Cardiovascular Systems Inc (CSII) Q2 2021 Earnings Call Transcript

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Cardiovascular Systems Inc (CSII)
Q2 2021 Earnings Call
Feb 3, 2021, 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 Cardiovascular Systems Inc Fiscal Year 2021 Second Quarter Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today Jack Nielsen, Vice President, Investor Relations and Corporate Communications. Thank you and please go ahead.

John E. Nielsen -- Vice President, Investor Relations & Corporate Communications

Thank you, Chris. Good afternoon and welcome to our fiscal 2021 second quarter conference call. With me today are Scott Ward, CSI Chairman, President, Chief Executive Officer; Rhonda Robb, Chief Operating Officer; Jeff Points, Chief Financial Officer; and Dr. Ryan Egeland, Chief Medical Officer.

Approximately 30 minutes ago, we issued a press release announcing second quarter results. You may find a copy of this release on the Investor Relations section of our corporate website. Here you may also find an earnings supplement that includes additional details on our performance and outlook.

In a few moments CSI management will discuss results for our second quarter, which ended on December 31, 2020. After our prepared remarks, we will entertain your questions.

During today's 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 CSI's future financial and operating results or other statements that are not historical facts. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. In particular, the COVID-19 pandemic has created risks and uncertainties for our business, results of operation, financial condition and prospects, which we will discuss on this call. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise.

We will also refer to non-GAAP measures, because we believe they provide useful information for our investors. Today's press release contains a reconciliation table to GAAP results.

I will now turn the call over to Scott Ward.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thank you, Jack. Good afternoon everyone and thank you for joining us today. I hope that you and your families are successfully navigating through this pandemic. This afternoon we reported that our second quarter revenue grew 6% sequentially to $64.2 million. The surge in COVID cases have increased ICU demand, began to negatively impact our procedures during the final weeks of December and as a result, our revenue finished slightly below the midpoint of our guidance range. Considering the unprecedented spike in hospital admissions, we are really pleased with these results and I am proud of our teams focused support of our customers and patients, especially under these extreme conditions.

During the second quarter COVID continued to have an asymmetric impact across the US, mainly impacting semi-elective procedures like the above-the-knee and claudicant segment of the peripheral market, while the non-elective procedures including critical limb ischemia and coronary have been more resilient. This trend has continued into January and as a result, we expect our Q3 revenue to be down sequentially about in line with last year. Even though we expect the pandemic to negatively impact our sales in Q3, we remain optimistic about calendar 2021 and we expect our business to ramp sequentially throughout the coming year.

We have continued to invest in our product pipeline and we are excited about near-term opportunities like our peripheral balloons and the WIRION Embolic Protection device as well as the longer term opportunities like our hemodynamic pump and now our Drug Coated Balloon portfolio.

So this afternoon we will update you on how we are managing our business in this environment. Rhonda will provide commercial highlights and our Chief Medical Officer, Dr. Ryan Egeland will discuss our recent announcement to partner with CBDT on the development Drug Coated Balloons for coronary and peripheral artery disease. But first, Jeff will provide you with details regarding our financial results and our third quarter guidance. Jeff?

Jeffrey S. Points -- Chief Financial Officer

Thank you, Scott, and good afternoon everyone. First, I would like to point out that today we introduced several new slides and financial details in our updated quarterly earnings supplement which can be found on our Investor Relations site. We believe these new slides will help enhance your understanding of the business.

I will now provide a brief review of our Q2 financial results. Some additional revenue color includes domestic peripheral franchise revenue of $43.9 million, increased 2.3% sequentially, led by continued strong growth in office based labs. Domestic coronary revenue increased 13.1% sequentially to $18 million led by strong unit growth and steady ASPs. In addition revenue from coronary interventional support devices increased 14.1% to $2.2 million. And finally international revenue increased 32% sequentially to $2.3 million.

Turning to expenses. Gross profit margin came in as expected at 78.3%. Operating expenses of just under $50 million or more than $8 million lower than last year. As we have throughout the pandemic, we are managing our expenses and targeting to maintain breakeven operating cash flow until the pandemic subsides. A sequential improvement in revenue combined with our strong and stable gross margins and lower operating expenses allowed us to deliver near breakeven profitability and generate $5.2 million of adjusted EBITDA.

On the balance sheet, we ended the quarter with $225 million in cash and marketable securities and no long-term borrowings. As I move to our expectations for Q3, please note that the resurgence in new COVID cases and increased hospitalizations in large parts of the US make forecasting near term results are more difficult. Although we expect the availability of vaccines will eventually have a favorable impact on the healthcare system, it's difficult to predict how the pace of vaccinations will proceed and what impact this will have on our business in the short-term.

Please note that our Q3 guidance considers these and other factors. Revenues through the first half of the fiscal year have been at approximately 94% of prior year levels. Our Q3 revenue guidance of $60 million to $65 million represents approximately 98% to 106% of our Q3 revenue one year ago. On the expense side, gross margins are expected to be in the 77% to 78% range. Operating expenses are forecasted to be in a range of $52 million to $54 million. This represents a 4% to 8% increase compared to Q2 and is primarily related to the timing of various project and study expenses, product launch and sales training expenses associated with the series of peripheral products we plan to launch in the second half of the fiscal year and increased payroll taxes. Compared to third quarter last year, we expect a nominal increase in operating expenses of 1% to 4% primarily due to project and study timing along with the product launch and sales training expenses. On the bottom line, we anticipate a Q3 net loss of $3.5 million to $6 million and to generate near neutral adjusted EBITDA.

