Nevro Corp (NVRO) 2015 Q3 法說會逐字稿

Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Nevro third-quarter 2015 financial results conference call.

(Operator Instructions)

Thank you. Lynn Pieper of Westwicke Partners, you may begin your conference.

Thanks, Chris. Thank you all for participating in today's call. Joining me from Nevro are Michael DeMane, Chairman and Chief Executive Officer; Rami Elghandour, President; and Andrew Galligan, Chief Financial Officer. Earlier today Nevro released financial results for the quarter ended September 30, 2015. A copy of the press release is available on the Company's website.

Before we begin, I'd like to remind you that Management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operating trends and our future financial expectations, which includes our full-year 2015 worldwide revenue guidance, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission.

Nevro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements; whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 9, 2015. I'll now turn the call over to Michael DeMane. Michael?

Thanks, Lynn. Thank you, everyone, for dialing in today; and good afternoon. I will start today's call with highlights of our third-quarter results and operating achievements, and also provide an update on our US launch progress. And then I'll cover our global revenue guidance for the full year 2015. Following my initial comments, Rami will provide additional depth and color on our US launch and Andrew will follow with a deeper review of the financials. Andrew will also elaborate on our US and international revenue guidance. Then we will open up the call for your questions.

Nevro's third-quarter results, our first full quarter of US revenue, reflected impressive execution for the United States launch of our HF10 Therapy as well as, continued international revenue expansion at above market growth rates. Total revenue for the third quarter was $15.4 million, an increase of 78% as reported and 110% using constant currency. US revenue was $4.5 million in the first full quarter that HF10 Therapy was commercially available to patients in the United States. International revenue was $10.9 million, an increase of 26% as reported, and 49% using constant currency. Our US launch performance in Q3 has exceeded our expectations and is consistent with the confidence we communicated previously on the Q2 earnings call and our recent public conference commentary.

Moving to guidance, our total revenue guidance is $59.5 million to $61.5 million for the full year 2015. This represents total revenue of $23 million to $25 million for the fourth quarter of 2015. The midpoint of guidance for international revenue is $12 million, and the midpoint of guidance for US revenue is also $12 million. Again, both for the fourth quarter. Again, Andrew will go deeper on the quarter results and our guidance later in the call.

Let me step back for a moment to say a few words regarding Nevro's competitive position at this juncture. To start, we have a remarkable product. The Senza system, which delivers our proprietary HF10 Therapy, is backed by first-in-class evidence and is the first SCS therapy to achieve an FDA label of superiority to traditional SCS therapy for the treatment of chronic back and leg pain, and it is the first with an FDA approved indication for paresthesia-free pain relief.

We are fortunate to have an outstanding team. The organization is comprised of dedicated professionals that are immensely talented and focused on raising awareness of HF10 Therapy, and most importantly, delivering the patient outcomes that are the ultimate driver of our success as a Company.

Third, we have a thoughtful US launch plan. As you know, over the past five years, we have demonstrated impressive commercial traction in Europe and Australia, with exceptional international growth rates over the past six quarters. We're putting that experience to good use and have utilized those vital learning to shape and inform our US launch strategy.

And finally, we are executing really well on that plan. When you marry exceptional people and plans with an effective therapy that meets an unmet need, the results are impressive. The reception for HF10 continues to exceed our expectations, and as reflected in our guidance, we see tremendous opportunity in bringing HF10 Therapy to many patients in need in the United States and worldwide.

Changing gears here, let me step back for a moment and speak to some important events likely to play out in the quarter and beyond. Moving to our evidence generation initiatives, we are excited that the SENZA-RCT investigators are scheduled to present 24-month results from our US pivotal study at the North American Neuromodulation Society Meeting in December.

With the release of these results, Nevro will now have run two of the four key long-term studies in the fields of SCS. With this study, the SENZA-RCT providing the most rigorous evidence to date for the treatment of both back and leg pain. Regarding the US launch, we are continuing to scale the organization to meet robust demand. We expect to end the year with 100 fully trained reps in the US field organization. We will provide you with our projected field hiring plan for next year when we report Q4 results. As previously communicated, we will also provide 2016 annual guidance at that time. Once again, expect more color on the US launch from Rami in just a bit.

