Thursday, July 28, 2011

CRY Q2 2011

Comment: Solid growth from CRY this Q2...Hemostasis portfolio buoyed by off-label use of Bioglue (Purified bovine serum albumin (BSA) and glutaraldehyde) in Japan and a suggested move of Perclot manufacturing to the USA from China. For Perclot this should be useful considering how many markets require a Free Trade Certificate (i.e. These certificates are required by governments in a growing number of countries that need assurance that products exported from the United States to their countries are the same as products sold in the United States , presumably meeting all state and federal laws and regulations, thus posing no threat to their subjects. Exports to these countries must be accompanied by a valid certificate, or the product will not be admitted.)

Steve Anderson 

...Japanese BioGlue sales in early July continue to be strong and demonstrate that the product is being well received. BioGlue is also doing very well in Brazil where our distributor is on track by a $1 million during calendar 2011. Sales of BioGlue in Brazil have increased from $150,000 for 2005 to about $1 million in 2011. BioGlue is projected to comprise 40% of company’s sales in 2011.As you will recollect, BioGlue’s gross margins are in excess of 80%.
We are also very pleased with the early European market acceptance of PerClot. During the second quarter of 2011, sales of PerClot in Europe increased by 76% over the sales of HemoStase, a product we formally distributed for the same timeframe a year earlier. Sales of PerClot for the first six months of 2011 in Europe were $1,271,000 versus $721,000 of HemoStase for the same period in 2010.
In our opinion, PerClot is a more effective product than HemoStase [Arista, Medafor Inc.]. We believe that PerClot is a second generation powdered hemostatic agent and the doctors are genuinely pleased with what it does on the surgical setting. Sales in Australia have also been excellent.
During the first quarter conference call we stated that we had filed our US IDE for PerClot with FDA. The FDA had a number of questions and comments regarding our initial IDE submission. We have been addressing the FDA’s issue and are working on our responses. It’s important to note that HemoStase’s gross margin were 55%, and that when approved in the United States we will replace that product with PerClot whose gross margin will be an excess of 80%. I believe that PerClot sales will be a revenue and earnings growth engine for CryoLife going forward....
Ashley Lee
..Once we get PerClot, the manufacturing process transferred here [from current Starch Medicals Chinese manufacturing site] and approved in the US, that’s going to be an 80 plus percent gross margin product...

Steve Anderson
In addition to that, we’re working hard on getting third quarter approved in Brazil and in Canada, and we’re making good progress on that, its just a matter of working our way through the bureaucracy that is involved in approval in those countries. And so they should come on here in the next six to nine month and that products then would be looking at significant sales increases as a result of that. And the success we’re having in Brazil was of course with BioGlue it is sort of piggyback on that. And so, I would expect with the larger volumes late this year and next year with PerClot that those margins probably will continue to increase...

Raymond Myers - Benchmark
On the last call I asked you about this and you were a little more cautious at that time about Japan BioGlue sales, because that market is small you said that you thought you would have to do an additional clinical study to enter the $150 million general surgical sealant market in Japan. And I wonder are we being more optimistic now that we can broaden the use before having to do that study?
Steve Anderson
I think it’s evident that the Japanese physicians are using it off label for other uses. I think it’s too early. I don’t happen to know where they are using it at this time, but it’s obvious from the volume that they are using it an addition to and other places in addition to aortic dissections. We are going to do an additional clinical study, but we have the same exact approval from the FDA initially when we marketed that product in the States and of course and it ended up being used a lot for certain neurological indication and maybe that’s where it’s being used in Japan. I would have to ask our distributor we happen to know that I don’t at this early stage.

Joe Mondillo - Sidoti & Company
With the growth that you guys are seeing in BioGlue and PerClot, we assume to see an increase in CapEx going forward to support the growth that you are seeing?
Ashley Lee
Not necessarily. That’s one of the parts of our business that we think is very leverageable. We have got the infrastructure here currently at our facility to ramp production for BioGlue. We do not perceive any significant spend on CapEx for PerClot and getting that manufacturing process migrated [from Beijing, China] to our US facility....

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