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

Okay. Good morning, everybody, and welcome to day 2 of the virtual Vegas Health Care Conference sponsored by Bank of America. I'm Bob Hopkins, Medical Technology Analyst and my partner, Craig Bijou, here with us as well. And we're really excited to start off the morning with the senior management team from SI-BONE. Obviously, Laura Francis, the newly minted CEO, is on the line. And Anshul Maheshwari is also here on the line, the newly minted CFO. So thank you both for joining us here this morning. Laura, I'll hand the mic over to you for some just quick introductory comments, and then we'll get into some Q&A. So thanks again for being here.

Thanks, Bob, and thanks for the intro. And happy to join at 5:00 a.m. Pacific Time this morning.

Sorry about that.

No worries. It actually works out pretty well. I am jumping on a flight right after this. I'm going to the ISASS meeting in Miami, so International Society for the Advancement of Spine Surgery. It's the first trade show event I'll have been to in over a year, so I think that tells you maybe a little bit about what's going on in the world right now.

Yes. Good luck.

Thanks. But let me tell you a little bit about the quarter, and then I'll look forward to jumping into Q&A. So we announced our first quarter last Monday, and we're actually pretty pleased with the quarter overall. We experienced some bumps in January and February because of COVID, but then we ended the quarter very strong with the record March. And overall, we grew 22% to $20.4 million in sales. We do believe that some of the recovery that we saw in March, it was partly new sales that were coming through the pipeline, but some of it was also rescheduled cases as well. And so given that and given the fact that we have just guided for 2021 to $92 million to $94 million, we really took a measured approach to our guidance. We stuck with where we were at $92 million to $94 million. And we do expect for our business to continue to accelerate throughout the year, but are continuing to take that measured approach because we're coming out of such a disruptive period. We're also really excited about the opportunities from our accelerated growth plan. We're doing a lot of sales hiring, plan to end the year with 90 sales reps in the field. We have launched all of our SImulators. That should help us to accelerate surgeon training. We just launched our TORQ product, which has applications in trauma as well as minimally-invasive SI joint fusion, and we're dipping our toe in the water with some patient awareness initiatives, with digital marketing as well as actually some test markets with radio and TV ads. So expect to see things accelerate throughout the year, but taking that measured approach.

Okay. Yes. No, that makes good sense. I guess one question I'd like to ask about just kind of what trends you're seeing right now. You guys commented that March was a really big month, and it was helped by -- a little bit by some backlog coming through and then that tapered off a touch in April. How confident are you that the pipeline is being filled with the kind of volume -- either backlog or not, I'm just curious as to how much visibility you have into, now that you've worked through a little bit of a backlog, that there's enough kind of de novo patient flow to keep the momentum going.

Yes. Yes. I think that's exactly the right question to ask at this point in time. We are not seeing a lot of COVID cancellations at this point. There are still some pockets as late as April. Michigan was experiencing some challenges. I actually just heard this morning that the Netherlands has experienced some challenges. But overall, cancellations from COVID are not an issue. But you touched on this point of pipeline, and I do think that is the important point, is to just -- it's important to me to just make sure that the surgeon pipeline of patients is at pre-pandemic levels. And that with some of the lumpiness that we're seeing could be is a combination of this rescheduling of cases plus the surgeons filling the pipeline, and that likely is what we saw in March and April. And we think that, that's likely to be in transition over a short period of time. When we experienced this the last time, we really saw around 3 months of resetting. But that's what we'd really like to see is -- Q1 was off to a good start. We're in the early stages of the recovery, so we're taking this measured approach. And while we're not providing quarterly guidance, as I said, we expect to see this sequential revenue growth throughout 2021, and being our strongest quarter will be the fourth quarter.

Yes, yes. Simplistic -- it's like the simple math on your guidance that we did is just like looking at the quarter and then looking at some of your comments on March and April. And it seems like basically, what you're assuming is that there -- throughout the course of the rest of the year, there really isn't a lot of improvement from kind of that March-April trend level. And I guess that goes to everything you just articulated, but I did want to make sure that I was doing the simple math correctly on kind of what's baked in the guidance?

Yes. When we were on the call, I mean you asked a pointed question, and you asked a question about our March sales. I did confirm that approximately 40% of our sales were attributable to March, which would be approximately $8.5 million. And so it was a great month for us. As I said, April came down a little bit from that, but it was also in the top months ever for the company, so feeling very good. But where we don't necessarily have visibility is really understanding how much of this are rescheduled cases versus these new cases. And so what we want to do is just take this -- I'm going to use the term measured, you're going to hear me say that a lot because I don't want to stay conservative. I -- that's not necessarily what I want to say. I just want to say that we're coming out of the disruptive period and we want to make sure that we are being transparent, and overall, feeling great about the business. But given a little bit of lumpiness, it's better to be safe than sorry.

