Artivion, Inc. (AORT) Earnings Call Transcript & Summary

Okay. Good morning. Welcome to our next session here in the med tech track at UBS' Global Virtual Health Care Conference. I'm Matt Taylor, the U.S. medical supplies and devices analyst. And I'm pleased to be joined for this session by management from CryoLife. So we've got both Pat Mackin, the Chairman, President and CEO; and Ashley Lee, the EVP and CFO of the company. And we set this up as a fireside chat. We will have a couple slides for supporting materials, but first, I just want to welcome Pat and Ashley to the call. And thank you for spending some time with us today.

Thanks for having us, Matt.

Thank you.

Great. So why don't I kick things off with kind of a high-level question? I'd love to just get some feedback on how the business has been performing, an update on recent trends and an overview of how things have been moving towards normalization.

Yes. We had a pretty strong first quarter. I think probably, like many other companies, I mean, we saw a significant rebound in the U.S. in Q1 based on the success of the vaccine rollout here. I think one of the things that's unique about CryoLife, I think, compared to a lot of the small-cap public companies in the medical device space is we've got a pretty sizable business in Europe. And a lot of our growth is skewed to Europe and international because of the portfolio that we have there. And we actually -- our European grew -- business grew about 10%, and that was with all the lockdown. So as well as the U.S. did in rolling out the vaccine in Q1 and we saw the business return, I think it was almost like equally in the opposite direction for Europe and just a very inefficient vaccine rollout. And we saw a bunch of lockdowns pretty much in every major country, which we actually did okay but clearly not kind of what we expected because of just the ongoing lockdowns and restrictions of travel and all the stuff that comes with it. So I mean we're pretty pleased with our first quarter. And we're hopeful that the Europeans -- it looks like their vaccine rollout is going better -- and that as the kind of summer goes by, that we get back to fall, that we can start to see the European market to get back in -- back on track.

Got you. Yes. I mean I think it's impressive you were still able to grow 10% in Europe. Can you talk about how you were able to achieve that; and maybe highlight a few of the new products or geographies that were doing better, if you want?

Yes, yes. So really as -- we're going to be -- may use a couple slides. We're -- we've got a pretty stacked portfolio in Europe -- I don't know if this is -- guys can see -- or I mean it's actually -- mag it up. Yes, there we go. So if you look at -- and this gets kind of a U.S. versus Europe. So if you look on -- this is a full portfolio for CryoLife. The U.S. team basically sells everything on the left. And the European team has everything on the left, except for the tissue valves. And they have everything on the right, so the Europeans have a kind of a stacked portfolio and a lot of really kind of new cutting-edge things. So if you look at -- our AMDS business was growing almost 70% in the quarter. Our newly launched frozen elephant trunk NEO was growing 30% in the quarter. Our NEXUS device was growing like 80% in the quarter. Our E-nside was growing 40% in the quarter. We're getting ready to launch or doing a limited market release on our E-nya thoracic stent graft. So we've got a really full portfolio, but it's also very unique in that no -- there is no competition for AMDS. We have one competitor in the frozen elephant trunk space, and we're taking share. We really have no competition for NEXUS. We just launched this new off-the-shelf thoracoabdominal device. There's no off-the-shelf thoracoabdominal device, so we're just seeing really, really nice traction and uptake. And you think about those growth rates in the face of kind of a resurging kind of fourth wave in Europe. It's pretty impressive. So we've got a great channel. We've got almost 90 reps in Europe. We've got a full portfolio, full supply. And as the pandemic kind of subsides, we think this will obviously help to accelerate growth.

Got you. Got you. Understood. And just for the folks on the webcast: There is a Slides tab at the top, so if Pat is referencing slides, just click on that and you can see what he's talking about. It doesn't pop up automatically. Well, good. Maybe we can talk a little bit about you guided second quarter $71 million to $73 million, but you didn't give guidance for the year. Can you talk about why you did that; and maybe what's baked into the $71 million to $73 million in terms of recovery assumptions and new product growth?

