Greetings, and welcome to the CryoLife’s Fourth Quarter Year End 2020 Financial Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host.

I will now turn the call over to Lynn Lewis from Gilmartin Group. Thank you. Ms. Lewis, you may begin..

Thank you. Good afternoon and thank you for joining the call today. Joining me today from CryoLife’s management team are Pat Mackin, CEO; and Ashley Lee, CFO. Before we begin, I’d like to make the following statements to comply with the safe harbor requirement of the Private Securities Litigation Reform Act of 1995.

Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future.

These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from those forward-looking statements.

Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company’s SEC filings and in the press release that was issued earlier today. With that, I’ll turn the call over to CryoLife’s CEO, Pat Mackin..

Thanks, Lynn, and good afternoon, everyone. Thanks for joining. So despite the continued impact of COVID-19, our business was very resilient given the nature of our products. We continue to launch innovative products and invest in our business, including R&D, clinical trials and manufacturing site expansions.

As we look to 2021, we expect the full commercial potential of our products will start to become more fully realized, especially in the second half of 2021. We hope to see a return to normalcy first in the U.S. and then followed by Europe later in the year.

Today, we’ll touch upon the highlights of our Q4 2020 performance and our initial expectations for 2021, as well as provide updates on several strategic initiatives before Ashley reviews the fourth quarter and full year financial results, as well as providing further details on our 2021 outlook.

I will then make closing remarks and open the call to your questions. As we discussed on our last call, we ended the fourth quarter of 2020 with optimisms as we generated year-over-year revenue growth in September and October as COVID-19 related headwinds appeared to have lessened.

However, since November, the pandemic worsened across geographies around the world, lowering procedural volumes again and slowing our return to growth.

Fortunately, the impact of this resurgence on our business was lessen because most of our products are used in critical procedures that cannot be postponed for long or at all, as well as hospitals and providers have become increasingly adept at managing procedural continuity throughout the pandemic.

So despite these returning headwinds, we had solid performance in the fourth quarter. It now appears that infection rates are once again declining from the 2020 year-end spike.

This coupled with the acceleration in vaccination caused us to believe that we should see procedure volumes normalize mid-year and return to growth in the second half of 2021, both relative to 2019 and 2020. CryoLife like many other companies was put to the test last year.

But as I said before, we continue to advance our R&D initiatives and investments and maintain production at or near capacity. In addition, our field teams supported procedures, both in-person and virtually. Our team was particularly adept at deploying creative solutions to ensure continued customer service and patient care.

And we thank our entire organization for their outstanding performance during these challenging times. Turning to our fourth quarter 2020 results, in Q4 we achieved total revenues of $67.9 million, which reflected a decrease of 3% versus a fourth quarter of 2019 on a GAAP basis and a decrease of 5% on a pro forma constant currency basis.

When you exclude TMR revenues, the fourth quarter 2020 and 2019 total revenues decreased 3% on a pro forma constant currency basis. Volumes returned to growth in October, procedure volumes in November and December declined year-over-year and revenues in December decreased 6% compared to December of 2019.

Still we do continue to see procedures volume being impacted by the most recent spike in cases. Although COVID-19 has been unpredictable, we anticipate that the COVID-19 – the impact of COVID-19 on our year-over-year revenue performance in the first quarter of 2021 will be similar to what we saw in the fourth quarter of 2020.

We also expect to experience a temporary shortage of tissues in Q1 that Ashley will expand on later. Taking these factors into account, we expect revenues to be down between 5% and 8% in Q1 compared to Q1 of last year. But we remain optimistic on the prospect of return to growth in the back half of 2021.

We do however anticipate significant growth in the second quarter of 2021 relative to second quarter of 2020, the quarter 2020 which we initially saw the significant impact from COVID-19 on our business.

Growth in 2021 will be fueled by predominantly our recently launched next generation JOTEC products, AMDS and NEXUS, as well as our continued expansion into Asia-Pacific and Latin America, as well as positive news on the regulatory front.

