Q4 2021 Apollo Endosurgery Inc Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to the Apollo Endo surgery fourth quarter and full year 2021 results conference call. At this time, all participants have been placed on listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Matt Kreps, Sir the floor is yours.
Thank you John and thanks to everyone for participating in today's call to discuss Apollo's fourth quarter and full year 2021 financial and operating results joining.
Joining me on the call today are Chasms Khan, Chief Executive Officer, and Jeff Black, Our Chief Financial Officer.
Today's call will include slides to accompany the presentation for those joining us by telephone you can download a copy of the slide that our Investor Relations site, IR Dot Apollo and dot com and choosing events and presentations.
Before we begin I would like to caution listeners that comments made by management. During this conference call will include forward looking statements within the meaning of federal securities laws, including Apollo's financial outlook, and Apollo's plans and timing for product development and sales.
In addition, there is uncertainty about the continued spread of COVID-19 virus and the ongoing impact it may have on our operations and the demand for our products global supply chains and economic activity in general.
These forward looking statements involve material risks and uncertainties and apollo's actual results may differ materially.
For a discussion of risk factors I encourage you to review the company's most recent annual report on Form 10-K , and our most recent Form 10-Q .
The content of this conference call contains time sensitive information is accurate only as of the date of our live broadcast February 22022.
As required except as required by law Apollo undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this call.
Additionally, today's discussion will include certain non-GAAP financial measures, which we believe provide an additional tool for evaluating the company's core performance management uses these metrics in its own evaluation of continuing operating performance and a baseline for assessing the future earnings potential of the company include.
Included in our press release issued today with our financial results and a corresponding 8-K filing our supplemental tables reconciling non-GAAP figures to the closest GAAP comparable.
And now I'd like to turn the call over to Charles.
Thanks, Matt and thank you everyone. Good afternoon. Thank you for joining us.
Next week will Mark one year since I joined Apollo and <unk> and I am truly grateful for having the honor of leading this team and this company with such unique products that impact patients lives.
Last year I laid out a three phase strategy as described on page three.
The first phase was to energize the business by building momentum across all three of our product lines, while executing on foundational initiatives that can set us up for growth in the years ahead.
The second phase is to accelerate the business by developing new indications in markets.
And the third phase is to lead in the fields of advanced defect closure and endoscopic treatments for weight loss.
As we implement this strategy, we have bolstered the Apollo leadership team by bringing in.
New talent into the organization to join an already strong Apollo team.
And in addition, we are focusing our efforts on developing large market opportunities.
I'm pleased to report today that in the past 12 months and in Q4 that we've made tremendous progress.
We've strengthened the team at Apollo at all levels at the leadership team earlier in the year, we brought on new commercial leaders here in the U S. We brought in Jeff Black as our new CFO is with me today.
And then just in January we announced the addition of Kelly Schiaparelli to lead our reimbursement and market access efforts.
He is an experienced professional and is already working at building her team that will lead our reimbursement efforts and facilitating patient access for our products.
We nearly doubled our sales team in the U S and we've added to our our U S team, we're building, our marketing and training capabilities and becoming a more professional selling organization.
We strengthened our R&D and engineering teams that are implementing new processes to strengthening our new product pipeline.
And we are addressing and historical underinvestment in other critical functions like operations supply chain business analytics and customer service.
Simply put we have very talented people at Apollo and I'm very proud of the work that they've done.
We just not had a scalable organization and so we are strengthening our capabilities across the organization to support our growth plans.
We're also building and developing a new culture focusing on.
A set of five core values that I'll come back to you later in the discussion.
And so in summary at Apollo, we are undergoing substantial change and our team our processes and our culture and we anticipate that these changes will allow the company that has historically struggled at times and underperformed to become a growth engine.
Now often when a company undergoes this much change the business often needs to take a step backwards before moving ahead with renewed confidence and I'm very pleased that that is not the case for Apollo in 2021 for the year, we delivered 50% revenue growth and for Q4, we delivered 26% growth despite a meaningful impact of the omicron variant.
In many markets in Western Europe , and the U S.
Our growth has been balanced across product lines with overstitch Barbera and our newest product ex Tac all contributing to growth and we've seen balanced growth across geographies with strong performance in both the U S and international markets.
Yeah.
And while we kick started the business in 2021, we've also created a foundation for the years ahead, and our advanced Gi franchise ex Tac as an important new product for US we gained initial traction in the marketplace and published the first clinical data for the product.
And our discounted weight loss franchise obesity is a global epidemic that remains largely unchanged and the opportunity for endoscopic weight loss therapies is tremendous.