Yes. I think, for all of us, as you've gone through this, the ups and downs of the pandemic, every time you think you have things under control, something else happens, I mean. And we basically caught ourselves in the same trap last year. Even internally, we thought things would get back to normal in the fourth quarter. And we didn't put guidance up, but we'd set our bonus targets on it, and then the second wave hit. And we were actually growing nicely in September, October; and then all of a sudden, the pandemic rages. Hospitals pull back. So given what I said earlier, given the fact that we've got a big business in Europe with all these new products which is where we're getting kind of disproportionate growth from -- and they are not back to normal yet, so we just don't feel like it's prudent to issue full year guidance when -- I don't have good clarity on when this thing is going to really be over. I'm hopeful, based on what I'm seeing on the vaccine, that after this quarter, we could be in a position to issue guidance for the second half and obviously going forward from there, but I just -- I found issuing guidance in a pandemic doesn't really work very well.

Yes. No, that makes a lot of sense. Can you speak to whether you've seen any improvement in Europe as the vaccine rollout started to get better there? And any geographies that are doing better or worse for you?

Yes. I mean we're not going to comment kind of intra quarter. I will say that the vaccine rollout is picking up steam in Europe. So it's actually kind of, I think, things are pointing in the right direction. As we see how that unfolds kind of the rest of the quarter -- we are seeing kind of some flare-ups in Asia, recently Singapore, Malaysia. You obviously see what's going on in India. Brazil is still a challenge. So I mean there are still -- and these are markets where we're -- for example, in Latin America, we're heavily weighted. We're direct in Brazil, so the pandemic kind of hitting in Brazil disproportionately affects that business for us. So like it or not, the pandemic is still around. It's still in these countries and it still will cause some kind of issues from getting your business back to where it was just from a normal able to function normally.

Maybe we can just take a step back and talk about the growth that you expect in your business post normalization. So let's assume we get past this, hopefully, in the second half of the year. Talk about how you build up to your expectation for market growth in the segments that you plan. And then also, with all these new products, how can you outgrow the underlying market?

Maybe Ashley can take this one.

Yes. I mean, if you go to Slide 4 in the slides that we have provided: If you look at the next 3 years, we think that there are 3 primary growth drivers that are going to be driving the business. And post pandemic, whenever that is, we believe that these 3 initiatives should be able to deliver double-digit top line growth for over the next 3 years. And so those 3 initiatives are new -- the first is new product launches. As Pat mentioned, we have 5 new product launches that are ongoing predominantly in Europe right now, although we expect to get some of these products approved in select countries around the globe that recognize the CE Mark. And those 5 product launches include 3 next-generation JOTEC products. It's NEO, our frozen elephant trunk; E-nside, which is our thoracoabdominal device, the first off-the-shelf device in that segment. And the last is E-nya. And we expect to be entering into a limited market release in the very near future, followed by a full market release by the end of the year. So we have the 3 next-generation JOTEC products. And then referring back to what Pat mentioned earlier, we have NEXUS, which is the first off-the-shelf endovascular arch repair device; as well as AMDS, which is the product that we acquired last September that is used in the repair of acute aortic dissections. And Pat referenced the growth rates that we experienced in the first quarter, and that was even within a pandemic. So we expect those to deliver a significant amount of growth for us over the next 3 years. In addition to that, we're not at scale yet, especially in Asia Pacific and Latin America. If you go back, a couple years ago, we had one person that essentially managed both of those geographies. And we're in the process of investing in commercial infrastructure in those regions, and so as the next 2 to 3 years play out, we expect to have close to 90 to 100 employees on the ground in those 2 geographies combined. We're currently at about 40, somewhere in that neighborhood. So we're going to continue to invest there. And we think that those 2 areas are significant growth opportunities for the company. The last initiative is regulatory approvals. We have 3 products that we expect to get approval for over the next couple of years. We are going to be filing our PMA for our PROACT -- our On-X mechanical valve, mitral valve. It's for a low-Coumadin, low-INR indication. We're going to be filing that in the middle of this year, and we expect to get approval sometime around the middle of next year. And we're also going to be filing a PMA for PerClot, our powdered hemostat; that we're still on track to file that PMA in the third quarter of this year. And we expect approval for that particular product around the middle of next year as well. That's a $200 million market opportunity for us. And then the last thing is BioGlue in China. We submitted the submission over there to the authorities. They had some questions, and we're actually in correspondence with them right now to determine how -- the best way to respond to those questions. And so that one is a little bit uncertain right now. We're still hopeful and optimistic that we're going to get approval, but we don't think it's going to be in 2021 right now. So those 3 things, again we think, can help us deliver double-digit growth over the next 3 years once the pandemic subsides.

