Q3 2019 Earnings Call
And by and welcome to the ex Onyx Q3, 2019 results conference call.
As Tom all participant lines Donna listen only mode. After the speakers presentation, there will be a question and answer session.
The question during the session you need to press star one on your telephone.
Be advised that today's conference is being recorded if you will require any further assistance. Please press star zero I would not like the hand the conference over to your speaker today, Matt Clawson from W. Two Oh group. Thank you. Please go ahead Sir.
Thank you Justin Thanks.
Thanks, everyone for joining the Exxon is quarterly results an update call.
Joining me on the call Mechtronix This afternoon or re Cohen, Chief Executive Officer, Dan, Darren President and Chief Financial Officer.
And Dan will provide prepared remarks and commentary on the first quarter for natural <unk> third quarter financial results Fts status U.S. commercial preparedness.
And the general business update followed by Q1 day session.
Before we begin I'd like to remind listeners that statements made in this conference call that relate to future plans about prospects or performance or forward looking statements as defined under the private Securities Litigation Reform Act of 1995.
Well. These forward looking statements are based on management's current expectations and beliefs. These statements are subject to a number of risks uncertainties assumptions and other factors that could cause results to differ materially from the expectations expressed in the conference call, including the risks uncertainties disclose electronics filings with the securities and exchange.
Commission all of which are available online at Www Dot FCC Dot Gov.
Listeners are cautioned should not place undue reliance on these forward looking statements, which speak only as of today's date November 14, 2019, except as required by law <unk> undertakes no obligation to update or revise any forward looking statements to reflect new information circumstances unanticipated events that may arise.
That said I'd like to now turn the call over to re Cohen for his remarks very good afternoon.
Thank you, Matt and thank you to everyone who's dialing in for today's call or for those of you who may listen to the webcast.
Since our last call in August the Fiftyx Onyx has continued to make excellent progress. Most importantly based on our initial F.D.A. approval announced on September nine for bowel dysfunction, and the approved claims a full body of MRI compatibility at a minimum 15 year life and the body or how did and 46 person commercial team has been able to me.
Market, our product in the United States, albeit on a limited basis and without the ability to discuss the exceptional efficacy results associated with the artisan SM pivotal study for urinary incontinence.
Despite an anticipated slowdown at a number of our high volume centers in Europe . We have seen continued momentum with respect to our international business, securing six new hospital accounts in Germany, and Switzerland, bringing the total over Oh U.S. customers to 33.
In addition, we did see a number of we did see cases bounced back a centers got back online after the summer break so while it's too early to fully predict the seasonality of this business. We assume it will play some role just as it does with other elective procedures.
On October 29, we implanted our first U.S. commercial patients.
The owner of the first implant went to one of the P. eyes, and our clinical study Dr. Felicia Lane at the University of California, Irvine Medical Center.
And just last night.
As I'm sure you've seen in the news we received approval from the United States F.D.A. for the clinical indication of overactive bladder, which includes urinary urgent continents, urinary urge frequency as well as underactive bladder or urinary retention.
So I'll provide a more detailed update on these key milestones and related initiatives on today's call, but first similar to our past quarterly calls Dan Dhiren, our president and CFO will start by reviewing our Q3 financial results.
Dan. Thank you Ray for the third quarter of 2019, we reported net revenue from international markets of approximately $1.3 million.
This compares to $200000 in the third quarter of 2018.
Net revenue for the third quarter of 2019 was derived primarily from the sale of our SLM systems to customers in England, and Netherlands, Germany, Switzerland.
And to one hospital account in Canada.
Although received FDA approval in the United States for the F.I. indication in September we did not ship any product in the United States during the quarter.
The gross profit for the third quarter of 2019 was $677000, representing a gross margin of 51.7% that figure will likely move around as processes to wrap manufacturing are implemented of course, we anticipate margin improvement with volume and sky.
Ill, but we're pleased with the range we've seen out of the gate at this modest level itself.
Total operating expenses for the third quarter of 2019 were $25.7 million, which is an increase of $18.1 million compared to the same period and the prior year.
Operating losses for the third quarter of 2019 were $25 million as compared to operating losses of $7.5 million in the third quarter of 2018.
Driven by the same factors discussed above.
Cash cash equivalents in short term investments on the balance sheet were approximately $101.5 million as of September 32019.
The increase in operating expense was driven primarily by increases in personnel costs, particularly the build out of commercial infrastructure in North America and that you.
Marketing expenses from regions, where acts Onyx is now commercially active or in preparation for launch infrastructure expenses associated with the expansion of manufacturing facilities.
And finally, the costs associated with operating as a public company.
As we mentioned last quarter and in today's release the company accelerated a number of programs to achieve readiness for FDA approval and commercial rollout by the earliest likely dates.
These programs included hiring and training the U.S. commercial team, including 146 sales professionals.
An additional hiring in support of manufacturing quality systems and regulatory activity.
With one clinical indication cleared in September and the other one just arriving we were and are committed to being ready for any combination of launch activities.
The benefits of having the U.S. commercial team hired and trained along with the build out of the necessary product inventory for an unencumbered launch can now come into focus as we were able to hit the ground running with both approvals in hand.
