EXHIBIT 99.1
GIVEN IMAGING FOURTH QUARTER 2005 EARNINGS RESULTS CONFERENCE CALL
Wednesday, February 8, 2006
9:00 a.m. ET
OPERATOR: Good morning and welcome, ladies and gentlemen, to the Given Imaging
Fourth Quarter and 2005 Results conference call. Before we begin, I'd like
to read the following regarding forward-looking statements.
During the course of this conference call the company may make projections
or other forward-looking statements regarding future events or the
financial performance of Given Imaging. We wish to caution you that such
statements reflect only the company's current expectations and that actual
events or results may differ materially.
You are kindly referred to the risk factors and cautionary language
contained in the documents that the company files with the Securities and
Exchange Commission, including the company's annual report on Form 20-F
filed March 25, 2005.
The company undertakes no obligation to update any projections or
forward-looking statements in the future. At the request of the company, we
will open the conference for questions and answers after the presentation.
I will now turn the call over to Gavriel Meron, President and CEO of Given
Imaging. Please go ahead.
GAVRIEL MERON: Thank you Gwen.
Good morning everyone and thank you for joining us for our fourth quarter
and year end 2005 call. Joining me on today's call is Yuval Yanai, our
Chief Financial Officer. I'd like to remind everyone that a copy of our
press release and the detailed financial information that we previously
provided during our call is available on the investor relations section of
our website.
We are pleased to report once again that we had a record quarter with sales
of $24.4 million closing a record year with sales of $86.8 million up 34%
over last year. EPS was also strong at $.12 per share in the fourth quarter
and $.21 per share for the full year.
Our installed base has reached almost 3,000 systems world wide, of which
1,800 units are in the United States. We now have a solid footprint in the
United States, but there is still potential for significant growth in the
U.S. as well as worldwide.
Profitability at the operating level was almost three times higher than
last year moving from $800,000 operating profit in the fourth quarter of
2004 to approximately $2.3 million for the fourth quarter of 2005.
Our focus in the second half of the year and specifically in the fourth
quarter has been to increase the level of utilization in the United States.
To achieve this, we have implemented several initiatives that were aimed at
reviving the very slow utilization accounts on the one hand, and on the
other hand to push our major accounts to maximize their utilization based
on following ICCE consensus guidelines. Our intrinsically high gross margin
allowed us to implement initiatives, without getting into the details of
them for competitive reasons, which drove the increase in utilization.
Hopefully this increase in utilization can be sustained beyond this
quarter. Even with these initiatives, our gross margin for the quarter was
75.4%, significantly higher than the 70.4% gross margin for the same period
of last year.
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The success of these initiatives made it very clear to us that in order to
change physician behavior we need to spend far more time than ever before
at the physician's office. As a result, we decided to increase
significantly the number of territory managers in the US from 40 to 60.
Many of these new hires have already been trained in January and
participated in our national sales meeting just two weeks ago. This
increase in territory managers will allow us to spend far more time with
each individual account.
As a result of these initiatives, we were pleased to see the utilization in
the U.S. ticked up to an average of 1.4 capsules per week per workstation
from 1.15 during the fourth quarter of last year.
We have made significant progress in preparing ourselves for the next phase
of growth as a multi-product and multi-channel global company. We want to
make sure we that have deep bench strength to leverage our product
opportunities around the world.
As announced yesterday, we are pleased to welcome Chris Roland as our
Senior VP of Business Development and Corporate Strategy. Chris is a
17 year industry veteran who has held leadership positions within Boston
Scientific's Endoscopy division. We also welcome Ehud Har-Chen as our
Senior VP of Human Resources. Ehud brings 30 years of HR executive
experience at Motorola and Digital Equipment both in Israel and in Europe.
In addition, Mark Gilreath has expanded his responsibilities to include
product management and has now been promoted to Senior Vice President for
Global Marketing.
In order to better leverage our opportunities in the global market we
created new senior positions in our marketing team focused on our product
lines. Accordingly, we appointed Yoram Ashery as our Corporate VP of Colon
Products. As you know, Yoram was formerly our Corporate VP of Business
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Development and he is now charged with leading our efforts to bring our new
PillCam COLON product to market as planned, and launch in the U.S. in 2007.
Currently for this product we are conducting pilot studies in anticipation
of the pivotal clinical trials that we expect to commence later this year.
We also welcome Skip Ashmore as Corporate Vice President for Small Bowel
Products. Skip was most recently VP of Sales and Marketing for Cryolife and
has 15 years of healthcare industry experience. The first new product that
Skip is preparing for product launch is our new AGILE patency capsule that
we plan to launch this year in the United States following FDA clearance.
The file was submitted at the end of last year to the FDA. Just to remind
you, the AGILE patency capsule will allow gastroenterologists to establish
patency of the small bowel in patients who are currently contraindicated
due to suspected small bowel strictures or obstruction. This launch can
significantly affect our drive to open another market - the monitoring of
previously diagnosed Crohn's patients for mucosal healing and preventive
therapy. There are currently about half a million patients with known
Crohn's disease in the United States that we'd love to monitor.
