Axonics, Inc. (AXNX) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Axonics Q1 2021 Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today Neil Bhalodkar, Investor Relations. Please go ahead. Neil Bhalodkar: Thank you, Peter. Good afternoon and thank you for joining Axonics' quarterly results and update call. Presenting on today's call are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer. Ray and Dan will provide prepared remarks on first quarter financial results, commercial progress and a general business update, followed by a Q&A session. Before we begin, I would like to remind listeners that statements made on this conference call that relate to future plans, events, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Raymond Cohen: Thank you, Neil. I'd like to welcome everyone joining the conference call this afternoon and for folks who may be dialing in for the playback. I'm pleased to report that Axonics generated $34.4 million of revenue in the first quarter of 2021, which represents an increase of 31% compared to the same period of 2020. We're proud of this result considering the strong headwinds in January and February, which disproportionately affected elective procedures as well as the normal seasonal impact of patients not having yet met their insurance deductibles. The good news is that in the U.S. we saw a solid rebound in sales in March that has continued into April and early May. By contrast, much of Europe continues to remain in lockdown. We're confident, however, that as more people are vaccinated and we return to a more normalized elective procedure environment in the months ahead, that Axonics is poised to continue to grow revenue meaningfully in 2021 and beyond. There is no doubt that the U.S. sacral neuromodulation market is growing, and this will become much easier to measure once the pandemic recedes. The opportunity for Axonics is significant considering how vastly underpenetrated the market is for treating any form of incontinence. Sacral neuromodulation is poised to expand into a multibillion-dollar annual market in the United States based on the fact that tens of millions of women are suffering from these conditions. Now response to our recent acquisition of Bulkamid has been overwhelmingly positive as anticipated, the expanded offering has elevated Axonics stature with the urology and urogynecology community. Dan Dearen: Thank you, Ray. For the first quarter of 2021, Axonics generated net revenue of $34.4 million. This represents an increase of 31% compared to $26.3 million in the prior year period. Sacral neuromodulation revenue was $32.9 million of which $31.7 million was generated in the United States, and the remainder in select international markets. Bulkamid revenue for March was $1.5 million, of which $578,000 was generated in the United States and the remainder overseas. The Bulkamid contribution this quarter was for only one-month and one-day as the acquisition closed on February 25th of this year. Overall, total net revenue from the United States accounted for $32.3 million with certain international markets contributing $2.1 million of revenue. Gross profit for the first quarter of 2021 was $20.4 million, representing a gross margin of 59.3% compared to 62.4% for the three months ended March 31, 2020. The decrease in gross margin for the quarter is due to lower absorption and manufacturing variances, which included a lower yield rate than anticipated as we continued to work with our contract manufacturers to increase our manufacturing output. While we expect to see some variability in gross margin quarter-to-quarter, we fully anticipate gross margins will increase during 2021 and land in the low to mid-70s in the next few years. Raymond Cohen: Thank you, Dan. So I would like to add some color on a number of items. First, as of April 25th, we now have over 503 employees at Axonics. This is more than double since this time in 2020. The number of employees engaged in field activities is about half of our total headcount. Now in the U.S., we have a total of 107 salespeople and sales managers. We have nearly 110 clinical and therapy support specialists, a handful of field marketing specialists and a clinical education group representing – which represents five professionals, and they are led by our Chief Medical Officer and one of the world's foremost experts in urogynecology, Dr. Karen Noblett. In Europe, between Bulkamid's salespeople and sacral neuromodulation salespeople and clinical specialists, we have 27 individuals. Now I think this is an important comment to make, considering the variation in the gross market for the first quarter. And that is our average selling prices over the past three quarters have been stable. Although the mix of where purchase orders are coming from, are – or originating from has shifted, whilst all procedures are performed in outpatient settings, either in the hospital or an ASC, now nearly two-thirds of our purchase orders come from hospital systems. This is resulting from the fact that we have signed agreements to supply our sacral neuromodulation system to over 200 national and regional IDNs and local facilities, and we've accomplished this over the past year. As stated in the past, these agreements are mainly hunting licenses with certain volume targets. We are now adding Bulkamid as an addendum to many of these agreements. Operator: Thank you. And your first question comes from the line of Bob Hopkins with Bank of America. Bob Hopkins: Great and good afternoon and congrats on a strong quarter. Raymond Cohen: Thank you, Bob. Bob Hopkins: Appreciate the detail. Maybe just a couple of clarifying questions. On the – looks like you're guiding to about $18 million of Bulkamid sales for the year and about $160 million on the sacral neuromodulation side. First of all is that correct? Raymond Cohen: No. Bob Hopkins: Okay. Raymond Cohen: It's not, it's not. I think you're – about $4 million higher on the Bulkamid based on your comments. So that should be put into the sacral neuromodulation side of the ledger. Bob Hopkins: Okay. So you're only guiding to like $14 million. Is that – I mean that would imply that you have no improvement in monthly run rate from here on Bulkamid? Is that just conservatism… Raymond Cohen: Yes, let me just make a comment about that, Bob. I appreciate that question and a chance to clarify. So look, we clearly overachieved in the month of March. I mean, I don't think any of us expected to generate nearly $1.5 million of revenue in March. Now in Q2 things are going to not be at such a great clip, right. In other words, if you took March timed it by three, you'd say, wow, you guys should do $4.5 million, but here's the difference. We had a nice strong result in the United States in March. However, those individuals that were involved in selling that product are the ones that are training our 110 clinical specialists and the salespeople and all that, and that's happening in Q2. So, we're a little bit shy really about even the analyst consensus of $3.4 million in Bulkamid, and we're a little more comfortable around $3 million just because we're diverting resources – selling resources to do training. And also just to underscore the point, our own sacral neuromodulation sales force is not out selling Bulkamid at this time. We are still in the mode of training people and getting up to speed. They will start to contribute in Q3 of 2021. So the increase, if you may, over and above consensus is from sacral neuromodulation. And Bob, as you saw from the numbers, we overachieved in that category in Q1, and we're saying, okay, fine, let's take that number, put it into the overall consensus number and then we're suggesting that we could be higher by some millions beyond that. So, hopefully, this kind of clears up the story. Bob Hopkins: Yes, it does, but just one follow-up on the Bulkamid side then. Just obviously is that sort of what you saw in April and early May in terms of more like $1 million monthly run rate versus the $1.5 million in March? Raymond Cohen: Yes. Just because, as I mentioned, we've diverted resources. I mean, we've trained nearly 60 people already just in these weeks in April and May. And obviously, our people can't be in two places at one time, right. They're good, but they're not that good. So that's kind of the situation. So look we're optimistic, but the other issue just to put a finer point on it even further, I mean, Germany is under lockdown until the middle of June. I mean, that's, almost all of the quarter, not really seeing any action with everybody still hiding under their desks in Germany. The UK is not in much better shape. And as you have seen from the historical numbers, the number was much bigger internationally than it was in the United States, which is the market that's just coming around. So really, so that's the issue, right. We've got U.S. people involved in training. And then we got the international markets, most of them still having problems from COVID. So we just – we'll do fine. I think it will be respectable, but we're just trying to provide some color so that people really can have a better sense about what to expect from the company in the short-term. Bob Hopkins: And then when does that sacral neuromodulation sales force really go out and market Bulkamid? When does that happen? Raymond Cohen: It won't happen until well into the third quarter, right. It's one thing to get sacral neuromodulation sales people and clinical specialists, who are engaged in a highly technical product and implants. It's one thing to get them up and running on Bulkamid. It's a little more of a heavy lift to go the other direction, so – but it will all come together and we'll see some benefit from the synergy as we go forward. I will add just one more comment since I've been – sounds like I'm talking down Bulkamid, and we're really not because the demand for this product right now is significantly higher than our ability to actually get to these customers. Bob Hopkins: Okay. Okay. That's helpful. One quick last one in terms of just the core sacral neuromodulation business, given it's such a unique quarter. Just wondering if we get any rough sense for how March was and whether or not April was better. Raymond Cohen: Yeah. Thanks, Bob. Yes, March was a really good solid month. I think you've heard this refrain from all the other companies that have reported. April continued even though it's the first month of the new quarter. It continued at that good pace and into the first weeks – first days here of March, things are looking pretty good. So this is why we're being more bullish even in the short run and are suggesting that we could even see an increase over analyst consensus for Q2 in the short run. So things are good and it's just great to see more people getting vaccinated, elective procedures opening up and so forth. So things are definitely getting better and we're seeing incremental improvements literally month to month now. Bob Hopkins: Excellent. Thanks for taking the questions. Raymond Cohen: Thanks Bob. Operator: Your next question will come from Chris Pasquale with Guggenheim. Chris Pasquale: Thanks. Excellent quarter guys, Ray, I'm just curious whether you saw scheduled procedures canceled in the early part of the quarter that you then were not able to make up in March. Would love to get a sense for whether there's a new group of sort of pent-up demand patients that could come back in here over the next couple of months. Raymond Cohen: So Chris, look there were some cancellations in the January – particularly like in the January period but they're nowhere near as much of a problem as what we saw in Q4, right, where we actually went out there, did a survey, you know, put a number to it, I think, it was 320 odd procedures that were canceled in Q4. We just did not see anything near that in Q1. So