Axonics Inc (AXNX) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Axonics Q2 2022 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your host today, Mr. Neil Bhalodkar. Mr. Bhalodkar, please go ahead.

Thank you. Good afternoon, and thank you for joining Axonics' Second Quarter 2022 Results and Update Call. Presenting on today's call are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer.

Before we begin, I'd 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. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in Axonics' filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, August 1, 2022. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise.

I would now like to turn the call over to Ray.

Excellent. Thanks, Neil. I would like to welcome everyone joining this afternoon's call. We're very proud of our second quarter 2022 financial results. Axonics generated total revenue of $69 million in the second quarter of 2022, which represents growth of 50% year-over-year. This record revenue result reflects growing demand for our best-in-class incontinence solutions. More specifically, sacral neuromodulation revenue was $55.8 million, an increase of 39% year-over-year. This record level of SNM revenue is primarily attributable to the broad U.S. commercial launch of our recharge-free system dubbed The Axonics F15, which, by the way, has exceeded our own high expectations.

Now that the pandemic is receding, we are seeing signs that procedural volume for sacral neuromodulation is expanding. In addition, we are continuing to gain share from the incumbent as we continue to make progress on our path to sacral neuromodulation market leadership.

Turning to Bulkamid. Revenue in the second quarter was $13.2 million, including $10.2 million that was generated in the United States. Results were driven by solid reorder rates from existing accounts and the onboarding of new accounts. We now expect approximately 50,000 women will have their stress urinary incontinence symptoms treated with Bulkamid during calendar year 2022. And we're just scratching the surface of what is possible in the large and highly underserved and underpenetrated female stress urinary incontinence market.

Based on this quarter's strong results and positive business momentum, we are raising our fiscal year 2022 total company revenue guidance to $253 million from prior revenue guidance of $238 million, which represents growth of 40% compared to 2021. I'll provide some additional color and business updates prior to the Q&A session.

So for now, I'm going to turn the call over to Dan for his detailed review of second quarter financial results. Dan?

Thanks, Ray. As Ray noted, Axonics generated net revenue of $69 million in the second quarter of 2022. This represents an increase of 50% compared to the prior year period. Sacral neuromodulation net revenue was $55.8 million, 98% of which was generated in the United States. Bulkamid net revenue was $13.2 million, of which $10.2 million or 77% was generated in the United States. Gross profit for the second quarter of 2022 was $50.2 million, representing a gross margin of 72.8% compared to 62.6% in the prior year period.

During the quarter, gross margin benefited from higher sales volume partially offset by decreased efficiencies and overhead absorption and manufacturing yield. Bulkamid sales and a product mix weighted toward the recharge-free neurostimulator called F15, also contributed to a favorable gross margin compared to the prior year period. We expect gross margin to average 69% in the second half of the year. And at scale, we continue to expect gross margin to be in the mid-70%.

Regarding our supply chain, similar to other medical technology companies, we have experienced challenges in sourcing certain components for our sacral neuromodulation system. To date, we've been able to manage through this by sourcing parts from new vendors and paying higher prices when necessary. Just as we solve a particular supply chain issue, new ones crop up. So this issue remains something we are monitoring closely and working to resolve on a daily basis.

Total operating expenses for the second quarter of 2022 were $71.6 million. Included in operating expenses are $12.2 million of noncash costs for the change in fair value of contingent consideration related to the acquisition of Bulkamid. Excluding noncash acquisition-related costs, operating expenses were $59.4 million compared to $44.7 million in the prior year period. Net loss for the second quarter was $21.4 million compared to a net loss of $25.1 million in the prior year period. As of June 30, 2022, cash, cash equivalents and short-term investments were $213 million, which is unchanged from March 31, 2022.

Turning to fiscal year 2022 guidance. Our updated outlook is as follows: total company revenue of $253 million, up $15 million from prior guidance. This represents an overall revenue increase of 40% compared to fiscal year 2021. We are now expecting SNM revenue of $205 million, an increase of 30% compared to fiscal year 2021 and Bulkamid revenue of $48 million, an increase of 111% compared to fiscal year 2021.

I will now turn the call back over to Ray for additional remarks.

Thank you, Dan. I would now like to provide a few updates on our commercial and product development initiatives. In April, we commenced the broad U.S. commercial launch of The Axonics F15, our newly developed recharge-free sacral neuromodulation system. Physician response to the introduction of the F15 has been overwhelmingly positive. Axonics is now enjoying the benefits of having a complete sacral neuromodulation portfolio. And as a result, we are now capturing a higher share of wallet in existing accounts and selling our SNM products into what were previously competitive accounts. These accounts are more receptive to doing business with Axonics now that we have a nonrechargeable option to offer them. During the second quarter, The Axonics F15 represented approximately 2/3 of our sacral neuromodulation sales mix.

