Sientra Inc (SIEN) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sientra first-quarter 2015 results conference call. (Operator Instructions). As a reminder, today's call is being recorded.

I would now like to turn the call over to Nick Laudico with The Ruth Group. Please go ahead.

Thanks, Operator.

In our remarks today, we will include statements that are considered forward-looking statements within the meaning 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's 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'd like to hand the call over to Hani Zeini, Founder, President, and CEO of Sientra.

Thank you, Nick, and good afternoon, everyone. Thank you for participating in today's call. Joining me on the call today is Matt Pigeon, our financial chief officer (sic - see Website - "Chief Financial Officer") and Treasurer. I'm going to provide a general business update and then turn the call over to Matt, who will provide specific details on our financial performance for the first quarter of 2015.

But let me start the call by expressing that we are pleased and proud of our first-quarter achievements, which included strong sales growth and expansion of our plastic surgery consultants team, or PSCs, while at the same time broadening the adoption of our unique breast implant technology. All of this solidified our disruptive position in the marketplace with evidence-based differentiated technology resulting in continued market-share gains.

Our first quarter net sales grew approximately 22% year over year. This growth was primarily driven by progress of our established PSCs, as well as the continued positive reception of our smooth round breast implant line extension that we launched late in 2014 and the ongoing expansion of our sales organization.

In terms of the sales force expansion, we remain on track with our 2015 plan, and as of March 31, our sales organization expanded to a total of 43 PSCs. We are pleased with the progress to date and remain on track to realize improved contributions from our newer sales reps as they approach full productivity in the latter part of 2015 and into 2016.

Also during the quarter, we maintained our efforts to lead and expand the conversation about the utility of textured implants, specifically in regard to the benefits of Sientra's differentiated TRUE Texture technology, based on evidenced clinical outcomes.

In regards to R&D, we continue our investment and effort in delivering a more comprehensive product portfolio in order to meet the expanding needs of our plastic surgeon customers and their patients. Our expectation is to launch additional new breast implant styles and options late in 2015 and into 2016, providing our customers with more choices to meet specific patient needs.

We believe that our growing differentiated product portfolio and our world-class sales organization and supportive marketing programs position us well for a robust long-term revenue growth. As such, we remain confident in our full-year 2015 guidance of net sales between $52.5 million and $54 million.

Lastly, we will be participating and exhibiting this coming weekend at the annual meeting of the American Society for Aesthetic Plastic Surgeons, or ASAPS, in Montreal, Canada, where we will be featuring the eight-year clinical data update from our FDA pivotal study of 1,788 women, which was the basis of our PMA approval. This is an update to our previously reported five-year data and was also published this week in the peer-reviewed Aesthetics Surgery Journal, or ASJ, as a supplement for the meeting issue. We continue to be pleased with the long-term performance of our product in this rigorous clinical trial that shows a strong safety and effectiveness profile with relatively low complication rates and high patient satisfaction.

With that, now I would like to turn the call over to Matt, who will discuss our first-quarter financial results in greater detail. Matt?

Great. Thanks, Hani.

I will now discuss our first-quarter 2015 results. Our first-quarter 2015 financials are available in greater detail in our earnings press release issued earlier this afternoon and additional detail will be available in our upcoming filing of our 10-Q.

Total net sales for the first quarter of 2015 were $12.4 million, representing a growth of 21.6% compared to total net sales of $10.2 million in the first quarter of 2014. The year-over-year increase in the first quarter was driven by continued progress of our established PSCs, positive reception of our smooth round breast implant line extension, and the ongoing expansion of our sales organization.

Gross profit was $9.2 million or 74% of net sales for the first quarter of 2015, compared to gross profit of $7.7 million or 74.8% of net sales for the same period of 2014. The decrease in gross margin for the first quarter was principally due to manufacturing cost increases and targeted pricing programs.

Total operating expenses increased by $2.8 million or 31% to $11.8 million in the first quarter of 2015, compared to $9 million in the first quarter of 2014. As part of our operating expenses, sales and marketing expenses for the first quarter of 2015 increased 23% to $6.9 million, compared to $5.6 million in the first quarter of 2014. This increase was primarily driven by an increase in employee-related expenses as the result of an increase in PSC headcount.

