All right, I think we're going to get started here with our next fireside. I'm Rich Neuter, Medical Device Analyst here at Truist Securities, and our next fireside with Artivion. We have Artivion CEO and President and Chairman, Pat Mackin, and then COO and CFO, Lance Berry.
This is two years in a row, so this is, I think, almost to the day.
So this will be really, really good to kind of get an update here. So for those who are maybe a little less familiar with the story, Pat, do you want to just give a quick overview, just how you've evolved the product offering? You know, you're kind of a wholly owned aortic arch portfolio now. And just, you know, how you got here, where your biggest opportunities are, and if you could just maybe size some of the opportunities for each of the key products, that would be great.
Yeah. So I would say that, you know, when I started with the company, it was really an aortic company, although I don't think they were focused on the aorta. Two main products were BioGlue and the Syngraft pulmonary valve for the Ross. So really strong relationships with cardiac surgeons, a really good brand, a good sales force. And they were also very profitable. So I basically levered up the company to make four acquisitions over the last seven or eight years. The first acquisition was Onyx, which got us into mechanical aortic and mitral valves. Second was Jotek, a German stentcraft company that also gave us access to kind of the arch frozen elephant trunks. Third was Osiris, which was the AMDS. And then fourth is most recently in the last month or so was Endospan, which brought us Nexus. So now we have a comprehensive, probably the leading portfolio to treat the aortic arch. I'll let Lance hit the TAMs.
Yeah, I think, you know, if you look specifically at maybe the go forward opportunities, which is the more recent ones, which would be AMDS, which we're early on in the launch of, Nexus, which we just purchased and will launch in January 2007, and then Arcevo, which is a frozen elephant trunk, which is in clinical trials. That's the aortic arch that we're talking about there for acute dissections, chronic dissections, and aneurysms. All that together is probably in the neighborhood of a $400 million U.S. market, of which we're just getting started in amds we haven't even launched nexus and then our cebo is on the way so you know there is some a little bit of overlap between the three of them i'd say you know that uh the bigger pieces are amds and nexus our cebo a little bit smaller but the main thing is we're going to have all three we have two of the three now it's a big opportunity high gross margin high growth uh opportunity for us for the next i mean really like three to five years and
And then when you when you layer in Onyx and the rest portfolio, what does that aggregate up to like two billion?
Right. Is that right? Well, you know, that was just the 400 million was just the U.S. opportunity. Right. So, you know, you have the OUS opportunity as well. I mean, if you take our our our whole stint graph portfolio alone on a global basis, assuming it was everything was approved everywhere, that would be close to two billion dollars. and then you could put you know with with onyx and biogluene preservation services you could probably put another 500 million on top of that i think it wasn't long ago that we talked about the mechanical valve market being a 250 million dollar global market with the data that's come out in the past 18 months and i think there's a really good opportunity for market expansion for that to move to closer to a $400 million global opportunity.
Okay, that's helpful context. Maybe let's go one by one with kind of some of the newer areas. AMDS, why don't we start there? This product specifically, just maybe what's the TAN? And then what are some of the considerations for that product you launched basically last year in January? Maybe just talk to us about what's gone on since the launch, where you are today, how big is the market opportunity, and what are some of the key milestones which we're looking for? So I'll start with the TAM.
It's pretty simple. There's 6,000 procedures. We sell the device for 25,000, so that's $150 million U.S. market. The HTE, which we got the approval, we launched back Q1 of last year, We figured that was about 40% of the market was what's called malperfusion. What's interesting is, you know, we're waiting on the PMA as we speak. We said midpoint of this year, so, you know, the next couple of weeks. We think that that's going to cover both clinical and radiographic, which is like 60% of the market. And then the remaining 40% of that market, there's a term called DANE, which is kind of a leak in a standard. procedure, a leak in the graft. And in our clinical trials to date, in probably over 500 patients, we've seen no leak in the device, which is pretty substantial. So we really think this entire market is available. We'll obviously market to malperfusion, but I do think people see benefits in the reduction in DANE. There's about 800 centers in the U.S. to do acute type A dissections. If you do the back of the envelope math on last year, assuming that many of the implants we did or sales we did were starter sets to get into new accounts, we're probably in 120 accounts of the 800. So we're very early days kind of, you know, in the launch, if you will.
And you had set out for about 150, right, target accounts initially when you set out last year.