Having implemented this plan we were able to also work through some of the typical operational growing pains and solve logistical and other challenges prior to shipping our first system.
Allowing the focus to be on delivering the highest level of support to customers.
As discussed on the last two quarterly calls sales and marketing expenses combined with the operational costs mentioned earlier has had our opex line continuing to ramp quarter over quarter.
However, this pattern is expected to stabilize now that we have hired most of the employees, we envision needing to support manufacturing sales and marketing.
Consequently, we anticipate opex to remain at the current levels at least through mid year 2020.
At which point, we will have assessed multiple ROI metrics gained an understanding of which marketing programs are delivering and ultimately focus the SGN I spend where it is driving optimal returns.
Our primary focus will remain on securing accounts in the United States growing the market on an account by account basis and now I'll turn the call back over to Ray Thanks, Dan.
Commercial feedback from physicians and patients continue to confirm our thesis that based on the unique features of our system and the quality of our field personnel. We have delivered a device system that is preferred by both physicians and patients.
We expect to not only compete but overtime to become a dominant player in the markets we enter.
Year to date, we've generated $3.9 million in revenue from our international customers and the expectation is that we will see continued growth overseas, albeit.
The fact that these markets are characterized by lower unit volumes and lower average selling prices than what we see in the United States.
With respect to our penetration outside the United States I mentioned that we now have 33 international hospitals implanting, the Exxon Ics SM system.
Those 23 hospitals are in England, three or in the Netherlands.
The new ones three in Germany, and three in Switzerland, as well as the one account that Dan mentioned earlier.
Now we have at this time more than a handful of these hospitals that are exclusively implanting X onyx product for all de Novo patients.
As I previously mentioned these international markets are small in size and they're all capitated in terms of the money that is available case in point.
In our hospital customer in Canada. After implanting over 40 systems. During 2019, they literally ran out of budget money during the third quarter.
So moving to the United States.
As everyone listening into today's call knows gaining FDA approval for the urinary indication was a critical milestone for Exxon Ics.
From one RPM may was accepted by the FDA in December 2018, and taking into account the various amendments we filed for an MRI compatibility and the clinical results of our full cohort of pivotal study patients at six months. It took approximately nine months to get the first ft approval and an extra two months to get the second FDA.
Approval.
We now have the approvals, we need to execute a full launch without limitations or any post approval delays.
All post approval regulatory requirements were satisfied in the weeks following the first approval in September our commercial team now has the ability to detail our clinical results from the pivotal clinical study facts that we have been unable to share with physicians until today.
Clinical data is of the critical importance to the customers.
That or customer base, which is made up of urologists youre gynecologists and a small number of Gee why ends and colorectal surgeons that actually do implants for second on modulation.
In fact in our surveys that we conducted during our seminar series efficacy of the product was listed as the primary reason for selecting one product over the other.
Now that was followed by features and benefits of the system full body, MRI compatibility and procedural and patient programming support.
Interestingly the price of the system was listed as the least important aspect.
The reason for this high level of interest among the second on modulation implanting community in the United States and abroad are abundantly clear we have a smaller long lived fuss free product that is more comfortable and easier to use for patients with a 90% efficacy in our us pivotal study.
In addition, our clinical studies and more importantly, commercial practice have demonstrated successful patient outcomes and very high satisfaction scores from both patients and physicians.
So into some details now in early October we held a very successful launch event and then exhibition at all because that was the American Euro Gynecologic Society meeting along with the International Euro Gynecologic Association or who got that Congress was held in Nashville, Tennessee, where we collected interest from over.
500 physicians. In addition, we sponsored a one hour symposium attended by approximately 300 physicians at which experienced implanters from our artisan SM pivotal study discuss their first hand impressions of our product and the post implants patient feedback.
On October 12, we held the first afore fully booked one day physician education seminars the first one being in Atlanta for experienced several neuromodulation implanters.
Since then Weve, how big executed three additional programs that were held in Dallas, Irvine, and then last Saturday in Boston.
These one day Saturdays seminars, where attended by 273 US based segment all modulation Implanters now fifth program has been added in early December in Atlanta to accommodate overflow demand and we have now approximately 50 additional physicians who are currently registered for that event.
So in total approximately 325 experience economics relation implanters out of about 1000, or so that we invited will attend one of these events. We believe this is an impressive turnout and that it underscores the interest in our innovative long lived and MRI compatible system.
Now as Dan mentioned earlier, our commercial team now numbers 146 individuals. This includes sales professionals regional sales managers and clinical specialists, which had been strategically located around the United States nearly two thirds of these into video of these individuals have had prior either spinal cord stimulation.
Or sequel, no modulation.
Variance with the balance of the folks, having urology or relevant Oh, our experience, while we do not have plans to hire additional salespeople in 2020, we will add clinical specialists as needed to support the growth in the number of procedures.
Now today, we launched our new web site that has both physician and patient portals, and we will begin our public relations and social media campaigns.
The point of this effort is to bring attention to the millions of women who have been suffering in silence with these conditions that were treating as I stated many times to date Sakal Neuromodulation has been a secret therapy and the vast majority of Americans have no idea that there was such a thing as an implant that can be dramatic.
