Viveve Medical, Inc.

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 date. I would like now to turn the conference over to Scott Durbin, our Chief Executive Officer.

Thank you, Jeannie. Good afternoon, everyone.

Thank you for joining us today. I'd like to begin with an overview of our activities in 2018, provide a high level overview of our financial results for last year and spend some time speaking to our strategy for 2019.

At that point, we will open the call to your questions. To begin, 2018 was a year of tremendous accomplishments for our team but was also punctuated by some real challenges.

While we reported 21% year-over-year revenue growth, with total revenue of $18.5 million from the global sale of 259 systems and nearly 18,500 consumable treatment tips, this was below our full-year sales goals set prior to the FDA warning statement that was released last summer, along with marketing letters that were sent to many of our aesthetic competitors. Long term, given the safety profile of our treatments, our robust clinical evidence, and the many years of direct interaction we've had with FDA, we continue to believe these actions are leveling the commercial playing field and providing advantages for us commercially in the US.

However, in the last half of 2018, we experienced fairly significant commercial headwinds. But importantly, we continue to see improvement in these headwinds as we moved through Q4 and Q1 of this year, and reiterate our 2019 revenue guidance, which we pre-announced earlier this year.

During 2018, we also made significant advances in our clinical programs as we continue to aggressively pursue expanded indications for use in improved sexual function and stress urinary incontinence or SUI in the United States and internationally. While we achieved or experienced delays with respect to the enrollment of our VIVEVE II trial in the US last year, we recently announced that it is now fully enrolled.

Additionally, we also produced meaningful positive 12 month efficacy and safety data in SUI from our pilot and feasibility studies and launched efforts to conduct two pivotal registration trials in the US and internationally. In January of this year, we announced full enrollment in LIBERATE-International for the improvement of stress incontinence and expect to announce final top-line data in late July or early August.

If positive, we believe this data can be used to achieve regulatory clearances for SUI in over 35 countries around the world, resulting in a significantly expanded market opportunity internationally. In March, we announced full enrolment in VIVEVE II, as I mentioned our US trial for sexual function and expect to announce top-line clinical results in April of next year.

If positive, this trial could significantly enhance our commercial opportunity in the US with the ability to broadly market our treatment to physicians and patients. In September of last year, we submitted our IDE for LIBERATE-US to the FDA for SUI.

And this proposed trial is designed to enroll approximately 240 patients at up to 25 study sites in the United States. The duration of the study is expected to be 12 months.

The company's had two rounds of questions from as well as several direct discussions with FDA and will conduct a short acute animal study to evaluate the tissue safety of our SUI treatment protocol. This animal study is very similar to the one conducted prior to our IDE approval last year for sexual function.

And once completed, we intend to include this data in our IDE resubmission plan to occur around the middle of this year. We anticipate IDE approval by the agency and initiation of the trial in the third quarter and the final readout of the 12-month clinical data expected late in the fourth quarter next year.

The importance of our clinical programs and label expansion opportunity in sexual function and SUI cannot be understated, 12 million to 14 million women worldwide are candidates for our treatment to improve sexual function, representing a $6 billion to $8 billion total available consumable market opportunity and SUI is even larger. 25 to 30 million women worldwide are bothered by symptoms and leakage associated with SUI, representing $10 billion to $12 billion total available consumable market opportunity.

We are excited about the clinical progress we made in 2018 and the pending final top-line clinical data readouts, which are scheduled over the next 12 months. In the fourth quarter of 2018, Viveve also enhanced our CMRF technology platform and launched our next generation system Viveve 2.0 in the US.

The Viveve 2.0 is now manufactured by a new large scale manufacturing partner, which significantly reduces our cost of goods sold versus our first generation system. While, in 2018, we could only sell our two 2.0 system in the US and only for a limited part of the year, we are now aggressively pursuing clearances for this system in many international markets, which should continue to contribute to improved gross margins in 2019.

Also, in 2018, we continued our market development efforts under our general indication, Viveve was represented at over 15 scientific medical congresses, which resulted in more than 20 clinical presentations and publications, many appearing in peer reviewed journals that reached gynecology, urogynecology, urology, women's intimate health and anesthetic practitioners throughout the world. We continue to strengthen our relationships with various medical societies and their respective physician members to build greater knowledge and awareness of our platform and its positive clinical results.

