Sientra Inc (SIEN) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Sientra, Third Quarter 2014 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder this conference is being recorded. I would now introduce your host for today's conference, Nick Laudico, from The Ruth Group. You may begin.

Thanks, Operator. In our remarks today we will include statements that are considered forward-looking statements within the meeting of the United States Securities Laws. In addition, management may make additional forward-looking statements in response to your questions.

Forward-looking statements are based on management current assumptions and expectations of future events and trends, which may affect the company's business, strategy, operations or financial performance. A detailed discussion of the risks and uncertainties that the company faces is contained in its quarterly report on Form 10-Q. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection or forward-looking statement.

With that said, I'll hand the call over to Hani Zeini, Founder and CEO of Sientra.

Thank you, Nick. Good afternoon everyone. And thank you for those of you who are on the call with us today. Joining me today on the call is our Chief Financial Officer and Treasurer, Matt Pigeon. I will provide a general business overview on the updates then turn the call over to Matt who will provide specific details on our financial performance for the third quarter as well as for year-to-date.

We're really excited to welcome all of you to Sientra's first quarterly conference call as a public company. This is a great milestone for our organization particularly given that we received FDA approval of our breast implants and commence commercialization just about two-and-a-half years ago.

As you all are aware we completed our IPO earlier this month in November, selling 5.75 million shares at a price of $15 per share and which included the underwriter's options to purchase 750,000 additional shares. Net proceeds from our IPO were $77.2 million, after taking into account the underwriters discount, commissions, and estimated expenses. We were also honored to celebrate our IPO by ringing the Opening Bell at NASDAQ on October 29th, the day our stock began trading publicly.

In regards to our third quarter, let me start by saying that we are pleased with our performance which demonstrates the continued adoption of our differentiated breast implant products by board-certified plastic surgeons.

Sientra's growing commercial organization continues to successfully leverage our proprietary of technology and strong clinical outcomes to gain market share. While we're pleased with the nearly 34% net sales growth, when compared to the same period last year, we should also point out that this growth was amplified by an easier comparable period in the third quarter of 2013 when most of our organization was deeply involved in distracting litigation with Mentor.

Now while many of you on the call are familiar with Sientra and our differentiated product offerings, I will provide a brief background for those who may be new to the story. As a medical aesthetics company we aspire to make a difference in patients' lives by enhancing body image, growing self-esteem and restoring confidence. We provide greater choice to board-certified plastic surgeons and their patients through our differentiated technology and product options, many of which historically were not available in the United States prior to Sientra's entry to the market and breaking what was at the time a 20-year duopoly stronghold.

Our breast implant portfolio includes over 150,000 styles and sizes which includes shape and round as well as smooth end texture breast implants. Many of our breast implants and corporate one or more differentiated technologies that result in providing the desired balance between strength and softness and includes High-Strength Cohesive Silicone Gel and through a textured technology.

Lastly and based on deep experience and knowledge of the plastic surgeon needs we offer a broad sweet of programs and services, geared towards improving efficiency, clinical workflow and best business practices.

Now during 2014, we have been focused on raising product awareness and deepening penetration and existing as well as new territories in the United States. We've made progress towards this objective in the third quarter by expanding our commercial organization and further expanding sales territory coverage.

As of September 30, 2014 we had 42 sales representatives and managers compared to 36 at the end of September 2013. Since the end of the third quarter of this year, we'll also add four more sales reps, raising our current total of our sales organization to 46. At present time, our reps covered 42 territories grouped into five sales regions based on concentration and location of high number of top tier accounts.

We will continue to focus on growing our sales presence in order to increased demand for our innovative products and optimize coverage of existing territories while selectively broadening into new territory. We anticipate it continued thoughtful expansion of our sales organization based on extensive market analysis and commercial opportunities.

We continue to hire some of the highest quality reps in the industry and our experienced building organizations indicates that these reps take approximately 12 months to become fully productive in their respective new territories.

In terms of R&D we continue to build our product portfolio to expand our offerings and addressed the growing demand from our plastics surgeons for more shapes, sizes and projections.

In October of this year we introduced a line extension to our portfolio of smooth round breast implants. This displays at the recent American Society of Plastic Surgeons or ASPS, annual meeting in Chicago. This new line extension provides Board-certified plastic surgeons and their patients with additional options for a higher projection and greater upper pole fullness.

I am very proud of how our entire organization came together to expedite the successful launch of this line extension to meet the needs of our surgeon customers.

Now I would like to turn the call over to Matt who will discuss our financial results in greater details. Matt?

Great. Thanks, Hani. And thanks again everyone for joining us on today's call. As Hani mentioned we are proud to be participating in Sientra's first quarterly calls as a public company and are pleased with our third quarter and year-to-date performance.

