Thank you all for coming here. Good afternoon, now, 2023 Baird Global Healthcare Conference. I'm Dave Branscomb, Senior MedTech Analyst here at Baird. Pleased to have LivaNova team here with us. We have Bill Kozy, Interim CEO, Chairman of the Board, Matt Dodds, Senior VP Corporate Development, IT. Thank you both for being here. We're just gonna hop right in. We have 20 or 30 minutes, I guess, or so. You can feel free to send in questions via that placard, via email, that I can get, if anybody wants to send any in. But we'll go ahead and just get started. So again, thanks for being here, Bill. I did wanna start maybe from a higher level, just around, you know, what's been going on with the business, right?
So you took over as the interim CEO at the end of May. You have retained a leading international executive search team to, you know, work in the assisting of the CEO search, about five months into that so far. So just wondering if you could, you know, provide any update around- you know, if there's any update around the search, at least maybe what some high level-
Sure.
Qualifications you're looking toward in bringing in a new CEO?
Sure. We have, we've moved this, the search mode from kind of slate and preparation of candidates to the interview process. We just commenced interview process. We have nine board members. We are in the midst of, carrying a couple candidates through that nine board member, interviewing process. It's kind of the sixth or seventh inning of the game, would be the comment, and [crosstalk] But we've made good progress and looking forward to reaching a conclusion.
Okay. When you think about maybe what somebody could come in to do and what the future direction of the company would look like, I mean, when you think about, you know, maybe optimizing the portfolio, doing M&A, you know, executing against growth objectives, changing maybe the direction of the company, where do you think LivaNova—you know, what do you think LivaNova looks like in three to five years with a new CEO?
Well, there's a little bit of ambiguity to your good question, and that's on the SPI side. But we will start to find out what's going on with depression as well as OSA. So to be optimistic on both of those, if those two initiatives were both to meet their clinical trial expectations, somebody would have a very exciting kind of new market, new product opportunity on that side. And additionally, we like the epilepsy market, we like the cardiopulmonary market, we like the ACS business that we're in, albeit it's much smaller. So there's kind of, if you enjoy the fundamentals of building and creating value in a core business, and also the excitement of a brand-new couple of initiatives, LivaNova gonna be a very exciting place.
Okay. Let's start, I guess, on first half of the year growth so far. I think, you know, you've beaten raised so far in the first half this year. You know, I think there are maybe some one-time strengths that are driving part of that business. Can you just talk from a high level about what's been driving the strength in the business so far, and maybe how we think about growth in the second half of the year?
Yeah, we had a good second quarter with 16% growth, but we did have some anomalies in there. We had some price that we initiated in the third quarter of last year. That, of course, carried through in terms of benefit through the second quarter, and that was probably contributing about 3% to where our more natural growth would be. We had higher than expected EOS replacements in our epilepsy business, and that contributed about 2%.
Then one final comment, which is kind of impacting that back half, goes with our Oxygenator performance. We have had supply chain issues from our competitors, not from us. We've taken advantage of that. That was probably 1% growth. So I don't wanna pretend that the math, this is an exact, as I just described today but we've got 5%-6% growth in there that's probably just not sustainable in the back half of the year.
Okay. And I-- we're gonna dive into all of those pieces in a little bit, but when you think about what's contemplated in growth, does it assume that the oxygenator business does not grow at this relative strength, that the EOS part of epilepsy slows or maybe maintains in the Q3 and goes away in Q4? How do you think about those three or four pieces? I know price goes away in Q3, but how do you think about either the sustainability or the dissipating nature of those two other factors in Q3 and Q4?
Well, on the oxygenator thing, we expected both of our competitors to bounce back in the third quarter. We've only seen one of them bounce back as far. And by the way, we just don't know what's going on with competitive supply chain situations. We just have to keep our eye on that. We're pretty much now, in terms of our production, we're selling everything we make, and we don't even have the capacity right now to sell more than we're right now manufacturing, and won't have that for a little while.
So we're kind of tapped out on oxygenator capabilities to further exceed where we're at right now. On the EOS side of things, the end of service things, for sure, we got a little bit of benefit. We launched... I have to hit the rewind button here, but in 2017, the company launched SenTiva, which was a new and very much improved generator to power the epilepsy treatment program. That SenTiva list of patients just now started to creep into our second quarter results. We think there was a little bit of a blend of SenTiva and current replacements.
We also know that our tracking of patients whose generators are coming near end of service has worked pretty well. And so we're finding and doing a better job of reminding those patients that they're due. Those were two important factors. We think there was a little bit of a blip there, a little higher than expected. We wouldn't expect that 8% number you saw in the second quarter to continue. We think that'll more normalize in the mid-lower single digits.
