Q3 2021 LivaNova PLC Earnings Call
Good day, ladies and gentlemen, and welcome to the leave at night that plc third quarter 2021 earnings conference call. My name is Lydia and Don you operate today.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Mr. Matthew Dodds, leaving over as senior Vice President of corporate development. Please go ahead Sir.
Thank you Adrianne and welcome to our conference call and webcast discussing <unk> financial results for the third quarter of 2021, joining me on today's call are Damien Mcdonald, Our Chief Executive Officer, Alex Schwartz, Our Chief Financial Officer, and Lindsay led all our senior director of Investor Relations.
Before we begin I would like to remind you that discussions. During this call will include forward looking statements factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC, including today's press release is available on our website.
Not undertake to update any forward looking statement.
Also the discussions will include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results, which will all be stated on a constant currency basis reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our.
The web site.
We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool you can find the presentation in the press release in the investors section of our website under news <unk> events and presentations.
And even though but.
At Investor day, and even though the dot com with that I will now turn the call over to Jamie. Thank you, Matt and thank you everyone for joining our third quarter 2021 earnings call.
I'll start off by discussing our third quarter sales results, then review our strategic portfolio initiatives.
After my comments I'd like to provide you with additional details on our results and increased guidance.
Then I'll wrap up with closing comments before moving on to Q&A.
We're encouraged by the third quarter results were excluding heart valves, we experienced sequential sales growth operating margin expansion and adjusted free cash flow generation, while navigating a more challenging environment impacted by COVID-19 related headwinds.
Due to the impact of the pandemic on our prior year results. Today's commentary will also include certain comparisons to 2019, we.
We believe this will provide helpful context for the underlying trajectory of our business.
Additionally, there are comparisons that are reflected on slide 12 of our earnings presentation.
To our core growth drivers epilepsy and Ics.
Epilepsy sales increased 15% globally versus the third quarter of 2020 with double digit growth across all three regions. Additionally, epilepsy sales for the quarter were in line with 2019 levels.
These results reflect improved global market dynamics, resulting from increased hospital access and patient willingness to return to clinics versus the prior year period.
U S epilepsy sales increased 11% versus the third quarter of 2020 and were in line with the third quarter 2019 levels.
Total implants grew in the high single digits versus the prior year remain below 2019 levels.
Similar to prior quarter trends total implant growth was driven by replacement, which continued to benefit from a catch up in procedures deferred in 2020.
Additionally, while sales were down 3% sequentially, primarily due to the delta variance surge, we saw an improvement in leading indicators for patient volumes during October.
Our progress in U S. Epilepsy continues to be supported by a go to market initiatives, which currently encompasses 12 dedicated teams.
These teams now account for approximately 19% of U S sales in implants from 17% in Q2 on the same account basis.
We continue to deliver sales and implant growth that is trending above the baseline business compared to the third quarters of 2020 and 2019.
Epilepsy sales in Europe grew 16% versus prior year led by the U K and Italy.
We achieved growth of 47% and the rest of World region led by strong recovery in China, Taiwan, and Saudi Arabia.
Europe and the rest of world in aggregate were in line with third quarter 2019 results.
We continue to expect global epilepsy sales to grow at 25% to 30% for the full year.
Our forecast includes sequential growth in new implants in the U S as patients and their caregivers return to in person physician visits.
In addition, we anticipate a continued tailwind in replacement implants related to our backlog created in 2020 and that has continued into this year.
Okay.
ACS sales were $15 million in the quarter, an increase of 23% from the third quarter of 2020 and sequential growth of 16%.
Growth was driven by the continued adoption of livestock and an increase in procedure volumes, particularly in respiratory distress.
Given our performance in the first nine months of the year, we now anticipate Acs to grow over 30% in 2021.
Turning now to DTD sales in the third quarter with $2 million and for the first nine months of 2021 was $6 million.
For the full year, we now anticipate DTD sales of approximately $10 million from a combination of the recover study and replacement implants implants for CMS eligible patients.
While we remain encouraged by the progress of patients consenting into the recover study <unk>.
Impacts related to the Covid Delta variant continued created some delay in implants during the quarter.
Due to these delays it is now more likely that we will achieve 250 unit Paula patients implanted in early Q1 of 2022.