Only improve the quality of their lives.
Our goal is to bring attention to this problem and grow the market.
With a view that expansion of this market will accrue to the benefit of patients providers and of course exotics.
Now outside of the sales organization as Dan covered in his remarks, we're also ramping up inventory and have enhanced manufacturing and product assurance capabilities to support our goal of gaining market leadership in segment on modulation.
No.
Turning to.
Making a few remarks or I should say about the IP lawsuit that was filed by the incumbent.
Our views on this were laid out in plain English and our news release on November 5th.
We believe the claims are without merit and an attempt to suppress competition by confusing physician implanters with scare tactics. This highly scripted event is having the opposite effect in the market and physicians have openly express dismay that they instead instead of investing money to bring attention to the benefits.
It's taken a modulation therapy, the incumbent would rather spend its money harassing a new and innovative entrant.
Now since inception in October of 2003, Oxitec Sanex has invested substantial time and substantial resources in understanding the competitive landscape and we have been very capital to respect the intellectual property rights of all others in the design of our products.
We have develop our own considerable IP estate and it should be obvious to even the most casual observer that the claims asserted against us our frivolous.
My over.
Arching message today for point of view is what I believe all parties involved in treating these patients that suffer from this very serious chronic condition or conditions should direct their resources towards innovation and marketing to create awareness of this highly effective therapy instead of on litigation.
With all that said axon X is highly motivated we are fully prepared to convert accounts and support our new customers were not resting on our laurels and have new second no modulation products under development, including a second generation I PG that extends the time between recharging intervals to once a month and a non rechargeable primary cell death.
Rice, we anticipate having these problems excuse me having these products available in the United States during 2020 in 2021, respectively.
So in closing.
We're making excellent progress with our us launch and our other strategic initiatives. We are fully confident about the future prospects for Ics Onyx and are working diligently everyday to fulfill our vision.
So at this point, we're happy to take time out to answer any questions that folks may have so I'll turn it to the operator.
Thank you.
As a reminder to ask the question you need to press Star one on your telephone so John your question asked about.
Please standby like compiled the Q and a roster and again that is star one asked a question.
And my first question comes from Larry Biegelsen from Wells Fargo. Your line is now open.
Good afternoon, Thanks for taking my question and congratulations gentlemen.
Thank you and me, Okay, yes perfectly thanks.
Sure so.
One.
One qualitative question here that I wanted to ask a little bit on.
No expectations from a revenue standpoint.
First Ray is there anything you need to do before launching.
Maybe indication and second Howard physician planning to integrate X onyx into their practices do you expect them to offer both the Exxon actually medtronic devices to de Novo patients or just one device for de Novo patients that I had a follow up.
Okay. Thanks, Larry I appreciate the question so.
There was nothing that we need to do at this point, we're completely compliant with all regulatory post approval regulatory requirements, we knock those out in September .
And into early October so were good to go we've been shipping since October 20, Eightth and there's nothing more for us to do.
Clearly is the big difference in terms of what our people can do in the field Im sure. You can appreciate that we've been very careful not to do any off label marketing and so it's kind of been the equivalent of the and tying one arm behind our Salesforce is back in the United States. Nevertheless.
We are moving forward now the bigger question that you asked is really quite interesting because the answer is wow. It's all over the board I mean, we have some customers and I'll just speak to the to the US now we have some customers who already have decided that they have no interest in working with the incumbent and are going to be working with us exclusively for.
All of their de Novo patients in fact, we have already seen a number of cases, where when patients were up for a as they call. It a battery replacement or an IP replacement.
That.
These physicians have literally pulled the existing lead.
Pulled IP GE out and put our brand new ex Onyx system in for those patients now that may have been.
For a number of reasons, maybe the patient decided they wanted a long lived device or maybe the patient needed or perceived the necessary the necessity of having an MRI or whatever the case might be so theres a number of factors that go into these decisions. So.
I think it's really all over the board.
Our view is that if.
Physicians, who are working with us would like to give patients a choice than we're perfectly happy with that.
But it's going to depend on each.
Each of these physicians and institutions on on a kind of a practice by practice or hospital by hospital basis. So in a way it's kind of unanswerable.
But as time goes on and we.
Start to accrue numbers in the board will provide more insight into what's happening.
Perfect. That's very helpful. So Ray you know on the numbers I mean, you see the street did about $81 million in 2020, which I think it implies about 12% chair the U.S.. How do you want investors to think about your business in 2020 people leave the bar is set to appropriately and if you could also just comment on the Q.
For.
Incentives I think the U.S., just probably about $3 million for about 200 in play its by by my math.
It would be helpful. Thanks for taking my questions guys. It congratulations again.
Thank you Larry appreciate I appreciate the question so.
Working backwards or no working based on the way you you asked the question I think it's fair to say that we're comfortable.
With the projections at the analyst community has for us in 2020.
I want to point out and I think everybody on the call realizes that to go from basically zero.
In the United States.
And to put a number like that on the board. There's nothing easy about this this is not a lay up having said that we're obviously confident we got a great product we have exceptionally talented people and we know what we're doing so.
