Okay, let's get going. My name is Rick Wise. Welcome to the afternoon sessions here. I'd like to welcome the management of Artivion, Pat Mackin to my left, Chairman, President, Chief Executive Officer, and Lance Berry, Chief Financial Officer Extraordinaire. I don't know why it says that here. I mean, Lance, but I really am pleased to welcome both gentlemen. I picked up coverage of Artivion a couple of years ago under the impression and in the belief that the core business would grow double digits, margins would expand, and with a compelling aortic innovation pipeline to follow as we move into the middle of this decade. I have to say I'm thrilled and pleased to say that Pat and the Artivion team have delivered exactly what they said they would do: double digit growth in 2022, 2023, and I'm looking at Lance, hopefully in 2024 as well.
And for what it's worth, our model does project double digit growth continuing 2025 and beyond. On profitability, Adjusted EBITDA has been growing well above sales. The company is free cash flow positive. Very unusual in a company with an early stage pipeline as exciting as Artivion's. And in 2025, looking ahead, I'm really excited to see the full PERSEVERE, AMDS, U.S. pivotal trial data, one of Artivion's most compelling innovation pipeline assets. This is a longer than usual intro for me, but I wanted to emphasize these points because I want to make sure everybody's very clear about the story here. This is an exciting story, and I think the AMDS is an aortic stent graft system that really is unique and special and extraordinary. Pat, welcome. Thank you for being here.
Thanks for having us.
During my initiation due diligence, starting off just talking about the kind of wonderful AMDS feedback I've gotten, I was struck by the positive commentary: five-minute solution for a typically complex and highly morbid disease versus the hours-long complex repair process that everybody utilizes today, and recently, as you know, I checked in with five U.S. docs about AMDS. They told me they plan to use it in around 60% of their acute type A aortic dissection procedures. Talk to us, Pat, about what is an acute type A aortic dissection, what's it like today, and how does AMDS potentially fundamentally transform that treatment imperative?
Yeah, so I put a slide up. I know the folks on the Webex. I don't think you can see this, but for the people in the room, so basically on the left is an illustration of the current standard of care, which is called a hemi-arch. An aortic dissection is simply a tear in the aorta just above the aortic valve, and it causes the aorta to kind of delaminate into two. You can kind of see the, you know, your aorta goes from one tube to two tubes. That's actually really not good. Blood starts to flow down what they call the false lumen, and as a result of that, you're not getting blood flow to the brain, to the kidneys, to the gut, to the legs.
So the current standard of care, which is like 90% of what's done in this country, they just take a surgical graft and fix the tear. And I think the beauty of AMDS, which is pictured on the right, is it allows every heart surgeon to do what they normally do, but just add a stent on. And the reason that's important is you can see the clinical data. You know, on the left is the kind of the standard of care results in patients with a subset of those patients called malperfusion. The mortality rate's like 35%. In two different trials, the European trial and the U.S. trial, DARTS is the European trial, PERSEVERE is the U.S. clinical trial. We showed, you know, in the bigger trial, like less than 10%, which is, you know, statistically significant and is really powerful.
You know, the other thing is we're seeing a difference in stroke rates, patients requiring kidney dialysis, patients having heart attacks. I mean, these are hard clinical endpoints. I mean, you can't get much harder endpoints than those four. I think the other one, which is not well understood, is this concept of DANE you see there at the bottom. DANE is simply when, in the standard of care operation on the left, when there's a little hole in that graft that allows blood to continue to go through into the false lumen, which requires reoperation, has a higher morbidity and mortality. That can occur up to 70% of patients. In the kind of reference cohort, it was like 45%. We've had zero of those in either one of our trials.
So, I just think on any measure, I think the reason you're getting the feedback you're getting from the surgeons you surveyed, and by the way, we've talked. You know, your survey of the five was concordant with the survey we did of 100. You picked up a lot of the kind of very subtle things in that area. And, you know, we're super excited. And it's also. This is just a massive impact on patients. The mortality of this condition is 50% at 48 hours.
Wow.
So I think this is going to be a technology that will help every cardiac surgeon around the world treat a very devastating disease for which there has been no new innovation in 50 years.
And I neglected to introduce my colleague, John McCauley. I actually work for John, little-known secret. I'm revealing it here. But John actually is extraordinarily knowledgeable here and can take it away with some of the next questions. John.
Yeah, Pat, maybe to focus on the TAM and the right patients for AMDS. You've sort of talked about a number around 6,000, but we picked up in our due diligence with physicians that there's also an under-treatment problem when it comes to type A aortic dissection, that these patients are highly morbid, they have to go a long way. So can you talk a bit about the right patient for AMDS and how the TAM could grow as new technologies evolve?
