Q3 2020 Axonics Modulation Technologies Inc Earnings Call
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As a reminder, this conference call is being recorded now like to turn the conference over to your host Alan Carr.
Good afternoon, and thank you for joining Exxon excess quarterly results an update call presenting on today's call are Raymond Cohen, Chief Executive Officer, and Dan Dare in President and Chief Financial Officer, Randy in my prepared remarks, and commentary on third quarter financial results less commercial progress and a general business.
Update followed by a Q and a 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 the private Securities Litigation Reform Act of 1995, while 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 on this conference call, including risks and uncertainties disclosed. The next Onyx is filings with the ship Securities and Exchange Commission.
All of which are available online at www Dot FCC dotcom listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date November 4th 2020, except as required by law Xilonix undertakes no obligation to update or revise any forward looking statements.
To reflect new information circumstances unanticipated events that may arise.
Now I'd like to turn the call over to Ray for his remarks.
Thanks Neil.
I'd like to welcome everyone dialing in for today's call and those of you who are joining by the webcast.
But before we begin on behalf of all the stakeholders of Exxon X. I would like to express our gratitude to the health care workers, providing care for those impacted by COVID-19, and also to recognize all of our employees for their dedication to our customers and patients during these extraordinary times.
I'd also like to note that today is approximately two years from the date of the Sonics going public and approximately one year from the date of our launch of our second on modulation system in the United States.
Now onto the business at hand.
It's my pleasure to report that sales rebounded sharply in the third quarter with a sonics generating $35.2 million of revenue.
This was despite the launch of a rechargeable fnm device and an all out effort by our competitor could take back converted accounts.
Our commercial success continues to be grounded in providing our customers with exceptional support while delighting their patients with a long lived life changing therapy that is easy to use.
I'll provide some additional commentary on the business trends after Dan's prepared remarks.
On the clinical and regulatory front, we continue to enhance the patient experience and build a strong body of clinical evidence for the X. Onyx SLM therapy.
Notable items from this quarter include enjoy.
In July the FDA approved our implantable device for full body MRI scans with a three Tesla El Ray scanner.
As noted door during our MSR, our Oh excuse me a R. M R I Webinars last week.
Which was attended by an independent physician and then experienced radiology technician axon mixes and MRI conditions are meaningfully better meaningfully better.
And less burdensome than our competitor.
So for those of you in the analyst and Investor community that have conducted physician surveys you are likely to have independently corroborated the same sentiment.
Now this is actually an important distinction since the interesting too is being promoted as MRI compatible however.
It is a if its burdensome to actually get an EMR I completed in one patient appointment.
That's information that physicians need to take into account and making a decision on which product to recommend to their patients.
Now in August we began shipping our second generation implantable nerve stimulators to customers in the United States and then followed up in September by shipping to Canadian customers. Once we received regulatory approval from health Canada.
Now this second generation implantable, nor stimulator reduces how frequently a patient needs to recharge their implanted device to only once a month for about an hour.
For some patients we've seen the recharge interval go as long as 49 days between recharging.
This long interval between Reed recharging is an important point of competitive differentiation for our rechargeable device and physician and patient response has been very positive to this enhancement.
No in September we also reported two year post implant results from our artists and SLM pivotal study.
Now these clinical results with the strongest ever reported in SNL clinical literature.
No. This is especially notable considering none of our study patients underwent an external trial.
So what does that mean it means that all patients were implanted in a true intend to treat manner.
At two years, 88% of all implanted patients worth therapy responders now this is consistent with the 89% for therapy responder rate, we reported at one year now.
Now 82% of these therapy responders achieved greater than 75% reduction in the number of urinary leagues and actually 37% of the patients were completely dry.
We also reported that 93% of patients reported being satisfied with Ics Onyx therapy and stated they would undergo the procedure again.
Patients were also very satisfied with the recharging experience with 91% reporting charging as easy.
In late October we launched a post market clinical registry study named artistry.
Now this registry will collect and analyze real world data of patients treated with electronic systems, and we intend to enroll approximately 300 patients across 30 centers in North America and include patients across all four segments modulation clinical indication.
So we're confident that the technological advances or advancements and the strong clinical outcomes that Ics Onyx continues to produce.
We'll bring second on modulation.
To the four and drive meaningful market expansion in the years ahead.
So with that said I'm now going to turn the call over to my colleague Dan Deeres and he will review our third quarter 2020 financial results.
And then I will provide a further business update.
After Dan is complete.
Thank you Ray.
The third quarter of 2020, exotics generated net revenue of $35.2 million.
This compares to $1.3 million in the third quarter of 2019.
Net revenue from the United States accounted for $34.1 million with certain European markets in Canada accounting for the balance of third quarter 2020 revenue.
As a reminder, we sell our product through our direct sales force in all jurisdictions and there were no stocking orders in the quarter.
Gross profit for the third quarter of 2020 was $21.8 million, representing a gross margin of 61.9%. We anticipate gross margins in the low to mid Sixtys in the fourth quarter and continue to anticipate gross margins in the low to mid seventys over the long term.
Total operating expenses for the third quarter of 2020 were $30.6 million, which compares to $25.7 million in the year ago period. The increase in operating expenses was primarily due to increased personnel crop cost across the organization.
As well as increased R&D and consulting costs.
We expect operating expenses in the fourth quarter to be in the range of 33 million to $36 million given recent increases in headcount and other expenses, including our first expenditures and our new direct to consumer marketing campaign.
