Establishment Labs Holdings Inc. (ESTA) Earnings Call Transcript & Summary

Before we begin, I just want to put up our agenda for today. We're going to have a session today on Mia, as everybody knows about talking about a new concept in aesthetics. So I'll have a couple of minutes here at the open, and then I'll turn it over to Juan Jose to talk about Mia in some detail. We'll have a video narrated by Dr. Marcus Sforza and Dr. Charles Randquist. Rosalyn d'Incelli will provide an update on clinical and regulatory status for Mia. And then I'll close with some information on the market potential and commercial model we have for Mia. And then we'll also have some Q&A for people that are here in the room. Before we begin, of course, we have the safe harbor and forward-looking statements, slide, the ubiquitous slide. And we also have some additional disclosures. As everybody knows, Mia is not available for sale yet and we are undergoing an FDA study in the United States as well for our Motiva implants. I'd also point out that there are some comments made by Dr. Marcos Sforza and Dr. Charles Randquist during the video portion. And any opinions expressed by them are their own, they do not necessarily reflect the use of Establishment Labs. And with that, it's my pleasure to turn the call over to Juan Jose.

Thank you, Raj, and thank you, everyone, for being here. And I am going to talk about Mia Femtech. But most importantly, what you should understand is we are talking about new category in aesthetics. Why is this so important? It is because we are developing a new category from the ground up. And I want you to understand this as we walk through this procedure. So until now, women that have been using compensatory behaviors have had the opportunity of having a traditional breast augmentation. But it turns out most of them do not choose that. If you look at the top 3 compensatory behaviors, the padded bra, there's push-up bra or to certain use of clothing or not using certain clothing. All of these things are used daily by women worldwide. And most of these women do not really have an option in traditional breast aesthetics. We are an innovation company, and that's why from the beginning, we always said we have to heal the traditional breast aesthetics market through innovation by bringing safety, by bringing the type of options that we've been giving women since 2010. But more than that, it's time that we open a new era, an era in which we can ask new consumers to come into a new category. And that's why it's so important that you understand that this is the target group. And of course, there's other compensatory behaviors some women are using what is called breast contouring, which basically is makeup to create the appearance of more breast proportionality also boot tape other things that have been used in the past. But it's very important that you understand that this group is very large, yet they have so many trade-offs when they use a padded bra or a push up bra. There are sort of things that they are giving away when they choose these compensatory behaviors. And we seek to provide a new option that they have never had before. Some facts about new category creation that I think are interesting is that companies that understand that the current category is not providing the value that women are seeking for where consumers are seeking for, understand eventually that they can create with technology and by understanding that consumer, that value will be created. A lot of research has been done in this and companies that can create, define name and eventually execute on that new category end up with 76% of the economics. And by the way, the market cap. So it is very important that you use this new category to be able to communicate to a new consumer base. That's why it's a new category because it's a new consumer. So when we look at our strategy, our strategy is to move from the patient who's considering the breast augmentation to the consumer that is using these compensatory behaviors I was talking about before with major trade-offs and that they see in Mia, the opportunity, the value and of course, our positioning of Mia as Femtech. We believe that Femtech, well define in a positive way what this new category can be about. And in doing so, I think we're not worried about competing for market share, we are creating a new market. Some of the consumer insights that we've done over the last couple of years are very, very interesting. I would say that when we talk about Mia, woman can expect, of course, the amazing safety results that they've historically had with Motiva. But more than that, this is a true minimally invasive procedure. It's also a set of technology that allows for a preservation procedure. What does that mean is that we're not cutting tissue, the way it is done in the existing category we are going through a different pattern. And that technique allows for less pain after the procedure because we are preserving basically the anatomical plane in a way that has not been done before. And of course, the outcomes that we have seen so far allows us to say that the expectations are very high when it comes to economy, comfort and what they do in everyday activities. So we performed a consumer study in Europe to understand if these benefits were put in front of potential consumers how would they view those potential benefits. And we are so happy to see that these insights, 200 interviews, each one of 1.5 hours with a psychologist, yielded all these information. Basically, they care about the potential value proposition of Mia. Then we asked Real Mia consumers, women who have been part of the initial series and the confirmation of the value once again is provided. We know that the expectations are matched by the results. And when we see the way women are speaking about Mia and how they talk about that experience is fundamentally different to what we have heard in the last 60 years of breast aesthetics. It is very important to us that this new consumer becomes an advocate that is able to bring about the type of word-of-mouth consideration that we think is going to allow for this to grow. What is our strategy? The strategy is in this year to understand consumers. We've been doing a lot of work on that, as you have seen, we've also wanted to understand what is the real market sizing, understanding willingness to pay and also the business requirements that we will need. We also are moving into creating our pipeline of clinics. So remember, not everyone is going to have access to me, only the centers that can provide the experience that Mia consumers expect. And that's why we've already been creating this pipeline. We already started training some of these centers, and we are working to move ahead of regulatory approvals to have enough centers to begin to launch. With that, we can connect with consumers in a completely different way. We have a 360 plan that we will put in place once we launch with, of course, public relations, a full digital portfolio of assets, out-of-home activations and the work that we will do through our partner clinics. So a very fundamentally different approach than what the existing category does. And this is possible because of the technologies that we have. There are so many patents behind Mia system, not only the ergonomics to diamond implant, it's chemistry that is so unique that allows this implant to be injected. This is a first in breast surgery that an implant is actually injected. And you will see that in the video that we are going to watch, it's also the way the inflatable balloon works, the way it allows for the space creation without destroying tissue around it. So all of these tools are proprietary to us and will allow us to create a safe space for our partner clinics to invest and continue to grow. I will now show a video by Dr. Marcos Sforza and Dr. Charles Randquist. Dr. Sforza is a member of our Medical Advisory Board and Dr. Charles Randquist is a plastic surgeon from Sweden, who's been working on ideas related to bringing about a new type of minimally invasive technique in breast surgery for over 2 decades. So let's watch this video so that you can see all these great technologies at work. [Presentation]