Due to the uncertainty of exactly when normalization of growth rates and acceleration will occur, we will not be issuing guidance for the full year of 2021. Looking specifically at the outlook for AMDS, the world’s first arch remodeling hybrid device for using the treatment of acute type A dissection remain encouraged.

During the fourth quarter, we posted revenues of $1.1 million compared to $580,000 in the fourth quarter of 2019, an increase of 91% on a constant currency basis. Regarding NEXUS, our launch is still being impacted by COVID-19 and the lockdowns, as travel restrictions currently in effect in Europe.

But we are beginning to see more cases scheduled for the near future and remain optimistic regarding our prospects for this disruptive technology. We also continue to get very positive feedback from our surgeons on the On-X aortic valve. We saw 32% growth in the fourth quarter versus the prior year, even in the face of COVID-19 resurgent headwinds.

As reminder, the On-X aortic valve is the only FDA approved mechanical aortic valve that can run at a lower INR of 1.5 to 2. Whereas all other mechanical heart valves from our competitors must run at an INR of 2 to 3.

More specifically, the PROACT trial demonstrated reduction in our INR levels, had a dramatic 63% reduction in bleeding compared to the standard INR levels with no increased risk of thromboembolic events. Turning to an update on operations, we have more good news to report.

As indicated, we’ve been able to run at or near capacity across our three manufacturing facilities with few without any disruptions, and our supply chain has remained intact. In addition, our second source sewing supplier was recently approved by the European notified body and is currently supplying product to us.

We’re also very pleased with our progress with the enrollment of the PROACT Xa trial, which is a prospective randomized clinical trial to determine if patients on the On-X aortic valves can be maintained safely and effectively on Eliquis versus warfarin. We currently have 42 sites, fully qualified to begin enrollment.

30 sites are actively enrolling and we have over 150 patients currently participating in the study. Feedback from surgeons and patients participating in the trial has been very enthusiastic.

On the regulatory front, we’re in a positive – we are in a position to file our PerClot PMA with the FDA now, but a strategically delayed filing to evaluate commercial options for this technology. Endospan recently enrolled its first patient in the primary arm and two patients in the secondary arm of its U.S. clinical trial for NEXUS.

I’d now like to highlight some of our key operational goals and activities for 2021. First, we will continue to move forward with the rollout of our next generation JOTEC products. We received good feedback from our physicians on E-nside and E-vita OPEN NEO during limited market release in 2020 and both those products are now in full market release.

However, the role of these technologists is still currently being hampered by the impact of the pandemic. But we do not expect procedure volumes to improve during 2021. But we do expect procedure volumes to improve during 2021 as the vaccine rollout gains momentum in Europe.

Regarding E-nya, we received some customer feedback during our limited market release and our incorporating net feedback prior to continuing the limited market release in mid-2021, followed by a full market release later in the year.

In addition, these full market launches will be backed by improved JOTEC inventory resulting from our own internal efforts. The business slowdown associated with the COVID-19 pandemic, and our second source manufacturing supplier.

As I mentioned on our last earnings call, our teams are also gearing up to train more and more physicians to support these launches. Second, we expect to make significant progress through 2021 on enrollment in our PROACT Xa trial. By year-end, we expect to have all 60 sites qualified and at least 50% of the trial enrolled.

Despite pandemic headwinds and assuming these trials meet its endpoints, we believe we can still achieve FDA approval by late 2024, early 2025. If we successfully obtained such approval, we believe the On-X aortic valve should become the market share leader in aortic valve market in patients under the age of 65.

For those of you missed the PROACT Xa webcast on December 7th, I encourage you to watch it. Dr. John Alexander, the Co-Chair of the PROACT trial, did an excellent job providing a comprehensive overview of key aspects of the trial, as well as answering investors’ questions. You can find it archived on our website.

Our third key initiative in 2021 is to file the PerClot PMA with the FDA during the third quarter. We are currently ready to submit the PerClot PMA application for open surgery and small-scale manufacturing.

