Good day, and welcome to the Surmodics' Second Quarter Fiscal 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tim Arens, Vice President of Finance and Chief Financial Officer. Please go ahead, sir..

Thank you, Patrick. Good afternoon, and welcome to Surmodics' Fiscal 2019 Second 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'll 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' website, 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 afternoon and is available on our website at surmodics.com.

I will now turn the call over to Gary Maharaj.

Gary?.

Thank you, Tim. Good afternoon, and thank you for joining us. During the second quarter, we made excellent and important progress on our strategic objectives. Our results reflect solid top line performance, generating double-digit revenue growth for the fourth consecutive quarter.

We have successfully accomplishing number of positive outcomes this quarter as part of our strategy to transform Surmodics into a complete provider of full product solutions.

These are; we are more than 75% enrolled into TRANSCEND trial as of today; we received FDA 510(k) approval for our Sublime guide sheath, one of only two devices that I'm aware of that can access this peripheral arteries via the radial artery. It may also be the only five French guide sheath for radial to peripheral access that exists.

We advanced our thrombectomy development with successful preclinical studies. We made progress in our enrollment of our AVess drug-coated balloon first in human trial, and we generated valuable preclinical data in our Sundance drug-coated balloon programs for below-the-knee treatment.

I'm proud of our team for creating this continued momentum in our business. At the same time, we're acutely aware of the current uncertainty surrounding paclitaxel-coated devices and the potential impact on patients and the future of the therapeutic modality, including our own drug-coated balloon applications.

In response to this uncertainty, Surmodics has rapidly engaged and address these developing concerns and have adjusted our TRANSCEND trial appropriately. As of today, over half of our US sites are backup and able to enroll patients.

The recent FDA communication related to the use of paclitaxel-coated devices to treat peripheral artery disease has created some uncertainty related to the ongoing frequency of use of these devices in the United States.

This has had a direct impact on lowering the rate of enrollment in our TRANSCEND clinical study, which is a head-to-head trial versus Medtronic's drug-coated balloon. As explained in our April 17, 2019 press release, immediately following the FDA communication, we temporarily paused enrollment as we implemented the changes recommended by the FDA.

While we are closely monitoring the trend in rates of enrollment as sites restarted this time, it is too early to determine what the new enrollment rate will be going forward.

Given the current uncertainty regarding enrollment rates and impact on achieving our goal to complete enrollment before the end of fiscal fourth quarter, we have removed the financial impact of the $10 million TRANSCEND study enrollment milestone from our fiscal 2019 revenue and earnings guidance.

While this is a disappointing development especially given that we had this goal squarely in our sites prior to the FDA communication, patient safety and patient welfare remain our highest priority. Now that we have implemented FDA's recommendations for TRANSCEND, which I will describe in more detail shortly.

We're working diligently to complete patient enrollment with the goal of achieving FDA approval ultimately. For full year 2019, we're now expecting $88.5 million to $91.5 million from our previous revenue expectations of $94 million to $97 million.

Our outlook now includes between $7 million to $7.5 million of revenue from our SurVeil distribution and development agreement with Abbott, which compares to our previous guidance of $14 million to $15 million. Note that, based on our updated guidance, we continue to have line of sight to double-digit revenue growth in fiscal 2019.

This is an important deliverable for us. Turning now to our results. In the second quarter, we generated $22.7 million of growing 19% over the second quarter of 2018. This included $1.6 million of revenue from our SurVeil agreement with Abbott.

We also reported diluted GAAP earnings of $0.09 per share and non-GAAP earnings of $0.07 per share in the second quarter. As we look towards the rest of 2019, we are confident both of our Medical Device and IVD businesses will continue to generate meaningful top line growth.

Further, we'll continue to execute on our three major strategic objectives that we previously discussed for fiscal 2019. As a reminder, these are; first, to ensure the success of SurVeil, specifically to complete patient enrollment in the TRANSCEND study and to make substantial progress towards achieving the CE Mark.

