Company Name: Cardiovascular Systems, Inc. (CSII) Event: Stifel 2019 - PDF document

Company Name: Cardiovascular Systems, Inc. (CSII) Event: Stifel 2019 Healthcare Conference Date: November 19, 2019 <<Mathew Blackman, Analyst, Stifel, Nicolaus & Company, Inc.>> All right. Well, good afternoon everyone. Thank you so much for attending the 2019 Stifel Healthcare Conference. My name is Mat Blackman. I ’ m part of the Stifel Healthcare Medtech Research Team. And today, we have Cardiovascular Systems, Inc., and Chairman, President and CEO, Scott Ward. Thank you for Scott for joining us. Scott is going to kick off with some opening comments, and then we could dive right into Q&A. And please don ’ t be shy if you guys have questions, raise your hand and come up and thank you, Mr. Scott, the floor is yours. <<Scott R. Ward, Chairman, President and Chief Executive Officer>> Hi, good afternoon everybody. Thanks for being here this afternoon. I ’ m just going to give you just a few quick opening remarks and then from there, we will go into a Q&A session. CSI is a market leader in coronary and peripheral atherectomy. We ’re focused on treating patients that have complex peripheral or coronary artery disease. First quarter, we had a very good start to our year. We delivered revenue of about $64.5 million, which represented 14.5% growth over the same period the prior year. Yeah, that was our sixth straight quarter of double-digit growth. So, we have really tried to build this business to deliver a good, strong, sustainable growth over time. We ’ ve delivered on that mainly through a few strategies. One is really sustaining 10% plus growth rate in our core business, which is our U.S. atherectomy business. We ’ re broadening our business to grow outside of the United States. So, we ’ ve launched our coronary business in Japan. We ’ ve launched coronary and peripheral in Asia and Pacific markets and Middle East, and we ’ re preparing to launch coronary in Europe this coming spring. The third major growth driver for us is really launching new products. And over the course of the past year, we ’ ve been launching what we considered to be interventional support devices, balloons, wires, and catheters that are used in combination with our coronary and peripheral atherectomy devices. We ’ ve launched most of the devices. We launched all the devices in coronary. So, over the course of the past year, we ’ ve launched the 1.0-millimeter Sapphire balloon, which is the smallest coronary balloon in the marketplace. We ’ ve launched the Teleport Microcatheter, which is the smallest Torqueable Microcatheter in the market and we ’ ve also just launched our nitinol coronary guidewire, the ViperWire, which is the only coronary – the only nitinol guidewire in the coronary market. That combined with some advances in our core device called GlideAssist and other advancements have really created a whole new product offering in coronary. Now, we ’ re in the process of doing the same thing in peripheral, and later this year, we ’ ll launch a full line of PTA balloons, and we ’ ll launch our radio toolkit that will also drive the growth of

our peripheral business. So, as we look forward, those are the primary growth drivers, growth in our core business of 10% new expansion to new geographic markets, and then thirdly new products. So, as we ’ ve projected about a year ago, we put out a five-year strategic plan, and we projected that we would deliver $435 million to $500 million of revenue by our FY2023. We ’ re about right on track to deliver that. If you think about that, that once again, is composed of a 10% CAGR in our core business, about $75 million to $100 million coming from new products and about $25 million to $50 million generated from new markets. So that ’ s a quick overview of kind of who we are? Where our recent performance has been and then what our strategic intent is going forward? And I think from there, we ’ ll just take any questions. Can I sit by you or sit back in … <<Mathew Blackman, Analyst, Stifel, Nicolaus & Company, Inc.>> Yeah. <<Scott R. Ward, Chairman, President and Chief Executive Officer>> All right. <<Mathew Blackman, Analyst, Stifel, Nicolaus & Company, Inc.>> So that is actually a great intro, start looking at your reports. Now, I think about CSI started four primary components and actually , I’ ll give off through a little bit more detail. So, let ’ s start with the base business again, that ’ s just the peripheral atherectomy franchises in the U.S. , that’s the faster joining markets in MedTech is made just with basic level, what are the key drivers for market growth? <<Scott R. Ward, Chairman, President and Chief Executive Officer>> Sure. So, let ’ s think about first start of our peripheral market. In peripheral arterial disease, we really face epidemic in this country. There ’ s probably somewhere in the order of 18 million patients that have PAD. There ’ s about two million that have peripheral ischemia, which is where we focus. So, we ’ re focusing on patients that have long and severely-calcified peripheral arterial lesions that marketplace is projected to grow and has been growing in the high single-digits. So, we had this underlying growth rate in that market of, let ’ s say, 8% to 9% range and that ’ s largely driven by the incidence of diabetes and obesity. So, unfortunate, but that is the – that ’ s what drives the epidemic. In the case of coronary – treatment of coronary artery disease, we focus on severely-calcified lesions. And today, probably, only about 4% to 5% of patients that have PCI are being treated for their severely- calcified patients.

If you look at that marketplace in total, probably around 15% of the patients should be cared for. So, the current penetration is 4% to 5% total addressable market, let ’ s say, it ’ s probably in that 15% range. So, there ’ s an opportunity, it ’ s probably a 3X expansion of market development for our coronary business. <<Mathew Blackman, Analyst, Stifel, Nicolaus & Company, Inc.>> And maybe, so at the most basic level, both of these markets are under-penetrated. My basic question is why is there a lack of clinical data? I think that ’ s part of it, but just help us understand how you can, for instance, take coronary from 4% to 5% penetration to maybe 3X that over the next every year? <<Scott R. Ward, Chairman, President and Chief Executive Officer>> Yeah. So in coronary, we have very strong medical evidence that we generated through three different clinical trials that have been performed, but there still is a question on seeking level one medical evidence, so that is the comparison of orbital atherectomy to a balloon angioplasty for the treatment of these severely-calcified lesions. To address that, we launched a large scale clinical trial called ECLIPSE, which is we ’ ve enrolled about 1,100 patients in that study now. And in that trial, we ’ ll be comparing a balloon angioplasty to atherectomy for these severely- calcified lesions, two primary endpoints, minimum stent area, which is just are we making that lumen larger after the procedure. And then finally, targeted vessel failure, which is at one year, are we improving clinical outcomes? So that ’ s a trial that we ’ ll drive growth there. I think in peripheral, w hat’s – peripheral is really most remarkable in that it is so fragmented. So, the care pathways there are incredibly fragmented. The referral patterns are fragmented and the way these patients are treated is largely fragmented. So, what we ’ ve done is, we haven ’ t designed and conducted clinical trials that demonstrate that we get really strong outcomes. So, we just finished our Liberty 360 trial. We reported the three-year follow-up on that study and for Rutherford 4-5 cases; these are fairly severely affected patients. We achieved a 95% freedom from amputation and major adverse events at three years with no incremental amputations after two years. And in Rutherford 6 patients, these are patients that when they present have a large enough wound on their foot that they could be a candidate for an amputation at the time they present. We achieved an 89% freedom from amputation and major adverse events at three years. So, really strong clinical outcome data in a real world environment and really that that ’ s very important in terms of sustaining our position in that marketplace. <<Mathew Blackman, Analyst, Stifel, Nicolaus & Company, Inc.>> And you ’ ve brought up the cliffs, and a lso we’ll just touch on it quickly. You will finish enrolling when, and you said there are two end points, one of them is an acute endpoint I mean though longer term. When might we see that endpoint in that data end would that acute endpoint do you think in and of itself without the target vessel failure data be enough to perhaps drive accelerating adoption of coronary atherectomy?