Q3 2022 Nevro Corp Earnings Call
Good afternoon. My name is Erica and I will be your conference operator today at this time I would like to welcome everyone to NEP Rose third quarter 2022 financial results 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'd 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 Star followed by the number one again. Thank you I would now like to turn the call over to Julie Dewey for introductory remarks.
Please go ahead.
Good afternoon, and welcome to <unk> third quarter 2022 earnings Conference call. We appreciate you joining us I'm, Julie Dewey never as Chief Corporate Communications and IR Officer with me today are Keith Grossman, Chairman, CEO , and President and Rob Mcleod Chief Financial Officer, the format of our call today will.
A discussion of third quarter 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 32022, a copy of our earnings release is available on our Investor Relations section of our website at <unk> Dot com.
Call is being broadcast live over the Internet to all interested parties on November <unk> 2022, 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 annual report on Form 10-K.
Filed on February 23, 2022 for a detailed presentation of risks.
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 <unk> ongoing business performance non-GAAP adjusted EBITDA excludes certain litigation related expenses and credit interest taxes, and noncash items, such as stock based compensation and <unk>.
Depreciation and amortization, please refer to the GAAP to non-GAAP reconciliation tables within our earnings release and now it's my pleasure to turn the call over to Keith.
Julie and good afternoon, everyone and thanks for joining us I'll focus my comments today on our third quarter results. The current state of our business and recovery the progress of our <unk> launch.
Of course, our recent FDA approval and limited release of our new <unk> IQ system and following my comments as Julian said, Rob will cover the specifics of our Q3 results and our guidance.
Overall, we continue to move our business forward in Q3, despite a challenging environment for our customers as well as macro impacts like currency exchange rates inflation and supply chain pressures. Our revenue was at the high end of our guidance U S procedure growth rates well into double digits tdm revenue growth exceeded our expectations.
Again, and adjusted EBITDA results were above the high end of our guidance.
Although we continue to experience the lingering impact of customer staffing and capacity issues.
These began to improve slightly during the quarter as we continue to see a gradual overall trend of SCS market recovery, which we do expect to continue in the fourth quarter and throughout 2023.
There were a number of encouraging elements of our progress in the third quarter global constant currency revenue was 10% ahead of prior year.
U S trial activity, our best leading indicator of future growth delivered 16% year over year growth base.
Based on our recent refresh of claims data for procedures as well as all reported revenues. Thus far we do believe that we continue to gain market share in Q3 as well.
We're also extremely encouraged by the progress of our <unk> launch and we believe we have started to build some early interest with our indication to treat the nonsurgical back pain patients and.
And finally with the recent FDA approval of our new <unk> IQ system, we added a highly differentiated SCS platform. The first and only SCS system that uses truly big data and artificial intelligence to optimize and maintain pain relief using each patients individual responses.
I'll cover IQ in more detail later in my remarks, but this is an exciting achievement for our company. It's been years in the works and we believe this is one of the most important launches in <unk> history.
All of this progress further differentiates our high frequency paresthesia free SCS technology, and we're confident that we're well positioned coming into 2023.
Our research confirms to us the patient willingness to engage has improved considerably and importantly, the underlying fundamentals of the addressable market and the opportunity for attractive growth rate remains intact.
Just on this and the trend we're seeing in our own trial procedures. We believe the SCS market is moving closer to a recovery and is positioned to return to more attractive revenue growth rates as the funnel of trial procedures continues to refill.
In our most recent market research one third of patients mentioned that their pain physician had canceled or rescheduled an appointment in the last six months with the majority of these due to availability or scheduling challenges. However, 80% of patients who had no specialist appointments in 2021 at all <unk>.
Our habit of appointments scheduled for already had at least one employment unemployment so far in 2022.
Of course, lingering staffing issues and capacity congestion do continue to put pressure on the scheduling of procedures, but these also began to improve a little during the quarter, our trial to perm or TTP conversion curve, which is the average time to convert patient trials to firms and therefore revenue.
Also improved just slightly in the quarter.
While our TTP curve is not back to its historical level yet level, yet we expect it to continue to improve during the remainder of this year and 23 are.
Our guidance that Robert will discuss takes us into account and implies year over year revenue growth for the fourth quarter of 9% to 13% on a constant currency basis.
Our research makes it very clear that patient engagement and inflow coming into the pain practices is very high right now and once the market's capacity to handle pre COVID-19 volumes as more fully restored we expect to see market growth returned to historical CAGR.
One of our competitors made a recent comment about prior authorization pressures from payers, becoming a much more significant headwind for SCS in the third quarter.
This is not something we saw met.
Medicare and commercial payers reimbursed almost universally for SCS therapy.
And the payment amounts themselves for both facilities and physicians have remained reasonably stable and appropriate over time.
Now it is true that prior authorization requirements have been enforced more rigidly in recent years, even if those prior off requirements themselves haven't changed though we didn't see a meaningful change inside of Q3.
When prior off requests or appeals are documented correctly approval rates actually remain high.