Importantly, the strategies and techniques used and presented by these healthcare practitioners are now being shared to set standards and best practices of women's intimate health treatments around the world. Also mid-year last year, in our effort to defend our robust patent estate, which protects the method of use of radio-frequency energy and vaginal tissue, we reached a favorable settlement to resolve the company's patent infringement litigation.

And as we continue to advance our global commercialization strategy, we intend to continue to protect this valuable IP portfolio. Finally, in the fall of 2018, we expanded our board of directors with the appointment of two independent and seasoned executives, both of whom have substantive commercial experience and are making valuable contributions to our future, as the company executes on its strategy to grow and gain share of the existing market and move rapidly to expand our indications for use in sexual function and stress incontinence.

I’ll now take a moment to provide a high level overview of our financial results from the fourth quarter and full-year 2018. For the fourth quarter, revenue was approximately $4.5 million from the sale of 57 Viveve systems and approximately 4,600 treatment tips.

Sales in North America during fourth quarter 2018 accounted for 87% of revenue. And as of year-end 2018, Viveve had a worldwide install base of over 700 systems and has sold more than 33,000 treatment tips.

Gross profit for the fourth quarter of 2018 was approximately $1.7 million or 37% of revenue. Gross margins were lowering in Q4 than in Q4 2017, due to slightly lower ASPs in the United States as a result of our expanded distribution partnership in the US with AMP and unit value mix between systems and treatment tips.

Total operating expenses for the fourth quarter of 2018 was $13.9 million compared to operating expense of $12.2 million in the same period last year. The increase was primarily the result of increased efforts to support the commercialization of our products in the US and clinical studies in SUI in sexual function.

Net loss for the fourth quarter of 2018 was $13.5 million or a net loss of $0.38 per share based on approximately 35.5 million weighted average shares outstanding during the period. Finally, from a balance sheet perspective, we ended the fourth quarter with approximately $29.5 million in cash and equivalents and believe this will provide us with cash into Q1 of 2020.

For the full-year 2018, revenue totaled $18.5 million from the sale of 259 systems and approximately 18,450 treatment tips compared to revenue of only $15.3 million for the full-year 2017, a growth rate of 21% year over year. Sales in North America for the year accounted for 83% of full-year revenue Gross profit for the full-year 2018 was approximately $7.3 million or 40% of revenue.

And again, gross margins were lower in 2018 versus 17 due to slightly lower ASPs in the US as a result of our expanded distribution partnership in the US with AMP and unit value mix between systems and treatment tips. Total operating expense for 2018 was approximately $52.3 million compared to $41.2 million for the full-year 2017.

Again, the increase was primarily the result of increased efforts to support the commercialization of our products in the US and clinical studies in SUI and sexual function. Net loss for 2018 was approximately $50 million or a net loss of $1.61 per share based on approximately 31 million weighted average shares outstanding during the period.

In summary, 2018 was a year of strong progress but was punctuated by some real challenges. In January of this year, we completed an organizational realignment aimed at reducing our operating expenses and conserving our cash while we seek to achieve regulatory clearances in sexual function and stress urinary incontinence.

I'm so proud of our current teams who are an incredibly talented and dedicated group of people and wish our former colleagues who were equally as valued tremendous success in their future endeavors. As Viveve moves through 2019 and 2020, we have four core areas of strategic focus.

First, continuing our commercial growth through the expansion of our current install based to healthcare providers in aesthetics, gynecology, urogynecology, and urology while driving increased consumable treatment tip utilization. Today, our sales efforts are concentrated around 14 direct sales reps and two distribution partners in the United States, with an expanding network of distribution partners internationally.

Second, operating more efficiently, the result of the organizational realignment I just mentioned will significantly reduce our operating expenses and cash burn. And these efforts will begin to provide financial benefits in the second quarter.

Further, we expect the broader launch of our new 2.0 system in the US along with anticipated international clearances this year will improve our gross margins in 2019. Third, increasing physician and patient awareness of the safety and proven efficacy of our CMRF technology and clinical data through continued publications, increased presence at major medical congresses, and developing the support of targeted medical societies.