Okay, very good. So maybe we can drill down and talk about some of the key product launches, the key ramps that are happening now in Europe. And I'll start with some of the ones you mentioned that have strong growth, like AMDS. Next is the E-nya. Maybe step backwards and talk about how your strategy is focused on this area of unmet need and doing a lot in the aortic space, having a big focus there. How can that be a winning strategy for you and differentiate you as a company?

Yes. So one of the things is, if you look at CryoLife, when I got to the company, it was an aortic company for the most part. I mean the main products were BioGlue, which is a -- kind of a super glue for the aorta, a really great product. And then the tissue valves, both the aortic and the pulmonary valve, are all used in aortic surgeries. So the company calls on, call it, when I got here, heart surgeons and vascular surgeons. And all we did was basically stick to our core competencies of the aorta and then just added a -- kind of surrounded the aorta with a whole product offering. And I've had a chance to pressure test this portfolio with probably 100 surgeons in the last few months. And at the end of my discussions with them, I ask them kind of what are we missing in the portfolio. And they're like, "Nothing. You've got it all." And so I think the ability to treat multiple disease etiologies with the same customer, with the same channel, with unique products with very little competition is really, I think, a great kind of winning combination. And that portfolio on the right of the page, a lot of the devices you mentioned, every one of those is approved in Europe. And we basically need to do the clinical trials to bring them to the U.S. and Japan and China and around the world. And when we do that, the market opportunities -- you can see the markets below each one of those devices are pretty significant. Just a couple of highlights in each one of the devices. I mean AMDS is the only device -- it's for acute type A dissections. It's a life-saving, life-changing device. We have no competition. It's growing 70% right now, and we're still actually getting it into new markets in Asia and Latin America as we speak. We plan on starting that clinical trial probably in the fourth quarter of this year for the U.S. and Japan, which will add probably $300 million worth of opportunity for the company at 90% gross margin. You can just kind of walk through each one of these. The next product, or NEO, is our next-generation frozen elephant trunk. We've launched -- we've been in that segment for a long time. This is just a new iteration. That business is growing 30% right now. We're expanding into Asia and Latin America as well where we -- where they recognize the CE Mark. And that clinical trial for the U.S. will be probably starting about this time next year. So it's kind of the same as you go through the whole portfolio, Matt, great growth. NEXUS is actually -- that trial is already enrolling for the U.S. That business grew like 80% last quarter. And we're primarily just selling that device in Europe, but we'd look to expand it into the U.S. and Japan based on the currently enrolling clinical trial. E-nside -- I'll maybe jump down. E-nside is doing extremely well. That business is growing almost 50% right now. We're one of the leaders in that segment. This is endovascular treatment of thoracoabdominal aneurysms. We are preparing the -- for the U.S. clinical trial for that as well in a significant market opportunity. And maybe last, as Ashley mentioned, E-nya, we're getting ready to start the limited market release for that product, probably in the next month or so. So the portfolio is -- everything on that right side is approved in Europe. We're getting additional approvals in Asia and Latin America. We've got a 90-person channel in Europe to sell it. We've got full supply. And as Ashley said, as the pandemic kind of subsides -- we've already got really strong growth in those products, and we plan to continue those going forward.

Yes, yes. That's a stacking pipeline and cadence, so that should bode well for the business growth. One thing you talked about was the margins, 90% gross margins. I know the margins on a lot of these products are pretty high. Maybe we could talk a little bit about how this is going to impact your ability to grow margins over the next few years as you start to layer in more of these products and also get leverage on the sales force. Can you speak to that both in terms of how the mix of some of these higher-margin products can help? And then as you're spreading this out and have multiple high-margin products in one bag, how can you get more SG&A leverage?