However, to be attractive to potential commercial partners, we believe we also need the laparoscopic indication in large manufacturing capabilities. As a result, we’ve changed the timing of the PMA submission to include these additional factors in the submission, which we now currently plan to submit in Q3.

Fourth, we expect to file our PMA in mid-2021 for regulatory approval for a low INR label for the On-X mitral valve. This is similar to the label we have on our On-X aortic valve. If the new labels approved, patients with the On-X mitral valve could be maintained on a lower dose of Coumadin, compared to patients implanted with other mechanical valves.

We believe such an approval for our mitral valve will enable us to take significant market share in the mechanical mitral valve market similar to what we’ve seen with our On-X aortic valve. Fifth, regarding the approval for BioGlue in China, we recently received additional questions from the Chinese FDA regarding BioGlue.

We are currently evaluating what impact these questions may have on our approval timeline, and look forward to providing you with an update on expected timing later in the year.

And lastly, we expect to complete in mid-2021, all the testing necessary to file our IDE for the AMDS, and receive IDE approval, to begin our clinical trial by year-end putting us in a position to receive PMA approval by 2024. Throughout 2021, we also continue to work to mitigate operational risk, manage expenses and strategically invest for growth.

Overall, we believe we are in a better position to deliver accelerated revenue growth once the pandemic subsides. Before I turn it over to Ashley, I have one more piece of good news to report. We received award from the FDA that is approved our suppliers manufacturing site change, and we are now cleared to resume the sale of our TMR hand pieces.

We’re in the process of working with our supplier to resume production and anticipate that we will have a gradual ramp up of TMR beginning in the second quarter. We will have more commentary on a ramp up in future quarters, but we don’t anticipate re-launching TMR until Q2 of this year. With that, I’ll now turn the call over to Ashley..

Thanks, Pat and good afternoon, everyone. Total company revenues were $67.9 million for the fourth quarter, down 3% compared to Q4 2019 due primarily to the impact on our business from COVID-19, the absence of TMR revenues, as well as the temporary shortage of certain tissues that I will discuss in more detail shortly.

For the full year, revenues were $253.2 million, down 8% compared to the full year of 2019 due primarily to the impact on our business from COVID-19. On a year-over-year basis, in the fourth quarter of 2020, JOTEC revenues increased 3%, On-X revenues increased 2%, BioGlue revenues decreased 4%, and tissue processing revenues decreased to 11%.

For the full year compared to 2019, JOTEC revenues decreased 9%, On-X revenues decreased 4%, BioGlue revenues decreased 10%, and tissue processing revenues decreased 6%. Performance in each of these product lines was adversely affected primarily by the COVID-19 pandemic.

On a regional basis, fourth quarter revenues in 2020 in EMEA increased 2%, North America decreased 4%, Asia Pacific decreased 7%, and Latin America decreased 10%, all compared to the fourth quarter of 2019.

Compared to full year 2019 revenues, full year 2020 revenues in EMEA decreased 9%, North America decreased 8%, Asia Pacific decreased 2%, and Latin America decreased 23%. Our gross margins were 66% for the fourth quarter compared to 67% for the fourth quarter of 2019. For the full years of 2020 and 2019, gross margins were 66%.

Fourth quarter and full year gross margins include a charge of approximately $800,000 related to certain inventory – tissue inventory that I’ll provide more detail later in my remarks. G&A expenses in the fourth quarter were $36.1 million, compared to $37.6 million in the fourth quarter of 2019.

G&A expenses for the full year of 2020 were $141.1 million, compared to $143 million in 2019.

The fourth quarter and full year of 2020 includes business development charges of $4.8 million, primarily related to a fair value adjustment to contingent consideration for the acquisition of Ascyrus, partially offset by a pretax benefit of $1.2 million due to a change in our corporate PTO policy, and a pretext benefit of $3 million resulting from the reversal of performance-based stock compensation, because the financial targets were not met during 2020.

Fourth quarter interest expense of $4.7 million includes approximately $2.3 million of expense related to our Term Loan B, $1.1 million related to our convertible debt and approximately $1.4 million in non-cash interest expense in amortization of debt origination cost.