As you know we have a dedicated <unk> access team to help manage this effort for our customers and our patients in fact about one third of all of our patients come through our access team and that number is growing for.
For those patients we have an 80% to 85% prior off approval rate for all trial patients and well over 90% approval rate for Perm patients following a successful trial.
Yeah.
Turning now to our PDL business at the end of September we received a positive recommendation of our proprietary high frequency therapy for PDL by the American Association of clinical endocrinology or Ace.
Nevertheless, <unk> therapy as the only form of SCS therapy to be referenced in his 2022 diabetes clinical practice guideline to treat <unk>.
This update is notable in our view because one the professional society guidelines play of course, an important role to help guide clinical practice.
Ace is highly regarded within the diabetes treatment community and three the Ace guideline document specifically references are high frequency therapy as well as our <unk> data.
To be included in the clinical guidelines have an influential society and the first full year of approval is unusual and it speaks to both the needs of these patients and the quality of our data and our outcomes.
We're also really pleased with our <unk> performance a PD on launch initiatives are driving greater awareness and we continue to make strides in expanding payer coverage for these patients to significantly increase access to the therapy during the quarter PD in trials in the U S grew 22% sequentially over Q2.
PD and trials represented approximately 18% of our total U S trial volume that's up from 14% of our U S trial volume in Q2 and that improve throughout the course of the quarter.
Among our permanent implant procedures PD and represented 13% of our total worldwide procedures, resulting in approximately $13 4 million in PD and revenue, that's an increase of 21% sequentially.
Compared to $11 million in Q2.
As of the end of September approximately two thirds of never on planning positions have received one or more PD patient referrals, which we attribute to our sales force expansion that was completed in June as well as our outreach initiatives with both physicians and patients.
Further up the patient demand funnel, we continue to invest in and strengthen our DTC campaign in order to acquire and activate qualified PD and patients.
In the month of September 19% of our USP DN trial procedures came from these DTC patient leads which was an all time high.
And we're testing new media channels and programs to continue to strengthen our DTC campaigns going forward.
We continue to make impressive progress in expanding payer coverage for <unk> patients.
With the recent positive payer coverage decisions by Aetna and several of the Blues plans are positive policy coverage now stands at approximately 54% of the U S. PD and patient population. In addition, the two remaining regional Medicare Max <unk> and first coast.
Have proposed updated coverage criteria to include PDL for SCS devices, with an explicit FDA approval to treat PDF as well.
If finalized this will mean that Medicare and Medicare advantage beneficiaries in all 50 states will have access to Ses for PD and adding approximately 17 million covered Medicare lives and bringing excuse me, bringing coverage in the U S to approximately 66% of PD and patients.
Many of you know that the lag for med Tech innovation between FDA approval and meaningful payer coverage or the valley of death as it's often called as something that typically takes years to get through to be at two thirds of covered lives at the end of the first full year I think is really pretty remarkable.
In addition to these coverage policy decisions, we continue to see a high level of patient coverage on a case by case basis through the prior authorization process and the appeal of payer denials, including with payers, who don't have a positive PD and coverage policy for PD and cases that have come through our own access group, our cumulative approval rate as of the end of September .
<unk> continued to trend at or above 80% and that was up from about 62% at the end of last year.
Finally, we submitted the complete 24 month PM dataset for presentation at <unk> in January of 'twenty, three and we plan to see the data published soon thereafter.
We've revised our 'twenty two sales guidance to now include a $45 to $47 million contribution from PJM and Thats up from our original guidance of $25 million to $30 million at the beginning of this year.
We're growing increasingly enthusiastic about the potential of the <unk> end market. In fact, I don't think any of us would be surprised if in the next five years. The total PD end market represents say something like a third of the U S SCS market.
Moving now to nonsurgical back pain after receiving FDA approval of this indication in January we began commercial activities to expand access to <unk> therapy for this patient population by focusing on the identification and education of patients already at existing pain practices, who have not had prior surgery and who are not candidates for surgery.
This strategy is beginning to bear fruit as many of our customers are holding educational events to engage this patient group, which we expect to positively impact trial rates in the future.
As we previously announced Unitedhealthcare released an update to its medical coverage policy and added language to exclude coverage for NSP patients. This policy becomes effective on December one of this year all other elements of their SCS coverage policy remained as they were before including their early decision to cover the use of Ses for PDF.
Although United previously had no coverage policy in place for these patients keep in mind, there were United NSP cases, getting both approved and denied before this change and that will continue to be the case moving forward on a on an individual patient basis, depending on our patients unique clinical history and medical necessity.
We do not expect this coverage decision to have a material impact on our go forward revenue as we've said previously.
We view these decisions is a very normal part of the market access pathway for new products and patient indications.
And we believe our continued generation of high quality clinical evidence evidence will ultimately carry the day just as it has thus far with the <unk> indication.
Unlike PD and we've always viewed the NSP patient population as sort of a rising tide for the entire.
Yes industry and pain specialty.
So as our competitors join us in the generation of NSP data, we believe more payers will continue to cover our SCS therapy for these patients who have exhausted all other options for which their candidates.
