Q4 2019 Earnings Call

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I would now like to hand, the conference over to your Speaker today Neil Bulker. Please go ahead.

Thank you operator, and thanks, everyone for joining the exotics quarterly results an update call.

I'm thrilled to have recently joined Exxon Axis, Vice President of Investor Relations presenting on the call. This afternoon or Raymond Cohen, Chief Executive Officer, and Dan Darren President and Chief Financial Officer ran Dan will provide prepared remarks and commentary on the fourth quarter financial results U.S. commercial progress in a general business update.

Followed by a QNX session before we begin I'd like to remind listeners that statements made on this conference call that relate to future plans events prospects or performance are forward looking statements as defined under private Securities Litigation Reform Act 1995, well. These forward looking statements are based on management's car.

On expectations and believes 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 on this conference call, including the risks and uncertainties disclose in electronics is filing with the Securities and Exchange Commission all of which are available online at double.

W. W. Dot FCC dot Gov listeners are cautioned not to place undue reliance on these forward looking statement, which speak only as of today's date March 4th 2020, except as required by law X Onyx undertakes no obligation to update or revise any forward looking statements to reflect new information circumstances.

Or unanticipated events that may arise with that said I'd like to now turn the call over to Raymond Cohen for his remarks, thanks, Neil and welcome to exotic we were looking forward to your contributions and what we expect is going to be a busy year.

And I'd like to thank everyone who's dialing in for today's call and for those of you who may listen to the webcast.

Since our last call in 2019, a lot as change for exotic says we have transitioned to a full blown commercial company with significant operations in the United States.

Jason point in Irvine, California, we now have over 70000 square feet of manufacturing and facilities space, along with our 11000 square foot training Center, our employee head count is now over 142 person.

U.S. field sales team consists of 11 sales managers and 100 salespeople and since January we have doubled the size of our field clinical specialist force. That's at the end of March will number 68 individuals.

That's a team of nearly 180 dedicated professionals, calling on physicians and institutions and covering cases in the United States.

Now we just returned from our first post FDA approval commercial exhibition at a major medical Congress.

This was the society for your dynamics female pelvic medicine in euros, a euro gentle reconstruction. It was it in Scottsdale, Arizona attended by over 650 physicians.

Dr., Kevin Benson a care, while working at Stanford Health care system, and Sioux Falls, South Dakota, and one of the artisan SNL pivotal study investigators presented our one year clinical results demonstrating 89% efficacy.

At this conference and other conferences. These results are now being referred to as the best ever to be reported in this particular category.

Now the results of our initial U.S. launch in the fourth quarter of 2019.

I have even exceeded our own optimistic expectations, resulting an 8.4 million in sales with physicians a in over 200 hospitals and ambulatory surgery centers, having implanted patients with our say going all modulation system in November and December alone.

There was no stocking during this particular quarter.

And in fact, just to add some color. Most hospitals. These days are reluctant to stock product in any case.

So our momentum has continued into the first quarter, we have an additional 100 plus centers that are now implanting our product.

So today, we have approximately 30% of the top 1000 centers that practice sake, when all modulation implanting all product. This includes national and regional IDN large urology groups and ambulatory surgery centers.

So I'm going to provide some more information at a little more color on todays call, but first similar to our past quarterly calls Dan during our president and CFO will start by reviewing our Q4 fiscal 2019 result, Dan. Thank you Ray.

For the fourth fourth quarter of 2019, we reported net revenue of $9.9 million.

This compares to $494000 in the fourth quarter of 2018.

Net revenue for the fourth quarter of 2019 was derived primarily from the sale of our R.S. Nm system.

To customers in the U.S., England, the Netherlands, Germany, Switzerland in Canada.

The gross profit for the fourth quarter of 2019 was $5.4 million, representing a gross margin of 54.4%.

We're pleased with the gross margin we have seen out of the gate and at this level of cell.

As processes to wrap manufacturing are implemented we anticipate gross margin expansion commensurate with volume and skill.

Since its likely to be a question I would like to know that exotics does not manufacture any of its products in China. All of our products are made in the United States either in our Irvine facility Alright contractors based in the U.S. Therefore, we have minimal exposure in manufacturing to the Corona virus situation.

Total operating expenses for the fourth quarter of 2019 or $28.1 million, which is an increase of $18.4 million compared to the same period in 2018 <unk>.

The increase was primarily due to higher personnel cost for the U.S. commercial team and across the organization related to increased headcount to support the commercial launch of the company's our SLM system and the United States.

Given the strong traction we are seeing to the rollout of our system. We will continue to higher clinical specialists and support personnel as needed to ensure physicians and their patients continue to receive best in class service and clinical support from the ex Onyx Tim.

We will also be adding manufacturing personnel to increase capacity and keep up with demand that has exceeded initial loss expectations.

Operating losses for the fourth quarter of 2019 were $22.7 million has compared to operating losses of $9.5 million in the fourth quarter of 2018, driven by the same factors discussed above.