In addition, since we are currently skewing unipolar, we anticipate achievement of this milestone will occur ahead of the bipolar cohort.
As a reminder, we can submit the data from the unipolar and bipolar cohorts separately for transition to the postponed the <unk> study or the registry.
We still anticipate a transition to registry to occur in late 2022 or early 2023.
In heart failure, the anthem have ref pivotal trial continues to advance after reaching a key milestone of 300 patients enrolled in April.
Once these patients are followed for nine months and the 400 patient is enrolled independent statisticians, who will review the data set.
If all five criteria have been met including safety a trend towards primary endpoint and success in the three functional endpoints, we may submit the functional data to the FDA.
If we did not meet all the criteria independent statisticians will take another look at the data after the 500 patient is enrolled.
We continue to expect the independent statisticians to start analyzing the data in the first half of 2022.
Moving to I wish I, our Osprey trial has commenced and we are activating all 20 selected sites with several already screening patients. We remain on track to imply that first patient this quarter and still assume submission for FDA approval in mid 2024.
So the cardiopulmonary business sales were $123 million in the quarter, an increase of 15% versus the third quarter of 2020.
Oxygenator sales increased in the high teens globally with gross growth across all three regions driven by improvement in cardiac surgery volumes.
Heart lung machine sales increased over 25% with growth across all three regions with particular strength in the U S.
Additionally, cardiopulmonary sales for the quarter were 2% above 2019 levels.
Lastly, heart valves was divested on June one of this year and heart valve sales for the third quarter of 2020 with $21 million.
And with that I'll turn it over to Alex. Thank you Damian during my portion of the call I'll share a brief recap of our third quarter results and provide an update to our 2021 guidance.
Sales in the quarter were $253 million, an increase of 15% versus the third quarter of 2020, excluding heart valves.
Sales increased by 5% in comparison to 2019.
Cardiovascular sales were $139 million, an increase of 15% compared to the third quarter of 2020.
One 9% compared to the third quarter of 2019.
Neuromodulation sales were $113 million, an increase of 15% compared to the third quarter of 2020 and were flat in comparison to the third quarter of 2019.
Adjusted gross margin as a percent of net sales in the quarter was 71% up from 67% in the third quarter of 2020.
And up from 70% in the third quarter of 2019.
The increase in the margins for both comparative periods were primarily driven by product and geographic mix.
Adjusted R&D expense in the third quarter was $37 million compared to $36 million in the third quarter of 2020.
R&D as a percent of net sales.
It was 14, 8%, which was in line with prior year.
Adjusted SG&A expense for the third quarter was $93 million compared to $92 million in the third quarter of 2020.
SG&A as a percent of net sales was 36, 6% down from 38, 2% in the third quarter of 2020.
Adjusted operating income from continuing operations was $48 million compared to $32 million in the third quarter of last year.
Adjusted operating income margin from continuing operations was 19% compared to the 13% in the third quarter of 2020.
This increase was primarily driven by favorable sales results and gross margin improvements.
Part of the operating.
Income margin improvement was driven by deferring certain operating expenses into the current quarter.
The adjusted effective tax rate in the quarter was 10, 5% compared.
Compared to four 5% in the third quarter of 2020.
The higher tax rate is primarily attributable to geographic income mix.
Adjusted diluted EPS from continuing operations in the quarter was 68.
Compared to 38 in the third quarter of 2020.
Following the equity offering adjusted diluted weighted average shares outstanding in the quarter were $52 4 million.
Our cash balance at September 32021 was $182 million down $71 million from cash balance of $253 million at year end 2020.
Net debt at quarter end was $123 million versus $505 million at year end 2020.
The change in our cash balance and net debt was impacted by the equity offering where we raised $323 million in net proceeds.
And the retirement of $450 million term loan.
In addition, we executed a 125 million dollar secured revolving credit facility that is available for general corporate purposes and remains undrawn.
Our adjusted free cash flow for the third quarter 2021 was $40 million.
And was $52 million for the first nine months of 2021.
We invested $18 million in.
And capital spending during the first three quarters of the year, which was $11 million lower than the comparative period for 2020.
