Cardiovascular Systems, Inc. NASDAQ: CSII San Francisco Investor Meetings January 11, 2017
Cardiovascular Systems, Inc.NASDAQ: CSII
San Francisco Investor MeetingsJanuary 11, 2017
Safe Harbor
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FORWARD-LOOKING STATEMENTSCertain statements made in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are provided under the protection of the safe harbor for forward-looking statements provided by that Act. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding Cardiovascular System, Inc.’s (“CSI” or the “Company”) future financial performance, product sales distribution, industry and market expectations and estimates, the benefits and uses of the Company’s products, market opportunity potential, clinical trials, international expansion, regulatory approvals, future profitability, debt capacity, use of proceeds, results of operations, prospects, plans and
objectives of management, and other statements that are other than statements of historical fact.
These statements involve risks and uncertainties which could cause results to differ materially from those projected, including those described under the heading “Risk Factors” contained in the prospectus filed with the Securities and Exchange Commission (the “SEC”) for our recent public offering, and as detailed from time to time in CSI’s SEC reports, including its Reports on Form 10-K and Form 10-Q. As a result of these matters, changes in facts, assumptions not being realized or other circumstances, CSI's actual results may differ materially from the expected results discussed in the forward-looking statements presented. The forward-looking statements are made only as of the date of this presentation, and CSI undertakes no obligation to update them to reflect subsequent events or circumstances.
Investment Merits
• Orbital atherectomy addresses calcified arterial plaque - a large, unmet medical need
• Three attractive markets:– Peripheral - below the knee
– Peripheral - above the knee
– Coronary
• Medical evidence and stable reimbursement support growth
• Early stage of adoption; large, clinically trained sales force
• Positioned for sustainable, profitable revenue growth
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4
Benefits of Orbital Atherectomy
Above the Knee
Heart
Below the Knee3
With systems for coronary or peripheral indications, the CSI product line offers heart-to-heels capability.
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3• Heart-to-heels solution• Effective in calcium• Excellent safety• Alternate access sites• Long-term durability• Economical
Crowns shown are not to scale and for illustrative purposes only.
CSI Orbital Atherectomy Systems (OAS)Differential Sanding:
• Eccentrically mounted crown bi-directionally sands hard plaque
• Healthy, elastic tissue flexes away from crown to minimize vessel damage
Centrifugal Force:
• Increasing speed = increased orbit radius
• 360° crown contact designed to create a smooth, concentric lumen
• Allows constant blood flow and particulate flushing during orbit
• Treat large vessels through small sheaths, multiple vessels with one crown
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Peripheral Application: Before & After
Anterior tibial90% occluded
Before After
< 5% residualSmooth, tubular
lumen
Case courtesy of Dr. Jihad Mustapha, Metro Health (Results may vary)
Plaque safely removed, blood
flow restored with durable
results
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• 93% < red blood cell size
• 99% < lumen size of capillaries
Unique Mechanism of ActionBi-directional and differential sanding
Calculation of mean particulate size is based particles larger than 1 micron from a representative study using carbon blocks and cadaver model systems. 7
Only 2.6 Million Receiving Treatment
700,000 CLI
Peripheral Artery Disease (PAD)Large and underserved patient population
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Sources: Sage Group, Millennium Research Group “US Markets for Peripheral Intervention Devices 2014,” iData “US Market for Peripheral Vascular Devices and Accessories” 2014, and Go, et al “Heart Disease and Stroke Statistics -- 2014 Update,” Circulation.
