AngioDynamics, Inc. (ANGO) Earnings Call Transcript & Summary

Good morning, everybody. This is Travis Steed. I'm the medtech analyst at Barclays. And up next, we have AngioDynamics, Jim Clemmer, President and CEO; and Stephen Trowbridge, Vice President and Chief Financial Officer. We'll hand the floor to them. They're going to give a presentation this morning. So Jim, well, you can start whenever you're ready.

[Technical Difficulty]

Jim, I'm so sorry for interrupting you, but we can't hear you.

We'll apologize for an audio -- technical difficulty this morning. We'll realign the slides. And folks, sorry for the technical difficulty. We'll go back to the very beginning. That we remind investors, thank you for joining us. The forward-looking statements that are important to remind people what you'll hear from us in the next few minutes, our strategies and ideas we have to improve our company, our business and our valuation, but we cannot guarantee any of these will actually come true. So that being said, let me talk to you about the transformation that AngioDynamics is going through. We have decided to focus our transformation on 2 areas: number 1, the quality of people that we have here, the talent, adding new capabilities to our company; and number 2, our portfolio, making sure we can compete in markets that are larger, faster-growing and where technology drives outcomes in patient wellness. And that's what I think we've done today. Let me share with you some of those thoughts. So if you look at what we've done also, our transformation has grown the total addressable market that we compete in from just over $1 billion a couple of years ago to today, about a $3 billion market. That will double again in the next 4 to 5 years to about a $7 billion market. And you'll also see that the growth in these markets are more rapid because we're in areas where treatments are growing and the treatment modalities are more interesting to physicians who are utilizing treatments like the ones that will provide devices and technology for. This is part of our transformation. We think it's very important. AngioDynamics does have a vast portfolio, and a diverse product portfolio. What we're going to focus on over the next few years are the 3 things you see on the left side of this slide, our technology products that we believe we can measure outcomes more clearly, provide value to clinicians who provide wellness to people in need, and our Auryon laser system, our AngioVac thrombus products and our NanoKnife non-thermal ablation products are the areas that we feel can drive the most value for our clinicians and physicians and our company. Let me share with you some more thoughts around that. We'll grow our company utilizing innovation as a technology tool as most of medtech has done for many years. We have 3 different enablers for our innovation pathway. M&A, which, as you've seen, we've already chosen. We've divested 1 business, really our largest single business, our NAMIC fluid management business, which was actually large, but it was not technology driven. It was more commoditized kit packing. So we divested that business nearly 2 years ago to the rightful owner. And we are -- in fact, we reinvested some of those proceeds into some of the areas you'll see here in the next few minutes. We'll always utilize R&D to continue to drive the technology platforms we have today to have derivatives and new pieces from those platforms. And finally, something that we call clinical and regulatory pathway expansion, which enables us to drive better outcomes through indication expansion and measurement of data as selected by our physicians and caregivers, looking towards expansion of our indications and reimbursement pathways. It opened up more access to people to use our devices to treat people along the way. These are what we're focused on, and it's really important in our transformational journey. Let me share with you a couple of thoughts about our newest market we entered with the acquisition of Eximo Medical nearly 2 years ago. Our Auryon PAD laser-based atherectomy system. How is Auryon different than the other lasers that are in the market for many years and other non-laser offerings out there. A few different ways, we'll share those with you. Wavelength matters and pulse delivered energy in our case. We utilize a different nanometer wavelength than other ones that are on the market today. And the pulses of really intense, powerful laser wavelength, enable calcification, hard or soft, above or below the knee to be treated. We can break down this calcification in different aspects of the artery structure. You can also aspirate with 2 of our 4 sizes and enable really good clearance of the artery and healthy blood flow to save limbs and save lives. The Auryon laser-based system will compete in the market that today is over $550 million in the U.S. alone, competing with some good product offerings that are out there. But we think this has unique features and benefits, and the indication that's been granted on our 510(k), proven by the IDE data that was generated. It's really, really powerful and shows why we were attracted to this unique asset, and why we're investing into this asset. So as you'll see on the next slide, we're really going to focus on 3 different areas to grow this business over the next couple of years. Our commercial scale. When we bought this business a few years ago, there was only 1 commercial person in the U.S. We've now added over 30 commercial people and clinical support people, supporting our customers and our usage of this product. As you've seen after the second quarter, we've sold over $3 million after 2 quarters of this year, so hopefully, we're on track to hit the guidance targets we gave you of $7 million to $10 million in this first fiscal year. We're also going to add to the data and help support data collection for this unique science, making sure people can measure how effective it is. And finally, we believe this is a platform and the unique science and technology, a platform-based approach that may have other applications that we can treat. We'll talk to you more about that over time. So we're really excited to have the Auryon PAD system in our bag. It's sold by one unique sales force that's focused on driving this and making sure our customers are used to using it and growing our market share. Now let's talk to you about our thrombus management portfolio, the second of our 3 technology areas that we're investing in. Today, we have 2 unique offerings with our Uni-Fuse* catheter and our AngioVac catheter. We really want to grow in the space that we're defining as VTE, which is the combination of DVT prevention and treatment and pulmonary embolism prevention and treatment. Together, this VTE space, we think, is really exciting for a few reasons. One of which -- we're not the only company that's innovated and brought some really unique products to the market. We believe that the mechanical thrombectomy offerings by other companies and us are giving physicians confidence to utilize mechanical thrombectomy as a treatment option in more and more cases as they look to ways to treat DVT and PE over time. Go ahead, Steve. What you'll see over time is a different spectrum of treatment options that enable the caregivers to choose how they can treat a DVT situation based upon the severity of the case. And we think that over time, we'll see people migrating less from lytics and drug based therapies more to mechanical options, some of which are on the market, some of which you'll see that it will be newly launched, something we're going to talk to you about in a few minutes. But we think we'll compete in this area really well as we do today with our AngioVac offering. So today, we compete in this marketplace. We really have on the low end of acuity and the low end of simple complexity of cases our Uni-Fuse* and Uni-Fuse+ catheters that can help deliver lytic to the area in need. Now on the top of the slide, on the very high end of our portfolio is our AngioVac, which is really focused on treating people in the right atrium, to ensure that we can do what others can't do. It's a unique device. But it also limits what we can do when you look at the middle space and areas with moderated complex situations. And other companies in the marketplace are doing a good job filling that portfolio. We think we can do a better job and have a larger piece of this $3 billion market that's also rapidly growing. So let me give you a little quick run through and show you our AngioVac product. What makes AngioVac different and unique and why it's so effective at clearing massive clot is 2 main reasons. Number 1, AngioVac is on a perfusion circuit, enables the caregiver to reperfuse the patient's blood during the procedure, as we know, blood loss can be a risk in one of these procedures when we're removing clot and clearing the vein. So AngioVac enables a caregiver to go after a larger clot, more severe case, reperfuse the blood back in the body, keep the patient healthier during and post-procedure. That's very, very important. Number 2, a primary vortex funnel tip that is unique to our design, enables us to really grab larger pieces of clot and pull that in and really clear veins from really massive pieces of clot that's something else -- there really is no other offering in the market. So what we found recently, as you've seen by our performance, we've grown AngioVac year-over-year, about 30% to 40%, more and more physicians getting comfortable with the way it works and how it can treat. Many of these physicians have asked us could we take AngioVac off the perfusion circuit, still keeping the vortex funnel tip and adding some other unique features. And they'd like to utilize that product in that moderately complex space. We do have some good choices today, but each of those choices have strengths and limitations. So we're going to do that real soon. We announced at our earnings call in January that we intend to launch an off-circuit manual mechanical aspiration device this calendar year. That device has a few unique aspects to it, very, very powerful. I think the suction it will create will allow physicians to pull really large clot and clear veins in a really effective manner. Number 2, it allows physicians to do what they do best, utilizing their knowledge and skill to control the aspiration capability, to utilize what they think they need to do to intervene with our [indiscernible] And third, it is versatile. We looked over time adding new capabilities, getting to different vein structures and then working towards a pulmonary embolism [indiscernible] over time to make sure that we can help become a really good treatment option for these physicians and to help treat more patients with different levels of VTE. So on the left side of the screen, what you'll see from us is a staged introduction process of a really good pipeline that we have of products that we'll launch into the space over the next few years. So we're a very serious player today with our AngioVac product in this space. We'll be a very serious player over time, provide these physicians with this innovative device and technology. Now let me have Steve Trowbridge talk to you about our oncology products and NanoKnife, in particular.