Now turning to our revised 2021 guidance as Damian mentioned based on our performance during the first three quarters of 2021, we're increasing our previously announced full year guidance.
We are now forecasting 2021 sales growth between eight and 11%.
And between 15 and 18% when excluding the heart valve business.
This is up from our prior guidance of 5% to 10% and 12% to 17% respectively.
Our full year sales growth guidance assumes a 2% tailwind from exchange rates.
We are projecting adjusted diluted earnings per share from continuing operations in the range of $2 to $2.10 up from our prior guidance of $1 75 to 205.
We assume our adjusted diluted weighted average shares outstanding to be $54 1 million for the fourth quarter of 2021, and $51 5 million for the full year.
Yeah.
Adjusted free cash flow from operations is now expected to be between $55 million to $75 million up from our prior guidance of $50 million to $70 million.
And with that I'll turn the call back over to Damien Thanks, Alex.
We're building good momentum across a diverse portfolio and taking this into consideration we've increased our guidance ranges.
While we continue to live with the changing market dynamics, resulting from the pandemic, we remain focused on delivering improved business performance and delivering on that pipeline commitments.
We look forward to sharing additional updates with you at our upcoming Investor day on December seven which will be a virtual event.
And with that linear let's open the line for questions.
Thank you Damian. Thank you have a question at this time. Please press star followed by one on your telephone keypad.
Your question has been answered or you wish to remove yourself from the queue. Please press star followed by Jay.
We enter the Q&A session. Please limit yourself to one question and one follow up question and then return to the queue. If you have any additional follow ups.
Our first question today comes from Rick Wise of Stifel. Your line is open. Please go ahead.
Hi, Good morning, Damien Hi, everybody.
<unk>.
Obviously, there's so much to unpack here, it's like where do we start.
Start with Neuromodulators.
Clearly you continued.
Another quarter of solid execution as you indicate damian.
Maybe.
You could unpack it a little more.
What if any impact on this momentum good COVID-19 to have do you think.
In the quarter and how does the fourth quarter starting out we're just hearing so much so many people.
And just related to that all of that.
I know backlog has helped last quarter.
Second quarter and I'm guessing this quarter I think you said where are we with that and what's your confidence as you as you move we had not just in the fourth quarter, but into next year on that front.
Well first of all good morning, Rick Thanks for joining us.
We'd like to say a lot to unpack, let's let's start with <unk>.
Clearly delta still having an impact, particularly the U S Australia, Japan.
To unpick the U S a bit the leading indicators from the U S epilepsy business improved significantly in October.
You know I think for US the important thing is you're right. We're getting a tailwind from end of service. So total U S implants grew at high single digits.
The strongest performance was August and September So you know it improved through the quarter.
Similar to the last few quarters, the end of service recovered faster than <unk> and Thats a lot to do with it deferred presage a catch up so ended service grew over 15% year on year our NPI.
<unk> declined mid single digits. So it was an end of service implants.
Business opportunity for us that really helped.
In 2021, we expect end of service to grow over 20% and the NPI to grow in the mid single digits. So I would say improved conditions in the back half of the quarter into October.
And a service definitely helps in the U S.
In international which I know is a smaller part of the business. Nevertheless, we saw a really significant increase in our Canada, China, Saudi Arabia, Taiwan.
All really significant growth and we're really pleased about the Taiwan was interesting because there was some recent reimbursement changes and our sales force investments read through so really pleased with how the team executed in our rest of world as well yeah, Matt So on the backlog and David highlighted we're at 900 remember last quarter we.
We said we were at 1000 and so we did think we a little bit into the rolling backlog, but just given that number we're not going to capture that in the fourth quarter, we might capture maybe 100 or 200. So this will roll into 2022 as well.
Gotcha.
Turning to I think a second big topic.
Covered trial.
You highlight the delay.
Thinking about it generously.
Delaying into the first quarter.
It seems like a modest delay, but can you just.
Help us feel confident that that could be worse than that in general.
Okay.
How did it.
It's not fair, but I don't care.
Monthly enrollment trends.
Flow through in.
In the third quarter.
September the weakest are you starting to see it reaccelerate and pick up in the pace that gives you confidence that.
It gives us confidence.
First quarter.