As we have said previously, we are agnostic as to which Axonics neurostimulator is implanted and are pleased to offer physicians and patients the choice of 2 safe, highly efficacious and significantly long-lived sacral neuromodulation devices. As a reminder, when we entered the U.S. market in late 2019, the only SNM product available from the incumbent lasted only 3 to 5 years and required explanting if the patient needed an MRI. Today, we have 2 small devices that are full body MRI compatible for both 1.5 and 3T scanners and expected to provide patient symptom relief for approximately 15 to 20 years and, in some cases, even longer.

In April, we also launched our direct-to-consumer television advertising campaign. The Find Real Relief campaign is directed towards women with any form of urinary incontinence. The campaign aims to reduce the stigma associated with these conditions, raise awareness of the Axonics brand and therapies and, with our assistance, help women consult a bladder specialist. The television advertisements are scheduled to run through the end of this year.

The Find Real Relief campaign also includes targeted advertising on YouTube, Facebook, digital radio and various websites. As a reminder, the advertisements encourage viewers to visit findrealrelief.com, our new patient-facing landing page. This website provides information about Axonics incontinence solutions and direct interested individuals to complete a short symptom quiz. In the second quarter, we had over 400,000 unique individuals visit our patient landing page to learn more about Axonics therapy.

Qualified individuals who fill out the survey are then contacted by a team of nurses in an effort to connect the person to a urology specialist in their community. In addition to the thousands of patients filling out the surveys and getting referred, many of our customers tell us that patients are coming into their practice asking about Axonics therapy after seeing our commercials on television or ads on Facebook. Even though we are in the early stages of our DTC efforts, we are already able to measure reductions in cost per inquiry, cost per qualified lead and patient procedures that can be traced back to our DTC efforts.

As a reminder, we acquired Bulkamid or the Bulkamid hydrogel for female SUI on February 25, 2021. In just 16 months since we began marketing Bulkamid to physicians in the United States, Axonics has achieved market leadership in bulking for stress urinary incontinence. In the last 3 months alone, over 10,000 women in the United States and another approximately 3,000 women internationally have had their SUI symptoms resolved. In the U.S., we onboard new customers every day. However, it is the same store sales that are driving the revenue result.

As mentioned earlier, we now expect approximately 50,000 women will be treated with Bulkamid during calendar year 2022. This level of sales is 2 full year sooner than what we had previously anticipated. As expected, Bulkamid has increased our stature with the urology community in the U.S. given that Axonics is the only player that offers treatments for women with any form of incontinence. Bottom line, Bulkamid is fast becoming first-line therapy for women with SUI and an extremely attractive alternative to a surgical sling operation.

Turning to product development initiatives. In late May, we submitted a PMA supplement to the FDA for our fourth-generation rechargeable neurostimulator. Our current rechargeable system requires recharging only once a month for 1 hour. The fourth generation device, which is the same small 5CC form factor will need to be recharged just once every 6 months for 1 hour. We continue to expect this device to be approved before year-end 2022 and to begin shipping to customers in the first part of 2023.

Finally, on the reimbursement front, CMS recently published proposed outpatient facility payment rates for 2023. The relevant sacral neuromodulation codes proposed an increase of 5% to 7%, while the relevant Bulkamid code has proposed an increase of approximately 4%.

So in closing, I'd like to say that we remain grateful for the trust of physicians, patients and shareholders that they have placed in Axonics. We would also like to thank our commercial field team and our colleagues in Irvine for their diligent efforts and dedication to fulfilling our mission of improving the lives of adults suffering from incontinence.

With hard work and a keen focus on quality products, great clinical outcomes and strong support, Axonics is making significant progress on its path to SNM market leadership. So at this time, we're happy to take questions and would like to turn it to the operator.

(Operator Instructions) Our first question will come from Travis Steed of Bank of America Securities.

Congrats on a good quarter. I guess I'd start with the F15 mix this quarter, 2/3 of the SNM business. I don't know if there was a onetime uplift from the launch or how you're thinking about that mix moving forward? It seems like there's a big preference for the F15 over the recharge device. I don't know if you see the market moving away from recharge. And also, if you could give a little color on the accounts this quarter and what portion of that was breaking into new accounts versus F15 replacing some of your existing recharge business.