Hello, everyone. I'm Dr. Charles Randquist from Stockholm, Sweden. I'm extremely proud of being part of this event and share my view of the Mia procedure. A procedure that on the local anesthesia, as you could see, is able to create a beautiful proportional breast, 1, 2 cups bigger than prior to the surgery. So with this said, I'd like to share with you some before and after photos. But first, start off with video that really shows the fast recovery after this short procedure. [Presentation] The video we're sharing now shows exactly what I envisioned 17 years ago, a young patient walking at 10 minutes after the procedure on the local anesthesia and look at our with that face smiling having 1 to 2 cups, bigger breasts that are proportionally well balanced. But more importantly, a procedure that's done in a safe, predictable way where the journey enables start to get back to work or a family with no downtime. This is truly magical and precisely what we want women to experience having the Mia procedure. So this is a new way of thinking. The concept is based on creating proportional well-balanced breast that looked natural. And hiding the scars in the armpits, not stigmatizing them. Creating a beautification, which is a feminine way, not a sexual way for in any way, perceived as vulgar. It's something that I've experienced for the last 30 years being in this business, most women desire, something that makes them happy that extra cup size where they normally would wear a push up Brazil. And all of these brands look well balanced to their bodies and there are no stigmatizing cars. And I'll get back to that, looking at these videos showing how well hidden these cars are, it is important. Why? Because stars matter? It is a stigma not just for the woman herself but how she's perceived by the surrounding. So as you can see, the well hidden, and these are photos after approximately 6 months. And I could not wish for a result that's better. What I want to share with you now is a couple of videos showing results. For us as surgeons, this is extremely important because it shows the stability of these implants over time. It also shows how the scars have faded even more and how do breast keep their proportional well-balanced look on that chest over time. So finishing this session, I want to share with you 3 beautiful testimonies by Carolina and Pamela and Rebecca, all of them steering their past recoveries and how this changed our lives in a very positive way. And I do believe this is essential and please listen to the words because this is truly quality of life, but more importantly, the journey, which is a very pleasant one. compared to what we know as the common and breast augmentation, what we see regularly today. So with that said, watch and enjoy. [Presentation]

As you've seen from operation, the before and after photos, the beautiful testimonies. This procedure has proven itself not just short term but long term, which is extremely important for a surgeon. But more importantly, the patient satisfaction, the surgery satisfaction is beyond our expectations. I do believe that the Mia procedure is what every surgeon would like to have in their practice, being able to create a proportional beautiful, well-balanced breast with less downtime, fast recovery, less risk short and long term. With that said, welcome to new era. Thank you very much.