Second, to continue to make meaningful advances with our drug-coated balloon pipeline and our nondrug device portfolio, including acceleration of our thrombectomy platform development and our radial platform development.

Finally, to continue to drive revenue growth and cash flow from our existing Medical Device coatings and In Vitro Diagnostic offerings. These offerings provide significant and ongoing return on invested capital and the cash flow, which fuels our strategic growth initiatives.

Starting first with SurVeil; as I mentioned at the top of the call, the recent clinical debate on the safety of intravascular devices using paclitaxel as an active pharmaceutical agent for peripheral artery disease has introduced some uncertainty for our SurVeil drug-coated balloon.

Following the publication of the meta-analysis in December of last year, the FDA released a second cautionary letter for physicians in mid-March, which included an update in the agency's preliminary analysis of a potentially concerning signal of increased long-term mortality with paclitaxel-coated devices.

And they recommended that physicians consider alternative treatment methods until additional analysis has been performed.

The FDA will hold an advisory committee meeting on June 19th and June 20th this year to further assess this issue with the intent to come up with a recommendation with respect to the relevant use of these devices and perhaps the need for further in-market clinical follow up.

Immediately following the FDA communication in March, we reached out to the agency seeking guidance on the recommendations and impact on our TRANSCEND trial.

Following multiple conversations, we have taken several actions in response to the agency's recommendations, including updates of investigated communications, the patient informed consent forms as well as safety data review and patient follow-up procedures; this situation required us to briefly pause enrollment in the study.

As I mentioned, currently over half of our US trial sites have secured IRB approval of the updated informed consent forms. And are actively enrolling and randomizing patients. Importantly, the sites that are back up and running have enrolled almost 70% of the total patients enrolled to-date.

So now we are over 75% of our way to our goal of 446 randomized patients. However, given the unknown impact of the FDA recommendation on these devices and the brief enrollment pause, we are now carefully monitoring the time of completion to enrollment.

It is too early to predict at this time the timing of completion until we have more data on the new enrollment rate under the new FDA recommendations. It is important to note that the TRANSCEND's trial independent steering committee has unanimously recommended continuing with the trial.

The steering committee is comprised of the world's leading clinicians with expertise in this specific area. TRANSCEND, as a head-to-head trial, does not impose the use of a DCB treatment.

Instead, a patient is only considered a candidate for participating in the TRANSCEND study after the treating physician has determined, based on applicable standard of medical care that the patient should be treated with the drug-coated balloon.

TRANSCEND is an independently monitored trial and will add critical rigorously reviewed clinical efficacy and safety data to this field, including five-year follow up data. The trial continues to be monitored on a weekly basis and we are taking appropriate measures to retain patients for follow-up through the end of the trial.

Additionally, we continue to make progress in our regulatory filing to our European Notified Body as part of our efforts to obtain the CE Mark for SurVeil. We intend to have all the modules submitted within the next three months. Turning now to our product pipeline.

As a reminder, we recently received approval to initiate the first-in-human study for our AVess arteriovenous access drug-coated balloon. This is exciting and we have already succeeded several patients and can treat up to a total of 15 patients. We are bullishly targeting completion of enrollment by the end of fiscal '19 in our first-in-human study.

Moving on to our innovative below-the-knee sirolimus drug-coated balloon program, also known as Sundance. Below-the-knee disease is complex and multifactorial and we are in the process of developing a device that has the most significant favorable impact for these patients.

We're in late preclinical stages of evaluation to optimize the drug dose and if these studies are successful, we anticipate submitting for regulatory approval to initiate the first-in-human trial by the end of fiscal 2019. Our non-drug delivery pipeline is equally exciting and we continue to make progress in our next wave of product innovations.

As a reminder, we expect to commercialize as many as 15 innovated and highly differentiated technologies over the next five years. These innovations will help us to buy -- build platforms who sell unmet clinical needs, approximately doubling our addressable market.

As far as our previous approved devices, we continue to make progress towards the real distribution agreements with several interested parties and we look forward to sharing updates on this progress in the upcoming months. During fiscal 2019, we remain on track to file submissions for regulatory approval for three to four new to the world devices.