We fully intend to to make those numbers.
In the short run this is maybe a little more difficult to answer just because this is really sloppy quarter for us. We we have gotten a start now we've been out there doing procedure shipping product, taking orders and doing procedures for a few weeks now so those things are going well.
I think our Salesforce is.
Is very enthusiastic about the response, there getting from physicians, but honestly, we've had more than not of these customers waiting for the urinary approval.
And the vast majority of the cases that we have booked to date have been for a sequel incontinence cases or dual incontinence occasions cases for somebody who needed then MRI and may and they just went ahead and did it.
So I think the physician community has been in a way pretty disciplined about how they viewed it.
I don't think they were nervous per se, but I think they're just being cautious as you could appreciate physicians need to get paid hospitals need to get paid for the procedures. They do so there are always concerned about what's happening in the background. So hopefully that is a fulsome answer to your to your question.
Very helpful. Thanks for taking my questions.
Thanks, Larry.
Thank you and our next question comes from Danielle Antalffy SDB Leerink. Your line is now open.
Good afternoon, guys. Thanks, I'm not sure taking the question congrats on the approval that was great to see this morning. So.
So just quick question and you sort of.
Maybe already answered a lot of that as we talk about Q4 in and your thoughts on consensus for 2020, but it feels like your line is that your physician seminar on Saturday. Thank you by the way for for allowing me to join and it feels like maybe there's been I don't know with backlog is the way you would characterize it but patients.
Holding up at these practices how do we think about that will there be are you expecting some sort of near term fall was that some of these higher volumes centers now that you do have the approval on hand or help us sort of frame, what what could happen as as the ramp as the product rolls out.
So look I think that.
If you just think about the amount of time that we have I mean here. We are it's you know 14th in November .
We've got a few more days in the month of November to actually do procedures than we have Thanksgiving holiday.
As you know patients don't sign up for elective procedures. During the holidays and then people will come back and then there's just a few short weeks and then once again, we're back into the holiday season. So youre correct in the sense that there was a lot of enthusiasm amongst the physician community and a lot of them have patients that are kind of lined up you know if you may on the run.
The ability to actually execute on these procedures and get them in the books. So to speak in this particular period of time from today through the end of the year is challenging and we're going to do as much as we can within the confines of people schedules and we'll go from there and I.
I think that.
You know we are clear what the consensus is for Q4, we have a 3 million dollar number in the United States and a $1.3 million number overseas.
And our intention is to to beat those numbers right simply said, so I'm not sure I could give you more color I mean, you heard a lot of this for yourself directly from them, but I do think Theres logistics involved here in terms of not only trialing. These patients, but then getting them scheduled for the period for the.
Permanent implant.
Got it that makes a lot a sense. Thanks for that color and then as we I you touched on the litigation as well as we think about that actually thinking from a cost perspective, and time and time to potential resolution and my sense is these things take for ever to play out, but Dan just wondering if you can give us any color on how you guys are thinking of this from a cost perspective.
And.
The expense required to defend your litigation or your patents I'm sorry. Thank you.
Sure. Thanks Danielle.
Since this is all relatively new as you might expect we're moving forward. We're building our plans you're correct. So when you talk to the the attorney is what you find out as this process can extend for months and months and longer than a rational business person would expect.
We have money in our internal budget to cover litigation costs.
We're not breaking that out and communicating with the street. What we think that is I will tell you that the costs that were planning for this litigation are not.
Have a substantial nature, where it's something that at this time, we feel like breaking it out.
Okay. Thank you so much.
Thanks, Daniel Thank you and our next question comes from Adam Mater from Piper Jaffray. Your line is now open.
Hi, guys congrats on the progress and thanks for taking the questions.
My first question is just on the competitive front I think the commentary on the Q2 call regarding competition was there really wasn't a whole lot of pushback from Medtronic. So just wondering if that changed over the course of Q3 and thus far into Q4 and there is obviously the litigation, but just anything else that's been different in the field changes to pricing et cetera, and then identify.
Hello.
We're very we're really pleased with.
The discipline in terms of pricing as you know our strategy has been to basically matched the medtronic prices in the marketplace and we're not.
Put offer unhappy about that at all I think thats going fine.
You know what's changed well what's changed is that you know clearly we've gotten under the skin in the folks and Minneapolis, right and you know they have.
Decided that.
They're going to put out a news release about a new product that theyre going to get approved in record time at the FDIC and then they decided to file what we think is a frivolous lawsuit against us. So it's clear that from a corporate standpoint that you know we've got their attention and they don't want to let's say give up this monopoly easily.
Now, having said that we see certain activities in the field were out where basically they're taking these corporate talk tracks and trying to persuade their customers that everything from G.'s Medtronic Sonics is not going to be able to shipping product because we're going to get an injunction against them to any any one of a number of other stories that they make up.
In the end of the day I think this kind of stuff will backfire on them I think it is backfiring on them and I think physicians may be naive about certain things, but they're not easily Phil so.
You know my comment is simply that look Medtronic has had this market to themselves for 22 years.