Yeah, no, I thought that was actually, the fact you picked it up in five surgeons is pretty impressive. So I think one of the things you hit on is there's a thousand hospitals in the country that do acute type A dissections, right? It's a lot. The reason that there's such a high mortality, even higher than this, which is why that number could go up, is if you transfer somebody from Amarillo, Texas to Dallas, it's a 10% mortality in the ambulance.
Wow.
If you could treat them in Amarillo, 10% better mortality, which means there's going to be more people. So I think once this, you know, we talk about this is like the democratization of a technology to all those that can actually do the procedure on the left. I think once we've done that and it becomes a standard of care, you'll actually see more people surviving acute type A's. So I do think it's a bigger number, and I think this technology will actually help that. The other piece of this, the only patients you really can't use this technology in would be like connective tissue disorders like Marfan's, Loeys-Dietz syndrome, which is a small number. And then if a patient has a tear in those head vessels, those three branches, we think is about 20%. But other than that, I mean, I think 80% of this market is fully treatable by this technology.
And as we think about, maybe we're jumping two steps ahead here, but just on pricing and reimbursement.
Yeah.
We've talked about this as something that can be potentially transformative for Artivion margins, but maybe before we get to that, can you just talk about what existing reimbursement structures are in place, how AMDS fits into that, or if there's something additional required beyond that?
Yeah, so two things. One, you know, I've been in the cardiac device field for like 30 years. It was a surprise to me back in the day that like reimbursement's not the same at every hospital. We had some places when I was at Medtronic doing defibrillators that were getting reimbursed like $75,000 and some getting $30,000.
Wow.
It all is based on, you know, are you a teaching hospital? Are you in a city?
Right.
So the range of reimbursement for an acute type A, the procedure on the left is like $40,000-$80,000. We're going to charge $25,000. The current device to replace the total arch, which we also have a device that's not approved in the U.S., there's a device in the U.S. market, it's $35,000. So a $25,000-$35,000 device in this space is, I think, expected and well covered by the reimbursement that exists. We will also, this has been designated a breakthrough technology by the FDA. We will also be going for a new tech add-on because it hits all the pieces for a new technology add-on. We've already applied for that. That'll come later, but we don't need it to launch the product. So that'll just get hospitals, assuming we get the new tech add-on, that'll get hospitals a higher reimbursement once that's available, which they'll appreciate.
Yeah, that's great.
Talk about doc training. I mean, is this, you know, intended? I hear democratization. That sounds like more people can do it, more people can learn it. Is this for an experienced doctor? Is it you just hand it to them and they know exactly what to do or know there's, you know, you have to do a number of cases? And for the novice, maybe how long does it take to get comfortable?
So we've launched this technology in Europe and Canada and many parts of Asia, and we've learned a lot, like any, you know, new technology that you bring out there.
Right.
It's very simple. And in the clinical trials, it added about five minutes to the case. You're basically deploying a stent down the aorta, then you sew it together. Any heart surgeon can do this. We will do a one-day training just because we've learned a lot of things as we've launched this technology around the world. Most importantly, is like a lot of times these are patients that are coming from referral centers with CT scans that may not be perfect. So we have some imaging software that allows you to kind of see a 3D reconstruction of the aorta to see if there are branch tears. Because you don't want to put this in branch tears, right? It's an open stent. If there's branch tears, the blood's going to go the wrong place. So there's a bunch on the imaging side. We'll do implants.
There's ways to orient the device. There are just kind of tips and tricks that will have experienced surgeons training the new surgeon. So it's a one-day program. The learning curve on this is like one or two cases. So I think that's one of the beauties. I think one of the things I've learned in 30 years of doing this in cardiac devices, simple, elegant solutions go a long way to an adoption of a technology, and this checks that box in a big way.
Yeah. John?
And you put up this great slide here just sort of showing how it's performed in DARTS, how it's performed in PERSEVERE, and as well sort of standard of care. I just was thinking about looking back on DARTS. I think you have data out to three years now.
Out to five now.
Out to five years now.
Yeah.
I just wanted to maybe bring up how should we think about PERSEVERE in the context of this longer-term DARTS data? Should we see it as a proxy? Are they similar?