Okay. Longer term, whether it's either over a 12-24-month view or 2024 specifically, what do you think the top line growth profile of the company kind of looks like when these one, one to two time items are backed out?
You know what? We've got, we've got all three of our units right now in a deep dive strategic planning process, and we're not ready to, to comment on 2024 yet at all. What I'm encouraged by is that the homework that's being done in each of those units to address all these kinds of anomalies and blips kind of we've had with some top line performance. We'll know that much, much better, and, and Matt and team will address that thoroughly come the February-
February
- kind of early 2024 view.
Fourth quarter call.
And we'll be fact-based then. It's a much better way to think about it.
Okay. Moving on to the neuromods, specifically the epilepsy business, can you just give a 30-second overview on what that business is, what the value proposition is for the treatment-resistant epilepsy segment?
Sure, we treat those patients who have failed drug therapy. They failed at least two drugs. They then have options for some type, if they so choose, surgical intervention. There's 36,000 patients a year entering that DRE population. At this moment in time, about 8,000 of those get some type of surgical intervention. That's where our focus is: finding, identifying, and creating a path to treat those patients.
Okay. In the growth, today, you have new implants, and you have kind of replacement implants. What's the split there? What's a typical growth look like for both of those segments? And that blends out to, I'm guessing that, you know, mid-single-digit growth level.
Yeah, I mean, Matt can comment here, too, but historically, we see that business as in the mid-single digits, just like you said. We got a little bit stronger on the replacements, which I just commented on, little stronger actually on the new placements as well. We don't think those are indicative of what will happen in the future. We'd be real happy with 5%-6% growth in epilepsy as we go forward.
Okay. You and the split, is it higher toward replacements?
Yeah, so right now it's running about 70% replacements in units. Now, don't forget the new patients, you have the lead, so the revenue is closer, but in pure implants. To Bill's point, you know, this year we're talking about mid-single-digit growth in total implants. This is U.S. you know, you know, next year, you know, with the EOS, we do think it's eventually gonna go back to its normal trend of low single digit. And for the new patients, that's what we're working on, trying to understand, you know, 2024 and beyond, what we can get the growth rate to.
Okay. Do you have a sense for the growth so far in the first half of the year? How much of that you can, you know, not necessarily quantify, but say is maybe because of the higher replacement cycle versus just underlying stronger, you know, admission, you know, admission trends from, from hospitals? Meaning that, are you able to even see whether or not surgical procedures outside of the procedures that you guys are doing in neuro mod are doing any better than, than what the trend line typically is because of stronger volumes in general across the space?
I don't know that we can analytically quan[audio distortion]
No, I would say to Bill's point, we track a lot of claims data to get the total surgical number, right? We obviously know our numbers, have a good idea on the implants, but resection, ablation are a little trickier. But we still think that, you know, the overall surgical numbers in 2022 were actually below 19, all surgeries in epilepsy. They we do think they have grown this year, you know, in total, through the first half of the year. So the market is recovering, but it's probably one of the few markets that, and this is again, U.S. epilepsy surgery, not yet back to 2019 levels.
Okay. Okay. You talked a little bit about, again, the higher replacement trends that you're seeing with the SenTiva launch. Is there a point at which you can determine whether or not that is going to be something sustainable, or again, do the comps that you create for yourself in 2024 just become tougher enough where, you know, it's likely not a sustainable trend?
You're talking about the 8% there?
The growth within the replacements.
Within the replacements.
Yeah.
Yeah, we don't foresee that second quarter performance we just saw as something that's ongoing or going forward. And by the way, at some point in time, you will deal with the COVID window, where surgeries went down dramatically, there were less implants being made, and that will have some impact. We don't think it's overwhelming, but in a couple of years out ahead, that'll be something we'll manage our way through.
Okay. I think the maybe revamping of the sales force was also a piece to some of the growth that you've seen so far. So again, can you maybe break out whether or not there's any you're able to see any type of contribution specific from that, and just give us a high-level overview on what's going on there?
Yeah, we've got a new president. The person that was appointed into that role was far and away the best commercial leader we had on epilepsy in the company. She has looked at the entire sales operating system that we've got from patient identification all the way through to case management. She's also got eyes on the talent. I think we'll be through our sales force discussions over the next six months. She's making some final tweaks to structure and certain talent areas, but we think that that's gonna be behind us as we go into 2024.
