SI-BONE, Inc. (SIBN) Earnings Call Transcript & Summary

Okay. Thank you, everybody. We're set to begin the next fireside chat as part of the Bank of America Virtual Las Vegas Health Care Conference. I'm Bob Hopkins from Bank of America, along with my partner, Travis Steed, and we're thrilled to have SI-BONE, the management team from SI-BONE join us today. I think most people know Jeffrey Dunn, the Chairman, President and CEO; and Laura Francis, the Chief Financial Officer and Chief Operating Officer. So thank you to Jeff and Laura for joining us. Today will be primarily fireside chat, but I asked Jeff if he wouldn't mind giving a couple of just quick opening remarks on things that he's trying to highlight exiting the first quarter call. So thank you for being here, Jeff, and we look forward to the discussion.

Right. Good morning, Bob, and good morning, everyone. Thank you for joining. As you heard on the conference call, we were firing on all cylinders in Q1 until March 15 and would have put up a number of 29% or 30% growth. And I think the Street had us at 20% growth. So all the pieces have come together. As some of you know, our growth rate went from 13% to 18% to 19% to 21% to 27%, and then it would have been higher in Q1 sans COVID. And of course, things fell off dramatically in the second half of March. And then as we discussed on our conference call, we were 80% down in April. But things are coming back very nicely. And as Laura shared on the conference call, we were at 80% bookings on the first day of May of where we were in the previous year. And things continue into May, and this -- we're almost halfway through May on a very interesting trajectory. Just a couple of anecdotal comments around what we're seeing. From a week ago, there were 25 states open for elective surgeries. We're well into 30s at this point. We obviously track the cases that -- and where they're being done. We certainly pay attention to what the analysts' tracking numbers are, but I think we're actually closer to it than the analysts because we can actually see the cases happening. So it's certainly into the 30s. And I get a lot of feedback from the field vis-à-vis activities. The southern states, the Texases, the Alabamas are really wide open. Of course, the Northeast, New York, New Jersey, Boston are trailing a bit. There are some signs of interesting progress. For instance, I got a note this morning at 5:30 from one of our reps in Alabama, and he says, "We're rolling in Alabama. Thought you'd like to know." We did 3 cases earlier this week, 2 more coming up in Huntsville this week and 1 in Birmingham and 3 in Montgomery. And the other thing that's going on is some of these surgeons actually have had more time over the last 6 weeks. So we have had numerous instances of sales reps actually getting closer to doctors and getting to be able to discuss the SI joint and differential diagnosis. Some great stories of -- one, for instance, in Los Angeles, where someone was trying to get in to see a big KOL, big producing surgeon and hadn't had any luck for 2 or 3 years. And because of COVID, it actually gave him an opportunity to get on the phone 3x like in 1.5 weeks. And now, the expectations are that this surgeon will come on. So obviously, difficult times over the last 7 or 8 weeks, but I think we're now moving in the right direction. And hopefully, certainly by the fall or the fourth quarter, we'll get back to firing on all cylinders unless there is some kind of resurgence. And let's just hope that, that doesn't happen. So I'll turn it to you, Bob, to dig in and ask some questions. And Lauren and I are delighted to answer anything that you'd like to talk about.

That was a great summary. A lot of really helpful, interesting data points in there. And just to kind of continue on, and this sort of goes under the heading of trying to kind of set expectations a little bit because we are starting to hear some of these positive data points from the field across orthopedics. And I think some of us have been surprised that [ sign ] generally is perhaps recovering a little quicker than we might have anticipated, but that's off of the low base. And while encouraging, it's off of a low base. The discussion from a lot of medical device CEOs has been that, hopefully, we might approach normal levels in the fourth quarter. And therefore, the sell-side is now modeling growth year-over-year for a lot of medical device companies, including SI-BONE. And I'm just -- kind of big picture, Jeff and Laura, from what you're seeing in the field today, does that feel like a reasonable base case? Or is that perhaps too aggressive?

Well, I mean none of us know exactly, Bob. I think the Street number across the analysts -- and I don't remember exactly what you guys modeled this quarter. But I think most people are thinking that things are going to be down 50% from normal levels. I think the Street has us down a little bit further than that in general. When it comes to Q3, I think that things will improve. And I do think there's a possibility by Q4 that we'd get back to pretty normal levels. Laura, anything you want to add there?

I think the one comment that I would make is we're trying to understand what's going on in May right now. Like you said, Bob, April, we did say, was a low point for us. We did, based on leading indicators with our bookings early in May, see a rebound but not certainly to normal levels. And the one thing that we've really been digging into is to understand how many of the cases that are coming on to the books in May are related to the canceled cases that we talked about for the second half of March and how many of them are new. And based on the best information that we have, we're seeing that it's a mix of the 2 things. And that's encouraging to us because one of the things that we were paying attention to is the pipeline broken in some place and will that cause more of a choppy return over time. And it does appear that we're seeing new cases as well as cases that were previously canceled just going back on to the books. So that does seem to bode well for a return. But then Q4, the real question in our minds in Q4 is more whether you have a resurgence or not. And so for us, it's a little too soon to be talking about Q4 at this point. And that's why we have not provided more guidance at this point in time.

