May 10, 2018
Executives
Scott Durbin - CEO James Atkinson - Chief Business Officer & President Jeannie Swindle - Senior Director Corporate Communications
Analysts
Jayson Bedford - Raymond James Jeffrey Cohen - Ladenburg Thalmann Anthony Vendetti - Maxim Group Jon Block - Stifel Difei Yang - Mizuho Lucas Baranowski - Craig-Hallum Capital Group Brian Marckx - Zacks Investment Research
Operator
Good afternoon, and welcome to the Viveve First Quarter 2018 Financial Results Conference Call. [Operator Instructions] Speaking today are Viveve's Chief Executive Officer and Director, Scott Durbin; the company's President and Chief Business Officer, Jim Atkinson; and Jeannie Swindle, Senior Director of Corporate Communications.
Management will provide an overview of the first quarter financial and operating results before opening up the call for questions. Please note, this event is being recorded.
I'll now turn the call over to Jeannie Swindle.
Jeannie Swindle
Thank you, operator, and welcome, everyone. Before we begin, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company.
Any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the corporation's projections, expectations, plans, beliefs and prospects.
These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are described more fully in the company's annual report on Form 10-K and other filings made with the SEC, which are also available on the company's website.
In addition, any forward-looking statements represent management's view only as of the date of this conference call and should not be relied upon as representing management's views as of any subsequent dates. I would now like to turn the conference call over to Scott Durbin, our CEO.
Scott Durbin
Thank you, Jeannie. Good afternoon, everyone, and thank you so much for joining us today.
Before we discuss our first quarter financial and operating results, I'd like to take a moment to express just how thrilled and honored I am to be selected by our board to lead Viveve into the next phase of its growth, not only from a commercial perspective, but as we advance our programs towards the U.S. label expansion of our CMRF technology, both in sexual function and in stress urinary incontinence, 2 very large markets with significant unmet needs.
As many of you know, I spent the last 5 years with Viveve helping to lead and build the company into a leadership position within the women's intimate health market, and our success to date has been the result of many, but I've worked alongside Pat Scheller, our former CEO, who I'd like to thank for her many contributions to the current success of our organization and business. And on behalf of our employees and board, we wish Pat continued success as she pursues other opportunities, but continues to be involved with Viveve as a Director.
As I look to the future, we intend to be extremely focused on continuing to drive growth of the existing global business and expand our global market opportunity through robust clinical evidence. And it is in this vein that I'm very excited to have Deb Jorn as a senior advisor.
Deb's deep commercial and clinical experience building global pharmaceutical, aesthetics and OTC businesses will be extremely beneficial to our entire organization as we aggressively pursue this label expansion opportunity for our platform and as we prepare for a future commercial launch under potentially 2 new labels in the United States. With that, I'd like to now turn to a summary of our quarterly financial results and update you on the status of our clinical programs.
Regarding our financial results, in the first quarter, we achieved 22% year-over-year quarterly revenue growth of $3.7 million with the placement of 53 systems and approximately 5,400 disposable treatment tips worldwide. Following this quarter, we continue to believe we are on track to achieve the annual revenue guidance we provided of $22 million to $24 million for 2018.
As we've mentioned on previous calls, first and third quarter sales in our industry are typically the softest quarters of the year. However, during what we anticipated would be a slower quarter, I'm pleased to report that we took the opportunity to accelerate our previously announced intention to expand our North American commercial sales team, which Jim Atkinson will discuss in more detail in a moment.
This expansion necessitated a substantial realignment of sales territories and require training that took the sales reps out of those territories for several weeks during the quarter. Moving forward, we believe we are -- we have an increased sales footprint, and that will help drive significant growth through the remainder of this year.
Turning to our clinical programs and label expansion opportunity. Viveve achieved significant milestones in the first quarter of 2018.