Thank you, Jim. Good morning, everybody, and thank you for sticking with us through those early technical difficulties. I think we've all been so excited about the prospects of vaccines and getting out of COVID that we've decided to revert to pre-pandemic technical capabilities. So thank you for sticking with us as we move forward. As Jim mentioned early on in the presentation, AngioDynamics is going to be driven by 3 main growth drivers. And those are technologies that provide platforms for us so we can go into very large, fast-growing markets where we have a technical advantage. He talked a lot about Auryon, which is a good example of how we use M&A as one of our drivers when we acquired that business after selling our NAMIC business. He also talked about our thrombus management portfolio, which is another great example of internal R&D and the coming mechanical product that we mentioned that we think is going to be a big growth driver for us. Well, the third platform technology that we have, that's a very good example of what we call regulatory and clinical pathway expansion revolves around NanoKnife or the irreversible electroporation technology. To explain what IRE is, IRE, irreversible electroporation, we wanted to go a little bit into the mechanism of action because it's important to understand how this technology is really a generation apart from other ablation modalities that are currently on the market. So as opposed to using extreme heat or extreme cold to kill cells, the way that we can get the desired tissue effect with IRE is through the application of electric fields that will use anywhere from 2 to 6 probes, acting as positive and negative electrodes to create this electric field. And we find that any cells that are within that electric field become decellularized. So we create nano-sized pores in their membranes, they can't control homeostasis and they die in a very gentle way, which is not as traumatic as extreme heat or cold, and then those cells are removed through the body's normal processes, which allow for revascularization. And what's really most important about this is that this provides the innovation that doctors need by being nonthermal, but more importantly, sparing critical structures. So we talk about the tissue effect that happens in that electric field, but what's really unique about NanoKnife is that critical structures such as nerves, bile ducts or blood vessels remain patent, which allows the tissue to revascularize, which does 2 main things for us, opens up different treatment options that physicians didn't have before. And within certain of those options, it gives doctors the opportunity to potentially preserve patients' quality of life. So as we talked about, NanoKnife is a platform, the same way that we think our thrombus management technology is, in the same way that we think our Auryon PAD is. So as you see here on the left of Slide 20, we talk about the different incidences of cancer and which are the most prevalent. What we've been doing with NanoKnife is listening to our market, listening to our doctors. They were telling us where they see an unmet need and where they think this technology can play a really important role to begin with. And one of the first areas that they told us that was in pancreas. Although it's not at the top of the list in terms of the incidences of cancer, it is one that has very few treatment options. And doctors very early on were telling us that NanoKnife had a very big role to play here. And that's why we went into our DIRECT study, and I'll talk about that a little bit more in a moment. But we do think this is a platform, and we think it can go to a variety of other treatment options based upon this unique mechanism of action. And what we're hearing from our physician community today is that they think prostate is the next market where there could be an opportunity to meet an unmet need. And we'll talk about that a little bit as well. So first, we talked about the DIRECT study. This is our ongoing IDE to study the use of NanoKnife to treat pancreatic cancer. Wanted to just spend a second talking about the structure here. It's a very comprehensive study. It's one that is not typically done in the medical device space. But we're very proud of the structure, and we're proud of the very large number of leading institutions that have signed on to be part of our study. We've got 2 protocols. On one side, we've got a RCT, it's a typical randomized controlled trial. And on the other side, we're collecting the real-world evidence data in a controlled registry. And we're excited to continue to move this forward even in the face of what we've seen as some delays given the ongoing COVID pandemic. But as we talked about, this is a platform, and our doctors are telling us there are other options. And so we think that it's important to understand the parameters of the prostate market as we think about where NanoKnife could go. As we said, pancreas was a little bit of a smaller market. Prostate, there's 190,000 men that are diagnosed with prostate cancer every year, and that was a number that came out in 2020. Now there are some treatment options, but they tend to be on a spectrum on one side being, we're going to come up with euphemism and call it watchful waiting or active surveillance. But it means go home and do nothing versus moving to a radical, which would be removing the prostate. Now there's very good curative statistics on radical, but we talked about that quality of life for patients. And the quality of life for men who undergo radical can be devastating based upon the side effects. And we think NanoKnife with its mechanism of action and sparing those critical structures, will provide an opportunity to