Full year 2020 interest expense of $16.7 million includes approximately $10.3 million of expense related to our Term Loan B, $2.2 million unrelated to our convertible debt and approximately $4.2 million in non-cash interest expense and amortization of debt origination cost.

In the fourth quarter of 2020, other income includes $2.7 million in realized and unrealized foreign currency translation gains. In the full year of 2020, other expense of $3.1 million includes $4.9 million in fair value adjustments related to Endospan, partially offset by $1.9 million in realized and unrealized foreign currency translation gains.

Tax expense for the fourth quarter and full year of 2020 reflects valuation allowances on deferred tax assets. On the bottom line, we reported GAAP net loss of approximately $3.5 million or $0.09 per fully diluted share in the fourth quarter of 2020. Non-GAAP net income was $7.9 million or $0.20 per share in the fourth quarter.

In the full year of 2020, we reported GAAP net loss of approximately $16.7 million or $0.44 per fully diluted share. Non-GAAP net income was $9.7 million or $0.25 per share for the full year. Reconciliations of GAAP to non-GAAP income and EPS are included in the press release that we issued this afternoon.

As of December 31, 2020, we had approximately $320 million in debt. Adjusted EBITDA for the fourth quarter of 2020 was $12.1 million, compared to $11.4 million for the fourth quarter of 2019.

As of February 5, 2020, we had approximately $61.4 million in cash and cash equivalents, as well as the full $30 million available under our revolving credit facility. Please refer to our press release for additional information about non-GAAP results, including a reconciliation of these results to our GAAP results.

And now, for our outlook on 2021, as Pat mentioned earlier, due to the continued uncertainties resulting from the COVID – the impact of COVID-19, we will not be issuing full year 2021 financial guidance at this time. we do believe that COVID-19 will adversely impact Q1 and likely Q2 performance, and potentially later quarters.

with that said, our expectation is that Q1 revenues compared to Q1 of 2020 will decrease 5% to 8% compared to the first quarter of 2020 due to the impact of COVID-19 in a temporary shortfall in availability of tissues unrelated to COVID-19. We do expect to see double-digit top-line growth in Q2 of this year, compared to Q2 of last year.

the 2020 quarter most affected by COVID. We then expect to see a return to growth in Q3 domestically and Q4 internationally, if COVID trends continue to improve. we are confident that once COVID headwinds subside, we’re poised to realize that the true commercial potential of our products, especially those recently launched.

regarding tissue availability, during the fourth quarter, we discovered that a supplier shipped us a lot of saline solution that we use in our tissue processing that contain contamination in a small number of bottles of the solution lot. the contamination was identified by our in-house quality controls.

The contaminated solution is currently estimated to have impacted a small percentage of the tissue processed with the solution lot, causing us to write-off those tissues in the fourth quarter in an approximate amount of $800,000.

We are conducting further review to determine if remaining tissue processed with this lot of solution can be released for distribution. We currently believe this review will likely take until midyear. as a result, our tissue processing revenues may be adversely affected in the first quarter.

If we cannot release this tissue, we may take an additional charge of approximately $5 million. If we can release this tissue, then we likely will have a tailwind for our tissue processing business after release.

In the interim, we have temporarily increased our tissue procurement activities to meet the demand for these critical tissues and mitigate the impact on our business in Q1 and beyond. There are a couple of other items to note regarding contingent consideration in 2021.

Accounting regulations require contingent consideration to be recorded at fair value and periodically reassessed. changes in fair value can be generated by the passage of time, assumptions made regarding the factors driving the contingent payments and discount rates used to present value of the obligations.

in 2021, as we evaluate fair value of contingent consideration related to our acquisition of Ascyrus and to our transaction within Endospan, we anticipate that there will be periodic charges for Ascyrus that will flow through SG&A expense and to a lesser extent charges for Endospan that will flow through other expense.