As part of these efforts we have made major advances in our thrombectomy platform. Our news device is uniquely designed with visceral cages and a self-expanding guide wire.

We continue to receive excellent physician feedback on our design for arterial thrombosis and we remain on track to complete the design activities by the end of fiscal 2019, and expect to submit our first application for regulatory approval for vascular thrombosis by the end of the first quarter of fiscal 2020. Turning now to radial access.

We made substantial progress in our innovative designs of products for radial access to the peripheral arteries. We recently announced the FDA 510(k) approval for our Sublime guide sheath. This is a highly flexible proprietary Xtreme rate and reinforced sheath, which is designed to resist kinking and maximize strength while retaining a low profile.

This sheath as I said before, is available in five and six French diameters and 120 to 150 centimeter lengths. Of note, the entire working length of the guide sheath is coated with our Serene hydrophilic coating to provide lubricous surface for navigation. The device is also available with .018" and .035" guide wire compatibility.

Radial artery access has been widely adopted for use in coronary procedures, where devices have been developed to accommodate that need. The Sublime guide sheath is intended to introduce therapeutic of diagnostic devices into the vasculature excluding the coronary and neurovasculature.

Radial access offers many benefits relative to the femoral access, including reduced puncture side bleeding, early ambulation and reduced length of hospital stay resulting in lower health care cost.

The development of our Sublime guide sheath is another step forward in our strategy to be a provider of whole product vascular solutions, including a suite of radial access products. We intend to continue to develop and seek regulatory approvals for a suite of these devices in the future.

At Surmodics, we have the unique ability to develop products that contain both the high-technology content such as drug device combination products like SurVeil as well as difficult device design challenges such as our thrombectomy system to remove organized clots without surgery. Very few companies have this breadth and depth of R&D capability.

Finally, we're confident that, once competed, our distribution agreements for all of our initially commercialized -- commercially approved devices, will maximize the commercial potential for each of these devices and therefore drive shareholder value.

Our Medical Device and IVD businesses continue to produce strong performance with growth seen across all product revenue categories. Our Medical Device business segment is expected to contribute significantly to a goal of double-digit revenue growth in fiscal 2019.

During the quarter, our Medical Device business grew 23% in the top line, including 15% growth in our non-SurVeil revenue. IVD revenue continues to perform in the mid-single digits, up 7.4% this quarter, which handily outperforms the immunoassay market growth rates of 2% to 3%.

We remain committed to be a premier provider of diagnostic assay components to improve the performance and manufacturing of the immunoassays. In summary, we had a great half in first half of fiscal 2019, and are continuing to build on the achievements of fiscal 2018.

Despite the uncertainty related to the clinical debate on the safety of paclitaxel-coated devices used in peripheral applications. As in the past, our future investments and capital allocations are both well-defined and consistent with opportunities to create shareholder value.

We remain quite excited about these opportunities across our entire product portfolio and are committed to overcoming the challenges in a patient centric manner. We continue to invest in innovation to deliver benefits to vast patient population within vascular medicine.

I'll now turn the call over to Tim to provide more details on our second quarter fiscal 2019 results as well as our outlook for fiscal 2019.

Tim?.

Thank you, Gary. Revenue for the second quarter of fiscal 2019 saw growth across all revenue categories in both of our business segments. Total revenue for the quarter grew 19% to $22.7 million as compared with $19.1 million in the second quarter of 2018, which marks four consecutive quarters of double-digit year-on-year revenue growth.

Looking at our two business units, Medical Device delivered 23% revenue growth, increasing $3.2 million to $17.3 million in the second quarter. For In Vitro Diagnostics business, second quarter fiscal 2019 revenue, which is predominantly comprised of product sales totaled $5.4 million, up 7% compared to the prior year quarter.

Looking at specific areas within Medical Device, second quarter royalty and license fee revenue totaled $9.9 million, up $1.5 million from the comparable prior year quarter. During the quarter, we passed the anniversary date of the SurVeil agreement with Abbott, which was signed in February 2018.