21 was a year of important strategic milestones.
Early in the year in the spring of last year, the Agi <unk> implemented a new clinical practice guidelines for the first time ever in favor of interactive balloon therapies.
The merit investigators presented the initial results at the <unk> meeting in the fall.
We submitted a new de Novo application to another 500 10-K application for Apollo ESG and Apollo revise and through the course of the year. We saw an emergence of new Endo bariatric programs in both academic and private practice settings.
In the area of Nash, we received a breakthrough designation for <unk> for the treatment of Nash in Q1 of last year. We've also been collecting data on ESG and working through the best strategy to address this large market opportunity.
Okay.
And then all of our balance sheet in 2021, we secured access to $175 million in capital. We now have a strong balance sheet to support our growth initiatives.
So page five gives you a sense of the balance that I just mentioned on the left side of the page you can see 50% year on year revenue growth, 55% for the U S franchise, and importantly, 50% for the RGB franchise.
And the figures relative to 2019 are shown as well.
Another interesting development has been the growth in our top 10 accounts, we saw 85% year on year growth in our top 10 accounts and the average sales for Apollo in those 10 accounts with more than $600000. We think that gives a pretty good indication of the scale that we can drive as we increase penetration into.
All of our products into our largest customers.
For <unk>, we continue to gain traction and we saw a 40% sequential quarter on quarter growth for ex Tac.
And as I mentioned, we already had important milestones for both the Merit study.
De Novo 500 10-K relate.
Related to merit, and and clinical data for ESG and revisions, we do expect a conditional presentations of the data at the upcoming <unk>.
DW meeting that's the digestive disease week meeting that's in May.
We also expect other publications on our slide presentation at that meeting on ESG and revisions from investigators around the world. So it's an important addition to the clinical body of evidence for.
<unk> narrowed itself. The investigators are working on the publication and we look forward to that.
In the months ahead.
Jeff will now provide a review of our financial performance and then ill be back to provide additional commentary on our priorities for the year ahead.
Thank you Chad and good afternoon, everybody. Thank you all for joining us today.
I'll spend a few minutes to recap our financial results and then hand, it back to Chad to discuss our 2022 outlook and strategy.
Yeah.
Starting with revenue on slide seven in Q4, we continued to see strong year over year growth across our product portfolio and our fourth consecutive quarter of double digit growth.
And that was against the backdrop of pandemic related pressure as we all know this has been a changing dynamic throughout 2021, and we did see pressure on Q4 volumes.
Outside the U S. We saw pressure earlier in the quarter in concentrated markets, particularly western Europe .
And then inside the U S. We began to see slowdowns later in the quarter, particularly December predominantly in academic hospitals and larger community hospitals, where access was was more limited.
Even with this pressure on procedure volumes, we still maintained a healthy monthly revenue cadence in December consistent with the rest of the quarter, where we didn't see was the ramp that we expected in the last half of December and that was really the difference between hitting the low end of our annual revenue guidance and the high end or better.
Growth in the fourth quarter was balanced between U S, where we saw a 25% growth in international which grew 27%.
Globally, our endoscopic suturing business was up over 37% in the fourth quarter and that just highlights continued demand for our overstitch and ex Tac products across a broad range of indications.
Globally or air revenue was up 20% and that was below our blended growth rate really due to volume pressure in the U S where growth was about 6%, but we believe it's down tick is transitory and that it was mostly attributed to inpatient and hospital settings in the U S where access was limited in Q.
Four.
For the full year, we saw revenue growth of 50% and again balanced across our U S and international businesses and across product lines.
Overall, we're pleased with our revenue performance in 2021.
And our ability to navigate a challenging fourth quarter for med Tech broadly.
Turning to gross margin on slide eight.
In the fourth quarter, we saw gross margin improved by 40 basis points versus.
Fourth quarter of 2020, 260 basis points on a year to date basis.
We continue to remain focused on gross margin improvement, particularly with overstitch, which as we've discussed has a lower margin profile than <unk> and ex Tac.
Major drivers of overall gross margin expansion will be product mix improved overhead absorption and direct Cogs improvement programs again focused primarily on overstitch.
During 2022, we should start to see the impact of some of the cost improvement initiatives that we completed in 2021.
And at the same time, we're navigating supply chain and manufacturing scale up complexities, but we remain confident in our ability to drive blended gross margin to the mid 60% range over the next three years to five years.
Moving to slide 10.
Yes.
So I'm moving to slide nine.
As we look at operating spend profile. We think is important to exclude noncash stock based compensation to get a clearer picture of what our real noncore GAAP operating expense run rate is.