These non-cash expenses associated with their fair value accounting related to contingent milestone obligations will be classified as business development expenses for non-GAAP earnings calculations. upon Endospan’s achievement of 50% enrollment of the primary arm in their U.S.

clinical trial for NEXUS, we will make our third and final $5 million instalment under our loan agreement, which may occur late this year. We expect to record approximately $4.5 million of this payment and other expense. This milestone in related payment could occur late in the second half of 2021. second, when we receive IDE approval to begin a U.S.

clinical trial for the AMDS, we will make a $20 million payment to the former shareholders of Ascyrus, consisting of $10 million in stock and $10 million in cash. The AMDS IDE approval could occur late in 2021. We also early adopted ASC 2020-06 on January 1, 2021, which simplified the accounting for convertible debt instruments.

The net impact on our balance sheet is that we will gross up our convertible debt to its notional value of $100 million by reclassifying approximately $17 million from additional paid-in capital and $4 million from deferred tax liabilities with an offset of $1.5 million to retained earnings.

The net effect on the income statement is that quarterly non-cash interest expense will decrease by approximately $800,000 beginning in the first quarter of 2021, as compared to the fourth quarter of 2020.

Our CapEx in 2021 is expected to increase to $16 million plus due to primarily our manufacturing expansions in both Germany and Austin to meet anticipated increased demand for our JOTEC and On-X products.

regarding our ongoing investments designed to fuel growth, we intend to continue to invest in our commercial channels, particularly in Asia Pacific and Latin America, as well as in our R&D pipeline. Overall, we anticipate that our R&D spending will likely increase to greater than $35 million in 2021.

We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital.

We do not expect to see significant operating leverage over the next year or two, but as our investments in our pipeline plateaus and our channels are developed over the next couple of years. we anticipate seeing a meaningful increase in cash generation and then operating leverage.

One last item relates to nomenclature regarding our product lines, with the recent addition of the AMDS and our distribution agreement for NEXUS, commencing with the filing of our 2020 10-K and our periodic reports in 2021, we will begin to refer to the former JOTEC product line as aortic stents and stent grafts, which we believe is a more accurate description of these products.

This line will include the JOTEC product line, AMDS and NEXUS. Additionally, beginning in 2021 and our future filings and public reports, we will report our tissue processing revenues as a single-line item.

We will then have four primary product categories, tissue processing, aortic stents and stent grafts, surgical sealants, which is BioGlue and On-X. We will also begin to include another category that will include PerClot, TMR and PhotoFix.

We’re making these changes to simplify the reporting of the multiple products that we’ve acquired or developed over the past few years as we have repositioned the company’s focus on aortic repair. I will turn the call back over to Pat for his closing comments..

Thanks, Ashley. So in closing, as you’ve heard this afternoon, despite the global pandemic, our business continues to perform very well. We hopeful that the rollout of the various vaccines around the world will improve market conditions by the middle of 2021.

as market conditions improve and procedure volumes return to previous levels, we believe we will be in a position to realize the full potential of all the work we’ve done over the past five years and see our revenue growth begin to accelerate.

even though we are not providing formal full-year 2021 guidance, we do believe that when the pandemic subsides and vaccines are more widely available, we will be in a position to deliver double-digit growth year-over-year. we have several catalysts in 2021 that we did not have in 2019.

first in 2021, we should fully launch three new JOTEC products; E-vita OPEN NEO, E-nside and E-nya, as well as their benefit from our improved supply chain. Second, in 2021, the addition of AMDS and NEXUS are already in full launch, and we should see nice growth in both product lines, absent unanticipated COVID-19 impact.

Third in 2021, we are filing our PMAs for both PerClot and our On-X mitral valve, and we hope to have good news for our BioGlue China submission. Finally, in 2021, we anticipate seeing further upside from our investments in our channels in Asia Pacific and Latin America.

All of these catalysts give us heightened optimism in our ability to drive increased financial performance. So in summary, the fourth quarter, once again, demonstrated the resilience of our product portfolio and the effectiveness of our strategy to focus on aortic repair.

