Tim Arens - Vice President, Strategy & Corporate Development and Interim CFO Gary Maharaj - President and Chief Executive Officer.

Brooks O'Neil - Lake Street Capital Markets Jim Sidoti - Sidoti & Company Mike Matson - Needham & Company.

Good day and welcome to the Surmodics Third Quarter 2018 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Tim Arens. Sir, please go ahead..

Thank you, Katie. Good morning and welcome to Surmodics' fiscal 2018 third quarter earnings call. Before we begin, I would like to remind you that during this call, we will make forward-looking statements.

These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Surmodics' future financial and operating results or other statements that are not historical facts.

Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements, resulting from certain risks and uncertainties, including those described in our SEC filings.

Surmodics disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains a reconciliation table to GAAP results.

This conference call is being webcast and is accessible through the Investor Relations section of the Surmodics Web site, where the audio recording of the webcast will also be archived for future reference. A press release disclosing our quarterly results was issued earlier this morning and is available on our Web site at www.surmodics.com.

I'll now turn the call over to Gary Maharaj.

Gary?.

Thank you, Tim. Good morning and thank you for joining us. Before we get into the quarter, I would like to take a moment to introduce Tim Arens, our Vice President of Strategy and Corporate Development and our Interim CFO. Some of you may recall, Tim acted as our Interim CFO for six quarters from 2011 through 2013.

Prior to that Tim was both the general manager of our in vitro diagnostics business unit and head of our FP&A process. Tim is also the internal quarter back of a three seminal acquisitions we performed in the last three years and also led the DCB commercialization we recently completed with Abbott earlier this year.

We are glad to have Tim business acumen and key contributions to our corporate strategy to act as our interim CFO. Thank you, Tim. Moving on to our third quarter performance, we are pleased to report strong operating performance and meaningful advances in our strategic objectives.

Our results reflect solid top-line performance and operational results as we continue to invest in our new product pipeline. We generated revenue of $22.2 million growing 25% over the third quarter of fiscal 2017. This included $1.7 million of revenue from our SurVeil agreement with Abbott.

We also reported diluted non-GAAP earnings of $0.27 per share in the third quarter. Our underlying core business performed well as we continue to execute on our core commercial opportunities.

As a result, we are updating our expectations for fiscal 2018 revenue to be in the range of $79 million to $81 million, up from the previous range of $75 million to $79 million for the year.

We have also revised our expected diluted loss in the range of negative $0.25 to negative $0.30 per share as compared with the prior guidance of negative $0.20 to negative $0.35 per share.

The updated guidance reflects a $0.47 per share charge during the quarter related to the acquisition of in-process research and development assets from Embolitech as well as better than expected revenue performance.

Non-GAAP diluted earnings per share guidance has now been substantially increased from $0.39 to $0.44 as compared to prior guidance of a loss of $0.06 to a positive $0.09 per share. On today's call, I will provide an overview for quarterly achievements and progress towards our strategic objectives.

And then, I will turn the call over to Tim to provide a more detailed review of our third quarter financial results and updates of our fiscal 2018 guidance. We will then open the call to take your questions.

As many of you will recall, in late February we announced an agreement with Abbott for worldwide commercialization rights for SurVeil Drug-Coated Balloon.

As part of the agreement, we will supply the SurVeil Drug-Coated Balloon to Abbott and collaborate with Abbott on product development, clinical trials and regulatory activities to obtain marketing approval in the U.S. and outside of the U.S. including Europe.

Separately, Abbott also received options negotiate agreements our below the knee and AV fistula drug-coated balloon program, which are currently in preclinical development.

As a remainder, SurVeil is built on a next generation technology which includes a proprietary drug-excipient formulation for durable balloon coating and is manufactured using a unique process to improve coating uniformity.

Preclinical data have shown a three to five times higher target tissue drug concentration, a more evenly distributed and durable drug effect and a low incidence of downstream drug particulate as compared to earlier generations of drug-coated balloon.

The design of the SurVeil drug-coated balloon reflects our industry leadership and involvement of service technology for vascular medical devices. With Abbott arrangement in place, we are prioritizing resources to support this project.

