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SILK ROAD MEDICAL INC (NASDAQ:SILK)
Q1 2020 Earnings Call
Apr 30, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Silk Road Medical's 2020 First Quarter Earnings Conference Call. At this time, all participants lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference to your speaker today, Caroline Paul, Investor Relations. Please go ahead ma'am.

Caroline Paul -- Investor Relations

Thank you, and thank you all for participating in today's call. Joining me are Erica Rogers, Chief Executive Officer and Lucas Buchanan, Chief Financial Officer. Earlier today, Silk Road Medical released financial results for the quarter ended March 31, 2020. A copy of the release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations and predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including without limitation those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, physician training, growth in our organization and reimbursement, market opportunity, guidance for revenue, gross margin, operating expenses in 2020, commercial expansion, label expansion and product pipeline development are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2020.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, April 30, 2020. Silk Road Medical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

And with that, I will turn the call over to Erica.

Erica J. Rogers -- President & Chief Executive Officer

Thanks, Caroline. Good afternoon everyone and thank you for joining us for Silk Road Medical's First Quarter Earnings Call. Joining me is Lucas Buchanan, our Chief Financial Officer. Before we begin our discussion, I would like to take a moment to acknowledge those in the medical community risking their own well-being to care for patients, not just those diagnosed with COVID-19 but also patients suffering from other devastating diseases and traumas. I would also like to thank our employees and business partners who have selflessly contributed to essential services during this period. I continue to feel privileged to be working alongside this team every day, and I am proud of our unwavering commitment to improving the lives of the millions of patients at risk of stroke from carotid artery disease and other vascular conditions even during times such as these.

I'm also amazed but not surprised by the innovative spirit within our workforce as we adjust to new ways of working while maintaining productivity and unleashing creativity. There will definitely be silver linings born from this crisis. For today's call, we're going to reverse the order of our typical discussion and have our Chief Financial Officer, Lucas Buchanan start off with a review of our first quarter performance. I will then comment on our response to the COVID-19 pandemic, current trends in our business and our commitment to support our physicians during this time. I will conclude our discussion with a view on our positioning for the long term.

With that, I will now turn the call over to Lucas to review our financials.

Lucas Buchanan -- Chief Financial Officer

Thank you Erica, and good afternoon everyone. Revenue for the three months ended March 31, 2020 of $18.9 million, a 48% increase from $12.8 million in the same period of the prior year. Growth was again driven by increased adoption of TCAR across an expanded base of hospital accounts, trained physicians and active sales territories. There were approximately 2,700 TCAR procedures performed in the first quarter of 2020, representing a 55% increase compared to the same prior-year period.

Through the first half of March, our business was on track to meet or exceed our expectations, but we experienced a decline in procedure and revenue trends in the second half of March as hospitals began deferring procedures. Gross margin for the first quarter of 2020 was 72% as compared to 74% in the corresponding prior-year period. Gross margin decline was driven by investments in manufacturing, engineering and infrastructure projects, which we discussed during our fourth quarter of 2019 earnings call.

Total operating expenses for the first quarter of 2020 were $22.8 million, a 38% increase from $16.6 million in the first quarter of 2019. R&D expenses for the first quarter of 2020 were $3.1 million compared to $2.7 million in the first quarter of 2019. The increase was primarily driven by an increase in personnel-related expenses. Sales, general and administrative expenses for the first quarter of 2020 were $19.7 million compared to $13.9 million in the first quarter of 2019. The increase was primarily attributable to expenses related to growth in our commercial team and marketing efforts as well as costs associated with being a public company.

Net loss for the period was $9.9 million or a loss of $0.32 per share as compared to a net loss of $24.2 million or a loss of $20.12 per share for the same period of the prior year. Net loss for the first quarter of 2019 included a $15.7 million non-cash charge resulting from the remeasurement of the fair value of our convertible preferred stock warrant liability.