Net loss for the third quarter of 2020 was $9.2 million as compared to a net loss of $25 million in the third quarter of 2019.
Cash and cash equivalents were $269.3 million as of September Thirtyth 2020.
I will now turn the call back over to Ray.
Great. Thank you Dan.
So as mentioned earlier on the call. It phonics experienced a strong rebound in third quarter sales as there was a rebound obviously in elective procedures.
And as we all know physicians and institutions are eager to generate income and C patients return to the clinic.
Second on modulation short procedure time, outpatient setting and solid reimbursement helped drive a recovery in procedural volume.
While difficult to quantify in absolute terms. We believe there was a benefit early in the third quarter from procedures that were deferred from the second quarter into early third quarter.
Now we have read all of the recent analysts surveys and.
And listen to what Medtronic has reported about the cycle no modulation market, which they claim is now growing at 20%.
We also note that physicians are optimistic about the future of segment on modulation and expect increases in procedure volume in 2021 and beyond.
What is clear is that our physician customers aren't suzi ethically recommending a contacts to their patients and more of those patients are saying, yes to cycle no modulation therapy than ever before.
Now there is no doubt that under normal non pandemic circumstances market growth would be more obvious however, quantifying the rate of market expansion. At this moment is challenging given aid. This is our first year in the U.S. market and the cobot dynamics.
Moreover, Medtronic is not disclosing official revenue or unit volumes volumes for cycle no modulation in its earnings releases, which this makes which of course makes it difficult to evaluate U.S. market growth and market share numbers.
While we are hopeful that the pace of elective procedures continue in the fourth quarter, we recognize that coated hospitalizations have increased to levels not seen since the early days of the pandemic.
Now given that or given that reality axon X has experienced patients canceling scheduled procedures in October and this is not only in the Midwest, but in other states around the country as well.
And.
Moving outside the United States to Europe. So we're experiencing what we're seeing is really a shutdown with elective procedures not being a louder significantly curtailed in certain markets. Now this is especially relevant for England, and the Netherlands, where most of our European business is drive so we anticipate this could potentially reduce costs.
[music] for revenue in Europe by up to a million dollars.
Now despite the cobot headwinds, but October was a solid month for FICC Sonics. However, if these headwinds and the ones. We've observed in this past month continue for the balance of the year.
We anticipate some.
Some issues and therefore are suggesting a revenue range between 34 and 36 million in Q4 with the vast majority of revenue coming from de Novo patients as opposed to replacements of Interstim too, which have as expected decline from volume volumes reported.
In in earlier periods.
As we have stated previously we believe that cycle no modulation is experiencing a renaissance based on new and effective technology coming to the market and as a result, we believe the cycling of modulation category is poised to double over the next several years.
On the marketing front, we're partnering with practices to identify patients that had been previously treated with drugs that are eligible for third line therapy. We.
We know that cycle no modulation has significantly underpenetrated due to lack of patient awareness with many physicians historically viewing cycle modulation as a therapy of last resort given the need for replacement surgeries. The historical lack of Emerald compatibility and the less than optimal efficacy and the history of Fresenius with our.
Murders product.
Now we started piloting various DTC strategies to test the most effective messaging channels and content to reach patients suffering from overactive bladder and fecal incontinence.
Now, we're placing targeted ads across highly traffic digital platforms.
And using a baseball analogy, we would characterize these efforts as just the top of the first inning in our DTC journey.
Given the limited scale in which we are testing. These strategies, we do not expect these efforts to have an impact on procedure volume in the fourth quarter of 2020.
Wherever we look forward to sharing more of our learnings and the go forward DTC strategy.
With you in the new year.
Now turning to operations and business development.
Continue to make significant progress.
Year to date and certainly in the third quarter, our manufacturing and quality team was very productive during this past quarter and has seen.
On our balance sheet. The team has built a significant quantity of finished goods inventory.
Now we have over 5500 patients that had been implanted with our system over the last year and our data continues to show that nearly 90% of patients who undergo an external trial are ultimately implanted with a permanent device.
And as of September Thirtyth over 600 unique accounts in the United States had implanted patients with the exotic system. This represents an increase of over 115 account from the prior quarter.
So as we stand today ex Onyx now has a presence and over half of the top implanting centers that practice segment, a modulation in the United States.
Now, where we're expecting that this will be the last quarter that we report the number of U.S. accounts in quarterly increases in accounts that we believe this was an important metric to provide to analysts and investors. During the first few quarters of our us commercial launch so they could track progress in.
In acquiring customers.
However, as we have now signed more national and regional IDN contracts with hospitals, the setting for our second of modulation procedures continues to evolve with over half a full system purchase orders now coming from hospitals as such.
From a modeling perspective, the quarterly account metric is becoming less meaningful and less instructive since hospitals tend to have multiple locations and implanters from multiple practices performing procedures in these institutional settings.
That said, we added new accounts in October and we will continue to add accounts in the quarters ahead.
Now there is also a long tail of signal modulation implanters outside of the top 1000 accounts. These.
These implanters represents a group that has not received much support from our competitor.
We have already brought some of these implanters back into second on modulation and we have also train some new physicians on how to implant now. These folks are excited to grow with Ics Onyx and participate in the highly underpenetrated market opportunity with our best in class technology and field team.
Feedback from implanting physicians and patients continues to be overwhelmingly positive with clinical results consistent with the two year data, we reported in our artist and pivotal study.
