Q4 2020 Axonics Modulation Technologies Inc Earnings Call
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Ladies and gentlemen, thank you for holding your Exxon Inc. Q4, 2020 results conference call will begin shortly thank.
Thank you for your patience.
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Yes.
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Welcome to the Axon, Inc. Q4, 2020 results call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Now turn the call over to Neil Bullock, Sir you may begin.
Thank you Richard Good afternoon, and thank you for joining <unk> quarterly results and update call presenting on today's call are Raymond Cohen, Chief Executive Officer, and Dan Dearen, President and Chief Financial Officer.
Ray will provide remarks on the Contura acquisition, followed by Dan's remarks on fourth quarter financial results.
I will conclude with additional business updates after which time, we will open the call up for Q&A before we begin I'd like to remind listeners that statements made on this conference call that relate to future plans events prospects or performance are forward looking statements as defined under the private Securities Litigation Reform Act of 1095.
While these forward looking statements are based on management's current expectations and beliefs. These statements are subject to a number of risks uncertainties assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail and Exxon excess filings.
With the Securities and Exchange Commission, all of which are available online at Www Dot SEC Dot Gov listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date February 25, 2021, except as required by law <unk> undertakes no.
To update or revise any forward looking statements to reflect new information circumstances or unanticipated events that may arise.
I would now like to turn the call over to Ray for his remarks, Thanks, Neal I would like to welcome everyone. Joining the conference call. This afternoon and for those of you who will listen to the playback at a later time.
Today is a truly exciting day for <unk>. In addition to reported results for our first full year of commercial operations in the United States. We're also pleased to announce the acquisition of contour limited featuring bulk commit a best in class bulking agent for the treatment of stress urinary incontinence, commonly referred to as <unk>.
Hi.
Before talking about the acquisition I think it's important to state that we will remain keenly focused on our core business of sacral Neuromodulation and we see. The addition of this product line is making us even more valuable to our customers.
Dan will take you through the details shortly but we had an exceptional year in 2020 and generated over $111 million in revenue during our first year in sales in only 10 months of selling time and during a global pandemic.
The 2020 results speak to the quality of our product the.
The quality of our people in the market opportunity is estimated to be several billion dollars.
Future of second non modulation and that business is bright and we expect to continue delivering strong growth this year and in the years ahead as the market for sacral Neuromodulation expanse.
During the past two years when asked if we would ever consider acquiring a new technology. We have always stated that we would if it fit our commercial strategy of treating and continents and if the product was synergistic sold through the same sales channel and to the same physicians.
In general, we see women's health and incontinence.
A underpenetrated market opportunity.
And as it turns out we were opportunistic enable to leverage our strong balance sheet and stock price to acquire a very hot product line sooner than we might have expected.
As you May know stress urinary incontinence as a very common condition that afflicts women of all ages with childbirth is one of the main contributing factors.
In the U S alone this impacts about 20 million patients with only or women in fact with only a small fraction of those having been treated.
<unk> is caused by a weakness in the pelvic floor, preventing the urethra from closing fully when pressure when sudden pressure is put on the bladder.
This can allow urine to leak out during normal daily activities, such as coughing laughing exercising our lifting and object.
<unk> is different from overactive bladder and when I talk about overactive bladder of specifically, referring to urinary urge incontinence or urinary frequency.
These conditions are not related to pelvic floor weakness and its and its treated with either drugs or botox or the more permanent solution sacral neuromodulation.
Now many patients present with both stress urinary incontinence and urge urinary incontinence and this is referred to as a patient with mixed.
In Cognex physicians.
Physicians will differentially diagnose between those two forms of incontinence to understand which is predominant in order to properly treat the patient.
Now I cannot overstate, how perfect a strategic fit bulk commit is for <unk> <unk>.
The acquisition Leverages, our expansive commercial footprint, which we believe will greatly accelerate <unk> adoption in particular in the United States.
The new product line further increases Exxon X value to physicians as we can now offer our customers best in class solutions.
For patients with various types of OSB and stress urinary incontinence. It allows us to target a large and highly underpenetrated stress urinary incontinence market that is in need of innovation and increased patient awareness and.
And finally, the transaction is financially compelling.
Accretive to <unk> on day one.
For those not familiar with bulk of med treatment for <unk> ill provide some background.
And the market opportunity.
<unk> is a best in class urethral bulking agent for women with Sci.
It is unique it's patented and it is a non particulate hydrogel that is injected into the urethral wall to restore the national natural closing pressure of the urethra.
It is a simple fast easy to learn and perform procedure that is minimally invasive and can be performed literally in minutes and either a physician's office or an outpatient facilities.
While booking agents have been on the market for over a decade, the bulking effect of the legacy gels has limited effectiveness.
This is primarily due to difficulty in administration and the variability in the size of each injection.
Resulting in middling satisfaction and relief for patients.
Legacy Bolting agents contained micro particles, which sometimes induce a chronic inflammatory response the.
The combination of these flat factors has led to a modest use of legacy bulking agents and a less than stellar reputation and a physician preference for an invasive slink procedure to treat women with <unk>.
As the next generation bulking agent bulk of it addresses the shortcomings of existing particulate based bulking agents. This.
This is not that dissimilar to Exxon X, bringing a state of the art sales.
From a modulation system to bear now <unk> is a homogeneous hydrogel that is biocompatible and it does not induce a chronic inflammatory response.
Bulk of it is bulking effect is aided due to the fact that the size or volume of each injection is predictable controllable and precise.
Welcome Ed retains its spoken characteristics for many years, thereby maintaining efficacy and providing women with long lasting relief of their <unk> symptoms.
<unk> has also generated extensive clinical validation and a strong safety profile with over 70000 women treated to date.