Yes. No, I like the word. I think it's appropriate. Measured. It sends the right message.

It's actually Anshul's word. So I have to give some credit on that one.

Look at that, contributing already.

I know. I know.

So are there any geographies or any of your major geographies right now that you're concerned about?

No. The short answer is no. And that's why I was saying, we do have really good visibility to cases when they're being canceled. And we're just really not seeing much of that. As I said, a couple of pockets when we were hearing about Michigan, and then it does look like there are little pockets in Europe. But the short answer is no. It's -- but it's just this question of the new cases and the surgeons being able to refill that pipeline. And we may see this month-to-month lumpiness for a few months and just taking that into consideration.

Yes. Okay. One other topic I want to talk on -- talk about was your -- the surgeon training you guys have done. And we see different models from different medical device companies. You guys have actually trained quite a few surgeons at this point. Can you talk about how kind of satisfied you are with the effectiveness of your training in terms of the follow-through with the surgeons once they're trained? And just what your philosophy is and strategies around training?

So as you said, we have trained approximately 1,600 surgeons who have treated at least 1 patient. However, there's only around 600 surgeons who performed in ICUs in the last quarter. And then if you look at the 12-month period, there were actually approximately 900 surgeons. And so what we're doing is we're looking at those different groups. The 600 that are actually regularly active. What we're working to do is to get them to regularly diagnose and treat patients. And right now, the number of cases performed by an active surgeon in a quarter is a little less than 4 cases per quarter. But the surgeons that have adopted this and are including the SI joint and the differential diagnosis of lower back pain are doing something closer to 9 cases per quarter. So there's a lot of opportunity to grow those particular surgeons just with those approximately 600. Then you have the other 300 who aren't regularly diagnosing and treating, but they're around once a year doing a case. It's also trying to ramp up those surgeons. And then you have the longer-term inactives. And so one of the things that we're doing with those surgeons is we're actually using our SImulator system right now in order to reengage those surgeons. We believe a couple of reasons for why those surgeons may not be performing cases are related to reimbursement. And given the progress that we've made there, 300 million covered lives today, 80 million of them exclusive. Increased surgeon payment in 2020 to where we believe that it's attractive for all surgeons, profitable at all sites of service. There's really no headwind there any longer, so it's really more of an education matter. And then the final thing is that our TORQ product actually may be appealing to some of these surgeons that are long-term inactives. We're -- our ortho surgeons feel really confident with our iFuse Triangular Implant. They're fine with impacting an implant when they're performing a procedure, but certain surgeon and especially neurosurgeons sometimes prefer a product that doesn't require impact. And so TORQ is an option for those surgeons as well. So really focusing on that group is 1,600. And then it's really all about the race for us to train the other 6,000 with our SImulator system.

Okay. And so for 2021 and 2022, is the primary focus trying to focus on the 1,600 that you've already trained? Or is it -- or versus adding more to the bucket?

Well, if you'd ask our sales reps, they would probably tell you that it's training of the new surgeons because it's actually included in their compensation. For them to hit the top commission rate that we provide, their commission-based upon the dollar amount of sales that they make. But they're also required to train a certain number of new surgeons every single quarter, and they're required to convert at least one of those surgeons to a new surgeon, so getting to their first case. So we're actually actively incenting our sales force with new training and conversion to first case. With all of that said, the path of least resistance for our reps is to actually go after more low-hanging fruit, and that's a combination of increasing the number of procedures done by our active surgeons as well as bringing back those surgeons that are inactive. And if you look at what's been going on with our SImulator training, right now, it's been around 50-50, between retrains versus newly trained surgeons.

Interesting. And I apologize, have you guys given us a figure on how active those SImulators are on a quarterly, monthly basis?

Well, historically, we've actually seen -- and just as a reminder, last year, at the end of last year, we had 5 SImulators in the field, 4 of them in the U.S. and 1 of them in Europe. We now, in April, had 24 SImulators deployed, 21 of them in the United States and 3 of them in Europe. So very big difference. To date -- and this was when a smaller number of SImulators were being used, we were actually seeing the SImulators on average training 3 surgeons per week, which was quite extraordinary from our perspective. They're large numbers and would mean that we could train a lot more surgeons than we have in the past. I'm assuming that the utilization will decrease on those, but it really gives you an idea of what a game changer this is if you do basic math on 20 SImulators being used 3 times a week, over a 12-month period. In theory, you can train 3,000 surgeons. And as I just said, we only have 1,600 surgeons in the history of the company who have been trained and treated at least 1 patient.

