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

Hi, all. My name is Caroline Borowski, I'm part of the healthcare investment banking group here at JPMorgan. It is my pleasure to introduce Jim Clemmer, President and CEO of AngioDynamics.

Thank you, Caroline, and thanks to JPMorgan for a great conference this year. Appreciate the invitation. So let me welcome you to the AngioDynamics presentation. We'll spend the next 20 minutes or so talking about our company. and I'll be joined by our Executive Vice President and CFO, Steve Trowbridge, who will take questions. Let me remind you again what you'll hear today from me are forward-looking statements, ideas, strategies and where we're interested in taking our company to provide additional shareholder value over time. I can't guarantee everything will happen on the time line, I'll lay out. We'll do our best to be transparent to each of you during the process. AngioDynamics is a 35-year-old company founded to serve the interventional radiologist community many years ago. We've established a period of trust over those years, known for high-quality products, delivering great patient outcomes. That was fine for a lot of our journey. But about 4 to 5 years ago, we looked at where we were, where we should be and how to get there, changing and transforming our portfolio first, that even our customer base to make our company more interesting and more valuable, starting with our customers first, the patients they serve and ultimately, our shareholders who can benefit from increased value. So we're really a company today in that transformation. We talk about it all the time, but you see it here in our actions more than just our words. We've changed our portfolio more than once. We'll probably change it again as we strive to have a more focused company, focused on technologies that drive patient outcomes that can be measured and those measured out -- patient outcomes can drive physician behavior changes. So on our journey, we're investing in technology, and we're less interested in lower tech products or slow-growth markets. Part of our journey also looks at the sizes of the markets we enter and the growth rates of those markets. We know technology drives differences in outcomes. It also drives differences in products that are selected to drive how those care delivery patterns are changed. We're on top of that. Our company, again, is changing our portfolio based upon the knowledge and the courage necessary as a small cap public company in tough times, but we know we're going to create more value again, patients we serve and our investor base through this process. So we're really focused on 2 main disease states. And obviously, these are the largest disease states that cause mortality globally. 1 in 3 people die each year from cardiovascular disease. You'll see in a moment how our company is structured, but a lot of our efforts are focused on cardiovascular disease and solid tumor cancer treatment. We're in the right spots to crowded field but this is where innovation and technology drives outcomes and makes a difference. So we think globally, we've got products that are adaptable for these care delivery needs around the globe. When we look at the markets we want to serve, you're hearing in a moment more about our structure. We've got a medical device structure, more focused on everyday products used for putting chemotherapy in somebody's body or treating people with different modalities. But our Med Tech products, the future of our company, what we're building is really set up well from a TAM perspective as well. Looking at the disease states we can serve on this sheet, our products that serve those these states and the sizes of those markets are really impressive. Back in 2018, when we started this journey to change our company, our entire TAM for our company was just over $1 billion. Today, as you can see from this slide, you see TAMs and larger than that in just the individual disease states we're focused on treating. The products you see here are unique in their technical lineup and how they're built. Science adds through our technology and drive those patient outcomes. Some of these markets are mature and some are growing and expanding while we speak. A lot of the work that we'll do with our products is focused on taking share when we get new indications, clinical expansions or geographic expansions and some are also focused on market development, opening up and expanding these in new markets. through the use of our technologies on that journey. But this is an impressive look at the disease states we can treat with the products we have in our bag today. And each of these products have active development programs, either from product development, clinical development or economic and geographic expansion of how these products can serve the markets. Today, these markets are really large and they're growing -- will be a larger player in each of those. It's a busy slide. We're a complicated company. We have a lot of products in our bag today. I mentioned earlier, we run our company in 2 different operating segments, and our results are reported that way. On the left side of the screen, you'll see our Med Tech segment. That's where we're primarily focused. We're investing a lot of our energy and resources in these products and the expansion of these markets. On the right side is our Med Device products. These are paying the bills today. These are stable markets, less growth oriented. We're not out allocating a lot of resources there, but they do a good job of giving us the balance of free cash generation, EBIT while we're transforming our portfolio and more focused on Med Tech business. On the right side of the screen, we've actually trimmed that product portfolio recently. Back in June, we announced the divestiture of 2 product lines that were in that area for a while. They were not core to us, but they were for another