Sientra Inc (SIEN) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Sientra second quarter 2015 results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce you with today's conference, Mr. Nick Laudico with The Ruth Group. Sir, you may begin.

Thank you, 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'll 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 is Matt Pigeon, our Chief Financial Officer and Treasurer. I will provide a general business update and then turn the call over to Matt who will provide specific details on our financial performance.

Let me begin the call by saying that we are very pleased with our performance in the second quarter and year-to-date as we continue to demonstrate market share gains and increased adoption of our differentiated breast implant technology by board-certified plastic surgeons. In the quarter, we achieved 21.2% year-over-year sales growth, primarily driven by the progress of our plastic surgery consultants, and greater familiarity with our products by surgeons. We believe this continued commercial execution positions us well to achieve our full-year 2015 guidance as well as to fulfill our long-term aspiration to build Sientra into a responsible global medical aesthetics leader.

We expanded to a total of 46 plastic surgery consultants in the quarter and continue to focus on building a world class sales organization that can successfully leverage our comprehensive product portfolio. This expansion will enable us to gain new customers and further penetrate existing accounts. We remain on track with our sales force buildout and are pleased with the contributions from our new PSCs. We continue to expect that our newer PSCs will approach full productivity later this year and into 2016.

Additionally, we have seen positive results from our RealSelf Initiative that is focused on building consumer engagement and value for the Sientra brand on this important web-based platform. As you know, RealSelf is the world's largest online community for learning and sharing information about cosmetic procedures with nearly 1.5 million unique users a month specifically interested in breast augmentation. Most of these members are patients or potential patients engaging in a user experience to seek information education on available breast implant technology and other procedures as well.

For the first six months of 2015, we saw a strong engagement with the Sientra brand and its value proposition where Sientra brand held a commanding 56% share of all branded breast implant traffic on RealSelf, substantially more than our two large competitors combined. We also experienced a significant increase in the number of Sientra pages reviewed on RealSelf to over 1.2 million which is an increase of 50 times from previous year.

In addition, we achieved a very high 97% worth it approval rating, a metric that is highly relevant to the site and its members as it indicates their approval, the relevance of the material and their decision making. We believe that such targeted efforts utilizing online communities are important elements of our brand expansion. Further investment in such direct to consumer marketing will help build consumer engagement with the Sientra brand and create value for our surgeons for the long-term.

Now on the clinical front, Sientra continues to lead by expanding the body of relevant publications and literature related to our products and technology as well as overall clinical evidence related to breast implants. Something that we are very proud of at Sientra in terms of how we approach the market based on evidence and outcomes.

As we mentioned previously on our first quarter call, we recently added a clinical supplement that was published in the Aesthetics Surgery Journal which included two publications. The first is our eight year follow-up data from the pivotal clinical trial which was the basis for our PMA approval in the United States. As you recall, it's the largest of its kind with nearly 1,800 patients across 36 sites and it includes a diagnostic component with MRI for a cohort of 571 patients. The analysis of the eight year data demonstrated a continued strong safety profile evidenced by low incidence of implant rupture and capsular contracture over time, along with continued high patient satisfaction. This clinical evidence continues to generate positive feedback from surgeons.

The second, is a publication of our implant rupture trending study. The objective of the study was to evaluate the contributing factors to ruptures in order to better understand the reasons for this uncommon but serious occurrence. The study looked at a large cohort of 935 patients with approximately 1,800 implants across 31 implanting sites. The average follow-up duration for these implants was 6.6 years, ranging from 150 days post implanting to as long as 10.5 years. While there was no clear indication as to exactly why ruptures occur, about half of the ruptures in the study occurred with three specific doctors. We believe this is an indication that technique does matter, further validating our dedicated focus exclusive on board-certified plastic surgeons and our rigorous training programs.

With over 150 breast implant variations in our line and growing, our R&D team is continuing their efforts to expand our product portfolio to meet the needs of our plastic surgeons and their patients. As we look to the second half of the year and into 2016, we expect to launch additional new breast implant styles and options providing customers with more choices. We continue to believe that our growing differentiated product portfolio, our world class sales organization, and the supportive marketing programs position us well for long-term revenue growth.

Looking ahead over the next 12 to 18 months, we remain focused on three key initiatives that are imperative to our long-term growth. One, grow our core business in the United States. Two, evaluate additional aesthetics product adjacencies whether in the operating room or the practice. And three, pursue global expansion opportunities.

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

Thanks, Hani. I will now discuss our second quarter and year-to-date 2015 results. Our second quarter and six months 2015 financials are available in greater detail in our earnings press release issued earlier this afternoon. Additional detail will be available in our upcoming filing of our 10-Q.

