Q3 2020 Pulmonx Corp Earnings Call
Third quarter 2020, <unk> earnings conference call.
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Speakers presentation, there will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone keypad. If you require any further assistance. Please press Star then zero.
I would like to turn the conference over to Mr., Brian Johnson, The Gilmartin group. Thank you Sir please begin.
Thanks, operator, good afternoon.
And thank you all for participating in todays call. Joining me from harmonics are going French President and Chief Executive Officer, Derek Some chief Financial Officer.
Earlier today harmonics released financial results for the quarter ended September Thirtyth 2020, a copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities law.
Which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward look.
Statements.
All forward looking statements, including without limitation those relating to our operating trends and future financial performance the impact of COVID-19 on our business and prospects recovery expense management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion and Paul.
Pipeline development are based upon our current estimates and various assumptions. These.
These statements involve material risks and uncertainties that could cause actual results or events to material get materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factor section of our public filings with the Securities and Exchange Commission, including the final prospectus filed with the FCC pursuant to rule four to four before on October 1st 2020.
In connection with our initial public offering.
This conference call contains time sensitive information and is accurate only.
As of the live broadcast today November.
For 10, 2020, Onyx Corporation disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events.
And with that I'll now turn it over to Glenn.
Thanks, Brian Good afternoon, everyone and welcome to our third quarter 2020 earnings call here with me today is Derrick sung our Chief Financial Officer.
Before I get started I would like to thank two important groups of people.
First our pulmonary and critical care customers around the world who have been on the front lines combating COVID-19, and second the entire pulmonic team that has persevered through when delivered during this particularly challenging time across the country and in the pulmonary space in particular, thank you all.
As many of you are aware this is our first earnings call. Since we completed our IPO and listed on NASDAQ in October before I begin I'd like to say, thank you to all who participated in the offering which raised approximately $201 million net proceeds to the company.
And to those of you who have invested in the company sense.
With your support we are now well positioned to take the next steps in our journey toward establishing ourselves as the global leader in minimally invasive treatments for lung disease, while we had the chance to tell our story to many of you through our IPO prop process I'll start today's call with an introduction to Pulmonic center platform solution before moving on.
On to cover our recent updates and vision for the future pump.
Harmonics is a commercial stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema a form of chronic obstructive pulmonary disease or C. O P. D. Our platform solution anchored by or is that for Underbought Bronco valve treats patients who despite medical management are so.
Still profoundly symptomatic and either do not want or ineligible for surgical approaches.
As background emphysema accounts for approximately 25% of all C. O P. D patients and is a debilitating and life threatening disease more specifically it progressive lead destroys lung tissue, resulting in a diminishing ability to breathe and engage in the most basic daily activities, leading to a high mortality rate.
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From a market perspective, approximately 3.8 million patients in the United States were diagnosed with emphysema as of 2018.
Of roughly <unk> of which roughly 1.5 million had severe emphysema.
Of these 1.5 million severe emphysema patients in the U.S., we estimate that approximately 500000 patients would qualify for treatment with ours that for valves after taking into account an additional roughly 700000 separate patients outside the U.S., we believe our global addressable market is approximately.
$12 billion.
This represents our opportunity today and does not account for any additional patients who we may be able to treat in the future with technologies under development.
We expect to capitalize on the significant addressable market because there is an urgent clinical need for a safe effective and minimally invasive solution for patients with severe emphysema and this is what our platform offers.
Current treatment options include either medical management, and pulmonary <unk> pulmonary rehabilitation, which are non invasive but limited in their efficacy or the more invasive treatments of lung volume reduction surgery, or complete lung transplantation, which bring with them significant morbidity and mortality and thus are simply not enough.
And for most patients with severe emphysema.
Our solution is comprised of the Zephyr Endo Bronxville valve the first step da approved and plan to reduce hyper inflation associated with severe emphysema the chart as pulmonary assessment system and the Stratix lung analysis platform.
Suffer valves are indicated for bronchus scopic treatment of adult patients with hyper inflation associated with severe emphysema and regions of the long that have little to no collateral ventilation.
During the one time bronchus Scopic procedure. The valves are placed in the Airways to occlude. The most diseased parts of the lung, allowing trapped gas to escape until the target Loeb is reduced in size. The intended result is a reduction in loan volume and hyper inflation in the target Loeb, thereby allowing healthier parts of the lung to expand and take in May.
Our air the.
Stratix platform and the charter system art treatment planning and patient identification tools designed to enhance outcomes with our solution.