I will now discuss these results in further detail, focusing on our third quarter with select nine months performance highlights. Our full third quarter and nine months financials are available in greater detail in our earnings press release. Additional detail will be available in our 10-Q filing tomorrow.

Our total net sales for the third quarter of 2014 were $10.7 million representing growth of 33.7% as compared to the third quarter of 2013. Total net sales in the nine-month ended September 30th, 2014 were $32.6 million representing a 25.8% increase compared to the same period in 2013.

The increase in third quarter and nine-month ended September 30th, 2014 was primarily driven by our sales of breast products resulting from increased commercialization activities including the expansion of our sales organization and increased marketing activities as well as the greater familiarity by Board-certified plastic surgeons with the Sientra's products and customer service offerings.

Gross profit was $7.8 million or 73.5% of net sales for the third quarter of 2014, compared to gross profit of $6 million or 75.3% of net sales for the same period of 2013. Gross profit for the nine-month ended September 30th, 2014 was 24.3 million or 74.6% of net sales compared to gross profit of $19.6 million or 75.5% of net sales for the same period of 2013.

Gross margin for the third quarter and nine-month ended September 30th, 2014 were primarily affected by unexpected manufacturing price increased, incremental warehouse cost, product mix and certain targeted pricing programs.

Operating expenses for the third quarter of 2014 were $8.6 million, a decrease of 29.5% compared to $12.2 million in the third quarter of 2013. As part of our operating expenses sales and marketing expenses for the third quarter of 2014 remain constant at $4.7 million as compared to the same period in 2013.

Research and development expenses also remain constant for the third quarter of 2014 at $1.2 million compared to the same period in 2013. General and administrative expenses decreased by $3.7 million or 58.2% compared to the same period in '13, this reduction was primarily due to the $4.7 million decrease in mentor litigation expenses which was partially offset by an increase in expenses related to federal excise tax and accounting cost.

Net loss for the third quarter of 2014 was $1.5 million compared to a net loss of $6.5 million in the prior period. As we move forward we'll continue to invest in our business to drive sales growth including the expansion of our sales organization and increased marketing programs that Hani mentioned earlier as well as future product development. And as of September 30th, 2014 we had $19.8 million in net cash and equivalent and as mentioned earlier in November 2014 we completed our IPO and received aggregate net proceeds of approximately $77.2 million after deducting underwriting discounts, commissions, and estimated offering expenses.

With that I'll now turn the call back over to Hani for final closing remarks.

Thanks, Matt. I want to close by reiterating that we are pleased with the progress we are making and the increased awareness of our differentiated breast implant products by board certified plastic surgeons. We continue to be guided by our commitment to deliver value creating innovative solutions and programs to the market. With an experience dedicated team and capital from our recent IPO we are now focused on executing our gross plans and evaluating corporate development opportunities.

Now, before turning over the call for Q&A I want to offer my most heartfelt gratitude to each and every one of our amazing employees here at Sientra who have made the success of this company and our recent IPO possible. Their passion, dedication, and unwavering commitment to serving plastic surgeons and making difference in patient's lives is truly inspirational and make me deeply proud to lead such an incredible community. At Sientra we place great value in our culture and its uniqueness.

And with that I will now turn the call back to the operator to begin the Q&A portion of this call.

Thank you. (Operator Instructions) Our first question comes from Tom Gunderson of Piper Jaffray. Your line is now open.

Hi, guys, good afternoon.

Good afternoon, Tom.

The -- Hani, I've got two questions I want to ask regarding the FDA. One is on the smooth round that you introduced and family that you introduced in October, two parts to that; number one is just to double check, are those PMA supplements and do they go through -- what kind of rigor do they go through? And the second related to that is with that addition what percent of a total portfolio, a total catalog that you might be going forward do you currently have with your Sientra products?

Thanks, Tom for the question. In terms of first part, yes, those are PMA supplements for the line extension, so we have to go through the same rigor in terms of specification and compliance, and second part if I understand the question correctly the -- you're talking about the Smooth Round line extension as a percentage of the overall?

No, no. What you have now, all of your products together, is that 50% of what you hope to have someday, 90% of what you hope to have someday?

Got it. Yes. I believe we're probably closer into the 70% to 80% of what we are aiming for, what we have currently.

Got it. Thanks, that's helpful. And then the other FDA question is from the news this week and that is I'm sure you saw that another breast implant company got FDA approval, the ideal implant I believe that's saline filled product, could you comment a little bit on that and -- what if any impact that might have to your business?