really there is much for us to say about it. I think the numbers that we generate in Q1, I think, they speak for themselves. So it was a good quarter for us. And we're obviously seeing incremental increases in optimistic about uptake of the product as we continue. Chris Pasquale: That's helpful. And then I appreciate the comments around the DTC campaign and the work you're doing with customers, $1 million is not insignificant, but it feels as though the market is sort of taking off in advance of some of the investments that you guys have really talked about from a market development standpoint. Are you feeling that? How is your experience over the past, call it, nine months or so, color your view on, on what's going to be necessary to get to that multi-billion dollar level of adoption that you spoke about in your script? Raymond Cohen: Yes, I think, it's a good question, Chris. And I think that this is happening also on a very much of an organic basis, right. We continue to say – we said this line many times, patients are saying yes to the therapy more often than ever before. That's what docs are telling us, that's what our customers are telling us. So there is a groundswell of interest that is happening organically. The fact that there are letters going out to patients from practices, suggesting that they may want to come back in and talk about new technology, the fact that we're on Facebook and that there is a lot more action out there and more awareness, even our competitors starting to do a little something in this particular area, which we applaud. So rising tide is going to help all players in the marketplace. So there is – it's happening. I mean even – look I'm not a subscriber to Harper's Bazaar, but when you hear that the pelvic floor is getting a PR makeover. I mean, there is a lot of interest now starting out there in how should we say in the world and particularly in the United States about this particular topic. So I think you're going to see that this is going to happen both from an organic standpoint, just increased awareness, people talking to each other. There is just a lot more action going on, but here is the bottom line. When it comes to sacral neuromodulation, this is really more about physicians being more comfortable with talking about the therapy because we've got a better product. And it's long lived and it's MRI-compatible and it's easy to use, and you're going to get a great clinical result. This is the big difference. This is no longer a therapy of last resort, which is what it was before we entered the market. And so, it's a new day here. And I think what we're trying to do is just put some more gas on the fire so to speak and keep things moving in the right direction. So I don't need to be talking down DTC. We got tens of thousands of people who've raised their hand and said, they're interested, but it's a long-term process to convert that initial interest into actually somebody showing up for a procedure, right. So that's a – it's a multi-year effort. And if I just look at Inspire Medical, I mean, I think they disclosed this and hopefully I'm reporting something everybody knows, but they spent $27 million on DTC in 2020 and we applaud that. We think that's great. We're not quite there yet, and we're not the only player in the marketplace either. So it takes time and there will need to be continued investments over time. But we're trying to do this in a smart way, Chris, and kind of do the blocking and tackling before we get over our skis. So I think you're hearing a little bit of conservatism from us. We will continue to invest additional money in DTC, but we want to try to keep it in kind of a rational vein and really focus on how we're processing those leads, how they're landing in physicians' offices, how they're being followed up. So we're really heavily engaged in kind of process of how these things really work because we're operators and that's just kind of our background. And we want to make sure that we're getting a return on investment. Chris Pasquale: Make sense. Thanks. Raymond Cohen: Thank you, Chris. Operator: And your next question will come from Kaila Krum with Truist Securities. Kaila Krum: Hi, guys. Thanks for taking our questions and all the detail on the guidance. Just one of the things I'm curious about is how you're assuming Bulkamid can have a halo effect on the SNM business? Because I mean, a lot of patients have both SUI and OAB. So, I guess, are there SNM patients who actually have an Axonics implant today that could benefit from a Bulkamid injection? Just curious how you're thinking about some of the synergies between the businesses? Raymond Cohen: Yes. Thanks Kaila. So you're correct. I'll take the technical part of the question first. You are correct that there are a group maybe as much as 20% of patients who we call mixed incontinence patients. These are patients that have a form of stress urinary incontinence and urge urinary incontinence. Now, many times the docs try to do a differential diagnosis, maybe using different techniques and your dynamic testing and things of that nature to make that differentiation. But really it's about which is the greater bother for the patient. And we all know that if you've got urge urinary incontinence, I mean, that's a lot more bothersome than coughing, sneezing, lifting an object and leaking a little bit of urine. So there is no question that existing patients, who may already have a sacral neuromodulation device in their body, or maybe in the process of getting worked up for that could also benefit from bulking injections, Bulkamid in their urethra. So that's kind of the technical part. There is this crossover of these patients. They're not completely unique from one another. But the bigger question that you're asking really gets to why did we buy Bulkamid, okay. Yes, we're excited about the product. It's cool. It's great. And we think we can do $50 million by 