Caroline Corner - Westwicke Partners Jeff Soinski - CEO Matt Ferguson - CFO.

Analysts:.

Good day, ladies and gentlemen, and welcome to the Q4 2017 Avinger Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. Following managements prepared remarks, we will host a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this conference call maybe recorded for replay purposes. It is now my pleasure to turn the conference over to Ms. Caroline Corner of Westwicke Partners. Ma'am, you may begin..

Thank you, and thank you all for participating in today's call. Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Matt Ferguson. Earlier today, Avinger released financial results for the full year and fourth quarter ended December 31, 2017.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our future financial expectations, are based upon current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipating or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission.

Avinger disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. I'd now like to turn the call over to Jeff..

Thanks, Caroline. Good afternoon and thank you all for joining us. Avinger's has achieved a great deal in recent months and we appreciate the opportunity to provide you with today's update. As Matt will detail shortly, we recently completed a series of financial transactions that have put us in a much stronger financial position.

With this financing behind us, we can now focus on driving towards our new FDA clearances and the anticipated commercial launches of our next-generation Pantheris image guided atherectomy devices later this year. I'm now going to provide a bit more color on our progress and also review some of the growth drivers we have ahead of us.

After that, Matt will walk you through our recent financing transactions and our fourth quarter and full year financial results. Then we'll be happy to take your questions. On the product development and regulatory side, we've delivered on some significant milestones and made substantial progress toward others.

In December, we submitted our 510(k) application for clearance of the next-generation Pantheris catheter and we can continue to anticipate FDA clearance and initial introduction into the U.S. market in the first half of this year. Once we receive FDA clearance, our plan is to first introduce this next-generation device into a limited number of U.S.

accounts as we ramp up production and gain purchasing approvals for rollout to our broader account base. This also provides an excellent opportunity to gain additional clinical experience with this important new product as we prepare for broader launch into our existing accounts.

As you may remember, we received CE marking for our next-generation Pantheris in December and in January announced the treatment of the first patients globally with this improved device at Dr. Arnie Schwin's Labs in Franciscan's Hospital in Munster, Germany.

Since that time we've expanded into an additional site in Germany and our physician users continue to report outstanding clinical results in a variety of anatomies and lesion types.

Moving to the next product in our pipeline, we expect to submit a 510(k) application for clearance of a lower profile 6-ranch [ph] version of Pantheris for smaller vessels, including those below the knee by mid-year 2018. We expect to receive CE marking for this new device around the same time we file our 510(k) in the U.S.

which, similar to the next-generation Pantheris would provide the opportunity for early clinical experience with this new lower profile device in Europe soon after filing. Based on our anticipated filing timeline, we continue to expect 510(k) clearance and initial U.S. launch later in the second half of this year.

We're excited about the prospects for this important new expansion of our Pantheris product line since we believe our outstanding safety profile and the information provided by real-time imaging inside the artery will be critical differentiators for the treatment of smaller vessels, especially those below the knee.

Given the small size of the vessels being treated, this product design also eliminates the need for an inflation system to provide apposition and occlusion which makes the product even easier to use and results in a more streamlined procedure.

We believe this new device will expand our available market opportunity by as much as 50% and therefore will also result in increased utilization by our customers. In addition to these important new products for Pantheris, our R&D team has made excellent progress in the development of our next-generation CTO processing device.

For those of you who are new to Avinger or the peripheral vascular space, CTOs are chronic total occlusions refer to completely blocked arteries. CTOs are the most common reasons that patients require bypass surgery and are a leading cause of amputation.

By successfully crossing a CTO, a guidewire can be introduced and the underlying disease can be treated via atherectomy, dialation of a balloon or some other method.

Our Ocelot family of catheters are the only image-guided CTO crossing catheters on the market and have some of the strongest clinical data ever recorded for a CTO processing device with 97% success in crossing CTOs and peripheral arteries and 98% freedom from major adverse events in the 100-patient Connect 2 study which supported Ocelot's FDA clearance in 2012.

This more mature product line is highly reliable and continues to deliver strong clinical results everyday and remains an important contributor to our Lumivascular franchise. However, as with Pantheris, we see an opportunity to improve and expand this platform with the next-generation device recalling ocilarus [ph].

Ocilarus [ph] will have rotation speeds of 1,000 revolutions per minute compared to 60 rpm for our current Ocelot device. We expect this to result in higher definition real-time imaging similar to the imagine experienced with Pantheris.