So before I hand it over to Rosalyn Cole d'Incelli, our VP of Global Clinical Medical and Regulatory. I would like to talk a little bit about what we just saw, which is to tell you that we began this journey with Mia almost a decade ago. and the initial concept led us to create all of this technology, then led us to create a technique that could be standardized that it is now easily replicable and it delivers great outcomes. And our belief that there was a consumer that was interested in this is now matched by the outcomes. I mean, when you see those testimonies. What you hear is a group of women who are using compensatory behaviors, and they just were not happy with the trade-offs, eventually make this decision and are having this amazing experience. And to us, this is exactly what we think is a new category. It is about a new consumer, and we believe it can be developed into the next generation of growth and new dynamics in breast aesthetics. So Ross will basically tell you how we plan to do this from a clinical regulatory perspective.

Thank you, Juan, and thank you all for being here today. I am excited to bring you some of our clinical data and our experience so far with Mia. And I should note, it's important for you to be aware, all of the images in here are real Mia patients. These are not models. These are real Mia consumers, Mia participants. So -- and they have amazing outcomes. So looking at our clinical series in Costa Rica, it's a 1-year study currently going through 2, these subjects are almost at 2 years at about 1.5 years. We enrolled 100 participants. And it was a very -- it's a rigorous trial. So a lot of the similar endpoints in pivotal trials that are used in the U.S. So breast Q and a lot of similar complication collection, Kaplan-Meier, all of that. So with the 100 participants through 1 year, we have 98% compliance, which is very impressive, taking a look at how that breaks down, looking at the demographics, which is similar to pretty much what we're targeting. The mean age is 29 years with a range of 18 to 44. BMI average is 22. And then as you can see, many of these participants, most of them are professional women, professionally employed and also college graduates, so educated women that are choosing this procedure. Through the series, as you know, this is the first time it's ever been used. So we've gleaned ways to make it much more efficient. And this reflects essentially the end of the series of getting the procedure time, so skin to skin at 15 minutes or less safely and predictably and the time to discharge, meaning the time and recovery, the time in the clinic office after to 15 minutes or less. So these are both unheard of in traditional augmentation discussions. So through 1 year, Kaplan-Meier data we have collected and it's very, very robust because we have such good follow-up essentially 0% complications in all of the key areas, the 2 key ones of CapCon and rupture. We have 2% in breast pain, which is to be expected on occasions and 1% in malposition. So very, very low complications. I must note this is still a study that is in progress and does not necessarily reflect how the safety or effectiveness of the device, this is an interim look at what the data is thus far in the group. Surgeon Satisfaction. 90% of the surgeons, and there were 15 surgeons that participated in this series from around the world, and none of them have had experience with transaxillary approach or the Mia before. So keep in mind, this is the first time doing this. So satisfaction was very high with how quickly they were able to adopt it and use it with 10% neither satisfied or unsatisfied and that was more related to their patient selection as opposed to the actual procedure. This is some of the measures of the validated scales that we've used in the study. On the left side is the process scale, which measures scarring and regular skin tone. It has a bunch of different measures. But