Are there other issues besides reimbursement that has limited the fall-through with some of those surgeons that have been trained?

Like I said, I think the other issue is that there are certain surgeons who have said that they don't want to impact, and that's where TORQ comes in. We've known about this for a long time. We have a little over 60% of the market, is our best estimate. We think that the market was around 100 -- a little over $100 million in 2020, and -- in the U.S. -- that's in the U.S. specifically. And we had a little less than $70 million in the United States last year. And so what that means is that there were a little less than $40 million in sales with our competitors. And so with TORQ, it gives us the opportunity to go back in and reengage some of those surgeons with a different solution. And we're pretty excited that we're actually seeing some competitive conversions. It's not necessarily what our TORQ target actually is. We're really targeting more of the trauma market, which is an adjacent market with another $350 million of opportunity. But our core market is minimally invasive SI joint fusion. It's a $2.5 billion market opportunity in the U.S. As I said, right now, it's only a little over $100 million. And so what we're really focusing on is building out that market.

Yes. On that $40 million, I mean, I recognize this is the smaller of the opportunities, but it might be the lower hanging fruit, if you will. I just want to make sure I understand this because -- and Craig brought this up after you guys were talking about TORQ. I thought it was a good point. Just wanted to make sure we had a good granular understanding of why TORQ would be attractive in these same types of cases, whereas your current generation might not be to that group of neurosurgeons?

Yes. So simplistically, I've actually been attending cases and labs recently. So I -- and in the labs, I actually can even get hands-on to a certain extent, which has been a lot of fun. But simplistically, with the triangular implant, when the case is being performed, the steps are going to include drilling, it's going to include broaching in order to create a triangular channel. And then the surgeon is going to be tapping in that implant and placing 3 in order to stabilize and ultimately fuse the joint. With TORQ, they're actually just screwing in the threaded implant instead. So there's no impaction required, and that is attractive to some of our surgeons.

Okay. Okay. And then on TORQ, I think you said you have modest contribution this year. I assume that means maybe very low single-digit millions. Is that roughly in the ballpark? Or is it even lower?

I'm not providing numbers, but I think the point I was trying to make is that there was very little in the guidance expectations for TORQ. And as I said, I am pleased with what I'm seeing currently. And I've been talking a lot about the opportunity in our core market and minimally-invasive SI joint fusion. But what I have found particularly interesting is we were in market preference testing after FDA clearance in March. And so in March, we primarily just saw competitive conversions, which was what I was expecting. In April, we actually saw approximately a 50-50 mix between trauma and competitive conversions. And so on the trauma side, that was encouraging to us because it is a slightly different call point. And yet we're already starting to penetrate that particular market opportunity, which was exciting for us this early in the game.

Okay. Okay. And then a couple other things I wanted to touch on. One was just on the Bedrock side. From the beginning, I've always gotten really good feedback from the clinical community there. Is that product -- how's that product done in your eyes? Now that you've got a little bit -- it's been on the market for a while. Has it met your expectations? Been below, above? Just -- and when might -- just kind of to see if there might be a breakout year for that product at some point?

We are pretty excited about Bedrock. And just as a reminder of our original Bedrock launch, the primary purpose of Bedrock was actually to increase the awareness of the SI joint as a pain generator. Given that we're a pioneer in this space, it's a completely new opportunity, it was really important to us that key opinion leaders were actually on podiums and talking about -- including the SI joint and the differential diagnosis of lower back pain. And so as part of our Bedrock strategy, we have now trained at over 100 different academic medical centers in the United States, and we've trained over 600 residents and fellows. And it's -- it starts out with the anatomy, and then it's the prevalence and then it's the diagnosis, and then it's performing a minimally invasive SI joint fusion. And then we talk about adult deformity in Bedrock. So I want to just highlight that a big part of what's been important to us there is actually focused on our core market for minimally invasive SI joint fusion. With that said, you are correct that there is a very natural fit for us as a safer pelvic solutions company to be working in the adult deformity space. So these are primary -- primarily cases where it is usually a key opinion leader at an academic medical center. They are performing a long construct case with an adult deformity patient, and there was always this issue of having some sort of a base at the bottom of the long construct in order to stabilize and secure the long construct as well as the SI joint. And so we have seen some nice uptake. With Bedrock, we're pretty pleased. Not just with the halo effect on our core business, but also Bedrock as its own product. With that said, we launched that product not long before the pandemic occurred. And so we really would like to see what true opportunity there is. But we're pretty pleased with the results thus far. And quite frankly, the revenue impact is probably higher than what we had originally anticipated.