In the near term, we're focused on building capabilities following historical underinvestment in the business.
For example, you will see in the fourth quarter, our non-GAAP Opex ran at about 79% of revenue that reflects our planned investments and growth initiatives, primarily to build out our U S sales channel and our marketing programs as we prepare for the anticipated launch of our ESG products.
In the U S. We have a small commercial team.
Relative to the size of our opportunities, but we made great progress throughout 2021 to expand that footprint. We started the year with 16 direct reps in the U S. We ended with about 30 by the end of the fourth quarter and going forward. We will continue to evaluate the appropriate scale of our commercial team and invest if necessary.
Our other focused areas of planned investment will be metals at medical education, clinical reimbursement and product development and continued Cogs improvement initiatives.
We do expect to see operating expenses increase in both absolute dollars and as a percentage of revenue, particularly in 2022, and we should start to see operating expense leverage in 2023 and beyond.
But I think importantly, we have the ability to modulate spend as appropriate and we're now well positioned from a balance sheet perspective to make these investments.
Moving to slide 10.
You will see that during 2021, our average quarterly burn was about $4 million a quarter.
We ended the year with cash of about $92 million.
Until now Apollo has not been capitalized as we fund our long term plan. The company historically did a very nice job managing burn, particularly during a very challenging global pandemic. However, due to historical Underinvestment. The company really has not been well positioned to support even modest growth.
Does that change for us in the fourth quarter as we secured over $175 million in new capital and borrowing capacity, which enables us to begin making the investments required to capitalize on the opportunities. We see ahead of us and we can do this without creating a concerned about cash runway.
We're now extremely well positioned to execute on our planned growth initiatives.
Turning to slide 11, and before I turn things back over to Chad just a few comments on our new credit facility with <unk> capital partners, which we executed in December of last year.
Key terms of the of our key strategic reasons for the new term loan as a reduction in our cost of capital and.
An extension of our amortization by an additional 33 months over our prior term loan and a decrease in debt service cost by nearly $30 million over the next three years.
Also have now additional borrowing capacity that provides minimally dilutive growth capital and strategic flexibility.
At close we drew $35 million to repay our prior term debt and we now have up to $65 million available for future tranches <unk>.
<unk> will be available in 2023 and $25 million available in 2024, both based on achievement of revenue milestones.
And another up to $25 million available for approved strategic acquisitions, if such opportunities arise.
Borrowings mature in December of 2027.
Interest only payments run through January of 2027.
This was a great result for us we couldnt be happier with the outcome of this and we look forward to our new partnership with Novartis.
And with that I'll turn the call back over to Jeff.
Okay. So now as we look ahead to the year of 2022, let me talk about our overall strategy and our outlook for the year ahead.
Page 13.
As you a summary of our three product lines and the two main businesses in which we operate and advanced Gi and endoscopic weight loss.
And we are excited that we have a very attractive growth opportunities across both sides of our business.
As I mentioned previously we also are focused on going after large market opportunities in advanced Gi.
In weight loss, and then over time in Nash as well.
So for the year ahead, our outlook from a revenue standpoint, and $73 million to $75 million.
Which translates to 16% to 19% growth compared to 2021.
And let me also share a few words as it relates to the Covid impact.
In Q4, and early Q1 of this year, we have seen an impact in markets globally.
As others have reported lower procedure volumes staffing issues reduced hospital access have all presented challenges, especially in larger academic medical centers and community hospitals.
That said more recently the Amazon case counts are coming down the situation appears to be improving and so we are optimistic that the impact of this wave is beginning to abate.
And so as we look ahead for 2022, we see four key catalysts to drive our growth in the year ahead.
<unk> expansion and <unk> resurgence preparing for the Apollo ESG and Apollo revised launches and continuing to advance our organization.
So firstly with ex Tac and I'm on slide 16.
<unk>, it's been a very important product for us as it adds to our portfolio in the advanced Gi side of our business and it offers a truly differentiated product and indeed that closure.
And with ex Tac, we are still in the early days of the adoption of a new product and procedure and we feel that we've got a lot of room to continue to grow.
For example, currently more than 60% of our <unk> sales are in upper Gi.
There are many reasons for this are overstitch device, which is the core device for the company is used primarily in the upper Gi and so many of our existing customers primarily due upper Gi procedures and are familiar with suturing techniques. Furthermore for most of 2021, we had a very small sales team in the U S and it's not surprising.
<unk> had more success with our existing customers initially and applications in the upper Gi.
That said, we continue to see very positive feedback from customers about the role of ex Tac falling pulp removal of lower Gi cases, such as the colon and to deal with you and.