Earlier in Q1, we announced positive results from a pilot study conducted by Dr. Bruce Allan, Founder and Medical Director of the Allan Center in Calgary, Alberta, which included patients who underwent treatment for stress urinary incontinence, with our CMFR -- CMRF technology using our proprietary treatment protocol.
Based on the positive outcomes seen in the pilot study, including sustained reduction of symptoms at 12 months, we committed to conducting 2 registration studies for the treatment of stress urinary incontinence, one called LIBERATE International and the second, LIBERATE U.S. With respect to LIBERATE International, which is intended to be conducted in Canada, the investigational trial application, or ITA, for this trial has been submitted to the Canadian Ministry of Health for review, and we anticipate hearing back from Health Canada in the second quarter.
Preparation is also aggressively underway for the IDE for our U.S. trial.
And we are planning for a submission, which we anticipate will occur by the end of the second quarter as well. In addition to these 2 registration studies in SUI, we began a second feasibility or pilot study approximately 5 months ago in SUI utilizing endpoints such as 1-hour pad weight, which is one of the recommended objective endpoints within the FDA guidance for U.S.
registration trial. And we're pleased to announce that we plan to report on the 6-month data from this study very soon.
Finally, receipt of FDA approval of our IDE application for VIVEVE II, our clinical trial for the improvement of sexual function, represented another major achievement for the company. Currently, institutional review board approvals are being obtained, investigators and study personnel have been trained.
And as we've mentioned previously, we expect enrollment to begin in the second quarter. In summary, we believe our strategic commitment to providing strong clinical evidence to physicians and consumers has set the standard for evolving -- this evolving category of minimally invasive treatments in these indications and has set Viveve apart from the growing number of companies offering energy-based devices and proclaiming to address women's intimate health conditions.
Viveve has always been and remains committed to conducting rigorous clinical trials across a wide range of indications. With that, I would now like to turn the call over to Jim Atkinson, who will provide further detail on the success of our commercial operations.
James Atkinson
Thank you, Scott. Overall, we continue to be tremendously excited about the growing installed base, the increasing procedure volumes we are experiencing and we are confident that our treatment is resulting in very satisfied patients due to our very high procedure efficacy.
Regarding our U.S. commercial organization.
During the first quarter, we accelerated the expansion of our organization. We expanded from 2 regional sales directors to 4 regional sales directors, increased to 24 capital representatives and 5 associate sales representatives, all under the leadership of our Vice President of U.S.
sales. Additionally, we launched the U.S.
practice development organization to focus on driving procedure utilization with the addition of 4 practice development managers under the leadership of our director of global strategic partnerships. Our commercial team now consists of 42 members year-to-date in North America.
This expansion was implemented to address the rapidly increasing physician demand we are experiencing in the United States. During the first quarter, we realigned geographic regions and territories, restructured individual sales territories and trained all the new sales members.
With the addition of the new team members, we are confident that we will achieve our sales forecast in North America for the year and provide our customers with a best-in-class customer service from our practice management team. Sales in international markets through our global commercial distributor network were as expected in the first quarter and continue to show tremendously strong growth potential through 2018.
Asia Pacific continue to be our second-largest sales region, after North America, in the first quarter, and we will continue to show strong sales momentum and expected procedure utilization -- expanded procedure utilization in the upcoming quarters of 2018. European markets are now growing, and the new high breadth direct distributor sales model that was initiated in certain European countries continues to receive positive physician response and is driving system sales and increase utilization.
Enthusiasm for the successful treatment of stress urinary incontinence with the Viveve System is gaining momentum in a number of European markets. In Latin America, the 2 recent regulatory approvals -- with the 2 recent regulatory approvals, momentum is building with increased key opinion leader and physician awareness.
We expect this momentum to continue in Latin America through the year. Globally, physicians who have been successfully treating patients for vaginal laxity and sexual function have also seen significant benefit to their patients with stress urinary incontinence.