2024, but the main reason really is that we believe that Bulkamid is helping us right now in real-time and will continue to help us sell more sacral neuromodulation, because we're able to get into accounts with Bulkamid that are – they've been in the Medtronic camp in terms of sacral neuromodulation business. So we're – getting in there, working with those accounts, letting them see who Axonics is, how we go about doing our business, being professional and all the other things that we do, engenders confidence in that account and that customer and that physician and their staff and puts us in a position for them to give us a shot, so that we can prove to them that in fact we've got a better product and superior service and so on and so forth on the sacral neuromodulation side. I will tell you, Kaila, it is happening, it's happening in real-time. And the fact of the matter is we've got accounts that we've not been able to sell sacral neuromodulation to that have invited us in because of Bulkamid and they are now open and some of them have already started working with us on sacral neuromodulation. So the theory or the hypothesis behind doing the acquisition is playing out in real-time and it's happening very quickly. So we're really thrilled about that. And that's going to help also fuel the growth of our sacral neuromodulation business not only in 2021, but beyond. Kaila Krum: Great, okay. And then, I mean, we've heard from a surgeon, who does a lot of – or at least historically did a lot of slings. He thinks the market could go to 80% of bulking within the SUI market. So – and then largely, again, because of Bulkamid. So what's your reaction to that estimate? Or your view there, as I'm sure again, you've a lot more conversations with customers than we've been able to. Thank you guys. Raymond Cohen: Yes, yes, thanks. Thanks. Yes, no doubt about it. So, it's interesting. I'm going to quote a study that was done actually in England. And it was under the banner of what women want. And it was with respect to not other things, but what they want in terms of treating their stress urinary incontinence. 67% of the respondents, and this was hundreds, not just a dozen people right, there were hundreds of people who responded that Bulkamid is what they would prefer as a treatment as compared to an operation for sling. So that was a pretty impressive number, right. When you go out, you give some basic information and people responded in that way. So we may never get to 80%. But the point is it's going to be better than 50 and maybe approaching this kind of number. The fact is people would prefer to have an injection in their urethra with a material that doesn't have adverse events that is going to last for five to seven years that can be done in the office, that's a less than 15 minute procedure. I mean, given the choice, why would you choose an operation? Now, there may be other reasons and there may be some patients that are more suitable for a sling based on the severity of their condition. And Bulkamid is never going to be exactly as efficacious as a sling, but you're talking about – something is going to give you 70% relief in terms of your symptoms as opposed to 90%, but turned out to be a 10 or 15 minute procedure in a doctor's office as opposed to an operation with recovery time, it's pretty clear what the preferences of these patients are. So now the key thing is to get the docs that are out there to talk to their patients, to give them the option, explain the benefits and I don't think there's any question that we are going to see a sea change here in how stress urinary continence is treated in America. And we already have seen it happen in the UK as an example, right. I mean, in the UK, this is the standard of care for patients with SUI. Kaila Krum: Thank you guys. Raymond Cohen: Thank you. Operator: And your next question will come from Larry Biegelsen with Wells Fargo. Raymond Cohen: Hi, Larry. Lei Huang: Hi, it's actually Lei calling in for Larry. Thanks for taking my question. I want to start with a comment you made about, there was some backlog in Q4, there were some cancellations. Did that backlog get resolved this quarter? So was there a little bit of benefit from that? Raymond Cohen: It's one of these things where we have not spent a lot of organizational energy and tracking these patients by name. So, I can't really answer that question in any kind of definitive terms. Clearly, some of these patients came back, but I would say a fair number of them have not come back yet. I mean, we're still – if you think about where we are in terms of vaccination in America, we're at – what maybe 40% of the population. So clearly, a lot of those patients that canceled that had not been vaccinated and are still not vaccinated to this moment. So I cannot say that, oh, the increase in Q1 was a big pickup over cancellations from Q4. Lei Huang: Got it. Okay. So it sounds like maybe there is still some pent-up demand, whether it's from Q4 or early part of Q1, just based on procedures getting canceled and may not be fully rescheduled. Raymond Cohen: Yes, I think that's a correct statement. And I think it really boils down to the environment, right. Elective procedures are starting to come back. Institutions are willing to allocate more time and resources and so on and so forth. So I think it's not one thing. It's a combination of many factors. But I do believe that what you're going to see, and I've said this before, is that if you draw a line and you trace the percentage of people that are being vaccinated in the United States, and you'll see that the Axonics revenue will follow that trend line. Lei Huang: Got it. Okay, that's helpful. And then just another question around revenue. So you mentioned that your SNM reps are getting trained on the new product. Would that have some sort of effect on the revenue cadence in Q2 versus second half of the year just in terms of these reps