Q4 2020 AxoGen Inc Earnings Call
Greetings and welcome to the oxygen incorporated fourth quarter 2020 conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host.
Pete Mariani accidents, Chief Financial Officer, Please begin Mr. Maryanne.
Thank you Victor and good afternoon, everyone. Joining me on today's call is Karen Zatarain's acceptance Chairman Chief Executive Officer impressed Karen.
Karen will begin today's call with an overview of our fourth quarter performance.
And an update on our operational highlights I will then provide an analysis of our fourth quarter and full year financial performance, followed by closing remarks from Karen and a question and answer session.
Today's call is being broadcast live via webcast, which is available on the investors section of the oxygen website.
Within an hour following the end of the live call a replay will be available in the investors section of the company's website at Www Dot accident, Inc. Dot com.
We get started I'd like to remind you that during this conference call. The company will make projections and forward looking statements regarding future events.
We encourage you to review the company's past and future filings with the SEC, including without limitation. The company's forms 10-K, and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements. These factors may.
Include without limitation statements related to the expected impact from COVID-19 on our business statements regarding product acquisition <unk> development product potential the regulatory environment sales and marketing strategies capital resources or operating performance.
With that I'd like.
Like to turn the call over to Karen Karen.
Thank you Pete and good afternoon, everyone.
Total revenue for the fourth quarter was $32 $5 million representing growth of 15% compared to the prior year.
I'm pleased with our Q4 results, which reflect our team's continued focus.
On commercial execution, our customers' ability to successfully navigate the ongoing challenges of COVID-19, and surgeons and hospitals continuing to prioritize nerve repair.
At the same time.
19 continued to dampen our revenue in Q4 as trauma remain below normal.
Normal level access the sales representatives to customer facilities remained restricted and the resurgence in Covid cases further reduced elective procedure volume, particularly late in the quarter.
We're also pleased with the pace of our overall recovery in the second half of 2020.
Wayne with mid teens growth each quarter, allowing us to deliver total revenue of $112 3 million for the year representing growth of five per cent compared to 2019.
In addition to achieving year over year growth in 2020, we reached a noteworthy milestone during the year surpassing.
<unk> 50000 advanced nerve graft and planted since launch.
Advance has been featured in more than 125 peer reviewed clinical publications and has demonstrated clinical outcomes that exceed those reported for conduit and are comparable to those for autograft.
The challenges of COVID-19 have further highlighted.
<unk> the benefit to the advanced nerve graft as an off the shelf alternative to the surgical harvesting.
Autograft for the repair of transected nerves.
Along with avoiding the risk of complications from a second surgical site the desire to shorten procedure times to increase patient and health care worker safety and to minimize resource.
Station favors the use of our advanced nerve graft.
Really the first quarter we.
We believe revenue that can be attributed to the catch up of previously deferred procedures decreased considerably compared to the prior quarter and represented approximately $1 million primarily.
Usually in our breast pain and only mass applications.
Our trauma business continued to be the key driver of volume and revenue growth in the fourth quarter.
Although we believe our growth continued to be dampened by below normal incidence of traumatic injuries.
At the same time.
Our trauma business has proven resilient during the pandemic with surgeons and hospitals continuing to prioritize nerve repair procedures.
More importantly, we believe that our efforts to refocus on our core trauma opportunity beginning in late 2019.
I'd like to stay sustainable improvement.
And our ability to drive growth and has positioned as well as the market continues to recover and the incidence of trauma returns to normal levels.
The recovery of our breast and organization business continued in the fourth quarter, including meaningful contribution from the Onboarding of new surgeons at targeted programs.
During the year.
Despite the ongoing recovery in this application during the second half of 2020, we remain cautious in the near term as several programs again suspended breast reconstruction procedures late in the fourth quarter and into Q1 due to local COVID-19 resurgence.
Digitally new cancer.
Were significantly reduced for several months during 2020 due to the pandemic, which may impact breast reconstruction procedure volume in the short term.
Although cancer diagnosis and reconstruction procedure scheduling may continue to be lower than normal we are confident in the long term.
And our growth potential of.
Screening organization, but business.
Our emerging business in the surgical treatment of pain improved during the fourth quarter and remains an exciting opportunity for the company.
Prior to Q4 patients with chronic pain due to neuroma formation, where particularly reluctant to undergo a surgical procedure.
Breath to live with the pain and often relying on pain medications.
The recovery and growth of oral maxillofacial nerve repair continued to lag our other applications as procedures remain below normal levels.
Oh that repair is a highly invasive procedure involving the head and neck area potentially increasing.
Do you think the associated with COVID-19, we expect that well have that application to return to growth during 2021 as Covid cases, eventually decline in procedure volume recovers.
Turning now to commercial execution.
While the pandemic presented many challenges throughout the year the rebalance of.
Our commercial organization around extremity trauma, our largest market opportunity and driving deeper penetration with our existing surgeon customers was a meaningful catalyst to our growth during the second half of 2020.
The timely invested and extensive sales training during the second quarter strengthened our sales team and improved our ability to support.
