Pleasure today to introduce Artivion. With us today is both CEO Pat Mackin and CFO Lance Berry. Lance will be doing a presentation. If there's some time for a Q&A afterwards, we'll get into that. So great, thanks.
All right. Thanks, John. Good afternoon, everyone. Thank you for spending some time learning about Artivion. I'll do a quick overview and save a few minutes for questions. First, you know, at a high level, just what are we? We're an aortic disease-focused company. Our guidance, midpoint of our guidance this year is for $392 million, so call it a roughly $400 million revenue company, about $70 million of EBITDA. We're focused really on two things: so aortic valves for patients under the age of 65, and we have allograft valves and mechanical valves for that. Then we're focused on aortic dissections and aneurysms. We have a portfolio of stent grafts to address those disease states, and then we have a product, a biologic product called BioGlue, which is just an adjunct to those procedures.
We have a really strong leadership team, a lot of cardiovascular experience, a lot of stent graft experience. Pat Mackin has been the CEO for right at a decade now. He's almost hitting his ten-year anniversary and has put this team together of a lot of experienced professionals, that we think is very solid and really can take the company into the future. A little bit of history. So the company was originally called CryoLife, and it had two main products, which was the cryopreserved human tissue and then the surgical sealant, BioGlue, and then it had a number of candidly random products that didn't fit really into any cohesive call point. And then Pat embarked on a transformation by, you know, divesting of things that didn't fit and making some acquisitions, specifically around aortic technology.
So there were three acquisitions, and then a distribution and purchase option agreement. And then on the other side of that, we were a very focused aortic company. You can see our overall growth rate accelerated, the total addressable market increased significantly, while actually getting much greater focus. So that's on the right-hand side, that's who we are today, aortic-focused company with a portfolio of products for that. From a financial objective standpoint, this is what, you know, Pat and me and the team are waking up every day and trying to produce, and that is, we think we can be a sustained double-digit revenue company that can grow EBITDA two times or more, faster than the revenue growth. And the reason we believe that is we kind of have this base of highly differentiated, highly defendable business.
We have this high-growth stent graft business, and then we have really a unusually leverageable infrastructure, not only from a G&A standpoint, but also from a sales force standpoint, that's fairly unique, in my opinion, in the med tech industry. And the combination of those things is what leads us to believe that we can produce those financial results. So let's talk about the highly differentiated, highly dependable base business. So the first is our preservation services or human tissue business. This is donated human tissue that we then put through our own proprietary processes, and our flagship product is a decellularized pulmonary valve. So it's the only decellularized pulmonary valve on the market that's used to actually treat aortic valves and through a procedure called a Ross procedure. We're number one in that market.
We are again the only decellularized product on the market. That is a great business. It is constrained by supply from how much human donation we have, but other than that, it's extremely defendable, highly differentiated. Next, we have our mechanical heart valves. Our brand is On-X. The big differentiator there is the only mechanical heart valve that you can use a lower dose of blood thinner for. So if you have a mechanical heart valve, you have to be on blood thinners, but you can use half the blood thinner for our device. We have a lot of clinical data that shows major differentiation, 85% reduction in major bleeding as compared to other mechanical heart valves. Again, very differentiated.
We have about 50% share in the U.S., about 30% globally, and have been steadily taking market share every year since we acquired the company about 8 years ago. And then our surgical sealant, brand name BioGlue, this is a product we've had for over 20 years. This market is pretty stable. It has three other players. We all have our own differentiator. Ours is the only indication for acute Type A dissections, which fits right with our call point. Market shares have been stable in this market for years and years and years, and, you know, sustainable mid-single-digit growth business. So the interesting thing about these, you know, the preservation services and surgical sealant, they're not super high growth, but they're extremely defendable.
All of these products, including the mechanical heart valve or PMA products, given the size of the markets and the fact that there are already multiple players in all of them, we think it's highly unlikely that we see additional competition in these markets. And therefore, that's why we believe they're highly, highly defendable and feel confident about our ability to produce these rates of growth for an extended period of time out in the future. And now our stent graft business. So for the most part, these are sold in Europe. These have not been brought to the U.S., which is what we'll talk about in a minute. If you break this market down, it's very large, about a $4 billion market. Half is in a pretty mature segment, abdominal aortic aneurysms , and thoracic.... That's been around for a while.
Those are the less complex procedures. There's no branches in those parts of the aorta. Fair amount of competition, lower ASPs, lower margins, lower overall rates of growth, more like a mid-single-digit segment of the market. We do have products in that market, but that's not really where our focus is. The majority of our revenue comes from the other side, the advanced stent graft segment. These are basically the parts of the aorta that have branches. It's a much more complicated procedure. There's multiple segments, and this is where we're driving our growth. So this is a more like a mid-teens growth, very high ASPs, much higher margins, and we've been outgrowing that market for the past several years. We've been growing a little north of 20% over the past three years versus a mid-teens market.