We will be sufficient to get to where you would need to be on the unit side.
Yes, good good set of questions there.
So it was really the last couple of months, we just saw the implant right slowed down and largely.
And impact related to Delta patient.
Availability in the clinical staff shortages at some of our clinical sites.
If you look at consensus consensus actually sequentially increased nearly 25% quarter on quarter so actually.
Technical step was really positive it really was just the pull through into implants, and so thats why.
I think a modest delay into into early Q1 is you know.
We described a modest delay and doesn't really affect our transition to registry, we said and we still commit to this late 2022 early 2023, depending on Cms's review timing, so that hasnt changed with skewing Muni Paula so.
The unipolar, one will come through earlier.
In bipolar who are sicker patients and just harder to move through the pipeline that's extended a little bit, but we're really positive about the unipolar.
If you look at our average unit.
August September October for implants, and you extrapolate that through the next three months. That's why we're very still confident as the first half of Q1 'twenty two.
Great that's great just last.
Sneak one last one in lifestyle.
Brian quarter, obviously.
And maybe just give us a little more color there.
What degree has this been COVID-19 related patients what percent is COVID-19 and if I'm doing the quick math right I may not be your guidance, while exelon for the for the year in.
Implies a fourth quarter slowdown.
Why would it slow is that Covid, just give us some more perspective, thanks, so much great to see in the quarter.
Thanks, Jay I'll take the afternoon.
So for Covid.
In terms of the procedure volumes, we estimate it was about 45% in the third quarter that is up a little bit from the second quarter, probably not a big surprise, but one thing you should think about is when COVID-19 in delta.
Got it got worse in the third quarter. It also does have a negative impact on the business. It's just harder to get into the hospital and Thats critical for the ACS business. So there are pluses and minuses to COVID-19, but the percentage was 45.
October we actually saw it come down a little bit yes.
And just in terms of growth rate Q4 comp is just more and more difficult than the Q3 comp because we were ramping.
That's really the implied growth rate change, but nothing apart from that sequential improvement in revenue.
Great. Thanks again.
Thanks, Rick.
Okay.
Thank you. The next question of today comes from Mike Matson of Needham Mike Your line is open.
Yes. Good morning, Thanks for taking my questions.
I guess Oh.
I'll start with the cardiopulmonary business. So you saw pretty strong growth. There I understand you probably had a fairly easy comp, but maybe you could just comment there the heart lung machines oxygen meters, both socket growth and then.
Just can you give us an update on the timing of the new heart lung machine is that still consistent with what you've said before.
Hi, Mike.
Alex So the cardiopulmonary business is really just a function of a recovery from from.
Sort of the doldrums of of Covid last year.
We saw strong execution and good performance by our sales teams both on the consumables front as well as H L. M. So we feel pretty good about the quarter.
It was it was a good good strong performance, but again I think we were benefiting from the tailwind of last year.
And in terms of the HLA <unk> rollout, we're still anticipating in the second half of next year to start the rollout of the new HLA <unk>.
First in Europe than in the in the U S.
Okay got it.
And then.
I guess I'll ask one on the OSA trial.
So.
Can you, maybe just talk a little bit about the design of that trial.
The expected.
Timing again in terms of enrollment in.
Submission to the FDA.
Sure Mike its Matt So we're targeting up to 150 patients two to one randomization six months follow up.
If we assume.
18 months to enroll that's how we get to our 2020 for FDA approval timeline.
Okay got it thanks.
Thanks, Mike.
Thank you. The next question today comes from Adam <unk> of Piper Sandler.
Your line is open.
Hey, guys congrats on the nice quarter here and thanks for taking the questions.
Two for me I guess the first one is just on the construction.
The EPS guidance, given the outperformance and the strength that we saw in Q3, it looks like if I'm doing the math right youre, assuming a little bit of a step down in adjusted EPS in Q4, even with the raised guidance. So why is that is that conservatism or are there any one timers too.
Call out in Q3, and then <unk>.
Lee just maybe help us think through Opex spend heading into next year Youre, obviously wiping away.
Heart valve related expenses, but then investing in key growth drivers like neuro bought Acs and you have the pivotal trial. So maybe just.
Touch on that and then I had one follow up thanks.