Surgeons and their patients and to drive continued growth going forward.
We ended the fourth quarter was 111 direct sales representatives in the U S. An increase of one representatives during the quarter.
Our direct sales channel was supplemented by 'twenty three independent sales agencies the generally.
Cover more remote geographies are.
Our independent agencies represented 12% of our total revenue in the fourth quarter compared to 13% in the prior quarter.
In recent months, we selectively added new independent agencies to cover largely untapped remote accounts to reduce travel time of our direct sales team.
<unk>, which allows our direct reps to focus on going deeper in the highest potential accounts.
Though we are increasing our number of independent agencies, we expect a portion of our revenue are covered by the independent agencies to remain similar to recent levels.
Throughout the pandemic, we kept our sales team and the broader commercial organization.
Asian intact and benefited from the stability of our sales territories customer relationships and support as well as from the increasing tenure and experience of our sales team.
In 'twenty and 'twenty, one we plan to achieve revenue growth, primarily by driving sales productivity, while strategically adding up to 10 sales.
Sales representatives in the second half of the year.
The increased sales productivity our team remains focused on our largest market opportunity extremity trauma and I'm driving deeper penetration with our existing surgeon customers and accounts.
In fourth quarter, we had 893 active accounts.
An increase of 12% from 797, one year ago.
The increase in active accounts is primarily due to the impact of existing surgeon customers expanding their use of accident nerve repair algorithm across multiple facilities, including alternate sites of care.
The top 10 per cent.
Accounts are active accounts continue to represent approximately 35 per cent of our revenue further demonstrating the meaningful growth opportunity within our existing accounts.
Turning now to our continued focus on building market awareness, we participated in the American Society for surgery of the hand conference.
In October which was held virtually.
In January we participated in the virtual combined meeting of the American Association for hand surgery American Society for peripheral nerve and the American Society for Reconstructive Microsurgery.
Accidents nerve repair portfolio was featured in several clinical and scientific presentations.
Somebody's meetings, including data from the accident sponsored Ranger registry.
During 2020.
In response to the pandemic and resulting access restrictions to health care facilities, we accelerated the development of our digital marketing capabilities, which enabled continued engagement with our surgeon customers.
In the second half of the year, we launched a series of email marketing campaigns, delivering important and timely nerve repair news and content to targeted surgeons monitoring of these activities has showed a high level of engagement and we're confident that our newly developed digital marketing capabilities have improved our ability to support.
Our sales and market development efforts in 'twenty, 'twenty, one and beyond.
Additionally, our surgeon customers continue to participate in our nerve matters online surgeon community discussing their use of peripheral nerve injury solutions.
In Q4 alone over 2200 surgeons engaged with the platform.
We have also continued to increase awareness of the recent station technique.
Our efforts to raise awareness around breast nerdy nation, where spearheaded by our media strategy targeting both regional and National news outlets in 'twenty 'twenty more than 35 million people had the opportunity to learn about recent station through.
Media coverage.
As a result, we've seen a significant increase in organic traffic to recent station dotcom and a marked increase in visits to the surgeon locater tool on the website.
I'd like to take a moment to highlight the impact of changes in CMS reimbursement for nerve repair in the outpatient setting.
The news over the last two years reimbursement of direct repairs or repairs were no implant is used has been reduced by approximately 60% in both the hospital outpatient and ambulatory surgery centers, while reimbursement for procedures using advanced increased 25 per cent and hospital outpatient centers and.
<unk> <unk> seven per cent and ambulatory surgery centers.
During the same timeframe reimbursement rates for procedures involving conduits and connectors were also increased 25 per cent and hospital outpatient centers and 45 per cent and ambulatory surgery centers.
Well Medicare patients represent a relatively small percentage of.
Trauma cases commercial payers often follow the lead of CMS, which we believe bodes well for future reimbursement for nerve repair and could lead to increased procedure volume of short GAAP nerve repairs using accident product and ambulatory surgery centers.
Yeah.
Surgeon education and advocate development.
In 19, two day as a high priority during the fourth quarter and year.
Our transition to virtual education, which occurred during the second quarter price included several events led by surgeon experts in nerve repair and involve multiple constituencies, including fellows early career surgeons and all nerve repair surgeons.
In particular, we've seen a very positive response from our invitation only program for early career upper extremity surgeons.
And despite COVID-19 restrictions, we were able to train more than three quarters of the hand, and microsurgery fellows and the class of 2020.
To highlight our commitment to training.
And close during the fourth quarter, we partnered with an academic center on an educational event that featured a cadbury session, which was live streamed to an act.
Two and add capacity audience of approximately 100 surgeons in academic centers across the country.
The event featured a hybrid learning experience with virtual.
Medication adherence to clinical decision, making and hands on skills labs.
Experts and hand surgery in nerve repair, we're able to broadcast that sections and nerve repair skills in real time as well as conduct interactive clinical decision making sessions.
The event was a resounding success and according to the house surgeon.
Set the standard for what a virtual courts should look like.
In addition in anticipation of continued restrictions on in person programs, we've created over 'twenty nerve repair technique videos as valuable teaching tools to help educate residents and fellows during the years ahead.