Cash cash equivalents and short term investments on the balance sheet were approximately $183.7 million as of December 31 2019.

And I'll now turn the call back over to right.

Thanks, Dan.

[noise] commercial feedback from physicians and patients based on well over a thousand commercial implants has confirmed that our thesis that we have delivered a device that is preferred by both physicians and patients and that our field team can compete with compete on on a first class basis.

Whether it be supporting cases in the all our or a diverse programming our device. So we feel really good about the initial feedback that we have gotten today.

As I've mentioned numerous times over the past year, we expect to not only compete but overtime to become the dominant player in cycle modulation.

Moreover, we fully expect more patients to choose sake went on modulation as the preferred third line therapy to treat urinary and fecal dysfunction, given the characteristics of a long lived MRI compatible system that is fundamentally bust free and we also expect the U.S. market forsake when all modulation.

And to grow substantially over the next few years as say going on budget cycle excuse me sequel, no modulation becomes less of a secret and more patients are saying, yes to the therapy.

This is the number one way that this market is gonna grow.

We believe that the clinical data and the E and our ease of use product is of critical importance to the customer base made up of urologist Euro gynecologists and a smaller group of Gee why ends and some colorectal surgeons that actually implant secular modulation devices.

Our fourth quarter Seminar series suggest suggested this and this is proving out actually in the field.

Anecdotally physicians report that patients are having better symptom relief then they have seen in the past.

Additionally, in just 120 days, we're seeing this trend come to fruition reinforcing our bullishness about the long term prospects for this market.

As mentioned earlier in the call. Our momentum has continued into the first quarter of 2020 with now over 300 centers located all over the U.S. now actually implanting our product.

This represents about 30% over the top 1000 centers that actually practice sake, we know modulation accounting for approximately 80% of all the implants that are done in America.

Now this group includes some of the largest national IDN as well as regional IDN larger allergy group practices as well as ambulatory surgery centers more.

Moreover, we have a significant number of additional facility agreements that are actually in process and we expect to have substantially all of our targets under contract by the end of Q2 2020.

Our strategy of having or local reps execute these value added committee or V.A.C. admitting meetings.

And pricing our system at parity have proven to be successful im getting these agreements in place quickly.

Now in addition, our new website or public relations and social media campaigns are helping to bring more attention to the millions of women who are suffering in silence with these conditions as I've stated many times today say going on modulation has been a secret therapy and the vast majority of Americans have no idea that there's such a thing as an implant that can draw.

Magically improved the quality of their lives our goal is to bring attention to this problem and to grow the market with the view that the expansion of this market will accrue to the benefit of patients providers as well as exotic.

With all that said it phonics is highly motivated we're fully prepared to support our new customers were not resting on our laurels and we'll continue to be the leading innovator in this field. We have proven that we know how to work with the FDA as evidenced not only by our PMA approval for all clinical indications, but also the recent Pia Mia approval of our.

Enhanced programmer.

We continue to make regular supplemental filings with the F.D.A. to gain approval for additional product enhancements, including expanding full body MRI.

Oh capability to include three T Tesla scanners.

So.

Just to wrap up this section of the discussion I'd like to say that we're making excellent progress in the first 120 days of or U.S. launch and or other strategic initiatives. We're confident about the future prospects for exotic and we're working diligently every day to fulfill our vision.

So at this point, we'd be happy to answer any questions that the folks on the phone would have and will turn it to the operator now to announce the first.

Person, who has some question.

As a reminder to ask a question you would need to press Star then one on your telephone withdraw your question. Please press the pound key.

Our first question comes on the line of David Lewis with Morgan Stanley. Your line is now.

Hi, good afternoon, thanks for taking the questions just a few for me.

First just maybe focus on guidance I know you've been very clear you were not going to provide guidance, but can you just sort of tell us broadly are you currently can.

Comfortable consensus numbers for 2020, and it more specifically actually for the first quarter, where there's a lot of variability street consensus is sort of 14 ask $15 million. How are you roughly comfortable with those first quarter and twentytwenty outlook as they stand today at a couple of quick follow ups.

The short answer is absolutely yes.

Correct.

Yes, Sir absolutely, yes, okay, yes.

That's very clear into more things, where I know, it's early but can you give us any sense of growth as it relates to kind of new account penetration versus reorder sales, where any broader comments you can make on on Reorders is number one I'll just ask my second question now.

Our analysis suggest in the fourth quarter there were some modest market expansion, maybe 4% became six 7%. He's talked just on an account level are you seeing you obviously see evidence of share capture but can you comment at all how about the level of share capture or if you're seeing any significant practice expansion.

Those two points you be gray reorder in the second question. Thanks, so much.

Thanks, David I appreciate the question so.

Yeah, I'm a take him in reverse actually so I think that the reality is that we are seeing the market grow and it's happening in a very very simple way.

The physicians are telling us that more patients are saying, yes to the therapy, they're presenting the therapy.

The characteristics of the long lived implant. The fact that nobody has to worry about getting anything X planted for an MRI.