In procedure volume suggests that ultimately these applications have the potential to be much.
Larger market opportunity.
So in 2022, we anticipate that we can continue to expand usage in both upper and lower Gi approach in training, new users and increase adoption of ex Tac.
Importantly, 2022 will also be a year, where we added additional clinical data for that stack to date. The data are strong, but its very limited we anticipate additional studies on the use of ex Tac, including at the same up EDW meeting that I mentioned in areas like the colon and Adobe and understand fixation and other potential applications for the product.
In addition, we are ramping up our efforts in peer to peer education Forex stack, the best way for physicians to learn about new products or procedures from their colleagues and we've done some peer to peer education to date, but we are ramping up these efforts as part of our strategy in 2022.
And we also have a significant growth opportunity for <unk> outside the U S. We gained initial success in a handful of markets outside the U S and we are actively working towards a CE mark.
Which we expect in the second half of this year.
And for feedback from physicians for example in Western Europe . They are very excited about the clinical and economic value proposition for <unk> in.
Their practice.
Turning to slide 17, and our Vera.
Or there is a meaningful part of the Apollo portfolio and offers compelling clinical benefits for patients.
In 2021 was a very strong year for barrel it accounts for more than a third of our total revenue and grew by more than more than 50%.
And there are a number of reasons for this resurgence and many of these we view as sustainable trends.
First as it relates to Covid, we have seen a trend towards more procedures, taking place in outpatient facilities and offices, which is the primary location for Darryl.
I mentioned earlier, the AGM practice guidelines.
And again those talked about the clinical benefits of <unk> balloons in general, but especially the clinical benefits of a 10% total body weight loss on cardiovascular disease diabetes, and liver function, so really adding to the clinical validation of the product.
We've seen an uptick in physician interest in training on the balloon.
And we are implementing new co marketing programs. These are programs, where we can work directly with either with practices that know how to treat patients with balloons and get excellent patient outcomes and we can invest in these we can track the performance and then double down on the programs that are most successful.
Finally, we anticipate a continued opportunity to interactive balloons will be a meaningful part of a broader endoscopic endo bariatric practice endoscopic weight loss practice.
I'll come back to that here in a minute.
But a lot of good things happening in intrahepatic balloon franchise.
The next catalyst, which we've talked about previously is the potential for a new indication for the Apollo ESG and the Apollo revised products. Now importantly, we don't currently have an indication for these weight loss applications and we are very careful to only promote within our approved labeling.
But we have submitted to FDA and we're working through that process and we are very excited about the potential for a launch of Apollo ESG and Apollo revives.
And I use the word launch very intentionally here I want you to think about this like a new product launch that you hear about it in the pharmaceutical world or you hear about from a larger medical device manufacturer.
In terms of our comprehensive holistic approach to really maximize the opportunity for the product.
Internally, we have a massive effort ongoing and areas across marketing and medical education training reimbursement and market access and sales team readiness to prepare ourselves for the ultimate launch of these new products. Our team is very busy and they're very excited.
And while we are busy preparing for the launches internally there is an interesting dynamic and development taking place more broadly in the medical community the growth of new Endo bariatric programs in academic settings.
A few years ago, there were a handful of pioneering physicians and practices in this field.
The centers that participated in the study were among the early adopters the Mayo clinic, Eugene Houston, Brigham and women's Cornell and Johns Hopkins are all good examples as well as some leading centers internationally that really a developer driven the development of this field.
More recently, many new programs are emerging across the country and institutions such as the Cleveland Clinic, UCLA, USC, West, Virginia, and USC and others in recent months I personally visited many of these centers that are highlighted on this page and it's very encouraging to hear about their plans to develop this emerging field of endoscopy.
Great loss.
And this is just the U S snapshot similar phenomenon absolutely happening outside the U S in countries around the world.
I'm more familiar with the Merit study and other data that's been collected for both primary ESG and revision procedures as well as for the drastic balloon and the role of the variable loon with the new engineered practice guidelines.
So it's interesting development in London, we will keep an eye on.
So turning now to our organization I mentioned right upfront that we are retooling all of those people processes and culture to meet our aspirations are new commercial leadership team is creating a professional selling organization new sales processes. We've hired a new director of sales training, we're improving our analytics and CRM capabilities.
We have also recently brought on clearly the lead to reimbursement and market access efforts.
And we're also and we are rolling our organization around a new culture that centers on five core values. We are patient centric. We are customer focused we are innovative we're passionate and we care, which are about all of our stakeholders and we care about delivering operational excellence.