company. We received good economic value. We capitalized our balance sheet. We stand here today with a company with a really strong net cash position and 0 debt on our balance sheet. Tomorrow, we look at maybe other portfolio moves as really being more strategic first, still trying to bring in our focus on maybe a couple of product lines we're still not as interested in. It may be complex markets, low gross margin and small. We're not as interested in fighting those battles to grow in those areas with the outcomes are not as large for us. So if you see a move from us again, bringing our portfolio in, it's strategy-driven first to align ourselves through our intended goals. And second, there may be economic reasons why it gives a benefit as well. But the left side of the screen is our focus. If you take a look at those disease states we've outlined there, starting with peripheral artery disease. In 2019, we started this journey to transform our company. We sold our largest business at the time. It was a kit packing business, we call it low tech or commodity focused. We sold it to Medline, a really great company and a really great kit packer and does well with that. We would not compete well in those markets going forward. Well, later that year, we bought a company called Eximo Medical, which today is the Auryon PAD system for atherectomy. We launched that product in September of 2020, 6 months after the pandemic hit. A small company launches a new product with 4 really good competitors in that space. Well, in November, we hit our $100 million of sales since launch, 38 months. We're really proud of that. A small company like us competing in tough global markets during the pandemic for good competitors. It shows what we can do when you have a great piece of science, which Auryon is, the way it works, and a company focused on the transformation around it. We aligned ourselves to the market realities with Auryon. We built an entirely dedicated sales and marketing team, a clinical support team to train our users. And the product itself is unique and special. You'll hear more about it in a minute. But that's a precursor of what we're going to do with our other products and other launches. We know we can grow at or above rate in these large markets. We've shown that with Auryon. A lot of room for Auryon to grow. I'm not going to go through all the bullets on the slide. You can take these home, but you'll see continued investment in this space. We would think we have the most effective treatment for atherectomy today. We can treat people who are affiliated with PAD in the most safe and effective manner possible. And the way the science works, we believe is applicable in other really large markets. We're really interested in entering the coronary atherectomy market with this space as well. We believe in how we deliver energy through our catheter based laser technology. It affects what's inside the vessel wall and not the vessel wall itself. We can open up blood flow in a safe and effective way. Our venous thromboembolism market is really important to us. We've just completed our clinical trial on our AlphaVac F18 team thrombectomy system. The trial was completed last month in December. The trial was intended to open up our pulmonary embolism market for AlphaVac F18. Today, there's really 2 good companies in that space who've done a good job expanding that market. We agree that catheter-based tools like these should be used as a frontline first-line treatment. Historically, lytics have treated a lot of folks with DVT or PE as we know. The market is shifting from lytic-based therapies to these interventional catheter-based tools. We've got a great one with AlphaVac. We're happy that we completed the enrollment in our trial. So a 30-day patient follow-up is being completed as we speak. We'll soon file our data with the FDA. We expect to be on label by the mid-calendar year of 2024 with a PE indication for AlphaVac F18. We've got a unique product you hear about on AngioVac for thrombus and emboli. Then on the bottom, really interesting, our NanoKnife product delivers a nonthermal approach using energy, electrical fields to treat solid tumors. We think it's ideally suited from men with intermediate-risk prostate cancer. And we completed our PRESERVE trial last July. We got a 12-month patient follow-up there. We look to file later this year with the FDA for an indication to treat prostate tissue, utilizing NanoKnife, giving physicians and men who need this treatment, a new option that doesn't exist today for focal treatment of this disease. So we're really excited about the technologies we have, they're unique and they're special. Auryon is really one of the most special we have. As I mentioned, as part of our journey, we acquired this technology because we had an AngioVac product for venous treatment. We had AlphaVac in design development with our R&D team. So we knew we'd be a really good company for years to come in treating venous disease. We were interested in the PAD market and artery disease as well. So we found Eximo Medical and found Auryon. We took advantage of it. I bought it and launched it to market. The way this product works is delivering different pulses of energy. 