Greetings, and welcome to your Avinger 2019 Second Quarter Conference Call. At this time all participants are in a listen-only mode, a brief question-and-session will follow the formal presentation. [Operator Instructions] At this time, it is now my pleasure to introduce Matt Kreps, with Darrow & Associates, Investor Relations. Mr.

Kreps, you may begin..

Thank you, Tom. And thank you everyone for participating in today’s call. I’d like to welcome all of you to Avinger’s second quarter 2019 conference call. Joining us today are Avinger’s CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig. Earlier today, Avinger released its financial results for the second quarter ended, June 30, 2019.

A copy of the release is posted on the Avinger website under Investor Relations.

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 as forward-looking statements. All forward-looking statements, including without limitation, our future financial expectations, are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated 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 Form 10-K and 10-Q 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 like to now turn the call over to Jeff..

first, driving utilization at current sites and in current markets; second, launching new sites in underserved areas with high rates of PAD; third, introducing new devices to expand our addressable market and revenue per site opportunity; fourth, producing compelling clinical data, demonstrating the unique benefits of Avinger’s Lumivascular platform; and fifth, maintaining a lean operating structure as we scale the business.

I’m happy to report We’ve made significant progress against all of these initiatives in the second quarter and through these efforts, are establishing a strong foundation to fuel our continued growth. Let’s review some of the specific progress we’ve made in each of these areas over the past few months.

First, driving utilization at current sites and in current markets. In the second quarter, we realized the strong increase in orders and utilization, resulting in 13% increase in revenue compared to the year-ago quarter and a 26% increase in revenue from the first quarter.

This strong sequential growth was driven by a 25% increase in use of catheters, a positive indication of treatment activity and the market adoption of our Pantheris next generation platform, which we introduced into the U.S. market in the second quarter of 2018.

Based on the strength of this next-generation platform, Pantheris revenue grew more than 40% year-over-year in the first six months of 2019, with more than 80 accounts ordering next-generation Pantheris since launch.

To fuel our growth and increase our case coverage capability, we continue to make strategic investment in the expansion of our sales force. We’ve hired four additional sales professionals in the second quarter, bringing our total sales headcount at the end of quarter to 26, our largest sales force in the past three years.

We’ve already conducted an extensive training program for these experienced new hires and expect them to contribute to our overall growth throughout the second half of the year. We are well on track to achieve our target of approximately 30 sales professionals in our organization by year-end 2019.

We believe this investment in our sales force is important to support continued ramping of Pantheris cases, successfully execute the launch of Pantheris SV and enabled the launch of new user sites and new products.

Expanding our sales team is critical to the continued success of our second growth initiative, launching new sites in underserved areas with high rates of PAD.

By strategically adding sales resources in new markets, including areas in the southeast and southwest where we’ve had limited coverage previously, we’ve increased our ability to make our Lumivascular technology available to a wider universe of high volume centers and physicians.

We accept this geographic expansion to contribute to our growth in the second half of this year. Turning to our third growth area, launching new devices to expand our addressable market and revenue per site opportunity. We’re in full swing on this initiative with our recent announcement of the Pantheris SV launch to initial U.S.

sites and the successful completion of first U.S. cases. Three interventional cardiologist and two vascular surgeons were key opinion leaders in the treatment of PAD, performed the first 12 cases in four clinical centers last week. The cases took place in a variety of settings, including two hospitals and two office-based labs around the country.

I was able to personally observe first cases in three of the sites and was extremely impressed by the clinical outcomes achieved by these first users in a number of challenging cases.

Early feedback has been very positive for with physicians commenting on the clarity of the imaging, the cutting ability of the device and the safety provided by onboard imaging.

Physicians successfully treated a wide range of lesions with various levels of calcification and arteries below the knee, including those in far distal regions of the vasculature.

Demonstrating the versatility of the device, physicians also used Pantheris SV to successfully debulk lesions and the challenging-to-treat popliteal artery behind the knee and highly occluded vessels and arteries above the knee. While we’re still early in the launch process, we’re encouraged by these early results in our initial sites.

Additional cases are ongoing in these centers, and we’re in the process of rolling out Pantheris SV to three additional sites this week. We expect to have approximately 13 sites up and running in our launch program by the end of August.

Following our initial experience in these centers, we plan to broadly expand commercial distribution to additional treatment facilities in the U.S. and Europe.

By providing access to smaller vessels, especially those below the knee, we believe that Pantheris SV could expand our available market by as much as 50% or $180 million and allow the company to address a significantly larger portion of the estimated $500 million atherectomy market.

On a day-to-day basis, it will also enable Avinger to address a larger share of atherectomy procedures already occurring in our user sites, with a highly differentiated device that combines significant luminal gain with the safety of onboard imaging.