Stratix facilitates the analysis of existing C.T. scans to help identify target lobes and to plan. The Zephyr procedure Chartists is used to effectively stimulate the procedure immediately ahead, a valve placement and to definitively identify the patients most likely to benefit from this treatment it.
It does this by determining the presence of collateral ventilation and exclusionary criteria and that is naturally present in approximately 50% of people using these tools together is the best way to identify and treat patients who will most likely benefit from Zach for valves. These patient assessment and treatment planning.
Tools represent a significant competitive advantage and we believe they will allow us to establish our platform as the standard of care for the treatment of wells selected patients with severe emphysema, because they enable us to deliver better average outcomes concern.
Consistent results across four randomized controlled clinical trials and over 100 scientific publications demonstrate the patients selected with the charter system and successfully treated was that for valves show clinically meaningful and statistically significant improvements in lung function exercise capacity and quality.
Life compared to medical management alone.
As a result zephyr valves have been indicated in the treatment guidelines for C. O P. D worldwide the quality of evidence treatment with Endo Bronxville valves has been great today by the global initiative for chronic obstructive pulmonary disease widely known as gold.
Further the United Kingdom's National Institute for Health and care Excellence also known as nice has included our treatment as part of standard measures for C. O P D and recommended all qualifying patients be evaluated for eligibility.
The consistent and significant results of our clinical trials have enabled us to establish reimbursement in major markets and this furthers our confidence in our ability to execute.
In the U.S. roughly 75% of our patient population is covered under Medicare, which pays for our medically necessary solution.
The remaining 25% of our patient population is covered by commercial plans here, we have made significant progress in securing positive coverage decisions with national commercial payers, such as Aetna and Humana. Most recently health care services Health Care Service Corporation, the second largest.
Bluecross Blueshield plan, covering 16 million members across five states issued a positive positive coverage policy for.
The Zephyr valve effective November one.
Select health Health plan, serving 900000 members across three states also recently issued a positive coverage decision for our treatment in all we are very pleased with where we stand in terms of reimbursement and believe this is not a significant barrier to adoption of our treatment at this time.
For perspective, even payers without positive policies have generally been approving preauthorization request for our technology in more than 90% of cases.
Outside the United States. Our solution is covered by major health systems across Europe, and Asia Pacific in the last two years, we materially improved our reimbursement situation in Austria, and Germany, and establish national reimbursement in Belgium, and France, just last week in the United Kingdom.
Commissioning decision was published by NHS, England, then enables access to routine funding for our Zephyr valve treatment inexperienced treatment centers. This decision is based on advice of doctors health experts and patient and public representatives further cementing the recognize.
Nice clinical benefit of our procedure. It is noteworthy that the NHS, England decision is specific to the design of our zipper valve and does not apply to other valves have different design. Finally, just earlier today, the Scottish Health Technologies group, a national Health Technology assessment agent.
See that provides evidence support and advice to NHS, Scotland on the use of new health technologies published a report recommending endo brunk, you'll valves be made available to all eligible patients in Scotland.
Now that I provided some background on the platform and the market I'll shift to an overview of our commercial approach for perspective. The Zephyr valve is now commercially available in more than 25 countries, including the U.S. over 80000 valves had been used to treat more than 20000 patients globally to date.
The U.S. market lends itself to a particularly efficient commercial model given the relatively small number of U.S. hospitals, and leading pulmonologists that are high volume interventional us we.
We believe we can serve substantially all of the patients in the U.S. with just 500 centers of excellence, which represent less than 10% of all U.S. hospitals and as of the third quarter, we have already begun procedures and 135 of these target accounts.
We are creating an entirely new market.
To fully unlock the opportunity we have three key elements to our commercial strategy first we have to train new physicians and opened new hospital setting them up in a way that they can scale easily second we have to coordinate we have a coordinated playbook to work with the physician champion and their.
Total to reach out to local community physicians with high concentrations of C. O P D in their practices and build awareness and referral networks third as we get these elements in place, we leverage Geo targeted digital and social media to bring patients into the conversation and help.
Them to advocate for themselves we've been piloting this approach in specific geographies and have already seen a tremendous growth in interest while we do not see direct to patient as essential to our near term success. We believe that health care will continue to become more patient driven and see this as an important component.
Of long term growth.
From a global perspective, we sell primarily through a direct sales model with more than 90% of sales through our 70 sales representatives around the world as of the end of September we had 42 sales reps in the U.S. and 28 sales reps focused on our international business Wi.