I'd now like to take a moment to review some recent highlights: In December
we announced that we received clearance from the FDA to market RAPID 4.
RAPID 4 is a powerful new tool that provides us with significant
competitive advantage. The Automatic Viewing Mode has been upgraded and
incorporates new algorithms that make the viewing process far more
efficient. In addition, we have also upgraded the algorithms for the
QuickView mode which allows fast preview of the video and highlights
potentially interesting images such as pathology even before reviewing the
full RAPID video. We have also added a unique feature to the software - a
new RAPID Atlas - which allows the physician to compare suspicious images
from the patient case being reviewed with validated and defined images of
all different kinds of pathology in the database that we created. So you
can see we continue to focus on reducing the time the gastroenterologist
needs to make a definitive diagnosis and enhancing their confidence in
their diagnosis.
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On the reimbursement front in the United Stats, Tennessee Medicare Part B
which is administered by CIGNA Government Services revised its capsule
endoscopy coverage guidelines effectively making this a first line tool
policy. Now it is true that this policy only covers 720,000 beneficiaries,
but it is of interest because of three elements: First, this is another
first line tool policy that states that patients with suspected Crohn's
disease or and this is probably news, indeterminate colitis are not
required to undergo any other diagnostic test or procedure before capsule
endoscopy. Second, this policy has been expanded to include patients with
iron deficiency anemia. And third, this is the first policy that provides
coverage for irritable bowel syndrome and functional diarrhea.
Following this announcement, 11 million people in the United States now
have access to capsule endoscopy as a first line tool for small bowel
disease.
Also during the quarter, Empire Blue Cross Blue Shield in NY revised its
capsule policy coverage guidelines to include patients with suspected
Crohn's disease and patients with iron deficiency anemia. Empire BCBS
serves approximately 4.8 million beneficiaries in New York.
Following this announcement, we now have 209 million lives covered in the
United States of which 180 million are covered for expanded indications.
In Europe, the Ministry of Health of the Czech Republic issued a
reimbursement policy for PillCam SB which provides reimbursement for
approximately 7 million Czech citizens who are covered by the country's
largest insurance company. The policy covers reimbursement of PillCam SB
for suspected small bowel disease including bleeding, tumors and
Inflammatory Bowel Disease following a negative gastroscopy or colonoscopy.
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Following this announcement, we now have reimbursement globally for close
to 350 million lives.
We are continuing to work together with InScope to obtain reimbursement
coverage for PillCam ESO. During the quarter, we submitted an application
to the American Medical Association to request a new CPT code for PillCam
ESO. If granted, we expect to have a specific CPT code for PillCam ESO
procedures in January 2007 as planned. Meanwhile, a number of payers
continue to reimburse for PillCam ESO procedures on a case by case basis.
As you may have seen earlier today, we announced two peer-review articles
that were published in Endoscopy confirming that PillCam ESO is comparable
to upper endoscopy in detecting esophageal varices and portal hypertension
in cirrhotic patients. One of the studies, a multi-center, multinational
pilot study led by Dr. Glenn Eisen from Oregon Health and Science
University, looked at 32 cirrhotic patients. PillCam ESO detected varices
and signs of portal hypertension that matched the findings of upper
endoscopy.
The second study led by Professor Ponchon from France assessed 21 cirrhotic
patients and found complete diagnostic agreement on the presence or absence
of esophageal varices in 85% of the patients. Most importantly, sensitivity
for large varices which required treatment was 100%.
Both American and European societies recommend that cirrhotic patients be
screened to detect esophageal varices and portal hypertension. Chronic
liver disease results in 300,000 hospitalizations in the US each year so we
do see this as a very interesting and attractive market to enter with our
PillCam, ESO.
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In Japan, we are gearing up with our distribution partner Suzuken to expand
and train the sales force and we are developing marketing plans and
materials in preparation for launch of our product as soon as PMDA clears
the product to market.
Actually, we had some significant activity in Japan in the fourth quarter.
We had a booth at JDDW, the Japanese Digestive Disease Week and we
co-sponsored together with Fujinon a joint satellite symposium to show the
value of first diagnosing with a PillCam Small Bowel and then, if needed,
following through with a Fujinon double balloon procedure. We had 900
gastroenterologists attending this event. So there is huge interest in
PillCam in Japan.
Additionally, we had a general meeting of our capsule endoscopy study group
in Japan consisting of a number of the leading key opinion leaders. The
CESG as it is called made a number of very important decisions. First, they
endorsed the ICCE consensus that was published in Endoscopy and notified
their endorsement to PMDA. Second, the CESG has now been incorporated
officially into the Japanese Gastro Society. Third, the CESG completed and
is publishing an economic outcomes study supporting the use of PillCam
Small Bowel in patients with suspected small bowel disease. This will be a
basic building block for our submission for reimbursement as soon as PMDA
clearance comes through. Fourth, the CESG has completed the publication of
a Japanese capsule endosocopy atlas which will be distributed to many
leading key opinion leaders in Japan in a Japanese Gastro meeting this
month.
