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Declining Sales Prompts Endologix to Hit the Strategic Reset Button

Declining Sales Prompts Endologix to Hit the Strategic Reset Button
Faced with declining sales and another Nellix delay, Endologix CEO John Onopchenko said it's time for a strategic reset.

John Onopchenko has had his work cut out for him since being promoted to CEO of Endologix in May.

The company's revenue dropped 6.1% in the fiscal year 2017 compared to the fiscal year 2016 after a manufacturing glitch interrupted sales of its top-selling device for abdominal aortic aneurysms (AAA). This and other issues led CEO John McDermott to resign earlier this year.

"The leadership team and I have been working hard on reestablishing Endologix's credibility and reputation with our physicians and customers and building a culture of accountability, with the ultimate goal of delivering value to our stakeholders around the globe," Onopchenko told investors during the company's second-quarter earnings call, according to SeekingAlpha transcripts.

Onopchenko said the company leaders have completed a thorough evaluation of five key value drivers that have the greatest impact on the company's long-term plans: company culture, the markets Endologix serves, the product portfolio, clinical developments, and the company's operating model.

"As a result of this evaluation, we are making significant changes to our strategy," he said. "We have come to the conclusion that we are underperforming relative to our clinical evidence, and if we don't implement this strategic reset, our longer-term aspirations will remain elusive. This reset has precipitated the reduction in our financial guidance for fiscal year 2018."

Endologix reported that its total revenue for the second quarter decreased 7.9% year-over-year.  Onopchenko said that strong growth of the company's AFX device in Japan and its Ovation device in the United States was "more than offset" by softness in AFX sales domestically, the company's Latin America business, and regulatory challenges in the Asia Pacific.

"We continue to see a sequential decline in sales of AFX in the U.S. market," Onopchenko said. "However, our monthly trend data show a slowing decline, and we anticipate that AFX STRATA related customer losses to be behind us by the end of the first half of 2019."

One of the primary goals of the company's strategic reset is to lower its cost to serve, Onopchenko said, which he described as a two-pronged effort in the United States and the European Union. In the United States, he said Endologix is rightsizing and investing in customer and market intelligence within its commercial organization, while shifting its focus to serving higher-volume accounts, and away from lower-volume accounts. In the European Union, Endologix is lowering its cost to serve by prioritizing those geographies where it can be successful in high-volume accounts and shrinking its overall footprint by existing unprofitable and less scalable geographies, Onopchenko said.

In clinical development, Endologix has again shifted the timeline on its highly-anticipated Nellix endovascular aneurysm sealing (EVAS) system. Although Endologix did take a significant step forward with that product in March after enrolling the first patient in the EVAS 2 confirmatory study of the Nellix System, Onopchenko said the company experienced slower than anticipated site activation, which slowed its overall enrollment ramp for that study.

"The study is enrolling well now that more sites are activated, and we remain optimistic about its potential," he said. 

The system was developed as an alternative treatment to traditional endovascular aneurysm repair (EVAR) for an abdominal aortic aneurysm. The system is designed to seal an entire aneurysm. According to a filing with the Securities and Exchange Commission, Endologix now hopes to have FDA approval for the Nellix system in the first half of 2021.

Despite the company's struggles over the past couple of years, it continues to be identified by industry analysts as an attractive medtech company on the M&A radar. 

TAGS: News
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