I will now turn the call over to Rhonda, who will discuss our commercial developments. Rhonda?

Rhonda J. Robb -- Chief Operating Officer

Thank you, Jack, and good afternoon everyone. I would like to start with some additional color as to how we're managing through the resurgence of COVID-19 with a variation of impactors by franchise and by side of service. In Q2, our domestic peripheral business increased 2% versus last quarter and decreased 7% compared to last year. Notably, performance was impacted differently by side of service. OBL revenue accounted for 32% of our peripheral business and yielded an increase of 13% versus Q1 and was also up 1% versus last year. The OBL side of service continues to be more resilient due to improved patient access, lower patient anxiety and absence of restrictions on elective procedures. Increased COVID related hospitalizations during Q2 impacted the claudicant segments of our hospital peripheral business the most, declining 2% sequentially from Q1 and 12% year-over-year. In December, increases in ICU bed utilization and subsequent decreases in elective procedural capacity and staffing resulted in delayed outpatient and elective procedures for many claudicant patients.

Complex patients like our CLI patients are continuing to be treated in the hospital setting and hospitals are seeing more and more advanced disease from patients that have either been deferred or have been waiting on the sidelines. Our doctor and advisor checks do expect a rapid rebound in elective procedures and treatment of advanced disease during the next recovery period when it occurs. In the hospital setting we did see continued adoption and growth of our exchangeable platform where purchase of an extra cartridge for multilevel disease remains at nearly 20% of our exchangeable unit volume. Consistent with prior quarters, physicians are increasingly providing full leg revascularization in one procedure and we continue to achieve a meaningful ASP uplift to capture the value in this important innovation as well as extra revenue per case when a second cartridge is used. The strength of our peripheral portfolio and channel competitiveness are key to CSI holding our market share leadership position in peripheral despite increased competition.

Coronary revenue increased 13% versus Q1, which as you recall, increased 63% sequentially compared to Q4. This continued strength resulted from hospital protocols in place to prioritize patients, increased referrals to treat complex patients at higher volume centers where CSI is present, the continued ability for the referral channel process patients and increased ability for hospitals to perform OAS procedures with same day discharge. Our sales channel is considered essential in supporting these cases and our reps have been able to continue to focus on building further penetration of OAS in existing and in new accounts. This is the growth driver to build upon our user base for the treatment of advanced disease and adoption of OAS.

In addition, we continue to make great progress freeing value to the cases where OAS is used and expanding the patients we are able to treat with a more diverse and unique portfolio of ISTs for complex patients with the Sapphire 10 millimeter balloon and Teleport Microcatheter. The sale of these products in Q2 continue to generate incremental revenue of $542 for every Coronary OAS device sold. This is four quarters in a row now where we have had stable revenue per case above $500 per OAS despite COVID. The combination of increased procedure volumes and strong ISD sales resulted in US coronary revenues at about 97% compared to last year.

Turning to international. International revenues improved 32% over Q1 to reach $2.3 million with Japan, continuing to be the major growth driver. In Japan, we now estimate CSI's market share to be over 40%. I'll close with some key events for us in the second half of fiscal '21. In Q2, we started enrollment in ECLIPSE, our 2,000 patient randomized clinical trial in coronary. We expect enrollment to progress at a modest pace until COVID behind us, and we are so thankful to our investigators and coordinators that are committed to seamless trial through, despite a challenging enrollment year. We are equally encouraged by evolving practices for increased imaging and calcium characterization for example to better identify long lesions, heavily stenosed lesions and lesions with nodules. This benefits CSI in the identification of severe calcium that only CSI can treat.

In our second half, we plan to launch a series of peripheral products which will expand our peripheral interventional support devices considerably and add meaningful revenue per case. These products include our WIRION embolic protection device, a full line of peripheral angioplasty balloons and additional peripheral catheters. The successful launch of these products is expected to be an important growth driver in our second half and in the years to come. As you know in about two years we captured over 50% of the incremental revenue opportunity per case in coronary, now selling over $500 of balloons and microcatheters for every OAS sold.

In peripheral the revenue opportunity for case for balloons and catheters is about $800, and we continue to believe that we can capture roughly 50% of that opportunity over a similar timeframe. But in peripheral we sell 4 times as many OAS devices. So the total revenue opportunity is substantially higher. In addition, we believe we can capture meaningful share with our WIRION embolic protection system to be launched in Q4. Today, there are about 55,000 EPDs sold annually in the US at an ASP of about $1,000. An estimated one-third of above-the-knee atherectomy cases utilize an embolic protection device today. The sale of these devices will help us drive additional revenue even when Orbital Atherectomy isn't the primary therapy, as WIRION can be used with any atherectomy device.