Research and development expenses increased 5.3% to $1.3 million in the first quarter of 2015, compared to $1.2 million in the first quarter of 2014. General and administrative expenses increased 64.2% to $3.7 million in the first quarter of 2015, compared to $2.3 million in the same period of 2014. This increase was primarily due to an increase in employee headcount and also public company related costs.

Finally, net loss for the first quarter of 2015 was $3.4 million, compared to a net loss of $1 million in the prior period. And as of March 31, 2015, we had $93.6 million in cash and cash equivalents.

As mentioned previously, we are reiterating our full two year -- our full-year 2015 guidance of total net sales in the range of $52.5 million to $54 million with a gross margin of approximately 73% for the year. We also anticipate the total number of PSCs expanding to 47 in 2015.

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

Thank you, Matt.

Before we open the call for questions, I want to summarize that we continue to make progress on all fronts by growing market share, expanding the sales organization, enhancing our product portfolio, and extending our offering in the marketplace, while at the same time highlighting our unique and differentiated product technology. We continue to be excited about our long-term growth potential in a large market and are very proud of our accomplishments to date, which puts us on solid footing as we aspire to build Sientra into a global medical aesthetics player.

With that, I will now turn the call back over to the operator to begin the Q&A portion of this call.

(Operator Instructions). Thom Gunderson, Piper Jaffray.

So, Matt, maybe first for you, just a quick detail. R&D was a little lower than we expected and a little lower than what you were averaging last year. Is that just an anomaly in Q1 or should we keep that number for the rest of the year?

Thom, good question. The answer is really it's pure timing. We do anticipate an acceleration for both marketing and R&D, but R&D specifically, in the coming quarters.

Got it, thanks. And then, Hani, on the sales additions, as you add the first 10 relatively easy, the next 10 a little harder, and so on, as you add the most recent group of sales guys, are you still finding that you can pick from experienced sales people that know the doctors, know the accounts, and essentially know the basics of the product? And the reason I ask that is sometimes on our small-cap medtech companies when they expand, it's -- the sales force, it's like taking a step back before you take two forward because the territories get disrupted and training, etc. I guess the short way of asking the question is, how long before this latest class is effective?

Great question, Thom, and there is complexity in answering that because of the expansion target and the purpose. Part of it is to expand geographic coverage based on needs, part of it is the depth of coverage within a territory that we split, and the other is a mix of accounts and potential opportunity. So, that's what guides us in terms of who we are trying to target and how we target them.

In terms of the quality of the reps that we are getting, we are finding ourselves in an enviable position of being able to pick fantastic reps that are experienced in the surgical arena, some of which have a plastic surgery experience, either directly or peripherally, but in general people who are comfortable in the operating room and have been calling on the same call points. And so, in terms of our expectations of them, we are working very hard on trying to accelerate their ramp up, but we continue based on looking experientially in the last 10 to 15 that it's taken about 9 to 11 months, somewhere in that neighborhood, for them to become productive, fully immersed, and so on, and then they grow from there on a steady state.

Got it. Thanks. And then, the last question is on the ASAPS meeting and the presentation of the eight-year clinical data. Can you give us a little bit more color around that? Is that a podium presentation? A panel discussion? A poster session? How are the data being presented, and is there any other peripheral events that you are having to disseminate the information to the docs?

First, let me ground you in the fact that this is an update to the clinical data. This is not a new set of data. It's not a new study or anything like that. It is the data that was the basis of the PMA approval, which when we get approval was a three year, then we issued the five-year update, and this is the eight-year update. It's in the meeting issue of the ASJ Journal, which is the official journal for ASAPS.

At the meeting, there will be podium presentations, but we're also -- there are two events, one on Friday night and one on Sunday night, that is sponsored by Sientra, where we will also discuss the eight-year data in terms of the authors. The authors who were responsible for that article will be presenting for a cohort of their colleagues.

The data continues to demonstrate strong safety profile and the trends continue to be steady and consistent. So, we feel terrific about the results, and we have adopted this notion of transparency and timeliness of our data releases from the beginning and we look at this as another feather in our cap. As soon as the data is available, we publish it.

Got it. Thanks. That's it for me, guys.

Jon Block, Stifel.