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Sales outside the U.S. for the quarter were flat and they grew from
$5.4 million to $5.6 million in the fourth quarter. Behind these numbers
there has been a 21% increase in PillCam sales that offset a significant
reduction in sales of workstations in the quarter. The delay in sales of
workstations in Q4 outside of the US was directly connected with the
announcement of the launch of a competing Olympus product to the market.
Even though product has not yet been delivered in any significant way by
Olympus to the market, the announcement itself has forced all the hospitals
to channel potential system purchases through a tender, which of course
take longer for us to close.
We are excited about ICCE 2006 which will take place in Boca Raton on
March 6th and 7th. ICCE is now the third largest gastroenterology meeting
in the United States, and we will be providing additional details in the
coming weeks as to discussions coming out of ICCE and decisions.
I would now like to provide you with guidance for our first quarter and
full year of 2006.
For the first quarter of 2006 we expect sales to be between $21 and
$23 million and first quarter earnings on a pro forma basis to be in the
range of $0.01 to $0.03 per share. Clearly, during Q1 we are going to see
the effects of the significant investments we are making in growing our
territory managers in the U.S. from 40 - 60, increasing our regional
managers from 6 - 9, adding 2 area directors, expanding our senior
management with a new senior VP HR and a new senior VP Business
Development, as well as creating a new team of product managers. These
additions are essential to drive our growth beyond $100 million in sales.
However, the effort of training, of realigning the territories and of
integrating such a large number of new managers will have an immediate
effect on our costs and may actually slow down the growth in revenues in
the first quarter.
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But we do expect annual revenues to be in the $110 - $120 million range
representing a 28% - 38% growth over 2005 revenues.
We expect our earnings per share on a pro forma basis to be in the range of
$0.35 to $0.45 based on about 30 million outstanding shares. This includes
significant growth in our sales and marketing expenses as well as a marked
increase in R & D expenses related especially to our pivotal trial for
PillCam COLON.
Operator, you can open the call for questions now.
OPERATOR: Thank you. If you would like to ask a question, please do so by
pressing the star key followed by the digit one on your touch-tone
telephone. If you are using a speakerphone, please make sure your mute
function is turned off to allow your signal to reach our equipment. Once
again, star one if you have a question. We'll pause for just a moment.
We'll go to Wade King with Montgomery & Company.
WADE KING: Hi, Gabi. Good morning. Can you hear me?
GAVRIEL MERON: Yes, Wade. Good morning.
WADE KING: Good morning. Thanks for the detail. Could you elaborate a little bit
on the efforts to build up the sales group? It sounds like the numbers are
going up by about 50 percent, you know, in the field, and then on top of
the additional managers. Do you expect all these folks to be in place by
the end of the first quarter, is that correct? And when do you think that
they will be fully trained and productive in the field?
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GAVRIEL MERON: Yes, the director managers and the regional managers and the
growth from 40 to 60, a significant portion of that has already been hired,
trained in January. We had a kind of two-week boot camp for new trainees
and then we had our national sales meeting. So the new people were in three
weeks of training in January. And coming out of the national sales meeting
we re-aligned the territories. So we're now going through the process of
handshakes of territories and accounts. And the whole idea is to enable our
territory managers, our TMs, to be far closer to their accounts. So we've
reduced the number of accounts that they have to deal with so they can
spend far more time in each account and create the change in behavior that
we need to see in the gastroenterologists' clinics to have them schedule
regularly utilization of capsule. The insurance is in place, the
reimbursement is in place, the patients are in place. What needs to change
now is their behavior. And to do that you really have to invest time in the
clinic and teach them how to do that and make sure that all the processes
support that changed behavior.
So the first tranche the major tranche of new territory managers are
already in place. They're now in the process of doing the handshakes and
visiting all the customer base and reorganizing. And there will be a second
tranche in February, though a smaller one, to bring us to those numbers. So
clearly Q1 is going to be an organizational quarter where we're going to
see, of course, all the expenses of this talented group of people and we're
not yet going to see the effect of their talent reflected in the top-line
as you can see from the guidance that we've been very cautious about in the
first quarter because of this significant change that we're doing. But
clearly the result of the significant change will allow us to go beyond the
$100 million and far beyond. So we're building the infrastructure to enable
us to grow the business in the direction that we want to see it grow.
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WADE KING: All right, thank you. Can I ask a second question, please, about the
impact of option expensing going forward? You gave an expected range
including options and then a reference point for excluding options. So is
it fair to say that the - if you were to quantify the financial impact of
options on a quarterly basis it would be between a million and a three
quarters to $2 million a quarter? Is that a figure that you think is
reliable, or do you care to comment on that?
GAVRIEL MERON: First of all, Wade, of course you can have a second question.
We've missed your questions for a little while, so you can catch up. I will
defer this question to Yuval, OK?
YUVAL YANAI: Hi. Good morning, Wade.
WADE KING: Good morning.
YUVAL YANAI: I think that the numbers that we are providing now are
approximately $1.4 million to $1.5 million per quarter based on the grants
of previous years. So if there will be additional grants, of course, they
will further affect the U.S. GAAP results and we will announce the effect
when it will come to you.