Because of these positive patient outcomes as well as a positive pilot study data we released earlier this year, physicians have been adapting our proprietary stress urinary incontinence treatment protocol for use with their patients. Momentum is building in SUI globally and this is an exciting advancement toward the expansion of our CMRF technology platform worldwide.
With that, I turn the call back over to Scott Durbin.
Scott Durbin
Thanks, Jim. I'd now like to briefly touch on just a few key financial items before we open the call to take questions.
As we mentioned earlier, revenue in the first quarter was primarily driven by the sale of 53 systems and approximately 5,400 disposable treatment tips, making our current global installed base as of March 31, 2018, 497 systems. Sales in North America accounted for 71 -- 70% of Q1 revenue, and international accounted for 30%.
Second, gross profit for the first quarter of 2018 was $1.35 million or 36% of revenue compared to gross profit of $1.4 million or 47% of revenue a year ago. This slight decline in gross margins in Q1 was the result and direct result of product mix of sales of different units in the first quarter.
Further, as Jim mentioned, the awareness and adoption of our SUI treatment protocol following our pilot study has increased tremendously. And as a result, we instituted what we call a BOGO program, or buy 1 get 1 free, for our treatment tips for physicians performing the SUI procedure in order to more rapidly expand SUI procedure volumes and expect that this program will continue until our next technology iteration is released later this year.
Third, total operating expenses for the first quarter of 2018 were $12.6 million and were in line with our expectations for the quarter. From a balance sheet perspective, we ended the first quarter with approximately $38 million in cash and equivalents, which includes the recent equity financing we closed in February.
Overall, this concludes our prepared remarks. And at this time, we'd like to turn it over to the operator for our question-and-answer session.
Operator
[Operator Instructions] The first question will come from Jayson Bedford of Raymond James.
Jayson Bedford
Good afternoon and congrats, Scott.
Scott Durbin
Thanks, Jason.
Jayson Bedford
A few questions. Just on the last comment there, the BOGO program, do you have pretty good visibility into use, whether it'd be for sexual function or SIU -- SUI?
James Atkinson
Yes, this is Jim Atkinson. We do have good focus into it.
The practice managers are actually managing that based on the physician license and the medical affairs people. So yes, we are watching on the BOGO to be used only with SUI procedures.
Scott Durbin
And Jason, I'll just add, to put some context around it for Q1, the BOGO, the free of charge BOGO tips in Q1 represented roughly 1,900 globally. Again, we placed about 5,400 treatment tips in Q1, 1,900 of those were attributable to the BOGO.
And so when you look at that, you remove the BOGO program, you end up with sort of 3,500 for the quarter on a relative comparison basis. And that represents a 33% increase in treatment tip placements in Q1 over Q4 of last year, which is our strongest quarter of the year.
Jayson Bedford
Okay. And a lot of numbers there.
I believe that represents from a pricing standpoint? Is pricing stable from the -- if I just look at the 3,500 and slap an ASP on that, it feels like pricing is pretty stable from the December quarter.
Is that true? Obviously, you've done the math.
Scott Durbin
Yes, it is true. And actually, ASPs globally for treatment tips improved in Q1 over Q4 last year.
Jayson Bedford
Okay. Maybe for Jim.
If you look at the physicians who've been using the product for numerous months or a couple quarters here, how does utilization change over time? And what have you seen out there in the field?
James Atkinson
Yes. So utilization, moving back, if you're -- the physician is using their license and treating patients for vaginal laxity and sexual function.
Last year, we were on average of 2 -- or 3 tips per month. Physicians now that are looking at the Canadian data from the pilot study from Dr.
Bruce Allan and speak to our medical affairs people to understand how to do the procedure, we are seeing utilization in those practices where they adopt the SUI to increase quickly. So numbers-wise, we can go -- we go from 3, 4 and 5.
And the numbers across United States continue to grow for this procedure for women that is a huge unmet need.
Jayson Bedford
So Jim, to summarize, the highest volume users are those folks that have used it the longest?