Great. Thanks, guys, and good afternoon. I might just build on Thom's last question and, Hani, you seemed to start going down the road. But on the eight-year data, I guess you will now sort of leapfrog the other guys that have somehow been stuck on the five- or the six-year data, and so will you now be adding them in terms of the number of years? Are they going to be required by the FDA to provide an update? And if not, are we still going to have sort of the situation where we're dealing a little bit apples and oranges in terms of the number of years in follow-up, except this time you'll be ahead?

Great question, Jon. In terms of the requirement, I think we all are required to be timely in terms of our submissions to the FDA. Then it becomes a back-and-forth and a choice whether do you want to make your data available as you do that with the FDA as soon as you do that with the FDA or you wait until the FDA forces you basically to do that?

In the case of our competitor, one of them has been able to follow the process and update regularly. I wouldn't say timely. But the other one has been holding off on doing that.

Interestingly enough, the data is available because Health Canada has forced both of our competitors to basically submit and they made it public. So we have an insight and a view into their progression of their clinical data all the way through 10 year and they exited the study, and that's when we make our rest of remarks and regards.

We are focused on getting our information in the hands of the doctor and their patients. We believe strongly that the patient who has been recently a very well-researched woman who is seeking to get an augmentation or revision surgery, we believe strongly in making the most current and up-to-date clinical data available publicly and widely so they make an informed decision. They research it and they have the ability to compare in their own minds of what they are seeing, and we're going to continue to push the envelope here in terms of transparency and availability of data.

Okay, great. That was very helpful, and maybe just two more follow-ups from me. At the ASAPS meeting, you already mentioned the eight-year data that will be unveiled. Anything more specific from you guys? I mean, I think the additional sizes on the round textured are more of a 2H 2015 event, so anything else we can expect from you? Or maybe even to call out something on the competitive front, J&J or Allergan, are they broadening their product lines that we can expect at the show?

Well, they are not in the habit of checking with me before they go to the show as what they are going to unveil, so we'll find out when we get on the ground.

As far as us are concerned, I think what you saw from us again focused on the clinical and didactic aspect of our business. The supplement was more than just the eight-year update for the five-year data, but rather we have also unveiled a rupture trending analysis on Kaplan-Meier basis that was done. I think it's one of the first, if not the most novel, approach to it that is going to be talked about at ASAPS.

We also have published and we will be highlighting at the meeting the experience almost three-plus years into it or three years now into it of the folks and the doctors who have been using our textured devices, as well as our anatomically shaped, and looking at the three-year out, how are those results holding up and the benefit and the expansion and the utility of the textured implant? And lastly is a best practices pearls from the experiential knowledge of how to use the Sientra devices, basically differentiated technology, and what you can expect with it.

So again, the focus at this meeting is not just about highlighting products, but highlighting how these products can support, help, and improve the efficiency, productivity, and outcomes of the plastic surgeons and the patients' results.

Okay, great. Last one, if I can just sort of slide in one more. The PSCs moving from 37 to 43 in line with your plans and then going to 47 by the end of the year, where are you with the pruning? Before, there was obviously a lot of turnover that also accompanied the number going higher, but I'm just trying to figure out where we are. Is it a one for one going forward on when you add a rep, we are moving up in terms of the total headcount? I'm just trying to figure out if some of that disruption that we saw in 2H14 is now in the rearview mirror. Thanks, guys.

Thanks, Jonathan. We don't have a looking glass looking into what the future is going to hold in terms of the one to one and one to many and so on.

What I can tell you is the following. We're going to constantly and vigilantly always look at how we are performing versus what the potential is for the performance in these territories. And we're going to make adjustments as necessary when needed.

We believe we have gone into a stability phase and we're going to build from here. We also -- as we complete this phase, we're not shy about constantly monitoring and evaluating the market conditions and the opportunities, not just our performance. And if we sense there is a need and opportunity to act on it, we usually end up acting promptly and deliberately.

So I believe that on a going-forward basis, you can expect the normalcy of operating a sales organization. There will be a certain number of nonperforming reps that we will exit and replace, but in general, we are at a point of stability.

Okay, thank you, guys.

Richard Newitter, Leerink Partners.

This is Ravi actually in for Rich. Thank you for taking the question. To build on the question regarding the sales reps, I'm just curious in terms of what is the productivity that we should be expecting sort of thinking about for a longer-term 9 to 11 month rep -- rep with about 9 to 11 months of experience under his belt or her belt, and sort of what percentage of the sales force would you consider at that level at this point?