As stated earlier, we believe the United States is a large and highly underpenetrated market for <unk> with a prevalence of approximately 20 million women.
Similar to urinary incontinence or urinary urge incontinence, the vast majority of women with <unk> are suffering in silence. It is estimated that only 9 million women have sought medical treatment most of who we are.
<unk> Conservative therapy are opted no treatment at all due to the lack of noninvasive treatment options.
Debt where efficacious in.
In the United States. There are around 125 to 150000 sling procedures annually and around 25000 bulking procedures.
Each year to date.
Now as is the case in certain European markets in particular, the United Kingdom, where we believe bolcom, Ed well, let me say it this way.
In certain of these markets such as the UK Bocom it is already.
Looked at as a first line therapy, and we believe <unk> will quickly become the gold standard therapy and take share from the invasive sling procedures.
However, the much larger opportunity is to engage with physicians and to increase awareness for the millions of women suffering in silence.
Sure.
We're now they'll have a treatment that is clinically proven that safe that aligns with patients desire for minimally or non invasive solutions.
Similar to sacral Neuromodulation, we see the highly underpenetrated su I market as poised for significant and durable growth in the years ahead, driven by the introduction of our next generation solution that provides outstanding clinical results and high rates of patient satisfaction.
From a little more background.
So both of them had received the CE Mark in 2003. It is a covered service from a reimbursement standpoint in most European countries now the FDA approved bolcom it under a PMA in early 2020, and it is reimbursed by Medicare and commercial payers in the United States.
<unk> is currently sold through a direct sales force in the United States in the U K, Germany, France.
And certain Nordic countries, and also through distributors and over 30 international markets around the world.
Now in the United States. There are currently only five sales professionals.
A little context on the magnitude of the revenue so in 2019.
Pre pandemic year as we all may recall.
Bulk of Med generated international sales of approximately $12 million that was just international sales.
Since <unk> was introduced in the United States.
In the middle of last year, and a limited rollout there.
There were dozens of.
Accounts that were signed up and approximately $2 million of revenue generated in this limited rollout.
In total 2020 sales, which were impacted by Lockdowns in Europe from most of the year were approximately $11 million. However.
However, the good news is that sales in January of this year put the product line on a trajectory of approximately $15 million annualized sales.
Now the U S launch of bulk <unk> has has generated significant excitement among urologists and euro gynecologist that treat stress urinary incontinence, and we're confident in our ability to significantly accelerate <unk> adoption.
As you know <unk> has an expansive commercial footprint of over 220 sales and clinical specialists in the United States and Europe that call on the same exact customer base. Our team has developed strong and trusted relationships with hundreds of physicians and we will leverage these relationships to grow awareness of bulk of Ed capture physician mindshare.
There drive adoption and increase utilization of Bocom it.
This transaction increases Exxon X value to physicians and with our team now offering customers best in class solutions for both overactive bladder.
Sci as.
As the differentiated technology, we expect <unk> to be a door opener and provide an opportunity for us to start a dialogue about our sacral neuromodulation device and accounts that <unk> is not yet penetrated.
The acquisition of bulk and that is also financially compelling.
It is expected to be accretive to revenue growth gross margins and operating margins in 2021 and beyond.
We expect the contribution margin of this business to increase meaningful under our ownership given the inherent sales force leverage.
To give you a sense of the revenue growth potential we see for bulk of med. We're confident that <unk> can sales scale this business and generate approximately $50 million of revenue in 2024.
<unk>.
<unk> also has an opportunity to further increase our gross margins in the years to head in the years ahead.
Now to start with we have entered into an agreement between <unk> and Contura, where the bulk of them at hydrogel will be supplied at a transfer price debt yields are gross margin to <unk> of approximately 70%.
Now we have the right to a technology transfer after summer of next year that would enable Exxon X to in source the manufacturing of Bocom and providing us with the potential to expand gross margins in 2023 and beyond.
Now we have a detailed day one integration plan, we're confident that the.
The last few months of diligence and planning will result in a smooth integration.
And in conclusion, I would say that we believe this is a smart and synergistic acquisitions and <unk> has now created a global incontinence franchise focused on treating an underserved population of women that is differentiated from our key competitor and poised to deliver significant value to physicians patients.
And shareholders for years to come.
So with that I'll turn the call over to Dan.
Who will review, our fourth quarter 2020, and full year financial results Dan.
Thank you Ray for the fourth quarter of 2020, Exxon X generated net revenue of $34 8 million. This compares to $9 $9 million in the fourth quarter of 2019 net.
Net revenue from the United States accounted for $33 $7 million with certain European markets in Canada accounting from the balance of fourth quarter revenue.
As we have discussed previously a resurgence of Covid cases in November and December impacted <unk>. This is not unique to <unk> and has impacted other med tech companies that are primarily weighted towards elective procedures. We conducted a detailed territory by territory analysis to size the revenue impact COVID-19.
Had on fourth quarter results, we estimate that approximately 320 scheduled permanent implants were canceled due to COVID-19.
These cancellations represented approximately $5 million of revenue that was not recognized in fourth quarter 2020.
Gross profit for the fourth quarter of 2020 was $22 1 million representing a gross margin of 63, 6%. We are pleased with the gross margin. We have seen at this level of sales and continue to expect gross margin to expand to the low to mid seventies over the next few years.
Operating expenses for the fourth quarter of 2020 were $33 million, which compares to $21 8 million in the year ago period.
The increase in operating expenses was primarily due to increased personnel costs across the organization.
Net loss for the fourth quarter of 2020 was $11 $3 million as compared to a net loss of $22 8 million in the fourth quarter of 2019.
Cash and cash equivalents were $241 2 million as of December 31, 2020.
