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

Good morning, everybody. My name is Luke Sergott. I cover life science tools and diagnostics here at Barclays, and this is my foray into the biotech space -- or I'm sorry, med device space. I have Stephen Trowbridge with me and Jim Clemmer of AngioDynamics who are going to give a presentation.

Good morning, Luke. Thank you Thanks Barclays for having the courage to plan an in-person meeting. This is a challenging environment. So thanks for the invitation. Let me remind you, sophisticated investors, you understand what you hear this morning, our ideas, projections, plans, strategies. And I always consider the forward-looking statements that you're here to make sure you make good decisions as you invest. . So let's talk about AngioDynamics for a little bit. We're a company in transformation. And what we're doing is transforming from -- we've always been a diversified medical device company. Well, today, we're becoming a really focused medical technology company. That's easy to say, hard to do. We're going to walk you through how we're doing it, why we're going to create value for many of the people on the journey with us. First of all, what's really important for us, we took a look at where we were, where we wanted to be. What was important to us is we had to change, so we can get the markets that we're growing faster, markets where technology made a difference in care delivery to patients, markets where doctors could measure outcomes of the care they delivered and then we can change physician behavior, which is ultimately the [ trick ] in med tech. So we found an opportunity for us to change our portfolio and to enter faster-growing markets that were also larger and could accommodate the technology and innovation we were launching. So as you can see the total addressable markets for our company are in a great transformation as well. So how we'll do, what we'll do is actually complex behind the curtains. But we want to make it easy for you to understand if you can measure us and put some value on us along our journey. So what we'll try to do is take our 3 operating divisions and present them to you in a format that makes sense. So we're really focused on the right side of the screen, you see our med tech categories. These are the 3 categories I'll spend the next 20 minutes talking to you about. And these are the ones we're investing most of our resources there. Again, we believe these all have innovative technologies that are differentiatable and they can provide outcomes that are important to patients and physicians. On the left side of the screen, you see our med device products. The med device products are vascular access, catheters, core angiographic catheters. Some of the things that our company was actually founded upon 30 years ago. We do really well. We're market share leaders and #2 in many of these categories, and they provide good EBIT cash flow to our company. Over time, they'll become a smaller part of our company. The gross margin profiles are lower and the market access is difficult and we're not as interested in investing new resources in these areas, but they help us pay the bills to provide stability in our company today, we compete well. But what's important in the med tech categories, as you'll see, you refer back to our July guidance we gave in the 3-year plan. We showed you that we believe over the next 3 years, we can grow the med tech category at a CAGR of 35%. That's really important. Then, Steve will show you why this is important. About 1.5 years ago, that was only about 15% of the revenue of our company. Today, it's about 26%. It's on the way to be over 30% soon. We think that will create a lot of value for investors because those businesses would be valued at much higher rates on their own. Now let me take a few minutes to walk you through some of these products in the markets we compete in. One of the most important categories for us and a really great opportunity to create value is in our thrombus management business. You've seen from other players in the market who've done really well with innovative technologies, how you can create value in this space. We're a player today with a unique technology and a newer version that we just launched. Today, we look at the VTE market, the venous thromboembolism market has over $3 billion of potential opportunity in the U.S. alone. It's really split nearly 50-50 between the deep vein thrombosis opportunity and the pulmonary embolism opportunity. So we'll look at this market as a nearly $3 billion market. Today, we have limited access to it with our AngioVac products, competing maybe a smaller share, about a $100 million share of that market. But as we've just launched a new product and other iterations, you'll see in a few minutes, we're going to open up access to that entire potential market for our company. So what's unique about what we do and why are we valued by our customers. Our AngioVac product is really unique and special. This device can clear the most severe clot burden that a patient may present to a physician. We have the opportunity with the AngioVac because of how it does, what it does. It's really, really unique. Two unique design elements are the vortex funnel tip that enable a physician to pull mass clot burden from a patient's vein and open up what was really severely plugged prior to our intervention. It also works with a large bore catheter and works on a simultaneous reinfusion process because some of the risks of a procedure like this are blood loss to the patient in removing mass clot burden. Utilizing simultaneous reinfusion, we can keep that patient safe during and post procedure to remove mass clot burden and end the procedure safely. So this has been a tremendous product for us. If you look at our history, we've grown at double digits over the last 4 or 5 years, to continue to grow double digits. But it's also limited in the scope of where we can play it because it is large and complex. So many physicians have asked us, "Hey, can you take that vortex funnel tip that large bore catheter design off of the circuit and give us a handheld version that we can use our skill, our knowledge for and then utilize in many more patient opportunities that present themselves." And that's what we've done. So in December, we launched the AlphaVac, which is now a handheld mechanical version to do exactly what those physicians ask for. You look at some of the design elements presented on the slide here, you'll see really, really amazing design. We knew we had half of it right already with the vortex funnel tip and the large bore catheter opportunities is great steerability and other curve options we offer physicians as well when they want to access different parts of the anatomy. But doing the work we did with the Handle is really impressive. We listened to those docs. They really designed it, their input, their mouth to our ears is what designed this product. So we're really proud. We launched this product first in an 18 -- excuse me, 22-French device, which is still limited in the anatomy we can access because it's a large bore device. But it was the first in we're getting tremendous physician feedback. If you take a look at -- if you've probably seen on Twitter where lot of these