essentially, the top 2 lines show how the participants viewed their scar with 1 actually being the best, meaning non-perceptible, 1 being normal skin, 10 being not good skin, lots of scarring. So as you can see, they -- this early on, they feel like it's almost like normal skin. And the surgeon is the very bottom line with the combined. On the right is the breast queue. It's 2 of the scales for the breast cue. So we did many of the scales of the breast Q. This is 2 of the measures that are key to outcome. As you can see, we measured preop, pre-procedure, breast satisfaction. So satisfaction with your breast, how satisfied are you? 41% were satisfied. Post procedure at 1 year, 85%. So that's more than double are satisfied. And then looking at the post as far as the overall procedure, the overall outcome, we couldn't measure that pre, but almost 90% are satisfied with that. Here is one of our study participants and the videos you saw before, all study participants [indiscernible]. So this just shows the participant at preop, pre-procedure and then 1 month, 6 months and 12 months. So you can see it's a very stable result, staying right where it was put and a very nice result for this participant. This is that same participant, and it shows a different view of it, where you can see kind of in the axillary. There's no scar there. Also, you can see how proportionate her result is with her body and how natural that slope is, very natural results. This is taken a look at a different patient under MRI. So traditionally, surgeons don't put smooth over the muscle in the sub-glandular placement because generally, there's higher complications, especially capsular contractor. However, SmoothSilk has shown over more than a decade that it can be safely used over the muscle and even through transaxillary with very, very low complications. So this MRI demonstrates and shows you where the implants are properly placed over the muscle and right where we want them. As far as after the study, so these subjects will be patients participants will be followed through 2 years, and we are continuing to do cases in Costa Rica. We've refined the procedure even less than 15 minutes. And as far as globally, we're targeting the approval in EU, it is a priority right now. And that is -- to be clear, the implant is already approved. So the ERGO 2 diamond has already approved since -- for the last 2 years. We are waiting on the tools to be approved and that's once there's called NX16 as adopted and agreed upon in EU, which is supposed to be very shortly. So we are ready to go. We've already addressed all of the questions related to it. So we're hopeful that as soon as regulatory time lines line up that we'll be prepared for EU, which we're targeting at early half or first half of 2023. And in other geographies, we're ongoing. Some were already approved, and we're using it, multiple countries in Latin America and going into Asia Pacific. So we're moving forward in other areas as well. This gives you kind of an idea of estimated projected timelines. These are just projected based off of the estimated time line of regulatory approval. So you can see in Latin America, we have some 2023, 2024, it should really be '22. 2022, 2024, Europe, 2023, 2024. And then APAC, you can see. U.S. Again, I'll talk about on the next slide. This again is a projection based off of what the pathway that we believe we will take, which is this. We will work with to determine the best pathway to bring Mia to the U.S. as quickly as we can once we receive our PMA approval of our Motiva devices. So we expect that we will submit a pre-sub and a supplement related to this, and then we will work with FDA and intend to use some of the results from our international experience in these robust studies that we're doing to help support that approval. But we will keep you posted on that process as we go. Thank you. I'll turn it over to Raj Denhoy, CFO.