Of course. Thanks for that question, Tom. Yes, the ideal implant that was approved earlier this week is a saline based implant and it is important to note that because I know that I've been on record stating that the regulatory process in the FDA has been very rigorous in terms of silicone breast implant, and there are no current silicone breast implant in clinical trial, and for the foreseeable future we see that it will be only the three PMAs that exist today. That is still the case, it's still valid and we still believe that, that is going to carry forward in terms of the next many years in front of us.

In terms of the ideal implant it is as it indicated the Saline implant, I applaud Bob Hamas, the doctor who came up with that, he's been going at it since 2003, 2004. And regardless how it's positioned it is still not going to be a silicone competitor. The market is very different now, silicone has been available in the United States or I should say silicone gel breast implant has been available in the United States for nearly eight years, the questions that existed back in the '90s around safety don't exist. And this is evidence by when we look at the procedure, 80%, 82% of those procedures are silicone based in the United States.

So there is still a niche market for saline implant. It's pretty much a price driven niche market, a low price driven niche market if I may add. And even though we look -- and everybody takes a look at them from a procedural point of view and maybe the procedural wise, it represents 10%, 15%, 18% procedure, we have to be mindful in the value of that because the saline implants are a serious discount, so that 15% to 18% potential saline procedure market is equivalent about 6%, 7%, 8% on a dollar basis.

So, for those who are looking for a saline implant that might be an alternative for them, but as you probably seen it is an implant that requires intelligent way of manufacturing which means the more that you have to do with a device, the more you increase the potential for failure points with it.

Got it. Thanks. That was good color. That's it for me, guys.

Thanks, Tom.

Thank you. Our next question comes from the line of Jon Block of Stifel. Your line is now open.

Great, thank you and good afternoon. Maybe my first question I'll move over to the recon market and there was actually an article in [JAMA] recently about women taking a bit of a more aggressive approach to breast cancer with more women opting for double mastectomies, if you can talk to us about your share and maybe in the recon market relative to augmentation and then how do you see your position in this part of the market unfolding going forward?

Good afternoon, Jon. Thanks for the question. As you know the reconstruction market is mainly and primarily reimbursement market. And given in the past couple of years our capital constraint in terms of building out the sales organization we've opted at the time to pursue the cash [pay] and not play very aggressively in the reconstructive market at the time due to the fact that it requires a national contracting strategy, building out an organization of hospital and [GPO] specialist and so on.

We tend to look at the reconstructive reimbursement market as a growth opportunity for Sientra, one that we will be eyeing very aggressively as we forge into the next phase of the growth of the company. And the activity we've been also on our end involved with the societies, they had to promote the awareness of the options for reconstruction.

We'll be in active in couple areas in supporting in -- at the state level where women now have the -- it's bylaw mandated such as the State of New York that's when doctors are speaking with women about their breast surgery for the mastectomy and post mastectomy, they are obligated to give them a rundown of their options for reconstructive surgery. And so it's an area that's we're active, we're committed to. It's an area that we have been playing here and there with, but not with the tremendous vigor that we will start focusing on a going forward basis.

Okay. Great. Very helpful, thanks for that. And then, just a different question, I cover a bunch of different industries and a hodgepodge of industries. But it -- one common denominator as a lot of these have a cash pay component and if I look back the past, three or six months, I wouldn't categorize them necessarily as robust. But there does seem to be some strengthening and some of the different industries and maybe Han, if you can just talk to us about what you're seeing in the aesthetics market specific to the US, do you see some strengthening, do you see things picking up? Thanks guys.

Thanks, Jonathan. Your question is both at a macro and a micro level, I think out of macro level aesthetics in general has continued to grow and excel. I've seen it outside the United States as much as I've seen it in the United States. So it has been healthy and encouraging to see that the trend but that comes across the entire aesthetic platform.

Typically, third quarter usually a little bit slower or softer than in other quarters of the year, and that continued to be the trend even though it was a solid quarter. We tend to see that the aesthetics spend continue to be healthy across all verticals whether be it invasive as in surgical or non-invasive. And we're encouraged by the trends that we're seeing.

Thanks for your time guys.

Thank you. Our next question comes from the line of Richard Newitter of Leerink. Your line is now open.

Hi. Thanks for taking the questions guys.

Hi, Richard.

Han, I was just hoping you could maybe provide a little color on any trends that you saw specifically on ASPs in the quarter. I might have missed that in the opening remarks, did you give any color on the ASP change?

We haven't given that out, Richard, and we're not going to be in the habit of breaking our business into the most discreet level for our competitors. That said, I would tell you that our guiding principle has always been we have a differentiated product with a compelling strong clinical portfolio and of data behind it. We are positioning it as a value creates and a value-added for the surgeon and the patient. We have chosen from day one a principle of [mock] competing on price rather on value and we continue to hold close to that. So we're comfortable and where our ASPs have been tracking and trending and it is indicative of how we feel about the differentiation of our technology.