WADE KING: And does that also, if I may ask, include the impact of any
restricted stock grants as well or do you plan to not use that as a means
of compensation and incentives?
YUVAL YANAI: Well, at this point of time our existing option plans do not - do
not allow for granting restricted shares. We - like other companies we
consider this option also. And if we decide that this something may be
implemented then we'll bring it to the shareholders meeting for approval.
WADE KING: OK, very good. And my last question actually relates to your ongoing
efforts in Europe. And maybe, Gabi, you mentioned that it was slower than
you had hoped, but you had also seen obviously - you'd seen more
competition in the early going in the European market. I know you have a
lot of challenges on
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the market being fractionated and reimbursement, you know, being different
country by country. But what do you think is the timing for possibly
jump-starting the European efforts a little bit more aggressively going
forward, please?
GAVRIEL MERON: Yes, there's no time like the present, you know, to answer that
question. I mean, that's what we'd like to do to jump-start Europe. To
jump-start is not an easy thing to do. You know? And we are seeing very
interesting developments in the different markets, if it's in France or
Italy, in the U.K. and in Germany. And I'm sure that we will see better
performance in Europe this year. And as we get more major, I would say,
reimbursement announcements, which we should be looking for, which is a
French reimbursement announcement, a German reimbursement announcement -
but either of them may not happen this year. But when they do happen then
we will see a significant growth in utilization and sales in those
countries. And until we see that I think that what we will be seeing is
what we have forecasted.
WADE KING: OK, gentlemen. Thanks very much. Congratulations on the quarter.
GAVRIEL MERON: Thanks, Wade.
OPERATOR: We'll take our next question from Amit Hazan with SunTrust Robinson
Humphrey.
AMIT HAZAN: Hi, good afternoon to you guys.
GAVRIEL MERON: Hi, Amit.
AMIT HAZAN: Just a few questions. First, maybe just on 2006 guidance if you can
give us a little bit more clarity there with regard to a number of things.
Number one, does it contemplate Japanese approval at some point during the
year, the early part of the year. Number two, what kind of ESO expectations
do you have, even
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if you can give us anecdotal comment there. And, number three, does it
include any litigation expense to the extent that there would be any with
someone like an Olympus.
GAVRIEL MERON: Yuval, do you want to take that?
YUVAL YANAI: Yes. We'll start with the third point. It's obvious that people
would think that we will budget an amount related to the potential
litigation expenses. I don't think at this point of time we'll make any
decision. We have - we are watching carefully the development into the
market and Olympus penetration. But I don't think that at this point of
time we should make any reference to this question.
AMIT HAZAN: And Japan and ESO?
GAVRIEL MERON: OK, Japan and ESO I will take. The litigation, we're not going to
talk about that as you remember from previous calls. And we'll have to deal
with that and announce things as they happen. With ESO expectations, taking
it step by step backwards, ESO is a situation where we have a large number
of gastroenterologists who have ESO and are ESO capable. And when you talk
to them - and we do very often, as you know - the vast majority are saying
that as soon as it's reimbursed they're willing to do one a day, which is a
level of five a week, right. A significant utilization. But the key is
reimbursement, and therefore what I would continue to urge is to wait for
reimbursement announcements. Because before they happen we will not be able
to provide significant insight into significant growth in that product. So
therefore we haven't forecasted significant growth of ESO until we see the
reimbursement announcement actually coming out. And that will have of
course a positive effect.
And in Japan, our expectation is that we are very close and far closer than
we were before to getting a Japanese approval. As you could have understood
from my description of what we're doing in Japan, we're gearing up towards
the
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launch of the product. And this is of course very important. And exactly
our plans of how we're going to penetrate the Japanese market, I again will
defer to the competitive issue and prefer not to go into those details. But
what I have divulged earlier is the very clear sign of what we're doing
there.
AMIT HAZAN: OK. And one quick follow-up on Japan, which is if the reimbursement
were to come obviously now, when would be the first time - I'm sorry, if
the approval were coming now, when would be the first time that you could
get reimbursement in the Japanese market?
GAVRIEL MERON: Probably within a year, in less than a year.
AMIT HAZAN: OK. And then - and then just switching gears a little bit.
Utilization in the U.S., obviously very nice improvement. Can you give us
some color there on how much help your getting there from the non-GI
bleeding indications. And then maybe a little bit further than that, give
us an idea of what your thoughts are going forward as far as getting
first-line reimbursement similar to Humana and now Tennessee this year. Are
you surprised you haven't seen more of that thus far?
GAVRIEL MERON: The growth in utilization is clearly not from obscure bleeding.
The obscure bleeding market we know is about 50,000 capsules a year. And of
course we're far beyond that already in the United States, and the growth
has come from the additional indications. And the additional growth that we
expect will come from the additional indications. IDA is a very significant
new group that is starting to open up as you notice, and suspected Crohn's
of course is extraordinarily wide. With the patency capsule of course we
will be able to move into the known Crohn's group of patients. So there is
a lot of growth to see from that point on. First line tool is something
that we're working very closely with a very large number of payers. It's a
very difficult decision for them to take, and we're encouraging them to
take that. We're encouraged when anyone of them
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does do that transition and provide the PillCam as a first-line tool. If we
care about our patients - and we do - then this is very significant for
patient care, to allow a patient who has suspected small bowel disease to
take a non-invasive test and to try to find a solution before going down
the invasive route. We see this as very important and that's why we're
highlighting it. We're focused on turning that around and getting bigger
and bigger numbers, and I do expect this year that we will additional
payers joining the bandwagon of first-line tool.