Finally, I want to speak to the two IPR petitions filed by Boston Scientific challenging one of our 55 US patents that protect our innovations. Per the court required cadence, we filed our patent owner's preliminary response on September 1. As a reminder, due to the nature of the IPR process, in this preliminary response we were not permitted to provide a full response on the merits, nor were we allowed to include our own expert testimony.

We expect the patent office to issue a decision on whether the IPR will be instituted by December 1, 2015. If the IPR is instituted, we will provide a full response on the merits, including our own expert testimony, in the first quarter of 2016. As you may know, the standard for IPR institution is low compared to the typical District Court standard, and the institution rates are very therefore high. We are prepared for institution and continue to set expectations for institution, since that is statistically the most likely outcome. We remain very confident that we will ultimately prevail, if the process moves forward.

Wrapping up my introductory comments, our third-quarter results highlight the beginning stages of a very successful US launch and continued adoption of HF10 Therapy in our international markets. Armed with our proprietary HF10 Therapy and buttressed with first-in-class clinical data, we're confident that we can drive deeper and more widespread adoption of HF10 Therapy; and in so doing help improve the lives of more patients suffering from chronic intractable pain. With that, let me turn the call over to Nevro's President, Rami Elghandour, to provide some additional launch detail. Rami?

Thanks, Michael. As we mentioned, our focus US launch strategy is proving successful with US adoption trends to date reflecting our recent international adoption trends, both in terms of patient selection and positioning of HF10 Therapy within a practice. This is highlighted by some clinicians fully adopting HF10 Therapy in our first full launch quarter, something we did not see at this scale until much later in our international launch. This progress is a testament to the power as HF10 Therapy and the outstanding execution of our organization, which is delivering on the promise of the therapy. To that end, our trial conversion ratio for our first full launch quarter was consistent with the 88% trial conversion ratio from both our US RCT and EU long-term studies.

Additionally, in every day clinical practice, the pain scores at the end of trial were comparable to our pivotal RCT results. Clinicians providing this highly differentiated therapy to their patients particularly note the vast improvements in patient's quality of life and patient's ability to return to fulfilling activities long abandoned often for over a decade. When these results are replicated by key clinicians across the country, are backed by a pivotal RCT demonstrating superiority, and are supported by a world-class organization, the result is a powerful combination that translates into the type of adoption reflected in our initial launch trajectory.

Some other notable metrics from our launch to provide additional color. The patient population we are treating includes both back and leg pain and reflects our view of the composition of the market. As a result, clinicians who fully adopt HF10 Therapy into their practice are able to significantly increase their volume, over prior years.

With respect to hiring, we ended Q3 with 92 trained sales reps in the field, and we expect to end the year with 100 trained reps as planned. We do expect hiring to naturally slow in Q4 2015, picking up again in Q1 2016. We continue to seek top talent in order to expand access to HF10 Therapy for patients in the US, and we will provide a hiring target for 2016 when we report full-year 2015 results in Q1 of 2016.

On pricing, we are commanding a modest premium as planned and are closely monitoring to see how competitive pricing trends in the future, due to our entry in the market. On the reimbursement front, Medicare announced the 2016 national average payments for SCS on Friday, October 30. We viewed the updates as positive with combined reimbursement for a percutaneous trial and permanent implant in the outpatient hospital setting rising 1.7%, and in the ASC setting rising 3%.

Finally, shifting to our education and engagement efforts, we have attended a number of conferences to drive broader awareness of our Company, HF10 Therapy, and the pivotal RCT results. Notable conferences from Q3 included national meetings, such as the Congress of Neurological Surgeons and the National North America Spine Society. We also attended a number of key regional meetings, including the California Society of Interventional Pain Physicians and the Texas Pain Society. These meetings collectively provide a meaningful opportunity to connect with physicians, drive awareness of both the therapy and our Company, and get a true sense of the adoption in the market.

In terms of highlights for upcoming meetings, the 18-month results from the SENZA-RCT will be presented at the American Society of Regional Anaesthesia and Pain Management in Miami on November 21, and the 24-month results will be presented for the first time at NANS on Friday, December 11. This 24-month results presentation will provide the second comprehensive long-term data set on HF10 Therapy, further distinguishing the therapy and confirming our commitment to rigorous clinical evidence as the foundation for the future of SCS. And with that, I'll turn it back to Michael. Michael?

Thank you, Rami. Now let's turn to Nevro's Chief Financial Officer, Andrew Galligan, for a deeper review of our financial highlights and guidance. Andrew?