We continue to record adjustments to the estimated fair value of the warrants until they were exercised in connection with our IPO offering in April 2019. We ended the first quarter of 2020 with $97.6 million of cash and cash equivalents and short-term investments.

Turning to our outlook for 2020. And as we stated in our April 6th press release, we have withdrawn our guidance as it is still too early to accurately estimate the duration, severity, and geographic impact of the COVID-19 outbreak on our operations and financial results.

We will plan to provide additional updates as they become available, and Erica will provide some color on current trends in our ensuing comments. In the meantime, to preserve financial flexibility, we have taken pre-emptive steps to curtail near-term spending and maintain adequate liquidity. We have reduced non-essential SG&A expenses and slowed hiring initiatives, and we have seen an expected reduction in travel, trade show, meetings, training, and other expenses as a direct result of shelter-in-place and other government directives. Some expenses planned for the second quarter, including physician training courses and advertising campaigns, are being deferred to later time periods. As we continue to make prudent financial decisions during this crisis, we are always mindful of our desire to be well positioned for the eventual rebound and our long-term growth objectives.

And as such, we continue to invest in our R&D programs and continue to have a desire to maintain our incredibly valuable and talented workforce. At this point, I would like to turn the call back to Erica for additional commentary.

Erica J. Rogers -- President & Chief Executive Officer

Thank you, Lucas. In this time of unprecedented uncertainty, we are faced with the changes of a highly variable healthcare climate across our nation, among physicians, hospitals, our business, and overall. The situation remains fluid with many hospitals and resources now concentrating on the treatment of those who are affected or may become affected by the COVID-19 virus. As a result, and as many of you are aware, non-emergent surgical procedures were deferred in order to preserve resources for COVID-19 patients. While some TCAR procedures have been insulated from this delay due to an emergent need, there was too much variability on this front to be able to measure the true impact of this disruption to our business. The clinical decision to treat a carotid lesion is not entered into lightly by physicians and their patients. And once that decision has been made, it is highly unlikely the clinical need goes away. Carotid artery disease is a chronic progressive disease that steadily gets worse over time. So we believe that many of the procedures that have been deferred will be rescheduled and patients will eventually receive treatment.

Given the economic costs to hospitals of deferring procedures, we are beginning to see attempts to restart elective surgeries in measured fashion in certain hospitals and regions. Our teams in the field have done a wonderful job of staying focused on our North Star, doing what they can to ensure the best possible patient outcomes and physician support for TCAR procedures performed in the current climate while supporting and monitoring the pipeline of patients being rescheduled, all the while continuing to prioritize the overall safety of our employees and the providers they serve. While the timeline for the return to a new normal remains unknown, we are confident that Silk Road is well positioned to weather the duration of the pandemic impact and what will likely be multiple waves, and we will be well positioned for long-term success.

On this note, I would like to share a brief story with you about Dr. Frank Arko of the Sanger Heart & Vascular Institute in Charlotte, North Carolina. Prior to government directives, Dr. Arko and his group of vascular surgeons decided to limit non-essential procedures in order to preserve hospital resources. Concerned that hospital beds would be scarce or needed for COVID patients, informed their thinking about which procedures to perform. For patients with severe carotid artery disease, they determined that high-grade stenosis and symptomatic patients need urgent treatment and other patients could reluctantly be deferred. Prior to COVID, Dr. Arko and his group performed TCAR about 20% of the time, and CEA about 80% of the time, and their adoption of TCAR was slowly but steadily growing. But as they thought about how best to preserve resources and reminding themselves of the data that suggest TCAR is a faster, less invasive procedure, uses less overall OR resources, and patients often get out of the hospital sooner, they decided to make TCAR their first choice treatment during this crisis.