Thank you, Ross. So I'm betting last year. So I want to provide a little bit of some of the work we've also done in sizing the market potential for Mia as well as some information on the commercial model, which we're pursuing with the product. As many of you might remember, back in February of last year, we did some initial market assessment work around Mia, we surveyed 4,300 women around the world. What we found was there was 1.9 million women a year in those markets that we're interested in getting the procedure. 50% of which were new to the category. They would not have considered breast augmentation prior to that. And again, this is work which we had done last year and the year before. Using that information, we size the market, the total addressable market for us, including Mia at about $4.5 billion to roughly $6 billion. So part of what we wanted to do since this initial work was to kind of revalidate whether some of these numbers were, in fact, true. And so as part of the ongoing consumer research that we've done, we've gone country by country. We've done several countries at this point to look at demand within each of these geographies. What we started with is we've surveyed women 25 to 54 high household income with cup sizes of A to B and also women that have not previously been augmented. And what we've done is we've exposed the concept of Mia to them, and we've asked whether they wanted to have Mia and whether they would actually get it within the next 12 months if it was available. And so we've done this work now in several countries, one of which is Japan. And I can -- it's a very busy slide, but the sort of takeaway is the bottom of that triangle is that in Japan, think there's 155,000 women who are interested in getting the Mia procedure, 133,000 of which has said they will get in the next 12 months. What is, I think, important about this slide, if you consider what is happening in Japan right now, there is something in the order of about 5,000 breast augmentations being done currently in Japan. So with the Mia concept with all the benefits of Mia is it unlocks a significantly larger market for us and for the technology. We did similar work in Switzerland. Again, we come -- we came up with 41,000 women who are interested in the procedure and about 18,000 of them were interested in getting in the next 12 months where available. One interesting finding from Switzerland was that we actually asked women if there was financing available or some other virtual support system available, and that number went up by 80%. So the 18,000 went up by 80%, suggesting that if it was easier for women to pay for the procedure, they might be willing to do it even more so. But the takeaway from these 2 slides between Switzerland and Japan, there's almost 200,000 women earn in getting the procedure which, again, I think, in our minds, really validate some of the earlier work we did on whether there is truly a market for this. We looked also at women's willingness to pay for the procedure. What we found generally in these geographies was about 1.5 to 2x the price of a traditional breast augmentation is what women would pay for Mia. And so really using that as a basis, we really sort of looked at -- and this is largely being validated on the consumer side, right? There is interest amongst women to get this. They're willing to pay premium prices relative to what current breast augmentations are currently going for. But the other big element to this is the partners, right, the centers that will actually do these procedures. And so we have done quite a bit of work in trying to understand what they need as well and how we can satisfy them. This really just shows a history of Establishment Labs and our innovation that we brought to market. What's interesting about this is that in every step up along the way here, we have realized better value for us as a company, but also offered more value to our partners. Each of the steps between round ergonomics to ergonomics 2, was anywhere from a 30% to 40% to 50% uplift in price that we received, and Mia is going to be a step even further than that. But what's interesting, though, is that even though it's more valuable for us as a company, we think it's a lot more valuable for our surgeon partners as well. And so what we've tried to show in this analysis is that looking at the revenue that a surgeon will make per hour doing Mia versus a traditional or premium breast augmentation. So higher end breast augmentation. You can see it's 5 to 6x more revenue per hour that a surgeon can make doing Mia. And again, it's being driven by the fact that the procedures are more expensive, and they take simply a lot less time, 15 minutes versus about 64 minutes. What's interesting, though, is that what makes that model work though is that the surgeons stay busy, right, that they can actually do these procedures every 15 minutes. And so this is a study we did earlier this year where we had 1 surgeon essentially do 10 cases in under 5 hours. So the procedure you just saw was done in 11 minutes. These procedures were done in 8 minutes skin to skin. And so in 4 hours in 38 minutes, the surgeon was able to do 10 patients. And I believe this was a very calm, sort of very similar to what you saw that wasn't rushed. And it really proves that if you can keep the surgeon busy, economically it can be very powerful. And you think about doing 10 Mia procedures on a Friday morning, surgeon would walk on by lunch with literally tens of thousands of dollars of revenue that they would have made. But the economic engine is also powerful for us as a company, right? So if you look at the scalability of revenue, and this just shows what one clinic doing 6 to 10 cases per week at $2,500 to $3,500 ASP. So one clinic on an annual basis would represent about $600,000 to $1.5 million in revenue. And again, you can just scale this, right? You will multiply it by 5 and you're $3.5 million to $7.5 million and then you multiply it by 10. And so as we start to train more clinics and we make this more widely available, the economic engine for us as a company is also quite powerful. And so really just to wrap up on this section. So for 2023 and beyond, the way to think about Mia for us as a company is that we are investing currently in this new category creation and aesthetics. It is about building consumer awareness and then converting that awareness into procedures, so converting it to procedures. We're partnering with clinics. We're explaining the economic model. We're working with them on ways to capture consumer demand. And importantly, this idea of scale, right? It doesn't take many clinics as you've seen, if they're properly organized, they're efficient. The patients are there, the economic engine can be quite powerful. And if you think about the near term for us and the way we think about it in terms of finances for us, 2023 -- and this is important, it's really about proving the model for us. So it's about gathering information, understanding that the model works and ensuring that evidence with investors, with surgeons demonstrating that we can create this category that new patients are showing up and having proven that model, which we think we will in 2023, then it's about taking that information and scaling this as we move into 2024 and beyond. And so with that, I will turn it back over to Juan Jose.