Sure. And thanks, Travis. I appreciate the comments and the question. So that was a multipart question. So I'm looking at my colleagues that will help me sort this out. But look, the F15, I mean, has taken off like a rocket ship. There's no question about that. I think that the reason is really primarily attributable to the fact that for over 20 years, physicians in the United States have only worked with a nonrechargeable system. I think the attractiveness of the F15 product, where with a good implant, physicians can get over 20 years in a patient's body, I think, is something that no one has anticipated.

So given that it's a recharge-free system, the patient remote does not need to be recharged and doesn't require replacement batteries, I think that the market has found this to be very attractive. So I think there obviously was some enthusiasm about people getting their hands on the new product and trying that out. I mean it's 20% smaller. It's a good form factor and so on and so forth.

So I would say that I would expect that this mix, if you may, and I think that was one of your questions, I think the mix will kind of swing back to probably 50-50 over time. I don't think it's that unusual that in the quarter that we introduced the product that it would have swung in the way that it did. So I think that's one part of the question or 2 parts of the question.

So in terms of account acquisition, there are 2 things I mentioned in my remarks, Travis. One was that we're getting a higher share of wallet in the existing accounts. So I've said in the past, I've said this product is expected to close the hole in the bottom of the bucket where we were bleeding out even in loyal existing accounts that were happy to do business with Axonics. We were still bleeding out some revenue out the back door based on not having a nonrechargeable option. That has stopped.

And we have, of course, as represented by the increase -- the significant increase in the revenue from Q1 to Q2 and year-over-year, it's clear that we've -- a lot of new accounts have come our way, or I should say competitive accounts that may not have been working with us before or if they were, they were doing some rechargeable and we weren't getting the lion's share of the wallet in those accounts.

So I mean, as you can see from the results, I mean, things are going quite well for the company and the fact that we have the complete line now. And I would dare say, longer-lived products, higher-quality products, easier-to-use products, that it's really been turning a lot of heads from the physicians that might have been reluctant in the past to come our way.

Bulkamid was the first foray, right, where we got a lot of people wanting to get behind Bulkamid. That gave us a chance to be in those accounts. And then next thing you know, we come out with the recharge-free system, which has really surprised people in terms of its characteristics. And the good news is we were already in the accounts. We were there with Axonics personnel. So what we had hoped in terms of the lift in stature, the lift and a good listening from customers with Bulkamid has paid off. And obviously, it's now one-two punch between Bulkamid and F15.

That's helpful color. Just a quick follow-up on the guidance. It looks like U.S. SNM guidance assumes pretty much flat Q3, Q4 revenue versus what you did in Q2, just assuming that's conservatism at this point, but would love to hear your comments on the guidance there. And then if there was any stocking this quarter.

So with respect to stocking, this is something we've talked about since we first started. We're not in that business, so to speak, right? We only sell products that are earmarked to be implanted in patients. So there may be a par level that accounts that are doing a reasonable number of implants, they might keep 1 or 2 on the shelf. But other than that, it's just not something that we have done. We don't incentivize our salespeople. So what you see is what you get with Axonics when it comes to sales revenue.

In terms of going forward, look, I think that we're trying to be conservative, in particular, about this current quarter. Not to suggest that July sales were a problem, July sales were very good, but there's a lot of vacations going on right now. And I think anybody recognizes that this is an issue.

Q3 is always lighter in the medical device market. And this year, I think everybody in their brother and their cousin is going on holiday somewhere. And I think physicians and patients, obviously, are in that boat. So we're comfortable with consensus, which is a little over $51 million for SNM in Q3. And we've obviously increasing guidance for Bulkamid by a couple of million dollars. So we think $11.8 million is a reasonable number that we could achieve. There's going to be some drop-off clearly in Q3 as compared to Q2. And then we think we'll go strong into Q4. So that's kind of how we see the rest of the year playing out. And I appreciate that question, Travis, because hopefully, that will help with the rest of the questions that we're going to get in a moment.

And our next question will come from Adam Maeder of Piper Sandler.

Congrats on a great quarter. Maybe just to start, would love to ask for a little bit more color just on what you're seeing from a procedure environment standpoint. And maybe just to kind of run through some of the puts and takes. On the headwind side, anything from a staffing standpoint that was noticeable or procedure cancellations from COVID-19. Did you have any catch-up on the tailwind side of things? Obviously, F15 had a nice impact this quarter. But maybe just walk through some of those puts and takes. And then to the extent you're able to kind of provide some color on monthly progression in Q2, that would be much appreciated.