Okay. That's -- okay, that's great to hear. You are seeing the pull-through and the opportunities to market, the core product as a result of the introductions [indiscernible] in Bedrock.

Exactly. Exactly. And what we've seen is we're training, as I said, at these academic medical centers and we're obviously training on Bedrock, but we're training on minimally invasive SI joint fusion using iFuse. iFuse is the gold standard. I've been talking a lot about TORQ, but just as a reminder, iFuse has 5 years of clinical data, it's Level I data. It shows rapid, dramatic and durable pain reduction. It's a differentiated product that is targeted. The triangular shape is targeted specifically at this particular joint. We have 80 million exclusive lives on it. And so when we go into these academic medical centers, we're talking about the SI joint and we're talking about iFuse, and then we're talking about Bedrock. And so the typical situation for us, and I'll use a couple of cases, the Mayo Clinic, went through training with us. And what we saw there is we did not have cases previously. We started to see Bedrock cases, but then we also started to see primary iFuse cases as well. Similarly, UCSF a similar situation. So the strategy that we had of leading with Bedrock into the academic medical centers is actually paying off in our core market as well.

And one big-picture question I wanted to ask is that -- I mean, you guys have done so much work over the last 7, 8 years in terms of creating reimbursement and getting the regulatory approvals out. And those are big accomplishments. But I think the unique challenge of your company is that you're creating a market. A lot of the medical device companies that I follow are simply taking a better widget and replacing what already exists with something else. And in some ways, that's an easier sell, if you will. Kind of where you sit right now, where is your comfort level that your -- that, that process is happening at a pace that you're comfortable with? Kind of just where are you on that journey, I guess, I'd like to ask.

Yes. Well, I'm glad that you asked that particular question because we are thrilled with the stage of development that we're at right now. I've been with the company for 6 years at this point, Bob. And in the first few years, it felt like going through brick walls, is the way I would describe it. And it was an incredibly rewarding experience, being able to actually build a completely new market. We have this amazing team here, Jeff Dunn, is now the Executive Chairman; Tony Recupero, as well as our -- now our President of Commercial Operations, now Anshul joining the organization. We worked together in order to get to this point in time. And I really do feel like all of those headwinds that we had for the last few years are now tailwinds at this point, especially reimbursement. There's still an educational effort that's here. And I talked quite a bit about the SImulator, so that's going to continue to be important. I think this patient awareness point that I made early on is going to be important. There are 1.2 million therapeutic injections each year in the United States into the SI joint. This is a well-understood condition. What is not as well understood is that there is a surgical solution for this and that we have that surgical solution. So from my perspective, we're a market development story at this point, and it is how rapidly can we capture the opportunity. And we're going to do that with our sales force hiring, our surgeon training with the SImulators, the new products to make sure that we are -- that we are meeting the needs of those surgeons, and then it's also some of this patient awareness work.

Great. That's -- appreciate that perspective. Anshul, I'd love just to kind of get your take as a new person in the role, just kind of things that you're seeing and focused on. And just -- what got you excited about the opportunity? And then we'll close.

Sure, Robert. So in terms of what got me excited about the opportunity, let me start there, it's everything that Laura just shared. A market leader that's creating a new market, that's got the best portfolio, a world-class sales team, very innovative culture. So all of those things allow us to have an impact and help patients. So that was the really exciting part of why I came into SI-BONE. In terms of what I'm focused on, a lot of what Laura has already put in place, you're going to see that continue -- continued investment in innovation, continued investment in getting new products, expanding the sales force team. And then focus on some of the more operational things that tend to be overlooked by The Street, which is how do you build the infrastructure to scale as you're growing an organization? How do you bring in automation so that you can streamline a lot of the workflows and help the sales organization continue to execute. So that's pretty much going to be my focus initially.

Great. Great. Well, we're just about out of time. So I just want to say thank you to both of you for participating today. And Laura, good luck with your first trip. I hope that goes well. Hope you have a productive couple of days. So thank you very much for joining us today.

Thanks, Bob. Thanks, Craig.

Thanks, Bob. Thanks, Craig.

Thank you.