Since the onset of COVID, they estimate they now perform TCAR roughly 80% of the time. And their patients have done very well, leaving the hospital within one day versus the previous mean of 1.6 days when CEA was the dominant procedure. Dr. Arko believes this procedure mix will persist even when the return to normal practice begins. As for the near future, he expects there will be a dip in carotid procedure volumes as primary care and vascular lab screenings have temporarily declined, but that once the imaging labs are fully back up and running, there will be a large backlog for carotid imaging. He estimates that the degree of stenosis may end up being worse overall for many patients, further increasing their risk of stroke. Dr. Arko's experience shows that the need to reduce the risk of stroke and drive toward more successful outcomes in treating carotid artery disease are unwavering in the face of COVID-19 and in fact highlight the need for safer, less invasive therapies that more efficiently utilize hospital resources.

Our strategic focus, talented workforce, durable platform, and continued commitment to world-class training and education should enable us to help many patients over the next decade. That being said, at this time, our near-term priorities are business continuity and the uninterrupted supply of products, supporting our customers in person and virtually as they perform TCAR procedures and protecting the health and wellbeing of the Silk Road Medical employee team, their families and communities and our customers. While our focus is on these immediate priorities, we have not lost sight of the three priorities we previously outlined in 2020 and our long-term positioning. I would like to touch on all of them and how our endeavors and efforts are focused in light of the current environment. These are US commercial execution, label expansion and coverage for the standard surgical risk patient population, and further pipeline development.

With respect to our first strategic priority, US commercial execution, we have always been able to push and pull the key levers of our business, territory expansion, new account activation and physician training as necessary. Our primary near-term market opportunity is driving the conversion from carotid endarterectomy to TCAR in high surgical risk patients. And we continue to focus on moving already-trained physicians up the adoption curve and training new physicians in both new and established hospital accounts. While procedure volumes have clearly been affected by the pandemic, we have been using the time to prepare for an eventual recovery by reinforcing training, revisiting marketing efforts and our value messages, and enhancing the ways that we connect with our customers. Our world-class field team remains available to support TCAR procedures both in person and virtually. And recently, our team has been utilizing localized- and Web-based didactic training to drive physician education.

In many cases, our customers find themselves with more time on their hands, given the overall drop in procedure volume, which is increasing our interactions, albeit in a virtual environment.

We are finding new ways to support and partner with our physician customers and are actively engaged in the planning and strategy surrounding the backlog of patients that eventually need to be treated.

Moving to our second key priority, broadening the indication for the ENROUTE stent to standard surgical risk patients and expanding reimbursement. We continue to collaborate with the key constituents, FDA, CMS, and the society of vascular surgery on the optimal path forward for standard surgical risk patients. Obviously, there've been a few minor delays as these stakeholders respond to the current crisis, but they are clearly open for business. Although we don't have details to share yet, progress is being made and we are still on track for being able to outline our pathway to standard surgical risk this calendar year.

Finally, our third priority is focused on continued pipeline development. We remain committed to the continued development of additional and next generation products to support and improve TCAR to meet the evolving needs of physicians and their patients. We continue to leverage our broad intellectual property platform and core competencies in both direct carotid access and neuroprotection and the development of transcarotid platforms for other vascular diseases. While some work has been slowed due to social distancing and shelter-in-place directives, we continue to make good progress.

In summary, we are continuing with planned investments to drive durable, long-term growth across multiple initiatives. We are confident in the strength of our business and our ability to manage through the current crisis. Although still too early to tell if it represents a persistent trend, we have recently seen a stabilization in the decline of average daily procedures. Whereas our run rate was 40 to 50 procedures per business day

In the first two weeks of March, a decline began in the second half of March, which persisted through the first half of April. In the last two weeks, we have seen some stability. We are starting to see pockets of optimism and we would expect a modest improvement in May versus April, but we're not in a position to quantify this yet.