That that is you know before people actually understand that we have an easy to use product or a patient remote is either those are the things that patients are going to talk about later, they're gonna reinforced with their physicians in the nurses in the practice leader, but initially what what the conversation between the patient excuse me seem to physician.

In the patient is I think secular modulation would be very helpful. This could significantly reduce your symptoms. Let me show you. What we have let's talk about this new product. That's available. This is a device that could easily last 15 20, maybe more years in your body.

And you don't have to worry about you know am arise or anything else you might have heard so.

The fact is that they're telling us that this is a better and more attractive proposition for the patients and their their their their bottom line is patients are saying, yes more often so this is anecdotal it's difficult to measure, but the physicians themselves are experiencing this in real time as it's happening.

And we're getting that feedback and there you know almost the price right. So there were happy to share this data with US we're supposed to tell us about the so so we're seeing is happening.

Count by count basis kind of one on one with with patients.

And you know.

When we talk about this notion of share capture it's modest static market.

There is there isn't it's not like there's so many devices that are going to be placed an all spittel.

I have this man this kind of budget and so forth. This is very dynamic.

The reality is tomorrow, there are zero deals for say going on modulation in America zero there is no business.

The business occurs conversations like conversation physician to their patients. So that's this is a very interesting and very dynamic market and it's not static.

And with full reimbursement for Medicare and all private insurance companies. There is no barriers in the way to getting more patients access this therapy okay.

We hope to be able to have more data and be able to try to measure. This in a in a more meaningful way as we as we go forward now in terms of Reorders. What I would tell you is every single account that we have opened every single account we have reopened in the United States has reordered product from us multiple times there.

There's no question that there.

Finding the product easy to implant and the feedback coming from their staff and their patients is very positive. We just have not had anybody who has ordered one from us or did one implant and then decided that you know what's not working out or we're not providing to support that they would have expected. Okay. So that's that's non issue for us.

And every single day I mean literally every single day now we have new customers that are coming to make sonics for the first time. This is happening on a daily basis.

And it is just this is why we now have over 300 centers that are in planting our product, we do not expect us to stop.

Well in the field or you know, we've got a big force out there and we're calling on everybody a that that's doing any kind of volume and I just want to reinforce and no stop talking one second but now we're only calling on physicians that have experience implanting say going on modulation, we're not going out to other physicians.

A you know trying to bring them to the therapy, we may do that in 2021, but that is not our objective today.

No it's not to say that some physicians are coming are not coming back to the therapy, who may have abandoned the therapy for botox as an example for a number one of a number a number of reasons that we won't necessarily dive into today.

You know the top one is you know I thought that the product that was available up until now with fussy.

It was more trouble than it was worth I only presented it to the patients that had no other alternatives.

Well I didn't like the rappel you know any one of a number of others things that day that they may have done so.

Anyway, that's a that's the story so you know David I I just tell you if you get the sense you know that I'm quite enthusiastic about what's happening for exotic. So then that's the right reading.

No I got that sense right. Thank you and I'll jump back in queue.

Thank you.

Our next question.

Bob Hopkins with Bank of America. Your line is now.

Oh, great. Thank you just a couple of quick questions that the 300 centers that you're in what percentage of the U.S. market do you think that Jack represents right now.

I think it revpor. So we've always said about the way we looked at the market is we identified that there were about a thousand accounts that were doing approximately 80% of all the implants. So we look at it you know through that filter you know there there may be literally hundreds of other physicians that are kinda dabbling in the therapy.

But those are not people that were focused on at the moment.

So we think it represents in effect about 30% of of the people that really matter in the United States.

Okay and then just curious is a high class problem kind of question, but given the current trajectory of the company to broker you're experiencing.

Well enough inventory on hand to meet your where the business is going in 2020 orders or do you need scale up there is that a limiting factor.

Well I mean, you know I can tell you if 60% of all the customers in America only want to buy from Exxon extend yeah, we'd have some trouble you know meeting that level of demand.

So the only realistic answer I can give you is that we're working very diligently to increase our capacity.

This is the reason why we've expanded our facilities and added another 35000 square feet of manufacturing facility facilities, we haven't necessarily reported our head count every single call, but you know we've added.

Probably 75 or 80 people in the last three months alone. So we're doing everything we can to scale up manufacturing without compromising quality and.

Which is obviously the number one most important thing and you know we're planning for success.

We're being successful we're planning for more success and we're gonna do everything that we can to meet demand at some point. If it continues at this rate there will be that will be a limiting factor.

But is there or is it really gets you hit your scale up plans for this year, what's the maximum revenue you could you just trying to get a sense what the you know what that level.

Where we become.

It's a I can't really answer that question right now because the you know we we have a plan and our plan that we made.

Was to overachieve the consensus right. So we plan to overachieve that.

But it's a kind of a fluid situation. So it's difficult to answer that question I'm trying not to be coy about it it's just that.

You know, we're you know where we're going to build as much as we possibly can.

And get that out into the field and there are some limitations.

In terms of how quickly we can scale up now you know.