We're excited to launch the artistry registry, which will continue to expand our body of clinical evidence and demonstrate that the patient satisfaction rates and strong clinical outcomes reported in artisan are being replicated every day in the real world.
On a related note in early October we announced survey results of 137 patients that had previously been implanted with Interstim too that are now being treated with Ics Onyx, we specifically surveyed these patients because they have a direct basis of comparison and can provide unbiased feedback on both devices.
The fact that 92% of these patients that had been treated with both systems would choose axon ex over interstim.
Is compelling and underscores that patients want an implant that is long lived efficacious and easier to end interface with.
It's important to note while there's a lot of talk amongst institutional investors about competition from the new Medtronic rechargeable device.
The facts on the ground or that the non rechargeable interstim to still has the majority share of the segment of modulation market today and it is the go to device among customers loyal to Medtronic.
It's clear that in our view patients have a preference for longer lived devices. If given the choice. There is a significant benefit to a rechargeable implant that will last at least 15 years in the body versus the three to five year non rechargeable device and in the survey 78% of the patient said that the recommendation.
Of the physician recommendation of their physician was the key to the decision to upgrade to axon flex from Interstim too.
Therefore, it's clear that while we will bring some new patients into the therapy from DTC and word of mouth referrals. Our field team has a compelling opportunity to continue to make our case with implanting physicians that the exotic system provides patients with significant and distinct advantages as compared to interest them too.
In early September the National Institute for Health and care Excellence.
Nice.
As it's referred to in England published a medical technologies guidance report in which it recommended the Ics Onyx system to an H.S. hospitals for the treatment of overactive bladder.
It's unfortunate that hospitalizations from coated.
Is leading to a reduction and in some cases, a complete shutdown of elective procedures in certain NHS facilities across England as such we have not been able to capitalize on nice his guidance and in general while the E. U only accounts for 3% of our revenue as I mentioned earlier, our sales in the E U are being negatively impacted.
By Covance.
So moving onto the product development front, just today, we filed a PMA supplement with the FDA for approval of our third generation implantable device inpatient remote.
Now approval is subject to the standard 180 day review time and as expected and we expect to have this product in the market during Q2 of 2021.
The new system allows for nearly on limited programming capabilities and allows patients additional flexibility to change programs remotely now.
Now, while we are close to a set it and forget it product. This is a feature that will benefit practices, where patients have to travel long distance to come into the office for a therapy adjustment.
This new filing and this new product represents the third significant upgrade that we've made to our SLM system during 2020, and underscores that we're nimble and capable of incorporating features that enhance the patient experience.
Today consumers of health care want devices that are effective and easy to use, especially when it comes to devices that will live in the body for a long time and as such we believe that producing great patient experiences will determine the share a will determine share in the marketplace and ultimately propels sake, we know modulation therapy.
The preferred solution for urinary and sequel dysfunction.
Now we're also continuing to work diligently on our primary cell non rechargeable device.
The new offering we will leverage our existing technology and promises to be a long lived and be the first truly recharged free system available and I say this given that none of the components, including the patient remote will require recharging.
In terms of timing, we have entered the validation of education phase of this project and are working diligently to be able to file with the FDA before the end of Q1 2021.
In closing.
We continue to make strong progress on our vision of being the market leader in segment of modulation. We're grateful for the trust of shareholders physicians and patients. We are grateful for the trust. They place. The next Onyx and we continue to work diligently every day to fulfill our commitments to the implanting community and their patients.
So at this time, we're happy to answer any questions that analysts may have so we'll turn it over to the operator.
Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
First question comes from David Lewis from Morgan Stanley. Your line is open.
Good afternoon.
Yes, congrats on nice quarter I want to focus on the future outlook here, so thinking about the fourth quarter guidance relative to the third quarter performance just help us sort of give us more granularity there there is theres going to be several investor questions on whether.
That reflects.
Some some conservatism whether it reflects a view on the resurgence given how the business was impacted previously most of our companies are not guiding particularly aggressive in in the fourth quarter, but the slot share reflect resurgence as it reflects some conservatism or something you are seeing in the channel from a from a share perspective.
Well I'm going to take it backwards. So first of all thank you, Dave and I. Appreciate your comments and your question, let's take it backwards.
Our conservatism if you may in Q4 has nothing to do with competition.
I think we demonstrated in the third quarter. Despite the fact that Medtronic launched their product in August that that did not impact our ability to post some pretty pretty good numbers I think that when we kind of break down what happened in the third quarter and we look at.
The early part of the of the quarter, it's clear that we had some slop over a few may or benefited some from some deferment of procedures that would have occurred in Q2 that wound up being that wound up being done in July.
So I, even though the quarter was was pretty flat.
Flat in terms of quarter to quarter and all the rest of it but there that's real and we recognize that.
That's one.
The second thing is that.
Coated and the resurgence of cobot and hospitalizations is putting a lot of pressure not.
Not only on hospitals because of the increase in hospitalizations, but more so it's the impact on the psychology of the patients that are out there and the fact of the matter is we are seeing and we particularly saw an increase of this in October where patients have cancelled procedures, where they just they canceled the last minute they don't.
Show up to get cold feet, and I, just think that we're trying to be realistic and a bit conservative too.
To recognize that this is a very real phenomenon and.
We're trying to put things in perspective.
And it's very very difficult for us to be able to.