So this is a great market to be in, and then really this is what our pipeline is bringing these products to the US market. The first item is our AMDS product for acute Type A dissections. This is a roughly $150 million US market. This is 100% market creation. There is no competitive alternative for this product. Basically, the way these are treated now is pretty much 40+-year-old technology. You take a standard graft, you remove the portion of the aorta that has a hole in it, and you replace it with the graft. The problem is, when you get a dissection, you end up with... It's called a false lumen.
Basically, your aorta has become two tubes instead of one, and you have blood flowing down the wrong tube and not going to fairly important things like your brain, your kidneys, your heart, and can create all kinds of horrible outcomes. So our device is a stent that you use in conjunction with the standard procedure. It only takes about 4 additional minutes for the surgeon, and basically, it reinstates the original lumen and gets flowing back to all the places that it should go. Right now, we finished the enrollment for the clinical trial, and we have the 30-day data, which was the primary endpoint with this. It's pretty amazing results, 72% improvement in mortality and a 58% improvement in material adverse events, defined as death, stroke, heart attack, or kidney failure. So pretty amazing clinical results.
We have to do one-year follow-up on that, which we will get toward the end of this year, and then we'll file our PMA and hopefully have approval in the second half of 2025. The next item on here is our NEXUS device. This is actually through a partnership with a company called Endospan. If you're following the company, you may have seen a recent announcement about that, which I'll speak to in a minute. This is an endovascular repair for chronic dissections or in aneurysms in the arch. So this is really cutting-edge technology. This is repairing the arch through a catheter. Really cutting-edge, future of aortic repair type device. We distribute this product in Europe. We have an option to purchase the company. The timeline for that is they're in the clinical trial now.
They have 50 patients in out of a total of 60. Expect the trial to be finished toward the end of this year. And again, 1-year follow-up, and then the PMA process, so late 2026 is current thinking of when that could be on the US market. And then we have a couple of other of our stent grafts that we are currently selling in Europe that will follow behind that. So we have a very robust pipeline of $100 million-$200 million type opportunities coming in a series almost every year, starting at the end of next year. And so we feel like this is a best-in-class pipeline. I think the other thing great about this is we're able to fund this pipeline in our current business model.
You know, we believe we can keep our R&D as a percent of sales in that 7%-8% range and not have to go materially above that to fund this pipeline, and we don't need to finance the, any of these. So we feel like we have a great opportunity, and this is also why we feel like we can have the sustained double-digit growth for an extended period of time. Another differentiated thing that I mentioned earlier is how scalable the business is. So, we have well-developed sales forces in the US and Europe, fairly well-developed in Asia and Latin America. And you know, one of the great things about this portfolio is our reps don't have to stand in all these cases.
As we bring these new products to market, we will not have to add sales reps to basically service all these cases. When we launch AMDS in the U.S., we have a very long-tenured, roughly 50-person sales force in the U.S. We will not need to add any reps to launch that product. That's a fairly unique thing in med tech, and it really creates a huge opportunity to grow our earnings faster than our revenue. For example, over the past three years, we've grown revenue 12.5%. Our reps have only grown 5%, and that's why we were expanding in Asia. From a manufacturing standpoint, we have mature, developed plants that service all these products. We're in good shape there. We're not gonna need to add a plant to launch any of these products.
We can totally handle all of those in our current footprint, and our G&A infrastructure is very well-developed. You know, we've been direct in a lot of countries around the world for an extended period of time. We've been public for a long time, and we're not having any major additions we're needing to do to G&A infrastructure. So highly leverageable business model. Because of that, we think we can expand EBITDA margin significantly higher than we have it today. We've been doing a good job over the past three years, expanding that, I think it was 19% in Q3. And then, one thing, we did borrow quite a bit of money to do those acquisitions, to transform the company. Transformation is not easy. You had to make investments to do that.
We were pretty levered a few years ago, but we've been driving that down significantly through EBITDA expansion. I think in Q2, we were 4.1x, and our current guidance would get us in the 3.5x range and would expect that to continue to drive down quickly from there. So from a financial health standpoint, we're in a great spot. No need to do any additional financings. On the balance sheet, we do have a $100 million convert that matures in July 2025, but we put in place in January some private debt to refinance our existing term loan, and we also added a $100 million delayed draw facility that we can use to take out the convert.