355 nanometer is the wavelength of energy that our laser generates, delivers it safely in a vessel wall, breaking up hard and soft calcification, we can treat above and below the knee and even treat in-stent restenosis, a really amazing device. To enter the market, we knew we needed something special. There's 4 good players in this market today. We've taken share in the last 3 years. We continue to grow this market and take share, we believe, for you to come with Auryon. It's an amazing device. What Auryon does well also has opened up other markets I mentioned earlier. We think the same way we deliver energy in the peripheral anatomy can be used for coronary anatomy and even thrombectomy in the future going forward. Auryon is one example of our change and transformation from a company that used to sell simple widgets to a science-based solution to a complex medical problem. It's who we are and how we're changing. Opening -- opens up a much larger, faster-growing market at much higher gross margins than selling simple widgets is part of our transformation. The second area we're focused on, I mentioned a few minutes ago about thrombectomy, thrombus management. You look at venous thromboembolism market. I'll say that again, venous thromboembolism, it says VTE on the top left, for those of you who want to spell challenge today. VTE is a really exciting market. You've got the combination of DVT and PE, which forms a VTE market. As you guys know, there's a couple of good companies there that have done a good job getting out in front of this market, convincing folks that catheter-based interventions can and should be the best way to treat people upfront. We agree, and we've designed our products with that purpose in mind. So we think we'll be a major player for years to come with our AngioVac product, which allows for an on circuit approach to complex disease. When I say on circuit, I mean it utilizes a simultaneous reinfusion system to maintain that patient's blood throughout that procedure, put it back in their body safely. As blood loss is a risk that doctors face when treating complex cardiac diseases, AngioVac does a great job of pulling clot, putting blood back in the body, getting that patient healthy and well quickly and giving their physician confidence that they've done their job. Well, the products we have here really need AngioVac as kind of the base for AlphaVac. As AngioVac was getting used more and more by doctors, they said to us, "Hey, guys, you know what, we love the Vortex funnel tip you designed." You can see that picture on the top of the slide here. The Vortex funnel tip opens up when the catheter is placed inside the venous system. It enables our product to go wall-to-wall within the vessel and pull clot or thrombi out safely. Doctor said, "Boy, we really love that large bore catheter and their Vortex funnel tip, you gave it to us on a handheld version where we can control the aspiration pressure and use it in more applications." we think we'll have a real winner here and we did. Our R&D team listened to physicians who had started to use other products for mechanical thrombectomy and gave us ideas of other design challenges that they didn't think were being met, but we incorporated those into our design. On the right side of the screen, you see the AlphaVac, use that vortex funnel tip on the right, that white purpose-built handle there gives doctors the control they always would seek, not just to control the aspiration pressure and the power, gives them the control to reduce the blood loss they pull in with each pull. Also steerability components that are not part of other companies' products. When we first talked to people about our products, we tell them how we designed and why it was designed. You don't need to use a guidewire with AlphaVac to treat. Most physicians say, "Wait a minute. I've been dropping guidewires my whole life. It's what I do for any procedure." You can still use it if you'd like. After they've done 3 or 4 procedures, we hear feedback, "You know what, I tried without a guidewire and, oh my goodness. I can now go from the left pulmonary artery to the right, go back and forth very quickly without removing everything and starting over again. You guys did a really good job here, really good design elements." So we're proud of the design we did. Again, we completed our PE study last month. We'll be filing for our PE indication soon. That's a really large market we're excited to open up. And later this year, we'll compete in that market. Go head to head with the other players. We're a smaller company, but we have an amazing device, we'll do really well. We'll give you more guidance soon as to our expectations of this product over the next 3 years. And finally, at the bottom, I mentioned Auryon a few minutes ago. The way Auryon works, the way we deliver that laser energy throughout that catheter wall and then ultimately inside the vessel wall is really special and powerful. We think we can work as effectively for small vessel DVT and small vessels break up clot and aspirate it out safely in a similar manner as to what we do with plaque and calcium and arteries. So we're building a different version of Auryon, same base unit, same laser unit you see there for catheters on the right, but a couple of new sizes, a bit larger to serve the venous market with some other things built in the product to sense blood, know when to pull, when not to. But we'd love to launch this product within 2 years. And we'll be another player in that market to go after that DVT, small vessel space, giving us a really, really strong portfolio to serve our physician customers, serve the patients they seek and to compete in these large, fast-growing markets with unique technology and unique designs. This is our future. I mentioned a few minutes ago about NanoKnife. This is a really good story too, and we've only got a few minutes. It's complex. We are a thermal energy solution with our microwave and our RF products today. We can help doctors use thermal ablation to treat some solid tumors when you can use thermal heat to treat that tumor. When you can't, and you've got a delicate organ, and a delicate treatment option, NanoKnife is proving to be a unique solution. NanoKnife does not deliver heat or cold. No thermal energy. It delivers electrical pulses of energy through the probes that our physician will place around a tumor. Those probes create an electrical field around that tumor and the electrical field penetrates the cellular wall of the tumor, creating nanosized particles in the cell wall allowing that tumor to die naturally and get flushed