I think we made comments on the Q2 call last year about we had 150. When you bring it up to today, you bring in the first half of 2026. We're not giving exact numbers, but that's roughly kind of where we're at, just to give people kind of a picture.
And the bigger opportunity was what, 600, you said? There's 800 total.
Probably the majority, I'd say 80% of the volume is in 400 centers. So we still were probably, you know, a third of the way into those 400 centers.
Got it. And I think this might be a good place to kind of get into some of the things that led to, you know, the updated guides on the ones you call. You mentioned humanitarian device exemption. That's largely kind of what you had been selling under the PMA is upcoming. So it's clearly a handoff consideration there as hospitals are doing their analysis. So maybe just talk about what the differences are between commercializing under the HDE versus a full PMA, and maybe also talk about the starter set considerations.
So I'll take the HDE, and Lance can do the starter set. So HDEs, I mean, first of all, it was great that we got the HDE. I mean, this is a unique pathway from the FDA to get a technology out sooner than later than waiting on the PMA. There are some nuances. Number one, you have to get an IRB. Lots of hospitals, when you show up and tell them you have an HDE, they don't really understand why you need an IRB. They think it's a clinical trial. There's some restrictions about marketing, so we haven't been able to aggressively market some of the data of that. Two, we've had centers that have had, you know, restrictions on they want to get an informed consent from a patient at two in the morning when they're comatose, which is not going to happen. So I think that that, you know, the lifting of the HD when you bring the PM in, the IRB goes away. We think that surgeons will be more aggressive in how they treat patients. And so I think this will be a meaningful, you know, shift in kind of the adoption as we move forward.
Can I just ask on that? So I remember this time last year, we were at, we were talking about this and we were describing, here's what it's like under an HDE. You had actually, man, I went back to the transcript. You had mentioned that, you know, the IRB can lead to different adoption curves, a different hospital. Every hospital is different on how they do it. The IRB can be a friction point. We're working through it. I guess, what did you underestimate as you kind of moved from that to getting closer to the PMA?
Well, I'll give you a great example. One of our top enrollers in the trial, big center, the IRB, they all interpret the IRB differently under this HDE. They want an informed consent for every patient. So these patients typically come in on Medivacs at 2 in the morning, shows up, can't find the paperwork. There's no nursing staff around to help him with this. So he's like, I guess I'll just do it the way I usually do it because I can't. So that was something we didn't fully understand when we launched this. Another example, we had a hospital that's trying to bring on AMDS, and the administration wants the surgeon to take a three-hour online IRB class. Not going to happen. So there is these little nuances. And I think the point you brought up is a good one, right? Every hospital treated this differently. So, again, we've learned along the way. I also think our ability to market, we have amazing clinical data on our side. But there are some restrictions on how aggressive you can be with the marketing under an HD, which I also think will be meaningful.
Once the PMA comes.
I think the other thing that is a little bit of a surprise, you know, in Q1 is, I mean, all these things are true. They've been true the whole time. We'd kind of figured out a way to navigate through these ARBs. What's interesting, though, is as we approach closer to the time where we've been telling the whole world we think we're going to get approval now, I mean, these are hoops that surgeons have to jump through to get the device. When it's an unspecified amount of time away from the PMA, they jump through the hoops. I think now we saw for the first time people saying, you know what, why don't you call me back in a couple of months and this is approved, and then we can figure this out, which is not, I mean, it's understandable and really hadn't run into that until the first quarter.
That's fair. That makes sense.