Yeah, I think the big, and I've told this to, you know, folks as we meet with them, you know, the next kind of milestone on PERSEVERE, which is a U.S. FDA trial, is we just hit the one-year follow-up, and we're hoping to get that data presented at STS at the end of January. I don't control that meeting, so as you know, it's like we submit and hopefully we'll get on that meeting. One of the things the FDA wants to look at is like the imaging of the CT scans one year later. What do they look like? They'll look at the clinical results here, but the primary endpoint is, which you're looking at on the screen, is the 30-day PERSEVERE data, which checked all the boxes for, you know, way below the FDA kind of the hurdle criteria that we had.
But the next piece is this. They want to look at, so on the left you can see an aorta. They want to see what does a stent look like in the aorta at a year? This data was just presented at EACTS in Lisbon. This is five-year data from the European trial, which is about half the size of the U.S. trial. And you can see the numbers like zone one, zone two, zone three, zone four. That's where the AMDS stent is. So if you look at kind of the bullet points in zone two, 95% of the patients had a stable or decreased size of their aneurysm or of the dissection. Same in zone four. Out to five years, you had increased rates of partial complete. What you want to do is get that false lumen to FL, basically the new fake tube to go away.
I see.
Then probably the biggest one is at five years, there was 94% of patients didn't have to have a reoperation. That's like 70% for the standard of care. So I mean, you know, the FDA is going to be looking at the one year. I'm showing you five years and half the trial, half the number of patients, if you will. So in the three years of it, three years been published, this has been presented and will be published. So I mean, I think the imaging part of this, the CT scan part of this is heavily de-risked because of what you saw in a trial that's half the size of the U.S. FDA trial.
Yeah, that was very helpful, very illustrative.
Talk about commercialization strategy a little bit. If I recall correctly, you have 40, 50, 60 sales reps who sell BioGlue and other products to cardiac aortic surgeons today. First, is that number correct? Is it the right number to launch an important product like this? And last, can guys, as one doc said to me, and I'm giving you a chance to, this is a softball, can guys who are selling BioGlue sell a sophisticated product like AMDS? How should we think about all this?
Yeah, I mean, so our, I'll pick New York City. I mean, our rep's been here for 20 years. He was a defensive end for the Buffalo Bills. You ask him, he used to chase quarterbacks, now he chases surgeons, what he says. He sells SynerGraft pulmonary valve for the Ross procedure, which is highly technical. It's a double valve operation. He sells the On-X aortic valve for aortic valve surgery. He sells BioGlue to all aortic surgeons in New York, and we're going to give him AMDS, and he's going to sell it to the same people.
I believe.
Yeah. This is not that complicated, and these guys are in cases all the time. So this is not a big stretch for these guys. And we've got about, including the managers, probably 60 feet on the street, and we're not adding any new reps to launch this.
Yeah. Talk about the speed, the likely speed of adoption. I mean, again, just our note speaks for itself. It just sounds like they could say, yep, okay, now we're going to do it.
Lance, you want to take that?
Yeah, so a couple of things. One is never quite that easy, right, on a new technology.
If it was that easy, you wouldn't need us.
If it was, there wouldn't be something called an adoption curve, right? So there's but I do think there's going to be a very, very high level of adoption. The training and learning curve is low compared to some, you know, groundbreaking technology. I think that's all positive. I think in the first year, one of the hardest things is how long does it take us to work through hospital bureaucracy to get it on the shelf, just get through value analysis committees and all that. That's a tough thing to try and time. Once we get through that, I think we'll see adoption move pretty quickly, certainly in a lot of these large, these large centers.
And then maybe in outer years, we have to go chase these lower volume areas that we probably don't call on as much because they're not doing as much of the, they're not doing a double valve procedure, right? And so we may not have the relationships there. So I think you'll see, you know, we'll get through the bureaucracy. I think you'll see a quick uptake. And then I think in outer years, we'll see we get to the outlying areas.
Yeah, I think it's an important point about the kind of the second wave. So there's about a thousand centers that do acute type A's. We have 60 reps. Let's just say they call on 10 hospitals each, so 600. 80% of the aortic volume is done in those 600 centers. So we can cover those pretty well. I think when you get out a year after launch, it's, you know, that last 400, they all use, they can all use BioGlue, they can all use On-X, and they can all use AMDS. All three of those products are 90% gross margin in the U.S. So adding reps would be very easy to do. And we don't need a lot of them, but you can see how the math would make sense.
I gotcha. John?
Yeah, and just thinking to this device's performance where it is approved in Europe, is there any comparisons we can draw between what the performance has been like in Europe versus the U.S.? Can you just talk a bit how it's performed in Europe and challenges it might face there or not face here?