No, that's helpful, though. It's encouraging to see that mix. And that kind of sparks another question, which is SI-BONE in particular is a market development story. And so -- and during this time, Jeff, you had some interesting anecdotes about your ability to continue to develop the market even with all the limitations that we're all under. But that was an anecdote. From a total company perspective, how do you think about the impact on your business over the next 6 to 12 months? Given the fact that you are not operating under normal circumstances, and therefore, it's just more challenging to go out and develop your markets. How do you think that could impact things over that time period?

No. It's an important question, Bob, because things will not be status quo in some areas. And I think one of those is training, for instance. So typically, our surgeons come to training to a didactic and learn diagnostics in a cadaver lab and they physically put in implants. And there's a C arm there or an O arm. And they have come there to -- crawling to Chicago for 2 hours and their Friday night and Saturday and then they go home. That, I think, is going to change to much more local activity from a training standpoint. We -- as we talked a little bit on the call earlier, we made a decision a couple of years ago, either luckily or brilliantly, to invest in a training system that could be used much more on a local basis, so sort of a virtual reality kind of training system in a suit case. And that will be rolled out this summer and through the rest of the year. And that allows the sales rep who's local to -- if a surgeon wants to get trained, to literally carry the suit case into the office of the surgeon without any radiation, without a C-arm, with this system and train the surgeon and get them ready to do their first case. And you can use the instruments. It has tactile feel. It has multiple blanks so that someone can practice on a male pelvis or a female pelvis or a dysmorphic pelvis or all 3. So I think we're going to see more in general, permanently or for a long time, more local kinds of activities that we're going to have to support and I think are prepared to support. The other piece is obviously hospital access and the kinds of things that we're going to do in the future and be required to do to support the surgeons. To date, the vast, vast majority of surgeries that have gone on this month, the rep has been able to go into the operating room. They may have to bring their own shield, their own mask, their own gowns. Those kinds of things are -- we get some hospitals say, "Bring nothing," some that we've heard say, "You're going to have to bring your own plastic facemask or face shields.” We've had a few instances where reps have been told, "You have to stand outside the room," and there's a FaceTime going on from the rep who's outside the room and the surgeons in the room because they're trying to limit the number of people in the operating room. But we have not had instances where cases have not gone because the rep can't go in the room. We've certainly had some cases in the trauma space where cases are being done and the reps are in bed because of things being done at 3 in the morning or something like that. But basically, that hasn't slowed the progression. But it is an important area that we are making sure that we are doing the right things from an equipment standpoint and inventory standpoint to support the field in this whatever called new normal.

I would also just comment on the market development question that you asked, Bob, because Jeff was talking about training and our ways of training new surgeons. I was actually on a call this morning with Tony Recupero, our Chief Commercial Officer, and his team. And one of the things that they're doing is we have around 7,500 target surgeons and most of those still need to be trained and treat a patient. But there are 1,400 of them who have already trained and treated at least 1 patient, and there were only 539 that were active in Q4. And so they are targeting those approximately 900 surgeons who are inactive in the fourth quarter to either 1 or 2 things. They may have been a long-term inactive because of reimbursement or some other reason and they're reaching out to them. And then they're also reaching out to surgeons who are more sporadically active and trying to get them to regularly diagnose and treat patients. So there's quite a bit of work that can be done even with those surgeons that we've already trained. Another group is we invested a lot in training last year, and there's a good number of surgeons who had not yet done a case. So that's another target for our sales and marketing team.

Those are great facts and figures. That's really helpful. A couple of other topics I wanted to hit on. One is the momentum in the business pre-COVID in the first quarter seemed very clear. Was any of that driven by Bedrock this quarter? Or was it more just the core business, if you will, that drove the accelerating growth pre-COVID?

Some of it is Bedrock, Bob, but the vast majority is our base business. And as you know -- and I know you have a great interest in the adult deformity in Bedrock and I think are -- naturally understand that in the first 5 minutes that you and I ever talked about it. But as you know, the base business is sort of an opportunity of $2.7 billion annually and the adult deformity is $150 million-ish. That said, on the -- we had a webinar that Dr. David Polly hosted. And there were 100 surgeons on that call for that hour, including a lot of big KOLs. And typically, on a webinar in a non-COVID kind of world, if we got 20 or 25 surgeons, we'd be delighted. But there were 100 surgeons there. So I think the nice part about the adult deformity piece is that people understand it very quickly. They know that there's a problem down at the base of the spine from a foundation standpoint. There isn't any workup to be done so those cases can just naturally be added as an add-on to these adult deformity cases. That said, still back to the beginning, most of the business is the bread-and-butter business. But I think our strategy is playing out exactly how we wanted and laid it out a few years ago, to use the technology in complementary spaces like adult deformity and trauma, where the interactions between the surgeons because there's nothing better than surgeons teaching surgeons cross-functionally about technology and capabilities. And so we're excited about what we're seeing in adult deformity, but as much certainly because of the trickle-down effect and where lots of surgeons are paying attention to the sacropelvic area, where 10 years ago, the only people that paid attention to the sacropelvic area were trauma surgeons to a great extent.