AMIT HAZAN: OK, perfect. And then just real quickly - and I apologize if I
missed it - did you give - did you give the timeline for colon approval
both in Europe and the U.S.?
GAVRIEL MERON: I think that - I'm not sure I gave it in that way, but what we
have said in the past is that we do expect to launch - or present a product
in Europe, which will be an approved product, before the end of this year,
and then in 2007 we will launch an FDA-cleared product in the United
States.
AMIT HAZAN: Great, thanks very much.
OPERATOR: We'll go next to Ed Shenkan with Needham & Company.
ED SHENKAN: Thanks, Gabi. Just a piggy-back on the colon question there. Could
you tell us anything more about the number of patients in the pivotal
study, how many sites, what the expected costs might be or anything
incremental from what you've added, you know, three months ago.
GAVRIEL MERON: Ed, hi. Welcome back. It's good to have you back. Not yet. We're
now doing - as I mentioned, we're now doing the initial trials, the pilot
trials in order to define exactly the answer to that question. And the
answer to that question will also be coordinated with FDA. So we don't want
to jump the gun there and announce now something that we haven't
coordinated yet with FDA.
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So I would think that probably in the - in the next earnings call, and if
not the next one the one after, we will be able to provide you with very
clear details on that, but after they have been discussed with our colon
advisory board and agreed with the FDA. So hold that question.
ED SHENKAN: And is it too early to tell if it's a 510K or PMA?
GAVRIEL MERON: Again, I don't want to jump the gun with FDA.
ED SHENKAN: OK.
GAVRIEL MERON: Let's have our discussion with FDA and an understanding before I
divulge what I believe it is.
ED SHENKAN: Fair enough. And you mentioned that there would be some revenue
impact this quarter due to adding the sale reps. Could you explain - you
know, I guess what you're referring to is the sales reps' territories are
re-aligned. So it's going to negatively impact sales in the short-term.
Although it sounds like most sales reps are just going to have smaller
territories. Can you just, you know, walk us through how you'll get through
that and how long it takes?
GAVRIEL MERON: Yes, when I said lower sales, I think the sales that we guided
to, not lower than what we guided to. So we guided to a level of sales that
takes into consideration the fact that we've added or we're adding
throughout this quarter. On the 40 that we had, 20 new TMs. But it's more
than the 20 new TMs, because of course there are a few of the 40 that are
not going to be with us. So it's a bit more than 20 new people. And we've
re-aligned the territories geographically to meet a logical and rational
division between 60 people, something that was previously divided by 40.
Which means if you look at an 1,800 space you now have 30 accounts for the
territory manager. Right? 1,800 divided by 60. So if you have 30 accounts
now, the question is, this new
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geography, how many of the accounts that I had before do I still have, how
many do I have that are now in a slightly different territory. And in
addition I have another 20 or 25 new people who have to be introduced to
their installed base. Now, all of this takes time, and it takes away from
selling time. So clearly we're not going to be able to see the benefit of
having 50 percent more people in the field which should drive sales maybe
50 percent more. Right? You're not going to see that in Q1. Q1 is going to
be training and transition. And hopefully in Q2 we'll start to see the
fruits of that endeavor.
ED SHENKAN: And to follow up. In the United States you had approximately 176
work stations in the quarter and 189 the year-ago quarter. So it's down
slightly. Is that because customers in the U.S. are also, you know, frozen
a little bit on - because of Olympus, or what do you attribute it to in the
fourth quarter?
GAVRIEL MERON: I think the - first of all, I don't think it's anything to do
with Olympus. Olympus has not yet announced marketing in the U.S. - in the
U.S. You know, and until we have FDA clearance you're not allowed to
pre-market a product. So in general we're not seeing that. The reduction is
not very significant. If you have the same number of people they have the
same workload. And actually their workload was increased significantly
because as they sold more and more work stations the number of accounts
that they had to handle grew significantly compared to a year - 12 months
earlier. So our territory managers were finding themselves with much more
on their hands, pushing to increase utilization, which I have already said
means sitting with the account in a sustained way, which also utilizes
their time in a far more significant way. So to achieve the work station
sales that we achieved together with increasing capsule utilization shows
the tremendous effort done by our sales force in Q4. And they did a
terrific job. They managed to balance both, and I think that really is
formidable. But we believe that if we want to grow for the stage we have to
have more people out there to enable to balance what we're doing in a far
better way.
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ED SHENKAN: And, Gabi, for work stations in '06, are you expecting more units in
the USA than you had in '05? And similarly, you know, rest of world, would
you have more units in '06 than '05?
GAVRIEL MERON: Yes. And we do expect that with more people in the field and with
the smaller territories we should be able to expand also the footprint
together with expanding the utilization, in both directions.