Okay and competition is part of the reality of business and so you know we're happy to compete on a fair basis in the field.
With the honesty and integrity and we would invite other people from Medtronic to do the same.
Okay I appreciate that color and then for my follow up just.
Maybe switching over the pipeline do you expect the launching Nexgen PG at some point in 2020, which will be compatible with the Medtronic leads I think given you better access to the replacement market first can you just put a finer point on expected timing is that first half for second half and and then just any thoughts on potential regular.
Pathway for this product.
Well the submission be supportive clinical data thanks for taking the questions guys.
Thanks, Adam So look I think it's you know if you're coming up with the second generation device that substantially equivalent.
There's no clinical study that is required to get approval from the FDA. So that's an easy question to answer and then in terms of availability.
Clearly this is something that would be in the second half of 2020.
The reality is no matter, what you cannot compressed the FDA timeline there is as we have proven.
You know there wasn't any controversy about our product or our testing our clinical results yet it took a long time and I just don't think theres away.
Two shortcut. These processes. There is no such thing is a 30 day or 90 day approval cycle I Dare say that it probably 180 days is not realistic because once they do a subsequent to review.
Inevitably the have questions and when they have questions are off the clock you've got to answer the questions and then the clock restarts. After you resubmit again, so I think you know it's.
It's nice to be able to think that hey, we can get these things that we get amount in the market, but the reality is one has to do verification and validation testing.
These are things that must be done you have to put a good filed together when you make a submission you know it's his 20 30000 pages of data. This is going to be reviewed by a lot of people inside the agency and inevitably there is question. So.
You know it would be foolish for us to say that somehow we have some sort of inside track on how we can circumvent processes inside the FDA. The bottom line is it just takes a long time.
That's very clear thanks Ray.
Thank you. Thank you and our next question comes from David Lewis from Morgan Stanley .
One is an open.
Hi, Good afternoon, just a few quick ones for me, maybe Dan just starting with you. We we saw the shelf registration a couple of days ago were sort of assuming that was more semantic all kind of one your post the IPO, but can you just sort of help us understand how youre thinking about cash access over the next several quarters and needs for cash and a couple of follow ups.
Certainly thank you David So you're correct. You'll note. The three was filed just after our one year anniversary of going public when we became Asthree eligible we filed as part of good corporate housekeeping and it does provide us with optionality for future financing.
If we decide to go down that path as I just reported the company as of September Thirtyth has $101.5 million cash and cash equivalents on the balance sheet, which is sufficient capital to fund.
Through the launch in well into the market.
Okay very clear in the re look I know you already commented on 2020 consensus just want to come back to that first second and at the time that that consensus was formed to take many and also we're not expecting another competitor in 2022 your confidence in consensus numbers for 2020 does that stem from just the commercial momentum you seen to date to stem from a view that you do.
I think you'll have a next generation competitor on the market next year or just.
Confidence in that number regardless of what happens with your with your competitor just one last one from after that.
I think it's the latter David I think irrespective or regardless of what happens or doesn't happen with some new product line.
I think that we have.
The interest.
And.
The fact that the physicians I mean, they what they want to use our product I mean, that's the bottom line and this is about also expansion of the market.
And we're we're convinced that on an account by account basis based upon having a product that more patients will say, yes to that in effect is going to expand the market and its and its going to expand the market on a customer by customer basis. So it's very logical when you just take a step back and just think of.
About it if you're a patient and you are being told that you that the product that you're you're being asked to make a decision about.
Ken is only going to last in the body on average three to five years and then if you have to have an M.R.I., it's going to get ex plant in thrown in the garbage and you're going have to come in for yet another procedure. If you want to continue to have symptom relief.
This is this is a significant deterrent to people, saying, yes, and the physicians tell us that they expect more patients to say, yes to circle month cycle, no modulation and if you add to that any kind of marketing rig which creates awareness out there in the world.
And we all know this is primarily women's problem.
We've done focus groups I mean people do not know that theres, an implant that can increase their quality of life if they have.
Urinary incontinence or dual incontinence or God forbid just fecal incontinence right I mean, so that's that's the story. So we're confident about the expansion of the market. We're confident that you know if indeed the there is another competitive product that has similar features we don't know what in the end what they're going to be.
Well when that product is going to be approved but if it is then that's great. There's more choice more choice more competition more advertising more awareness is going to rise float all boats and we're perfectly okay perfectly okay with that so where you can tell we're bullish we're confident and.
And the bottom line is that you don't get 325 physicians to take a Saturday out of that I have to come in and learn about your product unless theres significant interest in that product.
Okay. That's very clear. Thanks Deb response been is the one thing to structure, where your comments about the symposiums was this the thing that is resonating with physicians is efficacy and you really weren't allowed to show a b data at the symposium some sort of wondering what is it about efficacy that they're looking at it they're getting excited about as it constant currency versus constant voltage, but I was sort of.
Prize for these efficacy comments, because it's a little different in some of our diligence what specifically is resonating with them on efficacy. Thanks, so much.
So I think the point is that this is just so we I tell you where where this is coming from we every patient excuse me every physician who attended the seminar was asked to fill out a survey and as you might imagine we had a lot of questions. In the survey that were curious about so we didnt.