We look forward to the day when COVID-19 is behind us, and we remain confident about the growth potential of our innovative products. Lastly, expect us to continue on the operation goals I outlined earlier funded by our solid financial position. with that, I’d like now to open up the line to questions. operator, please proceed..

Thank you. [Operator Instructions] The first question is from Suraj Kalia, Oppenheimer and company. Please go ahead, sir..

Good afternoon, everyone. Pat, can you hear me all right..

Yes, we’re hearing fine..

Perfect. So Pat, Ashley, congrats on ending what was otherwise a tough year? And if you just have a look at the numbers, you guys did reasonably well. So, congrats on that.

Pat, let me start out with, or maybe Ashley maybe, start out with the Q1 guidance, is 5% to 8% year-over-year downtick broad-based or is it a specific category whether it’s JOTEC or On-X or the services that is causing some level of the grief from the 5% to 8%..

Yes. So, I’ll take this and Ashley can chime in if he wants to add anything. So the first thing is, as you know, Q1 of last year was really a non-COVID quarter. So, it’s a real – it’s a normal comp. number two, we still – we’re still seeing the pandemic from the post 2020, early 2021 spike is still hanging around.

the biggest issue for us, so it’s COVID and then the other one is we commented on this tissue issue that we ran into, where we had a supplier quality issue that we caught. Thank goodness. And that’s going to impact really only our first quarter, because the tissues that you process in Q4 are the ones you sell in Q1.

So that that’s frankly, the biggest reason. Now, I must say that I’m encouraged. We’re halfway through the quarter and pro forma constant currency we’re down like 1%. So, we actually feel like we’re doing better than what we’re being kind of cautious, just because of this, COVID as well as this short-term tissue impact.

but so far halfway through the quarter, we’re in better shape than we thought..

Got it.

pat, on On-X mitral, if you’re going to file for regulatory approval with low INR midyear, should we expect the data presentation maybe at ACC?.

Yes. we’re actually – in fact, I was in a meeting on this yesterday. We’re actually talking about, where we want to get this published and where we want to have it presented. So, that’s obviously a process that we go through.

So, we don’t have anything to update you on, but as we get closer to the PMA filing, we should have more color in the next quarter or two, because – this will go in – the PMA will go in probably in like August. So, I would think maybe, on our Q2 call, we should be able to give you an update on where we expect that to be published..

Perfect.

PROACT Xa, Pat, N is equal to 81 on December 7th presentation date to now, N is equal to what?.

150..

Oh, so you guys have doubled. Oh, nice. Okay. okay. Pat and Ashley specifically, maybe I missed this. I heard On-X was up 32% year-over-year. Maybe, it was a geographic split. Forgive me, I was frantically making notes. What was that number specifically in terms of a U.S.

and OUS?.

Yes. So that maybe, actually you can look at the total number for the quarter. So, I highlighted that number as well in my presentation – in my comments was On-X was up 32% in the U.S. Q4 2020 over Q4 2019, even in the face of a pandemic, we’re growing that business 32%. So....

yes. And that was the aortic valves..

Yes..

Yes..

All right..

And so for the quarter, On-X was up 2% worldwide..

So, the full worldwide On-X was plus 2%, but that’s got aortic and mitral. When you look at the U.S., which is our biggest market, the U.S. was up 32% in aortic..

Yes. Got it. That was it from my side, gentlemen. Excellent quarter. Congrats..

Thanks, Suraj..

The next question is from Mike Matson, Needham and Company. Please go ahead, sir..

Yes. Thanks. I just want to go back to your guidance for the first quarter that downed 5% to 8%. I guess, after the prior commentary in response to Suraj’s question, I’m a little confused now because you’re saying down 5% to 8%, and then it sounds like you said you’re really only down 1% so far.

So is that because the tissue hit really hasn’t been in that down 1% and that’s going to kind of hit later in the quarter or something, or…?.

