CSI third quarter revenues increase 5% to $21.2 million

Cardiovascular Systems, Inc.May 3 2012

Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII), a medical device company developing and commercializing innovative interventional treatment systems for vascular disease, today reported financial results for its fiscal third quarter ended March 31, 2012.

CSI's revenues in the third quarter rose to $21.2 million, an 8 percent increase over the second quarter of fiscal 2012, and a 5 percent gain over revenues of $20.2 million in the third quarter of last fiscal year. The conversion to the new Stealth 360°™ PAD System continued at a high rate, with a 24 percent increase in revenues over the second quarter of fiscal 2012, to 78 percent of total device revenues in the fiscal 2012 third quarter. Revenues from customer reorders were 96 percent of total revenue, compared to 94 percent a year ago.

Net loss was $(4.2) million, or $(0.23) per common share, for the quarter, compared to $(2.4) million, or $(0.15) per common share, in the third quarter of last fiscal year. Adjusted EBITDA was a loss of $(2.3) million, compared to a loss of $(495,000) in the prior year. The increased losses were primarily due to higher operating expenses associated with advancing the ORBIT II clinical trial for a coronary application.

David L. Martin, CSI president and chief executive officer, said, "Stealth 360°'s scientifically proven orbital mechanism of action protects healthy vessel tissue while removing even the most difficult to treat calcified plaque anywhere in the leg. The new Stealth is easy for the doctor to use in the hospital or office setting. As a result, momentum in Stealth 360° adoption continued in the third quarter, with a 24 percent revenue increase over the second quarter of this fiscal year, along with a 14 percent revenue increase in office-based labs."

The gross profit margin was 76 percent versus 80 percent a year ago and was affected by a higher mix of Stealth 360° sales, which currently carry higher unit costs due to limited initial component purchasing volumes. Also, the addition of CSI's second manufacturing facility in Texas for future production capacity has temporarily increased production costs.

In the first nine months of fiscal 2012, revenues increased to $59.6 million, up 4 percent from the same period last fiscal year. The gross margin was 76 percent compared to 79 percent, while operating expenses rose 6 percent. Adjusted EBITDA loss increased by $(3.7) million, while the net loss totaled $(12.2) million, or $(0.69) per common share, compared to $(8.6) million, or $(0.55) per common share, last year.

OPERATING HIGHLIGHTS

During the quarter, CSI presented data from both the COMPLIANCE 360° study of above-the-knee PAD and from a study of PAD procedures in the office-based lab setting. In addition, patient enrollment accelerated in the ORBIT II clinical trial for a coronary application.

Dr. Utpal Desai of Florida Hospital, Ormond Beach, Fla., said, "The prevalence of arterial calcium is high in patients over 65 years of age, who are diabetic, and/or have renal insufficiency - a large and growing population that needs PAD treatment options. Data shows that calcified lesions are difficult to treat and result in higher rates of adverse events and restenosis, as well as higher treatment costs."

Martin added, "Our growing body of clinical evidence demonstrates that CSI's orbital PAD products are unique to the market — they safely, effectively and routinely treat calcium, while achieving the durable clinical and cost effective outcomes required to become the primary treatment option for this large patient population and to achieve success in today's pressured health care environment."

12-Month Results from COMPLIANCE 360° Study of Above-the-Knee PAD Presented

At the American College of Cardiology (ACC) meeting, Dr. Raymond Dattilo, St. Francis Health Center, Topeka, Kan., principal investigator of the COMPLIANCE 360° study, presented long-term data demonstrating that strong acute results treating severely calcified above-the-knee lesions translate into positive clinical outcomes at 12 months. The study showed that primary treatment with the Diamondback Orbital Atherectomy System enabled low-pressure adjunctive balloon inflation, compared to high pressures required in the percutaneous transluminal angioplasty (PTA) alone arm of the study. Favorable acute results led to sustained patency of 75 percent at 12 months in the Diamondback arm, comparable to the PTA arm, but with 90 percent less adjunctive stent usage. Only 8 percent of Diamondback patients versus 84 percent patients in the PTA arm required stenting.