doctors like to post, you've got 2 good devices today in this market that compete well, and we'll compete with those 2 devices. And we actually give a lot of credit to the work that Penumbra and Inari have done. They've been able to get physicians confident and comfortable with utilizing mechanical interventions such as these as a frontline tool treatment. We believe in that same thesis as they do. We can reduce lytics as a frontline treatment and utilize mechanical intervention. And now the AlphaVac, we believe, will open up that opportunity for our company to be a tool to be chosen. So in the next quarter, we'll open up. Our 18-French device will be launched in the AngioVac on circuit version and the AlphaVac manual control version as well. That will then open up. If you look to the box in the picture here on the slide, on the left side of the slide, the span beyond the box area right below that is the pink area, about a double size. We get into the ilio-fem. It enables us to get deeper in the anatomy and that really doubles the size of the potential market that we can access immediately. And what's also unique about the 18-French device, we think it would be an ideal device for pulmonary embolism treatment as well. We've already worked with the FDA and are filing the work necessary to begin our APEX trial as soon as we can launch the device. We'll utilize the APEX trial to prove our device can gain an indication for use in PE treatment and open up that larger market for us. So we're really excited about the design elements of the AngioVac and the AlphaVac. The markets that will open up for us to access and how physicians now can utilize their knowledge, their skill and their control with a device such as this, that's purpose built from the tip to the hand. And there's very few devices on market that have been built with that purpose and that reason behind it. So over time, we really have a nice pipeline of opportunities here in the mechanical thrombectomy space. We worked really hard to make sure we have this continuous pipeline that we can offer. Our customers, over time, they can treat more people and we open up more access to this large and growing market over the next 5 years. The second part of our medical technology portfolio I would like to talk to you about is our Auryon PAD atherectomy system. About 2.5 years ago, we purchased a company called Eximo Medical. We believe in the science behind what they're doing and how it works. I'll explain it to you a minute. But many of you may be comfortable today are knowledgeable about the atherectomy space. We view the atherectomy space today. It's about a $600 million market in the U.S. alone. It is really dominated by 4 competitors prior to us joining. 3 of those competitors utilize a mechanical version of catheter and one was a laser in the market. It's a bit different. But we also see the atherectomy space growing as more patients present in the U.S. with this terrible disease. And we also see atherectomy being chosen as a treatment option for these patients at a higher rate than it has been before. So we're very bullish on this market itself. We believe the opportunity that presented to us is also advantageous. So how and why do we take advantage of this market? With this unique science and device that we now have, the Auryon laser is very different than the laser that's been in the market for many years. This utilizes a solid-state design, not a gas-based system. It's small and easy to utilize, whether in a hospital setting or in an OBL. It allows physicians capability to move it around, utilize it with other things in their crowded space. Number two and most importantly, how it delivers energy is really, really amazing, utilizing a 355-nanometer wavelength and a pulse parameter that's very different from what is out in the market today. The combination of the pulse and the wavelength enables us to break down hard and soft calcification above and below the knee, treat in-stent restenosis and still maintain vessel wall protection and integrity, really a lot. No other device, we believe, has the ability to do all of those things with one powerful tool. So the reason we were attracted to this product was because of the science behind it and the opportunity in this space. Today, as you'll see, launched this product officially in September of 2020, kind of a tough time in the global market, but we are committed to the science behind this product. And as you see, in January, we reported these numbers here. If you're not familiar with our company, I'll remind you, we are blessed or cursed with a June 1 fiscal year start. So we just finished our third quarter, February 28. We report our third quarter [ June ] in a few weeks, but the numbers here are as of our second quarter as of November 30. And you can see already in about less than 18 months after launch, we believe we're running at about a 5% share of the market and growing and gaining share as acceptance of demand of our products has been terrific. We've also built a dedicated team around this business. As we know the other companies we compete against are really, really good. They have good teams. You're not going to win by just the best product. You can make sure we support our customers that use and make sure we can grow the market appropriately to the opportunities that we're presented with. So today, we're proud again that Auryon is not just utilized as the other laser is utilized above the knee. But the fact that we have nearly half of the interventions and procedures done below the knee is exciting to us, opens up a much larger market and target areas where other products can't get too effectively. So you'll see over time, data that we'll present this year from our own [ path finder ] sponsored studies and other data that other clinicians and physicians are sponsoring on their own you'll see presented during the course of this year. So far, everything that Auryon has presented has been really impressive on the outcomes. So taking a look at this foundation technology as well. When we saw it, we are excited by how it does, what it does, how it delivers energy and where potentially the energy can be used in the body to treat other opportunities. So Auryon is a platform for us. We have a pipeline of other development products -- projects that we'll present to you soon. We believe this unique science can be utilized for ours to access more markets, more opportunities become more valuable to our customers, whether there are OBL customers, our ambulatory care center customers or hospital customers. We believe it's a unique tool with the access capability to provide more than one opportunity. So again, I talk to you about our journey. What's important to us at AngioDynamics is this journey, transforming our company from, again, this diversified technology device company to a focused technology company. And how we're doing it is 2 of the 3 reasons what I explain to you now. Technologies that matter, the unique and their difference may provide outcomes that can be measured. And that those measured outcomes of how we'll change physician behavior and grow our company. So I'd like to invite Steve Trowbridge, our CFO, to join me, and Steve will walk you through our IRE product and our corporate look going forward. Steve?