As we've headed in the Q3, our collaboration with the American Diabetes Association is now ramping up. Just last week, on January 27, we sponsored the 88th PAD Round Table event entitled Policy Solutions to Prevent Amputations in the United States, and that was attended by over 50 different medical society and healthcare organization representatives involved in PAD and diabetes care. Dr. Ryan Egeland and Dr. Foluso Fakorede were speakers at the event providing information on diabetes, chronic limb threatening ischemia, modern revascularization capabilities and amputations while also highlighting policy opportunities to prevent amputations like those included in Congressman Payne's Amputation Reduction and Compassion Act. Later this quarter, we will also partner with ADA on a clinician event with their diabetes physician network to better educate those on the frontlines of diabetes care around PAD diagnosis and referral to skilled physicians who can help prevent amputation.

Turning to international. We now have CE Mark for our coronary Diamondback device and first cases will begin in our Q3. We anticipate Europe will be -- will continue to be impacted by COVID. As a result, this will be a very deliberate launch as we train and educate remotely until travel may resume. As stated previously, we are targeting sites that already had experience in treating severe calcium and have the patient flow and structure to adopt OAS quickly.

And finally, we continue to plan for first in-human experience for our pVAD now targeted for our fiscal year '22. As we've stated previously, COVID-19 and other factors could result in timeline changes and indeed COVID has impacted our ability to complete some product builds and some of the testing required in the timeframe that had previously been contemplated. We are making solid progress and we continue to have productive and regular interactions with the FDA on our path to EFS.

Our Chief Medical Officer, Dr. Ryan Egeland will now address our recent investment in CVT. Ryan?

Ryan D. Egeland -- Chief Medical Officer

Thank you. Rhonda. As Scott mentioned CSI's entered a partnership with Chansu Vascular Technologies or CVT to develop in everolimus based drug coated balloon portfolio. The partnership will bring together CSI's market leadership in the treatment of calcified atherosclerotic lesions with Dr. Philippe Marco, a respected and experienced pioneer in the development of multiple drug coated devices. Having personal experience working with Dr. Marco and his team on past drug device combination programs, we were able to rapidly recognize and validate CVT's technical platform, development team, and entrepreneurial experience. We're confident, this is a very efficient approach to enter the DCB market. DCBs are of course widely accepted percutaneous interventional treatment option for above-the-knee lesions in patients with peripheral arterial disease and are increasingly recognized for their potential in complex coronary artery disease, including their use for instant restenosis, small vessel and bifurcated lesions. In all these applications DCBs offer the potential for sustained anti-restenotic efficacy without the limitations of permanent implants.

Everolimus the active drug in CVT's DCD formulation access a cytostatic agent to reduce tissue hyperplasia and associated restenosis. It has a proven history of safety and efficacy in coronary drug-eluting stent applications. Under the terms of the agreement signed with CVT, CSI will provide milestone based financing to CVT for the development of the DCBs. Following CVT's completion of key technical and clinical milestones, CSI will have exclusive rights and obligations to acquire CVT.

In short, we're excited to add everolimus DCB to our product portfolio. This program will bring new products to our customers and affirms our mission to enhance treatment options for patients with the most advanced forms of peripheral and coronary artery disease.

I'll now turn this call over to Scott for his closing remarks.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thank you Ryan. We are excited about the CVT partnership. Working the CVT and Dr. Marco will enable CSI to build a new core competency in a new DCB product platform that will be sold through our current sales force and to our current customers.

Before we get to your questions, I will offer my thoughts regarding our guidance and outlook for the rest of this calendar year. As I stated earlier, based upon our quarter-to-date experience, we expect that our Q3 revenue of $60 million to $65 million may be slightly down sequentially, but essentially in line with last year. This guidance recognizes that the recent surge of COVID cases has negatively impacted our procedure volumes in January and we expect the COVID headwinds to continue into early February with procedures rebounding and steadily improving in the spring, as COVID cases decline and vaccination rates increase. It is important to note that we are not expecting any new resurgence in COVID cases due to a new variant of the virus or some other cause. COVID makes it difficult to precisely forecast our business in the near-term, but as we look to 2021, we are enthusiastic about our growth potential as we leverage advancements in our core product offering, drive higher revenue per procedure and resume our international expansion plans.

Prior to COVID, we had just launched our next-generation coronary and peripheral atherectomy devices including Exchangeable, Radial and Diamondback with GlideAssist. These products were just beginning to gain traction before the pandemic hit and we are confident that they will propel our company to double-digit growth in our core business as normal operations resume. We will supplement this growth by driving higher revenue per procedure through the sale of angioplasty balloons, Guidewires and micro catheters. Over the past two years, we have made great progress with the sale of these products in coronary. And as Rhonda just described, next quarter we will launch our WIRION embolic protection device and an innovative line of peripheral support products to a substantially larger number of OAS customers.

Finally, we expect to resume international expansion in 2021. Orbital atherectomy is the market leader in the United States. We have quickly captured over 40% market share in Japan, the number two market, and now we have received CE Mark for our coronary device in Europe, the third largest market. We have confidence that OAS will gain share in markets where atherectomy is used and we are committed to introducing our technology to physicians around the world.

For the past few years, we have been reporting the fiscal '21 as an inflection point for CSI, where we would move beyond low double-digit revenue growth. I'm pleased to tell you that COVID has only paused our growth trajectory. As we emerge from the grips of this pandemic, the drivers of our strategy remain intact and we are poised to accelerate growth and improve profitability beginning in the latter half of this calendar year.