We also believe that faster rotation speeds along with a unique steerable proprietary tip design will result in an enhanced CTO crossing capability in a variety of lesion types.

This new catheter is also expected to feature a low profile design that allows for 5 french [ph] sheets compatibility which would be suitable for use in smaller vessels including those below the knee.

We anticipate completing development of this next-generation device in 2018 and submitting a 510(k) application for use in the peripheral arteries prior to the end of this year.

We're also excited that much of the R&D work for this next-generation image guided CTO crossing device will be directly leveragable to the coronary arteries which we believe represents an important potential future market for us or precise control and the safety provided by real-time imaging are of paramount importance.

Now, turning to our clinical activities where we have a number of significant programs underway. Last October, we announced that began enrollment of our insight IDE trial, our pivotal clinical study to evaluate the safety and effectiveness of Pantheris in treating in-stent restenosis or ISR.

As you may recall, while Pantheris is not contraindicative for ISR, the results of this study are intended to support a 510(k) submission with the FDA to expand the Pantheris product label to specifically include the ISR indications which would enable us to directly promote Pantheris for this purpose in the U.S.

We are optimistic about Pantheris's potential role in this challenging area which represents approximately 20% of PAD procedures in the U.S. Our trial is approved for upto 140 patients and upto 20 sites.

In the fourth quarter we started out with our 2 principal investigator sites, we've opened 2 additional sites so far in the first quarter and expect to have 16 sites open for enrollment by the end of April. This includes the 2 sites in Europe which have already begun to use the next-generation Pantheris in their clinical practice.

We expect that most of the enrollment in this trial will take place once the next-generation Pantheris is commercially available in the U.S. and plan to complete enrollment of the insight trial this year.

Earlier this quarter, our Lumivascular technology was also featured in presentations at the Leipzig Interventional Course, more commonly referred to as LINC.

A successful live case was performed with our next-generation Pantheris and broadcast live at the conference, and highly positive single site clinical data collected using our Lumivascular platform was also presented. In addition to our product development and clinical activities, we also have important reimbursement initiatives underway.

First, we plan to file an application for a new CPT code for OCT diagnostic reimbursement in the U.S. by the end of the second quarter.

Our goal is to gain incremental reimbursement for OCT diagnostic imaging for our devices in the peripheral arteries, similar to the reimbursement currently provided for the use of intravascular ultrasound or IVIS in this setting.

While the FDA has already cleared OCT diagnostic claims for our Pantheris and Ocelot devices, we anticipate that the CPT application would be supported by a small scale clinical trial which we are in the process of initiating here in the U.S. This study will compare OCT diagnostic imaging to IVIS in the peripheral arteries.

Remember that strong reimbursement already exists for atherectomy procedures in the peripheral arteries in the U.S., reimbursement that our Pantheris device already qualifies for.

If we're successful in obtaining this new CPT code for OCT diagnostic reimbursement, we expect it would be incremental to current reimbursement levels and we anticipate the new code would apply to any of our Lumivascular devices; Pantheris, Ocelot of future OCT image guided products.

Along the same lines, you may have seen our recent announcement that the Institute for Medical Documentation & Information in Germany established a tracking code, known as an OPS code, for peripheral vascular OCT imaging.

This tracking code also will apply to both Avinger's Pantheris image guided atherectomy devices and Ocelot family of catheters for CTO crossing which utilize OCT imaging as parts of our proprietary Lumivascular platform.

So while no incremental reimbursement has been assigned at this point, the tracking code's in place to gather data that could provide support for higher reimbursement in Germany in the fuure.

While we've had a lot of attention on our pipeline and future opportunities, our commercial organization which now numbers 18 people in the field has been maintaining it's focus on driving utilization in the existing accounts and also generating valuable clinical experience in Europe.

We expect that the commercial introduction of the next-generation Pantheris and the lower profile six-French Pantheris for smaller vessels will expand our market and begin to drive revenue growth as we move through the year.

In addition, as we demonstrate increasing productivity at the account and territory levels, we expect to make strategic additions to our sales force when and where appropriate on a limited basis throughout the year.

We ended the fourth quarter with 152 Lumivascular accounts, a slight decrease from the 157 accounts at the end of the third quarter but in line with our focus on allocating our resources to more productive territories and accounts and supporting utilization in active accounts.