So the latter -- the last question was about progression during the quarter, April, May, June. And it was strong throughout the quarter. We didn't -- it's not like, well, June was double what it was in April. So it was a good strong quarter and pretty solid month-to-month. So nothing really worth talking about there. I do understand that maybe a company or 2 that has come before us in terms of their results were pointing towards the notion of COVID being a problem, deferrable procedures, staffing shortages, things from that standpoint. Adam, I mean, all I can tell you is we just didn't -- weren't impacted by those factors. We just weren't.

COVID is still real. And I think we do see there is a little bit more infection that's going around in real time than there has been, let's say, in the previous 3 months. What I had said and have said many times is that if you give Axonics a clean quarter where we're not impacted directly by COVID and deferment of procedures and cancellations and all that, we will show you what we can do. And I think this is the first quarter really since early days of 2020 where we've had a pretty clean quarter.

So from our perspective, we really just didn't see any kind of procedural slowdown or issues with staffing that got in the way of us being able to get our business done. I just want to remind people that we have 100% outpatient procedure here. I mean this is a day case. Patients are in the institution for a few hours, whether it's an ASC or an outpatient section of the hospital. So when it comes to staffing shortages, I could see where companies that have procedures that require multiple days in CCU, ICU, things of that nature. That's not the case for us.

Did we see a catch-up of implants? Well, not really. I mean we've been consistent all along that, first of all, we don't track cancellations per se. It's just not -- it's not -- the juice isn't worth the squeeze for us in that regard. So I understand the question. I understand the reason for the question, but Q2 for Axonics was a beautiful quarter and things just kind of broke our way that entire quarter. Now in Q3, sure, we'll see a little bit of seasonality in this quarter. And we'll just keep our fingers crossed that the COVID headwinds stay, how should we say, minimal at this point.

That's great color, Ray. I appreciate that. And then for the follow-up, maybe just to ask about Bulkamid. Can you level set us on where you are in terms of number of accounts? Where can that figure go in the quarter -- I'm sorry, in the future? Is the growth being driven by same-store sales? Or is it new physician adds? And then maybe longer term, do you think this is a technology that can potentially go beyond the urologist's and urogynecologist's call point and potentially into the gynecologist community. Congrats again.

Yes. Thanks, Adam. Appreciate your comments. Look, I think that every GYN in America should be doing Bulkamid. It has not been a call point -- a focus of a call point for us, but it will be one in the future. There's no question. And Bulkamid is fast becoming first-line therapy for patients with SUI because women would much rather choose to get an injection and be done in 15 minutes and dry and get off the table dry and walk out the door and go about their normal activities, right? There's no downtime, there's no recovery. The product works really well. It's as noninvasive as you could imagine. So this product has got legs. And I think that we could be accused of sandbagging, but the facts are that we never expected it to be as big as it is and to be embraced to the level that it's currently going.

I'm going to avoid your question about the number of accounts because we would prefer not to give that information out. I would tell you it's a substantial number. But it is same-store sales, as I mentioned in my remarks, that are driving the revenue. So this is not about just adding people and then doing a couple of procedures and then on to the next and the next. That's not the case. This is people realizing how well this works and then starting to incorporate this as a big part of their practice.

Where can this go? I've made some comments at a conference or 2 that I thought we've got a $100 million product line in our hands. And I honestly believe that, and now the data and the numbers are supporting that. So with the exception of a little seasonality, which we're going to probably expect to have right now in real time, I think that this business should continue to grow and Bulkamid should continue to grow for us very nicely.

I mean whether we can keep up 111% year-over-year is another story altogether, but it's really going great and the feedback from the marketplace has been spectacular. And the magnitude of the number of women that we are treating, I mean, it's over 13,000 women treated with this product worldwide, vast majority in the United States. It's an incredible -- it's just incredible to see, and it's very rewarding for us as you might imagine. I mean, we're just thrilled to death that we're able to help so many people who are suffering with this very annoying problem and to get those women dry.

So now the last part of your question was -- did you ask other clinical indications or just other markets? Okay, cool. So we'll leave it at that, Adam, and I appreciate your questions and your comments.

Our next question shall come from Cecilia Furlong of Morgan Stanley.

Congrats on a great quarter. I wanted to start just with your gross margin outlook for the back half of the year really versus what you saw in 2Q. And if you could just walk through how much of that is stemming from conservatism or just supply chain potential headwinds that you're thinking about offsetting really the positive impact you could see from F15 and Bulkamid.