In January of this year <unk> retired the $20 million term loan that was on the balance sheet at year end 2020.
As noted in today's press release <unk> is acquiring contura for total upfront consideration of $200 million, consisting of $141 million of cash and approximately one 1 million shares of <unk> common stock.
The upfront cash consideration has been funded with a new $75 million term loan and existing cash on the balance sheet adjusting.
Adjusting for the January term loan repayments and the Contura acquisition <unk> cash balance at year end 2020 would be approximately $150 million on a pro forma basis.
I will now turn the call back over to Ray Thanks, Dan excellent.
We are proud of this quarter's revenue results considering the sharp acceleration of COVID-19 cases, and hospitalization increases in November and December.
And of course, the lower number of patients that met their insurance deductibles in late 2020, while the surge in COVID-19 activity in late 2020, as well as bleeding into January and February of 2021 has slowed the uptake of electric elective procedures in the United States in Europe, we do it.
Expect the majority of our canceled cases to be rescheduled and completed in the second half of 2021, if not earlier as more individuals are vaccinated and the impact of the pandemic receipts.
Now looking back on 2020 in the first year of <unk> commercial launch in the United States. The company generated over $111 million in sales. This exceeded our ambitious goals, which did not account for only having 10 months of selling time due to the pandemic now we're grateful for the overwhelmingly positive.
Response from physicians and patients to the introduction of our rechargeable sacral Neuromodulation system.
In 2021 in the years ahead, Exxon X will take full advantage of the growth outlook for cyclical modulation.
Physician customers are enthusiastically recommending Exxon ex therapy to their patients and more of these patients are saying, yes to cycling a modulation than ever before it.
It is clear that second modulation has experienced a renaissance based on new and more effective technology coming to market. We continue to believe the second modulation category is poised to expand meaningful meaningfully sorry over the next few years.
We continue to pilot various DTC advertising strategies, and we're testing and determining the most effective messages channels and content to reach patients suffering from urinary dysfunction and fecal dysfunction.
We are placing targeted ads across highly trafficked digital platforms and we are now in 35 markets around the United States.
Given COVID-19 disruption and the limited scale in which we've been testing. These strategies. We do not expect these efforts to have meaningful impact on procedure volumes in this year's first quarter.
We look forward, however to sharing more of our learnings and our go forward DTC strategy with you on future earnings calls.
Now on the product development front, we continued to make strong progress. The FDA recently approved exon ex PMA supplement for our third generation implantable Neurostimulator. This marks the sixth FDA approval <unk> has received for a significant product innovation since the company's U S commercial launch in November.
<unk> 2019.
The third generation.
Ines upgrades the embark.
The embedded software.
And.
In the <unk> and the functionality of our patient remote control. These modifications gives patients the ability to make broader stimulation parameter adjustments at home, including selecting a second therapy program that was set post operatively based on inter operative findings, while we're as close to set it and forget it.
A product. This is a feature that will benefit practices, where patients must travel long distances for in office therapy adjustments, we expect to begin shipping the third generation device next week.
Now we continue to make progress on our non rechargeable primary cell device.
The new offering leverages, our existing technology.
<unk> to be long lived and the first truly recharge free system available given that none of the system accessories, including the patient remote require recharging or charging.
We built a few hundred devices that are undergoing validation and verification testing, we're working diligently to file with the FDA as soon as possible and we are optimistic that we can have this product in the market, having and making contributions to our revenue in early 2022.
So in closing.
We are incredibly bullish about the future outlook of <unk> and we're thrilled to now have bolcom, Ed in our portfolio of incontinence solutions.
As always we are grateful for the trust physicians patients and shareholders have placed in <unk>.
We continue to work diligently every day to fulfill our mission of changing the lives of patients suffering from bladder and bowel dysfunction.
So that concludes our prepared remarks, so operator at this time, we are open for questions.
Thank you.
We will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign with the hash key if youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Standing by for questions.
Our first question on line comes from Mr. Bob Hopkins from Bank of America. Please go ahead.
Thanks, and good afternoon.
So hey.
So very interesting announcement here definitely have a few questions on it.
I guess two things come to mind quickly and one is.
The product's been approved in Europe for a while and as you know relative to the number of years. It's been approved is generating relatively limited sales.
And so just curious if you could give us the history of what's going on.
In Europe with it and then also would love to hear your view on.
How protected you think this particular hydrogel is.
From a from an IP perspective, thank you.
Thanks, Bob look we're comfortable with the IP protection.
There are a number of <unk>.
Number of patents debt that we have acquired along.
Along with the product.
And.
There are some other players in this particular market, but I think this is a very.
Very much a highly differentiated product so.
We don't have much in the way of concerns.
In terms of the history.
Bulk committed under Contura I think it's fair to say that this was a very small organization.
With the modest commercial footprint and very limited resources. So.
That's what they were what they were able to accomplish.
With the product in their hands and I think it's a completely different day to put this in the hands of epic Sonics and our not only our U S team but.
Also.
One of the key benefits here Bob is that now this gives us.
Access to distributors and additional direct salespeople.
In the in Europe and around the world. So.
We pick up.
Around two.
Two dozen.
Sales people as part of this.
This arrangement the vast majority of them as I mentioned would be located outside the United States.
Currently there are five only five sellers.
Bulk commit in the United States and obviously, we've got a lot more firepower than that so so that's that's kind of the story.
One other thing I'd love to if you just give us a little bit more in terms of the history of the transaction and how long you've known these guys because.
Obviously this does seem like a very large market opportunity and there are other large companies in this space and yet Exxon actually a relatively small companies able to end up being the owner owner of the asset and so just curious if you can give us a little more backdrop on how it came together in your history with these guys.
I think that.
It's pretty straightforward.
I was really keenly interested in this property if you may a year ago.