As we have previously discussed, time is the enemy for carotid stenosis and procedures can only be deferred for so long before they are considered an absolute necessity by both physicians and patients. While physicians may consider postponing certain procedures for asymptomatic carotid artery stenosis during the current pandemic, The American College of Surgeons among other groups, has specifically indicated that physicians should not postpone procedures to treat symptomatic carotid stenosis, or rather patients experiencing transient ischemic attacks, amaurosis fugax or even minor strokes. CMS reaffirmed this view in its March 18th recommendations on high-acuity procedures that should not be postponed during the COVID-19 outbreak.

As hospitals and physicians prepare to treat their current backlog of carotid artery disease patients, we believe they will increasingly look to TCAR as the more efficient procedure. As was presented at last year's SVS Vascular Annual Meeting in a mash [Phonetic] population with 5,160 patients in each group, TCAR showed 26% lower odds of a hospital stay greater than one day and 25% lower odds of a non-home discharge, for example, to a skilled nursing facility compared to CEA. In addition, TCAR can be safely performed under local anesthesia, thus reducing the need for airway management required with general anesthesia. We remain optimistic in our ability to drive adoption over time and beyond the current period as providers look to treat more backlog patients and free up available resources.

In closing, we are continuing with our progress on our long-term initiatives and we have not lost sight of our commitment to changing the standard of care. As we reflect on how May is national stroke awareness month, we are working with our customers and physicians to ensure that even during the pandemic, people remain aware of the signs of stroke. We are steadfast in our commitment to improve patient lives with our technology and to continue to do our part to raise stroke awareness. This is especially poignant during the current environment amid COVID-19. Once again, we would like to thank our employees, customers, and many other individuals, many on the front lines who are making personal sacrifices as we stand together in our response to the current pandemic.

With that, we will now open it up to questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Robbie Marcus from JPMorgan. You may begin.

Lillian -- JPMorgan -- Analyst

Hi, this is actually Lillian for Robbie. Thanks for taking the question. We've heard some of the companies give some color on trends they've been seeing in April to get a better sense of what second quarter is going to look like. So with a month under your belt, could you give us any incremental details on the dynamics that you've been seeing in the last four weeks, and how confident are you that you've reached a bottom?

Lucas Buchanan -- Chief Financial Officer

Sure Lilly. Great talking to you. So as Erica just mentioned, we saw the kind of reversion from growth to decline in the second half of March that persisted through the first two weeks of April. But then we saw some stabilization, and even just this week, some signs of optimism. So we do expect May to be better than April. And we hope that June continues that trend beyond that. It's difficult to quantify, just given the amount of variables at hand out there.

Erica J. Rogers -- President & Chief Executive Officer

Yes. And Lilly, just to round that out, as I said in my prepared remarks, the run rate was about 40 to 50 procedures per business day the first half of March. And we saw a low of about 12 cases a day. But in the last two weeks, as Lucas just said, really seen some stability. Too soon to tell if this is a durable trend, but I think there are some pockets of optimism certainly in the stroke belt in the Southeastern United States. We've just even heard today, for example, that Florida is back up and running with elective procedures.

Lillian -- JPMorgan -- Analyst

Great. Thank you. And just one more quick one. So you mentioned that asymptomatic cases are more deferrable, but how long can these cases be pushed off? Is it weeks? Is it months, and how long do you think they can be put off without experiencing any negative ramifications? Thanks.

Erica J. Rogers -- President & Chief Executive Officer

Yes. Interesting question. Unfortunately, this is a tough time for these patients and their families. They've been diagnosed with this lesion. They know the risk of stroke is present. And so it's a difficult time for some patients to delay. And in fact, some patients may not survive that delay.

It may actually lead to a stroke, and could even be a deadly stroke. But as we said before, carotid artery disease is a chronic progressive disease that gets worse over time. And so the key is in any patient who has been diagnosed in whom treatment was already considered, the reasonable approach is to bring those patients back as soon as possible.

Lillian -- JPMorgan -- Analyst

Great. Thank you.

Operator

Thank you. And our next question will come from the line of Rick Wise from Stifel. You may begin.