Hi, Adam Metallics.
We're still looking at the Delta Varian, it kind of continues to impact our hospitals and patients willingness to undergo.
Non acute procedures.
We're also.
Our salesforce is indicating staffing shortages at the hospital level. So you know I think we're being cautious in that regard.
We're also seeing some we're also being cautious in terms of our supply chain risk, especially in kind of our larger ticket items for <unk>.
So that's kind of the headline on on revenues and.
And so from a cost perspective, I would say freight costs are going up I think youre hearing that from most of our peers.
And then in terms of the phasing of our expenses so as we saw.
Some of the challenges in the quarter.
Around revenue.
Revenue trends.
We kind of deferred some of the expenses in Q3 into the current quarter. So you will see a kind of a little bit of a bounce back in Q4 around opex.
It's still feeling pretty good about our EPS guidance and our ability to achieve our target here.
Okay. That's really helpful color I appreciate that Alex and then I guess just one other one for me.
Uh huh.
You touched on I think the Investor day in the prepared remarks was hoping just to get a <unk>.
Sneak peek there for early December and in terms of what to expect will we get initial.
Initial 22 P&L guidance, when we get an update to the ERP is it primarily focused on increased visibility on pipeline and pipeline initiatives and commercialization plans just.
What should we be looking for here in a couple of weeks. Thanks, so much.
Sure Adam it's Matt So we're going to walk through all the major businesses and the Spi Theyre all going to get a separate sessions.
We're going to give a long range plan, we're not going to focus on 'twenty, two we're going to save that for February.
This will be a pretty comprehensive and build off the educational series, we've learned over the past 12 months.
It sounds great Matt looking forward. Thanks.
Sure. Thanks.
Our next question today comes from Anthony Petrone of Jefferies. Anthony Your line is open you May proceed with your question.
Thank you and good morning, everyone hope everyone's doing well congratulations on a on a shrunk frontier a couple one on VNS and then I have one on depression on the VNS side, certainly year to date <unk>.
<unk> traction you spoke a bit about the backlog sort of contributing here I'm wondering if you could give us just an update on de Novo implants.
Specifically, how those trended in <unk> and perhaps how they're trending versus 2019 levels. We're attempting to do some math here, but we're still getting.
You know look that it is still down relative to the 2019 levels. So just wondering how the de novo placements in VNS are trending and then I'll have a follow up on depression.
Sure sure. Thanks, Matt So on NPI, it's down about mid single digits versus the third quarter of 2020.
And it did decline sequentially.
First is 2019 that is still trending below its down in the 25% to 30% range and again similar to what you're hearing from a lot of in eurobond companies, it's still not back to normal for what Alex defined as non acute procedures. So no surprise the replacements are getting getting more attention.
In de Novo.
But overall a lot of this is still related to the hospitals.
Patient reluctance to come in for a procedure today. So we again, we said we expect the.
NPI is to accelerate into the fourth quarter the pipeline looks good so far and certainly 2022, but that is the one area that is still not back to 2019.
Quick follow up there just on comprehensive epilepsy centers.
Just in that context, how the Cec's are performing are you seeing at those locations just better traction and pulling back book backlog through as well as <unk>.
As de Novo placements and then real quickly just on on depression here on the push out to <unk> of 22 is there anything in the way of dropped out that has led to some of that push out.
Is that a risk, meaning again patient drop out and so that's causing a delay thanks again.
Yeah, just on the first bit.
Go to market. So the C. C group is still outperforming the baseline.
<unk> 21 versus <unk> 19.
Sales are.
Uh huh.
2020% to 30% in that group versus sort of flat versus 2019 and the baseline.
So I think again this group is continuing to show traction in that in that market segment.
And I think that is a good sign for continuing to focus on those 12.
<unk> pods and we're looking to expand that in 2022, just just on DTD.
I said consensus were up sequentially.
By nearly 25%.
Just having that pull through into the implant cycle.
Cycle is taking some time and again I think largely related to patient willingness to come into the clinics.
And the staff shortages at some of our clinical sites.
And there is some level of drop out expected. If you look at the public CMS agreement that is part of the calculation.
Our understanding so far thats not been something to watch out for.
Alright, Thanks again.