But you know we just didn't point you know if the consensus is I think David suggested it was more than 14, a let's just say, it's a $14 million I mean, obviously, we didnt plan to only build $14 million with the product right. We're planning for success, we're planning to overachieve, but once again, there was a limit to that.

And then lastly, just real quickly on Medtronic anything they're doing a deal the surprising you at this point.

I would say, there's really no surprises at all.

No nothing really is new nothing has changed.

We're you know we're just out their heads down doing everything we can.

You know to acquire these new accounts to provide the level of support and service that we need to provide the marketing tools.

And to do the other things that that people are looking for so I think that the physician community is really kind of appreciating that six onyx has taken it really a fresh look at this market and that we've been extremely responsive to things that they've been asking for for a long time and providing the tools in the practice that are that are.

Necessary.

You know or I shouldn't say necessary the tools in the practice that are desirable to be able to have patients have a better understanding of what the therapy is and so forth munis is basic blocking and tackling but no heretofore, there's never been social media.

Social media campaign about Sanquin, all modulation, you know nobody ever brought patient ambassadors to a medical trade show before but we have you know so we're doing a lot of things like that I think that we're moving really fast.

And you know we're competing against the company that you know, let's face it they've had this market all to themselves for 20 years. So I think if anything you know there maybe a little bit surprised by the velocity in which things are happening in the marketplace.

Thanks very much.

Welcome Bob.

Our next question comes from the line.

With Barclays. Your line is now open.

Hi, guys and thanks for taking my question I was just wondering if you could.

Comment on what you're seeing any individual accounts just in terms of the uptake on of your product as a percentage.

Implants, because I know there was a little bit of question just in terms of what the percentage of.

Non rechargeable on implants with before a physician's practice I'm just curious if if that you have a good sense of what that number is on.

General account basis.

I have a couple <unk>.

So thanks, Kristen you know that's a that's the kind of a difficult question for us to answer because once again, it's not a static situation.

Right I mean this is fluid right patients are coming in every day and they're talking or not talking about say go no modulation and then you know what were what here's what they're telling US maybe this is the best way to answer the question.

That when their offerings they cannot modulation to their patients and if they're one of the group that is actually offering both product and I would say by the way that's a minority.

Then patients are choosing our product.

Significant a significantly higher percentage than they are the short lived non rechargeable device. Okay. So that's what we're hearing that's what they're telling us our sense is that when we're in a practice and we've gotten things going and you know 30 days or 60 days has has passed I because.

The first 30 or 60 days they may have some patients they ready trial with the competitors product and if they've done that they may want to continue to go down that path not to confuse the patient, but as time goes on there was no question that we get the lions share of the implants in that practice and some practices have just.

Fundamentally switched wholesale to axon ex they have no interest in working with the older product.

And especially when they get reinforcement from their patients and their staff.

That things are going really well and that they are doing well clinically and that the staff to saying look this is really easy to use I mean, we don't have the reprogram that we used to have prior and things like that so it's an interesting phenomenon.

That you know when you speak to physicians you may get one impression when you speak to their staff yeah. That's really when you learn about how well our product stacks up.

And I guess, you know what what's been the experience to just says you're going out I'm trying to open accounts to what extent has not having a on nonretail chargeable device. Then you know a road block and where do you stand us on your next generation.

<unk>.

With a non rechargeable version and then also where do you see and with getting the three T. Labeling and then also the compatibility with existing leads as well and then any particular color that you can share from a European perspectives on the competitive fraught with Medtronic.

There you know product and that's all the 80 questions for me. Thanks.

[laughter] you know I mean, that's way too many questions for me to try to remember, but Dan Dan Smith.

So we'll do our best Okay. Thanks, [laughter] yeah yeah.

Okay, I'm going to work backwards. It stand if you've got the notes I'll work backwards. So so number one three team right. We had a pre sub meeting with a.

With the FDA recently to talk about expanding the labeling to include a three Tesla device.

Or scanner, we expect to be filing shortly with the agency you know who reviewed our technical data encouraged us a we would expect that towards the latter half for this year right. You know that that'll come on board I want to remind people that in the United States of America.

Less than 15% of all the M or I scanners. The threepi. Okay. The we live in a 1.5 t. world and in some cases less than 1.5.

So this is a really in a way and don't I don't mean this take this nor what this is kind of a silly conversation I.

I mean.

You know this market physicians have never sent a patient ever CT and MRI, they sent them to the or two X plant up product. So you know what im saying, so if any but he is bringing up this notion of a we have full body I'm right, but it's only for 1.5 tea.

It's it's it's a it's been a planted comment by the competitor right. They don't have this capability at all so it seems to me kind of in a bit of a little silly, but once again you know there are three T systems out there and if a certain hospital happens to just habit treaty, we don't want a disadvantage them we've done the where.

We're not afraid to invest the money to get this capability and we will have it.

The this notion about <unk> targeting or recharging or non rechargeable. Once again. This is a this is a topic that has come out come up because went before we entered the market in the United States.

No.