For those of you on the call, we appreciate your continued interest in CSI and we will now take your questions. Chris, would you please repeat the instructions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Michael Matson with Needham. Your line is open.

Michael Matson -- Needham -- Analyst

Hi, thanks for taking my questions. I guess I'll start with the DCB agreement. I was just wondering if you could give us any insight to the sort of timing here. When do you expect sort of first in-human trials for these products. Or the peripheral and coronary balloon is going to be developed in parallel, etc?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yeah. Thanks, Mike. I think I'll have Ryan Egeland take that question. Ryan?

Ryan D. Egeland -- Chief Medical Officer

Yeah. Thanks, Mike. Well, I think it's important to recognize the first step in the program is obviously the identification of a drug formulation and of course, as I mentioned, we're confident that CVT's plans to pursue the everolimus formulation are compelling in this regard. With respect to milestones, we do anticipate reaching first in-human for both the peripheral and coronary indications in calendar '23 and ultimately, we're working with CVT to optimize those timelines in both programs.

Michael Matson -- Needham -- Analyst

Okay, thanks. And then, I guess I'll ask about the exchangeable product. Rhonda, I think you commented on the progress there, the adoption of that, but you mentioned 20%, I was confused what that 20% meant. Does that mean it's being used in 20% of your peripheral cases or?

Rhonda J. Robb -- Chief Operating Officer

Yes, thanks for the question. We're pretty excited about the progress, particularly now where physicians are dealing with more complex disease that have disease along their entire leg, multiple vessels and so that has really been a driver for us as physicians want to get patients in and out in a single day and that's what patients like. And the number I referred to was 20% and that was the use of a second cartridge in 20% of the exchangeable cases.

Michael Matson -- Needham -- Analyst

Okay, got it. And then as the support devices continue to grow and become a bigger part of your revenue. How is that going to affect the gross margin side? Imagine you have lower gross margins because they are coming from a distribution partner?

Jeffrey S. Points -- Chief Financial Officer

Yes, I think, actually our -- Mike our gross margins, as we've said over the course of the next few years we expect to remain in that high 70s range probably in that 78%, 79% range. Clearly, we have done a great job over the course of the past few years with our efforts in our manufacturing operations and substantially have been reducing our cost of goods sold and those efforts continue. We have a lot of room in that still. And as we look at our mix of revenue over time, we think we'll be able to manage that gross margin in that high 70s.

Michael Matson -- Needham -- Analyst

Okay, great. Thank you.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thanks Mike.

Operator

Next question is from Chris Pasquale with Guggenheim. Your line is open.

Chris Pasquale -- Guggenheim -- Analyst

Thanks. I appreciate the extra detail in the presentation, particularly on the support devices, which really highlights the opportunity there well. A couple of questions related to that piece of the business. First, when do you expect that the line-up, you need on the peripheral side to really start to gain meaningful traction if we're comparing it to that coronary experience. The two-year ramp you've had there. Where does the clock started for peripheral?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yes, the clock for peripheral will start in our fourth quarter here. Actually over the course of the next two quarters, we'll be launching those products. So I would say that the clock probably starts about then, and as Rhonda mentioned we have sustained that kind of 500 plus range in coronary now for the past four quarters. So really we've got up to that in just about a year's time, maybe a little bit more than that and that was effectively -- Chris that's effectively penetrating 50% of the potential opportunity if you consider that there is about $1,000 per case that's available in the coronary segment. So as we look at the peripheral segment then, we have probably $600 to $800 in the femoral access portion of that market. As we broaden our opportunities to look at the radial opportunities there, we probably have more like -- there's a bit of a premium. So we probably have more about $1,200 per case in radial. And then of course we will also be launching the WIRION embolic protection device, which really is a bit different, although it will increase our revenue per procedures. It may be used more often in our competitors procedures and that device actually is probably going to have an ASP consistent with competition in that $1,000 per device range. So hopefully that gives you a little bit more detail on how to think about those products and how that will ramp over time.

Chris Pasquale -- Guggenheim -- Analyst

Yeah, that's helpful, thanks for that Scott. And then just a corollary to that, you mentioned you guys got to $500 or so per case on the coronary side very quickly, but it's kind of flattened out since -- and you still have some headroom relative to the opportunity identified originally there. Are there particular product categories where you're not getting the traction that you wanted to or thinking to add something else to the bag to move that $500 higher, or has that been COVID disruption related?

Scott R. Ward -- Chairman, President & Chief Executive Officer

I think it's a little bit of a combination of those items, but actually we feel pretty good about that penetration rate. We don't expect to get 100% penetration in all of our cases and we don't expect them to use all of our products in all cases either. So there is a limit to where we think we will take that. Now as we look at coronary in particular, we have a bit of a barrier there and that we need to go to major hospital settings and IDNs, GPOs and we have to get on contract and that takes some time. Now that probably is the most important driving factor from a temporal perspective.

We will have the advantage in peripheral of the fact that we've already addressed some of those contracts, and a portion of our business is in the office based lab segment, where we just don't have to deal with those contracts at that same level. So we do think we can penetrate the peripheral segment at least as quickly as coronary and maybe even a little bit faster.