out of the body in the natural sense. It's a really unique, really special way to do things. We think it's purposely or perfectly designed for men with intermediate risk prostate cancer. And that's what the PRESERVE trial is intended to show. Again, we've completed the PRESERVE trial in July, a 12-month follow-up. To give you a scope of where we think it's important, about 40% of men been diagnosed annually in the U.S. fall into what's called intermediate risk. They've either got a Gleason 3 plus 4 or 4 plus 3 on their scale. I think those are ideal candidates for a focal treatment like this. Again, a focal treatment is treating that gland, keeping again it in the body, not removing it in a radical prostatectomy. So we want to reduce those side effects of incontinence and impotence that men still face any time a radical prostatectomy is done, whether it's robotic or not, there's still a high risk of those side effects. With NanoKnife, we've seen a lot of published data over the years by global physicians who've used this on many patients, published really strong data about the lack of side effects, how strong the product treats. So we're using the PRESERVE study to prove that. We look forward to wrapping up that study this year, publishing our data and then getting our label to give men this option. Urologists also love this too. We found that they've done it. The folks treating in our study have said, "Boy, I know how to do this. I use a brachy grid today. This follows the same process." They know how to use a brachy grid to place their probes around the intended target. It's also done 40 minutes or so, not 2 to 3 hours like some other focal treatments. Urologists are also business people. They want to treat as many patients as they can with a novel device. Patient goes home that day, plays golf the next day, fishes with their grandkids. There's not a long recovery cycle. And we don't scar or damage the tissue. So 3, 5, 10 years afterwards, if the patient needs another treatment, whether it's nano or maybe another type of treatment, they can do that. Other treatment options don't exist with that protocol. You should leave scarring if you use radiation or other things. Nano doesn't do that. It's a special device. You'll hear more from us soon. We believe this is a $700 million U.S. market and a $2 billion global market for the intermediate-risk prostate patient. Again, our company has changed on our portfolio. We're also changing how we do what we do globally. For the bulk of our existence, we're being a U.S.-focused company, over 80% of revenue has come from the U.S. We've not done a great job overseas. Well, a few years ago, we brought in a really great leader who brought in a great strategy and built a team around it. Planning and preparing for us as we did this portfolio change. So today, she has done a great job aligning partners with us. The distribution partners will also give us clinical reach to support the use and training of our products in the field. So you've seen, if you look back over the last 6 to 8 quarters, our international growth has exceeded our U.S. growth for the first time in our history. That's not an accident. It will happen for the next years to come. We're building a company now truly global. Even the size we are, the products have enough interest globally, the outreach is there, will support the growth, support our users over time. The next 6 months of this calendar year, the first half of this year, we expect to see our CE Mark approval for Auryon and our CE Mark approval for AlphaVac-PE, both occur in the next 6 months. So we've really got a great global approach for our technologies, opening up expansion and market opportunities. And finally, we have off-cycle fiscal year. So we have a June 1 fiscal start. Last Friday, we gave our Q2 results. We also gave some other notes here. This is a quick summary of our Q2 results, Friday. On the right side of the screen, you'll see a little bit more notes around the pathway expansion IDE studies. On the bottom right, one more point I want to make, we've also got a complex manufacturing process. We make a lot of things. We make PICC lines. We make ports. We have different energy products. We have lasers. We -- our company was founded in Upstate New York 35 years ago, North of Albany. That was fine 35 years ago. Today, the challenges we face on getting employees is an employee shortage. There's been challenges on the regular cost increases we faced and we can't make our products fast enough at the rate we need to serve our customers. So we announced last week a 2-year process to cease our manufacturing in upstate New York and move our products to partners, outside of our supply chain to be part of our supply chain. This is intended to do 2 things: serve our customers better as we grow and to take cost out of the system; we have cost that doesn't give customers or shareholders any benefit. We've got a high level of fixed overhead that is hard to absorb in today's market. We want to move that out of our cost structure. Today, about 80% of our Med Tech products I just talked to you about, comes through third-party partners already that are part of our supply chain, part of our quality network, 80%. And our Med Device products, our older historic products, 20% comes through partner networks already. So we think we have a high level of confidence. We'll complete this program in 2 years, utilizing partners that are already part of our supply chain, qualified and validated to be part of our network. But it's important for us to serve our customers better, more reliably and to take cost out that gives no value to our business, to our customers or to our shareholders. So finally, we gave some guidance, changes on Friday, we happy to talk to you about that and love to take questions from you. So with that, I'd like to invite Steve Trowbridge, our CFO, to join me. And Caroline will take questions.

