Q3 2021 Nevro Corp Earnings Call
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Good afternoon, many Ms Jenny and I will be your car.
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Jenny we can't hear you.
Hello journey.
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At this time I would like to welcome everyone to the never ending third quarter 2021 financial results conference call.
All lines have been placed on mute to prevent any.
Jenny you keep.
We can't hear you you keep cutting in and out.
Hello, Jenny I'll go ahead and introduce to call Mad at me. My name is thank God. The other operator, okay. Good afternoon. My name is sneaking that will be a conference operator today at this time I would like to welcome every once in their first check.
2021 financial.
<unk> conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
Thank you I would now like to turn the call over to Julie Dewey for introductory remarks. Please go ahead ma'am.
Good afternoon, and welcome to <unk> third quarter 2021 earnings Conference call. We appreciate you joining us I'm, Julie Dewey never as VP of IR and corporate Communications with me today are Keith Grossman, Chairman, CEO, and President and Rob Mcleod Chief Financial Officer, the format of our call today will be a discussion of third.
Business results from Keith followed by detailed financials and guidance from Rod and then we'll open up the call for questions. Please note. There are also slides available related to our third quarter performance on the <unk> Investor Relations website on the events and presentations page.
Earlier today never released its financial results for the third quarter ended September 30th 2021.
Copy of our earnings release is available on our Investor Relations section of our website at <unk> Dot com.
This call is being broadcast live over the Internet to all interested parties on November 8th 2021 and an archived copy of this webcast will be available on our Investor Relations website.
Before we begin I'd like to remind everyone that comments made on today's call may include forward looking statements within the meaning of federal securities laws. Our results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-Q.
To be filed today for a detailed presentation of risks.
The forward looking statements in this call speak only as of today and we undertake no obligation to update or revise any of these statements.
In addition, we will refer to adjusted EBITDA, which is a non-GAAP measure that is used to help investors understand nevertheless, ongoing business performance.
Non-GAAP adjusted EBITDA excludes certain litigation expenses interest taxes, and noncash items, such as stock based compensation and depreciation and amortization. Please refer to GAAP to non-GAAP reconciliation table within our earnings release, and now I'll turn the call over to Keith Thanks, Julie.
Good afternoon, everyone and thank you for joining us I'll focus my comments today on our third quarter results. The current state of our business and Covid recovery.
And on our P D M launch.
Following my comments Rod will cover the specifics of our third quarter results and our first fourth quarter guidance.
In the context of the current Covid environment and in a related headwinds, we're still pleased with our third quarter results, which were at the high end of the guidance range. We communicated in August both U S and international revenue were impacted by the Delta variant surge and other COVID-19 related issues, including patient behavior regarding electric procedures health care facility.
<unk> and staffing shortages.
As a reminder, after the deep impact of Covid in the second quarter of last year, we regained our cancelled or backlog patients and recovered revenues considerably faster than all of our competitors last year in Q3, giving us a challenging 2020 Q3 comp as a result.
In fact, if you look at the quote unquote net recovery impact and for us that means canceled cases from prior quarters that were recovered in the current quarter minus the impact of new case cancellations in the current quarter. We enjoyed a net recovery impact of approximately $14 million to revenues in the prior year third.
<unk>.
While our net recovery impact this year was roughly a negative $1 6 million to revenue or roughly five or $15 million swing on a year over year basis.
You'll see a table on that impact in our summary slides that were just posted on our investor website.
Compared to the third quarter of 2019, we delivered strong third quarter adjusted EBITDA results, demonstrating our ability to continue to improve efficiencies in the core business. Despite investing in new growth drivers like Pete again, and MSR VP as well as our new manufacturing capability in Costa Rica, Rod will cover expense efficiency trends in just a few minutes.
We continue to be really excited about the P. D N opportunity, which I'll discuss in more detail momentarily and we're confident that we're well positioned for attractive core market growth when the impact and uncertainties of COVID-19 on our market completely subsided now.
Now I'd like to look at actual procedure activity compared to prior year Q3, total U S. Permanent implant procedures decreased 14% while trial procedures decreased 7% now remember that the same comparable issue I outlined for revenue impacts year over year for.
Procedures, sorry impact year over year was procedures as we were recovering a lot more canceled cases in the prior year third quarter income.
Encouragingly, However, our monthly trial and permanent implant procedures improved steadily over the course of this quarter and that trend has continued into the fourth quarter thus far.
Compared to the third quarter of 2019 U S permanent implant procedures decreased 8% in trial procedures decreased 9%.
Trial and permanent implant volumes were also still impacted by a continued reluctance of new patients to seek interventional therapies for chronic pain and numbers comparable to pre COVID-19 levels as well as scheduled case cancellations intellectual procedure capacity constraints due to COVID-19 concerns customer capacity and labor constraints.
Of course trials drive future permanent implants and revenues. So current trial procedures are certainly a primary driver of our Q4 guidance.
On our last quarter call, we provided a significant amount of market physician and patient research data to explain the slower SCS market recovery and I won't repeat that data again here today, except to say that nothing has substantively changed we believe that patient reluctance to reengage and willingness to defer is still a significant issue behind this.
Oh SCS market recovery.
Fortunately this factor is showing signs of improving though in our view of the impact of center capacity constraints related to labor shortages has probably grown.
Importantly, we are still uncovered nothing to indicate that there is any enduring a fundamental change to or problem with the SCS market beyond the pace of Covid recovery.
And as I've said, we believe <unk> continues to perform well relative to the overall market.
Almost any measure.
In addition to the research that we did last quarter. Our team also completed some additional survey work with patients and physicians would confirm that these previous findings are still valid.
Clearly the markets for chronic pain treatment remain among the more deferrable elective care areas by patients.
You'll recall on a previous surveys at the primary reasons patients so they're reluctant to seek care, where financial issues and ongoing fear of Covid.
In our most recent survey work we found patients are still reluctant to seek care due to financial and economic reasons, but they're ongoing fear of Covid has discrete decreased substantially.