ED SHENKAN: And the last question and I'll get back in queue. Was there any
sales reps - or what type of sales rep turnover did you have in the fourth
quarter, you know, or in the last month or so?
GAVRIEL MERON: Well, in the fourth quarter there was, as you can expect - the
cycle of sale reps is - you know, when they get their annual commissions
that's when they start moving around. And we have that as well. We have
re-profiled the type of person who can succeed in this type of environment
and to achieve both significant growth and utilization, and in parallel to
creating the relationships in new accounts, and also taking the -
strategizing how to work into a territory and maximizing our revenue from
that territory. So the profile has slightly changed. And don't forget, if
we add the 40 people ((inaudible)) let's say, from 35 we added 25 - that's
a significant change in the mix. And many of the 35 that we have as a base
moving on from last year to this year are people that joined the company
also during the last year, which are a profile of people with more
experience in the health care business from the major companies.
ED SHENKAN: I'll get back in queue.
OPERATOR: We'll go next to Anthony Vendetti, with Maxim Group.
ANTHONY VENDETTI: Thanks. I was wondering if you could talk a little bit about
the discounting in terms of the systems in conjunction with the capsules
for the ESO.
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Is that - is that finished? And then if you could talk about system sales
and where you expect that to go in '06. It was down a little bit year over
year fourth quarter to fourth quarter.
GAVRIEL MERON: Thanks for the question, Anthony. What discounting are you
talking about?
ANTHONY VENDETTI: The discounting that was being offered in the beginning of -
in the beginning of '05 when you were first launching the ESO capsule. You
were offering a discount with the data recorder. Is that - is that
completed, and what kind of promotions, if any, are you doing with InScope
right now?
GAVRIEL MERON: Oh, OK, thanks for the question. Yes, that was a promotion that
we started in Q4 of 2004, actually. When we received the FDA clearance for
the product there was a promotion. And thanks for reminding us of that,
which was completed on March 31, '05. So that promotion doesn't exist
anymore.
ANTHONY VENDETTI: Any other promotions or...
GAVRIEL MERON: We may have additional promotions in the future, but at the
moment nothing that I can talk about.
ANTHONY VENDETTI: OK and the system sales?
GAVRIEL MERON: Yes, system sales. What was the question about the systems?
ANTHONY VENDETTI: The system sales were I think you said in the press release
down six percent year over year. I was just wondering if you - if you had
kind of a gauge of where you thought that that would be in '06.
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GAVRIEL MERON: Yes. The system sales - I think I expanded on that with Ed
Shenkan's question before. The system sales, we had the same number of
sales from the beginning of the year to the end of the year trying to work
on both things together, which is expand the footprint, deal with a - an
expanding installed base, which they - which they have, because they sold
systems, they kept increasing the number of customers that they have to
deal with and we hadn't increased the number of sales reps throughout the
whole year. And in addition to that we of course took the task of
significantly affecting utilization. So we have to balance moving forward
the increase in utilization in the accounts, spending far more time in the
accounts, and teaching everyone of the new efficiencies of RAPID Four and -
which will enable doctors now to increase their utilization and to
introduce the utilization of the - of our PillCam into their weekly and
daily routines. So that is an effort that requires a lot of sustained time
in the accounts. In addition, of course we want to increase the footprint.
And as you correctly asked, are we going to do that. And for sure we are.
And the way we're going to do that is by increasing by 50 percent the
number of people we have in the field, to give them less customer base and
more opportunity to spend time with the current installed base, and also to
develop their territory and to increase and expand the installed base for
those gastroenterologists who up till now haven't yet made the decision to
perform these procedures themselves. So those are the two tasks that we
have and that's how we're going to plan to do that.
ANTHONY VENDETTI: Can you just quickly go over the time that it takes. I mean, I
know in terms of reading - originally in terms of reading the digital
images it was - it would take someone between half an hour and I guess for
novices up to an hour. And now with the new technology you have, how fast
can they read the digital images for the SB? And then if you could talk
about - I would assume obviously the ESO with obviously the esophagus being
much shorter than the small bowel would take less time. Can you talk about
the length of time that it takes to do that?
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GAVRIEL MERON: Yes. Actually the time it used to take to read it was about two
hours, between one and a half to two hours. And we have significantly
affected that. The new RAPID software can significantly achieve
efficiencies in reading time. And our goal is of course to reduce the
reading time to a period of time that is under 30 minutes, because
30 minutes is the way gastroenterologists plan their days, in 30-minute
pieces. So with RAPID Four we've had experience. And we haven't had huge
experience yet, so I'd answer this probably more clearly in a year. But
what we're seeing with the people who are using RAPID Four is that many of
them are succeeding in reading and completing a study within that 30-minute
frame time.
The ESO procedure as you correctly said, of course the ESO procedure can
take just a couple of minutes, maybe two or three minutes to review, and
this is a very, very convenient procedure. A patient can come in, present
with GERD symptoms, and the gastroenterologist pop a capsule now, you know,
you can do it immediately and provide a definitive diagnosis of whether it
should be prescription drugs or whether they actually need to have an EGD.