We find that our value proposition resonates with both providers and patients across the world, particularly because the platform is a new service line with potential economic benefits for hospitals. The procedure is emotionally rewarding for physicians given high procedural success and limited alternatives.
Chart.
Chartists and Stratix allow physicians to select patients who are most likely to benefit which improves the likelihood of positive results.
And the procedures minimally invasive nature translates to fewer complications in quicker recovery versus invasive alternatives come.
Collectively these factors have all played a role in driving our success.
Turning to our results we were very encouraged by the strong rebound of Zephyr valve procedures in the third quarter. Following the significant drop in sales that we experienced in the second quarter.
When our business nearly ground to a complete halt during the initial weeks of the coated pandemic.
Our worldwide sales of $10.6 million in the third quarter represents the highest quarterly sales we've achieved to date.
We saw continued signs throughout the third quarter that the underlying clinical need for our treatment is durable and that a recovery in our business is underway for example, since the onset of the pandemic in the second quarter. There continues to be strong interest from new accounts in adopting our treatment and we've opened 21 new accounts.
During this time period, we have also seen Stratix reports report activity largely returned to pre co bid levels in the third quarter and we have seen a resumption of inbound patient calls into hospitals and into our reimbursement support service. We believe these indicators are representative of the underlying demand.
Man for our treatment and validate the significant unmet need that we're addressing for severe emphysema patients who have limited alternatives.
That said, we remain cognizant that our business is uniquely sensitive to the impact of coated our procedure requires a three night inpatient stay our pulmonologists customers remain at the forefront of the Kobin response, and our patients remain at high risk from this virus given their weekend respiratory status.
Accordingly, we expect that co bid will continue to impact our business over the next few quarters and we remain cautious against the current backdrop of increasing covert cases, and regional and national Lockdowns across the globe.
Nonetheless, despite cobot related headwinds and the underlying demand in our but the underlying demand in our business gives us strong confidence that we will see a relatively quick return to pre cobot activity across our accounts once the pandemics it subsides.
Looking either further ahead, we remain focused on our key strategic priorities designed to fuel our growth first we plan to continue expanding our commercial organization by recruiting and training talented sales professionals to drive adoption of our zephyr valves within our existing markets.
Next we intend to continue opening new accounts in the U.S. collaborating with leading hospitals and physician champions to build emphysema centers of excellence and finally, we're focused on promoting awareness of our zephyr valve therapy through the training of referring physicians and the education of patients.
Longer term, we are investing in new technologies to broaden the patient population that can be treated with our products. As stated earlier Zephyr valves are an effective treatment in patients who have near or complete divisions between the lobes in their lungs, and thus will little to no air flow between the lobes, we refer to these.
Patience is being collateral ventilation negative or CV negative however, nearly 50% of patients with severe emphysema, our collateral ventilation positive and thus are not candidates for zephyr valves for these CV positive patients. We've commenced clinical research of Eris seal a polymeric foam.
That is delivered via bronchus scope to a targeted region of the long as a possible treatment for CV positive patients. This patient Pos population is incremental to nearly the same size as the population. We are able to treat was that for valves and thus represents a significant potential in.
Greece to our total addressable market.
Together, we believe these commercial and product development initiatives will help us build on our success success to date and enable us to fully realize our goal to be the global leader in minimally invasive treatments for lung disease with that said I will now turn the call over to Derrick sung our CFO.
Now to provide a review of third quarter results.
Thank you Glenn and good afternoon, everyone.
Total worldwide revenue for the three months ended September Thirtyth 2020 was $10.6 million.
17% increase from the $9.1 million in the same period of the prior year and an increase of 15% on a constant currency basis.
You less revenue in the third quarter was $5.3 million, a 57% increase from $3.4 million during the prior year period.
The year over year increase in U.S. sales was primarily driven by increasing commercial traction from the launch of our Zephyr valve as we continued to expand our sales force and drive adoption into new accounts.
International revenue was $5.3 million, an 8% decrease from $5.7 million during the same period last year.
On a constant currency basis international sales decreased by 11% as our business continued to be impacted by the Covidien pandemic.
Gross margin for the third quarter of 2020 was 70.3% relatively flat compared to the prior year period and back to the level that we experienced prior to the Kobin pandemic.
As we look ahead, we plan to continue to drive gross margin expansion and operating efficiencies by spreading fixed overhead costs across increasing production volumes as we meet the growing demand for our products.
Total operating expenses for the third quarter of 2020 were $12.8 million, a 28% increase from $10 million in the third quarter of 2019.