And finally, fourth, continuing our clinical and regulatory progress towards additional indications and sexual function in the United States and stress urinary incontinence in the US and internationally. As a result of these efforts, we have major clinical milestones forthcoming over the next 12 months with the final top-line data readout from LIBERATE-International coming in late July or early August.

The final top-line data readout of our VIVEVE II sexual function trial in the US anticipated in April of next year, and an IDE approval expected in Q3 to begin our LIBERATE-US trial for SUI.

Hi, good afternoon and thank you. Congratulations on completing enrollment in VIVEVE II.

Scott, I was hoping to just follow up on your prepared comments just on the market dynamics, post the FDA letter last year, anything anecdotal you can share just in terms of, I know it's modest improvement in the market conditions and customer, physician-customer reception, to vaginal rejuvenation procedures, but if you could help us understand the dynamics that are in play and I have a couple of follow ups too.

Sure, if you recall our initial reaction in prepared remarks and commentary around the FDA letters, again, I mean, we have long believed and continue to believe that it has leveled the playing field for us commercially and will do so long term. It did create, as I've mentioned before, some headwinds in the back half of last year, particularly in the women's intimate health specialties of GYN, uro GYN and urology, and the momentum we had coming out of Q2 last year within these specialties, I've mentioned was stalled, as we went into the latter part of Q3 and early Q4.

We have embarked on a whole host of market development activities, aimed at broadening our awareness of our safety profile and clinical data of our treatments, both for sexual functioning and SUI in those specialties, and we are starting to once again gain some great traction within those three, across those three specialties.

And just in terms of the competitive dynamics in the US market, I mean, it seemed as if some competitors have dropped their product lines. I think there's one competitive platform that’s divested from [indiscernible], have stopped marketing as aggressively post the FDA letter, but how does that impact what you're seeing in the field when you're going up head-to-head in customer accounts, do you feel like there are competitors around the coop, anything you can share on that front?

Again, we think the letter has leveled the playing field with respect to marketing tactics. We have seen several competitors drop out of the marketplace, but remember that started from a basis of probably 12 to 18 globally.

So we still see a very crowded market with aggressive tactics and we have to continue to combat that commercially, both in the US and globally. The important thing is, we're on the precipice of readouts of two registration trials in the next 12 months, which we believe will change the commercial dynamics considerably, particularly because no one has been able to market broadly or directly to physicians or consumers that these procedures exist and if we're successful through our clinical trials to obtain the label, we will be the first company to be able to do that.

Understood. And then just in terms of, in front of those readouts for VIVEVE II and then LIBERATE-US down the road, you will have a readout of LIBERATE-International later this year, you have the 12 month pilot study data, how can you get that dataset out to US customers, clearly internationally, be a different story, can your salesforce still in your -- be not direct marketing of the SUI indication, but use those 12-month results from the pilot study in the international LIBERATE data to potentially see some uplift in SUI demand or GENEVEVE demand for the SUI indication in front of some of those data reduction in 2020 and beyond?

The continued production of robust clinical data in all of our indications is paying dividends, both in raising awareness and physician specialties as well as with patient through physicians on marketing through their practice. We have already presented the 12-month results at medical meetings and poster presentations.

We are looking to publish those results. We will do the same thing with the LIBERATE-International data and that will allow our sales organization to share that peer-reviewed and published clinical data with our potential customers globally and that is a fairly consistent marketing practice with respect to how we've done it in the past.

This is Matt. I'm on for Jayson Bedford this afternoon.

So my question is around the mix of the customer base. Can you speak to how that mix has maybe changed over the past few quarters, more aesthetic focus versus OBGYNs and then how does this mix look O-US versus US?

Yeah, it's a multi-part question there. So, it really varies by geography.

And so I think it's fair to say that in the United States historically, the mix has heavily been weighted towards aesthetic practitioners, but we see that changing over time and growing to include the GYN, uro GYN, and urology specialties. In certain areas like Asia, GYN has gotten a lot of traction and is actually sort of the reverse of what's happening in the United States.

So it's a mix and it really depends on the geography, but in the United States, we see a changing over time.