1.9 Million Claudicant
Up to 18 Million in U.S. with PAD, ≈4 Million with Critical Limb Ischemia
(CLI)
2.6 Million Treated
≈750,000 Below The Knee
(BTK) Treatments
≈1.8 MillionAbove The Knee
(ATK)Treatments
BTK Calcium ≈ $1B Opportunity
*CSI estimates
130,000 Amputations
170,000 Interventions
450,000Medical
Management
120,000 Interventions
120,000 Amputations
60,000 Medical
Management
≈750,000 Below The Knee (BTK) Treatments
≈300,000* Patients with Calcified Lesions BTK
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ATK Calcium ≈ $1B Opportunity
30,000 Amputations
300,000 Interventions
1.5M Medical
Management
150,000 Interventions
30,000 Amputations
100,000 Medical
Management
≈280,000* Patients with Calcified Lesions ATK
≈1.8 Million Above the Knee(ATK) Treatments
*CSI estimates
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J Invasive Cardiol. 2000; 12(11)
1 Fitzgerald PJ, et al.. Circulation. 1992:86;64-70. Kahn J, et al. Cathet Cardiovasc Diagn. 1990;21:89-91.2 Cavusoglu E, et al. Cathet Cardivasc Intervent. 2004;62:485-498.3 Moussa I, et al. Circulation. 1997;96(1):128-136. 4 Gilutz H, et al. Cathet Cardiovasc Intervent. 2000;50:212-214.5 Nakano M, et al. Eur Heart J. 2013;34:3304-3313.6 Buckley CJ. Vascular Disease Management. 2011;8:87-92.
Calcified Coronary Lesions
• Prone to dissection during balloon angioplasty or pre-dilatation1
• Difficult to completely dilate2
• May prevent adequate stent expansion3
• Prevent stent delivery to the desired location4
• Uneven drug distribution associated with restenosis5
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CAD Severe Calcium ≈ $700M Opportunity
880,000PCI
250,000 CABG
CABG, 250M
* 12% severe calcium in both PCIs & CABG + 48,000 estimated CHIP patientsBourantas,C et al; Heart, 2014;0:1–7. 20% severe Ca++ in DES trialsGénéreux, P. et al. J Am Coll Cardiol 2014;63(18):1845-54. 6% severe Ca++ in ACSFeldman D. et al, Circulation. 2013;127:2295-2306. 60% of PCIs ACS, 40% stable 12% severe Ca++
100,000 PCI
30,000CABG
≈178,000* Patients with Severely Calcified Lesions
≈1.25 Million Coronary Artery Disease (CAD) Procedures and Estimated CHIP Patients
48,000CHIP Patients
CHIP: Complex Higher-Risk Indicated Patients
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120,000CHIP Patients
Leadership in Clinical Evidence
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LIBERTY 360°(Enrollment Complete)
ORBIT II(3-year Data)
COAST(Enrollment Complete)
OASIS, CONFIRM series, CALCIUM 360 and COMPLIANCE 360
• Supports 2nd Gen OAS in U.S. and Japan approval• Shonin application submitted in June 2016
• 92% freedom from revascularization at 3-years• Up to $4,946 per patient cost savings at 2-years
• High rates of procedural success and durability• Low adverse events/bail-out stenting
• “All-comers” trial vs. any other treatment• Nearly 700 Rutherford class 4, 5, or 6
n=1,204
n=100
Trial ImportanceSize
n=3,359
PAD
CA
D
n=443
5000+Patients
7000Lesions
600Physicians
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OPTIMIZE (Enrolling)
n=50 • OAS + DCB vs. DCB alone• Calcified below-the-knee lesions
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ECLIPSE(Enrollment Begins 2017)
• Largest randomized trial to study coronary atherectomy for calcified coronary lesions
• OAS + DES vs. angioplasty + DESn=2,000
Rutherford Class
Freedom from MAE at 30 Days
Freedom from TVR at 30 Days
2-3 99.0% 99.4%
4-5 95.7% 96.9%
6 90.7% 97.9%
• Diamondback OAS was the most frequently used atherectomy device across all Rutherford Classes
• Physicians reported high satisfaction regarding device selection and patient outcome
• Favorable freedom from Major Adverse Events (MAE) and Target Vessel Revascularization (TVR)
• 78% of Rutherford Class 6 patients released to home
LIBERTY 360° Study Design/30-Day ResultsStudy Design
30-Day Results
Adams, LIBERTY Late Breaking Clinical Trial, AMP Conference, Aug 11, 2016. 14
Principal investigators: Philippe Généreux, Ajay Kirtane; Study chairman: Gregg W. StoneSponsor: Cardiovascular Systems Inc.