How should we say predict exactly what the impact is this is the reason why we're suggesting that you know Q4 may come out.
In a similar range to what we've seen in Q3, but.
Based upon these these facts and circumstances.
David do you have a follow up.
Operator, we could go to the next question. Please.
First question comes from Bob Hopkins from Bank of America. Your line is open.
Oh, Thank you and good afternoon.
So I apologize for that follow up on the fourth quarter, but it's a kind of a unique time I'm. Just curious does your the guidance ready that you're giving for the for the fourth quarter does that assume that things get a little worse from where you were in October you know a little better or relatively the same.
I'm trying to think about how you ask the question.
If things continue.
The way based on what we saw in October than we would certainly hit the high end of the range.
Okay, I think thats the direct answer to your question right. So I'm, what I'm worried about what I'm worried about Bob is I'm really worried now that the pace of cancellations and headwinds is more than what we've experienced as of right now as of what we saw in October you know.
That's fine we're tracking in the direction that we would expect.
But I'm afraid honestly about what's going to happen I know.
That theres been management teams that have been all over the board on this right. Some have been really ultra conservative about coven impact others have said they don't see an impact.
I'm just telling you this is what we're seeing and.
It's just reality, so we take that into effect with the fact that we had some some deferment of cases from Q2 into the early part of Q3. That's why think this notion of a 34% to $36 million range is reasonable less ex estimate and as you could I think appreciate it.
Everybody on the call would appreciate our objective is to beat numbers right, we want to beat the numbers.
But here we are at the end of the year end.
The question of the day, what do you think about the current quarter. So nothing that really happened in October makes us want to hide under our desks. It's just that you know I think we would have done a lot better had it not been for some of these comments that we're hearing from across the United States and this is no longer just a phenomenon in Wisconsin right are some Midwest.
Phenomenon. The fact is patients are nervous all over the United States.
No that makes sense like this is all in the last 10 days. So people are reacting kind of on the fly they give guidance on that.
So I think you'll see the wide range of.
Hi, managements are reacting here. So my my follow up is really just on.
On the on the one other question on the competitive dynamic because I think most people on this call agree that the market you know looks like its expanding and there's oh.
You know a lot to look forward to here, but I'm just curious if you could flesh out a little bit more from what you saw from the launch of micro did you have a number of accounts that were you were 70 to 80 went back to maybe 50 50, just maybe some anecdotes from the field on how do you think that micro is gone and accounts you know Medtronic accounts and you had penetrated.
So micro you're now you're asking again about how people are asking about micro we just have not seen much activity with micro we saw some accounts, particularly let's say those kao else out there who felt some obligation to try this new product considering there is no clinical data out there and they really don't know how well. It works. So we saw some people down.
Leveling with that product, but I'd put that into the accounts that we penetrated if they use micro were curious about trying it and that's fine right and it's to be expected, but we didn't see really much more than that the point that I made in my prepared remarks, which I think people may find interesting it's interesting to that we're competing with.
Hey that really hasn't changed.
And it's interesting too which is now quote unquote MRI compatible right. That's what's being sold out there and if you take a step back and just think about why would that be the case.
Considering the comments that Medtronic made at the end of July right with their funky quarter ending at the end of July They said their revenue was down 50% to 55% and then we all know what happened in end of March and in April and so forth. So we know nothing was sold then so think about how much inventory. These guys must have right on the shelf right now.
So it's not that surprising to us that thats, what the message would be to their field force to push that product.
I think that Theres a lot of reluctance in the marketplace.
From the average user about taking on a product which has no clinical data.
It's very real and I know that some physicians were maybe.
Maybe.
You know for loose about their comments that well, maybe it's important maybe it's not important but in general I think urologists and York Oncologist are relatively conservative group and this does matter clinical data. It does matter we've been saying this all along and I think we demonstrated in the face of this new competition in the face of these new products.
That we you know we had a great quarter. So you know you know it's it's when you have somebody getting on a blower and saying you know we just took about 40% of the rechargeable market I'm thinking 40% of what number.
Where's Where's the data there is no data.
We gained five or six share points well Wow, if they did that why don't you, let's disclose the data, let's see what the numbers are how can we talk about market share gains or losses or ships. If anything if we have no idea what the denominator is so enough said about that but you know we're faring quite well.
I think as the message I'm trying to get across in the face of new products being released by by the incumbent player in this market.
Great. Thank you Ray. Thank you appreciate the question.
Sure.
Next question comes from Chris Pascal from Guggenheim. Your line is open.
Thanks, I appreciate taking the questions. So Ray you mentioned that you expect your mix to shift primarily to snowball cases going forward just remind us what your replacement mix was in the first half a year and maybe give a sense of where that stood three two.
Sure.
It was I mean generally speaking it was around 20% of unit volumes.
And it's it's diminishing from that number and so that's kind of what's going on.
Okay. That's helpful. And then I was hoping you could spend some more time going into detail on the market development plans and the DTC initiative.
Market growth here is going to be a bigger and bigger focus going forward. It seems like raising awareness is going to be an important component of that so you talked about taking a targeted approach are you focusing initially on certain geographic regions or you calibrating. It. Some other way and then how are you measuring success there to know when it's time to sort of step on the pedal and ramp that up.
Sure Chris those are all good questions.
Look I think that measuring success is important right and you have to think about.
Think impressions and clicks are not something that that's really meaningful and tangible in terms of tracking that to revenue. So you got to go beyond that right.