Now I'd like to turn to our new <unk> IQ system at the beginning of October we were thrilled to announce FDA approval of IQ. The first AI based spinal cord stimulation system that gets smarter over time by learning from each patient's pain experience and responses.
Powered by over a decade of big data from our <unk> cloud patient database IQ utilizes our smart H <unk> algorithm for patient programming.
And our superior high frequency therapy platform, which has been proven of course in clinical trials and is further supported by real world evidence for more than 90000 implanted patients. We expect this launch to support our growth prospects in 'twenty, three and well beyond.
There are important reasons why we're so excited about this platform IQ is designed to improve the consistency of pain relief pain is obviously something thats very personal every patient and every patient pain experience is different and it changes over time.
<unk> IQ users, our <unk> algorithm, which is based on over 20 million data points from over 80000 patients to start patients on the stimulation program most likely to provide relief.
Then it recommends personalized programming adjustments based on how patients themselves perceive their own pain to optimize and maintain that relief. This combination of AI and direct patient input is intended to produce continuous relief on an individualized basis, giving patients their desired control over their pain relief based on their personal experience.
<unk>.
And to move the patient as needed much more quickly through our programming algorithm without clinician or narrow representative intervention we.
We believe this will lessen the burden on our patients our customers and our field and support infrastructure.
In an ICU patient interface clinical study that we ran that supported our FDA submission. We found that 87% of patients reported moderately to a great deal better improvement in symptoms, 92% of patients preferred using a digital patient interface to adjust their therapy than more frequent programming call.
Our visits from the doctor or to the Doctor.
82% of patients were satisfied or very satisfied with using the patient interface for making therapy adjustments.
And finally iqs digitally enabled so it easily allows for future updates to our algorithm and new features and capabilities by the way that are already in development for both patients and our providers.
Since our IQ approval announcement, we fielded a few questions and seeing some attempts by a couple of our analysts to compare what we're doing with the low frequency caps closed loop systems. A couple of our competitors have been talking about for some time.
To the extent that there is any confusion on this point, let me try to clarify here is they are really not at all the same things.
<unk> <unk> closed loop is intended to fix one of the primary problems of 40 year old low frequency paresthesia technology.
That is the variability of the therapy that causes uncomfortable shocks in one moment and a complete absence of therapy and the next.
Even when closed loop <unk> sensing does correct for that problem, you're left with traditional low frequency paresthesia therapy, something our field has been moving away from now for the last seven years.
<unk> is not closing the loop of a clinical endpoint say like pain or in the case of CGM base insulin delivery blood glucose levels, it's merely adjusting amplitude up or down to maintain paresthesia intensity.
Our high frequency therapy doesn't generate E caps by design and doesn't rely on paresthesia at all by design. So it doesn't have this problem and therefore doesn't require this correct effects. Instead IQ takes real clinical endpoints like the patients daily input regarding their pain relief in pain score.
Into account along with quality of life inputs, such as changes in activity and medication levels and it combines us with insights from our big data something no. Other SCS competitor has to recommend the next programming adjustment to the patient.
This capability combined with our superior high frequency therapy is a far more powerful and personalized approach to actual pain relief and that is what differentiates the IQ platform.
Remember also that in our landmark senza RCT at our first approval, we used our <unk> 10-K therapy controlled against the competitors low frequency paresthesia therapy.
The size of the treatment effect in that study in other words the difference between responder rates in the test arm and the control arm for back pain was almost 41%. Unlike pain responder rates were also markedly improved.
And our competitors E cap study the treatment effect or difference in responder rate between study arms was only about 18% for back pain with no statistically significant benefit at all for leg pain.
So we are convinced that combining our already proven high frequency therapy with a new IQ approach is going to be a really exciting way to treat patients.
Now our limited release of IQ in the U S is underway and we've already successfully completed our first cases, we anticipate a full U S launch in early 'twenty. Three in addition to the U S approval for IQ, We've already submitted for approval in Europe , and we'll be submitting for Australia approval soon.
In summary, <unk> IQ reflects our continued commitment to deliver comprehensive life changing solutions for patients with chronic pain and it comes in an exciting time as we are closing on a 100000 implanted patients later this year.
We believe that what we're doing with IQ is the future of SCS therapy, we look forward to leading the path to smart pain management that brings truly personalized relief to patients who need it most.
So in closing we made what we thought was very encouraging progress in the third quarter. We're seeing the start of what we believe will be continued recovery in our markets as well as cause for excitement and our new IQ platform and our other emerging growth drivers, it's been a tough two and a half years or so for our therapy, our market and our company, but it feels like we're in the very early inning.
Of an interesting stage of recovery innovation and growth.
Now with that I'll pass the call over to Rod to provide further details on our third quarter results and on our guidance.
Thanks, Keith and good afternoon, I'll begin with our worldwide revenue for the third quarter of.
2022, which was $105 million.
An increase of 8% as reported and 10% on a constant currency basis compared to $93 2 million in the third quarter of 2021.