Orbital Atherectomy Strategy
(1.25 mm Crown followed by non-compliant balloon optimization)
Conventional Angioplasty Strategy
(conventional and/or specialty balloons per operator discretion)
2nd generation DES implantation and optimization
2nd generation DES implantation and optimization
Randomize1:1
Primary endpoints: 1) Post-PCI minimal stent area assessed by OCT (N≈400 in imaging study) 2) 1-year TVF (all patients)
≈2000 pts with severely calcified lesions; ≈60 US sites
ECLIPSE Trial DesignEvaluation of Treatment Strategies for Severe CaLcifIc Coronary Arteries:
Orbital Atherectomy vs. Conventional Angioplasty Prior to Implantation of Drug Eluting StEnts
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Consistent, Attractive Reimbursement
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Hospital Procedure 2017 Reimbursement% Change from 2016
Inpatient PAD $10,593-$19,754 4%-3%
Inpatient CAD $10,072-$19,396 1%-1%
Outpatient PAD/CAD $9,727-$14,511 2%-(1%)
Non-Hospital Facility
Procedure 2017 Reimbursement% Changefrom 2016
Outpatient PAD (ATK) $10,957-$14,853 (2%)-(2%)
Outpatient PAD (BTK) $10,804-$13,371 (2%)-(2%)
MS-DRG 246, 247, 248, 249, 250, 251, 252, 253, 254; CPT Codes 37225, 37227, 37229, 37231, 92933; C-APCs 5191,5192,5193,5194; HCPCS Code C9602
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$0
$50
$100
$150
$200
FY12 FY13 FY14 FY15 FY16 Q1 FY17
Track Record of Revenue Growth FY16 Slowed by Sales Force Transition
Return to Growth in FY17
$ M
illio
ns
Amounts exclude revenue from distribution agreement terminated on June 30, 2015
+14%
Strong, Improving Gross Margins
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70%
75%
80%
85%
FY12 FY13 FY14 FY15 FY16 Q1 FY17
78.2%
80.1%
76.5%77.3%
76.7%
81.0%
Solid Cash Position/No DebtCash Adequate to Reach Positive Cash Flow and Profitability
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$84
$65$61 $58
$68
$0
$20
$40
$60
$80
$100
Q4 FY15 Q2 FY16 Q4 FY16 Q1 FY17 Q1 FY17Pro-forma*
$ M
illio
ns
• Decreasing cash burn from cost reductions/increasing revenues• Positive cash flow in Q1 FY17 excluding $3M DOJ payment• $10M upfront payment received for Japan Distribution Rights (Nov. 2016)• Additional cushion potential from facility financing/debt capacity
*Includes $10M upfront payment for Japan distribution rights
Achieved Positive Adjusted EBITDA
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$41.4$44.5
$48.5 $49.8
Q2 '16 Q3 '16 Q4 '16 Q1 '17
-$11.1
-$6.4
-$1.4
$2.6
Q2 '16 Q3 '16 * Q4 '16 Q1 '17
Revenue Adjusted EBITDA
* Excludes $12.2 million of litigation and severance costs.
$ millions
Reconciliations of Adjusted EBITDA to the most comparable U.S. GAAP measure for the respective periods can be found in the appendix
Why CSI?