Yes. So two things, Mike, I noticed a little bit – there’s a little bit of disconnect there. So we look at – as you all know, the pandemic has been unpredictable throughout the year. And while we were super encouraged going into Q4, we then got hit by this second wave. Q4, as you just heard, was down 5% pro forma constant currency.

We have an added – so we still have the pandemic hanging around in Q1 and we’ve got this added short-term tissue supply issue, which is frankly hard to predict. And I made the comment to Suraj that all the tissue that we process in a quarter shows up the next quarter.

So trying to figure out exactly how much of that tissue is going to be impacted, it’s hard to figure out. So December – the Q4 number was down 5% due to COVID. COVID hadn’t left us, so we were thinking down 5%, and then we put in a few points for the tissue issue. I’m very pleasantly surprised that halfway through the quarter we’re down 1%.

So, yes, I think it’s obviously – we’re being cautious because it’s hard to predict exactly what happens with tissue in the next six weeks, but so far it looks good..

Okay. Thanks. And then I wanted to ask about just the backlog of potential procedures. Given that you made the comments and the nature of your products and the type of surgeries that they’re used in are typically things that really can’t be deferred that long.

Would that then sort of imply that you probably don’t have as big of a backlog as maybe companies that did provide more elective type products?.

You know what? It’s hard to say, Mike. I’ve been out with a bunch of customers in the last month and I think there’s a big difference between what I’m hearing in the U.S. and what I’m hearing in Europe. And remember, we’ve got a big business in Europe, and a lot of our growth is coming from Europe.

The travel restrictions and the curfews and the kind of the lockdowns in Europe are way more pronounced than they are in the U.S. We’ve had lots of cases canceled move because of COVID. So it’s just an ongoing kind of a drag on our ability to launch products to get into cases. So I think it’s more of that.

I mean, I was at a major center last week, I think two weeks ago. And they said, here in the U.S., and they said administration called them and said, on Wednesday, you guys can’t operate, our ICUs just spiked up. I was in another big hospital the next day, and there are no issues. So clearly the hospitals have learned to manage their stuff better.

I also had a heart surgeon at another major center telling me, hey, we know for a fact, if you need an urgent aortic valve or an urgent – if you have an acute type A dissection, you can’t delay that.

He said, but I’ll guarantee you, there are people who have kind of whether it’s a mitral valve repair, where you kind of don’t feel great, they may be pushing that down the road a little bit.

So it’s hard to say exactly, but I’m giving – I’ve given you a bunch of data points that we are clearly not running with all pistons from a procedure standpoint because of the pandemic..

Okay. Thanks. That’s helpful. And then I wanted to ask one on PerClot. So just this delay that you’re waiting on this laparoscopic indication, I guess, so what do you have to do if anything to get that other type of labeling? And then I guess I didn’t understand the comments around the manufacturing part of that..

Yes. So let me see because this will be easy to understand. Our original plan to file PerClot was under the assumption that CryoLife would be distributing the product to our channel in the U.S. And all we needed for that was we were going to file with open surgery and what I call small scale manufacturing, which is not huge volume.

And that would have been fine for CryoLife’s launch. In discussions with potential partners, they want a lot more product and they want laparoscopic, which is where a big chunk of this is.

So, instead of kind of filing for a smaller indication or a lesser indication with not enough product, we said, why don’t we just wait a couple of quarters, go to a larger – it’s basically technical stuff, I mean, we’ve got to do some testing and validations to get up to the larger scale capabilities so we can make more product and a simple way to say it.

And then the laparoscopic is just we have to do an animal study. So that’ll all be done by this summer and we’ll submit the PMA in Q3, which will give us access to a bigger market with the ability to produce a lot more..

Okay. And just given your comment there, it sounds like there’s a decent amount of interest from potential partners when distributing this product.

Would it likely be a single partner or multiple partners or…?.

Yes, I’m not going to get into that. I’m not going to get into that level of detail. I just – again, as we checked – as we got feedback from potential partners, they wanted access to a bigger market and have the ability for us to supply more products. So, I’ll just leave it at that..

Okay, understand. Thanks..