We just asked the question and we said look here's five items police force rank, what's important to you and overwhelmingly they put efficacy as number one.
I mean, virtually I mean, we'll we'll report on this on the survey data in the future as we once we finish tabulating it but I can tell you anecdotally from reviewing every one of them that it is overwhelming and lease nine out of 10.
Have indicated that now what does that mean to them when when we talk about efficacy. This means how well our my patients doing with the therapy are they happy are they getting good symptom relief and now when you then.
Provide information to physicians.
About the differences in technology, and how constant current stimulation, which by the way is used by virtually every single device. That's out there, whether it's cardiology or neuromodulation and want what are the benefits associated with that and I won't go into a whole you know.
Didactic about what happens with scarring of lead and all these are the things, but the reality is that constant current has a significant advantage on being able to maintain patients in the therapeutic zone and here's the bottom line. If my patients have less fosun. They don't defeat there on therapy, my messing around with the patient remote that's difficult to use or theyre not having to.
Come back into my office to get reprogrammed that means we've got patients that are doing better patients who are happier and patients who provide referrals as opposed to.
What is happening today, if you go on the Internet.
These lay people have nothing good to say about cycle no modulation.
They have nothing to say, but we have to change that dialogue in the market. We've got to change that dialogue with these patients. So that they are reporting that they are thrilled with with the therapy and the results that they're getting so.
It's a seems like a very simple question, David I know, you're thoughtful gone and don't need to imply that you asked the simple question I'm just saying it is really multifaceted when you start to really get into the details of what's going on docs want to patients to do well they want the patients to be happy they want referrals and they want to be able to do more procedures.
Let's face. It. This is something that is very helpful for patients and the doctors and its profitable for physicians as well.
Okay.
Thanks Ray.
Thank you David.
Thank you and our next question comes from Kristen Stewart from Barclays. Your line is now open.
Hey, guys, congratulations and congratulations everyone on your team.
And just wanted to ask to get just your thoughts on what your initial kind of orders kind of look like as people come and I. Appreciate that some of the physicians are hesitant to kind of put in orders with Oh AB.
Approval kind of pending but from what you're seeing for those who haven't then are you initially seeing any sort of shocking orders or anything like that that we should be thinking has on as as physicians are starting to embrace the technology and just trying to gauge how we should be thinking about kind of the four.
Third quarter number here or even as you're rolling out onto a more broader or audiences for kind of looking here I'm going into the first quarter Islam. Thanks.
Okay. So thanks, Chris and that's really good question I appreciate the question and I'm going to be extremely clear about our business philosophy.
And you can you could ask any person on our us commercial team or any person on our European commercial team.
The tone from the top is very clear do not put stock on the shelves of these customers do not full stop we are only taking orders and we tell the customers. Please only order what you need to implant in for your patience in the next week's even we have no intra.
And putting stock on the shelves of our customers zero interest we are easy to do business with we'll give you a good price and you don't have to jump through 73000 hoops to be able to maintain that price right. Other people in the market have chosen to play the game of I'll give you. Some special deals the ended the quarter if you.
By X., Okay, we're not doing that we're not going to ever do that that is not the philosophy of exotic and so therefore.
We may we have even we've been told people know.
If you they said what if I by 30, and we say look I'm going to give you. The same price if you buy three selection stored in the three let's get the procedures done, let's make sure everything's going well, let's make sure happy let's make sure patients are happy and then you can order product and whatever quantity that you choose as you continue to work with Exxon ex that that is our philosophy or not.
I just want to be super clear about that.
That we want natural demand based upon having folks byproduct is going to be placed inside of patients.
Okay, perfect and then I'm just in terms of any other takeaways from your physician surveys from these seminars I know youre, probably trying to gauge on on you said of the physicians that were there and what they expected and product.
Yes, and just kind of what they're also thinking just in terms of their their priorities in terms of next generation technologies that they would like you to bring in any any aren't other sort of anecdotes that you could share with us on from from that seminars or even from some other conferences that you've you've had its not sure.
Sure look we've been talking to physicians for a long time now and most recently in a more intimate setting write them into different.
When you have medical Advisory Board meetings, you may have 20 people or something Thats. One thing you know you go to a conference you talked a one hundreds of people, but it's in the open when you do a seminar it's a much more intimate setting and we have breakouts and lunches and dinners and things that we can talk to people and actually get a sense about what they're thinking and.
What I can share with you is that virtually all of the physicians that we've talked to when we asked them local how many are you doing today, it's almost without exception that they say well occupied only doing acts.
I might be doing more botox and I've been doing segment on modulation for X Y and Z reason.
But I'm very optimistic now that you guys have this long live product at somewhere I compatible I believe that I'm going to be able to do more procedures in 2020, and I think your own survey.
Kristen as well as the survey done by the Wells Fargo folks have really underscored that I can tell you that we have a self selected group right. I mean, clearly you can imagine when we report on our surveys the numbers are going to even be higher because clearly it was a third or so or 30% of the market that chose to come to our seminar. So there.
More let's just say more motivated than the average implanter. So we're.
