Cardiovascular Systems Reports Fiscal Second-Quarter 2009 Financial Results
February 23rd, 2009
2009 FEB 23 -- Cardiovascular Systems Inc. (CSI): Second-quarter revenue increases to $14.0 million in fiscal 2009 from $4.6 million in fiscal 2008; Current quarter gross margin rises to 70 percent from 53 percent in 2008; Merger expected to close on or about February 25, 2009; Next-generation Diamondback 360º™ Orbital Atherectomy System launched. Cardiovascular Systems Inc. (CSI), a medical device company developing and commercializing innovative interventional treatment systems for vascular disease, reported financial results for its fiscal second quarter ended December 31, 2008. CSI also reported it expects to close its previously announced merger transaction on or about February 25, 2009, in which CSI will combine its business with Replidyne, Inc. (Nasdaq: RDYN) in an all-stock transaction. The combined company will be named Cardiovascular Systems Inc. and it has applied for listing on the Nasdaq Global Market under the symbol “CSII.”
CSI's revenue in the second quarter of fiscal 2009 rose to $14.0 million, a 200 percent increase over revenue of $4.6 million in the second quarter of fiscal 2008. The second-quarter net loss improved 11 percent to $(8.7) million from $(9.8) million in the second quarter of fiscal 2008. Net loss available to common shareholders, which includes the effect of accretion of redeemable convertible preferred stock, was $(11.7) million compared with $(10.1) million last year, reflecting an increase in preferred stock accretion of $2.6 million. Basic and diluted loss per common share was $(1.51) versus $(1.56) in last year's second quarter. The number of weighted average common shares increased by 1.2 million from the issuance of restricted stock and exercise of stock options.
David L. Martin, CSI president and chief executive officer, noted: “CSI's fiscal second-quarter revenue was driven by solid increases in both the number of accounts and Diamondback 360º devices sold. Over the last year, our direct sales staff grew to nearly 90 professionals from 20, and we are seeing the results of this investment. To sustain our growth, we have continued to make additional investments in infrastructure and product development.”
The number of hospitals using the Diamondback 360º system rose to 400 by the end of the second quarter, up from 283 at the end of the first quarter of fiscal 2009 and 39 at the end of the second quarter of fiscal 2008. Sales of disposable units also showed strong growth with nearly 4,400 units sold in the second quarter this year, up from 3,600 units in first quarter this fiscal year and 1,400 units in the second quarter of fiscal 2008.
Martin continued, “Revenue has grown significantly each quarter since CSI commercially launched the Diamondback 360º system in September 2007 – a strong endorsement of our product. The Diamondback 360º system is demonstrating its utility in treating a broad range of plaque types, especially calcified plaque, both above and below the knee. The product's efficacy, safety, ease of use and procedure speed make it a valuable tool for every peripheral lab in the battle against peripheral arterial disease.”
This year's second-quarter gross margin increased to 70 percent from 53 percent in the same period last year, driven by higher disposable volumes and manufacturing efficiencies. Sales, general and administrative expenses rose 55 percent to $14.9 million, reflecting the increase in the sales organization and infrastructure investments to support growth. CSI continues to emphasize product development and innovation. As a result, research and development rose 16 percent to $3.5 million.
In the first six months of fiscal 2009, revenue grew to $25.6 million, more than five times greater than the $4.6 million in the same period last year, which only had one quarter of revenue due to the timing of FDA clearance to market the initial Diamondback 360º product. The gross margin in the first six months of fiscal 2009 was 69 percent, up from 41 percent in the same period last year, due to higher product volumes and manufacturing efficiencies. In the first half of fiscal 2009, the net loss was $(22.4) million, compared to $(17.2) million in the first half of fiscal 2008. The higher net loss was due to significant investments in sales and marketing, and infrastructure to support growth, as well as product development. The net loss available to common shareholders, including accretion of preferred stock, was $(25.4) million, or $(3.29) per diluted share, in the first half of fiscal 2009, compared to $(22.4) million, or $(3.50) per diluted share, in the comparable period last year. New Product Introductions In December 2008, CSI introduced the next generation of the Diamondback 360o™ Orbital Atherectomy System, its minimally invasive catheter system for treating peripheral arterial disease (PAD). Major enhancements include a new handle for treating longer lesions without repositioning the device; improved fluid management; a one-click-connect feature to attach tubing and cables; and a convenient saline infusion port.
Martin added, “The next-generation system represents great progress in CSI's product development program and reflects our commitment to continuous improvement in the efficacy, speed, safety and ease of use of our product. The system's new features are in direct response to needs voiced by our physician customers. In addition, we introduced two supplemental products that will enhance our sales productivity, and we are actively pursuing additional products to supplement our leadership position in the treatment of PAD. Some of these products are expected to be introduced later this calendar year.”