It's primarily -- hi, Cecilia. It's primarily conservatism. I mean it's -- our gross margins are tracking according to plan. We've always said at scale, we expect to be in the mid-70s. Things are going quite well. But we're launching -- we just launched a new product, and we're still ramping up manufacturing for that. We brought a number of process steps in-house, which contribute to higher margin. But with that, and I made the comment partially offset by decreased efficiencies and absorption and yield. That's where that comment comes from. So we just don't want to oversell it.

And it's really not so much about supply chain risk because it is just ramping up the manufacturing of this product and also ramping up the manufacturing and getting prepared for the eventual market launch of the next-generation rechargeable system, which will be the one with the recharge interval once every 6 months, 1 hour once every 6 months. So we're just being conservative. We don't want to get over our skis and promise low 70s this year and then disappoint. So we raised it up slightly from where we were before, and that's why we're saying 69% for the back half of this year.

Okay. Understood. And if I could follow up. Just how you're thinking about OpEx for the back half of this year and really incorporated in that, where you are right now relative to your DTC expectations for the year? And how we should think about the cadence 3Q to 4Q around DTC, both from an expense standpoint, but then how you're thinking about it from an adoption or seeing it translate into increased volumes?

Go ahead?

Yes, sure. So Cecilia, I'll start, and I'll pass it to Dan. So look, we're full blown into the DTC efforts. So the expenses that we incurred in Q2 are consistent with what we would see in Q3 or Q4. So we've accounted for that. The DTC effort has gone quite well. I mean, so many people are responding and the ads are resonating. However, what we have learned is that about 60% of the people who are responding are naive patients, meaning these are patients that haven't even tried a drug yet. Now some of them could be -- have SUI and that are responding as well, right? But the patients who have urinary urgent continence, we're finding that they're early in the care pathway. Now the 40% that are later in the care pathway that have tried a drug or may have had BOTOX in the past, or might have even had an InterStim years ago that's dead in their body or something like that, those are the patients that we're going to see faster conversion into procedures.

I would say that we're still looking at 4 to 6 months is like the time line, the gestation time line, if you may, for somebody to see an ad, go to the website, register themselves before we could start to see some procedures. So we have a lot of anecdotal information here and there, but we have the ability to track this, and we are going to track it very closely. So right now, it's the stats that we can share are only relevant to cost per inquiry and things of that nature, which we obviously is much easier to track in the early days of the DTC effort, so -- but it's not like some big surprise coming in terms of DTC expenses in Q3 or Q4.

So with that, I'll pass it to Dan for the rest of the answer.

Yes. Thanks, Ray. We mentioned operating expenses for the quarter were $71.6 million, but of that, $12.2 million was related to a noncash accounting entry related to contingent value consideration. So when you back that out, OpEx, even with stock-based comp and depreciation and amortization was $59.4 million for the quarter compared to $64.8 million was the consensus estimate. So we're $5.4 million under or favorable for the quarter. And so what we're sticking with now is we don't think we want to move the consensus estimate for Q3, which is currently at $66.6 million or for Q4 of $70.7 million. We're happy with how expenses are going. We're being disciplined. And as Ray said, we don't foresee any surprises in the back half of the year on OpEx.

Our next question will come from Lawrence Biegelsen of Wells Fargo.

Congratulations on a really impressive quarter here. Ray, a couple of follow-ups for me. Maybe if you could talk a little bit more about the supply chain challenges. And I think in the past, when we've talked about this, you've talked about having, at least for F15, significant amount of inventory. So where are you on inventory? And how big a concern are the supply chain challenges that you mentioned? And I have one follow-up.

Sure, sure. So thank you for your comments, Larry, and I just want to let you know, we changed the conference call to Monday so that you could join.

Thanks for doing it on, it's nice that everyone else is in doing it, seriously.

Exactly. We tried to find a night where it was empty open. So in an event -- sorry, I couldn't resist that. It's been quite a few times when we bumped up against everybody else. So in any event, look, supply chain issues are real. I mean, everybody is talking about it. It exists in every aspect of our lives right now, and we're seeing it. And as Dan mentioned earlier, it's like you get one -- you solve one issue and then hear another one. It's like whack-a-mole, and it's just an issue. Prices are increasing. Everybody's got a price increase, everything from components to plastic to you name with you name it. And it's just something we're all working through. And I think the whole industry is just scrambling around trying to make all this work. One day it's epoxy, the next day it's some component you need to put on a board.