At.
The.
I'm going to use the acronym <unk> meeting, which is happening also this weekend at the society for urinary a female medicine.
To start I'm going to screw that up isn't it helps us yeah, yeah yeah.
The way so that's kind of when we.
Started the dialogue if you may.
But the product had not.
Had not yet received FDA approval at that time, it had not been launched in the United States.
So it was a little bit early right from our from our perspective.
And then just in terms of as you will read in the public documents about the transaction.
We approached the company.
And have been working with them now for 90 days too.
Induct diligence and complete the transaction.
Alright, that's great and then just lastly quick comment on closing on just.
Are you starting to see things improve a little bit.
In the U S with the decrease in cases or is that.
Are we still waiting for that just on your core business, Yes, no I appreciate that I think that the worm is turning in a positive direction.
<unk>.
November December January were tough months, I think everybody who has reported has said basically the same thing and I think that you get different levels of feedback about how February has it gone right I mean, it started out sluggish and I think it's starting to pick up some speed here as we speak so.
Sure.
Look it's directly whats happening is directly correlated to how many patients are getting vaccinated and how the public fields.
The issue for US has just been nervous patients and we had more cancellations than we'd care to care to have at the end of Q4, and then even into the January period, but as a number of my sales managers have indicated to me in the recent days, we are adding more cases that are coming.
Our coming off the calendar, so we're pretty optimistic and we're hopeful that March may actually be a kind of early inflection point and things start to move in the right direction.
But really it's undetermined at some fundamental basic level, Bob right. We were optimistic we're hoping that.
March turns into a really positive month.
And that we can see the benefit.
What's happening in the United States in Q2 as opposed to having to wait until the summer time in the second half of the year I think everyone would agree that we're really whether it's <unk> or other people in our space I think things are set up quite nicely for the second half of the year. The only question is how quickly things start to.
Turnaround is that a march event as it is a second quarter event.
But.
We're starting to feel a lot better about things.
Europe is still a mess.
I mean, most of the countries is still completely shut down.
But but here in the U S. I have a sense that optimism is starting to return to two people in America.
Thank you.
Thank you Bob.
Thank you. Our next question on line comes from Chris Pasquale from Guggenheim. Please go ahead.
Thanks.
Ray I wanted to just follow up on that last point about potentially things starting to turn making up some of the lost ground curious how much excess capacity you think your customers have to make up lost cases, assuming the macro environment does get to a better place do you have a lot of flexibility to make up those cases quickly or are these.
Practices busy doing other things and those patients are going to get in the back of the line.
Thanks, Chris and good chat with you and Thats a good question.
I think that you.
What happens many times is that.
You all in the analyst community or speaking to so many different players.
Players in medical devices.
And we're all in a different we.
We have different products.
And different issues.
Issues that we're dealing with so we don't believe there's any constraints at all in terms of the ability to do procedures in asc's.
At least half of our business gets done there and then an outpatient sectors of the hospital.
And just to remind everyone.
Sacral Neuromodulation is arguably the most profitable procedure that urologists are youre going to colleges do so they're highly motivated to get to get these implants done.
They like to do external trials too because they make money there and obviously that's necessary to get insurance reimbursement. So.
We do not hear about.
Constraints in terms of capacity and our.
Our sense that we get from our customers as they are highly motivated to get those patients treated so that is not a concern I think is really 100% boils down to the attitudes of individuals and the nervousness that they've had about going into health care environments to get elective procedure done when people werent.
<unk> and they were concerned about kitchen Covid I think it's just it's really as simple as that.
And that's why we're really optimistic.
About a return to something that looks closer to normalcy.
Thanks for that and then just one on contour off yes. They were pursuing a number of other indications for this hydrogel EBITDA in aesthetic applications do you intend to just shut those projects down or do you see the potential from maybe some licensing or partnership opportunities.
We are 100% focused on bulk of med for stress urinary incontinence.
We will not be pursuing any indications outside of that field.
Thanks, Yes.
Yes, Thanks, Chris I appreciate it.
Thank you. Our next question on line comes from Adam Adam Maeder from Piper Sandler. Please go ahead.
Hey, guys. Thanks for taking the questions and congrats on a nice year.
So I wanted to ask just.
A big picture question on 'twenty, one and revenue and I realize you don't have guidance in place here, but the street's modeling $157 million for full year 'twenty, one sales for the <unk> business.
Lots of moving pieces, but just wondering if you have any reaction to that figure and how street models are calibrated for 'twenty, one and then I had a follow up thanks, Yes sure Adam.
So it's pretty straightforward answers one.
We have said previously and ill say again today that debt $157 million number for our base business. Our core business is not something we're concerned about at all.
This is even after certain adjustments.
Have been being made to Q1 numbers and we would expect would be made after this call. So even bringing down consensus for Q1 is.
Is not a concern for us to be able to catch up we've got a nice backlog as you know of cases from from last year and January we think they'll all come back on the schedule and we'll be able to pick up.
That revenue in the second half of the year without trouble. So we are not in the least bit intimidated by that number I'm not encouraging everybody to raise their numbers.
But it's not a problem for us so we would confirm the consensus guidance.
We would confirm the consensus view.
That something around 150, 760, <unk> that number is a good number for us.
That's great to hear and thanks for the color there and then just on the follow up side of things I wanted to ask you about opex.
In 'twenty, one just would be helpful to hear how you're thinking about things. This year as you continue to scale the business and then how the <unk> deal factors in from an Opex standpoint, thanks, so much.
You bet. Thanks, Adam go ahead, Dan Thanks, Alan.
No I mean, I think consistent with past practices. We've obviously continued to invest in the sales organization as well as support operations and quality quality and so we continue to expect to see I would call. It.