And what is beyond that well when people actually take additional action.
And they qualify themselves.
That's that's the number one step now we've taken I think.
An intelligent and enlightened approach, where we actually have a third party that we've contracted with which is staffed with nurses who are actually calling those patients who fill out the survey. The online survey right you know they click through they get a survey the qualify themselves and then at that point, we're calling.
And following up with those people.
Now you know based on those conversations we can then do what we call the warm handoff into practices based upon zip codes and trying to be fair and all those kinds of things.
So that's kind of how we're doing it we're not doing physician locator stuff on our web site and I think that we've been able to get the benefit of going to school by seeing the journey that inspire and the euro lift product from Teleflex has already gone through.
In use and we've seen them shifting away from physician locators, and just leaving it up to the patient to take the action. So we're being pretty pretty proactive. So we're going to measure based upon how many patients we can actually drive into a given practice now we all know that not all patients are going to be absolutely ready for third line therapy on day one.
Right you could have this problem you could have had the problem for many years, but you know you may have just try to drug and maybe that's as far as you've gone so they're going to be you know.
They're going to they're going to show up all in all categories of where they are in the in the patient care continuum, where.
Where the care pathway so.
That's how we're going to measure it right I mean any ended the day the what's the whole point of the whole point is to drive procedural volume right that that's the point create awareness and get people to understand the second a modulation is the way to go.
So I think we're doing a lot.
To not just spend money.
Without understanding what what the result is but it's way early right. We're one month into this endeavor.
I mentioned you know.
On top of the first thing for US. So we're you know we haven't even gotten.
Kinda up to bat, yet, let's say.
So, we'll we'll be reporting more about this in the first quarter.
When we do our kind of Q4, and 2020 wrap up and I have no problem with providing color. Its just that I just don't have a lot of information at this time.
Ultimately.
We've seen that radio spots work for medical devices, we've seen the television advertising works for medical devices. This is this is it.
Time or the whatever the expression as you know the time has come now we've.
We've seen masimo do it for pulse oximetry freaks at home we've seen it for your lift we've seen it for inspire and also there's quite a number of companies now that are actually advertising on television.
And you know our colleagues in the business I mean, they wouldn't be doing this if it doesn't work.
But it does require investment of money. It is campaign and it takes time to be able to measure these things properly.
So I know that was a bit of a long winded answer Chris, but hopefully that that was sufficient for today.
That's great. Thank you welcome.
Welcome. Thank you.
Our next question comes from Adam matter from Piper Sir Your line is open.
Hey, guys congrats on the quarter and thanks for taking the questions here.
Maybe just one.
Question on Q3, just around just a housekeeping question on the backlog benefit or the bullish are you guys able to quantify that to some degree what you saw in July.
No.
That's why I've been a bit squishy about saying and I mean, there is some impact.
If I go one level down.
But I can see is I can see the replacement right. If we are able to track what does it de novo.
Sales versus a replacement of interest them too. So that's kinda we saw a bolus of these replacements in July.
Which then waned throughout the rest of the quarter so that.
Without giving you absolute dollar amounts or unit numbers, that's the phenomenon that we that we observed.
And.
That's the reason for mentioning it and it's not surprising all so we never as you know Adam we never expected to really participate in the replacement market that was really not part of kind of what we thought about or did much about it just turned out that has been a lot of demand right to flip these patients from the old interstim into our product.
So we're happy to have that business, but the shift now towards more de Novo press.
Procedures and the fact that we're continuing to generate revenue at a good clip.
I think thats the direction that we would want to be going right. So I'm happy to have had some replacement business in the past, it's now waning and that's fine and we're replacing that with real with new patients coming into the into the program, which is ultimately what we all want we're talking about market expansion the market's not again expand by doing replacement for March.
Circuits expanding.
For us by getting more de novo patients coming in the door Gyn procedures.
Great. Thanks for the additional color there right and then just one question on.
The commercial organization, just was hoping to get the latest update there both.
Himself wrapped and clinical specialists headcount.
And.
Kinda, how you plan to have that progress over the next couple of quarters. Thanks, much guys yes.
Yeah. Thanks, Adam.
Good question, it's suffice it to say that we were going to finish the year close to 200 people in total.
Between sales managers sales people and clinical specialists.
It may be a bit over that line.
And as we have said many many times in the past that our strategy is to add more clinical specialist as case volume grows and we will continue to do that so.
I would not be surprising.
For us to have accounted closer to 300 by the end of 2021. So we're going to continue to add those additional people to support increasing volumes.
Throughout 2021, and when you look at if you run the numbers.
Based on what we just guided to you know you're talking about 110 112 million, maybe maybe more if we're lucky.
You know next year, we were present to you know what consensus is we all understand that if we're going to increase.
Revenue by at least 50% that means there's going to be a lot more cases for us to cover so we're going to need more and more people to be able to do that to maintain this level of.
How should we say service and support that we're providing to our customers. They really appreciate that we want to continue with that so you can see that.
No. This is just logical right in terms of how do we get to the promised land how do we support that business.
Very clear. Thank you. Thank you.
Your next question comes from Kayla Crum from Truest Securities. Your line is open.
Hi, guys. Thanks for taking my questions and congrats on the quarter.
Just a follow up on on Mike.
Is there anything that you guys have been sort of surprised by as it relates to so many of their tactics or pricing strategies in the rechargeable segment and I asked I guess specific to kind of the last month or so it would be really helpful. Just to make that clear.