This quarter we recognized $1.6 million of SurVeil revenue associated with the $25 million upfront license fee compared with $500,000 in the prior year quarter. Moving on to product sales. Product sales increased $900,000 or 24%.

We continue to benefit from the success of our Ireland customers recent balloon catheter product launches of unique balloon catheter products developed for specific customers and manufactured in our Ireland facility. In addition, we continue to see modest growth in the sale of reagents to our Medical Device coatings customers.

R&D revenue performance increased $900,000 or 45% from the prior year quarter. Driving this performance was increased hedge affiliate coating-customer project activity, including support for customers, precommercial and commercial products as well as favorable comparisons to the year ago period.

As a reminder, second quarter fiscal 2018 was impacted by customer driven delays in several R&D projects, which have now been resolved. IVD revenue, which is comprised primarily of product revenue, generated second quarter revenue of $5.4 million, up $370,000 or 7% compared with the prior year quarter.

Our IVD revenue reflects growth in sales of our chemical components using diagnostic test and our microarray slides. Product gross margins for the quarter were 68.7% of product sales as compared with 66.5% in the prior year quarter.

The increase in product gross margin percentage as compared with the prior year quarter was due to product mix changes in our IVD business as well as favorable impacts of production volume increases in our Ireland manufacturing facility.

As a percentage of revenue, second quarter fiscal 2019 R&D expenses, including cost of clinical and regulatory activities totaled 60% compared with 57% in the year ago period. R&D expense was $13.6 million for the quarter, up $2.8 million from the second quarter of fiscal 2018.

Increased R&D spending for the quarter was largely driven by activities to establish SurVeil commercial production capacity in our Eden Prairie and Ireland facilities. TRANSCEND clinical study cost were relatively flat year-over-year.

While we saw modest growth in the funding for our AVess drug-coated balloon first-in-human clinical study and preclinical activities to support the development of our Sundance below-the-knee drug-coated balloon. We expect our full year R&D expenses to be in the mid-50s as a percentage of revenue for fiscal 2019.

SG&A expenses in the second quarter of fiscal 2019 were 22% of revenue versus 34% in the prior year period. On a dollar basis, SG&A in the second quarter of fiscal 2019 totaled $4.9 million as compared with $6.4 million a year ago.

Impacting SG&A expense during the quarter was a $650,000 benefit from a customer claim settlement, which was previously accrued for $1 million in Q2 of 2018. Looking at the operating results of our two segments. The Medical Device unit reported a small operating loss in the second quarter versus operating income of $230,000 in the prior year quarter.

Impacting the operating results for the quarter was strong revenue performance and reduced SG&A spend, partially offset by the increase in R&D expense. As a reminder, last year's Medical Device operating performance in the second quarter benefited as a result of a sizable gain on our contingent consideration obligations.

IVD operating income of $2.9 million in the second quarter increased $500,000 or 20% compared to the year ago period. Operating income significantly outpaced revenue growth for the quarter as the business benefited from margin expansion due to operational efficiencies and favorable product mix.

Operating margin in the second quarter of fiscal 2019 was 54% compared to 48% in the prior year quarter. We recorded an income tax benefit of $200,000 in the second quarter of fiscal 2019, as compared with income tax benefit of $1.2 million in the prior year period.

On a GAAP basis, our diluted earnings totaled $0.09 per share in the current year quarter as compared with $0.11 per share in the second quarter of fiscal 2018. On a non-GAAP basis, quarterly earnings per share was $0.07 in the second quarter of both fiscal 2019 and 2018. We continue to maintain a strong balance sheet.

Cash and investments totaled $46.5 million at quarter end. We generated cash from operations of $1.5 million for the second quarter. In addition, we invested $1 million in production plant and equipment during the second quarter of our fiscal 2019.

Our current cash and investment balances and expected operating cash flows provide adequate capacity to support our corporate strategic growth initiatives.