Slight increases in opex quarter over quarter as the revenue growth and so.
I think if you were to look across the consensus estimates for Opex in 2021.
We're good with those numbers, so we're really going to be looking at.
Hi, Hi, Thirty's to low forty's per quarter in Opex.
And.
I think that's probably all I, all I probably need to say.
Thank you. Our next question on line comes from Larry.
Nielsen from Wells Fargo. Please go ahead.
Good afternoon, thanks for taking the question.
Just a couple from me here Ray and congrats on the deal.
Thanks.
One question I I mean.
We're going to get.
That I'd love to hear your thoughts on is kind of why now.
You know.
Two parts.
This deal.
This suggests that you're less bullish on your sacral neuromodulation opportunity and and then and how do you avoid this from distracting you from.
From the sacral Neuromodulation opportunity integrating this company I had one follow up.
Sure sure so Larry I think it's really important.
I think for folks to recognize that.
Companies like Exxon X have a choice alright, we can either.
B Boldt and.
And be brave and.
Look to position ourselves to be the most valuable supplier, we can possibly be to our customers to provide differentiated solutions, where we can sit around and take questions about what medtronic has to say about their cyclical modulation franchise. So this is going to differentiate that differentiate us in a significant way.
And I think it's important and I think debt.
Anybody who has been following us and knows us and knows our personality.
We're not going to sit around right, we're going to be aggressive.
We're going to take initiative and we saw this as a great opportunity and I will tell you right now bulk amenities the hottest product there is in urology and gynecology.
Got ecology I mean this thing is on fire in any research that you do have any diligence you do is going to confirm that and we've been watching this thing take off particularly.
Particularly here in the United States and if just in a few months. So we're excited about it and I got to tell you coming into a practice that we're not doing business with and being able to offer a solution for what is in effect. Many times the same exact patient.
Or another way to look at it as if it's a coin in your hands I mean, now we're talking about being able to cover patients on both ends of that coin right, particularly with the mixed incontinence patients and all the rest of it. So this is highly synergistic and I. Just think that this is the point, we're trying to get across and we hope that the analyst community understand the physician community I can.
Tell you is standing up and applauding this deal right now.
And and there is just no question that this is going to create an enormous amount of excitement amongst our existing customers and it's going to give us an opportunity to call on people and to turn their heads where they may not have allowed us to come in to talk to them yet about sacral neuromodulation. So I don't see this as a.
Action I see this as a significant enhancement for our team and.
Kind of an a plus calling card now to go and call on people that we haven't done business with right and as you can imagine right, we get them excited and they're in they're either using bulk of it now or want to use Vulcan that now plenty of opportunity to chit chat about sacral neuromodulation, while we're doing some injections of training on bulk commenced.
So.
But any thought that somehow we're doing this deal as a defensive play is way off base.
I can't understate that enough. This is an offensive maneuver by our company, it's a very aggressive approach and it's the perfect time.
For us to have to have done this deal and also it's not like we're going to we don't want to wait around for.
For somebody else to come snap up the property right. This is this is one of the advantages. We have right you guys know us we can move fast we can make decisions and I think that's in the DNA of our organization and this is this deal hopefully underscores that.
That's helpful and just lastly from me Ray who is the competition.
And how differentiated it is the product I didn't really hear you talk about that I mean is there head to head clinical data. Thanks for taking the question, yes, yes. Thanks, Larry I appreciate it look.
Debt, we're going to provide we will provide more information in terms of background, it's hard to get into a feature by feature comparison on a call like this but this is a non particulate hydrogel, which is highly differentiated from the from the competition and any physicians use debt will tell you that debt debt.
The ease of administration the reproducibility.
The ability of the injections. The clinical response is all significantly better than anything they may have ever used before.
So this really opens thing opens things up now in the U K, which has been the biggest traditional market for this product where swings and matches the no longer being done for the most part that's almost an absolute statement. This this is the go to product if you're a patient in the U K and you've got stress urinary incontinence, you get bulk of met and <unk>.
And they have really obliterated the competition.
In that market. So we're really bullish we've done enormous amount of diligence on this deal.
To make sure that what we're jumping in the deep end of the pool here, we wanted to make sure that we got a winning winning products. So I really appreciate the questions and we're happy to provide more information.
As a background there as we move forward.
And thank you. Our next question on line comes from Canola, Brian can look from excuse me from true security.
Hey, This is David draft standard for <unk>, Thanks for taking my questions.
First from me I appreciate kind of some of the fourth quarter commentary that you provided and how things have trended so far through the first two months of the year.
You indicated kind of cancellations in the fourth quarter of around 5 million will be deferred to the second half of the year. So really how should we be thinking kind of about the cadence of revenue throughout this year.
And if cases were canceled in Q4 coming in the second half of 2021, I guess kind of what proportion of normalized cases are expected to come in the first half of the year. So.
Theyre, an assumption that there is sort of a portion of patients who are pretty pretty ambivalent to getting an implant private vaccine. So if we use kind of a cancellation impact in Q4.
There are 10% to 15% of the normalized implantation in the first half of the year, who who are waiting for them for a vaccine before kind of rescheduling.
Your question has a fair amount to try to unpack.
No.
Dan do you feel like you can address this directly.
Can I think there's an interesting reality in our business which is.
The market is so underserved and the prevalence and incidence is so high in this particular category of sacral neuromodulation.
As an operating company.
Got.
Chasing patients and looking at referral patterns and trying to manage every single patient that was on the calendar to get back into the practice and in fact as a manufacturing company.
These patients belong to the physicians not to not to our company and so the way that we view the business as we just go out and we talk to the reps when we look at each territory and we roll it up and then we look at what do we think.