Chris Pasquale -- Guggenheim -- Analyst

Great, thanks for that.

Operator

The next question is -- the next question is from Danielle Antalffy with SVB Leerink. Your line is open.

Danielle Antalffy -- SVB Leerink -- Analyst

Hi, good afternoon guys. Thanks so much for taking the question. Just to follow-up on Chris' question there as it relates to where you are in the coronary and the attach rate or penetration rate, if you -- however to look at it. Where do you think that that can ultimately go sort of, how should we be thinking about this. And are there still more products out over time that can push the revenue per procedure higher in the coronary space or at what point are you sort of fully penetrated from what's reasonable -- thinking about what's reasonable?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thanks Danielle. We have actually got a really nice and differentiated product line in coronary. As Rhonda talked about, we have our 1.0 millimeter Sapphire balloon, smallest balloon in the market. We've got our Teleport microcatheter, which is the smallest talkable microcatheter in the market and we have the only nitinol Guidewire that can be used with atherectomy in the market. So we have a -- even though this is a more commodity market, we have really good differentiated product offering. We intend to bring that same offering to peripheral.

Now as we look at coronary, I think our ability to increase the penetration rate and grow the business there is, at this point more about opening up some of these large contracts and getting into large hospitals and into larger segments of our market. So that does take time and we just have to work with each of these hospitals. We've got to get basically on contract with them on each of these accounts. We have a group of individuals that work on that day in and day out and we are making progress, but that's really the most important factor right now that that will allow us to continue to increase penetration.

In terms of our revenue per case, we do feel pretty good about that. And this is probably about the range that you should think about when you think about our ability to penetrate peripheral. I mean, if we can penetrate 50% of that peripheral opportunity over a two year timeframe, we'll feel really good about that revenue generated.

Danielle Antalffy -- SVB Leerink -- Analyst

Got it. Okay, that's helpful. And then just on the international market opportunity. Congrats on the CE Mark approval in the coronary.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thank you.

Danielle Antalffy -- SVB Leerink -- Analyst

But just wanted to get a little bit more color on what the barriers are to adoption in those countries? Is reimbursement already largely in place? Do you have to go get reimbursement country by country? How should we be thinking about the uptake in some of these larger countries thinking, Germany, France, Italy, etc. Thank you.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yeah, Thanks Danielle. I'm going to ask Rhonda to address that. But I'll just say that like everything else in the world right now, we are dealt with this unusual circumstance, because of the COVID-19 crisis, and in particular the way that that affects Europe. So this is going to be a bit of an unusual market launch. And our approach that will be a bit different. I mean, obviously, we have this unique opportunity in Europe where we can focus on accounts that are already treating and are already using atherectomy and that's what we'll be doing, but Rhonda, I'll let you take that from there.

Rhonda J. Robb -- Chief Operating Officer

Yeah, thanks. Danielle for the question. We're really excited to have this approval now in hand and be able to launch and it's a big opportunity. I mean, we look at our numbers and we think that there is the market potential for more than 100,000 atherectomy cases to occur just given kind of the PCI rates and the rate of severe calcium that exists there. But as you noted the penetration of atherectomy in Europe is today. will, and I think it's for a variety of factors. I certainly think that there is variable reimbursement by countries. So we'll need to be mindful of that. There has been, probably not as much of a market development focus as CSI is going to be able to bring there. I think we are seeing some changes too in terms of increases and I made comments like of this in my remarks today. Increased imaging is really becoming an important trend in coronary. And in Europe, we're seeing that trend take hold as well. So physicians are seeing things, a lot of calcium that they hadn't seen previously. So we think our launch comes at a very, very important time, but I think it's multifactorial and there are barriers, CSI will breakdown and capitalize on that opportunity. But as Scott said, even with 2% penetration in atherectomy today in Western Europe, we know the sites that are performing these procedures that have the structure and the processes to basically get patients referred in and to treat them. And so that's where we're going to start.

Danielle Antalffy -- SVB Leerink -- Analyst

Thank you.

Rhonda J. Robb -- Chief Operating Officer

Welcome.

Operator

Our next question is from Mathew Blackman with Stifel. Your line is open.

Mathew Blackman -- Stifel -- Analyst

Good afternoon, everyone. Thanks for taking my question. I've got a couple. Maybe to start for Scott or Jeff, just wanted to sort of reflect on the fiscal second quarter and I'm not sure how willing -- you're willing to go into detail and how sort of the quarter progressed, but is there a way to quantify qualitatively or quantitatively, sort of the divergence that likely happened in mid quarter. I assume the first half of the quarter things on the recovery trajectory were tracking well. And then of course we had the resurgence. But is there any way to sort of frame how the quarter progressed and how you started the quarter versus how you exited the quarter?

Scott R. Ward -- Chairman, President & Chief Executive Officer

I mean, clearly, as we have pointed out throughout the call Matt, the impact on our business was largely toward the end of December, as we saw ICU capacity decline and some of our hospital begin implementing restrictions. That is -- that's really where we saw the impact. I will go back and give you just a little bit more color on that. Principally is in our peripheral segment of our market and namely in the portion of that market that is claudicant patient population. And this population of patients is where you -- these procedures are probably considered to be semi-elective, not only by the prescribing physicians but also by the patients themselves. So there is two things that play into that.