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• Orbital atherectomy addresses calcified arterial plaque - a large, unmet medical need
• Three attractive markets:– Peripheral - below the knee
– Peripheral - above the knee
– Coronary
• Medical evidence and stable reimbursement support growth
• Early stage of adoption; large, clinically trained sales force
• Positioned for sustainable, profitable revenue growth
Appendix
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Adjusted EBITDA Reconciliation
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Non-GAAP Financial MeasuresTo supplement CSI's consolidated condensed financial statements prepared in accordance with GAAP, CSI uses a non-GAAP financial measure referred to as "Adjusted EBITDA" in this presentation. Reconciliations of Adjusted EBITDA to the most comparable U.S. GAAP measure for the respective periods can be found in the appendix. In addition, an explanation of the manner in which CSI's management uses Adjusted EBITDA to conduct and evaluate its business, the economic substance behind management's decision to use Adjusted EBITDA, the substantive reasons why management believes that Adjusted EBITDA provides useful information to investors, the material limitations associated with the use of Adjusted EBITDA and the manner in which management compensates for those limitations can be found in CSI’s most recent quarterly earnings release, dated, Oct. 26, 2016.
Three Months EndedDec. 31,
2015Mar. 31, 2016 June 30, 2016 Sept. 30, 2016
Net Loss $(15,163) $(22,716) $(4,884) $ (1,856)
Less: Other (Income) Expense, net (3) (33) (111) (33)
Less: Provision for income taxes 23 23 23 24
Loss from Operations (15,143) (22,726) (4,972) (1,867)
Add: Stock-based compensation 3,112 3,173 2,585 3,450
Add: Depreciation and amortization 981 979 1,017 1,017
Adjusted EBITDA (11,050) (18,574) (1,370) 2,600
Add: One-time costs (net of stock-based compensation) * - 12,218 - -
Adjusted EBITDA (net of one-time costs) $(11,050) $(6,356) $(1,370) $2,600
* One-time costs include: Department of Justice settlement, restructuring charges from a workforce reduction, and CEO retirement benefits.
Pro-Forma Cash Reconciliation
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$ in millions
Cash and cash equivalents as of Sept. 30, 2016 $58
Add: Upfront payment received from Medikit for exclusive distribution rights in Japan (November 2016)
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Q1 FY17 Pro-forma cash position * $68
Q1 FY 2017 Statement of Operations
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Consolidated Statements of Operations
(Dollars in thousands, except per share and share amounts)
(Unaudited)
Three Months Ended
September 30,
2016 2015
Net revenues $ 49,800 $ 43,871
Cost of goods sold 9,466 8,771
Gross profit 40,334 35,100
Expenses:
Selling, general and administrative 36,866 41,395
Research and development 5,335 6,941
Total expenses 42,201 48,336
Loss from operations (1,867 ) (13,236 )
Other (income) and expense, net (33 ) 2
Loss before income taxes (1,834 ) (13,238 )
Provision for income taxes 24 23
Net loss $ (1,858 ) $ (13,261 )
Net loss per common share:
Basic and diluted $ (0.06 ) $ (0.41 )
Weighted average common shares used in computation:
Basic and diluted 32,985,081 32,210,874
Q1 FY 2017 Balance Sheet
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Consolidated Balance Sheets
(Dollars in thousands, except per share and share amounts)
(Unaudited)
September 30,
2016
June 30,
2016
ASSETS
Current assets
Cash and cash equivalents $ 58,194 $ 60,638
Accounts receivable, net 24,308 23,128
Inventories 16,887 17,440
Marketable securities 705 684
Prepaid expenses and other current assets 1,998 2,992
Total current assets 102,092 104,882
Property and equipment, net 31,820 32,471
Patents, net 4,352 5,013
Other assets 70 40
Total assets $ 138,334 $ 142,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 8,763 $ 8,506
Accrued expenses 21,688 26,993
Total current liabilities 30,451 35,499
Long-term liabilities
Other liabilities 4,939 6,010
Total liabilities 35,390 41,509
Commitments and contingencies — —
Common stock, $0.001 par value; authorized 100,000,000 common shares at September
30, 2016 and June 30, 2016; issued and outstanding 33,046,180 at September 30, 2016
and 32,792,497 at June 30, 2016, respectively 33
33
Additional paid in capital 432,119 428,235