Urologists are you're going to colleges had ever worked with eight rechargeable product. So of course, if you've never seen a rechargeable product then you got to say well Gee I Wonder if my patients are going to be willing to recharge. Okay. I mean that that was a question that came up a 120 days ago.

Okay that question does not come up anymore that is a moot point. It. It is completely irrelevant that any physician who started with US now knows this is not a big deal. It's very easy it's not more difficult than plugging. Your iPhone in that was not a plug for apple by the way or any smartphone into the wall.

To discharge it it's not a big deal and the charging interfyl that we have today is one hour every two weeks.

Or as we heard from one of the doctors got one patient apparently this practice that likes the brushing their teeth and top off their segment all modulation exotic system. So they charge for you know three or four minutes every day. Okay. That's fine you know we can certainly do that so we just we just don't see this issue now there are some patients.

That a physician may decide.

This patient may have some trouble recharging, but I would say to you that that's the same patient whose gonna have trouble, taking the competitors programmer and plugging two pieces into the wall. If you. If you can't remember to plug something in the wall or two recharger stimulator, you're not going to be able to.

We used any of these products. So today there is no there is nothing available in the market.

That is not.

Rechargeable.

Okay, whether you know, we're making a distinction between the implant being rechargeable all the accessories being rechargeable, we have a rechargeable implant and all of our accessories that the patient comes in contact with for the most part you know there they don't really needs to be recharge, so anyway and upset about that.

This notion about ability to plug in this is this is a really actually interesting question that you bass Kristen because what we're finding oddly enough.

Is that physicians are yanking leads out of patients coming back and forth quote on quote battery replacements, and they're they're putting our product.

We expected zero business in this particular area, we expect a zero business, but the reality is you know they feel compelled to tell the patient Hey, I've got a new product. This one you won't have to come back in in three years four years of five years to get it replaced this one is EMI compatible and you know patients are choosing our product and.

It's irrelevant to the to the Doctor if you pull the lead it doesn't pull lead it's going to take an extra five minutes in the or to the patient they're completely oblivious to you know leads and whether you pulled the lead or put a new lead and it's just not something that there that there are present to all they know is.

My physician offered me this new products it sounds like that's an attractive alternative and you know they're choosing it so.

It's interesting we look we really do believe that.

Our ability to significantly impact the replacement market with a device that can plug right into it a ready implanted lead is the way to go that's why we've invested our money to develop this additional new version, but it is it is actually a turning out to not be as big of a deal on a day to day basis as.

We've seen and.

I think you Kristen you've you've probably now stolen half of the other analysts questions, but I'll go to the next one which was are we seeing any impact a based upon the CE mark of the of this new micro product and the answer is that today. What we know there are three centers in Europe who've done an implant.

There are too and that's it so the answer right now is not a there is there is you know zero impact and our European customers continue to reorder the product in the same basic rate and pace that they had previously and just to answer and unsaid question well.

We've said all along we're happy that we penetrated a number of these countries.

We said the names right, but we're not expanding our team in Europe. This is not where the action is 90% of this business in the United States, that's what's going to move the meter we're gonna do really solid job of continue to support the customers that we have in the Netherlands in England.

And Switzerland, and now we've just got venue be a reimbursement in Germany. So we're we're going to we're going to work to get you know as many of those 36 centers that applied for the reimbursement to be implanting our product.

But we're not looking to expand beyond that night I don't want insult, our Norwegian friends, because we did.

Get a green card to operate in that country and we have delivered.

Some some good orders there, but that's as far as we want to go we just the other markets. There is so small that it just it just doesn't pay for us and the margins are nowhere near as good in Europe as they are in the United States. So those are all the reasons, but we've seen from a commercial standpoint, we've seen absolutely nothing.

To date now maybe that'll change.

As time goes on and.

And so forth, but that's where we are as of today.

Thank you.

Thank you Christopher I appreciate all those quest.

Our next question from the line of Larry Biegelsen with Wells Fargo Your line of South.

Hey rate and Dan.

Thanks for taking the question. Unfortunately, Kristin Kristin took all my questions [laughter].

In all seriousness, let me just a couple of for me. So if we pro rate you U.S. number for Q4, we did to about 12% share. The U.S. number one do you agree with that math and do you believe your shares continue to increase.

In January January and February.

Well, the 12% of what number there.

Well, if we pro rate what we think you know Medtronic did in the time that you are on the market.

In Q4.

Yeah, but up but at what but what I'm, saying is I mean, I'm not really sure you know the numerator denominator I'm not trying to be difficult I, just don't know how to answer the question of 12% right where yep.

No what I mean, it's a so yeah, it's at least that I guess, but the market is expanding and.

All that right so.

It's it's a it's a difficult question to answer.

You know because.

We don't have absolute numbers right. We don't know what Medtronics annual revenue is we don't know exactly what that is the data we have from third parties in terms of looking at the claims data is two years old.

You know it's difficult to get an exact handle on the replacement number of replacement units versus Denovo implant. So we're we're in a in mature market, where there hasn't been a lot of data, it's not like spinal cord stimulation, where you guys have perfect information and you're able to talk about market share numbers and and you understand the size of.