Having said that, we've got a strong balance sheet, right? So we've always tried to use our balance sheet to keep ourselves out of trouble. We've got product ordered from every key supplier from now until the cows can come home for 2 years out even, and we continue to be vigilant and do everything we can to stay on top of our suppliers. We don't mind the price increases as long as we get the product, right? So that's what's going on. Now F15 is the new product. So obviously, we haven't had time to stack up inventory the way we did on the rechargeable, right? So it is a little bit hand to mouth in that regard, but our team is working vigilantly to stack up product.

So at the moment, we're on it. We're paying close attention, and there's no cause for alarm. Having said that, this is the business we've all chosen and we got to execute not only on the revenue side, but we have to execute on the manufacturing side as well and just kind of work through some of these challenges. So hopefully, that answers your question in -- with some reasonable level of color.

Yes, it does. And just one follow-up. I'd love to understand how much you think you're expanding the market versus taking share, greenfield accounts, if you will, versus competitive accounts? And on competition, what kind of response have you seen?

Yes. Thanks, Larry. So it's been -- as we've said all along, it's been challenging to try to measure increases in the size of the market, given the COVID-related issues. So I would like to kind of let a couple of more quarters go by before we could come back and say, yes, we see that. We are seeing our existing customers expanding their -- expanding the number of procedures that they're doing in sacral neuromodulation. I mean we track that very closely, and we are seeing increases there. The question is, is that -- is that closing the hole in the bottom of the bucket? Or is that actual procedural volume. We suspect, as we have said earlier, that the market will grow by about 15%, and we're going to grow faster than the market. So we are seeing that. It's just going to take a couple more quarters before we could be a little more definitive about that. I think that answered the question directly. So hopefully, we can go from there.

Competitive response, Ray, anything?

Yes, yes. The competitive response is -- I've always got to be careful, right, people listening. It's been puny. I mean I think that's the only thing to say. I mean, our competitor has tried every possible scheme and story and everything you can imagine to try to hold us back, but despite all the noise that they created in the past, customers are paying attention to the quality of the products and the quality of the support and are coming our way. So I just don't see anything. I mean the interest in X came out with -- let's just call it, an 8- to 10-year longevity in the body, and we're double that. So, so far so good. I don't know what other tricks they might have up their sleeve, but we're not thinking about it, we're not worried about it. We just got our heads down and taking care of our customers and fighting to pick up contracts in some remaining hospital systems that hadn't contracted with Axonics in the past. So there's still a lot more blue sky ahead for us, and we feel pretty bullish about our prospects going forward.

And our next question will come from Mike Polark of Wolfe Research.

I have one more on mix. Curious if anything is evolving on this front. So prior periods, say, last year, year before, InterStim replacements as a portion of your business had bounced around from 10% to 15% give or take. I'm curious with the chart, the launch of F15. Have you seen that mix change dramatically? Or is it still kind of 90-10 new patients InterStim replacements.

That's a really good question, actually. It's about the same. I mean, we've had a fair amount of replacements all along. And I think that's just a consequence of being in these accounts and having people switched wholesale to Axonics. So therefore, if they've done SNM in the past, they got patients coming back who need a replacement than we're getting it done. So I think you've got it correct. It runs between 10% and 15% of implants that we're doing.

And in terms of what is the longer-term impact of the recharge-free system on either the pace of replacements or how the mix is going to go in quarters to come. It's just a little early for us. We've only had that product in the market for -- well, now with July for, call it, 4 months. So it's early, but it's -- look, the product is working phenomenally well. The quality of these implants are, I think, better than we would have imagined.

And I think part of that is because our people are very vigilant with these physicians in the OR. We want them to recognize and to understand that the quality of the implant has a direct impact on the longevity of the device. And this is something that is new information to most of these implanters. You might think, "Oh, that's obvious", but it wasn't obvious in the past because the prior -- the incumbent as we refer to them, didn't really care.

I mean if you did not a great implant and the device only lasts for 3 or 4 years, well, they had no competition, they're happy to make another sale. We're asking our physicians to take a few extra moments to be careful about the placement of the lead because it has a direct impact on the longevity of the non-rechargeable device or the recharge-free device.

So I think that if you may, it's the training, it's the attention to detail that is motivating these physicians, and they're amazed. I mean when they walk out of the ER and done a nice job in an implant and we can share with them that we're expecting this device for the last 22 years in the body. You can imagine, there's not a lot of debate about whether Axonics is getting that next implant.