And this continues to support our belief that the revenue impact and slower SCS market recovery is temporary and that these patients while still suffering from unresolved chronic pain are nonetheless, more able and willing to defer their treatment in patients and some other elective care categories.
Pain doctors and primary care physicians continue to tell us that they anticipate patient volume returning in our pain doctors almost uniformly confirm that they remain very interested in SCS therapy and are looking to grow their SCS business going forward on the topic of timing on equal three way split of pain doctors feel that the recovery will accelerate this.
Quarter. So obviously the recovery coming early next year and still others, who see you recover pushed into the second half of 2022.
Finally from a relative performance standpoint or share of market. We continue to see high variability in quarter to quarter results among market participants, though year to date, we feel like we've continued to win in a difficult 2021 market.
For the first three quarters of 'twenty, one our U S revenues were up 4% compared to 2019, while we believe the U S. SCS market was down approximately 3% in.
In fact, we believe we're the only company well into positive year to date growth in the U S versus 2019.
As we look at actual year to date procedures in 'twenty, one versus the same period in 2019 by using claims data.
Our U S trials were down 5% year to date, while total market FCS trials were down 11%.
And our U S. Perm procedures were up 4%, while total market SCS firms were down 8%.
So let me close this portion of my remarks by concluding that we're finally, allowing ourselves enough optimism to conclude that the worst of the COVID-19 impact on our business may be behind us patient and physician interest in pain treatments remains high and after a very tough 18 months of Covid. We saw the first green shoots of recovery with a steady pickup in trial activity that occurred within the third quarter.
And in the fourth quarter, thus far.
In fact, we continue to believe we're well positioned for longer term attractive growth in our lower back and leg business when the full impact of Covid on our market subsides.
In addition, we're excited and I'll provide the only SCS treatment option approved by the FDA for patients who are struggling with debilitating PDL or painful diabetic neuropathy and who are unable to find relief with currently available drug options.
Following the FDA approval of <unk> proprietary high frequency or <unk> repeat again in July we began U S commercial launch activities in earnest.
Still of course in its infancy. The first three months of this launch have reinforced our excitement about our PD an indication on how impactful. We believe this will be for providers and patients.
We're very encouraged by the high levels of interest among referring physicians and patients early trial volumes and the validating clinical outcomes in those patients who have already received their permanent implant.
Worldwide <unk> revenues for Q3 was approximately $1 7 million in.
In the quarter, we performed 175 P D in trials and 71 P. D N permanent implants in the U S.
In September the second full months of our launch PD one trials already represented approximately 6% of our total U S trial volumes and we're on track for a meaningful increase in the number of PD one trials in Q4 over Q3.
We will continue to provide you with his PD I'm trial information during the early phase of our <unk> launch, but for a variety of reasons, we may or may not provide this level of detail.
Two of them.
Through October we've generated over 20000 qualified PD and patient leads with our DTC advertising and P. D M specific patient campaign.
Our <unk> coaches have proactively reached out to a subset of these patients in the first several hundred of these DTC leads have been handed off to our U S sales team.
Our new PD and referral sales team has called on close to 6000, referring physicians and generated over 500 patient referrals to specialists.
We're finding the unmet needs of these patients are truly top of mind with the referring clinicians and many times, we've been entrusted with patient referrals on the very first sales call.
Our early treated PD on patients we're seeing the results that we would expect based on our clinical trial outcomes and we're working with the referring doctors to make sure they're well aware of the very positive results with their patients after the fact.
Also encouraging is that our core SCS sales team, calling on our existing pain specialists is gaining access to new competitive accounts that didnt previously implant or use number of products P. D. N is opening doors for us with these customers and many have already begun using number I'm not just for P. D N, but for lower back and leg patients as well.
This demonstrates that our customers understand that treating PD and with high frequency therapy is exclusive to never Oh, that's providing unique efficacy to an entirely new category of patients.
We feel at this point, we're getting credit from customers for the investment we've made in our technology in our clinical trial and FDA approval and then the generation of a new stream of referrals to their practices.
We've also seen tremendous willingness among our pain specialists to reach out to referring physicians and their local communities and even to do their own patient outreach, we've seen TV commercials physician website updates billboards new stories education events, social media posts and more from our customers regarding the ability to now treat P. D N with 10 kilohertz therapy in <unk>.
Their practice.
We've executed 52, PDL expert seminars for pain physicians, ensuring that these doctors are educated not only on how to treat PD and Ah patients with 10 kilohertz therapy, but also how to achieve the significant clinical outcomes, we reported in our trial.
We received significant press attention in the pain community, but also with diabetes advocacy groups such as beyond type one diabetes mine.
We've submitted our 12 month PD on data to a top tier journal and anticipate that these results will be published as early as late this year.
We're hopeful that these published results along with our robust clinical dossier will support expansion of coverage policies to exclusive exclusively cover 10 kilohertz therapy for P. D M.
In addition, the health economic analysis of the six month data has been accepted as an abstract at the International Society for Pharmacopeia economics, and outcomes research or <unk> one.
One of the world's leading health economic conferences.
These data will be presented during their upcoming virtual European conference taking place. This year from November 30 to December 3rd.
And we will compare healthcare resource utilization data consisting of hospitalizations ER.
ER visits medication use and other outpatient services between the high frequency therapy in conventional medical management arms.
We also plan to submit the health economic data for publication later this year analyzing the long term outcomes of PD in patients treated with our proprietary 10 kilohertz therapy.
Together these data will be used to support physician referral decisions as well as market access initiatives to expand payer coverage of this procedure.
Now with regard to payer coverage, we're continuing our work and outreach to the payer universe to expand market access and drive adoption, which of course is a process that takes time.
We have two key strategies to achieve this which are first developing HFF specific positive coverage policies for PD on with our Payors and.
And concurrently we're using our dedicated team of 20, plus reimbursement specialists and our H FX access group to assist with obtaining individual individual prior authorizations on a case by case basis, where we've already seen some good success.