<unk> represented 13% of worldwide permanent implant procedures, which resulted in approximately $13 $4 million in revenue in the third quarter of 2022.
Our Q3 results included approximately $500000 of impact due to hurricane Ian in Florida.
As a reminder, this quarter included the same number of selling days as Q3 2021.
U S revenue in the third quarter of 2022 was $86 1 million, an increase of 10% compared to $78 1 million in the third quarter of 2021.
Earlier, Keith mentioned Q3 U S permanent implants increased 16%.
The gap between the permanent implant growth in the U S revenue growth is primarily due to institutional customers utilizing more than they purchased in order to keep tighter inventory levels.
And a smaller portion of the gap is due to a typical pricing declined late in the product lifecycle.
International revenue was $14 3 million a decrease of 5% as reported.
But an increase of 8% constant currency compared to $15 2 million in the third quarter of 2021.
International revenue, particularly in the United Kingdom continued to be impacted by COVID-19 related issues and foreign currency headwinds.
Now, let's move on to some detail below the top line.
Gross profit for the third quarter of 2022 was $69 3 million, an increase of 7% compared to $64 6 million in the third quarter of 2021.
Gross margin was 69.0% in the third quarter of 2022 compared to 69, 3% in the third quarter of 2021.
We are pleased that the FDA approved our global manufacturing operations in Costa Rica, which will support our pipeline of future products to ensure that we have the most efficient cost structure and flexible capacity, while maintaining the highest level of quality control as we scale.
Operating expenses for the third quarter of 2022 were $92 2 million.
Which excludes a $105 million of litigation related credits.
Including these credits GAAP operating expenses were a net gain of $12 8 million.
Operating expenses were $91 1 million in the third quarter of 2021, which excludes a $20 million $20 million preliminary judgment against the company in that period.
Including that judgment GAAP operating expenses were $111 $1 million.
The increase was primarily related to personnel related costs, partially offset by lower litigation fees and marketing initiatives.
Litigation related legal expenses were $1 9 million for the third quarter of 2022 compared to $6 5 million in the third quarter of 2021.
Net income from operations for the third quarter of 2022 was $82 1 million.
Or a loss of $22 9 million, excluding the $105 million a litigation related credits.
Compared to a loss of $46 4 million or.
Or $26 4 million, excluding the $20 million litigation judgment in the third quarter of 2021.
non-GAAP adjusted EBITDA for the third quarter of 2022 was a loss of $3 8 million <unk>.
Compared to a loss of $6 million in the third quarter of 2021.
Cash cash equivalents and short term investments totaled $386 9 million as of September 32022.
This represents an increase during the third quarter of 76 1 million, primarily due to receiving the cash payment of $85 million related to the settlement agreement that was reached an ongoing intellectual property litigations with Boston scientific.
We continue to manage our working capital and are comfortable with our balance sheet to fund operations.
Turning now 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.
Keep in mind that the guidance, we're providing today is highly sensitive to the company's assumptions regarding the pace of sustainability of Covid recovery and its related impact on patient willingness to seek elective care healthcare facility restrictions and health care facilities staffing limitations, all of which are difficult to predict.
As we've seen.
We're keeping a close eye on macroeconomic issues and their impact on patient behaviors, but for now our guidance does not assume a material impact from inflation or recession related impacts beyond any of that we are already seeing 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 with <unk>.
This guidance in the future.
Earlier, Keith mentioned that the trial to Perm conversion curve has improved just slightly but it's still but it is still slower than historical norms. In Q3. Despite some improvement we saw an impact of approximately $1 $5 million due to this length and trial to Perm curves.
Our guidance assumes that this trial to Perm curve remains at current levels for the balance of the year and doesn't improve or worsen.
We have narrowed our worldwide revenue guidance range for full year 2022 to approximately $403 million to $407 million from.
From 400 to 410 million previously, which implies growth of 4% to 5% over the prior year.
And growth in the fourth quarter of 8% to 11%.
Assuming foreign currency exchange rates hold at current levels. This guidance includes a negative currency impact for the fourth quarter of approximately $1 9 million versus prior year.
This translates to full year growth of 5% to 6%.
And fourth quarter growth of 9% to 13% both on a constant currency basis.
Our guidance now assumes $45 million to $47 million in PD and revenue in 2022, an increase from our previous PD and guidance of $42 million to $45 million.
This guidance assumes Q4 will continue to see a steady recovery and includes no significant business impact from new COVID-19 variance or ways in near term improvement in healthcare facility restrictions and steady improvement in healthcare facility staffing limitations for the remainder of the year.
We are also updating our full year 2022 non-GAAP adjusted EBITDA guidance.
To be a loss of 20 million to $22 million, which compares to previous guidance of a loss of 19% to $25 million and.
And a non-GAAP adjusted EBITDA loss of $17 $2 million in 2021.
The last item I'd like to cover some directional comments on 2023.
As is our normal mode of operation, we expect to provide formal 2023 guidance on our Q4 call in February .
Directionally for next year, we expect normal seasonality a return to growth in our core market and continued <unk> expansion we.