Total sales for the second quarter of 2015 were $14.2 million representing growth of 21.2% year-over-year. Total sales for the six months ended June 30, were $26.6 million, representing a 21.4% increase compared to the same period in 2014. The increase was driven by the expansion of our sales organization and greater awareness and acceptance of our comprehensive breast implant portfolio by board-certified plastic surgeons.

Gross profit was $10.3 million or 72.3% of total sales for the second quarter of 2015, compared to gross profit of $8.8 million or 75.4% of total sales for the same period of 2014. Gross profit for the six months ended June 30, was $19.5 million or 73.1% of total sales compared to gross profit of $16.5 million or 75.1% of total sales for the same period in 2014. The decrease in gross margin was primarily due to manufacturing cost increases and targeted pricing programs employed during the period. Gross margin year-to-date remains consistent with our 2015 guidance.

Total operating expenses increased by $2.3 million or 23.4% to $12.4 million for the second quarter of 2015 compared to that of $10 million for the same period 2014. Total operating expenses for the six months ended June 30, increased by $5.1 million or 27% to $24.2 million as compared to $19.1 million for the same period in 2014. The increase for the quarter and year-to-date was primarily due to greater employee headcount including the expansion of our sales organization as well as an increase in R&D and an increase in expenses related to public Company costs.

Net loss for the second quarter of 2015 was $3 million compared to a net loss of $200,000 in the prior year period. And net loss for the first six months of 2015 was $6.4 million compared to a net loss of $1.2 million in the comparable period in 2014. As of June 30, 2015, we had $89.7 million in cash and cash equivalents. And 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 take a moment and recognize the continued terrific performance by everyone in our Sientra community, evidenced by the strong results in the quarter and year-to-date. We're very proud of our accomplishments as we continue to gain market share, expand our sales organization and enhance our product portfolio. We believe our execution to date sets us in a strong position to reach our expectation of growing Sientra into a responsible global medical aesthetics Company.

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

Thank you.

(Operator Instructions)

And our first question comes from the line of Jon Block with Stifel. Your line is now open.

Great. Thanks, guys. Good afternoon. I'll try to limit it to two or three and maybe take some offline. To begin, a lot of the RealSelf data that you mentioned were arguably, 1H15 metrics. Do you think that you've seen them materialize in your sales numbers already or is that still on the come? I guess what I'm trying to ask here is the lag impact on breast augmentation from when a woman first seeks out information until when the actual procedure is performed?

Great question, Jonathan. There are two parts to our RealSelf initiative, as you well know. One part, is about the brand awareness and brand engagement. The second one is about content and action or call to action. So we have engaged with RealSelf last year and what you saw coming into the first part of this year was continuation of that engagement and expansion in terms of awareness and brand promotion.

We engage with RealSelf later in the first quarter and beginning in second quarter in terms of trying to monetize that into a set-up with a call to action that drives a patient farther along in decision making and move them along the continuum to be referred to the doctors who are Sientra friendly and who are also engaged on the same site answering questions and consulting with the patients. With that, what we started to see in the second quarter and we believe that a continuation of and acceleration of that will happen in the second half of 2015.

Okay. Perfect. Very helpful. I'll shift gears and Matt, throw one your way. The R&D again for the second straight quarter came in well below what we were looking for. I think last quarter you said it was a timing event. Is it timing again where that's shifted more to 2H or is that something within R&D where just making more efficient use of some of the expenditures?

To be blunt, Jonathan, it is really mostly driven by timing and we expect to start seeing this cost accelerating in the second half of 2015 as these programs get initiated.

Okay. Perfect. And last one from me. Just on the eight year clinical data, if you can talk to where that's helping the most or having the most profound impact. Is it really helping open some doors of docs who said, you know what, I need more long-term data? Is it also helping in terms of increasing the market share of your current customer base? Maybe if you could tell us what your sales guys are seeing in the field, Hani? Thank you.

Great question again, Jonathan. It's in two fronts. First of all, when we entered the market and since then, we keep talking about the differentiation of this technology and the product. And we, many times when we answer questions to surgeons, we refer to the experience that our partners, Silimed, their experience around the world with the product technology and how effective and efficient they compete and the benefits of that.

What the eight year data does, it actually put a concrete evidence. So it's not only related to our reference to outside the United States, but it actually shows in concrete evidence the utility of the product and the effectiveness and safety of the product. In addition to that, the market as we talked earlier, is segmented into early adopters and pragmatic buyers. And the pragmatic buyers, part of them really likes to sit back and wait to see how things are going to unfold.

And it is hard to argue anymore when you have a consistent trend and you look along the trend at data points, especially as an eight year, that shows and demonstrate a continued low incidence of the key complication that they're looking for such as rupture, capsule contracture, while also at the same time the patient satisfaction in the study eight years out is still high. So that gives us another tool, another -- in our arsenal to have that conversation and swat down any concerns about the long-term benefit of the product.