We’re preparing for broad commercial launch by working with current Lumivascular accounts to add the Pantheris SV product code to their ordering systems, providing any necessary updates to the Lightbox imaging console in clinical sites, training our clinical support team and building inventory to support broad commercial launch.

We expect Pantheris fee to drive increasing case volume and be a creative to our revenue growth in the second half of 2019. Next up in our product development pipeline is Ocellaris, our next generation image guided CTO crossing device.

We continue to make excellent progress on this advanced device and anticipate gaining CE Mark for commercialization and initial case experience in Europe in the second half of this year. Following this initial case experience, we anticipate submitting a 510(k) application with the U.S. FDA for the use of Ocellaris in the peripheral arteries.

If all goes according to plan, we hope to be in a position to launch Ocellaris into the U.S. market next year. This will give us a robust platform of three new catheter product introductions in three years with the launch of next-gen Pantheris in 2018, the launch of Pantheris SV in 2019 and the and the anticipated U.S. launch of Ocellaris in 2020.

For those of you new to PAD space, CTO stands for chronic total occlusion or a completely blocked artery, which is one of the most severe and challenging-to-treat forms of PAD. Ocellaris will be a new product extension of our Ocelot family of catheters, the first and only image-guided CTO-crossing devices available on the market.

This next-generation device will leverage real-time, high-definition OCT imaging and incorporates a number of other advances, such as the ability to spin at speeds up to 1,000 rpm and a steerable tip for precise maneuverability.

We believe these improvements will result in a device that is easier to use and a more streamlined procedure as well as provide greater utility for physicians to treat a wider range of CTOs. We are excited about the application of this new technology platform for the treatment of CTOs in the peripheral arteries and are starting there.

We also see great potential to apply this technology for the treatment of CTOs in the coronary arteries.

Total blockages in the coronary arteries are a driver of highly invasive coronary bypass surgery and we believe represent a substantial unmet need in the medical community, with a critical need for the precision and safety we can deliver with our image-guided devices.

Once the development work has been completed for Ocellaris in the peripheral arteries, we plan to transition our R&D focus to development of a specific product application of this platform technology for the coronary arteries and expect this to be one of our primary R&D programs in 2020.

We’ve also made good progress on our fourth strategic initiative, producing compelling clinical data in support of our Lumivascular platform. In April, we announced publication of a study reporting outstanding clinical outcomes for patients treated with Pantheris image-guided atherectomy prior to the delivery of antirestenotic therapy.

The data from this study was outstanding with the publication reporting a 93% primary patency rate and 100% freedom from target lesion revascularization, which is an indication of restenosis at 12 months. In July, Dr. Arne Schwindt from St.

Franziskus Hospital Munster in Germany, who is the principal operator in the trial, presented the findings from this study at the CVC 2019 clinical conference in Chicago. Dr. Schwindt’s presentation was one of five podium presentations plus a live case transmission featuring our Lumivascular technology at CVC.

In addition, our technologies and clinical data were highlighted by key opinion leaders and four podium presentations at the annual New Cardiovascular Horizons or NCVH clinical conference in May. The clinical data in support of our unique approach to the treatment of PAD is building and the clinical community is taking notice.

We recently announced enrollment of our 50th patient in our in-site IDE clinical trial, a multicenter study designed to evaluate Pantheris for treating in-stent restenosis or ISR in lower extremity arteries. Early results are very encouraging, and Dr.

Dwight Dishmon, an interventional cardiologist and physician investigator in the study, presented positive interim results from the first 36 patients enrolled in the study at CVC in July. For these first 36 patients, physicians achieved a 72% average reduction in the stenosis or blockage after the use of Pantheris alone.

And a greater than 90% reduction in stenosis following the use of adjunctive therapy. freedom from target lesion revascularization or TLR was 95% in six months.

Our unique intravascular imaging is proving to make a tremendous difference in the ability to safely treat this challenging indication, and we are excited to follow the study through to completion.

Once the IDE study is completed, we plan on filing a 510(k) application with the FDA to pursue an expanded label for Pantheris in the U.S, which would include the ISR claim. Finally, we’ve made all of this progress while maintaining significantly lower operating expenses.

In the second quarter of 2019, we continued this trend by holding operating expense flat with the previous quarter, in spite of the upsurge in activity.

Combined with higher revenue and improve gross margins this resulted in the lowest operating loss we reported in more than three years, a metric that we’re very focused on as we continue to ramp our business.

We’ve become a leaner, stronger and more focused organization and are committed to translating the progress we’ve made against these strategic growth initiatives to recurring and sustainable revenue growth throughout the remainder of 2019 and beyond. At this point, I’d turn the call over to Mark to discuss financial results..

