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How Endologix Is Winning Customers Back One Procedure at a Time

CEO John Onopchenko said the company is shifting from a defensive position to an offensive position and expects to return to growth in the second half of the year.

Endologix might not be out of the woods yet, but the company does appear to be moving in the right direction.

"We are shifting from a defensive position to an offensive position," CEO John Onopchenko said during the company's fourth-quarter earnings call on Monday, as transcribed by Seeking Alpha.

The company reported sequential sales growth of its Ovation system in the fourth quarter, which management said gives them confidence that the platform will return Endologix to growth in the second half of 2019.

But to fully appreciate that projection, investors have to look back at where the Irvine, CA-based company was just two years ago.

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), the AFX. This and other issues led to former CEO John McDermott's resignation last year. Onopchenko was promoted to fill the CEO seat in July.

Another setback came earlier this year when Endologix initiated a voluntary recall of the existing inventory of its Nellix endovascular aneurysm sealing system. The company decided to limit the device to use under clinical protocol with pre-screened patients that adhere to the current indications. The company's CE mark for the Nellix system was subsequently suspended.

During the earnings call, Onopchenko stressed that the suspended CE mark will have minimal impact on the company's U.S.-based Nellix trials. Clinicians will continue to treat patients under investigational umbrellas, including the EVAS2 IDE, he said. Enrollment in that trial is expected to wrap up in the third quarter of this year.

As for the company's AFX2 business, CFO Vaseem Mahboob said he expects AFX2 sales to stabilize in the second half of the year as Ovation sales continue to grow and return the company back to growth in the second half.

"The return to growth, that road begins with AFX2 stability," Onopchenko said. "We've been invited back to cases where customers had previously discontinued the use of AFX2 over type III endoleaks. And upon being invited back, they've specifically commented that having data from our LEOPARD RCT gives them the confidence that we've addressed the issues."

Onopchenko also noted that the company has received feedback that the procedural safety and device performance demonstrated in LEOPARD matches what physicians have seen in their own practice with AFX2. 

"That, in combination with renewed confidence and positive prior experiences, that's starting to allow us to win back a number of customers, and it's opened the door with others," Onopchenko said.

On the Ovation side, Onopchenko said he recently participated in a key account visit with a tertiary care teaching institution which had two physicians use the Ovation once last year.

"They get to understand not only who we are and our strategy and plans but take a deeper dive in terms of how we produce the product, how we ensure the safety of that product," Onopchenko said.

Visits like that also give Endologix an opportunity to correct misperceptions that some customers might have about the products.

"And in that particular case, I'm pleased to say that in the month of February, we've already done two cases with a total of five cases planned in that one account," Onopchenko said. "Not all of them go this way, but ... this campaign upmarket is kind of [one] account at a time and brick by brick, but we're making real progress."

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