Yes. So I think there's a couple things. One, the -- as I said earlier, the portfolio on the right is mostly approved. It's actually all Europe and international. And those markets, on average, tend to be lower priced than the U.S. and Japan, so the real margin expansion -- I mean every device on the right side of that page is 90% gross margin in the U.S. and Japan, so the pipeline opportunity to expand margin is significant. I think the other thing is the BioGlue is at 90% gross margin. On-X in the U.S. is at 90% gross margin, so really the device portfolio in the U.S. is a 90% gross margin portfolio. What somewhat drags that down is the tissue margin is like a 50% gross margin. So as we continue to grow kind of the new products and those become more of the portfolio, obviously there'll be margin expansion just from the growth of the higher-margin products. And then you've also got the geographic mix. As we enter the U.S. and Japan, there'll be a significant step function in the gross margin. As Ashley said kind of on this previous slide, I mean, really what we tell investors is, over this kind of time frame these kind of next 3 years, we're really funding 2 things. You're talking about kind of the SG&A side of things. We're not at scale. And we're going to be doubling our footprint in Asia and Latin America over the next 3 years, and that's going to require investment. And we're also going to be funding this whole pipeline, all right? Basically bringing everything on the right side of this page to the U.S. market is going to require investment in the R&D pipeline, so in the next 3 years, as we look at kind of the operating margin, the bottom line profitability of the company, the good news is we think we can actually -- we can fund the entire pipeline and the investment in Asia Pacific, Latin America and still generate cash flow and not have to raise any money. And 3 years from now, we will have invested where we need to invest for the channel and we've invested where we need to invest for the pipeline. And you will start to see significant drop-through on the operating margin side once we get to that point. And so again, I think it's we're not telling investors that they're going to be getting a lot back in the near term, but if you believe what we're telling you, then that investment in Asia Pacific and in Latin America will drive growth. The investment in the pipeline will drive growth. And when you get to that kind of '24 time frame, you'll start to see kind of significant drop-through from the combination of accelerating revenue, expanding gross margin and not having to -- a lot of the middle of the income statement being fixed from our channel as well as our function investment.

Got it. No, that makes a lot of sense. Well, maybe we can talk a little bit about the heart valve programs that you have because you have this unique angle where you're looking at products that can be supported with low or less-obtrusive levels of warfarin or [indiscernible] medicines. So maybe let's talk about the importance of that, the time lines there and how you think that can impact market share if you're able to get those approvals.

Yes. So the On-X franchise is you see kind of pictured at the lower left there. We have an aortic valve and a mitral valve. And the first foray into kind of a lower INR, lower anticoagulation was at the clinical trial called PROACT. And it basically compared the On-X valve to standard-of-care Coumadin versus a 50% reduction in Coumadin. And we saw that we -- when we did that, we had no increase in thromboembolic events, but we had a 63% reduction in bleeding. And we've been growing that business double digits since we acquired them. We've been taking market share. We've got a lot of excitement and attention around -- and we're on our way to market leadership on the aortic side. It's sister or brother valve, the mitral valve, as Ashley said, we're submitting a PMA kind of this summer to go after a lower INR for the mitral position. And that's actually more significant clinically because the INR for aortic valve is kind of a 2 to 3 INR, which is where your blood is 2 to 3x thinner than normal. The mitral valve is 2.5 to 3.5, so you actually -- because it's a low-pressure valve, you actually have to thin the blood more. So any reduction there is something that surgeons are looking for. And then the third piece of that -- so that mitral platform, we should get approval probably this time next year. We'll be the only company in the world with a low-INR mitral valve in the mechanical segment. And then the third kind of leg of the stool on On-X is the currently enrolling PROACT Xa trial. And that is a randomized trial of the On-X aortic valve, standard-of-care Coumadin, 2 to 3 INR compared to Eliquis. And we're going to enroll 1,000 patients, 500 each arm; and follow them for 2 years. We've already enrolled about 250, 260. We expect to have enrollment completed probably this time next year. And if that trial works out, it's probably a $300 million to $400 million opportunity for the company at 90% gross margin.

All right. So a couple of follow-up questions here. I just want to elucidate this, the kind of angle that you're taking and the importance of it. So the first is you mentioned that you already have a study showing a big reduction in bleeding without other adverse events. And maybe just spend a minute to talk about the importance of having these kind of options, having the ability to run on lower levels or use Eliquis. What does that mean to the patient? And how do you think that can be a selling point in addition to the big clinical end points that you've talked to?