Oh, okay.
I appreciate the question and you know.
The fact is that you know this is not our product.
There has been so few devices that you know that we know about right that I mean, remember, we're calling and we're working with people who have already switched their business to Acs Onyx and yes. Some of them may have done some micro implants here or there, but it's the it's the customers that we don't have that would be using that product.
Hey, Matt, that's where medtronic when they went to their loyalist that income banging on our customers because they got they weren't that you're not going to get rewarded that well come into people that have ready switch and are happy with the chronic so yes of course were there some procedures done that we know about of course, but we have really and even though we.
Ask and we're looking for data would love to be able to report to you. The fact is there is a positive data that's out there and I just don't think that.
We're going to be the source of providing that direct feedback right. It's just that we're asking but on the other hand, we just don't know that much and there aren't that many data points for us.
To really follow up on it.
As I mentioned earlier, just worth repeating we're competing against the legacy product, we're competing against interest into that's what's going on in the marketplace.
Thats, what they are pushing.
And.
Hi, there.
They are up to their all their other tricks right.
You all have heard it directly right. This information.
Now, making bold statements that are not backed up by facts or numbers.
Disparaging remarks about us I mean, thats been their approach and they continue to to to use that approach in the field.
Our approach is to put the white hat on take the high road and continue to focus on doing what we're doing because it's working and we don't want to you know we don't want to get into some battle of words and all the rest it's bad enough that we have to even address these issues.
On these calls right so.
So the direction to our team is let's continue to plow forward, let's provide excellent service and support to our customers.
Let's talk about what we're doing with talk about the innovation, let's talk about the future pipeline of the of the of the company, let's talk about the fact that we are now here. We are today, we just announced it.
We now have a third generation a device that is been filed with the FDA and less than one year or one year period. These are all things that our team can be proud of I mean, the whole MRI.
MRI work that we've done to expand indications and so on so so I don't want to turn this into a political stump speech its just.
You know that I appreciate the questions I understand people are curious about it but what we said earlier kalo was look we're going to let our numbers speak for themselves and I think so far that's exactly what we've done.
Great very clear and then I guess, if I just annualize your current revenue I mean, you guys already annualizing at about 140 million, you're gaining momentum you're launching a next gen product next year, you're adding clinical specialists.
You mentioned, you're you're Privy to where the street is looking at for next year at 155 million.
Is that for the right place to be if theres any sort of comments I'm just directionally that you guys might be able to provide that would be super helpful. Thank you.
Yes. Thank you I appreciate the question Yeah, I mean, our statement about next year is going to be that hey, we're comfortable with the analyst consensus.
We've said that all along this year throughout this year for 2020, we have also been asked about it for 2021, and we said the same thing.
So you know where we're focused on continuing to increase now you're correct. I mean, you just took our numbers you roll forward, but you know, we're obviously looking to do better and we are gaining new customers.
And we're looking to increase the business. So our objective is to do the same thing next year as we did this year, which is to surprise people with overachievement.
Thank you thank.
Thank you.
Your next question comes from Michael Polak from Baird. Your line is open.
Hey, Hey, good evening Radon and Neil. Thank you maybe a question on the MRI nuances I thought the webinars or last week was.
Very compelling the physician that led to that program admitted as a longtime interstim user that he had zero idea about the nuances of an MRI label until he.
Putting in time to learn about it and at least for me it was quite clear that.
Your label is far superior to even the recent improvements of your peers. So curious what the best.
What sort of physician response did you get to that Webinars number one and then number two what else can you be doing on this front.
Yes total.
Awareness around what seems to be a clear differentiator, but admittedly. It's a it's an issue in the weeds nuance that that could get lost in an elevator pitch dafna.
Yes, no I'm with you Mike.
It's pretty obscure I mean, suffice it to say that urologist and you are going to colleges don't know much about MRF.
You know what I mean, they their history with them or I as well you can't get an MRI. If you have a implant with an interest in your body. So it's not like something they never spend much time on so it's not unusual that they would be confused or easily confused there easily led to believe things.
Just based on the use of some fancy terms. So this is why we've taken it upon ourselves.
Try to educate.
Our physician customers about the differences and also about how all this works and I think the key takeaway.
Which we appreciate that you observed a notice that is just the fact that with our product you don't have to wait 60 minutes.
Between scans right and most scans as the radiologist explain take more than 30 minutes to do right and and in the case of our competitor you got to reset the clock right and 60 minute time out in between and MRI scan I mean, that's a non starter that means for the most part you're coming back at another time and Thats a big inconvenience.
And I think Dr. Butrick, who spoke I think thats the thing that really got him to understand.
And then the idea of resolution right with the Saar rate and so forth. We can provide some better resolution as well now we haven't stopped.
We put out a news release that we're now adding extremity coils to the MRI Armamentarium. If you may we're.
We're going to we're going to continue but that's we're pretty much now at the end of the road right.
Once these other additional enhancements get approved there's really nothing more that we could possibly do.
That would that would make it easier for patients or provide more flexibility for radiology technician. So as our Dr. Jay said on the on the seminar when this.
Current round of enhancements gets approved by the FDA and we've done all the testing and we are 99.9% confident that were going to get the approval then.
Then we're going to have by far the best conditions in this particular category.
And also better than even our colleagues in the second element in the spinal cord stimulation business for pain. So we.