Yeah, I mean, one of the big challenges we've already talked about is reimbursement. I mean, France won't pay for anything. Belgium doesn't pay. We have to do separate trials, separate reimbursement studies. We are selling this device for like €15,000 in many of the European countries, and we've had very good adoption. So it's growing rather quickly. I think the other big difference is they have a lot of people who do total arch surgery, which we sell that product as well in Europe. Whereas in the U.S., 90% of the acute type A dissections are basically a hemi-arch, which is the procedure I showed you, the current standard of care. So there are some differences in like what techniques they use, but in the U.S., it's heavy, going to be heavy kind of hemi-arch with an AMDS.
Yeah. Turning to the outlook for 2025, just now stepping back from AMDS for a second, I was looking at street numbers for 2025 and streets modeling $430 million in sales. That's 9.5% growth. We're roughly in the same kind of place. But on a recent call, you, or maybe your most recent call, you talked about your goal to drive double-digit growth and profitability growth at double that rate. What should investors, as they look at the current consensus, think about the outlook and the path to double digits next year, whatever the exact number is, and feel comfortable? What should we feel comfortable at that you're feeling good about?
Yeah, so we talked about on the call that, you know, you should think about pretty much the same dynamics in place for 2025 as we've seen through most of 2024. You know, the one benefit we had in 2024 was we had one quarter of a large price increase for our SynerGraft pulmonary valve. So that won't repeat for 2025, but otherwise it should be very similar. You know, we kind of talk about, you know, it may have some variation quarter to quarter, but think about our stent graft business being like a mid-teens growth business, our On-X heart valve business being low double digit, and then BioGlue and tissue being mid-single digit. That gets you to right around the 10% range. That's how we think people should think about it for next year as well.
And then, you know, we've been driving really good EBITDA margin expansion. You know, and pretty much the recipe for that is intact, right? We have this leverageable sales force, which we've talked about, not only in the U.S., but outside the U.S. And, you know, we have the G&A leverage opportunity that most companies our size have as well. So we think those will all be in place for 2025 as well.
Gotcha. John?
Thinking about the tissue business, you talked about some supply constraints impacting growth in the third quarter. Just any update to how those supply constraints are impacting the business now? Have they resolved? Is there any solutions you can sort of put into place to solidify consistent supply in the future?
Yeah, so we did note that over the summer we had lower than typical incoming heart donations, which is something we have no control over, right? So we did also note that we saw it return to more of a normalized basis in October. So hopefully we're going to see that get back to normal. We are also working on things that we can control. You know, there's a fairly high fallout for a number of different reasons between the hearts that are donated and the ones that actually make it into, you know, the SynerGraft pulmonary valve in particular or aortic valves also. And we have a number of different initiatives, which I would characterize as a series of singles to kind of improve our yields from the donations we get. So we think, A, we feel like this summer was likely an anomaly.
We have no known reason why that should be a sustained situation. And you know, October was encouraging. And then we were also working on some things ourselves to try and get our yields of what we get and turn into sellable product increased. So because of those reasons, we feel good about, again, we're really saying like, think about this as a mid-single digit growth rate business, right? And we don't really see any reason why we shouldn't be able to do that going forward.
Just turning to On-X for a second and On-X share gains. Your On-X mechanical valve business is about 21% of sales. It's really been an amazing, excellent, durable growth driver over the last few years despite minimally invasive options. Talk to us about how the mix of price, share gain, mechanical valve market stabilization all are contributing to that double-digit growth. And talk about the sustainability. Why should people believe it's sustainable?
Yeah, I think a couple of things. One, the mechanical valve market's growing globally. It's a $250 million market and growing. Two, our share globally is about 30%. So we got lots of opportunity. Now, we're very strong in the U.S. I think we're like 55% market share in the U.S. But we just released five-year data on a post-marketing trial, basically the FDA post-market trial that showed an 87% reduction in major bleeding. And our market research, we do a lot of market research, shows our market share going to continue to go up in the U.S. And we have a lot of opportunity internationally. So, you know, our On-X valve has grown 15% a year for the last eight years. And we're not committing to 15, as Lance said. We think it's a double digit. But I see no reason why we can't keep doing that given our opportunity internationally as well as our most recent data we're pushing here in the U.S.
Great.
Last quarter, you also talked about getting the approval for BioGlue in China. This sort of seemed like something that was off the table, and here it is back again. I think you talked about it as a $30 million opportunity, but maybe just talk about the steps you have to go through before Artivion can benefit and then maybe the most critical opportunities within the Chinese market.