Thank you. So as we're thinking about the anticipated arrival of prostate tissue indication in late '24, early '25. How do you view IRE's competitive position entering the vocal therapy space against its potential competitors?

I'll go on and go ahead and give Jim a little bit of a break after the presentation that he gave. Thanks for the question, Caroline. We really think NanoKnife is a revolutionary treatment in focal ablation. So it's not just a difference of a technology with some small differences. It really is a completely different mechanism action. So as Jim talked about, NanoKnife doesn't use extreme heat or extreme cold to achieve its desired tissue effect that uses electric fields that then create these nano-sized pores in the cell membrane and then those cells are removed through the body's natural process, with the biggest piece of difference being that critical struck, blood vessels, bile ducts, nerve endings remain patent. So it's an opportunity now to treat patients in a way that just wasn't there before with other focal treatment options. The Urology community is really looking for a focal treatment option today more so than they were maybe 5 or 10 years ago. So we've seen some developments in that marketplace in terms of better resolution for imaging, a real desire to find an intermediate risk treatment that is maybe something less than a full radical prostatectomy. And I think there's been a view that maybe too many men have gone to a radical, very good survival rates. But really significant quality-of-life side effects that Nano is able to eliminate. And so there's no other treatment modality that can do that. This really does set us apart, and it starts to build that indication related to NanoKnife to go along with the data that we have that sets it apart from other focal modalities.