The market.

And I'm not so sure that you know Medtronic is going to all of a sudden start to publish numbers.

That we're going to give the analyst community a better way to say how much market share, they're losing I mean, Nevada make a bet I would bet that that you're not going to hear that from them. So I think it's it's gonna be difficult for us to answer that question now I'm not trying to be evasive I just don't have a good answer.

Fair enough right and just lastly from me.

You know obviously you guys are are you hit the ground running here pretty pretty pretty hard in the U.S., but one of the key question surrounding the electronics stories your ability to kind of continue to take share once medtronic watches micro in the U.S. in India in the late spring what can you say today that can give investors confidence that you'll be.

Able to continue to take share once they do lunch micro in the U.S. Thanks for taking the questions guys that thanks, Larry Thanks, Larry So first thing is that.

You know.

One would have to check with the Las Vegas Oddsmakers to understand whether spring is the under an over or not.

Okay. That's the first comment I understand what that corporation is saying about getting and new PM May approved 180 to 180 days and I wish them luck with that but I'm not so sure we're going to see that product sprint.

And so therefore, it's kind of a mystery product at the moment, we have a better a little bit of a sense of what some of the elements are of this device now.

But its you know, it's one of those things, where it's a little bit up in the air.

Here's the question that you know I would pose back and that is that.

Hey.

How are they coming to the product with a b spoke product.

That has gone through design or how should we say.

Design research.

To determine all the usable aspects of that system. The charger the patient remote et cetera, et cetera, and is that thing really ready for primetime and so forth and is it a competitive product with our product. Okay that is a question that you know we don't really know the answer to thing I could speculate but.

It's inappropriate for me to speculate that's something for them to answer not for Exxon ex dancer second thing is you.

The question is how that clinical study going with respect to this new product and the only answer that question is Oh. There is no clinical study. So my question is why are we confident that our momentum will not slow down.

Because we've got the gold standard data in this market, we've got a 90% efficacy in a pivotal study where we did not even do external trials on these patients and we just you know if we just put a right on the table and 129 patients out of 129 patients got our implant a 90% of them beat the most.

Conservative numbers in terms of efficacy, we're seeing that actually in reality in our commercial implant. So this is not some one off because we picked good implanters a week cherry pick the patients anybody who would suggest that it's just bunk. Okay. We have an unassailable study.

No and end to end the physician community is now pointing to our study as the best in class in effect gold standard of for urinary urge excuse me urinary urgent continents patients.

For sick when all modulation. So you know I think.

Our competitor, which we have a lot of respect for.

Has a lot of wood to chop and the fact is it's really interesting that their deciding now to come out with a small rechargeable products. So if nobody wants to recharge why you coming out with a rechargeable products.

I mean, if long lived devices not important then why is that device long lived if constant current is not better then voltage control devices and why is that what's your coming out with and the is it really true that all of a sudden.

Nobody is interested in clinical data.

I mean, I can tell you that from trafficking with these physicians now for the last five and a half years.

That they believe clinical data is important.

So I think those are all the reasons. So if we have to give confidence to institutional investors that we're not going to give back any customers then here's what I can tell you every single day. The number one thing our team is focused on is on making sure patients do well with our therapy and making sure they get the support that they need not only in the old.

But in programming the patient and that were responsive to whatever the needs are in the market. That's the only comfort I can give people.

We're not giving up any of these customers once we've gotten them and we believe based on what they're telling us we've created the perfect product for second no modulation. So you know it's kind of an easy throwaway line, but my view is if these guys come out with something it's better than the perfect product for second on modulation then they deserve.

You know to get the business, but we're not gonna give it up and.

No we worked hard to get to this point. This is not an overnight effort. This is not something we pulled off the shelf and dusted off and are talking about it. This is something as you know a perfectly well we spent a lot of time and treasurer in developing the product and we're not sitting on our loss resting on our laurels, we're going to come.

Thank you to go forward. So I really appreciate this question because I know this is that.

Pretty much now the new question, that's on everybody's mind in institutional Investor community God knows that question has changed over you know the arc of us becoming public but we do know that's that's a question that people have in their minds and look there's only one true answered time will tell.

I will tell so alright. Thank you for the a comprehensive response [laughter]. Thanks [laughter].

Our next question comes from the line of Danielle Antalffy SVB Leerink. Your line is now.

Hi, good afternoon, guys. Thanks, so much for taking my question.

Just a follow up question on that the market growth potential here Ray you know I know, it's very early it it's going to be anecdotally you already gave some anecdotal commentary around that but you know with it wasn't market that has been growing or is it maybe let's talk about the centers they <unk> <unk>.

Volume there have been growing you know at certain percentage do you think you did the position that you're talking to you were selling to are they seeing two times that grows on a weekly basis, I mean and help us maybe quantify what you're seeing and then I have one follow up on the market.

Okay. So I think that's the best way to answer this question is really to [noise].