Part of the reason we are confident about what's going to happen in 2020 is because the physicians are confident that their procedure volume is going to grow.
And.
I think thats hopefully some good color for you all.
Thank you and thanks again congratulations.
Thank you comment. Thank you. Thank you.
The next question comes from Bob Hopkins of Bank of America. Your line is an open.
Oh, Thank you and thanks for taking the question and good afternoon.
Thanks, Bob.
It's just a couple quick questions. Firstly I appreciate your comments on being comfortable with where the street is for next year, but I was wondering at some point or you're going to give kind of more formal guidance for 2020.
And if so will that happen on the on the Q4 call.
Yes, Thanks, Bob So look I think we've talked about this.
A number of times as you might imagine as we go around to talk to institutional investors. They like to ask this question as well so here's what we've said and I think we've been very consistent please give us one full quarter.
To be Bill go out there and get a sense about how things are going and then we've been a much better position to be able to indicate what we think might happen in the next few quarters to come so honestly.
Or from a pure logistical standpoint, we're not going to be in a position.
To reaffirm more guide in a different way in January .
It will happen when we're after the first quarter and we are able to have put that under our belts and then we will not be shy about saying, what we think and and providing guidance with regard to the numbers I think that if one thing hopefully Bob you know and all the other analysts and others listening into the call no our business philosophy.
He has been open book, we are transparent I mean this is the reason we invited you know analyst into the seminar. So you could hear and get a sense directly from these implanting physicians what they thought about.
Our product the incumbents product the future of this therapy et cetera. So.
We're not going to all of the sudden now change our stripes.
Okay. No. That's helpful. Just wanted to clarify there and then.
Two other quick things aren't back on the balance sheet question, just a follow up there is it fair to say that should wait and see how the launches going before taking a look at potentially raising capital or could you be more aggressive and raise earlier just wanted to try to set that expectation in light of the shelf.
Hi, Bob This is Dan I mean at the present time, you know we filed the S. Three so we have the optionality to do it if we decide to be opportunistic, but we have not announced any formal plan you know we're in the process of marketing and offer.
Right now [laughter] countries, just trying to see what how your thought process or is there I realize you haven't.
Started the process unless I missed a press release.
I think that what you're hearing from US is that things are evolving for us I mean, the landscape for axon X. I mean today on November the 14th the landscape for Axon X is completely different than it was two days ago literally and completely different than it was a week ago on Monday. So you know things are really of.
Valving for us so it's it's not like we've been in this kind of steady state and you know everything is it's been normal or normalized right things are things are very volatile things are happening.
I think we're going to try to be opportunistic and that maybe is the best way to say it and you can with all due respect you could ask Dan. This question 17 more times than it is not going to answer the questions.
[laughter].
Oh, that's a perfect segue to moving on so I.
[laughter] one other thing I wanted to ask about is do you guys have a sense of the 325 doctors that you mentioned give any rough sense as to what percentage of the you as volume is represented by those 325.
Yes, that's a really interesting question I don't have those statistics.
The top of my head.
We will report on this Bob and its considerable it's a considerable percentage, but I just don't know the number of we havent.
We havent fully tabulated. The result, I'm sure you can appreciate that the last the meeting just just occurred.
Just closed up on Saturday night, and we've been kind of focused on some of these other items. This week so.
We are going to pull together, but I can tell you the invite ti work.
We're amongst the a thousand.
Physicians, who account for 80% of the business so.
Simple math would suggest it's a pretty measurable percentage of a market. Okay. And then last quick question is just you know the market.
To the numbers, we get it sort of.
Obviously without any new technology is growing maybe mid single digits somewhere in that range it bumps around quarter by quarter.
Based on your preliminary conversations with physicians.
You know do you have any sort of rough estimate as to what you think the market growth rate could end up being I mean, as 10% to 20% to a reasonable assumption just wondering if you have any.
Thoughts on that topic.
So.
What we've said Big picture is that we thought the market is going to double in the next three to five years.
We've been saying that for long time, and we honestly believe thats true now as we've gotten more granular and we've asked this question. We've actually asked this question just like some serve some of the analysts have done some surveys with smaller numbers, we have a much bigger population that we've asked the question too and I would tell you that according to those physician.
And the number is better than 20% now we would want to temper that of course, but but I think we're in that were in the right neighborhood. It's clearly said at the market is going to grow at a significantly faster rate than what it has historically based upon new technology in a longer lived device and all these other features.
Great. Okay, well, thank you and good luck with launch.
Thank you Bob I really appreciate it.
Thank you.
And again, ladies and gentlemen, if you'd like to ask a question that is star. One again that is star one ask a question and our next question comes from Mike Matson Needham and company. Your line is now open.
Hi, Thanks for taking my questions just a couple manufacturing related questions. I guess, so first based on that 81 million dollar consensus number next year or do you believe you have adequate or will have adequate production capacity.
To meet at that level of demand.
Yes than southern high. Thank you Mike This is Dan Darren.
So as as you will notice on the balance sheet. The company at September 30 has an inventory balance of 12.5 million at $12.7 million, which is an increase of $4.7 million from the prior quarter.