Okay. And then a follow up, in relation to that same kind of dynamic between US, OUS, how does utilization differ and how have those trends been going and then maybe any color of how utilization is trending into the first quarter would be great, too.

Thanks.

Yeah, utilization has been trending very well. It did hit somewhat of a stall with headwinds created by the FDA.

So, as I've mentioned in the back half of last year, we see that improving. Generally speaking, it's pretty consistent between the United States across the installed base and in Asia.

Those are the two big utilization regions. Europe is much slower and the Middle East is slower.

So those are the two dominant regions from a utilization perspective. And unfortunately, I can't comment, sorry, on your, sort of projecting what's happening in Q1.

Just two for me, can you talk to the next data point with LIBERATE-International and will that be the readout in July or August or I guess what the question really is, is would there be a three month interim analysis that you will see and potentially share with investors?

Yeah. We most certainly will top line the final six month data from LIBERATE-International in July, and we've yet to make a determination about whether we would un-blind the data to take an interim look.

And so I'll have to defer that. But we will certainly be reporting the top line final six month data at the end of July.

And then, maybe just another stab at the overall guidance, I think you mentioned the 20 million in revenue for 2019. You're reiterating that guidance.

A different approach, is there anything on the cadence that we should be aware of. I mean, here we are in the middle of March, I think, historically for all of aesthetics, 1Q is seasonally the weakest quarter, so at a high level, Scott, if anything you want to call out from maybe a percent of revenue as we think about the four quarters to 2019?

Sure. You're exactly right.

And that's what we've seen historically, even as a women's intimate health company. We've seen Q1 be seasonally and historically sort of the lowest contribution to full year revenue.

I don't want to comment publicly on quarterly revenue guidance, Jon. We’re continuing to -- we're so early in the market development in what we believe our commercial opportunity is, and it's such small numbers that giving guidance for us on a quarterly basis, we've just chose not to do it.

So, again, we think, even under the operational realignment towards increased efficiency from an operational and sales perspective, we're going to be able to continue to grow the share, manage our cash better and push towards the readouts of all three of our registration trials.

This is Alex on for Difei. I had a question on SUI, related little bit to competitive dynamics.

I was wondering if you're aware of any new emerging technologies or modalities that are in development today for SUI.

Sure, Alex. Happy to take the question.

Look SUI is a very well understood, documented from an incident and prevalence perspective globally indication. There are a whole lot of things being developed in stress urinary incontinence, but I would characterize most of those as being in the physiotherapy category, so things like a less electrical muscle stem and other modalities to strengthen the pelvic floor muscles, so we view the world of SUI as really bifurcated between physiotherapy on one end of the spectrum and surgical options, with bulking agents, slings, et cetera on the other end with a vacuum of therapeutic options that exists for women with mild to moderate SUI that can be treated effectively on a non invasive basis.

So while there are many things we’re aware of in the physiotherapy category, we are not aware of anything being developed at least as late as we are from a development perspective in that mild to moderate category.

Okay, great. Thank you for the color.

And then I was just wondering if you could comment on inventory levels, seems like it's been -- it's gone up a bit in ‘18 versus ’17, any color there would be helpful. Thank you.

Sure, inventory levels rose as the balance of December 31, 2018, over the previous year, predominantly because of the preparation of the sale of the 2.0 system. So we were building inventory in the back part of last year in preparation for our anticipated growth and the full launch of our 2.0 system in the United States and various international markets, as we achieved clearance in those countries and areas throughout the year.

So it's really related to a broader launch of our 2.0 system.

Just on the SG&A cuts that you've made, Scott. Should we be looking at somewhere around 5 million to 6 million a quarter starting in the second quarter?

Or is that about right or a little bit high, a little bit low?

On total SG&A, Anthony, is that what you're asking for on a quarterly basis in ‘19?

Well, yeah, maybe on an annual basis, is somewhere in the $25 million range makes sense? Based on the cuts, how should we look at the cuts in terms of either dollar amount or percentage of revenue?

Yeah, I think 25 million over the year is in the ballpark from an SG&A perspective in terms of what we're anticipating for 2019.

Okay. And then the full enrollment for LIBERATE-US, when is that expected?