Perfect. Very helpful. Thanks, guys.

Thank you. Our next question comes from the line of Tom Gunderson with Piper Jaffray. Your line is now open.

Hi, Hani. Hi, Matt. Hani, could you talk a little bit about seasonality, either for you guys or aesthetics in general. It's usually a Q2, Q4 stronger; Q1, Q3 weaker, but it's a little bit harder to discern with a new Company that's growing and taking share. Last year, you were down sequentially in Q3. But I'm just trying to gauge how much the increased productivity and larger sales force might impact that seasonality or whether you think it -- you're kind of into a standard mode right now.

It's without a doubt, Tom, that there is an effective seasonality in our business, driven by the consumer demand strength and lifestyle. And you're accurate in your depiction that usually Q3 is the lightest of the quarters and depending on Q2 or Q4, we tend to come close to each other.

The reality is, what you indicated, is part of that for us is masked by the market share gain phase that we're in and to that end, we do expect seasonality to affect us. Because even when we are grabbing share, we're grabbing share in Q3 from a smaller absolute number of procedures. But nevertheless, it will continue to be masked I think, for the next couple quarters because of the mode that we're operating in which is market share grab.

Got it. Thanks for that. And then competition, could you talk a little bit about any changes that you're seeing out there? There was some thought that maybe the disruption of the acquisition of Allergan might have caused some disturbance with their service to their customers. Did you guys see any unusual opportunities or is it pretty much steady as she goes in your share taking?

Thanks, Tom. Obviously, any time you have a merger, an acquisition, a divestiture, something like that, there is inherent disruption to that operation which will affect the troops on the front line and by extension, will affect the level of service or relationship with the surgeons. It is obvious that Allergan is focused on becoming a large, strong impacting player in the pharma, biotech realm. But it's also obvious that plastic surgery is not the sweet spot.

This we believe over time as the customer constituency digests that and understands that and feels that, will become an opportunity for us. So we see it. We're monitoring it. It has helped in certain areas and certain accounts where now we are getting a shot at trialing our product and it's something that our sales organization and leadership is focused on and we'll continue to pursue it.

Got it. Thanks. And then Matt, I think you said something about pricing being consistent with expectations. But is pricing relatively stable across the board in the market for breast implants?

I'm sorry, Tom, were you referencing gross margin?

No, pricing. ASPs.

Go ahead.

I can handle it. Yes, in general, Tom, our ASPs have been stable. We did see in the quarter, areas where we had to defend our mode and we employed some pricing programs. But in general, we're still within the same zone that we talked about in the last call and that is, if you compare it to the previous year, we're in that 2% to 3% zone difference in ASP.

Got it. That's it for me, guys. Thank you.

Thank you.

Thank you. Our next question comes from the line of Margaret Kaczor with William Blair. Your line is now open.

Good afternoon, everyone.

Good afternoon, Margaret.

A couple questions from me. First, as we kind of look at your product portfolio today, Hani, I think there are a few gaps that most of us can see especially in this ultra high profile segment. And then obviously, also the larger volumes. As you look at it, how many of the cases that are out there do you believe you don't reach today with the existing portfolio? And just to take that a step further, I imagine that expands not only into reconstruction but also within augmentation.

Yes, thank you, Margaret, for the question. Even though we're not going to be able on the call to quantify for you specifically the number, as you articulated very well, there are areas more glaringly obvious, such as reconstruction with the lack of larger sizes or the lack of the right projection profile, as you indicated, that inhibits us from fully taking advantage of that opportunity. We also have to work backwards into the tissue expander, the first stage as well, and improve that line.

In terms of augmentation, there are multiple factors at play in here. One could be not just the large size, but the availability of large sizes for example in the shaped implant. But also at times it's inhibiting because of the in between sizes that we don't have. So one size will be too small to give the result that the doctor is seeking or the woman is desiring, but the next size up is too much, and that's a gap. So those are the areas, as you well know, we have identified that are areas we're going to work very hard on plugging those holes. And we continue to feel comfortable that we'll be able to get those products approved by late this year, beginning of next year and get into the marketplace.

And some of these higher volume products as well as the different profiles, are there different ASPs or is it going to be kind of near the Company average?

Respectfully Margaret, I'm going to decline to give any competitive information about our strategy of entering the market and how we're going to price until such time that we're on the market.

I figured I'd try.

Of course.

I guess to maybe stay on the line of this for a little bit, you've mentioned last year that there were some customer holdouts in terms of trying out some full lines of your products until you got newer projections or volumes. Is that still the case now or have most of those people already tried Sientra?