New supplemental products recently introduced include ViperSlide™ – an exclusive lubrication designed to optimize the smooth operation of the Diamondback 360º System; and ViperTrack™ – a radiopaque tape designed to assist in identifying lesion lengths and the best treatment strategy for procedures using fluoroscopic or radiographic imaging. Fiscal 2009 Guidance For the last six months of fiscal year 2009, ending June 30, 2009, CSI expects revenue to range between $31.0 million and $33.0 million, bringing the expected full fiscal year's revenue to between $56.6 million and $58.6 million. This represents growth of greater than 150 percent over fiscal year 2008 and a 21 percent to 29 percent increase in the second half of fiscal 2009 over the first half of the year. Gross margin is anticipated to be in the range of 70 percent to 73 percent for the six-month period. The company also expects a net loss for the last six months of fiscal year 2009 ranging from $(17.0) million to $(19.0) million, compared to $(22.4) million in the first half of the year. The net loss improvement results from increasing revenue and gross profit, with lower operating expense growth. The improvement is more pronounced on an adjusted EBITDA basis, calculated as loss from operations less depreciation and amortization and stock-based compensation expense. The loss range on an adjusted EBITDA basis is expected to be approximately $(10.0) million to $(12.0) million in the last half of fiscal 2009, a substantial improvement from the $(18.8) million negative adjusted EBITDA in the first half of fiscal 2009. Merger Update A joint proxy statement/prospectus relating to the proposed merger has been mailed to the shareholders of CSI and Replidyne, and the special shareholder meetings of both companies to vote on the transaction are scheduled for February 24. If approved, the transaction is expected to close on or about February 25.
Martin added, "This merger is our best opportunity to obtain financing and become listed on a major U.S. stock exchange in exceptionally difficult financial markets, giving our shareholders the potential to realize future value. Through this transaction, we expect to receive $35.0 million to $37.0 million in net assets, primarily cash, which should be sufficient to bridge CSI to profitability and positive cash flow.”
Under this agreement, current CSI shareholders will own approximately 83 percent of the combined company (calculated on a fully diluted basis using the treasury method for stock options and warrants). The combined company will be named Cardiovascular Systems Inc. and has applied for listing on the Nasdaq Global Market under the symbol “CSII.”
All of CSI's stock, including common and preferred, will be converted into common stock in the combined company. When added to Replidyne's outstanding shares, the combined company's total common shares outstanding are expected to be between 136 million and 142 million, which is expected to be reduced via a reverse split, the ratio for which will be finalized near the closing date. About the Diamondback 360°TM Orbital Atherectomy System and PAD CSI's Diamondback 360° Orbital Atherectomy System is a minimally invasive catheter system for the treatment of peripheral arterial disease, or PAD, which affects approximately 8 million to 12 million people in the U.S. PAD is caused by the accumulation of plaque in peripheral arteries (commonly the pelvis or leg), reducing blood flow. The plaque deposits range from soft to calcified, with calcified plaque being difficult to treat with traditional interventional procedures. The Diamondback 360° is capable of treating a broad range of plaque types both above and below the knee, including calcified vessel lesions, and addresses many of the limitations associated with existing treatment alternatives. In August 2007, the U.S. FDA granted 510(k) clearance for the use of the Diamondback 360° as a therapy in patients with PAD, and CSI commenced a commercial introduction of the product in the United States in September 2007.
CSI has conducted three clinical trials involving 207 patients to demonstrate the safety and efficacy of the Diamondback 360° in treating PAD. In particular, the pivotal OASIS clinical trial was a prospective 20-center study that enrolled 124 patients with 201 treated lesions and met the study endpoints. CSI was the first, and so far the only, company to conduct a prospective multi-center clinical trial with a prior investigational device exemption, or IDE, in support of a 510(k) clearance for an atherectomy device.
The Diamondback 360° provides a platform that can be leveraged across multiple market segments. CSI plans to launch additional products to more efficiently treat lesions in larger vessels and to seek premarket approval (PMA) from the FDA to use the Diamondback 360° to treat patients with coronary artery disease. Conference Call Today at 4 PM CT (5 PM ET) Cardiovascular Systems Inc. will host a live conference call and webcast of its fiscal second-quarter 2009 results today, Wednesday, February 11, 2009, at 4 p.m. CT (5 p.m. ET). To access the call dial (888) 713-4213 and enter 80520252. Please dial in at least 10 minutes prior to the call. To listen to the live webcast, go to the investor information section of the company's Web site, www.csi360.com, and click on the webcast icon. A webcast replay will be available beginning at 7 p.m. CT the same day.
Keywords: Atherectomy, Cardio Device, Cardiology, Cardiovascular, Catheter System, Medical Device, Surgery, Vascular Disease, Cardiovascular Systems Inc.
This article was prepared by Cardiovascular Week editors from staff and other reports. Copyright 2009, Cardiovascular Week via NewsRx.com.