So, given what we saw in the VIVEVE II, so recall that in December of last year, FDA gave us full clearance, we were stopped at 100 patients, we were trying to enroll 250 for VIVEVE II. FDA gave us clearance for full enrolment in December.

In January, we reopened enrollment at 19 sites. And between then and earlier last week, we fully enrolled the trial of 150 patients.

So our expectation with respect to LIBERATE-US for SUI is equally as -- we think enrollment will be equally as rapid, if not more rapid. And it's our intention to get the IDE approved in Q3 and start the study.

So we could very well be looking at full enrolment by the end of the year, early into next year.

Okay. And then on gross margin, you mentioned you’re now with a large contract manufacturing organization for the VIVEVE II, what do you think in terms of basis points or percentage points, just that movement, the move from manufacturing yourself to going to a larger CMO to outsource, what did that add to the gross margin profile?

Well, I'll say this, the 2.0 system and that's also the 2.0 treatment tips. The cost on that system was reduced by about 30% to 35%.

Could you talk about the, this is a follow up to the last question? So with the 35% reduction going to the 2.0 system in consumables, ramifications on margins and how that should play out throughout ‘19 and ’20?

Yeah, we've stayed away from quantifying the gross margin improvement and we're anticipating the ’19, because it's so -- continues to be so heavily dependent on the unit value mix in any particular quarter and then ultimately at year end, between our 1.0 system, our 2.0 system as well as the mix of consoles and tips. So, we're just uncomfortable giving guidance on gross margin improvement other than to say, with the 2.0, it's a 30% to 35% reduction in COGS.

And we're going to be able to sell it in the United States for a full year this year as well as, we're anticipating several large markets getting clearance for the 2.0 system this year. So that will expand the opportunity for the sale of that system.

And so it's really difficult for us, given the many moving parts to quantify and we're just uncomfortable, giving guidance on gross margins right now.

And secondly, could you talk about the commercial force now and the commercial force at AMP, which --?

Sure. So with the restructuring, We, as I mentioned in the prepared remarks, we now have a sale -- direct sales team, employee direct sales team of 14 individuals.

That footprint is supplemented by relationships with AMP, but also another distribution partner. AMP now has somewhere between 20 and 24 reps on the ground and trained in the United States on VIVEVE and we continue to look for ways to expand our footprint in an operationally efficient way, for instance, through 1099 reps in various secondary markets, et cetera.

But that's a look at the organization as it is today. And then consistent with that, we're obviously continuing to go through a network of distribution partners, north of 23 of them internationally, and we're also looking at ways to expand that network as well, particularly as SUI evolves and GYN and urology become more of a call point internationally for us.

Oftentimes, some of our existing distribution partners in certain markets are heavily aesthetic focused. And it gives us an opportunity to expand that to a different partner, a supplemental partner who has a specific calling effort in GYN or uro GYN or urology.

So Scott, forgive me. I'm drawing a blank here and hopefully you can fill in the blanks for me, for LIBERATE in general, and for now international, the one hour pan test, I presume, this is going to follow the standard ICS protocol, right.

It is. Yes.

And would you all be, again please forgive me, I'm drawing a blank here, would you all be measuring over 24 hours old so or is it just one hour standing exertion, the usual protocol and be done with or are we going to see data on the 24 hour numbers also?

Yeah. So LIBERATE-International has one key primary endpoint, which is the main change from baseline in to one hour pad weight versus the sham controlled group.

Importantly, to mention, both of our LIBERATE trial protocols, we believe are incredibly overpowered. LIBERATE-International’s power to detect at 90% power, a 20% difference between the two groups.

To your question, the protocols, both of them, LIBERATE-International and US include multiple secondary and infer, in the case of LIBERATE-International, some exploratory endpoints. So within LIBERATE-International, we're going to see obviously the primary efficacy endpoint of when our pad weight and then we're also going to see 24 hour pad weight, three day voiding diaries and the various urological patient reported outcomes that we've used previously in the pilot and feasibility study, such as UDI-6, IIQ-7 and ICIQ.

So I presume, pre and post, we would see the stratification of mild and condense, let's say, if I use the standardized guidelines, less than 10 ml and moderate would be, I believe, it's 11 to 50 ml. So we would see pre and post, how that chart has shifted, correct?