And we are working to build an organization that can deliver sustainable growth in the years ahead.
So before we move to the Q&A I'd like to take a moment to recognize Dr. Bruce Robertson from H I G capital for his tremendous service to Apollo <unk> and our board of directors for more than 14 years Bruce participated in the very first institutional investment round for the company in 2008 and has served on our board since then.
He has been instrumental in guiding the company through its formative stages and getting us to the point, where we are today. In addition, Bruce it's been a fantastic colleagues and adviser for me in my first year as CEO , Bruce has decided to step down due to other commitments and we wish him well.
We are conducting a board search process and look forward to providing updates soon.
Yeah.
So in closing in 2021, we made excellent progress in energizing the business and building the foundation for future growth.
I anticipate that over the course of 2022 will begin to transition from this initial energized phase of our strategy, we have multiple catalysts for growth across our product lines and geographies and we're putting in place the right team the right processes the right culture to meet our aspirations. Thank you for your time today and for your interest in Apollo and will now open the lines for questions.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please indicate so by pressing star one pressing star to remove you from the queue should your question to be answered and lastly, posing your question. Please pickup your handset it loosening on speaker phone to provide optimal sound quality. Please hold while we poll for questions. Once again Thats star one if you have a question.
Or comment the first question is coming from Josh Jennings from Cowen Your line is live.
Hi, This is Eric on for Josh Thanks for taking the questions.
I appreciate all the great commentary around the early experience of ex Tac just curious as you get closer to European approval here could you help us understand what would be included in your CE Mark submission.
And then is any of your U S regulatory work Leverages pool for attaining that CE Mark. Thank you.
Yes, no. Thanks, yeah, so under the new <unk> requirements.
Obviously additional need for clinical data. So we have been able to leverage some of the data that was included in our initial clinical study that's been published as well as a lot of the work that went into the U S application.
Sure you know in the past.
And FDA approval would be almost a slam dunk right to quickly follow on if you get U S. First.
It really right now is just a timing element as our notified body works through a backlog of applications from a lot of companies, but we think we've got the right materials that they need to get the approval.
Understood. That's great. Thank you and then thinking about guidance for 2022 could you help us understand what COVID-19 assumptions, you're baking into the range here.
Jeff your comments around trends in December , especially in the U S. How should we be thinking about Q1 revenues relative to the results that you've just delivered here in the fourth quarter, just any commentary on the cadence of revenue through the year would be really helpful. Thank you.
Sure Eric.
And again, we havent given quarterly guidance as you know.
But I think it's consistent with what I think what you are hearing broadly in the industry is certainly early in the quarter. We saw pressured volumes much like we saw in the fourth quarter, we're starting to see some of that abate, we're seeing nice momentum.
But what we can say about the quarter is that we're certainly comfortable with with where where the street has us in terms of consensus for Q1.
I think as we start to think about.
The acceleration of the ramp to that 20% growth.
That really happens once we get beyond.
The COVID-19 impact and we start to see acceleration in some of these endo bariatric practices.
That's great. Thank you guys.
Okay. The next question is coming from Matthew Blackman from Stifel. Your line is live.
Alright, good afternoon, everybody. Thanks for taking my questions I've just got a couple.
Maybe just to start with you.
I was hoping to get the priorities in 2022 for the for the U S commercial team.
It's.
The sales force size, whether it's focusing on existing accounts are expanding the customer base I just wanted to I just want to understand what the focus is in 'twenty, two and and if you could layer on top of that the folks that you've on boarded over the course of 2021, how they're ramping.
Activity for the whole sales force looks like.
And then just a couple quick follow ups.
Sure So Matt as I think you know have.
Our core reps the vast majority of our sales team in the U S kind of carry the full bag all three products and then we've now layered on regional Endo bariatric managers that are focused on the opportunity in that area and so for the first group.
Their priorities, if you look across product lines.
Think we still have excellent opportunities to continue to identify and train new users on overstitch and theyre doing that but also driving additional usage in our existing base.
So that's a very important focus for ex Tac it's.
Yes.
The strategy, we laid out last year have continued to be quite focused on a targeted set of accounts.
And really driving the model of increasing adoption remains it remains a priority for us and.
And as I, just alluded to the importance of being able to do that across multiple users in both upper and lower Gi is a real focus for that group and then another focus I'd tell you is to sell the whole bag we've got some.
Some of our reps, who are very good at selling or better and so on we've got less experience in it and I think given what we're seeing already in the marketplace of a nice bounce for that product.
We've got a lot of shared learnings on it but I think there is going to help our sales organization.
Expand the product.