Keep in mind that each player has its own SCS policy review timeline effective date and may even collaborate with a third party administrator to manage their coverage policies.
With this in mind, we expect our payer coverage to increase gradually over time with a steady increase in coverage occurring throughout 'twenty two and beyond.
We continue to anticipate a made a mid single digit million dollar revenue contribution from P. D and in 'twenty, one with broader penetration and a larger revenue contribution expected in 'twenty, two and beyond the revenue ramp is expected to build gradually during these initial launch months as patients move through the referral to trial to permanent implant paas.
Way.
But also as awareness increases among referring physicians and patients and access with Payors expands.
We're generating awareness with patients and physicians for a brand new PD and treatment option, it's going to take some time for treating physicians to identify these patients and of course, some physicians may refer one patient then wait to see results before referring more.
And for patients the pathway from referral to trial to permanent implant and typically takes months not weeks.
In summary, our launch is still very early but the first three months have reinforced our excitement about our PD, an indication and how impactful this will be for providers and patients and we're looking forward to continue to develop this exciting growth platform.
Our PD and approval is the latest example of how we continue to lead in innovation. Following the acceptance of our PMA supplement submission for MSR BP at the beginning of August to add explicit label claims for these patients. The FDA has now completed the substantive review of our submission.
Thus, we believe we are on track for an FDA approval, maybe by the end of this year or if not in early 'twenty two.
We continue to develop a non surgical portion of our market using <unk> data as well and look forward to publishing and presenting our 12 month follow up data later this year or sometime in Q1.
Yeah.
I'd now like to provide some commentary on our recent patent trial with Boston scientific in Delaware. This trial was a result of a retaliatory suit regarding the design of certain leads that Boston scientific filed against US in 2016. After we sued them to keep them from launching our high frequency product and infringing our high frequency patents and effort that of course has been.
Successful.
After five years of litigation only six of the original 249 claims Boston scientific asserted against us actually made it to trial.
In that trial the jury excuse me the jury found that narrow infringed four of those six claims across just two Boston scientific patents directed to ways of manufacturing SCS leads which never obtained from a third party supplier.
The jury awarded Boston scientific $20 million in damages and we obviously disagree with the outcome and we will now proceed to appeal. The findings of infringement of those four claims. However, it's important to remember that the technology at issue in this trial was unrelated to our innovations in high frequency has no bearing on <unk> commercial strategy for any of our current.
Our planned products or our continued exclusivity of 10 kilohertz therapy and the jury award itself is an amount of money that will have no material impact on our business and was by the way far less in Boston was seeking.
This was likely Boston, our best offensive opportunity in our view and it fell well short of being impactful and we feel very good about where we stand going forward in the litigation matters that remain.
So in closing we continue to believe we are very well positioned for longer term attractive growth with a full impact of COVID-19 on our market subsides a process that we're now becoming optimistic has begun.
Our early PD on launch is really exciting our fundamentals remain intact and I believe we're well set up for 'twenty, two and beyond and with that I'll pass the call over to Ron to provide further details on our third quarter results and our guidance.
Thanks, Keith and good afternoon, everyone I'll begin with our worldwide revenue for the third quarter of 2021.
Which was $93 2 million a 14% decrease both as reported as well as on a constant currency basis compared to $108 $5 million in the prior year period, and a decrease of 7% compared to the third quarter of 2019.
As a reminder, this quarter included the same number of selling days as Q3 2020 Q3 2019 in Q2 2021.
And as Keith mentioned, we had a tougher comparable in Q3 2020 relative to our competitors due to the faster recovery of our canceled cases after the initial COVID-19 shutdowns in April 2020 on.
On a year over year basis. This factor represented a swing of approximately $15 million in revenues.
U S revenue in the third quarter of 2021 was $78 $1 million a decrease of 14%.
Compared to $99 million in the prior year period, and a decrease of 7% compared to $84 $2 million in the third quarter of 2019.
International revenue was $15 $2 million, a decrease of 14% as reported or 16% constant currency compared to $17 5 million in the prior year period, and a decrease of 5% as reported or 12% constant currency compared to $15 9 million.
In the third quarter of 2019.
Similar to the headwinds seen in the U S. International revenues continued to be impacted by Covid related issues is as well, including both patient behavior and health care facility restrictions.
Gross profit for the third quarter of 2021 was $64 6 million a decrease of 15% compared to $76 1 million in the prior year period, and a decrease of 8% compared to $69 $9 million in the third quarter of 2019.
The decrease in gross profit compared to the third quarter of 2020 was primarily attributable to decreased revenue.
Gross margin decreased to 69, 3% in the third quarter of 2021 compared to 71% in the prior year period, and 69, 8% in the third quarter of 2019.
During the most recent quarter, we continued to invest in our Costa Rica manufacturing facility, which decreased margin by about 130 basis points, we're still targeting shipping products from Costa Rica, and the first half of 2022.
Operating expenses for the third quarter of 2021 were $111 1 million, which includes a reserve for the $20 million judgment against us in the recent Boston scientific patent trial.
Excluding that judgment operating expenses were $91 1 million.
A 14% increase compared to $79 $6 million in the prior year period, and a 6% increase from $85 $9 million in the third quarter of 2019.
Looking at operating expenses year over year, excluding the legal judgment. The increase was primarily related to patent litigation related fees.
<unk> and marketing and selling related activities.
And travel and meeting expenses, partially offset by a decrease in personnel costs as well as men management's continued initiatives to drive leverage throughout the business.
Litigation fees, and <unk> expenses accounted for $11 $6 million of a year over year increase in operating expenses and accounted for $11 $9 million increase in operating expenses relative to 2019.
So absent all litigation related in PD and expenses, our operating expenses would actually be less in 2019 by almost $7 million or 8%.
Legal expenses associated with patent litigation fees were $6 5 million for the third quarter of 2021 compared to $2 $3 million in the prior year period, and $1 $9 million in 2019.