Dillon -- Stifel -- Analyst

Hey Erica and Lucas, this is Dillon [Phonetic] on for Rick. Thanks for taking the question. And you started speaking to I think Erica in your prepared remarks a bit, but do you think that there's actually longer term with the current COVID situation what could mean for the future of healthcare delivery generally, and the adoption of something like TCAR actually be a benefit and accelerate the conversion of CEA to TCAR given the minimally invasive benefits, the shorter treatment time, less resources, shorter hospital stay? Obviously, there are near-term challenges, but kind of looking beyond that, this actually maybe be a positive for TCAR?

Erica J. Rogers -- President & Chief Executive Officer

Yes. I think it's -- the short answer is it's too soon to tell whether any of these things really mark a trend. However, as you heard from the Dr. Arko example, there was the perfect example of them recognizing the benefits of TCAR being less invasive, faster, getting patients out of the hospital sooner, less complications on the backend. And that certainly did lead to some different clinical decision-making, putting TCAR as the primary treatment modality. And so, that is certainly something to -- for our physicians to consider. All of that said, we're mindful in our marketing messages right now to not be tone-deaf to what's going on in the world. So certainly we will take the time to remind our physician customers of these advantages but also be mindful of the current situation.

Dillon -- Stifel -- Analyst

Got it. And then, you talked about being well-positioned for a rebound in procedure recapture and with something like a new technology or product like TCAR, especially in the treatment and prevention of something like stroke, there's lot of hands-on training and proctoring, especially you guys,

I know you're usually in on every single case. As you think about changes going forward and hospitals may be keeping reps and clinical specialists out, I guess, how are you thinking about that balance or evolving the strategy of how you might be able to be as hands-on as you usually are?

Erica J. Rogers -- President & Chief Executive Officer

Right. Good question. I think this is sort of a two-part question. One is what is the impact of our ability to be in hospitals and cover procedures? And we continue to be available to cover procedures and to be in those operating room environments where it's applicable and where it's allowed, and certainly following all of the government and hospital local guidelines in order to do that. So the long-term interaction with our customers, I think, is still to be determined in terms of how much face time will we get. But as I said, we are getting creative, and we're learning to use new and different ways to interact with physicians, both during procedures and in a normal sales process.

You also touched on training. And of course our flagship TEST Drive training program has typically been held in Chicago, and yet given to travel restrictions, we have had to cancel some of the training events that we would normally have conducted in Chicago. However, we are training in new and different ways, including Web-based didactic training. And this effort really began prior to the pandemic when we had the opportunity to trial our proprietary surgical model as well as these didactic trainings and take that on the road. And so we had some experience and we know that it works.

Lucas Buchanan -- Chief Financial Officer

Dillon I will just put a..

Dillon -- Stifel -- Analyst

Got it. Thanks for taking the...

Lucas Buchanan -- Chief Financial Officer

I will put a final point on that. In that, we obviously have a pretty significant trained physician base as of the end of 2019. And in the first quarter, we had a good bolus of new physicians trained, just given [Phonetic] the timing of those events really before the COVID impact. And so as we think about our business, we've always been more and more biased on driving productivity in the trained physician base. And certainly going forward, we'll be altering the plan in Q2 and even Q3, training is likely to be affected. But that doesn't mean we can't change those levers in Q4 and Q1 of next year, for example.

Dillon -- Stifel -- Analyst

Got it. Thanks guys. That's all.

Erica J. Rogers -- President & Chief Executive Officer

Thanks Dillon.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to Erica Rogers, CEO for any closing remarks.

Erica J. Rogers -- President & Chief Executive Officer

Thank you all for attending this call and stay safe out there.

Operator

[Operator Closing Remarks]

Duration: 30 minutes

Call participants:

Caroline Paul -- Investor Relations

Erica J. Rogers -- President & Chief Executive Officer

Lucas Buchanan -- Chief Financial Officer

Lillian -- JPMorgan -- Analyst

Dillon -- Stifel -- Analyst

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