We continue to.
Expand our body of clinical evidence in support of our product portfolio and increasing surgeon adoption.
As announced last Thursday, we've completed analysis of the 15 subject pilot phase of the repose study.
Waiting to use Abaxis <unk> nerve cap in the management of painful neuroma.
Findings from the pilot.
<unk> demonstrated that subjects experienced a clinically significant reduction in pain from baseline at each of the 369 and 12 month time points following surgical excision of the neuroma and placement of activewear tariff cap.
Specifically the study observed a statistically significant.
<unk> mean reduction in pain of 69 points at three months and 80 points at 12 months as measured on 100 point visual analog scale.
Additionally, subjects experienced cleanup clinically meaningful improvements in secondary endpoints evaluating quality of life, including for.
What day physical function sleep disturbance pain interference pain intensity and pain behavior as measured by the validated promise questionnaires.
Pain medication utilization data showed positive indicators for a reduction of pain medication burden, including opioids following the procedure.
True.
There were no acts of God nerve cap safety issues reported and no observed recurrence of symptomatic neuroma.
Although a small sample.
We're encouraged by the promising results of the repos pilot phase supporting the ongoing safety and performance of active or nerve cap in the management of painful neuroma.
Enrollment in the compare.
For two days of Repos is well underway and assuming limited impact from COVID-19, the company expects enrollment to be completed in Q1 of 2022 with a data readout in Q2 of 2023.
Our recon study remains on schedule.
As a reminder, recon is our phase III.
Parodist studies supporting a biologics license application or BLA, which will transition our advanced nerve graft, where my section 361 tissue product to a section 351 biological product.
Our last subject was enrolled in July of 2020.
Our protocol includes a 12 month follow up visit for all.
Subjects and given the impact of COVID-19, our plans to allow for an additional three months for subjects to complete their final visit.
We anticipate the final follow up visit to occur no later than October of 2021 Ah study report in the second quarter of 2022 and filing of our BLA in 2023.
Our Ranger and match registries continue to enroll with over 2300 nerve repairs enrolled in Ranger.
In 2020, the match registry, which is a comparative population of condo at an autograft repairs provided a publication on the comparison of conduit and advance outcomes and a presence.
Question on the preliminary findings of autograft and events outcomes.
Finding from these analyses demonstrated advanced nerve graft.
Outcomes of advanced nerve graft were statistically better than conduit and were comparable to those for autograft.
Data from these two clinical programs continue to play an important.
Present, informing surgeons clinical decision, making.
Additionally, during the clinical and scientific sessions at the American Association for hand surgery annual meeting in January a group of independent investigators presented on the comparative clinical outcomes for nerve autograft, and conduit and allografts of which.
Oliver I swear Vance aircrafts.
The study was a large systematic review of the available literature, including 35 clinical studies in over 1500 nerve repairs.
Similar to the findings from our match studies. This large with you found that outcomes for nerve allografts were statistically better than those from nerve conduits.
And comparable to those for Autograft, Inc.
That's the Gators also analyzed procedure cost data from 340, Medicare claims and found that hospital facility procedure costs, both inpatient and outpatient were also comparable these.
These findings further highlight the growing body of clinical evidence from the role of advanced nerve graft.
And then alternative to nerve autograft.
Current data suggest advanced aircraft provides both comparable outcomes and similar procedure costs compared to nerve autograft without the donor site morbidity and potential complications associated with the harvest of nerve autograft.
Inc.
In January a new publication with the first clinical outcomes data from the recent station procedure published in the plastic and reconstructive surgery Global Open journal the.
The publication from Stanford University reported on 36 breast reconstructions that included 22 breast reconstructions utilizing the recent patient organization.
Inc, and 14th standard Nam north ties breast reconstruction the stuff.
He found that an organization using the recent station technique allowed for attention free cooptation to sensory nerves.
Return a protector sensation was reported in 73 per cent of the north type subjects as compared to 36%.
Technique of the non current neuroscience group.
Although on an early time point the subjects, who underwent an organization, we're more likely to see a return of sensation to the reconstructed breasts and.
And also more likely to have sensation in the majority of the breast.
The single Center study as part of our larger sensation now registry.
And we look forward to providing additional long term sensory and quality of life data and the and on the role of recent station for women undergoing breast reconstruction following a mastectomy.
As we advance the science of nerve repair, we remain committed to providing meaningful and impactful clinical evidence.
On the utility of our nerve repair portfolio.
Okay.
Reflecting on 2020 I'm extremely proud of the results delivered by our accident team and the creativity resilience and grit required to navigate the unprecedented market challenges that occurred throughout the year.
Despite the pandemic.
We entered the new year, a stronger company positioned well to drive meaningful growth in a more normalized environment.
Before I turn the call over to Pete I'd like to spend a moment discussing our outlook for 2021 and the first quarter.
As mentioned previously overall.
Procedure volumes were further impacted late in the fourth quarter by increased COVID-19 cases, and this impact has continued into the first quarter.