Okay.
Our next question comes from Michael Pollack of Bat, Michael Your line is open.
Hey, good morning.
A handful for me here.
Bipolar arm.
Hazard a comment on when you expect to reach 150 milestone and that arm. It sounds like clearly later than <unk> 'twenty, two but I did not hear an updated target sorry, if I missed it.
No no I don't know whether I said.
But it's somewhere in the first half.
As we as we hit that as we hit the unit Paula you know a lot of the attention and we will kick over into the bipolar group as I said, the thicker and harder to move through and again with this delta variant surge. It just really change some of the trajectory there and as I said, where we're much more focused on pulling through the unit.
Given that that's the larger patient pool, it's like 65% of the DTD patients so getting net one into the registry cycle as a priority.
And.
Tying together the slight delay here on Uni polar and bipolar implants, but the maintenance of the flip to registry target late next year early 'twenty three is that.
So is it fair to say that embedded in your <unk>.
Flip to registries registry target of late next year early 'twenty three you had a range of.
Timelines considered for in Chile, achieving the.
These important $2 50, 150 milestones I just.
As you have pushed the enrollment timing, but you have maintained the important flip the registry timing and I just help me help us better understand.
How that how those two updates worked together.
Yeah, we may have had a little cushion in there is probably the short answer.
Yes.
Okay.
Hum fresh.
<unk>.
I don't think this has been discussed on this call or certainly not this call, but or the last one.
It seems to be.
On the shelf here.
And that was.
Initially thought to be a nice.
The catalyst for reimbursement for this program to the extent that successful clinically so.
Understanding that there's still the clinical update ahead of us and I don't want to get too far in front.
Would you be willing to share a few higher level comments on what the how you envision the path to reimbursement for.
VNS and heart failure, given the <unk> program seems to be.
Deferred if not.
Dead.
Yeah.
Yeah look at firstly disappointing that that whole program disappeared or appears to be disappearing.
Candidly, we never had that factored into our model when we started the whole program.
<unk> came along.
After we committed to the program. So we continue to believe that there'll be a pathway.
Starting with the Max.
Building building data.
A big part of our study was to make sure we were going to generate important data in the <unk>.
Not only the functional milestones, but also the primary endpoints.
Big part of the program was also breaking it up and having this embedded.
Study and show that we could have this conversation with the Max and paces.
So it's a headwind, but as I said, we had never factored that into our initial model.
Okay.
Thank you so much.
She is Mike.
Our next question comes from Scott Bardo.
Scott Your line is open.
Hi, Scott Your line is now open.
Sorry, apologies guys I was on mute Hello, guys. Thanks for taking my questions.
Yes. The first question please Alex.
I Wonder if you.
According to Gibson.
Some view on the EBIT margin adjusted EBIT margin this year for really the nice.
I think if I'm right your guidance implies something like a 14% margin. So I wonder if you could.
So on that please.
And linked to that.
Obviously, we've had a bit of.
Lower operating costs, this quarter, which I think you're highlighting into into the reversion.
<unk> into the fold.
Can you give us a flavor actually know that.
All balances out of the business.
Operating costs are likely to trend next year, although you might need to be up stable or.
Below this year's Opex level.
Just some sense there would be helpful.
I just got a question. Please go.
Go ahead, Alex and I'll come back with a follow up thank you.
Sure.
So you're right the margin, we're forecasting at 14% to 15% that is.
That's our goal in terms of in terms of our margin this quarter, obviously somewhat inflated.
I talked about deferring some of the expenses into the current quarter. We saw some sales softness earlier in the quarter and so we pulled back on some investments as you know we typically start to invest.
Ahead of 2022 in the second half of.
Of this year so.
We looked at some discretionary expenses in and decided to defer them into Q4.
And in terms of.
Guidance, we'll do that in February, but we will give a long range view at the Investor day in a few weeks' time.
Okay. Thanks, guys. Maybe second question just please hold them.
VNS.
Thanks for giving that disclosure on new patients.
Just growing around 5%.
I'm on Rockies thing that's.
No question adds is really the best leading indicator to the longer term growth of neuro mode.
And I Wonder if you could give some sense of where we all matrix buses 2019.
Down on.