Last week's patent trial against Boston Scientific, which Keith mentioned earlier is one of several ongoing disputes relating to spinal cord stimulation technologies, while Boston Scientific's allegations against us are unrelated to our high frequency therapy. It's important that we continue to defend ourselves and it's important that we continue to protect our innovations.
And paresthesia free SCS therapy.
Net loss from operations for the third quarter of 2021 was $46 $4 million or $26 4 million, excluding the $20 million litigation judgment.
This is compared to a loss of $3 5 million in the prior year period, and a loss of $16 million in the third quarter of 2019.
Non-GAAP adjusted EBITDA for the third quarter of 2021 was a negative $6.0 million.
Compared to a positive $13 6 million in the prior year period and negative $2.0 million in the third quarter of 2019.
We continue to focus on cash preservation, while balancing the need to reinvest in their recovery process in our new growth drivers in PD and then its RVP cash.
Cash cash equivalents and short term investments totaled $376 $6 million as of September 32021. This represents a decrease during the third quarter of 2020 of 2021 of $29 million, which was primarily due to cash used in operations.
Now turning to guidance, it's important to note that we will be using non-GAAP financial measures to describe our outlook for the business. Please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.
We expect fourth quarter of 2021 worldwide revenue of approximately $94 million to $98 million.
This guidance represents an 11% to 14% decrease over prior year, and a 14% to 18% decrease compared to Q4 of 2019.
This outlook assumes some progress in trials and procedure recovery during Q4 as Delta pressure shows signs of easing while also reflecting caution regarding near term staff shortage issues.
We expect fourth quarter of 2021 non-GAAP adjusted EBITDA to be approximately negative $10 million to negative $13 million.
We continue to expect a mid single digit million dollar revenue contribution from <unk> in 2021, the majority of which is expected to be generated in the fourth quarter with broader penetration in the larger revenue contribution expected in 2022 and beyond.
Keep in mind that our fourth quarter guidance provided today is highly sensitive to the pace of COVID-19 recovery and patient willingness to seek elective care, which continues to be difficult to predict if these assumptions differ from the actual pace of COVID-19 recovery and its impact on the company's markets and the company may need to change or withdraw this guidance in the future.
With regard to 'twenty to 'twenty two guidance, we would expect to provide at least Q1 guidance on our earnings call in February.
We will assess whether or not we have adequate visibility to provide full year guidance at that time.
Today, we'd like to provide you with some thoughts to keep in mind as you update your models for 2022.
As you are well aware the SCS market recovery has been particularly impacted by COVID-19 related issues and has lagged other elective procedures as Keith said, we are growing more optimistic that the worst of the pandemic may be behind us and we expect a measured pace of recovery to continue in Q4 and throughout 2022.
Keep in mind that there still could be some volatility in the pace of recovery due to the impact from the lower Q3 trial procedures and the difficulty in predicting exactly when patients that have continued to defer SCS treatment during COVID-19 will start to return.
Also keep in mind, what we noted earlier in the call that about one third of our pain doctors see a recovery beginning this year about a third to see the recovery early next year with the rest seeing a recovery in the back half of 2022.
At this time, we believe this is a reasonable way to think about the recovery when modeling 2022.
In closing we made good progress in the third quarter and remain on track to drive growth and scale profitably in our core business in the years ahead. We are in a great position strategically with best in class SCS technologies remaining share gain opportunity future growth opportunities and PDL and its RVP superior clinical data and a strong.
Commercial organization.
We continue to advance our operating margin expansion efforts with many of the changes we're investing in this year such as our integration of manufacturing in Costa Rica development of the PD end market and the Omnia upgrades and facilitate greater commercial productivity all expected to provide continued improvement in our financial leverage as we grow.
That concludes our prepared remarks, I'll turn the call back over to Julie to moderate the Q&A session. Thanks.
Thanks, Rod in order to get through the question queue efficiently. We ask that you. Please limit yourself to one question and one quick follow up you can then rejoin the queue and if time allows we will take additional questions.
Operator, we are ready for the Q&A instructions.
At this time I would like to remind everyone in order to ask a question Brett Star then the number one on your telephone keypad.
For just a moment to compile the Q&A.
Your first question comes from the line of Joel One West from Citi. Your line is now open.
Good afternoon, and thank you for taking the question.
You'll be surprised it has to do with pn.
So it's really a two part question. One is what is the most positive thing negative thing that you have learned.
For launch and then the important piece of this is when you describe ramping quote gradually over time can you give us a little bit more color over or about that and how you think about the consensus estimates for PD on next year.
Yeah.
Thanks Joanne.
There really hasnt been.
We've learned that as negative I would say that of the.
Certainly we have.
Been validated and those things that we thought would be challenging and I think maybe top on the shortlist would be conversations with our PD and patients are a little bit different than conversations with our normal lower back and leg pain patients on one hand, they're.
Extremely eager and receptive for anything that might be helpful.
On the other hand, there, they're typically just not used to talking about.
Interventional alternatives, our surgical alternatives, so I think it's a.
It is a sometimes with some patients or longer conversation that has to take place.
For them to begin to get comfortable with something other than drug alternatives.
I would say that sort of in the margin and most of this is Ben.
Extremely positive and I would say.
Maybe the most.
Positive again is.
As you know validation I think of what we anticipated in other words I don't think theres been a lot of surprises but the.
The extent to which our existing customers are eager to develop.
Their own local markets to reach out to their own referral base to look at their own.
Electronic health record information to find patients all of that has been really gratifying and in some cases a little bit.
Surprising.
Sent to which our customers want to go to really identify and help these patients and of course to generate a steady referral stream.
To their practice.
In terms of the PD and ramp throughout next year.
Point is only just to remind people that it.
It does take some time to generate a brand new stream of referral of patients in a new indication and once patients begin to fill that funnel they.
They have to go through the process of getting in to see the pain doctor of getting insurance approval getting their trial getting the perm et cetera, Joanna it wasn't meant to convey any any change in our expectations for 'twenty two.
We're actually very excited about the impact of <unk>.
<unk> on this business next year, and we will speak more about that presumably when we talk about 22% in the first quarter.