Thank you, Michael. Our revenue for the three months ended September 30, 2015 was $15.4 million, an increase of 78% year-over-year on a reported basis, and 110% in constant currency. US revenue was $4.5 million in the third quarter. This is the first full quarter of our US commercial launch, which began in late May.

International revenue was up 26% to $10.9 million, from $8.7 million during the same period of the prior year. This represents constant currency growth of 49%. The revenue increase was primarily attributable to continued adoption of the Senza system and the US launch. Going forward on this call, all revenue growth rates will be stated on constant currency basis.

Europe was again strong with 44% year-on-year growth, led by Germany and United Kingdom. Australia was also strong with growth of 60%, compared to the prior-year period. With respect to our international revenue growth rates, I want to reiterate that we continue to expect the very high growth rates of the past six quarters to moderate given our large market shares and other inherent constraints such as capitation in Europe and intensified competition for unconverted accounts.

Gross profits in the third quarter of 2015 was $9.4 million, representing a 61% gross margin, up from $5.9 million in gross profit in the same period the prior year. Gross margin decreased from the 68% gross margin year-over-year, primarily as a result of cost incurred in association with ramping our operational infrastructure in support of the US launch. Additionally, while costs were primarily incurred in US dollars, international revenue was negatively impacted by the appreciation of the US dollar, which negatively impacted the overall gross margin for the period. As we continue to grow revenue, we expect to expand margins by improving efficiency and further leveraging our manufacturing overhead.

Operating expenses for the third quarter of 2015 were $27.1 million, compared to $12.4 million in the third quarter of 2014, representing an increase of 118%. The increase in operating expense was driven primarily by increased headcount and related personnel costs from the sales and marketing organization to support the US launch, as well as an increase in general and administrative costs associated with being a public Company. Loss from operations for the period was $17.7 million, compared to a loss of $6.5 million for the third quarter of 2014. At the end of the third quarter of 2015, we had approximately $222.6 million in cash, cash equivalents, and short-term investments.

Turning to our outlook, we are increasing our revenue guidance for 2015. While we previously stated that we would like to get a couple of quarters under our belt before we issue US guidance, we have received enough information at this stage in the field to provide fourth quarter 2015 US guidance. As mentioned earlier, our worldwide revenue guidance is $59.5 million to $61.5 million for the full year 2015. This represents an increase from 2014 in the range of 83% to 89% on a reported basis and in the range of 114% to 122%, using foreign currency exchange rates from the third quarter of 2015. This implies total revenue of $23 million to $25 million for the fourth quarter of 2015. Previous revenue guidance included only international revenue. The worldwide full-year 2015 guidance now reflects US revenue with the recent commercial launch of Senza in the United States. The midpoint of guidance for international revenue is $12 million, and the midpoint of guidance for US revenue is also $12 million, both for the fourth quarter. The international guidance midpoint represents an annual growth of approximately 57% over 2014 on a constant currency basis.

We expect operating expenses to be approximately $30 million in the fourth quarter. We plan to provide guidance for 2016 when we report our full-year 2015 results. At that time and going forward, we plan to provide guidance on an annual basis. Now back to you, Michael.

Thank you, Andrew. That will conclude our prepared remarks for this afternoon. Chris, could you please open up the call for questions?

(Operator Instructions)

Mike Weinstein with JPMorgan.

Thank you. First off, congratulations to the whole team, obviously, on a very successful early start to the launch.

Michael, we haven't had a chance to chat since we put out our latest survey last week. What I'd like to get from you maybe is the starting point, and Rami chime in here as well, is some of the anecdotal feedback on the experience that physicians are having with the product. What are they telling you on the implant experience relative to traditional tonic stimulation with moving from paresthesia mapping to anatomical lead placement? What is the feedback on that been? Is there a learning curve to that?

Second, what's the feedback you're getting in terms of where initially, at least, physicians are using the product? Are they using it in back pain? Are they using it in leg pain? Is it a mixture? Any other commentary in terms of where early on are they trialing patients as they start to pick up their usage of Senza?

Sure. Thanks, Mike. I appreciate the question.

First of all, as a refresher for others on the call, if you look at these devices -- our own device or any of the competitive devices -- from a distance they look identical. What Mike is referring to is dispensing with paresthesia mapping in the OR and rather using anatomic placements of the leads. Everything else is essentially identical.