Great question, Ravi. In terms of when we reference people coming to the 11 months and becoming sort of productive, we are thinking in terms of getting to the $1 million to $1.1 million run rate.

In terms of much longer term, when they have been in their territory for quite some time and they are growing at a steady state, we consider them as established at that point, a year and a half, two years into it. Our expectation is that they will ramp up to about a $1.6 million to $1.7 million revenue territory.

In terms of how many of our PSCs we consider right now under one year or fairly new, more than one-third of our organization -- somewhere between one-third and 40% are fairly new.

Great, thank you, and then maybe a question on just sizes. I'm curious. Should we be expecting a new group of sizes to be coming out later on this year? Any commentary on that would be appreciated.

Typically, Ravi, we don't speculate in terms of FDA approvals and we don't disclose in advance competitive plans and so on.

What we have said in the past and we are standing by is that we recognize there is a need in the marketplace for certain sizes and styles. We recognize that that's a gap in our portfolio. We have been working diligently in plugging that hole and attempting to fill that gap, and we hope that we'll be able to be in a position later this year to do that.

Great, thank you.

Margaret Kaczor, William Blair.

Maybe the first thing to start out with, we've heard a lot about sales rep displacements and kind of a lack of investment recently from your competitors, at least in the international market and particularly at Allergan. Have you guys seen something similar in the US? And if so, is there a way for you guys to capitalize on it?

Good question, Margaret, and we hear the same things as you hear. There's movement in that sales organization, part of it as the natural progression of an acquisition and a merger. Also, there are other opportunities with other competitors of theirs that are coming to market that might benefit from that, so there is mobility there.

In terms of our capitalizing on that, we do look at all the resources available to us. I think we are focused on -- as I mentioned before in previous calls, we are focused on sort of a hybrid or a different kind of representative characteristics and profiles for our business differentiated technology and growth versus a maintenance mode kind of sales model. But we do consider all the possibilities and the available resources, and if there is a perfect fit or a match for what we are looking for and what we aspire to do in certain market geographies, we tend to execute and act on it.

Great. And then, in terms of an update on Canada, are you guys planning on submitting for a new product approval in Canada and what's the timing on that?

Again, respecting that we don't disclose competitive or talk about our pipeline, what I can tell you in generalities is that we are pursuing a regulatory path in Canada for our silicon breast implant in an active manner.

And then, maybe one more. Kind of beyond breast implants, what can you tell us about the other implant products that you have, expanders? Are you seeing some of that grow or are you putting investments behind it? And kind of from a strategic long-term perspective, what else could make sense to add to the portfolio? Would you guys look at things used in breast implant cases? Maybe more like medical bras or scar creams? Or would you go more on more of a differentiated platform? Thanks.

Thank you, Margaret. Great questions. First one first. In terms of the expander and so on, as we have mentioned before, that's an area of interest for us in terms of the reconstructive market, and we look at that as a play for us in 2016 and beyond, which focuses us from an R&D development and other aspects to support that in terms of investing in development and the right product and the right mix of product between expanders and implants for reconstruction.

In terms -- a broader question in terms of addition to the portfolio, we have been very straightforward, transparent, and consistent in that our strength is in the plastic surgeon office and the OR. And first and foremost, we are there. We are there in a big way and in a differentiated way.

So what we look to do is we look to leverage that. And we would be -- we have a very disciplined and rigorous process in terms of looking at opportunities and licensing and acquisition and so on and so forth, and we look at how synergistic they are in the OR with our product, but also even outside the portfolio of our product, are they synergistic for the plastic surgeon practice in the OR?

And then, we migrate out of that and look beyond the OR, look into their office and their practices, and then we look beyond that as well into adjacencies. So we are continuing to do that.

We started that process in earnest after the IPO at the beginning of this year and we continue to filter through various opportunities. We keep a very open mind. We don't put restriction and limitation. We tend to migrate towards lifestyle and cash pay, but we don't put any restrictions or screens to say this versus that, beyond the framework that I already outlined.

Great, thank you.

Thank you. And with no further questions in the queue, I would like to turn the call back over to Hani Zeini for closing remarks.

Great. Thank you so much. I appreciate you making the time to spend with us this afternoon. I appreciate your interest. We are very gratified with the performance of the first quarter and look forward to speaking with you for the second quarter. Take best of care and have a great rest of the week. Bye-bye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Have a good day, everyone.