Our collaboration with Abbott team on ongoing development for SurVeil and the partnership itself is going exceptionally well. We are excited by the partnership given their deep expertise in vascular care products and their worldwide market coverage.

And we will look forward to working together with Abbott to realize a full potential of our SurVeil drug-coated balloon to treat people with peripheral artery disease. Now I'll turn to the three strategic objectives that we outlined at the beginning of the year.

As a reminder, these are two, one execute to transcend clinical trial in a high-quality rigorous and efficient manner; two, to advance our R&D whole product solutions pipeline by securing regulatory clearances for at least four new products in fiscal 2018 and to file for the first in-human use of either or below the knee or AV --if AV fistula drug-coated balloon programs; and three to finalize and further delineate our commercialization strategy with potential distribution partners for our proprietary products.

For the transcend program, our pivotal trial for SurVeil, it progressed nicely throughout the quarter. We're well on our way to having all U.S. clinical sites initiated by the end of fiscal 2018 as planned. We actively getting sites up and running and enrollment is progressing including at some clinical sites in Europe.

We expect to complete transcend enrollment by the end of fiscal 2019. And as a reminder, transcend is expected to enroll approximately 446 patients at up to 60 clinical sites in the U.S. and 18 sites outside of the U.S.

This randomized trial will evaluate the SurVeil Drug-Coated Balloon for treatment of peripheral artery disease in the upper leg compared to the Medtronic IN.PACT Admiral DCB, the market leader. This trial is among the first level 1 studies to compare next generation DCB with one that is commercially available.

We continue to work with a respective regulatory agencies in multiple countries to secure approval for site initiation and have to-date received clearance to initiate site in several countries.

However, our assumptions on timing will depend on the feedback we obtained from initial filings especially taking into consideration regulatory requirements in each country. We look forward to reporting further progress in our clinical sites both the U.S. and internationally in upcoming calls.

We continue to expect a filing for the first human used for below the knee and AV fistula access drug-coated balloon in fiscal 2018. Further, we anticipate initiating the first in human study for at least one of these products in fiscal 2019. And we're making progress with our 014 sirolimus coated balloons for below the knee drug-coated balloons.

And we're currently working through the preclinical studies for the data package that will be used to determine our readiness for first in human trial. We remain on track for this program and expect to make continued progress throughout the remainder of fiscal 2008.

Turning briefly to our IVD business, we recently launched the MatrixGuard Diluent which provides assay developments unsurpassed blocking of Matrix interferences, while intended assay signal is maintained. MatrixGuard Diluent significantly reduces the risk of false positives and has excellent three-year stability.

With the launch of the MatrixGuard Diluent we continue our commitment to be a premier provider of diagnostic assay components that improve performance and manufacturability of many new assays. Switching gears now to our further R&D efforts around our whole product solutions pipeline.

In May, we announced acquisition of an innovated from thrombectomy platform technology and the related intellectual property from Embolitech. Thrombectomy is a $400 million global market growing in high single digits. However, their significant limitations with currently available technologies and the ability to treat especially organized thrombus.

The Embolitech technology's and innovative platform broad potential peripheral vascular application, including arterial thrombosis, pulmonary embolism, neuroendovascular embolism and deep vein thrombosis.

The technology of this next-generation innovation that eliminate the need for the use of thrombolytics reducing the likelihood of ICU time and bleeding complications that significantly affect patient recovery and outcomes.

In addition, this technology is anticipated to reduce procedure time and the need for multiple procedures and it does not require any additional external capital equipment thereby providing it on the table solution for the patient in the [indiscernible].

We're excited to add out to this portfolio a technology that offers significant advances over the current treatment of complex peripheral thrombosis. The addition of this technology strengthens our pipeline of highly differentiated whole product solutions.

We will use our design and development capabilities of a hydrophilic coating technology and our manufacturing operations as we absorb this technology into our whole products solution pipeline.

Our team is quite excited to be working in the technology and is already working on an initial prototypes and test methods and we are currently executing in a very aggressive timeline with expectations to submit our first application for regulatory approval in the first half of calendar 2020.

Turning now to our pipeline of commercially approved products, we are progressing towards commercial agreements with several interested parties who are in the process of reviewing each of our products that have received regulatory approval.

