Cardiovascular Systems Reports Fiscal 2011 Second-Quarter Financial Results

Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII):

Financial performance improved significantly over prior-year second quarter:
- Revenue increased 24 percent to $18.8 million
- Gross margin rose to 79 percent, operating expenses declined 7 percent
- Adjusted EBITDA improved to $72,000 from $(4.3) million
- Net loss improved 71 percent to $(2.0) million, or $(0.13) per share
Special 510(k) filing for next generation Orbital PAD System expected in February 2011
Enrollment of 50 patients for Phase I of the ORBIT II coronary trial is nearly completed
Clinical data continues to build, supporting reproducible safety and efficacy

Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII), a medical device company developing and commercializing innovative interventional treatment systems for vascular disease, today reported financial results for its fiscal second quarter ended December 31, 2010.

CSI’s revenue in the second quarter rose to $18.8 million, a 24-percent gain over revenue of $15.1 million in the second quarter of last fiscal year. Adjusted EBITDA, calculated as loss from operations, less depreciation and amortization and stock-based compensation expense, improved by $4.3 million to earnings of $72,000, as a result of stronger revenue and gross margins, and reduced operating expenses.

Net loss was $(2.0) million for the quarter, or $(0.13) per common share, a 71 percent improvement over a $(6.8) million net loss, or $(0.46) per common share a year earlier. Net loss was favorably affected by $371,000 of interest and other income from conversion and valuation changes of the company’s convertible debt.

David L. Martin, CSI president and chief executive officer, said, “We made substantial progress toward profitability and financial independence this quarter, as we continued to balance revenue growth and spending. We accomplished these gains while making significant advances in improving the ease-of-use of our Orbital PAD Systems; expanding the wealth of scientific data on our products’ safety, efficacy and economic benefits; and moving toward a coronary application of our device.”

During the quarter, 68 new customers were added — higher than recent previous quarters as a result of new atherectomy reimbursement opportunities for non-hospital physician accounts, and increased demand driven by CSI’s compelling body of data. Consequently, revenue from reorders was 91 percent of total revenue compared to 95 percent in the fiscal 2011 first quarter. Important product transitions to the Diamondback Predator 360° and the upcoming Stealth 360° Orbital PAD Systems also affected revenue growth in some existing accounts, but position CSI for expanded growth in the future.

Gross margin rose to 79 percent from 77 percent in the same period last year, due to product cost reductions and manufacturing efficiencies. Operating efficiencies in sales and marketing contributed to a 7-percent reduction in operating expenses compared to the year-ago period. The company also received a $488,000 grant from the Qualifying Therapeutic Discovery Project program; however, its favorable effect on operating expenses was offset by higher product development expenses related to timing of the Stealth 360° project.

In the first six months of fiscal 2011, revenue increased to $36.9 million, up 22 percent from the same period last fiscal year. The gross margin improved to 78 percent from 77 percent, while operating expenses declined 3 percent. Adjusted EBITDA loss improved by 79 percent to $(1.7) million, while the net loss improved 52 percent to $(6.3) million, or $(0.40) per common share, compared to $(13.0) million, or $(0.89) last year.

OPERATING HIGHLIGHTS

Special 510(k) Filing for the Next-Generation Orbital PAD System Expected in February 2011

CSI expects to file a Special 510(k) with the FDA in February 2011 for the Stealth 360° Orbital PAD System, CSI’s next-generation device. The electric powered Stealth 360° will greatly improve physicians’ control and ease-of-use, while reducing the product’s set-up time and staffing requirements. Stealth 360° also utilizes the improved crown and shaft design of the recently introduced Diamondback Predator 360°, which allows removal of a high percentage of plaque in less time and easy advancement through difficult occlusions. CSI expects to begin a limited market release of Stealth 360° during its fiscal 2011 third quarter, subject to FDA clearance.

According to Martin, “The Stealth 360° electric handle is an exciting product and reflects our commitment to innovation. The combination of Stealth’s ease-of-use, with our superior growing body of clinical and economic data demonstrating the safety, effectiveness and economic benefit of our unique orbital technology, sets the stage for significant physician adoption and revenue growth. Elimination of the controller, the capital equipment portion of our current system, will reduce future product cost.”

Phase I Enrollment Nearly Completed in ORBIT II, the Coronary Pivotal Trial

CSI has nearly completed enrollment of the first 50 patients in Phase I of the ORBIT II trial, which is evaluating the safety and effectiveness of the Diamondback 360° in treating calcified coronary lesions. ORBIT II is expected to enroll a total of 429 patients, subject to FDA review of data from the first 50 cases. CSI anticipates submitting the results of Phase I to the FDA during the third quarter of fiscal 2011.

Martin continued, “Our unique orbital technology is especially effective in treating small vessels with calcified lesions and may be well suited for a coronary application, potentially sparing many patients from highly invasive surgery and improving long-term outcomes. Our ORBIT I coronary feasibility trial provided strong safety and efficacy data, and we have received positive feedback from physicians using our technology in ORBIT II.”

Expanding Body of Scientific Data Reinforces Safety, Efficacy and Economic Feasibility

The CONFIRM II prospective registry has completed enrollment, bringing the total number of patients studied to date in 11 CSI studies to nearly 2,500. Preliminary results of CONFIRM II reinforce the safety of the Predator 360° with its extremely low rates of procedural events in the most challenging patients.

Key study findings demonstrate the consistency of CSI’s Orbital PAD systems’ performance and reliability of data:

Excellent Safety – In preliminary results of 500 patients and 766 lesions, CONFIRM II showed extremely low rates of perforations (0.5 percent), bailout stenting (2.5 percent) and mortality (0 percent). This confirms data compiled from 10 other CSI studies to date: perforations (0.6 percent), bailout stenting (2.4 percent) and mortality (

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