We assume that many of the issues that have plagued us over the last couple of years, such as staffing shortages and pandemic disruptions will continue to recover throughout 2023 and that no other macro environmental impacts emerged to constrain our market.
In closing we made good progress in the third quarter and remain on track to drive and scale profitably in our core business in the years ahead.
We're in a great position strategically with best in class Ses technologies.
Remaining share gain opportunity future growth opportunities and PD, NSP, and our new <unk> IQ platform superior clinical data and a strong commercial organization.
We look forward to aggressively attacking the significant opportunities to drive the performance of the business the rest of the year.
That concludes our prepared remarks, I will 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 and take as many questions. As we can we ask that you. Please limit yourself to one question and a brief related follow up question. You can then rejoin the queue and if time allows we will take additional questions operator, we're ready for the Q&A instructions.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Adam <unk> with Piper Sandler.
Hi, congratulations on the quarter guys.
For taking our question.
So Brian on for Adam.
Maybe just starting off with.
Your Q4 kind of implied guidance.
With the update.
So doing the math here I'm seeing a decline of outlet single digit from Macquarie leg and back pain.
ICF market, though.
Can you talk a little bit about what's embedded for this part of the business in particular in Q4, and maybe just elaborate on the lift you're seeing in that trial the time curve.
And in terms of what we can expect that Q4 end.
Yes, just just any color on the exit momentum in kind of that first month of Q4 would be great.
Yes, I can I can take a first crack at that this is rod.
So yes, our core our core business for Q4 is basically flat flat to down a few points.
On the quarter as.
In Q2's call. We had mentioned that that trial to Perm curve was in the first 90 days is roughly down about.
<unk> 300 basis points from normal and we've probably clawed back maybe about half of that so we're seeing a little a little bit of improvement there, but as we mentioned, we're we're still modeling it at.
This slightly depressed level.
A level, which does have an impact on.
On on Q4.
We're continuing to experience a little bit of pricing pressure as well, which we would expect that that will continue as we primarily stay in limited release on the new product and in Q4 as well.
That gives you what not what you want.
Yes, yes.
That's great.
And then maybe just a quick follow up.
On the.
With the launch of kind of that Nextgen Suntrust.
Any early feedback from clinicians on the system is there anything and then is there anything from a hardware perspective that changed and the new IPG or is it really just kind of the addition of that.
IQ algorithm and software.
And then also any thoughts on pricing sorry that was a lot.
Yes. So this is Keith.
So it's an entirely new system.
It's a new IPG.
That's a new patient control App, it's a new remote it's a new programmer and obviously, it's entirely new software and firmware.
So it's.
It's very much a new system with new componentry at every at every level.
From a pricing standpoint, we havent been I think we want to get through the LMR here in the fourth quarter, it's not a secret that we typically rely on.
On refreshing the product lifecycle, new innovation to maintain and increase asps.
At the beginning of the lifecycle and you can assume that that would be our intent here as well in terms of customer feedback.
We have.
So anything I tell you or about I'm about to tell you is it entirely.
Anecdotal, but the response from both doctors and patients has been overwhelmingly positive. It really has gone well it's very early.
Very little very small and so far.
But the response to the feature set the capabilities on both the part of the patient.
And the Doctor is very similar to what we saw in our early user interface trial, while we were in development of this product. So I think the team is the.
The team is super excited about what we're seeing.
Perfect. Thank you Bob.
Your next question comes from the line of Joanne Wuensch.
With Citibank.
And thank you for taking my question.
A little more time on IQ. Please.
To your question when do you anticipate going into full market release.
At some stage anticipate it being the only product that you're selling or Houston or bifurcate the market or Sheridan.
And different products for different segments, and can we assume theres, a pricing premium to IQ, which might help either on a peer basis are overcome pricing headwinds.
Yes.
Okay. Thanks, Joanne again, I don't want to get into too much detail until we are until we're ready to execute on our full launch but no. We're not we don't expect this to be the only product I would expect.
Relatively fulsome.
Conversion to this product just based on the capabilities and the uniqueness of what patients and doctors can do with this platform, but it won't necessarily replace for example, Omnia will continue to offer multiple products.
In the product line.
I won't get into detail on the pricing, but but yes. The capability set here is is pretty dramatically different and so we would expect to see at least some pricing premium in.
In the market for this product.
And my second question has to do with Pn.
Pn surprising.
Great.
And it comes Rommel really fine tuning our 2023 models, how do you think about where you go from here over the next 12 months and thank you for taking the question.
Well Great question also a tough one for us to answer now.
Absence of guidance, we'll be much more granular in our in our description of that in Q1, but our expectations are I mean, we want to we want to continue to be realistic here about the about the challenge of developing a new market.
And about the work that we have ahead of us, but I would say the enthusiasm.
It's a little higher every quarter and to go sort of from zero to the guidance. We've given in the first full year feels like the beginning of a of a pretty interesting.
Device market to me and so I think our expectations coming into the next year are actually going to be.
Pretty strong.