being off the field for training? Raymond Cohen: So to put a finer point on it, we're training our clinical specialists first, these are the people that are going to be doing wet lab training, and they're going to be there to support the initial injections in patients. So this is more about our clinical specialist staff, not so much our sales people. We are not taking time out of sales people's schedule to have them become experts on how to do injections. That's not their job, right. They can talk about the benefit of the product and how it can help people, practices and all the rest of it, but we're not getting our sales people bobbed down and becoming experts on how to inject this material, because they're not going to be the ones that are going to be there to support these cases. So – and with respect to clinical specialists, these are the folks that are focused on case coverage. And we have the ability obviously to manipulate these calendars and to keep the wheels on the bus as we're taking these people out of the field for two days or three days at a time. So that you will not hear this as an excuse from us, that oh, gee, we had to train people and therefore we didn't make our numbers. You will not hear that excuse from us. Lei Huang: Got it. Okay. Then just last question on your primary cell device, you plan to file that by the – before the end of June. Can you just talk a bit about the potential advantages over the competition like InterStim II? Thanks again for taking the questions. Raymond Cohen: Thank you, thank you. I really appreciate that question, and I would be happy to speak in more detail about it because I think that this is this is really important, and this is a huge value driver for Axonics. So here are the facts. The device is approximately 11 CCs, which is about twice the size of our existing implanted neurostimulator. It's about – that's about 20%, it's a little over 20% smaller than the InterStim II. Its profile is different; it's much thinner than the InterStim II. All these things will accrue to our benefit in terms of placing this device in the body. The device will last for a nominal setting, meaning the average patient will get 10 years or more out of this device. This is a watershed, completely different story compared to what is available from the competition, where there are – despite what they might say, there are dozens of clinical studies would suggest that, that device will last about four years. Some people aren't so lucky. It only lasts for two or three years in their body. So the key thing is longevity in the body. Size is going to be attractive. A couple of other key points, this uses constant current technology. That's the same technology we use in our existing rechargeable device. So we expect excellent efficacy with this device, no change from that standpoint. It uses the same lead technology, right? So we have the same lead that goes with either device. And I think the most important thing here is now we're going to have physicians that will be able to direct their patients or give then choice as to which way they would like to go. So think about the lineup. You've got a nonrechargeable device that could last 10 years in the body. It will be the first recharge-free system in sacral neuromodulation. What do I mean by that? You don't have to recharge the stimulator and our patient remote doesn't have replacement batteries, doesn't need to get plugged in the wall. You don't need to stand on your head to make it connect to the implanted stimulator. So we got a recharge-free system. That's going to be long-lived, that's going to generate high levels of efficacy based on the constant current technology. And it's got a nice footprint in terms of the size and the shape. So that's the specs. And those are the key things that matter. And I dare say that we are very anxious to get this product in the market because we think this is going to be a big runner and is going to put a lot of pressure on the incumbents' franchise. Lei Huang: So thanks for that question. Operator: And your next question is from Michael Polark with Baird. Michael Polark: Hi. Good evening. I guess the veil has been lifted on the primary cell. So, thanks for that Ray. The question I had is, I think at the last disclosure, you had 600 centers signed up for SNM. Mentioned in the prepared remarks that obviously, Bulkamid is an opportunity to call on folks that aren't using Axonics. I think back last year or the year before, it was, give or take 1,000 centers explain, 80% of the SNM volume historically. So curious, not going to hold your feet to the fire on this, but what are your latest and greatest internal expectations for how many of these centers may take your call and start engaging with Axonics and SNM as a result of Bulkamid over the course of the next year or two? Raymond Cohen: Yes. Michael, thank you for the question. That's a really hard question for me to answer. I mean, I'll tell you what our philosophy is and the things that I tell our own people, we want all the business. I mean we want them all. And we're not going to rest until we get our fair share of the market, which we define as at least 51%. And so we're at it. We're at it every day. And it's hard to make a prediction in any kind of precise term. So I'm not trying to be evasive. I just – it's a really difficult question to answer. But we're on it, and the hypothesis is working. And clearly, we're going to look to bring as many of those important accounts to Axonics as we can and as fast as we can. That's the game that we're applying. Michael Polark: Fair enough. Follow-up, easier one, perhaps for Dan. I appreciate the carve-out of the intangible amort and deal-related expenses in 1Q. The $4.4 million of deal-related expenses in 1Q, heard that. Is there anything like that you expect in #Q2? Or is 2Q really your core OpEx number plus the dealer related amort? Dan Dearen: That’s correct. We