As Gary mentioned at the top of the call, we are updating our full year revenue and earnings guidance for fiscal 2019, taking into account our year-to-date results as well as the recent uncertainty related to the utilization of paclitaxel-coated devices and the related impact on our expected recognition of SurVeil revenue and TRANSCEND trial expenses.

We are lowering our fiscal 2019 revenue expectations by $5.5 million. We now expect revenues to range from $88.5 million to $91.5 million, down from our previous revenue expectations of $94 million to $97 million.

Our outlook now includes between $7 million to $7.5 million of revenue from our SurVeil distribution and development agreement with Abbott, which compares to our previous guidance of $14 million to $15 million.

As a result of the enrollment pause in our TRANSCEND clinical study and the related uncertainty regarding our goal to complete our study enrollment before the end of our fiscal year, we have removed the financial impact of the $10 million TRANSCEND study enrollment milestone from our fiscal 2019 revenue and earnings guidance.

Our prior guidance included $5.2 million to $5.5 million of revenue associated with the completion of TRANSCEND study enrollment milestone, which we now expect to shift into fiscal 2020. As a result of the SurVeil revenue changes and corresponding reduction of expected TRANSCEND clinical study expenses for the remainder of the year.

As well as a strong operating performance of our core businesses, we are increasing our fiscal 2019 diluted GAAP EPS to range from $0.14 to $0.24 per share compared with our previous expectation of a diluted loss in the range of $0.22 to a loss of $0.02 per share.

Non-GAAP diluted EPS is now expected to be in the range of $0.26 to $0.36 per share compared with previous expectations of $0.02 to $0.22 per share. Operator, this concludes our prepared remarks. We would now like to open the call to questions..

Thank you. [Operator Instructions] We'll take our first question from Mike Matson with Needham & Company. Please go ahead..

I guess, I just wanted to start with the FDA panel.

What do you expect them to be asking the panel about? And then what do you see as the possible outcomes here? It seems like it could be sort of a thumbs up, go ahead, back to the way things were, thumbs down, take it off the market or probably the worst outcome would be something kind of in the middle where there is lot of uncertainty?.

Yes. It's really hard to speculate, but I will share some of my personal opinions with you. Clearly, it's not the first time FDA has had panels like this. I think there is some learnings from the past in the coronary area, which I'm not quite familiar with. But the agency has been consistent in saying they have seen a signal.

I think there's a lot of -- for me personally, a misinterpretation of what a signal is. And if you're seeing a signal of mortality, you have to look for what are the things in common. I think everyone is immediately drawn to paclitaxel. But what I hope the committee looks at is quite a lot of other things in common.

Primarily these were all randomized controlled trials that were not designed for mortality and had the possibility to introduce artifacts in terms of patient follow-up and medical management. And so I -- so I've never been to one of these panel meetings, Mike. So I'll probably stop at that and say there are probably better pundits than I am.

But what I do expect and I believe the agency is -- will act prudently. This is a fairly large therapeutic modality for U.S. patients. And it's demonstrated to be quite efficacious as you know. They may be asking for advice and remember the panel from what I understand doesn't tell the FDA what to do, they recommend.

And so it may be understanding the signal and then understanding what is the magnitude of the response based on the evidence. That can range from the FDA's own presentations from a label warning, restricted use or specific type of restricted use, it was a pretty broad restricted use they put and somewhat vague they put out in March 15th.

It could also include further clinical follow-up in the market and all combination of those things. I think the idea of the nuclear option of pulling devices off the market, while it's not impossible in my uneducated [ph] opinion, it's highly improbable. But it certainly is not out of the realm of possibility.

So we -- clearly, the commercial providers of these devices will -- I'm sure, they're preparing for this panel. What we're doing is we are actually looking at our clinical, because we're in a very unique position. We're doing a clinical versus another market leading device.

And we can change and address some of the things that these prior clinicals could not have addressed. And remember, they will run incredibly well in my opinion, but hindsight is always helpful. And that big thing is how to not lose patients for follow up and how do you track them down and understand how they're doing.

And try your best to ensure they're getting equal medical management. So we'll be observing the panel like everybody else. And my other thought is, I believe the agency is moving very quickly to have a panel scheduled in such a short period of time is not trivial.