To kind of go back to the work that that you know the analyst community has done I know that there were three surveys that were done by various of analysis on this call today.

You know, where maybe there sample sizes weren't use but I heard 40 to 50, you know a physician's each were surveyed.

They indicated that they expected the market to grow 15 or 20%. This year when we did our own surveys in the seminars that we did with almost 300 plus with more than 300 [laughter] position. They indicated that they expected to 20, 20% to 40%.

Now I think 20% to 40%, maybe you know very optimistic and granted our group was more biased because they came to our seminars.

But.

No I do believe that this number of 15% to 20% is real.

That looks to me you know about five times or what it was historically and that's kind of what we're hearing and Steve Yeah. It's back to it just gets back to more patient, saying, yes, I think really that that's the issue. So I think the types, but if I'm modeling and I'm trying to model I think that's probably the right Zip code.

Okay. That's that's really helpful. And then just a follow up longer term and I don't know if you can answer the question or not but as we think about you know this is third line therapy. At this point I mean, you finally art are driving innovation in the Sandro Neuromodulation market and I I guess I'm just curious about your thoughts as to whether that's good.

Move up from third line therapy, and if so what's necessary do you already have I mean, you have very strong data in hand, it's not enough to eventually.

Get it Oh further up the curve or do you need to do registry, yet maybe talk about the potential there if there is any.

Yeah I think.

You know, it's just not our focus you know we're not in the business of changing the practice of medicine.

It's really what kind of beyond our reach.

It's the American Urological Association the way is the ones that has to change the guideline.

And you know we don't have the.

Resources to start lobbying efforts you know.

Will it change over time, yeah, probably but it's it's unknowable. The reality is that if you just look at the number of patients right now today under the current guidelines.

We estimate that there's probably five or 6 million patients in America, primarily women average age 55 years old.

That have gone through a differential diagnosis, they have overactive bladder or doolin continents, or FICO incontinence. They if they had to away be than they've been given some drugs may be one maybe two they're all that may they may have gotten some botox injections. They may not these are the candidates for.

Therapy right now there is a huge market opportunity. If you look at it. This is this rivals what the folks that inspire medical or talking about in terms of the 6 billion dollar opportunity. It exist today, no changes to third line therapy guidelines or a U.S.

That is the reality today and I think if there's one piece of the puzzle that institution investors have not fully appreciated is that this is a untapped market with lots of potential for growth and this thing is this market is going to expand and we have Dan and I've been saying this since the first day, we met with any institutional investors back.

In May of 2018, we believe this market is going to double and whether that takes three years or four years of five years I mean, mark our word that's what's going to happen we've seen it we've been around for a while we've been at this game for almost four decades. We've seen this happened time and time again. This this.

It has all the characteristics of a breakout market, but it all starts with competition innovation.

You can't increase a market with a fussy product you know in a monopolistic environment right. That's that's what's going on so I'm a were bet and we're all in on say going all modulation.

Thank you so much.

You're welcome thank you.

Next question comes from the mine.

<unk>.

Your line is open.

Hi ran Dan Thanks for taking our questions I'm certainly you mentioned a you had you know 200 accounts onboard out in Q4, and then you're in over 300 institutions now in the U.S. So my question is how many accounts do you think you need to hit the full year consensus estimate of 88.

Million and then should we expect that you continue to add centers at this rate going forward or how do we think about that metric that that drives our model.

Sure I think we needed about 220 to make our numbers is the calculation that we had so now you can get a sense about why we're bullish about the annual number.

Every single day, we're adding new accounts every single day and as I mentioned.

I didn't give hard numbers, but we have literally dozens and dozens of.

IDN ambulatory surgery centers.

Group practices that are still in the hopper with US right that we don't yet have a green card to do business in there in their facilities.

We're not getting resistance, it's just that it takes time.

To be able to work through all these agreements. So we got a lot of Blue Sky ahead of us.

We expect to continue to add accounts.

I fully expect that you'll hear bigger numbers from us when we report our first quarter results.

And so you know, we're quite confident and bullish I mean.

Bottom line is you know.

And I know a Kayla you recently, then had one of our events I mean, you've seen it with your own I mean, the talks like our product and they want to use our product and they like our company and they like our marketing materials like our people and they find that we're you know were Ernest and were honest and were hard working and vigilant about what we're doing in serious about it and were 100.

Percent focused we only have one business here at Ics Onyx and that Sanquin on modulation. That's it that's our business. So I think it's really well appreciated by this a physician community. It's been a longtime coming I think there grateful that we're here.

And if we showed up with some stuff that doesn't work and we didn't provide the support and we weren't giving them a good product at a fair price would be a whole different story.

But we're not making these rookie mistakes as a company.

That makes a ton of sense and then you guys mentioned I you doubled the size of your field specialists floors, which I think is that they deal and it's a big headcount increase you know can you just to elaborate on your strategy. There what prompted that strategy and just how how that helps you guys scale and compete more effectively thanks guys.

Yeah. Thanks, that's a really good question I you know we.