As we anticipate new product introductions later this year, we'll renew our efforts for strategic new account acquisition and cover sales territories with a focus on efficiency and productivity in our commercial organization.

In summary, we feel that our business is headed in the right direction with substantial progress made by our product development, clinical regulatory and operations teams over the last several months.

We're excited about the future, more aligned than ever and committed to achieving the important milestones and exciting growth opportunities we have ahead of us in 2018 and beyond.

At this point I'd like to ask Matt to review the details of our recent progress with our financial structure and review our fourth quarter financial results and then we'll open the call for your questions..

Okay, thank you, Jeff. Since the beginning of 2018, we've made big strides on the financial side of the business which now gives us the financial resources we need to focus on our upcoming approvals and planned launches. Most importantly, in February we successfully completed new equity raise with gross proceeds of $18 million.

In conjunction with the equity transaction, our lender, CRG, converted $38 million of their debt into preferred equity. This leaves us with just $6.5 million of debt which is an 85% reduction from previous levels. The equity offering also included two series of warrants, both with an exercise price of $2 per share.

The Series 1 warrants expires in February of 2025 and the Series 2 warrants contain a feature providing that they are in the money during the 60 days after we achieve FDA clearance of our small vessel Pantheris. The warrants would have to be exercised by that date.

If they are not yet in the money during the 60 days following the FDA clearance, their exploration is extended to the February 2025 date, the same as the Series 1 warrant.

As just mentioned, we expect to receive this FDA clearance prior to the end of this year, so the exercise of these warrants at that point would provide upto $18 million in additional cash to support our ongoing operations.

The Series 1 warrants could also provide an additional infusion of cash upto a maximum of $18 million if they are exercised at any point prior to expiration. Prior to these financing transactions, we announced the 1 for 40 reverse stock splits that became effective on January 30.

We did this in order to increase the share price and to regain compliance with NASDAQ Capital Markets listing requirements. And on March 2 we announced that we had achieved the compliance with all these requirements including the minimum bid price rule, the market value of publicly held shares rule and the market value of listed securities rule.

Now turning to our financials; total revenue was $1.9 million for the fourth quarter ended December 31, 2017, a 59% decrease from the fourth quarter of 2016. Revenue from disposable devices was $1.5 million for the quarter, a 58% decrease from the fourth quarter of 2016.

And revenue related to Lightbox imaging consoles was $0.4 million, a 61% decrease compared to the fourth quarter of 2016. At the end of the fourth quarter, our Lumivascular installed base was 152 accounts which was a slight decrease from the 157 at the end of Q3.

Gross margin for the fourth quarter of 2017 was 9%, down from 21% in the comparable quarter of 2016. The gross margin for the quarter was impacted primarily by lower production volume versus the prior year as we've reduced existing inventories in anticipation of the clearance and launch of the next-generation Pantheris.

Operating expenses for the fourth quarter of 2017 were $8.8 million compared to $12.9 million in the fourth quarter of 2016. This decrease was primarily attributable to reduced headcount expenses compared to the fourth quarter of 2016.

Operating expenses for the fourth quarter of 2017 included a $1.8 million expense related to the anticipated settlement of outstanding shareholder class action litigation, as well as the $350,000 restructuring expense, primarily related to the sublease of a portion of the company's facilities during the quarter.

Loss from operations for the fourth quarter of 2017 was $8.6 million, compared to $12.0 million for the fourth quarter of 2016. And net loss for the fourth quarter of 2017 was $10.2 million compared to $13.5 million for the fourth quarter of 2016.

Loss per share for the fourth quarter of 2017 was a loss of $12.58 compared to a loss of $23.35 for the fourth quarter of 2016. Adjusted EBITDA, a non-GAAP measure, was a loss of $5.4 million for the fourth quarter of 2017 compared to a loss of $9.5 million for the fourth quarter of 2016.

Now looking briefly at our full year 2017 results; total revenue was $9.9 million for 2017, 48% decrease from 2016. Lightbox imaging consoles revenue was $1.9 million, a 61% decrease compared to 2016. And revenue from disposable devices were $8.1 million, a 44% decrease compared to 2016. Gross margin for 2017 was negative 31%, down from 25% in 2016.

The decrease was primarily related to the decreased production volumes, as well as high cost related to product warranties and excess and obsolete inventory. Operating expenses for 2017 were $39.5 million, compared to $55.5 million in 2016.