I also hope the VIVA Physicians group, who are funding this themselves, who have access to all the commercial device data in the US, will be trying to finish their analysis by then. But I don't know that, but I hope that they can because that will shed more light.

The final thing I will say is, in -- what I hope doesn't happen is that statistical idealism overpowers real world data. In other words, randomized controlled trials are level one evidence, well-conducted meta-analysis adds to that. But if there are inherent flaws in the design of the trials, you have to look to the real world.

And I'd point everyone to Eric Secemsky's paper on the CMS data to date, which -- if you have a risk ratio of 1.9, which means you're almost twice as likely to have a mortality event with these devices. You would see that in the real world of tens of thousands of patients and it doesn't exist.

So what I hope -- people usually look to the real world for confirmation of statistical output. If the statistical outputs are vague, I hope they live up to the real world, not for confirmation but for guidance. I'll shut up right there..

All right. That sounds very helpful. Thanks. And then just, you've given the new guidance, how much risk is there really around that, given that you've taken a milestone out, but there's still a lot of uncertainty about just how fast the trials can evolve.

So is there still a risk that if it really slows down then you're going to have to come back and forward again on these numbers? That's all I'll ask..

Right. Yes, I'll give my two cents before turning it over to Tim. We're not giving up on hitting this milestone. And we -- as we talked about it internally, given the uncertainties, we felt compelled to take it out. And Tim will explain a little more in detail.

We have five months left and our team is not acting on the premise that it's not going to happen. But as we balance the probabilities and the risk, that's the reason we took it out. In the next several months, we will be able to model the new run rate given the restricted use of the devices. Otherwise we'll be able to predict today.

But we simply don't that. With that, I'll turn it over to Tim..

Thank you, Mike, for the question. Let me just provide a few clarifying comments here to help answer your question. In the first half of the year, we generated $4 million associated with the SurVeil upfront milestone of $25 million.

And I think the question that you're asking really pertains to the risk associated -- well, we recognized less revenue from the SurVeil milestone, or excuse me, the $25 million up front in the second half of the year. And if you -- implied in the guidance is $3 million to $3.5 million for the second half of the year.

So a significant reduction from what we were able to recognize in the first half of the year. I think we've said this several times on previous earnings calls, but how we recognize this revenue is based upon in large part the expenses that are associated with the TRANSCEND study and how those are flowing through.

So it's that revenue that matching concept between revenue and expenses. And as we continue to get line of sight and visibility with regard to the expenses, we felt that we put together the appropriate view in terms of the revenue for SurVeil in the second half of the year. Clearly there can be some risk.

I don't think it would be much more risk than maybe perhaps a few hundred thousand, but I think we feel highly confident otherwise we wouldn't put this guidance out there. And finally, I will just make one final comment. If you take a look at the revenue that's been removed from guidance, $7 million to $7.5 million associated with SurVeil.

Really the revenue that we're pointing out of guidance is $5.5 million, which would suggest that the core business is performing very well. And so we continue to believe that we're going to continue to perform well there and we might have it upside there, if we should run into any risk on the SurVeil revenue recognition..

[Operator Instructions] We will take our next question from Brooks O'Neil with Lake Street Capital Markets. Please go ahead..

Good afternoon, and thank you for the thorough review of your business and the issues here. I'm curious, obviously it's early, we're still talking about the trial and what impact this will have.

But as you talk with the clinical experts you guys work with and look at the marketplace SurVeil was intended to enter, do you have any sense for the impact this controversy might be having on the overall addressable market for drug-coated balloons used above the knee?.

We've been -- that's the million dollar question. We've heard estimates from -- one thing I should say first, it's under the current FDA recommendations, which we know are likely to change after the panel meeting, sometime after the panel meeting. So under the current FDA recommendations, we've heard anywhere from 50% to lower.

The recommendations were a bit vague in terms of saying you can make a medical decision, use alternative devices. But you can make a medical decision if you believe the patient has a high probability of restenosis.