Okay. Thanks for that. And then maybe just more broadly taking a look at the augmentation -- breast augmentation and reconstruction implant market, can you give us a sense of where understanding -- I understand that you guys are a smaller player there in it, but what do you think the overall market growth rate is trending at right now?

If we take a look historically as we break the data whether be it from the ASPS which reports on reconstruction procedures and ASAP, ASPS will support on the augmentation procedures, look at various queues and case and historical trend and our understanding of the market and the competitor. We come out in terms of procedure of about 20% to 22% of the procedures are in reconstruction and about 70, 80-ish is in augmentation as well as revision. We also tend to believe that the augmentation market is growing in the low single digits over the past several quarters -- three, fourth quarters, while the reconstruction market is going in the mid to high single digits. So when you blend them together, you got closer to a mid-digit single digits growth.

Got it. And that's on the revenue basis or on a unit basis?

That's on a revenue basis.

Terrific. Thank you so much.

Of course.

Thank you. And our next question comes from the line of Ben Andrew of William Blair. Your line is now open.

Hi. Good afternoon. I wanted to talk a...

Good afternoon.

Thanks, Hani. I wanted to talk a little bit more about something in our sales and marketing efforts be it I'm just adding reps. What kind of leverage do you think you can bring now and the additional resources with the IPO proceeds? And can you accelerate the recent growth trend other than just adding reps?

Yes. You were cutting up -- I'm cutting out a lot Ben, but I assume the question is how the sales organization growth and how we can leverage that?

Yes. It's actually more about what can you do beyond that in terms of adding sales rep? Yes, in terms of adding sales (inaudible) resources aside from reps so perhaps accelerating?

Sure. As we stated before our objective when we look at how we grow Sientra and how we grow Sientra's market share, it is multi-fund -- first and foremost is what you discussed in terms of expansion of our coverage, broadening the coverage and the depth of the coverage. So not only covering more, but within those territories that we cover increasing our level of business within that. That said, we also look at geographic expansions to the Canadian market, which we anticipate will happen in 2016.

And then now that we have the capital from the IPO we're looking at the various adjacencies in terms of products that make sense, in terms of adding to the bag of our sales rep at the cold point, which we are uniquely positioned to be as a plastic surgeon only. We wrap around all of these programs whether be it the preceptorships that we have, the unique office-based centric policies and systems that we introduced. And so the combination of our marketing programs, our consumer awareness program, expansion of the sales organization and focus, marketing initiative combined with looking at adjacencies of a product as a cold point is what we plan to do and we are focus on executing on it.

Okay. And then as you look at internal development efforts, are there any of those products that you might look on those full-blown TMAs or with a typically supplements of existing using this existing technology in terms of line extensions?

I have to be careful how I answer that question without disclosing confidential information. I think if you want to look in general at the time horizon over the next three to five years, I believe we will have a combination of things that will be either supplements, five 10-Ks or TMAs. But for now, we're focusing on the line extensions where the supplements as well as some type 10-K products.

Okay. And then, Hani, any comments on the potential acquisition of Allergan via (inaudible) and how that may affect the EBITDA focus or commitment to the space or what opportunity that may create player?

Yes. Thanks, Ben. From my advantage point having been in the industry long enough, I give a lot of kudos and applaud, David Pyott that is at Allergan for his steadfast focus on creating shareholder's value and doing what's best for the organization. In terms of how these things turn out when you have integration and the lots of things moving parts here, the best position where we can put ourselves in is to wait and see, stay focused on what we do and we do back. I couldn't help but to also see from a breast implant franchise, I didn't say breast implant, but best products franchise.

If I look at what I anticipate is the business that Allergan has in the United States, it will appear to be less than 0.9% of the combined company revenue and plastic surgeons offices. So we look at it that way and we look at it that Sientra is committed to both certified plastic surgeon and the business of plastic surgeons. So we see that as an opportunity, but we have to wait and see and how this unfolds. But we're happy to the folks that Allergan and I know some of my colleagues from my [intimate] days are still there. So congratulations to all of them and to the management team.

Great. Thank you, Hani.

Thank you. And I'm showing no further questions at this time. I would like to hand the call back over the management for any closing remarks.

Thank you, Operator, for pitching back the call. Thanks to everyone for your time and participation this afternoon. It's an exciting time for us at the company and we thank your support. I wish you and your families a Happy Thanksgiving holidays and we look forward to speaking with you on our next earning call. Take care.

Ladies and gentlemen, thank you for participating in today's conference that does concludes today's program. You may all disconnect. Have a great day everyone.