R&D expenses for the third quarter of 2020 were $2 million compared to $1.4 million in the same period of the prior year.
The increase was primarily due to an increase in personnel and clinical study related expenses needed to support our product development and clinical research activities.
Sales general and administrative expenses for the third quarter of 2020 were $10.8 million compared to $8.6 million in the third quarter of 2019.
The increase was primarily attributable to personnel related expenses in sales and marketing as we continue to expand our commercial team as well as expenses related to building out our general and administrative infrastructure and support staff as we scale operations.
Net loss for the third quarter of 2020 was $3.9 million.
Or a loss of one dollar and 37 cents per share has.
As compared to a net loss of $4.3 million or a loss of $2.41 per share for the same period of the prior year.
Net loss in the third quarter of 2020 includes a noncash gain of $3.3 million from a decrease in the fair value of the liability associated with outstanding convertible notes.
And a noncash charge of zero point $8 million, resulting from an increase in the fair value of the liability associated with an IPO related success fee from my prior term loan.
Note that the weighted average share count of 2.8 million shares used to determine the loss per share for the third quarter of 2020 does not reflect new shares issued in connection with the closing of our IPO on October 5th.
New shares issued in connection with the closing of our IPO include 11, and a half million shares issued through the offering seven.
17.8 million shares issued upon conversion of convertible preferred stock into common.
And 2.6 million shares issued upon conversion of the aggregate principal amount of outstanding convertible debt plus accrued interest.
These shares will be incorporated into the weighted average share count for the fourth quarter of 2020.
We ended the third quarter of 2020 with $39.8 million of cash and cash equivalents.
This does not include net proceeds of $201.4 million from our IPO.
No.
Look for 2020.
We expect full year revenue to be in the range of $31.5 million to $32 million.
All this factors in an expectation for continued pandemic related impact to our sales. The recent rise in cobot cases, and lockdowns occurring in many geographies around the world could present additional uncertainty to our outlook.
That said, we expect to see a solid return to growth as transient headwinds from the pandemic said subside and the underlying strength of our business shines through.
With that I'd like to thank you all for your attention and we will now open up the call for questions.
Operator.
Yes, Sir ladies and gentlemen, if you have a question excuse me a question or comment at this time. Please press Star then one on your telephone keypad.
If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
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Our first question or comment comes from the line of Bob Hopkins from Bank of America. Your line is open.
Oh, great. Thanks, very much for taking the call and good afternoon.
I appreciate all the commentary that you guys made a as an intro, but I was just wondering if you could.
Maybe give us a little more of a detailed sense for what you're seeing out there right now and whether or not that Q4 guide assumes that things kind of deteriorated from where you are right. Now. We're basically stayed the same from where you are right now and I apologize for the short term oriented nature of the first question, but it's obviously you need time.
Yes, Thanks, Bob Yeah, it's a very very interesting time, we're literally getting updated almost on a daily basis.
You know, we we have navigated in the United States through some of this in the past I think the situation that we're seeing right now is significantly different as things are building I mean, obviously, you're probably looking at the same data is I am in the United States.
We are we are seeing some number of cases being rescheduled getting pushed off into the future and certain hot spots, which we experienced in the third quarter as well and in the second quarter to a much greater extent, where you know a certain geography becomes a hotspot and things get pushed off right now the middle of the United States is really Joe.
Generally that hotspot and it's kind of a U shape around the United States from the West coast down south and across the eastern coast, where most.
Most of the accounts are still scheduling and doing these procedures. So.
That and that is where most of our business is frankly, so that is encouraging but we don't know whether this is going to spread out from the middle of course.
As you as you probably know Bob we did we through the third quarter about 50% of our business was in the U.S. and 50% was outside the United States of that 50% outside the United States, 85% of our businesses in Europe and you're you're on.
Obviously aware of what's going on in Europe, I mean, right now all elective procedures are down until early December in France.
Something north of 20 different countries, there's various different degrees of locked down but you know if you look across our biggest markets Germany's continuing to do cases, but there are certain hot spots in Germany that are impacting in having rescheduling and then there are certain other countries that have done things that.
Well no doubt make it more difficult to get patients to hospitals we've.
We've tried to factor in to the extent that we can but it's a very in this these these implications.
I would say right now the only major market that it's gone that's that's a stop.
Stopped elective procedures is France.
And they are projecting to pop back out in early December and we're still assessing patients in France, and there is actually a couple.