I think you're referring back to our launch of the higher fill, smooth, round implant that we commenced in the fourth quarter of 2014. If that's what you're referring to, we feel right now we're at a steady state in terms of understanding an adoption of that into the account that we had a presence, but they were holding off until then. That doesn't preclude us from continuing to use that product and use that product line with the higher fill to enter into accounts that otherwise we do not have business. So it's still a big part of our value proposition but where we -- people were holding off, I think that has worked itself out already.

Okay. And then one last one for me and I'll jump back in the queue. But regarding the Silimed contract, we know that they're a great partner, hopefully will continue to be a great partner in the future as we resolve the contracts. But just to be sure, the Sientra products and patents on those products are owned by Sientra. And so if Silimed were to try to enter the US, for example, they'd have to conduct a new PMA study. And then in the off chance that doesn't remain a partner, not the plan, but if they don't, are there other FDA approved implant maSilimednufacturing facilities out there? Or if you were to try to make one or someone else was going to try to be another manufacturer out there, how long would that FDA approval process take? Thanks.

Yes, Margaret, you covered so many different avenues and angles, let me see if I can handle them. Let me be clear. As you have heard me time and again, we have had this long-term relationship with Silimed and the individuals and the owners of Silimed, both at the professional and personal level. We have a fantastic partnership that we are both of value to each other and I do not know today of any reason why that value is different or changing and looking into the future.

That said, I want to correct. You said patent and IP and so on. Technically, there is no patent or IP for these products but the actual PMAs, the actual clinical results and the FDA PMA approval order, all of these are in the name of Sientra. That is what Sientra assets, that's what we paid for, that's what we invested in and that's what we own. And so today, as it exists, our relationship with Silimed is as a partner. They supply us with product. It does not preclude that partnership from expanding and it does not preclude that partnership in morphing into other things. And as I indicated before, we will obviously talk to you about it as things progress if they progress in that direction.

Thank you.

Thank you.

(Operator Instructions)

And our next question comes from the line of Richard Newitter with Leerink Partners. Your line is now open.

Hi, good afternoon. This is Ravi in for Rich. Thank you for taking the questions. Hani, I have one question on some of the new competitive launches that were announced last week, curious to see what your take is on the product set that's coming out. Are these overlapping products over Sientra's current set or are these products where you guys don't really have lines in right now?

Ravi, if you don't mind, can you give us clarity as to what you're referring to in terms of --

Sure. I think this was last week, Allergan announced line extensions on its Natrelle 410s. I'm curious if these line extensions were similar to products that you already have on the market or if these are new -- if these implants are products that in sizes where you don't currently sell?

Yes, thank you for the clarification. I believe those products were line extension into what they internally term as their matrix and it has to deal with an extra large projection or extra projection and additional sizes. So we do not have those currently in our portfolio and those are part and parcel to what we've talked over in the past about developing and bringing to the market.

In terms of any training issues or dynamics that you're seeing, any color on that would be helpful, from either the competition or your own.

Training in relationship to what?

In relationship to -- the other company is saying that they're going to require surgeons to complete certification here. I'm just wondering if you're seeing that in the field, any demand there?

Yes, I think that has become a standard over the years for all of us and I think part of it, bluntly saying it, is the posturing on their part since we have made a commitment from the beginning of time and launching Sientra into putting our products and all the permutation iterations to the hands of board certified plastic surgeons. I think there's a part on -- attempt on their part that we are also going to wait and make sure that people know how to use our product when we put it in their hand.

There is a general knowledge of these products as well as we have spent the last three years educating the market, given that we're the first Company to launch with shaped implants in the United States, in terms of the technique. We have preceptorship, we have published on it, we have household surgical techniques and tips, we have DVDs and on demand videos and so on and so forth, that we have invested over the past three years in terms of educating and training.

We believe that when you add a size or a projection and so on, that doesn't require a whole training on it. But if you're bringing somebody forward into utilizing or using an anatomically shaped implant, we believe that it is necessary to do minimum training and explain to the surgeon that they can no longer think in terms of two dimension, rather it's a three dimensional approach to that implantation. So nothing has changed and we're very proud to have led the market with that aspect.

Great. Thanks. And then maybe if I could sneak in one more. Regarding the two studies that you noted, that you published earlier this year, or that were published earlier this year, any additional events or publications that we should be on the lookout for in the next few months?

Great question, Ravi. We typically do not tip our hand in advance. So I guess the diplomatic answer is, you're going to have to wait and see.

Okay. Thank you.

Of course.

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Management for any closing comments.

Great. Thank you, everybody for giving us your time and we appreciate your diligence and participating on this call and look forward to speaking with you either on the road or the next call. Have a great rest of day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.