First is, that when we have hospital restrictions and they begin to slow down some of these elective and semi-elective procedures, there are patients that have that are claudicants obviously can be postponed. Now they will come back and we saw that after the last event, we saw them bounce back as well. So we do -- we would expect that again. The other big -- the other factor that influences this as well is that -- is patient confidence. So as patients develop more anxiety, they will feel that they can put up with this occasional severe burning pain in their leg and maybe they'll postpone this a little while until the crisis passes and they do that. Once again, we saw that that backlog is ultimately addressed but that these procedures are postponed. So that was mainly in that second half of December timeframe.

Now as we look at our coronary business, that coronary pipeline actually has been quite robust and has continued to perform well. So unlike the major peaks that we saw in the spring, where our coronary business was really impacted. In this second quarter it has not been and in fact it seems that hospitals and in particular these tertiary care centers have established the right protocols to assure that they continue to care for these more severely affected coronary patients, while they also care for their COVID patients.

And then finally our CLI patients, which comprises roughly 60% of our peripheral business. They continue to be treated on an as-needed basis. I mean if they are coming in and there is an open wound and they're coming into the ERs, they're being cared for and hospitalized and treated and we really haven't seen that much of an impact in our CLI business. So hopefully that gives you just a bit more color. I think right now the majority of the impact we see is in that peripheral in hospital segment, largely the ATK claudicant patient population.

Mathew Blackman -- Stifel -- Analyst

Okay, I appreciate that color. And my final question, another coronary support portfolio question. Maybe one to get out a little bit differently, you've mentioned the contracting headwinds preventing sort of broader penetration. As another way to frame or help us think about what percent of your customer base is using a CAD support product today. Just trying to get a sense of how much need is left on the bone just getting this into some of these accounts where contracting may be a headwind. Does it still meaningful opportunity from here in terms of the number of cases you can get into or only in the latter stages? Thanks.

Scott R. Ward -- Chairman, President & Chief Executive Officer

No, I think there's still meaningful opportunity there. But like I said, Matt, I don't -- we're at roughly what about $540 per case today out of a, let's say, potential of about $1,000 per case. And we might see that continue to improve. I expect that it will, but I don't expect it to occur or to improve at the same rate that we've seen up until now. We will get to a point where we've kind of gotten the access to the cases that we're going to get. And so we're not going to get to $1,000 per case. We will see continuous improvement over time but we're going to see that begin to kind of level out and flatten out and eventually what will kind of be balanced at some number in terms of our penetration of these cases.

Mathew Blackman -- Stifel -- Analyst

Okay, that's all I had. Thanks so much.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Okay. Thanks, Matt.

Operator

Our next question is from Suraj Kalia with Oppenheimer. Your line is open.

Suraj Kalia -- Oppenheimer -- Analyst

Good afternoon, everyone. Scott, can you hear me all right?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yes we can Suraj. Thank you.

Suraj Kalia -- Oppenheimer -- Analyst

Perfect. So, Scott, one question for you, one for Rhonda, and one for Ryan. I'll take it in that order if I could. I appreciate the fact that you guys might not be competing with IVL in the coronary setting. But as you think about the perception of IVL versus OAS, how do you plan on an effective messaging both clinical and economic in the coronary settings. Is a head to head study in the cards?

Scott R. Ward -- Chairman, President & Chief Executive Officer

No, I don't think head to head study is in the cards. I think we, of course are assuming that IVL will eventually be in the market. We do think that the IVL technology is going to actually treat a different patient population than what we treat with orbital atherectomy. With orbital atherectomy, we treat a severe form of calcification and most of our patients have very long lesions, they are heavily stenosed and oftentimes, probably more than 50% of the time, there is nodules that are present or kind of sabretooths that are present within these lesions. So that is a patient population that is not well treated with IV, other than you can go back and you can look at CAD3 clinical data and see in that data that about somewhat over 50% of their patients could be pretty dilated prior to the utilization of an IVL.

If you look at our data, about 1.8% of our patients can be pretty dilated. So we're treating a very lesion and generally speaking we interact with and support customers that are at tertiary care centers and these are customers that have been trained, these are physicians that have gone through fellowship training programs, so that they are skilled in the treatment of these more complex patients. Where we think the IVLs may gain greater adoption is in the population of physicians who maybe have not been trained for the treatment of these more severe cases, but who come across calcium on a day -- on a day-to-day basis in the regular practice. So I think there is a pretty meaningful segmentation here and as a result I just -- I don't think that a head-to-head trial is warranted, unless there is some new data that comes to light. But where we're at today. I think that's how we see the segmentation of the market coming forward.

Suraj Kalia -- Oppenheimer -- Analyst

Got it. Hey Rhonda I'll pose you one question. What level of pre-clinical testing has been done on the pVAD. Should we expect at least 3.5 liters per minute net flow rate and a focus on plasma free hemoglobin within normal thresholds?

Rhonda J. Robb -- Chief Operating Officer

Thanks, Raj. Yes, we haven't disclosed the degree of pre-clinical testing, but I will say we're working very, very closely with the FDA to complete all of the bench and animal testing and are making very, very, very good progress through all of their requirements and all of their protocols. And I missed the last part of your question, I'm sorry. Can you repeat that again?