Two to four hospitals in France that are continuing to do procedures, albeit at a low level. Okay. So it sounds like you're you're assuming from kind of where you are in October and early November that you assume that things do get a little worse.
And stay the same just in terms of the guidance you provided.
Yes, we I think I think we are anticipating that there will be some impact from this I will say that that we were able to navigate across this in the third quarter and if this does if this kind of turns itself around and it and there's indications for example in Belgium and in France that that they may have.
Already reached the peak and the other countries are hoping that they are not far behind but we'll we'll know a lot more in a week right [laughter] dynamic time. So the other quick question I wanted to just get a sense. Another I'm Gonna data point is you know in the U.S. what percentage of the centers that were kind of up and running an operative.
Pre cove, it are up and running today in the U.S.
We have our active accounts for around 80% of our accounts right now, okay and yeah. So it's we're a little bit off we were probably you know sort of them in the pre coded phase. We we we were in the Ninetys. If you will in terms of active accounts you know accounts that have ordered and in the in the recent past so that's that felt like.
Kind of the norm and we'd expect to bounce back to that sort of neighborhood in sort of the post coven phase, but this is reflective of hot spots. This.
This is how many you know how many accounts are active in the U.S. So we got a 135 accounts about 80% of them or are.
Our active okay, great I'll leave it at that thanks very much for the questions.
Thank you. Our next question or comment comes from the line of David Lewis from Morgan Stanley. Your line is open.
Good afternoon, Thanks for taking the question Glenn.
Glenn just you had been kind enough to give us the intra and inter quarter trends here in the third quarter. During during the road show and obviously, it's not perfect math, because you're working off a bar chart, but it sort of imply that if you you were kind of at first quarter levels with two to three weeks ago. In these third quarter. If that trend line stayed constant it kind of gets you to where you are now around this time of the half.
For $10.6 million number so is that generally how the back half of September when things were pretty constant or from your perspective was there incremental improvement in the business in the back half of September and then related to that per Bob's question are.
Are you seeing an impact on procedures in the U.S. directs U.S. or simply just.
Cautious that we may see impact.
So the second question was are we seeing impact in the <unk> in on procedures in the U.S. or O.U.S.
Yeah are you are you actually seeing procedure impact in the U.S. or ex us or you simply just being more conservative that we may see impact here to the extent the resurgence continues.
No. We're seeing we're seeing cases that are being you know like France is our number two market and it's down.
We and we are seeing cases in the United States being rescheduled getting pushed off now that's not happening at a wholesale fashion and that's not happening I would say in the United States in a way today that is altogether just similar to what we saw in the third quarter, we've been navigating around cobot hot spots based.
Basically since they presented themselves and when we shut down we popped back out and then some some number of markets went through kind of a second wave and and we had to deal with those so.
I would say that we're not seeing a Matt you know up a widespread impact on our business in the U.S. at this point and we're just like I said, we're kind of we'll know a lot more in a couple of weeks.
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Right now the impact we keep a really close eye on on hospital beds being used for coated and I see you beds in particular.
Because when that tops out they tend to pull back on these elective procedures. So we do have some regional hot spots, but we've had some regional hot spots in the U.S. and the third quarter as well.
Going back to your first part of your question did I answer the second part of your question.
Yes, Sir and the first part was just the quarter to date number sort of implied stable trends into the back half September I, just wonder if that implication is sort of how you saw the business performing in the last few weeks of September.
Yes, that's the short story I mean, we had a real <unk>, we had a really nice quarter. There was there was obviously some pent up demand in the front part of the quarter.
And if we sort of back that out and look at the at what we see as the actual demand on a monthly basis, we had a nice progression across the quarter and in fact.
October was a really solid month for us so.
It just looks good.
Very helpful and just two quick ones for me. The first is just how.
How you're building your how.
How you're building the business here it looks like generally speaking you could add about 40 centers. This year and just kind of get a sense of is.
Is that a good way of thinking about how you could build to be should we assume a similar number of center adds in 21 versus 20 or should that number be higher or higher or lower and just wanted to start kind of related question on just the vaccine topic, because it's top of mind is.
We're probably going to roll the vaccine out for patients that are at high risk would you generally assume as you think about the severe im just semantics that they are probably first on the list in terms of high risk groups that probably get backs.
Vaccinated sorry for these bifurcated questions. Thank you.
Yeah, you bet. So the first question was I think specific to you know how you should think about US expanding we were we were we were adding 15 to 20 accounts.
Per quarter in the pre covert phase and the cobot phase we've been we've been adding about 10 or.