Thank you.
Your next question comes from the line of Chris Pascal from Guggenheim. Your line is now open.
Thanks, Keith I want to understand better how you're thinking about the fourth quarter, because it seems to be a bit of a disconnect between the comment that you're seeing improvements.
Tinder into October and then the guidance, which based on my math it looks like it implies U S sales.
One about twice as much X tdm as what we saw in the third quarter when we compare it against the 2019 baseline. So can you just clarify the assumptions there.
And the way you did for the fourth quarter.
Yeah.
I'll, let rod weigh in on this as well.
I'll tell you that the win where.
Almost at the halfway point through a quarter and we're talking about that quarter.
The expectation for that quarter becomes reasonably mechanical.
We have a model that looks at the number of patients who have been trial that we know what portion of those patients move to.
To Perm and what the revenue impact will be so it's fairly straightforward I will add to two other things. One you are talking about are comparable to 2019 and I'll remind you that the momentum building in this business in 2019 in the fourth quarter with the Omnia launch was pretty significant and so that may be in some.
He is a function of the comparable period as much as anything.
Two I suspect that we've seen I don't suspect I know that we've seen a little bit of a flattening of the trial to perm conversion curve and it's nothing more.
Then the friction in the system of getting patients scheduled.
With in some cases at least.
Restraints on capacity.
Labor shortages et cetera, we've seen just a little bit of an extension of that timeline from when patients get their trial that when they get their perm over the over month, one month two months three.
And that certainly impacts our model as we think about Q4.
Otherwise, it's pretty much that that Shreveport, Ron do you want to add anything to that yeah sure. So Chris I mean, Keith hit the big points just to reiterate a couple of them and then maybe provide a little more color.
The jump in 2019 from Q3 to four Q3 to Q4 was was unusually large and that goes to Keith's point about Q4, being a particularly strong quarter for us with the launch of Omnia back then.
Secondly, what I what I'd also point out is while we've continued to see some improvement on the trials in terms throughout throughout Q3, we are still seeing some COVID-19 headwinds that impacted us to a net negative in Q3, and we're still seeing some of those headwinds as we're as we're.
Through one month of Q4 already so that is that is certainly tempering some of the results in Q4 here.
Thanks, that's helpful. Maybe just to follow up on that can you give us any sense of the magnitude of improvement you've seen from maybe whatever the trough point was during the third quarter to where you were in October, but I don't know what the right benchmark as to sort of weigh that against whether it's July or some other period, but.
The magnitude of improvement that you've seen would be helpful. Thank you.
I think from a.
If you think about activity its probably best to look at.
Trial volumes and at least in the U S. I think from trough to October.
Youre probably looking at.
Something in the range of.
15% or so in average daily trial volumes.
Ending in October.
Also remember July it was particularly impacted by by vacations this year as well.
Okay. Thank you.
Your next question comes from the line of Tom Hopkins from Bank of America. Your line is now open.
Well thank you.
Hi can you hear me, Okay, we can Bob.
Oh, great. Thanks, Keith so.
You mentioned 2022, a few times on the call and.
You're clearly sounded confident but then you suggested you may not guide for the full year.
Interestingly you talked about what Youre hearing from doctors in terms of the pace of the recovery over the next 12 months.
And you're sort of giving us I guess the range of what you're hearing out there.
I know youre, not giving us guidance on this call, but you mentioned 2022, a few times when you talk about what you're hearing from doctors.
I'm wondering like what does that all mean, how do we interpret those comments from from you guys.
At least Directionally I was wondering if you could just give a little more help there I mean does it mean similar growth off of a lower base.
Just wondering if you could elaborate on those comments.
Well I think well let me, let me say a couple of things first of all.
To Chris's last question, Bob before you before you queued up I think that trough to peak is actually more like 20%.
And daily trial volumes and not 15% on the 2022.
We're just trying to be constructive Bob I don't think it's really anything more.
Then that it's a really dynamic environment and we know we don't have guidance in place for 'twenty, two where at this point are unsure of whether that guidance. When it comes will be for the first quarter for the first year, depending on the visibility we think we have.
We are looking at just the trends day to day week to week month to month.
In terms of customer activity patient visits.
Trial volumes.
And a number of other things and absent a another peak of some sort in a COVID-19 related issue like infection rates or something else.
It does feel like things are beginning a an upward trajectory in in this particular therapeutic category now you and I, both know that could change as facts change in the next 90 days. So we are stopping short of giving a lot of specifics about 'twenty two and by the way we wouldn't be doing that at this point yet anyway.
But we're just trying to be as constructive as we can with our with the amount that we know and don't know today as people think forward.
Maybe just elaborate on your comments on what you're hearing from physicians in terms of what they think of the pace of recovery.
Interesting commentary I'm, just wondering if you could kind of elaborate and help us understand.
While you presented us with that those data points.
I think that just it probably shapes the way we think about what the next 14 months or so are going to look like again absent some new facts some new change in this particular part of our environment.
I think that we view this as being probably a steady rate of improvement.
For the most part between now and the end of 'twenty. Two so as you think about historic growth rates in this business. We can continue to feel a little bit of a pinch here in the next 60 days, though getting better as it has in the last 60 days and getting to a point sometime in 'twenty, two where you're sort of at water level, and then and then really kicking.
[noise] into traditional and then maybe even.
Growth rates that are above historic growth rates sometime after that.
So all of that as you know.
A lot of color I know numbers, Bob and I.
I realize that we're not we're not giving guidance for 'twenty two today other than to say, we just think that performance over the baseline will continue to get better between now we think between now and the end of next year provided there is not another change in this part of our environment.
Okay, great. Thank you very much.
Your next question comes from the line of Robbie Marcus from Jpmorgan. Your line is now open.
Hey, guys. This is allen on for Robbie.
Hey tend to follow up on it again, but I guess another way of maybe diving a little bit deeper into your fourth quarter is.
This quarter, you provided a pretty detailed breakdown of the canceled patient impact.