Yes, we will and an important point to make there with respect to our thoughtfulness of the design of these protocols and in making data driven decisions through pilot and feasibility studies leading to them is one thing we did see, well, small numbers in our feasibility study and reported in December and talk to -- and our KOLs talk to this at our event in December, is that moderate patients experienced a greater reduction in pad weight than the mild patients. So what we did to prevent getting a overly heavily weighted cohort within our patient population of mild, as we restricted the inclusion criteria to a minimum of five grams of leakage.

And I can tell you that as a result, the baseline characteristics of our fully enrolled patient population had a mean one hour pad weight baseline, urine volume test of almost 18 ml. So a much more moderate patient population than in our pilot or feasibility study and we believe that's important to the success of the outcome of the trial.

Fair enough. And finally, Scott, the rest of my questions here, the [indiscernible] letter last year, obviously, it has done the damage it had, right?

But there are a number of systems out there non-Viveve related systems, can you give us any color on what is happening with those systems, are they -- because a lot of them from what we can see in the field have already been purchased or the clinicians basically saying screw it, I don't want to take a risk, a liability risk and it is what it is, is it still ongoing. Just give us a descriptive analysis of the lay of the land for existing units or even though the competitors, whether it's Hologic or whomever get out of the market, any color would be great?

I can only speak to our own installed base. And based on my answer to the previous question, we continue to see good utilization rates.

It's a key focus for us in 2019 to work to drive increasing utilization rates and we are implementing a number of programs to do that. Generally speaking, I don't believe the letters have caused physicians who had purchased our system based on robust clinical evidence and a safety profile and multiple registration trials and process with FDA, haven't seen them roll it into the closet and not want to use it because of the safety statement or marketing letters that occurred last summer.

We continue to see utilization and again are implementing programs to drive that utilization forward as we move through 2019.

Good afternoon. A couple of questions for me, first, I guess just to tag onto that, you mentioned a few different programs to drive utilization, maybe a little bit of color and are those, like volume discounts, are those better information to the doctors.

How do you anticipate or how do you plan to drive utilization?

Yeah, Matt, there are a variety of programs we're working on. Driving utilization is predominantly a function of training many physicians on how to market to their physician base and I think we've become incredibly more proficient at that over time and we’re rolling out some of those programs this year, which include group training sessions, our key customer visit program in Denver and just touch points, more frequent touch points with the physician about how things are going, well, how can we help you and we're about to implement a customer care program that's internal that will give us more touch points with the physician and help us drive that utilization in the United States.

Okay, good. And then I think it was on your Q3 call, you’ve touched on it a little bit here, but the sales cycles length and obviously after the FDA and I think you've commented that you’ve seen some improvement as the year progressed and even already this year, where are those, I mean, I guess if we use maybe early last year, are we halfway back on the sales cycle, are we two thirds back, any granularity there will be helpful as well?

Yeah, it's really difficult yet to quantify that in Q1, because it tends to be obviously, as mentioned before, very seasonally slow quarter with respect to new installs. But, I think it's safe to say that it's 50% improved from where it was in late Q3 post the letters.

Okay, well, that's progress. And then maybe one last one for me, given some of the strategic changes that you implemented in the, earlier on in the quarter, there's obviously that creates some disruption.

But how do you think the team has gelled and bonded together and have they kind of gotten back to focusing on the business or do you think that maybe takes the full quarter and then we see them hit the ground running in Q2.

Yes. There's always, when you go through an organizational realignment at any point in time in the year, there's always a little disruption.

We've got an incredibly talented sales team, the core of that sales team and our leadership are tremendously dedicated to seeing this company succeed commercially and understands full well the opportunity ahead of us, which lies with the label expansion and regulatory clearances. So we have a dedicated team of 14, they are highly efficient and productive and high producers.

As you know about, it's always 20% of your -- or 25% of your sales team that generates 75% to 80% of your revenue. And fortunately for us, we were able to retain very high quality group.

So there's always a little disruption. Q1 is always a softer quarter seasonally, coming off of Q4 for the year in terms of its relative contribution to full year, but the team is out there hitting the ground running and we're continuing to gain momentum.