Across some regions that have had a lot of success and make that more consistent so we're pretty excited about the opportunities across across each of those and then for the <unk> roles I mentioned.
We have a group of early adopters internally, we refer to as wave one.
Referenced one of the slides you saw and it's really learning from them right. It's a mix of both academic and private practices.
It's a mix of Gis and surgeons. So we've got different models that are already.
Having a lot of success across a range of endo bariatric. So the balloon is a big part of that but then also some of the other procedures. So we're learning a lot about everything it takes.
To kind of build and grow those kinds of practices and then having a focus on what the next waves are going to look like and we're just striking the right balance given the fact that we don't have any indication for the suture inside of it but we actually can do a lot with the balloon, including those co marketing programs I mentioned.
Got it I appreciate that.
I'll just ask one more I'm curious you've called out the top 10 accounts something like greater than 600000 in revenue.
Are those accounts using multiple products within the.
Portfolio or is it largely driven by buy one product that I'm, obviously trying to get at sort of what opportunity there maybe to cross sell in and obviously as you've mentioned before how you could turn that into a playbook for the rest of your account.
Yeah, I think you see theres a mix of accounts and there are some that are.
Pretty broad based some of the larger academic settings are truly are using a whole range of the products and really incorporating ex tac into that as well. So you've got all three products that are involved and then you've got some that are more endo bariatric accounts that absolutely will use both the balloon and overstitch.
Probably not likely to use a lot of ex Tac because the applications are more limited in that setting.
Got it thank you I appreciate it.
Okay. The next question is coming from Adam <unk> from Piper Sandler Your line is live.
Hey, Jack Hey, Jeff Thanks for taking the questions here and congrats on a nice year.
Wanted to start with the guidance and see if we could just deconstruct that a little bit further.
Particularly by segment, just curious to get some additional color on how you think about the ESF franchise versus the balloon business.
In 2022, and if youre willing to kind of put any color around contribution from ex Tac.
Maybe we can start there and then I had a follow up or two thanks.
Yeah, no. Thanks Adam.
Our cross that we see each product can continue to contribute to growth.
Taking an order a little bit I think the on the balloon side I think we're still learning frankly in terms of sustainable elements of growth and what it can deliver but we're encouraged right. Obviously, we had a very good year last year I'm not we're not planning for another year of 50% growth, but it would be nice, but you know.
But we do think it can be a sustainable contributor which given the history for the product line would be a really good outcome and so we're looking at that and as we implement more of these programs and get more runway with it.
We'll have.
More to build on to say sort of the level of sustainable growth.
And then we see I think a good balanced contribution then across the other two products.
Good opportunities with ex Tac here in the U S. And then layering on depending on the timing of the approvals outside the U S and so that can absolutely be additive both this year and beyond and then a lot of excitement obviously around overstitch, both the core Gi applications, we continue to add new users there.
And you know.
The opportunities as the year progresses on the weight loss side and again I've mentioned before we really are trying to.
To be appropriate and then have the right level of where we are not the folks promoting the aspects around weight loss side for overstitch until we have the right indication.
Yeah, and Adam just to add to that as you think about it and as we think about our long term growth play and we talk about this 20 plus percent long term CAGR.
I think you need to think about it as yes, S overstitch and ex Tac being the outsized growers relative to that 20% and <unk> likely being behind that.
That's really how you get to the blended growth.
2020 plus percent if that's helpful.
Yes, that's helpful color guys and maybe just a quick follow up on that and then if I can squeeze in a third I'll try my luck, but you know for the follow up I'm wondering if you guys can put a finer point on.
ESG and revision FDA approval timing.
Any any finer point or a specific quarter, where we should expect those too.
Come on label and then is there anything in terms of the guidance that you've had that you have issued $73 million to $75 million debt currently contemplates.
Revenue directly associated to those indications.
Thanks.
Okay.
Yes, so when we submitted the application for the de Novo 500, 10-K, I think even in the press release out and we mentioned that we had.
One of our outside law firms do an analysis that says on average a de Novo 500, 10-K takes 12 months.
And each one is unique because there is no predicate.
And we're working through the progress through the process, but we've kind of mentally prepared ourselves for that kind of a timeline, which would put you in the second in the second half of the year.
From a timing standpoint.
So, but there's uncertainty around that and we're going to do everything we can to move it along and and and.
Support the process.
Hopefully to a successful conclusion.
From that vantage point, given that kind of timeline.
Haven't put sort of a hockey stick kind of ramp into the back half of our year. Although we do know that even just general awareness in the community is having somewhat of a left effect and so again, we're playing our role appropriately, but we do see a broader awareness about weight loss and endoscopic procedures and people were kind of coming to us interested about it so.