The decrease was primarily attributable to lower headcount expense, corresponding a reduction in overall headcount from 197 at year end 2016 to 65 at year end 2017. Loss from operations for 2017 was $42.6 million compared to a loss of $50.7 million for 2016. And loss per share for 2017 was $74.77 compared to $135.57 in 2016.

Adjusted EBITDA for the year was a loss of $33.1 million for 2017, compared to $41.8 million as a loss for 2016. Cash and cash equivalents totaled $5.4 million as of December 31, 2017 compared to $10.2 million as of September 30, 2017.

Pro forma for our recent equity financing and debt restructuring, the company would have had cash and cash equivalents of $21.4 million and debt of $6.5 million as of December 31, 2017.

Currently there are approximately 3.6 million shares of common stock outstanding and there are also currently approximately 42,000 shares of Series A preferred stock and approximately 13,000 shares of Series B preferred stock outstanding. Assuming conversion of all preferred stock we would have approximately 31 million of common stock outstanding.

And at this point, I'd like to turn the call back to Jeff..

Thanks, Matt. We're pleased with our position entering 2018 and enthusiastic about our future.

The financing transactions we've recently completed have put us in a much stronger financial position as we execute against our plans, and we have a number of important milestones ahead of us in 2018, we believe we'll fundamentally change our value proposition and position us for growth in the back half of the year and into 2019 and beyond.

Our 2018 milestones include expected FDA clearance and launch of our next-generation Pantheris in the first half of this year, anticipated filing of our 510(k) application for our lower profile six-French Pantheris for smaller vessels mid-year with expected FDA clearance and initial launch prior to the end of the year.

Anticipated filing by the end of the second quarter of a CPT application for incremental OCT diagnostic reimbursement in the peripheral arteries, completion of enrollment in our insight IDE study for the treatment of in-stent restenosis with Pantheris this year, and the anticipated filing of a 510(k) application for Ocelerus [ph], our next-generation CTO crossing catheter in the second half of the year.

In the U.S., we'll continue our sales teams focus on driving utilization in the existing accounts and preparing for launch of our next-generation products into existing and new accounts following FDA clearance; and we'll maintain our dedicated efforts on driving improvements and efficiency and productivity throughout the organizations with a strong focus on minimizing cash usage throughout the year.

And with that, we'd be happy to take your questions..

[Operator Instructions] And our first question will come from the line of Jeffery [ph] with Ladenberg..

Specifically to the sales force, I know you mentioned that you may add a couple where appropriate; is there a certain number or certain territory that you're aiming for or are you feeling it out more as you introduce being in products?.

As you may remember, we had a much larger sales force as we exited 2016 and with almost 60 sales folks and we went through a strategic process throughout the year of really refining that group to focus on our best territories and our best -- with our best reps as we prepare for the launch of new products.

We don't anticipate building our sales force up in advance of the launch of the new products but as we launch those products, introduce them into our existing accounts and then start to gain traction and drive growth; we'll expand our sales force kind of commensurate with growth and the desire to expand into either deeper into existing territories or into new strategic territories.

So I would think of this as a modest expansion this year but -- and I would anticipate that the increases to happen more in the latter part of the second quarter and into the second half of the year but we're not putting out a specific target, we're going to be very -- kind of business driven and progress driven as we go throughout the year..

I'm also just curious, you mentioned that you [indiscernible] timeline on that or are you waiting if you can add a little bit more feedback there?.

You were breaking up, but I think what you asked about was the timeline for the clinical trial that would be conducted in advance of filing our CPT application; was that what the question was around?.

Yes, that's correct..

So that study which is called the scanned study, we have our protocols approved and our initial sites selected, it's a relatively small scale study, it will be in 3 sites; 1 interventional radiologist, 1 interventional cardiologist and 1 vascular surgeon.

The study is in those 3 sites for just upto 20 patients, there will be about a 120 images captured for OCT and IVIS in the study and evaluated as part of this comparative study but not a lot of patients, just upto 20 patients.

So we anticipate that we will complete that study in the second quarter in time for filing our CPT applications at the end of the quarter. And we do intend to announce when we formally begin enrollment in study..

[Operator Instructions] And I'm showing no further questions over the phone line. So now it's my pleasure to hand the conference back over to Mr. Jeff Soinski for some closing comments or remarks..

Well, thank you very much for joining our call this afternoon. We appreciate your interest in our company and look forward to updating on our progress when we record our first quarter results. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day..