James Atkinson
That is correct. We continue to see increased utilization on a monthly basis in all the accounts.
And then, the ones that now are focusing on SUI based on their physician license, utilization continues to grow on a monthly basis.
Operator
The next question will be from Josh Jennings of Cowan.
Unidentified Analyst
Brian here for Josh. I guess, my first question, can you outline the plans for further expansion of the U.S.
team member count over the balance of the year and just the timing involved with that?
James Atkinson
Yes, as we mentioned in the fourth quarter, on the call, we expect to continue to grow the footprint in United States. As of now, we're just looking at the numbers to add, but we will be expanding the footprint in the second half of the year.
Those numbers have not been completely set in stone. But finishing the year, we will have more than 24 capital reps in United States and more than 5 associates.
Unidentified Analyst
And maybe on the systems side, can you share your expectations for how the OUS systems number progresses over the rest of the year? And then, within your overall revenue guidance, have any of your assumptions changed about systems numbers, either for the U.S.
or OUS on a full year basis?
Scott Durbin
Yes, we haven't given guidance, as you know, Brian, around the quarterly unit expectations. Generally speaking, international has been pretty consistent on a revenue basis.
It's 30% contribution. We don't expect -- or we expect that to stay pretty constant throughout the rest of the year.
Sitting here today, we, again, feel very confident in the guidance we provided for the year between $22 million and $24 million. And we're extremely excited about what could be upside with what is turning out to be extremely rapid adoption of the stress urinary incontinence procedure.
Operator
The next question will be from Jeffrey Cohen of Ladenburg Thalmann.
Jeffrey Cohen
So I guess, first, can you give us any further clarity on the LIBERATE study in Canada as far as numbers, centers, endpoints, protocol and also remind us of what protocol you believe training centers are using for SUI as well?
Scott Durbin
Yes, so I'll take the last part of that. The SUI treatment protocol itself, the procedure protocol, is a proprietary protocol developed by Bruce Allan as part of the initial investigator-sponsored research study he did and the pilot -- as a result, the pilot study results we released in early Q1.
That is the same protocol we took forward into a second feasibility study, which we announced. And I mentioned in our prepared remarks we are going to be reading out the 6-month data with 1-hour pad weight as really the primary endpoint there very, very soon.
With respect to the LIBERATE trials, the protocol design that we've outlined, thus far, is 100 patients in Canada. The primary endpoint would be 1-hour pad weight.
We will look at a variety of secondary endpoints and are in the process of involving various urologists and urogyn, clinical experts and thought leaders in the area to give us feedback on that protocol. And it would be 100 patients and it's intended right now as submitted to the Canadian Ministry of Health to be a 6-month endpoint.
On the U.S. side, that protocol and IDE submission, as we mentioned, is in aggressive and rapid preparation.
Again, with clinical advisors looking at it. We anticipate it will be a very similar protocol design with the objective pad weight as a primary endpoint.
It could comprise other secondary endpoints like 24-hour pad weight, quality of life, voiding diaries, things like that. We're working through the details, the finer details of the protocol.
And the expectation, at least right now, is that the submission will be for a 12-month study, again, with 1-hour pad weight as the primary efficacy endpoints. And the size is, right now, roughly calculated to begin the 200 patients range.
Jeffrey Cohen
Okay. Got it.
And then, could give you us any further granularity from your standpoint as far as geographic placements for the quarter? You said U.S., followed by Asia Pacific.
Anything further on that?
Scott Durbin
Yes, really, international, I'll tell you, was pretty much dominated on a unit basis, but was split between Asia and the Middle East.
Jeffrey Cohen
Got it. And then, could you give us some commentary as far as pricing on consumables.
Can you give us any color on pricing on ASPs for generators as far as U.S. or ex-U.S., direct or indirect?
Scott Durbin
Sure. Globally, the ASP overall for the systems dropped slightly versus Q4 of last year.