Bob <unk> 'twenty versus this year. So do you have that for <unk> 'twenty and is that kind of a dynamic thats influencing what that sequential growth rate looks like.
Yeah, Hey, John This is rod we don't have that breakdown for the fourth quarter.
Largely because it hasnt occurred yet we do it we do anticipate and continue to see some pressure in certain geographic areas in the U S and internationally on.
Canceled cases, both from a patient and from a capacity or staffing shortage perspective, we monitor that super closely.
And we start we're starting to see some encouraging news out there, but we do continue to see some headwinds as we as we go into Q4 here.
Sorry, just to clarify and I like the <unk> 20, right because you had the net impact for <unk> 'twenty as well got it got it okay for Q4, 'twenty sorry about that yes.
The net impact on Q4, if you remember last year, we had.
I had a resurgence in COVID-19 starting in November and December and we we had in the neighborhood of $5 million and canceled cases in the fourth quarter I think we spoke about that in our Q4 earnings call last year.
Offsetting that we also had the recovery.
Backlogged case is in the neighborhood of <unk>.
High threes to $4 million. So net net it was about a negative $1 million impact for Q4 of 2020 last year.
Got it and then just a quick follow up on PD and relative to our expectations at least it seems like that third quarter definitely went very well for you. So when we think about fourth quarter and really driving that momentum continue into 2022, how should we feel about your strategy of developing I know you.
You are talking about investing in today now leveraging.
Additional clinical data and maybe some DTC as well as growing DTC from your customers, but any color or not be great. Thanks.
Yeah.
I think we're looking at all those things in fact, our DTC investment as as written and pretty steadily over the course of.
Over the year and certainly over the last few months with regard to.
To PD and we're also looking at other things some of the some of the levers we've been pulling up in the initial portion of our launch.
To try and.
Try and establish results returns and decide how we want to handle some of those things into 'twenty two I would say we're looking at.
Probably most.
Most heavily at our direct referral selling organization.
Which seems to be generating a lot of activity and high quality activity in terms of patients that convert to.
To trials and to enter Perm, So I think trying to understand how and at what pace. We expand that is probably is probably behind are less right now.
Your next question comes from the line of Cecilia furlong from Morgan Stanley. Your line is now open.
Thanks for taking the question this is calvin on for Cecilia.
Two questions from me. The first one is just on can you touch on the outlook around the core SCS market recovery versus the outlook for the PDL ramp both are deferrable procedures in PD and it's clearly more of a market development story today in terms of driving growth, but are there any specific dynamics on recovery between the two that are worth noting coming out of the peak.
The Delta there and just concern you for bias down your <unk> 14 numbers broadly versus our original full year 'twenty, one guidance, but your PD N number of mid single digit million Hasnt changed perhaps it's just you know.
A larger range, but could you comment on any difference between kind of a recovery path.
Well, we don't have a bunch of compare the pds numbers too so and the market is so nascent in its development that.
So we're talking about small numbers I don't doubt for a moment that the PD and activity is impacted.
Every bit as much as lower back and leg pain patients. It's just that we don't really we don't have comparable numbers, we don't have prior year prior quarter et cetera too.
To compare to in there and they are still relatively small numbers.
I would say maybe more qualitatively I don't know that I see.
A dramatic difference in other words in terms of the flow of patients if I think about the COVID-19 impact on patient reluctance.
On on center capacity on labor issues et cetera, I don't really think there would be a meaningful difference.
And the impact of on one segment.
Versus the other.
It's just that it's much easier to quantify in the lower back and leg.
Market for FCS because <unk> established a portion of our business.
Understood.
And just on backlog as you think about backlog either from a trialing or from an implant perspective, how are you.
Are you setting your goals in terms of how much backlog do you want to clear by the end of 2021, and perhaps what percent is expected to spill over into 2022. Thanks. So much.
Yeah, Hey, Calvinist Rod.
We're actually we've done a really good job of clearing backlog in the business and we've.
We continue to stay really close to the to the customers or the patient and so I would not be expecting a large amount of that to be.
<unk>.
To be going.
Into 2022, as we as we continue to bring these patients back into therapy.
Great. Thank you.
Your next question comes from the line of Matt Taylor from UBS. Your line is now open.
Yeah.
Hi, Thank you for taking the question.
I did want to follow up on some of the PD and commentary that you made can you help us I guess bridge between you talked about in Q3 doing.
The 175 trial and seeing some pick up in Q4, but having generated.
I think 20000 leads overall.
I was just hoping that you could talk about the process of bringing those 20000 through the funnel and the steps in the process any timing on that and help us think about the shape of the ramp.
Of those qualified leads through through 2022, if you could.
Yeah, It's a great question Matt.
And I say that because I'm not I'm not sure we actually have the answer to that yet. It's just too early if you look at the trials that we've had thus far.
Many of them of course have come from our new initiatives and our new efforts to develop those leads and referrals either directly with the patient or the referring doctor and frankly some of them came.
Came from an existing pool of patients that were being.
That we're being watched by our existing customers. So we know that we have generated a ton of interest. We've got a lot of leads that we know that we are beginning to turn those leads into referred patients, but trying to quantify how many of those leads become referrals become trials and firms is just a little bit.
Too early to tell.
But I would say I don't think if I look if I look at our.
The impact on our business in Q3, I would say, we have not yet really begun to see a big part of the advantage of the direct.
Efforts, particularly with patients one of the things we know about direct to consumer initiatives in our core market is that when we identify a lead on average for those who turned into a trial. It takes about four months.
For that conversion process and thats not the trial to Perm timeline, that's lead to trial and so we know this process when youre dealing directly with patients. It takes some time, even with the qualified leads who go on to trials. So I would say give us another probably another quarter or so before we can begin to kind of quantify the.
Shape of this funnel.
Alright, great. Thanks, Keith.
Yes.
Your next question comes from the line of Danielle <unk> Telsey from SBB Leerink. Your line is now open.
Hey, good afternoon, everyone. Thanks, so much for taking the question and giving all the color.