Given the uncertainty around the ongoing impact of COVID-19, including the timing of vaccine rollout to a larger portion of the population and the potential for new more contagious variance of the virus.
Virus we've.
We believe it's appropriate to remain measured in our near term outlook for the business.
Accordingly, we are not providing flow your full year guidance at this time.
Now I'll turn the call over to Pete for a review of financial highlights Pete.
Thank you Karen.
Fourth quarter.
Quarter revenue increased 15% to $30 million to $45 million of revenue increase for the quarter was the result of a 12% increase from unit volume and a 3%.
From changes in pricing and product mix the growth in unit volume was primarily attributable to unit growth in our active accounts.
Gross profit for the fourth quarter was $27 million compared to $23 $3 million in Q4 of 19.
Gross margin was 83 two per cent for the quarter compared to 82, 7% in the prior year.
After temporarily suspending tissue processing in the second quarter.
We restarted in late Q2 and return to normal levels in January of 'twenty one.
Our quarterly gross margins continued to improve sequentially as revenue and tissue processing volumes have increased our inventory levels have also increased slightly in Q4, and we expect inventory will.
We'll continue to build across 'twenty 'twenty, one as we support customer demand.
Total operating expense from the fourth quarter increased 6% to $32 $4 million compared to $37 million in the prior year.
Total operating expense in the fourth quarter included $2.
<unk> million dollars and noncash stock compensation compared to $2 9 million in the prior year.
Total operating expenses increased over the prior year, primarily due to higher sales commissions and other compensation related costs, which were partially offset by decreases in travel in person call.
<unk> is in surgeon education programs due to pandemic related restrictions.
Sales and marketing expense from the four quarter increased 5% from $19 $8 million compared to $18 $8 million in the prior year.
As a percentage of total revenue sales and marketing expense.
Eight decreased from 61% for three months ended December 31, compared to 67% in the prior year.
Research and development spending in the fourth quarter was $4 $9 million, which is consistent with the prior year.
Research and development cost include product development.
Including non clinical expenses in support of our BLA for advanced nerve graft and expenses for clinical research and product development expenses and represented approximately 55% of total R&D in the fourth quarter compared to 49% from the prior year, while clinical expenses.
<unk> represented the remaining 45% in Q4 of 'twenty compared to 51% in the prior year.
As a percentage of total revenues research and development expenses from 15% in Q4 compared to 17% in the prior year.
General and administrative expense.
So the fourth quarter increased 10% to $7 $7 million or 24% of revenue compared to $7 million or 25 per cent of revenue in the prior year. The increase is primarily related to higher compensation related expenses.
Adjusted net loss and net loss per share in Q4.
From a 2020 was $3 $3 million.08 per share compared to adjusted net loss and loss per share in the prior year of $4 million.10 per share adjusted.
Adjusted EBITDA loss in the quarter was $2 $1 million compared to an adjusted EBITDA loss of $4 two.
$2 million in the prior year.
The reconciliation of these non-GAAP financial measures to GAAP can be found in today's earnings release and on our website.
Turning to our balance sheet on June 30th we announced a new seven year interest only financing agreement with Oberland capital.
<unk> provides up to $75 million in total financing commitments with $35 million drawn as of December 31st.
Interest is paid at approximately nine 5% a portion of which is capitalized into the construction cost of our day to biologics processing side.
The agreement with.
With a capital also provided oberlander right to purchase three $5 million of accident common stock based on a trailing 45 day weighted average trading price on December 10th of 2020, Oberlin fully exercise of this option and purchased 247690.
<unk> nine shares at $14 13 per share.
Balance of cash cash equivalents and investments at December 31.
It was $110 $8 million compared to a balance of $106 $7 million on September 30.
The net change includes.
Is the $3 5 million in equity proceeds from exercise of overruns option and positive operating cash flow of $3 4 million, partially offset by capital expenditures of $2 8 million related to our new facilities in Tampa and day.
As previously discussed.
We opened our new Tampa office and lab facility in the fourth quarter.
This facility represents a great milestone for the company that will allow us to continue to recruit exceptional talent and execute meaningful scientific discovery and development over many years to come.
Additionally, we resumed construction of our.
Dayton Biologics processing center in January of this year, we anticipate completing construction of the facility. Later this year followed by a one year validation process and expect to convert production to the New center in late 2022.
We anticipate capital expenditures of approximately.
$26 million for this facility in 2021.
Our positive operating cash flow in both the third and fourth quarters were the result of a unique confluence of events that allowed us to overdevelop over deliver from a profitability perspective as revenue growth exceeded expense growth.
We are ramping investment enter projects previously placed on hold including certain clinical trials product development and marketing administrative and initiatives all of which are key to driving long term sustainable growth has.
As a result, we anticipate that operating expenses will increase sequentially and then we will see a modest.
This increase in operating cash burn in 2021.
We are encouraged by the strength of our business in the fourth quarter as we continued to realize improvements driven by increasing demand across our markets and by our teams improve commercial execution as.
As the health care community in general and our business specifically.