We continue to exercise the appropriate patients in order to maximize the commercial potential for each of these devices and signed an appropriate deal for our shareholders. As you may recall the Telemark .014 coronary and peripheral support microcatheter received FDA clearance in the second quarter of fiscal 2018.

Early clinician feedback in cases treating patients continues to be overwhelmingly positive. As a reminder, Telemark support microcatheter offers excellent cross-ability for complex coronary and peripheral lesions.

This microcatheter combines Surmodics' Xtreme composite shaft technology with a high performance pristine hydrophilic coating that together provide exceptional deliverability, kink resistance and lesion crossing. Surmodics' pristine's hydrophilic coating offers a best-in-class lubricity and low particulates.

The Telemark microcatheter tapered profile has an outer diameter ranging from 2.6Fr down to 1.4Fr for effective penetration of especially tough calcified lesions. And it has performed very well in the hands of key opinion leaders going through very tough lesions.

We continue to evolve our clinical experience to assess its performance and guard the clinician feedback in the coming months. And we continue to have active and ongoing strategic in this product for multiple parties who are conducting their own clinical evaluation.

Our .014 PTA balloon catheter is also undergoing clinical evaluation both by Surmodics and interested parties. During the quarter, we continued collecting user experience with .014 PTA balloon catheter with extremely encouraging clinician feedback from these initial cases.

We are pleased and are still targeting revenue generation for this product in fiscal 2019. We are also continuing to make measurable headway in products and development using advanced solutions of our coating chemistry and our design capabilities.

In April of this year, we received FDA 510(k) clearance for .018 peripheral balloon catheter, which incorporates our serene hydrophilic coating. As you recall in late calendar 2017, we also received both FDA clearance and CE Mark for the .014 balloon catheter, which also uses serene hydrophilic coating.

These both catheters of .014 and .018 offer best in class deliverability and lesion crossing by leveraging our proprietary hydrophilic coating for unmatched friction and particulate.

These proprietary technologies combined with Surmodics' advanced processes and show ultra-low tip entry and crossing profile for smooth transitions to achieve best-in-class product solutions.

And these new products demonstrate our focus for improving on and providing next generation devices to address the growing need for minimally invasive peripheral artery disease treatment. We're confident that these devices will provide clinicians and effective tool for accessing and crossing the most complex lesion.

Looking ahead, we continue to work on the next wave of product innovations for which we are targeting regulatory filings and clearance in calendar 2018. These will help us further build in our platform and achieve top-line growth.

It is an exciting time at Surmodics and I will highlight these exciting products after the respective regulatory clearances have been achieved.

However, we are on track to become a leading and enduring medical device innovator by combining our key technology assets, our medical device customer relationships to deliver best-in-class innovative products solutions. We are also encouraged by our clinical regulatory achievements combined with ongoing top-line performance and operational progress.

Our goals of generating consistent double-digit top-line growth by the end of calendar 2019 and generating EBITDA margins at or about 30% by fiscal 2021 all in our sights and we believe very attainable.

I will now turn the call over to Tim to provide some more details on out third quarter fiscal 2018 results as well as our outlook for the remainder of fiscal 2018.

Tim?.

Thank you, Gary. We are pleased to report that revenue for the third quarter of fiscal 2018 was $22.2 million as compared with $17.8 million in the third quarter of last year. We reported an operating loss of $6.3 million in the third quarter of fiscal 2018 as compared with operating income of $1.7 million in the comparable prior year quarter.

Our third quarter financial results reflect the $7.9 million acquired in-process research and development charge associated with our acquisition of Embolitech's thrombectomy platform technology and its related intellectual property.

On a GAAP basis, our diluted loss total $0.20 per share in the current year quarter as compared with earnings of $0.05 per share in the third quarter of fiscal 2017. On a non-GAAP basis, quarterly earnings per share were $0.27 in the third quarter of fiscal 2018 versus $0.09 in the prior year quarter.

Turning now to our two business units; medical device delivered an impressive 31% or $3.9 million increase with revenue of $16.7 million in the current quarter. Looking at specific areas within medical device, third quarter royalty and license fee revenue totaled $9.6 million up $2.4 million from the comparable prior year quarter.