Made a comment that piqued my interest and that was around.
Getting into competitive accounts with with PDL and I'm curious if you could elaborate a little bit around that sort of I. Appreciate there is this COVID-19 impact and so it's probably.
Tough to say, how do you think about it consistently going forward, but just sort of what you're seeing from a halo effect, perhaps where youre getting into new accounts with PDL and their adoption of the technology for their sort of bread and butter Bakken pain patients and I had one quick follow up sure.
Yeah. Thanks, Danielle I'll give you I'll give you a kind of the color around it.
And that is really sort of I think what you might suspect kind of the obvious and that is that there are a lot of pain doctors out there that.
<unk>.
Deploy SCS therapy, with whom we don't have a day to day quarter to quarter business relationship for a variety of reasons I think that's true for all the participants in this space.
All of these doctors virtually all of them I would say have an interest in treating <unk> patients they understand that it makes sense to them.
They believe the data and it's hard not to and they want to participate they want to help these patients number one and they want to participate in the in the growth of this new application of Ses to do that to do it on label.
Do it with a technology that is invested in generating data, where they kind of understand what the outcomes are going to be to be able to get these patients through their payors all of those things requires.
Our partnership with <unk> and so we assumed this would be the case and we havent been disappointed it doesn't mean that when a doctor decides to use network for PD and that he is going to replace all of US all of our competitors volume in that account, but it does mean it allows us to begin to build relationships with customers with whom we didn't have.
Have relationships and the paas and that will undoubtedly because of them.
Because of the <unk>.
Advantages of our therapy, we believe mean.
I mean that we begin to capture some of their core business in those markets that certainly would be our hope and our.
And what we would strive to do so that's what we would have thought going into this and in fact I think in the early days, that's what we've begun to see.
That's great color and then my follow up is around getting these patients back into the funnel and I am just curious if you could talk about some of the.
Is it that the patients are being managed medically and sort of get lost to the system or should we be thinking about this as some of some of these patients are kind of lost forever, maybe a little bit more color on why you think logically this is.
Disease State where.
It's not necessarily life-or-death, so maybe there is some.
See for them to ever come back into the system can you talk a little bit about that and maybe give a little more color around what you're seeing there.
I can I mean, we've done a fair amount of research with patients and their pain doctors on this point and I'll tell you what I think we said last quarter, which is when we talk to these patients 90% of them say.
Say that their pain has not gotten better.
During this time.
And half of those patients say, they're paying has gotten worse.
<unk>, 10%, obviously that either said, it's gotten better gone away or they've sought other treatment et cetera. So it's a small number but it's not completely insignificant for the most part these patients say that they're not doing better they may be doing worse.
In many cases and they still intend to seek care. So that tells us that the.
The demand that would've been there among these patients who haven't sought care will still be there now that doesn't mean all of them will show up for therapy. I don't think frankly, we understand of that pent up demand what portion will come back and over what time, they will come back, but I think it's it's unreasonable I think and flies in the face of all.
The work we've done to assume that all of those patients who haven't sought care over the last 18 months just won't.
And somehow have found relieve some other way and arent going to seek care. We also know that of the patients when we talked to on a regular basis, we will ask them. How many visits they've made to a pain physician in the trailing 12 months that number continues to go up.
The reaction to our online engagement with patients a lower back and leg pain.
Search results et cetera, those numbers continue to go up we're starting to see procedures that typically proceed SCS like.
Injections and radiofrequency ablation begin to tick up a little bit that's not that's not a direct tie it that we can quantify but it is indirectly an indicator. So I think we're seeing some signs that many of these patients still intend to seek care.
But danielle I Couldnt begin to tell you, if it's 30% or 90% of its over six months or two and a half years, but we do think that many of those patients intend to and we'll come back to therapy.
Okay. No that's helpful. I appreciate it thank you.
Thanks Danielle.
Your next question comes from the line of Margaret Xu from William Blair. Your line is now open.
Hey, guys Maggie buoy on for Margaret today.
I wanted to ask on PD and a bit more so with your sales reps for core backend lag assisting with the PDL.
Coverage advantage to ensure that you are still reaching your traditional pain docs, who may not focus on PD and patient.
And then what does this mean for 2022 sales rep coverage.
Do you have plans to hire additional reps.
Yes.
Yes.
So it's.
It's really not in either or so we're not asking our traditional.
Sales for us to say, Okay continue to build your core business, 80% of your time and focus on PD on the other 20 or focus on PD and doctors, 20% and then goes to your other customers 80%.
Are all the same pain docs.
The number of paying doctors, who deploy SCS as a therapy in their practice, who don't intend to treat or don't see or don't want to see pn patients is virtually zero.
Well I don't really think we're asking our existing reps.
To make a trade off of one part of the business for the other their job is I think to help our clinicians who really want to build this part of the practice, who want to reach out to the local community make sure that they have the tools. The tools that we can provide to do that and to make sure they're partnering with their local P. M referral reps. So we havent.
From the beginning and I still don't see this as a as a trade off where we're taking our hands off the wheel of one part of the market. So that we can we can steer the other part in terms of the number of core reps, we continue to find.
A lot of efficiency there. So our territory structure is still I think less than it was in early 2019 and I still think we have a fair amount of capacity how have we done that.
We've done it by putting more <unk>.
Therapy consultants in the field to work with their patients by putting more <unk> coaches on the phone to.
To work with their patients.
And of course by using these new PD and reps to to generate referrals among referring doctors. So that they don't have to do that so essentially we've made a smaller number of sales reps more effective and I think and by the way are some of our product changes play into that as well that we've introduced over the course of this last year. So I think that's a trend that will.
<unk>.
I don't think as you look at 'twenty, two maybe even a good portion of 'twenty three.
Our quota carrying footprint really needs to change much.
Got it. Thank you and just one more follow up on PD and I just wanted to ask about that.
And investing you plan on doing for market development as you head into 2022.
Yes, I think we'll probably quantify that a bit more when we talk about 'twenty two.
