Thursday, October 27, 2011

CRY Q3 10Q, FDA Disapproves Perclot IDE.....Perclot China Trial underway......

10Q - PerClot and HemoStase
Revenues from the sale of hemostats, consisting of PerClot and HemoStase, decreased 71% for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. Revenues from the sale of PerClot and HemoStase decreased 40% for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. The revenue decreases in the three and nine months ended September 30, 2011 were primarily due to a decrease in hemostat sales volume in domestic markets, partially offset by an increase in sales volume in international markets. The revenue decrease in the nine months ended September 30, 2011 was also impacted by a decrease in average selling prices, which decreased revenues by 6%.
International hemostat revenues increased 24% for the three months ended September 30, 2011 and 55% for the nine months ended September 30, 2011 as compared to the three and nine months ended September 30, 2010, respectively. This increase is primarily due to an increase in international sales of PerClot in the 2011 periods over the international sales of HemoStase in the corresponding 2010 periods. Management believes that international PerClot revenues have been favorably impacted by the Company’s ability to market PerClot for all surgical specialties, expanding the direct European sales force into Austria, and PerClot’s product performance when compared to other hemostatic agents.
The decrease in domestic sales volume for the three and nine months ended September 30, 2011 was due to the Company’s planned discontinuation of sales of HemoStase in late March 2011. The Company recognized no domestic hemostat sales in the second or third quarters of 2011, subsequent to the discontinuance of HemoStase sales, as PerClot is not yet approved for commercial distribution in domestic markets. The Company anticipates this loss of domestic hemostat sales to result in a decrease in total hemostat sales for the remainder of 2011 when compared to the corresponding 2010 periods.

The Company will not be able to sell PerClot in the U.S. in future years until U.S. Food and Drug Administration (“FDA”) approval is granted. On March 31, 2011 CryoLife filed an Investigational Device Exemption (“IDE”) with the FDA seeking approval to begin clinical trials for the purpose of obtaining Premarket Approval to distribute PerClot in the U.S. On April 29, 2011 the FDA disapproved CryoLife’s IDE filing with numerous comments and questions. CryoLife is currently addressing those comments and questions and anticipates refiling its IDE for PerClot in the fourth quarter of 2011.

Q3 Report - Brackets have been added-
Ashley Lee...
We experienced some delays in getting PerClot approved in certain international markets and some competitive issues in the EU, which leaves us to slightly lower our guidance.

Worldwide BioGlue revenues were up 10% for the third quarter and up 5% for the nine month period. These increases were predominantly driven by volume increases, particularly in Japan, due to the recent launch of the product. This was the largest year-over-year quarterly increase for BioGlue revenues, since third quarter of 2008, and we continue to remain enthusiastic about the opportunity in Japan.
Total sales in the third quarter in Japan were $651,000 and year-to-date in Japan were approximately $1.2 million. To-date, approximately 250 surgeons have been trained and over 160 accounts have ordered product. We expect another large order from Japan before the end of the year.

PerClot sales for the third quarter were $620,000 and were $1.9 million year-to-date. We experienced some delays in getting PerClot approved in certain international markets and some competitive issues in the EU, which leaves us to slightly lower our guidance. However, despite these delays, our international revenues from the sale of powdered hemostats in the third quarter still increased 24% compared to the prior year, and 55% for the nine month period compared to the prior year.

Steve Anderson...As Ashley has discussed earlier in third quarter of 2010, we announced our first technology acquisition and that we have signed a worldwide manufacturing and distribution agreement for a unique powered hemostatic agent PerClot with Starch Medical of San Jose (Shanghai), California (China).
(Chinese) PerClot is an ideal replacement for the hemostatic powder that we had been distributing worldwide. The primary difference is that PerClot’s gross margin will be 80%.....we filed our IDE for PerClot with the FDA in March of this year. The FDA had questions about our submission that we have been addressing. We will be reaching our IDE to the FDA in mid November. We expect to begin the clinical trial for PerClot (Link to current trial Xijing Hospital of Digestive Diseases, Xi'an, Shaanxi, China) during the second quarter of next year. The clinical trial will probably involve about 300 patients, 150 PerClot patients and 150 control patients. We expect that with six months enrollment and three months follow-up of these patients that we will file our PMA in the second quarter of 2013.

  • In which circumstances does the FDA disapprove or withdraw an IDE?
    FDA may disapprove or withdraw approval of an IDE application if FDA finds that:
    1. The sponsor has not complied with applicable requirements of the IDE Regulation, any other applicable regulations or statutes, or any condition of approval imposed by an IRB or FDA.
    2. The application or a report contains untrue statements or omits required material information.
    3. The sponsor fails to respond to a request for additional information within the time prescribed by FDA.
    4. There is reason to believe that the risks to the human subjects are not outweighed by the anticipated benefits to the subjects or the importance of the knowledge to be gained, that informed consent is inadequate, that the investigation is scientifically unsound, or that the device as used is ineffective.
    5. It is unreasonable to begin or to continue the investigation due to the way in which the device is used or the inadequacy of:
      (i) the report of prior investigations or the investigational plan; (ii) the methods, facilities, and controls used for the manufacturing, processing, packaging, storage, and, where appropriate, installation of the device; or (iii) the monitoring and review of the investigation.
Q & A...
Matt Dolan - Roth Capital Partners
Great. First question on the guidance, just looking at the revenue at this point it implies maybe around 10% sequential uptick in Q4. So how far below $122 million should we expect or what gets you to that type of sequential uptick, meaning, is there a category that improves something on the macro level that rebounds?
Ashley Lee
We think that the upside is in the Cardiogenesis product line and the PerClot product line as well as potentially BioGlue in Japan.
Matt Dolan - Roth Capital Partners
Okay. But given your guidance on those categories it still requires a pretty big sequential uptick?
Ashley Lee
Yeah well the possibility exists again that we could do better and then we expect to do better in Cardiogenesis, PerClot, and BioGlue in Japan. And that -- we think that that’s, we have more upside in those three areas than the rest of the business.
Matt Dolan - Roth Capital Partners
Okay. And then on the earnings guidance just to clarify, I think the delta between adjusted and GAAP last quarter was $0.05 as supposed to an $0.08 differential at mid year. So I wanted to make sure that that’s the reason for the increase in the earnings guidance? And secondly the implied guidance for Q4 cuts EPS basically in half. So I’m just trying to understand why that would be?
Ashley Lee
The primary driver in non-GAAP, the increase in non-GAAP EPS as compared to the end of the second quarter is primarily due to the shifting of some R&D expenses due to some delays and getting some studies started, as those will be shifting out of 2011 into 2012. As it relates to the fourth quarter we provided for some additional expenses in the fourth quarter this year to account for the ongoing discovery and the acceleration of the discovery in our litigation with Medafor.
Raymond Myers - Benchmark
And that was going to be my next question. So let’s get right to that. Roughly how much Medafor litigation expense should we expect?
Ashley Lee
If you go through the end of the third quarter we had spent about $1.4 million and we’re expecting a similar amount in the fourth quarter of this year about $1.4 million.....

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