So I would say that you.
Hypothetically if co bid was largely in the rearview at mid year next year than the front half of the year, we'd be chugging along at about 10 centers per and the back part we would probably be 15 plus.
Per per quarter, So I think thats kind of the rate you ought to think about and it's really largely driven by coated which impacts our it distracts our customers. If it also impacts our access sort of free access to the hospitals as well which has an implication.
With regard to the vaccines, yeah, I mean, I think that these the first as I understand the first people who are going to get vaccinated or or offered vaccination are going to be health care workers I may be wrong, but as far as patients go I.
I would think that that these types of patients along with others, who have significant co morbidities.
That are at risk of Cove, it would likely be you know.
Have the option to go ahead and get this pretty early on.
Okay. Thanks, so much.
You bet.
Thank you. Our next question or comment comes from the line of Larry Biegelsen from Wells Fargo. Your line is open.
Good afternoon, guys. Thanks for taking the question.
Couple for me Glenn.
Could you talk about the timeline.
Timeline here for and and process for Airseal what are the next steps here you know how should we think about that and I had a follow up.
Yes, Eric Sills, something that's off on the Horizon you know the good news is we have some data on it already it was an acquired technology. We've done some clinical work. We've got some interesting signals. The meaningful studies are out ahead of us. The first one that we're executing is the European multinational multi center study.
We have already commenced the process, which I'm sure you know it is a multi step process.
The first is to go through Ethics Committee and then you you get those sites initiated and then they start enrolling and we're in the initiation process right. Now we've we've had several ethics approvals I'm trying to get these sites up and running what impact Cove. It has on the initial enrollment is to be determined we.
I'm trying to do the study in places like France, and Germany that that are presently preoccupied with a good bit of Covance. So we'll have to see.
Sort of how that progresses, but we're we're expecting to significantly enroll that study across the coming year.
So that's where we are O.U.S. in the U.S., we have already started discussions with FDA and we expect to gain I'd approval next year.
But we are you know we're quite a ways out as you can probably do the math on this in terms of getting the study sites up and running will likely have a one year follow up after a enrolling the patients and treating the patients and so you probably into you know late 2024 on terms of a technology, that's going to be available in the U.S. we.
We expect it to be available in Europe before then.
That's helpful and one more for me.
You know could you give us an update on a geographic expansion.
You know are there new markets outside the us.
That you know you're excited about it.
Excellent thanks for taking the questions.
Well the I think the sort of the elephant in the room. If you will is Japan, you know that that's a market. We've had a lot of interaction with the P.M.D.A. I'm, we're expecting to file their next year. We expect in 2023 to have both the approval and reimbursement in place. So that's that's clearly the.
Biggest market that were not presently in.
You know it's important to note that certain of the markets. So first of all the data that we have is only is fairly recent relative to some of the European markets that we're in and as a consequence were sort of re launching in those markets. So that gives us a nice opportunity.
Some of the markets are relatively new for example, France, which is our number two market in Europe. So it's our number three market around the world.
That that has been a great market for us it's only we've only been in there for a couple of years. So we're very excited about that and we have made we just we just had a meeting yesterday actually specific to continued investment across some of these European markets in an effort to really take greater advantage of those and were and we pre cove it.
China was very large and very interesting market for us.
It's still small, but we were growing quickly and we were prepared to continue to to deepen our investment in China, when cobot hit and Unfortunately as you probably know as you can see you can it's into this code that is very interesting you can literally look at the headlines in the papers and project kind of what where our business is getting most impacted.
And with Asia, almost as a whole largely shutting down in response to the cobot virus cases have basically stopped so our expansion plans and our investments in China were put on hold but that we're going to we're in the process of talking about ways to restart those as we move forward. So.
That's another market that we're very excited about.
Alright, Glenn Thanks for taking the questions.
Thank you. Our next question or comment comes from the line of Rick Wise from Stifel. Your line is open.
Good afternoon.
Maybe starting off with reimbursement, obviously really excellent news on the BCBS front.
With.
Yes the.
Now covering and you made the point obviously that.
Okay.
Get reimbursed with outcome, but I've got to believe that's a positive.
Let me just remind that the impact that this is Mike that has on doctors patients.
No time to do it on on you guys and how we should think about.
Yeah. That's a great question I really appreciate it you know it's.
Our issue is not with we've got this incredible reimbursement team incredibly tenacious and we've got four randomized controlled trials that are published in the top tier journals and all of the data within each of these studies is amazingly consistent so our issue is not really with getting pre authorization.