Okay. I think in the past, you, you've talked about, you know, how potentially there's newer therapies that pop up, in the epilepsy space that just happened to maybe delay an ultimate progression, you know, to receiving, you know, one of the implants from LivaNova. Can you, again, just remind us what the high level view on that is? If there's anything we should be paying attention to- Sure ... out in front, that could be competitive threats to the business?
Sure. I mean, I mean, the, the most important thing, I think, to remember is that if you went back to 2019, and if you were going to choose surgical intervention, with the exception of, of resection, VNS was your technique of choice, the surgical choice. Now, you have, given the advancing technologies in brain mapping, epilepsy, disease type, and so forth, you've got ablation, you've got RNS, you've got DBS. The, the physician and the patient now have multiple choices.
So that 2019 period, I would suggest, is, is really behind us, and, our job is to get after those DRE patients, and to move up that level of 8,000 is all that's getting a surgical intervention a year to a much higher level. That's the way we'll be able to grow our NPI initiatives. By the way, these other surgical interventions I mentioned, they're pretty much all here to stay. The technology, the medical technology and clinical capability to diagnose and apply the proper surgical intervention has advanced in a major way in the last two, three years.
And on the pharmaceutical side, in the near term, there's nothing we see that we could constitute as disruptive for the market, to be ahead of the surgery.
Okay. I guess, you know, longer term, and then we can move on from this. Is there a potential for there to be a higher level of growth in this segment? You know, specifically within epilepsy, or are the factors around the mix from replacement versus the mix from new implants, ultimately limiting the way in which you can drive stronger growth longer term?
I think the biggest opportunity for the industry, and this is not just us, as I mentioned before, how can there be 36,000 people diagnosed each year, only 8,000 people getting surgical intervention? Just a major paper published about the implications of not surgically intervening after a patient has failed drug treatment. I mean, the homework, you can grab onto that paper, but fundamentally, quality of life, healthcare costs to the system of not intervening are would be quite surprising, pieces of data to grasp onto.
This paper is getting a lot of recognition. It's right now. It just came out very recently. That is the kind of the mindset that also that we try and bring to our patient population and say, "Look, here we are as one of a number of options. We're the least invasive, by the way. In most cases, this is done on an outpatient basis. You should consider VNS. And I think that'll be the most important message that we bring to the physician community and the patient community in the next couple of years.
What do you think... I mean, is this paper something that you think could spur potentially greater adoption of all interventions, going from, I don't know, 8,000-9,000 or, you know, eight to 10?
I'm quite a student on medical practice change, and all the data says it takes 15 years, okay? Here's the good news. It's year 1.
Okay.
Okay, so we've got some very interesting and fact-based data about the value of surgical intervention, not just to patient, but to the healthcare system. Economics are, needless to say, very important.
Okay. So elsewhere in the Neuromod portfolio, you have the ASPRE trial, and you also have the RECOVER study. Well, maybe start with ASPRE, and actually, specifically, maybe on GLP-1s for this. The first question I am gonna take-
Take them.
The first question I am just gonna ask on this is, any impact to enrollment because of GLP-1s?
That one's a no. I mean, this is a small trial. It's 125-150 is where we think we'll go, and I've heard nothing to suggest that, you know, that it's impacting the trial.
Okay. And then, maybe while we're here, I guess, let's just talk about the impact across maybe the cardio-pulmo space, ACS, right? That, that's a piece to it, as well. So just wondering broadly, GLP-1s on the whole portfolio, whether or not you've seen any impact in anything in the near term or longer term.
Yeah, so current portfolio, I think the general answer is no. To your point, you know, cardiovascular surgery, potentially down the road, you could argue with obesity, diabetes, you know, there's they're linked. But nothing we've heard or seen to suggest that there's procedural change for people that aren't progressing to cardiac disease-
Okay
... that would require surgery.
Okay. And then, I guess maybe since we're on it, though, in the near term, we have heard about rising COVID cases. I know some of your procedures are actually probably earlier on to seeing whether or not there's an impact there. So anything in the Q3 at all that's, you know, you have any read on to procedure potential impact from COVID?
We have no read on that at all. Well.
Okay. Okay, so, and then longer term, just back on ASPRE, longer-term OSA, potential implications around that market, any thoughts?
So by not being in the market, we have time. That's one advantage of still being in the trial. I would say right now we're looking at it in terms of probably in a kind of a net wash. Patients that, you know, could potentially no longer need a implant because of their BMI and some of their characteristics might fall out of an implant for OSA, but at the same time, you got patients outside your indications, the BM, the BMIs over 35, will come into the system.