Thank you, Jeff. Total revenue was $2.3 million in the second quarter, ended June 30, 2019 compared with $1.8 million for the first quarter, an increase of 26% sequentially and 13% over the second quarter of 2018. Key to our second quarter results was the strong ongoing demand for our Pantheris platform as well as expanded market reach.

Through the second quarter, Pantheris revenue has increased 43% compared with the first half of 2018. We are excited to now add Pantheris SV to our stable of best-in-class solutions and anticipate it will contribute significantly to our organic case growth in the second half of 2019.

Gross margin for the second quarter of 2019 was 31% compared with 20% in the first quarter. Our margins reflect the increased revenue level and continued focus on driving efficiencies in our manufacturing operations. We believe that there are significant opportunities to further increase our gross margin as we grow our revenues.

Operating expenses for the second quarter were $5.4 million, flat with the first quarter. Over the past year, we have made significant progress in lowering our cost structure, down 9% in the first half of 2019 versus 2018. At the same time, we are investing in Avinger’s future.

With more sales personnel on the field, strong progress on our clinical study, additional development efforts in R&D and a push in our marketing efforts, we have kept our operating expenses flat from the first quarter. Net loss declined to $4.7 million from $5.1 million in the prior quarter, an improvement of 8% sequentially and 20% year-over-year.

Net loss attributable to common stockholders for the second quarter of 2019 was $5.5 million, an improvement from $6.0 million for the first quarter of 2019 and $6.6 million for the second quarter of 2018.

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, restructuring, stock compensation and other items as noted in the tables today in the release, was a loss of $4.0 million down from $4.3 million for the first quarter and down from a loss of $4.2 million for the second quarter of 2018.

A copy of the reconciliation relating to adjusted EBITDA can be found in today’s press release, which is also posted on our website at www.avinger.com under the Investors section. Cash and cash equivalents totaled $14.8 million as of June 30, 2019 compared to $16.7 million at March 31.

As of July 31, 2019, there were approximately 6.4 million shares of common stock outstanding. Finally, we have regained compliance with NASDAQ’s minimum bid requirement after the one-for-10 reverse stock split implemented in June 2019. At this point, I’d like to turn the call back to Jeff..

Thank you, Mark. We’ve made significant progress against our strategic milestones and growth initiatives over the past several months, and we are excited to see that progress translate to meaningful revenue growth. Our Pantheris next-generation device continues to perform extremely well and gain market adoption.

We are encouraged by the early clinical experience with Pantheris SV in our first U.S. sites and are in the process of expanding distribution to approximately 13 centers as we prepare for broad commercial launch in the second half of the year.

We continue to build compelling clinical data in support of our Lumivascular approach and advance our pipeline products. And while we remain focused on maintaining a lean operating cost structure, we’re investing strategically in the commercial infrastructure to expand our market presence and provide for our future growth.

We look forward to reporting our continued progress against these initiatives in the quarters ahead. At this point, we’d be happy to take your questions..

Thank you. [Operator Instructions] We’ll take our first question from Jeffrey Cohen with Ladenburg Thalmann..

Hi, Jeff and Mark.

How are you?.

Good.

How are you, Jeff?.

Pretty well. So just a matter of questions pretty much across the board. So it looks like margins were a little better, congratulations.

Any read into this? Is it a trend? Is this going only move in one direction from current levels now produced quarter or still a little choppy on a few dollars here and there kind of spring or stings?.

No. That’s a great question, Jeff, and thank you for asking. Right now, our contribution margins are quite strong.

So when we are able to increase our revenue levels, we do see a significant amount of leverage to both the margin and the bottom line and that’s what we saw in the second quarter of 2019 when we were able to increase our revenue base up to $2.3 million, which brought us additional leverage to our operating margins..

Okay, okay. I got it. And then on the SV launch, you talked about second half broad launch – broader launch, I should say, from the 13-or-so centers by the end of this summer.

What might that got you towards the end of the year, so kind of, in the mid-20s? And then could you talk about the current centers, typically, how many physicians at each center have been trained or have used a device on the procedures thus far?.

Yes. Thanks for that question, Jeff. As you know, our strategy and the way approach really starting with the next-generation Pantheris is, first, to introduce the device under CE Mark into Europe, get feedback from the product, make any necessary improvements, then lead to, of course, the 510(k) clearance and the launch in the U.S.

We then undertake the limited launch program to make sure the device is performing as intended in real-world clinical settings, even in light all of our rigorous benchtop validation and rigorous testing. That lets us really understand not only that the device is performing the way we expect it to, but also the capabilities of the device.