Thank you, Raj, and thank you, Ross. I would say that it was important to take away from today is that Mia is real. When we see the technology, when we see the procedure, when we see the outcomes, but especially when you think about that we are creating value for these new consumers. Why? Because they are leaving behind all of these compensatory mechanisms and giving more value to this new quality of life that they can encounter. Beyond that, we are creating value for the partner centers that are going to be with us in creating this amazing experience for consumers. Beyond that, we are going to create a lot of value to shareholders because this opportunity brings about a new consumer base. And as you saw in the numbers that Ross showed, this can be extremely important. [indiscernible] for breast aesthetics has never happened before. And we think that perhaps the industry focused on consumers of a very small segment when in fact, most of the consumers potentially are unlocked by Mia. And we believe in this, and we will work to execute this in 2023 and beyond. We are in the last steps of the final regulatory approvals, and we believe that this can become the biggest opportunity in breast aesthetics in 60 years since 1962 when the first breast augmentation happened. So thank you very much. And now we will take your Q&A.

Yes. We will take a few questions here from people in the room. Just to level set, we want to keep the Q&A obviously related to Mia and what we talked about today. And so given the timing relative to the third quarter and the fourth quarter and guidance and things we'd rather, you didn't ask questions on that, so we didn't have to refuse to answer them. So with that, we'll take -- I guess we can start with Marie right there.

All right. Marie Thibault from BTIG. Very impressive procedures and market opportunity. Would like to just start here with how many centers you have trained. It sounds like you're ready to go for a European launch. And a little more detail on existing use. It sounds like you are in Latin America and parts of APAC at this point. So any more detail there would be helpful.

I think at this point, what we are ready to say is that we have begun the training of centers that will eventually launch with us in different geographies. Furthermore, we continue to learn from performing more procedures, both in Costa Rica and also eventually in other Remember, we did do procedures in Japan in 2019, and we plan to do more there ahead of a product launch. The most important thing I would say is that we are also putting together the excellence centers so that we can train enough centers per week, per month, per year, to be able to scale the way Ross showed. The reality is that we don't need thousands of centers to be able to get to the revenue numbers that we believe are applicable to this opportunity.

Josh?

Josh Jennings from Cowen. Thanks for writing us down to the put country and hosting this event. Just 2 questions. One on the no-touch technique. And just the importance of that and how differentiated that is. And my understanding is that the potential bacterial contamination to contribute to capture contractor, maybe even ACI think someone hypothesized that you're eliminating that completely. But maybe just to verify that and just what the benefits are of this no-touch technique. And then secondarily, on the submental PMA filing pathway potential. It seems as if other breast implant manufacturers when they've introduced a new product, they most recently mentor increased the fill of their implants. And I think they got that through supplemental PMA and this is mostly -- I mean, the same [indiscernible], same gel technology, but just a different surgical approach, which I don't think the FDA approves surgical techniques. But I just wanted to better understand how optimistic you are around the supplemental PMA path. I know that's a little bit out there.

Sure. Thank you, Josh. I will answer the first question and JJ may want to add. But absolutely correct on the No-Touch technique. This is the first truly No-Touch technique. Even using the current insertion sleeve, there is touch involved once it's in and manipulation. The benefits are just that you reduce the bacterial contamination on the surface, also you reduce the impact of the damage to the shell on manual manipulation. So increasing longevity of the implant, the implant shell, it really does create the safest environment for the implant. So you're correct on all of that outcome. And looking at the pathway, yes, it is true. It's -- we are projecting that we should be able to add it in. We're going to have to work with FDA on that. And so it's uncertain yet how they'll view it. But it is the implant essentially the same. It's the delivery system that would be an accessory to a Class III device. So what would need to be demonstrated, we'll work with them and make sure we demonstrate that.

What I'll add to that is that it is not only the No-Touch technique. This is the fact that you're completely standardizing the delivery method. And if you look at heterogenic ruptures, they are important. Most of the ruptures that you see today, at least with Motiva implants because we get these devices back, although we have such a small number of ruptures, when we get these devices back, we are examining these devices and we often find that it was either a needle or a retractor or metallic object that ruptured that implant and the surgeon could know it was probably a very small rupture. What we are doing here is completely eliminating that risk. And I think this is going to have a big effect downstream in the number of ruptures that we will see. And furthermore, what Rosalyn was saying is absolutely true. This is the first time you have a true no-touch technique. And it is possible because of all these technologies that we have created around the injector. And also because of that diamond implant. Remember, there's no front or back. So when you're injecting, you don't need to worry about that at all.

I think I had another question from Marie.

Sure. Also intriguing the demographics you talked about in the patients in the IRB study. Curious about how those kind of demographics are going to impact your marketing. And also curious to know what women want to know about the procedure. It's novel, right? What do they want to know to get comfortable with getting the procedure?