Yes. So interesting. So the real kind of trade-off that a patient makes -- a lot of the discussions with your clinician is they use age kind of as a proxy. So if you're 75, 80 years old and you need an aortic valve, you should go get a TAVR, right? I mean it's a catheter. It's you don't have to go through surgery. The challenge is that, the younger you get -- there's great data out there that tissue valves actually don't last in young patients. So if you're a 55-year old, 60-year old and you have a 20-year life expectancy, then if you get a tissue valve, you're probably going to -- you're looking at multiple surgeries. So the benefit of that is you don't have to take a blood thinner with the tissue valve. The negative of that is you're looking at multiple re-operations. And each subsequent re-operation, you're older and the potential outcomes are worse. And that's all documented in the literature. So the Holy Grail -- if you talk to a surgeon, the Holy Grail is a mechanical valve can last you kind of your lifetime, one operation, but the knock-on is you got to take a blood thinner. And so if you can kind of minimize the impact or reduce the amount of blood thinner that a patient takes, they can have one valve, one operation for life. They can have kind of a more benign blood thinner approach. It's kind of the best of both worlds. And so I've actually had conversations with a number of even friends of mine who are looking, need an aortic valve. And they get educated about On-X. And they're like, "Well, I only want one surgery." If I can take like half the blood thinner, you basically don't even notice it. And I think this next step going to Eliquis is a huge step forward because it has none of the lifestyle issues that come with Coumadin. I mean Coumadin is generally not liked by anybody just because you turn into a little bit of a -- like almost like a diabetic, where you have to get your blood checked all the time by the cardiologists to make sure you're in your range of your INR, whereas Eliquis, you don't have to do that. There's no diet restrictions. And the market research we've done with both patients and surgeons show a significant uptake with On-X if Eliquis is approved with that valve.

Got it. No, that's really helpful. And then maybe just spend a minute on this age stratification and talk about how your products fit within the decision tree to implant people at different ages and different stages of risk. And I think one misperception that people have about surgical valves is that TAVR is causing or it could cause a reduction in growth, but there's still growth happening around the world, especially as you have this footprint in a number of different countries. So could you just talk about the growth you expect for the market in surgical; and then within it, maybe just reframe how you expect to be able to gain share given the differentiation.

Yes. So I think one right off the bat. I mean the TAVR guidelines, the society guidelines basically say you shouldn't be putting TAVRs in people under 65. Our average age of an On-X mechanical valve is like 56, so we really work in 2 different worlds. So people -- we get this question all the time about TAVR impacting the mechanical valve segment. More like the average age of a TAVR is probably 73 and the average age of a mechanical valve is like 56. What will be interesting is when -- if the PROACT Xa trial with Eliquis works, our average age is probably going to go from 56 to 66. It's probably going to jump up by 10 years. And we're really going to kind of eat into tissue valves, the surgical tissue valves. Because why would you have to get a tissue valve if you could go on a very benign blood thinner and not have to have a bunch of re-operations? So again, I think this is going to be a really interesting kind of trial for the -- this will change the valve market structure as we see it today. We're actually seeing very strong growth in On-X and continue to see even with TAVR. So again, I -- people ask me, keep asking this question. I say, well, we'll keep growing On-X. So I'm not sure why. I mean we have -- we clearly have a highly differentiated portfolio in we're the only ones that have FDA approval to cut the INR in half, with no increase in stroke, and a reduction in bleeding of 63%. Why would you use another valve? And we're also in the middle of trialing Eliquis. And if we can prove that, that works, we'll be the only valve that will do that as well. So I do think we have a -- and we're also bringing the mitral valves. We're going to have a whole family of kind of low- or different anticoagulation opportunities for that On-X family.

Yes. And can you just talk a little bit about the -- I guess, the risk profile or how derisked do you think these studies are in terms of what you've already learned with the clinical experiences that you have both on the mitral side and aortic? And the time line for mitral, right, you're expecting approval basically next year in CE Mark and FDA countries. And it's a few years out so for -- aortic. Is that correct?

Yes. So the PROACT aortic, which was just a lower INR, was approved several years ago. And that's what we've been taking -- why we've been taking share in the aortic position. The mitral, we finished that trial. And the data, we -- again, we're not -- it hasn't been released publicly, so we can't get in, but it -- I mean the trial was positive. So we're expecting to release that data maybe at STS in January of next year. And we -- as we said earlier, we think we'll get approval probably by this time next year. I think the bigger -- so those 2 questions have been answered. So lower-Coumadin aortic, lower-Coumadin mitral have been proven. Aortic has been published. Mitral will be released soon. There's no question on those. The real question is does -- can you protect the patient's valve, the On-X valve, with Eliquis as well as you can with Coumadin? And that question is being answered, as we speak, right? We're enrolling that trial. And we're going to -- it's a very large valve trial. 1,000 valves with 2 years of follow-up is a big trial. And I think that's one that -- no one has actually done that before, at least Eliquis with our valve. So that's why we do trials, to answer questions. And if it works, it's a home run. It's an absolute home run, but we'll have to see how the trial goes.