Suraj Kalia -- Oppenheimer -- Analyst

I'm just curious, can you give us some benchmarks on the pVAD? Is it going to be at least 3.5 liters per minute net florids?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yes.

Rhonda J. Robb -- Chief Operating Officer

Yes, it will be.

Suraj Kalia -- Oppenheimer -- Analyst

Okay. Perfect. Hey, Ryan, I'll just pose the last question for you. Is the choice for rapamycin analog primarily the potential of an improvement in the late mortality signal versus paclitaxel? Or was this driven more by here is an asset that was available, let's jump in because we know what's going on in paclitaxel. I'm just curious in terms of the timing, and please correct me if I'm wrong, this product would not be commercially available till calendar '24, '25. Am I right? Thank you for taking my question.

Ryan D. Egeland -- Chief Medical Officer

No, good question, Suraj. So I think your -- very good question just on the active drug component being everolimus. I think we're very confident that the therapeutic window and the basic biochemistry of that pharmaceutical component has certain advantages over others, and we know that, obviously, there's a long-standing history of safety with that compound. So that did weigh into our calculus, but of course, the broader program relies more than just on the API. It also includes just the formulation, which we talked about. And that leads to kind of the timing, as you had asked about, we're anticipating really at this point, first in-human in calendar '23, and that's what our focus will be with respect to the validation of that formulation.

Operator

Our next question is from Jayson Bedford with Raymond James. Your line is open.

Jayson Bedford -- Raymond James -- Analyst

Hi. Good afternoon. Thanks for taking the questions. I have a couple. Scott, I don't want to get too cute with your words here, but you mentioned toward the end of the call that the business is poised to accelerate growth and profitability, I think beginning in the latter half of this calendar year. So I would have thought you'd see more of an impact in the June quarter. So maybe just a clarification on your thoughts and when you expect revenue growth to accelerate here or realize given the COVID dynamic? It's fluid, but I'd love a bit more clarity on that.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yes, I think it's really hard to predict. I think we can -- I think as we look at this pandemic, we are assuming that with the availability of testing and the increased vaccination rates that we will see the healthcare system recover and return to normal operations in the second half of 2021. Now that's not just us saying that, as you know, I think nearly every medtech company that's reported has basically said the same thing. And I think if you look at a lot of the reports from IHME and other places, this is where kind of all of the estimates triangulate.

I think we do expect to see, as I said, a sequential improvement over time, and that we'll see that actually in our what is our fourth quarter, the June quarter, as you referred to. But I think it's still a bit uncertain in terms of how that quarter will shape up. And honestly, that is driven by uncertainty regarding the degree of vaccination that happens out there. And I'll point out as well that as we look at our metrics that we look at are really hospital admissions and ICU bed capacity. And as we look at those two metrics, we do see them now really dramatically improving. So I would say that we're cautiously optimistic that we'll see that continue.

The other metric, as I've referred to earlier, which is really important to us, is patient confidence. And when does that, in particular, peripheral patient population there are the claudicants, when do we see a restoration of confidence, a decrease in anxiety in that patient population so that they will begin to come back into the healthcare system for care. It is really hard to predict. And we do not have a very solid metric that allows us to get our hands around that. So that's probably more detail than you wanted, but rest assured, we're studying that closely and really trying to assure that we're well-positioned. This is completely driven by the COVID-19 crisis. This is really what will either allow us -- will release and allow us to expand and grow more quickly or the grips will continue for a while longer, and we'll have a bit more of a longer ramp, completely determined by the virus.

Jayson Bedford -- Raymond James -- Analyst

Okay. Okay. Fair enough. Maybe for Jeff, you mentioned that coronary pricing was stable in the quarter, but I may have missed any commentary related to peripheral pricing?

Jeffrey S. Points -- Chief Financial Officer

Yes. Thanks for the question, Jayson. Peripheral pricing also remained stable. It continued to see kind of that low to mid-single-digit price erosion, a little bit higher than the OBL, continued very stable in the hospital environment.

Jayson Bedford -- Raymond James -- Analyst

Okay. And then just a couple of questions on the international business on the coronary side. Are there stocking orders tied to the CE Mark approval? And then secondly, what is the current size in dollars of the coronary atherectomy market in Europe? Thanks.

Scott R. Ward -- Chairman, President & Chief Executive Officer

So I'll address the first part of it. There are not stocking orders related to that launch. And Rhonda, would you want to address the second question?

Rhonda J. Robb -- Chief Operating Officer

Yes. We think it's about a $50 million market today. But as I said, it is significantly underpenetrated. So that is -- our mission is to increase that penetration rate and really grow that market significantly.

Jayson Bedford -- Raymond James -- Analyst

Okay. Thank you.

Rhonda J. Robb -- Chief Operating Officer

You're welcome.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Okay. Thanks.

Operator

Our last question is from Margaret Kaczor with William Blair. Your line is open.

Margaret Kaczor -- William Blair -- Analyst

Hey guys, good afternoon. A few from me. I wanted to maybe touch on what Jayson had just talked about for kind of the March quarter and then the June quarter. I know that it's tough to predict, but on the same token, what we saw in the summer months was a pretty rapid reacceleration in terms of demand as hospitals reopened and such. So maybe some thoughts around that as well as what does guidance assume for March and essentially trying to peg into what does that mean that for the potential fiscal fourth quarter as you go into it?

