricing or competition or may be something at the hospital level? Just some more commentary would be appreciated.
Ashley Lee
Yeah Matt there are few factors that are playing into what we saw with BioGlue, First of all, we have seen some recent product approvals in recent meaning within the last couple of years. In areas where BioGlue had been used on an off-label basis, so we think that we've seen some of that business go away. We also continue to see hospitals challenge the use of products and surgical procedures, including seamless and haemostatic agents and we think that that's had a small effect on our business. We're also seeing some of our large competitors become very diligent in enforcing hospital purchasing requirements under their contracts. Again, that hadn't affected our business to a huge extent but again, it has had some effect. We've also seen hemostats actually be used in a small amount of procedures where BioGlue has currently been used. We don't think it's a significant issue for the BioGlue business going forward, but again, we did see we did see a little bit of that recently in the last couple of quarters. We still see a little bit of respect on pricing and for the nine months number, foreign currency exchange rates had an effect on the revenues year-to-date although to a lesser extent in the third quarter in this year. So, again there are several issues that we see there none of which I think, stands out anymore than the other. We hope that a lot of these issues are transient and that they will go away, especially factors relating to the economy. We think others will probably run their course in 2009 and going forward, we're still optimistic that we're going to be able to grow the business. Its a major focus of the sales force going into 2010 and if all goes according to plan and what we see, we still believe, that that long term, we're going to be able to grow this business at a rate consistent with growth in cardiac and vascular surgical procedures which is in the mid single digit range.
Matt Dolan - Roth Capital
So, if I look at the guidance, what it implies for Q4, for pushing down towards the lower end of things, it's still a sequential increase but, not significant. I know last year, you saw a sequential decrease in Q4, but for the most part, it seems like Q4 is one of your bigger quarters of the year. Is that guidance related primarily to the BioGlue situation or maybe is there a more general comment you could provide on hospitals and destocking and some of the issues we saw earlier this year, what's the rationale there?
Ashley Lee
I'll comment on BioGlue specifically and we certainly expect to see fourth quarter be sequentially better than the third quarter. If you look at where we are in the month of October right now, October is on track to be better, provide good revenues than any particular month, any single month in the third quarter, and we expect that to continue into the fourth quarter. So, a couple of things there, we expect BioGlue to increase sequentially. We also think that that will have the effect of increasing gross margin sequentially in the fourth quarter compared to the third too, because it was a little bit lower than what we wanted it to be in third quarter and because BioGlue has such high gross margins, it effected margin in the third quarter and we fully expect gross margin in the fourth quarter to increase sequentially over the third.
Matt Dolan - Roth Capital
So may be just a general, I know you gave a kind of a synopsis of what's going to drive growth, but if we think of a base business growing in the mid-single digits, how are you going to provide growth or accelerate growth from what we've seen here in 2009, whether it be adding to the sales force or some of the initiatives you hit on. Are any of those something we should start to rely on?
Ashley Lee
Well, I am talking about tissue specifically, we continue to see year-over-year growth there, the cardiac business has certainly rebounded and we're seeing year-over-year growth in the vascular business. We expect that to continue into 2010. For BioGlue again, it's a major focus of the sales force right now. There are a few things that we are working on there from a marketing standpoint. We're really looking at marketing BioGlue in combination with HemoStase as a perfect partnership to really address like 90% of the needs that the operating room has to control blood loss. So, we're really focusing on marketing the two products together. We've always marketed their speed, simplicity and ease of use. We also are taking a different approach with product approval committees; especially as it relates to HemoStase and we are focusing on the economic story using BioGlue and the cost savings with the reduction in blood products. So, we fully expect to be able to grow BioGlue. And then HemoStase again, we're only getting into our second full year of the launch in 2010 and we expect that business to increase significantly.
Greg Brash - Sidoti & Company
And then just on the BioFoam expectations, you talked a little bit about potentially using in cardiac procedures, may be where you are using BioGlue. How long until those studies are completed. When can we realistically may be expect an indication [assumption] in that margin?
Ashley Lee
BioFoam will have a full launch in international markets at the beginning of next year. The initial work that we have been doing for sealing organs indicates that it is very effective. It can provide hemostasis and a liver reception under one minute, which is superb. And then the animal studies that we have recently been doing to evaluate the effectiveness for cardiovascular surgery would indicate that it can effectively hold cardiac pressure, which is extremely encouraging. And I am very encouraged about that because, there has been some criticism of BioGlue's long degradation time and the studies that we've been conducting, showed us that BioFoam pretty much is gone after six months in the body, and I think the doctors will find that very helpful to them. It's also very easily seen once it's applied in the body. You can see it more easily in the surgical field than you can see BioGlue and it isn't as runny. I think its going to be very user friendly, that's what I am leading up to there. But it's effectiveness as a haemostatic agent is very encouraging to us and that is going to end up being a significant product for us. That will give us three sealants adhesives, call them what you wish, had act in significantly different ways and have very different uses, whereas the HemoStase isn't very strong. BioGlue is very strong. And to refresh people's memory, BioGlue can withstand 500 millimeters of mercury blood pressure, within two minutes of being applied and BioFoam will fit right in the middle of those two products. It be very nice product, very versatile product and I am looking forward to that making a significant contribution in international growth next year.
Greg Brash - Sidoti & Company
And just one more on BioGlue, you mentioned several issues that have been impacting sales. Did you believe it's more a function of just hospitals cutting back on using sealants in a way to cut costs or a competitor out there just really taking on a share?
Ashley Lee
We really think it's just a conglomeration of all the factors that we mentioned Greg. We don't see any one of those factors contributing significantly more than the others. Just a lot of little things at this point, but we think that we're on our way to addressing several of those and again, we expect revenues to certainly increase sequentially in the fourth quarter and we expect the growth in 2010.
Ashley Lee
We have about 12 cardiac specialists throughout the United States and we're going to be adding to that in 2010 and we have between 40 and 45 sales representatives that handle vascular tissues. Vascular tissue sales reps handle vascular HemoStase and BioGlue and the cardiac specialists who focus primarily on cardiovascular surgeons would be handling the three products as well. That's how it's sorted out but, it takes a more sophisticated sales run to effectively interact with the cardiovascular surgeons. I think you have to know a lot more about cardiac reconstruction to be able to communicate effectively with them and that's why last year we took the top salesmen in the company and put them over into that new sales job and its turning out to be very effective.
The full transcript is available at Seekingalpha
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