Orthovita Inc. Q1 2010 Earnings Call Transcript

Orthovita Inc. Q1 2010 Earnings Call Transcript
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Orthovita Inc. (VITA)

Q1 2010 Earnings Call

May 4, 2010 8:30 am ET

Executives

Tony Koblish - President and CEO

Nancy Broadbent - CFO

Analysts

Vivian Cervantes - Maxim Group

Dave Turkaly - Susquehanna Financial Group

Matt Dolan - Roth Capital Partners

Bill Plovanic - Canaccord Adams

Michael Matson - Wells Fargo Securities

James Sidoti - Sidoti & Company

Graham Tenneco

Operator

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Good morning, my name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2010 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now turn the call over to Tony Koblish, President and CEO. Sir, you may begin your conference.

Tony Koblish

Thank you, Emily. Good morning and welcome to Orthovita's first quarter 2010 financial results conference call. I am Tony Koblish, President and CEO of Orthovita. Our Chief Financial Officer, Nancy Broadbent joins me for today's call.

Today, we will review first quarter financial results and other elements of our operating performance including an update on the US launch of Cortoss.

I will now turn the meeting over to Nancy to review the Safe Harbor and the company's financial performance.

Nancy Broadbent

Thank you, Tony and good morning everyone. I remind you that our discussion today will contain forward looking statements, including but not limited to market acceptance of our products, future product sales and operating results, profitability expectations, optimization of our sales network, product development activity and other aspects of our business, all of which involve risks and uncertainties and may constitute forward-looking statements within the meaning of the Private Securities Litigation Form Act of 1995.

Further information about these risks can be found in our filings with the SEC, including but not limited to risks described in our most recently filed Form 10-K under the caption Risk Factors and we undertake no obligations to publicly update any forward-looking statements.

I will now review our first quarter 2010 financial results.

Product sales for the first quarter of 2010 were $24.1 million, an 11% increase over product sales of $21.7 million during the first quarter of 2009. In 2010, first quarter sales included $1.1 million from the sale of Vitomatrix, a bone graft material used in dental products and $900,000 in US sales of Cortoss, our innovated synthetic biomaterial that was cleared by the FDA in June 2009 for the treatment of vertebral compression fractures, and Aliquot, our Cortoss delivery device.

There were no Vitomatrix sales in the first quarter of 2009, and the $1.1 million of Vitomatrix sales occurred in March 2010 as part of an agreement to terminate our supply agreement for this product.

In July 2009, we initiated a controlled US launch of Cortoss using a subset of 20 of direct sales representative and by the end of the third quarter of 2009; we had rolled the launch out to our sales force.

The vertebral augmentation market has recently started to change as many procedures are shifting from the inpatient setting to the outpatient setting, which is due to several factors. Among these are healthcare cost containment reforms since reimbursement is higher in the inpatient setting compared to the outpatient setting.

In addition, Medtronic as a corporate successor to Kyphon agreed to pay the United States $75 million to settle allegations that Kyphon defrauded Medicare by counseling hospital to perform vertebral augmentation procedures in the inpatient setting in situations when the procedure could have been performed in the less costly outpatient setting.

Several hospitals also paid millions of dollars to settle allegations brought by the Department of Justice related to these Kyphoplasty Medicare reimbursement claim. As a result, there has been a significant shift of VCF procedures to the outpatient setting which represents a new physician customer base for many of our sales force.

Healthcare reforms efforts in the United States have created an acute awareness and sensitivity to price in our healthcare system including hospitals. As we had discussed in earlier conference calls, this has led to more expensive new product reviews by product pricing committees in hospitals.

During the first eight months of US Cortoss launch, many surgeons were willing to try Cortoss and had positive reaction to the product effectiveness, safety profile and ease-of-use. However, we often saw that following trial usage approval of hospital new product committees could be long arduous and issues often revolve around price in the outpatient setting.

In early March, we implemented a new pricing strategy targeted to this outpatient market, where a single level Cortoss procedure could be priced in the range of $1,000 to $1,400. This compares to an average ASP of about $950 for a PMMA vertebroplasty procedure and Medicare reimbursement for one level procedure of about $2,100.

We priced our two level and multi-level kits at a similar premiums to PMMA. The response to our new pricing strategy in March was very positive. There were 18 selling days left in March after we implemented this strategy and our dollar sales in March were 45% higher than January the previous highest month of Cortoss sale.

Our number of accounts increased from 151 at the end of February to 186 at the end of March, and our unit volume of Cortoss cartridges nearly doubled from February to March. It is important to note that many of our customers are still in the trial stage, but we have been encouraged that the new pricing strategy is accelerating the rate of approval by hospital committees paving the way for broader usage. We continue to expect traction in Cortoss to occur mainly in the second half of 2010.

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