fit in between those treatment protocols to give men another option. And that's one of the things that we are currently in conversations with the FDA. We're going to, as Jim mentioned, go out and collect data. We're committed to the science. We're committed to the data collection as we move all of our technologies forward. So we think as we continue to move forward further down the road, that this can be a huge driver for AngioDynamics as we continue to move into this clinical and regulatory pathway expansion process with NanoKnife. So similar to the other technology that we talked about, we're taking a very comprehensive approach to our NanoKnife business and our NanoKnife platform, leveraging our current indications, leveraging the current data that we have, investing in clinical data expansion, investing in new trials and making sure that we're focusing on reimbursement. One of the things that we've talked about through our earnings calls over the last 2 years is the tremendous progress that we've made in terms of reimbursement. That just wasn't there for this product a few years ago. ICD-10 code, the CPT codes that we have, continuing to focus on both tissue agnostic as well as specific indications as it relates to our reimbursement program. And then the team that we've invested in, it's a comprehensive team focusing on our sales and marketing, our R&D, clinical and regulatory as well as the medical support. So one of the things that Jim mentioned first, he showed that slide where we had, on the left, our growth drivers, and we've gone in-depth into all of our growth drivers in Auryon, AngioVac and NanoKnife. But a large portion of AngioDynamics' current business is in what we call that maintain. And we've got some very good businesses there. There are ones that maybe will not take the same amount of investment going forward because they don't have the same opportunities in terms of long-range R&D or new product introduction, but that shouldn't give us the implication that those businesses are not important to us. They're very important to us. And the Vascular Access business is a great example of this. The business that AngioDynamics has had for a while, and we'll admit over the years, was one that we were struggling. It's a tough competitive marketplace. If you look at the AngioDynamics management team that we have in place today, the sales force, the R&D team that's working in Vascular Access, this has actually become a very good strength for us over the last few years. This business has been performing well. We'll talk a little bit about our financial performance. But it's the type of business that provides that platform for us to continue to invest in the growth drivers that are going to be so meaningful to our top line growth going forward. This is the engine that's providing us some of the cash and some of the foundation as we continue to invest. And what's great about our Vascular Access portfolio, as an example, is we've been able to fill some of those technology gaps that we've had in the past that made it tough for us to compete with the acquisition of C3 Wave last year. So we now have a full range of product offerings all the way through the acute and the chronic care that's necessary to access patients veins through our PICCs, midlines, into ports, the dialysis and then now into the tip location. So the performance, the product portfolio, it's a great example of products that, although we haven't talked about it the same depth as our other growth drivers, are equally important and provide a very strong foundation for Angio as we move forward into our areas of growth. So just real quick, we want to talk about our first half highlights. As most of you know, we've got a idiosyncratic fiscal year, which ends May 31. So we will be talking to you about our third quarter results coming up at the end of this month. As you see, at this presentation, what we've talked about so far publicly is our first half results and that first half results that we've been very pleased with. There's no doubt that this year has been significantly impacted by the ongoing COVID global pandemic. But through that, we've been able to have a line of sight to revenue growth, driven by our growth drivers that we've talked about and that really excellent stable performance that we've seen from some of our other businesses like Vascular Access. Seeing about 5% revenue growth for the first half of the year with positive adjusted EPS growth, so we've been able to invest in our products. We've been seriously investing for growth. But being good stewards of our balance sheet and making sure that we're still dropping profitability and we're not going negative. And we've been focusing on cash this year throughout the COVID pandemic. And our cash generation has been very strong, able to -- allowing us to continue to invest in our internal operations. And you see the investments and the growth that we're getting from those 2 products. So 34% growth from AngioVac through the first half of the year. We're very pleased with that. We like the percentage growth for Auryon, given that we came off of a 0 base. But as Jim mentioned, we're hitting those targets that we put out at the very beginning of the year. We were very pleased with that response. So with that, let me turn it back to Jim.

Well, thank you again. As Steve and I mentioned, AngioDynamics is in the phase of a transformation that we're driving through our portfolio to appeal to more and more global physicians who utilize our products to drive outcomes. That is our transformation, we believe, will create value for those caregivers for the patients that need it, and ultimately, for our shareholders and investors. Thank you for joining us today.