Moves towards a normalized environment, we're confident that the operating improvements that we have implemented and the investments we are making will position us to growth the business meaningfully and emerge from this pandemic related downturn.
<unk> leaner organization on a path to profitability and with that I'd like to.
I hand, the call back over to Karen.
Thank you Pete.
I am proud of the achievements of the entire accident team in 2020 in the face of unprecedented challenges.
We remain committed to delivering our innovative nerve repair solution to patients surgeons and hospitals and I believe we're well positioned.
And for success in 'twenty, 'twenty, one and beyond at.
At this point I'd like to open up the line for questions Victor.
Okay.
Ladies and gentlemen, we will now have a question answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone.
Physician. Please state your line is in the question queue.
One moment, please vote now poll for questions.
Yeah.
Yeah.
Our first question comes from Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.
Alright, Thanks for taking my question.
Zone.
On a good quarter.
Maybe just digging into.
For true result.
I know you did pre released.
Good day and expected when you had your free to cool them and we heard from a number of companies that you know.
You should have the impact of Covid came yes of course.
From mid November December.
Congratulate on the company share I guess, what changed from the positive from when we last had any quarter, but came.
But what did you see in a quarter that is actually better than expectation and then Similarly act.
Please go to once a day are you seeing things get better or at this stage I'll eat more just sort of a continuation of the trend.
Towards the end of 'twenty.
<unk> 20 per se.
Thank you.
Day friends.
So if I just look at the cadence it's been a little bit of a roller coaster over time, we had a very strong entry into Q4.
We still are seeing.
Seeing a continued growth in our extremity trauma business, but also starting to see some recovery in our against smaller segments, but more elective procedures in the breast reconstruction.
Mm surgical treatment of pain, and the beginning to see some recovery and all enough.
This is the in the December time frame as Covid AR levels increased we saw them certainly the more elective procedures shutting down but we also saw some parts of the United States, where the the Covid levels became so high that they even again started to defer.
Towards things that are not quite as elective like our surgical a trauma cases.
That continued that debt decrease continued into Q1, where we saw again, where COVID-19 became quite high in some regions of the country.
Decreased levels of nerve repair now what we saw in the past was that those procedures are brought back pretty quickly. We've done a strong job I think of educating both the surgeons and the hospitals that nerve repair outcomes are always better when they're done sooner you can get a meaningful recovery.
A year of a delay, but sooner is always better and so we anticipate that we'll be able to see a lot of these deferred procedures occur still here in this quarter, we're beginning to see that now up until the snowstorms disrupt and things over the last week, but we were starting to see that recovery.
Up to it in terms of Covid and and and so we think it'll continue to follow that pattern that we'll get those deferred cases in pretty quickly.
Right and one follow up if I may.
Maybe just jumping ahead, a little bit and so on.
Recovery of growth, but with the filing of the BLA I'd imagine that allows you a lot more flexibility in terms of perhaps the.
Innovation around the product.
Pete you mentioned about investing in some programs in 'twenty and 'twenty one.
Yeah, I guess, maybe it's call it events.
Again to point out all true innovation around.
Your line is this something we made share of box price could be in there or should.
Should we expect not to share anything about that and it would be for competitive reasons pool, just from a regulatory perspective, not trying to push that up to get them.
In terms of what you might have.
Stool for once it got pretty standard.
Thank you.
Yeah, no great Great question, and one that we're not prepared to answer just yet so in terms of innovation of our Vance, we we continue to see opportunities.
To continue to have as you said it and advanced 2.0.
And maybe a three point O down the road.
It would be like but for both the for both reasons both for competitive reasons as well as not wanting to get out ahead of ourselves in front of the F. D. A M.
We've not released any information about what those will look like them, but we do continue to invest in innovation.
Both in.
It's about events, but also in new products like you've seen with our acts of God nerve cap, which is a new product that we released actually in February of last year and continue to be pleased with its supposed to clinical utility and the.
The opportunities for growth for the future with that product.
Yeah.
Great. Thank you very much.
Thinking thank you.
Our next question comes from Richard <unk> with SBB Leerink. Please proceed with your question.
Alright, Thank you for taking the questions. A couple here. So first congrats from me positive data read out that you had on nerve cap. There could you just remind us how you.
And they're kind of market opportunity.
And when we might start to see that from a meaningful revenue contributor.
So.
Personal accident nerve cap is used in those locations, where you want to terminate or and the nerve.
And manage or prevent a symptomatic neuroma, which can cause it's one of the what we believe substantially under diagnosed causes of chronic pain and where these patients historically have been referred to a pain center to be managed predominantly pharmacologically, but you know maybe.
The other pain types of treatment, we think that there's an opportunity to go in and remove the physical source of the pain and reduce the painful stimulus and therefore make people have a much better quality of life and we see that at least in the early results we see from the pilot.
And of our Repose study, we see the application here is what it is actually all across the body, but we're initially focusing on both trauma procedures.
And injuries due to orthopedic procedures and that has a lot more to do with referrals.
Fans than it is necessarily about market size and so we just think that that's a simpler way to manage the referral of these patients because they are still within the orthopedic practice.