are not expecting anything in the order of magnitude of, obviously, $4.4 million in one-time expenses. We're not planning on doing another Contura acquisition. I mean if you assume the current operating expense run rate for Q2 prior to Bulkamid, and put that at $38 million to $39 million, and then if you add the incremental expense associated with the Bulkamid OpEx, we expect to see those expenses, excluding amortization, of approximately $42 million. And then amortization of the intangibles is going to run at about $2 million per quarter going forward. Michael Polark: Got it. Thank you. Dan Dearen: Thanks Mike. Raymond Cohen: Thank you. Operator: Next question is from Mike Matson with Needham & Company. Mike Matson: Hi. Just want to clarify a few of the comments you guys made during the – during Dan's portion. I think Dan's – maybe not. But the ASPs, so I think you said it was – they were stable, but the mix changed. I guess I was confused by what that means. Does that mean that look at the average price of everything you sold that was unchanged? Or within particular categories, it was unchanged with the mix shifted that caused the overall ASP to change? Raymond Cohen: So, thank you for making us clarify that remark and maybe I combined two thoughts together in the same sentence without a period. Okay. So let me – so I apologize for that. So let me clarify. Our average selling prices are stable and they have been stable over the last three quarters. In other words, the – I mean, literally, been a couple of dollars difference quarter-to-quarter. So it's – they're 100% stable. I thought that was an important comment for me to make, Mike, because I didn't want people to think, given that we had this hiccup on the gross margin, which is really kind of a non-big – it's not a big deal. It's something when you're early in the cycle the way we are as a company, you're going to see some variability from quarter-to-quarter depending on how much product you make or don't make in things that way. So the prices are stable, no sliding of our average sale price. Okay, period. Now what I did say is that purchase orders – the purchase orders that we get as a company, now two-thirds of those purchase orders are coming out of hospital systems. As opposed to the last time I talked about it, I said it was kind of a split, half and half, if you may, between hospitals and ASCs. So given the number of big national IDNs and regional IDNs that we've signed up, we're just getting more business now purchase orders coming from those institutions, right? So that's – those were the two messages I was trying to get across. Mike Matson: Okay. Thanks. That's helpful. And then I wanted to ask about Bulkamid, now that you've got it in the – in your own hands and you're out there selling it. So what kind of reorders are you seeing? And I think part of the premise here was that the customers, once they kind of get trained and start using it, they'll continue to use it on your own. You won't need to have your reps there for every case. And I mean, is that actually playing out that way? Raymond Cohen: 100% Mike. 100%. People, once they get trained, we don't need to be there. The idea is you do a wet lab, you get them up and running, get the practice. You get some patients that are either that day or the next morning, you support them with those first, three, five, six patients whatever it might be. And the they are on their own and then you're just going to pup-in as you normally would do as a company that make sure your customers are happy an things are going well, but we don’t need to be there, and that's great, because that helps us a lot, buy it’s a light touch from that standpoint. So what I will say is that, given that we have not unleashed our own sales force on the market, we have seen a nice brisk pace of reorders and we are seeing physicians becoming evangelists about this product. This is really amazing and well beyond our own expectations that the physicians that got trained in 2020 on this product, they are making the most effusive comments that you could possibly imagine. Kaila mentioned, a very experienced physician said, hey, I think that Bulkamid is going to take up 80% of the sling market, even. So we're seeing that kind of enthusiasm, a willingness of these urologists and you're going to colleges to speak publicly about their experiences. We referenced previously that people should give a listen to the session that took place at SUFU, the conference, which we have a playback on our website. In that playback, you can hear from three physicians that are using Bulkamid, that weren't even our customers. They weren't even Axonics customers previously. So they had a very much of an unbiased view. So anyway, it's really going quite well. I mean, this is a product that really works and it truly is easy to inject and is getting great results on these patients immediately. And you could imagine, you go in for a set of injections, you do a bit of a cough test and then they walk out dry. I mean, that's incredible. So we're going to start to see a lot of goodwill being generated from patients in these practices those patients talking to other family members, friends, and so on and so forth about their experience and having satisfied physicians who are helping make their patients better, and that is the name of the game in the end of the day, right? The Doc loved the idea to get the instant gratification that they're doing something that's really helping a person increasing the quality of life, and it happens immediately. There's like no delayed reaction. They can see it right there before the patient leaves the practice. So all in all, it's great. But we just remind people that, you know, this is a product that sells for like a thousand dollars a patient, right? So compared to 16,000 for sacral neuromodulation. So the meter doesn't move quite as fast when you're when you're selling