The increase in royalty and license fee revenue reflects broad strength in our hydrophilic coatings royalties and $1.7 million of license fee revenue recognized from the SurVeil distribution and development agreement signed with Abbott during the second quarter of this fiscal year.

Product sales increased $1.6 million or 49% driving this growth was a substantial increase in balloon catheter unit volume as a result of recent customer product launches as well as increased reagent sales.

The medical device business unit reported a $6.2 million operating loss in the third quarter versus operating income of $1.4 million in the prior year quarter.

The medical device operating results were impacted by the $7.9 million IP R&D charge associated with the acquisition of the Embolitech thrombectomy technology and also $1.5 million of increased R&D spend. These expense increases were partially offset by the revenue gains in the quarter.

Our in vitro diagnostics business, third quarter fiscal 2018 revenue which is predominantly comprised of product sales totaled $5.5 million up 10% or $500,000 compared with a year ago period. IVD revenue in the third quarter reflected strong growth in antigen and stabilizer sales.

IVD operating income of $2.2 million in the third quarter was down slightly compared to the year ago period. Operating margin in the third quarter of fiscal 2018 was 39% compared to 44% in the comparable prior year quarter. Product revenue mix was skewed toward lower margin products.

Product gross margins for the quarter were 60.8% of product sales as compared with 65% in the prior year quarter. Our third quarter product gross margins were negatively impacted as product revenue mix was skewed towards lower margin products.

Driving the margin declines were an increase in sales of distributed diagnostic products as well as infrastructure and scale up costs in our Irish facility as we prepare for future growth. As a percentage of revenue, third quarter fiscal 2018 R&D expenses were relatively unchanged at 44% compared with a year ago period.

R&D expense excluding IP R&D associated with the Embolitech asset acquisition was $9.8 million for the quarter up $1.9 million for the third quarter fiscal 2017.

R&D expenses fell to 44% for revenue for the quarter due to increases in product and royalty revenue as well as favorable impact from a change in the scope of work to be performed by an external partner involved in our [tranching] [ph] clinical study.

We continue to track towards completing enrollment in the trial by the end of fiscal 2019 and anticipate R&D expense will accelerate in Q4 fiscal 2018. We expect Q4 fiscal 2018 R&D to be in the mid to high 50s as a percentage of revenue.

Related to the May 2018 Embolitech technology acquisition $7.9 million of IP R&D was charged to operating expenses in the third quarter of fiscal 2018. SG&A expenses in the third quarter of fiscal 2018 were 26.9% of revenue versus 29.4% in the prior year period.

On a dollar basis SG&A in the third quarter of fiscal 2018 totaled $6 million as compared with $5.2 million a year ago. Impacting the increase in SG&A expense during the quarter were higher stock-based compensation expenses and higher payroll taxes associated with stock option exercises. During the quarter, the U.S.

dollar has strengthened as compared with the euro, as a result we realized $600,000 of foreign exchange gain on a euro denominated contingent consideration obligation related to the Creagh Medical acquisition.

We recorded an income tax benefit of $2.6 million in the third quarter of fiscal 2018 as compared with income tax expense of $0.5 in the prior year period. The current year benefit reflects a deferred tax impact of the $7.9 million IP R&D charge from Embolitech as well as a $1 million discrete benefit from Stockport exercise activity.

Both periods reflect the impact of non-tax benefit and amortization, accretion, contingent consideration gains and expenses, foreign currency gains or losses and operating losses in Ireland. We expect income tax benefit including the impact of tax reform for fiscal 2018 to be in the range of $2.5 million to $2.9 million.

Our balance sheet reflects the strength of our operating performance even as we make significant investments to support our strategic initiatives. Cash and investments totaled $62.4 million at quarter and we generated cash from operating activities to $1.8 million in the third quarter bringing us to $29.2 million year-to-date.

Our cash and investment balances were impacted by the $4.5 million paid in the current quarter for the acquisition of the IP R&D assets from Embolitech. We also invested $6.9 million in platinum equipment during the first nine months of fiscal 2018.