So we, we don't see yet any major change in the opportunity in terms of total patients. But, but also, don't forget, this is a massive number of... You know, the, the numbers we come up with, you know, no different than some of the other companies in the space, in terms of the potential for annual incidents, is much bigger than even epilepsy.
Okay. Specifically on the product, what do you think are the biggest differences between the main competitor out there?
Sure. Well, the excitement on our side is we're gonna stimulate the hypoglossal nerve. The capabilities we have, we can get to more areas of stimulation. That naturally creates a target segment and space for us, versus our competitors who haven't had as much luck at stimulating that particular type of level, helping those high BMI patients and those patients in the 3C condition. So we're still confident that we have a nice opportunity to go in there and bring a new technology that has been proven in a randomized clinical trial. Obviously, we've got to prove ourselves in the trial. That's the trial Matt mentioned earlier.
Our trial is the only one where we are taking complete concentric collapse, the triple C patients, in the trial. So you know, that's unique. I mean, our trial is also randomized, which is different than other trials, but we are looking at that patient population in our study.
Is the trial set up to receive approval for essentially all complete concentric collapse and non-complete concentric collapse patients, or are there going to be two separate arms?
It's one arm. It would be just a total label.
So again, when you do come into market with a label for both Complete Concentric Collapse and non-Complete Concentric Collapse, obviously, you are the only player, potentially at the time, in the market that would have that label. So you know, definitively, you probably therefore can get a market expansionary piece to the existing nerve stimulation market today.
When I think about where do you go from 2025, if that's the timeframe at which the product comes into market, so correct me if I'm wrong on that, into 2028, does the majority of the growth that you see coming from the product, coming from specifically either, A, the market expansionary piece, or you know, tit-for-tat share gains between the, the kind of the number one player out there today or the only player out there today?
I would say earlier on in that cycle, it's the Complete Concentric Collapse market expansion. It's really gonna depend on when and if the competitors get that label, how they go about it. That's how I would assume up through 2028.
That segment we're talking about is minimally 20%, and some people estimate as high as 30%.
30, yes.
So we've got space there to operate. Now, to your good question, will we go beyond that? Yeah, if we do well there, but we would stay focused on where we have advantage.
Okay. And so again, 2025, can you just walk us through the timeline again of when we expect the data, when we expect approval, how the reimbursement landscape in the U.S. sets you up to launch? How do you think about DTC, you know, the go-to-market, all that?
So in the timeline, we are looking at... We have a six-month follow-up. So we're looking at probably early 2025, we'd get the data, and then that's why we assume 2025 approval. Give some time, you know, between when we get the data submitted and get the approval. We're still looking at, you know, sort of how we go to market. And again, we'll have a focus on complete concentric collapse, which nobody else will be indicated for. But in terms of direct to consumer, sales force, all that, we're not ready yet to lay out the plan.
Okay. Maybe it makes sense to ask this also relative to RECOVER, right? So can you give us a high-level reminder on that study, any updates there? And then when you think about, you know, maybe building out a sales force for OSPREY, do you potentially build out another sales force for RECOVER as well?
Sure. We get our data, as you probably remember, in May, June of next year. From that data, we should be able to determine within the next couple of months what our path forward is. Now, remember, there's a lot that happens after that data arrives. That a paper is published, it comes back to CMS for review, but we should have indications at time of data delivery, what our next steps are. We are planning on crafting the basic infrastructure to go to market with depression, and of course, way in the back half of that fiscal year, and more realistically, the higher impact into all into 2025.
And so, I mean, the trial is set up to expand or to bring about reimbursement, a national coverage determination, right?, You know, if the trial does not meet the endpoints, how do you think that program progresses beyond that, given that, again, it's for coverage?
Well, there's sort of- there's two answers to it. So for the unipolar arm, which the data comes in May, June, you know, there, there's obviously the totality of data. So until we see all the data, it's difficult to assess sort of what CMS will do. Because CMS, there's no guidelines to exactly how they determine, you know, what level of reimbursement. But right now we have none, so everything's upside. So we will need to see the data to understand not just the primary endpoint, but there's 12 other endpoints, and, you know, a lot of them are pretty powerful ones as well.
So the totality of the data is obviously important. And then we've got bipolar behind it, which, you know, a lot of people believe is a, is a bigger need in the market. There's less options in pharmaceuticals for bipolar, and that's gonna be a completely separate data set that will follow unipolar. And, you know, in that one, it could also... You know, we would have to understand, based on the unipolar data, is there any way to imply what that could mean for bipolar? So there's a whole host of decisions once we get the unipolar.