Jeffrey S. Points -- Chief Financial Officer

Yes. As I indicated, Margaret, the guidance assumes that we will continue to see some headwinds from COVID-19 here into early February. And then after that, we'll see a steady ramp of improvement. Now if you look at the recent peaking cases that occurred in early January, and generally, it takes about six weeks for the peaking cases than to clear through the hospital system. So that would lead us to say that as we begin to look at the end of February, we'll start to see that release and then that's where we would expect to see actually some backlog in our peripheral business and some uplift in our peripheral hospital segment, mainly in that portion of our business that is our claudicant patient population. So that's kind of how we're thinking about the remainder of this quarter.

As we look at next quarter, you may very well be right, and I hope that you are, and then we'll talk about that next quarter. If there is a rebound and it is -- the pandemic releases and the healthcare system is very able to deal with it, then we'll deal with that in our guidance as we talk about fourth quarter in our next earnings call. But I guess I'd like to at least have amount of time to see how this unfolds over that period of time.

Margaret Kaczor -- William Blair -- Analyst

That makes sense. And I guess maybe the follow-up question to that is, in that September quarter of '20, was that more backlog of patients than maybe were already in the queue that got pushed out, and this scenario, maybe you don't have as big of a backlog as you did that?

Scott R. Ward -- Chairman, President & Chief Executive Officer

Well, I think that's true. I think that's fair, except that we did see in July a backlog of patients that were in our peripheral segment that were treated. And that, as you described, that happened in that September quarter. So we did see a bit of a backlog there, and it did come back up. These claudicant patients are not loss to the system that we -- generally speaking, we know where they are. They continue to experience pain. They have a chronic condition. It won't go away spontaneously. So they will be treated, and they will come back in to the healthcare system for care. So we saw that in that September quarter, we'd expect to see it again late this quarter and probably into next quarter.

Margaret Kaczor -- William Blair -- Analyst

Okay. And then two questions that are maybe longer term commercial. So with COVID, do you guys see a further move of volume sustainably into the OBL? And are you planning on that, what impact could it have? And then the second question is, there's a lot of vascular surgeons right now on the sidelines. Unfortunately, they're not able to treat patients with COVID. Is there anything incremental that you guys have done commercially that you can provide that maybe drives awareness more or adoption or training of OAS on the back end of COVID? Thanks.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thanks, Margaret. Two very good questions. So regarding the vascular surgery community. Yes, we are focused on that group and offering now very specific medical education programs. And in fact, in the midst of the COVID-19 crisis, we have been operating a large-scale digital or remote types of training and education programs that include live case trainings and Q&A. And then we're able to do now both peer-to-peer as well as remote certification of physicians who wish to begin to adopt atherectomy.

We are seeing the vascular surgery community begin to adopt atherectomy, both in terms of the primary care for their patients as well as in hybrid procedures where they're performing atherectomy in addition to the surgical procedure. So that is evolving, and we are continuing to support those efforts. It is mainly a customer training and education program at this time, but we're really pleased because we've got some very important key opinion leaders in that space who are now both strong adopters and also strong advocates for the treatment of these patients.

In that long explanation, I forgot the first question.

Margaret Kaczor -- William Blair -- Analyst

Movement in OBL.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Yes. The migration to the OBL is definitely under way. We have seen that, that had started really the past couple of years. And I think that the COVID-19 crisis is just accelerating migration to the office-based lab. It's geographic in nature. Certainly in the South and the Southeast it's happening more rapidly than it is in other parts of the country. But most definitely, we're seeing that migration occur.

Margaret Kaczor -- William Blair -- Analyst

Thank you guys.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, this concludes the Q&A session. And I'll now turn the call back over to Scott Ward for any closing remarks.

Scott R. Ward -- Chairman, President & Chief Executive Officer

Thank you, Chris, and thanks, everybody. We appreciate your participation on today's call. I'd be remiss if I didn't take a moment to recognize our employees, many of whom are joining us on the call today. And in Q2, during the pandemic, our CSI team of over 800 dedicated employees helped to save the lives or improved the quality of life for over 22,000 patients and their families. So really now more than ever, I'd like to thank all of our employees for their continued perseverance and their focus on our key growth drivers as we navigate through this pandemic. So thanks, everyone, and thanks for dialing and your attention. We look forward to updating you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

John E. Nielsen -- Vice President, Investor Relations & Corporate Communications

Scott R. Ward -- Chairman, President & Chief Executive Officer

Jeffrey S. Points -- Chief Financial Officer

Rhonda J. Robb -- Chief Operating Officer

Ryan D. Egeland -- Chief Medical Officer

Michael Matson -- Needham -- Analyst

Chris Pasquale -- Guggenheim -- Analyst

Danielle Antalffy -- SVB Leerink -- Analyst

Mathew Blackman -- Stifel -- Analyst

Suraj Kalia -- Oppenheimer -- Analyst

Jayson Bedford -- Raymond James -- Analyst

Margaret Kaczor -- William Blair -- Analyst

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