Also, the in-the-money number is $23.50, so if the stock is over $23.50, we could issue shares as well if we chose to. So we're in good shape there. No need to finance anything on the balance sheet in the near future. We're also expect to be free cash flow positive this year and see it continue to improve going forward. Just real quick, here's our current guidance is constant currency growth of 10%-12% for the current year. We've raised the midpoint for the last two quarters, so we feel like we're off to a good start through the first half of the year. And our guidance is for 28%-34% growth on EBITDA.
So we had, well, at least 31% at the midpoint, so we're taking, you know, roughly 11 percentage points on the top line and turn it in almost 3x growth on the bottom line. Again, which gives us conviction that we can continue to do that going forward. So that's a high-level review of Artivion, and I will turn it over to John for questions.
Awesome. I see a camera. Okay. Thanks, Lance, and thanks, Pat, for joining us, too. Yeah, I mean, first, we'll start on the tissue business, you know, the core foundation. Can you talk about the underlying growth drivers today for the tissue business? And just also, how should we think about the durability of the growth there?
Yeah, I would say the main driving factor, you know, Lance mentioned it, is the Ross procedure, which again, without getting too technical, it's a double valve procedure, right? So these are patients under 55 years old, that you have a bad aortic valve. They would take out your native aortic, they take your pulmonary valve, move it over, and then backfill it with one of our pulmonary valves. The reason that procedure is growing like crazy is the data that's come out. We have 25-year data that's showing, in that patient population, so under 55, that your outcomes match the general population, kind of as if you didn't have surgery. So no blood thinner, high quality of life, so it's really growing like crazy in all the big centers.
That's the main driver in the tissue business right now. And as far as long term, you know, I think we've seen-- we saw nice growth last year off the price increases. We grew 20+% in the first quarter. We grew 6%-7% in the second quarter. I mean, we think it'll grow double digits this year, but I think after that, it's gonna be kind of in the mid-single digit range, based on, you know, donation volume and pricing.
Got it. And then, you know, it sounds like you're still expecting NEXUS, the trial enrollment, to finish the second half of this year?
Yeah.
And then just can you talk about just the timelines, the data readout, the opportunity size, and then just talk about the leverage you're seeing at the aortic call point here, essentially?
Yeah. So we're going to have to get Lance a mic since he actually doesn't have one. So as far as the clinical trial, right? The pivotal arm is 60 chronic dissections in the U.S. We've enrolled 50, so we got 10 to go. There's a bunch of patients in the queue, so we're pretty confident that this trial should enroll by the end of the year. One year follow-up, so in Q4 of next year, you'll have the data, and then one year for an approval. So we think Q4 of 2026 is when you should see a, you know, a NEXUS approval. As far as the market size, globally, it's about $600 million, and it's parceled out into the different, into the different regions.
I think the U.S. market opportunity was on Lance's slide, is in the $150+ range. I mean, we see that as really the future of aortic technology for chronic dissections. The ability to use a catheter to fix the aorta from the inside out and not to have to undergo invasive surgery is a big deal. I mean, you're talking about ICU stays of 7-10 days, whereas we've seen patients with NEXUS outside the hospital with their doctor the next day. So really a significant opportunity from a patient benefit, and we think that technology is gonna be pretty well adopted. And the last question you asked was about, you know, the aortic call point.
You know, our reps, you know, we're here in Boston, so our rep in Boston sells On-X aortic valves to the heart surgeons in town. He sells BioGlue to the aortic surgeons in town. He sells the SynerGraft pulmonary valve to aortic surgeons. When we launch AMDS, he'll sell that device to those people, right? And then when we launch our frozen elephant trunk. So it's just this concentrated call point, and as you know, Lance said, and you know, he has an orthopedic background. The big difference on the cardiac side, you know, particularly a focused cardiac call point on aortic surgeons, Mass General may have 11 heart surgeons, they have 3 aortic guys, right? So we can call on that call point very easily without having to, you know, scale our sales force kind of one to one.
And then maybe on On-X, too, the aortic valve, too. Just I think you called out 30% market share today, number two position in the market, too. Just how are you thinking about the growth there and driving expansion? And, you know, as we look at the market itself, too, and, and just thinking about demand for mechanical valves versus, you know, bioprosthetic valves, essentially, and, and as also in TAVR, too, as TAVR comes down in age with, you know, low-risk expansion, you know, how do you expect that market really to develop and continue to-
Yeah. So it's, you know, it's complicated. The aortic valve market is, you know, there's segments that are, right? So you can get a Ross procedure with our pulmonary valve. You can get a mechanical aortic valve, and then you can get a surgical tissue valve, or you could get a TAVR valve. A lot of it is dictated by age, you know, the age of the patient. So we focus on under 65-year-olds. If you saw the slide Lance showed, you know, we focus on a patient population under 65. And the reason for that, if you make it to 65, you pretty much have a 20-year life expectancy, right? So you should be looking for a durable solution to get you for the next 20 years. And I think that's where the real rub comes, right?