What we are hearing, and I think this was reflected quite clearly in your own survey, is that there is little to no learning curve in terms of using the product surgically. It is something -- the differences are such that they are quite attractive relative to efficient and effective use of the OR block of time to do patients. I think that has been a key feature for some of the early adopters of the therapy.

Before I ask Rami to provide additional elaboration, let me speak to the types of patients that are being -- it's being used on. I would say by design and by our request we started off a early almost mirroring exactly our RCT study in the United States, where patients had back and leg pain in significant levels. We started off entirely there, and it has moved a little bit but it tends to still be quite high percentage of patients with significant back pain, and/or mixed back and leg pain.

Rami, with that, why don't you address both the learning curve, as well as the types of patients that -- the profile patients we're seeing.

Thanks, Mike. I think Michael cover both well. In terms of the mapping, frankly we see the same positive feedback that we've learned to see internationally, but we got there I would say a lot quicker.

I think physicians certainly appreciate the efficiency of the procedure, and the patient benefits as well. Obviously a much less stressful procedure on the patient. I think that parts actually been fairly uneventful.

In terms of the patient population that we are seeing, we are seeing both back and leg pain. As I mentioned in my comments, what we are seeing in the marketplace pretty much reflects our view of the composition of the market in terms of the distribution. There's certainly a lot more back pain patient out there than there are predominant leg pain patients. Frankly, the way we are seeing it, as I mentioned, physicians who are fully adopting the therapy are seeing a significant -- or can see a significant -- increase in the volume of the patients that they are able to treat once they open it up to the back pain patient population as well.

I would say, in sum, that overall on both of those points, Mike, our experience in US launch has been extremely positive both in terms of the adoption of the therapy and, if you will, the adoption to the anatomical placement of the leads versus the paresthesia mapping. As well as the physician's reception to their ability to help a lot more those patients in their practice than they've been able to help in the past.

Rami, a couple things I thought were in your prepared remarks were very encouraging. One, the commentary on conversion from trial to permanent implants. For those that are familiar, it sounds like it's one running well above historical market rates in terms of conversion from trial to permanent, which means that referrals are converting to full implants for you guys at a much higher rate.

Second, less the commentary more than just performance. In the international business, despite how high your market share already is in rechargeable segments -- in certainly Australia and in other geographies -- continues to run at a very high rate. I know you guys have been surprised that you haven't seen more of a slow down to date. Can you talk about the international experience and where you are still seeing share gains geographically? Thanks.

I'm going to ask Rami to weigh in, but let me go back to something we talked about in a number of the calls so far; and that is the extent to which we are expanding the market versus taking share. I do think that we are being helped by the fact that we are going after; heretofore, poorly treated patient populations. Patients with significant back pain. Those patients are in the pain clinics, in the pain practices, and they have been historically poorly served and we are treating them and they are being treated effectively.

So I do think that that has, if you will, eased some of our growth rates in those markets. That said, as Andrew mentioned on his comments, looking forward we do think that it is going to be harder to get those sort of numbers in terms of growth rates going forward in those international markets. But, of course, if there are patients out there requiring treatment, we are happy to provide our therapy for that. Rami, do you want to --?

The only other thing I would add, Mike, is certainly the international sales organization has just done a phenomenal job of executing and continues to execute at an incredibly high level, which is something that we appreciate your recognition of that.

I would say I think the interesting thing for us in terms of why we continue to grow -- at least our thesis -- is that if you look at this market and step back there's a very high level point, but it's been a market that's their very much for driven by features and benefits in technology; and we obviously have taken a very different path to this market in terms of going at it with evidence and outcomes. I think the fact of the matter, in the presence of the clinical evidence our SENZA-RCT results over the last twelve months, I think we continue to see encouraging growth with a combination of our clinical evidence and the outstanding sales organization we have internationally.

Like you said, we continue to feel very encouraged about the results. We will see where this goes (multiple speakers) -- where the train continues to go. I would say that I think the biggest driver, obviously aside from continued execution, is the impact clearly of this clinical evidence is high and the ability to, as you highlighted, to actually be able to deliver on the promise of those outcomes in clinical practice every day.

Rami, I'm going to ask one last question. I apologize, then I'll let some others jump in queue. The established competitors, Medtronic, Boston, and St. Jude. The one that I've felt has the best response, or really the only real response at this point to Senza is St. Jude with Burst stimulation. We're going to see the Sunburst data at NANS. And my expectation has been that, that data relative to historical tonic stimulation is going to look good based on all the data we've seen on Burst.