This is one of those like pleasant surprises. We had to actually go back and look at our transcripts to see when we mentioned BioGlue China last. It was two years ago. Just because the approval process there is opaque, let's say. It is a very big market. They do more acute type A dissections, which is BioGlue's killer app, in one hospital than we do on the Eastern Seaboard.
Wow.
We did a clinical trial there in their top nine aortic centers. So the current market, there's two pieces. The current market's about $30 million of cardiac sealants, and then it's Baxter has some and J&J has some. When we compete with them in any other market, we have about 30% market share. So that's point one. Point two, this is the first product in China to get the indication for acute type A dissections. And I just mentioned that's a very big market for acute. There's about 12,000 a year there. So the hoops you have to jump through, we have the approval, which is a huge one. Two, you've got to get on their national pricing list, which we're doing now. Then you get to get on the provincial pricing list, and you have to get on the hospital pricing list.
So, which means we'll launch this in the second half of 2025. So we'll have some revenue in the second half. Going into 2026, it'll start to pick up. And we're well positioned. We sell On-X there. We sell some other, another stent graft there. So we actually have infrastructure already in place in China.
This is within your surgical sealants business. Long-term, we have this model that's sort of a lower single-digit growth rate. Does this China approval an eventual commercialization?
I think the way Lance describes it, I think it's a good way, right? You just got done talking about we're saying we can grow double digits on the top line, on the top line and twice as fast on the bottom. This should give you even more confidence that we can grow double digit on the top line when you add in BioGlue in China.
Nice. I'll touch on another P&L item, gross margins. Before you got here, Lance, gross margins were in 2022, 2023, 2024, were about 64%. Now that you're here and, you know, I'm reminded of your magnificent past. Pat told me to ask this question actually. What are you going to do for us here? You know, what's the potential for higher gross margins or is it just not given mix or something?
I would say right now we're telling people is, you know, just think about until we get these products on the U.S. market as gross margin, you know, just staying where it is. As soon as we get AMDS on the U.S. market and then we have several other PMAs behind that, these will all be extremely high gross margins, extremely accretive. We definitely should see the gross margin move up through mix. I think there are things that we can do just on the pure efficiency side. Some of those things are harder to get at with these PMA products. They're a little bit harder to change. But I do think there are things we can do, but I would view that as upside and not a commitment. But I think, you know, we're getting great EBITDA margin expansion right now, and that's without gross margin. I think for sure once we get AMDS on the U.S. market, we're going to see the gross margin move up.
That's. I'm really glad to hear it. And as long as we're talking, you have $100 million in convertible debt. Last time we spoke, it sounded like you're sort of biding your time and waiting to see what works best when it comes to next summer. Any updated thoughts there?
No real updates, to remind everyone that if they haven't heard or don't know the situation. We have $100 million of converts that are due in the summer of 2025. They're actually current on the balance sheet now. We did a financing in January of this year to refinance some other debt, and a part of that is a delayed draw term loan feature that we can use to pay off the converts, so we have it covered from a financing standpoint. Also, the strike price for the converts is $23.53 I believe, so we're north of that now. If we stay north of that, we have the option to convert those into shares, which would be roughly 4.2 million shares, so we have both of those options. You know, there's pros and cons of both.
You know, if we convert into shares, we can delever, which I think a lot of people would like, but we will have some dilution, and if we use the debt, we won't delever, but, and we'll have slightly higher interest, but we won't dilute anyone, so I think I'll say on the, I like to build in upside, so whatever those two options you dislike the most, assume that one, and then you have nowhere to go but up.
I like that. I'm going to use that line with free cash flow positive and leverage coming down. I hear what you're saying about the convert, but what are you going to do with that free cash?
I mean, I think first thing is to, you know, whether we're starting from $200 million or $300 million is to get that debt balance down, and we want to get the leverage much lower. I'm not sure if everyone knows that we have an option to purchase this company, Endospan. It's the NEXUS device. If you listen to our calls, you hear us talk about that. It's a technology we distribute in Europe and we're very, very high on. It just finished enrollment. If all goes well and it gets FDA approval toward the end of 2026, then we have the option to buy that company in early 2027. That's a $135 million upfront purchase price. We want to get in financial position so that, you know, we can do that acquisition and still be very healthy from a net leverage standpoint. So that's, you know, I'm really looking to try and improve free cash flow quite a bit and along with EBITDA to drive that net leverage down significantly.
That's great to hear. Listen, thanks to you both. We're out of town, unfortunately, but clearly the Artivion story continues to be an exciting one. Thanks so much.