We think that this is important in the end of the day, Mike what is going to win the day. We believe it's the patient experience right. That's what's going to matter in the end of the day.
And everything we're doing and even what I talked about today with respect to the third generation.
Clinical device you can see the philosophy of our company is all about making it easier for patients.
So that they have a better experience about this 'cause happy patients make happy.
Socks, and they are the ones that provide referrals right.
So that's kind of what we're up to and you're going to continue to see a steady drumbeat from company with respect to these kinds of things.
Appreciate that Ray maybe a quick one perhaps for Dan on the gross margin revenue comparing it to the first quarter of 20 and I know, it's just been a weird year altogether and you're in very early stages of ramp, but maybe comparing it to the first quarter of 2020 revenue noticed.
Noticeably higher gross margin within your target range, but perhaps a little lower from the one Q2.
20 level, you're building inventory is that the is that the key item there or are there other kind of small variances to call out that might have been at play.
I think to add Fraser, our gross margin in the third quarter. As we said was 61.9% which is in line with our internal plan and it's consistent with past results. Excluding the second quarter of this year went obviously.
Volumes and margins were lower due to overhead absorption and that all as a result of covered and so what we've been projecting is you know as we ramp there's a certain process of scaling up and there is some inefficiency combined with you get purchase volume discounts by building in larger quantities and longer production runs which is why.
We are seeing as we scale and go over the long term, we're still expecting gross margins to be in the low to mid 70 Percents said.
Does that answer your question, yes, no I think it's good thank you very much.
Okay. Thanks, Mike Your next question.
Your next question comes from carried Michelson from Wells Fargo. Your line is open.
Good afternoon. This is Kevin on for Larry Congrats on the nice quarter I just wanted to clarify a number I noticed in the press release.
As a profit. So my question is you said you had over 5500 patients that had been treated with your product I'm. Just wondering is that through the end of the quarter or through October. So if I do the math on getting slightly below that if I use.
Through Q3 using your revenues.
With that my question is kind of around putting a finer point on October.
Not to beat a dead horse here.
Just curious.
You know to parse out what type of headwinds you're seeing of cancels procedure.
Robert.
And if you are now below the run rate exiting Q3 or is it more you're seeing cancellations today for procedures that are coming up in the next two months thanks very much.
All right Kevin so.
Your first part of your question was the number that we put out there. This is since this is since October or well I'll just say November onest in effect I think our first procedure. We ever did was maybe October 20, Eightth and maybe the next day was a Saturday I don't remember exactly but its a year.
And that's what we're that's what we're reporting on so yes.
And that wasn't it wasn't just the U.S. number. It's just that's the number right. We have you know.
Today, So I don't think that's controversial.
The second part of the question was about canceled proceed cancel procedures. So.
Okay. How do you how do you get visibility to cancel procedures, what we don't we.
We find out about cancel procedure is pretty much a day for two or three or maybe a few days before the procedure is going to take place. So they always come to as a surprise to our feet people in the field right I mean, that's kind of how it how it happens we're not we're not involved in the scheduling of these patients.
We've got to go by what the physicians and hospitals tell us and we show up right. That's kind of how it works. So what we saw was and this is not something that we can track absolutely right. This is a lot of anecdotal conversations that you have with your people in the field pay what are you seeing what's going on and why.
When you know you start to ask these questions people say well I've seen more procedural more procedures canceled in October than I have.
No from when when we when we got back in business in the early part or let's say in.
Really kind of May June and then from there that's what's happening.
And it just seems that the pace of these cancellations is kind of tracking to what you hear on the news I mean, it's not this is not some amazing enlightened comments that I'm, making about this this is just what's happening around the country and I think everybody sees that everybody knows that this is what's going on October was a good month.
Yes, and I think you know despite the headwinds and everything else, we still continue to.
Plug along right so.
Really doing my best to try to provide.
Serious and balanced outlook for what is only two more months of this year and I just want to put this in perspective and I. Appreciate the question Kevin since I haven't said this.
I mean, the expectations for our company.
Were significantly lower than what we're going to end up with and this is despite the pandemic and despite that we were really out of business for two months. So you know I would hope that when people. When there was an 83 million dollar expectation then there's a pandemic and then we're going to finish the year at what we hope to be.
Between 100, 1000 12 million may be more you know that people would recognize that.
We're doing a good job as a company and with our competitor having responded with some new products and some new technology hats off to them. If they are going to respond with some direct to consumer advertising, which I heard them say than than we think thats fantastic news and as Dan has said many many times.
This is going to benefit the increase in the size of this market is going to benefit Medtronic annex onyx and so we shouldn't be banging at each other and we should just simply be focused on how we're going to grow this business and they'll be plenty of business for everybody to be had right and and I know, they're bullish there talking 20% well great if the market's growth.
20% and we're thrilled to death right.
Because that is consistent with what we said was going to happen.
And we're we're happy if Medtronic is doing more fantastic we're doing more people know what our numbers are curious about there, but we think it's fine. So we're focused on what do we need to do.
To grow this business and to see the market expand and we're we're committed.
To to get to this mission if you may and so I know I went a little bit off the rails, there Kevin but I appreciate the question and.
We're going to continue to focus on executing our business.
Absolutely I appreciate it.
Last one is just I wanted to spend a minute just on the primary cell did I you mentioned that the gen three product coming out, but we didn't hear anything about the primary cell divides.