Great. Then maybe we can spend some time talking more about the PerClot opportunity. That's another near-term catalyst for the company, with the submission coming up here in the second half and approval next year. Can you talk about the market opportunity, the different submarkets that it can be used in? And how are you going to attack that given there's a number of different call points?

Yes. No, it's a good question. So PerClot is you can see it kind of pictured here on the screen if you're on the slides. It's -- it looks like a -- if you looked at the product, it almost looks like a -- like flower. It's a powdered hemostat. It's a very cool product in that. It's used for diffuse bleeding. And so the clinical trial was 324 patients, and we had 3 sub-study populations. We had a cardiac surgery population. We had a general surgery population, which was liver surgery. And then we had a urology segment, which was spleen surgery. And basically what this does is -- you have diffuse bleeding -- for example, like a lot of this was used in liver cancer patients, where they did a resection of a liver. It took a little bit of liver -- if you ever look at it, I mean, it's a very vascular organ. They would go in and basically [ proof ] PerClot in there, and it would basically stop the bleeding in the liver bed. So we ran that trial. We compared it head-to-head to Bard's Arista. It was a non-inferiority trial, and we showed that it was no -- it was non-inferior to Bard's Arista. That's about a $200 million market that Bard, now Becton, Dickinson, and J&J split. So it's -- that's a global number. We are filing the PMA this summer. The U.S. market is north of $100 million. We've got a channel of 60 reps in the U.S. that call on every one of the hospitals in the U.S., as we speak. We're obviously -- based on the portfolio you kind of see on the slide, we're heavily weighted in cardiac and vascular. There's a big opportunity. And it's probably 15%, 20% of the opportunity is in cardiac and vascular. And then 80% is in everything else, all right? This is a product that can be used around the body, whether it's general surgery, GYN surgery, orthopedic surgery, urology surgery. So it really kind of around the body. And we've been looking at options to augment our channel because we're so heavily focused on cardiac and vascular, but clearly it's a big opportunity. The trial is done. It was positive, and we're getting ready to submit the PMA in a few months.

All right. And you have a surgical sealant as well, so I guess that you're starting to form a bag of products that could be used in some of these other areas. Could you talk more about that strategy to move into adjacencies? Could that include partnership? Or would you try to, I guess, fill out the bag more organically to address that?

Yes. I mean we actually talked about that probably 5 years ago when we were setting the strategy of where do we take the company. And I think personally my experience is having a kind of disease focus on a call point, so -- particularly for a company of our size. We call on heart and vascular surgeons. We have a whole suite of products, as we've already talked about. So kind of the portfolio you see on the page is an implementation of a strategy that was set 5 years ago. And we did 4 transactions to get here. If we decided to go kind of the hemostat glue route, this would be very different pictures on your slide, all right, because that one is more of a you call on everybody with a bunch of different products. And that is not kind of the direction we want it to go. So PerClot was a bit of a legacy product. It was here when I got here. And so we brought the clinical trial forward. It's a great product, but we will be looking potentially to augment our channel because we're not as strong outside of -- we aren't in -- outside of cardiac and vascular.

Okay. And channel expansion is a big theme here. You mentioned a few times the doubling of the presence in Asia Pac and Lat Am. And I would think beyond that, given all your U.S. approvals in kind of the mid-'20s, we might see some monetization of the commercial force there, but maybe you can talk about 2 things. One is I'm interested to understand better how you're thinking about direct versus distributor presence. And if you can articulate the next couple years in Lat Am and APAC as you expand there. How profitable are those regions relative to Europe and the U.S.?

Yes. So you know Ashley mentioned in -- part of our growth strategy, one of the legs of the stool is the international expansion. And that's APAC and Latin America, which is interesting if you look at the portfolio that's up on the screen. The Asia Pacific and Latin American businesses don't sell tissue. We really only have a tissue business in the U.S., and tissue is our lowest gross margin. So our APAC business has a higher gross margin than our corporate average. They actually have really strong gross margins primarily because we're in segments with cutting-edge technology, life saving. So we actually have nice gross margins in APAC. We also have started to go direct in more countries in Asia Pacific. So the combination of the portfolio and the fact that we're direct in some markets there helps to drive the gross margin. Latin America is more heavily distributors. We are direct in Brazil. And so part of what the leaders are doing in those regions is we've gone direct. I don't know, Ashley. In the last 5 years, we've gone direct in probably 10 countries.

Yes.