And for example, we’re already seeing great performance in more calcified vessels than we might have expected going in. We also are seeing the physicians use this device not only to treat very low, below the knee but also to treat highly occluded vessels above the knees. So, I think there’s a lot of versatility there.

One of the other learnings we get is how best to support physicians in the case, training requirements, tips and tricks for success, et cetera. So we think it’s a really important process and something that we will continue to do and not only this product, but other products. So we’ve identified 13 sites that we’re going to start in.

We already launched to four. We’re launching to three more this week and the original four are continuing to do cases as well. We will launch to the additional sites – fixed sites by – we expect by the end of August.

And so our goal is to have at least three to four cases done in each of these centers, so 40 to 50 cases as we prepare for the commercial launch. So again, an important process. We expect that all of that work can be done within this quarter. And at the same time, we’re preparing our next wave of accounts for launch.

But we aren’t kind of projecting a specific number by the end of the quarter. We are enabling and will enable our sales reps to – once they get the code end of the system to start taking orders prior to shipping the product when we make the call on limited launch starting, so a bit of a fluid situation.

But given the way things are going now, we’re really encouraged by those early results..

Okay, got it.

And then crossing over to Ocellaris, could you talk about the 510(k), you think you’ll submit a 510(k) here by the end of the year or the early part of 2020?.

I would say that with the focus on Pantheris SV, we’re really pleased with the progress on Ocellaris. But I would expect that we will get the CE Mark and get our initial case experience in Europe. We will then see if there are any modifications or improvements we want to make on the device, but I would expect more of an early 2020 510(k) filing.

We definitely don’t want to rush that device, given its importance to our platform and just kind of this more, I think, measured and disciplined approach we take to product development and as importantly, market introduction..

Okay.

And you’re still waiting on CE for some market experience there on Ocellaris?.

That’s right. We don’t expect to have CE Marking and have that initial case experience on Ocellaris until the fourth quarter..

Got it. And then could you talk about the CTO coronary project? I know this is a multitude of market size is larger than yours now.

Is this something that you – if start this next year, is this something you would want to partner for the development side or things? Or is it something that you would consumable partner down the road as far as the commercial side of things?.

As far as the development of the product, this will be a product application based on the Ocellaris platform technology.

So, by developing this five-French small device – Ocellaris device, that will enable us to, in essence, advance the coronary program, which we will then adapt that product or that product application to be more suitable for coronary use.

And we are already partnering with a certain of our KOLs and physician partners who do coronary CTO crossing currently in addition to peripherals as well as starting a program of engagement with other CTO coronary specialists to help to find that product and that product application.

But our strategy is, first, get Ocellaris development completed because that enables us to advance the platform significantly. And then as we interact with these advisors and physicians, who can help us guide the product development, we anticipate taking that product through development on our own.

But would likely look for partners down the road as we anticipate marketing the product. We do expect that, that product will require clinical trials, and it will be a primary focus of ours for 2020 in the R&D area..

Okay. Got it.

And then lastly as far as the expanded label for ISR, can you give us a little closer timing as far as the filing of a 510(k)? And are you including standard size? Or you also going to be looking at the SV size?.

Yes. So, the way – that’s a good question. The way our approvals are gained, it would typically include the entire Pantheris platform. We – – but we – and especially, our Pantheris A400x, the longer-nosecone version of our current Pantheris, is used quite a bit in the trial, because there is such a heavy plaque burden in ISR.

And in fact, that’s one of the things that really, we believe, differentiates our approach for the treatment of ISR in that we – since we are directional atherectomy, we get a very large luminal gain and I shared numbers on the call that we got over a 70% luminal gain using just Pantheris alone and over 90% when adjunctive therapy is applied versus some of the – the only other treatment modality that’s approved for ISR, specifically, is laser, which, as you know from your experience in this space, provides minimal luminal gain.

So, we do think that’s an important differentiating factor here as we advance this program. As far as timing of enrollment, the data is coming in so strong. We do not believe that we will have to enroll full 140 patients, which are allowed, up to 140 patients in the IDE.

So we’re hopeful that we can complete enrollment in that study close to the end of this year, which would enable us to file following the six-month follow-up period for all patients enrolled in study to file our 510(k) if the data pans out the way we expect it to in 2020..

Okay.

Kind of mid to late year 2020, potentially?.

Yes. I would say, that’s a safe bet..

Perfect. That’s it from me. Thanks for taking the questions..

Thank you for the questions, Jeff..

With no other questions in the queue, I’d like to turn the call back over to Mr. Soinski for any closing comments..

Well, thank you all for joining our call this afternoon. We very much appreciate your interest in our company, and we look forward to updating you on our progress when we report our third quarter results. Have a good evening..