I think the other thing on the, you asked about the starter sets. I mean, we're basically requiring, there's four sizes. It's an emergency procedure. So we're requiring hospitals to buy the four sizes up front. That's fairly unique in med tech. people either consign or it's kind of per procedure so the fact that we're you know you have to go through an irb a vac committee which we've done a lot of and then we're waiting on the po because it's a hundred thousand it's just it's this weird kind of amount that's floating around the hospital with the financial people trying to figure out like well who is this person who's going to approve this thing because it's very you know it's not normal i guess i would say
so i guess you know the the the sets though like so how do you work through that what what alleviates that view of the burden the financial upfront cost burden and then you mentioned implant reorder rates were exceeded your expectations in the one queue and i would think that that's the more important go forward number so maybe just help me reconcile those two things and what steps can you take to to help with that yes maybe i'll talk about the sets
you know i think the the important thing is like the facts are on our side you know the reality is if if it's a account that does any reasonable amount of volume um they're going to make their money back on that hundred thousand because they get higher reimbursement if they use amds than if they don't so the thing is just getting the right people in front of the right person who is holding this up what facts do they have do they understand this what's their concern um you know there's things we can do depending on what exactly their objection is but the first thing is to understand you understand you're harming yourself here by not having this on the shelf and using this like let's not even get into the the patient benefits the i mean you you have one patient stay two less days and you made your money back forget those just the hard economics so i think that's you know one thing now that we understand better you know we can prepare our reps better package it well for them and have them you know try and get in front of the the correct person i think that's a you know activities we weren't really focused on before q1 that we're we're focused on now so i think you know that'll help that we can make a progress there and um like i said the facts are on our side this is something they should want on their shelf and and the economics would support
it being on their shelf got it um and then what what's assumed in your updated outlook for post pma uh and and and and any kind of change in the ability to sell the set so what we've kind of
articulated is look we're um we expect to be able to make improvement we expect to be able to make improvement because now we understand a barrier and we can go attack it and because we do expect to get pma approval and we expect that to be some amount of tailwind um and so we are expecting improvement in the second half as compared to the first we are expecting less improvement than we previously expected and i think that's just acknowledging there are some challenges here that we didn't realize when we originally set our guidance but um and trying to be transparent on that but we're attacking those things and we think we have some good opportunities to
to move the needle forward got it maybe we turn to endospan uh nexus so congrats on closing that what mid-may mid-may um you know now that you've triggered the option you know anything that we should be thinking about as you kind of kind of switch from distributor to manufacturer and your inventory build strategy your go-to-market strategy like what has to happen between now
in you know early early january yeah so it's i mean this was a startup israeli company that wasn't incented to build inventory for the u.s launch um so that's what we're doing right now right so we've got we've got three things to do over the next six months one we've got to build inventory so i can actually launch the product two we're going to hire a handful of reps um we've already got a you know a few we're going to hire another handful and three we're going to uh train some surgeons there's a tremendous amount of uh excitement about this product uh we had the big vascular meeting uh here in boston last week i met with a bunch of customers they all want the product um we've got to go through value analysis committee so we're actually going to start that process now um and obviously hopefully bring up a bunch of accounts that will all come online by jan one so i think the kind of uh you know those four things kind of coming together uh good inventory position having the reps training the surgeons and getting through vac by jan one will set us up really well for a for a q1 uh 27 start got it and just in the initial kind of
you know experience with the vacs now that it's in your hands and whatnot how's that gone
any surprises there we haven't really started it's been it's been a couple weeks yeah that's i will say that the this is a very different launch than amds uh in that there's a pre-approved there's a product that's already on their shelf from one of our competitors. So the pricing, and that's already been gone through the back. You don't have to buy any inventory. We cover cases. It's a PMA with no HDE. So there's a lot of things that are going to make this easier. And I would say the other thing is like, you know, today with AMDS, there's a standard of care Hemiarch. So they have something they can do. With, with this technology, there is no standard of care. I mean, you know, Our competitor has been out in the market, but with not a great system. So I've never seen it where customers are so hungry to get you in the account. And the other thing is they can actually do cases on a one-off basis before they get back, which is not something we'd heard of before.
Well, this is more of a market development. AMDS is different. So you have to actually develop the market. But what I'm hearing you say is that you actually think the pull is going to be –
The pull is pretty strong. And probably because there's a bunch of patients, right, because they're alternative right now. When you have a chronic dissection, it's typically post an acute type A, you know, seven to 10 years later. You know, the option is to do a frozen elephant trunk, which is where our SEVO trial is going on right now. It's a great technology, but for older, sicker patients, the comorbidities of those patients can end up in real significant complications if you aren't careful. So doing a catheter delivery, it's a 20 French catheter, fixing the aorta from the inside out, is really a game-changing technology. We just had one of our first cases. Patient was in the hospital two days. They'd had full open heart surgery, heart-lung machine. It would have been like eight to ten days.
This is your traditional, you've been doing something open, now do it minimally invasive. That's work time and time again. Is that basically what it is?
Yeah, I would say that is exactly right. Now, there are some nuances of why the open is going to be around for a while, which is why we've invested in that segment. A good chunk of those patients are going to need their valve replaced or something else done, so you're going to have to open them up anyway. But there's probably half the patient population that can go to the catheter, and it's a great analogy.