Good color. If I may, one follow-up on the DTC effort. And I may have misheard, so please just tell me if that's the case. But Ray, in your prepared remarks, you said something about the TV ads are scheduled to run through the end of this year, which caught my ear. And then in the context of your response to one of the prior questions, 60% of the folks showing up at findrealrelief.com are treatment-naive and need to start with drugs before they're candidates for you. And so I'm putting this together and maybe not hearing a commitment, no hold far to this effort. And '23 and beyond. So I guess what -- sitting here knowing you're going to have a bunch more information in 6 months. Like what are the odds that this effort continues at the current pace in '23? What are the chances that it kind of takes a new form. Any color on this investment in the out years would be helpful.

Yes. Thanks. It's a good question, but I think it's -- once again, it's premature for us to make a decision around how -- what kind of spend we might have in 2023 on DTC? I mean it's clear as we do in every aspect of our business, we're going to optimize this process, right? We're learning -- we've already learned some things that have increased response rates and that are helping us move these patients fast -- they're not patients yet, move these people faster through the process to land them with accounts. So I'm not trying to be evasive. I just don't have the answer to your question yet, and we're saying we're committed to running it through this year. And then we will evaluate and then we'll look to optimize and then we'll then talk about what our level of expenditures might be. But it doesn't seem to -- let me just say this, there's no falloff in terms of response rates, right?

As we continue to run these ads, the response rates are actually increasing. So I think this is that repetition. Anytime you do this kind of advertising, it does require a fair amount of repetition for people to actually take action. So that's where we are. So I don't -- once again, I'm sorry to not give you a hard answer, but hopefully, you guys will appreciate that we're looking at this closely, and we'll make our best judgments going forward.

And our next question shall come from David Rescott of Truist Securities.

Congrats on the quarter. First one from us, just on profitability. I know in the past, you've kind of talked about this $350 million annualized run rate is where we could start to think about breakeven for the company. So I guess, after the quarter, there were some pretty decent bumps were shown so far. I guess one is, is this still the kind of goal for the company. And two, if so, I mean, looking at some of the updated guidance for this year, consensus growth estimates into next year, it would seem to suggest that breakeven could be possible as early as even in the middle of next year. So I guess just based on what you're seeing in underlying business, expected spend with DTC over the next 12 to 18 months. Does this seem like a reasonable timeframe where we could start to think about some breakeven in the business.

Yes. Thanks, David. Appreciate the comments on your question. It's a good question. And I think for the first time, since we started this commercial effort as a company, we're seeing leverage. We're actually seeing leverage in the business based on this level of revenue. And we anticipate that will continue because it's not as if -- and Dan has said this many times, it's not as if we need to add another 100 salespeople in order to grow our business again in 2023 over '22.

We feel like we're fully staffed at this point. Yes, well, we add some incremental heads here and there, of course, we will, in sales and more heads, of course, in manufacturing to keep up with demand. But we're starting to see leverage already, and we're not walking back off previous comments about this $350 million or so level of revenue. So we're sticking with that, with margins in the mid- to -- low to mid-70s with some more revenue on the top line and with discipline in terms of expenses, I think we're going to get there. So that's pretty exciting.

I mean, as we sit here today, I mean we only started this game in November of 2019, and it's only been a few years and we've had a pandemic in the meantime. So I mean, honestly, things could not be going better for Axonics, and we're just thrilled with the pace that the business is growing and really looking forward to closing out the year strong and an exciting 2023.

Okay. That's helpful. I guess on Bulkamid, I know in the past, you've always talked about how the share gains here are coming from existing bulking procedures as well as essentially taking share from sling proceeds as well. So my guess is that you've probably obviously had a lot of success with taking share from the bulking agents thus far. And I'm just wondering if you could comment at all about where you're seeing the biggest growth. Are you seeing growth from sling procedures already? Or is a lot of this really just coming from -- traditional bulking agents?

Yes. So David, that's a really good question, actually. So here's the reality. Bulking has been, in the past, kind of a therapy of last resort it was used as salvage almost. I don't think any of the physicians were particularly keen on any of the bulking agents that have come before us. So it was never seen -- never used for the most. I mean everything I say, of course, you have to qualify a bit. But it just -- bulking wasn't done as a first-line therapy.