Great. And how should we think about the growth profile of AlphaVac with a PE indication.

Yes. Definitely, we see the PE indication as a growth inflection point for AlphaVac. I want Jim to talk about the Q2 results. We've seen a little bit of a pullback in our thrombus business. Some of that was, we think, some external factors. Some of that ease we've had sites in our trial that we're starting to pull back after we were getting towards the completion point of that. There's 2 other competitors on the market. They've got the indication. So although we think it clearly is going to be a growth inflection, it may not be immediate. It may not be something that there's a whole balls of demand waiting up because there are these other competitive products out there. But there's a lot that we learned through the course of this study. We learned how our features and benefits compare with the products that are currently on the market, and we're getting consistent feedback from the physicians who use our product that say that there's really an opportunity to address some unmet needs. So as you -- as we get that indication, as we start the launch plan, we're going into, as Jim said, a relatively crowded market, but it's a market where there's still a lot of growth opportunities. we think maybe 10% of that total addressable market has been turned into a recognized market. So we're going to grow with the market. We're also going to be able to take some share. It's going to take a little bit of time, but it's definitely going to be a growth inflection for us.

And in your presentation, you noted a planned Auryon DVT trial late in calendar year '24. Can you talk about how you view the potential for the platform in relation to your existing thrombus portfolio?

It's a good question to think about it in relation to the existing thrombus portfolio because I think of it more as really additive as opposed to something that just fits into the portfolio. If you think about the products that we have today in AngioVac and AlphaVac, they're playing in a very small subset of that overall thrombus management market. And we talk about PE. So that's about half of that entire VTE market that Jim talked about. AlphaVac is going to be the perfect device to go after PE. AngioVac has really been a product that has been more carving out a niche in the right heart. It's a smaller piece of the DVT side. Neither of those 2 products are really designed or have the ability to go after the lower extremity DVT section of the thrombus market. And that's the biggest part of this market. So if you think about the morphology and the physiology of the lower extremity market, typically, you've got clot that's a little bit more chronic. It's been around for a while. It's a little bit more organized and sometimes hard. So if you think about Auryon and how we talked about the mechanism of action of Auryon, we think it's perfectly situated to go after that market; a little bit smaller, get down into the lower extremities, address the harder calcifications. We've also got, as Jim said, some aspiration there. So you'll have both this dual mechanism of aspiration but also energy-based opportunity to break up that clot. So getting back to your question, in conjunction with our portfolio, it really allows us to round out the portfolio to now go after that entire thrombus market that today we don't really have the ability to go after.

And for several years, you talked about AngioDynamics focus on being in investment mode. Talk to us about what that looks like over the coming fiscal year?

Yes, great question. So as I mentioned earlier about our transformation, we are investing throughout this period. We've invested in 3 areas primarily. First, our products, the R&D work, the design and development work, getting them launched. Second, the clinical and regulatory progress. We built a great science and clinical affairs department in the last 5 years, who's guided these studies and guided our physicians who are interested in our products and a great regulatory team to giving us these global indications and the geographic expansion we seek. And third, selling and marketing and field support for our products. So the balance of those 3 investments will continue. We've actually got a lot of them behind us, though. If you look at Auryon mentioned earlier, we bought Auryon from Eximo Medical. They had no commercial people. We launched that product in September 2020. Since then, we've added 75 people to our field. About half selling and marketing, half clinical support, taking that business from 0, this year it will be in $45 million to $50 million probably. When we go from $45 million to $90 million, I don't need to double that again, we will add some more people, but a lot of these investments are kind of realizing now the output of those investments. So you'll see those drop through our P&L in a different manner. We'll still invest but at lower rate that we've done to build this change in this transformational process. Again, the investment is still tied to our products being utilized around the globe by physicians who are well trained to use them to treat people in need. Thank you.

What are your next steps from a clinical study standpoint now that PRESERVE and APEX have been fully enrolled?

Yes. So the next step is to finish the follow-up period. So as Jim mentioned, with APEX, that's the PE trial that AlphaVac has been used, in. We've finished the enrollment and we just recently finished the final 30-day follow-up period for the last patient. So at this point, we're prepared over the course of the next few weeks to go ahead and submit to the FDA. And in the guidance that we've given, we built in a typical 5- to 6-month time frame to go through that FDA approval process. On the PRESERVE side, the 12 months -- that's a 12-month follow-up period. So it's a little bit different than the 30-day follow-up period that you have in APEX. We completed enrollment in the NanoKnife prostate PRESERVE trial in July. So this coming July, we'll finish that 12-month follow-up period, and then we'll follow that same process of getting ready to very quickly once we get to end of that follow-up period, get the information into the FDA and then go through that process to get the specific indication.