And along the way that's a long winded answer to say, we decided it's big enough that we think it's important for us to focus on it and it is not distracted.
Drafting to the business interests that we have to date and that were taking our existing customers and expanding the amount of nerve repair that they can do sizing. This opportunity is very difficult because again it has been under diagnosed we believe it's been under diagnosed as a cause of the pain. So therefore.
Okay, it's very hard to find references.
That actually identifying how often people have pain have pain, that's due to a symptomatic neuroma. So when we talk about the total addressable market of $2 7 billion and we asked strict on and say this doesn't include what we think of the pain applications because they are on top of this.
Therefore, it because it has been so hard to size. It again with our focused approach that we're doing I don't have an addressable market that I am comfortable to give you at this time.
Okay. That's that's helpful color. Thanks for that I guess, you know you're very true.
Tremendous progress on you know getting the focus.
Direct.
Rep productivity efforts and the focus that you brought to the organization is getting that direct productivity.
Growing again and and over a $1 million marker. If my math is correct two quarters in a row now you said that you're going to hire 10 reps are in the second half of 2021.
And yeah, that's that's a big step up again and I guess the first question here. The first part of it is what you know what can you say that investors just to give me confidence now that you're ramping up higher than that.
You've got the you've got.
Got the.
One boarding process down and that you won't run into maybe some of the issues that you previously had in the past I've been true I think you said that you expect productivity to increase year over year.
And it.
If you're hiring 10 reps from 'twenty to 'twenty, one that debt.
That would suggest from some pretty pretty.
All growth so maybe just.
That rep productivity on an annual basis should we be thinking of that on a quarterly basis. Just help me get a better understanding of that comment in the context of the rep hiring.
Sure. So first of all just to be clear, we're saying up to 10, what we're really looking at is we believe that.
We're gonna have some territories that will become large enough by the end of the year that they'd just be unwieldy, but where we're gonna make judgment calls about when and how many territories to split them. So if we ended up doing six that's because that's our judgment that's how many we need that because.
Meaning higher 10, so just kind of take that as a.
We're really trying to dial this and to be very.
Careful in our splitting a territory and we do believe that on an annualized basis, we will continue to see productivity enhancements with our reps.
We've got a series of plans that we think will continue to deliver that productivity growth. So the productivity will be the primary driver we still believe that when we hire new reps in their first year there'll be less productive on a per.
Person basis than some of our more established reps have been.
As we could so so obviously you'll have some dilution of productivity in a particular quarter as we add a few people, but it will be on a much smaller percentage than what you've seen in past years and so we are very mindful of the disruption that are adding reps cause and we think that.
I've gone through and setting the right footprint for our sales team. So this is.
Not so much about the organizational shifts that we had to do before but really in selected territories, where we again just think that the territory has gotten so large will be better off by adding some resources.
Thank you very much.
Q.
Our next question comes from Chris Pasquale with Guggenheim. Please proceed with your question.
Thanks, a couple of questions. One just a follow up on repos those results were pretty impressive pretty profound impact relative to the vast scale. There I'm curious whether there is any good.
We've got to consider that too in terms of the alternative treatment options that are available to these patients.
Sure that there have been some publications and we use those actually empowering the study we see that from the password that's been done the minimal minimum.
David clinically meaningful difference is a vast of 17.
So we felt actually pretty encouraged by seeing the 69 at the three months and 80 point reduction at.
At 12 months.
Okay and can you share anything about what you assume.
In the the comparator study.
In terms of what well we powered it on the Vas scores and we have an 80% power and again using that 17th millimeter 17 difference as what we assume.
Soon is a clinically meaningful difference minimum clinic clinical meaning I'm getting my turn tangled up minimum clinical difference mm for the study.
Okay.
And then I'm curious whether you can talk about the practical implications of the improved reimbursement.
And then for Allograft in you know per tonne to which it may be difficult to share.
It was supposed to show relative to the Covid environment as I'm sure that has had an impact on setting of care as well, but that improved ASC reimbursement I'm curious, whether you're seeing that change customer behavior, maybe bring some.
It's a bunch of Mers onboard who were previously not that interested in adding most of their practice, but now that the economics have changed does it put you on a on a different.
Level in terms of being able to engage a wider customer base.
So I would just remind everybody that that debt.
It's actually a very strong structure for the future in that Tms unbundled direct repair where there's no implant used from where an implant is usually took down the reimbursement when no unplanned to Hughes and raised the reimbursement for both allograft and connectors.
We.
Change that to a very reasonable and meaningful change that will allow surgeons to be able to do.
<unk> nerve repair in their ambulatory surgery centers or hospitals to do them more economically in their outpatient setting.
Having said that very only very small amounts of traumatic injuries are.
We think there's a Medicare population a trauma tends to be a younger population than that and so it's going to take time for commercial payers to mirror the structure.
We were looking forward to seeing that happen actually in 2020, and we have I can tell you anecdotally that there are some centers that are either.
Actually negotiated that with their commercial payers are there contract happen to be the thing mirrored exactly whatever within CNS and so we saw some shifts at at those centers, but because of Covid. Many centers actually just sort of planted for a year and pushed back their renewal dates so where we're really.