And we can we can appropriately do things like training on the suturing techniques, but again, we're trying to be careful here.
Okay really helpful Jazz and just the last one if I may just gross margin, Jeff I think you gave some some helpful puts and takes.
In the prepared remarks, but just wanted to kind of flush that out a little bit more.
I think you have the mid sixties number in the slide deck over the next three to five years.
Do we kind of straight line that from where we currently are to get there or is it going to be a bit lumpy year, I guess, just trying to figure out exactly.
How do we think about 2022 gross margin if you're willing to quantify it to any extent. Thanks. So much guys I appreciate it.
Sure Yeah, Adam I think think about 'twenty two.
Haven't given specific guidance, but we will see expansion I think I think it's more of an evolution of the margin and not a not a step change.
I think that's the way you need to think about it.
Still a lot that we're working through in terms of the planning for the launch of new products. The configurations pricing considerations a lot to really think about in terms of what might drive longer term margin.
You think about 'twenty, two margin and even even early 'twenty three is more of a gradual evolution.
Okay got it that's helpful. Thanks, guys.
Okay. The next question is coming from Matt Hewitt from Craig Hallum, Matt Your line is live.
Good afternoon. Thank you for taking the questions and congratulations on the process progress in 'twenty, one maybe first off and I don't know if this is a metric that you can provide or if you're going to kind of focus in other areas, but as far as ex Tac accounts, where did the year end up and as you look at 'twenty two is it more.
About driving utilization and focusing on the quality of the accounts or is it still about kind of grabbing.
Grabbing new greenfield opportunities within.
New accounts entirely.
Yes, Matt I think the.
Overall, it is still very much about the quality aspect we.
We do view this as a product that can be used quite widespread but there are definitely learnings about the learning curve and nuances to even just especially for people who aren't used to suturing right and it is much simpler than overstitch, but it is for some of the alternative procedures are doing nothing right and so we want to make sure that people understand.
The product and how to use it well and so we've got a heavy focus on a targeted set of accounts that are using the product I'm sorry that are doing these kinds of procedures at high volumes and they are the primary focus for our sales organization doesn't mean, we're not opening other additional accounts.
But again, we really are trying to focus on that utilization metric because I think many people have been involved with launches where you try to get out too quickly and get out to a lot of institutions, where you're not getting the traction you want to get from a utilization standpoint that continues to be a big focus with the team. We will continue then to build and grow over.
Time, but kind of a utilization first strategy in terms of having to do it.
That's helpful and I guess, along those lines and I realize it might be a little bit early but.
As the year progresses or as we maybe start looking at 'twenty three will you start providing some utilization trends, even if just high level to help us kind of recognize the ramp that you're seeing within accounts.
Yes, Matt.
It's a fair question I think the answer is possibly.
It's a competitive competitively sensitive product as well so we're trying to be as garden as we can around how much we actually offer but to the extent that we can continue to share more of our key metrics without compromising some of that we will do that I mean, we tried to lay out as an example.
Sequential percentage growth.
40%, we saw a 20% increase in number of ordering accounts and you know clearly you probably don't have a good.
A good view on the baseline.
What we're trying to give you what we can without compromising some of the competitive sensitivity.
Completely understand thank you and then maybe one last one.
Is there any update on the status of the Nash trial as far as timing or plans, whether or not that would just be or.
Or bear or whether you would include overstitch any color on that process would be helpful. Thank you.
Yeah, No Matt it's it's a good question and one that we are working through frankly, it's we've been with some experts in both.
Gi side of things in herpetology side of things to really work through the learnings that have gone into recent trials in the Nash area as I'm sure you're aware there's been you know.
Tens of trials multiple trials on the drug side, many of which haven't been very successful and so we're really trying to learn from those while also taking a hard look at the data that we have for both balloons.
And.
ESG right as we are collecting some additional data merit has debt on comorbidities.
A liver function was not one of them, but we've got some other studies in Europe that have reported some initial data.
That looks interesting and so and then you wrap in that there is still a whole ongoing set of discussions with CMS about.
Exactly what their coverage policies might be for new technologies. The previous Mci. It doesn't look like it's going forward, but they are talking about kind of new versions of what they might do so for all of those reasons, we're taking a pretty deliberate approach.
Whether it's one product or both products as a one trial or multiple trials as a small company, we probably only get one chance to get this right. So we're kind of measuring twice and cut once kind of approach here intentionally because theres just a lot of moving parts.
I completely understand alright, thank you.