I think you said in the past you are planning to file as early as you can and in 2021 I'm just checking and is that still on track and Big picture, how would you frame up the level of interest in that product and what type of impact it could have to you. Thanks so much.
So we think it can have a big impact on our business, we think it will help us grow.
I don't think it's going to help us much in 2021 I just based on the review time and all the rest.
But as you look into the future I think it's going to be a big deal now.
In the prepared remarks, I indicated that we expect to be able to get that product through validation verification get it filed with the FDA.
Within the first quarter of next year, So thats, our objective everybody's focused on that.
And we feel pretty good the product looks great and I'm being very very careful not to provide specifications on this product when we file with the FDA, we will fully disclose what this product is all about.
But there.
There's just I don't feel compelled on November the fourth to provide the specifications to our competitor.
Makes sense. Thanks again.
Thank you appreciate that.
Your next question comes the line of David Stockton from Needham Your line is open.
Yeah, Hey, guys. Thanks for taking the questions.
I guess first just on on Rep productivity I think Medtronic is around.
You know Thats 3.5 million range, just wanted to see how you're thinking about the long term productivity for Exxon X reps and if maybe longer term you can get above that.
So thank you for the question.
Given the number of.
Apparently.
To be clear about how incentive.
Based upon what we heard from Medtronic recently.
Apparently they have close to 500 people working for them in the cycle no modulation category.
So unless there's hundreds of these people that are out in the rest of the world, which is not that logical considering only represent historically about 10% of their uptake they.
They must have a lot more people in the United States and then would support the three and a half million dollar number so the three and a half million dollar number that you've got I think came from us based.
Based upon how we calculated the historical revenue in the United States and divided by the number of reps that we understood that they had now apparently according to them there have outpaced the number of feet on the street and they have twice as many people as we do so if they have twice as many people as we do then that means their productivity as cigna.
Definitely less than the number you just quoted.
Right. So once again, we're dealing with a bunch of kabuki numbers here. Unfortunately.
Do I believe that our reps can produce three and a half million dollars of revenue per year well. The answer is absolutely I believe it because we already have a few reps that have done that in in this year, despite the pandemic and so on and so forth. So.
The answer is absolutely that is the kind of productivity that we can expect in future periods. As we've indicated the number of accounts that we have is a leading indicator of what we think is going to happen in the future.
And there's no reason why.
Why are people cannot be.
Productive at this at this level and you can imagine that I don't have there is not one sales person working for us today that doesn't believe they can do that.
And that's an Ats important.
And we've got folks that have just I mean, they are pointing the way as to what what is really possible in terms of generating revenue. So.
I don't think were you know it just going to take some time right because when we talk about this it's always referred to the average right and as everybody knows when you're first starting the average is a bit misleading because you've got people in the top 20 that put really big numbers on the board and then you always have the people in the bottom 20 that for one reason or.
Another are slower on the uptake and so.
That's that's the game so for us its.
I'll just parrot, what our chief commercial officer sales on a regular basis right. It's really you expect the top 20 to blow out the numbers, it's about the bottom you're always going to have a bottom the matter what it's the people in the middle that are going to make or break in and that's where we need the increase productivity to be able to make numbers in 2021.
Great that sounds good and then just on utilization can you talk about the trends you saw during the quarter, maybe relative to the first quarter up through mid March.
Thanks, so much.
Yeah, I'm not really sure that the word utilization applies to our business and it's not like we put a piece of capital equipment in and people are utilizing their not utilizing it.
This is about really patients walking in the door right.
And getting them.
The third line therapy, and getting a device implanted.
So.
That's going to be all over the board right depending upon.
The type of customer you have.
Are they private or the hospital employee or they'll have their own assay I mean, there's a lot of different motivations, but then I think what what Neil in particular, we've tried to communicate is that we have kind of put this number around what do we think an account is worth on average and weve targeted batted about 30.
Procedures per year, so that's kind of how we look at the business.
But once again not all customers are created equal some do substantially more than that and others do less. So you know, it's a little bit misleading to talk about that so.
This is about de novo patients and getting them in the door and for US everything is brand new we don't have a historical context with any of these customers. They were going to now first start to see that in 2021, where we really can compare.
What did.
Dr. Cohen as an example, what did he do with us in 2020.
Okay granted there was a pandemic and all that but you know how how much more productive with that.
Practice be for us in terms of procedural volume in 21. So it's it's it's too early right really to ask us because we just don't have the historical data and everything has been mixed up because the pandemic and different headwinds at different times in someone's over so we'll be as forthcoming as we can.
I'm, just being honest by saying, we really don't have that data and I don't want to make up anything that would be potentially misleading.
That that's that's fair just a quick follow up on on a comment you just made.
About the assumption that want to count is worth about 30 implants per year, so that I mean.
One quick math, I mean that I'm getting to 50 to 300 million.
Annualized is that kind of.
The right way to think about it.
You know as as things normalize yeah, I think what we've said.
You know is that the number of accounts is a leading indicator right of what's going to happen in future periods.
So.
Sure I mean, we look at kind of our book of business being Yeah. You can do quick math and you can say well certainly by 2022, we would be hoping to be able to have those kinds of numbers across the board from our accounts that's the future.
For us there will be some more customers that will come our way some are going to be more or less productive but.
But you know it is an indicator if you don't have a customers are not doing the volume that's that's for sure.
Got it thanks, so much and congrats on the quarter. Thank you appreciate that.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day.
Great. Thank you.