Can you give us your thoughts on -- there's not going to be at any point a head-to-head study -- at least it doesn't look like a real one -- of Senza versus Burst pacing from St. Jude. Can you give us your thoughts, without having seen what Sunburst is going to look like, on how you view Burst relative to HF10 Therapy?

What we said about Burst, and I appreciate the question, Mike, is that Burst has been available internationally in a number of markets where we've been available; and I think our growth continues to speak for itself. So without seeing the data, there's really not a lot more that I can comment on.

I believe if they do present data, which hasn't been 100% confirmed yet, I believe it will be 3-month data on each arm. I think we will see what we can extrapolate in terms of outcomes from that data set, but again I think we are allowing our international experience there and our results there thus far.

Thank you guys for taking all the questions.

Thank you, Mike.

David Lewis with Morgan Stanley.

Good afternoon. A few quick questions. The first is thinking about the fourth quarter guidance. By our math the fourth quarter implies reps are already annualizing $500,000 revenue per reps. That's at least six months of ahead of our model.

Does that change, Michael or Rami, how you're thinking about adding reps in 2016? Or do we still assume you had materially to rep counts in 2016?

I think, like I said, we would provide our guidance on the number of reps -- our hiring plans -- when we report the fourth quarter numbers. As I think we have all alluded to, there is a strong demand for the therapy. As we've said from the get-go, one of the underpinnings of our launch strategy is to make sure we go to the right accounts, use it in the right patients, and make sure that it is properly supported from us as a Company. That means having really talented, skilled people in the field supporting the practices and the patients.

Yes, I do think we are going to have to continue to add significantly to our headcount in the field. Certainly, in the United States, but also I would say internationally as well; and that is our plan.

Okay. Helpful. Two more questions. Last week was a big survey week and our survey last week did show an interesting bias towards your product being used with pain management anesthesia over the neurosurgeons. I wonder, that doesn't really surprise us necessarily, but how has your experience across those physician sets differed and could you give us updated timeline for the paddle lead?

Rami, why don't you --

Sure. Our experience, as you know -- let me step back. I think your question, David, is how is our experience different between the pain physician community versus the neurosurgeon community? Is that right?

You got it.

Okay. Our experience thus far has been consistently positive. We have been able to support neurosurgeons in the US who are more familiar and are able to place percutaneously. We have been able to work with some segment of the neurosurgeon community thus far until we have our paddle available in the US. I would say, our results and our experiences thus far have been positive across both physician groups.

As far as the paddle lead timing, we haven't announced that publicly. We have acknowledged that we are working on it. It's one of our very priority projects from an R&D perspective.

Andrew, last one here and I'll jump back in queue. Just thinking about guidance here. If you think about your fourth quarter momentum, and obviously you're almost halfway through the quarter which makes it a little bit easier to assess revenue in the fourth quarter, but as your guidance for the fourth quarter is materially above the Street -- perhaps certainly more than necessary by many models.

Can you give us a sense how you handicapped the two holidays in the fourth quarter, Thanksgiving and Christmas, as relates to establishing guidance and rep utilization for the fourth quarter? Congrats on the quarter. Thank you. That's all I've got.

Yes. Sure. There are actually two big differences going on here. One is, in the international market there is, in fact, a slowdown in December. Of course, Thanksgiving is irrelevant to them. That's one trend that you find in the market.

However, in the US market, December tends to be one of the larger months as people get to the end of their deductibles. That is a major factor in the US market at present, so we did actually take those fully into account in coming up with our guidance numbers.

Okay. Thank you very much.

Thank you David.

Danielle Antalffy with Leerink Partners.

This is Puneet in for Danielle. Thanks for taking our questions, and congrats. This is absolutely a phenomenal quarter.

Thank you.

Just a couple questions in terms of -- we were seeing early on -- we were seeing some warehousing. Are you still seeing that? You've clearly gone broadly in a lot of societies -- into the regional societies, Florida, Texas, and other. California societies and other places.

Are you still seeing this warehousing affect? What are you hearing back from the physicians? Is there patients that they have warehoused and are you seeing broadly? Or could you give us some color on that?

Clearly we do have some accounts that have warehoused patients in anticipation of our product. I would say that, as we said from the very beginning, there is typically a evaluate the product, utilize it, see how it works in the physicians or the surgeon hands, and see what the outcomes are before it's really embraced in terms of fully integrating it into the practice.