We're going to achieve in 2021, and when you look at the ramp from here, how we have it internally from Q1 to two to three to four we expect to see exactly what you would predict which is look first quarter, we've pretty much provided guidance on as we go into two three and four we're going to see a steady uptick with obviously Q4 being the higher.
And this is all based on the premise that people are vaccinated. The Covid case rates continue to drop and we just continue staying focused on blocking and tackling the sales and marketing team is in place. It's an exceptional team of hardworking folks recovering cases, we're providing exemplary customer service and everything is going really well.
And so we're not really internally, taking a look at the call. It 320 cases or $5 million of I'll call. It deferred revenue from Q4, and then looking at where we pick that up on the backend because as we've messaged, we expect to come in.
We're phrasing it by saying, we're fine and comfortable with consensus estimate for 2021, which means we of course expect to at least meet that number but it's going to mostly be back weighted with Q2 being better than Q1, and three and four being very solid.
<unk> had a further so since this is a question coming from truest, Yes, I mean, we see your.
Ultimately we have your estimates in your model and you know.
It looks perfectly fine.
Lastly to us exactly where you have it.
So.
I don't think Theres a lot of mystery there.
I want to I want to be Super clear that when we said we are confirming the guidance we were talking about the core business right. This consensus of $1 57, Thats for sacral Neuromodulation.
What we generate in the in effect three quarters of having <unk> as it is in addition to that so we're not saying Oh, we're going to shoot our shoot ourselves in the foot here and somehow this bulk.
<unk> business is going to save our Bacon, that's not what we're saying the bulk of that acquisition is completely additive.
On top of the core business, where we've been saying and Dan just reiterated that the 157 are rounded up to 160, we're perfectly fine with that.
And the only thing we've been trying to say is that it's just going to be a little more back loaded which is not should not come as a surprise to anybody since every company ripped.
We reported this past week or last week has been saying the same thing so.
Hopefully that helps yes.
Yes. Thank you that's helpful and that actually kind of leads into my second question, just kind of guide or kind of on the comparability with the $1 57, so thinking about the U S kind of if you could kind of compare and contrast, I guess the launch of the acquired product kind of against the launch of the initial device in the U S and so when you think about that device.
And Dan on the market for about six months or so really without a major U S sales presence.
We think about 2021 as being additive to that $1 57 number even if we assume that our U S sales of $12 million or kind of flat with what they were in 2018, and then you kind of considerably annualized the 2020 U S sales to $4 million or so.
Puts you around 16 million kind of a net potential a conservative case, though so it was the $1 57, and plus plus maybe in the $16 million to $20 million from the acquired business in 2021 kind of.
It makes sense to you guys.
Yes, I mean youre in the ballpark right in the ballpark.
Look we're optimistic and we would hope that would be the base business from 2019 that was 100% International would come back we do want to caution of course that once again, we've got countries like Germany, which are still completely under lockdown.
And things are not much better in the U K, which has been the biggest market. So.
We were I think happy to see.
Revenue that came in.
In January from this business, which gives us some confidence that the base business continues along despite the pandemic but.
But you're not off in terms of how you've kind of riddled out what could be expected from us in 2021.
And thank you. Our next question on line comes from Danielle <unk> from SVP Leerink. Please go ahead.
Hey, Danielle will you begin before you begin G sorry about the bad timing of your conference yesterday.
Okay.
I appreciate it.
Sorry about it.
I actually wanted to ask two questions one is on the acquisition.
Sir I wanted to ask you about the DTC campaign that if you could give us sort of a case study or an example of a market where a company.
About your size was kind of trying to drive market development and what happened with volumes I think you've used the inspire example in the past and I guess, what I'm getting at it is how quickly you can start to see returns and sort of what those returns could look like sure look I think that what we're going to be doing is analogous to what you saw with your lift what you saw.
With inspire.
Now I mean, they all got started not not by spending $710 million in a quarter right.
Had to get their sea legs under them also.
Now.
But its very analogous and if you see people typically started in the digital world and then they kind of bleed into local TV radio and then ultimately national TV spots.
I've been really impressed with some of the high quality television advertising done by inspire as an example by masimo with their at home pulse Oximeter.
I'm not even talking about decks com and all of the CGM right. So it's clear that debt.
The time has come now in 2021 for medical device companies to be marketing directly to consumers. I mean, this is something that if we go back five years ago It didn't happen.
Other than maybe at two o'clock in the morning, with some funky product right.
But.
This is what we're doing so here's where we're at right now we started with with online digital marketing with Facebook right our target audience.
Of women between say $45 to 75 years old Theyre, all on Facebook I'm sure you'd agree with that so we can target demographically, we can target geographically, which is an important piece of the puzzle for us and we're sending these these messages. These ads if you may getting people to respond then they go to like a questionnaire.
They qualify themselves and in fact, if there had been qualified then theyre going to receive a phone call from somebody on our staff. We've got nurses that have been trained to reach out to these people who raised their hands, we're going to further qualify the person, providing empathetic conversation and theyre going to ask them, if they would like to refer.
<unk> to one of our one of the.
<unk> that we're working within that area.
And if they say, yes, then we call that practice they've already been trained they are prepared to accept what we call warm handoffs and that we will go ahead and get that patient right into the doctor's schedule immediately now because we're doing it that way under the premise.
That every single lead is worth a lot.
That we are not going Willy nilly across the entire United States. We're in 35 markets right now and we started at zero and then in Q4, we continued to add we'll be at 50 markets by the end of March.
And we anticipate that we will continue to roll these out.
So we've got great coverage all across the United States. So there is no area of the United States that we can't market and.
And right now our current spend is about $1 million per quarter right. So we spent some money in Q4 to get things up and running we now know what gets good responses and what withdraws better in terms of the ads and all that other stuff and we're doing this thing and I think in a highly sophisticated disciplined manner to make sure.