Our current cash and investment balances and operating cash flows provide adequate capacity to meet our corporate strategic growth initiatives. As a result of our operating performance in the recent quarter and over the first nine months of fiscal 2018 and to reflect the IP R&D charge related to the thrombectomy technology acquisition.

Surmodics has revised its fiscal 2018 revenue and earnings performance guidance. We expect fiscal year 2018 revenue to range from $79 million to $81 million up from the previous expectation in the range of $75 million to $79 million.

This outlook includes between $4 million and $4.5 million of revenue from our SurVeil distribution agreement with Abbott for fiscal 2018. This was up from our previous expectation of $3 million to $4 million.

The company now expects diluted loss in the range of $0.25 to a loss of $0.30 per share as compared with prior guidance of a loss of $0.20 to a loss of $0.35 per share. The current guidance also includes a $0.47 loss per diluted share related to the thrombectomy technology acquisition.

Non-GAAP diluted earnings per share guidance range is now $0.39 cents to $0.44 as compared with the prior guidance of a loss of $0.06 cents to an earnings of $0.09 cents per share. Gary and I are extremely pleased with the performance of the entire Surmodics team and our fiscal third quarter. Thank you for your hard work and outstanding results.

Operator, this concludes our prepared remarks. We would now like to open the call to questions..

Thank you, sir. [Operator Instructions] Your first question will come from Brooks O'Neil from Lake Street Capital Markets..

Good morning. Congratulations on another terrific quarter and progress you're making..

Thanks Brooks..

I was hoping that I can ask you guys just a little bit about the BTK and AV fistula programs. I had some sense -- from comments in prior quarters that it was possible you might increase your spending against those two programs if you saw encouraging results. Obviously, the raised guidance today does not appear like that is coming to pass.

Can you just comment on how you feel about that development in those two areas in particular and whether we should expect to see increased spending behind them as we move forward over the next few quarters?.

Sure, Brooks. I'll take the first part and Tim could talk about how it relates to the R&D spending. First of all, I feel really good about the results we have seen in both those programs. I think the BTK is as you know a very difficult disease and it's a very challenging product to develop.

However, we have completed the preclinical studies and we are in the data assessment component of that right now. And so any implied impact on R&D spending is not at all connected to the actual data we're seeing.

And I was just out of the country talking to the clinicians who agreed to participate in those below the knee studies as we get as -- as we file for regulatory approval. So continues to be good news there. The AV program in a similar vein and I believe it's probably lagging a little bit right now.

The BTK and the prime reason for that is the AV requires more balloon development. We you know we have to upsize balloons all the way up to 12 millimeters in diameter. But the drug delivery capability continues to meet all of our expectations internally. The BTK is an .014 balloon platform.

So that's -- I should say a straighter shot for us in terms of the underlying device.

Tim any comments on the R&D?.

Yes. Brooks I would imagine that you will see a ramp in below the knee in AV fistula spend in the coming quarters.

I would say one of the things that we're probably really pleased with is, the teams have been to a large extent able to leverage the existing platform technology which has helped us maybe to get a little further along then perhaps maybe what we had thought. It wasn't all green lights go.

But as we -- as Gary mentioned in his prepared remarks, we expect that we have an opportunity here for a regulatory filing for first in human, one or both of these programs. So I think we're really pleased with the progress on both of these programs..

Great. Let me just ask one follow-up. I'm curious if I was listening correctly, it sounds like your entertaining conversations with multiple potential partners and products -- whole products you're developing.

I'm just curious how all of this plays with the various children you're engaged with including obviously Medtronic your largest customer, Abbott your newest large partner and potential engagements with other companies as well..

Well, I'll say first of all remember that Abbott has options on the drug delivery portfolio. So that they will certainly be quite interested in reviewing the first in-human data for both of those -- for one or both of those programs at a time. As far as the whole products, .014, .018 and the microcatheter is an example.

Those fill different holes and different strategic portfolio.

And so we're not generating, I hope we're not generating any bad blood with any one strategic because customers who need the .014 balloon platform refresh are not necessarily the same ones who need an .018 balloon and a new state-of-the-art 018 balloon and also the same with the microcatheter.