As Rami mentioned in his comments, we are seeing earlier conversion, full conversion, of accounts in the US launch than we saw in our analogous international launch. Again, the difference may be the fact that we have this level one data underpinning our product. It could be that. It could also be that there are those patients warehoused that are being brought to bear and they're using the therapy effectively to treat them.

I think we are seeing some of that. I wouldn't say it's especially broad in the market. It's on an account by account bases.

Okay. Thanks for that. In terms of the training wise, which accounts or what sort of folks are you still getting a push back in terms of clearly the learning curve is almost inexistent. As you are going into folks who are paresthesia mapping trained and they've done that through their career. What sort of accounts are you still getting a push back, because it clearly looks like everyone is adopting, but where are you getting this pushback from?

I'm going to ask Rami will field that one. Rami?

I think you made the comment to me, everyone is adopting. Let's not -- (laughter). We are one full quarter into the US launch, obviously things are going phenomenally well, but let's not get ahead of ourselves.

I would say there's work to be done, right? In any sort of launch in any sort of product, whether it's a medical device or technology et cetera, there's kind of a distribution of adoption attitudes and curves; and we are certainly going through that. There are certainly a lot of early adopters and we are getting faster adoption, as I said, in those accounts. I think there is still a lot of work to be done to obviously drive broader adoption of therapy into the large US market.

I think that's what I would say at a high level. The competitive spin, if you will, or pushback to get more specific is nothing new. It's the type of things that we've heard about in the past. It's feature and benefits selling around whether it's size of IPG or MRI compatibility and things of that nature.

We obviously stand behind our clinical evidence and the patient outcomes are able to deliver. That has been and continues to be the single most important driver of our business. At the end of the day, what's driving the adoption in the US is the benefit that these physicians are seeing in their patients. The profound pain relief we are able to deliver and with that ability we are generally very successful. Have been and believe we will continue to be in terms of driving adoption of the therapy both in the US and internationally.

Okay. Thanks for that. One final one. In terms of as you go to NANS, are you expecting any investigator led studies or are you expecting more single-centered studies to come up in addition to the 24-month data. That's all I have.

If I understand your question correctly, Puneet, we don't expect to have publication or presentations on any investigator initiated studies at NANS. I think we have a pretty good window into what's likely to be presented there, and we don't expect that.

Dave Turkaly with JMP Securities.

You mentioned in your prepared remarks that two of four key long-term studies. I was wondering if you guys are prepared to give us a clinical update on where you stand today?

I'm sorry, David. Can you rephrase that? I want to make sure I understand your question.

I guess to the extent that you can talk about some of the other indications you are going at. I know you mentioned the feasibility study last quarter. We talked about some other indications in the past. I was wondering if you have any update on where you stand on the clinical front today for other indications?

Got it. Thanks for the question. Really what we're talking about is as a Company that always wants to have sound and solid clinical evidence underpinning what we do in the market, the question is where do we go next these vis-a-vis label expansion?

Our label expansion efforts that we talked about in the last call were the upper limb and neck trial, which is a feasibility trial in the United States. Now this is a feasibility study only, so ultimately assuming that goes well, that would then go through a full-fledged pivotal trial; and then to submission. So we would go through the whole process there that we've just gone through now on the back and leg pain indication.

Other areas that we are keenly interested in, and have done work already, in either single centers or multiple centers outside the United States, would be refractory low back pain. That would be patients that are significantly disabled but they have not had spine surgery yet. We've done a number of studies in that area.

Some of those our cohorts of the existing Senza pivotal study or the EU study that's already been published. We also have standalone work underway in the UK in that area. And the other area where we've done our label expansion work, we've done that we have spoken about publicly, is very preliminary pilot work out of Europe in the area of migraine.

In each of these, of course, these are label expansions that are still within the broad indication of pain relief, but the location of the body is different. Therefore, it requires different lead placement, different programming algorithm. And it necessitates that we do the basic clinical work first before we bring it to the market.

I got you. Thanks. If we look at your US rep base today, 92. Is there a way to think about an average account number, broadly speaking? Maybe just even anecdotally? How many accounts do you think a fully trained rep can target?

I think I'm going to ask Rami to jump in here. I think we've actually covered this on the last call.