Thank you, Jim. Good morning, everybody. And I want to echo Jim's sentiment from earlier that we're really happy to be here, and happy to be together. We know that we're all better together over the last 2 years. Jim has talked through 2 of the 3 technology platforms in our med tech business. He went through the AngioVac and the AlphaVac business in mechanical thrombectomy as well as Auryon in our peripheral atherectomy platform. The third technology that we have in our med tech group that is also a platform is IRE or NanoKnife. The NanoKnife is a product that Angio has had for a very long time in its bag. And over the last 3 years or so, we've really put the effort behind it to try to utilize and realize the benefit that this technology has. So let me take a second and explain the mechanism of action about NanoKnife, how it's unique and why we think that this is a platform for growth for Angio over the medium and long term. NanoKnife is an ablation technology, but different from other ablative technologies that use extreme heat or extreme cold to achieve their desired effect. NanoKnife uses an electrical field. So we'll use anywhere between 2 and 6 probes, each acting as a positive or negative electrode to create an electric field. Now the key is that any cells that are subjected to the electric field that NanoKnife creates will end up being ablated. Now the way that they're ablated is NanoKnife will create nano-size pores in the cell membrane. Those cells will then die in a way that mimics natural cell death. So we call this apoptotic-like death. And then those cells are removed by the body's natural process, but doesn't leave scar tissue. It's a lot less traumatic than if you were using, say, RF or microwave using extreme heat. The other key is that the cell area that's left will revascularize and so that it can repopulate without -- with healthy tissue. Now most importantly, critical structures that are within the ablation zone, nerve endings, bile ducts, blood vessels, all remain patent. So you can see that the opportunity here is that you can treat next-to-critical structures, you can treat areas that other ablative modalities simply can't treat. Now we were listening to the market, and they were telling us -- that first doctors were telling us that there is a huge unmet need in treating pancreatic cancer. It's a highly vascularized organ. There's just no way to go in and do manual interventions in the pancreas. It was really a death sentence and nothing had changed over 40 years. They were giving as much systemic chemotherapy as the patient could tolerate, and that's all that they could do. So they said, we think there's an opportunity to take this technology into pancreatic cancer. And we started our study called the DIRECT study about 2.5 years ago, again, as Jim mentioned, not the ideal time to start a study, but we've been pretty pleased with the progress that we've seen. Now before that study, there was over 700 patients that were chronicled in peer-reviewed journals that it had the NanoKnife procedure in pancreatic cancer. So we know it works. So we're very excited to continue to follow through on this FDA trial to prove the use of NanoKnife in pancreatic cancer. But as you can see here, pancreas is not the largest market. It's a terrible disease. There haven't been a lot of benefits, and we want to make sure that we're helping patients. So we're also listening to the market who's telling us there's another unmet need that we want you to go through very quickly. And that's in prostate. As you can see here, prostate is a much larger market than pancreas. And we think that's where you're really going to start to see NanoKnife as a business take off as we move into the prostate area. The prostate is one of those cancers -- one of the very few cancers that has no standard local treatment option. You would -- there would be 2 ends of the spectrum, either whatever euphemism you want to use watchful waiting, active surveillance, basically meaning you're diagnosed with prostate cancer, you're going to do nothing and just watch it for a while. Or moving to the other end of the spectrum, going right to a radical prostatectomy. And for those of you who have followed this, you know that the side effects with the radical are devastating at times. 70%, 80% of the people who go through a radical prostatectomy could end up with impotence or incontinence. So if you remember that mechanism of action of NanoKnife, this is why we think it's such a promising technology. You're preserving nerve endings, you're preserving all of the other critical structures. And again, we've seen this used outside the U.S. very extensively. And so we were really pleased that recently, the FDA came out with some new guidance that really facilitated our ability to get an IDE study approved to study the use of NanoKnife to treat prostate cancer. We are pleased that we were able to partner with the SUO-CTC clinical research initiative with some of the top names in the industry. So our principal investigators for the study [ Dr. Michael Coleman ] from Memorial Sloan Kettering and Dr. [ Arvin George ] from the University of Miami. We expect that enrollment is going to happen within the next several weeks here, and we'll be talking to you about that when we -- as Jim mentioned, when we talk about our Q3 results coming up in the first week of April. Before the FDA came out with revised guidance, the idea of doing a prostate trial for focal therapy and med devices was probably too daunting. You've