And then just can you remind us or remind me of the TAN?
There's about 3,000 cases in the U.S. The device is at 50,000, so it's very similar to the market for AMDS. It's $150 million in the U.S.
And then, you know, how do we think about the post early or January 2027 launch cadence? You know, this is something that you'll have the sales reps that you want fully up and ready to go running into next year. You know, you'll have some progress made on the back. I mean, is there any reason why this wouldn't, right out of the gate, be just full steam ahead?
I think it can adopt pretty quickly. The other great thing is there's probably only like 100 centers that do this. So it's a very concentrated – whereas AMDS is in 800 centers, this is probably 100 centers. So in many ways, they're like the polar opposites. So with a small commercial team, you can do the back-of-the-envelope math on this. If you have half a dozen reps and they each do a case a week, do the math. right so we can add up pretty quickly so we're gonna have to watch and see how quickly you know we follow the launch and if we have to add inventory or reps which will
we'll be watching very closely what do you think the biggest risk would be if you know if you had to kind of assess and rank order force frank all the all the risks is it going to be the manufacturing and it getting the right inventory of what it takes to get it's not really a risk
That's just time.
Well, I guess, you know, is it the time now between now and January? Does that seem like a hurdle?
I wouldn't say it's a risk. I'd say it's a potentially missed opportunity. The two things, the two levers are how many reps do you have and how much inventory do you have. If this thing starts to take off, it takes you time to get reps up in training and get inventory built up. So I think those are the two things that would be more of a missed opportunity than a risk.
Got it. One thing nice is a very high ASP, relatively low volume procedure. So, one, you don't have to hire 20 reps. You might need to hire two.
Yeah, I think the other piece of this that we still are getting our own arms around, right, is we had been distributing this product in Europe for five years. So, we know the technology extremely well. But with the acquisition, we obviously pick up the U.S. with this PMA approval. We're also going to use that to get into Japan. We have a very strong partner in Japan. And those talks are now going on. We also have big channels in Latin America and Asia Pacific that are also interested in the device. So to some degree, we've got to get our arms around that as well. And where we can take that U.S. approval, and that takes time. So this will be a building platform over several years.
Got it. I just want to go back to kind of the – because there were – you know, AMDS, some of the things that took you by surprise or just that were unexpected. you know, those were, I think, two of the three or one of the three, actually, items that led to the guidance change. The other were kind of a little bit more macro in nature, and then there was supply issue. Everything here sounds transient. So, you know, we discussed the AMDS. That sounds like, you know, you should be able to work through that over the next nine to 12 months. um what about the other two macro factors like what's your visibility there have those self-corrected already on some level well i mean the two things we called out was the
some impact from the the war in the middle east and then um a supplier issue to the middle east thing like no that's not resolved itself i understand there's positive news like let's wait till tomorrow maybe we'll see if it's still positive i think at that point it's not a huge number but i think we just like easy thing is let's just not assume that there's going to be a recovery in that this year right so this this level that we drop down to like we need to assume this is our level until we get free and clear of this thing which we have no control over so we try to de-risk that by taking it out of the number uh the supplier thing um that's more in our control uh we do feel like we've gotten our arms around that at a capacity issue at a supplier was not pervasive across the stent graph portfolio is related to a specific product and we feel like we got our arms around that now and and have the capacity expanded it's just going to take some time to get healthy and so I think you know we're going to try and get healthy as soon as we can we try to put a conservative timeline on that I think just clean and say we're not going to make any improvement this year was easy so if we can that can help around the edges but you know just for context it was like a three million is dollar so if we get done twice as fast it's a million and a half dollars so um i think we should have de-risked those things as it relates to the
current year okay that's helpful um and then just how would you describe like the longer term financial framework you've provided for operating profit growth and and you know how quickly you can scale and drive you to improvements yeah i think this is a really this company is really
interesting in uh it's kind of uh has unusually durable revenue growth just to kind of the nature of these differentiated pma products that kind of insulate yourself from additional competition um and they're also kind of like life-saving devices that are fairly low volume for the hospitals they don't you're not attracting a lot of attention and then this business model that's really you know above average from an EBITDA margin expansion standpoint you know we have we have a good GNA leverage opportunity like any sub one billion dollar you know company probably has but the two things we have that a lot of medtech companies do not is you know for the most part our reps don't cover cases and so our sales force is very leverageable which is not usually you know most of medtech you're standing in the OR every case and you have to grow your Salesforce linearly with your sales volume. We don't have to do that. And then the other thing is really the growth drivers going forward for the next several years are all about these products getting approved in the U.S., which always has the highest gross margins. And so these products we've been talking about, AMDS, Nexus, or SIBO, the next one after that, the next one after that, all have gross margins significantly accretive to our current corporate gross margins. So we really have three levers to help us get that EBITDA margin expansion, which is why we feel comfortable with, feels like fairly lofty goals, but I mean, we just have more opportunities than most people have.