The issue with is it because it's literally 90 I think its 95% of the time when we see pre authorization we get it.
The issue is with the timeframe that it takes so if for example, you know Blue Cross Blue Shield Association is negative which made this HCFC double the interesting because they went again they are the number two largest blue cross Blue Shield affiliate and they went in a different direction by by giving us.
This approval so.
That that kind of a group could take.
Two or three months to get through Blue Cross Blue shield, whereas if weve got prior approvals, we can get through in some cases in less than a month. So it does create certain efficiencies for us we haven't seen any patients sort of fall out of the process through the waiting time, but you.
We have to expand a good bit of energy and these plans need to expand a good bit of energy.
When I think about reimbursement.
Great to get HCFC, it's great to get select health pre authorization right now is that about 90 for 5%, but we're seeing a significant increase in requests for pre authorization. If you look for example in the third quarter of this year versus the third quarter of last year, we've had 125% step.
Up in terms of the number of requests and in addition to the number of requests going up we're seeing a reduction in the time to pre authorization that is considerable if you look across for example, all commercial cases, it's come down 35% from nearly 60 days to about 40 days for our average commercial case so.
Came down you know roughly 18 days or 35% and if you look at it for example, even in a situation where we don't have.
A green light with the payer, which is Blue Cross Blue Shield Association like I said, we're getting those through the average time in 2019 through Blue Cross Blue Shield was 80 days, we brought that down to 68 days. So it's a it's a it's not a big reduction that will go way down with HDFC coming online but.
Really interesting thing is if you look at our success rate, which I talked about before at 95% Blue Cross Blue Shield in 2019, we were successful 80% of the time getting preauthorization and so far this year, we've been 95% success. So.
It's a bit of a war of attrition. If you will you know everybody's got to kind of look at it we've got a ton of really good data and so when we get into the review process, we almost invariably when because we've just got the data.
Very helpful. Thank you all the color.
Another key aspect of your.
Your commercial business you highlighted right upfront Glenn is.
It is both training, new dock and adding new reps.
Can you help us think about.
Yes.
Pick any time.
Take anything.
It's like.
How should we think about.
Creating a your train goals.
For docs over the next call.
Well for whatever you want and digital for reps I mean.
I think you said it was 48 reps.
Where are we a year from now I'm just talk us through that thank you.
Yeah, well as far as reps go we're going to we're at 42 in the U.S. I assume that was where the question was coming from.
And were 28, Oh U.S. and.
The I think that the way to think about the docks.
Is that there are aligned with the accounts and I think we've talked a lot about.
Number of accounts the number of doctors. So we were targeting about 500 docs about I mean, 500 accounts and about 800 doctors. So there is a ratio there of so that the number of doctors that are doing the procedure itself.
That's probably the way to think about it one of the.
Silver linings, if there is such a thing in this crazy environment that we're in is that we have we have developed.
Remote training basically we used to fly people into a training center or bring somebody out to teach people how to do the procedure and now we've been able to hold multiple physician training.
Classes online, which allows us to expand the kind of profile of the people that were able to bring in so and the other thing that's really great about that is that we're beginning a we've already started and have been very successful at holding these types of information or training sessions to bring.
Referring docs up up up online we were struggling with how do we get those people together for training programs and zoom is a pretty efficient way to get a very large number of referring docs together learning more about the procedure. So that's that's been something that's been a bit of a silver lining for us. It's also been beneficial from.
Rep training perspective, we actually have a sales training class in right now.
And we're doing not in I mean literally online.
Right now and so those folks are sitting at their homes and they're going through a week long sales training.
And we'll get out in the field and milk and help.
Right, along and cover cases with other reps as far as adding reps go as I mentioned worked 42 in the U.S. and I would say next year, we're going to be at 50 ish. If you will if I can say section and precise number but we think that we can cover the U.S. rough with with roughly 50, and I think the decisions to go beyond that or.
Really going to be about just subdividing major metro areas and so forth. So and I expect were going up we're going to definitely land on a number above 50.
But the the impetus for that is going to be an opportunity to subdivide and realize greater efficiency in some of these larger geographies.
That makes sense one last one for me.
The CFO of question.
Derrick yes.
You talked about R&D that's open.
Opex et cetera.
Others were but you came in well below my Opex expectations, just maybe can you help us think about.
R&D yesterday during the fourth quarter.
The third or or.
How do we sort of.
I think that those numbers.
Hi, there thanks, so much.