And so this is a very, very powerful product because it will just require a
few minutes of reading time from the gastroenterologist. So we do see that
taking off significantly when reimbursement kicks in. And that is, as I
said earlier, is the key.
ANTHONY VENDETTI: OK. And the capsule - the cost of the capsule is $400 -
GAVRIEL MERON: $450.
ANTHONY VENDETTI: $450.
GAVRIEL MERON: ((inaudible))
ANTHONY VENDETTI: For both the - for both the ESO and the SB, right?
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GAVRIEL MERON: That's correct.
ANTHONY VENDETTI: OK.
GAVRIEL MERON: Thanks.
ANTHONY VENDETTI: All right. Thank you.
OPERATOR: We'll go next to Anthony Petrone with Maxim Group.
ANTHONY PETRONE: Thank you very much. Just back to the ESO. Once there's
reimbursement - you mentioned that a number of GIs are prepared to go out
there and use it. How many GIs, if you could specify, in the U.S. are ready
to use the ESO and then maybe world-wide as well?
GAVRIEL MERON: How many are currently using it is the question?
ANTHONY PETRONE: Yes, how many - you said there's a number of GIs ready to use
the ESO once they receive reimbursement in the U.S. How many would you say?
GAVRIEL MERON: Oh, OK. I'm talking in terms of having the hardware and software
that will enable them to do that. And probably about half the installed
base has that already, 800 or 900 accounts, which is a group of doctors
that can very quickly embrace this technology and utilize it. So it's very
different to a launch of a new product where you wait for reimbursement and
when it comes you start selling it. In this case we have a pipeline of
800-900 gastroenterologists who theoretically could start using a PillCam
and generate very, very fast growth in sales. Which at the moment, of
course, we're not forecasting, because until we have those reimbursement
announcements that isn't going to happen.
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ANTHONY PETRONE: And the goal is for similar reimbursement as small bowel? I
mean, is that really - or there's no way to tell?
GAVRIEL MERON: Well, the reimbursement for small bowel is on the average of
about $1,400 from private insurers for that procedure. And that does make
sense, because it's a procedure that requires the gastroenterologist to
spend an intense period of time reviewing the images and making a - quite a
difficult diagnosis. The time spent for ESO doesn't justify that level of
reimbursement. We don't need that level of reimbursement to make this a
worthwhile product for the gastroenterologist. I think that the
reimbursement that we're seeing now - because there is reimbursement on a
case-by-case basis and we have sold I think, what, about $5 million last
year. And so those product were sold - they were not coming out of the
pocket of the gastroenterologist, you realize that. These were paid for.
And they were paid according to what gastroenterologists charge, which is
similar to an EGD. So - because it is an equivalent procedure. And I think
that they are very happy to get that reimbursement to cover that - the cost
of the capsule and the cost of their time in such a patient.
ANTHONY PETRONE: And just one final question on the focus of the sales force. I
know you're continuing to have the sales force focus on existing accounts.
I know there's - you know, there's obviously probably some effort to that
further penetration into the market. But why the focus on existing accounts
as opposed to going further into the market? Is there a level of saturation
that has been reached or - or if you could just make a quick comment on
that.
GAVRIEL MERON: Yes, that's a great question. I think what I said before it's
good that you asked, because I obviously didn't reinforce it, our goal is
to do both. Our goal is to expand the footprint and in parallel expand the
utilization in the accounts. And to do that you need to have more people,
because you need to have a smaller territory to be able to achieve both.
We're nowhere near saturation in work stations. We have about 26 percent
penetration. So there's
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plenty more to go and plenty more to achieve on that front. And in addition
to that - don't forget that in our eyes every gastroenterologist in the
United States who does an upper GI EGD and who does a colonoscopy will have
- it's unquestionable - will have at the end of the day a Given system and
a PillCam system. And we have to achieve that. That's our goal. And we're
working on that. So, no, nowhere near saturation. Clearly we will be
expanding our footprint. And why are we expanding the utilization in the
current accounts was the question because we're nowhere near achieving the
goal of saturation in PillCam utilization in the accounts. From our market
research, just with the current reimbursement coverage, which as you know
will be expanded further and further, we could see a level of five capsules
per week per account. And at the moment we're at 1.4. So we do have room to
grow there. And so this is significant, we have significant opportunity in
the accounts and we have significant opportunity in expanding the
footprint. And we plan to execute both.
Thanks for your question.
OPERATOR: Thank you. And as a reminder, please limit yourself to one question
and one follow-up question. We'll take our next question from Yair Reiner.
YAIR REINER: Just a couple of questions on the - on the guidance for the year.
First of all, does your current guidance include any expectation for ESO
reimbursement and the ramp in those sales?
GAVRIEL MERON: Could you repeat that question, sorry.
YAIR REINER: Does your current guidance - top-line guidance for 2006, does it
presuppose ESO reimbursement and any kind of significant ramp in ESO sales
in 2006?
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GAVRIEL MERON: It doesn't presuppose massive reimbursement. What we do expect to
see are some announcements on reimbursement as we saw in the small bowel as
it progressed. But we will see one after the other trickling in through the
year. We do have of course an increase in the ESO sales, but not a
significant ramp up of that product yet.