Accumulated other comprehensive income 61 40
Accumulated deficit (329,269 ) (327,411 )
Total stockholders’ equity 102,944 100,897
Total liabilities and stockholders’ equity $ 138,334 $ 142,406
Q1 FY 2017 Statement of Cash Flows
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Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2016 2015
Cash flows from operating activities
Net loss $ (1,858 ) $ (13,261 )
Adjustments to reconcile net loss to net cash used in operations
Depreciation of property and equipment 957 887
Amortization and write-off of patents 807 86
Provision for doubtful accounts 150 175
Stock-based compensation 3,450 4,107
Changes in assets and liabilities
Accounts receivable (1,330 ) 3,791
Inventories 553 (1,480 )
Prepaid expenses and other assets 1,314 1,043
Accounts payable 257 (18 )
Accrued expenses and other liabilities (6,376 ) (166 )
Net cash used in operating activities (2,076 ) (4,836 )
Cash flows from investing activities
Purchases of property and equipment (282 ) (1,847 )
Issuance of convertible note receivable — (350 )
Purchases of marketable securities — (17 )
Costs incurred in connection with patents (170 ) (160 )
Net cash used in investing activities (452 ) (2,374 )
Cash flows from financing activities
Exercise of stock options 84 19
Net cash provided by financing activities 84 19
Net change in cash and cash equivalents (2,444 ) (7,191 )
Cash and cash equivalents
Beginning of period 60,638 83,842
End of period $ 58,194 $ 76,651
DIAMONDBACK 360® Coronary Orbital Atherectomy System
Indications: The DIAMONDBACK 360® Coronary Orbital Atherectomy System (OAS) is a percutaneous orbital atherectomy system indicated to facilitate stent delivery in patients with coronary artery disease (CAD) who are acceptable candidates for PTCA or stenting due to de novo, severely calcified coronary artery lesions.
Contraindications: The OAS is contraindicated when the VIPERWIRE guide wire cannot pass across the coronary lesion or the target lesion is within a bypass graft or stent. The OAS is contraindicated when the patient is not an appropriate candidate for bypass surgery, angioplasty, or atherectomy therapy, or has angiographic evidence of thrombus, or has only one open vessel, or has angiographic evidence of significant dissection at the treatment site and for women who are pregnant or children.
Warnings/Precautions:; Performing treatment in excessively tortuous vessels or bifurcations may result in vessel damage; The OAS was only evaluated in severely calcified lesions, A temporary pacing lead may be necessary when treating lesions in the right coronary and circumflex arteries; On-site surgical back-up should be included as a clinical consideration; Use in patients with an ejection fraction (EF) of less than 25% has not been evaluated. See the instructions for use before performing DIAMONDBACK 360 coronary orbital atherectomy procedures for detailed information regarding the procedure, indications, contraindications, warnings, precautions, and potential adverse events. For further information call CSI at 1-877-274-0901 and/or consult CSI’s website at www.csi360.com.
Caution: Federal law (USA) restricts this device to sale by or on the order of a physician.
Diamondback 360® and Stealth 360®Peripheral Atherectomy Systems
The Diamondback 360® and Stealth 360® PAD Systems are percutaneous orbital atherectomy systems indicated for use as therapy in patients with occlusive atherosclerotic disease in peripheral arteries and stenotic material from artificial arteriovenous dialysis fistulae. The Systems arecontraindicated for use in coronary arteries, bypass grafts, stents, or where thrombus or dissections are present. Although the incidence of adverse events is rare, potential events that can occur with atherectomy include: pain, hypotension, CVA/TIA, death, dissection, perforation, distal embolization, thrombus formation, hematuria, abrupt or acute vessel closure, or arterial spasm. For further information call CSI at 1-877-274-0901 and/or consult CSI’s website at www.csi360.com.
Caution: Federal law (USA) restricts this device to sale by or on the order of a physician.
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Investor Contact:Jack [email protected]
©2016 Cardiovascular Systems, Inc.All Rights ReservedDiamondback 360 and CSI are registered trademarks of Cardiovascular Systems, Inc.www.csi360.com
NASDAQ: CSII