Bulkamid, right. A really good customer is going to do between 100,000 and 200,000 for us at that represents 100 to 200 patients, which is fantastic, but the revenue it just doesn't add up the way the sacral neuromodulation revenue adds up. Having said all that, it's great for our business. It's great for our position in the marketplace and for creating these long lasting relationships with our customers. Mike Matson: Okay, great. And I mentioned Dan, I have to get one in for him that it actually is for him. So gross margins, this manufacturing issue that you called out to maybe just explain what that was and then you don't have to ask the blue Tory semiconductor supply question. Are you sure you're going to have adequate supply there given all the headlines we've seen about that? Thanks. Dan Dearen: That's a great question. So, as I said in the call, the decrease in the margin for the quarter is really just the result of manufacturing, variances, which included more yield-loss than we had planned. And it's just as straightforward as that as we produce more products and work through these inefficiencies, we'll see margin improvement and our target is still to reach mid-70s at scale. There's no change in plan. If you look at the balance sheet, we increase the amount of inventory. And if you look at the amount of finished goods that we have in particular. We have plenty of products on the shelf to continue to meet demand for the foreseeable future. And we are actually quite pleased given the worldwide shortage on chips, capacitors, and resistors. And so, you know, I'd love to tell you that we were strategically brilliant and we looked forward and saw this coming as a result of the pandemic. But the truth of the matter is, look, we were preparing for rapid growth, which we've experienced, and it just so happens having significant inventory is going to be to our advantage, given the shortages other people are experiencing. Mike Matson: Okay, great. Thank you. Dan Dearen: Thank you. Operator: Your next question is from Adam Maeder with Piper Sandler. Adam Maeder: Hey, guys thanks for taking the questions here and congrats a nice start to the year. Two from me. First one is on sacral market growth, I think you've talked Ray a little bit in the past about just a potential long tail of SNM accounts or implanters who have maybe been a bit underappreciated or overlooked historically. So I'm wondering how much of the market grill is that we're seeing today is from new or newer docs to the procedure. And, how do you think about the contribution to grow from this group or this opportunity going forward and then had a follow-up? Raymond Cohen: Okay. Sure. Thanks Adam. It's a good question. So at the moment I would tell you that we are definitely adding some of these customers from the long tail, all right? That's happening. But they're primarily-up until now physicians that are looking to just get back into the game in a bigger way, right. Particularly coming out of the pandemic, right? Everybody's practices have been down and, we got a better mouse trap and all that. So they seem to be enthusiastic. And we'd like to get those dabblers, the people that are doing one a month, which is we've signed a number of them recently. If you can get them up to two or three per month then they're right in the fat part of the business for us. So there's some of that. Now we've also learned because of the pandemic we had to figure out how could we do virtual training? And Dr. Noblitt in particular has spearheaded this initiative where we now have tools that we can actually train people virtually with pretty sophisticated tools and really bring them through best practices and so on and so forth. So for the first time, and this was not part of our strategy in 2020, and I was very clear that in 2020, we only called on people that were doing psycho, no modulation already. Now in 2021, we're now just starting to bring some physicians into the game who want to be doing psycho modulation that have never done it before, because we're now in a position to be able to support that initiative, right? We've got the tools, we've got the people, we have a whole clinical education department now that we didn't have before with five professionals in it led by Dr. Noblitt. So you're going to start to see some of that contributing to the growth and so forth. So, Adam, it's not one thing, right, as you could imagine, it's a number of all of these types of initiatives that we're doing conspiring together to help fuel the growth in the marketplace. Operator: And your next question comes from the line of Cecilia Furlong with Morgan Stanley. Marissa Bych: Hi. This is Marissa Bych on for Cecilia. I just wanted to go back to the primary cell device progress. So we understand you plan to submit that to the FDA in the next month or so. Is there anything more specific you can tell us as far as launch plans for this in the first or second quarter of next year? Are you preparing to commercialize as soon as you have FDA approval or are there any further steps on prototyping or trialing that we would need to see? Thank you very much. A - Raymond Cohe: Sure. Thanks, Marissa. Look we're going to look to launch this product immediately after FDA approval. We're we are ramping up, our manufacturing capabilities, if you may to be able to produce the product ahead of the approval. So we'll build product, I mean, I shouldn't say at risk because there's no risk, but we'll build product we're revamping space in our manufacturing facility, This will also by the way has a small part to play in kind of some of the comments that Dan has made and so forth. So things are a little bit in flux now, as we get prepared to produce this new product. So nothing that would stand in our way per se. We're not – our philosophy has been that we don't go to market with prototypes. We don't put prototypes in people's bodies. So, we're talking about a – in