heard the story that most men will die with prostate cancer as opposed to from it. It's true for probably 85%. There's the other unlucky 15% that had very aggressive disease. But for the most part, if you had to follow through to an endpoint of overall survival, you're talking of 10-plus years of follow-up as a study. So the FDA came out with revised guidance for focal treatment of prostate where they were allowing you to go after a tissue indication versus an outcome oncology indication, which really means that we have about a 12-year follow-up with primary endpoint of that study being no recurrence or looking at recurrence in the intended ablation zone. So we agree. We think this is the right approach. With the advances that we've seen recently and imaging technology, now is the right time to take this NanoKnife technology into prostate. So we're very excited about the opportunities here. So let me talk real quickly about the financials. I'm not going to spend a lot of time on this because as Jim mentioned, our Q2 we reported in the first week of January, and our Q3 just ended at the end of February, and we're going to be reporting it in April. But one of the things I do want to point out is as you see through this year, through a pretty disruptive year, even through 2 quarters, we were at about 8.6% growth, and that growth is coming from those med tech segments that Jim mentioned. And here's where I'm going to spend a little bit more time. So the revenue contribution of med tech versus med devices. As Jim mentioned, we were sub 20% last year and 1.5 years ago, at Q2 of FY '21 we were at 19% of all of our revenue was coming from our med tech segment. At the end of our Q2 for FY '22, that is up to now 24%. And you can see the growth. For the quarter, for Q2, we were growing 36% in our med tech segment. And year-to-date, we're at about 50% growth. So it shows you the transformation that Jim was talking about. We're going to be relying on those med tech products that are going into much larger markets, higher margin profiles, faster growth with technology platforms that we think give us a unique advantage that can drive patient outcomes and, therefore, influence physician behavior. This is a pretty good example of how we're going to be quantifying that story, and we'll be telling the same metrics as we move forward into reporting our Q3, Q4 and then beyond. So one of the things I do want to hit on quickly is the pandemic landscape. So you've heard about the procedural pressures that companies were under specifically in December and January. We were no different. We saw that in some of our main areas. We have seen some -- we have seen a situation get better, particularly towards the back half of February. So procedural volumes were absolutely pressured in December and January for a number of reasons. One, you have hospital systems that were starting to become overwhelmed again by the peak of the Omicron variant. But also what was a little different than other variants that practitioners in hospitals as well as in OBLs where the majority of our atherectomy business is today, we're having to shut down because they had their own caregivers that were catching COVID and getting sick and shutting down for periods of time. We've seen that abate. So I think as we got towards the end of February, that situation has improved and we're going to continue to monitor that through March. Now we felt this also went a way that was a little bit idiosyncratic to AngioDynamics and different from the macro environment in our manufacturing facility. So we have a manufacturing facility in upstate New York in Queensbury. And we ran into a lot of those same issues that the caregivers that I was just talking about ran into. We had a number of people at any given time coming down with the virus. And we were also impacted by the very tight labor market up there. So if you talked about coming out of our Q2 call, we had built up a relatively large [indiscernible] larger than we usually do, primarily because of this tight labor market as well as our own employees getting sick. So we put some initiatives in place. We wanted to increase our manufacturing capacity through a partner in Costa Rica as well as making some additional initiatives for increasing hourly wages, doing other things to try to keep people in our manufacturing plant. We'll talk a little bit more about that when we go through our Q3 call. We are pleased with the progress of our initiatives as we continue to kind of work through the disruption that the pandemic has laid us. Bottom line, however, is that strategic transformation that Jim talked about remains on track. And so even as we work through some of the acute headwinds from COVID, the idea of shifting our portfolio, changing the focus to those med tech products that are going into those larger markets with much higher margin profiles, all remains on track. And the other thing I just want to point to is that some of the headwinds that I talked about in our manufacturing facilities are really isolated to those med device products in the med device section of our portfolio. We've got -- we work with other third parties, and we've insulated that impact from our med tech segment. And again, we'll talk about that more as we get through Q3. So I didn't leave a lot of time for questions, but in the time that we have left, we can certainly answer any questions. Oh, I'm sorry. So yes. 12-month follow-up, not 12 year. Okay. Thank you. I didn't [ catch that ] Okay. So 12-year follow-up.