2019, new patients if you could just comps for that I'll give some sense of that would be helpful.
Yes. So we yes, we are still down versus 2019 I think this is where I was trying to indicate that that's been the the lag in terms of the shifts as the markets have started opening up it's improving sequentially, we've seen improvement in with predicting and a sequential improvement in Q4, but.
That's the one that we're maniacally focused on.
The teams.
Heavily focused on NPI, because you're right. The long long term view of the business is related to that those DRA patience in denial.
It ramped because depending on how you cut the model is sort of 800000 to $1 2 million DRA patients in the U S alone.
We believe that that long term growth is important to driving the business because obviously that leads to replacements given that out.
Average age is in the.
Late twenties.
Our implanting patients three to four times.
In their life and so.
Being very focused on NPI is being focused on pediatrics is a key aspect of our lifetime value of a patient.
We also know that there's a significant benefit to their quality of life by impacting and implanting them earlier to so from a patient point of view, we believe it's beneficial in terms of their cognitive development.
And.
Hospitalizations and every time you get hospitalized this is a significant number of complications so.
That is our primary focus.
Very clear and things just lost a follow up on the remote than before my time.
And correct me if I'm wrong, please but.
It's my understanding that you can't the development of your next generation, they're more platform.
All of the risks.
I think that means that we won't have had the new platform here for.
For five years or so I guess the question is does that matter in terms of re accelerating new patient additions.
Perhaps what is the plan for the.
New platforms for neuro Mod when is that likely now.
Yes, so more depth on that in the Investor day in a few weeks' time it'll be about three years between iterations not five.
Our focus has been much more on how to think about.
Patient connectivity and the App development.
They were early aspects of what we were looking at with the original <unk>.
Chris where.
Where we were talking about Bluetooth.
Significantly we took a step back when we started looking at security and making sure we had a really stable platform. So.
While we were doing that we shifted our focus more as I said to these patients that we'll talk more about this in a few weeks, but I'm actually pleased with what I think we can do here and how we can engage with patients and clinicians ultimately, but that's the work we're doing and we'll talk about that in a few weeks.
Thanks, guys.
Cheers Scott.
Thank you and our final question today comes from Matt Taylor of UBS.
Your line is open.
Hi, Good morning, excuse me thanks for taking the questions.
I just had two I think one was.
To follow up on heart failure.
I just wanted to know if you thought you could actually have a pathway to get reimbursement with.
I guess, the shorter term endpoint in the functional endpoints 90 days versus the.
The two year follow up with heart failure hospitalization et cetera.
Yes, it's Matt that's the expectation there already is a CPT code for VNS and if you look at a couple of other that competitors are already out.
Getting reimbursed, it's just not as easy as we can exit.
Yes.
Can you do it with the functional versus the primary and the answer is yes, yes, yes.
Okay.
And.
The Covid stuff is really impacted hospitalization.
We saw with.
Cardiome and do you think that could have an impact on the endpoint here and how would you deal with that.
So the trial design.
It's an embedded drought as Damian mentioned the first look we have to.
Five different endpoints safety, which we have a lot of data on VNS is a trend in the primary endpoint of hospitalization mortality not to hit on just the trends and then we have to hit the quality of life six minute walk and the left ventricular ejection fraction.
We hit all five of those than we can do a full assessment of the data and submit to the FDA.
We Miss on one of those five or we don't quite get there we will just keep going.
External independent statisticians will just tell us to do what we're enrolling 100 patients. Then we can look again. So we do have a kind of a long runway in this trial were going up we have up to a thousand patients. So we're not sort of boxed in on a set number that's coming up close if in fact <unk> had some impact.
On that primary endpoint of hospitalization and mortality, which again, we don't know we are completely blinded but.
We still have a lot more patients to enroll hopefully hearing in October.
Got it okay, great. Thanks for all that color really appreciate it thanks guys.
She is a matter of math.
We have nice I'll ask questions Nikki So I'll hand back to Damien Mcdonald for closing remarks.
Thank you Lydia and thank you everyone for joining today's call on behalf of the entire team. We appreciate your support and interest in live in either and again, we look forward to speaking to you at our Investor Day on December seven thank you.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Yes.
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Okay.
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