In the first quarter, but I wouldn't expect a an enormous step up we frontloaded that.
That investment in in 'twenty, one, particularly the back half of 'twenty, one there'll be some full year calendar <unk> impact of the investments we've made in the second half carrying into a full 12 months and 22.
And there will be some step up in investment, but I wouldn't think of this like a doubling or tripling of of investment to.
To develop this market.
Got it thanks, so much okay.
Your next question comes from the line of David Lewis card from Covid.
Your line is now live.
Hi, guys. Thanks for taking the questions here I guess sticking first with PD one.
I think you had mentioned at your own 6% of trial volume was from PD, one in Q3 and maybe around half of those are so converted to a permanent implant.
So I guess the first question is why why I guess is that somewhat lower than where we see kind of traditional trial to permanent implants for <unk>.
<unk> estimated that patient selection is it kind of the efficacy is it patient hesitation I mean is there any difference between why why there is a different rate between PD and patient I guess this core SCS business and then.
Around 6% of travel items today, I mean, if we think about that increasing into 2022 or may be having an increase in the conversion to permanent implants, I mean could you see PD and being I'll say anywhere from from from 10 plus percent of the business in 2022.
Well, let me, let me answer them in order, so they're they're not converting at a lesser rate necessarily the difference is just timing.
The differences it takes time for trial patients to convert to permanent implants to process. It.
Reasonably predictable curve that.
And that starts in the first 30 days picks up dramatically in the second third and part of the fourth month and then it has a long sloping tail, where you have patients who have a trial that convert to their perm six or seven months.
Later, so there is a there's a conversion curve for those patients who have successful trials the only difference in this.
70, something over 170, something is just that were only 60 days into this or 90 days into the launch and really probably 60 days past most of these trials at the at the latest.
So there is no I don't think we expect a difference in that regard the difference here is just timing.
Sure.
In terms of the percentages of the business that the PD and could represent.
Look we have let us give us a little bit of time to get some more data under our belt and we will talk about that when we talk more about 'twenty two next quarter.
But we've talked about this in the past could could the PD end market be 10% of the traditional lower back and leg pain market over over time absolutely.
It could be it could be much more than that over time.
Where it ends up at the end of 'twenty. Two is another issue and if you'll give us a little time to to get our arms around some of those things we'll talk about it more in the next quarter or two.
Okay. Thanks for taking the questions.
Again, if you would like to ask a question Press Star then the number one on your telephone.
Your next question comes from the line of Suraj Kalia from Oppenheimer. Your line is now open.
Can you hear me all right.
Yes, we can hear you.
Perfect. Thank Keith so.
DTC referrals that you mentioned I believe I heard the number 500 stocks.
Stocks, how does the <unk> team and the European specialist how do they interact with the endocrinologists and this and this referral chain.
Yeah.
Well through a variety of ways. So suraj you might remember that.
Primary targeting mechanism was prescribing.
Records for these patients. So some of them are some of the referring doctors are under Chronologist. Some are primary care physicians summer podiatrist.
And I don't know that our interaction with the Endo universe has been.
Meaningfully different than than the rest of them. So we interact with them through our referral sales organization, we interact with them at.
Clinical meetings for presentation of data.
Through virtual education events and increasingly now some physical education events summer that are put on by.
The company some are put on by local pain physicians. So there's a number of ways that we're reaching.
The referring doctor, whether its endocrinologist or not and that was consistent with the launch plan that we've talked about a couple of quarters ago.
And Keith might follow up with the third third third.
Mentioned about European about your survey physician survey.
Distribute in the U S versus O U S.
Some color would be great. Thanks for taking my question.
I believe that that market research was all domestic.
So when we talk about what pain physicians were saying about their expectations for pace of recovery.
So Raj of 90 plus percent sure that that was a that was a U S market Research initiative.
I would expect by the way if we had included other other markets in that market research I wouldn't expect it based on what we do know to be roughly similar it might be.
Slightly more pessimistic about the pace of recovery.
That's not unusual to see that.
In market research like that but I think it would be largely the same.
Okay.
Okay. Your next question comes from the line of Bill Slavonic from Canaccord Genuity. Your line is now open.
Hi, John on for Bill Tonight, Thanks for taking our questions I appreciate the commentary on the applications. There have you thought about or created any education.
On a lead Dana financial years for patients what do you think helps dollar dynamic.
I'm, sorry, I didn't understand the question could you. Please repeat the question.
Sure Yes.
Have you thought about our trade any education or initiatives on alleviating the financials here are patients that you mentioned.
Patient survey work.
Yes.
We're continuing to explore options on how to bring patients more patients into the funnel.
And we're approaching it from a number of different angles, and I'd say hold tight on that is I think we will have more information coming.
Within the next within the next couple of months.
Great. Thanks, and then on TVN, what's the Preauthorization success rate that you've seen so far.
Yes, I think it depends on the on the payer it's Ben.
Really haven't been any surprises there I think we expect it to have a pretty high success rate in parts of the country, where Medicare is paying and in fact, we've seen that.
I think we probably if there has been.
Surprise there it's been.
The mix of the patients and while the numbers are still very low the mix of the patients looks so far sort of similar to our base business, which is roughly speaking about half Medicare and half commercial payers, that's been a little bit of a surprise to us we have been fairly successful.
Adjudicating patients prior off even prior off denials on the second round for P M with commercial payers.
And that's done locally that's not that's not a centralized coverage policy of course, but we thought we would have some success. There I think the numbers are probably still too small to reach any sweeping conclusions, but we've we've been kind of pleased with that.
But thats been effective so far.
Yeah.
Great. Thank you okay.
There are no further question at this time I would now like to turn the conference back to Mr. Kauffman for closing remarks, okay. Thanks, operator, and thanks, everyone for joining us today. Thank you for your questions.
We appreciate your time today, and we'll look forward to updating you further in the following quarter.
This concludes today's conference call you may now disconnect.
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Okay.
Right.
On a trailing 12 months.
Yes.
Thank you.
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Yes.
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