It is very difficult to do, Dave, because what you find is if the account is big enough, one single account can consume the time available for one really, really good and experienced representative. Conversely, if they tend to be a little bit smaller, they might have two or three or even more.

It also gets to the geography we are talking about. Are you in a rural area or is it a metropolitan area where you can get to several but hospitals quickly? With all those factors, it is difficult to come up with an average or a likely case.

I think the only other thing I'd say, Dave, is to think back to our strategy for going after the market. We are not particularly interested in skimming the market and going to multiple accounts, and taking a little bit of business or some of the patients in many accounts rather given our belief in the therapy that it is superior and it can deliver better outcomes. Our preference is to go deeper in a smaller number of accounts and really serve those accounts well and serve those patients well.

So that's our general approach. If you take that onboard, you might say well that should drive fewer number of accounts per representative, but as I said earlier, it's highly variable. Rami, you got anything to add to that?

Just to make one more point on that. Everything Michael said, obviously, perfectly highlights our strategy. I think when you take that to, okay, well how do I think about this business? Dave, the way to think about in terms of reps and why we chose communicate rep productivity -- that's the way we think about our business and that's the way we encourage folks to think about it.

It's not [reach] in terms of number of accounts, but what type of volume can one rep manage? What we've said again is $1.3 million to $1.5 million in 18 to 24 months. As Michael said, we actually hope and our strategy is to make that rep as efficient as possible being the fewest number of accounts as possible to drive that business.

You have to remember, we're actually growing the market in addition to taking share. If we are in an account and we can take significant share from that account and grow that account significantly, that could keep a rep pretty busy versus having to go to three or five or eight accounts to get the same type of volume of business by [skimming], as Michael put it.

We encourage folks to think about our business that way in terms of productivity, because that's how we built our business. It's positioning our sales force to really drive adoption and grow the accounts that we are in and help create a lot more patients in the process.

I appreciate that detail. I'll try one last way to get the same thing, and I do appreciate that answer. If the top 5% do about 30% of the volume and that's really a couple hundred accounts, if you had to guess today, how many of those you think you've hit already? If you would just guess at how many of those you've actually targeted or been in front of since the launch? Thanks a lot.

Sorry, Dave. Sorry to dodge that, but I think we are going to stay [pat] on that one.

Okay. Thank you.

Appreciate it.

Joanne Wuensch with BMO Capital.

Thank you. Good evening, and very nice quarter.

Thank you, Joanne.

Two questions. First one is your sales force hires. Where are you getting these folks from? And how long is it taking for them to get up to speed?

We are taking our sales force hires from really all corridors. Some are actually coming directly from competitive SCS companies. Some come from competitive SCS companies with no non-competes.

Others come and we may have to change their territories. We are also hiring from other medical device companies where they may have familiarity with active implantables, but not spinal cord stimulation. So that has certainly been a pool we have hired from.

And there are some that are, frankly other medical device companies that has not even done active implantables, but they are very proven and effective sales individuals and professionals. And we've taken from that pool as well.

I would say really from all corridors, and we are quite pleased with the caliber and the professionalism of the people that we have right now undertaking the launch in the US and, of course, the numbers I think show it. The same is true internationally.

In terms of productivity, I think what you are referring to is what's it really take to get to full productivity? We're basically saying on the order of 18 months to 2 years to steady-state, full productivity and we have been consistent with that. With the information we've received since the last quarterly call, I would say it is only reinforced that estimate that we had, we are still very comfortable with it.

My second question has to do -- hunting in the same direction as previous questions were -- by our count you've had about 155 implants in the quarter. How broadly spread is that or roughly how narrow is that in terms of the physician and/or hospitals that are performing those procedures?

Joanne, again, I think we are very comfortable providing the information that we are providing, and that is the number of reps, the productivity timing, and their steady-state productivity.

We think a rep ought to be at the 18 to 24 month period at $1.3million to $1.5 million, and we think that's kind of the triangulation that we are comfortable giving out. And really don't want to give a whole lot more color in terms of how we're spread out in accounts, simply because we don't think it's particularly necessary and there is a competitive element of that that we prefer to stay away from.

All right. You can't blame a girl for trying. Thank you, and have a good evening.

Thank you, Joanne.

We have no further questions at this time. I'll turn the call back over to our presenters.

Thanks, Chris. Thank you once again, everyone, for joining the call today. We appreciate your continued interest in Nevro and look forward to our next progress update. Have a good day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.