And then what about just the synergy across, now that you're, you know, in 2027, you're going to have a full portfolio. Well, Arceivo, maybe not yet, but once you have everything, even with just Nexus and amds and onyx and it described the the pull through opportunity and how significant is that are you already starting to see some of the fruits of that yeah so the synergies are i mean was part
of the reason for the strategy right i mean it's we're a cardiac and vascular surgery focused company on the aorta so if you go to any big institution um they all use onyx they all use our pulmonary homograph for the Ross. They all use BioGlue. They'll all use AMDS. They'll all use Nexus. They'll all use Arcebo. So it's the same customers. Like we interact and a lot of these guys are doing the AMDS trial, the Nexus trial. They're all in all our trials. Like we know these customers extremely well. So the ability to kind of surround the cardiac and vascular surgeon customer with our portfolio it just builds every day we train them all on these technologies so it just it gives us more opportunity to spend time with them so just i think it's a very effective way to get great access to your customers yep and then maybe just
on our arcevo can you walk through just the way you did with nexus and amds yeah so so they all
kind of fit together right so um arcevo is basically they call a frozen alpha trunk so you can replace the entire aortic arch surgically. It's a hybrid though. It's part surgical graft, part stem graft. So on an acute type A, you can use 80% of the market is a hemiarch, 20% is a frozen elephant trunk. So we've got obviously a solution for using AMDS with a hemiarch and then the frozen elephant trunk will be that 20%. That's not that. As you go to chronic dissections, like I said, those patients seven to 10 years down the road are going to need 40%. They'll or re-operation, they can either get a Nexus or they can get a frozen elephant trunk, an Arcebo. We've started that trial. We've already enrolled the first 30 patients. We expect to enroll that trial probably by Q1 of next year. You do your follow-up that would put us in the market in early 29 with another PMA, $35,000, 90% gross margin item. One competitor, and we have the first technology that has a branch, left some clavian, which they don't. it's faster easier um i think it'll do quite well so i see it was 29 possibly yeah yeah got it um
and then uh just remind me that the and the the pipeline for nexus just can you remind me yeah so
one of the interesting things about you know again which if you contrast nexus to amds when we acquired the company called osiris which we got amds as one product um the endospin acquisition is actually Nexus One, the first product in the U.S., is a single branch. We've already got R&D ongoing for a two- and three-branch device, which we're working on now and have a trial coming soon. But then there's two more platforms, two more PMAs inside of that. One is a thoracic stent graft with a left subclavian branch, and the other one is to treat the ascending arch right above the aortic valve. So again, very sophisticated aortic technologies, same delivery system, They all are different parts of the original Nexus system, but it's like four PMAs, which if you look at our pipeline, you know, we've got like seven PMAs in our pipeline and we don't have to do any more deals.
Yeah. So could you lay that out? Maybe just just let's let's just think through twenty seven right now. Twenty six to twenty seven. What are the key geographic expansion and potential indication or product approval expansion?
you know milestones we should be on the well the big one obviously is amds uh pma the full pma which we should get very shortly and then the nexus pma which we just got so two pmas basically um we will be working on the amds and nexus in japan um now again that typically takes you a year past pma um and then you got to wait six more months for reimbursement so that's like an 18 month post pma that might be 28 yeah yeah so it's more of a 28 um so i think those are the the other two big
ones i don't know if there's and then obviously we're tracking rco enrollment yeah right and you
think you sorry to get to 29 you're fully enrolled by the end of next year no i think by i think that
by the middle of uh by a year from now if we're enrolled yeah yeah so mid-27 ish yeah okay that's
Great. I think we're actually right at time here, but this was great. Thank you both for being here. Great to see you. Really appreciate it. Glad to be here.