I realize that doesn't give you a lot of detail, we don't have guidance, but we will give you some detail Joanne when we talk in February .
Thanks have a great evening.
Okay you too.
Your next question comes from the line of Chris Pasquale with Nephron research.
Hi, This is Kevin on for Chris. Thanks for taking my question just wanted to touch on the Delta that you mentioned between the.
16% U S permanent implant growth in that 10% U S revenue growth I think you said that there was pricing headwinds there.
Institutional customer purchasing.
Seeing what we've kind of the bigger headwind there and do you expect that to.
That gap could be.
In coming quarters, and ask one follow up.
Yes.
The larger piece of it was the the.
<unk>.
The managing down of inventory by by our customers.
That was probably roughly.
Two thirds to three quarters of it.
Yeah.
We would anticipate a little bit of pricing pressure until we get into the next generation product.
In the fourth quarter here.
And I wouldn't anticipate that sort of.
The usage.
In the fourth quarter really can't provide any guidance beyond that.
And that the usage of inventory out in the field that can be a little bit lumpy from quarter to quarter. Although we've continued to manage that down directionally over time.
Got it that's helpful and then just on.
IQ and the manufacturing Sony Costa Rica Annie.
Benefits I think you've alluded to gross margin improvement as far as just ramping up capacity.
Previously in Costa Rica that anything on IQ as well with the new remote assistant componentry.
You can see our Cogs.
<unk> impact there.
Sure I'll take that yes, so were we.
We actually will be manufacturing this the majority of our new products out of Costa Rica.
And we and we anticipate margin expansion from our cost reduction and almost almost all of those lines.
Okay.
I would say if youre looking for specific cost advantages from a product a product standpoint.
It's really more about site of manufacturing than it is the specific product design I do think that we expect over time some business model efficiencies with this product capability set in terms of the number of people that that we required today to to work with our patient <unk>.
<unk>.
And the number that we think will need as more of our patients are put on the IQ system, where so much of that is going to be automated.
Your next question will come from.
Comes from the line of.
Larry <unk> with Wells Fargo.
Hi, This is Nathan trained by calling for Larry. Thank you for taking the question.
I wanted to touch on the United and its RVP decision I guess why do you think.
Vision came soon out there in the study that you did.
Is there any chance of reversing this decision and the likelihood that other payers will follow United's decision.
Well look we don't we don't.
We don't have a lot of color they don't they.
They don't typically meet with suppliers you describe what they are planning.
Or why they've done what they've already done. So we don't have a lot of a lot of information behind the scenes I think we were the first ones to get an explicit FDA indication for this it probably prompted.
A review of their coverage policy to make sure that their policy covered it explicitly one way or another.
In the case of <unk>, there may be payers, who are used to.
An expectation that <unk> at the end of our patient care pathway.
And just this very notion that we're treating patients who haven't gotten surgery may take them. Some time to digest, even though these patients are not candidates for surgery. It does feel to some patient or rather to some payers are like a little bit of a change in the patient care algorithm and SCS their position within that algorithm.
I think look I, just think it's going to take some time.
I don't think this is that unusual and.
I think we will get it reverse over time to be honest.
Great. Thank you for that.
Okay in terms of yen.
What have you seen from Medtronic in the market following its approval and I guess.
<unk> been in the market about for a year now with your <unk> indication how might you tweak your strategy going forward.
Well, we'll certainly tweak our strategy going forward I mean, I don't know that it will be.
Directly related to what Medtronic has done.
Or will do.
<unk> seen a little bit more of a medtronic in the field I don't think Thats, a surprise to us they've got.
A smaller group than we do I think calling on referral doctors about half the size, we see them occasionally in some of the referring doctors, we see them at scientific conventions and Tradeshows talking about PD. It now.
We haven't seen we're not sure what theyre doing on a direct to consumer direct to patient basis.
Assume they must be doing something I don't think theyre doing a lot or we would have seen more of it.
And we haven't seen a lot of volume I suspect most of their volume.
We don't know what it is because they don't they don't carve it out I suspect the majority of it is inside of their own customers.
Particularly their own large and loyal customers. So I don't think there'll be a lot that we would change because of that.
We will look to refine our strategies, we've added more people to the PD and referral group, we're evaluating right now.
Maybe a further expansion of that referral group, because we really like the way, it's working and performing.
We've refined a lot of what we do on a DTC basis and made some changes and we're evaluating some things right now in through more traditional <unk>.
Mass media channels in certain markets and we May we may face some of that work into our nation.
A nationwide DTC work as well so.
That will continue to change and be refined over time just on its own.
Great. Thank you for that.
Your next question comes from the line of Brennan Basquez.
William Blair.
Hello, Thanks for taking the question Keith I actually wanted to kind of follow up on the last part of what you were just talking about there with <unk>.
I'll lump two related questions into one here on PD on the first one being you have had a lot of nice wins, whether it's reimbursement and market access or society guidelines, how do you invest within the field to make sure that both patients and clinicians are aware of these wins to kind of help get patients into the funnel and then acquisitions.