The issue with plano balloon angioplasty, that's well characterized now is that the restenosis rate is anywhere from 30% to 70% depending on the studies and the data. So a lot of patients who have this disease are likely to restenosis. So I think it depends on -- I haven't gotten or we have not gotten an aggregated view point.

Some institutions it's 10% to 20%, I believe some are saying that it's in the 50% range. I believe part of the issue right now is the community we prefer to be a little more conservative right now understanding that the FDA is going to have this committee review in the near future. So that's one thing.

Post that, I think the real issue is, post the recommendation and any further action by the FDA, what is the new reality of the use of these devices? And that I wish I knew..

Right, I got it. I understand the uncertainty and I appreciate your comments very much. So I was just curious maybe Tim, could say -- or just give us some color or feel for the reaction of his context, your context at Abbott? And how they view the current situation? What their attitude is broadly? Thank you..

Yes. I would say Abbott has been a completely engaged and supportive partner through all of this. The -- this is an important therapeutic modality around the world, to begin with. Clearly if there is a nuclear option, that's a different issue altogether. But with new generations of technology we believe like SurVeil coming on board.

What we hope does not happen and I believe what they hope does not happen is that these devices are not a class. First of all, you can't make a stent and a drug-coated balloons to the same type of class. There is no class effect between them and that's well known. But drug-coated balloons themselves are not a class effect.

And so as new technology comes onboard, we believe we have a third-generation device. I could appropriately improve the technology profile and the treatment. I mean that happens in every industry from phones, to cars, to whatever.

So I believe they are looking at it the same way we are looking at it that we have something that has better technology based on what we understood from the early generation of devices, and we will stay the course. Now how do regulatory agencies react and respond, especially in the US could change that course.

But to-date, Abbott has been helpful, supportive, engaged. I couldn't really ask for more from them..

That's great. Let me just squeeze in one more, if you don't mind.

Obviously, you did some work with sirolimus, can you envision a scenario in which you utilize the core SurVeil balloon and the drug-delivery technology you guys have but substitute a different active drug related to the restenosis issue?.

It's a very good question. As we look at the BTK, the Sundance project, we're treating a slightly different vessel in the tibial artery and the below-the-knee vessel.

So the optimization we're doing right now, some of those are coronary sized, right?.

Sure..

So you clearly don't want to fry the vessel. It's a smaller vessel.

But the -- but as we optimize it for that, we believe that, that's the tougher hurdle if we have to back into a SurVeil type sirolimus device, while it's not out of the question, we're looking at not weeks and months, but a matter of a year plus because there's -- it's a different vascular bed and you have to really carefully and methodically review all the data for that vascular bed.

So we -- and as the engineers tell them, we just can't put it on a SurVeil balloon and change the coating and make it good. But is there a migration pathway there? Perhaps. I think our first effort is let's get the below-the-knee area addressed because that is a really tough disease.

And if we're able to address that, a lot of the learnings will transfer. We'll still have to go back and check every box, which takes the time. But a lot of learnings will transfer. And I will say we're very happy with our drug delivery in sirolimus right now. We have a few more hurdles to really square up on, so I don't want to jinx it.

But I think we can get a lot sirolimus into the tissue and that will help us in the SFA as well, but it's not less than a year..

Yes, I got it..

We will take our next question from Jim Sidoti with Sidoti & Company. Please go ahead..

Good afternoon, Gary and Tim.

Do you have factored into your guidance for fiscal 2019 new distribution for these recently approved products?.

Yes. Great question, Jim. Yes, we have not taken that out, I think we have characterized that in the past, it's been relatively modest. Our business development team continues to work with several strategists and we're hopeful that at some point in the coming months, quarters, we'll be able to announce something. So there is something in there.

Again, it's pretty modest..

Okay.

But we should still expect something in the next six months?.

That's correct..

It appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Arens for any additional or closing remarks..

Thank you, Patrick and thank you all for joining us today and for your questions. This ends today's earnings call, and we'll look forward to speaking with you again for our fiscal Q3 2019 earnings call later this summer..