We started the year was 32 clinical specialists and you know we have a slightly different philosophy, I think maybe than some others and that you know our salespeople are their job is to go out there. They're all expert they can support counts you know they can do procedures. They can program the patient.

But in the end of the day, we want them selling we don't want them stuck in the O R.

Okay, I mean that that's the wrong place you know sure they have to be there you know for a you know the first couple of procedures with the new account that they opened make sure that they introduce the account properly to the clinical specialist of course, but they need to then move onto the next in the next the next so.

The key thing for US just have clinical specialists. These are different kinds of people right. These are people, who first of all our usually nurses.

You know there 99% of them have come from the spinal cord stimulation business. So they know how to program. They know how to deal with patients. So we move that head count from 32 to what would be 68 individuals and we've said all along that that was part of our plan, we're not going to add salespeople. We have 100 territories. That's it that's it.

We have 100 territory, we're not adding more territories, but what we're going to do is continue to add clinical specialist as the case volume grows. So have you seen that in literally two months of this year, we have doubled the size of our clinical specialist sales for a team excuse me clinical specialist team you know that should let people know that we.

A lot of cases the cover.

ER and we don't want to disappoint, our customers, we need we need to make sure that you know if you've got a case then we're going to get a covered.

And if that means that we need to go from 68 to 100, we need to get to that hundred sooner than later than we will do it we're where we know how to higher good people. We know how to train people and you know these are the right kinds of individuals to really provide the support in these centers you know they care about people, they're very sensitive.

This is this is what what we need so you know it's important.

That we have the right kind of individuals and we provide the right kind of support.

And at this point you know I Dare say, we got more feet on the street.

No.

Then the other player so and we will continue to make sure that we've got the right head count.

Thanks.

Thank you.

Our next question comes from the line of Adam with Hyper Sandler Your line is now.

Hey, guys, congrats on a quarter and thanks for taking the questions.

Two for me first just on the supply chain you know I know you've been focused on building and stocking up inventory and.

Adding second source suppliers I think you've already stockpiled some batteries for the rechargeable device is.

Which come from China, but just maybe a level set us on how you're feeling about supply chain and you know just any proactive measures you're taking to prevent any supplier disruption and then I don't follow up.

Yeah, I just want to make sure that people don't get the wrong impression about he just said.

The battery that goes into our implantable device is not from China.

Okay.

What we have said is that we source <unk>, a particular battery that goes into our recharging pumpkin it happens to come from China.

I think that's it's an important distinction.

With respect to the rest of the comments on a damn there and they want to add a few words sure hi, Adam I think as we've discussed in the past we built the supply chain and selected certain large scale third party contract manufacturers, so that we could.

Place larger purchase orders and increased production quantities from you know dozens or hundreds of thousands and this is exactly what we've done so starting earlier in last year, we started ramping production as we've mentioned.

A number of times on this call in previous calls the launch has gotten better than expected and as a result, what we've done as we've really relied on these third party contract manufacturer suppliers to just make more sub assemblies faster.

So look we're ramping we are continuing to focus on this area Ray mentioned earlier on the call that we've hired you know dozens of people in operations and quality to make sure that we're continuing to manufacture.

Asset quality that we expect and we are shipping products. So.

Look it's no surprise for a company in this level of growth at this phase right were.

We are waking up every day and just thinking about manufacturing product getting it shifts and taking care of these physicians are these patients.

Okay I appreciate that color and then just for the follow up maybe one for you Dan.

You know can you help us get a better sense for just absolute level.

Opex spending this year with you know the additional clinical specialists and manufacturing personnel that you're bringing on board just any color there would.

Would be much appreciate it thanks much guys.

Yes, no effect so in the previous quarter recall, we we had mentioned that operating expenses for the quarter had I think come out at around 25 million. This quarter, we reported 28.1.

Well, we said before was that that never was stabilized and I think you know stabilization means. This you know for a certain level of volume right that number is going to remain fairly consistent although with an increase and unit orders and sales and as we've mentioned increasing the number.

People at operations quality and clinical support.

Now what we're going to see is a commensurate increase in opex related to that increase in volume and so I expect operating expenses to increase but I don't expect them to increase disproportionate to the rate of the increase in volume. So we are tracking according to plan.

And as we get these additional people fully onboard.

And this corner and next than are up and running.

Well just continue to report call it.

Moderate modest or moderate increases in opex, but certainly nothing that that I would characterize as significant or unexpected.

Okay, that's very clear thanks again.

Thanks.

This concludes today's question and answer session I would now like kind of all back.

Oh, sorry.

Okay. Thank you operator in closing I'd, just like to say that you know, we're making really excellent progress.

In the first 120 days of our U.S. launch and the other strategic initiatives.

You know, we're confident about the future of the company and we're going to continue to keep our heads down and focused on doing the right thing every single day for our patients in our customers. So we really appreciate everybodys interest.

Nx Onyx and the support that we've gotten from the analyst community institutional investors today. So thank you very much and I wish everybody, a happy and healthy rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Thanks.

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