Okay. The next question is coming from Frank Pakenham from Lake Street Capital markets. Your line is live.
Charles Geoff Congrats on all progress thanks for taking the questions I wanted to ask a couple more on the top 10 accounts.
First can you comment on how many of those top 10, our endo bariatric specific and then to my assumption is theres been a little mix and the composition of those top 10 accounts can you comment on what's driving that whether that be in overstitch account, then introduced ex Tac or.
No bariatric account, that's growing quicker than the rest of the account base just any color around how the composition has changed and why it would be great.
Yeah, Matt I would say the majority do fall under that category of Endo, bariatric or at least where endo bariatric says a significant portion of what they do.
And so that's an important element.
Some some of those will also be doing some of the core Gi procedures. So they may as I said in fact, using ex Tac as well.
And so I think we do have some what I put it all in and you've got both all three product lines contributing to that growth, but I would say a number of them and probably the majority of primarily being driven by the balloon and overstitch at that level right really driving sort of those you know as I mentioned $600000 kind of <unk>.
<unk>.
But those are typically when you have institutions that really are embracing.
The role for endoscopic therapies on the weight loss side again with the balloon often because they are part of that.
Got it Okay. That's helpful. And then two on the operating expense region first how do we should we think about sales force growth for 2022, and then secondly.
Thinking about just broad business investment sounds like Thats going to tick up pretty aggressively now that you have the funds to do so where should we expect to see that most of the operating expense structure.
Yeah, Frank Good question I think the first question on this on the sales force growth.
We ramped up to two about 30 by the end of the year. We've made some incremental hires throughout the course of the first quarter I think where we are now is that we were really more focused on making sure that the existing sales force is trained up.
And that they begin to ramp up and we start to see the programs that are working the ones that arent and adjust and so I think.
You will definitely see a bit of a ramp in hiring in Q1.
We will probably start to see another ramp later in the year.
So I think as you start to think about sales and marketing expenses ramping.
In the near term it is some of the run rate from the from the larger commercial sales rep footprint, but then it's also the investment in the marketing type programs around Endo bariatrics.
Chaz walk you through and then as you think about <unk>.
Investments beyond sales and marketing the reimbursement initiatives, bringing kiwi onboard and building out that team some of the clinical initiatives in terms of a deeper dive on ex Tac publications and Nash strategy.
We hope, we'll we'll get more clarity on by the end of the year.
And then across the R&D product portfolio Cogs improvement. It really is in many cases, just really making up for some some level of underinvestment historically.
Just one more thing on the sales force just to give you an order of magnitude Frank in last year and this is U S. I'm talking about we almost doubled the sales force to about 30, I'd say order of magnitude by the end of the year of 2022 will be in the range of call. It 40% to 45 right. We're not looking to double again right now that could change.
Two things take off and we're going to evaluate that as we go but just to give you a sense of our thinking.
It's not doubling again, it's continuing to grow and split some of the larger territories continue to get depth in some of the markets where we.
No we can drive growth with our current footprint while in parallel we're going to evaluate the overall footprint I mentioned these regional endo bariatric managers that that's almost like a pilot right to see what that that that that role how it contributes how it complements the existing roles in advance of the newer indication.
And so we'll see.
Zack sort of structure and size as the year goes on.
Got it that's helpful. I'll stop there thanks for taking my questions.
Okay. The next question is coming from Chris Cooley from Stephens. Your line is live.
Hi, This is Ben on for Chris. Thanks for taking the question just a quick one for us.
So given the current inflationary environment.
Prior comments around potentially passing on price.
I was just wondering if you could provide some additional color.
Around any potential timing on those price upticks and then really how we can think about volume growth moving forward. If you do.
Implement those thank you.
Yeah, Hi, Ben so.
For Overstitch, we did take a price increase at the beginning of the year, we have in the past taking the cost of living increase.
It was modestly higher this year in light of the inflationary environment that we see.
And so that was certainly part of our planning.
And.
So we implemented that really at the start of the year.
Jeff was alluding to also as we get the new indication and the new products, how exactly reprice those in the marketplace is still something we're working through and that plays into things like from a reimbursement strategies in other areas. So that determination will be more closely tied to the rollout of the new products.
And then the systems as it were for ESG and revisions which will.
Certainly in the back half of the year or even beyond as we kind of think through that aspect of it.
Thank you.
I'd now like to turn the floor back to management for any closing remarks.
Thanks, again folks for joining us we really appreciate it.
Very gratified with the progress we made in 2021 and looking forward to an exciting year ahead and thank you for your interest in the fall.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.
Thank you for your participation.
Okay.