And so this is a completely new phenomenon, and here's the reality. If you -- you just think about this. A woman walks in the practice complaining that when they cough or sneeze or pick up an object or exercise or any one of the normal daily activities, they leak urine. And it's become bothersome to them so they're seeking treatment. Here's your options. I can do Bulkamid right here, right now, 15 minutes, you're off the table dry, no recovery time or we can sign you up for a surgical procedure called sling. I'm a great surgeon. I know there are some adverse events associated with that, right? But in my hands, we're going to do a good job. But you do need to be aware, we have to schedule it, and there's going to be recovery time associated with that. And -- but it's effective and it works really well.

Now this bulking -- this Bulkamid stuff, you could get 7 years with this product, maybe even if it only lasts 5. You just come back, and we'll give you a couple of more injections and you're good to go. Which would you prefer, ma'am? And the answer is in the back of the book. So these women are selecting Bulkamid as treatment for SUI. And every single patient that gets bulked that's one less sling operation that's being done in America and around the world. So hopefully, that's a very definitive straightforward answer to your question.

Congrats again on the quarter.

Our next question will come from Mike Matson of Needham & Company.

So I wanted to follow up on Larry's question about Medtronic response to your success? And just ask about pricing specifically. I mean they seem to be kind of against the rope here. So what would they -- what would happen if they did try to play the pricing card and really lower prices aggressively? Do you think that would even get any traction in the marketplace, the -- would that benefit the doctors' wallets at all? Or is it all really just going to the facilities?

Well -- so Mike, price is -- it's a fairly complicated process. So a couple of comments I want to make. One, we have not had any price decreases in the last year-over-year. So year-over-year, actually, we've got slightly higher prices that we're getting for our product, but it's in the margin.

Let me just make a comment. First of all, Medtronic has the lion's share of the business right now, okay? So why would they -- why would they drop their price? I mean it's completely illogical, right?

Second thing, the market is complex in the following way: 70% of all of the purchase orders we get come from institutions, either hospitals, hospital systems or ambulatory surgical centers. The physicians have no idea what the price of the actual implant is. They don't buy it. They don't -- you know what I mean. So it has nothing to do really with physicians. Physicians who are not employed, right, by a hospital system, they may buy some external trials. They buy external trials for their office, okay?

I find the private docs. But that's once again, only 30% of the customers that are out there. And the only thing they're buying from us is external trials. When it comes to the implant, all of our purchase orders come from ASCs or hospitals, right? So I mean that's the kind of nature of the business. So we have more employed physicians than ever before, in general, in the marketplace and so on and so forth. So I think that if you just take a step back, the one good thing -- a positive thing I can say about Medtronic is they're disciplined when it comes to price because they're EPS-driven company.

So why would they do something that is different than their character, right? And the other piece is, Axonics, believe it or not, is actually expanding the market and expanding Medtronic's business at the same time. And they have more market share than we do, right? And that -- and we're out there creating awareness and doing all this kind of stuff. So I think that this is a -- what's that expression, the rising tide is floating all boats here. And I think this is about TAM expansion. And we've been a little bit conservative about trying to make a big deal out of our point to it just because the data is squishy right now given the pandemic.

So I think everyone should be thinking about this is a market expansion story. This is a TAM that is unbelievable. There's 80 million people out there that are suffering with these problems. We've only scratched the surface. So I think there is enormous amount of blue sky and a big opportunity. And as we have said all along, this -- what Axonics' entry into the sacral neuromodulation market has been the best thing, honestly, that has ever happened to Medtronic because now they've got better products than they had even 3 years ago, on and on and the market is expanding. So I just -- we're just not anticipating any price pressure going forward.

I mean -- and keep it -- this last piece in mind. [Of] sacral neuromodulation for a full system sell for about $10,000 less than spinal cord stimulators. So these are not that expensive as compared to other products that are sold of a similar ilk in the market.

Okay. And then I think Dan called out some margin benefit from the mix of F15 versus the chargeable. I know you're probably not going to quantify the difference in the gross margins. But can you maybe just talk about that a little bit about how much more profitable the F15 is versus the rechargeable version?

Sure. So the margin benefit to Axonics on the F15 product comes in 2 ways, which is: one, it's an SNM system, but there's not a charging system. So you don't have to ship the charging station and the belt that holds it in place; the other thing is with the -- (inaudible). And with the manufacturing process, we brought a number of steps in-house into our Irvine manufacturing facility. So we have better control over cost and throughput, which is also providing incremental margin.

That concludes the Q&A portion of the conference. I would now like to turn the conference back to Raymond Cohen for closing remarks.

Thank you, operator. Look, we appreciate everybody listening in on the call today. I appreciate the questions, and we look forward to doing this again in the next couple of months. So you all have a good day and stay safe out there.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.