Aware of that and then the follow up with kind of what you were referring to earlier what are you investing in today, maybe you can give a little bit more color on some of those changes that you alluded to what are you investing today to make sure that PDL continues the momentum it seeing as you go through 2023 and even beyond.
Sure.
I want to be I don't want to be too too redundant I think from a from a communication standpoint. It's a good. Good question, we have had a lot of wins.
We have we have a pretty reasonable sized footprint.
Of of personnel in the field I think.
The neighborhood of 500 or so.
In the U S with all of our groups combined so we have a reasonably large megaphone to particularly our core customer base.
Through both our field team and through other mechanisms by which we communicate with them in the case of referring doctors, we do that through our referring.
Salesforce through direct.
Digital means that go to the doctors and not just the patients and through our work with the societies, both our work with our leadership and our work with their membership on a.
On on conventions, and trade shows and that kind of thing. So we have lots of ways. We get the word out on these wins I don't think theres any of them that are still a good secret.
Certainly they shouldnt be.
In terms of changes to.
Two our strategy I think I've already mentioned that I think the to that.
I would love to hear from us on in the relatively near future would be expansion of our referral activities in the field and expansion and refinement and change of tactics in our DTC initiatives to mostly to patients, although some to referring doctors.
Look there's lots of other things that we can do that we think help establish our leadership in <unk> and of course right up there at the top our clinical outcomes.
We generated some pretty phenomenal outcomes and our sense of PD and trial, we are already in the process of starting up two additional trials.
A post market trial, and we'll be shortly starting a separate trial looking at sensory relief you might recall that in our first publication. We said that we saw centrally relief in two thirds of our patients that was an outcome that raised a lot of eyebrows.
Particularly among the referring audience. So we're going to try to put a finer point on that with with that as a primary endpoint in a subsequent trial. So there's a lot we're doing and we're even looking at product refinements that might be specialized for example in the IQ product there is an IQ mode.
Patient can select for <unk> specifically.
That we think is going to be very important for these patients. So we will continue to build around this franchise and I think a very meaningful way, but at the very center of it will be better outcomes.
Your next question comes from the line of Robbie Marcus Jpmorgan.
Okay.
Great. Thanks for taking the questions.
So I wanted to circle back to the guidance, Chris I imagine you put out that framework to help direct.
Buy side and sell side models, and maybe just to make sure. We're all getting the message.
Streets at something like $4 55 for next year of about 12% sales growth.
Thank most miles have something like $75 million to $80 million in PD, and which implies something like five 6% growth in the base business in the U S. I mean.
Is that sort of the gradual return that youre talking about are or are you trying to signal something a little lower than that.
Because I look at the numbers and year to date has been kind of down mid to high single digits for 2019 fourth quarter implies flat versus 2019.
Non <unk> volumes.
Ravi I know you can script the first part of my answer here, which is.
Yeah, we didn't give quantitative guidance, we don't have it in place for next year and so I don't want to do it on an AD hoc basis I will I will tell you that our intent is yes as a general framework what youre describing is the way we're thinking about things and our intent is not to bring guidance our expectations down from the from the from the range you just.
Mentioned for next year.
I mean that is actually very helpful.
I am sure you put it out there for a reason.
Less important but still not an insignificant number as the international business and it gets a lot less attention.
How are you doing in that business do you think youre gaining share.
Do you think the market's growing similar better worse than.
And then the U S and how do you think about your position there going forward. Thanks a lot.
Yeah, it's interesting I think.
The international market is.
Every medical device every therapeutic categories, a little bit different.
I think youre right, we don't talk about it as much.
Neither do our competitors.
Because it is a small smaller part of this market, it's probably between 15 and 20% of the total.
Global market doesn't mean, it's unimportant by a long stretch.
But I think the growth rates in international right now, it's been a little bit challenged.
Because of the core markets and one in particular and that's the U K have just been very dramatically impacted by the pandemic environment and the recovery. There has just simply been a lot slower.
And then other markets and that is one of our three most important O U S markets now on the other hand.
In Australia, we did struggled through the pandemic and then more recently, Australia has done much better. So it really depends I would say that that's true to a large.
Stent in Germany, It really depends on the on the market in general from a share standpoint, we've been in those markets longer than than we've been in the U S. We were there a few years or so I think two or three years before the U S market.
We've got some pretty strong shares in some of our markets I think in Australia, where.
I don't want to speak out of turn but with too much precision here, because I don't want to be wrong, but we're somewhere in excess of 40% and we are that we are the number one market shareholder in in Australia, and we're somewhere between 40, and 50% right now and that that fluctuate more in that market and I think others, but thats, where we believe we are right now so it really does dip.
And our shares are pretty good but market recovery from the from the pandemic has been more mixed and probably more muted.
Great. Thanks, a lot Keith.
You bet.
Your next question comes from.
Your line of rich <unk> with twist Securities.
Hey, this is Dave <unk> on for rich. Thanks for taking the question I wanted to start off first just to kind of follow up a little bit on some of the prior comments you made about <unk>.