Okay. So I appreciate that. So maybe what I'll do is I'll wait 2 quarters and then ask you again on that. I just hear great feedback from the field. And then those data points that you share with 100 docs on a call, and I know how tough those cases are for doctors. And I just thought that this could potentially see a bigger-than-expected ramp as -- because it seems to be like solving an unmet need.

I mean it's -- we were on the phone, Bob, with a new investor in the company last week. And it's a new $500 million fund, and the guy has been in the business 25 years. And he made a lot of calls to a lot of surgeons. And he said, "I'd never heard such consistent positive feedback about a procedure," and he was talking about the base business. I think as the recovery comes, surgeons want to do something that they love and they're paid reasonably well for. And I think whether it's SI joint fusion or whether adult deformity, I think the clinical results are turning out to be consistently terrific. And that gives us some confidence about those areas into the future.

Yes. No, that makes sense. And so just a quick follow-up there on the Q1, good Q1 results. It sounds like that the reason why you saw such an acceleration in the business was really sort of the cumulative effect of all the efforts going on at the company rather than a cause and effect related to a little reimbursement increase or any one thing. Is that the right way to look at it? Or was it more specific to one thing?

No. It's everything. It's -- that's the right way to look at it. It's all the things. I equate it to -- if you have a car with 4 wheels and 3 wheels are perfect and 1 is half-flat, the car is not going that fast and it's going to be bumpy. And I feel like we have sort of all 5 wheels of salespeople, product, surgeon training, coverage and now in January, the payment increase of 27%. So it's not a perfect analogy because most cars don't have 5 wheels. But I think you get my drift that I think when you get all the pieces sort of going together, they work well together and they're complementary. And it gives us the opportunity to actually deliver some good results for our shareholders.

Yes, yes. Last thing is I'd love an update on kind of how you think about timelines and milestones on further coverage wins from major carriers. Just what should we be thinking about over the course of the next 6 to 12 months on that front?

Yes. So we announced 1 more coverage policy. So there's 113 positive coverage policies out there. There are, by our count, 11 payers that are commercial in the United States that still have experimental stamped on the policy. Among them are Aetna, and they were supposed to publish in Q1. They obviously didn't. We've been told that they're going to publish in May. I think there's 3 potential scenarios there. One is they could keep it experimental even though there are 80-plus peer-reviewed papers, 100 -- they're completely consistent vis-à-vis positive results, and there isn't a single paper out there that's anything close to negative, both from an efficacy standpoint or revisions or anything else. So I think that they will either do #2 or #3. And #2 is to put a positive coverage policy in place, but they could, like Anthem did last year -- late last year, restrict it to pelvic girdle trauma. We don't call that a win. Of course, we're getting more cases out of Anthem, and I'll talk about Anthem in a moment. The real win is what all the other payers, all 113 have done and said, we're covering for SI joint dysfunction either for disruption or degeneration. That's the third possibility. I don't know, obviously, what's going to happen when Aetna post. It will either be continued experimental, as I said, or a positive with the pelvic girdle trauma; or three, a regular positive policy around dysfunction. I think the chances are good that it's either going to be #2 or #3. I just -- it's very difficult to gauge what exactly is going to happen, but I wouldn't be surprised if we see it in the next 30 days. But I've said that before. And I think sans COVID, we would have seen the policy already published. As to Anthem, they're -- as you know, they opened the door a crack and put in coverage but only for pelvic girdle trauma. And as I just mentioned, we are getting cases out there. So they can get through and get approved if someone has had trauma and says, "I fell down in the basketball court and got trauma." But anything that has to do with degeneration and just basic pain -- and as you know, in a lot of orthopedics, the wear and tear on the body and the degeneration around knees or hips is not from trauma. It's from degeneration. And so Anthem is supposed to revisit in the fall. We're trying to work with some consultants to make sure we get the right ear of the right person. But that one, I don't think there's any chance that it would go positive anytime or fully positive anytime before September, October. The rest are really -- the, call it, 10 or so, are really not that important. Humana still is experimental, but they are mostly government business for us, and the rest are smaller plans.

Great. Thanks for the thorough rundown. And unfortunately, we're out of time. But Jeff and Laura, thank you very much. Really appreciate all the little details and color and anecdotes you were willing to provide. They are incredibly helpful. So thank you for the detail, and thank you for participating, and good luck in this crazy environment. And hopefully, we'll talk again soon. This concludes the SI-BONE fireside chat. Thank you very much.

Thank you, Bob.

Thanks, Bob.

Okay. Thank you.