So just like in the case with the Abbott deal these are all of our customers and we're basically offering them fully derisked clinically technically and regulatory derisk clinical solutions to fit their portfolio. So as a result is not -- I don't sense any friction with our customers. I think those who are evaluating it are happy to be evaluating it.

Tim?.

And Brooks, Gary is spot on with that. It probably isn't a surprise, but I would imagine probably not too far of a stretch for you to think that those organizations that you've mentioned are aware of the cleared products and may have expressed interest in them. We'll get into more detail on that at a later date.

Once agreements are signed, but as Gary did describe we've conducted clinical evaluations on these technologies and now we've got these strategic partners who are doing the same. So stay tuned. We're excited about these products and we look forward to talking more about them in the coming quarters..

Fantastic. Thank you very much and congratulations..

Thanks Brooks..

Thank you, Brooks..

Thank you. Our next question comes from Jim Sidoti with Sidoti & Company..

Good morning.

Can you hear me?.

Yes, Jim. Good morning..

Great. Great. Just first count and type question, you booked $1.7 million from Abbott royalty revenue in the quarter.

Should we expect similar type revenue from Abbott being booked in the next several quarters?.

Jim, I think it will be higher. In our guidance, I think we highlighted between $4 million to $4.5 million for the year. I think if you were to back out the 2.2 that we've already generated would imply at $1.8 million to $2.3 million for Q4.

If you look at the balance sheet, we do have a deferred revenue item that you'll see in the release of about $10.3 million. So the way I would kind of tell folks to think about it is in any of the next four quarters, we could probably be looking at anywhere from $1.8 million to $2.8 million per quarter.

Now be mindful these are some significant management estimates. A lot of this is tied to the costs that are going on with the SurVeil study, the TRANSCEND study. And I think we've talked previously about a $32 million to $40 million study. As we progress through this we get more clarity.

So there are updates to this as we go through, but this is our current thinking and really just to answer your question, we think it will be higher..

Okay. And then, next question the fact that R&D spending was down from the March quarter.

Should we think that is a negative or is that just temporary timing issue?.

It really is a timing issue. I think we had mentioned in the script. There is a couple things. Actually revenues or expenses are up in aggregate dollar amount, but as a percentage it's really down on a sequential basis, but its equivalent to what we saw the prior year quarter.

Remember that revenue was much, much stronger than what we had anticipated and forecast and so that had an impact in terms of the percent. But one of the things that we mentioned in the prepared remarks here was that we had an impact from a change in some of the work those completed by one of the CROs.

Again, that just comes back to gaining greater clarity and understanding of what absolutely needs to be done, who's doing it and how much it's going to cost. And in fact, we've got some discounts that's helping us a lot..

Okay. And then, last question, we hardly hear anybody talk about the diagnostics business even though it is -- funding from the other side of the company. You had a new product proving that business, you had 10% growth which is best growth actually in several quarters.

Should we expect similar type performance going forward?.

I think the diagnostics business should be really proud of what they accomplished this quarter. And I would caution against thinking that the business will be delivering double-digit revenue growth. We're always very happy when they do this.

Probably the best way to think about the revenue performance going forward is mid single-digit growth and yes we're really pleased with the MatrixGuard [indiscernible] launch here that just happened at AACC.

That will take some time for that to really kind of work its way through the financials, but we do anticipate that will be a nice solid base for the business over time..

All right. Thank you..

Thanks..

Thank you. [Operator Instructions] Our next question comes from Mike Matson from Needham & Company..

Good morning. Thanks for taking my questions. I just wanted to go back to the revenue that you're booking from the Abbot deal. I think you said there's about around $10 million of deferred revenue.

So I guess my question is once that runs out what happens is there any additional revenue from that deal as it currently stands until the products launched or is that going to create some kind of a drag or a hole in your revenues once that runs out..

Well, it's a really good question. So let me see if I can help with the jigsaw puzzle pieces here. The total upfront license fee that was received from Abbott was $25 million. And so if you take a look at the balance sheet you'll also see there's a deferred revenue, which is predominantly Abbott.

We've already recognized about $2.2 million and there's about $10 million of current deferred revenue $10.3 million to be exact on the balance sheet. Mike another important part of this puzzle is think through what we've described in terms of our enrollment completion.