2023, I think in the earlier part of the call. You had mentioned that you ultimately expect the U S. SCS correct, yes business to return back towards historical growth CAGR and so just wondering.
There has been.
Tom's when growth was pretty decent in the market and not so decent. So just wondering what you are referring to when you're talking about getting back to the historical CAGR and then looking out to 2023.
Does does the market next year be get back to that historical growth CAGR and if so I guess, how much of the new launch from.
Our H F Q.
<unk> accounted.
I kind of fall in that kind of grow through next year.
Yeah.
We've spoken I think as recently, maybe last quarter or the quarter before about a couple of different ways of looking at historical market CAGR I don't have those numbers in front of me, but I can.
I know that in general.
If you look out over the last depending on the timeframe you choose five to 15 years CAGR is in this market have tended to cluster on average in the mid to upper single digits.
<unk> gone into low single digits.
<unk> gone into the low or even mid teens, but over a long period of time they seem to have clustered in the in the mid to high.
Single digits. So when we talk about reversion back to historic CAGR is I think thats kind of the range. We have in mind now I think look some of these recovering indicators.
Indicators are going to be playing out through 'twenty three so.
Or is it going to be closer to the lower end of mid to high single I would say I, probably personally I would err towards the lower end of that but.
But that would just be in 'twenty three as we kind of work through some of the remaining issues here.
We think that what happened with our therapy over time anyway, I think that IQ will be an accelerator to that and so we would expect to do a little better than the market whatever it is in the core market in 2023, and I hope certainly well beyond that but certainly in 'twenty three does.
Does that help.
Yes, that's very helpful. Thank you I guess.
Second on <unk> I think you mentioned around two thirds of the implanting physicians have received at least one or more referrals. Just wondering if you could comment on maybe some of the stickiness within the TVN.
Within some of these physician practices, so I guess.
How many of these accounts are actually translating to implanting, a PD and device and within maybe some of those accounts are actually doing PD and how many of them are seeing.
Seeing.
One or two implants or doing.
Doing multiple implants that within the quarter. Thank you.
Yeah, I think between 40% and 50% of all of our accounts now have already done at least one trial.
To give you.
You would expect experience with trials to lag and followed behind the leads.
And then firms to lag behind trials, but kind of give you a sense of the magnitude of exposure.
I can't think of one.
Pain practice, one doctor that I've talked to in the last.
15, 16 months whatever its been since approval that has told me they don't want to treat these patients.
So I don't think its a matter of somewhat to want to be in <unk> and some don't.
I think it's just there are so many referring doctors out there. We're rolling this out it's a brand new therapy, we're talking about it to a a reasonably inexperienced and uneducated referral base on this therapy for these patients and so predictably takes it takes the kind of time that it's taking but it's moving in the right direction.
And every single quarter and I would expect over the next two three quarters as a percentage of our of our customers that have done a PD and cases is going to continue to grow.
Pretty meaningfully over the next year.
Alright, thank you.
Your next question comes from the line of David <unk> with JMP Securities.
Great. Thanks tried to combine two into one here I'm just trying to wrap my head around the.
From the competitor.
I just was wondering.
Have you at a time.
Seen a blip or a significant blip like that.
In a quarter.
Frame timeframe like that that you called out whether it was positive or negative.
In your view could this be related to like a specific.
Accompanying or specific therapy or I, just wanted to get your thoughts on why that why that comment may have been made and if you've ever seen anything similar.
I have no idea.
We normally wouldnt call something like that out.
Other than the fact that it was it was just mentioned and our competitors' call on.
Would have been.
Kind of silly not to not to respond to answer your question no I have never seen a theres a lot of commercial payers in a lot of regions with a lot of plans and you've got different government coverage plans. It would be very unusual to see something show up a blip as you call it in a trend.
Sure.
And coverage in one quarter I don't know that we've ever seen something changed that dramatically across all payers and in fact, we didn't see that in Q3 now it is an issue.
The payers are while they've got good coverage in place they raise their their payment rates.
Every year, where they do exercise some.
Some some pressure on the market liked by the way a lot of other therapies and codes.
Is in is in the exacting nature of that is that they require prior authorizations to be <unk>.
Pleated and so I would say that in the last two or three years, our customers are seeing more and more pressure.
From payers, saying Hey, you.
You need to document that they have already done. This we don't see that the patient has tried this therapy. They have they been on meds for the right number of months. So theres a lot of pushback to check the boxes and do it all the right way, but once the patients meet the criteria, we've seen no change and no.
Difference in patients getting approved.
Having said all of that even even with recognizing that long term pressure on prior authorizations that I think a lot of people have seen.
There was no difference between Q3 and say Q2.
That we saw in our and our customers' practices or in our results.
Thank you for that.
Yes.
There are no further questions at this time I would now like to turn the conference back to Mr. Grossman for closing remarks.
Okay. Thank you everyone for joining us and if you have any questions need more information you, obviously know where to find US we will look forward to giving you an update next quarter.
This concludes today's conference call you may now disconnect.
Goodbye.
Please wait the conference will begin shortly.
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