Either I think it's going to take another couple of years to see this F. As ambulatory surgery centers go through their negotiations with their commercial pairs again, I think anecdotally, we saw some nice wins, where surgeons were able to to put patients into where they thought was the appropriate site of care.
There are some real opportunities that are a win win win for the patient the surgeon and and the per.
To move them to the ambulatory surgery center, but there are other things that will remain more appropriate to be done either inpatient or outpatient in the hospital and the surgeon will have the flexibility to choose that.
Thanks.
Thank you.
Our next question comes from Ryan Zimmerman with D. P I G.
Please proceed with your question.
Hey, Thanks for taking my questions long time no talk.
So.
Just wanted to ask a few Karen you talked about the amount you made up in the quarter I think it was $1 million, particularly.
Small amounts.
There was an impact from COVID-19 in the fourth quarter.
Wondering if you can maybe.
Size that up for us and maybe Tom.
If you will I always thought try asking kind of where you were run rating before you saw there.
Net impact.
Start to slow down.
Particularly in the tail end of the fourth quarter.
Yeah, I don't I don't really have a quantification of what that December impact was but I would say, it's still not a material impact it was really for us.
You really only.
And I guess looking at two or three weeks in December where we saw a slowdown and again a slowdown it wasn't like a flow down in April. It was just definitely some trending in some regions of the country that were affected when we've looked at had we're in our thinking and the way I think.
The only thing is that we think the impact of deferred procedures, who will not be material in any quarter. This year that it'll be again in that million or less and we wont see the big swings that the benefit of having been able to get our procedures and quickly and now it's going to be really focusing.
About mine out organic growth.
Okay.
That's helpful. And then two short ones for me here just do you plan to end you've stepped up independent distributors you know by a couple this quarter do you expect to hold that level of independent sugars in 'twenty, one and beyond or.
Did you see more.
[noise] pissing on Pops, and kind of these far flung territories, where you wanted to kind of fill the gap.
Yeah, I think we will have more and more in number of independent agencies over the next year, you know maybe not adding every quarter, but as we identify these call it corners of the territory.
Our stuff what we're really trying to do is to carve off corners of the territory. So that our reps are direct reps are not driving four or five hours to help our surgeon with a case.
And and we think that's part of our part and parcel of what we're doing to help with productivity is one step of things were helping to improve the productivity.
That's a direct reps and so yes, I think the number will go up having said that we still think that the percentage of our total revenue that will be from independent agencies will not appreciably change it'll still be in that same range that we are today of 12% to 13%.
Yeah no understood.
And I appreciate in the productivity implications for that segment of the business and then just lastly from me and I'll hop in queue.
You mentioned, the <unk> organization business and some.
Some of the sites you added some sites, but then you have a good proactively slowed down because of Covid I think if we last reported.
Oh, you were probably around 20 to 25 sites from breast motivation.
And that's why you know, maybe just help us understand kind of where you're at and selective sites that you've added the focus on express an organization, but thank you.
Yeah, we still remain very selective about the sites that we work with and breadth of the organization. So we work.
With a 35 specialty centers today that do flap reconstruction. So remember this is not breast implants is our tissue autologous tissue flap reconstruction and we want to make sure that the surgeons are trained and understanding how to do.
Work position in combination with of course doing the full flat procedure and so we spent quite a bit of time working on on educating on the technique and so that's why we keep it limited to the number of sites that we work with and we spent time in the 35 sites, especially over the last several quarters of expanding.
And earnings across the surgeons at the sites that we're now trying to get.
Have all of the surgeons, who are doing flattened organization or flap reconstruction of the site to offer an organization as a part of their a treatment option.
Got it thank you.
Yeah.
Spanish.
Our next question comes from Kyle Rose with Canaccord Genuity. Please proceed with your question.
Great. Thank you very much for fitting me in Tonight.
A few questions a bit more high level, because a lot's been asked but Karen maybe.
You've always.
Given the metrics with respect to you know the top 10 per cent of accounts and how much revenue they account for.
You've been pretty clear about calling out going deeper into accounts has been the biggest driver of growth moving forward. So could you just maybe help us understand frame out what those top 10 per cent of accounts are doing differently.
Thank you and the broader base and maybe your confidence with respect to translating some of those those productivity gains across your your broader group I mean, obviously, you're always going to have different decile of productivity. However.
What are those the top 10 per cent doing that's different than the remainder of the business.
Yeah, No. That's a great question when we look just to remind people at the top 10% of our active accounts from an approximately 35 per cent of our overall revenue and that metrics has been relatively constant over the last many quarters, which just shows that our.
Our top accounts continue to get bigger.
Which is what our strategy is is yes, we're adding new active accounts, but we want to continue to drive penetration in our existing accounts and we are also putting focused effort on following our surgeons to every site of care that they go to.
Ensure that we're helping them to convert their algorithm.
Irrespective of where they do their their nerve surgery and so that's part of our account growth is making sure that as our surgeons move they have access to our products across our across all of those sites. We're.