The next question is from Jeffrey Cohen, Ladenburg Thalmann..

Hey, Pat and Ashley, how are you?.

Hey, good. Hey, Jeff..

So, just a few questions from me, I think Suraj and Mike caught a bunch of them. So, as far as the tissue issue, was that specific to a cardiac or vascular? Because it doesn’t look like you specify with the other..

It was both..

It was both. Okay, got it.

And are there any ramifications from your supplier as far as some of your insurance and your – what you’re carrying there as far as the potential $5 million charge going forward?.

Yes. I’m not going to get into that level of detail, Jeff..

Got it, okay.

So, can you give us an indication where AMDS fell out for Q4? I know you’ve bundled it all in now under one path forward?.

Yes. we called it out AMDS did $1.1 million in Q4 versus Q4 of 2019, which is a 91% increase..

That’s fantastic..

And just we aren’t even in the first lap of the race over the first inning of the baseball game, because it was late in Q4. We didn’t have – we had to do some kind of paperwork to get the regulatory. We had the CE mark, but we need to do some special paperwork to get access to Spain, to Italy, to Poland that came late in the fourth quarter.

So that isn’t even really in our numbers yet. We also are starting to get approvals and in some countries in Asia and Latin America. So, throughout this year with access to all of the markets in Europe, all the market, all of Canada and then more markets in Latin American and Asia, we’re expecting nice growth in that area..

Got it. So, you had talked previously about a slightly smaller size for On-X in the aortic setting.

Was there any update there that you called out for the quarter?.

No. We’ve got a 17 millimeter valve that’s been in clinical trials for awhile. It’s just hard to enroll because it’s such a – it’s either pediatrics or just a rare patient here and there, just from a trial standpoint, there’s a good chunk of patients, but we’re pretty close to finishing that.

I don’t have the, I can get back to you offline with the data on that. We’re pretty close to finishing that..

Okay. And any commentary further, I know you called out Texas on the second source on the some of the JOTEC product line.

Is there any update there, is it full-blown now; you’ve got both sources up and running and no issues any longer, as far as demand goes, is it a safe guest for that currently?.

So I think, as you guys all know, I mean, 2019 was – the JOTEC supply was a challenge and we still grew double digits. but it was coming off a year. We grew 25%. So, the JOTEC supply really was a big headwind for us in 2019. We’ve done three things. Number one is with the pandemic causing the procedure slowdown.

We took the opportunity to run our factory at 100%. So, we built inventory during the pandemic. So that’s helped. Number two, we did get our second source, sewing supplier up and running. They’re already supplying us product. And number three, Ashley talked about the big increase in capital expense.

We’ve built a new building in our facility in Hechingen, which is going to increase our capacity by 50%. So, the combination of those three things with these new products, we’re not product – supply is not going to be a constraint..

Okay, perfect. I think that those are from me. Thanks for taking the questions..

Thanks, Jeff..

Yes..

Mr. Mackin, there are no further questions at this time. I’d like to turn the floor back over to management for closing comments..

Yes. Well, thanks for joining and appreciate the attention to the company. I mean, we’re – obviously, the pandemic everybody’s aware of what’s going on with the pandemic. We think with the vaccine rollout plan. We think the U.S. is going to return to normalcy in Q3 and in Europe, who’s a little bit behind on the vaccines comes in Q4.

The reason we’re so excited is we’ve got like 10 things in 2021 that we didn’t have in 2019. We’ve got the NEO launch, the E-nside launch, the E-nya launch, AMDS and NEXUS, our investment in Asia Pacific and Latin America, a potential for a BioGlue China approval.

We’ve got the PROACT Xa enrolling and we’ve got two PMAs we’re filing this year for PerClot and for PROACT Mitral. So obviously, the company’s got a lot going on, but as this pandemic lifts, we feel like we’re well positioned to start delivering a double-digit growth.

So, appreciate your attention on the call and look forward to the next quarter update..

This concludes today’s conference call. You may disconnect your lines at this time and thank you for your participation..