Yeah. Thanks for the question Rick So I would say, we will see expect to see a step up in opex in the fourth quarter.
Primarily in the M&A front I think some of that's going to be due to public company cost at a regular they get a hit in the fourth quarter because some of those did not hit in the third quarter as we were not yet a public company.
And then you know continued investment into our commercial infrastructure.
R&D spend.
We expect to step up a little bit, but what we sort of roughly sort of at the level of of.
What you saw this quarter again some of the increasing activity that we are doing on the clinical front that Glenn descried earlier, it's going to be the primary contributor of increase.
Increase in R&D spend.
And.
Thank you. Our next question or comment comes from the line of Bill Plovanic from Canaccord Genuity. Your line is open.
Great. Thanks, Good evening, a couple of questions here, just first on and things for.
Providing to you to about 80% of the counts up and operational.
What level do you think they're operating at today, you think theyre operating it may be 70, 80 ish percent capacity. If you had to take a guess and kinda because while they are operating they may not be a full capacity just your thoughts there to start with.
Bill that's a really good question. The yes, you are correct. They are they are in fact.
About their or their function about 80%.
We're sort of I would say in the neighborhood of on average five to six cases per quarter and on a quarterly basis and we were at about seven in sort of in the pre covert phase so.
Yes, we were sort of in that neighborhood.
Okay, and then just in terms of us pricing.
Has there been any changes I know there wasn't any commentary and usually when they're not it means stable, but I'd rather ask the question than not.
Yeah, we sell it list.
Okay. That's that's good to hear and then.
Just.
In terms of you've talked about this direct to patient a little I think you know sometimes when companies say that you get a little nervous that you can you can spend a lot of money there and I just wonder if you could frame kind of the activities and maybe any amount to quantification or.
If it's a small amount just qualification just so we have an understanding of roughly what the plans are there.
And in terms of how much money we're spending.
Oh the program itself like the exactly.
I think you're currently rolling it out it's in a couple of geographies kind of what's the intent there and then when we think about this is this a very small amount per geography. So this is in the.
The the five or six figure is not the seven figures just conceptually how we should think about it.
Yes, I mean I don't we're we're piloting it right now we're in we're in we're far more than a couple of geographies. We are focused on sort of trying to drive folks to our website. We're also trying to most importantly drive leads so that we consider leads you know sort of people first time callers, who call who respond to.
The outreach and call into hospitals. They may also opt in on an email basis. They may choose to participate in in one of we've had a patient information sessions.
On online, which have drawn hundreds of patients into those so it's been very very interesting.
And the and the response that we've gotten well we haven't spent a tremendous amount of money I was just going through a while I won't I won't mention the other company. There's other companies doing this or that are spending a lot a lot more than we are but we're not to the point where.
It makes sense for us really to drive this as I said in my earlier comments. So is really part of our longer term growth strategy.
But but we have seen a real nice responsiveness year over year in the third quarter, we saw about 140% increase in web visitors in terms of the leads that we've gotten which again are either people, who are calling us or opting in on on E Mail.
126% year over year third quarter to third quarter inch.
Increase in those so there is a good bit of engagement.
Now that we've seen and we're quite encouraged as we.
Our in the very very early stages of sort of calculating cost per types of numbers. So.
Very very very very encouraged by what we're seeing on that front.
Okay and then the last question if I may is just on the new account funnel yacov. It obviously has an impact on your current customers.
But you know with new technologies kind of getting in there and educating folks and getting them up and running.
If you look at the top of the funnel the new ones coming in.
In the last six months, you know what kind of changes have you seen directionally and how should we think about that and thats. All I have thank you.
Yeah in the last six months, we added about.
20 ish accounts.
The bulk of those the majority of those came in the third quarter.
And we do have we do have a large number that are in process in various different stages. We are.
It's an interesting process for us because.
You know, we're not doing business with any of these new accounts. So when we go in we're negotiating terms and conditions on.
Just establishing this relationship and then going through the the other the step by step process to get ourselves set up. So we are we are in a very good position with regard to our funnel and we as I mentioned earlier, we're we're expecting that we'll be adding on the order of 10, new centers on a quarter.
Early basis, and then once codes in the rear view than than that number will get bigger.
Great. Thanks.
Thank you Im showing no additional questions in the queue at this time I'd like to turn the conference back over to Mr., Glenn French for any closing remarks.
Well. Thank you all for your time, I really appreciated and your interest and so forth.
We wish you all a very good afternoon or evening, depending on where you are and again. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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