We're seeing that that is.
To make them actually probably the biggest driver in our productivity improvements as our lowest hanging fruit is continuing to take our existing users who often me there may be one active user who uses remember we have five implants, who typically may use three of our implants. So we have room to expand that user.
Is you have room to expand into types of nerve repair that even that big active user does and then of course every site has multiple surgeons, who would be taking trauma call and so we see a and a significant opportunity to drive penetration in those biggest accounts.
We haven't and continue to take that same approach to again the next tier of accounts.
Continuing to drive productivity with our sales team using those tools.
Okay. That's helpful. And then you know you.
You have talked about you know you do.
Of the five.
Counts products, you've obviously had some big data.
Just in the last couple of weeks with respect to one of those products can you just maybe help level set us with respect.
We're all mix of your business as it stands.
Across the different product types and then maybe.
Geographically as well U S O.
Sure.
Advance has remained a little over half of our revenue E. As we've grown over the years that has actually been a pretty consistent metric.
The rest of our new products make up the remainder of our revenue I'm, obviously, asking her nerve cap it.
Were you asking you so it's.
It'll add its own dimension over the next year or two as it continues to grow.
We're optimistic about it but at this point, it's still a relatively small part of our overall business. We are also still predominantly a U S.
Company, we have some revenue.
Is U S predominantly in Europe.
But at this point, it's a minor part of our revenue and we see it as a growth opportunity to expand into for the future.
Great. Thank you for taking the questions.
Thank you.
Our next question comes from Anthony Patrol.
Patrol with Jefferies. Please proceed with your question.
Oh, Thanks, and good afternoon. Thank all to hear one will be on new active sites and then.
I'll go back to account penetration as well and so when you look at total new active sites in 2020 almost 100.
And I think it's about 93.
Three.
But there was no active sites sort of came on line during COVID-19 and so I'm wondering as we get to.
The second half's vaccine rollouts or a more well widely.
Widely.
Dispersed around the country, where do you think that those new active accounts can actually settle or said another way those new active accounts.
How depressed of a level have they've been operating at since they've been on boarded last year and then I'll have one on account penetration.
Well before we get to accounts I'll talk about the overall incidence of trauma. So the overall incidence of trauma is still depressed in the mid teens.
<unk> from what we would consider a normal level of trauma. If you look at emergency room visits as a way to measure the incidence of traumatic injuries.
We're still seeing.
A decrease in the incidence of trauma as people are less active and in this current COVID-19.
Its environment.
So shall we see an opportunity sound funny to say, but we see an opportunity to have more trauma, but there still will be more trauma as people return to a more active lifestyle.
As they get vaccinated any more comfortable with doing doing activities in terms.
Terms of the active account.
We have not given projections on the active accounts active account growth again, if I go back to our strategy. Our strategy is to drive penetration first and foremost in our existing active accounts with our existing users. We then.
Then add users at our existing active accounts and we then follow users to alternate sites of care. So it's not our first driver for growth. Our first driver for growth is continuing to drive penetration into those and into the existing accounts with existing users.
And then on the follow up on penetration would be when you look at the top 10 per cent of accounts all the way to ask it would be when.
When you look at those top 10 per cent, you'll help penetrated all those sites in terms of active events users.
And sort of what is the mix of events and those accounts versus.
The combined nerve grafting and Tom do it next.
And so out of 100 procedures, whereas debt today and where can it go.
And I would assume over time the goal is to get.
30 per cent or more of the 893 active accounts to that level.
Overtime, and so is that sort.
And accurate sort of long term goal to think about thanks.
Yeah, Great question and it is it does frame out what we're trying to do is we see that we're still at the end and that if I look at the average of those top 10% of our active accounts were still lately.
Lately penetrated into those accounts and we have room to continue to expand with quite a bit of runway in even just at those centers.
And then yeah, we want to continue to take what we're doing in that top 10 per cent and translate that to.
You know, let's call it even the net.
Next here not even all of the rest of the active accounts, but the next tier of our accounts to grow them like our top 10 per cent has and so we see the you know these are stages of development of these accounts, but we think we've got a strong runway to be to continue to be able to drive penetration in each of.
Those levels of accounts and then ultimately to expand in places that we're not today, they're a little over 5000 accounts are in.
Debt do nerve repair.
And and obviously, we're not active in many of them. So that's our future growth.
So again, if I just recap.
Driving penetration with our existing users expanding to the other surgeons at that same account, but the big accounts there'll be a 10 to 15 surgeons that would be in the range of you know if I roll in breast and trauma and oral maxillofacial on the surgical treatment of pain that we would consider very good targets.
And very often we have one active users. So we've got an opportunity to expand.
Well that's helpful. Thanks.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to management for any closing remarks.
Victor.
I I want to thank everyone for joining.
Joining us on today's call. We look forward to speaking with many of you virtually at the upcoming 10th annual SPV Leerink Global Healthcare Conference on February 24. Thank you.
Ladies and gentlemen. This concludes today's web conference you may now disconnect your lines at this time thank.
Thank you for your participation and have.
Great day.