That we can track stuff because this is the question you are asking me and I'm sorry for the long preamble, but the question you're asking is how do you measure. The response well you can measure easily cost per lead you can measure easily cost per appointment or cost per.
Yes appointment we'll call it.
But but it's harder to measure the cost per sale and Thats, where there is a gestation period that has to happen. So you've got to be able to have tracking mechanisms in place you have to be working with practices that are that have agreed that they're going to report back information because we want to tie that add in that response to a sale ultimately.
<unk> implant ultimately so that we can then provide.
Some type of ROI.
Feedback or or at least gross revenue that we're generating from these activities. So this is not a for us it's just not about throwing a bunch of.
Money against the wall, hoping something sticks and so forth. So now I should also add just and I'll wrap. It here is that we're not just doing digital advertising, we've got ads there.
That is showing up in the kind of these local magazines.
Debt debt women of this age group would read we've got some of our docs on local television doing these little 32nd spots, which have been proven to be very effective so far.
And so forth. So so those are the kinds of things to do and we've got a whole Chinese menu.
Things that we are available.
Available for the practices that are working with us to to get involved and just so everybody understands that we're keenly focused on compliance as a company. Obviously, if we if there's something that promotes the doctor's practice they have to pay half. If we're if we're promoting sacral neuromodulation in general then we can do it on our own dime. So.
It's going to take us a while before I remember listening to the Q3 call from inspire and they indicated that they spent nearly $7 million on DTC net.
Didn't talk about what they spent in Q4, but the point is that some of these companies that are posting some pretty aggressive.
Growth they've been doing it on the backs of some heavy spend from a marketing standpoint up until now we haven't but 2021 is kind of our coming out party. If you may for getting serious about this so right now $1 million a quarter is the spend that we envision and if things go well and we can measure the ROI.
We'll pump the gas even further.
Got it okay. Thank you so much that was that was a very thorough response.
So just on the acquisition and I'm just curious.
You alluded to the sales synergy potential and I'm, just wondering is there anything to that and it might be.
No the stress urinary incontinence market as well.
Is there any sort of synergies as it relates to raising awareness.
Q do these patients eventually become.
The bladder patients or is that the wrong way to think about that.
Yes.
This is a.
Pretty good question right. When you think about it and there's a lot of confusion I think even on the part of women.
As to what the issue is what they've got right Here's what I would say it is very common Danielle and even if you I.
I mean youre obviously.
Two young maybe but if you talk to other women in your circle.
Notion that I cough.
I laugh I sneeze, I pick up something and.
I think a little bit of year end I mean, this is very common so the issue is not whether it happens once in a blue moon, but if this starts to happen on a regular basis every single day that these folks are going to be motivated to go talk to a doctor hopefully they go to the right Doctor, who actually cares and is willing to listen.
But many of these patients have some form of this stress urinary incontinence and then they also have urge urinary incontinence.
They have great urgency and they actually can't get to the bathroom in time and they leak now.
That's called mixed incontinence, and some patients have both.
But a lot of times it depends on what is predominantly now in our clinical study that we did for urinary urge incontinence. We made sure that anybody was in our study was predominantly urge incontinence right. They may have had a little bit of stress incontinence, but we wanted to get as pure as we can of patients.
With urinary urge incontinence so it's.
The docs can differentiate the simple urodynamics tests allow them to make a differential diagnosis between which problem. It is that might be predominant and what the patient is seeking treatment for so it's not as if.
<unk>.
Weakness in your pelvic floor muscular <unk> right and the inability to get good co option and the read through is going to lead you down the path of urinary urge incontinence. One is a muscular issue with problem with co option. The other is a communication problem between the bladder in the brain. So.
The.
<unk>.
Yeah.
The causation if you may as different as we mentioned even earlier stress urinary incontinence is mainly I mean and more predominant amongst women who have had children.
Then it is in the rest of that population, whereas childbirth is not necessarily indicative of a person who is going to get urge urinary incontinence, so hopefully that clarifies.
Clarifies the distinction and so I would say to you that if you want to do some research it's not looking at the stress urinary incontinence market because.
The market is it just not that great of a market per se, it's about the incidence and prevalence of the problem and then creating more awareness. So that women actually talk about this as opposed to being embarrassed about it right. Because now this is a super easy procedure imagine if you've got this issue.
You can go in and 15 minutes later your problem is solved them and you're probably youre probably good to go from five to seven years. So it's a pretty exciting alternative non expensive covered by insurance.
Easy outpatient or office based procedures. So that's why we're so excited about this and.
Just want to stress same docks right, we're talking neurologist and your organic colleges. These are the ones treating this problem with these women and it and a lot of times its even the same patient themselves. So.
This is so closely related.
Hopefully people can appreciate why as a company we're so enthusiastic about.
Getting involved with this product.
Got it thanks, so much thank you.
Thank you. Our next question online comes from Michael Pollock from Baird. Please go ahead.
Good evening two quick ones.
You just mentioned low cost for this procedure can you give us a flavor for asps.
Yes between.
<unk> thousand $500.
Okay, perfect and then on the development of your primary cell device working diligently.
Especially optimistic it can be a contributor in early 2022.
I think previously maybe there was a net.
Expectations.
<unk> to submit.
The PMA to the FDA by the end of this quarter or is that still a reasonable framework.
Let's just say that let's just say that we're peddling as fast as we can on the bicycle okay.
So where we're doing everything we can to get this thing going and wrapped up but.
Just like there is disruption.
<unk> from COVID-19 in terms of elective procedures and selling.
And a lot of folks that were working with testing labs and others that also have patients that have contracted excuse me employees have contracted COVID-19, and Theres spanner in the works here.