In North America -- and there was a slight drop in North America, and it was also just a slight drop rest of world.
Operator
The next question will be from Anthony Vendetti of Maxim Group.
Anthony Vendetti
So I just want to understand the gross margin a little bit better, Scott, because it's mostly product mix, but it sounds like maybe a little bit with ASP. Is there anything else in there that skewed it more towards the lower end this quarter than it's been in the past?
Or -- and then, what should we be expecting in terms of the go-forward trend?
Scott Durbin
So it is, to your point, both product mix and ASP related on the system. The treatment tip ASPs overall went up a little bit, but the shift to the BOGO program to really accelerate the usage by physicians of the SUI protocol had a significant contribution to that gross margin dip in Q1.
We anticipate that margin -- gross margin overall going through the rest of the year will be, on an annual basis, sort of in line with where consensus estimates are right now.
Operator
The next question will be from Jon Block of Stifel.
Jon Block
I guess, I'm just having a hard time footing some of the comments and maybe you guys can help me out. So from a high level, the market seems to really want a vaginal rejuvenation technology.
Your device is certainly differentiated, but it looks like your capital reps are selling about 1.5 boxes per quarter, which, on the surface, just seems low. And I know I'm comparing it in my mind to some other industries within aesthetics, but maybe if you could help add some color to that level of productivity?
And then, when they get up to speed, what's the right number to think about maybe over the next couple of years? And then, I've got 1 or 2 follow-ups.
Scott Durbin
Yes. Thanks, John.
So look, I think, part of the rep productivity that you're expressing for Q1 is related to the expansion of the sales team and the time for the reps out in the field. We ended the year last year with 16 capital reps, and that's grown to 24 year-to-date.
So Q1 was a little dip in productivity relative to what was a very consistent year in productivity terms last year, which was above 1 per capital rep per month. And we think, as we said in the prepared remarks, the sales team is trained and aligned now, and we're going to see even better productivity on a per capital rep basis this year than we did last year.
Jon Block
Okay. That's very helpful.
And then, just a follow-up on sort of the sales team or sales training. I think, you mentioned during the quarter, you pulled out the reps for some training and maybe recut territories.
And I believe the sales team was just sort of launched in 1Q '17. So can you help me why 12 to 18 months, after just launching the sales force, they're being retrained or territories are being recut?
James Atkinson
Yes, so 2 things there. First, in January, we had a national sales meeting, which took a week of the whole U.S.
team. And they came in not for retraining but just additional training from a standpoint of procedure expansion globally.
The second area is the realignment was we had 2 regional sales directors managing the U.S. with 16 salespeople and a number of associate reps.
And so span of control was getting too many people under 1 regional director, so we expanded that to 4 regional directors. As we mentioned, we now have 24 capital sales reps and 5 associates for a total team out there of 29 divided by 4.
So that's kind of what the realignment was. And in doing that, we had to take the 2 regions down to 4.
And as you do that, some territories will have to be shifted around. So that whole project took first quarter.
And then, the new team members came in for 3 to 4 days of training. So that's quite a bit of time out of the territory.
When a new rep gets into their territory, first, they've got to build their funnel and get organized and then start focusing on sales. So we had said in Q4 that we are going to expand the organization.
We did. And now, this group of 24 capital reps and 5 associates are ready to get out and start executing.
And as we mentioned, we are very confident in our forecast, not only globally, but in North America for the year.
Jon Block
Okay. And I guess, as my last question by default, which is last year, I think, 1Q rates were 20% on your full year.
This year would be 16%, just assuming the midpoint. But I guess, just because of the disruptions that you just laid out and clarified, that's why you're still confident in your full year guidance, is that fair to say?
Scott Durbin
Yes, that's fair to say.
James Atkinson
Yes, very confident in our full year guidance.
Operator
The next question will be from Difei Yang of Mizuho.
Difei Yang
So Scott, congrats on the promotion. Can you talk to us about the process and timeline of getting a new CFO?