a finished commercial product that I'd be comfortable to put my mom I may sound corny, but you know, that's our philosophy, right. So now, having said that we'll we run some type of a post-market study so that we can provide additional comfort to the market. Yes, certainly we will. I think artistry is representative of our commitment to these types of things. And we'll obviously look to do some of that work as well with the non-rechargeable product, but, this'll be a, a ready to rock and roll full-blown commercial product that we'll look to, to ship as quickly following FDA approval as possible, which has been our custom, by the way. If you look at whether it's second generation or third generation devices that we've put out you, we don't write off stuff, right. We haven't been writing off these previous models. We sell them out and we, we plan and prepare for the, for the new version as it, as it comes out. So we feel really comfortable about this. I wish that we could put the product in the market today, but then again this is the best we could do given COVID and everything else that, that, that has transpired until now. So we'll take it in 2022. And we're excited about the impact that this product can make on the company and the market. Operator: And your next question will come from Danielle Antalffy with SVB Leerink. Rebecca Wong: Hi, this is Rebecca Wong for Danielle. I why don’t we go back to Bulkamid, can you update us on your headcount in sales reps and . Raymond Cohen: Okay. Operator, we seem to have lost… Dan Dearen: Rebecca. Operator: Danny? Neil Bhalodkar: Danielle, please repeat your question. Rebecca Wong: I'm sorry. Yes. My first question is; can you update us on your headcount in sales reps and clinical specialists, including those reps you got from Bulkamid? And then next question, I understand there are potential sales synergies, and you said your own sacral neuromodulation reps will contribute to Bulkamid sales in the third quarter. And so could you give us more color here? What is your strategy to deploy those sales reps and clinical specialists to drive things for sales without distractions to the core sacral neuromodulation business? Thank you so much. Raymond Cohen: Okay. So Rebecca in my prepared remarks, I thought I had provided some very detailed numbers. I'll repeat it. In the United States, we have 107 salespeople, including sales managers we have nearly 110 clinical and therapy support specialists. We've got less than a – almost half a dozen field marketing specialists and a clinical education group of five. So that's if you run those numbers, it totals up pretty quickly. And in Europe we have 27 people that are selling either Bulkamid or sacral neuromodulation. So that's how you get to the 250 number. Rebecca Wong: Alright. Thank you. Dan Dearen: Yes. In terms of – how do you introduce a new product in the marketplace without screwing up your existing business? I think that was your question. And I think the only real answer is professional sales management, and strong leadership and guidance from the people who run the business. You can't focus all your energy as a salesperson on a product that sells at $1,000 a patient versus one that could be around $16,000, right? So the good news is that salespeople are, how should we say their nature – their inherent nature is that they take the path of least resistance and they go with the money, and that's – that's why you hire professional salespeople to do this job. So let me just say that I am 100% confident in my Chief Commercial Officer, Al Ford, in our sales managers that are out there in the United States and internationally that they are expert at this business and they know how to manage people. And we do not expect to see any drop-off or any cannibalization let's say of our energy. People understand that sacral neuromodulation is our core business. That's what keeps the lights on, so to speak. And that's where they're heavily incentivized, of course to spend their time. People get paid commission in our company based on volumes. So it's pretty straightforward, right? You're the more sacral neuromodulation you sell the more money you're going to make. And if Bulkamid can help you get into accounts that you're not in, and you can make some of your customers happy and all that with this product and win-win-win all the way around for everybody Operator: Thank you speakers. Q&A session is now complete. I will now hand it back over to Raymond Cohen for the closing remarks. Raymond Cohen: Thank you. Thank you, operator. Thank you to all the analysts who volunteered to question on today's call, very helpful also for me to get the rest of the story out. We really appreciate your interest. And to all shareholders, we appreciate your confidence in the company, and we look forward to talking with you again shortly. You all have a nice evening. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.AXNX Ratings Summary
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Axonics Receives FDA Approval For F15
Axonics, Inc. (NASDAQ:AXNX) made an announcement yesterday, according to which it received FDA approval for its non-rechargeable (primary cell) SNM system called F15. According to the analysts at Needham & co, the approval closes a portfolio gap and could drive the next leg of SNM market share gains for the company. The timing is in line with the previous commentary that suggested approval during Q1/22, and management expects to begin shipping F15 units in April.
The analysts believe that the company’s revenue growth should be driven by both market expansion and market share gains from the launches of Axonics rechargeable and non-rechargeable r-SNM systems. In addition, the analysts expect Bulkamid to supplement Axonics' growth in its core SNM business. Over time, the analysts expect improvement in Axonics' gross and operating margins and for it to become profitable and cash-flow positive.