We're not operating in a business as usual environment. So some delays.
Or just logistical and to be expected. So we're working it.
We're we feel good about the product, which is fully engineered and we've been building and we build a few hundred of these things already so we just need now to complete the validation and verification testing and put a good filing in with the agency.
Thank you very much thank you Sir.
Thank you. Our next question on line comes from Mike Matson from Needham <unk> Company. Please go ahead.
Hi, Thanks for taking my question just have a few on the deal.
And I did join the call late so I apologize if you addressed this earlier in the call but.
I guess I'm, a little confused by the deal because I looked at the company's website. It looks like they do have some other products. So are you just acquiring the Sci product are you acquiring the entire company and then if so if it is the entire company what are you going to do with the other products.
Not to I don't want to make this confusing at all okay, but let me let me try to.
Explain it.
Best as we can.
Contura had has a couple of different entities.
We've acquired control limited, which is where a bulk of it fits.
Hey.
And the.
The folks in in Europe, and particularly in Denmark.
To continue to have them supply the hydrogel to us.
At least for a period of time as we mentioned early in the call.
We will consider and eventually.
Look at the feasibility and possibilities of us, making the hydrogel ourselves, but at the moment, it's a lot easier just to just to get the product supplied by them.
Through some one of their entities, we understand that they may pursue.
Some other indications for the hydrogel or some version of a hydrogel that is outside the field that we're focused on so hopefully that kind of it's not that mysterious.
But hopefully that clears it up.
Yeah, Okay. Thank you.
And then.
Did <unk> have any.
It looked like they had some sort of sales force. So they are building some sort of sales force.
In the U S. So I mean are you.
You're inheriting any of those folks and.
Will you need to whether or not that's the case, we need to does this mean you will need to add to your existing sales force at all.
Okay. So good question Mike.
The answer is there are 26 employees coming with this deal 21 of them our sales professionals.
In the United States the balance are in Europe.
So we inherit those people. This is a very small team as you can imagine we're talking about.
A company that had limited resources and didn't make big investments in sales and marketing.
We now have.
Our own people there.
So it will be a combination of our folks in Europe and the existing.
Folks that we're inheriting and then in the United States, we fully expect to unleash.
Our large commercial footprint on the physician community and so on so forth. So exact details about who's selling what and all those things.
We'll give you more details later when the dust settles, but.
Suffice it to say that.
We're buying a company that has very little infrastructure and has been operating basically as a virtual entity. So this is.
Unusual deal in the sense that normally youre picking up facilities and all kinds of Manny.
Manufacturing and operations and all the rest of it in this case. This is just not the case here, we're basically buying in effect what is a product line.
And we're buying a supply chain, if you may and people that are engaged in sales.
Okay. Thank you thank.
Thank you Mike.
Thank you. Our next question on line comes from Maritza from Morgan Stanley. Please go ahead.
Hi, Ryan Dan Thanks for taking one more question.
Of course color earlier.
Just wanted to ask I think one concern investors may have is that <unk> is a distraction given you're still early in just the second year of RF and M launched so why do you think that is not the game. Thank you.
Well I don't think its a distraction because I think the fact is that the physician community our existing customers.
Our.
Singing the praises of this product and I got to tell you half the docs I've talked to without even being prompted they would say to me Hey, Ray have you have you looked into this bulk amend product I mean people are really excited about this product and I think if you do any kind of channel checks or whatever you'll find that to be the case. So we don't see it as a distraction.
<unk> got to you got to keep in mind now we've got over 100 clinical specialists on our team.
These are people that are expert in helping physicians and instructing in terms of implants of sacral neuromodulation, either our secret weapon folks I mean, now you're talking about a simple injection.
A little bit of training and then we don't even need to be there. This is a very important distinction for us. So I'm glad for the question. Because this is not like a procedure or even a sacral neuromodulation procedure that might be done in an ASC, where we have to be there. We are there on every case and we are there to program that.
Patients and so forth in this case you train the folks how to do the injections and then they're on their own like you don't we don't need to be there. So you know.
This should not.
B a time socgen it should not be a distraction.
We've got highly skilled nurses.
In our clinical specialist team that certainly can support the <unk>.
Training here.
And.
This is one of those products, that's a super Hot and we also don't see this as a heavy lift by our sales force. So this is one of the reasons why we don't believe it's going to be distraction as we don't need to be there for every case, you've got to get people trained up.
You get them in front of a pig bladder they do some injections maybe do a couple of cases that day and then you pop in and you see how it's going from time to time, but that's a lot of really cool leverage from that standpoint, so and the volume. There is another point I think we'll make now granted.
The question came up about selling price so.
Youre talking about are good customers that are going to contribute about $100000 a year that's around 100 procedures.
But theres no reason why the average urologists or youre going to colleges cannot do at least 100 of these patients per year. This is a much bigger.
Many more patients that they would be treating than they currently do let's say with sacral neuromodulation. So so that's kind of how how we see this and.
Bigger practices could could have much bigger volume. So this is not about messing around with a bunch of people that are going to dabble and do a injection here or there.
So that's kind of how we view this and I want to emphasize the fact that we've been looking at this for well over a year.
I didn't just wake up yesterday and decide that we should by this by this product line.
And we've done a lot of diligence and we feel really comfortable and Theres. No question that this is one of the most talked about products.
In urology and gynecology today, So I think we got it at the right time and.
This company is this a product line, we believe will flourish greatly in our hands.
Very clear thank you.
Thank you.
And we have no further questions at this time I'd like to turn it over to Ray for closing comments Super. Thank you operator, and thank you everybody for listening in and we appreciate your questions and your support and interest in <unk> and we'll look forward to talking with you all again and have a good evening.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.