So with a mechanical valve, you've got to take a blood thinner, to reduce the chance of a thromboembolic event and, you know, but the problem with the blood thinner is you have a risk of bleeding. The trade-off with that is if you get a tissue valve, your risk is when you have a reoperation. What On-X did was we basically cut the amount of blood thinner in half, reduced bleeding by 85%, so it's like a mechanical valve lite. And we're seeing data come out on a regular basis. You're talking about between, you know, mechanical and surgical tissue valves. There was a paper. There was a couple of papers, one published out of Sweden, that at 15 years, if you're under 65, you had a 15% better survival chance with a mechanical versus an aortic.
So I don't know about you, but I'd prefer to get the one where you have a 15% chance of living longer, right? There was a paper just published out of University of Pittsburgh Medical Center that showed at five years, there were twice as many tissue valve reoperations than mechanical valve reoperations. There's been data out of South Korea that kinda says the same thing. Then you get down into the TAVR space and, you know, the low-risk trials you mentioned were not low-age trials. The average age of PARTNER 3 was 73 years old. We sell and focus on patients under 65 years old, right? There's been papers published recently. The NOTION-2 trial was just presented, had a big chunk of bicuspid valves in it, did not perform well.
There is no good data on what a TAVR does in a bicuspid valve, which is what patients are under 65. And the last thing I would say is the most recent paper published in Annals of Thoracic, which showed the, the morbidity and mortality of reops in TAVR patients under 65 has not been good. So there's always moving data. We have really strong data in our. We have momentum from our data from the Ross procedure and from the On-X low INR procedure. So, you know, you can see it in the growth rates in the product lines.
And then OUS, and Pat, you have pretty extensive history, you know, working, OUS, and it remains a big part of the Artivion story, too. You know, what are you seeing in those end markets that you serve today, especially Latin America, and how do you factor that into, you know, your forward growth projections, too?
Yeah. Yeah, you can take that one.
Yeah, so we've seen consistent good growth in both Asia-Pacific and Latin America, and I would say in particular, Asia-Pacific, we've been expanding the sales force over the past several years and had really good growth. Also, we're just continuing to get products approved in more and more markets. I think that's another thing that's interesting about this business is, you know, the barriers to going direct or semi-direct in a market are really low. And then some of our products, the gross margins are really good, even outside the U.S. So that's helpful as you think about, well, where is it worth it to expand? You know, most of the globe is a good market for us, for our products. You know, they're fairly high ASP, and fairly low service, right?
And so that's, that's a great combination as you look at where can I go? And I think we've been doing a great job of that, and I think we still have plenty of room way.
And then can you talk about the sales force size today? It sounds like you're expecting to get some, you know, good leverage off in the future, so I'm not expecting it. It sounds like not too much adds, but yeah, it'd be great to hear about that.
Yeah, and I think we'll probably continue to expand in Asia for sure, but they've gotten to a point where now their own 20%+ growth can fund some level of sales force expansion. Whereas, you know, say, three years ago, it was more in a startup mode, and we weren't just adding sales reps, we had to add the infrastructure around that.
And so now I would say it's just kind of a normal, ongoing part of the business model. In the U.S. and Europe, I, you know, sales rep growth as compared to top-line growth, I think would be a huge spread between those two very leverageable sales forces. You know, some of the stent graft portfolio in Europe is, does require more service, but has very high ASPs in gross margins. Way better than what I'm used to, coming from a different part of med tech for Europe. And, again, it just allows you to, to be direct in more countries, which is fantastic.
And then just last one, you know, free cash flow positive is the guide for this year, for 2024. How are you thinking about prioritization of cash that you're generating?
First priority is to generate more. So, you know, we expect to be, you know, positive this year, but I think if we look forward, you know, a big chunk of where our EBITDA goes that doesn't turn into cash is interest. So hopefully, that is going to be a stable or declining, number. And so as we generate additional EBITDA, hopefully a much higher percentage gets converted into cash. And right now, we're really trying to get that leverage down, right? I mean, I think it's in a decent spot right now, but we wanna get it lower. And the other thing, too, is we really don't feel the need to do acquisitions right now. I mean, we feel like all the best stuff in aorta is in our company.
You know, our pipeline is the future, and we don't really have a need to go out there and go buy it. That's already in the rearview mirror.
Well, Pat, Lance, thanks for joining us today. Appreciate it.
Thanks for having us.