Scott Durbin
Sure. So right now, our intention is to internally promote a very experienced VP of Finance that has been with the organization for some time, not to CFO but to Principal Accounting Officer.
He will take that role very soon and he's extremely capable. I think we will evaluate the need for longer-term hiring of CFO, but I think, collectively, the team and the board feels that at this time, we don't need one.
Difei Yang
And then, my second question is on cash runway. Would you guide us where the cash will get you or will support the operation into?
Scott Durbin
So what we've said, obviously, in our 10-Q is the existing cash, which was the balance of $38 million as of March 31, 2018, is well over 12 months of runway. As many of you are aware, when we did our financing in early February, in Q1, that we had said that the $30 million to $35 million financing in exist -- in addition to the $20 million we had at year end would give us as cash well into next year.
Our viewpoint on that hasn't changed, particularly as we look forward and anticipate sort of the ongoing revenue ramp, prospective gross margin improvement down the road here and the next iteration of our technology. So that's -- we continue to see it in the same light.
Operator
The next question will be from Lucas Baranowski of Craig-Hallum Capital Group.
Lucas Baranowski
This is Lucas Baranowski on for Matt Hewitt here at Craig-Hallum. And we were wondering, now that the VIVEVE II study has actually begun, when do you believe the approval for the new label could be received?
Maybe just walk us through the timeline there.
Scott Durbin
Sure. So we expect, as we said in our prepared remarks, to begin enrollment in the study in Q2.
We believe, based on the demand we see commercially for patients with vaginal laxity and sexual function, that the trial will enroll rapidly. We expect that, that's no more than 4 to 5 months in total to enroll the entire trial, which is currently slated at up to 250 patients.
From there, it is a 12-month endpoint. And so if you do that calendar math, you end up in having data unblind in the study and having data early, mid-Q3 of next year.
Lucas Baranowski
Okay. That's helpful.
And then, I believe, on your last call, you mentioned a goal of getting to about 58 people by year end within your commercial sales organization. I mean, I think you said in your prepared remarks you're at 42.
So is 58 still the goal? And what will the cadence of that remaining hiring look like going through the rest of the year?
James Atkinson
Yes, we will be, as I mentioned earlier, extending the footprint or expanding the footprint. We are still kind of crunching numbers on how we do that based on demand, but we will be on track for the 58 number footprint by the end of the year.
Operator
The next question will be from Brian Marckx of Zacks Investment Research.
Brian Marckx
Scott, congrats on the promotion.
Scott Durbin
Thank you, Brian.
Brian Marckx
In terms of VIVEVE II, I think there's 24 locations listed on clinicaltrials.gov. Are all of those expected to actually enroll or did you kind of over-onboard sites just to kind of be conservative?
And then, how many of those sites are VIVEVE I sites? And do the VIVEVE I sites also need IRB approval?
Scott Durbin
So I'm not sure I understand the last part of that question, whether VIVEVE I sites need IRB approval. There is some overlap, Bruce Allan is an investigator in VIVEVE II, so there is some overlap.
Look, we have a trial now that has gone through rigorous evaluation from the FDA, and we finally gotten signed off. We have a very, very experienced clinical operations team who is off and running now.
The study was designed to have up to 25 sites. Our expectations are that enrollment and that our hope is that it goes very quickly.
So we very well could end up in a situation where we've got only 10 to 15 sites at the end of the day. But we've got a very experienced clinical operations team who is being conservative and making sure we're prepared.
Brian Marckx
Okay. And then, in terms of the gross margin, were the BOGO units -- was the cost of the BOGO units and gross, was it in the cost of goods sold?
Or was it considered a marketing expense?
Scott Durbin
No, it is flowing into cost of goods sold.
Operator
And ladies and gentlemen, this will conclude our question-and-answer session, and we'll also conclude our conference call for today. We thank you for joining our presentation.
At this time, you may disconnect your lines.