Is beyond, you know, beyond CMS, I know that commercials usually follow the way in which CMS goes. Is there... I mean, it is a large market that there isn't a lot of really, you know, outcomes out there that are great or technologies out there that are great. Is there a potential to go after a commercial, you know, reimbursement coverage scenario in which you don't have, you know, an NCD from Medicare? Or is that a scenario that you haven't thought about yet?
We haven't thought about it yet. We're still hoping that this is a CMS decision that drives the private-
We're really focused on the CMS.
Okay.
Okay, so we're at five minutes left. Maybe we'll touch on Cardiopulmonary profit, then maybe some higher level things as well. But, you know, in the Cardiopulmonary segment, the Essenz launch, you know, big upcoming launch in the segment, can you just remind us or talk a little bit about what your expectations are for there, how that can drive growth, what some of the moving pieces are around that?
Sure. We've got a, you know, a global market-leading position. We have in place around the world about 7,000 current heart, heart-lung machines. About 3,000 of those are 10 years or older in some cases, and so the first target market for us is to go after replacements. 10 years is pretty the extended life for equipment like that. Not many hospitals like to keep it much beyond that, so that's the first focal point.
We got our 510(k) and CE mark approvals on the last couple, elements of the software, so in both of those developed markets, we're in full launch mode as of right now. We just got that a couple of weeks ago, if you had a chance to see it. We're funnel building right now in both markets, with particular emphasis on the U.S., targeting large accounts, where there's multiple machines, multiple cardio surgical suites in the institution.
Okay, and how does that... You know, heart and lung machines is a portion of the overall cardiopulmonary segment. How does that roll into the way in which you think about growth in the broader cardio, you know, pulmonary segment?
Well, this is gonna have a-- I mean, obviously, we're not gonna replace all 3,000 of those instruments in the short term. We're gonna have a nice three to four-year tail of growth opportunity assigned to this in those developed markets. We have a premium price on the Essenz versus the previous S5 heart-lung machines, which were in the marketplace, and so we would expect to see a sizable impact from heart-lung machine on the overall CP growth rates in the years ahead.
Okay. Again, two minutes left, just moving on to the profit side of the business. I think guidance this year calls for a low double-digit adjusted EPS growth. Can you remind us what, like, the longer-term outlook is potentially for the company? How you think about managing top-line growth versus driving the underlying profit in the business?
Well, well, think about, think about LivaNova being in a relatively unique position. First of all, the SPIs over here, they're protected. We're funding those two SPIs through their clinical trials with optimistic outlook on both those. The flip side of that is your CP and epilepsy business. Those are your value-creating, you know, elements of the company. And of course, we like the combination long term of growth opportunities here, significant growth opportunity, and some sound core businesses that will continue to produce cash and profitable outcomes.
Okay. In the second half of the year, and I guess looking into the first half of next year, maybe into 2024 in general, you do have a program that you stopped early, so you have some potential either reinvestment or ability to let that fall further to the bottom line. How do you think about where the funds from that go, you know, in the near term, and then? you know, longer term?
We have a portfolio review with our board in late October. We will take that heart failure benefit that will appear in 2024, and we will be making decisions on exactly where that goes. And of course, the choices include back to the investor, as well as some new initiatives within the core businesses, where we'll also want to take a look.
Okay. As it relates to that, you know, do you think that, you know, you need to have a newer team, a new management team or a new CEO to be hired before there's any type of changes as it relates to kind of that aspect of the longer-term priorities of the business?
We think there's a good chance that, the new CEO will be in place before January.
Before January.
That's clearly a goal, okay? And we're trying to make, and they would ideally be a full participant-
Okay
... in that process.
Okay, and then when you think about, again, where the future direction of the company, you know, goes, again, you obviously have... There's been M&A that you guys have done in the past. You know, you have some balance sheet restrictions right now that are there. Is this a story where we kind of chug along through 2025, you work through the products, you know, you see where you end up with both those new longer-term opportunities in OSA and TRD, and you know, perhaps there is a change in the portfolio longer term? You know, or can you do things before maybe there are some of these restrictions within the balance sheet?
To your balance sheet commentary, okay, we want to get that situation with the Italian government resolved, okay? We'd like to put that in the rear-view mirror, and that's a high priority. And of course, that opens up all kinds of, of different levels of thinking as it relates to M&A. We'll complete some refinancing in the year ahead. We'll get that done. Getting those two things in full management control mode are the gates to get at that next wave of what we might like to do.
Okay, that's great. Okay, well, we're out of time. Thank you both.
Great.
Thank you.