And we've been increasing our production volumes now for several months and have a build plan.
To have inventory on hand in finished goods inventory.
Ahead of the coming quarters. So we obviously are kind of report out specifically.
How many units is tied to that dollar amount of inventory, but we've been we've been planning for the us commercial launch and for having inventory on hand for several months now.
Okay. Thanks, and then just from a gross margin perspective, I mean, most other neuromodulation products just how the 80 plus percent Greening show over time is there any reason to believe that you can't get to that level and you know if you've got to 81, I mean, I would assume you'd probably kind of reaches peak GAAP gross margins a few quarters yet.
Maybe one willing brings us.
Right now it's a good question, what we have consistently methods to analysts and the shareholder community is that at scale. We expect the gross margin on this product to be in the low to mid seventies.
And.
You know at those numbers. This is a very leverageable business I'd like to point out because when you get into our Opex below the line what you see Insseco neuromodulation.
This is a.
Relatively straight forward procedure on once a patient has been implanted in program. There is not a tremendous amount of post procedure follow up and so with a much more leverageable business than what you might see in other areas of neuromodulation like spinal cord stimulation.
Okay. Thanks, and then finally, we're really good to hear that you're you've got the social media campaign plan.
Just curious to what degree your competitors kind of executed the DTC campaign somewhat or what you're planning to do.
Well I.
I mean.
I would just say according to physicians their view is there's been virtually nothing done to bring.
Much of wariness too to this market now in fairness.
There are clearly our some accounts, which have been getting a lot of support and there have been some things that have been done to reach out to patients and their community or patients that are in their roles. So I think it would be unfair for me to characterize that that is never happened at all but the majority of physicians feel as if there.
There's been no awareness brought to secular modulation and that money has not been spent.
In this particular areas. So I would dare say that anything that X Onyx does is going to be have more visibility and bring more eyes to this problem than has been done before and we have not seen any presence on social media from the incumbent.
And not that look one of the dangers here as you know we're talking about what we plan to do and we just right in the playbook, but on the other hand. This is this is what needs to happen today right patients the need to learn about this they need to understand what's possible they need to hear from other patients who have good experiences as ups.
Most of the ones, who are angry and upset and those are the ones that are on the internet and we see this in many walks of life of course, it's not just sequencing modulation that seems the people blogging and the people on the Internet are the ones that are unhappy about something so we want to turn the tide on that and I.
I think you're going to see immediately from us whether it's on linked in or Facebook or any of these other things you're going to start to see.
Axon exit few Google the right words, and all that kind of stuff. So we think it's important we think this is important to provide support.
For the physicians that are working out there in this area. We think this is going to benefit and accrue it's going to recruit the benefit of anyone in this market.
Right. So we'll leave it at that.
Great Thats really helpful. Thank you.
Thank you.
And we have a follow up question from Kristen Stewart from Barclays. Your line is now open.
Hi, Thanks for taking my follow up I'm, just wondering if you had any color on whether or not all of their sales reps have had the opportunity to go out to meet the thousand physicians that you've identified at this point in time or have they basically need contact at this stage in detail.
Triple that they really hard hitting the ground running and now they can go out and fully marketer or you're still accounts that need to go out and be identified.
So that you know the simple answer is absolutely theyve been out yeah.
And you know I think if you really want to get the answer to that question than I think you'd have to ask.
Our competitor whether or not.
I've been in their customer accounts because by definition every one of these accounts is not our hasnt been our customer right.
But now we're out there now look in fairness.
There is the percentage and I don't know the exact percentage today, but it may be 10%. It may be 50, 15% of the folks that for one reason or another are not ready to talk to exotics, yes, we didnt have the urinary approval, maybe they wanted to wait for that maybe they the with the well has been poisoned by propaganda you know there might be other reasons or they may just be getting such phenomenal support.
Because they are one of the chosen few in the United States that maybe they're happy with what Theyve got and it may take some time before.
Their eyes move.
To to axon X or they start to see other implanters, having offering this product as compared to what their offering. So you know it's early early days I mean crazy early days for US right. As you can appreciate Kristen and what I can assure you is we did not higher children, we did not higher pharmaceutical reps, we hired him.
Experienced people most of them with direct experience in Neuromodulation that folks who understand how to compete.
They understand how to position a really good product and they're very enthusiastic about what's happening. So you know.
Bottom line is look we're bullish.
As you would expect that we would be and so far the early returns are very positive for Ics Onyx. So.
What I can say a is that we will continue to put our heads down.
Going to focus on what's important and whats important is make sure procedures go well that patients do well patients are happy in the doctors are happy with our product I can show I can tell you. We are we are really focused on those metrics because in the end of the day, that's what matters.
Okay perfect. Thank you.
Thank you.
And thank you.
I would now like to turn the call back over to re Cohen CEO for closing remarks.
Thank you I think we've said quite a bit on the call. The only thing I would like to same closing is we really appreciate people's interest in axon Ics and we look forward to continuing to communicate.
With shareholders with analysts and with the physician community and I wish you all the good evening. Thank you for joining.
Thank you and ladies and gentlemen. This concludes today's conference call. Thank you participating you may now disconnect.