YAIR REINER: Very good. My other question is clearly there's a higher
concentration now on selling capsules rather than work stations. But for
kind of modeling purposes, if we look to the end of 2006 what do you think
your installed base needs to be at in order for you to reach your guidance?
What does your footprint need to reach, you know, 12 months from now?
GAVRIEL MERON: I don't think we're providing guidance at the level of product at
this time. I don't think we ever have and I don't think we're going to
start doing that now.
OPERATOR: We'll go next to Sergey Vastchenok, with CIBC.
SERGEY VASTCHENOK: Hi, guys. I just wanted to ask a question on the COLON
developments. Can you just specify what you expect to see there in terms of
clinical trials and when the submission to FDA is expected.
GAVRIEL MERON: Can you repeat the end of the question?
SERGEY VASTCHENOK: The submission to FDA, and the marketing, starting marketing.
GAVRIEL MERON: Yes. What we have said, I can't think beyond that, is that
currently we are in pilot trials. We do expect to commence the pivotal
trials during this year. And the expectation is to be able to show a
product in Europe and launch it towards the end of this year and to launch
a product in the United States in 2007. But beyond that, specific dates and
program milestones we haven't disclosed or
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divulged. And we haven't also disclosed any technical information about
this product. Again, all for competitive reasons. And you should understand
why we would hold that back.
SERGEY VASTCHENOK: OK. And the reimbursement procedure you expect to be the same
like ESO capsule?
GAVRIEL MERON: The reimbursement procedure for any medical device is quite
similar. It's quite similar. What you have to do is provide published peer
review clinical trials and present that to payers, and only based on those
will they make a decision. We announced just today, for example, for the
ESO, for the varices two papers published in "Endoscopy" that support the
use of PillCam ESO for the monitoring of patients, cirrhotic patients,
monitoring of their varices. This of course is something very important
that enables us now to go with those papers to payers and say, look, there
is published peer review papers, you have a basis on which to make your
decision to pay for this product. That would be the same for every new
product whether it be for patency, whether it be for COLON or any other
product we may come out to market with in the future. You have to have
published clinical trials before you can get a serious discussion with
payers about incorporating a new procedure into their payment path.
SERGEY VASTCHENOK: OK and the last question regarding that. Have you been
approached by bigger companies in medical devices with an interest to COLON
product?
GAVRIEL MERON: If they have an interest in the COLON product, meaning?
SERGEY VASTCHENOK: Meaning strategic partnership like you did with Johnson &
Johnson in ESO field.
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GAVRIEL MERON: I understand. OK. On the strategic partnerships, before we can
announce anything we will never be able to respond or comment. So I have to
decline to respond to that question.
OPERATOR: We'll go next to Caroline Corner with Montgomery & Company.
CAROLINE CORNER: Hello, gentlemen.
GAVRIEL MERON: Hello.
CAROLINE CORNER: My question relates to Olympus. Since their rolling out in the
EU and Japan, I'm just wondering if you have any insights onto their
reimbursement efforts. I know them rolling out presents somewhat of a
challenge to Given, but I'm wondering if there's any evidence that you
could possibly piggy-back on their reimbursement efforts, particularly as
they move into the EU markets.
GAVRIEL MERON: Yes, I think they are very far and detached from any
reimbursement activity in Europe. They haven't launched in Japan. I think
you said they have. They have not. But they have launched in Europe. And I
think that the way the land lays is that we are believers in capsule
endoscopy, we're leading that industry, we're leading the front of
reimbursement. And they will try to piggy-back on that. I'm not sure that
we will let them do that.
CAROLINE CORNER: OK. So any reimbursement that you were to get - is it
reimbursement for capsule endoscopy across the board or is it
product-specific in Europe?
GAVRIEL MERON: No, no, it's - it's procedure-specific and not brand-specific.
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CAROLINE CORNER: OK. OK. Thank you. And I was also wondering, can you give me
any insights regarding - I don't know what you can talk about particularly
- but the Mayo Clinic head-to-head regarding Olympus versus PillCam? Can
you give me any information on that regarding, you know, whether it's small
bowel, what the metrics are, and when data is expected from that.
GAVRIEL MERON: Yes, I - this is an Olympus trial that you're asking about, it's
not a Given-sponsored trial, and I really think that I can't comment on an
Olympus-sponsored trial before they comment on it and they analyze results
and they publish them even if I were to know anything about it. So I can't
answer that question.
However, I can tell you that our RAPID Four from what we've seen in the
market is by far, by far better than anything Olympus is offering on the
market.
OPERATOR: And due to time restraints that concludes the question and answer
session today. At this time I'd like to turn the conference back over for
any additional or closing remarks.
GAVRIEL MERON: Thanks to all participating in today's call. I'd like to remind
everyone that we will be presenting today at the Merrill Lynch Health Care
Conference. And Given's presentations will be webcast. We'll begin at
4:00 p.m. Eastern Time. Thank you, everyone.
OPERATOR: Thank you, everyone. That concludes today's conference. You may now
disconnect.
END
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