So we have a lot of experience in going direct. We went direct in -- when I first got in, we went in France. Then we did Italy, Spain, Poland. We're direct in Brazil. We're direct in Vietnam, Thailand. I mean we're adding markets kind of as we go. And we have a certain criteria. It's simple. Like you probably learned this in your first accounting course in college, where you do an NPV and we look at what's the revenue through distributor. What's the gross margin? What happens if you add one rep in Thailand and get rid of the distributor? What happens to your revenue? What happens to your gross margin over the next 2 or 3 years? What's the payback period? What's the ROI? And so we have a very -- kind of a simple model that we use. And if it passes the screen, then we do it. So we do expect, as you see this portfolio getting approvals kind of around the world, we will then -- the local leader will make judgments about going direct or not going direct based on the opportunity to drive top line growth and profitability in that country.

And then as we look kind of further down the track, [ is it how you'd think about ] the U.S. as being kind of that mode of expansion post '23, '24 when you start to get some of these approvals?

Yes. So I mean, if you look at the pipeline, we talk about the products. If you look at the pipeline, we talk about the -- we have 7 PMAs. I think you'd be hard-pressed to find a small-cap public company that has 7 PMAs in the works that can fund them all without raising any money. We talk about PerClot and PROACT mitral. Both of those are going to be submitted this summer and approved in '22. BioGlue China has already in -- been submitted. Again, Ashley talked about that's probably going to be delayed into 2022, but then we've got the next 5, right? So NEXUS is enrolling. AMDS will start enrolling in the fourth quarter. PROACT Xa is enrolling. Neo will start enrolling probably this time next year, and then E-nside is probably about 18 to 24 months out. So that's 5 PMAs. Those 5 PMAs in the U.S., plus the markets we'll get approval in based off that U.S. approval, is about $1.5 billion of 90% gross margin revenue. So when you -- when that NEXUS, AMDS and PROACT Xa all hit kind of at the end of '24, you're talking a -- probably $300 million, $400 million, $500 million, $600 million, $700 million just in the U.S. that year at 90% gross margin, with no competition.

Very big year.

Yes.

I mean you talk about no competition. I mean what are some of the substitutes and things that you do bump up against that are similar or that you have to compete for lion's share with? And are you seeing anyone work on similar constructs for approval in some of the OUS markets where it's a little bit easier to get these approvals?

Well, the big misnomer -- I mean you're absolutely correct. A year ago -- 5 years ago, as long as I've been in the business, I mean, it was super easy to get stuff approved in Europe. That's over. The European market is actually going to be harder to get into than the U.S. So if you wanted to get -- just pick any of these devices on here. If you wanted to get AMDS approved in Europe, you would have to run a clinical trial, a premarket clinical trial, with a year follow-up; and then submit it, which will take a year under MDR. So there is no fast path into Europe anymore. That's gone. As far as competitors, we really don't see -- as I go down that list, there is -- no one has done a low-INR mitral trial in the PMA. And if they did, it would take them -- between the start of the trial and the approval, it will take them 10 years to catch up. NEXUS, I have not seen any clinical trials going on with that device. There's no competition for AMDS. No one has done a PROACT type Xa trial. We have one competitor against NEO. And nobody -- there's no approved -- there's one product on [indiscernible] that's in trials from Gore. So I mean literally 1 or 2 competitors out of the stuff I just listed off. You're on mute, Matt.

Thanks, Pat. So a lot to look forward to. We're almost out of time here. Is there anything that you want to leave investors with, anything big picture? Or can you talk about any misperceptions people have about your business?

No. I'd just say that I think we've really kind of honed in. We spent the last 5 years -- we acquired On-X. We acquired JOTEC. We did the deal with Endospan. We acquired Ascyrus. It's a lot to bring in and to put together and to digest. And we've got a 200-person channel now, but I think what we've really kind of narrowed it down to is kind of [ get people on the slide ]. In the next 3 years, we're going to be focused on driving the new product launches in Europe and international, expanding international, getting those near-term regulatory approvals and then investing in our pipeline. And we feel like, once the pandemic subsides, that we can deliver double-digit growth on the top line and set ourselves up for a kind of a breakout once this pipeline starts to show up.

Great. Well, thanks, Pat. It's really interesting setup and a lot to look forward to, so good luck for the rest of the year and on developing this pipeline. And look forward to catching up again soon. Thanks, Ashley, as well for joining. And appreciate your time today.

Thank you, Matt. Thanks for having us.

Thanks a lot, appreciate it.