So these timings don't completely align, but we expect that we will have enrollment completed by the end of fiscal 2019. That gives you an idea that we recognized a good chunk of the revenue over the enrollment period, but there is a good chunk of the revenue that will be recognized over a longer period.

That longer period really ought to be thought of as completing the clinical study getting approval and then the post approval follow up, right? So as you think about Surmodics obligations under the agreement and the expenses that are incurred over the agreement and to satisfy our obligations we recognize revenue over that period and it's really kind of closely tied to those expenses.

So answer your question once enrollment is completed we still will have a fair amount of revenue that will be recognized until we complete the follow- up on TRANSCEND. So there shouldn't be a hole. We would anticipate everything going while that there will be other revenue streams flowing in as well okay..

Okay. All right. That makes sense. And then just a few questions on Embolitech. So can you talk about what it means to really be, be done there for before you can get the 510(k) -- I think its 510(k) for the initial peripheral application.

And how long you think that'll take and how confident are you in the timing there?.

Yes. What we have is very nicely refined concept and IP, for the peripheral then we're going after -- in odd reason and perhaps veins we were not -- we believe we could probably get regulatory approval for that vasculature -- peripheral vasculature.

It takes about and I'm going to channel our ahead of R&D Greg Sutton here, 12 to 14 months to really get comfortable and potentially get to what we feel is a close design free. So, looking forward to the first quarter of fiscal '20. And those are what I call green light.

I've used the expression in the past green light because its part of development and you can hit all the speed bumps along the way. But the green light is really first quarter of fiscal '20. And the reason for that is, we are trending quite a few paradigms, the first one is you need capital equipment and the thrombolytics.

And typically patients show up in the cath lab, you didn't see the thrombus before and now you've got a schedule -- a surgical procedure which is outside of the cath lab. It's not an on the table solution, that's the first paradigm.

The second one is, even in those cases, you have to use products that require capital equipment and can really get fresh thrombus out of it. Organized thrombus becomes a lot more difficult. So that paradigm of not needing capital equipment and giving the doctor an on the table solution is not insubstantial, product concept looks pretty good.

But, then the reality of forming cloud models and try doing a whole lot of preclinical evaluation. So I would say again green light, I'm looking forward to this design being frozen in that first quarter of 2020 -- fiscal 2020. And then, give or take a quarter. Okay. So that's why we said the first half of calendar 2020.

The regulatory approvals in a device like this, we believe it's 510(k). And right now our experience at least in the U.S. it's taking a weighted average off like a time and a half or two thirds through the 510(k) process. Given the complexities product I think we want to be conservative and give it a fair amount of time.

So the second half of fiscal 2020 I would like to see regulatory clearances on this product. Of course, we're going to try to beat that. But that's the nature of a very complex device. It's all a lot of [nice] [ph] to know, a lot of shape memory alloy and multiple interacting pieces..

Okay. Thanks. And then, you quoted a number of about $400 million, the market thrombectomy market. So does that include, I know there's different places that can be used [economically] [ph].

So is that just purely peripheral -- when say peripheral, I just mean it gets the legs and then the pulmonary and neurovascular are those -- would those add to that $400 million or those included in the $400 million?.

Clearly, it's a much bigger market. It's a much bigger market even in the peripheral application. And the reason is, there's limitations in the current technology. So now you have to go treat with [indiscernible]. So you have to keep the patient overnight.

Pulmonary embolism continues to be one of the major pillars in healthcare around the world and so that's a huge market itself and we call -- it will take us a couple of years to get through all these different vascular beds. And finally, the neurovascular market is resoundingly huge.

If we can give an over the wire solution for colt [retrieval] [ph] in the brain. Again, think in terms of years not quarters. The market all upsized from that..

Yes. All right. Thank you..

Great..

Thank you. At this time, I'm showing no further questions in the queue. I'd now like to turn it back over to management for closing remarks..

Well, thank you all for, all of your questions. We are pleased with our third quarter results and excited by the progress on our whole product solutions strategy. Tim and I look forward to speaking with you on our year-end quarter earnings call. Thanks everybody..

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect..