Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (10-22-08 04:11 AM)

Filed with the SEC from Oct 9 to Oct 15:

Endologix (ELGX)
A group including Elliott Associates is prepared to offer to acquire all of Endologix's outstanding stock for $2.25 a share. Elliott said that it thinks highly of the company and John McDermott, its new chief executive. Endologix designs and markets minimally invasive products to treat vascular problems,
The private-equity firm said that it wants to grow the company "into the successful business we believe it should be." The Elliott group holds 6,332,665 shares (14.5% of the total outstanding).
BUSINESS OVERVIEW

Introduction
We develop, manufacture, sell and market minimally invasive therapies for the treatment of vascular disease. Our products are catheter-based alternative treatments for abdominal aortic aneurysm, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured AAAs is approximately 75%, making it a leading cause of death in the United States today.
The Powerlink ® System is a catheter and endoluminal stent graft, or ELG, system. The self-expanding cobalt chromium alloy stent cage is covered by ePTFE, a common surgical graft material. The Powerlink ELG is implanted in the abdominal aorta, which is accessed through the femoral artery. Once deployed into its proper position, the blood flow is shunted away from the weakened or “aneurysmal” section of the aorta, reducing pressure and the potential for the aorta to rupture. Our clinical trials demonstrate that implantation of our products will reduce the mortality and morbidity rates associated with conventional AAA surgery, as well as provide a clinical alternative to many patients that could not undergo conventional surgery. Sales of our Powerlink System in the United States, Europe, and South America are the primary sources of our reported revenues.
Prior to developing the Powerlink System, we developed various catheter-based systems to treat cardiovascular disease. We licensed our proprietary Focus balloon technology to Guidant Corporation for use in Guidant’s coronary stent delivery systems.
We were incorporated in California in March 1992 under the name Cardiovascular Dynamics, Inc. and reincorporated in Delaware in June 1993. In January 1999, we merged with privately held Radiance Medical Systems, Inc. and changed our name to Radiance Medical Systems, Inc. and in May 2002, we merged with privately held Endologix, Inc., and changed our name to Endologix, Inc.
Industry Background
Atherosclerosis is the thickening and hardening of arteries. Some hardening of arteries occurs naturally as people grow older. Atherosclerosis involves deposits of fatty substances, cholesterol, cellular waste products, calcium and other substances on the inner lining of an artery. Atherosclerosis is a slow, complex disease that starts in childhood and often progresses with age.
Atherosclerosis also can reduce the integrity and strength of the vessel wall, causing the vessel wall to expand or balloon out, which is known as an aneurysm. Aneurysms are commonly diagnosed in the aorta, which is the body’s largest artery. The highest incidence of aortic aneurysms occurs in the segment below the opening of the arteries that feed the kidneys, the renal arteries, to where the aorta divides into the two iliac arteries that travel down the legs. Once diagnosed, patients with AAA require either a combination of medical therapy and non-invasive monitoring, or they must undergo a major surgery procedure to repair the aneurysm.
For years, physicians have been interested in less invasive methods to treat AAA disease as an alternative to the current standard of surgical repair. The high morbidity and mortality rates of surgery are well documented, yet medical pharmacological management for this condition carries the catastrophic risk of aneurysm rupture. Physicians and commercial interests alike began investigating catheter-based alternatives to repair an aneurysm from within, utilizing surgical grafts in combination with expandable wire cages or scaffolds to exclude blood flow and pressure from the weakened segment of the aorta.
We believe the appeal of the Powerlink System for patients, physicians, and health-care payors is compelling. The conventional treatment is a highly invasive, open surgical procedure requiring a large incision in the patient’s abdomen, withdrawal of the patient’s intestines to provide access to the aneurysm, and the cross clamping of the aorta to stop blood flow. This procedure typically lasts two to four hours and is performed under general anesthesia. This surgery has an operative mortality rate estimated to range from 4% to 10%. In addition, complication rates vary depending upon patient risk classification, ranging from 15% for low-risk patients to 40% for high-risk patients. The typical recovery period for conventional AAA surgery includes a hospital stay of 10 to 15 days and post-hospital convalescence of 8 to 12 weeks. Our minimally invasive treatment of AAA requires only a small incision in the femoral artery of the leg, minimizing both hospital lengths of stay and the amount of time required for convalescence. Many patients can be treated utilizing only a local or regional anesthesia.
Market Opportunity
In the United States alone, an estimated 1.5 million people have an AAA, and yet there are only about 200,000 new diagnoses each year. Although AAA is one of the most serious cardiovascular diseases, many AAAs are never detected. Approximately 75% of AAA patients do not have symptoms at the time of their initial diagnosis, and AAA’s generally are discovered inadvertently during procedures to diagnose unrelated medical conditions. Once an AAA develops, it continues to enlarge and if left untreated, becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured aneurysms is approximately 75%.
Patients diagnosed with an AAA larger than five centimeters can be classified into one of three categories: those patients opting for elective surgery, patients who refuse surgery due to the clinical risks of an open procedure, and those who are considered at high risk for an open procedure. These high-risk patients and those refusing surgery will populate the initial patient pool for less invasive techniques. We believe that ELGs could be applied to as many as 60%-70% of the approximately 30,000 surgeries performed in the United States each year.
We estimate that this year, of the approximately 200,000 patients diagnosed with AAA, approximately 30,000 will undergo conventional open surgery, 30,000 will be treated with a commercially available ELG, and the remainder will remain under “watchful waiting.”
An article published in the New England Journal of Medicine on January 31, 2008 addressed the comparison between open surgical repair and the endovascular treatment of AAA. This was a significant paper in that researchers reviewed more than 45,000 Medicare records and came to three conclusions:
• First, these findings support clinical study data showing that endovascular repair significantly reduces morbidity and mortality, versus open surgical repair. Importantly, these findings are based on a patient population that typically has a significantly higher co-morbidity rate compared with those patients treated by open surgery.

• Second, patients treated by endovascular repair were discharged to their homes in significantly greater numbers than those treated by surgery. This advantage has substantial clinical and economic benefits for patients and payors alike.

• Finally, the study points to the fact that open surgical repair entails risk of re-hospitalization due to problems associated with surgical incision. Patients had to be re-admitted over time for surgical complications associated with the laparotomy, such as adhesions and bowel resections, at a much higher rate than those undergoing endovascular repair.
AAAs generally are more prevalent in people over the age of 65 and are more common in men than in women. In addition to the current pool of potential patients, we expect that the number of persons seeking treatment for their condition will increase based on demographic factors. In 2007, the age 65 and over population in the United States numbered approximately 40.0 million, or 13.3% of the total population, and is expected to be 71.0 million by 2030. It is growing at a higher rate than the overall United States population.
We believe that the market opportunity outside of the United States for these technologies is approximately equal in size to that in the United States.

Our Strategy
Our objective is to become a premier supplier of endovascular surgery products that repair diseased or damaged vascular structures as an alternative to open surgery. As part of our core strategy, we intend to:
• Demonstrate a Significant Technology Advantage. Our strategy has been to develop technology that addresses the limitations of the early generation AAA devices, and execute clinical studies to substantiate the superiority of the technology. Being “first to market” has not been an advantage in the AAA market thus far, as other devices approved for marketing in the United States have undergone post-approval recalls and/or temporary sales suspensions.

• Execute a Global Marketing Strategy and Address Key Markets. We have obtained the right to affix the CE Mark, and utilize distributors in markets outside the United States. We have sought to limit our capital commitments by establishing sales through distributors due to limitations on the size of the markets, and lower average sales price and device reimbursement in international markets.

• Continue to Develop Core Competencies and Develop Synergistic Collaborations. We believe we have demonstrated core competencies in developing catheter-based solutions that address a large unmet clinical need that we identified after close consultation with key physicians. Our focus at this time is the AAA. In the future, we may develop additional devices to expand the application of our core competencies.
Our Products
Powerlink System
Our Powerlink System consists of a self-expanding cobalt chromium alloy stent cage covered with ePTFE, a common surgical graft material. The Powerlink ELG is implanted in the abdominal aorta, gaining access through a small incision into the femoral artery. Once deployed into its proper position, the blood flow is shunted away from the weakened, or aneurysmal, section of the aorta, reducing pressure and the potential for the aorta to rupture.
We believe the Powerlink System is a superior design that overcomes the inherent limitations of early generation AAA devices and offers the following advantages:
• One-Piece, Bifurcated ELG. This eliminates many of the problems associated with early generation multi-piece systems. Our products eliminate much of the guidewire manipulation required during the procedure to assemble the component parts of a modular system, thereby simplifying the procedure. In addition, in the follow-up period, there can be no limb component separation with a one-piece system. We believe this should result in continued long-term exclusion of the aneurysm, and improved clinical results.

• Fully Supported. The main body and limbs of the Powerlink System are fully supported by a cobalt chromium alloy cage. The cobalt chromium alloy cage greatly reduces or eliminates the risk of kinking of the stent graft in even tortuous anatomies, eliminating the need for additional procedures or costly peripheral stents. Kinking may result in reduced blood flow and limb thrombosis.

• Unique, Minimally Invasive Delivery Mechanism. The Powerlink System requires only a small surgical incision in one leg. The other leg needs only placement of a non-surgical introducer sheath, three millimeters in diameter. Other ELGs typically need surgical exposure of the femoral artery in both legs to introduce the multiple components. Our unique delivery mechanism and downsizing of the catheter permits our technology to be used in patients having small or very tortuous access vessels.

• Self-Expanding. The stent is formed from cobalt chromium alloy in a proprietary configuration that is protected by our patent portfolio. This proprietary design expands to the proper size of the target aorta and eliminates the need for hooks or barbs for attachment. Based on our results to date, the Powerlink System has an excellent record of successful deployments.

• Single Wire and Long Main Body Design. The long main body of the stent cage is made of a continuous piece of wire shaped into its appropriate configuration. Migration of individual stent graft components is eliminated. In addition, the long main body places the Powerlink System near or at the aortic bifurcation, which minimizes the risk of device migration during the follow-up period.

Limitations of Earlier Technology
Our technology is dramatically different than devices currently available commercially. Despite enthusiasm by physicians and patients alike for minimally invasive technology, we believe early generation devices have achieved a limited market penetration due to design limitations and related complications. The published clinical literature details many of the deficiencies of these approaches. In our opinion, early generation devices were limited because assembly was required by the surgeon. Multi-piece, or modular, systems require assembly by the mating of multiple components to form a bifurcated stent graft within the aneurysm sac. These systems can be more difficult to implant and lead to longer operative times. In addition, there are a number of reports of component detachment during the follow-up period. Component detachment can lead to a leak and a re-pressurization of the sac. We believe this increases the risk of AAA rupture, often requiring a highly invasive, open surgical procedure to repair the detachment.
Powerlink System Products
Variations in patient anatomies require an adaptive technology. We designed our Powerlink System, with multiple aortic cuffs, limb extensions, bifurcated main body lengths and diameters to simplify procedures, improve clinical results, and drive product adoption by offering physicians a full line of products that are adaptable for treatment of the majority of patients with AAA disease.
Powerlink Infrarenal Bifurcated Systems. The Powerlink Infrarenal Bifurcated System is available in multiple diameters and lengths and can treat patients that have an aortic neck up to 26 millimeters in diameter. The infrarenal device is made of a cobalt chromium alloy cage covered by thin-walled ePTFE for placement below the renal arteries. The self-expanding cage permits the graft to be used in a wide range of neck diameters, which allows us to treat a wide variety of anatomies with a standard device. We obtained the CE Mark for this product in Europe in August 1999, and obtained United States Food and Drug Administration, or FDA, pre-marketing approval in October 2004. We commenced commercial sales in the United States in December 2004 and executed a focused United States launch throughout 2005. In 2006, we accelerated the launch with the addition of twenty-one sales representatives, three regional managers and one national manager. At the end of 2007, we were staffed with a tenured domestic sales force of forty-seven sales representatives, nine regional managers, one area sales manager, and one national sales manager.
Powerlink Suprarenal Bifurcated System. The Powerlink Suprarenal Bifurcated System is similar to the infrarenal device, except that the wire stent in the suprarenal device is extended above the graft material to allow the physician to anchor the top of the device above the renal arteries without obstructing them. The suprarenal device is available in multiple diameters and lengths and can treat patients that have an aortic neck up to 32 millimeters in diameter. The suprarenal model has a segment of uncovered stent at the proximal end that permits the operator to place the device more proximally, over the opening of the renal arteries in patients with short or angulated aortic necks. The uncovered stent permits continuous blood flow to the renal arteries, thereby mitigating the risk of kidney complications. We obtained the CE Mark for this product in Europe in August 1999, and are currently enrolling patients in an arm of a Phase II pivotal trial in the United States.
Powerlink Aortic Cuffs and Limb Extensions. The Powerlink Aortic Cuffs and Limb Extensions permit the physician to treat a greater number of patients. Aortic cuffs are available in 25, 28 and 34 millimeters in diameter and multiple lengths. They also are available in the infrarenal or suprarenal configurations. Limb extensions are 20 millimeters and 16 millimeters in diameter with various lengths, allowing the physician to customize the technology to a given individual. We have obtained the CE Mark for these products in Europe in October 1999 (Limb Extensions), December 1999 (25/28 Cuffs) and May 2002 (34 Cuff). We obtained United States FDA marketing approval in October 2004 for the 25 and 28 millimeter infrarenal cuffs, and the 20 and 16 millimeter limb extensions.
Clinical Trials
Powerlink Systems
We continue to conduct clinical trials for the suprarenal Powerlink System and for other products related to the Powerlink System. As of December 31, 2007, 153 of the 193 patients required had been enrolled for the second arm of a United States Pivotal Phase II clinical trial for the suprarenal Powerlink System. As of July 31, 2007, all of the required 60 patients were enrolled in a United States Pivotal Phase II clinical trial utilizing a 34 mm proximal cuff in conjunction with a commercial bifurcated Powerlink ELG to treat patients with large aortic necks. As of December 31, 2007, 18 of the required 63 patients had been enrolled in a clinical trial for a 34mm infrarenal bifurcated device, also designed to treat patients with large aortic necks. Currently, only one commercial device supplied by a competitor, is capable of treating aortic necks larger than 26mm.
Marketing and Sales
Powerlink System
United States. We began a focused launch of the Powerlink System in the United States with six sales representatives and two clinical specialists in late 2004. We have expanded our domestic sales force to forty-seven sales representatives, nine regional managers, one area sales manager, and one national sales manager as of December 31, 2007. The primary customer and decision maker for these devices in the United States is the vascular surgeon. The market is fairly concentrated with estimates of 1,000 to 1,500 potential general and vascular surgeons, and a limited number of interventional cardiologists and radiologists, in approximately 1,000 hospitals.
Europe. The market for ELGs in Europe is influenced by vascular surgeons, interventional radiologists and, to a lesser extent, interventional cardiologists who perform catheter directed treatment of AAA. The European market is less concentrated than the domestic market. We have obtained the right to affix the CE Mark to our family of Powerlink products. Europe represents a smaller market opportunity due to capitated hospital budgets and a selling price that is typically less than in the United States. We currently sell our devices through LeMaitre Vascular as well as other exclusive independent distributors. We will participate in and share the costs of attending key cardiovascular conferences in Europe. We expect to continue to interface with key opinion leaders in Europe
Japan. We received Shonin approval, which is equivalent to FDA approval of a PMA application in the United States, in February 2008. We commenced commercial sales to Japan in February 2008 through our distributor.
Rest of World. We have obtained regulatory approval and have active distribution partners in a number of countries, including Argentina, Brazil, Chile, Colombia, Mexico, South Africa, and Turkey. In addition, we have obtained regulatory approval but have not initiated the distribution process in several other countries, including Australia, Canada, and the European countries of Norway, Poland, Portugal, and Spain. We may or may not pursue these markets depending on the availability of a suitable distribution partner. We are pursuing regulatory approval in China and we intend to select a distribution partner in that market during 2008.
Legacy Products
In June 1998, we entered into a technology license agreement with Guidant, an international interventional cardiology products company, granting a 10 year license to manufacture and distribute stent delivery products using our Focus technology. The original territory for the license was the United States and Canada, but has expanded with the expiration of distribution relations in other countries. If for any calendar year, after timely written notice by us to Guidant of a shortfall in royalty payments below the annual minimum royalty required, they elect not to pay us at least the minimum royalty, we can cancel the agreement. Also, as Guidant has paid to date the aggregate payment amount required under the contract, they can at any time, with or without cause, terminate the agreement upon thirty days notice. In the year ended December 31, 2007, we recorded $250,000 in royalties. We anticipate that license revenue will decline sharply in 2008 as the minimum royalty provision of the agreement expired at December 31, 2007. The license will be fully paid up in June 2008.
In September 2006, we licensed to BioLucent Inc., a privately held medical device company, rights under certain patents held by us. In September 2007, Hologic Inc. purchased BioLucent, Inc. Pursuant to this acquisition, we received a one-time payment of $500,000 in exchange for a fully paid up license. For the year ended December 31, 2007, we recorded $504,000 in royalties and fees, including the one-time payment of $500,000 under the agreement.
Manufacturing
We manufacture our products at our facilities in Irvine, California. During 2005, we relocated both our manufacturing and headquarters functions to a 30,200 square foot leased facility.

Our current manufacturing process is labor intensive and involves shaping and forming a cobalt chromium wire cage, sewing graft material together to form the outside skin of the device and suturing the graft material on to the cage.
In February 1999, we entered into a supply agreement with Bard Peripheral Vascular, Inc., a subsidiary of C.R. Bard, Inc., or Bard Peripheral, for the supply of ePTFE. The supply agreement had an initial term through December 2007, at which time it automatically renewed on a year-by-year basis, unless either party gave the other party notice of its intention not to renew within 30 days from the expiration date of the applicable renewal period. Under the terms of a third amendment to the supply agreement, dated September 21, 2007, the minimum purchase requirement for the 2007 year was reduced from $2,875,000 to $2,200,000, we agreed to pay $550,000 in consideration for the reduction, and both parties agreed to terminate the agreement on December 31, 2007. The $550,000 paid to reduce the 2007 commitment was recorded as an operating expense in the quarter ended September 30, 2007.
In April 2007, we received FDA approval for in-house manufactured ePTFE graft material. We are now capable of producing all of our requirements for this material at a cost which is significantly lower than our previous acquisition cost under the supply agreement with Bard Peripheral.
Patents and Proprietary Information
We have an aggressive program to develop intellectual property in the United States, Europe and Asia. We are building a portfolio of apparatus and method patents covering various aspects of our current and future technology. In the AAA area, we have 17 United States patents issued, covering 361 claims, and 22 pending United States patent applications. Our current AAA related patents begin expiring in 2017 and the last patent expires in 2019. We intend to continue to file for patent protection to strengthen our intellectual property position as we continue to develop our technology.
In addition to our AAA intellectual property, we own or have the rights to 38 issued United States patents, one issued European patent, and one issued Japanese patent relating to intravascular radiation, stents, and various catheter technologies. The non-AAA patents begin expiring in 2012 and the last patent expires in 2018. Our technology license to Guidant is supported by seven United States patents and one Japanese patent. These patents begin expiring in 2014 and the last patent expires in 2016.
Our policy is to protect our proprietary position by, among other methods, filing United States and foreign patent applications to protect technology, inventions and improvements that are important to the development of our business. We require our employees, consultants and advisors to execute confidentiality agreements in connection with their employment, consulting or advisory relationships. We also require employees, consultants and advisors who may work on our products to agree to disclose and assign to us all inventions conceived during the work day, using our property or which relate to our business.
Competition
Any product we develop that gains regulatory clearance or approval will have to compete for market acceptance and market share. We believe that the primary competitive factors in the market for AAA devices are:
• clinical effectiveness;

• product safety, ease of use, reliability and durability;

• ability to receive regulatory approval;

• distribution capability; and

• price.
We expect that significant competition in the endovascular grafting market will develop over time. Three manufacturers, Medtronic, W.L. Gore, and Cook have obtained FDA marketing approval for their ELGs. However, we believe that our technology offers significant clinical advantages over these other currently available technologies. The cardiovascular device industry is marked by rapid technological improvements and, as a result, physicians are open to improved designs. Significant market share and revenue can be captured by designs demonstrating superior clinical outcomes. We believe deliverability of the device, dependability of the clinical results and the durability of the product design are the most important product characteristics. The Powerlink System is the only available one-piece bifurcated, fully supported ELG, and we believe that the Powerlink System offers improved deliverability, dependability, and durability.
Companies that are “first to market” in the United States with a new medical technology must underwrite the significant and expensive challenge of physician training and proctoring. In addition, first generation companies bear the costs of addressing reimbursement issues. We believe that our Powerlink System represents next generation technology that is poised to take advantage of a well-prepared market.
We believe that earlier generation devices experienced material failures and complications due to their reliance on multi-piece designs that did not include a stent cage to support the entire graft, or designs with hooks or barbs to hold their devices in place (See the section above entitled “Limitations of Earlier Technology” for a discussion of these factors). We believe that our grafts may offer a competitive advantage. Our Powerlink System is a single- piece, fully supported design that uses radial force and anatomical placement near the aortic bifurcation to maintain fixation. The following chart that details the stent graft characteristics of the minimally-invasive AAA stent grafts being sold in the United States.


CEO BACKGROUND

Jeffrey F. O’Donnell, 48, has served on our Board of Directors since June 1998. Mr. O’Donnell joined us in a management capacity in 1995, became President in January 1998 and Chief Executive Officer that June. In November 1999 Mr. O’Donnell joined PhotoMedex, Inc., a publicly traded company, as President and Chief Executive Officer and has served as a member of its Board of Directors since that date. From 1994 to 1995 Mr. O’Donnell held the position of President and CEO of Kensey Nash Corporation, a manufacturer of Cardiology Products. Additionally, he has held several senior sales and marketing management positions at Boston Scientific, Guidant and Johnson & Johnson Orthopedic. Mr. O’Donnell currently serves on the Board of Directors of Cardiac Science Corporation, a publicly traded company. Mr. O’Donnell is a graduate of LaSalle University School of Business.

Franklin D. Brown, 64 , serves as our Chairman and has been a director since 2002, and was formerly a director of the private company Endologix, Inc. from 1997 to 2002. Following the merger with the former Endologix in May 2002, Mr. Brown was our Chief Executive Officer and Chairman until January 2003, when he was elected Executive Chairman. Mr. Brown served as our Executive Chairman until October 2004. Mr. Brown previously served as the Chairman and Chief Executive Officer of the former Endologix, Inc. since joining that company in 1998. From October 1994 until the sale of the company in September 1997, Mr. Brown served as Chairman, President and Chief Executive Officer at Imagyn Medical, Inc. From 1986 until the sale of the company in 1994, Mr. Brown served as President and Chief Executive Officer of Pharmacia Deltec, Inc., an ambulatory drug delivery company. Mr. Brown also serves on the board of directors of Interventional Spine, Inc., a private medical device company.

Edward B. Diethrich, M.D., 72 , has served on our Board of Directors since May 2002. Dr. Diethrich was a Director for the former Endologix, Inc. from 1997 until its merger with us in May 2002. Dr. Diethrich has been the Medical Director and Chief of Cardiovascular Surgery of the Arizona Heart Hospital since 1997, and has been the Director and Chief of Cardiovascular Surgery at the Arizona Heart Institute from 1971 to the present.

Paul McCormick, 55 , is our President and Chief Executive Officer and has been a director since May 2002. Mr. McCormick has more than 27 years in the medical device industry. The majority of his career has been in emerging medical technologies. Mr. McCormick joined the former Endologix in January 1998, prior to its merger with us in May 2002, as Vice President of Sales and Marketing, and served as President and Chief Operating Officer from January 2001 until the merger in May 2002. He then served in the same position with us until January 2003 when he became President and Chief Executive Officer. Previously, he held various sales and marketing positions at Progressive Angioplasty Systems, Heart Technology, Trimedyne Inc., and United States Surgical Corporation. Mr. McCormick also serves on the board of directors Cardiogenesis Corporation.

Roderick de Greef, 47 , has served on our Board of Directors since November 2003. Mr. de Greef is the principal of Taveyanne Capital Advisors, Inc., a corporate firm providing finance consulting services. Mr. de Greef served as the Chief Financial Officer of Cambridge Heart from October 2005 to July 2007. Prior to that , Mr. de Greef served as the Executive Vice President, Chief Financial Officer and Secretary of Cardiac Science, Inc. from March 2001 to September 2005. From 1995 to 2001, Mr. de Greef provided corporate finance advisory services to a number of early stage companies including Cardiac Science, where he was instrumental in securing equity capital beginning in 1997, and advising on merger and acquisition activity. From 1989 to 1995, Mr. de Greef was Vice President and Chief Financial Officer of BioAnalogics, Inc. and International BioAnalogics, Inc., both publicly held development stage medical technology companies located in Portland, Oregon. From 1986 to 1989, Mr. de Greef was Controller and then Chief Financial Officer of publicly held Brentwood Instruments, Inc. Mr. de Greef has a B.A. in Economics and International Relations from California State University at San Francisco and an M.B.A. from the University of Oregon. Mr. de Greef serves on the board of BioLife Solutions, Inc., a public biotechnology company located in Owego, New York. Mr. de Greef also serves on the board of ElephantTalk Communications, Inc., an international communications operator based in Orange, California.

Gregory D. Waller, 58 , has served on our Board of Directors since November 2003. Mr. Waller has been Chief Financial Officer of Universal Building Products, a manufacturer of concrete construction accessories since March, 2006. Previous to that Mr. Waller had been in retirement except for board directorships. Mr. Waller served as Vice President-Finance, Chief Financial Officer and Treasurer of Sybron Dental Specialties, Inc., a manufacturer and marketer of consumable dental products, from August 1993 until his retirement in May 2005 and was formerly the Vice President and Treasurer of Kerr, Ormco and Metrex. Mr. Waller joined Ormco in December 1980 as Vice President and Controller and served as Vice President of Kerr European Operations from July 1989 to August 1993. Mr. Waller has an MBA with a concentration in accounting from California State University, Fullerton. Mr. Waller also serves on the board of Clarient, Inc., Cardiogenesis Corporation, Alsius Corporation and SenoRx, Inc., all publicly traded companies, where he is the audit committee chairman. He serves on the board of VivoMetrics Corp., a privately-held company.

tefan G. Schreck, Ph.D., 48 , joined us in February 2004 and serves as our Vice President, Technology. Dr. Schreck has more than 20 years of experience in research and development of medical products. Prior to joining us, Dr. Schreck held increasingly more responsible R&D management positions in the medical device industry. From May 1995 to April 2000, Dr. Schreck served as Director of Research in Baxter Healthcare’s Heart Valve Division. From April 2000 to August 2002, Dr. Schreck served as Senior Director R&D at Edwards Lifesciences and was responsible for the development of all surgical heart valve repair and replacement products. From August 2002 to February 2004, Dr. Schreck served as President & CEO of MediMorph Solutions Inc., an engineering and management consulting firm for the medical device industry, that he founded.

Robert J. Krist, 59 , joined us in August 2004 and serves as our Chief Financial Officer and Secretary. Mr. Krist served as Chief Financial Officer of CardioNet, Inc. from March 2003 until May 2004. Mr. Krist previously served for three years as Chief Financial Officer of Irvine-based Datum, Inc., a technology manufacturer. Prior to that, Mr. Krist served for three years as Chief Financial Officer and Vice President, Field Operations, of Bridge Medical, Inc., a start-up pharmacy information systems company. Mr. Krist also held various management positions during his six years at McGaw, Inc., including Chief Financial Officer and President of the Central Admixture Pharmacy Services Division. Mr. Krist received a BS in physics from Villanova University and an MBA from the University of Southern California.

Janet Fauls , 45 , joined us in November 2005 as our Director of Regulatory Affairs, and Quality Assurance. In July 2007, she was promoted to Senior Director of Clinical and Regulatory Affairs. Effective November 16, 2007, she was promoted to serve as our Vice President, Regulatory, Quality and Clinical Affairs. Ms. Fauls has more than 20 years of experience in the medical device and biopharmaceutical industries. From 1987 to 1997, Ms. Fauls held increasingly responsible positions in Quality and Regulatory Affairs for Allergan, Inc. and Alliance Pharmaceuticals. From 1997 to 2001, Ms. Fauls served in a Regulatory Affairs management capacity at Edwards Lifesciences with primary responsibility for surgical heart valve repair and replacement products and related disposable products. From 2001 to November 2005, Ms. Fauls served as Vice President, Regulatory, Quality and Clinical Affairs for Cardiogenesis Corporation, a medical device company specializing in laser-based cardiovascular therapies. Ms. Fauls received a BS in Chemistry from University of California, Santa Barbara.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview
Our Business
We are engaged in the development, manufacturing, marketing and sales of minimally invasive therapies for the treatment of vascular disease. Our primary focus is the marketing and sale of the Powerlink System, a catheter-based alternative treatment to surgery for abdominal aortic aneurysms, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured abdominal aortic aneurysms is approximately 75%, making it a leading cause of death in the United States.
Prior to the acquisition of former Endologix and the restructuring that occurred during the third and fourth quarters of 2001, we were researching, developing and marketing a radiation therapy catheter for the treatment of blockages in arteries after angioplasty, or restenosis. Prior to that we developed, manufactured and marketed other catheter and stent products for treatment of cardiovascular disease.
Between 1999 and 2003, our source of revenues shifted gradually from direct sales of previous catheter and stent products to royalties from licenses of our stent delivery technology. In June 1998, we licensed to Guidant Corporation rights to manufacture and distribute products using our Focus technology for the delivery of stents in exchange for milestone and royalty payments.
Our license revenue increased in 2007 over 2006 due to our licensing agreement with BioLucent, Inc. Under that agreement, we received $504,000 in royalties and fees, including a one-time payment of $500,000 in exchange for a fully paid-up license to certain of our patents. License revenue from Guidant remained at the contractual minimum level of $250,000 for 2007 and 2006. The minimum payment requirement of the agreement expired at December 31, 2007. We expect de minimus royalties under this agreement in 2008, prior to its expiration in June 2008, and that the sales of our Powerlink System will be our only material source of revenue.
For the years ended December 31, 2007 and 2006, we incurred net losses of $15.1 million and $17.5 million, respectively. As of December 31, 2007, we had an accumulated deficit of approximately $131.7 million.
We believe that our current cash balance, in combination with cash receipts generated from sales of the Powerlink System and borrowings available under our credit facility, will be sufficient to fund ongoing operations through at least December 31, 2008. If we do not realize expected revenue and gross margin levels, or if we are unable to manage our operating expenses in line with our revenues, or if we cannot maintain our days sales outstanding accounts receivable ratio, we may not be able to fund our operations through December 31, 2008.
In the event that we require additional funding to continue our operations, we will attempt to raise the required capital through either debt or equity arrangements. We cannot provide any assurance that the required capital would be available on acceptable terms, if at all, or that any financing activity would not be dilutive to our current stockholders. If we are not able to raise additional funds, we may be required to significantly curtail our operations and this would have an adverse effect on our financial position, results of operations and cash flows.
Summary of Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to collectibility of customer accounts, whether the cost of inventories can be recovered, the value assigned to and estimated useful life of intangible assets, the realization of tax assets and estimates of tax liabilities, contingent liabilities and the potential outcome of litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies and estimates were used in the preparation of the consolidated financial statements:
Revenue Recognition and Accounts Receivable
We comply with the revenue recognition guidelines in SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” . We recognize revenue when all of the following criteria are met:
• Persuasive evidence of an arrangement exists;

• The sales price is fixed or determinable;

• Collection of the relevant receivable is probable at the time of sale; and

• Products have been shipped or used and the customer has taken ownership and assumed risk of loss.
We earn royalty revenue, which is included in license revenue in the consolidated statement of operations, as a result of the sale of product rights and technologies to third parties. Royalties are recognized upon the sale of products subject to the royalty by the third party.
We do not offer rights of return and we have no post delivery obligations other than our specified warranty.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. These estimates are based on our review of the aging of customer balances, correspondence with the customer, and the customer’s payment history. If additional information becomes available to us indicating the financial condition of the customer is deteriorating, additional allowances may be required.
Inventories
We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future demand, as driven by economic and market conditions, and the product’s shelf life. If actual demand, or economic or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Goodwill, Intangible Assets and Long-Lived Assets
We record an impairment charge, or expense, for long-lived assets whenever events or changes in circumstances indicate that the value recorded for the asset may not be recoverable. Future changes in operations could cause us to write down the asset value and record an expense to better reflect our current estimate of its value. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the goodwill or indefinite-lived intangible assets are impaired. Factors that may impact whether there is a potential goodwill impairment include a significant decrease in our stock price and our evaluation of a control premium that may be used when estimating our total fair value. Our stock price may decline, or other factors may arise, which could result in goodwill impairment in future periods. Factors that may impact whether there is a potential impairment to our indefinite-lived intangible assets include legal and regulatory considerations.
Income Taxes
We reduce our deferred tax asset to zero due to uncertainties concerning the future realization of the related tax benefits, primarily due to our history of losses. In the event we were to determine that we would be able to realize some or all of the tax benefit of the deferred tax asset, the valuation allowance would be reduced, resulting in a tax benefit in the period such determination was made.
Stock-based compensation
Effective at the beginning of our fiscal year 2006, we adopted Statement of Financial Accounting Standards, or SFAS No. 123R, “Share-Based Payments,” or SFAS 123R. This statement requires us to recognize the cost of employee and director services received in exchange for the stock options it has awarded. Under SFAS 123R, we are required to recognize compensation expense over an award’s vesting period based on the award’s fair value at the date of grant. We elected to adopt SFAS 123R on a modified prospective basis; accordingly, the financial statements for the periods prior to January 1, 2006 do not include stock based compensation under the fair value method. We use the Black-Scholes option pricing model to value stock option grants. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. The amount of expense attributed is net of an estimated forfeiture rate, which is updated as appropriate. This option pricing model requires the input of highly subjective assumptions, including the expected volatility of our common stock, pre-vesting forfeiture rate and an option’s expected life. The financial statements include such amounts based on our best estimates and judgments.
Results of Operations
Comparison of Years Ended December 31, 2007 and 2006
Product Sales . Sales increased 87% to $27.0 million in 2007 from $14.4 million in 2006 primarily due to the expansion and increased productivity of our domestic field sales personnel, and increased market acceptance of the Powerlink System. Domestic sales increased from $12.4 million to $23.0 million, and sales to distributors outside the United States doubled from $2.0 million in 2006 to $4.0 million in 2007. Our distribution agreement with Edwards LifeSciences AG, or Edwards LifeSciences, was not renewed beyond the original expiration of December 31, 2006. Sales to Edwards LifeSciences in 2006 were $1.2 million. We replaced the Edwards LifeSciences distribution agreement with a three-year distribution agreement with LeMaitre Vascular. This agreement named LeMaitre Vascular as the exclusive distributor of the Powerlink System in ten European countries, including Austria, Belgium, the Czech Republic, France, Germany, Luxembourg, the Netherlands, Sweden, Switzerland, and the United Kingdom. Sales to LeMaitre in 2007 were $2.1 million.
License Revenue. License revenue increased 202% to $754,000 in 2007 from $250,000 in 2006, due to our licensing agreement with BioLucent, Inc. Under that agreement, we received $504,000 in royalties and fees, including a one-time payment of $500,000 in exchange for a fully paid up license to certain of our patents in a certain field of use. License revenue from Guidant remained at the contractual minimum level of $250,000 for 2007, equal to 2006. We expect that license revenue will decline sharply in 2008 as the minimum royalty provision of the agreement expired at December 31, 2007. The license will be fully paid up in June 2008. Beginning on January 1, 2008, sales of our Powerlink System will be our only material source of revenue.
Cost of Product Revenue. The cost of product revenue increased 66% to $10.5 million from $6.3 million in 2006. This increase is directly attributable to the higher unit volume of product sales in 2007 compared to 2006.
Gross Profit. Gross profit increased 107% to $17.2 million in 2007 from $8.3 million in 2006. The increase in gross profit resulted from higher product sales in 2007 as compared to 2006, license revenue from BioLucent Inc., and a reduction in the per unit cost of product due to substitution of lower-cost in-house produced graft material in a portion of the products sold in 2007. Gross profit as a percentage of revenue increased to 62% in 2007 from 57% in 2006 for these reasons. Also, the percentage in 2006 was impacted by a second quarter charge of $326,000, related to the final phase of an earlier limited, voluntary product recall.
We believe that gross profit dollars will increase in future years due to higher commercial sales of the Powerlink System both in and outside of the United States. We also expect that gross profit as a percentage of product revenues will increase further, into the 70% to 75% range as the substitution of in-house produced ePTFE graft material for higher cost purchased graft material becomes virtually complete in 2008.
Research, Development and Clinical. Research, development and clinical expenses decreased by 6% to $6.4 million from $6.8 million in 2006. The decrease primarily resulted from lower costs associated with clinical trials in the 2007 period. We incurred a charge of $417,000 in 2007 and $347,000 in 2006, for stock compensation expense pursuant to the adoption of SFAS 123R at January 1, 2006. We expect that research, development, and clinical expense will range between $6.0 to $6.6 million in 2008, to support new product and process development projects and ongoing clinical trials.
Marketing and Sales. Marketing and sales expenses increased by 38% to $20.1 million from $14.6 million in 2006. This increase was due to staffing increases in sales and marketing functions in support of the commercial sales of the infrarenal Powerlink System in the United States market. We incurred a charge of $878,000 in 2007 and $448,000 in 2006, respectively, for stock compensation expense pursuant to the adoption of SFAS 123R at January 1, 2006. We expect that sales and marketing expense will continue to increase in 2008, but at a lesser rate than in 2007, due to increased productivity of our tenured sales representatives within their territories.
General and Administrative. General and administrative expenses increased by 14% to $6.4 million from $5.6 million in 2006. The increase was due primarily to increases in patent and legal fees and insurance expenses. In addition, compensation expense totaling $894,000 in 2007 as compared to $767,000 in 2006, pursuant to the adoption of SFAS 123R at January 1, 2006. We expect general and administrative expense to remain in the $6.4 to $7.0 million range in 2008.
Termination of Supply Agreement . Termination of supply agreement expense was $550,000 in 2007. The expense was due to the third amendment of our supply agreement with Bard Peripheral, dated September 21, 2007, which reduced the minimum purchase requirement for the 2007 year from $2.9 million to $2.2 million, and wherein both parties agreed to terminate the agreement on December 31, 2007. In consideration for the reduction in the minimum purchase requirement for the 2007 year, we paid $550,000 to Bard Peripheral.
Other Income. Other income increased 9% to $1.1 million from $1.0 million in 2006. The increase in other income was a result of a realized gain of $412,000 on our investment in BioLucent, Inc., offset by less interest income due to a lower invested cash balance. In 2006, we had a higher cash balance due to a registered direct public offering of our common stock that resulted in net proceeds of $18.8 million in June 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview
Organizational History
We were formed in 1992 as Cardiovascular Dynamics, Inc., and our common stock began trading publicly in 1996. The current Endologix, Inc. resulted from the May 2002 acquisition of all of the capital stock of a private company, Endologix, Inc., which we refer to herein as the former Endologix, and the subsequent change of our company name from Radiance Medical Systems, Inc. to Endologix, Inc.
Our Business
We are engaged in the development, manufacture, sale and marketing of minimally invasive therapies for the treatment of vascular disease. Our primary focus is the development of the Powerlink® System, a catheter-based alternative treatment to surgery for abdominal aortic aneurysms, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured AAA is approximately 75%, making it a leading cause of death in the United States today.
The Powerlink System is a catheter and endoluminal stent graft, or ELG, system. The self-expanding cobalt chromium alloy stent cage is covered by ePTFE, a commonly-used surgical graft material. The Powerlink ELG is implanted in the abdominal aorta by gaining access through the femoral artery. Once deployed into its proper position, the blood flow is shunted away from the weakened or “aneurismal” section of the aorta, reducing pressure and the potential for the aorta to rupture. Our clinical trials demonstrate that implantation of our products reduce the mortality and morbidity rates associated with conventional AAA surgery, as well as provide a clinical alternative to many patients that could not undergo conventional surgery. We are currently selling the Powerlink System in the United States, Europe, South America, Japan and in other selected markets.
In February 2008, Cosmotec Co., Ltd., our distributor in Japan, obtained Shonin approval to market the Powerlink System from the Japanese Ministry of Health. Shonin is equivalent to FDA approval of a PMA application in the United States. We commenced commercial sales to Japan in February 2008 through our distributor.

We also continue to conduct clinical trials for the suprarenal Powerlink System and for other products related to the Powerlink System. As of June 30, 2008, enrollment was closed with 153 patients in the United States Pivotal Phase II clinical trial for the suprarenal Powerlink System. As of July 31, 2007, enrollment was closed with 60 patients enrolled in a United States Pivotal Phase II clinical trial utilizing a 34 mm proximal cuff in conjunction with a commercial bifurcated Powerlink ELG to treat patients with large aortic necks. As of June 30, 2008, 51 of the required 63 patients have been enrolled in a clinical trial for a 34mm infrarenal bifurcated device, also designed to treat patients with large aortic necks. Currently, two commercial devices, supplied by competitors, are capable of treating aortic necks larger than 26 mm.
We have experienced an operating loss for each of the last five years and expect to continue to incur operating losses for at least the next nine months. Our business is subject to a number of challenges inherent in a company with a single technology such as the difficulty in predicting physician acceptance of our product and the difficulty of planning for the growth of our operations relative to the market demand for our product. Consequently, our results of operations have varied significantly from quarter to quarter, and we expect that our results of operations will continue to vary significantly in the future.
Results of Operations
Comparison of the Three Months Ended June 30, 2008 and 2007
Product Revenue . Product revenue increased 48% to $9.3 million in the three months ended June 30, 2008 from $6.3 million in the three months ended June 30, 2007. Domestic sales increased 47% to $7.9 million in the three months ended June 30, 2008 from $5.4 million in the three months ended June 30, 2007. The increase in domestic sales was due to increased productivity of field sales personnel, an increase in territories covered, and increased physician acceptance of the Powerlink System.
International sales increased 54% to $1.4 million in the three months ended June 30, 2008 from $895,000 for the comparable period in the prior year. This increase was driven primarily by higher sales to our distributors in Europe.
We expect that product revenue will continue to grow, both sequentially and compared to prior year periods. We anticipate that product revenue will be in the range of $37 to $40 million for the year ended December 31, 2008.
License Revenue. License revenue decreased 80% to $12,000 in the three months ended June 30, 2008 from $60,000 for the comparable period in the prior year. This decrease is due to the expiration of the minimum royalty provision of the license agreement with Abbott and to the cessation of royalty payments following the expiration of the license agreement in June 2008.
Cost of Product Revenue . The cost of product revenue was unchanged at $2.6 million in the three months ended June 30, 2008 as compared to the three months ended June 30, 2007, despite an increase in the volume of Powerlink System sales. As a percentage of product revenue, cost of product revenue decreased to 28% in the second quarter of 2008 as compared to 42% in the same period of 2007. The percentage decline in the cost of product revenue was due to increased substitution of in-house produced ePTFE graft material for higher-cost purchased graft material in a portion of the products sold during the period.
We expect gross margin to range from 71% to 75% for the full year of 2008, reflecting the benefit of increased utilization of ePTFE graft material produced in-house, and higher volume.
Research, Development and Clinical. Research, development and clinical expense increased 24% to $1.8 million in the three months ended June 30, 2008 as compared to $1.5 million for the three months ended June 30, 2007. The increase in the second quarter of 2008 resulted primarily from an increase in costs associated with clinical studies and an increase in materials needed to support new product development projects. We expect that research, development, and clinical expense will remain in the range of $1.5 million to $1.8 million per quarter through 2008.
Marketing and Sales . Marketing and sales expense increased 31% to $6.1 million in the three months ended June 30, 2008 from $4.7 million in the three months ended June 30, 2007. The increase in the second quarter of 2008 resulted primarily from a 28% increase in the number of covered sales territories and variable commission payments on the 47% increase in domestic sales between those periods. We anticipate that marketing and sales expense will increase at a decreasing rate over the remainder of the year due to increased production of our sales representatives within their territories.
General and Administrative . General and administrative expense increased 80% to $2.6 million in the three months ended June 30, 2008 from $1.4 million in the three months ended June 30, 2007. The increase is primarily due to $550,000 in costs associated with the CEO succession and $370,000 in legal expenses associated with an intellectual property infringement claim and employment matters.
We expect general and administration expense to return to the $1.8 to $2.0 million range per quarter through the balance of 2008.
Other Income . Other income decreased 69% to $60,000 in the three months ended June 30, 2008, from $194,000 in the same period of 2007. Interest income declined due to lower balances of invested cash and marketable securities.

CONF CALL

Jody Cain - Lippert/Heilshorn & Associates, Inc.

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today's call. Joining me from Endologix are Paul J. McCormick, President and Chief Executive Officer and Bob Krist, Chief Financial Officer. Earlier this afternoon, Endologix issued a press release announcing financial results for the 2007 Fourth Quarter. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with Amy Higgins. This call is also being broadcast live over the internet at www.endologix.com and a replay of the call will be available on the company's website for the next 14 days.

Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of several securities laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Endologix Annual Report on Form 10-K and subsequent reports as filed with the Securities and Exchange Commission. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 21, 2008. Endologix undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

With that said, I would like to turn the call over to Paul McCormick. Paul?

Paul J. McCormick - President and Chief Executive Officer

Thank you, Jody. And I would like to extend my thanks to each of you for joining us this afternoon. Today, we are reporting our 12th consecutive quarter of domestic sales growth. US Powerlink System sales for the fourth quarter were $6.7 million, up 65% over the comparable quarter last year, and up 16% consecutively. Total product revenue for the fourth quarter is $7.9 million, increased 74% over the prior year.

For the full year 2007, total product revenue was $27 million, up by 87% from $14.4 million in 2006.

We achieved our 2007 revenue, gross margin, and total expenses guidance. Our success continues as our sales force expands the role for the Powerlink System. We are extremely pleased with our recruitment efforts during the past year and as of this call, we have 48 sales professionals on board. We have noticed the palpable difference on how the market places are viewing the sales opportunity of Endologix and this bodes well for the company.

Before I turn the call over to Bob Krist to review our financial performance, I want to comment on a recent article published in the New England Journal of Medicine that compared open surgical repair to the endovascular treatment of AAA. This was a significant paper in that researchers reviewed more than 45,000 Medicare records and came to three conclusions.

First, these findings support clinical study data showing that endovascular repair significantly reduces morbidity and mortality versus open surgical repair. Importantly, these findings are based on a patient population that typically has significantly higher comorbidity rates with endovascular repair compared with open work surgery.

Second, patients treated by endovascular stent graft were discharged to their homes in significantly greater numbers than those treated with surgery. This advantage has substantial clinical and economic benefits for patients and payors alike.

Finally, the study points to the fact that open surgical repair carries its own unique risk factors for re-hospitalization due to problems associated with the surgical incisions. Patients had to be readmitted over time for surgical complications associated with the laparotomy such as adhesions and bowel resections at a much higher rate than those undergoing endovascular repair.

The New England Journal of Medicine article underscores the significant clinical advantages of endovascular repair which we believe is on its way to becoming the standard of care for AAA treatment.

At this time, I would like to turn the call over to Bob.

Bob Krist - Chief Financial Officer

Thanks, Paul and good afternoon to all.

As Paul mentioned, our Powerlink System product revenue for the fourth quarter was $7.9 million which represented a 74% increase from 4.6 million in the fourth quarter of 2006. Domestic product sales alone increased by 65% to $6.7 million from $4.1 million in the 2006 fourth quarter and increased by 16% from $5.8 million in the third quarter of 2007. The 65% year-over-year increase in domestic sales was driven by a 14% increase in the number of covered sales territories and by a 45% increase in average sales productivity per territory.

International sales for the quarter were $1.2 million up 158% from $456,000 in the 2006 fourth quarter and up from $765,000 in the third quarter of 2007.

Total revenue including royalties was $8 million in the quarter.

Gross margin was 64% of total revenue in the fourth quarter and that was up from 59% in the prior year quarter and up from the 2007 third quarter comparable margin of 63% excluding a $500,000 license fee booked in that period.

The gross margin for 2007 fourth quarter included approximately a seven percentage point benefit from the utilization of ePTFE graft material produced in-house. We have now realized about 40% of the 1500 to 1800 basis points of margin improvement relative to the second quarter of 2007 that we expected from in-house production of our graft material. We anticipate the total benefit will be fully achieved within the first half of 2008. This substitution of in-house produced graft material also benefits our international gross margins which creates a more compelling business case for expanding our efforts there.

Consequently, we will continue to increase our focus on expanding our distribution outside the United States and we will add resources in 2008 to support this profitable growth.

Total operating expenses were $8.9 million in the fourth quarter compared with $7.9 million in the prior year quarter. That represented a 12% increase compared to the prior year a period over which domestic revenues grew by 65%. The increase was primarily driven by higher sales and marketing expenses, insurance and legal expenses and stock option expense.

Total stock compensation expense in the fourth quarter was $596,000 compared with $555,000 in the 2006 fourth quarter. The line item breakdown for 2007 was $41,000 charged to cost of sales, $113,000 charged to R&D, $277,000 charged to sales and marketing and $165,000 of stock option expense charged to G&A.

Interest income and other income totaled $230,000 in the quarter compared to $305,000 in the fourth quarter of 2006, and included an additional $72,000 of realized gains related to our investment in BioLucent. Overall, the net loss for the fourth quarter of 2007 was $3.5 million or $0.08 per share which compares with a net loss of $4.9 million or $0.11 per share for the fourth quarter of 2006. Per share stock-based compensation expense equaled $0.01 in the fourth quarters of both 2007 and 2006.

Turning to the full year of 2007, total product revenue was $27 million up by 87% from $14.4 million in 2006. Domestic revenue grew by 86% to $23 million and this was driven by a 28% increase in the number of covered sales territories and a 46% increase in average sales productivity per territory.

International revenue increased from $2 million in 2006 to $4 million in 2007. And total revenue including licensing and royalties was $27.8 million for the year. Gross profit dollars increased by 107% compared with 2006 driven by the 87% product sales increase, the $500,000 of BioLucent related license revenue booked in this year’s third quarter and by the 5 percentage point increase in the comparable period product gross margins.

Operating expenses for 2007 were $33.4 million, net of the $550,000 charge in the September to wind up our ePTFE supply agreement with CR Bard that represented a 22% increase from $26.9 million in 2006, primarily due to sales and marketing expense resulting from the 28% expansion of the sales force and the 40% increase in stock option expense. Exclusive of those items, the full year combined R&D and G&A expense actually decreased by 1% from 2006.

The net loss for 2007 was $15.1 million or $0.35 per share which compares with a net loss of $17.5 million or $0.44 per share for 2006. Stock option expense represented $0.06 per share in 2007 versus $0.04 per share in 2006.

During the fourth quarter, accounts receivable day sales outstanding averaged 54 days including both domestic and international accounts and was also 54 days at quarter end.

Inventory on hand improved to 8 months at the end of December compared to 11 months at the end of the third quarter. Total cash and marketable securities of December 31st was $9.2 million compared with $9.9 million as of September 30th. Consequently, the net reduction in cash during the fourth quarter was $638,000. This did include the $500,000 one-time license revenue that was triggered by the September acquisition of BioLucent by Hologic and also included approximately $412,000 of additional realized gains on our sale of Hologic stock in October. But offsetting these favorable cash effects we also made payments for outside purchases of ePTFE which domestic revenues grew by 65%. The increase was primarily driven by higher sales and marketing expenses, insurance and legal expenses and stock option expense.

Total stock compensation expense in the fourth quarter was $596,000 compared with $555,000 in the 2006 fourth quarter. The line item breakdown for 2007 was $41,000 charged to cost of sales, $113,000 charged to R&D, $277,000 charged to sales and marketing and $165,000 of stock option expense charged to G&A.

Interest income and other income totaled $230,000 in the quarter compared to $305,000 in the fourth quarter of 2006, and included an additional $72,000 of realized gains related to our investment in BioLucent. Overall, the net loss for the fourth quarter of 2007 was $3.5 million or $0.08 per share which compares with a net loss of $4.9 million or $0.11 per share for the fourth quarter of 2006. Per share stock-based compensation expense equaled $0.01 in the fourth quarters of both 2007 and 2006.

Turning to the full year of 2007, total product revenue was $27 million up by 87% from $14.4 million in 2006. Domestic revenue grew by 86% to $23 million and this was driven by a 28% increase in the number of covered sales territories and a 46% increase in average sales productivity per territory.

International revenue increased from $2 million in 2006 to $4 million in 2007. And total revenue including licensing and royalties was $27.8 million for the year. Gross profit dollars increased by 107% compared with 2006 driven by the 87% product sales increase, the $500,000 of BioLucent related license revenue booked in this year’s third quarter and by the 5 percentage point increase in the comparable period product gross margins.

Operating expenses for 2007 were $33.4 million, net of the $550,000 charge in the September to wind up our ePTFE supply agreement with CR Bard; that represented a 22% increase from $26.9 million in 2006, primarily due to sales and marketing expense resulting from the 28% expansion of the sales force and the 40% increase in stock option expense. Exclusive of those items, the full year combined R&D and G&A expense actually decreased by 1% from 2006.

The net loss for 2007 was $15.1 million or $0.35 per share which compares with a net loss of $17.5 million or $0.44 per share for 2006. Stock option expense represented $0.06 per share in 2007 versus $0.04 per share in 2006.

During the fourth quarter, accounts receivable day sales outstanding averaged 54 days including both domestic and international accounts and was also 54 days at quarter end.

Inventory on hand improved to 8 months at the end of December compared to 11 months at the end of the third quarter. Total cash and marketable securities of December 31st was $9.2 million compared with $9.9 million as of September 30th. Consequently, the net reduction in cash during the fourth quarter was $638,000. This did include the $500,000 one-time license revenue that was triggered by the September acquisition of BioLucent by Hologic and also included approximately $412,000 of additional realized gains on our sale of Hologic stock in October. But offsetting this favorable cash effects, we also made payments for outside purchases of ePTFE. The device looks and handles just like a standard introducer and is designed to simplify device introduction even in complex iliac anatomy. This design also permits the operator to completely remove the Powerlink delivery mechanism leaving the integrated hemostatic sheath in place to facilitate any catheter exchanges. This will further simplify any adjunctive procedures. We are excited about our plans to begin a limited US introduction of the Visiflex IS in the fourth quarter of this year.

All of these product enhancements and product line extensions underscored the fact that Endologix is continuing on the path to be a technology leader in this rapidly growing AAA market. If we are also looking to leverage our intellectual property and key competencies to develop new products to treat peripheral vascular disease outside of AAA these products are intended to open new markets for Endologix while utilizing our existing distribution channels. We will incubate two projects in the current year.

The first will evaluate the use of our Periflow technology as a drug delivery platform for treating peripheral vascular disease. As you may know, Endologix became a public company through a merger with Radiance CardioVascular Dynamics in May, 2002. In the early ‘90s, CardioVascular Dynamics had developed the Periflow technology, a proprietory double-balloon with a porous outer membrane. At that time, the company had investigated the delivery of heparin into peripheral vessels which proved ineffective as an antiproliferative agent. Today, we know drug-eluting stents utilizing paclitaxel, Sirolimus, and Everolimus can reduce re-stenosis in the coronary arteries but drug-eluting stents have failed to demonstrate efficacy in the peripheral arteries. We have been following some promising preliminary work on the rapid delivery of antiproliferation agents during angioplasty based on drug-coated balloons.

A February article in The New England Journal of Medicine reports on that progress. Our belief is that the Periflow Double Balloon Technology may be capable of more predictable substance delivery versus simply coating a balloon. Our ability to demonstrate the successful treatment of peripheral arteries particularly in those below the knee would be a significant breakthrough addressing a major clinical problem that has not been solved by balloon angioplasty, atherectomy, stents, or even drug-eluting stents.

We also plan to evaluate combination devices with our new ePTFE manufacturing. We have been reviewing some preliminary work utilizing ePTFE as a carrier for antiproliferative and antithrombotic substances to increase the patency of AV access grafts in patients undergoing dialysis.

We can incubate both projects within our R&D budget this year to determine our best product options for future clinical investigation. This underscores our corporate vision of developing innovative solutions for the treatment of peripheral vascular disease.

The Powerlink System gives us an outstanding entry into the rapidly expanding AAA market and we believe we can incubate products that will permit the company to participate in other large peripheral vascular markets as well.

Before opening the call to questions, I would like to affirm our financial guidance for 2008.

As announced in January, we expect total product revenue in 2008 to range from $39 million to $43 million. This represents a growth of 44% to 59% compared with total product revenue in 2007. We expect our 2008 gross margin to be in the 71% to 75% range, an increase of 900 to 1300 basis points over 2007.

Operating expenses for 2008 are expected to range from $35 million to $39 million representing an increase of just 6% to 18% over 2007, and it should be noted that we estimate $5 million to $5.5 million in non-cash expenses. We expect that most of the increase in cash operating expenses this year will be primarily in the sales and marketing arena.

Additionally, we are affirming our belief that our financial resources are sufficient to support our sales force in our current R&D activity and as Bob mentioned, to see us through to becoming cash flow positive from operations in 2008.

In closing, we are making excellent progress towards our goal of leadership in this fast growing AAA market. We expect to benefit from the increased tenure of our sales representatives and are highly encouraged by the quality of professionals we are tracking to our sales team. In addition, we expect the limited introduction of the next generation Delivery System the Visiflex IS in the US end of fourth quarter of 2008. Our proven ability to manufacture ePTFE material is expected to dramatically lower our cost of goods and increase gross margins.

We continue to be enthusiastic about our distribution partners for the Powerlink System in key European markets as well as in Latin America and we are excited about our Japanese Powerlink System launch.

Importantly, we are well-positioned for future growth and market share gains. We are building sales momentum. We have the best in class clinical data to support the Powerlink System use and we are developing and introducing cutting edge technology this year to further simplify our minimally invasive AAA procedure.

With that said, I would like to thank you for your attention and open the call for your questions. Operator?

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1708 Views