COMPLIANCE 360° enrolled 50 patients (with 65 lesions) at nine U.S. sites. Patients had calcified above-the-knee lesions greater than or equal to 70 percent, and were equally randomized to PTA alone versus therapy with the Diamondback Orbital Atherectomy System.

Additional information is available here. Cardiovascular Systems, Inc.

Study Evaluates Treatment of PAD in Office-Based Lab Setting

At the Society for Interventional Radiology (SIR) meeting, CSI announced results from a study of patients treated for PAD with the Diamondback System in a non-hospital setting. Dr. Warren Swee, South Florida Vascular Associates, Coconut Creek, Fla., discussed his analysis of data demonstrating short treatment times, device safety and efficacy treating calcified lesions in the office-based lab setting.

In this prospective, single-center study, 100 consecutive procedures were performed on 84 patients (157 vessels) over a nine-month period by Dr. William Julien, chief executive officer of South Florida Vascular Associates. Of these patients, 64.9 percent had claudication and 35.1 percent had critical limb ischemia. The mean Diamondback 360° run time was only 55 seconds. Low-pressure adjunctive angioplasty was performed in all cases. The average pre-procedure vessel stenosis was 78 percent; after treatment, mean vessel stenosis was 11 percent. The dissection rate was only 2.8 percent, none of which were flow limiting, and no perforations were reported. All patients were discharged to their homes, with no hospital transfers. There were no cases of hospital admission or major adverse events within 24 hours.

Additional information is available here.

Patient Enrollment in ORBIT II Clinical Trial Advances

Patient enrollment in CSI's ORBIT II clinical trial for a coronary application is now more than 65 percent complete, with over 40 U.S. medical centers enrolling patients. CSI expects to complete patient enrollment this summer. Since the primary endpoints of ORBIT II are based on 30-day patient follow-up post procedure, a PMA application to the FDA should follow soon after enrollment completion. A coronary application of CSI's orbital technology would open up a large, underserved market opportunity for CSI.

An American College of Cardiology presentation by Dr. Gregg W. Stone, professor of medicine, Columbia University, New York, confirmed that stenting of calcified lesions is associated with greater adverse event rates (death, MI, TLR and stent thrombosis) compared to non-calcified lesions, especially with use of drug eluting stents. Dr. Stone also indicated that high-speed rotational atherectomy, while providing effective lesion decalcification, is difficult to master and is thus infrequently used. CSI's orbital technology, in contrast, may effectively improve the compliance of calcified lesions with less vessel trauma and with greater ease-of-use.

Martin added, "Our technology's ability to treat calcified lesions in small arteries, and our success in the ORBIT I feasibility trial, give us confidence about meeting our ORBIT II endpoints and obtaining a coronary indication in the United States. Since more than 70 percent of our current customers are interventional cardiologists, the addition of a coronary application would provide significant market synergy in the future."

Fiscal 2012 Fourth-Quarter Outlook

Martin said, "The Stealth 360° and clinical data are driving growth in fiscal 2012 and beyond. At this important juncture for CSI, we are investing in science and commercial support for our next stage of growth, the ORBIT II clinical trial, and preparation for a potential coronary market application in the future."

For the fiscal 2012 fourth quarter ending June 30, 2012, CSI anticipates:

• Revenues in the range of $21.5 million to $22.5 million.
• Gross profit as a percentage of revenues similar to the third quarter of fiscal 2012.
• Operating expenses 7 percent to 8 percent higher than the third quarter of fiscal 2012.
• Interest and other expense of about $(400,000), excluding the potential effect of conversions or valuation changes of convertible debt.
• Net loss in the range of $(4.5) million to $(5.1) million, or loss per common share ranging from $(0.25) to $(0.28), assuming 18.2 million average shares outstanding, and excluding the potential effect of conversions or valuation changes of convertible debt.